Form N-CSRS BLACKROCK FUNDS For: Oct 31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

Investment Company Act file number: 811-05742

 

Name of Fund:

BlackRock FundsSM

BlackRock Total Emerging Markets Fund

 

Fund Address:

100 Bellevue Parkway, Wilmington, DE 19809

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

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

Date of fiscal year end: 04/30/2021

Date of reporting period: 10/31/2020

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Item 1 – Report to Stockholders

 

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		OCTOBER 31, 2020

 

		2020 Semi-Annual Report (Unaudited)

 

BlackRock Funds^SM

 

·

BlackRock Total Emerging Markets Fund

 

 

 

 

Not FDIC Insured • May Lose Value • No Bank Guarantee

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

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Table of Contents

 

		Page
The Markets in Review			2
Semi-Annual Report:
Fund Summary			4
About Fund Performance			7
Disclosure of Expenses			7
Derivative Financial Instruments			7
Financial Statements:
Consolidated Schedule of Investments			8
Consolidated Statement of Assets and Liabilities			21
Consolidated Statement of Operations			23
Consolidated Statements of Changes in Net Assets			24
Consolidated Financial Highlights			25
Notes to Consolidated Financial Statements			28
Disclosure of Investment Advisory Agreement and Sub-Advisory Agreements			38
Additional Information			42
Glossary of Terms Used in this Report			44

 

 

 

 

 

 

		3

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Fund Summary  as of October 31, 2020		BlackRock Total Emerging Markets Fund

 

Investment Objective

BlackRock Total Emerging Markets Fund’s (the “Fund”) investment objective is to seek total return.

Portfolio Management Commentary

How did the Fund perform?

For the six-month period ended October 31, 2020, the Fund outperformed its custom blended benchmark, MSCI Emerging Markets Index (60%)/JPMorgan Emerging Markets Bond Index Plus (40%).

What factors influenced performance?

The period was characterized by a high degree of uncertainty as economies started to emerge from the lockdown measures that were instituted in the spring. Asia was the first region to re-open in the wake of COVID-19, leading to a stronger recovery in its economy and equity markets. The Fund navigated this environment well, outperforming the benchmark through a combination of asset allocation and security selection.

The majority of the Fund’s outperformance came from stock selection in Asia. Sentiment measures, which positioned the portfolio to benefit from the reopening theme, were key contributors. Specifically, a model that captures trends in the text of market participant commentaries performed well by leading to an overweight in India technology stocks. A local China A shares model also delivered strong gains due to expectations that the country would experience an economic recovery. The model benefited from the domestic focus of stocks in the China A share universe. Environmental, social and governance (“ESG”)-related measures also provided differentiated returns and partially offset weakness from broader quality insights. A recently added insight that looks to capture investor flows into ESG-focused positions was a top performer, with gains in China and Taiwan. In addition, macro thematic insights were strong performers across industry and style positioning. With respect to the former, an industry model led to successful overweight positions in healthcare and communications services stocks in India and China, respectively. Additionally, style positions that were motivated by taking the opposite views from generic quantitative investors performed well.

Despite overall strength in the Fund’s equity allocation, certain aspects of the stock selection model struggled. Defensive measures were notable detractors even at a time of heightened market volatility. Specifically, a preference for lower-risk securities hurt results in Asia as stocks rallied on the prospects for an economic recovery. Similarly, fundamental stock selection — which seeks to identify both higher quality and attractive valuations—detracted in the rising market. Looking toward balance sheet strength in China detracted from returns. Comparing company valuations across sales, which led to an underweight in South Korea’s technology sector, also hurt relative performance.

The Fund’s fixed-income allocation contributed to performance, as well. The portfolio of high-quality hard currency bonds produced gains behind an overweight in Ecuador and broader allocations to Latin America. A strategic overweight in Argentina was additive due to declining concerns about the country’s credit outlook. Positions in local currency bonds were additional contributors, led by gains for positions in South Africa and Chile. However, the Fund’s overall underweight position in South Africa detracted given that the country’s bonds performed well amid investors’ search for higher-yielding assets.

The Fund used total return swaps (a simple form of derivatives) to gain exposure to certain emerging equity markets. The Fund used derivatives as a means to achieve exposure to these markets in a more efficient manner than investing directly in equities. The Fund’s use of derivatives contributed positively to Fund performance. As derivatives required less cash used as collateral, the portfolio had a higher cash balance as of period end. Since the Fund achieved its desired exposures through the use of derivatives, the cash position had no material impact on performance.

Describe recent portfolio activity.

The Fund maintained a balanced allocation of risk across all major return drivers in its equity portfolio, and it added a number of new signals to its stock selection model. The Fund continued to build out models that are based on ESG factors, while tilting away from more generic quantitative measures. The Fund also implemented a new macro insight based on expected fiscal responses to COVID-19.

Describe portfolio positioning at period end.

Malaysia was the largest overweight in the equity portfolio, primarily through positions in the health care sector. The Fund was overweight in Brazil and Taiwan, predominantly through materials and technology stocks, respectively. The portfolio remained slightly overweight in China, driven by a preference for local China A share securities. South Korea was the Fund’s largest equity underweight due to the negative outlook for both reforms and export competitiveness. On the fixed-income side, the investment adviser continued to identify opportunities in local currency bonds in Malaysia and South Africa. The hard currency sovereign bond portfolio was underweight in Croatia and overweight in higher-quality issuers such as Hungary and Poland.

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

 

 

4		2 0 2 0   B L A C K R O C K   S E M I - A N N U A L   R E P O R T   T O   S H A R E H O L D E R S

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Fund Summary  as of October 31, 2020 (continued)		BlackRock Total Emerging Markets Fund

 

Performance Summary for the Period Ended October 31, 2020

 

										Average Annual Total Returns(a)(b)
										1 Year												5 Years												Since Inception(c)
		6-Month Total Returns								Without Sales Charge				With Sales Charge								Without Sales Charge				With Sales Charge								Without Sales Charge				With Sales Charge
Institutional			20.15	%							8.93	%			N/A								6.61	%			N/A								2.67	%			N/A
Investor A			20.11								8.68				2.97	%							6.34				5.20	%							2.42				1.68	%
Investor C			19.55								7.87				6.87								5.54				5.54								1.65				1.65
MSCI Emerging Markets Index (60%)/JPMorgan Emerging Markets Bond Index Plus (40%)(d)			16.34								6.82				N/A								6.82				N/A								3.44				N/A
MSCI Emerging Markets Index			20.96								8.25				N/A								7.92				N/A								3.18				N/A
JPMorgan Emerging Markets Bond Index Plus			9.44								3.81				N/A								4.65				N/A								3.33				N/A

 

(a)

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

(b)

Under normal circumstances, the Fund seeks to invest at least 80% of its net assets plus any borrowings for investment purposes in equity and debt instruments and related derivative instruments issued by, or tied economically to, companies or other issuers located in emerging markets.

(c)

The Fund commenced operations on May 16, 2013.

(d)

A customized weighted index comprised of the returns of the MSCI Emerging Markets Index (60%) and the JPMorgan Emerging Markets Bond Index Plus (40%). The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets and consists of 26 emerging market country indices. JPMorgan Emerging Markets Bond Index Plus is a market capitalization-weighted index that tracks returns for actively traded external debt instruments in emerging markets.

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

Past performance is not an indication of future results.

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

Expense Example

 

		Actual																Hypothetical(a)
		Beginning Account Value (05/01/20)				Ending Account Value (10/31/20)				Expenses    Paid During    the Period(b)								Beginning Account Value (05/01/20)				Ending Account Value (10/31/20)				Expenses    Paid During    the Period(b)				Annualized Expense Ratio
Institutional		$	1,000.00			$	1,201.50			$	4.72							$	1,000.00			$	1,020.92			$	4.33				0.85	%
Investor A			1,000.00				1,201.10				6.10								1,000.00				1,019.66				5.60				1.10
Investor C			1,000.00				1,195.50				10.24								1,000.00				1,015.88				9.40				1.85

 

(a)

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

(b)

For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the six-month period shown).

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

 

 

F U N D   S U M M A R Y		5

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Fund Summary  as of October 31, 2020 (continued)		BlackRock Total Emerging Markets Fund

 

Portfolio Information

 

 

(a)

Excludes short-term securities.

(b)

Total investments include the gross values of long and short equity securities of the underlying derivative contracts utilized by the Fund and exclude short-term securities.

(c)

Includes holdings within countries that are 1% or less of net assets. Please refer to the Consolidated Schedule of Investments for such countries.

 

 

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About Fund Performance		BlackRock Total Emerging Markets Fund

 

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

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

Investor C Shares are subject to a 1.00% CDSC if redeemed within one year of purchase. In addition, these shares are subject to a distribution fee of 0.75% per year and a service fee of 0.25% per year. These shares are generally available through financial intermediaries. These shares automatically convert to Investor A Shares after approximately ten years. Effective November 23, 2020, the automatic conversion feature will be modified to reduce the conversion period from ten years to eight years.

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

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

Disclosure of Expenses

Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, administration fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses, and other fund expenses. The expense example shown (which is based on a hypothetical investment of $1,000 invested on May 1, 2020 and held through October 31, 2020) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.

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

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

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

Derivative Financial Instruments

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

 

 

A B O U T   F U N D   P E R F O R M A N C E   /   D I S C L O S U R E   O F   E X P E N S E S   /   D E R I V A T I V E   F I N A N C I A L   I N S T R U M E N T S		7

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Consolidated Schedule of Investments  (unaudited) October 31, 2020		BlackRock Total Emerging Markets Fund (Percentages shown are based on Net Assets)

 

 

 

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Consolidated Schedule of Investments  (unaudited) (continued) October 31, 2020		BlackRock Total Emerging Markets Fund (Percentages shown are based on Net Assets)

 

 

 

C O N S O L I D A T E D   S C H E D U L E    O F   I N V E S T M E N T S		9

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Consolidated Schedule of Investments  (unaudited) (continued) October 31, 2020		BlackRock Total Emerging Markets Fund (Percentages shown are based on Net Assets)

 

Affiliates

Investments in issuers considered to be affiliate(s) of the Fund during the six-months ended October 31, 2020 for purposes of Section 2(a)(3) of the 1940 Act, as amended, were as follows:

 

Affiliated Issuer		Value at 04/30/20				Purchases at Cost				Proceeds from Sales				Net Realized Gain (Loss)				Change in Unrealized Appreciation (Depreciation)				Value at 10/31/20				Shares Held at 10/31/20				Income				Capital Gain Distributions from Underlying Funds
BlackRock Liquidity Funds, T-Fund, Institutional Class		$	20,955,814			$	12,363,869	(a)		$	—			$	—			$	—			$	33,319,683				33,319,683			$	8,870			$	—
iShares MSCI India ETF			4,535,825				330,788				(1,359,424	)			(44,789	)			1,089,650				4,552,050				135,518				—				—
														$	(44,789	)		$	1,089,650			$	37,871,733							$	8,870			$	—

 

(a)

Represents net amount purchased (sold).

Derivative Financial Instruments Outstanding as of Period End

Futures Contracts

 

Description

Number of Contracts

Expiration Date

Notional Amount (000)

Value/ Unrealized Appreciation (Depreciation)

Short Contracts

MSCI Emerging Markets E-Mini Index

13

12/18/20

$

716

$

16,593

 

 

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Consolidated Schedule of Investments  (unaudited) (continued) October 31, 2020		BlackRock Total Emerging Markets Fund

 

Forward Foreign Currency Exchange Contracts

 

Currency Purchased						Currency Sold						Counterparty		Settlement Date				Unrealized Appreciation (Depreciation)
CAD			460,000			USD			345,087			Deutsche Bank AG			11/13/20			$	195
CHF			426,000			EUR			397,411			BNP Paribas S.A.			11/13/20				1,773
CHF			1,396,000			EUR			1,296,332			BNP Paribas S.A.			11/13/20				12,781
CHF			214,000			EUR			198,351			Citibank N.A.			11/13/20				2,391
CHF			385,000			EUR			358,757			Goldman Sachs International			11/13/20				2,075
CHF			1,707,000			EUR			1,593,875			JPMorgan Chase Bank N.A.			11/13/20				5,438
CHF			316,000			EUR			295,647			Morgan Stanley & Co. International PLC			11/13/20				321
EUR			295,993			CHF			316,000			Deutsche Bank AG			11/13/20				82
EUR			13,349			HUF			4,812,000			Goldman Sachs International			11/13/20				275
EUR			114,990			HUF			41,838,000			Goldman Sachs International			11/13/20				1,140
EUR			1,390,310			NOK			15,108,000			Citibank N.A.			11/13/20				37,069
EUR			473,643			NOK			5,122,000			Credit Suisse International			11/13/20				15,237
EUR			188,431			PLN			861,000			Citibank N.A.			11/13/20				1,997
EUR			133,016			PLN			601,000			JPMorgan Chase Bank N.A.			11/13/20				3,126
GBP			163,000			USD			210,227			JPMorgan Chase Bank N.A.			11/13/20				953
GBP			209,000			USD			270,088			JPMorgan Chase Bank N.A.			11/13/20				689
IDR			6,260,499,000			USD			422,990			BNP Paribas S.A.			11/13/20				406
JPY			73,771,000			USD			699,052			Barclays Bank PLC			11/13/20				5,648
JPY			18,309,000			USD			174,606			BNP Paribas S.A.			11/13/20				292
JPY			88,204,000			USD			838,070			BNP Paribas S.A.			11/13/20				4,501
JPY			57,975,000			USD			547,255			Citibank N.A.			11/13/20				6,553
JPY			56,100,000			USD			533,517			JPMorgan Chase Bank N.A.			11/13/20				2,380
KRW			467,582,000			USD			405,656			JPMorgan Chase Bank N.A.			11/13/20				5,488
KRW			962,303,000			USD			839,318			JPMorgan Chase Bank N.A.			11/13/20				6,834
MXN			1,198,000			USD			56,057			Goldman Sachs International			11/13/20				366
MXN			5,811,000			USD			272,285			Goldman Sachs International			11/13/20				1,400
NOK			1,062,000			EUR			95,078			Goldman Sachs International			11/13/20				484
NZD			826,000			USD			544,702			JPMorgan Chase Bank N.A.			11/13/20				1,452
PHP			8,707,000			USD			178,418			JPMorgan Chase Bank N.A.			11/13/20				903
RON			1,570,000			EUR			320,917			Goldman Sachs International			11/13/20				2,030
SEK			15,595,000			EUR			1,486,751			JPMorgan Chase Bank N.A.			11/13/20				20,830
TWD			4,211,000			USD			147,377			JPMorgan Chase Bank N.A.			11/13/20				482
TWD			7,987,000			USD			279,792			Morgan Stanley & Co. International PLC			11/13/20				653
TWD			45,753,000			USD			1,601,828			Morgan Stanley & Co. International PLC			11/13/20				4,681
USD			108,265			AUD			154,000			Barclays Bank PLC			11/13/20				13
USD			181,249			AUD			255,000			Deutsche Bank AG			11/13/20				1,999
USD			223,072			AUD			314,000			Deutsche Bank AG			11/13/20				2,348
USD			223,930			AUD			316,000			Deutsche Bank AG			11/13/20				1,800
USD			307,506			AUD			434,000			JPMorgan Chase Bank N.A.			11/13/20				2,430
USD			129,989			BRL			732,000			BNP Paribas S.A.			11/13/20				2,471
USD			194,941			CAD			256,000			BNP Paribas S.A.			11/13/20				2,784
USD			405,442			CAD			537,000			BNP Paribas S.A.			11/13/20				2,362
USD			198,804			CAD			262,000			Citibank N.A.			11/13/20				2,143
USD			342,948			CAD			452,000			Deutsche Bank AG			11/13/20				3,671
USD			119,336			CAD			158,000			JPMorgan Chase Bank N.A.			11/13/20				739
USD			365,740			CAD			481,000			Morgan Stanley & Co. International PLC			11/13/20				4,695
USD			434,814			EUR			368,000			BNP Paribas S.A.			11/13/20				6,129
USD			445,788			EUR			379,000			BNP Paribas S.A.			11/13/20				4,288
USD			813,003			EUR			692,000			BNP Paribas S.A.			11/13/20				6,887
USD			1,671,527			EUR			1,427,000			Citibank N.A.			11/13/20				9,205
USD			1,108,003			EUR			951,000			Deutsche Bank AG			11/13/20				177
USD			453,922			EUR			385,099			HSBC Bank USA N.A.			11/13/20				5,317
USD			1,258,886			EUR			1,064,000			Morgan Stanley & Co. International PLC			11/13/20				19,425
USD			1,283,814			EUR			1,091,000			Morgan Stanley & Co. International PLC			11/13/20				12,900
USD			27,668			GBP			21,339			BNP Paribas S.A.			11/13/20				21
USD			319,790			GBP			245,000			Citibank N.A.			11/13/20				2,372
USD			446,327			GBP			344,000			Deutsche Bank AG			11/13/20				646
USD			168,852			IDR			2,489,097,000			BNP Paribas S.A.			11/13/20				515
USD			136,085			INR			10,012,000			BNP Paribas S.A.			11/13/20				1,875
USD			107,686			INR			7,908,000			JPMorgan Chase Bank N.A.			11/13/20				1,680
USD			144,315			INR			10,647,000			Morgan Stanley & Co. International PLC			11/13/20				1,594
USD			237,021			INR			17,468,000			Morgan Stanley & Co.International PLC			11/13/20				2,866

 

 

C O N S O L I D A T E D   S C H E D U L E    O F   I N V E S T M E N T S		11

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Consolidated Schedule of Investments  (unaudited) (continued) October 31, 2020		BlackRock Total Emerging Markets Fund

 

Forward Foreign Currency Exchange Contracts (continued)

 

Currency Purchased						Currency Sold						Counterparty		Settlement Date				Unrealized Appreciation (Depreciation)
USD			237,204			JPY			24,795,000			Deutsche Bank AG			11/13/20			$	349
USD			119,172			MXN			2,515,000			Barclays Bank PLC			11/13/20				721
USD			832,849			NZD			1,251,000			Barclays Bank PLC			11/13/20				5,685
USD			530,390			NZD			793,000			Goldman Sachs International			11/13/20				6,057
USD			2,280,044			NZD			3,437,000			Morgan Stanley & Co. International PLC			11/13/20				7,491
USD			594,911			PHP			28,877,000			JPMorgan Chase Bank N.A.			11/13/20				187
USD			548,376			RUB			42,288,000			JPMorgan Chase Bank N.A.			11/13/20				16,670
USD			1,169,958			RUB			92,260,000			Morgan Stanley & Co. International PLC			11/13/20				9,932
USD			319,450			SGD			434,000			BNP Paribas S.A.			11/13/20				1,723
USD			629,561			SGD			854,000			BNP Paribas S.A.			11/13/20				4,358
USD			457,679			SGD			620,000			Goldman Sachs International			11/13/20				3,785
USD			1,057,492			THB			32,868,000			JPMorgan Chase Bank N.A.			11/13/20				3,020
USD			215,272			TWD			6,126,000			JPMorgan Chase Bank N.A.			11/13/20				172
USD			215,803			TWD			6,145,000			JPMorgan Chase Bank N.A.			11/13/20				36
ZAR			2,102,000			USD			127,008			Morgan Stanley & Co. International PLC			11/13/20				2,009
																			316,472
AUD			601,000			USD			426,510			BNP Paribas S.A.			11/13/20				(4,043	)
AUD			874,000			USD			627,613			BNP Paribas S.A.			11/13/20				(13,243	)
AUD			1,540,000			USD			1,102,170			BNP Paribas S.A.			11/13/20				(19,642	)
AUD			183,000			USD			130,428			Deutsche Bank AG			11/13/20				(1,790	)
AUD			1,772,000			USD			1,267,374			Morgan Stanley & Co. International PLC			11/13/20				(21,763	)
BRL			822,000			USD			146,920			BNP Paribas S.A.			11/13/20				(3,724	)
BRL			652,000			USD			117,892			JPMorgan Chase Bank N.A.			11/13/20				(4,311	)
BRL			673,000			USD			119,058			JPMorgan Chase Bank N.A.			11/13/20				(1,819	)
BRL			1,024,000			USD			183,773			Morgan Stanley & Co. International PLC			11/13/20				(5,388	)
CAD			685,000			USD			523,164			Citibank N.A.			11/13/20				(8,994	)
CAD			258,000			USD			195,285			JPMorgan Chase Bank N.A.			11/13/20				(1,627	)
CAD			1,926,000			USD			1,452,137			JPMorgan Chase Bank N.A.			11/13/20				(6,456	)
COP			1,378,238,000			USD			360,446			JPMorgan Chase Bank N.A.			11/13/20				(4,475	)
EUR			905,716			CHF			972,000			Citibank N.A.			11/13/20				(5,273	)
EUR			264,071			CHF			283,000			Morgan Stanley & Co. International PLC			11/13/20				(1,105	)
EUR			739,370			CHF			792,000			Morgan Stanley & Co. International PLC			11/13/20				(2,690	)
EUR			2,351,994			CHF			2,524,000			Morgan Stanley & Co. International PLC			11/13/20				(13,559	)
EUR			204,397			SEK			2,134,000			Citibank N.A.			11/13/20				(1,741	)
EUR			675,730			SEK			7,008,000			Credit Suisse International			11/13/20				(482	)
EUR			467,000			USD			548,783			BNP Paribas S.A.			11/13/20				(4,772	)
EUR			951,000			USD			1,110,381			BNP Paribas S.A.			11/13/20				(2,554	)
EUR			1,112,000			USD			1,319,793			BNP Paribas S.A.			11/13/20				(24,416	)
EUR			1,649,000			USD			1,944,257			BNP Paribas S.A.			11/13/20				(23,325	)
EUR			70,000			USD			82,833			JPMorgan Chase Bank N.A.			11/13/20				(1,289	)
GBP			945,000			USD			1,225,093			JPMorgan Chase Bank N.A.			11/13/20				(767	)
INR			11,794,000			USD			159,903			BNP Paribas S.A.			11/13/20				(1,807	)
INR			7,913,000			USD			106,762			Morgan Stanley & Co. International PLC			11/13/20				(690	)
JPY			24,795,000			USD			237,666			Citibank N.A.			11/13/20				(811	)
JPY			122,629,000			USD			1,173,254			Citibank N.A.			11/13/20				(1,836	)
KRW			283,228,000			USD			251,207			BNP Paribas S.A.			11/13/20				(2,165	)
KRW			341,176,000			USD			301,395			BNP Paribas S.A.			11/13/20				(1,399	)
MXN			6,223,000			USD			297,043			Barclays Bank PLC			11/13/20				(3,954	)
MXN			2,713,000			USD			128,787			Morgan Stanley & Co. International PLC			11/13/20				(1,011	)
NOK			5,123,000			EUR			468,244			Barclays Bank PLC			11/13/20				(8,844	)
NOK			1,392,000			EUR			126,854			Credit Suisse International			11/13/20				(1,966	)
NOK			2,141,000			EUR			196,237			Deutsche Bank AG			11/13/20				(4,336	)
NZD			1,437,000			USD			957,188			BNP Paribas S.A.			11/13/20				(7,040	)
NZD			241,000			USD			160,817			Goldman Sachs International			11/13/20				(1,467	)
NZD			557,000			USD			373,675			Morgan Stanley & Co. International PLC			11/13/20				(5,385	)
PLN			1,475,000			EUR			328,004			Morgan Stanley & Co. International PLC			11/13/20				(9,477	)
RUB			10,667,000			USD			134,379			BNP Paribas S.A.			11/13/20				(258	)
RUB			12,945,000			USD			164,006			JPMorgan Chase Bank N.A.			11/13/20				(1,243	)
RUB			23,753,000			USD			302,393			JPMorgan Chase Bank N.A.			11/13/20				(3,736	)
RUB			63,473,000			USD			814,592			Morgan Stanley & Co. International PLC			11/13/20				(16,517	)
SEK			1,561,000			EUR			150,982			Deutsche Bank AG			11/13/20				(436	)

 

 

12		2 0 2 0   B L A C K R O C K   S E M I - A N N U A L   R E P O R T   T O   S H A R E H O L D E R S

---

Consolidated Schedule of Investments  (unaudited) (continued) October 31, 2020		BlackRock Total Emerging Markets Fund

 

Forward Foreign Currency Exchange Contracts (continued)

 

Currency Purchased						Currency Sold						Counterparty		Settlement Date				Unrealized Appreciation (Depreciation)
SEK			3,158,000			EUR			305,351			Deutsche Bank AG			11/13/20			$	(771	)
SEK			12,389,000			EUR			1,200,405			JPMorgan Chase Bank N.A.			11/13/20				(5,934	)
SGD			1,961,000			USD			1,441,792			Barclays Bank PLC			11/13/20				(6,167	)
USD			345,006			CAD			460,000			Deutsche Bank AG			11/13/20				(276	)
USD			161,115			CLP			128,868,000			Barclays Bank PLC			11/13/20				(5,514	)
USD			236,643			CLP			185,720,000			Morgan Stanley & Co. International PLC			11/13/20				(3,497	)
USD			270,251			GBP			209,000			Deutsche Bank AG			11/13/20				(525	)
USD			550,159			GBP			426,000			Deutsche Bank AG			11/13/20				(1,760	)
USD			544,501			GBP			423,000			JPMorgan Chase Bank N.A.			11/13/20				(3,531	)
USD			163,819			IDR			2,423,538,000			Morgan Stanley & Co. International PLC			11/13/20				(84	)
USD			260,724			JPY			27,373,000			BNP Paribas S.A.			11/13/20				(758	)
USD			423,107			JPY			44,825,000			Citibank N.A.			11/13/20				(5,085	)
USD			744,439			JPY			78,545,000			Deutsche Bank AG			11/13/20				(5,865	)
USD			127,418			JPY			13,345,000			Morgan Stanley & Co. International PLC			11/13/20				(60	)
USD			83,719			KRW			95,995,670			BNP Paribas S.A.			11/13/20				(690	)
USD			877,987			KRW			1,000,247,000			BNP Paribas S.A.			11/13/20				(1,529	)
USD			1,159,081			KRW			1,346,134,000			JPMorgan Chase Bank N.A.			11/13/20				(24,573	)
USD			38,396			KRW			43,998,330			Morgan Stanley & Co. International PLC			11/13/20				(291	)
USD			120,834			MXN			2,601,000			HSBC Bank USA N.A.			11/13/20				(1,667	)
USD			146,680			MXN			3,120,000			JPMorgan Chase Bank N.A.			11/13/20				(265	)
USD			443,787			NZD			676,000			BNP Paribas S.A.			11/13/20				(3,186	)
USD			189,403			PHP			9,205,000			JPMorgan Chase Bank N.A.			11/13/20				(175	)
USD			159,699			ZAR			2,670,000			Citibank N.A.			11/13/20				(4,180	)
ZAR			2,014,000			USD			123,626			Citibank N.A.			11/13/20				(11	)
USD			2,847,930			CLP			2,208,000,000			Deutsche Bank AG			12/16/20				(7,048	)
USD			1,504,441			IDR			22,632,808,000			Bank of America N.A.			12/16/20				(20,273	)
USD			2,136,680			KRW			2,540,000,000			Citibank N.A.			12/16/20				(97,271	)
USD			1,709,696			MXN			37,560,000			Deutsche Bank AG			12/16/20				(52,711	)
USD			1,960,179			ZAR			33,500,000			Barclays Bank PLC			12/17/20				(87,760	)
																			(595,083	)
																		$	(278,611	)

Centrally Cleared Interest Rate Swaps

 

Paid by the Fund

Received by the Fund

Effective Date

Termination Date

Notional Amount (000)

Value

Upfront Premium Paid (Received)

Unrealized Appreciation (Depreciation)

Rate

Frequency

Rate

Frequency

3-Month JIBAR, 3.33%

Quarterly

5.51%

Quarterly

03/17/21

(a)

03/17/26

ZAR

29,400

$

21,887

$

31

$

21,856

 

(a)

Forward Swap.

 

 

C O N S O L I D A T E D   S C H E D U L E    O F   I N V E S T M E N T S		13

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Consolidated Schedule of Investments  (unaudited) (continued) October 31, 2020		BlackRock Total Emerging Markets Fund

 

OTC Interest Rate Swaps

 

Paid by the Fund

Received by the Fund

Counterparty

Effective Date

Termination Date

Notional Amount (000)

Value

Upfront Premium Paid (Received)

Unrealized Appreciation (Depreciation)

Rate

Frequency

Rate

Frequency

3-Month KRW   LIBOR, 0.64%

Quarterly

1.05%

Quarterly

Bank of America N.A.

03/17/21

(a)

03/17/26

KRW

1,656,690

$

2,924

$

—

$

2,924

3-Month KLIBOR,   1.95%

Quarterly

2.06%

Quarterly

Bank of America N.A.

03/17/21

(a)

03/17/26

MYR

12,330

6,251

—

6,251

6-Month CLP   Interbank Rate,   0.00%

Semi-Annual

1.55%

Semi-Annual

Goldman Sachs Bank USA

03/17/21

(a)

03/17/26

CLP

1,107,760

4,965

—

4,965

6-Month BIBOR,   0.80%

Semi-Annual

0.96%

Semi-Annual

Goldman Sachs Bank USA

03/17/21

(a)

03/17/26

THB

42,870

10,962

—

10,962

3-Month TWD   Secondary   Bank Rate,   0.00%

Quarterly

0.66%

Quarterly

JPMorgan Chase Bank N.A.

03/17/21

(a)

03/17/26

TWD

38,720

3,843

—

3,843

$

28,945

$

—

$

28,945

 

(a)

Forward Swap.

OTC Total Return Swaps

 

Reference Entity		Payment Frequency		Counterparty (a)				Termination Date				Net Notional				Accrued Unrealized Appreciation (Depreciation)				Net Value of Reference Entity				Gross Notional Amount Net Asset Percentage
Equity Securities Long		At Termination			Goldman Sachs & Co. (b)				11/02/20 – 02/28/23			$	23,773,700			$	4,785,566	(c)		$	28,283,750				22.3	%
		At Termination			UBS AG (d)				01/12/21 – 08/26/25				25,172,668				3,427,107	(e)			28,228,525				23.6
												$	48,946,368			$	8,212,673			$	56,512,275

 

(a)

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

 

(c)

Amount includes $275,516 of net dividends and financing fees.

 

(e)

Amount includes $371,250 of net dividends and financing fees.

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

 

		(b)		(d)
Range:		30-85 basis points		25-175 basis points
Benchmarks:		USD — 1D Overnight Fed Funds Effective Rate (FEDL01)		USD — 1D Overnight Bank Funding Rate (OBFR01)

 

 

 

14		2 0 2 0   B L A C K R O C K   S E M I - A N N U A L   R E P O R T   T O   S H A R E H O L D E R S

---

Consolidated Schedule of Investments  (unaudited) (continued) October 31, 2020		BlackRock Total Emerging Markets Fund

 

 

 

C O N S O L I D A T E D   S C H E D U L E    O F   I N V E S T M E N T S		15

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Consolidated Schedule of Investments  (unaudited) (continued) October 31, 2020		BlackRock Total Emerging Markets Fund

 

 

 

16		2 0 2 0   B L A C K R O C K   S E M I - A N N U A L   R E P O R T   T O   S H A R E H O L D E R S

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Consolidated Schedule of Investments  (unaudited) (continued) October 31, 2020		BlackRock Total Emerging Markets Fund

 

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

Description		Swap Premiums Paid				Swap Premiums Received				Unrealized Appreciation				Unrealized Depreciation
Centrally Cleared Swaps(a)		$	31			$	—			$	21,856			$	—
OTC Swaps			—				—				8,241,618				—

 

(a)

Includes cumulative appreciation (depreciation) on centrally cleared swaps, as reported in the Consolidated Schedule of Investments. Only current day’s variation margin is reported within the Consolidated Statement of Assets and Liabilities and is net of any previously paid (received) swap premium amounts.

 

 

C O N S O L I D A T E D   S C H E D U L E    O F   I N V E S T M E N T S		17

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Consolidated Schedule of Investments  (unaudited) (continued) October 31, 2020		BlackRock Total Emerging Markets Fund

 

Derivative Financial Instruments Categorized by Risk Exposure

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

 

		Commodity Contracts				Credit Contracts				Equity Contracts				Foreign Currency Exchange Contracts				Interest Rate Contracts				Other Contracts				Total
Assets — Derivative Financial Instruments
Futures contracts
Unrealized appreciation on futures contracts(a)		$	—			$	—			$	16,593			$	—			$	—			$	—			$	16,593
Forward foreign currency exchange contracts
Unrealized appreciation on forward foreign currency exchange contracts			—				—				—				316,472				—				—				316,472
Swaps — centrally cleared
Unrealized appreciation on centrally cleared swaps(a)			—				—				—				—				21,856				—				21,856
Swaps — OTC
Unrealized appreciation on OTC swaps; Swap premiums paid			—				—				8,212,673				—				28,945				—				8,241,618
		$	—			$	—			$	8,229,266			$	316,472			$	50,801			$	—			$	8,596,539
Liabilities — Derivative Financial Instruments
Forward foreign currency exchange contracts
Unrealized depreciation on forward foreign currency exchange contracts		$	—				—			$	—			$	595,083			$	—			$	—			$	595,083

 

(a)

Net cumulative unrealized appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, are reported in the Consolidated Schedule of Investments. In the Consolidated Statement of Assets and Liabilities, only current day’s variation margin is reported in receivables or payables and the net cumulative unrealized appreciation (depreciation) is included in accumulated earnings (loss).

For the six months ended October 31, 2020, the effect of derivative financial instruments in the Consolidated Statement of Operations was as follows:

 

		Commodity Contracts				Credit Contracts				Equity Contracts				Foreign Currency Exchange Contracts				Interest Rate Contracts				Other Contracts				Total
Net Realized Gain (Loss) from
Futures contracts		$	—			$	—			$	(10,548	)		$	—			$	—			$	—			$	(10,548	)
Forward foreign currency exchange contracts			—				—				—				(288,600	)			—				—				(288,600	)
Swaps			—				—				3,893,713				—				303,050				—				4,196,763
		$	—			$	—			$	3,883,165			$	(288,600	)		$	303,050			$	—			$	3,897,615
Net Change in Unrealized Appreciation (Depreciation) on
Futures contracts		$	—			$	—			$	23,538			$	—			$	—			$	—			$	23,538
Forward foreign currency exchange contracts			—				—				—				(796,618	)			—				—				(796,618	)
Swaps			—				—				8,491,668				—				(29,323	)			—				8,462,345
		$	—			$	—			$	8,515,206			$	(796,618	)		$	(29,323	)		$	—			$	7,689,265

Average Quarterly Balances of Outstanding Derivative Financial Instruments

 

Futures contracts
Average notional value of contracts — long		$	—	(a)
Average notional value of contracts — short		$	384,850
Forward foreign currency exchange contracts
Average amounts purchased — in USD		$	62,204,930
Average amounts sold — in USD		$	53,398,333
Interest rate swaps
Average notional value — receives fixed rate		$	12,970,169
Total return swaps
Average notional value		$	48,716,060

 

(a)

Derivative not held at any quarter-end. The risk exposure table serves as an indicator of activity during the period.

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

 

 

18		2 0 2 0   B L A C K R O C K   S E M I - A N N U A L   R E P O R T   T O   S H A R E H O L D E R S

---

Consolidated Schedule of Investments  (unaudited) (continued) October 31, 2020		BlackRock Total Emerging Markets Fund

 

Derivative Financial Instruments — Offsetting as of Period End

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

 

		Assets				Liabilities
Derivative Financial Instruments
Futures contracts		$	8,136			$	—
Forward foreign currency exchange contracts			316,472				595,083
Swaps — centrally cleared			8,194				—
Swaps — OTC(a)			8,241,618				—
Total derivative assets and liabilities in the Consolidated Statement of Assets and Liabilities			8,574,420				595,083
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”)			(16,330	)			—
Total derivative assets and liabilities subject to an MNA		$	8,558,090			$	595,083

 

(a)

Includes unrealized appreciation (depreciation) on OTC swaps and swap premiums (paid/received) in the Consolidated Statement of Assets and Liabilities.

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

 

Counterparty			Derivative Assets Subject to an MNA by Counterparty				Derivatives Available for Offset	(a)			Non-Cash Collateral Received				Cash Collateral Received	(b)			Net Amount of Derivative Assets	(c)
Bank of America N.A		$	9,175			$	(9,175	)		$	—			$	—			$	—
Barclays Bank PLC			12,067				(12,067	)			—				—				—
BNP Paribas S.A			53,166				(53,166	)			—				—				—
Citibank N.A			61,730				(61,730	)			—				—				—
Credit Suisse International			15,237				(2,448	)			—				—				12,789
Deutsche Bank AG			11,267				(11,267	)			—				—				—
Goldman Sachs & Co.			4,785,566				—				—				(4,785,566	)			—
Goldman Sachs Bank USA			15,927				—				—				—				15,927
Goldman Sachs International			17,612				(1,467	)			—				—				16,145
HSBC Bank USA N.A			5,317				(1,667	)			—				—				3,650
JPMorgan Chase Bank N.A			77,352				(60,201	)			—				—				17,151
Morgan Stanley & Co. International PLC			66,567				(66,567	)			—				—				—
UBS AG			3,427,107				—				—				—				3,427,107
		$	8,558,090			$	(279,755	)		$	—			$	(4,785,566	)		$	3,492,769
Counterparty			Derivative Liabilities Subject to an MNA by Counterparty				Derivatives Available for Offset	(a)			Non-Cash Collateral Pledged				Cash Collateral Pledged				Net Amount of Derivative Liabilities	(d)
Bank of America N.A		$	20,273			$	(9,175	)		$	—			$	—			$	11,098
Barclays Bank PLC			112,239				(12,067	)			—				—				100,172
BNP Paribas S.A			114,551				(53,166	)			—				—				61,385
Citibank N.A			125,202				(61,730	)			—				—				63,472
Credit Suisse International			2,448				(2,448	)			—				—				—
Deutsche Bank AG			75,518				(11,267	)			—				—				64,251
Goldman Sachs International			1,467				(1,467	)			—				—				—
HSBC Bank USA N.A			1,667				(1,667	)			—				—				—
JPMorgan Chase Bank N.A			60,201				(60,201	)			—				—				—
Morgan Stanley & Co. International PLC			81,517				(66,567	)			—				—				14,950
		$	595,083			$	(279,755	)		$	—			$	—			$	315,328

 

(a)

The amount of derivatives available for offset is limited to the amount of derivative asset and/or liabilities that are subject to an MNA.

(b)

Excess of collateral received from the individual counterparty is not shown for financial reporting purposes.

(c)

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

(d)

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

 

 

C O N S O L I D A T E D   S C H E D U L E    O F   I N V E S T M E N T S		19

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Consolidated Schedule of Investments  (unaudited)  (continued) October 31, 2020		BlackRock Total Emerging Markets Fund

 

Fair Value Hierarchy as of Period End

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

The following table summarizes the Fund’s investments and derivative financial instruments categorized in the disclosure hierarchy. The breakdown of the Fund’s investments into major categories is disclosed in the Consolidated Schedule of Investments above.

 

		Level 1				Level 2				Level 3				Total
Assets
Investments
Long-Term Investments
Common Stocks		$	—			$	3,953,845			$	—			$	3,953,845
Corporate Bonds			—				766,010				—				766,010
Foreign Agency Obligations			—				58,479,339				—				58,479,339
Investment Companies			4,552,050				—				—				4,552,050
Short-Term Securities
Money Market Funds			33,319,683				—				—				33,319,683
		$	37,871,733			$	63,199,194			$	—			$	101,070,927
Derivative Financial Instruments(a)
Assets
Equity Contracts		$	16,593			$	8,212,673			$	—			$	8,229,266
Foreign Currency Exchange Contracts			—				316,472				—				316,472
Interest Rate Contracts			—				50,801				—				50,801
Liabilities
Foreign Currency Exchange Contracts			—				(595,083	)			—				(595,083	)
		$	16,593			$	7,984,863			$	—			$	8,001,456

 

(a)

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

See notes to consolidated financial statements.

 

 

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Consolidated Statement of Assets and Liabilities  (unaudited)

October 31, 2020

 

		BlackRock Total Emerging Markets Fund
ASSETS
Investments at value — unaffiliated(a)		$	63,199,194
Investments at value — affiliated(b)			37,871,733
Cash			429
Cash pledged:
Futures contracts			53,000
Centrally cleared swaps			115,597
Foreign currency at value(c)			3,024,499
Receivables:
Capital shares sold			322,569
Dividends — affiliated			1,179
Interest — unaffiliated			595,575
Variation margin on futures contracts			8,136
Variation margin on centrally cleared swaps			8,194
Unrealized appreciation on:
Forward foreign currency exchange contracts			316,472
OTC swaps			8,241,618
Prepaid expenses			21,100
Total assets			113,779,295
LIABILITIES
Cash received as collateral for OTC derivatives			5,410,000
Payables:
Accounting services fees			106,812
Administration fees			3,978
Capital shares redeemed			598,811
Investment advisory fees			36,822
Trustees’ and Officer’s fees			4,004
Other accrued expenses			62,636
Professional fees			146,677
Service and distribution fees			5,185
Unrealized depreciation on forward foreign currency exchange contracts			595,083
Total liabilities			6,970,008
NET ASSETS		$	106,809,287
NET ASSETS CONSIST OF
Paid-in capital		$	116,858,389
Accumulated loss			(10,049,102	)
NET ASSETS		$	106,809,287
(a) Investments at cost — unaffiliated		$	61,847,262
(b) Investments at cost — affiliated		$	37,488,598
(c) Foreign currency at cost		$	2,952,321

 

 

C O N S O L I D A T E D   F I N A N C I A L   S T A T E M E N T S		21

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Consolidated Statement of Assets and Liabilities  (unaudited)  (continued)

October 31, 2020

 

		BlackRock Total Emerging Markets Fund
NET ASSET VALUE
Institutional
Net assets		$	92,712,661
Shares outstanding			9,361,372
Net asset value		$	9.90
Shares authorized			Unlimited
Par value		$	0.001
Investor A
Net assets		$	10,805,696
Shares outstanding			1,095,252
Net asset value		$	9.87
Shares authorized			Unlimited
Par value		$	0.001
Investor C
Net assets		$	3,290,930
Shares outstanding			336,043
Net asset value		$	9.79
Shares authorized			Unlimited
Par value		$	0.001

See notes to consolidated financial statements.

 

 

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Consolidated Statement of Operations  (unaudited)

Six Months Ended October 31, 2020

 

		BlackRock Total Emerging Markets Fund
INVESTMENT INCOME
Dividends — unaffiliated		$	49,023
Dividends — affiliated			8,870
Interest — unaffiliated			1,228,701
Foreign taxes withheld			(13,434	)
Total investment income			1,273,160
EXPENSES
Investment advisory			410,108
Professional			80,344
Transfer agent — class specific			55,224
Custodian			51,533
Accounting services			31,927
Service and distribution — class specific			30,643
Registration			27,830
Administration			23,239
Printing and postage			22,206
Administration — class specific			10,936
Trustees and Officer			5,537
Miscellaneous			10,393
Total expenses			759,920
Less:
Administration fees waived - class specific			(10,936	)
Fees waived and/or reimbursed by the Manager			(198,311	)
Transfer agent fees waived and/or reimbursed — class specific			(55,222	)
Total expenses after fees waived and/or reimbursed			495,451
Net investment income			777,709
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from:
Investments — unaffiliated			(931,515	)
Investments — affiliated			(44,789	)
Foreign currency transactions			(2,025	)
Forward foreign currency exchange contracts			(288,600	)
Futures contracts			(10,548	)
Swaps			4,196,763
			2,919,286
Net change in unrealized appreciation (depreciation) on:
Investments — unaffiliated			6,949,693
Investments — affiliated			1,089,650
Foreign currency translations			111,138
Forward foreign currency exchange contracts			(796,618	)
Futures contracts			23,538
Swaps			8,462,345
			15,839,746
Net realized and unrealized gain			18,759,032
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS		$	19,536,741

See notes to consolidated financial statements.

 

 

C O N S O L I D A T E D   F I N A N C I A L   S T A T E M E N T S		23

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Consolidated Statements of Changes in Net Assets

 

		BlackRock Total Emerging Markets Fund
		Six Months Ended 10/31/20 (unaudited)				Period from 11/01/19 to 04/30/20				Year Ended 10/31/19
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income		$	777,709			$	1,468,633			$	4,200,528
Net realized gain (loss)			2,919,286				(5,556,390	)			(3,446,013	)
Net change in unrealized appreciation (depreciation)			15,839,746				(8,650,307	)			22,160,479
Net increase (decrease) in net assets resulting from operations			19,536,741				(12,738,064	)			22,914,994
DISTRIBUTIONS TO SHAREHOLDERS(a)
Institutional			(2,055,917	)			(3,669,025	)			(8,217,305	)
Investor A			(218,258	)			(360,355	)			(872,268	)
Investor C			(62,692	)			(70,624	)			(217,483	)
Decrease in net assets resulting from distributions to shareholders			(2,336,867	)			(4,100,004	)			(9,307,056	)
CAPITAL SHARE TRANSACTIONS
Net decrease in net assets derived from capital share transactions			(9,506,915	)			(33,892,342	)			(51,159,483	)
NET ASSETS
Total increase (decrease) in net assets			7,692,959				(50,730,410	)			(37,551,545	)
Beginning of period			99,116,328				149,846,738				187,398,283
End of period		$	106,809,287			$	99,116,328				$149,846,738

 

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

See notes to consolidated financial statements.

 

 

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Consolidated Financial Highlights

(For a share outstanding throughout each period)

 

		BlackRock Total Emerging Markets Fund
		Institutional
		Six Months Ended 10/31/20 (unaudited)				Period from 11/01/19 to 04/30/20				Year Ended October 31,
										2019				2018				2017				2016				2015
Net asset value, beginning of period		$	8.42			$	9.55			$	8.86			$	10.87			$	9.72			$	8.70			$	9.84
Net investment income(a)			0.07				0.10				0.25				0.22				0.22				0.17				0.11
Net realized and unrealized gain (loss)			1.62				(0.95	)			0.97				(1.74	)			1.14				0.95				(1.19	)
Net increase (decrease) from investment operations			1.69				(0.85	)			1.22				(1.52	)			1.36				1.12				(1.08	)
Distributions(b)
From net investment income			(0.21	)			(0.28	)			(0.52	)			(0.16	)			(0.10	)			(0.10	)			(0.06	)
From net realized gain			—				—				(0.01	)			(0.33	)			(0.11	)			—				—
Total distributions			(0.21	)			(0.28	)			(0.53	)			(0.49	)			(0.21	)			(0.10	)			(0.06	)
Net asset value, end of period		$	9.90			$	8.42			$	9.55			$	8.86			$	10.87			$	9.72			$	8.70
Total Return(c)
Based on net asset value			20.15	%(d)			(9.34	)%(d)			14.33	%			(14.66	)%			14.49	%			13.16	%			(10.97	)%
Ratios to Average Net Assets(e)
Total expenses			1.33	%(f)			1.34	%(f)(g)			1.18	%			1.08	%			1.03	%			1.44	%			1.74	%
Total expenses after fees waived and/or reimbursed			0.85	%(f)			0.85	%(f)			0.85	%			0.85	%			0.85	%			1.04	%			1.40	%
Net investment income			1.48	%(f)			2.23	%(f)			2.67	%			2.12	%			2.17	%			1.88	%			1.14	%
Supplemental Data
Net assets, end of period (000)		$	92,713			$	85,305			$	131,680			$	165,034			$	385,137			$	205,782			$	54,526
Portfolio turnover rate(h)			13	%			21	%			11	%			61	%			140	%			22	%			34	%

 

(a)	Based on average shares outstanding.

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

(c)	Where applicable, assumes the reinvestment of distributions.

(d)	Aggregate total return.

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

 

		Six Months Ended 10/31/20 (unaudited)				Period from 11/01/19 to 04/30/20				Year Ended October 31,
										2019				2018				2017				2016				2015
Investments in underlying funds			0.06	%			0.08	%			0.09	%			0.06	%			0.06	%			0.08	%			0.11	%

 

(f)	Annualized.

(g)	Audit, printing and tax costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 1.44%.

(h)	Excludes underlying investments in total return swaps.

See notes to consolidated financial statements.

 

 

C O N S O L I D A T E D   F I N A N C I A L   H I G H L I G H  T  S		25

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Consolidated Financial Highlights  (continued)

(For a share outstanding throughout each period)

 

		BlackRock Total Emerging Markets Fund (continued)
		Investor A
		Six Months Ended 10/31/20 (unaudited)				Period from 11/01/19 to 04/30/20				Year Ended October 31,
										2019				2018				2017				2016				2015
Net asset value, beginning of period		$	8.39			$	9.51			$	8.79			$	10.80			$	9.67			$	8.67			$	9.81
Net investment income(a)			0.06				0.09				0.23				0.19				0.19				0.16				0.10
Net realized and unrealized gain (loss)			1.62				(0.96	)			0.97				(1.73	)			1.15				0.93				(1.19	)
Net increase (decrease) from investment operations			1.68				(0.87	)			1.20				(1.54	)			1.34				1.09				(1.09	)
Distributions(b)
From net investment income			(0.20	)			(0.25	)			(0.47	)			(0.14	)			(0.10	)			(0.09	)			(0.05	)
From net realized gain			—				—				(0.01	)			(0.33	)			(0.11	)			—				—
Total distributions			(0.20	)			(0.25	)			(0.48	)			(0.47	)			(0.21	)			(0.09	)			(0.05	)
Net asset value, end of period		$	9.87			$	8.39			$	9.51			$	8.79			$	10.80			$	9.67			$	8.67
Total Return(c)
Based on net asset value			20.11	%(d)			(9.52	)%(d)			14.20	%			(14.94	)%			14.25	%			12.74	%			(11.15	)%
Ratios to Average Net Assets(e)
Total expenses			1.63	%(f)			1.65	%(f)(g)			1.48	%			1.40	%			1.37	%			1.56	%			2.15	%
Total expenses after fees waived and/or reimbursed			1.10	%(f)			1.10	%(f)			1.10	%			1.10	%			1.10	%			1.17	%			1.65	%
Net investment income			1.19	%(f)			1.98	%(f)			2.43	%			1.86	%			1.91	%			1.65	%			1.02	%
Supplemental Data
Net assets, end of period (000)		$	10,806			$	10,622			$	13,923			$	17,020			$	46,427			$	37,058			$	1,628
Portfolio turnover rate(h)			13	%			21	%			11	%			61	%			140	%			22	%			34	%

 

(a)	Based on average shares outstanding.

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

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

(d)	Aggregate total return.

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

 

		Six Months Ended 10/31/20 (unaudited)				Period from 11/01/19 to 04/30/20				Year Ended October 31,
										2019				2018				2017				2016				2015
Investments in underlying funds			0.06	%			0.08	%			0.09	%			0.06	%			0.06	%			0.08	%			0.11	%

 

(f)	Annualized.

(g)	Audit, printing and tax costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 1.75%.

(h)	Excludes underlying investments in total return swaps.

See notes to consolidated financial statements.

 

 

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Consolidated Financial Highlights  (continued)

(For a share outstanding throughout each period)

 

		BlackRock Total Emerging Markets Fund (continued)
		Investor C
		Six Months Ended 10/31/20 (unaudited)				Period from 11/01/19 to 04/30/20				Year Ended October 31,
										2019				2018				2017				2016				2015
Net asset value, beginning of period		$	8.34			$	9.40			$	8.69			$	10.70			$	9.61			$	8.58			$	9.73
Net investment income (loss)(a)			0.02				0.06				0.16				0.12				0.11				0.08				(0.01	)
Net realized and unrealized gain (loss)			1.60				(0.96	)			0.95				(1.72	)			1.14				0.95				(1.14	)
Net increase (decrease) from investment operations			1.62				(0.90	)			1.11				(1.60	)			1.25				1.03				(1.15	)
Distributions(b)
From net investment income			(0.17	)			(0.16	)			(0.39	)			(0.08	)			(0.05	)			—				—
From net realized gain			—				—				(0.01	)			(0.33	)			(0.11	)			—				—
Total distributions			(0.17	)			(0.16	)			(0.40	)			(0.41	)			(0.16	)			—				—
Net asset value, end of period		$	9.79			$	8.34			$	9.40			$	8.69			$	10.70			$	9.61			$	8.58
Total Return(c)
Based on net asset value			19.55	%(d)			(9.78	)%(d)			13.22	%			(15.59	)%			13.39	%			12.01	%			(11.82	)%
Ratios to Average Net Assets(e)
Total expenses			2.39	%(f)			2.39	%(f)(g)			2.21	%			2.16	%			2.11	%			2.61	%			2.91	%
Total expenses after fees waived and/or reimbursed			1.85	%(f)			1.85	%(f)			1.85	%			1.85	%			1.85	%			2.10	%			2.40	%
Net investment income (loss)			0.50	%(f)			1.21	%(f)			1.71	%			1.19	%			1.18	%			0.88	%			(0.10	)%
Supplemental Data
Net assets, end of period (000)		$	3,291			$	3,189			$	4,244			$	5,344			$	7,399			$	2,435			$	898
Portfolio turnover rate(h)			13	%			21	%			11	%			61	%			140	%			22	%			34	%

 

(a)	Based on average shares outstanding.

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

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

(d)	Aggregate total return.

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

 

		Six Months Ended 10/31/20 (unaudited)				Period from 11/01/19 to 04/30/20				Year Ended October 31,
										2019				2018				2017				2016				2015
Investments in underlying funds			0.06	%			0.08	%			0.09	%			0.06	%			0.06	%			0.08	%			0.11	%

 

(f)	Annualized.

(g)	Audit, printing and tax costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 2.49%.

(h)	Excludes underlying investments in total return swaps.

See notes to consolidated financial statements.

 

 

C O N S O L I D A T E D   F I N A N C I A L   H I G H L I G H  T  S		27

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Notes to Consolidated Financial Statements  (unaudited)

 

1.	ORGANIZATION

BlackRock Funds^SM (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust is organized as a Massachusetts business trust. BlackRock Total Emerging Markets Fund (the “Fund”) is a series of the Trust. The Fund is classified as diversified.

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

 

Share Class		Initial Sales Charge		CDSC				Conversion Privilege
Institutional		No			No			None
Investor A Shares		Yes			No	(a)		None
Investor C Shares		No			Yes	(b)		To Investor A Shares after approximately 10 years(c)

 

(a)

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

(b)

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

(c)

Effective November 23, 2020, the automatic conversion feature will be modified to reduce the conversion period from ten years to eight years.

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

Basis of Consolidation: The accompanying consolidated financial statements of the Fund include the account of BlackRock Cayman Emerging Market Allocation Fund, Ltd. (the “Subsidiary”), which is a wholly-owned subsidiary of the Fund and primarily invests in commodity-related instruments and other derivatives. The Subsidiary enables the Fund to hold these commodity-related instruments and satisfy regulated investment company tax requirements. The Fund may invest up to 25% of its total assets in the Subsidiary. The net assets of the Subsidiary as of period end were $12,913, which is less than 0.1% of the Fund’s consolidated net assets. Intercompany accounts and transactions, if any, have been eliminated. The Subsidiary is subject to the same investment policies and restrictions that apply to the Fund, except that the Subsidiary may invest without limitation in commodity-related instruments.

 

2.	SIGNIFICANT ACCOUNTING POLICIES

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

Investment Transactions and Income Recognition: For financial reporting purposes, investment transactions are recorded on the dates the transactions are executed. Realized gains and losses on investment transactions are determined using the specific identification method. Dividend income and capital gain distributions, if any, are recorded on the ex-dividend date. Non-cash dividends, if any, are recorded on the ex-dividend date at fair value. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized daily on an accrual basis. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

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

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

Foreign Taxes: The Fund may be subject to foreign taxes (a portion of which may be reclaimable) on income, stock dividends, capital gains on investments, or certain foreign currency transactions. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which the Fund invests. These foreign taxes, if any, are paid by the Fund and are reflected in its Consolidated Statement of Operations as follows: foreign taxes withheld at source are presented as a reduction of income, foreign taxes on securities lending income are presented as a reduction of securities lending income, foreign taxes on stock dividends are presented as “Foreign taxes withheld”, and foreign taxes on capital gains from sales of investments and foreign taxes on foreign currency transactions are included in their respective net realized gain (loss) categories. Foreign taxes payable or deferred as of October 31, 2020, if any, are disclosed in the Consolidated Statement of Assets and Liabilities.

 

 

28		2 0 2 0   B L A C K R O C K   S E M I - A N N U A L   R E P O R T   T O   S H A R E H O L D E R S

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Notes to Consolidated Financial Statements  (unaudited)  (continued)

 

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

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

Net income and realized gains from investments held by the Subsidiary are treated as ordinary income for tax purposes. If a net loss is realized by the Subsidiary in any taxable year, the loss will generally not be available to offset the Fund’s ordinary income and/or capital gains for that year.

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

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

 

3.	INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS

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

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

 

•

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

 

•

Fixed-income investments for which market quotations are readily available are generally valued using the last available bid prices or current market quotations provided by independent dealers or third party pricing services. Floating rate loan interests are valued at the mean of the bid prices from one or more independent brokers or dealers as obtained from a third party pricing service. Pricing services generally value fixed-income securities assuming orderly transactions of an institutional round lot size, but a fund may hold or transact in such securities in smaller, odd lot sizes. Odd lots may trade at lower prices than institutional round lots. The pricing services may use matrix pricing or valuation models that utilize certain inputs and assumptions to derive values, including transaction data (e.g., recent representative bids and offers), market data, credit quality information, perceived market movements, news, and other relevant information. Certain fixed-income securities, including asset-backed and mortgage related securities may be valued based on valuation models that consider the estimated cash flows of each tranche of the entity, establish a benchmark yield and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche. The amortized cost method of valuation may be used with respect to debt obligations with sixty days or less remaining to maturity.

Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of trading on the Fund’s listing exchange. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of trading on the Fund’s listing exchange that may not be reflected in the computation of the Fund’s net assets. Each business day, the Fund uses a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and over-the-counter (“OTC”) options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of trading on the NYSE, which follows the close of the local markets.

 

•

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

 

•

Futures contracts are valued based on that day’s last reported settlement price on the exchange where the contract is traded.

 

•

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

 

•

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

If events (e.g., a market closure, market volatility, company announcement or a natural disaster) occur that are expected to materially affect the value of such investment, or in the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such

 

 

N O T E S   T O   C O N S O L I D A T E D   F I N A N C I A L   S T A T E M E N T S		29

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Notes to Consolidated Financial Statements  (unaudited)  (continued)

 

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

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

 

•

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

 

•

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

 

•

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

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

 

4.	SECURITIES AND OTHER INVESTMENTS

Inflation-Indexed Bonds: Inflation-indexed bonds (other than municipal inflation-indexed and certain corporate inflation-indexed bonds) are fixed-income securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation rises or falls, the principal value of inflation-indexed bonds (other than municipal inflation-indexed and certain corporate inflation-indexed bonds) will be adjusted upward or downward, and consequently the interest payable on these securities (calculated with respect to a larger or smaller principal amount) will be increased or reduced, respectively. Any upward or downward adjustment in the principal amount of an inflation-indexed bond will be included as interest income in the Consolidated Statement of Operations, even though investors do not receive their principal until maturity. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of 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. With regard to municipal inflation-indexed bonds and certain corporate inflation-indexed bonds, the inflation adjustment is typically reflected in the semi-annual coupon payment. As a result, the principal value of municipal inflation-indexed bonds and such corporate inflation-indexed bonds does not adjust according to the rate of inflation.

 

5.	DERIVATIVE FINANCIAL INSTRUMENTS

The Fund engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Fund and/or to manage its exposure to certain risks such as credit risk, equity risk, interest rate risk, foreign currency exchange rate risk, commodity price risk or other risks (e.g., inflation risk). Derivative financial instruments categorized by risk exposure are included in the Consolidated Schedule of Investments. These contracts may be transacted on an exchange or OTC.

Futures Contracts: Futures contracts are purchased or sold to gain exposure to, or manage exposure to, changes in interest rates (interest rate risk) and changes in the value of equity securities (equity risk) or foreign currencies (foreign currency exchange rate risk).

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

Securities deposited as initial margin are designated in the Consolidated Schedule of Investments and cash deposited, if any, are shown as cash pledged for futures contracts in the Consolidated Statement of Assets and Liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in market value of the contract (“variation margin”). Variation margin is recorded as unrealized appreciation (depreciation) and, if any, shown as variation margin receivable (or payable) on futures contracts in the Consolidated Statement of Assets and Liabilities. When the contract is closed, a realized gain or loss is recorded in the Consolidated Statement of Operations equal to the difference between the notional amount of the contract at the time it was opened and the notional amount at the time it was closed. The use of futures contracts involves the risk of an imperfect correlation in the movements in the price of futures contracts and interest, foreign currency exchange rates or underlying assets.

 

 

30		2 0 2 0   B L A C K R O C K   S E M I - A N N U A L   R E P O R T   T O   S H A R E H O L D E R S

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Notes to Consolidated Financial Statements  (unaudited)  (continued)

 

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

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

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

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

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

In a centrally cleared swap, immediately following execution of the swap contract, the swap contract is novated to a central counterparty (the “CCP”) and the CCP becomes the Fund’s counterparty on the swap. The Fund is required to interface with the CCP through the broker. Upon entering into a centrally cleared swap, the Fund is required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap. Securities deposited as initial margin are designated in the Consolidated Schedule of Investments and cash deposited is shown as cash pledged for centrally cleared swaps in the Consolidated Statement of Assets and Liabilities. Amounts pledged, which are considered restricted cash, are included in cash pledged for centrally cleared swaps in the Consolidated Statement of Assets and Liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in market value of the contract (“variation margin”). Variation margin is recorded as unrealized appreciation (depreciation) and shown as variation margin receivable (or payable) on centrally cleared swaps in the Consolidated Statement of Assets and Liabilities. Payments received from (paid to) the counterparty are amortized over the term of the contract and recorded as realized gains (losses) in the Consolidated Statement of Operations, including those at termination.

 

•

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

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

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

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

 

•

Interest rate swaps — Interest rate swaps are entered into to gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate (interest rate risk).

Interest rate swaps are agreements in which one party pays a stream of interest payments, either fixed or floating, in exchange for another party’s stream of interest payments, either fixed or floating, on the same notional amount for a specified period of time. In more complex interest rate swaps, the notional principal amount may decline (or amortize) over time.

 

 

N O T E S   T O   C O N S O L I D A T E D   F I N A N C I A L   S T A T E M E N T S		31

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Notes to Consolidated Financial Statements  (unaudited)  (continued)

 

•

Forward swaps — The Fund enters into forward interest rate swaps and forward total return swaps. In a forward swap, the Fund and the counterparty agree to make periodic net payments beginning on a specified date or a net payment at termination.

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

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

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

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

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

 

6.	INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES

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

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

 

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

The Manager provides investment management and other services to the Subsidiary. The Manager does not receive separate compensation from the Subsidiary for providing investment management or administrative services. However, the Fund pays the Manager based on the Fund’s net assets, which includes the assets of the Subsidiary.

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

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

 

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

 

 

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Notes to Consolidated Financial Statements  (unaudited)  (continued)

 

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

For the six months ended October 31, 2020, the following table shows the class specific service and distribution fees borne directly by each share class of the Fund:

 

Fund Name		Investor A				Investor C				Total
BlackRock Total Emerging Markets Fund		$	13,641			$	17,002			$	30,643

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

 

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

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

For the six months ended October 31, 2020, the following table shows the class specific administration fees borne directly by each share class of the Fund:

 

		Institutional				Investor A				Investor C				Total
Administration fees		$	9,505			$	1,091			$	340			$	10,936

Transfer Agent: Pursuant to written agreements, certain financial intermediaries, some of which may be affiliates, provide the Fund with sub-accounting, recordkeeping, sub-transfer agency and other administrative services with respect to servicing of underlying investor accounts. For these services, these entities receive an asset-based fee or an annual fee per shareholder account, which will vary depending on share class and/or net assets. For the six months ended October 31, 2020, the Fund did not pay any amounts to affiliates in return for these services.

The Manager maintains a call center that is responsible for providing certain shareholder services to the Fund. Shareholder services include responding to inquiries and processing purchases and sales based upon instructions from shareholders. For the six months ended October 31, 2020, the Fund reimbursed the Manager the following amounts for costs incurred in running the call center, which are included in transfer agent – class specific in the Consolidated Statement of Operations:

 

		Institutional				Investor A				Investor C				Total
Reimbursed amounts		$	83			$	368			$	92			$	543

For the six months ended October 31, 2020, the following table shows the class specific transfer agent fees borne directly by each share class of the Fund:

 

		Institutional				Investor A				Investor C				Total
Transfer agent fees — class specific		$	44,652			$	7,938			$	2,634			$	55,224

Other Fees: For the six months ended October 31, 2020, affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of the Fund’s Investor A Shares, which totaled $467.

For the six months ended October 31, 2020, affiliates received CDSCs of $383 for Investor A Shares.

Expense Limitations, Waivers, Reimbursements, and Recoupments: The Manager contractually agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds (the “affiliated money market fund waiver”) through August 31, 2021. The contractual agreement may be terminated upon 90 days’ notice by a majority of the trustees who are not “interested persons” of the Fund, as defined in the 1940 Act (“Independent Trustees”), or by a vote of a majority of the outstanding voting securities of the Fund. The amount of waivers and/or reimbursements of fees and expenses made pursuant to the expense limitation described below will be reduced by the amount of the affiliated money market fund waiver. This amount is included in fees waived and/or reimbursed by the Manager in the Consolidated Statement of Operations. For the six months ended October 31, 2020, the amounts waived were $9,107.

The Manager has contractually agreed to waive its investment advisory fee with respect to any portion of the Fund’s assets invested in affiliated equity and fixed-income mutual funds, affiliated and exchange-traded funds that have a contractual management fee through August 31, 2021. The contractual agreement may be terminated upon 90 days’ notice by a majority of the Independent Trustees, or by a vote of a majority of the outstanding voting securities of the Fund. This amount is included in fees waived and/or reimbursed by the Manager in the Consolidated Statement of Operations. For the six months ended October 31, 2020, the Manager waived $17,973 in investment advisory fees pursuant to this arrangement.

 

 

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Notes to Consolidated Financial Statements  (unaudited)  (continued)

 

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

 

Fund Name		Institutional				Investor A				Investor C
BlackRock Total Emerging Markets Fund			0.85	%			1.10	%			1.85	%

The Manager has agreed not to reduce or discontinue these contractual expense limitations through August 31, 2021, unless approved by the Board, including a majority of the Independent Trustees, or by a vote of a majority of the outstanding voting securities of the Fund. For the six months ended October 31, 2020, the Manager waived and/or reimbursed $171,231 which is included in fees waived and/or reimbursed by the Manager in the Consolidated Statement of Operations.

These amounts waived and/or reimbursed are included in administration fees waived – class specific and transfer agent fees waived and/or reimbursed – class specific, respectively, in the Consolidated Statement of Operations. For the six months ended October 31, 2020, class specific expense waivers and/or reimbursements are as follows:

 

		Institutional				Investor A				Investor C				Total
Administration fees waived — class specific		$	9,505			$	1,091			$	340			$	10,936
		Institutional				Investor A				Investor C				Total
Transfer agent fees waived — class specific		$	44,651			$	7,937			$	2,634			$	55,222

With respect to the contractual expense limitation, if during the Fund’s fiscal year the operating expenses of a share class, that at any time during the prior two fiscal years received a waiver and/or reimbursement from the Manager, are less than the current expense limitation for that share class, the Manager is entitled to be reimbursed by such share class up to the lesser of: (a) the amount of fees waived and/or expenses reimbursed during those prior two fiscal years under the agreement and (b) an amount not to exceed either the current expense limitation of that share class or the expense limitation of the share class in effect at the time that the share class received the applicable waiver and/or reimbursement, provided that:

 

(1)

the Fund has more than $50 million in assets for the fiscal year, and

 

(2)

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

This repayment applies only to the contractual expense limitation on net expenses and does not apply to the contractual investment advisory fee waiver described above or any voluntary waivers that may be in effect from time to time. Effective May 16, 2020, the repayment arrangement between the Fund and the Manager pursuant to which such Fund may be required to repay amounts waived and/or reimbursed under the Fund’s contractual caps on net expenses will be terminated.

The following fund level and class specific waivers and/or reimbursements previously recorded by the Fund, which were subject to recoupment by the Manager, expired on May 16, 2020:

 

Fund Name/Fund Level/Share Class		Expired May 16, 2020
BlackRock Total Emerging Markets Fund
Fund Level		$	651,548
Institutional			419,363
Investor A			68,859
Investor C			18,115

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

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

 

 

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Notes to Consolidated Financial Statements  (unaudited)  (continued)

 

During the six months ended October 31, 2020, the Fund did not participate in the Interfund Lending Program.

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

Other Transactions: The Fund may purchase securities from, or sell securities to, an affiliated fund provided the affiliation is due solely to having a common investment adviser, common officers, or common trustees. For the six months ended October 31, 2020, the purchase and sale transactions and any net realized gains (losses) with affiliated funds in compliance with Rule 17a-7 under the 1940 Act were as follows:

 

Fund Name		Purchases				Sales				Net Realized Gain (Loss)
BlackRock Total Emerging Markets Fund		$	—			$	481,407			$	(77,014	)

 

7.	PURCHASES AND SALES

For the six months ended October 31, 2020, purchases and sales of investments, excluding short-term investments, were $8,668,141 and $10,990,310, respectively.

 

8.	INCOME TAX INFORMATION

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

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

Management has analyzed tax laws and regulations and their application to the Fund as of October 31, 2020, inclusive of the open tax return years, and does not believe that there are any uncertain tax positions that require recognition of a tax liability in the Fund’s consolidated financial statements.

As of April 30, 2020, the Fund had non-expiring capital loss carryforwards available to offset future realized capital gains of $20,078,135.

As of October 31, 2020, gross unrealized appreciation and depreciation based on cost of investments (including short positions and derivatives, if any) for U.S. federal income tax purposes were as follows:

 

		Amounts
Tax cost		$	102,412,606
Gross unrealized appreciation		$	13,558,213
Gross unrealized depreciation			(6,898,436	)
Net unrealized appreciation (depreciation)		$	6,659,777

 

9.	BANK BORROWINGS

The Trust, on behalf of the Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.25 billion credit agreement with a group of lenders. Under this agreement, the Fund may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.75 billion at any time outstanding, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.10% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2021 unless extended or renewed. These fees were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the six months ended October 31, 2020, the Fund did not borrow under the credit agreement.

 

10.	PRINCIPAL RISKS

In the normal course of business, the Fund invests in securities or other instruments and may enter into certain transactions, and such activities subject the Fund to various risks, including among others, fluctuations in the market (market risk) or failure of an issuer to meet all of its obligations. The value of securities or other instruments may also be affected by various factors, including, without limitation: (i) the general economy; (ii) the overall market as well as local, regional or global political and/or social instability;

 

 

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Notes to Consolidated Financial Statements  (unaudited)  (continued)

 

(iii) regulation, taxation or international tax treaties between various countries; or (iv) currency, interest rate and price fluctuations. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the Fund and its investments. The Fund’s prospectus provides details of the risks to which the Fund is subject.

Market Risk: Investments in the securities of issuers domiciled in countries with emerging capital markets involve certain additional risks that do not generally apply to investments in securities of issuers in more developed capital markets, such as (i) low or nonexistent trading volume, resulting in a lack of liquidity and increased volatility in prices for such securities; (ii) uncertain national policies and social, political and economic instability, increasing the potential for expropriation of assets, confiscatory taxation, high rates of inflation or unfavorable diplomatic developments; and (iii) possible fluctuations in exchange rates, differing legal systems and the existence or possible imposition of exchange controls, custodial restrictions or other foreign or U.S. governmental laws or restrictions applicable to such investments.

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

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

Valuation Risk: The market values of equities, such as common stocks and preferred securities or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company. They may also decline due to factors which affect a particular industry or industries. The Fund may invest in illiquid investments. An illiquid investment is any investment that the Fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment. The Fund may experience difficulty in selling illiquid investments in a timely manner at the price that it believes the investments are worth. Prices may fluctuate widely over short or extended periods in response to company, market or economic news. Markets also tend to move in cycles, with periods of rising and falling prices. This volatility may cause the Fund’s NAV to experience significant increases or decreases over short periods of time. If there is a general decline in the securities and other markets, the NAV of the Fund may lose value, regardless of the individual results of the securities and other instruments in which the Fund invests.

Counterparty Credit Risk: The Fund may be exposed to counterparty credit risk, or the risk that an entity may fail to or be unable to perform on its commitments related to unsettled or open transactions, including making timely interest and/or principal payments or otherwise honoring its obligations. The Fund manages counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Fund to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Fund’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is approximately their value recorded in the Consolidated Statement of Assets and Liabilities, less any collateral held by the Fund.

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

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

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

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

The Fund invests a significant portion of its assets in securities of issuers located in Asia or with significant exposure to Asian issuers or countries. The Asian financial markets have recently experienced volatility and adverse trends due to concerns in several Asian countries regarding monetary policy, government intervention in the markets, rising government debt levels or economic downturns. These events may spread to other countries in Asia and may affect the value and liquidity of certain of the Fund’s investments.

LIBOR Transition Risk: The United Kingdom’s Financial Conduct Authority announced a phase out of the London Interbank Offered Rate (“LIBOR”) by the end of 2021, and it is expected that LIBOR will cease to be published after that time. The Fund may be exposed to financial instruments tied to LIBOR to determine payment obligations, financing terms, hedging strategies or investment value. The transition process away from LIBOR might lead to increased volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently include LIBOR. The ultimate effect of the LIBOR transition process on the Fund is uncertain.

 

 

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Notes to Consolidated Financial Statements  (unaudited)  (continued)

 

11.	CAPITAL SHARE TRANSACTIONS

Transactions in capital shares for each class were as follows:

 

		Six Months Ended 10/31/20								Period from 11/01/19 to 04/30/20								Year Ended 10/31/19
BlackRock Total Emerging Markets Fund		Shares				Amounts				Shares				Amounts				Shares				Amounts
Institutional
Shares sold			570,174			$	5,486,314				1,486,479			$	14,318,303				4,803,364			$	44,144,137
Shares issued in reinvestment of distributions			210,215				2,007,554				367,267				3,588,194				920,541				7,907,448
Shares redeemed			(1,551,144	)			(14,974,015	)			(5,506,574	)			(49,527,298	)			(10,574,982	)			(97,307,169	)
			(770,755	)		$	(7,480,147	)			(3,652,828	)		$	(31,620,801	)			(4,851,077	)		$	(45,255,584	)
Investor A
Shares sold and automatic conversion of shares			115,228			$	1,089,846				98,270			$	940,419				448,526			$	4,154,355
Shares issued in reinvestment of distributions			22,555				214,722				36,233				353,268				100,652				862,585
Shares redeemed			(308,650	)			(2,893,893	)			(332,954	)			(2,943,997	)			(1,020,373	)			(9,407,159	)
			(170,867	)		$	(1,589,325	)			(198,451	)		$	(1,650,310	)			(471,195	)		$	(4,390,219	)
Investor C
Shares sold			6,896			$	68,412				7,271			$	70,144				62,316			$	555,924
Shares issued in reinvestment of distributions			6,590				62,403				7,249				70,456				25,449				217,077
Shares redeemed and automatic conversion of shares			(59,909	)			(568,258	)			(83,407	)			(761,831	)			(251,466	)			(2,286,681	)
			(46,423	)		$	(437,443	)			(68,887	)		$	(621,231	)			(163,701	)		$	(1,513,680	)
			(988,045	)		$	(9,506,915	)			(3,920,166	)		$	(33,892,342	)			(5,485,973	)		$	(51,159,483	)

 

12.	SUBSEQUENT EVENTS

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

On November 10, 2020, the Board approved a proposal to close BlackRock Total Emerging Markets Fund to purchases and thereafter to liquidate the Fund. Accordingly, effective on February 11, 2021, the Fund will no longer accept purchase orders. On or about February 18, 2021 (the “Liquidation Date”), all of the assets of the Fund will be liquidated completely, the shares of any shareholders on the Liquidation Date will be redeemed at the NAV per share and the Fund will then be terminated as a series of the Trust.

 

 

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Disclosure of Investment Advisory Agreement and Sub-Advisory Agreements

 

The Board of Trustees (the “Board,” the members of which are referred to as “Board Members”) of BlackRock Funds (the “Trust”) met on April 7, 2020 (the “April Meeting”) and May 11-13, 2020 (the “May Meeting”) to consider the approval of the investment advisory agreement (the “Advisory Agreement”) between the Trust, on behalf of BlackRock Total Emerging Markets Fund (the “Fund”), a series of the Trust, and BlackRock Advisors, LLC (the “Manager”), the Trust’s investment advisor. The Board also considered the approval of the sub-advisory agreement between the Manager and BlackRock Asset Management North Asia Limited (“BAMNA”) with respect to the Fund (the “BAMNA Sub-Advisory Agreement”), the sub-advisory agreement between the Manager and BlackRock International Limited (“BIL”) with respect to the Fund (the “BIL Sub-Advisory Agreement”) and the sub-advisory agreement between the Manager and BlackRock (Singapore) Limited (“BRS,” and together with BAMNA and BIL, the “Sub-Advisors”) with respect to the Fund (the “BRS Sub-Advisory Agreement,” and together with the BAMNA Sub-Advisory Agreement and the BIL Sub-Advisory Agreement, the “Sub-Advisory Agreements”). The Manager and the Sub-Advisors are referred to herein as “BlackRock.” The Advisory Agreement and the Sub-Advisory Agreements are referred to herein as the “Agreements.”

Activities and Composition of the Board

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

The Agreements

Consistent with the requirements of the 1940 Act, the Board considers the continuation of the Agreements on an annual basis. The Board has four quarterly meetings per year, each typically extending for two days, and additional in-person and telephonic meetings throughout the year, as needed. While the Board also has a fifth one-day meeting to consider specific information surrounding the renewal of the Agreements, the Board’s consideration entails a year-long deliberative process whereby the Board and its committees assess BlackRock’s services to the Fund. In particular, the Board assessed, among other things, the nature, extent and quality of the services provided to the Fund by BlackRock, BlackRock’s personnel and affiliates, including (as applicable): investment management services; accounting oversight; administrative and shareholder services; oversight of the Fund’s service providers; risk management and oversight; and legal, regulatory and compliance services. Throughout the year, including during the contract renewal process, the Independent Board Members were advised by independent legal counsel, and met with independent legal counsel in various executive sessions outside of the presence of BlackRock’s management.

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

Board Considerations in Approving the Agreements

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

 

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

 

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

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

The Board also considered other matters it deemed important to the approval process, such as other payments made to BlackRock or its affiliates relating to securities lending and cash management, and BlackRock’s services related to the valuation and pricing of Fund portfolio holdings. The Board noted the willingness of BlackRock’s personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as determinative, and each Board Member may have attributed different weights to the various items considered.

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

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

The Board considered, among other factors, with respect to BlackRock: the number, education and experience of investment personnel generally and the Fund’s portfolio management team; research capabilities; investments by portfolio managers in the funds they manage; portfolio trading capabilities; use of technology; commitment to compliance; credit analysis capabilities; risk analysis and oversight capabilities; and the approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board also considered BlackRock’s overall risk management program, including the continued efforts of BlackRock and its affiliates to address cybersecurity risks and the role of BlackRock’s Risk & Quantitative Analysis Group. The Board engaged in a review of BlackRock’s compensation structure with respect to the Fund’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to investment advisory services, the Board considered the nature and quality of the administrative and other non-investment advisory services provided to the Fund. BlackRock and its affiliates provide the Fund with certain administrative, shareholder and other services (in addition to any such services provided to the Fund by third-parties) and officers and other personnel as are necessary for the operations of the Fund. In particular, BlackRock and its affiliates provide the Fund with administrative services including, among others: (i) responsibility for disclosure documents, such as the prospectus, the summary prospectus (as applicable), the statement of additional information and periodic shareholder reports; (ii) oversight of daily accounting and pricing; (iii) responsibility for periodic filings with regulators; (iv) overseeing and coordinating the activities of third-party service providers, including, among others, the Fund’s custodian, fund accountant, transfer agent, and auditor; (v) organizing Board meetings and preparing the materials for such Board meetings; (vi) providing legal and compliance support; (vii) furnishing analytical and other support to assist the Board in its consideration of strategic issues such as the merger, consolidation or repurposing of certain open-end funds; and (viii) performing or managing administrative functions necessary for the operation of the Fund, such as tax reporting, expense management, fulfilling regulatory filing requirements, overseeing the Fund’s distribution partners, and shareholder call center and other services. The Board reviewed the structure and duties of BlackRock’s fund administration, shareholder services, and legal & compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Fund and BlackRock

The Board, including the Independent Board Members, also reviewed and considered the performance history of the Fund. In preparation for the April Meeting, the Board was provided with reports independently prepared by Broadridge, which included an analysis of the Fund’s performance as of December 31, 2019, as compared to its Performance Peers. Broadridge ranks funds in quartiles, ranging from first to fourth, where first is the most desirable quartile position and fourth is the least desirable. In connection with its review, the Board received and reviewed information regarding the investment performance of the Fund as compared to its Performance Peers and, in light of the Fund’s outcome-oriented investment objective, certain performance metrics (“Outcome-Oriented Performance Metrics”). The Board and its Performance Oversight Committee regularly review, and meet with Fund management to discuss, the performance of the Fund throughout the year.

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

The Board reviewed and considered the Fund’s performance relative to the Fund’s Outcome-Oriented Performance Metrics including a total return benchmark. The Board noted that for the one-, three- and five-year periods reported, the Fund outperformed, underperformed, and underperformed, respectively, its benchmark total return. The Board noted that BlackRock believes that the Outcome-Oriented Performance Metrics are an appropriate performance metric for the Fund, and that BlackRock has explained its rationale for this belief to the Board. The Board and BlackRock reviewed the Fund’s underperformance relative to its total return benchmark during the applicable periods.

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

 

 

D I S C L O S U R E   O F   I N V  E S T M E N T   A D V I S O R Y   A G R E E M E N T    A N D   S U B - A D V I S O R Y   A G R E  E M E N T S		39

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

 

The Board, including the Independent Board Members, reviewed the Fund’s contractual management fee rate compared with those of its Expense Peers. The contractual management fee rate represents a combination of the advisory fee and any administrative fees, before taking into account any reimbursements or fee waivers. The Board also compared the Fund’s total expense ratio, as well as its actual management fee rate, to those of its Expense Peers. The total expense ratio represents a fund’s total net operating expenses, including any 12b-1 or non-12b-1 service fees. The total expense ratio gives effect to any expense reimbursements or fee waivers, and the actual management fee rate gives effect to any management fee reimbursements or waivers. The Board considered the services provided and the fees charged by BlackRock and its affiliates to other types of clients with similar investment mandates, as applicable, including institutional accounts and sub-advised mutual funds (including mutual funds sponsored by third parties).

The Board received and reviewed statements relating to BlackRock’s financial condition. The Board reviewed BlackRock’s profitability methodology and was also provided with an estimated profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Fund. The Board reviewed BlackRock’s estimated profitability with respect to the Fund and other funds the Board currently oversees for the year ended December 31, 2019 compared to available aggregate estimated profitability data provided for the prior two years. The Board reviewed BlackRock’s estimated profitability with respect to certain other U.S. fund complexes managed by BlackRock and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the estimated profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by BlackRock, the types of funds managed, precision of expense allocations and business mix. The Board thus recognized that calculating and comparing profitability at the individual fund level is difficult.

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

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

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

D. Economies of Scale

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

E. Other Factors Deemed Relevant by the Board Members

The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from BlackRock’s respective relationships with the Fund, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and its risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Fund, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that, subject to applicable law, BlackRock may use and benefit from third-party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts.

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

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

Conclusion

The Board, including the Independent Board Members, unanimously approved the continuation of (i) the Advisory Agreement between the Manager and the Trust, on behalf of the Fund, (ii) the BAMNA Sub-Advisory Agreement between the Manager and BAMNA with respect to the Fund, (iii) the BIL Sub-Advisory Agreement between the Manager and BIL with respect to the Fund and (iv) the BRS Sub-Advisory Agreement between the Manager and BRS with respect to the Fund, each for a one-year term ending June 30, 2021. Based upon its evaluation of all of the aforementioned factors in their totality, as well as other information, the Board, including the Independent Board Members, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of the Fund and its shareholders. In arriving at its decision to approve the

 

 

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

 

Agreements, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination.

 

 

D I S C L O S U R E   O F   I N V  E S T M E N T   A D V I S O R Y   A G R E E M E N T    A N D   S U B - A D V I S O R Y   A G R E  E M E N T S		41

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Additional Information

 

General Information

Householding

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

Availability of Quarterly Schedule of Investments

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

Availability of Proxy Voting Policies and Procedures

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

Availability of Proxy Voting Record

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

BlackRock’s Mutual Fund Family

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

Shareholder Privileges

Account Information

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

Automatic Investment Plans

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

Systematic Withdrawal Plans

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

Retirement Plans

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

BlackRock Privacy Principles

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

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

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

 

 

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Additional Information (continued)

 

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

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

Fund and Service Providers

 

 

 

A D D I T I O N A L   I N F O R M A T I O N		43

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Glossary of Terms Used in this Report

 

 

 

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Want to know more?

blackrock.com | 800-441-7762

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

TEM-10/20-SAR

 

 

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Item 2 –

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

 

Item 3 –

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

 

Item 4 –

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

 

Item 5 –

Audit Committee of Listed Registrant – Not Applicable

 

Item 6 –

Investments

(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this Form.

(b) Not Applicable due to no such divestments during the semi-annual period covered since the previous Form N-CSR filing.

 

Item 7 –

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

 

Item 8 –

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

 

Item 9 –

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

 

Item 10 –

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

 

Item 11 –

Controls and Procedures

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

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

 

Item 12 –

Disclosure of Securities Lending Activities for Closed-End Management Investment

Companies – Not Applicable

 

Item 13 –

Exhibits attached hereto

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

(a)(2) Section 302 Certifications are attached

 

2

---

(a)(3) Not Applicable

(a)(4) Not Applicable

(b) Section 906 Certifications are attached

 

3

---

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BlackRock Funds^SM

 

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

Date: December 31, 2020

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

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

Date: December 31, 2020

 

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

Date: December 31, 2020

 

4

EX-99. CERT

CERTIFICATION PURSUANT TO RULE 30a-2(a) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

 

I, John M. Perlowski, Chief Executive Officer (principal executive officer) of BlackRock Funds^SM, certify that:

1.            I have reviewed this report on Form N-CSR of BlackRock Funds^SM;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4.            The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

a)            designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)            designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)            evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

d)            disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.            The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)            all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 31, 2020

/s/ John M. Perlowski        

John M. Perlowski

Chief Executive Officer (principal executive officer) of

BlackRock Funds^SM

---

EX-99. CERT

CERTIFICATION PURSUANT TO RULE 30a-2(a) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

 

I, Neal J. Andrews, Chief Financial Officer (principal financial officer) of BlackRock Funds^SM, certify that:

1.            I have reviewed this report on Form N-CSR of BlackRock Funds^SM;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4.            The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

a)            designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)            designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)            evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

d)            disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.            The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)            all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 31, 2020

/s/ Neal J. Andrews        

Neal J. Andrews

Chief Financial Officer (principal financial officer) of

BlackRock Funds^SM

Exhibit 99.906CERT

Certification Pursuant to Rule 30a-2(b) under the 1940 Act and

Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. § 1350, the undersigned officer of BlackRock Funds^SM (the “registrant”), hereby certifies, to the best of his knowledge, that the registrant’s Report on Form N-CSR for the period ended October 31, 2020 (the “Report”) fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

Date: December 31, 2020

/s/ John M. Perlowski        

John M. Perlowski

Chief Executive Officer (principal executive officer) of

BlackRock Funds^SM

Pursuant to 18 U.S.C. § 1350, the undersigned officer of BlackRock Funds^SM (the “registrant”), hereby certifies, to the best of his knowledge, that the registrant’s Report on Form N-CSR for the period ended October 31, 2020 (the “Report”) fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

Date: December 31, 2020

/s/ Neal J. Andrews        

Neal J. Andrews

Chief Financial Officer (principal financial officer) of

BlackRock Funds^SM

This certification is being furnished pursuant to Rule 30a-2(b) under the Investment Company Act of 1940, as amended, and 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Securities and Exchange Commission.