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Fund Overview<br/><b>Key Facts about BlackRock CoreAlpha Bond Fund</b>
<b>Investment Objective</b>
BlackRock CoreAlpha Bond Fund (the “Fund”), a series of BlackRock Funds III (the “Trust”), seeks to provide a combination of income and capital growth.
<b>Fees and Expenses of the Fund</b>
The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $25,000 in certain funds in the fund complex advised by BlackRock Advisors, LLC (“BlackRock”) or its affiliates. More information about these and other discounts is available from your financial professional and in the “Details About the Share Classes” section on page 17 of the prospectus and in the “Purchase of Shares” section on page II-71 of the Statement of Additional Information (“SAI”).
<b>Shareholder Fees<br/>(fees paid directly from your investment)</b>
<b>Annual Fund Operating Expenses<br/>(expenses that you pay each year as a percentage of the value of your investment)</b>
You would pay the following expenses if you did not redeem your shares:
<b>Portfolio Turnover:</b>
The Master Portfolio pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in higher taxes when shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. During the most recent fiscal year, the Master Portfolio’s portfolio turnover rate was 1,646% of the average value of its portfolio.
16.46
Independent Expenses are based on estimated amounts for the current fiscal year.
You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $25,000 in certain funds in the fund complex advised by BlackRock Advisors, LLC (“BlackRock”) or its affiliates.
25000
The fees and expenses shown in the table above and the example that follows include the expenses of both the Fund and the Fund’s share of the allocated expenses of CoreAlpha Bond Master Portfolio (the “Master Portfolio”), a series of Master Investment Portfolio (“MIP”). Management fees are paid by the Master Portfolio.
<b>Principal Investment Strategies of the Fund</b>
The Fund invests, under normal circumstances, at least 80% of its assets in bonds. For the purposes of this strategy, “bonds” include the following: obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; mortgage-backed securities issued or guaranteed by the U.S. government or its agencies or instrumentalities, including U.S. agency mortgage pass-through securities; commercial mortgage-backed securities; debt obligations of U.S. issuers; municipal securities; asset-backed securities; and U.S.-registered dollar-denominated debt obligations of foreign issuers. The Fund may invest in bonds issued by companies located in countries other than the United States, including companies in emerging markets. These securities may have all types of interest rate payment and reset terms, including fixed rate, adjustable rate, floating rate, zero coupon, contingent, deferred, payment in kind and auction rate features. The Fund invests a substantial portion of its assets in U.S.-registered, dollar-denominated bonds. The Fund may invest up to 10% of its assets in securities rated below investment grade (“high yield” or “junk” bonds). The Fund may invest in bonds of any maturity or duration. <br /><br />The Fund may invest a significant portion of its assets in U.S. agency mortgage pass-through securities, which are securities issued by entities such as the Government National Mortgage Association (“Ginnie Mae”) and the Federal National Mortgage Association (“Fannie Mae”) that are backed by pools of mortgages. Most transactions in mortgage pass-through securities occur through standardized contracts for future delivery in which the exact mortgage-backed securities to be delivered are not specified until a few days prior to settlement. The Fund expects to enter into such contracts on a regular basis. <br /><br />The Fund may use derivatives, such as futures contracts, options and various other instruments. The Fund may also invest in derivatives based on foreign currencies. In addition, the Fund may use derivatives and short sales to enhance returns as part of an overall investment strategy or to offset a potential decline in the value of other holdings (commonly referred to as a “hedge”), although the Fund is not required to hedge and may choose not to do so. <br /><br />The Fund is a “feeder” fund that invests all of its investable assets in the Master Portfolio, which has the same investment objective and strategies as the Fund. All investments are made at the Master Portfolio level. This structure is sometimes called a “master/feeder” structure. The Fund’s investment results will correspond directly to the investment results of the Master Portfolio. For simplicity, the prospectus uses the name of the Fund or the term “Fund” (as applicable) to include the Master Portfolio.
<b>Principal Risks of Investing in the Fund </b>
Risk is inherent in all investing. The value of your investment in the Fund, as well as the amount of return you receive on your investment, may fluctuate significantly from day to day and over time. You may lose part or all of your investment in the Fund or your investment may not perform as well as other similar investments. The following is a summary description of principal risks of investing in the Fund. <ul type="square"><li style="margin-left:-20px"><b>Call Risk </b>— Call risk is the risk that, during a period of falling interest rates, the issuer may redeem a security by repaying it early, which may reduce the Fund’s income if the proceeds are reinvested at lower interest rates. </li></ul><ul type="square"><li style="margin-left:-20px"><b> Debt Securities Risk </b>— Debt securities, such as bonds, involve credit risk. Credit risk is the risk that the borrower will not make timely payments of principal and interest. Changes in an issuer’s credit rating or the market’s perception of an issuer’s creditworthiness may also affect the value of the Fund’s investment in that issuer. The degree of credit risk depends on the issuer’s financial condition and on the terms of the securities. Debt securities are also subject to interest rate risk. Interest rate risk is the risk that the value of a debt security may fall when interest rates rise. In general, the market price of debt securities with longer maturities will go up or down more in response to changes in interest rates than the market price of shorter term securities.</li></ul><ul type="square"><li style="margin-left:-20px"><b> Derivatives Risk </b>— The Fund’s use of derivatives may reduce the Fund’s returns and/or increase volatility. Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantly in price within a short time period. Derivatives are also subject to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual obligation. A risk of the Fund’s use of derivatives is that the fluctuations in their values may not correlate perfectly with the overall securities markets. The possible lack of a liquid secondary market for derivatives and the resulting inability of the Fund to sell or otherwise close a derivatives position could expose the Fund to losses and could make derivatives more difficult for the Fund to value accurately. Derivatives may give rise to a form of leverage and may expose the Fund to greater risk and increase its costs. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation is not yet known and may not be known for some time. New regulation may make derivatives more costly, may limit the availability of derivatives, or may otherwise adversely affect the value or performance of derivatives.</li></ul><ul type="square"><li style="margin-left:-20px"><b> Emerging Markets Risk </b>— Emerging markets are riskier than more developed markets because they tend to develop unevenly and may never fully develop. Investments in emerging markets may be considered speculative. Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affect returns to U.S. investors. In addition, many emerging securities markets have far lower trading volumes and less liquidity than developed markets.</li></ul><ul type="square"><li style="margin-left:-20px"><b> Extension Risk </b>— When interest rates rise, certain obligations will be paid off by the obligor more slowly than anticipated, causing the value of these securities to fall.</li></ul><ul type="square"><li style="margin-left:-20px"><b> Foreign Securities Risk </b>— Foreign investments often involve special risks not present in U.S. investments that can increase the chances that the Fund will lose money. These risks include:<br /><br /> — The Fund generally holds its foreign securities and cash in foreign banks and securities depositories, which may be recently organized or new to the foreign custody business and may be subject to only limited or no regulatory oversight. <br /><br /> — Changes in foreign currency exchange rates can affect the value of the Fund’s portfolio. <br /><br /> — The economies of certain foreign markets may not compare favorably with the economy of the United States with respect to such issues as growth of gross national product, reinvestment of capital, resources and balance of payments position. <br /><br /> — The governments of certain countries may prohibit or impose substantial restrictions on foreign investments in their capital markets or in certain industries. <br /><br /> — Many foreign governments do not supervise and regulate stock exchanges, brokers and the sale of securities to the same extent as does the United States and may not have laws to protect investors that are comparable to U.S. securities laws. <br /><br /> — Settlement and clearance procedures in certain foreign markets may result in delays in payment for or delivery of securities not typically associated with settlement and clearance of U.S. investments. </li></ul><ul type="square"><li style="margin-left:-20px"><b> Junk Bonds Risk </b>— Although junk bonds generally pay higher rates of interest than investment grade bonds, junk bonds are high risk investments that may cause income and principal losses for the Fund.</li></ul><ul type="square"><li style="margin-left:-20px"><b> Liquidity Risk </b>— Liquidity risk exists when particular investments are difficult to purchase or sell. The Fund’s investments in illiquid securities may reduce the returns of the Fund because it may be difficult to sell the illiquid securities at an advantageous time or price. To the extent that the Fund’s principal investment strategies involve derivatives or securities with substantial market and/or credit risk, the Fund will tend to have the greatest exposure to liquidity risk.</li></ul><ul type="square"><li style="margin-left:-20px"><b> Market Risk and Selection Risk </b>— Market risk is the risk that one or more markets in which the Fund invests will go down in value, including the possibility that the markets will go down sharply and unpredictably. Selection risk is the risk that the securities selected by Fund management will underperform the markets, the relevant indices or the securities selected by other funds with similar investment objectives and investment strategies. This means you may lose money.</li></ul><ul type="square"><li style="margin-left:-20px"><b> Mortgage- and Asset-Backed Securities Risks </b>— Mortgage- and asset-backed securities represent interests in “pools” of mortgages or other assets, including consumer loans or receivables held in trust. Mortgage- and asset-backed securities are subject to credit, interest rate, prepayment and extension risks. These securities also are subject to risk of default on the underlying mortgage or asset, particularly during periods of economic downturn. Small movements in interest rates (both increases and decreases) may quickly and significantly reduce the value of certain mortgage-backed securities.</li></ul><ul type="square"><li style="margin-left:-20px"><b>Municipal Securities Risks </b>— Municipal securities risks include the ability of the issuer to repay the obligation, the relative lack of information about certain issuers of municipal securities, and the possibility of future legislative changes which could affect the market for and value of municipal securities. Certain municipal securities, including private activity bonds, are not backed by the full faith, credit and taxing power of the issuer. Additionally, if events occur after the security is acquired that impact the security’s tax-exempt status, the Fund and its shareholders could be subject to substantial tax liabilities.</li></ul><ul type="square"><li style="margin-left:-20px"><b> Prepayment Risk </b>— When interest rates fall, certain obligations will be paid off by the obligor more quickly than originally anticipated, and the Fund may have to invest the proceeds in securities with lower yields.</li></ul><ul type="square"><li style="margin-left:-20px"><b> Short Sales Risk </b>— Because making short sales in securities that it does not own exposes the Fund to the risks associated with those securities, such short sales involve speculative exposure risk. The Fund may incur a loss as a result of a short sale if the price of the security increases between the date of the short sale and the date on which the Fund replaces the borrowed security.</li></ul>
You may lose part or all of your investment in the Fund or your investment may not perform as well as other similar investments.
<b>Performance Information </b>
The information shows you how the Fund’s performance has varied year by year and provides some indication of the risks of investing in the Fund. The Fund does not have a full calendar year of operations and Investor A and Investor C Shares commenced operations on May 1, 2012, therefore the chart and table are based on the performance of the Master Portfolio in which the Fund invests all of its assets for each complete calendar year since the commencement of the Master Portfolio’s operations, adjusted to reflect the estimated annual fund fees and operating expenses of each respective share class of the Fund. The Fund’s Institutional Shares would have substantially similar performance to the Investor A and Investor C Shares because the Institutional, Investor A and Investor C Shares are invested in the same portfolio of securities and performance would differ only to the extent that the share classes have different expenses. The actual return of Investor A Shares and Investor C Shares would have been lower than that of Institutional Shares because Investor A and Investor C Shares each have higher expenses than Institutional Shares. The table compares the performance to that of the Barclays U.S. Aggregate Bond Index. As with all such investments, past performance (before and after taxes) is not an indication of future results. Sales charges are not reflected in the bar chart. If they were, returns would be less than those shown. However, the table includes all applicable fees and sales charges. If BlackRock and its affiliates had not waived or reimbursed certain Master Portfolio expenses during these periods, the Master Portfolio’s return would have been lower.
The information shows you how the Fund’s performance has varied year by year and provides some indication of the risks of investing in the Fund.
The Fund does not have a full calendar year of operations and Investor A and Investor C Shares commenced operations on May 1, 2012, therefore the chart and table are based on the performance of the Master Portfolio in which the Fund invests all of its assets for each complete calendar year since the commencement of the Master Portfolio’s operations, adjusted to reflect the estimated annual fund fees and operating expenses of each respective share class of the Fund.
As with all such investments, past performance (before and after taxes) is not an indication of future results.
<b>Institutional Shares<br/>ANNUAL TOTAL RETURNS<br/>BlackRock CoreAlpha Bond Fund<br/>As of 12/31</b>
Sales charges are not reflected in the bar chart. If they were, returns would be less than those shown.
During the period shown in the bar chart, the highest return for a quarter was 5.78% (quarter ended September 30, 2009) and the lowest return for a quarter was -1.62% (quarter ended December 31, 2010). The year-to-date return as of September 30, 2012 was 4.34%.
<b>As of 12/31/11<br/>Average Annual Total Returns</b>
0.04
0
0
0.0025
0.0025
0.0025
0.0025
0.01
0
0.0028
0.0028
0.0018
0.002
0.002
0.001
0.0008
0.0008
0.0008
0.0001
0.0001
0.0001
0.0079
0.0154
0.0044
-0.0008
-0.0008
-0.0008
0.0071
0.0146
0.0036
470
249
37
635
479
133
814
832
238
1332
1828
547
149
479
832
1828
0.0366
0.0618
0.0834
0.0784
0.0577
0.0584
0.0701
0.065
0.0453
0.0429
0.0544
0.0521
0.0195
0.0434
0.0508
0.036
0.1165
0.0654
0.0834
year-to-date return
2012-09-30
0.0434
highest return
2009-09-30
0.0578
lowest return
2010-12-31
-0.0162
2004-03-15
2004-03-15
2004-03-15
<div style="display:none">~ http://www.blackrock.com/role/ScheduleShareholderFeesBlackRockCoreAlphaBondFund column period compact * ~</div>
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<div style="display:none">~ http://www.blackrock.com/role/ScheduleExpenseExampleNoRedemptionTransposedBlackRockCoreAlphaBondFund column period compact * ~</div>
<div style="display:none">~ http://www.blackrock.com/role/ScheduleAnnualTotalReturnsBlackRockCoreAlphaBondFundBarChart column period compact * ~</div>
<div style="display:none">~ http://www.blackrock.com/role/ScheduleAverageAnnualTotalReturnsTransposedBlackRockCoreAlphaBondFund column period compact * ~</div>
This Example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
0
0.01
A contingent deferred sales charge (“CDSC”) of 0.75% is assessed on certain redemptions of Investor A Shares made within 18 months after purchase where no initial sales charge was paid at time of purchase as part of an investment of $1,000,000 or more.
0
May 1, 2013
Other
<b>Example: </b>
However, the table includes all applicable fees and sales charges.