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                                 

                        BlackRock Funds^SM

(Exact name of registrant as specified in charter)

100 Bellevue Parkway

Wilmington, DE 19809

(Address of principal executive offices) (Zip code)

Brian Kindelan, Esq.

BlackRock Advisors, LLC

100 Bellevue Parkway

                                                                   Wilmington, Delaware 19809                                                                   

(Name and address of agent for service)

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

Date of fiscal year end:             September 30, 2007            

Date of reporting period:             March 31, 2007                

Item 1. Reports to Stockholders.

The Registrant’s semi-annual report to shareholders is as follows:

ALTERNATIVES    BLACKROCK SOLUTIONS    EQUITIES    FIXED INCOME    LIQUIDITY    REAL ESTATE

BlackRock Funds

Equity Portfolios

SEMI-ANNUAL REPORT  |  MARCH 31, 2007 (UNAUDITED)

Investment Trust

Capital Appreciation

Mid-Cap Value Equity

Mid-Cap Growth Equity

Aurora

Small/Mid-Cap Growth

Small Cap Value Equity

Small Cap Core Equity

Small Cap Growth Equity

Global Science & Technology Opportunities

Global Resources

All-Cap Global Resources

Health Sciences Opportunities

U.S. Opportunities

Global Opportunities

International Opportunities

Asset Allocation

NOT FDIC INSURED

MAY LOSE VALUE

NO BANK GUARANTEE

BLACKROCK FUNDS

TABLE OF CONTENTS

Shareholder Letter	1
Portfolio Summaries
Investment Trust	2-3
Capital Appreciation (formerly Legacy)	4-5
Mid-Cap Value Equity	6-7
Mid-Cap Growth Equity	8-9
Aurora	10-11
Small/Mid-Cap Growth	12-13
Small Cap Value Equity	14-15
Small Cap Core Equity	16-17
Small Cap Growth Equity	18-19
Global Science & Technology Opportunities	20-21
Global Resources	22-23
All-Cap Global Resources	24-25
Health Sciences Opportunities	26-27
U.S. Opportunities	28-29
Global Opportunities	30-31
International Opportunities	32-33
Asset Allocation	34-35
Note on Performance Information	36
Schedules of Investments	37-101
Key To Investment Abbreviations	102
Portfolio Financial Statements
Statements of Assets and Liabilities	104-109
Statements of Operations	110-112
Statements of Changes in Net Assets	114-120
Financial Highlights	122-163
Notes to Financial Statements	164-202

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 Web sites.

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

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

BLACKROCK FUNDS

March 31, 2007

Dear Shareholder:

For most financial markets, 2007 opened just as 2006 ended — on a positive trajectory. At the end of February and into March, however, global equity markets registered their first significant decline since last summer. The market jitters were triggered by a significant setback in the Chinese market and were exacerbated by several concerns, notably a weakening economy, some disappointing corporate earnings announcements, escalating geopolitical concerns in the Middle East and increasing delinquencies in the subprime mortgage market. Despite the recent spate of volatility, underlying stock market fundamentals appear quite sound, supported by a generally favorable global economic backdrop, tame inflation, relatively low interest rates and attractive valuations.

Not unlike the equity market, the bond market also has seen volatility recently as observers have attempted to interpret mixed economic signals. A bond market rally late last year reversed itself early in 2007 as economic data strengthened. Prices improved (and yields fell) again in February as equities struggled, but retrenched slightly in March. Notably, the Treasury curve remained inverted for much of 2006 and into 2007. The 30-year Treasury yield stood at 4.84% at the end of March 2007, while the one-month Treasury offered the highest yield on the curve at 5.07%.

For its part, the Federal Reserve Board (Fed) left the target short-term interest rate on hold at 5.25% since first pausing in its rate-hiking campaign on August 8, 2006. Although the central bankers continue to express concern about potential inflationary pressures, they also have made reference to signs of economic weakness in their public statements. Most observers expect the Fed to keep interest rates on hold for now.

Notwithstanding some recent volatility, most major market indexes managed to post positive returns for the semi-annual reporting period ended March 31, 2007:

Total returns as of March 31, 2007

	SIX-MONTH PERIOD
U.S. equities (Standard & Poor’s 500 Index)	+7.38	%
Small cap U.S. equities (Russell 2000 Index)	+11.02	%
International equities (MSCI Europe, Australasia, Far East Index).	+14.85	%
Fixed income (Lehman Brothers Aggregate Bond Index)	+2.76	%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index)	+1.93	%
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index)	+7.02	%

If recent market movements are any guide, 2007 could be a year of enhanced volatility. As you navigate the uncertainties of the financial markets, we encourage you to review your investment goals with your financial professional and to make portfolio changes, as needed. For more reflection on the markets, please ask your financial professional for the latest issue of “What’s Ahead in 2007: First Quarter Update,” or view it online at www.blackrock.com/funds.

We thank you for trusting BlackRock with your investment assets, and we look forward to continuing to serve you in the months and years ahead.

Sincerely,

Frank Porcelli

Managing Director and Head of BlackRock Private Client Group

THIS PAGE NOT PART OF YOUR FUND REPORT

1

INVESTMENT TRUST PORTFOLIO

Total Net Assets (3/31/07):  $1.2 billion

Performance Benchmark:

S&P 500^® Index

Investment Approach:

Seeks long-term capital appreciation. The Trust normally invests at least 80% of its net assets in equity securities. The portfolio management team uses quantitative techniques to analyze a universe of approximately 800 companies, including those in the S&P 500^® Index and about 300 other large- and medium-capitalization companies. Using a multifactor model, the management team identifies stocks with rising earnings expectations that sell at low relative valuations when compared with their sector peers. Based on this information, and using sophisticated risk-measurement tools, the portfolio management team selects stocks, together with their appropriate weightings, that it believes will maximize the Trust’s return per unit of risk. The Trust seeks to maintain market capitalization, sector allocations and style characteristics similar to those of the S&P 500^® Index.

Recent Portfolio Management Activity:

• All share classes of the Trust outperformed the benchmark index for the semiannual period.

• The U.S. equity market, as measured by the S&P 500^® Index, gained 7.38% for the semiannual period, with the strongest monthly result occurring in October. Benign economic data, more stable oil prices and solid corporate earnings reports during the fourth quarter of 2006 produced steady positive results into February 2007. However, during the last two days of February and into early March, the market experienced a sell-off that erased much of the gains of the first two months of the year. The sell-off followed the emergence of concerns over China’s stock market volatility and subprime mortgage market stability, as well as some negative comments on the U.S. economy from former Federal Reserve (Fed) Chairman Alan Greenspan. The markets managed to recover a portion of the earlier losses during the second half of March after some positive interpretations of the just-released Fed policy statement.

• From a sector perspective, the materials (+21.42%), utilities (+19.29%) and telecommunications (+16.61%) sectors produced the strongest absolute performance over the period. Healthcare (+2.46%), financials (+4.0%) and information technology (+5.12%) were the weakest sectors, although each was in positive territory for the semiannual period.

• Small-cap stocks performed better than large-cap stocks during the period, with the Russell 2000 Index (+11.02%) outperforming the S&P 500^® Index (+7.38%) by 364 basis points. Value stocks also outperformed growth stocks for the period, with the Russell 1000^® Value Index (+9.34%) outpacing the Russell 1000^® Growth Index (+7.19%) by 215 basis points. Mid-cap stocks outperformed all other U.S. asset classes over the period, advancing 13.19% as measured by the S&P 400 Index.

• Across our large-cap core universe, dividend-paying stocks modestly underperformed non-dividend-paying stocks during the period. High-quality stocks (those ranked B+ and above by Standard & Poor’s) also significantly underperformed low-quality stocks (ranked B and below) during the same period.

• Across our large-cap core universe, the core quantitative model was solidly predictive, with each of our factor groups (Earnings Expectations, Valuation, Market signals and Management signals) producing positive predictive power. From an individual factor perspective, Price Momentum, Change in Accounting Accruals, Book to Price, Return on Equity, Forecast Earnings to Price and Earnings Revisions Down were the strongest-performing factors. Earnings Revisions Up and Forecast Estimate Dispersion were the only negative-performing factors during the period.

• From a relative return perspective, the Trust’s holdings in consumer cyclicals, transportation, energy and basic materials were the strongest performers. Specifically, the Trust’s overweight positions in highly ranked Goodyear Tire (+115%), Temple Inland (+51%), Paccar (+33%), Marathon Oil (+30%), Continental Airlines (+29%), Freeport-McMoran Copper and Gold (+29%), Union Pacific (+16%) and ConocoPhillips (+16%) helped relative performance. The healthcare and information technology sectors produced the weakest relative performance for the Trust, especially our overweight positions in highly ranked Motorola (-29%) and Pfizer (-9%) and our avoidance of lower ranked Qualcomm (+18%), Abbott Labs (+16%) and Bristol-Meyers Squibb (+14%).

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INVESTMENT TRUST PORTFOLIO

AND THE S&P 500^® INDEX FOR THE PAST TEN YEARS.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
Institutional Class	8.20	%	11.62	%	6.29	%	5.35	%
Service Class	8.04	%	11.37	%	5.98	%	5.04	%
Investor A Class (Load Adjusted)	2.39	%	5.43	%	4.70	%	4.32	%
Investor A Class (NAV)	8.03	%	11.26	%	5.82	%	4.88	%
Investor B Class (Load Adjusted)	3.08	%	5.86	%	4.73	%	4.26	%
Investor B Class (NAV)	7.58	%	10.36	%	5.06	%	4.26	%
Investor C Class (Load Adjusted)	6.59	%	9.36	%	5.05	%	4.10	%
Investor C Class (NAV)	7.59	%	10.36	%	5.05	%	4.10	%
S&P 500® Index	7.38	%	11.83	%	6.27	%	8.20	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 9/13 /93; SERVICE SHARES, 9/15/93; INVESTOR A SHARES, 10/13/93; INVESTOR B SHARES, 3/27/96; AND INVESTOR C SHARES, 9/27/96. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

2

INVESTMENT TRUST PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
General Electric Co.	3.1	%
Bank of America Corp.	2.8
AT&T, Inc.	2.5
Exxon Mobil Corp.	2.5
JPMorgan Chase & Co.	2.3
Citigroup, Inc.	2.2
Pfizer, Inc.	2.2
International Business Machines Corp.	2.1
Cisco Systems, Inc.	2.0
ConocoPhillips	1.8
Total	23.5	%

Top Ten Industries (% of long-term investments)
Banks	9.9	%
Oil & Gas	9.5
Manufacturing	8.1
Insurance	6.2
Computer & Office Equipment	5.3
Finance	5.0
Pharmaceuticals	4.9
Computer Software & Services	4.8
Retail Merchandising	4.8
Energy & Utilities	4.0
Total	62.5	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,082.00		1,080.40		1,080.30		1,075.80		1,075.90		1,021.11		1,019.95		1,019.14		1,015.36		1,015.41
Expenses Incurred During Period (10/01/06 - 3/31/07)		4.00		5.19		6.02		9.88		9.83		3.89		5.05		5.86		9.64		9.59

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.77%, 1.00%, 1.16%, 1.91% and 1.90% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

3

CAPITAL APPRECIATION

Total Net Assets (3/31/07):  $240.6 million

Performance Benchmark:

Russell 1000^® Growth Index

Investment Approach:

Seeks long-term growth of capital by investing at least 80% of total assets in common and preferred stock, and securities that are convertible into common and preferred stock, of mid- and large-capitalization companies. The Portfolio seeks to invest in fundamentally sound companies with strong management, superior earnings growth prospects and attractive relative valuations. The disciplined investment process uses bottom-up stock selection as the primary driver of returns, with an emphasis on large companies that exhibit stable growth and accelerated earnings.

Recent Portfolio Management Activity:

• Effective January 31, 2007, the name of the Portfolio was changed from BlackRock Legacy Portfolio to BlackRock Capital Appreciation Portfolio.

• All share classes of the Portfolio underperformed the benchmark for the semiannual period.

• During the six-month period ended March 31, 2007, the Russell 1000^® Growth Index posted a gain of 7.19%. At the sector level, materials and energy provided performance leadership, while healthcare and consumer staples were the weakest performers within the Index. The Portfolio’s strength in information technology (IT), consumer discretionary and telecommunication services could not offset relative weakness in consumer staples and healthcare. Stock selection in IT was the most prominent positive performance factor for the six-month period. Selection gains were strongest among software stocks, especially Salesforce.com, and computers & peripherals names such as Hewlett-Packard. Within consumer discretionary, selection decisions in apparel and luxury goods, as well as lodging and leisure, drove strength. Likewise, solid stock selection in telecommunication services contributed to return comparisons, with both diversified and wireless telecommunication services positions fueling gains. Positions in Hilton Hotels and Polo Ralph Lauren were the best performers in consumer discretionary, and NII Holdings made a significant contribution in telecommunication services.

• Stock selection in both healthcare and consumer staples, which were the two worst-performing sectors in the Russell 1000^® Growth Index, created a meaningful drag on return comparisons during the period. Investor sentiment shifted away from many of our healthcare holdings during the first half of the period. Select biotechnology and pharmaceutical positions hurt returns over the period, with Genzyme, AstraZeneca and Allergan being the most notable detractors. In consumer staples, sector rotation hurt several of our holdings as a dramatic shift away from defensive areas took place during the period. At the company level, overweights in drugstore operator CVS Corp. and household products maker Procter & Gamble hurt returns.

• Our active sector exposures shifted throughout the period as a result of stock-specific buy/sell decisions and the performance of underlying holdings. At March 31, 2007, we remained broadly diversified across sectors and industries. The Portfolio’s most meaningful overweight was in the telecommunication services sector, while our most significant underweight was in the consumer discretionary sector.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE CAPITAL APPRECIATION PORTFOLIO AND THE RUSSELL 1000^® GROWTH INDEX FROM INCEPTION.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		5 Year		From Inception
Institutional Class	5.97	%	3.61	%	4.20	%	5.08	%
Service Class	5.67	%	3.10	%	3.88	%	4.78	%
Investor A Class (Load Adjusted)	0.13	%	(2.30	)%	2.75	%	4.09	%
Investor A Class (NAV)	5.67	%	3.10	%	3.87	%	4.70	%
Investor B Class (Load Adjusted)	0.74	%	(2.21	)%	2.74	%	3.96	%
Investor B Class (NAV)	5.24	%	2.29	%	3.10	%	3.96	%
Investor C Class (Load Adjusted)	4.31	%	1.36	%	3.13	%	3.94	%
Investor C Class (NAV)	5.31	%	2.36	%	3.13	%	3.94	%
Russell 1000® Growth Index	7.19	%	7.06	%	3.48	%	3.03	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 12/31/97; INVESTOR A SHARES, 12/31/97; INVESTOR C SHARES, 12/31/97; INVESTOR B SHARES, 1/1/99; AND SERVICE SHARES, 1/28/05. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

4

CAPITAL APPRECIATION

FUND PROFILE
Top Ten Holdings (% of long-term investments)
Google, Inc. — Class A	3.4	%
General Electric Co.	3.4
The Procter & Gamble Co.	3.1
Cisco Systems, Inc.	3.1
Apple Computer, Inc.	3.1
Honeywell International, Inc.	2.9
Wal-Mart Stores, Inc.	2.9
PepsiCo, Inc.	2.8
Monsanto Co.	2.7
AT&T, Inc.	2.6
Total	30.0	%

Top Ten Industries (% of long-term investments)
Manufacturing	14.3	%
Computer Software & Services	11.3
Telecommunications	9.5
Pharmaceuticals	9.0
Computer & Office Equipment	7.3
Retail Merchandising	6.7
Finance	5.1
Medical & Medical Services	3.7
Aerospace	3.2
Medical Instruments & Supplies	3.2
Total	73.3	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,059.70		1,056.70		1,056.70		1,052.40		1,053.10		1,020.91		1,018.39		1,018.39		1,014.45		1,014.95
Expenses Incurred During Period (10/01/06 - 3/31/07)		4.16		6.72		6.72		10.69		10.19		4.09		6.61		6.61		10.55		10.05

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.81%, 1.31%, 1.31%, 2.09% and 1.99% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

5

MID-CAP VALUE EQUITY PORTFOLIO

Total Net Assets (3/31/07):  $1.1 billion

Performance Benchmark:

Russell Midcap^® Value Index

Investment Approach:

Seeks long-term capital appreciation by investing at least 80% of its net assets in equity securities issued by U.S. mid-capitalization value companies. The Portfolio defines these companies as those with market capitalizations comparable in size to the companies in the Russell Midcap^® Value Index. The Portfolio manager seeks mid-capitalization stocks which he believes are worth more than is indicated by current market price. The Portfolio manager uses fundamental analysis to examine each company for financial strength before deciding to purchase the stock.

Recent Portfolio Management Activity:

• All share classes of the Portfolio outperformed the benchmark for the semiannual period.

• Despite increased volatility late in the period, the Russell Midcap Value Index posted a solid total return over the six months ended March 31, 2007. All major sectors of the Index ended the period in positive territory, with utilities, materials and energy producing the most significant gains. The Portfolio’s outperformance of the benchmark for the semiannual period is attributed to strength in the utilities, consumer discretionary and materials sectors, which outweighed relative weakness in financials and healthcare.

• Generally easing energy prices and the announced acquisition of TXU by private equity firm Kohlberg Kravis and Roberts were strong positive catalysts for utilities stocks during the period. Within the Portfolio, favorable stock selection, particularly among gas and multi-utilities, powered relative strength in the sector. Performance also benefited from solid stock selection in the consumer discretionary sector, particularly among auto components producers and apparel manufacturers. Key individual contributors included Cooper Tire & Rubber Co. and Warnaco Group Inc. Likewise, stocks of chemical manufacturers and containers & packaging producers held in the Portfolio generated solid gains during the period, contributing to outperformance in the materials sector. Notable performers included industrial chemical producer Celanese Corp. and Owens-Illinois Inc., a manufacturer of glass containers and plastic packaging products.

• Although the financials sector posted gains greater than 8% during the period, it was the weakest major sector in the benchmark Russell Midcap^® Value Index. Accordingly, the Portfolio’s underweight exposure to the sector added value. However, this advantage was overshadowed by disappointing stock selection, particularly among insurance names. Specifically, Conseco Inc., a provider of life insurance and supplemental medical insurance, weighed on sector performance as management continues to implement its turnaround strategy and improve the firm’s challenging long-term care business. In healthcare, stock selection proved to be a modest detractor from relative sector comparisons. The Portfolio experienced the most pronounced weakness among healthcare equipment and supply manufacturers.

• Looking ahead, we expect increased equity market volatility as the positive catalysts of ample liquidity, ongoing strength in merger-and-acquisition activity, aggressive stock buybacks and a possible easing in monetary policy fight the headwinds of slowing economic growth, further deterioration in the housing market and contracting corporate profit margins. Accordingly, we continue to focus on maintaining portfolio diversification at both the sector and security level. At period-end, the most notable sector exposures relative to the benchmark included modest overweights in healthcare (particularly among equipment and supply manufacturers), energy and information technology. Notable underweights at period-end were in materials, utilities and financials, primarily driven by an underweight exposure to real estate investment trusts (REITs).

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE MID-CAP VALUE EQUITY PORTFOLIO AND THE RUSSELL MIDCAP^® VALUE INDEX FOR THE PAST TEN YEARS.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
Institutional Class	15.44	%	18.21	%	11.28	%	13.67	%
Service Class	15.31	%	17.84	%	10.94	%	13.35	%
Investor A Class (Load Adjusted)	9.24	%	11.77	%	9.76	%	12.74	%
Investor A Class (NAV)	15.28	%	17.93	%	10.94	%	13.35	%
Investor B Class (Load Adjusted)	10.39	%	12.45	%	9.88	%	12.54	%
Investor B Class (NAV)	14.89	%	16.95	%	10.15	%	12.54	%
Investor C Class (Load Adjusted)	13.95	%	16.02	%	10.17	%	12.55	%
Investor C Class (NAV)	14.95	%	17.02	%	10.17	%	12.55	%
Russell Midcap® Value Index	13.77	%	17.13	%	15.22	%	14.00	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INVESTOR A SHARES, 8/25/86; INSTITUTIONAL SHARES, 6/1/93; INVESTOR C SHARES, 6/1/93; INVESTOR B SHARES, 1/1/99; AND SERVICE SHARES, 1/28/05; . SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

6

MID-CAP VALUE EQUITY PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
Mellon Financial Corp.	2.0	%
Public Service Enterprise Group, Inc.	1.9
PPL Corp.	1.9
Entergy Corp.	1.9
Wintrust Financial Corp.	1.9
Cullen/Frost Bankers, Inc.	1.9
Zions Bancorporation	1.8
The Brink’s Co.	1.7
Edison International	1.7
Equitable Resources, Inc.	1.7
Total	18.4	%

Top Ten Industries (% of long-term investments)
Energy & Utilities	13.6	%
Banks	9.4
Retail Merchandising	7.8
Real Estate	6.5
Finance	6.3
Oil & Gas	6.2
Business Service	5.8
Insurance	4.9
Food & Agriculture	3.5
Electronics	3.4
Total	67.4	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,154.40		1,153.10		1,152.80		1,148.90		1,149.50		1,020.05		1,018.65		1,018.69		1,014.90		1,014.90
Expenses Incurred During Period (10/01/06 - 3/31/07)		5.26		6.75		6.71		10.72		10.72		4.95		6.35		6.31		10.10		10.10

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.98%, 1.25%, 1.25%, 2.00% and 2.00% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

7

MID-CAP GROWTH EQUITY PORTFOLIO

Total Net Assets (3/31/07):  $392.7 million

Performance Benchmark:

Russell Midcap^® Growth Index

Investment Approach:

Seeks long-term capital appreciation by investing at least 80% of its net assets in equity securities issued by U.S. mid-capitalization growth companies which the Portfolio management team believes have above-average earnings growth potential. The Portfolio generally defines these companies as those with market capitalizations comparable in size to the companies listed in the Russell Midcap^® Growth Index. The Portfolio management team focuses on U.S. mid-capitalization emerging-growth companies. The management team would expect these companies to have products, technologies, management, markets and opportunities which will facilitate earnings growth over time that is well above the growth rate of the overall economy and the rate of inflation. The management team employs a bottom-up investment style, whereby security selection is based upon fundamental analysis of earnings, cash flows, competitive position and management’s abilities.

Recent Portfolio Management Activity:

• All share classes of the Portfolio underperformed the benchmark return during the semiannual period.

• A very strong finish to 2006 — combined with a volatile, but ultimately positive, first quarter of 2007 — resulted in double-digit performance for the mid cap growth market during the six-month reporting period. Heightened merger-and-acquisition (M&A) activity continued to boost share prices of small- and mid-cap stocks, as larger companies looked to acquisitions to fuel growth and financial buyers invested increasingly large sums of money.

• Investments across all sectors contributed positively to the Portfolio’s strong absolute returns. Relative to the Russell Midcap^® Growth Index, the Portfolio’s positions in the consumer discretionary and industrials sectors added the most value. Within consumer discretionary, positive stock selection in the hotels, restaurants & leisure and specialty retail industries provided the greatest gains. Orient Express Hotels rose more than 60% as investors applied higher value to its collection of luxury properties and anticipated a potential acquisition of the company. GameStop, a retailer of videogame software and hardware and a top position in the Portfolio, has benefited from the new hardware cycle and continues to see a positive long-term outlook.

• In industrials, holdings in the aerospace & defense industry proved beneficial during the six-month period. Key contributors included Precision Castparts and Goodrich.

• Stock selection in the healthcare sector somewhat offset the successes in consumer discretionary and industrials. Portfolio holdings across several healthcare industries disappointed. Pharmacy benefit manager Caremark detracted from performance as it stumbled during the fourth quarter on negative industry news prior to an acquisition bid from CVS. We eliminated the position after receiving news of the initial bid. Both Endo Pharmaceuticals and Medicis Pharmaceuticals struggled during the period as investors became concerned about competition for some of each company’s key products.

• While stock selection in the information technology sector was mixed, our sector positioning detracted from relative returns. Information technology shares lagged the broader market, and our overexposure relative to the Russell Midcap^® Growth Index negatively impacted relative returns during the period.

• Sector weightings remained fairly stable during the six months. We modestly increased the Portfolio’s allocations to industrials and financials, while lowering exposure to information technology. As we began the second quarter of 2007, the Portfolio continued to hold its largest overweight in information technology, where we have found many diverse opportunities across the sector. The largest underweight at this time was in the consumer discretionary sector, reflecting our avoidance of household durables and automotive stocks.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE MID-CAP GROWTH EQUITY PORTFOLIO

AND THE RUSSELL MIDCAP^® GROWTH INDEX FOR THE PAST TEN YEARS.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
Institutional Class	11.03	%	3.58	%	6.59	%	11.15	%
Service Class	10.71	%	3.08	%	6.23	%	10.79	%
Investor A Class (Load Adjusted)	5.02	%	(2.38	)%	4.96	%	10.02	%
Investor A Class (NAV)	10.80	%	3.07	%	6.10	%	10.61	%
Investor B Class (Load Adjusted)	5.84	%	(2.26	)%	5.00	%	9.98	%
Investor B Class (NAV)	10.34	%	2.24	%	5.32	%	9.98	%
Investor C Class (Load Adjusted)	9.34	%	1.24	%	5.32	%	9.81	%
Investor C Class (NAV)	10.34	%	2.24	%	5.32	%	9.81	%
R Class (NAV)	10.65	%	3.04	%	6.03	%	10.56	%
Russell Midcap® Growth Index	11.18	%	6.90	%	9.45	%	9.44	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 12/27/96; SERVICE SHARES, 12/27/96; INVESTOR A SHARES, 12/27/96; INVESTOR B SHARES, 12/27/96; INVESTOR C SHARES, 12/27/96; AND R SHARES, 10/02/06. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

8

MID-CAP GROWTH EQUITY PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
Harris Corp.	2.7	%
GameStop Corp.	2.6
Thermo Electron Corp.	2.4
Amdocs Ltd.	2.3
Goodrich Corp.	2.1
Precision Castparts Corp.	1.9
Alliance Data Systems Corp.	1.8
Medco Health Solutions, Inc.	1.8
Chicago Mercantile Exchange Holdings, Inc.	1.8
Oshkosh Truck Corp.	1.8
Total	21.2	%

Top Ten Industries (% of long-term investments)
Computer Software & Services	12.4	%
Retail Merchandising	10.4
Oil & Gas	8.2
Telecommunications	7.6
Medical & Medical Services	6.6
Pharmaceuticals	4.8
Finance	4.4
Entertainment & Leisure	4.3
Business Services	4.3
Manufacturing	4.1
Total	67.1	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses												Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		R Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		R Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,110.30		1,107.10		1,108.00		1,103.40		1,103.40		1,106.50		1,019.70		1,017.28		1,017.07		1,013.29		1,013.29		1,016.92
Expenses Incurred During Period (10/01/06 - 3/31/07)		5.52		8.04		8.25		12.17		12.17		8.40		5.30		7.72		7.93		11.71		11.71		8.08

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 1.05%, 1.53%, 1.57%, 2.32%, 2.32% and 1.60% for the Institutional, Service, Investor A, Investor B, Investor C and R share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

9

AURORA PORTFOLIO

Total Net Assets (3/31/07):  $1.7 billion

Performance Benchmark:

Russell 2500^™ Value Index

Investment Approach:

Seeks high total return, consisting principally of capital appreciation, by investing at least 80% of its total assets in small- and mid-capitalization common and preferred stocks and securities convertible into common and preferred stock. The Portfolio considers issuers of small- and mid-capitalization stocks to be companies that are comparable in size to the companies in the Russell 2500^TM Value Index or a similar index. In choosing among small- and mid-capitalization stocks, the Portfolio takes a value approach, searching for those companies that appear to be trading below their true worth.

Recent Portfolio Management Activity:

• The Portfolio’s Institutional, Service, Investor A, and R shares outperformed the benchmark for the semiannual period. Investor B performance modestly trailed the benchmark while Investor C performance was in line with the benchmark.

• Despite increased volatility late in the period, the Russell 2500^TM Value Index posted a solid total return over the six months ended March 31, 2007. All major sectors of the Index ended the period in positive territory, with materials and consumer staples posting the most significant gains. During this semiannual reporting period, the Portfolio’s strong relative performance stemmed from strength in the consumer discretionary, energy and financials sectors, which outweighed relative weakness in information technology (IT) and healthcare.

• Notwithstanding a slowing economy and deteriorating housing market, consumer spending remained surprisingly robust during the period, sustained by a strong jobs market and generally easing energy prices. In this environment, the Portfolio benefited from favor-able stock selection in the consumer discretionary sector, particularly among select retailers, apparel manufacturers and lodging names. Likewise, stock selection in the volatile energy sector also drove favorable sector comparisons. Natural gas exploration and production concern Southwestern Energy Co. was among the most notable individual contributors. The financials sector was the weakest major sector in the benchmark, ending the period with only modest gains. The Portfolio’s underweight, particularly among underperforming commercial banks and thrift & mortgage finance names, drove favorable sector comparisons. Underweight exposure to real estate investment trusts (REITs), which make up more than 12% of the Russell 2500^TM Value Index, also added value during the period.

• In IT, weakness from software, IT services and semiconductor-related holdings resulted in sector underperformance. Customer management software producer Amdocs Ltd., IT and communications solutions provider CACI International Inc. and semiconductor maker Integrated Device Technology Inc. were the most notable detractors in the sector. Underperformance in healthcare was driven primarily by disappointing stock selection, particularly among healthcare providers and equipment and supply manufacturers. Cooper Cos. and DaVita Inc. were among the biggest detractors.

• Looking ahead, we expect increased equity market volatility as the positive catalysts of ample liquidity, ongoing strength in merger-and-acquisition (M&A) activity, aggressive stock buybacks and a possible easing in monetary policy fight the headwinds of slowing economic growth, further deterioration in the housing market and contracting corporate profit margins. Accordingly, the Portfolio ended the period more neutrally positioned from a sector perspective, with a continued focus on holding stocks of high-quality small- and mid-cap companies. We believe the Portfolio is well positioned to continue to benefit from heightened M&A activity as our investment process generally leads us to own attractively valued stocks of solid companies which also make for compelling private equity and leveraged buyout candidates.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE AURORA PORTFOLIO, AND THE RUSSELL 2500^TM VALUE INDEX FOR THE PAST TEN YEARS.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
Institutional Class	13.11	%	8.97	%	9.09	%	15.89	%
Service Class	12.92	%	8.51	%	8.76	%	15.58	%
Investor A Class (Load Adjusted)	7.00	%	2.81	%	7.54	%	14.88	%
Investor A Class (NAV)	12.92	%	8.51	%	8.70	%	15.50	%
Investor B Class (Load Adjusted)	9.07	%	4.43	%	7.70	%	14.67	%
Investor B Class (NAV)	12.48	%	7.69	%	7.91	%	14.67	%
Investor C Class (Load Adjusted)	11.75	%	6.96	%	7.92	%	14.66	%
Investor C Class (NAV)	12.51	%	7.69	%	7.92	%	14.66	%
R Class (NAV)	12.78	%	8.34	%	8.46	%	15.22	%
Russell 2500TM Value Index	12.51	%	12.15	%	14.33	%	13.96	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 2/13/95; INVESTOR A SHARES, 2/13/95; INVESTOR C SHARES, 2/13/95; INVESTOR B SHARES, 1/1/99; SERVICE SHARES, 1/28/05; AND R SHARES, 10/02/06. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

10

AURORA PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
BJ’s Wholesale Club, Inc.	3.0	%
The Brink’s Co.	2.7
Orient-Express Hotels Ltd. — Class A	2.5
NCR Corp.	2.3
Hain Celestial Group, Inc.	2.0
Saks, Inc.	1.9
Piper Jaffray Cos., Inc.	1.8
MDU Resources Group, Inc.	1.8
Wisconsin Energy Corp.	1.7
Affiliated Managers Group, Inc.	1.6
Total	21.3	%

Top Ten Industries (% of long-term investments)
Retail Merchandising	12.8	%
Energy & Utilities	10.8
Banks	7.7
Entertainment & Leisure	7.4
Business Services	6.4
Medical & Medical Services	5.9
Real Estate	5.7
Insurance	4.5
Oil & Gas	4.1
Computer Software & Services	3.6
Total	68.9	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses												Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		R Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		R Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,131.10		1,129.20		1,129.20		1,124.80		1,125.10		1,127.80		1,019.85		1,017.73		1,017.78		1,013.94		1,013.94		1,016.92
Expenses Incurred During Period (10/01/06 -3/31/07)		5.42		7.64		7.59		11.60		11.60		8.49		5.15		7.27		7.22		11.06		11.06		8.08

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 1.02%, 1.44%, 1.43%, 2.19%, 2.19% and 1.60% for the Institutional, Service, Investor A, Investor B, Investor C and R share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

11

SMALL/MID-CAP GROWTH PORTFOLIO

Total Net Assets (3/31/07):  $271.7 million

Performance Benchmark:

Russell 2500^™ Growth Index

Investment Approach:

Seeks to provide growth of capital by investing at least 80% of its total assets in small-capitalization and mid-capitalization companies. The Portfolio views small- and mid-capitalization companies as those that are less mature and appear to have the potential for rapid growth. The Portfolio generally defines small- and mid-capitalization companies as those that have market capitalizations similar to the market capitalizations of companies in the Russell 2500^TM Growth Index or a similar index. The management team uses research to identify potential investments, examining such features as a company’s financial condition, business prospects, competitive position and business strategy.

Recent Portfolio Management Activity:

• All share classes of the Portfolio underperformed the benchmark index for the semiannual period.

• A very strong finish to 2006 — combined with a volatile, but ultimately positive, first quarter of 2007 — resulted in double-digit performance for the small/mid-cap growth market during the six-month period ended March 31, 2007. Heightened merger-and-acquisition activity continued to boost share prices of smaller-capitalization stocks, as larger companies looked to acquisitions to fuel growth and financial buyers sought to invest increasingly large sums of money.

• The Portfolio produced a double-digit return during this period, with all sectors generating positive absolute results. The Portfolio trailed the benchmark’s impressive return, however, as successful stock selection in the consumer discretionary and financials sectors could not offset negative stock selection in healthcare and information technology (IT).

• Our investments in the consumer discretionary sector rose more than 20% collectively, a result of positive stock selection in the hotels, restaurants & leisure and specialty retail industries. Orient Express Hotels rose more than 60% as investors afforded higher value to its collection of luxury properties and anticipated a potential acquisition of the company. GameStop, a retailer of videogame software and hardware and a key position in the portfolio, has benefited from the new hardware cycle and continues to see a very positive long-term outlook. In financials, Investors Financial Services Corp. surged on the announcement of its acquisition by State Street Corp., highlighting our positive results in the sector.

• Disappointing stock selection in the healthcare sector detracted from relative return comparisons. Investments in the pharmaceuticals and healthcare equipment & supplies industries underperformed their peers in the Index. Both Endo Pharmaceuticals and Medicis Pharmaceuticals struggled as investors became concerned about competition for some of each company’s key products. Among equipment stocks, Wright Medical Group and Varian Medical Systems negatively impacted the Portfolio during the period.

• Within IT, relative weakness in software investments contributed to the relative underperformance in the sector. Amdocs, a key position in the Portfolio, declined significantly in January after slightly lowering earnings expectations for 2007. We maintained our confidence in this holding, and the stock rose steadily since the initial sell-off on the news. Other detractors in IT included Transaction Systems Architects, a developer of software for banks, and SonicWall, a provider of software and services for Internet security.

• During the past six months, we significantly increased the Portfolio’s weighting in the consumer discretionary sector while reducing allocations to financials and industrials. As we began the second quarter of 2007, the Portfolio had a significant overweight in the information technology sector, where we have found many diverse opportunities in the IT services industry. The largest underweight at this time was in the financials sector, where we do not find many compelling long-term growth opportunities.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE SMALL/MID-CAP GROWTH PORTFOLIO AND THE RUSSELL 2500^TM GROWTH INDEX FOR THE PAST TEN YEARS.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
Institutional Class	11.32	%	4.45	%	8.53	%	10.08	%
Service Class	11.10	%	4.11	%	8.24	%	9.80	%
Investor A Class (Load Adjusted)	5.24	%	(1.35	)%	7.09	%	9.15	%
Investor A Class (NAV)	11.10	%	4.11	%	8.26	%	9.74	%
Investor B Class (Load Adjusted)	6.22	%	(1.07	)%	7.15	%	9.00	%
Investor B Class (NAV)	10.72	%	3.31	%	7.45	%	9.00	%
Investor C Class (Load Adjusted)	9.78	%	2.25	%	7.47	%	9.00	%
Investor C Class (NAV)	10.70	%	3.22	%	7.47	%	9.00	%
R Class (NAV)	11.03	%	3.86	%	7.88	%	9.42	%
Russell 2500TM Growth Index	12.61	%	4.44	%	9.13	%	8.43	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 10/4/93; INVESTOR A SHARES, 2/1/94; INVESTOR C SHARES, 2/1/94; INVESTOR B SHARES, 1/1/99; SERVICE SHARES, 1/28/05; AND R SHARES, 10/02/06. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

12

SMALL/MID-CAP GROWTH PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
SkillSoft PLC — ADR	3.2	%
GameStop Corp.	2.2
SonicWALL, Inc.	2.2
IHS, Inc.	2.0
Pediatrix Medical Group, Inc.	2.0
Coventry Health Care, Inc.	1.9
CKX, Inc.	1.8
Dick’s Sporting Goods, Inc.	1.7
eFunds Corp.	1.7
Laureate Education, Inc.	1.7
Totals	20.4	%

Top Ten Industries (% of long-term investments)
Computer Software & Services	15.9	%
Business Services	8.8
Medical & Medical Services	7.2
Retail Merchandising	7.0
Pharmaceuticals	6.1
Oil & Gas	5.7
Telecommunications	5.5
Medical Instruments & Supplies	4.9
Aerospace	4.5
Semiconductors & Related Devices	4.4
Total	70.0	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses												Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		R Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		R Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,113.20		1,111.00		1,111.00		1,107.20		1,107.00		1,110.30		1,019.90		1,018.18		1,018.18		1,014.40		1,014.40		1,016.82
Expenses Incurred During Period (10/01/06 - 3/31/07)		5.32		7.11		7.11		11.03		11.03		8.52		5.10		6.82		6.82		10.60		10.60		8.18

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 1.01%, 1.35%, 1.35%, 2.10%, 2.10% and 1.62% for the Institutional, Service, Investor A, Investor B, Investor C and R share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

13

SMALL CAP VALUE EQUITY PORTFOLIO

Total Net Assets (3/31/07):  $82.4 million

Performance Benchmark:

Russell 2000^® Value Index

Investment Approach:

Seeks long-term capital appreciation by investing at least 80% of its net assets in equity securities issued by U.S. small-capitalization value companies (market capitalizations under $2 billion). The Portfolio manager seeks small capitalization stocks which he believes are worth more than is indicated by current market price. The Portfolio manager uses fundamental analysis to examine each company for financial strength before deciding to purchase the stock.

Recent Portfolio Management Activity:

• The Portfolio’s Institutional, BlackRock and Investor A shares outperformed the benchmark for the semiannual period, while the Investor B, Investor C and Service shares underperformed.

• Despite increased volatility late in the period, the Russell 2000^® Value Index posted a solid total return for the six months ended March 31, 2007. All major sectors of the Index ended the period in positive territory, with materials and consumer staples posting the most significant gains. Portfolio performance relative to the benchmark benefited from strength in the financials, utilities and industrials sectors, which outweighed relative weakness in information technology (IT) and healthcare.

• The financials sector was the weakest major sector in the benchmark, ending the period with only modest gains. The Portfolio’s underweight, particularly among underperforming commercial banks and thrift & mortgage finance names, drove favorable sector comparisons. Underweight exposure to real estate investment trusts (REITs), which make up almost 12% of the Russell 2000^® Value Index, also added value during the period. In utilities, solid stock selection among gas, electric and multi-utilities resulted in outperformance in the sector. Likewise, positive stock selection in the industrials sector also contributed to relative gains. Within the sector, building products producers, most notably Lennox International Inc., and machinery names were key areas of strength.

• Although stock selection among communications equipment names added value in the IT sector during the period, these relative gains were overshadowed by weakness from positions in IT services providers and computer and peripheral manufacturers. Within the sector, IT and communications solutions provider CACI International Inc. and data storage maker Imation Corp. were notable detractors. In healthcare, disappointing stock selection more than offset the positive impact of an overweight among healthcare technology names, resulting in sector underperformance. Weakness among select healthcare equipment and supply manufacturers was responsible for much of the performance shortfall.

• Looking ahead, we expect increased equity market volatility as the positive catalysts of ample liquidity, ongoing strength in merger-and-acquisition (M&A) activity, aggressive stock buybacks and a possible easing in monetary policy fight the headwinds of slowing economic growth, further deterioration in the housing market and contracting corporate profit margins. Accordingly, the Portfolio ended the period more neutrally positioned from a sector perspective, with a continued focus on holding stocks of high-quality small-cap companies. We believe the Portfolio is well positioned to continue to benefit from heightened M&A activity as our investment process generally leads us to own attractively valued stocks of solid companies which also make for compelling private equity and leveraged buyout candidates.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE SMALL CAP VALUE EQUITY PORTFOLIO

AND THE RUSSELL 2000^® VALUE INDEX FOR THE PAST TEN YEARS.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
BlackRock Class	10.74	%	9.60	%	11.69	%	11.29	%
Institutional Class	10.85	%	9.87	%	11.83	%	11.43	%
Service Class	10.58	%	9.42	%	11.47	%	11.09	%
Investor A Class (Load Adjusted)	4.82	%	3.69	%	10.20	%	10.37	%
Investor A Class (NAV)	10.65	%	9.40	%	11.40	%	10.97	%
Investor B Class (Load Adjusted)	6.28	%	4.71	%	10.36	%	10.30	%
Investor B Class (NAV)	10.11	%	8.48	%	10.52	%	10.30	%
Investor C Class (Load Adjusted)	9.21	%	7.59	%	10.53	%	10.11	%
Investor C Class (NAV)	10.06	%	8.43	%	10.53	%	10.11	%
Russell 2000® Value Index	10.62	%	10.38	%	13.61	%	13.47	%

THE FUND IS CLOSED TO NEW INVESTORS. EXISTING SHAREHOLDERS MAY MAKE ADDITIONAL INVESTMENTS IN CURRENT ACCOUNTS. IN ADDITION, NEW ACCOUNTS MAY BE OPENED BY (I) ANY INVESTOR IF THE TAX ID # FOR THE NEW ACCT WILL BE THE SAME AS THAT FOR A CURRENT ACCT AND (II) 401(K), 403(B), 457 AND OTHER SIMILAR GROUP RETIREMENT PLAN PROGRAMS OR CERTAIN DISCRETIONARY WRAP FEE PROGRAMS THAT HAVE CURRENT ACCOUNTS.

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 4/13/92; INVESTOR A SHARES, 6/2/92; SERVICE SHARES, 7/29/93; INVESTOR B SHARES, 10/3/94; INVESTOR C SHARES, 10/1/96; AND BLACKROCK SHARES, 4/12/04. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

14

SMALL CAP VALUE EQUITY PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
BJ’s Wholesale Club, Inc.	2.9	%
Orient-Express Hotels Ltd. — Class A	2.8
DJ Orthopedics, Inc.	2.7
Silgan Holdings, Inc.	2.5
Pilgrim’s Pride Corp.	2.2
Hain Celestial Group, Inc.	2.1
Piper Jaffray Cos., Inc.	2.0
Waste Connections, Inc.	1.8
Texas Industries, Inc.	1.8
The Brink’s Co.	1.7
Total	22.5	%

Top Ten Industries (% of long-term investments)
Banks	13.3	%
Retail Merchandising	9.8
Entertainment & Leisure	8.1
Food & Agriculture	5.6
Oil & Gas	5.5
Construction	5.4
Manufacturing	5.2
Real Estate	5.1
Business Services	4.2
Computer Software & Services	3.7
Total	65.9	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses												Hypothetical Expenses (5% return before expenses)
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,107.40		1,108.50		1,105.80		1,106.50		1,101.10		1,100.60		1,019.60		1,020.76		1,018.89		1,018.74		1,013.94		1,014.30
Expenses Incurred During Period (10/01/06 - 3/31/07)		5.62		4.42		6.35		6.51		11.47		11.10		5.40		4.24		6.11		6.26		11.06		10.70

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 1.07%, 0.84%, 1.21%, 1.24%, 2.19% and 2.12% for the BlackRock, Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

15

SMALL CAP CORE EQUITY PORTFOLIO

Total Net Assets (3/31/07):  $89.4 million

Performance Benchmark:

Russell 2000^® Index

Investment Approach:

Seeks long-term capital appreciation by normally investing at least 80% of its net assets in the equity securities of U.S. small-capitalization companies (market capitalizations under $2 billion). The Portfolio manager seeks to achieve consistent and sustainable performance through various market cycles by emphasizing stock selection. Stock selection is determined by looking at companies using a range of valuation criteria, including the strength of their management and business franchise. The Portfolio manager uses fundamental analysis to examine each company for financial strength before deciding to purchase the stock.

Recent Portfolio Management Activity:

• All share classes of the Portfolio outperformed the benchmark index for the semiannual period.

• Despite increased volatility late in the period, the Russell 2000^® Index posted a solid total return over the six months ended March 31, 2007. All major sectors of the Index ended the period in positive territory, with materials and consumer staples posting the most significant gains. The Portfolio’s outperformance of the benchmark during the period is attributed to strength in the healthcare, financials and consumer discretionary sectors, which outweighed relative weakness in information technology (IT) and industrials.

• Favorable comparisons in the healthcare sector were driven by solid stock selection. Within the sector, stocks of healthcare providers added the greatest value on a relative basis. Notable individual contributors included HMS Holdings Corp. and Pediatrix Medical Group Inc. Financials was the weakest major sector in the benchmark, ending the period with only modest gains. The Portfolio’s underweight position in financials, particularly among underperforming thrift & mortgage finance names, drove favorable sector comparisons. An underweight exposure to real estate investment trusts (REITs) also added value during the period. Likewise, positive stock selection drove relative gains in the consumer discretionary sector. Hotel and resort holdings were responsible for much of the outperformance there, led by Orient Express Hotels Ltd. and Morgans Hotel Group Co.

• Although stock selection among electronic equipment and Internet-related names added value in the IT sector, these relative gains were overshadowed during the period by weakness from communications equipment, software and IT services holdings. Within the sector, wireless communications equipment provider Powerwave Technologies Inc., IT and communications solutions provider CACI International Inc. and semiconductor equipment manufacturer Rudolph Technologies Inc. were the most notable individual detractors. In industrials, an underweight position and disappointing performance from select aerospace & defense-related holdings were responsible for much of the performance shortfall.

• Looking ahead, we expect increased equity market volatility as the positive catalysts of ample liquidity, ongoing strength in merger-and-acquisition activity, aggressive stock buybacks and a possible easing in monetary policy fight the headwinds of slowing economic growth, further deterioration in the housing market and contracting corporate profit margins. Accordingly, the Portfolio ended the period more defensively positioned from a sector perspective, with a continued focus on holding attractively valued stocks of high-quality small-cap companies. At March 31, 2007, the most notable sector positioning relative to the benchmark included overweight exposures to energy and healthcare (particularly among equipment & supply manufacturers and healthcare technology names), and underweight positions in industrials, financials and materials.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE SMALL CAP CORE EQUITY PORTFOLIO AND THE RUSSELL 2000^® INDEX FROM INCEPTION.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		5 Year		From Inception
Institutional Class	12.01	%	7.54	%	14.97	%	15.67	%
Service Class	11.91	%	7.30	%	14.83	%	15.55	%
Investor A Class (Load Adjusted)	5.92	%	1.45	%	13.42	%	14.20	%
Investor A Class (NAV)	11.83	%	7.08	%	14.65	%	15.37	%
Investor B Class (Load Adjusted)	6.80	%	1.75	%	13.82	%	14.69	%
Investor B Class (NAV)	11.37	%	6.25	%	14.05	%	14.80	%
Investor C Class (Load Adjusted)	10.36	%	5.30	%	14.06	%	14.81	%
Investor C Class (NAV)	11.42	%	6.30	%	14.06	%	14.81	%
Russell 2000® Index	11.02	%	5.91	%	10.95	%	11.22	%

THE INCEPTION DATE OF THE PORTFOLIO’S INSTITUTIONAL, SERVICE, INVESTOR A, INVESTOR B AND INVESTOR C SHARES WAS 1/2/02. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as the periods indicated, the Portfolio is actively managed and its composition will vary.

16

SMALL CAP CORE EQUITY PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
DJ Orthopedics, Inc.	4.0	%
SkillSoft PLC - ADR	2.8
Orient-Express Hotels Ltd. - Class A	2.5
Electronics for Imaging, Inc.	2.2
Pediatrix Medical Group, Inc.	2.1
Chart Industries, Inc.	1.7
Blackboard, Inc.	1.7
Jarden Corp.	1.6
Hologic, Inc.	1.6
AAR Corp.	1.6
Total	21.8	%

Top Ten Industries (% of long-term investments)
Computer Software & Services	11.4	%
Medical Instruments & Supplies	11.4
Manufacturing	9.9
Banks	9.1
Oil & Gas	7.2
Retail Merchandising	6.8
Entertainment & Leisure	6.6
Business Services	6.2
Medical & Medical Services	4.5
Real Estate	4.2
Total	77.3	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,120.10		1,119.10		1,118.30		1,113.70		1,114.20		1,018.44		1,017.17		1,016.37		1,012.43		1,012.63
Expenses Incurred During Period (10/01/06 - 3/31/07)		6.87		8.19		9.03		13.12		12.91		6.56		7.83		8.63		12.57		12.37

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 1.30%, 1.55%, 1.71%, 2.49% and 2.45% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

17

SMALL CAP GROWTH EQUITY PORTFOLIO

Total Net Assets (3/31/07):  $755.5 million

Performance Benchmark:

Russell 2000^® Growth Index

Investment Approach:

Seeks long-term capital appreciation by investing at least 80% of its net assets in equity securities issued by U.S. small-capitalization growth companies that the Portfolio management team believes offer superior prospects for growth. The Portfolio generally defines U.S. small-capitalization growth companies as those whose market capitalizations are within the range of market capitalizations of companies in the Russell 2000^® Growth Index during the most recent 365-day period. The management team focuses on small-cap emerging-growth companies. The management team would expect these companies to have products, technologies, management, markets and opportunities which will facilitate earnings growth over time that is well above the growth rate of the overall economy and the rate of inflation. The management team uses a bottom-up investment style and selects securities based on fundamental analysis (such as analysis of earnings, cash flows, competitive position and management’s abilities).

Recent Portfolio Management Activity:

• All share classes of the Portfolio outperformed the benchmark index for the semiannual period.

• A very strong finish to 2006 — combined with a volatile, but ultimately positive, first quarter of 2007 — resulted in double-digit performance for the small cap growth market during the six-month reporting period. Heightened merger-and-acquisition (M&A) activity continued to boost share prices of smaller-capitalization stocks, as larger companies looked to acquisitions to fuel growth and financial buyers sought to invest increasingly large sums of money.

• Positive results in every sector of the Portfolio produced double-digit returns during the semiannual period. Stock selection across several sectors, most notably healthcare and industrials, accounted for the outperformance relative to the benchmark. Sector allocation also added value, with the Portfolio’s underweight positions in financials and telecommunications aiding relative results.

• Favorable stock selection in the healthcare sector contributed substantially to the Portfolio’s strong results during the six-month period. The healthcare equipment & supplies industry featured many of the top performers, although there was not a common theme attributable to their collective rise. Adeza Biomedical, a provider of diagnostic tests for reproductive disorders, and IntraLase, a manufacturer of lasers for corrective eye surgery, both appreciated significantly upon the announcement of their acquisitions by Cytyc and Advanced Medical Optics, respectively. An excellent fourth-quarter earnings report based on continued strong fundamentals resulted in a significant rise for Cutera, while Align Technology appreciated sharply following its chief competitor’s withdrawal from the market.

• Within industrials, stock selection in the aerospace & defense and commercial services & supplies industries accounted for the outperformance. BE Aerospace, a manufacturer of aircraft cabins, was the top-performing stock in the Portfolio, rising more than 50%. Two of the Portfolio’s top holdings, commercial services companies IHS Inc. and Watson Wyatt Worldwide, both performed especially well. Successful stock selection in the energy sector also contributed to the Portfolio’s relative strength during the period.

• Investments in the information technology sector hindered relative return comparisons during the period. Key detractors included Occam Networks, a maker of telecommunications network equipment, and SonicWALL, a provider of software and services for Internet security. We remain confident in the prospects of both companies and continue to hold them in the Portfolio despite their poor performance during the past six months.

• The Portfolio’s sector positioning has remained stable, with modest increases in materials and financials being offset by a decrease in the allocation to healthcare. As we began the second quarter of 2007, the Portfolio’s largest overweight was in the information technology sector, where our allocation was spread over a diverse group of companies. At the same time, the Portfolio’s most significant underweight was in the financials sector.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE SMALL CAP GROWTH EQUITY PORTFOLIO AND THE RUSSELL 2000^® GROWTH INDEX FOR THE PAST TEN YEARS.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
Institutional Class	12.77	%	10.31	%	11.77	%	8.90	%
Service Class	12.62	%	10.05	%	11.48	%	8.58	%
Investor A Class (Load Adjusted)	6.67	%	4.14	%	10.18	%	7.86	%
Investor A Class (NAV)	12.57	%	9.93	%	11.37	%	8.44	%
Investor B Class (Load Adjusted)	7.45	%	4.20	%	10.19	%	7.82	%
Investor B Class (NAV)	11.95	%	8.70	%	10.46	%	7.82	%
Investor C Class (Load Adjusted)	11.12	%	7.88	%	10.49	%	7.64	%
Investor C Class (NAV)	12.06	%	8.88	%	10.49	%	7.64	%
Russell 2000® Growth Index	11.46	%	1.57	%	7.88	%	6.31	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 9/14/93; SERVICE AND INVESTOR A SHARES, 9/15/93; INVESTOR B SHARES, 1/18/96; AND INVESTOR C SHARES, 9/6/96. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

18

SMALL CAP GROWTH EQUITY PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
SkillSoft PLC — ADR	3.3	%
BE Aerospace, Inc.	2.3
Watson Wyatt Worldwide, Inc.	2.2
Transaction Systems Architects, Inc.	2.2
Noven Pharmaceuticals, Inc.	2.2
IHS, Inc.	2.2
Wright Express Corp.	2.1
eFunds Corp.	2.1
i2 Technologies, Inc.	2.0
SonicWALL, Inc.	2.0
Total	22.6	%

Top Ten Industries (% of long-term investments)
Computer Software & Services	18.7	%
Business Services	11.0
Medical Instruments & Supplies	10.3
Manufacturing	8.5
Medical & Medical Services	8.1
Entertainment & Leisure	5.4
Oil & Gas	4.6
Semiconductors & Related Devices	4.6
Finance	3.9
Retail Merchandising	3.6
Total	78.7	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,127.70		1,126.20		1,125.70		1,119.50		1,120.60		1,020.96		1,019.85		1,019.45		1,013.84		1,014.95
Expenses Incurred During Period (10/01/06 - 3/31/07)		4.24		5.41		5.83		11.68		10.52		4.04		5.15		5.55		11.16		10.05

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.80%, 1.02%, 1.10%, 2.21% and 1.99% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

19

GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO

Total Net Assets (3/31/07):  $33.1 million

Performance Benchmark:

NYSE Arca Tech 100 Index^SM

Investment Approach:

Seeks long-term capital appreciation by investing primarily in equity securities of U.S. and non-U.S. companies in all capitalization ranges selected for their rapid and sustainable growth potential from the development, advancement and use of science and/or technology. The Portfolio normally invests at least 80% of its net assets in equity securities issued by science and technology companies in all market capitalization ranges. The Portfolio may invest up to 25% of its net assets in stocks of issuers in emerging market countries. The Portfolio management team uses a multifactor screen to identify stocks that have above-average return potential. The factors and the weight assigned to a factor may change depending on market conditions. The most influential factors over time have been revenue and earnings growth, estimate revisions, profitability and relative value.

Recent Portfolio Management Activity:

• All share classes of the Portfolio underperformed the benchmark for the semiannual period.

• Stocks finished the period in solid positive territory, despite being subjected to heightened volatility along the way. The NYSE Arca Tech 100 Index^SM posted a 6.7% gain for the six months, with all major sectors of the Index delivering positive returns. Industrials and IT were the best performers, while the consumer discretionary and healthcare sectors were laggards.

• Within IT, stock selection in the software, IT services and communications equipment industries significantly detracted from relative returns during the period. Software stocks such as NSD Co. Ltd. and BEA Systems Inc. declined sharply. Conversely, stock selection in semiconductors, as well as an overweight to the Internet software and services industry, were notable positive contributors to relative returns. An underweight to poor-performing Advanced Micro Devices Inc. and a significant overweight to Agere Systems and STATS ChipPAC Ltd. each contributed positively to relative returns. Agere Systems returned 52% for the period, as it benefited significantly from its merger with LSI Logic in an all-stock transaction valued at approximately $4.0 billion.

• Strength in the healthcare segment of the Portfolio was the result of strong stock selection in the biotechnology industry. An underweight to Amgen Corp and Genzyme Corp., as well as positions in Alexion Pharmaceuticals Inc. and Myogen drove relative gains in healthcare. Alexion Pharmaceuticals Inc. recently won U.S. regulatory approval for its main product, Soliris, a treatment for a rare form of anemia. In contrast, stock selection in healthcare equipment & supplies dampened returns, primarily as a result of our position in Varian Medical Systems Inc. and an underweight to Biomet Inc. Varian Medical Systems Inc. has since been eliminated from the Portfolio.

• Our allocation to telecommunication services names continued to have a positive effect on relative performance. India-based Bharti Airtel Ltd. generated a 72% return for the period, as its wireless business continues to gain market share despite stiffening competition.

• With about 63% of net assets invested in IT at the end of March, the Portfolio maintains an underweight to this sector; however, we feel that a cyclical bottom could be approaching as inventory levels are beginning to decrease. We are maintaining our overweight to telecommunication services names, as data continues to be a catalyst for bandwidth demand. Moreover, we expect to see emerging market telecommunications companies continue to experience rapid growth. Sector positioning regarding healthcare remained relatively neutral to the benchmark throughout the period, largely due to the uncertainty created by the newly elected U.S. Democratic Congress and increased risk of reimbursement pressures for various products and services within the sector. The biotechnology industry recently has been hit particularly hard as investors’ appetite for risk has been diminishing. We will continue to search for select opportunities within the sector.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO AND THE NYSE ARCA TECH 100 INDEX^SM FROM INCEPTION.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		5 Year		From Inception
Institutional Class	6.25	%	1.32	%	6.14	%	(3.82	)%
Service Class	6.08	%	0.94	%	5.83	%	(4.10	)%
Investor A Class (Load Adjusted)	0.41	%	(4.38	)%	4.55	%	(4.99	)%
Investor A Class (NAV)	6.00	%	0.95	%	5.68	%	(4.25	)%
Investor B Class (Load Adjusted)	1.21	%	(4.36	)%	4.54	%	(4.98	)%
Investor B Class (NAV)	5.71	%	0.14	%	4.87	%	(4.98	)%
Investor C Class (Load Adjusted)	4.71	%	(0.86	)%	4.87	%	(4.98	)%
Investor C Class (NAV)	5.71	%	0.14	%	4.87	%	(4.98	)%
NYSE Arca Tech 100 IndexSM	6.65	%	1.36	%	5.57	%	(1.80	)%

THE INCEPTION DATE OF THE PORTFOLIO’S INSTITUTIONAL, SERVICE, INVESTOR A, INVESTOR B, AND INVESTOR C SHARES WAS 5/15/00. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as the periods indicated, the Portfolio is actively managed and its composition will vary.

20

GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
Apple Computer, Inc.	2.5	%
International Business Machines Corp.	2.1
Cisco Systems, Inc.	2.0
Google, Inc. — Class A	2.0
Lockheed Martin Corp.	1.9
Qualcomm, Inc.	1.5
Microsoft Corp.	1.4
Genentech, Inc.	1.3
KLA-Tencor Corp.	1.3
AT&T, Inc.	1.3
Total	17.3	%

Top Ten Industries (% of long-term investments)
Computer Software & Services	23.7	%
Telecommunications	13.7
Semiconductors & Related Devices	11.0
Computer & Office Equipment	10.2
Pharmaceuticals	9.8
Medical Instruments & Supplies	7.6
Electronics	5.8
Business Services	4.1
Aerospace	3.6
Manufacturing	2.4
Total	91.9	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,062.50		1,060.80		1,060.00		1,057.10		1,057.10		1,018.23		1,016.32		1,016.22		1,011.67		1,011.87
Expenses Incurred During Period (10/01/06 - 3/31/07)		6.89		8.84		8.94		13.54		13.33		6.77		8.68		8.78		13.33		13.13

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 1.34%, 1.72%, 1.74%, 2.64% and 2.60% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

21

GLOBAL RESOURCES PORTFOLIO

Total Net Assets (3/31/07):  $871.7 million

Performance Benchmark:

Lipper Natural Resources Funds Index S&P 500^® Index

Investment Approach:

Seeks to provide long-term growth of capital by investing at least 80% of its total assets in securities of global energy and natural resources companies and companies in associated businesses, as well as utilities. The Portfolio may invest in companies located anywhere in the world and will generally invest in at least three countries and in companies tied economically to a number of countries. In selecting investments, the Portfolio looks for companies and industries that appear to have the potential for above-average long-term performance. These may include companies that are expected to show above-average growth over the long term as well as those that appear to be trading below their true worth. While the Portfolio tends to emphasize smaller companies, from time to time it may emphasize companies of other sizes. The Portfolio may invest up to 20% of its assets in other U.S. and foreign investments, including stocks and bonds of companies not associated with energy or natural resources. The Portfolio may not invest more than 10% of its total assets in non-investment-grade bonds.

Recent Portfolio Management Activity:

• During the semiannual period, all share classes of the Portfolio outperformed the S&P 500^® Index but lagged the Lipper Natural Resources Funds Index.

• While 2006 was the first year since 2001 in which the energy sector failed to outperform the broader U.S. equity market, the energy/natural resources sector showed signs of strength over the last six months. Despite continued price volatility, commodity prices strengthened during the period, as underlying supply-demand dynamics contributed to higher commodities prices, particularly for energy-related commodities.

• At the start of 2007, energy investors faced precipitous declines in both energy stock and commodities prices, as warmer than normal winter weather led many to conclude 2007 would be a repeat of 2006. However, normalized winter weather returned and global energy demand strengthened, resulting in the energy sector leading overall equity markets in a tumultuous recent quarter. With heightened ‘risk premium,’ largely due to Iran, and much of the excess inventory overhang from a warm 2006 out of the system, crude oil and natural gas prices ended the period at $65.87/barrel and $7.50/mcf, respectively.

• Within the Portfolio, our emphasis on energy stocks detracted from relative returns as other areas within the natural resources segment, such as steel, precious metals and diversified metals & mining stocks, outdistanced their energy counterparts. Additionally, security selection within the exploration & production industry detracted from returns during the period. In particular, our exposure to Canadian producers proved costly as higher service costs contributed to many stocks lagging their U.S. counterparts. On the other hand, the Portfolio benefited from favorable security selection within coal producers, equipment & service and fertilizer stocks.

• Overall, our long-term fundamental outlook remains unchanged, as we believe it will be increasingly difficult for long-term supply of traditional hydro-carbons to keep up with incremental demand for energy resources. Even though a warmer than normal winter in 2006 allowed fossil fuel inventories to rebuild, we look upon this short-term phenomenon as having masked many of the larger supply issues pending, and contributed to the Portfolio’s pedestrian performance over the last year. We continue to favor coal producers, oil exploration & production, drillers and oil services, believing these areas offer the most attractive risk/return profiles within the sector. In the current environment, we have a high degree of conviction that the Portfolio is well positioned to benefit in a strong market environment.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GLOBAL RESOURCES PORTFOLIO, THE LIPPER NATURAL RESOURCES FUNDS INDEX AND THE S&P 500^® INDEX FOR THE PAST TEN YEARS.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
Institutional Class	9.41	%	(2.57	)%	30.45	%	17.47	%
Investor A Class (Load Adjusted)	3.52	%	(7.96	)%	28.60	%	16.45	%
Investor A Class (NAV)	9.26	%	(2.86	)%	29.99	%	17.08	%
Investor B Class (Load Adjusted)	5.36	%	(6.68	)%	28.93	%	16.27	%
Investor B Class (NAV)	8.86	%	(3.58	)%	29.08	%	16.27	%
Investor C Class (Load Adjusted)	8.10	%	(4.27	)%	29.09	%	16.26	%
Investor C Class (NAV)	8.88	%	(3.58	)%	29.09	%	16.26	%
S&P 500® Index	7.38	%	11.83	%	6.27	%	8.20	%
Lipper Natural Resources Funds Index	18.00	%	10.84	%	20.84	%	14.64	%

THE FUND IS CLOSED TO NEW INVESTORS. EXISTING SHAREHOLDERS MAY MAKE ADDITIONAL INVESTMENTS IN CURRENT ACCOUNTS. IN ADDITION, NEW ACCOUNTS MAY BE OPENED BY (I) ANY INVESTOR IF THE TAX ID NUMBER FOR THE NEW ACCOUNT WILL BE THE SAME AS THAT FOR A CURRENT ACCOUNT AND (II) 401(K), 403 (B), 457 AND OTHER SIMILAR GROUP RETIREMENT PLAN PROGRAMS OR CERTAIN DISCRETIONARY WRAP FEE PROGRAMS THAT HAVE CURRENT ACCOUNTS.

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INVESTOR A SHARES, 3/2/90; INSTITUTIONAL SHARES, 6/1/93; INVESTOR C SHARES, 6/1/93; AND INVESTOR B SHARES, 1/1/99. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

22

GLOBAL RESOURCES PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
CONSOL Energy, Inc.	10.0	%
Plains Exploration & Production Co.	5.2
Arch Coal, Inc.	4.7
Newfield Exploration Co.	4.6
Massey Energy Co.	4.6
Diamond Offshore Drilling, Inc.	4.2
Transocean, Inc.	3.8
Penn Virginia Corp.	3.7
Galleon Energy, Inc. — Class A (acquired 1/20/05 through 3/13/06, cost $9,925,963)	3.0
Southwestern Energy Co.	3.0
Total	46.8	%

Industries (% of long-term investments)
Oil & Gas	68.3	%
Metal & Mining	29.6
Transportation	1.0
Energy & Utilities	0.6
Finance	0.3
Motor Vehicles	0.1
Miscellaneous	0.1
Total	100.0	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses								Hypothetical Expenses (5% return before expenses)
	Institutional Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,094.10		1,092.60		1,088.60		1,088.80		1,019.75		1,018.23		1,014.70		1,014.75
Expenses Incurred During Period (10/01/06 - 3/31/07)		5.43		6.99		10.62		10.57		5.25		6.77		10.30		10.25

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 1.04%, 1.34%, 2.04% and 2.03% for the Institutional, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

23

ALL-CAP GLOBAL RESOURCES PORTFOLIO

Total Net Assets (3/31/07):  $949.2 million

Performance Benchmark:

Lipper Natural Resources Funds Index

S&P 500^® Index

Investment Approach:

Seeks to provide long-term growth of capital by investing at least 80% of its total assets in securities of global energy and natural resources companies and companies in associated businesses, as well as utilities. The Portfolio may invest without limit in companies located anywhere in the world and will generally invest in at least three countries and in companies tied economically to a number of countries. In selecting investments, the Portfolio looks for companies and industries that appear to have the potential for above-average long-term performance. These may include companies that are expected to show above-average growth over the long term as well as those that appear to be trading below their true worth. The Portfolio does not limit its investments to companies of any particular size, and may invest in securities of companies with small to large capitalizations. The Portfolio may invest up to 20% of its assets in other U.S. and foreign investments, including stocks and bonds of companies not associated with energy or natural resources. The Portfolio may not invest more than 10% of its total assets in non-investment-grade bonds.

Recent Portfolio Management Activity:

• During the semiannual period, all share classes of the Portfolio outperformed the S&P 500^® Index but underperformed the Lipper Natural Resources Funds Index.

• While 2006 was the first year since 2001 in which the energy sector failed to outperform the broader U.S. equity market, the energy/natural resources sector showed signs of strength over the last six months. Despite continued price volatility, commodity prices strengthened during the period, as underlying supply-demand dynamics contributed to higher commodities prices, particularly for energy-related commodities.

• At the start of 2007, energy investors faced precipitous declines in both energy stock and commodities prices, as warmer than normal winter weather led many to conclude that 2007 would be a repeat of 2006. However, normalized winter weather returned and global energy demand strengthened, resulting in the energy sector leading overall equity markets in a tumultuous recent quarter. With heightened ‘risk premium,’ largely due to Iran, and much of the excess inventory overhang from a warm 2006 out of the system, crude oil and natural gas prices ended the period at $65.87/barrel and $7.50/mcf, respectively.

• Within the Portfolio, our emphasis on energy stocks detracted from relative returns as other areas within the natural resources segment, such as steel, precious metals and diversified metals & mining stocks, outdistanced their energy counterparts. Additionally, security selection within the exploration & production industry detracted from returns during the period. In particular, our exposure to Canadian producers proved costly as higher service costs contributed to many stocks lagging their U.S. counterparts. On the other hand, the Portfolio benefited from favorable security selection within coal producers, equipment & service and fertilizer stocks.

• Overall, our long-term fundamental outlook remains unchanged, as we believe it will be increasingly difficult for long-term supply of traditional hydro-carbons to keep up with incremental demand for energy resources. Even though a warmer than normal winter in 2006 allowed fossil fuel inventories to rebuild, we look upon this short-term phenomenon as having masked many of the larger supply issues pending, and contributed to the Portfolio’s pedestrian performance over the last year. We continue to favor coal producers, oil exploration & production, drillers and oil services, believing these areas offer the most attractive risk/return profiles within the sector. In the current environment, we have a high degree of conviction that the Portfolio is well positioned to benefit in a strong market environment.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE ALL-CAP GLOBAL RESOURCES PORTFOLIO, THE LIPPER NATURAL RESOURCES FUNDS INDEX AND THE S&P 500^® INDEX FROM INCEPTION.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		From Inception
Institutional Class	15.22	%	8.05	%	24.69	%
Service Class	15.11	%	7.75	%	24.21	%
Investor A Class (Load Adjusted)	9.02	%	2.05	%	21.08	%
Investor A Class (NAV)	15.04	%	7.68	%	24.18	%
Investor B Class (Load Adjusted)	10.12	%	2.41	%	21.96	%
Investor B Class (NAV)	14.62	%	6.91	%	23.28	%
Investor C Class (Load Adjusted)	13.69	%	5.90	%	23.35	%
Investor C Class (NAV)	14.69	%	6.90	%	23.35	%
S&P 500® Index	7.38	%	11.83	%	9.86	%
Lipper Natural Resources Funds Index	18.00	%	10.84	%	25.26	%

THE INCEPTION DATE OF THE PORTFOLIO’S INSTITUTIONAL, SERVICE, INVESTOR A, INVESTOR B, AND INVESTOR C SHARES WAS 02/16/2005. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

24

ALL-CAP GLOBAL RESOURCES PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
Transocean, Inc.	3.3	%
Questar Corp.	3.0
Silver Standard Resources, Inc.	2.9
CONSOL Energy, Inc.	2.6
EOG Resources, Inc.	2.6
Core Laboratories NV	2.5
Noble Energy, Inc.	2.5
Hess Corp.	2.4
Canadian Natural Resources Ltd.	2.3
Teck Cominco Ltd.	2.1
Total	26.2	%

Industries (% of long-term investments)
Oil & Gas	71.0	%
Metal & Mining	21.3
Energy & Utilities	3.0
Food & Agriculture	1.5
Oil & Gas Field Exploration Services	1.1
Manufacturing	0.8
Oil & Gas Field Machinery & Equipment	0.6
Steel Pipe & Tubes	0.5
Freight And Shipping	0.2
Total	100.0	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,152.20		1,151.10		1,150.40		1,146.20		1,146.90		1,020.25		1,018.34		1,018.44		1,014.70		1,014.70
Expenses Incurred During Period (10/01/06 - 3/31/07)		5.04		7.08		6.97		10.92		10.92		4.75		6.66		6.56		10.30		10.30

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.94%, 1.32%, 1.30%, 2.04% and 2.04% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the period the fund was open during the one-half year period).

25

HEALTH SCIENCES OPPORTUNITIES PORTFOLIO

Total Net Assets (3/31/07):  $1.1 billion

Performance Benchmark:

S&P 500^® Index

Lipper Health/Biotechnology Funds Index

Russell 3000^® Health Care Index

Investment Approach:

Seeks to provide long-term growth of capital by investing at least 80% of its total assets in securities of companies in health sciences and related industries. The Portfolio expects to invest in health sciences companies comparable in size to those in the health sector of the Russell 3000^® Index or similar companies, including non-U.S. companies. In selecting investments, the Portfolio seeks to invest in stocks that have above-average return potential.

Recent Portfolio Management Activity:

• During the semiannual period, all share classes of the Portfolio underperformed the Lipper Health/Biotechnology Funds Index and the broad-market S&P 500^® Index, but outperformed the Russell 3000^® Health Care Index.

• Stocks managed to finish the period in solid positive territory, despite being subjected to heightened volatility along the way. The S&P 500^® Index posted a 7.4% gain during the period, with all 10 sectors of the Index turning in positive returns. The materials and energy sectors were the best performers, while the healthcare and information technology sectors were laggards. From a size perspective, small-cap stocks ended the six-month period ahead of large caps. There was some disparity between style leadership, as value outperformed growth within the mid- to large-cap universe, while growth outperformed value among small-cap stocks.

• The healthcare sector was rather weak on a relative basis during the six-month period ended March 31, 2007, and did not fully participate in the upswing experienced by the broader market during the fourth quarter of 2006. The S&P 500^® healthcare sector returned 2.4%, making it the worst-performing group in the widely diversified S&P 500^® Index, which gained 7.4% during the period. November was a particularly difficult month, as uncertainty surrounding the Congressional election proved to be a headwind for the sector. During the period covered by this report, the Portfolio trailed the broader market as measured by the S&P 500^® Index, but outperformed its healthcare benchmark, the Russell 3000^® Health Care Index. In this environment, all but one of the major industry groups in the Portfolio contributed positively to returns, with healthcare services being the exception.

• Biotechnology proved to be the most prominent positive performance factor, accounting for a substantial portion of overall gains during the period. The Portfolio benefited from the recent up tick in merger & acquisition activity. Two of our small-cap holdings (Myogen Inc. and ICOS Corporation) were the subjects of takeouts during the month of October, propelling the stocks to substantial gains. Additional positive contributors during the period included positions in Alexion Pharmaceuticals Inc. and Regeneron Pharmaceuticals Inc.

• Portfolio positioning in healthcare equipment & supplies led to solid performance in this group over the six-month period. During the latter half of last year, we increased exposure to the medical device area, and a number of these stocks have since been rewarded for their improving fundamentals and steady growth potential. Names like Stryker and Zimmer have posted healthy gains, as orthopedic device growth rates have stabilized and increasing demand for new and more profitable products appears robust. Other strong performers we held in the medtech/device area included Baxter International and Alcon.

• Our healthcare services positions underperformed during the period. Much of the underperformance was related to individual stock selection. The largest detractor was a position in Quest Diagnostics. Shares of the lab service provider traded down after the firm disclosed the loss of a large contract with UnitedHealth Group. Other detractors in healthcare services included Davita, a dialysis provider, and pharmacy benefit manager Caremark Rx.

• Much of our outlook for the sector remains unchanged as we move into the second quarter of 2007. The Portfolio remains well diversified across issuers, industries and market capitalizations, with our main focus on companies and industries that should enjoy strong long-term growth driven by global demographics and innovative products. At the close of the first quarter, the Portfolio was overweight in biotechnology and healthcare equipment & supplies, and underweight in healthcare services and pharmaceuticals relative to its healthcare benchmark.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE HEALTH SCIENCES OPPORTUNITIES PORTFOLIO, THE LIPPER HEALTH/BIOTECHNOLOGY FUNDS INDEX, THE S&P 500^® INDEX AND THE RUSSELL 3000^® HEALTH CARE INDEX FROM INCEPTION.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		5 Year		From Inception
Institutional Class	4.91	%	5.68	%	15.72	%	17.94	%
Service Class	4.75	%	5.37	%	15.44	%	17.65	%
Investor A Class (Load Adjusted)	(0.79	)%	(0.24	)%	14.13	%	16.74	%
Investor A Class (NAV)	4.72	%	5.30	%	15.38	%	17.61	%
Investor B Class (Load Adjusted)	(0.23	)%	(0.10	)%	14.31	%	16.81	%
Investor B Class (NAV)	4.28	%	4.40	%	14.54	%	16.81	%

Average Annual Total Return

	6 Months		1 Year		5 Year		From Inception
Investor C Class (Load Adjusted)	3.36	%	3.58	%	14.58	%	16.81	%
Investor C Class (NAV)	4.36	%	4.58	%	14.58	%	16.81	%
S&P 500® Index	7.38	%	11.83	%	6.27	%	1.52	%
Lipper Health/Biotechnology Funds Index	5.17	%	2.59	%	6.43	%	7.99	%
Russell 3000® Health Care Index	3.33	%	5.89	%	2.98	%	5.16	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INVESTOR A SHARES, 12/21/99; INSTITUTIONAL SHARES, 10/16/00; INVESTOR B SHARES, 10/16/00; INVESTOR C SHARES, 10/16/00; AND SERVICE SHARES, 1/28/05 . SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

26

HEALTH SCIENCES OPPORTUNITIES PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
Stryker Corp.	5.9	%
Roche Holding AG	5.9
Merck & Co., Inc.	5.7
Gilead Sciences, Inc.	5.2
Johnson & Johnson	4.8
Becton, Dickinson & Co.	3.9
Alexion Pharmaceuticals, Inc.	3.8
Abbott Laboratories	3.7
Medtronic, Inc.	3.6
Wyeth	3.5
Total	46.0	%

Industries (% of long-term investments)
Pharmaceuticals	49.0	%
Medical Instruments & Supplies	33.8
Medical & Medical Services	13.4
Insurance	2.5
Manufacturing	1.3
Total	100.0	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,049.10		1,047.50		1,047.20		1,042.80		1,043.60		1,020.15		1,018.69		1,018.39		1,014.15		1,014.65
Expenses Incurred During Period (10/01/06 - 3/31/07)		4.90		6.38		6.69		10.95		10.44		4.85		6.31		6.61		10.85		10.35

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.96%, 1.25%, 1.31%, 2.15% and 2.05% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

27

U.S. OPPORTUNITIES PORTFOLIO

Total Net Assets (3/31/07):  $323.3 million

Performance Benchmark:

S&P/Citigroup Extended Market Index U.S. (“S&P/Citigroup EMI U.S.”)

Investment Approach:

Seeks long-term capital appreciation by normally investing at least 80% of its net assets in equity securities of U.S. emerging capitalization companies (defined by the Portfolio as those with market capitalizations equal to those within the universe of the S&P/ Citigroup EMI U.S. stocks) with relatively attractive earnings growth potential and valuation. The Portfolio management team uses a multifactor screen to identify stocks that have above-average return potential. The factors and the weight assigned to a factor may change depending on market conditions. The most influential factors over time have been relative value and earnings estimate revisions.

Recent Portfolio Management Activity:

• The Portfolio’s Institutional, Service and Investor A shares outperformed the benchmark S&P/Citigroup EMI U.S. Index for the semiannual period, while the Investor B and C shares underperformed the benchmark.

• U.S. equities generally finished the semiannual period in solid positive territory, despite being subjected to heightened volatility along the way. The S&P/Citigroup EMI U.S. Index posted a 13.03% gain during the period. The materials and utilities sectors were the best performers, while the financials and healthcare sectors were laggards.

• Stock selection within the consumer discretionary sector, including apparel, luxury goods and hotels, contributed positively to the Portfolio’s performance versus the benchmark for the semiannual period. Our positions in Hilton Hotels Corp. and Morgans Hotel Group Co. buoyed the relative return within the sector as these companies continued to benefit from increased global travel and rising room rates. Stock selection in the wireless telecommunication services industry also aided the comparative performance as wireless communications provider Leap Wireless International Inc. and Cogent Communications Group, an Internet protocol communications services provider, posted strong gains. Within financials, favorable security selection in real estate investment trusts (REITs) and our underweight positioning in the thrifts and mortgage finance industry bolstered the relative return. Securities within the mortgage sector declined as the loan default rate increased, causing mortgage lenders, banks and brokers to re-evaluate the risks assigned to these loans and the potential effects of a further downturn in housing prices.

• Conversely, stock selection within the information technology sector detracted from the comparative performance for the period as select holdings in the software and electronic equipment and instruments industries underperformed. Shares of BEA Systems Inc. and Molex Inc. declined significantly. In industrials, an overweight position in aerospace and defense and positive stock selection in commercial services and supplies were positive contributors to Portfolio results, but could not offset relative weakness in construction and in engineering and machinery.

• We made some adjustments to overall sector positioning throughout the course of the semiannual period, consistent with our investment process. We still see risk in the housing market and believe that delinquency rates are likely to continue to rise. As a result, the Portfolio is underweight versus the benchmark in the banking group given concerns over deteriorating loan growth. Our outlook for the materials sector remains positive, particularly within the gold industry as limited supply has created a favorable pricing dynamic. We believe these stocks also are likely beneficiaries of a weak U.S. dollar. Finally, we see opportunity within consumer staples, as cost cutting and strong growth in emerging markets are expected to fuel an increase in earnings. At March 31, 2007, the Portfolio was most overweight relative to the benchmark S&P/Citigroup EMI U.S. Index in the telecommunication services, consumer staples and utilities sectors, and had underweight positions in financials, healthcare and information technology.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE U.S. OPPORTUNITIES PORTFOLIO

AND THE S&P/CITIGROUP EMI U.S. INDEX FROM INCEPTION.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		5 Year		From Inception
Institutional Class	13.45	%	8.88	%	10.92	%	20.09	%
Service Class	13.19	%	8.40	%	10.53	%	19.69	%
Investor A Class (Load Adjusted)	7.27	%	2.72	%	9.27	%	18.86	%
Investor A Class (NAV)	13.24	%	8.40	%	10.45	%	19.57	%
Investor B Class (Load Adjusted)	8.28	%	3.10	%	9.34	%	18.80	%
Investor B Class (NAV)	12.74	%	7.60	%	9.62	%	18.80	%
Investor C Class (Load Adjusted)	11.79	%	6.65	%	9.62	%	18.70	%
Investor C Class (NAV)	12.79	%	7.65	%	9.62	%	18.70	%
S&P/Citigroup EMI U.S. Index	13.03	%	8.63	%	12.51	%	9.08	%

THE INCEPTION DATE OF THE PORTFOLIO’S INSTITUTIONAL, SERVICE, INVESTOR A, INVESTOR B, AND INVESTOR C SHARES WAS 5/1/98. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as the periods indicated, the Portfolio is actively managed and its composition will vary.

28

U.S. OPPORTUNITIES PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
Hilton Hotels Corp.	1.2	%
Myriad Genetics, Inc.	1.1
Waters Corp.	1.0
Mirant Corp.	1.0
Jones Lang Lasalle, Inc. (REIT)	0.9
Edison International	0.9
AllianceBernstein Holding LP	0.9
Corn Products International, Inc.	0.9
Hyperion Solutions Corp.	0.9
A.G. Edwards, Inc.	0.9
Total	9.7	%

Top Ten Industries (% of long-term investments)
Oil & Gas	9.1	%
Manufacturing	6.6
Computer Software & Services	5.7
Energy & Utilities	5.6
Entertainment & Leisure	5.6
Real Estate	5.1
Telecommunications	4.9
Retail Merchandising	4.6
Insurance	4.4
Business Services	4.4
Total	56.0	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,134.50		1,131.90		1,132.40		1,127.40		1,127.90		1,019.70		1,017.83		1,017.73		1,013.64		1,013.84
Expenses Incurred During Period (10/01/06 - 3/31/07)		5.59		7.55		7.66		11.93		11.72		5.30		7.17		7.27		11.36		11.16

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 1.05%, 1.42%, 1.44%, 2.25% and 2.21% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

29

GLOBAL OPPORTUNITIES PORTFOLIO

Total Net Assets (3/31/07):  $60.7 million

Performance Benchmark:

S&P/Citigroup Global Broad Market Index

Investment Approach:

Seeks long-term capital appreciation by normally investing at least 75% of its total assets in global equity securities of any market capitalization. The Portfolio will invest, under normal market conditions, at least 40% of its total assets in issuers located outside of the U.S. The Portfolio may invest up to 25% of its total assets in stocks of issuers in emerging market countries. The Portfolio also may invest up to 25% of its total assets in global fixed income securities, including emerging market debt. Investment in fixed income securities will be made purely on an opportunistic basis. The Portfolio management team uses a multifactor screen to identify securities that have above-average return potential. The factors and the weight assigned to a factor may change depending on market conditions. The most influential factors over time have been relative value and earnings estimate revisions.

Recent Portfolio Management Activity:

• All share classes of the Portfolio outperformed the benchmark for the semiannual period.

• The global equity markets posted solid gains during the six-month period ended March 31, 2007. Emerging markets posted significant gains, with all regions participating. Among developed markets, Asia-Pacific ex-Japan was the best-performing region, followed by Europe, the United States and Japan. The Dollar Spot Index, which indicates the general international value of the U.S. dollar versus six major world currencies, declined 3.6% over the period.

• Global equity market leadership remained similar among market capitalizations and styles throughout the period. Small-cap stocks outperformed their large-cap counterparts, value outperformed growth, and non-U.S. equities outpaced U.S. stocks. Small-cap stocks, as represented in the S&P Global Extended Market Index, rose 17.9%, versus 11.3% for the large-cap S&P Global Primary Market Index. In what has been a longstanding trend, value stocks outperformed shares of growth companies across the market capitalization spectrum, although it appears that gap may be narrowing.

• From a sector standpoint, the markets saw a rotation back to many of the groups that have led this cycle: telecommunication services, materials, utilities, consumer discretionary, energy and industrials each outperformed the market, while healthcare, information technology, financials, energy and consumer staples underperformed.

• Allocation effects at both the sector and country level were positive during the period, enhancing the Portfolio’s performance versus the benchmark. Regarding sector allocation, overweight positions in materials and telecommunication services and underweight positions in financials and information technology benefited performance. At the country level, overweight positions in Brazil, Norway, Hong Kong and Germany, as well as an underweight in the United States, contributed positively to the comparative performance. Solid stock selection in materials, consumer discretionary, industrials and energy made the most significant positive contributions to the relative return during the period. The most notable contributors at the individual stock level included Mincor Resources, Yamana Gold Inc., MGM Mirage, Allegheny Technologies Inc. and Wartsila Oyj. Security selection in consumer staples and information technology modestly hindered the comparative performance for the semiannual period.

• We have continued to limit sector emphasis in the Portfolio. At the close of the semiannual period on March 31, 2007, our most significant overweights were in industrials and materials, while our most notable underweights were in healthcare and financials. From a regional perspective, the Portfolio was underweight versus the benchmark in Europe and overweight in Asia, consistent with our view that European markets are overvalued on a relative basis. The Portfolio’s exposure to emerging markets stood at 6.1% of net assets at the end of the period, versus 8.7% for the benchmark.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GLOBAL OPPORTUNITIES PORTFOLIO AND THE S&P/CITIGROUP GLOBAL BROAD MARKET INDEX SINCE INCEPTION.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months	1 Year	From Inception
Institutional Class	14.95%	13.38%	13.71%
Service Class	14.83%	13.15%	13.42%
Investor A Class (Load Adjusted)	8.79%	7.18%	8.32%
Investor A Class (NAV)	14.84%	13.15%	13.42%
Investor B Class (Load Adjusted)	9.96%	7.83%	9.23%
Investor B Class (NAV)	14.46%	12.33%	12.62%
Investor C Class (Load Adjusted)	13.54%	11.41%	12.69%
Investor C Class (NAV)	14.54%	12.41%	12.69%
S&P/Citigroup Global Broad Market Index	12.66%	16.31%	16.06%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO ON 1/31/06. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as the periods indicated, the Portfolio is actively managed and its composition will vary.

30

GLOBAL OPPORTUNITIES PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
UniCredito Italiano SpA	1.5	%
Chevron Corp.	1.3
A.G. Edwards, Inc.	1.2
The Sumitomo Industries Ltd.	1.1
Nordea Bank AB	1.1
PepsiCo, Inc.	1.1
Sumitomo Corp.	1.0
Allied Irish Banks PLC	1.0
Sekisui House Ltd.	1.0
ConocoPhillips	1.0
Total	11.3	%

Top Ten Countries (% of long-term investments)
United States	47.2	%
Japan	10.5
United Kingdom	5.1
Germany	4.6
Switzerland	3.7
Canada	3.4
Hong Kong	3.3
Sweden	3.0
Netherlands	2.9
Brazil	2.3
Total	86.0	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the commencement of operations and held for the period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,149.50		1,148.30		1,148.40		1,144.60		1,145.40		1,018.44		1,016.82		1,016.82		1,012.93		1,013.09
Expenses Incurred During Period (10/01/06 - 3/31/07)		6.97		8.68		8.68		12.78		12.62		6.56		8.18		8.18		12.07		11.91

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 1.30%, 1.62%, 1.62%, 2.39% and 2.36% for the Institutional, Service, Investor A, B, and C share classes, respectively, multiplied by the average account value over the period, multiplied by number of days 182/365 (to reflect the period the fund was open during the period).

31

INTERNATIONAL OPPORTUNITIES PORTFOLIO

Total Net Assets (3/31/07):  $1.4 billion

Performance Benchmark:

S&P/Citigroup Extended Market Index Global Ex-U.S. (S&P/Citigroup EMI Global Ex-U.S.)

Investment Approach:

Seeks long-term capital appreciation by investing at least 80% of its net assets in equity securities issued by international emerging capitalization companies (defined as those with market capitalizations equal to those within the universe of S&P/Citigroup EMI Global Ex-U.S. stocks). The Portfolio may invest up to 25% of its net assets in stocks of issuers in emerging market countries. The portfolio management team uses a multi-factor screen to identify stocks that have above-average return potential. The factors and the weight assigned to a factor may change depending on market conditions. The most influential factors over time have been relative value and earnings estimate revisions.

Recent Portfolio Management Activity:

• The Portfolio’s Institutional, Service Investor A and Investor C shares outperformed the benchmark, while Investor B shares underperformed the benchmark for the semiannual period.

• The global equity markets posted solid gains during the six-month period ended March 31, 2007. Emerging markets posted significant gains, with all regions participating. Among developed markets, Asia-Pacific ex-Japan was the best-performing region, followed by Europe, the United States and Japan. The Dollar Spot Index, which indicates the general international value of the U.S. dollar versus six major world currencies, declined 3.6% over the period.

• Global equity market leadership remained similar among market capitalizations and styles throughout the period. Small-cap stocks outperformed their large-cap counterparts, value outperformed growth, and non-U.S. equities outpaced U.S. stocks. Small-cap stocks, as represented in the S&P Global Extended Market Index, rose 17.9%, versus 11.3% for the large-cap S&P Global Primary Market Index. In what has been a longstanding trend, value stocks outperformed shares of growth companies across the market capitalization spectrum, although it appears that gap may be narrowing.

• From a sector standpoint, the markets saw a rotation back to many of the groups that have led this cycle: telecommunication services, materials, utilities, consumer discretionary, energy and industrials each outperformed the market, while healthcare, information technology (IT), financials, energy and consumer staples underperformed.

• The effects of sector and country allocation on the Portfolio’s performance versus the benchmark were mixed during the semiannual period. At the sector level, our allocation decisions had a modest positive impact, with an overweight in telecommunication services and an underweight in healthcare making the most significant contributions. Country allocation hindered relative return, as positive contributions from overweights in Malaysia, Norway and Finland could not offset the negative effect of an overweight position in Japan. The Portfolio’s outperformance during the period resulted primarily from good stock selection, particularly in the materials, industrials and energy sectors. The stocks that contributed most significantly were Bharti Airtel, Zinifex Ltd., CapitaLand Ltd., Viridian Group and Bilfinger Berger AG. Stock selection in financials, consumer discretionary and IT detracted from performance.

• We have continued to limit sector emphasis in the Portfolio. At the close of the semiannual period on March 31, 2007, our most significant overweights versus the benchmark were in industrials and materials, while the most notable underweights were in healthcare and financials. From a regional perspective, the Portfolio remains overweight in Asia and underweight in Europe, consistent with our view that European markets are over-valued on a relative basis.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERNATIONAL OPPORTUNITIES PORTFOLIO AND THE S&P/CITIGROUP EMI GLOBAL EX-U.S. INDEX FROM INCEPTION.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		5 Year		From Inception
Institutional Class	22.41	%	24.72	%	24.22	%	22.16	%
Service Class	22.25	%	24.37	%	23.87	%	21.79	%
Investor A Class (Load Adjusted)	15.83	%	17.77	%	22.43	%	20.94	%
Investor A Class (NAV)	22.25	%	24.29	%	23.75	%	21.62	%
Investor B Class (Load Adjusted)	17.22	%	18.77	%	22.62	%	20.88	%
Investor B Class (NAV)	21.72	%	23.27	%	22.80	%	20.88	%
Investor C Class (Load Adjusted)	20.76	%	22.39	%	22.83	%	20.74	%
Investor C Class (NAV)	21.76	%	23.39	%	22.83	%	20.74	%
S&P/ Citigroup EMI Global Ex-U.S. Index	21.73	%	24.43	%	24.54	%	11.78	%

THE FUND IS CLOSED TO NEW INVESTORS. EXISTING SHAREHOLDERS MAY MAKE ADDITIONAL INVESTMENTS IN CURRENT ACCOUNTS. IN ADDITION, NEW ACCOUNTS MAY BE OPENED BY (I) ANY INVESTOR IF THE TAX ID NUMBER FOR THE NEW ACCOUNT WILL BE THE SAME AS THAT FOR A CURRENT ACCOUNT AND (II) 401(K), 403(B), 457 AND OTHER SIMILAR GROUP RETIREMENT PLAN PROGRAMS OR CERTAIN DISCRETIONARY WRAP FEE PROGRAMS THAT HAVE CURRENT ACCOUNTS.

THE INCEPTION DATE OF THE PORTFOLIO’S INSTITUTIONAL, SERVICE, INVESTOR A, INVESTOR B, AND INVESTOR C SHARES WAS 9/26/97. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as the periods indicated, the Portfolio is actively managed and its composition will vary.

32

INTERNATIONAL OPPORTUNITIES PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
Bilfinger Berger AG	1.6	%
Yamana Gold, Inc.	1.4
GEA Group AG	1.3
Bharti Tele-Ventures Ltd.	1.2
IVG Immobilien AG	1.2
Accor SA	1.2
International Power PLC	1.1
Korea Investment Holdings Co. Ltd.	1.1
MTU Aero Engines Holding AG	1.1
Orkla ASA	1.1
Total	12.3	%

Top Ten Countries (% of long-term investments)
Japan	21.5	%
United Kingdom	15.0
Germany	8.5
France	5.2
Canada	5.1
Norway	4.5
Hong Kong	4.4
South Korea	4.0
Sweden	3.3
Italy	3.2
Total	74.7	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,224.10		1,222.50		1,222.50		1,217.20		1,217.60		1,018.69		1,017.23		1,017.02		1,012.98		1,013.24
Expenses Incurred During Period (10/01/06 - 3/31/07)		6.93		8.53		8.75		13.16		12.88		6.31		7.77		7.98		12.02		11.76

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 1.25%, 1.54%, 1.58%, 2.38% and 2.33% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

33

ASSET ALLOCATION PORTFOLIO

Total Net Assets (3/31/07):  $775.9 million

Performance Benchmark:

60% S&P 500^® Index / 40% Lehman Brothers U.S. Aggregate Index

Investment Approach:

Seeks to maximize total return, consistent with income generation and prudent investment management. The Portfolio uses an asset allocation strategy, investing varying percentages of its portfolio in three major categories: stocks, bonds and, to a lesser extent, money market instruments. The Portfolio management team uses a combination of quantitative and fundamental analysis to evaluate the relative attractiveness of various segments in the equity universe, defined by style, capitalization range and geographic location. The Portfolio management team regularly reviews and allocates varying percentages of the Portfolio to investment management team members responsible for security selection within these distinctive disciplines, including stocks of large-, middle- and small-capitalization companies, companies that appear to be trading below their true worth, companies with significant growth opportunities, firms in specialized sectors and international companies. Within each discipline, investment decisions are primarily the result of bottom-up security selection that, in turn, drives sector and industry weightings as well as average market capitalization. The fixed income investment management team selects bonds from several sectors including: U.S. Treasuries and agency securities, commercial and residential mortgage-backed securities, collateralized mortgage obligations, asset-backed securities and corporate bonds. The Portfolio invests primarily in dollar-denominated investment-grade bonds, but may invest up to 20% of its fixed income allocation in any combination of non-investment-grade bonds (high yield or junk bonds), non-dollar-denominated bonds and bonds of emerging market issuers.

Recent Portfolio Management Activity:

• All share classes of the Portfolio outperformed the benchmark for the semiannual period.

• The U.S. equity market, as measured by the S&P 500^® Index, gained 7.38% for the six-month period ended March 31, 2007. Moreover, large-cap value stocks outperformed their large-cap growth counterparts, with the Russell 1000^® Value Index rising 9.34% versus the 7.19% return of the Russell 1000^® Growth Index. The positive returns resulted primarily from an impressive rally in the fourth quarter of 2006 as U.S. equity markets generally produced modest gains during the six-month period. Analyst predictions of slowing corporate profit growth, increased volatility, rising oil prices, inflationary concerns and a deteriorating housing market recently have dampened investor enthusiasm.

• The U.S. fixed income market finished the semiannual period in positive territory despite substantial volatility along the way. A crisis in the subprime mortgage industry rekindled fears of a housing induced recession in the United States and helped increase financial market volatility and expand risk premiums. For the six months ended March 31, 2007, the Lehman Brothers U.S. Aggregate Bond Index was up 2.76%. Concerns about the strength of the U.S. economy were not driven solely by fears of subprime mortgage crisis spillover. Non-housing-related economic data released during the past few months — including payrolls, durable goods orders and retail sales — trended weaker. The Federal Open Market Committee (FOMC), which has left the target federal funds rate unchanged at 5.25% for six consecutive meetings, most recently at its March 21 session appeared to downgrade marginally its assessment of current economic conditions. At the same time, the FOMC remains focused on the elevated level of inflation, as exhibited by recent acceleration in the core personal consumption expenditures (PCE) index. The steepening of the U.S. Treasury yield curve was a manifestation of the Federal Reserve Board’s simultaneous concerns about too little growth and too much inflation, as well as an overall decline in risk appetite. This was particularly evident in March, as two-year Treasury note yields fell six basis points (.06%) to 4.58% while 30-year yields rose 16 basis points to 4.84%. The last time the U.S. Treasury curve steepened to this degree was during the third quarter of 2002, when WorldCom’s default and bankruptcy filing dominated headlines.

• During the semiannual period, we decreased the Portfolio’s cash allocation from approximately 11% to 2% of net assets and increased its equity allocation from 65% on September 30, 2006, to 74% on March 31, 2007. The current allocation represents an overweight position in equities and a significant underweight in fixed income relative to the Portfolio’s normal strategic allocation of 60% equity/40% fixed income/0% cash. The equity overweight enhanced the Portfolio’s performance versus the composite benchmark as stocks outperformed bonds during the past six months. We believe equities will benefit from sustained but slower global economic expansion, accompanied by decent corporate profit growth and reasonable market valuations. Accordingly, we added to our positions in international equities, particularly small caps and selected country markets, such as China and Australia, where industrialization and commodity-driven growth are contributing significantly to the domestic economies. Conversely, we remain concerned about the slowing U.S. housing market and the risks associated with the subprime mortgage situation. Since the financial sector typically represents the dominant weighting in U.S. large-cap value portfolios, we also adjusted our equity style tilts by reducing the Portfolio’s overweight allocation to U.S. large-cap value in favor of adding to our holdings in U.S. large-cap growth stocks. Finally, we trimmed our energy allocation in November 2006 after a strong rebound, but we have maintained exposure as we are bullish on this sector in the long term.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE ASSET ALLOCATION PORTFOLIO AND 60% S&P 500^® INDEX / 40% LEHMAN BROTHERS U.S. AGGREGATE INDEX FOR THE PAST TEN YEARS.

FOR PERIOD ENDING MARCH 31, 2007

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
Institutional Class	8.09	%	8.39	%	7.39	%	8.98	%
Service Class	7.98	%	8.20	%	7.13	%	8.75	%
Investor A Class (Load Adjusted)	2.28	%	2.44	%	5.89	%	8.06	%
Investor A Class (NAV)	7.95	%	8.09	%	7.03	%	8.65	%
Investor B Class (Load Adjusted)	3.04	%	2.76	%	5.95	%	7.88	%

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
Investor B Class (NAV)	7.54	%	7.26	%	6.26	%	7.88	%
Investor C Class (Load Adjusted)	6.51	%	6.31	%	6.28	%	7.87	%
Investor C Class (NAV)	7.51	%	7.31	%	6.28	%	7.87	%
60% S&P 500® Index/40% Lehman Brothers U.S. Aggregate Index	5.54	%	9.76	%	6.14	%	7.84	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INVESTOR A SHARES, 12/29/88; INSTITUTIONAL SHARES, 6/1/93; INVESTOR C SHARES, 6/1/93; INVESTOR B SHARES, 1/1/99; AND SERVICE SHARES, 1/28/05. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 36 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

34

ASSET ALLOCATION PORTFOLIO

FUND PROFILE
Top Ten Holdings (% of long-term investments)
AT&T, Inc.	1.3	%
Bank of America Corp.	1.1
U.S. Treasury Notes	1.0
Exxon Mobil Corp.	1.0
General Electric Co.	1.0
Citigroup, Inc.	0.9
JPMorgan Chase & Co.	0.8
Pfizer, Inc.	0.8
The Procter & Gamble Co.	0.6
ConocoPhillips	0.6
Total	9.1	%

Credit Quality (% of fixed income portfolio)1
AAA	76.0	%
AA	6.3
A	4.6
BBB	3.7
‹BBB	8.7
Unrated	0.7
Total	100.0	%

¹ Using the higher of Standard & Poor’s or Moody’s Investor Service.

Top Ten Industries (% of long-term investments)
Banks	7.5	%
Oil & Gas	6.7
Manufacturing	5.0
Finance	4.8
Communications	4.7
Retail Merchandising	4.1
Pharmaceuticals	3.6
Insurance	3.5
Computer Software & Services	3.3
Energy & Utilities	3.1
Total	46.3	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,080.90		1,079.80		1,079.50		1,075.40		1,075.10		1,020.66		1,019.55		1,018.99		1,014.95		1,015.46
Expenses Incurred During Period (10/01/06 - 3/31/07)		4.46		5.60		6.17		10.30		9.78		4.34		5.45		6.01		10.05		9.54

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.86%, 1.08%, 1.19%, 1.99% and 1.89% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

35

BLACK ROCK FUNDS

NOTE ON PERFORMANCE INFORMATION

The performance information on the previous pages includes information for each class of each Portfolio since the commencement of operations of the Portfolio, rather than the date such class was introduced. Performance information for each class introduced after the commencement of operations of a Portfolio is therefore based on the performance history of a predecessor class adjusted to reflect the class specific fees applicable to each class at the time of such share class’s launch. This information may be considered when assessing the fund’s performance, but does not represent the actual performance of this share class.

Performance for the Capital Appreciation, Mid-Cap Value Equity, Aurora, Small/Mid-Cap Growth, Global Resources, Health Sciences Opportunities and Asset Allocation Portfolios for the periods prior to January 31, 2005 is based on performance of certain former State Street Research mutual funds that reorganized with the Portfolios on that date.

Performance information is restated to reflect the current maximum front-end sales charge (in the case of Investor A Shares) or the maximum contingent deferred sales charge (in the case of Investor B and Investor C Shares), and assumes the reinvestment of dividends and distributions. The maximum front-end sales charges for Investor A Shares of all of the Portfolios is 5.25%. The maximum contingent deferred sales charge for Investor B Shares and Investor C Shares of all of the Portfolios is 4.50% and 1.00%, respectively.

The performance information also reflects fee waivers and reimbursements that subsidize and reduce the total operating expenses of each Portfolio. The Portfolios’ returns would have been lower if there were no such waivers and reimbursements. BlackRock Advisors, LLC is under no obligation to waive or continue waiving its fees after February 1, 2008 as described in the prospectus of the Portfolios. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.

The performance shown in the line graphs is that of Institutional Shares and Investor A Shares of the Portfolios. The actual performance of Investor B, Investor C and Service Shares is lower than the performance of Institutional Shares because Investor B, Investor C and Service Shares have higher expenses than Institutional Shares. Excluding the effects of sales charges, the actual performance of Investor B and Investor C Shares is lower than the performance of Investor A Shares because Investor B and Investor C Shares have higher expenses than Investor A Shares. Purchasers of Investor A Shares generally pay a front-end sales charge, while purchasers of Investor B and Investor C Shares may pay a contingent deferred sales charge (depending on how long they hold their shares) when they sell their shares.

36

BLACK ROCK FUNDS

SCHEDULE OF INVESTMENTS

INVESTMENT TRUST PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 99.1%
Advertising — 0.5%
Valueclick, Inc,(b)	216,300	$	5,651,919
Aerospace — 2.4%
The Boeing Co.	107,600		9,566,716
Lockheed Martin Corp.	83,300		8,081,766
Raytheon Co.(c)	197,900		10,381,834
			28,030,316
Air Transportation — 0.3%
Continental Airlines, Inc. - Class B(b)(c)	105,900		3,853,701
Banks — 9.8%
Bank of America Corp.	616,100		31,433,422
Citigroup, Inc.	488,200		25,064,188
JPMorgan Chase & Co.	535,800		25,922,004
Key Corp.(c)	153,300		5,744,151
U.S. Bancorp(c)	313,900		10,977,083
Wachovia Corp.(c)	249,000		13,707,450
			112,848,298
Beverages & Bottling — 1.9%
The Coca-Cola Co.	294,100		14,116,800
Molson Coors Brewing Co. - Class B	83,600		7,910,232
			22,027,032
Broadcasting — 1.5%
CBS Corp. - Class B(c)	264,600		8,094,114
DIRECTV Group, Inc.(b)	404,700		9,336,429
			17,430,543
Business Services — 0.6%
Convergys Corp.(b)	276,900		7,036,029
Chemicals — 1.3%
Eastman Chemical Co.	114,700		7,263,951
The Lubrizol Corp.	145,900		7,518,227
			14,782,178
Computer & Office Equipment — 5.3%
Cisco Systems, Inc.(b)	884,400		22,578,732
Hewlett-Packard Co.	357,600		14,354,064
International Business Machines Corp.(c)	249,400		23,508,444
			60,441,240
Computer Software & Services — 4.8%
Cadence Design Systems, Inc.(b)	292,000		6,149,520
Computer Sciences Corp.(b)	110,100		5,739,513
Google, Inc. - Class A(b)(c)	13,800		6,322,608
IAC/InterActiveCorp(b)(c)	147,400		5,558,454
Microsoft Corp.(c)	632,500		17,627,775
Oracle Corp.(b)	741,800		13,448,834
			54,846,704
Electronics — 2.3%
Amphenol Corp.(c)	99,400		6,418,258
Intel Corp.	665,800		12,736,754
Vishay Intertechnology, Inc.(b)	534,400		7,470,912
			26,625,924
Energy & Utilities — 4.0%
FirstEnergy Corp.(c)	135,600		8,982,144
FPL Group, Inc.	147,800		9,040,926
PG&E Corp.(c)	274,400		13,245,288
Sempra Energy(c)	188,900		11,524,789
TXU Corp.	45,400		2,910,140
			45,703,287
Entertainment & Leisure — 1.6%
The Walt Disney Co.(c)	518,700		17,858,841
Finance — 4.9%
American Express Co.	180,900		10,202,760
AmeriCredit Corp.(b)	214,300		4,898,898
Ameriprise Financial, Inc.	149,900		8,565,286
The Bear Stearns Cos., Inc.(c)	45,600		6,855,960
CIT Group, Inc.	112,600		5,958,792
The Goldman Sachs Group, Inc.	57,000		11,777,910
Morgan Stanley	105,800		8,332,808
			56,592,414
Food & Agriculture — 1.7%
Archer-Daniels-Midland Co.	175,200		6,429,840
ConAgra Foods, Inc.	227,600		5,669,516
General Mills, Inc.	133,500		7,772,370
			19,871,726
Insurance — 6.2%
Aetna, Inc.	198,400		8,687,936
The Allstate Corp.	141,800		8,516,508
American International Group, Inc.	100,100		6,728,722
CHUBB Corp.	149,800		7,740,166
MetLife, Inc.(c)	174,800		11,038,620
Travelers Companies, Inc.	205,400		10,633,558
UnumProvident Corp.(c)	281,300		6,478,339
W.R. Berkley Corp.(c)	134,325		4,448,844
WellPoint, Inc.(b)	82,400		6,682,640
			70,955,333
Machinery & Heavy Equipment — 0.7%
Terex Corp.(b)(c)	116,700		8,374,392
Manufacturing — 8.0%
Cooper Industries Ltd. - Class A	153,000		6,883,470
Energizer Holdings, Inc.(b)	80,700		6,886,131
General Electric Co.(d)	991,500		35,059,440
Mattel, Inc.	292,900		8,075,253
Nucor Corp.(c)	183,100		11,925,303
Parker Hannifin Corp.(c)	102,700		8,864,037
Reynold American, Inc.(c)	79,400		4,955,354
Whirlpool Corp.(c)	113,400		9,628,794
			92,277,782
Measuring & Controlling Devices — 0.6%
Thermo Electron Corp.(b)	149,700		6,998,475
Medical & Medical Services — 2.3%
Amgen, Inc.(b)	82,700		4,621,276
Coventry Health Care, Inc.(b)	160,006		8,968,336
McKesson Corp.	116,300		6,808,202
Mylan Laboratories, Inc.	310,900		6,572,426
			26,970,240
Medical Instruments & Supplies — 3.1%
Beckman Coulter, Inc.(c)	114,700		7,328,183
Becton, Dickinson & Co.	109,400		8,411,766

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

37

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INVESTMENT TRUST PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
COMMON STOCKS (Continued)
Medical Instruments & Supplies (Continued)
Johnson & Johnson			225,500	$	13,588,630
Kinetic Concepts, Inc.(b)			120,200		6,086,928
					35,415,507
Metal & Mining — 0.5%
Freeport-McMoran Copper & Gold, Inc. - Class B(c)			94,900		6,281,431
Motor Vehicles — 1.0%
PACCAR, Inc.(c)			151,850		11,145,790
Oil & Gas — 9.4%
Chevron Corp.			102,700		7,595,692
ConocoPhillips			300,600		20,546,010
ENSCO International, Inc.			195,500		10,635,200
Exxon Mobil Corp.			371,100		27,999,495
Marathon Oil Corp.			155,100		15,328,533
Schlumberger Ltd.			125,400		8,665,140
Valero Energy Corp.			110,800		7,145,492
XTO Energy, Inc.			188,500		10,331,685
					108,247,247
Paper & Paper Products — 0.6%
Temple-Inland, Inc.			123,100		7,353,994
Pharmaceuticals — 4.8%
Gilead Sciences, Inc.(b)			82,900		6,341,850
King Pharmaceuticals, Inc.(b)			330,500		6,500,935
Merck & Co., Inc.			399,200		17,632,664
Pfizer, Inc.			984,800		24,876,048
					55,351,497
Publishing & Printing — 0.6%
The McGraw-Hill Cos., Inc.			105,200		6,614,976
Railroad & Shipping — 1.2%
Union Pacific Corp.			132,900		13,495,995
Real Estate — 1.0%
ProLogis (REIT)			72,700		4,720,411
Simon Property Group, Inc. (REIT)(c)			56,700		6,307,875
					11,028,286
Restaurants — 1.0%
McDonald’s Corp.			249,600		11,244,480
Retail Merchandising — 4.7%
American Eagle Outfitters, Inc.(c)			172,900		5,185,271
Dillard’s, Inc. - Class A(c)			207,200		6,781,656
Dollar Tree Stores, Inc.(b)			232,400		8,886,976
Federated Department Stores, Inc.(c)			218,700		9,852,435
J.C. Penney Co., Inc.(c)			99,100		8,142,056
The Kroger Co.			234,600		6,627,450
Officemax, Inc.			166,200		8,765,388
					54,241,232
Security Brokers & Dealers — 0.6%
Lehman Brothers Holdings, Inc.(c)			93,800		6,572,566
Semiconductors & Related Devices — 1.3%
Lam Research Corp.(b)(c)			156,200		7,394,508
MEMC Electronic Materials, Inc.(b)			124,700		7,554,326
					14,948,834
Soaps & Cosmetics — 1.5%
Colgate-Palmolive Co.			122,200		8,161,738
The Procter & Gamble Co.			140,500		8,873,980
					17,035,718
Telecommunications — 3.7%
AT&T, Inc.(c)			737,610		29,083,962
Verizon Communications, Inc.(c)			349,891		13,267,867
					42,351,829
Tires & Rubber — 0.8%
The Goodyear Tire & Rubber Co.(b)(c)			312,700		9,753,113
Tobacco — 1.2%
Altria Group, Inc.			158,200		13,891,542
Transportation — 0.7%
Ryder Systems, Inc.			126,400		6,236,576
YRC Worldwide, Inc.(b)(c)			50,800		2,043,176
					8,279,752
Waste Management — 0.7%
Allied Waste Industries, Inc.(b)			664,600		8,367,314
TOTAL COMMON STOCKS
(Cost $865,511,364)					1,140,797,477
	MATURITY	PAR/SHARES (000)
SHORT TERM INVESTMENTS — 1.1%
Federal Home Loan Mortgage Corp., Discount Notes 4.97%(e)	04/02/07	$	3,000		2,999,592
Galileo Money Market Fund, 5.02%			9,150		9,150,104
TOTAL SHORT TERM INVESTMENTS (Cost $12,149,696)					12,149,696
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 100.2% (Cost $877,661,060)					1,152,947,173
SECURITIES LENDING COLLATERAL — 2.8%
Bank of America Corp., Master Notes 5.51%(f)(g)	04/02/07		24,901		24,900,962
The Bear Stearns Cos., Inc., Variable Rate Commercial Paper 5.51%(f)(g) 04/02/07			5,368		5,368,161
Citigroup, Inc., Master Notes 5.51%(f)(g)	04/02/07		1,318		1,318,414
Morgan Stanley, Variable Rate Commercial Paper 5.50%(f)(g)	04/02/07		184		183,709
TOTAL SECURITIES LENDING COLLATERAL (Cost $31,771,246)					31,771,246

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

38

BLACK ROCK FUNDS

SCHEDULE OF INVESTMENTS

INVESTMENT TRUST PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
AFFILIATED INVESTMENTS - SHORT TERM — 11.1%
Institutional Money Market Trust, 4.80%(g) (Cost $128,277,219)	128,277,219	$	128,277,219
TOTAL INVESTMENTS IN SECURITIES — 114.1% (Cost $1,037,709,525(a))			1,312,995,638
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (13.9)%			(160,048,465	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (0.2)%			(2,337,785	)
NET ASSETS — 100.0%		$	1,150,609,388

(a) Cost for federal income tax purposes is $1,038,769,823. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	279,409,280
Gross unrealized depreciation		(5,183,465	)
	$	274,225,815

(b) Non-income producing security.

(c) Total or partial security on loan.

(d) Security, or a portion thereof, pledged as collateral with a value of $1,838,720 on 33 long S&P 500 futures contracts expiring June 2007. The notional value of such contracts on March 31, 2007 was $11,807,400 with an unrealized gain of $335,564 (including commissions of $104).

(e) The rate shown is the effective yield at the time of purchase. (f) Variable rate security. Rate shown is the rate as of March 31, 2007.

(g) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

39

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

CAPITAL APPRECIATION PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 99.4%
Advertising — 1.5%
Focus Media Holding Ltd. - ADR(b)	45,400	$	3,562,084
Aerospace — 3.2%
The Boeing Co.	39,500		3,511,945
United Technologies Corp.	63,600		4,134,000
			7,645,945
Banks — 1.4%
Bank of America Corp.	64,300		3,280,586
Beverages & Bottling — 2.8%
PepsiCo, Inc.(c)	105,100		6,680,156
Computer & Office Equipment — 7.2%
Apple Computer, Inc.(b)	79,699		7,404,834
Cisco Systems, Inc.(b)	290,267		7,410,516
Hewlett-Packard Co.	64,734		2,598,423
			17,413,773
Computer Software & Services — 11.3%
Adobe Systems, Inc.(b)	137,400		5,729,580
Cognizant Technology Solutions Corp.(b)	31,298		2,762,674
First Data Corp.	75,000		2,017,500
Google, Inc. - Class A(b)(c)	18,004		8,248,713
Juniper Networks, Inc.(b)	101,805		2,003,522
Salesforce.com, Inc.(b)(c)	74,100		3,172,962
Sun Microsystems, Inc.(b)(c)	230,500		1,385,305
Yahoo!, Inc.(b)	57,596		1,802,179
			27,122,435
Entertainment & Leisure — 2.3%
Hilton Hotels Corp.(c)	126,800		4,559,728
Las Vegas Sands Corp.(b)(c)	12,200		1,056,642
			5,616,370
Finance — 5.1%
American Express Co.	98,350		5,546,940
NYSE Group, Inc.(c)	64,400		6,037,500
UBS AG	9,800		582,414
			12,166,854
Food & Agriculture — 2.7%
Monsanto Co.	119,140		6,547,935
Insurance — 1.6%
American International Group, Inc.	56,600		3,804,652
Manufacturing — 14.2%
Cooper Industries Ltd. - Class A	26,338		1,184,947
Corning, Inc.(b)	262,102		5,960,199
Danaher Corp.	51,100		3,651,095
Foster Wheeler Ltd.(b)	20,664		1,206,571
General Electric Co.	232,400		8,217,664
Honeywell International, Inc.	153,200		7,056,392
Polo Ralph Lauren Corp.(c)	40,900		3,605,335
Rockwell Automation, Inc.(c)	18,300		1,095,621
Textron, Inc.	25,900		2,325,820
			34,303,644
Measuring & Controlling Devices — 1.9%
Thermo Electron Corp.(b)(c)	100,400		4,693,700
Medical & Medical Services — 3.6%
Henry Schein, Inc.(b)	46,300		2,554,834
Medco Health Solutions, Inc.(b)	34,911		2,532,095
UnitedHealth Group, Inc.	69,800		3,697,306
			8,784,235
Medical Instruments & Supplies — 3.2%
Johnson & Johnson	68,420		4,122,989
Zimmer Holdings, Inc.(b)	40,600		3,467,646
			7,590,635
Metal & Mining — 0.9%
CONSOL Energy, Inc.	56,300		2,203,019
Oil & Gas — 2.4%
GlobalSantaFe Corp.(c)	38,359		2,365,983
Schlumberger Ltd.	29,200		2,017,720
Weatherford International Ltd.(b)	32,700		1,474,770
			5,858,473
Pharmaceuticals — 9.0%
Abbott Laboratories	106,600		5,948,280
Allergan, Inc.(c)	16,220		1,797,500
Amylin Pharmaceuticals, Inc.(b)(c)	29,400		1,098,384
Genentech, Inc.(b)	13,900		1,141,468
Genzyme Corp.(b)	70,300		4,219,406
Gilead Sciences, Inc.(b)	49,800		3,809,700
Merck & Co., Inc.	79,846		3,526,798
			21,541,536
Retail Merchandising — 6.7%
Federated Department Stores, Inc.(c)	88,700		3,995,935
O’Reilly Automotive, Inc.(b)	70,600		2,336,860
Staples, Inc.	110,350		2,851,444
Wal-Mart Stores, Inc.	147,500		6,925,125
			16,109,364
Semiconductors & Related Devices — 2.7%
PMC-Sierra, Inc.(b)(c)	255,700		1,792,457
STMicroelectronics NV - NY Shares(c)	244,100		4,686,720
			6,479,177
Soaps & Cosmetics — 3.1%
The Procter & Gamble Co.	118,200		7,465,512
Telecommunications — 9.4%
Alcatel SA - ADR(c)	242,031		2,860,806
American Tower Corp. - Class A(b)	78,723		3,066,261
AT&T, Inc.(c)	159,783		6,300,244
Clearwire Corp.(b)(c)	11,200		229,264
Harman International Industries, Inc.	33,300		3,199,464
NII Holdings, Inc.(b)(c)	59,381		4,404,883
QUALCOMM, Inc.	59,629		2,543,773
			22,604,695
Tobacco — 2.0%
Altria Group, Inc.	54,212		4,760,356

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

40

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

CAPITAL APPRECIATION PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
COMMON STOCKS (Continued)
Transportation — 1.2%
FedEx Corp.(c)			27,700	$	2,975,811
TOTAL COMMON STOCKS (Cost $199,127,243)					239,210,947
WARRANTS — 0.0%
Lucent Technologies, Inc. (issued 12/10/04, expiring 12/10/07, strike price $2.75)(d) (Cost $7,747)			11,738		1,115
SHORT TERM INVESTMENTS — 0.8%
Galileo Money Market Fund, 5.02% (Cost $1,812,769)			1,812,769		1,812,769
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 100.2% (Cost $200,947,759)					241,024,831
	MATURITY	PAR/SHARES (000)
SECURITIES LENDING COLLATERAL — 5.4%
Bank of America Corp., Master Notes 5.51%(e)(f)	04/02/07	$	10,859		10,859,103
The Bear Stearns Cos., Inc., Variable Rate Commercial Paper 5.51%(e)(f)	04/02/07		1,311		1,311,060
Morgan Stanley, Variable Rate Commercial Paper 5.50%(e)(f)	04/02/07		914		913,623
TOTAL SECURITIES LENDING COLLATERAL (Cost $13,083,786)					13,083,786
AFFILIATED INVESTMENTS—SHORT TERM — 12.0%
Institutional Money Market Trust, 4.80%(f) (Cost $28,917,616)			28,918		28,917,616
TOTAL INVESTMENTS IN SECURITIES — 117.6% (Cost $242,949,161(a))					283,026,233
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (17.4)%					(42,001,402	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (0.2)%					(458,467	)
NET ASSETS — 100.0%				$	240,566,364

(a) Cost for federal income tax purposes is $243,406,948. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	42,682,092
Gross unrealized depreciation		(3,062,807	)
	$	39,619,285

(b) Non-income producing security.

(c) Total or partial security on loan.

(d) As of March 31, 2007, the aggregate amount of shares called for by these warrants is 12,138. These warrants were exercisable as of 12/10/04.

(e) Variable rate security. Rate shown is the rate as of March 31, 2007.

(f) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

41

BLACK ROCK FUNDS

SCHEDULE OF INVESTMENTS

MID-CAP VALUE EQUITY PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 97.5%
Air Transportation — 0.6%
Southwest Airlines Co.	444,400	$	6,532,680
Banks — 9.1%
City National Corp.(b)	198,000		14,572,800
Cullen/Frost Bankers, Inc.	367,200		19,215,576
First Midwest Bancorp, Inc.	260,400		9,569,700
Hudson City Bancorp, Inc.(b)	1,129,200		15,447,456
Wintrust Financial Corp.(b)	433,400		19,333,974
Zions Bancorporation	225,000		19,017,000
			97,156,506
Broadcasting — 1.5%
Belo Corp.(b)	874,226		16,321,800
Business Services — 5.6%
Amvescap Plc - ADR(b)	371,600		8,212,360
The Brink’s Co.(b)	282,700		17,937,315
eFunds Corp.(c)	281,800		7,512,788
Hewitt Associates, Inc. - Class A(c)	242,100		7,076,583
National Financial Partners Corp.	131,575		6,172,183
W.W. Grainger, Inc.(b)	167,892		12,967,978
			59,879,207
Chemicals — 2.0%
Ashland, Inc.	128,100		8,403,360
Celanese Corp. - Series A	415,400		12,810,936
			21,214,296
Computer & Office Equipment — 1.9%
Electronics for Imaging, Inc.(c)	397,800		9,328,410
NCR Corp.(b)(c)	220,500		10,533,285
Phase Metrics, Inc.(c)(d)	108,409		2,168
			19,863,863
Computer Software & Services — 1.2%
Activision, Inc.(b)(c)	691,233		13,091,953
Containers — 1.4%
Owens-Illinois, Inc.(b)(c)	318,900		8,218,053
Smurfit-Stone Container Corp.(c)	588,000		6,620,880
			14,838,933
Electronics — 3.4%
Agilent Technologies, Inc.(c)	408,500		13,762,365
Intersil Corp. - Class A	296,200		7,846,338
L-3 Communications Holdings, Inc.	160,100		14,003,947
			35,612,650
Energy & Utilities — 13.3%
Constellation Energy Group, Inc.(b)	187,700		16,320,515
Edison International	355,200		17,450,976
Entergy Corp.	185,700		19,483,644
Equitable Resources, Inc.(b)	358,400		17,317,888
NRG Energy, Inc.(b)(c)	195,100		14,055,004
PPL Corp.	480,100		19,636,090
Public Service Enterprise Group, Inc.(b)	242,000		20,095,680
Questar Corp.	191,200		17,056,952
			141,416,749
Entertainment & Leisure — 1.0%
Hilton Hotels Corp.(b)	294,700		10,597,412
Finance — 6.1%
Ambac Financial Group, Inc.(b)	181,050		15,640,909
Capital One Financial Corp.	133,200		10,051,272
CIT Group, Inc.(b)	255,100		13,499,892
Freedom Pay, Inc.(d)	43,051		431
Mellon Financial Corp.(b)	471,300		20,331,882
TD Ameritrade Holding Corp.(c)	367,000		5,460,960
			64,985,346
Food & Agriculture — 3.3%
Bunge Ltd.(b)	51,400		4,226,108
Del Monte Foods Co.	1,260,700		14,472,836
Pilgrim’s Pride Corp.	516,300		17,135,997
			35,834,941
Insurance — 4.8%
Axis Capital Holdings Ltd.	297,500		10,073,350
Conseco, Inc.(b)(c)	886,567		15,337,609
Endurance Specialty Holdings Ltd.	324,119		11,584,013
XL Capital Ltd.(b)	194,900		13,635,204
			50,630,176
Manufacturing — 2.6%
Callaway Golf Co.	239,405		3,773,023
Jones Apparel Group, Inc.	226,300		6,954,199
Textron, Inc.(b)	143,700		12,904,260
The Warnaco Group, Inc.(c)	147,000		4,174,800
			27,806,282
Medical & Medical Services — 3.0%
Coventry Health Care, Inc.(c)	261,000		14,629,050
Omnicare, Inc.(b)	165,700		6,589,889
Quest Diagnostics, Inc.(b)	210,200		10,482,674
			31,701,613
Medical Instruments & Supplies — 2.7%
The Cooper Cos., Inc.(b)	305,200		14,838,824
Hillenbrand Industries, Inc.(b)	228,666		13,575,901
			28,414,725
Metal & Mining — 3.1%
CONSOL Energy, Inc.	255,500		9,997,715
Massey Energy Co.(b)	350,908		8,418,283
MSC Industrial Direct Co., Inc.	154,100		7,193,388
United States Steel Corp.	71,800		7,120,406
			32,729,792
Motor Vehicles — 0.9%
Ford Motor Co.(b)	1,212,900		9,569,781
Oil & Gas — 6.0%
AGL Resources, Inc.	361,395		15,438,794
Diamond Offshore Drilling, Inc.(b)	145,600		11,786,320
EOG Resources, Inc.	124,600		8,888,964
Newfield Exploration Co.(b)(c)	352,600		14,706,946
Rowan Cos., Inc.	157,700		5,120,519
Southwestern Energy Co.(c)	202,300		8,290,254
			64,231,797
Publishing & Printing — 2.6%
Dow Jones & Co., Inc.(b)	173,400		5,977,098
R.R. Donnelley & Sons Co.	441,700		16,161,803

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

42

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MID-CAP VALUE EQUITY PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES			VALUE
COMMON STOCKS (Continued)
Publishing & Printing (Continued)
Tribune Co.(b)			190,800		$	6,126,588
						28,265,489
Railroad & Shipping — 0.5%
CSX Corp.			138,800			5,558,940
Real Estate — 6.3%
Boston Properties, Inc. (REIT)(b)			143,100			16,799,940
Camden Property Trust (REIT)			158,100			11,116,011
Mack-Cali Realty Corp. (REIT)(b)			209,500			9,978,485
ProLogis (REIT)			205,700			13,356,101
Simon Property Group, Inc. (REIT)(b)			142,100			15,808,625
						67,059,162
Restaurants — 0.7%
CKE Restaurants, Inc.			375,900			7,089,474
Retail Merchandising — 8.1%
Advance Auto Parts, Inc.			217,800			8,396,190
Borders Group, Inc.(b)			734,900			15,006,658
Central Garden & Pet Co.(c)			361,200			5,309,640
Federated Department Stores, Inc.(b)			101,100			4,554,555
The Kroger Co.			322,600			9,113,450
Limited Brands, Inc.(b)			594,100			15,482,246
Saks, Inc.(b)			293,328			6,112,955
SUPERVALU, Inc.(b)			287,100			11,216,997
The Talbots, Inc.(b)			448,874			10,602,404
						85,795,095
Security Brokers & Dealers — 0.7%
Piper Jaffray Cos., Inc.(c)			118,800			7,358,472
Semiconductors & Related Devices — 0.3%
Marvell Technology Group Ltd.(b)(c)			196,900			3,309,889
Telecommunications — 2.2%
Amdocs Ltd.(c)			300,800			10,973,184
Andrew Corp.(b)(c)			1,145,800			12,134,022
						23,107,206
Textiles — 0.5%
Carter’s, Inc.(c)			221,900			5,622,946
Tires & Rubber — 0.6%
Cooper Tire & Rubber Co.(b)			358,366			6,554,514
Tobacco — 1.5%
Carolina Group			216,200			16,346,882
TOTAL COMMON STOCKS (Cost $864,375,133)						1,038,498,571
	MATURITY	PAR/SHARES (000)
SHORT TERM INVESTMENTS — 4.5%
Federal Home Loan Bank, Discount Notes 4.97%(e)	04/02/07	$	39,000			38,994,616
Galileo Money Market Fund, 5.02%			9,486			9,485,946
TOTAL SHORT TERM INVESTMENTS (Cost $48,480,562)						48,480,562
					VALUE
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 102.0% (Cost $912,855,695)					$	1,086,979,133
SECURITIES LENDING COLLATERAL — 2.3%
Bank of America Corp., Master Notes 5.51%(f)(g)	04/02/07		1,434			1,434,067
The Bear Stearns Cos., Inc., Variable Rate Commercial Paper 5.51%(f)(g)	04/02/07		10,596			10,596,420
Citigroup, Inc., Master Notes 5.51%(f)(g)	04/02/07		1,725			1,725,057
Morgan Stanley, Variable Rate Commercial Paper 5.50%(f)(g)	04/02/07		11,283			11,283,375
TOTAL SECURITIES LENDING COLLATERAL (Cost $25,038,919)						25,038,919
AFFILIATED INVESTMENTS — SHORT TERM — 14.5%
Institutional Money Market Trust, 4.80%(g) (Cost $154,241,277)			154,241			154,241,277
TOTAL INVESTMENTS IN SECURITIES — 118.8% (Cost $1,092,135,891(a))						1,266,259,329
		NUMBER OF CONTRACTS
CALL OPTIONS WRITTEN — 0.0%
The Kroger Co., Strike Price $30, Expires 7/21/07			(1,000	)		(85,000	)
Public Services Enterprise Group, Inc., Strike Price $80, Expires 5/19/07			(400	)		(200,000	)
SUPERVALU, Inc., Strike Price $40, Expires 4/21/07			(750	)		(30,000	)
TOTAL CALL OPTIONS WRITTEN (Premiums received $225,672)						(315,000	)
PUT OPTIONS WRITTEN — 0.0%
National Financial Partners Corp., Strike Price $45, Expires 7/21/07			(330	)		(66,000	)
Omnicare, Inc., Strike Price $37.50, Expires 5/19/07			(300	)		(16,500	)
Pilgrim’s Pride Corp., Strike Price $25, Expires 9/22/07			(1,200	)		(150,000	)
Rowan Cos., Inc., Strike Price $27.50, Expires 10/20/07			(1,090	)		(98,100	)
TOTAL PUT OPTIONS WRITTEN (Premiums received $388,503)						(330,600	)

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

43

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MID-CAP VALUE EQUITY PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	VALUE
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (16.8)%	$	(179,280,196	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (2.0)%		(20,613,516	)
NET ASSETS — 100.0%	$	1,065,720,017

(a) Cost for federal income tax purposes is $1,112,505,535. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	164,658,582
Gross unrealized depreciation		(10,904,788	)
	$	153,753,794

(b) Total or partial security on loan. (c) Non-income producing security.

(d) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. As of March 31, 2007, these securities had a total market value of $2,599 which represents less than 0.1% of net assets.

(e) The rate shown is the effective yield at the time of purchase.

(f) Variable rate security. Rate shown is the rate as of March 31, 2007.

(g) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

44

BLACK ROCK FUNDS

SCHEDULE OF INVESTMENTS

MID-CAP GROWTH EQUITY PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 99.7%
Aerospace — 3.3%
Goodrich Corp.	156,200	$	8,041,176
Spirit Aerosystems Holdings, Inc. - Class A(b)	159,483		5,079,534
			13,120,710
Banks — 1.5%
Fidelity National Information Services, Inc.	125,900		5,723,414
Broadcasting — 0.9%
CKX, Inc.(b)	323,000		3,585,300
Business Services — 4.2%
Alliance Data Systems Corp.(b)(c)	114,100		7,030,842
Amvescap Plc - ADR(c)	189,100		4,179,110
Investors Financial Services Corp.(c)	93,700		5,448,655
			16,658,607
Chemicals — 1.5%
Celanese Corp. - Series A	186,900		5,763,996
Computer Software & Services — 12.4%
Adobe Systems, Inc.(b)(c)	162,100		6,759,570
CACI International, Inc.(b)	90,800		4,254,888
Ceridian Corp.(b)	89,700		3,125,148
Foundry Networks, Inc.(b)	319,800		4,339,686
IHS, Inc.(b)	155,400		6,388,494
Ingram Micro, Inc. - Class A(b)	201,800		3,896,758
International Game Technology	62,700		2,531,826
Juniper Networks, Inc.(b)(c)	242,200		4,766,496
MICROS Systems, Inc.(b)	74,300		4,011,457
Transaction Systems Architects, Inc.(b)	190,700		6,176,773
VeriFone Holdings, Inc.(b)(c)	62,900		2,310,317
			48,561,413
Electronics — 3.7%
Ametek, Inc.	194,600		6,721,484
Amphenol Corp.(c)	91,500		5,908,155
Intersil Corp. - Class A	73,000		1,933,770
			14,563,409
Energy & Utilities — 1.7%
Airgas, Inc.	74,300		3,131,745
Questar Corp.(c)	38,600		3,443,506
			6,575,251
Entertainment & Leisure — 4.3%
Hilton Hotels Corp.(c)	165,400		5,947,784
Orient-Express Hotels Ltd. - Class A(c)	106,100		6,346,902
Scientific Games Corp. - Class A(b)(c)	143,700		4,717,671
			17,012,357
Finance — 4.3%
Affiliated Managers Group, Inc.(b)(c)	26,200		2,838,770
AllianceBernstein Holding LP	35,500		3,141,750
Chicago Mercantile Exchange Holdings, Inc.(c)	12,900		6,868,734
Nasdaq Stock Market, Inc.(b)(c)	71,500		2,102,815
T. Rowe Price Group, Inc.	44,600		2,104,674
			17,056,743
Food & Agriculture — 1.2%
Panera Bread Co. - Class A(b)(c)	79,100		4,671,646
Machinery & Heavy Equipment — 0.9%
Joy Global, Inc.(c)	86,200		3,697,980
Manufacturing — 4.1%
Gardner Denver, Inc.(b)	57,600		2,007,360
IDEX Corp.	118,600		6,034,368
Precision Castparts Corp.	71,300		7,418,765
Sirona Dental Systems, Inc.(c)	13,100		451,426
			15,911,919
Measuring & Controlling Devices — 2.4%
Thermo Electron Corp.(b)(c)	202,800		9,480,900
Medical & Medical Services — 6.6%
Coventry Health Care, Inc.(b)	77,450		4,341,072
LifePoint Hospitals, Inc.(b)	120,400		4,601,688
Medco Health Solutions, Inc.(b)	96,100		6,970,133
Omnicare, Inc.(c)	95,300		3,790,081
Pediatrix Medical Group, Inc.(b)	109,100		6,225,246
			25,928,220
Medical Instruments & Supplies — 3.4%
Hologic, Inc.(b)(c)	59,900		3,452,636
Martek Biosciences Corp.(b)(c)	179,000		3,690,980
Varian Medical Systems, Inc.(b)(c)	86,200		4,110,878
Waters Corp.(b)	37,400		2,169,200
			13,423,694
Metal & Mining — 3.9%
Century Aluminum Co.(b)	122,400		5,738,112
CONSOL Energy, Inc.(c)	122,900		4,809,077
Massey Energy Co.(c)	202,600		4,860,374
			15,407,563
Miscellaneous Services — 0.5%
TeleTech Holdings, Inc.(b)	57,300		2,102,337
Motor Vehicles — 1.8%
Oshkosh Truck Corp.(c)	129,400		6,858,200
Oil & Gas — 8.2%
Acergy SA - ADR(b)	190,800		4,062,132
BJ Services Co.(c)	63,100		1,760,490
Chesapeake Energy Corp.(c)	109,500		3,381,360
ENSCO International, Inc.(c)	77,300		4,205,120
EOG Resources, Inc.(c)	62,000		4,423,080
GlobalSantaFe Corp.(c)	42,000		2,590,560
Grant Prideco, Inc.(b)(c)	112,900		5,626,936
Newfield Exploration Co.(b)(c)	145,105		6,052,330
			32,102,008
Personal Services — 1.4%
Laureate Education, Inc.(b)(c)	89,600		5,283,712
Pharmaceuticals — 4.8%
Endo Pharmaceuticals Holdings, Inc.(b)	168,300		4,948,020
IMS Health, Inc.	145,300		4,309,598
Medicis Pharmaceutical Corp.(c)	141,900		4,373,358
Shire Plc - ADR	85,656		5,302,106
			18,933,082
Railroad & Shipping — 1.1%
UTI Worldwide, Inc.(c)	172,200		4,232,676

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

45

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MID-CAP GROWTH EQUITY PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
COMMON STOCKS (Continued)
Retail Merchandising — 10.4%
Advance Auto Parts, Inc.			143,600	$	5,535,780
Coach, Inc.(b)			85,900		4,299,295
Dick’s Sporting Goods, Inc.(b)(c)			79,800		4,649,148
GameStop Corp.(b)(c)			307,600		10,018,532
J.C. Penney Co., Inc.			69,000		5,669,040
Staples, Inc.			187,772		4,852,028
TJX Cos., Inc.			212,700		5,734,392
					40,758,215
Semiconductors & Related Devices — 3.6%
Integrated Device Technology, Inc.(b)			259,700		4,004,574
Lam Research Corp.(b)(c)			128,393		6,078,125
PMC-Sierra, Inc.(b)(c)			567,400		3,977,474
					14,060,173
Telecommunications — 7.6%
Amdocs Ltd.(b)			248,100		9,050,688
American Tower Corp. - Class A(b)(c)			145,300		5,659,435
Clearwire Corp.(b)(c)			24,500		501,515
Harris Corp.			206,200		10,505,890
Polycom, Inc.(b)(c)			126,200		4,206,246
					29,923,774
TOTAL COMMON STOCKS (Cost $311,501,511)					391,397,299
SHORT TERM INVESTMENTS — 1.2%
Galileo Money Market Fund, 5.02% (Cost $5,055,802)			5,055,802		5,055,802
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 100.9% (Cost $316,557,313)					396,453,101
	MATURITY	PAR/SHARES (000)
SECURITIES LENDING COLLATERAL — 1.8%
Bank of America Corp., Master Notes 5.51%(d)(e)	04/02/07	$	5,783		5,783,098
Morgan Stanley, Variable Rate Commercial Paper 5.50%(d)(e)	04/02/07		1,205		1,204,883
TOTAL SECURITIES LENDING COLLATERAL (Cost $6,987,981)					6,987,981
AFFILIATED INVESTMENTS - SHORT TERM — 24.7%
Institutional Money Market Trust, 4.80%(e) (Cost $96,726,125)			96,726		96,726,125
TOTAL INVESTMENTS IN SECURITIES — 127.4% (Cost $420,271,419(a))					500,167,207
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (26.4)%					(103,714,106	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (1.0)%					(3,708,588	)
NET ASSETS — 100.0%				$	392,744,513

(a) Cost for federal income tax purposes is $420,612,032. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	92,421,674
Gross unrealized depreciation		(12,866,499	)
	$	79,555,175

(b) Non-income producing security.

(c) Total or partial security on loan.

(d) Variable rate security. Rate shown is the rate as of March 31, 2007.

(e) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

46

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

AURORA PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 100.0%
Aerospace — 1.2%
Goodrich Corp.	172,900	$	8,900,892
Spirit Aerosystems Holdings, Inc. - Class A(b)	357,723		11,393,478
			20,294,370
Banks — 7.7%
City National Corp.	106,100		7,808,960
Colonial BancGroup, Inc.	644,500		15,951,375
Cullen/Frost Bankers, Inc.	494,300		25,866,719
First Midwest Bancorp, Inc.	452,500		16,629,375
Sterling Bancshares, Inc.	1,430,911		15,997,585
Webster Financial Corp.	371,932		17,856,455
Wintrust Financial Corp.(c)	265,100		11,826,111
Zions Bancorporation	243,500		20,580,620
			132,517,200
Business Services — 6.4%
The Brink’s Co.(c)	727,700		46,172,565
National Financial Partners Corp.(c)	126,407		5,929,752
PHH Corp.(b)	548,400		16,759,104
Robert Half International, Inc.(c)	445,900		16,502,759
W.W. Grainger, Inc.(c)	316,000		24,407,840
			109,772,020
Chemicals — 1.5%
Celanese Corp. - Series A	842,700		25,988,868
Computer & Office Equipment — 3.4%
Electronics for Imaging, Inc.(b)	783,600		18,375,420
NCR Corp.(b)(c)	834,700		39,873,619
			58,249,039
Computer Software & Services — 3.6%
Blackboard, Inc.(b)(c)	501,100		16,851,993
Sybase, Inc.(b)(c)	1,067,600		26,988,928
TIBCO Software, Inc.(b)	832,273		7,090,966
Trident Microsystems, Inc.(b)(c)	525,100		10,533,506
			61,465,393
Construction — 2.1%
Chicago Bridge & Iron Co. NV - ADR(c)	887,400		27,287,550
Granite Construction, Inc.	173,027		9,561,472
			36,849,022
Containers — 1.0%
Crown Holdings, Inc.(b)	710,600		17,381,276
Electronics — 0.5%
National Semiconductor Corp.(c)	337,300		8,142,422
Energy & Utilities — 10.9%
Airgas, Inc.	266,900		11,249,835
CMS Energy Corp.(c)	754,700		13,433,660
Equitable Resources, Inc.(c)	305,700		14,771,424
Integrys Energy Group, Inc.	313,855		17,422,091
MDU Resources Group, Inc.	1,052,300		30,243,102
NRG Energy, Inc.(b)(c)	324,700		23,391,388
Pepco Holdings, Inc.	602,900		17,496,158
Questar Corp.	214,200		19,108,782
Southern Union Co.	348,200		10,581,798
Wisconsin Energy Corp.	607,000		29,451,640
			187,149,878
Entertainment & Leisure — 7.4%
Hasbro, Inc.(c)	498,608		14,270,161
Melco PBL Entertainment Ltd. - ADR(b)(c)	951,900		15,363,666
Orient-Express Hotels Ltd. - Class A(c)	718,300		42,968,706
Penn National Gaming, Inc.(b)	633,800		26,885,796
Pinnacle Entertainment, Inc.(b)	400,934		11,655,151
Steiner Leisure Ltd.(b)	358,400		16,120,832
			127,264,312
Finance — 1.6%
Affiliated Managers Group, Inc.(b)(c)	259,800		28,149,330
Food & Agriculture — 3.1%
Hain Celestial Group, Inc.(b)	1,132,808		34,063,537
Pilgrim’s Pride Corp.(c)	584,900		19,412,831
			53,476,368
Insurance — 4.5%
Aspen Insurance Holdings Ltd.	761,600		19,961,536
Axis Capital Holdings Ltd.	329,000		11,139,940
Endurance Specialty Holdings Ltd.(c)	593,811		21,222,805
Platinum Underwriters Holdings Ltd.	787,677		25,268,678
			77,592,959
Manufacturing — 2.9%
Brunswick Corp.	590,500		18,807,425
Commercial Metals Co.	589,630		18,484,901
Hexel Corp.(b)(c)	335,000		6,649,750
Phillips-Van Heusen Corp.	119,700		7,038,360
			50,980,436
Medical & Medical Services — 5.9%
Coventry Health Care, Inc.(b)	258,100		14,466,505
Davita, Inc.(b)	361,700		19,285,844
Magellan Health Services, Inc.(b)	551,100		23,146,200
Mylan Laboratories, Inc.	938,900		19,848,346
Omnicare, Inc.(c)	345,000		13,720,650
Quest Diagnostics, Inc.(c)	233,700		11,654,619
			102,122,164
Medical Instruments & Supplies — 3.5%
The Cooper Cos., Inc.	343,700		16,710,694
DENTSPLY International, Inc.	825,200		27,025,300
Viasys Healthcare, Inc.(b)	494,156		16,796,363
			60,532,357
Metal & Mining — 1.2%
CONSOL Energy, Inc.	210,300		8,229,039
Inland Steel Industries, Inc.(c)	332,900		13,189,498
			21,418,537
Oil & Gas — 4.1%
Cameron International Corp.(b)	222,000		13,939,380
FMC Technologies, Inc.(b)	158,400		11,049,984
Grant Prideco, Inc.(b)	277,700		13,840,568
Helix Energy Solutions Group, Inc.(b)(c)	241,300		8,998,077
Rowan Cos., Inc.(c)	273,200		8,870,804

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

47

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

AURORA PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
COMMON STOCKS (Continued)
Oil & Gas (Continued)
Southwestern Energy Co.(b)			346,200	$	14,187,276
					70,886,089
Paper & Forest Products — 1.4%
Louisiana-Pacific Corp.			1,169,300		23,456,158
Personal Services — 1.0%
Laureate Education, Inc.(b)(c)			297,800		17,561,266
Real Estate — 5.7%
Alexandria Real Estate Equities, Inc. (REIT)			171,400		17,203,418
BioMed Realty Trust, Inc. (REIT)			421,200		11,077,560
Boardwalk Real Estate Investment Trust (REIT)			497,944		19,137,094
Camden Property Trust (REIT)			177,000		12,444,870
Douglas Emmett, Inc. (REIT)(c)			585,600		14,950,368
Mack-Cali Realty Corp. (REIT)(c)			506,300		24,115,069
					98,928,379
Restaurants — 0.5%
Ruth’s Chris Steak House, Inc.(b)			400,100		8,146,036
Retail Merchandising — 12.8%
AnnTaylor Stores Corp.(b)			493,000		19,118,540
BJ’s Wholesale Club, Inc.(b)(c)			1,522,200		51,496,026
Borders Group, Inc.			534,600		10,916,532
Foot Locker, Inc.			856,300		20,165,865
GameStop Corp.(b)			562,900		18,333,653
Jarden Corp.(b)(c)			403,200		15,442,560
PetSmart, Inc.			426,600		14,060,736
Saks, Inc.(c)			1,540,569		32,105,458
SUPERVALU, Inc.(c)			720,200		28,138,214
Tween Brands, Inc.(b)(c)			291,000		10,394,520
					220,172,104
Security Brokers & Dealers — 2.6%
GFI Group, Inc.(b)(c)			194,400		13,213,368
Piper Jaffray Cos., Inc.(b)(c)			511,400		31,676,116
					44,889,484
Semiconductors & Related Devices — 1.0%
Integrated Device Technology, Inc.(b)			1,173,500		18,095,370
Soaps & Cosmetics — 0.4%
NU Skin Enterprises, Inc.			388,000		6,409,760
Telecommunications — 0.6%
Ciena Corp.(b)(c)			1		28
Tessera Technologies, Inc.(b)			284,000		11,286,160
					11,286,188
Transportation — 1.5%
Kirby Corp.(b)			248,200		8,682,036
Landstar System, Inc.(c)			374,700		17,176,248
					25,858,284
TOTAL COMMON STOCKS (Cost $1,510,196,480)					1,725,035,069
SHORT TERM INVESTMENTS — 0.5%
Galileo Money Market Fund, 5.02% (Cost $8,590,609)		$	8,590,609		8,590,609
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 100.5% (Cost $1,518,787,089)					1,733,625,678
	MATURITY	PAR/SHARES (000)
SECURITIES LENDING COLLATERAL — 0.1%
Bank of America Corp., Master Notes 5.51%(d)(e)	04/02/07		1,352		1,352,032
Citigroup, Inc., Master Notes 5.51%(d)(e)	04/02/07		492		492,215
TOTAL SECURITIES LENDING COLLATERAL (Cost $1,844,247)					1,844,247
AFFILIATED INVESTMENTS - SHORT TERM — 13.7%
Institutional Money Market Trust, 4.80%(e) (Cost $235,843,986)			235,844		235,843,986
TOTAL INVESTMENTS IN SECURITIES — 114.3% (Cost $1,756,475,322(a))					1,971,313,911
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (13.8)%					(237,688,233	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (0.5)%					(9,282,565	)
NET ASSETS — 100.0%				$	1,724,343,113

(a) Cost for federal income tax purposes is $1,765,762,034. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	231,983,381
Gross unrealized depreciation		(26,431,504	)
	$	205,551,877

(b) Non-income producing security.

(c) Total or partial security on loan.

(d) Variable rate security. Rate shown is the rate as of March 31, 2007.

(e) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

48

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

SMALL/MID-CAP GROWTH PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 98.8%
Aerospace — 4.5%
Armor Holdings, Inc.(b)(c)	48,800	$	3,285,704
BE Aerospace, Inc.(b)(c)	134,500		4,263,650
Goodrich Corp.	65,700		3,382,236
Spirit Aerosystems Holdings, Inc. - Class A(b)	37,100		1,181,635
			12,113,225
Banks — 3.2%
Fidelity National Information Services, Inc.	90,700		4,123,222
Signature Bank(b)	80,000		2,603,200
UMB Financial Corp.	53,300		2,012,608
			8,739,030
Broadcasting — 1.8%
CKX, Inc.(b)	440,700		4,891,770
Business Services — 8.7%
Advisory Board Co.(b)	68,500		3,467,470
Alliance Data Systems Corp.(b)(c)	48,800		3,007,056
Amvescap Plc - ADR(c)	138,600		3,063,060
eFunds Corp.(b)	170,500		4,545,530
Exlservice Holdings, Inc.(b)	150,800		3,111,004
Forrester Research, Inc.(b)	109,500		3,105,420
Net1 UEPS Technologies, Inc.(b)(c)	130,000		3,234,400
			23,533,940
Chemicals — 1.6%
Celanese Corp. - Series A	137,200		4,231,248
Computer Software & Services — 15.7%
Blackboard, Inc.(b)(c)	118,300		3,978,429
CACI International, Inc.(b)	67,000		3,139,620
Foundry Networks, Inc.(b)	151,400		2,054,498
IHS, Inc.(b)	133,700		5,496,407
Ingram Micro, Inc. - Class A(b)	143,200		2,765,192
MICROS Systems, Inc.(b)	59,300		3,201,607
Move, Inc.(b)	630,000		3,490,200
SkillSoft Plc - ADR(b)	1,037,000		8,669,320
SonicWALL, Inc.(b)	701,300		5,862,868
Transaction Systems Architects, Inc.(b)	126,000		4,081,140
			42,739,281
Electronics — 1.2%
Ametek, Inc.	94,700		3,270,938
Energy & Utilities — 2.5%
Airgas, Inc.	76,878		3,240,407
Questar Corp.(c)	41,300		3,684,373
			6,924,780
Entertainment & Leisure — 4.2%
Melco PBL Entertainment Ltd. - ADR(b)	6,900		111,366
Orient-Express Hotels Ltd. - Class A(c)	72,600		4,342,932
Pinnacle Entertainment, Inc.(b)	83,900		2,438,973
Scientific Games Corp. - Class A(b)(c)	121,900		4,001,977
Xinhua Finance Media Ltd. - ADR(b)	39,200		430,024
			11,325,272
Finance — 3.4%
Affiliated Managers Group, Inc.(b)(c)	25,400		2,752,090
eTelecare Global Solutions, Inc.(b)	133,200		2,017,980
Fortress Investment Group LLC(c)	1,700		48,756
Wright Express Corp.(b)(c)	144,000		4,367,520
			9,186,346
Food & Agriculture — 0.7%
Panera Bread Co. - Class A(b)(c)	34,800		2,055,288
Machinery & Heavy Equipment — 1.0%
Joy Global, Inc.(c)	63,300		2,715,570
Manufacturing — 4.1%
Gardner Denver, Inc.(b)	111,800		3,896,230
Quanex Corp.	51,300		2,172,555
Sirona Dental Systems, Inc.(c)	67,900		2,339,834
The Warnaco Group, Inc.(b)	99,400		2,822,960
			11,231,579
Medical & Medical Services — 7.1%
Accuray, Inc.(b)	19,800		440,352
Coventry Health Care, Inc.(b)	89,260		5,003,023
Digene Corp.(b)	82,141		3,483,600
Noven Pharmaceuticals, Inc.(b)	126,600		2,937,120
Omnicare, Inc.(c)	57,200		2,274,844
Pediatrix Medical Group, Inc.(b)	92,000		5,249,520
			19,388,459
Medical Instruments & Supplies — 4.9%
Hologic, Inc.(b)(c)	73,300		4,225,012
Kyphon, Inc.(b)(c)	73,000		3,295,220
Martek Biosciences Corp.(b)(c)	107,500		2,216,650
Wright Medical Group, Inc.(b)	158,348		3,529,577
			13,266,459
Metal & Mining — 3.3%
Century Aluminum Co.(b)	50,000		2,344,000
CONSOL Energy, Inc.(c)	71,600		2,801,708
Massey Energy Co.(c)	159,900		3,836,001
			8,981,709
Oil & Gas — 5.6%
Diamond Offshore Drilling, Inc.(c)	34,900		2,825,155
Grant Prideco, Inc.(b)(c)	59,700		2,975,448
National-Oilwell, Inc.(b)(c)	40,400		3,142,716
Newfield Exploration Co.(b)	65,200		2,719,492
Superior Energy Services, Inc.(b)	104,400		3,598,668
			15,261,479
Personal Services — 1.6%
Laureate Education, Inc.(b)(c)	75,900		4,475,823
Pharmaceuticals — 6.0%
Barr Pharmaceuticals, Inc.(b)	49,300		2,285,055
Endo Pharmaceuticals Holdings, Inc.(b)	146,400		4,304,160
IMS Health, Inc.	116,820		3,464,881
Medicis Pharmaceutical Corp.(c)	88,800		2,736,816
Shire Plc - ADR(c)	58,100		3,596,390
			16,387,302

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

49

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

SMALL/MID-CAP GROWTH PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
COMMON STOCKS (Continued)
Restaurants — 0.9%
Ruth’s Chris Steak House, Inc.(b)			116,500	$	2,371,940
Retail Merchandising — 7.0%
Advance Auto Parts, Inc.			54,600		2,104,830
The Children’s Place Retail Stores, Inc.(b)			36,600		2,040,816
Coldwater Creek, Inc.(b)(c)			142,050		2,880,774
Dick’s Sporting Goods, Inc.(b)(c)			78,115		4,550,980
GameStop Corp.(b)(c)			183,800		5,986,366
J.C. Penney Co., Inc.			16,300		1,339,208
					18,902,974
Semiconductors & Related Devices — 4.4%
Cymer, Inc.(b)			58,000		2,409,900
Integrated Device Technology, Inc.(b)(c)			167,100		2,576,682
Microsemi Corp.(b)(c)			132,400		2,755,244
Standard Microsystems Corp.(b)			133,600		4,080,144
					11,821,970
Telecommunications — 5.4%
Amdocs Ltd.(b)			116,100		4,235,328
American Tower Corp. - Class A(b)(c)			88,700		3,454,865
Clearwire Corp.(b)(c)			10,900		223,123
Harris Corp.			72,300		3,683,685
Polycom, Inc.(b)(c)			88,842		2,961,104
Switch & Data Facilities Co.(b)			10,300		186,636
					14,744,741
TOTAL COMMON STOCKS (Cost $218,872,470)					268,561,123
SHORT TERM INVESTMENTS — 2.5%
Galileo Money Market Fund, 5.02% (Cost $6,740,217)			6,740,217		6,740,217
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 101.3% (Cost $225,612,687)					275,301,340
	MATURITY	PAR/SHARES (000)
SECURITIES LENDING COLLATERAL — 0.1%
Bank of America Corp., Master Notes 5.51%(d)(e) (Cost $339,732)	04/02/07	$	340		339,732
AFFILIATED INVESTMENTS - SHORT TERM — 23.6%
Institutional Money Market Trust, 4.80%(e) (Cost $64,037,142)			64,037		64,037,142
TOTAL INVESTMENTS IN SECURITIES — 125.0% (Cost $289,989,561(a))				$	339,678,214
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (23.7)%					(64,376,874	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (1.3)%					(3,572,696	)
NET ASSETS — 100.0%				$	271,728,644

(a) Cost for federal income tax purposes is $290,976,873. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	54,970,669
Gross unrealized depreciation		(6,269,328	)
	$	48,701,341

(b) Non-income producing security.

(c) Total or partial security on loan.

(d) Variable rate security. Rate shown is the rate as of March 31, 2007.

(e) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

50

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

SMALL CAP VALUE EQUITY PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 97.0%
Aerospace — 1.4%
K&F Industries Holdings, Inc.(b)(c)	10,800	$	290,844
Orbital Sciences Corp.(b)	47,200		884,528
			1,175,372
Banks — 12.9%
Boston Private Financial Holdings, Inc.	45,900		1,281,528
Cathay General Bancorp(c)	30,800		1,046,584
Columbia Banking System, Inc.	14,800		499,204
First Midwest Bancorp, Inc.	34,100		1,253,175
First Niagara Financial Group, Inc.	84,200		1,171,222
First State Bancorporation	18,500		417,175
KBW, Inc.(b)	30,700		1,067,132
Sterling Financial Corp.	33,660		1,049,856
Umpqua Holdings Corp.	35,744		956,867
United Bankshares, Inc.	16,200		567,486
Wintrust Financial Corp.(c)	16,500		736,065
WSFS Financial Corp.	8,794		567,037
			10,613,331
Broadcasting — 0.4%
Outdoor Channel Holdings, Inc.(b)	30,000		306,600
Business Services — 4.1%
Administaff, Inc.	12,300		432,960
The Brink’s Co.(c)	21,600		1,370,520
National Financial Partners Corp.(c)	8,010		375,749
PHH Corp.(b)	38,800		1,185,728
			3,364,957
Computer & Office Equipment — 2.6%
Electronics for Imaging, Inc.(b)	35,500		832,475
Imation Corp.	32,200		1,300,236
			2,132,711
Computer Software & Services — 3.6%
Blackboard, Inc.(b)(c)	23,500		790,305
CACI International, Inc.(b)	8,600		402,996
Lawson Software, Inc.(b)(c)	77,200		624,548
TIBCO Software, Inc.(b)	45,400		386,808
The TriZetto Group, Inc.(b)	38,100		762,381
			2,967,038
Construction — 5.3%
Dycom Industries, Inc.(b)	36,913		961,953
Perini Corp.(b)	16,600		611,876
Texas Industries, Inc.	18,800		1,419,964
Washington Group International, Inc.(b)	20,300		1,348,326
			4,342,119
Containers — 2.4%
Silgan Holdings, Inc.	39,500		2,018,845
Energy & Utilities — 3.0%
Black Hills Corp.(c)	30,700		1,128,839
ITC Holdings Corp.	14,500		627,705
PNM Resources, Inc.(c)	22,600		729,980
			2,486,524
Entertainment & Leisure — 7.9%
Leapfrog Enterprises, Inc.(b)	29,906		319,994
Morgans Hotel Group Co.(b)	30,217		634,859
Orient-Express Hotels Ltd. - Class A(c)	37,000		2,213,340
Pinnacle Entertainment, Inc.(b)	31,500		915,705
Regal Entertainment Group - Class A(c)	47,900		951,773
Sunterra Corp.(b)	39,062		613,274
Vail Resorts, Inc.(b)	15,422		837,877
			6,486,822
Finance — 0.9%
Jackson Hewitt Tax Service, Inc.	23,000		740,140
Food & Agriculture — 5.5%
Hain Celestial Group, Inc.(b)	55,249		1,661,338
Pilgrim’s Pride Corp.(c)	52,700		1,749,113
Ralcorp Holdings, Inc.(b)	17,034		1,095,286
			4,505,737
Insurance — 2.9%
Aspen Insurance Holdings Ltd.	22,100		579,241
Endurance Specialty Holdings Ltd.(c)	21,385		764,300
Platinum Underwriters Holdings Ltd.	33,089		1,061,495
			2,405,036
Machinery & Heavy Equipment — 1.8%
Astec Industries, Inc.(b)	21,100		849,275
H&E Equipment Services, Inc.(b)	30,100		647,150
			1,496,425
Manufacturing — 5.0%
Accuride Corp.(b)	9,161		133,751
Actuant Corp. - Class A(c)	15,500		786,780
Chart Industries, Inc.(b)	7,914		143,718
Fuller (H.B.) Co.	19,700		537,219
Gardner Denver, Inc.(b)	8,600		299,710
Kaiser Aluminum Corp.(b)	11,200		873,600
Lennox International, Inc.	5,075		181,177
Watson Wyatt Worldwide, Inc.	24,100		1,172,465
			4,128,420
Medical & Medical Services — 2.9%
Kindred Healthcare, Inc.(b)	35,900		1,176,802
Magellan Health Services, Inc.(b)	29,700		1,247,400
			2,424,202
Medical Instruments & Supplies — 2.6%
DJ Orthopedics, Inc.(b)	56,045		2,124,106
Motor Vehicles — 0.4%
LoJack Corp.(b)	16,153		306,584
Oil & Gas — 5.3%
Cal Dive International, Inc.(b)	40,400		493,284
Delta Petroleum Corp.(b)(c)	28,600		656,656
Goodrich Petroleum Corp.(b)(c)	20,718		696,746
Hercules Offshore, Inc.(b)(c)	30,146		791,634
Oceaneering International, Inc.(b)	13,000		547,560
South Jersey Industries, Inc.	32,000		1,217,600
			4,403,480

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

51

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

SMALL CAP VALUE EQUITY PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
COMMON STOCKS (Continued)
Pharmaceuticals — 1.5%
Axcan Pharma, Inc.(b)			75,014	$	1,238,481
Real Estate — 5.0%
Arbor Realty Trust, Inc. (REIT)			30,300		922,332
BioMed Realty Trust, Inc. (REIT)			27,100		712,730
Corporate Office Properties Trust (REIT)(c)			12,707		580,456
Education Realty Trust, Inc. (REIT)			47,300		699,094
Gramercy Capital Corp. (REIT)			14,018		430,072
Innkeepers USA Trust (REIT)			46,900		763,532
					4,108,216
Restaurants — 0.8%
Landry’s Restaurants, Inc.(c)			22,202		657,179
Retail Merchandising — 9.5%
Big 5 Sporting Goods Corp.			22,200		575,424
BJ’s Wholesale Club, Inc.(b)(c)			69,300		2,344,419
Borders Group, Inc.(c)			52,200		1,065,924
Genesco, Inc.(b)(c)			7,600		315,628
Hot Topic, Inc.(b)			48,482		538,150
Jarden Corp.(b)(c)			16,900		647,270
Jos. A. Bank Clothiers, Inc.(b)(c)			10,800		381,780
RC2 Corp.(b)			13,300		537,187
Ruddick Corp.			24,359		732,719
Stage Stores, Inc.			15,300		356,643
The Talbots, Inc.(c)			13,200		311,784
					7,806,928
Security Brokers & Dealers — 3.1%
GFI Group, Inc.(b)(c)			7,100		482,587
Piper Jaffray Cos., Inc.(b)(c)			25,897		1,604,060
TradeStation Group, Inc.(b)			34,900		439,391
					2,526,038
Semiconductors & Related Devices — 0.3%
Varian Semiconductor Equipment Associates, Inc.(b)			4,700		250,886
Soaps & Cosmetics — 0.9%
NU Skin Enterprises, Inc.			43,166		713,102
Telecommunications — 0.3%
Premiere Global Services, Inc.(b)			26,326		295,378
Transportation — 2.9%
Dollar Thrifty Automotive Group, Inc.(b)			9,500		484,880
Kirby Corp.(b)			31,900		1,115,862
Knight Transportation, Inc.(c)			45,300		807,246
					2,407,988
Waste Management — 1.8%
Waste Connections, Inc.(b)			48,450		1,450,593
TOTAL COMMON STOCKS (Cost $70,271,252)					79,883,238
SHORT TERM INVESTMENTS — 2.9%
Galileo Money Market Fund, 5.02% (Cost $2,456,559)			2,456,559		2,456,559
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 99.9% (Cost $72,727,811)					82,339,797
	MATURITY	PAR/SHARES (000)
SECURITIES LENDING COLLATERAL — 0.1%
Morgan Stanley, Variable Rate Commercial Paper 5.50%(d)(e) (Cost $102,155)	04/02/07	$	102		102,155
AFFILIATED INVESTMENTS - SHORT TERM — 17.5%
Institutional Money Market Trust, 4.80%(e) (Cost $14,358,217)			14,358		14,358,217
TOTAL INVESTMENTS IN SECURITIES — 117.5% (Cost $87,188,183(a))					96,800,169
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (17.6)%					(14,460,372	)
OTHER ASSETS IN EXCESS OF LIABILITIES — 0.1%					47,754
NET ASSETS — 100.0%				$	82,387,551

(a) Cost for federal income tax purposes is $87,482,786. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	10,500,120
Gross unrealized depreciation		(1,182,737	)
	$	9,317,383

(b) Non-income producing security.

(c) Total or partial security on loan.

(d) Variable rate security. Rate shown is the rate as of March 31, 2007.

(e) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

52

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

SMALL CAP CORE EQUITY PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 95.3%
Aerospace — 2.1%
AAR Corp.(b)(c)	50,250	$	1,384,890
LMI Aerospace, Inc.(b)	5,557		103,527
Orbital Sciences Corp.(b)	22,550		422,587
			1,911,004
Banks — 8.7%
Boston Private Financial Holdings, Inc.	31,600		882,272
Cathay General Bancorp(c)	31,800		1,080,564
Central Pacific Financial Corp.	4,967		181,643
CoBiz, Inc.	44,800		891,968
Columbia Banking System, Inc.	25,700		866,861
First State Bancorporation	17,300		390,115
KBW, Inc.(b)	16,000		556,160
Umpqua Holdings Corp.	43,500		1,164,495
Wintrust Financial Corp.(c)	24,800		1,106,328
WSFS Financial Corp.	9,650		622,232
			7,742,638
Business Services — 5.9%
Administaff, Inc.	25,600		901,120
Forrester Research, Inc.(b)	38,550		1,093,278
Hiedrick & Struggles International, Inc.(b)	14,500		702,525
HMS Holdings Corp.(b)	27,150		594,585
National Financial Partners Corp.(c)	21,400		1,003,874
Net1 UEPS Technologies, Inc.(b)(c)	32,150		799,892
Standard Parking Corp.(b)	6,400		226,368
			5,321,642
Computer & Office Equipment — 2.0%
Electronics for Imaging, Inc.(b)	78,600		1,843,170
Computer Software & Services — 10.9%
Aladdin Knowledge Systems Ltd.(b)	25,300		436,931
Blackboard, Inc.(b)(c)	42,000		1,412,460
CACI International, Inc.(b)	13,350		625,581
Lawson Software, Inc.(b)(c)	151,550		1,226,039
Phase Forward, Inc.(b)	92,500		1,214,525
SkillSoft Plc - ADR(b)	281,750		2,355,430
TIBCO Software, Inc.(b)	92,050		784,266
Trident Microsystems, Inc.(b)(c)	18,650		374,119
The TriZetto Group, Inc.(b)	65,268		1,306,013
			9,735,364
Containers — 1.2%
Silgan Holdings, Inc.	20,750		1,060,533
Electronics — 0.9%
RF Micro Devices, Inc.(b)(c)	125,200		779,996
Energy & Utilities — 0.5%
El Paso Electric Co.(b)	15,800		416,330
Entertainment & Leisure — 6.3%
Gaylord Entertainment Co.(b)	10,400		549,848
Morgans Hotel Group Co.(b)(c)	65,750		1,381,407
Orient-Express Hotels Ltd. - Class A(c)	35,935		2,149,632
Pinnacle Entertainment, Inc.(b)(c)	32,200		936,054
Sunterra Corp.(b)	40,530		636,321
			5,653,262
Insurance — 3.7%
First Mercury Financial Corp.(b)	37,900		778,845
IPC Holdings Ltd.	25,576		737,868
National Atlantic Holdings Corp. - Class A(b)	36,400		470,652
Platinum Underwriters Holdings Ltd.	42,379		1,359,518
			3,346,883
Manufacturing — 9.5%
Actuant Corp. - Class A(c)	19,300		979,668
Aptargroup, Inc.	18,400		1,231,512
Chart Industries, Inc.(b)	81,350		1,477,316
Chattem, Inc.(b)	17,600		1,037,344
Elizabeth Arden, Inc.(b)	46,400		1,012,448
Hexel Corp.(b)(c)	24,900		494,265
Paxar Corp.(b)	47,150		1,353,205
Shuffle Master, Inc.(b)(c)	48,800		890,600
			8,476,358
Medical & Medical Services — 4.3%
Pediatrix Medical Group, Inc.(b)(c)	31,350		1,788,831
Radiation Therapy Services, Inc.(b)	23,400		716,976
Vital Images, Inc.(b)	41,250		1,371,975
			3,877,782
Medical Instruments & Supplies — 10.9%
Align Technology, Inc.(b)(c)	81,900		1,298,934
Allscripts Healthcare Solutions, Inc.(b)	35,300		946,393
DJ Orthopedics, Inc.(b)	88,850		3,367,415
Ev3, Inc.(b)(c)	46,050		907,185
Hologic, Inc.(b)(c)	24,050		1,386,242
MWI Veterinary Supply, Inc.(b)	27,150		895,950
Orthofix International, NV(b)	17,900		913,795
			9,715,914
Metal & Mining — 0.6%
Foundation Coal Holdings, Inc.(c)	15,900		546,006
Motor Vehicles — 1.0%
Tenneco Automotive, Inc.(b)	37,100		944,566
Oil & Gas — 6.8%
Cal Dive International, Inc.(b)	57,500		702,075
Goodrich Petroleum Corp.(b)(c)	27,450		923,144
Hercules Offshore, Inc.(b)(c)	28,550		749,723
Mariner Energy, Inc.(b)	41,600		795,808
Oil States International, Inc.(b)	28,100		901,729
Petrohawk Energy Corp.(b)	76,690		1,010,007
TETRA Technologies, Inc.(b)(c)	41,100		1,015,581
			6,098,067
Personal Services — 1.2%
Laureate Education, Inc.(b)(c)	18,450		1,087,996
Pharmaceuticals — 1.0%
ICON Plc - ADR(b)	20,600		877,560
Real Estate — 4.0%
Arbor Realty Trust, Inc. (REIT)	23,000		700,120
Corporate Office Properties Trust (REIT)(c)	20,100		918,168
Education Realty Trust, Inc. (REIT)	59,100		873,498

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

53

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

SMALL CAP CORE EQUITY PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
COMMON STOCKS (Continued)
Real Estate (Continued)
Gramercy Capital Corp. (REIT)			36,200	$	1,110,616
					3,602,402
Retail Merchandising — 6.5%
The Children’s Place Retail Stores, Inc.(b)			13,400		747,184
Copart, Inc.(b)			30,700		859,907
Genesco, Inc.(b)(c)			29,610		1,229,703
Golfsmith International Holdings, Inc.(b)			92,600		805,620
Jarden Corp.(b)(c)			36,325		1,391,248
Sally Beauty Holdings, Inc.(b)			81,600		749,904
					5,783,566
Security Brokers & Dealers — 1.2%
Piper Jaffray Cos., Inc.(b)(c)			16,950		1,049,883
Semiconductors & Related Devices — 1.9%
Micrel, Inc.(b)			56,600		623,732
Ultra Clean Holdings, Inc.(b)			60,434		1,045,508
					1,669,240
Telecommunications — 2.1%
EMS Technologies, Inc.(b)			49,300		950,011
Tessera Technologies, Inc.(b)			22,800		906,072
					1,856,083
Transportation — 1.5%
Knight Transportation, Inc.(c)			36,800		655,776
Vitran Corp., Inc.(b)			34,200		672,030
					1,327,806
Waste Management — 0.6%
Clean Harbors, Inc.(b)			11,300		510,986
TOTAL COMMON STOCKS (Cost $73,902,030)					85,235,037
SHORT TERM INVESTMENTS — 3.7%
Galileo Money Market Fund, 5.02%
(Cost $3,311,575)			3,311,575		3,311,575
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 99.0% (Cost $77,213,605)					88,546,612
	MATURITY	PAR (000)
SECURITIES LENDING COLLATERAL — 3.6%
Bank of America Corp., Master Notes 5.51%(d)(e)	04/02/07	$	350		350,147
Morgan Stanley, Variable Rate Commercial Paper 5.50%(d)(e)	04/02/07		2,890		2,890,491
TOTAL SECURITIES LENDING COLLATERAL (Cost $3,240,638)					3,240,638
		NUMBER OF SHARES
AFFILIATED INVESTMENTS - SHORT TERM — 23.3%
Institutional Money Market Trust, 4.80%(e) (Cost $20,764,379)			20,764,379		20,764,379
TOTAL INVESTMENTS IN SECURITIES — 125.9% (Cost $101,218,622(a))					112,551,629
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (26.9)%					(24,005,017	)
OTHER ASSETS IN EXCESS OF LIABILITIES — 1.0%					854,600
NET ASSETS — 100.0%				$	89,401,212

(a) Cost for federal income tax purposes is $101,362,504. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	13,080,345
Gross unrealized depreciation		(1,891,220	)
	$	11,189,125

(b) Non-income producing security.

(c) Total or partial security on loan.

(d) Variable rate security. Rate shown is the rate as of March 31, 2007.

(e) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

54

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

SMALL CAP GROWTH EQUITY PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 96.3%
Aerospace — 3.4%
Armor Holdings, Inc.(b)(c)	129,700	$	8,732,701
BE Aerospace, Inc.(b)(c)	525,000		16,642,500
			25,375,201
Banks — 1.7%
Signature Bank(b)	194,300		6,322,522
Thomas Weisel Partners Group, Inc.(b)	39,600		753,192
UMB Financial Corp.	154,500		5,833,920
			12,909,634
Broadcasting — 2.3%
CKX, Inc.(b)(c)	1,154,300		12,812,730
Outdoor Channel Holdings, Inc.(b)	483,620		4,942,596
			17,755,326
Business Services — 10.6%
Advisory Board Co.(b)(c)	175,300		8,873,686
Cohen & Steers, Inc.	18,100		779,748
Commvault Systems, Inc.(b)	434,000		7,030,800
Diamond Management & Technology Consultants, Inc.	923,100		10,791,039
eFunds Corp.(b)	565,700		15,081,562
Exlservice Holdings, Inc.(b)	243,913		5,031,925
Forrester Research, Inc.(b)	388,200		11,009,352
Gartner, Inc. - Class A(b)(c)	79,400		1,901,630
Healthcare Services Group, Inc.	350,100		10,030,365
Net1 UEPS Technologies, Inc.(b)(c)	375,400		9,339,952
			79,870,059
Chemicals — 0.8%
Agrium, Inc.(c)	148,300		5,684,339
Computer Software & Services — 18.0%
Aladdin Knowledge Systems Ltd.(b)	390,100		6,737,027
Blackboard, Inc.(b)(c)	400,900		13,482,267
CACI International, Inc.(b)	149,000		6,982,140
Foundry Networks, Inc.(b)	384,000		5,210,880
Glu Mobile, Inc.(b)	57,300		573,000
i2 Technologies, Inc.(b)(c)	607,500		14,580,000
IHS, Inc.(b)	381,200		15,671,132
Move, Inc.(b)	1,787,500		9,902,750
SkillSoft Plc - ADR(b)	2,876,630		24,048,627
SonicWALL, Inc.(b)	1,725,600		14,426,016
Sykes Enterprises, Inc.(b)	144,289		2,631,831
Transaction Systems Architects, Inc.(b)	495,000		16,033,050
VeriFone Holdings, Inc.(b)(c)	145,000		5,325,850
			135,604,570
Electronics — 0.0%
Mellanox Technologies Ltd.(b)	19,400		282,270
Energy & Utilities — 1.4%
Airgas, Inc.	259,000		10,916,850
Entertainment & Leisure — 5.2%
Orient-Express Hotels Ltd. - Class A(c)	150,600		9,008,892
Pinnacle Entertainment, Inc.(b)(c)	207,200		6,023,304
Scientific Games Corp. - Class A(b)(c)	311,200		10,216,696
Vail Resorts, Inc.(b)	149,000		8,095,170
World Wrestling Entertainment, Inc.	293,700		4,787,310
Xinhua Finance Media Ltd. - ADR(b)	108,400		1,189,148
			39,320,520
Finance — 4.6%
Affiliated Managers Group, Inc.(b)(c)	65,800		7,129,430
eTelecare Global Solutions, Inc.(b)	416,200		6,305,430
Investment Technology Group, Inc.(b)	141,000		5,527,200
Wright Express Corp.(b)(c)	512,900		15,556,257
			34,518,317
Food & Agriculture — 0.7%
Panera Bread Co. - Class A(b)(c)	84,600		4,996,476
Machinery & Heavy Equipment — 0.8%
Bucyrus International, Inc. - Class A(c)	123,000		6,334,500
Manufacturing — 8.2%
Actuant Corp. - Class A(c)	114,700		5,822,172
Gardner Denver, Inc.(b)	370,900		12,925,865
Ladish Co., Inc.(b)	201,700		7,591,988
Quanex Corp.	126,000		5,336,100
RBC Bearings, Inc.(b)	153,800		5,141,534
Smith & Wesson Holding Corp.(b)	98,500		1,289,365
The Warnaco Group, Inc.(b)	269,900		7,665,160
Watson Wyatt Worldwide, Inc.	335,900		16,341,535
			62,113,719
Medical & Medical Services — 7.8%
Animal Health International, Inc.(b)	137,000		1,656,330
Digene Corp.(b)	278,900		11,828,149
Noven Pharmaceuticals, Inc.(b)	680,200		15,780,640
Pediatrix Medical Group, Inc.(b)	252,700		14,419,062
Santarus, Inc.(b)(c)	951,000		6,695,040
Symbion, Inc.(b)	448,000		8,785,280
			59,164,501
Medical Instruments & Supplies — 10.0%
Align Technology, Inc.(b)(c)	716,299		11,360,502
Bruker BioSciences Corp.(b)	475,300		5,000,156
Cutera, Inc.(b)	336,500		12,177,935
Hologic, Inc.(b)(c)	192,150		11,075,526
Home Diagnostics, Inc.(b)	142,500		1,539,000
Kyphon, Inc.(b)(c)	215,400		9,723,156
Martek Biosciences Corp.(b)(c)	259,900		5,359,138
SonoSite, Inc.(b)	162,500		4,592,250
Wright Medical Group, Inc.(b)	645,081		14,378,856
			75,206,519
Metal & Mining — 2.0%
Century Aluminum Co.(b)(c)	176,400		8,269,632
Massey Energy Co.(c)	275,100		6,599,649
			14,869,281
Oil & Gas — 4.5%
Atwood Oceanics, Inc.(b)	151,500		8,891,535
Comstock Resources, Inc.(b)	196,500		5,380,170
Oceaneering International, Inc.(b)	203,000		8,550,360

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

55

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

SMALL CAP GROWTH EQUITY PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
COMMON STOCKS (Continued)
Oil & Gas (Continued)
Superior Energy Services, Inc.(b)(c)			314,500	$	10,840,815
					33,662,880
Personal Services — 1.5%
Laureate Education, Inc.(b)(c)			197,700		11,658,369
Pharmaceuticals — 0.4%
Medicis Pharmaceutical Corp.(c)			88,100		2,715,242
Restaurants — 1.4%
Red Robin Gourmet Burgers, Inc.(b)(c)			280,500		10,889,010
Retail Merchandising — 3.5%
The Children’s Place Retail Stores, Inc.(b)			103,000		5,743,280
Coldwater Creek, Inc.(b)(c)			322,700		6,544,356
Dick’s Sporting Goods, Inc.(b)(c)			195,021		11,361,924
Golfsmith International Holdings, Inc.(b)			320,000		2,784,000
					26,433,560
Security Brokers & Dealers — 1.0%
Waddell & Reed Financial, Inc.			318,600		7,429,752
Semiconductors & Related Devices — 4.4%
Cymer, Inc.(b)(c)			144,200		5,991,510
Micrel, Inc.(b)(c)			659,500		7,267,690
Microsemi Corp.(b)(c)			403,400		8,394,754
Standard Microsystems Corp.(b)			389,800		11,904,492
					33,558,446
Telecommunications — 2.1%
EMS Technologies, Inc.(b)			320,000		6,166,400
Occam Networks, Inc.(b)			387,500		4,328,375
Polycom, Inc.(b)(c)			158,100		5,269,473
					15,764,248
TOTAL COMMON STOCKS (Cost $568,910,038)					727,033,589
	MATURITY	PAR/SHARES (000)
SHORT TERM INVESTMENTS — 5.6%
Federal Home Loan Bank, Discount Notes 4.97%(d)	04/02/07	$	33,000		32,995,444
Galileo Money Market Fund, 5.02%			9,517		9,516,929
TOTAL SHORT TERM INVESTMENTS (Cost $42,512,373)					42,512,373
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 101.9% (Cost $611,422,411)					769,545,962
	MATURITY	PAR/SHARES (000)
SECURITIES LENDING COLLATERAL — 2.2%
Bank of America Corp., Master Notes 5.51%(e)(f)	04/02/07	$	8,486		8,486,406
Morgan Stanley, Variable Rate Commercial Paper 5.50%(e)(f)	04/02/07		8,144		8,144,064
TOTAL SECURITIES LENDING COLLATERAL (Cost $16,630,470)					16,630,470
AFFILIATED INVESTMENTS - SHORT TERM — 20.8%
Institutional Money Market Trust, 4.80%(f) (Cost $157,550,370)			157,550		157,550,370
TOTAL INVESTMENTS IN SECURITIES — 124.9% (Cost $785,603,251(a))					943,726,802
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (23.0)%					(174,180,840	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (1.9)%					(14,040,512	)
NET ASSETS — 100.0%				$	755,505,450

(a) Cost for federal income tax purposes is $789,293,773. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	173,402,235
Gross unrealized depreciation		(18,969,206	)
	$	154,433,029

(b) Non-income producing security.

(c) Total or partial security on loan.

(d) The rate shown is the effective yield at the time of purchase.

(e) Variable rate security. Rate shown is the rate as of March 31, 2007.

(f) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

56

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 99.0%
Brazil — 0.5%
Telecommunications — 0.5%
Net Servicos de Comunicacao SA - ADR(b)	12,000	$	162,120
France — 3.3%
Computer & Office Equipment — 0.6%
Neopost SA	1,400		200,110
Computer Software & Services — 1.2%
Business Objects SA - ADR(c)	5,900		213,521
Cap Gemini SA	2,368		180,275
			393,796
Electronics — 0.5%
Schneider Electric SA	1,400		177,724
Machinery & Heavy Equipment — 0.8%
Alstom	1,900		246,577
Medical Instruments & Supplies — 0.2%
NicOx SA	2,508		66,168
Total France			1,084,375
Germany — 1.7%
Computer Software & Services — 1.7%
SAP AG - ADR(b)	6,200		276,830
Software AG	3,200		273,196
			550,026
Hong Kong — 1.6%
Semiconductors & Related Devices — 0.6%
ASM Pacific Technology Ltd.	35,100		207,091
Telecommunications — 1.0%
China Communications Services Corp. Ltd.(c)	600		406
China Mobile Ltd.	34,500		313,717
			314,123
Total Hong Kong			521,214
India — 1.2%
Telecommunications — 1.2%
Bharti Tele-Ventures Ltd.	23,100		404,975
Indonesia — 0.9%
Telecommunications — 0.9%
PT Telekomunikasi Indonesia	280,000		302,247
Israel — 0.1%
Electronics — 0.1%
Mellanox Technologies Ltd.(c)	1,700		24,735
Japan — 3.0%
Computer Software & Services — 1.7%
Nintendo Co., Ltd.	500		145,324
Nippon System Development	14,200		219,796
Obic Co. Ltd.	1,000		197,811
			562,931
Energy & Utilities — 0.9%
Kurita Water Industries Ltd.	12,100		292,643
Machinery & Heavy Equipment — 0.4%
Disco Corp.	2,500		152,749
Total Japan			1,008,323
Malaysia — 0.9%
Telecommunications — 0.9%
Maxis Communications Berhad	85,000		292,552
Mexico — 1.1%
Telecommunications — 1.1%
America Movil SA - ADR(b)	7,800		372,762
Netherlands — 0.6%
Semiconductors & Related Devices — 0.6%
ASML Holding NV(c)	8,000		198,000
Singapore — 0.7%
Electronics — 0.7%
Stats Chippac Ltd.(c)	207,300		248,681
South Korea — 1.2%
Computer Software & Services — 0.8%
NHN Corp.(c)	1,800		264,031
Electronics — 0.4%
Samsung Electronics Co. Ltd.	200		119,685
Total South Korea			383,716
Switzerland — 1.6%
Pharmaceuticals — 1.6%
Roche Holding AG	1,400		247,706
Roche Holding AG - ADR	3,200		281,782
			529,488
Taiwan — 4.3%
Computer & Office Equipment — 0.6%
Gemtek Technology Corp.	67,000		166,022
Lite-On Technology Corp.	24,769		31,998
			198,020
Computer Software & Services — 0.9%
Inventec Co. Ltd.	187,000		149,184
MediaTek, Inc.	13,000		149,281
			298,465
Electronics — 1.1%
Cheng Uei Precision Industry Co. Ltd.	44,960		156,243
Hon Hai Precision Industry Co. Ltd.	30,794		206,584
			362,827
Manufacturing — 0.6%
Wistron Corp.	121,461		184,254
Semiconductors & Related Devices — 1.1%
Powerchip Semiconductor Corp.	261,000		156,165
Realtek Semiconductor Corp.	103,000		226,281
			382,446
Total Taiwan			1,426,012
United Kingdom — 1.9%
Aerospace — 0.8%
Meggitt Plc	37,900		222,625
Meggitt Plc Rights (expiring 04/17/07)(c)	18,950		37,011
			259,636
Computer Software & Services — 1.1%
Autonomy Corp. Plc	27,000		363,953
Total United Kingdom			623,589
United States — 74.4%
Aerospace — 2.9%
Goodrich Corp.(b)	6,500		334,620

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

57

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
United States (Continued)
Aerospace (Continued)
Lockheed Martin Corp.	6,400	$	620,928
			955,548
Broadcasting — 0.7%
Liberty Global, Inc.(c)	6,600		217,338
Business Services — 4.1%
Accenture Ltd.	4,500		173,430
Akamai Technologies, Inc.(b)(c)	6,200		309,504
Aquantive, Inc.(b)(c)	5,200		145,132
Fiserv, Inc.(c)	6,700		355,502
Huron Consulting Group, Inc.(b)(c)	3,700		225,108
Salary.com, Inc.(c)	6,900		76,797
Stanley, Inc.(c)	4,300		67,080
			1,352,553
Computer & Office Equipment — 8.9%
Apple Computer, Inc.(c)	8,800		817,608
Cisco Systems, Inc.(b)(c)	26,000		663,780
Hewlett-Packard Co.	9,700		389,358
International Business Machines Corp.(b)	7,400		697,524
Network Appliance, Inc.(b)(c)	10,800		394,416
			2,962,686
Computer Software & Services — 16.5%
Adobe Systems, Inc.(b)(c)	9,100		379,470
AutoDesk, Inc.(c)	7,300		274,480
Cadence Design Systems, Inc.(c)	8,300		174,798
Chordiant Software, Inc.(c)	5,300		54,855
Cognos, Inc.(b)(c)	4,100		161,499
DST Systems, Inc.(b)(c)	3,200		240,640
Electronic Arts, Inc.(c)	4,300		216,548
EMC Corp.(c)	11,900		164,815
Foundry Networks, Inc.(c)	11,900		161,483
Google, Inc. - Class A(b)(c)	1,400		641,424
Hyperion Solutions Corp.(b)(c)	7,500		388,725
Juniper Networks, Inc.(b)(c)	10,500		206,640
Microsoft Corp.(b)	17,000		473,790
Netlist, Inc.(c)	12,700		88,392
Oracle Corp.(c)	15,300		277,389
RightNow Technologies, Inc.(c)	5,500		90,090
Salesforce.Com, Inc.(c)	4,400		188,408
Seagate Technology, Inc.	9,200		214,360
Sun Microsystems, Inc.(c)	43,400		260,834
Sybase, Inc.(b)(c)	14,600		369,088
TIBCO Software, Inc.(c)	23,400		199,368
VeriSign, Inc.(c)	10,200		256,224
			5,483,320
Electronics — 4.2%
Agilent Technologies, Inc.(c)	7,800		262,782
Amphenol Corp.(b)	3,800		245,366
Flextronics International Ltd.(b)(c)	14,400		157,536
Intel Corp.(b)	18,700		357,731
Intersil Corp. - Class A	6,400		169,536
National Semiconductor Corp.(b)	8,800		212,432
			1,405,383
Entertainment & Leisure — 0.7%
Comcast Corp.(b)(c)	8,400		217,980
Manufacturing — 1.8%
Corning, Inc.(c)	11,200		254,688
Textron, Inc.	1,800		161,640
Varian, Inc.(c)	3,200		186,432
			602,760
Measuring & Controlling Devices — 1.3%
KLA-Tencor Corp.(b)	8,100		431,892
Medical & Medical Services — 1.3%
Biomet, Inc.	6,100		259,189
Integra LifeSciences Holdings(b)(c)	3,800		173,204
			432,393
Medical Instruments & Supplies — 7.4%
Alcon, Inc.	1,500		197,730
Becton, Dickinson & Co.	3,500		269,115
Charles River Laboratories International, Inc.(c)	3,700		171,162
Cyberonics, Inc.(b)(c)	6,200		116,436
Johnson & Johnson	3,900		235,014
Medtronic, Inc.(b)	6,500		318,890
SenoRx, Inc.(c)	5,400		44,226
Stryker Corp.(b)	4,400		291,808
Thoratec Corp.(c)	8,900		186,010
Waters Corp.(c)	2,876		166,808
Wright Medical Group, Inc.(b)(c)	11,800		263,022
Zimmer Holdings, Inc.(c)	2,100		179,361
			2,439,582
Pharmaceuticals — 8.1%
Abbott Laboratories	3,200		178,560
Alexion Pharmaceuticals, Inc.(b)(c)	4,500		194,580
Applera Corp. - Celera Genomic Group(c)	12,200		173,240
Biogen Idec, Inc.(c)	5,100		226,338
BioMarin Pharmaceutical, Inc.(b)(c)	9,500		163,970
Genentech, Inc.(c)	5,300		435,236
Gilead Sciences, Inc.(c)	5,400		413,100
InterMune, Inc.(b)(c)	5,200		128,232
Kosan Biosciences, Inc.(c)	8,317		45,743
Merck & Co., Inc.	3,700		163,429
Myriad Genetics, Inc.(b)(c)	10,200		351,492
Regeneron Pharmaceuticals, Inc.(c)	10,300		222,686
			2,696,606
Semiconductors & Related Devices — 8.5%
Agere Systems, Inc.(b)(c)	10,800		244,296
Applied Materials, Inc.(b)	13,300		243,656
Avnet, Inc.(b)(c)	3,800		137,332
Broadcom Corp. - Class A(c)	11,400		365,598
Infineon Technologies AG - ADR(c)	13,000		202,410
Integrated Device Technology, Inc.(b)(c)	17,800		274,476
Lam Research Corp.(b)(c)	5,300		250,902
Maxim Integrated Products, Inc.	7,400		217,560
MEMC Electronic Materials, Inc.(c)	3,800		230,204
NVIDIA Corp.(b)(c)	5,200		149,656

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

58

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
COMMON STOCKS (Continued)
United States (Continued)
Semiconductors & Related Devices (Continued)
Spansion, Inc.(c)			6,100	$	74,359
Taiwan Semiconductor Manufacturing Co. Ltd.			25,200		270,900
Verigy Ltd.(c)			7,055		165,581
					2,826,930
Telecommunications — 8.0%
AT&T, Inc.(b)			10,900		429,787
Atheros Communications, Inc.(c)			10,800		258,444
Ciena Corp.(b)(c)			8,900		248,755
Harris Corp.			5,500		280,225
Motorola, Inc.			9,200		162,564
NeuStar, Inc. - Class A(c)			5,000		142,200
OpNext, Inc.(c)			6,600		97,614
Optium Corp.(c)			3,600		69,876
QUALCOMM, Inc.			11,200		477,792
Research In Motion Ltd.(b)(c)			1,600		218,384
Switch & Data Facilities Co.(c)			3,800		68,856
Windstream Corp.(b)			12,376		181,804
					2,636,301
Total United States					24,661,272
TOTAL COMMON STOCKS (Cost $27,674,068)					32,794,087
SHORT TERM INVESTMENTS — 0.3%
Galileo Money Market Fund, 5.02% (Cost $127,907)			127,907		127,907
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 99.3% (Cost $27,801,975)					32,921,994
	MATURITY	PAR/SHARES (000)
SECURITIES LENDING COLLATERAL — 2.0%
Bank of America Corp., Master Notes 5.51%(d)(e) (Cost $650,539)	04/02/07	$	651		650,539
AFFILIATED INVESTMENTS — SHORT TERM — 21.0%
Institutional Money Market Trust, 4.80%(e) (Cost $6,958,489)			6,958		6,958,489
TOTAL INVESTMENTS IN SECURITIES — 122.3% (Cost $35,411,003(a))					40,531,022
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (23.0)%					(7,609,028	)
OTHER ASSETS IN EXCESS OF LIABILITIES — 0.7%					215,954
NET ASSETS — 100.0%				$	33,137,948

(a) Cost for federal income tax purposes is $35,495,328. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	5,459,598
Gross unrealized depreciation		(423,904	)
	$	5,035,694

(b) Total or partial security on loan.

(c) Non-income producing security.

(d) Variable rate security. Rate shown is the rate as of March 31, 2007.

(e) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

59

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GLOBAL RESOURCES PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 99.3%
Canada — 24.3%
Banks — 0.0%
Quest Capital Corp.	61,000	$	165,379
Energy & Utilities — 0.0%
MGM Energy Corp.(b)	15,084		56,834
Metal & Mining — 8.1%
Alexco Resource Corp.(b)	474,683		2,277,821
Aurora Energy Resources, Inc.(b)	246,000		3,300,598
Corriente Resourses, Inc.(b)	982,800		2,851,780
Energy Metals Corp.(b)	435,100		5,212,155
European Goldfields Ltd.(b)	561,400		2,698,805
Frontier Pacific Mining Corp.(b)	3,024,300		2,148,052
Gateway Gold Corp.(b)	500,000		333,478
Gold Reserve, Inc.(b)(c)	123,948		831,691
Goldcorp, Inc.	4,600		110,408
Golden Star Resources Ltd.(b)(c)	789,408		3,466,694
International Uranium Corp.(b)	218,500		2,679,913
Katanga Mining Ltd.(b)	500,000		5,630,143
Mag Silver Corp.(b)	964,000		7,765,440
Minefinders Corp. Ltd.(b)(c)	250,000		2,977,500
Nevsun Resources Ltd. (acquired 8/8/97 through 9/9/04, cost $4,883,732)(b)(d)(e)	1,554,800		3,272,554
Northern Star Mining Corp.(b)	833,500		772,495
NovaGold Resources, Inc.(b)(c)	371,843		6,302,739
Orezone Resources, Inc.(b)	500,000		1,026,418
Polymet Mining Corp.(b)	1,250,000		3,681,247
Radius Gold, Inc.(b)	569,700		276,338
Romarco Minerals, Inc.(b)	223,000		44,426
Rusoro Mining Ltd.(b)	11,765		34,239
Southwestern Resources Corp.(b)	566,900		3,893,908
Stratagold Corp.(b)	1,703,700		1,121,535
Sunridge Gold Corp.(b)	2,434,459		4,596,900
Triex Minerals Corp.(f)	312,100		1,554,417
Virginia Mines, Inc.(b)	216,350		1,002,575
West Timmins Mining, Inc.(b)	1,285,423		701,443
X-Cal Resources Ltd.(b)	1,755,500		471,377
			71,037,089
Motor Vehicles — 0.2%
Westport Innovations, Inc.(b)	959,500		1,304,820
Oil & Gas — 16.0%
Accrete Energy, Inc.(b)	13,690		63,321
Alberta Clipper Energy, Inc.(b)	95,415		357,858
Baytex Energy Trust	421,948		7,426,577
Birchcliff Energy Ltd.(b)	721,500		2,768,510
Bow Valley Energy Ltd.(b)	634,600		3,298,051
C1 Energy Ltd.(b)	647,099		145,730
Canadian Superior Energy, Inc.(b)	1,091,000		2,771,140
Canext Energy Ltd.(b)	201,600		130,966
Capitol Energy Resources Ltd.(b)	620,325		3,728,935
Cinch Energy Corp.(b)	901,980		960,966
Compton Petroleum Corp.(b)	1,267,329		12,766,597
Crescent Point Energy Trust	1		9
Crew Energy, Inc.(b)	727,137		6,613,199
Cyries Energy, Inc.(b)	69,096		737,343
Daylight Resources Trust	346,361		2,892,093
Delphi Energy Corp.(b)	831,300		1,116,081
Ember Resources, Inc.(b)	274,224		593,816
Endev Energy, Inc.(b)	1,538,300		1,465,682
Equinox Minerals Ltd.(b)	1,552,114		3,051,796
Fairborne Energy Trust	204,620		1,547,278
Fairquest Energy Ltd.(b)	140,868		390,453
First Calgary Petroleums Ltd.(b)	740,786		3,259,587
Galleon Energy, Inc. - Class A(b)(f)	1,750,482		25,639,368
Gastar Exploration Ltd.(b)(c)	1,055,300		2,374,425
Highpine Oil & Gas Ltd.(b)	277,650		3,294,764
HSE Integrated Ltd.(b)	28,238		44,271
Innova Exploration Ltd.(b)	77,609		356,282
Innova Exploration Ltd.(f)	155,000		711,563
Iteration Energy Ltd.(b)	114,809		571,808
Leader Energy Services Ltd.(b)	454,104		326,467
Masters Energy, Inc.(b)	27,741		69,443
Midnight Oil Exploration Ltd.(b)	1,127,700		1,709,376
Niko Resources Ltd. (acquired 5/2/03 through 11/10/03, cost $689,948)(d)	39,000		2,835,565
Oilexco, Inc.(b)	1,167,675		8,657,686
Open Range Energy Corp.(b)	48,061		120,309
Pacific Rodera Energy, Inc.(b)	990,200		651,842
Paramount Resources Ltd. - Class A(b)	377,100		6,532,698
Pengrowth Energy Trust	21,699		365,561
Penn West Energy Trust	72,000		2,118,528
Petrolifera Petroleum Ltd.(b)	199,615		3,309,338
ProspEx Resources Ltd.(b)	1,504,120		5,146,188
Real Resources, Inc.(b)	603,337		5,116,214
Tag Oil Ltd.(f)	198,000		46,306
Technicoil Corp.(b)	1,300,900		946,519
Thunder Energy Trust	511,162		1,576,212
Trafalgar Energy Ltd.(b)	21,717		76,184
TransCanada Corp.	40,700		1,351,966
Trilogy Energy Trust	152,791		1,345,937
True Energy Trust	188,332		954,302
Tusk Energy Corp. (acquired 03/10/05, cost $1,123,911)(b)(d)(f)	300,846		482,083
Tusk Energy Corp. (acquired 06/02/06, cost $1,422,160)(b)(d)(f)	381,000		610,524
Tusk Energy Corp. (acquired 10/5/05 through 01/05/07, cost $5,704,653)(b)	1,566,340		2,509,944
Vault Energy Trust	130,450		562,703
Vero Energy, Inc.(b)	91,642		458,012
West Energy Ltd.(b)	2,735		9,334
Western Oil Sands, Inc. - Class A(b)	76,800		2,268,411
			139,236,121
Transportation — 0.0%
Railpower Technologies Corp.(b)	360,600		209,270
Total Canada			212,009,513
China — 0.1%
Metal & Mining — 0.1%
Crosshair Exploration & Mining Corp.(b)	105,700		289,313

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

60

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GLOBAL RESOURCES PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
Norway — 1.0%
Transportation — 1.0%
Stolt-Nielsen SA (acquired 1/20/05, cost $2,320,388)(d)	170,000	$	5,062,270
Stolt-Nielsen SA (acquired 2/18/04 through 9/9/04, cost $5,821,836)	126,100		3,721,211
			8,783,481
United Kingdom — 2.0%
Energy & Utilities — 0.1%
ITM Power Plc(b)	525,200		1,224,712
Finance — 0.2%
Archipelago Holdings, Inc. (acquired 5/13/05, cost $1,453,189)(d)(f)	2,247,400		1,313,493
Oil & Gas — 1.7%
Expro International Group Plc	365,348		6,348,313
Gulfsands Petroleum Plc(b)	563,300		1,058,605
Tullow Oil Plc	544,198		3,906,098
Venture Production Plc	289,729		3,780,040
			15,093,056
Total United Kingdom			17,631,261
United States — 71.9%
Energy & Utilities — 0.5%
Dynegy, Inc. - Class A	1,560		14,446
Evergreen Energy, Inc.(b)(c)	393,400		2,584,638
Longview Energy Co. (acquired 8/13/04, cost $1,281,000)(d)(e)(f)	85,400		1,622,600
			4,221,684
Finance — 0.1%
NGP Capital Resources Co.	64,500		1,019,745
Metal & Mining — 21.2%
Alpha Natural Resources, Inc.(b)(c)	27,500		429,825
Arch Coal, Inc.(c)	1,324,400		40,645,836
CONSOL Energy, Inc.	2,203,200		86,211,216
Foundation Coal Holdings, Inc.(c)	72,000		2,472,480
Kinross Gold Corp.(b)	111,175		1,533,103
Massey Energy Co.(c)	1,663,040		39,896,329
Peabody Energy Corp.(c)	212,736		8,560,497
Randgold Resources Ltd.	200,000		4,782,000
			184,531,286
Oil & Gas — 50.1%
American Oil & Gas, Inc.(b)(c)	224,088		1,216,798
BJ Services Co.	401,400		11,199,060
Bois d’Arc Energy, Inc.(b)	101,900		1,348,137
Brigham Exploration Co.(b)	81,900		509,418
Callon Petroleum Co.(b)	92,200		1,251,154
CanArgo Energy Corp.(b)(c)	5,024,200		5,275,410
Clayton Williams Energy, Inc.(b)	267,021		7,575,386
Complete Production Services, Inc.(b)	34,400		684,904
Comstock Resources, Inc.(b)	233,200		6,385,016
Delta Petroleum Corp.(b)(c)	314,497		7,220,851
Denbury Resources, Inc.(b)	297,600		8,865,504
Diamond Offshore Drilling, Inc.(c)	445,523		36,065,087
ENSCO International, Inc.(c)	128,800		7,006,720
EXCO Resources, Inc.(b)(c)	379,800		6,297,084
The Exploration Co.(b)	179,600		1,948,660
Gasco Energy, Inc.(b)(c)	864,200		2,108,648
Global Industries, Inc.(b)	189,496		3,465,882
GlobalSantaFe Corp.(c)	362,800		22,377,504
Grant Prideco, Inc.(b)	96,200		4,794,608
Halliburton Co.(c)	522,826		16,594,497
Hercules Offshore, Inc.(b)(c)	68,900		1,809,314
Matador Resources Co. (acquired 10/14/03 through 4/19/06, cost $2,957,155)(d)(e)(f)	171,131		4,620,537
Newfield Exploration Co.(b)(c)	959,310		40,012,820
Parallel Petroleum Corp.(b)	107,032		2,456,384
Particle Drilling Technologies, Inc.(b)(c)	222,915		880,514
Penn Virginia Corp.	433,100		31,789,540
Petrohawk Energy Corp.(b)	406,600		5,354,922
PetroQuest Energy, Inc.(b)	494,654		5,782,505
Pioneer Natural Resources Co.	329,200		14,191,812
Plains Exploration & Production Co.(b)	1,005,525		45,389,399
Pride International, Inc.(b)(c)	528,100		15,895,810
Rowan Cos., Inc.(c)	717,000		23,280,990
Schlumberger Ltd.(c)	256,036		17,692,088
Southwestern Energy Co.(b)	624,300		25,583,814
Transocean, Inc.(b)(c)	404,500		33,047,650
Treasure Island Royalty Trust(b)	366,922		82,557
Weatherford International Ltd.(b)	377,198		17,011,630
			437,072,614
Waste Management — 0.0%
Republic Resources, Inc.(b)	28,750		288
Total United States			626,845,617
TOTAL COMMON STOCKS (Cost $515,838,011)			865,559,185
WARRANTS — 0.1%
Nevsun Resources Ltd. (issued 12/18/03, expiring 12/18/08, strike price 10.00 CAD) (acquired 1/20/05, cost $2)(f)(g)	250,000		151,581
Point North Energy Ltd. (issued 7/24/03, expiring 7/23/08, strike price 5.00 CAD) (acquired 7/24/03, cost $74)(d)(e)(f)(h)	147,124		42,053
Triex Minerals Corp. (issued 12/23/05, expiring 6/23/07, strike price 3.00 CAD) (acquired 12/23/05, cost $0)(e)(f)(i)(j)	156,050		431,182
TOTAL WARRANTS (Cost $76)			624,816
SHORT TERM INVESTMENTS — 0.3%
Galileo Money Market Fund, 5.02% (Cost $2,485,021)	2,485,021		2,485,021
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 99.7% (Cost $518,323,108)		$	868,669,022

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

61

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GLOBAL RESOURCES PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR/SHARES (000)		VALUE
SECURITIES LENDING COLLATERAL — 2.4%
Bank of America Corp., Master Notes 5.51%(k)(l)	04/02/07	$	4,182	$	4,181,975
The Bear Stearns Cos., Inc., Variable Rate Commercial Paper 5.51%(k)(l)	04/02/07		2,740		2,739,537
Morgan Stanley, Variable Rate Commercial Paper 5.50%(k)(l)	04/02/07		13,776		13,775,607
TOTAL SECURITIES LENDING COLLATERAL (Cost $20,697,119)					20,697,119
AFFILIATED INVESTMENTS - SHORT TERM — 21.6%
Institutional Money Market Trust, 4.80%(l) (Cost $188,675,253)			188,675		188,675,253
TOTAL INVESTMENTS IN SECURITIES — 123.7% (Cost $727,695,480(a))					1,078,041,394
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (24.0)%					(209,372,372	)
OTHER ASSETS IN EXCESS OF LIABILITIES — 0.3%					3,032,654
NET ASSETS — 100.0%				$	871,701,676

(a) Cost for federal income tax purposes is $727,695,521. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	384,910,475
Gross unrealized depreciation		(34,564,602	)
	$	350,345,873

(b) Non-income producing security.

(c) Total or partial security on loan.

(d) Security restricted as to public resale. These securities are ineligible for resale into the public market until such time that either (i) a resale Registration Statement has been filed with the SEC and declared effective or (ii) resale is permitted under Rule 144A without the need for an effective registration statement. As of March 31, 2007, the Portfolio held 2.0% of its net assets, with a current market value of $19,861,679 and an original cost of $16,131,557 in these securities.

(e) Security is illiquid. As of March 31, 2007, the Portfolio held 1.1% of its net assets, with a current market value of $9,988,926 in these securities.

(f) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. As of March 31, 2007, these securities had a total market value of $37,225,707, which represents 4.3% of net assets.

(g) As of March 31, 2007, the aggregate amount of shares called for by these warrants is 250,000. These warrants were exercisable as of 12/18/03.

(h) As of March 31, 2007, the aggregate amount of shares called for by these warrants is 147,124. These warrants were exercisable as of 7/24/03.

(i) As of March 31, 2007, the aggregate amount of shares called for by these warrants is 156,050. These warrants were exercisable as of 12/23/05.

(j) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held less than 0% of its net assets, with a current market value of $431,182 and a current cost of $0 in securities restricted as to resale.

(k) Variable rate security. Rate shown is the rate as of March 31, 2007.

(l) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

62

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ALL-CAP GLOBAL RESOURCES PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 97.9%
Australia — 2.2%
Metal & Mining — 2.2%
BHP Billiton Ltd. - ADR(b)	271,890	$	13,173,070
Zinifex Ltd.	630,000		8,043,597
			21,216,667
Brazil — 1.1%
Oil & Gas — 1.1%
Petroleo Brasileiro S.A. - ADR	104,400		10,388,844
Canada — 11.1%
Metal & Mining — 3.7%
Eldorado Gold Corp.(c)	877,900		5,132,806
NovaGold Resources, Inc.(b)(c)	566,800		9,607,260
Teck Cominco Ltd.	284,530		19,837,003
			34,577,069
Oil & Gas — 7.4%
Canadian Natural Resources Ltd.	393,360		21,709,538
Compton Petroleum Corp.(c)	750,980		7,565,091
Galleon Energy, Inc. - Class A(c)	796,874		11,671,840
Husky Energy, Inc.	218,510		15,266,363
Nexen, Inc.	107		6,554
Pason Systems, Inc.	375,640		4,659,303
Real Resources, Inc.(c)	262,754		2,228,118
Talisman Energy, Inc. - ADR	420,983		7,392,462
			70,499,269
Total Canada			105,076,338
Denmark — 0.1%
Oil & Gas — 0.1%
A P Moller - Maersk A/S	54		563,453
France — 1.8%
Metal & Mining — 0.5%
Vallourec SA	19,200		4,913,686
Oil & Gas — 1.3%
Compagnie Gernerale de Geophysique (CGG Veritas ) - ADR(b)(c)	251,404		10,470,976
Total SA - ADR(b)	21,160		1,476,545
			11,947,521
Total France			16,861,207
Luxembourg — 1.8%
Manufacturing — 0.7%
Tenaris SA - ADR	155,865		7,154,203
Oil & Gas — 1.1%
Acergy SA	489,240		10,443,527
Total Luxembourg			17,597,730
Marshall Islands — 0.2%
Railroad & Shipping — 0.2%
DryShips, Inc.	105,761		2,382,795
Netherlands — 3.2%
Oil & Gas — 3.2%
Core Laboratories NV(b)(c)	275,640		23,106,901
SBM Offshore NV	212,340		7,655,802
			30,762,703
Norway — 4.2%
Oil & Gas — 4.2%
Norsk Hydro ASA	494,900		16,406,290
Seadrill Ltd.	338,300		5,565,701
Statoil ASA - ADR(b)	652,616		17,672,841
			39,644,832
United Kingdom — 4.1%
Metal & Mining — 1.1%
Rio Tinto Plc - ADR(b)	47,600		10,843,756
Oil & Gas — 3.0%
BG Group Plc - ADR	161,480		11,581,346
Cairn Energy Plc	437,799		13,396,656
Cairn Energy Plc	538,830		3,181,002
			28,159,004
Total United Kingdom			39,002,760
United States — 68.1%
Energy & Utilities — 2.9%
Questar Corp.(b)	308,960		27,562,322
Food & Agriculture — 1.5%
Potash Corp. of Saskatchewan, Inc.	88,000		14,073,840
Metal & Mining — 13.8%
Arch Coal, Inc.(b)	378,700		11,622,303
Cameco Corp.	87,300		3,574,062
CONSOL Energy, Inc.(b)	617,000		24,143,210
Goldcorp, Inc.	783,302		18,814,914
Massey Energy Co.(b)	718,429		17,235,112
Peabody Energy Corp.(b)	377,080		15,173,699
Royal Gold, Inc.(b)	293,400		8,831,340
Silver Standard Resources, Inc.(b)(c)	776,890		27,082,385
Silver Wheaton Corp.(b)(c)	473,074		4,484,742
			130,961,767
Oil & Gas — 49.9%
Apache Corp.	88,200		6,235,740
Bill Barrett Corp.(c)	134,607		4,362,613
Cameron International Corp.(b)(c)	124,900		7,842,471
Chesapeake Energy Corp.(b)	400,330		12,362,190
ConocoPhillips	133,700		9,138,395
Devon Energy Corp.	104,700		7,247,334
EnCana Corp.	374,600		18,965,998
ENSCO International, Inc.(b)	352,478		19,174,803
EOG Resources, Inc.	333,070		23,761,214
The Exploration Co.(c)	271,100		2,941,435
FMC Technologies, Inc.(b)(c)	198,500		13,847,360
Forest Oil Corp.(b)(c)	178,900		5,969,893
GlobalSantaFe Corp.(b)	278,990		17,208,103
Grant Prideco, Inc.(b)(c)	344,540		17,171,874
Hanover Compressor Co.(b)(c)	222,000		4,939,500
Helix Energy Solutions Group, Inc.(b)(c)	260,100		9,699,129
Helmerich & Payne, Inc.	599,700		18,194,898
Hercules Offshore, Inc.(b)(c)	160,900		4,225,234
Hess Corp.(b)	395,740		21,951,698
Hugoton Royalty Trust	1		25
Marathon Oil Corp.	112,500		11,118,375
Mariner Energy, Inc.(c)	139,029		2,659,625

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

63

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ALL-CAP GLOBAL RESOURCES PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
COMMON STOCKS (Continued)
United States (Continued)
Oil & Gas (Continued)
National-Oilwell, Inc.(b)(c)			184,289	$	14,335,841
Newfield Exploration Co.(b)(c)			210,900		8,796,639
Noble Corp.			163,900		12,895,652
Noble Energy, Inc.			383,810		22,894,267
Occidental Petroleum Corp.			305,550		15,066,670
Pride International, Inc.(c)			203,300		6,119,330
Quicksilver Resources, Inc.(b)(c)			276,800		11,008,336
Range Resources Corp.(b)			336,100		11,225,740
Schlumberger Ltd.(b)			275,000		19,002,500
Smith International, Inc.(b)			159,100		7,644,755
Southwestern Energy Co.(b)(c)			201,820		8,270,584
Suncor Energy, Inc.			195,230		14,905,810
Todco(b)(c)			185,600		7,485,248
Transocean, Inc.(c)			379,150		30,976,555
Valero Energy Corp.			181,800		11,724,282
Weatherford International Ltd.(c)			317,780		14,331,878
XTO Energy, Inc.			322,633		17,683,515
					473,385,509
Total United States					645,983,438
TOTAL COMMON STOCKS (Cost $813,726,958)					929,480,767
	MATURITY	PAR/SHARES (000)
SHORT TERM INVESTMENTS — 2.0%
Federal Home Loan Mortgage Corp., Discount Notes 4.97%(d)	04/02/07	$	9,500		9,498,707
Galileo Money Market Fund, 5.02%			9,772		9,772,245
TOTAL SHORT TERM INVESTMENTS (Cost $19,270,952)					19,270,952
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 99.9% (Cost $832,997,910)					948,751,719
SECURITIES LENDING COLLATERAL — 1.4%
Bank of America Corp., Master Notes 5.51%(e)(f)	04/02/07		6,474		6,473,921
The Bear Stearns Cos., Inc., Variable Rate Commercial Paper 5.51%(e)(f)	04/02/07		1,260		1,259,770
Citigroup, Inc., Master Notes 5.51%(e)(f)	04/02/07		1,642		1,641,748
Morgan Stanley, Variable Rate Commercial Paper 5.50%(e)(f)	04/02/07		3,870		3,869,966
TOTAL SECURITIES LENDING COLLATERAL (Cost $13,245,405)					13,245,405
		NUMBER OF SHARES
AFFILIATED INVESTMENTS - SHORT TERM — 21.3%
Institutional Money Market Trust, 4.80%(f) (Cost $201,901,845)			201,901,845	$	201,901,845
TOTAL INVESTMENTS IN SECURITIES — 122.6% (Cost $1,048,145,160(a))					1,163,898,969
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (22.7)%					(215,147,250	)
OTHER ASSETS IN EXCESS OF LIABILITIES — 0.1%					494,756
NET ASSETS — 100.0%				$	949,246,475

(a) Cost for federal income tax purposes is $1,052,788,864. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	135,203,130
Gross unrealized depreciation		(24,093,025	)
	$	111,110,105

(b) Total or partial security on loan.

(c) Non-income producing security.

(d) The rate shown is the effective yield at the time of purchase.

(e) Variable rate security. Rate shown is the rate as of March 31, 2007.

(f) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

64

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

HEALTH SCIENCES OPPORTUNITIES PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
COMMON STOCKS — 92.9%
Insurance — 2.3%
Aetna, Inc.			578,600	$	25,336,894
Manufacturing — 1.2%
Varian, Inc.(b)			214,500		12,496,770
Medical & Medical Services — 12.5%
Baxter International, Inc.(c)			621,000		32,708,070
Biomet, Inc.			445,800		18,942,042
Integra LifeSciences Holdings(b)(c)			500,900		22,831,022
Manor Care, Inc.(c)			614,500		33,404,220
Pediatrix Medical Group, Inc.(b)			122,900		7,012,674
Seattle Genetics, Inc.(b)			115,600		946,764
Tongjitang Chinese Medicines Company - ADR(b)			232,800		2,341,968
UnitedHealth Group, Inc.			302,900		16,044,613
Xoma Ltd.(b)			295,400		853,706
					135,085,079
Medical Instruments & Supplies — 31.4%
Alcon, Inc.			159,000		20,959,380
Becton, Dickinson & Co.			506,600		38,952,474
Charles River Laboratories International, Inc.(b)			243,300		11,255,058
China Medical Technologies, Inc. - ADR(b)(c)			149,500		3,448,965
The Cooper Cos., Inc.(c)			115,000		5,591,300
Cyberonics, Inc.(b)(c)			532,300		9,996,594
DENTSPLY International, Inc.			618,920		20,269,630
Edwards Lifesciences Corp.(b)			263,900		13,379,730
Johnson & Johnson			799,900		48,201,974
Medtronic, Inc.(c)			729,200		35,774,552
NicOx SA			376,267		9,927,027
SenoRx, Inc.(b)			252,100		2,064,699
Stryker Corp.(c)			891,900		59,150,808
Thoratec Corp.(b)(c)			478,300		9,996,470
Ventana Medical Systems, Inc.(b)(c)			223,700		9,373,030
Waters Corp.(b)			95,667		5,548,686
Wright Medical Group, Inc.(b)(c)			517,373		11,532,244
Zimmer Holdings, Inc.(b)			295,000		25,195,950
					340,618,571
Pharmaceuticals — 45.5%
Abbott Laboratories			666,700		37,201,860
Alexion Pharmaceuticals, Inc.(b)(c)			878,300		37,977,692
Applera Corp. - Celera Genomic Group(b)			716,400		10,172,880
Biogen Idec, Inc.(b)(c)			581,700		25,815,846
BioMarin Pharmaceutical, Inc.(b)(c)			1,044,579		18,029,434
Cardiome Pharma Corp.(b)			304,200		3,087,630
CV Therapeutics, Inc.(b)(c)			754,700		5,939,489
Genentech, Inc.(b)			418,300		34,350,796
Gilead Sciences, Inc.(b)			679,200		51,958,800
InterMune, Inc.(b)(c)			586,581		14,465,087
Kosan Biosciences, Inc.(b)			820,787		4,514,329
Merck & Co., Inc.			1,300,400		57,438,668
Myriad Genetics, Inc.(b)(c)			820,500		28,274,430
Novartis AG - ADR(c)			160,400		8,762,652
Pfizer, Inc.			481,259		12,156,602
Regeneron Pharmaceuticals, Inc.(b)			609,123		13,169,239
Roche Holding AG			333,500		59,007,119
Schering-Plough Corp.(c)			1,284,100		32,757,391
United Therapeutics Corp.(b)(c)			61,700		3,318,226
Wyeth			702,700		35,156,081
					493,554,251
TOTAL COMMON STOCKS (Cost $912,955,392)					1,007,091,565
	MATURITY	PAR/SHARES (000)
SHORT TERM INVESTMENTS — 15.7%
Federal Home Loan Bank, Discount Notes 4.97%(d)	04/02/07	$	161,000		160,977,773
Galileo Money Market Fund, 5.02%			9,359		9,358,826
TOTAL SHORT TERM INVESTMENTS (Cost $170,336,599)					170,336,599
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 108.6% (Cost $1,083,291,991)					1,177,428,164
SECURITIES LENDING COLLATERAL — 0.6%
Bank of America Corp., Master Notes 5.51%(e)(f)	04/02/07		5,275		5,274,780
Morgan Stanley, Variable Rate Commercial Paper 5.50%(e)(f)	04/02/07		1,607		1,606,511
TOTAL SECURITIES LENDING COLLATERAL (Cost $6,881,291)					6,881,291
AFFILIATED INVESTMENTS - SHORT TERM — 6.6%
Institutional Money Market Trust, 4.80%(f) (Cost $70,841,993)			70,842		70,841,993
TOTAL INVESTMENTS IN SECURITIES — 115.8% (Cost $1,161,015,275(a))					1,255,151,448
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (7.2)%					(77,723,284	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (8.6)%					(93,364,551	)
NET ASSETS — 100.0%				$	1,084,063,613

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

65

BLACK ROCK FUNDS

SCHEDULE OF INVESTMENTS

HEALTH SCIENCES OPPORTUNITIES PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

(a) Cost for federal income tax purposes is $1,162,789,346. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	100,992,257
Gross unrealized depreciation		(8,630,155	)
	$	92,362,102

(b) Non-income producing security.

(c) Total or partial security on loan.

(d) The rate shown is the effective yield at the time of purchase.

(e) Variable rate security. Rate shown is the rate as of March 31, 2007.

(f) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

66

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

U.S. OPPORTUNITIES PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 96.2%
Aerospace — 1.9%
Curtiss-Wright Corp.	53,500	$	2,061,890
Goodrich Corp.	48,100		2,476,188
Orbital Sciences Corp.(b)	80,800		1,514,192
			6,052,270
Banks — 3.9%
Associated Banc-Corp.	40,000		1,344,000
City National Corp.	24,000		1,766,400
Compass Bancshares, Inc.(c)	17,400		1,197,120
Fidelity National Information Services, Inc.(c)	52,900		2,404,834
Northern Trust Corp.	18,700		1,124,618
Thomas Weisel Partners Group, Inc.(b)(c)	82,900		1,576,758
Wilmington Trust Co.	31,400		1,324,138
Zions Bancorporation	21,000		1,774,920
			12,512,788
Beverages & Bottling — 0.6%
Molson Coors Brewing Co. - Class B	20,400		1,930,248
Business Services — 4.2%
Amvescap Plc - ADR(c)	58,400		1,290,640
Aquantive, Inc.(b)(c)	30,000		837,300
Corrections Corp. of America(b)	38,550		2,035,826
The Dun & Bradstreet Corp.(c)	23,600		2,152,320
Fiserv, Inc.(b)	52,900		2,806,874
FTI Consulting, Inc.(b)	54,000		1,813,860
Kelly Services, Inc.	54,500		1,754,900
Salary.com, Inc.(b)	60,600		674,478
Stanley, Inc.(b)	22,300		347,880
			13,714,078
Chemicals — 4.5%
Agrium, Inc.	20,900		801,097
Albemarle Corp.	67,600		2,794,584
CF Industries Holdings, Inc.	23,300		898,215
Church & Dwight Co., Inc.	54,700		2,754,145
The Lubrizol Corp.	51,200		2,638,336
Nalco Holding Co.	50,000		1,195,000
Rohm and Haas Co.	34,900		1,805,028
Terra Industries, Inc.(b)	51,900		908,250
UAP Holding Corp.	30,100		778,085
			14,572,740
Computer Software & Services — 5.5%
3Com Corp.(b)(c)	186,700		729,997
Business Objects SA - ADR(b)	40,000		1,447,600
Cogent Communications Group, Inc.(b)	65,600		1,550,128
DST Systems, Inc.(b)(c)	25,400		1,910,080
Hyperion Solutions Corp.(b)(c)	55,200		2,861,016
Interwoven, Inc.(b)	156,500		2,644,850
Perficient, Inc.(b)	52,200		1,032,516
Seagate Technology, Inc.(c)	57,100		1,330,430
TIBCO Software, Inc.(b)	59,700		508,644
Vasco Data Security International, Inc.(b)	80,400		1,436,748
VeriFone Holdings, Inc.(b)(c)	63,000		2,313,990
			17,765,999
Construction — 1.6%
EMCOR Group, Inc.(b)	37,300		2,199,954
Jacobs Engineering Group, Inc.(b)	47,800		2,229,870
The Shaw Group, Inc.(b)	28,600		894,322
			5,324,146
Containers — 0.6%
Smurfit-Stone Container Corp.(b)	178,500		2,009,910
Credit Institutions — 0.6%
CSG Systems, Inc.(b)	77,200		1,931,544
Electronics — 1.0%
Amphenol Corp.(c)	29,500		1,904,815
IntercontinentalExchange, Inc.(b)	8,600		1,051,006
Mellanox Technologies Ltd.(b)	4,800		69,840
			3,025,661
Energy & Utilities — 5.4%
Airgas, Inc.	35,600		1,500,540
Edison International	59,400		2,918,322
MDU Resources Group, Inc.	45,000		1,293,300
Mirant Corp.	77,100		3,119,466
Pepco Holdings, Inc.	65,300		1,895,006
PPL Corp.	58,000		2,372,200
Sempra Energy	36,900		2,251,269
UGI Corp.	79,200		2,115,432
			17,465,535
Entertainment & Leisure — 5.3%
Gaylord Entertainment Co.(b)	36,100		1,908,607
Hilton Hotels Corp.(c)	102,600		3,689,496
Morgans Hotel Group Co.(b)(c)	125,800		2,643,058
Penn National Gaming, Inc.(b)(c)	47,000		1,993,740
Vail Resorts, Inc.(b)	43,500		2,363,355
WMS Industries, Inc.(b)(c)	66,500		2,609,460
Wyndham Worldwide Corp.(b)	60,800		2,076,320
			17,284,036
Finance — 2.3%
AllianceBernstein Holding LP	32,700		2,893,950
Ameriprise Financial, Inc.	41,900		2,394,166
eTelecare Global Solutions, Inc.(b)	43,000		651,450
First Cash Financial Services, Inc.(b)	60,800		1,354,624
			7,294,190
Food & Agriculture — 1.5%
Corn Products International, Inc.	80,700		2,872,113
The Mosaic Co.(b)	76,700		2,044,822
			4,916,935
Insurance — 4.3%
Assurant, Inc.(c)	35,700		1,914,591
Axis Capital Holdings Ltd.	66,100		2,238,146
Cincinnati Financial Corp.	40,900		1,734,160
Principal Financial Group, Inc.	30,300		1,814,061
Reinsurance Group of America, Inc.	44,500		2,568,540
SAFECO Corp.	24,000		1,594,320
Security Capital Assurance Ltd.	67,900		1,916,817
			13,780,635

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

67

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

U.S. OPPORTUNITIES PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
Leasing — 0.4%
William Scotsman International, Inc.(b)	68,400	$	1,344,744
Machinery & Heavy Equipment — 0.7%
AGCO Corp.(b)(c)	61,100		2,258,867
Manufacturing — 6.3%
Fei Co.(b)	54,000		1,947,240
G-III Apparel Group Ltd.(b)(c)	50,000		952,500
Guess?, Inc.	54,400		2,202,656
Iconix Brand Group, Inc.(b)(c)	96,100		1,960,440
Knoll, Inc.	94,000		2,240,020
Phillips-Van Heusen Corp.	43,400		2,551,920
Polo Ralph Lauren Corp.(c)	20,700		1,824,705
Textron, Inc.	19,600		1,760,080
Varian, Inc.(b)	26,900		1,567,194
VF Corp.	21,800		1,801,116
Watson Wyatt Worldwide, Inc.	35,000		1,702,750
			20,510,621
Medical & Medical Services — 1.7%
Biomet, Inc.	51,000		2,166,990
The Geo Group, Inc.(b)	41,000		1,858,120
Integra LifeSciences Holdings(b)(c)	35,200		1,604,416
			5,629,526
Medical Instruments & Supplies — 2.6%
Charles River Laboratories International, Inc.(b)	35,300		1,632,978
DENTSPLY International, Inc.	19,500		638,625
SenoRx, Inc.(b)	32,000		262,080
Thoratec Corp.(b)(c)	63,900		1,335,510
Waters Corp.(b)	55,600		3,224,800
Wright Medical Group, Inc.(b)(c)	65,900		1,468,911
			8,562,904
Metal & Mining — 3.0%
Allegheny Technologies, Inc.(c)	20,400		2,176,476
CONSOL Energy, Inc.(c)	36,100		1,412,593
Hudbay Minerals, Inc.(b)(c)	86,100		1,519,252
Kinross Gold Corp.(b)	118,200		1,629,978
Sxr Uranium One, Inc.(b)(c)	97,000		1,335,893
Yamana Gold, Inc.	118,600		1,703,096
			9,777,288
Motor Vehicles — 1.1%
LKQ Corp.(b)	85,900		1,877,774
Rush Enterprises, Inc. - Class A(b)	81,000		1,556,010
			3,433,784
Oil & Gas — 8.7%
Acergy SA - ADR(b)(c)	106,000		2,256,740
AGL Resources, Inc.	62,100		2,652,912
Cameron International Corp.(b)(c)	37,200		2,335,788
Chesapeake Energy Corp.(c)	57,300		1,769,424
Diamond Offshore Drilling, Inc.(c)	28,400		2,298,980
ENSCO International, Inc.(c)	30,100		1,637,440
Frontier Oil Corp.	60,200		1,964,928
Layne Christensen Co.(b)	62,500		2,276,250
Newfield Exploration Co.(b)(c)	26,700		1,113,657
Noble Energy, Inc.(c)	36,200		2,159,330
Smith International, Inc.(c)	50,000		2,402,500
St. Mary Land & Exploration Co.(c)	47,500		1,742,300
Suburban Propane Partners LP	37,914		1,668,216
Western Refining, Inc.	49,800		1,943,196
			28,221,661
Personal Services — 0.7%
Life Time Fitness, Inc.(b)(c)	43,200		2,220,912
Pharmaceuticals — 2.6%
Alexion Pharmaceuticals, Inc.(b)(c)	25,100		1,085,324
BioMarin Pharmaceutical, Inc.(b)(c)	86,800		1,498,168
InterMune, Inc.(b)(c)	46,600		1,149,156
Myriad Genetics, Inc.(b)(c)	97,000		3,342,620
Regeneron Pharmaceuticals, Inc.(b)	67,800		1,465,836
			8,541,104
Railroad & Shipping — 0.6%
DryShips, Inc.(c)	86,400		1,946,592
Real Estate — 4.9%
Douglas Emmett, Inc. (REIT)(c)	85,200		2,175,156
Highland Hospitality Corp. (REIT)	129,800		2,310,440
Host Hotels & Resorts, Inc. (REIT)(c)	82,100		2,160,051
Jones Lang Lasalle, Inc. (REIT)	28,300		2,951,124
Kilroy Realty Corp. (REIT)	18,300		1,349,625
Kimco Realty Corp. (REIT)(c)	54,500		2,656,330
The Macerich Co. (REIT)(c)	24,400		2,253,584
			15,856,310
Restaurants — 0.5%
Ruth’s Chris Steak House, Inc.(b)	76,100		1,549,396
Retail Merchandising — 4.5%
Abercrombie & Fitch Co. - Class A	19,700		1,490,896
Asbury Automative Group, Inc.	65,800		1,858,850
Cache, Inc.(b)	90,800		1,611,700
Dollar Tree Stores, Inc.(b)	59,000		2,256,160
Limited Brands, Inc.	72,600		1,891,956
Ruddick Corp.	62,000		1,864,960
Saks, Inc.(c)	87,600		1,825,584
SUPERVALU, Inc.	41,000		1,601,870
			14,401,976
Security Brokers & Dealers — 1.4%
A.G. Edwards, Inc.	41,200		2,850,216
E*TRADE Financial Corp.(b)	77,700		1,648,794
			4,499,010
Semiconductors & Related Devices — 3.7%
ASML Holding NV(b)	38,200		945,450
Avnet, Inc.(b)(c)	52,600		1,900,964
Fairchild Semiconductor International, Inc.(b)	108,100		1,807,432
Hittite Microwave Corp.(b)	41,600		1,671,072
Integrated Device Technology, Inc.(b)(c)	124,500		1,919,790
Lam Research Corp.(b)(c)	19,400		918,396

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

68

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

U.S. OPPORTUNITIES PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
COMMON STOCKS (Continued)
Semiconductors & Related Devices (Continued)
MEMC Electronic Materials, Inc.(b)			33,300	$	2,017,314
NVIDIA Corp.(b)(c)			29,800		857,644
					12,038,062
Soaps & Cosmetics — 0.9%
International Flavors & Fragrances, Inc.			29,400		1,388,268
Physicians Formula Holdings, Inc.(b)			81,400		1,536,832
					2,925,100
Telecommunications — 4.7%
American Tower Corp. - Class A(b)			42,200		1,643,690
Atheros Communications, Inc.(b)			81,200		1,943,116
Cincinnati Bell, Inc.(b)			425,200		1,998,440
Harris Corp.			37,600		1,915,720
Leap Wireless International, Inc.(b)			33,900		2,236,722
NeuStar, Inc. - Class A(b)			48,800		1,387,872
OpNext, Inc.(b)			20,400		301,716
Optium Corp.(b)			5,800		112,578
Orbcomm, Inc.(b)(c)			57,400		731,850
SBA Communications Corp.(b)			89,800		2,653,590
Switch & Data Facilities Co.(b)			10,900		197,508
					15,122,802
Tires & Rubber — 0.8%
The Goodyear Tire & Rubber Co.(b)(c)			83,200		2,595,008
Tobacco — 0.9%
Carolina Group			36,300		2,744,643
Transportation — 1.6%
Celadon Group, Inc.(b)			91,600		1,529,720
Quintana Maritime Ltd.			116,200		1,600,074
Trinity Industries, Inc.(c)			45,300		1,898,976
					5,028,770
Waste Management — 0.7%
Allied Waste Industries, Inc.(b)			176,200		2,218,358
TOTAL COMMON STOCKS (Cost $269,185,845)					311,008,153
	MATURITY	PAR/SHARES (000)
SHORT TERM INVESTMENTS — 5.7%
Federal Home Loan Bank, Discount Notes 4.97%(d)	04/02/07	$	9,000		8,998,758
Galileo Money Market Fund, 5.02%			9,540		9,539,589
TOTAL SHORT TERM INVESTMENTS (Cost $18,538,347)					18,538,347
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 101.9% (Cost $287,724,192)					329,546,500
SECURITIES LENDING COLLATERAL — 1.7%
The Bear Stearns Cos., Inc., Variable Rate Commercial Paper 5.51%(e)(f)	04/02/07		1,007		1,006,959
Citigroup, Inc., Master Notes 5.51%(e)(f)	04/02/07		2,618		2,618,323
Morgan Stanley, Variable Rate Commercial Paper 5.50%(e)(f)	04/02/07		1,758		1,757,712
TOTAL SECURITIES LENDING COLLATERAL (Cost $5,382,994)					5,382,994
AFFILIATED INVESTMENTS - SHORT TERM — 16.9%
Institutional Money Market Trust, 4.80%(f) (Cost $54,533,177)			54,533		54,533,177
TOTAL INVESTMENTS IN SECURITIES — 120.5% (Cost $347,640,363(a))					389,462,671
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (18.5)%					(59,916,171	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (2.0)%					(6,273,749	)
NET ASSETS — 100.0%				$	323,272,751

(a) Cost for federal income tax purposes is $347,998,090. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	45,139,979
Gross unrealized depreciation		(3,675,398	)
	$	41,464,581

(b) Non-income producing security.

(c) Total or partial security on loan.

(d) The rate shown is the effective yield at the time of purchase.

(e) Variable rate security. Rate shown is the rate as of March 31, 2007.

(f) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

69

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GLOBAL OPPORTUNITIES PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 95.3%
Australia — 1.0%
Entertainment & Leisure — 0.4%
Publishing & Broadcasting Ltd.	16,000	$	256,970
Metal & Mining — 0.6%
Mincor Resources NL	135,000		335,332
Total Australia			592,302
Belgium — 1.4%
Banks — 0.6%
KBC Groep NV	2,800		348,265
Beverages & Bottling — 0.8%
Inbev NV	7,000		505,417
Total Belgium			853,682
Brazil — 2.2%
Banks — 0.8%
Unibanco SA - ADR	5,600		489,776
Energy & Utilities — 0.5%
Companhia Energetica de Minas Gerais- Cemig - ADR	5,900		287,035
Telecommunications — 0.9%
GVT Holding SA(b)	21,600		249,517
Net Servicos de Comunicacao SA - ADR	23,400		316,134
			565,651
Total Brazil			1,342,462
Canada — 3.2%
Food & Agriculture — 0.7%
Potash Corporation of Saskatchewan, Inc.	2,800		446,496
Metal & Mining — 1.9%
Kinross Gold Corp.	29,000		400,399
Major Drilling Group Int’l, Inc.(b)	12,000		326,479
Yamana Gold, Inc.	30,000		433,694
			1,160,572
Telecommunications — 0.6%
Rogers Communications, Inc.	10,800		353,514
Total Canada			1,960,582
Cayman Islands — 0.1%
Entertainment & Leisure — 0.1%
Melco PBL Entertainment Ltd. - ADR(b)	5,300		85,542
Chile — 0.3%
Banks — 0.3%
Banco Santander Chile SA - ADR	3,000		149,610
Finland — 0.7%
Manufacturing — 0.7%
Wartsila OYJ - Series B	6,300		389,568
France — 2.2%
Computer Software & Services — 0.5%
Cap Gemini SA	4,163		316,928
Electronics — 0.5%
Schneider Electric SA	2,300		291,974
Insurance — 0.6%
Axa	8,000		339,198
Machinery & Heavy Equipment — 0.6%
Alstom	2,900		376,354
Total France			1,324,454
Germany — 4.4%
Air Transportation — 0.6%
Deutsche Lufthansa AG	13,600		369,345
Construction — 0.6%
Bilfinger Berger AG	4,000		363,991
Electronics — 0.6%
RWE AG	3,300		349,092
Finance — 0.5%
Hypo Real Estate Holding AG	5,000		318,866
Manufacturing — 0.6%
Siemens AG	3,500		374,130
Oil & Gas — 0.6%
Linde AG	3,400		366,302
Soaps & Cosmetics — 0.9%
Henkel KGaA	3,600		532,217
Total Germany			2,673,943
Hong Kong — 3.2%
Energy & Utilities — 0.5%
Guangdong Investment Ltd.	562,000		299,935
Entertainment & Leisure — 0.8%
Hongkong & Shanghai Hotels Ltd.	290,000		458,002
Real Estate — 0.7%
Hang Lung Properties Ltd.	140,000		391,502
Retail Merchandising — 0.4%
Esprit Holdings Ltd.	23,000		269,783
Telecommunications — 0.8%
China Communications Services Corp. Ltd.(b)	2,100		1,422
China Mobile Ltd.	54,000		491,034
			492,456
Total Hong Kong			1,911,678
Indonesia — 0.4%
Banks — 0.4%
PT Bank Danamon	365,000		262,000
Israel — 0.0%
Electronics — 0.0%
Mellanox Technologies Ltd.(b)	100		1,455
Italy — 2.0%
Banks — 2.0%
Credito Emiliano SpA	21,000		330,461
UniCredito Italiano SpA	93,000		885,164
			1,215,625

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

70

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GLOBAL OPPORTUNITIES PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
Japan — 9.9%
Banks — 1.1%
The Sumitomo Industries Ltd.	62,000	$	646,622
Business Services — 1.0%
Sumitomo Corp.	33,000		593,686
Chemicals — 0.3%
Shin-Etsu Chemical Co. Ltd.	3,500		213,552
Computer Software & Services — 0.7%
Nintendo Co., Ltd.	1,400		406,908
Construction — 0.9%
Sekisui House Ltd.	36,000		560,285
Electronics — 1.3%
NGK Insulators Ltd.	25,000		515,530
Star Micronics Co. Ltd.	11,500		248,366
			763,896
Energy & Utilities — 1.2%
Air Water, Inc.	32,100		394,168
Kurita Water Industries Ltd.	15,000		362,780
			756,948
Insurance — 0.5%
T&D Holdings, Inc.	4,900		338,060
Machinery & Heavy Equipment — 0.4%
Hitachi Construction Machinery Co. Ltd.	9,400		254,464
Manufacturing — 1.6%
Daihatsu Motor Co. Ltd.	22,000		209,471
Tokai Rubber Industries Ltd.	24,000		465,377
Uni-Charm Corp.	4,600		291,208
			966,056
Real Estate — 0.9%
Mitsubishi Estate Co. Ltd.	8,000		262,729
Sumitomo Realty & Development Co. Ltd.	7,000		265,530
			528,259
Total Japan			6,028,736
Luxembourg — 0.3%
Real Estate — 0.3%
Gagfah SA	6,800		183,492
Malaysia — 1.3%
Banks — 0.5%
Bumiputra-Commerce Holdings Berhad	102,800		295,838
Telecommunications — 0.8%
Maxis Communications Berhad	138,000		474,968
Total Malaysia			770,806
Marshall Islands — 0.6%
Railroad & Shipping — 0.6%
DryShips, Inc.	16,600		373,998
Netherlands — 3.2%
Beverages & Bottling — 0.8%
Heineken Holding NV	11,000		486,969
Insurance — 0.7%
Aegon NV	21,000		418,547
Oil & Gas — 0.6%
SBM Offshore NV	10,100		364,150
Personal Services — 0.6%
USG People NV	9,400		387,758
Semiconductors & Related Devices — 0.5%
ASML Holding NV(b)	12,000		297,000
Total Netherlands			1,954,424
Singapore — 1.5%
Banks — 0.8%
United Overseas Bank Ltd.	33,000		456,778
Real Estate — 0.7%
Suntec Real Estate Investment Trust (REIT)	350,000		456,777
Total Singapore			913,555
South Korea — 1.5%
Electronics — 0.5%
Samsung Electronics Co. Ltd.	500		299,214
Korea — 0.6%
Shinhan Financial Group Co. Ltd.	6,300		361,607
Security Brokers & Dealers — 0.4%
Korea Investment Holdings Co. Ltd.(b)	4,400		231,505
Total South Korea			892,326
Sweden — 2.8%
Banks — 1.0%
Nordea Bank AB	40,000		638,712
Conglomerates — 0.6%
Atlas Copco AB - A Shares	11,000		365,469
Metal & Mining — 0.4%
Boliden AB	10,000		220,542
Paper & Forest Products — 0.8%
Svenska Cellulosa AB-B (SCA)	9,300		498,110
Total Sweden			1,722,833
Switzerland — 3.5%
Chemicals — 0.6%
Syngenta AG	2,000		382,669
Food & Agriculture — 0.9%
Nestle SA	1,300		506,295
Pharmaceuticals — 1.4%
Roche Holding AG	3,000		530,799
Roche Holding AG - ADR	3,900		343,422
			874,221
Retail Merchandising — 0.6%
Compagnie Financiere Richemont AG	6,200		346,698
Total Switzerland			2,109,883
Taiwan — 0.4%
Computer & Office Equipment — 0.4%
Gemtek Technology Corp.	107,000		265,140

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

71

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GLOBAL OPPORTUNITIES PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
United Kingdom — 4.9%
Aerospace — 0.6%
BAE Systems Plc	42,600	$	385,619
Beverages & Bottling — 0.6%
Diageo Plc	17,500		354,532
Computer Software & Services — 0.9%
Autonomy Corp. Plc	40,000		539,190
Energy & Utilities — 0.9%
International Power Plc	67,700		528,230
Finance — 0.7%
Amvescap Plc	12,300		135,545
ICAP Plc	26,000		271,425
			406,970
Machinery & Heavy Equipment — 0.7%
The Weir Group Plc	33,500		401,140
Transportation — 0.5%
Arriva Plc	22,700		332,345
Total United Kingdom			2,948,026
United States — 44.3%
Aerospace — 0.7%
The Boeing Co.	5,000		444,550
Banks — 1.2%
Allied Irish Banks Plc	20,000		591,779
Bank of America Corp.	3,400		173,468
			765,247
Beverages & Bottling — 1.0%
PepsiCo, Inc.	10,000		635,600
Broadcasting — 1.3%
Liberty Global, Inc.(b)	12,100		398,453
News Corp.	15,000		367,050
			765,503
Business Services — 0.8%
Akamai Technologies, Inc.(b)	6,000		299,520
Stanley, Inc.(b)	12,800		199,680
			499,200
Chemicals — 1.9%
Agrium, Inc.	4,100		157,153
CF Industries Holdings, Inc.	4,500		173,475
The Lubrizol Corp.	9,400		484,382
Terra Industries, Inc.(b)	10,100		176,750
UAP Holding Corp.	5,900		152,515
			1,144,275
Computer & Office Equipment — 1.8%
Apple Computer, Inc.(b)	3,000		278,730
Cisco Systems, Inc.(b)	11,300		288,489
International Business Machines Corp.	3,200		301,632
Network Appliance, Inc.(b)	6,000		219,120
			1,087,971
Computer Software & Services — 1.9%
AutoDesk, Inc.(b)	6,500		244,400
Microsoft Corp.	9,000		250,830
Sun Microsystems, Inc.(b)	50,000		300,500
VeriFone Holdings, Inc.(b)	9,500		348,935
			1,144,665
Containers — 0.5%
Smurfit-Stone Container Corp.(b)	28,400		319,784
Energy & Utilities — 2.6%
Constellation Energy Group, Inc.	3,700		321,715
FPL Group, Inc.	4,900		299,733
Pepco Holdings, Inc.	12,300		356,946
PNM Resources, Inc.	7,800		251,940
Public Service Enterprise Group, Inc.	4,000		332,160
			1,562,494
Entertainment & Leisure — 2.4%
Comcast Corp.(b)	15,250		395,738
MGM MIRAGE(b)	4,800		333,696
Morgans Hotel Group Co.(b)	19,400		407,594
WMS Industries, Inc.(b)	8,000		313,920
			1,450,948
Finance — 1.4%
AllianceBernstein Holding LP	4,500		398,250
eTelecare Global Solutions, Inc.(b)	1,400		21,210
State Street Corp.	6,700		433,825
			853,285
Food & Agriculture — 0.5%
Corn Products International, Inc.	7,900		281,161
Insurance — 3.3%
Hartford Financial Services Group	4,000		382,320
Principal Financial Group, Inc.	3,700		221,519
Prudential Financial, Inc.	2,000		180,520
Reinsurance Group of America, Inc.	9,400		542,568
SAFECO Corp.	4,500		298,935
Security Capital Assurance Ltd.	12,900		364,167
			1,990,029
Machinery & Heavy Equipment — 0.4%
AGCO Corp.(b)	7,400		273,578
Manufacturing — 1.4%
Nike, Inc.	5,100		541,926
Textron, Inc.	3,700		332,260
			874,186
Medical & Medical Services — 1.0%
Biomet, Inc.	6,400		271,936
The Geo Group, Inc.(b)	8,000		362,560
			634,496
Medical Instruments & Supplies — 2.8%
Alcon, Inc.	2,300		303,186
Johnson & Johnson	5,200		313,352
Stryker Corp.	4,800		318,336
Waters Corp.(b)	7,900		458,200
Zimmer Holdings, Inc.(b)	3,500		298,935
			1,692,009

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

72

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GLOBAL OPPORTUNITIES PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
United States (Continued)
Metal & Mining — 0.7%
Allegheny Technologies, Inc.	3,800	$	405,422
Oil & Gas — 5.9%
Cameron International Corp.(b)	8,000		502,320
Chevron Corp.	10,500		776,580
ConocoPhillips	8,000		546,800
Diamond Offshore Drilling, Inc.	5,000		404,750
Frontier Oil Corp.	11,400		372,096
Transocean, Inc.(b)	6,100		498,370
XTO Energy, Inc.	9,000		493,290
			3,594,206
Pharmaceuticals — 1.1%
Abbott Laboratories	5,200		290,160
Merck & Co., Inc.	8,100		357,777
			647,937
Real Estate — 1.1%
Host Hotels & Resorts, Inc. (REIT)	13,000		342,030
Simon Property Group, Inc. (REIT)	3,000		333,750
			675,780
Retail Merchandising — 2.2%
CVS Corp.	11,400		389,196
Federated Department Stores, Inc.	7,200		324,360
Limited Brands, Inc.	12,500		325,750
SUPERVALU, Inc.	7,900		308,653
			1,347,959
Security Brokers & Dealers — 1.1%
A.G. Edwards, Inc.	10,000		691,800
Semiconductors & Related Devices — 1.6%
Broadcom Corp. - Class A(b)	12,000		384,840
Infineon Technologies AG - ADR(b)	19,000		295,830
Verigy Ltd.(b)	12,000		281,640
			962,310
Soaps & Cosmetics — 0.6%
Physicians Formula Holdings, Inc.(b)	18,600		351,168
Telecommunications — 0.6%
OpNext, Inc.(b)	400		5,916
Optium Corp.(b)	100		1,941
Qwest Communications International, Inc.(b)	36,000		323,640
Switch & Data Facilities Co.(b)	200		3,624
			335,121
Tires & Rubber — 0.8%
The Goodyear Tire & Rubber Co.(b)	15,700		489,683
Tobacco — 0.7%
Altria Group, Inc.	4,600		403,926
Transportation — 1.0%
Quintana Maritime Ltd.	22,300		307,071
Trinity Industries, Inc.	6,700		280,864
			587,935
Total United States			26,912,228
TOTAL COMMON STOCKS (Cost $50,829,331)			57,838,350
SHORT TERM INVESTMENTS — 4.1%
Galileo Money Market Fund, 5.02% (Cost $2,501,994)	2,501,994		2,501,994
TOTAL INVESTMENTS IN SECURITIES — 99.4% (Cost $53,331,325(a))			60,340,344
OTHER ASSETS IN EXCESS OF LIABILITIES — 0.6%			370,152
NET ASSETS — 100.0%		$	60,710,496

(a) Cost for federal income tax purposes is $53,467,705. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	7,296,522
Gross unrealized depreciation		(423,883	)
	$	6,872,639

(b) Non-income producing security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

73

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERNATIONAL OPPORTUNITIES PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 93.9%
Australia — 0.8%
Metal & Mining — 0.8%
Lihir Gold Ltd.	2,027,700	$	5,348,402
Zinifex Ltd.	465,400		5,942,047
			11,290,449
Austria — 0.8%
Telecommunications — 0.8%
Telekom Austria AG	423,200		10,577,315
Belgium — 0.8%
Metal & Mining — 0.8%
Umicore	59,616		10,599,780
Brazil — 2.3%
Banks — 0.8%
Unibanco SA - ADR(b)	135,900		11,885,814
Energy & Utilities — 0.5%
Companhia Energetica de Minas Gerais- Cemig - ADR	140,400		6,830,460
Telecommunications — 1.0%
GVT Holding SA(c)	506,000		5,845,168
Net Servicos de Comunicacao SA - ADR(b)	579,500		7,829,045
			13,674,213
Total Brazil			32,390,487
Canada — 4.9%
Metal & Mining — 4.9%
Aur Resources, Inc.	260,200		5,476,708
Gammon Lake Resources, Inc.(c)	479,500		8,431,226
HudBay Minerals, Inc.(c)	523,400		9,221,270
Inmet Mining Corp.	127,400		7,007,276
Kinross Gold Corp.	824,300		11,380,980
Sxr Uranium One, Inc.(c)	612,500		8,446,081
Yamana Gold, Inc.	1,257,700		18,181,908
			68,145,449
Cayman Islands — 0.1%
Entertainment & Leisure — 0.1%
Melco PBL Entertainment Ltd. - ADR(b)(c)	124,700		2,012,658
Chile — 0.3%
Banks — 0.3%
Banco Santander Chile SA - ADR	75,200		3,750,224
Denmark — 1.0%
Aerospace — 1.0%
MTU Aero Engines Holding AG	238,100		14,246,115
Finland — 2.2%
Banks — 0.4%
OKO Bank Plc - Series A	296,200		5,048,841
Machinery & Heavy Equipment — 0.6%
Metso OYJ	162,300		8,574,740
Manufacturing — 0.6%
Wartsila OYJ - Series B	146,300		9,046,644
Metal & Mining — 0.6%
Outokumpu OYJ - Series B	228,100		7,840,090
Total Finland			30,510,315
France — 4.9%
Advertising — 0.5%
Publicis Groupe SA	130,500		6,303,691
Chemicals — 0.7%
Rhodia SA	2,733,900		10,043,181
Computer & Office Equipment — 0.8%
Neopost SA	77,600		11,091,786
Entertainment & Leisure — 1.1%
Accor SA	159,700		15,261,943
Food & Agriculture — 0.4%
Casino Guichard-Perrachon SA	54,600		5,512,588
Manufacturing — 0.7%
Compagnie Generale des Etablissements Michelin - Class B	90,900		10,038,477
Medical Instruments & Supplies — 0.1%
NicOx SA	56,055		1,478,895
Transportation — 0.6%
Air France	193,700		8,836,419
Total France			68,566,980
Germany — 8.0%
Air Transportation — 0.5%
Deutsche Lufthansa AG	283,700		7,704,646
Chemicals — 1.0%
Wacker Chemie AG	76,700		13,319,708
Computer Software & Services — 0.8%
United Internet AG	607,200		11,801,867
Construction — 1.5%
Bilfinger Berger AG	236,300		21,502,766
Durable Goods — 0.5%
Gerry Weber International AG	289,200		6,845,702
Insurance — 0.8%
Hannover Rueckversicherung AG	262,500		11,694,486
Manufacturing — 0.5%
K+S AG	58,600		6,445,616
Miscellaneous Services — 1.3%
GEA Group AG	633,100		17,523,387
Real Estate — 1.1%
IVG Immobilien AG	319,100		15,281,710
Total Germany			112,119,888
Greece — 0.7%
Banks — 0.4%
Piraeus Bank SA	152,500		5,296,625

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

74

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERNATIONAL OPPORTUNITIES PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
Greece (Continued)
Chemicals — 0.3%
Lanxess	99,600	$	5,130,413
Total Greece			10,427,038
Hong Kong — 4.1%
Air Transportation — 0.4%
China Southern Airlines Co. Ltd. - Class H(c)	12,701,800		5,803,472
Beverages & Bottling — 0.0%
China Huiyuan Juice Group Ltd.(c)	271,900		331,632
Energy & Utilities — 0.4%
Huadian Power International Corp. Ltd.	16,965,395		6,079,619
Entertainment & Leisure — 0.7%
Hongkong & Shanghai Hotels Ltd.	3,000,000		4,737,953
Regal Hotels International Holdings Ltd.	55,653,000		4,914,644
			9,652,597
Food & Agriculture — 0.9%
Chaoda Modern Agriculture (Holdings) Ltd.	8,490,700		5,954,954
Fu Ji Food & Catering Services	2,073,500		6,514,933
			12,469,887
Real Estate — 1.7%
New World Development Co. Ltd.	3,832,296		8,691,148
Shun Tak Holdings Ltd.	4,676,100		6,212,059
Wheelock & Co. Ltd.	3,804,300		8,530,279
			23,433,486
Total Hong Kong			57,770,693
India — 1.2%
Telecommunications — 1.2%
Bharti Tele-Ventures Ltd.	935,257		16,437,198
Ireland — 0.3%
Manufacturing — 0.3%
Smurfit Kappa Group Plc(c)	151,700		3,789,511
Italy — 3.0%
Banks — 0.5%
Unione di Banche Italiane Scpa	235,100		6,956,365
Construction — 1.6%
Astaldi SpA	229,800		2,283,910
Buzzi Unicem SpA	309,700		9,416,065
Impregilo SpA	1,452,800		10,285,790
			21,985,765
Energy & Utilities — 0.9%
AEM SpA	3,608,400		13,014,708
Total Italy			41,956,838
Japan — 20.3%
Banks — 1.8%
Bank of Kyoto Ltd.	878,500		10,086,647
The Chiba Bank Ltd.	999,800		8,823,761
The Iyo Bank Ltd.	677,600		6,808,201
			25,718,609
Business Services — 0.4%
MISUMI Group, Inc.	287,200		5,142,498
Chemicals — 0.6%
Tokai Carbon Co. Ltd.	982,400		8,086,626
Computer & Office Equipment — 0.4%
Brother Industries Ltd.	419,800		5,685,682
Computer Software & Services — 0.2%
Nippon System Development	231,200		3,578,656
Construction — 1.8%
Daito Trust Construction Co. Ltd.	109,000		5,133,656
Haseko Corp.(c)	2,920,700		10,657,680
Mitsui Home Co. Ltd.	548,000		3,511,032
Tadano Ltd.	480,100		5,695,687
			24,998,055
Electronics — 0.8%
Star Micronics Co. Ltd.	494,500		10,679,756
Energy & Utilities — 1.2%
Air Water, Inc.	520,200		6,387,724
Kurita Water Industries Ltd.	465,100		11,248,600
			17,636,324
Finance — 0.4%
SBI Holdings, Inc.	15,400		5,841,650
Insurance — 0.5%
Aioi Insurance Co. Ltd.	1,123,100		7,834,251
Leasing — 0.5%
Diamond Lease Co. Ltd.	130,000		6,497,794
Machinery & Heavy Equipment — 2.1%
Aichi Corp.	751,100		7,043,156
Hitachi Construction Machinery Co. Ltd.	216,400		5,858,079
Miura Co. Ltd.	325,800		8,460,183
Nabtesco Corp.	609,500		8,017,015
			29,378,433
Manufacturing — 1.5%
Daihatsu Motor Co. Ltd.	506,700		4,824,486
Taiyo Nippon Sanso Corp.	947,600		8,556,063
Uni-Charm Corp.	120,000		7,596,741
			20,977,290
Medical Instruments & Supplies — 0.9%
Nihon Kohden Corp.	538,900		12,576,163
Metal & Mining — 1.4%
Maruichi Steel Tube Ltd.	276,200		8,578,513
Yamato Kogyo Co. Ltd.	356,100		11,181,008
			19,759,521
Motor Vehicles — 1.0%
Futaba Industrial Co. Ltd.	257,100		6,239,867
Isuzu Motors Ltd.	1,439,400		7,218,987
			13,458,854
Real Estate — 1.9%
Goldcrest Co. Ltd.	100,700		5,537,475
Japan General Estate Co. Ltd.	312,300		8,030,117
Joint Corp.	354,200		13,465,852
			27,033,444

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

75

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERNATIONAL OPPORTUNITIES PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
Japan (Continued)
Retail Merchandising — 1.4%
Point, Inc.	102,800	$	6,534,046
Shimachu Co. Ltd.	205,100		6,074,330
Tsuruha Holdings, Inc.	127,200		5,127,291
Xebio Co. Ltd.	56,637		1,581,260
			19,316,927
Tires & Rubber — 1.0%
Sumitomo Rubber Industries Ltd.	641,200		7,024,687
Yokohama Rubber Co. Ltd.	1,080,000		6,635,438
			13,660,125
Transportation — 0.5%
Keihin Electric Express Railway Co. Ltd.	908,200		6,967,183
Total Japan			284,827,841
Kazakhstan — 0.1%
Banks — 0.1%
Kazkommertsbank(c)(d)	38,100		739,140
Luxembourg — 0.3%
Real Estate — 0.3%
Gagfah SA	165,300		4,460,466
Malaysia — 1.3%
Banks — 0.5%
Bumiputra-Commerce Holdings Berhad	2,518,200		7,246,881
Entertainment & Leisure — 0.8%
Genting Berhad	897,700		10,320,629
Total Malaysia			17,567,510
Morocco — 1.8%
Construction — 0.5%
IJM Corp. Berhad	2,680,700		6,706,596
Food & Agriculture — 0.8%
Kuala Lumpur Kepong Berhad	3,499,050		12,144,208
Real Estate — 0.5%
IOI Corp. Berhad	1,057,400		6,758,797
Total Morocco			25,609,601
Netherlands — 1.6%
Oil & Gas — 0.9%
SBM Offshore NV	350,800		12,647,901
Personal Services — 0.7%
USG People NV	238,800		9,850,711
Total Netherlands			22,498,612
Norway — 4.2%
Banks — 0.5%
Sparebanken Midt-Norge	223,300		2,920,611
Sparebanken Nord-Norge	85,520		1,976,796
Sparebanken Rogaland(d)	72,600		2,126,055
			7,023,462
Chemicals — 0.4%
Yara International ASA	220,300		6,079,878
Manufacturing — 1.0%
Orkla ASA	201,500		14,205,082
Oil & Gas — 2.3%
Fred Olsen Energy ASA	255,700		12,809,610
Petroleum Geo-Services	333,200		8,702,351
Prosafe ASA	686,500		10,503,677
			32,015,638
Total Norway			59,324,060
Philippines — 0.5%
Energy & Utilities — 0.1%
Pnoc Energy Development Corp.(c)	9,806,900		1,239,836
Telecommunications — 0.4%
Philippine Long Distance Telephone Co. - ADR(b)	109,800		5,797,440
Total Philippines			7,037,276
Poland — 0.2%
Telecommunications — 0.2%
Multimedia Polska SA(c)	752,600		3,405,901
Singapore — 2.0%
Real Estate — 1.5%
Capitacommercial Trust	4,305,300		7,888,959
CapitaLand Ltd.	2,614,008		13,783,781
			21,672,740
Retail Merchandising — 0.5%
Hongguo International Holdings Ltd.(c)	7,903,357		6,667,961
Total Singapore			28,340,701
South Africa — 0.6%
Retail Merchandising — 0.6%
Foschini Ltd.	420,000		4,000,551
Truworths International Ltd.	950,000		4,648,839
			8,649,390
South Korea — 3.8%
Computer Software & Services — 0.5%
NHN Corp.(c)	47,900		7,026,148
Construction — 1.3%
Daewoo Shipbuilding & Marine Engineering Co. Ltd.	205,100		7,532,106
Hanjin Heavy Industries Co. Ltd.	289,600		10,188,945
			17,721,051
Finance — 0.6%
Daewoo Securities Co. Ltd.(c)	460,500		8,247,688
Manufacturing — 0.4%
Cheil Industries, Inc.	130,600		5,240,381
Security Brokers & Dealers — 1.0%
Korea Investment Holdings Co. Ltd.(c)	277,000		14,574,298
Total South Korea			52,809,566
Spain — 0.4%
Banks — 0.4%
Bankinter SA	65,000		5,327,015

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

76

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERNATIONAL OPPORTUNITIES PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
COMMON STOCKS (Continued)
Sweden — 3.1%
Construction — 0.8%
Skanska AB			526,100	$	11,715,723
Entertainment & Leisure — 0.4%
Rezidor Hotel Group AB			636,600		5,105,345
Manufacturing — 0.9%
SSAB Svenskt Stal AB			387,720		11,965,638
Retail Merchandising — 0.4%
KappAhl Holding AB			556,000		6,011,629
Soaps & Cosmetics — 0.6%
Oriflame Cosmetics SA			228,400		8,798,705
Total Sweden					43,597,040
Switzerland — 1.5%
Business Services — 0.8%
SGS Societe Generale de Surveillance Holding SA			9,800		11,702,094
Food & Agriculture — 0.7%
Barry Callebaut AG			12,406		9,229,333
Total Switzerland					20,931,427
Taiwan — 2.3%
Chemicals — 0.7%
Taiwan Fertilizer Co. Ltd.			6,306,000		10,480,781
Computer Software & Services — 0.4%
MediaTek, Inc.			501,000		5,753,052
Electronics — 0.4%
Cheng Uei Precision Industry Co. Ltd.			1,535,242		5,335,212
Security Brokers & Dealers — 0.3%
Yuanta Core Pacific Securities Co.(c)(d)			5,702,000		3,963,072
Transportation — 0.5%
U-Ming Marine Transport Corp.			4,043,000		6,719,600
Total Taiwan					32,251,717
Thailand — 0.4%
Banks — 0.4%
Krung Thai Bank Public Co. Ltd.			6,586,300		2,276,327
Krung Thai Bank Public Co. Ltd. - Foreign(d)			1,626,700		562,213
Siam Commercial Bank Public Co. Ltd.(d)			1,839,200		3,422,522
					6,261,062
United Kingdom — 14.1%
Aerospace — 0.6%
Cobham Plc			2,137,800		8,834,404
Beverages & Bottling — 0.3%
Marston’s Plc			466,500		4,052,969
Business Services — 2.9%
Aegis Group Plc			4,305,900		12,710,016
Intertek Group Plc			789,600		14,085,291
Punch Taverns Plc			170,600		4,186,358
Whitbread Plc			261,129		9,696,572
					40,678,237
Energy & Utilities — 1.5%
International Power Plc			1,913,600		14,930,875
Severn Trent Plc			196,600		5,547,835
					20,478,710
Entertainment & Leisure — 0.6%
IG Group Holdings Plc			1,534,800		8,977,689
Finance — 1.3%
Amvescap Plc			414,100		4,563,354
Close Brothers Group Plc			435,100		8,673,401
ICAP Plc			476,600		4,975,426
					18,212,181
Food & Agriculture — 0.6%
Premier Foods Plc			1,419,900		8,179,854
Machinery & Heavy Equipment — 0.7%
The Weir Group Plc			811,900		9,721,964
Manufacturing — 1.6%
Burberry Group Plc			476,400		6,121,753
Charter Plc			481,200		8,403,977
IMI Plc			683,700		7,803,411
					22,329,141
Measuring & Controlling Devices — 0.5%
Rotork Plc			447,912		7,470,046
Publishing & Printing — 0.5%
De La Rue Plc			499,000		7,020,976
Real Estate — 0.6%
InterContinental Hotels Group Plc			354,831		8,770,050
Transportation — 0.9%
Arriva Plc			895,400		13,109,342
Waste Management — 1.5%
Biffa Plc			1,044,200		7,068,594
Kelda Group Plc			717,900		13,251,275
					20,319,869
Total United Kingdom					198,155,432
TOTAL COMMON STOCKS (Cost $974,750,780)					1,316,384,695
PREFERRED STOCKS — 0.5%
Netherlands — 0.5%
Koninklijke Boskalis Westminister NV (Cost $6,883,043)			69,000		6,866,910
	MATURITY	PAR/SHARES (000)
SHORT TERM INVESTMENTS — 3.9%
Federal Home Loan Bank, Discount Notes 4.97%(e)	04/02/07	$	45,000		44,993,787
Galileo Money Market Fund, 5.02%			9,786		9,785,898
TOTAL SHORT TERM INVESTMENTS (Cost $54,779,685)					54,779,685

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

77

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERNATIONAL OPPORTUNITIES PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		VALUE
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 98.3% (Cost $1,036,413,508)		$	1,378,031,290
	NUMBER OF SHARES
AFFILIATED INVESTMENTS - SHORT TERM — 0.5%
Institutional Money Market Trust, 4.80%(f) (Cost $7,227,000)	7,227,000		7,227,000
TOTAL INVESTMENTS IN SECURITIES — 98.8% (Cost $1,043,640,508(a))			1,385,258,290
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (0.5)%			(7,227,000	)
OTHER ASSETS IN EXCESS OF LIABILITIES — 1.7%			23,641,798
NET ASSETS — 100.0%		$	1,401,673,088

(a) Cost for federal income tax purposes is $1,047,078,559. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	349,313,738
Gross unrealized depreciation		(11,134,007	)
	$	338,179,731

(b) Total or partial security on loan.

(c) Non-income producing security.

(d) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. As of March 31, 2007, these securities had a total market value of $10,250,789, which represents 0.7% of net assets.

(e) The rate shown is the effective yield at the time of purchase.

(f) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

78

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
PREFERRED STOCKS — 0.2%
Koninklijke Ahold NV 0.00% (Cost $1,595,645)	154,525	$	1,806,187
COMMON STOCKS — 70.5%
Australia — 0.5%
Insurance — 0.1%
Insurance Australia Group Ltd.	172,538		818,060
Manufacturing — 0.2%
United Group Ltd.	111,000		1,224,113
Metal & Mining — 0.0%
Lihir Gold Ltd.	58,600		154,567
Zinifex Ltd.	11,000		140,444
			295,011
Retail Merchandising — 0.2%
Woolworths Ltd.	83,626		1,839,727
Total Australia			4,176,911
Austria — 0.1%
Telecommunications — 0.1%
Telekom Austria AG	12,100		302,423
Belgium — 0.3%
Beverages & Bottling — 0.3%
Inbev NV	28,682		2,070,909
Metal & Mining — 0.0%
Umicore	1,600		284,482
Total Belgium			2,355,391
Brazil — 0.1%
Banks — 0.0%
Unibanco SA - ADR	3,800		332,348
Energy & Utilities — 0.0%
Companhia Energetica de Minas Gerais- Cemig - ADR	3,900		189,735
Telecommunications — 0.1%
GVT Holding SA(b)	14,100		162,879
Net Servicos de Comunicacao SA - ADR	16,200		218,862
			381,741
Total Brazil			903,824
Canada — 1.3%
Metal & Mining — 0.5%
Alexco Resource Corp.(b)	6,756		32,419
Aur Resources, Inc.	6,100		128,393
Aurora Energy Resources, Inc.(b)	5,300		71,110
Energy Metals Corp.(b)	9,800		117,396
European Goldfields Ltd.(b)	12,100		58,168
Fording Canadian Coal Trust	7		155
Frontier Pacific Mining Corp.(b)	79,200		56,253
Gammon Lake Resources, Inc.(b)	13,400		235,617
Gateway Gold Corp.(b)	100,000		66,696
Gold Reserve, Inc.(b)(c)	26,280		176,339
HudBay Minerals, Inc.(b)	14,500		255,461
Inmet Mining Corp.	3,000		165,007
International Uranium Corp.(b)	4,700		57,646
Kinross Gold Corp.	23,700		327,222
Minefinders Corp. Ltd.(b)(c)	40,000		476,400
NovaGold Resources, Inc.(b)(c)	16,792		284,624
Southwestern Resources Corp.(b)	47,300		324,893
Stratagold Corp.(b)	218,500		143,837
Sunridge Gold Corp.(b)	130,457		246,337
Sxr Uranium One, Inc.(b)	17,100		235,801
Triex Minerals Corp.(d)	6,600		32,871
West Timmins Mining, Inc.(b)	31,077		16,959
Yamana Gold, Inc.	36,700		530,553
			4,040,157
Motor Vehicles — 0.0%
Westport Innovations, Inc.(b)	70,500		95,873
Oil & Gas — 0.7%
Accrete Energy, Inc.(b)	4,960		22,942
Alberta Clipper Energy, Inc.(b)	5,026		18,851
Birchcliff Energy Ltd.(b)	17,100		65,615
C1 Energy Ltd.(b)	85,733		19,308
Canadian Superior Energy, Inc.(b)	22,000		55,880
Canext Energy Ltd.(b)	3,900		2,534
Capitol Energy Resources Ltd.(b)	14,595		87,733
Cinch Energy Corp.(b)	40,320		42,957
Compton Petroleum Corp.(b)	68,499		690,033
Crescent Point Energy Trust	1		10
Crew Energy, Inc.(b)	9,400		85,492
Daylight Resources Trust	13,411		111,982
Delphi Energy Corp.(b)	24,700		33,161
Ember Resources, Inc.(b)	12,136		26,281
Endev Energy, Inc.(b)	231,700		220,762
Fairquest Energy Ltd.(b)	3,800		10,533
First Calgary Petroleums Ltd.(b)	14,554		64,040
Galleon Energy, Inc. - Class A(b)(d)	28,617		419,154
Gastar Exploration Ltd.(b)(c)	15,900		35,775
Highpine Oil & Gas Ltd.(b)	8,193		97,223
HSE Integrated Ltd.(b)	561		879
Innova Exploration Ltd.(b)(d)	4,860		22,311
Iteration Energy Ltd.(b)	4,021		20,027
Leader Energy Services Ltd.(b)	15,957		11,472
Midnight Oil Exploration Ltd.(b)	81,200		123,084
Niko Resources Ltd. (acquired 6/20/03 through 11/10/03, cost $40,606)(e)	2,000		145,414
Oilexco, Inc.(b)	72,025		534,027
Open Range Energy Corp.(b)	1,976		4,946
Pacific Rodera Energy, Inc.(b)	37,300		24,554
Pengrowth Energy Trust	1,505		25,358
Petrolifera Petroleum Ltd.(b)	6,550		108,590
ProspEx Resources Ltd.(b)	43,140		147,599
Real Resources, Inc.(b)	9,685		82,127
Suncor Energy, Inc.	18,000		1,369,684
Tag Oil Ltd.(d)	4,000		935
Technicoil Corp.(b)	46,400		33,760
Thunder Energy Trust	27,094		83,548
Trafalgar Energy Ltd.(b)	841		2,950
TransCanada Corp.	700		23,252
True Energy Trust	11,382		57,677
Tusk Energy Corp. (acquired 03/10/05, cost $39,439)(b)(d)(e)	10,557		16,917
Tusk Energy Corp. (acquired 06/02/06, cost $37,327)(b)(d)(e)	10,000		16,024

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

79

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
Canada (Continued)
Oil & Gas (Continued)
Tusk Energy Corp. (acquired 10/05/05 through 01/05/07, cost $134,551)(b)	37,409	$	59,945
Vault Energy Trust	5,850		25,234
Vero Energy, Inc.(b)	4,447		22,225
West Energy Ltd.(b)	143		488
Western Oil Sands, Inc. - Class A(b)	1,800		53,166
			5,126,459
Real Estate — 0.0%
Boardwalk Real Estate Investment Trust (REIT)	3,256		125,135
Transportation — 0.1%
Canadian Pacific Railway Ltd.	18,838		1,059,791
Railpower Technologies Corp.(b)	17,600		10,214
			1,070,005
Total Canada			10,457,629
Cayman Islands — 0.0%
Energy & Utilities — 0.0%
Suntech Power Holdings Co., Ltd. - ADR(b)(c)	1,200		41,532
Entertainment & Leisure — 0.0%
Melco PBL Entertainment Ltd. - ADR(b)	3,600		58,104
Total Cayman Islands			99,636
Chile — 0.0%
Banks — 0.0%
Banco Santander Chile SA - ADR	2,100		104,727
China — 0.0%
Entertainment & Leisure — 0.0%
Xinhua Finance Media Ltd. - ADR(b)	2,600		28,522
Metal & Mining — 0.0%
Alexco Resource Corp.(b)	3,266		15,672
Crosshair Exploration & Mining Corp.(b)	1,700		4,653
			20,325
Personal Services — 0.0%
New Oriental Education & Technology Group, Inc. - ADR(b)	350		14,186
Total China			63,033
Denmark — 0.1%
Aerospace — 0.1%
MTU Aero Engines Holding AG	6,700		400,878
Finland — 0.3%
Banks — 0.0%
OKO Bank Plc - Series A	8,500		144,886
Machinery & Heavy Equipment — 0.0%
Metso OYJ	4,500		237,747
Manufacturing — 0.1%
Wartsila OYJ - Series B	4,100		253,529
Metal & Mining — 0.0%
Outokumpu OYJ - Series B	6,400	$	219,976
Paper & Forest Products — 0.2%
Upm-Kymmene OYJ	60,781		1,548,369
Total Finland			2,404,507
France — 1.9%
Advertising — 0.0%
Publicis Groupe SA	3,600		173,895
Banks — 0.2%
Credit Agricole SA	43,462		1,694,727
Chemicals — 0.0%
Rhodia SA	76,800		282,131
Computer & Office Equipment — 0.1%
Neopost SA	2,100		300,164
Computer Software & Services — 0.2%
Cap Gemini SA	20,624		1,570,101
Electronics — 0.2%
Schneider Electric SA(b)	11,779		1,492,692
Entertainment & Leisure — 0.3%
Accor SA	20,490		1,958,154
Food & Agriculture — 0.3%
Carrefour SA	31,889		2,332,282
Casino Guichard-Perrachon SA	1,600		161,541
			2,493,823
Machinery & Heavy Equipment — 0.1%
Alstom	5,610		728,051
Manufacturing — 0.0%
Compagnie Generale des Etablissements Michelin - Class B	2,600		287,129
Medical Instruments & Supplies — 0.2%
Essilor International SA	12,580		1,445,224
NicOx SA	1,576		41,579
			1,486,803
Oil & Gas — 0.2%
Technip SA	15,469		1,134,877
Telecommunications — 0.1%
Alcatel SA - ADR(c)	80,400		950,328
Transportation — 0.0%
Air France	5,400		246,343
Total France			14,799,218
Germany — 1.7%
Air Transportation — 0.0%
Deutsche Lufthansa AG	8,000		217,262
Banks — 0.2%
Commerzbank AG	38,710		1,712,653
Chemicals — 0.4%
Bayer AG	38,084		2,433,827
Wacker Chemie AG	2,100		364,686
			2,798,513

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

80

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
Germany (Continued)
Computer Software & Services — 0.0%
United Internet AG	17,000	$	330,421
Construction — 0.1%
Bilfinger Berger AG	6,700		609,685
Durable Goods — 0.0%
Gerry Weber International AG	8,300		196,471
Finance — 0.2%
Hypo Real Estate Holding AG	22,040		1,405,562
Insurance — 0.3%
Allianz AG	10,161		2,086,386
Hannover Rueckversicherung AG	7,400		329,673
			2,416,059
Manufacturing — 0.4%
K+S AG	1,600		175,989
Siemens AG	23,499		2,511,909
			2,687,898
Miscellaneous Services — 0.1%
GEA Group AG	18,200		503,752
Real Estate — 0.0%
IVG Immobilien AG	7,500		359,175
Total Germany			13,237,451
Greece — 0.3%
Banks — 0.0%
Piraeus Bank SA	4,300		149,347
Chemicals — 0.0%
Lanxess	2,800		144,229
Telecommunications — 0.3%
Hellenic Telecommunications Organization SA	62,603		1,712,699
Total Greece			2,006,275
Hong Kong — 0.4%
Air Transportation — 0.0%
China Southern Airlines Co. Ltd. - Class H(b)	355,700		162,520
Beverages & Bottling — 0.0%
China Huiyuan Juice Group Ltd.(b)	7,600		9,269
Energy & Utilities — 0.0%
Huadian Power International Corp. Ltd.	482,991		173,082
Entertainment & Leisure — 0.0%
Hongkong & Shanghai Hotels Ltd.	86,400		136,453
Regal Hotels International Holdings Ltd.	1,608,700		142,062
			278,515
Food & Agriculture — 0.1%
Chaoda Modern Agriculture (Holdings) Ltd.	249,000		174,636
Fu Ji Food & Catering Services	59,000		185,378
			360,014
Real Estate — 0.1%
New World Development Co. Ltd.	109,416		248,141
Shun Tak Holdings Ltd.	134,000		178,015
Wheelock & Co. Ltd.	109,100		244,632
			670,788
Retail Merchandising — 0.2%
Esprit Holdings Ltd.	93,500		1,096,727
Total Hong Kong			2,750,915
Ireland — 0.1%
Computer Software & Services — 0.1%
SkillSoft Plc - ADR(b)(c)	108,500		907,060
Manufacturing — 0.0%
Smurfit Kappa Group Plc(b)	4,300		107,415
Total Ireland			1,014,475
Israel — 0.0%
Electronics — 0.0%
Mellanox Technologies Ltd.(b)	400		5,820
Italy — 0.3%
Banks — 0.0%
Unione di Banche Italiane Scpa	6,600		195,287
Construction — 0.1%
Astaldi SpA	6,555		65,148
Buzzi Unicem SpA	8,700		264,514
Impregilo SpA	40,800		288,863
			618,525
Energy & Utilities — 0.0%
AEM SpA	104,300		376,187
Insurance — 0.2%
Assicurazioni Generali SpA	29,787		1,266,939
Total Italy			2,456,938
Japan — 3.9%
Banks — 0.5%
Bank of Kyoto Ltd.	25,100		288,190
The Chiba Bank Ltd.	28,200		248,880
The Iyo Bank Ltd.	19,200		192,912
Mizuho Financial Group, Inc.	249		1,603,793
The Sumitomo Industries Ltd.	169,000		1,762,568
			4,096,343
Business Services — 0.0%
MISUMI Group, Inc.	8,100		145,036
Chemicals — 0.0%
Tokai Carbon Co. Ltd.	27,500		226,366
Computer & Office Equipment — 0.0%
Brother Industries Ltd.	12,000		162,525
Computer Software & Services — 0.0%
Nippon System Development	6,400		99,063
Conglomerates — 0.2%
Mitsui & Co. Ltd.	80,000		1,493,551
Construction — 0.4%
Daito Trust Construction Co. Ltd.	3,200		150,713
Daiwa House Industry Co. Ltd.	81,000		1,328,691
Haseko Corp.(b)	82,900		302,503
Mitsui Home Co. Ltd.	15,100		96,746
Obayashi Corp.	192,000		1,238,289

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

81

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
Japan (Continued)
Construction (Continued)
Tadano Ltd.	13,400	$	158,972
			3,275,914
Electronics — 0.2%
Denso Corp.	34,500		1,282,332
Star Micronics Co. Ltd.	14,200		306,679
			1,589,011
Energy & Utilities — 0.1%
Air Water, Inc.	14,600		179,279
Kurita Water Industries Ltd.	13,100		316,828
			496,107
Finance — 0.2%
Daiwa Securities Co. Ltd.	112,000		1,352,478
SBI Holdings, Inc.	400		151,731
			1,504,209
Insurance — 0.0%
Aioi Insurance Co. Ltd.	31,500		219,730
Leasing — 0.0%
Diamond Lease Co. Ltd.	3,800		189,936
Machinery & Heavy Equipment — 0.3%
Aichi Corp.	21,700		203,483
Hitachi Construction Machinery Co. Ltd.	6,100		165,131
Komatsu Ltd.	62,000		1,304,820
Miura Co. Ltd.	9,400		244,094
Nabtesco Corp.	17,600		231,500
			2,149,028
Manufacturing — 0.2%
Daihatsu Motor Co. Ltd.	14,700		139,964
Makita Corp.	28,000		1,038,357
Taiyo Nippon Sanso Corp.	26,600		240,177
Uni-Charm Corp.	3,400		215,241
			1,633,739
Medical Instruments & Supplies — 0.0%
Nihon Kohden Corp.	15,500		361,719
Metal & Mining — 0.3%
Marubeni Corp.	286,000		1,737,746
Maruichi Steel Tube Ltd.	8,000		248,473
Yamato Kogyo Co. Ltd.	8,500		266,887
			2,253,106
Motor Vehicles — 0.2%
Futaba Industrial Co. Ltd.	7,300		177,172
Isuzu Motors Ltd.	41,500		208,134
Nissan Motor Co., Ltd.	121,000		1,296,869
			1,682,175
Real Estate — 0.4%
Goldcrest Co. Ltd.	2,700		148,472
Japan General Estate Co. Ltd.	7,300		187,704
Joint Corp.	10,100		383,978
Tokyo Tatemono Co. Ltd.	62,000		935,472
Urban Corp.	81,200		1,192,780
			2,848,406
Retail Merchandising — 0.3%
Aeon Co. Ltd.	73,200		1,459,776
Point, Inc.	2,900		184,326
Shimachu Co. Ltd.	5,900		174,737
Tsuruha Holdings, Inc.	3,600		145,112
Xebio Co. Ltd.	2,498		69,742
			2,033,693
Textiles — 0.2%
Mitsubishi Rayon Co. Ltd.	186,000		1,239,053
Tires & Rubber — 0.1%
Sumitomo Rubber Industries Ltd.	18,400		201,582
Yokohama Rubber Co. Ltd.	30,600		188,004
			389,586
Transportation — 0.3%
Canon, Inc.	40,500		2,175,535
Keihin Electric Express Railway Co. Ltd.	25,700		197,155
			2,372,690
Total Japan			30,460,986
Kazakhstan — 0.0%
Banks — 0.0%
Kazkommertsbank(b)(d)	900		17,460
Luxembourg — 0.3%
Oil & Gas — 0.1%
Acergy SA - ADR(b)(c)	18,500		393,865
Real Estate — 0.0%
Gagfah SA	4,500		121,428
Telecommunications — 0.2%
SES Global	85,303		1,625,912
Total Luxembourg			2,141,205
Malaysia — 0.1%
Banks — 0.0%
Bumiputra-Commerce Holdings Berhad	73,800		212,382
Entertainment & Leisure — 0.1%
Genting Berhad	25,200		289,718
Total Malaysia			502,100
Morocco — 0.1%
Construction — 0.0%
IJM Corp. Berhad	77,700		194,391
Food & Agriculture — 0.1%
Kuala Lumpur Kepong Berhad	101,100		350,889
Real Estate — 0.0%
IOI Corp. Berhad	30,500		194,953
Total Morocco			740,233
Netherlands — 0.5%
Oil & Gas — 0.1%
SBM Offshore NV	9,800		353,334
Personal Services — 0.0%
USG People NV	6,900		284,631
Telecommunications — 0.2%
Koninklijke KPN NV	122,051		1,901,060

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

82

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
Netherlands (Continued)
Transportation — 0.2%
TNT NV	32,246	$	1,478,787
Total Netherlands			4,017,812
Norway — 0.5%
Banks — 0.0%
Sparebanken Midt-Norge	6,000		78,476
Sparebanken Nord-Norge	2,200		50,853
Sparebanken Rogaland(d)	2,000		58,569
			187,898
Chemicals — 0.0%
Yara International ASA	6,200		171,109
Manufacturing — 0.1%
Orkla ASA	5,700		401,831
Oil & Gas — 0.4%
Fred Olsen Energy ASA	7,300		365,703
Petroleum Geo-Services	7,900		206,328
Prosafe ASA	19,200		293,766
Statoil ASA	67,989		1,851,205
			2,717,002
Transportation — 0.0%
Stolt-Nielsen SA (acquired 1/31/05, cost $177,441)(e)	13,000		387,115
Total Norway			3,864,955
Philippines — 0.0%
Energy & Utilities — 0.0%
Pnoc Energy Development Corp.(b)	283,200		35,803
Telecommunications — 0.0%
Philippine Long Distance Telephone Co. - ADR	3,100		163,680
Total Philippines			199,483
Singapore — 0.5%
Conglomerates — 0.2%
Keppel Corp. Ltd.	154,000		1,928,616
Finance — 0.2%
DBS Group Holdings Ltd.	91,000		1,283,591
Real Estate — 0.1%
Capitacommercial Trust	124,200		227,582
CapitaLand Ltd.	73,444		387,273
			614,855
Retail Merchandising — 0.0%
Hongguo International Holdings Ltd.(b)	234,975		198,246
Total Singapore			4,025,308
South Africa — 0.0%
Retail Merchandising — 0.0%
Foschini Ltd.	11,000		104,776
Truworths International Ltd.	24,800		121,359
			226,135
South Korea — 0.2%
Computer Software & Services — 0.0%
NHN Corp.(b)	1,500		220,025
Construction — 0.1%
Daewoo Shipbuilding & Marine Engineering Co. Ltd.	5,700		209,327
Hanjin Heavy Industries Co. Ltd.	6,800		239,243
			448,570
Finance — 0.0%
Daewoo Securities Co. Ltd.(b)	13,200		236,416
Manufacturing — 0.0%
Cheil Industries, Inc.	3,700		148,464
Security Brokers & Dealers — 0.1%
Korea Investment Holdings Co. Ltd.(b)	7,900		415,657
Total South Korea			1,469,132
Spain — 0.3%
Banks — 0.3%
Banco Bilbao Vizcaya Argentaria SA	90,060		2,211,228
Bankinter SA	2,000		163,908
			2,375,136
Sweden — 0.4%
Banks — 0.2%
Nordea Bank AB	100,948		1,611,918
Construction — 0.1%
Skanska AB	15,100		336,262
Entertainment & Leisure — 0.0%
Rezidor Hotel Group AB	17,900		143,553
Manufacturing — 0.1%
SSAB Svenskt Stal AB	11,000		339,477
Retail Merchandising — 0.0%
KappAhl Holding AB	16,000		172,996
Soaps & Cosmetics — 0.0%
Oriflame Cosmetics SA	6,500		250,401
Total Sweden			2,854,607
Switzerland — 1.1%
Business Services — 0.1%
SGS Societe Generale de Surveillance Holding SA	230		274,641
Food & Agriculture — 0.3%
Barry Callebaut AG	290		215,743
Nestle SA	6,097		2,374,526
			2,590,269
Pharmaceuticals — 0.7%
Novartis AG	49,252		2,825,054
Roche Holding AG	14,602		2,583,574
			5,408,628
Total Switzerland			8,273,538
Taiwan — 0.1%
Chemicals — 0.1%
Taiwan Fertilizer Co. Ltd.	176,200		292,850
Computer Software & Services — 0.0%
MediaTek, Inc.	13,200		151,578

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

83

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
Taiwan (Continued)
Electronics — 0.0%
Cheng Uei Precision Industry Co. Ltd.	38,192	$	132,722
Security Brokers & Dealers — 0.0%
Yuanta Core Pacific Securities Co.(b)(d)	159,200		124,312
Transportation — 0.0%
U-Ming Marine Transport Corp.	113,500		188,641
Total Taiwan			890,103
Thailand — 0.0%
Banks — 0.0%
Krung Thai Bank Public Co. Ltd.	174,300		60,241
Krung Thai Bank Public Co. Ltd. - Foreign(d)	72,100		24,919
Siam Commercial Bank Public Co. Ltd.(d)	53,100		99,947
			185,107
United Kingdom — 3.2%
Aerospace — 0.3%
BAE Systems Plc	244,300		2,211,425
Cobham Plc	61,700		254,973
			2,466,398
Banks — 0.2%
Lloyd TSB Group Plc	153,879		1,695,736
Beverages & Bottling — 0.0%
Marston’s Plc	13,100		113,813
Business Services — 0.3%
Aegis Group Plc	124,400		367,200
Amvescap Plc - ADR(c)	34,870		770,627
Intertek Group Plc	22,700		404,934
Punch Taverns Plc	4,800		117,788
Whitbread Plc	7,393		274,517
			1,935,066
Energy & Utilities — 0.1%
International Power Plc	55,200		430,698
ITM Power Plc(b)	12,000		27,983
Scottish Power	0		1
Severn Trent Plc	5,533		156,145
			614,827
Entertainment & Leisure — 0.0%
IG Group Holdings Plc	43,000		251,525
Finance — 0.1%
Amvescap Plc	11,900		131,137
Archipelago Holdings, Inc. (acquired 5/13/05, cost $51,017)(d)(e)	78,900		46,113
Close Brothers Group Plc	12,500		249,179
ICAP Plc	13,700		143,020
			569,449
Food & Agriculture — 0.0%
Premier Foods Plc	41,000		236,195
Insurance — 0.3%
Prudential Plc	149,426		2,109,789
Machinery & Heavy Equipment — 0.0%
The Weir Group Plc	23,300		279,002
Manufacturing — 0.1%
Burberry Group Plc	13,700		176,045
Charter Plc	13,800		241,012
IMI Plc	19,600		223,705
			640,762
Measuring & Controlling Devices — 0.0%
Rotork Plc	12,500		208,468
Metal & Mining — 0.3%
Anglo American Plc	45,735		2,409,284
Oil & Gas — 0.3%
BG Group Plc	150,261		2,167,410
Gulfsands Petroleum Plc(b)	9,000		16,914
			2,184,324
Pharmaceuticals — 0.4%
GlaxoSmithKline Plc	99,266		2,728,901
Shire Plc - ADR(c)	7,000		433,300
			3,162,201
Publishing & Printing — 0.0%
De La Rue Plc	14,000		196,981
Real Estate — 0.0%
InterContinental Hotels Group Plc	10,150		250,869
Retail Merchandising — 0.3%
Alliance Boots Group Plc	91,145		1,841,130
Telecommunications — 0.3%
Vodafone Group Plc	871,233		2,323,082
Transportation — 0.1%
Arriva Plc	25,800		377,732
Waste Management — 0.1%
Biffa Plc	30,100		203,758
Kelda Group Plc	20,700		382,089
			585,847
Total United Kingdom			24,452,480
United States — 51.9%
Advertising — 0.2%
Focus Media Holding Ltd. - ADR(b)	14,900		1,169,054
Valueclick, Inc,(b)	14,800		386,724
			1,555,778
Aerospace — 1.1%
AAR Corp.(b)(c)	6,700		184,652
Armor Holdings, Inc.(b)(c)	2,800		188,524
BE Aerospace, Inc.(b)(c)	12,250		388,325
The Boeing Co.	20,300		1,804,873
Goodrich Corp.(c)	12,000		617,760
LMI Aerospace, Inc.(b)	782		14,569
Lockheed Martin Corp.	15,700		1,523,214
Orbital Sciences Corp.(b)	2,950		55,283
Raytheon Co.(c)	31,850		1,670,851
Spirit Aerosystems Holdings, Inc. - Class A(b)	11,420		363,727

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

84

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
United States (Continued)
Aerospace (Continued)
United Technologies Corp.	21,300	$	1,384,500
			8,196,278
Air Transportation — 0.1%
Alaska Air Group, Inc.(b)(c)	1,000		38,100
Continental Airlines, Inc. - Class B(b)(c)	7,250		263,827
Southwest Airlines Co.	23,350		343,245
			645,172
Banks — 4.7%
Bank of America Corp.	162,900		8,311,158
Bank of Hawaii Corp.	975		51,704
Boston Private Financial Holdings, Inc.	4,600		128,432
Cathay General Bancorp(c)	4,200		142,716
Central Pacific Financial Corp.	663		24,246
Citigroup, Inc.	127,700		6,556,118
City National Corp.(c)	10,590		779,424
CoBiz, Inc.	6,100		121,451
Columbia Banking System, Inc.	3,400		114,682
Commerce Bancshares, Inc.	700		33,817
Cullen/Frost Bankers, Inc.	19,720		1,031,948
Fidelity National Information Services, Inc.	10,400		472,784
First Midwest Bancorp, Inc.	13,960		513,030
First State Bancorporation	2,300		51,865
FirstFed Financial Corp.(b)(c)	850		48,305
Hudson City Bancorp, Inc.(c)	60,595		828,940
Huntington Bancshares, Inc.	2,025		44,246
J.P. Morgan Chase & Co.	130,450		6,311,171
KBW, Inc.(b)	2,100		72,996
Key Corp.(c)	31,700		1,187,799
Pacific Capital Bancorp	1,700		54,604
Signature Bank(b)	4,600		149,684
Thomas Weisel Partners Group, Inc.(b)	900		17,118
U.S. Bancorp(c)	64,100		2,241,577
UMB Financial Corp.	3,400		128,384
Umpqua Holdings Corp.	5,650		151,250
Wachovia Corp.(c)	52,300		2,879,115
Wells Fargo & Co.	52,000		1,790,360
Wintrust Financial Corp.(c)	26,770		1,194,210
WSFS Financial Corp.	1,250		80,600
Zions Bancorporation(c)	12,515		1,057,768
			36,571,502
Beverages & Bottling — 0.6%
The Coca-Cola Co.	20,900		1,003,200
Molson Coors Brewing Co. - Class B	16,875		1,596,712
PepsiCo, Inc.	34,600		2,199,176
			4,799,088
Broadcasting — 0.5%
Belo Corp.	46,882		875,287
CBS Corp. - Class B(c)	19,500		596,505
Citadel Broadcasting Co.	2,700		25,677
CKX, Inc.(b)(c)	48,600		539,460
DIRECTV Group, Inc.(b)	81,550		1,881,359
Outdoor Channel Holdings, Inc.(b)	10,969		112,103
			4,030,391
Business Services — 1.0%
Administaff, Inc.	3,400		119,680
Advisory Board Co.(b)(c)	3,900		197,418
Alliance Data Systems Corp.(b)(c)	10,325		636,227
The Brink’s Co.(c)	15,130		959,998
Cohen & Steers, Inc.	1,425		61,389
Commvault Systems, Inc.(b)	9,700		157,140
Convergys Corp.(b)	45,200		1,148,532
Corrections Corp. of America(b)	1,200		63,372
Diamond Management & Technology Consultants, Inc.	20,900		244,321
eFunds Corp.(b)	27,900		743,814
Exlservice Holdings, Inc.(b)	5,346		110,288
Fair, Isaac & Co., Inc.	1,400		54,152
Forrester Research, Inc.(b)	14,100		399,876
Gartner, Inc. - Class A(b)(c)	1,800		43,110
Healthcare Services Group, Inc.	8,850		253,552
Hewitt Associates, Inc. - Class A(b)	12,780		373,559
Hiedrick & Struggles International, Inc.(b)	1,900		92,055
HMS Holdings Corp.(b)	3,650		79,935
Investors Financial Services Corp.(c)	7,200		418,680
Korn/Ferry International(b)(c)	2,100		48,174
Manpower, Inc.	900		66,393
National Financial Partners Corp.(c)	9,850		462,064
Net1 UEPS Technologies, Inc.(b)(c)	13,300		330,904
SEI Investments Co.	700		42,161
Standard Parking Corp.(b)	800		28,296
W.W. Grainger, Inc.(c)	8,954		691,607
			7,826,697
Chemicals — 0.5%
Agrium, Inc.(c)	3,400		130,322
Ashland, Inc.	6,790		445,424
Cabot Corp.	1,650		78,754
Celanese Corp. - Series A	39,540		1,219,414
Eastman Chemical Co.	7,800		493,974
The Lubrizol Corp.	10,150		523,030
Lyondell Chemical Co.	39,300		1,177,821
			4,068,739
Computer & Office Equipment — 1.7%
Apple Computer, Inc.(b)	26,283		2,441,953
Cisco Systems, Inc.(b)	156,418		3,993,352
Electronics for Imaging, Inc.(b)	31,740		744,303
Hewlett-Packard Co.	75,963		3,049,155
International Business Machines Corp.	25,300		2,384,778
Lexmark International, Inc.(b)(c)	800		46,768
NCR Corp.(b)(c)	11,815		564,403
Phase Metrics, Inc.(b)(d)	50,574		1,011

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

85

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	Value
COMMON STOCKS (Continued)
United States (Continued)
Computer & Office Equipment (Continued)
Western Digital Corp.(b)	2,250	$	37,822
			13,263,545
Computer Software & Services — 2.8%
Activision, Inc.(b)(c)	36,331		688,109
Adobe Systems, Inc.(b)(c)	50,150		2,091,255
Aladdin Knowledge Systems Ltd.(b)	13,050		225,374
Blackboard, Inc.(b)(c)	15,850		533,036
CACI International, Inc.(b)	12,100		567,006
Cadence Design Systems, Inc.(b)	56,075		1,180,939
Ceridian Corp.(b)	6,950		242,138
Cognizant Technology Solutions Corp.(b)	10,355		914,036
Computer Sciences Corp.(b)	17,950		935,734
DST Systems, Inc.(b)(c)	875		65,800
First Data Corp.	24,900		669,810
Foundry Networks, Inc.(b)	31,450		426,776
Glu Mobile, Inc.(b)	1,300		13,000
Google, Inc. - Class A(b)(c)	6,868		3,146,643
i2 Technologies, Inc.(b)(c)	14,000		336,000
IAC/InterActiveCorp(b)(c)	10,050		378,986
IHS, Inc.(b)	20,450		840,699
Ingram Micro, Inc. - Class A(b)	15,600		301,236
International Game Technology	4,900		197,862
Juniper Networks, Inc.(b)(c)	51,950		1,022,376
Komag, Inc.(b)(c)	1,175		38,458
Lawson Software, Inc.(b)(c)	19,900		160,991
MICROS Systems, Inc.(b)	6,100		329,339
Microsoft Corp.(c)	43,800		1,220,706
Move, Inc.(b)	42,200		233,788
Oracle Corp.(b)	51,000		924,630
Phase Forward, Inc.(b)	12,300		161,499
Salesforce.com, Inc.(b)(c)	24,400		1,044,808
SonicWALL, Inc.(b)	40,400		337,744
Sun Microsystems, Inc.(b)	75,200		451,952
Sybase, Inc.(b)(c)	3,475		87,848
Sykes Enterprises, Inc.(b)	3,278		59,791
TIBCO Software, Inc.(b)	12,050		102,666
Transaction Systems Architects, Inc.(b)	25,100		812,989
Trident Microsystems, Inc.(b)(c)	2,800		56,168
The TriZetto Group, Inc.(b)	8,633		172,746
VeriFone Holdings, Inc.(b)(c)	8,200		301,186
Yahoo!, Inc.(b)	19,012		594,885
			21,869,009
Construction — 0.0%
NVR, Inc.(b)	100		66,500
United Rentals, Inc.(b)	2,825		77,688
			144,188
Containers — 0.1%
Owens-Illinois, Inc.(b)(c)	16,730		431,132
Silgan Holdings, Inc.	3,050		155,885
Smurfit-Stone Container Corp.(b)	31,410		353,677
			940,694
Electronics — 0.7%
Agilent Technologies, Inc.(b)	21,460		722,987
Ametek, Inc.	16,050		554,367
Amphenol Corp.(c)	15,250		984,693
Arrow Electronics, Inc.(b)	2,450		92,488
Intel Corp.	46,250		884,763
Intersil Corp. - Class A	22,570		597,879
L-3 Communications Holdings, Inc.	8,600		752,242
RF Micro Devices, Inc.(b)(c)	16,600		103,418
Vishay Intertechnology, Inc.(b)	36,550		510,969
WESCO International, Inc.(b)(c)	975		61,210
			5,265,016
Energy & Utilities — 2.7%
Airgas, Inc.	39,950		1,683,892
Alliant Energy Corp.	2,000		89,640
CenterPoint Energy, Inc.(c)	75,350		1,351,779
Constellation Energy Group, Inc.(c)	10,020		871,239
DTE Energy Co.	21,000		1,005,900
Edison International	19,050		935,927
El Paso Electric Co.(b)	4,900		129,115
Entergy Corp.	9,660		1,013,527
Equitable Resources, Inc.(c)	18,780		907,450
Evergreen Energy, Inc.(b)(c)	11,500		75,555
FirstEnergy Corp.(c)	27,450		1,818,288
FPL Group, Inc.(c)	10,200		623,934
Longview Energy Co. (acquired 8/13/04, cost $48,000)(d)(e)(f)	3,200		60,800
MDU Resources Group, Inc.	3,075		88,376
NRG Energy, Inc.(b)(c)	10,410		749,936
PG&E Corp.(c)	43,950		2,121,466
PPL Corp.	25,680		1,050,312
Public Service Enterprise Group, Inc.(c)	30,870		2,563,445
Puget Energy, Inc.	2,600		66,768
Questar Corp.(c)	13,770		1,228,422
Sempra Energy	35,800		2,184,158
TXU Corp.	3,100		198,710
Westar Energy, Inc.	2,800		77,056
			20,895,695
Entertainment & Leisure — 1.2%
Gaylord Entertainment Co.(b)	1,400		74,018
Hilton Hotels Corp.(c)	69,880		2,512,885
Las Vegas Sands Corp.(b)(c)	4,050		350,770
Morgans Hotel Group Co.(b)(c)	8,665		182,052
Orient-Express Hotels Ltd. - Class A(c)	16,537		989,243
Pinnacle Entertainment, Inc.(b)(c)	9,000		261,630
Scientific Games Corp. - Class A(b)(c)	18,200		597,506
Station Casinos, Inc.	2,850		246,724
Sunterra Corp.(b)	5,057		79,395
Vail Resorts, Inc.(b)	4,850		263,501
The Walt Disney Co.(c)	99,600		3,429,228
World Wrestling Entertainment, Inc.	6,550		106,765
			9,093,717
Finance — 2.8%
Affiliated Managers Group, Inc.(b)(c)	3,400		368,390
AllianceBernstein Holding LP	2,900		256,650
Ambac Financial Group, Inc.(c)	9,635		832,368

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

86

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
United States (Continued)
Finance (Continued)
American Express Co.(c)	45,140	$	2,545,896
AmeriCredit Corp.(b)	38,500		880,110
Ameriprise Financial, Inc.	27,850		1,591,349
The Bear Stearns Cos., Inc.(c)	9,150		1,375,702
Capital One Financial Corp.	7,265		548,217
Chicago Mercantile Exchange Holdings, Inc.(c)	1,050		559,083
CIT Group, Inc.(c)	39,640		2,097,749
eTelecare Global Solutions, Inc.(b)	9,400		142,410
Fannie Mae	12,450		679,521
The Goldman Sachs Group, Inc.	8,300		1,715,029
Investment Technology Group, Inc.(b)	3,200		125,440
Mellon Financial Corp.(c)	25,210		1,087,559
Morgan Stanley	27,100		2,134,396
Nasdaq Stock Market, Inc.(b)	5,600		164,696
NGP Capital Resources Co.	2,700		42,687
NYSE Group, Inc.(c)	21,200		1,987,500
Raymond James Financial, Inc.	1,825		54,312
Sumitomo Mitsui Financial Group, Inc.	140		1,271,215
T. Rowe Price Group, Inc.	3,150		148,649
TD Ameritrade Holding Corp.(b)	19,610		291,797
UBS AG	3,250		193,148
Washington Mutual, Inc.(c)	15,600		629,928
Wright Express Corp.(b)(c)	11,650		353,344
			22,077,145
Food & Agriculture — 1.0%
Archer-Daniels-Midland Co.	12,050		442,235
Bunge Ltd.(c)	2,770		227,749
ConAgra Foods, Inc.	53,400		1,330,194
Corn Products International, Inc.	1,450		51,605
Del Monte Foods Co.	66,340		761,583
General Mills, Inc.	28,150		1,638,893
Monsanto Co.	39,036		2,145,419
Panera Bread Co. - Class A(b)(c)	7,700		454,762
Pilgrim’s Pride Corp.(c)	27,120		900,113
			7,952,553
Insurance — 2.5%
ACE Ltd.	10,250		584,865
Aetna, Inc.	26,600		1,164,814
The Allstate Corp.	34,650		2,081,079
American Financial Group, Inc.	2,550		86,802
American International Group, Inc.	42,150		2,833,323
Axis Capital Holdings Ltd.	15,960		540,406
CHUBB Corp.	32,150		1,661,191
Conseco, Inc.(b)(c)	47,171		816,058
Endurance Specialty Holdings Ltd.(c)	17,341		619,767
Everest Re Group Ltd.	525		50,489
First Mercury Financial Corp.(b)	4,900		100,695
HCC Insurance Holdings, Inc.	1,600		49,280
IPC Holdings Ltd.	3,497		100,888
MetLife, Inc.(c)	26,900		1,698,735
National Atlantic Holdings Corp. - Class A(b)	4,700		60,771
Nationwide Financial Services, Inc.	13,150		708,259
PartnerRe Ltd.	600		41,124
Platinum Underwriters Holdings Ltd.	5,541		177,755
Travelers Companies, Inc.	47,750		2,472,018
UnumProvident Corp.(c)	57,650		1,327,680
W.R. Berkley Corp.(c)	30,975		1,025,892
WellPoint, Inc.(b)	5,600		454,160
XL Capital Ltd.	10,450		731,082
			19,387,133
Machinery & Heavy Equipment — 0.1%
Bucyrus International, Inc. - Class A(c)	2,700		139,050
Joy Global, Inc.(c)	5,750		246,675
Regal-Beloit Corp.	1,100		51,018
Terex Corp.(b)(c)	9,000		645,840
			1,082,583
Manufacturing — 3.9%
Actuant Corp. - Class A(c)	5,450		276,642
Acuity Brands, Inc.(c)	1,050		57,162
Aptargroup, Inc.	2,750		184,058
Callaway Golf Co.(c)	12,922		203,651
Chart Industries, Inc.(b)	10,650		193,404
Chattem, Inc.(b)	2,400		141,456
Cooper Industries Ltd. - Class A	35,606		1,601,914
Corning, Inc.(b)	86,549		1,968,124
Crane Co.	1,000		40,420
Cummins, Inc.(c)	7,850		1,136,052
Danaher Corp.	16,750		1,196,787
Elizabeth Arden, Inc.(b)	6,300		137,466
Energizer Holdings, Inc.(b)	15,350		1,309,815
Foster Wheeler Ltd.(b)	6,818		398,103
Gardner Denver, Inc.(b)	15,800		550,630
General Electric Co.	211,600		7,482,176
Harsco Corp.	1,200		53,832
Hexel Corp.(b)(c)	3,750		74,438
Honeywell International, Inc.	48,050		2,213,183
IDEX Corp.	8,950		455,376
Jones Apparel Group, Inc.	12,170		373,984
Ladish Co., Inc.(b)	4,500		169,380
Mattel, Inc.	20,200		556,914
Mettler-Toledo International, Inc.(b)	500		44,785
Nucor Corp.(c)	12,800		833,664
Parker Hannifin Corp.(c)	17,400		1,501,794
Paxar Corp.(b)	6,150		176,505
Phillips-Van Heusen Corp.	1,000		58,800
Polo Ralph Lauren Corp.(c)	13,925		1,227,489
Precision Castparts Corp.	6,875		715,344
Quanex Corp.	2,800		118,580
RBC Bearings, Inc.(b)	3,300		110,319
Reynold American, Inc.(c)	13,850		864,378
Rockwell Automation, Inc.(c)	6,050		362,214
Shuffle Master, Inc.(b)(c)	6,600		120,450
Sirona Dental Systems, Inc.	1,100		37,906
Smith & Wesson Holding Corp.(b)	2,200		28,798
Textron, Inc.	16,240		1,458,352
The Warnaco Group, Inc.(b)	16,600		471,440
Watson Wyatt Worldwide, Inc.	7,700		374,605

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

87

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
United States (Continued)
Manufacturing (Continued)
Whirlpool Corp.(c)	8,440	$	716,640
			29,997,030
Measuring & Controlling Devices — 0.4%
Thermo Electron Corp.(b)(c)	59,300		2,772,275
Medical & Medical Services — 1.5%
Amgen, Inc.(b)(c)	5,700		318,516
Animal Health International, Inc.(b)	3,100		37,479
Apria Healthcare Group, Inc.(b)	1,900		61,275
Coventry Health Care, Inc.(b)	45,345		2,541,587
Digene Corp.(b)	6,350		269,304
Health Net, Inc.(b)	825		44,393
Henry Schein, Inc.(b)(c)	15,400		849,772
Kindred Healthcare, Inc.(b)	2,100		68,838
LifePoint Hospitals, Inc.(b)	8,500		324,870
McKesson Corp.	8,000		468,320
Medco Health Solutions, Inc.(b)	18,835		1,366,103
Mylan Laboratories, Inc.	50,200		1,061,228
Noven Pharmaceuticals, Inc.(b)	14,950		346,840
Omnicare, Inc.(c)	16,080		639,502
Pediatrix Medical Group, Inc.(b)(c)	18,800		1,072,728
Pharmaceutical Product Development, Inc.	1,000		33,690
Quest Diagnostics, Inc.(c)	11,050		551,064
Radiation Therapy Services, Inc.(b)	3,100		94,984
Santarus, Inc.(b)(c)	21,400		150,656
Symbion, Inc.(b)	10,650		208,846
UnitedHealth Group, Inc.	23,050		1,220,958
Vital Images, Inc.(b)	5,450		181,267
WellCare Health Plans, Inc.(b)	900		76,725
			11,988,945
Medical Instruments & Supplies — 1.4%
Align Technology, Inc.(b)(c)	27,200		431,392
Allscripts Healthcare Solutions, Inc.(b)	4,800		128,688
Beckman Coulter, Inc.	10,200		651,678
Becton, Dickinson & Co.	8,150		626,654
Bruker BioSciences Corp.(b)	11,550		121,506
Charles River Laboratories International, Inc.(b)	1,700		78,642
The Cooper Cos., Inc.(c)	16,100		782,782
Cutera, Inc.(b)	7,550		273,234
DJ Orthopedics, Inc.(b)	11,600		439,640
Edwards Lifesciences Corp.(b)(c)	1,300		65,910
Ev3, Inc.(b)(c)	7,250		142,825
Hillenbrand Industries, Inc.(c)	12,357		733,635
Hologic, Inc.(b)(c)	12,800		737,792
Home Diagnostics, Inc.(b)	3,200		34,560
Johnson & Johnson	37,640		2,268,186
Kinetic Concepts, Inc.(b)	9,650		488,676
Kyphon, Inc.(b)(c)	3,800		171,532
Martek Biosciences Corp.(b)(c)	19,750		407,245
Mentor Corp.	700		32,200
MWI Veterinary Supply, Inc.(b)	3,600		118,800
Orthofix International, NV(b)	2,400		122,520
SonoSite, Inc.(b)	3,800		107,388
Varian Medical Systems, Inc.(b)(c)	6,550		312,370
Waters Corp.(b)	2,800		162,400
Wright Medical Group, Inc.(b)(c)	14,705		327,774
Zimmer Holdings, Inc.(b)	13,400		1,144,494
			10,912,523
Metal & Mining — 1.2%
Alpha Natural Resources, Inc.(b)(c)	1,000		15,630
Century Aluminum Co.(b)	15,750		738,360
CONSOL Energy, Inc.(c)	91,890		3,595,656
Foundation Coal Holdings, Inc.(c)	3,000		103,020
Freeport-McMoran Copper & Gold, Inc. - Class B(c)	18,591		1,230,538
Kinross Gold Corp.(b)	22,235		306,621
Massey Energy Co.(c)	74,828		1,795,124
MSC Industrial Direct Co., Inc.	8,100		378,108
Peabody Energy Corp.	598		24,063
Reliance Steel & Aluminum Co.	1,000		48,400
Steel Dynamics, Inc.	1,550		66,960
United States Steel Corp.	10,050		996,658
			9,299,138
Miscellaneous Services — 0.0%
TeleTech Holdings, Inc.(b)	4,500		165,105
Motor Vehicles — 0.3%
Ford Motor Co.(c)	65,010		512,929
Oshkosh Truck Corp.(c)	10,550		559,150
PACCAR, Inc.(c)	10,500		770,700
Tenneco Automotive, Inc.(b)	5,400		137,484
			1,980,263
Oil & Gas — 5.0%
AGL Resources, Inc.	19,398		828,683
American Oil & Gas, Inc.(b)(c)	5,947		32,292
Atwood Oceanics, Inc.(b)	3,200		187,808
BJ Services Co.(c)	5,500		153,450
Bois d’Arc Energy, Inc.(b)	2,400		31,752
Cal Dive International, Inc.(b)	7,800		95,238
Callon Petroleum Co.(b)	2,500		33,925
Cameron International Corp.(b)(c)	725		45,523
CanArgo Energy Corp.(b)	191,100		200,655
Chesapeake Energy Corp.(c)	7,100		219,248
Chevron Corp.	52,450		3,879,202
Cimarex Energy Co.	2,225		82,370
Clayton Williams Energy, Inc.(b)	20,823		590,749
Complete Production Services, Inc.(b)	900		17,919
Comstock Resources, Inc.(b)	5,900		161,542
ConocoPhillips	67,900		4,640,965
Delta Petroleum Corp.(b)(c)	7,655		175,759
Devon Energy Corp.	2		138
Diamond Offshore Drilling, Inc.(c)	16,517		1,337,051
Energen Corp.	17,500		890,575
ENSCO International, Inc.(c)	24,050		1,308,320
EOG Resources, Inc.(c)	11,010		785,453
EXCO Resources, Inc.(b)	7,000		116,060
The Exploration Co.(b)	8,700		94,395
Exxon Mobil Corp.	104,150		7,858,118
Gasco Energy, Inc.(b)(c)	18,500		45,140
GlobalSantaFe Corp.(c)	26,087		1,609,046
Goodrich Petroleum Corp.(b)(c)	3,650		122,749

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

88

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
United States (Continued)
Oil & Gas (Continued)
Grant Prideco, Inc.(b)(c)	9,300	$	463,512
Halliburton Co.(c)	6,330		200,914
Helmerich & Payne, Inc.	2,000		60,680
Hercules Offshore, Inc.(b)(c)	5,100		133,926
Marathon Oil Corp.	31,450		3,108,204
Mariner Energy, Inc.(b)	5,500		105,215
Matador Resources Co. (acquired 10/14/03 through 4/13/06, cost $62,950)(d)(e)(f)	2,895		78,165
Newfield Exploration Co.(b)(c)	28,824		1,202,249
Noble Energy, Inc.(c)	2,150		128,247
Oceaneering International, Inc.(b)	5,000		210,600
Oil States International, Inc.(b)	3,800		121,942
Oneok, Inc.	1,725		77,625
Parallel Petroleum Corp.(b)	4,879		111,973
Particle Drilling Technologies, Inc.(b)(c)	3,651		14,421
Petrohawk Energy Corp.(b)	10,345		136,244
Petroquest Energy, Inc.(b)	10,336		120,828
Precision Drilling Trust(c)	3,300		75,405
Pride International, Inc.(b)(c)	13,800		415,380
Rowan Cos., Inc.(c)	8,450		274,372
Schlumberger Ltd.(c)	18,350		1,267,985
Southwest Gas Corp.	1,325		51,503
Southwestern Energy Co.(b)	10,640		436,027
St. Mary Land & Exploration Co.	1,575		57,771
Superior Energy Services, Inc.(b)(c)	6,350		218,884
TETRA Technologies, Inc.(b)(c)	5,400		133,434
Tidewater, Inc.(c)	1,100		64,438
Treasure Island Royalty Trust(b)	217,129		48,854
Unit Corp.(b)	1,325		67,032
Valero Energy Corp.	21,150		1,363,963
Weatherford International Ltd.(b)	10,799		487,028
XTO Energy, Inc.	31,750		1,740,217
			38,521,163
Paper & Paper Products — 0.1%
Temple-Inland, Inc.	8,400		501,816
Personal Services — 0.1%
Laureate Education, Inc.(b)(c)	12,500		737,125
Pharmaceuticals — 2.3%
Abbott Laboratories	35,150		1,961,370
Allergan, Inc.(c)	5,381		596,323
Amylin Pharmaceuticals, Inc.(b)(c)	9,550		356,788
Cephalon, Inc.(b)(c)	340		24,211
Endo Pharmaceuticals Holdings, Inc.(b)	11,450		336,630
Genentech, Inc.(b)	3,500		287,420
Genzyme Corp.(b)	18,350		1,101,367
Gilead Sciences, Inc.(b)	22,000		1,683,000
ICON Plc - ADR(b)	2,800		119,280
IMS Health, Inc.	10,400		308,464
King Pharmaceuticals, Inc.(b)	25,750		506,503
Medicis Pharmaceutical Corp.(c)	13,100		403,742
Merck & Co., Inc.	97,920		4,325,126
Myriad Genetics, Inc.(b)(c)	1,450		49,967
Pfizer, Inc.	229,200		5,789,592
United Therapeutics Corp.(b)(c)	600		32,268
			17,882,051
Plastics — 0.2%
Sonoco Products Co.	31,300		1,176,254
Publishing & Printing — 0.4%
Dow Jones & Co., Inc.(c)	9,355		322,467
The McGraw-Hill Cos., Inc.	25,250		1,587,720
R.R. Donnelley & Sons Co.(c)	24,405		892,979
Tribune Co.(c)	10,490		336,834
			3,140,000
Railroad & Shipping — 0.3%
CSX Corp.	7,420		297,171
Union Pacific Corp.(c)	18,050		1,832,977
UTI Worldwide, Inc.	15,000		368,700
			2,498,848
Real Estate — 1.3%
Apartment Investment & Management Co. (REIT)	750		43,268
Arbor Realty Trust, Inc. (REIT)	3,100		94,364
Boston Properties, Inc. (REIT)(c)	7,770		912,198
Camden Property Trust (REIT)	8,560		601,854
CB Richard Ellis Group, Inc. - Class A (REIT)(b)	25,550		873,299
Corporate Office Properties Trust (REIT)(c)	2,600		118,768
Education Realty Trust, Inc. (REIT)	7,750		114,545
Gramercy Capital Corp. (REIT)	4,900		150,332
Highwoods Properties, Inc.	1,200		47,388
Hospitality Properties Trust (REIT)	1,400		65,520
Mack-Cali Realty Corp. (REIT)(c)	11,220		534,409
New Plan Excel Realty Trust (REIT)	1,750		57,802
ProLogis (REIT)	34,470		2,238,137
Simon Property Group, Inc. (REIT)(c)	25,580		2,845,775
Taubman Centers, Inc.	15,800		916,242
UDR, Inc.	2,025		62,005
			9,675,906
Restaurants — 0.5%
CKE Restaurants, Inc.	19,740		372,296
Darden Restaurants, Inc.	875		36,041
Jack-in-the-Box, Inc.(b)	950		65,674
McDonald’s Corp.	61,800		2,784,090
Red Robin Gourmet Burgers, Inc.(b)(c)	6,350		246,507
			3,504,608
Retail Merchandising — 2.8%
Advance Auto Parts, Inc.	23,620		910,551
American Eagle Outfitters, Inc.(c)	14,662		439,713
AutoZone, Inc.(b)	400		51,256
Big Lots, Inc.(b)(c)	2,100		65,688
Borders Group, Inc.(c)	38,460		785,353
Central Garden & Pet Co.(b)	19,290		283,563
The Children’s Place Retail Stores, Inc.(b)	4,200		234,192
Coach, Inc.(b)	6,050		302,802
Coldwater Creek, Inc.(b)(c)	7,200		146,016
Copart, Inc.(b)	4,200		117,642
CVS Corp.	5,678		193,847

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

89

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS (Continued)
United States (Continued)
Retail Merchandising (Continued)
Dick’s Sporting Goods, Inc.(b)(c)	9,938	$	578,988
Dillard’s, Inc. - Class A(c)	16,000		523,680
Dollar Tree Stores, Inc.(b)	47,650		1,822,136
Federated Department Stores, Inc.(c)	50,650		2,281,783
GameStop Corp.(b)(c)	21,600		703,512
Genesco, Inc.(b)(c)	3,931		163,254
Golfsmith International Holdings, Inc.(b)	19,400		168,780
J.C. Penney Co., Inc.(c)	23,650		1,943,084
Jarden Corp.(b)(c)	4,900		187,670
The Kroger Co.	61,570		1,739,353
Limited Brands, Inc.	31,830		829,490
Officemax, Inc.	12,650		667,161
O’Reilly Automotive, Inc.(b)	23,200		767,920
Payless ShoeSource, Inc.(b)	1,750		58,100
Rent-A-Center, Inc.(b)	1,650		46,167
Saks, Inc.(c)	15,721		327,626
Sally Beauty Holdings, Inc.(b)	10,900		100,171
Staples, Inc.	48,550		1,254,532
SUPERVALU, Inc.(c)	15,920		621,994
The Talbots, Inc.(c)	24,016		567,258
TJX Cos., Inc.	15,900		428,664
Wal-Mart Stores, Inc.	48,600		2,281,770
			21,593,716
Security Brokers & Dealers — 0.3%
iShares Russell 2000 Value Index Fund	1,463		118,430
Lehman Brothers Holdings, Inc.(c)	19,050		1,334,833
Piper Jaffray Cos., Inc.(b)(c)	9,300		576,042
Waddell & Reed Financial, Inc.	7,200		167,904
			2,197,209
Semiconductors & Related Devices — 0.8%
Avnet, Inc.(b)(c)	23,150		836,641
Cymer, Inc.(b)(c)	3,300		137,115
Integrated Device Technology, Inc.(b)(c)	18,500		285,270
Lam Research Corp.(b)(c)	21,620		1,023,491
Marvell Technology Group Ltd.(b)(c)	10,550		177,345
MEMC Electronic Materials, Inc.(b)	10,300		623,974
Micrel, Inc.(b)(c)	22,700		250,154
Microsemi Corp.(b)(c)	9,200		191,452
PMC-Sierra, Inc.(b)(c)	125,700		881,157
Standard Microsystems Corp.(b)	8,900		271,806
STMicroelectronics NV - NY Shares(c)	80,500		1,545,600
Ultra Clean Holdings, Inc.(b)	8,004		138,469
			6,362,474
Soaps & Cosmetics — 0.8%
Colgate-Palmolive Co.	8,400		561,036
Estee Lauder Cos., Inc.	17,000		830,450
The Procter & Gamble Co.	75,630		4,776,791
			6,168,277
Telecommunications — 2.9%
Amdocs Ltd.(b)	35,570		1,297,594
American Tower Corp. - Class A(b)	37,516		1,461,248
Andrew Corp.(b)	61,240		648,532
Anixter International, Inc.(b)	900		59,346
Arris Group, Inc.(b)	3,150		44,352
AT&T, Inc.(c)	246,976		9,738,264
CenturyTel, Inc.(c)	925		41,801
Clearwire Corp.(b)(c)	5,600		114,632
EMS Technologies, Inc.(b)	13,600		262,072
Harman International Industries, Inc.	10,750		1,032,860
Harris Corp.	31,700		1,615,115
NII Holdings, Inc.(b)(c)	19,627		1,455,931
Occam Networks, Inc.(b)	8,700		97,179
Polycom, Inc.(b)(c)	12,900		429,957
QUALCOMM, Inc.	19,690		839,975
Sprint Nextel Corp.(c)	0		0
Tessera Technologies, Inc.(b)	3,000		119,220
Verizon Communications, Inc.(c)	81,694		3,097,836
			22,355,914
Textiles — 0.0%
Carter’s, Inc.(b)	11,980		303,573
Tires & Rubber — 0.1%
Cooper Tire & Rubber Co.(c)	18,848		344,730
The Goodyear Tire & Rubber Co.(b)(c)	23,900		745,441
			1,090,171
Tobacco — 0.6%
Altria Group, Inc.	45,977		4,037,241
Carolina Group	11,530		871,783
			4,909,024
Transportation — 0.2%
C.H. Robinson Worldwide, Inc.(c)	925		44,169
FedEx Corp.(c)	9,100		977,613
Knight Transportation, Inc.(c)	4,800		85,536
Old Dominion Freight Line, Inc.(b)	1,100		31,691
Ryder Systems, Inc.	9,875		487,232
Vitran Corp., Inc.(b)	4,450		87,442
Yellow Roadway Corp.	1,225		49,270
YRC Worldwide, Inc.(b)(c)	3,500		140,770
			1,903,723
Waste Management — 0.2%
Allied Waste Industries, Inc.(b)	103,300		1,300,547
Clean Harbors, Inc.(b)	1,500		67,830
Republic Services, Inc.	1,800		50,076
			1,418,453
Total United States			402,720,507
TOTAL COMMON STOCKS (Cost $434,555,169)			546,956,338

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

90

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
WARRANTS — 0.0%
Point North Energy Ltd. (issued 7/24/03, expiring 7/23/08, strike price 5.00 CAD) (acquired 7/24/03, cost $0)(d)(e)(f)			13,755	$	3,931
Triex Minerals Corp. (issued 12/23/05, expiring 6/23/07, strike price 3.00 CAD) (acquired 12/23/05, cost $0)(d)(f)(g)			3,300		6,003
TOTAL WARRANTS (Cost $0)					9,934
	MATURITY	PAR (000)
U.S. GOVERNMENT & AGENCY OBLIGATIONS — 1.6%
Federal Home Loan Mortgage Corp., Unsecured Notes 4.62%	05/28/13	$	150		145,957
Federal National Mortgage Assoc., Unsecured Notes 7.25%	01/15/10		1,245		1,323,061
Resolution Funding Corp., Strip Bonds 6.29%(h)	07/15/18		150		86,034
6.30%(h)	10/15/18		150		84,822
Small Business Administration Participation Certificates, Series 97-20F, Class 1 7.20%	06/01/17		566		590,056
Small Business Administration Participation Certificates, Series 97-P10C, Class 1 6.85%	08/01/07		81		81,433
U.S. Treasury Bonds 4.50%	02/15/36		65		61,283
U.S. Treasury Inflation Protected Bonds 2.00%	01/15/26		1,930		1,870,646
2.38%	01/15/27		560		517,717
U.S. Treasury Notes 4.62%	11/16-02/17		7,880		7,862,409
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $12,661,070)					12,623,418
MORTGAGE PASS-THROUGHS — 10.8%
Federal Home Loan Mortgage Corp. ARM 5.03%(i)	12/01/35		761		756,009
Federal Home Loan Mortgage Corp. Gold 8.00%	08/08-08/27		24		25,338
8.50%	07/01/09		0		4
4.00%	05/10-05/19		182		175,777
6.00%	04/13-06/16		129		130,714
4.50%	05/18-08/20		1,512		1,466,932
5.50%	09/21-08/33		3,686		3,684,801
9.50%	12/01/22		250		270,051
7.50%	09/01/27		0		343
6.50%	01/29-08/32		69		71,492
5.00%	05/01/34		218		210,786
Federal Home Loan Mortgage Corp. Gold 15 Year TBA 6.00%	04/01/22		1,000		1,016,250
Federal Home Loan Mortgage Corp. Gold 30 Year TBA 6.00%	05/13/34		1,000		1,007,500
5.00%	04/01/37		2,000		1,932,500
5.50%	04/01/37		8,000		7,912,496
Federal National Mortgage Assoc. 8.00%	04/08-02/33		179		189,571
7.00%	08/08-10/32		329		339,747
8.50%	02/01/09		6		6,588
6.50%	01/11-09/36		4,595		4,692,184
6.00%	09/11-04/35		8,189		8,308,394
5.50%	04/17-06/36		17,546		17,515,780
5.00%	01/18-07/35		12,281		12,130,948
4.50%	10/01/18		427		414,910
4.00%	06/01/19		911		860,843
7.50%	02/30-01/31		425		445,706
Federal National Mortgage Assoc. 15 Year TBA 4.50%	04/01/22		2,000		1,935,624
6.00%	04/01/22		2,000		2,032,500
Federal National Mortgage Assoc. 30 Year TBA 5.00%	04/01/37		7,000		6,761,566
5.50%	04/01/37		6,000		5,936,250
Federal National Mortgage Assoc. ARM 4.78%(i)	01/01/35		788		782,482
Government National Mortgage Assoc. I 6.50%	02/09-11/28		363		372,457
7.50%	11/10-12/29		36		36,544
6.00%	10/23-02/24		272		276,144
7.00%	09/31-05/32		45		47,473
5.50%	04/33-12/34		711		708,323
Government National Mortgage Assoc. II 5.00%	10/20/33		1,222		1,186,576
Government National Mortgage Assoc. II ARM 3.75%(i)	05/20/34		180		179,164
TOTAL MORTGAGE PASS-THROUGHS (Cost $83,734,976)					83,820,767
COLLATERALIZED MORTGAGE OBLIGATIONS — 2.3%
Banc of America Alternative Loan Trust, Series 04-6, Class 4A1 5.00%	07/25/19		65		64,085
Countrywide Home Loans, Series 03-27, Class M 3.91%(i)	06/25/33		572		563,561
Countrywide Home Loans, Series 03-58, Class B1 4.60%(i)	02/19/34		211		207,095
Fannie Mae Grantor Trust, Series 03-T1, Class R (IO) 0.00%	11/25/12		6,574		169,489
Federal Home Loan Mortgage Corp., Series 235 (IO) 5.50%(h)	02/01/36		1,829		432,189
Federal Home Loan Mortgage Corp., Series 2529, Class MB 5.00%	11/15/17		100		98,841

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

91

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
Federal Home Loan Mortgage Corp., Series 2574, Class HP 5.00%	02/15/18	$	1,420	$	1,390,703
Federal Home Loan Mortgage Corp., Series 2668, Class AD 4.00%	01/15/15		160		157,641
Federal Home Loan Mortgage Corp., Series 2707, Class PW 4.00%	07/15/14		223		220,835
Federal Home Loan Mortgage Corp., Series 2864, Class NA 5.50%	01/15/31		151		151,633
Federal Home Loan Mortgage Corp., Series 2996, Class MK 5.50%	06/15/35		826		833,553
Federal National Mortgage Assoc., Series 03-16, Class BC 5.00%	03/25/18		50		48,868
Federal National Mortgage Assoc., Series 04-31, Class PK 3.50%	06/25/10		14		13,678
Federal National Mortgage Assoc., Series 04-88, Class HA 6.50%	07/25/34		66		67,231
Federal National Mortgage Assoc., Series 04-99, Class AO 5.50%	01/25/34		128		128,075
Federal National Mortgage Assoc., Series 05-3, Class AP 5.50%	02/25/35		114		115,379
Federal National Mortgage Assoc., Series 05-51, Class TA 5.50%	05/01/35		2,000		2,008,261
Federal National Mortgage Assoc., Series 05-80, Class PB 5.50%	04/25/30		1,050		1,053,153
Federal National Mortgage Assoc., Series 363, Class 2 (IO) 5.50%(h)	11/01/35		2,090		481,092
Federal National Mortgage Assoc., Series 379, Class 5 (IO) 5.00%(h)	05/25/36		2,065		494,208
Harborview Mortgage Loan Trust, Series 05-10, Class 2A1A 5.63%(i)	11/19/35		947		949,263
Lehman Brothers-UBS Commercial Mortgage Trust, Series 01-C7, Class A4 5.93%	12/15/25		825		839,706
Lehman Brothers-UBS Commercial Mortgage Trust, Series 01-WM, Class A1 6.16%(g)	07/14/16		610		624,141
Lehman Brothers-UBS Commercial Mortgage Trust, Series 03-C8, Class A1 3.64%	11/15/27		402		394,677
Lehman Brothers-UBS Commercial Mortgage Trust, Series 04-C2, Class A1 2.95%	03/15/29		256		247,544
Lehman Brothers-UBS Commercial Mortgage Trust, Series 04-C6, Class A1 3.88%	08/15/29		198		194,518
Lehman Brothers-UBS Commercial Mortgage Trust, Series 06-C6, Class A4 5.37%	09/15/39		960		959,834
Master Alternative Loans Trust, Series 04-4, Class 1A1 5.50%	05/25/34		128		127,072
Salomon Brothers Mortgage Securities VI, Series 87-1 (IO) 11.00%(h)	02/17/17		39		10,300
Salomon Brothers Mortgage Securities VI, Series 87-1 (PO) 11.50%(j)	02/17/17		43		36,754
Salomon Brothers Mortgage Securities VI, Series 87-2 (IO) 11.00%(h)	03/06/17		29		8,809
Salomon Brothers Mortgage Securities VI, Series 87-2 (PO) 11.50%(j)	03/06/17		29		23,963
Structured Asset Securities Corp., Series 01-21A, Class B2 7.25%(i)	01/25/32		11		11,289
Structured Asset Securities Corp., Series 03-2A, Class B2II 5.42%(i)	02/25/33		148		148,028
Washington Mutual Mortgage Loan Trust, Series 03-AR8, Class B1 4.19%(i)	08/25/33		349		345,451
Washington Mutual Mortgage Securities Corp., Series 03-AR3, Class A5 3.93%(i)	04/25/33		212		209,535
Washington Mutual Mortgage Securities Corp., Series 03-AR3, Class B2 4.73%(i)	04/25/33		159		157,097
Washington Mutual Mortgage Securities Corp., Series 03-AR4, Class A6 3.42%(i)	05/25/33		645		634,263
Washington Mutual Mortgage Securities Corp., Series 03-AR5, Class A6 3.70%(i)	06/25/33		850		836,262
Washington Mutual Mortgage Securities Corp., Series 03-AR5, Class B2 4.50%(i)	06/25/33		354		352,564
Washington Mutual Mortgage Securities Corp., Series 04-AR1, Class B1 4.49%(i)	03/25/34		1,168		1,151,066
Washington Mutual Mortgage Securities Corp., Series 04-AR3, Class B1 4.17%(i)	06/25/34		224		218,783
Wells Fargo Mortgage Backed Securities, Series 04-K, Class 1A2 4.47%(i)	07/25/34		414		404,366
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $17,864,828)					17,584,855

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

92

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COMMERCIAL MORTGAGE BACKED SECURITIES — 4.1%
Bank of America-First Union Commercial Mortgage, Series 01-3, Class A2 5.46%	04/11/37	$	1,375	$	1,390,621
Bear Stearns Commercial Mortgage Securities, Inc., Series 99-WF2, Class A2 7.08%	07/15/31		250		257,976
Bear Stearns Commercial Mortgage Securities, Inc., Series 00-WF2, Class A2 7.32%	10/15/32		475		503,521
Bear Stearns Commercial Mortgage Securities, Inc., Series 02-TOP6, Class A1 5.92%	10/15/36		584		592,304
Bear Stearns Commercial Mortgage Securities, Series 03-T12, Class A4 4.68%	09/13/13		1,025		995,293
CDC Commercial Mortgage Trust, Series 02-FX1, Class A1 5.25%	05/15/19		1,375		1,378,666
Commercial Mortgage Acceptance Corp., Series 98-C2, Class C 6.45%(i)	09/15/30		275		278,758
Commerical Mortgage Acceptance Corp., Series 98-C2, Class E 7.23%(i)	06/15/10		930		981,088
Credit Suisse First Boston Mortgage Securities Corp., Series 01-CP4, Class D 6.61%	12/15/35		1,450		1,528,797
Credit Suisse First Boston Mortgage Securities Corp., Series 02-CKN2, Class A3 6.13%	03/15/12		1,000		1,040,205
Credit Suisse First Boston Mortgage Securities Corp., Series 02-CKS4, Class A2 5.18%	08/15/12		1,090		1,088,984
Credit Suisse First Boston Mortgage Securities Corp., Series 02-CP5, Class A2 4.94%	12/15/35		1,010		996,088
Credit Suisse First Boston Mortgage Securities Corp., Series 03-C3, Class A5 3.94%	05/15/38		1,020		953,582
Donaldson, Lufkin & Jenrette, Inc., Commerical Mortgage Corp., Series 99-CG1, Class A1B 6.46%	03/10/32		150		152,865
Donaldson, Lufkin & Jenrette, Inc., Commerical Mortgage Corp., Series 00-CKP1, Class A1B 7.18%	11/10/33		1,104		1,163,397
First Union National Bank Commercial Mortgage Trust, Series 01-C2, Class A2 6.66%	01/12/43		970		1,018,227
First Union National Bank Commercial Mortgage Trust, Series 01-C4, Class A2 6.22%	11/12/11		1,140		1,186,386
First Union-Lehman Brothers-Bank of America Commercial Mortgage Trust, Series 98-C2, Class A2 6.56%	11/18/08		130		130,542
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 99-C3, Class A2 7.18%	08/15/36		143		148,064
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 00-C3, Class A2 6.96%	11/15/10		1,295		1,366,851
Impac Commercial Mortgage Backed Trust, Series 03-5, Class M1 6.07%(i)	08/25/33		20		20,388
Impac Commercial Mortgage Backed Trust, Series 03-7, Class M 7.80%(i)	08/25/33		10		9,629
Impac Commercial Mortgage Backed Trust, Series 04-1, Class M4 7.12%(i)	03/25/34		31		31,498
Impac Commercial Mortgage Backed Trust, Series 04-5, Class 1A1 5.68%(i)	10/25/34		138		138,347
Impac Commercial Mortgage Backed Trust, Series 04-7, Class 1A1 5.69%(i)	11/25/34		371		371,705
Impac Commercial Mortgage Backed Trust, Series 04-7, Class M4 6.52%(i)	11/25/34		133		133,139
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 06-CB17, Class A4 5.43%(i)	12/12/43		975		977,477
J.P. Morgan Commercial Mortgage Finance Corp., Series 97-C5, Class C 7.24%	09/15/29		1,069		1,067,144
J.P. Morgan Commercial Mortgage Finance Corp., Series 99-C7, Class A2 6.51%	10/15/35		470		475,300
J.P. Morgan Commercial Mortgage Finance Corp., Series 99-PLSI, Class D 7.29%(i)	02/15/32		650		671,171
Lehman Brothers Commercial Conduit Mortgage Trust, Series 98-C4, Class A1B 6.21%	10/15/35		443		446,989

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

93

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COMMERCIAL MORTGAGE BACKED SECURITIES (Continued)
Lehman Brothers Commercial Conduit Mortgage Trust, Series 99-C2, Class A2 7.32%	10/15/32	$	250	$	259,795
Lehman Brothers Commercial Conduit Mortgage Trust, Series 99-C2, Class E 7.47%	10/15/32		125		131,876
Morgan Stanley Capital Investments, Series 99-WF1, Class A2 6.21%	11/15/31		403		407,231
Morgan Stanley Capital Investments, Series 03-IQ4, Class A2 4.07%	05/15/40		1,025		966,911
Morgan Stanley Dean Witter Capital Investments, Series 2001-TOP1, Class A4 6.66%	02/15/33		910		951,219
Morgan Stanley Dean Witter Capital Investments, Series 02-TOP7, Class A1 5.38%	01/15/39		430		431,441
Mortgage Capital Funding, Inc., Series 98-MC2, Class B 6.55%	06/18/30		295		298,108
Nationslink Funding Corp., Series 98-2, Class A2 6.48%	08/20/30		166		167,913
Nationslink Funding Corp., Series 98-2, Class B 6.80%	08/20/30		525		533,702
Nationslink Funding Corp., Series 99-2, Class D 7.23%(i)	06/20/31		175		180,827
Salomon Brothers Mortgage Securities VII, Series 00-C1, Class A2 7.52%	12/18/09		460		482,887
Salomon Brothers Mortgage Securities VII, Series 00-C3, Class A2 6.59%	10/18/10		1,325		1,376,975
Structured Asset Receivables Trust, Series 03-2 5.72%(d)(f)(g)(i)	01/21/09		583		582,630
Structured Asset Securities Corp., Series 96-CFL, Class X1 (IO) 2.14%(h)	02/25/28		734		23,929
TIAA Real Estate Collateralized Debt Obligation Ltd., Series 01-C1A, Class A4 6.68%(g)	06/19/31		1,305		1,343,329
Wachovia Bank Commercial Mortgage Trust, Series 06-C25, Class A5 5.78%	05/15/43		1,050		1,083,724
Washington Mutual Asset Securities Corp., Series 05-C1A, Class A1 4.24%(g)	05/25/36		404		398,906
Washington Mutual Asset Securities Corp., Series 05-C1A, Class X (IO) 2.11%(g)(h)	05/25/36		9,791		478,303
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $32,069,470)					31,594,708
ASSET BACKED SECURITIES — 3.3%
Ace Securities Corp., Series 06-HE2, Class A2A 5.38%(i)	05/25/36		573		572,563
Ameriquest Mortgage Securities, Inc., Series 02-3, Class M2 7.20%(i)	08/25/32		131		131,330
Amortizing Residential Collateral Trust, Series 02-BC3, Class M2 6.42%(i)	06/25/32		121		121,925
Amortizing Residential Collateral Trust, Series 02-BC5, Class M2 6.52%(i)	07/25/32		82		82,000
Bank One Issuance Trust, Series 02-A6, Class A 5.51%(i)	06/15/12		1,550		1,558,204
Bank One Issuance Trust, Series 03, Class A3 5.43%(i)	12/15/10		1,450		1,451,933
Capital Auto Receivables Asset Trust, Series 05-1, Class A4 4.05%	07/15/09		1,630		1,622,294
Capital Auto Receivables Asset Trust, Series 06-SN1A, Class A2A 5.40%(g)	01/20/09		2,250		2,250,821
Carrington Mortgage Loan Trust, Series 06-NC4, Class A1 5.37%(i)	10/25/36		999		998,542
Caterpillar Financial Asset Trust, Series 04-A, Class A3 3.13%	01/26/09		105		104,955
Centex Home Equity Loan Trust, Series 03-B, Class M3 8.42%(i)	06/25/33		184		184,741
Centex Home Equity, Series 02-A, Class MF2 6.54%	01/25/32		233		232,206
Chase Funding Mortgage Loan Certificates, Series 03-2, Class 1A4 3.99%	08/25/29		66		65,696
Chase Issuance Trust, Series 06, Class A3 5.31%(i)	07/15/11		1,075		1,075,649
Chase Manhattan Auto Owner Trust, Series 03-B, Class CTFS 2.43%	02/16/10		361		358,114
Citibank Credit Card Issuance Trust, Series 03, Class A6 2.90%	05/17/10		250		243,879

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

94

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
Countrywide Certificates, Series 02-2, Class M2 7.04%(i)	12/25/31	$	8	$	8,009
Countrywide Certificates, Series 03-2, Class M2 6.97%(i)	03/26/33		234		235,354
Countrywide Certificates, Series 03-3, Class B 6.38%(i)	11/25/31		6		6,659
Countrywide Certificates, Series 03-3, Class M6 6.38%(i)	07/25/32		410		414,549
Countrywide Certificates, Series 03-BCI, Class M2 6.85%(i)	09/25/32		61		61,285
Countrywide Certificates, Series 04-13, Class AV4 5.61%(i)	06/25/35		31		30,523
Countrywide Certificates, Series 06-18, Class 2A1 5.37%(i)	07/25/36		1,714		1,713,685
Credit-Based Asset Servicing and Securitization, Series 04-CB4, Class M1 5.77%(i)	05/25/35		275		275,788
General Electric Business Loan Trust, Series 03-1, Class A 5.75%(g)(i)	04/15/31		181		181,820
General Electric Business Loan Trust, Series 03-1, Class B 6.62%(g)(i)	04/15/31		121		122,581
General Electric Business Loan Trust, Series 03-2A, Class B 6.32%(g)(i)	11/15/31		938		936,151
General Electric Business Loan Trust, Series 04-1, Class B 6.02%(g)(i)	05/15/32		200		200,089
Green Tree Financial Corp., Series 96-6, Class A6 7.95%	09/15/27		533		560,973
Green Tree Financial Corp., Series 96-7, Class A6 7.65%	10/15/27		272		281,262
Harley-Davidson Motorcycle Trust, Series 05-2, Class A2 4.07%	02/15/12		1,125		1,109,578
Hedged Mutual Fund Fee Trust, Series 03-1A, Class 2 5.22%(g)	11/30/10		564		569,394
Knollwood CDO Ltd., Series 04-1A, Class C 8.56%(g)(i)	01/10/39		182		180,691
Long Beach Mortgage Loan Trust, Series 03-4, Class M5A 9.32%(i)	08/25/33		56		55,991
Long Beach Mortgage Loan Trust, Series 04-1, Class M5 6.42%(i)	02/25/34		475		477,641
Lothian Mortgages Plc, Series 3A, Class A1 5.50%(d)(g)(i)	07/24/19		124		124,177
Massachusetts RRB Special Purpose Trust, Series 01-1, Class A 6.53%	06/01/15		931		975,232
MBNA Credit Card Master Notes Trust, Series 06-A4, Class A4 5.31%(i)	09/15/11		1,650		1,650,960
Morgan Stanley Capital Investments, Series 06-HE2, Class A2A 5.39%(i)	03/25/36		699		698,816
Nationstar Home Equity Loan Trust, Series 06-B, Class AV1 5.41%	09/25/36		882		882,041
Option One Mortgage Loan Trust, Series 02-6, Class M1 6.44%(i)	11/25/32		46		45,563
Option One Mortgage Loan Trust, Series 02-6, Class M2 7.87%(i)	11/25/32		109		108,715
Option One Mortgage Loan Trust, Series 03-4, Class A4 5.64%(i)	07/25/33		87		87,079
Option One Mortgage Loan Trust, Series 03-4, Class M5A 9.07%(i)	07/25/33		82		82,964
Option One Mortgage Loan Trust, Series 03-5, Class M4 8.22%(i)	08/25/33		41		40,767
Residential Asset Mortgage Products, Inc., Series 03-RZ2, Class B 5.50%(i)	04/25/33		198		197,016
Residential Asset Securities Corp., Series 02-KS4, Class AIIB 5.82%(i)	07/25/32		79		78,647
Residential Asset Securities Corp., Series 03-KS10, Class MII2 6.67%(i)	12/25/33		493		493,081
Residential Asset Securities Corp., Series 04-KS3, Class MII3 7.12%(i)	04/25/34		240		239,764
Structured Asset Investment Loan Trust, Series 03-BC2, Class M2 8.24%(i)	04/25/33		62		61,713
Structured Asset Investment Loan Trust, Series 03-BC3, Class M2 8.24%(i)	04/25/33		100		100,620
USAA Auto Owner Trust, Series 06-2, Class A3 5.32%	09/15/10		1,625		1,628,520
TOTAL ASSET BACKED SECURITIES (Cost $25,962,112)					25,972,550
CORPORATE BONDS — 5.5%
Banks — 0.7%
Bank of America Corp., Capital Securities 8.07%(g)	12/31/26		225		234,294
Bank of America Corp., Subordinated Notes 7.40%	01/15/11		325		350,182

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

95

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued) Banks (Continued)
Citigroup, Inc., Subordinated Notes 5.00%	09/15/14	$	500	$	488,130
6.12%	08/25/36		100		101,570
Citigroup, Inc., Unsecured Notes 4.12%	02/22/10		1,000		978,455
First Union Capital l, Capital Securities 7.94%	01/15/27		325		339,102
HSBC Bank USA, Subordinated Notes 3.87%	06/07/07		1,000		997,115
U.S. Bank N.A., Senior Bank Notes 4.40%	08/15/08		575		568,424
UBS Preferred Funding Trust, Inc., Capital Securities 8.62%(i)(k)			35		38,686
UBS Vimpelcom 8.25%	05/23/16		100		106,603
Wells Fargo & Co., Senior Unsecured Notes 4.20%	01/15/10		1,200		1,174,020
					5,376,581
Broadcasting — 0.1%
Cablevision Systems Corp., Senior Unsecured Notes 9.87%(i)	04/01/09		325		344,500
Charter Communications Holdings II LLC, Unsecured Notes 10.25%	09/15/10		235		247,925
Echostar DBS Corp., Senior Unsecured Notes 7.00%	10/01/13		30		30,900
7.12%	02/01/16		25		25,875
News America Holdings, Inc., Senior Debentures 7.75%	01/20/24		25		28,246
News America, Inc., Senior Debentures 7.28%	06/30/28		35		37,815
News America, Inc., Senior Unsecured Notes 6.20%	12/15/34		100		96,995
					812,256
Chemicals — 0.0%
Equistar Chemicals LP, Senior Unsecured Notes 10.12%	09/01/08		50		52,625
Construction — 0.0%
Goodman Global Holdings, Inc., Senior Unsecured Notes 8.36%(i)	06/15/12		145		146,088
Electronics — 0.0%
L-3 Communications Corp., Senior Subordinated Notes 6.38%	10/15/15		35		34,694
Energy & Utilities — 0.2%
AES Eastern Energy LP, Pass-Through Certificates, Series 99-A 9.00%	01/02/17		221		245,705
CenterPoint Energy, Inc., Senior Unsecured Notes 7.25%	09/01/10		355		374,732
Dominion Resources, Inc., Senior Unsecured Notes 7.20%	09/15/14		200		219,838
Florida Power & Light Co., First Mortgage Bonds 5.62%	04/01/34		150		147,021
NRG Energy, Inc., Senior Unsecured Notes 7.38%	02/01/16		65		66,788
Reliant Energy, Inc., Senior Secured Notes 6.75%	12/15/14		120		126,750
					1,180,834
Entertainment & Leisure — 0.3%
Comcast Cable Holdings LLC, Senior Debentures 7.88%	08/13-02/26		7		7,980
Comcast Cable Holdings LLC, Senior Notes 7.12%	02/15/28		35		37,144
Comcast Corp., Senior Unsecured Notes 7.05%	03/15/33		115		123,464
Comcast Corp., Unsecured Notes 6.50%	01/15/17		850		897,091
CSC Holdings, Inc., Senior Unsecured Notes 8.12%	07/15/09		600		621,000
Harrah’s Operating Co., Inc., Senior Notes 5.75%	10/01/17		150		124,125
Riddell Bell Holdings, Inc., Senior Subordinated Notes 8.38%	10/01/12		110		108,625
Seneca Gaming Corp., Senior Unsecured Notes 7.25%	05/01/12		125		125,781
Station Casinos, Inc., Senior Subordinated Notes 6.62%	03/15/18		70		62,300
Time Warner Cos., Inc., Senior Debentures 7.57%	02/01/24		30		33,150
7.62%(l)	04/15/31		200		224,765
					2,365,425
Finance — 1.2%
Arch Western Finance, Senior Notes 6.75%	07/01/13		400		393,500
ATF Capital BV (Netherlands), Unsecured Notes 9.25%(g)	02/21/14		100		97,625

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

96

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		V ALUE
CORPORATE BONDS (Continued)
Finance (Continued)
Berkshire Hathaway Finance Corp., Senior Unsecured Notes 4.75%	05/15/12	$	355	$	349,626
Berkshire Hathaway, Inc., Senior Unsecured Notes 5.41%(i)	01/11/08		60		60,079
Credit Suisse First Boston USA, Inc., Senior Unsecured Notes 4.12%	01/15/10		350		342,118
Ford Motor Credit Co., Senior Notes 5.80%	01/12/09		235		230,523
9.75%(g)	09/15/10		135		142,201
Ford Motor Credit Co., Senior Unsecured Notes 8.62%	11/01/10		250		255,130
General Electric Capital Corp., Senior Unsecured Notes 6.75%	03/15/32		50		56,652
General Electric Capital Corp., Unsecured Notes 5.46%(i)	07/28/08		150		150,194
5.00%	11/15/11		3,445		3,434,841
JPMorgan Chase & Co., Unsecured Notes 5.60%	06/01/11		550		559,287
Lehman Brothers Holdings, Senior Unsecured Notes 3.95%	11/10/09		375		365,188
Leucadia National Corp., Senior Unsecured Notes 7.12%(g)	03/15/17		200		198,750
Morgan Stanley, Senior Notes 5.61%	01/09/12		1,655		1,654,775
5.62%	01/09/12		205		207,693
Morgan Stanley, Unsecured Notes 5.05%	01/21/11		360		358,340
NSG Holdings LLC, Notes 7.75%(g)	12/15/25		140		146,300
					9,002,822
Insurance — 0.1%
Allstate Financial Global Funding LLC, Unsecured Notes 2.50%(g)	06/20/08		325		314,034
MetLife, Inc., Junior Subordinated Debentures 6.40%(i)	12/15/66		390		380,793
					694,827
Leasing — 0.0%
Rent-A-Center, Senior Subordinated Notes 7.50%	05/01/10		180		181,350
United Rentals N.A., Inc., Senior Subordinated Notes 7.75%	11/15/13		150		154,125
United Rentals N.A., Inc., Senior Unsecured Notes 6.50%	02/15/12		30		29,925
					365,400
Manufacturing — 0.1%
Georgia-Pacific Corp., Senior Unsecured Notes 7.12%(g)	01/15/17		285		285,712
Jarden Corp., Senior Subordinated Notes 7.50%	05/01/17		100		101,000
RBS Global & Rexnord Corp., Senior Subordinated Notes 9.50%	08/01/14		30		31,200
Rexnord LLC, Senior Notes 8.88%(g)	09/01/16		30		30,300
Rock-Tenn Co., Senior Unsecured Notes 8.20%	08/15/11		250		265,000
TRW Automotive, Inc., Senior Unsecured Notes 7.00%(g)	03/15/14		35		34,300
					747,512
Medical & Medical Services — 0.0%
Health Management Plc, Senior Unsecured Notes 6.12%	04/15/16		230		223,713
Tenet Healthcare Corp., Senior Unsecured Notes 9.88%	07/01/14		60		60,600
					284,313
Medical Instruments & Supplies — 0.0%
Coopers Co., Inc., Senior Unsecured Notes 7.12%(g)	02/15/15		250		253,750
Metal & Mining — 0.1%
Freeport-McMoRan Cooper & Gold, Inc., Senior Unsecured Notes 8.55%	04/01/15		130		136,662
8.38%	04/01/17		370		400,063
TRIMAS Corp., Senior Subordinated Notes 9.88%	06/15/12		100		99,875
					636,600
Motor Vehicles — 0.1%
Arvinmeritor, Inc., Unsecured Notes 8.12%	09/15/15		485		481,362
Lear Corp., Senior Unsecured Notes 8.75%	12/01/16		140		133,700
					615,062
Oil & Gas — 0.1%
Colorado Interstate Gas Co., Senior Unsecured Notes 6.80%	11/15/15		35		37,222
Consolidated Natural Gas, Inc., Senior Debentures 5.00%	03/01/14		20		19,397
Exco Resources, Inc., Senior Secured Notes 7.25%	01/15/11		65		65,163

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

97

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		V ALUE
CORPORATE BONDS (Continued)
Oil & Gas (Continued)
Newfield Exploration Co., Senior Subordinated Notes 6.62%	09/14-04/16	$	250	$	250,000
Targa Resources, Inc., Senior Unsecured Notes 8.50%(g)	11/01/13		10		10,200
					381,982
Paper & Forest Products — 0.0%
Newpage Corp., Senior Secured Notes 10.00%	05/01/12		50		54,688
Pharmaceuticals — 0.1%
Bristol-Myers Squibb Co., Senior Debentures 6.88%	08/01/47		25		26,557
Bristol-Myers Squibb Co., Unsecured Notes 5.88%	11/15/36		250		245,000
Merck & Co., Inc., Senior Unsecured Notes 4.38%	02/15/13		410		393,162
					664,719
Real Estate — 0.1%
American Real Estate Partners LP, Senior Unsecured Notes 7.12%(g)	02/15/13		380		375,250
The Rouse Co., Senior Unsecured Notes (REIT) 6.75%(g)	05/01/13		375		382,174
The Rouse Co., Unsecured Notes (REIT) 3.62%	03/15/09		400		381,339
					1,138,763
Restaurants — 0.0%
Landry’s Restaurants, Inc., Senior Unsecured Notes 7.50%	12/15/14		120		118,200
Retail Merchandising — 0.1%
Michaels Stores, Inc., Senior Subordinated Notes 11.38%(c)(g)	11/01/16		100		107,750
Rite Aid Corp., Notes 7.50%	03/01/17		290		286,375
					394,125
Telecommunications — 0.5%
American Tower Corp., Senior Subordinated Notes 7.25%	12/01/11		450		463,500
American Tower Corp., Senior Unsecured Notes 7.50%	05/01/12		800		830,000
Cincinnati Bell, Inc., Senior Unsecured Notes 7.25%	07/15/13		520		539,500
Citizens Communications Co., Senior Unsecured Notes 7.88%(g)	01/15/27		150		153,375
Qwest Corp., Senior Unsecured Notes 7.88%	09/01/11		100		106,250
Qwest Corp., Unsecured Notes 8.60%(i)	06/15/13		75		81,750
SBC Communications, Inc., Unsecured Notes 4.21%(g)	06/05/21		1,125		1,124,876
Shaw Communications, Inc., Unsecured Notes 7.20%	12/15/11		175		185,500
Sprint Nextel Corp., Unsecured Notes 6.00%	12/01/16		250		246,027
Superior Essex Communications & Essex Group, Senior Notes 9.00%	04/15/12		425		438,812
Verizon Maryland, Inc., Debentures 5.12%	06/15/33		10		8,344
					4,177,934
Tires & Rubber — 0.0%
Goodyear Tire & Rubber Co., Senior Notes 8.62%(g)	12/01/11		230		247,250
Waste Management — 0.0%
Aleris International, Inc., Senior Unsecured Notes 9.00%(g)	12/15/14		230		242,650
Yankee — 1.7%
AID-Israel (Israel), Unsecured Notes 5.50%(m)	04/24-09/33		185		192,640
Ainsworth Lumber Co. Ltd. (Canada), Senior Unsecured Notes 9.10%(c)(i)(m)	10/01/10		400		318,000
America Movil SA de CV (Mexico), Unsecured Notes 6.38%(m)	03/01/35		75		73,879
Banco Central de la Republica Dominicana (Dominican Republic), Unsecured Notes 9.04%(m)	01/23/18		33		37,806
Banque Centrale de Tunisie (Tunisia), Senior Unsecured Notes 7.38%(m)	04/25/12		425		461,125
ConocoPhillips Funding Co. (Australia), Unsecured Notes 5.46%(i)(m)	04/09/09		1,485		1,485,493
Depfa ACS Bank (Ireland), Senior Notes 3.62%(m)	10/29/08		150		146,805
Deutsche Telekom International Finance BV (Netherlands), Senior Unsecured Notes 8.25%(m)	06/15/30		105		130,059
Domtar, Inc. (Canada), Senior Unsecured Notes 7.12%(m)	08/15/15		100		99,500
Domtar, Inc. (Canada), Unsecured Notes 5.38%(m)	12/01/13		100		92,125

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

98

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Yankee (Continued)
Eksportfinans ASA (Norway), Unsecured Notes 3.38%(m)	01/15/08	$	155	$	152,724
Ford Capital BV (Netherlands), Debentures 9.50%(m)	06/01/10		390		390,000
Gazprom Capital (Luxembourg), Bonds 6.51%(g)(m)	03/07/22		100		101,500
Gazprom Capital (Luxembourg), Unsecured Notes 9.62%(g)(m)	03/01/13		200		236,500
6.21%(g)(m)	11/22/16		190		190,095
Ispat Inland ULC (Canada), Senior Secured Notes 9.75%(m)	04/01/14		10		11,036
Kazkommerts International BV (Netherlands), Notes 8.00%(m)	11/03/15		640		647,232
Nationwide Building Society (United Kingdom), Senior Unsecured Notes 3.50%(g)(m)	07/31/07		75		74,536
Norske Skog Canada Ltd. (Canada), Senior Unsecured Notes 8.62%(m)	06/15/11		50		50,750
Republic of Argentina Bonds 8.28%(m)	12/31/33		123		142,621
Republic of Argentina, Notes 5.48%(i)(m)	08/03/12		720		517,320
Republic of Brazil 8.25%(m)	01/20/34		100		125,500
Republic of Brazil Bonds 8.00%(m)	01/15/18		330		372,735
11.00%(m)	08/17/40		195		263,055
Republic of Brazil, Unsecured Notes 10.25%(m)	06/17/13		50		62,325
Republic of Colombia Bonds 8.12%(m)	05/21/24		85		99,025
7.38%(m)	09/18/37		170		185,045
Republic of Indonesia Bonds 6.62%(g)(m)	02/17/37		100		98,500
Republic of Panama, Debentures 8.88%(m)	09/30/27		95		121,030
Republic of Panama, Unsecured Notes 7.12%(m)	01/29/26		170		183,600
Republic of Peru Bonds 6.55%(m)	03/14/37		290		301,020
Republic of Peru, Unsecured Notes 9.88%(m)	02/06/15		85		108,078
8.38%(m)	05/03/16		120		142,500
8.75%(m)	11/21/33		135		177,525
Republic of Philippines, Senior Unsecured Notes 9.00%(m)	02/15/13		370		425,963
Republic of Philippines, Unsecured Notes 8.25%(m)	01/15/14		370		414,863
Republic of Turkey Bonds 8.00%(m)	02/14/34		70		76,213
Republic of Turkey, Unsecured Notes 6.88%(m)	03/17/36		295		282,094
Republic of Venezuela Bonds 9.25%(m)	09/15/27		375		471,562
Republic of Venezuela, Unsecured Notes 8.50%(m)	10/08/14		200		222,700
7.65%(m)	04/21/25		60		63,630
Rogers Wireless, Inc. (Canada), Senior Secured Notes 7.50%(m)	03/15/15		500		541,875
Russian Agricultural Bank (Luxembourg), Senior Unsecured Notes 7.18%(g)(m)	05/16/13		100		105,625
Suncor Energy, Inc. (Canada) 5.95%(m)	12/01/34		20		20,077
Telecom Italia Capital (Luxembourg), Senior Unsecured Notes 4.95%(m)	09/30/14		475		447,447
7.20%(m)	07/18/36		175		182,195
Telefonica Emisiones Sau (Spain), Senior Unsecured Notes 6.42%(m)	06/20/16		150		156,559
7.04%(m)	06/20/36		150		160,183
Turanalem Finance BV (Netherlands), Unsecured Notes 8.25%(g)(m)	01/22/37		150		150,750
United Mexican States (Mexico), Senior Unsecured Notes 6.75%(m)	09/27/34		630		687,015
Vale Overseas Ltd. (Brazil), Unsecured Notes 6.88%(m)	11/21/36		220		227,191
Vodafone Group Plc (United Kingdom), Senior Unsecured Notes 7.75%(m)	02/15/10		125		133,423
VTB Capital SA (Luxembourg), Unsecured Notes 7.50%(m)	10/12/11		110		117,416
Wind Acquisition Finance SA (Luxembourg), Senior Unsecured Notes 10.75%(g)(m)	12/01/15		115		131,675
					12,810,140
TOTAL CORPORATE BONDS (Cost $42,516,582)					42,799,240
FOREIGN BONDS — 0.3%
Gazprom Capital (Luxembourg), Unsecured Notes (EUR) 5.88%(g)	06/01/15		250		346,341

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

99

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)			VALUE
FOREIGN BONDS (Continued)
Kreditanstalt Fur Wiederaufbaure (Germany), Unsecured Notes (JPY) 0.32%	08/08/11	$	66,000		$	560,120
Mexican Fixed Rate Bonds (MXP) 9.00%	12/22/11-12/20/12		2,810			271,763
8.00%	12/19/13		1,630			151,839
Republic of El Salvador, Unsecured Notes (USD) 7.65%(g)	06/15/35		55			62,837
Republic of Finland, Senior Unsecured Notes (JPY) 0.30%	10/18/07		54,400			460,396
Russian Federation, Unsecured Notes (USD) 12.75%(g)	06/24/28		120			218,160
Ukraine Government, Unsecured Notes (USD) 6.58%(g)	11/21/16		100			101,350
TOTAL FOREIGN BONDS (Cost $2,128,852)						2,172,806
TAXABLE MUNICIPAL BONDS — 0.1%
Atlantic Marine Corp. Communities, Notes (Delaware) 5.34%(g)	12/01/45		600			567,090
Ohana Hawaii Military Communities LLC, Military Housing Revenue Bonds (Navy Housing Privatization Project), Series 04-A, Class 1 6.19%	04/01/49		25			26,716
TOTAL TAXABLE MUNICIPAL BONDS (Cost $625,000)						593,806
		PAR/SHARES (000)
SHORT TERM INVESTMENTS — 6.9%
Alpine Securitization Corp. 5.25%(f)	05/02/07		4,000			3,981,916
Amsterdam Funding Corp. 5.26%	04/10/07		3,995			3,989,745
Beethoven Funding Corp. 5.26%	04/05/07		5,800			5,796,610
CRC Funding LLC 5.25%	04/03/07		8,500			8,497,521
Federal Home Loan Bank, Discount Notes 4.97%(n)	04/02/07		1,000			999,860
Lake Constance Funding 5.27%	04/18/07		9,000			8,977,604
U.S. Treasury Bills 5.06%(n)	04/05/07		12,000			11,993,250
5.10%(n)	04/12/07		2,100			2,096,731
Galileo Money Market Fund, 5.02%			7,002			7,002,280
TOTAL SHORT TERM INVESTMENTS (Cost $53,335,517)						53,335,517
		NUMBER OF CONTRACTS
CALL SWAPTIONS PURCHASED — 0.0%
Barclays Capital, Strike Rate 5.520%, Expires 09/19/16			240	(o)		123,078
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12			330	(o)		116,589
TOTAL CALL SWAPTIONS PURCHASED (Cost $278,514)						239,667
PUT OPTIONS PURCHASED — 0.0%
June 10 year U.S. Treasury Notes futures, Strike Price $105, Expires 05/25/07 (Cost $11,888)			27			844
PUT SWAPTIONS PURCHASED — 0.1%
Barclays Capital, Strike Rate 5.520%, Expires 09/21/15			240	(o)		143,559
Goldman Sachs, Strike Rate 5.350%, Expires 04/30/07			300	(o)		4,786
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12			330	(o)		147,840
TOTAL PUT SWAPTIONS PURCHASED (Cost $307,575)						296,185
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 105.7% (Cost $707,647,198)						819,806,822
	MATURITY	PAR/SHARES (000)
SECURITIES LENDING COLLATERAL — 1.8%
Bank of America Corp., Master Notes 5.51%(i)(p)	04/02/07	$	6,724			6,724,323
The Bear Stearns Cos., Inc., Variable Rate Commercial Paper 5.51%(i)(p)	04/02/07		1,261			1,261,217
Citigroup, Inc., Master Notes 5.51%(i)(p)	04/02/07		2,053			2,052,912
Morgan Stanley, Variable Rate Commercial Paper 5.50%(i)(p)	04/02/07		4,176			4,175,690
TOTAL SECURITIES LENDING COLLATERAL (Cost $14,214,142)						14,214,142
AFFILIATED INVESTMENTS - SHORT TERM — 9.2%
Institutional Money Market Trust, 4.80%(p)
(Cost $71,392,028)			71,392			71,392,028
TOTAL INVESTMENTS IN SECURITIES — 116.7% (Cost $793,253,368(a))						905,412,992

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

100

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ASSET ALLOCATION PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)			VALUE
MORTGAGE PASS-THROUGH TBA SALE COMMITMENTS — (3.3)%
Federal Home Loan Mortgage Corp. Gold 15 Year 4.50%	04/01/22	$	(300	)	$	(290,344	)
Federal National Mortgage Assoc. 15 Year 5.00%	04/01/22		(5,000	)		(4,929,690	)
Federal National Mortgage Assoc. 30 Year 5.50%	04/01/37		(13,000	)		(12,861,875	)
6.00%	04/01/37		(1,200	)		(1,208,625	)
6.50%	04/01/37		(3,000	)		(3,060,000	)
Federal National Mortgage Assoc., 15 Year 5.50%	04/01/22		(3,000	)		(3,006,564	)
TOTAL MORTGAGE PASS-THROUGH TBA SALE COMMITMENTS (Premiums received $25,424,180)						(25,357,098	)
		NUMBER OF CONTRACTS
CALL SWAPTIONS WRITTEN — (0.1)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08			(320	)(o)		(60,860	)
Chase Securities, Strike Rate 5.485%, Expires 10/26/09			(140	)(o)		(51,326	)
Citibank, Strike Rate 5.670%, Expires 01/04/10			(50	)(o)		(21,996	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08			(330	)(o)		(56,760	)
Union Bank, Strike Rate 5.340%, Expires 02/06/09			(690	)(o)		(200,307	)
TOTAL CALL SWAPTIONS WRITTEN (Premiums received $475,595)						(391,249	)
PUT SWAPTIONS WRITTEN — 0.0%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08			(320	)(o)		(60,860	)
Chase Securities, Strike Rate 5.485%, Expires 10/26/09			(140	)(o)		(39,356	)
Citibank, Strike Rate 5.670%, Expires 01/04/10			(50	)(o)		(12,006	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08			(330	)(o)		(82,434	)
Union Bank, Strike Rate 5.340%, Expires 02/06/09			(690	)(o)		(187,611	)
TOTAL PUT SWAPTIONS WRITTEN (Premiums received $475,595)						(382,267	)
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (11.0)%						(85,606,170	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (2.3)%						(17,789,963	)
NET ASSETS — 100.0%					$	775,886,245

(a) Cost for federal income tax purposes is $797,113,232. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	116,215,902
Gross unrealized depreciation		(7,916,142	)
	$	108,299,760

(b) Non-income producing security.

(c) Total or partial security on loan.

(d) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. As of March 31, 2007, these securities had a total market value of $1,674,628 which represents 0.2% of net assets.

(e) Security restricted as to public resale. These securities are ineligible for resale into the public market until such time that either (i) a resale Registration Statement has been filed with the SEC and declared effective or (ii) resale is permitted under Rule 144A without the need for an effective registration statement. As of March 31, 2007, the Portfolio held 0.1% of its net assets, with a current market value of $754,479 and an original cost of $456,780 in these securities.

(f) Security is illiquid. As of March 31, 2007, the Portfolio held 0.6% of its net assets, with a current marketvalue of $4,712,862 in these securities.

(g) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 1.9% of its net assets, with a current market value of $14,764,786 in securities restricted as to resale.

(h) Rates shown are the effective yields as of March 31, 2007.

(i) Variable rate security. Rate shown is the rate as of March 31, 2007.

(j) Interest rate of underlying collateral.

(k) The security is a perpetual bond and has no stated maturity date.

(l) Security, or a portion thereof, pledged as collateral with a value of $224,765 on 152 long U.S. Treasury Note futures contracts, 355 short U.S. Treasury Note futures contracts, 92 long U.S. Treasury Bond futures contracts, 16 long Eurodollar futures contracts, 33 long DAX index futures contracts, 70 long FTSE/JSE top 40 index futures contracts, 6 long S&P 500 index futures contracts, 36 long SPI 200 index futures contracts and 15 long TOPIX index futures contracts expiring June 2007 and 18 long H-Shares index futures contracts expiring April 2007 and 39 short Eurodollar futures contracts expiring December 2007. The value of such contracts on March 31, 2007 was $95,548,381 with an unrealized gain of $333,403 (including commissions of $2,041).

(m) U.S. dollar denominated security issued by foreign domiciled entity.

(n) The rate shown is the effective yield at the time of purchase.

(o) Each swaption contract is equivalent to $10,000 notional amount.

(p) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

101

BLACKROCK FUNDS

	KEY TO INVESTMENT ABBREVIATIONS
ADR	American Depository Receipts
IO	Interest Only
LP	Limited Partnership
PO	Principal Only
REIT	Real Estate Investment Trust
TBA	To Be Announced

102

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BLACKROCK FUNDS

STATEMENTS OF ASSETS AND LIABILITIES

AS OF MARCH 31, 2007 (UNAUDITED)

	INVESTMENT TRUST PORTFOLIO			CAPITAL APPRECIATION			MID-CAP VALUE EQUITY PORTFOLIO		MID-CAP GROWTH EQUITY PORTFOLIO			AURORA PORTFOLIO		SMALL/MID-CAP GROWTH PORTFOLIO
ASSETS
Investments at value1,2	$	1,152,947,173		$	241,024,831		$	1,086,979,133	$	396,453,101		$	1,733,625,678	$	275,301,340
Collateral received from securities loaned-unaffiliated, at value3		31,771,246			13,083,786			25,038,919		6,987,981			1,844,247		339,732
Collateral received from securities loaned-affiliated, at value4		128,277,219			28,917,616			154,241,277		96,726,125			235,843,986		64,037,142
Cash denominated in foreign currencies5		—			—			—		—			595,028		—
Dividends and reclaims receivable		1,704,158			290,414			751,897		163,569			1,136,731		42,859
Interest receivable		40,909			53,491			61,824		17,349			64,681		25,459
Investments sold receivable		—			498,384			28,202,804		—			62,393,538		—
Receivable from advisor		60,948			1,533			93,136		7,495			4,938		32,691
Capital shares sold receivable		62,541			127,809			2,092,292		53,243			1,288,879		315,893
Prepaid expenses		51,484			38,938			69,160		42,449			69,763		34,079
Futures margin receivable		580			—			—		—			—		—
TOTAL ASSETS		1,314,916,258			284,036,802			1,297,530,442		500,451,312			2,036,867,469		340,129,195
LIABILITIES
Payable upon return of securities loaned		160,048,465			42,001,402			179,280,196		103,714,106			237,688,233		64,376,874
Investments purchased payable		—			519,684			48,323,631		2,091,450			61,326,148		1,967,683
Capital shares redeemed payable		2,563,868			498,843			2,091,483		1,113,454			9,028,641		1,328,443
Options written, at fair value6		—			—			645,600		—			—		—
Futures margin payable		2,475			—			—		—			—		—
Unrealized depreciation on forward foreign currency contracts		—			—			—		—			2,184		—
Advisory fees payable		525,734			108,772			676,190		262,500			1,233,578		170,240
Administration fees payable		75,457			17,909			60,245		24,671			111,055		17,531
Transfer agent fees payable		551,262			159,811			231,865		278,147			1,881,780		390,702
Custodian fees payable		16,813			2,111			10,297		6,135			386		2,183
Distribution fees payable		129,894			53,944			185,164		40,594			397,101		27,731
Officers’ and trustees’ fees payable		153			49			113		65			224		43
Other accrued expenses payable		392,749			107,913			305,641		175,677			855,026		119,121
TOTAL LIABILITIES		164,306,870			43,470,438			231,810,425		107,706,799			312,524,356		68,400,551
NET ASSETS	$	1,150,609,388		$	240,566,364		$	1,065,720,017	$	392,744,513		$	1,724,343,113	$	271,728,644
1Cost of investments	$	877,661,060		$	200,947,759		$	912,855,695	$	316,557,313		$	1,518,787,089	$	225,612,686
2Market value of securities loaned		155,179,458			40,490,319			171,068,287		100,035,404			228,829,153		62,088,247
3Cost of collateral received from securities loaned-unaffiliated		31,771,246			13,083,786			25,038,919		6,987,981			1,844,247		339,732
4Cost of collateral received from securities loaned-affiliated		128,277,219			28,917,616			154,241,277		96,726,125			235,843,986		64,037,142
5Cost of Investment - foreign currencies		—			—			—		—			592,136		—
6Premiums received - written options		—			—			614,175		—			—		—
AT MARCH 31, 2007, NET ASSETS CONSISTED OF:
Capital paid in	$	945,587,549		$	277,846,180		$	869,327,600	$	516,519,657		$	1,320,553,830	$	203,535,670
Undistributed net investment income (distributions in excess of net investment income)		5,326,394			(409,850	)		1,330,747		(2,304,190	)		2,205,286		(1,448,849	)
Accumulated net realized gain (loss)		(75,926,232	)		(76,947,038	)		20,969,657		(201,366,742	)		186,744,574		19,953,169
Net unrealized appreciation		275,621,677			40,077,072			174,092,013		79,895,788			214,839,423		49,688,654
	$	1,150,609,388		$	240,566,364		$	1,065,720,017	$	392,744,513		$	1,724,343,113	$	271,728,644

104

BLACKROCK FUNDS

	INVESTMENT TRUST PORTFOLIO			CAPITAL APPRECIATION			MID-CAP VALUE EQUITY PORTFOLIO			MID-CAP GROWTH EQUITY PORTFOLIO			AURORA PORTFOLIO			SMALL/MID-CAP GROWTH PORTFOLIO
Institutional Shares:
Net Assets	$	465,853,779		$	54,279,816		$	161,288,499		$	70,054,391		$	175,451,694		$	26,211,240
Shares outstanding, unlimited number of shares authorized, $0.001 par value		31,096,033			3,435,515			11,620,042			5,894,609			5,771,115			1,597,204
Net Asset Value, offering and redemption price per share	$	14.98		$	15.80		$	13.88		$	11.88		$	30.40		$	16.41
Service Shares:
Net Assets	$	988,754		$	21,373		$	3,784,094		$	695,779		$	16,350	(a)	$	21,532	(b)
Shares outstanding, unlimited number of shares authorized, $0.001 par value		65,724			1,399			276,385			61,173			577	(a)		1,388	(b)
Net Asset Value, offering and redemption price per share	$	15.04		$	15.28		$	13.69		$	11.37		$	28.36		$	15.52
Investor A Shares:
Net Assets	$	483,809,817		$	111,384,287		$	606,416,972		$	258,466,817		$	1,003,839,766		$	205,820,258
Shares outstanding, unlimited number of shares authorized, $0.001 par value		32,714,031			7,289,154			44,726,610			23,332,669			35,394,251			13,263,999
Net Asset Value and redemption price per share	$	14.79		$	15.28		$	13.56		$	11.08		$	28.36		$	15.52
Maximum Sales Charge		5.25	%		5.25	%		5.25	%		5.25	%		5.25	%		5.25	%
Maximum offering price per share	$	15.61		$	16.13		$	14.31		$	11.69		$	29.93		$	16.38
Investor B Shares:
Net Assets	$	181,607,017		$	60,266,212		$	130,294,361		$	45,878,411		$	299,479,310		$	22,354,469
Shares outstanding, unlimited number of shares authorized, $0.001 par value		12,860,787			4,222,039			10,371,816			4,574,674			12,567,222			1,638,229
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 4.50%)	$	14.12		$	14.27		$	12.56		$	10.03		$	23.83		$	13.65
Investor C Shares:
Net Assets	$	18,350,021		$	14,614,676		$	163,936,091		$	17,626,771		$	245,539,823		$	17,299,752
Shares outstanding, unlimited number of shares authorized, $0.001 par value		1,298,285			1,022,428			13,067,459			1,757,619			10,305,335			1,265,086
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 1.00%)	$	14.13		$	14.29		$	12.55		$	10.03		$	23.83		$	13.67
R Shares:
Net Assets	$	—		$	—		$	—		$	22,344		$	16,170		$	21,393
Shares outstanding, unlimited number of shares authorized, $0.001 par value		—			—			—			2,016			571			1,380
Net Asset Value, offering and redemption price per share	$	—		$	—		$	—		$	11.08		$	28.33		$	15.50

^(a) Exact net assets and shares outstanding at March 31, 2007 were $16,349.60 and 576.555, respectively.

^(b) Exact net assets and shares outstanding at March 31, 2007 were $21,531.58 and 1,387.581, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

105

BLACKROCK FUNDS

STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

	SMALL CAP VALUE EQUITY PORTFOLIO			SMALL CAP CORE EQUITY PORTFOLIO			SMALL CAP GROWTH EQUITY PORTFOLIO			GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO			GLOBAL RESOURCES PORTFOLIO			ALL-CAP GLOBAL RESOURCES PORTFOLIO
ASSETS
Investments at value1,2	$	82,339,797		$	88,546,612		$	769,545,962		$	32,921,994		$	868,669,022		$	948,751,719
Collateral received from securities loaned-unaffiliated, at value3		102,155			3,240,638			16,630,470			650,539			20,697,119			13,245,405
Collateral received from securities loaned-affiliated, at value4		14,358,217			20,764,379			157,550,370			6,958,489			188,675,253			201,901,845
Cash denominated in foreign currencies5		—			—			—			533,770			5,431,237			56,487
Dividends and reclaims receivable		166,212			36,953			59,850			29,075			468,910			949,513
Interest receivable		9,212			13,399			80,743			1,574			41,890			74,079
Investments sold receivable		937,062			1,551,012			4,797,069			265,856			—			23,994,301
Receivable from advisor		701			—			801			4,315			2,942			12,556
Capital shares sold receivable		12,753			420,158			831,690			97,949			2,342,915			3,069,065
Prepaid expenses		39,184			40,295			56,317			39,600			72,970			98,280
Unrealized appreciation on forward foreign currency contracts		—			—			—			54,359			2,612			3,330
TOTAL ASSETS		97,965,293			114,613,446			949,553,272			41,557,520			1,086,404,870			1,192,156,580
LIABILITIES
Payable upon return of securities loaned		14,460,372			24,005,017			174,180,840			7,609,028			209,372,372			215,147,250
Investments purchased payable		775,048			807,788			18,021,613			411,419			970,661			24,593,271
Capital shares redeemed payable		182,267			221,983			1,142,104			260,041			2,304,441			1,902,699
Foreign taxes payable		—			—			—			4,428			64			4,819
Unrealized depreciation on forward foreign currency contracts		—			—			—			48,228			440,139			193,509
Advisory fees payable		37,897			91,497			346,373			9,313			539,949			583,554
Administration fees payable		6,703			7,682			60,527			2,355			54,566			75,202
Transfer agent fees payable		48,948			18,155			112,620			41,324			361,888			34,099
Custodian fees payable		16,061			2,893			8,460			265			133,470			45,116
Distribution fees payable		6,945			23,544			19,148			11,377			142,416			121,495
Officers’ and trustees’ fees payable		29			20			96			29			579			101
Other accrued expenses payable		43,472			33,655			156,041			21,765			382,649			208,990
TOTAL LIABILITIES		15,577,742			25,212,234			194,047,822			8,419,572			214,703,194			242,910,105
NET ASSETS	$	82,387,551		$	89,401,212		$	755,505,450		$	33,137,948		$	871,701,676		$	949,246,475
1Cost of investments	$	72,727,811		$	77,213,605		$	611,422,411		$	27,801,975		$	518,323,108		$	832,997,910
2Market value of securities loaned		13,916,340			23,020,730			167,092,262			7,381,443			191,376,547			206,848,906
3Cost of collateral received from securities loaned-unaffiliated		102,155			3,240,638			16,630,470			650,539			20,697,119			13,245,405
4Cost of collateral received from securities loaned-affiliated		14,358,217			20,764,379			157,550,370			6,958,489			188,675,253			201,901,845
5Cost of investments - foreign currencies		—			—			—			536,419			5,464,586			56,361
AT MARCH 31, 2007, NET ASSETS CONSISTED OF:
Capital paid in	$	68,841,918		$	74,285,695		$	1,145,760,436		$	103,343,181		$	486,406,362		$	842,620,081
Undistributed net investment income (distributions in excess of net investment income)		(1,488,558	)		(595,120	)		(1,455,014	)		(298,448	)		(9,178,687	)		1,874,100
Accumulated net realized gain (loss)		5,422,205			4,377,630			(546,923,523	)		(75,030,548	)		44,599,666			(10,823,270	)
Net unrealized appreciation (depreciation)		9,611,986			11,333,007			158,123,551			5,123,763			349,874,335			115,575,564
	$	82,387,551		$	89,401,212		$	755,505,450		$	33,137,948		$	871,701,676		$	949,246,475

106

BLACKROCK FUNDS

	SMALL CAP VALUE EQUITY PORTFOLIO			SMALL CAP CORE EQUITY PORTFOLIO			SMALL CAP GROWTH EQUITY PORTFOLIO			GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO			GLOBAL RESOURCES PORTFOLIO			ALL-CAP GLOBAL RESOURCES PORTFOLIO
BlackRock Shares:
Net Assets	$	4,963,295		$	—		$	—		$	—		$	—		$	—
Shares outstanding, unlimited number of shares authorized, $0.001 par value		416,531			—			—			—			—			—
Net Asset Value, offering and redemption price per share	$	11.92		$	—		$	—		$	—		$	—		$	—
Institutional Shares:
Net Assets	$	35,751,165		$	23,067,930		$	508,869,492		$	1,258,466		$	34,204,749		$	470,548,235
Shares outstanding, unlimited number of shares authorized, $0.001 par value		2,997,055			1,130,671			23,431,218			164,437			609,081			30,231,901
Net Asset Value, offering and redemption price per share	$	11.93		$	20.40		$	21.72		$	7.65		$	56.16		$	15.56
Service Shares:
Net Assets	$	2,278,725		$	4,135,505		$	29,295,152		$	77,500		$	—		$	2,643,980
Shares outstanding, unlimited number of shares authorized, $0.001 par value		195,802			203,965			1,415,164			10,332			—			171,406
Net Asset Value, offering and redemption price per share	$	11.64		$	20.28		$	20.70		$	7.50		$	—		$	15.43
Investor A Shares:
Net Assets	$	28,915,487		$	25,432,995		$	186,738,946		$	13,681,325		$	626,428,054		$	273,030,008
Shares outstanding, unlimited number of shares authorized, $0.001 par value		2,506,679			1,264,724			9,266,811			1,842,740			11,973,862			17,704,798
Net Asset Value and redemption price per share	$	11.54		$	20.11		$	20.15		$	7.42		$	52.32		$	15.42
Maximum Sales Charge		5.25	%		5.25	%		5.25	%		5.25	%		5.25	%		5.25	%
Maximum offering price per share	$	12.18		$	21.22		$	21.27		$	7.83		$	55.22		$	16.27
Investor B Shares:
Net Assets	$	6,250,265		$	8,695,681		$	11,045,315		$	8,834,717		$	78,519,411		$	46,467,949
Shares outstanding, unlimited number of shares authorized, $0.001 par value		649,880			444,100			614,026			1,255,746			1,734,488			3,060,693
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 4.50%)	$	9.62		$	19.58		$	17.99		$	7.04		$	45.27		$	15.18
Investor C Shares:
Net Assets	$	4,228,614		$	28,069,101		$	19,556,545		$	9,285,940		$	132,549,462		$	156,556,303
Shares outstanding, unlimited number of shares authorized, $0.001 par value		439,945			1,432,768			1,084,428			1,319,437			2,929,906			10,299,866
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 1.00%)	$	9.61		$	19.59		$	18.03		$	7.04		$	45.24		$	15.20

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

107

BLACKROCK FUNDS

STATEMENTS OF ASSETS AND LIABILITIES (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

	HEALTH SCIENCES OPPORTUNITIES PORTFOLIO		U.S. OPPORTUNITIES PORTFOLIO		GLOBAL OPPORTUNITIES PORTFOLIO		INTERNATIONAL OPPORTUNITIES PORTFOLIO		ASSET ALLOCATION PORTFOLIO
ASSETS
Investments at value1,2	$	1,177,428,164	$	329,546,500	$	60,340,344	$	1,378,031,290	$	819,806,822
Collateral received from securities loaned-unaffiliated, at value3		6,881,291		5,382,994		—		—		14,214,142
Collateral received from securities loaned-affiliated, at value4		70,841,993		54,533,177		—		7,227,000		71,392,028
Collateral received for futures contracts		—		—		—		—		1,250,000
Cash denominated in foreign currencies5		1,093		—		1,472,944		18,664,899		5,510,966
Dividends and reclaims receivable		857,761		224,719		122,101		3,598,204		1,028,563
Interest receivable		57,080		48,977		12,353		40,019		1,500,015
Principal paydown receivable		—		—		—		—		17,869
Investments sold receivable		59,074,348		7,290,682		532,186		4,599,517		50,369,308
Receivable from advisor		25,318		4,011		12,311		—		246
Capital shares sold receivable		4,274,940		2,059,282		116,480		3,705,311		510,152
Prepaid expenses		67,589		56,703		58,877		56,217		51,189
Unrealized appreciation on forward foreign currency contracts		16,162		—		244,327		6,479,441		298,625
Unrealized appreciation on interest rate swaps		—		—		—		—		970,218
Futures margin receivable		—		—		—		—		71,250
TOTAL ASSETS		1,319,525,739		399,147,045		62,911,923		1,422,401,898		966,991,393
LIABILITIES
Payable upon return of securities loaned		77,723,284		59,916,171		—		7,227,000		85,606,170
Investments purchased payable		153,365,866		15,072,720		1,816,099		5,200,668		66,996,381
Interest payable		—		—		—		—		49,050
Capital shares redeemed payable		2,834,462		467,340		69,647		3,765,023		1,732,324
Options and swaptions written, at fair value6		—		—		—		—		773,516
Premiums received for swap contracts		—		—		—		—		11,169
Mortgage Pass-Throughs TBA sale commitments, at value7		—		—		—		—		25,357,098
Other accrued expenses payable		—		—		—		—		8,686,828
Foreign taxes payable		22,444		23		1,202		25,675		2,158
Futures margin payable		—		—		—		—		31,631
Unrealized depreciation on forward foreign currency contracts		228,410		—		95,931		2,404,726		151,503
Unrealized depreciation on interest rate swaps		—		—		—		—		481,676
Advisory fees payable		669,311		217,327		40,638		1,126,858		359,194
Administration fees payable		80,355		24,230		3,565		102,913		62,073
Transfer agent fees payable		3,174		15,489		85,558		170,843		259,013
Custodian fees payable		16,421		9,395		26,954		110,606		51,956
Distribution fees payable		237,896		63,408		11,914		204,599		167,363
Officers’ and trustees’ fees payable		120		32		21		139		98
Other accrued expenses payable		280,383		88,159		49,898		389,760		325,947
TOTAL LIABILITIES		235,462,126		75,874,294		2,201,427		20,728,810		191,105,148
NET ASSETS	$	1,084,063,613	$	323,272,751	$	60,710,496	$	1,401,673,088	$	775,886,245

108

BLACKROCK FUNDS

	HEALTH SCIENCES OPPORTUNITIES PORTFOLIO			U.S. OPPORTUNITIES PORTFOLIO			GLOBAL OPPORTUNITIES PORTFOLIO			INTERNATIONAL OPPORTUNITIES PORTFOLIO			ASSET ALLOCATION PORTFOLIO
1Cost of investments	$	1,083,291,991		$	287,724,192		$	53,331,325		$	1,036,413,508		$	707,647,198
2Market value of securities loaned		57,309,527			57,765,688			—			6,949,675			82,507,873
3Cost of collateral received from securities loaned-unaffiliated		6,881,291			5,382,994			—			—			14,214,142
4Cost of collateral received from securities loaned-affiliated		70,841,993			54,533,177			—			7,227,000			71,392,028
5Cost of investments - foreign currencies		1,069			—			1,514,767			18,655,078			5,455,484
6Premiums received - options and swaptions written		—			—			—			—			951,190
7Proceeds - Mortgage Pass-Throughs TBA sale commitments		—			—			—			—			25,424,180
AT MARCH 31, 2007, NET ASSETS CONSISTED OF:
Capital paid in	$	968,096,965		$	361,547,872		$	53,975,896		$	958,682,815		$	660,532,368
Undistributed net investment income (distributions in excess of net investment income)		(690,219	)		(431,880	)		(73,073	)		(2,037,214	)		2,217,948
Accumulated net realized gain (loss)		22,754,642			(79,665,549	)		(307,745	)		99,310,462			(456,759	)
Net unrealized appreciation		93,902,225			41,822,308			7,115,418			345,717,025			113,592,688
	$	1,084,063,613		$	323,272,751		$	60,710,496		$	1,401,673,088		$	775,886,245
Institutional Shares:
Net Assets	$	138,308,148		$	56,539,561		$	12,054,525		$	425,915,901		$	34,718,738
Shares outstanding, unlimited number of shares authorized, $0.001 par value		5,101,672			1,714,370			1,046,435			9,564,714			2,161,424
Net Asset Value, offering and redemption price per share	$	27.11		$	32.98		$	11.52		$	44.53		$	16.06
Service Shares:
Net Assets	$	5,451,795		$	7,390,011		$	34,395		$	151,299,879		$	2,285,581
Shares outstanding, unlimited number of shares authorized, $0.001 par value		204,563			230,841			2,994			3,499,276			142,598
Net Asset Value, offering and redemption price per share	$	26.65		$	32.01		$	11.49		$	43.24		$	16.03
Investor A Shares:
Net Assets	$	554,004,121		$	156,999,076		$	28,875,494		$	489,913,662		$	488,455,660
Shares outstanding, unlimited number of shares authorized, $0.001 par value		20,841,299			4,946,571			2,511,830			11,405,187			30,502,419
Net Asset Value and redemption price per share	$	26.58		$	31.74		$	11.50		$	42.96		$	16.01
Maximum Sales Charge		5.25	%		5.25	%		5.25	%		5.25	%		5.25	%
Maximum offering price per share	$	28.05		$	33.50		$	12.14		$	45.34		$	16.90
Investor B Shares:
Net Assets	$	85,483,850		$	38,684,332		$	6,232,092		$	100,580,729		$	167,523,859
Shares outstanding, unlimited number of shares authorized, $0.001 par value		3,371,674			1,301,113			545,215			2,471,586			10,586,070
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 4.50%)	$	25.35		$	29.73		$	11.43		$	40.69		$	15.82
Investor C Shares:
Net Assets	$	300,815,699		$	63,659,771		$	13,513,990		$	233,962,917		$	82,902,407
Shares outstanding, unlimited number of shares authorized, $0.001 par value		11,872,896			2,142,805			1,181,654			5,759,840			5,243,391
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 1.00%)	$	25.34		$	29.71		$	11.44		$	40.62		$	15.81

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

109

BLACKROCK FUNDS

STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED MARCH 31, 2007 (UNAUDITED)

	INVESTMENT TRUST PORTFOLIO			CAPITAL APPRECIATION			MID-CAP VALUE EQUITY PORTFOLIO			MID-CAP GROWTH EQUITY PORTFOLIO			AURORA PORTFOLIO			SMALL/MID-CAP GROWTH PORTFOLIO			SMALL CAP VALUE EQUITY PORTFOLIO
Investment income:
Interest	$	117,255		$	—		$	555,113		$	19,821		$	460,295		$	1,265		$	1,690
Securities lending income (Note C)		77,101			146,337			127,960			66,564			246,399			44,836			9,477
Dividends and reclaims		11,833,394			1,260,623			10,945,294			808,823			16,779,801			460,499			751,856
Foreign taxes withheld		—			—			—			—			(16,619	)		—			—
Interest from affiliates (Note C)		15,508			3,137			7,429			7,246			15,872			2,541			278
Total investment income		12,043,258			1,410,097			11,635,796			902,454			17,485,748			509,141			763,301
Expenses:
Investment advisory fee		3,198,435			806,340			3,764,188			1,603,416			7,735,958			1,027,124			233,891
Administration fee		399,198			93,039			330,724			150,320			589,501			102,712			31,894
Administration fee - class specific		147,533			31,039			114,873			50,136			195,491			34,263			10,640
Custodian fee		53,142			15,538			55,296			19,377			69,608			22,960			15,208
Transfer agent fee - class specific		1,374,864			292,719			849,429			673,737			2,100,219			468,661			53,761
Shareholder servicing fees - class specific		874,390			246,666			1,047,798			407,817			2,150,772			310,858			60,819
Distribution fees - class specific		814,245			314,668			1,057,059			248,603			2,197,092			152,309			42,969
Legal and audit fee		50,604			19,284			38,449			24,301			74,472			20,359			14,627
Printing fee		157,479			34,781			160,013			54,640			295,317			40,648			14,049
Registration fees and expenses		25,030			12,914			31,226			20,180			25,158			16,429			26,644
Officers’ and trustees’ fees		49,124			10,392			38,272			16,817			78,447			11,427			3,470
Other		30,498			7,084			22,118			9,907			47,589			7,874			5,206
Total expenses		7,174,542			1,884,464			7,509,445			3,279,251			15,559,624			2,215,624			513,178
Less investment advisory fees waived		(1,765	)		(41,081	)		(12,357	)		—			—			—			(5,884	)
Less administration fees waived - class specific		(87,241	)		(11,679	)		(114,873	)		(24,114	)		(152,133	)		(31,172	)		(1,107	)
Less transfer agent fees waived - class specific		(135,386	)		(7,438	)		(70,963	)		(13,052	)		(105,739	)		(24,514	)		(760	)
Less transfer agent fees reimbursed - class specific		(227,206	)		(3,104	)		(505,590	)		(32,617	)		(36,316	)		(200,961	)		(2,512	)
Less fees paid indirectly (Note C)		(6,036	)		(1,215	)		(2,996	)		(2,824	)		(6,009	)		(987	)		(101	)
Net expenses		6,716,908			1,819,947			6,802,666			3,206,644			15,259,427			1,957,990			502,814
Net investment income (loss)		5,326,350			(409,850	)		4,833,130			(2,304,190	)		2,226,321			(1,448,849	)		260,487
Realized and unrealized gain (loss):
Net realized gain (loss) from:
Investment transactions		57,540,185			17,259,728			50,334,066			28,736,391			212,867,285			26,473,196			7,338,701
Written options and swaptions contracts		—			—			—			—			—			—			—
Futures contracts		438,005			—			—			—			—			—			—
Foreign currency related transactions		—			—			—			—			(21,035	)		—			—
		57,978,190			17,259,728			50,334,066			28,736,391			212,846,250			26,473,196			7,338,701
Change in unrealized appreciation/depreciation from:
Investments		28,420,210			(3,031,596	)		75,117,613			14,646,362			15,848,669			3,808,431			1,105,492
Written options and swaptions contracts		—			—			(31,425	)		—			—			—			—
Futures contracts		235,098			—			—			—			—			—			—
Foreign currency related transactions		—			—			—			—			833			—			—
		28,655,308			(3,031,596	)		75,086,188			14,646,362			15,849,502			3,808,431			1,105,492
Net gain on investments, options and swaptions, futures contracts and foreign currency transactions		86,633,498			14,228,132			125,420,254			43,382,753			228,695,752			30,281,627			8,444,193
Net increase in net assets resulting from operations	$	91,959,848		$	13,818,282		$	130,253,384		$	41,078,563		$	230,922,073		$	28,832,778		$	8,704,680

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

110

BLACKROCK FUNDS

FOR THE SIX MONTHS ENDED MARCH 31, 2007 (UNAUDITED)

	SMALL CAP CORE EQUITY PORTFOLIO			SMALL CAP GROWTH EQUITY PORTFOLIO			GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO			GLOBAL RESOURCES PORTFOLIO			ALL-CAP GLOBAL RESOURCES PORTFOLIO			HEALTH SCIENCES OPPORTUNITIES PORTFOLIO
Investment income:
Interest	$	284		$	616,652		$	8,763		$	42,356		$	247,556		$	2,494,131
Securities lending income (Note C)		16,961			196,122			4,474			245,934			198,810			98,207
Dividends and reclaims		209,130			1,093,736			107,028			6,058,991			6,668,873			4,395,864
Foreign taxes withheld		—			(1,625	)		(2,342	)		(282,571	)		(151,907	)		(155,349	)
Interest from affiliates (Note C)		733			1,781			440			3,817			4,753			6,866
Total investment income		227,108			1,906,666			118,363			6,068,527			6,968,085			6,839,719
Expenses:
Investment advisory fee		433,646			1,971,769			149,017			3,442,229			3,216,397			3,676,220
Administration fee		32,523			257,959			12,418			323,226			303,686			342,981
Administration fee - class specific		10,841			89,563			4,146			106,766			107,192			121,906
Custodian fee		10,091			35,462			36,979			225,436			55,676			44,248
Transfer agent fee - class specific		79,565			347,288			64,009			642,046			393,851			694,427
Shareholder servicing fees - class specific		77,704			313,857			39,757			1,103,148			575,500			1,066,990
Distribution fees - class specific		134,284			107,892			67,735			838,494			724,229			1,355,707
Legal and audit fee		14,439			33,891			17,101			45,035			36,632			40,649
Printing fee		17,596			134,445			8,974			136,416			130,681			156,872
Registration fees and expenses		18,848			30,727			22,222			31,223			52,431			57,645
Officers’ and trustees’ fees		3,588			29,144			1,398			38,714			34,713			39,477
Other		4,223			16,663			5,461			27,875			19,576			22,370
Total expenses		837,348			3,368,660			429,217			6,960,608			5,650,564			7,619,492
Less investment advisory fees waived		—			—			(31,470	)		—			—			—
Less administration fees waived - class specific		(3,623	)		(1,359	)		(3,205	)		(64,208	)		(14,948	)		(4,116	)
Less transfer agent fees waived - class specific		(828	)		(1,272	)		(3,260	)		(13,585	)		(10,371	)		—
Less transfer agent fees reimbursed - class specific		(10,350	)		(3,598	)		(25,890	)		(19,531	)		(57,200	)		(25,318	)
Less fees paid indirectly (Note C)		(319	)		(751	)		(178	)		(1,485	)		(1,914	)		(2,980	)
Net expenses		822,228			3,361,680			365,214			6,861,799			5,566,131			7,587,078
Net investment income (loss)		(595,120	)		(1,455,014	)		(246,851	)		(793,272	)		1,401,954			(747,359	)
Realized and unrealized gain (loss):
Net realized gain (loss) from:
Investment transactions		5,229,396			39,944,344			1,060,239			73,188,846			(10,530,412	)		29,508,543
Written options and swaptions contracts		—			—			—			736,300			179,100			738,805
Futures contracts		—			—			—			—			—			—
Foreign currency related transactions		—			—			(17,590	)		1,285,287			597,075			164,026
		5,229,396			39,944,344			1,042,649			75,210,433			(9,754,237	)		30,411,374
Change in unrealized appreciation/depreciation from:
Investments		4,705,136			44,574,131			1,045,917			7,577,962			124,242,697			11,984,820
Written options and swaptions contracts		—			—			—			—			—			415,673
Futures contracts		—			—			—			—			—			—
Foreign currency related transactions		—			—			(37,157	)		(466,344	)		(178,813	)		(343,265	)
		4,705,136			44,574,131			1,008,760			7,111,618			124,063,884			12,057,228
Net gain on investments, options and swaptions, futures contracts and foreign currency transactions		9,934,532			84,518,475			2,051,409			82,322,051			114,309,647			42,468,602
Net increase in net assets resulting from operations	$	9,339,412		$	83,063,461		$	1,804,558		$	81,528,779		$	115,711,601		$	41,721,243

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

111

BLACKROCK FUNDS

STATEMENTS OF OPERATIONS (CONCLUDED)

FOR THE SIX MONTHS ENDED MARCH 31, 2007 (UNAUDITED)

	U.S. OPPORTUNITIES PORTFOLIO			GLOBAL OPPORTUNITIES PORTFOLIO1			INTERNATIONAL OPPORTUNITIES PORTFOLIO			ASSET ALLOCATION PORTFOLIO
Investment income:
Interest	$	120,607		$	7,209		$	421,184		$	6,529,849
Securities lending income (Note C)		37,976			—			6,088			105,757
Dividends and reclaims		1,566,203			414,668			10,962,594			4,651,942
Foreign taxes withheld		(178	)		(15,034	)		(614,997	)		(56,647	)
Interest from affiliates (Note D)		2,078			449			6,000			7,390
Total investment income		1,726,686			407,292			10,780,869			11,238,291
Expenses:
Investment advisory fee		1,426,376			243,226			6,365,708			2,143,235
Administration fee		97,253			20,269			428,901			278,223
Administration fee - class specific		32,307			6,747			161,026			97,473
Custodian fee		19,342			22,477			285,261			210,259
Transfer agent fee - class specific		177,491			70,513			745,905			671,773
Shareholder servicing fees - class specific		278,296			54,448			1,138,171			929,189
Distribution fees - class specific		342,283			65,921			1,200,138			963,044
Legal and audit fees		19,611			26,192			54,713			66,879
Printing fees		40,691			5,148			209,560			114,663
Registration fees and expenses		24,902			30,182			43,238			18,182
Officers’ and trustees’ fees		10,144			2,187			52,466			32,250
Other		7,866			2,920			62,877			43,134
Total expenses		2,476,562			550,230			10,747,964			5,568,304
Less investment advisory waived		(277,679	)		(5,486	)		—			—
Less administration fees waived - class specific		(11,238	)		(6,408	)		—			(3,723	)
Less transfer agent fees waived - class specific		(4,792	)		(3,836	)		—			(112	)
Less transfer agent fees reimbursed - class specific		(23,312	)		(47,729	)		—			(613	)
Less fees paid indirectly (Note C)		(974	)		(186	)		(2,361	)		(2,926	)
Net expenses		2,158,567			486,585			10,745,603			5,560,930
Net investment income (loss)		(431,881	)		(79,293	)		35,266			5,677,361
Realized and unrealized gain (loss):
Net realized gain (loss) from:
Investment transactions		6,165,361			1,922,057			113,651,067			24,731,582
Written options and swaptions contracts		—			—			—			309,317
Futures and swaps contracts		—			—			—			877,794
Foreign currency related transactions		—			31,836			2,958,196			(399,334	)
		6,165,361			1,953,893			116,609,263			25,519,359
Change in unrealized appreciation/depreciation from:
Investments		23,872,836			5,191,985			133,931,390			26,861,227
Written options and swaptions contracts		—			—			—			(206,231	)
Futures and swaps contracts		—			—			—			365,300
Foreign currency related transactions		—			142,694			4,935,945			405,509
		23,872,836			5,334,679			138,867,335			27,425,805
Net gain on investments, options and swaptions, futures and swaps contracts and foreign currency transactions		30,038,197			7,288,572			255,476,598			52,945,164
Net increase in net assets resulting from operations	$	29,606,316		$	7,209,279		$	255,511,864		$	58,622,525

¹ Commencement of operations on January 31, 2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

112

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BLACKROCK FUNDS

STATEMENTS OF CHANGES IN NET ASSETS

	INVESTMENT TRUST PORTFOLIO						CAPITAL APPRECIATION
	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase (decrease) in net assets:
Operations:
Net investment income (loss)	$	5,326,350		$	9,798,473		$	(409,850	)	$	(1,603,154	)
Net realized gain		57,978,190			104,895,685			17,259,728			21,974,299
Net change in unrealized appreciation/depreciation		28,655,308			(21,874,624	)		(3,031,596	)		(8,628,443	)
Net increase in net assets resulting from operations		91,959,848			92,819,534			13,818,282			11,742,702
Distributions to shareholders from:
Net investment income:
Institutional Class		(5,796,715	)		(4,070,114	)		—			—
Service Class		(8,542	)		(6,953	)		—			—
Investor A Class		(3,894,028	)		(2,873,035	)		—			—
Investor B Class		(80,401	)		—			—			—
Investor C Class		(9,617	)		—			—			—
Total distributions from net investment income		(9,789,303	)		(6,950,102	)		—			—
Net realized gains:
Institutional Class		—			(13,019,695	)		—			—
Service Class		—			(39,545	)		—			—
Investor A Class		—			(13,600,742	)		—			—
Investor B Class		—			(6,236,046	)		—			—
Investor C Class		—			(605,658	)		—			—
R Class		—			—			—			—
Total distributions from net realized gains		—			(33,501,686	)		—			—
Total distributions to shareholders		(9,789,303	)		(40,451,788	)		—			—
Net increase (decrease) in net assets resulting from capital share transactions		(112,606,143	)		(215,756,173	)		(22,292,128	)		(41,269,364	)
Redemption fees		1,685			15,918			1			6,975
Total increase (decrease) in net assets		(30,433,913	)		(163,372,509	)		(8,473,845	)		(29,519,687	)
Net assets:
Beginning of period		1,181,043,301			1,344,415,810			249,040,209			278,559,896
End of period	$	1,150,609,388		$	1,181,043,301		$	240,566,364		$	249,040,209
End of period undistributed net investment income (distributions in excess of net investment income)	$	5,326,394		$	9,789,347		$	(409,850	)	$	—

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

114

BLACKROCK FUNDS

	MID-CAP VALUE EQUITY PORTFOLIO						MID-CAP GROWTH EQUITY PORTFOLIO						AURORA PORTFOLIO
	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase (decrease) in net assets:
Operations:
Net investment income (loss)	$	4,833,130		$	3,240,926		$	(2,304,190	)	$	(4,987,055	)	$	2,226,321		$	(8,332,559	)
Net realized gain		50,334,066			83,421,009			28,736,391			50,740,063			212,846,250			577,220,046
Net change in unrealized appreciation/depreciation		75,086,188			(10,363,661	)		14,646,362			(31,648,826	)		15,849,502			(504,909,526	)
Net increase in net assets resulting from operations		130,253,384			76,298,274			41,078,563			14,104,182			230,922,073			63,977,961
Distributions to shareholders from:
Net investment income:
Institutional Class		(950,124	)		(195,309	)		—			—			—			—
Service Class		(28,046	)		(7,194	)		—			—			—			—
Investor A Class		(4,346,319	)		(923,718	)		—			—			—			—
Investor B Class		(149,820	)		—			—			—			—			—
Investor C Class		(346,654	)		—			—			—			—			—
Total distributions from net investment income		(5,820,963	)		(1,126,221	)		—			—			—			—
Net realized gains:
Institutional Class		(10,598,964	)		(5,884,247	)		—			(921,396	)		(39,020,242	)		(28,658,928	)
Service Class		(400,184	)		(107,064	)		—			(14,346	)		(6,428	)		(28	)
Investor A Class		(62,756,283	)		(45,347,430	)		—			(3,790,441	)		(348,851,877	)		(283,519,298	)
Investor B Class		(16,156,916	)		(13,986,415	)		—			(838,922	)		(110,014,015	)		(81,735,734	)
Investor C Class		(18,615,276	)		(11,728,910	)		—			(293,573	)		(91,436,852	)		(75,908,932	)
R Class		—			—			—			—			(6,360	)		—
Total distributions from net realized gains		(108,527,623	)		(77,054,066	)		—			(5,858,678	)		(589,335,774	)		(469,822,920	)
Total distributions to shareholders		(114,348,586	)		(78,180,287	)		—			(5,858,678	)		(589,335,774	)		(469,822,920	)
Net increase (decrease) in net assets resulting from capital share transactions		206,955,161			55,161,843			(48,613,624	)		(54,659,900	)		127,394,761			(337,886,439	)
Redemption fees		1,995			104,030			—			18,713			50,394			113,805
Total increase (decrease) in net assets		222,861,954			53,383,860			(7,535,061	)		(46,395,683	)		(230,968,546	)		(743,617,593	)
Net assets:
Beginning of period		842,858,063			789,474,203			400,279,574			446,675,257			1,955,311,659			2,698,929,252
End of period	$	1,065,720,017		$	842,858,063		$	392,744,513		$	400,279,574		$	1,724,343,113		$	1,955,311,659
End of period undistributed net investment income (distributions in excess of net investment income)	$	1,330,747		$	2,318,580		$	(2,304,190	)	$	—		$	2,205,286		$	—

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

115

BLACKROCK FUNDS

STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

	SMALL/MID-CAP GROWTH PORTFOLIO						SMALL CAP VALUE EQUITY PORTFOLIO
	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase (decrease) in net assets:
Operations:
Net investment income (loss)	$	(1,448,849	)	$	(3,098,866	)	$	260,487		$	(85,228	)
Net realized gain		26,473,196			15,293,907			7,338,701			17,081,198
Net change in unrealized appreciation/depreciation		3,808,431			4,689,485			1,105,492			(7,680,487	)
Net increase in net assets resulting from operations		28,832,778			16,884,526			8,704,680			9,315,483
Distributions to shareholders from:
Net investment income:
BlackRock Class		—			—			(96,251	)		(67,528	)
Institutional Class		—			—			(864,738	)		(854,889	)
Service Class		—			—			(79,661	)		(67,932	)
Investor A Class		—			—			(565,742	)		(394,454	)
Investor B Class		—			—			(85,437	)		(160,437	)
Investor C Class		—			—			(57,217	)		(81,005	)
Total distributions from net investment income		—			—			(1,749,046	)		(1,626,245	)
Net realized gains:
BlackRock Class		—			—			(883,861	)		(873,689	)
Institutional Class		(1,246,455	)		(939,124	)		(7,026,310	)		(11,235,231	)
Service Class		(1,145	)		(5	)		(767,565	)		(613,345	)
Investor A Class		(11,264,602	)		(9,326,969	)		(5,528,989	)		(5,676,463	)
Investor B Class		(1,395,885	)		(1,175,000	)		(1,626,642	)		(2,444,122	)
Investor C Class		(1,040,672	)		(976,287	)		(983,319	)		(1,219,050	)
R Class		(1,135	)		—			—			—
Total distributions from net realized gains		(14,949,894	)		(12,417,385	)		(16,816,686	)		(22,061,900	)
Total distributions to shareholders		(14,949,894	)		(12,417,385	)		(18,565,732	)		(23,688,145	)
Net increase (decrease) in net assets resulting from capital share transactions		(15,795,346	)		(12,489,359	)		7,503,776			(29,487,319	)
Redemption fees		3,655			16,772			142			6,000
Total increase (decrease) in net assets		(1,908,807	)		(8,005,446	)		(2,357,134	)		(43,853,981	)
Net assets:
Beginning of period		273,637,451			281,642,897			84,744,685			128,598,666
End of period	$	271,728,644		$	273,637,451		$	82,387,551		$	84,744,685
End of period undistributed net investment income (distributions in excess of net investment income)	$	(1,448,849	)	$	—		$	(1,488,558	)	$	—

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

116

BLACKROCK FUNDS

	SMALL CAP CORE EQUITY PORTFOLIO						SMALL CAP GROWTH EQUITY PORTFOLIO						GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO
	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase (decrease) in net assets:
Operations:
Net investment income (loss)	$	(595,120	)	$	(939,234	)	$	(1,455,014	)	$	(3,930,605	)	$	(246,851	)	$	(385,942	)
Net realized gain		5,229,396			1,549,931			39,944,344			60,128,668			1,042,649			2,667,296
Net change in unrealized appreciation/depreciation		4,705,136			2,731,708			44,574,131			12,193,812			1,008,760			(871,807	)
Net increase in net assets resulting from operations		9,339,412			3,342,405			83,063,461			68,391,875			1,804,558			1,409,547
Distributions to shareholders from:
Net investment income:
BlackRock Class		—			—			—			—			—			—
Institutional Class		—			—			—			—			—			—
Service Class		—			—			—			—			—			—
Investor A Class		—			—			—			—			—			—
Investor B Class		—			—			—			—			—			—
Investor C Class		—			—			—			—			—			—
Total distributions from net investment income		—			—			—			—			—			—
Net realized gains:
BlackRock Class		—			—			—			—			—			—
Institutional Class		(390,383	)		(307,016	)		—			—			—			—
Service Class		(53,212	)		(6,306	)		—			—			—			—
Investor A Class		(354,030	)		(244,721	)		—			—			—			—
Investor B Class		(142,927	)		(129,108	)		—			—			—			—
Investor C Class		(437,962	)		(329,511	)		—			—			—			—
R Class		—			—			—			—			—			—
Total distributions from net realized gains		(1,378,514	)		(1,016,662	)		—			—			—			—
Total distributions to shareholders		(1,378,514	)		(1,016,662	)		—			—			—			—
Net increase (decrease) in net assets resulting from capital share transactions		(957,495	)		31,759,540			17,446,330			12,885,215			(68,482	)		5,508,862
Redemption fees		466			11,144			7,801			39,600			1,714			38,251
Total increase (decrease) in net assets		7,003,869			34,096,427			100,517,592			81,316,690			1,737,790			6,956,660
Net assets:
Beginning of period		82,397,343			48,300,916			654,987,858			573,671,168			31,400,158			24,443,498
End of period	$	89,401,212		$	82,397,343		$	755,505,450		$	654,987,858		$	33,137,948		$	31,400,158
End of period undistributed net investment income (distributions in excess of net investment income)	$	(595,120	)	$	—		$	(1,455,014	)	$	—		$	(298,448	)	$	(34,007	)

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

117

BLACKROCK FUNDS

STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)

	GLOBAL RESOURCES PORTFOLIO						ALL-CAP GLOBAL RESOURCES PORTFOLIO
	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase (decrease) in net assets:
Operations:
Net investment income (loss)	$	(793,272	)	$	3,254,386		$	1,401,954		$	(1,131,914	)
Net realized gain (loss)		75,210,433			274,858,556			(9,754,237	)		23,146,323
Net change in unrealized appreciation/depreciation		7,111,618			(320,574,806	)		124,063,884			(48,891,452	)
Net increase (decrease) in net assets resulting from operations		81,528,779			(42,461,864	)		115,711,601			(26,877,043	)
Distributions to shareholders from:
Net investment income:
Institutional Class		(407,505	)		(307,204	)		—			—
Service Class		—			—			—			—
Investor A Class		(5,480,853	)		(5,952,043	)		—			—
Investor B Class		(90,725	)		(663,366	)		—			—
Investor C Class		(84,828	)		(1,146,191	)		—			—
Total distributions from net investment income		(6,063,911	)		(8,068,804	)		—			—
Net realized gains:
Institutional Class		(9,325,982	)		(4,512,903	)		(10,090,707	)		—
Service Class		—			—			(62,756	)		—
Investor A Class		(185,047,519	)		(94,937,633	)		(7,092,333	)		—
Investor B Class		(26,519,774	)		(13,508,170	)		(1,254,323	)		—
Investor C Class		(43,361,959	)		(23,448,838	)		(4,033,407	)		—
Total distributions from net realized gains		(264,255,234	)		(136,407,544	)		(22,533,526	)		—
Total distributions to shareholders		(270,319,145	)		(144,476,348	)		(22,533,526	)		—
Net increase (decrease) in net assets resulting from capital share transactions		106,696,187			(96,562,952	)		87,740,860			550,467,699
Redemption fees		10,525			150,592			34,883			300,777
Total increase (decrease) in net assets		(82,083,654	)		(283,350,572	)		180,953,818			523,891,433
Net assets:
Beginning of period		953,785,330			1,237,135,902			768,292,657			244,401,224
End of period	$	871,701,676		$	953,785,330		$	949,246,475		$	768,292,657
End of period undistributed net investment income (distributionsin excess of net investment income)	$	(9,178,687	)	$	(3,606,791	)	$	1,874,100		$	(124,929	)

¹ Commencement of operations.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

118

BLACKROCK FUNDS

	HEALTH SCIENCES OPPORTUNITIES PORTFOLIO						U.S. OPPORTUNITIES PORTFOLIO						GLOBAL OPPORTUNITIES PORTFOLIO
	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE PERIOD 1/31/061 THROUGH 9/30/06
Increase (decrease) in net assets:
Operations:
Net investment income (loss)	$	(747,359	)	$	(2,734,346	)	$	(431,881	)	$	(887,312	)	$	(79,293	)	$	119,067
Net realized gain (loss)		30,411,374			8,780,182			6,165,361			15,728,094			1,953,893			(2,122,517	)
Net change in unrealized appreciation/depreciation		12,057,228			44,953,059			23,872,836			(4,266,062	)		5,334,679			1,780,741
Net increase (decrease) in net assets resulting from operations		41,721,243			50,998,895			29,606,316			10,574,720			7,209,279			(222,709	)
Distributions to shareholders from:
Net investment income:
Institutional Class		—			—			—			—			(80,270	)		—
Service Class		—			—			—			—			(241	)		—
Investor A Class		—			—			—			—			(166,607	)		—
Investor B Class		—			—			—			—			(24,703	)		—
Investor C Class		—			—			—			—			(49,188	)		—
Total distributions from net investment income		—			—			—			—			(321,009	)		—
Net realized gains:
Institutional Class		(1,602,973	)		(1,084,099	)		—			—			—			—
Service Class		(68,118	)		(3,118	)		—			—			—			—
Investor A Class		(6,106,732	)		(5,911,655	)		—			—			—			—
Investor B Class		(1,146,981	)		(1,377,483	)		—			—			—			—
Investor C Class		(3,784,320	)		(3,056,393	)		—			—			—			—
Total distributions from net realized gains		(12,709,124	)		(11,432,748	)		—			—			—			—
Total distributions to shareholders		(12,709,124	)		(11,432,748	)		—			—			(321,009	)		—
Net increase (decrease) in net assets resulting from capital share transactions		170,130,041			497,697,630			99,865,237			87,123,873			6,693,057			47,319,135
Redemption fees		26,084			287,297			11,765			45,598			3,310			29,433
Total increase (decrease) in net assets		199,168,244			537,551,074			129,483,318			97,744,191			13,584,637			47,125,859
Net assets:
Beginning of period		884,895,369			347,344,295			193,789,433			96,045,242			47,125,859			—
End of period	$	1,084,063,613		$	884,895,369		$	323,272,751		$	193,789,433		$	60,710,496		$	47,125,859
End of period undistributed net investment income (distributions in excess of net investment income)	$	(690,219	)	$	(106,886	)	$	(431,880	)	$	—		$	(73,073	)	$	226,351

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

119

BLACKROCK FUNDS

STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)

	INTERNATIONAL OPPORTUNITIES PORTFOLIO						ASSET ALLOCATION PORTFOLIO
	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase (decrease) in net assets:
Operations:
Net investment income	$	35,266		$	5,355,940		$	5,677,361		$	10,883,734
Net realized gain		116,609,263			163,311,342			25,519,359			37,465,041
Net change in unrealized appreciation/depreciation		138,867,335			58,090,268			27,425,805			(4,516,474	)
Net increase in net assets resulting from operations		255,511,864			226,757,550			58,622,525			43,832,301
Distributions to shareholders from:
Net investment income:
Institutional Class		(5,714,005	)		(2,535,083	)		(153,496	)		(610,544	)
Service Class		(1,836,362	)		(924,596	)		(9,372	)		(35,860	)
Investor A Class		(5,788,432	)		(3,085,154	)		(1,853,346	)		(7,497,028	)
Investor B Class		(560,575	)		(709,984	)		(330,759	)		(1,419,982	)
Investor C Class		(1,513,353	)		(1,416,668	)		(173,691	)		(673,164	)
Total distributions from net investment income		(15,412,727	)		(8,671,485	)		(2,520,664	)		(10,236,578	)
Net realized gains:
Institutional Class		(46,667,147	)		(4,966,335	)		(1,296,964	)		(1,248,807	)
Service Class		(17,687,846	)		(1,817,729	)		(89,755	)		(90,782	)
Investor A Class		(57,992,691	)		(6,379,387	)		(19,046,801	)		(20,421,460	)
Investor B Class		(13,325,007	)		(1,796,484	)		(7,043,852	)		(7,602,194	)
Investor C Class		(30,320,263	)		(3,424,897	)		(3,276,940	)		(2,902,370	)
Total distributions from net realized gains		(165,992,954	)		(18,384,832	)		(30,754,312	)		(32,265,613	)
Total distributions to shareholders		(181,405,681	)		(27,056,317	)		(33,274,976	)		(42,502,191	)
Net increase (decrease) in net assets resulting from capital share transactions		157,840,525			251,687,980			(22,662,912	)		(681,295	)
Redemption fees		2,442			162,347			59,325			58,854
Total increase in net assets		231,949,150			451,551,560			2,743,962			707,669
Net assets:
Beginning of period		1,169,723,938			718,172,378			773,142,283			772,434,614
End of period	$	1,401,673,088		$	1,169,723,938		$	775,886,245		$	773,142,283
End of period undistributed net investment income (distributions in excess of net investment income)	$	(2,037,214	)	$	10,382,050		$	2,217,948		$	(539,415	)

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

120

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BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS																		SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
INVESTMENT TRUST				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	14.01		$	13.37		$	11.95		$	10.32		$	8.50		$	11.25		$	14.04		$	13.39		$	11.97		$	10.33		$	8.44		$	11.21
Net investment income		0.09	2		0.16	2		0.14	2		0.09	2		0.10			0.11			0.08	2		0.12	2		0.13	2		0.06	2		0.10			0.01
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.06			0.92			1.38			1.67			1.83			(2.86	)		1.05			0.93			1.35			1.67			1.79			(2.78	)
Net increase (decrease) from investment operations		1.15			1.08			1.52			1.76			1.93			(2.75	)		1.13			1.05			1.48			1.73			1.89			(2.77	)
Dividends and distributions from:
Net investment income		(0.18	)		(0.10	)		(0.10	)		(0.13	)		(0.11	)		—			(0.13	)		(0.06	)		(0.06	)		(0.09	)		—			—
Net realized capital gains		—			(0.34	)		—			—			—			—			—			(0.34	)		—			—			—			—
Total dividends and distributions		(0.18	)		(0.44	)		(0.10	)		(0.13	)		(0.11	)		—			(0.13	)		(0.40	)		(0.06	)		(0.09	)		—			—
Redemption fees added to paid-in capital		—	3		—	3		—	3		—	3		—			—			—	3		—	3		—	3		—	3		—			—
Net asset value, end of period	$	14.98		$	14.01		$	13.37		$	11.95		$	10.32		$	8.50		$	15.04		$	14.04		$	13.39		$	11.97		$	10.33		$	8.44
Total return		8.20	%4,5		8.31	%4		12.72	%4		17.11	%4		22.80	%		(24.44	)%		8.04	%4,5		7.98	%4		12.41	%4		16.83	%4		22.39	%		(24.71	)%
Ratios/Supplemental data:
Net assets, end of period (000)	$	465,854		$	480,663		$	523,607		$	51,593		$	60,886		$	134,859		$	989		$	937		$	1,566		$	1,714		$	1,988		$	3,797
Ratio of net expenses to average net assets		0.77	%6		0.77	%		0.81	%		0.81	%		0.81	%		0.81	%		1.00	%6		1.04	%		1.11	%		1.07	%		1.11	%		1.11	%
Ratio of total expenses to average net assets (excluding waivers)		0.78	%6		0.87	%		1.09	%		0.99	%		0.96	%		0.87	%		1.00	%6		1.14	%		1.32	%		1.23	%		1.26	%		1.16	%
Ratio of net investment income to average net assets		1.27	%6		1.16	%		1.09	%		0.81	%		0.93	%		0.36	%		1.05	%6		0.90	%		1.02	%		0.56	%		0.64	%		0.06	%
Ratio of net investment income to average net assets (excluding waivers)		1.26	%6		1.06	%		0.81	%		0.63	%		0.79	%		0.30	%		1.05	%6		0.80	%		0.81	%		0.40	%		0.49	%		0.02	%
Portfolio turnover rate		31	%		76	%		105	%		72	%		98	%		124	%		31	%		76	%		105	%		72	%		98	%		124	%
	INVESTOR A CLASS																		INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	13.80		$	13.20		$	11.79		$	10.18		$	8.41		$	11.17		$	13.13		$	12.59		$	11.30		$	9.78		$	8.06		$	10.79
Net investment income (loss)		0.06	2		0.10	2		0.09	2		0.04	2		0.06			(0.01	)		0.01	2		—	2,7		—	2,7		(0.04	)2		(0.02	)		(0.10	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.05			0.91			1.70			1.64			1.79			(2.75	)		0.99			0.88			1.29			1.57			1.74			(2.63	)
Net increase (decrease) from investment operations		1.11			1.01			1.79			1.68			1.85			(2.76	)		1.00			0.88			1.29			1.53			1.72			(2.73	)
Dividends and distributions from:
Net investment income		(0.12	)		(0.07	)		(0.38	)		(0.07	)		(0.08	)		—			(0.01	)		—			—			(0.01	)		—			—
Net realized capital gains		—			(0.34	)		—			—			—			—			—			(0.34	)		—			—			—			—
Total dividends and distributions		(0.12	)		(0.41	)		(0.38	)		(0.07	)		(0.08	)		—			(0.01	)		(0.34	)		—			(0.01	)		—			—
Redemption fees added to paid-in capital		—	3		—	3		—	3		—	3		—			—			—	3		—	3		—	3		—	3		—			—
Net asset value, end of period	$	14.79		$	13.80		$	13.20		$	11.79		$	10.18		$	8.41		$	14.12		$	13.13		$	12.59		$	11.30		$	9.78		$	8.06
Total return		8.03	%4,5,8		7.82	%4,8		12.30	%4,8		16.60	%4,8		22.09	%8		(24.71	)%8		7.58	%4,5,9		7.12	% 4,9		11.42	%4,9		15.70	%4,9		21.34	%9		(25.30	)%9
Ratios/Supplemental data:
Net assets, end of period (000)	$	483,810		$	478,762		$	552,118		$	17,632		$	19,408		$	24,816		$	181,607		$	201,500		$	243,232		$	20,448		$	21,182		$	22,119
Ratio of net expenses to average net assets		1.16	%6		1.16	%		1.16	%		1.26	%		1.28	%		1.28	%		1.91	%6		1.91	%		1.91	%		2.01	%		2.03	%		2.03	%
Ratio of total expenses to average net assets (excluding waivers)		1.24	%6		1.40	%		1.43	%		1.47	%		1.43	%		1.36	%		2.13	%6		2.14	%		2.08	%		2.13	%		2.18	%		2.11	%
Ratio of net investment income (loss) to average net assets		0.88	%6		0.78	%		0.71	%		0.37	%		0.45	%		(0.04	)%		0.13	%6		0.02	%		(0.02	)%		(0.39	)%		(0.30	)%		(0.78	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.80	%6		0.54	%		0.44	%		0.16	%		0.30	%		(0.11	)%		(0.09	)%6		(0.21	)%		(0.19	)%		(0.50	)%		(0.45	)%		(0.86	)%
Portfolio turnover rate		31	%		76	%		105	%		72	%		98	%		124	%		31	%		76	%		105	%		72	%		98	%		124	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

122

BLACKROCK FUNDS

	INVESTOR C CLASS
INVESTMENT TRUST	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	13.14		$	12.61		$	11.31		$	9.77		$	8.06		$	10.79
Net investment income (loss)		0.01	2		—	2,7		—	2,7		(0.04	)2		(0.02	)2		(0.11	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		0.99			0.87			1.30			1.58			1.73			(2.62	)
Net increase (decrease) from investment operations		1.00			0.87			1.30			1.54			1.71			(2.73	)
Dividends and distributions from:
Net investment income		(0.01	)		—			—			—			—			—
Net realized capital gains		—			(0.34	)		—			—			—			—
Total dividends and distributions		(0.01	)		(0.34	)		—			—			—			—
Redemption fees added to paid-in capital		—	3		—	3		—	3		—	3		—			—
Net asset value, end of period	$	14.13		$	13.14		$	12.61		$	11.31		$	9.77		$	8.06
Total return9		7.59	%4,5		7.03	%4		11.49	%4		15.78	%4		21.22	%		(25.30	)%
Ratios/Supplemental data:
Net assets, end of period (000)	$	18,350		$	19,181		$	23,893		$	2,413		$	1,829		$	1,923
Ratio of net expenses to average net assets		1.90	%6		1.90	%		1.91	%		2.03	%		2.03	%		2.03	%
Ratio of total expenses to average net assets (excluding waivers)		1.94	%6		1.98	%		2.07	%		2.14	%		2.18	%		2.11	%
Ratio of net investment income (loss) to average net assets		0.14	%6		0.03	%		(0.01	)%		(0.39	)%		(0.25	)%		(0.80	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.10	%6		(0.05	)%		(0.17	)%		(0.50	)%		(0.40	)%		(0.87	)%
Portfolio turnover rate		31	%		76	%		105	%		72	%		98	%		124	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

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

⁵ Not annualized.

⁶ Annualized.

⁷ Net investment income is less than $0.005 per share.

⁸ Sales load not reflected in total return.

⁹ Contingent deferred sales load not reflected in total return.

123

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS																		SERVICE CLASS
CAPITAL APPRECIATION	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			11/01/04 - 9/30/05			YEAR ENDED OCTOBER 31									PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			PERIOD ENDED 9/30/051
										2004			2003			20022
Net asset value, beginning of period	$	14.91		$	14.19		$	12.78		$	12.17		$	10.14		$	11.74		$	14.46		$	13.81		$	12.96
Net investment income (loss)		0.03	3		—	3,4		0.05	3		(0.04	)		(0.02	)		—	4		(0.01	)3		(0.05	)3		(0.05	)3
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		0.86			0.72			1.36			0.65			2.05			(1.60	)		0.83			0.70			0.90
Net increase (decrease) from investment operations		0.89			0.72			1.41			0.61			2.03			(1.60	)		0.82			0.65			0.85
Redemption fees added to paid-in capital		—	5		—	5		—	5		—			—			—			—	5		—	5		—	5
Net asset value, end of period	$	15.80		$	14.91		$	14.19		$	12.78		$	12.17		$	10.14		$	15.28		$	14.46		$	13.81
Total return		5.97	%6,7		5.07	%6		11.03	%6,7,8		5.01	%		20.02	%		(13.63	)%		5.67	%6,7		4.71	%6		6.56	%6,7,8
Ratios/Supplemental data:
Net assets, end of period (000)	$	54,280		$	48,146		$	52,154		$	52,399		$	60,878		$	41,161		$	21		$	—	9	$	—	9
Ratio of net expenses to average net assets		0.81	%10		0.95	%		1.05	%10		1.14	%		1.08	%		1.08	%		1.31	%10		1.35	%		1.58	%10
Ratio of total expenses to average net assets (excluding waivers)		0.87	%10		1.00	%		1.15	%10		1.14	%		1.08	%		1.09	%		1.36	%10		45.33	%		1.83	%10
Ratio of net investment income (loss) to average net assets		0.34	%10		0.00	%		0.43	%10		(0.31	)%		(0.19	)%		0.03	%		(0.15	)%10		(0.33	)%		(0.55	)%10
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.28	%10		(0.05	)%		0.33	%10		(0.31	)%		(0.19	)%		0.02	%		(0.20	)%10		(44.31	)%		(0.80	)%10
Portfolio turnover rate		55	%		87	%		70	%		91	%		113	%		31	%		55	%		87	%		70	%

	INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			11/01/04 - 9/30/05			YEAR ENDED OCTOBER 31
										2004			2003			20022
Net asset value, beginning of period	$	14.46		$	13.82		$	12.47		$	11.91		$	9.96		$	11.56
Net investment income (loss)		(0.01	)3		(0.06	)3		0.02	3		(0.08	)		(0.05	)		(0.03	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		0.83			0.70			1.33			0.64			2.00			(1.57	)
Net increase (decrease) from investment operations		0.82			0.64			1.35			0.56			1.95			(1.60	)
Redemption fees added to paid-in capital		—	5		—	5		—	5		—			—			—
Net asset value, end of period	$	15.28		$	14.46		$	13.82		$	12.47		$	11.91		$	9.96
Total return11		5.67	%6,7		4.63	%6		10.83	%6,7,8		4.70	%		19.58	%		(13.84	)%
Ratios/Supplemental data:
Net assets, end of period (000)	$	111,384		$	112,737		$	120,371		$	99,435		$	103,247		$	76,798
Ratio of net expenses to average net assets		1.31	%10		1.35	%		1.31	%10		1.44	%		1.38	%		1.38	%
Ratio of total expenses to average net assets (excluding waivers)		1.35	%10		1.53	%		1.48	%10		1.44	%		1.38	%		1.39	%
Ratio of net investment income (loss) to average net assets		(0.18	)%10		(0.40	)%		0.21	%10		(0.62	)%		(0.47	)%		(0.28	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		(0.22	)%10		(0.58	)%		0.04	%10		(0.62	)%		(0.47	)%		(0.29	)%
Portfolio turnover rate		55	%		87	%		70	%		91	%		113	%		31	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

124

BLACKROCK FUNDS

CAPITAL APPRECIATION	INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			11/01/04 - 9/30/05			YEAR ENDED OCTOBER 31
										2004			2003			20022
Net asset value, beginning of period	$	13.56		$	13.06		$	11.86		$	11.41		$	9.61		$	11.23
Net investment loss		(0.07	)3		(0.16	)3		(0.06	)3		(0.15	)		(0.12	)		(0.11	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		0.78			0.66			1.26			0.60			1.92			(1.51	)
Net increase (decrease) from investment operations		0.71			0.50			1.20			0.45			1.80			(1.62	)
Redemption fees added to paid-in capital		—	5		—	5		—	5		—			—			—
Net asset value, end of period	$	14.27		$	13.56		$	13.06		$	11.86		$	11.41		$	9.61
Total return12		5.24	%6,7		3.83	%6		10.12	%6,7,13		3.94	%		18.73	%		(14.43	)%
Ratios/Supplemental data:
Net assets, end of period (000)	$	60,266		$	71,078		$	85,465		$	97,938		$	108,125		$	90,564
Ratio of net expenses to average net assets		2.09	%10		2.10	%		2.05	%10		2.14	%		2.08	%		2.08	%
Ratio of total expenses to average net assets (excluding waivers)		2.16	%10		2.20	%		2.15	%10		2.14	%		2.08	%		2.09	%
Ratio of net investment loss to average net assets		(0.96	)%10		(1.16	)%		(0.53	)%10		(1.31	)%		(1.17	)%		(0.98	)%
Ratio of net investment loss to average net assets (excluding waivers)		(1.03	)%10		(1.26	)%		(0.63	)%10		(1.31	)%		(1.17	)%		(0.99	)%
Portfolio turnover rate		55	%		87	%		70	%		91	%		113	%		31	%
	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			11/01/04 - 9/30/05			YEAR ENDED OCTOBER 31
										2004			2003			20022
Net asset value, beginning of period	$	13.57		$	13.06		$	11.86		$	11.41		$	9.61		$	11.23
Net investment loss		(0.06	)3		(0.15	)3		(0.06	)3		(0.15	)		(0.11	)		(0.11	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		0.78			0.66			1.26			0.60			1.91			(1.51	)
Net increase (decrease) from investment operations		0.72			0.51			1.20			0.45			1.80			(1.62	)
Redemption fees added to paid-in capital		—	5		—	5		—	5		—			—			—
Net asset value, end of period	$	14.29		$	13.57		$	13.06		$	11.86		$	11.41		$	9.61
Total return12		5.31	%6,7		3.91	%6		10.12	%6,7,13		3.94	%		18.73	%		(14.43	)%
Ratios/Supplemental data:
Net assets, end of period (000)	$	14,615		$	17,079		$	20,570		$	23,854		$	30,516		$	31,274
Ratio of net expenses to average net assets		1.99	%10		2.04	%		2.05	%10		2.14	%		2.08	%		2.08	%
Ratio of total expenses to average net assets (excluding waivers)		2.02	%10		2.10	%		2.15	%10		2.14	%		2.08	%		2.09	%
Ratio of net investment loss to average net assets		(0.86	)%10		(1.10	)%		(0.51	)%10		(1.30	)%		(1.15	)%		(0.99	)%
Ratio of net investment loss to average net assets (excluding waivers)		(0.89	)%10		(1.16	)%		(0.61	)%10		(1.30	)%		(1.15	)%		(1.00	)%
Portfolio turnover rate		55	%		87	%		70	%		91	%		113	%		31	%

¹ Commencement of operations of share class effective 1/28/05.

² Audited by other auditors.

³ Calculated using the average shares outstanding method.

⁴ Net investment income is less than $0.005 per share.

⁵ Redemption fees added to paid-in capital are less than $0.005 per share.

⁶ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. There was no impact to the return.

⁷ Not annualized.

⁸ The total return includes an impact of 8 basis points related to payments made by SSRM prior to January 31, 2005.

⁹ Net assets end of period are less than $500.

¹⁰ Annualized.

¹¹ Sales load not reflected in total return.

¹² Contingent deferred sales load not reflected in total return.

¹³ The total return includes an impact of 9 basis points related to payments made by SSRM prior to January 31, 2005.

125

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

MID-CAP VALUE EQUITY*	INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			7/01/04 - 2/28/05			YEAR ENDED JUNE 30
													2004			2003			20021
Net asset value, beginning of period	$	13.67		$	13.74		$	12.73		$	12.14		$	9.07		$	10.66		$	11.85
Net investment income		0.10	2		0.12	2		0.04	2		0.11			0.08			0.08			0.04
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.92			1.23			0.97			1.44			3.08			(1.21	)		0.30
Net increase (decrease) from investment operations		2.02			1.35			1.01			1.55			3.16			(1.13	)		0.34
Dividends and distributions from:
Net investment income		(0.15	)		(0.04	)		—			(0.15	)		(0.09	)		—			—
Net realized capital gains		(1.66	)		(1.38	)		—			(0.81	)		—			(0.46	)		(1.53	)
Total dividends and distributions		(1.81	)		(1.42	)		—			(0.96	)		(0.09	)		(0.46	)		(1.53	)
Redemption fees added to paid-in capital		—	3		—	3		—	3		—			—			—			—
Net asset value, end of period	$	13.88		$	13.67		$	13.74		$	12.73		$	12.14		$	9.07		$	10.66
Total return		15.44	%4,5		10.77	%4		7.94	%4,5		13.07	%5		34.83	%		(10.21	)%		3.20	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	161,288		$	80,292		$	53,111		$	50,383		$	30,181		$	26,099		$	35,116
Ratio of net expenses to average net assets		0.98	%6		0.99	%		1.00	%6		0.99	%6		0.98	%		0.99	%		0.95	%
Ratio of total expenses to average net assets (excluding waivers)		1.05	%6		1.07	%		1.30	%6		1.09	%6		1.03	%		1.18	%		1.15	%
Ratio of net investment income to average net assets		1.45	%6		0.88	%		0.49	%6		1.18	%6		0.76	%		0.93	%		0.42	%
Ratio of net investment income to average net assets (excluding waivers)		1.38	%6		0.80	%		0.19	%6		1.08	%6		0.71	%		0.75	%		0.23	%
Portfolio turnover rate		111	%		153	%		60	%		53	%		86	%		66	%		69	%

	SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			PERIOD ENDED 2/28/057
Net asset value, beginning of period	$	13.49		$	13.61		$	12.63		$	12.04
Net investment income (loss)		0.08	2		0.08	2		0.02	2		(0.01	)
Gain on investments, foreign currency and options (both realized and unrealized)		1.90			1.21			0.96			0.60
Net increase from investment operations		1.98			1.29			0.98			0.59
Dividends and distributions from:
Net investment income		(0.12	)		(0.03	)		—			—
Net realized capital gains		(1.66	)		(1.38	)		—			—
Total dividends and distributions		(1.78	)		(1.41	)		—			—
Redemption fees added to paid-in capital		—	3		—	3		—	3		—
Net asset value, end of period	$	13.69		$	13.49		$	13.61		$	12.63
Total return		15.31	%4,5		10.45	%4		7.76	%4,5		4.89	%5
Ratios/Supplemental data:
Net assets, end of period (000)	$	3,784		$	3,130		$	889		$	1,374
Ratio of net expenses to average net assets		1.25	%6		1.25	%		1.25	%6		1.25	%6
Ratio of total expenses to average net assets (excluding waivers)		1.31	%6		1.50	%		1.54	%6		1.49	%6
Ratio of net investment income to average net assets		1.22	%6		0.61	%		0.20	%6		0.39	%6
Ratio of net investment income (loss) to average net assets (excluding waivers)		1.16	%6		0.36	%		(0.09	)%6		0.14	%6
Portfolio turnover rate		111	%		153	%		60	%		53	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

126

BLACKROCK FUNDS

MID-CAP VALUE EQUITY*	INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			7/01/04 - 2/28/05			YEAR ENDED JUNE 30
													2004			2003			20021
Net asset value, beginning of period	$	13.38		$	13.49		$	12.53		$	11.92		$	8.91		$	10.53		$	11.73
Net investment income		0.08	2		0.08	2		0.02	2		0.07			0.05			0.06			0.02
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.88			1.21			0.94			1.45			3.02			(1.22	)		0.29
Net increase (decrease) from investment operations		1.96			1.29			0.96			1.52			3.07			(1.16	)		0.31
Dividends and distributions from:
Net investment income		(0.12	)		(0.02	)		—			(0.11	)		(0.06	)		—			—
Net realized capital gains		(1.66	)		(1.38	)		—			(0.80	)		—			(0.46	)		(1.51	)
Total dividends and distributions		(1.78	)		(1.40	)		—			(0.91	)		(0.06	)		(0.46	)		(1.51	)
Redemption fees added to paid-in capital		—	3		—	3		—	3		—			—			—			—
Net asset value, end of period	$	13.56		$	13.38		$	13.49		$	12.53		$	11.92		$	8.91		$	10.53
Total return8		15.28	%4,5		10.56	%4		7.66	%4,5		12.98	%5		34.51	%		(10.61	)%		2.96	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	606,417		$	497,964		$	500,479		$	448,237		$	363,188		$	194,034		$	242,113
Ratio of net expenses to average net assets		1.25	%6		1.25	%		1.25	%6		1.24	%6		1.28	%		1.29	%		1.25	%
Ratio of total expenses to average net assets (excluding waivers)		1.39	%6		1.56	%		1.64	%6		1.38	%6		1.33	%		1.48	%		1.41	%
Ratio of net investment income to average net assets		1.22	%6		0.62	%		0.24	%6		0.92	%6		0.47	%		0.65	%		0.16	%
Ratio of net investment income (loss) to average net assets (excluding waivers)		1.08	%6		0.31	%		(0.15	)%6		0.78	%6		0.42	%		0.47	%		0.01	%
Portfolio turnover rate		111	%		153	%		60	%		53	%		86	%		66	%		69	%

* The Performance prior to January 31, 2005 set forth in this table is the financial data of the State Street Research Mid-Cap Value Fund, a series of a predecessor trust, the State Street Research Equity Trust. BlackRock Funds acquired all of the assets and certain stated liabilities of the State Street Research Mid-Cap Value Equity Fund on January 28, 2005. The net asset values and other per share information listed have been restated to reflect the conversion ratios of 1.56483770, 1.57950264, 1.62345461 and 1.63087248 for Institutional, Investor A, Investor B and Investor C shares, respectively.

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

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

⁵ Not annualized.

⁶ Annualized.

⁷ Commencement of operations of share class effective 1/28/05.

⁸ Sales load not reflected in total return.

127

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INVESTOR B CLASS
MID-CAP VALUE EQUITY*	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			7/01/04 - 2/28/05			YEAR ENDED JUNE 30
													2004			2003			20021
Net asset value, beginning of period	$	12.46		$	12.73		$	11.87		$	11.28		$	8.45		$	10.05		$	11.30
Net investment income (loss)		0.03	2		(0.02	)2		(0.04	)2		(0.03	)		(0.02	)		(0.01	)		(0.06	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.75			1.13			0.90			1.41			2.85			(1.15	)		0.28
Net increase (decrease) from investment operations		1.78			1.11			0.86			1.38			2.83			(1.16	)		0.22
Dividends and distributions from:
Net investment income		(0.02	)		—			—			(0.01	)		—			—			—
Net realized capital gains		(1.66	)		(1.38	)		—			(0.78	)		—			(0.44	)		(1.47	)
Total dividends and distributions		(1.68	)		(1.38	)		—			(0.79	)		—			(0.44	)		(1.47	)
Redemption fees added to paid-in capital		—	3		—	3		—	3		—			—			—			—
Net asset value, end of period	$	12.56		$	12.46		$	12.73		$	11.87		$	11.28		$	8.45		$	10.05
Total return4		14.89	%5,6		9.63	%5		7.25	%5,6		12.39	%6		33.53	%6		(11.13	)%		2.20	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	130,294		$	124,089		$	131,651		$	128,568		$	109,815		$	79,536		$	91,416
Ratio of net expenses to average net assets		2.00	%7		2.00	%		2.00	%7		1.99	%7		1.98	%		1.99	%		1.95	%
Ratio of total expenses to average net assets (excluding waivers)		2.23	%7		2.25	%		2.29	%7		2.09	%7		2.03	%		2.18	%		2.10	%
Ratio of net investment income (loss) to average net assets		0.49	%7		(0.13	)%		(0.52	)%7		0.20	%7		(0.24	)%		(0.05	)%		(0.52	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.26	%7		(0.38	)%		(0.81	)%7		0.10	%7		(0.29	)%		(0.23	)%		(0.66	)%
Portfolio turnover rate		111	%		153	%		60	%		53	%		86	%		66	%		69	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

128

BLACKROCK FUNDS

MID-CAP VALUE EQUITY*	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			7/01/04 - 2/28/05			YEAR ENDED JUNE 30
													2004			2003			20021
Net asset value, beginning of period	$	12.46		$	12.73		$	11.87		$	11.28		$	8.45		$	10.04		$	11.28
Net investment income (loss)		0.03	2		(0.02	)2		(0.04	)2		(0.03	)		(0.02	)		(0.01	)		(0.05	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.75			1.13			0.90			1.40			2.85			(1.14	)		0.28
Net increase (decrease) from investment operations		1.78			1.11			0.86			1.37			2.83			(1.15	)		0.23
Dividends and distributions from:
Net investment income		(0.03	)		—			—			(0.01	)		—			—			—
Net realized capital gains		(1.66	)		(1.38	)		—			(0.77	)		—			(0.44	)		(1.47	)
Total dividends and distributions		(1.69	)		(1.38	)		—			(0.78	)		—			(0.44	)		(1.47	)
Redemption fees added to paid-in capital		—	3		—	3		—	3		—			—			—			—
Net asset value, end of period	$	12.55		$	12.46		$	12.73		$	11.87		$	11.28		$	8.45		$	10.04
Total return4		14.95	%5,6		9.63	%5		7.25	%5,6		12.40	%6		33.53	%		(11.09	)%		2.25	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	163,936		$	137,382		$	103,344		$	91,657		$	82,758		$	58,499		$	62,505
Ratio of net expenses to average net assets		2.00	%7		2.00	%		2.00	%7		1.99	%7		1.98	%		1.99	%		1.95	%
Ratio of total expenses to average net assets (excluding waivers)		2.15	%7		2.15	%		2.29	%7		2.09	%7		2.03	%		2.19	%		2.09	%
Ratio of net investment income (loss) to average net assets		0.47	%7		(0.13	)%		(0.50	)%7		0.19	%7		(0.24	)%		(0.04	)%		(0.51	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.32	%7		(0.28	)%		(0.79	)%7		0.09	%7		(0.29	)%		(0.23	)%		(0.64	)%
Portfolio turnover rate		111	%		153	%		60	%		53	%		86	%		66	%		69	%

* The Performance prior to January 31, 2005 set forth in this table is the financial data of the State Street Research Mid-Cap Value Fund, a series of a predecessor trust, the State Street Research Equity Trust. BlackRock Funds acquired all of the assets and certain stated liabilities of the State Street Research Mid-Cap Value Equity Fund on January 28, 2005. The net asset values and other per share information listed have been restated to reflect the conversion ratios of 1.56483770, 1.57950264, 1.62345461 and 1.63087248 for Institutional, Investor A, Investor B and Investor C shares, respectively.

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

⁴ Contingent deferred sales load not reflected in total return.

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

⁶ Not annualized.

⁷ Annualized.

129

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

MID-CAP GROWTH EQUITY	INSTITUTIONAL CLASS																		SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	10.70		$	10.44		$	8.76		$	7.57		$	6.06		$	7.49		$	10.27		$	10.07		$	8.46		$	7.33		$	5.89		$	7.31
Net investment loss		(0.03	)2		(0.06	)2		(0.07	)2		(0.06	)2		(0.05	)		(0.06	)2		(0.06	)2		(0.11	)2		(0.07	)2		(0.08	)2		(0.07	)		(0.11	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.21			0.45			1.75			1.25			1.56			(1.37	)		1.16			0.44			1.68			1.21			1.51			(1.31	)
Net increase (decrease) from investment operations		1.18			0.39			1.68			1.19			1.51			(1.43	)		1.10			0.33			1.61			1.13			1.44			(1.42	)
Dividends and distributions from:
Net realized capital gains		—			(0.13	)		—			—			—			—			—			(0.13	)		—			—			—			—
Redemption fees added to paid-in capital		—	3		—	3		—	3		—	3		—	3		—			—	3		—	3		—	3		—	3		—	3		—
Net asset value, end of period	$	11.88		$	10.70		$	10.44		$	8.76		$	7.57		$	6.06		$	11.37		$	10.27		$	10.07		$	8.46		$	7.33		$	5.89
Total return		11.03	%4,5		3.75	%4		19.18	%4		15.72	%4		24.92	%4		(19.09	)%		10.71	%4,5		3.29	%4		19.03	%4		15.42	%4		24.45	%4		(19.43	)%
Ratios/Supplemental data:
Net assets, end of period (000)	$	70,054		$	75,111		$	75,407		$	40,337		$	46,970		$	77,693		$	696		$	757		$	1,136		$	10,871		$	14,115		$	24,082
Ratio of net expenses to average net assets		1.05	%6		1.08	%		1.23	%		1.23	%		1.21	%		1.14	%		1.53	%6		1.53	%		1.53	%		1.53	%		1.51	%		1.45	%
Ratio of total expenses to average net assets (excluding waivers)		1.05	%6		1.15	%		1.41	%		1.28	%		1.23	%		1.14	%		1.66	%6		2.02	%		1.60	%		1.56	%		1.53	%		1.45	%
Ratio of net investment loss to average net assets		(0.60	)%6		(0.60	)%		(0.72	)%		(0.65	)%		(0.52	)%		(0.76	)%		(1.08	)%6		(1.06	)%		(0.77	)%		(0.97	)%		(0.80	)%		(1.07	)%
Ratio of net investment loss to average net assets (excluding waivers)		(0.60	)%6		(0.67	)%		(0.90	)%		(0.69	)%		(0.54	)%		(0.76	)%		(1.21	)%6		(1.55	)%		(0.84	)%		(0.99	)%		(0.83	)%		(1.07	)%
Portfolio turnover rate		31	%		64	%		85	%		29	%		168	%		279	%		31	%		64	%		85	%		29	%		168	%		279	%
	INVESTOR A CLASS																		INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	10.00		$	9.82		$	8.26		$	7.17		$	5.77		$	7.17		$	9.09		$	9.00		$	7.63		$	6.67		$	5.41		$	6.77
Net investment loss		(0.06	)2		(0.11	)2		(0.11	)2		(0.09	)2		(0.07	)		(0.11	)		(0.09	)2		(0.17	)2		(0.15	)2		(0.14	)2		(0.11	)		(0.16	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.14			0.42			1.67			1.18			1.47			(1.29	)		1.03			0.39			1.52			1.10			1.37			(1.20	)
Net increase (decrease) from investment operations		1.08			0.31			1.56			1.09			1.40			(1.40	)		0.94			0.22			1.37			0.96			1.26			(1.36	)
Dividends and distributions from:
Net realized capital gains		—			(0.13	)		—			—			—			—			—			(0.13	)		—			—			—			—
Redemption fees added to paid-in capital		—	3		—	3		—	3		—	3		—	3		—			—	3		—	3		—	3		—	3		—	3		—
Net asset value, end of period	$	11.08		$	10.00		$	9.82		$	8.26		$	7.17		$	5.77		$	10.03		$	9.09		$	9.00		$	7.63		$	6.67		$	5.41
Total return		10.80	%4,5,7		3.16	%4,7		18.89	%4,7		15.20	%4,7		24.26	%4,7		(19.53	)%7		10.34	%4,5,8		2.44	%4,8		17.96	%4,8		14.39	%4,8		23.29	%4,8		(20.09	)%8
Ratios/Supplemental data:
Net assets, end of period (000)	$	258,467		$	257,729		$	290,285		$	27,777		$	25,960		$	26,242		$	45,878		$	48,635		$	59,100		$	31,900		$	33,982		$	33,822
Ratio of net expenses to average net assets		1.57	%6		1.58	%		1.58	%		1.67	%		1.68	%		1.62	%		2.32	%6		2.33	%		2.33	%		2.44	%		2.43	%		2.37	%
Ratio of total expenses to average net assets (excluding waivers)		1.59	%6		1.74	%		1.78	%		1.77	%		1.71	%		1.62	%		2.53	%6		2.54	%		2.41	%		2.45	%		2.45	%		2.37	%
Ratio of net investment loss to average net assets		(1.12	)%6		(1.11	)%		(1.14	)%		(1.09	)%		(0.96	)%		(1.24	)%		(1.88	)%6		(1.86	)%		(1.82	)%		(1.86	)%		(1.69	)%		(1.98	)%
Ratio of net investment loss to average net assets (excluding waivers)		(1.14	)%6		(1.27	)%		(1.34	)%		(1.19	)%		(0.98	)%		(1.24	)%		(2.09	)%6		(2.07	)%		(1.90	)%		(1.87	)%		(1.71	)%		(1.98	)%
Portfolio turnover rate		31	%		64	%		85	%		29	%		168	%		279	%		31	%		64	%		85	%		29	%		168	%		279	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

130

BLACKROCK FUNDS

MID-CAP GROWTH EQUITY	INVESTOR C CLASS																		R CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/079 (UNAUDITED)
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.09		$	9.00		$	7.63		$	6.67		$	5.41		$	6.77		$	9.92
Net investment loss		(0.09	)2		(0.17	)2		(0.15	)2		(0.14	)2		(0.11	)		(0.18	)		(0.06	)2
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.03			0.39			1.52			1.10			1.37			(1.18	)		1.22
Net increase (decrease) from investment operations		0.94			0.22			1.37			0.96			1.26			(1.36	)		1.16
Dividends and distributions from:
Net realized capital gains		—			(0.13	)		—			—			—			—			—
Redemption fees added to paid-in capital		—	3		—	3		—	3		—	3		—	3		—			—
Net asset value, end of period	$	10.03		$	9.09		$	9.00		$	7.63		$	6.67		$	5.41		$	11.08
Total return		10.34	%4,5,8		2.44	%4,8		17.96	%4,8		14.39	%4,8		23.29	%4,8		(20.09	)%8		10.65	%4,5
Ratios/Supplemental data:
Net assets, end of period (000)	$	17,627		$	18,047		$	20,748		$	11,269		$	12,212		$	12,092		$	22
Ratio of net expenses to average net assets		2.32	%6		2.33	%		2.33	%		2.44	%		2.43	%		2.37	%		1.60	%6
Ratio of total expenses to average net assets (excluding waivers)		2.33	%6		2.37	%		2.41	%		2.45	%		2.45	%		2.37	%		1.65	%6
Ratio of net investment loss to average net assets		(1.87	)%6		(1.86	)%		(1.83	)%		(1.86	)%		(1.69	)%		(1.98	)%		(1.14	)%6
Ratio of net investment loss to average net assets (excluding waivers)		(1.88	)%6		(1.90	)%		(1.91	)%		(1.87	)%		(1.71	)%		(1.98	)%		(1.19	)%6
Portfolio turnover rate		31	%		64	%		85	%		29	%		168	%		279	%		31	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

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

⁵ Not annualized.

⁶ Annualized.

⁷ Sales load not reflected in total return.

⁸ Contingent deferred sales load not reflected in total return.

⁹ Commencement of operations of share class effective 10/02/06.

131

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

AURORA	INSTITUTIONAL CLASS																		SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			PERIOD ENDED 9/30/051
				2006			2005			2004			2003			20022
Net asset value, beginning of period	$	37.15		$	43.43		$	40.71		$	33.18		$	25.05		$	27.06		$	35.39		$	41.88		$	38.18
Net investment income (loss)		0.13	3		0.08	3		(0.04	)3		(0.11	)		(0.11	)		(0.14	)		0.09	3		(0.05	)3		(0.06	)3
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		4.32			1.13			6.60			7.66			8.39			(1.87	)		4.08			1.05			3.76
Net increase (decrease) from investment operations		4.45			1.21			6.56			7.55			8.28			(2.01	)		4.17			1.00			3.70
Dividends and distributions from:
Net realized capital gains		(11.20	)		(7.49	)		(3.84	)		(0.02	)		(0.15	)		—			(11.20	)		(7.49	)		—
Redemption fees added to paid-in capital		—	4		—	4		—	4		—			—			—			—	4		—	4		—	4
Net asset value, end of period	$	30.40		$	37.15		$	43.43		$	40.71		$	33.18		$	25.05		$	28.36		$	35.39		$	41.88
Total return		13.11	%5,6		3.40	%5		16.62	%5		22.75	%		33.21	%		(7.43	)%		12.92	%5,6		2.96	%5		9.69	%5,6
Ratios/Supplemental data:
Net assets, end of period (000)	$	175,452		$	153,103		$	165,837		$	197,475		$	142,460		$	92,789		$	16		$	—	7	$	—	7
Ratio of net expenses to average net assets		1.02	%8		1.06	%		1.14	%		1.10	%		1.25	%		1.17	%		1.44	%8		1.44	%		0.78	%8
Ratio of total expenses to average net assets (excluding waivers)		1.02	%8		1.07	%		1.14	%		1.10	%		1.25	%		1.18	%		1.68	%8		37.13	%		0.81	%8
Ratio of net investment income (loss) to average net assets		0.81	%8		0.22	%		(0.09	)%		(0.27	)%		(0.38	)%		(0.43	)%		0.56	%8		(0.15	)%		0.32	%8
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.81	%8		0.21	%		(0.09	)%		(0.27	)%		(0.38	)%		(0.44	)%		0.32	%8		(35.84	)%		0.29	%8
Portfolio turnover rate		69	%		142	%		73	%		33	%		48	%		42	%		69	%		142	%		73	%

	INVESTOR A CLASS																		INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			2003			20022						2006			2005			2004			2003			20022
Net asset value, beginning of period	$	35.39		$	41.88		$	39.49		$	32.28		$	24.43		$	26.51		$	31.48		$	38.32		$	36.67		$	30.19		$	23.02		$	25.16
Net investment income (loss)		0.07	3		(0.05	) 3		(0.16	)3		(0.22	)		(0.19	)		(0.23	)		(0.04	)3		(0.29	)3		(0.40	)3		(0.45	)		(0.36	)		(0.42	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		4.10			1.05			6.39			7.45			8.19			(1.85	)		3.59			0.94			5.89			6.95			7.68			(1.72	)
Net increase (decrease) from investment operations		4.17			1.00			6.23			7.23			8.00			(2.08	)		3.55			0.65			5.49			6.50			7.32			(2.14	)
Dividends and distributions from:
Net realized capital gains		(11.20	)		(7.49	)		(3.84	)		(0.02	)		(0.15	)		—			(11.20	)		(7.49	)		(3.84	)		(0.02	)		(0.15	)		—
Redemption fees added to paid-in capital		—	4		—	4		—	4		—			—			—			—	4		—	4		—	4		—			—			—
Net asset value, end of period	$	28.36		$	35.39		$	41.88		$	39.49		$	32.28		$	24.43		$	23.83		$	31.48		$	38.32		$	36.67		$	30.19		$	23.02
Total return		12.92	%5,6,9		2.95	%5,9		16.28	%5,9		22.39	%9		32.90	%9		(7.85	)%9		12.48	%5,6,10		2.18	%5,10		15.44	%5,10		21.53	%10		31.96	%10		(8.51	)%10
Ratios/Supplemental data:
Net assets, end of period (000)	$	1,003,840		$	1,189,440		$	1,690,497		$	2,169,836		$	1,682,504		$	1,449,869		$	299,479		$	329,207		$	436,642		$	470,430		$	401,016		$	340,529
Ratio of net expenses to average net assets		1.43	%8		1.44	%		1.40	%		1.40	%		1.55	%		1.47	%		2.19	%8		2.19	%		2.14	%		2.10	%		2.25	%		2.17	%
Ratio of total expenses to average net assets (excluding waivers)		1.45	%8		1.56	%		1.47	%		1.40	%		1.55	%		1.48	%		2.26	%8		2.23	%		2.15	%		2.10	%		2.25	%		2.18	%
Ratio of net investment income (loss) to average net assets		0.45	%8		(0.15	)%		(0.36	)%		(0.57	)%		(0.69	)%		(0.73	)%		(0.32	)%8		(0.90	)%		(1.10	)%		(1.27	)%		(1.39	)%		(1.43	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.43	%8		(0.27	)%		(0.43	)%		(0.57	)%		(0.69	)%		(0.74	)%		(0.39	)%8		(0.94	)%		(1.11	)%		(1.27	)%		(1.39	)%		(1.44	)%
Portfolio turnover rate		69	%		142	%		73	%		33	%		48	%		42	%		69	%		142	%		73	%		33	%		48	%		42	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

132

BLACKROCK FUNDS

AURORA	INVESTOR C CLASS																		R CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/0711 (UNAUDITED)
				2006			2005			2004			2003			20022
Net asset value, beginning of period	$	31.47		$	38.32		$	36.67		$	30.18		$	23.01		$	25.16		$	35.21
Net investment income (loss)		(0.04	)3		(0.29	)3		(0.42	)3		(0.45	)		(0.35	)		(0.42	)		0.07	3
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		3.60			0.93			5.91			6.96			7.67			(1.73	)		4.25
Net increase (decrease) from investment operations		3.56			0.64			5.49			6.51			7.32			(2.15	)		4.32
Dividends and distributions from:
Net realized capital gains		(11.20	)		(7.49	)		(3.84	)		(0.02	)		(0.15	)		—			(11.20	)
Redemption fees added to paid-in capital		—	4		—	4		—	4		—			—			—			—	4
Net asset value, end of period	$	23.83		$	31.47		$	38.32		$	36.67		$	30.18		$	23.01		$	28.33
Total return		12.51	%5,6,10		2.16	%5,10		15.45	%5,10		21.57	%10		31.97	%10		(8.55	)%10		12.78	%5,6
Ratios/Supplemental data:
Net assets, end of period (000)	$	245,540		$	283,562		$	405,952		$	493,980		$	409,076		$	402,010		$	16
Ratio of net expenses to average net assets		2.19	%8		2.19	%		2.14	%		2.10	%		2.25	%		2.17	%		1.60	%8
Ratio of total expenses to average net assets (excluding waivers)		2.23	%8		2.22	%		2.15	%		2.10	%		2.25	%		2.18	%		1.72	%8
Ratio of net investment income (loss) to average net assets		(0.32	)%8		(0.90	)%		(1.10	)%		(1.27	)%		(1.39	)%		(1.43	)%		0.43	%8
Ratio of net investment income (loss) to average net assets (excluding waivers)		(0.36	)%8		(0.93	)%		(1.11	)%		(1.27	)%		(1.39	)%		(1.44	)%		0.31	%8
Portfolio turnover rate		69	%		142	%		73	%		33	%		48	%		42	%		69	%

¹ Commencement of operations of share class effective 1/28/05.

² Audited by other auditors.

³ Calculated using the average shares outstanding method.

⁴ Redemption fees added to paid-in capital are less than $0.005 per share.

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

⁶ Not annualized.

⁷ Net assets end of period are less than $500.

⁸ Annualized.

⁹ Sales load not reflected in total return.

¹⁰ Contingent deferred sales load not reflected in total return.

¹¹ Commencement of operations of share class effective 10/02/06.

133

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS																		SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			PERIOD ENDED 9/30/051
SMALL/MID CAP GROWTH				2006			2005			2004			2003			20022
Net asset value, beginning of period	$	15.51		$	15.16		$	12.49		$	12.11		$	9.06		$	9.62		$	14.74		$	14.47		$	12.81
Net investment loss		(0.05	)3		(0.10	)3		(0.17	)3		(0.10	)		(0.08	)		(0.06	)		(0.07	)3		(0.15	) 3		(0.06	)3
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.78			1.09			2.84			0.48			3.13			(0.50	)		1.68			1.06			1.72
Net increase (decrease) from investment operations		1.73			0.99			2.67			0.38			3.05			(0.56	)		1.61			0.91			1.66
Dividends and distributions from:
Net realized capital gains		(0.83	)		(0.64	)		—			—			—			—			(0.83	)		(0.64	)		—
Redemption fees added to paid-in capital		—	4		—	4		—	4		—			—			—			—	4		—	4		—	4
Net asset value, end of period	$	16.41		$	15.51		$	15.16		$	12.49		$	12.11		$	9.06		$	15.52		$	14.74		$	14.47
Total return		11.32	%5,6		6.63	%5		21.38	%5		3.14	%		33.66	%		(5.82	)%		11.10	%5,6		6.38	%5		12.96	%5,6
Ratios/Supplemental data:
Net assets, end of period (000)	$	26,211		$	23,866		$	20,133		$	87,520		$	7,809		$	6,054		$	22		$	—	7	$	—	7
Ratio of net expenses to average net assets		1.01	%8		0.99	%		1.10	%		1.09	%		1.10	%		1.10	%		1.35	%8		1.35	%		1.41	%8
Ratio of total expenses to average net assets (excluding waivers)		1.01	%8		1.06	%		1.28	%		1.28	%		1.55	%		1.69	%		1.48	%8		37.96	%		1.48	%8
Ratio of net investment loss to average net assets		(0.63	)%8		(0.64	)%		(0.72	)%		(0.80	)%		(0.78	)%		(0.60	)%		(0.97	)%8		(1.00	)%		(0.70	)%8
Ratio of net investment loss to average net assets (excluding waivers)		(0.63	)%8		(0.71	)%		(0.90	)%		(0.99	)%		(1.23	)%		(1.19	)%		(1.10	)%8		(37.61	)%		(0.77	)%8
Portfolio turnover rate		41	%		49	%		122	%		208	%		167	%		168	%		41	%		49	%		122	%

	INVESTOR A CLASS																		INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			2003			20022						2006			2005			2004			2003			20022
Net asset value, beginning of period	$	14.74		$	14.48		$	11.96		$	11.63		$	8.73		$	9.27		$	13.10		$	13.03		$	10.84		$	10.62		$	8.03		$	8.60
Net investment loss		(0.07	)3		(0.15	)3		(0.13	)3		(0.14	)		(0.11	)		(0.09	)		(0.12	)3		(0.23	)3		(0.19	)3		(0.21	)		(0.16	)		(0.15	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.68			1.05			2.65			0.47			3.01			(0.45	)		1.50			0.94			2.38			0.43			2.75			(0.42	)
Net increase (decrease) from investment operations		1.61			0.90			2.52			0.33			2.90			(0.54	)		1.38			0.71			2.19			0.22			2.59			(0.57	)
Dividends and distributions from:
Net realized capital gains		(0.83	)		(0.64	)		—			—			—			—			(0.83	)		(0.64	)		—			—			—			—
Redemption fees added to paid-in capital		—	4		—	4		—	4		—			—			—			—	4		—	4		—	4		—			—			—
Net asset value, end of period	$	15.52		$	14.74		$	14.48		$	11.96		$	11.63		$	8.73		$	13.65		$	13.10		$	13.03		$	10.84		$	10.62		$	8.03
Total return		11.10	%5,6,9		6.31	%5,9		21.07	%5,9		2.84	%9		33.22	%9		(5.93	)%9		10.72	%5,6,10		5.52	%5,10		20.20	%5,10		2.17	%10		32.25	%10		(6.63	)%10
Ratios/Supplemental data:
Net assets, end of period (000)	$	205,820		$	209,646		$	215,622		$	268,065		$	117,571		$	41,474		$	22,354		$	23,085		$	24,925		$	24,880		$	19,797		$	13,288
Ratio of net expenses to average net assets		1.35	%8		1.35	%		1.37	%*		1.39	%		1.40	%		1.40	%		2.10	%8		2.10	%		2.10	%		2.09	%		2.10	%		2.10	%
Ratio of total expenses to average net assets (excluding waivers)		1.54	%8		1.66	%		1.64	%		1.56	%		1.78	%		1.98	%		2.43	%8		2.40	%		2.30	%		2.25	%		2.54	%		2.68	%
Ratio of net investment loss to average net assets		(0.98	)%8		(1.00	)%		(0.87	)%		(1.09	)%		(1.10	)%		(0.90	)%		(1.73	)%8		(1.75	)%		(1.58	)%		(1.79	)%		(1.78	)%		(1.60	)%
Ratio of net investment loss to average net assets (excluding waivers)		(1.17	)%8		(1.31	)%		(1.14	)%		(1.26	)%		(1.48	)%		(1.48	)%		(2.06	)%8		(2.05	)%		(1.78	)%		(1.95	)%		(2.22	)%		(2.18	)%
Portfolio turnover rate		41	%		49	%		122	%		208	%		167	%		168	%		41	%		49	%		122	%		208	%		167	%		168	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

134

BLACKROCK FUNDS

	INVESTOR C CLASS																		R CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/0711 (UNAUDITED)
SMALL/ MID CAP GROWTH				2006			2005			2004			2003			20022
Net asset value, beginning of period	$	13.12		$	13.06		$	10.87		$	10.64		$	8.05		$	8.61		$	14.54
Net investment loss		(0.12	)3		(0.23	)3		(0.20	)3		(0.21	)		(0.16	)		(0.15	)		(0.09	)3
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.50			0.93			2.39			0.44			2.75			(0.41	)		1.88
Net increase (decrease) from investment operations		1.38			0.70			2.19			0.23			2.59			(0.56	)		1.79
Dividends and distributions from:
Net realized capital gains		(0.83	)		(0.64	)		—			—			—			—			(0.83	)
Redemption fees added to paid-in capital		—	4		—	4		—	4		—			—			—			—	4
Net asset value, end of period	$	13.67		$	13.12		$	13.06		$	10.87		$	10.64		$	8.05		$	15.50
Total return		10.70	%5,6,10		5.43	%5,10		20.15	%5,10		2.16	%10		32.17	%10		(6.50	)%10		11.03	%5,6
Ratios/Supplemental data:
Net assets, end of period (000)	$	17,300		$	17,041		$	20,963		$	29,627		$	13,530		$	5,794		$	21
Ratio of net expenses to average net assets		2.10	%8		2.10	%		2.10	%		2.09	%		2.10	%		2.10	%		1.62	%8
Ratio of total expenses to average net assets (excluding waivers)		2.28	%8		2.30	%		2.32	%		2.26	%		2.51	%		2.68	%		1.63	%8
Ratio of net investment loss to average net assets		(1.73	)%8		(1.75	)%		(1.60	)%		(1.79	)%		(1.79	)%		(1.60	)%		(1.24	)%8
Ratio of net investment loss to average net assets (excluding waivers)		(1.91	)%8		(1.95	)%		(1.82	)%		(1.96	)%		(2.20	)%		(2.18	)%		(1.25	)%8
Portfolio turnover rate		41	%		49	%		122	%		208	%		167	%		168	%		41	%

* For the period October 1, 2004, through January 28, 2005, the expense ratio reflects the expenses of the State Street Research Emerging Growth Fund prior to its reorganization with the Small/Mid-Cap Growth Portfolio on January 28, 2005. The expense ratio for the period October 1, 2004 through January 28, 2005 was 1.41%. The expense ratio of the Portfolio for the period January 29, 2005 through September 30, 2005 was 1.31%.

¹ Commencement of operations of share class effective 1/28/05.

² Audited by other auditors.

³ Calculated using the average shares outstanding method.

⁴ Redemption fees added to paid-in capital are less than $0.005 per share.

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

⁶ Not annualized.

⁷ Net assets end of period are less than $500.

⁸ Annualized.

⁹ Sales load not reflected in total return.

¹⁰ Contingent deferred sales load not reflected in total return.

¹¹ Commencement of operations of share class effective 10/02/06.

135

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

SMALL CAP VALUE EQUITY	BLACKROCK CLASS												INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005									2006			2005			2004			20032			20022
Net asset value, beginning of period	$	13.46		$	15.16		$	15.23		$	16.02		$	13.49		$	15.17		$	15.22		$	14.17		$	12.81		$	16.18
Net investment income (loss)		0.05	3		—	3,4		0.02	3		—	3,4		0.06	3		0.03	3		0.04	3		(0.02	)3		0.01			—	4
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.35			1.21			2.90			(0.79	)		1.36			1.21			2.90			2.86			3.31			(1.02	)
Net increase (decrease) from investment operations		1.40			1.21			2.92			(0.79	)		1.42			1.24			2.94			2.84			3.32			(1.02	)
Dividends and distributions from:
Net investment income		(0.29	)		(0.17	)		—			—			(0.33	)		(0.18	)		—			—			—			(0.02	)
Net realized capital gains		(2.65	)		(2.74	)		(2.99	)		—			(2.65	)		(2.74	)		(2.99	)		(1.79	)		(1.96	)		(2.33	)
Total dividends and distributions		(2.94	)		(2.91	)		(2.99	)		—			(2.98	)		(2.92	)		(2.99	)		(1.79	)		(1.96	)		(2.35	)
Redemption fees added to paid-in capital		—	5		—	5		—	5		—	5		—	5		—	5		—	5		—	5		—	5		—
Net asset value, end of period	$	11.92		$	13.46		$	15.16		$	15.23		$	11.93		$	13.49		$	15.17		$	15.22		$	14.17		$	12.81
Total return		10.74	%6,7		9.61	%6		20.60	%6		(4.93	)%6,7		10.85	%6,7		9.81	%6		20.77	%6		20.87	%6		29.96	%6		(8.25	)%
Ratios/Supplemental data:
Net assets, end of period (000)	$	4,963		$	4,454		$	5,162		$	4,787		$	35,751		$	36,480		$	68,880		$	66,083		$	69,641		$	122,732
Ratio of net expenses to average net assets		1.07	%8		1.10	%		1.07	%		1.10	%8		0.84	%8		0.89	%		0.97	%		0.95	%		0.91	%		0.88	%
Ratio of total expenses to average net assets (excluding waivers)		1.09	%8		1.12	%		1.08	%		1.33	%8		0.86	%8		0.91	%		1.00	%		0.98	%		0.94	%		0.89	%
Ratio of net investment income (loss) to average net assets		0.73	%8		(0.01	)%		0.16	%		(0.17	)%8		0.96	%8		0.23	%		0.26	%		(0.15	)%		0.09	%		—	%
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.71	%8		(0.03	)%		0.15	%		(0.40	)%8		0.94	%8		0.21	%		0.23	%		(0.18	)%		0.06	%		(0.01	)%
Portfolio turnover rate		50	%		123	%		133	%		154	%		50	%		123	%		133	%		154	%		240	%		260	%

	SERVICE CLASS																		INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20032			20022						2006			2005			2004			20032			20022
Net asset value, beginning of period	$	13.21		$	14.95		$	15.07		$	14.09		$	12.77		$	16.18		$	13.11		$	14.86		$	15.00		$	14.04		$	12.76		$	16.18
Net investment income (loss)		0.03	3		(0.02	)3		—	3,4		(0.07	)3		(0.03	)		(0.04	)		0.03	3		(0.03	)3		—	3,4		(0.09	)3		(0.05	)		(0.10	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.33			1.19			2.87			2.84			3.31			(1.04	)		1.32			1.19			2.85			2.84			3.29			(0.99	)
Net increase (decrease) from investment operations		1.36			1.17			2.87			2.77			3.28			(1.08	)		1.35			1.16			2.85			2.75			3.24			(1.09	)
Dividends and distributions from:
Net investment income		(0.28	)		(0.17	)		—			—			—			—			(0.27	)		(0.17	)		—			—			—			—
Net realized capital gains		(2.65	)		(2.74	)		(2.99	)		(1.79	)		(1.96	)		(2.33	)		(2.65	)		(2.74	)		(2.99	)		(1.79	)		(1.96	)		(2.33	)
Total dividends and distributions		(2.93	)		(2.91	)		(2.99	)		(1.79	)		(1.96	)		(2.33	)		(2.92	)		(2.91	)		(2.99	)		(1.79	)		(1.96	)		(2.33	)
Redemption fees added to paid-in capital		—	5		—	5		—	5		—	5		—	5		—			—	5		—	5		—	5		—	5		—	5		—
Net asset value, end of period	$	11.64		$	13.21		$	14.95		$	15.07		$	14.09		$	12.77		$	11.54		$	13.11		$	14.86		$	15.00		$	14.04		$	12.76
Total return		10.58	%6,7		9.45	%6		20.46	%6		20.45	%6		29.70	%6		(8.64	)%		10.65	%6,7,9		9.40	%6,9		20.43	%6,9		20.38	%6,9		29.37	%6,9		(8.71	)%9
Ratios/Supplemental data:
Net assets, end of period (000)	$	2,279		$	3,852		$	3,405		$	3,288		$	4,139		$	7,242		$	28,915		$	27,943		$	31,889		$	35,240		$	38,052		$	43,884
Ratio of net expenses to average net assets		1.21	%8		1.27	%		1.24	%		1.25	%		1.21	%		1.18	%		1.24	%8		1.29	%		1.24	%		1.35	%		1.38	%		1.35	%
Ratio of total expenses to average net assets (excluding waivers)		1.23	%8		1.32	%		1.25	%		1.29	%		1.24	%		1.19	%		1.25	%8		1.40	%		1.35	%		1.47	%		1.41	%		1.37	%
Ratio of net investment income (loss) to average net assets		0.52	%8		(0.18	)%		(0.03	)%		(0.45	)%		(0.19	)%		(0.24	)%		0.56	%8		(0.19	)%		(0.01	)%		(0.55	)%		(0.37	)%		(0.62	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.50	%8		(0.23	)%		(0.04	)%		(0.48	)%		(0.22	)%		(0.25	)%		0.55	%8		(0.30	)%		(0.12	)%		(0.67	)%		(0.40	)%		(0.64	)%
Portfolio turnover rate		50	%		123	%		133	%		154	%		240	%		260	%		50	%		123	%		133	%		154	%		240	%		260	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

136

BLACKROCK FUNDS

	INVESTOR B CLASS																		INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
SMALL CAP VALUE EQUITY				2006			2005			2004			20032			20022						2006			2005			2004			20032			20022
Net asset value, beginning of period	$	11.30		$	13.28		$	13.77		$	13.11		$	12.11		$	15.58		$	11.31		$	13.28		$	13.78		$	13.11		$	12.12		$	15.59
Net investment loss		(0.02	)3		(0.12	)3		(0.10	)3		(0.19	)3		(0.13	)		(0.20	)		(0.02	)3		(0.11	)3		(0.10	)3		(0.19	)3		(0.14	)		(0.20	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.13			1.03			2.60			2.64			3.09			(0.94	)		1.12			1.03			2.59			2.65			3.09			(0.94	)
Net increase (decrease) from investment operations		1.11			0.91			2.50			2.45			2.96			(1.14	)		1.10			0.92			2.49			2.46			2.95			(1.14	)
Dividends and distributions from:
Net investment income		(0.14	)		(0.15	)		—			—			—			—			(0.15	)		(0.15	)		—			—			—			—
Net realized capital gains		(2.65	)		(2.74	)		(2.99	)		(1.79	)		(1.96	)		(2.33	)		(2.65	)		(2.74	)		(2.99	)		(1.79	)		(1.96	)		(2.33	)
Total dividends and distributions		(2.79	)		(2.89	)		(2.99	)		(1.79	)		(1.96	)		(2.33	)		(2.80	)		(2.89	)		(2.99	)		(1.79	)		(1.96	)		(2.33	)
Redemption fees added to paid-in capital		—	5		—	5		—	5		—	5		—	5		—			—	5		—	5		—	5		—	5		—	5		—
Net asset value, end of period	$	9.62		$	11.30		$	13.28		$	13.77		$	13.11		$	12.11		$	9.61		$	11.31		$	13.28		$	13.78		$	13.11		$	12.12
Total return10		10.11	%6,7		8.46	%6		19.58	%6		19.45	%6		28.52	%6		(9.46	)%		10.06	%6,7		8.56	%6		19.49	%6		19.53	%6		28.42	%6		(9.45	)%
Ratios/Supplemental data:
Net assets, end of period (000)	$	6,250		$	7,373		$	12,848		$	15,952		$	15,019		$	14,402		$	4,229		$	4,643		$	6,414		$	6,715		$	5,839		$	6,113
Ratio of net expenses to average net assets		2.19	%8		2.12	%		2.00	%		2.07	%		2.13	%		2.10	%		2.12	%8		2.10	%		2.00	%		2.09	%		2.13	%		2.10	%
Ratio of total expenses to average net assets (excluding waivers)		2.32	%8		2.23	%		2.00	%		2.09	%		2.16	%		2.12	%		2.13	%8		2.11	%		2.00	%		2.11	%		2.16	%		2.12	%
Ratio of net investment loss to average net assets		(0.41	)%8		(1.01	)%		(0.76	)%		(1.28	)%		(1.12	)%		(1.32	)%		(0.34	)%8		(1.00	)%		(0.76	)%		(1.30	)%		(1.13	)%		(1.32	)%
Ratio of net investment loss to average net assets (excluding waivers)		(0.54	)%8		(1.12	)%		(0.76	)%		(1.30	)%		(1.15	)%		(1.34	)%		(0.35	)%8		(1.01	)%		(0.76	)%		(1.32	)%		(1.15	)%		(1.33	)%
Portfolio turnover rate		50	%		123	%		133	%		154	%		240	%		260	%		50	%		123	%		133	%		154	%		240	%		260	%

¹ Commencement of operations of share class effective 4/12/04.

² Audited by other auditors.

³ Calculated using the average shares outstanding method.

⁴ Net investment income is less than $0.005 per share.

⁵ Redemption fees added to paid-in capital are less than $0.005 per share.

⁶ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. There was no impact to the return.

⁷ Not annualized.

⁸ Annualized.

⁹ Sales load not reflected in total return.

¹⁰ Contingent deferred sales load not reflected in total return.

137

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

SMALL CAP CORE EQUITY	INSTITUTIONAL CLASS																		SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30												PERIOD ENDED 9/30/021,2			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30												PERIOD ENDED 9/30/021,2
				2006			2005			2004			20032									2006			2005			2004			20032
Net asset value, beginning of period	$	18.50		$	17.62		$	14.77		$	11.99		$	8.35		$	10.00		$	18.41		$	17.59		$	14.73		$	11.99		$	8.35		$	10.00
Net investment loss		(0.08	)3		(0.12	)3		(0.10	)3		(0.13	)3		(0.06	)		(0.04	)		(0.10	)3		(0.18	)3		(0.13	)3		(0.20	)3		—	4		—	4
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		2.29			1.30			3.06			3.01			3.70			(1.61	)		2.28			1.30			3.10			3.04			3.64			(1.65	)
Net increase (decrease) from investment operations		2.21			1.18			2.96			2.88			3.64			(1.65	)		2.18			1.12			2.97			2.84			3.64			(1.65	)
Dividends and distributions from:
Net realized capital gains		(0.31	)		(0.30	)		(0.11	)		(0.15	)		—			—			(0.31	)		(0.30	)		(0.11	)		(0.15	)		—			—
Total dividends and distributions		(0.31	)		(0.30	)		(0.11	)		(0.15	)		—			—			(0.31	)		(0.30	)		(0.11	)		(0.15	)		—			—
Redemption fees added to paid-in capital		—	5		—	5		—	5		0.05			—			—			—	5		—	5		—	5		0.05			—			—
Net asset value, end of period	$	20.40		$	18.50		$	17.62		$	14.77		$	11.99		$	8.35		$	20.28		$	18.41		$	17.59		$	14.73		$	11.99		$	8.35
Total return		12.01	%6,7		6.81	%6		20.10	%6		24.51	%8		43.59	%		(16.50	)%7		11.91	%6,7		6.47	%6		20.22	%6		24.17	%8		43.59	%		(16.50	)%7
Ratios/Supplemental data:
Net assets, end of period (000)	$	23,068		$	24,172		$	12,641		$	1,802		$	1,238		$	835		$	4,136		$	2,776		$	94		$	—	9	$	—	9	$	—	9
Ratio of net expenses to average net assets		1.30	%10		1.30	%		1.30	%		1.30	%		1.30	%		1.30	%10		1.55	%10		1.60	%		1.60	%		1.60	%		1.60	%		1.60	%10
Ratio of total expenses to average net assets (excluding waivers)		1.38	%10		1.47	%		1.81	%		2.37	%		2.96	%		2.53	%10		1.56	%10		1.64	%		2.01	%		2.67	%		3.26	%		2.83	%10
Ratio of net investment loss to average net assets		(0.78	)%10		(0.68	)%		(0.59	)%		(0.89	)%		(0.62	)%		(0.60	)%10		(1.02	)%10		(0.99	)%		(0.80	)%		(1.19	)%		(0.92	)%		(0.90	)%10
Ratio of net investment income (loss) to average net assets (excluding waivers)		(0.86	)%10		(0.85	)%		(1.10	)%		(1.96	)%		(2.28	)%		1.83	%10		(1.03	)%10		(1.03	)%		(1.21	)%		(2.26	)%		(2.58	)%		(2.13	)%10
Portfolio turnover rate		48	%		111	%		118	%		78	%		218	%		233	%		48	%		111	%		118	%		78	%		218	%		233	%

	INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30												PERIOD ENDED 9/30/021,2
				2006			2005			2004			20032
Net asset value, beginning of period	$	18.27		$	17.49		$	14.71		$	11.99		$	8.35		$	10.00
Net investment loss		(0.11	)3		(0.20	)3		(0.17	)3		(0.24	)3		—	4		—	4
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		2.26			1.28			3.06			3.04			3.64			(1.65	)
Net increase (decrease) from investment operations		2.15			1.08			2.89			2.80			3.64			(1.65	)
Dividends and distributions from:
Net realized capital gains		(0.31	)		(0.30	)		(0.11	)		(0.15	)		—			—
Total dividends and distributions		(0.31	)		(0.30	)		(0.11	)		(0.15	)		—			—
Redemption fees added to paid-in capital		—	5		—	5		—	5		0.07			—			—
Net asset value, end of period	$	20.11		$	18.27		$	17.49		$	14.71		$	11.99		$	8.35
Total return11		11.83	%6,7		6.28	%6		19.71	%6		24.01	%12		43.59	%		(16.50	)%7
Ratios/Supplemental data:
Net assets, end of period (000)	$	25,433		$	20,973		$	11,997		$	3,154		$	7		$	—	9
Ratio of net expenses to average net assets		1.71	%10		1.73	%		1.71	%		1.74	%		1.77	%		1.77	%10
Ratio of total expenses to average net assets (excluding waivers)		1.72	%10		1.90	%		2.17	%		2.89	%		3.43	%		3.00	%10
Ratio of net investment loss to average net assets		(1.18	)%10		(1.11	)%		(1.01	)%		(1.32	)%		(1.09	)%		(1.07	)%10
Ratio of net investment loss to average net assets (excluding waivers)		(1.19	)%10		(1.28	)%		(1.47	)%		(2.48	)%		(2.75	)%		(2.30	)%10
Portfolio turnover rate		48	%		111	%		118	%		78	%		218	%		233	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

138

BLACKROCK FUNDS

SMALL CAP CORE EQUITY	INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30												PERIOD ENDED 9/30/021,2
				2006			2005			2004			20032
Net asset value, beginning of period	$	17.87		$	17.24		$	14.61		$	11.99		$	8.35		$	10.00
Net investment loss		(0.19	)3		(0.33	)3		(0.28	)3		(0.37	)3		—	4		—	4
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		2.21			1.26			3.02			3.07			3.64			(1.65	)
Net increase (decrease) from investment operations		2.02			0.93			2.74			2.70			3.64			(1.65	)
Dividends and distributions from:
Net realized capital gains		(0.31	)		(0.30	)		(0.11	)		(0.15	)		—			—
Total dividends and distributions		(0.31	)		(0.30	)		(0.11	)		(0.15	)		—			—
Redemption fees added to paid-in capital		—	5		—	5		—	5		0.07			—			—
Net asset value, end of period	$	19.58		$	17.87		$	17.24		$	14.61		$	11.99		$	8.35
Total return13		11.37	%6,7		5.49	%6		18.81	%6		23.17	%12		43.59	%		(16.50	)%7
Ratios/Supplemental data:
Net assets, end of period (000)	$	8,696		$	8,326		$	6,303		$	1,157		$	—	9	$	—	9
Ratio of net expenses to average net assets		2.49	%10		2.49	%		2.44	%		2.49	%		2.52	%		2.52	%10
Ratio of total expenses to average net assets (excluding waivers)		2.52	%10		2.55	%		2.81	%		3.56	%		4.18	%		3.75	%10
Ratio of net investment loss to average net assets		(1.97	)%10		(1.87	)%		(1.74	)%		(2.07	)%		(1.84	)%		(1.82	)%10
Ratio of net investment loss to average net assets (excluding waivers)		(2.00	)%10		(1.93	)%		(2.11	)%		(3.15	)%		(3.50	)%		(3.05	)%10
Portfolio turnover rate		48	%		111	%		118	%		78	%		218	%		233	%
	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30												PERIOD ENDED 9/30/021,2
				2006			2005			2004			20032
Net asset value, beginning of period	$	17.87		$	17.23		$	14.60		$	11.99		$	8.35		$	10.00
Net investment loss		(0.18	)3		(0.32	)3		(0.28	)3		(0.28	)3		—	4		—	4
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		2.21			1.26			3.02			2.99			3.64			(1.65	)
Net increase (decrease) from investment operations		2.03			0.94			2.74			2.71			3.64			(1.65	)
Dividends and distributions from:
Net realized capital gains		(0.31	)		(0.30	)		(0.11	)		(0.15	)		—			—
Total dividends and distributions		(0.31	)		(0.30	)		(0.11	)		(0.15	)		—			—
Redemption fees added to paid-in capital		—	5		—	5		—	5		0.05			—			—
Net asset value, end of period	$	19.59		$	17.87		$	17.23		$	14.60		$	11.99		$	8.35
Total return13		11.42	%6,7		5.55	%6		18.82	%6		23.08	%8		43.59	%		(16.50	)%7
Ratios/Supplemental data:
Net assets, end of period (000)	$	28,069		$	26,151		$	17,266		$	3,352		$	—	9	$	—	9
Ratio of net expenses to average net assets		2.45	%10		2.44	%		2.44	%		2.47	%		2.52	%		2.52	%10
Ratio of total expenses to average net assets (excluding waivers)		2.46	%10		2.48	%		2.80	%		3.56	%		4.18	%		3.75	%10
Ratio of net investment loss to average net assets		(1.93	)%10		(1.81	)%		(1.74	)%		(2.03	)%		(1.84	)%		(1.82	)%10
Ratio of net investment loss to average net assets (excluding waivers)		(1.94	)%10		(1.85	)%		(2.10	)%		(3.11	)%		(3.50	)%		(3.05	)%10
Portfolio turnover rate		48	%		111	%		118	%		78	%		218	%		233	%

¹ Commencement of operations of share class effective 1/02/02.

² Audited by other auditors.

³ Calculated using the average shares outstanding method.

⁴ Net investment income is less than $0.005 per share.

⁵ Redemption fees added to paid-in capital are less than $0.005 per share.

⁶ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. There was no impact to the return.

⁷ Not annualized.

⁸ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 42 basis points.

⁹ Net assets end of period are less than $500.

¹⁰ Annualized.

¹¹ Sales load not reflected in total return.

¹² Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 59 basis points.

¹³ Contingent deferred sales load not reflected in total return.

139

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

SMALL CAP GROWTH EQUITY	INSTITUTIONAL CLASS																		SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	19.26		$	17.29		$	14.52		$	12.26		$	9.00		$	11.74		$	18.38		$	16.54		$	13.92		$	11.79		$	8.67		$	11.36
Net investment loss		(0.03	)2		(0.09	)2		(0.06	)2		(0.11	)2		(0.09	)		(0.17	)		(0.05	)2		(0.13	) 2		(0.11	)2		(0.15	)2		(0.12	)		(0.19	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		2.49			2.06			2.82			2.37			3.35			(2.57	)		2.37			1.97			2.72			2.28			3.24			(2.50	)
Net increase (decrease) from investment operations		2.46			1.97			2.76			2.26			3.26			(2.74	)		2.32			1.84			2.61			2.13			3.12			(2.69	)
Redemption fees added to paid-in capital		—	3		—	3		0.01			—	3		—	3		—			—	3		—	3		0.01			—	3		—	3		—
Net asset value, end of period	$	21.72		$	19.26		$	17.29		$	14.52		$	12.26		$	9.00		$	20.70		$	18.38		$	16.54		$	13.92		$	11.79		$	8.67
Total return		12.77	%4,5		11.39	%4		19.08	%6		18.43	%4		36.22	%4		(23.34	)%		12.62	%4,5		11.12	%4		18.82	%6		18.07	%4		35.99	%4		(23.68	)%
Ratios/Supplemental data:
Net assets, end of period (000)	$	508,869		$	426,000		$	357,857		$	272,324		$	164,856		$	176,858		$	29,295		$	26,422		$	24,491		$	29,569		$	23,466		$	29,023
Ratio of net expenses to average net assets		0.80	%7		0.83	%		0.94	%		0.92	%		0.89	%		0.85	%		1.02	%7		1.08	%		1.19	%		1.20	%		1.19	%		1.15	%
Ratio of total expenses to average net assets (excluding waivers)		0.80	%7		0.83	%		0.95	%		0.93	%		0.92	%		0.87	%		1.02	%7		1.08	%		1.19	%		1.20	%		1.22	%		1.17	%
Ratio of net investment loss to average net assets		(0.26	)%7		(0.48	)%		(0.40	)%		(0.73	)%		(0.75	)%		(0.67	)%		(0.49	)%7		(0.73	)%		(0.70	)%		(1.02	)%		(1.05	)%		(0.97	)%
Ratio of net investment loss to average net assets (excluding waivers)		(0.26	)%7		(0.48	)%		(0.41	)%		(0.74	)%		(0.78	)%		(0.69	)%		(0.49	)%7		(0.73	)%		(0.70	)%		(1.02	)%		(1.08	)%		(0.99	)%
Portfolio turnover rate		30	%		74	%		91	%		81	%		167	%		238	%		30	%		74	%		91	%		81	%		167	%		238	%
	INVESTOR A CLASS																		INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	17.90		$	16.12		$	13.57		$	11.51		$	8.48		$	11.12		$	16.07		$	14.61		$	12.39		$	10.59		$	7.86		$	10.39
Net investment loss		(0.05	)2		(0.14	)2		(0.10	)2		(0.16	)2		(0.13	)		(0.14	)		(0.15	)2		(0.27	)2		(0.20	)2		(0.24	)2		(0.19	)		(0.23	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		2.30			1.92			2.64			2.22			3.16			(2.50	)		2.07			1.73			2.41			2.04			2.92			(2.30	)
Net increase (decrease) from investment operations		2.25			1.78			2.54			2.06			3.03			(2.64	)		1.92			1.46			2.21			1.80			2.73			(2.53	)
Redemption fees added to paid-in capital		—	3		—	3		0.01			—	3		—	3		—			—	3		—	3		0.01			—	3		—	3		—
Net asset value, end of period	$	20.15		$	17.90		$	16.12		$	13.57		$	11.51		$	8.48		$	17.99		$	16.07		$	14.61		$	12.39		$	10.59		$	7.86
Total return		12.57	%4,5,8		11.04	%4,8		18.79	%6,8		17.90	%4,8		35.73	%4,8		(23.74	)%8		11.95	%4,5,9		9.99	%4,9		17.92	%9,10		17.00	%4,9		34.73	%4,9		(24.35	)%9
Ratios/Supplemental data:
Net assets, end of period (000)	$	186,739		$	176,250		$	160,374		$	131,795		$	102,642		$	95,620		$	11,045		$	10,649		$	15,516		$	23,983		$	24,167		$	21,958
Ratio of net expenses to average net assets		1.10	%7		1.15	%		1.19	%		1.30	%		1.37	%		1.33	%		2.21	%7		2.11	%		1.94	%		2.07	%		2.11	%		2.07	%
Ratio of total expenses to average net assets (excluding waivers)		1.10	%7		1.25	%		1.29	%		1.40	%		1.40	%		1.36	%		2.32	%7		2.30	%		1.94	%		2.07	%		2.14	%		2.10	%
Ratio of net investment loss to average net assets		(0.56	)%7		(0.80	)%		(0.66	)%		(1.12	)%		(1.22	)%		(1.14	)%		(1.68	)%7		(1.77	)%		(1.45	)%		(1.89	)%		(1.97	)%		(1.89	)%
Ratio of net investment loss to average net assets (excluding waivers)		(0.56	)%7		(0.90	)%		(0.76	)%		(1.22	)%		(1.25	)%		(1.17	)%		(1.79	)%7		(1.96	)%		(1.45	)%		(1.89	)%		(2.00	)%		(1.92	)%
Portfolio turnover rate		30	%		74	%		91	%		81	%		167	%		238	%		30	%		74	%		91	%		81	%		167	%		238	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

140

BLACKROCK FUNDS

SMALL CAP GROWTH EQUITY	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	16.09		$	14.62		$	12.40		$	10.60		$	7.86		$	10.39
Net investment loss		(0.13	)2		(0.26	)2		(0.19	)2		(0.25	)2		(0.18	)		(0.23	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		2.07			1.73			2.40			2.05			2.92			(2.30	)
Net increase (decrease) from investment operations		1.94			1.47			2.21			1.80			2.74			(2.53	)
Redemption fees added to paid-in capital		—	3		—	3		0.01			—	3		—	3		—
Net asset value, end of period	$	18.03		$	16.09		$	14.62		$	12.40		$	10.60		$	7.86
Total return9		12.06	%4,5		10.05	%4		17.90	%10		16.98	%4		34.86	%4		(24.35	)%
Ratios/Supplemental data:
Net assets, end of period (000)	$	19,557		$	15,667		$	15,434		$	13,989		$	11,396		$	9,665
Ratio of net expenses to average net assets		1.99	%7		2.02	%		1.94	%		2.08	%		2.11	%		2.07	%
Ratio of total expenses to average net assets (excluding waivers)		1.99	%7		2.02	%		1.94	%		2.08	%		2.14	%		2.10	%
Ratio of net investment loss to average net assets		(1.46	)%7		(1.68	)%		(1.41	)%		(1.90	)%		(1.97	)%		(1.89	)%
Ratio of net investment loss to average net assets (excluding waivers)		(1.46	)%7		(1.68	)%		(1.41	)%		(1.90	)%		(2.00	)%		(1.92	)%
Portfolio turnover rate		30	%		74	%		91	%		81	%		167	%		238	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

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

⁵ Not annualized.

⁶ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 7 basis points.

⁷ Annualized.

⁸ Sales load not reflected in total return.

⁹ Contingent deferred sales load not reflected in total return.

¹⁰ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 8 basis points.

141

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES	INSTITUTIONAL CLASS																		SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	7.20		$	6.61		$	5.42		$	5.46		$	3.59		$	4.41		$	7.07		$	6.51		$	5.35		$	5.41		$	3.57		$	4.39
Net investment loss		(0.02	)2		(0.03	)2		(0.04	)2		(0.07	)2		(0.05	)		(0.06	)2		(0.04	)2		(0.05	)2		(0.06	)2		(0.08	)2		(0.06	)2		(0.06	)2
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		0.47			0.61			1.23			0.03			1.92			(0.76	)		0.47			0.60			1.22			0.02			1.90			(0.76	)
Net increase (decrease) from investment operations		0.45			0.58			1.19			(0.04	)		1.87			(0.82	)		0.43			0.55			1.16			(0.06	)		1.84			(0.82	)
Redemption fees added to paid-in capital		—	3		0.01			—	3		—	3		—			—			—	3		0.01			—	3		—	3		—			—
Net asset value, end of period	$	7.65		$	7.20		$	6.61		$	5.42		$	5.46		$	3.59		$	7.50		$	7.07		$	6.51		$	5.35		$	5.41		$	3.57
Total return		6.25	%4,5		8.93	%6		21.96	%4		(0.73	)%4		52.09	%		(18.59	)%		6.08	%4,5		8.60	% 6		21.68	%4		(1.11	)%4		51.54	%		(18.68	)%
Ratios/Supplemental data:
Net assets, end of period (000)	$	1,258		$	1,262		$	847		$	1,592		$	2,821		$	2,385		$	77		$	148		$	116		$	86		$	108		$	30
Ratio of net expenses to average net assets		1.34	%7		1.38	%		1.43	%		1.43	%		1.35	%		1.20	%		1.72	%7		1.73	%		1.73	%		1.73	%		1.67	%		1.50	%
Ratio of total expenses to average net assets (excluding waivers)		1.95	%7		1.79	%		1.98	%		1.63	%		1.63	%		1.31	%		2.24	%7		2.06	%		2.27	%		1.94	%		1.88	%		1.63	%
Ratio of net investment loss to average net assets		(0.64	)%7		(0.45	)%		(0.73	)%		(1.12	)%		(1.06	)%		(1.00	)%		(1.03	)%7		(0.79	)%		(1.04	)%		(1.41	)%		(1.38	)%		(1.30	)%
Ratio of net investment loss to average net assets (excluding waivers)		(1.25	)%7		(0.86	)%		(1.28	)%		(1.32	)%		(1.34	)%		(1.11	)%		(1.55	)%7		(1.12	)%		(1.58	)%		(1.61	)%		(1.59	)%		(1.43	)%
Portfolio turnover rate		49	%		132	%		113	%		115	%		226	%		587	%		49	%		132	%		113	%		115	%		226	%		587	%
	INVESTOR A CLASS																		INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	7.00		$	6.45		$	5.31		$	5.38		$	3.55		$	4.38		$	6.66		$	6.19		$	5.13		$	5.24		$	3.49		$	4.33
Net investment loss		(0.04	)2		(0.06	)2		(0.07	)2		(0.09	)2		(0.07	)		(0.09	)		(0.07	)2		(0.11	)2		(0.11	)2		(0.13	)2		(0.10	)		(0.14	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		0.46			0.60			1.21			0.02			1.90			(0.74	)		0.45			0.57			1.17			0.02			1.85			(0.70	)
Net increase (decrease) from investment operations		0.42			0.54			1.14			(0.07	)		1.83			(0.83	)		0.38			0.46			1.06			(0.11	)		1.75			(0.84	)
Redemption fees added to paid-in capital		—	3		0.01			—	3		—	3		—			—			—	3		0.01			—	3		—	3		—			—
Net asset value, end of period	$	7.42		$	7.00		$	6.45		$	5.31		$	5.38		$	3.55		$	7.04		$	6.66		$	6.19		$	5.13		$	5.24		$	3.49
Total return		6.00	%4,5,8		8.53	%8,9		21.47	%4,8		(1.30	)%4,8		51.55	%8		(18.95	)%8		5.71	%4,5,10		7.59	%9,10		20.66	%4,10		(2.10	)%4,10		50.14	%10		(19.40	)%10
Ratios/Supplemental data:
Net assets, end of period (000)	$	13,681		$	13,040		$	9,688		$	9,929		$	11,406		$	9,104		$	8,835		$	10,439		$	10,998		$	12,315		$	16,646		$	12,944
Ratio of net expenses to average net assets		1.74	%7		1.77	%		1.84	%		1.89	%		1.83	%		1.67	%		2.64	%7		2.63	%		2.59	%		2.65	%		2.57	%		2.38	%
Ratio of total expenses to average net assets (excluding waivers)		2.17	%7		2.27	%		2.35	%		2.14	%		2.10	%		1.79	%		3.09	%7		3.06	%		3.00	%		2.82	%		2.85	%		2.50	%
Ratio of net investment loss to average net assets		(1.03	)%7		(0.83	)%		(1.16	)%		(1.56	)%		(1.53	)%		(1.47	)%		(1.93	)%7		(1.73	)%		(1.91	)%		(2.33	)%		(2.28	)%		(2.18	)%
Ratio of net investment loss to average net assets (excluding waivers)		(1.46	)%7		(1.33	)%		(1.67	)%		(1.81	)%		(1.81	)%		(1.59	)%		(2.38	)%7		(2.16	)%		(2.32	)%		(2.50	)%		(2.55	)%		(2.29	)%
Portfolio turnover rate		49	%		132	%		113	%		115	%		226	%		587	%		49	%		132	%		113	%		115	%		226	%		587	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

142

BLACKROCK FUNDS

GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	6.66		$	6.19		$	5.14		$	5.24		$	3.49		$	4.33
Net investment loss		(0.07	)2		(0.11	)2		(0.11	)2		(0.13	)2		(0.10	)		(0.15	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		0.45			0.57			1.16			0.03			1.85			(0.69	)
Net increase (decrease) from investment operations		0.38			0.46			1.05			(0.10	)		1.75			(0.84	)
Redemption fees added to paid-in capital		—	3		0.01			—	3		—	3		—			—
Net asset value, end of period	$	7.04		$	6.66		$	6.19		$	5.14		$	5.24		$	3.49
Total return10		5.71	%4,5		7.59	%9		20.43	%4		(1.91	)%4		50.14	%		(19.40	)%
Ratios/Supplemental data:
Net assets, end of period (000)	$	9,286		$	6,511		$	2,794		$	3,244		$	4,024		$	3,010
Ratio of net expenses to average net assets		2.60	%7		2.62	%		2.59	%		2.65	%		2.57	%		2.59	%
Ratio of total expenses to average net assets (excluding waivers)		2.81	%7		2.84	%		3.00	%		2.80	%		2.85	%		2.72	%
Ratio of net investment loss to average net assets		(1.88	)%7		(1.67	)%		(1.91	)%		(2.33	)%		(2.28	)%		(2.37	)%
Ratio of net investment loss to average net assets (excluding waivers)		(2.09	)%7		(1.89	)%		(2.32	)%		(2.48	)%		(2.55	)%		(2.50	)%
Portfolio turnover rate		49	%		132	%		113	%		115	%		226	%		587	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

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

⁵ Not annualized.

⁶ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 15 basis points.

⁷ Annualized.

⁸ Sales load not reflected in total return.

⁹ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 16 basis points.

¹⁰ Contingent deferred sales load not reflected in total return.

143

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

GLOBAL RESOURCES	INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			7/01/04 - 2/28/05			YEAR ENDED JUNE 30
													2004			2003			20021
Net asset value, beginning of period	$	68.57		$	79.62		$	58.80		$	41.25		$	26.85		$	23.51		$	22.13
Net investment income (loss)		0.09	2		0.57	2		0.15	2		(0.08	)		0.27			(0.04	)		(0.09	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		6.89			(2.50	)		20.67			19.52			14.78			3.38			1.47
Net increase (decrease) from investment operations		6.98			(1.93	)		20.82			19.44			15.05			3.34			1.38
Dividends and distributions from:
Net investment income		(0.81	)		(0.53	)		—			(0.34	)		(0.65	)		—			—
Net realized capital gains		(18.58	)		(8.60	)		—			(1.55	)		—			—			—
Total dividends and distributions		(19.39	)		(9.13	)		—			(1.89	)		(0.65	)		—			—
Redemption fees added to paid-in capital		—	3		0.01			—	3		—			—			—			—
Net asset value, end of period	$	56.16		$	68.57		$	79.62		$	58.80		$	41.25		$	26.85		$	23.51
Total return		9.41	%4,5		(2.89	)%6		35.41	%4,5		47.95	%5		56.49	%		14.21	%		6.24	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	34,205		$	35,010		$	40,906		$	29,188		$	20,044		$	10,144		$	7,995
Ratio of net expenses to average net assets		1.04	%7		0.98	%		1.04	%7		1.01	%7		1.04	%		1.30	%		1.43	%
Ratio of total expenses to average net assets (excluding waivers)		1.06	%7		1.02	%		1.18	%7		1.02	%7		1.04	%		1.31	%		1.44	%
Ratio of net investment income (loss) to average net assets		0.28	%7		0.76	%		0.42	%7		(0.16	)%7		0.79	%		(0.20	)%		(0.42	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.26	%7		0.72	%		0.28	%7		(0.17	)%7		0.79	%		(0.20	)%		(0.42	)%
Portfolio turnover rate		6	%		27	%		9	%		22	%		27	%		33	%		38	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

144

BLACKROCK FUNDS

GLOBAL RESOURCES	INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			7/01/04 - 2/28/05			YEAR ENDED JUNE 30
													2004			2003			20021
Net asset value, beginning of period	$	64.90		$	76.01		$	56.23		$	39.58		$	25.81		$	22.74		$	21.50
Net investment income (loss)		—	2,8		0.32	2		0.03	2		(0.15	)		0.21			(0.10	)		(0.15	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		6.55			(2.36	)		19.75			18.69			14.15			3.17			1.39
Net increase (decrease) from investment operations		6.55			(2.04	)		19.78			18.54			14.36			3.07			1.24
Dividends and distributions from:
Net investment income		(0.55	)		(0.48	)		—			(0.34	)		(0.59	)		—			—
Net realized capital gains		(18.58	)		(8.60	)		—			(1.55	)		—			—			—
Total dividends and distributions		(19.13	)		(9.08	)		—			(1.89	)		(0.59	)		—			—
Redemption fees added to paid-in capital		—	3		0.01			—	3		—			—			—			—
Net asset value, end of period	$	52.32		$	64.90		$	76.01		$	56.23		$	39.58		$	25.81		$	22.74
Total return9		9.26	%4,5		(3.20	)%6		35.18	%4,5		47.69	%5		56.06	%		13.50	%		5.77	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	626,428		$	683,417		$	877,120		$	676,234		$	406,209		$	103,987		$	89,883
Ratio of net expenses to average net assets		1.34	%7		1.30	%		1.34	%7		1.36	%7		1.34	%		1.60	%		1.73	%
Ratio of total expenses to average net assets (excluding waivers)		1.35	%7		1.41	%		1.52	%7		1.38	%7		1.34	%		1.61	%		1.74	%
Ratio of net investment income (loss) to average net assets		(0.02	)%7		0.44	%		0.10	%7		(0.52	)%7		0.64	%		(0.47	)%		(0.73	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		(0.03	)%7		0.33	%		(0.08	)% 7		(0.54	)%7		0.64	%		(0.47	)%		(0.73	)%
Portfolio turnover rate		6	%		27	%		9	%		22	%		27	%		33	%		38	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

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

⁵ Not annualized.

⁶ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 2 basis points.

⁷ Annualized.

⁸ Net investment income is less than $0.005 per share.

⁹ Sales load not reflected in total return.

145

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

GLOBAL RESOURCES	INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			7/01/04 - 2/28/05			YEAR ENDED JUNE 30
													2004			2003			20021
Net asset value, beginning of period	$	58.19		$	69.43		$	51.58		$	36.52		$	23.89		$	21.20		$	20.16
Net investment loss		(0.18	)2		(0.18	)2		(0.19	)2		(0.32	)		(0.06	)		(0.23	)		(0.27	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		5.90			(2.09	)		18.04			17.18			13.14			2.92			1.31
Net increase (decrease) from investment operations		5.72			(2.27	)		17.85			16.86			13.08			2.69			1.04
Dividends and distributions from:
Net investment income		(0.06	)		(0.38	)		—			(0.25	)		(0.45	)		—			—
Net realized capital gains		(18.58	)		(8.60	)		—			(1.55	)		—			—			—
Total dividends and distributions		(18.64	)		(8.98	)		—			(1.80	)		(0.45	)		—			—
Redemption fees added to paid-in capital		—	3		0.01			—	3		—			—			—			—
Net asset value, end of period	$	45.27		$	58.19		$	69.43		$	51.58		$	36.52		$	23.89		$	21.20
Total return4		8.86	%5,6		(3.91	)%7		34.60	%5,6		47.09	%6		55.07	%		12.69	%		5.16	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	78,519		$	87,636		$	117,845		$	94,506		$	66,704		$	29,782		$	25,626
Ratio of net expenses to average net assets		2.04	%8		2.02	%		2.04	%8		2.01	%8		2.04	%		2.30	%		2.43	%
Ratio of total expenses to average net assets (excluding waivers)		2.11	%8		2.09	%		2.18	%8		2.02	%8		2.04	%		2.31	%		2.44	%
Ratio of net investment loss to average net assets		(0.72	)%8		(0.27	)%		(0.60	)%8		(1.17	)%8		(0.20	)%		(1.17	)%		(1.41	)%
Ratio of net investment loss to average net assets (excluding waivers)		(0.79	)%8		(0.34	)%		(0.74	)%8		(1.18	)%8		(0.20	)%		(1.17	)%		(1.41	)%
Portfolio turnover rate		6	%		27	%		9	%		22	%		27	%		33	%		38	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

146

BLACKROCK FUNDS

	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			7/01/04 - 2/28/05			YEAR ENDED JUNE 30
GLOBAL RESOURCES													2004			2003			20021
Net asset value, beginning of period	$	58.13		$	69.37		$	51.53		$	36.48		$	23.88		$	21.18		$	20.14
Net investment loss		(0.18	)2		(0.17	)2		(0.19	)2		(0.30	)		(0.03	)		(0.23	)		(0.28	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		5.91			(2.10	)		18.03			17.14			13.10			2.93			1.32
Net increase (decrease) from investment operations		5.73			(2.27	)		17.84			16.84			13.07			2.70			1.04
Dividends and distributions from:
Net investment income		(0.04	)		(0.38	)		—			(0.24	)		(0.47	)		—			—
Net realized capital gains		(18.58	)		(8.60	)		—			(1.55	)		—			—			—
Total dividends and distributions		(18.62	)		(8.98	)		—			(1.79	)		(0.47	)		—			—
Redemption fees added to paid-in capital		—	3		0.01			—	3		—			—			—			—
Net asset value, end of period	$	45.24		$	58.13		$	69.37		$	51.53		$	36.48		$	23.88		$	21.18
Total return4		8.88	%5,6		(3.92	)%9		34.62	%5,6		47.01	%6		55.05	%		12.75	%		5.16	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	132,549		$	147,723		$	201,265		$	169,871		$	122,088		$	37,601		$	31,853
Ratio of net expenses to average net assets		2.03	%8		2.01	%		2.04	%8		2.01	%8		2.04	%		2.30	%		2.43	%
Ratio of total expenses to average net assets (excluding waivers)		2.05	%8		2.05	%		2.17	%8		2.02	%8		2.04	%		2.31	%		2.44	%
Ratio of net investment loss to average net assets		(0.72	)%8		(0.26	)%		(0.61	)%8		(1.17	)%8		(0.10	)%		(1.18	)%		(1.43	)%
Ratio of net investment loss to average net assets (excluding waivers)		(0.74	)%8		(0.30	)%		(0.74	)%8		(1.18	)%8		(0.10	)%		(1.18	)%		(1.43	)%
Portfolio turnover rate		6	%		27	%		9	%		22	%		27	%		33	%		38	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

⁴ Contingent deferred sales load not reflected in total return.

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

⁶ Not annualized.

⁷ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 2 basis points.

⁸ Annualized.

⁹ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 1 basis point.

147

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

ALL-CAP GLOBAL RESOURCES	INSTITUTIONAL CLASS									SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			PERIOD ENDED 9/30/051			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			PERIOD ENDED 9/30/051
Net asset value, beginning of period	$	13.85		$	13.56		$	10.00		$	13.75		$	13.52		$	10.00
Net investment income (loss)		0.06	2		0.02	2		0.02	2		0.02	2		(0.02	)2		0.03	2
Gain on investments, foreign currency and options (both realized and unrealized)		2.05			0.26			3.54			2.06			0.24			3.49
Net increase from investment operations		2.11			0.28			3.56			2.08			0.22			3.52
Dividends and distributions from:
Net realized capital gains		(0.40	)		—			—			(0.40	)		—			—
Total dividends and distributions		(0.40	)		—			—			(0.40	)		—			—
Redemption fees added to paid-in capital		—	3		0.01			—	3		—	3		0.01			—	3
Net asset value, end of period	$	15.56		$	13.85		$	13.56		$	15.43		$	13.75		$	13.52
Total return		15.22	%4,5		2.14	%6		35.60	%4,5		15.11	%4,5		1.70	%7		35.20	%4,5
Ratios/Supplemental data:
Net assets, end of period (000)	$	470,548		$	337,771		$	92,147		$	2,644		$	2,368		$	—	8
Ratio of net expenses to average net assets		0.94	%9		0.99	%		1.04	%9		1.32	%9		1.34	%		1.34	%9
Ratio of total expenses to average net assets (excluding waivers)		0.94	%9		1.01	%		1.54	%9		1.38	%9		1.40	%		1.77	%9
Ratio of net investment income (loss) to average net assets		0.75	%9		0.17	%		0.25	%9		0.30	%9		(0.17	)%		0.01	%9
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.75	%9		0.15	%		(0.25	)%9		0.24	%9		(0.23	)%		(0.42	)%9
Portfolio turnover rate		18	%		41	%		12	%		18	%		41	%		12	%
	INVESTOR A CLASS									INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			PERIOD ENDED 9/30/051			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			PERIOD ENDED 9/30/051
Net asset value, beginning of period	$	13.75		$	13.50		$	10.00		$	13.59		$	13.44		$	10.00
Net investment income (loss)		0.02	2		(0.02	)2		—	2,10		(0.03	)2		(0.12	)2		(0.05	)2
Gain on investments, foreign currency and options (both realized and unrealized)		2.05			0.26			3.50			2.02			0.26			3.49
Net increase from investment operations		2.07			0.24			3.50			1.99			0.14			3.44
Dividends and distributions from:
Net realized capital gains		(0.40	)		—			—			(0.40	)		—			—
Total dividends and distributions		(0.40	)		—			—			(0.40	)		—			—
Redemption fees added to paid-in capital		—	3		0.01			—	3		—	3		0.01			—	3
Net asset value, end of period	$	15.42		$	13.75		$	13.50		$	15.18		$	13.59		$	13.44
Total return		15.04	%4,5,11		1.85	%7,11		35.00	%4,5,11		14.62	%4,5,12		1.12	%6,12		34.40	%4,5,12
Ratios/Supplemental data:
Net assets, end of period (000)	$	273,030		$	248,557		$	87,949		$	46,468		$	43,477		$	16,019
Ratio of net expenses to average net assets		1.30	%9		1.34	%		1.34	%9		2.04	% 9		2.04	%		2.04	%9
Ratio of total expenses to average net assets (excluding waivers)		1.32	%9		1.46	%		1.87	%9		2.17	% 9		2.13	%		2.49	%9
Ratio of net investment income (loss) to average net assets		0.26	%9		(0.16	)%		0.01	%9		(0.48	)%9		(0.86	)%		(0.64	)%9
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.24	%9		(0.28	)%		(0.52	)%9		(0.61	)%9		(0.95	)%		(1.09	)%9
Portfolio turnover rate		18	%		41	%		12	%		18	%		41	%		12	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

148

BLACKROCK FUNDS

ALL-CAP GLOBAL RESOURCES	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			PERIOD ENDED 9/30/051
Net asset value, beginning of period	$	13.60		$	13.46		$	10.00
Net investment loss		(0.03	)2		(0.12	)2		(0.05	)2
Gain on investments, foreign currency and options (both realized and unrealized)		2.03			0.25			3.51
Net increase from investment operations		2.00			0.13			3.46
Dividends and distributions from:
Net realized capital gains		(0.40	)		—			—
Total dividends and distributions		(0.40	)		—			—
Redemption fees added to paid-in capital		—	3		0.01			—	3
Net asset value, end of period	$	15.20		$	13.60		$	13.46
Total return12		14.69	%4,5		1.04	%7		34.60	%4,5
Ratios/Supplemental data:
Net assets, end of period (000)	$	156,556		$	136,120		$	48,288
Ratio of net expenses to average net assets		2.04	%9		2.04	%		2.04	%9
Ratio of total expenses to average net assets (excluding waivers)		2.07	%9		2.09	%		2.48	%9
Ratio of net investment loss to average net assets		(0.45	)%9		(0.86	)%		(0.70	)%9
Ratio of net investment loss to average net assets (excluding waivers)		(0.48	)%9		(0.91	)%		(1.14	)%9
Portfolio turnover rate		18	%		41	%		12	%

¹ Commencement of operations of share class effective 2/16/05.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

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

⁵ Not annualized.

⁶ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 8 basis points.

⁷ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 7 basis points.

⁸ Net assets end of period are less than $500.

⁹ Annualized.

¹⁰ Net investment income is less than $0.005 per share.

¹¹ Sales load not reflected in total return.

¹² Contingent deferred sales load not reflected in total return.

149

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

HEALTH SCIENCES OPPORTUNITIES	INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			YEAR ENDED 2/28/05			YEAR ENDED 2/29/04			YEAR ENDED FEBRUARY 28
																20031			20021
Net asset value, beginning of period	$	26.18		$	24.45		$	20.50		$	21.15		$	11.64		$	14.48		$	14.14
Net investment income (loss)		0.06	2		0.04	2		(0.06	)2		(0.15	)		(0.06	)		(0.09	)		(0.08	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.22			2.30			4.02			0.57			10.21			(2.71	)		0.47
Net increase (decrease) from investment operations		1.28			2.34			3.96			0.42			10.15			(2.80	)		0.39
Dividends and distributions from:
Net realized capital gains		(0.35	)		(0.62	)		(0.01	)		(1.07	)		(0.64	)		(0.04	)		(0.05	)
Total dividends and distributions		(0.35	)		(0.62	)		(0.01	)		(1.07	)		(0.64	)		(0.04	)		(0.05	)
Redemption fees added to paid-in capital		—	3		0.01			—	3		—			—			—			—
Net asset value, end of period	$	27.11		$	26.18		$	24.45		$	20.50		$	21.15		$	11.64		$	14.48
Total return		4.91	%4,5		9.77	%6		19.32	%4,5		1.84	%		87.73	%		(19.42	)%		2.76	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	138,308		$	112,563		$	31,229		$	4,262		$	5,067		$	988		$	1,109
Ratio of net expenses to average net assets		0.96	%7		1.01	%		1.25	%7		1.25	%		1.25	%		1.25	%		1.25	%
Ratio of total expenses to average net assets (excluding waivers)		0.96	%7		1.01	%		1.37	%7		1.37	%		1.84	%		2.75	%		3.25	%
Ratio of net investment income (loss) to average net assets		0.43	%7		0.17	%		(0.47	)%7		(0.59	)%		(0.38	)%		(0.69	)%		(0.56	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.43	%7		0.17	%		(0.59	)%7		(0.71	)%		(0.97	)%		(2.18	)%		(2.53	)%
Portfolio turnover rate		70	%		157	%		77	%		173	%		106	%		157	%		75	%

	SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			PERIOD ENDED 2/28/058
Net asset value, beginning of period	$	25.78		$	24.15		$	20.24		$	20.30
Net investment income (loss)		0.02	2		(0.03	)2		(0.12	)2		(0.01	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.20			2.27			4.04			(0.05	)
Net increase (decrease) from investment operations		1.22			2.24			3.92			(0.06	)
Dividends and distributions from:
Net realized capital gains		(0.35	)		(0.62	)		(0.01	)		—
Total dividends and distributions		(0.35	)		(0.62	)		(0.01	)		—
Redemption fees added to paid-in capital		—	3		0.01			—	3		—
Net asset value, end of period	$	26.65		$	25.78		$	24.15		$	20.24
Total return		4.75	%4,5		9.47	%6		19.37	%4,5		(0.30	)%5
Ratios/Supplemental data:
Net assets, end of period (000)	$	5,452		$	4,347		$	66		$	—	9
Ratio of net expenses to average net assets		1.25	%7		1.34	%		1.55	%7		0.82	%7
Ratio of total expenses to average net assets (excluding waivers)		1.26	%7		1.34	%		1.64	%7		0.82	%7
Ratio of net investment income (loss) to average net assets		0.15	%7		(0.12	)%		(0.90	)%7		(0.70	)%7
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.14	%7		(0.12	)%		(0.99	)%7		(0.70	)%7
Portfolio turnover rate		70	%		157	%		77	%		173	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

150

BLACKROCK FUNDS

	INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			YEAR ENDED 2/28/05			YEAR ENDED 2/29/04			YEAR ENDED FEBRUARY 28
HEALTH SCIENCES OPPORTUNITIES																20031			20021
Net asset value, beginning of period	$	25.72		$	24.11		$	20.24		$	20.96		$	11.57		$	14.43		$	14.14
Net investment income (loss)		0.01	2		(0.05	)2		(0.09	)2		(0.17	)		(0.12	)		(0.12	)		(0.13	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.20			2.27			3.97			0.52			10.15			(2.70	)		0.47
Net increase (decrease) from investment operations		1.21			2.22			3.88			0.35			10.03			(2.82	)		0.34
Dividends and distributions from:
Net realized capital gains		(0.35	)		(0.62	)		(0.01	)		(1.07	)		(0.64	)		(0.04	)		(0.05	)
Total dividends and distributions		(0.35	)		(0.62	)		(0.01	)		(1.07	)		(0.64	)		(0.04	)		(0.05	)
Redemption fees added to paid-in capital		—	3		0.01			—	3		—			—			—			—
Net asset value, end of period	$	26.58		$	25.72		$	24.11		$	20.24		$	20.96		$	11.57		$	14.43
Total return10		4.72	%4,5		9.40	%6		19.17	%4,5		1.52	%		87.13	%		(19.63	)%		2.41	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	554,004		$	434,360		$	186,545		$	76,550		$	54,638		$	9,250		$	13,069
Ratio of net expenses to average net assets		1.31	%7		1.34	%		1.55	%7		1.58	%		1.55	%		1.55	%		1.55	%
Ratio of total expenses to average net assets (excluding waivers)		1.32	%7		1.45	%		1.69	%7		1.73	%		2.11	%		3.04	%		3.41	%
Ratio of net investment income (loss) to average net assets		0.09	%7		(0.19	)%		(0.68	)%7		(0.90	)%		(0.71	)%		(0.99	)%		(0.88	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.08	%7		(0.30	)%		(0.82	)%7		(1.05	)%		(1.27	)%		(2.47	)%		(2.71	)%
Portfolio turnover rate		70	%		157	%		77	%		173	%		106	%		157	%		75	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

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

⁵ Not annualized.

⁶ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 4 basis points.

⁷ Annualized.

⁸ Commencement of operations of share class effective 1/28/05.

⁹ Net assets end of period are less than $500.

¹⁰ Sales load not reflected in total return.

151

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			YEAR ENDED 2/28/05			YEAR ENDED 2/29/04			YEAR ENDED FEBRUARY 28
HEALTH SCIENCES OPPORTUNITIES																20031			20021
Net asset value, beginning of period	$	24.65		$	23.31		$	19.65		$	20.52		$	11.41		$	14.34		$	14.14
Net investment loss		(0.10	)2		(0.24	)2		(0.17	)2		(0.28	)		(0.24	)		(0.21	)		(0.23	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.15			2.19			3.84			0.48			9.99			(2.68	)		0.48
Net increase (decrease) from investment operations		1.05			1.95			3.67			0.20			9.75			(2.89	)		0.25
Dividends and distributions from:
Net realized capital gains		(0.35	)		(0.62	)		(0.01	)		(1.07	)		(0.64	)		(0.04	)		(0.05	)
Total dividends and distributions		(0.35	)		(0.62	)		(0.01	)		(1.07	)		(0.64	)		(0.04	)		(0.05	)
Redemption fees added to paid-in capital		—	3		0.01			—	3		—			—			—			—
Net asset value, end of period	$	25.35		$	24.65		$	23.31		$	19.65		$	20.52		$	11.41		$	14.34
Total return4		4.28	%5,6		8.54	%7		18.68	%5,6		0.80	%		85.89	%		(20.24	)%		1.77	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	85,484		$	78,902		$	45,073		$	29,495		$	22,825		$	9,290		$	11,399
Ratio of net expenses to average net assets		2.15	%8		2.16	%		2.25	%8		2.25	%		2.25	%		2.25	%		2.25	%
Ratio of total expenses to average net assets (excluding waivers)		2.16	%8		2.16	%		2.33	%8		2.39	%		2.91	%		3.74	%		3.99	%
Ratio of net investment loss to average net assets		(0.77	)%8		(1.02	)%		(1.35	)%8		(1.58	)%		(1.44	)%		(1.69	)%		(1.59	)%
Ratio of net investment loss to average net assets (excluding waivers)		(0.78	)%8		(1.02	)%		(1.43	)%8		(1.71	)%		(2.10	)%		(3.17	)%		(3.30	)%
Portfolio turnover rate		70	%		157	%		77	%		173	%		106	%		157	%		75	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

152

BLACKROCK FUNDS

	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			YEAR ENDED 2/28/05			YEAR ENDED 2/29/04			YEAR ENDED FEBRUARY 28
HEALTH SCIENCES OPPORTUNITIES																20031			20021
Net asset value, beginning of period	$	24.62		$	23.26		$	19.61		$	20.47		$	11.39		$	14.31		$	14.11
Net investment loss		(0.08	)2		(0.21	)2		(0.18	)2		(0.22	)		(0.23	)		(0.21	)		(0.23	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.15			2.18			3.84			0.43			9.95			(2.67	)		0.48
Net increase (decrease) from investment operations		1.07			1.97			3.66			0.21			9.72			(2.88	)		0.25
Dividends and distributions from:
Net realized capital gains		(0.35	)		(0.62	)		(0.01	)		(1.07	)		(0.64	)		(0.04	)		(0.05	)
Total dividends and distributions		(0.35	)		(0.62	)		(0.01	)		(1.07	)		(0.64	)		(0.04	)		(0.05	)
Redemption fees added to paid-in capital		—	3		0.01			—	3		—			—			—			—
Net asset value, end of period	$	25.34		$	24.62		$	23.26		$	19.61		$	20.47		$	11.39		$	14.31
Total return4		4.36	%5,6		8.65	%7		18.67	%5,6		0.86	%		85.87	%		(20.21	)%		1.77	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	300,816		$	254,724		$	84,431		$	25,248		$	11,017		$	1,291		$	1,314
Ratio of net expenses to average net assets		2.05	%8		2.04	%		2.25	%8		2.25	%		2.25	%		2.25	%		2.25	%
Ratio of total expenses to average net assets (excluding waivers)		2.05	%8		2.04	%		2.32	%8		2.41	%		2.77	%		3.74	%		3.99	%
Ratio of net investment loss to average net assets		(0.66	)%8		(0.87	)%		(1.41	)%8		(1.56	)%		(1.38	)%		(1.69	)%		(1.58	)%
Ratio of net investment loss to average net assets (excluding waivers)		(0.66	)%8		(0.87	)%		(1.48	)%8		(1.71	)%		(1.90	)%		(3.18	)%		(3.29	)%
Portfolio turnover rate		70	%		157	%		77	%		173	%		106	%		157	%		75	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

⁴ Contingent deferred sales load not reflected in total return.

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

⁶ Not annualized.

⁷ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 4 basis points.

⁸ Annualized.

153

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS																		SERVICE CLASS
U.S. OPPORTUNITIES	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	29.07		$	25.56		$	20.34		$	16.56		$	13.06		$	17.76		$	28.28		$	24.96		$	19.93		$	16.27		$	12.88		$	17.51
Net investment income (loss)		0.05	2		0.04	2		(0.15	)2		(0.17	)2		(0.16	)		(0.23	)2		(0.01	)2		(0.07	)2		(0.21	)2		(0.22	)2		(0.19	)		(0.51	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		3.86			3.46			5.37			3.95			3.66			(4.06	)		3.74			3.38			5.24			3.88			3.58			(3.79	)
Net increase (decrease) from investment operations		3.91			3.50			5.22			3.78			3.50			(4.29	)		3.73			3.31			5.03			3.66			3.39			(4.30	)
Dividends and distributions from:
Net investment income		—			—			—			—			—			(0.41	)		—			—			—			—			—			(0.33	)
Redemption fees added to paid-in capital		—	3		0.01			—	3		—	3		—			—			—	3		0.01			—	3		—	3		—			—
Net asset value, end of period	$	32.98		$	29.07		$	25.56		$	20.34		$	16.56		$	13.06		$	32.01		$	28.28		$	24.96		$	19.93		$	16.27		$	12.88
Total return		13.45	%4,5		13.73	%6		25.66	%4		22.83	%4		26.80	%		(25.04	)%		13.19	%4,5		13.30	%6		25.24	%4		22.50	%4		26.32	%		(25.26	)%
Ratios/Supplemental data:
Net assets, end of period (000)	$	56,540		$	20,548		$	6,390		$	6,074		$	7,235		$	10,867		$	7,390		$	1,527		$	472		$	2,303		$	421		$	483
Ratio of net expenses to average net assets		1.05	%7		1.19	%		1.60	%		1.60	%		1.52	%		1.45	%		1.42	%7		1.57	%		1.90	%		1.90	%		1.83	%		1.75	%
Ratio of total expenses to average net assets (excluding waivers)		1.33	%7		1.49	%		1.73	%		1.65	%		1.59	%		1.49	%		1.66	%7		1.85	%		1.97	%		1.97	%		1.89	%		1.79	%
Ratio of net investment income (loss) to average net assets		0.32	%7		0.15	%		(0.65	)%		(0.92	)%		(0.87	)%		(1.23	)%		(0.05	)%7		(0.25	)%		(0.96	)%		(1.15	)%		(1.17	)%		(1.51	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.04	%7		(0.15	)%		(0.78	)%		(0.97	)%		(0.94	)%		(1.27	)%		(0.29	)%7		(0.53	)%		(1.03	)%		(1.22	)%		(1.24	)%		(1.56	)%
Portfolio turnover rate		51	%		120	%		94	%		106	%		248	%		361	%		51	%		120	%		94	%		106	%		248	%		361	%
	INVESTOR A CLASS																		INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	28.03		$	24.76		$	19.78		$	16.17		$	12.81		$	17.41		$	26.37		$	23.45		$	18.87		$	15.55		$	12.41		$	16.86
Net investment loss		(0.02	)2		(0.10	)2		(0.22	)2		(0.26	)2		(0.21	)		(0.42	)		(0.13	)2		(0.29	)2		(0.37	)2		(0.39	)2		(0.32	)		(0.54	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		3.73			3.36			5.20			3.87			3.57			(3.89	)		3.49			3.20			4.95			3.71			3.46			(3.78	)
Net increase (decrease) from investment operations		3.71			3.26			4.98			3.61			3.36			(4.31	)		3.36			2.91			4.58			3.32			3.14			(4.32	)
Dividends and distributions from:
Net investment income		—			—			—			—			—			(0.29	)		—			—			—			—			—			(0.13	)
Redemption fees added to paid-in capital		—	3		0.01			—	3		—	3		—			—			—	3		0.01			—	3		—	3		—			—
Net asset value, end of period	$	31.74		$	28.03		$	24.76		$	19.78		$	16.17		$	12.81		$	29.73		$	26.37		$	23.45		$	18.87		$	15.55		$	12.41
Total return		13.24	%4,5,8		13.21	%6,8		25.18	%4,8		22.33	%4,8		26.23	%8		(25.39	)%8		12.74	%4,5,9		12.45	%6,9		24.27	%4,9		21.35	%4,9		25.30	%9		(25.92	)%9
Ratios/Supplemental data:
Net assets, end of period (000)	$	156,999		$	96,194		$	31,277		$	31,282		$	29,258		$	28,733		$	38,684		$	36,093		$	37,132		$	40,994		$	41,259		$	43,883
Ratio of net expenses to average net assets		1.44	%7		1.66	%		1.97	%		2.04	%		2.00	%		1.92	%		2.25	%7		2.40	%		2.72	%		2.80	%		2.74	%		2.67	%
Ratio of total expenses to average net assets (excluding waivers)		1.66	%7		1.95	%		2.08	%		2.15	%		2.06	%		1.97	%		2.58	%7		2.68	%		2.73	%		2.81	%		2.81	%		2.72	%
Ratio of net investment loss to average net assets		(0.12	)%7		(0.35	)%		(1.02	)%		(1.36	)%		(1.34	)%		(1.68	)%		(0.94	)%7		(1.13	)%		(1.77	)%		(2.12	)%		(2.09	)%		(2.43	)%
Ratio of net investment loss to average net assets (excluding waivers)		(0.34	)%7		(0.64	)%		(1.13	)%		(1.46	)%		(1.40	)%		(1.73	)%		(1.27	)%7		(1.41	)%		(1.78	)%		(2.13	)%		(2.15	)%		(2.47	)%
Portfolio turnover rate		51	%		120	%		94	%		106	%		248	%		361	%		51	%		120	%		94	%		106	%		248	%		361	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

154

BLACKROCK FUNDS

	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
U.S. OPPORTUNITIES				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	26.34		$	23.43		$	18.85		$	15.53		$	12.40		$	16.85
Net investment loss		(0.13	)2		(0.28	)2		(0.37	)2		(0.38	)2		(0.32	)		(0.55	)
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		3.50			3.18			4.95			3.70			3.45			(3.77	)
Net increase (decrease) from investment operations		3.37			2.90			4.58			3.32			3.13			(4.32	)
Dividends and distributions from:
Net investment income		—			—			—			—			—			(0.13	)
Redemption fees added to paid-in capital		—	3		0.01			—	3		—	3		—			—
Net asset value, end of period	$	29.71		$	26.34		$	23.43		$	18.85		$	15.53		$	12.40
Total return9		12.79	%4,5		12.42	%6		24.30	%4		21.38	%4		25.24	%		(25.93	)%
Ratios/Supplemental data:
Net assets, end of period (000)	$	63,660		$	39,427		$	20,774		$	20,261		$	20,761		$	22,020
Ratio of net expenses to average net assets		2.21	%7		2.37	%		2.72	%		2.81	%		2.74	%		2.67	%
Ratio of total expenses to average net assets (excluding waivers)		2.43	%7		2.60	%		2.73	%		2.83	%		2.81	%		2.72	%
Ratio of net investment loss to average net assets		(0.89	)%7		(1.07	)%		(1.77	)%		(2.13	)%		(2.09	)%		(2.43	)%
Ratio of net investment loss to average net assets (excluding waivers)		(1.11	)%7		(1.30	)%		(1.78	)%		(2.15	)%		(2.15	)%		(2.48	)%
Portfolio turnover rate		51	%		120	%		94	%		106	%		248	%		361	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

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

⁵ Not annualized.

⁶ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 4 basis points.

⁷ Annualized.

⁸ Sales load not reflected in total return.

⁹ Contingent deferred sales load not reflected in total return.

155

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS						SERVICE CLASS
GLOBAL OPPORTUNITIES	PERIOD ENDED 3/31/07 (UNAUDITED)			PERIOD ENDED 9/30/061			PERIOD ENDED 3/31/07 (UNAUDITED)			PERIOD ENDED 9/30/061
Net asset value, beginning of period	$	10.10		$	10.00		$	10.08		$	10.00
Net investment income (loss)		0.01	2		0.08	2		(0.01	)2		0.05	2
Gain on investments, foreign currency and options (both realized and unrealized)		1.50			0.01			1.50			0.02
Net increase from investment operations		1.51			0.09			1.49			0.07
Dividends and distributions from:
Net investment income		(0.09	)		—			(0.08	)		—
Net realized capital gains		—			—			—			—
Total dividends and distributions		(0.09	)		—			(0.08	)		—
Redemption fees added to paid-in capital		—	3		0.01			—	3		0.01
Net asset value, end of period	$	11.52		$	10.10		$	11.49		$	10.08
Total return4		14.95	%5		1.00	%6		14.83	%5		0.80	%6
Ratios/Supplemental data:
Net assets, end of period (000)	$	12,055		$	9,099		$	34		$	10
Ratio of net expenses to average net assets		1.30	%7		1.35	%7		1.62	%7		1.65	%7
Ratio of total expenses to average net assets (excluding waivers)		1.37	%7		2.25	%7		2.02	%7		6.60	%7
Ratio of net investment income (loss) to average net assets		0.21	%7		1.13	%7		(0.12	)%7		0.92	%7
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.14	%7		0.23	%7		(0.52	)%7		(4.03	)%7
Portfolio turnover rate		62	%		110	%		62	%		110	%
	INVESTOR A CLASS						INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			PERIOD ENDED 9/30/061			PERIOD ENDED 3/31/07 (UNAUDITED)			PERIOD ENDED 9/30/061
Net asset value, beginning of period	$	10.08		$	10.00		$	10.03		$	10.00
Net investment income (loss)		(0.01	)2		0.05	2		(0.05	)2		—	2,8
Gain on investments, foreign currency and options (both realized and unrealized)		1.50			0.02			1.50			0.02
Net increase from investment operations		1.49			0.07			1.45			0.02
Dividends and distributions from:
Net investment income		(0.07	)		—			(0.05	)		—
Net realized capital gains		—			—			—			—
Total dividends and distributions		(0.07	)		—			(0.05	)		—
Redemption fees added to paid-in capital		—	3		0.01			—	3		0.01
Net asset value, end of period	$	11.50		$	10.08		$	11.43		$	10.03
Total return4		14.84	%5,9		0.80	%6,9		14.46	%5,10		0.30	%6,10
Ratios/Supplemental data:
Net assets, end of period (000)	$	28,875		$	23,097		$	6,232		$	4,907
Ratio of net expenses to average net assets		1.62	%7		1.65	%7		2.39	%7		2.40	%7
Ratio of total expenses to average net assets (excluding waivers)		1.81	%7		2.84	%7		3.36	%7		4.95	%7
Ratio of net investment income (loss) to average net assets		(0.12	)%7		0.70	%7		(0.88	)%7		(0.05	)%7
Ratio of net investment loss to average net assets (excluding waivers)		(0.31	)%7		(0.49	)%7		(1.85	)%7		(2.60	)%7
Portfolio turnover rate		62	%		110	%		62	%		110	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

156

BLACKROCK FUNDS

	INVESTOR C CLASS
GLOBAL OPPORTUNITIES	PERIOD ENDED 3/31/07 (UNAUDITED)			PERIOD ENDED 9/30/061
Net asset value, beginning of period	$	10.03		$	10.00
Net investment loss		(0.05	)2		—	2,8
Gain on investments, foreign currency and options (both realized and unrealized)		1.51			0.02
Net increase from investment operations		1.46			0.02
Dividends and distributions from:
Net investment income		(0.05	)		—
Net realized capital gains		—			—
Total dividends and distributions		(0.05	)		—
Redemption fees added to paid-in capital		—	3		0.01
Net asset value, end of period	$	11.44		$	10.03
Total return10		14.54	%4,5		0.30	%4,6
Ratios/Supplemental data:
Net assets, end of period (000)	$	13,514		$	10,012
Ratio of net expenses to average net assets		2.36	%7		2.40	%7
Ratio of total expenses to average net assets (excluding waivers)		2.48	%7		3.38	%7
Ratio of net investment loss to average net assets		(0.85	)%7		(0.01	)%7
Ratio of net investment loss to average net assets (excluding waivers)		(0.97	)%7		(0.99	)%7
Portfolio turnover rate		62	%		110	%

¹ Commencement of operations of share class effective 1/31/06.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

⁴ Not annualized.

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

⁶ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 10 basis points.

⁷ Annualized.

⁸ Net investment income is less than $0.005 per share.

⁹ Sales load not reflected in total return.

¹⁰ Contingent deferred sales load not reflected in total return.

157

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS																		SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
INTERNATIONAL OPPORTUNITIES				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	42.16		$	34.34		$	24.44		$	19.96		$	15.22		$	14.86		$	41.06		$	33.55		$	23.93		$	19.59		$	14.98		$	14.66
Net investment income (loss)		0.09	2		0.37	2		0.53	2		0.08	2		—	3		0.05			0.03	2		0.29	2		0.44	2		0.06	2		0.05			(0.02	)
Gain on investments, foreign currency and options (both realized and unrealized)		8.82			8.57			9.68			4.41			4.73			0.27			8.59			8.32			9.45			4.29			4.55			0.30
Net increase from investment operations		8.91			8.94			10.21			4.49			4.73			0.32			8.62			8.61			9.89			4.35			4.60			0.28
Dividends and distributions from:
Net investment income		(0.71	)		(0.37	)		(0.32	)		(0.02	)		—			—			(0.61	)		(0.35	)		(0.28	)		(0.02	)		—			—
Net realized capital gains		(5.83	)		(0.76	)		—			—			—			—			(5.83	)		(0.76	)		—			—			—			—
Total dividends and distributions		(6.54	)		(1.13	)		(0.32	)		(0.02	)		—			—			(6.44	)		(1.11	)		(0.28	)		(0.02	)		—			—
Redemption fees added to paid-in capital		—	4		0.01			0.01			0.01			0.01			0.04			—	4		0.01			0.01			0.01			0.01			0.04
Net asset value, end of period	$	44.53		$	42.16		$	34.34		$	24.44		$	19.96		$	15.22		$	43.24		$	41.06		$	33.55		$	23.93		$	19.59		$	14.98
Total return		22.41	%5,6		26.64	%7		42.13	%8		22.54	%9		31.14	%10		2.42	%11		22.25	%5,6		26.30	%7		41.65	%8		22.25	%9		30.78	%12		2.18	%11
Ratios/Supplemental data:
Net assets, end of period (000)	$	425,916		$	336,000		$	216,070		$	96,535		$	57,950		$	54,164		$	151,300		$	128,879		$	44,308		$	19,167		$	1,573		$	670
Ratio of net expenses to average net assets		1.25	%13		1.33	%		1.45	%		1.45	%		1.41	%		1.33	%		1.54	%13		1.57	%		1.74	%		1.75	%		1.72	%		1.60	%
Ratio of total expenses to average net assets (excluding waivers)		1.25	%13		1.33	%		1.51	%		1.58	%		1.51	%		1.43	%		1.54	%13		1.58	%		1.76	%		1.91	%		1.80	%		1.70	%
Ratio of net investment income (loss) to average net assets		0.44	%13		0.91	%		1.81	%		0.31	%		0.42	%		0.27	%		0.14	%13		0.73	%		1.52	%		0.21	%		0.30	%		(0.17	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.44	%13		0.91	%		1.75	%		0.17	%		0.32	%		0.17	%		0.14	%13		0.72	%		1.50	%		0.05	%		0.22	%		(0.27	)%
Portfolio turnover rate		36	%		91	%		86	%		98	%		72	%		104	%		36	%		91	%		86	%		98	%		72	%		104	%

	INVESTOR A CLASS																		INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	40.81		$	33.36		$	23.78		$	19.49		$	14.94		$	14.65		$	38.81		$	31.97		$	22.80		$	18.83		$	14.54		$	14.37
Net investment income (loss)		0.02	2		0.23	2		0.44	2		(0.02	)2		0.01			(0.03	)		(0.14	)2		(0.07	)2		0.18	2		(0.21	)2		(0.12	)		(0.16	)
Gain on investments, foreign currency and options (both realized and unrealized)		8.54			8.32			9.38			4.32			4.53			0.28			8.10			7.95			9.05			4.19			4.40			0.29
Net increase from investment operations		8.56			8.55			9.82			4.30			4.54			0.25			7.96			7.88			9.23			3.98			4.28			0.13
Dividends and distributions from:
Net investment income		(0.58	)		(0.35	)		(0.25	)		(0.02	)		—			—			(0.25	)		(0.29	)		(0.07	)		(0.02	)		—			—
Net realized capital gains		(5.83	)		(0.76	)		—			—			—			—			(5.83	)		(0.76	)		—			—			—			—
Total dividends and distributions		(6.41	)		(1.11	)		(0.25	)		(0.02	)		—			—			(6.08	)		(1.05	)		(0.07	)		(0.02	)		—			—
Redemption fees added to paid-in capital		—	4		0.01			0.01			0.01			0.01			0.04			—	4		0.01			0.01			0.01			0.01			0.04
Net asset value, end of period	$	42.96		$	40.81		$	33.36		$	23.78		$	19.49		$	14.94		$	40.69		$	38.81		$	31.97		$	22.80		$	18.83		$	14.54
Total return		22.25	%5,6,14		26.24	%7,14		41.60	%9,14		22.11	%10,14		30.45	%10,14		1.98	%11,14		21.72	%5,6,15		25.24	%7,15		40.58	%8,15		21.18	%9,15		29.51	%9,15		1.18	%15,16
Ratios/Supplemental data:
Net assets, end of period (000)	$	489,914		$	407,282		$	253,710		$	99,879		$	37,934		$	25,969		$	100,581		$	91,605		$	73,946		$	45,167		$	31,454		$	25,917
Ratio of net expenses to average net assets		1.58	%13		1.63	%		1.75	%		1.89	%		1.89	%		1.80	%		2.38	%13		2.43	%		2.50	%		2.65	%		2.63	%		2.54	%
Ratio of total expenses to average net assets (excluding waivers)		1.58	%13		1.74	%		1.86	%		2.06	%		1.98	%		1.91	%		2.38	%13		2.43	%		2.51	%		2.72	%		2.72	%		2.64	%
Ratio of net investment income (loss) to average net assets		0.09	%13		0.62	%		1.53	%		(0.06	)%		0.05	%		(0.17	)%		(0.72	)%13		(0.22	)%		0.68	%		(0.94	)%		(0.74	)%		(0.93	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.09	%13		0.51	%		1.42	%		(0.24	)%		(0.04	)%		(0.27	)%		(0.72	)%13		(0.22	)%		0.67	%		(1.00	)%		(0.83	)%		(1.03	)%
Portfolio turnover rate		36	%		91	%		86	%		98	%		72	%		104	%		36	%		91	%		86	%		98	%		72	%		104	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

158

BLACKROCK FUNDS

	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
INTERNATIONAL OPPORTUNITIES				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	38.78		$	31.93		$	22.80		$	18.84		$	14.54		$	14.36
Net investment income (loss)		(0.13	)2		(0.04	)2		0.21	2		(0.21	)2		(0.11	)		(0.15	)
Gain on investments, foreign currency and options (both realized and unrealized)		8.09			7.93			9.01			4.18			4.40			0.29
Net increase from investment operations		7.96			7.89			9.22			3.97			4.29			0.14
Dividends and distributions from:
Net investment income		(0.29	)		(0.29	)		(0.10	)		(0.02	)		—			—
Net realized capital gains		(5.83	)		(0.76	)		—			—			—			—
Total dividends and distributions		(6.12	)		(1.05	)		(0.10	)		(0.02	)		—			—
Redemption fees added to paid-in capital		—	4		0.01			0.01			0.01			0.01			0.04
Net asset value, end of period	$	40.62		$	38.78		$	31.93		$	22.80		$	18.84		$	14.54
Total return15		21.76	%5,6		25.33	%7		40.60	%9		21.12	%9		29.57	%9		1.25	%11
Ratios/Supplemental data:
Net assets, end of period (000)	$	233,963		$	205,958		$	130,138		$	54,894		$	26,912		$	18,599
Ratio of net expenses to average net assets		2.33	%13		2.37	%		2.50	%		2.65	%		2.63	%		2.55	%
Ratio of total expenses to average net assets (excluding waivers)		2.33	%13		2.37	%		2.51	%		2.72	%		2.72	%		2.66	%
Ratio of net investment income (loss) to average net assets		(0.67	)%13		(0.13	)%		0.75	%		(0.86	)%		(0.71	)%		(0.95	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		(0.67	)%13		(0.13	)%		0.74	%		(0.93	)%		(0.80	)%		(1.05	)%
Portfolio turnover rate		36	%		91	%		86	%		98	%		72	%		104	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Net investment income is less than $0.005 per share.

⁴ Redemption fees added to paid-in capital are less than $0.005 per share.

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

⁶ Not annualized.

⁷ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 3 basis points.

⁸ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 4 basis points.

⁹ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 5 basis points.

¹⁰ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 6 basis points.

¹¹ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 27 basis points.

¹² Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 7 basis points.

¹³ Annualized.

¹⁴ Sales load not reflected in total return.

¹⁵ Contingent deferred sales load not reflected in total return.

¹⁶ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. The impact to the return for redemption fees received during the period is 28 basis points.

159

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS
ASSET ALLOCATION*	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			4/01/04 - 2/28/05			YEAR ENDED MARCH 31
													2004			20031			20021
Net asset value, beginning of period	$	15.53		$	15.51		$	14.99		$	14.91		$	11.38		$	14.17		$	14.05
Net investment income		0.16	2		0.31	2		0.17	2		0.20			0.24			0.28			0.32
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.07			0.66			0.52			0.82			3.54			(2.68	)		0.83
Net increase (decrease) from investment operations		1.23			0.97			0.69			1.02			3.78			(2.40	)		1.15
Dividends and distributions from:
Net investment income		(0.07	)		(0.30	)		(0.17	)		(0.40	)		(0.25	)		(0.33	)		(0.35	)
Net realized capital gains		(0.63	)		(0.65	)		—			(0.54	)		—			(0.06	)		(0.68	)
Total dividends and distributions		(0.70	)		(0.95	)		(0.17	)		(0.94	)		(0.25	)		(0.39	)		(1.03	)
Redemption fees added to paid-in capital		—	3		—	3		—	3		—			—			—			—
Net asset value, end of period	$	16.06		$	15.53		$	15.51		$	14.99		$	14.91		$	11.38		$	14.17
Total return		8.09	%4,5		6.53	%4		4.66	%4,5		7.17	%5		33.46	%		(17.12	)%		8.47	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	34,719		$	32,545		$	29,752		$	31,328		$	21,989		$	17,992		$	26,821
Ratio of net expenses to average net assets		0.86	%6		0.83	%		0.86	%6		1.03	%6		1.15	%		1.12	%		1.10	%
Ratio of total expenses to average net assets (excluding waivers)		0.89	%6		0.91	%		1.11	%6		1.05	%6		1.15	%		1.13	%		1.11	%
Ratio of net investment income to average net assets		2.01	%6		2.04	%		1.90	%6		1.71	%6		1.74	%		2.21	%		2.27	%
Ratio of net investment income to average net assets (excluding waivers)		1.98	%6		1.96	%		1.65	%6		1.70	%6		1.74	%		2.21	%		2.27	%
Portfolio turnover rate		40	%		136	%		90	%		101	%		216	%		181	%		186	%

	SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			PERIOD ENDED 2/28/057
Net asset value, beginning of period	$	15.51		$	15.49		$	14.97		$	14.63
Net investment income		0.14	2		0.27	2		0.14	2		0.01
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.08			0.65			0.52			0.33
Net increase (decrease) from investment operations		1.22			0.92			0.66			0.34
Dividends and distributions from:
Net investment income		(0.07	)		(0.25	)		(0.14	)		—
Net realized capital gains		(0.63	)		(0.65	)		—			—
Total dividends and distributions		(0.70	)		(0.90	)		(0.14	)		—
Redemption fees added to paid-in capital		—	3		—	3		—	3		—
Net asset value, end of period	$	16.03		$	15.51		$	15.49		$	14.97
Total return		7.98	%4,5		6.24	%4		4.44	%4,5		2.32	%5
Ratios/Supplemental data:
Net assets, end of period (000)	$	2,286		$	2,201		$	2,171		$	2,171
Ratio of net expenses to average net assets		1.08	%6		1.11	%		1.16	%6		1.16	%6
Ratio of total expenses to average net assets (excluding waivers)		1.08	%6		1.17	%		1.36	%6		1.26	%6
Ratio of net investment income (loss) to average net assets		1.79	%6		1.76	%		1.60	%6		(0.17	)%6
Ratio of net investment income (loss) to average net assets (excluding waivers)		1.79	%6		1.70	%		1.40	%6		(0.27	)%6
Portfolio turnover rate		40	%		136	%		90	%		101	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

160

BLACKROCK FUNDS

	INVESTOR A CLASS
ASSET ALLOCATION*	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			4/01/04 - 2/8/05			YEAR ENDED MARCH 31
													2004			20031			20021
Net asset value, beginning of period	$	15.50		$	15.48		$	14.95		$	14.89		$	11.36		$	14.15		$	14.03
Net investment income		0.13	2		0.25	2		0.13	2		0.18			0.19			0.24			0.28
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.07			0.66			0.53			0.80			3.55			(2.68	)		0.83
Net increase (decrease) from investment operations		1.20			0.91			0.66			0.98			3.74			(2.44	)		1.11
Dividends and distributions from:
Net investment income		(0.06	)		(0.24	)		(0.13	)		(0.38	)		(0.21	)		(0.29	)		(0.31	)
Net realized capital gains		(0.63	)		(0.65	)		—			(0.54	)		—			(0.06	)		(0.68	)
Total dividends and distributions		(0.69	)		(0.89	)		(0.13	)		(0.92	)		(0.21	)		(0.35	)		(0.99	)
Redemption fees added to paid-in capital		—	3		—	3		—	3		—			—			—			—
Net asset value, end of period	$	16.01		$	15.50		$	15.48		$	14.95		$	14.89		$	11.36		$	14.15
Total return8		7.95	%4,5		6.12	%4		4.44	%4,5		6.78	%5		32.94	%		(17.37	)%		8.15	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	488,456		$	482,284		$	491,557		$	526,929		$	357,100		$	252,069		$	320,614
Ratio of net expenses to average net assets		1.19	%6		1.23	%		1.25	%6		1.24	%6		1.45	%		1.42	%		1.40	%
Ratio of total expenses to average net assets (excluding waivers)		1.19	%6		1.36	%		1.46	%6		1.32	%6		1.45	%		1.43	%		1.41	%
Ratio of net investment income to average net assets		1.68	%6		1.63	%		1.51	%6		1.55	%6		1.43	%		1.92	%		1.95	%
Ratio of net investment income to average net assets (excluding waivers)		1.68	%6		1.50	%		1.30	%6		1.47	%6		1.43	%		1.92	%		1.95	%
Portfolio turnover rate		40	%		136	%		90	%		101	%		216	%		181	%		186	%

* The performance prior to January 31, 2005 set forth in this table is the financial data of the State Street Research Asset Allocation Fund, series of a predecessor trust, the State Street Research Income Trust. BlackRock Funds acquired all of the assets and certain stated liabilities of a State Street Research Asset Allocation Fund on January 28, 2005. The net asset values and other per share information listed have been restated to reflect the conversion ratios of 0.71889936, 0.71991517, 0.72321182 and 0.72727901 for Institutional, Investor A, Investor B and Investor C shares, respectively.

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

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

⁵ Not annualized.

⁶ Annualized.

⁷ Commencement of operations of share class effective 1/28/05.

⁸ Sales load not reflected in total return.

161

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INVESTOR B CLASS
ASSET ALLOCATION*	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			4/01/04 - 2/28/05			YEAR ENDED MARCH 31
													2004			20031			20021
Net asset value, beginning of period	$	15.35		$	15.34		$	14.81		$	14.74		$	11.26		$	14.01		$	13.90
Net investment income		0.07	2		0.13	2		0.07	2		0.08			0.10			0.15			0.17
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.06			0.65			0.51			0.81			3.49			(2.63	)		0.83
Net increase (decrease) from investment operations		1.13			0.78			0.58			0.89			3.59			(2.48	)		1.00
Dividends and distributions from:
Net investment income		(0.03	)		(0.12	)		(0.05	)		(0.28	)		(0.11	)		(0.21	)		(0.21	)
Net realized capital gains		(0.63	)		(0.65	)		—			(0.54	)		—			(0.06	)		(0.68	)
Total dividends and distributions		(0.66	)		(0.77	)		(0.05	)		(0.82	)		(0.11	)		(0.27	)		(0.89	)
Redemption fees added to paid-in capital		—	3		—	3		—	3		—			—			—			—
Net asset value, end of period	$	15.82		$	15.35		$	15.34		$	14.81		$	14.74		$	11.26		$	14.01
Total return4		7.54	%5,6		5.30	%5		3.94	%5,6		6.20	%6		32.03	%		(17.91	)%		7.30	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	167,524		$	175,826		$	181,583		$	187,689		$	133,083		$	75,963		$	81,440
Ratio of net expenses to average net assets		1.99	%7		2.00	%		2.01	%7		2.04	%7		2.15	%		2.12	%		2.10	%
Ratio of total expenses to average net assets (excluding waivers)		1.99	%7		2.03	%		2.11	%7		2.04	%7		2.15	%		2.13	%		2.11	%
Ratio of net investment income to average net assets		0.88	%7		0.86	%		0.75	%7		0.73	%7		0.72	%		1.22	%		1.25	%
Ratio of net investment income to average net assets (excluding waivers)		0.88	%7		0.83	%		0.65	%7		0.73	%7		0.72	%		1.22	%		1.25	%
Portfolio turnover rate		40	%		136	%		90	%		101	%		216	%		181	%		186	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

162

BLACKROCK FUNDS

	INVESTOR C CLASS
ASSET ALLOCATION*	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			3/01/05 - 9/30/05			4/01/04 - 2/28/05			YEAR ENDED MARCH 31
													2004			20031			20021
Net asset value, beginning of period	$	15.34		$	15.33		$	14.81		$	14.74		$	11.25		$	14.01		$	13.89
Net investment income		0.08	2		0.15	2		0.06	2		0.08			0.10			0.15			0.18
Gain (loss) on investments, foreign currency and options (both realized and unrealized)		1.05			0.65			0.52			0.81			3.50			(2.65	)		0.80
Net increase (decrease) from investment operations		1.13			0.80			0.58			0.89			3.60			(2.50	)		0.98
Dividends and distributions from:
Net investment income		(0.03	)		(0.14	)		(0.06	)		(0.28	)		(0.11	)		(0.21	)		(0.19	)
Net realized capital gains		(0.63	)		(0.65	)		—			(0.54	)		—			(0.05	)		(0.67	)
Total dividends and distributions		(0.66	)		(0.79	)		(0.06	)		(0.82	)		(0.11	)		(0.26	)		(0.86	)
Redemption fees added to paid-in capital		—	3		—	3		—	3		—			—			—			—
Net asset value, end of period	$	15.81		$	15.34		$	15.33		$	14.81		$	14.74		$	11.25		$	14.01
Total return4		7.51	%5,6		5.42	%5		3.90	%5,6		6.20	%6		32.14	%		(17.96	)%		7.31	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	82,902		$	80,286		$	67,371		$	65,357		$	42,262		$	19,079		$	13,226
Ratio of net expenses to average net assets		1.89	%7		1.91	%		2.00	%7		2.04	%7		2.15	%		2.12	%		2.10	%
Ratio of total expenses to average net assets (excluding waivers)		1.89	%7		1.94	%		2.11	%7		2.04	%7		2.15	%		2.13	%		2.11	%
Ratio of net investment income to average net assets		0.98	%7		0.97	%		0.75	%7		0.76	%7		0.72	%		1.21	%		1.26	%
Ratio of net investment income to average net assets (excluding waivers)		0.98	%7		0.94	%		0.64	%7		0.76	%7		0.72	%		1.21	%		1.26	%
Portfolio turnover rate		40	%		136	%		90	%		101	%		216	%		181	%		186	%

* The performance prior to January 31, 2005 set forth in this table is the financial data of the State Street Research Asset Allocation Fund, series of a predecessor trust, the State Street Research Income Trust. BlackRock Funds acquired all of the assets and certain stated liabilities of a State Street Research Asset Allocation Fund on January 28, 2005. The net asset values and other per share information listed have been restated to reflect the conversion ratios of 0.71889936, 0.71991517, 0.72321182 and 0.72727901 for Institutional, Investor A, Investor B and Investor C shares, respectively.

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

⁴ Contingent deferred sales load not reflected in total return.

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

⁶ Not annualized.

⁷ Annualized.

163

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(A) Organization

BlackRock Funds^SM (the “Fund”) was organized on December 22, 1988, as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. As of March 31, 2007, the Fund had 49 registered portfolios, 17 of which are included in these financial statements (the “Portfolios”). Each Portfolio is authorized to issue an unlimited number of shares with a par value of $0.001. Each Portfolio of the Fund may offer as many as thirteen classes of shares: BlackRock, Institutional, Service, Hilliard Lyons, Investor A, Investor A1, Investor B, Investor B1, Investor B2, Investor C, Investor C1, Investor C2 and R. Shares of all classes of a Portfolio represent equal pro-rata interests in such Portfolio, except that each class bears different expenses, which reflect the difference in the range of services provided to them, mostly due to differences in distribution and service fees.

The following Portfolio of the Fund changed its name during the six months ended March 31, 2007:

FORMER NAME	NEW NAME
Legacy Portfolio	Capital Appreciation Portfolio

Under the Fund’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund considers the risk of loss from such claims to be remote.

(B) Summary of Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.

Investment Valuation — Valuation of investments held by each Portfolio is as follows: investments traded on a national securities exchange or on the NASDAQ National Market System are valued at the last reported sale price that day or the NASDAQ official closing price, if applicable; investments traded on a national securities exchange for which there were no sales on that day and investments traded on other over-the-counter markets for which market quotations are readily available are valued at the mean of the bid and asked prices; and an option or futures contract is valued at the last sales price prior to 4:00 p.m. (Eastern time), as quoted on the principal exchange or board of trade on which such option or contract is traded, or in the absence of a sale, the mean between the last bid and asked prices prior to 4:00 p.m. (Eastern time). The amortized cost method of valuation will be used with respect to debt obligations with 60 days or less remaining to maturity unless the investment advisor and/or sub-advisor under the supervision of the Board determines that such method does not represent fair value. Any assets which are denominated in a non-U.S. currency are translated into U.S. dollars at the prevailing market rates. In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the market value of such investment, the investment will be valued by, under the direction of or in accordance with a method approved by the Board as reflecting fair value (“Fair Value Assets”). The investment advisor and/or sub-advisor will submit its recommendations regarding the valuation and/or valuation methodologies for Fair Value Assets to the Portfolios’ valuation committee. Such valuation committee may accept, modify or reject any recommendations. The pricing of all Fair Value Assets shall be subsequently reported to the Board or a committee thereof.

When determining the price for Fair Value Assets, the investment advisor and/or sub-advisor shall seek to determine the price that the Portfolio might reasonably expect to receive from the current sale of that asset in an arms-length transaction. Fair value determinations shall be based upon all available factors that the advisor and/or sub-advisor deems relevant.

The Fund is not obligated for costs associated with the registration of restricted securities.

Securities denominated in currencies other than U.S. dollars are subject to changes in value due to fluctuations in exchange rates.

In September 2006, Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. At this time,

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management is evaluating the implications of FAS 157 and its impact on the Portfolios’ financial statements, if any, has not been determined.

In addition, in February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”), which is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FAS 157. FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. FAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. At this time, management is evaluating the implications of FAS 159 and its impact on the Portfolios’ financial statements, if any, has not been determined.

Dividends to Shareholders — Dividends from net investment income, which are recorded on the ex-dividend date, are declared and paid at least annually for the Portfolios. Net realized capital gains, if any, are distributed at least annually.

Foreign Currency Translation — The books and records of the Portfolios are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following bases:

(I) Market value of investment securities, assets and liabilities at the current rate of exchange; and

(II) Purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions.

(III) The Portfolios do not isolate that portion of gains and losses on investment securities which is due to changes in the foreign exchange rates from that which is due to changes in the market prices of such securities. The Portfolios report certain foreign currency related transactions as components of realized and unrealized gains and losses for financial reporting purposes, whereas such components are treated as ordinary income for federal income tax purposes.

Forward Foreign Currency Contracts — Certain Portfolios may enter into forward foreign currency contracts as a hedge against either specific transactions or Portfolio positions. These contracts are adjusted by the daily forward exchange rate of the underlying currency and any gains or losses are recorded as unrealized until the contract settle-ment date. Such contracts, which protect the value of the Portfolios’ investment securities against a decline in the value of currency, do not eliminate fluctuations in the underlying prices of the securities. They simply establish an exchange rate at a future date. Also, although such contracts tend to minimize the risk of loss due to a decline in the value of a hedged currency, at the same time they tend to limit any potential gain that might be realized should the value of such foreign currency increase. Risks may arise upon entering into these contracts from the potential inability of counterparts to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.

The aggregate principal amounts of the contracts are not recorded as the Portfolios intend to settle the contracts prior to delivery. Under the terms of foreign currency contracts open at March 31, 2007, the Portfolios are obligated to deliver or receive currency in exchange for U.S. dollars as indicated below:

SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY SOLD	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE LOSS
Aurora 04/02/07	686,000	Canadian Dollar	$	592,012	$	594,196	$	(2,184	)

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY SOLD	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE GAIN (LOSS)
Global Science & Technology Opportunities
04/18/07	20,000	Norwegian Krone	$	3,176	$	3,293	$	(117	)
04/18/07	236,630,500	Japanese Yen		2,025,178		2,013,654		11,524
04/18/07	59,788	Swedish Krona		8,664		8,571		93
04/18/07	3,125,000	Hong Kong Dollar		402,577		400,192		2,385
04/18/07	500,000	Singapore Dollar		326,829		329,954		(3,125	)
04/18/07	703,000	Euro		924,133		939,815		(15,682	)
04/18/07	303,000	Swiss Franc		248,177		249,759		(1,582	)
04/18/07	259,500	British Pound		500,402		510,637		(10,235	)
04/19/07	1,100,000	Malaysian Dollar		314,627		318,471		(3,844	)
04/19/07	1,298,330,000	Korean Won		1,392,303		1,380,639		11,664
04/19/07	32,000,000	Taiwan Dollar		988,417		967,586		20,831
			$	7,134,483	$	7,122,571	$	11,912
SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY BOUGHT	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE GAIN (LOSS)
Global Science & Technology Opportunities
04/18/07	15,000	Canadian Dollar	$	12,779	$	13,000	$	221
04/18/07	95,890,000	Japanese Yen		829,225		815,996		(13,229	)
04/18/07	101,000	Singapore Dollar		65,980		66,651		671
04/19/07	260,000	Brazil Real		118,879		125,849		6,970
04/20/07	19,915,000	Japanese Yen		169,934		169,520		(414	)
			$	1,196,797	$	1,191,016	$	(5,781	)
SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY SOLD	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE LOSS
Global Resources
04/02/07	6,270,000	Canadian Dollar	$	5,410,957	$	5,430,923	$	(19,966	)
04/18/07	155,974,030	Canadian Dollar		134,757,069		135,177,242		(420,173	)
			$	140,168,026	$	140,608,165	$	(440,139	)
SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY BOUGHT	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE GAIN
Global Resources
04/02/07	115,000	Canadian Dollar	$	99,740	$	99,740	$	—
04/02/07	420,000	British Pound		823,883		826,495		2,612
			$	923,623	$	926,235	$	2,612

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SETTLEMENT       DATE	CURRENCY AMOUNT	CURRENCY SOLD	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE LOSS
All-Cap Global Resources
04/02/07	5,368,000	Canadian Dollar	$	4,632,538	$	4,649,632	$	(17,094	)
04/18/07	65,487,735	Canadian Dollar		56,579,516		56,755,931		(176,415	)
			$	61,212,054	$	61,405,563	$	(193,509	)
SETTLEMENT       DATE	CURRENCY AMOUNT	CURRENCY BOUGHT	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE GAIN
All-Cap Global Resources
04/03/07	15,563,000	Norwegian Krone	$	2,557,090	$	2,560,420	$	3,330
04/04/07	18,145,000	Norwegian Krone		2,987,286		2,987,286		—
			$	5,544,376	$	5,547,706	$	3,330
SETTLEMENT       DATE	CURRENCY AMOUNT	CURRENCY SOLD	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE LOSS
Health Sciences Opportunities
04/18/07	5,378,000	Euro	$	7,070,887	$	7,189,647	$	(118,760	)
04/18/07	17,801,500	Swiss Franc		14,580,601		14,673,562		(92,961	)
04/18/07	10,900,000	Swiss Franc		8,968,049		8,984,738		(16,689	)
			$	30,619,537	$	30,847,947	$	(228,410	)
SETTLEMENT       DATE	CURRENCY AMOUNT	CURRENCY BOUGHT	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE GAIN
Health Sciences Opportunities
04/03/07	1,369,000	Euro	$	1,826,186	$	1,828,771	$	2,585
04/03/07	10,900,000	Swiss Franc		8,956,509		8,970,086		13,577
			$	10,782,695	$	10,798,857	$	16,162
SETTLEMENT       DATE	CURRENCY AMOUNT	CURRENCY SOLD	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE GAIN (LOSS)
Global Opportunities
04/18/07	1,181,150	Norwegian Krone	$	187,544	$	194,429	$	(6,885	)
04/18/07	452,289,500	Japanese Yen		3,851,302		3,848,846		2,456
04/18/07	6,498,376	Swedish Krona		941,719		931,609		10,110
04/18/07	8,292,000	Hong Kong Dollar		1,068,214		1,061,885		6,329
04/18/07	484,500	Singapore Dollar		316,698		319,726		(3,028	)
04/18/07	2,388,500	Euro		3,132,253		3,193,096		(60,843	)
04/18/07	313,759	Swiss Franc		256,989		258,627		(1,638	)
04/19/07	2,165,000	Malaysian Dollar		619,244		626,810		(7,566	)
04/19/07	600,000,000	Korean Won		643,425		638,038		5,387
			$	11,017,388	$	11,073,066	$	(55,678	)

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY BOUGHT	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE GAIN (LOSS)
Global Opportunities
04/02/07	379,000	Canadian Dollar	$	328,708	$	328,281	$	(427	)
04/18/07	831,600	Australian Dollar		650,160		672,479		22,319
04/18/07	590,400	Canadian Dollar		503,548		511,679		8,131
04/18/07	1,063,000	Norwegian Krone		169,606		174,980		5,374
04/18/07	496,146,600	Japanese Yen		4,203,633		4,222,057		18,424
04/18/07	1,863,100	Swedish Krona		267,791		267,095		(696	)
04/18/07	3,627,000	Euro		4,779,804		4,848,801		68,997
04/18/07	977,000	British Pound		1,884,471		1,922,513		38,042
04/18/07	2,463,555	South African Rand		338,540		338,909		369
04/18/07	1,000,472	Poland Zloty		336,271		345,868		9,597
04/19/07	400,000,000	Korean Won		428,973		425,359		(3,614	)
04/19/07	1,820,000	Brazil Real		832,152		880,944		48,792
04/19/07	16,000,000	Taiwan Dollar		494,208		483,791		(10,417	)
04/20/07	39,310,000	Japanese Yen		335,431		334,614		(817	)
			$	15,553,296	$	15,757,370	$	204,074
SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY SOLD	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE GAIN (LOSS)
International Opportunities
04/18/07	274,695,024	Norwegian Krone	$	43,657,351	$	45,217,516	$	(1,560,165	)
04/18/07	16,580,513,000	Japanese Yen		141,451,604		141,095,126		356,478
04/18/07	54,699,365	Swedish Krona		7,916,204		7,841,715		74,489
04/18/07	53,017,000	Hong Kong Dollar		6,829,083		6,789,435		39,648
04/18/07	13,968,000	Singapore Dollar		9,130,307		9,217,606		(87,299	)
04/18/07	9,175,000	Euro		12,136,224		12,265,715		(129,491	)
04/18/07	3,472,000	British Pound		6,831,322		6,832,103		(781	)
04/19/07	68,885,000	Malaysian Dollar		19,702,820		19,943,544		(240,724	)
04/19/07	18,307,585,000	Korean Won		19,632,844		19,468,215		164,629
			$	267,287,759	$	268,670,975	$	(1,383,216	)

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SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY BOUGHT	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE GAIN (LOSS)
International Opportunities
04/02/07	88,000	Euro	$	117,187	$	117,554	$	367
04/03/07	684,000	Euro		912,426		913,718		1,292
04/04/07	3,122,000	Euro		4,174,910		4,170,507		(4,403	)
04/18/07	45,249,300	Australian Dollar		35,421,659		36,591,182		1,169,523
04/18/07	18,576,050	Canadian Dollar		15,828,547		16,099,215		270,668
04/18/07	29,189,000	Norwegian Krone		4,657,227		4,804,798		147,571
04/18/07	4,672,929,000	Japanese Yen		40,089,529		39,765,206		(324,323	)
04/18/07	7,593,000	Singapore Dollar		4,960,229		5,010,687		50,458
04/18/07	64,709,100	Euro		85,081,731		86,507,179		1,425,448
04/18/07	60,189,053	Swiss Franc		49,296,579		49,613,110		316,531
04/18/07	42,723,000	Mexican Peso		3,895,507		3,866,834		(28,673	)
04/18/07	11,532,850	British Pound		22,334,579		22,694,017		359,438
04/18/07	60,526,165	South African Rand		8,317,461		8,326,539		9,078
04/18/07	45,469,808	Poland Zloty		15,282,941		15,719,094		436,153
04/19/07	61,833,500	Brazil Real		28,271,913		29,929,583		1,657,670
04/20/07	1,389,171,977	Japanese Yen		11,853,762		11,824,895		(28,867	)
			$	330,496,187	$	335,954,118	$	5,457,931
SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY SOLD	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE GAIN (LOSS)
Asset Allocation
04/02/07	31,000	Canadian Dollar	$	26,753	$	26,853	$	(100	)
04/02/07	248,151	Euro		330,717		331,492		(775	)
04/18/07	5,889,650	Canadian Dollar		5,085,672		5,104,354		(18,682	)
04/18/07	6,494,250	Norwegian Krone		1,032,318		1,069,017		(36,699	)
04/18/07	690,793,500	Japanese Yen		5,840,610		5,878,442		(37,832	)
04/18/07	2,455,986	Swedish Krona		353,383		352,090		1,293
04/18/07	262,000	Hong Kong Dollar		33,733		33,552		181
04/18/07	346,500	Singapore Dollar		226,493		228,658		(2,165	)
04/18/07	1,358,356	Euro		1,768,444		1,815,935		(47,491	)
04/18/07	4,200,739	Mexican Peso		382,712		380,206		2,506
04/18/07	633,500	British Pound		1,247,275		1,246,583		692
04/19/07	1,635,000	Malaysian Dollar		467,651		473,365		(5,714	)
04/19/07	256,830,000	Korean Won		275,424		273,112		2,312
			$	17,071,185	$	17,213,659	$	(142,474	)

169

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY BOUGHT	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE GAIN (LOSS)
Asset Allocation
04/02/07	231,492	Australian Dollar	$	186,964	$	187,300	$	336
04/02/07	1,000	Canadian Dollar		867		866		(1	)
04/02/07	218,123	Singapore Dollar		143,752		143,771		19
04/02/07	7,000	British Pound		13,731		13,775		44
04/03/07	16,000	Euro		21,343		21,374		31
04/04/07	84,000	Euro		112,321		112,211		(110	)
04/18/07	1,002,000	Australian Dollar		784,378		810,274		25,896
04/18/07	507,500	Canadian Dollar		432,422		439,833		7,411
04/18/07	331,484,000	Japanese Yen		2,820,933		2,820,828		(105	)
04/18/07	212,000	Singapore Dollar		138,492		139,901		1,409
04/18/07	4,208,300	Euro		5,491,909		5,625,918		134,009
04/18/07	1,360,113	Swiss Franc		1,113,972		1,121,125		7,153
04/18/07	1,535,000	Mexican Peso		139,962		138,932		(1,030	)
04/18/07	279,700	British Pound		541,590		550,385		8,795
04/18/07	1,400,845	South African Rand		192,503		192,713		210
04/18/07	1,017,452	Poland Zloty		341,978		351,738		9,760
04/19/07	1,695,000	Brazil Real		784,858		820,439		35,581
04/20/07	38,430,000	Japanese Yen		327,922		327,123		(799	)
04/20/07	2,000,000	Euro		2,612,952		2,673,939		60,987
			$	16,202,849	$	16,492,445	$	289,596

Swap Agreements — The Portfolios may invest in swap agreements for the purpose of hedging against changes in interest rates or foreign currencies. Swap agreements involve the exchange by a Portfolio with another party of their respective commitments to pay or receive interest or a specified amount of a currency (e.g., an exchange of floating rate payments for fixed rate payments) with respect to a notional amount of principal. Swaps are marked to market daily based upon quotations from market makers and the change, if any, is recorded as an unrealized gain or loss in the Statements of Operations. Net payments of interest are recorded as realized gain or loss. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess of the amounts recognized on the Statements of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreement may default on its obligation to perform and that there may be unfavorable changes in the fluctuation of interest and/or exchange rates.

170

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At March 31, 2007, Asset Allocation had the following swap agreements outstanding:

Portfolio	Counter-party	Termination Date	Interest Receivable Rate		Interest Payable Rate		Notional Amount (U.S. Dollars)			Unrealized Appreciation (Depreciation)
Asset Allocation	Bank of America	07/26/2009	5.50	%	5.36	%1	$	7,500,000		$	87,225
	Morgan Stanley	07/01/2010	4.17	%	5.36	%1		11,300,000			(292,314	)
	Union Bank of Switzerland	09/27/2010	4.51	%	5.37	%1		100,000			(1,524	)
	Deutsche Bank	11/07/2010	5.00	%	5.37	%1		3,100,000			41,866
	Deutsche Bank	06/20/2011	TBD	2	0.75	%		6,390,000			(6,988	)
	Union Bank of Switzerland	11/01/2011	5.11	%	5.36	%1		9,100,000			157,000
	Deutsche Bank	11/21/2011	5.03	%	5.38	%1		2,000,000			28,282
	Deutsche Bank	02/16/2012	5.36	%1	5.21	%		11,000,000			(102,791	)
	Goldman Sachs	10/01/2014	5.36	%1	4.51	%		600,000			15,927
	Union Bank of Switzerland	03/23/2015	5.35	%1	4.96	%		5,000,000			50,000
	JPMorgan Chase	05/26/2015	5.37	%1	4.50	%		1,700,000			51,120
	Morgan Stanley	07/01/2015	5.36	%1	4.39	%		6,300,000			315,221
	Morgan Stanley	08/02/2015	4.73	%	5.37	%1		600,000			(16,542	)
	JPMorgan Chase	07/14/2016	5.72	%	5.36	%1		2,300,000			97,366
	Deutsche Bank	10/19/2016	5.28	%	5.36	%1		200,000			4,362
	Goldman Sachs	02/05/2017	5.35	%	5.36	%1		1,500,000			20,243
	Union Bank of Switzerland	02/08/2017	5.30	%	5.36	%1		6,700,000			60,702
	Bank of America	03/21/2017	5.10	%	5.35	%1		1,300,000			(8,125	)
	JPMorgan Chase	08/15/2022	5.41	%	5.36	%1		4,230,000			40,904
	Deutsche Bank	01/12/2011	6.53	%	6.50	%3		3,500,000	AUD		(6,832	)
	Deutsche Bank	01/22/2011	6.54	%	6.53	%3		3,500,000	AUD		(3,740	)
	Citibank	12/23/2015	4.75	%	5.61	%4		2,400,000	NZD		(42,820	)

¹ Rate shown is based on the 3 month LIBOR as of the most recent payment date.

² Rate to be determined upon notice of event of default by DJ CDX:NA.IG.HVOL.4.

³ Rate shown is based on the 6 month BBA AUD LIBOR as of the most recent payment date.

⁴ Rate shown is based on the 3 month BBA NZD LIBOR as of the most recent payment date.

Investment Transactions and Investment Income — Investment transactions are accounted for on the trade date. The cost of investments sold and the related gain or loss thereon is determined by use of the specific identification method, generally high cost, for both financial reporting and federal income tax purposes. Interest income is recorded on the accrual basis. Discounts and premiums on debt securities are accreted or amortized, respectively, for book and tax purposes using the effective yield-to-maturity method over the term of the instrument. Dividends are recorded on the ex-dividend date. Paydown gains and losses on mortgage and asset-backed securities are presented as an adjustment to interest income.

Some countries in which the Portfolios invest require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if there is a deterioration in a country’s balance of payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad. The securities exchanges of certain foreign markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by the Portfolio may be inhibited.

Preferred Stock — The Portfolios may invest in preferred stocks. Preferred stock has a preference over common stock in liquidation (and generally dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.

Zero-Coupon Bonds — The Portfolios may invest in zero-coupon bonds, which are normally issued at a significant discount from face value and do not provide for periodic interest payments. Zero-coupon bonds may experience greater

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BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

volatility in market value than similar maturity debt obligations which provide for regular interest payments. Additionally, current federal tax law requires the holder of certain zero-coupon bonds to accrue income with respect to these securities prior to the receipt of cash payments. To maintain its qualification as a regulated investment company and avoid liability for federal income and excise taxes, a Portfolio may be required to distribute income accrued with respect to these securities and may have to dispose of portfolio securities under disadvantageous circumstances in order to generate cash to satisfy these distribution requirements.

Asset-Backed Securities — Certain Portfolios may invest in asset-backed securities. Asset-backed securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in an underlying pool of assets, or as debt instruments, which are also known as collateralized obligations, and are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security subject to such a prepayment feature will have the effect of shortening the maturity of the security. If a Portfolio has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.

Mortgage Pass-Through Securities — Certain Portfolios may purchase in the secondary market certain mortgage pass-through securities. There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. For example, Mortgage-related securities guaranteed by the Government National Mortgage Association (“GNMA”) include Ginnie Maes, which are guaranteed as to the timely payment of principal and interest by GNMA and such guarantee is backed by the full faith and credit of the United States. However, Mortgage-related securities issued by the Federal National Mortgage Association (“FNMA”) include FNMA guaranteed Mortgage Pass-Through Certificates (also known as “Fannie Maes”) which are solely the obligations of the FNMA, are not backed by or entitled to the full faith and credit of the United States and are supported by the right of the issuer to borrow from the Treasury.

Collateralized Mortgage Obligations — Certain Portfolios may invest in multiple class pass-through securities, including collateralized mortgage obligations (“CMOs”). These multiple class securities may be issued by GNMA, U.S. Government agencies or instrumentalities or by trusts formed by private originators of, or investors in, mortgage loans. In general, CMOs are debt obligations of a legal entity that are collateralized by, and multiple class pass-through securities represent direct ownership interests in, a pool of residential or commercial mortgage loans or mortgage pass-through securities (the “Mortgage Assets”), the payments on which are used to make payments on the CMOs or multiple pass-through securities. The markets for CMOs may be more illiquid than those of other securities.

Classes of CMOs include interest only (“IOs”), principal only (“POs”), planned amortization classes (“PACs”) and targeted amortization classes (“TACs”). IOs and POs are stripped mortgage-backed securities representing interests in a pool of mortgages the cash flow from which has been separated into interest and principal components. IOs (interest only securities) receive the interest portion of the cash flow while POs (principal only securities) receive the principal portion. IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases the rate at which the investment is returned and the yield to maturity on the PO. When payments on mortgages underlying a PO are slow, the life of the PO is lengthened and the yield to maturity is reduced.

Bank Loans — Certain Portfolios may invest in Bank loans which are generally non-investment grade floating rate instruments. Usually, they are freely callable at the issuer’s option. The Portfolios may invest in such Loans in the form of participations in Loans (“Participations”) and assignments of all or a portion of Loans from third parties (“Assignments”). The Portfolios consider these investments to be investments in debt securities for purposes of its investment policies. Participations typically will result in the Portfolio having a contractual relationship only with the Lender, not with the borrower. The Portfolios will have the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the Participation and only upon receipt by the lender of the payments from the borrower. In connection with purchasing Participations, the Portfolios generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the loans, nor any rights of set-off against

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the borrower, and the Portfolio may not benefit directly from any collateral supporting the loan in which it has purchased the Participation. As a result, the Portfolio will assume the credit risk of both the borrower and the lender that is selling the Participation. In the event of the insolvency of the lender selling the Participation, the Portfolio may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower.

A Portfolio may have difficulty disposing of Assignments and Participations. In certain cases, the market for such instruments is not highly liquid, and therefore the Portfolio anticipates that in such cases such instruments could be sold only to a limited number of institutional investors. The lack of a highly liquid secondary market may have an adverse impact on the value of such instruments and on the Portfolio’s ability to dispose of particular Assignments or Participations in response to a specific economic event, such as deterioration in the creditworthiness of the borrower. Assignments and Participations will not be considered illiquid so long as it is determined by the Portfolios’ adviser or sub-adviser that an adequate trading market exists for these securities. To the extent that liquid Assignments and Participations that a Portfolio holds become illiquid, due to the lack of sufficient buyers or market or other conditions, the percentage of the Portfolio’s assets invested in illiquid assets would increase.

Repurchase Agreements — Money market instruments may be purchased from financial institutions, such as banks and non-bank dealers, subject to the seller’s agreement to repurchase them at an agreed upon date and price. Collateral for repurchase agreements may have longer maturities than the maximum permissible remaining maturity of portfolio investments, provided the repurchase agreements themselves mature in 13 months or less. The seller is required on a daily basis to maintain the value of the securities subject to the agreement at no less than the repurchase price. The agreements are conditioned upon the collateral being deposited under the Federal Reserve book entry system or held in a separate account by the Portfolio’s custodian or an authorized securities depository.

Reverse Repurchase Agreements — The Portfolios may enter into reverse repurchase agreements with qualified third party broker-dealers. Interest on the value of the reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance and is included within the related liability on the Statements of Assets and Liabilities. At the time the Portfolio enters into a reverse repurchase agreement, it identifies for segregation certain liquid securities having a value not less than the repurchase price, including accrued interest, of the reverse repurchase agreement.

Futures Transactions — The Portfolios use futures and options on futures contracts typically as a substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or currency risk. The Portfolios may also use these instruments for leverage. These futures contracts obligate a Portfolio, at maturity, to take or make delivery of securities, the cash value of a securities index or a stated quantity of a foreign currency. Upon entering into a futures contract, the Portfolio is required to deposit cash or pledge securities as initial margin. Subsequent payments, which are dependent on the daily fluctuations in the value of the underlying security or securities, are made or received by the Portfolio each day (daily variation margin) and are recorded as cumulative unrealized gains or losses until the contracts are closed. When the contracts are closed, the Portfolio records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Portfolio’s basis in the contracts. Risks of entering into futures contracts include the possibility that there will not be a perfect price correlation between the futures contracts and the underlying securities. Second, it is possible that a lack of liquidity for futures contracts could exist in the market, resulting in an inability to liquidate a futures position prior to its maturity date. Third, the purchase of a futures contract involves the risk that the Portfolios could lose more than the original margin deposit required to initiate a futures transaction.

Stripped Mortgage Backed Securities — Asset Allocation may invest in stripped mortgage-backed securities issued by the U.S. government, its agencies and instrumentalities. Stripped mortgage-backed securities are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. In certain cases, one class will receive all of the interest (the interest-only or “IO” class), while the other class will receive all of the principal (the principal-only or “PO” class). The yield to maturity on IO’s is sensitive to the rate of principal repayments (including prepayments) on the related underlying mortgage assets, and principal pre-payments may have a material effect on yield to maturity. If the underlying mortgage assets experience greater than anticipated pre-payments of principal, the Portfolios may not fully recoup its initial investment in IO’s. Such securities will be considered liquid only if so determined in accordance with guidelines established by the Board. The Portfolios also may invest in stripped mortgage-backed securities that are privately issued. These securities will be considered illiquid for purposes of the Portfolio’s limit on illiquid securities.

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Investing in Government Sponsored Enterprises — Asset Allocation invests in securities issued by the Federal Home Loan Mortgage Corp. (“Freddie Mac”) and similar United States Government sponsored entities such as Federal National Mortgage Assoc. (“Fannie Mae”) and the Federal Home Loan Banks (“FHLB’s”). Freddie Mac, Fannie Mae and FHLB’s, although chartered and sponsored by Congress, are not funded by Congressional appropriations and the debt and mortgage-backed securities issued by Freddie Mac, Fannie Mae and FHLB’s are neither guaranteed nor insured by the United States Government.

Option Puts and Calls — The Portfolios may write (sell) covered call options, buy call options, write secured put options and buy put options for the purpose of hedging or earning additional income, which may be deemed speculative. For the payment of a premium, the purchaser of an option obtains the right to buy (in the case of a call option) or to sell (in the case of a put option) the item which is the subject of the option at a stated exercise price for a specific period of time. These options may relate to particular securities, securities indices, or the yield differential between two securities. There is no limit on the amount of a Portfolio’s assets that can be put at risk through the use of options. In addition, unlisted options are not subject to the protections afforded purchasers of listed options issued by the Options Clearing Corporation, which performs the obligations of its members if they default. The primary risks associated with the use of options are (a) the imperfect correlation between the change in market value of the instruments held by a Portfolio and the price of the option; (b) losses caused by unanticipated market movements, which are potentially unlimited; (c) the advisor’s or sub advisor’s inability to predict correctly the direction of securities prices, interest rates, currency exchange rates and other economic factors; and (d) the possibility that the counterparty will default in the performance of its obligations.

Swaption Puts and Calls — The Portfolios may write (sell) and purchase put and call swaptions. Swaption contracts written by the Portfolios represent an option that gives the purchaser the right, but not the obligation, to enter into a new swap agreement, or to shorten, extend, cancel or modify an existing swap agreement, on a future date on specified terms. Depending on the terms of the particular option agreement, a Portfolio will generally incur a greater degree of risk when it writes a swaption than it will incur when it purchases a swaption. When a Portfolio purchases a swaption, it risks losing only the amount of the premium it has paid should it decide to let the option expire unexercised. However, when a Portfolio writes a swaption, upon exercise of the option the Portfolio will become obligated according to the terms of the underlying agreement.

When a portfolio writes a swaption, the premium received is recorded as a liability and is subsequently adjusted to the current market value of the swaption. Changes in the value of the swaption are reported as unrealized gains or losses in the Statements of Assets and Liabilities. Gain or loss is recognized when the swaption contract expires or is closed. Premiums received from writing swaptions that expire or are exercised are treated by the Portfolio as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase, as a realized loss.

Entering into a swaption contract involves, to varying degrees, the elements of credit, market and interest rate risk associated with both option contracts and swap contracts. To reduce credit risk from potential counterparty default, the Portfolios enter into swaption contracts with counterparties whose creditworthiness has been evaluated by BlackRock. The Portfolios bear the market risk arising from any change in index values or interest rates.

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Purchased and written option and swaption transactions entered into during the six months ended March 31, 2007, are summarized as follows:

	MID CAP VALUE			GLOBAL RESOURCES
	NUMBER OF CONTRACTS	PREMIUM		NUMBER OF CONTRACTS		PREMIUM
Balance at 09/30/06	—	$	—	69,731,000		$	1,035,691
Purchased	—		—	135,936,000			1,473,912
Written	5,070		614,175	(37,000,000	)		(736,300	)
Expired	—		—	(135,936,000	)		(1,257,462	)
Closed	—		—	(32,731,000	)		(515,841	)
Balance at 03/31/07	5,070	$	614,175	—		$	—

	ALL-CAP GLOBAL RESOURCES					HEALTH SCIENCES OPPORTUNITIES					ASSET ALLOCATION
	NUMBER OF CONTRACTS		PREMIUM			NUMBER OF CONTRACTS		PREMIUM			NUMBER OF CONTRACTS		PREMIUM
Balance at 09/30/06	16,961,000		$	251,915		(5,532	)	$	(467,366	)	1,658,072		$	(658,842	)
Purchased	49,160,796			629,478		—			—		4,876,917			447,013
Written	9,000,000			(179,100	)	(4,012	)		(283,918	)	(887,580	)		(654,682	)
Expired	(67,160,796	)		(576,828	)	7,624			610,130		(4,868,000	)		(56,833	)
Closed	(7,961,000	)		(125,465	)	1,920			141,154		(781,002	)		570,131
Balance at 03/31/07	—		$	—		—		$	—		(1,593	)	$	(353,213	)

TBA Purchase Commitments — The Portfolios may enter into to be announced (“TBA”) commitments to purchase or sell securities for a fixed price at a future date. TBA commitments are considered securities in themselves, and involve a risk of loss if the value of the security to be purchased or sold declines or increases prior to settlement date, which is in addition to the risk of decline in the value of the Portfolio’s other assets. Unsettled TBA commitments are valued at the current market value of the underlying securities, according to the procedures described under “Investment Valuation”.

Mortgage Dollar Rolls — Asset Allocation may enter into mortgage dollar rolls (principally using TBA commitments) in which the Portfolio sells mortgage securities for delivery in the current month and simultaneously contracts to repurchase similar, but not identical, securities at an agreed-upon price on a fixed date. The Portfolio receives compensation, in either “fee” or “drop,” as consideration for entering into the commitment to repurchase. The Portfolio must maintain liquid securities having a value not less than the repurchase price (including accrued interest) for such dollar rolls. The market value of the securities that the Portfolio is required to purchase may decline below the agreed upon repurchase price of those securities.

In a “fee” roll, the compensation received is recorded as deferred income and amortized to income over the roll period. In a “drop” roll, the compensation is paid via a lower price for the security upon its repurchase. The counterparty receives all principal and interest payments, including prepayments, made in respect of a security subject to such a contract while it is the holder. Mortgage dollar rolls may be renewed with a new purchase and repurchase price and a cash settlement made on settlement date without physical delivery of the securities subject to the contract. A Portfolio engages in dollar rolls for the purpose of enhancing its yield, principally by earning a negotiated fee.

Financing Transactions — The Portfolios may enter into financial transactions consisting of sales by a Portfolio of securities together with a commitment to repurchase similar securities at a future date. The difference between the selling price and the future purchase price is an adjustment to interest income. If the counterparty to whom the Portfolio sells the security becomes insolvent, the Portfolio’s right to repurchase the security may be restricted. The value of the security may change over the term of the financing transaction.

Inflation-indexed Bonds — Inflation-indexed bonds are fixed income securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation falls, the principal value of inflation-indexed bonds will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) requires the use of management estimates. Actual results could differ from these estimates and such differences should be immaterial.

Other — Expenses that are directly related to one of the Portfolios are charged directly to that Portfolio. Other operating expenses are pro-rated to the Portfolios on the basis of relative net assets. Class-specific expenses are borne by that class. Differences in net expense ratios between classes of a Portfolio are due to class-specific expenses and waivers. Income, other expenses and realized and unrealized gains and losses of a Portfolio are allocated to the respective class on the basis of the relative net assets each day.

(C) Agreements and Other Transactions with Affiliates and Related Parties

Pursuant to an Investment Advisory Agreement, BlackRock Advisors, LLC (“BlackRock”) serves as investment advisor for each of the Portfolios. BlackRock Financial Management, Inc. (“BFM”), an indirect wholly-owned subsidiary of BlackRock, serves as the sub-advisor for Asset Allocation Portfolio and for a portion of the assets of Global Opportunities Portfolio. BlackRock International, Ltd. (“BIL”), an indirect wholly-owned subsidiary of BlackRock, serves as the sub-advisor for International Opportunities Portfolio. Merrill Lynch & Co., Inc. (“Merrill Lynch”) and The PNC Financial Services Group, Inc. (“PNC”) are principal owners of BlackRock, Inc.

For its advisory services, BlackRock is entitled to receive fees at the following annual rates, computed daily and payable monthly, based on each Portfolio’s average daily net assets:

AVERAGE DAILY NET ASSETS	INVESTMENT TRUST, SMALL CAP VALUE EQUITY, SMALL CAP GROWTH EQUITY AND ASSET ALLOCATION
first $ 1 billion	0.55	%
$1 billion—$2 billion	0.50
$2 billion—$3 billion	0.475
greater than $3 billion	0.45

AVERAGE DAILY NET ASSETS	MID-CAP VALUE EQUITY AND MID-CAP GROWTH EQUITY		U.S. OPPORTUNITIES		GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES AND GLOBAL OPPORTUNITIES
first $1 billion	0.80	%	1.10	%	0.90	%
$1 billion—$2 billion	0.70		1.05		0.85
$2 billion—$3 billion	0.65		1.025		0.80
greater than $3 billion	0.625		1.00		0.75

AVERAGE DAILY NET ASSETS	SMALL/MID-CAP GROWTH, GLOBAL RESOURCES, ALL-CAP GLOBAL RESOURCES, AND HEALTH SCIENCES OPPORTUNITIES		CAPITAL APPRECIATION		AURORA		INTERNATIONAL OPPORTUNITIES
first $1 billion	0.75	%	0.65	%	0.85	%	1.00	%
$1 billion-$2 billion	0.70		0.60		0.80		0.95
$2 billion-$3 billion	0.675		0.575		0.75		0.90
greater than $3 billion	0.65		0.55		0.70		0.85

Small Cap Core Equity Portfolio pays an advisory fee at a an annual rate of 1.00% of average net assets.

BlackRock pays BIL and BFM fees for their sub-advisory services.

PFPC Trust Company, (“PTC”), an indirect wholly-owned subsidiary of PNC, serves as custodian for each of the Portfolios. For these services, the custodian receives a custodian fee computed daily and payable monthly, based on a percentage of the average daily gross assets of the Portfolio.

Prior to February 1, 2006, the fee was paid at the following annual rates: 0.01% of the first $250 million of average gross assets, 0.009% of the next $250 million of average gross assets, 0.0075% of the next $250 million of average gross assets, 0.007% of the next $250 million of average of gross assets, 0.006% of the next $250 million of average gross assets and 0.005% of average gross assets in excess of $1.25 billion; plus per transaction charges and other miscellaneous fees incurred on behalf of the Portfolio.

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Effective February 1, 2006, the fee was paid at the following annual rates: 0.0073% of the first $250 million of average gross assets, 0.006% of the next $250 million of average gross assets, 0.0056% of the next $250 million of average gross assets, 0.0048% of the next $250 million of average gross assets, and 0.004% of average gross assets in excess of $1 billion; plus per transaction charges and other miscellaneous fees incurred on behalf of the Portfolio.

PFPC, Inc. (“PFPC”), an indirect wholly-owned subsidiary of PNC, serves as transfer and dividend disbursing agent.

Shares of each class of each Portfolio of the Fund bear their pro-rata portion of all operating expenses paid by the Portfolio, except transfer agency fees, certain administrative fees and amounts payable under the Fund’s Amended and Restated Distribution and Service Plan (the “Plan”).

Prior to February 1, 2006, the BlackRock Shares bore a transfer agent fee at an annual rate not to exceed 0.005% of the average daily net assets plus per account fees and disbursements. Institutional, Service, Investor A, Investor B and Investor C Share classes each bore a transfer agent fee at an annual rate not to exceed 0.018% of the annual average net assets of such respective classes plus per account fees and disbursements. Certain other transfer agency fees were allocated on relative net assets of each class of each Portfolio.

Effective February 1, 2006, each class of each Portfolio bears the costs of transfer agent fees associated with such respective classes. Transfer agency fees borne by each class of each Portfolio are comprised of those fees charged for all shareholder communications including shareholder reports, dividend and distribution notices, and proxy materials for shareholders meetings, as well as per account and per transaction fees related to servicing and maintenance of shareholder accounts, including the issuing, redeeming and transferring of shares of each class of each Portfolio, 12b-1 fee calculation, check writing, anti-money laundering services, and customer identification services.

Pursuant to written agreements, Merrill Lynch and Hilliard Lyons, an indirect wholly-owned subsidiary of PNC, provide certain Portfolios sub-accounting, recordkeeping, sub-transfer agency and other administrative services with respect to sub-accounts they service. For these services, each receives an annual fee per shareholder account which will vary depending on share class. For the six months ended March 31, 2007, the Portfolios paid to Merrill Lynch and Hilliard Lyons the following fees in return for these services:

	MERRILL LYNCH		HILLIARD LYONS
Investment Trust	$	19,058	$	28,154
Capital Appreciation		11,938		323
Mid-Cap Value Equity		134,688		9,226
Mid-Cap Growth Equity		29,444		29,684
Aurora		410,939		2,266
Small/Mid-Cap Growth		109,335		495
Small Cap Value Equity		6,122		15,277
Small Cap Core Equity		196,211		31,161
Small Cap Growth Equity		20,426		2,132
Global Science & Technology Opportunities		7,184		16,569
Global Resources		48,446		102
All-Cap Global Resources		49,925		3,000
Health Sciences Opportunities		122,925		2,893
U.S. Opportunities		31,931		19,935
Global Opportunities		3,617		915
International Opportunities		80,719		40,003
Asset Allocation		29,433		34,589

PFPC and BlackRock act as co-administrators for the Fund. For these services, the co-administrators receive a combined administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of each Portfolio. Prior to February 1, 2006, the fee was paid at the following annual rates: 0.085% of the first $500 million of net assets of each Portfolio, 0.075% of the next $500 million and 0.065% of assets in excess of $1 billion of each Portfolio. In addition, each of the share classes, except for the BlackRock Class, was charged an administration fee based on the following percentage of average daily net assets of each respective class: 0.145% of the first $500 million, 0.135% of the next $500 million and 0.125% of assets in excess of $1 billion. The BlackRock Class of the

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BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Small-Cap Value Equity Portfolio was charged an administration fee of 0.035% of the first $500 million, 0.025% of the next $500 million and 0.015% of assets in excess of $1 billion. Effective February 1, 2006, the combined administration fee is paid at the following annual rates: 0.075% of the first $500 million of net assets of each Portfolio, 0.065% of the next $500 million and 0.055% of assets in excess of $1 billion of each Portfolio. In addition, each of the share classes is charged an administration fee based on the following percentage of average daily net assets of each respective class: 0.025% of the first $500 million, 0.015% of the next $500 million and 0.005% of assets in excess of $1 billion. In addition, PFPC and BlackRock may have, at their discretion, voluntarily waived all or any portion of their administration fees for any portfolio or share class.

Pursuant to the Fund’s Plan of Distribution, (the “Plan”), the Fund may pay BlackRock Distributors, Inc. (“BDI”) and/or BlackRock or any other affiliate of PNC and Merrill Lynch, fees for distribution and sales support services. Currently, only Investor B, B1, B2, C, C1, C2 and R Shares bear the expense of distribution fees under the Plan. In addition, the Fund may pay brokers, dealers, financial institutions and industry professionals (including PNC, Merrill Lynch and their affiliates) (“service organizations”) fees for the provision of personal services to shareholders. Currently, only Service, Hilliard Lyons, Investor A, A1, B, B1, B2, C, C1, C2 and R Shares bear the expense of service fees under the Plan.

The following table provides a list of the Portfolios included in this report along with a summary of their respective class-specific fee arrangements as provided under the Plan. Fees are expressed as a percentage of average daily net asset values of the respective classes.

Class Specific Fee Arrangement
Portfolio	Share Classes
	BlackRock				Institutional		Service				Investor A				Investor B				Investor C				R
	Contractual Fees (1)		Actual Fees		Contractual Fees	Actual Fees	Contractual Fees (1)		Actual Fees		Contractual Fees (1)		Actual Fees		Contractual Fees (2)		Actual Fees		Contractual Fees (2)		Actual Fees		Contractual Fees (3)		Actual Fees
Investment Trust	N/A		N/A		None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	N/A		N/A
Capital Appreciation	N/A		N/A		None	None	0.25	%	0.25	%	0.25	%	0.35	%	1.00	%	1.00	%	1.00	%	1.00	%	N/A		N/A
Mid-Cap Value Equity	N/A		N/A		None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	N/A		N/A
Mid-Cap Growth Equity	N/A		N/A		None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	0.50	%	0.50	%
Aurora	N/A		N/A		None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	0.50	%	0.50	%
Small/ Mid-Cap Growth	N/A		N/A		None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	0.50	%	0.50	%
Small Cap Value Equity	0.25	%	0.25	%	None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	N/A		N/A
Small Cap Core Equity	N/A		N/A		None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	N/A		N/A
Small Cap Growth Equity	N/A		N/A		None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	N/A		N/A
Global Science & Technology Opportunities	N/A		N/A		None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	N/A		N/A
Global Resources	N/A		N/A		None	None	N/A		N/A		0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	N/A		N/A
All-Cap Global Resources	N/A		N/A		None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	N/A		N/A
Health Sciences Opportunities	N/A		N/A		None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	N/A		N/A
U.S. Opportunities	N/A		N/A		None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	N/A		N/A
Global Opportunities	N/A		N/A		None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	N/A		N/A
International Opportunities	N/A		N/A		None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	N/A		N/A
Asset Allocation	N/A		N/A		None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%	N/A		N/A

(1) —  the maximum annual contractual fees are comprised of a 0.25% service fee.

(2) —  the maximum annual contractual fees are comprised of a 0.75% distribution fee and a 0.25% service fee.

(3) —  the maximum annual contractual fees are comprised of a 0.25% distribution fee and a 0.25% service fee.

178

BLACKROCK FUNDS

For the six months ended March 31, 2007, the Fund paid to affiliates the following fees in return for distribution and sales support services:

	MERRILL LYNCH		HILLIARD LYONS		BLACKROCK		PNC
Investment Trust	$	54,538	$	27,172	$	12,185	$	—
Capital Appreciation		59,901		588		2,356		—
Mid-Cap Value Equity		431,767		13,938		8,560		—
Mid-Cap Growth Equity		65,716		25,624		7,289		—
Aurora		967,456		8,676		35,705		—
Small/Mid-Cap Growth		80,812		1,386		1,955		—
Small Cap Value Equity		18,728		22,869		1,409		—
Small Cap Core Equity		71,727		8,693		332		—
Small Cap Growth Equity		73,646		30,349		4,690		—
Global Science & Technology Opportunities		12,631		11,159		2,748		—
Global Resources		350,283		497		44,467		—
All-Cap Global Resources		233,726		9,570		8,614		—
Health Sciences Opportunities		866,609		10,105		10,890		—
U.S. Opportunities		126,018		25,363		8,797		—
Global Opportunities		21,401		3,578		251		—
International Opportunities		544,424		33,992		14,468		—
Asset Allocation		227,917		71,587		8,134		92

BlackRock maintains a call center, which is responsible for providing certain shareholder services to the Fund, such as responding to shareholder inquiries and processing transactions based upon instructions from shareholders with respect to the subscription and redemption of Fund shares. During the six months ended March 31, 2007, the following amounts have been accrued by each Portfolio to reimburse BlackRock for costs incurred running the call center, which are a component of the transfer agent fees in the accompanying Statements of Operations.

	BLACKROCK		INSTITUTIONAL		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C		R		TOTAL
Investment Trust	$	—	$	16,211	$	25	$	86,409	$	50,247	$	2,139	$	—	$	155,031
Capital Appreciation		—		980		3		15,645		12,771		1,214		—		30,613
Mid-Cap Value Equity		—		973		56		42,584		17,266		10,084		—		70,963
Mid-Cap Growth Equity		—		1,002		36		55,590		12,530		2,340		2		71,500
Aurora		—		1,513		5		114,372		46,867		26,221		2		188,980
Small/Mid-Cap Growth		—		661		3		17,292		5,522		1,697		2		25,177
Small Cap Value Equity		30		290		70		1,395		744		322		—		2,851
Small Cap Core Equity		—		701		106		2,649		1,048		2,170		—		6,674
Small Cap Growth Equity		—		2,704		425		11,404		1,316		2,199		—		18,048
Global Science & Technology Opportunities		—		146		26		1,678		1,410		750		—		4,010
Global Resources		—		664		—		26,500		7,085		6,058		—		40,307
All-Cap Global Resources		—		2,150		422		26,361		6,370		11,087		—		46,390
Health Sciences Opportunities		—		2,068		289		34,947		10,749		13,390		—		61,443
U.S. Opportunities		—		686		244		9,529		4,006		2,976		—		17,441

179

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	BLACKROCK		INSTITUTIONAL		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C		R		TOTAL
Global Opportunities	$	—	$	210	$	5	$	2,176	$	695	$	703	$	—	$	3,789
International Opportunities		—		8,553		2,092		30,414		7,042		10,837		—		58,938
Asset Allocation		—		657		74		47,691		19,735		4,371		—		72,528

For the six months ended March 31, 2007, the following shows the various types of class-specific expenses borne directly by each class of each Portfolio and any associated waivers of those expenses.

ADMINISTRATION FEES	SHARE CLASSES
	BLACKROCK		INSTITUTIONAL		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C		R		TOTAL
Investment Trust	$	—	$	59,676	$	122	$	60,570	$	24,774	$	2,391	$	—	$	147,533
Capital Appreciation		—		6,334		2		14,214		8,467		2,022		—		31,039
Mid-Cap Value Equity		—		12,626		442		66,545		16,233		19,027		—		114,873
Mid-Cap Growth Equity		—		9,165		89		32,590		6,024		2,266		2		50,136
Aurora		—		19,013		2		103,213		39,966		33,295		2		195,491
Small/Mid-Cap Growth		—		3,123		2		26,060		2,890		2,186		2		34,263
Small Cap Value Equity		601		4,556		435		3,616		878		554		—		10,640
Small Cap Core Equity		—		3,069		444		2,851		1,089		3,388		—		10,841
Small Cap Growth Equity		—		58,169		3,600		24,197		1,375		2,222		—		89,563
Global Science & Technology Opportunities		—		168		15		1,705		1,231		1,027		—		4,146
Global Resources		—		4,352		—		74,454		10,513		17,447		—		106,766
All-Cap Global Resources		—		49,612		297		33,141		5,670		18,472		—		107,192
Health Sciences Opportunities		—		15,742		629		60,339		10,405		34,791		—		121,906
U.S. Opportunities		—		4,457		358		16,078		4,797		6,617		—		32,307
Global Opportunities		—		1,301		4		3,245		702		1,495		—		6,747
International Opportunities		—		47,148		17,425		56,445		12,171		27,837		—		161,026
Asset Allocation		—		4,177		284		60,882		21,863		10,267		—		97,473

ADMINISTRATION FEES WAIVED	SHARE CLASSES
	BLACKROCK		INSTITUTIONAL		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C		R		TOTAL
Investment Trust	$	—	$	1,979	$	3	$	58,929	$	24,083	$	2,247	$	—	$	87,241
Capital Appreciation		—		2,068		—		3,817		5,794		—		—		11,679
Mid-Cap Value Equity		—		12,626		442		66,545		16,233		19,027		—		114,873
Mid-Cap Growth Equity		—		—		89		17,708		5,825		490		2		24,114
Aurora		—		—		2		81,261		38,840		32,028		2		152,133
Small/Mid-Cap Growth		—		33		2		26,060		2,890		2,186		1		31,172
Small Cap Value Equity		165		—		60		—		878		4		—		1,107
Small Cap Core Equity		—		3,069		29		71		365		89		—		3,623
Small Cap Growth Equity		—		—		—		—		1,359		—		—		1,359
Global Science & Technology Opportunities		—		168		15		1,705		1,231		86		—		3,205
Global Resources		—		3,407		—		41,296		10,513		8,992		—		64,208
All-Cap Global Resources		—		505		72		1,266		5,670		7,435		—		14,948
Health Sciences Opportunities		—		—		15		1,487		270		2,344		—		4,116
U.S. Opportunities		—		4,457		5		328		4,797		1,651		—		11,238
Global Opportunities		—		1,111		4		3,150		682		1,461		—		6,408
Asset Allocation		—		3,723		—		—		—		—		—		3,723

180

BLACKROCK FUNDS

TRANSFER AGENT FEES	SHARE CLASSES
	BLACKROCK		INSTITUTIONAL		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C		R		TOTAL
Investment Trust	$	—	$	188,780	$	242	$	727,000	$	434,963	$	23,879	$	—	$	1,374,864
Capital Appreciation		—		8,927		29		156,514		112,200		15,049		—		292,719
Mid-Cap Value Equity		—		39,409		1,642		494,372		171,393		142,613		—		849,429
Mid-Cap Growth Equity		—		28,309		1,570		475,831		135,828		32,179		20		673,737
Aurora		—		29,203		39		1,287,514		452,197		331,246		20		2,100,219
Small/Mid-Cap Growth		—		8,732		30		372,371		57,391		30,117		20		468,661
Small Cap Value Equity		162		3,807		2,450		24,033		16,772		6,537		—		53,761
Small Cap Core Equity		—		15,266		1,015		24,513		11,325		27,446		—		79,565
Small Cap Growth Equity		—		166,355		6,312		117,706		32,796		24,119		—		347,288
Global Science & Technology Opportunities		—		2,707		264		24,539		26,536		9,963		—		64,009
Global Resources		—		18,859				493,779		64,855		64,553		—		642,046
All-Cap Global Resources		—		28,761		2,427		200,040		56,177		106,446		—		393,851
Health Sciences Opportunities		—		29,533		2,330		369,556		101,866		191,142		—		694,427
U.S. Opportunities		—		6,794		1,754		75,581		54,870		38,492		—		177,491
Global Opportunities		—		2,293		69		30,112		28,880		9,159		—		70,513
International Opportunities		—		103,705		71,734		317,834		93,600		159,032		—		745,905
Asset Allocation		—		19,342		681		411,439		188,671		51,640		—		671,773

TRANSFER AGENT FEES WAIVED	SHARE CLASSES
	BLACKROCK		INSTITUTIONAL		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C		R		TOTAL
Investment Trust	$	—	$	540	$	—	$	84,314	$	49,165	$	1,367	$	—	$	135,386
Capital Appreciation		—		328		—		—		7,110		—		—		7,438
Mid-Cap Value Equity		—		973		56		42,584		17,266		10,084		—		70,963
Mid-Cap Growth Equity		—		—		36		901		12,114		—		1		13,052
Aurora		—		—		5		40,604		46,618		18,510		2		105,739
Small/Mid-Cap Growth		—		—		3		17,292		5,522		1,697		—		24,514
Small Cap Value Equity		8		—		12		—		740		—		—		760
Small Cap Core Equity		—		701		—		1		126		—		—		828
Small Cap Growth Equity		—		—		—		—		1,272		—		—		1,272
Global Science & Technology Opportunities		—		146		26		1,678		1,410		—		—		3,260
Global Resources		—		285		—		5,448		7,085		767		—		13,585
All-Cap Global Resources		—		—		27		724		6,370		3,250		—		10,371
U.S. Opportunities		—		686		—		—		4,006		100		—		4,792
Global Opportunities		—		182		5		2,217		671		761		—		3,836
Asset Allocation		—		112		—		—		—		—		—		112

181

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

TRANSFER AGENT FEES REIMBURSED	SHARE CLASSES
	BLACKROCK		INSTITUTIONAL		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C		R		TOTAL
Investment Trust	$	—	$	4,756	$	—	$	71,001	$	151,299	$	150	$	—	$	227,206
Capital Appreciation		—		2,594		1		—		509		—		—		3,104
Mid-Cap Value Equity		—		20,122		530		283,837		115,339		85,762		—		505,590
Mid-Cap Growth Equity		—		—		344		—		32,264		7		2		32,617
Aurora		—		—		14		—		32,606		3,690		6		36,316
Small/Mid-Cap Growth		—		—		8		159,062		29,795		12,096		—		200,961
Small Cap Value Equity		34		—		23		—		2,455		—		—		2,512
Small Cap Core Equity		—		6,445		184		1,792		599		1,330		—		10,350
Small Cap Growth Equity		—		—		—		—		3,598		—		—		3,598
Global Science & Technology Opportunities		—		2,535		157		12,370		10,352		476		—		25,890
Global Resources		—		695		—		6,145		11,905		786		—		19,531
All-Cap Global Resources		—		—		533		27,090		17,285		12,292		—		57,200
Health Sciences Opportunities		—		—		285		14,340		4,765		5,928		—		25,318
U.S. Opportunities		—		6,063		236		1,802		14,573		638		—		23,312
Global Opportunities		—		1,389		51		16,768		25,397		4,124		—		47,729
Asset Allocation		—		613		—		—		—		—		—		613

SHAREHOLDER SERVICE FEES	SHARE CLASSES
	BLACKROCK		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C		R		TOTAL
Investment Trust	$	—	$	1,222	$	603,260	$	246,221	$	23,687	$	—	$	874,390
Capital Appreciation		—		26		141,919		84,504		20,217		—		246,666
Mid-Cap Value Equity		—		4,419		691,216		161,921		190,242		—		1,047,798
Mid-Cap Growth Equity		—		893		324,683		59,583		22,631		27		407,817
Aurora		—		22		1,418,821		399,210		332,697		22		2,150,772
Small/Mid-Cap Growth		—		26		260,399		28,551		21,856		26		310,858
Small Cap Value Equity		6,008		4,353		36,135		8,780		5,543		—		60,819
Small Cap Core Equity		—		4,440		28,503		10,888		33,873		—		77,704
Small Cap Growth Equity		—		36,002		241,892		13,744		22,219		—		313,857
Global Science & Technology Opportunities		—		149		17,029		12,313		10,266		—		39,757
Global Resources		—		—		823,754		105,050		174,344		—		1,103,148
All-Cap Global Resources		—		2,972		331,237		56,579		184,712		—		575,500
Health Sciences Opportunities		—		6,268		609,043		103,821		347,858		—		1,066,990
U.S. Opportunities		—		3,582		160,640		47,946		66,128		—		278,296
Global Opportunities		—		40		32,435		7,022		14,951		—		54,448
International Opportunities		—		174,238		563,907		121,688		278,338		—		1,138,171
Asset Allocation		—		2,839		606,078		217,854		102,418		—		929,189

182

BLACKROCK FUNDS

DISTRIBUTION FEES	SHARE CLASSES
	INVESTOR B		INVESTOR C		R		TOTAL
Investment Trust	$	743,218	$	71,027	$	—	$	814,245
Capital Appreciation		254,018		60,650		—		314,668
Mid-Cap Value Equity		486,981		570,078		—		1,057,059
Mid-Cap Growth Equity		180,725		67,851		27		248,603
Aurora		1,198,681		998,389		22		2,197,092
Small/Mid-Cap Growth		86,713		65,570		26		152,309
Small Cap Value Equity		26,340		16,629		—		42,969
Small Cap Core Equity		32,666		101,618		—		134,284
Small Cap Growth Equity		41,235		66,657		—		107,892
Global Science & Technology Opportunities		36,938		30,797		—		67,735
Global Resources		315,340		523,154		—		838,494
All-Cap Global Resources		170,082		554,147		—		724,229
Health Sciences Opportunities		312,140		1,043,567		—		1,355,707
U.S. Opportunities		143,898		198,385		—		342,283
Global Opportunities		21,067		44,854		—		65,921
International Opportunities		365,131		835,007		—		1,200,138
Asset Allocation		655,895		307,149		—		963,044

BlackRock and the Fund contractually agreed to waive or reimburse fees or expenses until February 1, 2008, in order to limit expenses. These expense limits apply to the aggregate expenses incurred on a share class (excluding: interest, taxes, brokerage commissions, expenses incurred as a result of investments in other funds and other expenses attributable to, and incurred as a result of, a Portfolio’s investments and other extraordinary expenses). This agreement is reviewed annually by the Fund’s Board. The current expense limitation as a percentage of net assets are as follows:

	SHARE CLASSES
	BLACKROCK		INSTITUTIONAL		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C		R
Investment Trust	0.66	%2	0.81	%	1.11	%	1.16	%	1.91	%	1.91	%	N/A
Capital Appreciation	N/A		0.70	%1	1.35	%	1.35	%	2.10	%	2.10	%	N/A
Mid-Cap Value Equity	N/A		0.94	%1	1.25	%	1.25	%	2.00	%	2.00	%	N/A
Mid-Cap Growth Equity	N/A		1.23	%	1.53	%	1.58	%	2.33	%	2.33	%	1.60	%
Aurora	N/A		1.05	%1	1.44	%	1.44	%	2.19	%	2.19	%	1.60	%
Small/Mid-Cap Growth	N/A		1.10	%	1.35	%	1.35	%	2.10	%	2.10	%	1.63	%
Small Cap Value Equity	1.10	%	0.97	%	1.27	%	1.44	%	2.19	%	2.19	%	N/A
Small Cap Core Equity	N/A		1.30	%	1.60	%	1.77	%	2.52	%	2.52	%	N/A
Small Cap Growth Equity	N/A		0.99	%	1.29	%	1.46	%	2.21	%	2.21	%	N/A
Global Sciences & Technology Opportunities	N/A		1.35	%	1.73	%	1.75	%	2.65	%	2.65	%	N/A
Global Resources	N/A		1.04	%	1.34	%2	1.34	%	2.04	%	2.04	%	N/A
All-Cap Global Resources	N/A		0.93	%1	1.34	%	1.34	%	2.04	%	2.04	%	N/A
Health Sciences Opportunities	N/A		1.25	%	1.55	%	1.55	%	2.25	%	2.25	%	N/A
U.S. Opportunities	N/A		1.00	%1	1.60	%	1.60	%	2.25	%	2.25	%	N/A
Global Opportunities	N/A		1.35	%	1.65	%	1.65	%	2.40	%	2.40	%	N/A
International Opportunities	N/A		1.45	%	1.75	%	1.92	%	2.67	%	2.67	%	N/A
Asset Allocation	N/A		0.86	%	1.16	%	1.33	%	2.08	%	2.08	%	N/A

¹ Prior to February 1, 2007, BlackRock and the Fund contractually agreed to waive or reimburse fees or expenses, in order to limit expenses to 1.10%, 1.00%, 1.10%, 1.04%, and 1.09% for the Institutional share classes of Capital Appreciation, Mid-Cap Value Equity, Aurora, All-Cap Global Resources, and U.S. Opportunities, respectively.

² There were no shares outstanding as of March 31, 2007.

183

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

If within two years following a waiver or reimbursement the operating expenses of a share class that previously received a waiver or reimbursement from BlackRock are less than the expense limit for that share class, the share class is required to repay BlackRock up to the amount of fees waived or expenses reimbursed under the agreement if: (1) the Portfolio of which the share class is a part has more than $50 million in assets, (2) BlackRock or an affiliate continues to be the Portfolio’s investment advisor or administrator and (3) the Board approved the payments to BlackRock at the previous quarterly meeting.

Under terms of the Agreement and Plan of Reorganization of State Street Research Investment Trust, State Street Research Large-Cap Analyst Fund, State Street Research Large-Cap Value Fund, State Street Research Capital Appreciation Fund, State Street Research Mid-Cap Value Fund, State Street Research Mid-Cap Growth Fund, State Street Research Aurora Fund, State Street Research Emerging Growth Fund, State Street Research Global Resources Fund, State Street Research Health Sciences Fund and State Street Research Asset Allocation Fund, fees waived by BlackRock through February 1, 2007, on the Institutional, Investor A, Investor B and Investor C Share classes of the Investment Trust, Capital Appreciation, Mid-Cap Value Equity, Mid-Cap Growth Equity, Aurora, Small/Mid-Cap Growth, Global Resources, Health Sciences Opportunities and Asset Allocation are not subject to future recoupment by BlackRock.

At March 31, 2007, the amounts subject to possible future reimbursement under the expense limitation agreement are as follows:

	EXPIRING JANUARY 31, 2008		EXPIRING JANUARY 31, 2009		EXPIRING JANUARY 31, 2010		TOTAL WAIVERS SUBJECT TO REIMBURSEMENT
Investment Trust	$	—	$	—	$	137,294	$	137,294
Capital Appreciation		—		—		25,871		25,871
Mid-Cap Value Equity		—		—		240,460		240,460
Mid Cap Growth Equity		—		—		19,863		19,863
Aurora		—		—		86,074		86,074
Small/Mid Cap Growth		—		—		80,996		80,996
Small Cap Value Equity		24,977		15,969		1,634		42,580
Small Cap Core Equity		73,554		45,835		3,775		123,164
Small Cap Growth Equity		—		28,413		2,076		30,489
Global Science & Technology Opportunities		95,323		109,289		26,822		231,434
Global Resources		—		—		24,711		24,711
All Cap Global Resources		303,884		131,783		11,124		446,791
U.S. Opportunities		8,580		427,587		72,789		508,956
Global Opportunities		—		263,545		20,749		284,294
International Opportunities		81,759		—		—		81,759
Asset Allocation		—		—		1,440		1,440

The following waivers previously recorded by the Portfolios, which were subject to recoupment by BlackRock expired on January 31, 2007:

Small Cap Value Equity	$	25,127
Small Cap Core Equity		52,283
Small Cap Growth Equity		6,742
U.S. Opportunities		15,890
Global Science & Technology Opportunities		71,419
International Opportunities		185,626

For the six months ended March 31, 2007, Merrill Lynch, through their affiliated broker dealer, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), earned commissions on transactions of securities as follows:

	COMMISSION AMOUNT
Investment Trust	$	5,863
Capital Appreciation		540

184

BLACKROCK FUNDS

	COMMISSION AMOUNT
Mid-Cap Value	$	6,056
Mid-Cap Growth		7,956
Aurora		6,292
Small/Mid-Cap Growth		1,100
Small Cap Value		30
Small Cap Core		730
Small Cap Growth		1,656
Global Science & Technology Opportunities		398
Global Resources		28,049
All-Cap Global Resources		11,784
Health Sciences Opportunities		37,652
U.S. Opportunities		9,319
Global Opportunities		1,472
International Opportunities		5,730
Asset Allocation		2,286

For the six months ended March 31, 2007, BDI and other affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of Portfolio’s Investor A Class as follows:

Investment Trust	$	4,530
Capital Appreciation		2,615
Mid-Cap Value		38,946
Mid-Cap Growth		3,737
Aurora		17,847
Small/Mid-Cap Growth		1,780
Small Cap Value		996
Small Cap Core		11,470
Small Cap Growth		8,468
Global Science & Technology Opportunities		2,332
Global Resources		5,957
All-Cap Global Resources		68,233
Health Sciences Opportunities		272,036
U.S. Opportunities		40,085
Global Opportunities		20,189
International Opportunities		17,337
Asset Allocation		31,517

For the six months ended March 31, 2007, affiliates received the following contingent deferred sales charges relating to transactions in Investor A Class, Investor B Class and Investor C Class:

	INVESTOR A CLASS		INVESTOR B CLASS		INVESTOR C CLASS
Investment Trust	$	—	$	2,942	$	23
Capital Appreciation		—		2,133		84
Mid-Cap Value		—		10,112		3,481
Mid-Cap Growth		—		3,666		224
Aurora		123		60,073		3,772
Small/Mid-Cap Growth		—		788		446
Small Cap Value		—		1,095		3
Small Cap Core		—		1,928		1,401
Small Cap Growth		—		1,888		216
Global Science & Technology Opportunities		—		9,138		135
Global Resources		403		10,530		2,367

185

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	INVESTOR A CLASS		INVESTOR B CLASS		INVESTOR C CLASS
All-Cap Global Resources	$	—	$	6,801	$	16,254
Health Sciences Opportunities		—		11,624		22,520
U.S. Opportunities		—		1,208		3,628
Global Opportunities		—		1,180		4,154
International Opportunities		—		13,619		4,743
Asset Allocation		—		11,049		3,168

For the six months ended March 31, 2007, short term investments in companies assumed to be an affiliate of the Portfolios were as follows:

	AFFILIATED INVESTMENTS	NET ACTIVITY			MARKET VALUE OF AFFILIATES AT MARCH 31, 2007
Investment Trust	Institutional Money Market Trust	$	4,688,472		$	128,277,219
Capital Appreciation	Institutional Money Market Trust		3,755,888			28,917,616
Mid-Cap Value Equity	Institutional Money Market Trust		(8,643,621	)		154,241,277
Mid-Cap Growth Equity	Institutional Money Market Trust		28,216,633			96,726,125
Aurora	Institutional Money Market Trust		(119,185,598	)		235,843,986
Small/Mid-Cap Growth	Institutional Money Market Trust		24,373,800			64,037,142
Small Cap Value Equity	Institutional Money Market Trust		5,323,332			14,358,217
Small Cap Core Equity	Institutional Money Market Trust		8,557,957			20,764,379
Small Cap Growth Equity	Institutional Money Market Trust		83,493,202			157,550,370
Global Science & Technology Opportunities	Institutional Money Market Trust		2,314,139			6,958,489
Global Resources	Institutional Money Market Trust		57,782,403			188,675,253
All-Cap Global Resources	Institutional Money Market Trust		90,513,796			201,901,845
Health Sciences Opportunities	Institutional Money Market Trust		(35,309,360	)		70,841,993
U.S. Opportunities	Institutional Money Market Trust		24,786,776			54,533,177
International Opportunities	Institutional Money Market Trust		7,227,000			7,227,000
Asset Allocation	Institutional Money Market Trust		5,401,655			71,392,028

In addition to the above income earned on affiliated investments, the Portfolios may earn income on positive cash balances in demand deposit accounts that are maintained by PFPC on behalf of the Portfolios. The income earned for the six months ended March 31, 2007 is as follows:

Investment Trust	$	15,508
Capital Appreciation		3,137
Mid-Cap Value Equity		7,429
Mid-Cap Growth Equity		7,246
Aurora		15,872
Small/Mid-Cap Growth		2,541
Small Cap Value Equity		278
Small Cap Core Equity		733
Small Cap Growth Equity		1,781
Global Science & Technology Opportunities		440
Global Resources		3,817
All-Cap Global Resources		4,753
Health Sciences		6,866
U.S. Opportunities		2,078
Global Opportunities		449
International Opportunities		6,000
Asset Allocation		7,390

186

BLACKROCK FUNDS

The Portfolios may also receive earnings credits related to cash balances with PFPC which are shown on the Statements of Operations as “fees paid indirectly.”

Through agreements with PTC and BlackRock Investment Management, LLC (“BIML”), the Portfolios may lend portfolio securities to certain brokers, dealers or other financial institutions that pay the Portfolios a negotiated fee. Prior to the close of each business day, loans of U.S. securities are secured by collateral equal to at least 102% of the market value of the securities on loan. Loans of foreign securities are secured by collateral equal to at least 105% of the market value of securities on loan. However, due to market fluctuations, the value of the securities lent may exceed the value of the collateral. On the next business day, the collateral is adjusted based on the prior day’s market fluctuations and the current day’s lending activity. Cash collateral received in connection with the securities lending is invested in short-term investments by PTC. PTC has hired BlackRock Capital Management, Inc. (“BCM”), an indirect wholly-owned subsidiary of BlackRock, Inc., and pays BCM to provide advisory services with respect to the collateral of all of the clients of its securities lending program. PTC and BIML may invest such collateral in short-term investments, including the Institutional Money Market Trust (the “Trust”), an affiliate of the Fund, a portfolio of money market securities, or high-quality, short-term instruments with a maturity date not to exceed 397 days. The securities lending income included in the accompanying Statements of Operations is principally derived from investments in the Trust and accordingly represents income earned from an affiliate. BCM serves as investment advisor to the Trust but receives no fees from the Trust for these services. Administrative and accounting services for the Trust are provided by PFPC, an indirect wholly-owned subsidiary of PNC. PFPC is paid a fee from the Trust at an annual rate not to exceed 0.10% of the Trust’s average daily net assets. At March 31, 2007, the market value of securities on loan, cash collateral invested in the Trust and total value of collateral held in connection with securities lending is summarized as follows:

	MARKET VALUE OF SECURITIES ON LOAN		MARKET VALUE OF CASH COLLATERAL INVESTED IN AFFILIATES		TOTAL MARKET VALUE OF COLLATERAL RECEIVED
Investment Trust	$	155,179,458	$	128,277,219	$	160,048,466
Capital Appreciation		40,490,319		28,917,616		42,001,402
Mid-Cap Value Equity		171,068,287		154,241,277		179,280,196
Mid-Cap Growth Equity		100,035,404		96,726,125		103,714,106
Aurora		228,829,153		235,843,986		237,688,233
Small/Mid-Cap Growth		62,088,247		64,037,142		64,376,874
Small Cap Value Equity		13,916,340		14,358,217		14,460,372
Small Cap Core Equity		23,020,730		20,764,379		24,005,017
Small Cap Growth Equity		167,092,262		157,550,370		174,180,841
Global Sciences & Technology Opportunities		7,381,443		6,958,489		7,609,028
Global Resources		191,376,547		188,675,253		209,372,372
All-Cap Global Resources		206,848,906		201,901,845		215,147,250
Health Sciences Opportunities		57,309,527		70,841,993		77,723,284
U.S. Opportunities		57,765,688		54,533,177		59,916,171
International Opportunities		6,949,675		7,227,000		7,227,000
Asset Allocation		82,507,873		71,392,028		85,606,171

In the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings.

187

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

(D) Purchases and Sales of Securities

For the six months ended March 31, 2007, purchases and sales of securities including paydowns, but excluding short-term investments, dollar rolls and U.S. government securities, were as follows:

	PURCHASES		SALES
Investment Trust	$	362,882,797	$	485,699,039
Capital Appreciation		136,527,146		161,216,934
Mid-Cap Value Equity		1,112,282,302		1,024,902,374
Mid-Cap Growth Equity		124,657,419		174,264,540
Aurora		1,261,662,121		1,653,745,764
Small/Mid-Cap Growth		110,325,662		141,834,116
Small Cap Value Equity		41,042,457		52,085,090
Small Cap Core Equity		41,300,565		48,144,680
Small Cap Growth Equity		220,101,506		207,191,437
Global Science & Technology Opportunities		16,088,166		15,628,477
Global Resources		52,351,554		230,279,431
All-Cap Global Resources		212,582,063		154,058,475
Health Sciences Opportunities		748,504,027		599,261,271
U.S. Opportunities		223,858,155		125,724,996
Global Opportunities		36,289,175		32,071,778
International Opportunities		451,678,142		510,302,947
Asset Allocation		253,632,478		278,541,156

For the six months ended March 31, 2007, purchases and sales of U.S. government securities were as follows:

	PURCHASES		SALES
Mid Cap Value Equity	$	6,999,067	$	—
Aurora		7,993,240		7,997,718
Small Cap Growth Equity		49,955,657		—
Asset Allocation		68,120,620		28,310,158

188

BLACKROCK FUNDS

(E) Capital Shares

Transactions in capital shares for each period were as follows:

	INVESTMENT TRUST
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	257,206		$	3,819,918		2,341,748		$	31,634,154
Service Class	1,311			19,395		6,773			90,725
Investor A Class	1,298,906			19,026,731		977,720			12,913,968
Investor B Class	177,462			2,459,663		476,860			6,014,155
Investor C Class	17,580			244,002		38,845			486,986
Shares issued in reinvestment of dividends:
Institutional Class	202,732			2,990,298		747,230			9,909,146
Service Class	280			4,149		3,037			40,344
Investor A Class	258,211			3,764,704		1,198,722			15,687,516
Investor B Class	5,568			77,684		472,281			5,885,465
Investor C Class	628			8,764		33,100			413,090
Shares redeemed:
Institutional Class	(3,674,065	)		(54,089,213	)	(7,938,725	)		(106,299,191	)
Service Class	(2,621	)		(38,964	)	(60,043	)		(807,339	)
Investor A Class	(3,528,984	)		(51,250,364	)	(9,327,866	)		(123,363,181	)
Investor B Class	(2,670,328	)		(37,148,892	)	(4,913,968	)		(61,961,841	)
Investor C Class	(179,407	)		(2,494,018	)	(507,827	)		(6,400,170	)
Net decrease	(7,835,521	)	$	(112,606,143	)	(16,452,113	)	$	(215,756,173	)

189

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	CAPITAL APPRECIATION
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	473,355		$	7,492,070		103,422		$	1,543,596
Service Class	1,391			20,000		—			—
Investor A Class	589,932			8,954,388		1,178,608			17,046,419
Investor B Class	35,556			501,854		259,852			3,526,712
Investor C Class	27,694			392,416		135,235			1,846,807
Shares redeemed:
Institutional Class	(267,100	)		(4,233,407	)	(548,331	)		(8,119,219	)
Service Class	—			—		—			—
Investor A Class	(1,099,878	)		(16,673,874	)	(2,090,771	)		(29,980,190	)
Investor B Class	(1,056,937	)		(15,012,549	)	(1,562,189	)		(21,049,634	)
Investor C Class	(264,062	)		(3,733,026	)	(451,571	)		(6,083,855	)
Net decrease	(1,560,049	)	$	(22,292,128	)	(2,975,745	)	$	(41,269,364	)

	MID-CAP VALUE EQUITY
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	6,497,433		$	89,517,361		3,213,278		$	41,875,922
Service Class	52,645			703,478		185,350			2,335,072
Investor A Class	7,339,235			98,994,420		12,272,961			158,315,160
Investor B Class	416,306			5,206,194		1,002,084			12,027,303
Investor C Class	1,729,999			21,653,833		4,280,074			51,452,801
Shares issued in reinvestment of dividends:
Institutional Class	740,473			9,803,964		354,706			4,434,546
Service Class	32,447			424,084		8,444			104,415
Investor A Class	5,006,059			64,778,402		3,346,989			41,006,775
Investor B Class	1,293,371			15,546,349		1,027,447			11,775,067
Investor C Class	1,484,811			17,817,698		566,928			6,496,802
Shares redeemed:
Institutional Class	(1,491,761	)		(20,607,701	)	(1,559,931	)		(20,504,579	)
Service Class	(40,706	)		(542,247	)	(27,153	)		(351,850	)
Investor A Class	(4,845,958	)		(65,507,104	)	(15,480,393	)		(201,283,167	)
Investor B Class	(1,293,515	)		(16,161,041	)	(2,414,232	)		(29,121,184	)
Investor C Class	(1,169,560	)		(14,672,529	)	(1,942,014	)		(23,401,240	)
Net increase	15,751,279		$	206,955,161		4,834,538		$	55,161,843

190

BLACKROCK FUNDS

	MID-CAP GROWTH EQUITY
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	586,603		$	6,700,576		2,634,721		$	28,581,905
Service Class	1,466			16,493		4,756			48,535
Investor A Class	464,290			4,975,801		1,087,808			11,107,763
Investor B Class	97,902			945,452		320,643			2,995,673
Investor C Class	40,930			393,195		161,409			1,521,274
R Class	2,038			20,225
Shares redeemed:
Institutional Class	(1,708,598	)		(19,543,185	)	(2,915,427	)		(31,182,229	)
Service Class	(13,998	)		(152,098	)	(45,158	)		(464,849	)
Investor A Class	(2,896,383	)		(30,900,295	)	(5,238,300	)		(52,960,358	)
Investor B Class	(873,181	)		(8,466,948	)	(1,615,891	)		(14,942,182	)
Investor C Class	(268,572	)		(2,602,613	)	(500,179	)		(4,617,870	)
R Class	(22	)		(227	)	—			—
Net decrease	(4,567,525	)	$	(48,613,624	)	(5,583,403	)	$	(54,659,900	)
	AURORA
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	2,640,647		$	82,021,857		2,181,474		$	82,408,472
Service Class	570			20,052		—			—
Investor A Class	2,504,743			74,516,944		7,656,846			275,526,382
Investor B Class	193,302			4,895,378		797,244			25,185,220
Investor C Class	189,414			4,814,254		1,414,963			44,566,140
R Class	575			20,225		—			—
Shares issued in reinvestment of dividends:
Institutional Class	1,321,669			38,724,902		549,596			19,714,526
Service Class	2			68		1			28
Investor A Class	12,269,201			335,808,106		6,173,351			211,807,308
Investor B Class	4,483,647			103,348,590		2,040,811			62,652,768
Investor C Class	3,691,736			85,094,619		1,420,357			43,590,697
Shares redeemed:
Institutional Class	(2,312,686	)		(77,382,647	)	(2,428,417	)		(91,571,978	)
Service Class	—			—		—			—
Investor A Class	(12,985,647	)		(389,341,620	)	(20,587,258	)		(747,313,710	)
Investor B Class	(2,568,391	)		(66,411,236	)	(3,773,857	)		(121,949,023	)
Investor C Class	(2,585,773	)		(68,734,579	)	(4,419,884	)		(142,503,269	)
R Class	(4	)		(152	)	—			—
Net increase (decrease)	6,843,005		$	127,394,761		(8,974,773	)	$	(337,886,439	)

191

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	SMALL/MID-CAP GROWTH
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	198,290		$	3,187,426		1,018,937		$	16,187,362
Service Class	1,379			20,050		—			—
Investor A Class	1,323,730			20,195,560		3,949,172			58,782,643
Investor B Class	41,878			566,256		266,210			3,570,887
Investor C Class	86,030			1,150,385		195,181			2,592,128
R Class	1,390			20,225		—			—
Shares issued in reinvestment of dividends:
Institutional Class	73,069			1,155,953		26,107			393,687
Service Class	1			9		—			5
Investor A Class	728,615			10,907,333		518,710			7,453,855
Investor B Class	97,425			1,285,043		71,552			919,668
Investor C Class	74,172			980,547		47,164			607,472
Shares redeemed:
Institutional Class	(212,531	)		(3,413,615	)	(834,449	)		(12,917,310	)
Service Class	—			—		—			—
Investor A Class	(3,015,899	)		(45,698,560	)	(5,133,167	)		(76,376,151	)
Investor B Class	(263,612	)		(3,542,318	)	(487,441	)		(6,429,666	)
Investor C Class	(193,581	)		(2,609,487	)	(549,000	)		(7,273,939	)
R Class	(10	)		(153	)	—			—
Net decrease	(1,059,654	)	$	(15,795,346	)	(911,024	)	$	(12,489,359	)

192

BLACKROCK FUNDS

	SMALL CAP VALUE EQUITY
	FOR THE SIX MONTHS ENDED 3/81/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
BlackRock Class	2,217		$	30,724		3,480		$	47,059
Institutional Class	234,468			2,832,681		484,929			6,512,988
Service Class	13,681			161,084		163,344			2,037,944
Investor A Class	150,442			1,781,567		464,948			6,051,210
Investor B Class	8,744			88,590		98,355			1,099,478
Investor C Class	5,016			49,082		65,887			705,521
Shares issued in reinvestment of dividends:
BlackRock Class	83,414			980,112		74,714			941,217
Institutional Class	540,715			6,358,811		737,112			9,296,761
Service Class	73,115			840,090		54,708			676,907
Investor A Class	523,955			5,962,612		449,180			5,519,823
Investor B Class	168,042			1,599,759		171,281			1,826,243
Investor C Class	97,716			929,291		53,824			574,307
Shares redeemed:
BlackRock Class	—			—		(87,755	)		(1,204,443	)
Institutional Class	(481,799	)		(5,842,739	)	(3,058,992	)		(40,807,724	)
Service Class	(182,673	)		(2,100,245	)	(154,125	)		(1,994,044	)
Investor A Class	(299,078	)		(3,576,446	)	(928,616	)		(11,933,530	)
Investor B Class	(179,326	)		(1,800,326	)	(584,870	)		(6,633,424	)
Investor C Class	(73,458	)		(790,871	)	(191,946	)		(2,203,612	)
Net increase (decrease)	685,191		$	7,503,776		(2,184,542	)	$	(29,487,319	)

193

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	SMALL CAP CORE EQUITY
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	257,734		$	5,164,466		962,602		$	17,441,833
Service Class	60,109			1,176,327		151,133			2,772,327
Investor A Class	303,364			5,976,704		663,136			12,026,118
Investor B Class	26,714			512,979		224,150			3,948,701
Investor C Class	145,902			2,800,095		795,629			14,124,011
Shares issued in reinvestment of dividends:
Institutional Class	18,955			373,227		10,784			189,309
Service Class	1,116			21,864		139			2,445
Investor A Class	16,263			315,990		11,798			206,356
Investor B Class	7,039			133,515		5,310			91,384
Investor C Class	21,846			414,639		8,261			142,086
Shares redeemed:
Institutional Class	(452,767	)		(8,918,648	)	(383,939	)		(7,008,007	)
Service Class	(8,057	)		(159,044	)	(5,824	)		(106,633	)
Investor A Class	(202,662	)		(3,943,011	)	(213,243	)		(3,849,291	)
Investor B Class	(55,572	)		(1,059,076	)	(129,202	)		(2,247,128	)
Investor C Class	(197,964	)		(3,767,522	)	(342,913	)		(5,973,971	)
Net increase (decrease)	(57,980	)	$	(957,495	)	1,757,821		$	31,759,540
	SMALL CAP GROWTH EQUITY
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	3,732,524		$	78,938,406		6,995,701		$	126,124,949
Service Class	150,462			3,013,046		279,605			4,917,125
Investor A Class	1,451,594			28,230,348		2,248,584			38,631,351
Investor B Class	55,146			969,885		54,870			853,710
Investor C Class	209,556			3,672,360		206,488			3,184,877
Shares redeemed:
Institutional Class	(2,414,600	)		(50,129,023	)	(5,579,805	)		(103,865,354	)
Service Class	(172,555	)		(3,462,365	)	(323,079	)		(5,616,108	)
Investor A Class	(2,030,089	)		(40,248,477	)	(2,353,634	)		(39,960,020	)
Investor B Class	(103,802	)		(1,805,987	)	(454,167	)		(6,929,659	)
Investor C Class	(98,670	)		(1,731,863	)	(288,874	)		(4,455,656	)
Net increase	779,566		$	17,446,330		785,689		$	12,885,215

194

BLACKROCK FUNDS

	GLOBAL SCIENCE & TECHNOLOGY OPPORTUNITIES
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	99,901		$	764,881		283,924		$	2,085,955
Service Class	1,431			10,500		16,013			118,000
Investor A Class	434,340			3,168,691		1,240,077			8,783,376
Investor B Class	73,661			511,259		364,893			2,403,697
Investor C Class	496,249			3,478,836		722,755			4,793,241
Shares redeemed:
Institutional Class	(110,641	)		(843,850	)	(236,871	)		(1,618,064	)
Service Class	(12,090	)		(89,317	)	(12,868	)		(86,548	)
Investor A Class	(454,269	)		(3,326,533	)	(879,748	)		(5,971,557	)
Investor B Class	(384,461	)		(2,668,994	)	(574,815	)		(3,736,958	)
Investor C Class	(153,769	)		(1,073,955	)	(197,015	)		(1,262,280	)
Net increase (decrease)	(9,648	)	$	(68,482	)	726,345		$	5,508,862
	GLOBAL RESOURCES
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	34,173		$	2,182,821		125,426		$	9,480,375
Investor A Class	1,065,582			61,132,024		2,805,431			203,869,853
Investor B Class	97,205			4,570,857		155,046			9,885,340
Investor C Class	57,778			2,875,531		263,610			16,750,695
Shares issued in reinvestment of dividends:
Institutional Class	148,201			8,557,075		58,783			4,235,528
Investor A Class	3,358,743			180,834,342		1,272,119			86,955,389
Investor B Class	432,847			20,209,647		166,020			10,231,609
Investor C Class	828,192			38,643,668		254,651			15,678,954
Shares redeemed:
Institutional Class	(83,890	)		(5,007,212	)	(187,365	)		(13,865,714	)
Investor A Class	(2,980,283	)		(167,203,024	)	(5,086,765	)		(352,064,763	)
Investor B Class	(301,658	)		(14,440,792	)	(512,289	)		(32,442,577	)
Investor C Class	(497,123	)		(25,658,750	)	(878,642	)		(55,277,641	)
Net increase (decrease)	2,159,767		$	106,696,187		(1,563,975	)	$	(96,562,952	)

195

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	ALL-CAP GLOBAL RESOURCES
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	7,994,176		$	120,585,504		32,459,027		$	490,864,997
Service Class	46,763			683,667		276,359			3,943,563
Investor A Class	3,692,212			53,591,940		16,517,651			239,201,487
Investor B Class	262,587			3,828,914		2,419,586			34,350,830
Investor C Class	1,659,298			23,904,937		7,961,682			114,261,169
Shares issued in reinvestment of dividends:
Institutional Class	625,701			9,760,937		—			—
Service Class	3,489			54,010		—			—
Investor A Class	404,691			6,260,400		—			—
Investor B Class	73,581			1,123,569		—			—
Investor C Class	248,771			3,801,210		—			—
Shares redeemed:
Institutional Class	(2,783,396	)		(40,231,053	)	(14,861,469	)		(234,128,581	)
Service Class	(51,042	)		(727,855	)	(104,173	)		(1,423,992	)
Investor A Class	(4,474,755	)		(65,200,030	)	(4,949,505	)		(69,313,833	)
Investor B Class	(475,305	)		(6,735,326	)	(411,847	)		(5,801,533	)
Investor C Class	(1,615,679	)		(22,959,964	)	(1,542,800	)		(21,486,408	)
Net increase	5,611,092		$	87,740,860		37,764,511		$	550,467,699

196

BLACKROCK FUNDS

	HEALTH SCIENCES OPPORTUNITIES
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	1,573,427		$	42,264,547		3,858,683		$	96,613,294
Service Class	67,470			1,779,005		177,925			4,475,234
Investor A Class	7,087,121			186,809,950		12,531,444			310,550,315
Investor B Class	422,544			10,624,061		1,639,182			38,973,834
Investor C Class	2,796,192			70,440,664		7,902,616			188,232,038
Shares issued in reinvestment of dividends:
Institutional Class	56,271			1,496,805		8,163			199,825
Service Class	2,584			67,612		128			3,100
Investor A Class	213,260			5,568,205		181,772			4,384,375
Investor B Class	42,992			1,073,488		48,340			1,126,824
Investor C Class	71,871			1,792,457		58,956			1,367,127
Shares redeemed:
Institutional Class	(826,858	)		(22,105,482	)	(845,278	)		(21,029,329	)
Service Class	(34,085	)		(894,106	)	(12,179	)		(294,165	)
Investor A Class	(3,344,170	)		(87,735,979	)	(3,566,951	)		(87,666,145	)
Investor B Class	(294,326	)		(7,393,611	)	(420,734	)		(9,922,611	)
Investor C Class	(1,339,624	)		(33,657,575	)	(1,246,939	)		(29,316,086	)
Net increase	6,494,669		$	170,130,041		20,315,128		$	497,697,630
	U.S. OPPORTUNITIES
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	1,310,756		$	42,014,544		543,506		$	16,139,230
Service Class	184,951			5,813,920		44,418			1,295,817
Investor A Class	2,241,770			68,289,214		2,693,651			75,565,486
Investor B Class	164,947			4,679,223		336,081			8,865,001
Investor C Class	790,007			22,400,600		930,585			24,713,741
Shares redeemed:
Institutional Class	(303,316	)		(9,883,426	)	(86,557	)		(2,453,101	)
Service Class	(8,109	)		(245,910	)	(9,321	)		(260,828	)
Investor A Class	(726,432	)		(22,441,736	)	(525,599	)		(14,330,174	)
Investor B Class	(232,726	)		(6,658,936	)	(550,708	)		(14,148,722	)
Investor C Class	(143,945	)		(4,102,256	)	(320,607	)		(8,262,577	)
Net increase	3,277,903		$	99,865,237		3,055,449		$	87,123,873

197

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	GLOBAL OPPORTUNITIES
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE PERIOD 1/31/061 THROUGH 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	298,357		$	3,250,720		949,673		$	9,684,517
Service Class	1,984			20,000		1,010			10,100
Investor A Class	530,550			5,851,275		2,620,637			26,310,699
Investor B Class	94,772			1,029,277		547,695			5,523,324
Investor C Class	301,793			3,251,612		1,051,002			10,670,482
Shares issued in reinvestment of dividends:
Institutional Class	2,610			28,474		—			—
Service Class	—			1		—			—
Investor A Class	12,984			141,531		—			—
Investor B Class	1,622			17,601		—			—
Investor C Class	3,093			33,589		—			—
Shares redeemed:
Institutional Class	(155,479	)		(1,649,948	)	(48,726	)		(485,957	)
Service Class	—			—		—			—
Investor A Class	(323,264	)		(3,551,562	)	(329,077	)		(3,279,673	)
Investor B Class	(40,352	)		(437,565	)	(58,522	)		(582,862	)
Investor C Class	(121,082	)		(1,291,948	)	(53,152	)		(531,495	)
Net increase	607,588		$	6,693,057		4,680,540		$	47,319,135

¹ Commencement of operations.

198

BLACKROCK FUNDS

	INTERNATIONAL OPPORTUNITIES
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	2,221,824		$	97,370,029		2,936,015		$	112,213,588
Service Class	276,886			11,490,089		2,407,532			86,305,228
Investor A Class	1,708,034			70,836,402		4,378,616			161,232,888
Investor B Class	66,714			2,624,629		574,285			19,947,177
Investor C Class	201,128			7,920,358		1,895,877			65,763,984
Shares issued in reinvestment of dividends:
Institutional Class	985,017			40,563,000		139,451			4,988,078
Service Class	463,687			18,561,373		73,716			2,577,086
Investor A Class	1,428,033			56,793,130		211,755			7,357,758
Investor B Class	332,037			12,540,780		53,647			1,779,263
Investor C Class	784,968			29,585,553		87,882			2,912,242
Shares redeemed:
Institutional Class	(1,612,564	)		(70,169,378	)	(1,397,307	)		(54,683,518	)
Service Class	(379,909	)		(15,984,471	)	(663,402	)		(25,526,973	)
Investor A Class	(1,709,624	)		(71,812,785	)	(2,216,223	)		(84,736,416	)
Investor B Class	(287,538	)		(11,332,155	)	(580,843	)		(21,035,403	)
Investor C Class	(537,156	)		(21,146,029	)	(748,603	)		(27,407,002	)
Net increase	3,941,537		$	157,840,525		7,152,398		$	251,687,980

199

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	ASSET ALLOCATION
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	237,684		$	3,777,413		745,174		$	11,405,214
Service Class	890			14,125		6,258			96,574
Investor A Class	1,419,326			22,451,607		4,247,781			65,185,893
Investor B Class	311,319			4,874,508		1,572,447			23,893,964
Investor C Class	367,726			5,730,657		1,811,784			27,480,003
Shares issued in reinvestment of dividends:
Institutional Class	83,977			1,312,563		98,747			1,494,944
Service Class	5,545			86,505		7,181			108,419
Investor A Class	1,281,497			19,983,610		1,742,536			26,284,454
Investor B Class	449,690			6,947,867		521,476			7,773,457
Investor C Class	206,023			3,180,050		124,429			1,853,506
Shares redeemed:
Institutional Class	(255,727	)		(4,057,482	)	(666,646	)		(10,214,260	)
Service Class	(5,777	)		(90,313	)	(11,679	)		(179,033	)
Investor A Class	(3,317,643	)		(52,567,574	)	(6,629,177	)		(101,664,120	)
Investor B Class	(1,629,336	)		(25,488,510	)	(2,477,998	)		(37,586,958	)
Investor C Class	(565,048	)		(8,817,938	)	(1,095,767	)		(16,613,352	)
Net decrease	(1,409,854	)	$	(22,662,912	)	(3,454	)	$	(681,295	)

There is a 2% redemption fee on shares of certain Portfolios redeemed or exchanged which have been held 30 days or less. The redemption fees are collected and retained by the Fund for the benefit of the remaining shareholders. The redemption fees are recorded as a credit to paid in capital.

On March 31, 2007, two shareholders held approximately 16% of the outstanding shares of the Mid-Cap Value Equity Portfolio, one shareholder held approximately 9% of the outstanding shares of the Mid-Cap Growth Equity Portfolio, two shareholders held approximately 18% of the outstanding shares of the Aurora Portfolio, three shareholders held approximately 24% of the outstanding shares of the Small/Mid-Cap Growth Portfolio, three shareholders held approximately 45% of the outstanding shares of the Small Cap Value Equity Portfolio, two shareholders held 25% of the outstanding shares of the Small Cap Core Equity Portfolio, three shareholders held approximately 45% of the outstanding shares of the Small Cap Growth Equity Portfolio, one shareholder held approximately 8% of the outstanding shares of the U.S. Opportunities Portfolio, three shareholders held approximately 28% of the outstanding shares of the Global Science & Technology Opportunities Portfolio, three shareholders held approximately 34% of the outstanding shares of the Global Resources Portfolio, three shareholders held approximately 19% of the outstanding shares of the All-Cap Global Resources Portfolio, three shareholders held approximately 31% of the outstanding shares of the Health Sciences Opportunities Portfolio, three shareholders held approximately 21% of the outstanding shares of the Global Opportunities Portfolio and three shareholders held approximately 19% of the outstanding shares of the International Opportunities Portfolio. Some of the shareholders are comprised of omnibus accounts, which are held on behalf of several individual shareholders.

(F) Short-Term Borrowings

Effective November 29, 2006, the Portfolios, along with certain other funds managed by the Advisor and its affiliates, is a party to a $500,000,000 credit agreement dated November 22, 2006, with a group of lenders. The Portfolios may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Portfolios may borrow up to the maximum amount allowable under the Portfolios’ current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The credit agreement is for one year. The Portfolios pay a commitment fee of 0.06% per annum based on the Portfolios’ pro rata share of the

200

BLACKROCK FUNDS

unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each Portfolio’s election, the federal funds rate plus .35% or a base rate as defined in the credit agreement. The Portfolios did not borrow under the credit agreement during the six months ended March 31, 2007.

(G) Federal Tax Information

No provision is made for federal taxes as it is the Portfolios’ intention to have each Portfolio continue to qualify for and elect the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, and to make the requisite distributions to its shareholders which will be sufficient to relieve it from federal income and excise taxes. Short-term capital gain and foreign currency distributions that are reported in the Statement of Changes in Net Assets are reported as ordinary income for federal tax purposes.

Dividends from tax-free income and net investment income and distributions from net capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined under accounting principles generally accepted in the United States.

The tax character of distributions paid during the year ended September 30, 2006 were as follows:

	ORDINARY INCOME		LONG-TERM CAPITAL GAIN		TOTAL DISTRIBUTIONS
Investment Trust 9/30/06	$	6,955,324	$	33,496,464	$	40,451,788
Mid-Cap Value 9/30/06		38,661,023		39,519,264		78,180,287
Mid-Cap Growth Equity 9/30/06		—		5,858,678		5,858,678
Aurora 9/30/06		—		469,822,920		469,822,920
Small/Mid-Cap Growth 9/30/06		2,601,559		9,815,826		12,417,385
Small Cap Value Equity 9/30/06		13,855,416		9,832,729		23,688,145
Small Cap Core Equity 9/30/06		184,044		832,618		1,016,662
Global Resources 9/30/06		46,804,612		97,671,736		144,476,348
Health Sciences Opportunities 9/30/06		4,919,522		6,513,226		11,432,748
International Opportunities 9/30/06		8,671,485		18,384,832		27,056,317
Asset Allocation 9/30/06		10,236,578		32,265,613		42,502,191

As of September 30, 2006, the Portfolios had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates:

	EXPIRING SEPTEMBER 30
	2009		2010		2011		2014		TOTAL
Investment Trust	$	102,786,054	$	14,153,657	$	15,933,441	$	—	$	132,873,152
Capital Appreciation (Formerly Legacy)		—		75,391,703		18,377,786		—		93,769,489
Mid-Cap Growth Equity		110,685,825		102,446,591		16,297,623		—		229,430,039
Small Cap Growth Equity		—		478,460,392		104,987,092		—		583,447,484
Global Science & Technology Opportunities		3,870,846		72,072,910		—		—		75,943,756
U.S. Opportunities		—		68,976,779		16,542,337		—		85,519,116
Global Opportunities		—		—		—		2,112,311		2,112,311
Asset Allocation		—		21,423,909		—		—		21,423,909

201

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes, an interpretation of FAS Statement No. 109”. FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Portfolios tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be booked as a tax expense in the current year and recognized as: a liability for unrecognized tax benefits; a reduction of an income tax refund receivable; a reduction of deferred tax asset; an increase in deferred tax liability; or a combination thereof. Adoption of FIN 48 is required for the last net asset value calculation in the first required financial statement reporting period for fiscal years beginning after December 15, 2006. At this time, management is evaluating the implications of FIN 48 and its impact on the financial statements has not yet been determined.

(H) Market Risk

The securities exchanges of certain foreign markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by the Portfolios may be inhibited. In addition, a significant proportion of the aggregate market value of equity securities listed on the major securities exchanges in emerging markets are held by a smaller number of investors. This may limit the number of shares available for acquisition or disposition by the Portfolios.

202

BLACKROCK FUNDS

Investment Advisor	Co-Administrator
BlackRock Advisors, LLC	BlackRock Advisors, LLC
Wilmington, Delaware 19809	Wilmington, Delaware 19809
Sub-Advisor — International Opportunities	Distributor
Portfolio	BlackRock Distributors, Inc.
BlackRock International, Ltd.	King of Prussia, Pennsylvania 19406
Edinburgh, Scotland EH3 8JB
	Counsel
Sub-Advisor — Asset Allocation and Global	Simpson Thacher & Bartlett LLP
Opportunities Portfolios	New York, New York 10017
BlackRock Financial Management, Inc.
New York, NY 10022	Independent Registered Public Accounting
	Firm
Custodian	Deloitte & Touche LLP
PFPC Trust Company	Philadelphia, Pennsylvania 19103
Philadelphia, Pennsylvania 19153
Co-Administrator and Transfer Agent
PFPC Inc.
Wilmington, Delaware 19809

Important Notice Regarding Delivery of Shareholder Documents

The Fund will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and it 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 contact the Fund at (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

The Fund has delegated proxy voting responsibilities to BlackRock and its affiliates, subject to the general oversight of the Fund’s Board of Trustees. A description of the policies and procedures that BlackRock and its affiliates use to determine how to vote proxies relating to portfolio securities is available without charge, upon request on our website at www.blackrock.com, by calling (800) 441-7762, or on the website of the Securities and Exchange Commission (the “Commission”) at http://www.sec.gov.

Availability of Proxy Voting Record

Information on how proxies relating to the Fund’s voting securities were voted (if any) by BlackRock during the most recent 12-month period ended June 30th is available (if any), upon request and without charge on our website at www.blackrock.com, by calling (800) 441-7762 or on the website of the Commission at http://www.sec.gov.

Availability of Quarterly Portfolio Schedule

The Fund files its complete schedule of portfolio holdings for the first and third quarters of its fiscal year with the Commission on Form N-Q. The Fund’s Form N-Q is available on the Commission’s website at http://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information regarding the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s Form N-Q may also be obtained upon request, without charge, by calling (800) 441-7762.

BLACKROCK FUNDS

AVAILABILITY OF SHAREHOLDER DOCUMENTS AND STATEMENTS

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

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

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

Shareholders Who Hold Accounts Directly With BlackRock

1) Access the BlackRock website at http://www.blackrock.com/edelivery

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

3) Log into your account

SHAREHOLDER PRIVILEGES

Account Information

Call us at (800) 441-7762 8:00 AM – 6:00 PM EST to get information about your account balances, recent transactions and share prices. You can also reach us on the web at www.blackrock.com.

Automatic Investment Plans

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

Systematic Withdrawal Plan

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

Retirement Plans

Shareholders may make investments in conjunction with Traditional, Rollover, Roth, Coverdell, Simple and SEP IRA’s, and 403(b) plans.

BLACKROCK FUNDS

A World-Class Mutual Fund Family

BlackRock now offers an expanded lineup of open-end mutual funds. Our range includes more than 85 funds crossing all investment styles and managed by experts in equity, fixed income and tax-exempt investing.

Equity Portfolios
BlackRock All-Cap Global Resources Portfolio	BlackRock Global Resources Portfolio*	BlackRock Lifecycle Prepared Portfolios†
BlackRock Aurora Portfolio	BlackRock Global Science & Technology	BlackRock Mid-Cap Growth Equity Portfolio
BlackRock Asset Allocation Portfolio†	Opportunities Portfolio	BlackRock Mid-Cap Value Equity Portfolio
BlackRock Balanced Capital Fund†	BlackRock Global SmallCap Fund	BlackRock Mid Cap Value Opportunities Fund
BlackRock Basic Value Fund	BlackRock Global Technology Fund	BlackRock Natural Resources Trust
BlackRock Capital Appreciation Portfolio	BlackRock Healthcare Fund	BlackRock Pacific Fund
BlackRock Developing Capital Markets Fund	BlackRock Health Sciences Opportunities Portfolio	BlackRock Prepared Portfolios†
BlackRock Equity Dividend Fund	BlackRock Index Equity Portfolio*	BlackRock Small Cap Core Equity Portfolio
BlackRock EuroFund	BlackRock International Fund	BlackRock Small Cap Growth Equity Portfolio
BlackRock Focus Twenty Fund	BlackRock International Index Fund	BlackRock Small Cap Growth Fund II
BlackRock Focus Value Fund	BlackRock International Opportunities Portfolio*	BlackRock Small Cap Index Fund
BlackRock Fundamental Growth Fund	BlackRock International Value Fund	BlackRock Small Cap Value Equity Portfolio*
BlackRock Global Allocation Fund†	BlackRock Investment Trust	BlackRock Small/Mid-Cap Growth Portfolio
BlackRock Global Dynamic Equity Fund	BlackRock Large Cap Core Fund	BlackRock S&P 500 Index Fund
BlackRock Global Financial Services Fund	BlackRock Large Cap Growth Fund	BlackRock U.S. Opportunities Portfolio
BlackRock Global Growth Fund	BlackRock Large Cap Value Fund	BlackRock Utilities and Telecommunications Fund
BlackRock Global Opportunities Portfolio	BlackRock Latin America Fund	BlackRock Value Opportunities Fund
Fixed Income Portfolios
BlackRock Bond Fund	BlackRock High Yield Bond Portfolio	BlackRock Low Duration Bond Portfolio
BlackRock Commodity Strategies Fund	BlackRock Inflation Protected Bond Portfolio	BlackRock Managed Income Portfolio
BlackRock Enhanced Income Portfolio	BlackRock Intermediate Bond Portfolio II	BlackRock Short-Term Bond Fund
BlackRock GNMA Portfolio	BlackRock Intermediate Government	BlackRock Total Return Portfolio
BlackRock Government Income Portfolio	Bond Portfolio	BlackRock Total Return Portfolio II
BlackRock High Income Fund	BlackRock International Bond Portfolio	BlackRock World Income Fund
Municipal Bond Portfolios
BlackRock AMT-Free Municipal Bond Portfolio	BlackRock Intermediate Municipal Fund	BlackRock New York Municipal Bond Fund
BlackRock California Insured Municipal Bond Fund	BlackRock Kentucky Municipal Bond Portfolio	BlackRock Ohio Municipal Bond Portfolio
BlackRock Delaware Municipal Bond Portfolio	BlackRock Municipal Insured Fund	BlackRock Pennsylvania Municipal Bond Fund
BlackRock Florida Municipal Bond Fund	BlackRock National Municipal Fund	BlackRock Short-Term Municipal Fund
BlackRock High Yield Municipal Fund	BlackRock New Jersey Municipal Bond Fund
Money Market Portfolios
BlackRock Money Market Portfolio	BlackRock NJ Municipal MM Portfolio	BlackRock Summit Cash Reserves Fund*
BlackRock Municipal Money Market Portfolio	BlackRock OH Municipal MM Portfolio	BlackRock U.S. Treasury MM Portfolio
BlackRock NC Municipal MM Portfolio	BlackRock PA Municipal MM Portfolio	BlackRock VA Municipal MM Portfolio

* See the prospectus for information on specific limitations on investments in the fund.

† Mixed asset fund.

BlackRock mutual funds are distributed by BlackRock Distributors, Inc. and certain funds are also distributed by FAM Distributors, Inc. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling 800-882-0052 or from your financial advisor. The prospectus should be read carefully before investing.

Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed by PNC Bank, National Association or any other bank and shares are not federally insured by, guaranteed by, obligations of or otherwise supported by the U.S. Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Investments in shares of the fund involve investment risks, including the possible loss of the principal amount invested.

EQUITY-3/07-SAR

ALTERNATIVES    BLACKROCK    SOLUTIONS    EQUITIES    FIXED    INCOME    LIQUIDITY    REAL ESTATE

BlackRock Funds Prepared Portfolios
SEMI-ANNUAL REPORT  |  MARCH 31, 2007 (UNAUDITED)

Conservative Prepared

Moderate Prepared

Growth Prepared

Aggressive Growth Prepared

NOT FDIC INSURED

MAY LOSE VALUE

NO BANK GUARANTEE

BLACKROCK FUNDS

TABLE OF CONTENTS

Shareholder Letter	1
Fund Profiles/Expense Examples
Conservative Prepared Portfolio	2
Moderate Prepared Portfolio	3
Growth Prepared Portfolio	4
Aggressive Growth Prepared Portfolio	5
Schedules of Investments	6-9
Portfolio Financial Statements
Statements of Assets and Liabilities	10-11
Statements of Operations	12
Statements of Changes in Net Assets	13
Financial Highlights	14
Notes to Financial Statements	15-21
Additional Information	22-23

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 Web sites.

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

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

BLACKROCK FUNDS

March 31, 2007

Dear Shareholder:

For most financial markets, 2007 opened just as 2006 ended — on a positive trajectory. At the end of February and into March, however, global equity markets registered their first significant decline since last summer. The market jitters were triggered by a significant setback in the Chinese market and were exacerbated by several concerns, notably a weakening economy, some disappointing corporate earnings announcements, escalating geopolitical concerns in the Middle East and increasing delinquencies in the subprime mortgage market. Despite the recent spate of volatility, underlying stock market fundamentals appear quite sound, supported by a generally favorable global economic backdrop, tame inflation, relatively low interest rates and attractive valuations.

Not unlike the equity market, the bond market also has seen volatility recently as observers have attempted to interpret mixed economic signals. A bond market rally late last year reversed itself early in 2007 as economic data strengthened. Prices improved (and yields fell) again in February as equities struggled, but retrenched slightly in March. Notably, the Treasury curve remained inverted for much of 2006 and into 2007. The 30-year Treasury yield stood at 4.84% at the end of March 2007, while the one-month Treasury offered the highest yield on the curve at 5.07%.

For its part, the Federal Reserve Board (Fed) left the target short-term interest rate on hold at 5.25% since first pausing in its rate-hiking campaign on August 8, 2006. Although the central bankers continue to express concern about potential inflationary pressures, they also have made reference to signs of economic weakness in their public statements. Most observers expect the Fed to keep interest rates on hold for now.

Notwithstanding some recent volatility, most major market indexes managed to post positive returns for the semi-annual reporting period ended March 31, 2007:

Total returns as of March 31, 2007

	SIX-MONTH PERIOD
U.S. equities (Standard & Poor’s 500 Index)	+7.38	%
Small cap U.S. equities (Russell 2000 Index)	+11.02	%
International equities (MSCI Europe, Australasia, Far East Index)	+14.85	%
Fixed income (Lehman Brothers Aggregate Bond Index)	+2.76	%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index)	+1.93	%
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index)	+7.02	%

If recent market movements are any guide, 2007 could be a year of enhanced volatility. As you navigate the uncertainties of the financial markets, we encourage you to review your investment goals with your financial professional and to make portfolio changes, as needed. For more reflection on the markets, please ask your financial professional for the latest issue of “What’s Ahead in 2007: First Quarter Update,” or view it online at www.blackrock.com/funds.

We thank you for trusting BlackRock with your investment assets, and we look forward to continuing to serve you in the months and years ahead.

Sincerely,

Frank Porcelli

Managing Director and Head of BlackRock Private Client Group

THIS PAGE NOT PART OF YOUR FUND REPORT

1

CONSERVATIVE PREPARED PORTFOLIO

FUND PROFILE

Portfolio Allocation (% of long-term investments)
U.S. Bond Funds	59.8	%
U.S. Stock Funds	24.0
International Stock Funds	16.2
Total	100.0	%

Portfolio Holdings (% of long-term investments)
BlackRock Total Return Portfolio	59.8	%
BlackRock Global Dynamic Equity Fund	8.0
BlackRock Large Cap Core Fund	8.0
BlackRock Basic Value Fund, Inc.	6.0
BlackRock Capital Appreciation Portfolio (formerly BlackRock Legacy Portfolio)	6.0
BlackRock Small Cap Core Equity Portfolio	4.0
BlackRock All-Cap Global Resources Portfolio	2.1
BlackRock Latin American Fund, Inc.	2.1
BlackRock EuroFund	2.0
BlackRock Pacific Fund, Inc.	2.0
Total	100.0	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the commencement of operations and held for the period December 21, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable and nor do they reflect any expenses of the underlying investee portfolios. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses								Hypothetical Expenses (5% return before expenses)
	Institutional Class		Investor A Class		Investor C Class		R Class		Institutional Class		Investor A Class		Investor C Class		R Class
Beginning Account Value (12/21/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,017.00		1,017.00		1,014.00		1,016.00		1,024.64		1,023.88		1,022.09		1,023.07
Expenses Incurred During Period (12/21/06 - 3/31/07)		0.36		1.12		2.90		1.92		0.36		1.12		2.91		1.93

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.13%, 0.40%, 1.04% and 0.69% for the Institutional, Investor A, C and R share classes, respectively, multiplied by the average account value over the period, multiplied by number of days 101/365 (to reflect the period the fund was open during the period).

2

MODERATE PREPARED PORTFOLIO

FUND PROFILE

Portfolio Allocation (% of long-term investments)
U.S. Bond Funds	36.8	%
U.S. Stock Funds	35.9
International Stock Funds	24.3
International Bond Funds	3.0
Total	100.0	%
Portfolio Holdings (% of long-term investments)
BlackRock Total Return Portfolio	33.8	%
BlackRock Global Dynamic Equity Fund	12.1
BlackRock Large Cap Core Fund	12.0
BlackRock Capital Appreciation Portfolio (formerly BlackRock Legacy Portfolio)	9.0
BlackRock Basic Value Fund, Inc.	8.9
BlackRock Small Cap Core Equity Portfolio	6.0
BlackRock All-Cap Global Resources Portfolio	3.1
BlackRock Latin American Fund, Inc.	3.1
BlackRock EuroFund	3.0
BlackRock Pacific Fund, Inc.	3.0
BlackRock High Yield Bond Portfolio	3.0
BlackRock International Bond Portfolio	3.0
Total	100.0	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the commencement of operations and held for the period December 21, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable and nor do they reflect any expenses of the underlying investee portfolios. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses								Hypothetical Expenses (5% return before expenses)
	Institutional Class		Investor A Class		Investor C Class		R Class		Institutional Class		Investor A Class		Investor C Class		R Class
Beginning Account Value (12/21/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,022.00		1,022.00		1,019.00		1,020.00		1,024.75		1,024.05		1,022.23		1,023.35
Expenses Incurred During Period (12/21/06 - 3/31/07)		0.25		0.95		2.77		1.65		0.25		0.95		2.77		1.65

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.09%, 0.34%, 0.99% and 0.59% for the Institutional, Investor A, C and R share classes, respectively, multiplied by the average account value over the period, multiplied by number of days 101/365 (to reflect the period the fund was open during the period).

3

GROWTH PREPARED PORTFOLIO

FUND PROFILE

Portfolio Allocation (% of long-term investments)
U.S. Stock Funds	47.8	%
International Stock Funds	32.4
U.S. Bond Funds	16.8
International Bond Funds	3.0
Total	100.0	%

Portfolio Holdings (% of long-term investments)
BlackRock Global Dynamic Equity Fund	16.1	%
BlackRock Large Cap Core Fund	15.9
BlackRock Total Return Portfolio	13.8
BlackRock Capital Appreciation Portfolio (formerly BlackRock Legacy Portfolio)	12.0
BlackRock Basic Value Fund, Inc.	12.0
BlackRock Small Cap Core Equity Portfolio	8.0
BlackRock All-Cap Global Resources Portfolio	4.1
BlackRock Latin American Fund, Inc.	4.1
BlackRock EuroFund	4.0
BlackRock Pacific Fund, Inc.	4.0
BlackRock High Yield Bond Portfolio	3.0
BlackRock International Bond Portfolio	3.0
Total	100.0	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the commencement of operations and held for the period December 21, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable and nor do they reflect any expenses of the underlying investee portfolios. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses								Hypothetical Expenses (5% return before expenses)
	Institutional Class		Investor A Class		Investor C Class		R Class		Institutional Class		Investor A Class		Investor C Class		R Class
Beginning Account Value (12/21/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,028.00		1,027.00		1,025.00		1,026.00		1,024.80		1,024.10		1,022.25		1,023.29
Expenses Incurred During Period (12/21/06 - 3/31/07)		0.20		0.90		2.75		1.71		0.20		0.90		2.75		1.71

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.07%, 0.32%, 0.98% and 0.61% for the Institutional, Investor A, C and R share classes, respectively, multiplied by the average account value over the period, multiplied by number of days 101/365 (to reflect the period the fund was open during the period).

4

AGGRESSIVE GROWTH PREPARED PORTFOLIO

FUND PROFILE

Portfolio Allocation (% of long-term investments)
U.S. Stock Funds	59.6	%
International Stock Funds	40.4
Total	100.0	%
Portfolio Holdings (% of long-term investments)
BlackRock Global Dynamic Equity Fund	20.0	%
BlackRock Large Cap Core Fund	19.9
BlackRock Basic Value Fund, Inc.	14.9
BlackRock Capital Appreciation Portfolio (formerly BlackRock Legacy Portfolio)	14.9
BlackRock Small Cap Core Equity Portfolio	10.0
BlackRock All-Cap Global Resources Portfolio	5.1
BlackRock EuroFund	5.1
BlackRock Latin American Fund, Inc.	5.1
BlackRock Pacific Fund, Inc.	5.0
Total	100.0	%

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the commencement of operations and held for the period December 21, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable and nor do they reflect any expenses of the underlying investee portfolios. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses								Hypothetical Expenses (5% return before expenses)
	Institutional Class		Investor A Class		Investor C Class		R Class		Institutional Class		Investor A Class		Investor C Class		R Class
Beginning Account Value (12/21/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,025.00		1,031.00		1,029.00		1,030.00		1,024.75		1,024.02		1,022.17		1,023.35
Expenses Incurred During Period (12/21/06 - 3/31/07)		0.25		0.98		2.84		1.71		0.25		0.98		2.83		1.65

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.09%, 0.35%, 1.01% and 0.59% for the Institutional, Investor A, C and R share classes, respectively, multiplied by the average account value over the period, multiplied by number of days 101/365 (to reflect the period the fund was open during the period).

5

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

CONSERVATIVE PREPARED PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
AFFILIATED INVESTMENT COMPANIES — 98.7%
Equity Funds — 39.7%
BlackRock All-Cap Global Resources Portfolio	5,103	$	79,455
BlackRock Basic Value Fund, Inc.	6,827		230,746
BlackRock Capital Appreciation Portfolio (formerly BlackRock Legacy Portfolio)(b)	14,621		231,005
BlackRock EuroFund	3,498		77,837
BlackRock Global Dynamic Equity Fund	24,485		309,985
BlackRock Large Cap Core Fund(b)	21,048		307,298
BlackRock Latin American Fund, Inc.	1,378		79,245
BlackRock Pacific Fund, Inc.	2,585		77,123
BlackRock Small Cap Core Equity Portfolio	7,550		154,017
			1,546,711
Fixed Income Funds — 59.0%
BlackRock Total Return Portfolio	227,229		2,301,833
TOTAL AFFILIATED INVESTMENT COMPANIES — 98.7% (Cost $3,841,254(a))			3,848,544
OTHER ASSETS IN EXCESS OF LIABILITIES — 1.3%			51,807
NET ASSETS — 100.0%		$	3,900,351

(a) Also cost for federal income tax purposes. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	10,717
Gross unrealized depreciation		(3,427	)
	$	7,290

(b) Non-income producing security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

6

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MODERATE PREPARED PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
AFFILIATED INVESTMENT COMPANIES — 99.1%
Equity Funds — 59.7%
BlackRock All-Cap Global Resources Portfolio	22,809	$	355,142
BlackRock Basic Value Fund, Inc.	30,514		1,031,365
BlackRock Capital Appreciation Portfolio (formerly BlackRock Legacy Portfolio)(b)	65,337		1,032,318
BlackRock EuroFund	15,653		348,281
BlackRock Global Dynamic Equity Fund	109,480		1,386,014
BlackRock Large Cap Core Fund(b)	94,079		1,373,557
BlackRock Latin American Fund, Inc.	6,160		354,320
BlackRock Pacific Fund, Inc.	11,554		344,769
BlackRock Small Cap Core Equity Portfolio	33,735		688,203
			6,913,969
Fixed Income Funds — 39.4%
BlackRock High Yield Bond Portfolio	41,580		342,615
BlackRock International Bond Portfolio	30,861		344,407
BlackRock Total Return Portfolio	383,111		3,880,914
			4,567,936
TOTAL AFFILIATED INVESTMENT COMPANIES — 99.1% (Cost $11,432,891(a))			11,481,905
OTHER ASSETS IN EXCESS OF LIABILITIES — 0.9%			105,243
NET ASSETS — 100.0%		$	11,587,148

(a) Also cost for federal income tax purposes. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	56,696
Gross unrealized depreciation		(7,682	)
	$	49,014

(b) Non-income producing security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

7

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GROWTH PREPARED PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
AFFILIATED INVESTMENT COMPANIES — 96.8%
Equity Funds — 77.6%
BlackRock All-Cap Global Resources Portfolio	31,734	$	494,104
BlackRock Basic Value Fund, Inc.	42,412		1,433,525
BlackRock Capital Appreciation
Portfolio (formerly BlackRock Legacy Portfolio)(b)	90,810		1,434,800
BlackRock EuroFund	21,761		484,174
BlackRock Global Dynamic Equity Fund	152,179		1,926,582
BlackRock Large Cap Core Fund(b)	130,776		1,909,336
BlackRock Latin American Fund, Inc.	8,584		493,781
BlackRock Pacific Fund, Inc.	16,054		479,052
BlackRock Small Cap Core Equity Portfolio	46,896		956,678
			9,612,032
Fixed Income Funds — 19.2%
BlackRock High Yield Bond Portfolio	43,246		356,350
BlackRock International Bond Portfolio	32,078		357,987
BlackRock Total Return Portfolio	163,973		1,661,050
			2,375,387
TOTAL AFFILIATED INVESTMENT COMPANIES — 96.8% (Cost $11,886,850(a))			11,987,419
OTHER ASSETS IN EXCESS OF LIABILITIES — 3.2%			390,161
NET ASSETS — 100.0%		$	12,377,580
(a)    Also cost for federal income tax purposes. The gross unrealized appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation		$	104,632
Gross unrealized depreciation			(4,063	)
		$	100,569
(b)    Non-income producing security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

8

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

AGGRESSIVE GROWTH PREPARED PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	V ALUE
AFFILIATED INVESTMENT COMPANIES — 97.7%
Equity Funds — 97.7%
BlackRock All-Cap Global Resources Portfolio	12,873	$	200,426
BlackRock Basic Value Fund, Inc.	17,182		580,742
BlackRock Capital Appreciation Portfolio (formerly BlackRock Legacy Portfolio)(b)	36,788		581,247
BlackRock EuroFund	8,822		196,296
BlackRock Global Dynamic Equity Fund	61,676		780,820
BlackRock Large Cap Core Fund(b)	52,968		773,338
BlackRock Latin American Fund, Inc.	3,478		200,031
BlackRock Pacific Fund, Inc.	6,505		194,117
BlackRock Small Cap Core
Equity Portfolio	19,007		387,751
			3,894,768
TOTAL AFFILIATED INVESTMENT COMPANIES — 97.7% (Cost $3,851,318(a))			3,894,768
OTHER ASSETS IN EXCESS OF LIABILITIES — 2.3%			90,921
NET ASSETS — 100.0%		$	3,985,689
(a)    Also cost for federal income tax purposes. The gross unrealized appreciation (depreciation) on a tax basis is as follows:
Gross unrealized appreciation		$	43,450
Gross unrealized depreciation			—
		$	43,450
(b)    Non-income producing security.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

9

BLACKROCK FUNDS

STATEMENTS OF ASSETS AND LIABILITIES

AS OF MARCH 31, 2007 (UNAUDITED)

	CONSERVATIVE PREPARED PORTFOLIO		MODERATE PREPARED PORTFOLIO		GROWTH PREPARED PORTFOLIO		AGGRESSIVE GROWTH PREPARED PORTFOLIO
ASSETS
Investments at value - affiliated1	$	3,848,544	$	11,481,905	$	11,987,419	$	3,894,768
Dividends receivable - affiliated		6,101		11,831		6,347		—
Receivable from advisor		7,222		10,186		9,552		6,565
Capital shares sold receivable		440,211		1,030,783		963,353		196,289
Prepaid expenses		9,490		6,950		7,020		5,090
TOTAL ASSETS		4,311,568		12,541,655		12,973,691		4,102,712
LIABILITIES
Cash overdraft		79,905		547,850		356,251		18,958
Investments purchased payable - affiliated		309,623		359,710		211,728		80,279
Capital shares redeemed payable		—		14,936		—		—
Administration fees payable		51		148		133		38
Transfer agent fees payable		14		15		24		17
Custodian fees payable		1,943		1,943		1,943		1,945
Distribution fees payable		993		3,172		3,131		1,120
Officers’ and trustees’ fees payable		2		2		2		2
Audit fees		7,228		7,296		7,229		7,160
Legal fees		4,900		4,900		4,900		4,900
Other accrued expenses payable		6,558		14,535		10,770		2,604
TOTAL LIABILITIES		411,217		954,507		596,111		117,023
Net Assets	$	3,900,351	$	11,587,148	$	12,377,580	$	3,985,689
1    Cost of investments - affiliated	$	3,841,254	$	11,432,891	$	11,886,850	$	3,851,318
AT MARCH 31, 2007, NET ASSETS CONSISTED OF:
Capital paid in	$	3,887,845	$	11,530,513	$	12,275,439	$	3,944,757
Undistributed net investment income (net investment loss)		5,216		7,621		1,572		(2,042	)
Accumulated net realized loss		—		—		—		(476	)
Net unrealized appreciation		7,290		49,014		100,569		43,450
	$	3,900,351	$	11,587,148	$	12,377,580	$	3,985,689

10

BLACKROCK FUNDS

	CONSERVATIVE PREPARED PORTFOLIO			MODERATE PREPARED PORTFOLIO			GROWTH PREPARED PORTFOLIO			AGGRESSIVE GROWTH PREPARED PORTFOLIO
Institutional Shares:
Net Assets	$	53,036		$	684,813		$	1,487,541		$	972,595
Shares outstanding, unlimited number of shares authorized, $0.001 par value		5,215			67,013			144,718			94,244
Net Asset Value, offering and redemption price per share	$	10.17		$	10.22		$	10.28		$	10.32
Investor A Shares:
Net Assets	$	1,040,852		$	2,696,837		$	2,874,278		$	405,144
Shares outstanding, unlimited number of shares authorized, $ 0.001 par value		102,389			263,936			279,891			39,293
Net Asset Value and redemption price per share	$	10.17		$	10.22		$	10.27		$	10.31
Maximum Sales Charge		5.25	%		5.25	%		5.25	%		5.25	%
Maximum offering price per share	$	10.73		$	10.79		$	10.84		$	10.88
Investor C Shares:
Net Assets	$	2,786,151		$	8,183,421		$	7,995,233		$	2,587,341
Shares outstanding, unlimited number of shares authorized, $ 0.001 par value		274,715			802,987			779,889			251,358
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 1.00%)	$	10.14		$	10.19		$	10.25		$	10.29
R Shares:
Net Assets	$	20,312		$	22,077		$	20,528		$	20,609
Shares outstanding, unlimited number of shares authorized, $ 0.001 par value		2,000			2,164			2,000			2,000
Net Asset Value, offering and redemption price per share	$	10.16		$	10.20		$	10.26		$	10.30

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

11

BLACKROCK FUNDS

STATEMENTS OF OPERATIONS

FOR THE PERIOD ENDED MARCH 31, 2007 (UNAUDITED)

	CONSERVATIVE PREPARED PORTFOLIO1			MODERATE PREPARED PORTFOLIO1			GROWTH PREPARED PORTFOLIO1			AGGRESSIVE GROWTH PREPARED PORTFOLIO1
Investment income:
Dividends from affiliates (Note C)	$	7,436		$	13,668		$	7,348		$	65
Total investment income		7,436			13,668			7,348			65
Expenses:
Administration fees		219			604			632			219
Administration fees - class specific		65			179			188			65
Custodian fees		3,288			3,288			3,288			3,288
Transfer agent fees - class specific		29			30			39			35
Shareholder servicing fees - class specific		645			1,691			1,615			520
Distribution fees - class specific		1,104			3,474			3,390			1,268
Legal and audit fees		12,120			12,172			12,104			12,051
Printing fees		7,100			14,100			10,600			3,500
Registration fees and expenses (Note C)		55,021			48,871			48,871			48,871
Officers’ and trustees’ fees		12			28			29			12
Other		400			400			400			400
Total expenses		80,003			84,837			81,156			70,229
Less administration fees waived		(219	)		(604	)		(632	)		(219	)
Less administration fees waived - class specific		(6	)		(13	)		(36	)		(19	)
Less transfer agent fees reimbursed - class specific		(13	)		(13	)		(14	)		(18	)
Less expenses reimbursed by advisor		(77,545	)		(78,160	)		(74,698	)		(67,866	)
Net expenses		2,220			6,047			5,776			2,107
Net investment income (loss)		5,216			7,621			1,572			(2,042	)
Realized and unrealized gain (loss):
Net realized loss from:
Affiliated transactions		—			—			—			(476	)
Change in unrealized appreciation/depreciation from:
Affiliated transactions		7,290			49,014			100,569			43,450
Net gain on investments		7,290			49,014			100,569			42,974
Net increase in net assets resulting from operations	$	12,506		$	56,635		$	102,141		$	40,932

¹ Commencement of operations on 12/21/2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

12

BLACKROCK FUNDS

STATEMENTS OF CHANGES IN NET ASSETS

	CONSERVATIVE PREPARED PORTFOLIO		MODERATE PREPARED PORTFOLIO		GROWTH PREPARED PORTFOLIO		AGGRESSIVE GROWTH PREPARED PORTFOLIO
	FOR THE PERIOD ENDED 3/31/07 (UNAUDITED)1		FOR THE PERIOD ENDED 3/31/07 (UNAUDITED)1		FOR THE PERIOD ENDED 3/31/07 (UNAUDITED)1		FOR THE PERIOD ENDED 3/31/07 (UNAUDITED)1
Increase (decrease) in net assets:
Operations:
Net investment income (loss)	$	5,216	$	7,621	$	1,572	$	(2,042	)
Net realized loss on investment transactions		—		—		—		(476	)
Change in unrealized appreciation/depreciation on investments		7,290		49,014		100,569		43,450
Net increase in net assets resulting from operations		12,506		56,635		102,141		40,932
Net increase in net assets resulting from capital share transactions		3,887,845		11,530,513		12,275,439		3,944,757
Total increase in net assets		3,900,351		11,587,148		12,377,580		3,985,689
Net assets:
Beginning of period		—		—		—		—
End of period	$	3,900,351	$	11,587,148	$	12,377,580	$	3,985,689
End of period undistributed net investment income (net investment loss)	$	5,216	$	7,621	$	1,572	$	(2,042	)

¹ Commencement of operations on 12/21/2006.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

13

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	CONSERVATIVE PREPARED PORTFOLIO												MODERATE PREPARED PORTFOLIO
	INSTITUTIONAL CLASS			INVESTOR A CLASS			INVESTOR C CLASS			R CLASS			INSTITUTIONAL CLASS			INVESTOR A CLASS			INVESTOR C CLASS			R CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)1			PERIOD ENDED 3/31/07 (UNAUDITED)1			PERIOD ENDED 3/31/07 (UNAUDITED)1			PERIOD ENDED 3/31/07 (UNAUDITED)1			PERIOD ENDED 3/31/07 (UNAUDITED)1			PERIOD ENDED 3/31/07 (UNAUDITED)1			PERIOD ENDED 3/31/07 (UNAUDITED)1			PERIOD ENDED 3/31/07 (UNAUDITED)1
Net asset value, beginning of period	$	10.00		$	10.00		$	10.00		$	10.00		$	10.00		$	10.00		$	10.00		$	10.00
Net investment income2		0.08			0.06			0.04			0.06			0.05			0.04			0.02			0.04
Gain on investments (both realized and unrealized)		0.09			0.11			0.10			0.10			0.17			0.18			0.17			0.16
Net increase from investment operations		0.17			0.17			0.14			0.16			0.22			0.22			0.19			0.20
Net asset value, end of period	$	10.17		$	10.17		$	10.14		$	10.16		$	10.22		$	10.22		$	10.19		$	10.20
Total return3		1.70	%		1.70	%4		1.40	%5		1.60	%		2.20	%		2.20	%4		1.90	%5		2.00	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	53		$	1,041		$	2,786		$	20		$	685		$	2,697		$	8,183		$	22
Ratio of net expenses to average net assets6		0.13	%		0.40	%		1.04	%		0.69	%		0.09	%		0.34	%		0.99	%		0.59	%
Ratio of total expenses to average net assets (excluding waivers)6,7		213.29	%		19.29	%		14.74	%		303.95	%		36.20	%		9.33	%		5.80	%		288.78	%
Ratio of net investment income to average net assets6		2.81	%		2.06	%		1.52	%		2.32	%		1.66	%		1.35	%		0.70	%		1.48	%
Ratio of net investment loss to average net assets (excluding waivers)6,7		(210.35	)%		(16.83	)%		(12.18	)%		(300.94	)%		(34.45	)%		(7.64	)%		(4.11	)%		(286.71	)%
Portfolio turnover rate		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%
	GROWTH PREPARED PORTFOLIO												AGGRESSIVE GROWTH PREPARED PORTFOLIO
	INSTITUTIONAL CLASS			INVESTOR A CLASS			INVESTOR C CLASS			R CLASS			INSTITUTIONAL CLASS			INVESTOR A CLASS			INVESTOR C CLASS			R CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)1			PERIOD ENDED 3/31/07 (UNAUDITED)1			PERIOD ENDED 3/31/07 (UNAUDITED)1			PERIOD ENDED 3/31/07 (UNAUDITED)1			PERIOD ENDED 3/31/07 (UNAUDITED)1			PERIOD ENDED 3/31/07 (UNAUDITED)1			PERIOD ENDED 3/31/07 (UNAUDITED)1			PERIOD ENDED 3/31/07 (UNAUDITED)1
Net asset value, beginning of period	$	10.00		$	10.00		$	10.00		$	10.00		$	10.00		$	10.00		$	10.00		$	10.00
Net investment income (loss)2		0.02			0.01			—	8		0.02			—	8		(0.01	)		(0.03	)		(0.01	)
Gain on investments (both realized and unrealized)		0.26			0.26			0.25			0.24			0.32			0.32			0.32			0.31
Net increase from investment operations		0.28			0.27			0.25			0.26			0.32			0.31			0.29			0.30
Net asset value, end of period	$	10.28		$	10.27		$	10.25		$	10.26		$	10.32		$	10.31		$	10.29		$	10.30
Total return3		2.80	%		2.70	%4		2.50	%5		2.60	%		3.20	%		3.10	%4		2.90	%5		3.00	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	1,488		$	2,874		$	7,995		$	21		$	973		$	405		$	2,587		$	21
Ratio of net expenses to average net assets6		0.07	%		0.32	%		0.98	%		0.61	%		0.09	%		0.35	%		1.01	%		0.59	%
Ratio of total expenses to average net assets (excluding waivers)6,7		15.04	%		9.30	%		5.53	%		281.72	%		27.24	%		42.13	%		12.29	%		264.83	%
Ratio of net investment income (loss) to average net assets6		0.79	%		0.54	%		(0.11	%)		0.58	%		(0.06	%)		(0.31	%)		(1.00	%)		(0.29	%)
Ratio of net investment loss to average net assets (excluding waivers)6,7		(14.18	)%		(8.44	)%		(4.66	)%		(280.53	)%		(27.21	)%		(42.09	)%		(12.28	)%		(264.53	)%
Portfolio turnover rate		0	%		0	%		0	%		0	%		2	%		2	%		2	%		2	%

¹ Commencement of operations on 12/21/2006.

² Calculated using the average shares outstanding method.

³ Not annualized.

⁴ Sales load not reflected in total return.

⁵ Contingent deferred sales load not reflected in total return.

⁶ Annualized.

⁷ Due to the short operating history of these Portfolios, it is expected that the annualized expense ratios at 03/31/07 are higher than if reported over a full year.

⁸ Net investment income is less than $ 0.005 per share.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

14

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(A) Organization

BlackRock Funds^SM (the “Fund”) was organized on December 22, 1988, as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. As of March 31, 2007, the Fund had 49 registered portfolios, 4 of which are included in these financial statements (the “Portfolios”). Each Portfolio is authorized to issue an unlimited number of shares with a par value of $0.001. Each Portfolio of the Fund may offer as many as thirteen classes of shares: BlackRock, Institutional, Service, Hilliard Lyons, Investor A, Investor A1, Investor B, Investor B1, Investor B2, Investor C, Investor C1, Investor C2 and R. Shares of all classes of a Portfolio represent equal pro-rata interests in such Portfolio, except that each class bears different expenses, which reflect the difference in the range of services provided to them, mostly due to differences in distribution and service fees. The Portfolios generally will invest in other open-end investment companies (mutual funds) that are managed by subsidiaries of BlackRock, Inc. (collectively, the “underlying funds”). By owning shares of Underlying Funds, each of the Portfolios indirectly invests, to varying degrees, in securities of U.S. and non-U.S. companies, including small and medium sized companies, and in fixed-income securities. Equity funds may also include funds that invest in real estate-related and other similar securities, as well as commodities. Fixed income funds may include funds that invest in domestic and non-U.S. bonds, U.S. Government securities, high yield (or junk) bonds, and cash or money market instruments. In addition, the Underlying Funds may invest in derivatives.

Under the Fund’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund considers the risk of loss from such claims to be remote.

(B) Summary of Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.

Investment Valuation — The market value of the Portfolios’ investments in the underlying funds is based on the published net asset value of an Underlying Fund computed as of the close of regular trading on the New York Stock Exchange (NYSE) on days when the NYSE is open. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value.

In September 2006, Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. At this time, management is evaluating the implications of FAS 157 and its impact on the Portfolios’ statements, if any, has not been determined.

In addition, in February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”), which is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FAS 157. FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. FAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. At this time, management is evaluating the implications of FAS 159 and its impact on the Portfolios’ statements, if any, has not been determined.

Repurchase Agreements — Money market instruments may be purchased from financial institutions, such as banks and non-bank dealers, subject to the seller’s agreement to repurchase them at an agreed upon date and price. Collateral for repurchase agreements may have longer maturities than the maximum permissible remaining maturity of portfolio investments, provided the repurchase agreements themselves mature in 13 months or less. The seller is required on a daily basis to maintain the value of the securities subject to the agreement at no less than the repurchase price. The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system or held in a separate account by the Portfolios’ custodian or an authorized securities depository.

15

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) requires the use of management estimates. Actual results could differ from these estimates and such differences should be immaterial.

Other — Expenses that are directly related to one of the Portfolios are charged directly to that Portfolio. Other operating expenses are pro-rated to the Portfolios on the basis of relative net assets. Class-specific expenses are borne by that class. Differences in net expense ratios between classes of a Portfolio are due to class-specific expenses and waivers. Income, other expenses and realized and unrealized gains and losses of a Portfolio are allocated to the respective class on the basis of the relative net assets each day.

(C) Agreements and Other Transactions with Affiliates and Related Parties

Pursuant to an Investment Advisory Agreement, BlackRock Advisors, LLC (“BlackRock”) serves as investment advisor for each of the Portfolios. Merrill Lynch & Co., Inc. (“Merrill Lynch”) and The PNC Financial Services Group, Inc. (“PNC”) are principal owners of BlackRock, Inc. BlackRock will not receive any advisory fees from the Portfolios for its investment advisory services. The Portfolios pay management fees to BlackRock indirectly, as a shareholder in the underlying funds.

Shares of each class of each Portfolio of the Fund bear their pro-rata portion of all operating expenses paid by the Portfolio, except transfer agency fees, certain administrative fees and amounts payable under the Fund’s Amended and Restated Distribution and Service Plan (the “Plan”).

PFPC Trust Company, (“PTC”), an indirect wholly-owned subsidiary of PNC, serves as custodian for each of the Portfolios. For these services, the custodian receives a monthly custodian fee of $1,000 per Portfolio, assuming each such Portfolio invests solely in other Portfolios of the Fund, plus other miscellaneous fees incurred on behalf of the Portfolio.

PFPC Inc. (“PFPC”), an indirect wholly-owned subsidiary of PNC, serves as transfer and dividend disbursing agent.

Each class of each Portfolio bears the costs of transfer agent fees associated with such respective classes. Transfer agency fees borne by each class of each Portfolio are comprised of those fees charged for all shareholder communications including shareholder reports, dividend and distribution notices, and proxy materials for shareholders meetings. The Portfolios are also charged per account and per transaction fees related to servicing and maintenance of shareholder accounts, including the issuing, redeeming and transferring of shares of each class of each Portfolio, 12b-1 fee calculation, check writing, anti-money laundering services, and customer identification services.

PFPC and BlackRock act as co-administrators for the Fund. For these services, the co-administrators receive a combined administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of each Portfolio. The combined administration fee is paid at the following annual rates: 0.075% of the first $500 million of net assets of each Portfolio, 0.065% of the next $500 million and 0.055% of assets in excess of $1 billion of each Portfolio. In addition, each of the share classes is charged an administration fee based on the following percentage of average daily net assets of each respective class: 0.025% of the first $500 million, 0.015% of the next $500 million and 0.005% of assets in excess of $1 billion. In addition, PFPC and BlackRock may have, at their discretion, voluntarily waived all or any portion of their administration fees for any portfolio or share class.

Pursuant to the Fund’s Plan, the Fund may pay BlackRock Distributors, Inc. (the “BDI”), a direct subsidiary of PFPC, and/or BlackRock or any other affiliate of PNC and Merrill Lynch, fees for distribution and sales support services. Currently, only Investor B, B1, B2, C, C1, C2 and R Shares bear the expense of distribution fees under the Plan. In addition, the Fund may pay brokers, dealers, financial institutions and industry professionals (including PNC, Merrill Lynch and their affiliates) (“service organizations”) fees for the provision of personal services to shareholders. BlackRock may receive some of the service fees paid by the Fund in return for providing services to shareholders. Currently, only Service, Hilliard Lyons, Investor A, A1, B, B1, B2, C, C1, C2 and R Shares bear the expense of service fees under the Plan.

16

BLACKROCK FUNDS

The following table provides a list of the Portfolios included in this report along with a summary of their respective class-specific fee arrangements as provided under the Plan. Fees are expressed as a percentage of average daily net asset values of the respective classes.

Class Specific Fee Arrangement

	Share Classes
	Institutional		Investor A				Investor C				R
Portfolio	Contractual Fees	Actual Fees (4)	Contractual Fees (1)		Actual Fees (4)		Contractual Fees (2)		Actual Fees (4)		Contractual Fees (3)		Actual Fees (4)
Conservative Prepared	None	None	0.25	%	0.25	%	1.00	%	1.00	%	0.50	%	0.50	%
Moderate Prepared	None	None	0.25	%	0.25	%	1.00	%	1.00	%	0.50	%	0.50	%
Growth Prepared	None	None	0.25	%	0.25	%	1.00	%	1.00	%	0.50	%	0.50	%
Aggressive Growth Prepared	None	None	0.25	%	0.25	%	1.00	%	1.00	%	0.50	%	0.50	%

(1) — the maximum annual contractual fees are comprised of a 0.25% service fee.

(2) — the maximum annual contractual fees are comprised of a 0.75% distribution fee and a 0.25% service fee.

(3) — the maximum annual contractual fees are comprised of a 0.25% distribution fee and a 0.25% service fee.

(4) — the actual fees are for the period ended March 31, 2007.

For the period ended March 31, 2007, the Fund paid to affiliates the following fees in return for distribution and sales support services:

	MERRILL LYNCH		BLACK ROCK
Conservative Prepared	$	1,635	$	41
Moderate Prepared		4,999		41
Growth Prepared		4,895		42
Aggressive Growth Prepared		1,654		42

For the period ended March 31, 2007, the following shows the various types of class-specific expenses borne directly by each class of each Portfolio and any associated waivers of those expenses.

ADMINISTRATION FEES	SHARE CLASSES
	INSTITUTIONAL		INVESTOR A		INVESTOR C		R		TOTAL
Conservative Prepared	$	2	$	27	$	35	$	1	$	65
Moderate Prepared		11		52		115		1		179
Growth Prepared		28		47		112		1		188
Aggressive Growth Prepared		14		9		41		1		65
ADMINISTRATION FEES WAIVED	SHARE CLASSES
	INSTITUTIONAL		INVESTOR A		INVESTOR C		R		TOTAL
Conservative Prepared	$	2	$	3	$	—	$	1	$	6
Moderate Prepared		10		1		1		1		13
Growth Prepared		28		6		1		1		36
Aggressive Growth Prepared		14		4		—		1		19
TRANSFER AGENT FEES	SHARE CLASSES
	INSTITUTIONAL		INVESTOR A		INVESTOR C		R		TOTAL
Conservative Prepared	$	8	$	7	$	7	$	7	$	29
Moderate Prepared		8		8		7		7		30
Growth Prepared		8		17		7		7		39
Aggressive Growth Prepared		13		6		9		7		35

17

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

TRANSFER AGENT FEES REIMBURSED	SHARE CLASSES
	INSTITUTIONAL		R		TOTAL
Conservative Prepared	$	8	$	5	$	13
Moderate Prepared		6		7		13
Growth Prepared		8		6		14
Aggressive Growth Prepared		11		7		18

SHAREHOLDER SERVICE FEES	SHARE CLASSES
	INVESTOR A		INVESTOR C		R		TOTAL
Conservative Prepared	$	267	$	364	$	14	$	645
Moderate Prepared		524		1,153		14		1,691
Growth Prepared		475		1,126		14		1,615
Aggressive Growth Prepared		88		418		14		520

DISTRIBUTION FEES	SHARE CLASSES
	INVESTOR C		R		TOTAL
Conservative Prepared	$	1,090	$	14	$	1,104
Moderate Prepared		3,460		14		3,474
Growth Prepared		3,376		14		3,390
Aggressive Growth Prepared		1,254		14		1,268

BlackRock and the Fund contractually agreed to waive or reimburse fees or expenses until February 1, 2008, in order to limit expenses. These expense limits apply to the aggregate expenses incurred on a share class (excluding: interest, taxes, brokerage commissions, expenses incurred as a result of investments in other funds and other expenses attributable to, and incurred as a result of, a Portfolio’s investments and other extraordinary expenses). This agreement is reviewed annually by the Fund’s Board. The current expense limitation as a percentage of net assets are as follows:

	SHARE CLASSES
	INSTITUTIONAL		INVESTOR A		INVESTOR C		R
Conservative Prepared	0.13	%	0.53	%	1.25	%	0.74	%
Moderate Prepared	0.09	%	0.51	%	1.24	%	0.59	%
Growth Prepared	0.07	%	0.45	%	1.17	%	0.62	%
Aggressive Growth Prepared	0.09	%	0.43	%	1.18	%	0.59	%

If within two years following a waiver or reimbursement the operating expenses of a share class that previously received a waiver or reimbursement from BlackRock are less than the expense limit for that share class, the share class is required to repay BlackRock up to the amount of fees waived or expenses reimbursed under the agreement if: (1) the Portfolio of which the share class is a part has more than $50 million in assets, (2) BlackRock or an affiliate continues to be the Portfolio’s investment advisor or administrator and (3) the Board approved the payments to BlackRock at the previous quarterly meeting.

At March 31, 2007, the amounts subject to possible future reimbursement under the expense limitation agreement are as follows:

	EXPIRING JANUARY 31, 2009		EXPIRING JANUARY 31, 2010		TOTAL WAIVERS SUBJECT TO REIMBURSEMENT
Conservative Prepared	$	6,560	$	15,697	$	22,257
Moderate Prepared		8,765		19,445		28,210
Growth Prepared		7,651		17,624		25,275
Aggressive Growth Prepared		5,420		13,489		18,909

BlackRock reimbursed the Portfolios for the state registration fees in the amount of $201,634 and will not seek recoupment from the Portfolios for these fees.

18

BLACKROCK FUNDS

For the period ended March 31, 2007, BDI and other affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of Portfolio’s Investor A Class as follows:

Conservative Prepared	$	18,164
Moderate Prepared		66,510
Growth Prepared		60,325
Aggressive Growth Prepared		11,384

For the period ended March 31, 2007, affiliates received the following contingent deferred sales charges relating to transactions in Investor C Class:

Moderate Prepared	$	354
Growth Prepared		140
Aggressive Growth Prepared		18

The Portfolios may also receive earnings credits related to cash balances with PFPC which are shown on the Statements of Operations as “fees paid indirectly.” There were no fees paid indirectly for the period ended March 31, 2007.

(D) Purchases and Sales of Securities

For the period ended March 31, 2007, purchases and sales of securities, but excluding short-term investments and U.S. government securities, were as follows:

	PURCHASES		SALES
Conservative Prepared	$	3,841,254	$	—
Moderate Prepared		11,432,891		—
Growth Prepared		11,886,850		—
Aggressive Growth Prepared		3,875,129		23,335

There were no purchases or sales of U.S. government securities for the period ended March 31, 2007.

(E) Capital Shares

Transactions in capital shares for each period were as follows:

	CONSERVATIVE PREPARED
	FOR THE PERIOD ENDED 3/31/07
	SHARES		VALUE
Shares sold:
Institutional Class	5,215		$	52,493
Investor A Class	104,400			1,061,591
Investor C Class	276,715			2,794,415
R Class	2,000			20,000
Shares redeemed:
Investor A Class	(2,011	)		(20,414	)
Investor C Class	(2,000	)		(20,240	)
Net increase	384,319		$	3,887,845

19

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)

	MODERATE PREPARED
	FOR THE PERIOD ENDED 3/31/07
	SHARES		VALUE
Shares sold:
Institutional Class	77,977		$	794,280
Investor A Class	267,340			2,722,872
Investor C Class	808,482			8,194,029
R Class	2,164			21,650
Shares redeemed:
Institutional Class	(10,964	)		(112,173	)
Investor A Class	(3,404	)		(34,462	)
Investor C Class	(5,495	)		(55,683	)
Net increase	1,136,100		$	11,530,513
	GROWTH PREPARED
	FOR THE PERIOD ENDED 3/31/07
	SHARES		VALUE
Shares sold:
Institutional Class	146,720		$	1,499,344
Investor A Class	306,347			3,123,637
Investor C Class	802,286			8,147,531
R Class	2,000			20,000
Shares redeemed:
Institutional Class	(2,002	)		(20,476	)
Investor A Class	(26,456	)		(267,934	)
Investor C Class	(22,397	)		(226,663	)
Net increase	1,206,498		$	12,275,439
	AGGRESSIVE GROWTH PREPARED
	FOR THE PERIOD ENDED 3/31/07
	SHARES		VALUE
Shares sold:
Institutional Class	97,120		$	988,807
Investor A Class	41,293			418,869
Investor C Class	253,785			2,591,915
R Class	2,000			20,000
Shares redeemed:
Institutional Class	(2,876	)		(29,531	)
Investor A Class	(2,000	)		(20,500	)
Investor C Class	(2,427	)		(24,803	)
Net increase	386,895		$	3,944,757

20

BLACKROCK FUNDS

On March 31, 2007, one shareholder held approximately 98% of the outstanding shares of the Conservative Prepared Portfolio, one shareholder held all of the outstanding shares of the Moderate Prepared Portfolio, one shareholder held all of the outstanding shares of the Growth Prepared Portfolio and one shareholder held approximately 99% of the outstanding shares of the Aggressive Growth Prepared Portfolio. Some of the shareholders are comprised of omnibus accounts, which are held on behalf of several individual shareholders.

(F) Short-Term Borrowings

Effective November 29, 2006, the Portfolios, along with certain other funds managed by the Advisor and its affiliates, is a party to a $500,000,000 credit agreement dated November 22, 2006, with a group of lenders. The Portfolios may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Portfolios may borrow up to the maximum amount allowable under the Portfolios’ current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The credit agreement is for one year. The Portfolios pay a commitment fee of 0.06% per annum based on the Portfolios’ pro rata share of the unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each Portfolio’s election, the federal funds rate plus .35% or a base rate as defined in the credit agreement. The Portfolios did not borrow under the credit agreement during the six months ended March 31, 2007.

(G) Federal Tax Information

No provision is made for federal taxes as it is the Portfolios’ intention to continue to qualify for and elect the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, and to make the requisite distributions to its shareholders which will be sufficient to relieve it from federal income and excise taxes.

Net investment income and distributions from net capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined under accounting principles generally accepted in the United States. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in-capital or accumulated net realized gain, as appropriate, in the period that the differences arise.

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes, an interpretation of FAS Statement No. 109”. FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Portfolios tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be booked as a tax expense in the current year and recognized as: a liability for unrecognized tax benefits; a reduction of an income tax refund receivable; a reduction of deferred tax asset; an increase in deferred tax liability; or a combination thereof. Adoption of FIN 48 is required for the last net asset value calculation in the first required financial statement reporting period for fiscal years beginning after December 15, 2006. At this time, management is evaluating the implications of FIN 48 and its impact on the financial statements has not yet been determined.

21

BLACKROCK FUNDS

ADDITIONAL INFORMATION (UNAUDITED)

(A) Board of Trustees’ Consideration of the Investment Advisory Agreement. The Investment Advisory Agreement for the Portfolios was approved by the Board of Trustees (the “Board” or the “Trustees”) of the Fund at an in-person meeting of the Board held on November 29, 2006, including a majority of the Trustees who are not parties to the Investment Advisory Agreement or “interested persons” of any such party (as such term is defined in the Investment Company Act of 1940) (the “Independent Trustees”). In determining to approve the Investment Advisory Agreement, the Trustees met with the relevant investment advisory personnel from BlackRock Advisors, LLC (the “Adviser”) and considered all information they deemed reasonably necessary to evaluate the terms of the Investment Advisory Agreement. The Board received materials in advance of the meeting relating to its consideration of the Investment Advisory Agreement, including: (i) fees and expense ratios of each class of the Portfolios in comparison to the fees and expense ratios of a peer group of funds; (ii) the Adviser’s economic outlook for the Portfolios and their general investment outlook for the markets in which the Portfolios invest; (iii) information regarding fees paid to service providers that are affiliates of the Adviser; and (iv) information regarding compliance records and regulatory matters relating to the Adviser.

Fees and Expenses. In approving the Investment Advisory Agreement, the Trustees, including the Independent Trustees, considered the fees and expense ratios of each class of shares of the Portfolios. They compared the fees, both before (referred to as “Contractual”) and after (referred to as “Actual”) any fee waivers and expense reimbursements, and expense ratios of the Portfolios against fees and expense ratios of a peer group. Both the peer group category and the funds within the peer group with respect to the fee and expense ratio comparisons were selected by Lipper, Inc. (“Lipper”), which is not affiliated with the Adviser. The Trustees also were provided with information about the services rendered, and the fee rates offered, to other clients advised by the Adviser.

Following consideration of this information, the Trustees, including the Independent Trustees, noted that no fees were to be paid pursuant to the Investment Advisory Agreement and concluded this arrangement was fair and reasonable in light of the services provided.

Nature, Extent and Quality of Services. The Trustees, including the Independent Trustees, received information concerning the investment philosophy and investment process to be used by the Adviser in managing the Portfolios, as well as a description of the capabilities, personnel and services of the Adviser. In connection with this, the Trustees considered the Adviser’s in-house research capabilities as well as other resources available to its personnel. The Trustees considered the scope of the services provided by the Adviser to the Portfolios under the Investment Advisory Agreement relative to services typically provided by third parties to other funds. The Trustees noted that the standard of care applicable under the Investment Advisory Agreement was comparable to that found generally in investment company advisory agreements. The Trustees concluded that the scope of the Adviser’s services to be provided to the Portfolios was consistent with the Portfolios’ operational requirements, including, in addition to seeking to meet their investment objective, compliance with investment restrictions, tax and reporting requirements and related shareholder services.

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

22

BLACKROCK FUNDS

The Trustees also considered information relating to the education, experience and number of investment professionals and other personnel who provide services under the Investment Advisory Agreement. The Trustees also took into account the time and attention to be devoted by senior management of the Adviser to the Portfolios. The Trustees also considered the business reputation of the Adviser and its financial resources and concluded that the Adviser would be able to meet any reasonably foreseeable obligation under the Investment Advisory Agreement.

Performance. The Board of Trustees, including the Independent Trustees, received and considered information about the Adviser’s investment performance for the underlying funds in which the Portfolios invest.

Economies of Scale. The Board of Trustees, including the Independent Trustees, considered whether there would be economies of scale in respect of the management of the Portfolios with other portfolios of the Fund. The Board also considered the fee waivers and expense reimbursement arrangements by the Adviser with respect to the Portfolios.

Other Benefits to the Adviser. The Board of Trustees, including the Independent Trustees, also took into account other potential benefits to the Adviser, such as the ability to leverage investment professionals that also manage other portfolios, raising the profile of BlackRock in the broker-dealer community, and the engagement of affiliates of the Adviser as service providers to the Portfolios, including for administrative, transfer agency, distribution and custodial services. The Board also noted that the Adviser may benefit from the use of soft dollars for research, which may be used by the Adviser to manage other accounts.

The Board concluded that other ancillary benefits that the Adviser and its affiliates could be expected to receive with regard to providing investment advisory and other services to the Portfolios, such as those noted above, were consistent with those available to other mutual fund sponsors.

No single factor was considered in isolation or to be determinative in the Board’s decision to approve the Investment Advisory Agreement. Rather, the Board concluded, in light of a weighing and balancing of all factors considered, that it was in the best interests of the Portfolios to approve the Investment Advisory Agreement.

23

BLACKROCK FUNDS

Investment Advisor	Distributor
BlackRock Advisors, LLC     Wilmington, Delaware 19809	BlackRock Distributors, Inc.     King of Prussia, Pennsylvania 19406
Custodian	Counsel
PFPC Trust Company     Philadelphia, Pennsylvania 19153	Simpson Thacher & Bartlett LLP     New York, New York 10017
Co-Administrator and Transfer Agent	Independent Registered Public Accounting Firm
PFPC Inc.     Wilmington, Delaware 19809	Deloitte & Touche LLP     Philadelphia, Pennsylvania 19103
Co-Administrator
BlackRock Advisors, LLC     Wilmington, Delaware 19809

Important Notice Regarding Delivery of Shareholder Documents

The Fund will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and it 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 contact the Fund at (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

The Fund has delegated proxy voting responsibilities to BlackRock and its affiliates, subject to the general oversight of the Fund’s Board of Trustees. A description of the policies and procedures that BlackRock and its affiliates use to determine how to vote proxies relating to portfolio securities is available without charge, upon request on our website at www.blackrock.com, by calling (800) 441-7762, or on the website of the Securities and Exchange Commission (the “Commission”) at http://www.sec.gov.

Availability of Proxy Voting Record

Information on how proxies relating to the Fund’s voting securities were voted (if any) by BlackRock during the most recent 12-month period ended June 30th is available (if any), upon request and without charge on our website at www.blackrock.com, by calling (800) 441-7762 or on the website of the Commission at http://www.sec.gov.

Availability of Quarterly Portfolio Schedule

The Fund files its complete schedule of portfolio holdings for the first and third quarters of its fiscal year with the Commission on Form N-Q. The Fund’s Form N-Q is available on the Commission’s website at http://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information regarding the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s Form N-Q may also be obtained upon request, without charge, by calling (800) 441-7762.

BLACKROCK FUNDS

AVAILABILITY OF SHAREHOLDER DOCUMENTS AND STATEMENTS

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

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

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

Shareholders Who Hold Accounts Directly With BlackRock

1) Access the BlackRock website at http://www.blackrock.com/edelivery

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

3) Log into your account

SHAREHOLDER PRIVILEGES

Account Information

Call us at (800) 441-7762 8:00 AM – 6:00 PM EST to get information about your account balances, recent transactions and share prices. You can also reach us on the web at www.blackrock.com.

Automatic Investment Plans

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

Systematic Withdrawal Plan

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

Retirement Plans

Shareholders may make investments in conjunction with Traditional, Rollover, Roth, Coverdell, Simple and SEP IRA’s, and 403(b) plans.

BLACKROCK FUNDS

A World-Class Mutual Fund Family

BlackRock now offers an expanded lineup of open-end mutual funds. Our range includes more than 85 funds crossing all investment styles and managed by experts in equity, fixed income and tax-exempt investing.

Equity Portfolios
BlackRock All-Cap Global Resources Portfolio	BlackRock Global Resources Portfolio*	BlackRock Lifecycle Prepared Portfolios†
BlackRock Aurora Portfolio	BlackRock Global Science & Technology     Opportunities Portfolio	BlackRock Mid-Cap Growth Equity Portfolio
BlackRock Asset Allocation Portfolio†		BlackRock Mid-Cap Value Equity Portfolio
BlackRock Balanced Capital Fund†	BlackRock Global SmallCap Fund	BlackRock Mid Cap Value Opportunities Fund
BlackRock Basic Value Fund	BlackRock Global Technology Fund	BlackRock Natural Resources Trust
BlackRock Capital Appreciation Portfolio	BlackRock Healthcare Fund	BlackRock Pacific Fund
BlackRock Developing Capital Markets Fund	BlackRock Health Sciences Opportunities Portfolio	BlackRock Prepared Portfolios†
BlackRock Equity Dividend Fund	BlackRock Index Equity Portfolio*	BlackRock Small Cap Core Equity Portfolio
BlackRock EuroFund	BlackRock International Fund	BlackRock Small Cap Growth Equity Portfolio
BlackRock Focus Twenty Fund	BlackRock International Index Fund	BlackRock Small Cap Growth Fund II
BlackRock Focus Value Fund	BlackRock International Opportunities Portfolio*	BlackRock Small Cap Index Fund
BlackRock Fundamental Growth Fund	BlackRock International Value Fund	BlackRock Small Cap Value Equity Portfolio*
BlackRock Global Allocation Fund†	BlackRock Investment Trust	BlackRock Small/Mid-Cap Growth Portfolio
BlackRock Global Dynamic Equity Fund	BlackRock Large Cap Core Fund	BlackRock S&P 500 Index Fund
BlackRock Global Financial Services Fund	BlackRock Large Cap Growth Fund	BlackRock U.S. Opportunities Portfolio
BlackRock Global Growth Fund	BlackRock Large Cap Value Fund	BlackRock Utilities and Telecommunications Fund
BlackRock Global Opportunities Portfolio	BlackRock Latin America Fund	BlackRock Value Opportunities Fund
* Fixed Income Portfolios
BlackRock Bond Fund	BlackRock High Yield Bond Portfolio	BlackRock Low Duration Bond Portfolio
BlackRock Commodity Strategies Fund	BlackRock Inflation Protected Bond     Portfolio	BlackRock Managed Income Portfolio
BlackRock Enhanced Income Portfolio	BlackRock Intermediate Bond Portfolio II	BlackRock Short-Term Bond Fund
BlackRock GNMA Portfolio	BlackRock Intermediate Government	BlackRock Total Return Portfolio
BlackRock Government Income Portfolio	Bond Portfolio	BlackRock Total Return Portfolio II
BlackRock High Income Fund	BlackRock International Bond Portfolio	BlackRock World Income Fund
Municipal Bond Portfolios
BlackRock AMT-Free Municipal Bond Portfolio	BlackRock Intermediate Municipal Fund	BlackRock New York Municipal Bond Fund
BlackRock California Insured Municipal Bond Fund	BlackRock Kentucky Municipal Bond Portfolio	BlackRock Ohio Municipal Bond Portfolio
BlackRock Delaware Municipal Bond Portfolio	BlackRock Municipal Insured Fund	BlackRock Pennsylvania Municipal Bond Fund
BlackRock Florida Municipal Bond Fund	BlackRock National Municipal Fund	BlackRock Short-Term Municipal Fund
BlackRock High Yield Municipal Fund	BlackRock New Jersey Municipal Bond Fund
Money Market Portfolios
BlackRock Money Market Portfolio	BlackRock NJ Municipal MM Portfolio	BlackRock Summit Cash Reserves Fund*
BlackRock Municipal Money Market Portfolio	BlackRock OH Municipal MM Portfolio	BlackRock U.S. Treasury MM Portfolio
BlackRock NC Municipal MM Portfolio	BlackRock PA Municipal MM Portfolio	BlackRock VA Municipal MM Portfolio

* See the prospectus for information on specific limitations on investments in the fund.

† Mixed asset fund.

BlackRock mutual funds are distributed by BlackRock Distributors, Inc. and certain funds are also distributed by FAM Distributors, Inc. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling 800-882-0052 or from your financial advisor. The prospectus should be read carefully before investing.

Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed by PNC Bank, National Association or any other bank and shares are not federally insured by, guaranteed by, obligations of or otherwise supported by the U.S. Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Investments in shares of the fund involve investment risks, including the possible loss of the principal amount invested.

PREPARE-3/07-SAR

ALTERNATIVES    BLACKROCK SOLUTIONS    EQUITIES    FIXED INCOME    LIQUIDITY    REAL ESTATE
BlackRock Funds Index Equity Portfolio
SEMI-ANNUAL REPORT    |    MARCH 31, 2007 (UNAUDITED)

NOT FDIC INSURED

MAY LOSE VALUE

NO BANK GUARANTEE

BLACKROCK FUNDS

TABLE OF CONTENTS

Shareholder Letter	1
Portfolio Summary
Index Equity	2-3
Note on Performance Information	4
Portfolio Financial Statements
Statement of Assets and Liabilities	5
Statement of Operations	6
Statements of Changes in Net Assets	7
Financial Highlights	8-10
Notes to Financial Statements	11-16
The DFA Investment Trust Company Financial Statements	17-46

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 Web sites.

BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients, except as permitted by law or as is necessary to respond to regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended purpose. We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information.

BLACKROCK FUNDS

March 31, 2007

Dear Shareholder:

For most financial markets, 2007 opened just as 2006 ended — on a positive trajectory. At the end of February and into March, however, global equity markets registered their first significant decline since last summer. The market jitters were triggered by a significant setback in the Chinese market and were exacerbated by several concerns, notably a weakening economy, some disappointing corporate earnings announcements, escalating geopolitical concerns in the Middle East and increasing delinquencies in the subprime mortgage market. Despite the recent spate of volatility, underlying stock market fundamentals appear quite sound, supported by a generally favorable global economic backdrop, tame inflation, relatively low interest rates and attractive valuations.

Not unlike the equity market, the bond market also has seen volatility recently as observers have attempted to interpret mixed economic signals. A bond market rally late last year reversed itself early in 2007 as economic data strengthened. Prices improved (and yields fell) again in February as equities struggled, but retrenched slightly in March. Notably, the Treasury curve remained inverted for much of 2006 and into 2007. The 30-year Treasury yield stood at 4.84% at the end of March 2007, while the one-month Treasury offered the highest yield on the curve at 5.07%.

For its part, the Federal Reserve Board (Fed) left the target short-term interest rate on hold at 5.25% since first pausing in its rate-hiking campaign on August 8, 2006. Although the central bankers continue to express concern about potential inflationary pressures, they also have made reference to signs of economic weakness in their public statements. Most observers expect the Fed to keep interest rates on hold for now.

Notwithstanding some recent volatility, most major market indexes managed to post positive returns for the semi-annual reporting period ended March 31, 2007:

Total returns as of March 31, 2007

	SIX-MONTH PERIOD
U.S. equities (Standard & Poor’s 500 Index)	+7.38	%
Small cap U.S. equities (Russell 2000 Index)	+11.02	%
International equities (MSCI Europe, Australasia, Far East Index)	+14.85	%
Fixed income (Lehman Brothers Aggregate Bond Index)	+2.76	%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index)	+1.93	%
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index)	+7.02	%

If recent market movements are any guide, 2007 could be a year of enhanced volatility. As you navigate the uncertainties of the financial markets, we encourage you to review your investment goals with your financial professional and to make portfolio changes, as needed. For more reflection on the markets, please ask your financial professional for the latest issue of “What’s Ahead in 2007: First Quarter Update,” or view it online at www.blackrock.com/funds.

We thank you for trusting BlackRock with your investment assets, and we look forward to continuing to serve you in the months and years ahead.

Sincerely,

Frank Porcelli

Managing Director and Head of BlackRock Private Client Group

THIS PAGE NOT PART OF YOUR FUND REPORT

1

INDEX EQUITY PORTFOLIO

Advisor to the Index Master Portfolio

Dimensional Fund Advisors LP

(formerly, Dimensional Fund Advisors Inc.)

Total Net Assets (3/31/07): $1.1 billion

Performance Benchmark:

S&P 500^® Index

Investment Approach:

Seeks to approximate the investment performance of the S&P 500^® Index, in terms of its total investment return. In pursuit of this goal, the Portfolio invests all of its assets indirectly, through The U.S. Large Company Series (the Index Master Portfolio) of The DFA Investment Trust Company, in the stocks of the S&P 500^® Index. The Index Master Portfolio, under normal market conditions, invests at least 95% of its total assets in substantially all the stocks of the S&P 500^® Index in approximately the same proportion as they are represented in the Index.

Recent Portfolio Management Activity:

• All share classes of the Portfolio underperformed the benchmark for the first quarter of 2007. The Portfolio, through the investment of all of its assets in The U.S. Large Company Series of The DFA Investment Trust Company, holds substantially all of the stocks contained in the S&P 500^® Index in approximately the same proportion as the Index. For the six-month period ended March 31, 2007, the S&P 500^® Index returned 7.38%. The Portfolio’s Institutional, Service, Investor A, Investor B and Investor C shares posted total returns of 7.33%, 7.26%, 7.15%, 6.77% and 6.76%, respectively, for the semiannual period. The return of each class was lower than the return of the S&P 500^® Index primarily because of Portfolio and class-specific expenses.

• The U.S. equity markets recorded modest gains in the first quarter of 2007. The broad-market S&P 500^® Index posted an uptick of 0.64% for the quarter and 7.38% for the semiannual period. Large-cap value stocks significantly outperformed their large-cap growth counterparts, with the S&P 500^®/Citigroup Value Index rising 9.17% versus the 5.55% return of the S&P 500^®/Citigroup Growth Index.

• All 10 sectors within the S&P 500^® Index recorded positive returns during the semiannual period. Materials, utilities and telecommunication services were the best performers, registering gains of 21.4%, 19.3% and 16.6%, respectively. Healthcare, financials and information technology were laggards, posting returns of 2.5%, 4.0% and 5.1%, respectively.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INDEX EQUITY PORTFOLIO AND THE S&P 500^® INDEX FOR THE PAST TEN YEARS.

FOR PERIOD ENDING MARCH 31, 2007

	Average Annual Total Return
	6 Months		1 Year		5 Year		10 Year
Institutional Class	7.33	%	11.78	%	6.15	%	8.02	%
Service Class	7.26	%	11.52	%	5.77	%	7.63	%
Investor A Class (Load Adjusted)	3.93	%	8.19	%	5.05	%	7.17	%
Investor A Class (NAV)	7.15	%	11.52	%	5.69	%	7.50	%
Investor B Class (Load Adjusted)	2.27	%	6.14	%	4.55	%	6.86	%
Investor B Class (NAV)	6.77	%	10.64	%	4.88	%	6.86	%
Investor C Class (Load Adjusted)	5.76	%	9.61	%	4.87	%	6.68	%
Investor C Class (NAV)	6.76	%	10.61	%	4.87	%	6.68	%
S&P 500® Index	7.38	%	11.83	%	6.27	%	8.20	%

THE FUND IS CLOSED TO NEW INVESTORS. EXISTING SHAREHOLDERS IN CLASS A, INSTITUTIONAL CLASS AND SERVICE CLASS MAY MAKE ADDITIONAL INVESTMENTS IN CURRENT ACCOUNTS. IN ADDITION, NEW ACCOUNTS MAY BE OPENED BY (I) ANY INVESTOR IF THE TAX ID NUMBER FOR THE NEW ACCOUNT WILL BE THE SAME AS THAT FOR A CURRENT ACCOUNT AND (II) 401(K), 403(B), 457 AND OTHER SIMILAR GROUP RETIREMENT PLAN PROGRAMS OR CERTAIN DISCRETIONARY WRAP FEE PROGRAMS THAT HAVE CURRENT ACCOUNTS.

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 4/20/92; INVESTOR A SHARES, 6/2/92; SERVICE SHARES, 7/29/93; INVESTOR B SHARES, 2/7/96; AND INVESTOR C SHARES, 8/14/96. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 4 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.    The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio’s composition will vary.

2

INDEX EQUITY PORTFOLIO

FUND PROFILE

Top Ten Holdings (% of long-term investments)1
Exxon Mobil Corp.	3.4	%
General Electric Co.	2.9
Citigroup, Inc.	2.0
AT&T, Inc.	1.9
Microsoft Corp.	1.9
Bank of America Corp.	1.8
Procter & Gamble Co.	1.6
Altria Group, Inc.	1.5
Pfizer, Inc.	1.4
American International Group, Inc.	1.4
Total	19.8	%

Sector Allocation (% of long-term investments)2
Financials	20.4	%
Information Technology	14.9
Health Care	11.9
Industrials	10.9
Consumer Discretionary	10.5
Energy	10.1
Consumer Staples	9.6
Telecommunication Services	3.7
Utilities	3.7
Materials	3.1
REITs	1.2
Total	100.0	%

1 Represents the Top Ten Holdings of The U.S. Large Company Series of The DFA Investment Trust Company.

2 Represents the Sector Allocation of The U.S. Large Company Series of The DFA Investment Trust Company.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,073.30		1,072.60		1,071.50		1,067.70		1,067.60		1,024.14		1,022.88		1,022.93		1,018.79		1,019.04
Expenses Incurred During Period (10/01/06 - 3/31/07)		0.88		2.17		2.12		6.34		6.08		0.86		2.12		2.07		6.21		5.96

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.17%, 0.42%, 0.41%, 1.23%, and 1.18% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period). The Example reflects the expenses for both the Index Equity Portfolio and The U.S. Large Company Series of The DFA Investment Trust Company.

3

BLACKROCK FUNDS

NOTE ON PERFORMANCE INFORMATION

The performance information on the previous pages includes information for each class of the Portfolio since the commencement of operations of the Portfolio, rather than the date such class was introduced. Performance information for each class introduced after the commencement of operations of the Portfolio is therefore based on the performance history of a predecessor class adjusted to reflect the class specific fees applicable to each class at the time of such share class’s launch. This information may be considered when assessing the fund’s performance, but does not represent the actual performance of this share class.

Performance information is restated to reflect the current maximum front-end sales charge (in the case of Investor A Shares) or the maximum contingent deferred sales charge (in the case of Investor B and Investor C Shares), and assumes the reinvestment of dividends and distributions. The maximum front-end sales charges for Investor A Shares is 3.00%. The maximum contingent deferred sales charge for Investor B Shares and Investor C Shares is 4.50% and 1.00%, respectively.

The performance information also reflects fee waivers and reimbursements that subsidize and reduce the total operating expenses of the Portfolio. The Portfolio’s returns would have been lower if there were no such waivers and reimbursements. BlackRock Advisors, LLC is under no obligation to waive or continue waiving its fees after February 1, 2008 as described in the prospectus of the Portfolio. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.

The performance shown in the line graph is that of Institutional Shares and Investor A Shares of the Portfolio. The actual performance of Investor B, Investor C and Service Shares is lower than the performance of Institutional Shares because Investor B, Investor C and Service Shares have higher expenses than Institutional Shares. Excluding the effects of sales charges, the actual performance of Investor B and Investor C Shares is lower than the performance of Investor A Shares because Investor B and Investor C Shares have higher expenses than Investor A Shares. Purchasers of Investor A Shares generally pay a front-end sales charge, while purchasers of Investor B and Investor C Shares may pay a contingent deferred sales charge (depending on how long they hold their shares) when they sell their shares.

4

BLACKROCK FUNDS

STATEMENT OF ASSETS AND LIABILITIES

INDEX EQUITY PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

ASSETS
Investment in The U.S. Large Company Series (the “Master”) at value1	$	1,055,995,720
Interest receivable		63,220
Investments sold receivable		576,080
Capital shares sold receivable		475,484
Prepaid expenses		457,914
Receivable from advisor		7,981
TOTAL ASSETS		1,057,576,399
LIABILITIES
Capital shares redeemed payable		2,254,182
Transfer agent fees payable		318,945
Distribution fees payable		161,103
Administration fees payable		91,051
Custodian fees payable		5,934
Other accrued expenses payable		354,574
TOTAL LIABILITIES		3,185,789
NET ASSETS	$	1,054,390,610
1Cost of investments	$	413,892,309
AT MARCH 31, 2007, NET ASSETS CONSISTED OF:
Capital paid in	$	704,425,067
Undistributed net investment income		6,576,511
Accumulated net realized loss		(298,714,379	)
Net unrealized appreciation		642,103,411
	$	1,054,390,610
Institutional Shares:
Net Assets	$	479,456,889
Shares outstanding, unlimited number of shares authorized, $0.001 par value		17,442,539
Net Asset Value, offering and redemption price per share	$	27.49
Service Shares:
Net Assets	$	33,264,284
Shares outstanding, unlimited number of shares authorized, $0.001 par value		1,217,598
Net Asset Value, offering and redemption price per share	$	27.32
Investor A Shares:
Net Assets	$	301,960,524
Shares outstanding, unlimited number of shares authorized, $0.001 par value		11,071,437
Net Asset Value and redemption price per share	$	27.27
Maximum Sales Charge		3.00	%
Maximum offering price per share	$	28.11
Investor B Shares:
Net Assets	$	72,039,026
Shares outstanding, unlimited number of shares authorized, $0.001 par value		2,691,463
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 4.50%)	$	26.77
Investor C Shares:
Net Assets	$	167,669,887
Shares outstanding, unlimited number of shares authorized, $0.001 par value		6,269,790
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 1.00%)	$	26.74

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

5

BLACKROCK FUNDS

STATEMENT OF OPERATIONS

INDEX EQUITY PORTFOLIO

FOR THE SIX MONTHS ENDED MARCH 31, 2007 (UNAUDITED)

Investment income:
Net investment income allocated from Master (See Note (A)):
Interest	$	441,842
Securities lending income		140,077
Dividends		11,036,470
Expenses		(239,497	)
Total net investment income allocated from Master		11,378,892
Portfolio investment income:
Interest		63,220
Interest from affiliates (Note C)		1,616
Total Portfolio investment income		64,836
Total investment income		11,443,728
Portfolio expenses:
Distribution fees — class specific		980,952
Shareholder servicing fees — class specific		452,639
Administration fees		375,613
Transfer agent fees — class specific		294,698
Administration fees — class specific		136,795
Printing fees		133,602
Legal and audit fees		61,964
Officers’ and trustees’ fees		20,423
Registration fees and expenses		26,641
Custodian fees		8,197
Other		24,476
Total expenses		2,516,000
Less administration fees waived — class specific		(57,816	)
Less transfer agent fees reimbursed — Investor B Class		(837	)
Less fees paid indirectly		(630	)
Net expenses		2,456,717
Net investment income		8,987,011
Realized and unrealized gain on investments allocated from Master:
Net realized gain on investments		5,160,799
Net change in unrealized appreciation/depreciation on investments		62,121,387
Net gain on investments		67,282,186
Net increase in net assets resulting from operations	$	76,269,197

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

6

BLACKROCK FUNDS

STATEMENTS OF CHANGES IN NET ASSETS

INDEX EQUITY PORTFOLIO

	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase in net assets from operations:
Operations:
Net investment income	$	8,987,011		$	17,665,621
Net realized gain on investments		5,160,799			467,055
Net change in unrealized appreciation/depreciation on investments		62,121,387			98,152,829
Net increase in net assets resulting from operations		76,269,197			116,285,505
Dividends to shareholders from:
Net investment income:
Institutional Class		(1,697,349	)		(9,610,986	)
Service Class		(105,274	)		(1,064,897	)
Investor A Class		(823,592	)		(4,541,938	)
Investor B Class		(60,732	)		(821,451	)
Investor C Class		(162,365	)		(1,511,761	)
Total dividends from net investment income		(2,849,312	)		(17,551,033	)
Net decrease in net assets from capital share transactions		(96,734,907	)		(346,204,722	)
Redemption fees		35,030			34,408
Total decrease in net assets		(23,279,992	)		(247,435,842	)
Net assets:
Beginning of period		1,077,670,602			1,325,106,444
End of period	$	1,054,390,610		$	1,077,670,602
End of period undistributed net investment income	$	6,576,511		$	438,812

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

7

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Per share operating performance:
Net asset value, beginning of period	$	25.70		$	23.63		$	21.49		$	19.19		$	15.69		$	20.03
Net investment income		0.27	2		0.44	2		0.45	2		0.34	2		0.30			0.25
Net realized and unrealized gain (loss) from investment in Master		1.61			2.08			2.15			2.29			3.48			(4.34	)
Dividends from net investment income		(0.09	)		(0.45	)		(0.46	)		(0.33	)		(0.28	)		(0.25	)
Net asset value, end of period	$	27.49		$	25.70		$	23.63		$	21.49		$	19.19		$	15.69
Total Return		7.33	%3,4		10.75	%3		12.17	%3		13.71	%3		24.20	%		(20.65	)%
Ratios/Supplemental data:
Net assets, end of period (in thousands)	$	479,457		$	474,801		$	595,050		$	546,947		$	618,249		$	741,161
Ratio of expenses to average net assets		0.18	%‡,5		0.18	%‡		0.18	%‡		0.18	%‡		0.18	%‡		0.18	%‡
Ratio of expenses to average net assets (excluding waivers)		0.20	%‡,5		0.26	%‡		0.37	%‡		0.36	%‡		0.37	%‡		0.33	%‡
Ratio of net investment income to average net assets		1.96	%5		1.81	%		1.95	%		1.56	%		1.63	%		1.35	%
Ratio of net investment income to average net assets (excluding waivers)		1.94	%5		1.73	%		1.76	%		1.38	%		1.44	%		1.20	%
Portfolio turnover6		2	%7		4	%8		7	%9		2	%10		10	%11		6	%12

	SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Per share operating performance:
Net asset value, beginning of period	$	25.53		$	23.48		$	21.35		$	19.08		$	15.62		$	19.97
Net investment income		0.23	2		0.37	2		0.37	2		0.25	2		0.21			0.25
Net realized and unrealized gain (loss) from investment in Master		1.62			2.06			2.13			2.27			3.47			(4.41	)
Dividends from net investment income		(0.06	)		(0.38	)		(0.37	)		(0.25	)		(0.22	)		(0.19	)
Net asset value, end of period	$	27.32		$	25.53		$	23.48		$	21.35		$	19.08		$	15.62
Total Return		7.26	%3,4		10.42	%3		11.78	%3		13.20	%3		23.68	%		(21.02	)%
Ratios/Supplemental data:
Net assets, end of period (in thousands)	$	33,264		$	44,765		$	68,637		$	74,641		$	72,505		$	63,468
Ratio of expenses to average net assets		0.37	%‡,5		0.46	%‡		0.55	%‡		0.56	%‡		0.61	%‡		0.61	%‡
Ratio of expenses to average net assets (excluding waivers)		0.37	%‡,5		0.49	%‡		0.60	%‡		0.67	%‡		0.67	%‡		0.67	%‡
Ratio of net investment income to average net assets		1.73	%5		1.53	%		1.62	%		1.17	%		1.19	%		0.87	%
Ratio of net investment income to average net assets (excluding waivers)		1.73	%5		1.50	%		1.57	%		1.06	%		1.13	%		0.81	%
Portfolio turnover6		2	%7		4	%8		7	%9		2	%10		10	%11		6	%12

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS .

8

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Per share operating performance:
Net asset value, beginning of period	$	25.52		$	23.46		$	21.34		$	19.07		$	15.62		$	19.95
Net investment income		0.23	2		0.38	2		0.36	2		0.22	2		0.18			0.13
Net realized and unrealized gain (loss) from investment in Master		1.59			2.07			2.13			2.28			3.46			(4.31	)
Dividends from net investment income		(0.07	)		(0.39	)		(0.37	)		(0.23	)		(0.19	)		(0.15	)
Net asset value, end of period	$	27.27		$	25.52		$	23.46		$	21.34		$	19.07		$	15.62
Total Return13		7.15	%3,4		10.52	%3		11.75	%3		13.10	%3		23.41	%		(21.09	)%
Ratios/Supplemental data:
Net assets, end of period (in thousands)	$	301,961		$	287,288		$	296,266		$	312,606		$	281,505		$	222,736
Ratio of expenses to average net assets		0.41	%‡,5		0.42	%‡		0.55	%‡		0.70	%‡		0.79	%‡		0.79	%‡
Ratio of expenses to average net assets (excluding waivers)		0.41	%‡,5		0.54	%‡		0.70	%‡		0.84	%‡		0.85	%‡		0.78	%‡
Ratio of net investment income to average net assets		1.73	%5		1.57	%		1.59	%		1.04	%		1.01	%		0.72	%
Ratio of net investment income to average net assets (excluding waivers)		1.73	%5		1.45	%		1.44	%		0.90	%		0.96	%		0.72	%
Portfolio turnover6		2	%7		4	%8		7	%9		2	%10		10	%11		6	%12

^‡ Includes the pro-rata share of expenses allocated from The U.S. Large Company Series of The DFA Investment Trust Company of 0.06%, the annualized expense ratio, for the years ended September 30, 2002 to September 30, 2005 and 0.04% for the year ended September 30, 2006 and the six months ended March 31, 2007.

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fee of 2.00% received by the Portfolio is reflected in total return calculations. There was no impact to the return.

⁴ Not annualized.

⁵ Annualized.

⁶ The Index Equity Portfolio invests fully in The U.S. Large Company Series of The DFA Investment Trust Company (the “Master”). The Portfolio turnover rate is that of the Master.

⁷ For period 12/1/06 through 3/31/07.

⁸ For period 12/1/05 through 9/30/06.

⁹ For period 12/1/04 through 9/30/05.

¹⁰ For period 12/1/03 through 9/30/04.

¹¹ For period 12/1/02 through 9/30/03.

¹² For period 12/1/01 through 9/30/02.

¹³ Sales load not reflected in total return.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

9

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONCLUDED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Per share operating performance:
Net asset value, beginning of period	$	25.09		$	23.06		$	20.98		$	18.75		$	15.35		$	19.61
Net investment income (loss)		0.12	2		0.18	2		0.19	2		0.06	2		0.04			(0.01	)
Net realized and unrealized gain (loss) from investment in Master		1.58			2.03			2.09			2.24			3.42			(4.25	)
Dividends from net investment income		(0.02	)		(0.18	)		(0.20	)		(0.07	)		(0.06	)		—
Net asset value, end of period	$	26.77		$	25.09		$	23.06		$	20.98		$	18.75		$	15.35
Total Return3		6.77	%4,5		9.62	%4		10.89	%4		12.25	%4		22.59	%		(21.72	)%
Ratios/Supplemental data:
Net assets, end of period (in thousands)	$	72,039		$	91,683		$	136,878		$	177,754		$	192,614		$	175,100
Ratio of expenses to average net assets		1.24	%‡,6		1.23	%‡		1.31	%‡		1.46	%‡		1.54	%‡		1.53	%‡
Ratio of expenses to average net assets (excluding waivers)		1.26	%‡,6		1.34	%‡		1.35	%‡		1.50	%‡		1.59	%‡		1.55	%‡
Ratio of net investment income (loss) to average net assets		0.90	%6		0.76	%		0.86	%		0.28	%		0.27	%		(0.04	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.88	%6		0.65	%		0.82	%		0.24	%		0.21	%		(0.05	)%
Portfolio turnover7		2	%8		4	%9		7	%10		2	%11		10	%12		6	%13

	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Per share operating performance:
Net asset value, beginning of period	$	25.07		$	23.05		$	20.97		$	18.74		$	15.35		$	19.61
Net investment income (loss)		0.12	2		0.18	2		0.19	2		0.06	2		0.04			(0.01	)
Net realized and unrealized gain (loss) from investment in Master		1.57			2.03			2.09			2.24			3.41			(4.25	)
Dividends from net investment income		(0.02	)		(0.19	)		(0.20	)		(0.07	)		(0.06	)		—
Net asset value, end of period	$	26.74		$	25.07		$	23.05		$	20.97		$	18.74		$	15.35
Total Return3		6.76	%4,5		9.61	%4		10.90	%4		12.26	%4		22.52	%		(21.72	)%
Ratios/Supplemental data:
Net assets, end of period (in thousands)	$	167,670		$	179,134		$	228,276		$	279,130		$	297,835		$	270,958
Ratio of expenses to average net assets		1.19	%‡,6		1.23	%‡		1.31	%‡		1.46	%‡		1.54	%‡		1.53	%‡
Ratio of expenses to average net assets (excluding waivers)		1.19	%‡,6		1.27	%‡		1.35	%‡		1.50	%‡		1.59	%‡		1.55	%‡
Ratio of net investment income (loss) to average net assets		0.95	%6		0.76	%		0.86	%		0.28	%		0.27	%		(0.04	)%
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.95	%6		0.72	%		0.82	%		0.24	%		0.21	%		(0.05	)%
Portfolio turnover7		2	%8		4	%9		7	%10		2	%11		10	%12		6	%13

^‡ Includes the pro-rata share of expenses allocated from The U.S. Large Company Series of The DFA Investment Trust Company of 0.06%, the annualized expense ratio, for the years ended September 30, 2002 to September 30, 2005 and 0.04% for the year ended September 30, 2006 and the six months ended March 31, 2007.

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Contingent deferred sales load not reflected in total return.

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

⁵ Not annualized.

⁶ Annualized.

⁷ The Index Equity Portfolio invests fully in The U.S. Large Company Series of The DFA Investment Trust Company (the “Master”). The Portfolio turnover rate is that of the Master.

⁸ For period 12/1/06 through 3/31/07.

⁹ For period 12/1/05 through 9/30/06.

¹⁰ For period 12/1/04 through 9/30/05.

¹¹ For period 12/1/03 through 9/30/04.

¹² For period 12/1/02 through 9/30/03.

¹³ For period 12/1/01 through 9/30/02.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

10

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(A) Organization

BlackRock Funds^SM (the “Fund”) was organized on December 22, 1988, as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. As of March 31, 2007, the Fund had 49 registered portfolios, one of which, the BlackRock Index Equity Portfolio is included in these financial statements (the “Portfolio”). The Portfolio may offer as many as thirteen classes of shares: BlackRock, Institutional, Service, Hilliard Lyons, Investor A, Investor A1, Investor B, Investor B1, Investor B2, Investor C, Investor C1, Investor C2 and R. Shares of all classes of the Portfolio represent equal pro-rata interests in the Portfolio, except that each class bears different expenses, which reflect the difference in the range of services provided to them, mostly due to differences in distribution and service fees. The Portfolio is closed to new investors.

The Portfolio invests all of its assets in The U.S. Large Company Series of The DFA Investment Trust Company (the “Master”). The Portfolio recognizes its pro-rata share, on a daily basis, of net investment income and realized and unrealized gains and losses on investments and futures transactions from the Master, which is treated as a partnership for federal income tax purposes.

Under the Fund’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of the duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund considers the risk of loss from such claims to be remote.

(B) Summary of Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.

Investment Valuation — At March 31, 2007, the Portfolio owned 21% of the Master. The Portfolio’s investment reflects its proportionate interest in the net assets of the Master.

The Portfolio records its investment in the Master at fair value. Valuation of securities held by the Master is discussed in the notes to the Master’s Financial Statements included elsewhere in this report.

In September 2006, Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. At this time, management is evaluating the implications of FAS 157 and its impact on the Portfolios’ financial statements, if any, has not been determined.

In addition, in February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”), which is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FAS 157. FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. FAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. At this time, management is evaluating the implications of FAS 159 and its impact on the Portfolios’ financial statements, if any, has not been determined.

Dividends to Shareholders — Dividends from net investment income, which are recorded on the ex-dividend date, are declared and paid at least annually. Net realized capital gains, if any, are distributed at least annually.

Investment Transactions and Investment Income — The Portfolio records its proportionate share of the Master’s net investment income and realized and unrealized gains and losses on investments. In addition, the Portfolio accrues its own expenses.

The Portfolio invests solely in the Master. Advisory fees are accrued daily and paid monthly to Dimensional Fund Advisors Inc. as described within the Master’s financial statements, which are included elsewhere in this report and should be read in conjunction with the financial statements of the Portfolio.

11

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) requires the use of management estimates. Actual results could differ from these estimates and such differences could be material.

Other — Expenses that are directly related to the Portfolio are charged directly to the Portfolio. Other operating expenses are prorated to the Portfolio on the basis of relative net assets. Class-specific expenses are borne by that class. Differences in net expense ratios between classes of the Portfolio are due to class-specific expenses and waivers. Income, other expenses and realized and unrealized gains and losses of a Portfolio are allocated to the respective class on the basis of the relative net assets each day.

(C) Agreements and Other Transactions with Affiliates and Related Parties

The Portfolio pays no advisory fee but bears its proportionate cost of the fee paid by the Master. For the six months ended March 31, 2007, the Portfolio’s proportionate cost of the fee paid was $137,297.

Merrill Lynch & Co., Inc. (“Merrill Lynch”) and The PNC Financial Services Group, Inc. (“PNC”) are principal owners of BlackRock, Inc.

PFPC Trust Company (“PTC”), an indirect wholly-owned subsidiary of PNC, serves as custodian for the Portfolio. For these services, the custodian receives a custodian fee computed daily and payable monthly, based on a percentage of the average daily gross assets of the Portfolio.

Prior to February 1, 2006, the fee was paid at the following annual rates: 0.01% of the first $250 million of average gross assets, 0.009% of the next $250 million of average gross assets, 0.0075% of the next $250 million of average gross assets, 0.007% of the next $250 million of average of gross assets, 0.006% of the next $250 million of average gross assets and 0.005% of average gross assets in excess of $1.25 billion; plus per transaction charges and other miscellaneous fees incurred on behalf of the Portfolio.

Effective February 1, 2006, the fee was paid at the following annual rates: 0.0073% of the first $250 million of average gross assets, 0.006% of the next $250 million of average gross assets, 0.0056% of the next $250 million of average gross assets, 0.0048% of the next $250 million of average gross assets, and 0.004% of average gross assets in excess of $1 billion; plus per transaction charges and other miscellaneous fees incurred on behalf of the Portfolio.

PFPC Inc. (“PFPC”), an indirect wholly-owned subsidiary of PNC, serves as transfer and dividend disbursing agent.

Shares of each class of the Portfolio bear their pro-rata portion of all operating expenses paid by the Portfolio, except transfer agency fees, certain administrative fees and amounts payable under the Fund’s Amended and Restated Distribution and Service Plan (“the Plan”).

Prior to February 1, 2006, the Institutional, Service, Investor A, Investor B and Investor C Share classes each bore a transfer agent fee at an annual rate not to exceed 0.018% of the annual average net assets of such respective classes plus per account fees and disbursements. Certain other transfer agency fees were allocated on relative net assets of each class of the Portfolio.

Effective February 1, 2006, each class of the Portfolio bears the costs of transfer agent fees associated with such respective classes. Transfer agency fees borne by each class of the Portfolio are comprised of those fees charged for all shareholder communications including shareholder reports, dividend and distribution notices, and proxy materials for shareholders meetings. The Portfolio are also charged per account and per transaction fees related to servicing and maintenance of shareholder accounts, including the issuing, redeeming and transferring of shares of each class of each Portfolio, 12b-1 fee calculation, check writing, anti-money laundering services, and customer identification services.

Pursuant to the written agreements, Merrill Lynch and Hilliard Lyons, an indirect wholly-owned subsidiary of PNC, provide certain Portfolios sub-accounting, recordkeeping, sub-transfer agency and other administrative services with respect to sub-accounts they service. For these services, each receives an annual fee per shareholder account which will vary depending on share class. For the six months ended March 31, 2007, the Portfolio paid Merrill Lynch and Hilliard Lyons, $68,242 and $25,219, respectively, for these services.

PFPC and BlackRock Advisors, LLC (“BlackRock”), an affiliate of Merrill Lynch and PNC, act as co-administrators for the Fund. For these services, the co-administrators receive a combined administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of the Portfolio. Prior to February 1, 2006, the fee was paid at the following annual rates: 0.085% of the first $500 million, 0.075% of the next $500 million and 0.065% of assets in excess of $1 billion. In addition, each of the share classes was charged an administration fee based on the

12

BLACKROCK FUNDS

following percentage of average daily net assets of each respective class: 0.145% of the first $500 million, 0.135% of the next $500 million and 0.125% of assets in excess of $1 billion. Effective February 1, 2006, the combined administration fee is payable at the following annual rates: 0.075% of the first $500 million, 0.065% of the next $500 million and 0.055% of assets in excess of $1 billion. In addition, each of the share classes is charged an administration fee based on the following percentage of average daily net assets of each respective class: 0.025% of the first $500 million, 0.015% of the next $500 million and 0.005% of assets in excess of $1 billion. In addition, PFPC and BlackRock may have, at their discretion, voluntarily waived all or any portion of their administration fees for the Portfolio.

Pursuant to the Fund’s Plan, the Fund may pay BlackRock Distributors, Inc. (the “BDI”), a direct subsidiary of PFPC, and/or BlackRock or any other affiliate of PNC and Merrill Lynch, fees for distribution and sales support services. Currently, only Investor B, B1, B2, C, C1, C2 and R Shares bear the expense of distribution fees under the Plan. In addition, the Fund may pay brokers, dealers, financial institutions and industry professionals (including PNC, Merrill Lynch and their affiliates) (“service organizations”) fees for the provision of personal services to shareholders. BlackRock may receive some of the service fees paid by the Fund in return for providing services to shareholders. Currently, only Service, Hilliard Lyons, Investor A, A1, B, B1, B2, C, C1, C2 and R Shares bear the expense of service fees under the Plan.

The following table provides a summary of the Portfolio’s respective class-specific fee arrangements as provided under the Plan. Fees are expressed as a percentage of average daily net asset values of the respective classes.

Class Specific Fee Arrangement
Share Classes
BlackRock		Institutional		Service				Investor A				Investor B				Investor C
Contractual Fees	Actual Fees	Contractual Fees	Actual Fees	Contractual Fees (1)		Actual Fees (3)		Contractual Fees (1)		Actual Fees (3)		Contractual Fees (2)		Actual Fees (3)		Contractual Fees (2)		Actual Fees (3)
N/A	N/A	None	None	0.15	%	0.15	%	0.15	%	0.15	%	0.90	%	0.90	%	0.90	%	0.90	%

(1) — the maximum annual contractual fees are comprised of a 0.15% service fee.

(2) — the maximum annual contractual fees are comprised of a 0.75% distribution fee and a 0.15% service fee.

(3) — the actual fees are for the six months ended March 31, 2007.

For the six months ended March 31, 2007, the Fund paid to affiliates the following fees in return for distribution and sales support services:

	MERRILL LYNCH		HILLIARD LYONS		BLACKROCK
Index Equity	$	499,846	$	31,148	$	3,535

BlackRock maintains a call center, which is responsible for providing certain shareholder services to the Fund, such as responding to shareholder inquiries and processing transactions based upon instructions from shareholders with respect to the subscription and redemption of Portfolio shares. During the six months ended March 31, 2007, the following amounts have been accrued by the Portfolio to reimburse BlackRock for costs incurred running the call center, which are a component of the transfer agent fees in the accompanying Statement of Operations.

SHARE CLASSES
INSTITUTIONAL	INVESTOR A		INVESTOR B		INVESTOR C		TOTAL
$8,611	$	24,897	$	14,700	$	15,000	$	49,319

13

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

For the six months ended March 31, 2007, the following shows the various types of class-specific expenses borne directly by each class of the Portfolio and any associated waivers of those expenses.

SHARE CLASSES	ADMINISTRATION FEES		ADMINISTRATION FEES WAIVED		TRANSFER AGENT FEES		TRANSFER AGENT REIMBURSEMENT FEES		SHAREHOLDER SERVICE FEES		DISTRIBUTION FEES
Institutional	$	61,332	$	49,080	$	18,289	$	—	$	—	$	—
Service		5,196		222		7,049		—		31,172		—
Investor A		37,554		—		111,101		—		225,306		—
Investor B		10,523		8,514		69,940		837		63,110		315,696
Investor C		22,190		—		88,319		—		133,051		665,256
Total	$	136,795	$	57,816	$	294,698	$	837	$	452,639	$	980,952

BlackRock and the Fund contractually agreed to waive or reimburse fees or expenses until February 1, 2008, in order to limit expenses. These expense limits apply to the aggregate expenses incurred on a share class (excluding: interest, taxes, brokerage commissions, expenses incurred as a result of investments in other funds and other expenses attributable to, and incurred as a result of, a Portfolio’s investments and other extraordinary expenses). This agreement is reviewed annually by the Fund’s Board. The current expense limitation as a percentage of net assets are as follows:

SHARE CLASSES
BLACKROCK	INSTITUTIONAL		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C
N/A	0.18	%	0.615	%	0.785	%	1.24	%	1.24	%

If within two years following a waiver or reimbursement of the operating expenses of a share class that previously received a waiver or reimbursement from BlackRock are less than the expense limit for that share class, the share class is required to repay BlackRock up to the amount of fees waived or expenses reimbursed under the agreement if: (1) the Portfolio of which the share class is a part has more than $50 million in assets, (2) BlackRock or an affiliate continues to be the Portfolio’s investment advisor or administrator and (3) the Board of the Fund has approved the payments to BlackRock at the previous quarterly meeting.

At March 31, 2007, the amounts subject to possible future reimbursement under the expense limitation agreement are as follows:

EXPIRING JANUARY 31, 2008		EXPIRING JANUARY 31, 2009		EXPIRING JANUARY 31, 2010		TOTAL WAIVERS SUBJECT TO REIMBURSEMENT
$	1,120,125	$	173,540	$	10,711	$	1,304,376

The waivers previously recorded by the Portfolio, which were subject to recoupment by BlackRock, expired on January 31, 2007 in the amount of $1,333,005.

For the six months ended March 31, 2007, BDI earned underwriting discounts and direct commissions, and Merrill Lynch, Pierce, Fenner & Smith, Inc. (“MLPF&S”) earned dealer concessions on sales of Portfolio’s Investor A Class in the amount of $4,153.

For the six months ended March 31, 2007, affiliates received $19,641 in contingent deferred sales charges relating to transactions in Investor B Class and $21 in contingent deferred sales charges relating to transactions in Investor C Class.

The Portfolio may earn income on positive cash balances in demand deposit accounts that are maintained by PFPC on behalf of the Portfolio. The Portfolio earned income in the amount of $1,616 for the six months ended March 31, 2007. The Portfolio may also receive earnings credits related to cash balances with PFPC which are shown on the Statement of Operations as “fees paid indirectly.”

14

BLACKROCK FUNDS

(D) Capital Shares

Transactions in capital shares for each period were as follows:

	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	869,945		$	23,379,568		955,902		$	23,257,157
Service Class	179,666			4,796,446		845,168			20,432,914
Investor A Class	1,274,930			34,446,991		2,091,839			50,941,404
Investor B Class	17,885			461,298		84,414			1,998,703
Investor C Class	3,118			82,439		29,731			714,172
Shares issued in reinvestment of dividends:
Institutional Class	20,927			569,213		165,070			4,064,328
Service Class	3,817			103,140		43,124			1,052,554
Investor A Class	30,089			812,388		174,089			4,268,174
Investor B Class	1,406			37,363		21,081			506,521
Investor C Class	2,708			71,850		26,704			642,657
Shares redeemed:
Institutional Class	(1,922,241	)		(52,333,945	)	(7,830,961	)		(192,573,329	)
Service Class	(719,077	)		(19,575,339	)	(2,058,224	)		(49,352,600	)
Investor A Class	(1,492,682	)		(40,217,375	)	(3,635,017	)		(88,267,151	)
Investor B Class	(981,519	)		(26,004,252	)	(2,386,436	)		(56,934,677	)
Investor C Class	(881,205	)		(23,364,692	)	(2,813,536	)		(66,955,549	)
Net decrease	(3,592,233	)	$	(96,734,907	)	(14,287,052	)	$	(346,204,722	)

On March 31, 2007, four shareholders held approximately 63% of the Portfolio. Some of the shareholders are comprised of omnibus accounts, which are held on behalf of several individual shareholders.

(E) Short-Term Borrowings

Effective November 29, 2006, the Portfolios, along with certain other funds managed by the Advisor and its affiliates, is a party to a $500,000,000 credit agreement dated November 22, 2006, with a group of lenders. The Portfolios may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Portfolios may borrow up to the maximum amount allowable under the Portfolios’ current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The credit agreement is for one year. The Portfolios pay a commitment fee of 0.06% per annum based on the Portfolios’ pro rata share of the unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each Portfolio’s election, the federal funds rate plus .35% or a base rate as defined in the credit agreement. The Portfolios did not borrow under the credit agreement during the six months ended March 31, 2007.

(F) Federal Tax Information

No provision is made for federal taxes as it is the Portfolio’s intention to continue to qualify for and elect the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, and to make the requisite distributions to its shareholders which will be sufficient to relieve it from federal income and excise taxes.

Dividends from net investment income and distributions from net capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined under accounting principles generally accepted in the United States.

15

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)

The tax character of distribution paid during the year ended September 30, 2006 were as follows:

	ORDINARY INCOME		TOTAL DISTRIBUTIONS
11/30/06	$	17,551,033	$	17,551,033

As of November 30, 2006, the Portfolio had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates:

EXPIRING NOVEMBER 30
2010	2011		2013		TOTAL
$78,150,703	$	117,169,455	$	429,781	$	195,749,939

In July 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes”. FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Portfolio’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be booked as a tax expense in the current year and recognized as: a liability for unrecognized tax benefits; a reduction of an income tax refund receivable; a reduction of deferred tax asset; an increase in deferred tax liability; or a combination thereof. Adoption of FIN 48 is required for the last net asset value calculation in the first required financial statement reporting period for fiscal years beginning after December 15, 2006. At this time, management is evaluating the implications of FIN 48 and its impact on the financial statements has not yet been determined.

(G) Subsequent Event

Subject to Board of Trustees approval the BlackRock Index Equity Portfolio will withdraw its investment in The U.S. Large Company Series of The DFA Investment Trust Company and contribute its assets to the Master S&P 500 Index Series (the “Master Fund”), a series of Quantitative Master Series Trust on or about June 1, 2007. This event will have no tax implications as the Index Equity Portfolio will contribute all of its assets to the Master Fund in a tax free exchange.

16

THE DFA INVESTMENT TRUST COMPANY

THE U.S. LARGE COMPANY SERIES

TABLE OF CONTENTS THE DFA INVESTMENT TRUST COMPANY

THE U.S. LARGE COMPANY SERIES

	Page
Definitions of Abbreviations and Footnotes	19
Schedule of Investments — March 31, 2007 (Unaudited)	20
Statement of Assets and Liabilities — March 31, 2007 (Unaudited)	25
Financial Statements for the year ended November 30, 2006 (Audited):
Performance Chart	26
Disclosure of Fund Expenses (Unaudited)	27
Disclosure of Portfolio Holdings (Unaudited)	28
Summary Schedule of Portfolio Holdings	29
Statement of Assets and Liabilities	31
Statement of Operations	32
Statements of Changes in Net Assets	33
Financial Highlights	34
Notes to Financial Statements	35
Report of Independent Registered Public Accounting Firm	38
Fund Management	39
Voting Proxies on Fund Portfolio Securities	46

This report is submitted for the information of the Fund’s shareholders. It is not authorized for

distribution to prospective investors unless preceded or accompanied by an effective Prospectus.

DEFINITIONS OF ABBREVIATIONS AND FOOTNOTES THE DFA INVESTMENT TRUST COMPANY

Schedule of Investments/Summary Schedule of Portfolio Holdings

Investment Abbreviations

FNMA Federal National Mortgage Association

FHLMC Federal Home Loan Mortgage Corporation

FHLB Federal Home Loan Bank

Investment Footnotes

† See Note B to Financial Statements.

* Non-Income Producing Securities.

** Calculated as a percentage of total net assets. Percentages shown parenthetically next to the category headings have been calculated as a percentage of total investments. “Other Securities” are those securities that are not among the top 50 holdings of the Fund or do not represent more than 1.0% of the net assets of the Fund. Some of the individual securities within this category may include Total or Partial Securities on Loan and/or Non-Income Producing Securities.

# Total or Partial Securities on Loan.

@ Security purchased with cash proceeds from Securities on Loan.

(r) The adjustable rate shown is effective as of November 30, 2006.

(y) The rate shown is the effective yield.

All Statements and Schedules

— Amounts designated as — are either zero or rounded to zero.

SEC Securities and Exchange Commission.

19

SCHEDULE OF INVESTMENTS THE DFA INVESTMENT TRUST COMPANY

The U.S. Large Company Series

	March 31, 2007
	(Unaudited)
	Shares	Value(A)
COMMON STOCKS — (85.8%)
Consumer Discretionary — (9.0%)
Amazon.com, Inc.	123,642	$	4,919,715	*#
Apollo Group, Inc. Class A	55,635		2,442,377	*
AutoNation, Inc.	59,844		1,271,087	*
Autozone, Inc.	19,748		2,530,509	*
Bed Bath and Beyond, Inc.	112,657		4,525,432	*#
Best Buy Co., Inc.	160,936		7,840,802
Big Lots, Inc.	43,529		1,361,587	*#
Black & Decker Corp.	26,079		2,128,568
Brunswick Corp.	36,069		1,148,798
Carnival Corp.	175,879		8,241,690	#
CBS Corp. Class B	293,411		8,975,443
Centex Corp.	47,484		1,983,882
Circuit City Stores, Inc.	56,585		1,048,520	#
Clear Channel Communications, Inc.	197,262		6,912,061
Coach, Inc.	147,162		7,365,458	*
Comcast Corp. Class A	1,236,417		32,085,021	*
Darden Restaurants, Inc.	57,720		2,377,487
Dillards, Inc. Class A	24,201		792,099	#
Disney (Walt) Co.	814,354		28,038,208
Dollar General Corp.	124,049		2,623,636
Dow Jones & Co., Inc.	25,974		895,324
Eastman Kodak Co.	114,301		2,578,631	#
Family Dollar Stores, Inc.	60,282		1,785,553
Federated Department Stores, Inc.	208,780		9,405,539
Ford Motor Co.	752,380		5,936,278	#
Fortune Brands, Inc.	60,610		4,777,280
Gannett Co., Inc.	93,354		5,254,897
Gap, Inc.	209,471		3,604,996
General Motors Corp.	224,859		6,889,680	#
Genuine Parts Co.	67,778		3,321,122
Goodyear Tire & Rubber Co.	71,660		2,235,075	*
H&R Block, Inc.	128,132		2,695,897	#
Harley-Davidson, Inc.	102,390		6,015,413	#
Harman International Industries, Inc.	26,040		2,501,923
Harrah’s Entertainment, Inc.	74,103		6,257,998
Hasbro, Inc.	63,949		1,830,220
Hilton Hotels Corp.	154,629		5,560,459	#
Home Depot, Inc.	811,350		29,808,999	#
Horton (D.R.), Inc.	108,541		2,387,902	#
IAC/InterActiveCorp	86,329		3,255,467	*
International Game Technology	134,480		5,430,302
Interpublic Group of Companies, Inc.	186,336		2,293,796	*
Johnson Controls, Inc.	78,116		7,391,336
Jones Apparel Group, Inc.	43,130		1,325,385
KB Home	30,556		1,303,825	#
Kohl’s Corp.	130,007		9,959,836	*
Leggett & Platt, Inc.	70,521		1,598,711	#
Lennar Corp. Class A	54,833		2,314,501
Limited Brands, Inc.	135,974		3,543,482
Liz Claiborne, Inc.	41,126		1,762,249
Lowe’s Companies, Inc.	605,385		19,063,574	#
Marriott International, Inc. Class A	131,096		6,418,460	#
Mattel, Inc.	156,306		4,309,356
McDonald’s Corp.	478,444		21,553,902
McGraw-Hill Companies, Inc.	141,105		8,872,682
Meredith Corp.	15,475		888,110
Newell Rubbermaid, Inc.	110,360		3,431,092
News Corp. Class A	932,744		21,565,041
NIKE, Inc. Class B	75,135		7,983,845
Nordstrom, Inc.	90,946		4,814,681	#
Office Depot, Inc.	109,917		3,862,483	*
OfficeMax, Inc.	29,808		1,572,074
Omnicom Group, Inc.	66,430		6,801,103
Penney (J.C.) Co., Inc.	89,441		7,348,473
Polo Ralph Lauren Corp.	24,361		2,147,422
Pulte Homes, Inc.	84,476		2,235,235	#
RadioShack Corp.	54,146		1,463,566
Scripps (E.W.) Co.	33,183		1,482,616
Sears Holdings Corp.	33,039		5,952,306	*#
Sherwin-Williams Co.	44,365		2,929,865
Snap-On, Inc.	23,415		1,126,262
Staples, Inc.	285,043		7,365,511
Starbucks Corp.	298,543		9,362,309	*#
Starwood Hotels & Resorts Worldwide, Inc.	85,413		5,539,033
Target Corp.	341,451		20,234,386	#
The DIRECTV Group, Inc.	307,960		7,104,637	*#
The New York Times Co. Class A	57,217		1,345,172	#
The Stanley Works	32,922		1,822,562	#
The TJX Companies, Inc.	180,925		4,877,738
Tiffany & Co.	53,807		2,447,142	#
Time Warner, Inc.	1,516,885		29,912,972
Tribune Co.	70,663		2,268,989	#
V.F. Corp.	35,798		2,957,631
Viacom, Inc. Class B	275,168		11,312,156	*
Wendy’s International, Inc.	38,054		1,191,090
Whirlpool Corp.	31,286		2,656,494
Wyndham Worldwide Corp.	75,095		2,564,494	*
Yum! Brands, Inc.	104,804		6,053,479
Total Consumer Discretionary			527,372,399
Consumer Staples — (8.2%)
Altria Group, Inc.	834,297		73,259,620
Anheuser-Busch Companies, Inc.	303,286		15,303,812
Archer-Daniels-Midland Co.	259,493		9,523,393
Avon Products, Inc.	175,352		6,533,616
Brown-Forman Corp. Class B	31,329		2,053,929
Campbell Soup Co.	86,824		3,381,795
Clorox Co.	60,131		3,829,743
Coca-Cola Co.	800,788		38,437,824
Coca-Cola Enterprises, Inc.	110,645		2,240,561
Colgate-Palmolive Co.	204,108		13,632,373
ConAgra, Inc.	200,829		5,002,650
Constellation Brands, Inc. Class A	83,862		1,776,197	*#
Costco Wholesale Corp.	179,818		9,681,401
CVS Corp.	612,331		20,905,003
Dean Foods Co.	51,263		2,396,033	*
Estee Lauder Companies, Inc.	46,226		2,258,140
General Mills, Inc.	137,214		7,988,599
Heinz (H.J.) Co.	129,144		6,085,265
Kellogg Co.	99,674		5,126,234
Kimberly-Clark Corp.	181,462		12,428,332
McCormick & Co., Inc.	51,756		1,993,641
Molson Coors Brewing Co.	18,659		1,765,515
Pepsi Bottling Group, Inc.	52,264		1,666,699
PepsiCo, Inc.	651,095		41,383,598
Procter & Gamble Co.	1,254,426		79,229,546
Reynolds American, Inc.	68,165		4,254,178	#
Safeway, Inc.	175,121		6,416,433	#
Sara Lee Corp.	291,592		4,933,737
Supervalu, Inc.	82,615		3,227,768
Sysco Corp.	245,283		8,297,924
The Hershey Co.	68,803		3,760,772	#
The Kroger Co.	281,451		7,950,991
Tyson Foods, Inc. Class A	100,288		1,946,590
UST, Inc.	63,855		3,702,313	#

20

SCHEDULE OF INVESTMENTS THE DFA INVESTMENT TRUST COMPANY

The U.S. Large Company Series (Continued)

	March 31, 2007
	(Unaudited)
	Shares	Value(A)
Walgreen Co.	397,880	$	18,258,713	#
Wal-Mart Stores, Inc.	977,632		45,899,822
Whole Foods Market, Inc.	55,887		2,506,532	#
Wrigley (Wm.) Jr. Co.	86,725		4,416,904	#
Total Consumer Staples			483,456,196
Energy — (8.7%)
Anadarko Petroleum Corp.	184,105		7,912,833
Apache Corp.	131,572		9,302,140
Baker Hughes, Inc.	127,312		8,419,143	#
BJ Services Co.	116,575		3,252,443	#
Chesapeake Energy Corp.	162,781		5,026,677	#
Chevron Corp.	857,828		63,444,959	#
ConocoPhillips	653,614		44,674,517
CONSOL Energy, Inc.	72,561		2,839,312	#
Devon Energy Corp.	176,696		12,230,897
El Paso Corp.	277,623		4,017,205
ENSCO International, Inc.	59,984		3,263,130	#
EOG Resources, Inc.	97,001		6,920,051	#
Exxon Mobil Corp.	2,263,417		170,774,813
Halliburton Co.	397,222		12,607,826
Hess Corp.	107,409		5,957,977
Kinder Morgan, Inc.	42,677		4,542,967
Marathon Oil Corp.	137,498		13,588,927
Murphy Oil Corp.	74,595		3,983,373
Nabors Industries, Ltd.	110,711		3,284,795	*#
National-Oilwell, Inc.	69,891		5,436,821	*#
Noble Corp.	53,471		4,207,098
Occidental Petroleum Corp.	333,187		16,429,451	#
Peabody Energy Corp.	105,226		4,234,294	#
Rowan Companies, Inc.	43,929		1,426,375	#
Schlumberger, Ltd.	468,531		32,375,492	#
Smith International, Inc.	79,264		3,808,635	#
Spectra Energy Corp.	249,607		6,557,176
Sunoco, Inc.	48,238		3,397,885	#
The Williams Companies, Inc.	237,680		6,764,373
Transocean, Inc.	116,469		9,515,517	*
Valero Energy Corp.	240,166		15,488,305
Weatherford International, Ltd.	134,435		6,063,019	*
XTO Energy, Inc.	146,281		8,017,662
Total Energy			509,766,088
Financials — (17.5%)
Ace, Ltd.	129,890		7,411,523
AFLAC, Inc.	195,545		9,202,348
Allstate Corp.	245,980		14,773,559
AMBAC Financial Group, Inc.	40,692		3,515,382
American Express Co.	474,016		26,734,502
American International Group, Inc.	1,034,262		69,523,092
Ameriprise Financial, Inc.	95,096		5,433,785
AON Corp.	118,619		4,502,777	#
Bank of America Corp.	1,777,974		90,712,234	#
Bank of New York Co., Inc.	300,534		12,186,654
BB&T Corp.	215,467		8,838,456
Bear Stearns Companies, Inc.	47,615		7,158,915
Capital One Financial Corp.	163,232		12,317,487
CB Richard Ellis Group, Inc.	74,259		2,538,173	*
Chicago Mercantile Exchange Holdings, Inc.	13,854		7,376,701	#
Chubb Corp.	162,435		8,393,016
Cincinnati Financial Corp.	68,711		2,913,346
CIT Group, Inc.	76,925		4,070,871
Citigroup, Inc.	1,948,996		100,061,455
Comerica, Inc.	62,675		3,705,346
Commerce Bancorp, Inc.	74,555		2,488,646	#
Compass Bancshares, Inc.	51,815		3,564,872
Countrywide Financial Corp.	234,482		7,887,974
E*TRADE Financial Corp.	169,819		3,603,559	*
Federal Home Loan Mortgage Corporation	275,503		16,389,673	#
Federal National Mortgage Association	384,791		21,001,893	#
Federated Investors, Inc.	35,406		1,300,108
Fifth Third Bancorp	221,139		8,555,868	#
First Horizon National Corp.	49,825		2,069,232	#
Franklin Resources, Inc.	66,555		8,041,841
Genworth Financial, Inc.	175,235		6,122,711	#
Hartford Financial Services Group, Inc.	127,303		12,167,621
Hudson City Bancorp, Inc.	196,753		2,691,581	#
Huntington Bancshares, Inc.	93,625		2,045,706
Janus Capital Group, Inc.	75,428		1,577,199
JPMorgan Chase & Co.	1,380,834		66,804,749
KeyCorp	157,388		5,897,328
Legg Mason, Inc.	52,281		4,925,393
Lehman Brothers Holdings, Inc.	209,146		14,654,860
Lincoln National Corp.	110,045		7,459,951
Loews Corp.	179,324		8,146,689
M&T Bank Corp.	30,541		3,537,564
Marsh & McLennan Companies, Inc.	219,756		6,436,653
Marshall & Ilsley Corp.	101,661		4,707,921	#
MBIA, Inc.	53,566		3,508,037
Mellon Financial Corp.	165,370		7,134,062
Merrill Lynch & Co., Inc.	351,568		28,712,559
MetLife, Inc.	299,224		18,895,996
MGIC Investment Corp.	33,012		1,945,067	#
Moody’s Corp.	93,003		5,771,766
Morgan Stanley	423,219		33,332,728
National City Corp.	235,541		8,773,902	#
Northern Trust Corp.	74,970		4,508,696
PNC Financial Services Group	137,617		9,904,296
Principal Financial Group, Inc.	106,495		6,375,856
Progressive Corp.	295,968		6,458,022
Prudential Financial, Inc.	186,451		16,829,067
Realogy Corp.	86,516		2,561,739	*
Regions Financial Corp.	290,904		10,289,274
SAFECO Corp.	41,968		2,787,934
Schwab (Charles) Corp.	408,313		7,468,045
SLM Corp.	163,186		6,674,307
Sovereign Bancorp, Inc.	143,558		3,652,116
State Street Corp.	132,720		8,593,620	#
SunTrust Banks, Inc.	141,236		11,728,237
Synovus Financial Corp.	129,843		4,199,123
T. Rowe Price Group, Inc.	105,472		4,977,224
The Goldman Sachs Group, Inc.	163,536		33,791,444
The Travelers Companies, Inc.	268,584		13,904,594
Torchmark Corp.	38,954		2,554,993
U.S. Bancorp	704,147		24,624,021
UnumProvident Corp.	136,223		3,137,216
Wachovia Corp.	757,630		41,707,532
Washington Mutual, Inc.	353,436		14,271,746	#
Wells Fargo & Co.	1,343,174		46,245,481	#
XL Capital, Ltd.	71,977		5,035,511
Zions Bancorporation	43,729		3,695,975	#
Total Financials			1,027,499,400
Health Care — (10.2%)
Abbott Laboratories	613,451		34,230,566
Aetna, Inc.	205,295		8,989,868
Allergan, Inc.	61,125		6,773,873
AmerisourceBergen Corp.	75,321		3,973,183
Amgen, Inc.	464,124		25,935,249	*

21

SCHEDULE OF INVESTMENTS THE DFA INVESTMENT TRUST COMPANY

The U.S. Large Company Series (Continued)

	March 31, 2007
	(Unaudited)
	Shares	Value(A)
Applera Corp. - Applied Biosystems Group	72,971	$	2,157,752
Bard (C.R.), Inc.	41,055		3,264,283
Barr Laboratories, Inc.	42,398		1,965,147	*#
Bausch & Lomb, Inc.	21,602		1,105,158
Baxter International, Inc.	258,333		13,606,399	#
Becton Dickinson & Co.	97,237		7,476,553
Biogen Idec, Inc.	136,136		6,041,716	*
Biomet, Inc.	97,367		4,137,124
Boston Scientific Corp.	470,808		6,845,548	*
Bristol-Myers Squibb Co.	802,847		22,287,033
Cardinal Health, Inc.	159,137		11,609,044	#
Celgene Corp.	150,096		7,874,036	*#
Cigna Corp.	38,750		5,528,075
Coventry Health Care, Inc.	63,399		3,553,514	*#
Eli Lilly & Co.	392,227		21,066,512	#
Express Scripts, Inc.	53,922		4,352,584	*
Forest Laboratories, Inc.	126,365		6,500,216	*
Genzyme Corp.	104,736		6,286,255	*#
Gilead Sciences, Inc.	184,727		14,131,616	*
Hospira, Inc.	61,999		2,535,759	*
Humana, Inc.	66,280		3,845,566	*
IMS Health, Inc.	77,580		2,301,023
Johnson & Johnson	1,150,546		69,331,902	#
King Pharmaceuticals, Inc.	96,684		1,901,774	*
Laboratory Corp. of America Holdings	48,660		3,534,176	*#
Manor Care, Inc.	28,971		1,574,864
McKesson Corp.	117,435		6,874,645
Medco Health Solutions, Inc.	114,515		8,305,773	*
Medimmune, Inc.	94,516		3,439,437	*#
Medtronic, Inc.	457,805		22,459,913
Merck & Co., Inc.	861,288		38,043,091	#
Millipore Corp.	21,440		1,553,757	*#
Mylan Laboratories, Inc.	97,304		2,057,007
Patterson Companies, Inc.	55,313		1,963,058	*#
PerkinElmer, Inc.	48,433		1,173,047
Pfizer, Inc.	2,817,412		71,167,827
Quest Diagnostics, Inc.	63,119		3,147,745	#
Schering-Plough Corp.	591,454		15,087,992
St. Jude Medical, Inc.	136,853		5,147,041	*
Stryker Corp.	118,537		7,861,374
Tenet Healthcare Corp.	187,487		1,205,541	*
Thermo Fisher Scientific, Inc.	166,983		7,806,455	*
UnitedHealth Group, Inc.	538,411		28,519,631	#
Varian Medical Systems, Inc.	51,064		2,435,242	*#
Waters Corp.	40,364		2,341,112	*
Watson Pharmaceuticals, Inc.	40,749		1,076,996	*
WellPoint, Inc.	243,471		19,745,498	*
Wyeth	535,171		26,774,605
Zimmer Holdings, Inc.	94,284		8,052,796	*
Total Health Care			600,955,951
Industrials — (9.4%)
3M Co.	291,757		22,298,988
Allied Waste Industries, Inc.	101,373		1,276,286	*
American Standard Companies, Inc.	69,454		3,682,451
Avery Dennison Corp.	36,428		2,340,863
Boeing Co.	313,773		27,897,557
Burlington Northern Santa Fe Corp.	142,704		11,477,683
C. H. Robinson Worldwide, Inc.	68,814		3,285,869
Caterpillar, Inc.	256,741		17,209,349
Cintas Corp.	53,968		1,948,245
Cooper Industries, Ltd.	72,266		3,251,247
CSX Corp.	173,647		6,954,562
Cummins, Inc.	20,712		2,997,441
Danaher Corp.	94,619		6,760,528	#
Deere & Co.	90,186		9,797,807	#
Donnelley (R.R.) & Sons Co.	86,824		3,176,890	#
Dover Corp.	81,380		3,972,158	#
Eaton Corp.	58,121		4,856,591
Emerson Electric Co.	317,203		13,668,277
Equifax, Inc.	49,637		1,809,269
FedEx Corp.	122,095		13,116,666
Fluor Corp.	34,959		3,136,521
General Dynamics Corp.	161,297		12,323,091
General Electric Co.	4,088,071		144,554,191
Goodrich (B.F.) Co.	49,842		2,565,866
Honeywell International, Inc.	318,012		14,647,633
Illinois Tool Works, Inc.	164,398		8,482,937	#
Ingersoll-Rand Co., Ltd. Class A	122,366		5,307,013
ITT Industries, Inc.	72,272		4,359,447	#
L-3 Communications Holdings, Inc.	49,502		4,329,940	#
Lockheed Martin Corp.	141,084		13,687,970	#
Masco Corp.	155,681		4,265,659	#
Monster Worldwide, Inc.	51,079		2,419,612	*
Norfolk Southern Corp.	157,822		7,985,793
Northrop Grumman Corp.	139,247		10,334,912
Paccar, Inc.	98,697		7,244,360	#
Pall Corp.	48,899		1,858,162
Parker Hannifin Corp.	46,024		3,972,331
Pitney Bowes, Inc.	87,578		3,975,165
Raytheon Co.	177,384		9,305,565
Robert Half International, Inc.	66,777		2,471,417	#
Rockwell Automation, Inc.	65,861		3,943,098	#
Rockwell Collins, Inc.	66,880		4,476,278
Ryder System, Inc.	24,138		1,190,969
Southwest Airlines Co.	313,442		4,607,597
Terex Corp.	40,788		2,926,947	*
Textron, Inc.	49,806		4,472,579
Tyco International, Ltd.	786,049		24,799,846
Union Pacific Corp.	107,637		10,930,537
United Parcel Service, Inc.	423,971		29,720,367	#
United Technologies Corp.	395,875		25,731,875
W.W. Grainger, Inc.	28,469		2,198,946	#
Waste Management, Inc.	211,925		7,292,339	#
Total Industrials			551,297,690
Information Technology — (12.8%)
ADC Telecommunications, Inc.	46,620		780,419	*
Adobe Systems, Inc.	233,941		9,755,340	*
Advanced Micro Devices, Inc.	220,612		2,881,193	*
Affiliated Computer Services, Inc. Class A	39,323		2,315,338	*
Agilent Technologies, Inc.	160,473		5,406,335	*
Altera Corp.	141,742		2,833,423	*#
Analog Devices, Inc.	132,670		4,575,788
Apple Computer, Inc.	342,639		31,834,590	*
Applied Materials, Inc.	555,329		10,173,627	#
Autodesk, Inc.	92,112		3,463,411	*
Automatic Data Processing, Inc.	218,767		10,588,323
Avaya, Inc.	180,224		2,128,445	*
BMC Software, Inc.	81,086		2,496,638	*
Broadcom Corp.	187,460		6,011,842	*#
CA, Inc.	163,528		4,237,010
Ciena Corp.	33,837		945,744	*#
Cisco Sytems, Inc.	2,401,223		61,303,223	*#
Citrix Systems, Inc.	71,791		2,299,466	*#
Cognizant Technology Solutions Corp.	56,724		5,007,027	*
Computer Sciences Corp.	68,862		3,589,776	*
Compuware Corp.	128,902		1,223,280	*

22

SCHEDULE OF INVESTMENTS THE DFA INVESTMENT TRUST COMPANY

The U.S. Large Company Series (Continued)

	March 31, 2007
	(Unaudited)
	Shares	Value(A)
Convergys Corp.	54,328	$	1,380,474	*
Corning, Inc.	624,035		14,190,556	*
Dell, Inc.	903,083		20,960,556	*#
eBay, Inc.	451,716		14,974,385	*#
Electronic Arts, Inc.	123,257		6,207,223	*
Electronic Data Systems Corp.	204,514		5,660,948
EMC Corp.	838,086		11,607,491	*
Fidelity National Information Services, Inc.	64,714		2,941,898
First Data Corp.	299,352		8,052,569
Fiserv, Inc.	67,817		3,598,370	*
Google, Inc.	86,534		39,646,417	*#
Hewlett-Packard Co.	1,064,024		42,709,923
Intel Corp.	2,292,678		43,858,930
International Business Machines Corp.	598,524		56,416,872
Intuit, Inc.	136,188		3,726,104	*
Jabil Circuit, Inc.	73,423		1,571,986
JDS Uniphase Corp.	83,958		1,278,680	*#
Juniper Networks, Inc.	226,299		4,453,564	*#
KLA-Tencor Corp.	79,401		4,233,661	#
Lexmark International, Inc.	38,168		2,231,301	*#
Linear Technology Corp.	118,987		3,758,799	#
LSI Logic Corp.	160,775		1,678,491	*#
Maxim Integrated Products, Inc.	127,490		3,748,206
Micron Technology, Inc.	300,070		3,624,846	*
Microsoft Corp.	3,425,793		95,476,851
Molex, Inc.	56,363		1,589,437
Motorola, Inc.	950,309		16,791,960
National Semiconductor Corp.	112,754		2,721,882
NCR Corp.	71,161		3,399,361	*
Network Appliance, Inc.	147,514		5,387,211	*#
Novell, Inc.	134,774		973,068	*
Novellus Systems, Inc.	49,992		1,600,744	*#
Nvidia Corp.	141,347		4,067,967	*
Oracle Corp.	1,586,343		28,760,399	*#
Paychex, Inc.	134,843		5,106,504	#
PMC-Sierra, Inc.	84,436		591,896	*#
QLogic Corp.	63,232		1,074,944	*
Qualcomm, Inc.	658,550		28,093,743	#
Sabre Holdings Corp.	53,192		1,742,038
Sandisk Corp.	90,388		3,958,994	*
Sanmina-SCI Corp.	210,725		762,825	*
Solectron Corp.	359,402		1,132,116	*
Sun Microsystems, Inc.	1,431,483		8,603,213	*
Symantec Corp.	367,566		6,358,892	*#
Tektronix, Inc.	32,486		914,806
Tellabs, Inc.	173,857		1,721,184	*
Teradyne, Inc.	75,440		1,247,778	*#
Texas Instruments, Inc.	573,836		17,272,464	#
Unisys Corp.	137,256		1,157,068	*
VeriSign, Inc.	97,455		2,448,070	*
Western Union Co.	306,894		6,736,323
Xerox Corp.	377,265		6,372,006	*
Xilinx, Inc.	131,932		3,394,610	#
Yahoo!, Inc.	485,364		15,187,040	*#
Total Information Technology			751,007,882
Materials — (2.6%)
Air Products & Chemicals, Inc.	86,049		6,358,161
Alcoa, Inc.	345,685		11,718,722
Allegheny Technologies, Inc.	40,543		4,325,533
Ashland, Inc.	22,162		1,453,827
Ball Corp.	40,982		1,879,025
Bemis Co., Inc.	41,580		1,388,356
Dow Chemical Co.	381,318		17,487,243
DuPont (E.I.) de Nemours & Co., Inc.	367,387		18,159,939	#
Eastman Chemical Co.	33,250		2,105,723
Ecolab, Inc.	70,744		3,041,992
Freeport-McMoRan Copper & Gold, Inc. Class B	132,714		8,784,340
Hercules, Inc.	46,282		904,350	*
International Flavors & Fragrances, Inc.	31,049		1,466,134
International Paper Co.	179,926		6,549,306
MeadWestavco Corp.	72,538		2,237,072
Monsanto Co.	216,071		11,875,262
Newmont Mining Corp.	179,276		7,527,799
Nucor Corp.	119,715		7,797,038	#
Pactiv Corp.	52,827		1,782,383	*
PPG Industries, Inc.	65,189		4,583,439
Praxair, Inc.	127,363		8,018,774
Rohm & Haas Co.	56,583		2,926,473
Sealed Air Corp.	64,142		2,026,887
Sigma-Aldrich Corp.	52,503		2,179,925
Temple-Inland, Inc.	41,803		2,497,311
United States Steel Corp.	47,105		4,671,403	#
Vulcan Materials Co.	37,771		4,399,566	#
Weyerhaeuser Co.	83,953		6,274,647
Total Materials			154,420,630
Real Estate Investment Trusts — (1.0%)
Apartment Investment & Management Co. Class A	38,791		2,237,853	#
Archstone-Smith Trust	87,612		4,755,579	#
AvalonBay Communities, Inc.	31,543		4,100,590	#
Boston Properties, Inc.	47,286		5,551,376
Equity Residential	116,886		5,637,412	#
Host Marriott Corp.	207,040		5,447,222
Kimco Realty Corp.	89,865		4,380,020
Plum Creek Timber Co., Inc.	70,488		2,778,637
ProLogis	101,867		6,614,224	#
Public Storage, Inc.	48,771		4,617,151	#
Simon Property Group, Inc.	88,092		9,800,235	#
Vornado Realty Trust	51,831		6,185,512	#
Total Real Estate Investment Trusts			62,105,811
Telecommunication Services — (3.2%)
Alltel Corp.	143,213		8,879,206
AT&T, Inc.	2,482,366		97,879,691
CenturyTel, Inc.	44,276		2,000,832	#
Citizens Communications Co.	134,668		2,013,287
Embarq Corp.	59,844		3,372,209
Qwest Communications International, Inc.	623,573		5,605,921	*#
Sprint Nextel Corp.	1,153,899		21,877,925
Verizon Communications, Inc.	1,156,832		43,867,069
Windstream Corp.	189,527		2,784,152	#
Total Telecommunication Services			188,280,292
Utilities — (3.2%)
AES Corp.	264,048		5,682,313	*
Allegheny Energy, Inc.	65,375		3,212,528	*
Ameren Corp.	82,134		4,131,340	#
American Electric Power Co., Inc.	157,698		7,687,778	#
CenterPoint Energy, Inc.	127,247		2,282,811
CMS Energy Corp.	88,755		1,579,839	#
Consolidated Edison, Inc.	102,427		5,229,923	#
Constellation Energy Group	71,829		6,245,532
Dominion Resources, Inc.	138,733		12,315,328	#
DTE Energy Co.	70,415		3,372,879	#
Duke Energy Corp.	499,768		10,140,293	#

23

SCHEDULE OF INVESTMENTS THE DFA INVESTMENT TRUST COMPANY

The U.S. Large Company Series (Continued)

	March 31, 2007
	(Unaudited)
	Shares		Value(A)
Dynegy, Inc.		150,496	$	1,393,593	*
Edison International		129,526		6,363,612	#
Entergy Corp.		78,838		8,271,683
Exelon Corp.		266,421		18,305,787
FirstEnergy Corp.		126,900		8,405,856	#
FPL Group, Inc.		161,242		9,863,173
Integrys Energy Group, Inc.		29,879		1,658,583
KeySpan Corp.		69,805		2,872,476
Nicor, Inc.		17,854		864,491	#
NiSource, Inc.		108,870		2,660,783	#
PG&E Corp.		139,467		6,732,072	#
Pinnacle West Capital Corp.		39,759		1,918,372
PPL Corp.		153,094		6,261,545
Progress Energy, Inc.		102,214		5,155,674	#
Public Service Enterprise Group, Inc.		100,489		8,344,607
Questar Corp.		34,167		3,048,038	#
Sempra Energy		104,523		6,376,948
Southern Co.		297,604		10,907,187	#
TECO Energy, Inc.		83,322		1,433,972
TXU Corp.		182,571		11,702,801
Xcel Energy, Inc.		162,102		4,002,298
Total Utilities				188,424,115
TOTAL COMMON STOCKS				5,044,586,454
	Face Amount (000)
TEMPORARY CASH INVESTMENTS — (1.2%)
Repurchase Agreement, PNC Capital Markets, Inc. 5.19%, 04/02/07 (Collateralized by $71,020,000 FNMA 5.58%, 03/25/37, valued at $69,198,324) to be repurchased at $68,202,485	$	68,173		68,173,000
SECURITIES LENDING COLLATERAL — (13.0%)
Repurchase Agreement, Deutsche Bank Securities Inc. 5.38%, 04/02/07 (Collateralized by $679,574,340 FNMA, rates ranging from 4.000% to 7.500%, maturities ranging from 06/01/16 to 01/01/37, valued at $456,256,102) to be repurchased at $443,033,288@		442,967		442,967,089
Repurchase Agreement, Morgan Stanley 5.36%, 04/02/07 (Collateralized by $162,455,000 FHLMC, rates ranging from 3.600% to 5.780%, maturities ranging from 07/13/07 to 09/02/14, valued at $162,411,607) to be repurchased at $156,395,399@		156,372		156,372,117
Federal Home Loan Bank Discount Note@
5.140%(y), 04/04/07		25,000		24,985,722
5.160%(y), 04/04/07		25,000		24,985,681
Federal National Mortgage Association Discount Note@
5.120%(y), 04/02/07		115,000		114,967,289
TOTAL SECURITIES LENDING COLLATERAL				764,277,898
TOTAL INVESTMENTS — (100.0%) (Cost $4,191,048,634)††			$	5,877,037,352

(A) Securities held by The U.S. Large Company Series, including over-the-counter, are valued at the last quoted sale price of the day. Securities held by The U.S. Large Company Series that are listed on NASDAQ are valued at the NASDAQ Official Closing Price (“NOCP”). If there is no last reported sale price or NOCP for the day, The U.S. Large Company Series values the securities at the mean of the most recent quoted bid and asked prices. Price information on listed securities is taken from the exchange where the security is primarily traded. Securities for which no market quotations are readily available (including restricted securities), or for which market quotations have become unreliable, are valued in good faith at fair value in accordance with procedures adopted by the Board of Trustees. Fair value pricing may also be used if events that have significant effect on the value of an investment (as determined in the discretion on the Investment Committee of the Advisor) occur before the net asset value is calculated. When fair value pricing is used, the prices of securities used by The U.S. Large Company Series may differ from the quoted or published prices for the same securities on their primary markets or exchanges.

†† The cost for federal income tax purposes in $4,358,783,740.

24

STATEMENT OF ASSETS AND LIABILITIES THE DFA INVESTMENT TRUST COMPANY

The U.S. Large Company Series (Amounts in thousands)

	March 31, 2007
	(Unaudited)
Assets:
Investments at Value (including $739,548 of securities on loan)	$	5,044,586
Temporary Cash Investments at Value		68,173
Collateral Received from Securities on Loan at Value		764,278
Cash		2,647
Receivables:
Dividends and Interest		6,104
Fund Shares Sold		82
Securities Lending Income		83
Prepaid Expenses and Other Assets		26
Total Assets		5,885,979
Liabilities:
Payables:
Upon Return of Securities Loaned		764,278
Fund Shares Redeemed		585
Due to Advisor		105
Futures Margin Variation		4
Accrued Expenses and Other Liabilities		289
Total Liabilities		765,261
NET ASSETS	$	5,120,718
Investments at Cost	$	3,358,638
Temporary Cash Investments at Cost	$	68,173
Collateral Received from Securities on Loan at Cost	$	764,238

25

PERFORMANCE CHART THE DFA INVESTMENT TRUST COMPANY

26

DISCLOSURE OF FUND EXPENSES (Unaudited) THE DFA INVESTMENT TRUST COMPANY

The following Expense Table is shown so that you can understand the impact of fees on your investment. All mutual funds have operating expenses. As a shareholder of the fund, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports, among others. Operating expenses, legal and audit services, which are deducted from a fund’s gross income, directly reduce the investment return of the fund. A fund’s expenses are expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs, in dollars, of investing in the fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.

The Expense Table below illustrates your fund’s costs in two ways.

Actual Fund Return

This section helps you to estimate the actual expenses after fee waivers that you paid over the period. The “Ending Account Value” shown is derived from the fund’s actual return and “Expenses Paid During Period” reflect the dollar amount that would have been paid by an investor who started with $1,000 in the fund. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.

To do so, simply divide your account value by $1,000 (for example, a $7,500 account value divided by $1,000 = 7.5), then multiply the result by the number given for your fund under the heading “Expenses Paid During Period.”

Hypothetical Example for Comparison Purposes

This section is intended to help you compare your fund’s costs with those of other mutual funds. The hypothetical “Ending Account Value” and “Expenses Paid During the Period” are derived from the fund’s actual expense ratio and an assumed 5% annual return before expenses. In this case, because the return used is not the fund’s actual return, the results do not apply to your investment. The example is useful in making comparisons because the SEC requires all mutual funds to calculate expenses based on a 5% annual return. You can assess your fund’s cost by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only and do not reflect any transactional costs, if applicable. The “Annualized Expense Ratio” represents the actual expenses for the six-month period indicated.

Six Months Ended November 30, 2006

Expense Table

The U.S. Large Company Series	Beginning Account Value 06/01/06		Ending Account Value 11/30/06		Annualized Expense Ratio		Expenses Paid During Period*
Actual Fund Return	$	1,000.00	$	1,113.30	0.05	%	$	0.26
Hypothetical 5% Annual Return	$	1,000.00	$	1,024.82	0.05	%	$	0.25

* Expenses are equal to the fund’s annualized expense ratio for the six-month period, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period (183), then divided by the number of days in the year (365) to reflect the six-month period.

27

DISCLOSURE OF PORTFOLIO HOLDINGS (Unaudited) THE DFA INVESTMENT TRUST COMPANY

The SEC has adopted the requirement that all Funds file a complete Schedule of Investments with the SEC for their first and third fiscal quarters on Form N-Q for fiscal quarters starting after July 9, 2004. For The DFA Investment Trust Company, this would be for the fiscal quarters ending August 31 and February 28 (February 29 during leap year). The Form N-Q filing must be made within 60 days of the end of the quarter. The DFA Investment Trust Company filed its most recent Form N-Q with the SEC on October 30, 2006. It is available upon request, without charge, by calling collect: (310) 395-8005 or by mailing a request to Dimensional Fund Advisors LP, 1299 Ocean Avenue, Santa Monica, California 90401, or by visiting the SEC’s website at http://www.sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (call 1-800-732-0330 for information on the operation of the Public Reference Room).

The SEC has also amended certain regulations to permit a fund to include in its reports to shareholders a “Summary Schedule of Portfolio Holdings” in lieu of a full Schedule of Investments. The Summary Schedule of Portfolio Holdings reports the fund’s 50 largest holdings in unaffiliated issuers and any investments that exceed one percent of the fund’s net assets at the end of the reporting period. The amendments also require that the Summary Schedule of Portfolio Holdings identify each category of investments that are held.

The fund is required to file a complete Schedule of Investments with the SEC on Form N-CSR within ten days after mailing the annual report to shareholders. It will be available upon request, without charge, by calling collect: (310) 395-8005 or by mailing a request to Dimensional Fund Advisors LP, 1299 Ocean Avenue, Santa Monica, California 90401, or by visiting the SEC’s website at http://www.sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. (call 1-800-732-0330 for information on the operation of the Public Reference Room).

PORTFOLIO HOLDINGS

The SEC adopted a requirement that all Funds present their categories of portfolio holdings in a table, chart or graph format in their annual and semi-annual shareholder reports, whether or not a Schedule of Investments is utilized. The following table, which presents portfolio holdings as a percent of total investments before short-term investments and collateral for loaned securities, is provided in compliance with such requirement. The categories shown below represent broad industry sectors. Each industry sector consists of one or more specific industry classifications.

The U.S. Large Company Series — November 30, 2006
Consumer Discretionary	10.4	%
Consumer Staples	9.2	%
Energy	10.1	%
Financials	20.6	%
Health Care	11.9	%
Industrials	10.9	%
Information Technology	15.8	%
Materials	3.0	%
REITs	1.2	%
Telecommunication Services	3.4	%
Utilities	3.5	%
Total	100.0	%

28

SUMMARY SCHEDULE OF PORTFOLIO HOLDINGS THE DFA INVESTMENT TRUST COMPANY

The U.S. Large Company Series

	November 30, 2006
	Shares	Value†			Percentage of Net Assets**
COMMON STOCKS — (83.7%)
Consumer Discretionary — (8.7%)
Comcast Corp. Class A	811,700	$	32,841,382	*	0.7	%
Disney (Walt) Co.	810,700		26,793,635	#	0.5	%
Home Depot, Inc.	800,500		30,394,985		0.6	%
Time Warner, Inc.	1,577,400		31,768,836		0.6	%
Other Securities			384,290,330		7.8	%
Total Consumer Discretionary			506,089,168		10.2	%
Consumer Staples — (7.7%)
Altria Group, Inc.	812,000		68,378,520		1.4	%
Coca-Cola Co.	790,400		37,014,432	#	0.7	%
PepsiCo, Inc.	639,400		39,623,618		0.8	%
Procter & Gamble Co.	1,231,500		77,325,885		1.6	%
Wal-Mart Stores, Inc.	954,000		43,979,400		0.9	%
Other Securities			181,967,255		3.6	%
Total Consumer Staples			448,289,110		9.0	%
Energy — (8.5%)
Chevron Corp.	852,500		61,652,800		1.2	%
ConocoPhillips	639,100		43,011,430		0.9	%
Exxon Mobil Corp.	2,305,800		177,108,498		3.6	%
Schlumberger, Ltd.	459,200		31,446,016	#	0.6	%
Other Securities			180,595,535		3.7	%
Total Energy			493,814,279		10.0	%
Financials — (17.2%)
American Express Co.	471,200		27,668,864	#	0.6	%
American International Group, Inc.	1,007,900		70,875,528		1.4	%
Bank of America Corp.	1,755,400		94,528,290	#	1.9	%
Citigroup, Inc.	1,917,500		95,088,825	#	1.9	%
JPMorgan Chase & Co.	1,346,400		62,311,392	#	1.3	%
Merrill Lynch & Co., Inc.	343,800		30,058,434	#	0.6	%
Morgan Stanley	415,800		31,667,328		0.6	%
The Goldman Sachs Group, Inc.	167,400		32,609,520	#	0.7	%
Wachovia Corp.	742,476		40,234,774	#	0.8	%
Wells Fargo & Co.	1,306,000		46,023,440	#	0.9	%
Other Securities			472,510,466		9.6	%
Total Financials			1,003,576,861		20.3	%
Health Care — (10.0%)
Abbott Laboratories	592,600		27,650,716		0.6	%
Amgen, Inc.	454,000		32,234,000	*#	0.7	%
Johnson & Johnson	1,134,500		74,774,895	#	1.5	%
Medtronic, Inc.	445,800		23,239,554		0.5	%
Merck & Co., Inc.	844,000		37,566,440		0.8	%
Pfizer, Inc.	2,828,000		77,741,720	#	1.6	%
UnitedHealth Group, Inc.	522,400		25,639,392		0.5	%
Wyeth	521,900		25,197,332		0.5	%
Other Securities			257,257,277		5.0	%
Total Health Care			581,301,326		11.7	%
Industrials — (9.1%)
3M Co.	292,100		23,794,466	#	0.5	%
Boeing Co.	308,300		27,293,799	#	0.5	%
General Electric Co.	4,004,000		141,261,120	#	2.8	%
Tyco International, Ltd.	781,400		23,668,606		0.5	%
United Parcel Service, Inc.	419,300		32,671,856		0.7	%
United Technologies Corp.	392,300		25,315,119		0.5	%
Other Securities			258,389,785		5.2	%
Total Industrials			532,394,751		10.7	%
Information Technology — (13.2%)
Apple Computer, Inc.	329,900		30,245,232	*	0.6	%
Cisco Systems, Inc.	2,367,700		63,643,776	*#	1.3	%
Dell, Inc.	881,100		24,001,164	*#	0.5	%
Google, Inc.	82,600		40,054,392	*#	0.8	%
Hewlett-Packard Co.	1,062,300		41,918,358		0.8	%
Intel Corp.	2,237,100		47,762,085	#	1.0	%
International Business Machines Corp.	590,300		54,260,376	#	1.1	%
Microsoft Corp.	3,350,000		98,255,500	#	2.0	%
Oracle Corp.	1,564,400		29,770,532	*#	0.6	%
Qualcomm, Inc.	640,700		23,443,213	#	0.5	%
Other Securities			314,044,355		6.3	%
Total Information Technology			767,398,983		15.5	%
Materials — (2.5%)
Total Materials			146,652,217		3.0	%
Real Estate Investment Trusts — (1.0%)
Total Real Estate Investment Trusts			59,021,412		1.2	%
Telecommunication Services — (2.9%)
AT&T, Inc.	1,506,500		51,085,415	#	1.0	%
BellSouth Corp.	704,300		31,404,737	#	0.6	%
Verizon Communications, Inc.	1,124,300		39,283,042	#	0.8	%
Other Securities			45,142,174		1.0	%
Total Telecommunication Services			166,915,368		3.4	%
Utilities — (2.9%)
Total Utilities			170,831,941		3.4	%
TOTAL COMMON STOCKS		$	4,876,285,416		98.4	%

29

SUMMARY SCHEDULE OF PORTFOLIO HOLDINGS THE DFA INVESTMENT TRUST COMPANY

The U.S. Large Company Series (Continued)

	November 30, 2006
	Face Amount (000)		Value†		Percentage of Net Assets**
TEMPORARY CASH INVESTMENTS — (16.3%)
Repurchase Agreement, Deutsche Bank Securities, Inc. 5.30%, 12/01/06 (Collateralized by $973,173,393 FHLMC, rates ranging from 4.500% to 6.000%, maturities ranging from 09/01/35 to 11/01/36 & FNMA, rates ranging from 5.215%(r) to 6.875%(r), maturities ranging from 02/01/35 to 12/01/44, valued at $812,761,464) to be repurchased at $789,204,971@	$	789,089	$	789,088,800	16.0	%
Repurchase Agreement, Morgan Stanley 5.30%, 12/01/06 (Collateralized by $104,025,000 FHLB Bonds 4.000%, 04/25/07 & 5.125%, 11/28/08, valued at $103,879,087) to be repurchased at $99,826,549@		99,812		99,811,854	2.0	%
Repurchase Agreement, PNC Capital Markets, Inc. 5.19%, 12/01/06 (Collateralized by $77,790,000 FNMA 5.50%, 02/01/35, valued at $61,778,342) to be repurchased at $60,873,775		60,865		60,865,000	1.2	%
TOTAL TEMPORARY CASH INVESTMENTS				949,765,654	19.2	%
TOTAL INVESTMENTS — (100.0%) (Cost $4,216,671,925)			$	5,826,051,070	117.6	%

See accompanying notes to financial statements.

30

STATEMENT OF ASSETS AND LIABILITIES THE DFA INVESTMENT TRUST COMPANY

The U.S. Large Company Series (Amounts in thousands)

	November 30, 2006
Assets:
Investments at Value (including $862,281 of securities on loan)	$	4,876,285
Temporary Cash Investments at Value		949,766
Cash		2,568
Receivables:
Investment Securities Sold		1,809
Dividends and Interest		10,766
Fund Shares Sold		3,064
Securities Lending		122
Fund Margin Variation		29
Prepaid Expenses and Other Assets		55
Total Assets	$	5,844,464
Liabilities:
Payables:
Upon Return of Securities Loaned		888,901
Investment Securities Purchased		503
Fund Shares Redeemed		1,723
Due to Advisor		102
Accrued Expenses and Other Liabilities		255
Total Liabilities		891,484
Net Assets	$	4,952,980
Investments at Cost	$	3,266,906
Temporary Cash Investments at Cost	$	949,766

See accompanying notes to financial statements.

31

STATEMENT OF OPERATIONS THE DFA INVESTMENT TRUST COMPANY

The U.S. Large Company Series

(Amounts in thousands)

	For the Year Ended November 30, 2006
Investment Income
Dividends	$	85,425
Interest		3,293
Income from Securities Lending		993
Total Investment Income		89,711
Expenses
Investment Advisory Services Fees		1,122
Accounting & Transfer Agent Fees		462
S&P 500® Fees		84
Custodian Fees		74
Legal Fees		29
Audit Fees		60
Shareholders’ Reports		40
Trustees’ Fees & Expenses		62
Other		68
Total Expenses		2,001
Net Investment Income (Loss)		87,710
Net Realized and Unrealized Gain (Loss)
Net Realized Gain (Loss) on Investment Securities Sold		(8,634	)
Net Realized Gain (Loss) on Futures		6,769
Change in Unrealized Appreciation (Depreciation) of:
Investment Securities		523,721
Futures		(1,050	)
Net Realized and Unrealized Gain (Loss)		520,806
Net Increase (Decrease) in Net Assets Resulting from Operations	$	608,516

See accompanying notes to financial statements.

32

STATEMENTS OF CHANGES IN NET ASSETS THE DFA INVESTMENT TRUST COMPANY

The U.S. Large Company Series

(Amounts in thousands)

	Year Ended Nov. 30, 2006			Year Ended Nov. 30, 2005
Increase (Decrease) in Net Assets
Operations:
Net Investment Income (Loss)	$	87,710		$	72,280
Net Realized Gain (Loss) on Investment Securities Sold		(8,634	)		(28,767	)
Net Realized Gain (Loss) on Futures		6,769			5,427
Change in Unrealized Appreciation (Depreciation) of:
Investment Securities and Foreign Currency		523,721			274,881
Futures		(1,050	)		(507	)
Net Increase (Decrease) in Net Assets Resulting from Operations		608,516			323,314
Transactions in Interest:
Contributions		753,004			841,720
Withdrawals		(647,252	)		(420,241	)
Net Increase from Transactions in Interest		105,752			421,479
Total Increase (Decrease) in Net Assets		714,268			744,793
Net Assets
Beginning of Period		4,238,712			3,493,919
End of Period	$	4,952,980		$	4,238,712

See accompanying notes to financial statements.

33

FINANCIAL HIGHLIGHTS THE DFA INVESTMENT TRUST COMPANY

The U.S. Large Company Series

(for a share outstanding throughout each period)

	Year Ended Nov. 30, 2006			Year Ended Nov. 30, 2005			Year Ended Nov. 30, 2004			Year Ended Nov. 30, 2003			Year Ended Nov. 30, 2002
Total Return		14.25	%		8.51	%		12.77	%		15.05	%		(16.59	)%
Net Assets, End of Period (thousands)	$	4,952,980		$	4,238,712		$	3,493,919		$	3,000,997		$	2,623,557
Ratio of Expenses to Average Net Assets		0.04	%		0.05	%		0.05	%		0.05	%		0.05	%
Ratio of Net Investment Income to Average Net Assets		1.95	%		1.87	%		1.99	%		1.75	%		1.53	%
Portfolio Turnover Rate		4	%		6	%		2	%		8	%		11	%

See accompanying notes to financial statements.

34

NOTES TO FINANCIAL STATEMENTS THE DFA INVESTMENT TRUST COMPANY

THE U.S. LARGE COMPANY SERIES

A. Organization:

The DFA Investment Trust Company (the “Trust”) is an open-end management investment company registered under the Investment Company Act of 1940. The Trust consists of twenty-one investment portfolios, of which The U.S. Large Company Series (the “Series”) is presented in this report.

B. Significant Accounting Policies:

The following significant accounting policies are in conformity with accounting principles generally accepted in the United States of America. Such policies are consistently followed by the Trust in preparation of its financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 and those differences could be material.

1.    Security Valuation: Securities held by the Series (including over-the-counter securities) are valued at the last quoted sale price of the day. Securities held by the Series that are listed on NASDAQ are valued at the NASDAQ Official Closing Price (“NOCP”). If there is no last reported sale price or NOCP for the day, the Series values the securities at the mean of the most recent quoted bid and asked prices. Price information on listed securities is taken from the exchange where the security is primarily traded.

Securities for which no market quotations are readily available (including restricted securities), or for which market quotations have become unreliable, are valued in good faith at fair value in accordance with procedures adopted by the Board of Directors/Trustees. Fair value pricing may also be used if events that have a significant effect on the value of an investment (as determined in the discretion of the Investment Committee of the Advisor) occur before the net asset value is calculated. When fair value pricing is used, the prices of securities used by the Series may differ from the quoted or published prices for the same securities on their primary markets or exchanges.

Futures contracts held by the Series are valued using the settlement price established each day on the exchange on which they are traded.

2.    Deferred Compensation Plan: Each eligible Trustee of the Trust may elect participation in the Deferred Compensation Plan (the “Plan”). Under the Plan, effective January 1, 2002, such Trustees may defer payment of all or a portion of their total fees earned as a Trustee. These deferred amounts may be treated as though such amounts had been invested in shares of the following funds: U.S. Large Cap Value Portfolio, U.S. Core Equity 1 Portfolio, U.S. Core Equity 2 Portfolio, U.S. Vector Equity Portfolio, U.S. Micro Cap Portfolio, DFA International Value Portfolio, International Core Equity Portfolio, Emerging Markets Portfolio, Emerging Markets Core Equity Portfolio, and/or DFA Two- Year Global Fixed Income Portfolio. Contributions made under the Plan and the change in unrealized appreciation (depreciation) are included in Directors’/Trustees’ Fees and Expenses. At November 30, 2006, the total liability (in thousands) for deferred compensation to Trustees is included in Accrued Expenses and Other Liabilities on the Statement of Assets and Liabilities in the amount of $110.

Each Trustee has the option to receive their distribution of proceeds in one of the following methods upon one year’s notice: lump sum, annual installments over a period of agreed upon years, or semi-annual installments over a period of agreed upon years. As of November 30, 2006, none of the Trustees have requested distribution of proceeds.

3.    Other: Security transactions are accounted for as of the trade date. Costs used in determining realized gains and losses on the sale of investment securities are on the basis of identified cost. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Distributions received on securities that represent a return of capital or capital gains are recorded as a reduction of cost of investments or as a realized gain, respectively. The Series estimate the character of distributions received that may be considered return of capital distributions or capital gain distributions. Interest income is recorded on the accrual basis. Discount and premium on securities purchased are amortized over the lives of the respective securities utilizing the effective interest method. Expenses directly attributable to a Series are directly charged. Common expenses of the Trust are allocated using methods approved by the Board of Directors/Trustees, generally based on average net assets.

4.    New Accounting Standards: In September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the implications of FAS 157. At this time, its impact on the Series’ financial statements has not been determined.

In July 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes.” FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented

35

NOTES TO FINANCIAL STATEMENTS (Continued) THE DFA INVESTMENT TRUST COMPANY

and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Series’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the “more-likely-than-not” threshold would be booked as a tax expense in the current year and recognized as: a liability for unrecognized tax benefits; a reduction of an income tax refund receivable; a reduction of deferred tax asset; an increase in deferred tax liability; or a combination thereof. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006. At this time, management is evaluating the implication of FIN 48 and its impact on the financial statements has not yet been determined. The Series will adopt FIN 48 effective December 1, 2007.

C. Investment Advisor:

Dimensional Fund Advisors LP (formerly, Dimensional Fund Advisors Inc.) (“Dimensional” or the “Advisor”) provides investment advisory services to the Series. For the year ended November 30, 2006, the Series’ investment advisory services fees were accrued daily and paid monthly to the Advisor based on an effective annual rate of 0.025% of average daily net assets.

On November 3, 2006, Dimensional Fund Advisors Inc., a Delaware corporation, converted its corporate form to Dimensional Fund Advisors LP, a Delaware limited partnership.

Fees Paid to Officers and Directors/Trustees:

Certain Officers and Directors/Trustees of the Advisor are also Officers and Directors/Trustees of the Trust; however, such Officers and Directors/Trustees (with the exception of the Chief Compliance Officer (“CCO”)) receive no compensation from the Trust. For the year ended November 30, 2006, the total related amounts paid by the Trust to the CCO were $106 (in thousands). The total related amounts paid by the Series are included in Other Expenses on the Statement of Operations.

D. Purchases and Sales of Securities:

For the year ended November 30, 2006, the Series made the following purchases and sales of investment securities, other than short-term securities and U.S. government securities (amounts in thousands):

Purchases	$	366,370
Sales		189,366

E. Federal Income Taxes:

No provision for federal income taxes is required since the Series is treated as a partnership for federal income tax purposes. Any net investment income and realized and unrealized gains or losses have been deemed to have been “passed down” to its partners.

At November 30, 2006, the total cost and aggregate gross unrealized appreciation and (depreciation) of securities for federal income tax purposes were different from amounts reported for financial reporting purposes (amounts in thousands):

Federal Tax Cost	Unrealized Appreciation		Unrealized (Depreciation)			Net Unrealized Appreciation (Depreciation)
$4,390,003	$	1,754,582	$	(318,534	)	$	1,436,048

F. Financial Instruments:

In accordance with the Series’ investment objectives and policies, the Series may invest in certain financial instruments that have off-balance sheet risk in excess of the amounts recognized in the financial statements and concentrations of credit and market risk. These instruments and their significant corresponding risks are described below:

1.     Repurchase Agreements: The Series may purchase money market instruments subject to the counterparty’s agreement to repurchase them at an agreed upon date and price. The counterparty will be required on a daily basis to maintain the value of the collateral subject to the agreement at not less than the repurchase price (including accrued interest). The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system with the Trust’s custodian or a third party sub-custodian. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. All open repurchase agreements were entered into on November 30, 2006.

2.     Futures Contracts: During the year ended November 30, 2006, the Series entered into futures contracts in accordance with its investment objectives. Upon entering into a futures contract, the Series deposits cash with a broker, equal to the minimum “initial margin” requirements of the exchange on which the contract is traded. Subsequent payments are received from or paid to the broker each day, based on the daily fluctuation in the market value of the contract. These receipts or payments are known as “variation

36

NOTES TO FINANCIAL STATEMENTS (Continued) THE DFA INVESTMENT TRUST COMPANY

margin” and are recorded daily by the Series as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Series records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.

At November 30, 2006, the Series had outstanding 178 long futures contracts of the S&P 500 Index^®, all of which expire on December 15, 2006. The value of such contracts (in thousands) on November 30, 2006 was $62,429, which resulted in an unrealized gain (in thousands) of $1,398. Approximately $2,567 (in thousands) of cash has been segregated as collateral for the open futures contracts and has been accounted for as cash on the Statement of Assets and Liabilities.

Risks arise upon entering into futures contracts from potential imperfect price correlations between the futures contracts and the underlying securities, the possibility of an illiquid secondary market for these instruments and from the possibility that the Series could lose more than the initial margin requirements.

G. Line of Credit:

The Trust, together with other Dimensional-advised portfolios, has entered into a $250 million unsecured discretionary line of credit effective June 28, 2006 with an affiliate of its domestic custodian bank. Each portfolio is permitted to borrow, subject to its investment limitations, up to a maximum of $250 million, as long as total borrowings under the line of credit do not exceed $250 million in the aggregate. Borrowings under the line of credit are charged interest at the then current Federal Funds Rate plus 1%. Each portfolio is individually, and not jointly, liable for its particular advances under the line of credit. There is no commitment fee on the unused portion of the line of credit. The agreement for the discretionary line of credit may be terminated by either party at any time. There were no borrowings under this line of credit by the Series during the year ended November 30, 2006. The line of credit is scheduled to expire on June 27, 2007.

The Trust, together with other Dimensional-advised portfolios, has also entered into an additional $500 million unsecured line of credit effective January 23, 2006 with its international custodian bank. Each portfolio is permitted to borrow, subject to its investment limitations, up to a maximum of $500 million, as long as total borrowings under the line of credit do not exceed $500 million in the aggregate. Each portfolio is individually, and not jointly, liable for its particular advances under the line of credit. Borrowings under the line of credit are charged interest at rates agreed to by the parties at the time of borrowing. There is no commitment fee on the unused portion of the line of credit. The agreement of the line of credit expires on January 21, 2008. There were no borrowings by the Series under the line of credit with the international custodian bank during the year ended November 30, 2006.

H. Securities Lending:

As of November 30, 2006, the Series had securities on loan to brokers/dealers, for which the Series held cash collateral. The Series invests the cash collateral, as described below, and records a liability for the return of the collateral, during the period the securities are on loan. Loans of securities are required at all times to be secured by collateral equal to at least (i) 100% of the current market value of the loaned securities with respect to securities of the U.S. government or its agencies, (ii) 102% of the current market value of the loaned securities with respect to U.S. securities, and (iii) 105% of the current market value of the loaned securities with respect to foreign securities. However, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings. In the event that the borrower fails to return loaned securities, and cash collateral being maintained by the borrower is insufficient to cover the value of loaned securities and provided such collateral insufficiency is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Series or, at the option of the lending agent, to replace the securities.

Subject to the Series’ investment policy, the cash collateral received by the Series from securities on loan is invested in securities of the U.S. government or its agencies, repurchase agreements collateralized by securities of the U.S. government or its agencies, and registered and unregistered money market funds. Agencies include both agency debentures and agency mortgage backed securities. In addition, each Series will be able to terminate the loan at any time and will receive reasonable interest on the loan, as well as amounts equal to any dividends, interest or other distributions on the loaned securities. However, dividend income received from loaned securities may not be eligible to be taxed at qualified dividend income rates.

I. Indemnitees; Contractual Obligations:

Under the Trust’s organizational documents, its officers and directors are indemnified against certain liability arising out of the performance of their duties to the Trust. In addition, in the normal course of business, the Trust enters into contracts that contain a variety of representations and warranties which provide general indemnification. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust and/or its affiliates that have not yet occurred. However, based on experience, the Trust expects the risk of loss to be remote.

37

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE DFA INVESTMENT TRUST COMPANY

To the Shareholders of The U.S. Large Company Series and

Board of Trustees of The DFA Investment Trust Company:

In our opinion, the accompanying statement of assets and liabilities, including the summary schedule of portfolio holdings, and the related statements of operations and of changes in net assets and the financial highlights presents fairly, in all material respects, the financial position of The U.S. Large Company Series (one of the series constituting The DFA Investment Trust Company, hereafter referred to as the “Series”) at November 30, 2006, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Series’ management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at November 30, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

January 23, 2007

38

FUND MANAGEMENT

THE DFA INVESTMENT TRUST COMPANY

Trustees/Directors

Each Board of Trustees/Directors of The DFA Investment Trust Company Inc. (“DFAITC”), DFA Investment Dimensions Group Inc. (“DFAIDG”), Dimensional Investment Group Inc. (“DIG”) and Dimensional Emerging Markets Value Fund Inc. (“DEM”) (each, the “Fund” and collectively, the “Funds”) is responsible for establishing the Funds’ policies and for overseeing the management of the Funds. The Trustees/Directors of the Funds, including all of the disinterested Directors, have adopted written procedures to monitor potential conflicts of interest that might develop between portfolios of the Funds (the “Feeder Portfolios”) that invest in certain series of DFAITC or DEM (the “Master Funds”).

Each Board has two standing committees, an Audit Committee and a Portfolio Performance and Service Review Committee (the “Performance Committee”). The Audit Committee is comprised of George M. Constantinides, Roger G. Ibbotson and Abbie J. Smith. Each member of the Audit Committee is a disinterested Director. The Audit Committee oversees the Fund’s accounting and financial reporting policies and practices, the Fund’s internal controls, the Fund’s financial statements and the independent audits thereof and performs other oversight functions as requested by the Board. The Audit Committee recommends the appointment of each Fund’s independent registered certified public accounting firm and also acts as a liaison between the Fund’s independent registered certified public accounting firm and the full Board. There were four Audit Committee meetings held during the fiscal year ended November 30, 2006.

Each Board’s Performance Committee is comprised of Messrs. Constantinides and Ibbotson, Ms. Smith, John P. Gould, Myron S. Scholes and Robert C. Merton. Each member of the Fund’s Performance Committee is a disinterested Director. The Performance Committee regularly reviews and monitors the investment performance of the Fund’s series and reviews the performance of the Fund’s service providers. There were three Performance Committee meetings held during the fiscal year ended November 30, 2006.

Certain biographical information for each disinterested Trustee/Director and each interested Trustee/Director of the Funds is set forth in the tables below, including a description of each Trustee/Director’s experience as a Trustee/Director of the Funds and as a director or trustee of other funds, as well as other recent professional experience.

The statements of additional information (together, “SAI”) of the Funds include additional information about each Trustee/Director. You may obtain copies of the SAI and prospectus of each Fund advised by Dimensional Fund Advisors LP (prior to November 3, 2006, Dimensional Fund Advisors Inc.) by calling collect (310) 395-8005 or by mailing a request to Dimensional Fund Advisors LP, 1299 Ocean Avenue, Santa Monica, California 90401. Prospectuses are also available at www.dfaus.com.

Name, Position with the Fund, Address and Age	Term of Office1 and Length of Service	Portfolios within the DFA Fund Complex2 Overseen	Principal Occupation(s) During Past 5 Years and Other Directorships of Public Companies Held
Disinterested Trustees/Directors
George M. Constantinides Director of DFAIDG, DIG and DEM. Trustee of DFAITC. Graduate School of Business, University of Chicago 5807 S. Woodlawn Avenue Chicago, IL 60637 Age: 58	DFAITC — since 1993 DFAIDG — since 1983 DIG — since 1993 DEM — since 1993	81 portfolios in 4 investment companies	Leo Melamed Professor of Finance, Graduate School of Business, University of Chicago.
John P. Gould Director of DFAIDG, DIG and DEM. Trustee of DFAITC. Graduate School of Business, University of Chicago 5807 S. Woodlawn Avenue Chicago, IL 60637 Age: 67	DFAITC — since 1993 DFAIDG — since 1986 DIG — since 1993 DEM — since 1993	81 portfolios in 4 investment companies	Steven G. Rothmeier Distinguished Service Professor of Economics, Graduate School of Business, University of Chicago. Member of the Boards of Milwaukee Mutual Insurance Company and UNext.com. Formerly, Senior Vice-President, Lexecon Inc. (economics, law, strategy and finance consulting). Formerly, President, Cardean University (division of UNext.com). Formerly, Trustee, First Prairie Funds (registered investment company). Trustee, Harbor Fund (registered investment company) (14 Portfolios).

39

FUND MANAGEMENT (Continued)

THE DFA INVESTMENT TRUST COMPANY

Name, Position with the Fund, Address and Age	Term of Office1 and Length of Service	Portfolios within the DFA Fund Complex2 Overseen	Principal Occupation(s) During Past 5 Years and Other Directorships of Public Companies Held
Roger G. Ibbotson Director of DFAIDG, DIG and DEM. Trustee of DFAITC. Yale School of Management P.O. Box 208200 New Haven, CT 06520-8200 Age: 63	DFAITC — since 1993 DFAIDG — since 1981 DIG — since 1993 DEM — since 1993	81 portfolios in 4 investment companies	Professor in Practice of Finance, Yale School of Management. Director, BIRR Portfolio Analysis, Inc. (software products). Partner, Zebra Capital Management, LLC (hedge fund manager). Formerly, Director, Hospital Fund, Inc. (investment management services).
Robert C. Merton Director of DFAIDG, DIG and DEM. Trustee of DFAITC. Harvard Business School 353 Baker Library Soldiers Field Boston, MA 02163 Age: 62	DFAITC — since 2003 DFAIDG — since 2003 DIG — since 2003 DEM — since 2003	81 portfolios in 4 investment companies	John and Natty McArthur University Professor, Graduate School of Business Administration, Harvard University (since 1998). George Fisher Baker Professor of Business Administration, Graduate School of Business Administration, Harvard University (1988-1998), Co-founder, Chief Science Officer, Integrated Finance Limited (since 2002). Director, MF Risk, Inc. (risk management software) (since 2001). Director, Peninsula Banking Group (bank) (since 2003). Director, Community First Financial Group (bank holding company) (since 2003). Formerly, Co-Founder and Principal, Long-Term Capital Management. Director, Vical Incorporated (biopharmaceutical product development).
Myron S. Scholes Director of DFAIDG, DIG and DEM. Trustee of DFAITC. Oak Hill Capital Management, Inc. 1100 King Street Building 4 Rye Brook, NY 10573 Age: 66	DFAITC — since 1993 DFAIDG — since 1981 DIG — since 1993 DEM — since 1993	81 portfolios in 4 investment companies	Frank E. Buck Professor Emeritus of Finance, Stanford University. Managing Partner, Oak Hill Capital Management (private equity firm). Chairman, Oak Hill Platinum Partners (hedge fund). Director, Chicago Mercantile Exchange, Consultant, Arbor Investors. Formerly, Director, Smith Breeden Family of Funds. Director, American Century Fund Complex (registered investment companies) (37 Portfolios); and Director, Chicago Mercantile Exchange Holdings Inc..
Abbie J. Smith Director of DFAIDG, DIG and DEM. Trustee of DFAITC. Graduate School of Business University of Chicago 5807 S. Woodlawn Avenue Chicago, IL 60637 Age: 53	DFAITC — since 2000 DFAIDG — since 2000 DIG — since 2000 DEM — since 2000	81 portfolios in 4 investment companies	Boris and Irene Stern Professor of Accounting, Graduate School of Business, University of Chicago, Formerly, Marvin Bower Fellow, Harvard Business School (9/01 to 8/02). Director, HNI Corporation (formerly known as HON Industries Inc.) (office furniture) and Director, Ryder System Inc. (transportation).

40

FUND MANAGEMENT (Continued)

THE DFA INVESTMENT TRUST COMPANY

Name, Position with the Fund, Address and Age	Term of Office1 and Length of Service	Portfolios within the DFA Fund Complex2 Overseen	Principal Occupation(s) During Past 5 Years and Other Directorships of Public Companies Held
Interested Trustees/Directors*
David G. Booth Chairman, Director, Chief Executive Officer, Chief Investment Officer and President of DFAIDG, DIG and DEM. Chairman, Trustee, Chief Executive Officer, Chief Investment Officer and President of DFAITC. 1299 Ocean Avenue Santa Monica, CA 90401 Age: 59	DFAITC — since 1993 DFAIDG — since 1981 DIG — since 1992 DEM — since 1993	81 portfolios in 4 investment companies	Chairman, Director/Trustee, Presdient, Chief Executive Officer and Chief Investment Officer of the following companies: Dimensional Holdings Inc., Dimensional Fund Advisors LP (formerly Dimensional Fund Advisors Inc.), DFA Securities Inc., Dimensional Fund Advisors Canada Inc., DFAIDG, DIG, DEM and DFAITC. Director of Dimensional Fund Advisors Ltd, and formerly Chief Investment Officer. Director, Chief Investment Officer and President of DFA Australia Ltd. Formerly, Director of Dimensional Funds PLC. Chairman, Director, Chief Executive Officer and Chief Investment Officer of Dimensional Fund Advisors Canada Inc. (All Chief Investment Officer positions held starting 1/1/2003 except for Dimensional Fund Advisors Canada Inc., which was from 6/17/2003, and Dimensional Holdings Inc., which was from 10/10/06.) Limited Partner, Oak Hill Partners, Director, University of Chicago Business School. Formerly, Director, SA Funds (registered investment company). Formerly Director, Assante Corporation (investment management) (until 2002).
Rex A. Sinquefield The Show Me Institute 7777 Bonhomme Ave., Suite 2150 St. Louis, MO 63105 Age: 62	DFAITC — since 1993 DFAIDG — since 1981 DIG — since 1992 DEM — since 1993	81 portfolios in 4 investment companies	Director/Trustee (and prior to 2006 Chairman, and prior to 2003, Chief Investment Officer) of Dimensional Fund Advisors Inc., DFA Securities Inc., DFAIDG, DIG, DEM and DFAITC. Director of Dimensional Holdings Inc. Director and formerly President of Dimensional Fund Advisors Ltd, Director (and prior to 1/1/2003, Chief Investment Officer) of DFA Australia Ltd. Director of Dimensional Funds PLC and Dimensional Fund Advisors Canada Inc. Trustee, St. Louis University. Life Trustee and Member of Investment Committee, DePaul University. Director, The German St. Vincent Orphan Home. Member of Investment Committee, Archdiocese of St. Louis. Director, St. Louis Art Institute. President and Director, The Show Me Institute.

¹ Each Trustee/Director holds office for an indefinite term until his or her successor is elected and qualified.

² Each Trustee/Director is a director or trustee of each of the four registered investment companies within the DFA Fund Complex, which includes the Funds.

* Interested Directors are described as such because they are deemed to be “interested persons,” as that term is defined under the Investment Company Act of 1940, as amended, due to their positions with Dimensional Fund Advisors LP.

41

FUND MANAGEMENT (Continued)

THE DFA INVESTMENT TRUST COMPANY

Officers

The name, age, information regarding positions with the Funds and the principal occupation for each officer of the Funds are set forth below. Each officer listed below holds the same office (except as otherwise noted) in the following entities: Dimensional Fund Advisors LP (prior to November 3, 2006, Dimensional Fund Advisors Inc.) (“Dimensional”), DFA Securities Inc., DFAIDG, DIG, DFAITC and DEM (collectively, the “DFA Entities”). The address of each officer is: Dimensional Fund Advisors LP, 1299 Ocean Avenue, Santa Monica, California 90401, unless otherwise indicated.

Name, Position with the Fund and Age	Term of Office1 and Length of Service	Principal Occupation(s) During Past 5 Years
Officers
M. Akbar Ali Vice President Age: 35	Since 2005	Vice President of all the DFA Entities. Portfolio Manager of Dimensional (since August 2002). Formerly, Graduate Student at the University of California, Los Angeles (August 2000 to June 2002); Senior Technology Office at JPMorgan Chase & Co. (February 1997 to June 2000).
Darryl Avery Vice President Age: 40	Since 2005	Vice President of all the DFA Entities. From June 2002 to January 2005, institutional client service representative of Dimensional. Formerly, institutional client service and marketing representative for Metropolitan West Asset Management (February 2001 to February 2002); institutional client service and marketing representative for Payden & Rygel (June 1990 to January 2001).
Arthur H. Barlow Vice President Age: 51	Since 1993	Vice President of all the DFA Entities. Formerly, Vice President of DFA Australia Limited and Dimensional Fund Advisors Ltd.
Valerie A. Brown Vice President and Assistant Secretary Age: 39	Since 2001	Vice President and Assistant Secretary of all the DFA Entities, DFA Australia Limited, Dimensional Fund Advisors Ltd., and since June 2003, Dimensional Fund Advisors Canada Inc. Since March 2000, legal counsel for Dimensional.
Stephen A. Clark Vice President Age: 34	Since 2004	Vice President of all the DFA Entities, April 2001 to April 2004, Portfolio Manager of Dimensional. Formerly, Graduate Student at the University of Chicago (September 2000 to March 2001).
Truman A. Clark Vice President Age: 65	Since 1996	Vice President of all the DFA Entities, Formerly, Vice President of DFA Australia Limited and Dimensional Fund Advisors Ltd.
Christopher S. Crossan Vice President and Chief Compliance Officer Age: 40	Since 2004	Vice President and Chief Compliance Officer of all the DFA Entities. Formerly, Senior Compliance Officer, INVESCO Institutional, Inc. and its affiliates (August 2000 to January 2004).
James L. Davis Vice President Age: 49	Since 1999	Vice President of all the DFA Entities. Formerly, Vice President of DFA Australia Limited and Dimensional Fund Advisors Ltd.
Robert T. Deere Vice President Age: 49	Since 1994	Vice President of all the DFA Entities and DFA Australia Limited.
Robert W. Dintzner Vice President Age: 36	Since 2001	Vice President of all the DFA Entities. Prior to April 2001, marketing supervisor and marketing coordinator for Dimensional.

42

FUND MANAGEMENT (Continued)

THE DFA INVESTMENT TRUST COMPANY

Name, Position with the Fund and Age	Term of Office1 and Length of Service	Principal Occupation(s) During Past 5 Years
Richard A. Eustice Vice President and Assistant Secretary Age: 41	Since 1998	Vice President and Assistant Secretary of all the DFA Entities and DFA Australia Limited. Formerly, Vice President of Dimensional Fund Advisors Ltd.
Eugene F. Fama, Jr. Vice President Age: 45	Since 1993	Vice President of all the DFA Entities. Formerly, Vice President of DFA Australia Limited and Dimensional Fund Advisors Ltd.
Gretchen A. Flicker Vice President Age: 35	Since 2004	Vice President of all the DFA Entities. Prior to April 2004, institutional client service representative of Dimensional.
Glenn S. Freed Vice President Age: 45	Since 2001	Vice President of all the DFA Entities, Formerly, Professor and Associate Dean of the Leventhal School of Accounting (September 1998 to August 2001) and Academic Director Master of Business Taxation Program (June 1996 to August 2001) at the University of Southern California Marshall School of Business.
Jennifer Fromm Vice President Age: 33	Since 2006	Vice President of all the DFA Entities. Prior to July 2006, counsel of Dimensional. Formerly, Vice President, Secretary and Chief Compliance Officer for SA Funds — Investment Trust, an investment company (September 2000 to February 2005), and various positions including Associate General Counsel for Loring Ward Group Inc. and its registered investment advisor subsidiaries (September 2000 to September 2004). Prior to September 2000, Associate Counsel for State Street Corporation.
Henry F. Gray Vice President Age: 39	Since 2000	Vice President of all the DFA Entities. Prior to July 2000, Portfolio Manager of Dimensional. Formerly, Vice President of DFA Australia Limited.
Julie Henderson Vice President and Fund Controller Age: 32	Since 2005	Vice President and Fund Controller of all the DFA Entities. Formerly, Senior Manager at PricewaterhouseCoopers LLP (July 1996 to April 2005).
Kevin Hight Vice President Age: 39	Since 2005	Vice President of all the DFA Entities. Formerly, Regional Director of Dimensional (since March 2003 to March 2005). Formerly, Vice President and Portfolio Manager for Payden & Rygel (July 1999 to February 2003).
Christine W. Ho Vice President Age: 39	Since 2004	Vice President of all the DFA Entities. Prior to April 2004, Assistant Controller of Dimensional.
Jeff J. Jeon Vice President Age: 33	Since 2004	Vice President of all the DFA Entities. Prior to April 2004, counsel of Dimensional. Formerly, an Associate at Gibson, Dunn & Crutcher LLP (September 1997 to August 2001).

43

FUND MANAGEMENT (Continued)

THE DFA INVESTMENT TRUST COMPANY

Name, Position with the Fund and Age	Term of Office1 and Length of Service	Principal Occupation(s) During Past 5 Years
Patrick Keating Vice President Age: 51	Since 2003	Vice President of all the DFA Entities and Dimensional Fund Advisors Canada Inc. Formerly, Director, President and Chief Executive Officer, Assante Asset Management, Inc. (October 2000 to December 2002); Director, Assante Capital Management (October 2000 to December 2002); President and Chief Executive Officer, Assante Capital Management (October 2000 to April 2001); Executive Vice President, Assante Corporation (May 2001 to December 2002); Director, Assante Asset Management Ltd. (September 1997 to December 2002); President and Chief Executive Officer, Assante Asset Management Ltd. (September 1998 to May 2001).
Joseph F. Kolerich Vice President Age: 35	Since 2004	Vice President of all the DFA Entities. From April 2001 to April 2004, Portfolio Manager for Dimensional, Formerly, a trader at Lincoln Capital Fixed Income Management (formerly Lincoln Capital Management Company).
Michael F. Lane Vice President Age: 39	Since 2004	Vice President of all the DFA Entities. Formerly, Vice President of Advisor Services at TIAA-CREF (July 2001 to September 2004); AEGON, President, Advisor Resources (September 1994 to June 2001).
Juliet Lee Vice President Age: 35	Since 2005	Vice President of all the DFA Entities. Human Resources Manager of Dimensional (since January 2004). Formerly, Assistant Vice President for Metropolitan West Asset Management LLC (February 2001 to December 2003) and Director of Human Resources for Icebox, LLC (March 2000 to February 2001).
Natalie Maniaci Vice President Age: 35	Since 2005	Vice President of all the DFA Entities. Counsel of Dimensional (since July 2003). Formerly, an Associate at Gibson, Dunn & Crutcher LLP (October 1999 to July 2003).
Heather H. Mathews Vice President Age: 36	Since 2004	Vice President of all the DFA Entities. Prior to April 2004, Portfolio Manager for Dimensional Fund Advisors Inc. Formerly, Graduate Student at Harvard University (August 1998 to June 2000).
David M. New Vice President Age: 46	Since 2003	Vice President of all the DFA Entities. Formerly, Client Service Manager of Dimensional. Formerly, Director of Research, Wurts and Associates (investment consulting firm) (December 2000 to June 2002).
Catherine L. Newell Vice President and Secretary Age: 42	Vice President since 1997 and Secretary since 2000	Vice President and Secretary of all the DFA Entities. Vice President and Assistant Secretary of DFA Australia Limited (since February 2002, April 1997 and May 2002, respectively). Vice President and Secretary of Dimensional Fund Advisors Canada Inc. (since June 2003). Director, Dimensional Funds plc (since January 2002). Formerly, Assistant Secretary of all DFA Entities and Dimensional Fund Advisors Ltd.
Sonya Park Vice President Age: 34	Since 2005	Vice President of all the DFA Entities. From February 2002 to January 2005, institutional client service representative of Dimensional. Formerly, Associate Director at Watson Pharmaceuticals Inc. (January 2001 to February 2002); Graduate student at New York University (February 2000 to December 2000).
David A. Plecha Vice President Age: 45	Since 1993	Vice President of all the DFA Entities, DFA Australia Limited and Dimensional Fund Advisors Ltd.
Eduardo A. Repetto Vice President Age: 39	Since 2002	Vice President of all the DFA Entities. Formerly, Research Associate for Dimensional (June 2000 to April 2002). Formerly, Research Scientist (August 1998 to June 2000), California Institute of Technology.

44

FUND MANAGEMENT (Continued)

THE DFA INVESTMENT TRUST COMPANY

Name, Position with the Fund and Age	Term of Office1 and Length of Service	Principal Occupation(s) During Past 5 Years
L. Jacobo Rodriguez Vice President Age: 35	Since 2005	Vice President of all the DFA Entities. From August 2004 to July 2005, institutional client service representative of Dimensional. Formerly, Financial Services Analyst, Cato Institute (September 2001 to June 2004); Book Review Editor, Cato Journal, Cato Institute (May 1996 to June 2004); and Assistant Director, Project on Global Economic Liberty, Cato Institute (January 1996 to August 2001).
Michael T. Scardina Vice President, Chief Financial Officer and Treasurer Age: 51	Since 1993	Vice President, Chief Financial Officer and Treasurer of all the DFA Entities, DFA Australia Limited and Dimensional Fund Advisors Ltd., and since June 2003, Dimensional Fund Advisors Canada Inc. Director, Dimensional Fund Advisors Ltd. (since February 2002) and Dimensional Funds, plc (January 2002).
David E. Schneider Vice President Age: 60	Since 2001	Vice President of all the DFA Entities. Currently, Director of Institutional Services. Prior to 2001, Regional Director of Dimensional.
Grady M. Smith Vice President Age: 50	Since 2004	Vice President of all the DFA Entities. Prior to April 2004, Portfolio Manager of Dimensional. Formerly, Principal of William M. Mercer, Incorporated (July 1995 to June 2001).
Carl G. Snyder Vice President Age: 43	Since 2000	Vice President of all the DFA Entities. Prior to July 2000, Portfolio Manager of Dimensional. Formerly, Vice President of DFA Australia Limited.
Lawrence R. Spieth Vice President Age: 59	Since 2004	Vice President of all the DFA Entities. Prior to April 2004, institutional client service representative of Dimensional.
Bradley G. Steiman Vice President Age: 33	Since 2004	Vice President of all the DFA Entities and Director and Vice President of Dimensional Fund Advisors Canada Inc. Prior to April 2002, Regional Director of Dimensional. Formerly, Vice President and General Manager of Assante Global Advisors (July 2000 to April 2002); Vice President of Assante Asset Management Inc. (March 2000 to July 2000); and Private Client Manager at Loring Ward Investment Counsel Ltd. (June 1997 to February 2002).
Karen E. Umland Vice President Age: 40	Since 1997	Vice President of all the DFA Entities, DFA Australia Limited, Dimensional Fund Advisors Ltd., and since June 2003, Dimensional Fund Advisors Canada Inc.
Carol W. Wardlaw Vice President Age: 48	Since 2004	Vice President of all the DFA Entities. Prior to April 2004, Regional Director of Dimensional.
Weston J. Wellington Vice President Age: 55	Since 1997	Vice President of all the DFA Entities. Formerly, Vice President of DFA Australia Limited.
Daniel M. Wheeler Vice President Age: 61	Since 2001	Vice President of all the DFA Entities. Prior to 2001, Director of Financial Advisors Services of Dimensional. Director of Dimensional Fund Advisors Ltd. (since October 2003) and President of Dimensional Fund Advisors Canada Inc. (since June 2003).

¹ Each officer holds office for an indefinite term at the pleasure of the Boards of Trustee/Directors and until his or her successor is elected and qualified.

45

VOTING PROXIES ON FUND PORTFOLIO SECURITIES

THE DFA INVESTMENT TRUST COMPANY

A description of the policies and procedures that the Trust uses in voting proxies relating to securities held in the portfolio is available without charge, upon request, by calling collect: (310) 395-8005. Information regarding how the Advisor votes these proxies is available from the EDGAR database on the SEC’s website at http://www.sec.gov and from the Advisor’s website at http://www.dimensional.com and reflects the twelve-month period beginning July 1st and ending June 30th.

46

BLACKROCK FUNDS

Custodian	Distributor
PFPC Trust Company	BlackRock Distributors, Inc.
Philadelphia, Pennsylvania 19153	King of Prussia, Pennsylvania 19406
Co-Administrator and Transfer Agent	Counsel
PFPC Inc.	Simpson Thacher & Bartlett LLP
Wilmington, Delaware 19809	New York, New York 10017
Co-Administrator	Independent Registered Public Accounting Firm
BlackRock Advisors, LLC	Deloitte & Touche LLP
Wilmington, Delaware 19809	Philadelphia, Pennsylvania 19103

Important Notice Regarding Delivery of Shareholder Documents

The Fund will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and it 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 contact the Fund at (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

The Fund has delegated proxy voting responsibilities to BlackRock and its affiliates, subject to the general oversight of the Fund’s Board of Trustees. A description of the policies and procedures that BlackRock and its affiliates use to determine how to vote proxies relating to portfolio securities is available without charge, upon request on our website at www.blackrock.com, by calling (800) 441-7762, or on the website of the Securities and Exchange Commission (the “Commission”) at http://www.sec.gov.

Availability of Proxy Voting Record

Information on how proxies relating to the Fund’s voting securities were voted (if any) by BlackRock during the most recent 12-month period ended June 30th is available (if any), upon request and without charge on our website at www.blackrock.com, by calling (800) 441-7762 or on the website of the Commission at http://www.sec.gov.

Availability of Quarterly Portfolio Schedule

The Fund files its complete schedule of portfolio holdings for the first and third quarters of its fiscal year with the Commission on Form N-Q. The Fund’s Form N-Q is available on the Commission’s website at http://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information regarding the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s Form N-Q may also be obtained upon request, without charge, by calling (800) 441-7762.

BLACKROCK FUNDS

AVAILABILITY OF SHAREHOLDER DOCUMENTS AND STATEMENTS

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

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

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

Shareholders Who Hold Accounts Directly With BlackRock

1) Access the BlackRock website at http://www.blackrock.com/edelivery

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

3) Log into your account

SHAREHOLDER PRIVILEGES

Account Information

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

Automatic Investment Plans

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

Systematic Withdrawal Plan

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

Retirement Plans

Shareholders may make investments in conjunction with Traditional, Rollover, Roth, Coverdell, Simple and SEP IRA’s, and 403(b) plans.

BLACKROCK FUNDS

A World-Class Mutual Fund Family

BlackRock now offers an expanded lineup of open-end mutual funds. Our range includes more than 85 funds crossing all investment styles and managed by experts in equity, fixed income and tax-exempt investing.

Equity Portfolios
BlackRock All-Cap Global Resources Portfolio	BlackRock Global Resources Portfolio*	BlackRock Lifecycle Prepared Portfolios†
BlackRock Aurora Portfolio	BlackRock Global Science & Technology	BlackRock Mid-Cap Growth Equity Portfolio
BlackRock Asset Allocation Portfolio†	Opportunities Portfolio	BlackRock Mid-Cap Value Equity Portfolio
BlackRock Balanced Capital Fund†	BlackRock Global SmallCap Fund	BlackRock Mid Cap Value Opportunities Fund
BlackRock Basic Value Fund	BlackRock Global Technology Fund	BlackRock Natural Resources Trust
BlackRock Capital Appreciation Portfolio	BlackRock Healthcare Fund	BlackRock Pacific Fund
BlackRock Developing Capital Markets Fund	BlackRock Health Sciences Opportunities Portfolio	BlackRock Prepared Portfolios†
BlackRock Equity Dividend Fund	BlackRock Index Equity Portfolio*	BlackRock Small Cap Core Equity Portfolio
BlackRock EuroFund	BlackRock International Fund	BlackRock Small Cap Growth Equity Portfolio
BlackRock Focus Twenty Fund	BlackRock International Index Fund	BlackRock Small Cap Growth Fund II
BlackRock Focus Value Fund	BlackRock International Opportunities Portfolio*	BlackRock Small Cap Index Fund
BlackRock Fundamental Growth Fund	BlackRock International Value Fund	BlackRock Small Cap Value Equity Portfolio*
BlackRock Global Allocation Fund†	BlackRock Investment Trust	BlackRock Small/Mid-Cap Growth Portfolio
BlackRock Global Dynamic Equity Fund	BlackRock Large Cap Core Fund	BlackRock S&P 500 Index Fund
BlackRock Global Financial Services Fund	BlackRock Large Cap Growth Fund	BlackRock U.S. Opportunities Portfolio
BlackRock Global Growth Fund	BlackRock Large Cap Value Fund	BlackRock Utilities and Telecommunications Fund
BlackRock Global Opportunities Portfolio	BlackRock Latin America Fund	BlackRock Value Opportunities Fund
Fixed Income Portfolios
BlackRock Bond Fund	BlackRock High Yield Bond Portfolio	BlackRock Low Duration Bond Portfolio
BlackRock Commodity Strategies Fund	BlackRock Inflation Protected Bond Portfolio	BlackRock Managed Income Portfolio
BlackRock Enhanced Income Portfolio	BlackRock Intermediate Bond Portfolio II	BlackRock Short-Term Bond Fund
BlackRock GNMA Portfolio	BlackRock Intermediate Government	BlackRock Total Return Portfolio
BlackRock Government Income Portfolio	Bond Portfolio	BlackRock Total Return Portfolio II
BlackRock High Income Fund	BlackRock International Bond Portfolio	BlackRock World Income Fund
Municipal Bond Portfolios
BlackRock AMT-Free Municipal Bond Portfolio	BlackRock Intermediate Municipal Fund	BlackRock New York Municipal Bond Fund
BlackRock California Insured Municipal Bond Fund	BlackRock Kentucky Municipal Bond Portfolio	BlackRock Ohio Municipal Bond Portfolio
BlackRock Delaware Municipal Bond Portfolio	BlackRock Municipal Insured Fund	BlackRock Pennsylvania Municipal Bond Fund
BlackRock Florida Municipal Bond Fund	BlackRock National Municipal Fund	BlackRock Short-Term Municipal Fund
BlackRock High Yield Municipal Fund	BlackRock New Jersey Municipal Bond Fund
Money Market Portfolios
BlackRock Money Market Portfolio	BlackRock NJ Municipal MM Portfolio	BlackRock Summit Cash Reserves Fund*
BlackRock Municipal Money Market Portfolio	BlackRock OH Municipal MM Portfolio	BlackRock U.S. Treasury MM Portfolio
BlackRock NC Municipal MM Portfolio	BlackRock PA Municipal MM Portfolio	BlackRock VA Municipal MM Portfolio

* See the prospectus for information on specific limitations on investments in the fund.

† Mixed asset fund.

BlackRock mutual funds are distributed by BlackRock Distributors, Inc. and certain funds are also distributed by FAM Distributors, Inc. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling 800-882-0052 or from your financial advisor. The prospectus should be read carefully before investing.

Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed by PNC Bank, National Association or any other bank and shares are not federally insured by, guaranteed by, obligations of or otherwise supported by the U.S. Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Investments in shares of the fund involve investment risks, including the possible loss of the principal amount invested.

IE-3/07-SAR

ALTERNATIVES    BLACKROCK SOLUTIONS    EQUITIES    FIXED INCOME    LIQUIDITY REAL    ESTATE

BlackRock Funds Exchange Portfolio
SEMI-ANNUAL REPORT | MARCH 31, 2007 (UNAUDITED)

NOT FDIC INSURED

MAY LOSE VALUE

NO BANK GUARANTEE

BLACKROCK FUNDS

TABLE OF CONTENTS

Shareholder Letter	1
Portfolio Summary	2-3
Schedule of Investments	4-5
Portfolio Financial Statements
Statement of Assets and Liabilities	6
Statement of Operations	7
Statements of Changes in Net Assets	8
Financial Highlights	9
Notes to Financial Statements	10-14

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 Web sites.

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

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

BLACKROCK EXCHANGE PORTFOLIO

March 31, 2007

Dear Shareholder:

For most financial markets, 2007 opened just as 2006 ended — on a positive trajectory. At the end of February and into March, however, global equity markets registered their first significant decline since last summer. The market jitters were triggered by a significant setback in the Chinese market and were exacerbated by several concerns, notably a weakening economy, some disappointing corporate earnings announcements, escalating geopolitical concerns in the Middle East and increasing delinquencies in the subprime mortgage market. Despite the recent spate of volatility, underlying stock market fundamentals appear quite sound, supported by a generally favorable global economic backdrop, tame inflation, relatively low interest rates and attractive valuations.

Not unlike the equity market, the bond market also has seen volatility recently as observers have attempted to interpret mixed economic signals. A bond market rally late last year reversed itself early in 2007 as economic data strengthened. Prices improved (and yields fell) again in February as equities struggled, but retrenched slightly in March. Notably, the Treasury curve remained inverted for much of 2006 and into 2007. The 30-year Treasury yield stood at 4.84% at the end of March 2007, while the one-month Treasury offered the highest yield on the curve at 5.07%.

For its part, the Federal Reserve Board (Fed) left the target short-term interest rate on hold at 5.25% since first pausing in its rate-hiking campaign on August 8, 2006. Although the central bankers continue to express concern about potential inflationary pressures, they also have made reference to signs of economic weakness in their public statements. Most observers expect the Fed to keep interest rates on hold for now.

Notwithstanding some recent volatility, most major market indexes managed to post positive returns for the semi-annual reporting period ended March 31, 2007:

Total returns as of March 31, 2007

	SIX-MONTH PERIOD
U.S. equities (Standard & Poor’s 500 Index)	+7.38	%
Small cap U.S. equities (Russell 2000 Index)	+11.02	%
International equities (MSCI Europe, Australasia, Far East Index)	+14.85	%
Fixed income (Lehman Brothers Aggregate Bond Index)	+2.76	%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index)	+1.93	%
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index)	+7.02	%

If recent market movements are any guide, 2007 could be a year of enhanced volatility. As you navigate the uncertainties of the financial markets, we encourage you to review your investment goals with your financial professional and to make portfolio changes, as needed. For more reflection on the markets, please ask your financial professional for the latest issue of “What’s Ahead in 2007: First Quarter Update,” or view it online at www.blackrock.com/funds.

We thank you for trusting BlackRock with your investment assets, and we look forward to continuing to serve you in the months and years ahead.

Sincerely,

Frank Porcelli

Managing Director and Head of BlackRock Private Client Group

THIS PAGE NOT PART OF YOUR FUND REPORT

1

BLACKROCK EXCHANGE PORTFOLIO

Total Net Assets (3/31/07): $290.8 million

Performance Benchmark:

S&P 500^® Index

Investment Approach:

Seeks to provide long-term growth of capital and consequent long-term growth of income by investing largely in a diversified and supervised portfolio of common stocks, or securities convertible into common stocks, believed by management to have growth potential over the years. In pursuing the Portfolio’s investment objective, the management team seeks to minimize the recognition of capital gains.

Recent Portfolio Management Activity:

• The Portfolio underperformed the benchmark index for the semiannual period.

• Stocks managed to finish the period in solid positive territory, despite being subjected to heightened volatility along the way. The S&P 500^® Index posted a 7.38% gain during the period, with all 10 sectors of the Index turning in positive returns.

• The top-performing sectors within the benchmark S&P 500^® Index were materials and energy, while the healthcare and information technology (IT) sectors were the weakest.

• From a size perspective, small-cap stocks ended the six-month period ahead of large-cap stocks. There was some disparity between style leadership, as value outperformed growth within the mid- to large-cap universe, while growth outperformed value among small-cap stocks.

• In this environment, overall allocation and security selection effects detracted from the Portfolio’s performance versus its benchmark. Specifically, weakness in the financials, healthcare and materials sectors had a negative impact on returns.

• Stock selection in the IT sector was the most prominent positive performance factor, as our holdings significantly outperformed benchmark positions. Our position in First Data Corp. proved to be the largest contributor among IT stocks, as shares of the IT services company rose more than 18% during the period. Positions in International Business Machines (IBM) and Hewlett-Packard also helped returns. Portfolio returns also were aided by an overweight position in the energy sector, as it was one of the best-performing areas in the benchmark.

• An underweight position in the financials sector partially offset the negative effect of stock selection in this group. While stock selection was positive in most financials industry groups, select positions in the consumer finance industry created a drag. Student lender SLM Corp. and credit card provider American Express were among the largest individual detractors. Within healthcare, some of our large-cap pharmaceutical holdings came under pressure during the period. Overweight positions in AstraZeneca, Novartis and Wyeth detracted from returns, as these stocks declined during the period. Lack of exposure to the top-performing materials sector also had a negative impact on returnsrelativetothebenchmark.

• At the end of the semiannual period, the Portfolio’s largest overweights relative to the S&P 500^® Index were in the consumer staples, healthcare and energy sectors, and its most significant underweights were in consumer discretionary, utilities and telecommunication services.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE EXCHANGE PORTFOLIO AND THE S&P 500^® INDEX FOR THE PAST TEN YEARS.

FOR PERIOD ENDING MARCH 31, 2007

Exchange Portfolio - Average Annual Return

	6 Months		1 Year		5 Year		10 Year
BlackRock Class	5.08	%	8.57	%	3.99	%	7.59	%
S&P 500® Index	7.38	%	11.83	%	6.27	%	8.20	%

THE INCEPTION DATE OF THE PORTFOLIO WAS 12/17/76.

SHARES OF THE FUND ARE NOT CURRENTLY OFFERED TO THE PUBLIC.

PASTPERFORMANCEISNOTPREDICTIVEOFFUTURERESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio’s composition will vary.

2

BLACKROCK EXCHANGE PORTFOLIO

FUND PROFILE

Top Ten Holdings (% of long-term investments)
American Express Co.	5.9	%
Exxon Mobil Corp.	5.8
The Procter & Gamble Co.	5.4
Target Corp.	5.1
Hewlett-Packard Co.	4.8
Berkshire Hathaway, Inc. - Class B	4.6
Schlumberger Ltd.	4.6
The Boeing Co.	4.0
General Electric Co.	3.9
Microsoft Corp.	3.5
Total	47.6	%

Top Ten Industries (% of long-term investments)
Oil & Gas	13.6	%
Finance	12.5
Pharmaceuticals	8.8
Computer & Office Equipment	8.2
Retail Merchandising	7.6
Aerospace	6.5
Computer Software & Services	6.0
Soaps & Cosmetics	5.4
Beverages & Bottling	4.8
Conglomerates	4.6
Total	78.0	%

EXPENSEEXAMPLE

As a shareholder of the Portfolio, you incur ongoing costs, including advisory fees, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses		Hypothetical Expenses (5% return before expenses)
	BlackRock Class		BlackRock Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,050.80		1,021.97
Expenses Incurred During Period (10/01/06 - 3/31/07)		3.07		3.03

For the BlackRock share class of the Portfolio, expenses are equal to the annualized expense ratio of 0.60%, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

3

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

BLACKROCK EXCHANGE PORTFOLIO

As of March 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
COMMON STOCKS — 99.6%
Aerospace — 6.5%
The Boeing Co.	131,800		11,718,338
General Dynamics Corp.(b)	93,000		7,105,200
			18,823,538
Banks — 2.1%
JPMorgan Chase & Co.	124,728		6,034,341
Beverages & Bottling — 4.8%
Anheuser-Busch Cos., Inc.	192,315		9,704,215
The Coca-Cola Co.	87,735		4,211,280
			13,915,495
Computer & Office Equipment — 8.2%
Dell, Inc.(b)(c)	50,183		1,164,747
Hewlett-Packard Co.	349,270		14,019,698
International Business Machines Corp.(b)	92,371		8,706,891
			23,891,336
Computer Software & Services — 6.0%
First Data Corp.	266,480		7,168,312
Microsoft Corp.(b)	367,277		10,236,010
			17,404,322
Conglomerates — 4.6%
Berkshire Hathaway, Inc. - Class B(b)(c)	3,687		13,420,680
Electronics — 0.8%
Agilent Technologies, Inc.(c)	29,749		1,002,244
Intel Corp.	70,215		1,343,213
			2,345,457
Finance — 12.4%
American Express Co.(b)	305,626		17,237,306
Ameriprise Financial, Inc.	61,125		3,492,682
SLM Corp.(b)	233,200		9,537,880
Western Union Co.	266,480		5,849,236
			36,117,104
Food & Agriculture — 0.2%
General Mills, Inc.	8,497		494,695
Insurance — 2.2%
American International Group, Inc.	94,900		6,379,178
Machinery & Heavy Equipment — 2.8%
Caterpillar, Inc.	124,256		8,328,880
Manufacturing — 3.9%
General Electric Co.	317,848		11,239,105
Medical & Medical Services — 3.4%
Millipore Corp.(b)(c)	135,965		9,853,383
Medical Instruments & Supplies — 3.6%
Johnson & Johnson	124,195		7,483,991
Medtronic, Inc.(b)	60,000		2,943,600
			10,427,591
Oil & Gas — 13.6%
BP Plc - ADR	116,846		7,565,778
Exxon Mobil Corp.	224,345		16,926,830
Schlumberger Ltd.(b)	191,551		13,236,174
Transocean, Inc.(b)(c)	21,148		1,727,792
			39,456,574
Pharmaceuticals — 8.8%
AstraZeneca Plc(b)	76,000	$	4,077,400
Merck & Co., Inc.	83,999		3,710,236
Novartis AG - ADR(b)	169,030		9,234,109
Pfizer, Inc.	89,719		2,266,302
Wyeth	125,465		6,277,014
			25,565,061
Retail Merchandising — 7.5%
Target Corp.	248,429		14,721,902
Wal-Mart Stores, Inc.	154,700		7,263,165
			21,985,067
Soaps & Cosmetics — 5.3%
The Procter & Gamble Co.	246,400		15,562,624
Telecommunications — 0.6%
Vodafone Group Plc — ADR	64,452		1,731,181
Tobacco — 2.3%
Altria Group, Inc.	77,000		6,761,370
TOTAL COMMON STOCKS
(Cost $72,648,999)			289,736,982
SHORT TERM INVESTMENTS — 0.3%
Galileo Money Market Fund,
5.02%(d) (Cost $762,805)	762,805		762,805
TOTAL MARKET VALUE OF SECURITIES BEFORE SECURITIES LENDING COLLATERAL AND AFFILIATED INVESTMENTS — 99.9% (Cost $ 73,411,804)			290,499,787

	MATURITY	PAR /SHARES (000)
SECURITIES LENDING COLLATERAL — 3.7%
Bank of America Corp., Master
Notes
5.51%(e)(f)	04/02/07	$	4,139		4,139,419
The Bear Stearns Cos., Inc.,
Variable Rate Commercial
Paper
5.51%(e)(f)	04/02/07		1,457		1,456,876
Citigroup, Inc., Master Notes
5.51%(e)(f)	04/02/07		5,145		5,144,654
Morgan Stanley, Variable Rate
Commercial Paper
5.50%(e)(f)	04/02/07		92		92,214
TOTAL SECURITIES LENDING COLLATERAL
(Cost $ 10,833,163)					10,833,163
AFFILIATED INVESTMENTS — SHORT TERM — 16.4%
Institutional Money Market Trust,
4.80%(d)(f) (Cost $ 47,692,142)			47,692		47,692,142
TOTAL INVESTMENTS IN SECURITIES — 120.0%
(Cost $131,937,109(a))					349,025,092
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (20.1)%					(58,525,305	)
OTHER ASSETS IN EXCESS OF LIABILITIES — 0.1%					279,569
NET ASSETS — 100.0%				$	290,779,356

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

4

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

BLACKROCK EXCHANGE PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

(a) Cost for federal income tax purposes is $127,221,620. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	223,176,755
Gross unrealized depreciation		(1,373,283	)
	$	221,803,472

(b) Total or partial security on loan.

(c) Non-income producing security.

(d) Represents current yield as of March 31, 2007.

(e) Variable rate security. Rate shown is the rate as of March 31, 2007.

(f) Security purchased with the cash proceeds from securities loaned.

KEY TO INVESTMENT ABBREVIATIONS

ADR    American Depository Receipts

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

5

BLACKROCK FUNDS

STATEMENT OF ASSETS AND LIABILITIES

BLACKROCK EXCHANGE PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

ASSETS
Investments - unaffiliated, at value1,2	$	290,499,787
Collateral received from securities loaned - unaffiliated, at value3		10,833,163
Collateral received from securities loaned - affiliated, at value4		47,692,142
Dividends receivable		503,229
Interest receivable		7,085
Receivable from advisor		910
Capital shares sold receivable		24
Prepaid expenses		3,368
TOTAL ASSETS		349,539,708
LIABILITIES
Payable upon return of securities loaned		58,525,305
Advisory fees payable		121,897
Foreign taxes payable		27,416
Administration fees payable		18,375
Transfer agent fees payable		6,734
Custodian fees payable		5,086
Officers’ and trustees’ fees payable		56
Other accrued expenses payable		55,483
TOTAL LIABILITIES		58,760,352
NET ASSETS	$	290,779,356
1        Cost of Investments	$	73,411,804
2        Market value of securities loaned		56,693,497
3        Cost of collateral received from securities loaned		10,833,163
4        Cost of investment in affiliate		47,692,142
AT MARCH 31, 2007, NET ASSETS CONSISTED OF:
Capital Paid in	$	69,561,549
Undistributed net investment income		988,077
Accumulated net realized gain on investment transactions		3,141,747
Net unrealized appreciation on investment transactions		217,087,983
	$	290,779,356
BlackRock Shares:
Net Assets	$	290,779,356
Shares outstanding, unlimited number of shares authorized with a $0.001 par value		483,422
Net Asset Value, offering and redemption price per share	$	601.50

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

6

BLACKROCK FUNDS

STATEMENT OF OPERATIONS

BLACKROCK EXCHANGE PORTFOLIO

FOR THE SIX MONTHS ENDED MARCH 31, 2007 (UNAUDITED)

Investment income:
Interest	$	488
Securities lending income (Note C)		31,537
Dividends		2,535,919
Interest from affiliates (Note C)		66
Foreign taxes witheld		(27,416	)
Total investment income		2,540,594
Expenses:
Investment advisory fees		742,563
Administration fees		148,513
Legal and audit fees		20,323
Custodian fees		14,731
Officers’ and trustees’ fees		12,289
Printing fees		7,450
Transfer agent fees		5,522
Other		6,815
Total expenses		958,206
Less investment advisory fees waived		(24,479	)
Less administration fees waived		(37,129	)
Less transfer agent fees reimbursed		(5,495	)
Less fees paid indirectly (Note C)		(27	)
Net expenses		891,076
Net investment income		1,649,518
Realized and unrealized gain (loss) on:
Net realized gain (loss) from:
Investment transactions		(1,213,930	)
Redemption-in-kind transactions (Note B)		10,860,351
		9,646,421
Change in unrealized appreciation/depreciation from:
Investments		3,446,314
Net gain on investments transactions		13,092,735
Net increase in net assets resulting from operations	$	14,742,253

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

7

BLACKROCK FUNDS

STATEMENTS OF CHANGES IN NET ASSETS

BLACKROCK EXCHANGE PORTFOLIO

	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase (decrease)in net assets:
Operations:
Net investment income.	$	1,649,518		$	3,473,414
Net realized loss on investment transactions		(1,213,930	)		(404,127	)
Net realized gain on redemption-in-kind transactions		10,860,351			8,650,394
Change in unrealized appreciation/depreciation on investments		3,446,314			13,321,792
Net increase in net assets resulting from operations		14,742,253			25,041,473
Dividends to shareholders from:
Net investment income		(1,513,072	)		(3,313,041	)
Capital share transactions:
Shares issued in reinvestment of dividends		249,157			515,422
Shares redeemed		(16,249,856	)		(21,209,073	)
Net decrease in net assets resulting from capital share transactions		(16,000,699	)		(20,693,651	)
Total increase (decrease) in net assets		(2,771,518	)		1,034,781
Net assets:
Beginning of period		293,550,874			292,516,093
End of period	$	290,779,356		$	293,550,874
End of period undistributed net investment income	$	988,077		$	851,631

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

8

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE NINE MONTHS FOR THE ENDED 9/30/05			FOR THE YEAR ENDED 12/31/041			FOR THE YEAR ENDED 12/31/03			FOR THE YEAR ENDED 12/31/022			FOR THE YEAR ENDED 12/31/012
Per share operating performance:
Net asset value, beginning of period	$	575.50		$	533.63		$	520.73		$	490.99		$	411.01		$	511.71		$	575.76
Net investment income		3.33	3		6.63	3		4.10	3		7.61			5.40			4.74			4.22
Net realized and unrealized gain (loss) on investments		25.74			41.58			11.80			29.63			80.08			(100.64	)		(64.02	)
Distributions from net investment income .		(3.07	)		(6.34	)		(3.00	)		(7.50	)		(5.50	)		(4.80	)		(4.25	)
Net asset value, end of period	$	601.50		$	575.50		$	533.63		$	520.73		$	490.99		$	411.01		$	511.71
Total Return		5.08	%4		9.06	%		3.10	%4		7.63	%		20.89	%		(18.78	)%		(10.35	)%
Ratios/Supplemental data:
Net assets, end of period (in thousands)	$	290,779		$	293,551		$	292,516		$	299,352		$	309,699		$	268,503		$	367,640
Ratio of expenses to average net assets		0.60	%5		0.60	%		0.60	%5		0.61	%		0.59	%		0.60	%		0.57	%
Ratio of expenses to average net assets (excluding waivers)		0.65	%5		0.67	%		0.71	%5		0.61	%		0.59	%		0.60	%		0.57	%
Ratio of net investment income to average net assets		1.11	%5		1.20	%		1.06	%5		1.47	%		1.20	%		1.00	%		0.81	%
Ratio of net investment income to average net assets (excluding waivers)		1.06	%5		1.13	%		0.95	%5		1.47	%		1.20	%		1.00	%		0.81	%
Portfolio turnover		1	%		—			—			4	%		5	%		3	%		1	%

¹ During the year ended December 31, 2004, the Advisor reimbursed the Portfolio as part of an internal review regarding the use of fund brokerage commissions. These payments increased net realized and unrealized gain on investments per share by $0.17 and increased total return by 0.04%.

² Audited by other auditors.

³ Calculated using the average shares outstanding method.

⁴ Not annualized.

⁵ Annualized.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

9

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(A) Organization

BlackRock Funds^SM (the “Fund”) was organized on December 22, 1988 as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. As of March 31, 2007, the Fund had 49 registered portfolios. These financial statements relate to the Fund’s Exchange Portfolio (the “Portfolio”). The Portfolio is authorized to issue an unlimited number of shares with a par value of $0.001.

Under the Fund’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund considers the risk of loss from such claims to be remote.

(B) Summary of Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.

Investment Valuation — Valuation of investments held by the Portfolio is as follows: investments traded on a national securities exchange or on the NASDAQ National Market System are valued at the last reported sale price that day or the NASDAQ official closing price, if applicable; investments traded on a national securities exchange for which there were no sales on that day and investments traded on other over-the-counter markets for which market quotations are readily available are valued at the mean of the bid and asked prices. The amortized cost method of valuation will be used with respect to debt obligations with 60 days or less remaining to maturity unless the investment advisor under the supervision of the Board of Trustees (the “Board”) determines such method does not represent fair value. Any assets which are denominated in a non-U.S. currency are translated into U.S. dollars at the prevailing market rates. In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the market value of such investment, the investment will be valued by, under the direction of or in accordance with a method approved by the Board as reflecting fair value (“Fair Value Assets”). The investment advisor will submit its recommendations regarding the valuation and/or valuation methodologies for Fair ValueAssets to the Portfolio’s valuation committee. Such valuation committee may accept, modify or reject any recommendations. The pricing of all Fair Value Assets shall be subsequently reported to the Board or a committee thereof.

When determining the price for Fair Value Assets, the investment advisor shall seek to determine the price that the Portfolio might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the advisor deems relevant. As of March 31, 2007, there were no fair valued securities.

In September 2006, Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. At this time, management is evaluating the implications of FAS 157 and its impact on the Portfolios’ financial statements, if any, has not been determined.

In addition, in February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”), which is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FAS 157. FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. FAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. At this time, management is evaluating the implications of FAS 159 and its impact on the Portfolios’ financial statements, if any, has not been determined.

Dividends to Shareholders — Dividends from net investment income, which are recorded on the ex-dividend date, are declared and paid at least annually for the Portfolio. Net realized short-term capital gains, if any, are distributed annually. The Portfolio’s current practice is to retain long-term capital gains and to pay federal taxes thereon at corporate capital gain tax rates on behalf of the shareholders.

10

BLACKROCK FUNDS

Investment Transactions and Investment Income — Investment transactions are accounted for on the trade date. The cost of investments sold and the related gain or loss thereon is determined by use of the specific identification method, generally high cost, for both financial reporting and federal income tax purposes. Interest income is recorded on the accrual basis. Discounts and premiums on debt securities are accreted or amortized, respectively, for book and tax purposes using the effective yield-to-maturity method over the term of the instrument. Dividends are recorded on the ex-dividend date.

Repurchase Agreements — Money market instruments may be purchased from financial institutions, such as banks and non-bank dealers, subject to the seller’s agreement to repurchase them at an agreed upon date and price. Collateral for repurchase agreements may have longer maturities than the maximum permissible remaining maturity of portfolio investments, provided the repurchase agreements themselves mature in 13 months or less. The seller is required on a daily basis to maintain the value of the securities subject to the agreement at not less than the repurchase price. The agreements are conditioned upon the collateral being deposited under the Federal Reserve book entry system or held in a separate account by the Portfolio’s custodian or an authorized securities depository.

Redemptions-In-Kind — The Portfolio transferred securities and cash due to redemptions-in-kind. For purposes of generally accepted accounting principles, these transactions were treated as a sale of securities and the resulting gains and losses were recognized based on the market value of the securities on the date of the transfer. For tax purposes, no gains or losses were recognized. Gains and losses resulting from such redemptions in-kind are disclosed separately in the Statement of Operations.

Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) requires the use of management estimates. Actual results could differ from these estimates and such differences could be material.

Other — Expenses that are directly related to the Portfolio are charged directly to the Portfolio. Other operating expenses are prorated to the Portfolio on the basis of relative net assets.

(C) Agreements and Other Transactions with Affiliates and Related Parties

Pursuant to an Investment Advisory Agreement, BlackRock Advisors, LLC (“BlackRock”), an indirect wholly-owned subsidiary of BlackRock, Inc., serves as the investment advisor. For its advisory services, BlackRock is entitled to receive fees, computed daily and payable monthly, at the annual rate of 0.50% of the Portfolio’s average daily net assets. Merrill Lynch & Co., Inc.(“Merrill Lynch”) and The PNC Financial Services Group, Inc. (“PNC”) are principal owners of BlackRock, Inc.

PFPC Trust Company (“PTC”), an indirect wholly-owned subsidiary of PNC, serves as custodian for the Portfolio. For these services, the custodian receives a custodian fee computed daily and payable monthly, based on a percentage of the average daily gross assets of the Portfolio.

Prior to February 1, 2006, the fee was paid at the following annual rates: 0.01% of the first $250 million of average gross assets, 0.009% of the next $250 million of average gross assets, 0.0075% of the next $250 million of average gross assets, 0.007% of the next $250 million of average of gross assets, 0.006% of the next $250 million of average gross assets and 0.005% of average gross assets in excess of $1.25 billion; plus per transaction charges and other miscellaneous fees incurred on behalf of the Portfolio.

Effective February 1, 2006, the fee was paid at the following annual rates: 0.0073% of the first $250 million of average gross assets, 0.006% of the next $250 million of average gross assets, 0.0056% of the next $250 million of average gross assets, 0.0048% of the next $250 million of average gross assets, and 0.004% of average gross assets in excess of $1 billion; plus per transaction charges and other miscellaneous fees incurred on behalf of the Portfolio.

PFPC, Inc. (“PFPC”), an indirect wholly-owned subsidiary of PNC, serves as transfer and dividend disbursing agent.

Prior to February 1, 2006, the Portfolio bore a transfer agent fee at an annual rate not to exceed 0.005% of the average daily net assets plus per account fees and disbursements.

Effective February 1, 2006, transfer agency fees are comprised of those fees charged for all shareholder communications including shareholder reports, dividend and distribution notices, and proxy materials for shareholders meetings. The Portfolio is also charged per account and per transaction fees related to servicing and maintenance of shareholder accounts, including the issuing, redeeming and transferring of shares of each class of each Portfolio, 12b-1 fee calculation, check writing, anti-money laundering services, and customer identification services.

11

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Pursuant to written agreements, Merrill Lynch provides the Portfolio sub-accounting, recordkeeping, sub-transfer agency and other administrative services with respect to sub-accounts they service. For these services, Merrill Lynch receives an annual fee per shareholder account which will vary depending on share class. For the six months ended March 31, 2007, the Portfolio paid to Merrill Lynch $507 in return for these services.

PFPC and BlackRock act as co-administrators for the Portfolio. For these services, the co-administrators receive a combined administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of the Portfolio. Prior to February 1, 2006, the fee was paid at the following annual rates: 0.085% of the first $500 million, 0.075% of the next $500 million and 0.065% of assets in excess of $1 billion. In addition, the Portfolio was charged an administration fee of 0.035% of the first $500 million, 0.025% of the next $500 million and 0.015% of assets in excess of $1 billion. Effective February 1, 2006, the combined administration fee is paid at the following annual rates: 0.075% of the first $500 million, 0.065% of the next $500 million and 0.055% of assets in excess of $1 billion. In addition, the Portfolio is charged an administration fee based on the following percentage of average daily net assets of each respective class: 0.025% of the first $500 million, 0.015% of the next $500 million and 0.005% of assets in excess of $1 billion. In addition, PFPC and BlackRock may have, at their discretion, voluntarily waived all or any portion of their administration fees for the Portfolio.

BlackRock and the Fund contractually agreed to waive or reimburse fees or expenses until February 1, 2008, in order to limit expenses to 0.60% of the Portfolio’s average daily net assets. These expense limits apply to the aggregate expenses incurred on a share class (excluding: interest, taxes, brokerage commissions, expenses incurred as a result of investments in other funds and other expenses attributable to, and incurred as a result of, a Portfolio’s investments and other extraordinary expenses). This agreement is reviewed annually by the Fund’s Board.

If within two years following a waiver or reimbursement the operating expenses of a share class that previously received a waiver or reimbursement from BlackRock are less than the expense limit for that share class, the share class is required to repay BlackRock up to the amount of fees waived or expenses reimbursed under the agreement if: (1) the Portfolio of which the share class is a part has more than $50 million in assets, (2) BlackRock or an affiliate continues to be the Portfolio’s investment advisor or administrator and (3) the Board approved the payments to BlackRock at the previous quarterly meeting.

At March 31, 2007, the amounts subject to possible future reimbursement under the expense limitation agreement are as follows:

EXPIRING JANUARY 31, 2010	TOTAL WAIVERS SUBJECT TO REIMBURSEMENT
$17,837	$17,837

Under terms of the Agreement and Plan of Reorganization of State Street Research Exchange Fund, fees waived by BlackRock through February 1, 2007, on the BlackRock class of the Portfolio are not subject to future recoupment by BlackRock.

Through agreements with PTC and BlackRock Investment Management, LLC (“BIMC”), the Portfolio may lend portfolio securities to certain brokers, dealers or other financial institutions that pay the Portfolio a negotiated fee. Prior to the close of each business day, loans of U.S. securities are secured by collateral equal to at least 102% of the market value of the securities on loan. Loans of foreign securities are secured by collateral equal to at least 105% of the market value of securities on loan. However, due to market fluctuations, the value of the securities lent may exceed the value of the collateral. On the next business day, the collateral is adjusted based on the prior day’s market fluctuations and the current day’s lending activity. Cash collateral received in connection with the securities lending is invested in short-term investments by the lending agent. The lending agent has hired BlackRock Capital Management, Inc. (“BCM”), an indirect wholly-owned subsidiary of BlackRock, and pays BCM to provide advisory services with respect to the collateral of all of the clients of its securities lending program. The lending agent and BIMC may invest such collateral in short-term investments, including the Institutional Money Market Trust (the “Trust”), an affiliate of the Fund, a portfolio of money market securities, or high-quality, short-term instruments with a maturity date not to exceed 397 days. The securities lending income included in the accompanying Statement of Operations is principally derived from investments in the Trust and accordingly represents income earned from an affiliate. BCM serves as investment advisor to the Trust but receives no fees from the Trust for these services. Administrative and accounting services for the Trust are provided by PFPC, an indirect wholly-owned subsidiary of PNC. PFPC is paid a fee from the Trust at an annual rate not to

12

BLACKROCK FUNDS

exceed 0.10% of the Trust’s average daily net assets. At March 31, 2007, the market value of securities on loan, cash collateral invested in the Trust and total value of collateral held in connection with securities lending is summarized as follows:

MARKET VALUE OF SECURITIES ON LOAN	MARKET VALUE OF CASH COLLATERAL INVESTED IN AFFILIATES	TOTAL MARKET VALUE OF COLLATERAL RECEIVED
$ 56,693,497	$47,692,142	$58,525,305

In the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings.

For the six months ended March 31, 2007, short term investments in companies assumed to be an affiliate of the Portfolio were as follows:

AFFILIATED INVESTMENTS	NET ACTIVITY			MARKET VALUE OF AFFILIATES AT MARCH 31, 2007
Institutional Money Market Trust	$	27,820,757		$	47,692,142
Merrill Lynch, Floating Rate Notes		(3,172,590	)		—

The Portfolio may earn income on positive cash balances in demand deposit accounts that are maintained by PFPC on behalf of the Portfolio. The income earned for the six months ended March 31, 2007, was $66. The Portfolio may also receive earnings credits related to cash balances with PFPC which are shown on the Statement of Operations as “fees paid indirectly.”

(D) Purchases and Sales of Securities

For the six months ended March 31, 2007, purchases and sales of securities, but excluding short-term and U.S. government securities were $1,788,839 and $18,839,379, including $14,079,962 representing redemptions-in-kind, respectively. There were no purchases or sales of U.S. government securities for the six months ended March 31, 2007.

(E) Capital Shares

Transactions in capital shares for each period were as follows:

	FOR THE SIX MONTHS ENDED 3/31/07		FOR THE YEAR ENDED 9/30/06
Shares issued in reinvestment of dividends	410		936
Shares redeemed	(27,065	)1	(39,026	)2
Net decrease	(26,655	)	(38,090	)

¹ Including (23,707) representing redemptions-in-kind.

² Including (30,089) representing redemptions-in-kind.

On March 31, 2007, one shareholder held approximately 16% of the outstanding shares of the Portfolio.

(F) Short-Term Borrowings

Effective November 29, 2006, the Portfolios, along with certain other funds managed by the Advisor and its affiliates, is a party to a $500,000,000 credit agreement dated November 22, 2006, with a group of lenders. The Portfolios may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Portfolios may borrow up to the maximum amount allowable under the Portfolios’ current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The credit agreement is for one year. The Portfolios pay a commitment fee of 0.06% per annum based on the Portfolios’ pro rata share of the unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each Portfolio’s election, the federal funds rate plus .35% or a base rate as defined in the credit agreement. The Portfolios did not borrow under the credit agreement during the six months ended March 31, 2007.

13

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)

(G) Federal Tax Information

No provision for federal income taxes is necessary with respect to net investment income because it is the Portfolio’s intention to qualify under Subchapter M of the Internal Revenue Code of 1986, as amended, and to make the requisite income distributions to its shareholders which will be sufficient to relieve it from federal income and excise taxes. The Portfolio currently retains and designates as undistributable gains all of its taxable net long-term capital gains and pays federal income taxes thereon on behalf of the shareholders. The Portfolio has a tax year end of December 31.

Dividends from net investment income are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined under accounting principles generally accepted in the United States. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in-capital or accumulated net realized gain, as appropriate, in the period that the differences arise. The following permanent differences as of December 31, 2006, attributable to redemptions in-kind distributions and securities sold with different book/tax basis, were reclassified to the following accounts:

INCREASE IN PAID IN-CAPITAL	DECREASE ACCUMULATED NET REALIZED GAIN (LOSS)
$ 9,043,929	$(9,043,929)

The tax character of distributions paid during the tax years ended December 31, 2006 and 2005 were as follows:

	ORDINARY INCOME		TOTAL DISTRIBUTIONS
12/31/06	$	3,450,062	$	3,450,062
12/31/05		3,047,801		3,047,801

As of December 31, 2006, the Portfolio had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates:

EXPIRING DECEMBER 31
2009	2010	2013	2014	TOTAL
$ 770,500	$7,112,583	$1,281,140	$233,900	$9,398,123

In July 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes”. FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Portfolio’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be booked as a tax expense in the current year and recognized as: a liability for unrecognized tax benefits; a reduction of an income tax refund receivable; a reduction of deferred tax asset; an increase in deferred tax liability; or a combination thereof. Adoption of FIN 48 is required for the last net asset value calculation in the first required financial statement reporting period for fiscal years beginning after December 15, 2006. At this time, management is evaluating the implications of FIN 48 and its impact on the Portfolios financial statements has not yet been determined.

14

BLACKROCK FUNDS

Investment Advisor

BlackRock Advisors, LLC

Wilmington, Delaware 19809

Custodian

PFPC Trust Company

Philadelphia, Pennsylvania 19153

Co-Administrator and Transfer Agent

PFPC Inc.

Wilmington, Delaware 19809

Co-Administrator

BlackRock Advisors, LLC

Wilmington, Delaware 19809

Distributor

BlackRock Distributors, Inc.

King of Prussia, Pennsylvania 19406

Counsel

Simpson Thacher & Bartlett LLP

New York, New York 10017

Independent Registered Public Accounting Firm

Deloitte & Touche LLP

Philadelphia, Pennsylvania 19103

AVAILABILITY OF SHAREHOLDER DOCUMENTS AND STATEMENTS

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

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

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

Shareholders Who Hold Accounts Directly With BlackRock

1) Access the BlackRock website at http://www.blackrock.com/edelivery

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

3) Log into your account

Important Notice Regarding Delivery of Shareholder Documents

The Fund will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and it 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 contact the Fund at (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

The Fund has delegated proxy voting responsibilities to BlackRock and its affiliates, subject to the general oversight of the Fund’s Board of Trustees. A description of the policies and procedures that BlackRock and its affiliates use to determine how to vote proxies relating to portfolio securities is available without charge, upon request on our website at www.blackrock.com, by calling (800) 441-7762, or on the website of the Securities and Exchange Commission (the “Commission”) at http://www.sec.gov.

Availability of Proxy Voting Record

Information on how proxies relating to the Fund’s voting securities were voted (if any) by BlackRock during the most recent 12-month period ended June 30th is available (if any), upon request and without charge on our website at www.blackrock.com, by calling (800) 441-7762 or on the website of the Commission at http://www.sec.gov.

Availability of Quarterly Portfolio Schedule

The Fund files its complete schedule of portfolio holdings for the first and third quarters of its fiscal year with the Commission on Form N-Q. The Fund’s Form N-Q is available on the Commission’s website at http://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information regarding the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s Form N-Q may also be obtained upon request, without charge, by calling (800) 441-7762.

Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed by PNC Bank, National Association or any other bank and shares are not federally insured by, guaranteed by, obligations of or otherwise supported by the U.S. Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Investments in shares of the fund involve investment risks, including the possible loss of the principal amount invested.

ALTERNATIVES    BLACKROCK SOLUTIONS    EQUITIES    FIXED INCOME    LIQUIDITY    REAL ESTATE

BlackRock Funds
Money Market Portfolios

SEMI-ANNUAL REPORT  |  MARCH 31, 2007 (UNAUDITED)

Money Market

U.S. Treasury Money Market

Municipal Money Market

New Jersey Municipal Money Market

North Carolina Municipal Money Market

Ohio Municipal Money Market

Pennsylvania Municipal Money Market

Virginia Municipal Money Market

NOT FDIC INSURED

MAY LOSE VALUE

NO BANK GUARANTEE

BLACKROCK FUNDS

TABLE OF CONTENTS

Shareholder Letter	1
Fund Profiles/Expense Examples
Money Market	2
U.S. Treasury Money Market	3
Municipal Money Market	4
New Jersey Municipal Money Market	5
North Carolina Municipal Money Market	6
Ohio Municipal Money Market	7
Pennsylvania Municipal Money Market	8
Virginia Municipal Money Market	9
Schedules of Investments	10-39
Key to Investment Abbreviations	40
Portfolio Financial Statements
Statements of Assets and Liabilities	42-43
Statements of Operations	44-45
Statements of Changes in Net Assets	46-47
Financial Highlights	48-63
Notes to Financial Statements	64-76

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 Web sites.

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

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

BLACKROCK FUNDS

March 31, 2007

Dear Shareholder:

For most financial markets, 2007 opened just as 2006 ended — on a positive trajectory. At the end of February and into March, however, global equity markets registered their first significant decline since last summer. The market jitters were triggered by a significant setback in the Chinese market and were exacerbated by several concerns, notably a weakening economy, some disappointing corporate earnings announcements, escalating geopolitical concerns in the Middle East and increasing delinquencies in the subprime mortgage market. Despite the recent spate of volatility, underlying stock market fundamentals appear quite sound, supported by a generally favorable global economic backdrop, tame inflation, relatively low interest rates and attractive valuations.

Not unlike the equity market, the bond market also has seen volatility recently as observers have attempted to interpret mixed economic signals. A bond market rally late last year reversed itself early in 2007 as economic data strengthened. Prices improved (and yields fell) again in February as equities struggled, but retrenched slightly in March. Notably, the Treasury curve remained inverted for much of 2006 and into 2007. The 30-year Treasury yield stood at 4.84% at the end of March 2007, while the one-month Treasury offered the highest yield on the curve at 5.07%.

For its part, the Federal Reserve Board (Fed) left the target short-term interest rate on hold at 5.25% since first pausing in its rate-hiking campaign on August 8, 2006. Although the central bankers continue to express concern about potential inflationary pressures, they also have made reference to signs of economic weakness in their public statements. Most observers expect the Fed to keep interest rates on hold for now.

Notwithstanding some recent volatility, most major market indexes managed to post positive returns for the semi-annual reporting period ended March 31, 2007:

Total returns as of March 31, 2007

	SIX-MONTH PERIOD
U.S. equities (Standard & Poor’s 500 Index)	+7.38	%
Small cap U.S. equities (Russell 2000 Index)	+11.02	%
International equities (MSCI Europe, Australasia, Far East Index)	+14.85	%
Fixed income (Lehman Brothers Aggregate Bond Index)	+2.76	%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index)	+1.93	%
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index)	+7.02	%

If recent market movements are any guide, 2007 could be a year of enhanced volatility. As you navigate the uncertainties of the financial markets, we encourage you to review your investment goals with your financial professional and to make portfolio changes, as needed. For more reflection on the markets, please ask your financial professional for the latest issue of “What’s Ahead in 2007: First Quarter Update,” or view it online at www.blackrock.com/funds.

We thank you for trusting BlackRock with your investment assets, and we look forward to continuing to serve you in the months and years ahead.

Sincerely,

Frank Porcelli

Managing Director and Head of BlackRock Private Client Group

THIS PAGE NOT PART OF YOUR FUND REPORT

1

MONEY MARKET PORTFOLIO

FUND PROFILE
Portfolio Diversification (% of portfolio)
Commercial Paper	53.7	%
Variable Rate Obligations	21.6
Certificates of Deposit	19.1
Master Notes	4.5
Repurchase Agreements	1.1
Total	100.0	%

Maturity Information
Maturity	Par		Percentage
1-7 Days	$	321,209,000	19.1	%
8-14 Days		158,320,000	9.4
15-30 Days		448,264,000	26.7
31-60 Days		159,738,000	9.5
61-90 Days		282,049,000	16.8
91-120 Days		101,155,000	6.0
121-150 Days		178,150,000	10.6
over 150 Days		31,935,000	1.9
			100.0	%
Average Weighted Maturity - 50 days

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses												Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Hilliard Lyons Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Hilliard Lyons Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,025.10		1,023.60		1,023.60		1,023.20		1,020.90		1,020.90		1,022.88		1,021.42		1,021.47		1,021.06		1,018.74		1,018.74
Expenses Incurred During Period (10/01/06 — 3/31/07)		2.12		3.58		3.53		3.93		6.25		6.25		2.12		3.58		3.53		3.94		6.26		6.26

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.42%, 0.71%, 0.70%, 0.78%, 1.24% and 1.24% for the Institutional, Service, Hilliard Lyons, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

2

U.S. TREASURY MONEY MARKET PORTFOLIO

FUND PROFILE
Portfolio Diversification (% of portfolio)
Repurchase Agreements	100.0	%
Total	100.0	%

Maturity Information
Maturity	Par		Percentage
1-7 Days	$	301,389,000	74.2	%
8-14 Days		55,000,000	13.5
15-30 Days		50,000,000	12.3
			100.0	%
Average Weighted Maturity - 8 days

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds. The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses						Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Institutional Class		Service Class		Investor A Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,024.50		1,023.10		1,023.10		1,022.93		1,021.52		1,021.47
Expenses Incurred During Period (10/01/06 — 3/31/07)		2.07		3.48		3.53		2.07		3.48		3.53

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.41%, 0.69% and 0.70% for the Institutional, Service and Investor A share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

3

MUNICIPAL MONEY MARKET PORTFOLIO

FUND PROFILE
Largest State Concentration (% of portfolio)
Illinois	10.2	%
North Carolina	9.5
Texas	8.1
Maryland	6.1
Michigan	5.9
Indiana	4.1
Alabama	4.0
Pennsylvania	4.0
Ohio	3.7
Florida	3.4
Total	59.0	%

Maturity Information
Maturity	Par		Percentage
1-7 Days	$	257,577,000	88.2	%
31-60 Days		3,000,000	1.0
61-90 Days		15,395,000	5.3
121-150 Days		3,875,000	1.3
over 150 Days		12,270,000	4.2
			100.0	%
Average Weighted Maturity - 21 days

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses								Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Hilliard Lyons Class		Investor A Class		Institutional Class		Service Class		Hilliard Lyons Class		Investor A Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,016.20		1,014.80		1,016.10		1,014.80		1,022.88		1,021.42		1,022.73		1,021.48
Expenses Incurred During Period (10/01/06 — 3/31/07)		2.11		3.57		2.26		3.51		2.12		3.58		2.27		3.52

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.42%, 0.71%, 0.45% and 0.70% for the Institutional, Service, Hilliard Lyons and Investor A share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

4

NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO

FUND PROFILE
Portfolio Diversification (% of portfolio)
Variable Rate Demand Notes	83.0	%
Municipal Bonds	13.2
Commercial Paper	3.8
Total	100.0	%

Maturity Information
Maturity	Par		Percentage
1-7 Days	$	142,071,000	86.1	%
31-60 Days		1,260,000	0.8
61-90 Days		6,611,400	4.0
121-150 Days		5,334,800	3.2
over 150 Days		9,764,700	5.9
			100.0	%
Average Weighted Maturity - 28 days

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses						Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Institutional Class		Service Class		Investor A Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,016.00		1,014.60		1,014.60		1,023.03		1,021.62		1,021.62
Expenses Incurred During Period (10/01/06 — 3/31/07)		1.96		3.37		3.37		1.97		3.38		3.38

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.39%, 0.67% and 0.67% for the Institutional, Service and Investor A share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

5

NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO

FUND PROFILE
Portfolio Diversification (% of portfolio)
Variable Rate Demand Notes	83.0	%
Municipal Bonds	9.6
Commercial Paper	6.2
Municipal Put Bonds	1.2
Total	100.0	%

Maturity Information
Maturity	Par		Percentage
1-7 Days	$	70,725,000	83.0	%
31-60 Days		3,050,000	3.6
over 150 Days		11,445,000	13.4
			100.0	%
Average Weighted Maturity - 37 days

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses						Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Institutional Class		Service Class		Investor A Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,016.50		1,015.00		1,014.80		1,023.49		1,021.97		1,021.72
Expenses Incurred During Period (10/01/06 — 3/31/07)		1.51		3.01		3.27		1.51		3.03		3.28

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.30%, 0.60% and 0.65% for the Institutional, Service and Investor A share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

6

OHIO MUNICIPAL MONEY MARKET PORTFOLIO

FUND PROFILE
Portfolio Diversification (% of portfolio)
Variable Rate Demand Notes	75.7	%
Municipal Bonds	21.4
Municipal Put Bonds	2.9
Total	100.0	%

Maturity Information
Maturity	Par		Percentage
1-7 Days	$	115,885,000	75.7	%
8-14 Days		275,000	0.2
15-30 Days		550,000	0.4
31-60 Days		2,795,000	1.8
61-90 Days		6,315,000	4.1
91-120 Days		2,520,000	1.6
121-150 Days		5,900,100	3.9
over 150 Days		18,840,000	12.3
			100.0	%
Average Weighted Maturity - 47 days

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses						Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Institutional Class		Service Class		Investor A Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,016.50		1,015.10		1,015.10		1,023.03		1,021.62		1,021.62
Expenses Incurred During Period (10/01/06 — 3/31/07)		1.96		3.37		3.37		1.97		3.38		3.38

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.39%, 0.67% and 0.67% for the Institutional, Service and Investor A share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

7

PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO

FUND PROFILE
Portfolio Diversification (% of portfolio)
Variable Rate Demand Notes	88.1	%
Commercial Paper	6.5
Municipal Put Bonds	3.5
Municipal Bonds	1.9
Total	100.0	%

Maturity Information
Maturity	Par		Percentage
1-7 Days	$	511,605,000	88.2	%
31-60 Days		42,475,000	7.3
61-90 Days		935,000	0.1
91-120 Days		8,650,000	1.5
121-150 Days		3,300,000	0.6
over 150 Days		13,295,000	2.3
			100.0	%
Average Weighted Maturity - 16 days

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses						Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Institutional Class		Service Class		Investor A Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,016.20		1,014.80		1,014.70		1,022.88		1,021.47		1,021.36
Expenses Incurred During Period (10/01/06 — 3/31/07)		2.11		3.52		3.62		2.12		3.53		3.64

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.42%, 0.70% and 0.72% for the Institutional, Service and Investor A share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

8

VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO

FUND PROFILE
Portfolio Diversification (% of portfolio)
Variable Rate Demand Notes	95.1	%
Municipal Bonds	4.6
Municipal Put Bonds	0.3
Total	100.0	%

Maturity Information
Maturity	Par		Percentage
1-7 Days	$	70,065,000	95.1	%
31-60 Days		250,000	0.3
61-90 Days		1,440,000	2.0
over 150 Days		1,900,000	2.6
			100.0	%
Average Weighted Maturity - 16 days

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses				Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Institutional Class		Service Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,016.50		1,015.00		1,023.49		1,022.02
Expenses Incurred During Period (10/01/06 — 3/31/07)		1.51		2.96		1.51		2.98

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.30% and 0.59% for the Institutional and Service classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

9

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MONEY MARKET PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CERTIFICATES OF DEPOSIT — 19.5%
Euro Dollar — 5.0%
Credit Industriel et Commercial
5.32%	04/05/07	$	67,400	$	67,400,037
5.38%	04/30/07		14,920		14,920,000
					82,320,037
Yankee — 14.5%
Banco Bilbao Vizcaya Argentina, New York
5.31%(b)	05/29/07		25,000		25,000,000
Banque Nationale de Paris, New York
5.34%(b)	07/30/07		21,000		21,000,000
5.27%(b)	10/03/07		15,505		15,505,000
Barclays Bank Plc, New York
5.32%(b)	05/08/07		25,000		25,000,000
HBOs Treasury Services Plc, New York
5.27%(b)	10/03/07		16,430		16,430,000
Mizuho Corporate Bank, New York
5.32%(b)	04/20/07		50,000		50,000,000
Norinchukin Bank, New York
5.33%(b)	04/26/07		65,000		65,000,000
5.32%(b)	05/25/07		19,000		19,000,000
					236,935,000
TOTAL CERTIFICATES OF DEPOSIT (Cost $319,255,037)					319,255,037
COMMERCIAL PAPER — 54.8%
Asset Backed Securities — 27.7%
Beta Finance, Inc.
5.20%	07/30/07		26,145		25,691,384
Cancara Asset Securitization LLC
5.25%	05/14/07		21,738		21,601,685
Greyhawk Funding LLC
5.25%	04/24/07		40,000		39,865,833
Hudson-Thames LLC
5.25%	04/25/07		15,279		15,225,524
5.25%	06/20/07		38,706		38,254,430
5.25%	06/27/07		10,143		10,014,311
Lexington Parker Capital Co.
5.20%	08/09/07		26,670		26,168,715
Liquid Funding Ltd.
5.28%	04/05/07		30,000		29,982,400
North Sea Funding LLC
5.25%	06/20/07		11,875		11,736,458
Nova Notes Program
5.26%	04/04/07		45,700		45,679,968
Sedna Finance, Inc.
5.25%	04/20/07		33,215		33,122,967
Sheffield Receivables
5.26%	04/13/07		50,000		49,912,333
Silver Tower U.S. Funding
5.25%	06/20/07		50,000		49,416,667
Valcour Bay Capital Co. LLC
5.31%	04/13/07		57,240		57,138,685
					453,811,360
Banks — 19.2%
Abbey National N.A. LLC
5.22%	06/06/07		5,070		5,021,480
Allied Irish Bank Plc
5.20%	08/06/07		8,025		7,877,644
ANZ National Ltd.
5.24%	04/24/07		50,000		49,832,611
Bank of America Corp.
5.20%	07/25/07		60,000		59,002,758
Citigroup Funding, Inc.
5.25%	05/22/07		69,000		68,486,813
5.25%	07/05/07		16,000		15,778,334
Macquarie Bank Ltd.
5.22%	08/07/07		25,275		24,805,896
5.22%	08/13/07		4,085		4,005,705
Natexis Banques Populaires
5.20%	08/10/07		8,560		8,397,870
Santander Finance, Inc.
5.20%	07/23/07		10,135		9,969,574
Skandinaviska Enskilda Bank
5.20%	08/08/07		5,790		5,682,009
Societe Generale N.A., Inc.
5.20%	07/23/07		7,620		7,495,744
Swedbank Mortgage AB
5.22%	06/04/07		7,605		7,534,358
Unicredito Italiano Bank, Ireland
5.24%	07/09/07		7,400		7,293,468
5.15%	08/09/07		34,600		33,956,536
					315,140,800
Mortgage Bankers & Correspondents — 4.8%
Countrywide Financial Corp.
5.28%	04/12/07		32,000		31,948,373
5.28%	04/13/07		19,080		19,046,419
5.29%	04/16/07		27,000		26,940,488
					77,935,280
Short-Term Business Credit Institutions — 1.0%
General Electric Capital Services
5.19%	08/21/07		18,000		17,631,510
Telephone Communications — 2.1%
Verizon Communications
5.28%	04/04/07		25,000		24,989,000
5.29%	04/19/07		9,290		9,265,428
					34,254,428
TOTAL COMMERCIAL PAPER (Cost $898,773,378)					898,773,378
MASTER NOTES — 4.6%
Security Brokers & Dealers — 4.6%
Bank of America Securities LLC
5.51%(c)	04/02/07		15,250		15,250,000
Morgan Stanley Mortgage Capital, Inc.
5.61%(c)(d)	04/02/07		59,926		59,926,000
TOTAL MASTER NOTES (Cost $75,176,000)					75,176,000
VARIABLE RATE OBLIGATIONS — 22.0%
Asset Backed Securities — 1.3%
Arkle Master Issuer Plc
5.30%(c)(e)	04/17/07		4,200		4,200,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

10

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MONEY MARKET PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
VARIABLE RATE OBLIGATIONS (Continued)
Asset Backed Securities (Continued)
Cullinan Finance Corp.
5.28%(c)	04/25/07	$	5,000	$	4,999,764
Racers Trust Series
5.34%(c)(e)	04/23/07		11,360		11,360,000
					20,559,764
Banks — 9.3%
Commonwealth Bank, Australia
5.36%(c)(e)	04/30/07		63,000		63,020,530
HBOs Treasury Services Plc
5.42%(c)(e)	06/25/07		65,000		65,000,000
Westpac Banking Corp.
5.40%(c)	06/11/07		24,250		24,250,000
					152,270,530
Life Insurance — 5.1%
MetLife Global Funding I
5.42%(c)(e)	04/30/07		15,000		15,000,000
Principal Life Income Fundings Trust
5.36%(c)	06/07/07		9,400		9,403,835
Transamerica Occidental Life Insurance Co.
5.50%(c)(d)	06/01/07		60,000		60,000,000
					84,403,835
Municipal Bonds — 1.5%
De Kalb County Development Authority University RB Series 1995B DN
5.32%(c)	04/09/07		3,375		3,375,000
North Myrtle Beach Corp. RB Series 2005 DN (National Bank of South Carolina LOC)
5.36%(c)	04/09/07		5,907		5,907,000
South Central Texas IDRB Series 1990 DN (Bank One N.A. LOC)
5.34%(c)	04/09/07		14,800		14,800,000
					24,082,000
Personal Credit Institutions — 2.7%
General Electric Capital Corp.
5.44%(c)	04/17/07		45,000		45,000,000
Security Brokers & Dealers — 2.1%
Goldman Sachs Group, Inc.
5.56%(c)(d)(e)	04/02/07		34,850		34,850,000
TOTAL VARIABLE RATE OBLIGATIONS (Cost $361,166,129)					361,166,129
REPURCHASE AGREEMENTS — 1.1%
Deutsche Bank Securities Inc.
5.38%	04/02/07		19,001		19,001,000
(Agreement dated 03/30/07 to be repurchased at $19,009,519, collateralized by $19,923,000 Federal National Mortgage Assoc. Medium Term Notes 5.63% due 04/19/35. The value of the collateral is $19,571,730.)
TOTAL REPURCHASE AGREEMENTS (Cost $19,001,000)					19,001,000
				VALUE
TOTAL INVESTMENTS IN SECURITIES — 102.0% (Cost $1,673,371,544(a))				$	1,673,371,544
LIABILITIES IN EXCESS OF OTHER ASSETS — (2.0)%					(32,844,310	)
NET ASSETS — 100.0%				$	1,640,527,234

(a) Aggregate cost for federal income tax purposes.

(b) Issuer is a U.S. branch of a foreign domiciled bank.

(c) Rates shown are the rates as of March 31, 2007 and maturities shown are the next interest readjustment date or the date the principal owed can be recovered through demand.

(d) Illiquid Security. As of March 31, 2007, the Portfolio held 9.4% of its net assets, with a current market value of $154,776,000, in illiquid securities.

(e) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional investors. As of March 31, 2007, the Portfolio held 11.8% of its net assets, with a current market value of $193,430,530, in securities restricted as to resale.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

11

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

U.S. TREASURY MONEY MARKET PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
REPURCHASE AGREEMENTS — 100.2%
Deutsche Bank Securities Inc.
5.10%	04/02/07	$	60,000	$	60,000,000
(Agreement dated 03/30/07 to be repurchased at $60,025,500, collateralized by $104,614,006 U.S. Treasury Strips and Strip Principals 0.00% due 05/15/17 to 05/15/20. The value of the collateral is $61,200,000.)
Greenwich Capital Markets, Inc.
5.15%	04/02/07		87,000		87,000,000
(Agreement dated 03/30/07 to be repurchased at $87,037,338, collateralized by $69,255,000 U.S. Treasury Inflation Indexed Securities 3.63% due 01/15/08. The value of the collateral is $88,742,719.)
Greenwich Capital Markets, Inc.
5.20%	04/11/07		15,000		15,000,000
(Agreement dated 01/11/07 to be repurchased at $15,195,000, collateralized by $11,945,000 U.S. Treasury Inflation Indexed Securities 3.63% due 01/15/08. The value of the collateral is $15,306,213.)
J.P. Morgan Securities Inc.
5.08%	04/02/07		10,000		10,000,000
(Agreement dated 03/30/07 to be repurchased at $10,004,233, collateralized by $26,510,000 U.S. Treasury Strip Principals 6.75% due 08/15/26. The value of the collateral is $10,201,844.)
Lehman Brothers Inc.
5.12%	04/02/07		100,000		100,000,000
(Agreement dated 03/30/07 to be repurchased at $100,042,667, collateralized by $76,930,000 U.S. Treasury Bonds 7.63% due 11/15/22. The value of the collateral is $102,004,244.)
Morgan Stanley & Co., Inc.
5.12%	04/02/07		44,389		44,389,000
(Agreement dated 03/30/07 to be repurchased at $44,407,939, collateralized by $51,442,000 U.S. Treasury Notes, Bonds and Strip Principals 0.00% to 4.50% due 06/07/07 to 11/15/16. The value of the collateral is $45,542,194.)
UBS Securities LLC
5.20%	04/10/07		40,000		40,000,000
(Agreement dated 01/10/07 to be repurchased at $40,520,000, collateralized by $151,575,000 U.S. Treasury Strips 0.00% due 08/15/34. The value of the collateral is $40,800,958.)
UBS Securities LLC
5.22%	04/30/07		50,000		50,000,000
(Agreement dated 03/01/07 to be repurchased at $50,435,000, collateralized by $135,835,000 U.S. Treasury Strip Principals 6.63% due 02/15/27. The value of the collateral is $51,000,613.)
TOTAL REPURCHASE AGREEMENTS (Cost $406,389,000)					406,389,000
TOTAL INVESTMENTS IN SECURITIES — 100.2% (Cost $406,389,000(a))					406,389,000
LIABILITIES IN EXCESS OF OTHER ASSETS — (0.2)%					(726,743	)
NET ASSETS — 100.0%				$	405,662,257

(a) Aggregate cost for federal income tax purposes.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

12

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MUNICIPAL MONEY MARKET PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS — 98.8%
Alabama — 4.0%
Alabama Housing Financing Authority Single Family Mortgages RB Series 2006H AMT DN (Bayerische Landesbank Girozentrale Guaranty)
3.80%(b)	04/09/07	$	3,000	$	3,000,000
Alexander City Industrial Board IDRB (Precision Millwork Project) Series 2000 AMT DN (Wachovia Bank N.A. LOC)
3.76%(b)	04/09/07		905		905,000
Geneva County Health Care Authority RB Series 2001 DN (Wachovia Bank N.A. LOC)
3.71%(b)	04/09/07		2,833		2,833,000
Jefferson County GO Warrants Series 2001B DN (J.P. Morgan Chase & Co. Guaranty, Bayerische Landesbank Girozentrale SBPA)
3.75%(b)	04/02/07		4,900		4,900,000
					11,638,000
Alaska — 0.7%
Valdez Marine Terminal RB (Phillips Transportation, Inc. Project) Series 2002 DN (ConocoPhillips Co. Guaranty)
3.77%(b)	04/09/07		2,230		2,230,000
Arizona — 3.3%
Arizona School District COP Series 2006 TAN
4.50%	07/30/07		385		386,116
Tierra Antigua Certificates RB Series 2006-1 AMT DN (AIG Retirement Services, Inc. Liquidity Facilities)
3.90%(b)(c)	04/09/07		7,777		7,777,000
Yavapai County IDRB (Yavapia Regional Medical Center Project) Series 1997B DN (FSA Insurance, Dexia Credit Local SBPA)
3.65%(b)	04/09/07		1,400		1,400,000
					9,563,116
Arkansas — 0.8%
Little Rock Residential Housing & Public Facilities Board Capital Improvement RB (Park Systems Project) Series 2001 DN (Bank of America N.A. LOC)
3.75%(b)	04/09/07		2,240		2,240,000
California — 1.0%
California PCRB Solid Waste Disposal RB (Republic Services, Inc. Project) Series 2003 AMT DN (Republic Services, Inc. Guaranty)
4.04%(b)	04/09/07		3,000		3,000,000
Colorado — 3.3%
Colorado Highway Authority RB (E-470 Project) Series 2006Z-9 DN (MBIA Insurance, The Goldman Sachs Group, Inc. Liquidity Facility)
3.71%(b)(c)	04/09/07		3,031		3,031,000
Colorado Regional Transportation District Sales Tax RB Eagle Trust Receipts Series 2006A-0128 DN (AMBAC Insurance, Citibank N.A. LOC)
3.72%(b)(c)	04/09/07		3,000		3,000,000
Lower Colorado River Authority RB Merlots Trust Receipts Series 2000 DN (FSA Insurance, Wachovia Bank N.A. SBPA)
3.69%(b)(c)	04/09/07		1,900		1,900,000
Sterling Park Certificates RB Series 2006-6 AMT DN (AIG Retirement Services, Inc. Liquidity Facilities)
3.90%(b)(c)	04/09/07		1,817		1,817,000
					9,748,000
Connecticut — 0.2%
Belmont County GO Series 2007 BAN
4.00%	03/13/08		500		501,141
Delaware — 3.3%
Delaware Economic Development Authority RB (Catholic Diocese of Wilmington Project) Series 2002 DN (Allied Irish Bank Plc LOC)
3.77%(b)	04/09/07		7,700		7,700,000
Delaware Economic Development Authority RB (St. Anne’s Episcopal School Project) Series 2001 DN (Wilmington Trust Co. LOC)
3.77%(b)	04/09/07		1,970		1,970,000
					9,670,000
District of Columbia — 2.8%
District of Columbia Ballpark RB Municipal Products, Inc. Trust Certificates Series 2006I-5 DN (FGIC Insurance, Royal Bank of Canada Liquidity Facility)
3.69%(b)(c)	04/09/07		8,365		8,365,000
Florida — 3.4%
Greater Orlando Aviation Authority RB (Special Purpose Cessna Aircraft Project) Series 2001 AMT DN (Textron, Inc. Guaranty)
4.76%(b)	04/09/07		3,400		3,400,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

13

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MUNICIPAL MONEY MARKET PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Florida (Continued)
Hillsborough County RB (Florida Health Science Center Project) Series 2006 ROC-RR-II-R-646CE DN (Citibank N.A. Guaranty, Citibank N.A. Liquidity Facility)
3.71%(b)(c)	04/09/07	$	3,400	$	3,400,000
Lee County IDRB (Raymond Building Supply Corp. Project) Series 1997 AMT DN (SunTrust Bank LOC)
3.80%(b)	04/09/07		1,225		1,225,000
Putnam County Development Authority PCRB (Seminole Electric Co-op Project) Series 1984D DN (National Rural Utilities LOC)
3.53%(b)	06/15/07		2,000		2,000,000
					10,025,000
Illinois — 9.9%
Flora RB (Heritage Woods Project) Series 2001 AMT DN (LaSalle Bank N.A. LOC)
3.84%(b)	04/09/07		2,750		2,750,000
Harvard Multi-Family Housing RB (Northfield Court Project) Series 1999 AMT DN (Fifth Third Bank N.A. LOC)
3.81%(b)	04/09/07		7,350		7,350,000
Illinois Highway Authority Toll RB Putters Series 2006-1355 DN (FSA Insurance, J.P. Morgan Chase & Co. Liquidity Facility)
3.70%(b)(c)	04/09/07		5,650		5,650,000
Metropolitan Pier & Exposition Authority Dedicated State Tax Receipts RB Municipal Securities Trust Certificates Series 2005A-224 DN (MBIA Insurance, Bear Stearns Capital Markets Liquidity Facility)
3.71%(b)(c)	04/09/07		600		600,000
Metropolitan Pier & Exposition Authority Dedicated State Tax Receipts RB Series 2005Z-5 TOCS DN (MBIA Insurance, The Goldman Sachs Group, Inc. Liquidity Facility)
3.71%(b)(c)	04/09/07		2,310		2,310,000
Metropolitan Pier & Exposition Authority RB Putters Series 2006-1508 DN (MBIA Insurance, J.P. Morgan Chase & Co. Liquidity Facility)
3.71%(b)(c)	04/09/07		3,480		3,480,000
Quad Cities Regional Economic Development Authority RB (Whitey’s Ice Cream Manufacturing Project) Series 1995 AMT DN (Bank One N.A. LOC)
4.15%(b)	04/09/07		575		575,000
Rockford RB (Fairhaven Christian Center Project) Series 2000 DN (J.P. Morgan Chase & Co. LOC)
3.95%(b)	04/09/07		1,310		1,310,000
Roselle Village IDRB (Abrasive-Form, Inc. Project) Series 1995 AMT DN (ABN-AMRO Bank N.V. LOC)
3.80%(b)	04/09/07		900		900,000
University of Illinois RB Eagle Trust Receipts Series 2006A-0124 DN (MBIA Insurance, Citibank N.A. LOC)
3.72%(b)(c)	04/09/07		4,300		4,300,000
					29,225,000
Indiana — 4.1%
Dekko Foundation Educational Facilities RB Series 2001 DN (Bank One N.A. LOC)
3.95%(b)	04/09/07		2,300		2,300,000
Elkhart County Industrial Hospital Authority RB (Oaklawn Center Project) Series 2006 DN (Citizens Financial Group LOC)
3.70%(b)	04/09/07		3,385		3,385,000
Hendricks County Industrial Redevelopment Commission Tax Increment RB (Heartland Crossing Project) Series 2000A DN (Huntington National Bank LOC)
3.80%(b)	04/09/07		2,600		2,600,000
Indiana Housing & Community Development Authority Single Family Mortgages RB Series 2006E-2 AMT RAN (Rabobank Guaranty)
3.62%	12/20/07		2,500		2,500,000
Indiana Transportation Finance Authority Highway RB Series 2004B-21 DN (FGIC Insurance, Wachovia Bank N.A. SBPA)
3.69%(b)(c)	04/09/07		100		100,000
Monroe County IDRB (Griner Engineering, Inc. Project) Series 1997 AMT DN (Fifth Third Bank N.A. LOC)
3.88%(b)	04/09/07		501		501,000
South Bend Economic Development Authority RB (SGW Realty LLC Project) Series 1998 DN (Fifth Third Bank N.A. LOC)
3.83%(b)	04/09/07		700		700,000
					12,086,000
Iowa — 1.2%
Iowa GO Series 2006 TRAN
4.25%	06/29/07		2,500		2,504,312

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

14

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MUNICIPAL MONEY MARKET PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Iowa (Continued)
Urbandale IDRB (Meredith Drive Assoc. Project) Series 1985 DN (Wells Fargo Bank N.A. LOC)
3.76%(b)	04/09/07	$	1,000	$	1,000,000
					3,504,312
Kentucky — 0.7%
Louisville & Jefferson Counties Metropolitan Government Health System RB (Norton Healthcare, Inc. Project) Series 2006 ROC-RR-II-R-651CE DN (Citibank N.A. Guaranty, Citibank N.A. Liquidity Facility)
3.71%(b)(c)	04/09/07		365		365,000
Newport Industrial Building RB (Newport Holdings Project) Series 2001A AMT DN (Huntington National Bank LOC)
3.96%(b)	04/09/07		1,600		1,600,000
					1,965,000
Louisiana — 2.4%
Louisiana GO Merlots Trust Receipts Series 2006C-04 DN (FSA Insurance, Bank of New York SBPA)
3.69%(b)(c)	04/09/07		2,000		2,000,000
Louisiana Local Government Environmental Facilities Community Development Authority RB (Capital Projects & Equipment Acquisition Program) Series 2007 DN (AMBAC Insurance, J.P. Morgan Chase & Co. SBPA)
3.75%(b)	04/09/07		5,000		5,000,000
					7,000,000
Maryland — 6.1%
Baltimore County RB (Odyssey School Facility Project) Series 2001 DN (M&T Bank Corp. LOC)
3.73%(b)	04/09/07		2,670		2,670,000
Baltimore County RB (St. Paul’s School for Girls Facility Project) Series 2000 DN (M&T Bank Corp. LOC)
3.70%(b)	04/09/07		1,490		1,490,000
Maryland Economic Development Corp. RB (Assoc. of Catholic Charities Project) Series 1999A DN (M&T Bank Corp. LOC)
3.68%(b)	04/09/07		2,265		2,265,000
Maryland Economic Development Corp. RB (Assoc. of Catholic Charities Project) Series 1999B DN (M&T Bank Corp. LOC)
3.68%(b)	04/09/07		1,350		1,350,000
Maryland Economic Development Corp. RB (Assoc. of Catholic Charities Project) Series 2001 DN (M&T Bank Corp. LOC)
3.73%(b)	04/09/07		2,260		2,260,000
Maryland Economic Development Corp. RB (Assoc. of Catholic Charities Project) Series 2002 DN (M&T Bank Corp. LOC)
3.68%(b)	04/09/07		1,900		1,900,000
Maryland Health & Higher Education Facilities Authority RB (Adventist Healthcare Project) Series 2003B DN (M&T Bank Corp. LOC)
3.66%(b)	04/09/07		5,940		5,940,000
					17,875,000
Massachusetts — 1.0%
Commonwealth of Massachusetts GO Merlots Trust Receipts Series 2002A-9 DN (FSA Insurance, Wachovia Bank N.A. SBPA)
3.68%(b)(c)	04/09/07		1,485		1,485,000
Melrose GO Series 2006 BAN
4.35%	08/09/07		1,355		1,358,305
					2,843,305
Michigan — 5.9%
Detroit Economic Development Corp. RB (E.H. Assoc. Ltd. Project) Series 2002 DN (First Federal Bank of Northern Michigan LOC)
3.73%(b)	04/09/07		2,975		2,975,000
Detroit Sewer Authority RB Municipal Products, Inc. Trust Receipts Series 2006I-2 DN (FSA Insurance, Royal Bank of Canada LOC)
3.70%(b)(c)	04/09/07		2,495		2,495,000
Michigan Building Authority RB Municipal Securities Trust Certificates Series 2006A-283 DN (FGIC Insurance, Bear Stearns Capital Markets Liquidity Facility)
3.71%(b)(c)	04/09/07		3,065		3,065,000
Michigan Strategic Fund (Dow Chemical Co. Project) AMT TECP
3.73%	04/03/07		1,100		1,100,000
Michigan Strategic Fund Limited Obligation RB (Horizons of Michigan Project) Series 2001 DN (Huntington National Bank LOC)
3.85%(b)	04/09/07		1,365		1,365,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

15

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MUNICIPAL MONEY MARKET PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Michigan (Continued)
Michigan Strategic Fund Limited Obligation RB (Surefil Properties LLC Project) Series 2006 AMT DN (Huntington National Bank LOC)
3.90%(b)	04/09/07	$	4,300	$	4,300,000
Wayne St. University Michigan RB Munitops Trust Certificates Series 2006-61 DN (AMBAC Insurance, ABN-AMRO Bank N.V. SBPA)
3.70%(b)(c)	04/09/07		2,000		2,000,000
					17,300,000
Mississippi — 1.2%
Mississippi Development Bank Special Obligation RB (Correctional Facilities Project) Series 2002 DN (AMBAC Insurance, AmSouth Bank of Alabama SBPA)
3.75%(b)	04/09/07		3,575		3,575,000
Missouri — 3.4%
Bi-State Development Agency Metropolitan District RB (Metrolink Cross County Project) Series 2002A DN (FSA Insurance, WestLB AG SBPA)
3.67%(b)	04/09/07		5,200		5,200,000
St. Charles County IDRB (Trinity Manufacturing LLC Project) Series 2006 AMT DN (Marshall & Ilsley Bank LOC)
3.75%(b)	04/09/07		300		300,000
Taney County IDRB (Keeter Heights Project) Series 2006 AMT DN (U.S. Bank N.A. LOC)
3.79%(b)	04/09/07		4,500		4,500,000
					10,000,000
Multi-State — 0.3%
Municipal Securities Pool Trust Receipts RB Series 2004-18 DN (Multiple Insurances, Societe Generale Group SBPA)
3.78%(b)(c)	04/09/07		975		975,000
Nevada — 1.3%
Clark County Airport RB Munitops Trust Certificates Series 2005-56 DN (AMBAC Insurance, ABN-AMRO Bank N.V. SBPA)
3.69%(b)(c)	05/24/07		1,000		1,000,000
Clark County Economic Development RB (Lutheran Secondary School Assoc. Project) Series 2000 DN (M&T Bank Corp. LOC)
3.66%(b)	04/09/07		1,400		1,400,000
Reno Capital Improvement RB Municipal Securities Trust Certificates Series 2002A DN (FGIC Insurance, Bear Stearns Capital Markets Liquidity Facility)
3.70%(b)(c)	04/09/07		1,390		1,390,000
					3,790,000
New York — 0.9%
Rockland County IDRB (Northern River Assisted Living Project) Series 1999 DN (M&T Bank Corp. LOC)
3.70%(b)	04/09/07		2,765		2,765,000
North Carolina — 9.4%
Charlotte Water & Sewer System RB Munitops Trust Certificates Series 2007-10 DN (ABN-AMRO Bank N.V. SBPA)
3.70%(b)(c)	04/09/07		2,100		2,100,000
Charlotte-Mecklenburg Hospital Authority RB (North Carolina Healthcare System Project) Series 2006-1388 DN (Morgan Stanley Group Liquidity Facility)
3.69%(b)(c)	04/09/07		300		300,000
Fayetteville Public Works Commission RB Series 2003 DN (Dexia Credit Local SBPA)
3.66%(b)	04/09/07		1,400		1,400,000
Guilford County Industrial Facilities PCRB (Recreational Facilities-YMCA Project) Series 2002 DN (Branch Banking & Trust Co. LOC)
3.68%(b)	04/09/07		1,625		1,625,000
North Carolina Capital Facilities Finance Agency RB (Aquarium Society Project) Series 2004 DN (Bank of America N.A. LOC)
3.66%(b)	04/09/07		400		400,000
North Carolina Capital Facilities Finance Agency RB (Duke University Project) Eagle Trust Receipts Series 2006A-0131 DN (Citibank N.A. Liquidity Facility)
3.72%(b)(c)	04/09/07		5,000		5,000,000
North Carolina GO Series 2003A-23 DN (Wachovia Bank N.A. SBPA)
3.69%(b)(c)	04/09/07		300		300,000
North Carolina Medical Care Commission Health Care Facilities RB (First Mortgage-Carol Woods Project) Series 2001 DN
3.80%(b)	04/02/07		100		100,000
North Carolina Medical Care Commission Health Care Facilities RB Municipal Products, Inc. Trust Receipts Series 2007I-23 DN (Royal Bank of Canada Liquidity Facility)
3.71%(b)(c)	04/09/07		1,500		1,500,000
North Carolina Medical Care Commission Health Care Facilities RB Series 2007 ROCS-RR-II-R-811 DN (Citigroup Financial Products Liquidity Facility)
3.71%(b)(c)	04/09/07		5,500		5,500,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

16

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MUNICIPAL MONEY MARKET PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
North Carolina (Continued)
North Carolina Medical Care Commission Hospital RB (Baptist Hospitals Project) Series 2000 DN (Wachovia Bank N.A. LOC)
3.65%(b)	04/09/07	$	800	$	800,000
North Carolina Medical Care Commission Hospital RB (Lincoln Health System Project) Series 1996A DN (Bank of America N.A. LOC)
3.66%(b)	04/09/07		1,720		1,720,000
North Carolina Medical Care Commission Retirement Facilities RB (United Methodist Project) Series 2005B DN (Branch Banking & Trust Co. LOC)
3.68%(b)	04/09/07		1,300		1,300,000
University of North Carolina RB Munitops Trust Certificates Series 2005-52 DN (ABN-AMRO Bank N.V. SBPA)
3.70%(b)(c)	04/09/07		2,700		2,700,000
Wake County Housing Finance Authority RB (Casa Melvid Multi-Family Housing Project) Series 2001A AMT DN (SunTrust Bank LOC)
3.76%(b)	04/09/07		2,400		2,400,000
Winston-Salem Water & Sewer Systems RB Series 2002C DN (Dexia Credit Local LOC)
3.67%(b)	04/09/07		575		575,000
					27,720,000
Ohio — 3.7%
Butler Hospital Facilities RB (Ucpha, Inc. Project) Series 2004 DN (Huntington Capital LOC)
3.75%(b)	04/09/07		1,700		1,700,000
Darke County GO Series 2006A BAN
4.25%	06/28/07		700		700,906
Darke County GO Series 2006 BAN
4.50%	06/28/07		1,000		1,001,508
Delaware County GO Series 2006 BAN
4.75%	06/13/07		500		501,032
Harrison Township GO (Fire Department Project) Series 2006 BAN
3.85%	10/11/07		1,000		1,001,018
Huber Heights GO (Real Estate Project) Series 2006 BAN
4.00%	08/16/07		1,000		1,000,417
Newark GO Series 2007 BAN
3.85%	01/11/08		1,125		1,127,117
Ohio Higher Educational Facility Community RB Series 2000C DN (Fifth Third Bank N.A. LOC)
3.73%(b)	04/09/07		665		665,000
Ohio PCRB (Ross Incineration Project) Series 2000-1 AMT DN (Bank One N.A. LOC)
4.00%(b)	04/09/07		310		310,000
Pepper Pike GO Series 2006 BAN
4.00%	05/31/07		1,000		1,000,396
Sharonville GO Series 2007 BAN
4.25%	02/20/08		460		461,971
Summit County Civic Facility RB (Akron Area Electric Junction Project) Series 2001 DN (KeyBank N.A. LOC)
3.73%(b)	04/09/07		1,270		1,270,000
					10,739,365
Pennsylvania — 3.9%
Delaware County IDRB (Scott Paper Co. Project) Series 1984A DN
3.67%(b)	04/09/07		2,500		2,500,000
Harrisburg Authority School RB (Harrisburg Project) Series 2003 DN (AMBAC Insurance, WestLB AG Liquidity Facility)
3.65%(b)	04/09/07		3,200		3,200,000
Lehigh County General Purpose Authority RB Series 2007 ROCS-RR-II-R-862CE DN (Citibank N.A. Liquidity Facility, Citibank N.A. Guaranty)
3.71%(b)(c)	04/09/07		2,300		2,300,000
University of Pittsburgh of the Commonwealth Systems of Higher Education RB (University Capital Project) Series 2007A DN
3.62%(b)	04/09/07		1,600		1,600,000
Venango IDRB (Scrubgrass Project) AMT TECP (Credit Local LOC)
3.70%	05/03/07		2,000		2,000,000
					11,600,000
Puerto Rico — 1.7%
Commonwealth of Puerto Rico Aqueduct & Sewer Authority RB Series 2007 ROCS-RR-II-R-771CE DN (Citigroup Financial Products Liquidity Facility, Citigroup Global Markets Holdings, Inc. Guaranty)
3.71%(b)(c)	04/09/07		4,900		4,900,000
Rhode Island — 1.0%
Rhode Island & Providence Plantations GO Series 2006 TAN
4.25%	06/29/07		3,000		3,005,325

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

17

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MUNICIPAL MONEY MARKET PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
South Carolina — 1.9%
Greenville County School District RB UBS Municipal Certificates Series 2006-02 DN (Assured Guaranty Ltd. Insurance, Landesbank Hessen-Thuringen Girozentrale SBPA)
3.69%(b)(c)	04/09/07	$	1,850	$	1,850,000
Greenwood County Exempt Facility IDRB (Fuji Photo Film Project) Series 2004 AMT DN (Fuji Film Corp. Guaranty)
3.83%(b)	04/09/07		1,500		1,500,000
Medical University Hospital Authority RB Series 2005A-5 DN (MBIA Insurance, Bank of America N.A. SBPA)
3.70%(b)(c)	04/09/07		2,230		2,230,000
					5,580,000
Tennessee — 1.9%
Municipal Energy Acquistion Corp. of Tennessee Gas RB Series 2006-1578 DN (Morgan Guaranty Trust LOC)
3.71%(b)(c)	04/09/07		5,550		5,550,000
Texas — 8.1%
Brazos River (Dow Chemical Co. Project) TECP
3.73%	04/03/07		1,000		1,000,000
Dallas ISD Building GO Munitops Trust Certificates Series 2006-8 DN (PSF Guaranty, ABN-AMRO Bank N.V. SBPA)
3.70%(b)(c)	04/09/07		3,000		3,000,000
Houston Water & Sewer System RB Municipal Securities Trust Certificates Series 2006A-5015 MB (MBIA Insurance, Branch Banking & Trust Co. Liquidity Facility)
3.85%(b)(c)	06/21/07		1,695		1,695,000
Hutto ISD GO Series 2007-1001 DN (PSF Guaranty, Bank of New York SBPA)
3.70%(b)(c)	04/09/07		1,000		1,000,000
Lower Neches Valley Authority PCRB (Chevron USA, Inc. Project) Series 1987 DN (Chevron Corp. Guaranty)
3.73%(b)	08/15/07		1,135		1,135,000
Midlothian ISD GO Putters Series 2006-1493 DN (PSF Guaranty, J.P. Morgan Chase & Co. Liquidity Facility)
3.71%(b)(c)	04/09/07		3,535		3,535,000
Texas GO Eagle Trust Receipts Series 2006A-0126 DN (Citibank N.A. Liquidity Facility)
3.72%(b)(c)	04/09/07		5,700		5,700,000
Texas GO Series 2006 TRAN
4.50%	08/31/07		6,685		6,710,357
					23,775,357
Ultah — 1.2%
Intermountain Power Agency Power Supply RB Series 1985F DN (AMBAC Insurance, Morgan Stanley Group SBPA)
3.55%(b)	06/01/07		3,000		3,000,000
Weber County Hospital RB Series 2000B DN (WestLB AG SBPA)
3.77%(b)	04/02/07		500		500,000
					3,500,000
Virginia — 1.5%
Chesapeake Bay Bridge & Tunnel Commonwealth District RB Merlots Trust Receipts Series 2003 DN (MBIA Insurance, Wachovia Bank N.A. Liquidity Facility)
3.69%(b)(c)	04/09/07		695		695,000
Norfolk Redevelopment & Housing Authority Multi-Family Housing RB (Residential Rental Project) Series 2003 AMT DN (SunTrust Bank LOC)
3.81%(b)	04/09/07		1,968		1,968,000
Virginia College Building Authority RB Series 2003-379 DN (J.P. Morgan Chase & Co. LOC)
3.72%(b)(c)	04/09/07		1,875		1,875,000
					4,538,000
Washington — 1.8%
Washington Economic Development Finance Authority RB Series 2006-1531 DN (Morgan Stanley Group LOC)
3.69%(b)(c)	04/09/07		1,430		1,430,000
Washington GO Putters Series 2006-1492 DN (AMBAC Insurance, J.P. Morgan Chase & Co. SBPA)
3.72%(b)(c)	04/09/07		1,355		1,355,000
Washington Housing Finance Commission Non-Profit RB (Eastside Catholic School Project) Series 2007A DN (KeyBank N.A. LOC)
3.69%(b)	04/09/07		1,000		1,000,000
Washington Housing Finance Commission Non-Profit RB (Eastside Catholic School Project) Series 2007B DN (KeyBank N.A. LOC)
3.69%(b)	04/09/07		1,000		1,000,000
Yakima County Public Corp. RB (Michelsen Packaging Co. Project) Series 2000 AMT DN (Bank of America N.A. LOC)
3.76%(b)	04/09/07		405		405,000
					5,190,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

18

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MUNICIPAL MONEY MARKET PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Wisconsin — 1.5%
Amery IDRB (Plastech Corp. Project) Series 1997 AMT DN (U.S. Bank N.A. LOC)
3.90%(b)	04/09/07	$	2,000	$	2,000,000
Mequon IDRB (Johnson Level GRW Investment Project) Series 1995 AMT DN (Bank One N.A. LOC)
4.00%(b)	04/09/07		465		465,000
Sheboygan Falls IDRB (HTT, Inc. Project) Series 2007A AMT DN (U.S. Bank N.A. LOC)
3.69%(b)	04/09/07		1,890		1,890,000
					4,355,000
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 98.8% (Cost $290,336,921)					290,336,921
AFFILIATED INVESTMENTS — 0.6%
Golden State Tobacco Settlement Securitization Corp. RB P-Float Trust Receipts Series 2004 PA-1236 DN (Merrill Lynch & Co. Guaranty, Merrill Lynch Capital Services SBPA)
3.70%(b)(c)(d)	04/09/07		1,330		1,330,000
Metropolitan Pier & Exposition Authority Dedicated State Tax Receipts RB P-Float Trust Receipts Series 2005 PZ-44 DN (MBIA Insurance, Merrill Lynch Capital Services SBPA)
3.72%(b)(c)(d)	04/09/07		500		500,000
TOTAL AFFILIATED INVESTMENTS (Cost $1,830,000)					1,830,000
TOTAL INVESTMENTS IN SECURITIES — 99.4% (Cost $292,166,921(a))					292,166,921
OTHER ASSETS IN EXCESS OF LIABILITIES — 0.6%					1,826,151
NET ASSETS — 100.0%				$	293,993,072

(a) Aggregate cost for federal income tax purposes.

(b) Rates shown are the rates as of March 31, 2007 and maturities shown are the next interest readjustment date or the date the principal owed can be recovered through demand.

(c) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional investors. As of March 31, 2007, the Portfolio held 39.7% of its net assets, with a current market value of $116,850,000, in securities restricted as to resale.

(d) Security insured by an affiliate.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

19

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS — 86.1%
New Jersey — 84.6%
Berkeley Heights GO Series 2006 BAN
4.50%	06/28/07	$	1,611	$	1,614,018
Bordentown Township GO Series 2006 BAN
4.25%	11/01/07		500		501,554
Clark Township GO Series 2007 BAN
4.00%	03/28/08		450		451,329
East Brunswick GO Series 2006 BAN
4.25%	10/11/07		1,800		1,805,968
Freehold Township GO Series 2006 BAN
4.25%	08/01/07		1,400		1,403,196
Hudson County Improvement Authority RB (Essential Purpose Pooled Government Project) Series 1986 DN (Bank of New York LOC)
3.57%(b)	04/09/07		3,200		3,200,000
Jackson Township GO Series 2006 BAN
4.00%	12/06/07		1,400		1,403,869
Kinnelon GO Series 2007 BAN
4.25%	02/29/08		290		291,047
Manalapan Township GO Series 2006 BAN
4.38%	08/10/07		2,390		2,394,743
Mercer County Improvement Authority RB (Atlantic Foundation Project) Series 1998 DN (Bank of America N.A. LOC)
3.71%(b)	04/09/07		7,900		7,900,000
New Jersey Economic Development Authority Multi-Mode IDRB (V&S Amboy Galvanizing LLC Project) Series 1999 AMT DN (KeyBank N.A. LOC)
3.80%(b)	04/09/07		1,805		1,805,000
New Jersey Economic Development Authority RB (Airis Newark LLC Project) Series 1998 AMT DN (Kredietbank LOC)
3.64%(b)	04/09/07		2,400		2,400,000
New Jersey Economic Development Authority RB (Applewood Estates Project) Series 2005 DN (Commerce Bank N.A. LOC)
3.57%(b)	04/09/07		3,700		3,700,000
New Jersey Economic Development Authority RB (Cedar Crest Village, Inc. Project) Series 2006B DN (Bank of New York LOC)
3.65%(b)	04/09/07		3,200		3,200,000
New Jersey Economic Development Authority RB (Facilities Construction Project) Series 2006R-1 DN
3.72%(b)	04/02/07		3,300		3,300,000
New Jersey Economic Development Authority RB (Frisch School Project) Series 2006 DN (Princeton University Guaranty)
3.62%(b)	04/09/07		1,550		1,550,000
New Jersey Economic Development Authority RB (Hamilton Industrial Development Project) Series 1998 DN (Wachovia Bank N.A. LOC)
3.72%(b)	04/09/07		1,440		1,440,000
New Jersey Economic Development Authority RB (Jacea LLC Project) Series 2004 DN (Wachovia Bank N.A. LOC)
3.77%(b)	04/09/07		3,330		3,330,000
New Jersey Economic Development Authority RB (Macon Trust Project) Series 2005H DN (FGIC Insurance, Bank of America N.A. LOC)
3.68%(b)(c)	04/09/07		625		625,000
New Jersey Economic Development Authority RB (Nandan Co. Project) Series 2000 AMT DN (M&T Bank Corp. LOC)
3.70%(b)	04/09/07		2,940		2,940,000
New Jersey Economic Development Authority RB (Nandan Co. Project) Series 2001 AMT DN (M&T Bank Corp. LOC)
3.70%(b)	04/09/07		1,285		1,285,000
New Jersey Economic Development Authority RB (Paddock Realty LLC Project) Series 2006 AMT DN (Wells Fargo Bank N.A. LOC)
3.85%(b)	04/09/07		1,300		1,300,000
New Jersey Economic Development Authority RB (Pennington Montessori School Project) Series 1998 DN (Wachovia Bank N.A. LOC)
3.77%(b)	04/09/07		1,085		1,085,000
New Jersey Economic Development Authority RB (Stuart Country Day School Project) Series 2002 DN (M&T Bank Corp. LOC)
3.60%(b)	04/09/07		1,645		1,645,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

20

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
New Jersey (Continued)
New Jersey Economic Development Authority RB (Thermal Energy LP Project) Series 1995 AMT DN (Bank One N.A. LOC)
3.68%(b)	04/09/07	$	800	$	800,000
New Jersey Economic Development Authority RB Series 2004 ROCS-RR-II-R-309 DN (Assured Guaranty Ltd. Insurance, Citibank N.A. SBPA)
3.71%(b)(c)	04/09/07		5,565		5,565,000
New Jersey Economic Development Authority RB Series 2006 DN (Morgan Stanley Group LOC)
3.67%(b)(c)	04/09/07		1,100		1,100,000
New Jersey Economic Development Authority RB (J. James Realty Co. Project) Series 1998 AMT DN (Wachovia Bank N.A. LOC)
3.77%(b)	04/09/07		470		470,000
New Jersey Economic Development Authority Water Facilities RB (United Water New Jersey, Inc. Project) Series 1996A DN (AMBAC Insurance)
3.70%(b)	04/02/07		2,100		2,100,000
New Jersey Educational Facilities Authority RB (Princeton University Project) Series 2002B DN
3.73%(b)	04/02/07		5,100		5,100,000
New Jersey Environmental Infrastructure Trust RB (ENCAP Golf Holdings LLC Project) Series 2005 AMT DN (Wachovia Bank N.A. LOC)
3.66%(b)	04/09/07		7,900		7,900,000
New Jersey Environmental Infrastructure Trust RB Series 2004-585 AMT DN (J.P. Morgan Chase & Co. SBPA)
3.72%(b)(c)	04/09/07		3,990		3,990,000
New Jersey GO Series 2006 TRAN
4.50%	06/22/07		5,000		5,011,306
New Jersey Health Care Facilities Financing Authority RB (St. Joseph’s Project) Series 2003A-6 DN (Valley National Bank LOC)
3.65%(b)	04/09/07		1,105		1,105,000
New Jersey Health Care Facilities Financing Authority RB Series 2004-943 DN (FGIC Insurance, Morgan Stanley Group Liquidity Facility)
3.67%(b)(c)	04/09/07		4,186		4,186,000
New Jersey Housing & Mortgage Finance Agency Multi-Family RB Series 2005-1012 DN (FGIC Insurance, Morgan Stanley Group Liquidity Facility)
3.71%(b)(c)	04/09/07		1,380		1,380,000
New Jersey Housing & Mortgage Finance Agency Multi-Family RB Series 2006A AMT DN (FSA Insurance, Lloyds TSB Bank Plc SBPA)
3.67%(b)	04/09/07		1,000		1,000,000
New Jersey Housing & Mortgage Finance Agency Multi-Family RB Series 2006D AMT DN (FGIC Insurance, Lloyds TSB Bank Plc SBPA)
3.68%(b)	04/09/07		6,000		6,000,000
New Jersey Housing & Mortgage Finance Agency RB Merlots Trust Receipts Series 2000A-2 DN (MBIA Insurance, Wachovia Bank N.A. SBPA)
3.73%(b)(c)	04/09/07		625		625,000
New Jersey Sports & Exposition Authority State Contract RB Series 1992C DN (MBIA Insurance, Credit Suisse SBPA)
3.57%(b)	04/09/07		3,500		3,500,000
New Jersey Transportation Trust Fund Authority Capital Appreciation RB Municipal Securities Trust Certificates Series 2006C DN (MBIA Insurance)
3.71%(b)(c)	04/09/07		2,020		2,020,000
New Jersey Transportation Trust Fund Authority Capital Appreciation RB Municipal Trust Receipts Series 2006 DN (Lehman Liquidity Co. Liquidity Facility)
3.67%(b)(c)	04/09/07		1,000		1,000,000
New Jersey Transportation Trust Fund Authority Capital Appreciation RB Municipal Trust Receipts Series 2006D-P63 DN (Lehman Liquidity Co. Liquidity Facility)
3.67%(b)(c)	04/09/07		4,100		4,100,000
New Jersey Transportation Trust Fund Authority Capital Appreciation RB Series 2006 ROC-RR-II-R-684Z DN (AMBAC Insurance, Citibank N.A. Liquidity Facility)
3.71%(b)(c)	04/09/07		590		590,000
New Jersey Transportation Trust Fund Authority Capital Appreciation RB Series 2006Z DN (FSA Insurance)
3.71%(b)(c)	04/09/07		3,300		3,300,000
New Jersey Turnpike Authority RB Series 2003C-1 DN (Landesbank Hessen-Thuringen Girozentrale LOC)
3.63%(b)	04/09/07		4,400		4,400,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

21

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
New Jersey (Continued)
Newark Housing Authority RB Municipal Securities Trust Certificates Series 2007-5030 DN (MBIA Insurance, Branch Banking & Trust Co. Liquidity Facility)
3.68%(b)(c)	04/09/07	$	1,485	$	1,485,000
North Bergen Township Municipal Sewer Utilities Authority RB Series 2007 MB
4.25%	01/15/08		1,000		1,004,369
North Brunswick Township GO Series 2006 BAN
4.00%	11/09/07		1,175		1,177,008
Ocean City GO Series 2007 BAN
4.00%	03/14/08		400		401,209
Port Authority of New York & New Jersey RB Eagle Trust Receipts Series 2006A-107 AMT DN (Landesbank Hessen-Thuringen Girozentrale Liquidity Facility)
3.73%(b)(c)	04/09/07		2,000		2,000,000
Port Authority of New York & New Jersey RB Putters Series 2005-1089 DN (CIFG IXIS Financial Guaranty Insurance, J.P. Morgan Chase & Co. SBPA)
3.75%(b)(c)	04/09/07		1,750		1,750,000
Port Authority of New York & New Jersey RB Series 2006-1546 DN (J.P. Morgan Chase & Co. Liquidity Facility)
3.69%(b)(c)	04/09/07		1,300		1,300,000
Port Authority of New York & New Jersey TECP
3.62%	04/02/07		5,050		5,050,000
3.64%	05/04/07		1,260		1,260,000
Randolph Township GO Series 2007 BAN
4.00%	08/21/07		800		801,105
Rutgers State University RB Series 2002A DN (Landesbank Hessen-Thuringen Girozentrale SBPA)
3.73%(b)	04/02/07		3,200		3,200,000
Salem County Pollution Control Financing Authority RB (Atlantic City Electric Co. Project) Series 1997B AMT DN (Bank of New York LOC)
3.70%(b)	04/09/07		890		890,000
University Medicine & Dentistry RB Series 2002B DN (AMBAC Insurance, Fleet National Bank SBPA)
3.65%(b)	04/09/07		800		800,000
Wanaque Boro GO Series 2007 BAN
4.00%	08/15/07		745		745,785
Woodcliff Lake School District GO Series 2006 MB
4.35%	10/26/07		2,750		2,761,330
					140,438,836
Puerto Rico — 1.5%
Puerto Rico Housing Finance Authority RB (Capital Funding Project) Municipal Trust Receipts Series 2006K-48 DN (Lehman Liquidity Co. Liquidity Facility, HUD Loan Guaranty)
3.67%(b)(c)	04/09/07		2,595		2,595,000
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 86.1% (Cost $143,033,836)					143,033,836
AFFILIATED INVESTMENTS — 13.3%
New Jersey Economic Development Authority RB P-Float Trust Receipts Series 2004 MT-035 DN (Assured Guaranty Ltd. Insurance, Landesbank Hessen-Thuringen Girozentrale SBPA)
3.68%(b)(c)	04/09/07		6,795		6,795,000
New Jersey Health Care Facilities Financing Authority RB P-Float Trust Receipts Series 2001 PT-1319 DN (AMBAC Insurance, Merrill Lynch Capital Services SBPA)
3.70%(b)(c)(d)	04/09/07		7,415		7,415,000
Port Authority of New York & New Jersey RB P-Float Trust Receipts Series 2004-056 DN (FGIC Insurance, Banque Nationale de Paribas SBPA)
3.70%(b)(c)	04/09/07		7,855		7,855,000
TOTAL AFFILIATED INVESTMENTS (Cost $22,065,000)					22,065,000
TOTAL INVESTMENTS IN SECURITIES — 99.4% (Cost $165,098,836(a))					165,098,836
OTHER ASSETS IN EXCESS OF LIABILITIES — 0.6%					945,780
NET ASSETS — 100.0%				$	166,044,616

(a) Aggregate cost for federal income tax purposes.

(b) Rates shown are the rates as of March 31, 2007 and maturities shown are the next interest readjustment date or the date the principal owed can be recovered through demand.

(c) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional investors. As of March 31, 2007, the Portfolio held 35.9% of its net assets, with a current market value of $59,676,000, in securities restricted as to resale.

(d) Security insured by an affiliate.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

22

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS — 99.6%
North Carolina — 91.4%
Buncombe County Metropolitan Sewer District Sewer System RB Series 2004 DN (XLCA Insurance, Bank of America N.A. SBPA)
3.65%(b)	04/09/07	$	3,200	$	3,200,000
Carrboro GO Series 2007 BAN
4.00%	12/05/07		790		791,768
Charlotte Airport RB Series 1993A DN (MBIA Insurance, J.P. Morgan Chase & Co. SBPA)
3.65%(b)	04/09/07		1,000		1,000,000
Charlotte COP (Transit Projects Phase II Project) Series 2005F DN (Depfa Bank Plc SBPA)
3.62%(b)	04/09/07		1,400		1,400,000
Charlotte Water & Sewer System GO Series 2006 TECP (Wachovia Bank N.A. LOC)
3.65%	12/06/07		4,000		4,000,000
Charlotte Water & Sewer System RB Munitops Trust Certificates Series 2007-10 DN (ABN-AMRO Bank N.V. SBPA)
3.70%(b)(c)	04/09/07		2,000		2,000,000
Charlotte-Mecklenburg Hospital Authority RB (Carolina’s Healthcare Project) Series 2005B DN (Bank of America N.A. SBPA)
3.75%(b)	04/02/07		2,000		2,000,000
Charlotte-Mecklenburg Hospital Authority RB (North Carolina Healthcare System Project) Series 2006-1388 DN (Morgan Stanley Group Liquidity Facility)
3.69%(b)(c)	04/09/07		2,900		2,900,000
Fayetteville Public Works Commission RB Series 2003 DN (Dexia Credit Local SBPA)
3.66%(b)	04/09/07		1,200		1,200,000
Flat Rock Bannerton Water & Sewer System GO Series 2007 BAN
4.00%	09/26/07		770		771,286
Greensboro GO Series 2003 DN (Bank of America N.A. SBPA)
3.67%(b)	04/09/07		1,600		1,600,000
Guilford County GO Series 2004C MB
4.00%	10/01/07		1,000		1,001,930
Halifax County GO Series 2007 BAN
4.00%	09/12/07		1,500		1,502,438
Little River Water District GO Series 2007 BAN
4.00%	09/26/07		2,200		2,203,638
Mecklenburg County COP Series 2006 DN (Depfa Bank Plc SBPA)
3.63%(b)	04/09/07		1,800		1,800,000
Mecklenburg County GO Series 1996C DN (Bank of America N.A. LOC)
3.65%(b)	04/09/07		2,200		2,200,000
North Carolina Capital Facilities Finance Agency Educational Facilities RB (High Point University Project) Series 2006 DN (Branch Banking & Trust Co. LOC)
3.68%(b)	04/09/07		2,000		2,000,000
North Carolina Capital Facilities Finance Agency Educational Facilities RB (The Downtown Middle School Project) Series 2006 DN (Branch Banking & Trust Co. LOC)
3.68%(b)	04/09/07		1,200		1,200,000
North Carolina Capital Facilities Finance Agency RB (Aquarium Society Project) Series 2004 DN (Bank of America N.A. LOC)
3.66%(b)	04/09/07		2,400		2,400,000
North Carolina Capital Facilities Finance Agency RB Eagle Trust Receipts Series 2006A DN (Citibank N.A. Liquidity Facility)
3.72%(b)(c)	04/09/07		1,000		1,000,000
North Carolina Educational Facilities Finance Agency RB (Duke University Project) Series 1987A DN
3.60%(b)	04/09/07		2,300		2,300,000
North Carolina Educational Facilities Finance Agency RB (Duke University Project) Series 1992A DN
3.60%(b)	04/09/07		300		300,000
North Carolina GO (Highway Project) Series 2003 MB
5.00%	05/01/07		1,750		1,751,828
North Carolina GO Series 2002C DN (Bayerische Landesbank Girozentrale LOC)
3.65%(b)	04/09/07		1,500		1,500,000
North Carolina GO Series 2002E DN (Landesbank Hessen-Thuringen Girozentrale SBPA)
3.65%(b)	04/09/07		5,500		5,500,000
North Carolina GO Series 2002F DN (Landesbank Hessen-Thuringen Girozentrale SBPA)
3.65%(b)	04/09/07		1,200		1,200,000
North Carolina GO Series 2003A-23 DN (Wachovia Bank N.A. SBPA)
3.69%(b)(c)	04/09/07		800		800,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

23

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
North Carolina (Continued)
North Carolina Housing Finance Agency RB (Home Ownership Project) Series 2003-17-C AMT DN (Bank of America N.A. Liquidity Facility)
3.72%(b)	04/09/07	$	350	$	350,000
North Carolina Infrastructure Finance Corp. COP (Correctional Facilities Project) Putters Series 2005-918 DN (J.P. Morgan Chase & Co. Liquidity Facility)
3.72%(b)(c)	04/09/07		850		850,000
North Carolina Infrastructure Finance Corp. COP (Correctional Facilities Project) Series 2004A MB
4.00%	02/01/08		1,185		1,188,674
North Carolina Medical Care Commission Health Care Facilities RB (First Mortgage-Carol Woods Project) Series 2001 DN
3.80%(b)	04/02/07		800		800,000
North Carolina Medical Care Commission Health Care Facilities RB (Lutheran Services for the Aging Project) Series 1998 DN (Branch Banking & Trust Co. LOC)
3.66%(b)	04/09/07		100		100,000
North Carolina Medical Care Commission Health Care Facilities RB (Novant Health Obligation Group Project) Municipal Products, Inc. Trust Receipts Series 2007I-15 DN (Royal Bank of Canada Liquidity Facility)
3.71%(b)(c)	04/09/07		2,700		2,700,000
North Carolina Medical Care Commission Health Care Facilities RB (Watauga Medical Center Project) Series 2005 DN (Wachovia Bank N.A. LOC)
3.66%(b)	04/09/07		1,000		1,000,000
North Carolina Medical Care Commission Health Care Facilities RB Municipal Products, Inc. Trust Receipts Series 2007I-23 DN (Royal Bank of Canada Liquidity Facility)
3.71%(b)(c)	04/09/07		3,130		3,130,000
North Carolina Medical Care Commission Health Care Facilities RB Series 2007 ROCS-RR-II-R-811 DN (Citigroup Financial Products Liquidity Facility)
3.71%(b)(c)	04/09/07		3,500		3,500,000
North Carolina Medical Care Commission Hospital RB (Aces-Pooled Equipment Financing Project) Series 1985 DN (MBIA Insurance, KBC Bank SBPA)
3.65%(b)	04/09/07		500		500,000
North Carolina Medical Care Commission Hospital RB (Moses Cone Health Systems Project) Series 2001B DN (Chase Manhattan Bank LOC)
3.65%(b)	04/09/07		2,000		2,000,000
North Carolina Medical Care Commission Hospital RB (Park Ridge Hospital Project) Series 1988 DN (SunTrust Bank LOC)
3.65%(b)	04/09/07		1,700		1,700,000
North Carolina Medical Care Commission Retirement Facilities RB (United Methodist Project) Series 2005B DN (Branch Banking & Trust Co. LOC)
3.68%(b)	04/09/07		625		625,000
Sampson County Industrial Facilities PCRB (Dubose Strapping, Inc. Project) Series 1997 DN (Wachovia Bank N.A. LOC)
3.81%(b)	04/09/07		250		250,000
Union County GO Series 2005A DN (Depfa Bank Plc SBPA)
3.63%(b)	04/09/07		2,090		2,090,000
University of North Carolina RB Munitops Trust Certificates Series 2005-52 DN (ABN-AMRO Bank N.V. SBPA)
3.70%(b)(c)	04/09/07		1,300		1,300,000
Wake County GO Series 2006B DN (Lloyds TSB Bank Plc SBPA)
3.63%(b)	04/09/07		1,400		1,400,000
Wake County Housing Finance Authority RB (Casa Melvid Multi-Family Housing Project) Series 2001A AMT DN (SunTrust Bank LOC)
3.76%(b)	04/09/07		400		400,000
Wake County TECP (Wachovia Bank N.A. SBPA)
3.60%	05/22/07		700		700,000
3.55%	05/30/07		600		600,000
Washington County Industrial Facilities PCRB (Mackey’s Ferry Sawmill, Inc. Project) Series 1997 AMT DN (Wachovia Bank N.A. LOC)
3.76%(b)	04/09/07		330		330,000
Winston-Salem Water & Sewer Systems RB Series 2002C DN (Dexia Credit Local LOC)
3.67%(b)	04/09/07		3,200		3,200,000
					78,236,562
Puerto Rico — 8.2%
Commonwealth of Puerto Rico Highway & Transportation Authority RB Series 2007CE ROCS-II-R-789 DN (Citigroup Financial Products Guaranty, Citigroup Financial Products Liquidity Facility)
3.68%(b)(c)	04/09/07		3,000		3,000,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

24

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Puerto Rico (Continued)
Commonwealth of Puerto Rico RB Municipal Securities Trust Certificates Series 2000A DN (FSA Insurance, Bear Stearns Capital Markets Liquidity Facility)
3.65%(b)(c)	04/09/07	$	3,000	$	3,000,000
Puerto Rico Housing Finance Authority RB (Capital Funding Project) Municipal Trust Receipts Series 2006K-48 DN (Lehman Liquidity Co. Liquidity Facility, HUD Loan Guaranty)
3.67%(b)(c)	04/09/07		1,000		1,000,000
					7,000,000
TOTAL INVESTMENTS IN SECURITIES — 99.6% (Cost $85,236,562(a))					85,236,562
OTHER ASSETS IN EXCESS OF LIABILITIES — 0.4%					340,915
NET ASSETS — 100.0%				$	85,577,477

(a) Aggregate cost for federal income tax purposes.

(b) Rates shown are the rates as of March 31, 2007 and maturities shown are the next interest readjustment date or the date the principal owed can be recovered through demand.

(c) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional investors. As of March 31, 2007, the Portfolio held 29.4% of its net assets, with a current market value of $25,180,000, in securities restricted as to resale.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

25

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

OHIO MUNICIPAL MONEY MARKET PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS — 96.8%
Ohio — 96.8%
American Municipal Power, Inc. GO (Bryan Electric Systems Project) Series 2006 BAN
3.90%	08/17/07	$	1,285	$	1,285,000
American Municipal Power, Inc. GO (Cleveland Public Power Project) Series 2006 BAN
3.80%	08/16/07		1,000		1,000,000
American Municipal Power, Inc. GO (Columbus Electric System Project) Series 2006 BAN
4.00%	07/12/07		510		510,000
American Municipal Power, Inc. GO (Hubbard Project) Series 2006 BAN
3.85%	09/27/07		745		745,000
American Municipal Power, Inc. GO (Montpelier Project) Series 2006 BAN
4.00%	07/05/07		1,025		1,025,000
American Municipal Power, Inc. GO (Shelby Project) Series 2006 BAN
3.70%	11/15/07		2,060		2,060,000
American Municipal Power, Inc. GO (St. Mary’s Electric System Project) Series 2006 BAN
3.75%	10/04/07		950		950,000
American Municipal Power, Inc. GO (Tipp City Project) Series 2006 BAN
3.90%	05/15/07		550		550,000
American Municipal Power, Inc. GO (Versailles Project) Series 2006 BAN
3.75%	11/15/07		170		170,000
3.70%	12/06/07		110		110,000
American Municipal Power, Inc. GO (Yellow Springs Project) Series 2006 BAN
3.75%	11/01/07		100		100,000
American Municipal Power, Inc. GO Series 2006 RAN
3.65%	11/01/07		470		470,000
American Municipal Power, Inc. RB (Brewster Village Project) Series 2007 BAN
3.70%	01/10/08		495		495,000
American Municipal Power, Inc. RB (Combustion Turbine Project) Series 2006 DN (KeyBank N.A. LOC)
3.68%(b)	04/09/07		620		620,000
American Municipal Power, Inc. RB (Lodi Village Project) Series 2007 BAN
3.75%	03/13/08		250		250,000
Avon GO (Route 83 Project) Series 2006 BAN
4.05%	08/16/07		500		500,452
Avon GO Series 2006 BAN
3.85%	04/12/07		275		275,020
Avon Local School District GO (School Construction Project) Series 2007 BAN
4.12%	01/11/08		500		501,862
Bedford Heights GO Series 2007 BAN
3.95%	02/14/08		50		50,105
Brooklyn IDRB (Dylon Industries, Inc. Project) Series 1999 AMT DN (KeyBank N.A. LOC)
3.80%(b)	04/09/07		710		710,000
Brunswick GO Series 2006 BAN
3.60%	04/05/07		1,015		1,015,027
3.85%	12/05/07		180		180,000
Butler County Capital Funding RB (CCAO Low Cost Capital Pooled Financing Program) Series 2005A DN (U.S. Bank N.A. LOC)
3.67%(b)	04/09/07		7,050		7,050,000
Butler County GO (Jail Rehabilitation Project) Series 2006 BAN
4.40%	09/20/07		100		100,367
Butler County Hospital Facilities RB Putters Series 2006-1596 DN (FGIC Insurance, J.P. Morgan Chase & Co. SBPA)
3.70%(b)(c)	04/09/07		765		765,000
Celina County GO Series 2006 BAN
4.25%	11/14/07		300		301,079
Champaign County IDRB (Allied Signal, Inc. Project) Series 1998 DN
3.97%(b)	04/09/07		1,000		1,000,000
Cincinnati GO Municipal Trust Receipts Series 2006K-66 DN (FGIC Insurance, Lehman Liquidity Co. Liquidity Facility)
3.70%(b)(c)	04/09/07		2,565		2,565,000
Cincinnati School District COP Eagle Trust Receipts Series 2006A-0155 DN (FSA Insurance, Citibank N.A. Liquidity Facility)
3.72%(b)(c)	04/09/07		1,000		1,000,000
City of Westerville GO Munitops Trust Certificates Series 2001 DN (ABN-AMRO Bank N.V. LOC)
3.68%(b)(c)	04/09/07		1,000		1,000,000
Clark County GO Series 2007 BAN
4.02%	02/13/08		125		125,283
Clark County Multi-Family RB (Masonic Home Project) Series 1999 DN (AMBAC Insurance, KeyBank N.A. LOC)
3.68%(b)	04/09/07		1,710		1,710,000
Cleveland-Cuyahoga County Port Authority Educational Facility RB (Laurel School Project) Series 2004 DN (KeyBank N.A. LOC)
3.73%(b)	04/09/07		1,100		1,100,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

26

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

OHIO MUNICIPAL MONEY MARKET PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Ohio (Continued)
Columbus Regional Airport Authority Capital Funding RB (Oasbo Expanded Asset Program) Series 2006 DN (U.S. Bank N.A. LOC)
3.67%(b)	04/09/07	$	1,250	$	1,250,000
Cuyahoga County Civic Facility RB (Orion Services, Inc. Project) Series 2001 DN (Bank One N.A. LOC)
3.95%(b)	04/09/07		2,865		2,865,000
Cuyahoga County Economic Development RB (Berea Children’s Home Project) Series 2000 DN (Huntington National Bank LOC)
3.85%(b)	04/09/07		3,010		3,010,000
Cuyahoga County Economic Development RB (Cleveland Botanical Garden Project) Series 2001 DN (M&T Bank Corp. LOC)
3.68%(b)	04/09/07		635		635,000
Cuyahoga County IDRB (Great Lakes Brewing Co. Project) Series 2001 AMT DN (Huntington National Bank LOC)
3.95%(b)	04/09/07		1,080		1,080,000
Cuyahoga County IDRB (Marine Mechanical Corp. Project) Series 2000 AMT DN (Royal Bank of Scotland LOC)
3.83%(b)	04/09/07		1,445		1,445,000
Cuyahoga County IDRB (Trio Diversified Co. Project) Series 2000 AMT DN (KeyBank N.A. LOC)
3.80%(b)	04/09/07		1,405		1,405,000
Darke County GO Series 2006A BAN
4.25%	06/28/07		500		500,647
Deerfield Township GO Series 2006B BAN
3.75%	11/29/07		350		350,000
Delaware County Economic Development RB (The Columbus Zoological Park Associates, Inc. Project) Series 2003 DN (Huntington National Bank LOC)
3.80%(b)	04/09/07		3,905		3,905,000
Delaware County GO Series 2006 BAN
4.75%	06/13/07		500		501,032
Delaware County IDRB (Air Waves, Inc. Project) Series 1995 DN (KeyBank N.A. LOC)
3.80%(b)	04/09/07		65		65,000
Dover GO Series 2007 BAN
4.25%	04/03/08		775		779,084
Fairborn County GO Series 2006 BAN
4.25%	11/01/07		270		270,884
Franklin County Economic Development RB (Columbus Montessori Educational Center Project) Series 2000 DN (Huntington National Bank LOC)
3.75%(b)	04/09/07		1,515		1,515,000
Franklin County Economic Development RB (Dominican Sisters Project) Series 1994 DN (Fifth Third Bank N.A. LOC)
3.73%(b)	04/09/07		925		925,000
Franklin County GO Series 2006 BAN
3.75%	04/25/07		550		550,000
Franklin County Healthcare Facilities RB (Heritage Day Health Centers Project) Series 2002 DN (Huntington National Bank LOC)
3.70%(b)	04/09/07		385		385,000
Franklin County Healthcare Facilities RB (Heritage Day Health Centers Project) Series 2007 DN
3.80%(b)	04/09/07		2,500		2,500,000
Franklin County Healthcare Facilities RB (Ohio Presbyterian Improvement Project) Series 2006A DN (Huntington National Bank LOC)
3.68%(b)	04/09/07		2,000		2,000,000
Franklin County Healthcare Facilities RB (Willow Brook Christian Project) Series 2004 DN (Fifth Third Bank N.A. LOC)
3.69%(b)	04/09/07		600		600,000
Franklin County Hospital RB (Childrens Hospital Project) Series 2005A DN (National City Bank N.A. LOC)
3.70%(b)	04/09/07		850		850,000
Franklin County Hospital RB (Ohio Health Corp. Project) Series 2006 DN (AMBAC Insurance)
3.64%(b)	04/09/07		2,600		2,600,000
Franklin County RB (Trinity Health Credit Project) Series 2000F DN (FSA Insurance, J.P. Morgan Chase & Co. SBPA, Bayerische Landesbank Gironzentrale SBPA)
3.67%(b)	04/09/07		895		895,000
Geauga County RB (Thistle Lane Project) Series 2000 AMT DN (Huntington National Bank LOC)
3.83%(b)	04/09/07		2,220		2,220,000
Greene County IDRB (AFC Stamping & Production, Inc., Barsplice Products Project) Series 1995 AMT DN (KeyBank N.A. LOC)
3.80%(b)	04/09/07		165		165,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

27

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

OHIO MUNICIPAL MONEY MARKET PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Ohio (Continued)
Greene County Sewer System RB Series 2007-1610 DN (ABK Insurance, Morgan Stanley Group Liquidity Facility)
3.69%(b)(c)	04/09/07	$	2,000	$	2,000,000
Hamilton County GO Series 2007 BAN
4.10%	09/14/07		305		305,472
Hamilton County Hospital Facilities RB (Children’s Hospital Medical Center Project) Series 2000 DN (J.P. Morgan Chase & Co. LOC)
3.67%(b)	04/09/07		240		240,000
Hamilton County Hospital Facilities RB (Drake Center, Inc. Project) Series 1999A DN (U.S. Bank N.A. LOC)
3.65%(b)	04/09/07		580		580,000
Hamilton County Package System RB Series 2001 DN (U.S. Bank N.A. LOC)
3.67%(b)	04/09/07		1,650		1,650,000
Harrison Township GO (Fire Department Project) Series 2006 BAN
3.85%	10/11/07		450		450,458
Hubbard Village School District GO Series 2007 BAN
5.00%	06/28/07		545		546,706
Huber Heights GO (Real Estate Project) Series 2006 BAN
4.00%	08/16/07		970		970,404
Huber Heights GO Series 2006 BAN
4.25%	08/16/07		745		746,818
Indian Lake Local School District GO (School Construction Project) Series 2006 BAN
4.20%	05/24/07		500		500,416
Indian Lake Local School District GO (School Construction Project) Series 2007 BAN
4.70%	05/24/07		265		265,411
Kent County GO Series 2006 BAN
4.25%	10/18/07		700		702,405
Lancaster GO Series 2006 BAN
4.25%	10/17/07		330		331,076
Licking County GO (Moundview Project) Series 2006 BAN
4.50%	09/05/07		700		702,322
Lorain County GO (Sewer System Improvement Notes) Series 2006B BAN
4.50%	08/20/07		500		501,489
Lorain County GO Series 2007 BAN
4.25%	03/28/08		320		321,768
Lorain County IDRB (Ohio Metallurgical Services Project) Series 2001 AMT DN (First Merit Bank N.A. LOC)
3.93%(b)	04/09/07		1,530		1,530,000
Mahoning County IDRB (M&J Development Ltd. Project) Series 2002 AMT DN (KeyBank N.A. LOC)
3.80%(b)	04/09/07		2,470		2,470,000
Marion County GO Series 2006 BAN
4.15%	10/23/07		235		235,637
Marysville GO Series 2007 BAN
4.25%	03/06/08		270		271,207
Massillon GO (Lincoln Center Project) Series 2006 BAN
4.12%	11/13/07		455		456,290
Mentor IDRB (Arrow Machine Co. Ltd. Project) Series 1997 DN (First Merit Bank N.A. LOC)
3.78%(b)	04/09/07		1,195		1,195,000
North Central Ohio Local School GO Series 2006 BAN
4.50%	06/22/07		770		771,377
North Ridgeville GO Series 2007 BAN
4.03%	09/19/07		565		565,902
Oakwood GO Series 2006 BAN
4.25%	10/17/07		725		727,478
Ohio GO series 2003B DN
3.65%(b)	04/09/07		1,300		1,300,000
Ohio Higher Educational Facility Community RB Series 2000C DN (Fifth Third Bank N.A. LOC)
3.73%(b)	04/09/07		395		395,000
Ohio Higher Educational Facility RB (Cedarville University Project) Series 2004 DN (KeyBank N.A. LOC)
3.73%(b)	04/09/07		2,010		2,010,000
Ohio Housing Finance Agency Mortgage RB (Residential Mortgage Backed Securities Program) Series 2006F AMT DN (Citibank N.A. LOC)
3.69%(b)	04/09/07		1,400		1,400,000
Ohio Housing Finance Agency Mortgage RB Merlots Trust Receipts Series 2001A-78 DN (Wachovia Bank N.A. LOC)
3.74%(b)(c)	04/09/07		1,315		1,315,000
Ohio Housing Finance Agency Mortgage RB Merlots Trust Receipts Series 2005A-10 AMT DN (Wachovia Bank N.A. SBPA)
3.74%(b)(c)	04/09/07		3,665		3,665,000
Ohio Housing Finance Agency Mortgage RB Series 2001 AMT DN (Bank of America N.A. LOC)
3.77%(b)(c)	04/09/07		1,195		1,195,000
Ohio Housing Finance Agency Multi-Family Housing RB (Lincoln Park Assoc. Project) Series 1985 MB (Bank One N.A. LOC)
3.60%(b)	05/01/07		1,480		1,480,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

28

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

OHIO MUNICIPAL MONEY MARKET PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Ohio (Continued)
Ohio IDRB (Ashley Ward, Inc. Project) Series 1997 AMT DN (Fifth Third Bank N.A. LOC)
3.78%(b)	04/09/07	$	235	$	235,000
Ohio PCRB (Ross Incineration Project) Series 2000-1 AMT DN (Bank One N.A. LOC)
4.00%(b)	04/09/07		690		690,000
Ohio Solid Waste RB (Republic Services, Inc. Project) Series 2005 AMT DN
3.95%(b)	04/09/07		1,000		1,000,000
Ohio Water Development Authority Pollution Control Facilities RB (First Energy Nuclear Project) Series 2006 AMT DN (Barclays Bank Plc LOC)
3.70%(b)	04/09/07		4,125		4,125,000
Olmsted Falls GO Series 2006 BAN
3.90%	10/18/07		445		445,588
Osnaburg Local School District GO Series 2007 BAN
4.75%	07/31/07		900		903,085
Parma IDRB (FDC Realty Project) Series 2006 AMT DN (Huntington National Bank LOC)
3.90%(b)	04/09/07		2,005		2,005,000
Pepper Pike GO Series 2006 BAN
4.00%	05/31/07		1,000		1,000,396
Port of Greater Cincinnati RB (Springdale Public Infrastructure Project) Series 2006 MB (U.S. Bank N.A. LOC)
3.80%	02/01/08		2,900		2,900,000
Portage County IDRB (Action Super Abrasive Project) Series 1996 AMT DN (Huntington National Bank LOC)
3.89%(b)	04/09/07		690		690,000
Portage County IDRB (Bauer/Hibbard Properties Ltd. Project) Series 1998 DN (National City Bank N.A. LOC)
3.88%(b)	04/09/07		730		730,000
Portage County IDRB (Singer Steel Co. Project) Series 2007 AMT DN (Huntington National Bank LOC)
3.90%(b)	04/09/07		2,090		2,090,000
Putnam County Health Care Facilities RB (Hilty Memorial Home Project) Series 2004 DN (LaSalle Bank N.A. LOC)
3.74%(b)	04/09/07		3,415		3,415,000
Richland County GO (Computer Acquisition Project) Series 2007 BAN
4.25%	03/25/08		135		135,701
Seven Hills GO (Street Improvement Project) Series 2006 BAN
4.25%	12/06/07		635		637,715
Stark County IDRB (Thakar Properties LLC Project) Series 2002 AMT DN (National City Bank N.A. LOC)
3.78%(b)	04/09/07		3,080		3,080,000
Strongsville IDRB (Web Plastics Co. Project) Series 1997 DN (National City Bank N.A. LOC)
3.88%(b)	04/09/07		505		505,000
Summit County Civic Facility RB (Akron Area Electric Junction Project) Series 2001 DN (KeyBank N.A. LOC)
3.73%(b)	04/09/07		190		190,000
Summit County IDRB (Flutes LLC Project) Series 2002 AMT DN (Marshall & Ilsley Bank LOC)
3.78%(b)	04/09/07		2,005		2,005,000
Summit County IDRB (INDS, Inc. Project) Series 1998 AMT DN (J.P. Morgan Chase & Co. LOC)
3.80%(b)	04/09/07		2,580		2,580,000
Summit County IDRB (Jendrisak Properties Project) Series 2001 AMT DN (First Merit Bank N.A. LOC)
3.93%(b)	04/09/07		1,770		1,770,000
Summit County IDRB (KB Compost Services, Inc. Project) Series 2001 AMT DN (KeyBank N.A. LOC)
3.80%(b)	04/09/07		1,200		1,200,000
Summit County IDRB (Sigma Properties Project) Series 2000A AMT DN (National City Bank N.A. LOC)
3.83%(b)	04/09/07		750		750,000
Summit County Port Authority RB (Meadow Lane Building LLC Project) Series 2003A AMT DN (KeyBank N.A. LOC)
3.80%(b)	04/09/07		340		340,000
Teays Valley Local School District GO Series 2007 School Facilities Construction Improvement Notes
4.25%	06/15/07		1,000		1,001,324
Toledo City Services Special Assessment Notes GO Series 2006 DN (State Street Bank & Trust Co. LOC)
3.65%(b)	04/09/07		1,300		1,300,000
Toledo GO Munitops Trust Certificates Series 2004-18 DN (FGIC Insurance, State Aid Withholding Guaranty, ABN-AMRO Bank N.V. SBPA)
3.73%(b)(c)	06/14/07		2,000		2,000,000
Toledo Multi-Family Housing RB (Cherrywood Apartments Project) Series 2001 AMT DN (KeyBank N.A. LOC)
3.80%(b)	04/09/07		2,550		2,550,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

29

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

OHIO MUNICIPAL MONEY MARKET PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Ohio (Continued)
Trumbull County GO Series 2006 BAN
4.55%	04/04/07	$	900	$	900,071
Trumbull County IDRB (Ellwood Engineered Project) Series 2004 AMT DN (KeyBank N.A. LOC)
3.80%(b)	04/09/07		3,100		3,100,000
Trumbull County IDRB (United Steel Service, Inc. Project) Series 2000B AMT DN (Bank One N.A. LOC)
4.15%(b)	04/09/07		240		240,000
University of Akron General Receipts RB Series 2004 DN (FGIC Insurance, Dexia Credit SBPA)
3.65%(b)	04/09/07		2,000		2,000,000
University of Cincinnati RB Series 2004B DN (AMBAC Insurance, Bayerische Landesbank Girozentrale SBPA)
3.65%(b)	04/09/07		330		330,000
Van Wert County GO Series 2006 BAN
4.25%	12/13/07		1,445		1,451,354
Wapakoneta GO (Various Improvement Purposes Project) Series 2006 BAN
4.00%	11/14/07		225		225,337
Western Reserve Housing Development Corp. Economic RB (Trumbull Metropolitan Housing Project) Series 2003 DN (KeyBank N.A. LOC)
3.77%(b)	04/09/07		3,370		3,370,000
Wilmington GO (David’s Drive Extension Project) Series 2006 BAN
4.50%	07/26/07		985		986,959
					148,231,008
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 96.8% (Cost $148,231,008)					148,231,008
AFFILIATED INVESTMENTS — 3.2%
Hamilton County Hospital Facilities RB P-Float Trust Receipts Series 2001 PT-507 DN (Merrill Lynch & Co. Guaranty) 3.74%(b)(c)(d) (Cost $4,900,000)	04/09/07		4,900		4,900,000
TOTAL INVESTMENTS IN SECURITIES — 100.0% (Cost $153,131,008(a))					153,131,008
LIABILITIES IN EXCESS OF OTHER ASSETS — 0.0%					(52,200	)
NET ASSETS — 100.0%				$	153,078,808

(a) Aggregate cost for federal income tax purposes.

(b) Rates shown are the rates as of March 31, 2007 and maturities shown are the next interest readjustment date or the date the principal owed can be recovered through demand.

(c) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional investors. As of March 31, 2007, the Portfolio held 13.3% of its net assets, with a current market value of $20,405,000, in securities restricted as to resale.

(d) Security insured by an affiliate.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

30

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS — 95.4%
Pennsylvania — 94.6%
Allegheny County Apartment Authority RB Putters Series 1594 AMT DN (FGIC Insurance, J.P. Morgan Chase & Co. Liquidity Facility)
3.75%(b)(c)	04/09/07	$	1,000	$	1,000,000
Allegheny County IDRB (Carnegie Museums Pittsburgh Project) Series 2005 DN (Citizens Bank of Pennsylvania LOC)
3.70%(c)	04/09/07		4,000		4,000,000
Allegheny County IDRB (Commonwealth Development Parkway Project) Series 1994A DN (National City Bank N.A. LOC)
3.70%(c)	04/09/07		1,900		1,900,000
Allegheny County IDRB (UPMC Health System Project) Series 2002C DN (Comerica Bank N.A. LOC)
3.67%(c)	04/09/07		1,400		1,400,000
Berks County IDRB (Beacon Container Corp. Project) Series 1997A AMT DN (Wachovia Bank N.A. LOC)
3.81%(c)	04/09/07		310		310,000
Berks County IDRB (Tray Pak Co. Project) Series 2001A AMT DN (Wachovia Bank N.A. LOC)
3.81%(c)	04/09/07		2,060		2,060,000
Bermudian Springs School District GO Series 2006 DN (FSA Insurance, Royal Bank of Canada SBPA)
3.65%(c)	04/09/07		10,500		10,500,000
Blair County IDRB Series 2003 AMT DN (Fulton Bank LOC)
3.85%(c)	04/09/07		1,960		1,960,000
Bucks County IDRB (LTL Color Compounders Project) Series 1999B AMT DN (Wilmington Trust Co. LOC)
3.91%(c)	04/09/07		225		225,000
Cambria County IDA Resource Recovery RB (Cambria Cogen Co. Project) Series 1998A-2 AMT DN (Bayerische Landesbank Girozentrale LOC)
3.81%(c)	04/09/07		16,000		16,000,000
Chester County IDA Student Housing RB (University Student Housing Ltd. Project) Series 2003 DN (Royal Bank of Scotland LOC)
3.69%(c)	04/09/07		8,150		8,150,000
Chester County IDRB (RV Industrial, Inc. Project) Series 2001 AMT DN (M&T Bank Corp. LOC)
3.80%(c)	04/09/07		2,750		2,750,000
City of Philadelphia TECP (Morgan Guaranty Trust LOC)
3.63%	05/07/07		10,000		10,000,000
Coatesville School District GO Series 1997 MB
5.75%	04/02/07		3,770		3,770,000
Crawford County IDRB Series 2000 AMT DN (National City Bank N.A. LOC)
3.83%(c)	04/09/07		900		900,000
Cumberland County Municipal Authority RB (Presbyterian Homes Project) Series 2005B DN (Radian Insurance, Wachovia Bank N.A. LOC)
3.65%(c)	12/03/07		2,900		2,900,000
Dauphin County IDRB Series 2005 AMT DN (Citizens Bank of Pennsylvania LOC)
3.68%(c)	04/09/07		9,000		9,000,000
Delaware County Authority RB (White Horse Village Project) Series 2006B DN
3.74%(c)	04/02/07		700		700,000
Delaware County IDRB (Melmark, Inc. Project) Series 2006 DN (Commerce Bank N.A. LOC)
3.70%(c)	04/09/07		750		750,000
Delaware County IDRB (Resource Recovery Facility Project) Series 2006G DN
3.65%(c)	04/09/07		4,000		4,000,000
Delaware County IDRB (Scott Paper Co. Project) Series 1984A DN
3.67%(c)	04/09/07		100		100,000
Delaware County IDRB Putters Series 2006-1497 AMT DN (FGIC Insurance, J.P. Morgan Chase & Co. Liquidity Facility)
3.72%(b)(c)	04/09/07		3,500		3,500,000
East Hempfield Township IDRB (Herley Industrial, Inc. Project) Series 2001 AMT DN (M&T Bank Corp. LOC)
3.80%(c)	04/09/07		2,475		2,475,000
East Hempfield Township IDRB (Herley Industrial, Inc. Project) Series 2005 AMT DN (M&T Bank Corp. LOC)
3.80%(c)	04/09/07		2,700		2,700,000
Franklin County IDRB (Chambersburg Hospital Project) Series 2000 DN (AMBAC Insurance, Wachovia Bank N.A. SBPA)
3.70%(c)	04/09/07		1,950		1,950,000
Franklin County IDRB (Precast System Project) Series 2001A AMT DN (M&T Bank Corp. LOC)
3.80%(c)	04/09/07		1,760		1,760,000
Harrisburg Authority School RB (Harrisburg Project) Series 2003 DN (AMBAC Insurance, WestLB AG Liquidity Facility)
3.65%(c)	04/09/07		7,645		7,645,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

31

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Pennsylvania (Continued)
Horizon Hospital System Authority Health & Housing Facility RB (St. Paul Homes Project) Series 2002 DN (M&T Bank Corp. LOC)
3.70%(c)	04/09/07	$	7,215	$	7,215,000
Horizon Hospital System Authority Health & Housing Facility RB (St. Paul Homes Project) Series 2005 DN (M&T Bank Corp. LOC)
3.70%(c)	04/09/07		7,900		7,900,000
Indiana County IDRB (Conemaugh Project) Series 1997A AMT DN (Bank One N.A. LOC)
3.73%(c)	04/09/07		10,550		10,550,000
Lackawanna County IDRB (Herff Jones, Inc. Project) Series 2001 AMT DN (National City Bank N.A. LOC)
3.78%(c)	04/09/07		2,800		2,800,000
Lancaster County Hospital Authority RB (Ephrata Community Hospital Project) Series 2006 DN (Fulton Bank LOC)
3.75%(c)	04/09/07		6,500		6,500,000
Lancaster County Hospital Authority RB (Health Center Luthercare Project) Series 1999 DN (M&T Bank Corp. LOC)
3.70%(c)	04/09/07		4,865		4,865,000
Lancaster County Hospital Authority RB (Landis Homes Retirement Community Project) Series 2002 DN (M&T Bank Corp. LOC)
3.70%(c)	04/09/07		8,405		8,405,000
Lancaster County IDRB (Clean Creek Partners Project) Series 2000 AMT DN (M&T Bank Corp. LOC)
3.80%(c)	04/09/07		4,705		4,705,000
Lancaster County IDRB (D&P Skibo LLC Project) Series 2001 AMT DN (Wachovia Bank N.A. LOC)
3.81%(c)	04/09/07		1,370		1,370,000
Lancaster County IDRB (John F. Martin & Sons Project) Series 2001 AMT DN (Fulton Bank LOC)
3.90%(c)	04/09/07		700		700,000
Lancaster County IDRB (Oakfront LP Project) Series 2001 AMT DN (M&T Bank Corp. LOC)
3.80%(c)	04/09/07		2,030		2,030,000
Lawrence County IDRB (L&N Metallurgical Products Project) Series 1996 AMT DN (Banque Nationale de Paribas LOC)
3.81%(c)	04/09/07		3,820		3,820,000
Lebanon County Health Facility RB (Cornwall Manor Project) Series 2002 DN (Radian Insurance, Fleet National Bank SBPA)
3.73%(c)	04/09/07		5,000		5,000,000
Lebanon County Health Facility RB (Evangelican Long Church Retirement Village Project) Series 2000 DN (Northern Trust LOC)
3.70%(c)	04/09/07		2,815		2,815,000
Lehigh County General Purpose Authority RB Series 2007 ROCS-RR-II-R-862CE DN (Citibank N.A. Liquidity Facility, Citibank N.A. Guaranty)
3.71%(b)(c)	04/09/07		4,900		4,900,000
Montgomery County Higher Education & Health Authority RB (Pennsylvania Higher Education & Health Loan Project) Series 1996A DN (M&T Bank Corp. LOC)
3.73%(c)	04/09/07		2,600		2,600,000
Montgomery County IDRB (Apple Fresh Foods Ltd. Project) Series 1996 AMT DN (Wachovia Bank N.A. LOC)
3.77%(c)	04/09/07		600		600,000
Northampton County IDRB (Bethlehem Contracting Project) Series 2001A AMT DN (M&T Bank Corp. LOC)
3.80%(c)	04/09/07		3,080		3,080,000
Northampton County IDRB (Trent Family Partnership Project) Series 2002 AMT DN (Wachovia Bank N.A. LOC)
3.81%(c)	04/09/07		1,890		1,890,000
Pennsylvania Economic Development Financing Authority RB (AMC Delancey Traditions Project) Series 2006 AMT DN (Citizens Bank of Pennsylvania LOC)
3.67%(c)	04/09/07		3,200		3,200,000
Pennsylvania Economic Development Financing Authority RB (Homewood Retirement Project) Series 1992E DN (M&T Bank Corp. LOC)
3.70%(c)	04/09/07		4,250		4,250,000
Pennsylvania Economic Development Financing Authority RB (Material Technology Project) Series 2000D AMT DN (Wachovia Bank N.A. LOC)
3.76%(c)	04/09/07		600		600,000
Pennsylvania Economic Development Financing Authority Solid Waste Disposal RB Series 2006V AMT DN (Bank of America N.A. Liquidity Facility)
3.75%(b)(c)	04/09/07		8,700		8,700,000
Pennsylvania Economic Development Financing Authority Waste Water Treatment RB (Sunoco, Inc. Project) Series 2004A AMT DN (Sunoco, Inc. Guaranty)
3.88%(c)	04/09/07		4,700		4,700,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

32

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Pennsylvania (Continued)
Pennsylvania Energy Development Authority RB (B&W Ebensburg Project) Series 1988 AMT DN (Swiss Bank LOC)
3.70%(c)	04/09/07	$	1,000	$	1,000,000
Pennsylvania GO Putters Series 2006-1382 DN (J.P. Morgan Chase & Co. Liquidity Facility)
3.70%(b)(c)	04/09/07		3,550		3,550,000
Pennsylvania GO Series 2006R ROC-II-R-506 DN (FSA & MBIA Insurance, Citibank N.A. Liquidity Facility)
3.71%(b)(c)	04/09/07		4,260		4,260,000
Pennsylvania GO Series 2007-1624 DN (Morgan Stanley Group Liquidity Facility)
3.69%(b)(c)	04/09/07		7,250		7,250,000
Pennsylvania Higher Educational Assistance Agency Student Loan RB Series 1988C AMT DN (Student Loan Marketing Assoc. LOC)
3.68%(c)	04/09/07		6,950		6,950,000
Pennsylvania Higher Educational Assistance Agency Student Loan RB Series 1988E AMT DN (AMBAC Insurance, Wachovia Bank N.A. SBPA)
3.68%(c)	04/09/07		6,100		6,100,000
Pennsylvania Higher Educational Assistance Agency Student Loan RB Series 1994A AMT DN (Student Loan Marketing Assoc. Guaranty)
3.68%(c)	04/09/07		2,300		2,300,000
Pennsylvania Higher Educational Assistance Agency Student Loan RB Series 1997A AMT DN (Dexia Credit Local SBPA)
3.75%(c)	04/09/07		2,300		2,300,000
Pennsylvania Higher Educational Assistance Agency Student Loan RB Series 2001A AMT DN (AMBAC Insurance)
3.75%(c)	04/09/07		1,000		1,000,000
Pennsylvania Higher Educational Assistance Agency Student Loan RB Series 2001B AMT DN (Multiple LOCs)
3.71%(c)	04/09/07		4,200		4,200,000
Pennsylvania Higher Educational Assistance Agency Student Loan RB Series 2002A AMT DN (FSA Insurance, Multiple SBPA’s)
3.75%(c)	04/09/07		6,600		6,600,000
Pennsylvania Higher Educational Facilities Authority RB (Assoc. of Independent Colleges & Universities Project) Series 2004M-3 DN (M&T Bank Corp. LOC)
3.63%(c)	11/01/07		5,000		5,000,000
Pennsylvania Higher Educational Facilities Authority RB (Drexel University Project) Series 2003B DN (Allied Irish Bank Plc Liquidity Facility)
3.65%(c)	04/09/07		400		400,000
Pennsylvania Higher Educational Facilities Authority RB (Mount Aloysuis College Project) Series 2003 DN (Allied Irish Bank Plc LOC)
3.69%(c)	04/09/07		2,500		2,500,000
Pennsylvania Higher Educational Facilities Authority RB (Student Assoc. Housing, Inc. Project) Series 2006A DN (Citizens Bank of Pennsylvania LOC)
3.67%(c)	04/09/07		7,895		7,895,000
Pennsylvania Higher Educational Facilities Authority RB Puttable Tax Exempt Receipts Series 2006-1271 DN (J.P. Morgan Chase & Co. Liquidity Facility)
3.70%(b)(c)	04/09/07		4,870		4,870,000
Pennsylvania Higher Educational Facilities Authority RB Series 1998C-4 DN
3.62%(c)	04/09/07		4,100		4,100,000
Pennsylvania Higher Educational Facilities Authority RB Series 1998 DN (Banque Nationale de Paribas LOC)
3.73%(c)	04/09/07		2,700		2,700,000
Pennsylvania Housing Finance Agency Single Family Mortgage RB Putters Series 2005-1213 AMT DN (J.P. Morgan Chase & Co. Liquidity Facility)
3.75%(b)(c)	04/09/07		2,055		2,055,000
Pennsylvania Housing Finance Agency Single Family Mortgage RB Putters Series 2006-1592 AMT DN (J.P. Morgan Chase & Co. Liquidity Facility)
3.75%(b)(c)	04/09/07		4,955		4,955,000
Pennsylvania Housing Finance Agency Single Family Mortgage RB Series 1992-1 AMT DN (Landesbank Hessen-Thuringen Girozentrale SBPA)
3.67%(c)	04/09/07		8,000		8,000,000
Pennsylvania Housing Finance Agency Single Family Mortgage RB Series 2004-82B AMT DN (Landesbank Hessen-Thuringen Girozentrale SBPA)
3.69%(c)	04/09/07		11,540		11,540,000
Pennsylvania Housing Finance Agency Single Family Mortgage RB Series 2004-83B AMT DN (Landesbank Hessen-Thuringen Girozentrale SBPA)
3.67%(c)	04/09/07		2,500		2,500,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

33

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Pennsylvania (Continued)
Pennsylvania Housing Finance Agency Single Family Mortgage RB Series 2004-83C AMT DN (Landesbank Hessen-Thuringen Girozentrale SBPA)
3.67%(c)	04/09/07	$	1,700	$	1,700,000
Pennsylvania Housing Finance Agency Single Family Mortgage RB Series 2004-85B AMT DN (Landesbank Hessen-Thuringen Girozentrale SBPA)
3.67%(c)	04/09/07		1,625		1,625,000
Pennsylvania Housing Finance Agency Single Family Mortgage RB Series 2004-85C AMT DN (Landesbank Hessen-Thuringen Girozentrale SBPA)
3.67%(c)	04/09/07		7,145		7,145,000
Pennsylvania Housing Finance Agency Single Family Mortgage RB Series 2004-86B AMT DN (Depfa Bank Plc SBPA)
3.70%(c)	04/09/07		3,000		3,000,000
Pennsylvania Housing Finance Agency Single Family Mortgage RB Series 2004-86C AMT DN (Depfa Bank Plc SBPA)
3.70%(c)	04/09/07		4,100		4,100,000
Pennsylvania Housing Finance Agency Single Family Mortgage RB Series 2005-89 AMT DN (Depfa Bank Plc SBPA)
3.70%(c)	04/09/07		7,400		7,400,000
Pennsylvania Housing Finance Agency Single Family Mortgage RB Series 2006C-95 AMT DN (Dexia Bank SBPA)
3.67%(c)	04/09/07		8,000		8,000,000
Pennsylvania Housing RB Municipal Trust Receipts Series 2006K-57 AMT DN (Lehman Liquidity Co. Liquidity Facility)
3.78%(b)(c)	04/09/07		2,500		2,500,000
Pennsylvania Turnpike Commission RB Munitops Trust Certificates Series 2004-9 DN (AMBAC Insurance, ABN-AMRO Bank N.V. SBPA)
3.70%(b)(c)	04/09/07		12,435		12,435,000
Philadelphia Airport RB Series 2005B AMT DN (MBIA Insurance, J.P. Morgan Chase & Co. SBPA)
3.70%(c)	04/09/07		700		700,000
Philadelphia Airport RB Series 2005C AMT DN (MBIA Insurance, J.P. Morgan Chase & Co. SBPA)
3.75%(c)	04/09/07		8,900		8,900,000
Philadelphia Authority for Industrial Development RB (Airport Project) Series 1998P-1 AMT DN (FGIC Insurance, Bank of America N.A. SBPA)
3.80%(b)(c)	04/09/07		5,000		5,000,000
Philadelphia Authority for Industrial Development RB (Gift of Life Donor Program Project) Series 2003 DN (Commerce Bank N.A. LOC)
3.68%(c)	04/09/07		5,485		5,485,000
Philadelphia Authority for Industrial Development RB (Universal Community Homes Project) Series 2003 DN (Wachovia Bank N.A. LOC)
3.76%(c)	04/09/07		2,210		2,210,000
Philadelphia Authority for Industrial Development RB Municipal Cerificates Series 2006-1014 DN (FGIC Insurance, Bank of New York Liquidity Facility)
3.68%(b)(c)	04/09/07		3,100		3,100,000
Philadelphia Gas Works RB Series 2006-6 DN (FSA Insurance, Multiple SBPA’s)
3.66%(c)	04/09/07		7,540		7,540,000
Philadelphia GO Series 2006 TRAN
4.50%	06/29/07		935		936,685
Philadelphia Redevelopment Authority Multi-Family Housing RB Series 2006G-1 AMT DN (The Goldman Sachs Group, Inc. Guaranty, The Goldman Sachs Group, Inc. SBPA)
3.74%(b)(c)	04/09/07		20,395		20,395,000
Philadelphia Redevelopment Authority RB Spear DB-134 Series 2005 AMT DN (FGIC Insurance, Deutsche Bank Liquidity Facility)
3.71%(b)(c)	04/09/07		10,295		10,295,000
Philadelphia Water RB Munitops Trust Certificates Series 2005-15 AMT MB (FSA Insurance, ABN-AMRO Bank N.V. SBPA)
3.66%(b)	09/20/07		5,395		5,395,000
Pocono Mountain School District GO Series 2007I-22 DN (Royal Bank of Canada Liquidity Facilitiy)
3.70%(b)(c)	04/09/07		1,635		1,635,000
Schuylkill County IDRB (KP-Tamaqua LP Project) Series 2007 AMT DN (Citizens Bank of Pennsylvania LOC)
3.71%(c)	04/09/07		1,535		1,535,000
Southcentral General Authority RB (Homewood Hanover Project) Series 2003 DN (M&T Bank Corp. LOC)
3.70%(c)	04/09/07		18,500		18,500,000
Southcentral General Authority RB (York Cerebral Palsy Home Project) Series 2000 DN (Fulton Bank LOC)
3.75%(c)	04/09/07		3,500		3,500,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

34

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Pennsylvania (Continued)
Southcentral General Authority RB Series 2003 DN (AMBAC Insurance, RBC Centura Bank SBPA)
3.70%(c)	04/09/07	$	8,000	$	8,000,000
St. Mary Hospital Authority Bucks County RB (Catholic Health Initiatives Project) Series 2004C DN
3.64%(c)	04/09/07		1,800		1,800,000
State Public School Building Authority RB (Parkland School District Project) Series 1999D DN (FGIC Insurance)
3.70%(c)	04/09/07		955		955,000
State Public School Building Authority RB (Philadelphia School District Project) Municipal Products, Inc. Trust Receipts Series 2007I-16 DN (Royal Bank of Canada Liquidity Facility)
3.69%(b)(c)	04/09/07		3,735		3,735,000
State Public School Building Authority RB (Philadelphia School District Project) Munitops Trust Certificates Series 2003-24 DN (FSA Insurance, ABN-AMRO Bank N.V. SBPA)
3.68%(b)(c)	04/09/07		2,145		2,145,000
State Public School Building Authority RB Putters Series 2006-1257 DN (FSA Insurance, PB Capital Corp. Liquidity Facility)
3.70%(b)(c)	04/09/07		3,230		3,230,000
Union County Hospital Authority RB (Evangelical Community Hospital Project) Series 2001 MB (Fleet National Bank SBPA, Radian Asset Assurance, Inc. Guaranty)
3.70%(c)	04/09/07		4,505		4,505,000
Union County IDRB (Stabler Cos., Inc. Project) Series 2001 AMT DN (M&T Bank Corp. LOC)
3.80%(c)	04/09/07		6,785		6,785,000
University of Pittsburgh of the Commonwealth Systems of Higher Education GO (Pitt Panthers Asset Notes Project) Series 2006 RAN
4.50%	08/24/07		3,300		3,310,088
University of Pittsburgh of the Commonwealth Systems of Higher Education RB (University Capital Project) Series 2007A DN
3.62%(c)	04/09/07		6,800		6,800,000
Upper Merion Municipal Utility Authority RB Series 2003 DN (Commerce Bank N.A. LOC)
3.68%(c)	04/09/07		3,100		3,100,000
Upper St. Clair Township GO Munitops Trust Certificates Series 2002 MB (FSA Insurance, ABN-AMRO Bank N.V. SBPA)
3.65%(b)	07/19/07		5,150		5,150,000
Venango IDRB (Scrubgrass Project) AMT TECP (Credit Local LOC)
3.70%	05/03/07		20,000		20,000,000
Venango IDRB Municipal Commercial Paper Series 2007 AMT TECP
3.70%	05/03/07		7,500		7,500,000
Westmoreland County IDRB (Industrial Development McCutcheon Enterprise Project) Series 1999 AMT DN (National City Bank N.A. LOC)
3.83%(c)	04/09/07		1,660		1,660,000
Wyoming IDRB (Deer Park Lumber Project) Series 2007A AMT DN (First Tennessee Bank LOC)
3.73%(c)	04/09/07		2,075		2,075,000
York County GO Series 2007 TRAN
4.00%	06/30/07		3,500		3,503,387
York County Hospital Authority RB (Homewood Retirement Centers of The United Church of Christ, Inc. Project) Series 1990 DN (M&T Bank Corp. LOC)
3.70%(c)	04/09/07		4,050		4,050,000
York County IDRB (Allied-Signal, Inc. Project) Series 1993 DN
3.95%(c)	04/09/07		1,000		1,000,000
York County IDRB (Interstate Holdings Co. Project) Series 2003 AMT DN (Wachovia Bank N.A. Liquidity Facility)
3.81%(c)	04/09/07		1,245		1,245,000
York County IDRB (Raich Family Ltd. Partner Project) Series 2000 AMT DN (M&T Bank Corp. LOC)
3.80%(c)	04/09/07		2,000		2,000,000
York County IDRB (York Sheet Metal, Inc. Project) Series 1998 DN (Wachovia Bank N.A. LOC)
3.80%(c)	04/09/07		2,310		2,310,000
York General Authority RB (Strand Capital Performing Arts Center Project) Series 2002 DN (M&T Bank Corp. LOC)
3.73%(c)	04/09/07		5,560		5,560,000
					551,075,160
Puerto Rico — 0.8%
Commonwealth of Puerto Rico Infrastructure Financing Authority RB Merlots Trust Receipts Series 2005A-21 MB (AMBAC Insurance, Wachovia Bank N.A. SBPA)
3.60%(b)(c)	05/15/07		4,975		4,975,000
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 95.4% (Cost $556,050,160)					556,050,160

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

35

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
AFFILIATED INVESTMENTS — 4.2%
Pennsylvania Economic Development Financing Authority RB P-Float Trust Receipts Series 2004-1282 AMT DN (Merrill Lynch & Co. LOC, Merrill Lynch Capital Securities Guaranty)
3.72%(b)(c)(d)	04/09/07	$	5,000	$	5,000,000
Pennsylvania Higher Educational Facilities Authority RB P-Float Trust Receipts Series 2004 MT-042 DN (Lloyds TSB Bank Plc LOC, Merrill Lynch Capital Services SBPA)
3.71%(b)(c)(d)	04/09/07		19,225		19,225,000
TOTAL AFFILIATED INVESTMENTS (Cost $24,225,000)					24,225,000
TOTAL INVESTMENTS IN SECURITIES — 99.6% (Cost $580,275,160(a))					580,275,160
OTHER ASSETS IN EXCESS OF LIABILITIES — 0.4%					2,285,163
NET ASSETS — 100.0%				$	582,560,323

(a) Aggregate cost for federal income tax purposes.

(b) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional investors. As of March 31, 2007, the Portfolio held 25.6% of its net assets, with a current market value of $149,255,000, in securities restricted as to resale.

(c) Rates shown are the rates as of March 31, 2007 and maturities shown are the next interest readjustment date or the date the principal owed can be recovered through demand.

(d) Security insured by an affiliate.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

36

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS — 99.1%
Puerto Rico — 6.3%
Commonwealth of Puerto Rico Electric Power Authority RB Series 2002-1 DN (MBIA Insurance, Bank of New York SBPA)
3.66%(b)(c)	04/09/07	$	800	$	800,000
Commonwealth of Puerto Rico Infrastructure Financing Authority RB Merlots Trust Receipts Series 2005A-21 MB (AMBAC Insurance, Wachovia Bank N.A. SBPA)
3.60%(b)(c)	05/15/07		250		250,000
Commonwealth of Puerto Rico RB Municipal Products, Inc. Trust Receipts Series 2006 DN (AMBAC Insurance, Royal Bank of Canada Liquidity Facility)
3.67%(b)(c)	04/09/07		700		700,000
Commonwealth of Puerto Rico RB Municipal Securities Trust Certificates Series 2000A DN (FSA Insurance, Bear Stearns Capital Markets Liquidity Facility)
3.65%(b)(c)	04/09/07		500		500,000
Puerto Rico Housing Finance Authority RB (Capital Funding Project) Municipal Trust Receipts Series 2006K-48 DN (Lehman Liquidity Co. Liquidity Facility, HUD Loan Guaranty)
3.67%(b)(c)	04/09/07		2,395		2,395,000
					4,645,000
Virginia — 92.8%
Alexandria IDRB (American Correctional Assoc. Project) Series 2006 DN (Bank of America N.A. LOC)
3.66%(c)	04/09/07		2,000		2,000,000
Alexandria IDRB (Goodwin House Project) Series 2005 DN (Wachovia Bank N.A. LOC)
3.75%(c)	04/02/07		165		165,000
Alexandria IDRB (YMCA of Billings Project) Series 1998 DN (M&T Bank Corp. LOC)
3.73%(c)	04/09/07		3,490		3,490,000
Arlington County IDRB (Woodbury Park Project) Series 2005A DN (Federal Home Loan Mortgage Liquidity Facility)
3.65%(c)	04/09/07		3,270		3,270,000
Chesapeake Bay Bridge & Tunnel Commonwealth District RB Merlots Trust Receipts Series 2003 DN (MBIA Insurance, Wachovia Bank N.A. Liquidity Facility)
3.69%(b)(c)	04/09/07		900		900,000
Fairfax County Economic Development Authority RB (National Industries for Severe Handicap Project) Series 2002 DN (SunTrust Bank LOC)
3.66%(c)	04/09/07		450		450,000
Fairfax County Economic Development Authority RB (Retirement Greenspring Project) Series 2006B DN (Wachovia Bank N.A. LOC)
3.65%(c)	04/09/07		3,300		3,300,000
Fairfax County Economic Development Authority RB (Route 28 Project) Munitops Trust Certificates Series 2003 DN (MBIA Insurance, ABN-AMRO Bank SBPA)
3.69%(b)(c)	04/09/07		1,000		1,000,000
Fairfax County IDRB (Inova Health Systems Project) Series 2005A-1 DN
3.63%(c)	04/09/07		2,100		2,100,000
Fairfax County IDRB (Inova Health Systems Project) Series 2005A-2 DN
3.63%(c)	04/09/07		1,200		1,200,000
Fairfax County IDRB (Inova Health Systems Project) Series 2005C-1 DN
3.63%(c)	04/09/07		3,200		3,200,000
Fairfax County IDRB (Inova Health Systems Project) Series 2005C-2 DN
3.63%(c)	04/09/07		2,500		2,500,000
Fairfax County Redevelopment & Housing Authority RB Series 2007 BAN
4.00%	02/12/08		1,900		1,905,642
Hampton Redevelopment & Housing Authority RB (Multi-Family Housing Project) Series 1998 DN (Federal National Mortgage Assoc. Credit Support & LOC)
3.65%(c)	04/09/07		400		400,000
Hampton Roads Regional Jail Authority Facilities RB Trust Receipts Series 2004 ROC-RR-II-R-2156 DN (MBIA Insurance, Citibank N.A. Liquidity Facility)
3.71%(b)(c)	04/09/07		4,190		4,190,000
Lexington IDA Educational Facilities RB (VMI Development Board, Inc. Project) Series 2006 DN (Wachovia Bank N.A. LOC)
3.75%(c)	04/02/07		1,050		1,050,000
Loudoun County IDRB (Hill School Project) Series 2002 DN (SunTrust Bank LOC)
3.66%(c)	04/09/07		1,100		1,100,000
Loudoun County IDRB (Howard Hughes Medical Institute Project) Series 2003B DN
3.65%(c)	04/09/07		600		600,000
Loudoun County IDRB (Howard Hughes Medical Institute Project) Series 2003C DN
3.78%(c)	04/09/07		100		100,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

37

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Virginia (Continued)
Loudoun County IDRB (Howard Hughes Medical Institute Project) Series 2003D DN
3.66%(c)	04/09/07	$	2,050	$	2,050,000
Loudoun County IDRB (Howard Hughes Medical Institute Project) Series 2003F DN
3.64%(c)	04/09/07		500		500,000
Montgomery County IDRB (Virginia Technical Foundation Project) Series 2005 DN (Bank of America N.A. LOC)
3.85%(c)	04/02/07		1,890		1,890,000
Municipal Securities Trust Certificates RB (Virginia Commonwealth Transportation Board) Series 2007-5033 BBT Class A DN (Branch Banking and Trust Co. LOC)
3.70%(b)(c)	04/09/07		2,000		2,000,000
Richmond IDRB (Diocese of Virginia Church School Project) Series 2001 DN (SunTrust Bank LOC)
3.85%(c)	04/02/07		2,315		2,315,000
Roanoke IDRB (Carilion Health Systems Project) Series 2005C-2 DN (FSA Insurance, Wachovia Bank N.A. SBPA)
3.75%(c)	04/02/07		1,100		1,100,000
University of Virginia RB Munitops Trust Certificates Series 2005-48 DN (ABN-AMRO Bank N.V. SBPA)
3.69%(b)(c)	04/09/07		1,500		1,500,000
Upper Occoquan Sewer Authority RB Austin Trust Certificates Series 2007-123 DN (Financial Security Assurance Liquidity Facility, Bank of America N.A. LOC)
3.70%(b)(c)	04/09/07		2,235		2,235,000
Virginia Beach Development Authority IDRB (Ocean Ranch Motel Corp. Project) Series 1998 DN (Branch Banking & Trust Co. LOC)
3.68%(c)	04/09/07		700		700,000
Virginia Beach GO Merlots Trust Receipts Series 2007D-11 DN (Wachovia Bank N.A. LOC)
3.69%(b)(c)	04/09/07		1,470		1,470,000
Virginia Biotechnology Research Partnership Authority RB (Virginia Blood Services Project) Series 2006 DN (SunTrust Bank LOC)
3.66%(c)	04/09/07		600		600,000
Virginia College Building Authority Educational Facilities RB (21st Century College Project) Series 2006C DN (Wachovia Bank N.A. SBPA)
3.75%(c)	04/02/07		100		100,000
Virginia College Building Authority Educational Facilities RB (University of Richmond Project) Series 2006 DN (SunTrust Bank SBPA)
3.85%(c)	04/02/07		2,300		2,300,000
Virginia College Building Authority RB Series 2003-379 DN (J.P. Morgan Chase & Co. LOC)
3.72%(b)(c)	04/09/07		4,635		4,635,000
Virginia Commonwealth University RB Series 2006A DN (AMBAC Insurance, Wachovia Bank N.A. Liquidity Facility)
3.80%(c)	04/02/07		2,400		2,400,000
Virginia GO Series 1997 MB
5.00%	06/01/07		940		942,576
Virginia GO Series 2002 MB
4.00%	06/01/07		500		500,412
Virginia Public Building Authority RB Series 2005D DN (Dexia Bank SBPA)
3.65%(c)	04/09/07		3,800		3,800,000
Virginia Public School Authority RB Trust Receipts Series 2003R-4050-ROC-II DN (Citigroup, Inc. Liquidity Facility)
3.71%(b)(c)	04/09/07		1,855		1,855,000
Winchester Authority Residential Care Facility IDRB (Westminster-Cantenbury Project) Series 2005B DN (Branch Banking & Trust Co. LOC)
3.68%(c)	04/09/07		2,700		2,700,000
					68,513,630
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 99.1% (Cost $73,158,630)					73,158,630
AFFILIATED INVESTMENTS — 0.7%
Virginia Resource Authority Clean Water State Revolving Fund RB P-Float Trust Receipts Series 2000 PA-790 DN (Merrill Lynch & Co. Guaranty, Merrill Lynch Captial Services SBPA) 3.69%(b)(c)(d) (Cost $505,000)	04/09/07		505		505,000
TOTAL INVESTMENTS IN SECURITIES — 99.8% (Cost $73,663,630(a))					73,663,630
OTHER ASSETS IN EXCESS OF LIABILITIES — 0.2%					134,438
NET ASSETS — 100.0%				$	73,798,068

(a) Aggregate cost for federal income tax purposes.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

38

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

(b) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional investors. As of March 31, 2007, the Portfolio held 33.8% of its net assets, with a current market value of $24,935,000, in securities restricted as to resale.

(c) Rates shown are the rates as of March 31, 2007 and maturities shown are the next interest readjustment date or the date the principal owed can be recovered through demand.

(d) Security insured by an affiliate.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

39

BLACKROCK FUNDS

Key to Investment Abbreviations

AMBAC	American Municipal Bond Assurance Corp.
AMT	Alternative Minimum Tax (subject to)
BAN	Bond Anticipation Notes
COP	Certificates of Participation
DN	Demand Notes
FGIC	Financial Guaranty Insurance Co.
FSA	Financial Security Assurance
GO	General Obligation
HFA	Housing Finance Agency
HUD	Housing & Urban Development
IDA	Industrial Development Authority
IDRB	Industrial Development Revenue Bonds
ISD	Independent School District
LOC	Letter of Credit
MB	Municipal Bonds
MBIA	Municipal Bond Insurance Association
PCRB	Pollution Control Revenue Bonds
RAN	Revenue Anticipation Notes
RB	Revenue Bonds
ROC	Reset Option Certificate
SBPA	Stand-by Bond Purchase Agreement
TAN	Tax Anticipation Notes
TRAN	Tax & Revenue Anticipation Notes
TECP	Tax-Exempt Commercial Paper
TOC	Tender Option Certificate
XLCA	XL Capital Assurance

40

[THIS PAGE INTENTIONALLY LEFT BLANK.]

BLACKROCK FUNDS

STATEMENTS OF ASSETS AND LIABILITIES

AS OF MARCH 31, 2007 (UNAUDITED)

	MONEY MARKET PORTFOLIO			U.S. TREASURY MONEY MARKET PORTFOLIO			MUNICIPAL MONEY MARKET PORTFOLIO		NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO		NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO			OHIO MUNICIPAL MONEY MARKET PORTFOLIO		PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO			VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
ASSETS
Investments at value—unaffiliated 1	$	1,673,371,544		$	406,389,000	3	$	288,561,921	$	143,033,836	$	85,236,562		$	148,231,008	$	534,215,160		$	70,758,630
Investments at value—affiliated2		—			—			3,605,000		22,065,000		—			4,900,000		46,060,000			2,905,000
Cash		809			540			—		1,010		62,176			—		46,767			27,158
Interest receivable		4,492,419			940,836			2,200,961		1,399,777		398,754			1,231,619		3,946,584			337,241
Receivable from advisor		6,064			692			225		379		451			467		2,259			736
Capital shares sold receivable		23,124			—			91,989		—		—			—		—			—
Prepaid expenses		73,893			38,820			41,638		11,988		10,774			10,435		18,842			11,486
TOTAL ASSETS		1,677,967,853			407,369,888			294,501,734		166,511,990		85,708,717			154,373,529		584,289,612			74,040,251
LIABILITIES
Investments purchased payable		31,935,000			—			—		—		—			779,084		—			—
Cash overdraft		—			—			2,691		—		—			3,657		—			—
Capital shares redeemed payable		78,099			—			953		—		—			—		—			—
Distributions payable		4,328,586			1,434,819			335,025		358,629		102,196			413,643		1,393,256			203,600
Advisory fees payable		438,382			95,783			71,610		39,266		6,397			36,550		154,749			7,954
Administration fees payable		111,326			30,471			15,117		12,084		5,695			11,633		38,071			4,760
Custodian fees payable		14,682			9,592			5,682		3,767		3,365			3,377		9,400			2,700
Transfer agent fees payable		84,973			12,301			2,142		1,796		1,925			1,686		8,668			2,255
Distribution fees payable		11,314			—			—		—		—			—		—			—
Officers’ and trustees’ fees payable		219			72			230		226		18			37		74			46
Other accrued expenses payable		438,038			124,593			75,212		51,606		11,644			45,054		125,071			20,868
TOTAL LIABILITIES		37,440,619			1,707,631			508,662		467,374		131,240			1,294,721		1,729,289			242,183
NET ASSETS	$	1,640,527,234		$	405,662,257		$	293,993,072	$	166,044,616	$	85,577,477		$	153,078,808	$	582,560,323		$	73,798,068
1Cost of investments—unaffiliated	$	1,673,371,544		$	406,389,000		$	288,561,921	$	143,033,836	$	85,236,562		$	148,231,008	$	534,215,160		$	70,758,630
2Cost of investments—affiliated		—			—			3,605,000		22,065,000		—			4,900,000		46,060,000			2,905,000
3Consists entirely of Repurchase Agreements collateralized by U.S. Treasury and Agency Obligations.
AT MARCH 31, 2007, NET ASSETS CONSISTED OF:
Capital Paid-in	$	1,640,531,630		$	405,666,245		$	293,990,750	$	166,042,424	$	85,585,064		$	153,074,100	$	582,578,877		$	73,797,968
Undistributed net investment income		64,239			46,591			78		—		8			—		—			—
Accumulated net realized gain (loss) on investment transactions		(68,635	)		(50,579	)		2,244		2,192		(7,595	)		4,708		(18,554	)		100
	$	1,640,527,234		$	405,662,257		$	293,993,072	$	166,044,616	$	85,577,477		$	153,078,808	$	582,560,323		$	73,798,068

42

BLACKROCK FUNDS

	MONEY MARKET PORTFOLIO		U.S. TREASURY MONEY MARKET PORTFOLIO		MUNICIPAL MONEY MARKET PORTFOLIO		NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO		NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO		OHIO MUNICIPAL MONEY MARKET PORTFOLIO		PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO		VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
Institutional Class:
Net Assets	$	676,164,446	$	143,862,440	$	56,918,836	$	94,207,603	$	84,830,995	$	127,193,545	$	499,522,740	$	73,777,828
Shares outstanding, unlimited number of shares authorized, $0.001 par value		676,217,264		143,889,564		56,862,295		94,200,526		84,834,162		127,184,433		499,524,847		73,777,919
Net Asset Value	$	1.00	$	1.00	$	1.00	$	1.00	$	1.00	$	1.00	$	1.00	$	1.00
Service Class:
Net Assets	$	418,435,895	$	231,104,673	$	95,425,992	$	47,623,677	$	403,599	$	5,592,452	$	49,046,744	$	20,240
Shares outstanding, unlimited number of shares authorized, $0.001 par value		418,441,479		231,159,003		95,460,292		47,641,706		403,391		5,593,968		49,056,915		20,240
Net Asset Value	$	1.00	$	1.00	$	1.00	$	1.00	$	1.00	$	1.00	$	1.00	$	1.00
Hilliard Lyons Class:
Net Assets	$	133,260,284	$	—	$	137,653,392	$	—	$	—	$	—	$	—	$	—
Shares outstanding, unlimited number of shares authorized, $0.001 par value		133,254,231		—		137,665,315		—		—		—		—		—
Net Asset Value	$	1.00	$	—	$	1.00	$	—	$	—	$	—	$	—	$	—
Investor A Class:
Net Assets	$	395,724,497	$	30,695,144	$	3,994,852	$	24,213,336	$	342,883	$	20,292,811	$	33,990,839	$	—
Shares outstanding, unlimited number of shares authorized, $0.001 par value		395,731,223		30,683,341		3,994,831		24,206,731		342,900		20,298,901		33,992,546		—
Net Asset Value	$	1.00	$	1.00	$	1.00	$	1.00	$	1.00	$	1.00	$	1.00	$	—
Investor B Class:
Net Assets	$	12,985,609	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Shares outstanding, unlimited number of shares authorized, $0.001 par value		12,984,056		—		—		—		—		—		—		—
Net Asset Value	$	1.00	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Investor C Class:
Net Assets	$	3,956,503	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Shares outstanding, unlimited number of shares authorized, $0.001 par value		3,956,616		—		—		—		—		—		—		—
Net Asset Value	$	1.00	$	—	$	—	$	—	$	—	$	—	$	—	$	—

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

43

BLACKROCK FUNDS

STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED MARCH 31, 2007 (UNAUDITED)

	MONEY MARKET PORTFOLIO			U.S. TREASURY MONEY MARKET PORTFOLIO			MUNICIPAL MONEY MARKET PORTFOLIO			NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO
Investment income:
Interest	$	43,148,600		$	11,844,155		$	5,933,347		$	2,642,197
Interest from affiliates (Note C)		2,793			24			36,412			400,361
Total investment income		43,151,393			11,844,179			5,969,759			3,042,558
Expenses:
Investment advisory fee		3,450,966			1,008,991			736,140			382,256
Administration fee		515,022			168,164			122,690			63,709
Administration fee—class specific		195,135			56,055			40,897			21,237
Custodian fee		47,974			19,866			18,976			9,805
Transfer agent fee—class specific		251,483			11,012			21,719			4,507
Shareholder servicing fees—class specific		1,254,075			331,854			324,722			90,742
Distribution fees—class specific		76,986			—			—			—
Legal and audit fees		57,968			24,130			25,002			18,330
Printing fee		178,103			34,647			24,834			11,946
Registration fees and expenses		39,088			22,786			27,024			7,956
Officers’ and trustees’ fees		65,650			18,908			13,640			7,035
Other		37,558			16,109			12,672			7,539
Total expenses		6,170,008			1,712,522			1,368,316			625,062
Less investment advisory fees waived		(1,030,604	)		(394,761	)		(293,109	)		(178,269	)
Less administration fees waived—class specific		(72,301	)		(22,878	)		(17,677	)		(12,183	)
Less transfer agent fee waived—class specific		(5,736	)		(758	)		(230	)		(418	)
Less transfer agent fee reimbursed—class specific		(36,200	)		(4,865	)		(1,397	)		(2,578	)
Less fees paid indirectly (Note C)		(977	)		(9	)		(2	)		(3	)
Less shareholder servicing fees waived—class specific		(25,600	)		—			(183,389	)		—
Net expenses		4,998,590			1,289,251			872,512			431,611
Net investment income		38,152,803			10,554,928			5,097,247			2,610,947
Net realized gain (loss) from:
Investment transactions		1,897			—			(33,572	)		—
Net increase in net assets resulting from operations	$	38,154,700		$	10,554,928		$	5,063,675			$2,610,947

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

44

BLACKROCK FUNDS

	NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO			OHIO MUNICIPAL MONEY MARKET PORTFOLIO			PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO			VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
Investment income:
Interest	$	1,360,994		$	2,805,634		$	9,799,956		$	1,262,999
Interest from affiliates (Note C)		4			174,185			440,727			26,288
Total investment income		1,360,998			2,979,819			10,240,683			1,289,287
Expenses:
Investment advisory fee		170,289			364,070			1,265,973			161,849
Administration fee		28,381			60,678			207,794			26,975
Administration fee—class specific		9,462			20,218			70,282			8,991
Custodian fee		6,068			13,675			23,841			5,911
Transfer agent fee—class specific		3,859			4,201			19,251			6,189
Shareholder servicing fees—class specific		1,127			35,693			110,964			25
Distribution fees—class specific		—			—			—			—
Legal and audit fees		18,029			17,557			30,666			15,339
Printing fee		3,808			10,048			34,152			4,990
Registration fees and expenses		7,270			6,229			9,080			8,168
Officers’ and trustees’ fees		3,100			6,599			23,528			2,837
Other		3,631			6,512			19,298			3,108
Total expenses		255,024			545,480			1,814,829			244,382
Less investment advisory fees waived		(127,055	)		(169,817	)		(432,745	)		(121,293	)
Less administration fees waived—class specific		(9,376	)		(16,648	)		(59,490	)		(8,991	)
Less transfer agent fee waived—class specific		(226	)		(470	)		(1,754	)		(280	)
Less transfer agent fee reimbursed—class specific		(3,425	)		(3,272	)		(16,063	)		(5,904	)
Less fees paid indirectly (Note C)		(2	)		(1	)		(4	)		(1	)
Less shareholder servicing fees waived—class specific		—			—			—			—
Net expenses		114,940			355,272			1,304,773			107,913
Net investment income		1,246,058			2,624,547			8,935,910			1,181,374
Net realized gain (loss) from:
Investment transactions		30			28,703			4,614			(484	)
Net increase in net assets resulting from operations	$	1,246,088		$	2,653,250		$	8,940,524		$	1,180,890

45

BLACKROCK FUNDS

STATEMENTS OF CHANGES IN NET ASSETS

	MONEY MARKET PORTFOLIO						U.S.TREASURY MONEY MARKET PORTFOLIO						MUNICIPAL MONEY MARKET PORTFOLIO						NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO
	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase (decrease) in net assets:
Operations:
Net investment income	$	38,152,803		$	62,489,092		$	10,554,928		$	18,282,111		$	5,097,247		$	8,768,733		$	2,610,947		$	4,691,831
Net realized gain (loss) on investments		1,897			126,368			—			—			(33,572	)		35,816			—			4,217
Net increase in net assets resulting from operations		38,154,700			62,615,460			10,554,928			18,282,111			5,063,675			8,804,549			2,610,947			4,696,048
Distributions to shareholders from:
Net investment income:
Institutional Class		(14,851,571	)		(23,658,010	)		(4,457,784	)		(7,765,532	)		(1,087,176	)		(1,816,786	)		(1,553,247)			(2,693,505	)
Service Class		(10,592,264	)		(16,769,752	)		(5,395,775	)		(9,336,258	)		(1,591,808	)		(3,056,139	)		(763,150)			(1,557,903	)
Hilliard Lyons Class		(3,070,547	)		(4,859,390	)		—			—			(2,349,923	)		(3,797,997	)		—			—
Investor A Class		(9,213,585	)		(16,411,709	)		(701,369	)		(1,180,321	)		(68,340	)		(97,733	)		(294,550)			(440,423	)
Investor B Class		(311,609	)		(631,120	)		—			—			—			—			—			—
Investor C Class		(113,227	)		(159,111	)		—			—			—			—			—			—
Total distributions from net investment income		(38,152,803	)		(62,489,092	)		(10,554,928	)		(18,282,111	)		(5,097,247	)		(8,768,655	)		(2,610,947	)		(4,691,831	)
Capital share transactions		75,226,240			5,435,137			(81,408,536	)		32,988,490			(42,889,420	)		36,588,956			(7,745,557	)		24,636,212
Total increase (decrease) in net assets		75,228,137			5,561,505			(81,408,536	)		32,988,490			(42,922,992	)		36,624,850			(7,745,557	)		24,640,429
Net assets:
Beginning of period		1,565,299,097			1,559,737,592			487,070,793			454,082,303			336,916,064			300,291,214			173,790,173			149,149,744
End of period	$	1,640,527,234		$	1,565,299,097		$	405,662,257		$	487,070,793		$	293,993,072		$	336,916,064		$	166,044,616		$	173,790,173
End of period undistributed net investment income	$	64,239		$	64,239		$	46,591		$	46,591		$	78		$	78		$	—		$	—

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

46

BLACKROCK FUNDS

	NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO						OHIO MUNICIPAL MONEY MARKET PORTFOLIO						PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO						VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO
	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase (decrease) in net assets:
Operations:
Net investment income	$	1,246,058		$	1,985,590		$	2,624,547		$	4,332,294		$	8,935,910		$	15,686,567		$	1,181,374		$	1,254,786
Net realized gain (loss) on investments		30			—			28,703			—			4,614			10,676			(484	)		1,167
Net increase in net assets resulting from operations		1,246,088			1,985,590			2,653,250			4,332,294			8,940,524			15,697,243			1,180,890			1,255,953
Distributions to shareholders from:
Net investment income:
Institutional Class		(1,232,622	)		(1,957,714	)		(2,193,597	)		(3,369,405	)		(7,669,525	)		(13,372,887	)		(1,181,076	)		(1,253,734	)
Service Class		(8,570	)		(19,019	)		(86,892	)		(246,438	)		(768,834	)		(1,243,209	)		(298	)		(1,052	)
Hilliard Lyons Class		—			—			—			—			—			—			—			—
Investor A Class		(4,866	)		(8,849	)		(344,058	)		(716,451	)		(497,551	)		(1,070,471	)		—			—
Investor B Class		—			—			—			—			—			—			—			—
Investor C Class		—			—			—			—			—			—			—			—
Total distributions from net investment income		(1,246,058	)		(1,985,582	)		(2,624,547	)		(4,332,294	)		(8,935,910	)		(15,686,567	)		(1,181,374	)		(1,254,786	)
Capital share transactions		23,519,225			(1,203,968	)		(3,879,652	)		37,115,554			44,899,584			970,634			2,280,631			47,347,514
Total increase (decrease) in net assets		23,519,255			(1,203,960	)		(3,850,949	)		37,115,554			44,904,198			981,310			2,280,147			47,348,681
Net assets:
Beginning of period		62,058,222			63,262,182			156,929,757			119,814,203			537,656,125			536,674,815			71,517,921			24,169,240
End of period	$	85,577,477		$	62,058,222		$	153,078,808		$	156,929,757		$	582,560,323		$	537,656,125		$	73,798,068		$	71,517,921
End of period undistributed net investment income	$	8		$	8		$	—		$	—		$	—		$	—		$	—		$	—

47

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS																		SERVICE C LASS
MONEY MARKET PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0248			0.0436			0.0233			0.0083			0.0103			0.0186			0.0234			0.0407			0.0203			0.0054			0.0073			0.0156
Distributions from net investment income		(0.0248	)		(0.0436	)		(0.0233	)		(0.0083	)		(0.0103	)		(0.0186	)		(0.0234	)		(0.0407	)		(0.0203	)		(0.0054	)		(0.0073	)		(0.0156	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		2.51	%2		4.44	%		2.36	%		0.84	%		1.04	%		1.87	%		2.36	%2		4.14	%		2.05	%		0.54	%		0.74	%		1.57	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	676,164		$	568,058		$	574,473		$	593,380		$	2,006,202		$	2,462,579		$	418,436		$	448,015		$	411,831		$	374,441		$	431,854		$	567,574
Ratio of net expenses to average net assets		0.42	%3		0.42	%		0.42	%		0.42	%		0.42	%		0.42	%		0.71	%3		0.71	%		0.72	%		0.71	%		0.72	%		0.72	%
Ratio of total expenses to average net assets (excluding waivers)		0.58	%3		0.63	%		0.71	%		0.63	%		0.62	%		0.61	%		0.84	%3		0.89	%		0.96	%		0.93	%		0.94	%		0.91	%
Ratio of net investment income to average net assets		4.97	%3		4.36	%		2.30	%		0.78	%		1.04	%		1.86	%		4.68	%3		4.09	%		2.02	%		0.54	%		0.74	%		1.60	%
Ratio of net investment income to average net assets (excluding waivers)		4.81	%3		4.15	%		2.01	%		0.57	%		0.84	%		1.67	%		4.55	%3		3.91	%		1.78	%		0.32	%		0.53	%		1.41	%

	HILLIARD LYONS CLASS																		INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of Period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0234			0.0406			0.0198			0.0043			0.0056			0.0139			0.0230			0.0399			0.0199			0.0044			0.0056			0.0139
Distributions from net investment income		(0.0234	)		(0.0406	)		(0.0198	)		(0.0043	)		(0.0056	)		(0.0139	)		(0.0230	)		(0.0399	)		(0.0199	)		(0.0044	)		(0.0056	)		(0.0139	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		2.36	%2		4.13	%		2.00	%		0.43	%		0.57	%		1.40	%		2.32	%2		4.07	%		2.01	%		0.44	%		0.57	%		1.39	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	133,260		$	121,243		$	116,066		$	116,254		$	148,277		$	144,271		$	395,724		$	399,656		$	433,609		$	362,495		$	451,676		$	539,268
Ratio of net expenses to average net assets		0.70	%3		0.72	%		0.77	%		0.82	%		0.89	%		0.89	%		0.78	%3		0.79	%		0.76	%		0.82	%		0.89	%		0.89	%
Ratio of total expenses to average net assets (excluding waivers)		0.83	%3		0.98	%		1.07	%		1.13	%		1.10	%		1.08	%		0.91	%3		1.05	%		1.06	%		1.13	%		1.11	%		1.08	%
Ratio of net investment income to average net assets		4.69	%3		4.06	%		1.98	%		0.42	%		0.56	%		1.40	%		4.61	%3		3.98	%		2.04	%		0.43	%		0.57	%		1.38	%
Ratio of net investment income to average net assets (excluding waivers)		4.56	%3		3.80	%		1.68	%		0.11	%		0.34	%		1.21	%		4.48	%3		3.72	%		1.74	%		0.12	%		0.36	%		1.19	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

48

BLACKROCK FUNDS

	INVESTOR B CLASS																		INVESTOR C CLASS
MONEY MARKET PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0207			0.0354			0.0151			0.0015			0.0014			0.0079			0.0207			0.0354			0.0151			0.0014			0.0014			0.0078
Distributions from net investment income		(0.0207	)		(0.0354	)		(0.0151	)		(0.0015	)		(0.0014	)		(0.0079	)		(0.0207	)		(0.0354	)		(0.0151	)		(0.0014	)		(0.0014	)		(0.0078	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		2.09	%2		3.60	%		1.52	%		0.15	%		0.14	%		0.79	%		2.09	%2		3.60	%		1.52	%		0.15	%		0.14	%		0.79	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	12,986		$	19,462		$	18,716		$	8,924		$	13,490		$	21,864		$	3,957		$	8,866		$	5,043		$	884		$	2,197		$	7,873
Ratio of net expenses to average net assets		1.24	%3		1.24	%		1.24	%		1.10	%		1.34	%		1.49	%		1.24	%3		1.24	%		1.24	%		1.10	%		1.35	%		1.49	%
Ratio of total expenses to average net assets (excluding waivers)		1.86	%3		1.83	%		1.74	%		1.79	%		1.86	%		1.83	%4		1.72	%3		1.78	%		1.73	%		1.79	%		1.86	%		1.83	%4
Ratio of net investment income to average net assets		4.15	%3		3.54	%		1.66	%		0.14	%		0.15	%		0.77	%		4.15	%3		3.59	%		1.79	%		0.14	%		0.15	%		0.79	%
Ratio of net investment income (loss) to average net assets (excluding waivers)		3.53	%3		2.95	%		1.16	%		(0.55	)%		(0.37	)%		0.42	%4		3.67	%3		3.05	%		1.30	%		(0.56	)%		(0.35	)%		0.45	%4

¹ Audited by other auditors.

² Not annualized.

³ Annualized.

⁴ Certain prior year amounts were reclassified to conform to current year presentation.

49

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
U.S. TREASURY MONEY MARKET PORTFOLIO				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0243			0.0422			0.0221			0.0072			0.0091			0.0166
Distributions from net investment income		(0.0243	)		(0.0422	)		(0.0221	)		(0.0072	)		(0.0091	)		(0.0166	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		2.45	%2		4.30	%		2.23	%		0.72	%		0.92	%		1.68	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	143,862		$	211,960		$	164,905		$	176,136		$	379,240		$	526,344
Ratio of net expenses to average net assets		0.41	%3		0.41	%		0.41	%		0.41	%		0.41	%		0.41	%
Ratio of total expenses to average net assets (excluding waivers)		0.62	%3		0.65	%		0.73	%		0.70	%		0.70	%		0.68	%
Ratio of net investment income to average net assets		4.87	%3		4.26	%		2.18	%		0.68	%		0.93	%		1.62	%
Ratio of net investment income to average net assets (excluding waivers)		4.66	%3		4.02	%		1.86	%		0.39	%		0.64	%		1.35	%

	SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0229			0.0393			0.0190			0.0042			0.0061			0.0136
Distributions from net investment income		(0.0229	)		(0.0393	)		(0.0190	)		(0.0042	)		(0.0061	)		(0.0136	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		2.31	%2		4.00	%		1.93	%		0.42	%		0.62	%		1.37	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	231,105		$	246,517		$	257,187		$	219,788		$	250,314		$	265,841
Ratio of net expenses to average net assets		0.69	%3		0.70	%		0.71	%		0.71	%		0.71	%		0.71	%
Ratio of total expenses to average net assets (excluding waivers)		0.86	%3		0.90	%		0.98	%		0.99	%		1.00	%		0.98	%
Ratio of net investment income to average net assets		4.59	%3		3.94	%		1.99	%		0.41	%		0.61	%		1.39	%
Ratio of net investment income to average net assets (excluding waivers)		4.42	%3		3.74	%		1.72	%		0.13	%		0.32	%		1.11	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

50

BLACKROCK FUNDS

	INVESTOR A CLASS																		INVESTOR C CLASS
U.S. TREASURY MONEY MARKET PORTFOLIO4	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 2/06/021,4,5
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0229			0.0388			0.0186			0.0031			0.0044			0.0119			0.0003
Distributions from net investment income		(0.0229	)		(0.0388	)		(0.0186	)		(0.0031	)		(0.0044	)		(0.0119	)		(0.0003	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		2.31	%2		3.95	%		1.88	%		0.31	%		0.44	%		1.20	%		0.03	%2
Ratios/Supplemental data:
Net assets, end of period (000)	$	30,695		$	28,593		$	31,990		$	41,283		$	49,906		$	68,299		$	—	6
Ratio of net expenses to average net assets		0.70	%3		0.75	%		0.75	%		0.82	%		0.88	%		0.88	%		1.48	%3
Ratio of total expenses to average net assets (excluding waivers)		0.87	%3		1.04	%		1.07	%		1.19	%		1.17	%		1.16	%		1.76	%3
Ratio of net investment income to average net assets		4.58	%3		3.86	%		1.83	%		0.31	%		0.47	%		1.15	%		0.72	%3
Ratio of net investment income (loss) to average net assets (excluding waivers)		4.41	%3		3.57	%		1.51	%		(0.06	)%		0.17	%		0.87	%		0.44	%3

¹ Audited by other auditors.

² Not annualized.

³ Annualized.

⁴ Commencement of operations of share class effective 01/22/02.

⁵ Reissuance of shares.

⁶ There were no Investor C shares outstanding as of September 30, 2002.

51

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS																		SERVICE CLASS
MUNICIPAL MONEY MARKET PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0161			0.0289			0.0172			0.0073			0.0092			0.0142			0.0147			0.0260			0.0143			0.0043			0.0062			0.0112
Distributions from net investment income		(0.0161	)		(0.0289	)		(0.0172	)		(0.0073	)		(0.0092	)		(0.0142	)		(0.0147	)		(0.0260	)		(0.0143	)		(0.0043	)		(0.0062	)		(0.0112	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.62	%2		2.93	%		1.74	%		0.73	%		0.92	%		1.43	%		1.48	%2		2.63	%		1.44	%		0.43	%		0.62	%		1.12	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	56,919		$	61,154		$	75,789		$	126,534		$	437,613		$	428,743		$	95,426		$	132,523		$	93,844		$	70,344		$	88,769		$	104,474
Ratio of net expenses to average net assets		0.42	%3		0.42	%		0.42	%		0.42	%		0.42	%		0.42	%		0.71	%3		0.71	%		0.72	%		0.72	%		0.72	%		0.72	%
Ratio of total expenses to average net assets (excluding waivers)		0.63	%3		0.67	%		0.74	%		0.71	%		0.71	%		0.70	%		0.91	%3		0.91	%		0.99	%		1.00	%		1.01	%		1.00	%
Ratio of net investment income to average net assets		3.23	%3		2.88	%		1.69	%		0.69	%		0.92	%		1.41	%		2.93	%3		2.64	%		1.45	%		0.42	%		0.63	%		1.13	%
Ratio of net investment income to average net assets (excluding waivers)		3.02	%3		2.63	%		1.37	%		0.41	%		0.64	%		1.13	%		2.73	%3		2.44	%		1.18	%		0.14	%		0.34	%		0.85	%

	HILLIARD LYONS CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0160			0.0284			0.0163			0.0056			0.0070			0.0120
Distributions from net investment income		(0.0160	)		(0.0284	)		(0.0163	)		(0.0056	)		(0.0070	)		(0.0120	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.61	%2		2.87	%		1.64	%		0.57	%		0.70	%		1.20	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	137,653		$	140,409		$	126,397		$	127,151		$	143,305		$	147,755
Ratio of net expenses to average net assets		0.45	%3		0.47	%		0.52	%		0.59	%		0.64	%		0.64	%
Ratio of total expenses to average net assets (excluding waivers)		0.88	%3		1.02	%		1.09	%		1.13	%		0.93	%		0.92	%
Ratio of net investment income to average net assets		3.20	%3		2.84	%		1.62	%		0.56	%		0.70	%		1.17	%
Ratio of net investment income to average net assets (excluding waivers)		2.77	%3		2.29	%		1.05	%		0.02	%		0.41	%		0.89	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

52

BLACKROCK FUNDS

	INVESTOR A CLASS
MUNICIPAL MONEY MARKET PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0147			0.0258			0.0136			0.0042			0.0048			0.0095
Distributions from net investment income		(0.0147	)		(0.0258	)		(0.0136	)		(0.0042	)		(0.0048	)		(0.0095	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.48	%2		2.61	%		1.37	%		0.43	%		0.49	%		0.95	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	3,995		$	2,830		$	4,262		$	7,322		$	9,019		$	6,587
Ratio of net expenses to average net assets		0.70	%3		0.73	%		0.79	%		0.72	%		0.85	%		0.89	%
Ratio of total expenses to average net assets (excluding waivers)		0.88	%3		1.03	%		1.11	%		1.19	%		1.18	%		1.17	%
Ratio of net investment income to average net assets		2.95	%3		2.53	%		1.29	%		0.42	%		0.47	%		0.96	%
Ratio of net investment income (loss) to average net assets (excluding waivers)		2.77	%3		2.23	%		0.97	%		(0.05	)%		0.15	%		0.68	%

¹ Audited by other auditors.

² Not annualized.

³ Annualized.

53

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0159			0.0285			0.0175			0.0074			0.0089			0.0134
Distributions from net investment income		(0.0159	)		(0.0285	)		(0.0175	)		(0.0074	)		(0.0089	)		(0.0134	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.60	%2		2.89	%		1.76	%		0.74	%		0.89	%		1.35	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	94,208		$	99,173		$	74,329		$	80,530		$	77,267		$	86,573
Ratio of net expenses to average net assets		0.39	%3		0.39	%		0.39	%		0.39	%		0.39	%		0.39	%
Ratio of total expenses to average net assets (excluding waivers)		0.63	%3		0.66	%		0.74	%		0.72	%		0.72	%		0.71	%
Ratio of net investment income to average net assets		3.19	%3		2.88	%		1.73	%		0.74	%		0.89	%		1.34	%
Ratio of net investment income to average net assets (excluding waivers)		2.95	%3		2.61	%		1.38	%		0.40	%		0.56	%		1.02	%

	SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0145			0.0256			0.0145			0.0044			0.0059			0.0104
Distributions from net investment income		(0.0145	)		(0.0256	)		(0.0145	)		(0.0044	)		(0.0059	)		(0.0104	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.46	%2		2.60	%		1.46	%		0.44	%		0.59	%		1.04	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	47,624		$	56,955		$	59,794		$	59,899		$	64,313		$	65,074
Ratio of net expenses to average net assets		0.67	%3		0.68	%		0.69	%		0.69	%		0.69	%		0.69	%
Ratio of total expenses to average net assets (excluding waivers)		0.88	%3		0.92	%		0.99	%		1.01	%		1.02	%		1.01	%
Ratio of net investment income to average net assets		2.91	%3		2.57	%		1.45	%		0.44	%		0.59	%		1.04	%
Ratio of net investment income to average net assets (excluding waivers)		2.70	%3		2.33	%		1.15	%		0.12	%		0.26	%		0.71	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

54

BLACKROCK FUNDS

	INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
NEW JERSEY MUNICIPAL MONEY MARKET PORTFOLIO				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0145			0.0255			0.0138			0.0044			0.0045			0.0087
Distributions from net investment income		(0.0145	)		(0.0255	)		(0.0138	)		(0.0044	)		(0.0045	)		(0.0087	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.46	%2		2.58	%		1.39	%		0.44	%		0.45	%		0.87	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	24,213		$	17,662		$	15,027		$	12,821		$	17,783		$	14,244
Ratio of net expenses to average net assets		0.67	%3		0.69	%		0.75	%		0.69	%		0.82	%		0.86	%
Ratio of total expenses to average net assets (excluding waivers)		0.88	%3		1.02	%		1.11	%		1.21	%		1.19	%		1.18	%
Ratio of net investment income to average net assets		2.92	%3		2.56	%		1.40	%		0.43	%		0.44	%		0.87	%
Ratio of net investment income (loss) to average net assets (excluding waivers)		2.71	%3		2.23	%		1.04	%		(0.09	)%		0.07	%		0.54	%

¹ Audited by other auditors.

² Not annualized.

³ Annualized.

55

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0164			0.0299			0.0185			0.0084			0.0097			0.0134
Distributions from net investment income		(0.0164	)		(0.0299	)		(0.0185	)		(0.0084	)		(0.0097	)		(0.0134	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.65	%2		3.04	%		1.87	%		0.85	%		0.97	%		1.35	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	84,831		$	61,086		$	56,017		$	58,168		$	162,465		$	156,476
Ratio of net expenses to average net assets		0.30	%3		0.30	%		0.30	%		0.30	%		0.30	%		0.30	%
Ratio of total expenses to average net assets (excluding waivers)		0.67	%3		0.70	%		0.80	%		0.74	%		0.74	%		0.72	%
Ratio of net investment income to average net assets		3.30	%3		3.00	%		1.84	%		0.84	%		0.96	%		1.32	%
Ratio of net investment income to average net assets (excluding waivers)		2.93	%3		2.60	%		1.34	%		0.40	%		0.53	%		0.90	%

	SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0149			0.0270			0.0155			0.0054			0.0067			0.0104
Distributions from net investment income		(0.0149	)		(0.0270	)		(0.0155	)		(0.0054	)		(0.0067	)		(0.0104	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.50	%2		2.73	%		1.56	%		0.54	%		0.67	%		1.05	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	404		$	656		$	6,923		$	160		$	227		$	205
Ratio of net expenses to average net assets		0.60	%3		0.60	%		0.60	%		0.60	%		0.60	%		0.60	%
Ratio of total expenses to average net assets (excluding waivers)		0.94	%3		0.98	%		1.07	%		1.03	%		1.04	%		1.02	%
Ratio of net investment income to average net assets		2.99	%3		2.61	%		1.69	%		0.55	%		0.63	%		1.14	%
Ratio of net investment income to average net assets (excluding waivers)		2.65	%3		2.23	%		1.22	%		0.11	%		0.20	%		0.71	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

56

BLACKROCK FUNDS

	INVESTOR A CLASS																		INVESTOR B CLASS
NORTH CAROLINA MUNICIPAL MONEY MARKET PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 12/14/011,4
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0147			0.0264			0.0151			0.0054			0.0053			0.0082			0.0012
Distributions from net investment income		(0.0147	)		(0.0264	)		(0.0151	)		(0.0054	)		(0.0053	)		(0.0082	)		(0.0012	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.48	%2		2.67	%		1.52	%		0.55	%		0.53	%		0.88	%		0.12	%2
Ratios/Supplemental data:
Net assets, end of period (000)	$	343		$	316		$	321		$	319		$	338		$	375		$	—	5
Ratio of net expenses to average net assets		0.65	%3		0.66	%		0.64	%		0.60	%		0.74	%		0.77	%		1.37	%3
Ratio of total expenses to average net assets (excluding waivers)		0.99	%3		1.10	%		1.15	%		1.23	%		1.21	%		1.19	%		1.79	%3
Ratio of net investment income to average net assets		2.94	%3		2.64	%		1.51	%		0.54	%		0.53	%		0.88	%		0.60	%3
Ratio of net investment income (loss) to average net assets (excluding waivers)		2.60	%3		2.20	%		1.00	%		(0.09	)%		0.06	%		0.46	%		0.18	%3

¹ Audited by other auditors.

² Not annualized.

³ Annualized.

⁴ Commencement of operations of share class effective 10/01/01.

⁵ There were no Investor B shares outstanding as of September 30, 2002.

57

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS
OHIO MUNICIPAL MONEY MARKET PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0164			0.0297			0.0182			0.0087			0.0105			0.0154
Distributions from net investment income		(0.0164	)		(0.0297	)		(0.0182	)		(0.0087	)		(0.0105	)		(0.0154	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.65	%2		3.01	%		1.83	%		0.87	%		1.06	%		1.55	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	127,194		$	131,016		$	88,697		$	122,030		$	94,936		$	104,426
Ratio of net expenses to average net assets		0.39	%3		0.39	%		0.39	%		0.39	%		0.39	%		0.39	%
Ratio of total expenses to average net assets (excluding waivers)		0.63	%3		0.67	%		0.73	%		0.72	%		0.72	%		0.72	%
Ratio of net investment income to average net assets		3.29	%3		2.99	%		1.79	%		0.87	%		1.05	%		1.52	%
Ratio of net investment income to average net assets (excluding waivers)		3.05	%3		2.71	%		1.45	%		0.54	%		0.71	%		1.19	%

	SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0150			0.0268			0.0152			0.0057			0.0075			0.0124
Distributions from net investment income		(0.0150	)		(0.0268	)		(0.0152	)		(0.0057	)		(0.0075	)		(0.0124	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.51	%2		2.72	%		1.53	%		0.57	%		0.75	%		1.25	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	5,592		$	5,647		$	10,224		$	15,311		$	13,061		$	11,511
Ratio of net expenses to average net assets		0.67	%3		0.68	%		0.69	%		0.69	%		0.69	%		0.69	%
Ratio of total expenses to average net assets (excluding waivers)		0.88	%3		0.92	%		0.98	%		1.01	%		1.03	%		1.02	%
Ratio of net investment income to average net assets		3.02	%3		2.65	%		1.50	%		0.56	%		0.75	%		1.19	%
Ratio of net investment income to average net assets (excluding waivers)		2.81	%3		2.41	%		1.21	%		0.24	%		0.41	%		0.87	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

58

BLACKROCK FUNDS

	INVESTOR A CLASS
OHIO MUNICIPAL MONEY MARKET PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0150			0.0267			0.0150			0.0046			0.0058			0.0107
Distributions from net investment income		(0.0150	)		(0.0267	)		(0.0150	)		(0.0046	)		(0.0058	)		(0.0107	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.51	%2		2.70	%		1.51	%		0.46	%		0.58	%		1.07	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	20,293		$	20,267		$	20,893		$	32,171		$	26,154		$	30,851
Ratio of net expenses to average net assets		0.67	%3		0.69	%		0.71	%		0.80	%		0.86	%		0.86	%
Ratio of total expenses to average net assets (excluding waivers)		0.88	%3		1.01	%		1.06	%		1.20	%		1.19	%		1.18	%
Ratio of net investment income to average net assets		3.02	%3		2.67	%		1.47	%		0.46	%		0.59	%		1.09	%
Ratio of net investment income to average net assets (excluding waivers)		2.81	%3		2.35	%		1.12	%		0.06	%		0.25	%		0.77	%

¹ Audited by other auditors.

² Not annualized.

³ Annualized.

59

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0161			0.0290			0.0178			0.0073			0.0093			0.0131
Distributions from net investment income		(0.0161	)		(0.0290	)		(0.0178	)		(0.0073	)		(0.0093	)		(0.0131	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.62	%2		2.94	%		1.79	%		0.73	%		0.93	%		1.31	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	499,523		$	464,708		$	430,376		$	426,130		$	416,412		$	466,039
Ratio of net expenses to average net assets		0.42	%3		0.42	%		0.42	%		0.42	%		0.42	%		0.42	%
Ratio of total expenses to average net assets (excluding waivers)		0.61	%3		0.64	%		0.72	%		0.71	%		0.71	%		0.70	%
Ratio of net investment income to average net assets		3.22	%3		2.92	%		1.78	%		0.73	%		0.93	%		1.30	%
Ratio of net investment income to average net assets (excluding waivers)		3.03	%3		2.70	%		1.48	%		0.44	%		0.64	%		1.02	%

	SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0147			0.0261			0.0148			0.0043			0.0063			0.0101
Distributions from net investment income		(0.0147	)		(0.0261	)		(0.0148	)		(0.0043	)		(0.0063	)		(0.0101	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.48	%2		2.65	%		1.49	%		0.43	%		0.63	%		1.01	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	49,047		$	44,406		$	34,219		$	32,866		$	44,164		$	54,574
Ratio of net expenses to average net assets		0.70	%3		0.71	%		0.72	%		0.72	%		0.72	%		0.72	%
Ratio of total expenses to average net assets (excluding waivers)		0.85	%3		0.89	%		0.97	%		0.99	%		1.01	%		1.01	%
Ratio of net investment income to average net assets		2.94	%3		2.63	%		1.47	%		0.43	%		0.64	%		1.01	%
Ratio of net investment income to average net assets (excluding waivers)		2.79	%3		2.45	%		1.22	%		0.15	%		0.35	%		0.73	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

60

BLACKROCK FUNDS

	INVESTOR A CLASS																		INVESTOR B CLASS
PENNSYLVANIA MUNICIPAL MONEY MARKET PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 4/09/021,4
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0146			0.0259			0.0155			0.0045			0.0049			0.0084			0.0003
Distributions from net investment income		(0.0146	)		(0.0259	)		(0.0155	)		(0.0045	)		(0.0049	)		(0.0084	)		(0.0003	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.47	%2		2.62	%		1.56	%		0.45	%		0.49	%		0.84	%		0.05	%2
Ratios/Supplemental data:
Net assets, end of period (000)	$	33,991		$	28,542		$	72,079		$	29,647		$	33,726		$	68,204		$	—	5
Ratio of net expenses to average net assets		0.72	%3		0.73	%		0.65	%		0.70	%		0.87	%		0.88	%		1.49	%3
Ratio of total expenses to average net assets (excluding waivers)		0.87	%3		1.01	%		0.96	%		1.17	%		1.18	%		1.16	%		1.76	%3
Ratio of net investment income to average net assets		2.92	%3		2.49	%		1.64	%		0.44	%		0.51	%		0.83	%		0.14	%3
Ratio of net investment income (loss) to average net assets (excluding waivers)		2.77	%3		2.21	%		1.33	%		(0.03	)%		0.19	%		0.55	%		(0.13	)%3

¹ Audited by other auditors.

² Not annualized.

³ Annualized.

⁴ Commencement of operations of share class effective 12/12/01.

⁵ There were no Investor B shares outstanding as of September 30, 2002.

61

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONCLUDED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0164			0.0295			0.0181			0.0082			0.0094			0.0144
Distributions from net investment income		(0.0164	)		(0.0295	)		(0.0181	)		(0.0082	)		(0.0094	)		(0.0144	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.65	%2		2.99	%		1.83	%		0.82	%		0.95	%		1.45	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	73,778		$	71,518		$	24,169		$	17,857		$	21,963		$	19,808
Ratio of net expenses to average net assets		0.30	%3		0.29	%		0.30	%		0.30	%		0.30	%		0.30	%
Ratio of total expenses to average net assets (excluding waivers)		0.68	%3		0.75	%		0.92	%		0.89	%		0.75	%		0.75	%
Ratio of net investment income to average net assets		3.28	%3		3.03	%		1.84	%		0.83	%		0.93	%		1.50	%
Ratio of net investment income to average net assets (excluding waivers)		2.90	%3		2.57	%		1.22	%		0.23	%		0.48	%		1.06	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

62

BLACKROCK FUNDS

	SERVICE CLASS																		INVESTOR A CLASS
VIRGINIA MUNICIPAL MONEY MARKET PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			4/24/064 - 9/30/065			05/13/054- 06/27/056			10/01/03 - 10/07/031,7			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 3/12/021,8,9
													20031			20021
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0149			0.0104			0.0023			0.0001			0.0084			0.0124			0.0051
Distributions from net investment income		(0.0149	)		(0.0104	)		(0.0023	)		(0.0001	)		(0.0084	)		(0.0124	)		(0.0051	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total return		1.50	%2		1.05	%2		0.23	%2		0.01	%2		0.85	%		1.25	%		0.51	%2
Ratios/Supplemental data:
Net assets, end of period (000)	$	20		$	—	10	$	—	6	$	—	7	$	41,011		$	44,143		$	—	9
Ratio of net expenses to average net assets		0.59	%3		0.58	%3		0.60	%3		0.40	%3		0.40	%		0.40	%		0.77	%3
Ratio of total expenses to average net assets (excluding waivers)		1.28	%3		1.09	%3		1.18	%3		1.06	%3		1.05	%		1.00	%		1.20	%3
Ratio of net investment income to average net assets		2.98	%3		3.11	%3		1.96	%3		0.71	%3		0.85	%		1.19	%		1.21	%3
Ratio of net investment income to average net assets (excluding waivers)		2.29	%3		2.60	%3		1.38	%3		0.04	%3		0.19	%		0.60	%		0.77	%3

¹ Audited by other auditors.

² Not annualized.

³ Annualized.

⁴ Reissuance of shares.

⁵ There were no Service shares outstanding during the period May 3, 2006 to June 1, 2006.

⁶ There were no Service shares outstanding as of September 30, 2005.

⁷ There were no Service shares outstanding as of September 30, 2004.

⁸ Commencement of operations of share class effective 10/01/01.

⁹ There were no Investor A shares outstanding as of September 30, 2002.

¹⁰ Net assets end of period are less than $500.

63

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(A) Organization

BlackRock Funds^SM (the “Fund”) was organized on December 22, 1988, as a Massachusetts business trust and is registered under the Investment Company Act of 1940 (the “1940 Act”), as amended, as an open-end management investment company. As of March 31, 2007, the Fund had 49 registered portfolios, eight of which are included in these financial statements (the “Portfolios”). Each Portfolio is authorized to issue an unlimited number of shares with a par value of $0.001. Each Portfolio of the Fund may offer as many as thirteen classes of shares: BlackRock, Institutional, Service, Hilliard Lyons, Investor A, Investor A1, Investor B, Investor B1, Investor B2, Investor C, Investor C1, Investor C2 and R. Shares of all classes of a Portfolio represent equal pro-rata interests in such Portfolio, except that each class bears different expenses which reflect the difference in the range of services provided to them, mostly due to differences in distribution and service fees.

Under the Fund’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund considers the risk of loss from such claims to be remote.

(B) Summary of Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.

Security Valuation — Portfolio securities are valued under the amortized cost method which approximates current market value in accordance with Rule 2a-7 of the 1940 Act. Under this method, securities are valued at cost when purchased and thereafter, a constant proportionate amortization of any discount or premium is recorded until the maturity of the security. Regular review and monitoring of the valuation is performed in an attempt to avoid dilution or other unfair results to shareholders. The Fund seeks to maintain the net asset value per share of each Portfolio at $1.00, although there is no assurance that it will be able to do so on a continuing basis.

In September 2006, Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. At this time, management is evaluating the implications of FAS 157 and its impact on the Portfolios’ financial statements, if any, has not been determined.

In addition, in February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”), which is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FAS 157. FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. FAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. At this time, management is evaluating the implications of FAS 159 and its impact on the Portfolios’ financial statements, if any, has not been determined.

Dividends to Shareholders — Dividends from net investment income are declared daily and paid monthly. Net realized capital gains, if any, are distributed at least annually.

Investment Transactions and Investment Income — Investment transactions are accounted for on the trade date. The cost of investments sold and realized gains and losses thereon are determined by use of the specific identification method, generally first-in first-out, for both financial reporting and federal income tax purposes. Interest income is recorded on the accrual basis.

Repurchase Agreements — Money market instruments may be purchased from financial institutions, such as banks and non-bank dealers, subject to the seller’s agreement to repurchase them at an agreed upon date and price. Collateral for repurchase agreements may have longer maturities than the maximum permissible remaining maturity of portfolio investments, provided the repurchase agreements themselves mature in 13 months or less. The seller is required on a daily basis to maintain the value of the securities subject to the agreement at no less than the repurchase price. The

64

BLACKROCK FUNDS

agreements are conditioned upon the collateral being deposited under the Federal Reserve book entry system or held in a separate account by the Portfolio’s custodian or an authorized securities depository.

Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) requires the use of management estimates. Actual results could differ from these estimates and such differences could be material.

Other — Expenses that are directly related to one of the Portfolios are charged directly to that Portfolio. Other operating expenses are prorated to the Portfolios on the basis of relative net assets. Class-specific expenses are borne by that class. Differences in net expense ratios between classes of a Portfolio are due to class-specific expenses and waivers. Income, other expenses and realized and unrealized gains and losses of a Portfolio are allocated to the respective class on the basis of the relative net assets each day.

(C) Agreements and Other Transactions with Affiliates and Related Parties

Pursuant to an Investment Advisory Agreement, BlackRock Advisors, LLC (“BlackRock”), an indirect wholly-owned subsidiary of BlackRock, Inc., serves as investment advisor to the Portfolios. BlackRock Institutional Management Corporation (“BIMC”), an indirect wholly-owned subsidiary of BlackRock, Inc. serves as sub-advisor for all of the Portfolios. Merrill Lynch & Co., Inc.(“Merrill Lynch”) and The PNC Financial Services Group, Inc. (“PNC”) are principal owners of BlackRock, Inc.

For its advisory services, BlackRock is entitled to receive fees, computed daily and payable monthly, at the following annual rates, based on each Portfolio’s average daily net assets: 0.45% of the first $1 billion, 0.40% of the next $1 billion, 0.375% of the next $1 billion and 0.35% of net assets in excess of $3 billion.

BlackRock pays BIMC fees for its sub-advisory services.

PFPC Trust Company (“PTC”), an indirect wholly-owned subsidiary of PNC, serves as custodian for each of the Portfolios. For these services, the custodian receives a custodian fee computed daily and payable monthly, based on a percentage of the average daily gross assets of each Portfolio.

Prior to February 1, 2006, the fee was paid at the following annual rates: 0.01% of the first $250 million of average gross assets, 0.009% of the next $250 million of average gross assets, 0.0075% of the next $250 million of average gross assets, 0.007% of the next $250 million of average of gross assets, 0.006% of the next $250 million of average gross assets and 0.005% of average gross assets in excess of $1.25 billion; plus per transaction charges and other miscellaneous fees incurred on behalf of each Portfolio.

Effective February 1, 2006, the fee was paid at the following annual rates: 0.0073% of the first $250 million of average gross assets, 0.006% of the next $250 million of average gross assets, 0.0056% of the next $250 million of average gross assets, 0.0048% of the next $250 million of average gross assets, and 0.004% of average gross assets in excess of $1 billion; plus per transaction charges and other miscellaneous fees incurred on behalf of each Portfolio.

PFPC Inc. (“PFPC”), an indirect wholly-owned subsidiary of PNC, serves as transfer and dividend disbursing agent.

Shares of each class of each Portfolio of the Fund bear their pro-rata portion of all operating expenses paid by the Portfolio, except transfer agency fees, certain administrative fees and amounts payable under the Fund’s Amended and Restated Distribution and Service Plan (the “Plan”).

Prior to February 1, 2006, the Institutional, Service, Hilliard Lyons, Investor A, Investor B and Investor C share classes each bore a transfer agent fee at an annual rate not to exceed 0.018% of the annual average net assets of such respective classes plus per account fees and disbursements. Certain other transfer agency fees were allocated on relative net assets of each class of each Portfolio.

Effective February 1, 2006, each class of each Portfolio bears the costs of transfer agent fees associated with such respective classes. Transfer agency fees borne by each class of each Portfolio are comprised of those fees charged for all shareholder communications including shareholder reports, dividend and distribution notices, and proxy materials for shareholders meetings, as well as per account and per transaction fees related to servicing and maintenance of shareholder accounts, including the issuing, redeeming and transferring of shares of each class of each Portfolio, 12b-1 fee calculation, check writing, anti-money laundering services, and customer identification services.

Pursuant to written agreements, Merrill Lynch and Hilliard Lyons, an indirect wholly-owned subsidiary of PNC, provide certain Portfolios sub-accounting, recordkeeping, sub-transfer agency and other administrative services with respect to sub-accounts they service. For these services, each receives an annual fee per shareholder account which will vary

65

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

depending on share class. For the six months ended March 31, 2007, the Portfolios paid to Merrill Lynch and Hilliard Lyons the following fees in return for these services:

	MERRILL LYNCH		HILLIARD LYONS
Money Market	$	3	$	29,530
U.S. Treasury		—		12
Municipal		—		12,554
Pennsylvania Municipal		—		63

PFPC and BlackRock act as co-administrators for the Fund. For these services, the co-administrators receive a combined administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of each Portfolio. Prior to February 1, 2006, the fee was paid at the following annual rates: 0.085% of the first $500 million of net assets of each Portfolio, 0.075% of the next $500 million and 0.065% of assets in excess of $1 billion. In addition, each of the share classes was charged an administration fee based on the following percentage of average daily net assets of each respective class: 0.095% of the first $500 million, 0.085% of the next $500 million and 0.075% of assets in excess of $1 billion. Effective February 1, 2006, the combined administration fee is paid at the following annual rates: 0.075% of the first $500 million of net assets of each Portfolio, 0.065% of the next $500 million and 0.055% of assets in excess of $1 billion. In addition, each of the share classes is charged an administration fee based on the following percentage of average daily net assets of each respective class: 0.025% of the first $500 million, 0.015% of the next $500 million and 0.005% of assets in excess of $1 billion. In addition, PFPC and BlackRock may have, at their discretion, voluntarily waived all or any portion of their administration fees for any Portfolio or share class.

Pursuant to the Fund’s Plan, the Fund may pay BlackRock Distributors, Inc. (the “BDI”), a direct subsidiary of PFPC, and/or BlackRock or any other affiliate of PNC and Merrill Lynch, fees for distribution and sales support services. Currently, only Investor B, B1, B2, C, C1, C2 and R Shares bear the expense of distribution fees under the Plan. In addition, the Fund may pay brokers, dealers, financial institutions and industry professionals (including PNC, Merrill Lynch and their affiliates) (“service organizations”) fees for the provision of personal services to shareholders. BlackRock may receive some of the service fees paid by the Fund in return for providing services to shareholders. Currently, only Service, Hilliard Lyons Shares, Investor A, A1, B, B1, B2, C, C1, C2 and R Shares bear the expense of service fees under the Plan.

The following table provides a list of the Portfolios included in this report along with a summary of their respective class-specific fee arrangements as provided under the Plan. Fees are expressed as a percentage of average daily net asset values of the respective classes.

	Class-Specific Fee Arrangement
	Share Classes
	Institutional		Service				Hilliard Lyons				Investor A				Investor B				Investor C
Portfolio	Contractual Fees	Actual Fees (3)	Contractual Fees (1)		Actual Fees (3)		Contractual Fees (1)		Actual Fees (3)		Contractual Fees (1)		Actual Fees (3)		Contractual Fees (2)		Actual Fees (3)		Contractual Fees (2)		Actual Fees (3)
Money Market	None	None	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	0.75	%	1.00	%	0.75	%
U.S. Treasury	None	None	0.25	%	0.25	%	N/A		N/A		0.25	%	0.25	%	1.00	%	N/A		1.00	%	N/A
Municipal	None	None	0.25	%	0.25	%	0.25	%	None		0.25	%	0.25	%	1.00	%	N/A		1.00	%	N/A
New Jersey Municipal	None	None	0.25	%	0.25	%	N/A		N/A		0.25	%	0.25	%	1.00	%	N/A		1.00	%	N/A
North Carolina Municipal	None	None	0.25	%	0.25	%	N/A		N/A		0.25	%	0.25	%	1.00	%	N/A		1.00	%	N/A
Ohio Municipal	None	None	0.25	%	0.25	%	N/A		N/A		0.25	%	0.25	%	1.00	%	N/A		1.00	%	N/A
Pennsylvania Municipal	None	None	0.25	%	0.25	%	N/A		N/A		0.25	%	0.25	%	1.00	%	N/A		1.00	%	N/A
Virginia Municipal	None	None	0.25	%	0.25	%	N/A		N/A		0.25	%	N/A		1.00	%	N/A		1.00	%	N/A

(1) — the maximum annual contractual fees are comprised of a 0.25% service fee.

(2) — the maximum annual contractual fees are comprised of a 0.75% distribution fee and a 0.25% service fee.

(3) — the actual fees are for the six months ended March 31, 2007.

66

BLACKROCK FUNDS

For the six months ended March 31, 2007, the Fund paid to affiliates the following fees in return for distribution and sales support services:

	MERRILL LYNCH		HILLIARD LYONS		BLACKROCK
Money Market	$	1,607	$	478,520	$	7,192
U.S. Treasury		2		28,517		13,942
Municipal		—		5,700		691
New Jersey Municipal		—		29,340		48
North Carolina Municipal		1		—		370
Ohio Municipal		—		33,391		1
Pennsylvania Municipal		—		49,442		146
Virginia Municipal		—		—		29

BlackRock maintains a call center, which is responsible for providing certain shareholder services to the Fund, such as responding to shareholder inquiries and processing transactions based upon instructions from shareholders with respect to the subscription and redemption of Portfolio shares. During the six months ended March 31, 2007, the following amounts have been accrued by the Portfolio to reimburse BlackRock for costs incurred running the call center, which are a component of the transfer agent fees in the accompanying Statement of Operations.

	SHARE CLASSES
	INSTITUTIONAL		SERVICE		HILLIARD LYONS		INVESTOR A		INVESTOR B		INVESTOR C		TOTAL
Money Market	$	2,437	$	3,541	$	863	$	23,528	$	2,646	$	653	$	33,668
U.S. Treasury		758		1,750		—		341		—		—		2,849
Municipal		230		1,010		1,065		42		—		—		2,347
New Jersey Municipal		418		522		—		158		—		—		1,098
North Carolina Municipal		224		11		—		16		—		—		251
Ohio Municipal		470		48		—		150		—		—		668
Pennsylvania Municipal		1,754		304		—		250		—		—		2,308
Virginia Municipal		278		2		—		—		—		—		280

For the six months ended March 31, 2007, the following shows the various types of class-specific expenses borne directly by each class of each Portfolio and any associated waivers of those expenses.

ADMINISTRATION FEES	SHARE CLASSES
	INSTITUTIONAL		SERVICE		HILLIARD LYONS		INVESTOR A		INVESTOR B		INVESTOR C		TOTAL
Money Market	$	69,735	$	56,478	$	16,355	$	50,001	$	1,882	$	684	$	195,135
U.S. Treasury		22,878		29,350		—		3,827		—		—		56,055
Municipal		8,418		13,560		18,339		580		—		—		40,897
New Jersey Municipal		12,163		6,549		—		2,525		—		—		21,237
North Carolina Municipal		9,348		72		—		42		—		—		9,462
Ohio Municipal		16,648		720		—		2,850		—		—		20,218
Pennsylvania Municipal		59,490		6,537		—		4,255		—		—		70,282
Virginia Municipal		8,989		2		—		—		—		—		8,991

ADMINISTRATION FEES WAIVED	SHARE CLASSES
	INSTITUTIONAL		SERVICE		INVESTOR B		INVESTOR C		TOTAL
Money Market	$	69,735	$	—	$	1,882	$	684	$	72,301
U.S. Treasury		22,878		—		—		—		22,878
Municipal		8,418		9,259		—		—		17,677
New Jersey Municipal		12,163		20		—		—		12,183
North Carolina Municipal		9,348		28		—		—		9,376
Ohio Municipal		16,648		—		—		—		16,648
Pennsylvania Municipal		59,490		—		—		—		59,490
Virginia Municipal		8,989		2		—		—		8,991

67

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

TRANSFER AGENT FEES	SHARE CLASSES
	INSTITUTIONAL		SERVICE		HILLIARD LYONS		INVESTOR A		INVESTOR B		INVESTOR C		TOTAL
Money Market	$	23,806	$	25,921	$	1,372	$	175,213	$	21,252	$	3,919	$	251,483
U.S. Treasury		5,624		3,248		—		2,140		—		—		11,012
Municipal		1,627		18,314		1,564		214		—		—		21,719
New Jersey Municipal		2,996		1,095		—		416		—		—		4,507
North Carolina Municipal		3,645		86		—		128		—		—		3,859
Ohio Municipal		3,743		125		—		333		—		—		4,201
Pennsylvania Municipal		17,819		705		—		727		—		—		19,251
Virginia Municipal		6,151		38		—		—		—		—		6,189

TRANSFER AGENT FEES WAIVED	SHARE CLASSES
	INSTITUTIONAL		SERVICE		INVESTOR B		INVESTOR C		TOTAL
Money Market	$	2,437	$	—	$	2,646	$	653	$	5,736
U.S. Treasury		758		—		—		—		758
Municipal		230		—		—		—		230
New Jersey Municipal		418		—		—		—		418
North Carolina Municipal		224		2		—		—		226
Ohio Municipal		470		—		—		—		470
Pennsylvania Municipal		1,754		—		—		—		1,754
Virginia Municipal		278		2		—		—		280

TRANSFER AGENT FEES REIMBURSED	SHARE CLASSES
	INSTITUTIONAL		SERVICE		INVESTOR B		INVESTOR C		TOTAL
Money Market	$	21,347	$	—	$	13,420	$	1,433	$	36,200
U.S. Treasury		4,865		—		—		—		4,865
Municipal		1,397		—		—		—		1,397
New Jersey Municipal		2,578		—		—		—		2,578
North Carolina Municipal		3,420		5		—		—		3,425
Ohio Municipal		3,272		—		—		—		3,272
Pennsylvania Municipal		16,063		—		—		—		16,063
Virginia Municipal		5,872		32		—		—		5,904

SHAREHOLDER SERVICE FEES	SHARE CLASSES
	SERVICE		HILLIARD LYONS		INVESTOR A		INVESTOR B		INVESTOR C		TOTAL
Money Market	$	565,180	$	163,553	$	499,742	$	18,777	$	6,823	$	1,254,075
U.S. Treasury		293,584		—		38,270		—		—		331,854
Municipal		135,534		183,389		5,799		—		—		324,722
New Jersey Municipal		65,487		—		25,255		—		—		90,742
North Carolina Municipal		716		—		411		—		—		1,127
Ohio Municipal		7,198		—		28,495		—		—		35,693
Pennsylvania Municipal		65,371		—		45,593		—		—		110,964
Virginia Municipal		25		—		—		—		—		25

SHAREHOLDER SERVICE FEES WAIVED	SHARE CLASSES
	HILLIARD LYONS		INVESTOR B		INVESTOR C		TOTAL
Money Market	$	—	$	18,777	$	6,823	$	25,600
Municipal		183,389		—		—		183,389

68

BLACKROCK FUNDS

DISTRIBUTION FEES	SHARE CLASSES
	INVESTOR B		INVESTOR C		TOTAL
Money Market	$	56,452	$	20,534	$	76,986

BlackRock and the Fund contractually agreed to waive or reimburse fees or expenses until February 1, 2008, in order to limit expenses. These expense limits apply to the aggregate expenses incurred on a share class (excluding: interest, taxes, brokerage commissions, expenses incurred as a result of investments in other funds and other expenses attributable to, and incurred as a result of, a Portfolio’s investments and other extraordinary expenses). This agreement is reviewed annually by the Fund’s Board. The current expense limitation as a percentage of net assets are as follows:

	SHARE CLASSES
	INSTITUTIONAL	SERVICE	HILLIARD LYONS	INVESTOR A	INVESTOR B	INVESTOR C
Money Market	0.42%	0.72%	0.91%	0.89%	1.49%	1.49%
U.S. Treasury	0.41%	0.71%	N/A	0.88%	1.48%1	1.48%1
Municipal	0.42%	0.72%	0.66%	0.89%	1.49%1	1.49%1
New Jersey Municipal	0.39%	0.69%	N/A	0.96%	1.46%1	1.46%1
North Carolina Municipal	0.30%	0.60%	N/A	0.87%	1.37%1	1.37%1
Ohio Municipal	0.39%	0.69%	N/A	0.96%	1.46%1	1.46%1
Pennsylvania Municipal	0.42%	0.72%	N/A	0.99%	1.49%1	1.49%1
Virginia Municipal	0.30%	0.60%	N/A	0.87%1	1.37%1	1.37%1

¹ There were no shares outstanding as of March 31, 2007.

If within two years following a waiver or reimbursement of the operating expenses of a share class that previously received a waiver or reimbursement from BlackRock are less than the expense limit for that share class, the share class is required to repay BlackRock up to the amount of fees waived or expenses reimbursed under the agreement if: (1) the Portfolio of which the share class is a part has more than $50 million in assets, (2) BlackRock or an affiliate continues to be the Portfolio’s investment advisor or administrator and (3) the Board of the Fund has approved the payments to BlackRock at the previous quarterly meeting.

At March 31, 2007, the amounts subject to possible future reimbursement under the expense limitation agreement are as follows:

	EXPIRING JANUARY 31, 2008		EXPIRING JANUARY 31, 2009		EXPIRING JANUARY 31, 2010		TOTAL WAIVERS SUBJECT TO REIMBURSEMENT
Money Market	$	—	$	1,638,585	$	260,652	$	1,899,237
U.S. Treasury		1,194,807		772,301		100,967		2,068,075
Municipal		630,099		334,488		55,027		1,019,614
New Jersey Municipal		456,571		356,460		45,814		858,845
North Carolina Municipal		304,943		246,782		50,936		602,661
Ohio Municipal		413,974		311,945		52,572		778,491
Pennsylvania Municipal		1,359,479		968,214		140,588		2,468,281
Virginia Municipal		142,461		224,221		43,851		410,533

The following waivers previously recorded by the Portfolios, which were subject to recoupment by BlackRock expired on January 31, 2007:

U.S. Treasury	$	1,317,236
Municipal		1,151,500
New Jersey Municipal		479,468
North Carolina Municipal		261,156
Ohio Municipal		431,627
Pennsylvania Municipal		1,334,315
Virginia Municipal		101,140

69

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

For the six months ended March 31, 2007, affiliates received the following contingent deferred sales charges relating to transactions in Investor B Class:

	INVESTOR B CLASS
Money Market	$2,048

For the six months ended March 31, 2007, short term investments in companies assumed to be an affiliate of the Portfolios were as follows:

	AFFILIATED INVESTMENTS	NET ACTIVITY			INTEREST INCOME		MARKET VALUE OF AFFILIATES AT MARCH 31, 2007
Municipal	Denver Urban Renewal Authority Tax Increment RB P-Float Trust Receipts Series 2004 PT-999 DN (Lloyds TSB Bank Plc SBPA, Lloyds TSB Bank Plc Guaranty)	$	(1,500,000	)	$	772	$	—
	Golden State Tobacco Settlement Securitization Corp. RB P-Float Trust Receipts Series 2004 PA-1236 DN (Merrill Lynch & Co. Guaranty, Merrill Lynch Capital Services SBPA)		—			24,130		1,330,000
	Metropolitan Pier & Exposition Authority Dedicated State Tax Receipts RB P-Float Trust Receipts Series 2005 PZ-44 DN (MBIA Insurance, Merrill Lynch Capital Services SBPA)		—			9,102		500,000
	Pleasant Valley School District of Ventura County GO P-Float Trust Receipts Series 2005 PT-2783 DN (MBIA Insurance, Dexia Credit Local SBPA)		(150,000	)		2,402		—
New Jersey Municipal	New Jersey Economic Development Authority RB P-Float Trust Receipts Series 2004 MT-035 DN (Assured Guaranty Ltd. Insurance, Landesbank Hessen-Thuringen Girozentrale SBPA)		6,795,000			122,355		6,795,000
	New Jersey Health Care Facilities Financing Authority RB P-Float Trust Receipts Series 2001 PT-1319 DN (AMBAC Insurance, Merrill Lynch Capital Services SBPA)		—			135,508		7,415,000
	Port Authority of New York & New Jersey RB P-Float Trust Receipts Series 2004-056 DN (FGIC Insurance, Banque Nationale de Paribas SBPA)		—			142,490		7,855,000
Ohio Municipal	Hamilton County Hospital Facilities RB P-Float Trust Receipts Series 2001 PT-507 DN (Merrill Lynch & Co. Guaranty)		—			89,685		4,900,000
	Rickenbacker Port Authority RB P-Float Trust Receipts Series 2004 PT-2453 AMT DN (Merrill Lynch & Co. Guaranty)		(5,080,000	)		84,497		—
Pennsylvania Municipal	Pennsylvania Economic Development Financing Authority RB P-Float Trust Receipts Series 2004-1282 AMT DN (Merrill Lynch & Co. LOC, Merrill Lynch Capital Securities Guaranty)		—			91,016		5,000,000
	Pennsylvania Higher Educational Facilities Authority RB P-Float Trust Receipts Series 2004 MT-042 DN (Lloyds TSB Bank Plc LOC, Merrill Lynch Capital Services SBPA)		—			349,700		19,225,000

Virginia Municipal	Chesterfield County IDRB P-Float Trust Receipts Series 2004 PT-2133 DN (Merrill Lynch & Co. Guaranty, Merrill Lynch Capital Services SBPA)	(1,250,000	)	17,194	—
	Virginia Resource Authority Clean Water State Revolving Fund RB P-Float Trust Receipts Series 2000 PA-790 DN (Merrill Lynch & Co. Guaranty, Merrill Lynch Captial Services SBPA)	—		9,092	505,000

70

BLACKROCK FUNDS

In addition to the above income earned on affiliated investments, the Portfolios may earn income on positive cash balances in demand deposit accounts that are maintained by PFPC on behalf of the Portfolios. The income earned for the six months ended March 31, 2007, was as follows:

Money Market	$	2,793
U.S. Treasury		24
Municipal		6
New Jersey Municipal		8
North Carolina Municipal		4
Ohio Municipal		3
Pennsylvania Municipal		11
Virginia Municipal		2

The Portfolios may also receive earnings credits related to cash balances with PFPC which are shown on the Statements of Operations as “fees paid indirectly.”

(D) Capital Shares

Because the Portfolios have each sold and redeemed shares only at a constant net asset value of $1.00 per share, the number of shares represented by such sales, reinvestments and redemptions is the same as the dollar amounts shown on the following pages for such transactions.

Transactions in capital shares for each period were as follows:

	MONEY MARKET
	FOR THE SIX MONTHS ENDED 3/31/07			FOR THE YEAR ENDED 9/30/06
Shares sold:
Institutional Class	$	720,521,130		$	1,829,862,461
Service Class		937,901,907			1,628,218,988
Hilliard Lyons Class		57,297,861			97,225,202
Investor A Class		180,946,906			332,518,249
Investor B Class		4,335,686			22,421,853
Investor C Class		1,765,036			11,390,892
Shares issued in reinvestment of dividends:
Institutional Class		531,763			888,010
Service Class		1,516,453			2,427,631
Hilliard Lyons Class		3,070,547			4,859,054
Investor A Class		8,819,315			15,718,881
Investor B Class		253,462			525,227
Investor C Class		90,726			137,842
Shares redeemed:
Institutional Class		(612,947,259	)		(1,837,207,867	)
Service Class		(968,997,681	)		(1,594,500,937	)
Hilliard Lyons Class		(48,350,866	)		(96,917,880	)
Investor A Class		(193,698,638	)		(382,223,140	)
Investor B Class		(11,065,242	)		(22,202,844	)
Investor C Class		(6,764,866	)		(7,706,485	)
Net increase	$	75,226,240		$	5,435,137

71

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	U.S. TREASURY
	FOR THE SIX MONTHS ENDED 3/31/07			FOR THE YEAR ENDED 9/30/06
Shares sold:
Institutional Class	$	195,614,109		$	279,981,509
Service Class		512,806,179			1,002,926,784
Investor A Class		13,867,104			35,814,478
Shares issued in reinvestment of dividends:
Institutional Class		4,414			3,198
Service Class		145,157			355,769
Investor A Class		701,256			1,180,321
Shares redeemed:
Institutional Class		(263,718,116	)		(232,927,357	)
Service Class		(528,361,665	)		(1,013,954,890	)
Investor A Class		(12,466,974	)		(40,391,322	)
Net increase (decrease)	$	(81,408,536	)	$	32,988,490

	MUNICIPAL
	FOR THE SIX MONTHS ENDED 3/31/07			FOR THE YEAR ENDED 9/30/06
Shares sold:
Institutional Class	$	78,357,225		$	202,431,980
Service Class		110,862,307			355,085,644
Hilliard Lyons Class		62,922,185			134,913,206
Investor A Class		18,311,529			17,228,598
Shares issued in reinvestment of dividends:
Institutional Class		526			6,384
Service Class		355,520			561,919
Hilliard Lyons Class		2,349,923			3,797,997
Investor A Class		68,337			97,713
Shares redeemed:
Institutional Class		(82,586,933	)		(217,080,299	)
Service Class		(148,302,645	)		(316,981,560	)
Hilliard Lyons Class		(68,013,148	)		(124,713,766	)
Investor A Class		(17,214,246	)		(18,758,860	)
Net increase (decrease)	$	(42,889,420	)	$	36,588,956

72

BLACKROCK FUNDS

	NEW JERSEY MUNICIPAL
	FOR THE SIX MONTHS ENDED 3/31/07			FOR THE YEAR ENDED 9/30/06
Shares sold:
Institutional Class	$	134,388,638		$	321,032,478
Service Class		22,801,531			42,115,139
Investor A Class		27,017,032			49,632,471
Shares issued in reinvestment of dividends:
Institutional Class		31,186			71,815
Service Class		58,737			100,259
Investor A Class		294,550			440,071
Shares redeemed:
Institutional Class		(139,385,536	)		(296,262,381	)
Service Class		(32,191,896	)		(45,055,558	)
Investor A Class		(20,759,799	)		(47,438,082	)
Net increase (decrease)	$	(7,745,557	)	$	24,636,212

	NORTH CAROLINA MUNICIPAL
	FOR THE SIX MONTHS ENDED 3/31/07			FOR THE YEAR ENDED 9/30/06
Shares sold:
Institutional Class	$	144,549,327		$	286,431,544
Service Class		1,374,284			1,081,749
Investor A Class		111,501			88,174
Shares issued in reinvestment of dividends:
Institutional Class		708,059			996,727
Service Class		5,113			8,394
Investor A Class		4,842			8,841
Shares redeemed:
Institutional Class		(121,512,127	)		(282,359,893	)
Service Class		(1,632,109	)		(7,357,242	)
Investor A Class		(89,665	)		(102,262	)
Net increase (decrease)	$	23,519,225		$	(1,203,968	)

73

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	OHIO MUNICIPAL
	FOR THE SIX MONTHS ENDED 3/31/07			FOR THE YEAR ENDED 9/30/06
Shares sold:
Institutional Class	$	187,034,152		$	373,105,885
Service Class		7,943,901			94,190,838
Investor A Class		35,458,167			80,747,016
Shares issued in reinvestment of dividends:
Institutional Class		70,219			137,332
Service Class		29,550			44,699
Investor A Class		344,058			716,399
Shares redeemed:
Institutional Class		(190,950,999	)		(330,924,345	)
Service Class		(8,029,109	)		(98,812,689	)
Investor A Class		(35,779,591	)		(82,089,581	)
Net increase (decrease)	$	(3,879,652	)	$	37,115,554

	PENNSYLVANIA MUNICIPAL
	FOR THE SIX MONTHS ENDED 3/31/07			FOR THE YEAR ENDED 9/30/06
Shares sold:
Institutional Class	$	376,890,883		$	686,505,808
Service Class		78,328,121			236,751,195
Investor A Class		40,849,758			101,312,120
Shares issued in reinvestment of dividends:
Institutional Class		161,512			343,820
Service Class		293,672			570,794
Investor A Class		497,338			1,070,057
Shares redeemed:
Institutional Class		(342,241,591	)		(652,527,157	)
Service Class		(73,981,523	)		(227,135,915	)
Investor A Class		(35,898,586	)		(145,920,088	)
Net increase	$	44,899,584		$	970,634

74

BLACKROCK FUNDS

	VIRGINIA MUNICIPAL
	FOR THE SIX MONTHS ENDED 3/31/07			FOR THE YEAR ENDED 9/30/06
Shares sold:
Institutional Class	$	67,606,023		$	182,153,307
Service Class		20,003			1,377,604
Shares issued in reinvestment of dividends:
Institutional Class		46,845			74,439
Shares redeemed:
Institutional Class		(65,392,240	)		(134,880,469	)
Service Class		—			(1,377,367	)
Net increase	$	2,280,631		$	47,347,514

On March 31, 2007, three shareholders held approximately 80% of the outstanding shares of the Money Market Portfolio, four shareholders held approximately 90% of the outstanding shares of the U.S. Treasury Money Market Portfolio, three shareholders held approximately 91% of the outstanding shares of the Municipal Money Market Portfolio, three shareholders held approximately 91% of the outstanding shares of the New Jersey Municipal Money Market Portfolio, four shareholders held approximately 90% of the outstanding shares of the North Carolina Municipal Money Market Portfolio, two shareholders held approximately 93% of the outstanding shares of the Ohio Municipal Money Market Portfolio, two shareholders held approximately 83% of the outstanding shares of the Pennsylvania Municipal Money Market Portfolio and four shareholders held approximately 93% of the outstanding shares of the Virginia Municipal Money Market Portfolio. Some of the shareholders are comprised of omnibus accounts, which are held on behalf of several individual shareholders.

(E) Federal Tax Information

No provision is made for federal taxes as it is the Portfolios’ intention to continue to qualify for and elect the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, and to make the requisite distributions to its shareholders which will be sufficient to relieve it from federal income and excise taxes.

Dividends from tax-free income, net investment income and distributions from net capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined under accounting principles generally accepted in the United States.

The tax character of distributions paid during the year ended September 30, 2006 were as follows:

	TAX-FREE INCOME		ORDINARY INCOME
Money Market
9/30/06	$	—	$	62,489,092
U.S. Treasury
9/30/06		—		18,282,111
Municipal Money
9/30/06		8,768,655		—
New Jersey Municipal
9/30/06		4,691,831		—
North Carolina Municipal
9/30/06		1,985,582		—
Ohio Municipal
9/30/06		4,332,294		—
Pennsylvania Municipal
9/30/06		15,686,567		—
Virginia Municipal
9/30/06		1,254,786		—

75

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)

As of September 30, 2006, the Portfolios had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates:

	EXPIRING SEPTEMBER 30
	2007		2008		2009		2010		2011		2014		TOTAL
Money Market	$	—	$	—	$	—	$	—	$	70,532	$	—	$	70,532
U.S. Treasury		—		—		13,150		11,911		12,380		13,138		50,579
Ohio Municipal		16,541		6,193		—		—		1,261		—		23,995
Pennsylvania Municipal		—		—		—		—		—		23,168		23,168

In July 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes”. FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Portfolio’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be booked as a tax expense in the current year and recognized as: a liability for unrecognized tax benefits; a reduction of an income tax refund receivable; a reduction of deferred tax asset; an increase in deferred tax liability; or a combination thereof. Adoption of FIN 48 is required for the last net asset value calculation in the first required financial statement reporting period for fiscal years beginning after December 15, 2006. At this time, management is evaluating the implications of FIN 48 and its impact on the financial statements has not yet been determined.

76

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BLACKROCK FUNDS

Investment Advisor	Co-Administrator
BlackRock Advisors, LLC	BlackRock Advisors, LLC
Wilmington, Delaware 19809	Wilmington, Delaware 19809
Sub-Advisor	Distributor
BlackRock Institutional Management Corporation	BlackRock Distributors, Inc.
Wilmington, Delaware 19809	King of Prussia, Pennsylvania 19406
Custodian	Counsel
PFPC Trust Company	Simpson Thacher & Bartlett LLP
Philadelphia, Pennsylvania 19153	New York, New York 10017
Co-Administrator and Transfer Agent	Independent Registered Public Accounting Firm
PFPC Inc.	Deloitte & Touche LLP
Wilmington, Delaware 19809	Philadelphia, Pennsylvania 19103

Important Notice Regarding Delivery of Shareholder Documents

The Fund will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and it 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 contact the Fund at (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

The Fund has delegated proxy voting responsibilities to BlackRock and its affiliates, subject to the general oversight of the Fund’s Board of Trustees. A description of the policies and procedures that BlackRock and its affiliates use to determine how to vote proxies relating to portfolio securities is available without charge, upon request on our website at www.blackrock.com, by calling (800) 441-7762, or on the website of the Securities and Exchange Commission (the “Commission”) at http://www.sec.gov.

Availability of Proxy Voting Record

Information on how proxies relating to the Fund’s voting securities were voted (if any) by BlackRock during the most recent 12-month period ended June 30th is available (if any), upon request and without charge on our website at www.blackrock.com, by calling (800) 441-7762 or on the website of the Commission at http://www.sec.gov.

Availability of Quarterly Portfolio Schedule

The Fund files its complete schedule of portfolio holdings for the first and third quarters of its fiscal year with the Commission on Form N-Q. The Fund’s Form N-Q is available on the Commission’s website at http://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information regarding the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s Form N-Q may also be obtained upon request, without charge, by calling (800) 441-7762.

BLACKROCK FUNDS

AVAILABILITY OF SHAREHOLDER DOCUMENTS AND STATEMENTS

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

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

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

Shareholders Who Hold Accounts Directly With BlackRock

1) Access the BlackRock website at http://www.blackrock.com/edelivery

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

3) Log into your account

SHAREHOLDER PRIVILEGES

Account Information

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

Automatic Investment Plans

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

Systematic Withdrawal Plan

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

Retirement Plans

Shareholders may make investments in conjunction with Traditional, Rollover, Roth, Coverdell, Simple and SEP IRA’s, and 403(b) plans.

BLACKROCK FUNDS

A World-Class Mutual Fund Family

BlackRock now offers an expanded lineup of open-end mutual funds. Our range includes more than 85 funds crossing all investment styles and managed by experts in equity, fixed income and tax-exempt investing.

Equity Portfolios
BlackRock All-Cap Global Resources Portfolio	BlackRock Global Resources Portfolio*	BlackRock Lifecycle Prepared Portfolios†
BlackRock Aurora Portfolio	BlackRock Global Science & Technology	BlackRock Mid-Cap Growth Equity Portfolio
BlackRock Asset Allocation Portfolio†	Opportunities Portfolio	BlackRock Mid-Cap Value Equity Portfolio
BlackRock Balanced Capital Fund†	BlackRock Global SmallCap Fund	BlackRock Mid Cap Value Opportunities Fund
BlackRock Basic Value Fund	BlackRock Global Technology Fund	BlackRock Natural Resources Trust
BlackRock Capital Appreciation Portfolio	BlackRock Healthcare Fund	BlackRock Pacific Fund
BlackRock Developing Capital Markets Fund	BlackRock Health Sciences Opportunities Portfolio	BlackRock Prepared Portfolios†
BlackRock Equity Dividend Fund	BlackRock Index Equity Portfolio*	BlackRock Small Cap Core Equity Portfolio
BlackRock EuroFund	BlackRock International Fund	BlackRock Small Cap Growth Equity Portfolio
BlackRock Focus Twenty Fund	BlackRock International Index Fund	BlackRock Small Cap Growth Fund II
BlackRock Focus Value Fund	BlackRock International Opportunities Portfolio*	BlackRock Small Cap Index Fund
BlackRock Fundamental Growth Fund	BlackRock International Value Fund	BlackRock Small Cap Value Equity Portfolio*
BlackRock Global Allocation Fund†	BlackRock Investment Trust	BlackRock Small/Mid-Cap Growth Portfolio
BlackRock Global Dynamic Equity Fund	BlackRock Large Cap Core Fund	BlackRock S&P 500 Index Fund
BlackRock Global Financial Services Fund	BlackRock Large Cap Growth Fund	BlackRock U.S. Opportunities Portfolio
BlackRock Global Growth Fund	BlackRock Large Cap Value Fund	BlackRock Utilities and Telecommunications Fund
BlackRock Global Opportunities Portfolio	BlackRock Latin America Fund	BlackRock Value Opportunities Fund
Fixed Income Portfolios
BlackRock Bond Fund	BlackRock High Yield Bond Portfolio	BlackRock Low Duration Bond Portfolio
BlackRock Commodity Strategies Fund	BlackRock Inflation Protected Bond Portfolio	BlackRock Managed Income Portfolio
BlackRock Enhanced Income Portfolio	BlackRock Intermediate Bond Portfolio II	BlackRock Short-Term Bond Fund
BlackRock GNMA Portfolio	BlackRock Intermediate Government	BlackRock Total Return Portfolio
BlackRock Government Income Portfolio	Bond Portfolio	BlackRock Total Return Portfolio II
BlackRock High Income Fund	BlackRock International Bond Portfolio	BlackRock World Income Fund
Municipal Bond Portfolios
BlackRock AMT-Free Municipal Bond Portfolio	BlackRock Intermediate Municipal Fund	BlackRock New York Municipal Bond Fund
BlackRock California Insured Municipal Bond Fund	BlackRock Kentucky Municipal Bond Portfolio	BlackRock Ohio Municipal Bond Portfolio
BlackRock Delaware Municipal Bond Portfolio	BlackRock Municipal Insured Fund	BlackRock Pennsylvania Municipal Bond Fund
BlackRock Florida Municipal Bond Fund	BlackRock National Municipal Fund	BlackRock Short-Term Municipal Fund
BlackRock High Yield Municipal Fund	BlackRock New Jersey Municipal Bond Fund
Money Market Portfolios
BlackRock Money Market Portfolio	BlackRock NJ Municipal MM Portfolio	BlackRock Summit Cash Reserves Fund*
BlackRock Municipal Money Market Portfolio	BlackRock OH Municipal MM Portfolio	BlackRock U.S. Treasury MM Portfolio
BlackRock NC Municipal MM Portfolio	BlackRock PA Municipal MM Portfolio	BlackRock VA Municipal MM Portfolio

* See the prospectus for information on specific limitations on investments in the fund.

† Mixed asset fund.

BlackRock mutual funds are distributed by BlackRock Distributors, Inc. and certain funds are also distributed by FAM Distributors, Inc. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling 800-882-0052 or from your financial advisor. The prospectus should be read carefully before investing.

Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed by PNC Bank, National Association or any other bank and shares are not federally insured by, guaranteed by, obligations of or otherwise supported by the U.S. Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Investments in shares of the fund involve investment risks, including the possible loss of the principal amount invested.

MM-3/07-SAR

ALTERNATIVES    BLACKROCK SOLUTIONS    EQUITIES    FIXED INCOME    LIQUIDITY    REAL ESTATE

BlackRock Funds Strategic Portfolio I
SEMI-ANNUAL REPORT | MARCH 31, 2007 (UNAUDITED)

NOT FDIC INSURED

MAY LOSE VALUE

NO BANK GUARANTEE

BLACKROCK FUNDS

TABLE OF CONTENTS

Shareholder Letter	1
Portfolio Summary	2-3
Schedule of Investments	4
Portfolio Financial Statements
Statement of Assets and Liabilities	5
Statement of Operations	6
Statements of Changes in Net Assets	7
Financial Highlights	8
Notes to Financial Statements	9-14

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 Web sites.

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

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

BLACKROCK FUNDS

March 31, 2007

Dear Shareholder:

For most financial markets, 2007 opened just as 2006 ended—on a positive trajectory. At the end of February and into March, however, global equity markets registered their first significant decline since last summer. The market jitters were triggered by a significant setback in the Chinese market and were exacerbated by several concerns, notably a weakening economy, some disappointing corporate earnings announcements, escalating geopolitical concerns in the Middle East and increasing delinquencies in the subprime mortgage market. Despite the recent spate of volatility, underlying stock market fundamentals appear quite sound, supported by a generally favorable global economic backdrop, tame inflation, relatively low interest rates and attractive valuations.

Not unlike the equity market, the bond market also has seen volatility recently as observers have attempted to interpret mixed economic signals. A bond market rally late last year reversed itself early in 2007 as economic data strengthened. Prices improved (and yields fell) again in February as equities struggled, but retrenched slightly in March. Notably, the Treasury curve remained inverted for much of 2006 and into 2007. The 30-year Treasury yield stood at 4.84% at the end of March 2007, while the one-month Treasury offered the highest yield on the curve at 5.07%.

For its part, the Federal Reserve Board (Fed) left the target short-term interest rate on hold at 5.25% since first pausing in its rate-hiking campaign on August 8, 2006. Although the central bankers continue to express concern about potential inflationary pressures, they also have made reference to signs of economic weakness in their public statements. Most observers expect the Fed to keep interest rates on hold for now.

Notwithstanding some recent volatility, most major market indexes managed to post positive returns for the semiannual reporting period ended March 31, 2007:

Total returns as of March 31, 2007

	SIX-MONTH PERIOD
U.S. equities (Standard & Poor’s 500 Index)	+7.38	%
Small cap U.S. equities (Russell 2000 Index)	+11.02	%
International equities (MSCI Europe, Australasia, Far East Index)	+14.85	%
Fixed income (Lehman Brothers Aggregate Bond Index)	+2.76	%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index)	+1.93	%
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index)	+7.02	%

If recent market movements are any guide, 2007 could be a year of enhanced volatility. As you navigate the uncertainties of the financial markets, we encourage you to review your investment goals with your financial professional and to make portfolio changes, as needed. For more reflection on the markets, please ask your financial professional for the latest issue of “What’s Ahead in 2007: First Quarter Update,” or view it online at www.blackrock.com/funds.

We thank you for trusting BlackRock with your investment assets, and we look forward to continuing to serve you in the months and years ahead.

Sincerely,

Frank Porcelli

Managing Director and Head of BlackRock Private Client Group

THIS PAGE NOT PART OF YOUR FUND REPORT

1

BLACkROCK STRATEGIC PORTFOLIO I

Total Net Assets (3/31/07): $81.3 million

Performance Benchmark:

Citigroup Non-U.S. World Government Bond Index (Hedged)

Investment Approach:

Seeks to maximize total return through investment in a portfolio of investment-grade fixed income securities of non-U.S. and U.S. issuers denominated in non-U.S. currencies, baskets of non-U.S. currencies and the U.S. dollar.

Recent Portfolio Management Activity:

• The Portfolio underperformed the benchmark for the semiannual period.

• Weakness in commodity prices brought headline inflation rates down sharply in most economies in recent months. In general, there was little or no sign of a material pickup in underlying inflation pressures; however, upside risks remain in the United States, the United Kingdom and in some Asian countries. Financial conditions continued to be accommodative overall. On balance, central banks in most major economies have, in the past few years, merely brought short-term rates back from extraordinarily low levels to average levels.

• In the United Kingdom, strong economic data and inflation concerns have fueled expectations for further monetary tightening by the Bank of England, helping to shift U.K. Gilt yields higher across the curve. Early in the semiannual period, the Bank of Japan held short-term interest rates steady following the release of weak data on machinery orders and inflation. The central bank belatedly raised short-term rates by 25 basis points (0.25%) to 0.50% during the first quarter of 2007, continuing an effort to normalize monetary policy. However, mixed domestic economic data, fear of further deflation, concern over weaker Japanese exports and financial market turbulence in the latter half of the first quarter drove Japanese government bond yields marginally lower. Following the global trend, the two- to 30-year segment of the yield curve slightly steepened.

• In the U.S., recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed, which has kept monetary policy on hold since first interrupting its rate-hiking campaign in August 2006, is expected to maintain its current “balanced” economic assessment at least into mid-2007. The federal funds rate remained at 5.25% at period-end, where it has been since June 2006. Most recently, fears of a slowdown in economic growth were exacerbated by turmoil in the subprime mortgage market. In addition, inflation — although moderate by historic standards — remained above the Fed’s implicit comfort zone.

• The U.S. dollar modestly outperformed most major currencies in first quarter 2007, registering identical gains of 0.9% against the euro and yen, and 0.2% versus the pound.

• The Portfolio’s European yield curve flattener had a positive impact on performance for the semiannual period as the European Central Bank continued its interest-rate-hiking campaign and pension funds’ demand for securities with longer maturities led to lower yields in that segment of the curve. Our holdings in floating-rate Japanese government bonds (JGBs) also enhanced performance. The Portfolio’s overweight versus the benchmark in New Zealand swap spread product hindered performance as economic data in that market continued to surprise on the upside. Other detractors from the Portfolio’s performance during the period included our positions in the Japanese yen and inflation-linked JGBs, and an overweight position in Australia relative to the U.S.

• During the semiannual period, we added an overweight position in Australia relative to the U.S. as the market had begun to aggressively price in interest rate increases by the Reserve Bank of Australia (RBA), while also pricing in several cuts by the U.S. Fed. While the employment and credit growth data in Australia demonstrated considerable strength, the inflation numbers have surprised to the low side and have prevented the RBA from raising interest rates during the first quarter of 2007.

• The Japanese economy continues to show strength as domestic demand has displayed signs of accelerating and the period of deflation appears to have ended. As the economy continues to show improvement and the Bank of Japan continues its policy of normalization of interest rates, we believe the yen should appreciate and inflation should continue to rise. Therefore, we have increased our yen position and added a position in Japanese inflation-linked JGBs.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE STRATEGIC PORTFOLIO I ANDTHE CITIGROUP NON-U.S. WORLD GOVERNMENT BOND INDEX (HEDGED) FROM INCEPTION.

FOR PERIOD ENDING MARCH 31, 2007

Strategic Portfolio I - Average Annual Return

	6 Months		1 Year		5 Year		From Inception
Institutional Class	1.02	%	3.80	%	4.83	%	6.61	%
Citigroup Non-U.S. World
Government Bond Index (Hedged)	1.60	%	5.02	%	4.80	%	5.85	%

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

2

BLACKROCK STRATEGIC PORTFOLIO I

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	66.4	%
AA	28.5
A	1.0
Unrated	4.1
Total	100.0	%

Countries (% of long-term investments)
Japan	33.1	%
Spain	17.1
United Kingdom	14.8
Canada	9.9
Germany	7.1
Italy	5.8
Netherlands	5.1
France	5.1
New Zealand	2.0
Total	100.0	%

Portfolio Statistics
Average maturity (years)	6.45
Effective Duration2	0.59

¹ Using the higher of Standard & Poor’s or Moody’s Investors Service rating.

² Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the portfolio for every 1% change in interest rates. Effective duration is typically calculated for bonds with embedded options and assumes that expected cash flows will fluctuate as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur ongoing costs, including advisory fees and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses		Hypothetical Expenses (5% return before expenses)
	Institutional Class		Institutional Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,010.20		1,024.14
Expenses Incurred During Period (10/01/06-3/31/07)		0.85		0.86

For the Institutional share class of the Portfolio, expenses are equal to the annualized expense ratio of 0.17%, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

3

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

BLACKROCK STRATEGIC PORTFOLIO I

AS OF MARCH 31, 2007 (UNAUDITED )

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR /SHARES (000)		VALUE
FOREIGN BONDS — 67.6%
Canada — 6.7%
Government of Canada Bonds (CND)
4.00%	09/01/10-06/01/16	$	2,760	$	2,379,721
Province of Ontario, Unsecured Notes (NZD)
6.25%	06/16/15		4,610		3,082,690
					5,462,411
France — 3.4%
French Treasury Notes (EUR)
2.50%	06/12/10		2,200		2,803,436
Germany — 4.8%
Bundesobligation (EUR)
3.50%	10/10/08-04/08/11		2,950		3,882,333
Italy — 4.0%
Buoni Poliennali del Tesoro (EUR)
2.75%	06/15/10		2,500		3,211,571
Japan — 22.4%
Japan Government Bonds (JPY)
1.08%(b)	01/20/21		2,100,000		17,360,998
Japan Government, Treasury
Inflation Protected Notes (JPY)
1.10%	09/10/16		98,901		828,420
					18,189,418
Netherlands — 3.4%
Netherland Government Bonds (EUR)
4.00%	01/15/37		2,200		2,803,729
New Zealand — 1.4%
General Electric Capital Corp.,
Senior Unsubordinated Notes (NZD)
6.50%	09/28/15		1,680		1,125,047
Spain — 11.5%
Bonos y Obligation del Estado (EUR)
3.25%	07/30/10		2,200		2,868,443
5.40%	07/30/11		4,625		6,502,704
					9,371,147
United Kingdom — 10.0%
United Kingdom Treasury Bonds (GBP)
4.25%	03/07/11		4,200		8,110,832
TOTAL FOREIGN BONDS
(Cost $54,304,300)					54,959,924
SHORT TERM INVESTMENTS — 31.6%
Federal National Mortgage
Association, Discount Notes
5.00%(c)	04/02/07	$	23,000	$	22,996,806
Galileo Money Market Fund, 5.02%(d)			2,679		2,678,760
TOTAL SHORT TERM INVESTMENTS
(Cost $ 25,675,566)					25,675,566
TOTAL INVESTMENTS IN SECURITIES — 99.2%
(Cost $79,979,866(a))					80,635,490
OTHER ASSETS IN EXCESS OF LIABILITIES — 0.8%					678,085
NET ASSETS — 100.0%				$	81,313,575

(a) Cost for federal income tax purposes is $79,986,431. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	889,320
Gross unrealized depreciation		(240,261	)
	$	649,059

(b) Variable rate security. Rate shown is the rate as of March 31, 2007.

(c) The rate shown is the effective yield at the time of purchase. (d) Represents current yield as of March 31, 2007.

KEY TO INVESTMENT ABBREVIATIONS

CND Canadian Dollar

EUR Euro

GBP British Pound

JPY Japanese Yen

NZD New Zealand Dollar

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

4

BLACKROCK FUNDS

STATEMENT OF ASSETS AND LIABILITIES

BLACKROCK STRATEGIC PORTFOLIO I

AS OF MARCH 31, 2007 (UNAUDITED)

ASSETS
Investments at value1	$	80,635,490
Cash collateral segregated for future contracts3		750,000
Interest receivable		663,057
Unrealized appreciation on forward foreign currency contracts		455,180
Cash denominated in foreign currencies2		226,440
Futures margin receivable .		42,408
Prepaid expenses		922
TOTAL ASSETS		82,773,497
LIABILITIES
Unrealized depreciation on forward foreign currency contracts		1,389,931
Custodian fees payable		26,902
Administration fees payable		12,633
Distributions payable		6,300
Futures margin payable		1,387
Transfer agent fees payable		903
Officers’ and trustees’ fees payable		14
Other accrued expenses payable		21,852
TOTAL LIABILITIES		1,459,922
NET ASSETS	$	81,313,575

1        Cost of Investments	$	79,979,866
2        Cost of cash denominated in foreign currencies		220,840
AT MARCH 31, 2007, NET ASSETS CONSISTED OF:
Capital Paid in	$	81,748,752
Undistributed net investment income		29,985
Accumulated net realized loss on investment transactions, futures contracts and forward foreign currency related transactions		(388,075	)
Net unrealized depreciation on investment transactions, futures contracts and forward foreign currency related transactions		(77,087	)
	$	81,313,575
Institutional Shares:
Net Assets	$	81,313,575
Shares outstanding, unlimited number of shares authorized, $0.001 par value		9,559,041
Net Asset Value, offering and redemption price per share	$	8.51

³ Cash pledged as collateral on 65 short U.S. Treasury Note futures contracts, 187 short Euro-Bobl futures contracts, 36 short Gilt British futures contracts and 138 long Australia Government Bond futures contracts expiring June 2007. The value of such contracts on March 31, 2007 was $51,888,645, with an unrealized gain of $179,754 (including commissions of $893).

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

5

BLACKROCK FUNDS

STATEMENT OF OPERATIONS

BLACKROCK STRATEGIC PORTFOLIO I

FOR THE SIX MONTHS ENDED MARCH 31, 2007 (UNAUDITED)

Investment income:
Interest	$	1,289,359
Interest from affiliates (Note C)		4
Dividends		61,840
Total investment income		1,351,203
Expenses:
Investment advisory fees		81,389
Administration fees		40,694
Custodian fees		27,240
Legal and audit fees		11,106
Officers’ and trustees’ fees		3,371
Printing fees		1,860
Transfer agent fees		1,701
Other		3,710
Total expenses		171,071
Less investment advisory fees waived		(81,389	)
Less administration fees waived		(21,283	)
Less transfer agent fees waived		(282	)
Less fees paid indirectly (Note C)		(1	)
Net expenses		68,116
Net investment income		1,283,087
Realized and unrealized gain (loss) on investments, futures contracts and forward foreign currency transactions:
Net realized gain (loss) from:
Investment transactions		827
Futures contracts		296,234
Forward foreign currency transactions		(71,306	)
		225,755
Change in unrealized appreciation/depreciation from:
Investments		467,206
Futures contracts		175,911
Forward foreign currency transactions		(1,396,582	)
		(753,465	)
Net loss on investments, futures contracts and forward foreign currency transactions.		(527,710	)
Net increase in net assets resulting from operations	$	755,377

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

6

BLACKROCK FUNDS

STATEMENTS OF CHANGES IN NET ASSETS

BLACKROCK STRATEGIC PORTFOLIO I

	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase (decrease)in net assets:
Operations:
Net investment income	$	1,283,087		$	2,612,599
Net realized gain (loss)		225,755			(1,762,187	)
Net change in unrealized appreciation/depreciation		(753,465	)		1,037,050
Net increase in net assets resulting from operations		755,377			1,887,462
Dividends and distributions to shareholders from:
Net investment income		(2,258,083	)		(2,612,599	)
Net realized gains		—			(196,270	)
Total dividends and distributions to shareholders		(2,258,083	)		(2,808,869	)
Capital share transactions:
Shares sold		1,192,800			22,419,430
Shares issued in reinvestment of distributions		2,199,117			2,743,838
Shares redeemed		(2,604,540	)		(13,498,985	)
Net increase in net assets resulting from capital share transactions		787,377			11,664,283
Total increase (decrease) in net assets		(715,329	)		10,742,876
Net assets:
Beginning of period		82,028,904			71,286,028
End of period	$	81,313,575		$	82,028,904
End of period undistributed net investment income	$	29,985		$	1,004,981

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE YEAR ENDED 9/30/05			FOR THE YEAR ENDED 9/30/04			FOR THE YEAR ENDED 9/30/031			FOR THE YEAR ENDED 9/30/021
Per share operating performance:
Net asset value, beginning of period	$	8.66		$	8.78		$	8.75		$	8.85		$	8.87		$	9.20
Net investment income		0.13	2		0.30	2		0.36	2		0.33	2		0.42			0.42
Net realized and unrealized gain (loss) on investments,futures contracts and foreign currency transactions		(0.04	)		(0.09	)		0.03			(0.10	)		0.13			0.40
Net increase from investment operations		0.09			0.21			0.39			0.23			0.55			0.82
Dividends and distributions to shareholders from:
Distributions from Net investment income		(0.24	)		(0.30	)		(0.36	)		(0.16	)		(0.57	)		(1.15	)
Distributions from Net realized gains		—			(0.03	)		—			—			—			—
Distributions from Capital		—			—			—			(0.17	)		—			—
Total distributions		(0.24	)		(0.33	)		(0.36	)		(0.33	)		(0.57	)		(1.15	)
Net asset value, end of period	$	8.51		$	8.66		$	8.78		$	8.75		$	8.85		$	8.87
Total Return		1.02	%3		2.49	%		4.47	%		2.69	%		6.39	%		9.74	%
Ratios/Supplemental data:
Net assets, end of period (in thousands)	$	81,314		$	82,029		$	71,286		$	67,310		$	56,122		$	31,253
Ratio of expenses to average net assets		0.17	%4		0.18	%		0.22	%		0.42	%		0.26	%		0.85	%
Ratio of expenses to average net assets (excluding interest expense)		0.17	%4		0.18	%		0.20	%		0.23	%		0.26	%		0.26	%
Ratio of expenses to average net assets (excluding waivers)		0.42	%4		0.47	%		0.58	%		0.71	%		0.50	%		1.15	%
Ratio of net investment income to average net assets		3.15	%4		3.50	%		4.03	%		3.80	%		3.89	%		4.73	%
Ratio of net investment income to average net assets (excluding waivers)		2.90	%4		3.21	%		3.67	%		3.51	%		3.65	%		4.43	%
Portfolio turnover		8	%		156	%		223	%		203	%		235	%		180	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Not annualized.

⁴ Annualized.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(A) Organization

BlackRock Funds^SM (the “Fund”) was organized on December 22, 1988 as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. As of March 31, 2007, the Fund had 49 registered portfolios. These financial statements relate to the Fund’s Strategic Portfolio I (the “Portfolio”). The Portfolio is authorized to issue an unlimited number of shares with a par value of $0.001.

Under the Fund’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund considers the risk of loss from such claims to be remote.

(B) Summary of Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in preparation of its financial statements.

Investment Valuation — Valuation of investments held by the Portfolio is as follows: fixed income investments are valued by using market quotations or prices provided by market makers; a portion of the fixed income investments are valued utilizing one or more pricing services approved by the Fund’s Board of Trustees (the “Board”); an option or futures contract is valued at the last sales price prior to 4:00 p.m. (Eastern time), as quoted on the principal exchange or board of trade on which such option or futures contract is traded, or in the absence of a sale, the mean between the last bid and asked prices prior to 4:00 p.m. (Eastern time); the amortized cost method of valuation will be used with respect to debt obligations with 60 days or less remaining to maturity unless the investment advisor under the supervision of the Board determines that such method does not represent fair value. Any assets which are denominated in a non-U.S. currency are translated into U.S. dollars at the prevailing market rates. In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the market value of such investment, the investment will be valued by, under the direction of or in accordance with a method approved by the Board as reflecting fair value (“Fair Value Assets”). The investment advisor will submit its recommendations regarding the valuation and/or valuation methodologies for Fair Value Assets to the Portfolio’s valuation committee. Such valuation committee may accept, modify or reject any recommendations. The pricing of all Fair Value Assets shall be subsequently reported to the Board or a committee thereof. There were no Fair Valued Assets held by the Portfolio at March 31, 2007.

When determining the price for Fair Value Assets, the investment advisor shall seek to determine the price that the Portfolio might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the advisor deems relevant.

Securities denominated in currencies other than U.S. dollars are subject to changes in value due to fluctuations in exchange rates.

In September 2006, Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. At this time, management is evaluating the implications of FAS 157 and its impact on the Portfolio’s statements, if any, has not been determined.

In addition, in February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”), which is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FAS 157. FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. FAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. At this time, management is evaluating the implications of FAS 159 and its impact on the Portfolio’s statements, if any, has not been determined.

Dividends to Shareholders — Dividends from net investment income are declared by the Portfolio each day on “settled” shares (i.e. shares for which the Portfolio has received payment) and are paid monthly. Over the course of a year, substantially all of the Portfolio’s net investment income will be declared as dividends. Net realized capital gains, if any, are distributed at least annually.

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BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Foreign Currency Translation — The books and records of the Portfolio are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis:

(I) Market value of investment securities, assets and liabilities at the current rate of exchange; and

(II) Purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions.

(III) The Portfolio does not isolate that portion of gains and losses on investment securities which is due to changes in the foreign exchange rates from that which is due to changes in market prices of such securities. The Portfolio reports certain foreign currency related transactions as components of realized and unrealized gains and losses for financial reporting purposes, whereas such components are treated as ordinary income for federal income tax purposes.

Forward Foreign Currency Contracts — The Portfolio may enter into forward foreign currency contracts as a hedge against either specific transactions or portfolio positions. These contracts are adjusted by the daily forward exchange rate of the underlying currency and any gains or losses are recorded as unrealized until the contract settlement date. Such contracts, which protect the value of the Portfolio’s investment securities against a decline in the value of currency, do not eliminate fluctuations in the underlying prices of the securities. They simply establish an exchange rate at a future date. Also, although such contracts tend to minimize the risk of loss due to a decline in the value of a hedged currency, at the same time they tend to limit any potential gain that might be realized should the value of such foreign currency increase. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.

The aggregate principal amounts of the contracts are not recorded, as the Portfolio intends to settle the contracts prior to delivery. Under the terms of foreign currency contracts open at March 31, 2007, the Portfolio is obligated to deliver or receive currency in exchange for U.S. dollars as indicated below:

SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY SOLD	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE LOSS
04/18/07	3,455,813	Canadian Dollar	$	2,944,275	$	2,995,033	$	(50,758	)
04/18/07	40,034,567	Euro		52,634,826		53,520,718		(885,892	)
04/18/07	6,340,198	New Zealand Dollar		4,328,045		4,523,367		(195,322	)
04/18/07	4,213,650	British Pound		8,195,712		8,291,502		(95,790	)
			$	68,102,858	$	69,330,620	$	(1,227,762	)

SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY SOLD	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		UNREALIZED FOREIGN EXCHANGE LOSS
04/18/07	5,923,261,000	Japanese Yen	$	50,567,320	$	50,405,151	$	(162,169	)
04/18/07	22,181,443	Euro		29,204,768		29,653,543		448,775
04/18/07	80,000	British Pound		155,911		157,422		1,511
04/18/07	336,000	Canadian Dollar		286,305		291,199		4,894
			$	80,214,304	$	80,507,315	$	293,011

Investment Transactions and Investment Income — Investment transactions are accounted for on the trade date. The cost of investments sold and realized gains and losses thereon are determined by use of specific identification method, generally first-in first-out, for both financial reporting and federal income tax purposes. Interest income is recorded on the accrual basis. Discounts and premiums on debt securities are accreted or amortized, respectively, for book and tax purposes using the effective yield-to-maturity method over the term of the instrument.

Some countries in which the Portfolio invests require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if there is deterioration in a

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BLACKROCK FUNDS

country’s balance of payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad. The securities exchanges of certain foreign markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by the Portfolio may be inhibited.

Reverse Repurchase Agreements — The Portfolio may enter into reverse repurchase agreements with qualified third party brokers-dealers. Interest on the value of the reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance and is included within the related liability on the Statement of Assets and Liabilities. At the time the Portfolio enters into a reverse repurchase agreement, it identifies for segregation certain liquid securities having a value not less than the repurchase price, including accrued interest, of the reverse repurchase agreement. There were no reverse repurchase agreements held by the Portfolio at March 31, 2007.

Futures Transactions — The Portfolio uses futures and options on futures contracts typically as a substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or currency risk. The Portfolio may also use these instruments for leverage. These futures contracts obligate the Portfolio, at maturity, to take or make delivery of securities, the cash value of a securities index or a stated quantity of a foreign currency. Upon entering into a futures contract, the Portfolio is required to deposit cash or pledge securities as initial margin. Subsequent payments, which are dependent on the daily fluctuations in the value of the underlying security or securities, are made or received by the Portfolio each day (daily variation margin) and are recorded as cumulative unrealized gains or losses until the contracts are closed. When contracts are closed, the Portfolio records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Portfolio’s basis in the contracts. Risks of entering into futures contracts include the possibility that there will not be a perfect price correlation between the futures contracts and the underlying securities. Second, it is possible that a lack of liquidity for futures contracts could exist in the market, resulting in an inability to liquidate a futures position prior to its maturity date. Third, the purchase of a futures contract involves the risk that the Portfolio could lose more than the original margin deposit required to initiate a futures transaction.

Financing Transactions — The Portfolio may enter into financing transactions consisting of a sale by the Portfolio of securities together with a commitment to repurchase similar securities at a future date. The difference between the selling price and the future purchase price is an adjustment to interest income. If the counterparty to whom the Portfolio sells the security becomes insolvent, a Portfolio’s right to repurchase the security may be restricted. The value of the security may change over the term of the financing transaction.

Investing in Government-Sponsored Enterprises — The Portfolio invests in securities issued by the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and similar United States Government sponsored entities such as Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Banks (“FHLBs”). Freddie Mac, Fannie Mae and FHLBs, although chartered and sponsored by Congress, are not funded by Congressional appropriations and the debt and mortgage-backed securities issued by Freddie Mac, Fannie Mae and FHLBs are neither guaranteed nor insured by the United States Government.

Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) requires the use of management estimates. Actual results could differ from these estimates and such differences could be material.

Other — Expenses that are directly related to the Portfolio are charged directly to the Portfolio. Other operating expenses are prorated to the Portfolio on the basis of relative net assets.

(C) Agreements and Other Transactions with Affiliates and Related Parties

Pursuant to an Investment Advisory Agreement, BlackRock Financial Management, Inc. (“BFM”), an indirect wholly-owned subsidiary of BlackRock, Inc., serves as investment advisor to the Portfolio. For its advisory services, BFM is entitled to receive fees, computed daily and payable monthly, at the annual rate of 0.20% of the Portfolio’s average daily net assets. Merrill Lynch & Co., Inc.(“Merrill Lynch”) and The PNC Financial Services Group, Inc. (“PNC”) are principal owners of BlackRock, Inc.

BFM has contractually agreed to waive or reimburse all of its advisory fees for the Portfolio until February 1, 2008, and may reimburse the Portfolio for certain operating expenses.

11

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

PFPC Trust Company (“PTC”), an indirect wholly-owned subsidiary of PNC, serves as custodian for the Portfolio. For these services, the custodian receives a custodian fee computed daily and payable monthly, based on a percentage of the average daily gross assets of the Portfolio.

Prior to February 1, 2006, the fee was paid at the following annual rates: 0.01% of the first $250 million of average gross assets, 0.009% of the next $250 million of average gross assets, 0.0075% of the next $250 million of average gross assets, 0.007% of the next $250 million of average of gross assets, 0.006% of the next $250 million of average gross assets and 0.005% of average gross assets in excess of $1.25 billion; plus per transaction charges and other miscellaneous fees incurred on behalf of the Portfolio.

Effective February 1, 2006, the fee was paid at the following annual rates: 0.0073% of the first $250 million of average gross assets, 0.006% of the next $250 million of average gross assets, 0.0056% of the next $250 million of average gross assets, 0.0048% of the next $250 million of average gross assets, and 0.004% of average gross assets in excess of $1 billion; plus per transaction charges and other miscellaneous fees incurred on behalf of the Portfolio.

PFPC Inc. (“PFPC”), an indirect wholly-owned subsidiary of PNC, serves as transfer and dividend disbursing agent.

Prior to February 1, 2006, the Portfolio bore a transfer agent fee at an annual rate not to exceed 0.018% of the annual average net assets of such respective classes plus per account fees and disbursements.

Effective February 1, 2006, transfer agency fees are comprised of those fees charged for all shareholder communications including shareholder reports, dividend and distribution notices, and proxy materials for shareholders meetings. The Portfolio are also charged per account and per transaction fees related to servicing and maintenance of shareholder accounts, including the issuing, redeeming and transferring of shares of each class of each Portfolio, 12b-1 fee calculation, check writing, anti-money laundering services, and customer identification services.

PFPC and BlackRock Advisors, LLC (“BlackRock”), act as co-administrators for the Portfolio. For these services, the co-administrators receive a combined administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of the Portfolio. Prior to February 1, 2006, the fee was paid at the following annual rates: 0.085% of the first $500 million, 0.075% of the next $500 million and 0.065% of assets in excess of $1 billion. In addition, the Portfolio was charged an administration fee based on the following percentage of average daily net assets: 0.145% of the first $500 million, 0.135% of the next $500 million and 0.125% of assets in excess of $1 billion. Effective February 1, 2006, the combined administration fee is paid at the following annual rates: 0.075% of the first $500 million, 0.065% of the next $500 million and 0.055% of assets in excess of $1 billion. In addition, the Portfolio is charged an administration fee based on the following percentage of average daily net assets of the Portfolio: 0.025% of the first $500 million, 0.015% of the next $500 million and 0.005% of assets in excess of $1 billion. In addition, PFPC and BlackRock may have, at their discretion, voluntarily waived all or any portion of their administration fees for the Portfolio.

BlackRock and the Fund contractually agreed to waive or reimburse fees or expenses until February 1, 2008, in order to limit expenses to 0.26% of the Portfolio’s average daily net assets. This agreement is reviewed annually by the Fund’s Board.

If in the following two years a waiver or reimbursement of the operating expenses of the Portfolio that previously received a waiver or reimbursement from BlackRock are less than the expense limit for the Portfolio, the Portfolio is required to repay BlackRock up to the amount of fees waived or expenses reimbursed under the agreement if: (1) the Portfolio has more than $50 million in assets, (2) BlackRock or an affiliate continues to be the Portfolio’s investment advisor or administrator and (3) the Board of the Fund has approved the payments to BlackRock at the previous quarterly meeting.

At March 31, 2007, the amounts subject to possible future reimbursement under the expense limitation agreement are as follows:

EXPIRING JANUARY 31, 2008	EXPIRING JANUARY 31, 2009	EXPIRING JANUARY 31, 2010	TOTAL WAIVERS SUBJECT TO REIMBURSEMENT
$ 224,974	$136,699	$20,440	$382,113

The waivers previously recorded by the Portfolio which were subject to recoupment by BlackRock, expired on January 31, 2007 in the amount of $158,645.

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BLACKROCK FUNDS

During the six months ended March 31, 2007, Merrill Lynch, through their affiliated broker dealer Merrill Lynch, Pierce, Fenner & Smith, Incorporated (“MLPF&S”), earned commissions on transactions of securities of $148.

The Portfolio may earn income on positive cash balances in demand deposit accounts that are maintained by PFPC on behalf of the Portfolio. The income earned for the six months ended March 31, 2007, was $4. The Portfolio may also receive earnings credits related to cash balances with PFPC which are shown on the Statement of Operations as “fees paid indirectly.”

(D) Purchase and Sales of Securities

For the six months ended March 31, 2007, purchases and sales of securities, but excluding short-term and U.S. government securities, were $4,703,662 and $26,508,978 respectively. For the six months ended March 31, 2007, purchases and sales of U.S. government securities were $826,290 and $0, respectively.

(E) Capital Shares

Transactions in capital shares for each period were as follows:

	FOR THE SIX MONTHS ENDED 3/31/07		FOR THE YEAR ENDED 9/30/06
Shares sold	140,000		2,600,316
Shares issued in reinvestment of dividends and distributions	257,234		317,765
Shares redeemed	(306,675	)	(1,565,970	)
Net increase	90,559		1,352,111

On March 31, 2007, four shareholders held approximately 66% of the outstanding shares of the Portfolio. Some of the shareholders are comprised of omnibus accounts, which are held on behalf of several individual shareholders.

(F) Short-Term Borrowings

Effective November 29, 2006, the Portfolios, along with certain other funds managed by the Advisor and its affiliates, is a party to a $500,000,000 credit agreement dated November 22, 2006, with a group of lenders. The Portfolios may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Portfolios may borrow up to the maximum amount allowable under the Portfolios’ current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The credit agreement is for one year. The Portfolios pay a commitment fee of 0.06% per annum based on the Portfolios’ pro rata share of the unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each Portfolio’s election, the federal funds rate plus .35% or a base rate as defined in the credit agreement. The Portfolios did not borrow under the credit agreement during the six months ended March 31, 2007.

(G) Federal Tax Information

No provision is made for federal taxes as it is the Portfolio’s intention to have the Portfolio continue to qualify for and elect the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, and to make the requisite distributions to its shareholders which will be sufficient to relieve it from federal income and excise taxes. Short-term capital and foreign currency gain distributions that are reported in the Statement of Changes in Net Assets are reported as ordinary income for federal income tax purposes.

Dividends from net investment income and distributions from net capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined under accounting principles generally accepted in the United States.

The tax character of distributions paid during the year ended September 30, 2006 were as follows:

DATE	ORDINARY INCOME	LONG-TERM CAPITAL GAIN	TOTAL DISTRIBUTIONS
9/30/06	$2,612,599	$196,270	$2,808,869

As of September 30, 2006, the Portfolio had capital loss carryforwards available to offset future realized capital gains of $46,012 expiring September 30, 2014.

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)

In July 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes”. FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Portfolio’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be booked as a tax expense in the current year and recognized as: a liability for unrecognized tax benefits; a reduction of an income tax refund receivable; a reduction of deferred tax asset; an increase in deferred tax liability; or a combination thereof. Adoption of FIN 48 is required for the last net asset value calculation in the first required financial statement reporting period for fiscal years beginning after December 15, 2006. At this time, management is evaluating the implications of FIN 48 and its impact on the financial statements has not yet been determined.

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BLACKROCK FUNDS

Investment Advisor

BlackRock Financial Management, Inc.

New York, New York 10022

Custodian

PFPC Trust Company

Philadelphia, Pennsylvania 19153

Co-Administrator and Transfer Agent

PFPC Inc.

Wilmington, Delaware 19809

Co-Administrator

BlackRock Advisors, LLC

Wilmington, Delaware 19809

Distributor

BlackRock Distributors, Inc.

King of Prussia, Pennsylvania 19406

Counsel

Simpson Thacher & Bartlett LLP

New York, New York 10017

Independent Registered Public Accounting Firm

Deloitte & Touche LLP

Philadelphia, Pennsylvania 19103

Availability of Proxy Voting Policies and Procedures

The Fund has delegated proxy voting responsibilities to BlackRock and its affiliates, subject to the general oversight of the Fund’s Board of Trustees. A description of the policies and procedures that BlackRock and its affiliates use to determine how to vote proxies relating to portfolio securities is available without charge, upon request on our website at www.blackrock.com, by calling (800) 441-7762, or on the website of the Securities and Exchange Commission (the “Commission”) at http://www.sec.gov.

Availability of Proxy Voting Record

Information on how proxies relating to the Fund’s voting securities were voted (if any) by BlackRock during the most recent 12-month period ended June 30th is available (if any), upon request and without charge on our website at www.blackrock.com, by calling (800) 441-7762 or on the website of the Commission at http://www.sec.gov.

Availability of Quarterly Portfolio Schedule

The Fund files its complete schedule of portfolio holdings for the first and third quarters of its fiscal year with the Commission on Form N-Q. The Fund’s Form N-Q is available on the Commission’s website at http://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information regarding the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s Form N-Q may also be obtained upon request, without charge, by calling (800) 441-7762.

Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed by PNC Bank, National Association or any other bank and shares are not federally insured by, guaranteed by, obligations of or otherwise supported by the U.S. Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Investments in shares of the fund involve investment risks, including the possible loss of the principal amount invested.

ALTERNATIVES     BLACKROCK SOLUTIONS     EQUITIES     FIXED INCOME     LIQUIDITY     REAL ESTATE
BlackRock Funds
Taxable Bond Portfolios
SEMI-ANNUAL REPORT    |    MARCH 31, 2007 (UNAUDITED)

Enhanced Income

Low Duration Bond

Intermediate Government Bond

Intermediate Bond

Intermediate Bond II

Total Return

Total Return II

Government Income

Inflation Protected Bond

GNMA

Managed Income

International Bond

High Yield Bond

NOT FDIC INSURED

MAY LOSE VALUE

NO BANK GUARANTEE

BLACKROCK FUNDS

TABLE OF CONTENTS

Shareholder Letter	1
Portfolio Summaries
Enhanced Income	2-3
Low Duration Bond	4-5
Intermediate Government Bond	6-7
Intermediate Bond	8-9
Intermediate Bond II	10-11
Total Return	12-13
Total Return II	14-15
Government Income	16-17
Inflation Protected Bond	18-19
GNMA	20-21
Managed Income	22-23
International Bond	24-25
High Yield Bond	26-27
Note on Performance Information	28
Schedules of Investments	29-109
Investment Abbreviations	110
Portfolio Financial Statements
Statements of Assets and Liabilities	112-119
Statements of Operations	120-121
Statements of Changes in Net Assets	122-125
Financial Highlights	126-161
Notes to Financial Statements	162-204

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.

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BLACKROCK FUNDS

March 31, 2007

Dear Shareholder:

For most financial markets, 2007 opened just as 2006 ended — on a positive trajectory. At the end of February and into March, however, global equity markets registered their first significant decline since last summer. The market jitters were triggered by a significant setback in the Chinese market and were exacerbated by several concerns, notably a weakening economy, some disappointing corporate earnings announcements, escalating geopolitical concerns in the Middle East and increasing delinquencies in the subprime mortgage market. Despite the recent spate of volatility, underlying stock market fundamentals appear quite sound, supported by a generally favorable global economic backdrop, tame inflation, relatively low interest rates and attractive valuations.

Not unlike the equity market, the bond market also has seen volatility recently as observers have attempted to interpret mixed economic signals. A bond market rally late last year reversed itself early in 2007 as economic data strengthened. Prices improved (and yields fell) again in February as equities struggled, but retrenched slightly in March. Notably, the Treasury curve remained inverted for much of 2006 and into 2007. The 30-year Treasury yield stood at 4.84% at the end of March 2007, while the one-month Treasury offered the highest yield on the curve at 5.07%.

For its part, the Federal Reserve Board (Fed) left the target short-term interest rate on hold at 5.25% since first pausing in its rate-hiking campaign on August 8, 2006. Although the central bankers continue to express concern about potential inflationary pressures, they also have made reference to signs of economic weakness in their public statements. Most observers expect the Fed to keep interest rates on hold for now.

Notwithstanding some recent volatility, most major market indexes managed to post positive returns for the semi-annual reporting period ended March 31, 2007:

Total returns as of March 31, 2007

	SIX - MONTH PERIOD
U.S. equities (Standard & Poor’s 500 Index)	+7.38	%
Small cap U.S. equities (Russell 2000 Index)	+11.02	%
International equities (MSCI Europe, Australasia, Far East Index)	+14.85	%
Fixed income (Lehman Brothers Aggregate Bond Index)	+2.76	%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index)	+1.93	%
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index)	+7.02	%

If recent market movements are any guide, 2007 could be a year of enhanced volatility. As you navigate the uncertainties of the financial markets, we encourage you to review your investment goals with your financial professional and to make portfolio changes, as needed. For more reflection on the markets, please ask your financial professional for the latest issue of “What’s Ahead in 2007: First Quarter Update,” or view it online at www.blackrock.com/funds.

We thank you for trusting BlackRock with your investment assets, and we look forward to continuing to serve you in the months and years ahead.

Sincerely,

Frank Porcelli

Managing Director and Head of BlackRock Private Client Group

THIS PAGE NOT PART OF YOUR FUND REPORT

1

ENHANCED INCOME PORTFOLIO

Total Net Assets (3/31/07): $41.1 million

Performance Benchmark:

Citigroup 1-Year Treasury Index

Investment Approach:

Seeks to maximize total return, consistent with income generation and prudent investment management, by investing primarily in bonds. The management team selects bonds from several sectors including: U.S. Treasuries and agency securities, commercial and residential mortgage backed securities (“CMBS” and “MBS”), collateralized mortgage obligations (“CMOs”), asset backed securities (“ABS”), corporate bonds and non-U.S. Government securities. The Portfolio also may invest in money market instruments. The Portfolio’s dollar weighted effective duration will be between 0 and 18 months during normal market conditions. The Portfolio may only buy securities rated investment-grade at the time of purchase by at least one major rating agency or, if unrated, determined by the management team to be of similar quality.

Recent Portfolio Management Activity:

• The Portfolio’s Institutional and BlackRock Shares outperformed the benchmark index for the semiannual period, while the Investor A and Service Shares slightly underperformed.

• Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period with little change. Overall, financial conditions remained fairly balanced, with moderate economic activity and relatively tame inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed, which has kept monetary policy on hold since first interrupting its rate-hiking campaign in August 2006, is expected to maintain its current “balanced” economic assessment at least into mid-year. The federal funds rate remained at 5.25% at period-end, where it has been since June 2006, while the 30-year U.S. Treasury bond yield stood at 4.84%, an increase of seven basis points (0.07%) over the past six months. The 10-year U.S. Treasury note yield was 4.65% at period-end, representing an increase of just one basis point since September 30, 2006. Meanwhile, yields on one-month Treasury bills increased a dramatic 47 basis points from 4.60% to 5.07%, offering the highest yield on the curve at March 31, 2007, while two-year yields fell 13 basis points to 4.58%.

• Most recently, fears of a slowdown in economic growth were exacerbated by turmoil in the subprime mortgage market. In addition, inflation — although moderate by historic standards — remained above the Fed’s implicit comfort zone. In response, bond prices on the front end of the yield curve rallied on increased expectations of a Fed rate cut. Meanwhile, the long end of the curve sold off on inflation fears. The net result was a slight steepening of the yield curve, which has been flat to inverted for some time.

• All major domestic spread sectors (i.e., assets less correlated with Treasuries) — CMBS, investment-grade corporate securities, MBS, ABS and U.S. agency issues — outperformed duration-adjusted U.S. Treasuries during the semiannual period. The majority of the outperformance occurred during the fourth quarter of 2006 as the yield on the 10-year U.S. Treasury note rose (and the price correspondingly declined) following the release of relatively strong employment data in December. The investment-grade corporate and MBS sectors were the best performers, while ABS, U.S. agencies and CMBS posted the lowest returns relative to duration-adjusted U.S. Treasuries.

• Our overweight exposure to high-quality, short-duration assets, including positions in ABS, CMBS, CMOs and corporate bonds benefited performance throughout the six-month period. Conversely, the Portfolio’s short duration stance, which we had assumed in expectation that the Fed would remain on hold, detracted from performance during the period. This was particularly evident in the latter three months of the period as short to intermediate maturities rallied amid the flight to quality that occurred in response to the turmoil in the subprime mortgage market. Also detracting from performance were the non-dollar trades that we employed in the Portfolio. Specifically, our allocation to the Japanese yen versus the U.S. dollar had a negative impact as did our position in 10-year European bonds versus U.S. Treasuries as the yen underperformed the U.S. dollar and European bonds underperformed U.S. Treasuries.

• The Portfolio started the period with a short duration relative to the benchmark. We reduced that bias during the course of the period, closing the gap versus the benchmark somewhat. We trimmed the Portfolio’s exposure to ABS during the period, while increasing exposure to MBS, primarily through 30-year pass-through securities. We also added to the Portfolio’s position in CMOs and modestly increased exposure to adjustable-rate mortgages (ARMs). The Portfolio generally maintained its positions in other high-quality, short-duration assets, including CMBS and investment-grade corporate bonds.

• The Portfolio ended the period underweight in U.S. Treasury securities and with notable overweight positions in high-quality, short-duration spread products, including CMBS and ABS, as well as high-quality corporate securities. The Portfolio also ended the period with overweight exposure to mortgage securities via ARMs and CMOs. Portfolio duration at period-end remained short relative to the benchmark, reflecting our view that a Fed rate cut is not immediately imminent.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE ENHANCED INCOME PORTFOLIO

AND THE CITIGROUP 1-YEAR TREASURY INDEX FROM INCEPTION.

Average Annual Total Return

	6 Months		1 Year		From Inception
BlackRock Class	2.44	%	4.93	%	3.04	%
Institutional Class	2.43	%	5.00	%	2.98	%
Service Class	2.26	%	4.69	%	2.81	%
Investor A Class (Load Adjusted)	(0.81	)%	1.42	%	1.44	%
Investor A Class (NAV)	2.22	%	4.53	%	2.45	%
Citigroup 1 Year Treasury Index	2.38	%	4.78	%	2.69	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: BLACKROCK SHARES, 3/4/04; INSTITUTIONAL SHARES, 3/19/04; SERVICE SHARES, 3/19/04; INVESTOR A SHARES, 3/19/04. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 28 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH^†ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as the periods indicated, the Portfolio is actively managed and its composition will vary.

2

ENHANCED INCOME PORTFOLIO

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	87.3	%
AA	5.0
A	2.0
BBB	2.2
Unrated	3.5
Total	100.0	%
Sector Allocation (% of long-term investments)
Asset Backed Securities	27.5	%
Mortgage Pass-Throughs	27.0
Collateralized Mortgage Obligations	20.3
Commercial Mortgage Backed Securities	16.4
Corporate Bonds	8.3
Foreign Bonds	0.5
Total	100.0	%
Portfolio Statistics
Average maturity (years)	1.94
Effective Duration2	0.76

1 Using the higher of Standard & Poor’s (“S&P’s”) or Moody’s Investors Service (“Moody’s”) rating.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the fund for every 1% change in interest rates. Effective duration is typically calculated for bonds with embedded options and assumes that expected cash flows will fluctuate as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses								Hypothetical Expenses (5% return before expenses)
	BlackRock Class		Institutional Class		Service Class		Investor A Class		BlackRock Class		Institutional Class		Service Class		Investor A Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,024.40		1,024.30		1,022.60		1,022.20		1,023.43		1,023.23		1,021.16		1,021.47
Expenses Incurred During Period (10/01/06 - 3/31/07)		1.56		1.72		3.83		3.58		1.57		1.72		3.84		3.58

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.31%, 0.34%, 0.76% and 0.71% for the BlackRock, Institutional, Service and Investor A share class, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

3

LOW DURATION BOND PORTFOLIO

Total Net Assets (3/31/07): $1.1 billion

Performance Benchmark:

Merrill Lynch 1-3 Year Treasury Index

Investment Approach:

Seeks to realize a rate of return that exceeds the total return of the Merrill Lynch 1-3 Year Treasury Index (benchmark) by investing primarily in investment-grade bonds that allow it to maintain an average portfolio duration that is within +/- 20% of the duration of the benchmark. The management team selects bonds from several sectors including: U.S. Treasury and agency securities, commercial and residential mortgage backed securities (“CMBS” and “MBS”), collateralized mortgage obligations (“CMOs”), asset backed securities (“ABS”) and corporate bonds. The Portfolio may invest up to 5% of its assets in non-investment-grade bonds and up to 10% of its assets in non-U.S. dollar-denominated bonds of issuers located outside of the United States.

Recent Portfolio Management Activity:

• The Portfolio’s BlackRock, Institutional, Investor A, Investor A1, Investor B2, Investor C2 and Service shares outperformed the benchmark index for the semiannual period, while Investor B, Investor B1, Investor C and Investor C1 shares underperformed.

• Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period with little change. Overall, financial conditions remained fairly balanced, with moderate economic activity and relatively tame inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed, which has kept monetary policy on hold since first interrupting its rate-hiking campaign in August 2006, is expected to maintain its current “balanced” economic assessment at least into mid-year. The federal funds rate remained at 5.25% at period-end, where it has been since June 2006, while the 30-year U.S. Treasury bond yield stood at 4.84%, an increase of seven basis points (0.07%) over the past six months. The 10-year U.S. Treasury note yield was 4.65% at period-end, representing an increase of just one basis point since September 30, 2006. Meanwhile, yields on one-month Treasury bills increased a dramatic 47 basis points from 4.60% to 5.07%, offering the highest yield on the curve at March 31, 2007, while two-year yields fell 13 basis points to 4.58%.

• Most recently, fears of a slowdown in economic growth were exacerbated by turmoil in the subprime mortgage market. In addition, inflation although moderate by historic standards remained above the Fed’s implicit comfort zone. In response, bond prices on the front end of the yield curve rallied on increased expectations of a Fed rate cut. Meanwhile the long end of the curve sold off on inflation fears. The net result was a slight steepening of the yield curve, which has been flat to inverted for some time. Concerns about the strength of the U.S. economy were not solely driven by fears of spillover from the subprime mortgage market.

• All major domestic spread sectors (i.e., assets less correlated with Treasuries) — CMBS, investment-grade corporate securities, MBS, ABS and U.S. agency issues — outperformed duration-adjusted U.S. Treasuries during the semiannual period. The majority of the outperformance occurred during the fourth quarter of 2006 as the yield on the 10-year U.S. Treasury note rose (and the price correspondingly declined) following the release of relatively strong employment data in December. The investment-grade corporate and MBS sectors were the best performers, while ABS, U.S. agencies and CMBS posted the lowest returns relative to duration-adjusted U.S. Treasuries.

• Benefiting performance throughout the six-month period was our overweight exposure to high-quality, short-duration assets, including positions in ABS, CMBS, CMOs and corporate bonds. Conversely, the Portfolio’s short duration stance, which we had assumed in expectation that the Fed would remain on hold, detracted from performance in the latter three months of the period as short to intermediate maturities rallied amid the flight to quality that occurred in response to the turmoil in the subprime mortgage market. Also detracting from performance were the non-dollar trades that we employed in the Portfolio. Specifically, our allocation to the Japanese yen versus the U.S. dollar had a negative impact as did our position in 10-year European bonds versus U.S. Treasuries as the yen underperformed the U.S. dollar and European bonds underperformed U.S. Treasuries.

• The Portfolio’s duration remained short relative to the benchmark, although we closed the gap somewhat during the course of the period. At the start, the Portfolio was 15% short relative to the benchmark; at period-end, it was 13% short. Other Portfolio activity involved increasing exposure to MBS pass-through securities, with a very slight bias toward the 15-year sector, in an effort to take advantage of stronger demand technicals in the mortgage market. Meanwhile, exposure to ABS was reduced and positions in investment-grade corporate bonds and Treasury and agency securities were slightly increased. We also added to the Portfolio’s position in the Japanese yen.

• The Portfolio ended the period underweight in U.S. Treasury and agency securities and with notable overweight positions in high-quality, short-duration spread product, including CMBS and ABS, as well as high-quality corporate securities. The Portfolio also ended the period with overweight exposure to mortgage securities via ARMs and CMOs. Portfolio duration at period-end remained short relative to the benchmark, reflecting our view that a Fed rate cut is not immediately imminent.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE LOW DURATION BOND PORTFOLIO AND

THE MERRILL LYNCH 1-3 YEAR TREASURY INDEX FOR THE PAST TEN YEARS.

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
BlackRock Class	2.73	%	5.18	%	3.34	%	4.98	%
Institutional Class	2.70	%	5.12	%	3.22	%	4.85	%
Service Class	2.50	%	4.73	%	2.91	%	4.53	%
Investor A Class (Load Adjusted)	(0.60	)%	1.64	%	2.25	%	4.11	%
Investor A Class (NAV)	2.52	%	4.74	%	2.88	%	4.43	%
Investor A1 Class (Load Adjusted)	1.58	%	3.89	%	2.84	%	4.56	%
Investor A1 Class (NAV)	2.61	%	4.94	%	3.05	%	4.67	%
Investor B Class (Load Adjusted)	(2.37	)%	(0.54	)%	1.74	%	3.87	%
Investor B Class (NAV)	2.13	%	3.96	%	2.11	%	3.87	%
Investor B1 Class (Load Adjusted)	(1.73	)%	0.25	%	2.00	%	3.97	%
Investor B1 Class (NAV)	2.27	%	4.25	%	2.36	%	3.97	%
Investor B2 Class (Load Adjusted)	1.45	%	3.61	%	2.72	%	4.33	%
Investor B2 Class (NAV)	2.45	%	4.61	%	2.72	%	4.33	%
Investor C Class (Load Adjusted)	1.24	%	2.97	%	2.11	%	3.65	%
Investor C Class (NAV)	2.13	%	3.97	%	2.11	%	3.65	%
Investor C1 Class (Load Adjusted)	1.25	%	3.21	%	2.32	%	3.93	%
Investor C1 Class (NAV)	2.25	%	4.21	%	2.32	%	3.93	%
Investor C2 Class (Load Adjusted)	1.45	%	3.61	%	2.72	%	4.33	%
Investor C2 Class (NAV)	2.45	%	4.61	%	2.72	%	4.33	%
Merrill Lynch 1-3 Year Treasury Index	2.33	%	5.02	%	3.11	%	4.76	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 7 /17/92; SERVICE SHARES, 1 /12 /96; INVESTOR A SHARES, 1 /12 /96; INVESTOR B SHARES, 11/18 /96; INVESTOR C SHARES, 2 /24 /97; BLACKROCK SHARES, 6/3/97; AND INVESTOR A1 SHARES, INVESTOR B1 SHARES, INVESTOR B2 SHARES, INVESTOR C1 SHARES AND INVESTOR C2 SHARES, 10/02/06. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 28 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH^†ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as the periods indicated, the Portfolio is actively managed and its composition will vary.

4

LOW DURATION BOND PORTFOLIO

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	86.4	%
AA	7.2
A	2.1
BBB	4.3
Total	100.0	%
Portfolio Statistics
Average maturity (years)	2.43
Effective Duration2	1.50
Sector Allocation (% of long-term investments)
Mortgage Pass-Throughs	25.9	%
Asset Backed Securities	23.4
Collateralized Mortgage Obligations	16.6
Commercial Mortgage Backed Securities	16.1
Corporate Bonds	15.3
U.S. Government & Agency Obligations	1.4
Foreign Bonds	0.9
Bank Loans	0.4
Total	100.0	%

1 Using the higher of S&P’s or Moody’s rating.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the fund for every 1% change in interest rates. Effective duration is typically calculated for bonds with embedded options and assumes that expected cash flows will fluctuate as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor A1 Class		Investor B Class		Investor B1 Class		Investor B2 Class		Investor C Class		Investor C1 Class		Investor C2 Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,027.30		1,027.00		1,025.00		1,025.20		1,026.10		1,021.30		1,022.70		1,024.50		1,021.30		1,022.50		1,024.50
Expenses Incurred During Period (10/01/06 - 3/31/07)		2.07		2.32		4.34		4.14		3.18		7.91		6.56		4.80		7.91		6.76		4.80
	Hypothetical Expenses (5% return before expenses)
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor A1 Class		Investor B Class		Investor B1 Class		Investor B2 Class		Investor C Class		Investor C1 Class		Investor C2 Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00		1000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,022.93		1,022.68		1,020.66		1,020.86		1,021.87		1,017.07		1,018.49		1,020.25		1,017.07		1,018.29		1,020.25
Expenses Incurred During Period (10/01/06 - 3/31/07)		2.07		2.32		4.34		4.14		3.18		7.93		6.56		4.80		7.93		6.77		4.80

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.41%, 0.46%, 0.86%, 0.82%, 0.63%, 1.57%, 1.30%, 0.95%, 1.57%, 1.34% and 0.95% for the BlackRock, Institutional, Service, Investor A, Investor A1, Investor B, Investor B1, Investor B2, Investor C, Investor C1 and Investor C2 share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

5

INTERMEDIATE GOVERNMENT BOND PORTFOLIO

Total Net Assets (3/31/07): $511.4 million

Performance Benchmark:

Lehman Brothers Intermediate Government Index

Investment Approach:

Seeks to maximize total return, consistent with income generation and prudent investment management, by investing primarily in the highest-rated government and agency bonds that allow it to maintain an average portfolio duration that is within +/- 20% of the Lehman Brothers Intermediate Government Index. The Portfolio normally invests at least 80% of its assets in bonds that are issued or guaranteed by the U.S. government and its agencies. The management team selects bonds from several sectors including: U.S. Treasuries and agency securities, commercial and residential mortgage backed securities (“CMBS” and “MBS”), collateralized mortgage obligations (“CMOs”), asset backed securities (“ABS”) and corporate bonds. Securities are purchased for the Portfolio when the management team determines that they have the potential for above-average total return.

Recent Portfolio Management Activity:

• The Portfolio’s Institutional and Service shares outperformed the benchmark index for the semiannual period, while the Investor A, Investor B and Investor C shares underperformed.

• Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period with little change. Overall, financial conditions remained fairly balanced, with moderate economic activity and relatively tame inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed, which has kept monetary policy on hold since first interrupting its rate-hiking campaign in August 2006, is expected to maintain its current “balanced” economic assessment at least into mid-year. The target federal funds rate remained at 5.25% at period-end, where it has been since June 2006, while the 30-year U.S. Treasury bond yield stood at 4.84%, an increase of seven basis points (0.07%) over the past six months. The 10-year U.S. Treasury note yield was 4.65% at period-end, representing an increase of just one basis point since September 30, 2006. Meanwhile, yields on one-month Treasury bills increased a dramatic 47 basis points from 4.60% to 5.07%, offering the highest yield on the curve at March 31, 2007, while two-year yields fell 13 basis points to 4.58%.

• Most recently, fears of a slowdown in economic growth were exacerbated by turmoil in the subprime mortgage market. In addition, inflation — although moderate by historic standards — remained above the Fed’s implicit comfort zone. In response, bond prices on the front end of the yield curve rallied on increased expectations of a Fed rate cut. Meanwhile, the long end of the curve sold off on inflation fears. The net result was a slight steepening of the yield curve, which has been flat to inverted for some time. Concerns about the strength of the U.S. economy were not solely driven by fears of spillover from the subprime mortgage market. Recent non-housing-related economic data — including payrolls, durable goods orders and retail sales — showed signs of weakening.

• All major domestic spread sectors (i.e., assets less correlated with Treasuries) — CMBS, investment-grade corporate securities, MBS, ABS and U.S. agency issues — outperformed duration-adjusted U.S. Treasuries during the semiannual period. The majority of the outperformance occurred during the fourth quarter of 2006 as the yield on the 10-year U.S. Treasury note rose (and the price correspondingly declined) following the release of relatively strong employment data in December. The investment-grade corporate and MBS sectors were the best performers, while ABS, U.S. agencies and CMBS posted the lowest returns relative to duration-adjusted U.S. Treasuries during the period.

• During the semiannual period, the Portfolio’s bias toward bonds with 15-year maturities over those with 30-year maturities detracted somewhat from performance. The Portfolio’s short duration position relative to the benchmark added modestly to the comparative performance, as long-term interest rates, as measured by the 10-year U.S. Treasury note, rose by one basis point. The Portfolio’s overweight position in mortgages versus Treasuries also was beneficial, as mortgages outperformed Treasuries. In addition, our bias toward higher-coupon mortgage issues was a positive contributor to performance, as these issues outperformed lower-coupon securities for the period. The Portfolio’s overweight positions in CMBS, hybrid adjustable rate mortgages (ARMs) and CMOs also added to performance.

• At the end of the semiannual period, the Portfolio remained underweight in U.S. Treasuries and agencies in favor of high-quality, short-duration spread product, including CMBS, ARMs and CMOs. We maintain our preference for high-coupon securities relative to discounted securities, and continue to favor 15-year mortgages over 30-year securities. Given the possibility of further weakness in the subprime mortgage market, we favored stable cash-flow MBS and well-structured CMOs. The Portfolio continued to be positioned with a short duration versus the benchmark, as we continue to believe that the Fed will remain on hold and that long-term rates have yet to fully reflect expected Fed policy.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERMEDIATE GOVERNMENT BOND

PORTFOLIO AND THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT INDEX FOR THE PAST TEN YEARS.

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
Institutional Class	2.62	%	5.57	%	4.14	%	5.55	%
Service Class	2.47	%	5.26	%	3.83	%	5.22	%
Investor A Class (Load Adjusted)	(1.66	)%	0.93	%	2.83	%	4.66	%
Investor A Class (NAV)	2.40	%	5.13	%	3.68	%	5.09	%
Investor B Class (Load Adjusted)	(2.50	)%	(0.20	)%	2.55	%	4.51	%
Investor B Class (NAV)	2.00	%	4.30	%	2.90	%	4.51	%
Investor C Class (Load Adjusted)	1.00	%	3.19	%	2.90	%	4.28	%
Investor C Class (NAV)	2.00	%	4.19	%	2.90	%	4.28	%
Lehman Brothers Intermediate Government Index	2.43	%	5.75	%	4.29	%	5.64	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 4/20/92; INVESTOR A SHARES, 5 /11/92; SERVICE SHARES, 7/29/93; INVESTOR C SHARES, 10/8/96; AND INVESTOR B SHARES, 10 /11/96. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 28 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH^†ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as the periods indicated, the Portfolio is actively managed and its composition will vary.

6

INTERMEDIATE GOVERNMENT BOND PORTFOLIO

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	97.7	%
AA	0.3
A	0.3
Unrated	1.7
Total	100.0	%
Sector Allocation (% of long-term investments)
Mortgage Pass-Throughs	47.7	%
Collateralized Mortgage Obligations	18.5
U.S. Government & Agency Obligations	17.0
Commercial Mortgage Backed Securities	10.8
Corporate Bonds	2.8
Asset Backed Securities	2.4
Taxable Municipal Bonds	0.6
Project Loans	0.2
Total	100.0	%
Portfolio Statistics
Average maturity (years)	2.85
Effective Duration2	2.97

1 Using the higher of S&P’s or Moody’s rating.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the fund for every 1% change in interest rates. Effective duration is typically calculated for bonds with embedded options and assumes that expected cash flows will fluctuate as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,026.20		1,024.70		1,024.00		1,020.00		1,020.00		1,021.97		1,020.46		1,019.85		1,015.81		1,015.81
Expenses Incurred During Period (10/01/06 - 3/31/07)		3.03		4.54		5.15		9.17		9.17		3.03		4.54		5.15		9.19		9.19

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.60%, 0.90%, 1.02%, 1.82% and 1.82% for the Institutional, Service, Investor A, Investor B and Investor C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

7

INTERMEDIATE BOND PORTFOLIO

Total Net Assets (3/31/07): $11.0 million

Performance Benchmark:

Lehman Brothers Intermediate Aggregate Index

Investment Approach:

Seeks to maximize total return, consistent with income generation and prudent investment management, by investing primarily in bonds that allow it to maintain an average Portfolio duration that is within +/- 20% of the duration of the Lehman Brothers Intermediate Aggregate Index. The Portfolio normally invests at least 80% of its assets in bonds. The Portfolio’s dollar-weighted average maturity will be between three and 10 years. The Portfolio invests primarily in U.S. dollar-denominated investment-grade bonds, but may invest up to 20% of its assets in any combination of non-investment-grade bonds (high yield or junk bonds), non-U.S. dollar-denominated bonds and bonds of emerging markets issuers. The Portfolio’s investment in non-U.S. dollar-denominated bonds may be on a currency hedged or unhedged basis. The Portfolio management team selects bonds from several categories including: U.S. Treasuries and agency securities, commercial and residential mortgage backed securities (“CMBS” and “MBS”), collateralized mortgage obligations (“CMOs”), asset backed securities (“ABS”) and corporate bonds.

Recent Portfolio Management Activity:

• Effective October 2, 2006, the Portfolio’s name was changed from BlackRock Intermediate PLUS Bond Portfolio to BlackRock Intermediate Bond Portfolio.

• All share classes of the Fund underperformed the benchmark for the semiannual period.

• Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period with little change. Overall, financial conditions remained fairly balanced, with moderate economic activity and relatively tame inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed, which has kept monetary policy on hold since first interrupting its rate-hiking campaign in August 2006, is expected to maintain its current “balanced” economic assessment at least into mid-year. The federal funds rate remained at 5.25% at period-end, where it has been since June 2006, while the 30-year U.S. Treasury bond yield stood at 4.84%, an increase of seven basis points (0.07%) over the past six months. The 10-year U.S. Treasury note yield was 4.65% at period-end, representing an increase of just one basis point since September 30, 2006. Meanwhile, yields on one-month Treasury bills increased a dramatic 47 basis points from 4.60% to 5.07%, offering the highest yield on the curve at March 31, 2007, while two-year yields fell 13 basis points to 4.58%.

• Most recently, fears of a slowdown in economic growth were exacerbated by turmoil in the subprime mortgage market. In addition, inflation although moderate by historic standards remained above the Fed’s implicit comfort zone. In response, bond prices on the front end of the yield curve rallied on increased expectations of a Fed rate cut. Meanwhile, the long end of the curve sold off on inflation fears. The net result was a slight steepening of the yield curve, which has been flat to inverted for some time. Concerns about the strength of the U.S. economy were not solely driven by fears of spillover from the subprime mortgage market.

• All major domestic spread sectors (i.e., assets less correlated with Treasuries) — CMBS, investment-grade corporate securities, MBS, ABS and U.S. agency issues — outperformed duration-adjusted U.S. Treasuries during the semiannual period. The majority of the outperformance occurred during the fourth quarter of 2006 as the yield on the 10-year U.S. Treasury note rose (and the price correspondingly declined) following the release of relatively strong employment data in December. The investment-grade corporate and MBS sectors were the best performers, while ABS, U.S. agencies and CMBS posted the lowest returns relative to duration-adjusted U.S. Treasuries during the period.

• A primary detractor from the Portfolio’s performance during the period was an underweight in the agency sector. In the first half of the semiannual period, the Portfolio’s underweight in the high-quality corporate sector hindered performance, but fears of slowing economic growth and a hawkish Fed stance in the first quarter of 2007 slowed the corporate market and minimized the effect of our underweight position. The Portfolio benefited, however, from overweights in high-quality, short-duration assets, including exposures to ABS, CMBS, adjustable rate mortgages (ARMs) and CMOs. Also detracting from performance were the non-dollar trades that we employed in the Portfolio. Specifically, our allocation to the Japanese yen versus the U.S. dollar had a negative impact as did our position in 10-year European bonds versus U.S. Treasuries as the yen underperformed the U.S. dollar and European bonds underperformed U.S. Treasuries.

• During the semiannual period, the Portfolio added some duration, however, it still remained short versus the Index. The short duration position had a slightly positive effect on performance as interest rates ended the period marginally higher. Our exposure in the high yield sector was modestly increased as valuations in some non-investment-grade issues began to look attractive versus BBB-rated issues. Underweights in high-quality corporate issues and U.S. agency securities were maintained, as were overweights in high-quality, short-duration assets, including ABS, CMBS, ARMs and CMOs.

• At March 31, 2007, the Portfolio was underweight in U.S. Treasuries and agency securities. It held notable overweights in high-quality, short-duration spread product, including CMBS and ABS issues. The Portfolio was underweight in the high-quality corporate sector, and the exposure we had was concentrated on the front end of the yield curve. The Portfolio also was overweight in ARMs, CMOs and mortgages, with a focus on the 15-year area versus 30-year product. The Portfolio is positioned with a short duration versus the benchmark, as we continue to believe that both a modest rebound in economic growth and core inflation remaining outside of the Fed’s comfort zone will keep the Fed on hold.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERMEDIATE BOND PORTFOLIO

AND THE LEHMAN BROTHERS INTERMEDIATE AGGREGATE INDEX FROM INCEPTION.

Average Annual Total Return

	6 Months		1 Year		From Inception
BlackRock Class	2.24	%	5.65	%	3.27	%
Institutional Class	2.13	%	5.50	%	3.09	%
Service Class	1.91	%	5.02	%	2.68	%
Investor A Class (Load Adjusted)	(1.97	)%	0.99	%	1.20	%
Investor A Class (NAV)	2.09	%	5.20	%	2.81	%
Investor B Class (Load Adjusted)	(2.87	)%	(0.22	)%	0.79	%
Investor B Class (NAV)	1.63	%	4.28	%	2.09	%
Investor C Class (Load Adjusted)	0.61	%	3.21	%	2.05	%
Investor C Class (NAV)	1.61	%	4.21	%	2.05	%
Lehman Brothers Intermediate Aggregate Index	2.86	%	6.49	%	3.67	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO ON 8/18/04. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 28 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH^†ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as the periods indicated, the Portfolio is actively managed and its composition will vary.

8

INTERMEDIATE BOND PORTFOLIO

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	79.0	%
AA	10.8
A	2.9
BBB	4.4
‹BBB	2.3
Unrated	0.6
Total	100.0	%
Sector Allocation (% of long-term investments)
Mortgage Pass-Throughs	32.8	%
Corporate Bonds	18.2
Asset Backed Securities	13.4
Commercial Mortgage Backed Securities	13.0
Collateralized Mortgage Obligations	11.0
U.S. Government & Agency Obligations	6.4
Certificates of Deposit	2.9
Taxable Municipal Bonds	1.4
Foreign Bonds	0.9
Total	100.0	%
Portfolio Statistics
Average maturity (years)	4.93
Effective Duration2	3.32

1 Using the higher of S&P’s or Moody’s rating.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the fund for every 1% change in interest rates. Effective duration is typically calculated for bonds with embedded options and assumes that expected cash flows will fluctuate as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period”, to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses												Hypothetical Expenses (5% return before expenses)
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,022.40		1,021.30		1,019.10		1,020.90		1,016.30		1,016.10		1,022.68		1,021.97		1,019.95		1,019.65		1,016.11		1,016.37
Expenses Incurred During Period (10/01/06 - 3/31/07)		2.42		2.62		4.68		4.38		7.94		7.64		2.42		2.63		4.70		4.39		7.98		7.67

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.48%, 0.52%, 0.93%, 0.87%, 1.58% and 1.52% for the BlackRock, Institutional, Service, Investor A, Investor B and Investor C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the period the fund was open during the one-half year period).

9

INTERMEDIATE BOND PORTFOLIO II

Total Net Assets (3/31/07): $907.5 million

Performance Benchmark:

Lehman Brothers Intermediate Government/Credit Index

Investment Approach:

Seeks to maximize total return, consistent with income generation and prudent investment management, by investing primarily in bonds that allow it to maintain an average portfolio duration that is within +/- 20% of the duration of the Lehman Brothers Intermediate Government/Credit Index. The Portfolio normally invests at least 80% of its assets in bonds and only buys securities rated investment-grade at the time of purchase by at least one major rating agency or determined by the management team to be of similar quality. The Portfolio management team selects bonds from several categories including: U.S. Treasuries and agency securities, commercial and residential mortgage backed securities (“CMBS” and “MBS”), collateralized mortgage obligations (“CMOs”), asset backed securities (“ABS”) and corporate bonds. Securities are purchased for the Portfolio when the management team determines that they have the potential for above-average total return. The Portfolio’s dollar-weighted average maturity will be between 3 and 10 years.

Recent Portfolio Management Activity:

• Effective October 2, 2006, the Portfolio’s name was changed from BlackRock Intermediate Bond Portfolio to BlackRock Intermediate Bond Portfolio II.

• The Portfolio’s Institutional and BlackRock shares outperformed the benchmark index for the semiannual period, while the Investor A, Investor B, Investor C and Service shares underperformed.

• Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period with little change. Overall, financial conditions remained fairly balanced, with moderate economic activity and relatively tame inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed, which has kept monetary policy on hold since first interrupting its rate-hiking campaign in August 2006, is expected to maintain its current “balanced” economic assessment at least into mid-year. The federal funds rate remained at 5.25% at period-end, where is has been since June 2006, while the 30-year U.S. Treasury bond yield stood at 4.84%, an increase of seven basis points (0.07%) over the past six months. The 10-year U.S. Treasury note yield was 4.65% at period-end, representing an increase of just one basis point since September 30, 2006. Meanwhile, yields on one-month Treasury bills increased a dramatic 47 basis points from 4.60% to 5.07%, offering the highest yield on the curve at March 31, 2007, while two-year yields fell 13 basis points to 4.58%.

• Most recently, fears of a slowdown in economic growth were exacerbated by turmoil in the subprime mortgage market. In addition, inflation — although moderate by historic standards — remained above the Fed’s implicit comfort zone. In response, bond prices on the front end of the yield curve rallied on increased expectations of a Fed rate cut. Meanwhile, the long end of the curve sold off on inflation fears. The net result was a slight steepening of the yield curve, which has been flat to inverted for some time. Concerns about the strength of the U.S. economy were not solely driven by fears of spillover from the subprime mortgage market. Recent non-housing-related economic data — including payrolls, durable goods orders and retail sales — showed signs of weakening.

• All major domestic spread sectors (i.e., assets less correlated with Treasuries) — CMBS, investment-grade corporate securities, MBS, ABS and U.S. agency issues — outperformed duration-adjusted U.S. Treasuries during the semiannual period. The majority of the outperformance occurred during the fourth quarter of 2006 as the yield on the 10-year U.S. Treasury note rose (and the price correspondingly declined) following the release of relatively strong employment data in December. The investment-grade corporate and MBS sectors were the best performers, while ABS, U.S. agencies and CMBS posted the lowest returns relative to duration-adjusted U.S. Treasuries during the period.

• A primary detractor from the Portfolio’s performance during the period was an underweight position in the agency sector. In the first half of the semiannual period, the Portfolio’s underweight in the high-quality corporate sector hindered performance, but fears of slowing economic growth and a hawkish Fed stance in the first quarter of 2007 slowed the corporate market and minimized the effect of our underweight position. The Portfolio benefited from overweight positions in high-quality, short-duration assets, including exposures to ABS, CMBS, adjustable rate mortgages (ARMs) and CMOs.

• During the semiannual period, the Portfolio added some duration; however, it still remained short versus the benchmark index. The short duration position had a slightly positive effect on performance as interest rates ended the period marginally higher. Underweights in corporate issues and U.S. agency securities were maintained, as were overweights in high-quality, short-duration assets, including ABS, CMBS, ARMs and CMOs.

• At March 31, 2007, the Portfolio was underweight in U.S. Treasuries and agency securities, and held notable overweights in high-quality, short-duration spread product, including CMBS and ABS issues. The Portfolio was also overweight in ARMs, CMOs and mortgages, with a focus on the 15-year area versus 30-year product. The Portfolio was underweight in the high-quality corporate sector at period-end, and the exposure we had was concentrated on the front end of the yield curve. The Portfolio is positioned with a short duration versus the benchmark, as we continue to believe that both a modest rebound in economic growth and core inflation remaining outside of the Fed’s comfort zone will keep the Fed on hold.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERMEDIATE BOND PORTFOLIO II AND

THE LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CREDIT INDEX FOR THE PAST TEN YEARS.

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
BlackRock Class	2.75	%	5.99	%	4.99	%	6.11	%
Institutional Class	2.73	%	5.95	%	4.86	%	5.96	%
Service Class	2.55	%	5.55	%	4.54	%	5.64	%
Investor A Class (Load Adjusted)	(1.71	)%	1.22	%	3.63	%	5.09	%
Investor A Class (NAV)	2.43	%	5.43	%	4.48	%	5.52	%
Investor B Class (Load Adjusted)	(2.39	)%	0.18	%	3.36	%	4.90	%
Investor B Class (NAV)	2.11	%	4.68	%	3.71	%	4.90	%
Investor C Class (Load Adjusted)	1.04	%	3.64	%	3.70	%	4.71	%
Investor C Class (NAV)	2.04	%	4.64	%	3.70	%	4.71	%
Lehman Brothers Intermediate Government/Credit Index	2.64	%	6.14	%	4.91	%	5.98	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 9/17/93; SERVICE SHARES, 9 /23/93; INVESTOR A SHARES, 5 /20/94; INVESTOR B SHARES, 2 /5/98; BLACKROCK SHARES, 5/1/98 AND INVESTOR C SHARES, 10/16/98. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 28 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH^†ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as the periods indicated, the Portfolio is actively managed and its composition will vary.

10

INTERMEDIATE BOND PORTFOLIO II

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	71.4	%
AA	12.6
A	7.4
BBB	8.2
‹BBB	0.2
Unrated	0.2
Total	100.0	%
Sector Allocation (% of long-term investments)
Corporate Bonds	33.7	%
Asset Backed Securities	19.9
Collateralized Mortgage Obligations	14.1
Commercial Mortgage Backed Securities	12.6
U.S. Government & Agency Obligations	9.9
Mortgage Pass-Throughs	6.7
Certificates of Deposit	1.6
Taxable Municipal Bonds	1.4
Project Loans	0.1
Total	100.0	%
Portfolio Statistics
Average maturity (years)	2.68
Effective Duration2	3.62

1 Using the higher of S&P’s or Moody’s rating.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the fund for every 1% change in interest rates. Effective duration is typically calculated for bonds with embedded options and assumes that expected cash flows will fluctuate as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses												Hypothetical Expenses (5% return before expenses)
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,027.50		1,027.30		1,025.50		1,024.30		1,021.10		1,020.40		1,022.73		1,022.58		1,020.91		1,020.86		1,016.42		1,016.82
Expenses Incurred During Period (10/01/06 - 3/31/07)		2.27		2.43		4.09		4.14		8.57		8.16		2.27		2.42		4.09		4.14		8.58		8.18

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.45%, 0.48%, 0.81%, 0.82%, 1.70% and 1.62% for the BlackRock, Institutional, Service, Investor A, Investor B and Investor C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

11

TOTAL RETURN PORTFOLIO

Total Net Assets (3/31/07): $481.2 million

Performance Benchmark:

Lehman Brothers U.S. Aggregate Index

Investment Approach:

Seeks to realize a total return that exceeds that of the Lehman Brothers U.S. Aggregate Index (the benchmark) by normally investing at least 80% of its assets in bonds that allow it to maintain an average portfolio duration that is within +/- 20% of the duration of the benchmark. The Portfolio management team invests primarily in U.S. dollar-denominated investment-grade bonds but may invest up to 20% of its assets in any combination of non-investment-grade bonds (high yield or junk bonds), non-U.S. dollar-denominated bonds and bonds of emerging market issuers. The Portfolio’s investment in non-dollar-denominated bonds may be on a currency hedged or unhedged basis. The Portfolio management team selects bonds from several categories including: U.S. Treasuries and agency securities, commercial and residential mortgage backed securities (“CMBS” and “MBS”), collateralized mortgage obligations (“CMOs”), asset backed securities (“ABS”) and corporate bonds.

Recent Portfolio Management Activity:

• Effective October 2, 2006, the name of the Portfolio was changed from BlackRock Core PLUS Total Return Portfolio to BlackRock Total Return Portfolio.

• All share classes of the Portfolio underperformed the benchmark for the semiannual period.

• Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period with little change. Overall, financial conditions remained fairly balanced, with moderate economic activity and relatively tame inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed, which has kept monetary policy on hold since first interrupting its rate-hiking campaign in August 2006, is expected to maintain its current “balanced” economic assessment at least into mid-year. The federal funds rate remained at 5.25% at period-end, where it has been since June 2006, while the 30-year U.S. Treasury bond yield stood at 4.84%, an increase of seven basis points (0.07%) over the past six months. The 10-year U.S. Treasury note yield was 4.65% at period-end, representing an increase of just one basis point since September 30, 2006. Meanwhile, yields on one-month Treasury bills increased a dramatic 47 basis points from 4.60% to 5.07%, offering the highest yield on the curve at March 31, 2007, while two-year yields fell 13 basis points to 4.58%.

• Most recently, fears of a slowdown in economic growth were exacerbated by turmoil in the subprime mortgage market. In addition, inflation — although moderate by historic standards — remained above the Fed’s implicit comfort zone. In response, bond prices on the front end of the yield curve rallied on increased expectations of a Fed rate cut. Meanwhile, the long end of the curve sold off on inflation fears. The net result was a slight steepening of the yield curve, which has been flat to inverted for some time. Concerns about the strength of the U.S. economy were not solely driven by fears of spillover from the subprime mortgage market.

• All major domestic spread sectors (i.e., assets less correlated with Treasuries) — CMBS, investment-grade corporate securities, MBS, ABS and U.S. agency issues — outperformed duration-adjusted U.S. Treasuries during the semiannual period. The majority of the outperformance occurred during the fourth quarter of 2006, as the yield on the 10-year U.S. Treasury note rose (and the price correspondingly declined) following the release of relatively strong employment data in December. The investment-grade corporate and MBS sectors were the best performers, while ABS, U.S. agencies and CMBS posted the lowest returns relative to duration-adjusted U.S. Treasuries.

• During the semiannual period, detractors from the Portfolio’s performance versus the benchmark included underweight positions in the corporate and agency sectors, as well as in 30-year mortgage pass-throughs. Though it was moderately favorable in the first fiscal quarter, the Portfolio’s short duration stance relative to the benchmark, together with an underweight in the intermediate portion of the yield curve, hindered performance in the second half of the period, as the market rallied in the intermediate and short segments of the curve. Also detracting from performance were the non-dollar trades that we employed in the Portfolio. Specifically, our allocation to the Japanese yen versus the U.S. dollar had a negative impact as did our position in 10-year European bonds versus U.S. Treasuries as the yen underperformed the U.S. dollar and European bonds underperformed U.S. Treasuries.

• On the other hand, an overweight in high-quality, short-duration assets, including ABS, CMBS, ARMs and CMOs benefited the Portfolio’s relative return throughout the semiannual period. The absence of exposure to the subprime mortgage market and an underweight of corporate debt also had a positive impact on the comparative performance. Finally, the Portfolio’s exposure to high yield bonds further aided relative performance.

• At March 31, 2007, the Portfolio was underweight versus the benchmark in U.S.

• Treasuries, U.S. agency securities and corporate issues. It maintained a notable overweight in high-quality, short-duration spread product, including CMBS and ABS, as well as in mortgages, specifically in the 15-year and non-index sectors, including ARMs and CMOs.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE TOTAL RETURN PORTFOLIO

AND THE LEHMAN BROTHERS U.S. AGGREGATE INDEX FROM INCEPTION.

Average Annual Total Return

	6 Months		1 Year		5 Year		From Inception
BlackRock Class	2.38	%	5.92	%	5.31	%	5.15	%
Institutional Class	2.27	%	5.91	%	5.09	%	4.91	%
Service Class	2.04	%	5.41	%	4.99	%	4.84	%
Investor A Class (Load Adjusted)	(1.89	)%	1.29	%	4.01	%	3.86	%
Investor A Class (NAV)	2.17	%	5.54	%	4.86	%	4.67	%
Investor B Class (Load Adjusted)	(2.53	)%	0.33	%	3.75	%	3.79	%
Investor B Class (NAV)	1.96	%	4.83	%	4.09	%	3.94	%
Investor C Class (Load Adjusted)	0.81	%	3.67	%	4.04	%	3.90	%
Investor C Class (NAV)	1.80	%	4.67	%	4.04	%	3.90	%
R Class (NAV)	2.03	%	5.22	%	4.42	%	4.24	%
Lehman Brothers U.S. Aggregate Index	2.76	%	6.59	%	5.35	%	5.21	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: BLACKROCK SHARES, INSTITUTIONAL SHARES, SERVICE SHARES, INVESTOR A SHARES, INVESTOR B SHARES AND INVESTOR C SHARES, 12/7/01; AND R SHARES, 10/02/06. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 28 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH^†ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

12

TOTAL RETURN PORTFOLIO

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	84.7	%
AA	6.2
A	2.5
BBB	2.4
‹BBB	2.3
Unrated	1.9
Total	100.0	%
Portfolio Statistics
Average maturity (years)	5.00
Effective Duration2	4.11
Sector Allocation (% of long-term investments)
Mortgage Pass-Throughs	38.6	%
Asset Backed Securities	17.9
Corporate Bonds	13.5
Commercial Mortgage Backed Securities	12.3
Collateralized Mortgage Obligations	8.5
U.S. Government & Agency Obligations	7.6
Certificates of Deposit	0.9
Foreign Bonds	0.6
Taxable Municipal Bonds	0.1
Total	100.0	%

1 Using the higher of S&P’s or Moody’s rating.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the fund for every 1% change in interest rates. Effective duration is typically calculated for bonds with embedded options and assumes that expected cash flows will fluctuate as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		R Class
Beginning Account Value(10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,023.80		1,022.70		1,020.40		1,021.70		1,019.60		1,018.00		1023.80
Expenses Incurred During Period (10/01/06 - 3/31/07)		2.07		2.27		4.13		3.88		5.49		7.09		5.60
	Hypothetical Expenses (5% return before expenses)
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		R Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,022.93		1,022.73		1,020.86		1,021.11		1,019.50		1,017.83		1019.40
Expenses Incurred During Period (10/01/06 - 3/31/07)		2.07		2.27		4.14		3.89		5.50		7.12		5.60

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.41%, 0.45%, 0.82%, 0.77%, 1.09%, 1.41% and 1.11% for the BlackRock, Institutional, Service, Investor A, Investor B, Investor C and R share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

13

TOTAL RETURN PORTFOLIO II

Total Net Assets (3/31/07): $3.2 billion

Performance Benchmark:

Lehman Brothers U.S. Aggregate Index

Investment Approach:

Seeks to realize a total return that exceeds that of the Lehman Brothers U.S. Aggregate Index (the benchmark) by investing at least 80% of its assets in bonds that allow it to maintain an average portfolio duration that is within +/- 20% of the duration of the benchmark. The Portfolio management team selects bonds from several categories including: U.S. Treasuries and agency securities, commercial and residential mortgage backed securities (“CMBS” and “MBS”), collateralized mortgage obligations (“CMOs”), asset backed securities (“ABS”) and corporate bonds. The Portfolio may invest up to 10% of its assets in non-U.S. dollar-denominated bonds of issuers located outside of the United States. The Portfolio’s investment in non-U.S. dollar-denominated bonds may be on a currency hedged or unhedged basis.

Recent Portfolio Management Activity:

• Effective October 2, 2006, the name of the Portfolio was changed from BlackRock Core Bond Total Return Portfolio to BlackRock Total Return Portfolio II.

• All share classes of the Portfolio underperformed the benchmark for the semiannual period.

• Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period with little change. Overall, financial conditions remained fairly balanced, with moderate economic activity and relatively tame inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed, which has kept monetary policy on hold since first interrupting its rate-hiking campaign in August 2006, is expected to maintain its current “balanced” economic assessment at least into mid-year. The federal funds rate remained at 5.25% at period-end, where it has been since June 2006, while the 30-year U.S. Treasury bond yield stood at 4.84%, an increase of seven basis points (0.07%) over the past six months. The 10-year U.S. Treasury note yield was 4.65% at period-end, representing an increase of just one basis point since September 30, 2006. Meanwhile, yields on one-month Treasury bills increased a dramatic 47 basis points from 4.60% to 5.07%, offering the highest yield on the curve at March 31, 2007, while two-year yields fell 13 basis points to 4.58%.

• Most recently, fears of a slowdown in economic growth were exacerbated by turmoil in the subprime mortgage market. In addition, inflation although moderate by historic standards remained above the Fed’s implicit comfort zone. In response, bond prices on the front end of the yield curve rallied on increased expectations of a Fed rate cut. Meanwhile, the long end of the curve sold off on inflation fears. The net result was a slight steepening of the yield curve, which has been flat to inverted for some time.

• All major domestic spread sectors (i.e., assets less correlated with Treasuries) — CMBS, investment-grade corporate securities, MBS, ABS and U.S. agency issues — outperformed duration-adjusted U.S. Treasuries during the semi-annual period. The majority of the outperformance occurred during the fourth quarter of 2006, as the yield on the 10-year U.S. Treasury note rose (and the price correspondingly declined) following the release of relatively strong employment data in December. The investment-grade corporate and MBS sectors were the best performers, while ABS, U.S. agencies and CMBS posted the lowest returns relative to duration-adjusted U.S. Treasuries during the period.

• During the semiannual period, detractors from the Portfolio’s performance versus the benchmark included underweight positions in the corporate and agency sectors, as well as in 30-year mortgage pass-throughs. Though it was moderately favorable in the first fiscal quarter, the Portfolio’s short duration stance relative to the benchmark, together with an underweight in the intermediate portion of the yield curve, hindered performance in the second half of the period. Also detracting from performance were the non-dollar trades that we employed in the Portfolio. Specifically, our allocation to the Japanese yen versus the U.S. dollar had a negative impact as did our position in 10-year European bonds versus U.S. Treasuries as the yen underperformed the U.S. dollar and European bonds underperformed U.S. Treasuries.

• On the other hand, an overweight in high-quality, short-duration assets, including ABS, CMBS, adjustable rate mortgages (ARMs) and CMOs benefited the Portfolio’s relative return throughout the semiannual period. The absence of exposure to the subprime mortgage market and an underweight of corporate debt also had a positive impact on the comparative performance.

• At March 31, 2007, the Portfolio was underweight versus the benchmark in U.S. Treasuries, U.S. agency securities and corporate issues. The Portfolio maintained a notable overweight in high-quality, short-duration spread product, including CMBS and ABS, as well as in mortgages, specifically in the 15-year and non-index sectors, including ARMs and CMOs.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE TOTAL RETURN PORTFOLIO II

AND THE LEHMAN BROTHERS U.S. AGGREGATE INDEX FOR THE PAST TEN YEARS.

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
BlackRock Class	2.33	%	5.96	%	5.38	%	6.45	%
Institutional Class	2.32	%	5.94	%	5.22	%	6.29	%
Service Class	2.28	%	5.74	%	4.94	%	6.00	%
Investor A Class (Load Adjusted)	(2.00	)%	1.32	%	4.00	%	5.44	%
Investor A Class (NAV)	2.12	%	5.53	%	4.86	%	5.87	%
Investor B Class (Load Adjusted)	(2.69	)%	0.27	%	3.72	%	5.32	%
Investor B Class (NAV)	1.81	%	4.77	%	4.06	%	5.32	%
Investor C Class (Load Adjusted)	0.73	%	3.71	%	4.07	%	5.08	%
Investor C Class (NAV)	1.73	%	4.71	%	4.07	%	5.08	%
R Class (NAV)	2.08	%	5.34	%	4.54	%	5.60	%
Lehman Brothers U.S. Aggregate Index	2.76	%	6.59	%	5.35	%	6.46	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 12 /9 /92; SERVICE SHARES, 1 /12/96; INVESTOR A SHARES, 1 /31/96; INVESTOR B SHARES, 3 /18/96; INVESTOR C SHARES, 2/28/97; BLACKROCK SHARES, 5 /1/97; AND R SHARES, 10/02/06. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 28 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH^†ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

14

TOTAL RETURN PORTFOLIO II

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	86.1	%
AA	7.8
A	3.1
BBB	2.6
‹BBB	0.3
Unrated	0.1
Total	100.0	%
Portfolio Statistics
Average maturity (years)	6.45
Effective Duration2	4.15
Top 10 Sector Allocation (% of long-term investments)
Mortgage Pass-Throughs	38.2	%
U.S. Government & Agency Obligations	17.7
Corporate Bonds	12.9
Asset Backed Securities	11.5
Commercial Mortgage Backed Securities	11.1
Collateralized Mortgage Obligations	6.7
Certificates of Deposit	0.9
Foreign Bonds	0.5
Term Loans	0.4
Taxable Municipal Bonds	0.1
Total	100.0	%

1 Using the higher of S&P’s or Moody’s rating.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the fund for every 1% change in interest rates. Effective duration is typically calculated for bonds with embedded options and assumes that expected cash flows will fluctuate as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		R Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,023.30		1,023.20		1,022.80		1,021.20		1,018.10		1,017.30		1023.30
Expenses Incurred During Period (10/01/06 - 3/31/07)		2.07		2.22		3.63		4.13		8.30		7.95		5.60
	Hypothetical Expenses (5% return before expenses)
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		R Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,022.93		1,022.78		1,021.36		1,020.86		1,016.67		1,017.02		1022.93
Expenses Incurred During Period (10/01/06 - 3/31/07)		2.07		2.22		3.64		4.14		8.33		7.98		2.07

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.41%, 0.44%, 0.72%, 0.82%, 1.65%, 1.58% and 1.11% for the BlackRock, Institutional, Service, Investor A, Investor B, Investor C and R share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

15

GOVERNMENT INCOME PORTFOLIO

Total Net Assets (3/31/07): $1.9 billion

Performance Benchmark:

Composite of Lehman Brothers MBS Index/Merrill Lynch 10-Year Treasury Index

Investment Approach:

Seeks to maximize total return, consistent with income generation and prudent investment management, by investing primarily in the highest-rated government and agency bonds in the 10- to 15-year maturity range and in mortgages guaranteed by the U.S. Government or its agencies. Securities purchased by the Portfolio are rated in the highest rating category (AAA or Aaa) at the time of purchase by at least one major rating agency or are determined by the management team to be of similar quality. The Portfolio management team selects bonds from several categories including: U.S. Treasuries and agency securities, commercial and residential mortgage backed securities (“CMBS” and “MBS”), collateralized mortgage obligations (“CMOs”), asset backed securities (“ABS”) and corporate bonds. Securities are purchased for the Portfolio when the management team determines that they have the potential for above-average total return.

Recent Portfolio Management Activity:

• All share classes of the Portfolio outperformed the benchmark for the semiannual period.

• Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period with little change. Overall, financial conditions remained fairly balanced, with moderate economic activity and relatively tame inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed, which has kept monetary policy on hold since first interrupting its rate-hiking campaign in August 2006, is expected to maintain its current “balanced” economic assessment at least into mid-year. The federal funds rate remained at 5.25% at period-end, where it has been since June 2006, while the 30-year U.S. Treasury bond yield stood at 4.84%, an increase of seven basis points (0.07%) over the past six months. The 10-year U.S. Treasury note yield was 4.65% at period-end, representing an increase of just one basis point since September 30, 2006. Meanwhile, yields on one-month Treasury bills increased a dramatic 47 basis points from 4.60% to 5.07%, offering the highest yield on the curve at March 31, 2007, while two-year yields fell 13 basis points to 4.58%.

• Most recently, fears of a slowdown in economic growth were exacerbated by turmoil in the subprime mortgage market. In addition, inflation — although moderate by historic standards — remained above the Fed’s implicit comfort zone. In response, bond prices on the front end of the yield curve rallied on increased expectations of a Fed rate cut. Meanwhile, the long end of the curve sold off on inflation fears. The net result was a slight steepening of the yield curve, which has been flat to inverted for some time. Concerns about the strength of the U.S. economy were not solely driven by fears of spillover from the subprime mortgage market. Recent non-housing-related economic data — including payrolls, durable goods orders and retail sales — showed signs of weakening.

• All major domestic spread sectors (i.e., assets less correlated with Treasuries) — CMBS, investment-grade corporate securities, MBS, ABS and U.S. agency issues — outperformed duration-adjusted U.S. Treasuries during the semiannual period. The majority of the outperformance occurred during the fourth quarter of 2006 as the yield on the 10-year U.S. Treasury note rose (and the price correspondingly declined) following the release of relatively strong employment data in December. The investment-grade corporate and MBS sectors were the best performers, while ABS, U.S. agencies and CMBS posted the lowest returns relative to duration-adjusted U.S. Treasuries during the period.

• During the semiannual period, the Portfolio’s short duration position relative to its benchmark slightly benefited performance as interest rates ended the period marginally higher. The Portfolio’s performance relative to the benchmark was helped by an underweight in Treasuries and an overall focus on high-quality, short-duration assets including CMBS, CMOs and hybrid adjustable rate mortgages (ARMs). During the period, within our fixed-rate MBS allocation, we increased our overweight of premium 15-year mortgages and sold 30-year discount paper. This initially detracted slightly from performance, but as investors favor moved from 30-year to 15-year MBS in the latter half of the period, the Portfolio’s positioning provided positive performance. We also continued to prefer seasoned pools over to-be-announced issues (TBAs). Given the possibility of further weakness in the subprime market, our MBS positioning remained defensive and we favored owning stable cash-flow MBS and well-structured CMOs.

• At March 31, 2007, the Portfolio remained underweight versus the benchmark index in Treasuries in favor of mortgages and high-quality, short-duration assets including CMBS, CMOs and ARMs. The Portfolio continued to be positioned with a short duration versus the benchmark, as we believe the Fed will remain on hold and that long-term rates have yet to fully reflect expected Fed policy.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GOVERNMENT INCOME PORTFOLIO AND

THE LEHMAN BROTHERS MBS INDEX/MERRILL LYNCH 10-YEAR TREASURY INDEX FOR THE PAST TEN YEARS.

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
BlackRock Class	2.14	%	5.60	%	5.77	%	7.04	%
Institutional Class	2.02	%	5.38	%	5.50	%	6.71	%
Service Class	1.92	%	5.19	%	5.22	%	6.44	%
Investor A Class (Load Adjusted)	(2.19	)%	0.95	%	4.38	%	6.01	%
Investor A Class (NAV)	1.91	%	5.13	%	5.23	%	6.44	%
Investor B Class (Load Adjusted)	(3.02	)%	(0.19	)%	4.10	%	5.89	%
Investor B Class (NAV)	1.47	%	4.31	%	4.44	%	5.89	%
Investor B1 Class (Load Adjusted)	(2.36	)%	0.52	%	4.27	%	5.81	%
Investor B1 Class (NAV)	1.63	%	4.52	%	4.60	%	5.81	%
Investor C Class (Load Adjusted)	0.54	%	3.36	%	4.45	%	5.63	%
Investor C Class (NAV)	1.54	%	4.36	%	4.45	%	5.63	%
Investor C1 Class (Load Adjusted)	0.60	%	3.46	%	4.54	%	5.74	%
Investor C1 Class (NAV)	1.60	%	4.46	%	4.54	%	5.74	%
R Class (NAV)	1.66	%	4.69	%	4.86	%	6.07	%
Lehman Brothers MBS
Index/Merrill Lynch 10-Year
Treasury Index	1.10	%	4.86	%	4.94	%	6.06	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INVESTOR A SHARES, 10/3 /94; INVESTOR B SHARES, 10/3/94; INVESTOR C SHARES, 2 /28/97; BLACKROCK SHARES, 2/10/03; SERVICE SHARES, 10/27/04; AND INSTITUTIONAL SHARES, INVESTOR B1 SHARES, INVESTOR C1 SHARES AND R SHARES, 10/02/06. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 28 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH^†ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

16

GOVERNMENT INCOME PORTFOLIO

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	100.0	%
Total	100.0	%
Portfolio Statistics
Average maturity (years)	11.61
Effective Duration2	5.45
Sector Allocation (% of long-term investments)
Mortgage Pass-Throughs	62.2	%
Collateralized Mortgage Obligations	29.4
U.S. Government & Agency Obligations	4.1
Commercial Mortgage Backed Securities	4.0
Asset Backed Securities	0.3
Total	100.0	%

1 Using the higher of S&P’s or Moody’s rating.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the fund for every 1% change in interest rates. Effective duration is typically calculated for bonds with embedded options and assumes that expected cash flows will fluctuate as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor B1 Class		Investor C Class		Investor C1 Class		R Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,021.40		1,020.20		1,019.20		1,019.10		1,014.70		1,016.30		1,015.40		1,016.00		1,016.60
Expenses Incurred During Period (10/01/06 - 3/31/07)		2.32		3.58		4.58		4.63		8.84		7.44		8.29		7.74		6.13
	Hypothetical Expenses (5% return before expenses)
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor B1 Class		Investor C Class		Investor C1 Class		R Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,022.68		1,021.42		1,020.36		1,020.30		1,016.06		1,017.53		1,016.67		1,017.23		1,018.84
Expenses Incurred During Period (10/01/06 - 3/31/07)		2.32		3.58		4.59		4.64		8.89		7.47		8.33		7.77		6.16

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.46%, 0.71%, 0.91%, 0.92%, 1.76%, 1.48%, 1.65%, 1.54% and 1.22% for the BlackRock, Institutional, Service, Investor A, Investor B, Investor B1, Investor C, Investor C1 and R share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

17

INFLATION PROTECTED BOND PORTFOLIO

Total Net Assets (3/31/07): $87.7 million

Performance Benchmark:

Lehman Global Real: U.S. TIPS Index

Investment Approach:

Seeks to maximize real return, consistent with preservation of real capital and prudent investment management. The Portfolio normally invests at least 80% of its assets in inflation-indexed bonds of varying maturities issued by the U.S. and non-U.S. governments, their agencies or instrumentalities and U.S. and non-U.S. corporations. The Portfolio maintains an average portfolio duration that is within +/- 20% of the duration of the Lehman Global Real: U.S. TIPS Index. The Portfolio may invest up to 20% of its assets in non-investment-grade bonds or securities of emerging market issuers. The Portfolio also may invest up to 20% of its assets in non U.S. dollar-denominated securities of non-U.S. issuers, and may invest without limit in U.S. dollar-denominated securities of non-U.S. issuers. The management team also may purchase: U.S. Treasuries and agency securities, commercial and residential mortgage backed securities, collateralized mortgage obligations, investment-grade corporate bonds and asset backed securities. Securities are purchased for the Portfolio when the management team believes that they have the potential for above-average real return.

Recent Portfolio Management Activity:

• The Portfolio’s Service shares outperformed the benchmark index for the semiannual period, while the BlackRock, Institutional, Investor A, Investor B and Investor C shares underperformed.

• Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period with little change. Overall, financial conditions remained fairly balanced, with moderate economic activity and relatively tame inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed, which has kept monetary policy on hold since first interrupting its rate-hiking campaign in August 2006, is expected to maintain its current “balanced” economic assessment at least into mid-year. The federal funds rate remained at 5.25% at period-end, where it has been since June 2006, while the 30-year U.S. Treasury bond yield stood at 4.84%, an increase of seven basis points (0.07%) over the past six months. The 10-year U.S. Treasury note yield was 4.65% at period-end, representing an increase of just one basis point since September 30, 2006. Meanwhile, yields on one-month Treasury bills increased a dramatic 47 basis points from 4.60% to 5.07%, offering the highest yield on the curve at March 31, 2007, while two-year yields fell 13 basis points to 4.58%.

• Most recently, fears of a slowdown in economic growth were exacerbated by turmoil in the subprime mortgage market. In addition, inflation — although moderate by historic standards — remained above the Fed’s implicit comfort zone. In response, bond prices on the front end of the yield curve rallied on increased expectations of a Fed rate cut. Meanwhile, the long end of the curve sold off on inflation fears. The net result was a slight steepening of the yield curve, which has been flat to inverted for some time.

• Treasury Inflation Protected Securities (TIPS) underperformed nominal U.S. Treasuries during the six-month period, with the Lehman Global Real: U.S. TIPS Index return of 1.11% outpaced by the 2.18% return of the Lehman U.S. Treasury Index. At March 31, 2007, the spread between conventional 10-year Treasury issues and 10-year TIPS was 2.45%, compared to 2.30% at the end of 2006, reflecting a modest increase in inflation expectations in the past three months.

• The six months under review could be described as two distinct periods. In the first three months, the return on TIPS was negatively impacted by a rise in real (inflation-adjusted) yields and a fall in the Consumer Price Index (CPI), the key inflation barometer. In the latter three months, TIPS benefited from a fall in real yields and a rise in the CPI.

• In the first half of the period, as rates rose, Portfolio performance benefited from a short duration (a measure of sensitivity to interest rate movements) and from a curve-flattening bias that involved an underweight to shorter-maturity TIPS, which are more sensitive to changes in headline CPI. In the second half of the period, our short duration hindered relative results. However, an overweight position in inflation-linked bonds and an underweight to conventional bonds helped relative performance as TIPS outperformed nominal issues.

• Portfolio activity involved increasing exposure to inflation-linked bonds. After underperforming in 2006, we believe TIPS had become undervalued, with attractive breakeven yields (i.e., the difference between the yields on TIPS and conventional Treasuries). We also adjusted the duration of the Portfolio based on our assessment of interest rate direction, but remained short relative to the benchmark throughout the semiannual period.

• We continue to believe that TIPS are undervalued, despite their outperformance in the first quarter of 2007. The softening of tone in the most recent Fed statement highlights the possibility that inflation may stay elevated even as economic growth slows. Breakeven yields have rallied, but risks of higher inflation and significantly higher gasoline prices should help TIPS to continue outperforming nominal Treasuries. At period-end, the Portfolio’s duration was modestly short in the intermediate portion of the yield curve, based on the belief that the market had gotten somewhat ahead of itself in pricing in a Fed rate cut.

• At March 31, 2007, the Portfolio was more than 90% invested in U.S. TIPS, with small allocations to adjustable rate mortgages, investment-grade corporate bonds (primarily in the financials sector) and non-U.S. bonds. Also at period-end, more than 95% of the Portfolio was invested in government issues or in non-government bonds rated AAA.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INFLATION PROTECTED BOND PORTFOLIO

AND THE LEHMAN GLOBAL REAL: U.S. TIPS INDEX FROM INCEPTION.

Average Annual Total Return

	6 Months		1 Year		From Inception
BlackRock Class	1.02	%	4.79	%	5.45	%
Institutional Class	1.17	%	4.97	%	5.55	%
Service Class	1.26	%	4.73	%	4.71	%
Investor A Class (Load Adjusted)	(2.88	)%	0.46	%	3.61	%
Investor A Class (NAV)	1.13	%	4.64	%	5.17	%
Investor B Class (Load Adjusted)	(3.87	)%	(0.77	)%	3.26	%
Investor B Class (NAV)	0.63	%	3.73	%	4.45	%
Investor C Class (Load Adjusted)	(0.26	)%	2.87	%	4.60	%
Investor C Class (NAV)	0.74	%	3.87	%	4.60	%
Lehman Global Real: U.S. TIPS Index	1.18	%	5.30	%	4.87	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO ON 6/28/04. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 28 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH^†ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as the periods indicated, the Portfolio is actively managed and its composition will vary.

18

INFLATION PROTECTED BOND PORTFOLIO

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	96.2	%
A	3.4
BBB	0.1
Unrated	0.3
Total	100.0	%
Sector Allocation (% of long-term investments)
U.S. Government & Agency Obligations	93.7	%
Corporate Bonds	3.6
Foreign Bonds	1.5
Mortgage Pass-Throughs	1.2
Total	100.0	%
Portfolio Statistics
Average maturity (years)	10.96
Effective Duration2	7.89

1 Using the higher of S&P’s or Moody’s rating.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the fund for every 1% change in interest rates. Effective duration is typically calculated for bonds with embedded options and assumes that expected cash flows will fluctuate as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses												Hypothetical Expenses (5% return before expenses)
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,010.20		1,011.70		1,012.60		1,011.30		1,006.30		1,007.40		1,023.49		1,023.23		1,022.27		1,021.67		1,017.88		1,017.88
Expenses Incurred During Period (10/01/06 - 3/31/07)		1.50		1.76		2.71		3.31		7.05		7.06		1.51		1.77		2.73		3.33		7.12		7.12

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.30%, 0.35%, 0.54%, 0.66%, 1.41% and 1.41% for the BlackRock, Institutional, Service, Investor A, Investor B and Investor C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the period the fund was open during the one-half year period).

19

GNMA PORTFOLIO

Total Net Assets (3/31/07): $182.6 million

Performance Benchmark:

Lehman Brothers GNMA MBS Index

Investment Approach:

Seeks to maximize total return, consistent with income generation and prudent investment management, by investing primarily in securities issued by the Government National Mortgage Association (“GNMA”) as well as other U.S. government securities in the five-to 10-year maturity range. Securities purchased by the portfolio are rated at the time of purchase by at least one major rating agency in the highest rating category (AAA or Aaa), or are determined by the portfolio management team to be of similar quality. Securities are purchased for the portfolio when the management team determines that they have the potential for above-average total return.

Recent Portfolio Management Activity:

• All share classes of the portfolio underperformed the benchmark for the six-month period ended March 31, 2007.

• Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period little changed. Overall, financial conditions remained fairly balanced, with moderate economic activity and relatively tame inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed, which has kept monetary policy on hold since first interrupting its rate-hiking campaign in August 2006, is expected to maintain its current “balanced” economic assessment at least into mid-year. The federal funds rate remained at 5.25% at period-end, where is has been since June 2006, while the 30-year U.S. Treasury bond yield stood at 4.84%, an increase of seven basis points (0.07%) over the past six months. The 10-year U.S. Treasury note yield was 4.65% at period-end, representing an increase of just one basis point since September 30, 2006. Meanwhile, yields on one-month Treasury bills increased a dramatic 47 basis points from 4.60% to 5.07%, offering the highest yield on the curve at March 31, 2007, while two-year yields fell 13 basis points to 4.58%.

• Most recently, fears of a slowdown in economic growth were exacerbated by turmoil in the subprime mortgage market. In addition, inflation — although moderate by historic standards — remained above the Fed’s implicit comfort zone. In response, bond prices on the front end of the yield curve rallied on increased expectations of a Fed rate cut. Meanwhile, the long end of the curve sold off on inflation fears. The net result was a slight steepening of the yield curve, which has been flat to inverted for some time. Concerns about the strength of the U.S. economy were not solely driven by fears of spillover from the subprime mortgage market. Recent non-housing-related economic data — including payrolls, durable goods orders and retail sales — showed signs of weakening.

• All major domestic spread sectors (i.e., assets less correlated with Treasuries) — commercial mortgage backed securities (CMBS), investment-grade corporate securities, mortgage backed securities (MBS), asset backed securities (ABS) and U.S. agency issues — outperformed duration-adjusted U.S. Treasuries during the semiannual period. The majority of the outperformance occurred during the fourth quarter of 2006 as the yield on the 10-year U.S. Treasury note rose (and the price correspondingly declined) following the release of relatively strong employment data in December. The investment-grade corporate and MBS sectors were the best performers, while ABS, U.S. agencies and CMBS posted the lowest returns relative to duration-adjusted U.S. Treasuries during the period.

• During the semiannual period, the Fund’s short duration position slightly hindered the performance versus the benchmark. Conversely, the Fund’s modest overweight positions in hybrid adjustable rate mortgages (ARMs) and collateralized mortgage obligations (CMOs) contributed positively to the comparative performance. We maintained the Fund’s exposure to 15- and 30-year maturity bonds, with a bias toward higher-coupon mortgage issues. At March 31, 2007, the portfolio was positioned with a short duration versus that of the benchmark. The Fund had relatively small weightings in U.S. Treasuries and ABS.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE GNMA PORTFOLIO AND THE LEHMAN

BROTHERS GNMA MBS INDEX FROM INCEPTION.

Average Annual Total Return

	6 Months		1 Year		5 Year		From Inception
BlackRock Class	2.67	%	5.59	%	4.60	%	5.74	%
Institutional Class	2.65	%	5.54	%	4.50	%	5.62	%
Service Class	2.51	%	5.25	%	4.21	%	5.30	%
Investor A Class (Load Adjusted)	(1.65	)%	0.91	%	3.23	%	4.72	%
Investor A Class (NAV)	2.46	%	5.14	%	4.08	%	5.21	%
Investor B Class (Load Adjusted)	(2.35	)%	(0.19	)%	2.99	%	4.56	%
Investor B Class (NAV)	2.15	%	4.31	%	3.33	%	4.56	%
Investor C Class (Load Adjusted)	1.17	%	3.33	%	3.34	%	4.39	%
Investor C Class (NAV)	2.17	%	4.33	%	3.34	%	4.39	%
Lehman Brothers GNMA MBS Index	2.98	%	6.23	%	4.80	%	5.68	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO ON 5/18/98. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 28 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH^†ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

20

GNMA PORTFOLIO

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	96.2	%
AA	0.5
Unrated	3.3
Total	100.0	%
Sector Allocation (% of long-term investments)
Mortgage Pass-Throughs	95.1	%
U.S. Government & Agency Obligations	1.9
Commercial Mortgage Backed Securities	1.3
Asset Backed Securities	0.9
Collateralized Mortgage Obligations	0.8
Total	100.0	%
Portfolio Statistics
Average maturity (years)	6.85
Effective Duration2	3.12

1 Using the higher of S&P’s or Moody’s rating.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the fund for every 1% change in interest rates. Effective duration is typically calculated for bonds with embedded options and assumes that expected cash flows will fluctuate as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses												Hypothetical Expenses (5% return before expenses)
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class	Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,026.70		1,026.50		1,025.10		1,024.60		1,021.50		1,021.70		1,022.73		1,022.58		1,021.16		1,020.76	1,016.62		1,016.82
Expenses Incurred During Period (10/01/06 - 3/31/07)		2.27		2.43		3.84		4.24		8.37		8.17		2.27		2.42		3.84		4.24	8.38		8.18

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.45%, 0.48%, 0.76%, 0.84%, 1.66% and 1.62% for the BlackRock, Institutional, Service, Investor A, Investor B and Investor C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

21

MANAGED INCOME PORTFOLIO

Total Net Assets (3/31/07): $742.6 million

Performance Benchmark:

Lehman Brothers U.S. Aggregate Index

Investment Approach:

Seeks to maximize total return, consistent with income generation and prudent investment management, by investing primarily in investment grade bonds that allow it to maintain an average portfolio duration that is within +/- 20% of the duration of the Lehman Brothers U.S. Aggregate Index. The Portfolio normally invests at least 80% of its assets in bonds and only buys securities rated investment grade at the time of purchase by at least one major rating agency or determined by the management team to be of similar quality. The Portfolio may invest up to 10% of its assets in non U.S. dollar-denominated bonds of issuers located outside of the United States. The Portfolio’s investment in non U.S. dollar-denominated bonds may be on a currency hedged or unhedged basis. The Portfolio management team selects bonds from several categories including: U.S. Treasuries and agency securities, commercial and residential mortgage backed securities (“CMBS” and “MBS”), collateralized mortgage obligations (“CMOs”), asset backed securities (“ABS”) and corporate bonds.

Recent Portfolio Management Activity:

• All share classes of the Portfolio underperformed the benchmark for the semiannual period.

• Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period with little change. Overall, financial conditions remained fairly balanced, with moderate economic activity and relatively tame inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed, which has kept monetary policy on hold since first interrupting its rate-hiking campaign in August 2006, is expected to maintain its current “balanced” economic assessment at least into mid-year. The federal funds rate remained at 5.25% at period-end, where it has been since June 2006, while the 30-year U.S. Treasury bond yield stood at 4.84%, an increase of seven basis points (0.07%) over the past six months. The 10-year U.S. Treasury note yield was 4.65% at period-end, representing an increase of just one basis point since September 30, 2006. Meanwhile, yields on one-month Treasury bills increased a dramatic 47 basis points from 4.60% to 5.07%, offering the highest yield on the curve at March 31, 2007, while two-year yields fell 13 basis points to 4.58%.

• Most recently, fears of a slowdown in economic growth were exacerbated by turmoil in the subprime mortgage market. In addition, inflation — although moderate by historic standards — remained above the Fed’s implicit comfort zone. In response, bond prices on the front end of the yield curve rallied on increased expectations of a Fed rate cut. Meanwhile, the long end of the curve sold off on inflation fears. The net result was a slight steepening of the yield curve, which has been flat to inverted for some time. Concerns about the strength of the U.S. economy were not solely driven by fears of spillover from the subprime mortgage market. Recent non-housing-related economic data — including payrolls, durable goods orders and retail sales — showed signs of weakening.

• All major domestic spread sectors (i.e., assets less correlated with Treasuries) — CMBS, investment-grade corporate securities, MBS, ABS and U.S. agency issues — outperformed duration-adjusted U.S. Treasuries during the semiannual period. The majority of the outperformance occurred during the fourth quarter of 2006 as the yield on the 10-year U.S. Treasury note rose (and the price correspondingly declined) following the release of relatively strong employment data in December. The investment-grade corporate and MBS sectors were the best performers, while ABS, U.S. agencies and CMBS posted the lowest returns relative to duration-adjusted U.S. Treasuries during the period.

• The Portfolio’s short duration position relative to its benchmark and an underweight in the intermediate portion of the yield curve hindered performance during the semi-annual period as yields declined and the market rallied in the intermediate and short segments of the yield curve throughout the first quarter of 2007. Also detracting from performance were the non-dollar trades that we employed in the Portfolio. Specifically, our allocation to the Japanese yen versus the U.S. dollar had a negative impact as did our position in 10-year European bonds versus U.S. Treasuries as the yen underperformed the U.S. dollar and European bonds underperformed U.S. Treasuries. The relative return benefited from our investments in high-quality, short-duration assets, including ABS, CMBS, adjustable rate mortgages (ARMS) and CMOs. The absence of exposure to the subprime mortgage market and an underweight of corporate debt also had a positive impact on the comparative performance. At March 31, 2007, the Portfolio was positioned with underweights versus the benchmark in the U.S. Treasury, U.S. agency and corporate sectors. The Portfolio’s positions are concentrated in high-quality, short-duration spread product, including CMBS and ABS. The Portfolio also holds significant positions in mortgages, specifically in the 15-year and non-index sectors, including ARMs and CMOs.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE MANAGED INCOME PORTFOLIO AND

THE LEHMAN BROTHERS U.S. AGGREGATE INDEX FOR THE PAST TEN YEARS.

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
Institutional Class	2.42	%	5.85	%	5.20	%	6.24	%
Service Class	2.28	%	5.54	%	4.89	%	5.93	%
Investor A Class (Load Adjusted)	(1.77	)%	1.40	%	3.93	%	5.35	%
Investor A Class (NAV)	2.26	%	5.60	%	4.79	%	5.78	%
Investor B Class (Load Adjusted)	(2.59	)%	0.18	%	3.64	%	5.15	%
Investor B Class (NAV)	1.81	%	4.68	%	3.97	%	5.15	%
Investor C Class (Load Adjusted)	0.95	%	3.67	%	4.00	%	4.90	%
Investor C Class (NAV)	1.85	%	4.67	%	4.00	%	4.90	%
Lehman Brothers U.S. Aggregate Index	2.76	%	6.59	%	5.35	%	6.46	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INSTITUTIONAL SHARES, 11 /1/89; INVESTOR A SHARES, 2 /5 /92; SERVICE SHARES, 7/29/93; INVESTOR B SHARES, 7/15 /97; AND INVESTOR C SHARES, 11/22/99. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 28 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH^†ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

22

MANAGED INCOME PORTFOLIO

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	88.6	%
AA	7.8
A	1.8
BBB	1.6
‹BBB	0.2
Total	100.0	%
Sector Allocation (% of long-term investments)
Mortgage Pass-Throughs	41.7	%
Asset Backed Securities	13.5
Corporate Bonds	12.8
Commercial Mortgage Backed Securities	11.9
U.S. Government & Agency Obligations	10.0
Collateralized Mortgage Obligations	5.7
Project Loans	1.9
Certificates of Deposit	1.1
Taxable Municipal Bonds	0.9
Foreign Bonds	0.5
Total	100.0	%
Portfolio Statistics
Average maturity (years)	5.77
Effective Duration2	3.48

1 Using the higher of S&P’s or Moody’s rating.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the fund for every 1% change in interest rates. Effective duration is typically calculated for bonds with embedded options and assumes that expected cash flows will fluctuate as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,024.20		1,022.80		1,022.60		1,018.10		1,018.50		1,021.67		1,020.20		1,020.05		1,015.56		1,015.96
Expenses Incurred During Period (10/01/06 - 3/31/07)		3.33		4.79		4.94		9.41		9.01		3.33		4.80		4.95		9.44		9.04

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.66%, 0.95%, 0.98%, 1.87% and 1.79% for the Institutional, Service, Investor A, Investor B and Investor C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

23

INTERNATIONAL BOND PORTFOLIO

Total Net Assets (3/31/07): $595.0 million

Performance Benchmark:

Citigroup Non-U.S. World Government Bond Index

Investment Approach:

Seeks to realize a total return that exceeds that of the benchmark Citigroup Non-U.S. World Government Bond Index by investing primarily in non U.S. dollar-denominated bonds of issuers located outside of the United States in the 5- to 15-year maturity range. The Portfolio normally invests at least 80% of its assets in bonds and at least 65% of its assets in bonds of a diversified group of non-U.S. issuers from at least three developed countries. The Portfolio may only buy securities rated investment grade at the time of purchase by at least one major rating agency or determined by the management team to be of similar quality. Securities are purchased for the Portfolio when the management team determines that they have the potential for above-average total return.

Recent Portfolio Management Activity:

• All share classes of the Portfolio underperformed the benchmark for the semiannual period.

DOLLAR BLOC:

• Within the Dollar Bloc, the Portfolio’s short duration position in the U.S. benefited performance early in the period when rates increased. In the recent quarter, the yield curve steepened substantially as the Federal Reserve Board (Fed) changed its language, while continuing to flag inflation as a risk. Thus, we began to add duration, covering at the front end of the curve. Overall, we still remain short duration in the U.S., as we believe the anticipated easing in the federal funds rate is too aggressive.

• Elsewhere, our overweight duration positions in Australia and New Zealand detracted from performance, as rates in both markets increased during the semiannual period. Australian and New Zealand economies have exhibited considerable resistance to higher base rates. In Australia, despite a series of 25-basis-point rate hikes in 2006 (in April, the Reserve Bank of Australia (RBA) left rates unchanged at 6.25%), many economic indicators continue to beat expectations; inflation also has been stubbornly high, at or near the RBA’s acceptable upper band of 3.0%. Similar economic strength has been experienced in New Zealand, despite several 25-basis-point hikes in short-term rates in 2006 and one in the first quarter of 2007 to a level of 7.50%. Expectations in both markets are for continued tightening by the respective central banks. At period-end, we maintained a modest overweight to Australia and New Zealand, with emphasis on the short end of their yield curves.

• Among the spread sectors, the Portfolio’s overweight stance in mortgage backed securities (MBS) benefited performance, as this sector outperformed early in the semiannual period. Notably, mortgages were the second best-performing spread sector in 2006, lagging only commercial mortgage backed securities (CMBS). Mortgages still performed well in the second half, finishing flat relative to Treasuries; however, the first quarter of 2007 was the first since early 2000 that mortgages failed to post a positive excess return compared with Treasuries. At the close of the period, we maintained an overweight allocation to mortgages, with a preference for adjustable rate mortgages (ARMs), as well as CMBS.

EURO BLOC:

• The Portfolio’s short duration position in the Euro Bloc benefited performance as yields increased during the period. As anticipated, the European Central Bank (ECB) delivered a 25-basis-point hike at its March meeting, bringing the target rate to 3.75%. We were slightly underweight in Europe, which was also favorable to performance as rates increased across the curve. Our yield curve-flattening position in Europe early in the period was another positive contributor, as the European yield curve flattened 17 basis points between the two- and 30-year segments. Most recently, however, we have reduced our yield curve-flattening posture in Europe, because while the ECB is likely to raise rates further, 4.0% is already fully priced into the short end of the Eurozone yield curve.

• However, the Bank of England (BOE) kept rates unchanged at 5.25% in an 8-1 vote, with one member surprisingly voting for a rate cut. U.K. rates backed up during the most recent quarter, benefiting performance as we held a short duration position in the U.K.

• Elsewhere, an overweight position in Denmark detracted from performance as Denmark-Germany spreads widened slightly later in the period. Another detractor was our 1% long Swedish krona versus euro currency position, as the krona depreciated versus the euro during the period. We maintained our position of 1% long Norwegian krona versus euro, which was favorable to performance.

ASIA BLOC:

• The Portfolio’s short duration position in Japan and overweight duration stance in Singapore contributed positively to performance, as rates increased in Japan and rallied in Singapore. In addition, the yield curve-flattening position in Japan benefited performance.

• During the second half of the period, both the Portfolio’s short duration position in Japan and an underweight position in the front end of the Japanese yield curve had a negligible impact on performance. Following the global equity sell-off on February 27, the benchmark 10-year Japanese Government Bond (JGB) yield broke 1.6% in mid-March and fell to levels last seen shortly before the end of quantitative easing. This, however, turned out to be a short-term event and 10-year JGBs sold off to close the period at 1.66%. The yield curve steepened as the market continued to price in a slower pace for the next Bank of Japan (BOJ) rate hike, while it remained cautious of long-end supply scheduled during the first week of April.

• In the recent quarter, we took profits by closing the Portfolio’s overweight position in Singapore.

• Among currencies, we maintained our stance of 2% long Japanese yen versus U.S. dollar, which was somewhat neutral to performance for the period. Conversely, our 1% long yen versus euro stance detracted from performance, as the euro appreciated versus the yen from 156.85 to 157.36. In March, we sold out of the 1% long Singapore dollar versus U.S. dollar position. We continue to maintain a small underweight to the U.S. dollar in favor of the Japanese yen, and an underweight to the euro in favor of the Norwegian and Swedish krona.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE INTERNATIONAL BOND PORTFOLIO

AND THE CITIGROUP NON-U.S. WORLD GOVERNMENT BOND INDEX FOR THE PAST TEN YEARS.

Average Annual Total Return

	6 Months		1 Year		5 Year		10 Year
BlackRock Class	2.96	%	7.11	%	6.22	%	7.16	%
Institutional Class	3.03	%	6.96	%	6.06	%	7.01	%
Service Class	2.85	%	6.68	%	5.78	%	6.72	%
Investor A Class (Load Adjusted)	(1.31	)%	2.34	%	4.83	%	6.15	%
Investor A Class (NAV)	2.82	%	6.64	%	5.69	%	6.58	%
Investor B Class (Load Adjusted)	(2.12	)%	1.23	%	4.55	%	6.04	%
Investor B Class (NAV)	2.38	%	5.73	%	4.88	%	6.04	%
Investor C Class (Load Adjusted)	1.44	%	4.85	%	4.92	%	5.81	%
Investor C Class (NAV)	2.44	%	5.85	%	4.92	%	5.81	%
Citigroup Non-U.S. World Government Bond Index	3.20	%	8.32	%	10.15	%	5.44	%

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: SERVICE SHARES, 7/1/91; INVESTOR B SHARES, 4 /19/96; INVESTOR A SHARES, 4 /22 /96; INSTITUTIONAL SHARES, 6 /10 /96; INVESTOR C SHARES, 9/11/ 96; AND BLACKROCK SHARES, 5/18/04. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 28 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH * ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

24

INTERNATIONAL BOND PORTFOLIO

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	78.2	%
AA	17.6
A	2.2
BBB	0.1
Unrated	1.9
Total	100.0	%
Top 10 Country Allocation (% of long-term investments)
United States	26.6	%
Japan	10.6
Sweden	7.7
United Kingdom	7.0
Finland	5.4
Spain	5.2
France	5.2
Italy	4.9
Netherlands	4.7
Germany	4.5
Total	81.8	%
Portfolio Statistics
Average maturity (years)	8.79
Effective Duration2	5.47

1 Using the higher of S&P’s or Moody’s rating.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the fund for every 1% change in interest rates. Effective duration is typically calculated for bonds with embedded options and assumes that expected cash flows will fluctuate as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses												Hypothetical Expenses (5% return before expenses)
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,029.60		1,030.30		1,028.50		1,028.20		1,023.80		1,024.40		1,021.26		1,021.11		1,019.45		1,018.99		1,014.75		1,015.41
Expenses Incurred During Period (10/01/06 - 3/31/07)		3.74		3.90		5.56		6.02		10.24		9.59		3.74		3.89		5.55		6.01		10.25		9.59

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.74%, 0.77%, 1.10%, 1.19%, 2.03% and 1.90% for the BlackRock, Institutional, Service, Investor A, Investor B and Investor C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

25

HIGH YIELD BOND PORTFOLIO

Total Net Assets (3/31/07): $1.7 billion

Performance Benchmark:

Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index

Investment Approach:

Seeks to maximize total return, consistent with income generation and prudent asset management, by investing primarily in non-investment-grade bonds with maturities of 10 years or less. The Portfolio normally invests at least 80% of its assets in high yield bonds, including convertible and preferred securities. The high yield securities (commonly called “junk bonds”) purchased by the Portfolio generally will be in the lower rating categories of major rating agencies (BB or lower by Standard & Poor’s or Ba or lower by Moody’s), or will be determined by the management team to be of similar quality. The Portfolio may invest up to 10% of its assets in non U.S. dollar-denominated bonds of issuers located outside of the United States. The management team evaluates sectors of the high yield market and individual bonds within these sectors. Securities are purchased for the Portfolio when the management team determines that they have the potential for above-average total return.

Recent Portfolio Management Activity:

• All share classes of the Portfolio outperformed the benchmark index for the semiannual period.

• Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period with little change. Overall, financial conditions remained fairly balanced, with moderate economic activity and relatively tame inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed, which has kept monetary policy on hold since first interrupting its rate-hiking campaign in August 2006, is expected to maintain its current “balanced” economic assessment at least into mid-year. The federal funds rate remained at 5.25% at period-end, where is has been since June 2006, while the 30-year U.S. Treasury bond yield stood at 4.84% and the 10-year Treasury note yield at 4.65%. Meanwhile, at 5.07%, one-month Treasury bills offered the highest yield on the curve at March 31, 2007.

• Most recently, fears of a slowdown in economic growth were exacerbated by turmoil in the subprime mortgage market. In addition, inflation — although moderate by historic standards — remained above the Fed’s implicit comfort zone. In response, bond prices on the front end of the yield curve rallied on increased expectations of a Fed rate cut. Meanwhile, the long end of the curve sold off on inflation fears. The net result was a slight steepening of the yield curve, which has been flat to inverted for some time.

• For the six-month period, the high yield asset class and the Portfolio significantly outperformed Treasury issues, which returned +1.90% as measured by the Merrill Lynch 10-Year U.S. Treasury Securities Index. Accordingly, the higher-quality sector of the high yield market, which is more closely correlated with Treasury issues, lagged during the period while lower-quality issues outperformed.

• Despite some volatility late in the reporting period, the high yield bond market managed to post positive returns in each of the past six months. The market has been aided by the continuation of historically low default rates, relatively low new-issue supply and strong inflows into the asset class, all of which have helped to support the prices of high yield issues.

• The Portfolio benefited from its overweight exposure to lower-tier credits, particularly B-rated and CCC-rated issues, as these segments of the high yield market generated the strongest returns. Conversely, an underweight exposure to BB-rated issues detracted from performance, as generally all segments of the non-investment-grade market continued to post strong returns. In terms of sector attribution, the Portfolio had positive results from security selection in wireless, media non-cable and aerospace/defense. Conversely, positions in media cable and healthcare were negative contributors to performance.

• We continued to implement our longstanding strategy of investing in higher-quality companies with good pricing power and strong fundamentals, but continued our recent strategy of favoring certain lower-quality credit tiers, maintaining overweight positions in credits rated B, CCC and below. The increased emphasis on lower-quality issues benefited performance during the period given the prevailing market backdrop. In addition, the Portfolio’s position in automotives was increased slightly, reducing the underweighting in this sector.

• At March 31, 2007, the Portfolio was overweight in the wireless, retail, media non-cable and chemicals sectors, and underweight in the electric, automotive, supermarkets and non-captive diversified sectors. The Portfolio’s average credit rating at period-end was B+.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE HIGH YIELD BOND PORTFOLIO AND THE

LEHMAN BROTHERS U.S. CORPORATE HIGH YIELD 2% ISSUER CAP INDEX FROM INCEPTION.

Average Annual Total Return

	6 Months		1 Year		5 Year		From Inception
BlackRock Class	7.94	%	12.27	%	11.28	%	8.10	%
Institutional Class	7.91	%	12.21	%	11.13	%	7.98	%
Service Class	7.64	%	11.93	%	10.83	%	7.65	%
Investor A Class (Load Adjusted)	3.42	%	7.34	%	9.81	%	7.01	%
Investor A Class (NAV)	7.73	%	11.82	%	10.72	%	7.54	%
Investor B Class (Load Adjusted)	2.83	%	6.49	%	9.63	%	6.86	%
Investor B Class (NAV)	7.33	%	10.99	%	9.90	%	6.86	%
Investor B1 Class (Load Adjusted)	3.47	%	7.29	%	9.95	%	7.09	%
Investor B1 Class (NAV)	7.47	%	11.29	%	10.22	%	7.09	%
Investor C Class (Load Adjusted)	6.33	%	10.13	%	9.89	%	6.73	%
Investor C Class (NAV)	7.33	%	11.13	%	9.89	%	6.73	%
Investor C1 Class (Load Adjusted)	6.44	%	10.23	%	10.16	%	7.04	%
Investor C1 Class (NAV)	7.44	%	11.23	%	10.16	%	7.04	%
R Class (NAV)	7.62	%	11.59	%	10.52	%	7.38	%
Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index*	7.02	%	10.97	%	10.43	%	6.58	%

* THE PERFORMANCE FOR THE LEHMAN BROTHERS U.S. CORPORATE HIGH YIELD 2% ISSUER CAP INDEX IN THE CHART STARTS ON 12/1/1998.

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: BLACKROCK SHARES, INSTITUTIONAL SHARES, SERVICE SHARES, INVESTOR A SHARES, INVESTOR B SHARES AND INVESTOR C SHARES, 11/19/98; AND INVESTOR B1 SHARES, INVESTOR C1 SHARES AND R SHARES, 10/02/06. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 28 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH^†ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

26

HIGH YIELD BOND PORTFOLIO

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	2.5	%
AA	3.9
BBB	4.1
BB	24.0
B	44.5
CCC	13.0
‹CCC	0.7
Unrated	7.3
Total	100.0	%
Portfolio Statistics
Average maturity (years)	5.03
Modified Duration2	4.69
Top 10 Industries: Corporate Bonds (% of long-term investments)
Finance	11.2	%
Telecommunications	10.5
Manufacturing	7.3
Energy & Utilities	6.6
Broadcasting	5.8
Oil & Gas	5.5
Retail Merchandising	4.4
Entertainment & Leisure	4.0
Motor Vehicles	4.0
Chemicals	3.3
Total	62.6	%

1 Using the higher of S&P’s or Moody’s rating.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the fund for every 1% change in interest rates. Modified duration assumes that cash flows remain constant as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) or redemption/exchange fees, where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable, and other Portfolio expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example below is based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

	Actual Expenses
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor B1 Class		Investor C Class		Investor C1 Class		R Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,079.40		1,079.10		1,076.40		1,077.30		1,073.30		1079.40		1,073.30		1079.40		1079.40
Expenses Incurred During Period (10/01/06 - 3/31/07)		2.85		3.11		4.50		4.97		8.84		2.85		8.68		2.85		2.85
	Hypothetical Expenses (5% return before expenses)
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor B1 Class		Investor C Class		Investor C1 Class		R Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,022.22		1,021.92		1,020.61		1,020.15		1,016.37		1022.22		1,016.52		1022.22		1022.22
Expenses Incurred During Period (10/01/06 - 3/31/07)		2.78		3.03		4.39		4.85		8.63		2.78		8.48		2.78		2.78

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.55%, 0.60%, 0.87%, 0.96%, 1.71%, 1.44%, 1.68%, 1.49% and 1.17% for the BlackRock, Institutional, Service, Investor A, Investor B, Investor B1, Investor C, Investor C1 and R share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

27

BLACKROCK FUNDS

NOTE ON PERFORMANCE INFORMATION

The performance information above includes information for each class of each Portfolio since the commencement of operations of each Portfolio, rather than the date such class was introduced. Performance information for each class introduced after the commencement of operations of a Portfolio is therefore based on the performance history of a predecessor class adjusted to reflect the class specific fees applicable to each class at the time of such share classes launch. This information may be considered when assessing the fund’s performance, but does not represent the actual performance of this share class.

Performance information is restated to reflect the current maximum front-end sales charge (in the case of Investor A and Investor A1 Shares) or the maximum contingent deferred sales charge (in the case of Investor B, Investor B1, Investor B2, Investor C, Investor C1 and Investor C2 Shares), and assumes the reinvestment of dividends and distributions. The maximum front-end sales charges for Investor A Shares are as follows: Intermediate Government Bond, Intermediate Bond, Intermediate Bond II, Total Return, Total Return II, Government Income, Inflation Protected Bond, GNMA, Managed Income, International Bond and High Yield Bond — 4.00%; and Enhanced Income and Low Duration Bond — 3.00%. The maximum front-end sales charges for Investor A1 Shares for Low Duration Bond is 1.00%. The maximum contingent deferred sales charge for Investor B Shares, Investor B1 Shares, Investor B2 Shares, Investor C Shares, Investor C1 Shares and Investor C2 Shares of all of the Portfolios is 4.50%, 4.00%, 1.00%, 1.00%, 1.00% and 1.00%, respectively.

The performance information also reflects fee waivers and reimbursements that subsidize and reduce the total operating expenses of each Portfolio. The Portfolios’ returns would have been lower if there were not such waivers and reimbursements. BlackRock Advisors, LLC is under no obligation to waive or continue waiving its fees after February 1, 2008 as described in the prospectus of the Portfolios. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.

† The performance shown in the line graph is that of Institutional Shares and Investor A Shares of the Portfolios. The actual performance of Service, Investor A1, Investor B, Investor B1, Investor B2, Investor C, Investor C1, Investor C2 and R Shares is lower than the performance of Institutional Shares because Service, Investor A1, Investor B, Investor B1, Investor B2, Investor C, Investor C1, Investor C2 and R Shares have higher expenses than Institutional Shares. Excluding the effects of sales charges, the actual performance of Investor B, Investor B1, Investor B2, Investor C, Investor C1, Investor C2 and R Shares is lower than the performance of Investor A Shares because Investor B, Investor B1, Investor B2, Investor C, Investor C1, Investor C2 and R Shares have higher expenses than Investor A Shares. Purchasers of Investor A and Investor A1 Shares generally pay a front-end sales charge, while purchasers of Investor B, Investor B1, Investor B2, Investor C, Investor C1, and Investor C2 Shares may pay a contingent deferred sales charge (depending on how long they hold their shares) when they sell their shares.

* The performance shown in the line graph is that of Service Shares and Investor A Shares of the Portfolios. The actual performance of Investor B and Investor C Shares is lower than the performance of Service Shares because Investor B and Investor C Shares have higher expenses than Service Shares. Excluding the effects of sales charges, the actual performance of Investor B and Investor C Shares is lower than the performance of Investor A Shares because Investor B and Investor C Shares have higher expenses than Investor A shares. Purchasers of Investor A Shares generaly pay a front-end sales charge, while purchasers of Investor B and Investor C Shares may pay a contingent deferred sales charge (depending on how long they hold their shares) when they sell their shares.

28

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ENHANCED INCOME PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MORTGAGE PASS-THROUGHS — 26.1%
Federal Home Loan Mortgage Corp. ARM
3.52%(b)	07/01/34	$	402	$	403,158
4.29%(b)	11/01/34		375		370,727
4.86%(b)	05/01/35		638		632,508
5.00%(b)	09/01/35		524		523,421
5.03%(b)	12/01/35		946		939,903
Federal National Mortgage Assoc.
7.50%	09/01/35		263		275,355
Federal National Mortgage Assoc. 15 Year TBA
6.00%	04/01/22		1,200		1,219,500
Federal National Mortgage Assoc. 30 Year TBA
5.50%	04/01/37		4,700		4,650,062
Federal National Mortgage Assoc. ARM
3.84%(b)	10/01/33		638		637,502
4.86%(b)	06/01/35		355		353,853
5.33%(b)	10/01/35		372		370,209
Government National Mortgage Assoc. II ARM
6.12%(b)	11/20/29		38		38,910
5.50%(b)	08/20/31		73		74,072
3.75%(b)	06/20/34		229		228,067
TOTAL MORTGAGE PASS-THROUGHS (Cost $10,725,727)					10,717,247
COLLATERALIZED MORTGAGE OBLIGATIONS — 21.4%
Adjustable Rate Mortgage Trust, Series 04-4, Class 5A3
5.69%(b)	03/25/35		89		88,906
Banc of America Funding Corp., Series 04-C, Class 4A2
5.66%(b)	12/20/34		221		221,020
Bear Stearns Mortgage Trust, Series 04-12, Class 1A1
5.67%(b)	01/25/35		181		181,795
Bear Stearns Mortgage Trust, Series 04-13, Class A1
5.69%(b)	11/25/34		256		256,439
Bear Stearns Mortgage Trust, Series 04-7, Class 4A
3.73%(b)	10/25/34		165		166,170
Citigroup Mortgage Loan Trust, Inc., Series 05-2, Class 1A1
4.28%(b)	05/25/35		417		423,988
Countrywide Home Loans, Series 03-37, Class 2A1
4.25%(b)	09/25/33		378		377,910
Countrywide Home Loans, Series 04-29, Class 1A1
5.59%(b)	02/25/35		122		121,736
Credit Suisse First Boston Mortgage Securities Corp., Series 02-10, Class 2A1
7.50%	05/25/32		37		37,016
Federal Home Loan Mortgage Corp., Series 232 (IO)
5.00%(c)	08/01/35		692		162,406
Federal Home Loan Mortgage Corp., Series 3215, Class EP
5.38%	09/15/11		733		733,047
Federal National Mortgage Assoc., Series 93-188, Class K
6.00%	10/25/08		169		168,851
Federal National Mortgage Assoc., Series 02-39, Class FB
5.87%(b)	03/18/32		36		36,192
Federal National Mortgage Assoc., Series 04-25, Class PA
5.50%	10/25/30		84		83,949
Federal National Mortgage Assoc., Series 04-36, Class BS
5.50%	11/25/30		115		114,979
Federal National Mortgage Assoc., Series 04-W10, Class A1
5.75%	08/25/34		29		29,297
Federal National Mortgage Assoc., Series 05-68, Class PB
5.75%	07/25/35		209		209,963
Federal National Mortgage Assoc., Series 05-84, Class XE
5.75%(b)	01/25/26		192		191,887
Federal National Mortgage Assoc., Series 05-84, Class XK
5.75%	08/25/23		164		163,732
Federal National Mortgage Assoc., Series 06-60, Class LK
6.50%	07/25/36		388		391,488
Federal National Mortgage Assoc., Series 377, Class 2 (IO)
5.00%(c)	10/01/36		683		164,085
First Horizon Trust, Series 04-AR2, Class 2A1
4.59%(b)	05/25/34		572		567,021
Goldman Sachs Residential Mortgage Loan Trust, Series 04-11, Class 5A1
4.20%	09/25/34		424		429,324
Goldman Sachs Residential Mortgage Loan Trust, Series 04-9, Class 3A1
3.72%(b)	08/25/34		104		105,014
Goldman Sachs Residential Mortgage Loan Trust, Series 05-AR6, Class 1A1
4.55%(b)	09/25/35		474		469,376
GSAA Home Equity Trust, Series 04-8, Class A3A
5.69%(b)	09/25/34		150		150,152
J.P. Morgan Mortgage Trust, Series 06-A2, Class 4A1
3.89%(b)	08/25/34		538		531,259
Mortgage IT Trust, Series 04-1, Class A1
5.71%(b)	11/25/34		320		321,715
Residential Accredit Loans, Inc., Series 01-QS19, Class A1
6.00%	12/25/16		52		52,277
Structured Mortgage Loan Trust, Series 04-13, Class A2
5.62%(b)	09/25/34		102		102,189
Structured Mortgage Loan Trust, Series 04-3AC, Class A2
4.92%(b)	03/25/34		156		156,414

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	29

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ENHANCED INCOME PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
Washington Mutual Mortgage Loan Trust, Series 05-AR5, Class A6	05/25/35	$	550	$	541,574
4.68%(b)
Wells Fargo Mortgage Backed Securities Trust, Series 04-3, Class A1
4.75%	04/25/19		340		329,363
Wells Fargo Mortgage Backed Securities Trust, Series 04-V, Class 1A2
3.83%(b)	10/25/34		692		680,041
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $8,718,347)					8,760,575
COMMERCIAL MORTGAGE BACKED SECURITIES — 17.1%
American Home Mortgage Assets, Series 05-1, Class 3A11
5.59%(b)	11/25/35		253		253,899
Banc of America Commercial Mortgage, Inc., Series 03-1, Class A1
3.88%	09/11/36		411		398,355
Bear Stearns Commercial Mortgage Securities, Series 00-WF, Class A1
7.11%	10/15/32		192		193,858
Commercial Mortgage Acceptance Corp., Series 98-C2, Class A2
6.03%	03/15/08		136		136,057
Commercial Mortgage Pass-Through Certificates, Series 00-C1, Class A2
7.42%	04/15/10		337		352,409
Credit Suisse First Boston Mortgage Securities Corp., Series 98-C1, Class A1B
6.48%	05/17/40		261		263,935
Credit Suisse First Boston Mortgage Securities Corp., Series 00-C1, Class A1
7.32%	04/15/42		214		217,231
Deutsche Alt-A Securities, Inc., Series 06-AF1, Class A1
5.40%(b)	04/25/36		193		192,597
Donaldson, Lufkin & Jenrette, Inc., Commerical Mortgage Corp., Series 00-CKP1, Class A1B
7.18%	11/10/33		346		364,794
Federal National Mortgage Assoc., Series 06-53, Class BA
6.00%	02/25/27		390		393,448
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 99-C3, Class A2
7.18%	08/15/36		129		133,619
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 00-C1, Class A2
7.72%	03/15/33		335		352,915
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 03-C2, Class X2 (IO)
0.33%(c)(d)	05/10/40		6,073		21,891
Goldman Sachs Mortgage Securities Corp. II, Series 98-C1, Class A3
6.14%	10/18/30		363		365,459
Homebanc Mortgage Trust, Series 05-4, Class A1
5.59%(b)	10/25/35		520		521,312
Impac Secured Assets Corp., Series 05-2, Class A2A
5.44%(b)	03/25/36		146		145,578
Lehman Brothers-UBS Commercial Mortgage Trust, Series 00-C5, Class A1
6.41%	12/15/19		263		264,260
Nationslink Funding Corp., Series 99, Class 1
6.32%	01/20/31		393		397,832
Opteum Mortgage Acceptance Corp., Series 06-1, Class 1A1A
5.41%(b)	04/25/36		269		269,108
Sequoia Mortgage Trust, Series 04-1, Class A
5.69%(b)	02/20/34		215		214,737
Structured Asset Receivable Trust, Series 04-1
4.13%(b)(d)(e)	04/21/11		440		439,943
TIAA Real Estate Collateralized Debt Obligation Ltd., Series 01-C1A, Class A4
6.68%(d)	06/19/31		365		375,720
Wachovia Bank Commercial Mortgage Trust, Series 03-C3, Class A1
4.04%	02/15/35		407		398,230
Washington Mutual Asset Securities Corp., Series 05-C1A, Class A1
4.24%(d)	05/25/36		167		165,261
Washington Mutual Asset Securities Corp., Series 05-C1A, Class X (IO)
2.11%(c)(d)	05/25/36		3,494		170,708
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $7,103,353)					7,003,156
ASSET BACKED SECURITIES — 28.7%
Aames Mortgage Investment Trust, Series 06-1, Class A1
5.38%(b)	04/25/36		242		242,357
Ace Securities Corp., Series 06-HE3, Class A2A
5.37%(b)(f)	06/27/36		286		285,745
Bank of America Credit Card Trust, Series 06, Class A16
4.72%	05/05/13		325		322,911
Bank One Issuance Trust, Series 04-A4, Class A4
5.36%(b)	02/16/10		430		430,053
Bear Stearns, Inc., Series 05-HE12, Class 1A1
5.42%(b)	12/25/35		238		237,591
Bear Stearns, Inc., Series 06-HE1, Class 1A1
5.41%(b)	01/25/30		199		198,718
Bear Stearns, Inc., Series 06-HE3, Class A1
5.40%(b)	04/25/36		356		355,662
Bear Stearns, Inc., Series 06-PC1, Class A1
5.40%(b)	01/25/29		146		145,721

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

30

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ENHANCED INCOME PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
ASSET BACKED SECURITIES (Continued)
Bear Stearns, Inc., Series 07-HE1, Class 1A1
5.44%(b)	03/25/37	$	172	$	171,918
BMW Vehicle Owner Trust, Series 05-A, Class A3
4.04%	02/25/09		324		323,175
Capital Auto Receivables Asset Trust, Series 04-2, Class A2
3.35%	02/15/08		159		158,859
Capital Auto Receivables Asset Trust, Series 06-SN1A, Class A2A
5.40%(d)	01/20/09		600		600,219
Carrington Mortgage Loan Trust, Series 06-OPT1, Class A1
5.38%(b)	02/25/29		247		247,108
Centex Home Equity Loan Trust, Series 06-A, Class AV1
5.37%(b)	06/25/36		321		320,716
Chase Credit Card Master Trust, Series 02-7, Class A
5.44%(b)	02/15/10		350		350,265
Chase Issuance Trust, Series 07-A1, Class A1
5.34%(b)	03/15/13		375		375,126
Chase Manhattan Auto Owner Trust, Series 03-A, Class, A4
2.06%	12/15/09		137		137,036
Citigroup Mortgage Loan Trust, Inc., Series 06-HE1, Class A1
5.38%(b)	01/25/36		142		141,904
Countrywide Certificates, Series 05-16, Class 4AV1
5.42%(b)	07/25/26		141		141,167
Countrywide Certificates, Series 05-IM3, Class A1
5.44%(b)	04/25/28		110		110,263
Encore Credit Receivables Trust, Series 05-4, Class 2A1
5.42%(b)	01/25/36		10		10,396
Fieldstone Mortgage Investment Corp., Series 05-3, Class 2A1
5.44%(b)	02/25/36		168		168,306
First Franklin Mortgage Loan Trust, Series 06-FF3, Class A2A
5.40%(b)	02/25/36		269		269,421
Ford Credit Auto Owner Trust, Series 05-A, Class A3
3.48%	11/15/08		347		345,475
Ford Credit Auto Owner Trust, Series 05-B, Class A3
4.17%	01/15/09		327		325,712
Ford Credit Auto Owner Trust, Series 06-C, Class A2B
5.34%(b)	12/15/09		400		399,998
Green Tree Financial Corp., Series 99-1, Class A5
6.11%	09/01/23		188		189,431
GSAA Home Equity Trust, Series 06-2N, Class N
6.00%(d)	12/25/35		28		27,762
Home Equity Asset Trust, Series 05-6, Class 2A1
5.44%(b)	12/25/35		138		138,352
Home Equity Asset Trust, Series 05-7, Class 2A1
5.44%(b)	01/25/36		130		129,607
Honda Auto Receivables Owner Trust, Series 04-2, Class A3
3.30%	06/16/08		33		32,516
Honda Auto Receivables Owner Trust, Series 05-1, Class A3
3.53%	10/21/08		212		211,129
J.P. Morgan Mortgage Acquisition Corp., Series 05-OPT2, Class A2
5.40%(b)	12/25/35		192		191,908
Long Beach Asset Holdings Corp., Series 05-2, Class N1
4.15%(d)	04/25/35		7		6,801
Long Beach Mortgage Loan Trust, Series 06-2, Class 2A1
5.39%(b)	03/25/36		178		178,272
Master Asset Backed Securities Trust, Series 06-FRE1, Class A1
5.39%(b)	12/25/35		185		185,426
MBNA Master Credit Card Trust, Series 01-B, Class A
5.58%(b)	08/15/13		275		277,478
Morgan Stanley Capital, Inc., Series 05-HE5, Class A2A
5.42%(b)	09/25/35		110		110,113
New Century Home Equity Loan Trust, Series 05-C, Class A2A
5.40%(b)	12/25/35		105		105,057
Nissan Auto Receivables Owner Trust, Series 05-A, Class A3
3.54%	10/15/08		10		10,324
Novastar Home Equity Loan, Series 06-2, Class A2A
5.37%(b)	06/25/36		220		220,246
Option One Mortgage Loan Trust, Series 01-4, Class A
5.92%(b)	01/25/32		12		12,501
Option One Mortgage Loan Trust, Series 05-1, Class A3
5.56%(b)	02/25/35		407		407,414
Option One Mortgage Loan Trust, Series 05-4, Class A2
5.42%	11/25/35		95		94,512
Ownit Mortgage Loan Certificates, Series 05-4, Class A2A1
5.44%(b)	08/25/36		179		179,472
Peoples Choice Home Loan Securities Trust, Series 05-4, Class 1A1
5.44%(b)	12/25/35		22		21,514
Popular Mortgage Pass-Through Trust, Series 04-4, Class AF1
5.57%(b)	09/25/34		132		132,081
Residential Asset Mortgage Products, Inc., Series 05-EFC4, Class A1
5.43%(b)	01/25/26		131		131,354
Soundview Home Equity Loan Trust, Series 07-NS1, Class A1
5.44%(b)	01/25/37		317		317,487
Specialty Underwriting & Residential Finance, Series 05-BC3, Class A2A
5.44%(b)	06/25/36		82		82,097
Structured Asset Investment Loan Trust, Series 05-10, Class A3
5.41%(b)	12/25/35		197		196,698

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	31

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ENHANCED INCOME PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
ASSET BACKED SECURITIES (Continued)
Structured Asset Investment Loan Trust, Series 06-2, Class A1
5.38%(b)	04/25/36	$	262	$	261,499
Structured Asset Investment Loan Trust, Series 06-BNC1, Class A2
5.39%(b)	03/25/36		187		186,505
Structured Asset Securities Corp., Series 06-BC1, Class A3
5.38%(b)	03/25/36		237		237,218
USAA Auto Owner Trust, Series 04-2, Class A3
3.03%	06/16/08		1		634
USAA Auto Owner Trust, Series 05-1, Class A3
3.90%	07/15/09		170		169,342
USAA Auto Owner Trust, Series 06-4, Class A1
5.34%	12/15/07		116		115,733
Washington Mutual Certificates, Series 07-HY1, Class A1
5.41%(b)	02/25/37		389		388,738
TOTAL ASSET BACKED SECURITIES (Cost $11,768,221)					11,765,043
CORPORATE BONDS — 8.8%
Banks — 2.2%
Bank of America Corp., Senior Unsecured Notes
3.88%	01/15/08		100		98,888
Citigroup, Inc., Senior Unsecured Notes
3.50%	02/01/08		200		197,265
J.P. Morgan Chase & Co., Senior Notes
2.62%	06/30/08		20		19,394
J.P. Morgan Chase & Co., Senior Unsecured Notes
5.25%	05/30/07		150		149,950
J.P. Morgan Chase Capital XXI, Capital Securities
6.31%(b)	02/02/37		170		171,948
U.S. Central Credit Union, Unsecured Notes
2.75%	05/30/08		30		29,216
Wells Fargo & Co., Unsecured Notes
5.45%(b)	01/24/12		250		249,844
					916,505
Computer Software & Services — 0.2%
Oracle Corp., Unsecured Notes
5.00%	01/15/11		75		74,724
Finance — 3.3%
General Electric Capital Corp., Unsecured Notes
3.45%	07/16/07		150		149,230
3.60%(f)	10/15/08		125		122,268
Golden West Financial Corp., Senior Unsecured Notes
4.12%	08/15/07		15		14,939
Goldman Sachs Group, Inc., Unsecured Notes
5.54%(b)	02/06/12		125		124,757
5.30%	02/14/12		175		175,051
Household Finance Corp., Unsecured Notes
4.12%	12/15/08		150		147,369
Lehman Brothers Holdings, Inc., Unsecured Notes
5.25%	02/06/12		300		299,725
Morgan Stanley, Senior Notes
5.61%(b)	01/09/12		50		49,993
5.62%	01/09/12		250		253,285
PSEG Funding Trust, Inc., Capital Securities
5.38%	11/16/07		25		24,978
					1,361,595
Insurance — 0.2%
ASIF Global Financing, Unsecured Notes
3.90%(d)	10/22/08		20		19,620
Metropolitan Life Global Funding, Inc., Unsecured Notes
2.60%(d)	06/19/08		75		72,696
					92,316
Oil & Gas — 0.3%
Anadarko Petroleum Corp., Senior Unsecured Notes
5.76%(b)	09/15/09		100		100,213
Real Estate — 0.4%
Avalonbay Communities, Inc., Senior Unsecured Notes (REIT)
8.25%	07/15/08		140		144,898
Retail Merchandising — 0.4%
Federated Department Stores, Inc., Senior Unsecured Notes
6.62%	09/01/08		25		25,387
May Department Stores Co., Unsecured Notes
3.95%	07/15/07		150		149,236
					174,623
Telecommunications — 0.9%
Lenfest Communications, Inc., Senior Notes
7.62%	02/15/08		125		127,145
Verizon Global Funding Corp., Senior Unsecured Notes
6.12%	06/15/07		125		125,128
Vodafone Group Plc, Unsecured Notes
5.64%(b)	02/27/12		125		125,167
					377,440
Transportation — 0.3%
Union Pacific Corp., Senior Unsecured Notes
5.75%	10/15/07		75		75,119
Union Pacific Corp., Unsecured Notes
6.79%	11/09/07		50		50,339
					125,458

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

32

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

ENHANCED INCOME PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)			VALUE
CORPORATE BONDS (Continued)
Yankee — 0.6%
ConocoPhillips Funding Co. (Australia), Unsecured Notes
5.46%(b)(g)	04/09/09	$	150		$	150,050
Telefonica Emisiones SAU (Spain), Senior Unsecured Notes
5.98%(g)	06/20/11		75			76,881
						226,931
TOTAL CORPORATE BONDS (Cost $3,607,347)						3,594,703
FOREIGN BONDS — 0.5%
Kreditanstalt Fur Wiederaufbaure (Germany), Unsecured Notes (JPY)
0.32%(b)	08/08/11		15,000			127,300
Republic of Finland, Senior Unsecured Notes (JPY)
0.30%	10/18/07		12,200			103,251
TOTAL FOREIGN BONDS (Cost $228,338)						230,551
		PAR /SHARES (000)
SHORT TERM INVESTMENTS — 8.4%
Federal Home Loan Mortgage Corp., Discount Notes
4.90%(h)	04/02/07		2,000			1,999,728
Galileo Money Market Fund, 5.02%			1,476			1,475,834
TOTAL SHORT TERM INVESTMENTS (Cost $3,475,562)						3,475,562
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 111.0% (Cost $45,626,895)						45,546,837
		PAR (000)
AFFILIATED INVESTMENTS - LONG TERM — 2.5%
Merrill Lynch Mortgage Investors Trust, Series 05-FF6, Class N1
4.50%(d)	03/25/36	$	74			73,514
Merrill Lynch Mortgage Investors, Inc., Series 97-B, Class A
5.60%(b)	11/15/25		365			364,830
Merrill Lynch Mortgage Investors, Inc., Series 04-A4, Class A2
4.24%(b)	08/25/34		398			395,704
Merrill Lynch Mortgage Investors, Inc., Series 04-E, Class A2A
5.66%(b)	11/25/29		132			132,121
Merrill Lynch Mortgage Trust, Series 02-MW1, Class XP (IO)
1.76%(c)(d)	07/12/34		2,188			67,562
TOTAL AFFILIATED INVESTMENTS - LONG TERM (Cost $1,024,851)						1,033,731
TOTAL INVESTMENTS IN SECURITIES — 113.5% (Cost $46,651,746(a))						46,580,568
MORTGAGE PASS-THROUGH TBA SALE COMMITMENTS — (6.6)%
Federal National Mortgage Assoc. 30 Year
5.50% (Premiums received $2,683,457)	04/01/1937		(2,700	)		(2,671,313	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (6.9)%						(2,851,516	)
NET ASSETS — 100.0%					$	41,057,739

(a) Cost for federal income tax purposes is $46,653,253. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	148,296
Gross unrealized depreciation		(220,981	)
	$	(72,685	)

(b) Variable rate security. Rate shown is the rate as of March 31, 2007.

(c) Rates shown are the effective yields as of March 31, 2007.

(d) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 5.0% of its net assets, with a current market value of $2,041,697, in securities restricted as to resale.

(e) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. As of March 31, 2007, these securities had a total market value of $439,943 which represents 1.1% of net assets.

(f) Security, or a portion thereof, pledged as collateral with a value of $218,836 on 28 short U.S. Treasury Note futures contracts and 18 long U.S. Treasury Note futures contracts expiring June 2007. The value of such contracts on March 31, 2007 was $6,650,344, with an unrealized loss of $14,746 (including commissions of $101).

(g) U.S. dollar denominated security issued by foreign domiciled entity.

(h) The rate shown is the effective yield at the time of purchase.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	33

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

LOW DURATION BOND PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
U.S. GOVERNMENT & AGENCY OBLIGATIONS — 1.5%
Small Business Administration Participation Certificates, Series 97, Class A
6.10%(b)(c)	08/15/22	$	581	$	576,329
U.S. Treasury Inflation Protected Notes
2.50%	07/15/16		15,805		16,255,333
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $16,507,683)					16,831,662
MORTGAGE PASS-THROUGHS — 27.2%
Federal Home Loan Mortgage Corp. ARM
4.62%(d)	02/21/08		8,000		7,967,824
7.66%(c)	05/01/15		186		184,494
6.90%(c)	01/01/16		51		51,907
6.65%(c)	01/01/19		538		541,605
7.07%(c)	09/01/19		464		470,047
6.91%(c)	03/01/20		327		331,950
6.84%(c)	06/01/20		2,484		2,552,396
7.14%(c)	10/01/23		364		369,680
7.04%(c)	08/01/31		227		229,300
4.98%(c)	08/01/32		3,137		3,157,454
3.32%(c)	07/01/34		1,868		1,880,161
3.52%(c)	07/01/34		2,298		2,303,182
4.29%(c)	11/01/34		13,466		13,304,809
5.03%(c)	12/01/35		23,487		23,334,113
Federal Home Loan Mortgage Corp. Gold
4.00%	09/01/08		3,625		3,575,494
8.25%(e)	06/01/09		0		103
4.50%	04/01/10		3,658		3,611,385
7.00%	11/15-12/16		1,167		1,205,852
6.50%	06/16-09/30		5,420		5,555,496
6.00%	11/01/33		1,975		1,999,757
Federal National Mortgage Assoc.
7.50%	06/08-09/35		9,596		10,010,749
6.50%	11/08-04/31		971		996,582
5.50%	02/09-02/20		26,072		26,190,938
6.00%	02/09-02/17		1,019		1,031,480
7.00%	03/15-07/32		4,756		4,917,437
5.00%	02/17-04/21		5,569		5,506,451
4.00%	07/01/19		7,169		6,776,465
8.00%	11/30-05/32		1,014		1,071,320
Federal National Mortgage Assoc. 15 Year TBA
6.00%	04/01/22		36,800		37,398,000
Federal National Mortgage Assoc. 1Year CMT
6.98%(c)	09/01/29		29		28,697
7.40%(c)	12/01/30		393		397,625
6.75%(c)	12/01/31		618		628,111
5.50%(c)	08/01/32		1,328		1,335,344
5.67%(c)	01/01/33		2,245		2,256,029
Federal National Mortgage Assoc. 30 Year TBA
5.50%	04/01/37		49,700		49,171,937
Federal National Mortgage Assoc. ARM
6.71%(c)	12/18-07/33		2,397		2,412,902
6.75%(c)	12/01/21		298		294,890
7.09%(c)	12/01/21		253		255,047
4.72%(c)	09/01/32		2,118		2,138,075
4.07%(c)	10/01/33		920		907,041
4.27%(c)	01/01/34		668		660,592
4.00%(c)	04/01/34		1,032		1,013,630
3.93%(c)	05/01/34		14,926		14,682,231
4.55%(c)	02/01/35		20,547		20,404,833
4.86%(c)	06/01/35		11,952		11,929,593
5.28%(c)	09/01/35		1,527		1,526,817
5.10%(c)	11/01/35		3,316		3,316,813
5.15%(c)	11/01/35		1,922		1,922,829
6.17%(c)	04/01/40		1,832		1,874,940
Government National Mortgage Assoc. I
6.00%	12/08-02/11		314		314,711
6.50%	06/15/09		200		200,812
Government National Mortgage Assoc. II ARM
3.75%(c)	05/34-06/34		24,696		24,546,723
TOTAL MORTGAGE PASS-THROUGHS (Cost $309,798,897)					308,746,653
COLLATERALIZED MORTGAGE OBLIGATIONS — 17.6%
Bear Stearns Mortgage Trust, Series 04-13, Class A1
5.69%(c)	11/25/34		6,852		6,866,876
Bear Stearns Mortgage Trust, Series 04-7, Class 4A
3.73%(c)	10/25/34		8,911		8,968,328
Countrywide Alternative Loan Trust, Series 05-CB, Class 2A3
5.50%	07/25/35		10,078		10,103,163
Countrywide Home Loans, Series 03-37, Class 2A1
4.25%(c)	09/25/33		9,282		9,279,801
Countrywide Home Loans, Series 04-29, Class 1A1
5.59%(c)	02/25/35		2,269		2,271,467
Federal Home Loan Mortgage Corp. Strip Notes, Series 19, Class F
5.80%(c)	06/01/28		1,507		1,502,040
Federal Home Loan Mortgage Corp., Series 1165, Class LD
7.00%	11/15/21		1,389		1,386,491
Federal Home Loan Mortgage Corp., Series 231 (IO)
5.50%(f)	08/01/35		9,847		2,251,815
Federal Home Loan Mortgage Corp., Series 232 (IO)
5.00%(f)	08/01/35		20,712		4,862,038
Federal Home Loan Mortgage Corp., Series 2744, Class PB
5.50%	03/15/26		873		871,217
Federal Home Loan Mortgage Corp., Series 2996, Class PB
5.50%	05/15/35		13,439		13,562,271
Federal Home Loan Mortgage Corp., Series 3215, Class EP
5.38%	09/15/11		16,962		16,966,066
Federal National Mortgage Assoc., Series 93-188, Class K
6.00%	10/25/08		4,477		4,479,527
Federal National Mortgage Assoc., Series 97-20, Class FB
5.39%(c)	03/25/27		1,943		1,918,885

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

34

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

LOW DURATION BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
Federal National Mortgage Assoc., Series 01-60, Class JZ
6.00%	03/25/31	$	166	$	165,750
Federal National Mortgage Assoc., Series 03-17, Class QR
4.50%	11/25/25		7,689		7,626,795
Federal National Mortgage Assoc., Series 04-W10, Class A1
5.75%	08/25/34		4,798		4,781,283
Federal National Mortgage Assoc., Series 05-84, Class XK
5.75%	08/25/23		5,352		5,339,492
Federal National Mortgage Assoc., Series 06, Class WA
6.00%	05/25/28		9,355		9,435,357
Federal National Mortgage Assoc., Series 06-M2, Class A1A
3.25%	11/15/08		1,273		1,256,477
Federal National Mortgage Assoc., Series 354, Class 2 (IO)
5.50%(f)	11/01/34		8,387		1,922,642
Federal National Mortgage Assoc., Series 377, Class 2 (IO)
5.00%(f)	10/01/36		6,201		1,490,434
Goldman Sachs Mortgage Securities Corp. II, Series 00-1, Class A
5.67%(b)(c)	06/20/24		405		405,499
Goldman Sachs Residential Mortgage Loan Trust, Series 04-9, Class 3A1
3.72%(c)	08/25/34		13,609		13,714,776
Goldman Sachs Residential Mortgage Loan Trust, Series 05-AR6, Class 1A1
4.55%(c)	09/25/35		11,514		11,404,399
Harborview Mortgage Loan Trust, Series 05-10, Class 2A1A
5.63%(c)	11/19/35		11,039		11,069,633
J.P. Morgan Mortgage Trust, Series 06-A2, Class 4A1
3.89%(c)	08/25/34		12,857		12,683,818
Mortgage IT Trust, Series 04-1, Class A1
5.71%(c)	11/25/34		10,365		10,424,454
Residential Accredit Loans, Inc., Series 01-QS19, Class A1
6.00%	12/25/16		136		135,110
Structured Mortgage Loan Trust, Series 04-13, Class A2
5.62%(c)	09/25/34		2,239		2,242,433
Structured Mortgage Loan Trust, Series 04-3AC, Class A2
4.92%(c)	03/25/34		8,810		8,837,368
Washington Mutual Mortgage Securities Corp., Series 02-AR1, Class IA1
7.29%(c)	11/25/30		428		425,668
Washington Mutual Mortgage Securities Corp., Series 02-AR19, Class A8
4.56%(c)	02/25/33		572		568,916
Wells Fargo Mortgage Backed Securities Trust, Series 04-3, Class A1
4.75%	04/25/19		10,703		10,374,937
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $199,485,461)					199,595,226
COMMERCIAL MORTGAGE BACKED SECURITIES — 17.0%
American Home Mortgage Assets, Series 05-1, Class 3A11
5.59%(c)	11/25/35		6,713		6,728,333
Banc of America Funding Corp., Series 06-I, Class 1A1
4.58%(c)	12/20/36		9,193		9,115,512
Capco America Securitization Corp., Series 98-D7, Class PS1 (IO)
1.16%(b)(f)	10/15/30		32,299		581,742
Chase Manhattan Bank-First Union National Bank, Series 99-1, Class A2
7.44%	08/15/31		8,130		8,483,719
Citigroup Commercial Mortgage Trust, Series 05-EMG, Class A1
4.15%(b)	09/20/51		4,557		4,490,351
Commercial Mortgage Acceptance Corp., Series 98-C2, Class A2
6.03%	03/15/08		4,395		4,406,735
Commercial Mortgage Pass-Through Certificates, Series 00-C1, Class A2
7.42%	04/15/10		8,960		9,369,931
Credit Suisse First Boston Mortgage Securities Corp., Series 98-C2, Class A2
6.30%	11/11/30		7,878		7,977,693
Deutsche Alt-A Securities, Inc., Series 06-AF1, Class A1
5.40%(c)	04/25/36		4,667		4,667,643
Donaldson, Lufkin & Jenrette, Inc., Commerical Mortgage Corp., Series 00-CKP1, Class A1B
7.18%	11/10/33		8,278		8,725,475
Federal National Mortgage Assoc. Grantor Trust, Series 02-T6, Class A1
3.31%	02/25/32		1,810		1,676,643
Federal National Mortgage Assoc., Series 06-M2, Class A1A
4.86%(c)	07/01/16		7,854		7,880,319
First Union-Chase Commercial Mortgage Trust, Series 99-C2, Class A2
6.64%	04/15/09		13,502		13,790,228
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 99-C3, Class A2
7.18%	08/15/36		7,315		7,580,170
Goldman Sachs Mortgage Securities Corp. II, Series 98-C1, Class A3
6.14%	10/18/30		9,644		9,713,212

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	35

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

LOW DURATION BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COMMERCIAL MORTGAGE BACKED SECURITIES (Continued)
Goldman Sachs Mortgage Securities Corp. II, Series 03-C1, Class X2 (IO)
1.03%(b)(f)	01/10/40	$	219,235	$	3,793,226
Impac Secured Assets Corp., Series 05-2, Class A2A
5.44%(c)	03/25/36		3,723		3,723,540
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 04-FL1A, Class A2
5.50%(c)	04/16/19		3,098		3,098,160
J.P. Morgan Mortgage Trust, Series 07-A1, Class 4A1
4.07%(c)	07/25/35		13,239		13,001,923
Lehman Brothers-UBS Commercial Mortgage Trust, Series 00-C5, Class A1
6.41%	12/15/19		7,085		7,120,335
Lehman Brothers-UBS Commercial Mortgage Trust, Series 03-C3, Class XCP (IO)
1.23%(b)(f)	02/15/37		37,389		865,881
Lehman Brothers-UBS Commercial Mortgage Trust, Series 03-C5, Class XCP (IO)
1.11%(b)(f)	04/15/37		176,921		2,229,768
Mortgage Capital Funding, Inc., Series 98-MC1, Class X (IO)
0.29%(f)	03/18/30		54,661		148,640
Nationslink Funding Corp., Series 99, Class 1
6.32%	01/20/31		9,632		9,744,789
Opteum Mortgage Acceptance Corp., Series 06-1, Class 1A1A
5.41%(c)	04/25/36		6,405		6,398,794
Structured Asset Receivables Trust, Series 03-1
3.18%(b)(c)(g)(h)	01/21/10		11,470		11,466,554
TIAA Real Estate Collateralized Debt Obligation Ltd., Series 01-C1A, Class A4
6.68%(b)	06/19/31		8,510		8,759,945
Wachovia Bank Commercial Mortgage Trust, Series 03-C3, Class A1
4.04%	02/15/35		9,133		8,929,853
Washington Mutual Asset Securities Corp., Series 05-C1A, Class A1
4.24%(b)	05/25/36		4,468		4,413,610
Washington Mutual Asset Securities Corp., Series 05-C1A, Class X (IO)
2.11%(b)(f)	05/25/36		83,667		4,087,320
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $195,251,760)					192,970,044
ASSET BACKED SECURITIES — 24.7%
Accredited Mortgage Loan Trust, Series 05-3, Class A2A
5.42%(c)	09/25/35		272		272,232
Amresco Independence Funding, Inc., Series 99-1, Class A
5.25%(b)(c)	06/15/20		4,347		4,319,065
Bank of America Credit Card Trust, Series 06, Class A16
4.72%	05/05/13		10,775		10,705,759
Bear Stearns, Inc., Series 06-HE1, Class 1A1
5.41%(c)	01/25/30		4,817		4,815,589
Bear Stearns, Inc., Series 06-PC1, Class A1
5.40%(c)	01/25/29		3,627		3,627,954
BMW Vehicle Owner Trust, Series 05-A, Class A3
4.04%	02/25/09		7,941		7,910,760
Business Loan Express, Inc., Series 98-1, Class A
7.25%(b)(c)	01/15/25		1,046		969,270
Capital Auto Receivables Asset Trust, Series 04-2, Class A2
3.35%	02/15/08		4,016		4,009,812
Capital Auto Receivables Asset Trust, Series 05-1, Class A4
4.05%	07/15/09		11,616		11,558,845
Capital Auto Receivables Asset Trust, Series 06-SN1A, Class A2A
5.40%(b)	01/20/09		15,950		15,955,820
Citibank Credit Card Issuance Trust, Series 04, Class A4
3.20%	08/24/09		8,700		8,628,195
Countrywide Certificates, Series 05-16, Class 4AV1
5.42%(c)	07/25/26		3,678		3,678,642
Countrywide Certificates, Series 05-IM3, Class A1
5.44%(c)	04/25/28		2,877		2,876,860
DaimlerChrysler Auto Trust, Series 06, Class A3
5.33%	08/08/10		10,425		10,449,447
Encore Credit Receivables Trust, Series 05-4, Class 2A1
5.42%(c)	01/25/36		279		279,221
Fieldstone Mortgage Investment Corp., Series 05-3, Class 2A1
5.44%(c)	02/25/36		5,943		5,943,305
First Franklin Mortgage Loan Trust, Series 06-FF3, Class A2A
5.40%(c)	02/25/36		5,885		5,885,883
Ford Credit Auto Owner Trust, Series 05, Class A4
4.36%	06/15/10		15,825		15,638,111
Ford Credit Auto Owner Trust, Series 05-A, Class A3
3.48%	11/15/08		6,457		6,424,873
Ford Credit Auto Owner Trust, Series 06, Class A4
5.07%	12/15/10		11,925		11,933,758
Ford Credit Auto Owner Trust, Series 06-B, Class A3
5.26%	10/15/10		12,575		12,601,814
Green Tree Financial Corp., Series 93-4, Class A5
7.05%	01/15/19		1,319		1,343,906
Green Tree Financial Corp., Series 95-5, Class M1
7.65%	09/15/26		600		623,466
Green Tree Financial Corp., Series 96-8, Class A6
7.60%	10/15/27		3,036		3,144,421

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

36

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

LOW DURATION BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
ASSET BACKED SECURITIES (Continued)
Green Tree Financial Corp., Series 99-1, Class A5
6.11%	09/01/23	$	4,706	$	4,735,765
GSAA Home Equity Trust, Series 04-11, Class 2A2
5.64%(c)	12/25/34		5,632		5,645,941
GSAA Home Equity Trust, Series 06-8N, Class N1
6.00%(b)	10/26/36		1,906		1,896,434
Heller Financial Commercial Mortgage Asset Corp., Series 98-1, Class A
6.03%(b)(c)	07/15/24		2,118		2,096,487
Honda Auto Receivables Owner Trust, Series 04-2, Class A3
3.30%	06/16/08		3,897		3,883,538
Honda Auto Receivables Owner Trust, Series 04-3, Class A3
2.91%	10/20/08		5,718		5,675,888
Honda Auto Receivables Owner Trust, Series 05-4, Class A3
4.46%	05/21/09		10,508		10,461,437
IFC Small Business Administration Loan-Backed Certificates, Series 97-1, Class A
6.25%(b)(c)	01/15/24		648		644,009
Indymac Residential Trust, Series 06-B, Class 2A1
5.38%(c)	06/25/36		2,595		2,595,410
J.P. Morgan Mortgage Acquisition Corp., Series 05-OPT2, Class A2
5.40%(c)	12/25/35		1,527		1,527,587
Long Beach Mortgage Loan Trust, Series 06-2, Class 2A1
5.39%(c)	03/25/36		4,000		4,000,721
Master Asset Backed Securities Trust, Series 06-FRE1, Class A1
5.39%(c)	12/25/35		4,056		4,056,195
MBNA Master Credit Card Trust, Series 01-B, Class A
5.58%(c)	08/15/13		8,400		8,475,692
The Money Store Small Business Administration Loan Trust, Series 98-1, Class A
5.93%(c)	07/15/24		809		794,608
Morgan Stanley Capital, Inc., Series 05-HE5, Class A2A
5.42%(c)	09/25/35		3,005		3,005,434
New Century Home Equity Loan Trust, Series 05-C, Class A2A
5.40%(c)	12/25/35		2,779		2,778,168
Nissan Auto Receivables Owner Trust, Series 05-B, Class A3
3.99%	07/15/09		11,016		10,941,616
Option One Mortgage Loan Trust, Series 05-4, Class A2
5.42%(c)	11/25/35		2,588		2,587,816
Ownit Mortgage Loan Certificates, Series 05-4, Class A2A1
5.44%(c)	08/25/36		4,725		4,725,497
PBG Equipment Trust, Series 00-1A, Class A
6.27%(b)	01/20/12		444		444,197
Peoples Choice Home Loan Securities Trust, Series 05-4, Class 1A1
5.44%(c)	12/25/35		263		263,396
PMC Capital LP, Series 98-1, Class A
7.25%(b)(c)	04/01/21		2,557		2,556,571
Residential Asset Mortgage Products, Inc., Series 05-EFC4, Class A1
5.43%(c)	01/25/26		3,598		3,597,952
Residential Asset Mortgage Products, Inc., Series 05-RS8, Class A1
5.43%(c)	05/25/25		860		859,811
Securitized Asset Backed Receivables LLC, Series 06-FR3, Class A1
5.37%(c)	05/25/36		5,981		5,980,796
Specialty Underwriting & Residential Finance, Series 05-BC3, Class A2A
5.44%(c)	06/25/36		2,245		2,245,180
Structured Asset Investment Loan Trust, Series 05-10, Class A3
5.41%(c)	12/25/35		5,167		5,167,786
Structured Asset Investment Loan Trust, Series 06-BNC1, Class A2
5.39%(c)	03/25/36		4,074		4,072,034
SWB Loan-Backed Certificates, Series 98-1, Class AV
6.00%(b)(c)	09/15/24		2,516		2,514,272
USAA Auto Owner Trust, Series 05-1, Class A3
3.90%	07/15/09		4,534		4,507,096
USAA Auto Owner Trust, Series 05-2, Class A3
4.00%	12/15/09		14,777		14,671,895
TOTAL ASSET BACKED SECURITIES (Cost $281,465,413)					281,006,237
CORPORATE BONDS — 15.5%
Banks — 3.9%
Citigroup, Inc., Senior Unsecured Notes
3.50%(i)	02/01/08		5,200		5,128,880
J.P. Morgan Chase & Co., Senior Unsecured Notes
6.00%	08/01/08		3,180		3,209,078
J.P. Morgan Chase Capital XXI, Capital Securities
6.31%(c)(j)	02/02/37		5,140		5,198,899
U.S. Bank N.A., Subordinated Notes
6.50%	02/01/08		3,580		3,603,037
U.S. Central Credit Union, Unsecured Notes
2.75%	05/30/08		3,700		3,603,375
Wells Fargo & Co., Senior Unsecured Notes
5.45%(c)	09/15/09		22,515		22,553,748
Wells Fargo & Co., Unsecured Notes
3.50%	04/04/08		1,200		1,179,607
					44,476,624

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	37

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

LOW DURATION BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Computer Software & Services — 0.1%
Oracle Corp., Unsecured Notes
5.00%	01/15/11	$	1,700	$	1,693,746
Electronics — 1.1%
TXU Energy Co. LLC, Unsecured Notes
5.35%(b)(c)	09/16/08		12,455		12,453,991
Finance — 5.8%
Federal Home Loan Mortgage Corp., Unsecured Notes
5.12%(i)(k)	04/08-10/08		12,000		12,025,668
General Electric Capital Corp., Notes
8.75%	05/21/07		5,320		5,342,466
General Electric Capital Corp., Unsecured Notes
3.45%	07/16/07		7,700		7,660,468
4.12%	03/04/08		8,300		8,220,453
Goldman Sachs Group, Inc., Unsecured Notes
5.54%(c)	02/06/12		3,575		3,568,068
5.30%(j)	02/14/12		5,925		5,926,718
Household Finance Corp., Unsecured Notes
4.12%(j)	12/15/08		4,375		4,298,263
Lehman Brothers Holdings, Inc., Unsecured Notes
5.25%	02/06/12		8,050		8,042,618
Morgan Stanley, Senior Notes
5.61%(c)	01/09/12		1,850		1,849,748
5.62%	01/09/12		7,250		7,345,258
PSEG Funding Trust, Inc., Capital Securities
5.38%	11/16/07		1,250		1,248,894
					65,528,622
Insurance — 0.2%
ASIF Global Financing, Unsecured Notes
3.90%(b)	10/22/08		2,540		2,491,735
Oil & Gas — 0.4%
Anadarko Petroleum Corp., Senior Unsecured Notes
5.76%(c)	09/15/09		4,175		4,183,880
Real Estate — 0.4%
Avalonbay Communities, Inc., Senior Unsecured Notes (REIT)
8.25%	07/15/08		3,945		4,083,024
Retail Merchandising — 0.5%
Federated Department Stores, Inc., Senior Unsecured Notes
6.62%	09/01/08		800		812,366
May Department Stores Co., Unsecured Notes
3.95%	07/15/07		4,675		4,651,190
					5,463,556
Telecommunications — 1.2%
Lenfest Communications, Inc., Senior Notes
7.62%	02/15/08		3,850		3,916,058
Verizon Global Funding Corp., Senior Unsecured Notes
6.12%	06/15/07		5,415		5,420,545
Vodafone Group Plc, Unsecured Notes
5.64%(c)	02/27/12		4,535		4,541,086
					13,877,689
Transportation — 0.3%
Union Pacific Corp., Senior Unsecured Notes
5.75%	10/15/07		2,025		2,028,203
Union Pacific Corp., Unsecured Notes
6.79%	11/09/07		1,775		1,787,033
					3,815,236
Yankee — 1.6%
ConocoPhillips Funding Co. (Australia), Unsecured Notes
5.46%(c)(l)	04/09/09		4,000		4,001,328
Eksportfinans ASA (Norway), Unsecured Notes
3.38%(l)	01/15/08		9,315		9,178,228
Nationwide Building Society (United Kingdom), Senior Unsecured Notes
3.50%(b)(l)	07/31/07		1,975		1,962,792
Telefonica Europe BV (Netherlands), Senior Unsecured Notes
7.75%(l)	09/15/10		2,325		2,505,332
					17,647,680
TOTAL CORPORATE BONDS (Cost $176,357,235)					175,715,783
FOREIGN BONDS — 0.9%
Kreditanstalt Fur Wiederaufbaure (Germany), Unsecured Notes (JPY)
0.32%(c)	08/08/11		442,000		3,751,108
Province of Manitoba (Canada), Senior Unsecured Notes (NZD)
6.38%	09/01/15		1,300		882,767
Province of Ontario (Canada), Unsecured Notes (NZD)
6.25%	06/16/15		4,540		3,035,881
Republic of Finland, Senior Unsecured Notes (JPY)
0.30%	10/18/07		367,300		3,108,516
TOTAL FOREIGN BONDS (Cost $10,907,471)					10,778,272
BANK LOANS — 0.4%
Time Warner Cable, Inc.
5.76% (Cost $4,996,875)	02/24/09		5,000		4,992,190

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

38

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

LOW DURATION BOND PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR/SHARES (000)			VALUE
SHORT TERM INVESTMENTS — 0.1%
Federal Farm Credit Bank, Discount Notes
5.14%(m)	04/05/07	$	1,100		$	1,099,372
Galileo Money Market Fund, 5.02%			39			38,505
TOTAL SHORT TERM INVESTMENTS (Cost $1,137,877)						1,137,877
		NUMBER OF CONTRACTS
CALL OPTIONS PURCHASED — 0.0%
June 10 year U.S. Treasury Notes futures, Strike Price $110, Expires 05/25/07 (Cost $23,733)			53			9,109
CALL SWAPTIONS PURCHASED — 0.1%
Deutsche Bank, Strike Rate 5.205%, Expires 03/01/16 (Cost $1,534,785)			3,290	(n)		965,678
PUT SWAPTIONS PURCHASED — 0.1%
Deutsche Bank, Strike Rate 5.205%, Expires 03/01/16 (Cost $1,534,785)			3,290	(n)		1,726,628
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 105.1% (Cost $1,199,001,975)						1,194,475,359
		PAR (000)
AFFILIATED INVESTMENTS - LONG TERM — 1.0%
Federal Housing Authority, Merrill Lynch Project, Pool 42
7.43%	09/01/22	$	5			5,132
Merrill Lynch Mortgage Investors, Inc., Series 97-B, Class A
5.60%(c)	11/15/25		942			942,303
Merrill Lynch Mortgage Investors, Inc., Series 99-A, Class A
5.70%(c)	03/15/25		477			477,806
Merrill Lynch Mortgage Investors, Inc., Series 04-A4, Class A2
4.24%(c)	08/25/34		9,865			9,817,545
TOTAL AFFILIATED INVESTMENTS - LONG TERM (Cost $11,051,195)						11,242,786
		NUMBER OF SHARES
AFFILIATED INVESTMENTS—SHORT TERM — 0.5%
Institutional Money Market Trust, 4.80%(o) (Cost $5,871,000)			5,871,000			5,871,000
TOTAL INVESTMENTS IN SECURITIES — 106.6% (Cost $1,215,924,170(a))						1,211,589,145
		NUMBER OF CONTRACTS
CALL SWAPTIONS WRITTEN — (0.1)%
Deutsche Bank, Strike Rate 5.480%, Expires 10/26/09 (Premiums received $930,000)			(2,480	)(n)		(881,887	)
PUT SWAPTIONS WRITTEN — (0.1)%
Deutsche Bank, Strike Rate 3.250%, Expires 06/19/08			(1,990	)(n)	$	(960,086	)
Deutsche Bank, Strike Rate 5.480%, Expires 10/26/09			(2,480	)(n)		(719,944	)
Deutsche Bank, Strike Rate 5.765%, Expires 06/19/08			(1,990	)(n)		(167,142	)
TOTAL PUT SWAPTIONS WRITTEN (Premiums received $ 2,223,500)						(1,847,172	)
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (0.5)%						(5,871,000	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (5.9)%						(66,843,373	)
NET ASSETS — 100.0%					$	1,136,145,713

(a) Cost for federal income tax purposes is $1,215,972,370. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	3,791,186
Gross unrealized depreciation		(8,174,411	)
	$	(4,383,225	)

(b) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 7.9% of its net assets, with a current market value of $89,974,869, in securities restricted as to resale.

(c) Variable rate security. Rate shown is the rate as of March 31, 2007.

(d) Security, or a portion thereof, subject to financing transactions.

(e) Par held at March 31, 2007 is less than $500.

(f) Rates shown are the effective yields as of March 31, 2007.

(g) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. As of March 31, 2007, these securities had a total market value of $11,466,554 which represents 1.0% of net assets.

(h) Security is illiquid. As of March 31, 2007, the Portfolio held 1.0% of its net assets, with a current market value of $11,466,554 in these securities.

(i) Security, or a portion thereof, pledged as collateral with a value of $6,232,506 on 477 short U.S. Treasury Note futures contracts, 1,655 long U.S. Treasury Note futures contracts, 25 short U.S. Treasury Bond futures contracts and 106 long Euro-Bund futures contracts expiring June 2007. The value of such contracts on March 31, 2007 was $409,021,395, with an unrealized loss of $530,807 (including commissions of $3,574).

(j) Total or partial security on loan.

(k) Security, or a portion thereof, with a market value of $1,404,616, has been pledged as collateral for swap and swaption contracts.

(l) U.S. dollar denominated security issued by foreign domiciled entity.

(m) The rate shown is the effective yield at the time of purchase.

(n) Each swaption contract is equivalent to $10,000 notional amount.

(o) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	39

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE GOVERNMENT BOND PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
U.S. GOVERNMENT & AGENCY OBLIGATIONS — 16.1%
Federal Home Loan Bank, Unsecured Bonds
3.60%	10/19/07	$	11,170	$	11,072,028
2.75%	01/09/08		4,410		4,330,871
3.01%	04/02/08		10,000		9,803,340
3.00%	06/25/08		4,015		3,920,828
2.90%	07/15/08		2,000		1,948,990
3.25%	07/30/08		17,955		17,564,802
3.35%	01/23/09		2,000		1,947,086
4.00%	02/19/09		1,200		1,180,055
Federal Home Loan Mortgage Corp., Unsecured Notes
3.50%	05/08-05/08		17,305		17,022,506
3.06%	07/15/08		3,155		3,081,280
Housing and Urban Development, Section 108 Government Guaranteed Participation Certificates, Series 03-A
4.44%	08/01/11		2,099		2,065,349
Small Business Administration Participation Certificates, Series 96-20H, Class 1
7.25%	08/01/16		1,152		1,200,626
Small Business Administration Participation Certificates, Series 96-20J, Class 1
7.20%	10/01/16		1,043		1,084,075
Small Business Administration Participation Certificates, Series 98-20J, Class 1
5.50%	10/01/18		1,932		1,955,020
U.S. Treasury Inflation Protected Bonds
2.00%	01/15/26		3,280		3,179,129
2.38%	01/15/27		785		794,422
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $82,179,996)					82,150,407
MORTGAGE PASS-THROUGHS — 45.2%
Federal Home Loan Mortgage Corp. ARM
3.52%(b)	07/01/34		2,241		2,246,164
3.72%(b)	07/01/34		1,848		1,794,854
5.02%(b)	08/01/34		4,641		4,627,524
4.39%(b)	11/01/34		2,394		2,369,051
4.36%(b)	03/01/35		7,534		7,451,655
4.76%(b)	03/01/35		8,303		8,266,346
4.75%(b)	04/01/35		9,140		9,130,434
4.77%(b)	09/01/35		9,436		9,397,976
5.54%(b)	04/01/36		3,899		3,900,686
6.00%(b)	10/01/36		3,749		3,798,179
5.95%(b)	12/01/36		5,290		5,352,941
6.04%(b)	12/01/36		33		33,006
Federal Home Loan Mortgage Corp. Gold
9.00%	12/01/09		176		178,850
5.00%	10/20-03/21		28,739		28,353,936
6.00%	12/01/36		9,707		9,784,974
Federal National Mortgage Assoc.
8.00%	04/08-06/08		162		163,294
6.50%	05/08-12/29		8,725		8,934,621
8.50%	02/09-08/09		239		242,737
9.00%	05/09-04/16		257		262,842
5.06%	02/01/11		6,075		6,082,322
5.01%	01/25/12		10,994		10,780,877
5.24%	04/01/12		4,500		4,537,418
6.00%	04/16-10/36		13,155		13,252,841
7.00%	01/17-04/32		1,120		1,159,054
5.00%	06/18-06/23		1,779		1,740,950
4.50%	10/01/18		16		15,447
5.50%	01/24-06/36		1,075		1,069,320
Federal National Mortgage Assoc. ARM
4.79%(b)	03/01/33		3,477		3,466,596
4.27%(b)	05/01/33		2,419		2,370,212
4.00%(b)	09/33-04/34		3,623		3,539,721
5.38%(b)	10/01/33		3,111		3,173,784
3.88%(b)	05/01/34		1,854		1,820,905
3.56%(b)	06/01/34		1,153		1,161,298
4.38%(b)	06/01/34		5,369		5,336,671
3.74%(b)	07/01/34		2,059		2,006,643
4.48%(b)	07/01/34		6,515		6,494,814
4.82%(b)	08/01/34		2,484		2,461,475
4.64%(b)	02/01/35		10,532		10,461,173
4.59%(b)	03/01/35		5,134		5,092,583
4.94%(b)	07/01/35		12,621		12,583,064
5.00%(b)	07/01/35		3,145		3,122,195
5.40%(b)	07/01/35		5,301		5,272,510
Government National Mortgage Assoc. I
6.00%	02/15/11		191		191,674
Government National Mortgage Assoc. II ARM
3.75%(b)	06/20/34		2,386		2,371,896
3.50%(b)	07/20/34		4,591		4,485,911
4.50%(b)	02/20/35		3,310		3,298,641
5.00%(b)	05/20/35		7,417		7,385,250
TOTAL MORTGAGE PASS-THROUGHS (Cost $231,480,934)					231,025,315
COLLATERALIZED MORTGAGE OBLIGATIONS — 17.5%
Bear Stearns Mortgage Trust, Series 04-13, Class A1
5.69%(b)	11/25/34		1,274		1,276,854
Deutsche Mortgage Securities, Inc., Series 04-4, Class 3AR1
3.64%(b)	06/25/34		879		881,415
Federal Home Loan Mortgage Corp., Series 1361, Class I
6.00%	09/15/07		14		14,015
Federal Home Loan Mortgage Corp., Series 06-3110, Class HA
5.50%	01/15/27		5,099		5,113,825
Federal Home Loan Mortgage Corp., Series 2668, Class AD
4.00%	01/15/15		2,217		2,178,312
Federal Home Loan Mortgage Corp., Series 2718, Class MR
4.00%	08/15/13		1,294		1,278,633
Federal Home Loan Mortgage Corp., Series 2931, Class DE
4.00%	02/15/20		10,000		9,111,355
Federal Home Loan Mortgage Corp., Series 3131, Class MA
5.50%	11/15/27		2,676		2,684,922

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

40

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE GOVERNMENT BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
Federal Home Loan Mortgage Corp., Series 3143, Class NA
5.50%	07/15/26	$	4,499	$	4,513,451
Federal Home Loan Mortgage Corp., Series 3162, Class 0A
6.00%	10/15/26		4,391		4,437,293
Federal National Mortgage Assoc., Series 01-T2, Class B
6.02%	11/25/10		3,600		3,726,499
Federal National Mortgage Assoc., Series 04-W10, Class A1
5.75%	08/25/34		509		506,839
Federal National Mortgage Assoc., Series 05-109, Class PV
6.00%	10/25/32		3,997		4,074,138
Federal National Mortgage Assoc., Series 05-29, Class JB
4.50%	04/25/35		8,849		8,691,177
Federal National Mortgage Assoc., Series 05-57, Class PA
5.50%	05/25/27		2,402		2,402,060
Federal National Mortgage Assoc., Series 05-68, Class PC
5.50%	07/25/35		4,855		4,882,006
Federal National Mortgage Assoc., Series 05-70, Class KB
5.50%	05/25/35		4,718		4,752,548
Federal National Mortgage Assoc., Series 05-83, Class LA
5.50%	10/25/35		4,295		4,328,209
Federal National Mortgage Assoc., Series 05-84, Class MB
5.75%	10/25/35		11,575		11,751,955
Federal National Mortgage Assoc., Series 06-39, Class G1
5.50%	11/25/25		4,296		4,294,977
Federal National Mortgage Assoc., Series 378, Class 4 (IO)
5.00%(c)	11/01/35		6,074		1,358,034
Goldman Sachs Residential Mortgage Loan Trust, Series 04-9, Class 3A1
3.72%(b)	08/25/34		2,058		2,074,019
Mortgage IT Trust, Series 04-1, Class A1
5.71%(b)	11/25/34		1,710		1,720,281
Structured Mortgage Loan Trust, Series 04-13, Class A2
5.62%(b)	09/25/34		360		360,516
Summit Mortgage Trust, Series 00-1, Class B1
6.15%(b)(d)(e)	12/28/12		18		17,813
Washington Mutual Mortgage Securities Corp., Series 03-AR4, Class A6
3.42%(b)	05/25/33		3,301		3,245,935
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $90,080,229)					89,677,081
COMMERCIAL MORTGAGE BACKED SECURITIES — 10.2%
Banc of America Commercial Mortgage, Inc., Series 02-PB2, Class A4
6.19%	06/11/35		3,380		3,521,771
Bear Stearns Commercial Mortgage Securities, Inc., Series 02-TOP6, Class A1
5.92%	10/15/36	$	1,627	$	1,649,989
Bear Stearns Commercial Mortgage Securities, Inc., Series 04-PWR4, Class A1
4.36%	06/11/41		1,684		1,660,837
Commercial Mortgage Pass-Through Certificates, Series 00-C1, Class A2
7.42%	04/15/10		3,895		4,073,433
Credit Suisse First Boston Mortgage Securities Corp., Series 02-CKS4, Class A2
5.18%	08/15/12		3,905		3,901,359
Federal National Mortgage Assoc. Grantor Trust, Series 02-T6, Class A1
3.31%	02/25/32		479		443,956
First Union National Bank Commercial Mortgage Trust, Series 00-C2, Class A2
7.20%	10/15/32		3,640		3,848,750
First Union-Chase Commercial Mortgage Trust, Series 99-C2, Class A2
6.64%	04/15/09		5,386		5,501,182
General Electric Capital Commercial Mortgage Corp., Series 02-1A, Class A3
6.27%	12/10/35		3,540		3,703,992
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 97-C1, Class X (IO)
1.37%(c)	07/15/27		6,480		159,881
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 99-C3, Class A2
7.18%	08/15/36		1,167		1,209,794
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 01-C1, Class A3
5.86%	10/12/35		3,580		3,675,286
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 01-CIBC, Class A3
6.26%	03/15/33		1,635		1,687,130
Lehman Brothers-UBS Commercial Mortgage Trust, Series 00-C5, Class A1
6.41%	12/15/19		1,439		1,446,089
Lehman Brothers-UBS Commercial Mortgage Trust, Series 01-C7, Class A3
5.64%	04/15/11		2,194		2,215,358
Lehman Brothers-UBS Commercial Mortgage Trust, Series 04-C2, Class A2
3.25%	03/15/29		2,100		2,031,552
Lehman Brothers-UBS Commercial Mortgage Trust, Series 04-C4, Class A1
3.82%	06/15/29		1,422		1,400,883

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	41

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE GOVERNMENT BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)			VALUE
COMMERCIAL MORTGAGE BACKED SECURITIES (Continued)
The Money Store Small Business Administration Loan Trust, Series 99-1, Class A
6.05%(b)	07/15/25	$	717		$	712,690
Morgan Stanley Dean Witter Capital Investments, Series 02-TOP7, Class A1
5.38%	01/15/39		2,408			2,418,338
Structured Asset Receivables Trust, Series 03-2
5.72%(b)(d)(e)(f)	01/21/09		1,853			1,852,463
Wachovia Bank Commercial Mortgage Trust, Series 03-C5, Class A1
2.99%	06/15/35		2,082			1,974,908
Wachovia Bank Commercial Mortgage Trust, Series 04-C12, Class A1
3.40%	07/15/41		1,529			1,495,981
Washington Mutual Asset Securities Corp., Series 05-C1A, Class X (IO)
2.11%(c)(d)	05/25/36		35,092			1,714,323
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $53,572,250)						52,299,945
PROJECT LOANS — 0.1%
Federal Housing Authority, USGI Project, Series 56
7.46% (Cost $531,685)	01/01/23		519			526,280
ASSET BACKED SECURITIES — 2.3%
Bear Stearns, Inc., Series 06-HE1, Class 1A1
5.41%(b)	01/25/30		2,109			2,108,614
Green Tree Financial Corp., Series 97-5, Class A7
7.13%	05/15/29		1,538			1,595,828
IndyMac Residential Trust, Series 06-E, Class 2A1
5.38%(b)	04/25/37		3,879			3,876,692
Master Securities Trust, Series 05-HE2, Class A2
5.43%(b)	10/25/35		1,045			1,045,616
Residential Asset Mortgage Products, Inc., Series 05-RZ4, Class A1
5.44%(b)	11/25/35		2,586			2,586,755
SWB Loan-Backed Certificates, Series 99-1, Class A
7.38%(d)	05/15/25		553			555,800
TOTAL ASSET BACKED SECURITIES (Cost $11,721,949)						11,769,305
CORPORATE BONDS — 2.7%
Finance — 1.7%
General Electric Capital Corp., Unsecured Notes
4.88%(g)	10/21/10		1,990			1,979,557
5.00%	11/15/11		1,390			1,385,901
Private Export Funding Corp., Senior Unsecured Notes
3.38%	02/15/09		5,250			5,113,043
						8,478,501
Oil & Gas — 0.4%
ENSCO Offshore Co. Bonds
6.36%	12/01/15		2,085			2,179,840
Yankee — 0.6%
International Bank for Reconstruction & Development (Multiple Countries), Unsecured Notes
1.00%(h)	02/05/15		4,100			3,007,583
TOTAL CORPORATE BONDS (Cost $13,858,990)						13,665,924
TAXABLE MUNICIPAL BONDS — 0.6%
Stanislaus County California Taxable Pension Obligation Refunding Revenue Bonds, Series 95
7.15% (Cost $2,895,000)	08/15/13		2,895			3,082,393
		PAR /SHARES (000)
SHORT TERM INVESTMENTS — 5.6%
Federal Home Loan Bank, Discount Notes
5.13%(i)	04/04/07		10,000			9,995,725
Federal Home Loan Mortgage Corp., Discount Notes
4.90%(i)	04/02/07		10,000			9,998,639
Galileo Money Market Fund, 5.02%			8,456			8,455,760
TOTAL SHORT TERM INVESTMENTS (Cost $28,450,124)						28,450,124
		NUMBER OF CONTRACTS
CALL SWAPTIONS PURCHASED — 0.1%
Barclays Capital, Strike Rate 5.520%, Expires 09/19/16			730	(j)		374,364
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12			910	(j)		321,503
TOTAL CALL SWAPTIONS PURCHASED (Cost $809,553)						695,867
PUT OPTIONS PURCHASED — 0.0%
June 10 year U.S. Treasury Notes futures, Strike Price $105, Expires 05/25/07 (Cost $36,105)			82			2,563
PUT SWAPTIONS PURCHASED — 0.1%
Barclays Capital, Strike Rate 5.520%, Expires 09/21/15			730	(j)		436,658
Goldman Sachs, Strike Rate 5.350%, Expires 04/30/07			860	(j)		13,722
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12			910	(j)		407,680
TOTAL PUT SWAPTIONS PURCHASED (Cost $892,861)						858,060

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

42

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE GOVERNMENT BOND PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

					VALUE
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 100.5% (Cost $ 516,509,676)					$	514,203,264
	MATURITY	PAR (000)
AFFILIATED INVESTMENTS - LONG TERM — 0.2%
Federal Housing Authority, Merrill Lynch Project, Series 29, Class 1A1
7.43% (Cost $425,170)	06/01/22	$	418			423,253
TOTAL INVESTMENTS IN SECURITIES — 100.7% (Cost $516,934,846(a))						514,626,517
		NUMBER OF CONTRACTS
CALL SWAPTIONS WRITTEN — (0.2)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08			(970	)(j)		(184,480	)
Chase Securities, Strike Rate 5.485%, Expires 10/26/09			(1,100	)(j)		(403,279	)
Citibank, Strike Rate 5.670%, Expires 01/04/10			(390	)(j)		(171,573	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08			(910	)(j)		(156,520	)
TOTAL CALL SWAPTIONS WRITTEN (Premiums received $1,228,812)						(915,852	)
PUT SWAPTIONS WRITTEN — (0.2)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08			(970	)(j)		(184,480	)
Chase Securities, Strike Rate 5.485%, Expires 10/26/09			(1,100	)(j)		(309,230	)
Citibank, Strike Rate 5.670%, Expires 01/04/10			(390	)(j)		(93,647	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08			(910	)(j)		(227,318	)
TOTAL PUT SWAPTIONS WRITTEN (Premiums received $1,228,812)						(814,675	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (0.3)%						(1,502,487	)
NET ASSETS — 100.0%					$	511,393,503

(a) Also cost for federal income tax purposes. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	3,921,765
Gross unrealized depreciation		(1,613,436	)
	$	2,308,329

(b) Variable rate security. Rate shown is the rate as of March 31, 2007.

(c) Rates shown are the effective yields as of March 31, 2007.

(d) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 0.8% of its net assets, with a current market value of $4,140,399, in securities restricted as to resale.

(e) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. As of March 31, 2007, these securities had a total market value of $1,870,276 which represents 0.4% of net assets.

(f) Security is illiquid. As of March 31, 2007, the Portfolio held 0.4% of its net assets, with a current market value of $1,852,463 in these securities.

(g) Security, or a portion thereof, pledged as collateral with a value of $1,979,557 on 1,265 long U.S. Treasury Note futures contracts and 161 short U.S. Treasury Bond futures contracts expiring June 2007 and 239 short Euro-dollar futures contracts expiring December 2007. The value of such contracts on March 31, 2007 was $210,935,220, with an unrealized gain of $318,886 (including commissions of $4,137).

(h) U.S. dollar denominated security issued by foreign domiciled entity.

(i) The rate shown is the effective yield at the time of purchase.

(j) Each swaption contract is equivalent to $10,000 notional amount.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	43

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE BOND PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
U.S. GOVERNMENT & AGENCY OBLIGATIONS — 8.3%
Federal National Mortgage Assoc., Subordinated Notes
5.25%(b)	08/01/12	$	130	$	131,494
5.12%(b)	01/02/14		150		150,196
Small Business Administration Participation Certificates, Series 96-20E, Class 1
7.60%	05/01/16		141		147,745
Small Business Administration Participation Certificates, Series 03-P10A, Class 1
4.52%	02/10/13		102		99,382
U.S. Treasury Inflation Protected Bonds
2.00%(b)	01/15/26		140		135,694
2.38%(b)	01/15/27		40		40,480
U.S. Treasury Notes
4.62%(c)	02/29/12		200		200,742
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $896,550)					905,733
MORTGAGE PASS-THROUGHS — 42.6%
Federal Home Loan Mortgage Corp. ARM
3.99%(d)	03/01/34		98		96,248
3.32%(d)	07/01/34		179		180,289
Federal Home Loan Mortgage Corp. Gold 30 Year TBA
5.50%	04/01/37		800		791,375
Federal National Mortgage Assoc. 15 Year TBA
5.50%	04/01/22		600		601,313
6.00%	04/01/22		800		813,000
Federal National Mortgage Assoc. 30 Year TBA
5.00%	04/01/37		400		386,375
6.00%	04/01/37		600		604,313
6.50%	04/01/37		900		917,719
Federal National Mortgage Assoc. ARM
4.00%(d)	04/01/34		287		282,277
TOTAL MORTGAGE PASS-THROUGHS (Cost $4,683,117)					4,672,909
COLLATERALIZED MORTGAGE OBLIGATIONS — 14.3%
Bear Stearns Mortgage Trust, Series 04-13, Class A1
COLLATERALIZED MORTGAGE OBLIGATIONS — 14.3%
Bear Stearns Mortgage Trust, Series 04-13, Class A1
5.69%(d)	11/25/34		108		108,631
Countrywide Home Loans, Series 04-29, Class 1A1
5.59%(d)	02/25/35		34		33,777
Federal Home Loan Mortgage Corp., Series 2927, Class BA
5.50%	10/15/33		98		98,503
Federal Home Loan Mortgage Corp., Series 2979, Class BC
5.00%	04/15/20		190		185,541
Federal Home Loan Mortgage Corp., Series 2996, Class MK
5.50%	06/15/35		87		87,742
Federal National Mortgage Assoc., Series 04-36, Class BS
5.50%	11/25/30		115		114,978
Federal National Mortgage Assoc., Series 05-48, Class AR
5.50%	02/25/35		95		95,344
Federal National Mortgage Assoc., Series 05-70, Class GA
5.50%	12/25/34		108		108,698
Federal National Mortgage Assoc., Series 346, Class 2 (IO)
5.50%(e)	12/01/33		251		56,885
Federal National Mortgage Assoc., Series 363, Class 2 (IO)
5.50%(e)	11/01/35		261		60,136
Federal National Mortgage Assoc., Series 367, Class 2 (IO)
5.50%(e)	01/25/36		270		63,233
Federal National Mortgage Assoc., Series 379, Class 5 (IO)
5.00%(e)	05/25/36		364		87,213
First Union National Bank Commercial Mortgage Trust, Series 99-C4, Class A2
7.39%	12/15/31		90		93,964
Morgan Stanley Capital, Inc., Series 97-HF1, Class X (IO)
1.95%(e)(f)	07/15/29		39		87
Mortgage IT Trust, Series 04-1, Class A1
5.71%(d)	11/25/34		178		178,730
Structured Mortgage Loan Trust, Series 04-13, Class A2
5.62%(d)	09/25/34		30		30,466
Wells Fargo Mortgage Backed Securities Trust, Series 04-5, Class A1
4.52%(d)	06/25/34		164		160,733
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $1,581,436)					1,564,661
COMMERCIAL MORTGAGE BACKED SECURITIES — 16.9%
Banc of America Commercial Mortgage, Inc., Series 02-2, Class A3
5.12%	07/11/43		80		79,836
Chase Commercial Mortgage Securities Corp., Series 97-1, Class X (IO)
1.30%(e)	04/19/15		486		12,103
Chase Commercial Mortgage Securities Corp., Series 00-1, Class A2
7.76%	04/15/32		93		97,833
Countrywide Alternative Loan Trust, Series 06-0C8, Class 2A1A
5.41%(d)	11/25/36		95		94,883
Credit Suisse First Boston Mortgage Securities Corp., Series 97-C1, Class AX (IO)
1.55%(e)(f)	06/20/29		775		31,984
Credit Suisse First Boston Mortgage Securities Corp., Series 97-C2, Class AX (IO)
0.98%(e)	01/17/35		530		3,758

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

44

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COMMERCIAL MORTGAGE BACKED SECURITIES (Continued)
Credit Suisse First Boston Mortgage Securities Corp., Series 00-C1, Class A1
7.32%	04/15/42	$	76	$	76,993
Credit Suisse First Boston Mortgage Securities Corp., Series 02, Class A3
5.60%	07/15/35		190		193,701
Credit Suisse First Boston Mortgage Securities Corp., Series 03-C3, Class A5
3.94%	05/15/38		200		186,977
Donaldson, Lufkin & Jenrette, Inc., Commerical Mortgage Corp., Series 98-CF1, Class A1B
6.41%	02/18/31		159		159,237
General Electric Capital Commercial Mortgage Corp., Series 05-C1, Class A3
4.58%	06/10/48		130		127,052
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 97-C1, Class X (IO)
1.37%(e)	07/15/27		1,066		26,289
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 03-C2, Class A2
5.28%(d)	05/10/40		100		101,426
J.P. Morgan Mortgage Trust, Series 06-A2, Class 5A3
3.75%(d)	11/25/33		272		270,188
Lehman Brothers-UBS Commercial Mortgage Trust, Series 05-C1, Class A3
4.54%	02/15/30		150		146,284
Structured Asset Securities Corp., Series 96-CFL, Class X1 (IO)
2.14%(e)	02/25/28		294		9,572
Wachovia Bank Commercial Mortgage Trust, Series 06-C25, Class A5
5.78%(d)	05/15/43		50		51,606
Washington Mutual Asset Securities Corp., Series 05-C1A, Class A1
4.24%(f)			95		94,028
Washington Mutual Asset Securities Corp., Series 05-C1A, Class X (IO)	05/25/36
2.11%(e)(f)	05/25/36		1,863		90,990
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $1,897,896)					1,854,740
CERTIFICATES OF DEPOSIT — 3.8%
Barclays Bank Plc (United Kingdom)
5.35%(d) (Cost $410,000)	03/13/09		410		410,254
ASSET BACKED SECURITIES — 17.3%
Accredited Mortgage Loan Trust, Series 07-1, Class A1
5.37%(d)	02/25/37		143		142,614
BCAP LLC Trust, Series 07-AA1, Class 1A1
5.42%(d)	02/25/47		121		120,689
Bear Stearns, Inc., Series 07-HE1, Class 21A1
5.38%(d)	01/25/37		98		97,949
Capital Auto Receivables Asset Trust, Series 04-2, Class A4
3.75%	07/15/09		225		221,738
Capital Auto Receivables Asset Trust, Series 06-SN1A, Class A2A
5.40%(f)	01/20/09		375		375,137
Carrington Mortgage Loan Trust, Series 07-RFC1, Class A1
5.37%(d)	12/25/36		119		118,592
Countrywide Certificates, Series 05-IM3, Class A1
5.44%(d)	04/25/28		60		60,143
Countrywide Certificates, Series 06-IM1, Class A1
5.41%(d)	09/25/28		42		42,421
DaimlerChrysler Auto Trust, Series 05-B, Class A3
4.04%	09/08/09		152		151,621
Honda Auto Receivables Owner Trust, Series 05-4, Class A3
4.46%	05/21/09		212		211,105
IXIS Real Estate Capital Trust, Series 07-HE1, Class A1
5.38%	05/25/37		118		117,698
Morgan Stanley Capital, Inc., Series 07-NC1, Class A2A
5.37%(d)	11/25/36		92		92,382
Nationstar Home Equity Loan Trust, Series 06-B, Class AV1
5.41%(d)	09/25/36		69		69,180
Nissan Auto Receivables Owner Trust, Series 05-C, Class A3
4.19%	07/15/09		6		5,782
Residential Asset Mortgage Products, Inc., Series 07-RZ1, Class A1
5.39%(d)	02/25/37		74		74,013
TOTAL ASSET BACKED SECURITIES (Cost $1,905,402)					1,901,064
CORPORATE BONDS — 23.6%
Banks — 5.7%
Bank of America Corp. Capital Trust XI, Capital Securities
6.62%	05/23/36		5		5,291
Bank of America Corp., Unsecured Notes
5.36%(b)(d)	03/24/09		250		250,466
Citigroup, Inc., Unsecured Notes
4.12%(b)	02/22/10		260		254,398
UBS Preferred Funding Trust, Inc., Capital Securities
8.62%(d)(g)			10		11,053
Wells Fargo & Co., Unsecured Notes
4.62%	08/09/10		100		98,884
					620,092
Broadcasting — 1.1%
Charter Communications Holdings II LLC, Unsecured Notes
10.25%	09/15/10		45		47,475
Cox Communications, Inc., Senior Unsecured Notes
7.12%	10/01/12		25		26,952

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	45

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Broadcasting (Continued)
News America Holdings, Inc., Secured Notes
8.50%	02/23/25	$	25	$	30,046
News America Holdings, Inc., Senior Debentures
9.50%	07/15/24		15		19,014
					123,487
Chemicals — 0.4%
Lyondell Chemical Co., Senior Unsecured Notes
8.00%	09/15/14		10		10,475
8.25%	09/15/16		20		21,400
Momentive Performance Materials, Inc., Senior Unsecured Notes
10.12%(f)	12/01/14		15		15,600
					47,475
Energy & Utilities — 0.2%
Midwest Generation LLC, Pass-Through Certificates
8.56%	01/02/16		13		13,696
Midwest Generation LLC, Senior Secured Notes
8.75%	05/01/34		10		10,850
					24,546
Entertainment & Leisure — 1.2%
Comcast Cable Communications, Inc., Senior Unsecured Notes
6.75%	01/30/11		35		36,856
Comcast Cable Holdings LLC, Senior Debentures
7.88%	08/01/13		5		5,599
Comcast Corp., Unsecured Notes
5.90%	03/15/16		50		50,867
Seneca Gaming Corp., Senior Unsecured Notes
7.25%	05/01/12		15		15,094
Time Warner Cos., Inc., Senior Unsecured Notes
6.75%	04/15/11		10		10,539
Turner Broadcasting Corp., Senior Notes
8.38%	07/01/13		15		17,089
					136,044
Finance — 5.0%
The Bear Stearns Cos., Inc., Unsecured Notes
3.25%	03/25/09		50		48,264
Ford Motor Credit Co., Senior Notes
5.80%	01/12/09		40		39,238
General Electric Capital Corp., Unsecured Notes
5.00%	11/15/11		65		64,808
Household Finance Corp., Senior Notes
6.45%	02/01/09		20		20,404
Lehman Brothers Holdings, Inc., Senior Unsecured Notes
5.75%	07/18/11		65		66,335
Morgan Stanley, Senior Notes
5.61%(d)	01/09/12		265		264,964
PSEG Funding Trust, Inc., Capital Securities
5.38%	11/16/07		50		49,956
					553,969
Industrial — 0.2%
Osprey Trust/Osprey, Inc., Senior Secured Notes
7.80%(d)(f)(h)(i)	01/15/03		50		21,750
Manufacturing — 0.2%
Briggs & Stratton Corp., Senior Unsecured Notes
8.88%	03/15/11		20		21,825
Medical & Medical Services — 1.2%
Bio-Rad Laboratories, Inc., Senior Subordinated Notes
6.12%	12/15/14		10		9,700
UnitedHealth Group, Inc., Unsecured Notes
5.25%	03/15/11		75		75,291
WellPoint, Inc., Unsecured Notes
5.00%	01/15/11		50		49,748
					134,739
Motor Vehicles — 0.2%
Arvinmeritor, Inc., Senior Notes
6.80%	02/15/09		2		2,010
DaimlerChrysler N.A. Holding Corp., Notes
4.75%	01/15/08		25		24,882
					26,892
Oil & Gas — 1.8%
Anadarko Petroleum Corp., Senior Unsecured Notes
5.95%	09/15/16		50		50,105
Colorado Interstate Gas Co., Senior Unsecured Notes
6.80%	11/15/15		5		5,317
Halliburton Co., Senior Unsecured Notes
5.50%	10/15/10		25		25,270
KCS Energy, Inc., Senior Unsecured Notes
7.12%	04/01/12		5		4,950
Northwest Pipeline Corp., Senior Unsecured Notes
8.12%	03/01/10		15		15,609
Oneok, Inc., Senior Unsecured Notes
5.51%	02/16/08		75		75,120
Transcontinental Gas Pipeline Corp., Senior Notes
8.88%	07/15/12		5		5,688
The Williams Cos., Inc., Senior Unsecured Notes
7.12%	09/01/11		10		10,475
					192,534

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

46

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Real Estate — 0.0%
American Real Estate Partners LP, Senior Unsecured Notes
8.12%	06/01/12	$	5	$	5,088
Retail Merchandising — 0.2%
Federated Department Stores, Inc., Senior Unsecured Notes
6.30%	04/01/09		10		10,202
May Department Stores Co., Debentures
7.45%	10/15/16		10		10,770
					20,972
Semiconductors & Related Devices — 0.4%
Freescale Semiconductor, Inc., Senior Unsecured Notes
9.12%(f)	12/15/14		35		34,738
9.23%(d)(f)	12/15/14		5		4,987
					39,725
Telecommunications — 1.1%
Cincinnati Bell, Inc., Senior Unsecured Notes
7.25%	07/15/13		15		15,562
PanAmSat Corp., Senior Unsecured Notes
9.00%(f)	06/15/16		5		5,506
Qwest Corp., Unsecured Notes
8.60%(d)	06/15/13		15		16,350
Verizon Maryland, Inc., Senior Debentures
6.12%	03/01/12		30		30,992
Windstream Corp., Senior Unsecured Notes
8.12%	08/01/13		20		21,650
8.62%(f)	08/01/16		25		27,344
					117,404
Transportation — 0.6%
Overseas Shipholding Group, Inc., Senior Unsecured Notes
7.50%	02/15/24		10		10,150
Union Pacific Corp., Senior Notes
6.62%	02/01/08		50		50,512
					60,662
Yankee — 4.1%
EnCana Corp. (Canada)
6.30%(j)	11/01/11		25		25,937
EnCana Holdings Finance Corp. (Canada), Senior Unsecured Notes
5.80%(j)	05/01/14		10		10,197
Intelsat Ltd. (Bermuda), Senior Unsecured Notes
9.25%(f)(j)	06/15/16		10		11,075
Ispat Inland ULC (Canada), Senior Secured Notes
9.75%(j)	04/01/14		22		24,280
MassMutual Global Funding II (Cayman Islands), Senior Secured Notes
2.55%(f)(j)	07/15/08		35		33,707
Rogers Wireless, Inc. (Canada), Senior Secured Notes
7.50%(j)	03/15/15		25		27,094
Scottish Power Plc (United Kingdom), Unsecured Notes
4.91%(j)	03/15/10		25		24,807
Telecom Italia Capital (Luxembourg), Senior Unsecured Notes
5.25%(j)	11/15/13		25		24,239
Telefonica Europe BV (Netherlands), Senior Unsecured Notes
7.75%(j)	09/15/10		10		10,776
Tyco International Group SA (Luxembourg), Senior Unsecured Notes
6.38%(j)	10/15/11		15		15,851
Vodafone Group Plc (United Kingdom), Senior Unsecured Notes
7.75%(j)	02/15/10		135		144,097
Wind Acquisition Finance SA (Luxembourg), Senior Unsecured Notes
10.75%(f)(j)	12/01/15		15		17,175
Xstrata Finance Ltd. (Canada), Unsecured Notes
5.80%(f)(j)	11/15/16		75		75,324
					444,559
TOTAL CORPORATE BONDS (Cost $2,581,781)					2,591,763
FOREIGN BONDS — 1.1%
Kreditanstalt Fur Wiederaufbaure (Germany), Unsecured Notes (JPY)
0.32%(d)	08/08/11		5,000		42,433
Province of Manitoba (Canada), Senior Unsecured Notes (NZD)
6.38%	09/01/15		30		20,372
Province of Ontario (Canada), Unsecured Notes (NZD)
6.25%	06/16/15		50		33,435
Republic of Finland, Senior Unsecured Notes (JPY)
0.30%	10/18/07		3,200		27,082
TOTAL FOREIGN BONDS (Cost $124,894)					123,322
TAXABLE MUNICIPAL BONDS — 1.9%
New York Sales Tax Asset Receivable Corp. Revenue Bonds, Series 04, Class B
3.60%	10/15/08		35		34,274
Port Authority of New York & New Jersey Revenue Notes, Series 04, Class XX
3.30%	09/15/07		125		123,873
Wisconsin General Revenue Bonds, Series 03, Class A
4.80%	05/01/13		50		49,324
TOTAL TAXABLE MUNICIPAL BONDS (Cost $210,171)					207,471

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	47

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE BOND PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR/SHARES (000)			VALUE
SHORT TERM INVESTMENTS — 9.9%
Federal Home Loan Mortgage Corp., Discount Notes
4.90%(k)	04/02/07	$	500		$	499,932
Galileo Money Market Fund, 5.02%			590			590,304
TOTAL SHORT TERM INVESTMENTS (Cost $1,090,236)						1,090,236
		NUMBER OF CONTRACTS
CALL SWAPTIONS PURCHASED — 0.3%
Barclays Capital, Strike Rate 5.520%, Expires 09/19/16			40	(l)		20,513
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12			20	(l)		7,066
TOTAL CALL SWAPTIONS PURCHASED (Cost $32,384)						27,579
PUT OPTIONS PURCHASED — 0.0%
June 10 year U.S. Treasury Notes futures, Strike Price $105, Expires 05/25/07 (Cost $2,202)			5			156
PUT SWAPTIONS PURCHASED — 0.3%
Barclays Capital, Strike Rate 5.520%, Expires 09/21/15			40	(l)		23,927
Goldman Sachs, Strike Rate 5.350%, Expires 04/30/07			20	(l)		319
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12			20	(l)		8,960
TOTAL PUT SWAPTIONS PURCHASED (Cost $34,321)						33,206
TOTAL INVESTMENTS IN SECURITIES — 140.3% (Cost $15,450,390(a))						15,383,094
		PAR (000)
MORTGAGE PASS-THROUGH TBA SALE COMMITMENTS — (7.3)%
Federal Home Loan Mortgage Corp. Gold 30 Year
5.50%	04/01/37	$	(400	)		(395,750	)
Federal National Mortgage Assoc. 30 Year
6.00%	04/01/37		(400	)		(402,875	)
TOTAL MORTGAGE PASS-THROUGH TBA SALE COMMITMENTS (Premiums received $800,250)						(798,625	)
		NUMBER OF CONTRACTS
CALL SWAPTIONS WRITTEN — (0.5)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08			(30	)(l)		(5,706	)
Chase Securities, Strike Rate 5.485%, Expires 10/26/09			(80	)(l)		(29,329	)
Citibank, Strike Rate 5.670%, Expires 01/04/10			(40	)(l)		(17,597	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08			(20	)(l)		(3,440	)
TOTAL CALL SWAPTIONS WRITTEN (Premiums received $67,875)						(56,072	)
PUT SWAPTIONS WRITTEN — (0.4)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08			(30	)(l)		(5,706	)
Chase Securities, Strike Rate 5.485%, Expires 10/26/09			(80	)(l)		(22,489	)
Citibank, Strike Rate 5.670%, Expires 01/04/10			(40	)(l)		(9,605	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08			(20	)(l)		(4,996	)
TOTAL PUT SWAPTIONS WRITTEN (Premiums received $67,875)						(42,796	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (32.1)%						(3,517,940	)
NET ASSETS — 100.0%					$	10,967,661

(a) Cost for federal income tax purposes is $15,451,178. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	54,465
Gross unrealized depreciation		(122,549	)
	$	(68,084	)

(b) Security, or a portion thereof, pledged as collateral with a value of $790,611 on 36 short U.S. Treasury Note futures contracts, 25 long U.S. Treasury Note futures contracts, 9 short Euro-dollar futures contracts and 1 long Euro-Bund futures contracts expiring June 2007. The value of such contracts on March 31, 2007 was $9,688,170, with an unrealized gain of $490 (including commissions of $164).

(c) Security, or a portion thereof, subject to financing transactions.

(d) Variable rate security. Rate shown is the rate as of March 31, 2007.

(e) Rates shown are the effective yields as of March 31, 2007.

(f) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 7.7% of its net assets, with a current market value of $839,432, in securities restricted as to resale.

(g) The security is a perpetual bond and has no stated maturity date.

(h) Security in default.

(i) As a result of bankruptcy proceedings, the company did not repay the principal amount of the security upon maturity.

(j) U.S. dollar denominated security issued by foreign domiciled entity.

(k) The rate shown is the effective yield at the time of purchase.

(l) Each swaption contract is equivalent to $10,000 notional amount.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

48

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE BOND PORTFOLIO II

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
U.S. GOVERNMENT & AGENCY OBLIGATIONS — 9.1%
Federal Home Loan Bank, Unsecured Bonds
4.12%	02/15/08	$	4,500	$	4,460,940
Federal Home Loan Mortgage Corp., Unsecured Notes
3.00%	04/19/07		7,820		7,811,484
3.75%(b)	02/27/09		10,025		9,820,560
Federal National Mortgage Assoc., Subordinated Notes
5.25%(b)	08/01/12		3,070		3,105,271
4.62%	05/01/13		1,960		1,921,435
Federal National Mortgage Assoc., Unsecured Notes
3.00%	04/19/07		5,600		5,593,902
4.15%	07/13/07		12,015		11,977,201
3.55%	11/16/07		8,985		8,894,108
3.25%	05/16/08		8,594		8,430,293
Small Business Administration Participation Certificates, Series 92-20H, Class 1
7.40%	08/01/12		427		441,801
Small Business Administration Participation Certificates, Series 96-20H, Class 1
7.25%	08/01/16		1,314		1,369,135
Small Business Administration Participation Certificates, Series 97-P10D, Class 1
6.51%	11/10/07		93		93,518
Small Business Administration Participation Certificates, Series 01-P10B, Class 1
6.34%(c)	08/01/11		1,147		1,186,142
U.S. Treasury Inflation Protected Bonds
2.00%(b)	01/15/26		5,690		5,515,014
2.38%	01/15/27		3,175		3,213,109
U.S. Treasury Notes
4.62%(d)	02/15/17		8,475		8,457,787
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $82,555,789)					82,291,700
MORTGAGE PASS-THROUGHS — 6.1%
Federal Home Loan Mortgage Corp. ARM
4.97%(c)	10/01/35		11,702		11,686,041
6.00%(c)	10/01/36		7,498		7,596,357
Federal National Mortgage Assoc.
8.50%	08/01/09		65		65,739
6.00%	05/16-10/36		23,041		23,216,989
5.50%	01/01/20		344		345,274
Federal National Mortgage Assoc. ARM
4.00%(c)	04/01/34		4,651		4,567,751
4.78%(c)	01/01/35		4,016		3,986,933
4.82%(c)	09/01/35		4,004		3,989,718
TOTAL MORTGAGE PASS-THROUGHS (Cost $55,453,783)					55,454,802
COLLATERALIZED MORTGAGE OBLIGATIONS — 12.9%
Bear Stearns Mortgage Trust, Series 04-12, Class 1A1
5.67%(c)	01/25/35		583		583,658
Bear Stearns Mortgage Trust, Series 04-13, Class A1
5.69%(c)	11/25/34		3,824		3,832,344
Bear Stearns Mortgage Trust, Series 04-7, Class 4A
3.73%	10/25/34		4,568		4,597,382
Countrywide Home Loans, Series 04-29, Class 1A1
5.59%(c)	02/25/35		1,391		1,393,279
Federal Home Loan Mortgage Corp., Series 1361, Class I
6.00%	09/15/07		26		26,028
Federal Home Loan Mortgage Corp., Series 2626, Class NA
5.00%	06/15/23		8,050		8,021,733
Federal Home Loan Mortgage Corp., Series 3131, Class MA
5.50%	11/15/27		4,057		4,070,969
Federal Home Loan Mortgage Corp., Series 3200, Class AD
5.50%	05/15/29		17,301		17,336,797
Federal National Mortgage Assoc., Series 89-16, Class B (PO)
10.61%(e)	03/25/19		83		72,875
Federal National Mortgage Assoc., Series 05-109, Class PV
6.00%	10/25/32		9,645		9,832,020
Federal National Mortgage Assoc., Series 05-29, Class AT
4.50%	04/25/35		3,849		3,790,659
Federal National Mortgage Assoc., Series 05-29, Class WB
4.75%	04/25/35		5,680		5,603,201
Federal National Mortgage Assoc., Series 05-57, Class PA
5.50%	05/25/27		3,173		3,173,478
Federal National Mortgage Assoc., Series 05-62, Class CQ
4.75%	07/25/35		6,561		6,459,246
Federal National Mortgage Assoc., Series 05-83, Class LA
5.50%	10/25/35		8,985		9,055,179
Federal National Mortgage Assoc., Series 378, Class 4 (IO)
5.00%(f)	11/01/35		10,471		2,341,250
First Union National Bank Commercial Mortgage Trust, Series 01-C3, Class A3
6.42%	06/15/11		7,025		7,328,800
GSAA Home Equity Trust, Series 04-8, Class A3A
5.69%(c)	09/25/34		551		552,561
Mortgage IT Trust, Series 04-1, Class A1
5.71%(c)	11/25/34		5,407		5,437,874
Opteum Mortgage Acceptance Corp., Series 06-2, Class A1A
5.38%(c)	07/25/36		4,989		4,986,291
Structured Mortgage Loan Trust, Series 04-13, Class A2
5.62%(c)	09/25/34		1,362		1,363,993
Structured Mortgage Loan Trust, Series 04-6, Class 4A1
4.84%(c)	06/25/34		8,112		8,058,591

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	49

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE BOND PORTFOLIO II (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
Summit Mortgage Trust, Series 00-1, Class B1
6.15%(c)(g)(h)	12/28/12	$	30	$	29,644
Wells Fargo Mortgage Backed Securities Trust, Series 04-5, Class A1
4.52%(c)	06/25/34		9,122		8,929,604
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $116,858,595)					116,877,456
COMMERCIAL MORTGAGE BACKED SECURITIES — 11.5%
Banc of America Commercial Mortgage, Inc., Series 01-1, Class A2
6.50%	04/15/36		4,675		4,861,238
Chase Commercial Mortgage Securities Corp., Series 00-3, Class A2
7.32%	10/15/32		2,005		2,120,344
Commercial Mortgage Acceptance Corp., Series 98-C2, Class A2
6.03%	03/15/08		2,254		2,260,058
Credit Suisse First Boston Mortgage Securities Corp., Series 02-CKS4, Class A2
5.18%	08/15/12		5,900		5,894,499
Credit Suisse First Boston Mortgage Securities Corp., Series 02-CP5, Class A2
4.94%	12/15/35		6,185		6,099,806
Deutsche Alt-A Securities, Inc., Series 06-AR3, Class A3
5.41%(c)	08/25/36		8,667		8,660,437
Donaldson, Lufkin & Jenrette, Inc., Commerical Mortgage Corp., Series 99-CG2, Class A1B
7.30%	06/10/09		5,848		6,066,151
Federal Home Loan Mortgage Corp., Series 2643, Class LC
4.50%	07/15/18		3,630		3,464,959
Federal National Mortgage Assoc. Grantor Trust, Series 02-T6, Class A1
3.31%	02/25/32		1,346		1,246,855
First Union National Bank Commercial Mortgage Trust, Series 99-C4, Class C
7.79%(g)	12/15/31		5,690		6,045,491
First Union National Bank Commercial Mortgage Trust, Series 00-C2, Class A2
7.20%(c)	10/15/32		4,430		4,684,055
General Electric Capital Commercial Mortgage Corp., Series 02-1A, Class A3
6.27%	12/10/35		4,850		5,074,678
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 97
7.43%(i)	02/21/21		48		49,020
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 97-C1, Class X (IO)
1.37%(f)	07/15/27		9,701		239,326
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 99-C3, Class A2
7.18%	08/15/36		3,610		3,741,332
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 00-C2, Class A2
7.46%	08/16/33		4,381		4,631,702
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 00-C3, Class A2
6.96%	11/15/10		6,040		6,375,119
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 03-C2, Class A2
5.28%(c)	05/10/40		5,830		5,913,167
J.P. Morgan Commercial Mortgage Finance Corp., Series 97-C5, Class E
7.61%	09/15/29		4,896		5,340,611
J.P. Morgan Mortgage Trust, Series 06-A2, Class 5A3
3.75%(c)	11/25/33		7,659		7,613,195
Lehman Brothers Commercial Conduit Mortgage Trust, Series 99-C2, Class A1
7.10%	10/15/32		96		96,063
Lehman Brothers-UBS Commercial Mortgage Trust, Series 00-C5, Class A1
6.41%	12/15/19		3,077		3,092,819
The Money Store Small Business Administration Loan Trust, Series 99-1, Class A
6.05%(c)	07/15/25		1,382		1,372,588
Nationslink Funding Corp., Series 99-SL, Class A6
6.61%	11/10/30		26		25,596
Structured Asset Receivables Trust, Series 03-2
5.72%(c)(g)(h)(i)	01/21/09		3,841		3,839,380
Washington Mutual Asset Securities Corp., Series 05-C1A, Class A1
4.24%(g)	05/25/36		2,599		2,567,245
Washington Mutual Asset Securities Corp., Series 05-C1A, Class X (IO)
2.11%(f)(g)	05/25/36		53,108		2,594,433
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $105,128,470)					103,970,167
PROJECT LOANS — 0.0%
Federal Housing Authority, USGI Project, Series 56
7.46% (Cost $507,012)	01/01/23		511		517,653
CERTIFICATES OF DEPOSIT — 1.4%
Barclays Bank Plc (United Kingdom)
5.35%(c)	03/13/09		11,655		11,662,226

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

50

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE BOND PORTFOLIO II (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CERTIFICATES OF DEPOSIT (Continued)
SunTrust Bank, Inc.
4.42%	06/15/09	$	1,375	$	1,348,567
TOTAL CERTIFICATES OF DEPOSIT (Cost $13,030,000)					13,010,793
ASSET BACKED SECURITIES — 18.2%
American Express Credit Account Master Trust, Series 06-01, Class A
5.35%(c)	12/15/13		6,850		6,852,493
Amresco Independence Funding, Inc., Series 00-1, Class A
6.40%(c)(g)	01/15/27		1,151		1,145,266
Bank One Issuance Trust, Series 02-A5, Class A5
5.44%(c)	06/15/10		8,375		8,381,340
Bear Stearns Securities, Inc., Series 06-3, Class A1
5.47%(c)	08/25/36		6,734		6,733,007
Boston Edison Co., Series 99-1, Class A4
6.91%	09/15/09		1,090		1,097,472
Capital Auto Receivables Asset Trust, Series 06-SN1A, Class A2A
5.40%(g)	01/20/09		11,650		11,654,251
Carrington Mortgage Loan Trust, Series 06-NC3, Class A1
5.37%(c)	01/25/31		5,292		5,291,813
Chase Issuance Trust, Series 04-A9, Class A9
3.22%	06/15/10		6,100		6,035,186
Chase Issuance Trust, Series 05, Class A5
5.34%(c)	02/15/12		8,600		8,607,202
Chase Issuance Trust, Series 06, Class A3
5.31%(c)	07/15/11		5,825		5,828,517
Citibank Credit Card Issuance Trust, Series 04, Class A4
3.20%	08/24/09		8,375		8,305,878
Citigroup Mortgage Loan Trust, Inc., Series 06-HE2, Class A2A
5.37%(c)	08/25/36		6,615		6,615,174
Countrywide Certificates, Series 05-IM3, Class A1
5.44%(c)	04/25/28		1,709		1,709,075
Countrywide Certificates, Series 06-IM1, Class A1
5.41%(c)	09/25/28		1,159		1,159,494
DaimlerChrysler Auto Trust, Series 04-5, Class A3
3.18%	09/08/08		1,031		1,028,967
Discover Card Master Trust I, Series 05-1, Class A
5.33%(c)	09/16/10		5,650		5,652,329
First Franklin Mortgage Loan Certificates, Series 06-FF10, Class A2
5.37%(c)	07/25/36		3,512		3,511,984
Fremont Home Loan Trust, Series 06-2, Class 2A1
5.38%(c)	02/25/36		3,382		3,382,004
Green Tree Financial Corp., Series 96-7, Class A6
7.65%	10/15/27		897		928,164
IFC Small Business Administration Loan-Backed Certificates, Series 97-1, Class A
6.25%(c)(g)	01/15/24		456		452,940
MBNA Credit Card Master Notes Trust, Series 98-E, Class A
5.05%(c)	09/15/10		6,525		6,535,903
MBNA Credit Card Master Notes Trust, Series 04-A4, Class A4
2.70%	09/15/09		7,900		7,891,707
MBNA Credit Card Master Notes Trust, Series 05-A3, Class A3
4.10%	05/15/10		5,200		5,081,035
MBNA Credit Card Master Notes Trust, Series 06, Class A1
4.90%	07/15/11		6,575		6,570,587
MBNA Credit Card Master Notes Trust, Series 06-A4, Class A4
5.31%(c)	09/15/11		8,825		8,830,132
The Money Store Small Business Administration Loan Trust, Series 97-2, Class A
6.00%(c)	02/15/29		1,014		1,013,943
Novastar Home Equity Loan, Series 06-2, Class A2A
5.37%(c)	06/25/36		3,234		3,234,139
PBG Equipment Trust, Series 00-1A, Class A
6.27%(g)	01/20/12		388		388,514
PMC Capital LP, Series 98-1, Class A
7.25%(c)(g)	04/01/21		1,443		1,443,330
Popular Mortgage Pass-Through Trust, Series 06-D, Class A1
5.38%(c)	11/25/36		5,336		5,334,261
Residential Asset Mortgage Products, Inc., Series 05-NC1, Class AI1
5.41%(c)	09/25/27		1,138		1,137,609
Residential Asset Mortgage Products, Inc., Series 05-RZ4, Class A1
5.44%(c)	11/25/35		3,453		3,453,521
Residential Asset Securities Corp., Series 06-EMX6, Class A1
5.38%(c)	10/25/30		6,432		6,431,849
Structured Asset Securities Corp., Series 03-AL1, Class A
3.36%(g)	04/25/31		2,160		1,950,896
Student Loan Marketing Assoc. Student Loan Trust, Series 05-5, Class A1
5.36%(c)	01/25/18		2,592		2,592,875
Student Loan Marketing Assoc. Student Loan Trust, Series 05-8, Class A4
4.25%	01/25/28		7,375		7,280,882
SWB Loan-Backed Certificates, Series 99-1, Class A
7.38%(g)	05/15/25		1,177		1,183,317
TOTAL ASSET BACKED SECURITIES (Cost $164,948,271)					164,727,056
CORPORATE BONDS — 30.7%
Aerospace — 0.5%
Raytheon Co., Senior Notes
6.75%	08/15/07		1,752		1,759,497

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	51

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE BOND PORTFOLIO II (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Aerospace (Continued)
United Technologies Corp., Unsecured Notes
5.43%(c)	06/01/09	$	2,825	$	2,827,373
					4,586,870
Banks — 5.7%
Bank of America Corp. Capital Trust XI, Capital Securities
6.62%	05/23/36		535		566,104
Bank of America Corp., Subordinated Notes
7.80%	02/15/10		1,115		1,195,727
Bank of America Corp., Unsecured Notes
5.36%(c)	03/24/09		6,775		6,787,642
Bank of New York Co., Inc., Senior Subordinated Notes
3.80%	02/01/08		1,400		1,383,088
BankBoston N.A., Subordinated Bank Notes
6.38%	04/15/08		2,575		2,602,728
BankBoston N.A., Subordinated Notes
7.00%	09/15/07		450		452,490
Citigroup, Inc., Subordinated Notes
6.38%	11/15/08		1,710		1,742,803
Citigroup, Inc., Unsecured Notes
4.12%	02/22/10		6,585		6,443,126
4.62%	08/03/10		860		850,502
HSBC Bank USA, Subordinated Notes
3.87%	06/07/07		9,700		9,672,016
J.P. Morgan Chase & Co., Senior Notes
2.62%	06/30/08		60		58,183
J.P. Morgan Chase & Co., Senior Unsecured Notes
5.25%	05/30/07		609		608,796
3.70%	01/15/08		2,325		2,298,967
J.P. Morgan Chase & Co., Subordinated Notes
6.25%	02/15/11		1,500		1,548,927
SunTrust Bank, Inc., Senior Unsecured Notes
3.62%	10/15/07		1,485		1,471,227
4.00%	10/15/08		1,100		1,080,466
U.S. Bank N.A., Senior Bank Notes
3.75%	02/06/09		850		830,657
U.S. Bank N.A., Subordinated Notes
6.30%	07/15/08		1,360		1,379,509
U.S. Central Credit Union, Unsecured Notes
2.75%	05/30/08		1,915		1,864,990
UBS Preferred Funding Trust, Inc., Capital Securities
8.62%(c)(j)			475		525,032
Wachovia Corp., Subordinated Notes
5.62%(k)	12/15/08		2,150		2,169,505
Wells Fargo & Co., Senior Unsecured Notes
5.25%	12/01/07		1,700		1,698,696
4.20%	01/15/10		675		660,386
Wells Fargo & Co., Unsecured Notes
4.62%	08/09/10		3,150		3,114,833
4.88%	01/12/11		830		825,375
					51,831,775
Broadcasting — 0.3%
Cox Communications, Inc., Senior Unsecured Notes
7.75%	11/01/10		295		318,819
7.12%	10/01/12		900		970,275
News America Holdings, Inc., Secured Notes
8.50%	02/23/25		650		781,190
News America Holdings, Inc., Senior Debentures
9.50%	07/15/24		550		697,190
					2,767,474
Computer Software & Services — 0.4%
Oracle Corp., Unsecured Notes
5.00%	01/15/11		3,650		3,636,572
Energy & Utilities — 1.4%
American Electric Power Co., Senior Notes
4.71%(c)	08/16/07		1,205		1,201,461
Dominion Resources, Inc., Senior Unsecured Notes
5.12%	12/15/09		455		455,157
DTE Energy Co., Senior Unsecured Notes
5.63%	08/16/07		1,475		1,476,093
NiSource Finance Corp., Secured Notes
7.88%	11/15/10		2,400		2,603,254
NiSource Finance Corp., Unsecured Notes
5.93%(c)	11/23/09		2,450		2,452,445
PECO Energy Co., First Refunding Mortgages
5.95%	11/01/11		1,900		1,958,125
Virginia Electric & Power Co., Unsecured Notes
5.73%	11/25/08		2,514		2,530,670
					12,677,205
Entertainment & Leisure — 1.2%
Comcast Cable Communications Corp., Senior Notes
8.38%	05/01/07		340		340,768
Comcast Cable Communications Corp., Senior Unsecured Notes
5.45%	11/15/10		4,000		4,035,068
Comcast Cable Holdings LLC, Senior Debentures
7.88%	08/01/13		735		823,051
8.75%	08/01/15		965		1,139,774
Comcast Corp., Unsecured Notes
5.90%	03/15/16		1,250		1,271,664
Time Warner Cos., Inc., Senior Unsecured Notes
6.75%	04/15/11		1,110		1,169,795

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

52

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE BOND PORTFOLIO II (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Entertainment & Leisure (Continued)
Time Warner Cos., Inc., Unsecured Notes
6.00%	11/15/16	$	2,000	$	2,016,652
Turner Broadcasting Corp., Senior Notes
8.38%	07/01/13		300		341,781
					11,138,553
Finance — 6.9%
Aetna, Inc., Senior Unsecured Notes
6.00%	06/15/16		4,170		4,321,830
Associates Corp. N.A., Senior Notes
6.25%	11/01/08		2,000		2,034,040
BAE Systems Holdings, Inc., Unsecured Notes
5.20%(g)	08/15/15		680		665,976
The Bear Stearns Cos., Inc., Unsecured Notes
3.25%	03/25/09		3,500		3,378,511
Berkshire Hathaway Finance Corp., Senior Unsecured Notes
3.40%	07/02/07		2,400		2,389,253
4.12%	01/15/10		1,025		1,003,175
Federated Retail Holdings, Inc., Senior Unsecured Notes
5.90%	12/01/16		1,400		1,394,778
General Electric Capital Corp., Unsecured Notes
3.45%	07/16/07		785		780,970
3.50%(l)	08/15/07		3,820		3,796,198
4.12%	09/01/09		1,115		1,093,982
4.88%	10/21/10		4,120		4,098,378
5.00%	11/15/11		8,255		8,230,656
Lehman Brothers Holdings, Inc., Senior Unsecured Notes
5.75%	04/11-07/11		4,500		4,590,551
Morgan Stanley, Senior Notes
5.61%(c)	01/09/12		13,745		13,743,131
5.62%	01/09/12		1,145		1,160,044
Morgan Stanley, Senior Unsecured Notes
6.75%	04/15/11		350		370,186
Morgan Stanley, Unsecured Notes
5.05%	01/21/11		4,855		4,832,609
Principal Life Global Funding, Inc., Unsecured Notes
3.62%(g)	04/30/08		1,085		1,062,305
Prudential Financial, Inc., Senior Unsecured Notes
3.75%	05/01/08		1,375		1,353,859
Prudential Funding LLC, Senior Unsecured Notes
6.60%(g)	05/15/08		810		818,869
PSEG Funding Trust, Inc., Capital Securities
5.38%	11/16/07		1,450		1,448,717
					62,568,018
Insurance — 0.9%
ASIF Global Financing, Unsecured Notes
3.90%(g)	10/22/08		320		313,919
CHUBB Corp., Senior Unsecured Notes
4.93%	11/16/07		2,925		2,918,170
Metropolitan Life Global Funding, Inc., Unsecured Notes
2.60%(g)	06/19/08		1,540		1,492,702
New York Life Global Funding, Unsecured Notes
3.88%(g)	01/15/09		2,945		2,881,889
TIAA Global Markets, Senior Unsecured Notes
3.88%(g)	01/22/08		520		513,393
					8,120,073
Medical & Medical Services — 0.6%
UnitedHealth Group, Inc., Unsecured Notes
5.25%	03/15/11		2,600		2,610,096
WellPoint, Inc., Unsecured Notes
3.50%	09/01/07		630		624,773
5.00%	01/15/11		1,925		1,915,308
					5,150,177
Motor Vehicles — 0.5%
DaimlerChrysler N.A. Holding Corp., Senior Unsecured Notes
5.75%	09/08/11		2,125		2,158,855
DaimlerChrysler N.A. Holding Corp., Unsecured Notes
4.88%	06/15/10		2,000		1,979,704
6.50%	11/15/13		475		500,255
					4,638,814
Oil & Gas — 1.7%
Anadarko Petroleum Corp., Senior Unsecured Notes
3.25%	05/01/08		1,600		1,564,198
5.95%	09/15/16		4,000		4,008,424
ConocoPhillips, Senior Unsecured Notes
8.75%	05/25/10		2,400		2,663,916
Halliburton Co., Senior Unsecured Notes
5.50%	10/15/10		1,850		1,869,976
Ocean Energy, Inc., Senior Unsecured Notes
4.38%	10/01/07		1,660		1,651,056
Oneok, Inc., Senior Unsecured Notes
5.51%	02/16/08		2,410		2,413,839
Texas Eastern Transmission LP, Senior Unsecured Notes
5.25%	07/15/07		1,590		1,587,493
					15,758,902
Pharmaceuticals — 0.3%
Abbott Laboratories, Unsecured Notes
5.60%	05/15/11		1,880		1,917,166
Schering-Plough Corp., Senior Notes
5.55%(c)	12/01/13		795		809,982
					2,727,148

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	53

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE BOND PORTFOLIO II (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Real Estate — 0.5%
Archstone-Smith Trust Corp., Senior Unsecured Notes (REIT)
5.00%	08/15/07	$	850	$	848,931
AvalonBay Communities, Inc., Senior Unsecured Notes (REIT)
5.00%	08/01/07		1,380		1,378,067
The Rouse Co., Unsecured Notes (REIT)
3.62%	03/15/09		600		572,008
5.38%	11/26/13		1,405		1,322,122
					4,121,128
Retail Merchandising — 0.5%
Federated Department Stores, Inc., Senior Unsecured Notes
6.62%	09/01/08		820		832,675
May Department Stores Co., Debentures
7.45%	10/15/16		860		926,204
May Department Stores Co., Unsecured Notes
3.95%	07/15/07		2,710		2,696,198
					4,455,077
Telecommunications — 1.4%
AT&T Broadband Corp., Unsecured Notes
8.38%	03/15/13		1,235		1,412,307
Lenfest Communications, Inc., Senior Notes
7.62%	02/15/08		1,815		1,846,142
SBC Communications, Inc., Senior Unsecured Notes
5.88%	02/01/12		130		133,418
SBC Communications, Inc., Unsecured Notes
4.21%(g)	06/05/21		1,900		1,899,791
Sprint Capital Corp., Senior Unsecured Notes
7.62%	01/30/11		1,125		1,209,520
Sprint Nextel Corp., Unsecured Notes
6.00%	12/01/16		1,520		1,495,841
Verizon New Jersey, Inc., Senior Debentures
5.88%	01/17/12		5,015		5,124,623
					13,121,642
Transportation — 0.2%
Union Pacific Corp., Unsecured Notes
7.25%	11/01/08		1,750		1,801,714
Yankee — 7.7%
Barclays Bank Plc (United Kingdom), Subordinated Notes
7.38%(c)(g)(j)(m)			1,500		1,625,886
Cable & Wireless Optus Finance Ltd. (Australia), Unsecured Notes
8.00%(g)(m)	06/22/10		1,425		1,530,578
Canadian National Railway Co. (Canada), Senior Unsecured Notes
4.25%(m)	08/01/09		2,075		2,035,150
Canadian National Resources (Canada), Unsecured Notes
5.70%(m)	05/15/17		1,125		1,119,799
ConocoPhillips Funding Co. (Australia), Unsecured Notes
5.46%(c)(m)	04/09/09		4,635		4,636,539
Depfa ACS Bank (Ireland), Senior Secured Bonds
4.88%(g)(m)	10/28/15		2,800		2,758,140
Eksportfinans ASA (Norway), Unsecured Notes
4.38%(m)	07/15/09		6,550		6,466,926
5.50%(m)	05/25/16		4,100		4,236,514
EnCana Corp. (Canada), Unsecured Notes
4.60%(m)	08/15/09		175		172,564
EnCana Holdings Finance Corp. (Canada), Senior Unsecured Notes
5.80%(m)	05/01/14		980		999,290
HBOS Treasury Services Plc (United Kingdom), Unsecured Notes
3.75%(g)(m)	09/30/08		1,360		1,331,328
KFW Bankengruppe (Germany), Senior Unsecured Notes
3.25%(m)	09/21/07		3,400		3,367,697
MassMutual Global Funding II (Cayman Islands), Senior Secured Notes
2.55%(g)(m)	07/15/08		2,535		2,441,377
National Westminster Bank (United Kingdom), Subordinated Notes
7.75%(c)(j)(m)			1,550		1,564,776
Nationwide Building Society (United Kingdom), Unsecured Notes
4.25%(g)(m)	02/01/10		350		341,593
Scottish Power Plc (United Kingdom), Unsecured Notes
4.91%(m)	03/15/10		2,300		2,282,292
SP PowerAssets Ltd. (Singapore), Unsecured Notes
3.80%(g)(m)	10/22/08		1,325		1,298,301
Swedish Export Credit Corp. (Sweden), Unsecured Notes
3.50%(k)(m)	01/15/08		6,625		6,559,247
Telecom Italia Capital (Luxembourg), Senior Unsecured Notes
5.25%(m)	11/15/13		1,690		1,638,526
Telecom Italia Capital (Luxembourg), Unsecured Notes
5.25%(m)	10/01/15		600		569,248
Telefonica Emisiones Sau (Spain), Senior Unsecured Notes
6.42%(m)	06/20/16		2,200		2,296,193
Telefonica Europe BV (Netherlands), Senior Unsecured Notes
7.75%(m)	09/15/10		510		549,557
Tyco International Group SA (Luxembourg), Senior Unsecured Notes
6.38%(m)	10/15/11		2,660		2,811,000
United Mexican States (Mexico), Senior Unsecured Notes
5.62%(m)	01/15/17		730		735,840
6.75%(m)	09/27/34		375		408,938
Vodafone Group Plc (United Kingdom), Senior Unsecured Notes
3.95%(m)	01/30/08		2,595		2,567,675
7.75%(m)	02/15/10		1,845		1,969,329

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

54

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE BOND PORTFOLIO II (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)			VALUE
CORPORATE BONDS (Continued)
Yankee (Continued)
Vodafone Group Plc (United Kingdom), Unsecured Notes
5.42%(c)(m)	06/29/07	$	3,700		$	3,700,233
5.45%(c)(m)	12/28/07		3,455			3,456,721
5.00%(m)	09/15/15		110			105,531
Xstrata Finance Ltd. (Canada), Unsecured Notes
5.80%(g)(m)	11/15/16		4,150			4,167,903
						69,744,691
TOTAL CORPORATE BONDS (Cost $279,508,218)						278,845,833
TAXABLE MUNICIPAL BONDS — 1.3%
New York Sales Tax Asset Receivable Corp. Revenue Bonds, Series 04, Class B
3.83%	10/15/09		1,280			1,246,758
Oregon School Board Taxable Pension Deferred Interest Bonds, Series 03, Class A
3.34%(n)	06/30/07		2,700			2,663,685
Port Authority of New York & New Jersey Revenue Notes, Series 04, Class XX
3.30%	09/15/07		4,200			4,162,158
Texas Public Finance Authority Taxable Revenue Bonds, Series 03
3.12%	06/15/07		2,020			2,011,274
Wisconsin General Revenue Bonds, Series 03, Class A
4.80%	05/01/13		1,910			1,884,177
TOTAL TAXABLE MUNICIPAL BONDS (Cost $12,082,939)						11,968,052
		PAR /SHARES (000)
SHORT TERM INVESTMENTS — 8.9%
Federal Farm Credit Bank, Discount Notes
5.14%(o)	04/11/07		409			408,416
Federal Home Loan Bank, Discount Notes
5.13%(o)	04/04/07		35,000			34,985,038
5.16%(o)	04/13/07		1,462			1,459,485
Federal Home Loan Mortgage Corp., Discount Notes
4.97%(o)	04/02/07		33,000			32,995,508
5.16%(o)	04/16/07		1,150			1,147,525
Federal National Mortgage Assoc., Discount Notes
5.14%(o)	04/27/07		752			749,208
Galileo Money Market Fund, 5.02%			9,417			9,417,141
TOTAL SHORT TERM INVESTMENTS (Cost $81,162,321)						81,162,321
		NUMBER OF CONTRACTS
CALL SWAPTIONS PURCHASED — 0.1%
Barclays Capital, Strike Rate 5.520%, Expires	09/19/16		1,260	(p)		646,162
Lehman Brothers, Strike Rate 5.390%, Expires	03/19/12		1,610	(p)		568,813
TOTAL CALL SWAPTIONS PURCHASED (Cost $1,413,076)						1,214,975
PUT OPTIONS PURCHASED — 0.0%
June 10 year U.S. Treasury Notes futures, Strike Price $105, Expires 05/25/07 (Cost $62,523)			142			4,437
PUT SWAPTIONS PURCHASED — 0.2%
Barclays Capital, Strike Rate 5.520%, Expires 09/21/15			1,260	(p)		753,684
Goldman Sachs, Strike Rate 5.350%, Expires 04/30/07			1,490	(p)		23,773
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12			1,610	(p)		721,280
TOTAL PUT SWAPTIONS PURCHASED (Cost $1,557,412)						1,498,737
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 100.4% (Cost $914,268,409)						911,543,982
		NUMBER OF SHARES
AFFILIATED INVESTMENTS - SHORT TERM — 0.2%
Institutional Money Market Trust, 4.80%(q) (Cost $1,162,800)			1,162,800			1,162,800
TOTAL INVESTMENTS IN SECURITIES — 100.6% (Cost $915,431,209(a))						912,706,782
		NUMBER OF CONTRACTS
CALL SWAPTIONS WRITTEN — (0.2)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08			(1,220	)(p)		(232,027	)
Chase Securities, Strike Rate 5.485%, Expires 10/26/09			(2,220	)(p)		(813,890	)
Citibank, Strike Rate 5.670%, Expires 01/04/10			(1,250	)(p)		(549,912	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08			(1,610	)(p)		(276,920	)
TOTAL CALL SWAPTIONS WRITTEN (Premiums received $2,347,698)						(1,872,749	)

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	55

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERMEDIATE BOND PORTFOLIO II (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF CONTRACTS		VALUE
PUT SWAPTIONS WRITTEN — (0.2)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08	(1,220	)(p)	$	(232,027	)
Chase Securities, Strike Rate 5.485%, Expires 10/26/09	(2,220	)(p)		(624,082	)
Citibank, Strike Rate 5.670%, Expires 01/04/10	(1,250	)(p)		(300,150	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08	(1,610	)(p)		(402,178	)
TOTAL PUT SWAPTIONS WRITTEN (Premiums received $2,347,698)				(1,558,437	)
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (0.1)%				(1,162,800	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (0.1)%				(579,434	)
NET ASSETS — 100.0%			$	907,533,362

(a) Cost for federal income tax purposes is $915,442,683. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	3,017,470
Gross unrealized depreciation		(5,753,371	)
	$	(2,735,901	)

(b) Security, or a portion thereof, with a market value of $2,034,892, has been pledged as collateral for swap and swaption contracts.

(c) Variable rate security. Rate shown is the rate as of March 31, 2007.

(d) Security, or a portion thereof, subject to financing transactions.

(e) Interest rate of underlying collateral.

(f) Rates shown are the effective yields as of March 31, 2007.

(g) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 6.4% of its net assets, with a current market value of $58,438,658, in securities restricted as to resale.

(h) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. As of March 31, 2007, these securities had a total market value of $3,869,024 which represents 0.4% of net assets.

(i) Security is illiquid. As of March 31, 2007, the Portfolio held 0.4% of its net assets, with a current market value of $3,888,400 in these securities.

(j) The security is a perpetual bond and has no stated maturity date.

(k) Total or partial security on loan.

(l) Security, or a portion thereof, pledged as collateral with a value of $2,981,307 on 1,841 long U.S. Treasury Note futures contracts and 304 short U.S. Treasury Bond futures contracts expiring June 2007 and 655 long Euro-dollar futures contracts expiring September 2007. The value of such contracts on March 31, 2007 was $387,554,189, with an unrealized gain of $305,160 (including commissions of $6,082).

(m) U.S. dollar denominated security issued by foreign domiciled entity.

(n) The rate shown is the effective yield on the zero coupon bonds at the time of purchase.

(o) The rate shown is the effective yield at the time of purchase.

(p) Each swaption contract is equivalent to $10,000 notional amount.

(q) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

56

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
U.S. GOVERNMENT & AGENCY OBLIGATIONS — 9.0%
Federal National Mortgage Assoc., Unsecured Notes
4.00%(b)	01/26/09	$	3,445	$	3,391,723
Resolution Funding Corp., Strip Bonds
6.29%(c)	07/15/18		100		57,356
6.30%(c)	10/15/18		100		56,548
Small Business Administration Participation Certificates, Series 02-P10B, Class 1
5.20%	08/10/12		319		320,194
Small Business Administration Participation Certificates, Series 04-P10A, Class 1
4.50%	02/01/14		1,187		1,152,425
U.S. Treasury Inflation Protected Bonds
2.00%	01/15/26		3,940		3,818,832
2.38%	01/15/27		1,095		1,108,143
U.S. Treasury Notes
4.62%(d)	02/12-02/17		31,040		30,999,897
U.S. Treasury Strip
6.12%(b)(c)	11/15/27		6,285		2,274,774
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $43,674,269)					43,179,892
MORTGAGE PASS-THROUGHS — 45.4%
Federal Home Loan Mortgage Corp. ARM
5.98%(e)	01/01/37		3,282		3,317,064
Federal Home Loan Mortgage Corp. Gold
4.00%	05/10-05/19		630		614,265
6.00%	05/13-08/17		459		467,049
5.50%	08/17-10/17		269		269,918
4.50%	05/18-08/20		5,524		5,361,993
5.00%	12/18-05/36		4,051		3,997,012
6.50%	04/31-12/34		960		985,075
Federal Home Loan Mortgage Corp. Gold 15 Year TBA
5.00%	04/01/22		2,000		1,971,876
Federal Home Loan Mortgage Corp. Gold 30 Year TBA
5.50%	04/01/37		22,000		21,766,250
6.00%	04/01/37		8,000		8,062,496
Federal National Mortgage Assoc.
6.28%	08/01/11		1,800		1,874,898
5.50%	07/14-06/36		27,578		27,432,225
6.50%	03/16-09/36		9,465		9,656,075
5.00%	09/17-04/36		17,538		17,189,395
4.00%	05/19-05/20		2,756		2,605,484
4.50%	03/20-07/21		2,856		2,765,972
6.00%	08/21-08/35		12,105		12,291,406
7.00%	03/31-10/32		136		141,585
Federal National Mortgage Assoc. 15 Year TBA
4.50%	04/01/22		2,000		1,935,624
5.00%	04/01/22		4,000		3,943,752
5.50%	04/01/22		23,900		23,953,643
6.00%	04/01/22		16,000		16,260,000
Federal National Mortgage Assoc. 30 Year TBA
4.50%	04/01/37		4,300		4,040,658
5.00%	04/01/37		19,000		18,352,822
5.50%	04/01/37		14,000		13,851,250
6.00%	04/01/37		3,800		3,827,314
6.50%	04/01/37		5,000		5,100,000
7.00%	04/01/37		200		206,250
Federal National Mortgage Assoc. ARM
4.57%(e)	01/01/35		2,084		2,073,303
Government National Mortgage Assoc. I
6.00%	11/28-06/32		796		808,107
6.50%	04/15/31		154		158,560
7.00%	06/31-09/31		191		200,031
5.50%	11/33-02/35		819		815,629
Government National Mortgage Assoc. II ARM
3.75%(e)	05/20/34		1,788		1,776,714
TOTAL MORTGAGE PASS-THROUGHS (Cost $218,245,444)					218,073,695
COLLATERALIZED MORTGAGE OBLIGATIONS — 10.0%
Bank of America Alternative Loan Trust, Series 04-7, Class 4A1
5.00%	08/25/19		1,125		1,103,675
Countrywide Alternative Loan Trust, Series 04-18CB, Class 2A5
5.77%(e)	09/25/34		1,401		1,406,773
Countrywide Home Loans, Series 04-29, Class 1A1
5.59%(e)	02/25/35		344		344,098
Federal Home Loan Mortgage Corp., Series 04-2877, Class PA
5.50%	07/15/33		2,239		2,253,187
Federal Home Loan Mortgage Corp., Series 232 (IO)
5.00%(c)	08/01/35		2,897		680,076
Federal Home Loan Mortgage Corp., Series 2825, Class VP
5.50%	06/15/15		1,195		1,206,762
Federal Home Loan Mortgage Corp., Series 2922, Class GA
5.50%	05/15/34		2,415		2,428,312
Federal Home Loan Mortgage Corp., Series 2927, Class BA
5.50%	10/15/33		1,910		1,925,290
Federal Home Loan Mortgage Corp., Series 3242, Class QA
5.50%	03/15/30		3,126		3,140,378
Federal National Mortgage Assoc., Series 99-7, Class AB
6.00%	03/25/29		726		730,660
Federal National Mortgage Assoc., Series 02-73, Class AN
5.00%	11/25/17		1,800		1,782,518
Federal National Mortgage Assoc., Series 03-35, Class TE
5.00%	05/25/18		1,680		1,663,392

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	57

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
Federal National Mortgage Assoc., Series 04-29, Class HC
7.50%	07/25/30	$	1,293	$	1,364,441
Federal National Mortgage Assoc., Series 04-60, Class LB
5.00%	04/25/34		2,030		2,002,723
Federal National Mortgage Assoc., Series 04-99, Class AO
5.50%	01/25/34		1,395		1,400,816
Federal National Mortgage Assoc., Series 05-15, Class PL
5.50%	03/25/35		1,715		1,728,029
Federal National Mortgage Assoc., Series 05-57, Class PA
5.50%	05/25/27		1,192		1,191,622
Federal National Mortgage Assoc., Series 05-70, Class NA
5.50%	08/25/35		1,040		1,048,112
Federal National Mortgage Assoc., Series 05-80, Class PB
5.50%	04/25/30		1,389		1,392,304
Federal National Mortgage Assoc., Series 363, Class 2 (IO)
5.50%(c)	11/01/35		2,874		661,501
Federal National Mortgage Assoc., Series 367, Class 2 (IO)
5.50%(c)	01/25/36		3,241		758,791
Federal National Mortgage Assoc., Series 379, Class 5 (IO)
5.00%(c)	05/25/36		4,663		1,116,329
Harborview Mortgage Loan Trust, Series 05-10, Class 2A1A
5.63%(e)	11/19/35		1,359		1,362,652
IndyMac Index Mortgage Loan Trust, Series 06-AR41, Class A3
5.50%(e)	01/25/37		2,607		2,611,595
J.P. Morgan Mortgage Trust, Series 06-A2, Class 4A1
3.89%(e)	08/25/34		3,253		3,209,692
Lehman Brothers-UBS Commercial Mortgage Trust, Series 00-C3, Class A2
7.95%	05/15/25		2,525		2,692,054
Lehman Brothers-UBS Commercial Mortgage Trust, Series 00-C4, Class A2
7.37%	08/15/26		1,224		1,293,617
Lehman Brothers-UBS Commercial Mortgage Trust, Series 02-C7, Class A2
3.90%	12/15/26		510		505,070
Luminent Mortgage Trust, Series 06-7, Class 1A1
5.50%(e)	05/25/36		3,441		3,437,537
Opteum Mortgage Acceptance Corp., Series 06-2, Class A1A
5.38%(e)	07/25/36		1,802		1,800,605
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $48,428,780)					48,242,611
COMMERCIAL MORTGAGE BACKED SECURITIES — 14.4%
Banc of America Commercial Mortgage, Inc., Series 01-1, Class A2
6.50%	04/15/36		1,917		1,993,599
Bear Stearns Commercial Mortgage Securities, Inc., Series 00-WF2, Class A2
7.32%	10/15/32	$	1,400	$	1,484,061
Bear Stearns Commercial Mortgage Securities, Inc., Series 06-PW14, Class A4
5.20%	12/11/38		2,725		2,686,769
Chase Commercial Mortgage Securities Corp., Series 99-2, Class A2
7.20%	01/15/32		284		295,897
Commercial Mortgage Acceptance Corp., Series 98-C2, Class A2
6.03%	03/15/08		927		929,723
Countrywide Alternative Loan Trust, Series 06-0C8, Class 2A1A
5.41%(e)	11/25/36		3,168		3,169,081
Countrywide Alternative Loan Trust, Series 06-OC11, Class 2A1
5.42%(e)	12/29/36		3,089		3,088,594
Credit Suisse First Boston Mortgage Securities Corp., Series 98-C2, Class A2
6.30%	11/11/30		3,683		3,729,428
Credit Suisse First Boston Mortgage Securities Corp., Series 01-CK6, Class A3
6.39%	10/15/11		325		339,725
Credit Suisse First Boston Mortgage Securities Corp., Series 02-CKS4, Class A2
5.18%	08/15/12		2,415		2,412,749
Credit Suisse First Boston Mortgage Securities Corp., Series 03-C3, Class A5
3.94%	05/15/38		2,320		2,168,931
Donaldson, Lufkin & Jenrette, Inc., Commerical Mortgage Corp., Series 00-CKP1, Class A1B
7.18%	11/10/33		2,077		2,188,763
Federal National Mortgage Assoc., Series 06-M2, Class A2A
5.27%	10/20/32		4,600		4,587,186
First Union National Bank Commercial Mortgage Trust, Series 01-C2, Class A2
6.66%	01/12/43		2,160		2,267,391
General Electric Capital Commercial Mortgage Corp., Series 01-3, Class A2
6.07%	06/10/38		1,670		1,732,527
General Electric Capital Commercial Mortgage Corp., Series 02-1A, Class A3
6.27% 12/10/35			1,730		1,810,143
General Electric Capital Commercial Mortgage Corp., Series 05-C4, Class A4
5.33%(e)	11/10/45		2,900		2,911,474
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 99-C2, Class A2
6.94%	09/15/33		1,372		1,413,420

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

58

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COMMERCIAL MORTGAGE BACKED SECURITIES (Continued)
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 99-C3, Class A2
7.18%	08/15/36	$	1,209	$	1,253,130
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 00-C1, Class A2
7.72%	03/15/33		1,490		1,569,682
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 00-C2, Class A2
7.46%	08/16/33		1,298		1,372,722
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 03-C2, Class A2
5.28%(e)	05/10/40		2,465		2,500,164
Goldman Sachs Mortgage Securities Corp. II, Series 99-C1, Class A2
6.11%(e)	11/18/30		1,316		1,327,058
Goldman Sachs Mortgage Securities Corp. II, Series 03-C1, Class X2 (IO)
1.03%(c)(f)	01/10/40		18,394		318,250
Goldman Sachs Mortgage Securities Corp. II, Series 04-GG2, Class A4
4.96%	08/10/38		1,625		1,614,418
Greenwich Capital Commercial Funding Corp., Series 05-GG3, Class A3
4.57%	08/10/42		2,445		2,387,280
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 01, Class A3
6.43%	06/15/11		820		857,659
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 01-CIB3, Class A3
6.46%	11/15/35		2,120		2,227,171
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 01-CIBC, Class A3
6.26%	03/15/33		1,139		1,175,878
Lehman Brothers Commercial Conduit Mortgage Trust, Series 98-C4, Class A1B
6.21%	10/15/35		866		874,545
Morgan Stanley Capital I, Series 06-IQ12, Class A4
5.33%(e)	12/15/43		2,470		2,458,072
Morgan Stanley Capital Investments, Series 98-HF2, Class A2
6.48%	11/15/30		264		266,988
Morgan Stanley Capital Investments, Series 99-FNV1, Class A2
6.53%	03/15/31		483		490,775
Prudential Mortgage Capital Funding, LLC, Series 01-C1, Class A2
6.60%	05/10/34		2,190		2,297,110
Salomon Brothers Mortgage Securities VII, Series 99-C1, Class A2
7.08%(e)	01/18/09		1,488		1,521,127
Salomon Brothers Mortgage Securities VII, Series 00-C3, Class A2
6.59%	10/18/10		1,650		1,714,724
Salomon Brothers Mortgage Securities VII, Series 01-C2, Class A3
6.50%	10/13/11		1,960		2,056,984
Structured Asset Receivables Trust, Series 03-2
5.72%(e)(f)(g)(h)	01/21/09		941		941,171
Washington Mutual Asset Securities Corp., Series 05-C1A, Class X (IO)
2.11%(c)(f)	05/25/36		21,708		1,060,481
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $70,204,725)					69,494,850
CERTIFICATES OF DEPOSIT — 1.1%
Barclays Bank Plc (United Kingdom)
5.35%(e)	03/13/09		4,665		4,667,892
SunTrust Bank, Inc.
4.42%	06/15/09		430		421,734
TOTAL CERTIFICATES OF DEPOSIT (Cost $5,095,000)					5,089,626
ASSET BACKED SECURITIES — 20.8%
American Express Credit Account Master Trust, Series 05-3, Class A
5.32%(e)	01/18/11		2,675		2,671,818
American Express Credit Account Master Trust, Series 06-01, Class A
5.35%(e)	12/15/13		2,850		2,851,037
Asset Securitization Corp., Series 97-D5, Class A1C
6.75%	02/14/41		762		767,097
Bank One Issuance Trust, Series 02-A5, Class A5
5.44%(e)	06/15/10		3,450		3,452,612
Bank One Issuance Trust, Series 02-A6, Class A
5.51%(e)	06/15/12		3,650		3,669,320
Bank One Issuance Trust, Series 03, Class A3
5.43%(e)	12/15/10		2,375		2,378,167
Bear Stearns Securities, Inc., Series 06-EC1, Class A1
5.40%(e)	08/25/29		488		487,562
Capital Auto Receivables Asset Trust, Series 05-1, Class A4
4.05%	07/15/09		2,400		2,388,377
Capital Auto Receivables Asset Trust, Series 06-SN1A, Class A2A
5.40%(f)	01/20/09		4,650		4,651,697
Carrington Mortgage Loan Trust, Series 06-FRE1, Class A1
5.38%(e)	07/25/36		1,315		1,314,999
Carrington Mortgage Loan Trust, Series 06-NC5, Class A1
5.37%(e)	01/25/37		3,204		3,203,892
Chase Credit Card Master Trust, Series 02-7, Class A
5.44%(e)	02/15/10		2,750		2,752,082
Chase Credit Card Master Trust, Series 04-2, Class A
5.36%(e)	09/15/09		3,125		3,125,190

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	59

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
ASSET BACKED SECURITIES (Continued)
Chase Issuance Trust, Series 04-A9, Class A9
3.22%	06/15/10	$	2,275	$	2,250,828
Chase Issuance Trust, Series 05, Class A5
5.34%(e)	02/15/12		3,600		3,603,015
Chase Issuance Trust, Series 06, Class A3
5.31%(e)	07/15/11		2,375		2,376,434
Citibank Credit Card Issuance Trust, Series 03, Class A6
2.90%	05/17/10		1,805		1,760,805
Citibank Credit Card Issuance Trust, Series 03-A3, Class A3
3.10%	03/10/10		1,125		1,103,355
Citibank Credit Card Issuance Trust, Series 03-A9, Class A9
5.46%(e)	11/22/10		3,525		3,530,506
Citibank Credit Card Issuance Trust, Series 06-A2, Class A2
4.85%	02/10/11		2,550		2,543,567
Countrywide Alternative Loan Trust, Series 06-OC10, Class 2A1
5.41%(e)	11/25/36		2,051		2,050,601
Countrywide Certificates, Series 04-13, Class AV4
5.61%(e)	06/25/35		370		369,665
Countrywide Certificates, Series 05-BC5, Class 3A1
5.42%(e)	10/25/27		250		250,182
Countrywide Certificates, Series 06-25, Class 2A1
5.39%(e)	01/25/37		3,574		3,573,017
Countrywide Certificates, Series 06-8, Class 2A1
5.35%(e)	04/25/28		1,893		1,891,680
Discover Card Master Trust I, Series 05-1, Class A
5.33%(e)	09/16/10		2,350		2,350,969
Long Beach Mortgage Loan Trust, Series 06-11, Class 2A1
5.38%(e)(g)	01/25/37		2,572		2,572,405
Maryland Trust, Series 06-I, Class A
5.55%(f)	12/10/49		2,500		2,476,562
MBNA Credit Card Master Notes Trust, Series 98-E, Class A
5.05%(e)	09/15/10		2,725		2,729,553
MBNA Credit Card Master Notes Trust, Series 03, Class A7
2.65%	11/15/10		3,250		3,157,398
MBNA Credit Card Master Notes Trust, Series 03-A6, Class A6
2.75%	10/15/10		1,500		1,461,372
MBNA Credit Card Master Notes Trust, Series 04-A4, Class A4
2.70%	09/15/09		2,620		2,617,249
MBNA Credit Card Master Notes Trust, Series 06-A4, Class A4
5.31%(e)	09/15/11		3,650		3,652,122
Morgan Stanley Capital Investments, Series 06-HE2, Class A2A
5.39%(e)	03/25/36		1,754		1,753,171
New Century Home Equity Loan Trust, Series 05-3, Class A2B
5.50%(e)	07/25/35		1,753		1,752,578
Novastar Home Equity Loan, Series 06-2, Class A2A
5.37%(e)	06/25/36		1,345		1,344,660
Residential Asset Mortgage Products, Inc., Series 06-EFC2, Class A1
5.38%(e)	12/25/36		2,633		2,633,307
Residential Asset Mortgage Products, Inc., Series 06-RS4, Class A1
5.40%(e)	07/25/36		2,271		2,270,532
Structured Asset Investment Loan Trust, Series 06-1, Class A1
5.40%(e)	01/25/36		922		921,647
Structured Asset Securities Corp., Series 03-AL2, Class A
3.36%(f)	01/25/31		641		588,825
Structured Asset Securities Corp., Series 06-BC6, Class A2
5.40%(e)	01/25/37		2,877		2,876,325
Structured Asset Securities Corp., Series 07-BC1, Class A2
5.37%(e)	02/25/37		2,995		2,994,307
Student Loan Marketing Assoc. Student Loan Trust, Series 05-6, Class A5B
5.37%(e)	07/27/26		2,800		2,800,552
TOTAL ASSET BACKED SECURITIES (Cost $100,219,269)					99,971,039
CORPORATE BONDS — 15.8%
Aerospace — 0.3%
United Technologies Corp., Unsecured Notes
5.43%(e)	06/01/09		1,150		1,150,966
Banks — 3.3%
Bank of America Corp. Capital Trust XI, Capital Securities
6.62%	05/23/36		45		47,616
Bank of America Corp., Subordinated Notes
7.80%	02/15/10		75		80,430
Bank of America Corp., Unsecured
Notes
5.36%(e)	03/24/09		2,725		2,730,085
Bank of New York Co., Inc., Senior
Subordinated Notes
3.80%	02/01/08		400		395,168
Citigroup, Inc., Senior Unsecured
Notes
4.25%	07/29/09		1,010		993,686
Citigroup, Inc., Subordinated Notes
6.12%	08/25/36		300		304,710
Citigroup, Inc., Unsecured Notes
3.62%(i)	02/09/09		1,010		985,679
4.12%	02/22/10		2,475		2,421,676
HSBC Bank USA, Subordinated
Notes
3.87%	06/07/07		1,875		1,869,591
4.62%	04/01/14		415		396,732
J.P. Morgan Chase & Co., Senior
Notes
2.62%	06/30/08		220		213,338
J.P. Morgan Chase & Co.,
Subordinated Notes
5.75%	10/15/08		375		378,660

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

60

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Banks (Continued)
7.12%	06/15/09	$	100	$	104,030
SunTrust Bank, Inc., Senior Unsecured Notes
3.62%	10/15/07		665		658,832
4.00%	10/15/08		325		319,229
SunTrust Capital VIII, Trust Preferred Securities
6.10%(e)	12/15/36		425		398,113
U.S. Bancorp, Senior Unsecured Notes
3.95%	08/23/07		115		114,376
UBS Preferred Funding Trust, Inc., Capital Securities
8.62%(e)(j)			40		44,213
Wachovia Bank N.A., Senior Bank Notes
4.38%	08/15/08		45		44,465
5.39%(e)	03/23/09		1,575		1,574,729
Wachovia Corp., Subordinated Notes
6.30%	04/15/28		440		444,927
Wells Fargo & Co., Senior Unsecured Notes
4.20%	01/15/10		600		587,010
Wells Fargo & Co., Unsecured Notes
4.62%	08/09/10		255		252,153
4.88%	01/12/11		740		735,876
					16,095,324
Broadcasting — 0.2%
Cablevision Systems Corp., Senior Unsecured Notes
9.87%(e)	04/01/09		605		641,300
Charter Communications Holdings II LLC, Unsecured Notes
10.25%	09/15/10		30		31,650
Echostar DBS Corp., Senior Unsecured Notes
7.00%	10/01/13		30		30,900
7.12%	02/01/16		30		30,975
News America Holdings, Inc., Senior Debentures
7.12%	04/08/28		125		132,896
7.62%	11/30/28		140		156,892
					1,024,613
Chemicals — 0.1%
Lyondell Chemical Co., Senior Unsecured Notes
8.00%	09/15/14		105		109,988
8.25%	09/15/16		180		192,600
Momentive Performance Materials, Inc., Senior Unsecured Notes
10.12%(f)	12/01/14		235		244,400
					546,988
Electronics — 0.0%
L-3 Communications Corp., Senior Subordinated Notes
6.38%	10/15/15		50		49,563
Energy & Utilities — 0.4%
AES Ironwood LLC, Senior Secured Notes
8.86%	11/30/25		90		101,722
AES Red Oak LLC, Senior Secured Notes
9.20%	11/30/29		50		57,000
CenterPoint Energy, Inc., Senior Unsecured Notes
7.25%	09/01/10		480		506,680
Citizens Communications Co., Senior Unsecured Notes
6.25%	01/15/13		235		233,238
Florida Power & Light Co., First Mortgage Bonds
5.62%	04/01/34		150		147,021
Midwest Generation LLC, Pass-Through Certificates
8.56%	01/02/16		96		105,002
Midwest Generation LLC, Senior Secured Notes
8.75%	05/01/34		45		48,825
NRG Energy, Inc., Senior Unsecured Notes
7.38%	02/01/16		90		92,475
Orion Power Holdings, Inc., Senior Unsecured Notes
12.00%	05/01/10		115		132,825
Reliant Energy, Inc., Senior Secured Notes
6.75%	12/15/14		90		95,062
TXU Corp., Senior Unsecured Notes
4.80%	11/15/09		300		294,692
					1,814,542
Entertainment & Leisure — 0.5%
Comcast Cable Holdings LLC, Senior Debentures
7.88%	08/01/13		150		167,969
8.75%	08/01/15		360		425,201
Comcast Corp., Senior Unsecured Bonds
6.50%	11/15/35		125		125,947
Comcast Corp., Senior Unsecured Notes
7.05%	03/15/33		155		166,408
Comcast Corp., Unsecured Notes
5.90%	03/15/16		425		432,366
Harrah’s Operating Co., Inc., Senior Notes
5.75%	10/01/17		170		140,675
Time Warner Cos., Inc., Senior Debentures
8.38%	03/15/23		150		177,310
7.57%	02/01/24		720		795,595
Time Warner Cos., Inc., Senior Unsecured Notes
6.75%	04/15/11		200		210,774
					2,642,245
Finance — 3.5%
Arch Western Finance, Senior Notes
6.75%(e)	07/01/13		795		782,081
Associates Corp. N.A., Senior Notes
6.25%	11/01/08		275		279,680

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	61

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Finance (Continued)
BAE Systems Holdings, Inc., Unsecured Notes
5.20%(f)	08/15/15	$	340	$	332,988
Berkshire Hathaway Finance Corp., Senior Unsecured Notes
3.40%	07/02/07		410		408,164
3.38%	10/15/08		500		486,732
4.12%	01/15/10		105		102,764
Ford Motor Credit Co., Senior Notes
5.80%	01/12/09		545		534,616
General Electric Capital Corp., Senior Unsecured Notes
6.50%	12/10/07		200		201,669
General Electric Capital Corp., Unsecured Notes
3.45%	07/16/07		240		238,768
4.12%	09/01/09		470		461,141
5.00%	11/15/11		3,780		3,768,853
HSBC Finance Corp., Senior Unsecured Notes
4.75%	05/15/09		340		337,075
Morgan Stanley, Senior Notes
5.61%(e)	01/09/12		7,050		7,049,041
5.62%	01/09/12		360		364,730
Morgan Stanley, Senior Unsecured Notes
6.75%	04/15/11		250		264,419
Morgan Stanley, Unsecured Notes
5.05%	01/21/11		705		701,749
TDS Investor Corp., Senior Unsecured Notes
9.88%(f)	09/01/14		35		36,662
USAA Capital Corp., Senior Unsecured Notes
4.00%(f)	12/10/07		370		366,463
					16,717,595
Insurance — 0.9%
American General Corp., Senior Unsecured Notes
7.50%	08/11/10		150		161,204
Lincoln National Corp., Capital Securities
7.00%(e)	05/17/66		530		555,389
MetLife, Inc., Junior Subordinated Debentures
6.40%	12/15/66		910		888,518
TIAA Global Markets, Senior Unsecured Notes
3.88%(f)	01/22/08		465		459,092
Travelers Cos., Inc., Debentures
6.25%(e)	03/15/37		1,495		1,476,457
WellPoint, Inc., Unsecured Notes
5.95%	12/15/34		410		402,320
5.85%	01/15/36		195		188,405
					4,131,385
Leasing — 0.0%
United Rentals N.A., Inc., Senior Unsecured Notes
6.50%	02/15/12		40		39,900
Manufacturing — 0.2%
Belvoir Land LLC, Unsecured Notes
5.27%(f)	12/15/47		325		301,464
Briggs & Stratton Corp., Senior Unsecured Notes
8.88%	03/15/11		50		54,562
Georgia-Pacific Corp., Senior Unsecured Notes
7.12%(f)	01/15/17		760		761,900
					1,117,926
Medical & Medical Services — 0.1%
Bio-Rad Laboratories, Inc., Senior Subordinated Notes
7.50%	08/15/13		40		41,200
6.12%	12/15/14		100		97,000
Triad Hospitals, Inc., Senior Subordinated Notes
7.00%	11/15/13		330		344,438
					482,638
Motor Vehicles — 0.0%
DaimlerChrysler N.A. Holding Corp., Unsecured Notes
4.05%	06/04/08		65		64,024
Oil & Gas — 0.6%
Chesapeake Energy Corp., Senior Unsecured Notes
6.38%	06/15/15		55		54,725
6.25%	01/15/18		20		19,750
6.88%	11/15/20		45		44,775
Colorado Interstate Gas Co., Senior Unsecured Notes
6.80%	11/15/15		45		47,857
Consolidated Natural Gas, Inc., Senior Debentures
5.00%	03/01/14		235		227,916
Consolidated Natural Gas, Inc., Senior Unsecured Notes
6.25%	11/01/11		150		155,906
El Paso Natural Gas Co., Debentures
8.62%	01/15/22		130		157,770
El Paso Natural Gas Co., Senior Unsecured Notes
8.38%	06/15/32		5		6,160
Enterprise Products Operating LP, Senior Unsecured Notes
4.00%	10/15/07		225		223,360
4.95%	06/01/10		450		446,121
KCS Energy, Inc., Senior Unsecured Notes
7.12%	04/01/12		35		34,650
Northwest Pipeline Corp., Senior Unsecured Notes
8.12%	03/01/10		100		104,063
Phillips Petroleum Co., Senior Debentures
7.00%	03/30/29		80		89,383
Sabine Pass LNG LP, Notes
7.50%(f)	11/30/16		475		478,562
Targa Resources, Inc., Senior Unsecured Notes
8.50%(f)	11/01/13		10		10,200
Tennessee Gas Pipeline Co., Senior Debentures
7.00%	10/15/28		145		155,247

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

62

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Oil & Gas (Continued)
Transcontinental Gas Pipeline Corp., Senior Notes
8.88%	07/15/12	$	180	$	204,750
The Williams Cos., Inc., Senior Unsecured Notes
7.62%	07/15/19		345		375,187
7.75%	06/15/31		25		26,750
					2,863,132
Pharmaceuticals — 0.1%
Bristol-Myers Squibb Co., Senior Debentures
6.88%	08/01/47		75		79,670
Bristol-Myers Squibb Co., Unsecured Notes
5.88%	11/15/36		550		539,001
					618,671
Real Estate — 0.6%
American Real Estate Partners LP, Senior Unsecured Notes
8.12%	06/01/12		75		76,313
7.12%(f)	02/15/13		1,140		1,125,750
Avalonbay Communities, Inc., Senior Unsecured Notes (REIT)
6.62%	09/15/11		180		189,918
Camden Property Trust, Unsecured Notes (REIT)
4.70%	07/15/09		380		376,280
The Rouse Co., Senior Unsecured Notes (REIT)
6.75%(f)	05/01/13		325		331,218
The Rouse Co., Unsecured Notes (REIT)
5.38%	11/26/13		825		776,335
					2,875,814
Retail Merchandising — 0.1%
Federated Department Stores, Senior Debentures
6.79%	07/15/27		240		236,592
May Department Stores Co., Debentures
6.65%	07/15/24		150		147,414
					384,006
Semiconductors & Related Devices — 0.1%
Freescale Semiconductor, Inc., Senior Unsecured Notes
9.12%(f)	12/15/14		450		446,625
9.23%(e)(f)	12/15/14		55		54,863
					501,488
Telecommunications — 1.1%
AT&T Broadband Corp., Unsecured Notes
8.38%	03/15/13		670		766,191
Cincinnati Bell, Inc., Senior Unsecured Notes
7.25%	07/15/13		200		207,500
GTE Corp., Debentures
6.94%	04/15/28		75		79,098
Idearc, Inc., Senior Unsecured Notes
8.00%(f)	11/15/16		195		200,606
New Jersey Bell Telephone, Debentures
7.85%	11/15/29		35		39,690
PanAmSat Corp., Senior Unsecured Notes
9.00%(f)	06/15/16		110		121,137
Qwest Corp., Senior Unsecured Notes
7.88%	09/01/11		130		138,125
Qwest Corp., Unsecured Notes
8.60%(e)	06/15/13		135		147,150
SBC Communications, Inc., Unsecured Notes
4.21%(f)	06/05/21		1,750		1,749,807
Sprint Capital Corp., Senior Unsecured Notes
8.75%	03/15/32		195		230,006
Sprint Nextel Corp., Unsecured Notes
6.00%	12/01/16		375		369,040
Verizon Maryland, Inc., Debentures
5.12%	06/15/33		95		79,269
Verizon Virginia, Inc., Debentures
4.62%	03/15/13		60		57,044
Windstream Corp., Senior Unsecured Notes
8.12%	08/01/13		240		259,800
8.62%	08/01/16		585		639,844
					5,084,307
Transportation — 0.0%
Overseas Shipholding Group, Inc., Senior Unsecured Notes
7.50%	02/15/24		115		116,725
Yankee — 3.7%
AID-Israel (Israel), Unsecured Notes
5.50%(k)	09/23-04/24		1,475		1,543,434
Bowater Finance Corp. (Canada), Senior Unsecured Notes
7.95%(k)	11/15/11		125		121,562
BSKYB Finance Plc (United Kingdom), Senior Unsecured Notes
6.50%(f)(k)	10/15/35		50		49,544
Compton Petroleum Finance Corp. (Canada), Senior Notes
7.62%(k)	12/01/13		20		19,550
ConocoPhillips Funding Co. (Australia), Unsecured Notes
5.46%(e)(k)	04/09/09		1,300		1,300,432
Depfa ACS Bank (Ireland), Senior Notes
3.62%(k)	10/29/08		850		831,894
Deutsche Telekom International Finance BV (Netherlands), Senior Unsecured Notes
8.25%(k)	06/15/30		30		37,160
Domtar, Inc. (Canada), Senior Unsecured Notes
7.12%(k)	08/15/15		190		189,050

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	63

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)			VALUE
CORPORATE BONDS (Continued)
Yankee (Continued)
Eksportfinans ASA (Norway), Unsecured Notes
3.38%(k)	01/15/08	$	1,555		$	1,532,168
HBOS Treasury Services Plc (United Kingdom), Unsecured Notes
3.50%(f)(k)	11/30/07		350			346,099
3.75%(f)(k)	09/30/08		505			494,354
Intelsat Ltd. (Bermuda), Senior Unsecured Notes
9.25%(f)(k)	06/15/16		120			132,900
Ispat Inland ULC (Canada), Senior Secured Notes
9.75%(k)	04/01/14		415			458,003
Nationwide Building Society (United Kingdom), Senior Unsecured Notes
3.50%(f)(k)	07/31/07		850			844,746
Nationwide Building Society (United Kingdom), Unsecured Notes
4.25%(f)(k)	02/01/10		70			68,319
Rabobank Nederland (Netherlands), Senior Notes
5.36%(e)(f)(k)	04/06/09		2,025			2,025,739
Republic of Argentina, Notes
5.48%(k)	08/03/12		1,560			1,120,860
Rogers Wireless, Inc. (Canada), Senior Secured Notes
8.48%(e)(k)	12/15/10		145			147,900
7.50%(k)	03/15/15		140			151,725
Seagate Technology HDD Holdings (Cayman Islands), Senior Unsecured Notes
6.80%(k)	10/01/16		55			55,275
Telecom Italia Capital (Luxembourg), Senior Unsecured Notes
6.00%(k)	09/30/34		260			235,437
7.20%(k)	07/18/36		325			338,362
Telecom Italia Capital (Luxembourg), Unsecured Notes
5.25%(k)	10/01/15		275			260,905
Telefonica Emisiones Sau (Spain), Senior Unsecured Notes
7.04%(k)	06/20/36		550			587,338
Telefonica Europe BV (Netherlands), Senior Unsecured Notes
7.75%(k)	09/15/10		160			172,410
Tyco International Group SA (Luxembourg), Senior Unsecured Notes
6.38%(k)	10/15/11		275			290,611
United Mexican States (Mexico), Senior Unsecured Notes
6.75%(k)	09/27/34		799			871,310
Vodafone Group Plc (United Kingdom), Unsecured Notes
5.42%(e)(k)	06/29/07		1,500			1,500,094
5.45%(e)(k)	12/28/07		1,380			1,380,687
5.00%(k)	12/13-09/15		330			320,274
Wind Acquisition Finance SA (Luxembourg), Senior Unsecured Notes
10.75%(f)(k)	12/01/15		150			171,750
						17,599,892
TOTAL CORPORATE BONDS (Cost $75,905,117)						75,921,744
FOREIGN BONDS — 0.7%
Kreditanstalt Fur Wiederaufbaure (Germany), Unsecured Notes (JPY)
0.32%(e)	08/08/11		162,000			1,374,840
Province of Manitoba (Canada), Senior Unsecured Notes (NZD)
6.38%	09/01/15		635			431,198
Province of Ontario (Canada), Unsecured Notes (NZD)
6.25%	06/16/15		720			481,462
Republic of Finland, Senior Unsecured Notes (JPY)
0.30%	10/18/07		138,000			1,167,915
TOTAL FOREIGN BONDS (Cost $3,471,906)						3,455,415
TAXABLE MUNICIPAL BONDS — 0.1%
Fort Irwin Land California LLC Revenue Bonds, Series 05 5.40%(f) (Cost $599,734)	12/15/47		600			549,497
		PAR/SHARES (000)
SHORT TERM INVESTMENTS — 9.9%
Federal Farm Credit Bank, Discount Notes
5.12%(l)	04/12/07		4,200			4,193,429
Federal Home Loan Mortgage Corp., Discount Notes
4.90%(l)	04/02/07		33,300			33,295,468
Galileo Money Market Fund, 5.02%			10,124			10,124,227
TOTAL SHORT TERM INVESTMENTS (Cost $47,613,124)						47,613,124
		NUMBER OF CONTRACTS
CALL SWAPTIONS PURCHASED — 0.1%
Barclays Capital, Strike Rate 5.520%, Expires 09/19/16			500	(m)		256,413
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12			840	(m)		296,772
TOTAL CALL SWAPTIONS PURCHASED (Cost $641,390)						553,185

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

64

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF CONTRACTS			VALUE
PUT OPTIONS PURCHASED — 0.0%
June 10 year U.S. Treasury Notes futures, Strike Price $105, Expires 05/25/07 (Cost $23,336)			53		$	1,656
PUT SWAPTIONS PURCHASED — 0.1%
Barclays Capital, Strike Rate 5.520%, Expires 09/21/15			500	(m)		299,081
Goldman Sachs, Strike Rate 5.350%, Expires 04/30/07			740	(m)		11,807
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12			840	(m)		376,320
TOTAL PUT SWAPTIONS PURCHASED (Cost $713,073)						687,208
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 127.4% (Cost $614,835,167)						612,833,542
	MATURITY	P AR (000)
AFFILIATED INVESTMENTS - LONG TERM — 0.2%
Merrill Lynch Mortgage Investors, Inc., Series 05-HE2, Class A2A 5.43%(e) (Cost $967,732)	09/25/36	$	968			967,878
TOTAL INVESTMENTS IN SECURITIES — 127.6% (Cost $615,802,899(a))						613,801,420
MORTGAGE PASS-THROUGH TBA SALE
COMMITMENTS — (14.1)%
Federal Home Loan Mortgage Corp. Gold 15 Year
4.50%	04/01/22		(2,300	)		(2,225,968	)
Federal Home Loan Mortgage Corp. Gold 30 Year
6.00%	04/01/37		(100	)		(100,781	)
Federal National Mortgage Assoc. 15 Year
5.00%	04/01/22		(3,000	)		(2,957,814	)
5.50%	04/01/22		(10,000	)		(10,023,230	)
Federal National Mortgage Assoc. 30 Year
5.00%	04/01/37		(3,000	)		(2,897,814	)
5.50%	04/01/37		(29,000	)		(28,691,875	)
6.00%	04/01/37		(9,500	)		(9,568,286	)
6.50%	04/01/37		(11,000	)		(11,220,000	)
TOTAL MORTGAGE PASS-THROUGH TBA SALE COMMITMENTS (Premiums received $67,808,468)						(67,685,768	)
		NUMBER OF CONTRACTS			VALUE
CALL SWAPTIONS WRITTEN — (0.2)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08			(500	)(m)	$	(95,093	)
Chase Securities, Strike Rate 5.485%, Expires 10/26/09			(540	)(m)		(197,974	)
Citibank, Strike Rate 5.670%, Expires 01/04/10			(370	)(m)		(162,774	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08			(840	)(m)		(144,480	)
Union Bank, Strike Rate 5.340%, Expires 02/06/09			(990	)(m)		(287,397	)
TOTAL CALL SWAPTIONS WRITTEN (Premiums received $1,058,058)						(887,718	)
PUT SWAPTIONS WRITTEN — (0.2)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08			(500	)(m)		(95,093	)
Chase Securities, Strike Rate 5.485%, Expires 10/26/09			(540	)(m)		(151,804	)
Citibank, Strike Rate 5.670%, Expires 01/04/10			(370	)(m)		(88,844	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08			(840	)(m)		(209,832	)
Union Bank, Strike Rate 5.340%, Expires 02/06/09			(990	)(m)		(269,181	)
TOTAL PUT SWAPTIONS WRITTEN (Premiums received $1,058,058)						(814,754	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (13.1)%						(63,216,518	)
NET ASSETS — 100.0%					$	481,196,662

(a) Cost for federal income tax purposes is $615,857,061. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	2,385,691
Gross unrealized depreciation		(4,441,332	)
	$	(2,055,641	)

(b) Security, or a portion thereof, with a market value of $815,852, has been pledged as collateral for swap and swaption contracts.

(c) Rates shown are the effective yields as of March 31, 2007.

(d) Security, or a portion thereof, subject to financing transactions.

(e) Variable rate security. Rate shown is the rate as of March 31, 2007.

(f) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 4.5% of its net assets, with a current market value of $21,741,671, in securities restricted as to resale.

(g) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. As of March 31, 2007, these securities had a total market value of $3,513,576 which represents 0.7% of net assets.

(h) Security is illiquid. As of March 31, 2007, the Portfolio held 0.2% of its net assets, with a current market value of $941,171 in these securities.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	65

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

(i) Security, or a portion thereof, pledged as collateral with a value of $683,144 on 253 short U.S. Treasury Note futures contracts, 276 long U.S. Treasury Bond futures contracts and 39 long Euro-Bund futures contracts expiring June 2007 and 112 long Euro-dollar futures contracts expiring December 2008. The value of such contracts on March 31, 2007 was $90,170,588, with an unrealized loss of $420,006 (including commissions of $1,596).

(j) The security is a perpetual bond and has no stated maturity date.

(k) U.S. dollar denominated security issued by foreign domiciled entity.

(l) The rate shown is the effective yield at the time of purchase.

(m) Each swaption contract is equivalent to $10,000 notional amount.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

66

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO II

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
PREFERRED STOCKS — 0.0%
Centaur Funding Corp. 2.27%(b) (Cost $216,892)			205	$	240,683
	MATURITY	PAR (000)
U.S. GOVERNMENT & AGENCY OBLIGATIONS — 23.4%
Federal Home Loan Mortgage Corp., Unsecured Notes
4.62%(c)	05/28/13	$	7,375		7,176,199
Federal National Mortgage Assoc., Unsecured Notes
2.35%	04/05/07		3,985		3,984,020
7.25%	01/15/10		17,390		18,480,353
Overseas Private Investment Co.
4.09%	05/29/12		350		330,675
4.30%	05/29/12		979		950,160
4.64%	05/29/12		734		722,470
4.68%	05/29/12		415		396,407
4.87%	05/29/12		3,144		3,121,895
5.40%	05/29/12		3,909		4,083,660
Resolution Funding Corp., Strip Bonds
6.29%(d)	07/15/18		2,850		1,634,643
6.30%(d)	10/15/18		2,850		1,611,618
Small Business Administration Participation Certificates, Series 92-20H, Class 1
7.40%	08/01/12		26		26,508
Small Business Administration Participation Certificates, Series 96-20J, Class 1
7.20%	10/01/16		812		844,194
Small Business Administration Participation Certificates, Series 97-20B, Class 1
7.10%	02/01/17		882		917,551
Small Business Administration Participation Certificates, Series 97-P10C, Class 1
6.85%	08/01/07		470		472,313
Small Business Administration Participation Certificates, Series 97-P10D, Class 1
6.51%	11/10/07		87		87,284
Small Business Investment Cos. Pass-Through, Series 03-10A, Class 1
4.63%	03/10/13		7,411		7,227,255
U.S. Treasury Bonds
4.50%(e)(f)	02/15/36		11,970		11,285,460
4.75%(e)	02/15/37		60,200		59,259,375
U.S. Treasury Inflation Protected Bonds
2.00%(c)	01/15/26		29,100		28,205,081
2.38%	01/15/27		9,150		9,259,825
U.S. Treasury Inflation Protected Notes
2.50%	07/15/16		75		77,137
U.S. Treasury Notes
4.62%(e)	02/12-02/17		560,880		562,712,625
5.12%	05/15/16		160		165,431
4.88%(c)	08/15/16		4,300		4,368,194
U.S. Treasury Strip
6.12%(c)(d)	11/15/27		36,760		13,304,804
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $745,726,339)					740,705,137
MORTGAGE PASS-THROUGHS — 50.7%
Federal Home Loan Mortgage Corp. ARM
4.97%(g)	10/01/35		13,759		13,740,730
6.01%(g)	07/01/36		11,583		11,661,427
Federal Home Loan Mortgage Corp. Gold
4.00%	07/10-05/19		6,578		6,427,658
5.50%	03/11-04/33		13,291		13,335,929
6.00%	10/11-12/32		11,969		12,183,001
6.50%	06/13-10/34		1,642		1,688,258
8.00%	11/15-10/25		15		16,030
5.00%	01/18-06/36		23,333		23,031,533
4.50%	05/18-08/20		48,922		47,482,812
7.00%	03/25-05/31		225		234,089
7.50%	07/26-03/32		179		186,950
Federal Home Loan Mortgage Corp. Gold 15 Year TBA
5.00%	04/01/22		61,000		60,142,218
Federal Home Loan Mortgage Corp. Gold 30 Year TBA
5.50%	04/01/37		152,000		150,385,000
Federal National Mortgage Assoc.
6.50%	06/08-10/36		79,674		81,297,601
7.00%	11/08-08/32		4,638		4,803,928
5.50%	06/11-12/35		309,473		307,799,452
6.00%	09/11-04/35		57,158		58,017,155
4.00%	06/14-03/20		27,025		25,545,273
4.50%	01/18-03/22		21,807		21,164,875
5.00%	01/18-11/35		53,625		52,678,726
Federal National Mortgage Assoc. 15 Year TBA
4.50%	04/01/22		24,000		23,227,488
5.00%	04/01/22		44,000		43,381,272
5.50%	04/01/22		146,500		146,828,507
6.00%	04/01/22		142,000		144,307,500
Federal National Mortgage Assoc. 30 Year TBA
4.50%	04/01/37		32,800		30,821,766
5.00%	04/01/37		134,000		129,435,692
5.50%	04/01/37		106,000		104,873,750
6.50%	04/01/37		23,000		23,460,000
7.00%	04/01/37		800		825,000
Federal National Mortgage Assoc. ARM
6.50%(g)	01/01/31		3,455		3,518,554
5.75%(g)	03/01/37		18,450		18,568,195
Government National Mortgage Assoc. I
7.00%	03/13-02/33		2,239		2,336,867
6.00%	11/14-01/37		17,124		17,349,424
9.00%	07/15/18		4		3,834
6.50%	03/24-04/32		942		969,107
7.50%	11/15/29		2		2,463
5.50%	03/32-02/35		8,179		8,144,728
Government National Mortgage Assoc. I 30 Year TBA
6.00%	04/01/37		12,000		12,120,000

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	67

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO II (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MORTGAGE PASS-THROUGHS (Continued)
Government National Mortgage Assoc. II
6.00%	11/20/33	$	1,444	$	1,464,584
TOTAL MORTGAGE PASS-THROUGHS (Cost $1,607,417,896)					1,603,461,376
COLLATERALIZED MORTGAGE OBLIGATIONS — 8.8%
Banc of America Alternative Loan Trust, Series 04-6, Class 4A1
5.00%	07/25/19		7,636		7,564,957
Federal Home Loan Mortgage Corp., Series 1361, Class I
6.00%	09/15/07		48		48,051
Federal Home Loan Mortgage Corp., Series 1591, Class PK
6.35%	10/15/23		6,225		6,364,840
Federal Home Loan Mortgage Corp., Series 231 (IO)
5.50%(d)	08/01/35		24,178		5,528,846
Federal Home Loan Mortgage Corp., Series 232 (IO)
5.00%(d)	08/01/35		14,356		3,369,930
Federal Home Loan Mortgage Corp., Series 235 (IO)
5.50%(d)	02/01/36		26,703		6,309,963
Federal Home Loan Mortgage Corp., Series 2529, Class MB
5.00%	11/15/17		8,292		8,195,921
Federal Home Loan Mortgage Corp., Series 2594, Class TV
5.50%	03/15/14		6,003		6,051,640
Federal Home Loan Mortgage Corp., Series 2864, Class NA
5.50%	01/15/31		13,842		13,910,365
Federal Home Loan Mortgage Corp., Series 2922, Class GA
5.50%	05/15/34		21,627		21,750,493
Federal Home Loan Mortgage Corp., Series 2996, Class MK
5.50%	06/15/35		14,405		14,539,618
Federal Home Loan Mortgage Corp., Series 3200, Class AD
5.50%	05/15/29		50,601		50,705,279
Federal Home Loan Mortgage Corp., Series 3204, Class C
5.50%	04/15/29		797		798,747
Federal National Mortgage Assoc., Series 96-48, Class Z
7.00%	11/25/26		3,296		3,434,754
Federal National Mortgage Assoc., Series 03-16, Class BC
5.00%	03/25/18		4,440		4,339,514
Federal National Mortgage Assoc., Series 04-28, Class PB
6.00%	08/25/28		8,712		8,729,431
Federal National Mortgage Assoc., Series 04-88, Class HA
6.50%	07/25/34		11,164		11,422,734
Federal National Mortgage Assoc., Series 04-99, Class AO
5.50%	01/25/34		14,382		14,439,611
Federal National Mortgage Assoc., Series 05-3, Class AP
5.50%	02/25/35		15,003		15,119,128
Federal National Mortgage Assoc., Series 05-57, Class PA
5.50%	05/25/27		23,813		23,813,005
Federal National Mortgage Assoc., Series 05-70, Class NA
5.50%	08/25/35		1,808		1,821,517
Federal National Mortgage Assoc., Series 378, Class 4 (IO)
5.00%(d)	11/01/35		33,964		7,594,123
Opteum Mortgage Acceptance Corp., Series 06-2, Class A1A
5.38%(g)	07/25/36		13,443		13,435,285
Salomon Brothers Mortgage Securities VI, Series 87-1 (IO)
11.00%(d)	02/17/17		155		41,374
Salomon Brothers Mortgage Securities VI, Series 87-1 (PO)
11.50%(h)	02/17/17		162		137,910
Salomon Brothers Mortgage Securities VI, Series 87-2 (IO)
11.00%(d)	03/06/17		116		35,212
Salomon Brothers Mortgage Securities VI, Series 87-2 (PO)
11.50%(h)	03/06/17		116		95,788
Salomon Brothers Mortgage Securities, Series 87-3, Class A (PO)
13.00%(h)	10/23/17		55		50,140
Summit Mortgage Trust, Series 00-1, Class B1
6.15%(b)(g)(i)	12/28/12		51		50,599
Terra LNR Ltd., Series 06-1A, Class A1
5.45%(b)(g)	06/15/17		6,652		6,652,149
Wells Fargo Mortgage Backed Securities, Series 04-K, Class 1A2
4.47%(g)	07/25/34		22,837		22,318,088
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $280,190,370)					278,669,012
COMMERCIAL MORTGAGE BACKED SECURITIES — 14.5%
Banc of America Commercial Mortgage, Inc., Series 01-1, Class A2
6.50%	04/15/36		12,985		13,503,440
Banc of America Commercial Mortgage, Inc., Series 02-2, Class A3
5.12%	07/11/43		21,920		21,874,970
Banc of America Commercial Mortgage, Inc., Series 05-1, Class A4
4.89%(g)	11/10/42		13,880		13,852,384
Banc of America Commercial Mortgage, Inc., Series 05-4, Class A5A
4.93%	07/10/45		13,781		13,412,457
Bear Stearns Commercial Mortgage Securities, Inc., Series 04-PWR6, Class A6
4.82%	11/11/41		4,495		4,372,486

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

68

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO II (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COMMERCIAL MORTGAGE BACKED SECURITIES (Continued)
Bear Stearns Commercial Mortgage Securities, Inc., Series 06-PW14, Class A4
5.20%	12/11/38	$	19,200	$	18,930,626
Chase Commercial Mortgage Securities Corp., Series 97-1, Class X (IO)
1.30%(d)	04/19/15		5,157		128,547
Chase Commercial Mortgage Securities Corp., Series 99-2, Class A2
7.20%	01/15/32		10,061		10,491,383
Chase Commercial Mortgage Securities Corp., Series 00-3, Class A2
7.32%	10/15/32		5,755		6,086,073
Commercial Mortgage Acceptance Corp., Series 98-C2, Class A2
6.03%	03/15/08		6,332		6,349,326
Credit Suisse First Boston Mortgage Securities Corp., Series 97-C1, Class AX (IO)
1.55%(b)(d)	06/20/29		12,780		527,322
Credit Suisse First Boston Mortgage Securities Corp., Series 97-C2, Class AX (IO)
0.98%(d)	01/17/35		10,216		72,514
Donaldson, Lufkin & Jenrette, Inc., Commercial Mortgage Corp., Series 98-CG1, Class B1
6.91%	06/10/31		16,991		17,312,898
Donaldson, Lufkin & Jenrette, Inc., Commercial Mortgage Corp., Series 00-CKP1, Class A1B
7.18%	11/10/33		16,958		17,874,899
Federal National Mortgage Assoc., Series 06-M2, Class A2A
5.27%	10/20/32		30,725		30,639,412
First Union National Bank Commercial Mortgage Trust, Series 00-C2, Class A2
7.20%	10/15/32		10,000		10,573,488
First Union-Lehman Brothers Commercial Mortgage Trust, Series 97-C1, Class D
7.50%	04/18/29		48		47,403
First Union-Lehman Brothers-Bank of America Commercial Mortgage Trust, Series 98-C2, Class A2
6.56%	11/18/08		8,077		8,142,183
General Electric Capital Commercial Mortgage Corp., Series 02-1A, Class A3
6.27%	12/10/35		14,170		14,826,430
General Electric Capital Commercial Mortgage Corp., Series 02-2A, Class A3
5.35%	08/11/36		16,200		16,336,697
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 97-C1, Class X (IO)
1.37%(d)	07/15/27		21,603		532,964
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 99-C3, Class A2
7.18%	08/15/36		8,479		8,786,353
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 00-C1, Class A2
7.72%	03/15/33		16,100		16,966,256
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 00-C2, Class A2
7.46%	08/16/33		10,713		11,327,426
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 00-C3, Class A2
6.96%	11/15/10		18,700		19,737,538
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 01-C1, Class A2
6.46%	04/15/34		16,340		17,034,223
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 03-C2, Class A2
5.28%(g)	05/10/40		18,085		18,342,988
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 03-C3, Class A3
4.65%	04/10/40		1,840		1,811,226
Goldman Sachs Mortgage Securities Corp. II, Series 98-C1, Class A2
6.62%	10/18/30		22		22,279
Goldman Sachs Mortgage Securities Corp. II, Series 98-C1, Class A3
6.14%	10/18/30		4,856		4,890,868
Goldman Sachs Mortgage Securities Corp. II, Series 04-GG2, Class A6
5.40%	08/10/38		640		643,238
Greenwich Capital Commercial Funding Corp., Series 04-GG1A, Class A4
4.76%	06/10/36		5,255		5,205,576
Homebanc Mortgage Trust, Series 05-4, Class A1
5.59%(g)	10/25/35		10,444		10,464,290
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 01-C1, Class A3
5.86%	10/12/35		14,370		14,752,476
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 01-CIB3, Class A3
6.46%	11/15/35		16,870		17,722,817
Lehman Brothers Commercial Conduit Mortgage Trust, Series 98-C4, Class X (IO)
0.48%(d)	10/15/35		13,652		172,346
Lehman Brothers Commercial Conduit Mortgage Trust, Series 99-C2, Class A1
7.10%	10/15/32		24		23,978
Lehman Brothers Commercial Conduit Mortgage Trust, Series 99-C2, Class A2
7.32%	10/15/32		85		88,330
Lehman Brothers-UBS Commercial Mortgage Trust, Series 00-C5, Class A1
6.41%	12/15/19		6,335		6,366,705

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	69

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO II (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COMMERCIAL MORTGAGE BACKED SECURITIES (Continued)
Morgan Stanley Capital Investments, Series 99-FNV1, Class A2
6.53%	03/15/31	$	10,065	$	10,222,851
Prudential Mortgage Capital Funding, LLC, Series 01-C1, Class A2
6.60%	05/10/34		16,800		17,621,664
Residential Asset Mortgage Products, Inc., Series 04-RS7, Class AI3
4.45%	07/25/28		182		180,698
Structured Asset Receivables Trust, Series 03-2
5.72%(b)(g)(i)(j)	01/21/09		9,594		9,590,979
Structured Asset Securities Corp., Series 96-CFL, Class X1 (IO)
2.14%(d)	02/25/28		5,212		169,896
Wachovia Bank Commercial Mortgage Trust, Series 03, Class C6
5.12%	08/15/35		18,000		17,945,183
Wachovia Bank Commercial Mortgage Trust, Series 06-C27, Class A3
5.76%	07/15/45		13,885		14,257,033
Washington Mutual Asset Securities Corp., Series 05-C1A, Class A1
4.24%(b)	05/25/36		8,326		8,224,519
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $464,939,817)					458,459,638
CERTIFICATES OF DEPOSIT — 1.3%
Barclays Bank Plc (United Kingdom)
5.35%(g)	03/13/09		35,505		35,527,013
SunTrust Bank, Inc.
4.42%	06/15/09		3,795		3,722,045
TOTAL CERTIFICATES OF DEPOSIT (Cost $39,300,000)					39,249,058
ASSET BACKED SECURITIES — 15.3%
Ace Securities Corp., Series 06-HE1, Class A2A
5.40%(g)	02/25/36		7,300		7,301,399
American Express Credit Account Master Trust, Series 06-01, Class A
5.35%(g)	12/15/13		21,025		21,032,651
Bank One Issuance Trust, Series 03, Class A3
5.43%(g)	12/15/10		24,025		24,057,035
Capital Auto Receivables Asset Trust, Series 05-1, Class A4
4.05%	07/15/09		18,296		18,205,744
Capital Auto Receivables Asset Trust, Series 06-SN1A, Class A2A
5.40%(b)(g)	01/20/09		36,950		36,963,483
Carrington Mortgage Loan Trust, Series 06-FRE1, Class A1
5.38%(g)	07/25/36		8,740		8,740,296
Chase Credit Card Master Trust, Series 04-2, Class A
5.36%(g)	09/15/09		22,875		22,876,389
Chase Issuance Trust, Series 04-A9, Class A9
3.22%	06/15/10		18,875		18,674,449
Chase Issuance Trust, Series 05, Class A5
5.34%(g)	02/15/12		5,805		5,809,862
Chase Issuance Trust, Series 06, Class A3
5.31%(g)	07/15/11		19,270		19,281,633
Citibank Credit Card Issuance Trust, Series 03, Class A6
2.90%	05/17/10		17,060		16,642,294
Citibank Credit Card Issuance Trust, Series 04, Class A4
3.20%	08/24/09		23,700		23,504,394
Countrywide Certificates, Series 04-14, Class A4
5.60%(g)	06/25/35		3,189		3,195,222
Countrywide Certificates, Series 05-BC5, Class 3A1
5.42%(g)	10/25/27		1,994		1,993,951
Countrywide Certificates, Series 06-3, Class 2A1
5.39%(g)	06/25/36		9,298		9,299,071
Countrywide Certificates, Series 06-8, Class 2A1
5.35%(g)	04/25/28		13,803		13,794,264
Countrywide Certificates, Series 06-IM1, Class A1
5.41%(g)	09/25/28		3,718		3,718,864
Discover Card Master Trust I, Series 05-1, Class A
5.33%(g)	09/16/10		17,325		17,332,141
Goldman Sachs Home Equity Trust, Series 06-10, Class AV1
5.40%(g)	06/25/36		11,646		11,646,639
Goldman Sachs Home Equity Trust, Series 06-5, Class 2A1
5.39%(g)	03/25/36		12,497		12,474,363
Goldman Sachs Home Equity Trust, Series 06-9, Class A1
5.37%	06/25/36		345		344,344
Maryland Trust, Series 06-I, Class A
5.55%(b)	12/10/49		18,935		18,757,484
MBNA Credit Card Master Notes Trust, Series 98-E, Class A
5.05%(g)	09/15/10		20,210		20,243,771
MBNA Credit Card Master Notes Trust, Series 03, Class A7
2.65%	11/15/10		20,000		19,430,140
MBNA Credit Card Master Notes Trust, Series 04-A4, Class A4
2.70%	09/15/09		21,400		21,377,534
MBNA Credit Card Master Notes Trust, Series 06, Class A1
4.90%	07/15/11		19,900		19,886,645
MBNA Credit Card Master Notes Trust, Series 06-A4, Class A4
5.31%(g)	09/15/11		27,000		27,015,701
Morgan Stanley Capital I, Series 06-HE5, Class A2A
5.39%(g)	08/25/36		15,568		15,567,620
Morgan Stanley Capital Investments, Series 06-HE2, Class A2A
5.39%(g)	03/25/36		12,937		12,934,234

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

70

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO II (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
ASSET BACKED SECURITIES (Continued)
Novastar Home Equity Loan, Series 06-2, Class A2A
5.37%(g)	06/25/36	$	9,910	$	9,911,071
Residential Asset Securities Corp., Series 05-KS11, Class AI1
5.40%(g)	09/25/26		5,009		5,009,675
Structured Mortgage Loan Trust, Series 05-19XS, Class 1A1
5.64%(g)	10/25/35		8,556		8,587,763
Student Loan Marketing Assoc. Student Loan Trust, Series 05-5, Class A1
5.36%(g)	01/25/18		7,612		7,613,860
TOTAL ASSET BACKED SECURITIES (Cost $484,562,668)					483,223,986
CORPORATE BONDS — 17.1%
Aerospace — 0.3%
Raytheon Co., Senior Notes
6.15%	11/01/08		18		18,304
United Technologies Corp., Unsecured Notes
5.43%(g)	06/01/09		8,650		8,657,266
					8,675,570
Banks — 4.5%
Bank of America Corp., Subordinated Notes
6.25%	04/01/08		1,385		1,395,069
Bank of America Corp., Unsecured Notes
5.36%(g)	03/24/09		20,875		20,913,953
Bank of New York Co., Inc., Senior Subordinated Notes
3.80%	02/01/08		3,100		3,062,552
Bank One Texas N.A., Subordinated Bank Notes
6.25%	02/15/08		3,225		3,247,343
BankBoston N.A., Subordinated Bank Notes
6.38%	04/15/08		675		682,268
BankBoston N.A., Subordinated Notes
6.38%	03/25/08		1,600		1,615,176
Citigroup Global Markets Holdings, Inc., Senior Unsecured Notes
6.50%	02/15/08		2,880		2,909,681
Citigroup, Inc., Senior Unsecured Notes
3.50%	02/01/08		11,660		11,500,526
6.20%	03/15/09		1,700		1,735,324
Citigroup, Inc., Subordinated Notes
6.38%	11/15/08		1,010		1,029,375
6.12%	08/25/36		3,400		3,453,383
Citigroup, Inc., Unsecured Notes
3.62%	02/09/09		1,080		1,053,994
4.12%	02/22/10		14,910		14,588,764
4.62%	08/03/10		4,505		4,455,247
FleetBoston Financial Corp., Senior Unsecured Notes
4.20%	11/30/07		3,310		3,287,075
HSBC Bank USA, Subordinated Notes
3.87%	06/07/07		20,475		20,415,930
J.P. Morgan Chase & Co., Senior Notes
2.62%	06/30/08		2,836		2,750,117
J.P. Morgan Chase & Co., Senior Unsecured Notes
4.00%	02/01/08		1,915		1,894,021
3.62%	05/01/08		2,509		2,467,584
National City Bank Indiana, Unsecured Notes
3.30%	05/15/07		1,000		997,476
SunTrust Bank, Inc., Senior Unsecured Notes
3.62%	10/15/07		2,855		2,828,520
4.00%	10/15/08		3,000		2,946,726
SunTrust Capital VIII, Trust Preferred Securities
6.10%	12/15/36		2,725		2,552,608
U.S. Bancorp, Senior Unsecured Notes
3.95%	08/23/07		1,315		1,307,866
UBS Preferred Funding Trust, Inc., Capital Securities
8.62%(g)(k)			1,390		1,536,410
USB Capital IX, Unsecured Notes
6.19%(g)(k)			80		82,028
Wachovia Bank N.A., Senior Bank Notes
4.38%	08/15/08		3,325		3,285,466
5.39%(g)	03/23/09		11,150		11,148,082
Wachovia Capital Trust III, Income Trust Securities
5.80%(g)(k)			145		146,729
Wells Fargo & Co., Senior Unsecured Notes
4.20%	01/15/10		3,970		3,884,050
Wells Fargo & Co., Unsecured Notes
4.62%	08/09/10		6,825		6,748,806
4.88%	01/12/11		2,680		2,665,064
					142,587,213
Broadcasting — 0.3%
News America Holdings, Inc., Secured Notes
8.50%	02/23/25		1,900		2,283,477
News America Holdings, Inc., Senior Debentures
7.75%	01/24-12/45		1,395		1,576,197
7.12%	04/08/28		1,175		1,249,222
7.62%	11/30/28		2,010		2,252,527
8.45%	08/01/34		840		1,052,247
6.75%	01/09/38		30		31,700
8.25%	10/17/96		45		53,244
					8,498,614
Computer Software & Services — 0.0%
Oracle Corp., Unsecured Notes
5.25%	01/15/16		50		49,305
Energy & Utilities — 0.4%
Centerpoint Energy Resources Corp., Senior Unsecured Notes
6.15%	05/01/16		2,100		2,151,179

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	71

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO II (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Energy & Utilities (Continued)
Centerpoint Energy Resources Corp., Unsecured Notes
7.88%	04/01/13	$	205	$	228,462
Detroit Edison Co., Senior Notes
6.35%	10/15/32		5		5,246
Detroit Edison Co., Senior Secured Notes
6.12%	10/01/10		210		216,405
Dominion Resources, Inc., Senior Unsecured Notes
6.25%	06/30/12		60		62,742
Energy East Corp., Unsecured Notes
6.75%	07/15/36		2,125		2,245,630
FirstEnergy Corp., Senior Unsecured Notes
6.45%	11/15/11		185		193,910
Florida Power & Light Co., First Mortgage Bonds
4.95%	06/01/35		2,225		1,972,073
Florida Power Corp., First Mortgage Bonds
5.90%	03/01/33		550		544,849
Tenaska Alabama II Partners LP, Senior Secured Notes
6.12%(b)	03/30/23		131		132,725
TXU Corp., Senior Unsecured Notes
4.80%	11/15/09		6,000		5,893,830
					13,647,051
Entertainment & Leisure — 0.7%
Comcast Cable Holdings LLC, Senior Debentures
9.80%	02/01/12		260		307,815
7.88%	08/13-02/26		2,855		3,268,966
Comcast Corp., Senior Unsecured Bonds
6.50%	11/15/35		2,905		2,927,008
Comcast Corp., Senior Unsecured Notes
7.05%	03/15/33		1,315		1,411,785
Comcast Corp., Unsecured Notes
6.50%	01/15/17		3,800		4,010,524
Time Warner Cos., Inc., Debentures
6.95%	01/15/28		8,720		9,131,087
Time Warner Cos., Inc., Senior Debentures
9.12%	01/15/13		605		708,992
8.05%	01/15/16		70		80,086
Time Warner Cos., Inc., Senior Unsecured Notes
6.75%	04/15/11		1,080		1,138,180
					22,984,443
Finance — 3.6%
Berkshire Hathaway Finance Corp., Senior Unsecured Notes
3.40%	07/02/07		8,030		7,994,042
4.12%	01/15/10		975		954,239
4.75%	05/15/12		3,290		3,240,199
General Electric Capital Corp., Unsecured Notes
3.45%	07/16/07		1,830		1,820,605
4.12%	09/01/09		9,280		9,105,072
5.00%	11/15/11		15,945		15,897,978
Golden West Financial Corp., Senior Unsecured Notes
4.12%	08/15/07		160		159,349
HSBC Finance Corp., Senior Unsecured Notes
4.75%	05/15/09		2,780		2,756,086
Lehman Brothers Holdings, Inc., Senior Unsecured Notes
7.88%	08/15/10		2,307		2,483,741
5.75%	07/18/11		3,375		3,444,289
Morgan Stanley, Senior Notes
5.61%(g)	01/09/12		45,640		45,633,793
5.62%	01/09/12		1,430		1,448,789
Morgan Stanley, Senior Unsecured Notes
6.75%	04/15/11		2,150		2,274,001
Morgan Stanley, Unsecured Notes
5.05%	01/21/11		6,770		6,738,777
NB Capital Trust IV, Capital Securities
8.25%	04/15/27		125		130,015
Pricoa Global Funding, Inc., Senior Secured Notes
4.35%(b)	06/15/08		2,735		2,695,340
Qwest Capital Funding, Inc., Senior Notes
6.38%(l)	07/15/08		3,350		3,366,750
USAA Capital Corp., Senior Unsecured Notes
4.00%(b)	12/10/07		3,065		3,035,702
					113,178,767
Industrial — 0.0%
Osprey Trust/Osprey, Inc., Senior Secured Notes
7.80%(b)(g)(m)(n)	01/15/03		2,375		1,033,125
Insurance — 0.5%
MetLife, Inc., Junior Subordinated Debentures
6.40%(g)	12/15/66		6,400		6,248,915
MetLife, Inc., Senior Unsecured Notes
6.38%(c)	06/15/34		900		946,583
Monumental Global Funding II, Unsecured Notes
3.85%(b)	03/03/08		210		207,187
New York Life Global Funding, Unsecured Notes
3.88%(b)	01/15/09		2,000		1,957,140
TIAA Global Markets, Senior Unsecured Notes
3.88%(b)	01/22/08		1,605		1,584,607
WellPoint, Inc., Unsecured Notes
5.95%	12/15/34		1,905		1,869,317
5.85%	01/15/36		1,740		1,681,152
					14,494,901
Manufacturing — 0.0%
Belvoir Land LLC, Unsecured Notes
5.27%(b)	12/15/47		2,025		1,878,349

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

72

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO II (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Motor Vehicles — 0.0%
DaimlerChrysler N.A. Holding Corp., Unsecured Notes
4.05%	06/04/08	$	205	$	201,923
Oil & Gas — 0.6%
Anadarko Petroleum Corp., Senior Unsecured Notes
6.45%	09/15/36		8,175		8,089,547
Atlantic Richfield Co., Debentures
9.12%	03/01/11		4,960		5,680,043
Consolidated Natural Gas Co., Debentures
6.80%	12/15/27		2,500		2,697,395
Halliburton Co., Debentures
7.60%(b)	08/15/46		1,429		1,639,742
					18,106,727
Pharmaceuticals — 0.2%
Bristol-Myers Squibb Co., Senior Debentures
6.88%	08/01/47		559		593,811
Bristol-Myers Squibb Co., Unsecured Notes
5.88%	11/15/36		4,050		3,969,004
Merck & Co., Inc., Senior Debentures
6.40%	03/01/28		1,000		1,053,840
Wyeth, Unsecured Notes
5.50%	02/15/16		75		75,151
					5,691,806
Railroad & Shipping — 0.0%
Union Pacific Corp., Senior Debentures
7.12%	02/01/28		2,000		2,233,406
Real Estate — 0.1%
Camden Property Trust, Unsecured Notes (REIT)
4.70%	07/15/09		1,400		1,386,296
The Rouse Co., Unsecured Notes (REIT)
3.62%	03/15/09		1,455		1,387,120
5.38%	11/26/13		1,685		1,585,605
					4,359,021
Retail Merchandising — 0.1%
Federated Department Stores, Senior Debentures
6.79%	07/15/27		590		581,622
May Department Stores Co., Debentures
6.65%	07/15/24		1,000		982,759
May Department Stores Co., Unsecured Notes
4.80%	07/15/09		50		49,501
					1,613,882
Telecommunications — 0.7%
AT&T Broadband Corp., Unsecured Notes
8.38%	03/15/13		2,505		2,864,638
GTE Corp., Debentures
6.94%	04/15/28		475		500,954
New England Telephone & Telegraph Co., Debentures
7.88%	11/15/29		1,355		1,523,361
SBC Communications, Inc., Unsecured Notes
4.21%(b)	06/05/21		11,500		11,498,735
Sprint Capital Corp., Senior Unsecured Notes
8.38%	03/15/12		55		61,365
8.75%	03/15/32		580		684,121
Sprint Nextel Corp., Unsecured Notes
6.00%	12/01/16		3,750		3,690,398
Verizon Maryland, Inc., Debentures
5.12%	06/15/33		650		542,364
					21,365,936
Yankee — 5.1%
AID-Israel (Israel), Unsecured Notes
5.50%(o)	04/24-09/33		12,210		12,701,851
BSKYB Finance Plc (United Kingdom), Senior Unsecured Notes
6.50%(b)(o)	10/15/35		445		440,938
ConocoPhillips Funding Co. (Australia), Unsecured Notes
5.46%(g)(o)	04/09/09		14,085		14,089,676
Depfa ACS Bank (Ireland), Senior Notes
3.62%(o)	10/29/08		8,000		7,829,592
Deutsche Telekom International Finance BV (Netherlands), Senior Unsecured Notes
8.25%(g)(o)	06/15/30		1,305		1,616,449
Eksportfinans ASA (Norway), Unsecured Notes
3.38%(o)	01/15/08		12,900		12,710,589
France Telecom (France), Senior Unsecured Notes
8.00%(o)	03/01/11		600		653,687
HBOS Treasury Services Plc (United Kingdom), Senior Unsecured Notes
3.60%(b)(o)	08/15/07		2,750		2,733,368
HBOS Treasury Services Plc (United Kingdom), Subordinated Notes
5.92%(b)(g)(k)(o)			20		19,597
HBOS Treasury Services Plc (United Kingdom), Unsecured Notes
3.50%(b)(o)	11/30/07		5,450		5,389,260
Korea Development Bank (South Korea), Notes
4.25%(o)	11/13/07		70		69,504
Korea Electric Power Corp. (South Korea), Notes
5.12%(b)(o)	04/23/34		75		74,103
MassMutual Global Funding II (Cayman Islands), Senior Secured Notes
2.55%(b)(o)	07/15/08		3,740		3,601,874
National Landeskreditbank Baden-Wurttemberg (Germany), Unsecured Notes
4.25%(o)	09/15/10		10,750		10,547,900
Nationwide Building Society (United Kingdom), Senior Unsecured Notes
3.50%(b)(o)	07/31/07		7,250		7,205,188
Nationwide Building Society (United Kingdom), Unsecured Notes
4.25%(b)(o)	02/01/10		2,165		2,112,999

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	73

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO II (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)			VALUE
CORPORATE BONDS (Continued)
Yankee (Continued)
Pemex Finance Ltd. (Luxembourg), Senior Unsecured Notes
9.03%(o)	02/15/11	$	1,360		$	1,457,458
Rabobank Nederland (Netherlands), Senior Notes
5.36%(b)(g)(o)	04/06/09		26,345			26,354,616
The Royal Bank of Scotland Capital Trust (United Kingdom), Bank Guaranteed Bonds
6.80%(k)(o)			3,000			3,011,400
The Royal Bank of Scotland Capital Trust (United Kingdom), Unsecured Notes
4.71%(g)(k)(o)			45			43,000
Scottish Power Plc (United Kingdom), Unsecured Notes
4.91%(o)	03/15/10		3,200			3,175,363
Sun Life of Canada Capital Trust (Canada), Capital Securities
8.53%(b)(k)(o)			390			407,786
Suncor Energy, Inc. (Canada)
5.95%(o)	12/01/34		285			286,091
Teck Cominco Ltd. (Canada), Senior Unsecured Notes
6.12%(o)	10/01/35		2,375			2,301,665
Telecom Italia Capital (Luxembourg), Senior Unsecured Notes
5.25%(o)	11/15/13		285			276,319
6.00%(o)	09/30/34		785			710,839
7.20%(o)	07/18/36		2,400			2,498,674
Telecom Italia Capital (Luxembourg), Unsecured Notes
5.25%(o)	10/01/15		3,700			3,510,360
Telefonica Emisiones Sau (Spain), Senior Unsecured Notes
6.42%(o)	06/20/16		2,400			2,504,938
7.04%(o)	06/20/36		1,800			1,922,198
Telefonica Europe BV (Netherlands), Senior Unsecured Notes
7.75%(o)	09/15/10		1,970			2,122,797
Tyco International Group SA (Luxembourg), Senior Unsecured Notes
6.38%(o)	10/15/11		760			803,143
United Mexican States (Mexico), Senior Unsecured Notes
5.62%(o)	01/15/17		1,600			1,612,800
6.75%(o)	09/27/34		628			684,834
Vodafone Group Plc (United Kingdom), Senior Unsecured Notes
7.75%(o)	02/15/10		2,985			3,186,150
Vodafone Group Plc (United Kingdom), Unsecured Notes
5.42%(g)(o)	06/29/07		11,500			11,500,724
5.45%(g)(o)	12/28/07		10,510			10,515,234
						160,682,964
TOTAL CORPORATE BONDS (Cost $542,848,312)						541,283,003
FOREIGN BONDS — 0.7%
Kreditanstalt Fur Wiederaufbaure (Germany), Unsecured Notes (JPY)
0.32%(g)	08/08/11		1,085,000			9,208,035
Province of Manitoba (Canada), Senior Unsecured Notes (NZD)
6.38%	09/01/15		2,695			1,830,044
Province of Ontario (Canada), Unsecured Notes (NZD)
6.25%	06/16/15		6,105			4,082,391
Republic of Finland, Senior Unsecured Notes (JPY)
0.30%	10/18/07		901,600			7,630,379
TOTAL FOREIGN BONDS (Cost $22,865,720)						22,750,849
TAXABLE MUNICIPAL BONDS — 0.1%
Fort Irwin Land California LLC Military Housing Revenue Bonds, Class II, Series A 5.30%(b) (Cost $3,414,049)	12/15/35		3,415			3,228,917
BANK LOANS — 0.5%
Time Warner Cable, Inc. 5.76% (Cost $14,985,139)	02/24/09		15,000			14,976,570
		PAR /SHARES (000)
SHORT TERM INVESTMENTS — 0.8%
Federal Home Loan Bank, Discount Notes
4.90%(p)	04/02/07		16,500			16,497,754
5.00%(p)	04/02/07		2,500			2,499,653
Galileo Money Market Fund, 5.02%			6,426			6,425,808
TOTAL SHORT TERM INVESTMENTS (Cost $25,423,215)						25,423,215
		NUMBER OF CONTRACTS
CALL SWAPTIONS PURCHASED — 0.1%
Barclays Capital, Strike Rate 5.520%, Expires 09/19/16			3,780	(q)		1,938,486
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12			5,510	(q)		1,946,683
TOTAL CALL SWAPTIONS PURCHASED (Cost $4,511,908)						3,885,169
PUT OPTIONS PURCHASED — 0.0%
June 10 year U.S. Treasury Notes futures, Strike Price $105, Expires 05/25/07 (Cost $196,374)			446			13,937

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

74

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO II (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF CONTRACTS			VALUE
PUT SWAPTIONS PURCHASED — 0.2%
Barclays Capital, Strike Rate 5.520%, Expires 09/21/15			3,780	(q)	$	2,261,053
Goldman Sachs, Strike Rate 5.350%, Expires 04/30/07			4,930	(q)		78,658
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12			5,510	(q)		2,468,480
TOTAL PUT SWAPTIONS PURCHASED (Cost $4,989,475)						4,808,191
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 133.5% (Cost $4,241,588,174)						4,220,378,741
	MATURITY	PAR (000)
AFFILIATED INVESTMENTS - LONG TERM — 0.2%
Merrill Lynch Mortgage Investors, Inc., Series 03-KEY1, Class A4
5.24% (Cost $7,351,363)	11/12/35	$	7,100			7,089,621
		NUMBER OF SHARES
AFFILIATED INVESTMENTS - SHORT TERM — 0.0%
Institutional Money Market Trust, 4.80%(r) (Cost $1,690,000)			1,690,000			1,690,000
TOTAL INVESTMENTS IN SECURITIES — 133.7% (Cost $4,250,629,537(a))						4,229,158,362
		PAR (000)
MORTGAGE PASS-THROUGH TBA SALE COMMITMENTS — (16.2)%
Federal Home Loan Mortgage Corp. Gold 15 Year
4.50%	04/01/22	$	(23,000	)		(22,259,676	)
5.00%	04/01/22		(4,000	)		(3,943,752	)
Federal Home Loan Mortgage Corp. Gold 30 Year
5.50%	04/01/37		(8,000	)		(7,915,000	)
Federal National Mortgage Assoc. 15 Year
5.00%	04/01/22		(42,000	)		(41,409,396	)
5.50%	04/01/22		(59,000	)		(59,137,057	)
Federal National Mortgage Assoc. 30 Year
5.00%	04/01/37		(12,000	)		(11,591,256	)
5.50%	04/01/37		(295,000	)		(291,865,625	)
6.00%	04/01/37		(5,400	)		(5,438,815	)
6.50%	04/01/37		(69,000	)		(70,380,000	)
TOTAL MORTGAGE PASS-THROUGH TBA SALE COMMITMENTS (Premiums received $515,102,213)						(513,940,577	)
		NUMBER OF CONTRACTS			VALUE
CALL SWAPTIONS WRITTEN — (0.2)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08			(3,420	)(q)	$	(650,436	)
Chase Securities, Strike Rate 5.485%, Expires 10/26/09			(4,440	)(q)		(1,627,780	)
Citibank, Strike Rate 5.670%, Expires 01/04/10			(3,270	)(q)		(1,438,571	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08			(5,510	)(q)		(947,720	)
Union Bank, Strike Rate 5.340%, Expires 02/06/09			(7,710	)(q)		(2,238,213	)
TOTAL CALL SWAPTIONS WRITTEN (Premiums received $8,102,520)						(6,902,720	)
PUT SWAPTIONS WRITTEN — (0.2)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08			(3,420	)(q)		(650,436	)
Chase Securities, Strike Rate 5.485%, Expires 10/26/09			(4,440	)(q)		(1,248,164	)
Citibank, Strike Rate 5.670%, Expires 01/04/10			(3,270	)(q)		(785,193	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08			(5,510	)(q)		(1,376,398	)
Union Bank, Strike Rate 5.340%, Expires 02/06/09			(7,710	)(q)		(2,096,349	)
TOTAL PUT SWAPTIONS WRITTEN (Premiums received $8,102,520)						(6,156,540	)
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (0.1)%						(1,690,000	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (17.0)%						(538,318,740	)
NET ASSETS — 100.0%					$	3,162,149,785

(a) Cost for federal income tax purposes is $4,251,826,098. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	7,622,546
Gross unrealized depreciation		(30,290,282	)
	$	(22,667,736	)

(b) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 5.0% of its net assets, with a current market value of $158,238,816, in securities restricted as to resale.

(c) Security, or a portion thereof, with a market value of $10,551,996, has been pledged as collateral for swap and swaption contracts.

(d) Rates shown are the effective yields as of March 31, 2007.

(e) Security, or a portion thereof, subject to financing transactions.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	75

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

TOTAL RETURN PORTFOLIO II (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

(f) Security, or a portion thereof, pledged as collateral with a value of $3,054,711 on 4,820 short U.S. Treasury Note futures contracts, 873 long U.S. Treasury Note futures contracts, 127 long U.S. Treasury Bond futures contracts and 257 long Euro-Bund futures contracts expiring June 2007 and 998 long Euro-dollar futures contracts expiring December 2008. The value of such contracts on March 31, 2007 was $895,675,864, with an unrealized loss of $477,663 (including commissions of $16,357).

(g) Variable rate security. Rate shown is the rate as of March 31, 2007.

(h) Interest rate of underlying collateral.

(i) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. As of March 31, 2007, these securities had a total market value of $9,641,578 which represents 0.3% of net assets.

(j) Security is illiquid. As of March 31, 2007, the Portfolio held 0.3% of its net assets, with a current market value of $9,590,979 in these securities.

(k) The security is a perpetual bond and has no stated maturity date.

(l) Total or partial security on loan.

(m) Security in default.

(n) As a result of bankruptcy proceedings, the company did not repay the principal amount of the security upon maturity.

(o) U.S. dollar denominated security issued by foreign domiciled entity.

(p) The rate shown is the effective yield at the time of purchase.

(q) Each swaption contract is equivalent to $10,000 notional amount.

(r) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

76

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GOVERNMENT INCOME PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
U.S. GOVERNMENT & AGENCY OBLIGATIONS — 9.7%
Small Business Administration Participation Certificates, Series 96-20J, Class 1
7.20%	10/01/16	$	100	$	103,794
Small Business Administration Participation Certificates, Series 98-20J, Class 1
5.50%	10/01/18		94		95,077
Small Business Investment Cos. Pass-Through, Series 03-10A, Class 1
4.63%	03/10/13		924		901,281
U.S. Treasury Bonds
4.75%	02/15/37		1,620		1,594,688
U.S. Treasury Notes
4.75%(b)	01/31/12		2,500		2,521,778
4.62%(c)	02/12-02/17		170,620		170,869,490
4.88%(b)	08/15/16		8,100		8,228,458
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $184,610,835)					184,314,566
MORTGAGE PASS-THROUGHS — 148.3%
Federal Home Loan Mortgage Corp.
13.00%	09/10-02/16		194		215,657
11.00%	04/12-09/20		101		112,215
12.00%	06/13-06/20		109		121,049
11.50%	07/13-06/20		129		140,155
12.50%	12/15-07/19		164		175,537
10.00%(d)	07/01/19		0		275
Federal Home Loan Mortgage Corp. ARM
5.01%(e)	10/01/35		14,569		14,495,127
Federal Home Loan Mortgage Corp. Gold
8.00%	01/08-08/32		1,875		1,958,344
6.00%(b)	01/09-01/33		38,990		39,619,661
7.50%	05/09-12/32		11,849		12,375,672
5.50%(b)	02/01/22		8,953		8,972,407
8.50%	01/25-07/25		225		241,623
6.50%	03/29-10/32		2,174		2,242,074
Federal Home Loan Mortgage Corp. Gold 15 Year TBA
4.50%	04/01/22		41,400		40,067,417
5.00%	04/01/22		10,600		10,450,943
6.00%	04/01/22		2,000		2,032,500
Federal Home Loan Mortgage Corp. Gold 30 Year TBA
5.00%	04/01/37		42,000		40,582,500
5.50%	04/01/37		145,100		143,558,313
6.00%	04/01/37		15,300		15,419,524
6.50%	04/01/37		9,000		9,177,192
Federal National Mortgage Assoc.
7.00%	08/09-12/11		12		12,504
11.00%	02/11-08/20		238		262,784
8.50%	08/12-07/23		802		861,428
5.10%	02/01/13		39,220		39,187,490
13.00%	09/13-03/15		204		228,631
8.00%	08/14-09/27		25		26,439
5.97%	08/01/16		13,834		14,510,759
4.50%	12/01/20		99		96,181
7.50%	09/25-12/32		4,043		4,231,879
6.50%(b)	07/29-04/35		7,890		8,112,135
5.82%(e)	07/01/36		18,998		19,063,935
5.00%(b)	12/36-01/37		7,999		7,728,228
Federal National Mortgage Assoc. 15 Year TBA
4.50%	04/01/22		238,000		230,339,256
5.00%	04/01/22		416,400		410,551,373
6.00%	04/01/22		60,500		61,483,125
Federal National Mortgage Assoc. 30 Year TBA
4.50%	04/01/37		7,900		7,423,535
5.00%	04/01/37		262,200		253,268,944
5.50%	04/01/37		1,077,100		1,065,655,813
6.00%	04/01/37		128,900		129,826,533
6.50%	04/01/37		10,300		10,506,000
Federal National Mortgage Assoc. ARM
4.85%(e)	09/01/35		23,771		23,647,183
4.95%(e)	09/01/35		29,962		29,706,760
Government National Mortgage Assoc. I
6.09%	10/15/08		34,400		36,132,601
6.00%	01/14-11/31		1,925		1,957,089
5.50%	03/14-04/29		664		665,337
10.50%	01/15/16		4		4,533
7.00%	06/23-04/32		2,968		3,104,655
7.50%	02/25-12/31		3,597		3,755,152
Government National Mortgage Assoc. I 30 Year TBA
5.00%	04/01/37		40,200		39,107,042
6.00%	04/01/37		71,000		71,710,000
Government National Mortgage Assoc. II
8.00%	04/20/13		62		65,210
TOTAL MORTGAGE PASS-THROUGHS (Cost $2,822,098,659)					2,815,190,719
COLLATERALIZED MORTGAGE OBLIGATIONS — 70.0%
ABN Amro Mortgage Corp., Series 03-7, Class A1
4.75%	07/25/18		26,409		25,782,231
Banc of America Mortgage Securities, Series 03-5, Class 2A1
5.00%	07/25/18		17,842		17,468,111
Chase Mortgage Finance Corp., Series 03-S12, Class 2A1
5.00%	12/25/18		27,026		26,685,849
Chase Mortgage Finance Corp., Series 03-S3, Class A1
5.00%	03/25/18		3,788		3,715,702
Chase Mortgage Finance Corp., Series 03-S4, Class 2A1
5.00%	04/25/18		10,561		10,475,656
Countrywide Alternative Loan Trust, Series 06-41CB, Class 2A17
6.00%	01/25/37		24,852		25,089,984
Countrywide Alternative Loan Trust, Series 06-43CB, Class 1A7
6.00%	02/25/37		29,107		29,272,399
Countrywide Home Loans, Series 04-J1, Class 2A1
4.75%	01/25/19		12,288		12,089,021
Countrywide Home Loans, Series 04-J4, Class 2A1
5.00%	05/25/19		1,949		1,933,924

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	77

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GOVERNMENT INCOME PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
Countrywide Home Loans, Series 06-20, Class 1A33
6.00%	02/25/37	$	33,866	$	34,229,588
Credit Suisse First Boston Mortgage Securities Corp., Series 04-7, Class 6A1
5.25%	10/25/19		1,574		1,571,016
Credit Suisse First Boston Mortgage Securities Corp., Series 03-23, Class 8A1
5.00%	09/25/18		16,325		16,060,359
Credit Suisse First Boston Mortgage Securities Corp., Series 03-8, Class 2A1
5.00%	04/25/18		8,272		8,085,096
Credit Suisse First Boston Mortgage Securities Corp., Series 05-11, Class 6A5
6.00%	12/25/35		10,874		11,015,314
Credit Suisse First Boston Mortgage Securities Corp., Series 05-4, Class 3A16
5.50%	06/25/35		12,469		12,573,990
Credit Suisse First Boston Mortgage Securities Corp., Series 05-5, Class 2A8
5.50%	07/25/35		8,531		8,574,899
Credit Suisse First Boston Mortgage Securities Corp., Series 4A1, Class 03-10
5.00%	05/25/18		10,711		10,418,920
Deutsche Mortgage Securities, Inc., Series 04-1, Class 2A1
4.75%	10/25/18		12,948		12,737,975
Federal Home Loan Mortgage Corp., Series 1220, Class A
5.72%(e)	02/15/22		297		296,627
Federal Home Loan Mortgage Corp., Series 1220, Class B (IO)
536.00%(f)	02/15/22		2,567		32,107
Federal Home Loan Mortgage Corp., Series 239, Class F29
5.57%(e)	08/15/36		73,249		73,437,270
Federal Home Loan Mortgage Corp., Series 239, Class F30
5.62%(e)	08/15/36		73,249		73,477,034
Federal Home Loan Mortgage Corp., Series 240, Class F22
5.67%(e)	07/15/36		89,577		89,823,537
Federal Home Loan Mortgage Corp., Series 2634, Class TH
4.50%	06/15/18		9,522		9,004,922
Federal Home Loan Mortgage Corp., Series 2656, Class AB
5.50%	08/15/33		11,655		11,670,620
Federal Home Loan Mortgage Corp., Series 2743, Class HE
4.50%	02/15/19		8,890		8,451,678
Federal Home Loan Mortgage Corp., Series 2746, Class EG
4.50%	02/15/19		7,800		7,419,754
Federal Home Loan Mortgage Corp., Series 2783, Class AY
4.00%	04/15/19		13,336		12,109,650
Federal Home Loan Mortgage Corp., Series 2798, Class JK
4.50%	05/15/19		10,482		9,947,204
Federal Home Loan Mortgage Corp., Series 2804, Class EB
5.50%	07/15/30	$	11,527	$	11,590,881
Federal Home Loan Mortgage Corp., Series 2827, Class DG
4.50%	07/15/19		11,152		10,506,574
Federal Home Loan Mortgage Corp., Series 2882, Class UW
4.50%	11/15/19		11,690		10,957,049
Federal Home Loan Mortgage Corp., Series 2899, Class KT
4.50%	12/15/19		7,962		7,455,893
Federal Home Loan Mortgage Corp., Series 2924, Class DB
4.50%	01/15/20		9,849		9,261,472
Federal Home Loan Mortgage Corp., Series 2948, Class KT
4.50%	03/15/20		6,561		6,133,728
Federal Home Loan Mortgage Corp., Series 2957, Class KN
5.50%	06/15/30		19,121		19,144,100
Federal Home Loan Mortgage Corp., Series 2958, Class MD
5.50%	01/15/31		15,000		15,016,892
Federal Home Loan Mortgage Corp., Series 2963, Class DL
5.50%	02/15/31		9,214		9,232,625
Federal Home Loan Mortgage Corp., Series 2971, Class GD
5.00%	05/15/20		16,450		16,028,169
Federal Home Loan Mortgage Corp., Series 2987, Class HE
4.50%	06/15/20		7,800		7,367,910
Federal Home Loan Mortgage Corp., Series 2995, Class JK
4.50%	06/15/20		6,045		5,681,667
Federal Home Loan Mortgage Corp., Series 3042, Class EA
4.50%	09/15/35		20,899		19,085,489
Federal Home Loan Mortgage Corp., Series 3081, Class CP
5.50%	10/15/34		9,000		8,923,873
Federal Home Loan Mortgage Corp., Series 3136, Class PD
6.00%	12/15/34		9,000		9,180,377
Federal Home Loan Mortgage Corp., Series 3150, Class EK
5.00%	05/15/25		22,500		22,362,397
Federal Home Loan Mortgage Corp., Series 3192, Class GA
6.00%	03/15/27		26,828		27,125,849
Federal Home Loan Mortgage Corp., Series 3215, Class QH
6.00%	09/15/36		9,656		9,672,825
Federal Home Loan Mortgage Corp., Series 3218, Class BG
6.00%	09/15/36		9,740		9,917,284
Federal Home Loan Mortgage Corp., Series 3242, Class NC
5.75%	12/15/28		24,893		25,079,232
Federal Home Loan Mortgage Corp., Series R008, Class FK
5.72%(e)	07/15/23		70,858		71,194,721
Federal Home Loan Mortgage Corp., Series SF4, Class B
2.37%	12/15/09		2,620		2,583,291

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

78

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GOVERNMENT INCOME PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
Federal National Mortgage Assoc., Series 02-59, Class B
5.50%	09/25/17	$	12,491	$	12,583,156
Federal National Mortgage Assoc., Series 03-130, Class SP (IO)
1.68%(f)	08/25/28		3,664		73,119
Federal National Mortgage Assoc., Series 03-28, Class TB
5.00%	08/25/22		4,475		4,409,974
Federal National Mortgage Assoc., Series 03-41, Class YF
5.62%(e)	06/25/28		12,785		12,815,006
Federal National Mortgage Assoc., Series 04-29, Class FW
5.62%(e)	12/25/17		5,039		5,060,065
Federal National Mortgage Assoc., Series 04-61, Class TF
5.72%(e)	10/25/31		13,942		14,032,690
Federal National Mortgage Assoc., Series 05-103, Class AT
5.50%	06/25/24		15,782		15,848,008
Federal National Mortgage Assoc., Series 05-25, Class PD
5.50%	11/25/30		13,934		13,929,066
Federal National Mortgage Assoc., Series 05-36, Class CD
5.50%	11/25/31		18,300		18,340,244
Federal National Mortgage Assoc., Series 06-106, Class PA
5.50%	06/25/30		35,924		36,033,224
Federal National Mortgage Assoc., Series 2618, Class PT
4.50%	10/15/31		15,000		14,245,419
Federal National Mortgage Assoc., Series 273, Class 2 (IO)
7.00%(f)	08/01/26		185		40,367
Federal National Mortgage Assoc., Series 353, Class 2 (IO)
5.00%(f)	07/01/34		36,703		8,730,501
Federal National Mortgage Assoc., Series 367, Class 2 (IO)
5.50%(f)	01/25/36		36,015		8,431,013
Federal National Mortgage Assoc., Series 370, Class 2 (IO)
6.00%(f)	05/25/36		23,940		4,804,996
First Horizon Alternative Mortgage Securities Corp., Series 05-FA9, Class A5
5.50%	12/25/35		9,508		9,538,223
General Motors Acceptance Corp. Mortgage Corp. Loan Trust, Series 03-J10, Class A1
4.75%	01/25/19		43,567		42,467,782
Government National Mortgage Assoc., Series 03-105, Class A
4.50%	11/16/27		21,014		20,731,272
J.P. Morgan Alternative Loan Trust, Series 06-S1, Class 3A1A
5.35%(e)	03/25/36		8,944		8,917,950
J.P. Morgan Mortgage Trust, Series 05-A2, Class 4A1
5.21%(e)	04/25/35		20,446		20,136,272
Master Asset Securitization Trust, Series 03-4, Class 2A7
4.75%	05/25/18		7,685		7,582,563
Master Asset Securitization Trust, Series 03-5, Class 2A1
5.00%	06/25/18		10,094		9,932,620
Master Asset Securitization Trust, Series 03-7, Class 2A1
4.75%	08/25/18		13,889		13,675,003
Master Asset Securitization Trust, Series 04-8, Class 3A1
5.25%	08/25/19		1,050		1,036,149
Residential Asset Securitization Trust, Series 06-A10, Class A4
6.50%	09/25/36		16,787		17,128,713
Residential Funding Mortgage Securities I, Inc., Series 03-S16, Class A3
5.00%	09/25/18		13,645		13,358,910
Residential Funding Mortgage Securities I, Inc., Series 03-S8, Class A1
5.00%	05/25/18		14,434		14,216,195
Residential Funding Mortgage Securities I, Inc., Series 06-S1, Class 1A5
5.25%	01/25/36		9,316		9,292,363
Salomon Brothers Mortgage Securities VI, Series 87-1 (IO)
11.00%(f)	02/17/17		27		7,271
Salomon Brothers Mortgage Securities VI, Series 87-1 (PO)
11.50%(g)	02/17/17		27		23,213
Structured Asset Securities Corp., Series 05-6, Class 5A6
5.00%	05/25/35		12,816		12,771,680
Washington Mutual Mortgage Loan Trust, Series 03-S12, Class 3A
5.00%	11/25/18		868		861,851
Washington Mutual, Series 03-S3, Class 2A1
5.00%	05/25/18		9,831		9,745,299
Washington Mutual, Series 03-S5, Class 2A
5.00%	06/25/18		12,260		12,152,422
Washington Mutual, Series 03-S7, Class A1
4.50%	08/25/18		13,962		13,557,361
Washington Mutual, Series 03-S8, Class A2
5.00%	09/25/18		8,976		8,832,932
Washington Mutual, Series 04-AR12, Class A3
5.64%(e)	10/25/44		641		641,024
Wells Fargo Mortgage Backed Securities Trust, Series 04-8, Class A1
5.00%	08/25/19		1,008		993,190
Wells Fargo Mortgage Backed Securities Trust, Series 05-13, Class A1
5.00%	11/25/20		14,706		14,615,304
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $1,325,526,417)					1,328,545,145

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	79

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GOVERNMENT INCOME PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COMMERCIAL MORTGAGE BACKED SECURITIES — 9.5%
Federal National Mortgage Assoc., Series 98-M1 (IO)
0.89%(f)	02/25/13	$	16,125	$	176,656
Federal National Mortgage Assoc., Series 06-M2, Class A2A
5.27%	10/20/32		18,719		18,666,856
Government National Mortgage Assoc., Series 01-58, Class C
5.48%(e)	08/16/27		20,000		20,240,132
Government National Mortgage Assoc., Series 04-10 (IO)
0.97%(f)	01/16/44		56,934		2,405,801
Government National Mortgage Assoc., Series 04-77 (IO)
0.93%(f)	09/16/44		151,895		6,934,568
Government National Mortgage Assoc., Series 04-97, Class C
4.52%(e)	02/16/28		8,400		8,128,735
Government National Mortgage Assoc., Series 05-10, Class ZB
5.18%(e)	12/16/44		3,063		2,836,321
Government National Mortgage Assoc., Series 05-12, Class C
4.66%	12/16/30		20,000		19,467,954
Government National Mortgage Assoc., Series 05-29, Class Z
4.25%(e)	04/16/45		4,881		3,809,591
Government National Mortgage Assoc., Series 05-50 (IO)
1.00%(f)	06/16/45		33,373		2,113,932
Government National Mortgage Assoc., Series 05-59, Class ZA
4.96%(e)	03/16/46		9,363		8,325,573
Government National Mortgage Assoc., Series 05-67, Class Z
4.72%(e)	08/16/45		5,903		5,106,876
Government National Mortgage Assoc., Series 05-9 (IO)
0.77%(f)	01/16/45		134,650		6,944,456
Government National Mortgage Assoc., Series 05-9, Class Z
4.65%(e)	01/16/45		5,508		4,714,322
Government National Mortgage Assoc., Series 05-90 (IO)
0.90%(f)	11/16/45		133,072		7,074,472
Government National Mortgage Assoc., Series 06-15 (IO)
0.91%(f)	04/16/46		139,574		7,138,789
Government National Mortgage Assoc., Series 06-30 (IO)
0.80%(f)	05/16/46		50,591		2,827,849
Government National Mortgage Assoc., Series 06-5 (IO)
0.79%(f)	01/16/46		132,113		7,161,197
Greenwich Capital Commercial Funding Corp., Series 06-GG7, Class A4
5.91%(e)	07/10/38		8,500		8,872,162
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 06-CB15, Class A4
5.81%(e)	06/12/43		16,500		17,022,916
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 06-LDP7, Class A4
5.88%(e)	04/15/45		13,000		13,541,785
J.P. Morgan Mortgage Trust, Series 06-A2, Class 5A3
3.75%(e)	11/25/33		5,173		5,142,284
The Money Store Small Business Administration Loan Trust, Series 99-1, Class A
6.05%(e)	07/15/25		53		52,792
Structured Asset Receivables Trust, Series 03-2
5.72%(e)(h)(i)(j)	01/21/09		912		911,292
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $181,362,807)					179,617,311
PROJECT LOANS — 0.0%
Government National Mortgage Assoc. I, Construction Loan Commitment
3.00% (Cost $99,920)	04/15/20		98		101,408
ASSET BACKED SECURITIES — 0.8%
Countrywide Home Equity Loan Trust, Series 04-K, Class 2A
5.62%(e)(k)	02/15/34		3,200		3,204,684
Federal National Mortgage Assoc. Grantor Trust, Series 04-T9, Class A1
5.46%(e)	04/25/35		6,272		6,275,897
Federal National Mortgage Assoc. Whole Loan, Series 96-W1, Class AL
7.25%	03/25/26		850		873,412
Option One Mortgage Loan Trust, Series 06-1, Class 2A1
5.39%(e)	01/25/36		3,893		3,893,697
Residential Asset Mortgage Products, Inc., Series 04-RS9, Class AII2
5.66%(e)	05/25/34		1,277		1,278,324
Wells Fargo Home Equity Trust, Series 04-2, Class A32
5.66%(e)	02/25/32		385		384,883
TOTAL ASSET BACKED SECURITIES (Cost $15,896,107)					15,910,897
		PAR/SHARES (000)
SHORT TERM INVESTMENTS — 1.5%
Federal Home Loan Mortgage Corp., Discount Notes
4.97%(l)	04/02/07		20,600		20,597,156
Galileo Money Market Fund, 5.02%			8,667		8,666,639
TOTAL SHORT TERM INVESTMENTS (Cost $29,263,795)					29,263,795

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

80

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GOVERNMENT INCOME PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF CONTRACTS			VALUE
CALL OPTIONS PURCHASED — 0.0%
June 10 year U.S. Treasury Notes futures, Strike Price $110, Expires 05/25/07 (Cost $40,750)			91		$	15,641
CALL SWAPTIONS PURCHASED — 0.1%
Deutsche Bank, Strike Rate 5.090%, Expires 08/28/07 (Cost $1,960,800)			12,900	(m)		1,353,210
PUT SWAPTIONS PURCHASED — 0.1%
Deutsche Bank, Strike Rate 5.090%, Expires 08/28/07 (Cost $1,999,500)			12,900	(m)		2,275,560
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 240.0% (Cost $4,562,859,590)						4,556,588,252
	MATURITYT	PAR (000)
AFFILIATED INVESTMENTS - LONG TERM — 0.0%
Federal Housing Authority, Merrill Lynch Project, Pool 42 7.43% (Cost $640)	09/01/22	$	1			622
TOTAL INVESTMENTS IN SECURITIES — 240.0% (Cost $4,562,860,230(a))						4,556,588,874
MORTGAGE PASS-THROUGH TBA SALE COMMITMENTS — (46.1)%
Federal Home Loan Mortgage Corp. Gold 15 Year
5.50%	04/01/22		(8,300	)		(8,315,562	)
6.00%	04/01/22		(30,800	)		(31,300,500	)
Federal Home Loan Mortgage Corp. Gold 30 Year
6.00%	04/01/37		(5,800	)		(5,845,310	)
Federal National Mortgage Assoc. 15 Year
5.00%	04/01/22		(41,400	)		(40,824,623	)
Federal National Mortgage Assoc. 30 Year
5.00%	04/01/37		(8,000	)		(7,727,504	)
5.50%	04/01/37		(726,000	)		(718,286,250	)
6.00%	04/01/37		(62,000	)		(62,445,656	)
TOTAL MORTGAGE PASS-THROUGH TBA SALE COMMITMENTS (Premiums received $876,609,713)						(874,745,405	)
		NUMBER OF CONTRACTS
CALL SWAPTIONS WRITTEN — (0.1)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08			(610	)(m)		(116,014	)
Salomon Brothers, Strike Rate 5.080%, Expires 09/06/07			(12,900	)(m)		(1,354,500	)
TOTAL CALL SWAPTIONS WRITTEN (Premiums received $2,337,020)						(1,470,514	)
		NUMBER OF CONTRACTS			VALUE
PUT SWAPTIONS WRITTEN — (0.1)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08			(610	)(m)	$	(116,013	)
Salomon Brothers, Strike Rate 5.080%, Expires 09/06/07			(12,900	)(m)		(2,391,660	)
TOTAL PUT SWAPTIONS WRITTEN (Premiums received $2,337,020)						(2,507,673	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (93.7)%						(1,779,079,717	)
NET ASSETS — 100.0%					$	1,898,785,565

(a) Cost for federal income tax purposes is $4,567,623,533. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	5,561,644
Gross unrealized depreciation		(16,596,303	)
	$	(11,034,659	)

(b) Security, or a portion thereof, with a market value of $26,671,247, has been pledged as collateral for swap and swaption contracts.

(c) Security, or a portion thereof, subject to financing transactions.

(d) Par held at March 31, 2007 is less than $500.

(e) Variable rate security. Rate shown is the rate as of March 31, 2007.

(f) Rates shown are the effective yields as of March 31, 2007.

(g) Interest rate of underlying collateral.

(h) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held less than 0.1% of its net assets, with a current market value of $911,292, in securities restricted as to resale.

(i) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. As of March 31, 2007, these securities had a total market value of $911,292 which represents less than 0.1% of net assets.

(j) Security is illiquid. As of March 31, 2007, the Portfolio held less than 0.1% of its net assets, with a current market value of $911,292 in these securities.

(k) Security, or a portion thereof, pledged as collateral with a value of $2,944,031 on 3,877 short U.S. Treasury Note futures contracts, 338 long U.S. Treasury Note futures contracts and 94 long U.S. Treasury Bond futures contracts expiring June 2007. The value of such contracts on March 31, 2007 was $781,647,517, with an unrealized gain of $802,305 (including commissions of $9,421).

(l) The rate shown is the effective yield at the time of purchase.

(m) Each swaption contract is equivalent to $10,000 notional amount.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	81

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INFLATION PROTECTED BOND PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY		PAR (000)			VALUE
U.S. GOVERNMENT & AGENCY OBLIGATIONS — 91.9%
U.S. Treasury Inflation Protected Bonds
2.38%	01/25-01/27		$	13,325		$	14,191,857
2.00%	01/15/26			3,025			2,931,971
3.62%	04/15/28			4,979			7,584,747
3.88%(b)	04/15/29			1,925			3,008,715
3.38%	04/15/32			1,500			2,085,675
U.S. Treasury Inflation Protected Notes
3.88%	01/15/09			950			1,215,352
0.88%(c)	04/15/10			8,545			8,827,998
3.38%	01/15/12			1,891			2,286,940
3.00%	07/15/12			1,280			1,510,459
1.88%	07/13-07/15			12,020			12,899,349
2.00%	01/14-01/16			13,215			14,225,657
1.62%(d)	01/15/15			5,015			5,103,601
2.50%	07/15/16			1,866			1,919,168
2.38%	01/15/17			2,765			2,816,402
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $81,270,170)							80,607,891
MORTGAGE PASS-THROUGHS — 1.1%
Federal National Mortgage Assoc. ARM
4.38%(e)	06/01/34			337			334,895
4.64%(e)	02/01/35			675			670,323
TOTAL MORTGAGE PASS-THROUGHS (Cost $1,015,776)							1,005,218
CORPORATE BONDS — 3.6%
Finance — 2.8%
Student Loan Marketing Corp., Senior Unsecured Notes
3.67%(e)	04/01/09			2,500			2,410,050
Yankee — 0.8%
United Mexican States (Mexico), Senior Unsecured Notes
6.75%(f)	09/27/34			50			54,525
VTB Capital SA (Luxembourg), Unsecured Notes
5.96%(e)(f)	08/01/08			650			650,650
							705,175
TOTAL CORPORATE BONDS (Cost $3,202,916)							3,115,225
FOREIGN BONDS — 1.5%
Government of France, Treasury Inflation Protected Bonds (EUR)
1.80%	07/25/40			605			771,786
Kreditanstalt Fur Wiederaufbaure (Germany), Unsecured Notes (JPY)
0.32%(e)	08/08/11			38,000			322,494
Republic of Finland, Senior Unsecured Notes (JPY)
0.30%	10/18/07			26,100			220,888
TOTAL FOREIGN BONDS (Cost $1,332,421)							1,315,168
	NUMBER OF SHARES		VALUE
SHORT TERM INVESTMENTS — 4.0%
Galileo Money Market Fund, 5.02% (Cost $3,561,492)	3,561,492		$	3,561,492
	NUMBER OF CONTRACTS
CALL OPTIONS PURCHASED — 0.0%
June Euro-dollar futures, Strike Price $95.25, Expires 06/18/07	64			800
December Euro-dollar futures, Strike Price $95.5, Expires 12/17/07	126			37,013
TOTAL CALL OPTIONS PURCHASED (Cost $63,461)				37,813
CALL SWAPTIONS PURCHASED — 0.6%
Chase Bank, Strike Rate 5.575%, Expires 01/19/17	800	(g)		290,240
Lehman Brothers, Strike Rate 5.340%, Expires 03/02/12	430	(g)		146,200
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12	160	(g)		56,528
TOTAL CALL SWAPTIONS PURCHASED (Cost $558,837)				492,968
PUT SWAPTIONS PURCHASED — 0.7%
Chase Bank, Strike Rate 5.575%, Expires 01/19/17	800	(g)		338,480
Deutsche Bank, Strike Rate 5.350%, Expires 05/29/07	310	(g)		8,846
Lehman Brothers, Strike Rate 5.340%, Expires 03/02/12	430	(g)		199,262
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12	160	(g)		71,680
TOTAL PUT SWAPTIONS PURCHASED (Cost $573,097)				618,268
TOTAL INVESTMENTS IN SECURITIES — 103.4% (Cost $91,578,170(a))				90,754,043
CALL SWAPTIONS WRITTEN — (0.7)%
Barclays Capital, Strike Rate 5.250%, Expires 02/08/08	(710	)(g)		(149,029	)
Barclays Capital, Strike Rate 5.430%, Expires 02/16/10	(1,090	)(g)		(383,959	)
Deutsche Bank, Strike Rate 5.400%, Expires 06/15/07	(110	)(g)		(22,812	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08	(160	)(g)		(27,520	)
Union Bank, Strike Rate 5.340%, Expires 02/06/09	(120	)(g)		(34,836	)
TOTAL CALL SWAPTIONS WRITTEN (Premiums received $577,243)				(618,156	)

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

82

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INFLATION PROTECTED BOND PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF CONTRACTS		V ALUE
PUT SWAPTIONS WRITTEN — (0.6)%
Barclays Capital, Strike Rate 5.250%, Expires 02/08/08	(710	)(g)	$	(124,604	)
Barclays Capital, Strike Rate 5.430%, Expires 02/16/10	(1,090	)(g)		(352,118	)
Deutsche Bank, Strike Rate 5.800%, Expires 06/15/07	(110	)(g)		(207	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08	(160	)(g)		(39,968	)
Union Bank, Strike Rate 5.340%, Expires 02/06/09	(120	)(g)		(32,628	)
TOTAL PUT SWAPTIONS WRITTEN (Premiums received $575,311)				(549,525	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (2.1)%				(1,856,803	)
NET ASSETS — 100.0%			$	87,729,559

(a) Cost for federal income tax purposes is $91,865,735. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	1,961,587
Gross unrealized depreciation		(3,073,279	)
	$	(1,111,692	)

(b) Security, or a portion thereof, pledged as collateral with a value of $625,127 on 155 short U.S. Treasury Note futures contracts, 14 long U.S. Treasury Note futures contracts, 45 short U.S. Treasury Bond futures contracts, 28 short Euro-dollar futures contracts and 8 short Euro-BUXL futures contracts expiring June 2007 and 81 long Euro-dollar futures contracts expiring December 2007. The value of such contracts on March 31, 2007 was $51,373,941, with an unrealized gain of $154,083 (including commissions of $810).

(c) Security, or a portion thereof, subject to financing transactions.

(d) Security, or a portion thereof, with a market value of $203,514, has been pledged as collateral for swap and swaption contracts.

(e) Variable rate security. Rate shown is the rate as of March 31, 2007.

(f) U.S. dollar denominated security issued by foreign domiciled entity.

(g) Each swaption contract is equivalent to $10,000 notional amount.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	83

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GNMA PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
U.S. GOVERNMENT & AGENCY OBLIGATIONS — 2.5%
U.S. Treasury Notes
4.62% (Cost $4,500,000)	02/15/17	$	4,500	$	4,490,861
MORTGAGE PASS-THROUGHS — 121.1%
Federal Home Loan Mortgage Corp.
Gold
6.00%	11/13-10/21		437		444,556
9.00%	12/01/19		1		610
5.50%	01/01/22		297		297,331
7.50%	02/27-03/27		7		7,359
6.50%	01/01/30		1		733
4.50%	10/01/35		194		182,055
Federal Home Loan Mortgage Corp.
Gold 15 Year TBA
5.50%	04/01/22		400		400,750
Federal National Mortgage Assoc.
8.00%	08/01/14		62		64,496
4.00%	07/01/18		119		112,578
4.50%	08/20-10/21		1,829		1,770,523
5.00%	01/21-02/37		378		368,765
6.00%	08/21-10/21		849		863,094
8.50%	10/01/24		4		4,358
6.50%	01/28-04/35		1,027		1,057,107
5.50%	12/32-04/35		9,738		9,656,225
Federal National Mortgage Assoc. 15 Year TBA
5.00%	04/01/22		200		197,188
5.50%	04/01/22		100		100,219
Federal National Mortgage Assoc. 30 Year TBA
4.50%	04/01/37		1,300		1,221,594
5.00%	04/01/37		1,000		965,938
5.50%	04/01/37		10,000		9,893,750
6.00%	04/01/37		1,100		1,107,907
Government National Mortgage Assoc. I
8.00%	12/07-07/17		186		196,164
5.50%	11/08-01/36		4,707		4,715,876
6.50%(b)	03/16-11/34		4,850		4,977,946
7.00%	09/17-05/32		991		1,035,499
9.00%	05/18-06/21		157		169,234
10.00%	12/15/20		3		3,535
7.50%	01/26-11/29		356		371,531
6.00%	01/28-12/36		14,392		14,598,340
4.50%	12/34-01/35		4,566		4,324,208
5.00%	05/36-06/36		4,427		4,308,107
Government National Mortgage Assoc. I 30 Year TBA
5.00%	04/01/37		25,700		24,929,000
6.00%	04/01/37		23,400		23,634,000
Government National Mortgage Assoc. II
7.00%	03/24-05/27		338		352,109
8.00%	08/20/24		156		164,464
7.50%	10/20/25		28		28,649
6.00%	02/29-05/36		18,509		18,735,410
5.50%	05/34-02/37		67,774		67,307,893
6.50%	10/20/34		10,299		10,553,685
5.00%	11/20/35		5,538		5,370,712
Government National Mortgage Assoc. II ARM
3.50%(c)	07/20/34		6,708		6,554,982
TOTAL MORTGAGE PASS-THROUGHS (Cost $221,874,552)					221,048,480
COLLATERALIZED MORTGAGE OBLIGATIONS — 1.0%
Countrywide Home Loans, Series 04-J4, Class 2A1
5.00%	05/25/19		543		539,154
Credit Suisse First Boston Mortgage Securities Corp., Series 04-7, Class 6A1
5.25%	10/25/19		441		440,129
Federal National Mortgage Assoc., Series 03-130, Class SP (IO)
1.68%(d)	08/25/28		4,149		82,799
Master Asset Securitization Trust, Series 04-8, Class 3A1
5.25%	08/25/19		290		286,465
Washington Mutual Mortgage Loan Trust, Series 03-S12, Class 3A
5.00%	11/25/18		242		240,274
Wells Fargo Mortgage Backed Securities Trust, Series 04-8, Class A1
5.00%	08/25/19		279		274,712
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $1,896,010)					1,863,533
COMMERCIAL MORTGAGE BACKED SECURITIES — 1.6%
J.P. Morgan Mortgage Trust, Series 06-A2, Class 5A3
3.75%(c)	11/25/33		1,618		1,608,053
The Money Store Small Business Administration Loan Trust, Series 99-1, Class A
6.05%(c)	07/15/25		159		158,376
Structured Asset Receivables Trust, Series 03-2
5.72%(c)(e)(f)(g)	01/21/09		1,166		1,165,259
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $2,898,617)					2,931,688
ASSET BACKED SECURITIES — 1.1%
Option One Mortgage Loan Trust, Series 06-1, Class 2A1
5.39%(c) (Cost $1,986,320)	01/25/36		1,986		1,986,580
		PAR /SHARES (000)
SHORT TERM INVESTMENTS — 7.1%
Federal Home Loan Mortgage Corp., Discount Notes
4.90%(h)	04/02/07		5,000		4,999,319
Galileo Money Market Fund, 5.02%			7,900		7,900,028
TOTAL SHORT TERM INVESTMENTS (Cost $12,899,347)					12,899,347

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

84

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

GNMA PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF CONTRACTS			VALUE
CALL OPTIONS PURCHASED — 0.0%
June 10 year U.S. Treasury Notes futures, Strike Price $110, Expires 05/25/07 (Cost $2,687)			6		$	1,031
CALL SWAPTIONS PURCHASED — 0.0%
Deutsche Bank, Strike Rate 5.090%, Expires 08/28/07 (Cost $45,600)			300	(i)		31,470
PUT SWAPTIONS PURCHASED — 0.0%
Deutsche Bank, Strike Rate 5.090%, Expires 08/28/07 (Cost $ 46,500)			300	(i)		52,920
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 134.4% (Cost $246,149,633)						245,305,910
		PAR (000)
AFFILIATED INVESTMENTS - LONG TERM — 0.0%
Federal Housing Authority, Merrill Lynch Project, Pool 42 7.43% (Cost $3,284)	09/01/22	$	3			3,265
TOTAL INVESTMENTS IN SECURITIES — 134.4% (Cost $246,152,917(a))						245,309,175
MORTGAGE PASS-THROUGH TBA SALE COMMITMENTS — (10.1)%
Federal Home Loan Mortgage Corp. Gold 15 Year
6.00%	04/01/22		(400	)		(406,500	)
Federal National Mortgage Assoc. 15 Year
6.00%	04/01/22		(800	)		(813,000	)
Federal National Mortgage Assoc. 30 Year
5.50%	04/01/37		(9,800	)		(9,695,875	)
Government National Mortgage Assoc. I 30 Year
5.50%	04/01/37		(7,500	)		(7,436,700	)
TOTAL MORTGAGE PASS-THROUGH TBA SALE COMMITMENTS (Premiums received $18,392,094)						(18,352,075	)
		NUMBER OF CONTRACTS			VALUE
CALL SWAPTIONS WRITTEN — 0.0%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08			(300	)(i)	$	(57,055	)
Salomon Brothers, Strike Rate 5.080%, Expires 09/06/07			(300	)(i)		(31,500	)
TOTAL CALL SWAPTIONS WRITTEN (Premiums received $179,250)						(88,555	)
PUT SWAPTIONS WRITTEN — (0.1)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08			(300	)(i)		(57,056	)
Salomon Brothers, Strike Rate 5.080%, Expires 09/06/07			(300	)(i)		(55,620	)
TOTAL PUT SWAPTIONS WRITTEN (Premiums received $179,250)						(112,676	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (24.2)%						(44,179,611	)
NET ASSETS — 100.0%					$	182,576,258

(a) Cost for federal income tax purposes is $246,171,676. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	709,513
Gross unrealized depreciation		(1,572,014	)
	$	(862,501	)

(b) Security, or a portion thereof, pledged as collateral with a value of $691,672 on 539 short U.S. Treasury Note futures contracts and 192 long U.S. Treasury Note futures contracts expiring June 2007.

The value of such contracts on March 31, 2007 was $81,168,813, with an unrealized gain of $35,988 (including commissions of $1,608).

(c) Variable rate security. Rate shown is the rate as of March 31, 2007.

(d) Rates shown are the effective yields as of March 31, 2007.

(e) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 0.6% of its net assets, with a current market value of $1,165,259, in securities restricted as to resale.

(f) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. As of March 31, 2007, these securities had a total market value of $1,165,259 which represents 0.6% of net assets.

(g) Security is illiquid. As of March 31, 2007, the Portfolio held 0.6% of its net assets, with a current market value of $1,165,259 in these securities.

(h) The rate shown is the effective yield at the time of purchase.

(i) Each swaption contract is equivalent to $10,000 notional amount.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	85

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MANAGED INCOME PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
U.S. GOVERNMENT & AGENCY OBLIGATIONS — 12.6%
Federal Home Loan Mortgage Corp., Unsecured Notes
3.00%	04/19/07	$	5,900	$	5,893,575
Federal National Mortgage Assoc., Unsecured Notes
2.35%	04/05/07		7,880		7,878,062
Overseas Private Investment Co.
4.09%	05/29/12		493		465,951
4.30%	05/29/12		1,380		1,338,862
4.64%	05/29/12		1,035		1,018,026
4.68%	05/29/12		585		558,573
4.87%	05/29/12		4,430		4,399,034
5.40%	05/29/12		5,508		5,754,249
Resolution Funding Corp., Strip Bonds
6.29%(b)	07/15/18		1,725		989,389
6.30%(b)	10/15/18		1,725		975,453
Small Business Administration Participation Certificates, Series 96-20B, Class 1
6.38%	02/01/16		1,626		1,669,644
Small Business Administration Participation Certificates, Series 96-20K, Class 1
6.95%	11/01/16		2,391		2,477,408
Small Business Administration Participation Certificates, Series 97, Class A
6.10%(c)(d)	08/15/22		452		448,256
Small Business Administration Participation Certificates, Series 97-20B, Class 1
7.10%	02/01/17		1,918		1,995,212
Small Business Administration Participation Certificates, Series 97-20F, Class 1
7.20%	06/01/17		538		560,180
Small Business Administration Participation Certificates, Series 97-20G, Class 1
6.85%	07/01/17		3,553		3,684,019
U.S. Treasury Bonds
6.00%(e)	02/15/26		4,280		4,837,402
4.50%(e)(f)	02/15/36		4,625		4,360,505
U.S. Treasury Inflation Protected Bonds
2.00%	01/15/26		8,080		7,831,514
2.38%	01/15/27		2,030		2,054,366
U.S. Treasury Notes
4.88%	08/15/16		6,100		6,196,740
4.62%(f)	11/16-02/17		28,420		28,364,546
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $93,197,539)					93,750,966
MORTGAGE PASS-THROUGHS — 52.7%
Federal Home Loan Mortgage Corp. ARM
4.36%(d)	01/01/35		6,332		6,247,551
Federal Home Loan Mortgage Corp. Gold
6.50%	03/09-12/30		578		590,854
4.00%	05/01/10		1,642		1,605,907
6.00%	11/14-02/32		1,203		1,224,041
5.50%	10/01/17		856		859,849
4.50%	05/18-08/20		10,144		9,847,422
5.00%	12/18-04/36		2,757		2,704,713
7.50%	11/25-10/27		20		21,423
7.00%	04/29-04/32		47		49,200
Federal Home Loan Mortgage Corp. Gold 15 Year TBA
5.00%	04/01/22		7,000		6,901,566
Federal Home Loan Mortgage Corp. Gold 30 Year TBA
5.50%	04/01/37		37,000		36,606,875
6.00%	04/01/37		10,000		10,078,120
6.50%	04/01/37		13,000		13,255,944
Federal National Mortgage Assoc.
7.00%	08/08-06/32		814		847,679
6.50%	02/11-11/36		13,667		13,951,769
5.50%	09/13-12/35		45,882		45,656,849
5.00%	01/18-07/35		23,193		22,912,062
4.00%	05/01/19		4,545		4,296,129
4.50%	06/19-04/21		6,964		6,745,739
6.00%	01/21-05/36		18,968		19,243,734
Federal National Mortgage Assoc. 15 Year TBA
4.50%	04/01/22		4,000		3,871,248
5.00%	04/01/22		7,600		7,493,129
5.50%	04/01/22		48,400		48,507,924
6.00%	04/01/22		26,000		26,422,500
Federal National Mortgage Assoc. 30 Year TBA
4.50%	04/01/37		9,000		8,457,192
5.00%	04/01/37		51,000		49,262,838
5.50%	04/01/37		19,000		18,798,125
6.00%	04/01/37		15,100		15,208,539
7.00%	04/01/37		800		825,000
Federal National Mortgage Assoc. ARM
4.26%(d)	12/01/34		5,596		5,533,220
Government National Mortgage Assoc. I
9.50%	09/16-11/16		16		17,366
9.00%	03/15/18		13		13,439
6.50%	12/23-10/34		737		758,332
6.00%	11/28-10/33		427		433,755
5.50%	11/15/33		39		38,639
Government National Mortgage Assoc. I 30 Year TBA
6.00%	04/01/37		2,000		2,020,000
TOTAL MORTGAGE PASS-THROUGHS (Cost $392,203,944)					391,308,672
COLLATERALIZED MORTGAGE OBLIGATIONS — 7.2%
Federal Home Loan Mortgage Corp., Series 231 (IO)
5.50%(b)	08/01/35		3,843		878,757
Federal Home Loan Mortgage Corp., Series 2587, Class WX
5.00%	03/15/18		2,370		2,318,319
Federal Home Loan Mortgage Corp., Series 2825, Class VP
5.50%	06/15/15		3,291		3,322,671
Federal Home Loan Mortgage Corp., Series 2933, Class HD
5.50%	02/15/35		3,425		3,456,052

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

86

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MANAGED INCOME PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COLLATERALIZED MORTGAGE OBLIGATIONS (Continued)
Federal Home Loan Mortgage Corp., Series 3033, Class JB
5.50%	11/15/32	$	3,143	$	3,174,818
Federal National Mortgage Assoc., Series 03-118, Class FD
5.72%(d)	12/25/33		4,849		4,825,445
Federal National Mortgage Assoc., Series 04-82, Class HJ
5.50%	09/25/32		9,581		9,601,273
Federal National Mortgage Assoc., Series 05-48, Class AR
5.50%	02/25/35		5,405		5,443,292
Federal National Mortgage Assoc., Series 346, Class 2 (IO)
5.50%(b)	12/01/33		4,159		941,984
Federal National Mortgage Assoc., Series 354, Class 2 (IO)
5.50%(b)	11/01/34		3,273		750,299
Federal National Mortgage Assoc., Series 367, Class 2 (IO)
5.50%(b)	01/25/36		6,753		1,580,815
Federal National Mortgage Assoc., Series 378, Class 19 (IO)
5.00%(b)	06/01/35		8,429		1,833,398
J.P. Morgan Alternative Loan Trust, Series 05-S1, Class 2A16
6.00%	12/25/35		2,218		2,228,618
Lehman Brothers-UBS Commercial Mortgage Trust, Series 00-C4, Class A2
7.37%	08/15/26		5,583		5,901,803
Lehman Brothers-UBS Commercial Mortgage Trust, Series 06-C6, Class A4
5.37%	09/15/39		3,930		3,929,319
Opteum Mortgage Acceptance Corp., Series 06-2, Class A1A
5.38%(d)	07/25/36		3,465		3,462,702
Summit Mortgage Trust, Series 00-1, Class B1
6.15%(c)(d)(g)	12/28/12		39		38,665
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $54,251,547)					53,688,230
COMMERCIAL MORTGAGE BACKED SECURITIES — 15.1%
Banc of America Commercial Mortgage, Inc., Series 01-1, Class A2
6.50%	04/15/36		3,806		3,957,735
Banc of America Commercial Mortgage, Inc., Series 02-PB2, Class A4
6.19%	06/11/35		3,670		3,823,934
Bear Stearns Commercial Mortgage Securities, Inc., Series 00-WF2, Class A2
7.32%	10/15/32		4,590		4,865,601
Bear Stearns Commercial Mortgage Securities, Inc., Series 04-PWR6, Class A6
4.82%	11/11/41		1,315		1,279,159
Commercial Mortgage Acceptance Corp., Series 98-C2, Class A2
6.03%	03/15/08		1,839		1,844,328
Credit Suisse First Boston Mortgage Securities Corp., Series 98-C2, Class A2
6.30%	11/11/30		7,203		7,294,668
Credit Suisse First Boston Mortgage Securities Corp., Series 02-CKS4, Class A2
5.18%	08/15/12		4,575		4,570,735
Credit Suisse First Boston Mortgage Securities Corp., Series 02-CP5, Class A2
4.94%	12/15/35		4,865		4,797,988
Donaldson, Lufkin & Jenrette, Inc., Commerical Mortgage Corp., Series 98-CF1, Class A1B
6.41%	02/18/31		6,146		6,170,447
Donaldson, Lufkin & Jenrette, Inc., Commerical Mortgage Corp., Series 00-CKP1, Class A1B
7.18%	11/10/33		4,097		4,318,370
Federal National Mortgage Assoc., Series 06-M2, Class A2A
5.27%	10/20/32		7,525		7,504,038
First Union National Bank Commercial Mortgage Trust, Series 01-C2, Class A2
6.66%	01/12/43		4,090		4,293,347
General Electric Capital Commercial Mortgage Corp., Series 02-1A, Class A3
6.27%	12/10/35		3,800		3,976,036
General Electric Capital Commercial Mortgage Corp., Series 02-2A, Class A3
5.35%	08/11/36		4,240		4,275,778
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 99-C3, Class A2
7.18%	08/15/36		3,046		3,156,298
Goldman Sachs Mortgage Securities Corp. II, Series 98-C1, Class A3
6.14%	10/18/30		3,912		3,940,103
Goldman Sachs Mortgage Securities Corp. II, Series 04-GG2, Class A4
4.96%	08/10/38		3,500		3,477,208
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 01, Class A3
6.43%	06/15/11		3,320		3,472,475
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 01-C1, Class A3
5.86%	10/12/35		3,840		3,942,207
Lehman Brothers-UBS Commerical Mortgage Trust, Series 03-C7, Class A2
4.06%(d)	09/15/27		2,480		2,429,052
Morgan Stanley Capital Investments, Series 98-HF2, Class A2
6.48%	11/15/30		3,364		3,397,696
Morgan Stanley Dean Witter Capital, Series 00-LIF2, Class A2
7.20%	09/15/10		4,121		4,317,198

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	87

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MANAGED INCOME PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
COMMERCIAL MORTGAGE BACKED SECURITIES (Continued)
Salomon Brothers Mortgage Securities VII, Series 00-C1, Class A2
7.52%	12/18/09	$	5,565	$	5,841,885
Structured Asset Receivables Trust, Series 03-2
5.72%(c)(d)(g)(h)	01/21/09		2,750		2,748,816
TIAA Real Estate Collateralized Debt Obligation Ltd., Series 01-C1A, Class A4
6.68%(c)	06/19/31		5,330		5,486,546
USGI, Series 87
7.43%	12/01/22		108		109,103
Wachovia Bank Commercial Mortgage Trust, Series 03, Class C6
5.12%	08/15/35		4,470		4,456,387
Washington Mutual Asset Securities Corp., Series 05-C1A, Class X (IO)
2.11%(b)(c)	05/25/36		41,158		2,010,646
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $113,929,825)					111,757,784
PROJECT LOANS — 2.4%
Whittier Rehab at Haverhill Project Loan
7.60%(h)	12/01/39		10,749		10,938,957
Whittier Rehab at Westborough Project Loan
8.12%	02/28/37		6,860		6,901,254
TOTAL PROJECT LOANS (Cost $17,340,521)					17,840,211
CERTIFICATES OF DEPOSIT — 1.4%
Barclays Bank Plc (United Kingdom)
5.35%(d)	03/13/09		9,180		9,185,691
SunTrust Bank, Inc.
4.42%	06/15/09		1,260		1,235,778
TOTAL CERTIFICATES OF DEPOSIT (Cost $10,440,000)					10,421,469
ASSET BACKED SECURITIES — 16.8%
Aames Mortgage Investment Trust, Series 06-1, Class A1
5.38%(d)	04/25/36		2,056		2,055,855
American Express Credit Account Master Trust, Series 05-3, Class A
5.32%(d)	01/18/11		5,525		5,518,429
American Express Credit Account Master Trust, Series 05-5, Class A
5.36%(d)	02/15/13		5,350		5,353,197
Ameriquest Mortgage Securities, Inc., Series 04-R11, Class A1
5.62%(d)	11/25/34		2,994		2,998,152
Bear Stearns, Inc., Series 06-HE1, Class 1A1
5.41%(d)	01/25/30		2,363		2,362,531
Capital Auto Receivables Asset Trust, Series 06-SN1A, Class A2A
5.40%(c)	01/20/09		9,175		9,178,348
Carrington Mortgage Loan Trust, Series 06-NC4, Class A1
5.37%(d)	10/25/36		4,031		4,030,479
Chase Issuance Trust, Series 04-A9, Class A9
3.22%	06/15/10		5,675		5,614,702
Citibank Credit Card Issuance Trust, Series 00, Class A3
6.88%	11/16/09		6,275		6,336,645
Countrywide Certificates, Series 04-14, Class A4
5.60%(d)	06/25/35		936		937,594
Countrywide Certificates, Series 05-16, Class 4AV1
5.42%(d)	07/25/26		1,768		1,768,738
Countrywide Certificates, Series 06-18, Class 2A1
5.37%(d)	07/25/36		6,959		6,959,233
DaimlerChrysler Auto Trust, Series 06-A, Class A3
5.00%	05/08/10		5,200		5,191,435
DaimlerChrysler Auto Trust, Series 06-B, Class A2
5.30%	10/08/08		2,724		2,723,476
DaimlerChrysler Auto Trust, Series 06-D, Class A4
4.94%	02/08/12		5,450		5,440,757
Discover Card Master Trust I, Series 05-1, Class A
5.33%(d)	09/16/10		4,425		4,426,824
Fieldstone Mortgage Investment Corp., Series 06-1, Class A1
5.40%(d)	05/25/36		3,013		3,013,576
Ford Credit Auto Owner Trust, Series 05-A, Class A3
3.48%	11/15/08		2,749		2,735,160
Ford Credit Auto Owner Trust, Series 05-C, Class A3
4.30%	08/15/09		5,079		5,046,909
Green Tree Financial Corp., Series 96-7, Class A6
7.65%	10/15/27		2,792		2,889,965
IndyMac Residential Trust, Series 06-D, Class 2A1
5.37%(d)	11/25/36		3,546		3,546,524
MBNA Credit Card Master Notes Trust, Series 04-A4, Class A4
2.70%	09/15/09		7,200		7,192,441
MBNA Credit Card Master Notes Trust, Series 06, Class A1
4.90%	07/15/11		5,175		5,171,527
Morgan Stanley Home Equity Loans, Series 06-2, Class A1
5.39%(d)	02/25/36		2,319		2,318,973
Residential Asset Mortgage Products, Inc., Series 06-RS4, Class A1
5.40%(d)	07/25/36		4,257		4,257,249
Residential Asset Mortgage Products, Inc., Series 06-RS5, Class A1
5.39%(d)	09/25/36		3,074		3,073,445
Structured Asset Investment Loan Trust, Series 06-2, Class A1
5.38%(d)	04/25/36		1,102		1,102,030
Structured Asset Securities Corp., Series 07-BC1, Class A2
5.37%(d)	02/25/37		4,925		4,923,971

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

88

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MANAGED INCOME PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
ASSET BACKED SECURITIES (Continued)
USAA Auto Owner Trust, Series 06-4, Class A4
4.98%	10/15/12	$	4,825	$	4,827,500
Wachovia Auto Owner Trust, Series 06-A, Class A2
5.41%	04/20/09		3,708		3,709,237
TOTAL ASSET BACKED SECURITIES (Cost$124,888,311)					124,704,902
CORPORATE BONDS — 16.2%
Aerospace — 0.1%
Raytheon Co., Senior Unsecured Notes
4.50%	11/15/07		383		380,974
Banks — 4.6%
Bank of America Corp. Capital Trust XI, Capital Securities
6.62%	05/23/36		570		603,139
Bank of America Corp., Senior Unsecured Notes
4.50%	08/01/10		130		128,160
Bank of America Corp., Subordinated Notes
7.80%	02/15/10		1,190		1,276,157
Bank of New York Co., Inc., Senior Notes
3.75%	02/15/08		1,350		1,332,220
BankBoston N.A., Subordinated Notes
7.00%	09/15/07		1,500		1,508,301
Citigroup, Inc., Senior Unsecured Notes
6.20%	03/15/09		1,200		1,224,935
Citigroup, Inc., Subordinated Notes
6.12%	08/25/36		700		710,991
Citigroup, Inc., Unsecured Notes
3.62%(i)	02/09/09		3,655		3,566,988
4.12%	02/22/10		3,900		3,815,974
Depfa Bank Plc, Senior Notes
4.25%(c)	08/16/10		2,150		2,103,743
HSBC Bank USA, Subordinated Notes
3.87%	06/07/07		4,875		4,860,936
J.P. Morgan Chase & Co., Senior Notes
2.62%	06/30/08		835		809,714
J.P. Morgan Chase & Co., Senior Unsecured Notes
5.25%	05/30/07		2,380		2,379,203
Lloyds TSB Bank Plc, Subordinated Notes
6.90%(j)			2,000		2,002,500
SunTrust Bank, Inc., Senior Unsecured Notes
3.62%	10/15/07		1,540		1,525,716
U.S. Bancorp, Senior Unsecured Notes
3.95%	08/23/07		335		333,183
U.S. Bank N.A., Subordinated Notes
6.50%	02/01/08		2,420		2,435,573
Wachovia Bank N.A., Senior Bank Notes
4.38%	08/15/08		95		93,870
Wells Fargo & Co., Senior Unsecured Notes
4.20%	01/15/10		580		567,443
Wells Fargo & Co., Unsecured Notes
4.62%	08/09/10		2,115		2,091,388
4.88%	01/12/11		705		701,071
					34,071,205
Broadcasting — 0.2%
News America Holdings, Inc., Senior Debentures
7.12%	04/08/28		300		318,950
7.62%	11/30/28		1,150		1,288,759
					1,607,709
Energy & Utilities — 0.2%
Florida Power & Light Co., First Mortgage Bonds
4.95%	06/01/35		600		531,795
Florida Power Corp., First Mortgage Bonds
6.65%	07/15/11		960		1,014,252
5.90%	03/01/33		175		173,361
					1,719,408
Entertainment & Leisure — 0.6%
Comcast Cable Holdings LLC, Senior Debentures
7.88%	02/15/26		790		907,016
Comcast Cable Holdings LLC, Senior Notes
7.12%	02/15/28		620		657,979
Comcast Corp., Senior Unsecured Bonds
6.50%	11/15/35		475		478,599
Comcast Corp., Senior Unsecured Notes
7.05%	03/15/33		315		338,184
Time Warner Cos., Inc., Senior Debentures
9.15%	02/01/23		535		666,365
8.38%	03/15/23		500		591,034
7.57%	02/01/24		750		828,745
					4,467,922
Finance — 3.0%
Associates Corp. N.A., Senior Notes
6.25%	11/01/08		690		701,744
BAE Systems Holdings, Inc., Unsecured Notes
5.20%(c)	08/15/15		710		695,358
The Bear Stearns & Co., Inc., Notes
4.55%	06/23/10		750		737,202
Berkshire Hathaway Finance Corp., Senior Unsecured Notes
3.38%	10/15/08		1,925		1,873,916
4.12%	01/15/10		215		210,422
General Electric Capital Corp., Unsecured Notes
4.12%	09/01/09		1,515		1,486,442
5.00%	11/15/11		5,205		5,189,650

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	89

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MANAGED INCOME PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Finance (Continued)
Household Finance Corp., Senior Unsecured Notes
6.50%	11/15/08	$	1,615	$	1,646,628
Morgan Stanley, Senior Notes
5.61%(d)	01/09/12		5,920		5,919,195
5.62%	01/09/12		355		359,664
Morgan Stanley, Senior Unsecured Notes
6.75%	04/15/11		625		661,047
Morgan Stanley, Unsecured Notes
5.05%	01/21/11		1,690		1,682,206
USAA Capital Corp., Senior Unsecured Notes
4.00%(c)	12/10/07		920		911,206
					22,074,680
Insurance — 1.0%
ASIF Global Financing, Unsecured Notes
3.90%(c)	10/22/08		285		279,584
MetLife, Inc., Junior Subordinated Debentures
6.40%(d)	12/15/66		1,565		1,528,055
MetLife, Inc., Senior Unsecured Notes
6.38%	06/15/34		350		368,116
Monumental Global Funding II, Unsecured Notes
2.80%(c)	07/15/08		2,480		2,409,137
New York Life Global Funding, Unsecured Notes
3.88%(c)	01/15/09		775		758,392
TIAA Global Markets, Senior Unsecured Notes
4.12%(c)	11/15/07		1,850		1,836,084
WellPoint, Inc., Unsecured Notes
5.85%	01/15/36		370		357,486
					7,536,854
Manufacturing — 0.2%
Belvoir Land LLC Class II, Unsecured Notes
5.40%(c)	12/15/47		1,175		1,070,190
Motor Vehicles — 0.0%
DaimlerChrysler N.A. Holding Corp., Unsecured Notes
4.05%	06/04/08		150		147,749
Oil & Gas — 0.2%
Texaco Capital, Inc., Debentures
8.88%	09/01/21		1,350		1,790,018
Pharmaceuticals — 0.2%
Bristol-Myers Squibb Co., Unsecured Notes
5.88%	11/15/36		1,175		1,151,501
Real Estate — 0.2%
The Rouse Co., Unsecured Notes (REIT)
3.62%	03/15/09		1,615		1,539,655
Retail Merchandising — 0.0%
Federated Department Stores, Senior Debentures
6.79%	07/15/27		320		315,456
Telecommunications — 0.8%
AT&T Broadband Corp., Unsecured Notes
8.38%	03/15/13		1,195		1,366,564
BellSouth Telecommunications, Debentures
6.40%(k)	12/15/35		900		462,614
GTE Corp., Debentures
6.94%	04/15/28		150		158,196
New England Telephone & Telegraph Co., Debentures
7.88%	11/15/29		200		224,850
SBC Communications, Inc., Unsecured Notes
4.21%(c)	06/05/21		3,000		2,999,670
Sprint Capital Corp., Senior Unsecured Notes
8.75%	03/15/32		365		430,525
Sprint Nextel Corp., Unsecured Notes
6.00%	12/01/16		525		516,656
					6,159,075
Yankee — 4.9%
AID-Israel (Israel), Unsecured Notes
5.50%(l)	09/18/23		5,000		5,232,175
BSKYB Finance Plc (United Kingdom), Senior Unsecured Notes
6.50%(c)(l)	10/15/35		120		118,905
Deutsche Telekom International Finance BV (Netherlands), Senior Unsecured Notes
8.25%(l)	06/15/30		590		730,808
Eksportfinans ASA (Norway), Unsecured Notes
3.38%(l)	01/15/08		3,770		3,714,645
HBOS Treasury Services Plc (United Kingdom), Senior Unsecured Notes
3.60%(c)(l)	08/15/07		855		849,829
HBOS Treasury Services Plc (United Kingdom), Unsecured Notes
3.50%(c)(l)	11/30/07		1,630		1,611,834
National Landeskreditbank Baden-Wurttemberg (Germany), Unsecured Notes
4.25%(l)	09/15/10		2,800		2,747,360
Nationwide Building Society (United Kingdom), Senior Unsecured Notes
3.50%(c)(l)	07/31/07		1,725		1,714,338
Nationwide Building Society (United Kingdom), Unsecured Notes
4.25%(c)(l)	02/01/10		90		87,838
Pemex Finance Ltd. (Luxembourg), Senior Unsecured Notes
9.03%(l)	02/15/11		2,804		3,004,935
Rabobank Nederland (Netherlands), Senior Notes
5.36%(c)(d)(l)	04/06/09		7,105		7,107,593
The Royal Bank of Scotland Capital Trust (United Kingdom), Bank Guaranteed Bonds
6.80%(j)(l)			1,000		1,003,800
Sun Life of Canada Capital Trust (Canada), Capital Securities
8.53%(c)(j)(l)			1,070		1,118,796

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

90

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MANAGED INCOME PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)			VALUE
CORPORATE BONDS (Continued)
Yankee (Continued)
Suncor Energy, Inc. (Canada)
5.95%(l)	12/01/34	$	70		$	70,268
Telecom Italia Capital (Luxembourg), Senior Unsecured Notes
6.00%(l)	09/30/34		175			158,467
7.20%(l)	07/18/36		650			676,724
Telecom Italia Capital (Luxembourg), Unsecured Notes
5.25%(l)	10/01/15		1,000			948,746
Telefonica Emisiones Sau (Spain), Senior Unsecured Notes
6.42%(l)	06/20/16		600			626,234
7.04%(l)	06/20/36		500			533,944
Telefonica Europe BV (Netherlands), Senior Unsecured Notes
7.75%(l)	09/15/10		475			511,842
United Mexican States (Mexico), Senior Unsecured Notes
6.75%(l)	09/27/34		919			1,002,170
Vodafone Group Plc (United Kingdom), Unsecured Notes
5.45%(d)(l)	12/28/07		2,715			2,716,352
5.00%(l)	12/16/13		90			87,548
						36,375,151
TOTAL CORPORATE BONDS (Cost $120,665,076)						120,407,547
FOREIGN BONDS — 0.6%
Kreditanstalt Fur Wiederaufbaure (Germany), Unsecured Notes (JPY)
0.32%(d)	08/08/11		267,000			2,265,940
Republic of Finland, Senior Unsecured Notes (JPY)
0.30%	10/18/07		220,900			1,869,511
TOTAL FOREIGN BONDS (Cost $4,096,655)						4,135,451
TAXABLE MUNICIPAL BONDS — 1.1%
Los Angeles County California Pension Obligation Revenue Bonds, Series 95, Class D
6.97%	06/30/08		7,355			7,518,649
Ohana Hawaii Military Communities LLC, Military Housing Revenue Bonds (Navy Housing Privatization Project), Series 04-A, Class 1
6.19%	04/01/49		750			801,465
TOTAL TAXABLE MUNICIPAL BONDS (Cost $8,105,000)						8,320,114
SHORT TERM INVESTMENTS — 8.8%
Federal Home Loan Mortgage Corp., Discount Notes
4.90%(m)	04/02/07		19,000			18,997,414
4.97%(m)	04/02/07		38,200			38,194,726
Galileo Money Market Fund,
5.02%			8,416			8,416,086
TOTAL SHORT TERM INVESTMENTS (Cost $65,608,226)						65,608,226
		NUMBER OF CONTRACTS
CALL SWAPTIONS PURCHASED — 0.1%
Barclays Capital, Strike Rate 5.520%, Expires 09/19/16			980(n	)		502,570
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12			1,330(n	)		469,889
TOTAL CALL SWAPTIONS PURCHASED (Cost $1,130,248)						972,459
PUT OPTIONS PURCHASED — 0.0%
June 10 year U.S. Treasury Notes futures, Strike Price $105, Expires 05/25/07 (Cost $48,873)			111			3,469
PUT SWAPTIONS PURCHASED — 0.2%
Barclays Capital, Strike Rate 5.520%,
Expires 09/21/15			980(n	)		586,199
Goldman Sachs, Strike Rate 5.350%,
Expires 04/30/07			1,230(n	)		19,624
Lehman Brothers, Strike Rate
5.390%, Expires 03/19/12			1,330(n	)		595,840
TOTAL PUT SWAPTIONS PURCHASED (Cost $1,249,397)						1,201,663
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 135.2% (Cost $1,007,155,162)						1,004,121,163
	MATURITY	PAR (000)
AFFILIATED INVESTMENTS - LONG TERM — 0.3%
Merrill Lynch Mortgage Investors, Inc., Series 05-HE2, Class A2A 5.43%(d) (Cost $2,011,365)	09/25/36	$	2,011			2,011,667
TOTAL INVESTMENTS IN SECURITIES — 135.5% (Cost $1,009,166,527(a))						1,006,132,830
MORTGAGE PASS-THROUGH TBA SALE COMMITMENTS — (15.1)%
Federal Home Loan Mortgage Corp. Gold 15 Year
0.045	04/01/22		(5,400	)		(5,226,185	)
Federal National Mortgage Assoc. 15 Year
0.05	04/01/22		(8,000	)		(7,887,504	)
0.055	04/01/22		(15,000	)		(15,034,845	)
Federal National Mortgage Assoc. 30 Year
0.05	04/01/37		(3,000	)		(2,897,814	)
0.055	04/01/37		(40,000	)		(39,575,000	)
0.06	04/01/37		(22,200	)		(22,359,573	)
0.065	04/01/37		(18,000	)		(18,360,000	)
TOTAL MORTGAGE PASS-THROUGH TBA SALE COMMITMENTS (Premiums received $111,558,101)						(111,340,921	)

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	91

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

MANAGED INCOME PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF CONTRACTS		VALUE
CALL SWAPTIONS WRITTEN — (0.2)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08	(960	)(n)	$	(182,578	)
Chase Securities, Strike Rate 5.485%, Expires 10/26/09	(1,060	)(n)		(388,614	)
Citibank, Strike Rate 5.670%, Expires 01/04/10	(1,000	)(n)		(439,930	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08	(1,330	)(n)		(228,760	)
Union Bank, Strike Rate 5.340%, Expires 02/06/09	(2,040	)(n)		(592,212	)
TOTAL CALL SWAPTIONS WRITTEN (Premiums received $ 2,167,180)				(1,832,094	)
PUT SWAPTIONS WRITTEN — (0.2)%
Barclays Capital, Strike Rate 5.140%, Expires 04/21/08	(960	)(n)		(182,579	)
Chase Securities, Strike Rate 5.485%, Expires 10/26/09	(1,060	)(n)		(297,985	)
Citibank, Strike Rate 5.670%, Expires 01/04/10	(1,000	)(n)		(240,120	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08	(1,330	)(n)		(332,234	)
Union Bank, Strike Rate 5.340%, Expires 02/06/09	(2,040	)(n)		(554,676	)
TOTAL PUT SWAPTIONS WRITTEN (Premiums received $2,167,180)				(1,607,594	)
LIABILITIES IN EXCESS OF OTHER ASSETS — (20.0)%				(148,773,860	)
NET ASSETS — 100.0%			$	742,578,361

(a) Cost for federal income tax purposes is $1,009,504,332. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	3,426,799
Gross unrealized depreciation		(6,798,301	)
	$	(3,371,502	)

(b) Rates shown are the effective yields as of March 31, 2007.

(c) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 6.1% of its net assets, with a current market value of $45,583,774, in securities restricted as to resale.

(d) Variable rate security. Rate shown is the rate as of March 31, 2007.

(e) Security, or a portion thereof, with a market value of $2,166,662, has been pledged as collateral for swap and swaption contracts.

(f) Security, or a portion thereof, subject to financing transactions.

(g) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. As of March 31, 2007, these securities had a total market value of $2,787,481 which represents 0.4% of net assets.

(h) Security is illiquid. As of March 31, 2007, the Portfolio held 1.8% of its net assets, with a current market value of $13,687,773 in these securities.

(i) Security, or a portion thereof, pledged as collateral with a value of $3,566,988 on 248 short U.S. Treasury Note futures contracts, 95 long U.S. Treasury Note futures contracts, 155 long U.S. Treasury Bond futures contracts and 64 long Euro-Bund futures contracts expiring June 2007. The value of such contracts on March 31, 2007 was $63,543,702, with an unrealized loss of $422,333 (including commissions of $617).

(j) The security is a perpetual bond and has no stated maturity date.

(k) Debt obligation initially issued in zero coupon form which converts to coupon form at a specified date and rate. The rates shown are the effective yields as of March 31, 2007.

(l) U.S. dollar denominated security issued by foreign domiciled entity.

(m) The rate shown is the effective yield at the time of purchase.

(n) Each swaption contract is equivalent to $10,000 notional amount.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

92

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERNATIONAL BOND PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
FOREIGN BONDS — 69.7%
Australia — 0.6%
New South Wales Treasury Corp. (AUD)
7.00%	12/01/10	$	4,130	$	3,411,470
Austria — 2.4%
Republic of Austria Government Bonds (EUR)
5.00%(b)	07/15/12		10,250		14,295,422
Belgium — 2.9%
Kingdom of Belgium (EUR)
5.75%	03/28/08		8,500		11,533,142
3.75%	03/28/09		4,250		5,647,818
					17,180,960
Canada — 3.3%
Government of Canada Bonds (CND)
5.25%	06/01/12		6,500		5,947,852
5.75%	06/01/33		375		405,045
5.00%	06/01/37		3,000		2,972,092
Province of Ontario, Notes (CND)
4.50%	03/08/15		3,600		3,162,231
Royal Bank of Canada, Senior Unsecured Notes (GBP)
4.62%	12/07/10		3,830		7,264,932
					19,752,152
Denmark — 2.6%
Kingdom of Denmark (DKK)
7.00%	11/10/24		11,700		2,813,605
Nykredit Denmark (DKK)
4.16%(c)	10/01/38		20,195		3,569,901
Realkredit Denmark (DKK)
4.51%(c)	10/01/38		50,487		8,920,267
					15,303,773
Finland — 5.0%
Finnish Government Bonds (EUR)
3.00%	07/04/08		12,050		15,893,303
4.25%	07/04/15		10,385		14,057,393
					29,950,696
France — 4.8%
France Government Bonds (EUR)
4.25%	04/25/19		2,525		3,402,252
5.75%	10/25/32		14,750		24,074,978
Reseau Ferre de France, Unsecured Notes (GBP)
5.50%	12/01/21		600		1,212,566
					28,689,796
Germany — 4.2%
Bundesrepublic Deutschland (EUR)
4.75%	07/04/34		5,885		8,473,381
4.25%	07/04/39		12,425		16,650,154
					25,123,535
Iceland — 0.5%
Housing Finance Fund, Index-Linked Notes (ISK)
3.75%	09/15/14		199,055		3,076,559
Ireland — 3.1%
Irish Treasury Notes (EUR)
3.25%	04/18/09		14,000		18,416,623
Italy — 4.5%
Buoni Poliennali del Tesoro (EUR)
5.00%	02/01/12		6,500		9,030,658
4.25%	02/01/15		13,350		17,958,540
					26,989,198
Japan — 9.9%
East Japan Railway Co. (GBP)
4.75%	12/08/31		1,500		2,804,690
Japan Finance Corp. (GBP)
5.75%	08/09/19		2,860		5,882,441
Japan Government Bonds (JPY)
1.08%(c)	01/20/21		1,351,000		11,168,908
2.20%	06/20/26		2,314,000		20,061,520
2.50%	09/20/35		921,500		8,109,993
Japan Government, Treasury Inflation Protected Notes (JPY)
0.50%	06/10/15		479,000		3,881,107
1.10%	09/10/16		850,149		7,121,063
					59,029,722
Netherlands — 4.4%
Netherland Government Bonds (EUR)
2.50%	01/15/08		10,500		13,860,999
4.25%	07/15/13		7,400		9,994,186
3.75%	01/15/23		1,950		2,464,207
					26,319,392
New Zealand — 1.4%
General Electric Capital Corp., Senior Unsubordinated Notes (NZD)
6.50%	09/28/15		5,245		3,512,423
International Bank Reconstruction and Development (NZD)
7.49%(d)	08/20/07		6,620		4,592,313
					8,104,736
Poland — 0.5%
Poland Government Bonds (PLN)
6.25%	10/24/15		7,625		2,826,416
Portugal — 0.7%
Portugal Government Bonds (EUR)
4.38%	06/16/14		2,950		4,000,720
Spain — 4.8%
Bonos y Obligation del Estado (EUR)
6.00%	01/31/08		1,650		2,246,904
4.00%	01/31/10		8,300		11,079,750
5.75%	07/30/32		5,895		9,601,513
Kingdom of Spain (EUR)
5.00%	07/30/12		4,155		5,795,320
					28,723,487

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	93

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERNATIONAL BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
FOREIGN BONDS (Continued)
Sweden — 7.2%
AB Spintab, Notes (EUR)
4.38%	04/20/09	$	1,780	$	2,379,618
Swedish Government Bonds (SEK)
5.25%	03/15/11		270,000		40,514,693
					42,894,311
Switzerland — 0.3%
European Investment Bank (CHF)
2.00%	08/29/16		2,440		1,890,498
United Kingdom — 6.6%
GE Capital Funding (GBP)
5.12%	03/03/15		2,825		5,361,545
Network Rail Infrastructure Finance, Senior Secured Notes (GBP)
4.88%	11/27/15		1,630		3,111,815
United Kingdom Treasury Bonds (GBP)
4.25%	03/07/11-03/07/36		2,765		5,328,192
4.75%	03/07/20		650		1,269,313
8.00%	06/07/21		2,000		5,190,191
United Kingdom Treasury Notes (GBP)
4.00%	03/07/09-09/07/16		7,325		13,604,555
5.00%	03/07/12		1,225		2,387,709
Wells Fargo & Co., Senior Unsecured Notes (GBP)
5.68%	01/25/12		1,400		2,753,305
					39,006,625
TOTAL FOREIGN BONDS (Cost $394,578,498)					414,986,091
U.S. GOVERNMENT & AGENCY OBLIGATIONS — 4.2%
U.S. Treasury Bonds
4.50%	02/15/36		1,000		942,812
U.S. Treasury Inflation Protected Bonds
2.00%	01/15/26		4,790		4,642,692
U.S. Treasury Inflation Protected Notes
2.50%(e)(f)	07/15/16		2,925		3,008,342
U.S. Treasury Notes
4.62%	02/12-11/16		16,315		16,286,788
TOTAL U.S. GOVERNMENT & AGENCY OBLIGATIONS (Cost $24,852,805)					24,880,634
MORTGAGE PASS-THROUGHS — 1.0%
Federal Home Loan Mortgage Corp. ARM
4.61%(c) (Cost $5,616,775)	02/01/35		5,604		5,583,751
COLLATERALIZED MORTGAGE OBLIGATIONS — 3.2%
Banc of America Commercial Mortgage, Inc., Series 04-5, Class A3
4.56%	11/10/41		2,470		2,414,202
Bear Stearns Mortgage Trust, Series 04-13, Class A1
5.69%(c)	11/25/34		2,536		2,541,243
Federal Home Loan Mortgage Corp., Series 232 (IO)
5.00%(g)	08/01/35		7,264		1,705,266
Federal Home Loan Mortgage Corp., Series 3204, Class C
5.50%	04/15/29		6,564		6,577,109
Lehman Brothers-UBS Commercial Mortgage Trust, Series 00-C4, Class A2
7.37%	08/15/26		1,769		1,870,290
Lehman Brothers-UBS Commercial Mortgage Trust, Series 04-C8, Class A4
4.51%	12/15/29		3,825		3,730,125
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $19,072,056)					18,838,235
COMMERCIAL MORTGAGE BACKED SECURITIES — 5.7%
Banc of America Commercial Mortgage, Inc., Series 01-1, Class A2
6.50%	04/15/36		3,485		3,623,832
Banc of America Commercial Mortgage, Inc., Series 05-1, Class A4
4.89%(c)	11/10/42		4,320		4,311,405
Bear Stearns Commercial Mortgage Securities, Inc., Series 04-PWR6, Class A6
4.82%	11/11/41		1,015		987,335
Commercial Mortgage Acceptance Corp., Series 98-C2, Class A2
6.03%	03/15/08		1,689		1,693,154
Credit Suisse First Boston Mortgage Securities Corp., Series 02-CP5, Class A2
4.94%	12/15/35		5,655		5,577,106
General Motors Acceptance Corp. Commercial Mortgage Securities, Inc., Series 00-C2, Class A2
7.46%	08/16/33		1,765		1,866,507
Goldman Sachs Mortgage Securities Corp. II, Series 05-GG4, Class A4
4.76%	07/10/39		2,150		2,069,214
Greenwich Capital Commercial Funding Corp., Series 04-GG1A, Class A4
4.76%	06/10/36		740		733,040
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 01-C1, Class A3
5.86%	10/12/35		4,530		4,650,572
J.P. Morgan Chase Commercial Mortgage Securities Corp., Series 04-CBX, Class A4
4.53%	01/12/37		2,700		2,637,571
J.P. Morgan Mortgage Trust, Series 06-A2, Class 5A3
3.75%(c)	11/25/33		5,305		5,273,020
Morgan Stanley Capital Investments, Series 99-FNV1, Class A2
6.53%	03/15/31		662		672,362
TOTAL COMMERCIAL MORTGAGE BACKED SECURITIES (Cost $34,847,331)					34,095,118

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

94

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERNATIONAL BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)			VALUE
ASSET BACKED SECURITIES — 4.9%
Chase Issuance Trust, Series 04-A9, Class A9
3.22%	06/15/10	$	3,450		$	3,413,343
Citibank Credit Card Issuance Trust, Series 03, Class A6
2.90%	05/17/10		1,375			1,341,334
Citibank Credit Card Issuance Trust, Series 04, Class A4
3.20%(c)(f)	08/24/09		3,175			3,148,795
Ford Credit Auto Owner Trust, Series 05-C, Class A3
4.30%	08/15/09		6,008			5,970,991
Ford Credit Auto Owner Trust, Series 06-A, Class A3
5.05%	03/15/10		5,125			5,115,792
Student Loan Marketing Assoc. Student Loan Trust, Series 03-10 (GBP)
5.15%	09/15/39		1,280			2,452,725
Student Loan Marketing Assoc. Student Loan Trust, Series 05-6, Class A2
5.36%(c)	07/25/16		1,377			1,376,741
USAA Auto Owner Trust, Series 06-2, Class A4
5.37%	02/15/12		6,375			6,433,478
TOTAL ASSET BACKED SECURITIES (Cost $29,003,463)						29,253,199
CORPORATE BONDS — 4.7%
Citigroup, Inc., Unsecured Bonds (JPY)
2.24%	12/09/22		200,000			1,661,591
General Electric Capital Corp., Senior Unsecured Notes (NZD)
6.62%	02/04/10		5,925			4,102,884
J.P. Morgan Chase & Co., Senior Unsecured Notes
5.40%(c)	12/22/08		5,800			5,802,036
Pemex Project Funding Master Trust, Unsecured Notes
5.75%	12/15/15		480			480,960
Rabobank Nederland (Netherlands), Senior Notes
5.36%(b)(c)(h)	04/06/09		12,200			12,204,453
VTB Capital SA (Luxembourg), Unsecured Notes
5.96%(c)(h)	08/01/08		3,800			3,803,800
TOTAL CORPORATE BONDS (Cost $28,291,364)						28,055,724
		PAR/SHARES (000)
SHORT TERM INVESTMENTS — 5.4%
Federal Home Loan Bank, Discount Notes
5.13%(i)	04/04/07		20,000			19,991,450
Federal Home Loan Mortgage Corp., Discount Notes
4.90%(i)	04/02/07		4,000			3,999,456
Galileo Money Market Fund, 5.02%			8,207			8,207,451
TOTAL SHORT TERM INVESTMENTS (Cost $32,198,357)						32,198,357
		NUMBER OF CONTRACTS
CALL SWAPTIONS PURCHASED — 0.1%
Barclays Capital, Strike Rate 5.520%, Expires 09/19/16			880	(j)		451,288
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12			1,060	(j)		374,498
TOTAL CALL SWAPTIONS PURCHASED (Cost $961,068)						825,786
PUT SWAPTIONS PURCHASED — 0.2%
Barclays Capital, Strike Rate 5.520%, Expires 09/21/15			880	(j)		526,383
Deutsche Bank Alex. Brown, Strike Rate 9.500%, Expires 06/07/12			2,500	(j)		823
Goldman Sachs, Strike Rate 5.350%, Expires 04/30/07			970	(j)		15,476
Lehman Brothers, Strike Rate 5.390%, Expires 03/19/12			1,060	(j)		474,880
TOTAL PUT SWAPTIONS PURCHASED (Cost $1,107,839)						1,017,562
TOTAL INVESTMENTS IN SECURITIES — 99.1% (Cost $570,529,556(a))						589,734,457
CALL SWAPTIONS WRITTEN — (0.2)%
Chase Securities, Strike Rate 5.485%, Expires 10/26/09			(1,400	)(j)		(513,264	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08			(1,060	)(j)		(182,320	)
Union Bank, Strike Rate 5.340%, Expires 02/06/09			(2,320	)(j)		(673,496	)
TOTAL CALL SWAPTIONS WRITTEN (Premiums received $1,380,278)						(1,369,080	)
PUT SWAPTIONS WRITTEN — (0.2)%
Chase Securities, Strike Rate 5.485%, Expires 10/26/09			(1,400	)(j)		(393,565	)
Lehman Brothers, Strike Rate 5.115%, Expires 03/19/08			(1,060	)(j)		(264,788	)
Union Bank, Strike Rate 5.340%, Expires 02/06/09			(2,320	)(j)		(630,808	)
TOTAL PUT SWAPTIONS WRITTEN (Premiums received $1,380,278)						(1,289,161	)
OTHER ASSETS IN EXCESS OF LIABILITIES — 1.3%						7,920,671
NET ASSETS — 100.0%					$	594,996,887

(a) Cost for federal income tax purposes is $570,578,393. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	29,062,571
Gross unrealized depreciation		(9,906,507	)
	$	19,156,064

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	95

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

INTERNATIONAL BOND PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

(b) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 4.5% of its net assets, with a current market value of $26,499,875, in securities restricted as to resale.

(c) Variable rate security. Rate shown is the rate as of March 31, 2007.

(d) The rate shown is the effective yield on the zero coupon bonds at the time of purchase.

(e) Security, or a portion thereof, with a market value of $1,002,681, has been pledged as collateral for swap and swaption contracts.

(f) Security, or a portion thereof, pledged as collateral with a value of $3,971,508 on 1,741 short U.S. Treasury Note futures contracts, 70 short U.S. Treasury Bond futures contracts, 58 long Euro-dollar futures contracts, 231 long Euro-Bobl futures contracts, 362 long Euro-Bund futures contracts, 298 long Euro-Schatz futures contracts, 49 short Gilt British futures contracts and 24 long Japan Government Bond futures contracts expiring June 2007 and 316 long Australia Government Bond futures contracts expiring September 2007. The value of such contracts on March 31, 2007 was $457,849,409, with an unrealized loss of $834,687 (including commissions of $8,236).

(g) Rates shown are the effective yields as of March 31, 2007.

(h) U.S. dollar denominated security issued by foreign domiciled entity.

(i) The rate shown is the effective yield at the time of purchase.

(j) Each swaption contract is equivalent to $10,000 notional amount.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

96

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

HIGH YIELD BOND PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

		NUMBER OF SHARES		VALUE
COMMON STOCKS — 1.1%
Adelphia Recovery Trust, Series ACC-1 INT(b)(c)			1,108,793	$	77,616
Adelphia Recovery Trust, Series ACC-4 INT(b)(c)			2,414,212		0
Adelphia Recovery Trust, Series Arahova INT(b)(c)(d)			242,876		3
Adelphia Recovery Trust, Series Frontiervision INT(b)(c)			131,748		1
American Tower Corp. - Class A(b)			475		18,501
Armstrong World Industries, Inc.(b)			88,803		4,515,633
Critical Care Systems International, Inc.(b)(c)			570,169		3,563,558
Cypress Semiconductor Corp.(b)(d)			99,144		1,839,121
Freedom Pay, Inc.(b)			314,534		3,145
Loral Space & Communications, Inc.(b)			98,052		4,988,886
MACH Gen LLC(b)(c)			202		0
Massey Energy Co.(d)			4,583		109,946
Mattress Discounters Corp.(b)(c)			22,488		0
Mirant Corp.(b)			37,119		1,501,829
Phase Metrics, Inc.(b)			842,908		16,858
Reunion Industries, Inc.(b)			8,341		1,835
Time Warner Cable, Inc.(b)			28,212		1,057,098
Western Forest Products, Inc.(b)(d)			83,810		148,818
Western Forest Products, Inc.(b)(d)			301,922		536,111
TOTAL COMMON STOCKS (Cost $29,886,202)					18,378,959
PREFERRED STOCKS — 1.1%
Eagle-Picher, Inc.
9.75%(b)(c)(d)(e)			131,400		2,496,600
Exco Resources, Inc. (acquired 3/29/07, cost $2,180,000)
0.00%(f)			2,180		2,180,000
Exco Resources, Inc. (acquired 3/29/07, cost $8,980,000)
0.00%(f)			8,980		8,980,000
Ion Media Networks, Inc.
14.25%(b)(e)			21		167,102
Loral Skynet Corp.
12.00%(e)			5,554		1,143,430
MACH Gen LLC
0.00%(b)(c)			814		156,288
New York Community Capital Trust V
6.00%			45,000		2,216,250
PTV, Inc.
10.00%(b)			34		127
Superior Essex Holdings Corp.
9.50%			176,985		145,128
TOTAL PREFERRED STOCKS (Cost $17,198,362)					17,484,925
WARRANTS — 0.1%
American Tower Corp. (issued 01/29/03, expiring 08/01/08, strike price $0.01)(b)			950		521,018
ATEP Holdings, Inc. (issued 12/21/05, expiring 10/24/15, strike price $0.01)(b)(c)			136		0
ATH Holdings, Inc. (issued 12/21/05, expiring 10/24/15, strike price $ 0.01)(b)(c)			136		0
ATPP Holdings, Inc. (issued 12/21/05, expiring 10/24/15, strike price $0.01)(b)(c)			136		14,753
ATPR Holdings, Inc. (issued 12/21/05, expiring 10/24/15, strike price $0.01)(b)(c)			136		0
HealthSouth Corp. (issued 07/28/06, expiring 01/16/11, strike price $0.01)(b)			52,113		41,691
TOTAL WARRANTS (Cost $87,926)					577,462
	MATURITY	PAR (000)
CORPORATE BONDS — 82.4%
Advertising — 0.3%
R.H. Donnelley Corp., Senior Discount Notes
6.88%	01/15/13	$	350		340,375
R.H. Donnelley Corp., Senior Unsecured Notes
6.88%	01/15/13		700		680,750
8.88%	01/15/16		4,380		4,653,750
					5,674,875
Aerospace — 0.6%
AAR Corp., Senior Unsecured Notes
6.88%	12/15/07		1,245		1,245,000
8.39%(c)(g)	05/15/11		3,850		3,888,500
Sequa Corp., Senior Unsecured Notes
9.00%	08/01/09		1,975		2,083,625
Transdigm, Inc., Notes
7.75%(g)	07/15/14		2,115		2,183,737
					9,400,862
Air Transportation — 0.2%
American Airlines, Inc., Pass-Through Certificates, Series 99-1
7.32%	10/15/09		1,375		1,397,344
Continental Airlines, Inc., Pass Through Certificates, Series 98-1C
6.54%	03/15/08		45		44,978
Continental Airlines, Inc., Pass-Through Certificates, Series 99-1B
6.80%(h)	08/02/18		1,384		1,383,063
					2,825,385
Beverages & Bottling — 0.1%
Beverages & More, Inc., Notes
9.25%(g)	03/01/12		1,580		1,607,650
Broadcasting — 4.8%
Adelphia Communications, Escrow Bonds
0.00%(i)(j)(k)			3,050		384,063
Barrington Broadcasting Group LLC, Senior Subordinated Notes
10.50%(g)	08/15/14		1,895		1,989,750
Cablevision Systems Corp., Senior Unsecured Notes
9.87%(l)	04/01/09		7,835		8,305,100
8.00%	04/15/12		325		329,875
Century Communications, Escrow Bonds
0.00%(i)(j)(k)			625		21,875

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	97

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

HIGH YIELD BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Broadcasting — (Continued)
Charter Communications Holdings I LLC, Notes
11.00%	10/01/15	$	14,170	$	14,677,125
Charter Communications Holdings II LLC, Senior Unsecured Notes
10.25%	09/15/10		7,445		7,845,169
Charter Communications Holdings II LLC, Unsecured Notes
10.25%	09/15/10		6,160		6,498,800
Echostar DBS Corp., Senior Unsecured Notes
7.00%	10/01/13		4,800		4,944,000
7.12%	02/01/16		3,475		3,587,937
Lamar Media Corp., Senior Subordinated Notes
6.62%	08/15/15		1,650		1,608,750
Liberty Media Corp., Senior Debentures
0.75%	03/30/23		4,000		4,685,000
Lin Television Corp., Senior Subordinated Notes
6.50%	05/15/13		1,650		1,614,937
Nexstar Finance, Inc., Senior Subordinated Notes
7.00%	01/15/14		400		384,000
Rainbow National Services LLC, Senior Notes
8.75%(g)	09/01/12		2,400		2,553,000
Rainbow National Services LLC, Senior Subordinated Notes
10.38%(g)	09/01/14		8,845		9,895,344
Sinclair Broadcast Group, Inc., Senior Subordinated Notes
4.88%(l)	07/15/18		1,285		1,264,119
Univision Communications, Inc., Senior Unsecured Notes
9.75%(d)(g)	03/15/15		3,795		3,780,769
Young Broadcasting, Inc., Senior Subordinated Notes
10.00%	03/01/11		6,195		6,102,075
					80,471,688
Business Services — 0.9%
DI Finance/Dyncorp International, Senior Subordinated Notes
9.50%	02/15/13		5,982		6,370,830
UGS Corp., Senior Subordinated Notes
10.00%(d)	06/01/12		7,635		8,350,781
					14,721,611
Chemicals — 3.1%
Airgas, Inc., Senior Unsecured Notes
6.25%	07/15/14		614		607,860
American Pacific Corp., Senior Notes
9.00%(g)	02/01/15		3,250		3,270,313
Chemtura Corp., Unsecured Notes
6.88%	06/01/16		1,690		1,635,075
Equistar Chemicals LP, Senior Unsecured Notes
10.12%	09/01/08		3,225		3,394,313
8.75%	02/15/09		1,965		2,048,512
10.62%	05/01/11		3,485		3,676,675
Hercules, Inc., Senior Debentures
6.60%	08/01/27		640		640,000
Huntsman LLC, Senior Secured Notes
11.62%	10/15/10		1,971		2,136,071
Huntsman LLC, Senior Unsecured Notes
11.50%	07/15/12		1,114		1,244,895
Innophos, Inc., Senior Unsecured Notes
8.88%	08/15/14		3,920		4,057,200
Lyondell Chemical Co., Senior Unsecured Notes
8.00%	09/15/14		3,020		3,163,450
8.25%(l)	09/15/16		2,410		2,578,700
MacDermid, Inc., Senior Subordinated Notes
9.12%	07/15/11		2,375		2,489,309
9.50%(g)	04/15/17		2,470		2,531,750
Millenium America, Inc., Senior Unsecured Notes
9.25%	06/15/08		2,000		2,075,000
Momentive Performance Materials, Inc., Senior Subordinated Notes
11.50%(g)	12/01/16		4,595		4,709,875
Momentive Performance Materials, Inc., Senior Unsecured Notes
9.75%(g)	12/01/14		725		746,750
10.12%(g)	12/01/14		9,970		10,368,800
					51,374,548
Computer & Office Equipment — 0.3%
CBD Media LLC, Senior Unsecured Notes
9.25%	07/15/12		1,560		1,634,100
Ion Media Networks, Inc., Notes
8.76%(g)(l)	01/15/12		3,150		3,220,875
					4,854,975
Computer Software & Services — 0.6%
DRS Technologies, Inc., Senior Subordinated Notes
6.88%	11/01/13		500		505,000
DRS Technologies, Inc., Senior Unsecured Notes
6.62%	02/01/16		250		252,500
Juniper Networks, Inc., Senior Unsecured Notes
3.66%(d)(m)	06/15/08		1,260		1,389,150
SunGard Data Systems, Inc., Senior Subordinated Notes
10.25%	08/15/15		1,730		1,887,863
SunGard Data Systems, Inc., Senior Unsecured Notes
9.12%	08/15/13		2,760		2,960,100
UGS Capital Corp. II., Senior Unsecured Notes
10.35%(e)(g)(l)	06/01/11		1,975		2,009,425
Xerox Corp., Senior Unsecured Notes
7.62%	06/15/13		250		262,188

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

98

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

HIGH YIELD BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Computer Software & Services (Continued)
6.75%	02/01/17	$	470	$	491,816
					9,758,042
Construction — 1.6%
Building Materials Corp. of America, Senior Unsecured Notes
7.75%	08/01/14		1,600		1,572,000
Compression Polymers Holdings Corp., Senior Unsecured Notes
10.50%	07/01/13		2,450		2,572,500
Dayton Superior Corp., Senior Secured Notes
10.75%	09/15/08		1,640		1,681,000
Dycom Industries, Inc., Senior Subordinated Notes
8.12%	10/15/15		1,150		1,207,500
Esco Corp., Senior Unsecured Notes
8.68%(g)	12/15/13		2,900		3,074,000
9.23%(g)(l)	12/15/13		1,110		1,154,400
Goodman Global Holdings, Inc., Senior Subordinated Notes
7.88%(d)	12/15/12		2,695		2,708,475
Goodman Global Holdings, Inc., Senior Unsecured Notes
8.36%(l)	06/15/12		830		836,225
Nortek, Inc., Senior Subordinated Notes
8.50%	09/01/14		6,810		6,622,725
Ply Gem Industries, Inc., Senior Subordinated Notes
9.00%(d)	02/15/12		1,325		1,149,437
Stanley-Martin Communities LLC, Senior Subordinated Notes
9.75%	08/15/15		2,300		2,061,375
Technical Olympic USA, Inc., Senior Unsecured Notes
8.75%(d)(g)	04/01/11		750		695,625
Texas Industries, Inc., Senior Unsecured Notes
7.25%	07/15/13		1,350		1,390,500
					26,725,762
Containers — 1.5%
Ball Corp., Senior Unsecured Notes
6.62%	03/15/18		655		650,906
Berry Plastics Holding Corp., Notes
8.88%	09/15/14		7,255		7,418,238
9.23%(d)(l)	09/15/14		3,010		3,085,250
Concentra Operating Corp., Senior Subordinated Notes
9.12%	06/01/12		2,145		2,289,787
Graphic Packaging International Corp., Senior Subordinated Notes
9.50%(d)	08/15/13		1,344		1,429,680
Packaging Dynamics Finance Corp., Senior Subordinated Notes
10.00%(g)	05/01/16		470		484,100
Pregis Corp., Senior Subordinated Notes
12.38%(d)(g)	10/15/13		4,715		5,186,500
Smurfit-Stone Container Corp., Senior Unsecured Notes
8.00%(g)	03/15/17		4,230		4,134,825
					24,679,286
Electronics — 0.4%
L-3 Communications Corp., Senior Subordinated Notes
5.88%	01/15/15		7,000		6,798,750
Energy & Utilities — 4.8%
AES Corp., Senior Unsecured Notes
7.75%	03/01/14		700		735,000
AES Eastern Energy LP, Pass Through Certificates, Series 99-B
9.67%	01/02/29		500		605,000
AES Eastern Energy LP, Pass-Through Certificates, Series 99-A
9.00%	01/02/17		3,322		3,695,402
AES Ironwood LLC, Senior Secured Notes
8.86%	11/30/25		3,743		4,211,301
AES Red Oak LLC, Senior Secured Notes
8.54%	11/30/19		2,743		2,983,369
9.20%	11/30/29		2,135		2,433,900
CCM Merger, Inc., Senior Unsecured Notes
8.00%(g)	08/01/13		2,710		2,723,550
CenterPoint Energy, Inc., Senior Unsecured Notes
7.25%	09/01/10		505		533,069
3.75%	05/15/23		659		1,049,458
Chaparral Energy, Inc., Senior Unsecured Notes
8.50%	12/01/15		2,400		2,370,000
Citizens Communications Co., Senior Unsecured Notes
6.25%	01/15/13		925		918,062
Copano Energy LLC, Senior Unsecured Notes
8.12%	03/01/16		2,460		2,546,100
Edison Mission Energy, Senior Unsecured Notes
7.50%	06/15/13		715		738,237
7.75%	06/15/16		550		573,375
Elwood Energy LLC, Senior Secured Notes
8.16%	07/05/26		6,513		6,788,735
FPL Energy National Wind, Senior Secured Notes
6.12%(g)	03/25/19		565		550,660
Homer City Funding LLC, Senior Secured Notes
8.73%	10/01/26		1,173		1,334,288
Midwest Generation LLC, Pass-Through Certificates
8.56%	01/02/16		3,540		3,871,385
Mirant America Corp., Escrow Bonds
0.00%(d)(g)(i)(j)(k)(n)			5,150		180,250
Mirant Americas Generation LLC, Escrow Bonds
0.00%(d)(i)(j)(k)(n)			1,215		42,525
Mirant Americas Generation LLC, Senior Unsecured Notes
8.30%	05/01/11		5,045		5,171,125
Mirant Mid-Atlantic LLC, Pass Through Certificates
9.12%	06/30/17		1,221		1,395,027

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	99

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

HIGH YIELD BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Energy & Utilities (Continued)
Mirant N.A. LLC, Senior Unsecured Notes
7.38%	12/31/13	$	2,000	$	2,050,000
Mission Energy Holding Co., Senior Secured Notes
13.50%	07/15/08		3,885		4,234,650
Northwest Pipeline Corp., Senior Unsecured Notes
7.00%	06/15/16		550		589,188
NRG Energy, Inc., Senior Unsecured Notes
7.25%	02/01/14		2,175		2,229,375
7.38%	02/01/16		6,155		6,324,262
Orion Power Holdings, Inc., Senior Unsecured Notes
12.00%	05/01/10		6,100		7,045,500
Reliant Energy, Inc., Senior Secured Notes
9.25%	07/15/10		1,365		1,438,369
9.50%	07/15/13		3,205		3,489,444
6.75%	12/15/14		2,955		3,121,219
Sierra Pacific Resources, Senior Unsecured Notes
8.62%	03/15/14		675		730,168
Sithe Independence Funding Corp., Notes
9.00%	12/30/13		1,535		1,691,017
Tenaska Alabama Partners LP, Senior Secured Notes
7.00%(g)	06/30/21		889		894,758
					79,287,768
Entertainment & Leisure — 3.7%
American Casino & Entertainment Properties LLC, Senior Secured Notes
7.85%	02/01/12		3,205		3,333,200
Boyd Gaming Corp., Senior Subordinated Notes
7.12%	02/01/16		2,025		1,984,500
Cinemark, Inc., Senior Unsecured Notes
10.25%(o)	03/15/14		2,090		1,912,350
Gaylord Entertainment Co., Senior Unsecured Notes
8.00%	11/15/13		400		409,500
Great Canadian Gaming Corp., Senior Subordinated Notes
7.25%(g)	02/15/15		2,870		2,887,937
Greektown Holdings LLC, Senior Notes
10.75%(g)	12/01/13		2,870		3,070,900
Harrah’s Operating Co., Inc., Senior Notes
5.75%	10/01/17		10,280		8,506,700
Host Hotel & Resorts LP, Senior Unsecured Notes
6.75%	06/01/16		2,100		2,115,750
Lazy Days RV Center, Inc., Senior Notes
11.75%	05/15/12		4,388		4,497,700
Little Traverse Bay Bands of Odawa Indians, Senior Unsecured Notes
10.25%(g)	02/15/14		1,075		1,107,250
MGM Mirage, Inc., Senior Unsecured Notes
6.75%	09/12-04/13		1,375		1,365,719
Park Place Entertainment, Senior Subordinated Notes
8.12%	05/15/11		875		926,406
Riddell Bell Holdings, Inc., Senior Subordinated Notes
8.38%	10/01/12		2,235		2,207,062
Seneca Gaming Corp., Senior Unsecured Notes
7.25%	05/01/12		3,700		3,723,125
Snoqualmie Entertainment Authority, Senior Unsecured Notes
9.15%(g)(l)	02/01/14		1,220		1,241,350
Station Casinos, Inc., Senior Notes
6.00%	04/01/12		1,450		1,404,688
Station Casinos, Inc., Senior Subordinated Notes
6.62%	03/15/18		2,400		2,136,000
Station Casinos, Inc., Senior Unsecured Notes
7.75%	08/15/16		750		769,688
Tropicana Entertainment LLC, Senior Subordinated Notes
9.62%(g)	12/15/14		5,060		5,078,975
Universal City Florida Holding Co., Senior Unsecured Notes
10.11%(l)	05/01/10		625		644,531
Virgin River Casino Corp., Senior Secured Notes
9.00%	01/15/12		4,020		4,200,900
Warner Music Group Corp., Senior Subordinated Notes
7.38%	04/15/14		520		495,300
Waterford Gaming LLC, Senior Unsecured Notes
8.62%(g)	09/15/12		2,781		2,947,860
Wynn Las Vegas LLC, First Mortgage Notes
6.62%	12/01/14		4,420		4,375,800
					61,343,191
Finance — 6.4%
Affinion Group, Inc., Senior Subordinated Notes
11.50%	10/15/15		1,195		1,314,500
Affinion Group, Inc., Senior Unsecured Notes
10.12%	10/15/13		3,215		3,504,350
Arch Western Finance, Senior Notes
6.75%(l)	07/01/13		825		811,594
Ashtead Capital, Inc., Notes
9.00%(g)	08/15/16		1,925		2,050,125
BMS Holdings, Inc., Senior Unsecured Notes
12.40%(g)(l)	02/15/12		4,095		4,054,050
Chukchansi Economic Development Authority, Unsecured Notes
8.88%(g)(l)	11/15/12		990		1,014,750
Chukchansi Economic Devolopment Authority, Senior Unsecured Notes
8.00%(g)	11/15/13		445		460,019

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

100

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

HIGH YIELD BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Finance (Continued)
Corrections Corp. of America, Senior Unsecured Notes
6.75%	01/31/14	$	350	$	356,125
Digicel Group Ltd., Unsecured Notes
8.88%(g)	01/15/15		3,040		2,948,800
9.12%(d)(g)	01/15/15		6,755		6,467,912
Eagle-Picher, Inc., Escrow Bonds
0.00%(c)(d)(j)(k)			3,285		0
FMG Finance Property Ltd., Notes
9.36%(d)(g)(l)	09/01/11		2,780		2,905,100
Ford Motor Credit Co., Senior Notes
5.80%	01/12/09		5,535		5,429,542
Ford Motor Credit Co., Unsecured Notes
5.70%	01/15/10		1,550		1,483,770
8.11%(l)	01/13/12		6,500		6,353,899
FTI Consulting, Inc., Senior Unsecured Notes
7.75%	10/01/16		2,455		2,577,750
General Motors Acceptance Corp., Senior Unsecured Notes
6.88%	08/28/12		6,185		6,160,081
Indalex Holding Corp., Notes
11.50%(g)	02/01/14		1,800		1,863,000
iPayment, Inc., Senior Subordinated Notes
9.75%	05/15/14		2,615		2,680,375
12.75%(g)	07/15/14		13,144		13,439,900
Jason, Inc., Second Lien Notes Certificates
15.00%(c)(l)(n)	12/15/07		1,688		1,687,771
NCO Group, Inc., Senior Unsecured Notes
10.23%(g)(l)	11/15/13		135		135,338
Nielsen Finance LLC, Senior Unsecured Notes
10.00%(d)(g)	08/01/14		7,090		7,728,100
11.62%(d)(g)(o)	08/01/16		11,945		8,361,500
Norcraft Finance Corp., Senior Subordinated Notes
9.00%	11/01/11		350		360,500
NSG Holdings LLC, Notes
7.75%(g)	12/15/25		4,450		4,650,250
PNA Intermediate Holding Corp., Senior Unsecured Notes
12.36%(g)(l)	02/15/13		1,750		1,793,750
Poster Financial Group, Inc., Senior Secured Notes
8.75%	12/01/11		1,780		1,851,200
Sally Holdings LLC, Senior Subordinated Notes
10.50%(d)(g)	11/15/16		8,995		9,242,362
TDS Investor Corp., Senior Unsecured Notes
9.88%(g)	09/01/14		680		712,300
9.98%(g)(l)	09/01/14		855		872,100
Terra Capital, Inc., Senior Unsecured Notes
7.00%(g)	02/01/17		3,600		3,582,000
					106,852,813
Food & Agriculture — 0.9%
Ameriqual Group LLC, Senior Secured Notes
9.50%(g)	04/01/12		625		651,563
Archer-Daniels-Midland Co., Senior Unsecured Notes
0.88%	02/15/14		1,150		1,184,500
Archibald Candy Corp., Secured Notes
10.00%(c)(i)	11/01/07		180		11,436
B&G Foods Holding Corp., Senior Notes
8.00%	10/01/11		2,170		2,197,125
Del Monte Corp., Senior Subordinated Notes
8.62%	12/15/12		400		416,000
Merisant Co., Senior Subordinated Notes
9.50%(d)(l)	07/15/13		6,527		5,286,870
Southern States Cooperative, Inc., Senior Notes
10.50%(g)	11/01/10		2,225		2,358,500
Swift & Co., Unsecured Notes
12.50%(d)	01/01/10		2,710		2,845,500
					14,951,494
Insurance — 0.1%
Crum & Forster Holdings Corp., Senior Notes
10.38%	06/15/13		1,815		1,960,200
Leasing — 0.9%
Ahern Rentals, Inc., Notes
9.25%	08/15/13		275		287,031
Avis Budget Car Rental LLC, Senior Unsecured Notes
7.62%(g)	05/15/14		450		459,000
7.86%(g)(l)	05/15/14		1,490		1,519,800
7.75%(g)	05/15/16		1,965		2,004,300
Rent-A-Center, Senior Subordinated Notes
7.50%(d)	05/01/10		1,570		1,581,775
United Rentals N.A., Inc., Senior Subordinated Notes
7.75%(d)	11/15/13		3,040		3,123,600
7.00%(d)	02/15/14		3,245		3,236,888
1.88%	10/15/23		1,760		2,371,600
					14,583,994
Machinery & Heavy Equipment — 0.0%
Terex Corp., Senior Subordinated Notes
7.38%	01/15/14		1,000		1,030,000
Manufacturing — 3.2%
American Railcar Industries, Inc., Senior Unsecured Notes
7.50%(g)	03/01/14		1,960		2,013,900
Armstrong World Industries, Inc., Escrow Bonds
0.00%(c)(d)(i)(j)(k)			7,499		1

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	101

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

HIGH YIELD BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Manufacturing (Continued)
Belden CDT, Inc., Senior Subordinated Notes
7.00%(g)	03/15/17	$	990	$	1,009,822
Buhrmann U.S., Inc., Senior Subordinated Notes
8.25%	07/01/14		1,575		1,590,750
Fedders N.A., Inc., Senior Unsecured Notes
9.88%	03/01/14		375		199,687
Gentek, Inc., Escrow Bonds
0.00%(c)(j)(k)			1,000		0
Graftech International Ltd., Senior Debentures
1.62%	01/15/24		2,180		1,902,050
Hexcel Corp., Senior Subordinated Notes
6.75%	02/01/15		1,850		1,827,493
Hexion Specialty Chemicals, Inc., Unsecured Notes
9.75%(g)	11/15/14		4,040		4,236,950
Jarden Corp., Senior Subordinated Notes
7.50%	05/01/17		8,620		8,706,200
Levi Strauss & Co., Senior Unsecured Notes
12.25%	12/15/12		3,760		4,126,600
8.88%	04/01/16		1,600		1,712,000
Mac-Gray Corp., Senior Unsecured Notes
7.62%	08/15/15		375		382,500
Norcross Safety Products LLC, Senior Subordinated Notes
9.88%	08/15/11		3,650		3,869,000
Nutro Products, Inc., Senior Unsecured Notes
9.40%(g)(l)	10/15/13		4,240		4,367,200
Park-Ohio Industries, Inc., Senior Subordinated Notes
8.38%	11/15/14		1,320		1,293,600
Rexnord LLC, Senior Notes
8.88%(g)	09/01/16		2,260		2,282,600
Rexnord LLC, Senior Subordinated Notes
11.75%(d)	08/01/16		6,140		6,592,825
Rexnord LLC, Senior Unsecured Notes
9.50%	08/01/14		7,060		7,342,400
					53,455,578
Medical & Medical Services — 1.3%
Bio-Rad Laboratories, Inc., Senior Subordinated Notes
7.50%	08/15/13		2,820		2,904,600
HealthSouth Corp., Senior Unsecured Notes
11.35%(d)(g)(l)	06/15/14		2,665		2,878,200
10.75%(g)	06/15/16		1,905		2,071,687
Select Medical Corp., Senior Subordinated Notes
7.62%	02/01/15		600		540,000
Tenet Healthcare Corp., Senior Unsecured Notes
9.88%	07/01/14		6,775		6,842,750
9.25%	02/01/15		1,125		1,113,750
6.88%	11/15/31		3,885		3,069,150
U.S. Oncology, Inc., Senior Subordinated Notes
10.75%	08/15/14		1,750		1,951,250
					21,371,387
Medical Instruments & Supplies — 0.8%
Accellant, Inc., Senior Subordinated Notes
10.50%	12/01/13		3,400		3,519,000
Coopers Co., Inc., Senior Unsecured Notes
7.12%(g)	02/15/15		5,250		5,328,750
Universal Hospital Services, Inc., Senior Notes
10.12%	11/01/11		4,250		4,515,625
					13,363,375
Metal & Mining — 2.6%
AK Steel Corp., Senior Unsecured Notes
7.75%(d)	06/15/12		3,900		3,963,375
Alpha Natural Resources, Senior Unsecured Notes
10.00%	06/01/12		3,395		3,649,625
California Steel Industries, Inc., Senior Unsecured Notes
6.12%	03/15/14		1,990		1,890,500
Century Aluminum Co., Senior Unsecured Notes
7.50%	08/15/14		2,605		2,676,638
Foundation Pennsylvania Coal Co., Senior Unsecured Notes
7.25%	08/01/14		3,225		3,265,312
Freeport-McMoRan Cooper & Gold, Inc., Senior Unsecured Notes
8.55%(l)	04/01/15		7,650		8,042,062
8.38%	04/01/17		16,550		17,894,688
Rathgibson, Inc., Senior Unsecured Notes
11.25%	02/15/14		1,225		1,292,375
TRIMAS Corp., Senior Subordinated Notes
9.88%	06/15/12		1,420		1,418,225
					44,092,800
Motor Vehicles — 3.7%
Accuride Corp., Senior Subordinated Notes
8.50%	02/01/15		2,265		2,281,988
Arvinmeritor, Inc., Senior Notes
6.80%	02/15/09		176		176,880
Arvinmeritor, Inc., Senior Unsecured Notes
4.00%(g)	02/15/27		1,570		1,509,162
Arvinmeritor, Inc., Unsecured Notes
8.12%	09/15/15		5,120		5,081,600
Asbury Automotive Group, Inc., Senior Subordinated Notes
8.00%	03/15/14		1,700		1,738,250
7.62%(g)	03/15/17		1,790		1,794,475

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

102

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

HIGH YIELD BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Motor Vehicles (Continued)
AutoNation, Inc., Senior Unsecured Notes
7.37%(l)	04/15/13	$	1,935	$	1,954,350
7.00%	04/15/14		820		828,200
Cooper Standard Automotive, Senior Unsecured Notes
7.00%(d)	12/15/12		3,025		2,820,812
Ford Motor Co., Debentures
8.90%	01/15/32		4,000		3,500,000
Ford Motor Co., Unsecured Notes
7.45%(d)	07/16/31		1,340		1,036,825
General Motors Corp., Senior Unsecured Notes
8.38%(d)	07/15/33		2,135		1,916,162
Keystone Automotive Operations, Inc., Senior Subordinated Notes
9.75%	11/01/13		2,280		2,217,300
Lear Corp., Senior Unsecured Notes
8.75%	12/01/16		5,800		5,539,000
Metaldyne Corp., Senior Unsecured Notes
10.00%(d)	11/01/13		3,475		3,553,188
Stanadyne Corp., Senior Subordinated Notes
10.00%	08/15/14		3,115		3,208,450
Stanadyne Holdings, Inc., Senior Unsecured Notes
15.90%(o)	02/15/15		5,455		4,200,350
Sunstate Equipment Co. LLC, Senior Secured Notes
10.50%(g)	04/01/13		7,760		8,225,600
Tenneco, Inc., Senior Subordinated Notes
8.62%	11/15/14		1,950		2,032,875
Titan Wheel International, Inc., Senior Unsecured Notes
8.00%(g)	01/15/12		2,165		2,227,244
United Auto Group, Inc., Senior Subordinated Notes
7.75%(g)	12/15/16		4,950		4,999,500
					60,842,211
Oil & Gas — 5.1%
Chesapeake Energy Corp., Senior Unsecured Notes
6.38%	06/15/15		4,670		4,646,650
6.62%	01/15/16		2,040		2,055,300
6.88%	11/15/20		300		298,500
Colorado Interstate Gas Co., Senior Unsecured Notes
6.80%	11/15/15		1,300		1,382,528
Denbury Resources, Inc., Senior Subordinated Notes
7.50%	04/13-12/15		4,335		4,378,350
East Cameron Gas
11.25%(c)	07/09/19		3,260		3,129,600
El Paso Corp., Trust Certificates
7.75%(g)	07/15/11		2,080		2,212,600
El Paso Natural Gas Co., Senior Unsecured Notes
8.38%(l)	06/15/32		1,090		1,342,930
El Paso Production Holding Co., Senior Notes
7.75%	06/01/13		2,320		2,424,400
Encore Acquisition Co., Senior Subordinated Notes
6.00%	07/15/15		3,400		3,026,000
7.25%	12/01/17		1,350		1,282,500
Exco Resources, Inc., Senior Secured Notes
7.25%	01/15/11		5,780		5,794,450
Frontier Oil Corp., Senior Unsecured Notes
6.62%	10/01/11		785		783,038
Frontier Oil Corp., Escrow Bonds
0.00%(c)(i)(j)(k)			500		0
Grant Prideco, Inc., Senior Unsecured Notes
6.12%	08/15/15		2,000		1,985,000
KCS Energy, Inc., Senior Unsecured Notes
7.12%	04/01/12		6,235		6,172,650
Newfield Exploration Co., Senior Subordinated Notes
6.62%	09/14-04/16		1,500		1,500,000
Pride International, Inc., Senior Unsecured Notes
7.38%	07/15/14		1,190		1,219,750
Range Resources Corp., Senior Subordinated Notes
7.38%	07/15/13		2,325		2,374,406
Sabine Pass LNG LP, Notes
7.50%(g)	11/30/16		4,705		4,740,288
SemGroup LP, Senior Unsecured Notes
8.75%(g)	11/15/15		4,900		4,973,500
Southern Natural Gas Co., Senior Unsecured Notes
8.00%	03/01/32		750		890,870
Stone Energy Corp., Unsecured Notes
8.11%(g)(l)	07/15/10		6,580		6,580,000
Tennessee Gas Pipeline Co., Senior Debentures
7.00%	03/27-10/28		4,460		4,768,784
7.62%	04/01/37		2,100		2,412,845
Transcontinental Gas Pipeline Corp., Senior Notes
8.88%	07/15/12		3,645		4,146,188
Whiting Petroleum Corp., Senior Subordinated Notes
7.25%	05/12-05/13		6,765		6,646,612
The Williams Cos., Inc., Senior Unsecured Notes
7.37%(g)(l)	10/01/10		2,110		2,181,212
7.62%	07/15/19		500		543,750
7.75%	06/15/31		325		347,750
					84,240,451
Paper & Forest Products — 2.2%
Boise Cascade LLC, Senior Subordinated Notes
7.12%	10/15/14		4,485		4,440,150
Bowater, Inc., Senior Unsecured Notes
8.35%(l)	03/15/10		3,455		3,463,638

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	103

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

HIGH YIELD BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Paper & Forest Products (Continued)
Newpage Corp., Senior Secured Notes
10.00%	05/01/12	$	12,000	$	13,125,000
11.61%(l)	05/01/12		2,475		2,707,031
Newpage Corp., Senior Subordinated Notes
12.00%(d)	05/01/13		4,150		4,502,750
Verso Paper Holdings LLC
11.57%	02/01/13		5,500		5,520,625
Verso Paper Holdings LLC, Secured Notes
9.12%(g)	08/01/14		1,810		1,882,400
Verso Paper Holdings LLC, Senior Subordinated Notes
11.38%(g)	08/01/16		335		350,912
					35,992,506
Publishing & Printing — 1.5%
Dex Media West/Finance, Senior Subordinated Notes
9.88%	08/15/13		4,313		4,706,561
Dex Media, Inc., Senior Unsecured Notes
8.00%	11/15/13		1,000		1,047,500
Network Communications, Inc., Senior Unsecured Notes
10.75%	12/01/13		3,865		3,947,132
Primedia, Inc., Senior Unsecured Notes
8.88%	05/15/11		200		205,500
8.00%	05/15/13		14,015		14,505,525
					24,412,218
Real Estate — 1.2%
American Real Estate Partners LP, Senior Unsecured Notes
8.12%	06/01/12		3,075		3,128,812
7.12%(g)	02/15/13		9,050		8,936,875
Ashton Woods USA LLC, Senior Subordinated Notes
9.50%	10/01/15		2,685		2,557,463
Mobile Services Group, Inc., Senior Unsecured Notes
9.75%(g)	08/01/14		2,750		2,908,125
The Rouse Co., Unsecured Notes (REIT)
5.38%	11/26/13		540		508,146
Ventas Realty LP, Senior Unsecured Notes (REIT)
6.75%	06/01/10		1,910		1,962,525
9.00%	05/01/12		850		956,250
					20,958,196
Restaurants — 0.5%
Buffets, Inc., Senior Unsecured Notes
12.50%(g)	11/01/14		4,390		4,565,600
Landry’s Restaurants, Inc., Senior Unsecured Notes
7.50%	12/15/14		3,170		3,122,450
					7,688,050
Retail Merchandising — 4.1%
American Greetings Corp., Senior Unsecured Notes
7.38%	06/01/16		850		876,563
Ames True Temper, Inc., Senior Unsecured Notes
9.36%(l)	01/15/12		5,865		5,996,962
Burlington Coat Factory Warehouse Corp., Senior Unsecured Notes
11.12%(d)	04/15/14		1,930		1,968,600
Finlay Fine Jewelry Corp., Senior Unsecured Notes
8.38%	06/01/12		1,030		947,600
General Nutrition Centers, Inc., Senior Subordinated Notes
10.75%(c)(g)	03/15/15		7,290		7,262,663
General Nutrition Centers, Inc., Senior Unsecured Notes
9.80%(e)(g)	03/15/14		9,085		8,903,300
Michaels Stores, Inc., Senior Subordinated Notes
11.38%(d)(g)	11/01/16		10,600		11,421,500
Michaels Stores, Inc., Senior Unsecured Notes
10.00%(d)(g)	11/01/14		3,820		4,087,400
Neiman Marcus Group, Inc., Senior Subordinated Notes
10.38%(d)	10/15/15		1,125		1,254,375
Neiman Marcus Group, Inc., Senior Unsecured Notes
9.00%(d)(e)	10/15/15		5,791		6,341,145
Rite Aid Corp., Notes
7.50%	03/01/17		8,980		8,867,750
Spectrum Brands, Inc., Senior Subordinated Notes
7.38%(d)	02/01/15		6,975		5,580,000
Yankee Candle Co., Inc., Senior Subordinated Notes
9.75%(d)(g)	02/15/17		2,720		2,754,000
Yankee Candle Co., Inc., Senior Unsecured Notes
8.50%(g)	02/15/15		1,300		1,316,250
					67,578,108
Semiconductors & Related Devices — 2.2%
Advanced Micro Devices, Inc., Senior Unsecured Notes
7.75%	11/01/12		520		525,850
Amkor Technologies, Inc., Senior Notes
7.75%	05/15/13		1,840		1,803,200
Amkor Technologies, Inc., Senior Unsecured Notes
9.25%	06/01/16		8,340		8,694,450
Conexant Systems, Inc., Notes
9.11%(g)(l)	11/15/10		655		676,287
Freescale Semiconductor, Inc., Senior Unsecured Notes
9.12%(e)(g)	12/15/14		21,790		21,626,575
9.23%(g)(l)	12/15/14		885		882,788
Sanmina-SCI Corp., Senior Subordinated Notes
8.12%(d)	03/01/16		3,230		3,036,200
					37,245,350
Telecommunications — 9.2%
ADC Telecommunications, Inc., Subordinated Notes
5.73%(l)	06/15/13		350		337,750

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

104

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

HIGH YIELD BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Telecommunications (Continued)
American Tower Corp., Senior Unsecured Notes
7.50%	05/01/12	$	5,025	$	5,213,438
American Tower Corp., Unsecured Notes
3.00%	08/15/12		5,100		10,072,500
CCO Holdings LLC, Capital Corp., Senior Unsecured Notes
9.48%(l)	12/15/10		1,270		1,295,400
Centennial Communications, Senior Subordinated Notes
10.75%(d)	12/15/08		3,043		3,050,608
Centennial Communications, Senior Unsecured Notes
8.12%	02/01/14		4,830		4,986,975
Cincinnati Bell, Inc., Senior Unsecured Notes
7.25%	07/15/13		10,985		11,396,937
Cricket Communications Corp., Senior Unsecured Notes
9.38%(g)	11/01/14		4,180		4,430,800
DIRECTV Holdings LLC, Unsecured Notes
8.38%	03/15/13		4,395		4,631,231
Dobson Cellular Systems, Inc., Notes
8.38%	11/01/11		1,745		1,851,881
Dobson Cellular Systems, Inc., Senior Secured Notes
8.38%	11/01/11		2,895		3,072,319
Dobson Communications Corp., Debentures
1.50%(g)	10/01/25		930		991,612
Dobson Communications Corp., Senior Notes
9.62%(l)	10/15/12		3,080		3,168,550
Fibertower Corp., Notes
9.00%(g)	11/15/12		3,120		3,517,800
Idearc, Inc., Senior Unsecured Notes
8.00%(g)	11/15/16		7,500		7,715,625
Loral Spacecom Corp., Notes
14.00%(e)(l)	11/15/15		753		858,420
MetroPCS Wireless, Inc., Senior Unsecured Notes
9.25%(g)	11/01/14		8,015		8,475,862
PanAmSat Corp., Senior Debentures
6.88%	01/15/28		2,690		2,481,525
PanAmSat Corp., Senior Unsecured Notes
9.00%(g)	08/14-06/16		4,207		4,613,046
Protostar Ltd.
12.50%(e)(g)	10/15/12		9,635		10,213,100
Qwest Communications International, Senior Unsecured Notes
8.86%(l)	02/15/09		1,485		1,499,850
Qwest Corp., Debentures
7.25%	10/15/35		1,845		1,840,388
7.12%	11/15/43		5,110		4,905,600
Qwest Corp., Senior Unsecured Notes
7.88%	09/01/11		3,175		3,373,438
Qwest Corp., Unsecured Notes
8.88%(l)	03/15/12		965		1,066,325
8.60%(l)	06/15/13		2,000		2,180,000
7.50%	10/01/14		7,735		8,160,425
Rural Cellualar Corp., Senior Secured Notes
8.25%	03/15/12		3,460		3,615,700
Superior Essex Communications & Essex Group, Senior Notes
9.00%	04/15/12		7,805		8,058,662
Telcordia Technologies, Inc., Senior Subordinated Notes
10.00%(g)	03/15/13		1,180		1,103,300
Time Warner Telecom Holdings, Inc., Senior Unsecured Notes
9.25%	02/15/14		1,300		1,391,000
West Corp., Senior Unsecured Notes
11.00%(d)(g)	10/15/16		12,000		12,660,000
Windstream Corp., Senior Unsecured Notes
8.12%	08/01/13		5,725		6,197,312
8.62%	08/01/16		3,450		3,773,438
					152,200,817
Tires & Rubber — 1.2%
American Tire Distributors, Inc., Senior Unsecured Notes
11.62%(d)(l)	04/01/12		3,000		3,000,000
10.75%(d)	04/01/13		150		150,000
Goodyear Tire & Rubber Co., Senior Notes
8.62%(g)	12/01/11		10,025		10,776,875
Goodyear Tire & Rubber Co., Senior Unsecured Notes
7.86%	08/15/11		950		993,938
4.00%(l)	06/15/34		1,550		4,082,312
Goodyear Tire & Rubber Co., Unsecured Notes
9.14%(g)(l)	12/01/09		1,000		1,003,750
					20,006,875
Tobacco — 0.1%
Reynolds American, Inc., Notes
7.62%	06/01/16		1,880		2,000,002
Transportation — 0.9%
Delta Air Lines, Inc., Senior Unsecured Notes
10.00%(i)	08/15/08		4,300		2,343,500
8.30%(i)	12/15/29		4,070		2,289,375
H-Lines Finance Holding Corp., Senior Notes
10.25%(o)	04/01/13		3,062		2,908,900
Horizon Lines LLC, Senior Unsecured Notes
9.00%	11/01/12		2,915		3,060,750
Hornbeck Offshore Services, Inc., Senior Unsecured Notes
6.12%	12/01/14		955		903,669
Overseas Shipholding Group, Inc., Debentures
8.75%	12/01/13		3,980		4,397,900
					15,904,094

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	105

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

HIGH YIELD BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Waste Management — 0.6%
Aleris International, Inc., Senior Unsecured Notes
9.00%(g)	12/15/14	$	7,630	$	8,049,650
Casella Waste Systems, Inc., Senior Subordinated Notes
9.75%	02/01/13		1,225		1,298,500
					9,348,150
Yankee — 10.8%
Abitibi-Consolidated, Inc. (Canada), Senior Debentures
8.85%(p)	08/01/30		940		836,600
Abitibi-Consolidated, Inc. (Canada), Senior Notes
7.62%(p)	05/15/07		1,515		1,518,788
Abitibi-Consolidated, Inc. (Canada), Senior Unsecured Notes
8.55%(p)	08/01/10		700		708,750
8.38%(p)	04/01/15		250		235,000
Abitibi-Consolidated, Inc. (Canada), Unsecured Notes
6.00%(d)(p)	06/20/13		5,055		4,296,750
Ainsworth Lumber Co. Ltd. (Canada), Senior Unsecured Notes
9.10%(d)(l)(p)	10/01/10		4,850		3,855,750
7.25%(d)(p)	10/01/12		2,190		1,615,125
Angiotech Pharmaceuticals, Inc. (Canada), Senior Unsecured Notes
9.11%(g)(l)(p)	12/01/13		7,790		7,955,538
Ashtead Holdings Plc (United Kingdom), Senior Secured Notes
8.62%(g)(p)	08/01/15		850		888,250
Asia Global Crossing Ltd. (Bermuda), Senior Unsecured Notes
13.38%(i)(p)	10/15/10		2,000		92,500
Bowater Finance Corp. (Canada), Senior Unsecured Notes
7.95%(p)	11/15/11		5,055		4,915,988
Britannia Bulk Plc (United Kingdom), Notes
11.00%(g)(p)	12/01/11		1,525		1,479,250
Canwest Mediaworks, Inc. (Canada), Senior Subordinated Notes
8.00%(p)	09/15/12		3,455		3,575,925
Cascades, Inc. (Canada), Unsecured Notes
7.25%(p)	02/15/13		1,715		1,715,000
Catalyst Papar Co. (Canada), Senior Unsecured Notes
7.38%(p)	03/01/14		3,450		3,337,875
Celanse Caylux Holdings SCA (Luxembourg), Senior Subordinated Notes
9.62%(p)	06/15/14		1,596		1,812,928
CHC Helicopter Corp. (Canada), Senior Subordinated Notes
7.38%(p)	05/01/14		760		739,100
Compagnie Generale de Geophysique (France), Senior Unsecured Notes
7.50%(p)	05/15/15		1,085		1,117,550
7.75%(p)	05/15/17		6,135		6,395,738
Compton Petroleum Finance Corp. (Canada), Senior Notes
7.62%(p)	12/01/13		1,910		1,867,025
Domtar, Inc. (Canada), Senior Unsecured Notes
7.88%(p)	10/15/11		1,685		1,765,037
7.12%(p)	08/15/15		3,720		3,701,400
Duloxetine Royalty (Cayman Islands), Senior Secured Notes (acquired 9/30/05, cost $2,500,000)
13.00%(c)(f)(n)(p)	10/15/13		2,500		2,600,000
Impress Holdings BV (Netherlands), Secured Notes
8.58%(g)(l)(p)	09/15/13		4,950		5,061,375
Ineos Group Holdings Plc (United Kingdom), Unsecured Notes
8.50%(g)(p)	02/15/16		4,570		4,375,775
Inmarsat Finance II Plc (United Kingdom), Junior Subordinated Notes
8.70%(o)(p)	11/15/12		1,180		1,115,100
Intelsat Intermediate Ltd. (Bermuda), Senior Unsecured Notes
9.23%(o)(p)	02/01/15		3,370		2,797,100
Intelsat Ltd. (Bermuda), Senior Unsecured Notes
11.35%(g)(l)(p)	06/15/13		5,840		6,263,400
8.87%(g)(l)(p)	01/15/15		9,765		9,960,300
9.25%(g)(p)	06/15/16		1,940		2,148,550
11.25%(g)(p)	06/15/16		2,680		3,041,800
Invensys Plc (United Kingdom), Senior Unsecured Notes
9.88%(d)(g)(p)	03/15/11		1,820		1,958,775
Ispat Inland ULC (Canada), Senior Secured Notes
9.75%(p)	04/01/14		3,215		3,548,145
Navios Martime Holding, Inc. (Greece), Senior Unsecured Notes
9.50%(g)(p)	12/15/14		3,700		3,852,625
Nortel Networks Ltd. (Canada), Senior Unsecured Notes
9.61%(g)(l)(p)	07/15/11		5,830		6,238,100
North American Energy Partners, Inc. (Canada), Senior Unsecured Notes
8.75%(p)	12/01/11		5,520		5,630,400
Nova Chemicals Corp. (Canada), Senior Unsecured Notes
6.50%(p)	01/15/12		1,730		1,647,825
8.50%(d)(l)(p)	11/15/13		3,585		3,567,075
Novelis, Inc. (Canada), Senior Unsecured Notes
7.25%(p)	02/15/15		1,575		1,665,562
NXP BV (Netherlands), Notes
8.11%(g)(l)(p)	10/15/13		2,535		2,607,881
NXP BV (Netherlands), Unsecured Notes
9.50%(d)(g)(p)	10/15/15		9,120		9,416,400
Opti, Inc. (Canada), Notes
8.25%(g)(p)	12/15/14		9,000		9,360,000
Orascom Telecom Finance SCA (Egypt)
7.88%(p)	02/08/14		930		916,050
Orascom Telecom Finance SCA (Eygpt), Senior Unsecured Notes
7.88%(g)(p)	02/08/14		1,560		1,536,600

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

106

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

HIGH YIELD BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
CORPORATE BONDS (Continued)
Yankee (Continued)
Quebecor Media, Inc. (Canada), Senior Unsecured Notes
7.75%(p)	03/15/16	$	450	$	462,375
Quebecor World (USA), Inc., Senior Subordinated Notes
6.00%(p)	10/01/07		900		892,125
Quebecor World, Inc. (Canada), Senior Unsecured Notes
9.75%(g)(p)	01/15/15		2,780		2,919,000
Rogers Wireless, Inc. (Canada), Senior Secured Notes
8.48%(l)(p)	12/15/10		795		810,900
Rogers Wireless, Inc. (Canada), Senior Subordinated Notes
8.00%(p)	12/15/12		1,830		1,939,800
Russell Metals, Inc. (Canada), Senior Subordinated Notes
6.38%(p)	03/01/14		1,625		1,555,937
Seagate Technology HDD Holdings (Cayman Islands), Senior Unsecured Notes
6.80%(p)	10/01/16		1,390		1,396,950
Sensata Technologies BV (Netherlands), Senior Unsecured Notes
8.00%(l)(p)	05/01/14		950		944,062
Smurfit Kappa Funding Plc (Ireland), Senior Unsecured Notes
9.62%(p)	10/01/12		1,038		1,102,875
Standard Aero Holdings, Inc. (Canada), Senior Subordinated Notes
8.25%(p)	09/01/14		7,465		8,006,212
Stats Chippac Ltd. (Singapore), Senior Unsecured Notes
6.75%(p)	11/15/11		915		944,738
Waste Services, Inc. (Canada), Senior Subordinated Notes
9.50%(p)	04/15/14		1,850		1,937,875
Wind Acquisition Finance SA (Luxembourg), Senior Unsecured Notes
10.75%(g)(p)	12/01/15		10,490		12,011,050
Zais Investment Grade Ltd. (Cayman Islands), Secured Notes
9.95%(c)(e)(g)(p)	09/23/14		1,000		698,000
					179,356,604
TOTAL CORPORATE BONDS (Cost $1,327,952,279)					1,368,959,666
FOREIGN BONDS — 1.5%
Asset Repackaging Trust BV (Netherlands) (EUR)
11.25%(l)	12/21/11		854		1,161,756
BCM Ireland Finance Ltd. (EUR)
10.60%(g)(l)	02/15/17		3,274		4,308,265
BCM Ireland Finance Ltd., Senior Notes (EUR)
8.81%(l)	08/15/16		3,730		5,144,638
Cell C Ltd. (South Africa) (EUR)
8.62%	07/01/12		700		949,118
Nordic Telephone Co. Holdings ApS (Denmark) (EUR)
9.28%(l)	05/01/16		2,400		3,290,314
Nordic Telephone Co. Holdings ApS (Denmark), Senior Unsecured Notes (EUR)
8.88%(g)	05/01/16		8,655		9,260,850
Pregis Corp., Senior Secured Notes (EUR)
8.49%(l)	04/15/13		875		1,201,008
TOTAL FOREIGN BONDS (Cost $23,919,224)					25,315,949
BANK LOANS — 6.3%
Affinion Group, Inc.
11.66%(l)	03/01/12		6,500		6,337,500
Alm Media, Inc., 2nd Lien
11.11%(l)	03/07/11		4,500		4,500,000
Applied Tech Products Corp., Tranche A
11.90%(c)(l)	10/24/10		1,281		1,273,976
Applied Tech Products Corp., Tranche B
16.40%(c)(l)	04/24/11		592		587,788
Applied Tech Products Corp., Tranche C
19.90%(c)(e)(l)	10/24/11		229		230,142
BLB Wembley, 2nd Lien
9.70%(l)	08/31/12		500		503,750
Chiquita Brands International, Inc., Tranche C
8.38%(l)	06/28/12		3,162		3,191,926
EB Sports Corp.
11.00%(l)	05/01/12		5,240		5,243,275
Edge Las Vegas, 1st Lien
8.82%(l)	06/15/07		2,000		1,995,000
Edge-Star Partners LLC, 1st Lien
9.36%(l)	11/18/07		3,700		3,700,000
Eggborough Power Ltd. (United Kingdom) (GBP)
7.00%(l)	09/08/15		834		5,659,754
Electrical Components International Ltd., 2nd Lien
11.88%(l)	05/19/14		1,000		1,005,000
HealthSouth Corp.
8.61%(l)	03/15/13		1,985		1,993,347
Hit Entertainment Plc (United Kingdom), 2nd Lien
10.86%(l)	01/31/13		1,500		1,515,470
Kabel Deutschland Holdings GmbH & Co. (Germany) (EUR)
10.74%(l)	12/15/14		2,102		2,824,675
Lucite International Ltd. (EUR)
12.08%(e)(l)	07/15/14		799		1,091,804
MACH Gen LLC, Tranche A Construction Commitments
0.00%(c)(l)	12/31/49		301		577,691
MACH Gen LLC, Tranche B
7.32%	02/22/14		5,000		4,988,438
MACH Gen LLC, Tranche B Constant Price
0.00%(c)(l)	12/31/49		443		850,377

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	107

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

HIGH YIELD BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)			VALUE
BANK LOANS (Continued)
8.25%(c)(l)	12/31/49	$	2,363		$	4,536,635
MACH Gen LLC, Tranche B Construction Collateral
0.00%(c)(e)(l)	12/31/49		564			1,083,096
MACH Gen LLC, Tranche B Construction Commitments
0.00%(c)(l)	12/31/49		6			11,163
Northwest Airlines Corp., Trade Claim Participation
5.25%(l)	12/31/49		8,100			5,994,000
Nutro Products, Inc., Tranche B
7.37%(l)	04/30/13		969			969,934
Ply Gem Industries, Inc., 2nd Lien
11.12%(l)	10/31/11		2,500			2,500,000
Riverdeep
11.06%(l)	12/21/07		7,620			7,600,950
Rotech Healthcare Loan
11.32%(l)	09/26/11		2,500			2,500,000
S & C Holding Co., Inc.
8.00%(c)(l)	03/19/10		3,010			2,709,000
Sandridge Energy, Inc.
9.03%(l)	03/01/14		2,250			2,275,312
8.62%(l)	03/01/15		2,400			2,436,000
Synventive Molding Solutions Ltd., Mezzanine
14.00%(e)(l)	02/17/14		518			194,206
Telecordia Technologies, Inc.
8.11%(l)	10/15/12		3,482			3,447,456
Travelport Holdings Co.
12.76%(l)	03/22/12		12,480			12,074,400
Wind Acquisition Holding Finance SA
12.61%(e)(l)	12/21/11		8,190			8,343,381
TOTAL BANK LOANS (Cost $96,710,362)						104,745,446
		PAR/SHARES (000)
SHORT TERM INVESTMENTS — 3.3%
Federal Home Loan Bank, Discount Notes
4.97%(q)	04/02/07		18,000			17,997,515
5.13%(q)	04/04/07		25,000			24,982,188
5.13%(q)	04/18/07		2,134			2,128,831
Galileo Money Market Fund, 5.02%			10,000			10,000,000
TOTAL SHORT TERM INVESTMENTS (Cost $55,108,534)						55,108,534
		PAR (000)
REPURCHASE AGREEMENTS — 3.8%
Lehman Brothers Holdings, Inc.
5.30%(k) (Agreement dated 07/25/06 to be repurchased at $3,316,175, collateralized by $3,395,000 Ford Motor Credit Co. 6.19% due 09/28/07. The value of the collateral is $3,395,992.)			3,198			3,198,000
5.30%(k) (Agreement dated 08/29/06 to be repurchased at $21,513,031, collateralized by $ 20,022,282 Air 2 US 8.03% due 10/01/19 and $1,335,000 Transatlantic Holdings, Inc. 5.75% due 12/14/15. The value of the collateral is $21,486,023.)			20,850			20,850,000
5.30%(k) (Agreement dated 08/30/06 to be repurchased at $3,803,704, collateralized by $3,385,000 Levi Strauss & Co. 12.25% due 12/15/12. The value of the collateral is $3,835,981.)		$	3,687			3,687,000
5.35%(k) (Agreement dated 08/30/06 to be repurchased at $24,592,423, collateralized by $23,445,000 Ford Motor Credit Co. 9.96% due 04/15/12. The value of the collateral is $25,322,605.)			23,835			23,835,000
5.35%(k) (Agreement dated 08/30/06 to be repurchased at $12,305,049, collateralized by $31,093,117 Air 2 US 10.13% due 10/01/20. The value of the collateral is $18,655,870.)			11,840			11,840,000
TOTAL REPURCHASE AGREEMENTS (Cost $63,410,000)						63,410,000
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 99.6% (Cost $1,614,272,889)						1,653,980,941
		NUMBER OF SHARES
AFFILIATED INVESTMENTS - SHORT TERM — 7.8%
Institutional Money Market Trust, 4.80%(r) (Cost $129,766,175)			129,766,175			129,766,175
TOTAL INVESTMENTS IN SECURITIES — 107.4% (Cost $1,744,039,064(a))						1,783,747,116
		NUMBER OF CONTRACTS
PUT OPTIONS WRITTEN — (0.1)%
Univision Bridge Debt Option, Strike Price $100, Expires 05/01/07(c)			(152	)		(75,750	)
Biomet Bridge Debt Option, Strike Price $100, Expires 05/01/07(c)			(65	)		(32,450	)
Freeport-McMoRan Bridge Debt Option, Strike Price $100, Expires 05/01/07(c)			(338	)		(168,850	)
Harrah’s Bridge Debt Option, Strike Price $100, Expires 05/01/07(c)			(314	)		(156,800	)
Macdermid Bridge Debt Option, Strike Price $100, Expires 05/01/07(c)			(100	)		(37,313	)
Osi Resturant Partners Bridge Debt Option, Strike Price $100, Expires 05/01/07(c)			(58	)		(29,000	)
Realogy Bridge Debt Option, Strike Price $100, Expires 05/01/07(c)			(154	)		(86,906	)
Rite Aid Bridge Debt Option, Strike Price $100, Expires 05/01/07(c)			(227	)		(170,475	)
USPI Bridge Debt Option, Strike Price $100, Expires 05/01/07(c)			(310	)		(116,250	)
TOTAL PUT OPTIONS WRITTEN (Premiums received $873,794)						(873,794	)

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

108

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

HIGH YIELD BOND PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	VALUE
OBLIGATION TO RETURN SECURITIES LENDING COLLATERAL — (7.8)%	$	(129,766,175	)
OTHER ASSETS IN EXCESS OF LIABILITIES — 0.5%		8,238,605
NET ASSETS — 100.0%	$	1,661,345,752

(a) Cost for federal income tax purposes is $1,744,596,003. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	64,063,244
Gross unrealized depreciation		(24,990,356	)
	$	39,072,888

(b) Non-income producing security.

(c) Security valued at fair value as determined in good faith by or under the direction of the Board of Trustees. As of March 31, 2007, these securities had a total market value of $ 37,446,658 which represents 2.2% of net assets.

(d) Total or partial security on loan.

(e) Payment in kind security.

(f) Security restricted as to public resale. These securities are ineligible for resale into the public market until such time that either (i) a resale Registration Statement has been filed with the SEC and declared effective or (ii) resale is permitted under Rule 144A without the need for an effective registration statement. As of March 31, 2007, the Portfolio held 0.8% of its net assets, with a current market value of $13,760,000 and an original cost of $ 13,660,000 in these securities.

(g) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 29.2% of its net assets, with a current market value of $487,724,565, in securities restricted as to resale.

(h) Security, or a portion thereof, with a market value of $ 545,372, has been pledged as collateral for swap and swaption contracts.

(i) Security in default.

(j) Security held in escrow for future payments

(k) The security is a perpetual bond and has no stated maturity date.

(l) Variable rate security. Rate shown is the rate as of March 31, 2007.

(m) The rate shown is the effective yield on the zero coupon bonds at the time of purchase.

(n) Security is illiquid. As of March 31, 2007, the Portfolio held 0.3% of its net assets, with a current market value of $ 4,510,546 in these securities.

(o) Debt obligation initially issued in zero coupon form which converts to coupon form at a specified date and rate. The rates shown are the effective yields as of March 31, 2007.

(p) U.S. dollar denominated security issued by foreign domiciled entity.

(q) The rate shown is the effective yield at the time of purchase.

(r) Security purchased with the cash proceeds from securities loaned.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	109

BLACKROCK FUNDS

Key to Investment Abbreviations

ARM	Adjustable Rate Mortgage
AUD	Australian Dollar
CHF	Swiss Francs
CMT	Constant Maturity Treasury Rate
CND	Canadian Dollar
DKK	Danish Krone
EUR	Euro
GBP	British Pound
IO	Interest Only
ISK	Iceland Krona
JPY	Japanese Yen
NZD	New Zealand Dollar
PLN	Polish Zloty
PO	Principal Only
REIT	Real Estate Investment Trust
SEK	Swedish Krona
TBA	To Be Announced

110

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BLACKROCK FUNDS

STATEMENTS OF ASSETS AND LIABILITIES

AS OF MARCH 31, 2007 (UNAUDITED)

	ENHANCED INCOME PORTFOLIO		LOW DURATION BOND PORTFOLIO		INTERMEDIATE GOVERNMENT BOND PORTFOLIO		INTERMEDIATE BOND PORTFOLIO		INTERMEDIATE BOND PORTFOLIO II		TOTAL RETURN PORTFOLIO		TOTAL RETURN PORTFOLIO II
ASSETS
Investments at value - unaffiliated1,2	$	45,546,837	$	1,194,475,359	$	514,203,264	$	15,383,094	$	911,543,982	$	612,833,542	$	4,220,378,741
Investments at value - affiliated long term3		1,033,731		11,242,786		423,253		—		—		967,878		7,089,621
Collateral received for securities loaned - affiliated4		—		5,871,000		—		—		1,162,800		—		1,690,000
Investments in swap contracts		—		—		146,467		—		—		—		—
Cash		—		—		—		—		—		4,711,807		—
Collateral paid for swap contracts		—		5,884,447		450,647		—		2,480,491		626,732		8,795,613
Cash denominated in foreign currencies5		612,311		17,354,348		—		251,356		—		11,389,379		73,684,312
Interest receivable		184,146		6,140,822		3,008,826		81,692		6,311,099		2,914,611		20,962,593
Principal paydown receivable		50,644		907,635		710,693		7,910		281,459		16,769		197,479
Investments sold receivable		2,687,995		—		—		2,897,958		—		63,151,701		492,316,172
Receivable from advisor		147		34,599		5,008		16,064		204		1,066		53
Capital shares sold receivable		68,085		3,935,516		477,265		17,542		1,543,500		631,316		44,031,810
Prepaid expenses		24,689		69,667		40,292		29,833		67,926		33,362		131,037
Unrealized appreciation on forward foreign currency contracts		18,658		564,691		—		—		—		—		—
Unrealized appreciation on swaps		88,035		6,918,965		2,579,785		85,407		3,221,237		1,425,438		9,108,263
Futures margin receivable		1,827		31,019		50,188		1,080		24,601		3,281		179,555
TOTAL ASSETS		50,317,105		1,253,430,854		522,095,688		18,771,936		926,637,299		698,706,882		4,878,565,249
LIABILITIES
Reverse repurchase agreements payable		—		—		—		445,000		—		—		—
Payable upon return of securities loaned		—		5,871,000		—		—		1,162,800		—		1,690,000
Collateral received for swap contracts		—		5,884,447		1,250,647		—		2,480,491		626,732		8,795,613
Investments purchased payable		5,902,349		91,683,682		4,513,678		6,148,603		—		114,833,622		845,779,656
Distributions payable		140,386		1,755,932		949,358		37,867		1,223,201		228,065		5,704,565
Interest payable		4,538		—		—		2,257		—		151,349		1,101,843
Capital shares redeemed payable		414,457		3,117,503		711,937		7,457		648,953		62,560		2,211,406
Payable for financing transactions		—		2,204,108		—		202,249		8,591,429		31,316,369		319,352,543
Options and swaptions written, at fair value6		—		2,729,059		1,730,527		98,868		3,431,186		1,702,472		13,059,260
Premiums received for swap contracts		—		—		—		31,940		58,326		23,089		199,345
Mortgage pass-throughs TBA sale commitments, at value7		2,671,313		—		—		798,625		—		67,685,768		513,940,577
Futures margin payable		719		71,501		127,957		1,952		135,250		78,876		48,335
Unrealized depreciation on forward foreign currency contracts		20,654		803,664		—		2,532		—		41,429		265,762
Unrealized depreciation on swaps		65,433		1,887,976		882,913		6,211		772,586		534,960		2,743,991
Advisory fees payable		448		284,166		197,335		58		242,388		103,577		763,989
Administration fees payable		2,490		75,915		38,721		—		68,475		30,299		182,584
Custodian fees payable		3,418		23,841		14,616		172		14,573		19,889		59,443
Transfer agent fees payable		668		419,792		101,013		1,546		125,535		6,707		58,051
Distribution fees payable		—		65,284		36,883		854		9,891		1,168		70,368
Officers’ and trustees’ fees payable		82		156		50		165		137		61		343
Other accrued expenses payable		32,411		407,115		146,550		17,919		138,716		63,228		387,790
TOTAL LIABILITIES		9,259,366		117,285,141		10,702,185		7,804,275		19,103,937		217,510,220		1,716,415,464
NET ASSETS	$	41,057,739	$	1,136,145,713	$	511,393,503	$	10,967,661	$	907,533,362	$	481,196,662	$	3,162,149,785

112

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	ENHANCED INCOME PORTFOLIO			LOW DURATION BOND PORTFOLIO			INTERMEDIATE GOVERNMENT BOND PORTFOLIO			INTERMEDIATE BOND PORTFOLIO			INTERMEDIATE BOND PORTFOLIO II			TOTAL RETURN PORTFOLIO			TOTAL RETURN PORTFOLIO II
1Cost of investments - unaffiliated	$	45,626,895		$	1,199,001,975		$	516,509,676		$	15,450,390		$	914,268,409		$	614,835,167		$	4,241,588,174
2Market value of securities loaned		—			5,735,160			—			—			1,128,686			—			1,633,125
3Cost of investments - affiliated long term		1,024,851			11,051,195			425,170			—			—			967,732			7,351,363
4Cost collateral received from securities loaned - affiliated		—			5,871,000			—			—			1,162,800			—			1,690,000
5Cost of cash denominated in foreign currencies		607,710			17,359,440			—			250,319			—			11,481,187			74,379,233
6Premiums received - options and swaptions written		—			3,153,500			2,457,624			135,750			4,695,396			2,116,116			16,205,040
7Proceeds paid - mortgage pass-throughs TBA sale commitments		2,683,457			—			—			800,250			—			67,808,468			515,102,213
AT MARCH 31, 2007, NET ASSETS CONSISTED OF:
Capital Paid in	$	41,887,389		$	1,179,364,353		$	530,118,677		$	11,654,946		$	917,833,110		$	486,265,954		$	3,199,308,949
Undistributed net investment income		1,699			3,079,454			1,270,083			11,956			147,527			236,996			903,391
Accumulated net realized loss on investment transactions, futures, options, swaptions, swap contracts and foreign currency related transactions		(781,005	)		(46,646,954	)		(19,050,018	)		(748,482	)		(12,166,593	)		(4,256,977	)		(25,667,252	)
Net unrealized appreciation (depreciation) on investment transactions, futures, options, swaptions, swap contracts and foreign currency related transactions		(50,344	)		348,860			(945,239	)		49,241			1,719,318			(1,049,311	)		(12,395,303	)
	$	41,057,739		$	1,136,145,713		$	511,393,503		$	10,967,661		$	907,533,362		$	481,196,662		$	3,162,149,785

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	113

BLACKROCK FUNDS

STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

	ENHANCED INCOME PORTFOLIO			LOW DURATION BOND PORTFOLIO			INTERMEDIATE GOVERNMENT BOND PORTFOLIO			INTERMEDIATE BOND PORTFOLIO			INTERMEDIATE BOND PORTFOLIO II			TOTAL RETURN PORTFOLIO			TOTAL RETURN PORTFOLIO II
BlackRock Shares:
Net Assets	$	21,180,582		$	459,721,402		$	—		$	8,826,150		$	382,019,988		$	471,083,215		$	1,607,109,452
Shares outstanding, unlimited number of shares authorized, $0.001 par value		2,147,925			46,372,491			—			906,756			41,268,808			46,518,482			168,930,477
Net Asset Value, offering and redemption price per share	$	9.86		$	9.91		$	—		$	9.73		$	9.26		$	10.13		$	9.51
Institutional Shares:
Net Assets	$	19,724,111		$	195,188,631		$	190,536,225		$	436,747		$	281,228,760		$	5,957,532		$	1,137,120,560
Shares outstanding, unlimited number of shares authorized, $0.001 par value		2,001,340			19,671,746			18,686,310			43,337			30,383,593			591,380			119,775,020
Net Asset Value, offering and redemption price per share	$	9.86		$	9.92		$	10.20		$	10.08		$	9.26		$	10.07		$	9.49
Service Shares:
Net Assets	$	46,603		$	242,215,411		$	1,230,539		$	20,087		$	202,064,514		$	20,092		$	53,660,238
Shares outstanding, unlimited number of shares authorized, $0.001 par value		4,801			24,419,386			120,744			1,977			21,823,998			1,971			5,650,464
Net Asset Value, offering and redemption price per share	$	9.71		$	9.92		$	10.19		$	10.16		$	9.26		$	10.19		$	9.50
Investor A Shares:
Net Assets	$	106,443		$	67,929,053		$	264,838,542		$	237,810		$	27,380,379		$	1,165,000		$	252,748,386
Shares outstanding, unlimited number of shares authorized, $0.001 par value		10,810			6,844,913			25,913,123			23,965			2,958,621			114,911			26,597,732
Net Asset Value and redemption price per share	$	9.85		$	9.92		$	10.22		$	9.92		$	9.25		$	10.14		$	9.50
Maximum Sales Charge		3.0	%		3.0	%		4.0	%		4.0	%		4.0	%		4.0	%		4.0	%
Maximum offering price per share	$	10.15		$	10.23		$	10.65		$	10.33		$	9.64		$	10.56		$	9.90
Investor A1 Shares:
Net Assets	$	—		$	44,848,549		$	—		$	—		$	—		$	—		$	—
Shares outstanding, unlimited number of shares authorized, $0.001 par value		—			4,518,035			—			—			—			—			—
Net Asset Value and redemption price per share	$	—		$	9.93		$	—		$	—		$	—		$	—		$	—
Maximum Sales Charge		—			1.0	%		—			—			—			—			—
Maximum offering price per share	$	—		$	10.03		$	—		$	—		$	—		$	—		$	—
Investor B Shares:
Net Assets	$	—		$	26,125,504		$	41,645,265		$	386,454		$	7,080,616		$	735,349		$	35,450,680
Shares outstanding, unlimited number of shares authorized, $0.001 par value		—			2,633,331			4,084,103			38,959			764,988			72,578			3,732,747
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 4.5%)	$	—		$	9.92		$	10.20		$	9.92		$	9.26		$	10.13		$	9.50

114

BLACKROCK FUNDS

	ENHANCED INCOME PORTFOLIO		LOW DURATION BOND PORTFOLIO		INTERMEDIATE GOVERNMENT BOND PORTFOLIO		INTERMEDIATE BOND PORTFOLIO		INTERMEDIATE BOND PORTFOLIO II		TOTAL RETURN PORTFOLIO			TOTAL RETURN PORTFOLIO II
Investor B1 Shares:
Net Assets	$	—	$	1,574,923	$	—	$	—	$	—	$	—		$	—
Shares outstanding, unlimited number of shares authorized, $0.001 par value		—		158,815		—		—		—		—			—
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 4.0%)	$	—	$	9.92	$	—	$	—	$	—	$	—		$	—
Investor B2 Shares:
Net Assets	$	—	$	14,780,366	$	—	$	—	$	—	$	—		$	—
Shares outstanding, unlimited number of shares authorized, $0.001 par value		—		1,490,609		—		—		—		—			—
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 1.0%)	$	—	$	9.92	$	—	$	—	$	—	$	—		$	—
Investor C Shares:
Net Assets	$	—	$	40,935,451	$	13,142,932	$	1,060,413	$	7,759,105	$	2,215,506		$	76,040,401
Shares outstanding, unlimited number of shares authorized, $0.001 par value		—		4,127,639		1,288,048		105,107		837,608		218,875			8,002,518
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 1.0%)	$	—	$	9.92	$	10.20	$	10.09	$	9.26	$	10.12		$	9.50
Investor C1 Shares:
Net Assets	$	—	$	11,423,988	$	—	$	—	$	—	$	—		$	—
Shares outstanding, unlimited number of shares authorized, $0.001 par value		—		1,151,862		—		—		—		—			—
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 1.0%)	$	—	$	9.92	$	—	$	—	$	—	$	—		$	—
Investor C2 Shares:
Net Assets	$	—	$	31,402,435	$	—	$	—	$	—	$	—		$	—
Shares outstanding, unlimited number of shares authorized, $0.001 par value		—		3,166,528		—		—		—		—			—
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 1.0%)	$	—	$	9.92	$	—	$	—	$	—	$	—		$	—
Investor R Shares:
Net Assets	$	—	$	—	$	—	$	—	$	—	$	19,968		$	20,068
Shares outstanding, unlimited number of shares authorized, $0.001 par value		—		—		—		—		—		1,970			2,111
Net Asset Value, offering and redemption price per share	$	—	$	—	$	—	$	—	$	—	$	10.13	(a)	$	9.51

^(a) Exact net assets and shares outstanding at March 31, 2007 were $ 19,967.63 and 1,970.443, respectively.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	115

BLACKROCK FUNDS

STATEMENTS OF ASSETS AND LIABILITIES (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

	GOVERNMENT INCOME PORTFOLIO		INFLATION PROTECTED BOND PORTFOLIO		GNMA PORTFOLIO		MANAGED INCOME PORTFOLIO		INTERNATIONAL BOND PORTFOLIO		HIGH YIELD BOND PORTFOLIO
ASSETS
Investments at value -unaffiliated1,2	$	4,556,588,252	$	90,754,043	$	245,305,910	$	1,004,121,163	$	589,734,457	$	1,653,980,941
Investments at value - affiliated long term3		622		—		3,265		2,011,667		—		—
Collateral received for securities loaned - affiliated4		—		—		—		—		—		129,766,175
Investments in swap contracts		—		—		9,544		—		—		—
Cash		—		—		—		—		—		4,081,847
Collateral paid for swap contracts		10,038,196		732,368		527,103		1,245,672		5,335,918		—
Cash denominated in foreign currencies5		—		8,839		—		18,367,523		5,120,865		5,436,392
Dividends and reclaims receivable		—		—		—		—		—		183
Interest receivable		13,858,330		512,493		1,095,854		4,927,297		6,752,866		33,473,216
Principal paydown receivable		286,023		—		—		79,607		—		—
Investments sold receivable		2,183,267,464		44,163		18,630,881		116,403,980		1,918,595		4,651,272
Receivable from advisor		31,162		1,133		8		—		1,145		6,423
Capital shares sold receivable		86,189,156		105,082		185,369		771,622		914,576		5,312,962
Prepaid expenses		61,559		27,756		25,602		42,858		65,924		84,289
Unrealized appreciation on forward foreign currency contracts		—		62,267		—		—		4,268,111		—
Unrealized appreciation on swaps		19,213,787		426,514		896,758		1,896,057		7,075,573		1,173,400
Futures margin receivable		248,230		29,789		58,995		2,030		193,291		—
TOTAL ASSETS		6,869,782,781		92,704,447		266,739,289		1,149,869,476		621,381,321		1,837,967,100
LIABILITIES
Reverse repurchase agreements payable		—		—		—		—		—		10,548,000
Payable upon return of securities loaned		—		—		—		—		—		129,766,175
Collateral received for swap contracts		10,038,196		732,368		527,103		1,245,672		5,465,918		520,000
Investments purchased payable		3,718,692,033		1,415,830		63,050,497		242,900,584		8,930,768		23,871,610
Distributions payable		5,488,264		44,228		602,106		2,027,899		689,622		4,374,009
Interest payable		1,638,846		—		40,294		247,784		—		36,332
Capital shares redeemed payable		7,507,973		114,017		173,382		2,071,667		1,281,518		3,474,967
Payable for financing transactions		313,986,247		1,244,610		—		41,805,717		—		—
Options and swaptions written, at fair value6		3,978,187		1,167,681		201,231		3,439,688		2,658,241		873,794
Premiums received for swap contracts		—		—		—		45,418		—		—
Mortgage pass-throughs TBA sale commitments, at value7		874,745,405		—		18,352,075		111,340,921		—		—
Futures margin payable		50,500		42		—		59,865		116,121		—
Unrealized depreciation on forward foreign currency contracts		—		189,224		—		—		3,950,090		335,331
Unrealized depreciation on swaps		32,417,128		9,265		1,084,599		1,554,156		2,461,062		1,595,776
Advisory fees payable		480,792		846		14,315		318,533		276,099		530,154
Administration fees payable		113,501		6,865		15,199		56,527		47,292		106,082
Custodian fees payable		3,317		3,436		288		26,865		89,032		22,657
Transfer agent fees payable		648,181		10,696		30,077		835		231,007		79,041
Distribution fees payable		520,460		31,070		21,244		3,870		41,651		162,539
Officers’ and trustees’ fees payable		227		31		43		17		407		192
Other accrued expenses payable		687,959		4,679		50,578		145,097		145,606		324,689
TOTAL LIABILITIES		4,970,997,216		4,974,888		84,163,031		407,291,115		26,384,434		176,621,348
NET ASSETS	$	1,898,785,565	$	87,729,559	$	182,576,258	$	742,578,361	$	594,996,887	$	1,661,345,752

116

BLACKROCK FUNDS

	GOVERNMENT INCOME PORTFOLIO			INFLATION PROTECTED BOND PORTFOLIO			GNMA PORTFOLIO			MANAGED INCOME PORTFOLIO			INTERNATIONAL BOND PORTFOLIO			HIGH YIELD BOND PORTFOLIO
1Cost of investments - unaffiliated	$	4,562,859,590		$	91,578,170		$	246,149,633		$	1,007,155,162		$	570,529,556		$	1,614,272,889
2Market value of securities loaned		—			—			—			—			—			123,475,242
3Cost of investments - affiliated long term		640			—			3,284			2,011,365			—			—
4Cost collateral received from securities loaned - affiliated		—			—			—			—			—			129,766,175
5Cost of cash denominated in foreign currencies		—			8,725			—			18,531,418			5,088,780			5,320,197
6Premiums received - options and swaptions written		4,674,040			1,152,554			358,500			4,334,360			2,760,556			873,794
7Proceeds paid - mortgage pass-throughs TBA sale commitments		876,609,713			—			18,392,094			111,558,101			—			—
AT MARCH 31, 2007, NET ASSETS CONSISTED OF:
Capital Paid in	$	1,924,035,815		$	89,815,203		$	194,501,497		$	749,665,951		$	596,306,358		$	1,684,150,613
Undistributed net investment income (distributions in excess of net investment income)		1,997,560			116,546			537,059			(378,086	)		(18,595,730	)		2,453,529
Accumulated net realized loss on investment transactions, futures, options, swaptions, swap contracts and foreign currency related transactions		(10,648,536	)		(1,894,494	)		(11,441,461	)		(4,437,385	)		(6,259,856	)		(64,163,491	)
Net unrealized appreciation (depreciation) on Investment transactions, futures, options, swaptions, swap contracts and foreign currency related transactions		(16,599,274	)		(307,696	)		(1,020,837	)		(2,272,119	)		23,546,115			38,905,101
	$	1,898,785,565		$	87,729,559		$	182,576,258		$	742,578,361		$	594,996,887		$	1,661,345,752

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	117

BLACKROCK FUNDS

STATEMENTS OF ASSETS AND LIABILITIES (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

	GOVERNMENT INCOME PORTFOLIO			INFLATION PROTECTED BOND PORTFOLIO			GNMA PORTFOLIO			MANAGED INCOME PORTFOLIO			INTERNATIONAL BOND PORTFOLIO			HIGH YIELD BOND PORTFOLIO
BlackRock Shares:
Net Assets	$	9,661,163		$	2,961,503		$	11,945,511		$	—		$	110,567,880		$	319,055,942
Shares outstanding, unlimited number of shares authorized, $0.001 par value		901,788			301,451			1,253,464			—			9,906,820			38,710,594
Net Asset Value, offering and redemption price per share	$	10.71		$	9.82		$	9.53		$	—		$	11.16		$	8.24
Institutional Shares:
Net Assets	$	279,943,362		$	19,533,522		$	116,399,788		$	540,511,261		$	230,530,792		$	208,111,688
Shares outstanding, unlimited number of shares authorized, $0.001 par value		26,163,010			1,948,787			12,202,985			53,984,339			20,675,206			25,250,534
Net Asset Value, offering and redemption price per share	$	10.70		$	10.02		$	9.54		$	10.01		$	11.15		$	8.24
Service Shares:
Net Assets	$	494,834		$	2,306,309		$	7,935,239		$	174,332,382		$	69,390,558		$	274,886,281
Shares outstanding, unlimited number of shares authorized, $0.001 par value		46,235			229,557			832,559			17,412,011			6,213,175			33,351,665
Net Asset Value, offering and redemption price per share	$	10.70		$	10.05		$	9.53		$	10.01		$	11.17		$	8.24
Investor A Shares:
Net Assets	$	1,104,947,066		$	14,311,545		$	15,041,871		$	21,768,380		$	121,340,159		$	556,634,129
Shares outstanding, unlimited number of shares authorized, $0.001 par value		103,175,612			1,437,232			1,570,518			2,173,241			10,866,574			67,537,022
Net Asset Value and redemption price per share	$	10.71		$	9.96		$	9.58		$	10.02		$	11.17		$	8.24
Maximum Sales Charge		4.0	%		4.0	%		4.0	%		4.0	%		4.0	%		4.0	%
Maximum offering price per share	$	11.21		$	10.35		$	10.00		$	10.47		$	11.61		$	8.59
Investor B Shares:
Net Assets	$	28,867,867		$	10,076,551		$	12,592,635		$	4,538,282		$	13,867,201		$	80,228,614
Shares outstanding, unlimited number of shares authorized, $0.001 par value		2,694,831			1,010,354			1,319,097			453,112			1,241,457			9,735,837
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 4.5%)	$	10.71		$	9.97		$	9.55		$	10.02		$	11.17		$	8.24
Investor B1 Shares:
Net Assets	$	195,373,900		$	—		$	—		$	—		$	—		$	101,133,650
Shares outstanding, unlimited number of shares authorized, $0.001 par value		18,241,412			—			—			—			—			12,274,251
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 4.0%)	$	10.71		$	—		$	—		$	—		$	—		$	8.24
Investor C Shares:
Net Assets	$	35,321,292		$	38,540,129		$	18,661,214		$	1,428,056		$	49,300,297		$	66,088,295
Shares outstanding, unlimited number of shares authorized, $0.001 par value		3,302,898			3,846,168			1,956,680			142,923			4,402,022			8,014,940
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 1.0%)	$	10.69		$	10.02		$	9.54		$	9.99		$	11.20		$	8.25

118

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	GOVERNMENT INCOME PORTFOLIO		INFLATION PROTECTED BOND PORTFOLIO		GNMA PORTFOLIO		MANAGED INCOME PORTFOLIO		INTERNATIONAL BOND PORTFOLIO		HIGH YIELD BOND PORTFOLIO
Investor C1 Shares:
Net Assets	$	205,777,836	$	—	$	—	$	—	$	—	$	50,180,476
Shares outstanding, unlimited number of shares authorized, $0.001 par value		19,246,911		—		—		—		—		6,082,428
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 1.0%)	$	10.69	$	—	$	—	$	—	$	—	$	8.25
R Shares:
Net Assets	$	38,398,245	$	—	$	—	$	—	$	—	$	5,026,677
Shares outstanding, unlimited number of shares authorized, $0.001 par value		3,587,165		—		—		—		—		610,066
Net Asset Value, offering and redemption price per share	$	10.70	$	—	$	—	$	—	$	—	$	8.24

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	119

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STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED MARCH 31, 2007 (UNAUDITED)

	ENHANCED INCOME PORTFOLIO			LOW DURATION BOND PORTFOLIO			INTERMEDIATE GOVERNMENT BOND PORTFOLIO			INTERMEDIATE BOND PORTFOLIO			INTERMEDIATE BOND PORTFOLIO II
Investment income:
Interest	$	978,685		$	29,233,602		$	12,805,546		$	531,086		$	22,339,255
Securities lending income (Note D)		13			2,447			—			—			3,722
Dividends		29,539			185,990			101,640			9,571			165,455
Interest from affiliates (Note D)		26,833			264,231			18,246			6			238
Total investment income		1,035,070			29,686,270			12,925,432			540,663			22,508,670
Expenses:
Investment advisory fees		83,396			3,029,644			1,308,905			52,755			2,278,461
Administration fees		15,637			414,612			195,089			7,913			321,132
Administration fees - class specific		5,212			152,560			65,495			2,635			113,906
Custodian fees		7,557			50,689			34,941			7,218			41,579
Transfer agent fees - class specific		1,545			541,804			304,682			4,300			123,380
Shareholder servicing fees - class specific		146			546,459			419,058			1,076			294,521
Distribution fees - class specific		—			377,704			224,777			2,698			58,414
Legal and audit fees		17,804			52,220			30,625			15,745			45,153
Printing fees		2,610			112,508			41,696			1,606			83,621
Registration fees and expenses		9,471			43,533			23,922			19,303			40,131
Officers’ and trustees’ fees		1,785			51,905			21,814			1,017			37,227
Other		3,695			43,708			21,582			3,935			32,172
Total expenses excluding interest expense		148,858			5,417,346			2,692,586			120,201			3,469,697
Interest expense		2,916			39,001			—			8,081			—
Total expenses		151,774			5,456,347			2,692,586			128,282			3,469,697
Less investment advisory fees waived		(78,788	)		(1,327,857	)		(113,519	)		(33,858	)		(829,567	)
Less administration fees waived		(616	)		—			—			(4,086	)		—
Less administration fees waived - class specific		(2,684	)		(112,163	)		(30,372	)		(2,635	)		(48,926	)
Less transfer agent fees waived - class specific		(97	)		(16,776	)		(8,424	)		(133	)		(1,497	)
Less transfer agent fees reimbursed - class specific		(284	)		(89,637	)		(27,275	)		(3,475	)		(1,483	)
Less fees paid indirectly (Note D)		(2	)		(633	)		(1,044	)		(3	)		(98	)
Less expenses reimbursed by advisor		—			—			—			(29,485	)		—
Net expenses		69,303			3,909,281			2,511,952			54,607			2,588,126
Net investment income		965,767			25,776,989			10,413,480			486,056			19,920,544
Realized and unrealized gain (loss):
Net realized gain (loss) from:
Payment from affiliate		—			—			—			—			—
Investment transactions		(29,838	)		13,305			(386,581	)		(86,223	)		544,102
Affiliated transactions		907			10,479			(110	)		—			—
Options and swaptions written		—			—			60,550			3,459			107,540
Futures and swaps		(83,761	)		(4,128,769	)		337,368			(3,473	)		826,093
Foreign currency related transactions		(11,200	)		(386,283	)		—			(18,062	)		—
		(123,892	)		(4,491,268	)		11,227			(104,299	)		1,477,735
Change in unrealized appreciation/ depreciation from:
Investments - unaffiliated		115,386			3,524,135			1,931,316			171,325			2,296,227
Investments - affiliated		4,504			76,048			1,489			—			—
Options and swaptions written		—			499,861			326,998			19,250			617,671
Futures and swaps		21,439			5,443,639			(80,794	)		(3,515	)		(441,207	)
Foreign currency related transactions		15,609			72,763			—			5,836			—
		156,938			9,616,446			2,179,009			192,896			2,472,691
Net gain (loss) on investments and foreign currency transactions		33,046			5,125,178			2,190,236			88,597			3,950,426
Net increase in net assets resulting from operations	$	998,813		$	30,902,167		$	12,603,716		$	574,653		$	23,870,970

120

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	TOTAL RETURN PORTFOLIO		TOTAL RETURN PORTFOLIO II			GOVERNMENT INCOME PORTFOLIO			INFLATION PROTECTED BOND PORTFOLIO			GNMA PORTFOLIO			MANAGED INCOME PORTFOLIO			INTERNATIONAL BOND PORTFOLIO			HIGH YIELD BOND PORTFOLIO
Investment income:
Interest	$	10,769,341	$	75,288,723		$	47,745,374		$	689,078		$	4,682,391		$	18,562,351		$	11,673,425		$	61,735,994
Securities lending income (Note D)		110		6,642			—			—			—			256			—			224,509
Dividends		127,735		150,845			133,032			52,054			170,570			153,331			169,539			1,266,700
Interest from affiliates (Note D)		32,610		172,279			1,663			104			386			67,827			3,063			9,260
Total investment income		10,929,796		75,618,489			47,880,069			741,236			4,853,347			18,783,765			11,846,027			63,236,463
Expenses:
Investment advisory fees		1,079,499		6,858,679			4,103,856			198,592			493,786			1,845,552			1,707,795			3,665,401
Administration fees		161,925		898,247			544,472			37,236			67,334			264,853			226,762			492,316
Administration fees - class specific		53,965		265,323			190,817			12,432			22,450			89,775			77,656			188,915
Custodian fees		39,161		147,562			149,212			9,076			19,180			51,093			81,752			63,894
Transfer agent fees - class specific		5,856		362,872			2,138,731			50,489			40,653			55,965			331,603			788,878
Shareholder servicing fees - class specific		3,042		532,286			1,794,672			80,910			67,815			237,048			332,133			1,311,900
Distribution fees - class specific		4,914		385,555			1,296,597			182,532			121,819			21,832			240,077			914,837
Legal and audit fees		28,548		104,683			62,337			18,393			20,372			42,065			34,021			65,211
Printing fees		25,034		214,548			133,036			7,689			12,162			49,536			59,972			134,535
Registration fees and expenses		18,652		32,424			26,008			27,677			25,991			24,289			28,587			61,917
Officers’ and trustees’ fees		17,616		122,105			76,326			4,430			7,406			30,253			25,885			62,607
Other		15,245		93,272			43,300			4,870			8,547			26,762			25,213			69,961
Total expenses excluding interest expense		1,453,457		10,017,556			10,559,364			634,326			907,515			2,739,023			3,171,456			7,820,372
Interest expense		19,816		116,887			114,156			—			—			29,700			7,067			36,033
Total expenses		1,473,273		10,134,443			10,673,520			634,326			907,515			2,768,723			3,178,523			7,856,405
Less investment advisory fees waived		(522,264)		(2,483,939	)		(1,305,702	)		(164,284	)		(251,117	)		—			(1,822	)		(475,963	)
Less administration fees waived		—		—			—			(4,965	)		—			—			—			—
Less administration fees waived - class specific		(53,046)		(135,651	)		(65,860	)		(6,597	)		(1,478	)		(36,833	)		(15,837	)		(115,474	)
Less transfer agent fees waived - class specific		(1,556)		(6,086	)		(5,939	)		(266	)		(49	)		(285	)		(17,383	)		(31,891	)
Less transfer agent fees reimbursed - class specific		(2,955)		(6,026	)		(224,881	)		(5,645	)		(91	)		—			(6,634	)		(56,536	)
Less fees paid indirectly (Note D)		(14)		(625	)		(938	)		(46	)		(103	)		(44	)		(1,169	)		(3,984	)
Less expenses reimbursed by advisor		—		—			—			—			—			—			—			—
Net expenses		893,438		7,502,116			9,070,200			452,523			654,677			2,731,561			3,135,678			7,172,557
Net investment income		10,036,358		68,116,373			38,809,869			288,713			4,198,670			16,052,204			8,710,349			56,063,906
Realized and unrealized gain (loss):
Net realized gain (loss) from:
Payment from affiliate		—		—			—			—			—			—			17,441			—
Investment transactions		20,841		2,921,940			4,935,785			235,107			396,626			1,416,630			(1,633,041	)		3,552,262
Affiliated transactions		—		—			—			—			—			—			—			—
Options and swaptions written		623,753		4,641,920			741,915			86,167			97,828			1,266,349			914,260			217,050
Futures and swaps		26,038		1,006,285			6,678,870			(359,952	)		(256,295	)		683,003			(2,511,568	)		(406,949	)
Foreign currency related transactions		(144,574)		(1,030,673	)		—			57,289			—			(210,753	)		1,046,914			69,608
		526,058		7,539,472			12,356,570			18,611			238,159			3,155,229			(2,165,994	)		3,431,971
Change in unrealized appreciation/ depreciation from:
Investments - unaffiliated		434,396		(528,839	)		(7,307,387	)		(542,250	)		30,061			855,856			5,757,364			48,720,403
Investments - affiliated		(149)		33,747			2			—			12			(311	)		—			—
Options and swaptions written		(402,202)		(2,897,610	)		541,649			(55,780	)		71,035			(791,816	)		(733,760	)		—
Futures and swaps		(646,263)		(2,869,701	)		(13,478,512	)		567,886			2,261			(1,767,290	)		4,162,354			(834,525	)
Foreign currency related transactions		(38,556)		(202,031	)		—			(114,297	)		—			46,538			2,163,749			(289,586	)
		(652,774)		(6,464,434	)		(20,244,248	)		(144,441	)		103,369			(1,657,023	)		11,349,707			47,596,292
Net gain (loss) on investments and foreign currency transactions		(126,716)		1,075,038			(7,887,678	)		(125,830	)		341,528			1,498,206			9,183,713			51,028,263
Net increase in net assets resulting from operations	$	9,909,642	$	69,191,411		$	30,922,191		$	162,883		$	4,540,198		$	17,550,410		$	17,894,062		$	107,092,169

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	121

BLACKROCK FUNDS

STATEMENTS OF CHANGES IN NET ASSETS

	ENHANCED INCOME PORTFOLIO						LOW DURATION BOND PORTFOLIO						INTERMEDIATE GOVERNMENT BOND PORTFOLIO
	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase (decrease) in net assets:
Operations:
Net investment income	$	965,767		$	2,282,472		$	25,776,989		$	51,859,375		$	10,413,480		$	22,314,246
Net realized gain (loss)		(123,892	)		(190,913	)		(4,491,268	)		(14,830,513	)		11,227			(4,482,180	)
Net unrealized appreciation/depreciation		156,938			143,683			9,616,446			7,317,653			2,179,009			(1,066,796	)
Net increase in net assets resulting from operations		998,813			2,235,242			30,902,167			44,346,515			12,603,716			16,765,270
Distributions to shareholders from:
Net investment income:
BlackRock Class		(445,134	)		(1,001,401	)		(11,849,067	)		(22,974,841	)		—			—
Institutional Class		(518,168	)		(1,328,499	)		(4,504,430	)		(12,202,848	)		(3,958,361	)		(7,863,116	)
Service Class		(698	)		(1,983	)		(4,802,507	)		(13,055,360	)		(38,789	)		(29,358	)
Investor A Class		(1,767	)		(178	)		(1,444,668	)		(2,792,502	)		(5,188,413	)		(10,870,767	)
Investor A1 Class		—			—			(889,272	)		—			—			—
Investor B Class		—			—			(460,695	)		(1,149,559	)		(689,383	)		(1,711,485	)
Investor B1 Class		—			—			(31,394	)		—			—			—
Investor B2 Class		—			—			(293,828	)		—			—			—
Investor C Class		—			—			(720,212	)		(1,822,395	)		(204,666	)		(454,909	)
Investor C1 Class		—			—			(196,367	)		—			—			—
Investor C2 Class		—			—			(585,560	)		—			—			—
R Class		—			—			—			—			—			—
Total distributions from net investment income		(965,767	)		(2,332,061	)		(25,778,000	)		(53,997,505	)		(10,079,612	)		(20,929,635	)
Net realized gains:
BlackRock Class		—			—			—			—			—			—
Institutional Class		—			—			—			—			—			—
Service Class		—			—			—			—			—			—
Investor A Class		—			—			—			—			—			—
Investor B Class		—			—			—			—			—			—
Investor C Class		—			—			—			—			—			—
Total distributions from net realized gains		—			—			—			—			—			—
Total distributions to shareholders		(965,767	)		(2,332,061	)		(25,778,000	)		(53,997,505	)		(10,079,612	)		(20,929,635	)
Net increase (decrease) in net assets resulting from capital share transactions (Note F)		(8,916,799	)		(6,299,894	)		(28,929,522	)		(323,302,158	)		(33,159,491	)		(110,096,378	)
Redemption fees		—			—			—			—			—			—
Total increase (decrease) in net assets		(8,883,753	)		(6,396,713	)		(23,805,355	)		(332,953,148	)		(30,635,387	)		(114,260,743	)
Net assets:
Beginning of period		49,941,492			56,338,205			1,159,951,068			1,492,904,216			542,028,890			656,289,633
End of period	$	41,057,739		$	49,941,492		$	1,136,145,713		$	1,159,951,068		$	511,393,503		$	542,028,890
End of period undistributed net investment income	$	1,699		$	1,699		$	3,079,454		$	3,080,465		$	1,270,083		$	936,215

122

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	INTERMEDIATE BOND PORTFOLIO						INTERMEDIATE BOND PORTFOLIO II						TOTAL RETURN PORTFOLIO						TOTAL RETURN PORTFOLIO II
	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase (decrease) in net assets:
Operations:
Net investment income	$	486,056		$	1,371,821		$	19,920,544		$	35,823,993		$	10,036,358		$	15,760,682		$	68,116,373		$	117,716,854
Net realized gain (loss)		(104,299	)		(452,703	)		1,477,735			(12,857,702	)		526,058			(4,269,217	)		7,539,472			(29,953,057	)
Net unrealized appreciation/depreciation		192,896			198,351			2,472,691			7,240,644			(652,774	)		1,941,522			(6,464,434	)		8,936,495
Net increase in net assets resulting from operations		574,653			1,117,469			23,870,970			30,206,935			9,909,642			13,432,987			69,191,411			96,700,292
Distributions to shareholders from:
Net investment income:
BlackRock Class		(449,067	)		(1,352,615	)		(9,715,897	)		(18,211,520	)		(10,491,106	)		(15,613,345	)		(36,306,455	)		(70,543,266	)
Institutional Class		(21,972	)		(34,141	)		(7,129,501	)		(12,699,565	)		(125,070	)		(122,695	)		(22,959,604	)		(29,332,108	)
Service Class		(394	)		(3	)		(4,449,352	)		(4,401,447	)		(442	)		(4	)		(1,721,912	)		(5,760,546	)
Investor A Class		(2,509	)		(1,546	)		(640,324	)		(1,041,992	)		(18,433	)		(5,791	)		(5,130,016	)		(9,191,633	)
Investor A1 Class		—			—			—			—			—			—			—			—
Investor B Class		(3,645	)		(63	)		(139,524	)		(294,654	)		(9,670	)		(4,974	)		(623,215	)		(1,458,582	)
Investor B1 Class		—			—			—			—			—			—			—			—
Investor B2 Class		—			—			—			—			—			—			—			—
Investor C Class		(8,469	)		(3	)		(156,036	)		(272,689	)		(21,834	)		(2,419	)		(1,136,259	)		(2,225,927	)
Investor C1 Class		—			—			—			—			—			—			—			—
Investor C2 Class		—			—			—			—			—			—			—			—
R Class		—			—			—			—			(417	)		—			(389	)		—
Total distributions from net investment income		(486,056	)		(1,388,371	)		(22,230,634	)		(36,921,867	)		(10,666,972	)		(15,749,228	)		(67,877,850	)		(118,512,062	)
Net realized gains:
BlackRock Class		—			—			—			(43,118	)		—			(1,561,658	)		—			(7,579,173	)
Institutional Class		—			—			—			(33,239	)		—			—			—			(3,029,266	)
Service Class		—			—			—			(10,093	)		—			—			—			(773,275	)
Investor A Class		—			—			—			(2,968	)		—			(326	)		—			(1,017,963	)
Investor B Class		—			—			—			(1,115	)		—			(616	)		—			(230,083	)
Investor C Class		—			—			—			(954	)		—			(271	)		—			(339,860	)
Total distributions from net realized gains		—			—			—			(91,487	)		—			(1,562,871	)		—			(12,969,620	)
Total distributions to shareholders		(486,056	)		(1,388,371	)		(22,230,634	)		(37,013,354	)		(10,666,972	)		(17,312,099	)		(67,877,850	)		(131,481,682	)
Net increase (decrease) in net assets resulting from capital share transactions (Note F)		(20,338,459	)		507,462			(25,241,378	)		40,261,413			110,571,635			48,950,900			301,424,029			239,893,295
Redemption fees		—			—			—			47			—			—			—			—
Total increase (decrease) in net assets		(20,249,862	)		236,560			(23,601,042	)		33,455,041			109,814,305			45,071,788			302,737,590			205,111,905
Net assets:
Beginning of period		31,217,523			30,980,963			931,134,404			897,679,363			371,382,357			326,310,569			2,859,412,195			2,654,300,290
End of period	$	10,967,661		$	31,217,523		$	907,533,362		$	931,134,404		$	481,196,662		$	371,382,357		$	3,162,149,785		$	2,859,412,195
End of period undistributed net investment income	$	11,956		$	11,956		$	147,527		$	2,457,617		$	236,996		$	867,610		$	903,391		$	664,868

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	123

BLACKROCK FUNDS

STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)

	GOVERNMENT INCOME PORTFOLIO						INFLATION PROTECTED BOND PORTFOLIO						GNMA PORTFOLIO
	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase (decrease) in net assets:
Operations:
Net investment income	$	38,809,869		$	24,026,093		$	288,713		$	2,269,916		$	4,198,670		$	7,966,876
Net increase from payment by affiliate (Note D)		—			—			—			—			—			—
Net realized gain (loss)		12,356,570			(19,057,743	)		18,611			(486,080	)		238,159			(2,296,797	)
Net unrealized appreciation/depreciation		(20,244,248	)		8,915,962			(144,441	)		(504,916	)		103,369			498,499
Net increase (decrease) in net assets resulting from operations		30,922,191			13,884,312			162,883			1,278,920			4,540,198			6,168,578
Distributions to shareholders from:
Net investment income:
BlackRock Class		(238,077	)		(403,136	)		(151,484	)		(1,419,864	)		(313,010	)		(618,604	)
Institutional Class		(6,562,273	)		—			(168,662	)		(860,090	)		(2,981,833	)		(6,058,386	)
Service Class		(5,096	)		(8,945,494	)		(9,159	)		(168	)		(185,366	)		(407,663	)
Investor A Class		(21,661,453	)		(11,055,733	)		(103,093	)		(245,988	)		(350,015	)		(725,492	)
Investor B Class		(553,159	)		(1,150,622	)		(30,613	)		(123,422	)		(275,579	)		(735,437	)
Investor B1 Class		(3,844,486	)		—			—			—			—			—
Investor C Class		(659,683	)		(1,050,879	)		(113,593	)		(227,798	)		(389,239	)		(970,858	)
Investor C1 Class		(3,798,186	)		—			—			—			—			—
R Class		(699,494	)		—			—			—			—			—
Total distributions from net investment income		(38,021,907	)		(22,605,864	)		(576,604	)		(2,877,330	)		(4,495,042	)		(9,516,440	)
Net realized gains:
BlackRock Class		—			—			(47,940	)		(281,924	)		—			—
Institutional Class		—			—			(39,744	)		(170,004	)		—			—
Service Class		—			—			(1,305	)		(26	)		—			—
Investor A Class		—			—			(10,757	)		(49,045	)		—			—
Investor B Class		—			—			(5,534	)		(31,301	)		—			—
Investor C Class		—			—			(12,252	)		(49,018	)		—			—
Total distributions from net realized gains		—			—			(117,532	)		(581,318	)		—			—
Total distributions to shareholders		(38,021,907	)		(22,605,864	)		(694,136	)		(3,458,648	)		(4,495,042	)		(9,516,440	)
Net increase (decrease) in net assets resulting from capital share transactions (Note F)		1,519,894,310			(149,112,480	)		44,488,648			7,399,139			6,655,987			(23,163,869	)
Redemption fees		—			—			—			—			—			—
Total increase (decrease) in net assets		1,512,794,594			(157,834,032	)		43,957,395			5,219,411			6,701,143			(26,511,731	)
Net assets:
Beginning of period		385,990,971			543,825,003			43,772,164			38,552,753			175,875,115			202,386,846
End of period	$	1,898,785,565		$	385,990,971		$	87,729,559		$	43,772,164		$	182,576,258		$	175,875,115
End of period undistributed net investment income (distributions in excess of net investment income)	$	1,997,560		$	1,209,598		$	116,546		$	404,437		$	537,059		$	833,431

124

BLACKROCK FUNDS

	MANAGED INCOME PORTFOLIO						INTERNATIONAL BOND PORTFOLIO						HIGH YIELD BOND PORTFOLIO
	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase (decrease) in net assets:
Operations:
Net investment income	$	16,052,204		$	30,247,293		$	8,710,349		$	17,986,132		$	56,063,906		$	69,007,869
Net increase from payment by affiliate (Note D)		—			—			17,441			—			—			—
Net realized gain (loss)		3,155,229			(5,441,785	)		(2,183,435	)		(33,464,901	)		3,431,971			(7,076,607	)
Net unrealized appreciation/depreciation		(1,657,023	)		(2,273,292	)		11,349,707			14,896,179			47,596,292			9,257,194
Net increase (decrease) in net assets resulting from operations		17,550,410			22,532,216			17,894,062			(582,590	)		107,092,169			71,188,456
Distributions to shareholders from:
Net investment income:
BlackRock Class		—			—			(1,609,310	)		(3,055,276	)		(10,139,074	)		(14,009,489	)
Institutional Class		(12,088,482	)		(27,111,213	)		(2,944,412	)		(6,874,310	)		(7,140,435	)		(12,392,323	)
Service Class		(3,306,150	)		(4,636,981	)		(788,920	)		(1,982,878	)		(9,172,811	)		(13,837,518	)
Investor A Class		(474,984	)		(1,163,378	)		(1,404,957	)		(3,577,585	)		(17,533,574	)		(21,988,386	)
Investor B Class		(75,475	)		(209,930	)		(93,937	)		(274,801	)		(2,629,637	)		(6,406,519	)
Investor B1 Class		—			—			—			—			(3,216,340	)		—
Investor C Class		(18,071	)		(41,596	)		(347,913	)		(906,920	)		(1,835,922	)		(3,141,291	)
Investor C1 Class		—			—			—			—			(1,554,107	)		—
R Class		—			—			—			—			(135,869	)		—
Total distributions from net investment income		(15,963,162	)		(33,163,098	)		(7,189,449	)		(16,671,770	)		(53,357,769	)		(71,775,526	)
Net realized gains:
BlackRock Class		—			—			—			—			—			(2,582,656	)
Institutional Class		—			(3,040,738	)		—			—			—			(2,881,584	)
Service Class		—			(463,358	)		—			—			—			(2,823,364	)
Investor A Class		—			(138,959	)		—			—			—			(4,542,282	)
Investor B Class		—			(33,849	)		—			—			—			(1,871,545	)
Investor C Class		—			(6,487	)		—			—			—			(845,010	)
Total distributions from net realized gains		—			(3,683,391	)		—			—			—			(15,546,441	)
Total distributions to shareholders		(15,963,162	)		(36,846,489	)		(7,189,449	)		(16,671,770	)		(53,357,769	)		(87,321,967	)
Net increase (decrease) in net assets resulting from capital share transactions (Note F)		2,926,463			46,707,023			(70,525,643	)		(148,404,176	)		418,987,656			287,954,916
Redemption fees		—			—			8,085			17,759			29,329			74,102
Total increase (decrease) in net assets		4,513,711			32,392,750			(59,812,945	)		(165,640,777	)		472,751,385			271,895,507
Net assets:
Beginning of period		738,064,650			705,671,900			654,809,832			820,450,609			1,188,594,367			916,698,860
End of period	$	742,578,361		$	738,064,650		$	594,996,887		$	654,809,832		$	1,661,345,752		$	1,188,594,367
End of period undistributed net investment income (distributions in excess of net investment income)	$	(378,086	)	$	(467,129	)	$	(18,595,730	)	$	(20,116,630	)	$	2,453,529		$	(252,608	)

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
	125

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	BLACKROCK CLASS
ENHANCED INCOME PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041
				2006			2005
Net asset value, beginning of period	$	9.85		$	9.86		$	9.94		$	10.00
Net investment income2		0.23			0.40			0.29			0.11
Net realized and unrealized gain (loss) on investments		0.01			—			(0.08	)		(0.05	)
Net increase from investment operations		0.24			0.40			0.21			0.06
Dividends and distributions from:
Net investment income		(0.23	)		(0.41	)		(0.29	)		(0.12	)
Net asset value, end of period	$	9.86		$	9.85		$	9.86		$	9.94
Total return		2.44	%3		4.16	%		2.15	%		0.58	%3
Ratios/Supplemental data:
Net assets, end of period (000)	$	21,181		$	18,172		$	23,641		$	18,677
Ratio of net expenses to average net assets		0.31	%4		0.30	%		0.32	%		0.30	%4,5
Ratio of net expenses to average net assets (excluding interest expense)		0.30	%4		0.30	%		0.30	%		0.30	%4,5
Ratio of total expenses to average net assets (excluding waivers)		0.72	%4		0.69	%		0.72	%		1.14	%4,5
Ratio of net investment income to average net assets		4.65	%4		4.09	%		2.94	%		1.87	%4,5
Ratio of net investment income to average net assets (excluding waivers)		4.24	%4		3.70	%		2.54	%		1.03	%4,5
Portfolio turnover rate		26	%		108	%		147	%		208	%
	INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/046
				2006			2005
Net asset value, beginning of period	$	9.85		$	9.86		$	9.94		$	10.00
Net investment income2		0.23			0.40			0.27			0.09
Net realized and unrealized gain (loss) on investments		0.01			—			(0.07	)		(0.05	)
Net increase from investment operations		0.24			0.40			0.20			0.04
Dividends and distributions from:
Net investment income		(0.23	)		(0.41	)		(0.28	)		(0.10	)
Net asset value, end of period	$	9.86		$	9.85		$	9.86		$	9.94
Total return		2.43	%3		4.11	%		2.05	%		0.40	%3
Ratios/Supplemental data:
Net assets, end of period (000)	$	19,724		$	31,696		$	32,646		$	35,967
Ratio of net expenses to average net assets		0.34	%4		0.36	%		0.41	%		0.40	%4,5
Ratio of net expenses to average net assets (excluding interest expense)		0.33	%4		0.36	%		0.40	%		0.40	%4,5
Ratio of total expenses to average net assets (excluding waivers)		0.73	%4		0.74	%		0.83	%		1.26	%4,5
Ratio of net investment income to average net assets		4.62	%4		4.04	%		2.74	%		1.77	%4,5
Ratio of net investment income to average net assets (excluding waivers)		4.23	%4		3.66	%		2.32	%		0.91	%4,5
Portfolio turnover rate		26	%		108	%		147	%		208	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

126

BLACKROCK FUNDS

	SERVICE CLASS												INVESTOR A CLASS
ENHANCED INCOME PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/046			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/046
				2006			2005									2006			2005
Net asset value, beginning of period	$	9.70		$	9.70		$	9.86		$	10.00		$	9.84		$	9.85		$	9.93			10.00
Net investment income2		0.21			0.37			0.27			0.14			0.20			0.35			0.28			0.06
Net realized and unrealized gain (loss) on investments		0.01			—			(0.11	)		(0.08	)		0.02			—			(0.12	)		(0.07	)
Net increase (decrease) from investment operations		0.22			0.37			0.16			0.06			0.22			0.35			0.16			(0.01	)
Dividends and distributions from:
Net investment income		(0.21	)		(0.37	)		(0.32	)		(0.20	)		(0.21	)		(0.36	)		(0.24	)		(0.06	)
Net asset value, end of period	$	9.71		$	9.70		$	9.70		$	9.86		$	9.85		$	9.84		$	9.85		$	9.93
Total return		2.26	%3		3.94	%		1.66	%		0.61	%3		2.22	%3,7		3.65	%7		1.62	%7		(0.12	)%3,7
Ratios/Supplemental data:
Net assets, end of period (000)	$	47		$	21		$	49		$	—	8	$	106		$	52		$	2		$	—	8
Ratio of net expenses to average net assets		0.76	%4		0.74	%		0.74	%		0.71	%4		0.71	%4		0.79	%		0.74	%		0.71	%4
Ratio of net expenses to average net assets (excluding interest expense)		0.75	%4		0.74	%		0.71	%		0.71	%4		0.70	%4		0.79	%		0.71	%		0.71	%4
Ratio of total expenses to average net assets (excluding waivers)		2.04	%4		1.29	%		1.09	%		1.51	%4		1.15	%4		3.19	%		1.19	%		1.61	%4
Ratio of net investment income to average net assets		4.25	%4		3.80	%		2.77	%		1.46	%4		4.14	%4		3.72	%		2.77	%		1.46	%4
Ratio of net investment income to average net assets (excluding waivers)		2.97	%4		3.25	%		2.42	%		0.66	%4		3.70	%4		1.32	%		2.32	%		0.56	%4
Portfolio turnover rate		26	%		108	%		147	%		208	%		26	%		108	%		147	%		208	%

¹ Commencement of operations of share class effective 3/04/04.

² Calculated using the average shares outstanding method.

³ Not annualized.

⁴ Annualized.

⁵ Non-annualized ratios were previously disclosed as annualized. Ratios updated to reflect annualization.

⁶ Commencement of operations of share class effective 3/19/04.

⁷ Sales load not reflected in total return.

⁸ Net assets end of period are less than $500.

127

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	BLACKROCK CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
LOW DURATION BOND PORTFOLIO				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.86		$	9.92		$	10.09		$	10.23		$	10.25		$	10.20
Net investment income		0.22	2		0.40	2		0.32	2		0.23	2		0.30	3		0.42	3
Net realized and unrealized gain (loss) on investments		0.05			(0.05	)		(0.17	)		(0.12	)		0.01	3		0.13	3
Net increase from investment operations		0.27			0.35			0.15			0.11			0.31			0.55
Dividends and distributions from:
Net investment income		(0.22	)		(0.41	)		(0.32	)		(0.21	)		(0.32	)		(0.45	)
Net realized gains		—			—			—			(0.04	)		(0.01	)		(0.05	)
Total dividends and distributions		(0.22	)		(0.41	)		(0.32	)		(0.25	)		(0.33	)		(0.50	)
Redemption fees added to paid-in capital		—			—			—	4		—			—			—
Net asset value, end of period	$	9.91		$	9.86		$	9.92		$	10.09		$	10.23		$	10.25
Total return		2.73	%5		3.61	%		1.49	%6		1.18	%		2.98	%		5.58	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	459,721		$	540,714		$	543,043		$	772,355		$	625,363		$	281,844
Ratio of net expenses to average net assets		0.41	%7		0.41	%		0.40	%		0.40	%		0.40	%		0.40	%
Ratio of net expenses to average net assets (excluding interest expense)		0.40	%7		0.40	%		0.40	%		0.40	%		0.40	%		0.40	%
Ratio of total expenses to average net assets (excluding waivers)		0.66	%7		0.68	%		0.68	%		0.65	%		0.67	%		0.79	%
Ratio of net investment income to average net assets		4.39	%7		4.02	%		3.22	%		2.25	%		2.31	%3		3.86	%3
Ratio of net investment income to average net assets (excluding waivers)		4.14	%7		3.75	%		2.94	%		1.99	%		2.04	%3		3.47	%3
Portfolio turnover rate		67	%		72	%		127	%		216	%		195	%		195	%
	INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.87		$	9.93		$	10.09		$	10.23		$	10.25		$	10.21
Net investment income		0.21	2		0.38	2		0.31	2		0.21	2		0.26	3		0.41	3
Net realized and unrealized gain (loss) on investments		0.05			(0.04	)		(0.17	)		(0.11	)		0.03	3		0.12	3
Net increase from investment operations		0.26			0.34			0.14			0.10			0.29			0.53
Dividends and distributions from:
Net investment income		(0.21	)		(0.40	)		(0.30	)		(0.20	)		(0.30	)		(0.44	)
Net realized gains		—			—			—			(0.04	)		(0.01	)		(0.05	)
Total dividends and distributions		(0.21	)		(0.40	)		(0.30	)		(0.24	)		(0.31	)		(0.49	)
Redemption fees added to paid-in capital		—			—			—	4		—			—			—
Net asset value, end of period	$	9.92		$	9.87		$	9.93		$	10.09		$	10.23		$	10.25
Total return		2.70	%5		3.51	%		1.43	%6		1.03	%		2.82	%		5.32	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	195,189		$	218,192		$	378,712		$	477,622		$	477,420		$	298,698
Ratio of net expenses to average net assets		0.46	%7		0.50	%		0.55	%		0.55	%		0.55	%		0.55	%
Ratio of net expenses to average net assets (excluding interest expense)		0.45	%7		0.49	%		0.55	%		0.55	%		0.55	%		0.55	%
Ratio of total expenses to average net assets (excluding waivers)		0.69	%7		0.73	%		0.80	%		0.78	%		0.80	%		0.81	%
Ratio of net investment income to average net assets		4.35	%7		3.88	%		3.07	%		2.09	%		2.28	%3		3.76	%3
Ratio of net investment income to average net assets (excluding waivers)		4.12	%7		3.65	%		2.82	%		1.86	%		2.03	%3		3.50	%3
Portfolio turnover rate		67	%		72	%		127	%		216	%		195	%		195	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

128

BLACKROCK FUNDS

	SERVICE CLASS																		INVESTOR A CLASS
LOW DURATION BOND PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.87		$	9.93		$	10.09		$	10.23		$	10.25		$	10.21		$	9.87		$	9.93		$	10.10		$	10.24		$	10.26		$	10.21
Net investment income		0.19	2		0.35	2		0.28	2		0.19	2		0.24	3		0.38	3		0.20	2		0.35	2		0.28	2		0.18	2		0.21	3		0.36	3
Net realized and unrealized gain (loss) on investments		0.05			(0.04	)		(0.16	)		(0.12	)		0.02	3		0.12	3		0.05			(0.04	)		(0.17	)		(0.12	)		0.04	3		0.13	3
Net increase from investment operations		0.24			0.31			0.12			0.07			0.26			0.50			0.25			0.31			0.11			0.06			0.25			0.49
Dividends and distributions from:
Net investment income		(0.19	)		(0.37	)		(0.28	)		(0.17	)		(0.27	)		(0.41	)		(0.20	)		(0.37	)		(0.28	)		(0.16	)		(0.26	)		(0.39	)
Net realized gains		—			—			—			(0.04	)		(0.01	)		(0.05	)		—			—			—			(0.04	)		(0.01	)		(0.05	)
Total dividends and distributions		(0.19	)		(0.37	)		(0.28	)		(0.21	)		(0.28	)		(0.46	)		(0.20	)		(0.37	)		(0.28	)		(0.20	)		(0.27	)		(0.44	)
Redemption fees added to paid-in capital		—			—			—	4		—			—			—			—			—			—	4		—			—			—
Net asset value, end of period	$	9.92		$	9.87		$	9.93		$	10.09		$	10.23		$	10.25		$	9.92		$	9.87		$	9.93		$	10.10		$	10.24		$	10.26
Total return		2.50	%5		3.19	%		1.17	%6		0.73	%		2.52	%		5.01	%		2.52	%5,8		3.18	%8		1.07	%6,8		0.69	%8		2.47	%8		4.93	%8
Ratios/Supplemental data:
Net assets, end of period (000)	$	242,215		$	246,965		$	377,470		$	345,733		$	248,426		$	120,857		$	67,929		$	72,077		$	75,652		$	87,317		$	102,047		$	69,211
Ratio of net expenses to average net assets		0.86	%7		0.82	%		0.81	%		0.84	%		0.85	%		0.85	%		0.82	%7		0.82	%		0.81	%		0.88	%		0.90	%		1.02	%
Ratio of net expenses to average net assets (excluding interest expense)		0.85	%7		0.81	%		0.81	%		0.84	%		0.85	%		0.85	%		0.81	%7		0.81	%		0.81	%		0.88	%		0.90	%		1.02	%
Ratio of total expenses to average net assets (excluding waivers)		1.07	%7		1.04	%		1.05	%		1.07	%		1.10	%		1.11	%		1.10	%7		1.19	%		1.15	%		1.27	%		1.20	%		1.27	%
Ratio of net investment income to average net assets		3.93	%7		3.59	%		2.82	%		1.83	%		1.94	%3		3.40	%3		4.01	%7		3.58	%		2.81	%		1.74	%		1.91	%3		3.18	%3
Ratio of net investment income to average net assets (excluding waivers)		3.72	%7		3.37	%		2.58	%		1.60	%		1.69	%3		3.15	%3		3.73	%7		3.21	%		2.47	%		1.35	%		1.61	%3		2.93	%3
Portfolio turnover rate		67	%		72	%		127	%		216	%		195	%		195	%		67	%		72	%		127	%		216	%		195	%		195	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ As discussed in our prior year financial statements, certain prior year amounts were reclassified to conform to new presentation guidelines.

⁴ Redemption fees added to paid-in capital are less than $0.005 per share.

⁵ Not annualized.

⁶ Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

⁷ Annualized.

⁸ Sales load not reflected in total return.

129

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INVESTOR A1 CLASS			INVESTOR B CLASS
	PERIOD ENDED 3/31/071 (UNAUDITED)			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
LOW DURATION BOND PORTFOLIO							2006			2005			2004			20032			20022
Net asset value, beginning of period	$	9.88		$	9.87		$	9.93		$	10.09		$	10.23		$	10.25		$	10.21
Net investment income		0.20	3		0.16			0.28	3		0.21	3		0.10	3		0.15	4		0.29	4
Net realized and unrealized gain (loss) on investments		0.05			0.0 5			(0.05	)		(0.17	)		(0.11	)		0.03	4		0.12	4
Net increase (decrease) from investment operations		0.25			0.21			0.23			0.04			(0.01	)		0.18			0.41
Dividends and distributions from:
Net investment income		(0.20	)		(0.16	)		(0.29	)		(0.20	)		(0.09	)		(0.19	)		(0.32	)
Net realized gains		—			—			—			—			(0.04	)		(0.01	)		(0.05	)
Total dividends and distributions		(0.20	)		(0.16	)		(0.29	)		(0.20	)		(0.13	)		(0.20	)		(0.37	)
Redemption fees added to paid-in capital		—			—			—			—	5		—			—			—
Net asset value, end of period	$	9.93		$	9.92		$	9.87		$	9.93		$	10.09		$	10.23		$	10.25
Total return		2.61	%6,7		2.13	%6,8		2.41	%8		0.41	%8,9		(0.06	)%8		1.70	%8		4.05	%8
Ratios/Supplemental data:
Net assets, end of period (000)	$	44,849		$	26,126		$	31,938		$	45,942		$	66,253		$	83,937		$	53,087
Ratio of net expenses to average net assets		0.63	%10		1.57	%10		1.57	%		1.56	%		1.63	%		1.65	%		1.77	%
Ratio of net expenses to average net assets (excluding interest expense)		0.62	%10		1.56	%10		1.56	%		1.56	%		1.63	%		1.65	%		1.77	%
Ratio of total expenses to average net assets (excluding waivers)		1.11	%10		1.86	%10		1.86	%		1.81	%		1.92	%		1.95	%		2.02	%
Ratio of net investment income to average net assets		4.19	%10		3.25	%10		2.83	%		2.06	%		1.00	%		1.17	%4		2.48	%4
Ratio of net investment income to average net assets (excluding waivers)		3.71	%10		2.96	%10		2.54	%		1.81	%		0.71	%		0.87	%4		2.23	%4
Portfolio turnover rate		67	%		67	%		72	%		127	%		216	%		195	%		195	%

	INVESTOR B1 CLASS			INVESTOR B2 CLASS
	PERIOD ENDED 3/31/071 (UNAUDITED)			PERIOD ENDED 3/31/071 (UNAUDITED)
Net asset value, beginning of period	$	9.87		$	9.87
Net investment income		0.17	3		0.19	3
Net realized and unrealized gain on investments		0.05			0.05
Net increase from investment operations		0.22			0.24
Dividends and distributions from:
Net investment income		(0.17	)		(0.19	)
Net realized gains		—			—
Total dividends and distributions		(0.17	)		(0.19	)
Redemption fees added to paid-in capital		—			—
Net asset value, end of period	$	9.92		$	9.92
Total return		2.27	%6,8		2.45	%6,8
Ratios/Supplemental data:
Net assets, end of period (000)	$	1,575		$	14,780
Ratio of net expenses to average net assets		1.30	%10		0.95	%10
Ratio of net expenses to average net assets (excluding interest expense)		1.29	%10		0.94	%10
Ratio of total expenses to average net assets (excluding waivers)		1.74	%10		2.08	%10
Ratio of net investment income to average net assets		3.51	%10		3.86	%10
Ratio of net investment income to average net assets (excluding waivers)		3.07	%10		2.73	%10
Portfolio turnover rate		67	%		67	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

130

BLACKROCK FUNDS

	INVESTOR C CLASS																		INVESTOR C1 CLASS			INVESTOR C2 CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/071 (UNAUDITED)			PERIOD ENDED 3/31/071 (UNAUDITED)
LOW DURATION BOND PORTFOLIO				2006			2005			2004			20032			20022
Net asset value, beginning of period	$	9.87		$	9.93		$	10.09		$	10.23		$	10.25		$	10.21		$	9.87		$	9.87
Net investment income		0.16	3		0.28	3		0.21	3		0.10	3		0.15	4		0.30	4		0.17	3		0.19	3
Net realized and unrealized gain (loss) on investments		0.05			(0.05	)		(0.17	)		(0.11	)		0.03	4		0.11	4		0.05			0.05
Net increase (decrease) from investment operations		0.21			0.23			0.04			(0.01	)		0.18			0.41			0.22			0.24
Dividends and distributions from:
Net investment income		(0.16	)		(0.29	)		(0.20	)		(0.09	)		(0.19	)		(0.32	)		(0.17	)		(0.19	)
Net realized gains		—			—			—			(0.04	)		(0.01	)		(0.05	)		—			—
Total dividends and distributions		(0.16	)		(0.29	)		(0.20	)		(0.13	)		(0.20	)		(0.37	)		(0.17	)		(0.19	)
Redemption fees added to paid-in capital		—			—			—	5		—			—			—			—			—
Net asset value, end of period	$	9.92		$	9.87		$	9.93		$	10.09		$	10.23		$	10.25		$	9.92		$	9.92
Total return		2.13	%6,8		2.42	%8		0.41	%8,9		(0.06	)%8		1.70	%8		4.05	%8		2.25	%6,8		2.45	%6,8
Ratios/Supplemental data:
Net assets, end of period (000)	$	40,935		$	50,065		$	72,085		$	124,548		$	198,234		$	118,851		$	11,424		$	31,402,435
Ratio of net expenses to average net assets		1.57	%10		1.57	%		1.57	%		1.63	%		1.65	%		1.77	%		1.34	%10		0.95	%10
Ratio of net expenses to average net assets (excluding interest expense)		1.56	%10		1.56	%		1.57	%		1.63	%		1.65	%		1.77	%		1.33	%10		0.94	%10
Ratio of total expenses to average net assets (excluding waivers)		1.82	%10		1.84	%		1.81	%		1.93	%		1.95	%		2.00	%		1.63	%10		1.36	%10
Ratio of net investment income to average net assets		3.25	%10		2.84	%		2.06	%		0.98	%		1.16	%4		2.30	%4		3.48	%10		3.86	%10
Ratio of net investment income to average net assets (excluding waivers)		3.00	%10		2.57	%		1.82	%		0.69	%		0.86	%4		2.05	%4		3.19	%10		3.45	%10
Portfolio turnover rate		67	%		72	%		127	%		216	%		195	%		195	%		67	%		67	%

¹ Commencement of operations of share class effective 10/02/06.

² Audited by other auditors.

³ Calculated using the average shares outstanding method.

⁴ As discussed in our prior year financial statements, certain prior year amounts were reclassified to conform to new presentation guidelines.

⁵ Redemption fees added to paid-in capital are less than $0.005 per share.

⁶ Not annualized.

⁷ Sales load not reflected in total return.

⁸ Contingent deferred sales load not reflected in total return.

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

¹⁰ Annualized.

131

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS																		SERVICE CLASS
INTERMEDIATE GOVERNMENT BOND PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	10.15		$	10.20		$	10.45		$	10.63		$	10.82		$	10.55		$	10.14		$	10.19		$	10.44		$	10.62		$	10.81		$	10.55
Net investment income		0.22	2		0.42	2		0.39	2		0.38	2		0.48	3		0.55	3		0.21	2		0.39	2		0.36	2		0.35	2		0.45	3		0.52	3
Net realized and unrealized gain (loss) on investments		0.04			(0.07	)		(0.25	)		(0.17	)		(0.15	)3		0.26	3		0.04			(0.07	)		(0.25	)		(0.17	)		(0.16	)3		0.25	3
Net increase from investment operations		0.26			0.35			0.14			0.21			0.33			0.81			0.25			0.32			0.11			0.18			0.29			0.77
Dividends and distributions from:
Net investment income		(0.21	)		(0.40	)		(0.26	)		(0.39	)		(0.52	)		(0.54	)		(0.20	)		(0.37	)		(0.24	)		(0.36	)		(0.48	)		(0.51	)
Tax return of capital		—			—			(0.08	)		—			—			—			—			—			(0.07	)		—			—			—
Net realized gains		—			—			(0.05	)		—			—			—			—			—			(0.05	)		—			—			—
Total dividends and distributions		(0.21	)		(0.40	)		(0.39	)		(0.39	)		(0.52	)		(0.54	)		(0.20	)		(0.37	)		(0.36	)		(0.36	)		(0.48	)		(0.51	)
Net asset value, end of period	$	10.20		$	10.15		$	10.20		$	10.45		$	10.63		$	10.82		$	10.19		$	10.14		$	10.19		$	10.44		$	10.62		$	10.81
Total return		2.62	%4		3.48	%		1.38	%		2.01	%		3.09	%		7.97	%		2.47	%4		3.18	%		1.08	%		1.71	%		2.79	%		7.56	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	190,536		$	190,154		$	214,980		$	236,212		$	230,609		$	281,983		$	1,231		$	831		$	842		$	1,235		$	1,447		$	2,007
Ratio of net expenses to average net assets		0.60	%5		0.60	%		0.60	%		0.60	%		0.60	%		0.60	%		0.90	%5		0.90	%		0.90	%		0.86	%		0.90	%		0.91	%
Ratio of net expenses to average net assets (excluding interest expense)		0.60	%5		0.60	%		0.60	%		0.60	%		0.60	%		0.60	%		0.90	%5		0.90	%		0.90	%		0.86	%		0.90	%		0.90	%
Ratio of total expenses to average net assets (excluding waivers)		0.69	%5		0.77	%		0.89	%		0.84	%		0.85	%		0.83	%		0.96	%5		1.10	%		1.14	%		1.08	%		1.15	%		1.12	%
Ratio of net investment income to average net assets		4.34	%5		4.14	%		3.78	%		3.62	%		4.51	%3		5.38	%3		4.06	%5		3.86	%		3.48	%		3.38	%		4.22	%3		5.34	%3
Ratio of net investment income to average net assets (excluding waivers)		4.25	%5		3.97	%		3.49	%		3.38	%		4.26	%3		5.16	%3		4.00	%5		3.66	%		3.24	%		3.16	%		3.97	%3		5.12	%3
Portfolio turnover rate		23	%		92	%		194	%		200	%		143	%		183	%		23	%		92	%		194	%		200	%		143	%		183	%
	INVESTOR A CLASS																		INVESTOR B CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	10.17		$	10.23		$	10.47		$	10.65		$	10.84		$	10.57		$	10.15		$	10.20		$	10.45		$	10.62		$	10.82		$	10.55
Net investment income		0.20	2		0.38	2		0.35	2		0.33	2		0.44	3		0.51	3		0.16	2		0.30	2		0.27	2		0.25	2		0.34	3		0.43	3
Net realized and unrealized gain (loss) on investments		0.04			(0.09	)		(0.24	)		(0.17	)		(0.16	)3		0.25	3		0.04			(0.07	)		(0.24	)		(0.16	)		(0.15	)3		0.25	3
Net increase from investment operations		0.24			0.29			0.11			0.16			0.28			0.76			0.20			0.23			0.03			0.09			0.19			0.68
Dividends and distributions from:
Net investment income		(0.19	)		(0.35	)		(0.23	)		(0.34	)		(0.47	)		(0.49	)		(0.15	)		(0.28	)		(0.18	)		(0.26	)		(0.39	)		(0.41	)
Tax return of capital		—			—			(0.07	)		—			—			—			—			—			(0.05	)		—			—			—
Net realized gains		—			—			(0.05	)		—			—			—			—			—			(0.05	)		—			—			—
Total dividends and distributions		(0.19	)		(0.35	)		(0.35	)		(0.34	)		(0.47	)		(0.49	)		(0.15	)		(0.28	)		(0.28	)		(0.26	)		(0.39	)		(0.41	)
Net asset value, end of period	$	10.22		$	10.17		$	10.23		$	10.47		$	10.65		$	10.84		$	10.20		$	10.15		$	10.20		$	10.45		$	10.62		$	10.82
Total return		2.40	%4,6		2.96	%6		1.07	%6		1.54	%6		2.60	%6		7.46	%6		2.00	%4,7		2.26	%7		0.22	%7		0.88	%7		1.75	%7		6.68	%7
Ratios/Supplemental data:
Net assets, end of period (000)	$	264,839		$	285,303		$	345,132		$	43,500		$	54,693		$	52,507		$	41,645		$	51,314		$	75,182		$	10,533		$	12,312		$	8,197
Ratio of net expenses to average net assets		1.02	%5		1.00	%		0.99	%		1.05	%		1.07	%		1.08	%		1.82	%5		1.79	%		1.75	%		1.80	%		1.82	%		1.81	%
Ratio of net expenses to average net assets (excluding interest expense)		1.02	%5		1.00	%		0.99	%		1.05	%		1.07	%		1.07	%		1.82	%5		1.79	%		1.75	%		1.80	%		1.82	%		1.81	%
Ratio of total expenses to average net assets (excluding waivers)		1.06	%5		1.19	%		1.25	%		1.33	%		1.32	%		1.30	%		1.96	%5		1.91	%		1.90	%		1.98	%		2.06	%		2.04	%
Ratio of net investment income to average net assets		3.91	%5		3.74	%		3.43	%		3.17	%		3.99	%3		4.83	%3		3.13	%5		2.95	%		2.69	%		2.43	%		3.22	%3		4.00	%3
Ratio of net investment income to average net assets (excluding waivers)		3.87	%5		3.55	%		3.17	%		2.89	%		3.75	%3		4.61	%3		2.99	%5		2.83	%		2.54	%		2.25	%		2.97	%3		3.78	%3
Portfolio turnover rate		23	%		92	%		194	%		200	%		143	%		183	%		23	%		92	%		194	%		200	%		143	%		183	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

132

BLACKROCK FUNDS

	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
INTERMEDIATE GOVERNMENT BOND PORTFOLIO				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	10.15		$	10.21		$	10.46		$	10.63		$	10.83		$	10.55
Net investment income		0.16	2		0.30	2		0.27	2		0.26	2		0.34	3		0.42	3
Net realized and unrealized gain (loss) on investments		0.04			(0.08	)		(0.24	)		(0.17	)		(0.15	)3		0.27	3
Net increase from investment operations		0.20			0.22			0.03			0.09			0.19			0.69
Dividends and distributions from:
Net investment income		(0.15	)		(0.28	)		(0.18	)		(0.26	)		(0.39	)		(0.41	)
Tax return of capital		—			—			(0.05	)		—			—			—
Net realized gains		—			—			(0.05	)		—			—			—
Total dividends and distributions		(0.15	)		(0.28	)		(0.28	)		(0.26	)		(0.39	)		(0.41	)
Net asset value, end of period	$	10.20		$	10.15		$	10.21		$	10.46		$	10.63		$	10.83
Total return7		2.00	%4		2.16	%		0.22	%		0.88	%		1.75	%		6.77	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	13,143		$	14,426		$	20,154		$	14,194		$	18,028		$	7,389
Ratio of net expenses to average net assets		1.82	%5		1.79	%		1.75	%		1.80	%		1.82	%		1.81	%
Ratio of net expenses to average net assets (excluding interest expense)		1.82	%5		1.79	%		1.75	%		1.80	%		1.82	%		1.81	%
Ratio of total expenses to average net assets (excluding waivers)		1.89	%5		1.90	%		1.90	%		1.98	%		2.06	%		2.03	%
Ratio of net investment income to average net assets		3.13	%5		2.96	%		2.66	%		2.45	%		3.13	%3		3.93	%3
Ratio of net investment income to average net assets (excluding waivers)		3.06	%5		2.85	%		2.51	%		2.27	%		2.89	%3		3.71	%3
Portfolio turnover rate		23	%		92	%		194	%		200	%		143	%		183	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ As discussed in our prior year financial statements, certain prior year amounts were reclassified to conform to new presentation guidelines.

⁴ Not annualized.

⁵ Annualized.

⁶ Sales load not reflected in total return.

⁷ Contingent deferred sales load not reflected in total return.

133

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	BLACKROCK CLASS												INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041
INTERMEDIATE BOND PORTFOLIO				2006			2005									2006			2005
Net asset value, beginning of period	$	9.74		$	9.82		$	10.01		$	10.00		$	10.09		$	10.17		$	10.06		$	10.00
Net investment income		0.23	2		0.43	2		0.37	2		0.10	2		0.23	2		0.43	2		0.31	2		0.06	2
Net realized and unrealized gain (loss) on investments		(0.01	)		(0.07	)		(0.17	)		(0.04	)		(0.02	)		(0.08	)		(0.13	)		—
Net increase from investment operations		0.22			0.36			0.20			0.06			0.21			0.35			0.18			0.06
Dividends and distributions from:
Net investment income		(0.23	)		(0.44	)		(0.38	)		(0.05	)		(0.22	)		(0.43	)		(0.06	)		—
Net realized gains		—			—			(0.01	)		—			—			—			(0.01	)		—
Total dividends and distributions		(0.23	)		(0.44	)		(0.39	)		(0.05	)		(0.22	)		(0.43	)		(0.07	)		—
Net asset value, end of period	$	9.73		$	9.74		$	9.82		$	10.01		$	10.08		$	10.09		$	10.17		$	10.06
Total return		2.24	%3		3.75	%		1.98	%		0.57	%3		2.13	%3		3.53	%		1.78	%		0.60	%3
Ratios/Supplemental data:
Net assets, end of period (000)	$	8,826		$	30,370		$	30,133		$	25,918		$	437		$	800		$	826		$	—	4
Ratio of net expenses to average net assets		0.48	%5		0.40	%		0.40	%		0.40	%5,6		0.52	%5		0.47	%		0.55	%		0.55	%5
Ratio of net expenses to average net assets (excluding interest expense)		0.40	%5		0.40	%		0.40	%		0.40	%5,6		0.44	%5		0.47	%		0.55	%		0.55	%5
Ratio of total expenses to average net assets (excluding waivers)		1.09	%5		0.96	%		1.04	%		3.40	%5,6		1.63	%5		0.98	%		1.18	%		3.52	%5
Ratio of net investment income to average net assets		4.65	%5		4.46	%		3.72	%		3.91	%5,6		4.49	%5		4.23	%		3.63	%		3.76	%5
Ratio of net investment income to average net assets (excluding waivers)		4.04	%5		3.90	%		3.08	%		0.91	%5,6		3.38	%5		3.72	%		3.00	%		0.79	%5
Portfolio turnover rate		46	%		142	%		217	%		114	%		46	%		142	%		217	%		114	%
		SERVICE CLASS												INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041
					2006			2005									2006			2005
Net asset value, beginning of period	$	10.17		$	10.19		$	10.04		$	10.00		$	9.92		$	10.02		$	10.06		$	10.00
Net investment income		0.20	2		0.41	2		0.33	2		0.01	2		0.20	2		0.40	2		0.33	2		0.06	2
Net realized and unrealized gain (loss) on investments		(0.01	)		(0.10	)		(0.17	)		0.03			0.01			(0.10	)		(0.17	)		—
Net increase from investment operations		0.19			0.31			0.16			0.04			0.21			0.30			0.16			0.06
Dividends and distributions from:
Net investment income		(0.20	)		(0.33	)		—			—			(0.21	)		(0.40	)		(0.19	)		—
Net realized gains		—			—			(0.01	)		—			—			—			(0.01	)		—
Total dividends and distributions		(0.20	)		(0.33	)		(0.01	)		—			(0.21	)		(0.40	)		(0.20	)		—
Net asset value, end of period	$	10.16		$	10.17		$	10.19		$	10.04		$	9.92		$	9.92		$	10.02		$	10.06
Total return		1.91	%3		3.10	%		1.58	%		0.40	%3		2.09	%3,7		3.04	%7		1.60	%7		0.60	%3,7
Ratios/Supplemental data:
Net assets, end of period (000)	$	20		$	—	4	$	—	4	$	—	4	$	238		$	46		$	20		$	—	4
Ratio of net expenses to average net assets		0.93	%5		0.84	%		0.80	%		0.81	%5		0.87	%5		0.86	%		0.80	%		0.81	%5
Ratio of net expenses to average net assets (excluding interest expense)		0.85	%5		0.84	%		0.80	%		0.81	%5		0.79	%5		0.86	%		0.80	%		0.81	%5
Ratio of total expenses to average net assets (excluding waivers)		2.15	%5		57.31	%		1.42	%		3.77	%5		4.26	%5		1.52	%		1.52	%		3.87	%5
Ratio of net investment income to average net assets		3.98	%5		3.96	%		3.37	%		3.50	%5		4.12	%5		3.96	%		3.37	%		3.50	%5
Ratio of net investment income (loss) to average net assets (excluding waivers)		2.75	%5		(52.51	)%		2.75	%		0.54	%5		0.73	%5		3.30	%		2.65	%		0.44	%5
Portfolio turnover rate		46	%		142	%		217	%		114	%		46	%		142	%		217	%		114	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

134

BLACKROCK FUNDS

	INVESTOR B CLASS												INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041
INTERMEDIATE BOND PORTFOLIO				2006			2005									2006			2005
Net asset value, beginning of period	$	9.93		$	10.01		$	10.06		$	10.00		$	10.10		$	10.13		$	10.06		$	10.00
Net investment income		0.17	2		0.32	2		0.23	2		0.06	2		0.16	2		0.32	2		0.19	2		0.06	2
Net realized and unrealized gain (loss) on investments		(0.01	)		(0.08	)		(0.15	)		—			—			(0.09	)		(0.11	)		—
Net increase from investment operations		0.16			0.24			0.08			0.06			0.16			0.23			0.08			0.06
Dividends and distributions from:
Net investment income		(0.17	)		(0.32	)		(0.12	)		—			(0.17	)		(0.26	)		—			—
Net realized gains		—			—			(0.01	)		—			—			—			(0.01	)		—
Total dividends and distributions		(0.17	)		(0.32	)		(0.13	)		—			(0.17	)		(0.26	)		(0.01	)		—
Net asset value, end of period	$	9.92		$	9.93		$	10.01		$	10.06		$	10.09		$	10.10		$	10.13		$	10.06
Total return		1.63	%3,8		2.42	%8		0.81	%8		0.60	%3,8		1.61	%3,8		2.37	%8		0.78	%8		0.60	%3,8
Ratios/Supplemental data:
Net assets, end of period (000)	$	386		$	2		$	2		$	—	4	$	1,060		$	—	4	$	—	4	$	—	4
Ratio of net expenses to average net assets		1.58	%5		1.58	%		1.55	%		1.56	%5		1.52	%5		1.60	%		1.55	%		1.56	%5
Ratio of net expenses to average net assets (excluding interest expense)		1.50	%5		1.58	%		1.55	%		1.56	%5		1.44	%5		1.60	%		1.55	%		1.56	%5
Ratio of total expenses to average net assets (excluding waivers)		4.11	%5		5.75	%		2.17	%		4.52	%5		3.12	%5		24.98	%		2.17	%		4.52	%5
Ratio of net investment income to average net assets		3.43	%5		3.17	%		2.62	%		2.75	%5		3.29	%5		3.15	%		2.62	%		2.75	%5
Ratio of net investment income (loss) to average net assets (excluding waivers)		0.90	%5		(1.00	)%		2.00	%		(0.21	)%5		1.69	%5		(20.23	)%		2.00	%		(0.21	)%5
Portfolio turnover rate		46	%		142	%		217	%		114	%		46	%		142	%		217	%		114	%

¹ Commencement of operations of share class effective 8/18/04.

² Calculated using the average shares outstanding method.

³ Not annualized.

⁴ Net assets end of period are less than $500.

⁵ Annualized.

⁶ Non-annualized ratios were previously disclosed as annualized. Ratios updated to reflect annualization.

⁷ Sales load not reflected in total return.

⁸ Contingent deferred sales load not reflected in total return.

135

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	BLACKROCK CLASS																		INSTITUTIONAL CLASS
INTERMEDIATE BOND PORTFOLIO II	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.24		$	9.32		$	9.57		$	9.89		$	9.81		$	9.72		$	9.24		$	9.32		$	9.57		$	9.89		$	9.81		$	9.71
Net investment income		0.21	2		0.39	2		0.35	2		0.35	2		0.49	3		0.55	3		0.21	2		0.38	2		0.34	2		0.34	2		0.47	3		0.54	3
Net realized and unrealized gain (loss) on investments		0.04			(0.07	)		(0.20	)		(0.09	)		0.13	3		0.18	3		0.04			(0.07	)		(0.20	)		(0.10	)		0.14	3		0.19	3
Net increase from investment operations		0.25			0.32			0.15			0.26			0.62			0.73			0.25			0.31			0.14			0.24			0.61			0.73
Dividends and distributions from:
Net investment income		(0.23	)		(0.40	)		(0.32	)		(0.36	)		(0.52	)		(0.54	)		(0.23	)		(0.39	)		(0.31	)		(0.34	)		(0.51	)		(0.53	)
Net realized gains		—			—			(0.08	)		(0.22	)		(0.02	)		(0.10	)		—			—			(0.08	)		(0.22	)		(0.02	)		(0.10	)
Total dividends and distributions		(0.23	)		(0.40	)		(0.40	)		(0.58	)		(0.54	)		(0.64	)		(0.23	)		(0.39	)		(0.39	)		(0.56	)		(0.53	)		(0.63	)
Redemption fees added to paid-in capital		—			—	4		—			—			—			—			—			—	4		—			—			—			—
Net asset value, end of period	$	9.26		$	9.24		$	9.32		$	9.57		$	9.89		$	9.81		$	9.26		$	9.24		$	9.32		$	9.57		$	9.89		$	9.81
Total return		2.75	%5		3.54	% 6		1.61	%		2.72	%		6.56	%		7.87	%		2.73	%5		3.45	%6		1.46	%		2.57	%		6.40	%		7.82	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	382,020		$	397,585		$	435,529		$	444,821		$	392,112		$	371,857		$	281,229		$	305,384		$	316,522		$	332,460		$	371,079		$	378,616
Ratio of net expenses to average net assets		0.45	%7		0.45	%		0.45	%		0.45	%		0.45	%		0.48	%		0.48	%7		0.53	%		0.60	%		0.60	%		0.61	%		0.63	%
Ratio of net expenses to average net assets (excluding interest expense)		0.45	%7		0.45	%		0.45	%		0.45	%		0.45	%		0.45	%		0.48	%7		0.53	%		0.60	%		0.60	%		0.60	%		0.60	%
Ratio of total expenses to average net assets (excluding waivers)		0.66	%7		0.67	%		0.70	%		0.69	%		0.69	%		0.81	%		0.67	%7		0.72	%		0.83	%		0.81	%		0.84	%		0.84	%
Ratio of net investment income to average net assets		4.49	%7		4.20	%		3.75	%		3.67	%		4.92	%3		5.80	%3		4.46	%7		4.12	%		3.60	%		3.53	%		4.81	%3		5.66	%3
Ratio of net investment income to average net assets (excluding waivers)		4.28	%7		3.98	%		3.50	%		3.43	%		4.68	%3		5.48	%3		4.27	%7		3.93	%		3.37	%		3.32	%		4.59	%3		5.45	%3
Portfolio turnover rate		33	%		113	%		194	%		216	%		220	%		239	%		33	%		113	%		194	%		216	%		220	%		239	%

	SERVICE CLASS																		INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.24		$	9.33		$	9.57		$	9.89		$	9.81		$	9.71		$	9.24		$	9.32		$	9.57		$	9.88		$	9.81		$	9.71
Net investment income		0.19	2		0.35	2		0.31	2		0.31	2		0.44	3		0.52	3		0.19	2		0.35	2		0.32	2		0.31	2		0.43	3		0.49	3
Net realized and unrealized gain (loss) on investments		0.04			(0.08	)		(0.19	)		(0.10	)		0.14	3		0.18	3		0.03			(0.07	)		(0.20	)		(0.09	)		0.14	3		0.19	3
Net increase from investment operations		0.23			0.27			0.12			0.21			0.58			0.70			0.22			0.28			0.12			0.22			0.57			0.68
Dividends and distributions from:
Net investment income		(0.21	)		(0.36	)		(0.28	)		(0.31	)		(0.48	)		(0.50	)		(0.21	)		(0.36	)		(0.29	)		(0.31	)		(0.48	)		(0.48	)
Net realized gains		—			—			(0.08	)		(0.22	)		(0.02	)		(0.10	)		—			—			(0.08	)		(0.22	)		(0.02	)		(0.10	)
Total dividends and distributions		(0.21	)		(0.36	)		(0.36	)		(0.53	)		(0.50	)		(0.60	)		(0.21	)		(0.36	)		(0.37	)		(0.53	)		(0.50	)		(0.58	)
Redemption fees added to paid-in capital		—			—	4		—			—			—			—			—			—	4		—			—			—			—
Net asset value, end of period	$	9.26		$	9.24		$	9.33		$	9.57		$	9.89		$	9.81		$	9.25		$	9.24		$	9.32		$	9.57		$	9.88		$	9.81
Total return		2.55	%5		2.98	%6		1.30	%		2.26	%		6.08	%		7.50	%		2.43	%5,8		3.09	%6,8		1.20	%8		2.33	%8		5.92	%8		7.32	%8
Ratios/Supplemental data:
Net assets, end of period (000)	$	202,065		$	184,276		$	94,557		$	84,013		$	56,632		$	35,198		$	27,380		$	27,545		$	31,272		$	33,977		$	38,547		$	26,805
Ratio of net expenses to average net assets		0.81	%7		0.88	%		0.86	%		0.89	%		0.89	%		0.94	%		0.82	%7		0.89	%		0.86	%		0.93	%		0.94	%		1.12	%
Ratio of net expenses to average net assets (excluding interest expense)		0.81	%7		0.88	%		0.86	%		0.89	%		0.89	%		0.90	%		0.82	%7		0.89	%		0.86	%		0.93	%		0.94	%		1.07	%
Ratio of total expenses to average net assets (excluding waivers)		0.99	%7		1.11	%		1.08	%		1.10	%		1.11	%		1.15	%		1.00	%7		1.18	%		1.18	%		1.29	%		1.21	%		1.33	%
Ratio of net investment income to average net assets		4.13	%7		3.80	%		3.34	%		3.23	%		4.44	%3		5.36	%3		4.12	%7		3.76	%		3.34	%		3.20	%		4.46	%3		5.22	%3
Ratio of net investment income to average net assets (excluding waivers)		3.95	%7		3.57	%		3.12	%		3.02	%		4.22	%3		5.15	%3		3.94	%7		3.47	%		3.02	%		2.83	%		4.19	%3		5.01	%3
Portfolio turnover rate		33	%		113	%		194	%		216	%		220	%		239	%		33	%		113	%		194	%		216	%		220	%		239	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

136

BLACKROCK FUNDS

	INVESTOR B CLASS																		INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
INTERMEDIATE BOND PORTFOLIO II				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.24		$	9.32		$	9.57		$	9.89		$	9.81		$	9.72		$	9.25		$	9.33		$	9.57		$	9.89		$	9.82		$	9.72
Net investment income		0.15	2		0.27	2		0.24	2		0.23	2		0.36	3		0.43	3		0.15	2		0.28	2		0.25	2		0.23	2		0.35	3		0.42	3
Net realized and unrealized gain (loss) on investments		0.04			(0.06	)		(0.20	)		(0.09	)		0.143			0.173			0.04			(0.07	)		(0.20	)		(0.09	)		0.143			0.193
Net increase from investment operations		0.19			0.21			0.04			0.14			0.50			0.60			0.19			0.21			0.05			0.14			0.49			0.61
Dividends and distributions from:
Net investment income		(0.17	)		(0.29	)		(0.21	)		(0.24	)		(0.40	)		(0.41	)		(0.18	)		(0.29	)		(0.21	)		(0.24	)		(0.40	)		(0.41	)
Net realized gains		—			—			(0.08	)		(0.22	)		(0.02	)		(0.10	)		—			—			(0.08	)		(0.22	)		(0.02	)		(0.10	)
Total dividends and distributions		(0.17	)		(0.29	)		(0.29	)		(0.46	)		(0.42	)		(0.51	)		(0.18	)		(0.29	)		(0.29	)		(0.46	)		(0.42	)		(0.51	)
Redemption fees added to paid-in capital		—			—	4		—			—			—			—			—			—	4		—			—			—			—
Net asset value, end of period	$	9.26		$	9.24		$	9.32		$	9.57		$	9.89		$	9.81		$	9.26		$	9.25		$	9.33		$	9.57		$	9.89		$	9.82
Total return		2.11	%5,9		2.29	%6,9		0.44	%9		1.46	%9		5.24	%9		6.41	%9		2.04	%5,9		2.33	%6,9		0.54	%9		1.46	%9		5.13	%9		6.52	%9
Ratios/Supplemental data:
Net assets, end of period (000)	$	7,081		$	7,937		$	10,594		$	14,106		$	12,850		$	6,291		$	7,759		$	8,408		$	9,204		$	14,334		$	13,046		$	3,950
Ratio of net expenses to average net assets		1.70	%7		1.67	%		1.61	%		1.68	%		1.69	%		1.86	%		1.62	%7		1.62	%		1.61	%		1.67	%		1.68	%		1.85	%
Ratio of net expenses to average net assets (excluding interest expense)		1.70	%7		1.67	%		1.61	%		1.68	%		1.69	%		1.81	%		1.62	%7		1.62	%		1.61	%		1.67	%		1.68	%		1.80	%
Ratio of total expenses to average net assets (excluding waivers)		1.89	%7		1.88	%		1.83	%		1.94	%		1.96	%		2.07	%		1.80	%7		1.82	%		1.83	%		1.93	%		1.95	%		2.06	%
Ratio of net investment income to average net assets		3.24	%7		2.97	%		2.59	%		2.45	%		3.67	%3		4.45	%3		3.33	%7		3.02	%		2.59	%		2.45	%		3.51	%3		4.37	%3
Ratio of net investment income to average net assets (excluding waivers)		3.05	%7		2.76	%		2.37	%		2.18	%		3.40	%3		4.24	%3		3.15	%7		2.82	%		2.37	%		2.18	%		3.25	%3		4.16	%3
Portfolio turnover rate		33	%		113	%		194	%		216	%		220	%		239	%		33	%		113	%		194	%		216	%		220	%		239	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ As discussed in our prior year financial statements, certain prior year amounts were reclassified to conform to new presentation guidelines.

⁴ Redemption fees added to paid-in capital are less than $0.005 per share.

⁵ Not annualized.

⁶ Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

⁷ Annualized.

⁸ Sales load not reflected in total return.

⁹ Contingent deferred sales load not reflected in total return.

137

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	BLACKROCK CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30												PERIOD ENDED 9/30/021,2
TOTAL RETURN PORTFOLIO				2006			2005			2004			20031
Net asset value, beginning of period	$	10.14		$	10.27		$	10.34		$	10.46		$	10.31		$	10.00
Net investment income		0.23	3		0.45	3		0.41	3		0.38	3		0.42	4		0.40
Net realized and unrealized gain (loss) on investments		0.01			(0.08	)		(0.08	)		(0.01	)		0.294			0.32
Net increase from investment operations		0.24			0.37			0.33			0.37			0.71			0.72
Dividends and distributions from:
Net investment income		(0.25	)		(0.45	)		(0.40	)		(0.36	)		(0.50	)		(0.41	)
Net realized gains		—			(0.05	)		—			(0.13	)		(0.06	)		—
Total dividends and distributions		(0.25	)		(0.50	)		(0.40	)		(0.49	)		(0.56	)		(0.41	)
Net asset value, end of period	$	10.13		$	10.14		$	10.27		$	10.34		$	10.46		$	10.31
Total return		2.38	%5		3.76	%		3.21	%		3.65	%		7.00	%		7.37	%5
Ratios/Supplemental data:
Net assets, end of period (000)	$	471,083		$	366,353		$	326,033		$	285,096		$	224,248		$	95,503
Ratio of net expenses to average net assets		0.41	%6		0.40	%		0.40	%		0.40	%		0.40	%		0.32	%6
Ratio of net expenses to average net assets (excluding interest expense)		0.40	%6		0.40	%		0.40	%		0.40	%		0.40	%		0.32	%6
Ratio of total expenses to average net assets (excluding waivers)		0.68	%6		0.69	%		0.72	%		0.71	%		0.75	%		0.72	%6
Ratio of net investment income to average net assets		4.65	%6		4.50	%		3.98	%		3.68	%		3.61	%4		3.94	%6
Ratio of net investment income to average net assets (excluding waivers)		4.38	%6		4.21	%		3.66	%		3.37	%		3.26	%4		3.54	%6
Portfolio turnover rate		118	%		192	%		358	%		412	%		1,021	%7		330	%
	INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30												PERIOD ENDED 9/30/021,2
				2006			2005			2004			20031
Net asset value, beginning of period	$	10.09		$	10.21		$	10.28		$	10.46		$	10.31		$	10.00
Net investment income		0.23	3		0.45	3		0.47	3		0.28	3		0.40	4		0.24
Net realized and unrealized gain (loss) on investments		—			(0.07	)		(0.16	)		0.02			0.294			0.47
Net increase from investment operations		0.23			0.38			0.31			0.30			0.69			0.71
Dividends and distributions from:
Net investment income		(0.25	)		(0.45	)		(0.38	)		(0.35	)		(0.48	)		(0.40	)
Net realized gains		—			(0.05	)		—			(0.13	)		(0.06	)		—
Total dividends and distributions		(0.25	)		(0.50	)		(0.38	)		(0.48	)		(0.54	)		(0.40	)
Net asset value, end of period	$	10.07		$	10.09		$	10.21		$	10.28		$	10.46		$	10.31
Total return		2.27	%5		3.79	%		3.08	%		2.91	%		6.84	%		7.21	%5
Ratios/Supplemental data:
Net assets, end of period (000)	$	5,958		$	4,402		$	—	8	$	—	8	$	—	8	$	—	8
Ratio of net expenses to average net assets		0.45	%6		0.45	%		0.55	%		0.55	%		0.55	%		0.52	%6
Ratio of net expenses to average net assets (excluding interest expense)		0.44	%6		0.45	%		0.55	%		0.55	%		0.55	%		0.52	%6
Ratio of total expenses to average net assets (excluding waivers)		0.69	%6		0.83	%		0.83	%		0.82	%		0.90	%		0.93	%6
Ratio of net investment income to average net assets		4.63	%6		4.57	%		3.83	%		3.53	%		3.47	%4		3.80	%6
Ratio of net investment income to average net assets (excluding waivers)		4.39	%6		4.18	%		3.55	%		3.26	%		3.12	%4		3.38	%6
Portfolio turnover rate		118	%		192	%		358	%		412	%		1,021	%7		330	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

138

BLACKROCK FUNDS

	SERVICE CLASS																		INVESTOR A CLASS
TOTAL RETURN PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED )			YEAR ENDED SEPTEMBER 30												PERIOD ENDED 9/30/021,2			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30												PERIOD ENDED 9/30/021,2
				2006			2005			2004			20031									2006			2005			2004			20031
Net asset value, beginning of period	$	10.21		$	10.33		$	10.40		$	10.46		$	10.31		$	10.00		$	10.15		$	10.28		$	10.35		$	10.46		$	10.31		$	10.00
Net investment income		0.21	3		0.40	3		0.38	3		0.38	3		0.37	4		0.23			0.21	3		0.40	3		0.36	3		0.33	3		0.37	4		0.08
Net realized and unrealized gain (loss) on investments		—			(0.06	)		(0.09	)		0.01			0.29	4		0.48			0.01			(0.07	)		(0.07	)		—			0.29	4		0.59
Net increase from investment operations		0.21			0.34			0.29			0.39			0.66			0.71			0.22			0.33			0.29			0.33			0.66			0.67
Dividends and distributions from:
Net investment income		(0.23	)		(0.41	)		(0.36	)		(0.32	)		(0.45	)		(0.40	)		(0.23	)		(0.41	)		(0.36	)		(0.31	)		(0.45	)		(0.36	)
Net realized gains		—			(0.05	)		—			(0.13	)		(0.06	)		—			—			(0.05	)		—			(0.13	)		(0.06	)		—
Total dividends and distributions		(0.23	)		(0.46	)		(0.36	)		(0.45	)		(0.51	)		(0.40	)		(0.23	)		(0.46	)		(0.36	)		(0.44	)		(0.51	)		(0.36	)
Net asset value, end of period	$	10.19		$	10.21		$	10.33		$	10.40		$	10.46		$	10.31		$	10.14		$	10.15		$	10.28		$	10.35		$	10.46		$	10.31
Total return		2.04	%5		3.38	%		2.77	%		3.78	%		6.53	%		7.22	%5		2.17	%5,9		3.28	%9		2.79	%9		3.25	%9		6.47	%9		6.88	%5,9
Ratios/Supplemental data:
Net assets, end of period (000)	$	20		$	—	8	$	—	8	$	29		$	—	8	$	—	8	$	1,165		$	298		$	88		$	9		$	8		$	2
Ratio of net expenses to average net assets		0.82	%6		0.88	%		0.80	%		0.78	%		0.85	%		0.82	%6		0.77	%6		0.88	%		0.80	%		0.86	%		0.90	%		0.99	%6
Ratio of net expenses to average net assets (excluding interest expense)		0.81	%6		0.85	%		0.80	%		0.78	%		0.85	%		0.82	%6		0.76	%6		0.88	%		0.80	%		0.86	%		0.90	%		0.99	%6
Ratio of total expenses to average net assets (excluding waivers)		1.10	%6		31.07	%		1.08	%		1.07	%		1.20	%		1.23	%6		1.18	%6		2.13	%		1.19	%		1.28	%		1.25	%		1.40	%6
Ratio of net investment income to average net assets		4.21	%6		3.93	%		3.57	%		3.74	%		3.17	%4		3.50	%6		4.25	%6		4.03	%		3.56	%		3.21	%		3.12	%4		3.33	%6
Ratio of net investment income (loss) to average net assets (excluding waivers)		3.93	%6		(26.27	)%		3.29	%		3.45	%		2.82	%4		3.08	%6		3.84	%6		2.78	%		3.17	%		2.79	%		2.77	%4		2.91	%6
Portfolio turnover rate		118	%		192	%		358	%		412	%		1,021	%7		330	%		118	%		192	%		358	%		412	%		1,021	%7		330	%

¹ Audited by other auditors.

² Commencement of operations of share class effective 12/07/01.

³ Calculated using the average shares outstanding method.

⁴ As discussed in our prior year financial statements, certain prior year amounts were reclassified to conform to new presentation guidelines.

⁵ Not annualized.

⁶ Annualized.

⁷ Includes dollar roll transactions, excluding these transactions the portfolio turnover would have been 319%.

⁸ Net assets end of period are less than $500.

⁹ Sales load not reflected in total return.

139

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INVESTOR B CLASS
TOTAL RETURN PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30												PERIOD ENDED 9/30/021,2
				2006			2005			2004			20031
Net asset value, beginning of period	$	10.14		$	10.27		$	10.34		$	10.46		$	10.31		$	10.00
Net investment income		0.20	3		0.33	3		0.29	3		0.25	3		0.29	4		0.43
Net realized and unrealized gain (loss) on investments		—			(0.08	)		(0.08	)		—			0.29	4		0.21
Net increase from investment operations		0.20			0.25			0.21			0.25			0.58			0.64
Dividends and distributions from:
Net investment income		(0.21	)		(0.33	)		(0.28	)		(0.24	)		(0.37	)		(0.33	)
Net realized gains		—			(0.05	)		—			(0.13	)		(0.06	)		—
Total dividends and distributions		(0.21	)		(0.38	)		(0.28	)		(0.37	)		(0.43	)		(0.33	)
Net asset value, end of period	$	10.13		$	10.14		$	10.27		$	10.34		$	10.46		$	10.31
Total return		1.96	%5,6		2.50	%5		2.02	%5		2.38	%5		5.68	%5		6.46	%5,6
Ratios/Supplemental data:
Net assets, end of period (000)	$	735		$	226		$	137		$	103		$	80		$	—	7
Ratio of net expenses to average net assets		1.09	%8		1.62	%		1.56	%		1.63	%		1.65	%		1.74	%8
Ratio of net expenses to average net assets (excluding interest expense)		1.08	%8		1.62	%		1.56	%		1.63	%		1.65	%		1.74	%8
Ratio of total expenses to average net assets (excluding waivers)		1.34	%8		3.30	%		1.84	%		1.97	%		2.00	%		2.15	%8
Ratio of net investment income to average net assets		3.99	%8		3.29	%		2.84	%		2.46	%		2.36	%4		2.58	%8
Ratio of net investment income to average net assets (excluding waivers)		3.74	%8		1.61	%		2.56	%		2.12	%		2.01	%4		2.16	%8
Portfolio turnover rate		118	%		192	%		358	%		412	%		1,021	%9		330	%
	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30												PERIOD ENDED 9/30/021,2
				2006			2005			2004			20031
Net asset value, beginning of period	$	10.13		$	10.26		$	10.33		$	10.46		$	10.31		$	10.00
Net investment income		0.17	3		0.33	3		0.28	3		0.27	3		0.29	4		0.43
Net realized and unrealized gain (loss) on investments		0.01			(0.08	)		(0.07	)		(0.03	)		0.29	4		0.21
Net increase from investment operations		0.18			0.25			0.21			0.24			0.58			0.64
Dividends and distributions from:
Net investment income		(0.19	)		(0.33	)		(0.28	)		(0.24	)		(0.37	)		(0.33	)
Net realized gains		—			(0.05	)		—			(0.13	)		(0.06	)		—
Total dividends and distributions		(0.19	)		(0.38	)		(0.28	)		(0.37	)		(0.43	)		(0.33	)
Net asset value, end of period	$	10.12		$	10.13		$	10.26		$	10.33		$	10.46		$	10.31
Total return		1.80	%5,6		2.50	%5		2.02	%5		2.28	%5		5.68	%5		6.46	%5,6
Ratios/Supplemental data:
Net assets, end of period (000)	$	2,216		$	102		$	53		$	—	7	$	—	7	$	—	7
Ratio of net expenses to average net assets		1.41	%8		1.62	%		1.55	%		1.63	%		1.65	%		1.74	%8
Ratio of net expenses to average net assets (excluding interest expense)		1.40	%8		1.62	%		1.56	%		1.63	%		1.65	%		1.74	%8
Ratio of total expenses to average net assets (excluding waivers)		1.65	%8		10.03	%		1.84	%		1.97	%		2.00	%		2.15	%8
Ratio of net investment income to average net assets		3.47	%8		3.27	%		2.78	%		2.46	%		2.37	%4		2.58	%8
Ratio of net investment income (loss) to average net assets (excluding waivers)		3.23	%8		(5.14	)%		2.49	%		2.12	%		2.02	%4		2.16	%8
Portfolio turnover rate		118	%		192	%		358	%		412	%		1,021	%9		330	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

140

BLACKROCK FUNDS

	R CLASS
TOTAL RETURN PORTFOLIO	PERIOD ENDED 3/31/0710 (UNAUDITED)
Net asset value, beginning of period	$	10.15
Net investment income		0.20	3
Net realized and unrealized loss on investments		(0.01	)
Net increase from investment operations		0.19
Dividends and distributions from:
Net investment income		(0.21	)
Net realized gains		—
Total dividends and distributions		(0.21	)
Net asset value, end of period	$	10.13
Total return		2.03	%6
Ratios/Supplemental data:
Net assets, end of period (000)	$	20
Ratio of net expenses to average net assets		1.11	%8
Ratio of net expenses to average net assets (excluding interest expense)		1.10	%8
Ratio of total expenses to average net assets (excluding waivers)		1.38	%8
Ratio of net investment income to average net assets		4.01	%8
Ratio of net investment income to average net assets (excluding waivers)		3.74	%8
Portfolio turnover rate		118	%

¹ Audited by other auditors.

² Commencement of operations of share class effective 12/07/01.

³ Calculated using the average shares outstanding method.

⁴ As discussed in our prior year financial statements, certain prior year amounts were reclassified to conform to new presentation guidelines.

⁵ Contingent deferred sales load not reflected in total return.

⁶ Not annualized.

⁷ Net assets end of period are less than $500.

⁸ Annualized.

⁹ Includes dollar roll transactions, excluding these transactions the portfolio turnover would have been 319%.

¹⁰ Commencement of operations of share class effective 10/02/06.

141

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	BLACKROCK CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
TOTAL RETURN PORTFOLIO II				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.51		$	9.64		$	9.76		$	10.03		$	10.02		$	9.98
Net investment income		0.22	2		0.43	2		0.40	2		0.40	2		0.45	3		0.54	3
Net realized and unrealized gain (loss) on investments		—			(0.08	)		(0.11	)		(0.06	)		0.16	3		0.20	3
Net increase from investment operations		0.22			0.35			0.29			0.34			0.61			0.74
Dividends and distributions from:
Net investment income		(0.22	)		(0.43	)		(0.39	)		(0.36	)		(0.55	)		(0.58	)
Net realized gains		—			(0.05	)		(0.02	)		(0.25	)		(0.05	)		(0.12	)
Total dividends and distributions		(0.22	)		(0.48	)		(0.41	)		(0.61	)		(0.60	)		(0.70	)
Net asset value, end of period	$	9.51		$	9.51		$	9.64		$	9.76		$	10.03		$	10.02
Total return		2.33	%4		3.74	%		2.96	%		3.83	%		6.33	%		7.74	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	1,607,109		$	1,619,004		$	1,543,861		$	1,400,826		$	1,035,461		$	763,736
Ratio of net expenses to average net assets		0.41	%5		0.40	%		0.40	%		0.40	%		0.40	%		0.46	%
Ratio of net expenses to average net assets (excluding interest expense)		0.40	%5		0.40	%		0.40	%		0.40	%		0.40	%		0.40	%
Ratio of total expenses to average net assets (excluding waivers)		0.59	%5		0.61	%		0.64	%		0.63	%		0.65	%		0.79	%
Ratio of net investment income to average net assets		4.64	%5		4.51	%		4.13	%		4.13	%		4.52	%3		5.48	%3
Ratio of net investment income to average net assets (excluding waivers)		4.46	%5		4.30	%		3.89	%		3.89	%		4.28	%3		5.14	%3
Portfolio turnover rate		120	%		197	%		351	%		360	%		659	%6		359	%
	INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.49		$	9.62		$	9.74		$	10.01		$	10.00		$	9.98
Net investment income		0.22	2		0.42	2		0.39	2		0.39	2		0.44	3		0.53	3
Net realized and unrealized gain (loss) on investments		—			(0.08	)		(0.12	)		(0.04	)		0.16	3		0.18	3
Net increase from investment operations		0.22			0.34			0.27			0.35			0.60			0.71
Dividends and distributions from:
Net investment income		(0.22	)		(0.42	)		(0.37	)		(0.37	)		(0.54	)		(0.57	)
Net realized gains		—			(0.05	)		(0.02	)		(0.25	)		(0.05	)		(0.12	)
Total dividends and distributions		(0.22	)		(0.47	)		(0.39	)		(0.62	)		(0.59	)		(0.69	)
Net asset value, end of period	$	9.49		$	9.49		$	9.62		$	9.74		$	10.01		$	10.00
Total return		2.32	%4		3.66	%		2.81	%		3.68	%		6.19	%		7.36	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	1,137,121		$	773,866		$	614,700		$	697,687		$	907,864		$	918,935
Ratio of net expenses to average net assets		0.44	%5		0.47	%		0.55	%		0.55	%		0.55	%		0.60	%
Ratio of net expenses to average net assets (excluding interest expense)		0.43	%5		0.47	%		0.55	%		0.55	%		0.55	%		0.55	%
Ratio of total expenses to average net assets (excluding waivers)		0.61	%5		0.66	%		0.77	%		0.76	%		0.78	%		0.82	%
Ratio of net investment income to average net assets		4.61	%5		4.46	%		4.00	%		3.97	%		4.44	%3		5.36	%3
Ratio of net investment income to average net assets (excluding waivers)		4.44	%5		4.27	%		3.78	%		3.76	%		4.21	%3		5.14	%3
Portfolio turnover rate		120	%		197	%		351	%		360	%		659	%6		359	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

142

BLACKROCK FUNDS

TOTAL RETURN PORTFOLIO II	SERVICE CLASS																		INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.49		$	9.62		$	9.74		$	10.01		$	9.99		$	9.98		$	9.50		$	9.63		$	9.75		$	10.01		$	10.00		$	9.99
Net investment income		0.21	2		0.39	2		0.36	2		0.36	2		0.42	3		0.52	3		0.20	2		0.39	2		0.36	2		0.35	2		0.40	3		0.47	3
Net realized and unrealized gain (loss) on investments		—			(0.07	)		(0.11	)		(0.04	)		0.16	3		0.15	3		—			(0.08	)		(0.11	)		(0.02	)		0.16	3		0.18	3
Net increase from investment operations		0.21			0.32			0.25			0.32			0.58			0.67			0.20			0.31			0.25			0.33			0.56			0.65
Dividends and distributions from:
Net investment income		(0.20	)		(0.40	)		(0.35	)		(0.34	)		(0.51	)		(0.54	)		(0.20	)		(0.39	)		(0.35	)		(0.34	)		(0.50	)		(0.52	)
Net realized gains		—			(0.05	)		(0.02	)		(0.25	)		(0.05	)		(0.12	)		—			(0.05	)		(0.02	)		(0.25	)		(0.05	)		(0.12	)
Total dividends and distributions		(0.20	)		(0.45	)		(0.37	)		(0.59	)		(0.56	)		(0.66	)		(0.20	)		(0.44	)		(0.37	)		(0.59	)		(0.55	)		(0.64	)
Net asset value, end of period	$	9.50		$	9.49		$	9.62		$	9.74		$	10.01		$	9.99		$	9.50		$	9.50		$	9.63		$	9.75		$	10.01		$	10.00
Total return		2.28	%4		3.38	%		2.54	%		3.38	%		5.98	%		6.94	%		2.12	%4,7		3.32	%7		2.54	%7		3.44	%7		5.81	% 7		6.75	%7
Ratios/Supplemental data:
Net assets, end of period (000)	$	53,660		$	127,902		$	158,200		$	152,085		$	139,499		$	115,774		$	252,748		$	236,621		$	214,196		$	132,561		$	113,190		$	90,460
Ratio of net expenses to average net assets		0.72	%5		0.76	%		0.81	%		0.84	%		0.85	%		0.91	%		0.82	%5		0.81	%		0.81	%		0.88	%		0.90	%		1.08	%
Ratio of net expenses to average net assets (excluding interest expense)		0.71	%5		0.76	%		0.81	%		0.84	%		0.85	%		0.85	%		0.81	%5		0.81	%		0.81	%		0.88	%		0.90	%		1.02	%
Ratio of total expenses to average net assets (excluding waivers)		0.88	%5		0.95	%		1.03	%		1.05	%		1.08	%		1.13	%		1.00	%5		1.11	%		1.13	%		1.23	%		1.25	%		1.30	%
Ratio of net investment income to average net assets		4.35	%5		4.16	%		3.73	%		3.69	%		4.09	%3		5.07	%3		4.23	%5		4.11	%		3.72	%		3.65	%		4.01	% 3		4.89	%3
Ratio of net investment income to average net assets (excluding waivers)		4.19	%5		3.97	%		3.51	%		3.48	%		3.86	%3		4.85	%3		4.05	%5		3.81	%		3.40	%		3.30	%		3.66	% 3		4.67	%3
Portfolio turnover rate		120	%		197	%		351	%		360	%		659	%6		359	%		120	%		197	%		351	%		360	%		659	% 6		359	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ As discussed in our prior year financial statements, certain prior year amounts were reclassified to conform to new presentation guidelines.

⁴ Not annualized.

⁵ Annualized.

⁶ Includes dollar roll transactions, excluding these transactions the portfolio turnover would have been 257%.

⁷ Sales load not reflected in total return.

143

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INVESTOR B CLASS
TOTAL RETURN PORTFOLIO II	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.49		$	9.62		$	9.75		$	10.01		$	10.00		$	9.98
Net investment income		0.16	2		0.31	2		0.29	2		0.28	2		0.33	3		0.41	3
Net realized and unrealized gain (loss) on investments		0.01			(0.08	)		(0.13	)		(0.02	)		0.16	3		0.18	3
Net increase from investment operations		0.17			0.23			0.16			0.26			0.49			0.59
Dividends and distributions from:
Net investment income		(0.16	)		(0.31	)		(0.27	)		(0.27	)		(0.43	)		(0.45	)
Net realized gains		—			(0.05	)		(0.02	)		(0.25	)		(0.05	)		(0.12	)
Total dividends and distributions		(0.16	)		(0.36	)		(0.29	)		(0.52	)		(0.48	)		(0.57	)
Net asset value, end of period	$	9.50		$	9.49		$	9.62		$	9.75		$	10.01		$	10.00
Total return		1.81	%4,5		2.49	%5		1.67	%5		2.66	%5		5.03	%5		6.06	%5
Ratios/Supplemental data:
Net assets, end of period (000)	$	35,451		$	38,797		$	49,389		$	56,758		$	70,550		$	56,047
Ratio of net expenses to average net assets		1.65	%6		1.62	%		1.56	%		1.63	%		1.65	%		1.83	%
Ratio of net expenses to average net assets (excluding interest expense)		1.64	%6		1.62	%		1.56	%		1.63	%		1.65	%		1.76	%
Ratio of total expenses to average net assets (excluding waivers)		1.82	%6		1.81	%		1.78	%		1.88	%		2.00	%		2.04	%
Ratio of net investment income to average net assets		3.43	%6		3.31	%		2.97	%		2.88	%		3.26	%3		4.14	%3
Ratio of net investment income to average net assets (excluding waivers)		3.26	%6		3.12	%		2.75	%		2.63	%		2.91	%3		3.92	%3
Portfolio turnover rate		120	%		197	%		351	%		360	%		659	%7		359	%
	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.50		$	9.63		$	9.75		$	10.02		$	10.01		$	9.99
Net investment income		0.16	2		0.31	2		0.29	2		0.28	2		0.33	3		0.42	3
Net realized and unrealized gain (loss) on investments		—			(0.07	)		(0.12	)		(0.03	)		0.16	3		0.17	3
Net increase from investment operations		0.16			0.24			0.17			0.25			0.49			0.59
Dividends and distributions from:
Net investment income		(0.16	)		(0.32	)		(0.27	)		(0.27	)		(0.43	)		(0.45	)
Net realized gains		—			(0.05	)		(0.02	)		(0.25	)		(0.05	)		(0.12	)
Total dividends and distributions		(0.16	)		(0.37	)		(0.29	)		(0.52	)		(0.48	)		(0.57	)
Net asset value, end of period	$	9.50		$	9.50		$	9.63		$	9.75		$	10.02		$	10.01
Total return		1.73	%5,8		2.52	%5		1.77	%5		2.56	%5		5.02	%5		6.06	%5
Ratios/Supplemental data:
Net assets, end of period (000)	$	76,040		$	63,223		$	73,954		$	85,717		$	81,478		$	47,326
Ratio of net expenses to average net assets		1.58	%6		1.59	%		1.56	%		1.62	%		1.65	%		1.82	%
Ratio of net expenses to average net assets (excluding interest expense)		1.57	%6		1.59	%		1.56	%		1.62	%		1.65	%		1.76	%
Ratio of total expenses to average net assets (excluding waivers)		1.74	%6		1.78	%		1.78	%		1.87	%		2.00	%		2.04	%
Ratio of net investment income to average net assets		3.46	%6		3.33	%		2.93	%		2.89	%		3.22	%3		4.14	%3
Ratio of net investment income to average net assets (excluding waivers)		3.30	%6		3.14	%		2.71	%		2.64	%		2.87	%3		3.92	%3
Portfolio turnover rate		120	%		197	%		351	%		360	%		659	%7		359	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

144

BLACKROCK FUNDS

	R CLASS
TOTAL RETURN PORTFOLIO II	PERIOD ENDED 3/31/079 (UNAUDITED)
Net asset value, beginning of period	$	9.51
Net investment income		0.192
Net realized and unrealized loss on investments		(0.01	)
Net increase from investment operations		0.18
Dividends and distributions from:
Net investment income		(0.18	)
Net realized gains		—
Total dividends and distributions		(0.18	)
Net asset value, end of period	$	9.51
Total return		2.08	%4
Ratios/Supplemental data:
Net assets, end of period (000)	$	20
Ratio of net expenses to average net assets		1.11	%6
Ratio of net expenses to average net assets (excluding interest expense)		1.10	%6
Ratio of total expenses to average net assets (excluding waivers)		1.30	%6
Ratio of net investment income to average net assets		4.01	%6
Ratio of net investment income to average net assets (excluding waivers)		3.82	%6
Portfolio turnover rate		120	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ As discussed in our prior year financial statements, certain prior year amounts were reclassified to conform to new presentation guidelines.

⁴ Not annualized.

⁵ Contingent deferred sales load not reflected in total return.

⁶ Annualized.

⁷ Includes dollar roll transactions, excluding these transactions the portfolio turnover would have been 257%.

⁸ Non-annualized ratios were previously disclosed as annualized. Ratios updated to reflect annualization.

⁹ Commencement of operations of share class effective 10/02/06.

145

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	BLACKROCK CLASS															INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30									PERIOD ENDED 9/30/031,2			PERIOD ENDED 3/31/073 (UNAUDITED)
GOVERNMENT INCOME PORTFOLIO				2006			2005			2004
Net asset value, beginning of period	$	10.75		$	10.91		$	11.18		$	11.34		$	11.27		$	10.73
Net investment income		0.27	4		0.50	4		0.48	4		0.47	4		0.60	4,5		0.26	4
Net realized and unrealized loss on investments		(0.04	)		(0.19	)		(0.21	)		(0.05	)		(0.19	)5		(0.04	)
Net increase from investment operations		0.23			0.31			0.27			0.42			0.41			0.22
Dividends and distributions from:
Net investment income		(0.27	)		(0.47	)		(0.52	)		(0.42	)		(0.34	)		(0.25	)
Tax return of capital		—			—			(0.02	)		—			—			—
Net realized gains		—			—			—			(0.16	)		—			—
Total dividends and distributions		(0.27	)		(0.47	)		(0.54	)		(0.58	)		(0.34	)		(0.25	)
Net asset value, end of period	$	10.71		$	10.75		$	10.91		$	11.18		$	11.34		$	10.70
Total return		2.14	%6		2.96	%		2.43	%		3.85	%		3.68	%6		2.02	% 6
Ratios/Supplemental data:
Net assets, end of period (000)	$	9,661		$	9,440		$	9,164		$	10,899		$	3		$	279,943
Ratio of net expenses to average net assets		0.46	%7		0.45	%		0.45	%		0.44	%		0.29	%7		0.71	% 7
Ratio of net expenses to average net assets (excluding interest expense)		0.45	%7		0.45	%		0.45	%		0.44	%		0.29	%7		0.70	% 7
Ratio of total expenses to average net assets (excluding waivers)		0.65	%7		0.70	%		0.77	%		0.78	%		0.47	%7		0.87	% 7
Ratio of net investment income to average net assets		5.10	%7		4.65	%		4.35	%		4.25	%		2.95	%5,7		4.87	% 7
Ratio of net investment income to average net assets (excluding waivers)		4.91	%7		4.40	%		4.03	%		3.92	%		2.76	%5,7		4.71	% 7
Portfolio turnover rate		597	%		551	%		662	%		345	%		1,981	%8		597	%

	SERVICE CLASS									INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED 9/30/06			PERIOD ENDED 9/30/059			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
													2006			2005			2004			20031			20021
Net asset value, beginning of period	$	10.74		$	10.90		$	11.21		$	10.75		$	10.91		$	11.18		$	11.33		$	11.40		$	10.99
Net investment income		0.25	4		0.46	4		0.40	4		0.25	4		0.45	4		0.43	4		0.40	4		0.34	4,5		0.45	4,5
Net realized and unrealized gain (loss) on investments		(0.05	)		(0.19	)		(0.24	)		(0.05	)		(0.19	)		(0.21	)		(0.03	)		0.14	5		0.74	5
Net increase from investment operations		0.20			0.27			0.16			0.20			0.26			0.22			0.37			0.48			1.19
Dividends and distributions from:
Net investment income		(0.24	)		(0.43	)		(0.45	)		(0.24	)		(0.42	)		(0.47	)		(0.36	)		(0.46	)		(0.51	)
Tax return of capital		—			—			(0.02	)		—			—			(0.02	)		—			—			—
Net realized gains		—			—			—			—			—			—			(0.16	)		(0.09	)		(0.27	)
Total dividends and distributions		(0.24	)		(0.43	)		(0.47	)		(0.24	)		(0.42	)		(0.49	)		(0.52	)		(0.55	)		(0.78	)
Net asset value, end of period	$	10.70		$	10.74		$	10.90		$	10.71		$	10.75		$	10.91		$	11.18		$	11.33		$	11.40
Total return		1.92	%6		2.57	%		1.46	%6		1.91	%6,10		2.52	%10		2.01	%10		3.34	%10		4.34	%10		11.47	%10
Ratios/Supplemental data:
Net assets, end of period (000)	$	495		$	133		$	212,963		$	1,104,947		$	310,258		$	247,380		$	126,332		$	86,559		$	42,845
Ratio of net expenses to average net assets		0.91	%7		0.82	%		0.85	%7		0.92	%7		0.89	%		0.86	%		0.98	%		1.07	%		1.11	%
Ratio of net expenses to average net assets (excluding interest expense)		0.90	%7		0.82	%		0.85	%7		0.91	%7		0.89	%		0.86	%		0.98	%		1.07	%		1.07	%
Ratio of total expenses to average net assets (excluding waivers)		24.41	%7		1.05	%		1.15	%7		1.07	%7		1.20	%		1.26	%		1.38	%		1.34	%		1.41	%
Ratio of net investment income to average net assets		4.68	%7		4.28	%		3.95	%7		4.63	%7		4.22	%		3.92	%		3.63	%		3.05	%5		4.26	%5
Ratio of net investment income to average net assets (excluding waivers)		(18.82	)%7		4.05	%		3.65	%7		4.48	%7		3.91	%		3.52	%		3.23	%		2.78	%5		3.97	%5
Portfolio turnover rate		597	%		551	%		662	%		597	%		551	%		662	%		345	%		1,981	%8		615	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

146

BLACKROCK FUNDS

	INVESTOR B CLASS																		INVESTOR B1 CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/073 (UNAUDITED)
GOVERNMENT INCOME PORTFOLIO				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	10.75		$	10.91		$	11.18		$	11.33		$	11.40		$	10.98		$	10.74
Net investment income		0.20	4		0.36	4		0.35	4		0.31	4		0.30	4,5		0.39	4,5		0.22	4
Net realized and unrealized gain (loss) on investments		(0.04	)		(0.18	)		(0.21	)		(0.03	)		0.10	5		0.73	5		(0.04	)
Net increase from investment operations		0.16			0.18			0.14			0.28			0.40			1.12			0.18
Dividends and distributions from:
Net investment income		(0.20	)		(0.34	)		(0.39	)		(0.27	)		(0.38	)		(0.43	)		(0.21	)
Tax return of capital		—			—			(0.02	)		—			—			—			—
Net realized gains		—			—			—			(0.16	)		(0.09	)		(0.27	)		—
Total dividends and distributions		(0.20	)		(0.34	)		(0.41	)		(0.43	)		(0.47	)		(0.70	)		(0.21	)
Net asset value, end of period	$	10.71		$	10.75		$	10.91		$	11.18		$	11.33		$	11.40		$	10.71
Total return		1.47	%6,11		1.67	%11		1.25	%11		2.57	%11		3.56	%11		10.74	%11		1.63	%6,11
Ratios/Supplemental data:
Net assets, end of period (000)	$	28,868		$	32,098		$	42,479		$	44,786		$	53,897		$	48,240		$	195,374
Ratio of net expenses to average net assets		1.76	%7		1.72	%		1.61	%		1.73	%		1.82	%		1.87	%		1.48	%7
Ratio of net expenses to average net assets (excluding interest expense)		1.75	%7		1.72	%		1.61	%		1.73	%		1.82	%		1.82	%		1.47	%7
Ratio of total expenses to average net assets (excluding waivers)		1.93	%7		1.94	%		1.90	%		2.03	%		2.09	%		2.17	%		1.78	%7
Ratio of net investment income to average net assets		3.80	%7		3.37	%		3.20	%		2.81	%		2.62	%5		3.69	%5		4.11	%7
Ratio of net investment income to average net assets (excluding waivers)		3.63	%7		3.15	%		2.91	%		2.51	%		2.35	%5		3.40	%5		3.81	%7
Portfolio turnover rate		597	%		551	%		662	%		345	%		1,981	%8		615	%		597	%

¹ Audited by other auditors.

² Commencement of operations of share class effective 2/10/03.

³ Commencement of operations of share class effective 10/02/06.

⁴ Calculated using the average shares outstanding method.

⁵ As discussed in our prior year financial statements, certain prior year amounts were reclassified to conform to new presentation guidelines.

⁶ Not annualized.

⁷ Annualized.

⁸ Includes dollar roll transactions, excluding these transactions the portfolio turnover would have been 371%.

⁹ Commencement of operations of share class effective 10/27/04.

¹⁰ Sales load not reflected in total return.

¹¹ Contingent deferred sales load not reflected in total return.

147

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
GOVERNMENT INCOME PORTFOLIO				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	10.73		$	10.89		$	11.16		$	11.31		$	11.38		$	10.97
Net investment income		0.21	2		0.37	2		0.35	2		0.31	2		0.30	2,3		0.36	2,3
Net realized and unrealized gain (loss) on investments		(0.04	)		(0.19	)		(0.21	)		(0.03	)		0.10	3		0.75	3
Net increase from investment operations		0.17			0.18			0.14			0.28			0.40			1.11
Dividends and distributions from:
Net investment income		(0.20	)		(0.34	)		(0.39	)		(0.27	)		(0.38	)		(0.43	)
Tax return of capital		—			—			(0.02	)		—			—			—
Net realized gains		—			—			—			(0.16	)		(0.09	)		(0.27	)
Total dividends and distributions		(0.20	)		(0.34	)		(0.41	)		(0.43	)		(0.47	)		(0.70	)
Net asset value, end of period	$	10.69		$	10.73		$	10.89		$	11.16		$	11.31		$	11.38
Total return		1.54	%4,5		1.76	%5		1.25	%5		2.57	%5		3.56	%5		10.66	%5
Ratios/Supplemental data:
Net assets, end of period (000)	$	35,321		$	34,062		$	31,840		$	26,036		$	29,537		$	18,378
Ratio of net expenses to average net assets		1.65	%6		1.63	%		1.61	%		1.73	%		1.82	%		1.84	%
Ratio of net expenses to average net assets (excluding interest expense)		1.64	%6		1.63	%		1.61	%		1.73	%		1.82	%		1.81	%
Ratio of total expenses to average net assets (excluding waivers)		1.82	%6		1.85	%		1.90	%		2.03	%		2.09	%		2.13	%
Ratio of net investment income to average net assets		3.92	%6		3.48	%		3.19	%		2.81	%		2.61	%3		3.42	%3
Ratio of net investment income to average net assets (excluding waivers)		3.75	%6		3.26	%		2.90	%		2.51	%		2.34	%3		3.13	%3
Portfolio turnover rate		597	%		551	%		662	%		345	%		1,981	%7		615	%

	INVESTOR C1 CLASS
	PERIOD ENDED 3/31/078 (UNAUDITED)
Net asset value, beginning of period	$	10.72
Net investment income		0.21	2
Net realized and unrealized loss on investments		(0.03	)
Net increase from investment operations		0.18
Dividends and distributions from:
Net investment income		(0.21	)
Tax return of capital		—
Net realized gains		—
Total dividends and distributions		(0.21	)
Net asset value, end of period	$	10.69
Total return		1.60	%4,5
Ratios/Supplemental data:
Net assets, end of period (000)	$	205,778
Ratio of net expenses to average net assets		1.54	%6
Ratio of net expenses to average net assets (excluding interest expense)		1.53	%6
Ratio of total expenses to average net assets (excluding waivers)		1.82	%6
Ratio of net investment income to average net assets		4.07	%6
Ratio of net investment income to average net assets (excluding waivers)		3.79	%6
Portfolio turnover rate		597	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

148

BLACKROCK FUNDS

	R CLASS
GOVERNMENT INCOME PORTFOLIO	PERIOD ENDED 3/31/078 (UNAUDITED)
Net asset value, beginning of period	$	10.74
Net investment income		0.23	2
Net realized and unrealized loss on investments		(0.04	)
Net increase from investment operations		0.19
Dividends and distributions from:
Net investment income		(0.23	)
Tax return of capital		—
Net realized gains		—
Total dividends and distributions		(0.23	)
Net asset value, end of period	$	10.70
Total return		1.66	%4
Ratios/Supplemental data:
Net assets, end of period (000)	$	38,398
Ratio of net expenses to average net assets		1.22	%6
Ratio of net expenses to average net assets (excluding interest expense)		1.21	%6
Ratio of total expenses to average net assets (excluding waivers)		1.49	%6
Ratio of net investment income to average net assets		4.39	%6
Ratio of net investment income to average net assets (excluding waivers)		4.12	%6
Portfolio turnover rate		597	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ As discussed in our prior year financial statements, certain prior year amounts were reclassified to conform to new presentation guidelines.

⁴ Not annualized.

⁵ Contingent deferred sales load not reflected in total return.

⁶ Annualized.

⁷ Includes dollar roll transactions, excluding these transactions the portfolio turnover would have been 371%.

⁸ Commencement of operations of share class effective 10/02/06.

149

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	BLACKROCK CLASS												INSTITUTIONAL CLASS
INFLATION PROTECTED BOND PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041
				2006			2005									2006			2005
Net asset value, beginning of period	$	9.84		$	10.35		$	10.38		$	10.00		$	10.02		$	10.54		$	10.54		$	10.00
Net investment income2		0.04			0.55			0.41			0.12			0.08			0.50			0.42			0.16
Net realized and unrealized gain (loss) on investments		0.06			(0.26	)		0.19			0.38			0.04			(0.23	)		0.18			0.38
Net increase from investment operations		0.10			0.29			0.60			0.50			0.12			0.27			0.60			0.54
Dividends and distributions from:
Net investment income		(0.09	)		(0.67	)		(0.53	)		(0.12	)		(0.09	)		(0.66	)		(0.50	)		—
Net realized gains		(0.03	)		(0.13	)		(0.10	)		—			(0.03	)		(0.13	)		(0.10	)		—
Total dividends and distributions		(0.12	)		(0.80	)		(0.63	)		(0.12	)		(0.12	)		(0.79	)		(0.60	)		—
Net asset value, end of period	$	9.82		$	9.84		$	10.35		$	10.38		$	10.02		$	10.02		$	10.54		$	10.54
Total return		1.02	%3		3.00	%		5.91	%		5.05	%3		1.17	%3		2.78	%		5.90	%		5.40	%3
Ratios/Supplemental data:
Net assets, end of period (000)	$	2,962		$	17,890		$	22,975		$	20,763		$	19,534		$	15,069		$	5,788		$	—	4
Ratio of net expenses to average net assets		0.30	%5		0.30	%		0.30	%		0.30	%5,6		0.35	%5		0.35	%		0.40	%		0.40	%5
Ratio of net expenses to average net assets (excluding interest expense)		0.30	%5		0.30	%		0.30	%		0.30	%5,6		0.35	%5		0.35	%		0.40	%		0.40	%5
Ratio of total expenses to average net assets (excluding waivers)		0.67	%5		0.85	%		0.97	%		2.61	%5,6		0.70	%5		0.85	%		1.06	%		2.73	%5
Ratio of net investment income to average net assets		0.91	%5		5.59	%		4.01	%		4.29	%5,6		1.63	%5		4.96	%		4.00	%		4.19	%5
Ratio of net investment income to average net assets (excluding waivers)		0.54	%5		5.04	%		3.34	%		1.98	%5,6		1.28	%5		4.46	%		3.34	%		1.86	%5
Portfolio turnover rate		130	%		235	%		419	%		96	%		130	%		235	%		419	%		96	%
	SERVICE CLASS												INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041
				2006			2005									2006			2005
Net asset value, beginning of period	$	10.03		$	10.56		$	10.39		$	10.00		$	9.95		$	10.47		$	10.50		$	10.00
Net investment income (loss)2		0.09			0.49			0.43			(0.02	)		0.03			0.50			0.42			0.01
Net realized and unrealized gain (loss) on investments		0.04			(0.27	)		0.14			0.41			0.08			(0.26	)		0.13			0.51
Net increase from investment operations		0.13			0.22			0.57			0.39			0.11			0.24			0.55			0.52
Dividends and distributions from:
Net investment income		(0.08	)		(0.62	)		(0.30	)		—			(0.07	)		(0.63	)		(0.48	)		(0.02	)
Net realized gains		(0.03	)		(0.13	)		(0.10	)		—			(0.03	)		(0.13	)		(0.10	)		—
Total dividends and distributions		(0.11	)		(0.75	)		(0.40	)		—			(0.10	)		(0.76	)		(0.58	)		(0.02	)
Net asset value, end of period	$	10.05		$	10.03		$	10.56		$	10.39		$	9.96		$	9.95		$	10.47		$	10.50
Total return		1.26	%3		2.26	%		5.52	%		3.90	%3		1.13	%3,7		2.43	%7		5.42	%7		5.21	%3,7
Ratios/Supplemental data:
Net assets, end of period (000)	$	2,306		$	4		$	2		$	—	4	$	14,312		$	4,079		$	3,994		$	93
Ratio of net expenses to average net assets		0.54	%5		0.74	%		0.69	%		0.71	%5		0.66	%5		0.71	%		0.69	%		0.71	%5
Ratio of net expenses to average net assets (excluding interest expense)		0.54	%5		0.74	%		0.69	%		0.71	%5		0.66	%5		0.71	%		0.69	%		0.71	%5
Ratio of total expenses to average net assets (excluding waivers)		0.87	%5		4.40	%		1.29	%		2.98	%5		1.03	%5		1.34	%		1.39	%		3.08	%5
Ratio of net investment income to average net assets		1.82	%5		4.84	%		3.71	%		3.88	%5		0.68	%5		5.00	%		4.06	%		3.88	%5
Ratio of net investment income to average net assets (excluding waivers)		1.49	%5		1.18	%		3.11	%		1.61	%5		0.31	%5		4.37	%		3.36	%		1.51	%5
Portfolio turnover rate		130	%		235	%		419	%		96	%		130	%		235	%		419	%		96	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

150

BLACKROCK FUNDS

INFLATION PROTECTED BOND PORTFOLIO	INVESTOR B CLASS												INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041
				2006			2005									2006			2005
Net asset value, beginning of period	$	9.97		$	10.48		$	10.51		$	10.00		$	10.01		$	10.53		$	10.55		$	10.00
Net investment income (loss)2		—			0.40			0.38			(0.01	)		—			0.43			0.36			(0.01	)
Net realized and unrealized gain (loss) on investments		0.07			(0.22	)		0.09			0.53			0.08			(0.26	)		0.12			0.56
Net increase from investment operations		0.07			0.18			0.47			0.52			0.08			0.17			0.48			0.55
Dividends and distributions from:
Net investment income		(0.04	)		(0.56	)		(0.40	)		(0.01	)		(0.04	)		(0.56	)		(0.40	)		—
Net realized gains		(0.03	)		(0.13	)		(0.10	)		—			(0.03	)		(0.13	)		(0.10	)		—
Total dividends and distributions		(0.07	)		(0.69	)		(0.50	)		(0.01	)		(0.07	)		(0.69	)		(0.50	)		—
Net asset value, end of period	$	9.97		$	9.97		$	10.48		$	10.51		$	10.02		$	10.01		$	10.53		$	10.55
Total return		0.63	%3,8		1.78	%8		4.62	%8		5.21	%3,8		0.74	%3,8		1.72	%8		4.70	%8		5.51	%3,8
Ratios/Supplemental data:
Net assets, end of period (000)	$	10,077		$	10,077		$	2,045		$	61		$	38,540		$	38,540		$	3,749		$	6
Ratio of net expenses to average net assets		1.41	%5		1.44	%		1.44	%		1.44	%5		1.41	%5		1.39	%		1.42	%		1.44	%5
Ratio of net expenses to average net assets (excluding interest expense)		1.41	%5		1.44	%		1.44	%		1.44	%5		1.41	%5		1.39	%		1.42	%		1.44	%5
Ratio of total expenses to average net assets (excluding waivers)		1.82	%5		1.96	%		2.07	%		3.73	%5		1.78	%5		1.89	%		2.04	%		3.73	%5
Ratio of net investment income (loss) to average net assets		0.01	%5		3.98	%		3.65	%		3.15	%5		(0.01	)%5		4.25	%		3.46	%		3.15	%5
Ratio of net investment income (loss) to average net assets (excluding waivers)		(0.40	)%5		3.46	%		3.02	%		0.86	%5		(0.38	)%5		3.75	%		2.84	%		0.86	%5
Portfolio turnover rate		130	%		235	%		419	%		96	%		130	%		235	%		419	%		96	%

¹ Commencementof operations of share class effective 6/28/04.

² Calculatedusing the average shares outstanding method.

³ Notannualized.

⁴ Netassets end of period are less than $500.

⁵ Annualized.

⁶ Non-annualizedratios were previously disclosed as annualized. Ratios updated to reflect annualization.

⁷ Salesload not reflected in total return.

⁸ Contingentdeferred sales load not reflected in total return.

151

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

GNMA PORTFOLIO	BLACKROCK CLASS															INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30									PERIOD ENDED 9/30/031,2			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004									2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.53		$	9.69		$	9.87		$	10.02		$	10.27		$	9.54		$	9.70		$	9.88		$	10.02		$	10.23		$	10.28
Net investment income		0.243			0.453			0.443			0.483			0.414			0.233			0.443			0.433			0.473			0.484			0.614
Net realized and unrealized gain (loss) on investments		0.01			(0.08	)		(0.20	)		(0.14	)		(0.18	) 4		0.02			(0.08	)		(0.21	)		(0.09	)		(0.08	)4		0.184
Net increase from investment operations		0.25			0.37			0.24			0.34			0.23			0.25			0.36			0.22			0.38			0.40			0.79
Dividends and distributions from:
Net investment income		(0.25	)		(0.53	)		(0.42	)		(0.49	)		(0.48	)		(0.25	)		(0.52	)		(0.40	)		(0.52	)		(0.61	)		(0.63	)
Net realized gains		—			—			—			—			—			—			—			—			—			—			(0.21	)
Total dividends and distributions		(0.25	)		(0.53	)		(0.42	)		(0.49	)		(0.48	)		(0.25	)		(0.52	)		(0.40	)		(0.52	)		(0.61	)		(0.84	)
Net asset value, end of period	$	9.53		$	9.53		$	9.69		$	9.87		$	10.02		$	9.54		$	9.54		$	9.70		$	9.88		$	10.02		$	10.23
Total return		2.67	%5		3.93	%		2.44	%		4.02	%		2.33	%5		2.65	%5		3.84	%		2.28	%		3.97	%		4.00	%		8.03	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	11,946		$	11,632		$	10,915		$	10,659		$	59,935		$	116,400		$	108,286		$	121,571		$	151,558		$	172,358		$	183,328
Ratio of net expenses to average net assets		0.45	%6		0.45	%		0.45	%		0.50	%		0.35	%6		0.48	%6		0.53	%		0.61	%		0.66	%		0.64	%		0.95	%
Ratio of net expenses to average net assets (excluding interest expense)		0.45	%6		0.45	%		0.45	%		0.45	%		0.35	%6		0.48	%6		0.53	%		0.60	%		0.60	%		0.60	%		0.60	%
Ratio of total expenses to average net assets (excluding waivers)		0.76	%6		0.78	%		0.85	%		0.83	%		0.61	%6		0.76	%6		0.83	%		0.97	%		0.97	%		0.95	%		1.24	%
Ratio of net investment income to average net assets		4.96	%6		4.71	%		4.53	%		4.85	%		3.32	%4,6		4.92	%6		4.62	%		4.40	%		4.74	%		4.89	%4		5.99	%4
Ratio of net investment income to average net assets (excluding waivers)		4.65	%6		4.38	%		4.13	%		4.51	%		3.05	%4,6		4.64	%6		4.32	%		4.04	%		4.43	%		4.58	%4		5.70	%4
Portfolio turnover rate		216	%		320	%		521	%		228	%		1,365	%7		216	%		320	%		521	%		228	%		1,365	%7		401	%

	SERVICE CLASS																		INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.53		$	9.69		$	9.87		$	10.01		$	10.23		$	10.29		$	9.58		$	9.74		$	9.92		$	10.06		$	10.27		$	10.32
Net investment income		0.22	3		0.41	3		0.39	3		0.44	3		0.50	4		0.56	4		0.22	3		0.41	3		0.41	3		0.43	3		0.46	4		0.54	4
Net realized and unrealized gain (loss) on investments		0.02			(0.08	)		(0.19	)		(0.08	)		(0.14	)4		0.194			0.01			(0.08	)		(0.21	)		(0.09	)		(0.11	)4		0.20	4
Net increase from investment operations		0.24			0.33			0.20			0.36			0.36			0.75			0.23			0.33			0.20			0.34			0.35			0.74
Dividends and distributions from:
Net investment income		(0.24	)		(0.49	)		(0.38	)		(0.50	)		(0.58	)		(0.60	)		(0.23	)		(0.49	)		(0.38	)		(0.48	)		(0.56	)		(0.58	)
Net realized gains		—			—			—			—			—			(0.21	)		—			—			—			—			—			(0.21	)
Total dividends and distributions		(0.24	)		(0.49	)		(0.38	)		(0.50	)		(0.58	)		(0.81	)		(0.23	)		(0.49	)		(0.38	)		(0.48	)		(0.56	)		(0.79	)
Net asset value, end of period	$	9.53		$	9.53		$	9.69		$	9.87		$	10.01		$	10.23		$	9.58		$	9.58		$	9.74		$	9.92		$	10.06		$	10.27
Total return		2.51	%5		3.55	%		2.02	%		3.67	%		3.58	%		7.61	%		2.46	%5,8		3.47	%8		2.01	%8		3.50	%8		3.50	%8		7.50	%8
Ratios/Supplemental data:
Net assets, end of period (000)	$	7,935		$	7,712		$	8,129		$	2,271		$	1,554		$	1,069		$	15,042		$	14,122		$	15,288		$	18,080		$	18,978		$	13,620
Ratio of net expenses to average net assets		0.76	%6		0.80	%		0.86	%		0.94	%		0.93	%		1.14	%		0.84	%6		0.87	%		0.86	%		1.05	%		1.11	%		1.36	%
Ratio of net expenses to average net assets (excluding interest expense)		0.76	%6		0.80	%		0.86	%		0.89	%		0.90	%		0.90	%		0.84	%6		0.87	%		0.86	%		0.99	%		1.07	%		1.07	%
Ratio of total expenses to average net assets (excluding waivers)		1.04	%6		1.10	%		1.23	%		1.25	%		1.25	%		1.44	%		1.12	%6		1.27	%		1.32	%		1.46	%		1.42	%		1.65	%
Ratio of net investment income to average net assets		4.64	%6		4.36	%		3.97	%		4.45	%		4.70	%4		5.37	%4		4.54	%6		4.26	%		4.13	%		4.34	%		4.27	%4		5.18	%4
Ratio of net investment income to average net assets (excluding waivers)		4.36	%6		4.06	%		3.60	%		4.13	%		4.39	%4		5.07	%4		4.26	%6		3.86	%		3.67	%		3.93	%		3.96	%4		4.89	%4
Portfolio turnover rate		216	%		320	%		521	%		228	%		1,365	%7		401	%		216	%		320	%		521	%		228	%		1,365	%7		401	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

152

BLACKROCK FUNDS

GNMA PORTFOLIO	INVESTOR B CLASS																		INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.54		$	9.71		$	9.89		$	10.03		$	10.24		$	10.29		$	9.53		$	9.70		$	9.88		$	10.01		$	10.23		$	10.27
Net investment income		0.18	3		0.33	3		0.33	3		0.36	3		0.38	4		0.47	4		0.18	3		0.34	3		0.34	3		0.36	3		0.38	4		0.45	4
Net realized and unrealized gain (loss) on investments		0.02			(0.09	)		(0.21	)		(0.09	)		(0.11	)4		0.194			0.03			(0.10	)		(0.22	)		(0.08	)		(0.12	)4		0.22	4
Net increase from investment operations		0.20			0.24			0.12			0.27			0.27			0.66			0.21			0.24			0.12			0.28			0.26			0.67
Dividends and distributions from:
Net investment income		(0.19	)		(0.41	)		(0.30	)		(0.41	)		(0.48	)		(0.50	)		(0.20	)		(0.41	)		(0.30	)		(0.41	)		(0.48	)		(0.50	)
Net realized gains		—			—			—			—			—			(0.21	)		—			—			—			—			—			(0.21	)
Total dividends and distributions		(0.19	)		(0.41	)		(0.30	)		(0.41	)		(0.48	)		(0.71	)		(0.20	)		(0.41	)		(0.30	)		(0.41	)		(0.48	)		(0.71	)
Net asset value, end of period	$	9.55		$	9.54		$	9.71		$	9.89		$	10.03		$	10.24		$	9.54		$	9.53		$	9.70		$	9.88		$	10.01		$	10.23
Total return		2.15	%5,9		2.58	%9		1.25	%9		2.74	%9		2.74	%9		6.72	%9		2.17	%5,9		2.59	%9		1.26	%9		2.85	%9		2.64	%9		6.84	%9
Ratios/Supplemental data:
Net assets, end of period (000)	$	12,593		$	14,627		$	19,792		$	25,439		$	32,486		$	23,928		$	18,661		$	19,497		$	26,691		$	39,542		$	51,109		$	36,220
Ratio of net expenses to average net assets		1.66	%6		1.65	%		1.62	%		1.80	%		1.85	%		2.07	%		1.62	%6		1.65	%		1.62	%		1.80	%		1.85	%		1.94	%
Ratio of net expenses to average net assets (excluding interest expense)		1.66	%6		1.65	%		1.61	%		1.74	%		1.82	%		1.80	%		1.62	%6		1.65	%		1.61	%		1.74	%		1.82	%		1.79	%
Ratio of total expenses to average net assets (excluding waivers)		1.94	%6		1.96	%		1.97	%		2.11	%		2.16	%		2.36	%		1.90	%6		1.95	%		1.98	%		2.11	%		2.16	%		2.23	%
Ratio of net investment income to average net assets		3.74	%6		3.50	%		3.40	%		3.62	%		3.56	%4		4.44	%4		3.79	%6		3.51	%		3.44	%		3.62	%		3.55	%4		4.13	%4
Ratio of net investment income to average net assets (excluding waivers)		3.46	%6		3.19	%		3.05	%		3.31	%		3.25	%4		4.15	%4		3.51	%6		3.21	%		3.08	%		3.31	%		3.24	%4		3.84	%4
Portfolio turnover rate		216	%		320	%		521	%		228	%		1,365	%7		401	%		216	%		320	%		521	%		228	%		1,365	%7		401	%

¹ Audited by other auditors.

² Commencement of operations of share class effective 2/19/02.

³ Calculated using the average shares outstanding method.

⁴ As discussed in our prior year financial statements, certain prior year amounts were reclassified to conform to new presentation guidelines.

⁵ Not annualized.

⁶ Annualized.

⁷ Includes dollar roll transactions, excluding these transactions the portfolio turnover would have been 268%.

⁸ Sales load not reflected in total return.

⁹ Contingent deferred sales load not reflected in total return.

153

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

MANAGED INCOME PORTFOLIO	INSTITUTIONAL CLASS																		SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.99		$	10.20		$	10.41		$	10.80		$	10.71		$	10.60		$	9.99		$	10.20		$	10.41		$	10.80		$	10.71		$	10.60
Net investment income		0.22	2		0.44	2		0.46	2		0.47	2		0.55	3		0.60	3		0.21	2		0.41	2		0.43	2		0.44	2		0.54	3		0.57	3
Net realized and unrealized gain (loss) on investments		0.02			(0.12	)		(0.18	)		(0.10	)		0.17	3		0.10	3		0.02			(0.12	)		(0.18	)		(0.10	)		0.15	3		0.10	3
Net increase from investment operations		0.24			0.32			0.28			0.37			0.72			0.70			0.23			0.29			0.25			0.34			0.69			0.67
Dividends and distributions from:
Net investment income		(0.22	)		(0.48	)		(0.45	)		(0.48	)		(0.63	)		(0.59	)		(0.21	)		(0.45	)		(0.42	)		(0.45	)		(0.60	)		(0.56	)
Net realized gains		—			(0.05	)		(0.04	)		(0.28	)		—			—			—			(0.05	)		(0.04	)		(0.28	)		—			—
Total dividends and distributions		(0.22	)		(0.53	)		(0.49	)		(0.76	)		(0.63	)		(0.59	)		(0.21	)		(0.50	)		(0.46	)		(0.73	)		(0.60	)		(0.56	)
Net asset value, end of period	$	10.01		$	9.99		$	10.20		$	10.41		$	10.80		$	10.71		$	10.01		$	9.99		$	10.20		$	10.41		$	10.80		$	10.71
Total return		2.42	%4		3.24	%		2.76	%		3.60	%		6.91	%		6.82	%		2.28	%4		2.93	%		2.45	%		3.29	%		6.58	%		6.50	%
Net assets, end of period (000)	$	540,511		$	557,787		$	587,061		$	644,083		$	810,452		$	924,211		$	174,332		$	150,085		$	81,337		$	80,253		$	92,336		$	137,084
Ratios/Supplemental data:
Ratio of net expenses to average net assets		0.66	%5		0.65	%		0.65	%		0.65	%		0.65	%		0.75	%		0.95	%5		0.94	%		0.95	%		0.95	%		0.95	%		1.06	%
Ratio of net expenses to average net assets (excluding interest expense)		0.65	%5		0.65	%		0.65	%		0.65	%		0.65	%		0.65	%		0.94	%5		0.94	%		0.95	%		0.95	%		0.95	%		0.95	%
Ratio of total expenses to average net assets (excluding waivers)		0.67	%5		0.73	%		0.83	%		0.81	%		0.82	%		0.90	%		0.95	%5		0.98	%		1.08	%		1.11	%		1.13	%		1.19	%
Ratio of net investment income to average net assets		4.43	%5		4.42	%		4.45	%		4.50	%		5.06	%3		5.63	%3		4.14	%5		4.12	%		4.13	%		4.21	%		4.74	%3		5.30	%3
Ratio of net investment income to average net assets (excluding waivers)		4.42	%5		4.34	%		4.27	%		4.34	%		4.89	%3		5.50	%3		4.14	%5		4.08	%		4.00	%		4.05	%		4.56	%3		5.17	%3
Portfolio turnover rate		77	%		184	%		252	%		284	%		613	%6		290	%		77	%		184	%		252	%		284	%		613	%6		290	%

	INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	10.00		$	10.21		$	10.41		$	10.80		$	10.71		$	10.60
Net investment income		0.212			0.412			0.422			0.422			0.493			0.533
Net realized and unrealized gain (loss) on investments		0.01			(0.12	)		(0.17	)		(0.10	)		0.183			0.123
Net increase from investment operations		0.22			0.29			0.25			0.32			0.67			0.65
Dividends and distributions from:
Net investment income		(0.20	)		(0.45	)		(0.41	)		(0.43	)		(0.58	)		(0.54	)
Net realized gains		—			(0.05	)		(0.04	)		(0.28	)		—			—
Total dividends and distributions		(0.20	)		(0.50	)		(0.45	)		(0.71	)		(0.58	)		(0.54	)
Net asset value, end of period	$	10.02		$	10.00		$	10.21		$	10.41		$	10.80		$	10.71
Total return		2.26	%4,7		2.86	%7		2.45	%7		3.13	%7		6.41	%7		6.32	%7
Ratios/Supplemental data:
Net assets, end of period (000)	$	21,768		$	23,921		$	29,462		$	35,462		$	49,870		$	52,794
Ratio of net expenses to average net assets		0.98	%5		1.01	%		1.05	%		1.10	%		1.13	%		1.23	%
Ratio of net expenses to average net assets (excluding interest expense)		0.97	%5		1.01	%		1.05	%		1.10	%		1.12	%		1.12	%
Ratio of total expenses to average net assets (excluding waivers)		0.98	%5		1.13	%		1.18	%		1.30	%		1.30	%		1.38	%
Ratio of net investment income to average net assets		4.12	%5		4.07	%		4.06	%		4.06	%		4.57	%3		5.14	%3
Ratio of net investment income to average net assets (excluding waivers)		4.12	%5		3.95	%		3.93	%		3.86	%		4.40	%3		5.00	%3
Portfolio turnover rate		77	%		184	%		252	%		284	%		613	%6		290	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

154

BLACKROCK FUNDS

MANAGED INCOME PORTFOLIO	INVESTOR B CLASS																		INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	10.00		$	10.21		$	10.41		$	10.80		$	10.71		$	10.60		$	9.97		$	10.18		$	10.38		$	10.78		$	10.68		$	10.57
Net investment income		0.16	2		0.32	2		0.35	2		0.35	2		0.41	3		0.46	3		0.16	2		0.33	2		0.34	2		0.35	2		0.41	3		0.46	3
Net realized and unrealized gain (loss) on investments		0.02			(0.12	)		(0.17	)		(0.11	)		0.18	3		0.11	3		0.02			(0.12	)		(0.16	)		(0.12	)		0.19	3		0.11	3
Net increase from investment operations		0.18			0.20			0.18			0.24			0.59			0.57			0.18			0.21			0.18			0.23			0.60			0.57
Dividends and distributions from:
Net investment income		(0.16	)		(0.36	)		(0.34	)		(0.35	)		(0.50	)		(0.46	)		(0.16	)		(0.37	)		(0.34	)		(0.35	)		(0.50	)		(0.46	)
Net realized gains		—			(0.05	)		(0.04	)		(0.28	)		—			—			—			(0.05	)		(0.04	)		(0.28	)		—			—
Total dividends and distributions		(0.16	)		(0.41	)		(0.38	)		(0.63	)		(0.50	)		(0.46	)		(0.16	)		(0.42	)		(0.38	)		(0.63	)		(0.50	)		(0.46	)
Net asset value, end of period	$	10.02		$	10.00		$	10.21		$	10.41		$	10.80		$	10.71		$	9.99		$	9.97		$	10.18		$	10.38		$	10.78		$	10.68
Total return		1.81	%4,8		1.91	%8		1.69	%8		2.36	%8		5.61	%8		5.53	%8		1.85	%4,8		2.07	%8		1.69	%8		2.26	%8		5.73	%8		5.54	%8
Ratios/Supplemental data:
Net assets, end of period (000)	$	4,538		$	5,127		$	6,625		$	9,136		$	10,425		$	9,582		$	1,428		$	1,144		$	1,187		$	870		$	763		$	554
Ratio of net expenses to average net assets		1.87	%5		1.85	%		1.80	%		1.85	%		1.87	%		1.99	%		1.79	%5		1.78	%		1.79	%		1.84	%		1.87	%		2.00	%
Ratio of net expenses to average net assets (excluding interest expense)		1.86	%5		1.85	%		1.80	%		1.85	%		1.87	%		1.87	%		1.78	%5		1.78	%		1.79	%		1.84	%		1.87	%		1.87	%
Ratio of total expenses to average net assets (excluding waivers)		1.87	%5		1.88	%		1.84	%		1.95	%		2.05	%		2.11	%		1.79	%5		1.80	%		1.83	%		1.95	%		2.05	%		2.14	%
Ratio of net investment income to average net assets		3.23	%5		3.24	%		3.34	%		3.31	%		3.80	%3		4.43	%3		3.32	%5		3.32	%		3.27	%		3.34	%		3.77	%3		4.44	%3
Ratio of net investment income to average net assets (excluding waivers)		3.23	%5		3.21	%		3.30	%		3.21	%		3.63	%3		4.30	%3		3.32	%5		3.30	%		3.23	%		3.24	%		3.60	%3		4.30	%3
Portfolio turnover rate		77	%		184	%		252	%		284	%		613	%6		290	%		77	%		184	%		252	%		284	%		613	%6		290	%

¹ Auditedby other auditors.

² Calculatedusing the average shares outstanding method.

³ Asdiscussed in our prior year financial statements, certain prior year amounts were reclassified to conform to new presentation guidelines.

⁴ Notannualized.

⁵ Annualized.

⁶ Includesdollar roll transactions, excluding these transactions the portfolio turnover would have been 206%.

⁷ Salesload not reflected in total return.

⁸ Contingentdeferred sales load not reflected in total return.

155

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

INTERNATIONAL BOND PORTFOLIO	BLACK ROCK CLASS												INSTITUTIONAL C LASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005									2006			2005			2004			20032			20022
Net asset value, beginning of period	$	10.98		$	11.13		$	11.41		$	10.96		$	10.96		$	11.13		$	11.41		$	11.07		$	10.54		$	10.53
Net investment income		0.17	3		0.33	3		0.30	3		0.11	3		0.17	3		0.32	3		0.28	3		0.28	3		0.29	3		0.42	3
Net realized and unrealized gain (loss) on investments		0.15			(0.18	)		0.03			0.51			0.16			(0.20	)		0.03			0.51			0.81			0.17
Net increase from investment operations		0.32			0.15			0.33			0.62			0.33			0.12			0.31			0.79			1.10			0.59
Dividends and distributions from:
Net investment income		(0.14	)		(0.30	)		(0.60	)		(0.17	)		(0.14	)		(0.29	)		(0.58	)		(0.45	)		(0.33	)		(0.58	)
Tax return of capital		—			—			—			—			—			—			—			—			(0.17	)		—
Net realized gains		—			—			(0.01	)		—			—			—			(0.01	)		—			(0.07	)		—
Total dividends and distributions		(0.14	)		(0.30	)		(0.61	)		(0.17	)		(0.14	)		(0.29	)		(0.59	)		(0.45	)		(0.57	)		(0.58	)
Redemption fees added to paid-in capital		—			—	4		—	4		—	4		—			—	4		—	4		—	4		—			—
Net asset value, end of period	$	11.16		$	10.98		$	11.13		$	11.41		$	11.15		$	10.96		$	11.13		$	11.41		$	11.07		$	10.54
Total return		2.96	%5		1.44	%6		2.62	%6		5.71	%5,6		3.03	%5		1.15	%6		2.46	%6		7.20	%6		10.78	%		5.79	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	110,568		$	144,623		$	98,721		$	35,748		$	230,531		$	229,648		$	346,746		$	133,544		$	64,038		$	35,425
Ratio of net expenses to average net assets		0.74	%7		0.77	%		0.78	%		0.78	% 7		0.77	%7		0.87	%		0.94	%		0.94	%		0.94	%		1.05	%
Ratio of net expenses to average net assets (excluding interest expense)		0.74	%7		0.77	%		0.78	%		0.78	%7		0.77	%7		0.87	%		0.94	%		0.94	%		0.94	%		0.90	%
Ratio of total expenses to average net assets (excluding waivers)		0.74	%7		0.81	%		0.83	%		0.89	%7		0.77	%7		0.89	%		0.95	%		0.96	%		0.94	%		1.05	%
Ratio of net investment income to average net assets		3.03	%7		3.05	%		2.59	%		2.58	%7		3.05	%7		2.93	%		2.43	%		2.44	%		2.69	%		3.89	%
Ratio of net investment income to average net assets (excluding waivers)		3.03	%7		3.01	%		2.54	%		2.47	%7		3.05	%7		2.91	%		2.42	%		2.41	%		2.69	%		3.89	%
Portfolio turnover rate		44	%		148	%		164	%		240	%		44	%		148	%		164	%		240	%		209	%		206	%

	SERVICE CLASS																		INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20032			20022						2006			2005			2004			20032			20022
Net asset value, beginning of period	$	10.98		$	11.14		$	11.42		$	11.08		$	10.54		$	10.53		$	11.15		$	11.14		$	11.42		$	11.07		$	10.54		$	10.53
Net investment income		0.15	3		0.29	3		0.26	3		0.25	3		0.26	3		0.37	3		0.15	3		0.29	3		0.25	3		0.23	3		0.24	3		0.35	3
Net realized and unrealized gain (loss) on investments		0.16			(0.19	)		0.02			0.50			0.81			0.19			0.16			(0.19	)		0.03			0.52			0.81			0.19
Net increase from investment operations		0.31			0.10			0.28			0.75			1.07			0.56			0.31			0.10			0.28			0.75			1.05			0.54
Dividends and distributions from:
Net investment income		(0.12	)		(0.26	)		(0.55	)		(0.41	)		(0.29	)		(0.55	)		(0.12	)		(0.26	)		(0.55	)		(0.40	)		(0.28	)		(0.53	)
Tax return of capital		—			—			—			—			(0.17	)		—			—			—			—			—			(0.17	)		—
Net realized gains		—			—			(0.01	)		—			(0.07	)		—			—			—			(0.01	)		—			(0.07	)		—
Total dividends and distributions		(0.12	)		(0.26	)		(0.56	)		(0.41	)		(0.53	)		(0.55	)		(0.12	)		(0.26	)		(0.56	)		(0.40	)		(0.52	)		(0.53	)
Redemption fees added to paid-in capital		—			—	4		—	4		—	4		—			—			—			—	4		—	4		—	4		—			—
Net asset value, end of period	$	11.17		$	10.98		$	11.14		$	11.42		$	11.08		$	10.54		$	11.17		$	11.15		$	11.14		$	11.42		$	11.07		$	10.54
Total return		2.85	%5		0.93	%6		2.21	%6		6.89	%6		10.55	%		5.47	%		2.82	%5,8		0.93	%6,8		2.21	%6,8		6.84	%6,8		10.27	%8		5.29	%8
Ratios/Supplemental data:
Net assets, end of period (000)	$	69,391		$	73,139		$	107,402		$	80,024		$	48,584		$	27,131		$	121,340		$	141,130		$	182,321		$	123,145		$	74,821		$	39,727
Ratio of net expenses to average net assets		1.10	%7		1.18	%		1.19	%		1.23	%		1.24	%		1.30	%		1.19	%7		1.18	%		1.18	%		1.31	%		1.41	%		1.47	%
Ratio of net expenses to average net assets (excluding interest expense)		1.10	%7		1.18	%		1.19	%		1.23	%		1.24	%		1.20	%		1.19	%7		1.18	%		1.18	%		1.31	%		1.41	%		1.37	%
Ratio of total expenses to average net assets (excluding waivers)		1.10	%7		1.20	%		1.20	%		1.25	%		1.24	%		1.30	%		1.25	%7		1.39	%		1.29	%		1.43	%		1.41	%		1.47	%
Ratio of net investment income to average net assets		2.71	%7		2.62	%		2.19	%		2.18	%		2.41	%		3.55	%		2.62	%7		2.64	%		2.17	%		2.06	%		2.21	%		3.36	%
Ratio of net investment income to average net assets (excluding waivers)		2.71	%7		2.60	%		2.18	%		2.15	%		2.41	%		3.55	%		2.56	%7		2.43	%		2.06	%		1.93	%		2.21	%		3.36	%
Portfolio turnover rate		44	%		148	%		164	%		240	%		209	%		206	%		44	%		148	%		164	%		240	%		209	%		206	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

156

BLACKROCK FUNDS

INTERNATIONAL BOND PORTFOLIO	INVESTOR B CLASS																		INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20032			20022						2006			2005			2004			20032			20022
Net asset value, beginning of period	$	10.98		$	11.14		$	11.42		$	11.07		$	10.54		$	10.53		$	11.01		$	11.17		$	11.45		$	11.10		$	10.56		$	10.55
Net investment income		0.10	3		0.20	3		0.17	3		0.15	3		0.16	3		0.27	3		0.11	3		0.21	3		0.17	3		0.15	3		0.15	3		0.27	3
Net realized and unrealized gain (loss) on investments		0.16			(0.19	)		0.02			0.51			0.81			0.19			0.16			(0.19	)		0.02			0.51			0.83			0.19
Net increase from investment operations		0.26			0.01			0.19			0.66			0.97			0.46			0.27			0.02			0.19			0.66			0.98			0.46
Dividends and distributions from:
Net investment income		(0.07	)		(0.17	)		(0.46	)		(0.31	)		(0.20	)		(0.45	)		(0.08	)		(0.18	)		(0.46	)		(0.31	)		(0.20	)		(0.45	)
Tax return of capital		—			—			—			—			(0.17	)		—			—			—			—			—			(0.17	)		—
Net realized gains		—			—			(0.01	)		—			(0.07	)		—			—			—			(0.01	)		—			(0.07	)		—
Total dividends and distributions		(0.07	)		(0.17	)		(0.47	)		(0.31	)		(0.44	)		(0.45	)		(0.08	)		(0.18	)		(0.47	)		(0.31	)		(0.44	)		(0.45	)
Redemption fees added to paid-in capital		—			—	4		—	4		—	4		—			—			—			—	4		—	4		—	4		—			—
Net asset value, end of period	$	11.17		$	10.98		$	11.14		$	11.42		$	11.07		$	10.54		$	11.20		$	11.01		$	11.17		$	11.45		$	11.10		$	10.56
Total return		2.38	%5,9		0.10	%6,9		1.45	%6,9		6.04	%6,9		9.45	%9		4.51	%9		2.44	%5,9		0.17	%6,9		1.45	%6,9		6.03	%6,9		9.53	%9		4.50	%9
Ratios/Supplemental data:
Net assets, end of period (000)	$	13,867		$	15,475		$	19,705		$	16,780		$	13,087		$	11,470		$	49,300		$	50,795		$	65,555		$	36,947		$	17,777		$	8,427
Ratio of net expenses to average net assets		2.03	%7		2.02	%		1.93	%		2.06	%		2.16	%		2.25	%		1.90	%7		1.94	%		1.93	%		2.04	%		2.15	%		2.23	%
Ratio of net expenses to average net assets (excluding interest expense)		2.03	%7		2.02	%		1.93	%		2.06	%		2.16	%		2.11	%		1.90	%7		1.94	%		1.93	%		2.04	%		2.15	%		2.11	%
Ratio of total expenses to average net assets (excluding waivers)		2.03	%7		2.03	%		1.95	%		2.09	%		2.16	%		2.25	%		1.90	%7		1.95	%		1.94	%		2.07	%		2.15	%		2.23	%
Ratio of net investment income to average net assets		1.78	%7		1.79	%		1.43	%		1.32	%		1.51	%		2.64	%		2.01	%7		1.88	%		1.42	%		1.32	%		1.44	%		2.62	%
Ratio of net investment income to average net assets (excluding waivers)		1.78	%7		1.78	%		1.41	%		1.29	%		1.51	%		2.64	%		2.01	%7		1.87	%		1.41	%		1.29	%		1.44	%		2.62	%
Portfolio turnover rate		44	%		148	%		164	%		240	%		209	%		206	%		44	%		148	%		164	%		240	%		209	%		206	%

¹ Commencement of operations of share class effective 5/18/04.

² Audited by other auditors.

³ Calculated using the average shares outstanding method.

⁴ Redemption fees added to paid-in capital are less than $0.005 per share.

⁵ Not annualized.

⁶ Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

⁷ Annualized.

⁸ Sales load not reflected in total return.

⁹ Contingent deferred sales load not reflected in total return.

157

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

HIGH YIELD BOND PORTFOLIO	BLACKROCK CLASS																		INSTITUTIONAL CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	7.92		$	8.09		$	8.14		$	7.74		$	6.75		$	7.39		$	7.92		$	8.09		$	8.14		$	7.74		$	6.75		$	7.39
Net investment income		0.32	2		0.58	2		0.64	2		0.62	2		0.71			0.85			0.31	2		0.58	2		0.63	2		0.61	2		0.73			0.82
Net realized and unrealized gain (loss) on investments		0.30			—			0.05			0.37			1.03			(0.66	)		0.31			(0.01	)		0.04			0.37			1.00			(0.64	)
Net increase from investment operations		0.62			0.58			0.69			0.99			1.74			0.19			0.62			0.57			0.67			0.98			1.73			0.18
Dividends and distributions from:
Net investment income		(0.30	)		(0.61	)		(0.60	)		(0.59	)		(0.75	)		(0.83	)		(0.30	)		(0.60	)		(0.58	)		(0.58	)		(0.74	)		(0.82	)
Net realized gains		—			(0.14	)		(0.14	)		—			—			—			—			(0.14	)		(0.14	)		—			—			—
Total dividends and distributions		(0.30	)		(0.75	)		(0.74	)		(0.59	)		(0.75	)		(0.83	)		(0.30	)		(0.74	)		(0.72	)		(0.58	)		(0.74	)		(0.82	)
Redemption fees added to paid-in capital		—			—	3		—	3		—	3		—			—			—			—	3		—	3		—	3		—			—
Net asset value, end of period	$	8.24		$	7.92		$	8.09		$	8.14		$	7.74		$	6.75		$	8.24		$	7.92		$	8.09		$	8.14		$	7.74		$	6.75
Total return		7.94	%4,5		7.67	%5		8.69	%5		13.20	% 5		27.17	%		2.15	%		7.91	%4,5		7.57	%5		8.53	%5		13.03	%5		26.98	%		2.00	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	319,056		$	219,996		$	169,532		$	126,976		$	57,207		$	32,240		$	208,112		$	174,190		$	165,805		$	162,166		$	170,902		$	94,065
Ratio of net expenses to average net assets		0.55	%6		0.55	%		0.55	%		0.55	%		0.61	%		0.73	%		0.60	%6		0.64	%		0.70	%		0.70	%		0.76	%		0.87	%
Ratio of net expenses to average net assets (excluding interest expense)		0.55	%6		0.55	%		0.55	%		0.55	%		0.55	%		0.55	%		0.60	%6		0.63	%		0.70	%		0.70	%		0.70	%		0.70	%
Ratio of total expenses to average net assets (excluding waivers)		0.66	%6		0.71	%		0.77	%		0.73	%		0.77	%		0.89	%		0.67	%6		0.76	%		0.89	%		0.85	%		0.90	%		1.01	%
Ratio of net investment income to average net assets		7.80	%6		7.41	%		7.91	%		7.71	%		9.83	%		11.15	%		7.72	%6		7.35	%		7.75	%		7.63	%		9.63	%		10.94	%
Ratio of net investment income to average net assets (excluding waivers)		7.69	%6		7.25	%		7.69	%		7.53	%		9.67	%		11.01	%		7.65	%6		7.23	%		7.56	%		7.48	%		9.49	%		10.80	%
Portfolio turnover rate		40	%		105	%		129	%		172	%		212	%		301	%		40	%		105	%		129	%		172	%		212	%		301	%
	SERVICE CLASS																		INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	7.93		$	8.09		$	8.14		$	7.74		$	6.75		$	7.39		$	7.92		$	8.09		$	8.14		$	7.73		$	6.75		$	7.40
Net investment income		0.30	2		0.56	2		0.61	2		0.59	2		0.73			0.86			0.30	2		0.55	2		0.60	2		0.58	2		0.73			0.82
Net realized and unrealized gain (loss) on investments		0.30			—			0.04			0.37			0.98			(0.71	)		0.30			—			0.05			0.38			0.96			(0.69	)
Net increase from investment operations		0.60			0.56			0.65			0.96			1.71			0.15			0.60			0.55			0.65			0.96			1.69			0.13
Dividends and distributions from:
Net investment income		(0.29	)		(0.58	)		(0.56	)		(0.56	)		(0.72	)		(0.79	)		(0.28	)		(0.58	)		(0.56	)		(0.55	)		(0.71	)		(0.78	)
Net realized gains		—			(0.14	)		(0.14	)		—			—			—			—			(0.14	)		(0.14	)		—			—			—
Total dividends and distributions		(0.29	)		(0.72	)		(0.70	)		(0.56	)		(0.72	)		(0.79	)		(0.28	)		(0.72	)		(0.70	)		(0.55	)		(0.71	)		(0.78	)
Redemption fees added to paid-in capital		—			—	3		—	3		—	3		—			—			—			—	3		—	3		—	3		—			—
Net asset value, end of period	$	8.24		$	7.93		$	8.09		$	8.14		$	7.74		$	6.75		$	8.24		$	7.92		$	8.09		$	8.14		$	7.73		$	6.75
Total return		7.64	%4,5		7.43	%5		8.24	%5		12.71	% 5		26.61	%		1.69	%		7.73	%4,5,7		7.22	%5,7		8.24	%5,7		12.70	%5,7		26.25	%7		1.38	%7
Ratios/Supplemental data:
Net assets, end of period (000)	$	274,886		$	231,543		$	158,083		$	112,004		$	85,247		$	29,344		$	556,634		$	423,297		$	262,920		$	72,806		$	82,391		$	18,932
Ratio of net expenses to average net assets		0.87	%6		0.88	%		0.96	%		0.99	%		1.06	%		1.17	%		0.96	%6		0.96	%		0.96	%		1.10	%		1.22	%		1.33	%
Ratio of net expenses to average net assets (excluding interest expense)		0.87	%6		0.88	%		0.96	%		0.99	%		1.00	%		1.00	%		0.96	%6		0.96	%		0.96	%		1.09	%		1.17	%		1.17	%
Ratio of total expenses to average net assets (excluding waivers)		0.93	%6		1.00	%		1.14	%		1.14	%		1.20	%		1.34	%		1.06	%6		1.24	%		1.25	%		1.34	%		1.36	%		1.48	%
Ratio of net investment income to average net assets		7.42	%6		7.09	%		7.51	%		7.30	%		9.31	%		11.37	%		7.36	%6		6.98	%		7.41	%		7.29	%		8.81	%		10.42	%
Ratio of net investment income to average net assets (excluding waivers)		7.36	%6		6.97	%		7.33	%		7.16	%		9.17	%		11.20	%		7.26	%6		6.70	%		7.12	%		7.05	%		8.68	%		10.28	%
Portfolio turnover rate		40	%		105	%		129	%		172	%		212	%		301	%		40	%		105	%		129	%		172	%		212	%		301	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

158

BLACKROCK FUNDS

HIGH YIELD BOND PORTFOLIO	INVESTOR B CLASS																		INVESTOR B1 CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/078 (UNAUDITED)
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	7.92		$	8.09		$	8.14		$	7.73		$	6.75		$	7.39		$	7.92
Net investment income		0.27	2		0.50	2		0.55	2		0.52	2		0.65			0.74			0.28
Net realized and unrealized gain (loss) on investments		0.30			(0.01	)		0.04			0.38			0.98			(0.66	)		0.30
Net increase from investment operations		0.57			0.49			0.59			0.90			1.63			0.08			0.58
Dividends and distributions from:
Net investment income		(0.25	)		(0.52	)		(0.50	)		(0.49	)		(0.65	)		(0.72	)		(0.26	)
Net realized gains		—			(0.14	)		(0.14	)		—			—			—			—
Total dividends and distributions		(0.25	)		(0.66	)		(0.64	)		(0.49	)		(0.65	)		(0.72	)		(0.26	)
Redemption fees added to paid-in capital		—			—	3		—	3		—	3		—			—			—
Net asset value, end of period	$	8.24		$	7.92		$	8.09		$	8.14		$	7.73		$	6.75		$	8.24
Total return		7.33	%4,5,9		6.43	%5,9		7.44	%5,9		11.87	%5,9		25.34	%9		0.75	%9		7.47	%4,5,9
Ratios/Supplemental data:
Net assets, end of period (000)	$	80,229		$	87,651		$	110,420		$	92,243		$	107,078		$	57,612		$	101,134
Ratio of net expenses to average net assets		1.71	%6		1.71	%		1.71	%		1.85	%		1.98	%		2.09	%		1.44	%6
Ratio of net expenses to average net assets (excluding interest expense)		1.71	%6		1.71	%		1.71	%		1.84	%		1.92	%		1.92	%		1.44	%6
Ratio of total expenses to average net assets (excluding waivers)		1.82	%6		1.89	%		1.89	%		1.99	%		2.12	%		2.23	%		1.54	%6
Ratio of net investment income to average net assets		6.62	%6		6.31	%		6.74	%		6.49	%		8.39	%		9.81	%		6.95	%6
Ratio of net investment income to average net assets (excluding waivers)		6.51	%6		6.13	%		6.56	%		6.35	%		8.25	%		9.66	%		6.85	%6
Portfolio turnover rate		40	%		105	%		129	%		172	%		212	%		301	%		40	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

⁴ Not annualized.

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

⁶ Annualized.

⁷ Sales load not reflected in total return.

⁸ Commencement of operations of share class effective 10/02/06.

⁹ Contingent deferred sales load not reflected in total return.

159

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONCLUDED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INVESTOR C CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
HIGH YIELD BOND PORTFOLIO				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	7.93		$	8.10		$	8.15		$	7.74		$	6.75		$	7.40
Net investment income		0.27	2		0.50	2		0.55	2		0.52	2		0.67			0.76
Net realized and unrealized gain (loss) on investments		0.30			(0.01	)		0.04			0.38			0.97			(0.69	)
Net increase from investment operations		0.57			0.49			0.59			0.90			1.64			0.07
Dividends and distributions from:
Net investment income		(0.25	)		(0.52	)		(0.50	)		(0.49	)		(0.65	)		(0.72	)
Net realized gains		—			(0.14	)		(0.14	)		—			—			—
Total dividends and distributions		(0.25	)		(0.66	)		(0.64	)		(0.49	)		(0.65	)		(0.72	)
Redemption fees added to paid-in capital		—			—	3		—	3		—	3		—			—
Net asset value, end of period	$	8.25		$	7.93		$	8.10		$	8.15		$	7.74		$	6.75
Total return		7.33	%4,5,6		6.42	%5,6		7.44	%5,6		11.86	%5,6		25.48	%5		0.61	%5
Ratios/Supplemental data:
Net assets, end of period (000)	$	66,088		$	51,917		$	49,939		$	61,983		$	73,246		$	21,939
Ratio of net expenses to average net assets		1.68	%7		1.71	%		1.72	%		1.85	%		1.97	%		2.08	%
Ratio of net expenses to average net assets (excluding interest expense)		1.68	%7		1.71	%		1.72	%		1.85	%		1.92	%		1.91	%
Ratio of total expenses to average net assets (excluding waivers)		1.74	%7		1.86	%		1.89	%		1.99	%		2.11	%		2.23	%
Ratio of net investment income to average net assets		6.63	%7		6.28	%		6.77	%		6.50	%		8.14	%		9.73	%
Ratio of net investment income to average net assets (excluding waivers)		6.57	%7		6.13	%		6.60	%		6.35	%		8.00	%		9.59	%
Portfolio turnover rate		40	%		105	%		129	%		172	%		212	%		301	%

	INVESTOR C1 CLASS
	PERIOD ENDED 3/31/078 (UNAUDITED)
Net asset value, beginning of period	$	7.93
Net investment income		0.28	2
Net realized and unrealized gain on investments		0.30
Net increase from investment operations		0.58
Dividends and distributions from:
Net investment income		(0.26	)
Net realized gains		—
Total dividends and distributions		(0.26	)
Redemption fees added to paid-in capital		—
Net asset value, end of period	$	8.25
Total return		7.44	%4,5,6
Ratios/Supplemental data:
Net assets, end of period (000)	$	50,180
Ratio of net expenses to average net assets		1.49	%7
Ratio of net expenses to average net assets (excluding interest expense)		1.49	%7
Ratio of total expenses to average net assets (excluding waivers)		1.60	%7
Ratio of net investment income to average net assets		6.88	%7
Ratio of net investment income to average net assets (excluding waivers)		6.77	%7
Portfolio turnover rate		40	%

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

160

BLACKROCK FUNDS

	R CLASS
HIGH YIELD BOND PORTFOLIO	PERIOD ENDED 3/31/078 (UNAUDITED)
Net asset value, beginning of period	$	7.92
Net investment income		0.29	2
Net realized and unrealized gain on investments		0.30
Net increase from investment operations		0.59
Dividends and distributions from:
Net investment income		(0.27	)
Net realized gains		—
Total dividends and distributions		(0.27	)
Redemption fees added to paid-in capital		—
Net asset value, end of period	$	8.24
Total return		7.62	%4,6
Ratios/Supplemental data:
Net assets, end of period (000)	$	5,027
Ratio of net expenses to average net assets		1.17	%7
Ratio of net expenses to average net assets (excluding interest expense)		1.17	%7
Ratio of total expenses to average net assets (excluding waivers)		1.43	%7
Ratio of net investment income to average net assets		7.22	%7
Ratio of net investment income to average net assets (excluding waivers)		6.96	%7
Portfolio turnover rate		40	%

¹ Audited by other auditors.

² Calculated using the average shares outstanding method.

³ Redemption fees added to paid-in capital are less than $0.005 per share.

⁴ Not annualized.

⁵ Contingent deferred sales load not reflected in total return.

⁶ Redemption fee of 2.00% is reflected in total return calculations. There was no impact to the return.

⁷ Annualized.

⁸ Commencement of operations of share class effective 10/02/06.

161

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(A) Organization

BlackRock Funds^SM (the “Fund”) was organized on December 22, 1988, as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. As of March 31, 2007, the Fund had 49 registered portfolios, 13 of which are included in these financial statements (the “Portfolios”). Each Portfolio may offer as many as thirteen classes of shares: BlackRock, Institutional, Service, Hilliard Lyons, Investor A, Investor A1, Investor B, Investor B1, Investor B2, Investor C, Investor C1, Investor C2 and R. Shares of all classes of a Portfolio represent equal pro-rata interests in such Portfolio, except that each class bears different expenses which reflect the difference in the range of services provided to them, mostly due to differences in distribution and service fees.

Under the Fund’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund considers the risk of loss from such claims to be remote.

(B) Fund Reorganization

The board of trustees (the “Board”) and shareholders of the below BlackRock Funds approved a reorganization with similarly-managed BlackRock Portfolios (the “Reorganization”), as indicated below. The Reorganization was a tax-free event and took place on October 16, 2006.

BLACKROCK FUND	BLACKROCK PORTFOLIO
BlackRock Short-Term U.S. Government Fund	BlackRock Low Duration Bond Portfolio
BlackRock U.S. Government Fund	BlackRock Government Income Portfolio
BlackRock Inflation Protected Fund	BlackRock Inflation Protected Bond Portfolio
BlackRock U.S. High Yield Fund	BlackRock High Yield Bond Portfolio

Under the Agreements and Plans of Reorganizations with respect to the Reorganization, for the Short-Term U.S. Government, U.S. Government and U.S. High Yield Fund Class A Shares, Class A1 Shares, Class B Shares, Class B1 Shares, Class C Shares, Class C1 Shares, Class I Shares and Class R Shares were exchanged for BlackRock Portfolio Investor A Shares, Investor A1 Shares, Investor B1 Shares, Investor B2 Shares, Investor C1 Shares, Investor C2 Shares, Institutional Shares and R Shares, respectively. For the Inflation Protected Fund Class A Shares, Class B Shares, Class C Shares and Class I Shares were exchanged for Investor A Shares, Investor B Shares, Investor C Shares and Institutional Shares, respectively. The conversion ratios for each Share Class mentioned above were as follows:

BLACKROCK FUNDS	SHORT-TERM U.S. GOVERNMENT	U.S. GOVERNMENT	INFLATION PROTECTED	U.S. HIGH YIELD
Class A	0.96952149	0.93142589	0.97119215	0.80005033
Class A1	0.92058495	—	—	—
Class B	0.97102775	0.93160068	0.96960424	—
Class B1	0.92121582	—	—	0.80025173
Class C	0.97072278	0.93317041	0.96517766	—
Class C1	0.92202907	—	—	0.79912005
Class I	0.92521085	0.93257583	0.96620319	0.80118284
Class R	—	0.93081112	—	0.80075519

162

BLACKROCK FUNDS

The net assets before and after the Reorganization and shares issued and redeemed in the Reorganization were as follows:

BLACKROCK PORTFOLIOS	NET ASSETS COMBINED AFTER REORGANIZATION AS OF OCTOBER 13, 2006		NET ASSETS PRIOR TO REORGANIZATION AS OF OCTOBER 13, 2006		BLACKROCK PORTFOLIO’S SHARES ISSUED	BLACKROCK FUND’S SHARES REDEEMED
Low Duration Bond	$	1,280,734,178	$	1,143,390,693	13,929,657	14,972,357
Government Income		1,831,920,855		389,278,969	135,126,950	144,995,138
Inflation Protected Bond		109,690,593		43,604,179	6,708,545	6,937,965
High Yield Bond		1,414,523,411		1,197,794,400	27,199,953	34,000,506

Included in the net assets from the BlackRock Funds were the following components:

BLACKROCK FUNDS	PAID IN CAPITAL		UNDISTRIBUTED NET INVESTMENT INCOME (LOSS)			ACCUMULATED REALIZED GAIN (LOSS)			NET UNREALIZED APPRECIATION/ (DEPRECIATION)			NET ASSETS
Short-Term U.S. Government	$	158,356,180	$	(13,450	)	$	(19,579,722	)	$	(1,419,523	)	$	137,343,485
U.S. Government		1,487,598,091		(2,974,289	)		(29,455,310	)		(12,526,606	)		1,442,641,886
Inflation Protected		70,898,681		75,620			(3,339,099	)		(1,548,788	)		66,086,414
U.S. High Yield		468,872,642		(858,160	)		(246,282,521	)		(5,002,950	)		216,729,011

(C) Summary of Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.

Investment Valuation — Valuation of investments held by each Portfolio is as follows: fixed income investments are valued by using market quotations or prices provided by market makers; a portion of the fixed income investments are valued utilizing one or more pricing services approved by the Board; an option or futures contract is valued at the last sales price prior to 4:00 p.m. (Eastern time), as quoted on the principal exchange or board of trade on which such option or futures contract is traded, or in the absence of a sale, the mean between the last bid and asked prices prior to 4:00 p.m. (Eastern time); the amortized cost method of valuation will be used with respect to debt securities with 60 days or less remaining to maturity unless the investment advisor and/or sub-advisor under the supervision of the Board determines that such method does not represent fair value. Any assets which are denominated in a non-U.S. currency are translated into U.S. dollars at the prevailing market rates. In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the market value of such investment, the investment will be valued by, under the direction of or in accordance with a method approved by the Board as reflecting fair value (“Fair Value Assets”). The investment advisor and/or sub-advisor will submit its recommendations regarding the valuation and/or valuation methodologies for Fair Value Assets to the Portfolios’ valuation committee. Such valuation committee may accept, modify or reject any recommendations. The pricing of all Fair Value Assets shall be subsequently reported to the Board or a Committee thereof.

When determining the price for Fair Value Assets, the investment advisor and/or sub-advisor shall seek to determine the price that the Portfolio might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the advisor and/or sub-advisor deems relevant.

Securities denominated in currencies other than U.S. dollars are subject to changes in value due to fluctuations in exchange rates.

In September 2006, Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. At this time, management is evaluating the implications of FAS 157 and its impact on the Portfolios’ financial statements, if any, has not been determined.

In addition, in February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”), which is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FAS 157. FAS 159

163

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. FAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. At this time, management is evaluating the implications of FAS 159 and its impact on the Portfolios’ financial statements, if any, has not been determined.

Dividends to Shareholders — Dividends from net investment income are declared by each Portfolio each day on “settled” shares (i.e. shares for which the particular Portfolio has received payment) and are paid monthly. Over the course of a year, substantially all of each Portfolio’s net investment income will be declared as dividends. The amount of the daily dividend for each Portfolio will be based on periodic projections of its net investment income. Net realized capital gains, if any, are distributed at least annually.

Foreign Currency Translation — The books and records of the Portfolios are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis:

(I) Market value of investment securities, assets and liabilities at the current rate of exchange; and

(II) Purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions.

(III) The Portfolios do not isolate that portion of gains and losses on investment securities which is due to changes in the foreign exchange rates from that which is due to changes in market prices of such securities. The Portfolios report certain foreign currency related transactions as components of realized and unrealized gains and losses for financial reporting purposes, whereas such components are treated as ordinary income for federal income tax purposes.

Forward Foreign Currency Contracts — Certain Portfolios may enter into forward foreign currency contracts as a hedge against either specific transactions or portfolio positions. These contracts are adjusted by the daily forward exchange rate of the underlying currency and any gains or losses are recorded as unrealized until the contract settlement date. Such contracts, which protect the value of the Portfolios’ investment securities against a decline in the value of currency, do not eliminate fluctuations in the underlying prices of the securities. They simply establish an exchange rate at a future date. Also, although such contracts tend to minimize the risk of loss due to a decline in the value of a hedged currency, at the same time they tend to limit any potential gain that might be realized should the value of such foreign currency increase. Risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.

The aggregate principal amounts of the contracts are not recorded, as the Portfolios intend to settle the contracts prior to delivery. Under the terms of foreign currency contracts open at March 31, 2007, the Portfolios are obligated to deliver or receive currency in exchange for U.S. dollars as indicated below:

SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY SOLD	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		NET UNREALIZED FOREIGN EXCHANGE (GAIN)/LOSS
Enhanced Income
04/18/07	135,000	Singapore Dollar	$	88,244	$	89,087	$	(843	)
04/18/07	1,995,000	Japanese Yen		16,914		16,976		(62	)
04/20/07	776,226	Singapore Dollar		509,384		512,302		(2,918	)
04/20/07	445,000	Euro		578,877		594,952		(16,075	)
			$	1,193,419	$	1,213,317	$	(19,898	)
Low Duration Bond
04/18/07	5,701,251	New Zealand Dollar	$	3,885,328	$	4,067,515	$	(182,187	)
04/18/07	57,760,000	Japanese Yen		489,689		491,520		(1,831	)
04/20/07	19,822,729	Singapore Dollar		13,008,479		13,082,820		(74,341	)
04/20/07	14,410,000	Euro		18,745,203		19,265,736		(520,533	)
			$	36,128,699	$	36,907,591	$	(778,892	)
Intermediate Bond
04/18/07	79,249	New Zealand Dollar	$	54,007	$	56,539	$	(2,532	)

164

BLACKROCK FUNDS

SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY SOLD	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		NET UNREALIZED FOREIGN EXCHANGE (GAIN)/LOSS
Total Return
04/18/07	1,296,466	New Zealand Dollar	$	883,525	$	924,954	$	(41,429	)
Total Return II
04/18/07	8,316,602	New Zealand Dollar	$	5,667,656	$	5,933,418	$	(265,762	)
Inflation Protected Bond
04/18/07	82,118,000	Japanese Yen	$	703,790	$	698,800	$	4,990
04/18/07	4,093,620	Euro		5,358,665		5,472,608		(113,943	)
04/20/07	37,980,000	Japanese Yen		314,668		323,293		(8,625	)
04/20/07	1,685,000	Euro		2,191,927		2,252,794		(60,867	)
			$	8,569,050	$	8,747,495	$	(178,445	)
International Bond
04/02/07	15,218,287	Swedish Krone Spot	$	2,173,420	$	2,179,396	$	(5,976	)
04/02/07	15,849,300	Iceland Krona Spot		239,741		240,779		(1,038	)
04/18/07	20,036,862	Canadian Dollar		17,073,059		17,365,248		(292,189	)
04/18/07	1,402,029	Australian Dollar		1,097,399		1,133,761		(36,362	)
04/18/07	57,905,868	Danish Krone		10,211,732		10,388,647		(176,915	)
04/18/07	5,300,000	Norwegian Krone		837,993		872,432		(34,439	)
04/18/07	41,750,554	Euro		54,621,025		55,814,756		(1,193,731	)
04/18/07	1,025,000	Swiss Francs		829,984		844,895		(14,911	)
04/18/07	271,142,221	Swedish Krone		39,275,439		38,871,016		404,423
04/18/07	20,038,000	Singapore Dollar		13,095,756		13,223,252		(127,496	)
04/18/07	262,662,000	Iceland Krona		3,611,110		3,973,067		(361,957	)
04/18/07	18,726,542	New Zealand Dollar		12,784,811		13,360,313		(575,502	)
04/18/07	3,387,935,955	Japanese Yen		44,529,089		44,421,099		107,990
04/18/07	9,715,755	British Pound		18,815,339		19,118,388		(303,049	)
04/18/07	42,860,000	South Africa Rand Dollar		5,922,499		5,896,218		26,281
04/18/07	10,080,498	Polish Zloty		3,393,354		3,484,868		(91,514	)
04/20/07	9,859,000	Singapore Dollar		6,469,876		6,506,850		(36,974	)
04/20/07	19,740,000	Euro		25,764,907		26,391,786		(626,879	)
04/23/07	4,520,000	Euro		6,034,924		6,043,831		(8,907	)
			$	266,781,457	$	270,130,602	$	(3,349,145	)
High Yield Bond
04/18/07	8,038,040	Euro	$	10,504,257	$	10,745,756	$	(241,499	)
04/18/07	2,379,000	British Pound		4,587,497		4,681,329		(93,832	)
			$	15,091,754	$	15,427,085	$	(335,331	)
SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY BOUGHT	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		NET UNREALIZED FOREIGN EXCHANGE GAIN/(LOSS)
Enhanced Income
04/20/07	1,860,870	Norwegian Krone	$	292,691	$	306,335	$	13,644
04/20/07	1,990,780	Swedish Krone		286,186		285,430		(756	)
04/20/07	776,226	Singapore Dollar		507,288		512,302		5,014
			$	1,086,165	$	1,104,067	$	17,902

165

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

SETTLEMENT DATE	CURRENCY AMOUNT	CURRENCY BOUGHT	CONTRACT AMOUNT		VALUE AT MARCH 31, 2007		NET UNREALIZED FOREIGN EXCHANGE GAIN/(LOSS)
Low Duration Bond
04/20/07	59,547,845	Norwegian Krone	$	9,366,097	$	9,802,730	$	436,633
04/20/07	65,243,290	Swedish Krone		9,379,106		9,354,334		(24,772	)
04/20/07	19,822,729	Singapore Dollar		12,954,762		13,082,820		128,058
			$	31,699,965	$	32,239,884	$	539,919
Inflation Protected Bond
04/18/07	129,955,000	Japanese Yen	$	1,104,768	$	1,105,877	$	1,109
04/18/07	3,392,100	Euro		4,478,604		4,534,772		56,168
04/20/07	15,247,565	Swedish Krone		2,191,927		2,186,138		(5,789	)
			$	7,775,299	$	7,826,787	$	51,488
International Bond
04/18/07	5,651,500	British Pound	$	11,076,883	$	11,120,862	$	43,979
04/18/07	101,454,944	Euro		133,228,090		135,631,325		2,403,235
04/18/07	5,153,153	Swiss Francs		4,220,236		4,247,682		27,446
04/18/07	12,535,000	Swedish Krone		1,778,207		1,797,020		18,813
04/18/07	6,309,909	Mexican Peso		575,341		571,106		(4,235	)
04/18/07	11,078,456	Norwegian Krone		1,759,044		1,823,623		64,579
04/18/07	1,633,900	Danish Krone		285,198		293,131		7,933
04/18/07	21,123,016,413	Japanese Yen		179,561,711		179,750,450		188,739
04/18/07	18,962,800	Singapore Dollar		12,412,286		12,513,719		101,433
04/18/07	42,068,715	South Africa Rand Dollar		5,701,021		5,787,361		86,340
04/18/07	16,141,200	Polish Zloty		5,494,543		5,580,077		85,534
04/18/07	20,624,000	Canadian Dollar		17,587,434		17,874,100		286,666
04/18/07	15,849,300	Iceland Krona		238,882		239,739		857
04/20/07	42,097,018	Norwegian Krone		6,621,310		6,929,985		308,675
04/20/07	13,924,000	Singapore Dollar		9,099,761		9,189,712		89,951
04/20/07	7,239,242	Swiss Francs		5,953,009		5,968,246		15,237
04/20/07	46,873,820	Swedish Krone		6,738,387		6,720,590		(17,797	)
04/20/07	3,873,721,200	Japanese Yen		33,014,067		32,973,848		(40,219	)
			$	435,345,410	$	439,012,576	$	3,667,166

Credit Default Swaps — Credit default swaps are agreements in which one party pays fixed periodic payments to a counterparty in consideration for a guarantee from the counterparty to make a specific payment should a negative credit event take place. Risks arise from the possible inability of the counterparties to meet the terms of their contracts.

During the term of the swap, changes in the value of the swap are recognized as unrealized gains or losses by “marking-to-market” to reflect the market value of the swap. When the swap is terminated, a Portfolio will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Portfolio’s basis in the contract, if any.

The Portfolios are exposed to credit loss in the event of non-performance by the other party to the swap. However, the Portfolios closely monitor swaps and do not anticipate non-performance by any counterparty.

Total Return Swaps — Total return swaps are agreements in which one party commits to pay interest in exchange for a market-linked return. To the extent the total return of the security or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Portfolio will receive a payment from or make a payment to the counterparty.

During the term of the swap, changes in the value of the swap are recognized as unrealized gains or losses by “marking-to-market” to reflect the market value of the swap. When the swap is terminated, a Portfolio will record a

166

BLACKROCK FUNDS

realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Portfolio’s basis in the contract, if any.

The Portfolios are exposed to credit loss in the event of non-performance by the other party to the swap. However, the Portfolios closely monitor swaps and do not anticipate non-performance by any counterparty.

Interest Rate Swaps — In an interest rate swap, one investor pays a floating rate of interest on a notional principal amount and receives a fixed rate of interest on the same notional principal amount for a specified period of time. Alternatively, an investor may pay a fixed rate and receive a floating rate. Interest rate swaps are efficient as asset/liability management tools. In more complex swaps, the notional principal amount may decline (or amortize) over time.

During the term of the swap, changes in the value of the swap are recognized as unrealized gains or losses by “marking-to-market” to reflect the market value of the swap. When the swap is terminated, a Portfolio will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Portfolio’s basis in the contract, if any.

The Portfolios are exposed to credit loss in the event of non-performance by the other party to the swap. However, the Portfolios closely monitor swaps and do not anticipate non-performance by any counterparty.

At March 31, 2007, the following Portfolios had the following swap agreements outstanding:

Portfolio	Counter-party	Termination Date	Interest Receivable Rate		Interest Payable Rate		Notional amount (Local Currency)			Unrealized Appreciation (Depreciation)
Enhanced Income	Deutsche Bank	10/30/07	5.36	%1	4.90	%	$	1,900,000		$	(16,435	)
	Deutsche Bank	07/10/09	5.37	%1	5.69	%		2,600,000			(41,410	)
	Barclays Bank	08/10/09	5.36	%	5.37	%1		2,100,000			17,881
	Goldmans Sachs	10/06/10	4.97	%	5.37	%1		4,000,000			49,814
	Deutsche Bank	10/25/10	4.74	%	5.36	%1		1,300,000			5,164
	Goldmans Sachs	02/07/11	5.37	%1	5.05	%		2,300,000			(5,791	)
	Barclays Bank	03/07/11	5.33	%1	4.91	%		600,000			1,333
	Deutsche Bank	11/21/11	5.03	%	5.38	%1		600,000			8,485
	JP Morgan Chase	03/07/12	5.33	%1	4.93	%		1,900,000			5,358
	Deutsche Bank	01/12/11	6.53	%	6.50	%2		720,000	AUD		(1,030	)
	Deutsche Bank	01/22/11	6.54	%	6.53	%2		720,000	AUD		(767	)
Low Duration Bond	Wachovia Bank N.A.	04/30/07	6.84	%3	5.32	%4	$	42,575,000		$	(31,378	)
	Lehman Brothers	10/01/07	3.71	%5	0.49	%		30,000,000			19,707
	Wachovia Bank N.A.	10/01/07	3.71	%5	0.49	%		30,000,000			19,707
	Deutsche Bank	10/30/07	5.36	%1	4.90	%		51,400,000			(444,600	)
	Barclays Bank	08/10/09	5.36	%	5.37	%1		51,000,000			434,245
	Goldmans Sachs	10/06/10	4.97	%	5.37	%1		35,000,000			435,876
	Barclays Bank	03/07/11	5.33	%1	4.91	%		18,500,000			41,101
	Deutsche Bank	11/21/11	5.03	%	5.38	%1		17,500,000			247,466
	Goldmans Sachs	11/21/11	5.02	%	5.38	%1		11,000,000			152,929
	JP Morgan Chase	03/07/12	5.33	%1	4.93	%		58,100,000			163,842
	Deutsche Bank	10/14/15	4.92	%	5.36	%1		12,900,000			(32,369	)
	Barclays Bank	02/06/16	5.36	%1	5.08	%		28,200,000			119,844
	Deutsche Bank	03/06/16	5.19	%	5.35	%1		700,000			2,297
	Deutsche Bank	04/05/16	5.36	%1	5.45	%		11,800,000			(422,113	)
	Deutsche Bank	05/15/16	5.37	%1	5.67	%		9,500,000			(498,970	)
	Deutsche Bank	05/24/16	5.57	%	5.36	%1		4,100,000			186,733
	Deutsche Bank	07/10/16	5.37	%1	5.80	%		8,200,000			(398,519	)
	Bank of America	08/30/16	5.35	%	5.37	%1		27,200,000			392,768
	JP Morgan Chase	10/25/35	TBD	6	2.75	%		9,000,000			1,498,212
	Morgan Stanley	11/25/35	TBD	7	2.35	%		5,000,000			813,431
	Union Bank of Switzerland	11/25/35	TBD	7	2.40	%		4,000,000			463,434
	Bank of America	12/25/35	TBD	8	2.84	%		7,000,000			891,979
	JP Morgan Chase	02/25/36	TBD	9	2.85	%		9,000,000			1,035,394
	Deutsche Bank	01/12/11	6.53	%	6.50	%2		24,050,000	AUD		(34,392	)
	Deutsche Bank	01/22/11	6.54	%	6.53	%2		24,050,000	AUD		(25,635	)

167

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Portfolio	Counter-party	Termination Date	Interest Receivable Rate		Interest Payable Rate		Notional amount (Local Currency)			Unrealized Appreciation (Depreciation)
Intermediate Government Bond	Union Bank of Switzerland	04/22/07	5.36	%1	3.04	%	$	24,000,000		$	(39,600	)
	Morgan Stanley	07/01/10	4.17	%	5.36	%1		32,600,000			(843,313	)
	Deutsche Bank	11/07/10	5.00	%	5.37	%1		7,700,000			103,990
	Lehman Brothers	03/22/11	5.35	%1	4.92	%		18,500,000			29,415
	Goldman Sachs	11/21/11	5.02	%	5.38	%1		2,000,000			27,805
	Union Bank of Switzerland	11/29/11	4.95	%	5.36	%1		1,300,000			13,447
	Union Bank of Switzerland	01/08/12	5.36	%1	5.00	%		15,000,000			10,350
	JP Morgan Chase	05/26/15	5.37	%1	4.50	%		4,900,000			147,346
	Morgan Stanley	07/01/15	5.36	%1	4.39	%		17,000,000			854,718
	Morgan Stanley	07/01/15	5.36	%1	4.39	%		21,100,000			909,273
	JP Morgan Chase	07/14/16	5.72	%	5.36	%1		7,300,000			309,031
	Goldman Sachs	02/05/17	5.35	%	5.36	%1		4,300,000			58,032
	JP Morgan Chase	08/15/22	5.41	%	5.36	%1		12,035,000			116,378
Intermediate Bond	Wachovia Bank N.A.	04/30/07	6.84	%3	5.32	%4	$	1,070,000		$	(789	)
	Union Bank of Switzerland	09/27/10	4.51	%	5.37	%1		2,200,000			(3,535	)
	Deutsche Bank	11/07/10	5.00	%	5.37	%1		400,000			5,402
	Deutsche Bank	06/20/11	TBD	10	0.75	%		1,110,000			(1,214	)
	Bank of America	11/10/11	5.08	%	5.37	%1		1,400,000			23,199
	Deutsche Bank	11/21/11	5.03	%	5.38	%1		400,000			5,656
	JP Morgan Chase	04/08/12	5.36	%1	4.72	%		700,000			1,542
	Union Bank of Switzerland	11/26/14	5.36	%1	4.58	%		1,000,000			22,121
	JP Morgan Chase	05/26/15	5.37	%1	4.50	%		200,000			6,014
	JP Morgan Chase	07/14/16	5.72	%	5.36	%1		400,000			16,933
	Goldman Sachs	02/05/17	5.35	%	5.36	%1		100,000			1,350
	JP Morgan Chase	08/15/22	5.41	%	5.36	%1		330,000			3,191
	Deutsche Bank	01/12/11	6.53	%	6.50	%2		270,000	AUD		(458	)
	Deutsche Bank	01/22/11	6.54	%	6.53	%2		270,000	AUD		(216	)
Intermediate Bond II	Union Bank of Switzerland	04/22/07	5.36	%1	3.04	%	$	76,000,000		$	(125,400	)
	Wachovia Bank N.A.	04/30/07	6.84	%3	5.32	%4		31,780,000			(23,422	)
	Wachovia Bank N.A.	10/01/07	3.71	%5	0.49	%		22,000,000			14,452
	Union Bank of Switzerland	09/27/10	4.51	%	5.37	%1		24,600,000			(374,980	)
	Lehman Brothers	10/10/10	5.01	%	5.37	%1		30,000,000			406,800
	Deutsche Bank	11/07/10	5.00	%	5.37	%1		10,300,000			139,104
	Deutsche Bank	06/20/11	TBD	10	0.75	%		33,370,000			(36,494	)
	Deutsche Bank	11/21/11	5.03	%	5.38	%1		10,000,000			141,409
	Goldman Sachs	11/21/11	5.02	%	5.38	%1		17,000,000			236,344
	Union Bank of Switzerland	11/29/11	4.95	%	5.36	%1		3,000,000			31,031
	Wachovia Bank N.A.	11/29/11	4.95	%	5.36	%1		6,400,000			68,672
	JP Morgan Chase	05/26/15	5.37	%1	4.50	%		6,400,000			192,452
	Morgan Stanley	07/01/15	5.36	%1	4.39	%		22,000,000			1,106,104
	Morgan Stanley	08/02/15	4.73	%	5.37	%1		7,700,000			(212,289	)
	JP Morgan Chase	07/14/16	5.72	%	5.36	%1		11,300,000			478,363
	Goldman Sachs	02/05/17	5.35	%	5.36	%1		7,500,000			101,218
	Union Bank of Switzerland	03/26/17	5.35	%1	5.07	%		12,000,000			102,120
	JP Morgan Chase	08/15/22	5.41	%	5.36	%1		21,010,000			203,167
Total Return	Wachovia Bank N.A.	04/30/07	6.84	%3	5.32	%4	$	12,770,000		$	(9,411	)
	Wachovia Bank N.A.	10/01/07	3.71	%5	0.49	%		10,000,000			6,569
	Bank of America	07/26/09	5.50	%	5.36	%1		10,000,000			116,300
	Union Bank of Switzerland	09/27/10	4.51	%	5.37	%1		5,600,000			(85,361	)
	Goldman Sachs	11/07/10	5.16	%	5.37	%1		5,700,000			110,091
	Deutsche Bank	11/07/10	5.00	%	5.37	%1		4,000,000			54,021
	Citibank	03/24/11	5.17	%	5.37	%1		4,500,000			33,678
	Deutsche Bank	06/20/11	TBD	10	0.75	%		13,210,000			(14,447	)
	Bank of America	11/10/11	5.08	%	5.37	%1		18,700,000			309,859
	Deutsche Bank	11/21/11	5.03	%	5.38	%1		2,700,000			38,180
	Union Bank of Switzerland	11/29/11	4.95	%	5.36	%1		900,000			9,309
	Wachovia Bank N.A.	11/29/11	4.95	%	5.36	%1		6,200,000			66,526
	Union Bank of Switzerland	01/08/12	5.36	%1	5.00	%		6,000,000			4,140
	Deutsche Bank	02/16/12	5.36	%1	5.21	%		25,000,000			(233,618	)
	Goldman Sachs	04/22/14	5.36	%1	4.89	%		8,000,000			(5,295	)
	Deutsche Bank	04/01/15	5.36	%1	5.03	%		3,500,000			15,890
	JP Morgan Chase	05/26/15	5.37	%1	4.50	%		2,400,000			72,170
	Morgan Stanley	08/02/15	4.73	%	5.37	%1		4,700,000			(129,579	)
	Union Bank of Switzerland	12/07/15	5.94	%	5.33	%1		1,400,000			99,848
	JP Morgan Chase	07/14/16	5.72	%	5.36	%1		4,800,000			203,198
	Deutsche Bank	10/19/16	5.28	%	5.36	%1		2,200,000			47,987
	Goldman Sachs	02/05/17	5.35	%	5.36	%1		3,700,000			49,934
	Union Bank of Switzerland	02/08/17	5.30	%	5.36	%1		9,600,000			86,976
	JP Morgan Chase	08/15/22	5.41	%	5.36	%1		10,420,000			100,761
	Deutsche Bank	01/12/11	6.53	%	6.50	%2		8,640,000	AUD		(12,355	)
	Deutsche Bank	01/22/11	6.54	%	6.53	%2		8,640,000	AUD		(9,209	)
	Citibank	12/23/15	6.65	%	5.61	%11		2,000,000	NZD		(35,684	)

168

BLACKROCK FUNDS

Portfolio	Counter-party	Termination Date	Interest Receivable Rate		Interest Payable Rate		Notional amount (Local Currency)			Unrealized Appreciation (Depreciation)
Total Return II	Wachovia Bank N.A.	04/30/07	6.84	%3	5.32	%4	$	101,550,000		$	(74,842	)
	Wachovia Bank N.A.	10/01/07	3.71	%5	0.49	%		75,000,000			49,268
	Bank of America	07/12/09	5.63	%	5.37	%1		67,000,000			974,850
	Deutsche Bank	11/07/10	5.00	%	5.37	%1		32,200,000			434,867
	Citibank	03/24/11	5.17	%	5.37	%1		15,500,000			116,000
	Deutsche Bank	06/20/11	TBD	10	0.75	%		114,050,000			(124,729	)
	Deutsche Bank	11/21/11	5.03	%	5.38	%1		19,000,000			268,677
	Union Bank of Switzerland	11/29/11	4.95	%	5.36	%1		11,900,000			123,091
	Wachovia Bank N.A.	11/29/11	4.95	%	5.36	%1		45,800,000			491,434
	Barclays Bank	12/12/11	4.95	%	5.34	%1		90,700,000			957,756
	JP Morgan Chase	12/12/11	4.90	%	5.34	%1		30,800,000			254,716
	Union Bank of Switzerland	01/08/12	5.36	%1	5.00	%		80,000,000			55,200
	Deutsche Bank	02/16/12	5.36	%1	5.21	%		168,000,000			(1,569,910	)
	Goldman Sachs	04/22/14	5.36	%1	4.89	%		30,000,000			(19,857	)
	Citibank	06/10/14	5.34	%1	5.24	%		29,000,000			(671,579	)
	Goldman Sachs	10/01/14	5.36	%1	4.51	%		10,200,000			270,764
	JP Morgan Chase	05/26/15	5.37	%1	4.50	%		18,400,000			553,301
	Union Bank of Switzerland	12/07/15	5.94	%	5.33	%1		14,900,000			1,062,668
	JP Morgan Chase	07/14/16	5.72	%	5.36	%1		35,000,000			1,481,656
	Deutsche Bank	10/19/16	5.28	%	5.36	%1		15,000,000			327,182
	Goldman Sachs	02/05/17	5.35	%	5.36	%1		24,900,000			336,043
	Union Bank of Switzerland	02/08/17	5.30	%	5.36	%1		75,000,000			679,500
	JP Morgan Chase	08/15/22	5.41	%	5.36	%1		69,420,000			671,291
	Deutsche Bank	01/12/11	6.53	%	6.50	%2		57,300,000	AUD		(81,939	)
	Deutsche Bank	01/22/11	6.54	%	6.53	%2		57,300,000	AUD		(61,077	)
	Citibank	12/23/15	6.65	%	5.61	%11		7,850,000	NZD		(140,059	)
Government Income	Union Bank of Switzerland	04/16/07	5.36	%1	3.00	%	$	10,000,000		$	(15,956	)
	Deutsche Bank	05/01/07	6.84	%5	0.06	%		51,975,000			(38,306	)
	Deutsche Bank	05/01/07	4.61	%3	5.32	%4		51,975,000			(5,047	)
	Union Bank of Switzerland	08/01/07	0.26	%12	5.26	%4		234,000,000			(387,410	)
	Wachovia Bank N.A.	10/01/07	3.71	%5	0.49	%		45,000,000			29,561
	Morgan Stanley	06/17/10	4.31	%	5.35	%1		5,900,000			(50,327	)
	Union Bank of Switzerland	06/22/10	5.64	%	5.37	%1		28,900,000			981,360
	Union Bank of Switzerland	08/16/10	5.36	%1	4.56	%		7,400,000			98,864
	Union Bank of Switzerland	09/27/10	4.51	%	5.37	%1		1,500,000			(22,865	)
	Deutsche Bank	01/09/11	4.78	%	5.36	%1		31,200,000			(229,464	)
	JP Morgan Chase	01/22/11	5.22	%	5.36	%1		296,685,000			2,504,021
	Union Bank of Switzerland	06/07/11	5.41	%	5.35	%1		20,000,000			594,000
	Citibank	10/24/11	5.23	%	5.38	%1		254,500,000			5,894,220
	Morgan Stanley	11/02/11	5.04	%	5.37	%1		20,800,000			298,480
	Lehman Brothers	11/07/11	5.36	%1	5.03	%		429,000,000			(6,070,350	)
	Union Bank of Switzerland	11/07/11	5.36	%1	5.17	%		214,500,000			(4,270,009	)
	Deutsche Bank	11/21/11	5.03	%	5.38	%1		3,500,000			49,493
	Citibank	12/12/11	4.95	%	5.34	%1		110,800,000			1,176,696
	Citibank	12/13/11	4.91	%	5.36	%1		150,000,000			1,345,500
	Deutsche Bank	12/15/11	5.36	%1	4.96	%		195,700,000			(2,196,282	)
	Bank of America	12/20/11	5.35	%1	4.99	%		644,500,000			(7,927,350	)
	Morgan Stanley	01/17/12	5.16	%	5.36	%1		117,600,000			818,496
	JP Morgan Chase	02/08/12	5.36	%1	5.22	%		225,000,000			(2,189,250	)
	Bank of America	02/27/12	5.10	%	5.36	%1		164,500,000			732,025
	Morgan Stanley	10/01/14	5.36	%1	4.52	%		3,400,000			86,445
	Union Bank of Switzerland	11/26/14	5.36	%1	4.58	%		50,000,000			1,106,045
	JP Morgan Chase	12/30/14	5.37	%1	4.89	%		93,000,000			99,073
	Union Bank of Switzerland	03/21/15	4.88	%	5.37	%1		6,000,000			(88,080	)
	Deutsche Bank	03/24/15	5.08	%	5.35	%1		11,100,000			(18,036	)
	Deutsche Bank	03/29/15	5.11	%	5.35	%1		11,000,000			5,574
	Morgan Stanley	07/11/15	4.44	%	5.36	%1		4,000,000			(189,280	)
	Morgan Stanley	08/02/15	4.73	%	5.37	%1		3,100,000			(85,467	)
	Deutsche Bank	01/17/16	4.94	%	5.36	%1		6,200,000			(91,498	)
	JP Morgan Chase	03/30/16	5.37	%1	5.15	%		19,000,000			330,410
	Goldman Sachs	09/13/16	5.34	%1	5.34	%		5,800,000			(75,848	)
	Deutsche Bank	11/07/16	5.36	%1	5.21	%		78,000,000			(1,285,401	)
	Bank of America	01/31/17	5.36	%1	5.42	%		126,300,000			(2,369,388	)
	Goldman Sachs	02/05/17	5.35	%	5.36	%1		227,000,000			3,063,524
	JP Morgan Chase	02/07/17	5.36	%1	5.30	%		187,000,000			(1,690,480	)
	Goldman Sachs	02/27/17	5.36	%1	5.22	%		5,900,000			(20,778	)
	Deutsche Bank	03/07/17	5.07	%	5.33	%1		60,000,000			(522,000	)
	Lehman Brothers	03/09/17	5.06	%	5.34	%1		237,200,000			(2,307,956	)
	Barclays Bank	03/13/17	5.11	%	5.34	%1		50,000,000			(270,300	)

169

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Portfolio	Counter-party	Termination Date	Interest Receivable Rate		Interest Payable Rate		Notional amount (Local Currency)			Unrealized Appreciation (Depreciation)
Inflation Protected Bond	Credit Suisse	03/20/10	0.18	%	TBD	13	$	5,000,000		$	17,450
	Deutsche Bank	06/20/10	0.48	%	TBD	14		3,000,000			36,472
	Lehman Brothers	06/20/10	0.15	%	TBD	15		6,000,000			16,380
	Deutsche Bank	06/20/10	5.57	%	5.35	%1		6,200,000			199,087
	Goldman Sachs	11/07/10	5.03	%	5.37	%1		500,000			7,390
	Morgan Stanley	12/20/10	0.41	%	TBD	16		305,296			(12	)
	Lehman Brothers	03/22/11	5.35	%1	4.92	%		3,200,000			5,088
	Barclays	12/13/11	4.91	%	5.36	%1		10,500,000			93,707
	JP Morgan Chase	05/26/15	5.37	%1	4.50	%		300,000			9,021
	Deutsche Bank	08/03/16	5.55	%	5.37	%1		700,000			20,835
	Union Bank of Switzerland	02/08/17	5.30	%	5.36	%1		1,200,000			10,872
	Deutsche Bank	02/28/17	5.16	%	5.36	%1		900,000			(1,224	)
	Union Bank of Switzerland	03/26/17	5.35	%1	5.07	%		1,200,000			10,212
	Citibank	12/23/15	6.65	%	5.61	%11		450,000	NZD		(8,029	)
GNMA	Union Bank of Switzerland	04/16/07	5.36	%1	3.00	%	$	15,000,000		$	(23,934	)
	Bank of America	04/30/07	6.84	%4	5.32	%3		4,125,000			(3,040	)
	Union Bank of Switzerland	06/22/10	5.64	%	5.37	%1		8,200,000			278,448
	Union Bank of Switzerland	08/16/10	5.36	%1	4.56	%		4,900,000			65,464
	Union Bank of Switzerland	09/27/10	4.51	%	5.37	%1		3,000,000			(45,729	)
	Deutsche Bank	01/09/11	4.78	%	5.36	%1		24,500,000			(172,332	)
	Deutsche Bank	11/21/11	5.03	%	5.38	%1		1,500,000			21,211
	Citibank	12/12/11	4.95	%	5.34	%1		10,900,000			115,758
	Citibank	12/13/11	4.91	%	5.36	%1		16,000,000			143,520
	Bank of America	12/20/11	5.35	%1	4.99	%		33,100,000			(407,130	)
	Morgan Stanley	01/17/12	5.16	%	5.36	%1		11,300,000			78,648
	Bank of America	02/27/12	5.10	%	5.36	%1		7,700,000			34,265
	Union Bank of Switzerland	03/27/12	5.35	%1	4.92	%		16,000,000			55,200
	Morgan Stanley	10/01/14	5.36	%1	4.52	%		4,100,000			104,244
	Morgan Stanley	07/11/15	4.44	%	5.36	%1		1,800,000			(85,176	)
	Morgan Stanley	08/02/15	4.73	%	5.37	%1		4,100,000			(113,037	)
	Deutsche Bank	01/17/16	4.94	%	5.36	%1		2,200,000			(32,467	)
	Barclays Bank	03/10/16	5.34	%1	5.28	%		7,500,000			(92,627	)
	Goldman Sachs	09/13/16	5.34	%1	5.34	%		1,600,000			(20,924	)
	Bank of America	01/31/17	5.36	%1	5.42	%		1,600,000			(30,016	)
	Goldman Sachs	02/27/17	5.36	%1	5.22	%		1,700,000			(5,987	)
	Deutsche Bank	03/07/17	5.07	%	5.33	%1		6,000,000			(52,200	)
Managed Income	Union Bank of Switzerland	04/16/07	5.36	%1	3.00	%	$	50,000,000		$	(79,780	)
	Wachovia Bank N.A.	04/30/07	6.84	%3	5.32	%4		25,060,000			(18,469	)
	Wachovia Bank N.A.	10/01/07	3.71	%5	0.49	%		18,000,000			11,824
	Union Bank of Switzerland	09/27/10	4.51	%	5.37	%1		2,300,000			(35,059	)
	Deutsche Bank	11/07/10	5.00	%	5.37	%1		8,400,000			113,444
	Deutsche Bank	06/20/11	TBD	10	0.75	%		25,985,000			(28,418	)
	Deutsche Bank	11/21/11	5.03	%	5.38	%1		5,000,000			70,705
	Wachovia Bank N.A.	11/29/11	4.95	%	5.36	%1		11,600,000			124,468
	Union Bank of Switzerland	01/08/12	5.36	%1	5.00	%		14,000,000			9,660
	Deutsche Bank	02/16/12	5.36	%1	5.21	%		45,000,000			(420,512	)
	Goldman Sachs	04/22/14	5.36	%1	4.89	%		20,000,000			(13,238	)
	Citibank	06/10/14	5.34	%1	5.24	%		9,500,000			(220,000	)
	Union Bank of Switzerland	03/21/15	4.88	%	5.37	%1		10,000,000			(146,800	)
	JP Morgan Chase	05/26/15	5.37	%1	4.50	%		4,900,000			147,346
	Morgan Stanley	08/02/15	4.73	%	5.37	%1		12,500,000			(344,625	)
	Union Bank of Switzerland	12/07/15	5.94	%	5.33	%1		5,900,000			420,789
	JP Morgan Chase	07/14/16	5.72	%	5.36	%1		9,000,000			380,997
	Deutsche Bank	10/19/16	5.28	%	5.36	%1		4,400,000			95,973
	Goldman Sachs	02/05/17	5.35	%	5.36	%1		6,200,000			83,673
	Union Bank of Switzerland	02/08/17	5.30	%	5.36	%1		19,800,000			179,388
	JP Morgan Chase	08/15/22	5.41	%	5.36	%1		17,265,000			166,953
	Deutsche Bank	01/12/11	6.53	%	6.50	%2		14,060,000	AUD		(20,106	)
	Deutsche Bank	01/22/11	6.54	%	6.53	%2		14,060,000	AUD		(14,987	)
	Citibank	12/23/15	6.65	%	5.61	%11		6,800,000	NZD		(121,325	)

170

BLACKROCK FUNDS

Portfolio	Counter-party	Termination Date	Interest Receivable Rate		Interest Payable Rate		Notional amount (Local Currency)			Unrealized Appreciation (Depreciation)
International Bond	Wachovia Bank N.A.	04/30/07	6.84	%3	5.32	%4	$	22,055,000		$	(16,255	)
	Barclays Bank	09/26/10	5.14	%	5.35	%1		45,000,000			262,926
	Goldman Sachs	11/21/11	5.02	%	5.38	%1		9,500,000			132,075
	JP Morgan Chase	07/14/16	5.72	%	5.36	%1		8,500,000			359,831
	Union Bank of Switzerland	02/08/17	5.30	%	5.36	%1		22,500,000			203,850
	Deutsche Bank	04/01/07	4.28	%	5.36	%1		20,000,000			2
	Citibank	03/20/08	4.94	%	5.60	%11		103,000,000			(751,756	)
	Morgan Stanley	07/01/10	4.17	%	5.36	%1		36,900,000			(954,548	)
	Morgan Stanley	02/17/14	5.37	%1	4.41	%		4,100,000			159,080
	Deutsche Bank	04/01/15	5.36	%1	5.03	%		11,000,000			49,941
	Morgan Stanley	07/01/15	5.36	%1	4.39	%		20,500,000			1,025,718
	Goldman Sachs	02/05/17	5.35	%	5.36	%1		4,900,000			66,129
	JP Morgan Chase	08/15/22	5.41	%	5.36	%1		13,670,000			132,189
	Deutsche Bank	01/12/11	6.53	%	6.50	%2		11,310,000	AUD		(16,173	)
	Deutsche Bank	01/22/11	6.54	%	6.53	%2		11,310,000	AUD		(12,055	)
	Goldman Sachs	01/04/11	5.14	%17	2.86	%		29,000,000	EUR		1,455,489
	Deutsche Bank	11/02/16	3.71	%17	3.97	%		30,900,000	EUR		1,005,890
	JP Morgan Chase	12/15/16	3.97	%	3.78	%7		15,000,000	EUR		(498,337	)
	Citibank	02/15/12	5.63	%18	5.52	%		4,435,000	GBP		30,197
	Bank of America	11/10/16	4.90	%	5.32	%18		700,000	GBP		(49,080	)
	Citibank	03/02/09	7.73	%	7.75	%11		14,330,000	NZD		(35,419	)
	Deutsche Bank	03/29/09	7.85	%11	7.94	%		47,000,000	NZD		(13,430	)
	Deutsche Bank	08/02/12	6.42	%	5.43	%11		3,100,000	NZD		(114,009	)
	Citibank	03/21/16	5.60	%11	6.60	%		26,200,000	NZD		817,501
	Deutsche Bank	03/29/17	7.29	%	7.85	%11		12,300,000	NZD		51,753
	Deutsche Bank	12/13/10	0.49	%19	3.39	%		125,000,000	SEK		357,335
	Goldman Sachs	02/23/11	0.49	%19	3.31	%		200,000,000	SEK		965,667
High Yield Bond	JP Morgan Chase	01/11/08	1.40	%	TBD	20	$	5,000,000		$	17,700
	Citibank	12/20/09	3.75	%	TBD	21		6,000,000			436,560
	JP Morgan Chase	03/20/10	3.80	%	TBD	22		6,000,000			(116,700	)
	Bank of America	03/20/10	3.80	%	TBD	22		5,000,000			(97,250	)
	Citibank	03/20/10	4.74	%	TBD	23		6,000,000			555,300
	Bank of America	12/20/10	5.10	%	TBD	22		7,500,000			(23,700	)
	Goldman Sachs	03/20/11	TBD	24	3.25	%		1,000,000			(37,353	)
	Union Bank of Switzerland	03/20/11	TBD	25	1.50	%		1,000,000			(32,350	)
	Morgan Stanley	09/20/11	TBD	26	3.29	%		3,500,000			(140,980	)
	JP Morgan Chase	09/20/11	TBD	27	0.54	%		3,000,000			(5,280	)
	Morgan Stanley	09/20/11	TBD	28	2.90	%		1,000,000			4,400
	Deutsche Bank	12/20/11	5.35	%	TBD	22		10,000,000			(243,459	)
	Goldman Sachs	12/20/11	3.25	%	TBD	29		2,500,000			(45,445	)
	Lehman Brothers	12/20/11	TBD	28	3.24	%		2,000,000			(3,540	)
	Citibank	12/20/11	TBD	30	2.25	%		4,000,000			32,240
	Lehman Brothers	03/20/12	2.45	%	TBD	31		4,000,000			103,600
	Lehman Brothers	03/20/12	TBD	32	1.50	%		5,000,000			23,600
	JP Morgan Chase	03/20/12	4.65	%	TBD	22		3,000,000			(156,420	)
	JP Morgan Chase	09/20/13	TBD	33	5.15	%		5,000,000			(392,850	)
	Citibank	06/20/16	2.05	%	TBD	34		3,000,000			(69,330	)
	JP Morgan Chase	09/20/11	TBD	35	3.75	%		2,500,000	EUR		(113,346	)
	Goldman Sachs	09/20/11	TBD	35	3.82	%		3,000,000	EUR		(117,773	)

¹ Rate shown is based on the 3 month LIBOR as of the most recent payment date.

² Rate shown is based on the 6 month BBA AUD LIBOR as of the most recent payment date.

³ Rate shown is based on Bank of America CMBS 10 year index as of most recent payment date.

⁴ Rate shown is based on the 1 month LIBOR as of most recent payment date.

⁵ Rate shown is based on Lehman CMBS AAA 8.5+ year index as of most recent payment date.

⁶ Rate to be determined upon notice of event of default by Argent Securities, Inc. on floating rate bond issue maturing 10/25/2035.

⁷ Rate to be determined upon notice of event of default by Ace Securities Corp. on floating rate bond issue maturing 11/25/2035.

⁸ Rate to be determined upon notice of event of default by Residential Assets Securities Corp. on floating rate bond issue maturing 12/25/2035.

⁹ Rate to be determined upon notice of event of default by Home Equity Asset Trust Heat on floating rate bond issue maturing 02/25/2036.

¹⁰ Rate to be determined upon notice of event of default by DJ CDX:NA.IG.HVOL.4.

¹¹ Rate shown is based on the 3 month BBA NZD LIBOR as of the most recent payment date.

¹² Rate shown is based on Lehman MBS Index as of most recent payment date.

¹³ Rate to be determined upon notice of event of default by Federal National Mortgage Association on 4.38% bond issue maturing 09/15/2012.

¹⁴ Rate to be determined upon notice of event of default by Federal National Mortgage Association on 5.25% bond issue maturing 08/01/2012.

¹⁵ Rate to be determined upon notice of event of default by Federal Home Loan Mortgage Corp. on 5.50% bond issue maturing 09/15/2011.

¹⁶ Rate to be determined upon notice of event of default by WFS Financial Owner Trust on 3.05% bond issue maturing 12/20/2010.

171

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

¹⁷ Rate shown is based on the 6 month EURIBOR as of the most recent payment date.

¹⁸ Rate shown is based on the 6 month BBA GBP LIBOR as of the most recent payment date.

¹⁹ Rate shown is based on the 3 month STIBOR as of the most recent payment date.

²⁰ Rate to be determined upon notice of event of default by Novelis, Inc. on floating rate bond issue maturing 02/15/2015.

²¹ Rate to be determined upon notice of event of default by The Goodyear Tire & Rubber Co. on 7.86% bond issue maturing 08/15/2011.

²² Rate to be determined upon notice of event of default by Ford Motor Co. on 7.45% bond issue maturing 07/16/2031.

²³ Rate to be determined upon notice of event of default by Levi Strauss & Co. on 12.25% bond issue maturing 12/15/2012.

²⁴ Rate to be determined upon notice of event of default by Quebecor World Capital Corp. on 6.13% bond issue maturing 11/15/2013.

²⁵ Rate to be determined upon notice of event of default by Universal Corp. on 5.20% bond issue maturing 10/15/2013.

²⁶ Rate to be determined upon notice of event of default by Dynergy Holdings, Inc. on 6.88% bond issue maturing 04/01/2011.

²⁷ Rate to be determined upon notice of event of default by RR Donnelley & Sons Co. on 4.95% bond issue maturing 04/01/2014.

²⁸ Rate to be determined upon notice of event of default by Freescale Semiconductor, Inc. on 7.13% bond issue maturing 07/15/2014.

²⁹ Rate to be determined upon notice of event of default by Lear Corp. on 5.75% bond issue maturing 08/01/2014.

³⁰ Rate to be determined upon notice of event of default by Affiliated Computer Services, Inc. on 5.20% bond issue maturing 06/01/2015.

³¹ Rate to be determined upon notice of event of default by Primedia, Inc. on 8.88% bond issue maturing 06/15/2011.

³² Rate to be determined upon notice of event of default by Smithfield Foods, Inc. on 7.75% bond issue maturing 05/15/2013.

³³ Rate to be determined upon notice of event of default by HCA, Inc. on 6.95% bond issue maturing 05/01/2012.

³⁴ Rate to be determined upon notice of event of default by Lyondell Chemical Co. on 10.50% bond issue maturing 06/01/2013.

³⁵ Rate to be determined upon notice of event of default by VNU NV on 5.63% bond issue maturing 05/20/2010.

Investment Transactions and Investment Income — Investment transactions are accounted for on the trade date. The cost of investments sold and the related gain or loss thereon is determined by use of the specific identification method, generally first-in first-out, for both financial reporting and federal income tax purposes. Interest income is recorded on the accrual basis. Discounts and premiums on debt securities are accreted or amortized, respectively, for book and tax purposes using the effective yield-to-maturity method over the term of the instrument. Dividends are recorded on the ex-dividend date. Paydown gains and losses on mortgage and asset-backed securities are presented as an adjustment to interest income.

Some countries in which the Portfolios invest require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if there is deterioration in a country’s balance of payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad. The securities exchanges of certain foreign markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. Consequently, acquisitions and disposition of securities by the Portfolio may be inhibited.

Preferred Stock — The Portfolios may invest in preferred stocks. Preferred stock has a preference over common stock in liquidation (and generally dividends as well) but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.

Zero-Coupon Bonds — The Portfolios may invest in zero-coupon bonds, which are normally issued at a significant discount from face value and do not provide for periodic interest payments. Zero-coupon bonds may experience greater volatility in market value than similar maturity debt obligations which provide for regular interest payments. Additionally, current federal tax law requires the holder of certain zero-coupon bonds to accrue income with respect to these securities prior to the receipt of cash payments. To maintain its qualification as a regulated investment company and avoid liability for federal income and excise taxes, a Portfolio may be required to distribute income accrued with respect to these securities and may have to dispose of portfolio securities under disadvantageous circumstances in order to generate cash to satisfy these distribution requirements.

172

BLACKROCK FUNDS

Asset-Backed Securities — The Portfolios may invest in asset-backed securities. Asset-backed securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in an underlying pool of assets, or as debt instruments, which are also known as collateralized obligations, and are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the obligations may be prepaid at any time because the underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security subject to such a prepayment feature will have the effect of shortening the maturity of the security. If a Portfolio has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.

Mortgage Pass-Through Securities — The Portfolios may purchase in the secondary market certain mortgage pass-through securities. There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related securities and among the securities that they issue. For example, Mortgage-related securities guaranteed by the Government National Mortgage Association (“GNMA”) include Ginnie Maes, which are guaranteed as to the timely payment of principal and interest by GNMA and such guarantee is backed by the full faith and credit of the United States. However, Mortgage-related securities issued by the Federal National Mortgage Association (“FNMA”) include FNMA guaranteed Mortgage Pass-Through Certificates (also known as “Fannie Maes”) which are solely the obligations of the FNMA, are not backed by or entitled to the full faith and credit of the United States and are supported by the right of the issuer to borrow from the Treasury.

Collateralized Mortgage Obligations — The Portfolios may invest in multiple class pass-through securities, including collateralized mortgage obligations (“CMOs”). These multiple class securities may be issued by GNMA, U.S. Government agencies or instrumentalities or by trusts formed by private originators of, or investors in, mortgage loans. In general, CMOs are debt obligations of a legal entity that are collateralized by, and multiple class pass-through securities represent direct ownership interests in, a pool of residential or commercial mortgage loans or mortgage pass-through securities (the “Mortgage Assets”), the payments on which are used to make payments on the CMOs or multiple pass-through securities. The markets for CMOs may be more illiquid than those of other securities.

Classes of CMOs include interest only (“IOs”), principal only (“POs”), planned amortization classes (“PACs”) and targeted amortization classes (“TACs”). IOs and POs are stripped mortgage-backed securities representing interests in a pool of mortgages the cash flow from which has been separated into interest and principal components. IOs (interest only securities) receive the interest portion of the cash flow while POs (principal only securities) receive the principal portion. IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases the rate at which the investment is returned and the yield to maturity on the PO. When payments on mortgages underlying a PO are slow, the life of the PO is lengthened and the yield to maturity is reduced.

Bank Loans — The Portfolios may invest in Bank loans which are generally non-investment grade floating rate instruments. Usually, they are freely callable at the issuer’s option. The Portfolios may invest in such Loans in the form of participations in Loans (“Participations”) and assignments of all or a portion of Loans from third parties (“Assignments”). The Portfolios consider these investments to be investments in debt securities for purposes of its investment policies. Participations typically will result in the Portfolio having a contractual relationship only with the Lender, not with the borrower. The Portfolios will have the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the Participation and only upon receipt by the lender of the payments from the borrower. In connection with purchasing Participations, the Portfolios generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the loans, nor any rights of set-off against the borrower, and the Portfolio may not benefit directly from any collateral supporting the loan in which it has purchased the Participation. As a result, the Portfolio will assume the credit risk of both the borrower and the lender that is selling the Participation. In the event of the insolvency of the lender selling the Participation, the Portfolio may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower.

A Portfolio may have difficulty disposing of Assignments and Participations. In certain cases, the market for such instruments is not highly liquid, and therefore the Portfolio anticipates that in such cases such instruments could be sold

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

only to a limited number of institutional investors. The lack of a highly liquid secondary market may have an adverse impact on the value of such instruments and on the Portfolio’s ability to dispose of particular Assignments or Participations in response to a specific economic event, such as deterioration in the creditworthiness of the borrower. Assignments and Participations will not be considered illiquid so long as it is determined by the Portfolios’ adviser or sub-adviser that an adequate trading market exists for these securities. To the extent that liquid Assignments and Participations that a Portfolio holds become illiquid, due to the lack of sufficient buyers or market or other conditions, the percentage of the Portfolio’s assets invested in illiquid assets would increase.

Repurchase Agreements — Money market instruments may be purchased from financial institutions, such as banks and non-bank dealers, subject to the seller’s agreement to repurchase them at an agreed upon date and price. Collateral for repurchase agreements may have longer maturities than the maximum permissible remaining maturity of portfolio investments, provided the repurchase agreements themselves mature in 13 months or less. The seller is required on a daily basis to maintain the value of the securities subject to the agreement at no less than the repurchase price. The agreements are conditioned upon the collateral being deposited under the Federal Reserve book entry system or held in a separate account by the Portfolio’s custodian or an authorized securities depository.

Reverse Repurchase Agreements — The Portfolios may enter into reverse repurchase agreements with qualified third party brokers-dealers, Interest on the value of the reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance and is included within the related liability on the Statement of Assets and Liabilities. At the time a Portfolio enters into a reverse repurchase agreement, it identifies for segregation certain liquid securities having a value not less than the repurchase price, including accrued interest, of the reverse repurchase agreement.

Futures Transactions — The Portfolios use futures and options on futures contracts typically as a substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate or currency risk. Portfolios may also use these instruments for leverage. These futures contracts obligate the Portfolios, at maturity, to take or make delivery of securities, the cash value of a securities index or a stated quantity of a foreign currency. Upon entering into a futures contract, the Portfolios are required to deposit cash or pledge securities as initial margin. Subsequent payments, which are dependent on the daily fluctuations in the value of the underlying security or securities, are made or received by the Portfolios each day (daily variation margin) and are recorded as cumulative unrealized gains or losses until the contracts are closed. When the contracts are closed, the Portfolios record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Portfolios’ basis in the contracts. Risks of entering into futures contracts include the possibility that there will not be a perfect price correlation between the futures contracts and the underlying securities. Second, it is possible that a lack of liquidity for futures contracts could exist in the market, resulting in an inability to liquidate a futures position prior to its maturity date. Third, the purchase of a futures contract involves the risk that the Portfolios could lose more than the original margin deposit required to initiate a futures transaction.

Stripped Mortgage Backed Securities — The Portfolios may invest in stripped mortgage-backed securities issued by the U.S. Government, its agencies and instrumentalities. Stripped mortgage-backed securities are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. In certain cases, one class will receive all of the interest (IO class), while the other class will receive all of the principal (PO class). The yield to maturity on IOs is sensitive to the rate of principal repayments (including pre-payments) on the related underlying mortgage assets, and principal pre-payments may have a material effect on yield to maturity. If the underlying mortgage assets experience greater than anticipated pre-payments of principal, the Portfolios may not fully recoup their initial investment in IOs. Such securities will be considered liquid only if so determined in accordance with guidelines established by the Board. The Portfolios also may invest in stripped mortgage-backed securities that are privately issued. These securities will be considered illiquid for purposes of each Portfolio’s limit on illiquid securities.

Investing in Government Sponsored Enterprises — The Portfolios invest in securities issued by the Federal Home Loan Mortgage Corp. (“Freddie Mac”) and similar United States Government sponsored entities such as Federal National Mortgage Assoc. (“Fannie Mae”) and the Federal Home Loan Banks (“FHLBs”). Freddie Mac, Fannie Mae and FHLBs, although chartered and sponsored by Congress, are not funded by Congressional appropriations and the debt and mortgage-backed securities issued by Freddie Mac, Fannie Mae and FHLBs are neither guaranteed nor insured by the United States Government.

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Option Puts and Calls — The Portfolios may write (sell) covered call options, buy call options, write secured put options and buy put options for the purpose of hedging or earning additional income, which may be deemed speculative. For the payment of a premium, the purchaser of an option obtains the right to buy (in the case of a call option) or to sell (in the case of a put option) the item which is the subject of the option at a stated exercise price for a specific period of time. These options may relate to particular securities, securities indices, or the yield differential between two securities. There is no limit on the amount of a Portfolio’s assets that can be put at risk through the use of options. In addition, unlisted options are not subject to the protections afforded purchasers of listed options issued by the Options Clearing Corporation, which performs the obligations of its members if they default. The primary risks associated with the use of options are (a) the imperfect correlation between the change in market value of the instruments held by a Portfolio and the price of the option; (b) losses caused by unanticipated market movements, which are potentially unlimited; (c) the advisor’s or sub advisor’s inability to predict correctly the direction of securities prices, interest rates, currency exchange rates and other economic factors; and (d) the possibility that the counterparty will default in the performance of its obligations.

Swaption Puts and Calls — The Portfolios may write (sell) and purchase put and call swaptions. Swaption contracts written by the Portfolios represent an option that gives the purchaser the right, but not the obligation, to enter into a new swap agreement, or to shorten, extend, cancel or modify an existing swap agreement, on a future date on specified terms. Depending on the terms of the particular option agreement, a Portfolio will generally incur a greater degree of risk when it writes a swaption than it will incur when it purchases a swaption. When a Portfolio purchases a swaption, it risks losing only the amount of the premium it has paid should it decide to let the option expire unexercised. However, when a Portfolio writes a swaption, upon exercise of the option the Portfolio will become obligated according to the terms of the underlying agreement.

When a portfolio writes a swaption, the premium received is recorded as a liability and is subsequently adjusted to the current market value of the swaption. Changes in the value of the swaption are reported as unrealized gains or losses in the Statements of Assets and Liabilities. Gain or loss is recognized when the swaption contract expires or is closed. Premiums received from writing swaptions that expire or are exercised are treated by the Portfolio as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase, as a realized loss.

Entering into a swaption contract involves, to varying degrees, the elements of credit, market and interest rate risk associated with both option contracts and swap contracts. To reduce credit risk from potential counterparty default, the Portfolios enter into swaption contracts with counterparties whose creditworthiness has been evaluated by BlackRock. The Portfolios bear the market risk arising from any change in index values or interest rates.

Purchased or written option and swaption transactions entered into during the six months ended March 31, 2007 are summarized as follows:

	LOW DURATION BOND					INTERMEDIATE GOVERNMENT BOND					INTERMEDIATE BOND
	NUMBER OF CONTRACTS		PREMIUM			NUMBER OF CONTRACTS		PREMIUM			NUMBER OF CONTRACTS		PREMIUM
Balance at 9/30/06	2,600		$	1,776,070		(1,315	)	$	(372,276	)	(63	)	$	(19,307	)
Purchased	470			210,466		26,252			1,110,480		1,450			35,290
Written	(4,960	)		(1,860,000	)	(16,840	)		(1,260,205	)	(940	)		(71,370	)
Expired	—			—		—			(25,640	)	—			(1,480	)
Closed	(417	)		(186,733	)	(10,615	)		(171,464	)	(642	)		(9,976	)
Balance at 3/31/07	(2,307	)	$	(60,197	)	(2,518	)	$	(719,105	)	(195	)	$	(66,843	)

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BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	INTERMEDIATE BOND II					TOTAL RETURN					TOTAL RETURN II
	NUMBER OF CONTRACTS		PREMIUM			NUMBER OF CONTRACTS		PREMIUM			NUMBER OF CONTRACTS		PREMIUM
Balance at 9/30/06	(2,512	)	$	(837,856	)	(3,921	)	$	(1,432,222	)	(29,688	)	$	(10,935,342	)
Purchased	45,342			1,950,161		19,512			956,725		146,249			6,539,613
Written	(29,700	)		(2,432,276	)	(13,520	)		(1,333,877	)	(105,240	)		(10,134,080	)
Expired	—			(44,080	)	—			(17,560	)	—			(139,840	)
Closed	(18,358	)		(298,334	)	(5,078	)		1,088,617		(36,065	)		8,162,366
Balance at 3/31/07	(5,228	)	$	(1,662,385	)	(3,007	)	$	(738,317	)	(24,744	)	$	(6,507,283	)
	GOVERNMENT INCOME					INFLATION PROTECTED BOND					GNMA
	NUMBER OF CONTRACTS		PREMIUM			NUMBER OF CONTRACTS		PREMIUM			NUMBER OF CONTRACTS		PREMIUM
Balance at 9/30/06	(6,320	)	$	(1,655,140	)	(508	)	$	(143,251	)	(2,080	)	$	(587,800	)
Purchased	70,517			8,473,698		6,223			1,403,223		670			123,446
Written	(25,800	)		(4,140,900	)	(6,172	)		(1,154,159	)	(600	)		(96,300	)
Expired	1,000			166,805		(299	)		(41,676	)	—			—
Closed	(40,526	)		(3,517,453	)	(344	)		(21,296	)	1,416			296,941
Balance at 3/31/07	(1,129	)	$	(672,990	)	(1,100	)	$	42,841		(594	)	$	(263,713	)
	MANAGED INCOME					INTERNATIONAL BOND					HIGH YIELD BOND
	NUMBER OF CONTRACTS		PREMIUM			NUMBER OF CONTRACTS		PREMIUM			NUMBER OF CONTRACTS		PREMIUM
Balance at 9/30/06	(8,447	)	$	(3,170,703	)	3,303		$	(786,601	)	—		$	—
Purchased	36,191			1,593,019		32,020			1,217,743		—			—
Written	(26,280	)		(2,537,001	)	(24,800	)		(2,821,516	)	(2,034	)		(1,090,844	)
Expired	—			(34,840	)	(4,343	)		(178,106	)	316			217,050
Closed	(8,283	)		2,243,683		(8,390	)		1,876,831		—			—
Balance at 3/31/07	(6,819	)	$	(1,905,842	)	(2,210	)	$	(691,649	)	(1,718	)	$	(873,794	)

TBA Purchase Commitments — The Portfolios may enter into to be announced (“TBA”) commitments to purchase or sell securities for a fixed price at a future date. TBA commitments are considered securities in themselves, and involve a risk of loss if the value of the security to be purchased or sold declines or increases prior to settlement date, which is in addition to the risk of decline in the value of the Portfolios’ other assets. Unsettled TBA commitments are valued at the current market value of the underlying securities, according to the procedures described under “Investment Valuation”.

Mortgage Dollar Rolls — The Portfolios may enter into mortgage dollar rolls (principally using TBA commitments) in which the Portfolios sell mortgage securities for delivery in the current month and simultaneously contract to repurchase similar, but not identical, securities at an agreed-upon price on a fixed date. The Portfolios receive compensation, in either “fee” or “drop”, as consideration for entering into the commitment to repurchase. A Portfolio must maintain liquid securities having a value not less than the repurchase price (including accrued interest) for such dollar rolls. The market value of the securities that a Portfolio is required to purchase may decline below the agreed upon repurchase price of those securities.

In a “fee” roll, the compensation received is recorded as deferred income and amortized to income over the roll period. In a “drop” roll, the compensation is paid via a lower price for the security upon its repurchase. The counterparty receives all principal and interest payments, including prepayments, made in respect of a security subject to such a contract while it is the holder. Mortgage dollar rolls may be renewed with a new purchase and repurchase price and a cash settlement made on settlement date without physical delivery of the securities subject to the contract. A Portfolio engages in dollar rolls for the purpose of enhancing its yield, principally by earning a negotiated fee.

Financing Transactions — The Portfolios may enter into financing transactions consisting of sales by a Portfolio of securities together with a commitment to repurchase similar securities at a future date. The difference between the

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selling price and the future purchase price is an adjustment to interest income. If the counterparty to whom the Portfolio sells the security becomes insolvent, a Portfolio’s right to repurchase the security may be restricted. The value of the security may change over the term of the financing transaction.

Inflation-indexed Bonds — Inflation-indexed bonds are fixed income securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation falls, the principal value of inflation-indexed bonds will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal.

Bridge Debt Commitments — The High Yield Bond Portfolio may invest in and is entitled to a fee upon the expiration of the commitment period, generally within six months of the initial commitment date. The bridge debt terms approximate market rates at the time the commitment is entered into. At March 31, 2007, the High Yield Bond Portfolio had no investments in commitments outstanding to fund high yield bridge debt.

Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) requires the use of management estimates. Actual results could differ from these estimates and such differences could be material.

Other — Expenses that are directly related to one of the Portfolios are charged directly to that Portfolio. Other operating expenses are prorated to the Portfolios on the basis of relative net assets. Class-specific expenses are borne by that class. Differences in net expense ratios between classes of a Portfolio are due to class-specific expenses and waivers. Income, other expenses and realized and unrealized gains and losses of a Portfolio are allocated to the respective class on the basis of the relative net assets each day.

(D) Agreements and Other Transactions with Affiliates and Related Parties

Pursuant to an Investment Advisory Agreement, BlackRock serves as investment advisor to the Portfolios. BlackRock Financial Management, Inc., (“BFM”), an indirect wholly-owned subsidiary of BlackRock, Inc., serves as sub-advisor for all of the Portfolios. Merrill Lynch & Co., Inc.(“Merrill Lynch”) and The PNC Financial Services Group, Inc. (“PNC”) are principal owners of BlackRock, Inc.

For its advisory services, BlackRock is entitled to receive fees, computed daily and payable monthly, at the following annual rates, based on each Portfolio’s average daily net assets:

	EACH PORTFOLIO EXCEPT THE ENHANCED INCOME, INTERNATIONAL BOND,  INFLATION PROTECTED BOND & GNMA		INTERNATIONAL BOND & GNMA		INFLATION PROTECTED BOND
AVERAGE DAILY NET ASSETS	INVESTMENT ADVISORY FEE		INVESTMENT ADVISORY FEE		INVESTMENT ADVISORY FEE
first $1 billion	.500	%	.550	%	.400	%
$1 billion — $2 billion	.450		.500		.375
$2 billion — $3 billion	.425		.475		.350
greater than $3 billion	.400		.450		.325

The investment advisory fee for the Enhanced Income Portfolio is 0.40%. BlackRock pays BFM fees for its sub-advisory services.

PFPC Trust Company (“PTC”), an indirect wholly-owned subsidiary of PNC, serves as custodian for each of the Portfolios. For these services, the custodian receives a custodian fee computed daily and payable monthly, based on a percentage of the average daily gross assets of each Portfolio.

Prior to February 1, 2006, the fee was paid at the following annual rates: 0.01% of the first $250 million of average gross assets, 0.009% of the next $250 million of average gross assets, 0.0075% of the next $250 million of average gross assets, 0.007% of the next $250 million of average of gross assets, 0.006% of the next $250 million of average gross assets and 0.005% of average gross assets in excess of $1.25 billion; plus per transaction charges and other miscellaneous fees incurred on behalf of each Portfolio.

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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Effective February 1, 2006, the fee was paid at the following annual rates: 0.0073% of the first $250 million of average gross assets, 0.006% of the next $250 million of average gross assets, 0.0056% of the next $250 million of average gross assets, 0.0048% of the next $250 million of average gross assets, and 0.004% of average gross assets in excess of $1 billion; plus per transaction charges and other miscellaneous fees incurred on behalf of each Portfolio.

PFPC Inc. (“PFPC”) an indirect wholly-owned subsidiary of PNC, serves as transfer and dividend disbursing agent.

Shares of each class of each Portfolio of the Fund bear their pro rata portion of all operating expenses paid by the Portfolio, except transfer agency fees, certain administrative fees and amounts payable under the Fund’s Amended and Restated Distribution and Service Plan (the “Plan”).

Prior to February 1, 2006, the BlackRock Shares bore a transfer agent fee at an annual rate not to exceed 0.005% of the average daily net assets plus per account fees and disbursements. Institutional, Service, Investor A, Investor B, and Investor C share classes each bore a transfer agent fee at an annual rate not to exceed 0.018% of the annual average net assets of such respective classes plus per account fees and disbursements. Certain other transfer agency fees were allocated on relative net assets of each class of each Portfolio.

Effective February 1, 2006, each class of each Portfolio bears the costs of transfer agent fees associated with such respective classes. Transfer agency fees borne by each class of each Portfolio are comprised of those fees charged for all shareholder communications including shareholder reports, dividend and distribution notices, and proxy materials for shareholders meetings, as well as per account and per transaction fees related to servicing and maintenance of shareholder accounts, including the issuing, redeeming and transferring of shares of each class of each Portfolio, 12b-1 fee calculation, check writing, anti-money laundering services, and customer identification services.

Pursuant to written agreements, Merrill Lynch and Hilliard Lyons, an indirect wholly-owned subsidiary of PNC, provide certain Portfolios sub-accounting, recordkeeping, sub-transfer agency and other administrative services with respect to sub-accounts they service. For these services, each receives an annual fee per shareholder account which will vary depending on share class. For the six months ended March 31, 2007, the Portfolios paid to Merrill Lynch and Hilliard Lyons the following fees in return for these services:

	MERRILL LYNCH		HILLIARD LYONS
Enhanced Income	$	4	$	7
Low Duration Bond		97,732		4,886
Intermediate Government Bond		50,643		1,908
Intermediate Bond Portfolio		3,187		—
Intermediate Bond Portfolio II.		8,707		1,557
Total Return Portfolio		749		84
Total Return Portfolio II		234,903		7,484
Government Income		1,290,334		4,593
Inflation Protected Bond		32,596		166
GNMA		9,044		2,029
Managed Income		2,490		35,448

PFPC and BlackRock act as co-administrators for the Fund. For these services, the co-administrators receive a combined administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of each Portfolio. Prior to February 1, 2006 the fee was paid at the following annual rates: 0.085% of the first $500 million of net assets of each Portfolio, 0.075% of the next $500 million and 0.065% of assets in excess of $1 billion. In addition, each of the share classes, except for the BlackRock Class, was charged an administration fee based on the following percentage of average daily net assets of each respective class: 0.145% of the first $500 million, 0.135% of the next $500 million and 0.125% of assets in excess of $1 billion. The BlackRock Class was charged an administration fee of 0.035% of the first $500 million, 0.025% of the next $500 million and 0.015% of assets in excess of $1 billion. Effective February 1, 2006, the combined administration fee is paid at the following annual rates: 0.075% of the first $500 million of net assets of each Portfolio, 0.065% of the next $500 million and 0.055% of assets in excess of $1 billion. In addition, each of the share classes is charged an administration fee based on the following percentage of average daily net assets of each respective class: 0.025% of the first $500 million, 0.015% of the next $500 million and 0.005% of assets in excess of $1 billion. In addition, PFPC and BlackRock may have, at their discretion, voluntarily waived all or any portion of their administration fees for any Portfolio or share class.

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Pursuant to the Fund’s Plan, the Fund may pay BlackRock Distributors, Inc. (the “BDI”), a direct subsidiary of PFPC, and/or BlackRock or any other affiliate of PNC and Merrill Lynch, fees for distribution and sales support services. Currently, only Investor B, B1, B2, C, C1, C2 and R Shares bear the expense of distribution fees under the Plan. In addition, the Fund may pay brokers, dealers, financial institutions and industry professionals (including PNC, Merrill Lynch and their affiliates) (“service organizations”) fees for the provision of personal services to shareholders. BlackRock may receive some of the service fees paid by the Fund in return for providing services to shareholders. Currently, only Service, Hilliard Lyons, Investor A, A1, B, B1, B2, C, C1, C2 and R Shares bear the expense of service fees under the Plan.

The following table provides a list of the Portfolios included in this report along with a summary of their respective class-specific fee arrangements as provided under the Plan. Fees are expressed as a percentage of average daily net asset values of the respective classes.

Class Specific Fee Arrangements

		Portfolio
Share Classes		Enhanced Income		Low Duration Bond		Intermediate Government Bond		Intermediate Bond		Intermediate Bond II		Total Return		Total Return II
BlackRock	Contractual Fees	None		None		N/A		None		None		None		None
	Actual Fees(3)	None		None		N/A		None		None		None		None
Institutional	Contractual Fees	None		None		None		None		None		None		None
	Actual Fees(3)	None		None		None		None		None		None		None
Service	Contractual Fees(1)	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%
	Actual Fees(3)	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%
Investor A	Contractual Fees(1)	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%
	Actual Fees(3)	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%
Investor A1	Contractual Fees(4)	N/A		0.10	%	N/A		N/A		N/A		N/A		N/A
	Actual Fees(3)	N/A		0.10	%	N/A		N/A		N/A		N/A		N/A
Investor B	Contractual Fees(2)	N/A		1.00	%	1.00	%	1.00	%	1.00	%	1.00	%	1.00	%
	Actual Fees(3)	N/A		1.00	%	1.00	%	1.00	%	1.00	%	1.00	%	1.00	%
Investor B1	Contractual Fees(5)	N/A		0.75	%	N/A		N/A		N/A		N/A		N/A
	Actual Fees(3)	N/A		0.75	%	N/A		N/A		N/A		N/A		N/A
Investor B2	Contractual Fees(6)	N/A		0.40	%	N/A		N/A		N/A		N/A		N/A
	Actual Fees(3)	N/A		0.40	%	N/A		N/A		N/A		N/A		N/A
Investor C	Contractual Fees(2)	N/A		1.00	%	1.00	%	1.00	%	1.00	%	1.00	%	1.00	%
	Actual Fees(3)	N/A		1.00	%	1.00	%	1.00	%	1.00	%	1.00	%	1.00	%
Investor C1	Contractual Fees(7)	N/A		0.80	%	N/A		N/A		N/A		N/A		N/A
	Actual Fees(3)	N/A		0.80	%	N/A		N/A		N/A		N/A		N/A
Investor C2	Contractual Fees(6)	N/A		0.40	%	N/A		N/A		N/A		N/A		N/A
	Actual Fees(3)	N/A		0.40	%	N/A		N/A		N/A		N/A		N/A
R	Contractual Fees(8)	N/A		N/A		N/A		N/A		N/A		0.50	%	0.50	%
	Actual Fees(3)	N/A		N/A		N/A		N/A		N/A		0.50	%	0.50	%

179

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Class Specific Fee Arrangements

		Portfolio
Share Classes		Government Income		Inflation Protected Bond		GNMA		Managed Income		International Bond		High Yield Bond
BlackRock	Contractual Fees	None		None		None		N/A		None		None
	Actual Fees(3)	None		None		None		N/A		None		None
Institutional	Contractual Fees	N/A		None		None		None		None		None
	Actual Fees(3)	N/A		None		None		None		None		None
Service	Contractual Fees(1)	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%
	Actual Fees(3)	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%
Investor A	Contractual Fees(1)	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%
	Actual Fees(3)	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%	0.25	%
Investor B	Contractual Fees(2)	1.00	%	1.00	%	1.00	%	1.00	%	1.00	%	1.00	%
	Actual Fees(3)	1.00	%	1.00	%	1.00	%	1.00	%	1.00	%	1.00	%
Investor B1	Contractual Fees(5)	0.75	%	N/A		N/A		N/A		N/A		0.75	%
	Actual Fees(3)	0.75	%	N/A		N/A		N/A		N/A		0.75	%
Investor C	Contractual Fees(2)	1.00	%	1.00	%	1.00	%	1.00	%	1.00	%	1.00	%
	Actual Fees(3)	1.00	%	1.00	%	1.00	%	1.00	%	1.00	%	1.00	%
Investor C1	Contractual Fees(7)	0.80	%	N/A		N/A		N/A		N/A		0.80	%
	Actual Fees(3)	0.80	%	N/A		N/A		N/A		N/A		0.80	%
R	Contractual Fees(8)	0.50	%	N/A		N/A		N/A		N/A		0.50	%
	Actual Fees(3)	0.50	%	N/A		N/A		N/A		N/A		0.50	%

(1) — The maximum annual contractual fees are comprised of a 0.25% service fee.

(2) — The maximum annual contractual fees are comprised of a 0.75% distribution fee and a 0.25% service fee.

(3) — The actual fees are for the six months ended March 31, 2007.

(4) — The maximum annual contractual fees are comprised of a 0.10% service fee.

(5) — The maximum annual contractual fees are comprised of a 0.50% distribution fee and a 0.25% service fee.

(6) — The maximum annual contractual fees are comprised of a 0.30% distribution fee and a 0.10% service fee.

(7) — The maximum annual contractual fees are comprised of a 0.55% distribution fee and a 0.25% service fee.

(8) — The maximum annual contractual fees are comprised of a 0.25% distribution fee and a 0.25% service fee.

180

BLACKROCK FUNDS

For the six months ended March 31, 2007, the Fund paid to affiliates the following fees in return for distribution and sales support services:

	MERRILL LYNCH		HILLIARD LYONS		BLACKROCK
Enhanced Income	$	3	$	70	$	2
Low Duration Bond		309,952		15,920		1,544
Intermediate Government Bond.		145,139		5,554		10,071
Intermediate Bond		31,613		5,021		180
Intermediate Bond II		2,568		—		45
Total Return		333,833		20,306		27,989
Total Return II		6,065		157		83
Government Income		2,201,610		13,939		38,556
Inflation Protected Bond		198,329		566		2,237
GNMA		66,895		5,723		514
Managed Income		7,603		14,664		308
International Bond		109,312		11,275		10,051
High Yield Bond		522,559		30,198		13,230

BlackRock maintains a call center which is responsible for providing certain shareholder services to the BlackRock Funds, such as responding to shareholder inquiries and processing transactions based upon instructions from shareholders with respect to the subscription and redemption of Fund shares. For the six months ended March 31, 2007, the following amounts have been accrued by each Portfolio to reimburse BlackRock for costs incurred running the call center, which are a component of the transfer agent fees in the accompanying Statements of Operations.

SHARE CLASSES	ENHANCED INCOME		LOW DURATION BOND		INTERMEDIATE GOVERNMENT BOND		INTERMEDIATE BOND		INTERMEDIATE BOND II		TOTAL RETURN		TOTAL RETURN II
BlackRock	$	77	$	6,118	$	—	$	124	$	1,503	$	1,544	$	6,086
Institutional		121		1,507		1,157		9		1,295		24		3,178
Service		10		2,284		47		4		1,489		2		1,386
Investor A		8		6,193		19,379		9		1,227		47		11,354
Investor A1		—		535		—		—		—		—		—
Investor B		—		1,385		7,089		8		386		40		1,671
Investor B1		—		24		—		—		—		—		—
Investor B2		—		371		—		—		—		—		—
Investor C		—		1,800		1,204		4		307		25		1,435
Investor C1		—		117		—		—		—		—		—
Investor C2		—		358		—		—		—		—		—
R		—		—		—		—		—		2		2
Total	$	216	$	20,692	$	28,876	$	158	$	6,207	$	1,684	$	25,112

181

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

SHARE CLASSES	GOVERNMENT INCOME		INFLATION PROTECTED BOND		GNMA		MANAGED INCOME		INTERNATIONAL BOND		HIGH YIELD BOND
BlackRock	$	39	$	89	$	49	$	—	$	1,615	$	3,536
Institutional		1,087		40		634		2,099		3,474		1,925
Service		787		—		113		1,030		2,299		2,141
Investor A		20,610		134		768		731		18,644		77,077
Investor B		2,646		100		905		205		1,827		6,390
Investor B1		2,687		—		—		—		—		1,587
Investor C		2,506		197		694		20		2,912		2,229
Investor C1		2,017		—		—		—		—		588
R		207		—		—		—		—		30
Total	$	32,586	$	560	$	3,163	$	4,085	$	30,771	$	95,503

For the six months ended March 31, 2007, the following shows the various types of class specific expenses borne directly by each class of each Portfolio and any associated waivers of those expenses.

	ADMINISTRATION FEES
SHARE CLASSES	ENHANCED INCOME		LOW DURATION BOND		INTERMEDIATE GOVERNMENT BOND		INTERMEDIATE BOND		INTERMEDIATE BOND II		TOTAL RETURN		TOTAL RETURN II
BlackRock	$	2,392	$	65,317	$	—	$	2,406	$	48,525	$	53,026	$	114,032
Institutional		2,805		25,978		23,493		122		35,929		636		98,047
Service		4		30,429		247		2		24,040		2		10,015
Investor A		11		9,059		34,263		15		3,465		101		30,377
Investor A1		—		5,320		—		—		—		—		—
Investor B		—		3,563		5,780		27		929		57		4,597
Investor B1		—		223		—		—		—		—		—
Investor B2		—		1,902		—		—		—		—		—
Investor C		—		5,565		1,712		63		1,018		141		8,253
Investor C1		—		1,414		—		—		—		—		—
Investor C2		—		3,790		—		—		—		—		—
R		—		—		—		—		—		2		2
Total	$	5,212	$	152,560	$	65,495	$	2,635	$	113,906	$	53,965	$	265,323

SHARE CLASSES	GOVERNMENT INCOME		INFLATION PROTECTED BOND		GNMA		MANAGED INCOME		INTERNATIONAL BOND		HIGH YIELD BOND
BlackRock	$	1,190	$	1,894	$	1,478	$	—	$	15,662	$	34,158
Institutional		34,333		2,382		14,185		66,063		28,754		24,234
Service		28		184		932		20,078		8,919		32,263
Investor A		94,831		1,888		1,794		2,906		16,318		61,735
Investor B		3,763		1,284		1,692		590		1,827		10,466
Investor B1		24,108		—		—		—		—		12,274
Investor C		4,328		4,800		2,369		138		6,176		7,302
Investor C1		24,120		—		—		—		—		5,985
R		4,116		—		—		—		—		498
Total	$	190,817	$	12,432	$	22,450	$	89,775	$	77,656	$	188,915

182

BLACKROCK FUNDS

	ADMINISTRATION FEES WAIVED
SHARE CLASSES	ENHANCED INCOME		LOW DURATION BOND		INTERMEDIATE GOVERNMENT BOND		INTERMEDIATE BOND		INTERMEDIATE BOND II		TOTAL RETURN		TOTAL RETURN II
BlackRock	$	2,391	$	65,317	$	—	$	2,406	$	48,496	$	53,026	$	114,032
Institutional		286		15,125		23,110		122		—		3		—
Service		3		2,001		139		2		—		1		—
Investor A		4		9,059		—		15		—		13		21,483
Investor A1		—		5,320		—		—		—		—		—
Investor B		—		3,563		5,751		27		430		1		134
Investor B1		—		223		—		—		—		—		—
Investor B2		—		1,902		—		—		—		—		—
Investor C		—		5,565		1,372		63		—		—		—
Investor C1		—		298		—		—		—		—		—
Investor C2		—		3,790		—		—		—		—		—
R		—		—		—		—		—		2		2
Total	$	2,684	$	112,163	$	30,372	$	2,635	$	48,926	$	53,046	$	135,651

SHARE CLASSES	GOVERNMENT INCOME		INFLATION PROTECTED BOND		GNMA		MANAGED INCOME		INTERNATIONAL BOND		HIGH YIELD BOND
BlackRock	$	1,190	$	1,867	$	1,478	$	—	$	212	$	33,945
Institutional		12,298		—		—		36,558		—		—
Service		28		—		—		260		—		—
Investor A		—		1,012		—		—		15,625		52,471
Investor B		—		1,284		—		15		—		10,409
Investor B1		24,108		—		—		—		—		12,202
Investor C		—		2,434		—		—		—		—
Investor C1		24,120		—		—		—		—		5,949
R.		4,116		—		—		—		—		498
Total	$	65,860	$	6,597	$	1,478	$	36,833	$	15,837	$	115,474

	TRANSFER AGENT FEES
SHARE CLASSES	ENHANCED INCOME		LOW DURATION BOND		INTERMEDIATE GOVERNMENT BOND		INTERMEDIATE BOND		INTERMEDIATE BOND II		TOTAL RETURN		TOTAL RETURN II
BlackRock	$	131	$	45,066	$	—	$	125	$	3,057	$	3,841	$	12,384
Institutional		1,154		41,189		19,504		825		12,130		417		63,766
Service		177		216,115		489		49		80,422		20		13,969
Investor A		83		71,671		202,866		1,294		13,305		1,090		185,746
Investor A1		—		34,416		—		—		—		—		—
Investor B		—		29,689		66,964		1,331		8,683		288		39,100
Investor B1		—		3,100		—		—		—		—		—
Investor B2		—		31,847		—		—		—		—		—
Investor C		—		38,170		14,859		676		5,783		180		47,887
Investor C1		—		6,005		—		—		—		—		—
Investor C2		—		24,536		—		—		—		—		—
R		—		—		—		—		—		20		20
Total	$	1,545	$	541,804	$	304,682	$	4,300	$	123,380	$	5,856	$	362,872

183

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	TRANSFER AGENT FEES (CONT )
SHARE CLASSES	GOVERNMENT INCOME		INFLATION PROTECTED BOND		GNMA		MANAGED INCOME		INTERNATIONAL BOND		HIGH YIELD BOND
BlackRock	$	123	$	90	$	151	$	—	$	10,336	$	30,076
Institutional		320,936		4,208		5,345		18,337		42,616		33,510
Service		26,407		6		1,470		25,362		43,147		63,730
Investor A		920,837		10,121		7,910		6,883		175,914		437,361
Investor B		41,565		9,828		12,461		4,744		22,287		75,318
Investor B1		373,896		—		—		—		—		71,850
Investor C		28,586		26,236		13,316		639		37,303		32,457
Investor C1		368,980		—		—		—		—		38,668
Investor C2		57,401		—		—		—		—		—
R				—		—		—		—		5,908
Total	$	2,138,731	$	50,489	$	40,653	$	55,965	$	331,603	$	788,878

	TRANSFER AGENT FEES WAIVED
SHARE CLASSES	ENHANCED INCOME		LOW DURATION BOND		INTERMEDIATE GOVERNMENT BOND		INTERMEDIATE BOND		INTERMEDIATE BOND II		TOTAL RETURN		TOTAL RETURN II
BlackRock	$	71	$	6,117	$	—	$	124	$	1,487	$	1,544	$	6,086
Institutional		13		—		1,133		2		—		—		—
Service		10		—		18		4		—		1		—
Investor A		3		6,192		—		1		—		6		—
Investor A1		—		535		—		—		—		—		—
Investor B		—		1,385		7,038		2		10		3		—
Investor B1		—		24		—		—		—		—		—
Investor B2		—		371		—		—		—		—		—
Investor C		—		1,798		235		—		—		2		—
Investor C2		—		354		—		—		—		—		—
Total	$	97	$	16,776	$	8,424	$	133	$	1,497	$	1,556	$	6,086

SHARE CLASSES	GOVERNMENT INCOME		INFLATION PROTECTED BOND		GNMA		MANAGED INCOME		INTERNATIONAL BOND		HIGH YIELD BOND
BlackRock	$	39	$	65	$	49	$	—	$	25	$	3,518
Institutional		202		—		—		284		—		—
Service		787		—		—		—		—		—
Investor A		—		36		—		—		17,358		19,826
Investor B		—		100		—		1		—		6,356
Investor B1		2,687		—		—		—		—		1,577
Investor C		—		65		—		—		—		—
Investor C1		2,017		—		—		—		—		584
R		207		—		—		—		—		30
Total	$	5,939	$	266	$	49	$	285	$	17,383	$	31,891

184

BLACKROCK FUNDS

	TRANSFER AGENT FEES REIMBURSED
SHARE CLASSES	ENHANCED INCOME		LOW DURATION BOND		INTERMEDIATE GOVERNMENT BOND		INTERMEDIATE BOND		INTERMEDIATE BOND II		TOTAL RETURN		TOTAL RETURN II
BlackRock	$	53	$	38,583	$	—	$	—	$	1,481	$	2,223	$	6,026
Institutional		78		—		17,924		564		—		—		—
Service		133		—		90		23		—		2		—
Investor A		20		8,641		—		1,198		—		699		—
Investor A1		—		8,485		—		—		—		—		—
Investor B		—		6,016		9,229		1,215		2		19		—
Investor B1		—		1,863		—		—		—		—		—
Investor B2		—		21,004		—		—		—		—		—
Investor C		—		1,892		32		475		—		12		—
Investor C2		—		3,153		—		—		—		—		—
Total	$	284	$	89,637	$	27,275	$	3,475	$	1,483	$	2,955	$	6,026

SHARE CLASSES	GOVERNMENT INCOME		INFLATION PROTECTED BOND		GNMA		INTERNATIONAL BOND		HIGH YIELD BOND
BlackRock	$	83	$	—	$	91	$	—	$	26,250
Institutional		662		—		—		—		—
Service		25,389		—		—		—		—
Investor A		—		897		—		6,634		14,773
Investor B		—		2,129		—		—		3,901
Investor B1		99,118		—		—		—		3,089
Investor C		—		2,619		—		—		—
Investor C1		87,008		—		—		—		5,054
R		12,621		—		—		—		3,469
Total	$	224,881	$	5,645	$	91	$	6,634	$	56,536

	SHAREHOLDER SERVICE FEES
SHARE CLASSES	ENHANCED INCOME		LOW DURATION BOND		INTERMEDIATE GOVERNMENT BOND		INTERMEDIATE BOND		INTERMEDIATE BOND II		TOTAL RETURN		TOTAL RETURN II
Service	$	41	$	304,293	$	2,424	$	25	$	240,401	$	25	$	100,138
Investor A		105		90,469		341,942		152		34,649		1,009		303,619
Investor A1		—		21,279		—		—		—		—		—
Investor B		—		35,630		57,571		266		9,292		567		45,978
Investor B1		—		2,234		—		—		—		—		—
Investor B2		—		7,607		—		—		—		—		—
Investor C		—		55,648		17,121		633		10,179		1,416		82,526
Investor C1		—		14,141		—		—		—		—		—
Investor C2		—		15,158		—		—		—		—		—
R		—		—		—		—		—		25		25
Total	$	146	$	546,459	$	419,058	$	1,076	$	294,521	$	3,042	$	532,286

185

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	SHAREHOLDER SERVICE FEES (CONT)
SHARE CLASSES	GOVERNMENT INCOME		INFLATION PROTECTED BOND		GNMA		MANAGED INCOME		INTERNATIONAL BOND		HIGH YIELD BOND
Service	$	278	$	1,842	$	9,328	$	200,707	$	88,963	$	322,632
Investor A		1,190,109		18,884		17,880		29,064		163,145		624,146
Investor B		37,601		12,183		16,917		5,901		18,270		104,612
Investor B1		241,078		—		—		—		—		122,673
Investor C		43,278		48,001		23,690		1,376		61,755		73,001
Investor C1		241,174		—		—		—		—		59,852
R		41,154		—		—		—		—		4,984
Total	$	1,794,672	$	80,910	$	67,815	$	237,048	$	332,133	$	1,311,900

	DISTRIBUTION FEES
SHARE CLASSES	LOW DURATION BOND		INTERMEDIATE GOVERNMENT BOND		INTERMEDIATE BOND		INTERMEDIATE BOND II		TOTAL RETURN		TOTAL RETURN II
Investor B	$	106,890	$	173,414	$	798	$	27,876	$	643	$	137,953
Investor B1		4,467		—		—		—		—		—
Investor B2		22,820		—		—		—		—		—
Investor C		166,942		51,363		1,900		30,538		4,246		247,577
Investor C1		31,111		—		—		—		—		—
Investor C2		45,474		—		—		—		—		—
R		—		—		—		—		25		25
Total	$	377,704	$	224,777	$	2,698	$	58,414	$	4,914	$	385,555

SHARE CLASSES	GOVERNMENT INCOME		INFLATION PROTECTED BOND		GNMA		MANAGED INCOME		INTERNATIONAL BOND		HIGH YIELD BOND
Investor B	$	112,817	$	38,528	$	50,750	$	17,703	$	54,812	$	313,972
Investor B1		482,156		—		—		—		—		245,491
Investor C		129,835		144,004		71,069		4,129		185,265		218,717
Investor C1		530,632		—		—		—		—		131,673
R		41,157		—		—		—		—		4,984
Total	$	1,296,597	$	182,532	$	121,819	$	21,832	$	240,077	$	914,837

186

BLACKROCK FUNDS

BlackRock and the Fund contractually agreed to waive or reimburse fees or expenses until February 1, 2008, in order to limit expenses. These expense limits apply to the aggregate expenses incurred on a share class (excluding: interest, taxes, brokerage commissions, expenses incurred as a result of investments in other funds and other expenses attributable to, and incurred as a result of, a Portfolio’s investments and other extraordinary expenses). This agreement is reviewed annually by the Fund’s Board. The current expense limitation as a percentage of net assets are as follows:

	ENHANCED INCOME		LOW DURATION BOND		INTERMEDIATE GOVERNMENT BOND		INTERMEDIATE BOND		INTERMEDIATE BOND II		TOTAL RETURN		TOTAL RETURN II
BlackRock	0.30	%	0.40	%	NA		0.40	%	0.45	%	0.40	%	0.40	%
Institutional	0.40	%	0.55	%	0.60	%	0.55	%	0.60	%	0.55	%	0.55	%
Service	0.75	%	0.85	%	0.90	%	0.85	%	0.90	%	0.85	%	0.85	%
Investor A	0.80	%	0.81	%	1.07	%	0.90	%	0.95	%	0.90	%	0.81	%
Investor A1	NA		0.62	%1	NA		NA		NA		NA		NA
Investor B	NA		1.56	%	1.82	%	1.65	%	1.70	%	1.65	%	1.65	%
Investor B1	NA		1.29	%1	NA		NA		NA		NA		NA
Investor B2	NA		0.94	%1	NA		NA		NA		NA		NA
Investor C	NA		1.56	%	1.82	%	1.65	%	1.70	%	1.65	%	1.65	%
Investor C1	NA		1.33	%1	NA		NA		NA		NA		NA
Investor C2	NA		0.94	%1	NA		NA		NA		NA		NA
R	NA		NA		NA		NA		NA		1.10	%	1.10	%

	GOVERNMENT INCOME		INFLATION PROTECTED BOND		GNMA		MANAGED INCOME		INTERNATIONAL BOND		HIGH YIELD BOND
BlackRock	0.45	%	0.30	%	0.45	%	NA		0.78	%	0.55	%
Institutional	0.70	%1	0.40	%	0.60	%	0.65	%	1.03	%	0.70	%
Service	0.90	%	0.75	%	0.90	%	0.95	%	1.33	%	1.00	%
Investor A	1.07	%	0.85	%	1.07	%	1.12	%	1.19	%	0.96	%
Investor A1	NA		NA		NA		NA		NA		NA
Investor B	1.82	%	1.60	%	1.82	%	1.87	%	2.25	%	1.71	%
Investor B1	1.47	%1	NA		NA		NA		NA		1.44	%1
Investor B2	NA		NA		NA		NA		NA		NA
Investor C	1.82	%	1.60	%	1.82	%	1.87	%	2.25	%	1.71	%
Investor C1	1.53	%1	NA		NA		NA		NA		1.49	%1
Investor C2	NA		NA		NA		NA		NA		NA
R	1.21	%1	NA		NA		NA		NA		1.17	%1

¹ BlackRock has agreed to voluntarily waive or reimburse certain fees or expenses to limit expenses as stated above. The voluntary waiver or reimbursement may be reduced or discontinued at any time; however, BlackRock has agreed not to reduce or discontinue this waiver or reimbursement for a period of two years after the closing of the Reorganization unless approved by the trustees of the Fund, including a majority of the non-interested trustees.

If within two years following a waiver or reimbursement the operating expenses of a share class that previously received a waiver or reimbursement from BlackRock are less than the expense limit for that share class, the share class is required to repay BlackRock up to the amount of fees waived or expenses reimbursed under the agreement if: (1) the Portfolio of which the share class is a part has more than $50 million in assets, (2) BlackRock or an affiliate continues to be the Portfolio’s investment advisor or administrator and (3) the Board of the Fund has approved the payments to BlackRock at the previous quarterly meeting.

187

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Under terms of the Agreement and Plan of Reorganization of the State Street Government Income Fund and the State Street High Income Fund, fees waived by BlackRock through February 1, 2007, on the Institutional, Investor A, Investor B, and Investor C Share classes of the Intermediate Government Bond Portfolio and the High Yield Bond Portfolio are not subject to future recoupment by BlackRock.

At March 31, 2007, the amounts subject to possible future reimbursement under the expense limitation agreement were as follows:

	EXPIRING JANUARY 31, 2008		EXPIRING JANUARY 31, 2009		EXPIRING JANUARY 31, 2010		TOTAL WAIVERS SUBJECT TO REIMBURSEMENT
Enhanced Income	$	237,516	$	166,825	$	24,248	$	428,589
Low Duration Bond		3,977,877		2,571,371		294,544		6,843,792
Intermediate Government Bond		—		—		40,501		40,501
Intermediate Bond		178,282		141,601		34,171		354,054
Intermediate Bond II		2,101,789		1,296,977		191,803		3,590,569
Total Return		1,116,993		1,032,894		195,165		2,345,052
Total Return II		5,856,434		3,912,240		644,834		10,413,508
Government Income		787,864		319,873		300		1,108,037
Inflation Protected Bond		256,149		187,402		27,580		471,131
GNMA		661,884		220,588		76,480		958,952
Managed Income		1,200,201		102,081		5,195		1,307,477
International Bond		55,064		195,677		9,606		260,347
High Yield Bond		—		—		140,580		140,580

The following waivers previously recorded by the Portfolios, which were subject to recoupment by BlackRock expired on January 31, 2007:

Enhanced Income	$	271,986
Low Duration Bond		4,373,486
Intermediate Bond		146,763
Intermediate Bond II		2,070,723
Total Return		941,716
Total Return II		5,428,876
Government Income		363,760
Inflation Protected Bond		182,698
GNMA		696,440
Managed Income		1,236,727
International Bond		26,818

For the six months ended March 31, 2007, Merrill Lynch, through their affiliated broker dealer, Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), earned commissions on transactions of securities as follows:

Enhanced Income	$	68
Intermediate Government Bond		51
Intermediate Bond		84
Intermediate Bond II		2,983
Total Return II		6,455
GNMA		449

188

BLACKROCK FUNDS

For the six months ended March 31, 2007, the Distributor and its affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of Portfolio’s Investor A Shares as follows:

Enhanced Income	$	13
Low Duration Bond		8,019
Intermediate Government Bond		510
Intermediate Bond		494
Intermediate Bond II		5,509
Total Return		12,410
Total Return II		117,792
Government Income		34,243
Inflation Protected Bond		8,611
GNMA		2,401
Managed Income		3,146
International Bond		5,670
High Yield Bond		129,180

For the six months ended March 31, 2007, affiliates received the following contingent deferred sales charges relating to transactions in Investor B, B1, B2, C, C1 and C2 Classes:

SHARE CLASSES	LOW DURATION BOND		INTERMEDIATE GOVERNMENT BOND		INTERMEDIATE BOND		INTERMEDIATE BOND II		TOTAL RETURN		TOTAL RETURN II
Investor B	$	26,259	$	3,183	$	—	$	4,027	$	—	$	27,327
Investor B1		2,708		—		—		—		—		—
Investor B2		761		—		—		—		—		—
Investor C		252		720		43		70		21		2,488
Investor C1		1,381		—		—		—		—		—
Investor C2		103		—		—		—		—		—

SHARE CLASSES	GOVERNMENT INCOME		INFLATION PROTECTED BOND		GNMA		MANAGED INCOME		INTERNATIONAL BOND		HIGH YIELD BOND
Investor B	$	4,905	$	18,717	$	6,692	$	2,221	$	4,576	$	16,330
Investor B1		37,564		—		—		—		—		33,281
Investor C		1,372		1,752		61		28		1,148		1,215
Investor C1		2,660		—		—		—		—		252

For the six months ended March 31, 2007, short term investments in companies assumed to be an affiliate of the Portfolios were as follows:

	AFFILIATED INVESTMENTS	NET ACTIVITY			MARKET VALUE OF AFFILIATES AT MARCH 31, 2007
Enhanced Income	Institutional Money Market Trust	$	(45,900	)	$	—
Low Duration	Institutional Money Market Trust		1,408,500			5,871,000
Intermediate Bond II	Institutional Money Market Trust		(17,558,650	)		1,162,800
Total Return	Institutional Money Market Trust		(2,013,300	)		—
Total Return II	Institutional Money Market Trust		(9,365,811	)		1,690,000
Managed Income	Institutional Money Market Trust		(2,576,100	)		—
High Yield	Institutional Money Market Trust		30,213,758			129,766,175

189

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

For the six months ended March 31, 2007, long term investments in companies assumed to be an affiliate of the Portfolios were as follows:

	AFFILIATED INVESTMENTS	BEGINNING PAR/NOTIONAL AMOUNT		PURCHASES		SALES			ENDING PAR/NOTIONAL AMOUNT		NET REALIZED GAIN (LOSS)			INTEREST/ AMORTIZATION INCOME		MARKET VALUE OF AFFILIATES AT MARCH 31, 2007
Enhanced Income	Merrill Lynch Mortgage Investors Trust, Series 05-FF6, Class N1	$	—	$	82,299	$	(8,168	)	$	74,131	$	219		$	316	$	73,514
	Merrill Lynch Mortgage Investors, Inc., Series 97-B, Class A		455,830		—		(91,257	)		364,573		560			8,722		364,830
	Merrill Lynch Mortgage Investors, Inc., Series 04-A4, Class A2		414,501		—		(16,900	)		397,601		—			4,544		395,704
	Merrill Lynch Mortgage Investors, Inc., Series 04-E, Class A2A		182,860		—		(51,006	)		131,854		128			11,752		132,121
	Merrill Lynch Mortgage Trust, Series 02-MW1, Class XP (IO)		2,187,846		—		—			2,187,846		—			1,495		67,562
Low Duration	Federal Housing Authority, Merrill Lynch Project, Pool 42		5,174		—		(105	)		5,069		2			176		5,132
	Merrill Lynch Mortgage Investors, Inc., Series 97-B, Class A		1,177,344		—		(235,705	)		941,639		10,112			216,481		942,303
	Merrill Lynch Mortgage Investors, Inc., Series 99-A, Class A		616,909		—		(140,403	)		476,506		390			30,401		477,806
	Merrill Lynch Mortgage Investors, Inc., Series 04-A4, Class A2		10,283,915		—		(419,304	)		9,864,611		(25	)		15,629		9,817,545
Intermediate Government	Federal Housing Authority, Merrill Lynch Project, Series 29, Class 1A1		426,214		—		(7,943	)		418,271		(110	)		15,538		423,253
Total Return	Merrill Lynch Mortgage Investors, Inc., Series 05-HE2, Class A2A		1,361,255		—		(393,523	)		967,732		—			32,579		967,878
Total Return II	Merrill Lynch Mortgage Investors, Inc., Series 03-KEY1, Class A4		7,100,000		—		—			7,100,000		—			170,759		7,089,621
Government Income	Federal Housing Authority, Merrill Lynch Project, Pool 42		627		—		(13	)		614		—			24		622
GNMA	Federal Housing Authority, Merrill Lynch Project, Pool 42		3,282		—		(56	)		3,226		—			119		3,265
Managed Income	Merrill Lynch Mortgage Investors, Inc., Series 05-HE2, Class A2A		2,829,275		—		(817,911	)		2,011,364		—			67,714		2,011,667

190

BLACKROCK FUNDS

In addition to the above income earned on affiliated investments, the Portfolios may earn income on positive cash balances in demand deposit accounts that are maintained by PFPC on behalf of the Portfolios. The income earned for the six months ended March 31, 2007 is as follows:

Enhanced Income	$	4
Low Duration Bond		1,545
Intermediate Government Bond		2,708
Intermediate Bond		6
Intermediate Bond II		238
Total Return		31
Total Return II		1,520
Government Income		1,639
Inflation Protected Bond		104
GNMA		267
Managed Income		113
International Bond		3,063
High Yield Bond		9,260

The Portfolios may also receive earnings credits related to cash balances with PFPC which are shown on the Statements of Operations as “fees paid indirectly.”

Through agreements with PTC and BlackRock Investment Management, LLC (“BIML”), the Portfolios may lend portfolio securities to certain brokers, dealers or other financial institutions that pay the Portfolios a negotiated fee. Prior to the close of each business day, loans of U.S. securities are secured by collateral equal to at least 102% of the market value of the securities on loan. Loans of foreign securities are secured by collateral equal to at least 105% of the market value of securities on loan. However, due to market fluctuations, the value of the securities lent may exceed the value of the collateral. On the next business day, the collateral is adjusted based on the prior day’s market fluctuations and the current day’s lending activity. Cash collateral received in connection with the securities lending is invested in short-term investments by PTC. PTC has hired BlackRock Capital Management, Inc. (“BCM”), an indirect wholly-owned subsidiary of BlackRock, Inc., and pays BCM to provide advisory services with respect to the collateral of all of the clients of its securities lending program. PTC and BIML may invest such collateral in short-term investments, including the Institutional Money Market Trust (the “Trust”), an affiliate of the Fund, a portfolio of money market securities, or high-quality, short-term instruments with a maturity date not to exceed 397 days. The securities lending income included in the accompanying Statements of Operations is principally derived from investments in the Trust and accordingly represents income earned from an affiliate. BCM serves as investment advisor to the Trust but receives no fees from the Trust for these services. Administrative and accounting services for the Trust are provided by PFPC, an indirect wholly-owned subsidiary of PNC. PFPC is paid a fee from the Trust at an annual rate not to exceed 0.10% of the Trust’s average daily net assets. At March 31, 2007, the market value of securities on loan, cash collateral invested in the Trust and total value of collateral held in connection with securities lending is summarized as follows:

	MARKET VALUE OF SECURITIES ON LOAN		MARKET VALUE OF CASH COLLATERAL INVESTED IN AFFILIATE		TOTAL MARKET VALUE OF COLLATERAL RECEIVED
Low Duration Bond	$	5,735,160	$	5,871,000	$	5,871,000
Intermediate Bond II		1,128,686		1,162,800		1,162,800
Total Return II		1,633,125		1,690,000		1,690,000
High Yield Bond		123,475,242		129,766,175		129,766,175

In the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral may be subject to legal proceedings.

191

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

In October of 2006, BlackRock determined that the International Bond Portfolio violated a fundamental investment policy. The Portfolio invested in a security and, as a result, over 25% of the Portfolio’s assets were invested in such securities. The Portfolio sold the securities so that its total investments were below 25% and BlackRock reimbursed the Portfolio for the realized losses incurred from the date of the violation (September 25, 2006) through October 5, 2006. The amount of the reimbursement for the realized losses was $17,441.

(E) Purchases and Sales of Securities

For the six months ended March 31, 2007 purchases and sales of securities, but excluding short-term investments, dollar rolls and U.S. government securities, were as follows:

	PURCHASES		SALES
Enhanced Income	$	8,666,188	$	17,967,732
Low Duration Bond		644,272,111		787,588,543
Intermediate Government Bond		71,235,858		176,228,684
Intermediate Bond		3,867,765		24,410,164
Intermediate Bond II		191,640,885		439,736,528
Total Return		351,708,276		382,648,060
Total Return II		2,536,661,533		2,519,111,623
Government Income		5,460,519,295		5,234,950,095
Inflation Protected Bond		10,076,503		9,148,289
GNMA		212,666,096		172,012,854
Managed Income		454,234,777		506,959,724
International Bond		207,390,214		273,986,667
High Yield Bond		985,965,682		555,953,067

For the six months ended March 31, 2007, purchases and sales of U.S. government securities were as follows:

	PURCHASES		SALES
Enhanced Income	$	1,898,508	$	2,240,399
Low Duration Bond		138,123,899		143,380,403
Intermediate Government Bond		59,147,041		61,136,039
Intermediate Bond		5,346,916		5,765,673
Intermediate Bond II		107,128,945		119,235,955
Total Return		147,290,051		112,944,220
Total Return II		1,620,438,074		1,017,891,524
Government Income		5,113,357,327		5,174,522,925
Inflation Protected Bond		112,381,611		121,163,200
GNMA		119,763,453		115,138,836
Managed Income		155,557,686		130,532,311
International Bond		46,319,382		45,749,582

192

BLACKROCK FUNDS

(F) Capital Shares

Transactions in capital shares for each period were as follows:

	ENHANCED INCOME
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
BlackRock Class	294,922		$	2,900,000		396,648		$	3,904,172
Institutional Class	401,190			3,948,861		2,153,375			21,175,941
Service Class	3,397			32,920		9,634			93,220
Investor A Class	33,651			331,345		5,517			54,214
Shares issued in reinvestment of dividends:
BlackRock Class	10,438			102,841		16,156			158,868
Institutional Class	24			229		105			1,030
Service Class	67			651		39			375
Investor A Class	152			1,495		17			169
Shares redeemed:
BlackRock Class	(1,611	)		(15,858	)	(965,738	)		(9,479,437	)
Institutional Class	(1,617,664	)		(15,932,795	)	(2,246,692	)		(22,082,627	)
Service Class	(863	)		(8,382	)	(12,478	)		(120,624	)
Investor A Class	(28,235	)		(278,106	)	(531	)		(5,195	)
Net decrease	(904,532	)	$	(8,916,799	)	(643,948	)	$	(6,299,894	)

193

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	LOW DURATION BOND
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares issued from the reorganization:
Institutional Class	880,899		$	8,430,504		—		$	—
Investor A Class	1,048,985			10,470,319		—			—
Investor A1 Class	4,829,200			47,601,726		—			—
Investor B1 Class	214,159			2,137,645		—			—
Investor B2 Class	1,986,574			19,681,724		—			—
Investor C1 Class	1,371,898			13,776,204		—			—
Investor C2 Class	3,597,942			36,664,887		—			—
Shares sold:
BlackRock Class	9,445,740			93,283,797		15,488,105			152,493,902
Institutional Class	2,932,140			28,932,438		5,215,267			51,427,952
Service Class	2,750,664			27,141,505		9,800,073			96,621,097
Investor A Class	1,177,884			11,622,586		4,422,863			43,620,306
Investor A1 Class	394,160			3,789,593		—			—
Investor B Class	123,316			1,218,881		331,107			3,261,726
Investor B1 Class	32,347			315,389		—			—
Investor B2 Class	71,112			649,634		—			—
Investor C Class	264,218			2,609,645		952,613			9,386,370
Investor C1 Class	18,741			158,073		—			—
Investor C2 Class	8,072			15,621		—			—
Shares issued in reinvestment of dividends:
BlackRock Class	902,612			8,905,897		1,799,615			17,717,827
Institutional Class	103,353			1,020,975		102,576			1,010,990
Service Class	482,185			4,762,277		1,301,299			12,821,898
Investor A Class	126,463			1,249,166		233,499			2,301,653
Investor A1 Class	1,978			19,553		—			—
Investor B Class	37,015			365,545		67,707			667,252
Investor B1 Class	2,730			26,947		—			—
Investor B2 Class	22,233			229,314		—			—
Investor C Class	59,413			586,470		76,278			751,247
Investor C1 Class	15,511			153,157		—			—
Investor C2 Class	32,919			324,985		—			—
Shares redeemed:
BlackRock Class	(18,797,933	)		(185,887,454	)	(17,191,663	)		(169,317,426	)
Institutional Class	(6,346,660	)		(62,658,535	)	(21,351,057	)		(210,515,375	)
Service Class	(3,837,026	)		(37,866,122	)	(24,089,426	)		(237,219,746	)
Investor A Class	(2,808,422	)		(27,745,564	)	(4,972,464	)		(48,996,302	)
Investor A1	(707,303	)		(6,988,041	)	—			—
Investor B Class	(762,652	)		(7,527,575	)	(1,789,881	)		(17,641,110	)
Investor B1 Class	(90,421	)		(894,597	)	—			—
Investor B2 Class	(589,310	)		(5,809,741	)	—			—
Investor C Class	(1,270,087	)		(12,527,515	)	(3,217,310	)		(31,694,419	)
Investor C1 Class	(254,288	)		(2,507,987	)	—			—
Investor C2 Class	(472,405	)		(4,660,848	)	—			—
Net decrease	(3,002,044	)	$	(28,929,522	)	(32,820,799	)	$	(323,302,158	)

194

BLACKROCK FUNDS

	INTERMEDIATE GOVERNMENT BOND
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	1,747,274		$	17,751,259		2,637,806		$	26,657,837
Service Class	222,159			2,262,113		39,098			396,044
Investor A Class	1,004,039			10,233,679		2,444,179			24,574,587
Investor B Class	40,930			416,501		234,020			2,359,921
Investor C Class	79,890			814,399		204,347			2,063,312
Shares issued in reinvestment of dividends:
Institutional Class	84,076			855,932		132,395			1,335,843
Service Class	2,908			29,573		1,585			15,970
Investor A Class	377,649			3,853,937		626,165			6,333,864
Investor B Class	57,228			582,573		134,744			1,360,044
Investor C Class	15,659			159,488		23,762			239,940
Shares redeemed:
Institutional Class	(1,883,743	)		(19,164,525	)	(5,100,812	)		(51,493,023	)
Service Class	(186,332	)		(1,893,200	)	(41,316	)		(418,680	)
Investor A Class	(3,517,799	)		(35,851,387	)	(8,766,570	)		(88,580,775	)
Investor B Class	(1,070,833	)		(10,888,543	)	(2,680,709	)		(27,044,983	)
Investor C Class	(228,132	)		(2,321,290	)	(781,367	)		(7,896,279	)
Net decrease	(3,255,027	)	$	(33,159,491	)	(10,892,673	)	$	(110,096,378	)
	INTERMEDIATE BOND
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
BlackRock Class	70,701		$	690,000		42,059		$	410,084
Institutional Class	41,099			414,920		3,284			33,004
Service Class	1,967			20,002		—			—
Investor A Class	19,909			198,047		2,491			24,647
Investor B Class	42,539			422,635		—			—
Investor C Class	122,166			1,233,569		—			—
Shares issued in reinvestment of dividends:
BlackRock Class	20,952			204,517		101,130			979,126
Institutional Class	459			4,622		—			—
Investor A Class	246			2,442		157			1,546
Investor B Class	349			3,459		—			—
Investor C Class	578			5,828		—			—
Shares redeemed:
BlackRock Class	(2,303,779	)		(22,526,927	)	(91,514	)		(889,355	)
Institutional Class	(77,534	)		(784,121	)	(5,114	)		(51,590	)
Investor A Class	(812	)		(8,039	)	—			—
Investor B Class	(4,133	)		(40,949	)	—			—
Investor C Class	(17,647	)		(178,464	)	—			—
Net increase (decrease)	(2,082,940	)	$	(20,338,459	)	52,493		$	507,462

195

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	INTERMEDIATE BOND II
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
BlackRock Class	1,724,184		$	15,986,108		15,127,094		$	138,742,996
Institutional Class	4,214,775			38,969,006		10,491,748			96,435,757
Service Class	3,771,703			34,848,612		12,683,707			115,919,423
Investor A Class	851,553			7,861,612		1,152,420			10,582,185
Investor B Class	42,528			393,424		124,901			1,146,363
Investor C Class	123,118			1,138,741		272,672			2,508,469
Shares issued in reinvestment of dividends:
BlackRock Class	732,689			6,773,508		1,371,020			12,592,788
Institutional Class	197,823			1,828,275		187,286			1,718,393
Service Class	473,812			4,380,819		468,809			4,308,204
Investor A Class	63,918			590,524		97,052			891,770
Investor B Class	11,556			106,788		15,571			143,130
Investor C Class	14,724			136,165		13,774			126,687
Shares redeemed:
BlackRock Class	(4,208,997	)		(38,995,509	)	(20,186,388	)		(185,384,030	)
Institutional Class	(7,076,507	)		(65,473,760	)	(11,584,459	)		(106,496,157	)
Service Class	(2,359,459	)		(21,801,965	)	(3,354,369	)		(30,841,057	)
Investor A Class	(938,563	)		(8,677,477	)	(1,622,858	)		(14,953,573	)
Investor B Class	(147,999	)		(1,368,009	)	(417,817	)		(3,834,644	)
Investor C Class	(209,419	)		(1,938,240	)	(363,761	)		(3,345,291	)
Net increase (decrease)	(2,718,561	)	$	(25,241,378	)	4,476,402		$	40,261,413
	TOTAL RETURN
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
BlackRock Class	10,196,921		$	103,587,981		5,049,078		$	50,837,050
Institutional Class	209,011			2,110,885		440,163			4,430,195
Service Class	1,959			20,000		—			—
Investor A Class	96,165			976,542		27,739			277,273
Investor B Class	56,170			570,021		10,232			103,086
Investor C Class	219,855			2,230,378		7,331			73,530
R Class	2,000			20,300		—			—
Shares issued in reinvestment of dividends:
BlackRock Class	905,634			9,179,588		1,462,174			14,732,053
Institutional Class	2,656			26,750		565			5,629
Investor A Class	1,655			16,781		598			6,029
Investor B Class	824			8,356		538			5,426
Investor C Class	1,826			18,494		257			2,588
Shares redeemed:
BlackRock Class	(719,578	)		(7,298,229	)	(2,122,689	)		(21,359,972	)
Institutional Class	(56,794	)		(573,015	)	(4,233	)		(42,349	)
Investor A Class	(12,285	)		(124,436	)	(7,489	)		(75,802	)
Investor B Class	(6,743	)		(68,335	)	(1,761	)		(17,707	)
Investor C Class	(12,892	)		(130,126	)	(2,621	)		(26,129	)
R Class	(30	)		(300	)	—			—
Net increase	10,886,354		$	110,571,635		4,859,882		$	48,950,900

196

BLACKROCK FUNDS

	TOTAL RETURN II
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
BlackRock Class	23,436,019		$	223,254,565		30,190,637		$	285,487,123
Institutional Class	45,993,969			436,719,034		30,416,873			286,818,541
Service Class	9,919,603			94,332,792		2,527,980			23,887,104
Investor A Class	4,618,584			43,937,272		9,305,497			87,890,151
Investor B Class	382,203			3,634,140		653,078			6,161,904
Investor C Class	2,215,191			21,091,700		1,433,563			13,528,099
R Class	2,127			20,225		—			—
Shares issued in reinvestment of dividends:
BlackRock Class	2,908,205			27,702,178		6,194,001			58,563,751
Institutional Class	939,158			8,923,126		656,793			6,205,258
Service Class	133,010			1,265,783		545,060			5,142,052
Investor A Class	472,300			4,493,800		864,274			8,159,129
Investor B Class	52,128			495,794		76,464			721,298
Investor C Class	80,742			767,813		47,237			446,099
Shares redeemed:
BlackRock Class	(27,657,630	)		(263,420,921	)	(26,289,700	)		(248,375,426	)
Institutional Class	(8,712,957	)		(82,801,073	)	(13,429,768	)		(126,492,800	)
Service Class	(17,882,708	)		(170,096,346	)	(6,041,148	)		(57,036,078	)
Investor A Class	(3,405,094	)		(32,365,170	)	(7,504,999	)		(70,823,431	)
Investor B Class	(788,708	)		(7,491,186	)	(1,775,248	)		(16,736,501	)
Investor C Class	(950,624	)		(9,039,347	)	(2,505,788	)		(23,652,978	)
Investor R Class	(16	)		(150	)	—			—
Net increase	31,755,502		$	301,424,029		25,364,806		$	239,893,295

197

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	GOVERNMENT INCOME
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares issued from the reorganization:
Institutional Class	28,675,353		$	302,162,946		—		$	—
Investor A Class	62,249,281			657,659,815		—			—
Investor B1 Class	21,093,933			241,675,355		—			—
Investor C1 Class	20,028,287			220,637,708		—			—
R Class	3,080,096			33,032,973		—			—
Shares sold:
BlackRock Class	2,215			21,446		—			—
Institutional Class	6,144,773			65,098,033		—			—
Service Class	34,399			470,258		4,555,613			48,762,544
Investor A Class	24,436,854			260,843,874		13,481,578			144,020,281
Investor B Class	167,737			1,795,772		498,709			5,343,424
Investor B1 Class	924,829			9,534,482		—			—
Investor C Class	587,806			6,297,449		1,015,508			10,833,488
Investor C1 Class	3,307,451			34,941,149		—			—
R Class	942,462			10,033,131		—			—
Shares issued in reinvestment of dividends:
BlackRock Class	22,165			238,077		37,744			403,136
Institutional Class	591,110			6,347,176		—			—
Service Class	200			2,146		806,401			8,595,924
Investor A Class	1,691,550			18,177,189		699,831			7,472,465
Investor B Class	41,404			445,060		64,331			687,599
Investor B1 Class	278,366			2,991,970		—			—
Investor C Class	49,498			531,035		53,604			571,501
Investor C1 Class	291,342			3,125,222		—			—
R Class	65,008			697,879		—			—
Shares redeemed:
BlackRock Class	(373	)		(4,002	)	—			—
Institutional Class	(9,248,226	)		(99,388,975	)	—			—
Service Class	(740	)		(7,967	)	(24,888,899	)		(266,066,459	)
Investor A Class	(14,055,264	)		(150,854,335	)	(8,006,454	)		(85,301,603	)
Investor B Class	(499,720	)		(5,370,873	)	(1,472,006	)		(15,718,597	)
Investor B1 Class	(4,055,716	)		(43,581,263	)	—			—
Investor C Class	(507,590	)		(5,447,364	)	(819,858	)		(8,716,183	)
Investor C1 Class	(4,380,169	)		(46,837,589	)	—			—
R Class	(500,401	)		(5,373,467	)	—			—
Net increase (decrease)	141,457,920		$	1,519,894,310		(13,973,898	)	$	(149,112,480	)

198

BLACKROCK FUNDS

	INFLATION PROTECTED BOND
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares issued from the reorganization:
Institutional Class	448,788		$	4,552,814		—		$	—
Investor A Class	1,084,642			10,916,124		—			—
Investor B Class	1,091,714			11,002,141		—			—
Investor C Class	4,083,401			41,164,123		—			—
Shares sold:
BlackRock Class	149			1,448		7,416			74,450
Institutional Class	256,522			2,525,362		1,227,899			12,555,817
Service Class	242,009			2,410,300		258			2,600
Investor A Class	471,605			4,616,588		348,929			3,474,988
Investor B Class	24,646			225,976		141,888			1,429,351
Investor C Class	266,983			2,576,163		268,102			2,691,598
Shares issued in reinvestment of dividends:
BlackRock Class	822			7,972		21,987			218,426
Institutional Class	6,380			63,210		19,141			194,247
Service Class	4			66		19			194
Investor A Class	8,299			82,036		19,729			198,238
Investor B Class	2,390			23,714		9,487			95,621
Investor C Class	9,079			90,361		12,414			125,682
Shares redeemed:
BlackRock Class	(1,517,541	)		(14,917,264	)	(431,257	)		(4,268,345	)
Institutional Class	(267,496	)		(2,646,201	)	(291,786	)		(2,929,436	)
Service Class	(12,888	)		(129,800	)	—			—
Investor A Class	(537,281	)		(5,266,356	)	(340,239	)		(3,382,320	)
Investor B Class	(320,104	)		(3,148,722	)	(134,779	)		(1,329,350	)
Investor C Class	(974,658	)		(9,661,407	)	(175,178	)		(1,752,622	)
Net increase	4,367,465		$	44,488,648		704,030		$	7,399,139

199

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	GNMA
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
BlackRock Class	13,089		$	125,000		31,153		$	300,000
Institutional Class	1,516,779			14,480,934		1,654,540			15,739,253
Service Class	167,094			1,594,831		241,056			2,295,620
Investor A Class	298,281			2,861,529		595,974			5,687,757
Investor B Class	21,941			209,604		121,814			1,162,042
Investor C Class	160,849			1,535,579		127,177			1,210,789
Shares issued in reinvestment of dividends:
BlackRock Class	32,746			312,558		64,953			618,599
Institutional Class	7,152			68,088		9,581			91,446
Service Class	1,391			13,275		6,981			66,659
Investor A Class	30,413			291,651		58,888			563,898
Investor B Class	22,003			210,313		49,838			476,137
Investor C Class	23,978			228,991		28,217			269,220
Shares redeemed:
BlackRock Class	(13,253	)		(126,431	)	(1,653	)		(15,800	)
Institutional Class	(676,009	)		(6,457,424	)	(2,844,785	)		(27,137,128	)
Service Class	(145,297	)		(1,385,225	)	(277,586	)		(2,625,522	)
Investor A Class	(233,037	)		(2,235,126	)	(749,895	)		(7,164,096	)
Investor B Class	(257,417	)		(2,462,658	)	(678,075	)		(6,471,525	)
Investor C Class	(273,215	)		(2,609,502	)	(863,182	)		(8,231,218	)
Net increase (decrease)	697,488		$	6,655,987		(2,425,004	)	$	(23,163,869	)

	MANAGED INCOME
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	3,310,538		$	33,068,168		8,330,504		$	82,997,933
Service Class	3,994,654			39,954,428		9,338,375			92,895,852
Investor A Class	170,917			1,710,585		442,473			4,395,880
Investor B Class	20,872			209,642		167,320			1,654,895
Investor C Class	64,415			644,273		53,253			526,759
Shares issued in reinvestment of dividends:
Institutional Class	26,036			260,766		306,794			3,076,633
Service Class	270,807			2,712,215		361,367			3,596,263
Investor A Class	43,818			439,014		118,934			1,186,039
Investor B Class	6,001			60,116		12,049			120,150
Investor C Class	1,464			14,629		1,744			17,319
Shares redeemed:
Institutional Class	(5,177,094	)		(51,773,495	)	(10,346,995	)		(103,148,189	)
Service Class	(1,874,847	)		(18,770,780	)	(2,650,327	)		(26,388,726	)
Investor A Class	(434,659	)		(4,360,937	)	(1,054,827	)		(10,526,418	)
Investor B Class	(86,712	)		(867,198	)	(315,485	)		(3,134,548	)
Investor C Class	(37,700	)		(374,963	)	(56,825	)		(562,819	)
Net increase	298,510		$	2,926,463		4,708,354		$	46,707,023

200

BLACKROCK FUNDS

	INTERNATIONAL BOND
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
BlackRock Class	7,867,501		$	87,272,494		8,926,593		$	97,755,494
Institutional Class	2,301,549			25,363,965		7,491,506			81,872,709
Service Class	1,165,055			12,966,750		2,778,377			30,072,436
Investor A Class	1,471,808			16,224,807		4,201,513			45,909,414
Investor B Class	24,608			273,435		204,847			2,237,539
Investor C Class	475,261			5,260,283		1,084,469			11,823,215
Shares issued in reinvestment of dividends:
BlackRock Class	50,230			560,959		137,615			1,498,351
Institutional Class	69,405			772,405		145,049			1,575,719
Service Class	64,104			714,180		171,917			1,868,726
Investor A Class	110,636			1,233,013		274,553			2,986,268
Investor B Class	6,978			77,770		17,979			195,243
Investor C Class	24,164			269,955		49,160			535,287
Shares redeemed:
BlackRock Class	(11,185,885	)		(124,167,606	)	(4,758,353	)		(51,446,541	)
Institutional Class	(2,639,955	)		(29,253,686	)	(17,841,077	)		(192,461,113	)
Service Class	(1,675,900	)		(18,519,533	)	(5,929,575	)		(63,889,539	)
Investor A Class	(3,566,943	)		(39,483,045	)	(7,989,804	)		(86,721,213	)
Investor B Class	(198,907	)		(2,195,697	)	(582,201	)		(6,325,843	)
Investor C Class	(712,268	)		(7,896,092	)	(2,387,560	)		(25,890,328	)
Net decrease	(6,348,559	)	$	(70,525,643	)	(14,004,992	)	$	(148,404,176	)

201

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	HIGH YIELD BOND
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares issued from the reorganization:
Institutional Class	1,160,158		$	(6,757,092	)	—		$	—
Investor A Class	4,678,862			31,638,531		—			—
Investor B1 Class	14,157,075			144,704,083		—			—
Investor C1 Class	6,704,800			48,328,493		—			—
Investor R Class	499,058			3,817,947		—			—
Shares sold:
BlackRock Class	16,201,024			131,474,197		12,594,569			99,376,124
Institutional Class	6,394,689			51,982,069		8,418,634			66,508,208
Service Class	8,343,301			67,580,623		19,370,000			152,729,927
Investor A Class	14,665,056			119,397,687		28,105,445			220,891,352
Investor B Class	276,953			2,245,652		1,285,186			10,131,938
Investor B1 Class	61,446			205,527		—			—
Investor C Class	1,974,643			16,074,587		1,893,002			14,940,964
Investor C1 Class	135,277			948,256		—			—
R Class	208,379			1,675,753		—			—
Shares issued in reinvestment of dividends:
BlackRock Class	985,276			8,031,085		1,862,212			14,685,047
Institutional Class	211,140			1,720,988		474,871			3,740,980
Service Class	556,395			4,533,799		1,037,633			8,176,339
Investor A Class	1,594,682			12,988,182		2,406,865			18,974,594
Investor B Class	227,009			1,846,819		695,634			5,486,675
Investor B1 Class	160,451			1,307,693		—			—
Investor C Class	154,441			1,258,995		270,824			2,137,143
Investor C1 Class	98,286			802,244		—			—
R Class	16,638			135,744		—			—
Shares redeemed:
BlackRock Class	(6,236,533	)		(50,856,870	)	(7,646,440	)		(60,731,519	)
Institutional Class	(4,499,801	)		(36,552,021	)	(7,399,495	)		(58,510,517	)
Service Class	(4,762,566	)		(38,745,017	)	(10,726,431	)		(84,773,733	)
Investor A Class	(6,821,168	)		(55,550,532	)	(9,581,567	)		(75,673,141	)
Investor B Class	(1,832,105	)		(14,849,330	)	(4,565,496	)		(36,037,431	)
Investor B1 Class	(2,104,721	)		(17,097,190	)	—			—
Investor C Class	(663,398	)		(5,396,082	)	(1,782,575	)		(14,098,034	)
Investor C1 Class	(855,935	)		(6,979,645	)	—			—
Investor R Class	(114,009	)		(927,519	)	—			—
Net increase	51,574,803		$	418,987,656		36,712,871		$	287,954,916

There is a 2% redemption fee on shares of the High Yield Bond and International Bond Portfolios redeemed or exchanged which have been held 30 days or less. The redemption fees are collected and retained by the Fund for the benefit of the remaining shareholders. The redemption fees are recorded as a credit to paid in capital.

On March 31, 2007, two shareholders held approximately 95% of the outstanding shares of the Enhanced Income Portfolio, two shareholders held approximately 31% of the outstanding shares of the Low Duration Bond Portfolio, two shareholders held approximately 41% of the outstanding shares of the Intermediate Government Bond Portfolio, four shareholders held approximately 90% of the outstanding shares of the Intermediate Bond Portfolio, five shareholders held approximately 70% of the Intermediate Bond Portfolio II, eight shareholders held approximately 72% of the outstanding shares of the Total Return Portfolio, two shareholders held approximately 39% of the outstanding shares of the Total Return Portfolio II, one shareholder held approximately 79% of the outstanding shares of the Government Income Portfolio, two shareholders held approximately 86% of the outstanding shares of the Inflation Protected Bond Portfolio, three shareholders held approximately 74% of the outstanding shares of the GNMA Portfolio, two

202

BLACKROCK FUNDS

shareholders held approximately 90% of the outstanding shares of the Managed Income Portfolio, one shareholder held approximately 16% of the outstanding shares of the International Bond Portfolio and four shareholders held approximately 26% of the outstanding shares of the High Yield Bond Portfolio. Some of the shareholders are comprised of omnibus accounts, which are held on behalf of several individual shareholders.

(G) Short-Term Borrowings

Effective November 29, 2006, the Portfolios, along with certain other funds managed by the Advisor and its affiliates, is a party to a $500,000,000 credit agreement dated November 22, 2006, with a group of lenders. The Portfolios may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Portfolios may borrow up to the maximum amount allowable under the Portfolios’ current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The credit agreement is for one year. The Portfolios pay a commitment fee of 0.06% per annum based on the Portfolios’ pro rata share of the unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each Portfolio’s election, the federal funds rate plus .35% or a base rate as defined in the credit agreement. The Portfolios did not borrow under the credit agreement during the six months ended March 31, 2007.

(H) Federal Tax Information

No provision is made for Federal taxes as it is the Portfolios’ intention to continue to qualify for and elect the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, and to make the requisite distributions to its shareholders which will be sufficient to relieve it from federal income and excise taxes.

Dividends from net investment income and distributions from net capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined under accounting principles generally accepted in the United States.

The tax character of distributions paid during the year ended September 30, 2006 was as follows:

	ORDINARY INCOME		TAX RETURN OF CAPITAL		LONG-TERM CAPITAL GAIN		TOTAL DISTRIBUTIONS
Enhanced Income 9/30/06	$	2,332,061	$	—	$	—	$	2,332,061
Low Duration Bond 9/30/06		53,997,505		—		—		53,997,505
Intermediate Government Bond 9/30/06		20,929,635		—		—		20,929,635
Intermediate Bond 9/30/06		1,388,371		—		—		1,388,371
Intermediate Bond II 9/30/06		37,013,354		—		—		37,013,354
Total Return 9/30/06		16,705,888		—		606,211		17,312,099
Total Return II 9/30/06		123,744,916		—		7,736,766		131,481,682
Government Income 9/30/06		22,605,864		—		—		22,605,864
Inflation Protected Bond 9/30/06		3,216,010		—		242,638		3,458,648
GNMA 9/30/06		9,516,440		—		—		9,516,440
Managed Income 9/30/06		36,846,489		—		—		36,846,489
International Bond 9/30/06		—		16,671,770		—		16,671,770
High Yield Bond 9/30/06		76,073,277		—		11,248,690		87,321,967

203

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED)

As of September 30, 2006, the Portfolios had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates:

	EXPIRING SEPTEMBER 30
	2007		2009		2010		2011		2012		2013		2014		TOTAL
Enhanced Income	$	—	$	—	$	—	$	—	$	240,751	$	71,246	$	91,650	$	403,647
Low Duration Bond		—		—		—		—		440,690		11,041,413		17,070,108		28,552,211
Intermediate Government Bond		6,442,166		2,367,580		—		9,601,882		34,783		—		—		18,446,411
Intermediate Bond		—		—		—		—		—		9,328		160,364		169,692
Intermediate Bond II		—		—		—		—		—		—		159,577		159,577
Total Return		—		—		—		—		—		—		71,451		71,451
Total Return II		—		—		—		—		—		—		688,405		688,405
Government Income		—		—		—		—		74,687		1,723,107		6,365,947		8,163,741
GNMA		—		—		603,989		1,576,264		2,473,978		2,063,521		3,097,933		9,815,685
Managed Income		—		—		—		—		—		—		333,749		333,749
High Yield Bond		—		—		60,670,785		—		—		—		3,818,701		64,489,486

For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains.

In July 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes”. FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Portfolios tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be booked as a tax expense in the current year and recognized as: a liability for unrecognized tax benefits; a reduction of an income tax refund receivable; a reduction of deferred tax asset; an increase in deferred tax liability; or a combination thereof. Adoption of FIN 48 is required for the last net asset value calculation in the first required financial statement reporting period for fiscal years beginning after December 15, 2006. At this time, management is evaluating the implications of FIN 48 and its impact on the financial statements has not yet been determined.

(I) Market Risk

The securities exchanges of certain foreign markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by the Portfolios may be inhibited.

(J) Subsequent Event

On March 16, 2007, the Board of Trustees of BlackRock Funds voted to close the Intermediate Bond Portfolio to new purchases and exchanges and to terminate and wind up the affairs of the fund on or about June 7, 2007.

204

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[THIS PAGE INTENTIONALLY LEFT BLANK.]

BLACKROCK FUNDS

Investment Advisor	Co-Administrator
BlackRock Advisors, LLC	BlackRock Advisors, LLC
Wilmington, Delaware 19809	Wilmington, Delaware 19809
Sub-Advisor	Distributor
BlackRock Financial Management, Inc.	BlackRock Distributors, Inc.
New York, New York 10022	King of Prussia, Pennsylvania 19406
Custodian	Counsel
PFPC Trust Company	Simpson Thacher & Bartlett LLP
Philadelphia, Pennsylvania 19153	New York, New York 10017
Co-Administrator and Transfer Agent	Independent Registered Public Accounting Firm
PFPC Inc.	Deloitte & Touche LLP
Wilmington, Delaware 19809	Philadelphia, Pennsylvania 19103

Important Notice Regarding Delivery of Shareholder Documents

The Fund will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and it 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 contact the Fund at (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

The Fund has delegated proxy voting responsibilities to BlackRock and its affiliates, subject to the general oversight of the Fund’s Board of Trustees. A description of the policies and procedures that BlackRock and its affiliates use to determine how to vote proxies relating to portfolio securities is available without charge, upon request on our website at www.blackrock.com, by calling (800) 441-7762, or on the website of the Securities and Exchange Commission (the “Commission”) at http://www.sec.gov.

Availability of Proxy Voting Record

Information on how proxies relating to the Fund’s voting securities were voted (if any) by BlackRock during the most recent 12-month period ended June 30th is available (if any), upon request and without charge on our website at www.blackrock.com, by calling (800) 441-7762 or on the website of the Commission at http://www.sec.gov.

Availability of Quarterly Portfolio Schedule

The Fund files its complete schedule of portfolio holdings for the first and third quarters of its fiscal year with the Commission on Form N-Q. The Fund’s Form N-Q is available on the Commission’s website at http://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information regarding the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s Form N-Q may also be obtained upon request, without charge, by calling (800) 441-7762.

BLACKROCK FUNDS

AVAILABILITY OF SHAREHOLDER DOCUMENTS AND STATEMENTS

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

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

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

Shareholders Who Hold Accounts Directly With BlackRock

1) Access the BlackRock website at http://www.blackrock.com/edelivery

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

3) Log into your account

SHAREHOLDER PRIVILEGES Account Information

Call us at (800) 441-7762 8:00 AM – 6:00 PM EST to get information about your account balances, recent transactions and share prices. You can also reach us on the web at www.blackrock.com.

Automatic Investment Plans

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

Systematic Withdrawal Plan

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

Retirement Plans

Shareholders may make investments in conjunction with Traditional, Rollover, Roth, Coverdell, Simple and SEP IRA’s, and 403(b) plans.

BLACKROCK FUNDS

A World-Class Mutual Fund Family

BlackRock now offers an expanded lineup of open-end mutual funds. Our range includes more than 85 funds crossing all investment styles and managed by experts in equity, fixed income and tax-exempt investing.

Equity Portfolios
BlackRock All-Cap Global Resources Portfolio	BlackRock Global Resources Portfolio*	BlackRock Lifecycle Prepared Portfolios†
BlackRock Aurora Portfolio	BlackRock Global Science & Technology	BlackRock Mid-Cap Growth Equity Portfolio
BlackRock Asset Allocation Portfolio†	Opportunities Portfolio	BlackRock Mid-Cap Value Equity Portfolio
BlackRock Balanced Capital Fund†	BlackRock Global SmallCap Fund	BlackRock Mid Cap Value Opportunities Fund
BlackRock Basic Value Fund	BlackRock Global Technology Fund	BlackRock Natural Resources Trust
BlackRock Capital Appreciation Portfolio	BlackRock Healthcare Fund	BlackRock Pacific Fund
BlackRock Developing Capital Markets Fund	BlackRock Health Sciences Opportunities Portfolio	BlackRock Prepared Portfolios†
BlackRock Equity Dividend Fund	BlackRock Index Equity Portfolio*	BlackRock Small Cap Core Equity Portfolio
BlackRock EuroFund	BlackRock International Fund	BlackRock Small Cap Growth Equity Portfolio
BlackRock Focus Twenty Fund	BlackRock International Index Fund	BlackRock Small Cap Growth Fund II
BlackRock Focus Value Fund	BlackRock International Opportunities Portfolio*	BlackRock Small Cap Index Fund
BlackRock Fundamental Growth Fund	BlackRock International Value Fund	BlackRock Small Cap Value Equity Portfolio*
BlackRock Global Allocation Fund†	BlackRock Investment Trust	BlackRock Small/Mid-Cap Growth Portfolio
BlackRock Global Dynamic Equity Fund	BlackRock Large Cap Core Fund	BlackRock S&P 500 Index Fund
BlackRock Global Financial Services Fund	BlackRock Large Cap Growth Fund	BlackRock U.S. Opportunities Portfolio
BlackRock Global Growth Fund	BlackRock Large Cap Value Fund	BlackRock Utilities and Telecommunications Fund
BlackRock Global Opportunities Portfolio	BlackRock Latin America Fund	BlackRock Value Opportunities Fund
Fixed Income Portfolios
BlackRock Bond Fund	BlackRock High Yield Bond Portfolio	BlackRock Low Duration Bond Portfolio
BlackRock Commodity Strategies Fund	BlackRock Inflation Protected Bond Portfolio	BlackRock Managed Income Portfolio
BlackRock Enhanced Income Portfolio	BlackRock Intermediate Bond Portfolio II	BlackRock Short-Term Bond Fund
BlackRock GNMA Portfolio	BlackRock Intermediate Government	BlackRock Total Return Portfolio
BlackRock Government Income Portfolio	Bond Portfolio	BlackRock Total Return Portfolio II
BlackRock High Income Fund	BlackRock International Bond Portfolio	BlackRock World Income Fund
Municipal Bond Portfolios
BlackRock AMT-Free Municipal Bond Portfolio	BlackRock Intermediate Municipal Fund	BlackRock New York Municipal Bond Fund
BlackRock California Insured Municipal Bond Fund	BlackRock Kentucky Municipal Bond Portfolio	BlackRock Ohio Municipal Bond Portfolio
BlackRock Delaware Municipal Bond Portfolio	BlackRock Municipal Insured Fund	BlackRock Pennsylvania Municipal Bond Fund
BlackRock Florida Municipal Bond Fund	BlackRock National Municipal Fund	BlackRock Short-Term Municipal Fund
BlackRock High Yield Municipal Fund	BlackRock New Jersey Municipal Bond Fund
Money Market Portfolios
BlackRock Money Market Portfolio	BlackRock NJ Municipal MM Portfolio	BlackRock Summit Cash Reserves Fund*
BlackRock Municipal Money Market Portfolio	BlackRock OH Municipal MM Portfolio	BlackRock U.S. Treasury MM Portfolio
BlackRock NC Municipal MM Portfolio	BlackRock PA Municipal MM Portfolio	BlackRock VA Municipal MM Portfolio

* See the prospectus for information on specific limitations on investments in the fund.

† Mixed asset fund.

BlackRock mutual funds are distributed by BlackRock Distributors, Inc. and certain funds are also distributed by FAM Distributors, Inc. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling 800-882-0052 or from your financial advisor. The prospectus should be read carefully before investing.

Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed by PNC Bank, National Association or any other bank and shares are not federally insured by, guaranteed by, obligations of or otherwise supported by the U.S. Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Investments in shares of the fund involve investment risks, including the possible loss of the principal amount invested.

TAXABLE-3/07-SAR

ALTERNATIVES    BLACKROCK SOLUTIONS    EQUITIES    FIXED INCOME    LIQUIDITY    REAL ESTATE

BlackRock Funds
Municipal Bond Portfolios
SEMI-ANNUAL REPORT | MARCH 31, 2007 (UNAUDITED)

AMT-Free Municipal Bond

Ohio Municipal Bond

Delaware Municipal Bond

Kentucky Municipal Bond

NOT FDIC INSURED

MAY LOSE VALUE

NO BANK GUARANTEE

BLACKROCK FUNDS

TABLE OF CONTENTS

Shareholder Letter	1
Portfolio Summaries
AMT-Free Municipal Bond	2-3
Ohio Municipal Bond	4-5
Delaware Municipal Bond	6-7
Kentucky Municipal Bond	8-9
Note on Performance Information	10
Schedules of Investments	11-20
Key to Investment Abbreviations	21
Portfolio Financial Statements
Statements of Assets and Liabilities	22-23
Statements of Operations	24
Statements of Changes in Net Assets	25-26
Statements of Cash Flows	27-29
Financial Highlights	30-37
Notes to Financial Statements	38-53

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 Web sites.

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

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

BLACKROCK FUNDS

March 31, 2007

Dear Shareholder:

For most financial markets, 2007 opened just as 2006 ended — on a positive trajectory. At the end of February and into March, however, global equity markets registered their first significant decline since last summer. The market jitters were triggered by a significant setback in the Chinese market and were exacerbated by several concerns, notably a weakening economy, some disappointing corporate earnings announcements, escalating geopolitical concerns in the Middle East and increasing delinquencies in the subprime mortgage market. Despite the recent spate of volatility, underlying stock market fundamentals appear quite sound, supported by a generally favorable global economic backdrop, tame inflation, relatively low interest rates and attractive valuations.

Not unlike the equity market, the bond market also has seen volatility recently as observers have attempted to interpret mixed economic signals. A bond market rally late last year reversed itself early in 2007 as economic data strengthened. Prices improved (and yields fell) again in February as equities struggled, but retrenched slightly in March. Notably, the Treasury curve remained inverted for much of 2006 and into 2007. The 30-year Treasury yield stood at 4.84% at the end of March 2007, while the one-month Treasury offered the highest yield on the curve at 5.07%.

For its part, the Federal Reserve Board (Fed) left the target short-term interest rate on hold at 5.25% since first pausing in its rate-hiking campaign on August 8, 2006. Although the central bankers continue to express concern about potential inflationary pressures, they also have made reference to signs of economic weakness in their public statements. Most observers expect the Fed to keep interest rates on hold for now.

Notwithstanding some recent volatility, most major market indexes managed to post positive returns for the semi-annual reporting period ended March 31, 2007:

Total returns as of March 31, 2007

	SIX-MONTH PERIOD
U.S. equities (Standard & Poor’s 500 Index)	+7.38	%
Small cap U.S. equities (Russell 2000 Index)	+11.02	%
International equities (MSCI Europe, Australasia, Far East Index)	+14.85	%
Fixed income (Lehman Brothers Aggregate Bond Index)	+2.76	%
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index)	+1.93	%
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index)	+7.02	%

If recent market movements are any guide, 2007 could be a year of enhanced volatility. As you navigate the uncertainties of the financial markets, we encourage you to review your investment goals with your financial professional and to make portfolio changes, as needed. For more reflection on the markets, please ask your financial professional for the latest issue of “What’s Ahead in 2007: First Quarter Update,” or view it online at www.blackrock.com/funds.

We thank you for trusting BlackRock with your investment assets, and we look forward to continuing to serve you in the months and years ahead.

Sincerely,

Frank Porcelli

Managing Director and Head of BlackRock Private Client Group

THIS PAGE NOT PART OF YOUR FUND REPORT

1

AMT-FREE MUNICIPAL BOND PORTFOLIO

Total Net Assets (3/31/07): $363.6 million

Investment Approach:

Seeks to maximize total return consistent with income generation and prudent investment management by investing primarily in municipal securities; the interest on which the Portfolio manager believes is exempt from Federal income tax, including the Federal Alternative Minimum Tax. The Portfolio normally invests at least 80% of its assets in municipal securities, including both general obligation and revenue bonds, from a diverse range of issuers. The other 20% of its assets can be invested in securities of non-municipal issuers, the income from which is exempt from Federal income tax and securities which are subject to Federal income tax, including the Federal Alternative Minimum Tax. The Portfolio emphasizes municipal securities in the 10- to 20-year maturity range.

Recent Portfolio Management Activity:

• All share classes of the Portfolio underperformed the Lipper General Municipal Debt Funds peer group average for the semiannual period. The Portfolio benefited from its above-average income accrual, which serves the fund well in a period of stable to slightly rising interest rates. Detracting from performance somewhat was the portion of Portfolio assets committed to intermediate maturities. A flattening tax-exempt yield curve resulted in shorter maturities underperforming longer maturities. The Portfolio had focused on higher-quality, sometimes non-callable, securities, which proved to be more volatile as the curve flattened.

• During the six-month period, municipal bonds underperformed taxable bonds, with the Lehman Brothers Municipal Bond Index advancing 1.93%, versus the 2.76% return of the Lehman Brothers Aggregate Bond Index. Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period little changed. Overall, financial conditions remained fairly balanced, with moderate economic activity and well-contained inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range.

• Thirty-year U.S. Treasury bond yields rose seven basis points (0.07%) during the period to 4.84%, while 10-year Treasury note yields rose one basis point to 4.65%. In the tax-exempt market, yields on AAA-rated issues maturing in 30 years declined five basis points to 4.12%, as measured by Municipal Market Data, while yields on 10-year, AAA-rated municipal bonds rose nine basis points to 3.77%.

• Investor demand for municipal securities continued to strengthen over the past six months, while issuance also increased more than 30% compared to the same six months a year ago. We believe investor demand will be critical in maintaining the tax-exempt market’s strong technical position.

• We have taken steps aimed at creating a less volatile, higher-yielding portfolio. To that end, selective sales were made of higher-duration securities to lower the Portfolio’s interest rate volatility. Our efforts have been aimed at increasing income accrual by maximizing coupon structure, but doing so while protecting the Portfolio’s underlying value. Purchases are made with the idea of limiting the net asset value erosion that could occur if rates were to rise further. In the latter three months of the period, weaker seasonal factors and less attractive valuations weighed on the municipal market, causing rates to increase between 10 and 15 basis points for long-maturity municipal bonds.

• As changes have been made to enhance yield, the Portfolio’s high credit quality was lowered somewhat. However, we have been careful to uncover higher-yielding situations while staying within the Portfolio’s credit-quality parameters as outlined in its prospectus.

• At period-end, the Portfolio’s interest rate position was neutral relative to its Lipper peers. If interest rates were to rise further, we would consider returning the fund to a more aggressive stance. We are looking for the bulk of the Portfolio’s return to be generated from coupon accrual. Longer-term, we would like to establish a core position of higher-yielding securities, which will require the team to be alert to any significant rise in tax-exempt rates and any widening in credit-quality spreads that could restore valuation to that sector.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE AMT-FREE MUNICIPAL BOND PORTFOLIO,

THE LEHMAN BROTHERS MUNICIPAL BOND INDEX AND THE LIPPER GENERAL MUNICIPAL DEBT FUNDS

FOR THE PAST TEN YEARS.

	Average Annual Total Return
	6 Months		1 Year		5 Year		10 Year
BlackRock Class	1.64	%	5.18	%	4.23	%	5.03	%
Institutional Class	1.72	%	5.24	%	4.10	%	4.89	%
Service Class	1.53	%	4.84	%	3.76	%	4.57	%
Investor A Class (Load Adjusted)	(2.80	)%	0.35	%	2.84	%	4.01	%
Investor A Class (NAV)	1.55	%	4.81	%	3.73	%	4.46	%
Investor B Class (Load Adjusted)	(3.24	)%	(0.32	)%	2.62	%	3.92	%

	Average Annual Total Return
	6 Months		1 Year		5 Year		10 Year
Investor B Class (NAV)	1.15	%	4.18	%	2.97	%	3.92	%
Investor C Class (Load Adjusted)	0.18	%	3.14	%	2.96	%	3.68	%
Investor C Class (NAV)	1.18	%	4.14	%	2.96	%	3.68	%
Lehman Brothers Municipal Bond Index	1.93	%	5.43	%	5.50	%	5.87	%
Lipper General Municipal Debt Funds	1.87	%	5.38	%	5.35	%	5.35	%

THE PERFORMANCE OF THE LEHMAN BROTHERS MUNICIPAL BOND INDEX (THE “BENCHMARK”) IS PRESENTED FOR COMPARATIVE PURPOSES IN RESPONSE TO REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION. HOWEVER, BLACKROCK BELIEVES THAT DIFFERENCES BETWEEN THE WAYS IN WHICH THE PORTFOLIO IS MANAGED AND THE BENCHMARK IS CONSTRUCTED MAY MAKE COMPARISONS BETWEEN THE PORTFOLIO AND BENCHMARK PERFORMANCE LESS MEANINGFUL TO INVESTORS. THEREFORE, THE PERFORMANCE OF THE LIPPER GENERAL MUNICIPAL DEBT FUNDS IS ALSO PRESENTED.

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INVESTOR A SHARES, 5/14/90; INSTITUTIONAL SHARES, 1/21/93; SERVICE SHARES, 7/29/93; INVESTOR B SHARES, 7/18/96, INVESTOR C SHARES, 2/28/97 AND BLACKROCK SHARES, 12/22/03. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 10 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

2

AMT-FREE MUNICIPAL BOND PORTFOLIO

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	69.3	%
AA	10.0
A	8.7
BBB	8.2
Unrated	3.8
Total	100.0	%
Portfolio Statistics
Average maturity (years)	6.22
Modified Duration2	5.26
Largest State Concentration (% of long-term investments)
California	9.9	%
Florida	9.8
New Jersey	9.8
Washington	7.1
New York	6.6
Pennsylvania	5.6
Puerto Rico	5.5
Illinois	5.1
Multi-State	4.7
Alabama	3.6
Total	67.7	%

1 Using the highest of Standard & Poor’s (“S&P’s”) or Moody’s Investor Service (“Moody’s”) ratings.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the portfolio for every 1% change in interest rates. Modified duration assumes that cash flows remain constant as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. These Examples are intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Examples below are based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

The Portfolio is required to report interest expense associated with certain investments. However, the Portfolio did not actually pay such interest expense, and therefore the Portfolio’s actual “Net expenses” are shown in the table “Excluding interest expense & fees” below.

	Actual Expenses (Including interest expense & fees)												Hypothetical Expenses (5% return before expenses)
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,016.40		1,017.20		1,015.30		1,015.50		1,012.50		1,011.80		1,021.77		1,021.62		1,019.95		1,020.05		1,017.17		1,016.32
Expenses Incurred During Period (10/01/06 -3/31/07)		3.22		3.37		5.02		4.92		7.78		8.63		3.23		3.38		5.05		4.95		7.83		8.68

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.64%, 0.67%, 1.00%, 0.98%, 1.55% and 1.72% for the BlackRock, Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

	Actual Expenses (Excluding interest expense & fees)												Hypothetical Expenses (5% return before expenses)
	BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		BlackRock Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,016.40		1,017.20		1,015.30		1,015.50		1,012.50		1,011.80		1,022.73		1,022.58		1,020.91		1,021.01		1,018.13		1,017.28
Expenses Incurred During Period (10/01/06 - 3/31/07)		2.26		2.41		4.07		3.97		6.82		7.67		2.27		2.42		4.09		3.99		6.87		7.72

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.45%, 0.48%, 0.81%, 0.79%, 1.36% and 1.53% for the BlackRock, Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

3

OHIO MUNICIPAL BOND PORTFOLIO

Total Net Assets (3/31/07): $107.0 million

Investment Approach:

Seeks to maximize total return consistent with income generation and prudent investment management by investing primarily in bonds issued by or on behalf of states, possessions and territories of the United States, their political subdivisions and their agencies or authorities (and related tax-exempt derivative securities), the interest on which the Portfolio manager believes is exempt from regular Federal income tax and Ohio state income tax (“municipal securities”). The Portfolio normally invests at least 80% of its assets in municipal securities, including both general obligation and revenue bonds, from a diverse range of issuers (including issuers located outside of Ohio). The Portfolio emphasizes municipal securities in the 10- to 20-year maturity range.

Recent Portfolio Management Activity:

• All share classes of the Portfolio underperformed the Lipper Ohio Municipal Debt Funds peer group average for the semiannual period. During the six months under review, the Portfolio’s total return was hindered by its defensive interest rate positioning and overall higher-credit-quality profile. Lower-rated bonds outperformed as investors continued to favor higher-yielding issues; as such, the Portfolio’s higher quality was a relative disadvantage.

• During the six-month period, municipal bonds underperformed taxable bonds, with the Lehman Brothers Municipal Bond Index advancing 1.93%, versus the 2.76% return of the Lehman Brothers Aggregate Bond Index. Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period with little change. Overall, financial conditions remained fairly balanced, with moderate economic activity and well-contained inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed is expected to maintain its current “balanced” economic assessment at least into mid-year.

• At the end of March, 30-year U.S. Treasury bond yields stood at 4.84%, an increase of seven basis points (0.07%) over the past six months. Ten-year U.S. Treasury note yields rose one basis point to 4.65% over the same period. In the tax-exempt market, yields on AAA-rated issues maturing in 30 years declined five basis points to 4.12%, as measured by Municipal Market Data. Yields on 10-year, AAA-rated municipal bonds rose nine basis points to end the reporting period at 3.77%.

• Investor demand for municipal product continued to strengthen throughout the reporting period. Meanwhile, issuance of long-term municipal bonds increased over the past six months, with $225 billion in new tax-exempt bonds issued, an increase of more than 30% compared to the same six months a year ago. We believe investor demand will be critical in maintaining the tax-exempt market’s strong technical position.

• The State of Ohio is rated Aa1, AA+ and AA+ by Moody’s, Standard & Poor’s (S&P) and Fitch, respectively, with stable trends from S&P and Fitch. In February, Moody’s revised its outlook to negative based on the state’s long-running economic underperformance. Ohio ranks 20th in debt per capita and 21st in debt as a percent of personal income, according to Moody’s. The state’s 2006 per capita personal income of $33,338 was 29th in the nation, according to the U.S. Department of Commerce and approximated the national average of $36,276. The February 2007 unemployment rate was 5.0%, versus the U.S. rate of 4.5%. Collections through March for fiscal year 2007 show personal income tax receipts 2% over estimates, while actual sales tax collections remain weak at 2.5% below estimates. Key credit issues include a manufacturing-based economy, exposure to downsizing in the automotive industry and recent tax cuts that may limit revenue growth.

• Portfolio activity during the semiannual period was largely limited to maintaining a fully invested position given the relative scarcity of attractively priced longer-duration Ohio issues. In the second half of the period, we did add a longer-maturity, noncallable issue to the Portfolio to increase the fund’s duration and bring it closer to that of its peers.

• At period-end, the Portfolio was positioned with a duration slightly shorter than that of its Lipper peers. We intend to look to adopt a more neutral position as attractively priced issues become available.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE OHIO MUNICIPAL BOND PORTFOLIO, THE LEHMAN BROTHERS MUNICIPAL BOND INDEX AND THE LIPPER OHIO MUNICIPAL DEBT FUNDS

FOR THE PAST TEN YEARS.

	Average Annual Total Return
	6 Months		1 Year		5 Year		10 Year
Institutional Class	1.44	%	4.31	%	4.62	%	5.31	%
Service Class	1.29	%	3.90	%	4.33	%	5.01	%
Investor A Class (Load Adjusted)	(3.02	)%	(0.43	)%	3.30	%	4.40	%
Investor A Class (NAV)	1.32	%	3.95	%	4.21	%	4.86	%
Investor B Class (Load Adjusted)	(3.49	)%	(1.33	)%	3.08	%	4.31	%

	Average Annual Total Return
	6 Months		1 Year		5 Year		10 Year
Investor B Class (NAV)	0.98	%	3.17	%	3.43	%	4.31	%
Investor C Class (Load Adjusted)	(0.10	)%	2.20	%	3.43	%	4.04	%
Investor C Class (NAV)	0.90	%	3.20	%	3.43	%	4.04	%
Lehman Brothers Municipal Bond Index	1.93	%	5.43	%	5.50	%	5.87	%
Lipper Ohio Municipal Debt Funds	1.75	%	4.89	%	4.91	%	5.12	%

THE PERFORMANCE OF THE LEHMAN BROTHERS MUNICIPAL BOND INDEX (THE “BENCHMARK”) IS PRESENTED FOR COMPARATIVE PURPOSES IN RESPONSE TO REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION. HOWEVER, BLACKROCK BELIEVES THAT DIFFERENCES BETWEEN THE WAYS IN WHICH THE PORTFOLIO IS MANAGED AND THE BENCHMARK IS CONSTRUCTED MAY MAKE COMPARISONS BETWEEN THE PORTFOLIO AND BENCHMARK PERFORMANCE LESS MEANINGFUL TO INVESTORS. THEREFORE, THE PERFORMANCE OF THE LIPPER OHIO MUNICIPAL DEBT FUNDS IS ALSO PRESENTED.

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO, RATHER THAN THE DATE SUCH CLASS WAS INTRODUCED. THE INCEPTION DATES OF THE PORTFOLIO’S SHARE CLASSES WERE AS FOLLOWS: INSTITUTIONAL AND INVESTOR A SHARES, 12/1/92; SERVICE SHARES, 7/29/93; INVESTOR B SHARES, 10/13/94 AND INVESTOR C SHARES, 8/26/98. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 10 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

4

OHIO MUNICIPAL BOND PORTFOLIO

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	73.0	%
AA	13.4
A	5.2
BBB	7.0
Unrated	1.4
Total	100.0	%
Portfolio Statistics
Average maturity (years)	5.00
Modified Duration2	4.31

1 Using the higher of S&P’s or Moody’s ratings.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the portfolio for every 1% change in interest rates. Modified duration assumes that cash flows remain constant as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. These Examples are intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Examples below are based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

The Portfolio is required to report interest expense associated with certain investments. However, the Portfolio did not actually pay such interest expense, and therefore the Portfolio’s actual “Net expenses” are shown in the table “Excluding interest expense & fees” below.

	Actual Expenses (Including interest expense & fees)										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,014.40		1,012.90		1,013.20		1,009.80		1,009.00		1,017.83		1,016.32		1,016.57		1,012.28		1,012.38
Expenses Incurred During Period (10/01/06 - 3/31/07)		7.13		8.63		8.38		12.63		12.52		7.17		8.68		8.43		12.72		12.62

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 1.42%, 1.72%, 1.67%, 2.52% and 2.50% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

	Actual Expenses (Excluding interest expense & fees)										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,014.40		1,012.90		1,013.20		1,009.80		1,009.00		1,021.97		1,020.46		1,020.71		1,016.42		1,016.52
Expenses Incurred During Period (10/01/06 - 3/31/07)		3.01		4.52		4.27		8.52		8.41		3.03		4.54		4.29		8.58		8.48

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.60%, 0.90%, 0.85%, 1.70% and 1.68% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

5

DELAWARE MUNICIPAL BOND PORTFOLIO

Total Net Assets (3/31/07): $61.3 million

Investment Approach:

Seeks to maximize total return consistent with income generation and prudent investment management by investing primarily in bonds issued by or on behalf of states, possessions and territories of the United States, their political subdivisions and their agencies or authorities (and related tax-exempt derivative securities), the interest on which the Portfolio manager believes is exempt from regular Federal income tax and Delaware state income tax (“municipal securities”). The Portfolio normally invests at least 80% of its assets in municipal securities, including both general obligation and revenue bonds, from a diverse range of issuers (including issuers located outside of Delaware). The Portfolio emphasizes municipal securities in the 10- to 20-year maturity range.

Recent Portfolio Management Activity:

• All share classes of the Portfolio underperformed the Lipper Other States Municipal Debt Funds peer group average for the semiannual period. Detracting from relative performance was the Portfolio’s somewhat defensive stance, which negatively impacted yield. In addition, a dearth of new issuance in the Delaware municipal market limited management’s ability to restructure and diversify the Portfolio. Notably, the Portfolio is the only Delaware tax-exempt fund in its broad Lipper category. As such, performance comparisons can be difficult, as each municipal market is influenced by technical conditions in its home state.

• During the six-month period, municipal bonds underperformed taxable bonds, with the Lehman Brothers Municipal Bond Index advancing 1.93%, versus the 2.76% return of the Lehman Brothers Aggregate Bond Index. Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period with little change. Overall, financial conditions remained fairly balanced, with moderate economic activity and well-contained inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed is expected to maintain its current “balanced” economic assessment at least into mid-year.

• At the end of March, 30-year U.S. Treasury bond yields stood at 4.84%, an increase of seven basis points (0.07%) over the past six months. Ten-year U.S. Treasury note yields rose one basis point to 4.65% over the same period. In the tax-exempt market, yields on AAA-rated issues maturing in 30 years declined five basis points to 4.12%, as measured by Municipal Market Data. Yields on 10-year, AAA-rated municipal bonds rose nine basis points to end the reporting period at 3.77%.

• Investor demand for municipal product continued to strengthen throughout the reporting period. Meanwhile, issuance of long-term municipal bonds increased over the past six months, with $225 billion in new tax-exempt bonds issued, an increase of more than 30% compared to the same six months a year ago. We believe investor demand will be critical in maintaining the tax-exempt market’s strong technical position. Notably, new-issue volume in Delaware countered the national trend, having declined significantly. New issuance of $500 million during the six-month period was down from $2.5 billion during the same six months a year ago.

• The State of Delaware is rated Aaa, AAA and AAA by Moody’s, Standard & Poor’s and Fitch, respectively, all with stable trends. Delaware ranks 7th in debt per capita and 7th in debt as a percent of personal income, according to Moody’s. Delaware’s 2006 (preliminary) per capita personal income of $39,022 was 10th in the nation, according to the U.S. Department of Commerce. The February 2007 unemployment rate was 3.4%, versus the national rate of 4.5%. The budget for fiscal year 2007 increases spending to $3 billion with significant growth in Medicaid costs. Officials expect to end fiscal year 2007 with a $523 million cash balance. Governor Minner’s proposed 2008 general fund budget totals $3.25 billion. Though economic growth has been steady, some pressure could arise from continued consolidation in the financial services and chemical industries, two primary employers in Delaware.

• Portfolio activity during the semiannual period was largely limited due to lack of new municipal issuance in the state of Delaware. In addition, much of the issuance that did come to market did not present diversification or structural-enhancement opportunities for the Portfolio. For that reason, we found little incentive to make significant changes. Having said that, we did participate in select opportunities that enabled the Portfolio to move out further on the yield curve. One issue was a large Puerto Rico bond that offered an attractive yield and came with a maturity in the 25-year range.

• At period-end, the Portfolio was essentially fully invested with a modestly defensive interest rate stance. We continue to focus on maximizing tax-exempt income for shareholders.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE DELAWARE MUNICIPAL BOND PORTFOLIO, THE LEHMANBROTHERS MUNICIPAL BOND INDEX AND THE LIPPER OTHER STATES MUNICIPAL DEBT FUNDS SINCE INCEPTION.

	Average Annual Total Return
	6 Months		1 Year		5 Year		From Inception
Institutional Class	1.43	%	4.90	%	4.46	%	4.67	%
Investor A Class (Load Adjusted)	(3.14	)%	0.07	%	3.14	%	3.71	%
Investor A Class (NAV)	1.20	%	4.50	%	4.04	%	4.22	%
Investor B Class (Load Adjusted)	(3.53	)%	0.62	)%	(2.95	%	3.60	%
Investor B Class (NAV)	0.94	%	3.89	%	3.30	%	3.60	%

	Average Annual Total Return
	6 Months		1 Year		5 Year		From Inception
Investor C Class (Load Adjusted)	(0.15	)%	2.78	%	3.27	%	3.45	%
Investor C Class (NAV)	0.84	%	3.78	%	3.27	%	3.45	%
Lehman Brothers Municipal Bond Index**	1.93	%	5.43	%	5.50	%	5.31	%
Lipper Other States Municipal Debt Funds	1.54	%	4.65	%	4.40	%	4.37	%

** THE PERFORMANCE FOR THE LEHMAN BROTHERS MUNICIPAL BOND INDEX IN THE CHART STARTS ON JUNE 1, 1998.

THE PERFORMANCE OF THE LEHMAN BROTHERS MUNICIPAL BOND INDEX (THE “BENCHMARK”) IS PRESENTED FOR COMPARATIVE PURPOSES IN RESPONSE TO REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION. HOWEVER, BLACKROCK BELIEVES THAT DIFFERENCES BETWEEN THE WAYS IN WHICH THE PORTFOLIO IS MANAGED AND THE BENCHMARK IS CONSTRUCTED MAY MAKE COMPARISONS BETWEEN THE PORTFOLIO AND BENCHMARK PERFORMANCE LESS MEANINGFUL TO INVESTORS. THEREFORE, THE PERFORMANCE OF THE LIPPER OTHER STATES MUNICIPAL DEBT FUNDS IS ALSO PRESENTED.

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO ON 05/11/98. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 10 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

6

DELAWARE MUNICIPAL BOND PORTFOLIO

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	59.8	%
AA	4.3
A	21.6
BBB	13.8
Unrated	0.5
Total	100.0	%
Portfolio Statistics
Average maturity (years)	5.20
Modified Duration2	5.92

1 Using the higher of S&P’s or Moody’s ratings.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the portfolio for every 1% change in interest rates. Modified duration assumes that cash flows remain constant as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. These Examples are intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Examples below are based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

The Portfolio is required to report interest expense associated with certain investments. However, the Portfolio did not actually pay such interest expense, and therefore the Portfolio’s actual “Net expenses” are shown in the table “Excluding interest expense & fees” below.

	Actual Expenses (Including interest expense & fees)								Hypothetical Expenses (5% return before expenses)
	Institutional Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,014.30		1,012.00		1,009.40		1,008.40		1,014.80		1,013.44		1,009.90		1,009.90
Expenses Incurred During Period (10/01/06 - 3/31/07)		10.14		11.49		14.98		14.97		10.20		11.56		15.10		15.10

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 2.02%, 2.29%, 2.99% and 2.99% for the Institutional, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

	Actual Expenses (Excluding interest expense & fees)								Hypothetical Expenses (5% return before expenses)
	Institutional Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,014.30		1,012.00		1,009.40		1,008.40		1,021.57		1,020.20		1,016.67		1,016.67
Expenses Incurred During Period (10/01/06 - 3/31/07)		3.41		4.77		8.27		8.26		3.43		4.80		8.33		8.33

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.68%, 0.95%, 1.65% and 1.65% for the Institutional, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

7

KENTUCKY MUNICIPAL BOND PORTFOLIO

Total Net Assets (3/31/07): $114.5 million

Investment Approach:

Seeks to maximize total return consistent with income generation and prudent investment management by investing primarily in bonds issued by or on behalf of states, possessions and territories of the United States, their political subdivisions and their agencies or authorities (and related tax-exempt derivative securities), the interest on which the Portfolio manager believes is exempt from regular Federal income tax and Kentucky state income tax (“municipal securities”). The Portfolio normally invests at least 80% of its assets in municipal securities, including both general obligation and revenue bonds, from a diverse range of issuers (including issuers located outside of Kentucky). The Portfolio emphasizes municipal securities in the 10- to 20-year maturity range.

Recent Portfolio Management Activity:

• All share classes of the Portfolio underperformed the Lipper Kentucky Municipal Debt Funds peer group average for the semiannual period. Detracting from performance was the Portfolio’s defensive positioning, especially early in the reporting period as the market rallied. Despite the underperformance on a total-return basis, the Portfolio continued to provide an above-average distribution yield.

• During the six-month period, municipal bonds underperformed taxable bonds, with the Lehman Brothers Municipal Bond Index advancing 1.93%, versus the 2.76% return of the Lehman Brothers Aggregate Bond Index. Long-term bond yields traded in a relatively narrow range over the past six months and, despite ample volatility, ended the period with little change. Overall, financial conditions remained fairly balanced, with moderate economic activity and well-contained inflationary pressures. Recent commentary from the Federal Reserve Board (Fed) has supported the narrow trading range. The Fed is expected to maintain its current “balanced” economic assessment at least into mid-year.

• At the end of March, 30-year U.S. Treasury bond yields stood at 4.84%, an increase of seven basis points (0.07%) over the past six months. Ten-year U.S. Treasury note yields rose one basis point to 4.65% over the same period. In the tax-exempt market, yields on AAA-rated issues maturing in 30 years declined five basis points to 4.12%, as measured by Municipal Market Data. Yields on 10-year, AAA-rated municipal bonds rose nine basis points to end the reporting period at 3.77%.

• Investor demand for municipal product continued to strengthen throughout the reporting period. Meanwhile, issuance of long-term municipal bonds increased over the past six months, with $225 billion in new tax-exempt bonds issued, an increase of more than 30% compared to the same six months a year ago. We believe investor demand will be critical in maintaining the tax-exempt market’s strong technical position.

• The Commonwealth of Kentucky is rated Aa2 by Moody’s and AA- by Standard & Poor’s (S&P). In early 2007, S&P assigned the Commonwealth a positive outlook, while Moody’s raised its outlook from negative to stable. Fitch rates the Commonwealth’s appropriation-backed debt AA-, with a stable trend. Kentucky ranks 13th in debt per capita and 12th in debt as a percent of personal income, according to Moody’s. The Commonwealth’s 2005 per capita personal income of $29,352 was 46th in the nation according to the U.S. Department of Commerce. The February 2007 unemployment rate was 5.7%, which compared to the national rate of 4.5%. General Fund revenue growth for fiscal year 2007 remains ahead of budget and should allow for unrestricted reserves to reach almost 10% of revenue by mid-year. The Commonwealth’s $18 billion General Fund budget for the 2007-2008 Biennium increases spending by about 12% over the prior biennium, with much of the increase related to education and Medicaid. Key credit issues include rising long-term debt and pension liabilities, as well as economic growth that has lagged the nation.

• Portfolio activity has been driven by the material cash inflows the fund has seen. The Portfolio’s net assets grew from $71.8 million at September 30, 2006, to $114.5 million at the end of March.

• We selectively added longer-duration issues to the Portfolio as opportunities presented themselves. This proved fairly challenging given the scarcity of Kentucky offerings with our desired investment characteristics. Pre-refunded issues also have been added to the Portfolio to prevent the accumulation of significant cash reserves, as we want to avoid any dilution in the Portfolio’s dividend amid the growing asset base.

• At period-end, the Portfolio’s interest rate position was neutral relative to its Lipper peers, reflecting our view that the Fed will remain on hold in the near future.

COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE KENTUCKY MUNICIPAL BOND PORTFOLIO, THE LEHMAN BROTHERS MUNICIPAL BOND INDEX AND THE LIPPER KENTUCKY MUNICIPAL DEBT FUNDS SINCE INCEPTION.

	Average Annual Total Return
	6 Months		1 Year		5 Year		From Inception
Institutional Class	1.39	%	3.88	%	4.02	%	4.23	%
Service Class	1.22	%	3.66	%	3.72	%	3.93	%
Investor A Class (Load Adjusted)	(3.10	)%	(0.76	)%	2.73	%	3.28	%
Investor A Class (NAV)	1.25	%	3.60	%	3.62	%	3.78	%
Investor B Class (Load Adjusted)	(3.54	)%	(1.56	)%	2.51	%	3.17	%

	Average Annual Total Return
	6 Months		1 Year		5 Year		From Inception
Investor B Class (NAV)	0.90	%	2.88	%	2.86	%	3.17	%
Investor C Class (Load Adjusted)	(0.09	)%	1.99	%	2.85	%	3.04	%
Investor C Class (NAV)	0.90	%	2.98	%	2.85	%	3.04	%
Lehman Brothers Municipal Bond Index**	1.93	%	5.43	%	5.50	%	5.31	%
Lipper Kentucky Municipal Debt Funds	1.41	%	4.30	%	4.34	%	3.93	%

** THE PERFORMANCE OF THE LEHMAN BROTHERS MUNICIPAL BOND INDEX IN THE CHART STARTS ON JUNE 1, 1998.

THE PERFORMANCE OF THE LEHMAN BROTHERS MUNICIPAL BOND INDEX (THE “BENCHMARK”) IS PRESENTED FOR COMPARATIVE PURPOSES IN RESPONSE TO REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION. HOWEVER, BLACKROCK BELIEVES THAT DIFFERENCES BETWEEN THE WAYS IN WHICH THE PORTFOLIO IS MANAGED AND THE BENCHMARK IS CONSTRUCTED MAY MAKE COMPARISONS BETWEEN THE PORTFOLIO AND BENCHMARK PERFORMANCE LESS MEANINGFUL TO INVESTORS. THEREFORE, THE PERFORMANCE OF THE LIPPER KENTUCKY MUNICIPAL DEBT FUNDS IS ALSO PRESENTED.

THE PERFORMANCE INFORMATION ABOVE INCLUDES INFORMATION RELATING TO EACH CLASS OF THE PORTFOLIO SINCE THE COMMENCEMENT OF OPERATIONS OF THE PORTFOLIO ON 05/11/98. SEE “NOTE ON PERFORMANCE INFORMATION” ON PAGE 10 FOR FURTHER INFORMATION ON HOW PERFORMANCE DATA WAS CALCULATED, INCLUDING IMPORTANT INFORMATION ON THE LINE GRAPH ABOVE.

PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS. The graph and table do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of shares. Although the holdings and sectors listed above were current as of the periods indicated, the Portfolio is actively managed and its composition will vary.

8

KENTUCKY MUNICIPAL BOND PORTFOLIO

FUND PROFILE

Credit Quality (% of long-term investments)1
AAA	64.8	%
AA	10.8
A	5.3
BBB	9.5
Unrated	9.6
Total	100.0	%
Portfolio Statistics
Average maturity (years)	7.30
Modified Duration2	5.34

1 Using the higher of S&P’s or Moody’s ratings.

2 Duration measures a Portfolio’s price risk. Each year of duration represents an expected 1% change in the net asset value of the portfolio for every 1% change in interest rates. Modified duration assumes that cash flows remain constant as interest rates change.

EXPENSE EXAMPLE

As a shareholder of the Portfolio, you incur two types of costs: (1) transaction costs, including front and back end sales charges (loads) where applicable; and (2) ongoing costs, including advisory fees, distribution (12b-1) and service fees, where applicable; and other Portfolio expenses. These Examples are intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.

The Examples below are based on an investment of $1,000 invested at the beginning of the period and held for the entire period October 1, 2006 to March 31, 2007.

The information under “Actual Expenses,” together with the amount you invested, allows you to estimate actual expenses incurred over the reporting period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.60) and multiply the result by the cost shown for your share class, in the row entitled “Expenses Incurred During Period,” to estimate the expenses incurred on your account during this period.

The information under “Hypothetical Expenses” provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expense you incurred for the period. You may use this information to compare the ongoing costs of investing in the Portfolio and other funds. To do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the tables are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as front and back end sales charges (loads) or redemption fees, where applicable. Therefore, the hypothetical information is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

The Portfolio is required to report interest expense associated with certain investments. However, the Portfolio did not actually pay such interest expense, and therefore the Portfolio’s actual “Net expenses” are shown in the table “Excluding interest expense & fees” below.

	Actual Expenses (Including interest expense & fees)										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,013.90		1,012.20		1,012.50		1,009.00		1,009.00		1,019.19		1,017.58		1,017.83		1,014.30		1,014.70
Expenses Incurred During Period (10/01/06 - 3/31/07)		5.77		7.37		7.12		10.62		10.22		5.81		7.42		7.17		10.70		10.30

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 1.15%, 1.47%, 1.42%, 2.12% and 2.04% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

	Actual Expenses (Excluding interest expense & fees)										Hypothetical Expenses (5% return before expenses)
	Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class		Institutional Class		Service Class		Investor A Class		Investor B Class		Investor C Class
Beginning Account Value (10/01/06)	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00	$	1,000.00
Ending Account Value (3/31/07)		1,013.90		1,012.20		1,012.50		1,009.00		1,009.00		1,021.82		1,020.20		1,020.46		1,016.92		1,017.33
Expenses Incurred During Period (10/01/06 - 3/31/07)		3.16		4.77		4.52		8.01		7.61		3.18		4.80		4.54		8.08		7.67

For each class of the Portfolio, expenses are equal to the annualized expense ratio of 0.63%, 0.95%, 0.90%, 1.60% and 1.52% for the Institutional, Service, Investor A, B and C share classes, respectively, multiplied by the average account value over the period, multiplied by 182/365 (to reflect the one-half year period).

9

BLACKROCK FUNDS

NOTE ON PERFORMANCE INFORMATION

The performance information above includes information for each class of each Portfolio since the commencement of operations of the Portfolio, rather than the date such class was introduced. Performance information for each class introduced after the commencement of operations of a Portfolio is therefore based on the performance history of a predecessor class adjusted to reflect the class specific fees applicable to each class at the time of such share class’s launch. This information may be considered when assessing the fund’s performance, but does not represent the actual performance of this share class.

Performance information is restated to reflect the current maximum front-end sales charge (in the case of Investor A Shares) or the maximum contingent deferred sales charge (in the case of Investor B and Investor C Shares), and assumes the reinvestment of dividends and distributions. The maximum front-end sales charges for Investor A Shares of all of the Portfolios is 4.25%. The maximum contingent deferred sales charge for Investor B Shares and Investor C Shares of all of the Portfolios is 4.50% and 1.00%, respectively.

The performance information also reflects fee waivers and reimbursements that subsidize and reduce the total operating expenses of each Portfolio. The Portfolios’ returns would have been lower if there were no such waivers and reimbursements. BlackRock Advisors, LLC is under no obligation to waive or continue waiving its fees after February 1, 2008, as described in the prospectus of the Portfolios. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.

The performance information for the Lipper General Municipal Debt Funds, Lipper Ohio Municipal Debt Funds, Lipper Other States Municipal Debt Funds and Lipper Kentucky Municipal Debt Funds represents the average of the total returns reported by all of the mutual funds designated by Lipper, Inc. as falling into the respective category. These total returns are reported net of expenses and other fees that the Securities and Exchange Commission requires to be reflected in a mutual fund’s performance.

The performance shown in the line graph is that of Institutional Shares and Investor A Shares of the Portfolios. The actual performance of Investor B, Investor C and Service Shares is lower than the performance of Institutional Shares because Investor B, Investor C and Service Shares have higher expenses than Institutional Shares. Excluding the effects of sales charges, the actual performance of Investor B and Investor C Shares is lower than the performance of Investor A Shares because Investor B and Investor C Shares have higher expenses than Investor A Shares. Purchasers of Investor A Shares generally pay a front-end sales charge, while purchasers of Investor B and Investor C Shares may pay a contingent deferred sales charge (depending on how long they hold their shares) when they sell their shares.

10

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

AMT-FREE MUNICIPAL BOND PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS — 93.7%
Alabama — 3.6%
Alabama St. Pub. Sch. & Coll. Auth. Cap. Imp. Rev., Ser. 99C
5.75%	07/01/18	$	3,000	$	3,168,300
Jefferson Cnty. Swr. Rev., Warrants, Ser. 03B-8
5.25%	02/01/13		7,725		8,039,948
Tuscaloosa Spec. Care Fac. Rev., Capstone Vlg. Prj., Ser. 05A
5.12%	08/01/15		2,000		1,976,920
Arizona — 0.4%					13,185,168
Pima Cnty. Ind. Dev. Auth. Ed. Rev., Arizona Charter Sch. Prj., Ser. 07O
5.25%	07/01/31		1,285		1,319,965
California — 10.1%
Bay Area Toll Auth. Rev., San Francisco Bay Area Prj., Ser. 06F
5.00%	04/01/31		2,000		2,117,380
California St. GO, Ser. 05
5.00%	06/01/33		8,505		8,946,920
California St. GO, Ser. 07
5.00%	12/01/25		5,000		5,294,500
Foothill Eastern Corridor Agcy. Toll Rd. Rev., Ser. 99
5.75%	01/15/40		8,500		8,914,120
Golden St. Tob. Securitization Corp. Rev., Ser. 07A-1
5.75%	06/01/47		2,400		2,549,808
Infra. & Econ. Dev. Rev., Salvation Army Western Prj., Ser. 06
5.00%	09/01/28		3,065		3,256,470
Los Altos Sch. Dist. Cap. Apprec. GO, Ser. 01B
5.87%(b)(c)	08/01/13		3,380		1,702,269
Los Angeles Uni. Sch. Dist. GO, Ser. 06F
5.00%	07/01/30		2,000		2,126,220
Sacramento Mun. Util. Dist. Elec. Rev., Ser. 92C
5.75%	11/15/09		430		430,757
Stockton-East Wtr. Dist. Rev., Ser. 02B
6.12%(c)	04/01/28		4,495		1,379,426
					36,717,870
Colorado — 2.2%
Colorado Hlth. Fac. Auth. Rev., Adventist Hlth./Sunbelt Prj., Ser. 06
5.12%	11/15/29		5,000		5,253,650
5.25%	11/15/35		2,000		2,117,620
Colorado Hlth. Fac. Auth. Rev., Christian Living Cmnty’s. Prj., Ser. 06A
5.75%	01/01/37		550		575,476
					7,946,746
District of Columbia — 0.0%
District of Columbia GO, Ser. 93A-1
6.00%(b)	06/01/11		50		54,443
Florida — 10.0%
Ave Maria Stewardship Cmnty. Dev. Dist. GO, Ser. 06
4.80%	11/01/12		1,000		997,010
Florida St. Bd. of Ed. Cap. Outlay GO, Ser. 00D
5.75%	06/01/22		7,800		8,318,934
Florida St. Bd. of Ed. GO, Ser. 05A
5.00%	01/01/16		5,000		5,419,150
Highlands Cnty. Hlth. Facs. Auth. Rev., Hosp. Adventist Hlth. Sys. Prj., Ser. 06G
5.12%	11/15/32		4,300		4,483,954
Jacksonville Econ. Dev. Cmnty. Hlth. Care Fac. Rev., Mayo Clinic Prj., Ser. 06
5.00%	11/15/36		2,500		2,609,700
Northern Palm Beach Cnty. Imp. Dist. Rev., Wtr. Ctl. & Impt.-Unit Dev. Prj., Ser. 05-9B
5.00%	08/01/29		2,835		3,011,195
Orange Cnty. Hlth. Fac. Auth. Rev., Orlando Hosp. Regl. Hlth. Care Prj., Ser. 06B
5.12%	11/15/39		4,000		4,160,600
Riviera Beach Util. Spl. Dist. Wtr. & Swr. Rev., Ser. 04
5.00%	10/01/29		4,245		4,458,821
Tampa Wtr. & Swr. Rev., Ser. 02
6.00%	10/01/14 - 10/01/16		2,455		2,847,536
					36,306,900
Georgia — 1.8%
Atlanta Arpt. Fac. Rev., Ser. 94A
6.50%	01/01/10		1,000		1,074,470
Cobb Cnty. & Marietta Wtr. Auth. Rev., Ser. 02
5.50%	11/01/14		1,000		1,106,890
Forsyth Cnty. Sch. Dist. GO, Ser. 92
6.70%	07/01/12		1,000		1,092,010
Fulton Cnty. Fac. Corp. COP, Fulton Cnty. Pub. Purp. Prj., Ser. 99
5.50%	11/01/18		1,000		1,065,540
Gainesville Redev. Auth. Edl. Fac. Rev., Riverside Military Academy Prj., Ser. 07
5.12%	03/01/27		1,100		1,130,965
Mun. Elec. Auth. Pwr. Rev., Ser. 93B
5.70%	01/01/19		1,000		1,110,770
					6,580,645
Hawaii — 1.9%
Hawaii St. Hwy. Rev., Ser. 05B
5.00%	07/01/16		6,495		7,008,884

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

11

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

AMT-FREE MUNICIPAL BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Illinois — 5.2%
Chicago O’Hare Intl. Arpt. Rev., Gen. Arpt. Third Lien Prj., Ser. 05B
5.25%	01/01/15	$	7,720	$	8,421,825
Chicago Wtr. Rev., Ser. 97
5.50%(b)	11/01/07		8,885		9,151,905
5.50%	11/01/22		1,020		1,049,448
Illinois Hsg. Dev. Auth. Rev., Multi-Fam. Prj., Ser. 94-5
6.65%	09/01/14		250		250,298
					18,873,476
Indiana — 0.4%
Indiana Hlth. Fac. Fing. Auth. Hosp. Rev., Methodist Hosp., Inc. Prj., Ser. 01
5.50%	09/15/31		1,320		1,336,170
Louisiana — 0.5%
Orleans Rev., Levee Dist. Pub. Imp. Prj., Ser. 86
5.95%	11/01/15		1,885		1,934,915
Maryland — 2.9%
Howard Cnty. GO, Cons. Pub. Imp. Prj., Ser. 04A
5.00%	08/15/19		6,695		7,412,168
Howard Cnty. Retirement Rev., Vantage House Fac. Prj., Ser. 07A
5.25%	06/15/27		2,000		2,054,820
Maryland St. Hlth. & Hgr. Edl. Fac. Auth. Rev., Ser. 07B
5.00%	01/01/17		1,000		1,004,920
					10,471,908
Massachusetts — 1.8%
Massachusetts St. GO, Ser. 04B
5.25%	08/01/15		5,000		5,509,100
Massachusetts St. Hlth. & Edl. Facs. Auth. Rev., Newton-Wellesley Hosp. Prj., Ser. 97G
6.12%	07/01/15		1,000		1,024,870
					6,533,970
Michigan — 0.5%
Huron Vy. Sch. Dist. GO, Ser. 96
5.88%(b)	05/01/07		2,000		2,003,660
Minnesota — 2.3%
Pub. Facs. Auth. Wtr. Poll. Ctl. Rev., Ser. 05C
5.00%	03/01/17		7,500		8,216,325
Missouri — 2.4%
Jackson Cnty. Spl. Oblig. Rev., Ser. 06
5.00%	12/01/22		5,000		5,356,000
Kansas City Mun. Assistance Corp. Rev., Ser. 06
5.00%	04/15/20		3,165		3,393,165
					8,749,165
Montana — 1.5%
Montana St. Dept. Trans. Rev., Hwy. 93 Const. Prj., Ser. 05
5.25%	06/01/16		5,000		5,505,550
Multi-State — 4.7%
Charter Mac Equity Issue Tr., Ser. 99
6.62%(d)	06/30/09		3,000		3,145,140
Charter Mac Equity Issue Tr., Ser. 00
7.60%(d)	11/30/10		9,000		9,895,050
MuniMae Tax-Exempt Bond Subs., LLC, Ser. 00
6.88%(d)	06/30/09		4,000		4,210,360
					17,250,550
Nebraska — 0.3%
Omaha Pub. Pwr. Dist. Elec. Rev., Ser. 92B
6.15%	02/01/12		1,000		1,073,770
Nevada — 1.5%
Clark Cnty. Sch. Dist. GO, Ser. 04A
5.00%	06/15/16		5,000		5,352,500
New Jersey — 9.9%
New Jersey Hlth. Care Fac. Fing. Auth. Rev., St. Barnabas Hlth. Care Sys. Prj., Ser. 06A
5.00%	07/01/29		3,575		3,671,954
New Jersey St. Edl. Facs. Auth. Hgr. Ed. Cap. Imp. Rev., Ser. 05A
5.00%	09/01/14		5,000		5,394,650
New Jersey St. GO, Ser. 05L
5.25%	07/15/16		5,000		5,556,600
New Jersey St. Hwy. Auth. Rev., Garden St. Pkwy. Prj., Ser. 92
6.20%	01/01/10		6,225		6,508,611
New Jersey St. Tpke. Auth. Rev., Ser. 00A
5.75%(b)	01/01/10		4,000		4,221,080
New Jersey St. Trans. Tr. Fd. Auth. Trans. Sys. Rev., Ser. 00A
6.00%(b)	06/15/10		10,000		10,698,500
					36,051,395
New York — 6.7%
New York City GO, Ser. 03I
5.75%(b)	03/01/13 - 03/01/19		4,480		4,961,896
New York City GO, Ser. 04G
5.00%	12/01/23		5,000		5,296,650
New York City Mun. Fin. Auth. Wtr. & Swr. Sys. Rev., Ser. 07A
4.25%	06/15/39		4,400		4,185,588
New York City Transl. Fin. Auth. Rev., Ser. 02A
5.25%	11/01/11		3,300		3,523,872

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

12

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

AMT-FREE MUNICIPAL BOND PORTFOLIO (CONTINUED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
New York (Continued)
Tobacco Settlement Fin. Corp. Rev., Ser. 03A-1
5.50%	06/01/14	$	6,075	$	6,287,747
					24,255,753
North Carolina — 2.9%
Mun. Pwr. Agcy. Rev., Catawba Elec. Prj., Ser. 92A
6.00%	01/01/10		300		318,447
North Carolina St. Hwy. GO, Ser. 04
5.00%	05/01/15		9,325		10,064,006
					10,382,453
Oregon — 2.4%
Clackamas Cnty. Unltd. GO, Sch. Dist. No. 62 Oregon City Prj., Ser. 00C
5.50%(b)	06/15/10		3,185		3,364,666
Port Portland Arpt. Rev., Ser. 99
5.50%	07/01/24		5,000		5,203,250
					8,567,916
Pennsylvania — 2.4%
Delaware Cnty. Auth. Rev., Mercy Hlth. Corp. Prj., Ser. 96
5.75%	12/15/20		2,400		2,543,664
Philadelphia Ind. Dev. Auth. Rev., PGH Dev. Corp. Prj., Ser. 93
5.25%	07/01/17		1,935		1,936,625
Philadelphia Sch. Dist. GO, Ser. 99C
5.75%	03/01/10		4,000		4,224,800
					8,705,089
Puerto Rico — 0.9%
Pub. Fin. Corp. Cmwlth. Approp. Rev., Ser. 02E
5.50%(b)	02/01/12		2,990		3,228,901
Rhode Island — 0.7%
Rhode Island Depositors Econ. Protection Corp. SO, Ser. 93
5.62%	08/01/09		355		363,680
5.62%(b)	08/01/09		190		194,697
Rhode Island St. Hlth. & Edl. Bldg. Corp. Rev., Hosp. Fing.-Lifespan Prj., Ser. 97
5.50%(b)	05/15/07		1,800		1,839,762
5.50%	05/15/16		200		204,366
					2,602,505
South Carolina — 0.4%
South Carolina Jobs Econ. Dev. Auth. Hlth. Fac. Rev., First Mtg. Episcopal Church Prj., Ser. 07
5.00%	04/01/24		1,500		1,543,890
Texas — 3.0%
Grand Prairie Indpt. Sch. Dist. GO, Ser. 00A
5.80%(b)	08/15/11		4,925		5,338,996
Texas Wtr. Fin. Assist. GO, Ser. 00
5.75%	08/01/22		3,445		3,651,218
Texas (Continued)
Travis Cnty. Hlth. Fac. Dev. Corp. Rev., Ascension Hlth. Credit Prj., Ser. 99A
5.88%(b)	11/15/09		1,980		2,105,195
					11,095,409
Utah — 0.0%
Salt Lake City Hosp. Rev., Ser. 88A
8.12%(b)	05/15/15		100		116,675
Virginia — 3.1%
Pocahontas Pkwy. Toll Rd. Rev., Ser. 98B
5.85%(b)(c)	08/15/08		14,300		5,835,258
Virginia St. GO, Ser. 05A
5.00%	06/01/19		5,000		5,372,850
					11,208,108
Washington — 7.3%
Douglas Cnty. Pub. Util. Dist. Wells Hydroelectric Rev., Ser. 05B
5.00%	09/01/30		5,000		5,270,150
King Cnty. Unltd. GO, Sch. Dist. No. 414 Lake Washington Prj., Ser. 00
5.75%(b)	12/01/10		500		535,725
Pierce Cnty. Unltd. GO, Sch. Dist. No. 416 White River Prj., Ser. 00
6.00%(b)	12/01/10		5,345		5,772,440
Washington St. GO, Ser. 00B
6.00%(b)	01/01/10		14,000		14,853,300
					26,431,615
TOTAL MUNICIPAL BONDS (Cost $331,116,023)					340,612,289
MORTGAGE PASS-THROUGHS — 0.0%
Government National Mortgage Assoc. I
6.00%
(Cost $2,848)	11/15/31		3		2,794
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 93.7% (Cost $331,118,871)					340,615,083
AFFILIATED INVESTMENTS - LONG TERM — 8.0%
Delaware Vy. Regl. Fin. Auth. Loc. Govt. Rev., Ser. 02B
5.75%(e)	07/01/32		10,000		12,063,431
Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A
5.50%(e)	10/01/40		15,950		17,057,193
TOTAL AFFILIATED INVESTMENTS - LONG TERM (Cost $26,948,003)					29,120,624

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

13

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

AMT-FREE MUNICIPAL BOND PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	NUMBER OF SHARES	VALUE
AFFILIATED INVESTMENTS - SHORT TERM — 2.0%
Merrill Lynch Institutional Tax-Exempt Fund, 3.48%(f)
(Cost $7,300,000)	7,300,000	$	7,300,000
TOTAL INVESTMENTS IN SECURITIES — 103.7% (Cost $365,366,874(a))			377,035,707
OTHER ASSETS IN EXCESS OF LIABILITIES — 1.5%			5,514,325
LIABILITY FOR TRUST CERTIFICATES, INCLUDING INTEREST AND FEES PAYABLE — (5.2)%			(18,918,978	)
NET ASSETS — 100.0%		$	363,631,054

(a) Cost for federal income tax purposes is $346,736,874. The difference between book-basis and tax-basis is attributable primarily to the difference between book and tax treatment of residual interests in tender option bond trusts. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	12,040,002
Gross unrealized depreciation		(371,169	)
	$	11,668,833

(b) This bond is prerefunded. U.S. government securities, held in escrow, are used to pay interest on this security, as well as refund the bond in full at date indicated, typically at a premium to par.

(c) The rate shown is the effective yield on the zero coupon bonds at the time of purchase.

(d) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 4.7% of its net assets, with a current market value of $17,250,550, in securities restricted as to resale.

(e) Security represents underlying bonds transferred to a separate securitization trust established in a tender option bond transaction in which the Portfolio acquired the residual interest certificates. These securities serve as collateral in a financing transaction. See Note B to the Financial Statements for details of Municipal Bonds held in Trust.

(f) Represents current yield as of March 31, 2007.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

14

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

OHIO MUNICIPAL BOND PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS — 86.0%
Multi-State — 6.0%
Charter Mac Equity Issue Tr., Ser. 99
6.62%(b)	06/30/09	$	1,000	$	1,048,380
Charter Mac Equity Issue Tr., Ser. 00
7.60%(b)	11/30/10		1,000		1,099,450
MuniMae Tax-Exempt Bond Subs., LLC, Ser. 00
6.88%(b)	06/30/09		2,000		2,105,180
7.75%(b)	11/01/10		2,000		2,209,220
					6,462,230
Ohio — 70.4%
Akron GO, Ser. 01
5.50%	12/01/21		1,000		1,072,770
Brunswick GO, Ser. 94
6.30%	12/01/14		180		180,745
Butler Cnty. Trans. Imp. Dist. Rev., Ser. 97A
6.00%(c)	04/01/08		600		625,512
Cleveland COP, Cleveland Stadium Prj., Ser. 97
5.25%	11/15/10		2,500		2,572,475
Cleveland St. Univ. Gen. Receipts Rev., Ser. 04
5.00%	06/01/34		3,000		3,147,090
Columbus GO, Ser. 02
5.00%(c)	06/15/09		2,975		3,088,050
Cuyahoga Cnty. Multi-Fam. Rev., Ser. 02 AMT
5.35%	09/20/27		945		982,715
Fairfield City Sch. Dist. GO, Ser. 94
7.45%	12/01/14		1,000		1,159,500
Greater Cleveland Regl. Trans. Auth. Cap. Imp. Rev., Ser. 01A
5.12%(c)	12/01/11		1,000		1,063,630
Hamilton Cnty. Sales Tax Rev., Ser. 00B
5.25%(c)	12/01/10		3,985		4,206,128
5.25%	12/01/32		1,015		1,060,665
Hamilton Cnty. Swr. Sys. Rev., Ser. 05B
5.00%	12/01/16		2,720		2,942,741
Hsg. Fin. Agcy. Rev., Wind River Prj., Ser. 94A AMT
5.55%	11/01/18		300		306,972
Lakota Loc. Sch. Dist. GO, Ser. 05
5.00%	12/01/16		2,115		2,293,062
Marysville Sch. Dist. GO, Ser. 98
6.00%(c)	12/01/10		1,910		2,081,518
Mason City Sch. Dist. GO, Ser. 01
5.38%(c)	12/01/11		3,000		3,222,840
Mason City Sch. Dist. GO, Ser. 05
5.00%	12/01/15		3,000		3,264,090
New Albany Cmnty. Auth. Fac. Rev., Ser. 01B
5.12%	10/01/21		2,750		2,913,295
Northwestern Sch. Dist. Rev., Wayne & Ashland Cntys. Prj., Ser. 94
7.20%	12/01/10		300		317,409
Ohio St. Bldg. Auth. Data Ctr. Rev., Ser. 93A
5.90%	10/01/07		450		455,022
Ohio St. Comm. Sch. Capital Fac. Rev., Ser. 94A
5.75%(c)	06/15/09		1,000		1,044,540
Ohio St. Env. Imp. Rev., USX Corp. Prj., Ser. 99
5.62%	05/01/29		1,000		1,048,020
Ohio St. Hgr. Ed. Fac. Rev., Denison Univ. Prj., Ser. 01
5.12%(c)	11/01/11		3,000		3,213,240
Ohio St. Hgr. Edl. Fac. Rev., Univ. Hosp. Hlth. Sys. Prj., Ser. 07
4.50%	01/15/31		2,000		1,942,940
Ohio St. Infra. Imp. GO, Ser. 97
5.35%	08/01/14		2,380		2,621,808
Ohio St. Major New St. Rev., Ser. 05
5.00%	12/15/14		2,660		2,877,136
Ohio St. Univ. GO, Ser. 02A
5.25%	12/01/18		3,290		3,529,347
Ohio St. Wtr. Dev. Auth. Poll. Ctrl. Fac. Rev., Republic Steel Prj., Ser. 95
6.38%	06/01/07		415		416,847
Ohio St. Wtr. Dev. Auth. Poll. Ctrl. Rev., Ser. 02
5.25%(c)	06/01/12		3,415		3,667,300
Ohio St. Wtr. Dev. Auth. Rev., Steel-Cargill North Star Broken Hill Prj., Ser. 95 AMT
6.30%	09/01/20		500		510,720
Pickerington Loc. Sch. Dist. Fac. Const. & Imp. Rev., Ser. 01
5.25%(c)	12/01/11		1,000		1,068,960
Scioto Cnty. Rev., Marine Term. Norfolk Southern Corp. Prj., Ser. 98
5.30%	08/15/13		3,000		3,087,090
Springboro Wtr. Sys. Rev., Ser. 98
5.00%	12/01/18		2,500		2,573,475
Trotwood-Madison City Sch. Dist. GO, Ser. 02
5.00%(c)	12/01/12		2,000		2,134,100
Univ. of Cincinnati Rev., Ser. 01A
5.00%	06/01/31		2,000		2,072,600
Univ. of Toledo Rev., Ser. 02
5.25%(c)	06/01/11		1,195		1,268,743
Univ. of Toledo Rev., Ser. 07A
4.50%	06/01/30		1,000		1,001,500
West Muskingum Loc. Sch. Dist. Sch. Fac. Const. & Imp. GO, Ser. 03
5.00%	12/01/24		3,000		3,175,740
Westlake GO, Ser. 96
6.40%	12/01/08		1,095		1,114,228
					75,324,563
Puerto Rico — 9.6%
Cmwlth. GO, Ser. 02
5.50%	07/01/11		5,000		5,371,200

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

15

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

OHIO MUNICIPAL BOND PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Puerto Rico (Continued)
Pub. Fin. Corp. Cmwlth. Approp. Rev., Ser. 02E
5.50%(c)	02/01/12	$	2,990	$	3,228,901
Puerto Rico Cmwlth. Hwy. & Trans. Auth. Trans. Rev., Ser. 07N
5.25%	07/01/39		1,400		1,633,506
					10,233,607
TOTAL MUNICIPAL BONDS (Cost $88,114,975)					92,020,400
		NUMBER OF SHARES
SHORT TERM INVESTMENTS(D) — 0.1%
Wilmington Trust Tax-Free Money Market Fund, 3.13%(d) (Cost $95,452)			95,452		95,452
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 86.1% (Cost $88,210,427)					92,115,852
		PAR (000)
AFFILIATED INVESTMENTS - LONG TERM — 33.8%
Puerto Rico Cmwlth. Hwy. & Trans. Auth. Rev.
5.00%(e)	07/01/18	$	12,745		13,005,100
Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A
5.38%(e)	10/01/16		1,600		1,706,256
5.50%(e)	10/01/17		2,000		2,138,920
5.50%(e)	10/01/18		2,000		2,140,300
5.50%(e)	10/01/19		2,630		2,811,506
5.50%(e)	10/01/20		1,000		1,069,810
5.38%(e)	10/01/24		1,000		1,065,730
Puerto Rico Pub. Bldgs. Auth. Govt. Facs. Rev., Ser. 97B
5.00%(e)	07/01/27		12,000		12,220,080
TOTAL AFFILIATED INVESTMENTS - LONG TERM (Cost $34,103,697)					36,157,702
		NUMBER OF SHARES
AFFILIATED INVESTMENTS - SHORT TERM — 0.8%
CMA Ohio Municipal Money Fund, 2.99%(d) (Cost $900,000)			900,000		900,000

	VALUE
TOTAL INVESTMENTS IN SECURITIES — 120.7% (Cost $123,214,124(a))	$	129,173,554
OTHER ASSETS IN EXCESS OF LIABILITIES — 1.5%		1,581,761
LIABILITY FOR TRUST CERTIFICATES, INCLUDING INTEREST AND FEES PAYABLE — (22.2)%		(23,715,560	)
NET ASSETS — 100.0%	$	107,039,755

(a) Cost for federal income tax purposes is $99,789,124. The difference between book-basis and tax-basis is attributable primarily to the difference between book and tax treatment of residual interests in tender option bond trusts. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	5,979,170
Gross unrealized depreciation		(19,740	)
	$	5,959,430

(b) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 6.0% of its net assets, with a current market value of $6,462,230, in securities restricted as to resale.

(c) This bond is prerefunded. U.S. government securities, held in escrow, are used to pay interest on this security, as well as refund the bond in full at date indicated, typically at a premium to par.

(d) Represents current yield as of March 31, 2007.

(e) Security represents underlying bonds transferred to a separate securitization trust established in a tender option bond transaction in which the Portfolio acquired the residual interest certificates. These securities serve as collateral in a financing transaction. See Note B to the Financial Statements for details of Municipal Bonds held in Trust.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

16

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

DELAWARE MUNICIPAL BOND PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS — 74.6%
Delaware — 62.1%
Delaware River & Bay Auth. Rev., Ser. 03
5.25%(b)	01/01/13	$	1,000	$	1,078,520
Delaware River & Bay Auth. Rev., Ser. 05
5.00%	01/01/24		1,000		1,060,560
Delaware St. Econ. Dev. Auth. Poll. Ctrl. Rev., Delmarva Pwr. Prj., Ser. 02B
5.20%	02/01/19		1,000		1,050,040
Delaware St. Econ. Dev. Auth. Rev., Del. Tech. Pk. Univ. Del. Prj., Ser. 00
6.00%	02/01/21		1,000		1,068,940
Delaware St. Econ. Dev. Auth. Rev., Delmarva Pwr. Prj., Ser. 00 AMT
5.65%	07/01/28		3,850		4,005,925
Delaware St. Econ. Dev. Auth. Rev., First Mtg. Gilpin Prj., Ser. 98
5.62%	07/01/19		2,000		2,051,300
Delaware St. Econ. Dev. Auth. Rev., United Wtr. Delaware, Inc. Prj., Ser. 95 AMT
6.20%	06/01/25		2,000		2,007,240
Delaware St. Econ. Dev. Auth. Rev., Wtr. Dev. Prj., Ser. 92B
6.45%	12/01/07		1,165		1,184,828
Delaware St. GO, Ser. 04A
5.00%	01/01/09		1,000		1,024,200
Delaware St. Hlth. Fac. Auth. Rev., Beebe Med. Ctr. Prj., Ser. 04A
5.50%	06/01/24		1,000		1,066,310
Delaware St. Hlth. Fac. Auth. Rev., Catholic Hlth. East Prj., Ser. 03D
5.12%	11/15/24		1,750		1,829,292
5.25%	11/15/28		2,225		2,346,930
Delaware St. Hlth. Fac. Auth. Rev., Christiana Care Hlth. Svcs. Prj., Ser. 03
5.25%	10/01/12		2,250		2,412,945
Delaware St. Hsg. Auth. Rev., Multi-Fam. Mtg. Prj., Ser. 92C
7.38%	01/01/15		1,420		1,417,288
Delaware St. Hsg. Auth. Rev., Multi-Fam. Mtg. Prj., Ser. 01A
5.40%	07/01/24		2,555		2,631,446
Delaware St. Hsg. Auth. Rev., Sr. Sgl. Fam. Mtg. Prj., Ser. 00 AMT
5.90%	07/01/20		830		842,375
Delaware St. Hsg. Auth. Rev., Sr. Sgl. Fam. Mtg. Prj., Ser. 02A AMT
5.40%	01/01/34		525		537,758
Delaware St. Sld. Wst. Auth. Poll. Ctrl. Rev., Ser. 06
5.00%	06/01/23		2,000		2,119,040
Delaware Trans. Auth. Sys. Rev., Ser. 05
5.00%	07/01/12		1,500		1,594,440
New Castle Cnty. GO, Ser. 02A
5.25%	10/01/12		1,745		1,883,047
Wilmington GO, Ser. 02
5.38%	06/01/17		1,500		1,605,495
Wilmington Pk. Auth. Gtd. Pkg. Rev., Ser. 02
5.25%	09/15/14-09/15/15		2,965		3,255,536
					38,073,455
Multi-State — 10.5%
Charter Mac Equity Issue Tr., Ser. 99
6.62%(c)	06/30/09		1,000		1,048,380
Charter Mac Equity Issue Tr., Ser. 00
7.60%(c)	11/30/10		1,000		1,099,450
MuniMae Tax-Exempt Bond Subs., LLC, Ser. 00
6.88%(c)	06/30/09		2,000		2,105,180
7.75%(c)	11/01/10		2,000		2,209,220
					6,462,230
Puerto Rico — 2.0%
Pub. Fin. Corp. Cmwlth. Approp. Rev., Ser. 98A
5.38%	06/01/14		50		55,196
Puerto Rico Cmwlth. Hwy. Trans. Auth. Rev., Ser. 07CC
5.50%	07/01/31		1,000		1,154,740
					1,209,936
TOTAL MUNICIPAL BONDS (Cost $44,389,852)					45,745,621
		NUMBER OF SHARES
SHORT TERM INVESTMENTS — 0.0%
Wilmington Trust Tax-Free Money Market Fund, 3.13%(d) (Cost $6,407)			6,407		6,407
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 74.6% (Cost $44,396,259)					45,752,028
		PAR (000)
AFFILIATED INVESTMENTS - LONG TERM — 60.0%
Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A
5.38%(e)	10/01/16	$	1,600		1,706,256
5.50%(e)	10/01/17		2,000		2,138,920
5.50%(e)	10/01/18		2,000		2,140,300
5.50%(e)	10/01/19		2,630		2,811,506
5.50%(e)	10/01/20		1,000		1,069,810
5.38%(e)	10/01/24		1,000		1,065,730

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

17

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

DELAWARE MUNICIPAL BOND PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
AFFILIATED INVESTMENTS - LONG TERM (Continued)
Puerto Rico Pub. Fin. Corp. Cmwlth. Approp. Rev., Ser. 98A
5.38%(e)	06/01/12	$	12,200	$	13,192,600
5.38%(e)	06/01/14		11,500		12,692,084
TOTAL AFFILIATED INVESTMENTS - LONG TERM (Cost $34,486,771)					36,817,206
		NUMBER OF SHARES
AFFILIATED INVESTMENTS - SHORT TERM — 0.5%
Merrill Lynch Institutional Tax-Exempt Fund, 3.48%(d) (Cost $300,000)			300,000		300,000
TOTAL INVESTMENTS IN SECURITIES — 135.1% (Cost $79,183,030(a))					82,869,234
OTHER ASSETS IN EXCESS OF LIABILITIES — 1.9%					1,153,267
LIABILITY FOR TRUST CERTIFICATES, INCLUDING INTEREST AND FEES PAYABLE — (37.0)%					(22,685,834	)
NET ASSETS — 100.0%				$	61,336,667

(a) Cost for federal income tax purposes is $56,890,970. The difference between book-basis and tax-basis net unrealized gains is attributable primarily to the tax deferral of loses on wash sales and the difference between book and tax treatment of residual interests in tender option bond trusts. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	3,758,927
Gross unrealized depreciation		(135,663	)
	$	3,623,264

(b) This bond is prerefunded. U.S. government securities, held in escrow, are used to pay interest on this security, as well as refund the bond in full at date indicated, typically at a premium to par.

(c) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 10.5% of its net assets, with a current market value of $6,462,230, in securities restricted as to resale.

(d) Represents current yield as of March 31, 2007.

(e) Security represents underlying bonds transferred to a separate securitization trust established in a tender option bond transaction in which the Portfolio acquired the residual interest certificates. These securities serve as collateral in a financing transaction. See Note B to the Financial Statements for details of Municipal Bonds held in Trust.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

18

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

KENTUCKY MUNICIPAL BOND PORTFOLIO

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS — 84.6%
Kentucky — 66.6%
Boone Cnty. Sch. Dist. Fin. Corp. Sch. Bldg. Rev., Ser. 00B
5.38%(b)	08/01/10	$	2,500	$	2,656,325
Bowling Green Sch. Dist. Fin. Corp. Rev., Ser. 00
5.75%	01/01/18-01/01/20		2,185		2,315,510
Bullitt Cnty. Sch. Dist. Fin. Corp. Rev., Ser. 06
4.12%	12/01/24		1,300		1,261,000
Campbell & Kenton Cnty. Sant. Dist. Rev., Ser. 06
4.38%	08/01/30		1,500		1,477,260
4.38%	08/01/31		2,115		2,076,021
4.38%	08/01/32		2,275		2,228,772
4.38%	08/01/34		1,050		1,024,580
Frankfort Elec. & Wtr. Plant Bd. Rev., Ser. 99
5.60%	12/01/19		1,045		1,103,624
Hardin Cnty. Sch. Dist. Fin. Corp. Sch. Bldg. Rev., Ser. 00
5.50%(b)	02/01/10		1,675		1,772,803
Hopkins Cnty. GO, Detention Fac. Prj., Ser. 00
5.75%(b)	02/01/10		1,800		1,917,108
Hsg. Corp. Hsg. Rev., Ser. 01F AMT
5.45%	01/01/32		1,365		1,400,667
Hsg. Corp. Hsg. Rev., Ser. 06U AMT
4.85%	07/01/27		5,305		5,378,899
Jefferson Cnty. Sch. Dist. Fin. Corp. Sch. Bldg. Rev., Ser. 99A
5.25%	01/01/14		2,000		2,084,720
Jefferson Cnty. Sch. Dist. Fin. Corp. Sch. Bldg. Rev., Ser. 06B
4.12%	12/01/25		1,500		1,447,770
Kenton Cnty. Arpt. Bd. Arpt. Rev., Cincinnati Northern Kentucky Prj., Ser. 97A AMT
6.30%	03/01/15		1,000		1,021,880
Kenton Cnty. Pub. Pptys. Corp. Rev., First Mtg. Court Facs. Prj., Ser. 07
4.38%	03/01/29		1,750		1,726,865
Kentucky Econ. Dev. Fin. Auth. Hlth. Sys. Rev., Norton Healthcare, Inc. Prj., Ser. 00A
6.62%(b)	10/01/10		1,370		1,511,617
6.62%	10/01/28		380		417,704
Kentucky Hsg. Corp. Hsg. Rev., Ser. 07C AMT
4.80%	07/01/37		1,000		994,240
Kentucky Rural. Wtr. Fin. Corp. Rev., Ser. 07A
4.38%	02/01/32		585		573,241
Kentucky St. Ppty. & Bldg. Comm. Rev., Prj. 65, Ser. 00
5.95%(b)	02/01/10		2,325		2,467,708
Kentucky St. Ppty. & Bldg. Comm. Rev., Prj. 71, Ser. 01
5.50%	08/01/11		1,000		1,072,280
Kentucky St. Ppty. & Bldg. Comm. Rev., Prj. 74, Ser. 02
5.00%(b)	02/01/12-10/01/13	$	4,825	$	5,126,149
Kentucky St. Ppty. & Bldg. Comm. Rev., Prj. 79, Ser. 03
5.12%(b)	10/01/13		2,350		2,539,152
Kentucky St. Ppty. & Bldg. Comm. Rev., Prj. 85, Ser. 05
5.00%	08/01/15		1,000		1,084,850
Kentucky St. Tpke. Auth. Econ. Dev. Rev., Revitalization Prj., Ser. 95
6.50%	07/01/08		3,000		3,103,560
Kentucky St. Tpke. Auth. Econ. Dev. Rev., Revitalization Prj., Ser. 01A
5.50%	07/01/15		1,000		1,119,400
Lexington-Fayette Urban Cnty. Govt. GO, Ser. 00A
5.75%	02/01/20		1,500		1,593,420
Lexington-Fayette Urban Cnty. Govt. Pub. Facs. Corp. Rev., Ser. 06
4.12%	10/01/22		930		911,726
4.25%	10/01/28		1,300		1,264,250
Lexington-Fayette Urban Cnty. Govt. Swr. Sys. Rev., Ser. 01A
5.00%	07/01/20-07/01/21		3,775		3,981,757
Louisville & Jefferson Cnty. Met. Gov. Hlth. Sys. Rev., Norton Hlth. Care, Inc. Prj., Ser. 06
5.25%	10/01/36		2,750		2,899,352
Louisville & Jefferson Cnty. Met. Swr. & Drain Sys. Rev., Ser. 97A
6.25%(b)	05/15/07		1,015		1,028,276
Louisville & Jefferson Cnty. Met. Swr. & Drain Sys. Rev., Ser. 99A
5.75%	05/15/33		3,750		3,962,925
Louisville & Jefferson Cnty. Regl. Arpt. Auth. Arpt. Sys. Rev., Ser. 01A AMT
5.75%	07/01/15		1,755		1,889,082
Louisville & Jefferson Cnty. Regl. Arpt. Auth. Spec. Fac. Rev., Ser. 99 AMT
5.50%	03/01/19		3,000		3,073,680
Louisville Wtrwks. Brd. Wtr. Sys. Rev., Louisville Wtr. Co. Prj., Ser. 00
5.25%	11/15/16		2,590		2,723,100
Taylor Cnty. GO, Detention Fac. Prj., Ser. 07
4.50%	09/01/32		1,000		998,460
Warren Cnty. Hosp. Fac. Rev., Cmnty. Hosp. Corp. Prj., Ser. 07A
5.00%	08/01/29		1,000		1,029,230
					76,258,963

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

19

BLACKROCK FUNDS

SCHEDULE OF INVESTMENTS

KENTUCKY MUNICIPAL BOND PORTFOLIO (CONCLUDED)

AS OF MARCH 31, 2007 (UNAUDITED)

(PERCENTAGES SHOWN ARE BASED ON NET ASSETS)

	MATURITY	PAR (000)		VALUE
MUNICIPAL BONDS (Continued)
Multi-State — 6.7%
Charter Mac Equity Issue Tr., Ser. 99
6.62%(c)	06/30/09	$	1,000	$	1,048,380
Charter Mac Equity Issue Tr., Ser. 00
7.60%(c)	11/30/10		4,000		4,397,800
MuniMae Tax-Exempt Bond Subs., LLC, Ser. 00
7.75%(c)	11/01/10		2,000		2,209,220
					7,655,400
Puerto Rico — 11.3%
Cmwlth. Hwy. & Trans. Auth. Rev., Ser. 00C
6.00%(b)	07/01/10		5,000		5,404,650
Pub. Fin. Corp. Cmwlth. Approp. Rev., Ser. 02E
5.50%(b)	02/01/12		3,740		4,038,826
Puerto Rico Cmwlth. Hwy. & Trans. Auth. Trans. Rev., Ser. 07N
5.25%	07/01/39		3,000		3,500,370
					12,943,846
TOTAL MUNICIPAL BONDS (Cost $93,336,864)					96,858,209
		NUMBER OF SHARES
SHORT TERM INVESTMENTS — 0.1%
Wilmington Trust Tax-Free Money Market Fund, 3.13%(d) (Cost $55,243)			55,243		55,243
TOTAL MARKET VALUE OF SECURITIES BEFORE AFFILIATED INVESTMENTS — 84.7% (Cost $93,392,107)					96,913,452
		PAR (000)
AFFILIATED INVESTMENTS - LONG TERM — 14.0%
Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 97A
6.11%(e)	07/01/12	$	5,000		5,103,300
Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A
5.38%(e)	10/01/16		1,600		1,706,256
5.50%(e)	10/01/17		2,000		2,138,920
5.50%(e)	10/01/18		2,000		2,140,300
5.50%(e)	10/01/19		2,630		2,811,506
5.50%(e)	10/01/20		1,000		1,069,810
5.38%(e)	10/01/24		1,000		1,065,730
TOTAL AFFILIATED INVESTMENTS - LONG TERM (Cost $15,302,522)					16,035,822

	NUMBER OF SHARES	VALUE
AFFILIATED INVESTMENTS - SHORT TERM — 9.5%
Merrill Lynch Institutional Tax-Exempt Fund, 3.48%(d) (Cost $10,900,000)	10,900,000	$	10,900,000
TOTAL INVESTMENTS IN SECURITIES — 108.2% (Cost $119,594,629(a))			123,849,274
OTHER ASSETS IN EXCESS OF LIABILITIES — 1.9%			2,184,516
LIABILITY FOR TRUST CERTIFICATES, INCLUDING INTEREST AND FEES PAYABLE — (10.1)%			(11,548,738	)
NET ASSETS — 100.0%		$	114,485,052

(a) Cost for federal income tax purposes is $108,256,789. The difference between book-basis and tax-basis net unrealized gains is attributable primarily to the tax deferral of loses on wash sales and the difference between book and tax treatment of residual interests in tender option bond trusts. The gross unrealized appreciation (depreciation) on a tax basis is as follows:

Gross unrealized appreciation	$	4,463,007
Gross unrealized depreciation		(236,079	)
	$	4,226,928

(b) This bond is prerefunded. U.S. government securities, held in escrow, are used to pay interest on this security, as well as refund the bond in full at date indicated, typically at a premium to par.

(c) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors. As of March 31, 2007, the Portfolio held 6.7% of its net assets, with a current market value of $7,655,400, in securities restricted as to resale.

(d) Represents current yield as of March 31, 2007.

(e) Security represents underlying bonds transferred to a separate securitization trust established in a tender option bond transaction in which the Portfolio acquired the residual interest certificates. These securities serve as collateral in a financing transaction. See Note B to the Financial Statements for details of Municipal Bonds held in Trust.

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

20

BLACKROCK FUNDS

Key to Investment Abbreviations

AMT	Alternative Minimum Tax (subject to)
COP	Certificates of Participation
GO	General Obligations
SO	Special Obligations

21

BLACKROCK FUNDS

STATEMENTS OF ASSETS AND LIABILITIES

AS OF MARCH 31, 2007 (UNAUDITED)

	AMT-FREE MUNICIPAL BOND PORTFOLIO			OHIO MUNICIPAL BOND PORTFOLIO			DELAWARE MUNICIPAL BOND PORTFOLIO			KENTUCKY MUNICIPAL BOND PORTFOLIO
ASSETS
Investments at value - unaffiliated1	$	340,615,083		$	92,115,852		$	45,752,028		$	96,913,452
Investments at value - affiliated long term2		29,120,624			36,157,702			36,817,206			16,035,822
Investments at value - affiliated short term3		7,300,000			900,000			300,000			10,900,000
Interest receivable		5,122,647			1,988,478			1,384,331			1,590,870
Investments sold receivable		5,543,971			—			—			—
Receivable from advisor		46			661			742			199
Capital shares sold receivable		32,052			48,058			35,858			1,105,463
Prepaid expenses		44,224			10,325			10,612			24,050
TOTAL ASSETS		387,778,647			131,221,076			84,300,777			126,569,856
LIABILITIES
Trust certificates		18,630,000			23,425,000			22,355,000			11,365,557
Interest expense and fees payable		288,978			290,560			330,834			183,181
Cash overdraft		43,697			—			—			—
Investments purchased payable		3,600,130			—			—			—
Capital shares redeemed payable		385,282			35,002			43,474			14,800
Distributions payable		974,548			336,164			164,619			446,788
Advisory fees payable		98,677			40,798			23,701			37,493
Administration fees payable		29,828			7,444			4,720			8,837
Custodian fees payable		6,758			4,445			3,598			4,699
Transfer agent fees payable		14,937			4,250			4,768			2,919
Distribution fees payable		—			8,189			9,304			3,670
Officers’ and trustees’ fees payable		55			33			30			22
Other accrued expenses payable		74,703			29,436			24,062			16,838
TOTAL LIABILITIES		24,147,593			24,181,321			22,964,110			12,084,804
NET ASSETS	$	363,631,054		$	107,039,755		$	61,336,667		$	114,485,052
1        Cost of investments - unaffiliated	$	331,118,871		$	88,210,427		$	44,396,259		$	93,392,107
2        Cost of investments - affiliated long term		26,948,003			34,103,697			34,486,771			15,302,522
3        Cost of investments - affiliated short term		7,300,000			900,000			300,000			10,900,000
AT MARCH 31, 2007, NET ASSETS CONSISTED OF:
Capital Paid in	$	372,251,118		$	104,324,123		$	60,695,164		$	114,370,817
Undistributed net investment income (distributions in excess of net investmentincome)		719,110			510,959			(21,245	)		560,285
Accumulated net realized loss oninvestment transactions		(21,008,007	)		(3,754,757	)		(3,023,456	)		(4,700,695	)
Net unrealized appreciation on investments		11,668,833			5,959,430			3,686,204			4,254,645
	$	363,631,054		$	107,039,755		$	61,336,667		$	114,485,052

22

BLACKROCK FUNDS

	AMT-FREE MUNICIPAL BOND PORTFOLIO			OHIO MUNICIPAL BOND PORTFOLIO			DELAWARE MUNICIPAL BOND PORTFOLIO			KENTUCKY MUNICIPAL BOND PORTFOLIO
BlackRock Shares:
Net Assets	$	67,203,680		$	—		$	—		$	—
Shares outstanding, unlimited number of shares authorized, $0.001 par value		6,181,727			—			—			—
Net Asset Value, offering and redemption price per share	$	10.87		$	—		$	—		$	—
Institutional Shares:
Net Assets	$	279,371,595		$	86,344,015		$	36,745,391		$	92,552,997
Shares outstanding, unlimited number of shares authorized, $0.001 par value		25,688,355			8,259,719			3,765,570			9,801,413
Net Asset Value, offering and redemption price per share	$	10.88		$	10.45		$	9.76		$	9.44
Service Shares:
Net Assets	$	1,167,101		$	964,131		$	—		$	273,098
Shares outstanding, unlimited number of shares authorized, $0.001 par value		107,398			92,134			—			28,904
Net Asset Value, offering and redemption price per share	$	10.87		$	10.46		$	—		$	9.45
Investor A Shares:
Net Assets	$	9,445,819		$	7,285,029		$	10,838,916		$	12,315,173
Shares outstanding, unlimited number of shares authorized, $0.001 par value		868,273			696,834			1,110,069			1,304,213
Net Asset Value and redemption price per share	$	10.88		$	10.45		$	9.76		$	9.44
Maximum Sales Charge		4.25	%		4.25	%		4.25	%		4.25	%
Maximum offering price per share	$	11.36		$	10.91		$	10.19		$	9.86
Investor B Shares:
Net Assets	$	3,423,428		$	5,758,911		$	5,413,325		$	2,099,493
Shares outstanding, unlimited number of shares authorized, $0.001 par value		314,354			550,716			554,260			222,306
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 4.50%)	$	10.89		$	10.46		$	9.77		$	9.44
Investor C Shares:
Net Assets	$	3,019,431		$	6,687,669		$	8,339,035		$	7,244,291
Shares outstanding, unlimited number of shares authorized, $0.001 par value		277,605			639,250			854,043			765,222
Net Asset Value, offering and redemption price per share (maximum contingent deferred sales charge of 1.00%)	$	10.88		$	10.46		$	9.76		$	9.47

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

23

BLACKROCK FUNDS

STATEMENTS OF OPERATIONS

FOR THE SIX MONTHS ENDED MARCH 31, 2007 (UNAUDITED)

	AMT-FREE MUNICIPAL BOND PORTFOLIO			OHIO MUNICIPAL BOND PORTFOLIO			DELAWARE MUNICIPAL BOND PORTFOLIO			KENTUCKY MUNICIPAL BOND PORTFOLIO
Investment income:
Interest	$	8,093,670		$	2,243,286		$	1,122,217		$	1,908,193
Dividends		46,653			20,987			10,840			38,057
Interest from affiliates		623,682			922,642			873,326			430,990
Dividends from affiliates		30,741			3,383			1,646			27,333
Total Investment Income		8,794,746			3,190,298			2,008,029			2,404,573
Expenses:
Investment advisory fees		906,481			268,906			174,306			234,776
Administration fees		135,972			40,336			23,769			32,015
Administration fees - class specific		45,331			13,451			7,929			10,649
Custodian fees		16,840			8,881			4,075			4,740
Transfer agent fees - class specific		15,142			12,021			9,461			4,795
Shareholder servicing fees - class specific		21,268			27,661			32,277			14,716
Distribution fees - class specific		19,702			51,615			55,662			14,537
Legal and audit fees		25,771			18,238			18,229			18,787
Printing fees		18,114			6,616			3,816			4,565
Registration fees and expenses		24,086			6,211			6,934			6,997
Officers’ and trustees’ fees		15,010			4,502			2,647			2,428
Other		13,594			5,452			3,539			3,942
Total expenses excluding interest expense and fees		1,257,311			463,890			342,644			352,947
Interest expense and fees		350,544			440,925			423,716			221,196
Total expenses		1,607,855			904,815			766,360			574,143
Less investment advisory fees waived		(340,570	)		(37,921	)		(33,288	)		(53,135	)
Less fees waived by advisor		(469	)		(601	)		(23	)		(421	)
Less administration fees waived - class specific		(8,652	)		(11,320	)		(2,614	)		(392	)
Less transfer agent fees waived - class specific		(264	)		(688	)		(317	)		(35	)
Less transfer agent fees reimbursed - class specific		(367	)		(5,615	)		(4,770	)		(963	)
Less fees paid indirectly (Note C)		(28	)		(24	)		(20	)		(6	)
Net expenses		1,257,505			848,646			725,328			519,191
Net investment income		7,537,241			2,341,652			1,282,701			1,885,382
Realized and unrealized gain (loss):
Net realized gain (loss) from:
Investment transactions		1,582,070			(8,055	)		(145,960	)		(750	)
Change in unrealized appreciation/depreciation from:
Investments - unaffiliated		(3,087,743	)		(407,148	)		(80,617	)		(713,791	)
Investments - affiliated		(13,803	)		(396,789	)		(242,956	)		(91,649	)
		(3,101,546	)		(803,937	)		(323,573	)		(805,440	)
Net loss on investments		(1,519,476	)		(811,992	)		(469,533	)		(806,190	)
Net increase in net assets resulting from operations	$	6,017,765		$	1,529,660		$	813,168		$	1,079,192

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

24

BLACKROCK FUNDS

STATEMENTS OF CHANGES IN NET ASSETS

	AMT-FREE BOND MUNICIPAL PORTFOLIO						OHIO MUNICIPAL BOND PORTFOLIO
	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase in net assets:
Operations:
Net investment income	$	7,537,241		$	16,110,604		$	2,341,652		$	5,336,455
Net realized gain (loss)		1,582,070			(4,247	)		(8,055	)		101,076
Net change in unrealized appreciation/depreciation		(3,101,546	)		(2,884,383	)		(803,937	)		(1,822,507	)
Net increase in net assets resulting from operations		6,017,765			13,221,974			1,529,660			3,615,024
Distributions to shareholders from:
Net investment income:
BlackRock Class		(1,531,748	)		(3,475,086	)		—			—
Institutional Class		(5,980,780	)		(11,882,404	)		(1,802,966	)		(4,350,150	)
Service Class		(23,908	)		(56,532	)		(19,916	)		(38,325	)
Investor A Class		(190,600	)		(359,666	)		(146,328	)		(307,822	)
Investor B Class		(59,216	)		(140,467	)		(98,718	)		(283,695	)
Investor C Class		(43,969	)		(84,593	)		(116,187	)		(249,319	)
Total distributions from net investment income		(7,830,221	)		(15,998,748	)		(2,184,115	)		(5,229,311	)
Capital share transactions (Note E)		4,121,112			(35,607,848	)		(3,433,956	)		(13,854,272	)
Total increase (decrease) in net assets		2,308,656			(38,384,622	)		(4,088,411	)		(15,468,559	)
Net assets:
Beginning of period		361,322,398			399,707,020			111,128,166			126,596,725
End of period	$	363,631,054		$	361,322,398		$	107,039,755		$	111,128,166
End of period undistributed net investment income	$	719,110		$	1,012,090		$	510,959		$	353,422

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

25

BLACKROCK FUNDS

STATEMENTS OF CHANGES IN NET ASSETS (CONCLUDED)

	DELAWARE MUNICIPAL BOND PORTFOLIO						KENTUCKY MUNICIPAL BOND PORTFOLIO
	FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06			FOR THE SIX MONTHS ENDED 3/31/07 (UNAUDITED)			FOR THE YEAR ENDED 9/30/06
Increase in net assets:
Operations:
Net investment income	$	1,282,701		$	2,897,754		$	1,885,382		$	3,471,984
Net realized gain (loss)		(145,960	)		(220,565	)		(750	)		261,796
Net change in unrealized appreciation/depreciation		(323,573	)		(822,016	)		(805,440	)		(1,676,375	)
Net increase in net assets resulting from operations		813,168			1,855,173			1,079,192			2,057,405
Distributions to shareholders from:
Net investment income:
Institutional Class		(766,573	)		(1,754,372	)		(2,116,206	)		(2,598,714	)
Service Class		—			—			(7,120	)		(9,756	)
Investor A Class		(212,207	)		(482,604	)		(208,860	)		(235,933	)
Investor B Class		(93,057	)		(221,242	)		(51,654	)		(78,190	)
Investor C Class		(138,254	)		(354,034	)		(39,835	)		(28,120	)
Total distributions from net investment income		(1,210,091	)		(2,812,252	)		(2,423,675	)		(2,950,713	)
Capital share transactions (Note E)		(3,635,477	)		(15,693,449	)		44,060,812			(9,666,669	)
Total increase (decrease) in net assets		(4,032,400	)		(16,650,528	)		42,716,329			(10,559,977	)
Net assets:
Beginning of period		65,369,067			82,019,595			71,768,723			82,328,700
End of period	$	61,336,667		$	65,369,067		$	114,485,052		$	71,768,723
End of period undistributed net investment income	$	(21,245	)	$	(93,855	)	$	560,285		$	1,098,578

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

26

BLACKROCK FUNDS

STATEMENT OF CASH FLOWS

OHIO MUNICIPAL BOND PORTFOLIO

FOR THE SIX MONTHS ENDED MARCH 31, 2007 (UNAUDITED)

Increase (decrease)in cash
Cash flows from operating activities:
Net increase in net assets resulting from operations	$	1,529,660
Adjustments to reconcile net increase in net assets resulting from operations to net cash from operating activities:
Purchase of long-term investment securities		(9,763,580	)
Proceeds from disposition and maturities of long-term investment securities		12,309,595
Net sale of short-term investment securities		779,693
Net decrease in unrealized appreciation on investment securities		803,937
Net realized loss on investment securities		8,055
Net amortization of premium (discount)		(137,913	)
Decrease in interest receivable		94,565
Increase in prepaid expenses		(1,454	)
Decrease in receivable from advisor		964
Decrease in interest and fees payable		(3,449	)
Increase in accrued expenses		2,302
Net cash provided by operating activities		5,622,375
Cash flows used for financing activities:
Proceeds from shares sold		8,808,648
Shares redeemed		(12,527,268	)
Cash distributions paid		(1,903,755	)
Net cash used for financing activities		(5,622,375	)
Net increase (decrease) in cash		—
Cash and cash equivalents:
Beginning balance		—
Ending balance	$	—
Supplemental disclosure of cash flow information:
Reinvestment of dividends and distributions (non-cash financing activity)	$	168,453
Cash (paid during the year for interest)		444,374

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

27

BLACKROCK FUNDS

STATEMENT OF CASH FLOWS

DELAWARE MUNICIPAL BOND PORTFOLIO

FOR THE SIX MONTHS ENDED MARCH 31, 2007 (UNAUDITED)

Increase (decrease) in cash
Cash flows from operating activities:
Net increase in net assets resulting from operations	$	813,168
Adjustments to reconcile net increase in net assets resulting from operations to net cash from operating activities:
Purchase of long-term investment securities		(4,364,820	)
Proceeds from disposition and maturities of long-term investment securities		6,840,855
Net sale of short-term investment securities		845,643
Net decrease in unrealized appreciation on investment securities		323,573
Net realized loss on investment securities		145,960
Net amortization of premium (discount)		204,468
Decrease in interest receivable		65,138
Increase in prepaid expenses		(3,480	)
Increase in receivable from advisor		(76	)
Decrease in interest and fees payable		(268	)
Decrease in accrued expenses		(10,440	)
Net cash provided by operating activities		4,859,721
Cash flows used for financing activities:
Increase in secured borrowings, including interest payable and fees
Proceeds from shares sold		2,256,728
Shares redeemed		(6,079,762	)
Cash distributions paid		(1,036,687	)
Net cash used for financing activities		(4,859,721	)
Net increase (decrease) in cash		—
Cash and cash equivalents:
Beginning balance		—
Ending balance	$	—
Supplemental disclosure of cash flow information:
Reinvestment of dividends and distributions (non-cash financing activity)	$	184,725
Cash (paid during the year for interest)		423,984

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

28

BLACKROCK FUNDS

STATEMENT OF CASH FLOWS

KENTUCKY MUNICIPAL BOND PORTFOLIO

FOR THE SIX MONTHS ENDED MARCH 31, 2007 (UNAUDITED)

Increase (decrease)in cash
Cash flows from operating activities:
Net increase in net assets resulting from operations	$	1,079,192
Adjustments to reconcile net increase in net assets resulting from operations to net cash from operating activities:
Purchase of long-term investment securities		(40,234,828	)
Proceeds from disposition and maturities of long-term investment securities		6,953,196
Net purchase of short-term investment securities		(8,999,800	)
Net decrease in unrealized appreciation on investment securities		805,440
Net realized loss on investment securities		750
Net amortization of premium (discount)		62,404
Increase in interest receivable		(403,239	)
Increase in prepaid expenses		(17,982	)
Increase in receivable from advisor		(43	)
Increase in interest and fees payable		561
Increase in accrued expenses		15,939
Net cash provided by operating activities		(40,738,410	)
Cash flows used for financing activities:
Proceeds from shares sold		50,270,529
Shares redeemed		(7,586,330	)
Cash distributions paid		(1,945,789	)
Net cash used for financing activities		40,738,410
Net increase (decrease) in cash		—
Cash and cash equivalents:
Beginning balance		—
Ending balance	$	—
Supplemental disclosure of cash flow information:
Reinvestment of dividends and distributions (non-cash financing activity)	$	297,233
Cash (paid during the year for interest)		220,635

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

29

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	BLACKROCK CLASS									INSTITUTIONAL CLASS
AMT-FREE MUNICIPAL BOND PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30						PERIOD ENDED 9/30/041			PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005									2006			2005			2004			20032			20022
Net asset value, beginning of period	$	10.93		$	10.99		$	11.11		$	11.22		$	10.93		$	11.00		$	11.11		$	11.22		$	11.38		$	11.38
Net investment income		0.23	3		0.47	3		0.49	3		0.37	3		0.23	3		0.46	3		0.47	3		0.48	3		0.54			0.57
Net realized and unrealized loss on investments		(0.05	)		(0.06	)		(0.17	)		(0.10	)		(0.04	)		(0.07	)		(0.12	)		(0.10	)		(0.17	)		(0.01	)
Net increase from investment operations		0.18			0.41			0.32			0.27			0.19			0.39			0.35			0.38			0.37			0.56
Distributions from net investment income		(0.24	)		(0.47	)		(0.44	)		(0.38	)		(0.24	)		(0.46	)		(0.46	)		(0.49	)		(0.53	)		(0.56	)
Net asset value, end of period	$	10.87		$	10.93		$	10.99		$	11.11		$	10.88		$	10.93		$	11.00		$	11.11		$	11.22		$	11.38
Total return		1.64	%4		3.83	%		3.23	%		2.46	%4		1.72	%4		3.65	%		3.17	%		3.46	%		3.40	%		5.08	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	67,204		$	71,890		$	85,552		$	100,489		$	279,372		$	271,641		$	295,737		$	308,122		$	334,685		$	360,392
Ratio of net expenses to average net assets (excluding interest expense and fees)		0.45	%5		0.45	%		0.45	%		0.45	%5		0.48	%5		0.52	%		0.60	%		0.60	%		0.60	%		0.60	%
Ratio of net expenses to average net assets (including interest expense and fees)		0.64	%5		0.64	%6		0.57	%6		0.51	%5,6		0.67	%5		0.71	%6		0.72	%6		0.66	%6		0.69	%6		0.67	%6
Ratio of total expenses to average net assets (including interest expense and fees and excluding waivers)		0.86	%5		0.88	%6		0.83	%6		0.75	%5,6		0.86	%5		0.92	%6		0.95	%6		0.88	%6		0.92	%6		0.88	%6
Ratio of net investment income to average net assets		4.21	%5		4.35	%		4.39	%		4.34	%5		4.18	%5		4.26	%		4.24	%		4.34	%		4.80	%		5.10	%
Ratio of net investment income to average net assets (excluding waivers)		3.99	%5		4.11	%		4.13	%		4.10	%5		3.99	%5		4.05	%		4.01	%		4.12	%		4.57	%		4.89	%
Portfolio turnover rate		44	%		66	%6		87	%6		69	%6		44	%		66	%6		87	%6		69	%6		72	%6		45	%6

	SERVICE CLASS																		INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20032			20022						2006			2005			2004			20032			20022
Net asset value, beginning of period	$	10.92		$	10.99		$	11.10		$	11.21		$	11.38		$	11.38		$	10.93		$	11.00		$	11.12		$	11.22		$	11.38		$	11.38
Net investment income		0.213			0.433			0.443			0.453			0.49			0.55			0.213			0.433			0.443			0.443			0.48			0.52
Net realized and unrealized loss on investments		(0.04	)		(0.08	)		(0.12	)		(0.10	)		(0.16	)		(0.02	)		(0.04	)		(0.07	)		(0.13	)		(0.10	)		(0.16	)		(0.01	)
Net increase from investment operations		0.17			0.35			0.32			0.35			0.33			0.53			0.17			0.36			0.31			0.34			0.32			0.51
Distributions from net investment income		(0.22	)		(0.42	)		(0.43	)		(0.46	)		(0.50	)		(0.53	)		(0.22	)		(0.43	)		(0.43	)		(0.44	)		(0.48	)		(0.51	)
Net asset value, end of period	$	10.87		$	10.92		$	10.99		$	11.10		$	11.21		$	11.38		$	10.88		$	10.93		$	11.00		$	11.12		$	11.22		$	11.38
Total return		1.53	%4		3.29	%		2.91	%		3.16	%		2.99	%		4.77	%		1.55	%4,7		3.35	%7		2.81	%7		3.10	%7		2.91	%7		4.59	%7
Ratios/Supplemental data:
Net assets, end of period (000)	$	1,167		$	1,249		$	2,312		$	2,702		$	2,971		$	3,103		$	9,446		$	9,713		$	8,965		$	7,711		$	8,573		$	8,179
Ratio of net expenses to average net assets (excluding interest expense and fees)		0.81	%5		0.88	%		0.86	%		0.86	%		0.90	%		0.90	%		0.79	%5		0.82	%		0.86	%		1.00	%		1.07	%		1.07	%
Ratio of net expenses to average net assets (including interest expense and fees)		1.00	%5		1.07	%6		0.98	%6		0.92	%6		0.99	%6		0.97	%6		0.98	%5		1.01	%6		0.98	%6		1.06	%6		1.16	%6		1.14	%6
Ratio of total expenses to average net assets (including interest expense and fees and excluding waivers)		1.19	%5		1.62	%6		1.20	%6		1.14	%6		1.22	%6		1.18	%6		1.17	%5		1.31	%6		1.30	%6		1.37	%6		1.39	%6		1.36	%6
Ratio of net investment income to average net assets		3.85	%5		3.91	%		3.99	%		4.09	%		4.46	%		4.81	%		3.86	%5		3.97	%		3.99	%		3.95	%		4.31	%		4.62	%
Ratio of net investment income to average net assets (excluding waivers)		3.66	%5		3.36	%		3.77	%		3.87	%		4.23	%		4.60	%		3.67	%5		3.67	%		3.67	%		3.64	%		4.08	%		4.41	%
Portfolio turnover rate		44	%		66	%6		87	%6		69	%6		72	%6		45	%6		44	%		66	%6		87	%6		69	%6		72	%6		45	%6

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

30

BLACKROCK FUNDS

	INVESTOR B CLASS																		INVESTOR C CLASS
AMT-FREE MUNICIPAL BOND PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20032			20022						2006			2005			2004			20032			20022
Net asset value, beginning of period	$	10.93		$	11.00		$	11.11		$	11.22		$	11.38		$	11.38		$	10.93		$	11.00		$	11.12		$	11.21		$	11.38		$	11.38
Net investment income		0.18	3		0.35	3		0.36	3		0.36	3		0.40			0.43			0.17	3		0.35	3		0.36	3		0.35	3		0.41			0.43
Net realized and unrealized loss on investments		(0.04	)		(0.08	)		(0.12	)		(0.11	)		(0.16	)		(0.01	)		(0.04	)		(0.07	)		(0.13	)		(0.08	)		(0.18	)		(0.01	)
Net increase from investment operations		0.14			0.27			0.24			0.25			0.24			0.42			0.13			0.28			0.23			0.27			0.23			0.42
Distributions from net investment income		(0.18	)		(0.34	)		(0.35	)		(0.36	)		(0.40	)		(0.42	)		(0.18	)		(0.35	)		(0.35	)		(0.36	)		(0.40	)		(0.42	)
Net asset value, end of period	$	10.89		$	10.93		$	11.00		$	11.11		$	11.22		$	11.38		$	10.88		$	10.93		$	11.00		$	11.12		$	11.21		$	11.38
Total return8		1.25	%4		2.55	%		2.14	%		2.24	%		2.14	%		3.81	%		1.18	%4		2.59	%		2.05	%		2.33	%		2.05	%		3.81	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	3,423		$	4,168		$	4,839		$	5,869		$	7,161		$	6,211		$	3,019		$	2,662		$	2,303		$	2,918		$	2,559		$	2,857
Ratio of net expenses to average net assets (excluding interest expense and fees)		1.36	%5		1.60	%		1.61	%		1.75	%		1.82	%		1.82	%		1.53	%5		1.56	%		1.62	%		1.73	%		1.82	%		1.82	%
Ratio of net expenses to average net assets (including interest expense and fees)		1.55	%5		1.79	%6		1.73	%6		1.81	%6		1.91	%6		1.89	%6		1.72	%5		1.75	%6		1.74	%6		1.79	%6		1.91	%6		1.89	%6
Ratio of total expenses to average net assets (including interest expense and fees and excluding waivers)		1.74	%5		1.99	%6		1.96	%6		2.03	%6		2.14	%6		2.10	%6		1.91	%5		1.95	%6		1.97	%6		2.01	%6		2.14	%6		2.10	%6
Ratio of net investment income to average net assets		3.31	%5		3.20	%		3.24	%		3.21	%		3.57	%		3.87	%		3.12	%5		3.22	%		3.26	%		3.17	%		3.59	%		3.89	%
Ratio of net investment income to average net assets (excluding waivers)		3.12	%5		3.00	%		3.01	%		2.99	%		3.34	%		3.66	%		2.93	%5		3.02	%		3.03	%		2.96	%		3.36	%		3.68	%
Portfolio turnover rate		44	%		66	%6		87	%6		69	%6		72	%6		45	%6		44	%		66	%6		87	%6		69	%6		72	%6		45	%6

¹ Commencement of operations of share class effective 12/22/03.

² Audited by other auditors prior to the effect of the restatement discussed in Note H.

³ Calculated using the average shares outstanding method.

⁴ Not annualized.

⁵ Annualized.

⁶ As restated (See Note H).

⁷ Sales load not reflected in total return.

⁸ Contingent deferred sales load not reflected in total return.

31

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

OHIO MUNICIPAL BOND PORTFOLIO	INSTITUTIONAL CLASS																		SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	10.52		$	10.64		$	10.88		$	10.87		$	11.09		$	10.80		$	10.53		$	10.65		$	10.89		$	10.87		$	11.09		$	10.80
Net investment income		0.24	2		0.48	2		0.48	2		0.54	2		0.52			0.52			0.22	2		0.44	2		0.45	2		0.51	2		0.52			0.48
Net realized and unrealized gain (loss) on investments		(0.09	)		(0.13	)		(0.21	)		(0.03	)		(0.22	)		0.35			(0.09	)		(0.12	)		(0.21	)		(0.02	)		(0.26	)		0.36
Net increase from investment operations		0.15			0.35			0.27			0.51			0.30			0.87			0.13			0.32			0.24			0.49			0.26			0.84
Distributions from net investment income		(0.22	)		(0.47	)		(0.51	)		(0.50	)		(0.52	)		(0.58	)		(0.20	)		(0.44	)		(0.48	)		(0.47	)		(0.48	)		(0.55	)
Net asset value, end of period	$	10.45		$	10.52		$	10.64		$	10.88		$	10.87		$	11.09		$	10.46		$	10.53		$	10.65		$	10.89		$	10.87		$	11.09
Total return		1.44	%3		3.37	%		2.55	%		4.82	%		2.79	%		8.40	%		1.29	%3		3.06	%		2.24	%		4.60	%		2.48	%		8.08	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	86,344		$	87,546		$	100,501		$	96,730		$	97,589		$	96,974		$	964		$	1,122		$	736		$	700		$	727		$	205
Ratio of net expenses to average net assets (excluding interest expense and fees)		0.60	%4		0.60	%		0.60	%		0.60	%		0.60	%		0.60	%		0.90	%4		0.90	%		0.90	%		0.81	%		0.90	%		0.90	%
Ratio of net expenses to average net assets (including interest expense and fees)		1.42	%4		1.27	%5		1.04	%5		0.84	%5		0.93	%5		0.96	%5		1.72	%4		1.57	%5		1.34	%5		1.05	%5		1.23	%5		1.26	%5
Ratio of total expenses to average net assets (including interest expense and fees and excluding waivers)		1.52	%4		1.42	%5		1.29	%5		1.08	%5		1.16	%5		1.17	%5		1.79	%4		1.67	%5		1.54	%5		1.26	%5		1.45	%5		1.48	%5
Ratio of net investment income to average net assets		4.51	%4		4.56	%		4.47	%		4.97	%		4.78	%		4.93	%		4.21	%4		4.25	%		4.16	%		4.74	%		4.58	%		4.59	%
Ratio of net investment income to average net assets (excluding waivers)		4.41	%4		4.41	%		4.22	%		4.73	%		4.55	%		4.71	%		4.14	%4		4.15	%		3.96	%		4.52	%		4.36	%		4.37	%
Portfolio turnover rate		6	%		13	%5		9	%5		5	%5		15	%5		22	%5		6	%		13	%5		9	%5		5	%5		15	%5		22	%5

	INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	10.52		$	10.64		$	10.88		$	10.87		$	11.09		$	10.80
Net investment income		0.22	2		0.45	2		0.44	2		0.49	2		0.46			0.46
Net realized and unrealized gain (loss) on investments		(0.08	)		(0.14	)		(0.21	)		(0.03	)		(0.21	)		0.36
Net increase from investment operations		0.14			0.31			0.23			0.46			0.25			0.82
Distributions from net investment income		(0.21	)		(0.43	)		(0.47	)		(0.45	)		(0.47	)		(0.53	)
Net asset value, end of period	$	10.45		$	10.52		$	10.64		$	10.88		$	10.87		$	11.09
Total return6		1.32	%3		3.05	%		2.14	%		4.34	%		2.31	%		7.90	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	7,285		$	7,557		$	8,873		$	5,043		$	7,494		$	15,587
Ratio of net expenses to average net assets (excluding interest expense and fees)		0.85	%4		0.90	%		0.99	%		1.07	%		1.08	%		1.06	%
Ratio of net expenses to average net assets (including interest expense and fees)		1.67	%4		1.57	%5		1.43	%5		1.31	%5		1.41	%5		1.42	%5
Ratio of total expenses to average net assets (including interest expense and fees and excluding waivers)		1.84	%4		1.81	%5		1.64	%5		1.58	%5		1.64	%5		1.64	%5
Ratio of net investment income to average net assets		4.27	%4		4.26	%		4.05	%		4.56	%		4.32	%		4.37	%
Ratio of net investment income to average net assets (excluding waivers)		4.10	%4		4.02	%		3.84	%		4.29	%		4.09	%		4.16	%
Portfolio turnover rate		6	%		13	%5		9	%5		5	%5		15	%5		22	%5

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

32

BLACKROCK FUNDS

	INVESTOR B CLASS																		INVESTOR C CLASS
OHIO MUNICIPAL BOND PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	10.52		$	10.64		$	10.88		$	10.87		$	11.09		$	10.80		$	10.53		$	10.65		$	10.89		$	10.87		$	11.09		$	10.80
Net investment income		0.18	2		0.36	2		0.36	2		0.41	2		0.39			0.39			0.18	2		0.36	2		0.36	2		0.41	2		0.40			0.39
Net realized and unrealized gain (loss) on investments		(0.08	)		(0.13	)		(0.21	)		(0.03	)		(0.23	)		0.35			(0.09	)		(0.13	)		(0.21	)		(0.02	)		(0.24	)		0.35
Net increase from investment operations		0.10			0.23			0.15			0.38			0.16			0.74			0.09			0.23			0.15			0.39			0.16			0.74
Distributions from net investment income		(0.16	)		(0.35	)		(0.39	)		(0.37	)		(0.38	)		(0.45	)		(0.16	)		(0.35	)		(0.39	)		(0.37	)		(0.38	)		(0.45	)
Net asset value, end of period	$	10.46		$	10.52		$	10.64		$	10.88		$	10.87		$	11.09		$	10.46		$	10.53		$	10.65		$	10.89		$	10.87		$	11.09
Total return7		0.98	%3		2.22	%		1.38	%		3.57	%		1.54	%		7.10	%		0.90	%3		2.24	%		1.38	%		3.66	%		1.54	%		7.09	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	5,759		$	7,070		$	9,424		$	10,280		$	10,453		$	8,740		$	6,688		$	7,832		$	7,063		$	5,411		$	5,740		$	3,632
Ratio of net expenses to average net assets (excluding interest expense and fees)		1.70	%4		1.72	%		1.75	%		1.79	%		1.82	%		1.81	%		1.68	%4		1.69	%		1.74	%		1.77	%		1.82	%		1.80	%
Ratio of net expenses to average net assets (including interest expense and fees)		2.52	%4		2.39	%5		2.19	%5		2.03	%5		2.15	%5		2.17	%5		2.50	%4		2.36	%5		2.18	%5		2.01	%5		2.15	%5		2.16	%5
Ratio of total expenses to average net assets (including interest expense and fees and excluding waivers)		2.60	%4		2.46	%5		2.29	%5		2.21	%5		2.38	%5		2.39	%5		2.58	%4		2.44	%5		2.28	%5		2.19	%5		2.38	%5		2.37	%5
Ratio of net investment income to average net assets		3.42	%4		3.46	%		3.32	%		3.78	%		3.55	%		3.65	%		3.44	%4		3.46	%		3.30	%		3.80	%		3.55	%		3.60	%
Ratio of net investment income to average net assets (excluding waivers)		3.34	%4		3.39	%		3.22	%		3.60	%		3.32	%		3.44	%		3.36	%4		3.38	%		3.20	%		3.62	%		3.32	%		3.39	%
Portfolio turnover rate		6	%		13	%5		9	%5		5	%5		15	%5		22	%5		6	%		13	%5		9	%5		5	%5		15	%5		22	%5

¹ Audited by other auditors prior to the effect of the restatement discussed in Note H.

² Calculated using the average shares outstanding method.

³ Not annualized.

⁴ Annualized.

⁵ As restated (See Note H).

⁶ Sales load not reflected in total return.

⁷ Contingent deferred sales load not reflected in total return.

33

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONTINUED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS																		SERVICE CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 5/02/021,2
DELAWARE MUNICIPAL BOND PORTFOLIO				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.82		$	9.92		$	10.13		$	10.23		$	10.54		$	10.20		$	10.20
Net investment income		0.21	3		0.43	3		0.43	3		0.47	3		0.52			0.55			0.29	3
Net realized and unrealized gain (loss) on investments		(0.07	)		(0.11	)		(0.21	)		(0.08	)		(0.27	)		0.31			(0.09	)
Net increase from investment operations		0.14			0.32			0.22			0.39			0.25			0.86			0.20
Distributions from net investment income		(0.20	)		(0.42	)		(0.43	)		(0.49	)		(0.56	)		(0.52	)		(0.28	)
Net asset value, end of period	$	9.76		$	9.82		$	9.92		$	10.13		$	10.23		$	10.54		$	10.12
Total return		1.43	%4		3.34	%		2.16	%		3.92	%		2.53	%		8.75	%		1.95	%4
Ratios/Supplemental data:
Net assets, end of period (000)	$	36,745		$	38,044		$	46,782		$	54,451		$	54,512		$	71,516		$	—	5
Ratio of net expenses to average net assets (excluding interest expense and fees)		0.68	%6		0.69	%		0.70	%		0.70	%		0.70	%		0.70	%		1.00	%6
Ratio of net expenses to average net assets (including interest expense and fees)		2.02	%6		1.95	%7		1.45	%7		1.17	%7		1.36	%7		1.33	%7		1.63	%6
Ratio of total expenses to average net assets (including interest expense and fees and excluding waivers)		2.12	%6		2.11	%7		1.67	%7		1.36	%7		1.56	%7		1.52	%7		1.80	%6
Ratio of net investment income to average net assets		4.32	%6		4.43	%		4.24	%		4.61	%		5.06	%		5.40	%		5.32	%6
Ratio of net investment income to average net assets (excluding waivers)		4.22	%6		4.27	%		4.02	%		4.42	%		4.86	%		5.22	%		5.14	%6
Portfolio turnover rate		5	%		5	%7		8	%7		3	%7		26	%7		13	%7		13	%

	INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.83		$	9.93		$	10.13		$	10.24		$	10.54		$	10.20
Net investment income		0.20	3		0.40	3		0.39	3		0.42	3		0.45			0.49
Net realized and unrealized gain (loss) on investments		(0.08	)		(0.11	)		(0.20	)		(0.09	)		(0.24	)		0.32
Net increase from investment operations		0.12			0.29			0.19			0.33			0.21			0.81
Distributions from net investment income		(0.19	)		(0.39	)		(0.39	)		(0.44	)		(0.51	)		(0.47	)
Net asset value, end of period	$	9.76		$	9.83		$	9.93		$	10.13		$	10.24		$	10.54
Total return8		1.20	%4		3.01	%		1.85	%		3.35	%		2.15	%		8.25	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	10,839		$	11,560		$	14,421		$	12,895		$	8,634		$	5,106
Ratio of net expenses to average net assets (excluding interest expense and fees)		0.95	%6		1.00	%		1.09	%		1.14	%		1.17	%		1.18	%
Ratio of net expenses to average net assets (including interest expense and fees)		2.29	%6		2.26	%7		1.84	%7		1.61	%7		1.83	%7		1.81	%7
Ratio of total expenses to average net assets (including interest expense and fees and excluding waivers)		2.41	%6		2.47	%7		2.01	%7		1.87	%7		2.02	%7		1.99	%7
Ratio of net investment income to average net assets		4.06	%6		4.11	%		3.86	%		4.16	%		4.48	%		4.90	%
Ratio of net investment income to average net assets (excluding waivers)		3.94	%6		3.90	%		3.69	%		3.90	%		4.30	%		4.71	%
Portfolio turnover rate		5	%		5	%7		8	%7		3	%7		26	%7		13	%7

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

34

BLACKROCK FUNDS

	INVESTOR B CLASS																		INVESTOR C CLASS
DELAWARE MUNICIPAL BOND PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.83		$	9.93		$	10.14		$	10.24		$	10.54		$	10.20		$	9.83		$	9.93		$	10.13		$	10.24		$	10.54		$	10.20
Net investment income		0.16	3		0.33	3		0.31	3		0.35	3		0.37			0.42			0.16	3		0.33	3		0.31	3		0.35	3		0.37			0.38
Net realized and unrealized gain (loss) on investments		(0.07	)		(0.11	)		(0.21	)		(0.08	)		(0.23	)		0.32			(0.08	)		(0.11	)		(0.20	)		(0.09	)		(0.23	)		0.36
Net increase from investment operations		0.09			0.22			0.10			0.27			0.14			0.74			0.08			0.22			0.11			0.26			0.14			0.74
Distributions from net investment income		(0.15	)		(0.32	)		(0.31	)		(0.37	)		(0.44	)		(0.40	)		(0.15	)		(0.32	)		(0.31	)		(0.37	)		(0.44	)		(0.40	)
Net asset value, end of period	$	9.77		$	9.83		$	9.93		$	10.14		$	10.24		$	10.54		$	9.76		$	9.83		$	9.93		$	10.13		$	10.24		$	10.54
Total return9		0.94	%4		2.26	%		0.99	%		2.68	%		1.38	%		7.45	%		0.84	%4		2.26	%		1.10	%		2.58	%		1.38	%		7.45	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	5,413		$	6,213		$	7,524		$	8,606		$	8,528		$	3,130		$	8,339		$	9,551		$	13,293		$	14,500		$	14,529		$	3,149
Ratio of net expenses to average net assets (excluding interest expense and fees)		1.65	%6		1.72	%		1.84	%		1.89	%		1.92	%		1.92	%		1.65	%6		1.73	%		1.85	%		1.89	%		1.91	%		1.90	%
Ratio of net expenses to average net assets (including interest expense and fees)		2.99	%6		2.98	%7		2.59	%7		2.36	%7		2.58	%7		2.55	%7		2.99	%6		2.99	%7		2.60	%7		2.36	%7		2.57	%7		2.53	%7
Ratio of total expenses to average net assets (including interest expense and fees and excluding waivers)		3.19	%6		3.16	%7		2.67	%7		2.49	%7		2.75	%7		2.74	%7		3.19	%6		3.15	%7		2.67	%7		2.49	%7		2.74	%7		2.72	%7
Ratio of net investment income to average net assets		3.35	%6		3.40	%		3.10	%		3.42	%		3.70	%		4.14	%		3.35	%6		3.41	%		3.11	%		3.43	%		3.56	%		3.96	%
Ratio of net investment income to average net assets (excluding waivers)		3.15	%6		3.22	%		3.02	%		3.29	%		3.52	%		3.96	%		3.15	%6		3.25	%		3.04	%		3.30	%		3.40	%		3.77	%
Portfolio turnover rate		5	%		5	%7		8	%7		3	%7		26	%7		13	%7		5	%		5	%7		8	%7		3	%7		26	%7		13	%7

¹ Audited by other auditors prior to the effect of the restatement discussed in Note H.

² Commencement of operations of share class effective 10/01/01.

³ Calculated using the average shares outstanding method.

⁴ Not annualized.

⁵ There were no Service shares outstanding as of September 30, 2002.

⁶ Annualized.

⁷ As restated (See Note H).

⁸ Sales load not reflected in total return.

⁹ Contingent deferred sales load not reflected in total return.

35

BLACKROCK FUNDS

FINANCIAL HIGHLIGHTS (CONCLUDED)

FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD

	INSTITUTIONAL CLASS																		SERVICE CLASS
KENTUCKY MUNICIPAL BOND PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.58		$	9.69		$	9.73		$	9.77		$	9.99		$	9.94		$	9.59		$	9.70		$	9.74		$	9.78		$	9.99		$	9.95
Net investment income		0.212			0.462			0.462			0.452			0.48			0.49			0.202			0.432			0.432			0.432			0.45			0.46
Net realized and unrealized gain (loss) on investments		(0.08	)		(0.18	)		(0.14	)		(0.07	)		(0.20	)		0.07			(0.08	)		(0.18	)		(0.14	)		(0.08	)		(0.19	)		0.06
Net increase from investment operations		0.13			0.28			0.32			0.38			0.28			0.56			0.12			0.25			0.29			0.35			0.26			0.52
Distributions from net investment income		(0.27	)		(0.39	)		(0.36	)		(0.42	)		(0.50	)		(0.51	)		(0.26	)		(0.36	)		(0.33	)		(0.39	)		(0.47	)		(0.48	)
Net asset value, end of period	$	9.44		$	9.58		$	9.69		$	9.73		$	9.77		$	9.99		$	9.45		$	9.59		$	9.70		$	9.74		$	9.78		$	9.99
Total return		1.39	%3		3.01	%		3.35	%		4.01	%		2.95	%		5.82	%		1.22	%3		2.69	%		3.04	%		3.69	%		2.74	%		5.40	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	92,553		$	61,918		$	71,188		$	78,549		$	115,104		$	135,938		$	273		$	263		$	248		$	247		$	103		$	92
Ratio of net expenses to average net assets (excluding interest expense and fees)		0.63	%4		0.66	%		0.70	%		0.70	%		0.70	%		0.70	%		0.95	%4		0.97	%		1.00	%		1.00	%		1.00	%		1.00	%
Ratio of net expenses to average net assets (including interest expense and fees)		1.15	%4		1.22	%5		1.05	%5		0.86	%5		0.88	%5		0.86	%5		1.47	%4		1.53	%5		1.35	%5		1.16	%5		1.18	%5		1.16	%5
Ratio of total expenses to average net assets (including interest expense and fees and excluding waivers)		1.28	%4		1.39	%5		1.26	%5		1.05	%5		1.06	%5		1.03	%5		1.60	%4		1.68	%5		1.52	%5		1.33	%5		1.36	%5		1.33	%5
Ratio of net investment income to average net assets		4.50	%4		4.81	%		4.69	%		4.61	%		4.94	%		4.99	%		4.19	%4		4.50	%		4.38	%		4.40	%		4.57	%		4.69	%
Ratio of net investment income to average net assets (excluding waivers)		4.37	%4		4.64	%		4.48	%		4.42	%		4.76	%		4.81	%		4.06	%4		4.35	%		4.21	%		4.22	%		4.39	%		4.52	%
Portfolio turnover rate		7	%		8	%5		4	%5		7	%5		34	%5		11	%5		7	%		8	%5		4	%5		7	%5		34	%5		11	%5

	INVESTOR A CLASS
	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.58		$	9.69		$	9.73		$	9.77		$	9.99		$	9.94
Net investment income		0.19	2		0.43	2		0.42	2		0.41	2		0.44			0.44
Net realized and unrealized gain (loss) on investments		(0.07	)		(0.18	)		(0.14	)		(0.07	)		(0.20	)		0.07
Net increase from investment operations		0.12			0.25			0.28			0.34			0.24			0.51
Distributions from net investment income		(0.26	)		(0.36	)		(0.32	)		(0.38	)		(0.46	)		(0.46	)
Net asset value, end of period	$	9.44		$	9.58		$	9.69		$	9.73		$	9.77		$	9.99
Total return6		1.25	%3		2.68	%		2.95	%		3.53	%		2.46	%		5.33	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	12,315		$	6,240		$	6,377		$	5,482		$	4,701		$	3,612
Ratio of net expenses to average net assets (excluding interest expense and fees)		0.90	%4		0.97	%		1.09	%		1.15	%		1.17	%		1.18	%
Ratio of net expenses to average net assets (including interest expense andfees)		1.42	%4		1.53	%5		1.44	%5		1.31	%5		1.35	%5		1.34	%5
Ratio of total expenses to average net assets (including interest expense andfees and excluding waivers)		1.54	%4		1.75	%5		1.61	%5		1.52	%5		1.53	%5		1.51	%5
Ratio of net investment income to average net assets		4.14	%4		4.50	%		4.28	%		4.19	%		4.42	%		4.52	%
Ratio of net investment income to average net assets (excluding waivers)		4.02	%4		4.28	%		4.11	%		3.97	%		4.24	%		4.35	%
Portfolio turnover rate		7	%		8	%5		4	%5		7	%5		34	%5		11	%5

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

36

BLACKROCK FUNDS

	INVESTOR B CLASS																		INVESTOR C CLASS
KENTUCKY MUNICIPAL BOND PORTFOLIO	PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30															PERIOD ENDED 3/31/07 (UNAUDITED)			YEAR ENDED SEPTEMBER 30
				2006			2005			2004			20031			20021						2006			2005			2004			20031			20021
Net asset value, beginning of period	$	9.58		$	9.69		$	9.73		$	9.77		$	9.99		$	9.94		$	9.61		$	9.71		$	9.76		$	9.79		$	10.02		$	9.97
Net investment income		0.17	2		0.36	2		0.35	2		0.33	2		0.36			0.37			0.15	2		0.36	2		0.35	2		0.33	2		0.36			0.37
Net realized and unrealized gain (loss) on investments		(0.08	)		(0.18	)		(0.14	)		(0.07	)		(0.20	)		0.07			(0.06	)		(0.17	)		(0.15	)		(0.06	)		(0.21	)		0.07
Net increase from investment operations		0.09			0.18			0.21			0.26			0.16			0.44			0.09			0.19			0.20			0.27			0.15			0.44
Distributions from net investment income		(0.23	)		(0.29	)		(0.25	)		(0.30	)		(0.38	)		(0.39	)		(0.23	)		(0.29	)		(0.25	)		(0.30	)		(0.38	)		(0.39	)
Net asset value, end of period	$	9.44		$	9.58		$	9.69		$	9.73		$	9.77		$	9.99		$	9.47		$	9.61		$	9.71		$	9.76		$	9.79		$	10.02
Total return7		0.90	%3		1.94	%		2.18	%		2.76	%		1.70	%		4.55	%		0.90	%3		2.04	%		2.07	%		2.86	%		1.59	%		4.53	%
Ratios/Supplemental data:
Net assets, end of period (000)	$	2,099		$	2,233		$	3,578		$	3,897		$	3,795		$	2,311		$	7,244		$	1,115		$	938		$	1,399		$	1,179		$	1,036
Ratio of net expenses to average net assets (excluding interest expense and fees)		1.60	%4		1.71	%		1.85	%		1.89	%		1.92	%		1.91	%		1.52	%4		1.68	%		1.86	%		1.88	%		1.92	%		1.90	%
Ratio of net expenses to average net assets (including interest expense and fees)		2.12	%4		2.27	%5		2.20	%5		2.05	%5		2.10	%5		2.07	%5		2.04	%4		2.24	%5		2.21	%5		2.04	%5		2.10	%5		2.06	%5
Ratio of total expenses to average net assets (including interest expense and fees and excluding waivers)		2.35	%4		2.47	%5		2.27	%5		2.18	%5		2.27	%5		2.24	%5		2.19	%4		2.41	%5		2.27	%5		2.16	%5		2.28	%5		2.24	%5
Ratio of net investment income to average net assets		3.55	%4		3.78	%		3.55	%		3.44	%		3.64	%		3.71	%		3.24	%4		3.75	%		3.55	%		3.43	%		3.69	%		3.61	%
Ratio of net investment income to average net assets (excluding waivers)		3.32	%4		3.58	%		3.48	%		3.31	%		3.46	%		3.54	%		3.09	%4		3.58	%		3.49	%		3.31	%		3.50	%		3.44	%
Portfolio turnover rate		7	%		8	%5		4	%5		7	%5		34	%5		11	%5		7	%		8	%5		4	%5		7	%5		34	%5		11	%5

¹ Audited by other auditors prior to the effect of the restatement discussed in Note H.

² Calculated using the average shares outstanding method.

³ Not annualized.

⁴ Annualized.

⁵ As restated (See Note H).

⁶ Sales load not reflected in total return.

⁷ Contingent deferred sales load not reflected in total return.

37

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

(A) Organization

BlackRock Funds^SM (the “Fund”) was organized on December 22, 1988, as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. As of March 31, 2007, the Fund had 49 registered portfolios, four of which are included in these financial statements (the “Portfolios”). Each Portfolio is authorized to issue an unlimited number of shares with a par value of $0.001. Each Portfolio of the Fund may offer as many as thirteen classes of shares: BlackRock, Institutional, Service, Hilliard Lyons, Investor A, Investor A1, Investor B, Investor B1, Investor B2, Investor C, Investor C1, Investor C2 and R. Shares of all classes of a Portfolio represent equal pro-rata interests in such Portfolio, except that each class bears different expenses which reflect the difference in the range of services provided to them, mostly due to differences in distribution and service fees.

Under the Fund’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide for general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund considers the risk of loss from such claims to be remote.

(B) Summary of Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements.

Investment Valuation — Valuation of investments held by each Portfolio is as follows: fixed income investments are valued by using market quotations or prices provided by market makers; a portion of the fixed income investments are valued utilizing one or more pricing services approved by the Board of Trustees (the “Board”); an option or futures contract is valued at the last sales price prior to 4:00 p.m. (Eastern time), as quoted on the principal exchange or board of trade on which such option or futures contract is traded, or in the absence of a sale, the mean between the last bid and asked prices prior to 4:00 p.m. (Eastern time); the amortized cost method of valuation will be used with respect to debt obligations with 60 days or less remaining to maturity unless the investment advisor and/or sub-advisor under the supervision of the Board determines that such method does not represent fair value. In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the market value of such investment, the investment will be valued by, under the direction of or in accordance with a method approved by the Board as reflecting fair value (“Fair Value Assets”). The investment advisor and/or sub-advisor will submit its recommendations regarding the valuation and/or valuation methodologies for Fair Value Assets to the Portfolios’ valuation committee. Such valuation committee may accept, modify or reject any recommendations. The pricing of all Fair Value Assets shall be subsequently reported to the Board or a committee thereof. As of March 31, 2007, there were no Fair Valued Assets.

When determining the price for Fair Value Assets, the investment advisor and/or sub-advisor shall seek to determine the price that the Portfolio might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the advisor and/or sub-advisor deems relevant.

In September 2006, Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. At this time, management is evaluating the implications of FAS 157 and its impact on the Portfolios’ financial statements, if any, has not been determined.

In addition, in February 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”), which is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FAS 157. FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. FAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and

38

BLACKROCK FUNDS

liabilities. At this time, management is evaluating the implications of FAS 159 and its impact on the Portfolios’ financial statements, if any, has not been determined.

Dividends to Shareholders — Dividends from net investment income are declared by each Portfolio each day on “settled” shares (i.e. shares for which the particular Portfolio has received payment) and are paid monthly. Over the course of a year, substantially all of each Portfolio’s net investment income will be declared as dividends. The amount of the daily dividend for each Portfolio will be based on periodic projections of its net investment income. Net realized capital gains, if any, are distributed at least annually.

Investment Transactions and Investment Income — Investment transactions are accounted for on the trade date. The cost of investments sold and realized gains and losses thereon are determined by use of the specific identification method, generally first-in first-out, for both financial reporting and federal income tax purposes. Interest income is recorded on the accrual basis. Discounts and premiums on debt securities are accreted or amortized, respectively, for book and tax purposes using the effective yield-to-maturity method over the term of the instrument.

Municipal Bonds held in Trust — The Portfolios invest in leveraged residual certificates (“TOB Residuals”) issued by tender option bond trusts (“TOBs”). A TOB is established by a third party sponsor forming a special purpose entity, into which a Portfolio, or an agent on behalf of a Portfolio, transfers municipal securities. A TOB typically issues two classes of beneficial interests: short-term floating rate certificates, which are sold to third party investors, and residual certificates, which are generally issued to a Portfolio which made the transfer or to affiliates of a Portfolio. The transfer of the municipal securities to a TOB does not qualify for sale treatment under Statement of Financial Accounting standards No. 140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” therefore the municipal securities deposited into a TOB are presented in the Portfolios’ schedules of investments and the proceeds from the transaction are reported as a liability for trust certificates of the Portfolios. Similarly, proceeds from residual certificates issued to affiliates, if any, from the transaction are included in the liability for trust certificates. Interest income from the underlying security is recorded by the Portfolios on an accrual basis. Interest expense incurred on the secured borrowing and other expenses related to remarketing, administration and trustee services to a TOB are reported as expenses of the Portfolios. The floating rate certificates have interest rates that generally reset weekly and their holders have the option to tender certificates to the TOB for redemption at par at each reset date. The residual interests held by the Portfolios include the right of the Portfolios (1) to cause the holders of a proportional share of floating rate certificates to tender their certificates a par, and (2) to transfer a corresponding share of the municipal securities from the TOB to the Portfolios. At March 31, 2007, the aggregate value of the underlying municipal securities transferred to TOBs, the related liability for trust certificates and range of interest rates on the liability for trust certificates are as follows:

	AGGREGATE VALUE OF THE UNDERLYING MUNICIPAL SECURITIES TRANSFERRED TO TOB		TRUST CERTIFICATES INCLUDING INTEREST AND FEES PAYABLE		RANGE OF INTEREST RATES
AMT-Free Municipal Bond	$	29,120,624	$	18,918,978	3.36% - 3.94%
Ohio Municipal Bond	$	36,157,702	$	23,715,560	3.36% - 3.89%
Delaware Municipal Bond	$	36,817,206	$	22,685,834	3.36% - 3.89%
Kentucky Municipal Bond	$	16,035,822	$	11,548,738	3.36% - 3.89%

Financial transactions executed through TOBs generally will under-perform the market for fixed rate municipal bonds in a rising interest rate environment, but tend to outperform the market for fixed rate bonds when interest rates decline or remain relatively stable. Should short-term interest rates rise, the Portfolios’ investments in TOB Residuals likely will adversely affect the Portfolios’ net investment income and distributions to shareholders. Fluctuations in the market value of municipal securities deposited into the TOB may adversely affect the Portfolios’ net asset value per share.

While the Portfolios’ investment policies and restrictions expressly permit investments in inverse floating rate securities such as TOB Residuals, they generally do not allow the Portfolios to borrow money for purposes of making investments. The Portfolios’ management believes that the Portfolios’ restrictions on borrowings does not apply to the secured borrowings deemed to have occurred for accounting purposes.

Zero-Coupon Bonds — The Portfolios may invest in zero-coupon bonds, which are normally issued at a significant discount from face value and do not provide for periodic interest payments. Zero-coupon bonds may experience greater volatility in market value than similar maturity debt obligations which provide for regular interest payments. Additionally,

39

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

current federal tax law requires the holder of certain zero-coupon bonds to accrue income with respect to these securities prior to the receipt of cash payments. To maintain its qualification as a regulated investment company and avoid liability for federal income and excise taxes, a Portfolio may be required to distribute income accrued with respect to these securities and may have to dispose of portfolio securities under disadvantageous circumstances in order to generate cash to satisfy these distribution requirements.

Estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) requires the use of management estimates. Actual results could differ from these estimates and such differences could be material.

Other — Expenses that are directly related to one of the Portfolios are charged directly to that Portfolio. Other operating expenses are prorated to the Portfolios on the basis of relative net assets. Class-specific expenses are borne by that class. Differences in net expense ratios between classes of a Portfolio are due to class-specific expenses and waivers. Income, other expenses and realized and unrealized gains and losses of a Portfolio are allocated to the respective class on the basis of the relative net assets each day.

(C) Agreements and Other Transactions with Affiliates and Related Parties

Pursuant to an Investment Advisory Agreement, BlackRock Advisors, LLC (“BlackRock”), an indirect wholly-owned subsidiary of BlackRock, Inc., serves as investment advisor to the Portfolios. BlackRock Financial Management, Inc., (“BFM”), an indirect wholly-owned subsidiary of BlackRock, Inc., serves as sub-advisor for all of the Portfolios. Merrill Lynch & Co., Inc.(“Merrill Lynch”) and The PNC Financial Services Group, Inc. (“PNC”) are principal owners of BlackRock, Inc.

For its advisory services, BlackRock is entitled to receive fees, computed daily and payable monthly, at the following annual rates, based on each Portfolio’s average daily net assets:

	AMT-FREE MUNICIPAL BOND AND OHIO MUNICIPAL BOND PORTFOLIOS		DELAWARE MUNICIPAL BOND AND KENTUCKY MUNICIPAL BOND PORTFOLIOS
AVERAGE DAILY NET ASSETS	INVESTMENT ADVISORY FEE		INVESTMENT ADVISORY FEE
first $1 billion	0.500	%	0.550	%
$1 billion — $2 billion	0.450		0.500
$2 billion — $3 billion	0.425		0.475
greater than $ 3 billion	0.400		0.450

BlackRock has voluntarily agreed to reduce its fees for advisory services by the amount of advisory fees earned by companies considered to be an affiliate of the Portfolios, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, on short term investments in those companies by the portfolios. The amount of these voluntary reductions are shown on the Statements of Operations as “fees waived by advisory”.

BlackRock pays BFM fees for its sub-advisory services.

PFPC Trust Company (“PTC”), an indirect wholly-owned subsidiary of PNC, serves as custodian for each of the Portfolios. For these services, the custodian receives a custodian fee computed daily and payable monthly, based on a percentage of the average daily gross assets of each Portfolio.

Prior to February 1, 2006, the fee was paid at the following annual rates: 0.01% of the first $250 million of average gross assets, 0.009% of the next $250 million of average gross assets, 0.0075% of the next $250 million of average gross assets, 0.007% of the next $250 million of average of gross assets, 0.006% of the next $250 million of average gross assets and 0.005% of average gross assets in excess of $1.25 billion; plus per transaction charges and other miscellaneous fees incurred on behalf of each Portfolio.

Effective February 1, 2006, the fee was paid at the following annual rates: 0.0073% of the first $250 million of average gross assets, 0.006% of the next $250 million of average gross assets, 0.0056% of the next $250 million of average gross assets, 0.0048% of the next $250 million of average gross assets, and 0.004% of average gross assets in excess of $1 billion; plus per transaction charges and other miscellaneous fees incurred on behalf of each Portfolio.

PFPC Inc. (“PFPC”), an indirect wholly-owned subsidiary of PNC, serves as transfer and dividend disbursing agent.

40

BLACKROCK FUNDS

Shares of each class of each Portfolio of the Fund bear their pro-rata portion of all operating expenses paid by the Portfolio, except transfer agency fees, certain administrative fees and amounts payable under the Fund’s Amended and Restated Distribution and Service Plan (the “Plan”).

Prior to February 1, 2006, the BlackRock shares bore a transfer agent fee at an annual rate not to exceed 0.005% of the average daily net assets plus per account fees and disbursements. Institutional, Service, Investor A, Investor B and Investor C share classes each bore a transfer agent fee at an annual rate not to exceed 0.018% of the annual average net assets of such respective classes plus per account fees and disbursements. Certain other transfer agency fees were allocated on relative net assets of each class of each Portfolio.

Effective February 1, 2006, each class of each Portfolio bears the costs of transfer agent fees associated with such respective classes. Transfer agency fees borne by each class of each Portfolio are comprised of those fees charged for all shareholder communications including shareholder reports, dividend and distribution notices, and proxy materials for shareholders meetings, as well as per account and per transaction fees related to servicing and maintenance of shareholder accounts, including the issuing, redeeming and transferring of shares of each class of each Portfolio, 12b-1 fee calculation, check writing, anti-money laundering services, and customer identification services.

Pursuant to written agreements, Merrill Lynch and Hilliard Lyons, an indirect wholly-owned subsidiary of PNC, provide certain Portfolios sub-accounting, recordkeeping, sub-transfer agency and other administrative services with respect to sub-accounts they service. For these services, each receives an annual fee per shareholder account which will vary depending on share class. For the six months ended March 31, 2007, the Portfolios paid to Merrill Lynch and Hilliard Lyons the following fees in return for these services:

	MERRILL LYNCH		HILLIARD LYONS
AMT-Free Municipal Bond	$	994	$	585
Ohio Municipal Bond		3,801		549
Delaware Municipal Bond		2,980		687
Kentucky Municipal Bond		175		1,085

PFPC and BlackRock act as co-administrators for the Fund. For these services, the co-administrators receive a combined administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of each Portfolio. Prior to February 1, 2006, the fee was paid at the following annual rates: 0.085% of the first $500 million of net assets of each Portfolio, 0.075% of the next $500 million and 0.065% of assets in excess of $1 billion. In addition, each of the share classes, except for the BlackRock Class, was charged an administration fee based on the following percentage of average daily net assets of each respective class: 0.145% of the first $500 million, 0.135% of the next $500 million and 0.125% of assets in excess of $1 billion. The BlackRock Class was charged an administration fee of 0.035% of the first $500 million, 0.025% of the next $500 million and 0.015% of assets in excess of $1 billion. Effective February 1, 2006, the combined administration fee is paid at the following annual rates: 0.075% of the first $500 million of net assets of each Portfolio, 0.065% of the next $500 million and 0.055% of assets in excess of $1 billion. In addition, each of the classes, is charged an administration fee based on the following percentage of average daily net assets of each respective class: 0.025% of the first $500 million, 0.015% of the next $500 million and 0.005% of assets in excess of $1 billion. In addition, PFPC and BlackRock may have, at their discretion, voluntarily waived all or any portion of their administration fees for any Portfolio or share class.

Pursuant to the Fund’s Plan, the Fund may pay BlackRock Distributors, Inc. (the “BDI”), a direct subsidiary of PFPC, and/or BlackRock or any other affiliate of PNC and Merrill Lynch, fees for distribution and sales support services. Currently, only Investor B, B1, B2, C, C1, C2 and R Shares bear the expense of distribution fees under the Plan. In addition, the Fund may pay brokers, dealers, financial institutions and industry professionals (including PNC, Merrill Lynch and their affiliates) (“service organizations”) fees for the provision of personal services to shareholders. BlackRock may receive some of the service fees paid by the Fund in return for providing services to shareholders. Currently, only Service, Hilliard Lyons, Investor A, A1, B, B1, B2, C, C1, C2 and R Shares bear the expense of service fees under the Plan.

The following table provides a list of the Portfolios included in this report along with a summary of their respective class-specific fee arrangements as provided under the Plan. Fees are expressed as a percentage of average daily net asset values of the respective classes.

41

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Class-Specific Fee Arrangements
Portfolio	Share Classes
	BlackRock		Institutional		Service				Investor A				Investor B				Investor C
	Contractual Fees	Actual Fees(3)	Contractual Fees	Actual Fees(3)	Contractual Fees(1)		Actual Fees(3)		Contractual Fees(1)		Actual Fees(3)		Contractual Fees(2)		Actual Fees(3)		Contractual Fees(2)		Actual Fees(3)
AMT-Free Municipal Bond	None	None	None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	0.28	%	1.00	%	1.00	%
Ohio Municipal Bond	N/A	N/A	None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%
Delaware Municipal Bond	N/A	N/A	None	None	0.25	%	N/A		0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%
Kentucky Municipal Bond	N/A	N/A	None	None	0.25	%	0.25	%	0.25	%	0.25	%	1.00	%	1.00	%	1.00	%	1.00	%

(1) — the maximum annual contractual fees are comprised of a 0.25% service fee.

(2) — the maximum annual contractual fees are comprised of a 0.75% distribution fee and a 0.25% service fee.

(3) — the actual fees are for the six months ended March 31, 2007.

For the six months ended March 31, 2007, the Fund paid to affiliates the following fees in return for distribution and sales support services:

	MERRILL LYNCH		HILLIARD LYONS		BLACKROCK
AMT-Free Municipal Bond	$	7,097	$	5,898	$	1,764
Ohio Municipal Bond		40,070		3,176		258
Delaware Municipal Bond		39,562		8,368		679
Kentucky Municipal Bond		5,564		10,205		1,175

BlackRock maintains a call center, which is responsible for providing certain shareholder services to the Fund, such as responding to shareholder inquiries and processing transactions based upon instructions from shareholders with respect to the subscription and redemption of Portfolio shares. During the six months ended March 31, 2007, the following amounts have been accrued by the Portfolio to reimburse BlackRock for costs incurred running the call center, which are acomponent of the transfer agent fees in the accompanying Statement of Operations.

	SHARE CLASSES
	BLACKROCK		INSTITUTIONAL		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C		TOTAL
AMT-Free Municipal Bond	$	272	$	1,044	$	51	$	355	$	180	$	58	$	1,960
Ohio Municipal Bond		—		434		15		289		162		131		1,031
Delaware Municipal Bond		—		193		—		273		140		168		774
Kentucky Municipal Bond		—		266		9		102		27		11		415

For the six months ended March 31, 2007, the following shows the various types of class-specific expenses borne directly by each class of each Portfolio and any associated waivers of those expenses.

ADMINISTRATION FEES	SHARE CLASSES
	BLACKROCK	INSTITUTIONAL	SERVICE	INVESTOR A	INVESTOR B	INVESTOR C	TOTAL
AMT-Free Municipal Bond	8,755	34,446	150	1,186	458	336	45,331
Ohio Municipal Bond	—	10,682	127	921	794	927	13,451
Delaware Municipal Bond	—	4,684	—	1,389	747	1,109	7,929
Kentucky Municipal Bond	—	9,178	33	954	272	212	10,649

ADMINISTRATION FEES WAIVED	SHARE CLASSES
	BLACKROCK		INSTITUTIONAL		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C		TOTAL
AMT-Free Municipal Bond	$	8,651	$	—	$	1	$	—	$	—	$	—	$	8,652
Ohio Municipal Bond		—		10,389		25		906		—		—		11,320
Delaware Municipal Bond		—		—		—		785		734		1,095		2,614
Kentucky Municipal Bond		—		—		—		20		271		101		392

42

BLACKROCK FUNDS

TRANSFER AGENT FEES	SHARE CLASSES
	BLACKROCK		INSTITUTIONAL		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C		TOTAL
AMT-Free Municipal Bond	$	680	$	7,973	$	512	$	3,239	$	1,931	$	807	$	15,142
Ohio Municipal Bond		—		4,493		153		2,687		2,530		2,158		12,021
Delaware Municipal Bond		—		1,580		—		2,510		2,270		3,101		9,461
Kentucky Municipal Bond		—		2,112		104		1,501		845		233		4,795

TRANSFER AGENT FEES WAIVED	SHARE CLASSES
	BLACKROCK		INSTITUTIONAL		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C		TOTAL
AMT-Free Municipal Bond	$	264	$	—	$	—	$	—	$	—	$	—	$	264
Ohio Municipal Bond		—		404		—		284		—		—		688
Delaware Municipal Bond		—		—		—		14		137		166		317
Kentucky Municipal Bond		—		—		—		1		27		7		35

TRANSFER AGENT FEES REIMBURSED	SHARE CLASSES
	BLACKROCK		INSTITUTIONAL		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C		TOTAL
AMT-Free Municipal Bond	$	365	$	—	$	2	$	—	$	—	$	—	$	367
Ohio Municipal Bond		—		3,305		—		2,310		—		—		5,615
Delaware Municipal Bond		—		—		—		14		1,984		2,772		4,770
Kentucky Municipal Bond		—		—		—		—		806		157		963

SHAREHOLDER SERVICE FEES	SHARE CLASSES
	SERVICE		INVESTOR A		INVESTOR B		INVESTOR C		TOTAL
AMT-Free Municipal Bond	$	1,501	$	11,822	$	4,584	$	3,361	$	21,268
Ohio Municipal Bond		1,271		9,185		7,939		9,266		27,661
Delaware Municipal Bond		—		13,727		7,462		11,088		32,277
Kentucky Municipal Bond		330		9,541		2,723		2,122		14,716

DISTRIBUTION FEES	SHARE CLASSES
	INVESTOR B		INVESTOR C		TOTAL
AMT-Free Municipal Bond	$	9,620	$	10,082	$	19,702
Ohio Municipal Bond		23,816		27,799		51,615
Delaware Municipal Bond		22,396		33,266		55,662
Kentucky Municipal Bond		8,170		6,367		14,537

BlackRock and the Fund contractually agreed to waive or reimburse fees or expenses until February 1, 2008, in order to limit expenses. These expense limits apply to the aggregate expenses incurred on a share class (excluding: interest, taxes, brokerage commissions, expenses incurred as a result of investments in other funds and other expenses attributable to, and incurred as a result of, a Portfolio’s investments and other extraordinary expenses). This agreement is reviewed annually by the Fund’s Board. The current expense limitation as a percentage of net assets are as follows:

	SHARE CLASSES
	BLACKROCK		INSTITUTIONAL		SERVICE		INVESTOR A		INVESTOR B		INVESTOR C
AMT-Free Municipal Bond	0.45	%	0.60	%	0.90	%	1.07	%	1.82	%	1.82	%
Ohio Municipal Bond	N/A		0.60	%	0.90	%	0.85	%	1.82	%	1.82	%
Delaware Municipal Bond	N/A		0.70	%	1.00	%1	0.95	%	1.65	%	1.65	%
Kentucky Municipal Bond	N/A		0.65	%	1.00	%	0.95	%	1.60	%	1.60	%

¹ There were no shares outstanding as of March 31, 2007.

If within two years following a waiver or reimbursement of the operating expenses of a share class that previously received a waiver or reimbursement from BlackRock are less than the expense limit for that share class, the share class is required to repay BlackRock up to the amount of fees waived or expenses reimbursed under the agreement if: (1)

43

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

the Portfolio of which the share class is a part has more than $50 million in assets, (2) BlackRock or an affiliate continues to be the Portfolio’s investment advisor or administrator and (3) the Board of the Fund has approved the payments to BlackRock at the previous quarterly meeting.

At March 31, 2007, the amounts subject to possible future reimbursement under the expense limitation agreement are as follows:

	EXPIRING JANUARY 31, 2008		EXPIRING JANUARY 31, 2009		EXPIRING JANUARY 31, 2010		TOTAL WAIVERS SUBJECT TO REIMBURSEMENT
AMT-Free Municipal Bond	$	936,352	$	373,746	$	48,154	$	1,358,252
Ohio Municipal Bond		259,109		101,109		13,301		373,519
Delaware Municipal Bond		107,843		80,336		9,729		197,908
Kentucky Municipal Bond		162,538		88,982		14,268		265,788

The following waivers previously incurred on the Portfolios which were subject to recoupment by BlackRock expired on January 31, 2007:

AMT-Free Municipal Bond	$	983,261
Ohio Municipal Bond		259,458
Delaware Municipal Bond		138,287
Kentucky Municipal Bond		171,865

For the six months ended March 31, 2007, BDI earned underwriting discounts and direct commissions and Merrill Lynch, Pierce, Fenner & Smith Inc. earned dealer concessions on sales of Portfolio’s Investor A Class as follows:

AMT-Free Municipal Bond	$	4,627
Ohio Municipal Bond		6,612
Delaware Municipal Bond		8,131
Kentucky Municipal Bond		43,572

For the six months ended March 31, 2007, affiliates received the following contingent deferred sales charges relating to transactions in Investor B Class and Investor C Class:

	INVESTOR B CLASS		INVESTOR C CLASS
AMT-Free Municipal Bond	$	3,080	$	48
Ohio Municipal Bond		11,324		2,777
Delaware Municipal Bond		5,361		1
Kentucky Municipal Bond		2,502		1

For the six months ended March 31, 2007, short term investments in companies assumed to be an affiliate of the Portfolios were as follows:

	AFFILIATED INVESTMENTS	NET ACTIVITY		DIVIDEND INCOME		MARKET VALUE OF AFFILIATES AT MARCH 31, 2007
AMT-Free Municipal Bond	Merrill Lynch Institutional Tax-Exempt Fund	$	7,300,000	$	30,741	$	7,300,000
Ohio Municipal Bond	CMA Ohio Municipal Money Fund		900,000		3,383		900,000
Delaware Municipal Bond	Merrill Lynch Institutional Tax-Exempt Fund		300,000		1,646		300,000
Kentucky Municipal Bond	Merrill Lynch Institutional Tax-Exempt Fund		10,900,000		27,333		10,900,000

44

BLACKROCK FUNDS

Certain issuers of investments held by the Portfolios have financial relationships with one or more affiliates of BlackRock. For the six months ended March 31, 2007, investments in companies assumed to be an affiliate of the Portfolios were as follows:

	AFFILIATED INVESTMENTS	BEGINNING PAR		ENDING PAR		INTEREST INCOME		INTEREST EXPENSE AND FEES		MARKET VALUE OF AFFILIATES AT MARCH 31, 2007
AMT-Free Municipal Bond	Delaware Vy. Regl. Fin. Auth. Govt. Loc. Govt. Rev.	$	10,000,000	$	10,000,000	$	159,257	$	124,164	$	12,063,431
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		15,950,000		15,950,000		433,613		226,380		17,057,193
Ohio Municipal Bond	Puerto Rico Cmwlth. Hwy. & Trans. Auth. Rev.		12,745,000		12,745,000		321,418		145,862		13,005,100
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		1,600,000		1,600,000		42,228		22,693		1,706,256
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		2,000,000		2,000,000		53,730		28,370		2,138,920
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		2,000,000		2,000,000		54,032		28,370		2,140,300
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		2,630,000		2,630,000		71,417		37,705		2,811,506
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		1,000,000		1,000,000		27,292		14,185		1,069,810
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		1,000,000		1,000,000		27,198		14,183		1,065,730
	Puerto Rico Pub. Bldgs. Auth. Govt. Facs. Rev., Ser. 97B		12,000,000		12,000,000		321,883		149,557		12,220,080
Delaware Municipal Bond	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		1,600,000		1,600,000		42,228		22,693		1,706,256
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		2,000,000		2,000,000		53,730		28,370		2,138,920
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		2,000,000		2,000,000		54,032		28,370		2,140,300
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		2,630,000		2,630,000		71,417		37,705		2,811,506
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		1,000,000		1,000,000		27,292		14,185		1,069,810
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		1,000,000		1,000,000		27,198		14,183		1,065,730
	Puerto Rico Pub. Fin. Corp. Cmwlth. Approp. Rev., Ser. 98A		12,200,000		12,200,000		290,388		135,831		13,192,600
	Puerto Rico Pub. Fin. Corp. Cmwlth. Approp. Rev., Ser. 98A		11,500,000		11,500,000		305,343		142,379		12,692,084
Kentucky Municipal Bond	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 97A		5,000,000		5,000,000		127,746		75,690		5,103,300
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		1,600,000		1,600,000		42,228		22,693		1,706,256
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		2,000,000		2,000,000		53,730		28,370		2,138,920
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		2,000,000		2,000,000		54,032		28,370		2,140,300
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		2,630,000		2,630,000		71,417		37,705		2,811,506
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		1,000,000		1,000,000		27,292		14,185		1,069,810
	Puerto Rico Cmwlth. Infra. Fin. Auth. SO, Ser. 00A		1,000,000		1,000,000		27,198		14,183		1,065,730

45

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

In addition to the above income earned on affiliated investments, the Portfolios may earn income on positive cash balances in demand deposit accounts that are maintained by PFPC on behalf of the Portfolios. The income earned for the six months ended March 31, 2007 is as follows:

AMT-Free Municipal Bond	$	71
Ohio Municipal Bond		61
Delaware Municipal Bond		52
Kentucky Municipal Bond		14

The Portfolios may also receive earnings credits related to cash balances with PFPC which are shown on the Statements of Operations as “fees paid indirectly.”

(D) Purchases and Sales of Securities

For the six months ended March 31, 2007, purchases and sales of securities, but excluding short-term and U.S. government securities, were as follows:

	PURCHASES		SALES
AMT-Free Municipal Bond	$	165,735,272	$	164,722,475
Ohio Municipal Bond		9,763,580		12,309,595
Delaware Municipal Bond		4,364,820		6,840,855
Kentucky Municipal Bond		40,234,828		6,953,196

There were no purchases or sales of U.S. government securities for the six months ended March 31, 2007.

(E) Capital Shares

Transactions in capital shares for each period were as follows:

	AMT-FREE MUNICIPAL BOND
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
BlackRock Class	45,566		$	498,036		352,539		$	3,819,547
Institutional Class	2,613,464			28,501,215		4,280,196			46,448,314
Service Class	98			1,064		1,946			21,227
Investor A Class	101,196			1,104,449		290,414			3,145,094
Investor B Class	16,432			179,484		98,997			1,073,196
Investor C Class	69,716			762,079		124,289			1,349,403
Shares issued in reinvestment of dividends:
BlackRock Class	140,402			1,531,688		308,683			3,345,930
Institutional Class	8,571			93,528		13,690			148,426
Service Class	1,450			15,820		3,350			36,270
Investor A Class	12,547			137,005		23,302			252,721
Investor B Class	3,521			38,450		6,560			71,142
Investor C Class	3,043			33,208		3,961			42,930
Shares redeemed:
BlackRock Class	(584,278	)		(6,361,713	)	(1,862,759	)		(20,169,441	)
Institutional Class	(1,787,914	)		(19,489,058	)	(6,332,378	)		(68,690,589	)
Service Class	(8,512	)		(92,786	)	(101,315	)		(1,102,123	)
Investor A Class	(133,933	)		(1,460,615	)	(240,181	)		(2,601,745	)
Investor B Class	(86,924	)		(948,455	)	(164,160	)		(1,779,964	)
Investor C Class	(38,697	)		(422,287	)	(94,078	)		(1,018,186	)
Net increase (decrease)	375,748		$	4,121,112		(3,286,944	)	$	(35,607,848	)

46

BLACKROCK FUNDS

	OHIO MUNICIPAL BOND
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	637,424		$	6,672,281		1,048,946		$	11,004,646
Service Class	9,385			98,132		53,634			563,988
Investor A Class	122,692			1,286,026		184,206			1,927,624
Investor B Class	1,621			16,990		54,504			574,058
Investor C Class	53,971			566,917		255,376			2,677,363
Shares issued in reinvestment of dividends:
Institutional Class	8,569			89,778		4,702			49,332
Service Class	1,740			18,253		3,269			34,248
Investor A Class	10,180			106,658		21,548			225,665
Investor B Class	5,334			55,912		4,870			51,051
Investor C Class	7,381			77,396		3,127			32,741
Shares redeemed:
Institutional Class	(710,122	)		(7,444,182	)	(2,174,086	)		(22,687,300	)
Service Class	(25,594	)		(268,976	)	(19,351	)		(203,972	)
Investor A Class	(154,493	)		(1,618,693	)	(321,021	)		(3,378,468	)
Investor B Class	(128,250	)		(1,346,853	)	(272,781	)		(2,862,878	)
Investor C Class	(166,211	)		(1,743,595	)	(177,691	)		(1,862,370	)
Net decrease	(326,373	)	$	(3,433,956	)	(1,330,748	)	$	(13,854,272	)
	DELAWARE MUNICIPAL BOND
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	149,141		$	1,461,536		754,757		$	7,384,112
Investor A Class	53,479			523,211		143,010			1,394,334
Investor B Class	204			2,011		23,970			234,927
Investor C Class	22,976			225,437		95,024			929,382
Shares issued in reinvestment of dividends:
Institutional Class	1,609			15,761		2,738			26,696
Investor A Class	13,709			134,300		28,886			281,660
Investor B Class	4,027			39,469		5,294			51,637
Investor C Class	6,437			63,068		5,263			51,307
Shares redeemed:
Institutional Class	(259,258	)		(2,540,096	)	(1,597,259	)		(15,598,804	)
Investor A Class	(133,578	)		(1,309,399	)	(447,705	)		(4,379,429	)
Investor B Class	(82,151	)		(803,042	)	(154,754	)		(1,510,944	)
Investor C Class	(147,447	)		(1,447,733	)	(467,187	)		(4,558,327	)
Net decrease	(370,852	)	$	(3,635,477	)	(1,607,963	)	$	(15,693,449	)

47

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

	KENTUCKY MUNICIPAL BOND
	FOR THE SIX MONTHS ENDED 3/31/07					FOR THE YEAR ENDED 9/30/06
	SHARES		VALUE			SHARES		VALUE
Shares sold:
Institutional Class	3,882,614		$	36,951,591		970,234		$	9,287,039
Service Class	1,016			9,624		1,124			10,802
Investor A Class	861,650			8,188,487		48,621			466,358
Investor B Class	2,719			26,001		6,199			59,508
Investor C Class	646,676			6,148,379		28,401			272,499
Shares issued in reinvestment of dividends:
Institutional Class	7,549			71,793		8,068			77,246
Service Class	501			4,775		670			6,418
Investor A Class	17,864			169,776		18,075			173,078
Investor B Class	5,126			48,787		7,500			71,847
Investor C Class	3,746			35,680		988			9,483
Shares redeemed:
Institutional Class	(550,068	)		(5,246,992	)	(1,861,035	)		(17,859,884	)
Service Class	—			—		(1	)		(12	)
Investor A Class	(226,535	)		(2,158,423	)	(73,476	)		(705,686	)
Investor B Class	(18,501	)		(176,405	)	(149,840	)		(1,440,785	)
Investor C Class	(1,288	)		(12,261	)	(9,858	)		(94,580	)
Net increase (decrease)	4,633,069		$	44,060,812		(1,004,330	)	$	(9,666,669	)

On March 31, 2007, two shareholders held approximately 93% of the outstanding shares of the AMT-Free Municipal Bond Portfolio, two shareholders held approximately 77% of the outstanding shares of the Ohio Municipal Bond Portfolio, three shareholders held approximately 76% of the outstanding shares of the Delaware Municipal Bond Portfolio and two shareholders held approximately 76% of the outstanding shares of the Kentucky Municipal Bond Portfolio. Some of the shareholders are comprised of omnibus accounts, which are held on behalf of several individual shareholders.

(F) Short-Term Borrowings

Effective November 29, 2006, the Portfolios, along with certain other funds managed by the Advisor and its affiliates, is a party to a $500,000,000 credit agreement dated November 22, 2006, with a group of lenders. The Portfolios may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Portfolios may borrow up to the maximum amount allowable under the Portfolios’ current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The credit agreement is for one year. The Portfolios pay a commitment fee of 0.06% per annum based on the Portfolios’ pro rata share of the unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each Portfolio’s election, the federal funds rate plus .35% or a base rate as defined in the credit agreement. The Portfolios did not borrow under the credit agreement during the six months ended March 31, 2007.

(G) Federal Tax Information

No provision is made for federal taxes as it is the Portfolios’ intention to continue to qualify for and elect the tax treatment applicable to regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended, and to make the requisite distributions to its shareholders which will be sufficient to relieve it from federal income and excise taxes.

Dividends from tax-free income, net investment income and distributions from net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined under accounting principles generally accepted in the United States.

48

BLACKROCK FUNDS

The tax character of distributions paid during the year ended September 30, 2006 were as follows:

	TAX-FREE INCOME		ORDINARY INCOME		TOTAL DISTRIBUTIONS
AMT-Free Municipal Bond
9/30/06	$	15,981,571	$	17,177	$	15,998,748
Ohio Municipal Bond
9/30/06		5,049,285		180,026		5,229,311
Delaware Municipal Bond
9/30/06		2,812,252		—		2,812,252
Kentucky Municipal Bond
9/30/06		2,947,491		3,222		2,950,713

As of September 30, 2006, the Portfolios had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates:

	EXPIRING SEPTEMBER 30
	2008		2009		2010		2011		2012		2013		2014		TOTAL
AMT-Free Municipal Bond	$	3,717,571	$	1,756,215	$	—	$	3,984,021	$	6,841,418	$	5,736,698	$	554,154	$	22,590,077
Ohio Municipal Bond		41,989		—		—		1,883,560		825,006		783,368		212,779		3,746,702
Delaware Municipal Bond		83,140		—		—		1,312,264		493,468		623,721		149,343		2,661,936
Kentucky Municipal Bond		542,789		1,556,368		129,603		2,443,468		—		—		—		4,672,228

In July 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation No. 48 (“FIN 48”) “Accounting for Uncertainty in Income Taxes.” FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken in the course of preparing the Portfolio’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be booked as a tax expense in the current year and recognized as: a liability for unrecognized tax benefits; a reduction of an income tax refund receivable; a reduction of deferred tax asset; an increase in deferred tax liability; or a combination thereof. Adoption of FIN 48 is required for the last net asset value calculation in the first required financial statement reporting period for fiscal years beginning after December 15, 2006. At this time, management is evaluating the implications of FIN 48 and its impact on the financial statements has not yet been determined.

(H) Concentration of Credit Risk

The Portfolios concentrate their investments in securities issued by state agencies, other governmental entities and U.S. territories. The Portfolios are more susceptible to adverse financial, social, environmental, economic, regulatory and political factors that may affect these states, which could seriously affect the ability of these states and their municipal subdivisions to meet continuing obligations for principal and interest payments, than if the Portfolios were not concentrated in securities issued by state agencies, other governmental entities and U.S. territories.

(I) Restatement Information

During the six months ended March 31, 2007, the Portfolios determined that the criteria for sale accounting in Statement of Financial Accounting Standards No. 140 had not been met for certain transfers of municipal bonds and that these transactions should have been accounted for as secured borrowings rather than as sales. Accordingly, the Portfolios have restated the financial highlights for September 30, 2006, 2005, 2004, 2003 and 2002. The effects of the restatement were recording the transfers of the municipal bonds as secured borrowings, including recording interest on the bonds as interest income and interest on the secured borrowings as interest expense in the statement of operations.

49

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

Financial Highlights throughout each period:

	RATIO OF TOTAL EXPENSES TO AVERAGE NET ASSETS (INCLUDING INTEREST EXPENSE AND FEES AND EXCLUDING WAIVERS)				PORTFOLIO TURNOVER RATE
	PREVIOUSLY REPORTED		AS RESTATED		PREVIOUSLY REPORTED		AS RESTATED
AMT-Free Municipal Bond Portfolio
BlackRock Class
9/30/06	0.69	%	0.88	%	70	%	66	%
9/30/05	0.71	%	0.83	%	91	%	87	%
12/22/03 - 9/30/04	0.69	%	0.75	%	73	%	69	%
Institutional Class
9/30/06	0.73	%	0.92	%	70	%	66	%
9/30/05	0.83	%	0.95	%	91	%	87	%
9/30/04	0.82	%	0.88	%	73	%	69	%
9/30/03	0.83	%	0.92	%	76	%	72	%
9/30/02	0.81	%	0.88	%	47	%	45	%
Service Class
9/30/06	1.43	%	1.62	%	70	%	66	%
9/30/05	1.08	%	1.20	%	91	%	87	%
9/30/04	1.08	%	1.14	%	73	%	69	%
9/30/03	1.13	%	1.22	%	76	%	72	%
9/30/02	1.11	%	1.18	%	47	%	45	%
Investor A Class
9/30/06	1.12	%	1.31	%	70	%	66	%
9/30/05	1.18	%	1.30	%	91	%	87	%
9/30/04	1.31	%	1.37	%	73	%	69	%
9/30/03	1.30	%	1.39	%	76	%	72	%
9/30/02	1.29	%	1.36	%	47	%	45	%
Investor B Class
9/30/06	1.80	%	1.99	%	70	%	66	%
9/30/05	1.84	%	1.96	%	91	%	87	%
9/30/04	1.97	%	2.03	%	73	%	69	%
9/30/03	2.05	%	2.14	%	76	%	72	%
9/30/02	2.03	%	2.10	%	47	%	45	%
Investor C Class
9/30/06	1.76	%	1.95	%	70	%	66	%
9/30/05	1.85	%	1.97	%	91	%	87	%
9/30/04	1.95	%	2.01	%	73	%	69	%
9/30/03	2.05	%	2.14	%	76	%	72	%
9/30/02	2.03	%	2.10	%	47	%	45	%

50

BLACKROCK FUNDS

	RATIO OF TOTAL EXPENSES TO AVERAGE NET ASSETS (INCLUDING INTEREST EXPENSE AND FEES AND EXCLUDING WAIVERS)				PORTFOLIO TURNOVER RATE
	PREVIOUSLY REPORTED		AS RESTATED		PREVIOUSLY REPORTED		AS RESTATED
Ohio Municipal Bond Portfolio
Institutional Class
9/30/06	0.75	%	1.42	%	16	%	13	%
9/30/05	0.85	%	1.29	%	10	%	9	%
9/30/04	0.84	%	1.08	%	6	%	5	%
9/30/03	0.83	%	1.16	%	18	%	15	%
9/30/02	0.81	%	1.17	%	28	%	22	%
Service Class
9/30/06	1.00	%	1.67	%	16	%	13	%
9/30/05	1.10	%	1.54	%	10	%	9	%
9/30/04	1.02	%	1.26	%	6	%	5	%
9/30/03	1.12	%	1.45	%	18	%	15	%
9/30/02	1.12	%	1.48	%	28	%	22	%
Investor A Class
9/30/06	1.14	%	1.81	%	16	%	13	%
9/30/05	1.20	%	1.64	%	10	%	9	%
9/30/04	1.34	%	1.58	%	6	%	5	%
9/30/03	1.31	%	1.64	%	18	%	15	%
9/30/02	1.28	%	1.64	%	28	%	22	%
Investor B Class
9/30/06	1.79	%	2.46	%	16	%	13	%
9/30/05	1.85	%	2.29	%	10	%	9	%
9/30/04	1.97	%	2.21	%	6	%	5	%
9/30/03	2.05	%	2.38	%	18	%	15	%
9/30/02	2.03	%	2.39	%	28	%	22	%
Investor C Class
9/30/06	1.77	%	2.44	%	16	%	13	%
9/30/05	1.84	%	2.28	%	10	%	9	%
9/30/04	1.95	%	2.19	%	6	%	5	%
9/30/03	2.05	%	2.38	%	18	%	15	%
9/30/02	2.01	%	2.37	%	28	%	22	%

51

BLACKROCK FUNDS

NOTES TO FINANCIAL STATEMENTS (Unaudited) (CONCLUDED)

	RATIO OF TOTAL EXPENSES TO AVERAGE NET ASSETS (INCLUDING INTEREST EXPENSE AND FEES AND EXCLUDING WAIVERS)				PORTFOLIO TURNOVER RATE
	PREVIOUSLY REPORTED		AS RESTATED		PREVIOUSLY REPORTED		AS RESTATED
Delaware Municipal Bond Portfolio
Institutional Class
9/30/06	0.85	%	2.11	%	6	%	5	%
9/30/05	0.92	%	1.67	%	10	%	8	%
9/30/04	0.89	%	1.36	%	3	%	3	%
9/30/03	0.90	%	1.56	%	34	%	26	%
9/30/02	0.89	%	1.52	%	17	%	13	%
Service Class
10/1/01 - 5/2/02	1.17	%	1.80	%	17	%	13	%
Investor A Class
9/30/06	1.21	%	2.43	%	6	%	5	%
9/30/05	1.26	%	2.01	%	10	%	8	%
9/30/04	1.40	%	1.87	%	3	%	3	%
9/30/03	1.36	%	2.02	%	34	%	26	%
9/30/02	1.36	%	1.99	%	17	%	13	%
Investor B Class
9/30/06	1.90	%	3.16	%	6	%	5	%
9/30/05	1.92	%	2.67	%	10	%	8	%
9/30/04	2.02	%	2.49	%	3	%	3	%
9/30/03	2.09	%	2.75	%	34	%	26	%
9/30/02	2.11	%	2.74	%	17	%	13	%
Investor C Class
9/30/06	1.89	%	3.15	%	6	%	5	%
9/30/05	1.92	%	2.67	%	10	%	8	%
9/30/04	2.02	%	2.49	%	3	%	3	%
9/30/03	2.08	%	2.74	%	34	%	26	%
9/30/02	2.09	%	2.72	%	17	%	13	%

52

BLACKROCK FUNDS

	RATIO OF TOTAL EXPENSES TO AVERAGE NET ASSETS (INCLUDING INTEREST EXPENSE AND FEES AND EXCLUDING WAIVERS)				PORTFOLIO TURNOVER RATE
	PREVIOUSLY REPORTED		AS RESTATED		PREVIOUSLY REPORTED		AS RESTATED
Kentucky Municipal Bond Portfolio
Institutional Class
9/30/06	0.83	%	1.39	%	9	%	8	%
9/30/05	0.91	%	1.26	%	4	%	4	%
9/30/04	0.89	%	1.05	%	8	%	7	%
9/30/03	0.88	%	1.06	%	37	%	34	%
9/30/02	0.87	%	1.03	%	12	%	11	%
Service Class
9/30/06	1.12	%	1.68	%	9	%	8	%
9/30/05	1.17	%	1.52	%	4	%	4	%
9/30/04	1.17	%	1.33	%	8	%	7	%
9/30/03	1.18	%	1.36	%	37	%	34	%
9/30/02	1.17	%	1.33	%	12	%	11	%
Investor A Class
9/30/06	1.19	%	1.75	%	9	%	8	%
9/30/05	1.26	%	1.61	%	4	%	4	%
9/30/04	1.36	%	1.52	%	8	%	7	%
9/30/03	1.35	%	1.53	%	37	%	34	%
9/30/02	1.35	%	1.51	%	12	%	11	%
Investor B Class
9/30/06	1.91	%	2.47	%	9	%	8	%
9/30/05	1.92	%	2.27	%	4	%	4	%
9/30/04	2.02	%	2.18	%	8	%	7	%
9/30/03	2.09	%	2.27	%	37	%	34	%
9/30/02	2.08	%	2.24	%	12	%	11	%
Investor C Class
9/30/06	1.85	%	2.41	%	9	%	8	%
9/30/05	1.92	%	2.27	%	4	%	4	%
9/30/04	2.00	%	2.16	%	8	%	7	%
9/30/03	2.10	%	2.28	%	37	%	34	%
9/30/02	2.08	%	2.24	%	12	%	11	%

While the Statements of Assets and Liabilities as of September 30, 2006, 2005, 2004, 2003 and 2002 (not presented herein) have not been reissued to give effect to the restatements, the principal effects of the restatements would be to increase investments and liability for trust certificates and interest and fees payable by corresponding amounts each year, with no effect on previously reported net assets. The Statements of Operations for the years ended September 30, 2006, 2005, 2004, 2003 and 2002 (not presented herein) have not been reissued to give effect to the restatement, but the principal effects of the restatement would be to increase interest income and interest expense and fees by corresponding amounts each year, with no effect on the previously reported net increase in net assets resulting from operations.

53

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BLACKROCK FUNDS

Investment Advisor	Co-Administrator
BlackRock Advisors, LLC	BlackRock Advisors, LLC
Wilmington, Delaware 19809	Wilmington, Delaware 19809
Sub-Advisor	Distributor
BlackRock Financial Management, Inc.	BlackRock Distributors, Inc.
New York, New York 10022	King of Prussia, Pennsylvania 19406
Custodian	Counsel
PFPC Trust Company	Simpson Thacher & Bartlett LLP
Philadelphia, Pennsylvania 19153	New York, New York 10017
Co-Administrator and Transfer Agent	Independent Registered Public Accounting Firm
PFPC Inc.	Deloitte & Touche LLP
Wilmington, Delaware 19809	Philadelphia, Pennsylvania 19103

Important Notice Regarding Delivery of Shareholder Documents

The Fund will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and it 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 contact the Fund at (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

The Fund has delegated proxy voting responsibilities to BlackRock and its affiliates, subject to the general oversight of the Fund’s Board of Trustees. A description of the policies and procedures that BlackRock and its affiliates use to determine how to vote proxies relating to portfolio securities is available without charge, upon request on our website at www.blackrock.com, by calling (800) 441-7762, or on the website of the Securities and Exchange Commission (the “Commission”) at http://www.sec.gov.

Availability of Proxy Voting Record

Information on how proxies relating to the Fund’s voting securities were voted (if any) by BlackRock during the most recent 12-month period ended June 30th is available (if any), upon request and without charge on our website at www.blackrock.com, by calling (800) 441-7762 or on the website of the Commission at http://www.sec.gov.

Availability of Quarterly Portfolio Schedule

The Fund files its complete schedule of portfolio holdings for the first and third quarters of its fiscal year with the Commission on Form N-Q. The Fund’s Form N-Q is available on the Commission’s website at http://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information regarding the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The Fund’s Form N-Q may also be obtained upon request, without charge, by calling (800) 441-7762.

BLACKROCK FUNDS

AVAILABILITY OF SHAREHOLDER DOCUMENTS AND STATEMENTS

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

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

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

Shareholders Who Hold Accounts Directly With BlackRock

1) Access the BlackRock website at http://www.blackrock.com/edelivery

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

3) Log into your account

SHAREHOLDER PRIVILEGES

Account Information

Call us at (800) 441-7762 8:00 AM – 6:00 PM EST to get information about your account balances, recent transactions and share prices. You can also reach us on the web at www.blackrock.com.

Automatic Investment Plans

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

Systematic Withdrawal Plan

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

Retirement Plans

Shareholders may make investments in conjunction with Traditional, Rollover, Roth, Coverdell, Simple and SEP IRA’s, and 403(b) plans.

BLACKROCK FUNDS

A World-Class Mutual Fund Family

BlackRock now offers an expanded lineup of open-end mutual funds. Our range includes more than 85 funds crossing all investment styles and managed by experts in equity, fixed income and tax-exempt investing.

Equity Portfolios
BlackRock All-Cap Global Resources Portfolio	BlackRock Global Resources Portfolio*	BlackRock Lifecycle Prepared Portfolios†
BlackRock Aurora Portfolio	BlackRock Global Science & Technology	BlackRock Mid-Cap Growth Equity Portfolio
BlackRock Asset Allocation Portfolio†	Opportunities Portfolio	BlackRock Mid-Cap Value Equity Portfolio
BlackRock Balanced Capital Fund†	BlackRock Global SmallCap Fund	BlackRock Mid Cap Value Opportunities Fund
BlackRock Basic Value Fund	BlackRock Global Technology Fund	BlackRock Natural Resources Trust
BlackRock Capital Appreciation Portfolio	BlackRock Healthcare Fund	BlackRock Pacific Fund
BlackRock Developing Capital Markets Fund	BlackRock Health Sciences Opportunities Portfolio	BlackRock Prepared Portfolios†
BlackRock Equity Dividend Fund	BlackRock Index Equity Portfolio*	BlackRock Small Cap Core Equity Portfolio
BlackRock EuroFund	BlackRock International Fund	BlackRock Small Cap Growth Equity Portfolio
BlackRock Focus Twenty Fund	BlackRock International Index Fund	BlackRock Small Cap Growth Fund II
BlackRock Focus Value Fund	BlackRock International Opportunities Portfolio*	BlackRock Small Cap Index Fund
BlackRock Fundamental Growth Fund	BlackRock International Value Fund	BlackRock Small Cap Value Equity Portfolio*
BlackRock Global Allocation Fund†	BlackRock Investment Trust	BlackRock Small/Mid-Cap Growth Portfolio
BlackRock Global Dynamic Equity Fund	BlackRock Large Cap Core Fund	BlackRock S&P 500 Index Fund
BlackRock Global Financial Services Fund	BlackRock Large Cap Growth Fund	BlackRock U.S. Opportunities Portfolio
BlackRock Global Growth Fund	BlackRock Large Cap Value Fund	BlackRock Utilities and Telecommunications Fund
BlackRock Global Opportunities Portfolio	BlackRock Latin America Fund	BlackRock Value Opportunities Fund
Fixed Income Portfolios
BlackRock Bond Fund	BlackRock High Yield Bond Portfolio	BlackRock Low Duration Bond Portfolio
BlackRock Commodity Strategies Fund	BlackRock Inflation Protected Bond Portfolio	BlackRock Managed Income Portfolio
BlackRock Enhanced Income Portfolio	BlackRock Intermediate Bond Portfolio II	BlackRock Short-Term Bond Fund
BlackRock GNMA Portfolio	BlackRock Intermediate Government	BlackRock Total Return Portfolio
BlackRock Government Income Portfolio	Bond Portfolio	BlackRock Total Return Portfolio II
BlackRock High Income Fund	BlackRock International Bond Portfolio	BlackRock World Income Fund
Municipal Bond Portfolios
BlackRock AMT-Free Municipal Bond Portfolio	BlackRock Intermediate Municipal Fund	BlackRock New York Municipal Bond Fund
BlackRock California Insured Municipal Bond Fund	BlackRock Kentucky Municipal Bond Portfolio	BlackRock Ohio Municipal Bond Portfolio
BlackRock Delaware Municipal Bond Portfolio	BlackRock Municipal Insured Fund	BlackRock Pennsylvania Municipal Bond Fund
BlackRock Florida Municipal Bond Fund	BlackRock National Municipal Fund	BlackRock Short-Term Municipal Fund
BlackRock High Yield Municipal Fund	BlackRock New Jersey Municipal Bond Fund
Money Market Portfolios
BlackRock Money Market Portfolio	BlackRock NJ Municipal MM Portfolio	BlackRock Summit Cash Reserves Fund*
BlackRock Municipal Money Market Portfolio	BlackRock OH Municipal MM Portfolio	BlackRock U.S. Treasury MM Portfolio
BlackRock NC Municipal MM Portfolio	BlackRock PA Municipal MM Portfolio	BlackRock VA Municipal MM Portfolio

* See the prospectus for information on specific limitations on investments in the fund.

† Mixed asset fund.

BlackRock mutual funds are distributed by BlackRock Distributors, Inc. and certain funds are also distributed by FAM Distributors, Inc. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling 800-882-0052 or from your financial advisor. The prospectus should be read carefully before investing.

Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed by PNC Bank, National Association or any other bank and shares are not federally insured by, guaranteed by, obligations of or otherwise supported by the U.S. Government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. Investments in shares of the fund involve investment risks, including the possible loss of the principal amount invested.

Item 2. Code of Ethics.

Not applicable for semi-annual reports.

Item 3. Audit Committee Financial Expert.

Not applicable for semi-annual reports.

Item 4. Principal Accountant Fees and Services.

Not applicable for semi-annual reports.

Item 5. Audit Committee of Listed registrants.

Not applicable.

Item 6. Schedule of Investments.

The Registrant’s Schedule of Investments is included as part of the Report to Shareholders filed under Item 1 of this form.

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.

The Registrant’s Governance and Nominating Committee will consider nominees to the Board of Trustees recommended by shareholders when a vacancy becomes available. Shareholders who wish to recommend a nominee should send nominations which include biographical information and sets forth the qualifications of the proposed nominee to the Registrant’s Secretary. There have been no material changes to these procedures since the Registrant last provided disclosure pursuant to this item.

Item 11. Controls and Procedures.

(a) The Registrant’s principal executive officer and principal financial officer have evaluated the Registrant’s disclosure controls and procedures within 90 days of this filing and have concluded, as of that date, that the Registrant’s disclosure controls and procedures were reasonably designed to ensure that information required to be disclosed by the Registrant in this Form N-CSR was recorded, processed, summarized, and reported within the required time periods and that information required to be disclosed by the Registrant in this Form N-CSR was accumulated and communicated to the Registrant’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

(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 (17 CFR 270.30a-3(d)) that occurred during the registrant’s second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

Item 12. Exhibits.

(a)(1)	Not applicable.
(a)(2)	Separate certifications of Principal Executive and Financial Officers pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 filed as EX-99.CERT.
(b)	Certification of Principal Executive and Financial Officers pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 furnished as EX-99.906 CERT.

SIGNATURES

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.

(registrant)             BlackRock Funds^SM

By (Signature and Title)*            /s/ Henry Gabbay                                                                                                                                        

                                                      Henry Gabbay, President and Principal Executive Officer

Date    June 4, 2007                                                                                                                                                                                           

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 (Signature and Title)*            /s/ Henry Gabbay                                                                                                                                         

                                                      Henry Gabbay, President and Principal Executive Officer

Date    June 4, 2007                                                                                                                                                                                           

By (Signature and Title)*            /s/ Donald C. Burke                                                                                                                                     

                                                     Donald C. Burke, Treasurer and Principal Financial Officer

Date    June 4, 2007                                                                                                                                                                                           

* Print the name and title of each signing officer under his or her signature.