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 811-07332 and 811-08162

Name of Fund: BlackRock Funds III and Master Investment Portfolio

BlackRock Funds III

BlackRock Russell 1000® Index Fund

BlackRock ACWI ex-US Index Fund

BlackRock CoreAlpha Bond Fund

BlackRock Bond Index Fund

BlackRock S&P 500 Stock Fund

LifePath® Retirement Portfolio

LifePath 2020 Portfolio®

LifePath® 2025 Portfolio

LifePath 2030 Portfolio®

LifePath® 2035 Portfolio

LifePath 2040 Portfolio®

LifePath® 2045 Portfolio

LifePath® 2050 Portfolio

LifePath® 2055 Portfolio

LifePath® Index Retirement Portfolio

LifePath® Index 2020 Portfolio

LifePath® Index 2025 Portfolio

LifePath® Index 2030 Portfolio

LifePath® Index 2035 Portfolio

LifePath® Index 2040 Portfolio

LifePath® Index 2045 Portfolio

LifePath® Index 2050 Portfolio

LifePath® Index 2055 Portfolio

BlackRock Cash Funds: Institutional

BlackRock Cash Funds: Prime

BlackRock Cash Funds: Government

BlackRock Cash Funds: Treasury

Master Investment Portfolio

Russell 1000® Index Master Portfolio

ACWI ex-US Index Master Portfolio

Bond Index Master Portfolio

S&P 500 Stock Master Portfolio

LifePath® Retirement Master Portfolio

LifePath 2020 Master Portfolio®

LifePath® 2025 Master Portfolio

LifePath 2030 Master Portfolio®

LifePath® 2035 Master Portfolio

LifePath 2040 Master Portfolio®

LifePath® 2045 Master Portfolio

LifePath® 2050 Master Portfolio

LifePath® 2055 Master Portfolio

LifePath® Index Retirement Master Portfolio

LifePath® Index 2020 Master Portfolio

LifePath® Index 2025 Master Portfolio

LifePath® Index 2030 Master Portfolio

LifePath® Index 2035 Master Portfolio

LifePath® Index 2040 Master Portfolio

LifePath® Index 2045 Master Portfolio

LifePath® Index 2050 Master Portfolio

LifePath® Index 2055 Master Portfolio

Active Stock Master Portfolio

CoreAlpha Bond Master Portfolio

Money Market Master Portfolio

Prime Money Market Master Portfolio

Government Money Market Master Portfolio

Treasury Money Market Master Portfolio

Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809

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

Registrants’ telephone number, including area code: (800) 537-4942

Date of fiscal year end: 12/31/2011

Date of reporting period: 12/31/2011

Item 1 – Report to Stockholders

2

December 31, 2011

Annual Report

BlackRock Russell 1000 Index Fund | of BlackRock Funds III

Not FDIC Insured     No Bank Guarantee    May Lose Value

Table of Contents

	Page
Dear Shareholder		3
Annual Report:
Fund Summary		4
About Fund Performance		6
Derivative Financial Instruments		6
Disclosure of Expenses		7
Fund Financial Statements:
Statement of Assets and Liabilities		8
Statement of Operations		9
Statement of Changes in Net Assets		10
Fund Financial Highlights		11
Fund Notes to Financial Statements		14
Fund Report of Independent Registered Public Accounting Firm		16
Important Tax Information		16
Master Portfolio Information		17
Master Portfolio Financial Statements:
Schedule of Investments		18
Statement of Assets and Liabilities		30
Statement of Operations		31
Statement of Changes in Net Assets		32
Master Portfolio Financial Highlights		33
Master Portfolio Notes to Financial Statements		34
Master Portfolio Report of Independent Registered Public Accounting Firm		38
Officers and Trustees		39
Additional Information		42
A World-Class Mutual Fund Family		43

2 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

Dear Shareholder

Investors endured a very difficult environment in 2011. Financial markets were extremely volatile as a number of high-profile global events drove frequent about-face changes in investor sentiment. As the year progressed, news flow increasingly influenced trading decisions, to the point where company fundamentals were largely ignored. In the end, lower-risk assets won the “risk on — risk off” trading tug-of-war that characterized 2011’s market activity.

Early in the year, political turmoil swept across the Middle East/North Africa region and prices of oil and other commodities soared. Natural disasters in Japan disrupted global supply chains and concerns mounted regarding US debt and deficit issues. Nevertheless, equities, commodities and high yield bonds outpaced the less risky asset classes as investors chose to focus on the continuing stream of strong corporate earnings and positive economic data.

Markets reversed sharply in May, however, when the heightened possibility of Greece defaulting on its debt rekindled fears about sovereign debt problems spreading across Europe. Concurrently, economic indicators signaled that the recovery had slowed in the United States and other developed nations. Confidence was further shaken by the prolonged debt ceiling debate in Washington, DC. On August 5^th, Standard & Poor’s downgraded the US government’s credit rating and turmoil erupted in financial markets around the world. Extraordinary levels of volatility persisted in the months that followed as Greece teetered on the brink of default, debt problems escalated in Italy and Spain, and exposure to European sovereign bonds stressed banks globally. Late in the summer, economic data out of the United States and Europe grew increasingly bleak while China and other emerging economies began to show signs of slowing growth. By the end of the third quarter, equity markets had fallen nearly 20% from their April peak while safe-haven assets such as US Treasuries and gold had rallied to historical highs.

October brought enough positive economic data to assuage fears of a global double-dip recession. Additionally, after months of deliberation, European leaders began to show signs of progress toward stemming the region’s debt crisis. These encouraging developments brought investors back from the sidelines and risk assets rallied through the month. However, a lack of definitive details about Europe’s rescue plan soon raised doubts among investors and thwarted the rally at the end of October. The last two months of the year saw political instability in Greece, unsustainable yields on Italian bonds, and US policymakers bickering over budget issues. Global central bank actions and improving economic data energized investors, but confidence was easily tempered by sobering news flow that resurrected uncertainty about the ability of Europe’s leaders to ultimately contain the debt crisis.

Most equity markets failed to fully recover their late-summer losses, although US large cap stocks managed to finish the year with a marginal gain given their perceived safety and stronger US economic data. Conditions were worse overseas, and international markets experienced some significant downturns. Dividend-paying stocks performed relatively well as investors sought yield in the low interest rate environment. Fixed income securities benefited from declining yields and delivered positive returns for the year. US Treasury bonds outperformed other fixed income classes despite their quality rating downgrade, while municipal bonds also delivered superior results. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

Many of the themes that caused uncertainty in 2011 are likely to persist well into 2012. While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of December 31, 2011
	6-month			12-month
US large cap equities (S&P 500 Index)		(3.69	)%		2.11	%
US small cap equities (Russell 2000 Index)		(9.77	)		(4.18	)
International equities (MSCI Europe, Australasia, Far East Index)		(16.31	)		(12.14	)
Emerging market equities (MSCI Emerging Markets Index)		(19.13	)		(18.42	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.02			0.10
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		13.46			17.15
US investment grade bonds (Barclays Capital US Aggregate Bond Index)		4.98			7.84
Tax-exempt municipal bonds (S&P Municipal Bond Index)		5.78			10.62
US high yield bonds (Barclays Capital US Corporate High Yield 2% Issuer Capped Index)		(0.02	)		4.96
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

THIS PAGE NOT PART OF YOUR FUND REPORT 3

Fund Summary as of December 31, 2011 BlackRock Russell 1000 Index Fund

Investment Objective

BlackRock Russell 1000 Index Fund’s (the “Fund”) investment objective is to match the performance of the Russell 1000^® Index as closely as possible before the deduction of Fund expenses.

Portfolio Management Commentary

How did the Fund perform?

· For the period beginning with their initial trading date of March 31, 2011 through December 31, 2011, the Fund’s Institutional, Investor A and Class K Shares returned (4.72)%, (4.93)% and (4.68)%, respectively, while the benchmark Russell 1000^® Index returned (4.46)% for the same period. The Russell 1000^® Index is an unmanaged index that measures the performance of the large-cap segment of the U.S. equity universe. The index includes approximately 1000 of the largest securities based on a combination of their market-capitalization and current index membership. The Russell 1000^® Index represents approximately 92% of the U.S. market.

· Returns for the Fund’s respective share classes differ from the benchmark index based on individual share-class expenses. The Fund invests all of its assets in Russell 1000 Index Master Portfolio (the “Master Portfolio”), a series of Master Investment Portfolio.

Describe the market environment.

· Early in the year, stocks moved unevenly higher despite political upheaval spreading across the Middle East/North Africa region and a sharp rise in oil and other commodity prices. March brought devastating natural disasters in Japan, resulting in global supply chain disruptions. But equity markets were remarkably resilient as the global economic recovery appeared to be on track and investors were gradually increasing their appetite for risk. After peaking in late April, equities were met with a sharp reversal when the heightened possibility of Greece defaulting on its debt rekindled fears about the potential impact of the sovereign debt crisis spreading in Europe. In the United States, a prolonged debt ceiling debate ultimately led to Standard & Poor’s decision to downgrade the US government’s credit rating in early August. This announcement spurred one of the most volatile periods in trading history. Stock markets across the world whipsawed on hopes and fears driven by news flow. Equities swooned as debt problems in Europe spread to Italy and Spain, and global economic indicators grew increasingly bleak.

· US stocks staged a strong rebound in October as the domestic labor market improved and corporate profits continued to beat analyst

expectations. Encouraging news from Europe also contributed to the rally. After months of deliberation, European leaders agreed upon a new plan to reduce Greece’s debt burden, recapitalize the region’s banks and increase the size of the euro-zone bailout fund. However, a lack of definitive details about the rescue plan soon raised doubts among investors and thwarted the rally at the end of October. In November, political instability in Greece and Italy fueled uncertainty as to whether Europe’s leaders would be able to contain the crisis. In the United States, bickering lawmakers failed to reach an agreement on reducing the US budget deficit, further undermining investors’ confidence in policymakers on both sides of the Atlantic. Market volatility softened in December with the support of global central bank actions and continued improvement in economic data.

· For the year, US stocks outperformed most international markets given their relative safety during a time of heightened uncertainty overseas. Dividend-paying stocks performed particularly well as investors sought yield in a low interest rate environment. Stocks exhibiting more defensive characteristics outperformed the more cyclical areas of the market. Utilities (+19.08%) led the Russell 1000^® Index for the year, followed by consumer staples (+14.06%) and health care (+11.44%). Battered by the world’s debt problems, financials (-14.82%) saw the largest losses. The more cyclical materials (-9.06%) and industrials (-1.52%) sectors also declined amid heightened uncertainty about the global economy.

Describe recent portfolio activity.

· During the period, as changes were made to the composition of the Russell 1000^® Index, the Master Portfolio purchased and sold securities to maintain its objective of replicating the risks and return of the benchmark index.

Describe portfolio positioning at period end.

· The Master Portfolio remains positioned to match the risk characteristics of its benchmark index, irrespective of the market’s future direction.

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

4 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

BlackRock Russell 1000 Index Fund

Total Return Based on a $10,000 Investment

¹  Assuming transaction costs and other operating expenses, including administration fees, if any.

²  The Fund invests all of its assets in the Master Portfolio. The Master Portfolio invests primarily in a diversified portfolio of equity securities of large companies located in the United States.

³  The unmanaged index measures the performance of the large-cap segment of the U.S. equity universe and covers approximately 1000 of the largest securities based on a combination of their market capitalization and current index membership of the U.S. markets.

⁴  Commencement of operations.

Performance Summary for the Period Ended December 31, 2011

	Total Returns
	6-Month			Since Inception5
Institutional		(4.74)	%		(4.72	)%
Investor A		(4.89)			(4.93	)
Class K		(4.71)			(4.68	)
Russell 1000 Index		(4.58)			(4.46	)

⁵  The Fund commenced operations on March 31, 2011.

See “About Fund Performance” on page 6 for a detailed description of share classes, including any related sales charges and fees.

Past performance is not indicative of future results.

BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011 5

About Fund Performance BlackRock Russell 1000 Index Fund

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

· Investor A Shares are not subject to any sales charge and bear no ongoing distribution fee. Investor A Shares are subject to an ongoing service fee of 0.25% per year.

Performance information reflects past performance and does not guarantee future results. Current performance data may be lower or higher than the performance data quoted. Refer to www.blackrock.com/funds to obtain performance data current to the most recent month-end. Performance results do not reflect the

deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Figures shown in the performance table on the previous page assume reinvestment of all dividends and capital gain distributions, if any, at net asset value on the payable date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. The Fund’s administrator waived a portion of the Fund’s expenses. Without such waiver, the Fund’s performance would have been lower. Dividends paid to each class of shares will vary because of the different levels of administration and distribution fees applicable to each class, which are deducted from the income available to be paid to shareholders.

Derivative Financial Instruments

The Master Portfolio may invest in various derivative financial instruments, including financial futures contracts, as specified in Note 2 of the Master Portfolio’s Notes to Financial Statements, which may constitute forms of economic leverage. Such derivative financial instruments are used to obtain exposure to a market without owning or taking physical custody of securities or to hedge market and/or equity risks. Derivative financial instruments 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 derivative financial instrument. The Master Portfolio’s ability to use a derivative financial instrument

successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may require the Master Portfolio to sell or purchase portfolio investments at inopportune times or for distressed values, may limit the amount of appreciation the Master Portfolio can realize on an investment, may result in lower dividends paid to shareholders or may cause the Master Portfolio to hold an investment that it might otherwise sell. The Master Portfolio’s investments in these instruments are discussed in detail in the Master Portfolio’s Notes to Financial Statements.

6 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

Disclosure of Expenses BlackRock Russell 1000 Index Fund

Shareholders of the Fund may incur the following charge: (a) expenses related to transactions, including sales charges and exchange fees; and (b) operating expenses including administration fees, service and/or distribution fees, including 12b-1 fees, and other Fund expenses. The expense example shown below (which is based on a hypothetical investment of $1,000 invested on July 1, 2011 and held through December 31, 2011) 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 table 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 table 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 this Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in other funds’ shareholder reports.

The expenses shown in the table are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges or exchange fees, 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.

Expense Example
	Actual						Hypothetical2
	Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the  Period1		Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the  Period1		Annualized Expense Ratio
Institutional		$1,000.00		$952.60		$1.08		$1,000.00		$1,024.10		$1.12		0.22%
Investor A		$1,000.00		$951.10		$2.21		$1,000.00		$1,022.94		$2.29		0.45%
Class K		$1,000.00		$952.90		$0.89		$1,000.00		$1,024.30		$0.92		0.18%

¹  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 one-half year period shown). Because the Fund invests significantly in the Master Portfolio, the expense table example reflects the net expenses of both the Fund and the Master Portfolio in which it invests.

²  Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the most recent fiscal half year divided by 365.

BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011 7

Statement of Assets and Liabilities BlackRock Russell 1000 Index Fund

December 31, 2011
Assets
Investments at value — Master Portfolio (cost — $50,646,143)	$	48,808,181
Capital shares sold receivable		245,163
Receivable from advisor		35,419
Deferred offering costs		48,624
Prepaid expenses		743
Total assets		49,138,130
Liabilities
Capital shares redeemed payable		111,488
Income dividends payable		245,501
Administration fees payable		3,240
Registration fees payable		2,059
Printing fees payable		29,986
Transfer agent fees payable		2,047
Service fees payable		143
Professional fees payable		14,218
Other accrued expenses payable		3,127
Total liabilities		411,809
Net Assets	$	48,726,321
Net Assets Consist of
Paid-in capital	$	50,922,095
Undistributed net investment income		8,136
Accumulated net realized loss allocated from the Master Portfolio		(365,948	)
Net unrealized appreciation/depreciation allocated from the Master Portfolio		(1,837,962	)
Net Assets	$	48,726,321
Net Asset Value
Institutional
Net Assets	$	23,501
Shares outstanding1		2,500
Net asset value	$	9.40
Investor A
Net Assets	$	1,917,612
Shares outstanding1		204,116
Net asset value	$	9.39
Class K
Net Assets	$	46,785,208
Shares outstanding1		4,977,463
Net asset value	$	9.40

¹  Unlimited number of shares authorized, no par value.

See Notes to Financial Statements.
8	BLACKROCK RUSSELL 1000 INDEX FUND	DECEMBER 31, 2011

Statement of Operations BlackRock Russell 1000 Index Fund

Period March 31, 20111 to December 31, 2011
Investment Income
Net investment income allocated from the Master Portfolio:
Dividends — unaffiliated	$	507,262
Dividends — affiliated		5,170
Securities lending — affiliated		3,581
Income — affiliated		1,399
Expenses		(92,909	)
Fees waived		56,473
Total income		480,976
Expenses
Administration		18,785
Service — Investor A		183
Registration		2,080
Transfer agent — Institutional		27
Transfer agent — Investor A		65
Transfer agent — Class K		2,776
Professional		37,900
Printing		30,000
Organization and offering costs		128,840
Miscellaneous		7,022
Total expenses		227,678
Less administration fees waived		(18,785	)
Less transfer agent fees waived — Institutional		(1	)
Less transfer agent fees waived — Investor A		(3	)
Less transfer agent fees waived — Class K		(748	)
Less transfer agent fees reimbursed — Institutional		(17	)
Less transfer agent fees reimbursed — Investor A		(45	)
Less transfer agent fees reimbursed — Class K		(2,020	)
Less fees waived and/or reimbursed by administrator		(200,244	)
Total expenses after fees waived and/or reimbursed		5,815
Net investment income		475,161
Realized and Unrealized Loss Allocated from the Master Portfolio
Net realized loss from investments and financial futures contracts		(363,500	)
Net change in unrealized appreciation/depreciation on investments and financial futures contracts		(1,837,962	)
Total realized and unrealized loss		(2,201,462	)
Net Decrease in Net Assets Resulting from Operations	$	(1,726,301	)

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK RUSSELL 1000 INDEX FUND	DECEMBER 31, 2011	9

Statement of Changes in Net Assets BlackRock Russell 1000 Index Fund

Increase (Decrease) in Net Assets:	Period March 31, 20111 to December 31, 2011
Operations
Net investment income	$	475,161
Net realized loss		(363,500	)
Net change in unrealized appreciation/depreciation		(1,837,962	)
Net decrease in net assets resulting from operations		(1,726,301	)
Dividends to Shareholders From
Net investment income:
Institutional		(305)
Investor A		(10,478)
Class K		(456,242)
Tax return of capital:
Institutional		(7)
Investor A		(257)
Class K		(11,181)
Net realized capital gain:
Institutional		(2)
Investor A		(55)
Class K		(2,391)
Decrease in net assets resulting from dividends to shareholders		(480,918	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		50,933,540
Net Assets
Total increase in net assets		48,726,321
Beginning of period		—
End of period	$	48,726,321
Undistributed net investment income	$	8,136

¹  Commencement of operations.

See Notes to Financial Statements.
10	BLACKROCK RUSSELL 1000 INDEX FUND	DECEMBER 31, 2011

Financial Highlights BlackRock Russell 1000 Index Fund

	Institutional
	Period March 31, 20111 to December  31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	10.00
Net investment income2		0.13
Net realized and unrealized loss		(0.60	)
Net decrease from investment operations		(0.47	)
Dividends and distributions from:
Net investment income		(0.13	)
Tax return of capital		(0.00	)3
Net realized capital gain.		(0.00	)3
Total dividends and distributions		(0.13	)
Net asset value, end of period	$	9.40
Total Investment Return4,5
Based on net asset value		(4.72	)%
Ratios to Average Net Assets6,7,8
Total expenses		1.84%	9
Total expenses after fees waived and/or reimbursed		0.22%
Net investment income		1.86%
Supplemental Data
Net assets, end of period (000)	$	24
Portfolio turnover of the Master Portfolio		10%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Less than $0.01 per share.

⁴  Includes the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income.

⁷  Annualized.

⁸  Includes the Fund’s share of the Master Portfolio’s allocated fee waived of 0.24%.

⁹  Organization costs were not annualized in the calculation of the expense ratio. If this expense was annualized, the total expense would have been 1.84%.

See Notes to Financial Statements.
	BLACKROCK RUSSELL 1000 INDEX FUND	DECEMBER 31, 2011	11

Financial Highlights (continued) BlackRock Russell 1000 Index Fund

	Investor A
	Period March 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	10.00
Net investment income2		0.13
Net realized and unrealized loss		(0.62	)
Net decrease from investment operations		(0.49	)
Dividends and distributions from:
Net investment income		(0.12	)
Tax return of capital		(0.00	)3
Net realized capital gain.		(0.00	)3
Total dividends and distributions		(0.12	)
Net asset value, end of period	$	9.39
Total Investment Return4,5
Based on net asset value		(4.93	)%
Ratios to Average Net Assets6,7,8
Total expenses		1.40%	9
Total expenses after fees waived and/or reimbursed		0.45%
Net investment income		1.80%
Supplemental Data
Net assets, end of period (000)	$	1,918
Portfolio turnover of the Master Portfolio		10%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Less than $0.01 per share.

⁴  Includes the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income.

⁷  Annualized.

⁸  Includes the Fund’s share of the Master Portfolio’s allocated fee waived of 0.24%.

⁹  Organization costs were not annualized in the calculation of the expense ratio. If this expense was annualized, the total expense would have been 1.40%.

See Notes to Financial Statements.
12	BLACKROCK RUSSELL 1000 INDEX FUND	DECEMBER 31, 2011

Financial Highlights (concluded) BlackRock Russell 1000 Index Fund

	Class K
	Period March 31, 20111 to December  31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	10.00
Net investment income2		0.13
Net realized and unrealized loss		(0.60	)
Net decrease from investment operations		(0.47	)
Dividends and distributions from:
Net investment income		(0.13	)
Tax return of capital		(0.00	)3
Net realized capital gain.		(0.00	)3
Total dividends and distributions		(0.13	)
Net asset value, end of period	$	9.40
Total Investment Return4,5
Based on net asset value		(4.68	)%
Ratios to Average Net Assets6,7,8
Total expenses		1.11%	9
Total expenses after fees waived and/or reimbursed		0.18%
Net investment income		2.02%
Supplemental Data
Net assets, end of period (000)	$	46,785
Portfolio turnover of the Master Portfolio		10%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Less than $0.01 per share.

⁴  Includes the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income.

⁷  Annualized.

⁸  Includes the Fund’s share of the Master Portfolio’s allocated fee waived of 0.24%.

⁹  Organization costs were not annualized in the calculation of the expense ratio. If this expense was annualized, the total expense would have been 1.12%.

See Notes to Financial Statements.
	BLACKROCK RUSSELL 1000 INDEX FUND	DECEMBER 31, 2011	13

Notes to Financial Statements BlackRock Russell 1000 Index Fund

1. Organization and Significant Accounting Policies:

BlackRock Russell 1000 Index Fund (the “Fund”) is a series of BlackRock Funds III (the “Trust”) and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a diversified, open-end management investment company. The Trust is organized as a Delaware statutory trust. The Fund seeks to achieve its investment objective by investing substantially all of its assets in Russell 1000 Index Master Portfolio (the “Master Portfolio”), a series of Master Investment Portfolio (“MIP”), which has the same investment objective and strategies as the Fund. The value of the Fund’s investment in the Master Portfolio reflects the Fund’s proportionate interest in the net assets of the Master Portfolio. The percentage of the Master Portfolio owned by the Fund at December 31, 2011 was 85.81%. The performance of the Fund is directly affected by the performance of the Master Portfolio. The financial statements of the Master Portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the Fund’s financial statements. The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The Fund offers multiple classes of shares. Institutional, Investor A and Class K Shares are sold without a sales charge. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Investor A Shares bear certain expenses related to the shareholder servicing of such shares. Each class has exclusive voting rights with respect to matters relating to its shareholder servicing and distribution expenditures. The Fund commenced operations on March 31, 2011.

The following is a summary of significant accounting policies followed by the Fund:

Valuation: US 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’s policy is to fair value its financial instruments at market value. The Fund records its investment in the Master Portfolio at fair value based on the Fund’s proportionate interest in the net assets of the Master Portfolio. Valuation of securities held by the Master Portfolio is discussed in Note 1 of the Master Portfolio’s Notes to Financial Statements, which are included elsewhere in this report.

Investment Transactions and Investment Income: For financial reporting purposes, contributions to and withdrawals from the Master Portfolio are accounted on a trade date basis. The Fund records daily its proportionate share of the Master Portfolio’s income, expenses and realized and unrealized gains and losses. In addition, the Fund accrues its own expenses. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Dividends and Distributions: Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. If the total dividends and distributions made in any tax year exceeds net investment income and accumulated realized capital gains, a portion of the total distribution may be treated as a tax return of capital. The amount and timing of dividends and distributions are determined in accordance with federal income tax regulations, which may differ from US GAAP.

Income Taxes: 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 federal income tax provision is required.

The Fund files US federal and various state and local tax returns. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.

Organization and Offering Costs: Upon commencement of operations, organization costs associated with the establishment of the Fund were expensed by the Fund and reimbursed by BlackRock Institutional Trust Company, N.A. (the “Administrator” or “BTC”). Offering costs associated with the establishment of the Fund are amortized over a 12-month period beginning with the commencement of operations. The Administrator reimbursed the Fund $128,840 which is included in fees reimbursed by advisor in the Statement of Operations.

Other: Expenses directly related to the Fund are charged to that Fund. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods.

2. Administration Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”). Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

The Trust, on behalf of the Fund, entered into an Administration Agreement with the Administrator, an indirect, wholly owned subsidiary of BlackRock, to provide administrative services (other than investment advice and related portfolio activities). For such services, the Fund pays the Administrator a monthly fee at an annual rate of 0.08% of the average daily value of the Fund’s net assets. The Fund does not pay an investment advisory fee or investment management fee.

BlackRock Fund Advisors (“BFA”), the investment advisor for the Master Portfolio, and BTC contractually agreed to waive and/or reimburse fees or expenses, excluding interest expense, dividend expense, acquired fund fees and expenses and certain other fund expenses, in order to

14 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

Notes to Financial Statements (continued) BlackRock Russell 1000 Index Fund

limit expenses. BFA and BTC have agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2012 unless approved by the Board, including a majority of the independent trustees. These amounts are shown as fees waived by administrator and transfer agent fees reimbursed, respectively, in the Statement of Operations. The expense limitations as a percentage of average daily net assets are as follows: 0.23% for Institutional, 0.48% for Investor A and 0.18% for Class K.

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 or reimbursement from BFA or BTC, as applicable, are less than the expense limit for that share class, the share class is required to repay BFA or BTC up to the lesser of (a) the amount of fees waived or expenses reimbursed during those prior two fiscal years under the agreement and (b) the amount by which the expense limit for that share class exceeds the operating expenses of the share class for the current fiscal year, provided that: (1) the Fund has more than $50 million in assets and (2) BFA, BTC or an affiliate serves as the Fund’s investment advisor or administrator. In the event the expense limit for a share class is changed subsequent to a fiscal year in which BFA or BTC becomes entitled to reimbursement for fees waived or reimbursed, the amount available to reimburse BFA or BTC shall be calculated by reference to the expense limit for that share class in effect at the time BFA or BTC became entitled to receive such reimbursement, rather than the subsequently changed expense limit for that share class.

The Trust, on behalf of the Fund, entered into a Distribution Agreement and Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of BlackRock. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing service fees with respect to Investor A Shares. The fees are accrued daily and paid monthly at an annual rate of 0.25% based upon the average daily net assets of the Investor A Shares.

Pursuant to sub-agreements with BRIL, broker-dealers and 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 Investor A shareholders.

The Administrator maintains a call center, which is responsible for providing certain shareholder services to the Fund, such as responding to shareholder inquiries and processing transactions based upon instructions from shareholders with respect to the subscription and redemption of Fund shares. For the period ended December 31, 2011, the Fund reimbursed the Administrator the following amounts for costs incurred in running the call center, which are included in transfer agent — class specific in the Statement of Operations: $17 for Institutional, $45 for Investor A and $2,020 for Class K Shares.

Certain officers and/or trustees of the Trust are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Administrator for compensation paid to the Trust’s Chief Compliance Officer.

3. Income Tax Information:

The tax character of distributions paid during the fiscal year ended December 31, 2011 was as follows:

	12/31/2011
Ordinary income	$	467,025
Long-term capital gains		2,448
Tax return of capital		11,445
Total	$	480,918

As of December 31, 2011, the tax components of accumulated net losses were as follows:

Net unrealized losses* $ (2,195,774 ) 

* The difference between book-basis and tax-basis net unrealized losses was attributable to the timing and recognition of partnership income.

4. Capital Share Transactions:

Transactions in capital shares for the Fund were as follows:

	Period March 31, 20111 to December 31, 2011
BlackRock Russell 1000 Index Fund	Shares			Amount
Institutional
Shares sold		2,500		$	25,000
Net increase		2,500		$	25,000
Investor A
Shares sold		214,918		$	2,004,613
Shares issued to shareholders in reinvestment of dividends		1,119			10,502
Shares redeemed		(11,921	)		(111,943	)
Net increase		204,116		$	1,903,172
Class K
Shares sold		6,295,842		$	61,804,812
Shares redeemed		(1,318,379	)		(12,799,444	)
Net increase		4,977,463		$	49,005,368

¹  Commencement of operations.

5. Subsequent Events:

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

BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011 15

Report of Independent Registered Public Accounting Firm BlackRock Russell 1000 Index Fund

To the Shareholders and Board of Trustees of BlackRock Funds III:

In our opinion, the accompanying statement of assets and liabilities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of BlackRock Russell 1000 Index Fund, a series of BlackRock Funds III (the “Trust”), at December 31, 2011, and the results of its operations, the changes in its net assets and the financial highlights for the period March 31, 2011 (commencement of operations) through December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these

financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 24, 2012

Important Tax Information

The following information is provided with respect to the ordinary income distributions paid by the Fund during the taxable year ended December 31, 2011:

	Period
Qualified Dividend Income for Individuals*		July-December	99.03	%
Dividends Qualifying for the Dividend Received Deductions for Corporations*		July-December	95.87	%

* The Fund hereby designates the percentage indicated above or the maximum amount allowable by law.

16 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

Master Portfolio Information as of December 31, 2011 Russell 1000^® Index Master Portfolio

Ten Largest Holdings Percent of
Long-Term Investments

Exxon Mobil Corp.	3	%
Apple, Inc.	3
International Business Machines Corp.	2
Chevron Corp.	2
Microsoft Corp.	1
General Electric Co.	1
Procter & Gamble Co.	1
Johnson & Johnson	1
AT&T, Inc.	1
Pfizer, Inc.	1

Sector Allocation Percent of
Long-Term Investments

Information Technology	18	%
Financials	14
Health Care	12
Energy	12
Consumer Discretionary	12
Industrials	11
Consumer Staples	10
Materials	4
Utilities	4
Telecommunication Services	3

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

BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011 17

Schedule of Investments December 31, 2011 Russell 1000 Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Consumer Discretionary — 11.4%
Auto Components — 0.4%
Autoliv, Inc. (a)		376	$	20,112
BorgWarner, Inc. (a)(b)		479		30,532
Federal-Mogul Corp. (b)		79		1,165
Gentex Corp. (a)		607		17,961
The Goodyear Tire & Rubber Co. (b)		1,054		14,935
Johnson Controls, Inc.		2,927		91,498
Lear Corp.		444		17,671
TRW Automotive Holdings Corp. (b)		431		14,051
Visteon Corp./New (b)		210		10,487
WABCO Holdings, Inc. (b)		291		12,630
				231,042
Automobiles — 0.5%
Ford Motor Co. (b)		16,079		173,010
General Motors Co. (b)		3,279		66,466
Harley-Davidson, Inc.		1,030		40,036
Tesla Motors, Inc. (a)(b)		241		6,883
Thor Industries, Inc. (a)		177		4,855
				291,250
Distributors — 0.1%
Genuine Parts Co.		685		41,922
LKQ Corp. (b)		623		18,740
				60,662
Diversified Consumer Services — 0.2%
Apollo Group, Inc., Class A (b)		486		26,181
Career Education Corp. (b)		247		1,969
DeVry, Inc.		298		11,461
Education Management Corp. (a)(b)		154		4,310
H&R Block, Inc. (a)		1,286		21,000
ITT Educational Services, Inc. (a)(b)		112		6,372
Service Corp. International		1,009		10,746
Weight Watchers International, Inc. (a)		116		6,381
				88,420
Hotels, Restaurants & Leisure — 2.1%
Bally Technologies, Inc. (b)		173		6,844
Brinker International, Inc. (a)		339		9,072
Carnival Corp.		1,840		60,058
Chipotle Mexican Grill, Inc. (b)		133		44,919
Choice Hotels International, Inc.		115		4,376
Darden Restaurants, Inc. (a)		598		27,257
Dunkin’ Brands Group, Inc. (b)		107		2,673
Hyatt Hotels Corp, Class A (b)		178		6,700
International Game Technology		1,267		21,792
Las Vegas Sands Corp. (b)		1,691		72,256
Marriott International, Inc., Class A		1,135		33,108
Marriott Vacations Worldwide Corp. (b)		117		2,008
McDonald’s Corp.		4,478		449,278
MGM Resorts International (b)		1,495		15,593
Panera Bread Co., Class A (b)		125		17,681
Penn National Gaming, Inc. (b)		283		10,774
Royal Caribbean Cruises Ltd.		577		14,292
Starbucks Corp.		3,234		148,796
Starwood Hotels & Resorts Worldwide, Inc.		849		40,726
The Wendy’s Co.		1,264		6,775
WMS Industries, Inc. (b)		229		4,699
Wyndham Worldwide Corp.		673		25,460
Wynn Resorts Ltd.		347		38,340

Common Stocks	Shares		Value
Consumer Discretionary (continued)
Hotels, Restaurants & Leisure (concluded)
Yum! Brands, Inc.		2,008	$	118,492
				1,181,969
Household Durables — 0.4%
D.R. Horton, Inc.		1,213		15,296
Garmin Ltd. (a)		459		18,273
Harman International Industries, Inc.		290		11,032
Jarden Corp.		384		11,474
Leggett & Platt, Inc. (a)		617		14,216
Lennar Corp., Class A (a)		664		13,048
Mohawk Industries, Inc. (b)		237		14,184
Newell Rubbermaid, Inc.		1,236		19,961
NVR, Inc. (b)		22		15,092
PulteGroup, Inc. (b)		1,522		9,604
Stanley Black & Decker, Inc.		730		49,348
Tempur-Pedic International, Inc. (b)		291		15,286
Toll Brothers, Inc. (b)		657		13,416
Tupperware Brands Corp.		250		13,992
Whirlpool Corp. (a)		320		15,184
				249,406
Internet & Catalog Retail — 0.8%
Amazon.com, Inc. (b)		1,568		271,421
Expedia, Inc. (a)		408		11,840
Groupon, Inc. (b)		151		3,115
HomeAway, Inc. (b)		36		837
Liberty Interactive Corp. Series A (b)		2,613		42,370
NetFlix, Inc. (b)		242		16,768
priceline.com, Inc. (b)		214		100,090
TripAdvisor, Inc. (a)(b)		408		10,286
				456,727
Leisure Equipment & Products — 0.1%
Hasbro, Inc.		513		16,360
Mattel, Inc.		1,512		41,973
Polaris Industries, Inc. (a)		278		15,562
				73,895
Media — 3.2%
AMC Networks, Inc., Class A (b)		245		9,207
Cablevision Systems Corp.		922		13,111
CBS Corp., Class B (a)		2,885		78,299
Charter Communications, Inc. (b)		231		13,153
Clear Channel Outdoor Holdings, Inc., Class A (b)		165		2,071
Comcast Corp, Class A		11,902		282,196
DIRECTV, Class A (b)		3,044		130,161
Discovery Communications, Inc. (b)		1,146		46,952
DISH Network Corp.		880		25,062
DreamWorks Animation SKG, Inc. (a)(b)		285		4,730
Gannett Co., Inc.		1,046		13,985
Interpublic Group of Cos., Inc.		2,016		19,616
John Wiley & Sons, Inc., Class A		209		9,280
Lamar Advertising Co. (b)		234		6,435
Liberty Global, Inc. (b)		1,201		49,277
Liberty Media Corp. - Liberty Capital (a)(b)		511		39,883
Madison Square Garden, Inc. (b)		277		7,933
The McGraw-Hill Cos., Inc.		1,316		59,180
Morningstar, Inc.		97		5,767
News Corp., Class A		9,906		176,723
Omnicom Group, Inc.		1,217		54,254

See Notes to Financial Statements.

18 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

Schedule of Investments (continued) Russell 1000 Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Consumer Discretionary (continued)
Media (concluded)
Pandora Media, Inc. (a)(b)		68	$	681
Regal Entertainment Group		324		3,869
Scripps Networks Interactive, Inc., Class A (a)		374		15,865
Sirius XM Radio, Inc. (b)		17,256		31,406
Thomson Reuters Corp.		1,635		43,605
Time Warner Cable, Inc.		1,376		87,472
Time Warner, Inc. (a)		4,319		156,089
Viacom, Inc., Class B		2,382		108,167
Virgin Media, Inc. (a)		1,312		28,050
The Walt Disney Co.		8,157		305,887
The Washington Post Co., Class B (a)		23		8,667
				1,837,033
Multiline Retail — 0.8%
Big Lots, Inc. (b)		273		10,308
Dillard’s Inc, Class A (a)		136		6,104
Dollar General Corp. (b)		435		17,896
Dollar Tree, Inc. (b)		531		44,131
Family Dollar Stores, Inc.		535		30,848
J.C. Penney Co., Inc. (a)		725		25,484
Kohl’s Corp.		1,096		54,088
Macy’s, Inc.		1,837		59,115
Nordstrom, Inc.		714		35,493
Sears Holdings Corp. (a)(b)		176		5,593
Target Corp.		2,973		152,277
				441,337
Specialty Retail — 2.1%
Aaron’s, Inc.		316		8,431
Abercrombie & Fitch Co., Class A		369		18,022
Advance Auto Parts, Inc. (a)		325		22,630
American Eagle Outfitters, Inc. (a)		815		12,461
AutoNation, Inc. (a)(b)		164		6,047
AutoZone, Inc. (b)		110		35,747
Bed Bath & Beyond, Inc. (b)		1,075		62,318
Best Buy Co., Inc. (a)		1,290		30,147
CarMax, Inc. (b)		987		30,084
Chico’s FAS, Inc.		745		8,299
Dick’s Sporting Goods, Inc.		405		14,936
DSW Inc, Class A		97		4,288
Foot Locker, Inc.		666		15,877
GameStop Corp., Class A (a)(b)		608		14,671
The Gap, Inc. (a)		1,545		28,660
Guess?, Inc.		295		8,797
The Home Depot, Inc. (a)		6,896		289,908
Limited Brands, Inc.		1,083		43,699
Lowe’s Cos., Inc.		5,618		142,585
O’Reilly Automotive, Inc. (b)		558		44,612
Orchard Supply Hardware Stores Corp., Class A (a)(b)		6		23
PetSmart, Inc.		497		25,491
RadioShack Corp. (a)		424		4,117
Ross Stores, Inc.		1,019		48,433
Sally Beauty Holdings, Inc. (b)		427		9,023
Signet Jewelers Ltd.		372		16,353
Staples, Inc.		3,098		43,031
The TJX Cos., Inc.		1,665		107,476
Tiffany & Co.		559		37,039
Tractor Supply Co.		305		21,396
Ulta Salon Cosmetics & Fragrance, Inc. (b)		190		12,335

Common Stocks	Shares		Value
Consumer Discretionary (concluded)
Specialty Retail (concluded)
Urban Outfitters, Inc. (b)		474	$	13,063
Williams-Sonoma, Inc.		449		17,286
				1,197,285
Textiles, Apparel & Luxury Goods — 0.7%
Coach, Inc.		1,266		77,277
Deckers Outdoor Corp. (b)		166		12,545
Fossil, Inc. (b)		220		17,459
Hanesbrands, Inc. (b)		403		8,809
NIKE, Inc., Class B		1,540		148,410
PVH Corp.		254		17,904
Ralph Lauren Corp.		274		37,834
Under Armour Inc, Class A (b)		153		10,984
VF Corp.		378		48,002
				379,224
Total Consumer Discretionary				6,488,250
Consumer Staples — 10.3%
Beverages — 2.2%
Beam, Inc.		674		34,529
Brown-Forman Corp., Class B		448		36,068
The Coca-Cola Co. (a)		8,526		596,564
Coca-Cola Enterprises, Inc.		1,420		36,608
Constellation Brands, Inc. (b)		776		16,040
Dr Pepper Snapple Group, Inc.		966		38,138
Hansen Natural Corp. (b)		306		28,195
Molson Coors Brewing Co., Class B		590		25,689
PepsiCo, Inc.		6,821		452,573
				1,264,404
Food & Staples Retailing — 2.1%
Costco Wholesale Corp.		1,885		157,058
CVS Caremark Corp.		5,851		238,604
The Kroger Co.		2,467		59,751
Safeway, Inc. (a)		1,548		32,570
SUPERVALU, Inc.		974		7,909
Sysco Corp.		2,517		73,823
Wal-Mart Stores, Inc.		7,658		457,642
Walgreen Co.		3,950		130,587
Whole Foods Market, Inc. (a)		672		46,758
				1,204,702
Food Products — 1.9%
Archer Daniels Midland Co.		2,915		83,369
Bunge Ltd.		643		36,780
Campbell Soup Co. (a)		777		25,828
ConAgra Foods, Inc.		1,773		46,807
Corn Products International, Inc.		327		17,197
Dean Foods Co. (b)		822		9,206
Flowers Foods, Inc. (a)		499		9,471
General Mills, Inc.		2,754		111,289
Green Mountain Coffee Roasters, Inc. (b)		539		24,174
H.J. Heinz Co. (a)		1,388		75,008
The Hershey Co.		663		40,960
Hormel Foods Corp.		584		17,105
The J.M. Smucker Co.		506		39,554
Kellogg Co.		1,064		53,807
Kraft Foods, Inc., Class A		7,131		266,414
McCormick & Co., Inc. (a)		579		29,193

See Notes to Financial Statements.

BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011 19

Schedule of Investments (continued) Russell 1000 Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Consumer Staples (concluded)
Food Products (concluded)
Mead Johnson Nutrition Co.		882	$	60,620
Ralcorp Holdings, Inc. (b)		243		20,777
Sara Lee Corp.		2,536		47,981
Smithfield Foods, Inc. (b)		708		17,190
Tyson Foods, Inc., Class A		1,316		27,162
				1,059,892
Household Products — 2.1%
Church & Dwight Co., Inc.		625		28,600
The Clorox Co.		582		38,738
Colgate-Palmolive Co.		2,109		194,851
Energizer Holdings, Inc. (b)		294		22,779
Kimberly-Clark Corp.		1,695		124,684
The Procter & Gamble Co.		12,047		803,655
				1,213,307
Personal Products — 0.2%
Avon Products, Inc.		1,882		32,879
The Estee Lauder Cos., Inc., Class A		488		54,812
Herbalife Ltd.		523		27,023
				114,714
Tobacco — 1.8%
Altria Group, Inc.		9,034		267,858
Lorillard, Inc.		582		66,348
Philip Morris International, Inc.		7,675		602,334
Reynolds American, Inc.		1,446		59,893
				996,433
Total Consumer Staples				5,853,452
Energy — 11.4%
Energy Equipment & Services — 1.9%
Atwood Oceanics, Inc. (b)		236		9,391
Baker Hughes, Inc. (a)		1,875		91,200
Cameron International Corp. (b)		1,061		52,191
CARBO Ceramics, Inc. (a)		79		9,743
Core Laboratories NV		201		22,904
Diamond Offshore Drilling, Inc. (a)		290		16,025
Dresser-Rand Group, Inc. (b)		329		16,420
FMC Technologies, Inc. (b)		1,040		54,319
Halliburton Co.		3,948		136,246
Helmerich & Payne, Inc. (a)		420		24,511
McDermott International, Inc. (b)		1,007		11,591
Nabors Industries Ltd. (b)		1,210		20,981
National Oilwell Varco, Inc.		1,825		124,082
Oceaneering International, Inc.		457		21,081
Oil States International, Inc. (b)		220		16,801
Patterson-UTI Energy, Inc.		657		13,127
Rowan Cos., Inc. (b)		538		16,318
RPC, Inc.		172		3,139
Schlumberger Ltd.		5,856		400,023
SEACOR Holdings, Inc. (b)		99		8,807
Superior Energy Services, Inc. (b)		348		9,897
Tidewater, Inc.		226		11,142
Unit Corp. (b)		189		8,770
				1,098,709
Oil, Gas & Consumable Fuels — 9.5%
Alpha Natural Resources, Inc. (b)		953		19,470

Common Stocks	Shares		Value
Energy (concluded)
Oil, Gas & Consumable Fuels (concluded)
Anadarko Petroleum Corp.		2,146	$	163,804
Apache Corp.		1,654		149,819
Arch Coal, Inc.		904		13,117
Cabot Oil & Gas Corp.		444		33,700
Chesapeake Energy Corp.		2,837		63,237
Chevron Corp.		8,676		923,126
Cimarex Energy Co.		377		23,336
Cobalt International Energy, Inc. (b)		541		8,396
Concho Resources, Inc. (b)		450		42,187
ConocoPhillips (a)		5,730		417,545
CONSOL Energy, Inc.		990		36,333
Continental Resources, Inc. (b)		177		11,808
Denbury Resources, Inc. (b)		1,759		26,561
Devon Energy Corp.		1,825		113,150
El Paso Corp.		3,317		88,133
EOG Resources, Inc.		1,158		114,075
EQT Corp. (a)		588		32,217
EXCO Resources, Inc.		595		6,218
Exxon Mobil Corp. (a)		21,261		1,802,082
Forest Oil Corp. (b)		514		6,965
Hess Corp.		1,308		74,294
HollyFrontier Corp.		803		18,790
Kinder Morgan, Inc. (a)		722		23,227
Kosmos Energy Ltd. (a)(b)		132		1,618
Marathon Oil Corp.		3,072		89,917
Marathon Petroleum Corp.		1,542		51,333
Murphy Oil Corp.		840		46,822
Newfield Exploration Co. (b)		593		22,374
Noble Energy, Inc.		761		71,831
Occidental Petroleum Corp.		3,508		328,700
Peabody Energy Corp.		1,180		39,070
Pioneer Natural Resources Co.		508		45,456
Plains Exploration & Production Co. (b)		597		21,922
QEP Resources, Inc.		745		21,828
Quicksilver Resources, Inc. (a)(b)		472		3,167
Range Resources Corp.		699		43,296
SandRidge Energy, Inc. (a)(b)		1,772		14,460
SM Energy Co.		268		19,591
Southern Union Co.		549		23,118
Southwestern Energy Co. (b)		1,508		48,165
Spectra Energy Corp.		2,803		86,192
Sunoco, Inc.		476		19,526
Teekay Corp. (a)		167		4,464
Tesoro Corp. (b)		618		14,436
Ultra Petroleum Corp. (b)		644		19,082
Valero Energy Corp.		2,468		51,951
Whiting Petroleum Corp. (b)		516		24,092
The Williams Cos., Inc.		2,537		83,772
				5,407,773
Total Energy				6,506,482
Financials — 13.9%
Capital Markets — 1.8%
Affiliated Managers Group, Inc. (b)		220		21,109
American Capital Ltd. (b)		1,522		10,243
Ameriprise Financial, Inc.		982		48,747
Ares Capital Corp. (a)		884		13,658
The Bank of New York Mellon Corp.		5,357		106,658

See Notes to Financial Statements.

20 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

Schedule of Investments (continued) Russell 1000 Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Financials (continued)
Capital Markets (concluded)
BlackRock, Inc. (c)		364	$	64,879
The Charles Schwab Corp.		4,534		51,053
E*Trade Financial Corp. (b)		1,089		8,668
Eaton Vance Corp. (a)		516		12,198
Federated Investors, Inc., Class B (a)		361		5,469
Franklin Resources, Inc.		626		60,134
The Goldman Sachs Group, Inc.		2,234		202,021
Greenhill & Co., Inc.		119		4,328
Invesco Ltd.		2,012		40,421
Janus Capital Group, Inc.		744		4,695
Jefferies Group, Inc. (a)		568		7,810
Lazard Ltd, Class A		477		12,455
Legg Mason, Inc.		587		14,117
LPL Investment Holdings, Inc. (b)		137		4,184
Morgan Stanley		6,664		100,826
Northern Trust Corp.		948		37,598
Raymond James Financial, Inc. (a)		440		13,622
SEI Investments Co.		614		10,653
State Street Corp.		2,174		87,634
T Rowe Price Group, Inc. (a)		1,120		63,784
TD Ameritrade Holding Corp.		939		14,695
Waddell & Reed Financial, Inc.		377		9,338
				1,030,997
Commercial Banks — 2.4%
Associated Banc-Corp.		787		8,791
Bank of Hawaii Corp. (a)		213		9,476
BB&T Corp.		3,004		75,611
BOK Financial Corp.		103		5,658
CapitalSource, Inc.		1,140		7,638
City National Corp.		210		9,278
Comerica, Inc.		851		21,956
Commerce Bancshares, Inc.		337		12,846
Cullen/Frost Bankers, Inc.		222		11,746
East West Bancorp, Inc. (a)		616		12,166
Fifth Third Bancorp (a)		3,978		50,600
First Citizens Bancshares, Inc., Class A		22		3,850
First Horizon National Corp. (a)		1,179		9,432
First Republic Bank (b)		327		10,009
Fulton Financial Corp.		903		8,858
Huntington Bancshares, Inc. (a)		3,642		19,995
KeyCorp		4,158		31,975
M&T Bank Corp.		547		41,758
PNC Financial Services Group, Inc. (c)		2,272		131,026
Popular, Inc. (b)		4,085		5,678
Regions Financial Corp.		5,529		23,775
SunTrust Banks, Inc.		2,338		41,383
Synovus Financial Corp. (a)		3,304		4,659
TCF Financial Corp.		639		6,594
U.S. Bancorp		8,314		224,894
Valley National Bancorp		762		9,426
Wells Fargo & Co.		21,229		585,071
Zions BanCorp.		791		12,877
				1,397,026
Consumer Finance — 0.7%
American Express Co.		4,534		213,869
Capital One Financial Corp.		1,980		83,734
Discover Financial Services		2,356		56,544

Common Stocks	Shares		Value
Financials (continued)
Consumer Finance (concluded)
Green Dot Corp., Class A (b)		89	$	2,778
SLM Corp.		2,307		30,914
				387,839
Diversified Financial Services — 2.5%
Bank of America Corp.		43,729		243,133
CBOE Holdings, Inc.		211		5,457
CIT Group, Inc. (b)		877		30,581
Citigroup, Inc.		12,541		329,954
CME Group, Inc.		290		70,664
Interactive Brokers Group, Inc., Class A		147		2,196
IntercontinentalExchange, Inc. (b)		321		38,697
JPMorgan Chase & Co.		17,150		570,238
Leucadia National Corp.		832		18,920
Moody’s Corp. (a)		871		29,335
MSCI, Inc. (b)		509		16,761
The NASDAQ OMX Group, Inc. (b)		516		12,647
NYSE Euronext		1,144		29,858
				1,398,441
Insurance — 3.7%
ACE Ltd.		1,455		102,025
Aflac, Inc.		2,017		87,255
Alleghany Corp. (b)		30		8,559
Allied World Assurance Co. Holdings Ltd.		168		10,572
The Allstate Corp.		2,255		61,810
American Financial Group, Inc.		333		12,284
American International Group, Inc. (b)		1,919		44,521
American National Insurance Co. (a)		28		2,045
Aon Corp.		1,425		66,690
Arch Capital Group Ltd. (b)		557		20,737
Arthur J Gallagher & Co. (a)		477		15,951
Aspen Insurance Holdings Ltd.		322		8,533
Assurant, Inc.		414		16,999
Assured Guaranty Ltd.		807		10,604
Axis Capital Holdings Ltd.		551		17,610
Berkshire Hathaway, Inc., Class B (b)		7,555		576,446
Brown & Brown, Inc.		481		10,885
Chubb Corp. (a)		1,262		87,356
Cincinnati Financial Corp. (a)		621		18,916
CNA Financial Corp.		107		2,862
Endurance Specialty Holdings Ltd.		163		6,235
Erie Indemnity Co., Class A		115		8,988
Everest Re Group Ltd.		196		16,482
Fidelity National Financial, Inc.		952		15,165
Genworth Financial, Inc., Class A (b)		2,099		13,748
The Hanover Insurance Group, Inc.		182		6,361
Hartford Financial Services Group, Inc. (a)		1,948		31,655
HCC Insurance Holdings, Inc.		465		12,788
Kemper Corp.		201		5,871
Lincoln National Corp.		1,374		26,683
Loews Corp.		1,371		51,618
Markel Corp. (b)		43		17,831
Marsh & McLennan Cos., Inc.		2,366		74,813
MBIA, Inc. (a)(b)		677		7,846
Mercury General Corp.		107		4,881
MetLife, Inc.		3,543		110,471
Old Republic International Corp.		1,076		9,975
PartnerRe Ltd.		287		18,428

See Notes to Financial Statements.

BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011 21

Schedule of Investments (continued) Russell 1000 Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Financials (continued)
Insurance (concluded)
Principal Financial Group, Inc.		1,335	$	32,841
The Progressive Corp.		2,685		52,384
Protective Life Corp. (a)		389		8,776
Prudential Financial, Inc.		2,097		105,102
Reinsurance Group of America, Inc.		314		16,406
RenaissanceRe Holdings Ltd.		222		16,510
StanCorp Financial Group, Inc.		182		6,689
Torchmark Corp.		465		20,176
Transatlantic Holdings, Inc.		250		13,683
The Travelers Cos., Inc.		1,807		106,920
Unum Group (a)		1,278		26,927
Validus Holdings Ltd.		341		10,742
White Mountains Insurance Group Ltd.		30		13,604
WR Berkley Corp.		489		16,817
XL Group Plc		1,355		26,788
				2,096,864
Real Estate Investment Trusts (REITs) — 2.5%
Alexandria Real Estate Equities, Inc.		260		17,932
American Capital Agency Corp.		980		27,518
Annaly Capital Management, Inc.		4,102		65,468
Apartment Investment & Management Co.		516		11,822
AvalonBay Communities, Inc.		407		53,154
Boston Properties, Inc.		629		62,648
Brandywine Realty Trust		541		5,140
BRE Properties, Inc.		319		16,103
Camden Property Trust		296		18,423
Chimera Investment Corp.		4,423		11,102
CommonWealth REIT		343		5,708
Corporate Office Properties Trust		284		6,038
DDR Corp.		907		11,038
Digital Realty Trust, Inc.		440		29,335
Douglas Emmett, Inc.		551		10,050
Duke Realty Corp.		1,093		13,171
Equity Residential		1,271		72,485
Essex Property Trust, Inc.		139		19,531
Federal Realty Investment Trust		272		24,684
General Growth Properties, Inc.		2,461		36,964
HCP, Inc.		1,751		72,544
Health Care REIT, Inc.		832		45,369
Hospitality Properties Trust		516		11,858
Host Hotels & Resorts, Inc.		2,982		44,044
Kimco Realty Corp. (a)		1,779		28,891
Liberty Property Trust		489		15,100
Mack-Cali Realty Corp.		379		10,116
Piedmont Office Realty Trust, Inc. (a)		743		12,661
Plum Creek Timber Co., Inc.		709		25,921
ProLogis, Inc.		1,983		56,694
Public Storage		605		81,348
Rayonier, Inc.		535		23,877
Realty Income Corp. (a)		565		19,752
Regency Centers Corp.		383		14,408
Senior Housing Properties Trust		690		15,484
Simon Property Group, Inc.		1,265		163,109
SL Green Realty Corp.		391		26,056
Taubman Centers, Inc.		241		14,966
The Macerich Co.		572		28,943
UDR, Inc.		957		24,021
Ventas, Inc.		1,095		60,367

Common Stocks	Shares		Value
Financials (concluded)
Real Estate Investment Trusts (REITs) (concluded)
Vornado Realty Trust		796	$	61,181
Weingarten Realty Investors		524		11,434
Weyerhaeuser Co.		2,341		43,706
				1,430,164
Real Estate Management & Development — 0.1%
CB Richard Ellis Group Inc. (b)		1,232		18,751
Forest City Enterprises, Inc., Class A (b)		550		6,501
The Howard Hughes Corp. (b)		86		3,799
Jones Lang LaSalle, Inc.		186		11,394
The St Joe Co. (a)(b)		260		3,811
				44,256
Thrifts & Mortgage Finance — 0.2%
BankUnited, Inc.		134		2,947
Capitol Federal Financial, Inc.		757		8,736
First Niagara Financial Group, Inc.		1,480		12,772
Hudson City Bancorp, Inc.		2,051		12,819
New York Community Bancorp, Inc.		1,925		23,812
People’s United Financial, Inc.		1,592		20,457
TFS Financial Corp. (b)		320		2,867
Washington Federal, Inc.		446		6,240
				90,650
Total Financials				7,876,237
Health Care — 11.5%
Biotechnology — 1.5%
Alexion Pharmaceuticals, Inc. (b)		795		56,842
Amgen, Inc.		3,793		243,549
Amylin Pharmaceuticals, Inc. (b)		526		5,986
Biogen Idec, Inc. (b)		1,042		114,672
BioMarin Pharmaceutical, Inc. (b)		492		16,915
Celgene Corp. (b)		1,997		134,997
Dendreon Corp. (b)		581		4,416
Gilead Sciences, Inc. (b)		3,396		138,998
Human Genome Sciences, Inc. (a)(b)		759		5,609
Myriad Genetics, Inc. (b)		393		8,229
Pharmasset, Inc. (b)		325		41,665
Regeneron Pharmaceuticals, Inc. (b)		310		17,183
United Therapeutics Corp. (b)		218		10,301
Vertex Pharmaceuticals, Inc. (b)		900		29,889
				829,251
Health Care Equipment & Supplies — 1.8%
Alere, Inc. (b)		386		8,913
Baxter International, Inc.		2,461		121,770
Becton Dickinson & Co.		943		70,461
Boston Scientific Corp. (b)		6,682		35,682
C.R. Bard, Inc.		374		31,977
CareFusion Corp. (b)		982		24,953
The Cooper Cos., Inc.		198		13,963
Covidien Plc		2,138		96,231
DENTSPLY International, Inc. (a)		621		21,729
Edwards Lifesciences Corp. (b)		501		35,421
Gen-Probe, Inc. (b)		201		11,883
Hill-Rom Holdings, Inc.		283		9,534
Hologic, Inc. (b)		1,105		19,348
IDEXX Laboratories, Inc. (b)		243		18,701
Intuitive Surgical, Inc. (b)		170		78,712

See Notes to Financial Statements.

22 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

Schedule of Investments (continued) Russell 1000 Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Health Care (continued)
Health Care Equipment & Supplies (concluded)
Medtronic, Inc.		4,618	$	176,638
ResMed, Inc. (b)		644		16,358
Sirona Dental Systems, Inc. (b)		233		10,261
St. Jude Medical, Inc.		1,425		48,877
Stryker Corp. (a)		1,352		67,208
Teleflex, Inc.		168		10,297
Thoratec Corp. (b)		260		8,726
Varian Medical Systems, Inc. (b)		513		34,438
Zimmer Holdings, Inc. (b)		780		41,668
				1,013,749
Health Care Providers & Services — 2.1%
Aetna, Inc.		1,637		69,065
AMERIGROUP Corp. (b)		187		11,048
AmerisourceBergen Corp.		1,124		41,802
Brookdale Senior Living, Inc. (b)		393		6,834
Cardinal Health, Inc.		1,512		61,402
Catalyst Health Solutions, Inc. (b)		190		9,880
Cigna Corp.		1,236		51,912
Community Health Systems, Inc. (b)		381		6,648
Coventry Health Care, Inc. (b)		625		18,981
DaVita, Inc. (b)		417		31,613
Express Scripts, Inc. (b)		2,106		94,117
HCA Holdings, Inc. (b)		489		10,773
Health Management Associates, Inc. (b)		1,148		8,461
Health Net, Inc. (b)		360		10,951
Henry Schein, Inc. (b)		404		26,030
Humana, Inc.		727		63,692
Laboratory Corp. of America Holdings (b)		438		37,655
LifePoint Hospitals, Inc. (b)		210		7,802
Lincare Holdings, Inc.		378		9,718
McKesson Corp.		1,087		84,688
Medco Health Solutions, Inc. (b)		1,725		96,428
Mednax, Inc. (b)		201		14,474
Omnicare, Inc. (a)		496		17,087
Patterson Cos., Inc. (a)		413		12,192
Quest Diagnostics, Inc.		686		39,829
Tenet Healthcare Corp. (b)		1,925		9,875
UnitedHealth Group, Inc.		4,675		236,929
Universal Health Services, Inc.		386		15,000
VCA Antech, Inc. (b)		397		7,841
WellPoint, Inc.		1,500		99,375
				1,212,102
Health Care Technology — 0.1%
Allscripts Healthcare Solutions, Inc. (b)		817		15,474
Cerner Corp. (b)		621		38,036
SXC Health Solutions Corp. (b)		258		14,572
				68,082
Life Sciences Tools & Services — 0.5%
Agilent Technologies, Inc. (b)		1,506		52,605
Bio-Rad Laboratories, Inc., Class A (b)		90		8,644
Bruker Corp. (b)		338		4,198
Charles River Laboratories International, Inc. (b)		206		5,630
Covance, Inc. (b)		262		11,979
Illumina, Inc. (b)		521		15,880
Life Technologies Corp. (b)		782		30,428
Mettler-Toledo International, Inc. (b)		142		20,975

Common Stocks	Shares		Value
Health Care (concluded)
Life Sciences Tools & Services (concluded)
PerkinElmer, Inc. (a)		494	$	9,880
QIAGEN NV (b)		997		13,768
Techne Corp.		156		10,648
Thermo Fisher Scientific, Inc. (b)		1,653		74,335
Waters Corp. (b)		401		29,694
				288,664
Pharmaceuticals — 5.5%
Abbott Laboratories (a)		6,707		377,135
Allergan, Inc.		1,315		115,378
Bristol-Myers Squibb Co. (a)		7,362		259,437
Eli Lilly & Co.		4,411		183,321
Endo Pharmaceuticals Holdings, Inc. (b)		497		17,161
Forest Laboratories, Inc. (b)		1,168		35,344
Hospira, Inc. (b)		708		21,502
Johnson & Johnson		11,830		775,811
Merck & Co., Inc.		13,321		502,202
Mylan, Inc. (b)		1,911		41,010
Perrigo Co.		363		35,320
Pfizer, Inc.		34,101		737,946
Warner Chilcott Plc, Class A (b)		734		11,105
Watson Pharmaceuticals, Inc. (b)		553		33,368
				3,146,040
Total Health Care				6,557,888
Industrials — 10.6%
Aerospace & Defense — 2.4%
Alliant Techsystems, Inc.		152		8,688
BE Aerospace, Inc. (b)		416		16,103
The Boeing Co.		3,186		233,693
Exelis, Inc.		775		7,014
General Dynamics Corp.		1,433		95,166
Goodrich Corp.		539		66,674
Honeywell International, Inc.		3,396		184,573
Huntington Ingalls Industries, Inc. (b)		195		6,100
L-3 Communications Holdings, Inc.		437		29,139
Lockheed Martin Corp. (a)		1,143		92,469
Northrop Grumman Corp.		1,127		65,907
Precision Castparts Corp.		618		101,840
Raytheon Co. (a)		1,536		74,312
Rockwell Collins, Inc. (a)		673		37,264
Spirit Aerosystems Holdings, Inc., Class A (b)		517		10,743
Textron, Inc.		1,165		21,541
TransDigm Group, Inc. (b)		221		21,145
United Technologies Corp.		3,949		288,632
				1,361,003
Air Freight & Logistics — 0.8%
C.H. Robinson Worldwide, Inc.		718		50,102
Expeditors International of Washington, Inc. (a)		926		37,929
FedEx Corp.		1,362		113,741
United Parcel Service, Inc., Class B (a)		3,170		232,012
UTi Worldwide, Inc.		410		5,449
				439,233
Airlines — 0.2%
AMR Corp. (a)(b)		1,333		467
Copa Holdings SA		147		8,625
Delta Air Lines, Inc. (b)		3,699		29,925

See Notes to Financial Statements.

BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011 23

Schedule of Investments (continued) Russell 1000 Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Industrials (continued)
Airlines (concluded)
Southwest Airlines Co.		3,463	$	29,643
United Continental Holdings, Inc. (b)		1,451		27,380
				96,040
Building Products — 0.1%
Armstrong World Industries, Inc. (b)		84		3,685
Fortune Brands Home & Security, Inc. (b)		649		11,052
Lennox International, Inc.		244		8,235
Masco Corp.		1,541		16,150
Owens Corning (b)		533		15,308
				54,430
Commercial Services & Supplies — 0.4%
Avery Dennison Corp.		461		13,222
Cintas Corp.		500		17,405
Copart, Inc. (b)		236		11,302
Corrections Corp. of America (b)		428		8,718
Covanta Holding Corp.		483		6,612
Iron Mountain, Inc.		728		22,422
KAR Auction Services, Inc. (b)		116		1,566
Pitney Bowes, Inc. (a)		780		14,461
R.R. Donnelley & Sons Co. (a)		793		11,443
Republic Services, Inc.		1,399		38,543
Stericycle, Inc. (b)		375		29,220
Waste Connections, Inc. (a)		482		15,974
Waste Management, Inc.		2,045		66,892
				257,780
Construction & Engineering — 0.3%
Aecom Technology Corp. (b)		521		10,717
Chicago Bridge & Iron Co. NV		428		16,179
Fluor Corp.		761		38,240
Jacobs Engineering Group, Inc. (b)		559		22,684
KBR, Inc.		640		17,837
Quanta Services, Inc. (b)		917		19,752
The Shaw Group, Inc. (b)		328		8,823
URS Corp. (b)		327		11,484
				145,716
Electrical Equipment — 0.7%
AMETEK, Inc. (a)		704		29,638
The Babcock & Wilcox Co. (b)		496		11,974
Cooper Industries Plc, Class A		720		38,988
Emerson Electric Co.		3,243		151,091
General Cable Corp. (b)		208		5,202
GrafTech International Ltd. (b)		514		7,016
Hubbell, Inc. Class B		258		17,250
Polypore International, Inc. (b)		179		7,874
Regal-Beloit Corp. (a)		163		8,308
Rockwell Automation, Inc.		627		46,003
Roper Industries, Inc. (a)		419		36,399
Thomas & Betts Corp. (b)		218		11,903
				371,646
Industrial Conglomerates — 2.1%
3M Co.		3,066		250,584
Carlisle Cos., Inc.		275		12,183
General Electric Co. (a)		45,773		819,794
Tyco International Ltd.		2,023		94,494
				1,177,055

Common Stocks	Shares		Value
Industrials (continued)
Machinery — 2.3%
AGCO Corp. (b)		402	$	17,274
Caterpillar, Inc. (a)		2,782		252,049
CNH Global NV (b)		106		3,815
Crane Co.		216		10,089
Cummins, Inc.		846		74,465
Danaher Corp. (a)		2,369		111,438
Deere & Co.		1,811		140,081
Donaldson Co., Inc.		322		21,922
Dover Corp.		810		47,021
Eaton Corp.		1,472		64,076
Flowserve Corp.		246		24,433
Gardner Denver, Inc.		222		17,107
Graco, Inc.		253		10,345
Harsco Corp.		323		6,647
IDEX Corp.		359		13,323
Illinois Tool Works, Inc.		1,924		89,870
Ingersoll-Rand Plc		1,359		41,409
ITT Corp. (a)		387		7,481
Joy Global, Inc.		458		34,336
Kennametal, Inc. (a)		354		12,928
Lincoln Electric Holdings, Inc.		374		14,631
Navistar International Corp. (b)		313		11,856
Nordson Corp.		249		10,254
Oshkosh Corp. (b)		410		8,766
PACCAR, Inc.		1,578		59,128
Pall Corp.		508		29,032
Parker Hannifin Corp.		656		50,020
Pentair, Inc.		422		14,048
Snap-on, Inc.		252		12,756
SPX Corp.		222		13,380
Terex Corp. (a)(b)		435		5,877
The Manitowoc Co., Inc.		526		4,834
Timken Co.		376		14,555
Toro Co. (a)		141		8,553
Trinity Industries, Inc.		353		10,611
Valmont Industries, Inc.		104		9,442
Wabtec Corp.		215		15,039
Xylem, Inc. (a)		776		19,936
				1,312,827
Marine — 0.0%
Alexander & Baldwin, Inc.		191		7,796
Kirby Corp. (b)		239		15,736
				23,532
Professional Services — 0.2%
The Dun & Bradstreet Corp.		213		15,939
Equifax, Inc.		523		20,261
IHS Inc, Class A (b)		211		18,180
Manpower, Inc.		354		12,655
Monster Worldwide, Inc. (b)		517		4,100
Nielsen Holdings NV (b)		339		10,065
Robert Half International, Inc. (a)		629		17,901
Towers Watson & Co., Class A		246		14,743
Verisk Analytics, Inc., Class A (b)		504		20,225
				134,069
Road & Rail — 0.9%
Con-way, Inc.		222		6,474

See Notes to Financial Statements.

24 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

Schedule of Investments (continued) Russell 1000 Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Industrials (concluded)
Road & Rail (concluded)
CSX Corp.		4,758	$	100,203
Hertz Global Holdings, Inc. (b)		1,012		11,861
JB Hunt Transport Services, Inc.		389		17,532
Kansas City Southern (b)		481		32,713
Landstar System, Inc.		212		10,159
Norfolk Southern Corp.		1,524		111,039
Ryder System, Inc.		216		11,478
Union Pacific Corp. (a)		2,116		224,169
				525,628
Trading Companies & Distributors — 0.2%
Air Lease Corp. (b)		139		3,296
Fastenal Co. (a)		1,274		55,559
GATX Corp.		208		9,081
MSC Industrial Direct Co., Inc.		185		13,237
W.W. Grainger, Inc. (a)		248		46,423
WESCO International, Inc. (b)		192		10,178
				137,774
Total Industrials				6,036,733
Information Technology — 18.0%
Communications Equipment — 1.9%
Acme Packet, Inc. (b)		244		7,542
Brocade Communications Systems, Inc. (b)		1,987		10,313
Ciena Corp. (b)		380		4,598
Cisco Systems, Inc.		23,737		429,165
EchoStar Corp. (b)		153		3,204
F5 Networks, Inc. (b)		354		37,566
Harris Corp.		523		18,849
JDS Uniphase Corp. (b)		986		10,294
Juniper Networks, Inc. (b)		2,311		47,168
Motorola Mobility Holdings, Inc. (b)		1,133		43,960
Motorola Solutions, Inc.		1,299		60,131
Polycom, Inc. (b)		747		12,176
QUALCOMM, Inc.		7,205		394,113
Riverbed Technology, Inc. (b)		654		15,369
Tellabs, Inc.		1,452		5,866
				1,100,314
Computers & Peripherals — 4.1%
Apple, Inc. (b)		3,991		1,616,355
Dell, Inc. (b)		7,071		103,449
Diebold, Inc.		296		8,901
EMC Corp. (b)		8,879		191,253
Fusion-io, Inc. (b)		70		1,694
Hewlett-Packard Co.		8,574		220,866
Lexmark International, Inc., Class A (a)		313		10,351
NCR Corp. (b)		667		10,979
NetApp, Inc. (b)		1,589		57,633
QLogic Corp. (b)		420		6,300
SanDisk Corp. (b)		1,033		50,834
Western Digital Corp. (b)		1,016		31,445
				2,310,060
Electronic Equipment, Instruments & Components — 0.5%
Amphenol Corp., Class A		726		32,953
Arrow Electronics, Inc. (b)		492		18,406
Avnet, Inc. (b)		648		20,146
AVX Corp.		193		2,463

Common Stocks	Shares		Value
Information Technology (continued)
Electronic Equipment, Instruments & Components (concluded)
Corning, Inc.		6,773	$	87,913
Dolby Laboratories, Inc., Class A (b)		212		6,468
FLIR Systems, Inc.		678		16,997
Ingram Micro, Inc., Class A (b)		699		12,715
IPG Photonics Corp. (b)		110		3,726
Itron, Inc. (b)		162		5,795
Jabil Circuit, Inc. (a)		804		15,807
Molex, Inc. (a)		563		13,433
National Instruments Corp.		379		9,835
Tech Data Corp. (b)		186		9,190
Trimble Navigation Ltd. (b)		540		23,436
Vishay Intertechnology, Inc. (b)		607		5,457
				284,740
Internet Software & Services — 1.9%
Akamai Technologies, Inc. (b)		793		25,598
AOL, Inc. (b)		427		6,448
eBay, Inc. (b)		4,973		150,831
Equinix, Inc. (b)		199		20,179
Google, Inc., Class A (b)		1,086		701,447
IAC/InterActiveCorp (a)		321		13,675
LinkedIn Corp. (b)		36		2,268
Rackspace Hosting, Inc. (b)		439		18,881
VeriSign, Inc.		696		24,861
VistaPrint NV (a)(b)		172		5,263
WebMD Health Corp. (b)		263		9,876
Yahoo!, Inc. (b)		5,621		90,667
				1,069,994
IT Services — 3.7%
Accenture Plc, Class A		2,786		148,299
Alliance Data Systems Corp. (b)		224		23,260
Amdocs Ltd. (b)		764		21,797
Automatic Data Processing, Inc.		2,156		116,445
Booz Allen Hamilton Holding Corp. (b)		94		1,621
Broadridge Financial Solutions, Inc.		514		11,591
Cognizant Technology Solutions Corp., Class A (b)		1,312		84,375
Computer Sciences Corp. (a)		650		15,405
CoreLogic, Inc. (b)		387		5,004
DST Systems, Inc. (a)		140		6,373
Fidelity National Information Services, Inc.		1,147		30,499
Fiserv, Inc. (b)		628		36,889
FleetCor Technologies, Inc. (b)		60		1,792
Gartner, Inc. (b)		417		14,499
Genpact Ltd. (b)		571		8,536
Global Payments, Inc.		342		16,204
International Business Machines Corp. (a)		5,227		961,141
Lender Processing Services, Inc.		345		5,199
MasterCard, Inc., Class A		462		172,243
NeuStar Inc, Class A (b)		307		10,490
Paychex, Inc.		1,405		42,304
SAIC, Inc. (b)		1,217		14,957
Teradata Corp. (b)		738		35,800
Total System Services, Inc.		723		14,142
VeriFone Systems, Inc. (b)		430		15,274
Visa, Inc., Class A (a)		2,256		229,052
The Western Union Co.		2,739		50,014
				2,093,205

See Notes to Financial Statements.

BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011 25

Schedule of Investments (continued) Russell 1000 Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Information Technology (continued)
Office Electronics — 0.1%
Xerox Corp.		6,072	$	48,333
Zebra Technologies Corp., Class A (b)		246		8,802
				57,135
Semiconductors & Semiconductor Equipment — 2.4%
Advanced Micro Devices, Inc. (b)		2,599		14,035
Altera Corp.		1,394		51,717
Analog Devices, Inc.		1,300		46,514
Applied Materials, Inc.		5,687		60,908
Atmel Corp. (b)		1,940		15,714
Avago Technologies Ltd.		841		24,271
Broadcom Corp., Class A (b)		2,312		67,880
Cree, Inc. (b)		469		10,337
Cypress Semiconductor Corp. (b)		668		11,283
Fairchild Semiconductor International, Inc. (b)		515		6,201
First Solar, Inc. (a)(b)		250		8,440
Freescale Semiconductor Holdings I Ltd. (a)(b)		174		2,201
Intel Corp. (a)		22,882		554,888
International Rectifier Corp. (b)		279		5,418
Intersil Corp. Class A		502		5,241
KLA-Tencor Corp. (a)		734		35,415
Lam Research Corp. (b)		525		19,435
Linear Technology Corp.		996		29,910
LSI Corp. (b)		2,508		14,923
Marvell Technology Group Ltd. (b)		2,222		30,775
Maxim Integrated Products, Inc.		1,292		33,644
MEMC Electronic Materials, Inc. (b)		921		3,629
Microchip Technology, Inc. (a)		833		30,513
Micron Technology, Inc. (b)		3,670		23,084
Novellus Systems, Inc. (b)		294		12,139
NVIDIA Corp. (b)		2,621		36,327
ON Semiconductor Corp. (b)		1,909		14,737
PMC - Sierra, Inc. (b)		933		5,141
Silicon Laboratories, Inc. (a)(b)		178		7,729
Skyworks Solutions, Inc. (b)		803		13,025
SunPower Corp. (b)		395		2,461
Teradyne, Inc. (b)		777		10,590
Texas Instruments, Inc.		5,010		145,841
Xilinx, Inc.		1,160		37,190
				1,391,556
Software — 3.4%
Activision Blizzard, Inc.		1,865		22,977
Adobe Systems, Inc. (b)		2,176		61,516
ANSYS, Inc. (b)		404		23,141
Ariba, Inc. (b)		400		11,232
Autodesk, Inc. (b)		1,006		30,512
BMC Software, Inc. (b)		775		25,404
CA, Inc.		1,677		33,901
Cadence Design Systems, Inc. (b)		1,126		11,710
Citrix Systems, Inc. (b)		815		49,487
Compuware Corp. (b)		997		8,295
Electronic Arts, Inc. (b)		1,454		29,952
Factset Research Systems, Inc. (a)		196		17,107
Fortinet, Inc. (b)		539		11,756
Informatica Corp. (b)		446		16,471
Intuit, Inc.		1,305		68,630
MICROS Systems, Inc. (b)		345		16,070
Microsoft Corp.		32,028		831,447

Common Stocks	Shares		Value
Information Technology (concluded)
Software (concluded)
Nuance Communications, Inc. (b)		1,048	$	26,368
Oracle Corp.		16,576		425,174
Red Hat, Inc. (b)		844		34,849
Rovi Corp. (b)		475		11,676
Salesforce.com, Inc. (b)		579		58,745
Solera Holdings, Inc.		300		13,362
Symantec Corp. (b)		3,271		51,191
Synopsys, Inc. (b)		624		16,973
TIBCO Software, Inc. (b)		709		16,952
VMware, Inc., Class A (b)		371		30,863
				1,955,761
Total Information Technology				10,262,765
Materials — 3.9%
Chemicals — 2.3%
Air Products & Chemicals, Inc. (a)		914		77,864
Airgas, Inc.		343		26,781
Albemarle Corp.		387		19,934
Ashland, Inc. (a)		336		19,206
Cabot Corp.		291		9,353
Celanese Corp.		683		30,236
CF Industries Holdings, Inc.		284		41,174
Cytec Industries, Inc.		218		9,734
The Dow Chemical Co. (a)		5,072		145,871
E.I. du Pont de Nemours & Co.		4,007		183,440
Eastman Chemical Co.		624		24,373
Ecolab, Inc.		1,294		74,806
FMC Corp.		314		27,017
Huntsman Corp.		846		8,460
International Flavors & Fragrances, Inc.		340		17,823
Intrepid Potash, Inc. (b)		209		4,730
Kronos Worldwide, Inc.		88		1,587
LyondellBasell Industries NV, Class A		1,361		44,219
Monsanto Co.		2,312		162,002
The Mosaic Co.		1,189		59,961
PPG Industries, Inc.		684		57,107
Praxair, Inc.		1,309		139,932
Rockwood Holdings, Inc. (b)		294		11,575
RPM International, Inc.		581		14,264
The Sherwin-Williams Co.		392		34,994
Sigma-Aldrich Corp.		534		33,354
Solutia, Inc. (b)		548		9,469
The Scotts Miracle-Gro Co., Class A (a)		178		8,311
Valspar Corp.		414		16,134
Westlake Chemical Corp.		80		3,219
WR Grace & Co. (b)		319		14,648
				1,331,578
Construction Materials — 0.1%
Martin Marietta Materials, Inc.		197		14,856
Vulcan Materials Co.		544		21,406
				36,262
Containers & Packaging — 0.3%
Aptargroup, Inc.		288		15,025
Ball Corp.		737		26,318
Bemis Co., Inc.		453		13,626
Crown Holdings, Inc. (b)		687		23,070
Greif Inc, Class A		176		8,017

See Notes to Financial Statements.

26 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

Schedule of Investments (continued) Russell 1000 Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Materials (concluded)
Containers & Packaging (concluded)
Owens-Illinois, Inc. (b)		709	$	13,740
Packaging Corp. of America		431		10,878
Rock-Tenn Co, Class A		296		17,079
Sealed Air Corp.		846		14,560
Silgan Holdings, Inc.		225		8,694
Sonoco Products Co.		431		14,206
Temple-Inland, Inc.		474		15,031
				180,244
Metals & Mining — 1.0%
AK Steel Holding Corp. (a)		441		3,643
Alcoa, Inc.		4,633		40,075
Allegheny Technologies, Inc.		447		21,367
Allied Nevada Gold Corp. (a)(b)		381		11,537
Carpenter Technology Corp.		196		10,090
Cliffs Natural Resources, Inc.		637		39,717
Commercial Metals Co.		460		6,362
Compass Minerals International, Inc.		137		9,432
Freeport-McMoRan Copper & Gold, Inc.		4,087		150,361
Molycorp, Inc. (a)(b)		243		5,827
Newmont Mining Corp. (a)		2,098		125,901
Nucor Corp.		1,367		54,092
Reliance Steel & Aluminum Co.		323		15,727
Royal Gold, Inc.		231		15,576
Schnitzer Steel Industries, Inc.		89		3,763
Southern Copper Corp.		750		22,635
Steel Dynamics, Inc.		950		12,493
Titanium Metals Corp.		341		5,108
United States Steel Corp. (a)		608		16,088
Walter Energy, Inc.		261		15,806
				585,600
Paper & Forest Products — 0.2%
Domtar Corp.		159		12,714
International Paper Co. (a)		1,890		55,944
MeadWestvaco Corp.		748		22,402
				91,060
Total Materials				2,224,744
Telecommunication Services — 3.0%
Diversified Telecommunication Services — 2.5%
AT&T, Inc.		25,559		772,904
CenturyLink, Inc.		2,639		98,171
Frontier Communications Corp. (a)		4,390		22,608
Level 3 Communications, Inc. (b)		638		10,840
tw telecom, Inc. (b)		654		12,675
Verizon Communications, Inc. (a)		12,209		489,825
Windstream Corp. (a)		2,483		29,150
				1,436,173
Wireless Telecommunication Services — 0.5%
American Tower Corp., Class A		1,711		102,677
Clearwire Corp, Class A (b)		724		1,405
Crown Castle International Corp. (b)		1,256		56,269
MetroPCS Communications, Inc. (b)		1,197		10,390
NII Holdings, Inc. (b)		717		15,272
SBA Communications Corp, Class A (b)		480		20,621
Sprint Nextel Corp. (b)		13,085		30,619
Telephone & Data Systems, Inc.		377		9,760

Common Stocks	Shares		Value
Telecommunication Services (concluded)
Wireless Telecommunication Services (concluded)
United States Cellular Corp. (b)		58	$	2,530
				249,543
Total Telecommunication Services				1,685,716
Utilities — 3.9%
Electric Utilities — 1.9%
American Electric Power Co., Inc.		2,078		85,842
Duke Energy Corp. (a)		5,744		126,368
Edison International (a)		1,407		58,250
Entergy Corp.		770		56,249
Exelon Corp.		2,858		123,952
FirstEnergy Corp.		1,804		79,917
Great Plains Energy, Inc.		571		12,436
Hawaiian Electric Industries, Inc.		402		10,645
ITC Holdings Corp.		218		16,542
N.V. Energy, Inc.		1,009		16,497
NextEra Energy, Inc.		1,820		110,802
Northeast Utilities		773		27,882
Pepco Holdings, Inc.		953		19,346
Pinnacle West Capital Corp.		480		23,126
PPL Corp.		2,489		73,226
Progress Energy, Inc.		1,270		71,145
Southern Co.		3,664		169,607
Westar Energy, Inc.		476		13,699
				1,095,531
Gas Utilities — 0.3%
AGL Resources, Inc. (a)		509		21,510
Atmos Energy Corp.		391		13,040
Energen Corp.		308		15,400
National Fuel Gas Co.		349		19,398
ONEOK, Inc.		467		40,484
Questar Corp.		762		15,133
UGI Corp.		480		14,112
				139,077
Independent Power Producers & Energy Traders — 0.2%
The AES Corp. (b)		2,874		34,028
Calpine Corp. (b)		1,679		27,418
Constellation Energy Group, Inc.		814		32,292
GenOn Energy, Inc. (b)		3,479		9,080
NRG Energy, Inc. (b)		1,014		18,374
				121,192
Multi-Utilities — 1.4%
Alliant Energy Corp.		468		20,643
Ameren Corp.		1,054		34,919
Centerpoint Energy, Inc.		1,856		37,287
CMS Energy Corp. (a)		1,108		24,465
Consolidated Edison, Inc.		1,262		78,282
Dominion Resources, Inc.		2,484		131,851
DTE Energy Co.		738		40,184
Integrys Energy Group, Inc.		333		18,042
MDU Resources Group, Inc.		801		17,189
NiSource, Inc. (a)		1,222		29,096
NSTAR		436		20,475
OGE Energy Corp.		430		24,385
PG&E Corp.		1,716		70,734
Public Service Enterprise Group, Inc.		2,182		72,028

See Notes to Financial Statements.

BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011 27

Schedule of Investments (continued) Russell 1000 Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Utilities (concluded)
Multi-Utilities (concluded)
SCANA Corp. (a)		508	$	22,890
Sempra Energy (a)		1,035		56,925
TECO Energy, Inc. (a)		913		17,475
Vectren Corp.		345		10,429
Wisconsin Energy Corp. (a)		1,021		35,694
Xcel Energy, Inc.		2,091		57,795
				820,788
Water Utilities — 0.1%
American Water Works Co., Inc.		771		24,564
Aqua America, Inc. (a)		596		13,142
				37,706
Total Utilities				2,214,294
Investment Companies — 0.0%
iShares Russell 1000 Index Fund (c)		1		69
Preferred Stocks
Consumer Discretionary — 0.0%
Orchard Supply Hardware Stores Corp., Series A, 0.00% (a)		6		23
Total Long-Term Investments (Cost — $58,104,050) — 97.9%				55,706,653
Short-Term Securities
Money Market Funds — 12.4%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (c)(d)(e)		5,774,817		5,774,817
BlackRock Cash Funds: Prime, SL Agency Shares, 0.18% (c)(d)(e)		1,293,201		1,293,201
				7,068,018
	Par (000)
U.S. Treasury Obligations — 0.4%
U.S. Treasury Bill, 0.00%, 3/22/12 (f)(g)	$	213		212,998
Total Short-Term Securities (Cost — $7,281,016) — 12.8%				7,281,016
Total Investments (Cost — $65,385,066*) — 110.7%				62,987,669
Liabilities in Excess of Other Assets — (10.7)%				(6,106,489	)
Net Assets — 100.0%			$	56,881,180

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Tax cost	$	65,796,018
Gross unrealized appreciation	$	2,132,603
Gross unrealized depreciation		(4,940,952	)
Net unrealized depreciation	$	(2,808,349	)

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

(b) Non-income producing security.

(c) Investments in companies considered to be an affiliate of the Master Portfolio during the period, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares Purchased			Shares Sold			Shares Held at December 31, 2011		Value at December 31, 2011		Realized Loss			Income
BlackRock Cash Funds: Institutional, SL Agency Shares		5,774,817	1		—			5,774,817	$	5,774,817		—		$	4,790
BlackRock Cash Funds: Prime, SL Agency Shares		1,293,201	1		—			1,293,201	$	1,293,201		—		$	1,061
BlackRock Inc.		411			(47	)		364	$	64,879	$	(1,823	)	$	1,187
iShares Russell 1000 Index Fund		6,319			(6,318	)		1	$	69	$	(36,165	)	$	2,843
PNC Financial Services Group, Inc.		2,373			(101	)		2,272	$	131,026	$	(733	)	$	1,140

¹  Represents net shares activity.

(d) All or a portion of this security was purchased with the cash collateral from loaned securities.

(e) Represents the current yield as of report date.

(f) All or a portion of security has been pledged as collateral in connection with open financial futures contracts.

(g) Rate shown is the yield to maturity as of the date of purchase.

Ÿ For Master Portfolio compliance purposes, the Master Portfolio’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Master Portfolio management. This definition may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

Ÿ Financial futures contracts purchased as of December 31, 2011 were as follows:

Contracts	Issue	Exchange	Expiration	Notional Value		Unrealized Appreciation
2	S&P 400 Midcap Index	Chicago Mercantile	March 2012	$	175,460	$	3,435
15	S&P 500 Index	Chicago Mercantile	March 2012	$	939,450		18,601
						$	22,036

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

Ÿ Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

Ÿ 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)

Ÿ Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

See Notes to Financial Statements.

28 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

Schedule of Investments (concluded) Russell 1000 Index Master Portfolio

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities.

For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following tables summarize the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments and derivative financial instruments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities:
Long-Term Investments1:
Common Stocks	$	55,706,538	$	23		—	$	55,706,561
Investment Companies		69		—		—		69
Preferred Stocks		—		23		—		23
Short-Term Securities:
Money Market Funds		7,068,018		—		—		7,068,018
U.S. Treasury Obligations		—		212,998		—		212,998
Total	$	62,774,625	$	213,044		—	$	62,987,669
1   See above Schedule of Investments for values in each industry.
	Derivative Financial Instruments2
Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Equity Contracts	$	22,036		—		—	$	22,036
Total	$	22,036		—		—	$	22,036

²  Derivative financial instruments are financial futures contracts. Financial futures contracts are valued at the unrealized appreciation/depreciation on the instrument.

See Notes to Financial Statements.

BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011 29

Statement of Assets and Liabilities Master Investment Portfolio

December 31, 2011	Russell 1000 Index Master Portfolio
Assets
Investments at value — unaffiliated (including securities loaned of $4,959,183) (cost — $58,119,342)	$	55,723,677
Investments at value — affiliated (cost — $7,265,724)		7,263,992
Dividends receivable		84,217
Receivable from advisor		5,229
Securities lending income receivable — affiliated		1,650
Interest receivable		12
Deferred offering costs		2,476
Prepaid expenses		314
Total assets		63,081,567
Liabilities
Collateral on securities loaned at value		5,116,649
Investments purchased payable		1,012,343
Margin variation payable		4,280
Trustees’ fees payable		809
Investment advisory fees payable		646
Custodian fees payable		4,178
Printing fees payable		1,001
Professional fees payable		57,978
Foreign taxes payable		3
Other accrued expenses payable		2,500
Total liabilities		6,200,387
Net Assets	$	56,881,180
Net Assets Consist of
Investors’ capital	$	59,256,541
Net unrealized appreciation/depreciation		(2,375,361	)
Net Assets	$	56,881,180

See Notes to Financial Statements.
30	BLACKROCK RUSSELL 1000 INDEX FUND	DECEMBER 31, 2011

Statement of Operations Master Investment Portfolio

Period March 31, 20111 to December 31, 2011	Russell 1000 Index Master Portfolio
Investment Income
Dividends — unaffiliated	$	607,680
Foreign taxes withheld		(1,154	)
Dividends — affiliated		5,170
Securities lending — affiliated		4,198
Income — affiliated		1,653
Total income		617,547
Expenses
Investment advisory		14,072
Professional		60,999
Printing		1,001
Independent Trustees		2,974
Custodian		21,169
Organization and offering costs		8,846
Miscellaneous		2,533
Total expenses		111,594
Less fees waived and/or reimbursed by advisor		(67,681	)
Total expenses after fees waived and/or reimbursed		43,913
Net investment income		573,634
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments — unaffiliated		(419,724	)
Investments — affiliated		(38,721	)
Financial futures contracts		(5,890	)
		(464,335	)
Net change in unrealized appreciation/depreciation on:
Investments		(2,397,397	)
Financial futures contracts		22,036
		(2,375,361	)
Total realized and unrealized loss		(2,839,696	)
Net Decrease in Net Assets Resulting from Operations	$	(2,266,062	)

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK RUSSELL 1000 INDEX FUND	DECEMBER 31, 2011	31

Statement of Changes in Net Assets Master Investment Portfolio

	Russell 1000 Index Master Portfolio
Increase (Decrease) in Net Assets:	Period March 31, 20111 to December  31, 2011
Operations
Net investment income	$	573,634
Net realized loss		(464,335	)
Net change in unrealized appreciation/depreciation		(2,375,361	)
Net decrease in net assets resulting from operations		(2,266,062	)
Capital Transactions
Proceeds from contributions		72,436,022
Value of withdrawals		(13,288,780	)
Net increase in net assets derived from capital transactions		59,147,242
Net Assets
Total increase in net assets		56,881,180
Beginning of period		—
End of period	$	56,881,180

¹  Commencement of operations.

See Notes to Financial Statements.
32	BLACKROCK RUSSELL 1000 INDEX FUND	DECEMBER 31, 2011

Financial Highlights Master Investment Portfolio

	Russell 1000 Index Master Portfolio
	Period March 31, 20111 to December 31, 2011
Total Investment Return2
Total investment return		(4.68	)%
Ratios to Average Net Assets3
Total expenses		0.40%	4
Total expenses after fees waived and/or reimbursed		0.16%
Net investment income		2.04%
Supplemental Data
Net assets, end of period (000)	$	56,881
Portfolio turnover		10%

¹  Commencement of operations.

²  Aggregate total investment return.

³  Annualized.

⁴  Organization costs were not annualized in the calculation of the expense ratio. If this expense was annualized, the total expense would have been 0.40%.

See Notes to Financial Statements.
	BLACKROCK RUSSELL 1000 INDEX FUND	DECEMBER 31, 2011	33

Notes to Financial Statements Master Investment Portfolio

1. Organization and Significant Accounting Policies:

Russell 1000 Index Master Portfolio (the “Master Portfolio”) is a series of Master Investment Portfolio (“MIP”) and is registered as a diversified open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). MIP is organized as a Delaware statutory trust. The Master Portfolio’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.

The following is a summary of significant accounting policies followed by the Master Portfolio:

Valuation: US GAAP defines fair value as the price the Master Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Master Portfolio fair values its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Trustees of MIP (the “Board”). Equity investments traded on a recognized securities exchange or the NASDAQ Global Market System (“NASDAQ”) are valued at the last reported sale price that day or the NASDAQ official closing price, if applicable. For equity investments traded on more than one exchange, the last reported sale price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last available bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s price will be used, unless it is determined that such prior day’s price no longer reflects the fair value of the security. Financial futures contracts traded on exchanges are valued at their last sale price. Investments in open-end registered investment companies are valued at net asset value each business day. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value.

In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the market value of such investment or if a price is not available, the investment will be valued in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Assets”). When determining the price for Fair Value Assets, the investment advisor seeks to determine the price that the Master Portfolio might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the investment advisor deems relevant. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof.

Segregation and Collateralization: In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (“SEC”) require that the Master Portfolio either deliver collateral or segregate assets in connection with certain investments (e.g., financial futures contracts), the Master Portfolio will, consistent with SEC rules and/or certain interpretive letters issued by the SEC, segregate collateral or designate on its books and records cash or other liquid securities having a market value at least equal to the amount that would otherwise be required to be physically segregated. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, each party to such transactions has requirements to deliver/deposit securities as collateral for certain investments.

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend dates. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Master Portfolio 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. Upon notification from issuers, some of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain.

Securities Lending: The Master Portfolio may lend securities to approved borrowers, such as banks, brokers and other financial institutions. The borrower pledges cash, securities issued or guaranteed by the US government or irrevocable letters of credit issued by a bank as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Master Portfolio and any additional required collateral is delivered to the Master Portfolio on the next business day. Securities lending income, as disclosed in the Statement of Operations, represents the income earned from the investment of the cash collateral, net of rebates paid to, or fees paid by, borrowers and less the fees paid to the securities lending agent. During the term of the loan, the Master Portfolio earns dividend or interest income on the securities loaned but does not receive interest income on the securities received as collateral. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Master Portfolio could experience delays and costs in gaining access to the collateral. The Master Portfolio also could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below

34 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

Notes to Financial Statements (continued) Master Investment Portfolio

the value of the original cash collateral received. During the period ended December 31, 2011, any securities on loan were collateralized by cash.

Income Taxes: The Master Portfolio is classified as a partnership for federal income tax purposes. As such, each investor in the Master Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Master Portfolio. Therefore, no federal income tax provision is required. It is intended that the Master Portfolio’s assets will be managed so an investor in the Master Portfolio can satisfy the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended.

The Master Portfolio files US federal and various state and local tax returns. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.

Recent Accounting Standards: In May 2011, the Financial Accounting Standards Board (the “FASB”) issued amended guidance to improve disclosure about fair value measurements which will require the following disclosures for fair value measurements categorized as Level 3: quantitative information about the unobservable inputs and assumptions used in the fair value measurement, a description of the valuation policies and procedures and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, the amounts and reasons for all transfers in and out of Level 1 and Level 2 will be required to be disclosed. The amended guidance is effective for financial statements for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Master Portfolio’s financial statements and disclosures.

In December 2011, the FASB issued guidance that will enhance current disclosure requirements on the offsetting of certain assets and liabilities. The new disclosures will be required for investments and derivative financial instruments subject to master netting agreements or similar agreements and will require an entity to disclose both gross and net information about such investments and transactions eligible for offset in the Statement of Assets and Liabilities. The guidance is effective for financial statements with fiscal years beginning on or after January 1, 2013, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Master Portfolio’s financial statement disclosures.

Organization and Offering Costs: Upon commencement of operations, organization costs associated with the establishment of the Master Portfolio were expensed by the Master Portfolio and reimbursed by BlackRock Institutional Trust Company, N.A. (“BTC”). Offering costs associated with the establishment of the Master Portfolio are amortized over a 12-month period beginning with the commencement of

operations. BTC reimbursed the Master Portfolio $8,846, which is shown as fees reimbursed by advisor in the Statement of Operations.

Other: Expenses directly related to the Master Portfolio are charged to the Master Portfolio. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods.

The Master Portfolio has an arrangement with the custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.

2. Derivative Financial Instruments:

The Master Portfolio engages in various portfolio investment strategies using derivative contracts both to increase the return of the Master Portfolio and to economically hedge, or protect, its exposure to certain risks such as equity risk. These contracts may be transacted on an exchange.

Losses may arise if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument or if the counterparty does not perform under the contract. Counterparty risk related to exchange-traded financial futures contracts is deemed to be minimal due to the protection against defaults provided by the exchange on which these contracts trade.

Financial Futures Contracts: The Master Portfolio purchases or sells financial futures contracts to gain exposure to, or economically hedge against, changes in the value of equity securities (equity risk). Financial futures contracts are agreements between the Master Portfolio and counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. Pursuant to the contract, a Master Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as margin variation and are recorded by the Master Portfolio as unrealized appreciation or depreciation. When the contract is closed, the Master Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest rates and the underlying assets.

BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011 35

Notes to Financial Statements (continued) Master Investment Portfolio

Derivative Financial Instruments Categorized by Risk Exposure:
Fair Values of Derivative Financial Instruments as of December 31, 2011
	Asset Derivatives
	Statements of Assets and Liabilities Location	Value
Equity contracts	Net unrealized appreciation/ depreciation*	$	22,036

* Includes cumulative appreciation/depreciation on financial futures contracts as reported in the Schedules of Investments. Only current day’s margin variation is reported within the Statement of Assets and Liabilities.

The Effect of Derivative Financial Instruments in the Statement of Operations Period Ended December 31, 2011
	Net Realized Loss from
	Financial Futures Contracts
Equity contracts	$(5,890)
	Net Change in Unrealized Appreciation/Depreciation  on
	Financial Futures Contracts
Equity contracts	$22,036

For the period ended December 31, 2011, the average quarterly balances of outstanding derivative financial instruments were as follows:

Financial futures contracts:
Average number of contracts - purchased	12
Average notional value of contracts - purchased	$751,192

3. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”). Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

MIP, on behalf of the Master Portfolio, entered into an Investment Advisory Agreement (the “Investment Advisory Agreement”) with BlackRock Fund Advisors (“BFA”), the Master Portfolio’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory services. Pursuant to the Investment Advisory Agreement with MIP, BFA is responsible for the management of the Master Portfolio’s investments and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Master Portfolio. For such services, the Master Portfolio pays BFA a monthly fee based on a percentage of the Master Portfolios average daily net assets at an annual rate of 0.05%.

BFA contractually agreed to waive and/or reimburse fees or expenses, excluding interest expense, dividend expense, acquired fund fees and

expenses and certain other fund expenses, in order to limit expenses of certain feeder funds which invest its assets in the Master Portfolio. BFA has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to July 1, 2012 unless approved by the Board, including a majority of the independent trustees. For the period ended December 31, 2011, BFA waived $58,835, which is included in fees waived and/or reimbursed by advisor in the Statement of Operations.

The Master Portfolio received an exemptive order from the SEC permitting it, among other things, to pay an affiliated securities lending agent a fee based on a share of the income derived from the securities lending activities and has retained BlackRock Institutional Trust Company, N.A. (“BTC”) an affiliate of BFA, as the securities lending agent. BIM may, on behalf of the Master Portfolio, invest cash collateral received by the Master Portfolio for such loans, among other things, in a private investment company managed by BTC or in registered money market funds advised by BTC or its affiliates. As securities lending agent, BTC is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BTC does not receive any fees for managing the cash collateral. The market value of securities on loan and the value of the related collateral, if applicable, are shown in the Statement of Assets and Liabilities as securities loaned at value and collateral on securities loaned at value, respectively. The cash collateral invested by BTC is disclosed in the Schedule of Investments. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of rebates paid to, or fees paid by, borrowers of securities. The Master Portfolio retains 65% of securities lending income and pays a fee to BTC equal to 35% of such income. The share of income earned by the Master Portfolio on such investments is shown as securities lending – affiliated in the Statement of Operations. For the period ended December 31, 2011, BTC received $2,260 in securities lending agent fees related to securities lending activities for the Master Portfolio.

Certain officers and/or trustees of MIP are officers and/or directors of BlackRock or its affiliates.

4. Investments:

Purchases and sales of investments excluding short-term securities for the period ended December 31, 2011, were $62,149,795 and $3,587,219, respectively.

5. Concentration, Market and Credit Risk:

In the normal course of business, the Master Portfolio invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the

36 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

Notes to Financial Statements (concluded) Master Investment Portfolio

Master Portfolio may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Master Portfolio; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Master Portfolio may be exposed to counterparty credit risk, or the risk that an entity with which the Master Portfolio has unsettled or open transactions may fail to or be unable to perform on its commitments. The Master Portfolio manages counterparty credit risk by entering into transactions only with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Master Portfolio to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Master Portfolio’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Master Portfolio’s Statement of Assets and Liabilities, less any collateral held by the Master Portfolio.

6. Subsequent Events:

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

BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011 37

Report of Independent Registered Public Accounting Firm Master Investment Portfolio

To the Interestholders and Board of Trustees of

Master Investment Portfolio:

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of BlackRock Russell 1000 Index Master Portfolio, a portfolio of Master Investment Portfolio (the “Master Portfolio”), at December 31, 2011, and the results of its operations, the changes in its net assets and the financial highlights for the period March 31, 2011 (commencement of operations) through December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Master Portfolio’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these

financial statements in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 24, 2012

38 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

Officers and Trustees

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1
Ronald W. Forbes 55 East 52nd Street New York, NY 10055 1940	Co-Chairman of the Board and Trustee	Since 2009	Professor Emeritus of Finance, School of Business, State University of New York at Albany since 2000.	33 RICs consisting of 107 Portfolios	None
Rodney D. Johnson 55 East 52nd Street New York, NY 10055 1941	Co-Chairman of the Board and Trustee	Since 2009	President, Fairmount Capital Advisors, Inc. since 1987; Member of the Archdiocesan Investment Committee of the Archdiocese of Philadelphia since 2004; Director, The Committee of Seventy (civic) since 2006; Director, Fox Chase Cancer Center from 2004 to 2010.	33 RICs consisting of 107 Portfolios	None
David O. Beim 55 East 52nd Street New York, NY 10055 1940	Trustee	Since 2009	Professor of Professional Practice at the Columbia University Graduate School of Business since 1991; Trustee, Phillips Exeter Academy since 2002; Chairman, Wave Hill, Inc. (public garden and cultural center) from 1990 to 2006.	33 RICs consisting of 107 Portfolios	None
Dr. Matina S. Horner 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Executive Vice President of Teachers Insurance and Annuity Association and College Retirement Equities Fund from 1989 to 2003.	33 RICs consisting of 107 Portfolios	NSTAR (electric and gas utility)
Herbert I. London 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Professor Emeritus, New York University since 2005; John M. Olin Professor of Humanities, New York University from 1993 to 2005 and Professor thereof from 1980 to 2005; President, Hudson Institute (policy research organization) since 1997 and Trustee thereof since 1980; Chairman of the Board of Trustees for Grantham University since 2006; Director, InnoCentive, Inc. (strategic solutions company) since 2005; Director, Cerego, LLC (software development and design) since 2005; Director, Cybersettle (dispute resolution technology) since 2009.	33 RICs consisting of 107 Portfolios	AIMS Worldwide, Inc. (marketing)
Cynthia A. Montgomery 55 East 52nd Street New York, NY 10055 1952	Trustee	Since 2009	Professor, Harvard Business School since 1989; Director, McLean Hospital since 2005; Director, Harvard Business School Publishing from 2005 to 2010.	33 RICs consisting of 107 Portfolios	Newell Rubbermaid, Inc. (manufacturing)
Joseph P. Platt 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2009	Trustee, The West Penn Allegheny Health System (a not-for-profit health system) since 2008; Director, Jones and Brown (Canadian insurance broker) since 1998; General Partner, Thorn Partners, LP (private investment) since 1998; Director, WQED Multi-Media (public broadcasting not-for-profit) since 2001; Partner, Amarna Corporation, LLC (private investment company) from 2002 to 2008.	33 RICs consisting of 107 Portfolios	Greenlight Capital Re, Ltd. (reinsurance company)
Robert C. Robb, Jr. 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Partner, Lewis, Eckert, Robb and Company (management and financial consulting firm) since 1981.	33 RICs consisting of 107 Portfolios	None
Toby Rosenblatt 55 East 52nd Street New York, NY 10055 1938	Trustee	Since 2009	President, Founders Investments Ltd. (private investments) since 1999; Director, College Access Foundation of California (philanthropic foundation) since 2009; Director, Forward Management, LLC since 2007; Director, A.P. Pharma, Inc. (specialty pharmaceuticals) from 1983 to 2011; Director, The James Irvine Foundation (philanthropic foundation) from 1998 to 2008.	33 RICs consisting of 107 Portfolios	None

BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011 39

Officers and Trustees (continued)

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1 (concluded)
Kenneth L. Urish 55 East 52nd Street New York, NY 10055 1951	Trustee	Since 2009	Managing Partner, Urish Popeck & Co., LLC (certified public accountants and consultants) since 1976; Chairman Elect of the Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants and Committee Member thereof since 2007; Member of External Advisory Board, The Pennsylvania State University Accounting Department since 2001; Trustee, The Holy Family Foundation from 2001 to 2010; President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Director, Inter-Tel from 2006 to 2007.	33 RICs consisting of 107 Portfolios	None
Frederick W. Winter 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Professor and Dean Emeritus of the Joseph M. Katz School of Business, University of Pittsburgh since 2005 and Dean thereof from 1997 to 2005; Director, Alkon Corporation (pneumatics) since 1992; Director, Tippman Sports (recreation) since 2005; Director, Indotronix International (IT services) from 2004 to 2008.	33 RICs consisting of 107 Portfolios	None
	1   Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved extensions in terms of Trustees who turn 72 prior to December 31, 2013. 2   Date shown is the earliest date a person has served for the Fund covered by this annual report. Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. (“BlackRock”) in September 2006, the various legacy MLIM and legacy BlackRock Fund boards were realigned and consolidated into three new Fund boards in 2007. As a result, although the chart shows certain Trustees as joining the Trust’s/MIP’s board in 2007, each Trustee first became a member of the board of other legacy MLIM or legacy BlackRock Funds as follows: David O. Beim, 1998; Ronald W. Forbes, 1977; Dr. Matina S. Horner, 2004; Rodney D. Johnson, 1995; Herbert I. London, 1987; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Robert C. Robb, Jr., 1998; Toby Rosenblatt, 2005; Kenneth L. Urish, 1999; and Frederick W. Winter, 1999.
Interested Trustees3
Paul L. Audet 55 East 52nd Street New York, NY 10055 1953	Trustee	Since 2011	Senior Managing Director, BlackRock, and Head of BlackRock’s Real Estate business from 2008 to 2011; Member of BlackRock’s Global Operating and Corporate Risk Management Committees and of the BlackRock Alternative Investors Executive Committee and Investment Committee for the Private Equity Fund of Funds business since 2008; Head of BlackRock’s Global Cash Management business from 2005 to 2010; Acting Chief Financial Officer of BlackRock from 2007 to 2008; Chief Financial Officer of BlackRock from 1998 to 2005.	159 RICs consisting of 286 Portfolios	None
Henry Gabbay 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2007	Consultant, BlackRock from 2007 to 2008; Managing Director, BlackRock from 1989 to 2007; Chief Administrative Officer, BlackRock Advisors, LLC from 1998 to 2007; President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007 and Treasurer of certain closed-end funds in the BlackRock fund complex from 1989 to 2006.	159 RICs consisting of 286 Portfolios	None
	3   Mr. Audet is an “interested person,” as defined in the 1940 Act, of the Trust/MIP based on his position with BlackRock and its affiliates. Mr. Gabbay is an “interested person” of the Trust/MIP based on his former positions with BlackRock and its affiliates as well as his ownership of BlackRock and The PNC Financial Services Group, Inc. securities. Mr. Audet and Mr. Gabbay are also Trustees of the BlackRock registered closed-end funds and Trustees of other BlackRock registered open-end funds. Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.

40 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

Officers and Trustees (concluded)

Name, Address and Year of Birth	Position(s) Held with the Trust/MIP	Length of Time Served	Principal Occupation(s) During Past Five Years
Trust/MIP Officers*
John M. Perlowski 55 East 52nd Street New York, NY 10055 1964	President and Chief Executive Officer	Since 2010	Managing Director of BlackRock since 2009; Global Head of BlackRock Fund Administration since 2009; Managing Director and Chief Operating Officer of the Global Product Group at Goldman Sachs Asset Management, L.P. from 2003 to 2009; Treasurer of Goldman Sachs Mutual Funds from 2003 to 2009 and Senior Vice President thereof from 2007 to 2009; Director of Goldman Sachs Offshore Funds from 2002 to 2009; Director of Family Resource Network (charitable foundation) since 2009.
Richard Hoerner, CFA 55 East 52nd Street New York, NY 10055 1958	Vice President	Since 2009	Managing Director of BlackRock since 2000; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2002; Member of the Cash Management Group Executive Committee since 2005.
Brendan Kyne 55 East 52nd Street New York, NY 10055 1977	Vice President	Since 2009	Managing Director of BlackRock since 2010; Director of BlackRock from 2008 to 2009; Head of Product Development and Management for BlackRock’s U.S. Retail Group since 2009 and Co-head thereof from 2007 to 2009; Vice President of BlackRock from 2005 to 2008.
Simon Mendelson 55 East 52nd Street New York, NY 10055 1964	Vice President	Since 2009	Managing Director of BlackRock since 2005; Co-head of the Global Cash and Securities Lending Group since 2010; Chief Operating Officer and Head of the Global Client Group for BlackRock’s Global Cash Management Business from 2007 to 2010; Head of BlackRock’s Strategy and Development Group from 2005 to 2007; Partner of McKinsey & Co. from 1997 to 2005.
Christopher Stavrakos, CFA 55 East 52nd Street New York, NY 10055 1959	Vice President	Since 2009	Managing Director of BlackRock since 2006; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2006; Senior Vice President, CIO, and Director of Liability Management for the Securities Lending Group at Mellon Bank from 1999 to 2006.
Neal Andrews 55 East 52nd Street New York, NY 10055 1966	Chief Financial Officer	Since 2007	Managing Director of BlackRock since 2006; Senior Vice President and Line of Business Head of Fund Accounting and Administration at PNC Global Investment Servicing (U.S.) Inc. from 1992 to 2006.
Jay Fife 55 East 52nd Street New York, NY 10055 1970	Treasurer	Since 2007	Managing Director of BlackRock since 2007; Director of BlackRock in 2006; Assistant Treasurer of the MLIM and Fund Asset Management, L.P. advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006.
Brian Kindelan 55 East 52nd Street New York, NY 10055 1959	Chief Compliance Officer and Anti-Money Laundering Officer	Since 2007	Chief Compliance Officer of the BlackRock-advised funds since 2007; Managing Director and Senior Counsel of BlackRock since 2005.
Ira P. Shapiro 55 East 52nd Street New York, NY 10055 1963	Secretary	Since 2010	Managing Director of BlackRock since 2009; Managing Director and Associate General Counsel of Barclays Global Investors from 2008 to 2009 and Principal thereof from 2004 to 2008.
	*  Officers of the Trust/MIP serve at the pleasure of the Board of Trustees.

Investment Advisor BlackRock Fund Advisors San Francisco, CA 94105	Administrator BlackRock Institutional Trust Company, N.A. San Francisco, CA 94105	Custodian State Street Bank and Trust Company Boston, MA 02101	Transfer Agent BNY Mellon Investment Servicing (US) Inc. Wilmington, DE 19809	Accounting Agent State Street Bank and Trust Company Boston, MA 02110	Distributor BlackRock Investments, LLC New York, NY 10022
			Legal Counsel Sidley Austin LLP New York, NY 10019	Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP New York, NY 10017	Address of the Funds 400 Howard Street San Francisco, CA 94105

BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011 41

Additional Information

General Information

Availability of Quarterly Schedule of Investments

The Fund/Master Portfolio files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s/Master Portfolio’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. The Fund’s/Master Portfolio’s Forms N-Q may also be obtained upon request and without charge by calling (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

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

Availability of Proxy Voting Record

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

Shareholder Privileges

Account Information

Call us at (800) 441-7762 from 8:00 AM to 6:00 PM EST on any business day to get information about your account balances, recent

transactions and share prices. You can also reach us on the Web at http://www.blackrock.com/funds.

BlackRock Privacy Principles

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

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

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

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

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

42 BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011

A World-Class 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.

Equity Funds

BlackRock ACWI ex-US Index Fund

BlackRock All-Cap Energy & Resources Portfolio

BlackRock Asset Allocation Portfolio†

BlackRock Balanced Capital Fund†

BlackRock Basic Value Fund

BlackRock Capital Appreciation Fund

BlackRock China Fund

BlackRock Commodity Strategies Fund

BlackRock Emerging Markets Long/Short Equity Fund

BlackRock Energy & Resources Portfolio

BlackRock Equity Dividend Fund

BlackRock EuroFund

BlackRock Focus Growth Fund

BlackRock Global Allocation Fund†

BlackRock Global Dividend Income Portfolio

BlackRock Global Dynamic Equity Fund

BlackRock Global Emerging Markets Fund

BlackRock Global Opportunities Portfolio

BlackRock Global SmallCap Fund

BlackRock Health Sciences Opportunities Portfolio

BlackRock Index Equity Portfolio

BlackRock India Fund

BlackRock International Fund

BlackRock International Index Fund

BlackRock International Opportunities Portfolio

BlackRock Large Cap Core Fund

BlackRock Large Cap Core Plus Fund

BlackRock Large Cap Growth Fund

BlackRock Large Cap Value Fund

BlackRock Latin America Fund

BlackRock Mid-Cap Growth Equity Portfolio

BlackRock Mid-Cap Value Equity Portfolio

BlackRock Mid Cap Value Opportunities Fund

BlackRock Natural Resources Trust

BlackRock Pacific Fund

BlackRock Russell 1000 Index Fund

BlackRock Science & Technology Opportunities Portfolio

BlackRock Small Cap Growth Equity Portfolio

BlackRock Small Cap Growth Fund II

BlackRock Small Cap Index Fund

BlackRock S&P 500 Index Fund

BlackRock S&P 500 Stock Fund

BlackRock U.S. Opportunities Portfolio

BlackRock Value Opportunities Fund

BlackRock World Gold Fund

Fixed Income Funds

BlackRock Bond Index Fund

BlackRock Core Bond Portfolio

BlackRock Emerging Market Debt Portfolio

BlackRock Floating Rate Income Portfolio

BlackRock Global Long/Short Credit Fund

BlackRock GNMA Portfolio

BlackRock High Yield Bond Portfolio

BlackRock Inflation Protected Bond Portfolio

BlackRock International Bond Portfolio

BlackRock Long Duration Bond Portfolio

BlackRock Low Duration Bond Portfolio

BlackRock Multi-Asset Income Portfolio†

BlackRock Multi-Sector Bond Portfolio

BlackRock Strategic Income Opportunities Portfolio

BlackRock Total Return Fund

BlackRock US Government Bond Portfolio

BlackRock World Income Fund

US Mortgage Portfolio

Municipal Bond Funds

BlackRock California Municipal Bond Fund

BlackRock High Yield Municipal Fund

BlackRock Intermediate Municipal Fund

BlackRock National Municipal Fund

BlackRock New Jersey Municipal Bond Fund

BlackRock New York Municipal Bond Fund

BlackRock Pennsylvania Municipal Bond Fund

BlackRock Short-Term Municipal Fund

Target Risk & Target Data Funds†

BlackRock Prepared Portfolios	BlackRock Lifecycle Prepared Portfolios		LifePath Portfolios Retirement		LifePath Index Portfolios Retirement
Conservative Prepared Portfolio	2015	2035	2020	2040	2020	2040
Moderate Prepared Portfolio	2020	2040	2025	2045	2025	2045
Growth Prepared Portfolio	2025	2045	2030	2050	2030	2050
Aggressive Growth Prepared Portfolio	2030	2050	2035	2055	2035	2055

† Mixed asset fund.

BlackRock mutual funds are currently distributed by BlackRock Investments, LLC. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling (800) 441-7762 or from your financial advisor. The prospectus should be read carefully before investing.

BLACKROCK RUSSELL 1000 INDEX FUND DECEMBER 31, 2011 43

This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Funds unless accompanied or preceded by the Funds’ 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.

#R1000-12/11

December 31, 2011

Annual Report

BlackRock ACWI ex-US Index Fund | of BlackRock Funds III

Not FDIC Insured     No Bank Guarantee    May Lose Value

Table of Contents

	Page
Dear Shareholder		3
Annual Report:
Fund Summary		4
About Fund Performance		6
Derivative Financial Instruments		6
Disclosure of Expenses		7
Fund Financial Statements:
Statement of Assets and Liabilities		8
Statement of Operations		9
Statement of Changes in Net Assets		10
Fund Financial Highlights		11
Fund Notes to Financial Statements		14
Fund Report of Independent Registered Public Accounting Firm		17
Important Tax Information		17
Master Portfolio Information		18
Master Portfolio Financial Statements:
Schedule of Investments		19
Statement of Assets and Liabilities		35
Statement of Operations		36
Statement of Changes in Net Assets		37
Master Portfolio Financial Highlights		38
Master Portfolio Notes to Financial Statements		39
Master Portfolio Report of Independent Registered Public Accounting Firm		43
Officers and Trustees		44
Additional Information		47
A World-Class Mutual Fund Family		48

2 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Dear Shareholder

Investors endured a very difficult environment in 2011. Financial markets were extremely volatile as a number of high-profile global events drove frequent about-face changes in investor sentiment. As the year progressed, news flow increasingly influenced trading decisions, to the point where company fundamentals were largely ignored. In the end, lower-risk assets won the “risk on — risk off” trading tug-of-war that characterized 2011’s market activity.

Early in the year, political turmoil swept across the Middle East/North Africa region and prices of oil and other commodities soared. Natural disasters in Japan disrupted global supply chains and concerns mounted regarding US debt and deficit issues. Nevertheless, equities, commodities and high yield bonds outpaced the less risky asset classes as investors chose to focus on the continuing stream of strong corporate earnings and positive economic data.

Markets reversed sharply in May, however, when the heightened possibility of Greece defaulting on its debt rekindled fears about sovereign debt problems spreading across Europe. Concurrently, economic indicators signaled that the recovery had slowed in the United States and other developed nations. Confidence was further shaken by the prolonged debt ceiling debate in Washington, DC. On August 5^th, Standard & Poor’s downgraded the US government’s credit rating and turmoil erupted in financial markets around the world. Extraordinary levels of volatility persisted in the months that followed as Greece teetered on the brink of default, debt problems escalated in Italy and Spain, and exposure to European sovereign bonds stressed banks globally. Late in the summer, economic data out of the United States and Europe grew increasingly bleak while China and other emerging economies began to show signs of slowing growth. By the end of the third quarter, equity markets had fallen nearly 20% from their April peak while safe-haven assets such as US Treasuries and gold had rallied to historical highs.

October brought enough positive economic data to assuage fears of a global double-dip recession. Additionally, after months of deliberation, European leaders began to show signs of progress toward stemming the region’s debt crisis. These encouraging developments brought investors back from the sidelines and risk assets rallied through the month. However, a lack of definitive details about Europe’s rescue plan soon raised doubts among investors and thwarted the rally at the end of October. The last two months of the year saw political instability in Greece, unsustainable yields on Italian bonds, and US policymakers bickering over budget issues. Global central bank actions and improving economic data energized investors, but confidence was easily tempered by sobering news flow that resurrected uncertainty about the ability of Europe’s leaders to ultimately contain the debt crisis.

Most equity markets failed to fully recover their late-summer losses, although US large cap stocks managed to finish the year with a marginal gain given their perceived safety and stronger US economic data. Conditions were worse overseas, and international markets experienced some significant downturns. Dividend-paying stocks performed relatively well as investors sought yield in the low interest rate environment. Fixed income securities benefited from declining yields and delivered positive returns for the year. US Treasury bonds outperformed other fixed income classes despite their quality rating downgrade, while municipal bonds also delivered superior results. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

Many of the themes that caused uncertainty in 2011 are likely to persist well into 2012. While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of December 31, 2011
	6-month			12-month
US large cap equities (S&P 500 Index)		(3.69	)%		2.11	%
US small cap equities (Russell 2000 Index)		(9.77	)		(4.18	)
International equities (MSCI Europe, Australasia, Far East Index)		(16.31	)		(12.14	)
Emerging market equities (MSCI Emerging Markets Index)		(19.13	)		(18.42	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.02			0.10
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		13.46			17.15
US investment grade bonds (Barclays Capital US Aggregate Bond Index)		4.98			7.84
Tax-exempt municipal bonds (S&P Municipal Bond Index)		5.78			10.62
US high yield bonds (Barclays Capital US Corporate High Yield 2% Issuer Capped Index)		(0.02	)		4.96
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

THIS PAGE NOT PART OF YOUR FUND REPORT 3

Fund Summary as of December 31, 2011 BlackRock ACWI ex-US Index Fund

Investment Objective

BlackRock ACWI ex-US Index Fund’s (the “Fund”) investment objective is to match the performance of the MSCI All Country World ex-US Index (the “MSCI ACWI ex-US Index”) in U.S. dollars with net dividends as closely as possible before the deduction of Fund expenses.

Portfolio Management Commentary

How did the Fund perform?

· For the period beginning with their initial trading date of June 30, 2011 through December 31, 2011, the Fund’s Institutional, Investor A and Class K Shares returned (18.05)%, (18.11)% and (18.04)%, respectively, while the benchmark MSCI ACWI ex-US Index returned (16.87)% for the same period. The MSCI ACWI ex-US Index is a free float-adjusted market capitalization-weighted index designed to measure the combined equity market performance of developed and emerging-market countries, excluding the United States.

· Returns for the Fund’s respective share classes differ from the benchmark index based on individual share-class expenses. The Fund invests all of its assets in the ACWI ex-US Index Master Portfolio (the “Master Portfolio”), a series of Master Investment Portfolio.

Describe the market environment.

· Early in the year, stocks moved unevenly higher despite political upheaval spreading across the Middle East/North Africa region and a sharp rise in oil and other commodity prices. March brought devastating natural disasters that left Japan with massive infrastructure damage, resulting in global supply chain disruptions. All the while, inflationary pressures persisted in developing countries. Nevertheless, the global economy continued to expand, although at a slower pace. Solid corporate profits, improving labor market conditions and reasonably upbeat leading indicators pushed most of the world’s equity markets forward.

· After reaching their peak at the end of April, equities were met with a sharp reversal when the heightened possibility of Greece defaulting on its debt rekindled fears about the potential impact of the sovereign debt crisis spreading in Europe. Concurrently, it became evident that the pace of economic growth had slowed in the developed world. In the United States, a prolonged debt ceiling debate revealed the ineffectiveness of the nation’s policymakers and ultimately led to Standard & Poor’s decision to downgrade the US government’s credit rating in early August. This announcement was the catalyst that spurred one of the most volatile periods in equity trading history. Stock markets across the world swooned as debt problems in Europe spread to Italy and Spain, and global economic indicators grew increasingly bleak.

· Equities rebounded in October as stronger economic data helped to calm fears of a global double-dip recession and European leaders demonstrated greater unity in their quest to stem the debt crisis. After months of deliberation, at last finance ministers agreed upon a new plan to reduce Greece’s debt burden, recapitalize the region’s banks and increase the size of the euro-zone bailout fund. However, a lack of definitive details about the rescue plan raised doubts among investors and thwarted the rally at the end of October. International equities generally declined through the final two months of the year as political instability in Greece and Italy fueled uncertainty as to whether Europe’s leaders would be able to contain the crisis. Market volatility softened in December with the support of global central bank actions and improving economic data.

· For the year, international equity markets underperformed US stocks due to a higher degree of uncertainty overseas. Emerging-market stocks underperformed both US and developed international markets as investors generally continue to perceive emerging-market equities as a higher-risk asset class. Given their proximity to the financially troubled euro zone, stock markets in emerging European countries were among the worst performers in 2011.

Describe recent portfolio activity.

· During the period, as changes were made to the composition of the MSCI ACWI ex-US Index, the Master Portfolio purchased and sold securities to maintain its objective of replicating the risks and return of the benchmark index.

· The Master Portfolio uses futures contracts to gain equity exposure on the Master Portfolio’s cash balance, which had a positive impact on performance during the period.

Describe portfolio positioning at period end.

· The Master Portfolio remains positioned to match the risk characteristics of its benchmark index, irrespective of the market’s future direction.

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

4 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

BlackRock ACWI ex-US Index Fund

Total Return Based on a $10,000 Investment

¹ Assuming transaction costs and other operating expenses, including administration fees, if any.

² The Fund invests all of its assets in the Master Portfolio.

³  The Index is a free float-adjusted market capitalization-weighted index designed to measure the combined equity market performance of developed and emerging-market countries, excluding the United States.

⁴  Commencement of operations.

Performance Summary for the Period Ended December 31, 2011

	Since Inception5
Institutional		(18.05	)%
Investor A		(18.11	)
Class K		(18.04	)
MSCI ACWI ex-US Index		(16.87	)

⁵  The Fund commenced operations on June 30, 2011.

See “About Fund Performance” on page 6 for a detailed description of share classes, including any related sales charges and fees.

Past performance is not indicative of future results.

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 5

About Fund Performance BlackRock ACWI ex-US Index Fund

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

· Investor A Shares are not subject to any sales charge and bear no ongoing distribution fee. Investor A Shares are subject to an ongoing service fee of 0.25% per year.

Performance information reflects past performance and does not guarantee future results. Current performance data may be lower or higher than the performance data quoted. Refer to www.blackrock.com/funds to obtain performance data current to the most recent month-end. Performance results do not reflect the deduction of taxes that a share-

holder would pay on fund distributions or the redemption of fund shares. Figures shown in each of the performance tables on the previous pages assume reinvestment of all dividends and distributions, if any, at net asset value on the payable date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. The Fund’s administrator waived a portion of the Fund’s expenses. Without such waiver, the Fund’s performance would have been lower. Dividends paid to each class of shares will vary because of the different levels of administration and distribution fees applicable to each class, which are deducted from the income available to be paid to shareholders.

Derivative Financial Instruments

The Master Portfolio may invest in various derivative financial instruments, including financial futures contracts and foreign currency exchange contracts, as specified in Note 2 of the Master Portfolio’s Notes to Financial Statements, which may constitute forms of economic leverage. Such derivative financial instruments are used to obtain exposure to a market without owning or taking physical custody of securities or to hedge market, equity and/or foreign currency exchange risks. Derivative financial instruments 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 derivative financial instrument. The Master Portfolio’s ability to use a derivative financial

instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may require the Master Portfolio to sell or purchase portfolio investments at inopportune times or for distressed values, may limit the amount of appreciation the Master Portfolio can realize on an investment, may result in lower dividends paid to shareholders or may cause the Master Portfolio to hold an investment that it might otherwise sell. The Master Portfolio’s investments in these instruments are discussed in detail in the Master Portfolio’s Notes to Financial Statements.

6 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Disclosure of Expenses BlackRock ACWI ex-US Index Fund

Shareholders of the Fund may incur the following charges: (a) expenses related to transactions, including sales charges and exchange fees; and (b) operating expenses including administration fees, service and/or distribution fees, including 12b-1 fees, and other Fund expenses. The expense example shown below (which is based on a hypothetical investment of $1,000 invested on July 1, 2011 and held through December 31, 2011) 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 table 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 table 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 this Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in other funds’ shareholder reports.

The expenses shown in the table are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges or exchange fees, 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.

Expense Example
	Actual						Hypothetical2
	Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the  Period1		Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the  Period1		Annualized Expense Ratio
Institutional		$1,000.00		$819.50		$1.70		$1,000.00		$1,023.34		$1.89		0.37%
Investor A		$1,000.00		$818.90		$2.84		$1,000.00		$1,022.08		$3.16		0.62%
Class K		$1,000.00		$819.60		$1.47		$1,000.00		$1,023.59		$1.63		0.32%

¹ 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 one-half year period shown). Because the Fund invests significantly in the Master Portfolio, the expense table example reflects the net expenses of both the Fund and the Master Portfolio in which it invests.

² Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the most recent fiscal half year divided by 365.

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 7

Statement of Assets and Liabilities BlackRock ACWI ex-US Index Fund

December 31, 2011
Assets
Investments at value — Master Portfolio (Cost — $19,674,848)	$	16,236,645
Receivable from advisor		23,535
Deferred offering costs		78,387
Prepaid expenses		743
Total assets		16,339,310
Liabilities
Administration fees payable		1,386
Printing fees payable		24,999
Professional fees payable		18,499
Other accrued expenses payable		4,589
Total liabilities		49,473
Net Assets	$	16,289,837
Net Assets Consist of
Paid-in capital	$	19,979,226
Accumulated net investment loss		(20,624	)
Accumulated net realized loss allocated from the Master Portfolio		(230,562	)
Net unrealized appreciation/depreciation allocated from the Master Portfolio		(3,438,203	)
Net Assets	$	16,289,837
Net Asset Value
Institutional
Net Assets	$	46,004
Shares outstanding1		5,657
Net asset value	$	8.13
Investor A
Net Assets	$	20,318
Shares outstanding1		2,500
Net asset value	$	8.13
Class K
Net Assets	$	16,223,515
Shares outstanding1		1,995,000
Net asset value	$	8.13

¹  Unlimited number of shares authorized, no par value.

See Notes to Financial Statements.
8	BLACKROCK ACWI ex-US INDEX FUND	DECEMBER 31, 2011

Statement of Operations BlackRock ACWI ex-US Index Fund

Period June 30, 20111 to December 31, 2011
Investment Income
Net investment income allocated from the Master Portfolio:
Dividends — unaffiliated	$	203,150
Dividends — affiliated		535
Income — affiliated		764
Expenses		(127,471	)
Fees waived		99,311
Total income		176,289
Expenses
Organization and offering costs		65,628
Printing		25,000
Professional		20,400
Administration		8,681
Registration		871
Transfer agent — Institutional		33
Transfer agent — Investor A		36
Transfer agent — Class K		1,396
Service — Investor A		27
Miscellaneous		5,216
Total expenses		127,288
Less administration fees waived		(8,681	)
Less transfer agent fees waived — Institutional		(2	)
Less transfer agent fees waived — Investor A		(2	)
Less transfer agent fees waived — Class K		(366	)
Less transfer agent fees reimbursed — Institutional		(27	)
Less transfer agent fees reimbursed — Investor A		(29	)
Less transfer agent fees reimbursed — Class K		(1,022	)
Less fees reimbursed by administrator		(117,115	)
Total expenses after fees waived and reimbursed		44
Net investment income		176,245
Realized and Unrealized Loss Allocated from the Master Portfolio
Net realized loss from investments, financial futures contracts and foreign currency transactions		(345,155	)
Net change in unrealized appreciation/depreciation on investments, financial futures contracts and foreign currency transactions		(3,438,203	)
Total realized and unrealized loss		(3,783,358	)
Net Decrease in Net Assets Resulting from Operations	$	(3,607,113	)

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK ACWI ex-US INDEX FUND	DECEMBER 31, 2011	9

Statement of Changes in Net Assets BlackRock ACWI ex-US Index Fund

Increase (Decrease) in Net Assets:	Period June 30, 20111 to December 31, 2011
Operations
Net investment income	$	176,245
Net realized loss		(345,155	)
Net change in unrealized appreciation/depreciation		(3,438,203	)
Net decrease in net assets resulting from operations		(3,607,113	)
Dividends to Shareholders From
Net investment income:
Institutional		(102	)
Investor A		(93	)
Class K		(82,081	)
Tax return of capital:
Institutional		(56	)
Investor A		(51	)
Class K		(45,667	)
Decrease in net assets resulting from dividends to shareholders		(128,050	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		20,025,000
Net Assets
Total increase in net assets		16,289,837
Beginning of period		—
End of period	$	16,289,837
Accumulated net investment loss	$	(20,624	)

¹  Commencement of operations.

See Notes to Financial Statements.
10	BLACKROCK ACWI ex-US INDEX FUND	DECEMBER 31, 2011

Financial Highlights BlackRock ACWI ex-US Index Fund

	Institutional
	Period June 30, 20111 to December  31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	10.00
Net investment income2		0.08
Net realized and unrealized loss		(1.89	)
Net decrease from investment operations		(1.81	)
Dividends and distributions from:
Net investment income		(0.04	)
Tax return of capital		(0.02	)
Total dividends and distributions		(0.06	)
Net asset value, end of period	$	8.13
Total Investment Return3,4
Based on net asset value		(18.05	)%
Ratios to Average Net Assets5,6,7
Total expenses		2.04%	8
Total expenses after fees waived		0.37%
Net investment income		1.78%
Supplemental Data
Net assets, end of period (000)	$	46
Portfolio turnover of the Master Portfolio		4%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Aggregate total investment return.

⁴  Where applicable, total investment returns include the reinvestment of dividends and distributions.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 1.14%.

⁸  Organization costs were not annualized in the calculation of the expense ratio. If this expense was annualized, the total expense would have been 2.08%.

See Notes to Financial Statements.
	BLACKROCK ACWI ex-US INDEX FUND	DECEMBER 31, 2011	11

Financial Highlights (continued) BlackRock ACWI ex-US Index Fund

	Investor A
	Period June 30, 20111 to December  31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	10.00
Net investment income2		0.08
Net realized and unrealized loss		(1.89	)
Net decrease from investment operations		(1.81	)
Dividends and distributions from:
Net investment income		(0.04	)
Tax return of capital		(0.02	)
Total dividends and distributions		(0.06	)
Net asset value, end of period	$	8.13
Total Investment Return3,4
Based on net asset value		(18.11	)%
Ratios to Average Net Assets5,6,7
Total expenses		2.30%	8
Total expenses after fees waived		0.62%
Net investment income		1.74%
Supplemental Data
Net assets, end of period (000)	$	20
Portfolio turnover of the Master Portfolio		4%

¹  Commencement of operations.

²  Based on average shares outstanding throughout the period.

³  Aggregate total investment return.

⁴  Where applicable, total investment returns include the reinvestment of dividends and distributions.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 1.14%.

⁸  Organization costs were not annualized in the calculation of the expense ratio. If this expense was annualized, the total expense would have been 2.36%.

See Notes to Financial Statements.
12	BLACKROCK ACWI ex-US INDEX FUND	DECEMBER 31, 2011

Financial Highlights (concluded) BlackRock ACWI ex-US Index Fund

	Class K
	Period June 30, 20111 to December  31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	10.00
Net investment income2		0.09
Net realized and unrealized loss		(1.90	)
Net decrease from investment operations		(1.81	)
Dividends and distributions from:
Net investment income		(0.04	)
Tax return of capital		(0.02	)
Total dividends and distributions		(0.06	)
Net asset value, end of period	$	8.13
Total Investment Return3,4
Based on net asset value		(18.04	)%
Ratios to Average Net Assets5,6,7
Total expenses		1.73%	8
Total expenses after fees waived		0.32%
Net investment income		2.03%
Supplemental Data
Net assets, end of period (000)	$	16,224
Portfolio turnover of the Master Portfolio		4%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Aggregate total investment return.

⁴  Where applicable, total investment returns include the reinvestment of dividends and distributions.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 1.14%.

⁸  Organization costs were not annualized in the calculation of the expense ratio. If this expense was annualized, the total expense would have been 1.79%.

See Notes to Financial Statements.
	BLACKROCK ACWI ex-US INDEX FUND	DECEMBER 31, 2011	13

Notes to Financial Statements BlackRock ACWI ex-US Index Fund

1. Organization and Significant Accounting Policies:

BlackRock ACWI ex-US Index Fund (the “Fund”), a series of BlackRock Funds III (the “Trust”), is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, open-end management investment company. The Trust is organized as a Delaware statutory trust. The Fund seeks to achieve its investment objective by investing substantially all of its assets in ACWI ex-US Index Master Portfolio (the “Master Portfolio”), a series of Master Investment Portfolio (“MIP”), which has the same investment objective and strategies as the Fund. The value of the Fund’s investment in the Master Portfolio reflects the Fund’s proportionate interest in the net assets of the Master Portfolio. The percentage of the Master Portfolio owned by the Fund at December 31, 2011 was 37.28%. The performance of the Fund is directly affected by the performance of the Master Portfolio. The financial statements of the Master Portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the Fund’s financial statements. The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The Fund offers multiple classes of shares. Institutional, Investor A and Class K Shares are sold without a sales charge. Institutional and Class K Shares are available only to certain eligible investors. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Investor A Shares bear certain expenses related to the shareholder servicing of such shares. Each class has exclusive voting rights with respect to matters relating to its shareholder servicing and distribution expenditures. The Fund commenced operations on June 30, 2011.

The following is a summary of significant accounting policies followed by the Fund:

Valuation: US 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’s policy is to fair value its financial instruments at market value. The Fund records its investment in the Master Portfolio at fair value based on the Fund’s proportionate interest in the net assets of the Master Portfolio. Valuation of securities held by the Master Portfolio is discussed in Note 1 of the Master Portfolio’s Notes to Financial Statements, which are included elsewhere in this report.

Investment Transactions and Investment Income: For financial reporting purposes, contributions to and withdrawals from the Master Portfolio are accounted on a trade date basis. The Fund records daily its proportionate share of the Master Portfolio’s income, expenses and realized and unrealized gains and losses. In addition, the Fund accrues

its own expenses. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Dividends and Distributions: Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. If the total dividends and distributions made in any tax year exceeds net investment income and accumulated realized capital gains, a portion of the total distribution may be treated as a tax return of capital. The amount and timing of dividends and distributions are determined in accordance with federal income tax regulations, which may differ from US GAAP.

Income Taxes: 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 federal income tax provision is required.

The Fund files US federal and various state and local tax returns. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.

Organization and Offering Costs: Upon commencement of operations, organization costs associated with the establishment of the Fund were expensed by the Fund and reimbursed by BlackRock Institutional Trust Company, N.A. (the “Administrator” or “BTC”). Offering costs associated with the establishment of the Fund are amortized over a 12-month period beginning with the commencement of operations. The Administrator reimbursed the Fund $65,628 which is included in fees reimbursed by administrator in the Statement of Operations.

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

2. Administration Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”). Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

The Trust, on behalf of the Fund, entered into an Administration Agreement with the Administrator, an indirect, wholly owned subsidiary of BlackRock, to provide administrative services (other than investment advice and related portfolio activities). For such services, the Fund pays the Administrator a monthly fee at an annual rate of 0.10% of the average daily value of the Fund’s net assets. The Fund does not pay an investment advisory fee or investment management fee.

14 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Notes to Financial Statements (continued) BlackRock ACWI ex-US Index Fund

BlackRock Fund Advisors (“BFA”), the investment advisor for the Master Portfolio, and BTC contractually agreed to waive and/or reimburse fees or expenses, excluding interest expense, dividend expense, acquired fund fees and expenses and certain other fund expenses, in order to limit expenses. BFA and BTC have agreed not to reduce or discontinue this contractual waiver or reimbursement prior to July 1, 2012 unless approved by the Board, including a majority of the independent trustees. These amounts are shown as fees waived by administrator and transfer agent fees reimbursed, respectively, in the Statement of Operations. The expense limitation as a percentage of average daily net assets are as follows: 0.40% for Institutional, 0.65% for Investor A and 0.35% for Class K.

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 or reimbursement from BFA or BTC, as applicable, are less than the expense limit for that share class, the share class is required to repay BFA or BTC up to the lesser of (a) the amount of fees waived or expenses reimbursed during those prior two fiscal years under the agreement and (b) the amount by which the expense limit for that share class exceeds the operating expenses of the share class for the current fiscal year, provided that: (1) the Fund has more than $50 million in assets and (2) BFA, BTC or an affiliate serves as the Fund’s investment advisor or administrator. In the event the expense limit for a share class is changed subsequent to a fiscal year in which BFA or BTC becomes entitled to reimbursement for fees waived or reimbursed, the amount available to reimburse BFA or BTC shall be calculated by reference to the expense limit for that share class in effect at the time BFA or BTC became entitled to receive such reimbursement, rather than the subsequently changed expense limit for that share class.

The Trust, on behalf of the Fund, entered into a Distribution Agreement and Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of BlackRock. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing service fees. The fees are accrued daily and paid monthly at an annual rate of 0.25% based upon the average daily net assets of the Investor A Shares.

Pursuant to sub-agreements with BRIL, broker-dealers and 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 Investor A shareholders.

The Administrator maintains a call center, which is responsible for providing certain shareholder services to the Fund, such as responding to shareholder inquiries and processing transactions based upon instructions from shareholders with respect to the subscription and redemption of Fund shares. For the period ended December 31, 2011, the Fund reimbursed the Administrator the following amounts for costs

incurred in running the call center, which are included in transfer agent — class specific in the Statement of Operations: $27 for Institutional, $29 for Investor A and $1,022 for the Class K Shares.

Certain officers and/or trustees of the Trust are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Administrator for compensation paid to the Trust’s Chief Compliance Officer.

3. Income Tax Information:

US GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of December 31, 2011 attributable to foreign currency transactions were reclassified to the following accounts:

Accumulated net investment loss	$	(114,593	)
Accumulated net realized loss	$	114,593

The tax character of distributions paid during the fiscal year ended December 31, 2011 was as follows:

	12/31/2011
Ordinary income	$	82,276
Tax return of capital	$	45,774
Total	$	128,050

As of December 31, 2011, the tax components of accumulated net losses were as follows:

Capital loss carryforwards	$	(237,641	)
Net unrealized losses*		(3,295,686	)
Qualified late-year losses**		(156,062	)
Total	$	(3,689,389	)

* The difference between book-basis and tax-basis net unrealized losses was attributable to timing and character of income from a partnership.

** The Fund has elected to defer certain qualified late-year losses and recognize such losses in the year ending December 31, 2012.

As of December 31, 2011, the Fund had a capital loss carryforward available to offset future realized capital gains. The capital loss carryforward has no expiration date.

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 15

Notes to Financial Statements (concluded) BlackRock ACWI ex-US Index Fund

4. Capital Share Transactions:

Transactions in capital shares for the Fund were as follows:

	Period June 30, 20111 to December 31, 2011
	Shares		Amount
Institutional
Shares sold		5,657	$	50,000
Net increase		5,657	$	50,000
Investor A
Shares sold		2,500	$	25,000
Net increase		2,500	$	25,000
Class K
Shares sold		1,995,000	$	19,950,000
Net increase		1,995,000	$	19,950,000

¹ Commencement of operations.

5. Subsequent Events:

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

16 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Report of Independent Registered Public Accounting Firm BlackRock ACWI ex-US Index Fund

To the Shareholders and Board of Trustees of BlackRock Funds III:

In our opinion, the accompanying statement of assets and liabilities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of BlackRock ACWI ex-US Index Fund, a series of BlackRock Funds III (the “Trust”), at December 31, 2011, and the results of its operations, the changes in its net assets and the financial highlights for the period June 30, 2011 (commencement of operations) through December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial state-

ments in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 24, 2012

Important Tax Information

The following information is provided with respect to the ordinary income distributions paid by the Fund during the taxable year ended December 31, 2011:

	Payable Dates
Qualified Dividend Income for Individuals		10/3/2011	100%
Foreign Taxes Paid Per Share		10/3/2011	$0.011292

The foreign taxes paid represent taxes incurred by the Fund on income received by the Fund from foreign sources. Foreign taxes paid may be included in taxable income with an offsetting deduction from gross income or may be taken as a credit for taxes paid to foreign governments. You should consult your tax advisor regarding the appropriate treatment of foreign taxes paid.

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 17

Master Portfolio Information as of December 31, 2011 BlackRock ACWI ex-US Index Portfolio

Ten Largest Holdings Percent of
Long-Term Investments

iShares S&P India Nifty 50 Index Fund	1	%
Nestle SA	1
Vodafone Group Plc	1
BP Plc	1
HSBC Holdings Plc	1
Novartis AG	1
Royal Dutch Shell Plc, Class A	1
Roche Holding AG	1
GlaxoSmithKline Plc	1
BHP Billiton Ltd.	1

Geographic Allocation Percent of
Long-Term Investments

Japan	16	%
United Kingdom	16
Canada	8
France	6
Switzerland	6
Australia	6
Germany	5
China	4
Brazil	3
South Korea	3
Taiwan	2
Spain	2
Sweden	2
Hong Kong	2
South Africa	2
Netherlands	2
Italy	2
Other1	13

¹ Other includes a 1% or less holding in each of the following countries: Russia, India, Singapore, Mexico, Malaysia, Denmark, Indonesia, Belgium, Norway, Finland, Thailand, Israel, Chile, Poland, Turkey, Colombia, Ireland, Philippines, Peru, Austria, Portugal, New Zealand, Czech Republic, Hungary, Egypt, Greece and Morocco.

18 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Schedule of Investments December 31, 2011 ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Australia — 5.7%
AGL Energy Ltd.		1,399	$	20,470
Alumina Ltd.		6,196		7,094
Amcor Ltd.		3,417		25,155
AMP Ltd.		9,593		39,865
Asciano Ltd.		2,424		11,139
ASX Ltd.		776		24,223
Australia & New Zealand Banking Group Ltd.		7,908		165,632
Bendigo & Adelaide Bank Ltd.		1,133		9,273
BHP Billiton Ltd.		9,784		345,362
Boral Ltd.		3,128		11,486
Brambles Ltd.		4,432		32,359
Caltex Australia Ltd.		475		5,704
Campbell Brothers Ltd.		206		10,315
CFS Retail Property Trust		5,470		9,419
Coca-Cola Amatil Ltd.		1,737		20,409
Cochlear Ltd.		171		10,860
Commonwealth Bank of Australia		4,654		233,777
Computershare Ltd.		1,207		9,866
Crown Ltd.		1,176		9,701
CSL Ltd.		1,731		56,436
Dexus Property Group		11,570		9,805
Echo Entertainment Group Ltd. (a)		3,642		13,355
Fairfax Media Ltd.		4,978		3,667
Fortescue Metals Group Ltd.		4,867		21,291
Goodman Group		16,401		9,536
GPT Group		4,027		12,622
Harvey Norman Holdings Ltd.		2,362		4,409
Iluka Resources Ltd.		1,210		19,165
Incitec Pivot Ltd.		6,262		19,879
Insurance Australia Group Ltd.		6,420		19,558
James Hardie Industries SE		866		6,037
Leighton Holdings Ltd.		608		11,819
Lend Lease Group		1,285		9,410
Lynas Corp. Ltd. (a)		4,554		4,866
Macquarie Group Ltd.		1,163		28,241
Metcash Ltd.		2,942		12,130
Mirvac Group		8,597		10,358
National Australia Bank Ltd.		6,627		157,865
Newcrest Mining Ltd.		2,411		73,476
OneSteel Ltd.		2,709		1,937
Orica Ltd.		1,086		26,872
Origin Energy Ltd.		3,117		42,505
OZ Minerals Ltd.		911		9,319
Qantas Airways Ltd. (a)		2,620		3,900
QBE Insurance Group Ltd.		3,551		46,995
QR National Ltd.		5,059		17,672
Ramsay Health Care Ltd.		270		5,314
Rio Tinto Ltd.		1,260		77,678
Santos Ltd.		2,782		34,816
Sims Metal Management Ltd.		291		3,769
Sonic Healthcare Ltd.		896		10,328
SP AusNet		5,585		5,360
Stockland		9,271		30,286
Suncorp Group Ltd.		3,533		30,197
Sydney Airport		2,008		5,458
Tabcorp Holdings Ltd.		1,500		4,178
Tatts Group Ltd.		6,193		15,437
Telstra Corp. Ltd.		12,357		42,026
Toll Holdings Ltd.		2,736		11,781
Transurban Group		3,989		22,911

Common Stocks	Shares		Value
Australia (concluded)
Wesfarmers Ltd.		3,009	$	90,642
Westfield Group		6,690		53,375
Westfield Retail Trust		8,857		22,572
Westpac Banking Corp.		9,106		185,892
Woodside Petroleum Ltd.		1,930		60,415
Woolworths Ltd.		3,733		95,820
WorleyParsons Ltd.		605		15,843
				2,479,332
Austria — 0.1%
Erste Group Bank AG		474		8,321
IMMOFINANZ AG (a)		2,993		8,971
OMV AG		428		12,965
Raiffeisen International Bank Holding AG		104		2,692
Telekom Austria AG		1,002		11,987
Verbund AG		117		3,137
Vienna Insurance Group AG		97		3,831
Voestalpine AG		341		9,554
				61,458
Belgium — 0.6%
Ageas		5,234		8,086
Anheuser-Busch InBev NV		2,409		147,029
Bekaert SA		66		2,108
Belgacom SA		489		15,301
Colruyt SA		222		8,387
Delhaize Group SA		314		17,601
Groupe Bruxelles Lambert SA		265		17,629
KBC Groep NV		376		4,701
Mobistar SA		67		3,498
Solvay SA		173		14,202
UCB SA		407		17,075
Umicore SA		378		15,525
				271,142
Brazil — 3.4%
AES Tiete SA, Preference Shares		400		5,764
ALL - America Latina Logistica SA		2,300		11,468
Amil Participacoes SA		600		5,285
Anhanguera Educacional Participacoes SA		200		2,155
Banco Bradesco SA, Preference Shares		5,900		97,266
Banco do Brasil SA		2,100		26,683
Banco do Estado do Rio Grande do Sul, Preference Shares		400		4,289
Banco Santander (Brasil) SA		2,200		17,645
BM&F Bovespa SA		6,500		34,151
BR Malls Participacoes SA		1,000		9,715
Bradespar SA, Preference Shares		600		10,194
Brasil Telecom SA, Preference Shares		500		2,917
Braskem SA, Preference ‘A’ Shares		400		2,745
BRF - Brasil Foods SA		2,000		39,051
CCR SA		3,200		20,964
Centrais Eletricas Brasileiras SA		1,000		9,564
Centrais Eletricas Brasileiras SA, Preference ‘B’ Shares		700		10,076
CETIP Balcao Organizado de Ativos e Derivativos SA		800		11,559
Cielo SA		800		20,673
Companhia Brasileira de Distribuicao Grupo Pao de Acucar, Preference Shares		300		10,776
Companhia de Bebidas das Americas, Preference Shares		2,200		79,378
Companhia de Saneamento Basico do Estado de Sao Paulo (a)		400		11,158

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 19

Schedule of Investments (continued) ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Brazil (concluded)
Companhia Energetica de Minas Gerais, Preference Shares		1,300	$	23,188
Companhia Energetica de Sao Paulo, Preference ‘B’ Shares		300		5,316
Companhia Hering SA		200		3,481
Companhia Paranaense de Energia, Preference ‘B’ Shares		200		4,171
Companhia Siderurgica Nacional SA		2,000		16,062
Cosan SA Industria e Comercio		300		4,343
CPFL Energia SA		700		9,765
Cyrela Brazil Realty SA		500		3,978
Diagnosticos da America SA		400		3,324
Duratex SA		600		2,869
EcoRodovias Infraestrutura e Logistica SA		700		5,235
EDP - Energias do Brasil SA		300		6,675
Eletropaulo Metropolitana Eletricidade de Sao Paulo SA, Preference Shares		200		3,914
Embraer SA		1,500		9,457
Fibria Celulose SA		400		2,974
Gerdau SA, Preference Shares		2,200		17,102
HRT Participacoes em Petroleo SA (a)		100		30,452
Hypermarcas SA		500		2,279
Itau Unibanco Holding SA, Preference Shares		6,900		125,737
Itausa - Investimentos Itau SA, Preference Shares		8,400		50,799
JBS SA (a)		2,400		7,823
Klabin SA, Preference Shares		1,400		6,005
Localiza Rent a Car SA		300		4,117
Lojas Americanas SA, Preference Shares		500		3,833
Lojas Renner SA		300		7,786
Metalurgica Gerdau SA, Preference Shares		1,500		14,403
MRV Engenharia e Participacoes SA		600		3,442
Multiplan Empreendimentos Imobiliarios SA		300		6,155
Natura Cosmeticos SA		500		9,720
Odontoprev SA		300		4,278
OGX Petroleo e Gas Participacoes SA (a)		4,000		29,208
PDG Realty SA Empreendimentos e Participacoes		2,900		9,173
Petroleo Brasileiro SA		8,800		108,511
Petroleo Brasileiro SA, Preference Shares		13,000		149,776
Porto Seguro SA		300		3,426
Raia Drogasil SA		1,000		6,953
Redecard SA		1,200		18,779
Souza Cruz SA		900		11,054
TAM SA, Preference Shares		300		5,742
Tele Norte Leste Participacoes SA, Preference Shares		1,400		13,180
Telefonica Brasil SA, Preference Shares		900		25,042
Tim Participacoes SA		1,940		9,610
Totvs SA		300		5,349
Tractebel Energia SA		300		4,819
Ultrapar Participacoes SA		1,100		18,877
Usinas Siderurgicas de Minas Gerais SA		300		2,758
Usinas Siderurgicas de Minas Gerais SA, Preference ‘A’ Shares		1,500		8,162
Vale SA		4,000		84,600
Vale SA, Preference ‘A’ Shares		6,000		121,657
				1,478,835
Canada — 8.1%
Agnico-Eagle Mines Ltd.		518		18,839
Agrium, Inc.		453		30,406
Alimentation Couche Tard, Inc.		354		11,015

Common Stocks	Shares		Value
Canada (continued)
ARC Resources Ltd.		828	$	20,400
Athabasca Oil Sands Corp. (a)		800		9,808
Bank of Montreal		1,877		102,956
Bank of Nova Scotia		3,205		159,912
Barrick Gold Corp.		3,067		138,937
Baytex Energy Corp.		345		19,293
BCE, Inc.		791		32,975
Bell Aliant, Inc.		174		4,883
Bombardier, Inc.		6,064		24,167
Bonavista Energy Corp.		399		10,210
Brookfield Asset Management Inc., Class A		1,708		47,011
Brookfield Office Properties, Inc.		605		9,484
CAE, Inc.		377		3,660
Cameco Corp.		1,202		21,722
Canadian Imperial Bank of Commerce		1,214		87,932
Canadian National Railway Co.		1,404		110,459
Canadian Natural Resources Ltd.		3,345		125,263
Canadian Oil Sands Ltd.		1,339		30,559
Canadian Pacific Railway Ltd.		743		50,331
Canadian Tire Corp. Ltd., Class A		206		13,326
Canadian Utilities Ltd.		288		17,397
Cenovus Energy, Inc.		2,350		78,037
Centerra Gold, Inc.		561		9,912
CGI Group Inc., Class A (a)		541		10,196
CI Financial Corp.		469		9,714
Crescent Point Energy Corp.		782		34,466
Eldorado Gold Corp.		1,591		21,895
Empire Co. Ltd.		98		5,686
Enbridge, Inc.		2,279		85,209
Encana Corp.		2,150		39,866
Enerplus Corp.		400		10,150
Fairfax Financial Holdings Ltd.		57		24,451
Finning International, Inc.		440		9,593
First Quantum Minerals Ltd.		1,412		27,790
Fortis, Inc.		823		26,958
Franco-Nevada Corp.		401		15,265
George Weston Ltd.		146		9,758
Gildan Activewear, Inc.		336		6,319
Goldcorp, Inc.		2,511		111,433
Great-West Lifeco, Inc.		876		17,541
H&R Real Estate Investment Trust		345		7,877
Husky Energy, Inc.		899		21,664
IAMGOLD Corp.		1,107		17,582
IGM Financial, Inc.		381		16,541
Imperial Oil Ltd.		872		38,852
Industrial Alliance Insurance & Financial Services, Inc.		316		8,155
Inmet Mining Corp.		217		13,952
Intact Financial Corp.		407		23,383
Ivanhoe Mines Ltd. (a)		878		15,591
Kinross Gold Corp.		3,286		37,513
Loblaw Cos. Ltd.		293		11,067
Magna International Inc., Class A		673		22,461
Manulife Financial Corp.		5,071		54,008
MEG Energy Corp. (a)		300		12,241
Metro Inc., Class A		255		13,517
National Bank of Canada		503		35,619
New Gold, Inc. (a)		1,540		15,540
Nexen, Inc.		1,518		24,154
Niko Resources Ltd.		81		3,835
Onex Corp.		297		9,673

See Notes to Financial Statements.

20 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Schedule of Investments (continued) ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Canada (concluded)
Open Text Corp. (a)		176	$	9,023
Osisko Mining Corp. (a)		762		7,360
Pacific Rubiales Energy Corp.		819		15,058
Pan American Silver Corp.		169		3,696
Pembina Pipeline Corp.		395		11,500
Pengrowth Energy Corp.		927		9,791
Penn West Petroleum Ltd.		1,334		26,438
Potash Corp. of Saskatchewan, Inc.		2,639		109,083
Power Corp. of Canada		1,045		24,434
Power Financial Corp.		757		18,978
Precision Drilling Corp. (a)		546		5,627
Progress Energy Resources Corp.		357		4,640
Research In Motion Ltd. (a)		1,467		21,312
RioCan Real Estate Investment Trust		387		10,040
Ritchie Bros Auctioneers, Inc.		193		4,244
Rogers Communications, Inc., Class B		1,196		46,079
Royal Bank of Canada		4,286		218,686
Saputo, Inc.		534		20,458
Shaw Communications, Inc., Class B		1,193		23,714
Shoppers Drug Mart Corp.		623		25,158
Silver Wheaton Corp.		977		28,291
SNC-Lavalin Group, Inc.		681		34,145
Sun Life Financial, Inc.		1,585		29,405
Suncor Energy, Inc.		4,892		141,082
Talisman Energy, Inc.		2,821		35,943
Teck Resources Ltd., Class B		1,711		60,311
TELUS Corp.		644		34,540
Thomson Reuters Corp.		1,198		32,021
Tim Hortons, Inc.		482		23,354
TMX Group, Inc.		277		11,336
The Toronto-Dominion Bank		2,629		196,875
Tourmaline Oil Corp. (a)		400		10,456
TransAlta Corp.		524		10,812
TransCanada Corp.		2,137		93,409
Valeant Pharmaceuticals International, Inc. (a)		823		38,502
Vermilion Energy, Inc.		221		9,842
Viterra, Inc.		965		10,173
Yamana Gold, Inc.		2,124		31,315
				3,505,540
Chile — 0.4%
AES Gener SA		13,363		7,118
Banco de Chile		69,913		9,500
Banco de Credito e Inversiones		145		8,035
Banco Santander Chile		262,814		18,926
CAP SA		213		7,784
Cencosud SA		2,162		12,515
Cia Cervecerias Unidas SA		633		8,285
Colbun SA		19,834		5,072
Corpbanca		490,251		6,313
E.CL SA, Class S		2,608		6,930
Empresa Nacional de Electricidad SA		8,344		12,304
Empresas CMPC SA		2,444		8,972
Empresas COPEC SA		1,238		16,536
Enersis SA		34,164		12,010
ENTEL Chile SA		255		4,771
Lan Airlines SA		340		7,979
SACI Falabella		920		7,153

Common Stocks	Shares		Value
Chile (concluded)
Sociedad Quimica y Minera de Chile SA, Preference ‘B’ Shares		344	$	18,517
				178,720
China — 3.9%
Agile Property Holdings Ltd.		4,000		3,562
Agricultural Bank of China Ltd., Class H		48,000		20,548
Air China Ltd., Class H		4,000		2,943
Alibaba.com Ltd. (a)		3,000		3,091
Aluminum Corp. of China Ltd., Class H		6,000		2,595
Anhui Conch Cement Co. Ltd., Class H		3,000		8,852
Bank of China Ltd., Class H		217,000		79,573
Bank of Communications Co. Ltd., Class H		22,700		15,793
Beijing Enterprises Holdings Ltd.		1,000		5,987
Belle International Holdings Ltd.		15,000		26,059
Brilliance China Automotive Holdings Ltd. (a)		4,000		4,292
Byd Co. Ltd., Class H (a)		1,500		3,243
China Agri-Industries Holdings Ltd.		5,000		3,793
China BlueChemical Ltd., Class H		6,000		4,533
China Citic Bank Corp. Ltd., Class H		23,000		12,882
China Coal Energy Co. Ltd., Class H		11,000		11,808
China Communications Construction Co. Ltd., Class H		10,000		7,792
China Construction Bank Corp., Class H		181,000		125,724
China COSCO Holdings Co. Ltd., Class H		6,500		3,183
China Life Insurance Co. Ltd., Class H		24,000		59,149
China Longyuan Power Group Corp., Class H		5,000		3,899
China Mengniu Dairy Co. Ltd.		3,000		7,007
China Merchants Bank Co. Ltd., Class H		10,500		21,101
China Merchants Holdings International Co. Ltd.		6,000		17,354
China Minsheng Banking Corp. Ltd., Class H		24,000		20,728
China Mobile Ltd.		19,500		189,454
China National Building Material Co. Ltd., Class H		8,000		9,020
China Oilfield Services Ltd., Class H		6,000		9,435
China Overseas Land & Investment Ltd.		12,000		19,915
China Pacific Insurance Group Co. Ltd., Class H		4,800		13,619
China Petroleum & Chemical Corp., Class H		52,000		54,588
China Railway Construction Corp. Ltd.		4,500		2,469
China Railway Group Ltd.		9,000		2,803
China Resources Cement Holdings Ltd.		6,000		4,449
China Resources Enterprise Ltd.		4,000		13,692
China Resources Land Ltd.		8,000		12,796
China Resources Power Holdings Co. Ltd.		4,000		7,702
China Shanshui Cement Group Ltd.		4,000		2,645
China Shenhua Energy Co. Ltd., Class H		10,500		45,405
China Taiping Insurance Holdings Co. Ltd. (a)		2,200		4,069
China Telecom Corp. Ltd., Class H		46,000		26,164
China Unicom Hong Kong Ltd.		18,000		37,947
China Vanke Co. Ltd.		3,000		2,960
China Yurun Food Group Ltd.		2,000		2,614
Chongqing Rural Commercial Bank (a)		25,000		12,880
Citic Pacific Ltd.		2,000		3,592
CNOOC Ltd.		52,000		90,675
COSCO Pacific Ltd.		6,000		6,988
Country Garden Holdings Co. Ltd.		12,000		4,483
CSR Corp. Ltd.		5,000		2,845
Daphne International Holdings Ltd.		6,000		6,665
Dongfang Electric Corp. Ltd.		2,200		6,500
Dongfeng Motor Group Co. Ltd., Class H		8,000		13,660
ENN Energy Holdings Ltd.		2,000		6,403
Evergrande Real Estate Group Ltd.		29,000		11,933

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 21

Schedule of Investments (continued) ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
China (concluded)
Foxconn International Holdings Ltd. (a)		10,000	$	6,431
GCL-Poly Energy Holdings Ltd.		10,000		2,776
Golden Eagle Retail Group Ltd.		3,000		6,324
GOME Electrical Appliances Holding Ltd.		30,000		6,901
Great Wall Motor Co. Ltd.		4,500		6,544
Guangzhou Automobile Group Co. Ltd., Class H		4,000		3,328
Hengan International Group Co. Ltd.		2,000		18,647
Hengdeli Holdings Ltd.		8,000		2,604
Huabao International Holdings Ltd.		5,000		2,547
Huaneng Power International, Inc., Class H		10,000		5,298
Industrial & Commercial Bank of China Ltd., Class H		209,000		123,447
Inner Mongolia Yitai Coal Co.		2,300		11,413
Intime Department Store Group Co. Ltd.		4,500		4,592
Jiangsu Expressway Co. Ltd.		10,000		9,177
Jiangxi Copper Co. Ltd., Class H		3,000		6,437
Kingboard Chemical Holdings Ltd.		1,000		2,950
Kunlun Energy Co. Ltd.		6,000		8,508
Lenovo Group Ltd.		14,000		9,313
Longfor Properties Co. Ltd.		3,500		3,944
Parkson Retail Group Ltd.		3,500		4,286
PetroChina Co. Ltd., Class H		64,000		79,477
PICC Property & Casualty Co. Ltd., Class H		8,800		11,841
Ping An Insurance (Group) Co. of China Ltd., Class H		7,000		45,925
Renhe Commercial Holdings Co. Ltd.		26,000		2,968
Semiconductor Manufacturing International Corp. (a)		107,000		5,141
Shandong Weigao Group Medical Polymer Co. Ltd., Class H		4,000		3,593
Shanghai Electric Group Co. Ltd., Class H		10,000		4,611
Shanghai Industrial Holdings Ltd.		1,000		2,766
Shimao Property Holdings Ltd.		4,000		3,401
Shougang Fushan Resources Group Ltd.		8,000		2,698
Sinopharm Group Co. Ltd., Class H		1,600		3,834
Soho China Ltd.		10,000		6,639
Tencent Holdings Ltd.		3,000		60,070
Tingyi Cayman Islands Holding Corp.		6,000		18,174
Tsingtao Brewery Co. Ltd.		2,000		11,054
Want Want China Holdings Ltd.		16,000		15,937
Weichai Power Co. Ltd., Class H		1,000		4,906
Wumart Stores, Inc.		3,000		6,255
Yanzhou Coal Mining Co. Ltd., Class H		6,000		12,740
Zhaojin Mining Industry Co. Ltd., Class H		2,500		3,965
Zhongsheng Group Holdings Ltd.		3,000		4,981
Zhuzhou CSR Times Electric Co. Ltd.		1,000		2,183
Zijin Mining Group Co. Ltd., Class H		20,000		7,480
Zoomlion Heavy Industry Science and Technology Co. Ltd., Class H		2,600		2,780
ZTE Corp., Class H		1,400		4,373
				1,677,120
Colombia — 0.2%
Almacenes Exito SA		460		6,042
BanColombia SA		1,106		16,249
BanColombia SA, Preference Shares		790		11,256
Cementos Argos SA		2,607		14,605
Corp. Financiera Colombiana SA		303		5,289
Ecopetrol SA		12,871		27,986
Grupo de Inversiones Suramericana SA		572		9,177
Interconexion Electrica SA		707		4,085
Inversiones Argos SA		459		3,983
				98,672

Common Stocks	Shares		Value
Czech Republic — 0.1%
CEZ AS		615	$	24,467
Komercni Banka AS		29		4,888
Telefonica Czech Republic AS		238		4,615
				33,970
Denmark — 0.7%
AP Moller - Maersk A/S, Class A		5		32,888
AP Moller - Maersk A/S, Class B		2		12,423
Carlsberg A/S, Class B		337		23,729
Coloplast A/S, Class B		69		9,901
Danske Bank A/S (a)		2,041		25,790
DSV A/S		508		9,078
Novo Nordisk A/S, Class B		1,297		149,004
Novozymes AS		680		20,949
TDC A/S		1,407		11,268
Tryg AS		93		5,152
Vestas Wind Systems A/S (a)		521		5,603
William Demant Holding A/S (a)		59		4,894
				310,679
Egypt — 0.1%
Commercial International Bank SAE		1,034		3,216
Orascom Construction Industries		510		17,111
Orascom Telecom Holding SAE (a)		7,258		3,586
				23,913
Finland — 0.5%
Elisa OYJ		495		10,306
Fortum OYJ		1,243		26,473
Kesko OYJ, Class B		113		3,788
Kone OYJ, Class B		457		23,659
Metso OYJ		328		12,114
Neste Oil OYJ		334		3,359
Nokia OYJ		11,006		53,058
Nokian Renkaat OYJ		271		8,701
Orion OYJ, Class B		208		4,041
Pohjola Bank Plc		426		4,128
Sampo OYJ		1,300		32,157
Sanoma OYJ		739		8,458
Stora Enso OYJ, Class R		1,551		9,238
UPM-Kymmene OYJ		2,133		23,375
Wartsila OYJ, Class B		439		12,627
				235,482
France — 5.9%
Accor SA		346		8,720
Aeroports de Paris		126		8,619
Air Liquide SA		870		107,425
Alcatel-Lucent (a)		9,509		14,777
ALSTOM SA		695		20,996
ArcelorMittal		2,668		48,479
Arkema SA		132		9,275
AtoS		96		4,194
AXA SA		5,395		69,737
BNP Paribas SA		2,996		116,662
Bouygues SA		607		19,091
Bureau Veritas SA		126		9,152
Cap Gemini SA		355		11,037
Carrefour SA		1,740		39,588
Casino Guichard-Perrachon SA		137		11,520
Christian Dior SA		165		19,476

See Notes to Financial Statements.

22 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Schedule of Investments (continued) ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
France (concluded)
CNP Assurances SA		635	$	7,861
Compagnie de Saint-Gobain		1,208		46,177
Compagnie Generale d’Optique Essilor International SA		604		42,577
Compagnie Generale de Geophysique-Veritas (a)		418		9,703
Compagnie Generale des Etablissements Michelin, Class B		546		32,171
Credit Agricole SA		3,283		18,394
Danone SA		1,774		111,323
Dassault Systemes SA		196		15,657
Edenred SA		374		9,174
EDF SA		751		18,223
Eiffage SA		81		1,952
Eurazeo		73		2,588
European Aeronautic Defence & Space Co. N.V.		1,168		36,370
Eutelsat Communications SA		238		9,270
Fonciere Des Regions		218		13,947
France Telecom SA		5,867		91,828
GDF Suez		3,757		102,089
Gecina SA		37		3,101
Groupe Eurotunnel SA		1,243		8,433
Icade		42		3,291
Iliad SA		38		4,677
Imerys SA		75		3,440
JCDecaux SA (a)		164		3,765
Klepierre		300		8,524
L’Oreal SA		733		76,342
Lafarge SA		705		24,680
Lagardere SCA		326		8,583
Legrand SA		679		21,749
LVMH Moet Hennessy Louis Vuitton SA		780		109,874
Natixis		2,614		6,532
Neopost SA		62		4,169
Pernod Ricard SA		581		53,777
Peugeot SA		409		6,371
PPR SA		216		30,832
Publicis Groupe SA		471		21,616
Renault SA		713		24,622
Safran SA		550		16,448
Sanofi		3,458		252,772
Schneider Electric SA		1,422		74,344
SCOR SE		409		9,537
SES SA		909		21,777
Societe BIC SA		54		4,777
Societe Generale SA		2,002		44,195
Societe Television Francaise 1		291		2,831
Sodexo		283		20,255
Suez Environnement SA		655		7,525
Technip SA		336		31,500
Thales SA		274		8,625
Total SA		6,358		324,435
Unibail-Rodamco SE		310		55,482
Vallourec SA		363		23,449
Veolia Environnement SA		873		9,565
Vinci SA		1,581		68,818
Vivendi SA		3,950		86,227
Wendel SA		152		10,090
				2,585,082
Germany — 5.2%
Adidas AG		612		39,763

Common Stocks	Shares		Value
Germany (concluded)
Allianz SE		1,345	$	128,453
Axel Springer AG		107		4,592
BASF SE		2,747		191,242
Bayer AG Registered		2,519		160,872
Bayerische Motoren Werke AG		1,005		67,182
Bayerische Motoren Werke AG, Preference Shares		181		8,546
Beiersdorf AG		291		16,491
Brenntag AG		125		11,624
Celesio AG		266		4,207
Commerzbank AG (a)		12,207		20,545
Continental AG (a)		279		17,325
Daimler AG		2,760		120,911
Deutsche Bank AG		2,900		109,913
Deutsche Boerse AG (a)		535		28,001
Deutsche Post AG		2,664		40,957
Deutsche Telekom AG		8,454		96,975
E.ON AG		5,421		116,823
Fraport AG Frankfurt Airport Services Worldwide		64		3,145
Fresenius Medical Care AG & Co. KGaA		598		40,619
Fresenius SE & Co. KGaA		349		32,273
GEA Group AG		672		18,971
Hannover Rueckversicherung AG		207		10,257
HeidelbergCement AG		545		23,083
Henkel AG & Co. KGaA		368		17,804
Henkel AG & Co. KGaA, Preference Shares		504		29,055
Hochtief AG		160		9,238
Infineon Technologies AG		3,237		24,311
K+S AG		537		24,220
Kabel Deutschland Holding AG (a)		286		14,499
Lanxess AG		304		15,701
Linde AG		526		78,170
Lufthansa Airlines		627		7,458
MAN SE		206		18,298
Merck KGaA		210		20,913
Metro AG		460		16,773
Muenchener Rueckversicherungs AG		535		65,560
Porsche Automobil Holding SE, Preference Shares		459		24,504
ProSiebenSat.1 Media AG, Preference Shares		190		3,462
RWE AG		1,557		54,656
RWE AG, Non-Voting Preference Shares		103		3,389
Salzgitter AG		71		3,541
SAP AG		2,735		144,659
Siemens AG Registered		2,493		238,520
Suedzucker AG		148		4,715
ThyssenKrupp AG		1,191		27,325
United Internet AG		249		4,438
Volkswagen AG		104		13,923
Volkswagen AG, Preference Shares		450		67,280
Wacker Chemie AG		25		2,008
				2,247,190
Greece — 0.0%
Coca Cola Hellenic Bottling Co. SA (a)		464		7,957
Hellenic Telecommunications Organization SA		570		2,117
National Bank of Greece SA (a)		2,320		4,796
OPAP SA		340		2,992
				17,862
Hong Kong — 1.9%
AIA Group Ltd.		27,800		86,539

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 23

Schedule of Investments (continued) ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Hong Kong (concluded)
ASM Pacific Technology Ltd.		400	$	4,480
Bank of East Asia Ltd.		3,400		12,829
BOC Hong Kong Holdings Ltd.		11,000		25,956
Cathay Pacific Airways Ltd.		2,000		3,420
Cheung Kong Holdings Ltd.		5,000		59,312
Cheung Kong Infrastructure Holdings Ltd.		1,000		5,847
China Everbright Ltd.		2,000		3,116
China Gas Holdings Ltd.		20,000		9,166
CLP Holdings Ltd.		5,500		46,727
Dah Chong Hong Holdings Ltd.		5,000		5,867
First Pacific Co. Ltd/Hong Kong		8,000		8,301
Galaxy Entertainment Group Ltd. (a)		3,000		5,453
Guangdong Investment Ltd.		10,000		6,054
Hang Lung Group Ltd.		2,000		10,945
Hang Lung Properties Ltd.		6,000		17,032
Hang Seng Bank Ltd.		2,100		24,875
Henderson Land Development Co. Ltd.		3,000		14,861
Hong Kong & China Gas Co. Ltd.		14,000		32,415
Hong Kong Exchanges & Clearing Ltd.		3,400		54,101
Hopewell Holdings Ltd.		1,500		3,832
Hutchison Whampoa Ltd.		7,000		58,414
Hysan Development Co. Ltd.		1,000		3,275
Kerry Properties Ltd.		1,000		3,304
Li & Fung Ltd.		18,000		33,167
The Link REIT		10,000		36,777
MTR Corp.		4,000		12,927
New World Development Co. Ltd.		5,000		4,015
Nine Dragons Paper Holdings Ltd.		4,000		2,506
NWS Holdings Ltd.		4,000		5,881
PCCW Ltd.		12,000		4,118
Power Assets Holdings Ltd.		4,500		33,273
Sands China Ltd. (a)		7,200		20,200
Shangri-La Asia Ltd.		2,000		3,445
Sino Land Co. Ltd.		8,800		12,505
Sino-Ocean Land Holdings Ltd.		18,000		8,305
SJM Holdings Ltd.		5,000		8,114
Sun Art Retail Group Ltd. (a)		6,000		7,491
Sun Hung Kai Properties Ltd.		5,000		62,485
Swire Pacific Ltd., Class A		2,500		30,121
Wharf Holdings Ltd.		5,000		22,538
Wheelock & Co. Ltd.		3,000		7,418
Wing Hang Bank Ltd.		500		4,091
Wynn Macau Ltd.		3,600		8,987
Yue Yuen Industrial Holdings Ltd.		1,500		4,734
				839,219
Hungary — 0.1%
MOL Hungarian Oil & Gas Plc (a)		194		13,791
OTP Bank Plc		599		7,887
Richter Gedeon Nyrt		26		3,649
				25,327
Indonesia — 0.6%
PT Adaro Energy Tbk		44,500		8,660
PT Astra International Tbk		6,500		52,969
PT Bank Central Asia Tbk		40,500		35,670
PT Bank Danamon Indonesia Tbk		7,500		3,387
PT Bank Mandiri Tbk		22,500		16,722
PT Bank Negara Indonesia Persero Tbk		30,000		12,549
PT Bank Rakyat Indonesia Persero Tbk		38,500		28,618

Common Stocks	Shares		Value
Indonesia (concluded)
PT Bumi Resources Tbk		39,500	$	9,438
PT Charoen Pokphand Indonesia Tbk		19,000		4,496
PT Gudang Garam Tbk		2,000		13,664
PT Indo Tambangraya Megah		1,000		4,256
PT Indocement Tunggal Prakarsa Tbk		2,500		4,694
PT Indofood Sukses Makmur Tbk		7,500		3,801
PT Kalbe Farma Tbk		15,000		5,620
PT Perusahaan Gas Negara		30,500		10,668
PT Semen Gresik Persero Tbk		15,500		19,557
PT Tambang Batubara Bukit Asam Tbk		2,000		3,820
PT Telekomunikasi Indonesia Tbk		25,500		19,777
PT Unilever Indonesia Tbk		3,000		6,215
PT United Tractors Tbk		4,500		13,057
				277,638
Ireland — 0.2%
CRH Plc		833		16,534
CRH Plc New		1,272		25,182
Elan Corp. Plc (a)		1,587		22,006
Kerry Group Plc		443		16,222
				79,944
Israel — 0.4%
Bank Hapoalim BM		2,349		7,681
Bank Leumi Le-Israel BM		2,615		7,510
Bezeq The Israeli Telecommunication Corp., Ltd.		3,895		7,147
Cellcom Israel Ltd.		461		7,734
Elbit Systems Ltd.		191		7,864
Israel Chemicals Ltd.		1,584		16,496
The Israel Corp. Ltd.		5		3,132
Israel Discount Bank Ltd. (a)		2,497		3,352
Mizrahi Tefahot Bank Ltd.		825		6,551
NICE Systems Ltd. (a)		141		4,846
Teva Pharmaceutical Industries Ltd.		2,780		112,220
				184,533
Italy — 1.5%
A2A SpA		3,351		3,151
Assicurazioni Generali SpA		3,380		50,876
Atlantia SpA		820		13,128
Autogrill SPA		672		6,558
Banca Carige SPA		2,555		4,894
Banca Monte dei Paschi di Siena SpA		7,108		2,317
Banco Popolare SC		5,383		6,967
Enel Green Power SpA		6,323		13,208
Enel SpA		20,345		82,786
ENI SpA		7,189		148,963
Exor SpA		171		3,441
Fiat Industrial SpA (a)		2,520		21,608
Fiat SpA		1,791		8,229
Finmeccanica SpA		1,157		4,280
Intesa Sanpaolo SpA		32,926		55,143
Intesa Sanpaolo SpA, Risparmio Shares		2,403		2,997
Luxottica Group SpA		347		9,746
Mediaset SpA		1,140		3,154
Mediobanca SpA		1,270		7,308
Pirelli & C SpA		488		4,109
Prysmian SpA		978		12,145
Saipem SpA		767		32,610
Snam Rete Gas SpA		4,473		19,718

See Notes to Financial Statements.

24 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Schedule of Investments (continued) ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Italy (concluded)
Telecom Italia SpA		26,427	$	28,423
Telecom Italia SpA, Risparmio Shares		18,183		16,285
Tenaris SA		1,306		24,137
Terna Rete Elettrica Nazionale SpA		4,770		16,076
UniCredit SPA		3,738		31,059
Unione di Banche Italiane ScpA		2,295		9,404
				642,720
Japan — 15.7%
Advantest Corp.		300		2,849
Aeon Co. Ltd.		2,100		28,766
Aeon Credit Service Co. Ltd.		400		6,303
Aeon Mall Co. Ltd.		300		6,364
Air Water, Inc.		1,000		12,692
Aisin Seiki Co. Ltd.		700		19,838
Ajinomoto Co., Inc.		2,000		24,009
Alfresa Holdings Corp.		200		8,418
All Nippon Airways Co. Ltd.		2,000		5,588
Amada Co. Ltd.		1,000		6,330
Aozora Bank Ltd.		2,000		5,503
Asahi Glass Co. Ltd.		4,000		33,440
Asahi Group Holdings Ltd.		1,200		26,324
Asahi Kasei Corp.		4,000		24,106
Asics Corp.		400		4,496
Astellas Pharma, Inc.		1,600		64,972
The Bank of Kyoto Ltd.		1,000		8,598
The Bank of Yokohama Ltd.		5,000		23,590
Benesse Holdings, Inc.		300		14,503
Bridgestone Corp.		2,000		45,296
Brother Industries Ltd.		1,100		13,463
Canon, Inc.		3,700		162,827
Casio Computer Co. Ltd.		700		4,236
Central Japan Railway Co.		5		42,196
The Chiba Bank Ltd.		2,000		12,859
Chiyoda Corp.		1,000		10,153
Chubu Electric Power Co., Inc.		2,200		41,168
Chugai Pharmaceutical Co. Ltd.		600		9,890
The Chugoku Bank Ltd.		1,000		13,915
The Chugoku Electric Power Co., Inc.		1,100		19,274
Citizen Holdings Co. Ltd.		1,100		6,375
Cosmo Oil Co. Ltd.		2,000		5,583
Credit Saison Co. Ltd.		600		11,983
Dai Nippon Printing Co. Ltd.		2,000		19,200
The Dai-ichi Life Insurance Co. Ltd.		27		26,506
Daicel Corp.		1,000		6,074
Daido Steel Co. Ltd.		1,000		6,243
Daihatsu Motor Co. Ltd.		1,000		17,783
Daiichi Sankyo Co. Ltd.		2,300		45,552
Daikin Industries Ltd.		700		19,108
Dainippon Sumitomo Pharma Co. Ltd.		500		5,690
Daito Trust Construction Co. Ltd.		200		17,125
Daiwa House Industry Co. Ltd.		2,000		23,909
Daiwa Securities Group, Inc.		6,000		18,656
Dena Co. Ltd.		300		8,987
Denki Kagaku Kogyo KK		1,000		3,685
Denso Corp.		1,600		43,953
Dentsu, Inc.		600		18,253
East Japan Railway Co.		1,100		70,112
Eisai Co. Ltd.		800		33,089
Electric Power Development Co. Ltd.		500		13,296

Common Stocks	Shares		Value
Japan (continued)
Elpida Memory, Inc. (a)		400	$	1,851
FamilyMart Co. Ltd.		300		12,115
FANUC Corp.		600		91,519
Fast Retailing Co. Ltd.		100		18,190
Fuji Electric Co. Ltd.		2,000		5,477
Fuji Heavy Industries Ltd.		2,000		11,996
FUJIFILM Holdings Corp.		1,400		33,027
Fujitsu Ltd.		6,000		31,110
Fukuoka Financial Group, Inc.		3,000		12,570
Furukawa Electric Co. Ltd.		1,000		2,294
Gree, Inc.		400		13,751
GS Yuasa Corp.		1,000		5,356
The Gunma Bank Ltd.		1,000		5,483
The Hachijuni Bank Ltd.		1,000		5,697
Hakuhodo DY Holdings, Inc.		110		6,317
Hamamatsu Photonics KK		300		10,460
Hino Motors Ltd.		1,000		6,055
Hirose Electric Co. Ltd.		100		8,747
The Hiroshima Bank Ltd.		1,000		4,638
Hisamitsu Pharmaceutical Co., Inc.		300		12,716
Hitachi Chemical Co. Ltd.		300		5,251
Hitachi Construction Machinery Co. Ltd.		200		3,355
Hitachi High-Technologies Corp.		300		6,499
Hitachi Ltd.		15,000		78,030
Hitachi Metals Ltd.		1,000		10,852
Hokkaido Electric Power Co., Inc.		700		9,950
Hokuhoku Financial Group, Inc.		3,000		5,833
Hokuriku Electric Power Co.		600		11,205
Honda Motor Co. Ltd.		5,500		167,535
Hoya Corp.		1,300		27,949
Ibiden Co. Ltd.		500		9,844
Idemitsu Kosan Co. Ltd.		100		10,306
IHI Corp.		5,000		12,122
Inpex Corp.		7		44,074
Isetan Mitsukoshi Holdings Ltd.		1,000		10,447
Isuzu Motors Ltd.		5,000		23,018
ITOCHU Corp.		5,200		52,725
Itochu Techno-Solutions Corp.		200		8,971
The Iyo Bank Ltd.		1,000		9,854
J Front Retailing Co. Ltd.		1,000		4,821
Japan Petroleum Exploration Co.		200		7,821
Japan Prime Realty Investment Corp.		2		4,700
Japan Real Estate Investment Corp.		1		7,786
Japan Retail Fund Investment Corp.		4		5,917
The Japan Steel Works Ltd.		1,000		6,937
Japan Tobacco, Inc.		15		70,538
JFE Holdings, Inc.		1,800		32,544
JGC Corp.		1,000		24,009
The Joyo Bank Ltd.		3,000		13,239
JS Group Corp.		900		17,249
JSR Corp.		600		11,058
JTEKT Corp.		900		8,796
Jupiter Telecommunications Co. Ltd.		5		5,061
JX Holdings, Inc.		7,000		42,242
Kajima Corp.		2,000		6,138
Kamigumi Co. Ltd.		1,000		8,631
Kaneka Corp.		1,000		5,307
The Kansai Electric Power Co., Inc.		2,600		39,939
Kansai Paint Co. Ltd.		1,000		8,907
Kao Corp.		1,700		46,386

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 25

Schedule of Investments (continued) ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Japan (continued)
Kawasaki Heavy Industries Ltd.		6,000	$	14,885
Kawasaki Kisen Kaisha Ltd.		1,000		1,801
KDDI Corp.		10		64,223
Keikyu Corp.		2,000		17,962
Keio Corp.		2,000		14,106
Keisei Electric Railway Co. Ltd.		1,000		7,352
Keyence Corp.		100		24,104
Kikkoman Corp.		1,000		11,470
Kintetsu Corp.		6,000		23,436
Kirin Holdings Co. Ltd.		2,000		24,301
Kobe Steel Ltd.		7,000		10,819
Koito Manufacturing Co. Ltd.		1,000		13,977
Komatsu Ltd.		3,300		76,949
Konami Corp.		400		11,962
Konica Minolta Holdings, Inc.		1,500		11,154
Kubota Corp.		4,000		33,474
Kuraray Co. Ltd.		1,200		17,030
Kurita Water Industries Ltd.		400		10,383
Kyocera Corp.		500		40,097
Kyowa Hakko Kirin Co. Ltd.		1,000		12,207
Kyushu Electric Power Co., Inc.		1,300		18,622
Lawson, Inc.		200		12,461
Makita Corp.		300		9,678
Marubeni Corp.		5,000		30,434
Marui Group Co. Ltd.		700		5,442
Mazda Motor Corp. (a)		5,000		8,791
McDonald’s Holdings Co. Japan Ltd.		200		5,385
Medipal Holdings Corp.		500		5,220
MEIJI Holdings Co. Ltd.		300		12,425
Miraca Holdings, Inc.		100		3,987
Mitsubishi Chemical Holdings Corp.		4,000		21,922
Mitsubishi Corp.		4,800		96,743
Mitsubishi Electric Corp.		6,000		57,503
Mitsubishi Estate Co. Ltd.		4,000		59,646
Mitsubishi Gas Chemical Co., Inc.		1,000		5,545
Mitsubishi Heavy Industries Ltd.		10,000		42,472
Mitsubishi Materials Corp.		4,000		10,815
Mitsubishi Motors Corp. (a)		14,000		16,497
Mitsubishi Tanabe Pharma Corp.		600		9,479
Mitsubishi UFJ Financial Group, Inc.		42,000		177,806
Mitsubishi UFJ Lease & Finance Co. Ltd.		130		5,145
Mitsui & Co. Ltd.		5,900		91,446
Mitsui Chemicals, Inc.		3,000		9,109
Mitsui Fudosan Co. Ltd.		3,000		43,745
Mitsui OSK Lines Ltd.		3,000		11,568
Mizuho Financial Group, Inc.		75,800		102,641
MS&AD Insurance Group Holdings		1,800		33,225
Murata Manufacturing Co. Ltd.		700		35,848
Nabtesco Corp.		200		3,638
Namco Bandai Holdings, Inc.		400		5,677
NEC Corp. (a)		11,000		22,263
NGK Insulators Ltd.		1,000		11,840
NGK Spark Plug Co. Ltd.		1,000		12,359
NHK Spring Co. Ltd.		1,000		8,838
Nidec Corp.		300		26,048
Nikon Corp.		1,100		24,377
Nintendo Co. Ltd.		300		41,188
Nippon Building Fund, Inc.		2		16,368
Nippon Electric Glass Co. Ltd.		1,000		9,844
Nippon Express Co. Ltd.		3,000		11,662

Common Stocks	Shares		Value
Japan (continued)
Nippon Meat Packers, Inc.		1,000	$	12,391
Nippon Paper Group, Inc.		200		4,367
Nippon Sheet Glass Co. Ltd.		2,000		3,727
Nippon Steel Corp.		18,000		44,776
Nippon Telegraph & Telephone Corp.		1,600		81,456
Nippon Yusen KK		4,000		10,196
The Nishi-Nippon City Bank Ltd.		2,000		5,737
Nissan Motor Co. Ltd.		8,200		73,432
Nisshin Seifun Group, Inc.		500		6,053
Nisshin Steel Co. Ltd.		3,000		4,590
Nissin Foods Holdings Co. Ltd.		200		7,842
Nitori Holdings Co. Ltd.		150		14,065
Nitto Denko Corp.		600		21,342
NKSJ Holdings, Inc.		1,100		21,518
NOK Corp.		300		5,118
Nomura Holdings, Inc.		11,500		34,623
Nomura Real Estate Holdings, Inc.		400		5,935
Nomura Real Estate Office Fund, Inc.		1		5,132
Nomura Research Institute Ltd.		200		4,512
NSK Ltd.		1,000		6,459
NTN Corp.		1,000		4,011
NTT Data Corp.		4		12,737
NTT DoCoMo, Inc.		48		88,129
Obayashi Corp.		3,000		13,340
Odakyu Electric Railway Co. Ltd.		2,000		19,335
OJI Paper Co. Ltd.		3,000		15,402
Olympus Corp.		500		6,572
Omron Corp.		800		16,058
Ono Pharmaceutical Co. Ltd.		300		16,825
Oracle Corp. Japan		200		6,611
Oriental Land Co. Ltd/Japan		200		21,115
ORIX Corp.		310		25,557
Osaka Gas Co. Ltd.		6,000		23,705
Otsuka Corp.		100		6,886
Otsuka Holdings Co. Ltd.		800		22,453
Panasonic Corp.		7,500		63,298
Rakuten, Inc. (a)		25		26,896
Resona Holdings, Inc.		6,800		29,934
Ricoh Co. Ltd.		2,000		17,397
Rinnai Corp.		100		7,160
Rohm Co. Ltd.		400		18,600
Sankyo Co. Ltd.		200		10,111
Sanrio Co. Ltd.		100		5,129
Santen Pharmaceutical Co. Ltd.		300		12,389
SBI Holdings, Inc.		63		4,599
Secom Co. Ltd.		700		32,189
Sega Sammy Holdings, Inc.		600		12,962
Seiko Epson Corp.		300		3,965
Sekisui Chemical Co. Ltd.		2,000		16,475
Sekisui House Ltd.		2,000		17,773
Seven & I Holdings Co. Ltd.		2,400		66,887
Seven Bank Ltd.		2,800		5,493
Sharp Corp.		3,000		26,151
Shikoku Electric Power Co., Inc.		600		17,213
Shimadzu Corp.		1,000		8,433
Shimamura Co. Ltd.		100		10,217
Shimano, Inc.		200		9,734
Shimizu Corp.		3,000		12,609
Shin-Etsu Chemical Co. Ltd.		1,400		68,768
Shinsei Bank Ltd.		5,000		5,170

See Notes to Financial Statements.

26 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Schedule of Investments (continued) ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Japan (continued)
Shionogi & Co. Ltd.		800	$	10,263
Shiseido Co. Ltd.		1,100		20,199
The Shizuoka Bank Ltd.		2,000		21,041
Showa Denko KK		5,000		10,091
Showa Shell Sekiyu KK		800		5,379
SMC Corp./Japan		200		32,177
Softbank Corp.		2,900		85,167
Sojitz Corp.		2,800		4,325
Sony Corp.		3,400		61,305
Sony Financial Holdings, Inc.		700		10,324
Square Enix Holdings Co. Ltd.		300		5,880
Stanley Electric Co. Ltd.		300		4,396
Sumco Corp. (a)		300		2,208
Sumitomo Chemical Co. Ltd.		6,000		21,785
Sumitomo Corp.		4,000		54,069
Sumitomo Electric Industries Ltd.		2,300		24,901
Sumitomo Heavy Industries Ltd.		2,000		11,673
Sumitomo Metal Industries Ltd.		14,000		25,390
Sumitomo Metal Mining Co. Ltd.		2,000		25,604
Sumitomo Mitsui Financial Group, Inc.		4,400		122,024
Sumitomo Mitsui Trust Holdings, Inc.		10,000		29,325
Sumitomo Realty & Development Co. Ltd.		1,000		17,472
Sumitomo Rubber Industries Ltd.		400		4,803
Suruga Bank Ltd.		1,000		8,925
Suzuken Co. Ltd.		200		5,538
Suzuki Motor Corp.		1,200		24,708
Sysmex Corp.		300		9,754
T&D Holdings, Inc.		1,800		16,760
Taisei Corp.		5,000		12,674
Taisho Pharmaceutical Holdings Co. Ltd. (a)		100		7,717
Taiyo Nippon Sanso Corp.		1,000		6,954
Takashimaya Co. Ltd.		1,000		7,203
Takeda Pharmaceutical Co. Ltd.		2,600		114,206
TDK Corp.		500		22,052
Teijin Ltd.		3,000		9,204
Terumo Corp.		600		28,206
THK Co. Ltd.		500		9,849
Tobu Railway Co. Ltd.		3,000		15,307
Toho Co. Ltd/Tokyo		300		5,342
Toho Gas Co. Ltd.		1,000		6,367
Tohoku Electric Power Co., Inc.		1,700		16,333
Tokio Marine Holdings, Inc.		2,400		53,145
The Tokyo Electric Power Co., Inc. (a)		4,700		11,279
Tokyo Electron Ltd.		700		35,467
Tokyo Gas Co. Ltd.		9,000		41,477
Tokyu Corp.		3,000		14,774
Tokyu Land Corp.		1,000		3,774
TonenGeneral Sekiyu KK		1,000		10,904
Toppan Printing Co. Ltd.		2,000		14,683
Toray Industries, Inc.		5,000		35,773
Toshiba Corp.		14,000		57,135
Tosoh Corp.		1,000		2,657
TOTO Ltd.		1,000		7,719
Toyo Seikan Kaisha Ltd.		300		4,083
Toyoda Gosei Co. Ltd.		300		4,751
Toyota Industries Corp.		700		18,939
Toyota Motor Corp.		9,200		304,217
Toyota Tsusho Corp.		700		12,339
Trend Micro, Inc. (a)		400		11,928
Tsumura & Co.		200		5,896

Common Stocks	Shares		Value
Japan (concluded)
Ube Industries Ltd/Japan		4,000	$	10,933
Unicharm Corp.		500		24,652
Ushio, Inc.		300		4,312
USS Co. Ltd.		70		6,326
West Japan Railway Co.		600		26,071
Yahoo Japan Corp.		50		16,086
Yakult Honsha Co. Ltd.		400		12,575
Yamada Denki Co. Ltd.		280		19,073
Yamaguchi Financial Group, Inc.		1,000		9,529
Yamaha Corp.		500		4,567
Yamaha Motor Co. Ltd.		700		8,853
Yamato Holdings Co. Ltd.		1,200		20,197
Yamato Kogyo Co. Ltd.		200		5,743
Yamazaki Baking Co. Ltd.		1,000		13,139
Yaskawa Electric Corp.		1,000		8,469
Yokogawa Electric Corp. (a)		600		5,388
				6,853,049
Malaysia — 0.8%
AirAsia BHD		6,800		8,079
AMMB Holdings Bhd		5,100		9,570
Axiata Group Bhd		6,700		10,865
British American Tobacco (Malaysia) Bhd		300		4,723
CIMB Group Holdings Bhd		17,400		40,801
DiGi.Com Bhd		14,400		17,613
Gamuda Bhd		4,000		4,274
Genting Bhd		5,300		18,373
Genting Malaysia Bhd		13,500		16,294
Hong Leong Bank Bhd		1,440		4,951
IJM Corp. Bhd		2,400		4,273
IOI Corp. Bhd		9,500		16,107
Kuala Lumpur Kepong Bhd		1,500		10,735
Malayan Banking Bhd		12,400		33,553
Maxis Communications Bhd		6,700		11,577
MISC Bhd		2,100		3,619
Parkson Holdings Bhd		3,000		5,350
Petronas Chemicals Group Bhd		5,900		11,524
Petronas Dagangan BHD		1,000		5,611
Petronas Gas Bhd		1,200		5,752
PPB Group Bhd		900		4,866
Public Bank Bhd		2,500		10,407
RHB Capital Bhd		1,700		4,008
Sime Darby Bhd		7,600		22,049
SP Setia Bhd		4,900		5,956
Telekom Malaysia Bhd		4,000		6,262
Tenaga Nasional Bhd		7,800		14,501
UMW Holdings Bhd		3,000		6,624
YTL Corp. Bhd		9,800		4,571
YTL Power International Bhd		12,000		6,737
				329,625
Mexico — 1.1%
Alfa SAB de CV		800		8,714
America Movil SAB de CV		127,100		144,089
Arca Continental SAB de CV		1,072		4,565
Cemex SAB de CV (a)		25,900		13,827
Coca-Cola Femsa SAB de CV		500		4,755
Compartamos SAB de CV		2,800		3,435
El Puerto de Liverpool SAB de CV		800		5,739
Fomento Economico Mexicano SAB de CV		5,600		38,934

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 27

Schedule of Investments (continued) ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Mexico (concluded)
Grupo Aeroportuario del Pacifico SAB de CV		1,200	$	4,061
Grupo Bimbo SAB de CV		5,300		10,813
Grupo Carso SAB de CV		1,500		3,631
Grupo Elektra SA de CV		225		22,343
Grupo Financiero Banorte SAB de CV		5,100		15,467
Grupo Financiero Inbursa SA		5,000		9,194
Grupo Mexico SAB de CV		11,223		29,331
Grupo Modelo SAB de CV		1,800		11,414
Grupo Televisa SAB CPO		7,000		29,460
Industrias Penoles SAB de CV		420		18,404
Kimberly-Clark de Mexico SAB de CV		1,800		9,708
Mexichem SAB de CV		1,300		4,091
Minera Frisco SAB de CV (a)		2,500		9,085
Wal-Mart de Mexico SAB de CV		20,600		56,435
				457,495
Morocco — 0.0%
Attijariwafa Bank		112		4,565
Douja Promotion Groupe Addoha SA		398		3,239
Maroc Telecom SA		565		8,918
				16,722
Netherlands — 1.7%
Aegon NV (a)		6,089		24,336
Akzo Nobel NV		696		33,540
ASML Holding NV		1,244		51,964
Corio NV		187		8,097
Delta Lloyd NV		226		3,786
Fugro NV		172		9,956
Heineken Holding NV		391		15,979
Heineken NV		771		35,694
ING Groep NV (a)		11,286		80,713
Koninklijke Ahold NV		3,385		45,496
Koninklijke Boskalis Westminster NV		367		13,442
Koninklijke DSM NV		459		21,216
Koninklijke KPN NV		4,587		54,756
Koninklijke Philips Electronics NV		3,287		68,967
Koninklijke Vopak NV		208		10,968
QIAGEN NV (a)		643		8,853
Randstad Holding NV		298		8,766
Reed Elsevier NV		2,105		24,493
SBM Offshore NV		485		9,942
STMicroelectronics NV		1,666		9,863
TNT Express NV		1,562		11,634
Unilever NV		4,691		161,293
Wolters Kluwer NV		732		12,623
				726,377
New Zealand — 0.1%
Auckland International Airport Ltd.		2,774		5,433
Contact Energy Ltd. (a)		1,174		4,817
Fletcher Building Ltd.		2,644		12,626
Sky City Entertainment Group Ltd.		1,881		5,026
Telecom Corp. of New Zealand Ltd.		5,076		8,133
				36,035
Norway — 0.6%
Aker Solutions ASA		264		2,767
DnB NOR ASA		3,651		35,585
Gjensidige Forsikring ASA		426		4,931
Norsk Hydro ASA		2,644		12,205

Common Stocks	Shares		Value
Norway (concluded)
Orkla ASA		2,017	$	15,020
Seadrill Ltd.		940		31,348
Statoil ASA		3,454		88,458
Subsea 7 SA (a)		873		16,116
Telenor ASA		2,318		37,931
Yara International ASA		550		21,956
				266,317
Peru — 0.2%
Compania de Minas Buenaventura SA SP ADR		628		24,078
Credicorp Ltd.		194		21,237
Southern Copper Corp.		433		13,068
Volcan Cia Minera SAA		4,441		4,924
				63,307
Philippines — 0.2%
Aboitiz Equity Ventures, Inc.		5,200		4,767
Aboitiz Power Corp.		7,900		5,392
Ayala Corp.		970		6,884
Ayala Land, Inc.		14,200		4,916
Bank of the Philippine Islands		3,800		4,783
Manila Electric Co.		800		4,516
Metropolitan Bank & Trust		3,510		5,448
Philippine Long Distance Telephone Co.		90		5,226
San Miguel Corp.		4,172		11,119
SM Investments Corp.		410		5,457
SM Prime Holdings, Inc.		24,100		7,313
				65,821
Poland — 0.3%
Bank Pekao SA		311		12,682
BRE Bank SA (a)		44		3,126
Getin Holding SA (a)		1,099		2,233
Jastrzebska Spolka Weglowa SA (a)		407		9,852
Kernel Holding SA (a)		426		8,545
KGHM Polska Miedz SA		387		12,345
PGE SA		1,976		11,816
Polski Koncern Naftowy Orlen SA (a)		891		8,725
Polskie Gornictwo Naftowe i Gazownictwo SA		3,298		3,892
Powszechna Kasa Oszczednosci Bank Polski SA		1,568		14,554
Powszechny Zaklad Ubezpieczen SA		152		13,562
Tauron Polska Energia SA		2,098		3,241
Telekomunikacja Polska SA		1,884		9,390
				113,963
Portugal — 0.1%
Banco Espirito Santo SA		1,434		2,497
Cimpor Cimentos de Portugal SGPS SA		906		6,223
EDP — Energias de Portugal SA		5,999		18,527
Galp Energia SGPS SA		501		7,361
Jeronimo Martins SGPS SA (a)		588		9,712
Portugal Telecom SGPS SA		1,511		8,703
				53,023
Russia — 1.4%
AK Transneft OAO, Preference Shares		4		6,146
Federal Grid Co. Unified Energy System JSC		1,070,000		9,316
Federal Hydrogenerating Co. JSC		306,000		9,158
Gazprom OAO		32,680		173,339
IDGC Holding JSC (a)		94,700		6,738
Inter Rao Ues OAO		4,900,000		5,298

See Notes to Financial Statements.

28 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Schedule of Investments (continued) ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Russia (concluded)
Lukoil OAO		1,614	$	85,014
Magnit OJSC		519		10,965
Mechel		746		6,341
MMC Norilsk Nickel OJSC		132		20,153
Mobile Telesystems OJSC		1,749		25,675
NovaTek OAO		267		33,405
Novolipetsk Steel OJSC		130		2,545
Rosneft Oil Co.		4,480		29,668
Rostelecom OJSC (a)		4,000		18,856
Sberbank of Russia		25,000		61,441
Sberbank of Russia, Preference Shares		1,900		3,484
Severstal OAO		1,520		17,114
Sistema JSFC		201		3,374
Surgutneftegas OJSC		19,300		15,102
Surgutneftegas OJSC, Preference Shares		19,800		10,066
Tatneft		4,200		20,580
Uralkali OJSC		3,910		28,054
VTB Bank OJSC		11,310,000		20,556
				622,388
Singapore — 1.1%
Ascendas Real Estate Investment Trust		3,000		4,236
CapitaLand Ltd.		7,000		11,913
CapitaMall Trust		3,000		3,928
CapitaMalls Asia Ltd.		6,000		5,225
City Developments Ltd.		1,000		6,853
ComfortDelGro Corp. Ltd.		4,000		4,364
DBS Group Holdings Ltd.		5,000		44,381
Fraser & Neave Ltd.		3,000		14,321
Genting Singapore Plc (a)		19,000		22,108
Global Logistic Properties Ltd. (a)		3,000		4,056
Golden Agri-Resources Ltd.		20,000		11,020
Hutchison Port Holdings Trust		15,000		9,280
Jardine Cycle & Carriage Ltd.		1,000		37,103
Keppel Corp. Ltd.		5,000		35,789
Keppel Land Ltd.		2,000		3,419
Noble Group Ltd.		10,000		8,689
Olam International Ltd.		2,000		3,278
Oversea-Chinese Banking Corp. Ltd.		8,000		48,247
SembCorp Industries Ltd.		3,000		9,357
SembCorp Marine Ltd.		1,000		2,939
Singapore Airlines Ltd.		3,000		23,477
Singapore Exchange Ltd.		2,000		9,453
Singapore Press Holdings Ltd.		4,000		11,370
Singapore Technologies Engineering Ltd.		5,000		10,371
Singapore Telecommunications Ltd.		22,000		52,400
StarHub Ltd.		3,000		6,731
United Overseas Bank Ltd.		5,000		58,843
UOL Group Ltd.		1,000		3,080
Wilmar International Ltd.		6,000		23,130
Yangzijiang Shipbuilding Holdings Ltd.		4,000		2,800
				492,161
South Africa — 1.8%
ABSA Group Ltd.		688		11,998
African Bank Investments Ltd.		2,181		9,256
African Rainbow Minerals Ltd.		185		3,910
Anglo American Platinum Ltd.		162		10,658
AngloGold Ashanti Ltd.		1,119		47,516
ArcelorMittal South Africa Ltd.		445		3,770

Common Stocks	Shares		Value
South Africa (concluded)
Aspen Pharmacare Holdings Ltd. (a)		847	$	10,140
Aveng Ltd.		962		3,928
Barloworld Ltd.		515		4,788
Bidvest Group Ltd.		781		14,959
Discovery Holdings Ltd.		1,000		5,382
Exxaro Resources Ltd.		437		9,079
FirstRand Ltd.		8,624		22,130
The Foschini Group Ltd.		394		5,116
Gold Fields Ltd.		2,208		33,857
Growthpoint Properties Ltd.		4,097		9,414
Harmony Gold Mining Co. Ltd.		1,577		18,402
Impala Platinum Holdings Ltd.		1,555		32,195
Imperial Holdings Ltd.		704		10,771
Investec Ltd.		633		3,448
Kumba Iron Ore Ltd.		200		12,361
Liberty Holdings Ltd.		535		5,266
Life Healthcare Group Holdings Ltd.		2,068		5,284
Massmart Holdings Ltd.		248		5,182
MMI Holdings Ltd.		2,037		4,315
MTN Group Ltd.		5,419		96,281
Naspers Ltd.		1,332		58,184
Nedbank Group Ltd.		523		9,377
Netcare Ltd.		2,295		3,825
Pick n Pay Stores Ltd.		1,312		7,565
Pretoria Portland Cement Co. Ltd.		1,292		4,384
Redefine Properties Ltd.		13,810		12,663
Remgro Ltd.		1,369		20,105
Reunert Ltd.		1,236		9,635
RMB Holdings Ltd.		1,319		4,458
RMI Holdings		3,180		5,280
Sanlam Ltd.		5,369		19,132
Sappi Ltd. (a)		1,004		2,957
Sasol Ltd.		1,726		82,163
Shoprite Holdings Ltd.		1,218		20,518
The Spar Group Ltd.		382		5,133
Standard Bank Group Ltd.		3,438		41,997
Steinhoff International Holdings Ltd. (a)		4,911		13,957
Telkom SA Ltd.		1,823		6,547
Tiger Brands Ltd.		410		12,738
Truworths International Ltd.		1,047		9,566
Vodacom Group Ltd.		841		9,263
Woolworths Holdings Ltd.		2,356		11,365
				770,218
South Korea — 3.3%
Amorepacific Corp. (a)		7		6,392
BS Financial Group, Inc. (a)		460		4,416
Celltrion, Inc. (a)		161		5,081
Cheil Industries, Inc. (a)		106		9,309
CJ CheilJedang Corp. (a)		20		5,030
CJ Corp. (a)		87		5,820
Daelim Industrial Co. Ltd. (a)		67		5,236
Daewoo Securities Co. Ltd.		1,550		14,042
Daewoo Shipbuilding & Marine Engineering Co. Ltd. (a)		280		5,921
DGB Financial Group, Inc. (a)		430		4,834
Dongbu Insurance Co. Ltd.		120		5,576
Doosan Corp.		43		5,348
Doosan Heavy Industries & Construction Co. Ltd. (a)		114		6,459
Doosan Infracore Co. Ltd. (a)		330		5,124
E-Mart Co. Ltd. (a)		50		12,090

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 29

Schedule of Investments (continued) ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
South Korea (continued)
GS Engineering & Construction Corp. (a)		85	$	6,812
GS Holdings (a)		115		5,072
Hana Financial Group, Inc.		740		22,931
Hankook Tire Co. Ltd. (a)		340		13,371
Hanwha Chem Corp. (a)		230		4,916
Hanwha Corp. (a)		180		5,188
Honam Petrochemical Corp. (a)		31		8,015
Hynix Semiconductor, Inc. (a)		1,600		30,550
Hyosung Corp. (a)		158		7,359
Hyundai Department Store Co. Ltd. (a)		35		4,960
Hyundai Engineering & Construction Co. Ltd. (a)		156		9,554
Hyundai Glovis Co. Ltd. (a)		34		5,678
Hyundai Heavy Industries Co. Ltd. (a)		134		29,961
Hyundai Hysco Co. Ltd. (a)		130		3,974
Hyundai Marine & Fire Insurance Co. Ltd.		270		8,100
Hyundai Mobis (a)		206		52,339
Hyundai Motor Co. (a)		456		84,464
Hyundai Motor Co., Preference Shares		92		5,079
Hyundai Motor Co., Second Preference Shares		89		5,193
Hyundai Steel Co. (a)		133		11,066
Hyundai Wia Corp. (a)		39		4,834
Industrial Bank of Korea (a)		450		4,885
Kangwon Land, Inc. (a)		220		5,203
KB Financial Group, Inc. (a)		1,040		32,771
Kia Motors Corp. (a)		870		50,484
Korea Aerospace Industries Ltd. (a)		170		5,846
Korea Electric Power Corp. (a)		1,270		28,194
Korea Exchange Bank		820		5,238
Korea Investment Holdings Co. Ltd.		190		6,005
Korea Kumho Petrochemical (a)		31		4,515
Korea Life Insurance Co. Ltd.		1,240		7,979
Korea Zinc Co. Ltd. (a)		19		5,017
Korean Air Lines Co. Ltd. (a)		130		4,920
KT Corp. (a)		170		5,272
KT&G Corp. (a)		312		22,046
LG Chem Ltd. (a)		134		36,951
LG Corp. (a)		223		11,908
LG Display Co. Ltd. (a)		580		12,311
LG Electronics, Inc. (a)		439		28,410
LG Household & Health Care Ltd. (a)		35		14,813
LG Uplus Corp. (a)		1,010		6,498
Lotte Shopping Co. Ltd. (a)		23		6,789
LS Corp. (a)		126		8,329
Mando Corp. (a)		30		5,375
NCSoft Corp. (a)		33		8,822
NHN Corp. (a)		132		24,192
OCI Co. Ltd. (a)		36		6,875
Orion Corp. (a)		16		9,417
POSCO		190		62,674
S-Oil Corp.		97		8,428
Samsung C&T Corp. (a)		431		25,515
Samsung Card Co. (a)		140		4,733
Samsung Electro-Mechanics Co. Ltd. (a)		148		10,006
Samsung Electronics Co. Ltd.		349		321,023
Samsung Electronics Co. Ltd., Preference Shares		61		35,353
Samsung Engineering Co. Ltd. (a)		103		18,036
Samsung Fire & Marine Insurance Co. Ltd.		123		22,556
Samsung Heavy Industries Co. Ltd. (a)		380		9,231
Samsung Life Insurance Co. Ltd. (b)		111		7,805
Samsung SDI Co. Ltd. (a)		81		9,402

Common Stocks	Shares		Value
South Korea (concluded)
Samsung Securities Co. Ltd.		136	$	5,852
Samsung Techwin Co. Ltd. (a)		114		5,275
Shinhan Financial Group Co. Ltd. (a)		1,210		41,842
Shinsegae Co. Ltd. (a)		21		4,471
SK C&C Co. Ltd. (a)		37		3,761
SK Holdings Co. Ltd. (a)		61		6,412
SK Innovation Co. Ltd. (a)		190		23,459
SK Telecom Co. Ltd.		49		6,024
Woongjin Coway Co. Ltd. (a)		160		5,095
Woori Finance Holdings Co. Ltd. (a)		830		6,805
Woori Investment & Securities Co. Ltd.		790		7,287
				1,450,204
Spain — 2.2%
Abertis Infraestructuras SA		1,272		20,214
Acciona SA		52		4,469
Acerinox SA		293		3,745
ACS Actividades de Construccion y Servicios SA		372		10,984
Amadeus IT Holding SA		1,011		16,326
Banco Bilbao Vizcaya Argentaria SA		14,185		122,192
Banco de Sabadell SA		2,642		10,005
Banco Popular Espanol SA		2,265		10,287
Banco Santander SA		25,567		193,150
Bankia SA (a)		3,141		14,614
Bankinter SA		1,017		6,223
CaixaBank		1,840		8,992
Distribuidora Internacional de Alimentacion SA (a)		671		3,021
EDP Renovaveis SA (a)		948		5,789
Enagas SA		494		9,121
Ferrovial SA		860		10,342
Fomento de Construcciones y Contratas SA		274		7,074
Gas Natural SDG SA		1,041		17,841
Grifols SA (a)		265		4,440
Iberdrola SA		11,669		72,890
Inditex SA		658		53,716
Indra Sistemas SA		256		3,246
International Consolidated Airlines Group SA (a)		3,740		8,386
Mapfre SA		2,983		9,435
Red Electrica Corp. SA		356		15,202
Repsol YPF SA		2,416		73,918
Telefonica SA		12,507		215,473
Zardoya Otis SA		355		4,855
				935,950
Sweden — 2.0%
Alfa Laval AB		1,459		27,554
Assa Abloy AB, Class B		971		24,281
Atlas Copco AB, Class A		2,075		44,460
Atlas Copco AB, Class B		933		17,662
Boliden AB		852		12,360
Electrolux AB, Class B		641		10,185
Getinge AB, Class B		842		21,291
Hennes & Mauritz AB, Class B		3,157		101,276
Hexagon AB, Class B		606		9,021
Holmen AB, Class B		166		4,754
Husqvarna AB, Class B		807		3,705
Industrivarden AB, Class C		327		3,887
Investor AB, Class B		1,269		23,602
Kinnevik Investment AB, Class B		506		9,835
Lundin Petroleum AB (a)		575		14,083

See Notes to Financial Statements.

30 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Schedule of Investments (continued) ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Sweden (concluded)
Millicom International Cellular SA		211	$	21,079
Modern Times Group AB, Class B		82		3,906
Nordea Bank AB		8,099		62,424
Ratos AB, Class B		697		8,157
Sandvik AB		3,091		37,789
Scania AB, Class B		791		11,676
Securitas AB, Class B		1,202		10,339
Skandinaviska Enskilda Banken AB, Class A		4,366		25,332
Skanska AB, Class B		1,032		17,033
SKF AB		1,202		25,339
SSAB AB, Class A		367		3,214
Svenska Cellulosa AB		1,718		25,361
Svenska Handelsbanken AB, Class A		1,467		38,444
Swedbank AB		2,724		35,152
Swedish Match AB		616		21,821
Tele2 AB, Class B		918		17,790
Telefonaktiebolaget LM Ericsson		9,569		97,035
TeliaSonera AB		6,799		46,070
Volvo AB, Class B		4,941		53,827
				889,744
Switzerland — 5.7%
ABB Ltd. (a)		6,887		129,381
Actelion Ltd. (a)		311		10,638
Adecco SA (a)		333		13,878
Aryzta AG		221		10,662
Baloise Holding AG		135		9,236
Barry Callebaut AG (a)		6		5,903
Cie Financiere Richemont SA		1,631		82,044
Credit Suisse Group AG (a)		3,725		87,307
GAM Holding AG (a)		316		3,422
Geberit AG (a)		122		23,451
Givaudan SA (a)		26		24,706
Glencore International Plc		2,041		12,462
Holcim Ltd. (a)		699		37,260
Julius Baer Group Ltd. (a)		636		24,774
Kuehne + Nagel International AG		166		18,589
Lindt & Spruengli AG		2		5,943
Lonza Group AG (a)		150		8,838
Nestle SA		9,805		563,038
Novartis AG		6,967		397,767
Pargesa Holding SA		58		3,789
Partners Group Holding AG		39		6,794
Roche Holding AG		2,108		356,501
Schindler Holding AG		42		4,867
Schindler Holding AG Participation Certificates		210		24,410
SGS SA		16		26,389
Sika AG		6		11,282
Sonova Holding AG (a)		175		18,232
Straumann Holding AG		30		5,167
Sulzer AG		93		9,903
Swatch Group (The) AG Bearer		91		33,872
Swatch Group (The) AG Registered		130		8,621
Swiss Life Holding AG (a)		81		7,419
Swiss Re AG (a)		1,080		54,907
Swisscom AG		78		29,502
Syngenta AG (a)		291		85,510
Synthes, Inc. (b)		203		33,978
Transocean Ltd.		1,103		42,452
UBS AG (a)		11,488		136,278

Common Stocks	Shares		Value
Switzerland (concluded)
Wolseley Plc		901	$	29,801
Zurich Financial Services AG (a)		429		96,657
				2,495,630
Taiwan — 2.4%
Acer, Inc.		8,000		9,258
Advanced Semiconductor Engineering, Inc.		13,574		11,629
Asia Cement Corp.		4,080		4,576
Asustek Computer, Inc.		2,220		15,775
AU Optronics Corp.		25,000		10,789
Catcher Technology Co. Ltd.		3,000		13,894
Cathay Financial Holding Co. Ltd.		18,140		19,556
Chang Hwa Commercial Bank		6,540		3,547
Cheng Shin Rubber Industry Co. Ltd.		4,400		9,510
Chimei Innolux Corp. (a)		28,000		11,263
China Airlines Ltd.		7,000		3,047
China Development Financial Holding Corp.		49,128		13,886
China Life Insurance Co. Ltd.		4,380		3,535
China Petrochemical Development Corp.		5,500		4,888
China Steel Corp.		32,550		30,939
Chinatrust Financial Holding Co. Ltd.		24,719		15,404
Chunghwa Telecom Co. Ltd.		13,000		42,946
Compal Electronics, Inc.		13,000		12,940
Delta Electronics, Inc.		5,000		11,881
E Ink Holdings, Inc.		3,000		3,898
E.Sun Financial Holding Co. Ltd.		8,180		3,522
Epistar Corp.		2,000		4,239
Far Eastern Department Stores Co. Ltd.		3,180		3,745
Far Eastern New Century Corp.		10,090		11,701
Far EasTone Telecommunications Co. Ltd.		3,000		5,636
First Financial Holding Co. Ltd.		15,915		9,317
Formosa Chemicals & Fibre Corp.		13,000		34,257
Formosa Petrochemical Corp.		5,000		15,472
Formosa Plastics Corp.		14,000		37,319
Foxconn Technology Co. Ltd.		5,050		16,095
Fubon Financial Holding Co. Ltd.		15,249		16,109
Hiwin Technologies Corp.		1,000		8,106
Hon Hai Precision Industry Co. Ltd.		29,000		79,307
Hotai Motor Co. Ltd.		2,000		9,603
HTC Corp.		2,050		33,601
Hua Nan Financial Holdings Co. Ltd.		8,372		4,516
KGI Securities Co. Ltd.		10,198		3,624
Largan Precision Co. Ltd.		1,000		18,670
Lite-On Technology Corp.		4,020		4,523
Macronix International		8,000		3,192
MediaTek, Inc.		3,000		27,459
Mega Financial Holding Co. Ltd.		20,160		13,423
MStar Semiconductor, Inc.		1,100		5,731
Nan Ya Plastics Corp.		21,000		41,647
Novatek Microelectronics Corp.		1,000		2,502
Pegatron Corp.		5,000		5,433
Pou Chen Corp.		6,000		4,921
Powertech Technology, Inc.		1,100		2,326
President Chain Store Corp.		2,000		10,892
Quanta Computer, Inc.		7,000		14,713
Radiant Opto-Electronics Corp.		2,000		5,706
Shin Kong Financial Holding Co. Ltd. (a)		12,000		3,395
Siliconware Precision Industries Co.		7,000		6,290
Simplo Technology Co. Ltd.		1,000		5,820
SinoPac Financial Holdings Co. Ltd.		12,516		3,807

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 31

Schedule of Investments (continued) ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Taiwan (concluded)
Synnex Technology International Corp.		3,000	$	7,235
Taishin Financial Holding Co. Ltd.		9,630		3,334
Taiwan Cement Corp.		9,000		10,387
Taiwan Cooperative Financial Holding (a)		6,360		3,823
Taiwan Fertilizer Co. Ltd.		2,000		4,649
Taiwan Mobile Co. Ltd.		5,800		18,070
Taiwan Semiconductor Manufacturing Co. Ltd.		74,000		184,896
TPK Holding Co. Ltd. (a)		1,000		13,005
Tripod Technology Corp.		2,000		4,817
TSRC Corp.		1,000		2,450
Uni-President Enterprises Corp.		10,240		14,942
Unimicron Technology Corp.		3,000		3,523
United Microelectronics Corp.		39,000		16,340
Wintek Corp.		4,399		3,119
Wistron Corp.		14,149		17,900
WPG Holdings Ltd.		3,270		3,765
Yuanta Financial Holding Co. Ltd. (a)		25,733		13,115
Yulon Motor Co. Ltd.		2,000		3,430
				1,058,580
Thailand — 0.5%
Advanced Info Service PCL		3,000		13,337
Bangkok Bank PCL Foreign Registered		2,300		11,938
Bangkok Bank PCL NVDR		1,000		4,858
Bank of Ayudhya PCL		7,600		5,290
Banpu PCL		750		12,955
Charoen Pokphand Foods PCL		11,200		11,700
CP ALL PCL		7,600		12,452
Indorama Ventures PCL		3,300		3,052
IRPC PCL		42,600		5,499
Kasikornbank PCL Foreign Registered		3,000		11,817
Kasikornbank PCL NVDR		1,300		5,017
Krung Thai Bank PCL		9,900		4,667
PTT Exploration & Production PCL		3,500		18,666
PTT Global Chemical PCL (a)		8,768		16,952
PTT PCL		2,900		29,177
Siam Cement PCL		1,600		18,533
Siam Commercial Bank PCL		5,400		19,902
Thai Oil PCL		2,200		4,070
				209,882
Turkey — 0.2%
Akbank TAS		3,335		10,569
Anadolu Efes Biracilik Ve Malt Sanayii AS		374		4,497
BIM Birlesik Magazalar AS		160		4,431
Emlak Konut Gayrimenkul Yatirim Ortakligi AS		3,000		3,079
Eregli Demir ve Celik Fabrikalari TAS		3,744		6,466
Haci Omer Sabanci Holding AS		1,190		3,385
KOC Holding AS		1,204		3,604
Tupras Turkiye Petrol Rafinerileri AS		514		10,826
Turk Telekomunikasyon AS		959		3,549
Turkcell Iletisim Hizmetleri AS (a)		2,264		10,670
Turkiye Garanti Bankasi AS		6,743		20,963
Turkiye Halk Bankasi AS		687		3,581
Turkiye Is Bankasi		4,565		7,963
Turkiye Vakiflar Bankasi Tao		3,170		4,093
Yapi ve Kredi Bankasi AS (a)		2,012		2,849
				100,525
United Kingdom — 15.2%
3i Group Plc		2,785		7,819

Common Stocks	Shares		Value
United Kingdom (continued)
Admiral Group Plc		443	$	5,873
Aggreko Plc		748		23,406
AMEC Plc		1,088		15,323
Anglo American Plc		4,159		153,634
Antofagasta Plc		1,183		22,374
ARM Holdings Plc		3,778		34,873
Associated British Foods Plc		1,107		19,016
AstraZeneca Plc		4,075		188,232
Aviva Plc		8,601		40,006
Babcock International Group Plc		935		10,667
BAE Systems Plc		10,227		45,191
Balfour Beatty Plc		3,001		12,335
Barclays Plc		34,983		95,807
BG Group Plc		10,214		218,208
BHP Billiton Plc		6,557		191,698
BP Plc		56,949		405,664
British American Tobacco Plc		5,887		279,282
British Land Co. Plc		2,764		19,838
British Sky Broadcasting Group Plc		3,802		43,256
BT Group Plc		24,575		72,845
Bunzl Plc		855		11,732
Burberry Group Plc		1,299		23,886
Cairn Energy Plc (a)		4,243		17,444
The Capita Group Plc		1,935		18,869
Capital Shopping Centres Group Plc		2,310		11,192
Carnival Plc		445		14,668
Centrica Plc		15,002		67,381
Cobham Plc		3,274		9,322
Compass Group Plc		6,283		59,618
Diageo Plc		7,582		165,667
Essar Energy Plc (a)		787		2,096
Eurasian Natural Resources Corp. Plc		1,014		10,001
Experian Plc		2,912		39,581
Fresnillo Plc		426		10,094
G4S Plc		5,691		24,022
GKN Plc		3,553		10,090
GlaxoSmithKline Plc		15,299		348,602
Hammerson Plc		1,634		9,124
HSBC Holdings Plc		53,122		405,536
ICAP Plc		1,460		7,864
Imperial Tobacco Group Plc		3,080		116,549
Inmarsat Plc		1,219		7,634
Intercontinental Hotels Group Plc		682		12,262
International Power Plc		4,292		22,443
Intertek Group Plc		656		20,716
Invensys Plc		2,360		7,718
Investec Plc		1,508		7,936
ITV Plc		9,918		10,478
J Sainsbury Plc		2,997		14,090
Johnson Matthey Plc		688		19,603
Kazakhmys Plc		622		8,981
Kingfisher Plc		6,966		27,070
Land Securities Group Plc		2,466		24,322
Legal & General Group Plc		16,663		26,629
Lifestyle International Holdings Ltd.		2,000		4,402
Lloyds Banking Group Plc (a)		119,085		47,834
London Stock Exchange Group Plc		338		4,157
Lonmin Plc		825		12,570
Man Group Plc		4,329		8,448
Marks & Spencer Group Plc		4,773		23,053

See Notes to Financial Statements.

32 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Schedule of Investments (continued) ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
United Kingdom (continued)
Meggitt Plc		2,557	$	13,997
National Grid Plc		10,692		103,347
Next Plc		516		21,891
Old Mutual Plc		15,657		32,932
Pearson Plc		2,637		49,493
Petrofac Ltd.		827		18,496
Prudential Plc		7,848		77,649
Randgold Resources Ltd.		273		27,911
Reckitt Benckiser Group Plc		1,904		93,905
Reed Elsevier Plc		4,503		36,250
Resolution Ltd.		4,579		17,850
Rexam Plc		2,893		15,833
Rio Tinto Plc		4,319		210,968
Rolls-Royce Holdings Plc (a)		5,436		62,939
Royal Bank of Scotland Group Plc (a)		58,431		18,418
Royal Dutch Shell Plc, Class A		10,539		386,668
Royal Dutch Shell Plc, Class B		8,218		312,595
RSA Insurance Group Plc		10,800		17,632
SABMiller Plc		2,878		101,181
The Sage Group Plc		5,286		24,154
Schroders Plc		213		4,343
Segro Plc		3,493		11,310
Serco Group Plc		1,217		8,955
Severn Trent Plc		751		17,428
Shire Plc		1,789		62,175
Smith & Nephew Plc		2,874		27,892
Smiths Group Plc		967		13,723
SSE PLC		2,714		54,327
Standard Chartered Plc		7,252		158,619
Standard Life Plc		6,815		21,835
Tate & Lyle Plc		1,429		15,623
Tesco Plc		24,211		151,484
TUI Travel Plc		1,403		3,619
Tullow Oil Plc		2,749		59,731
Unilever Plc		3,885		130,280
United Utilities Group Plc		2,070		19,464
Vedanta Resources Plc		603		9,514
Vodafone Group Plc		151,775		423,164
The Weir Group Plc		644		20,327
Whitbread Plc		421		10,221
WM Morrison Supermarkets Plc		6,823		34,511
WPP Plc		4,003		41,980

Common Stocks	Shares		Value
United Kingdom (concluded)
Xstrata Plc		6,044	$	92,021
				6,635,686
Total Common Stocks — 96.2%				41,897,080
Investment Companies
India — 1.4% iShares S&P India Nifty 50 Index Fund (c)		31,280		617,467
Total Investment Companies — 1.4%				617,467
Total Long-Term Investments (Cost—$ 45,595,141) — 97.6%				42,514,547
Short-Term Securities
BlackRock Cash Funds: Institutional, SL Agency Shares 0.22% (c)(d)		3,240,217		3,240,217
Total Short-Term Securities (Cost — $ 3,240,217) — 7.5%				3,240,217
Total Investments (Cost—$ 48,835,358*) — 105.1%				45,754,764
Liabilities in Excess of Other Assets — (5.1)%				(2,200,519	)
Net Assets — 100.0%			$	43,554,245

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Tax cost	$	48,835,382
Gross unrealized appreciation	$	657,938
Gross unrealized depreciation		(3,738,556	)
Net unrealized depreciation	$	(3,080,618	)

(a) Non-income producing security.

(b) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors.

(c) Investments in companies considered to be an affiliate of the Master Portfolio during the period, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as follows:

Affiliate	Shares Purchased			Shares Sold			Shares Held at December 31, 2011		Value at December 31, 2011		Realized Gain			Income
BlackRock Cash Funds:
Institutional, SL Agency Shares		3,240,217	1		—			3,240,217	$	3,240,217		—		$	1,361
iShares MSCI ACWI ex US Index Fund		9,100			(9,100	)		—		—	$	(59,452	)		—
iShares MSCI South Korea Index Fund		10,300			(10,300	)		—		—	$	(190,199	)		—
iShares S&P India Nifty 50 Index Fund		31,280			—			31,280	$	617,467		—		$	744

¹  Represents net shares purchased.

(d) Represents the current yield as of report date.

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 33

Schedule of Investments (concluded) ACWI ex-US Index Master Portfolio

· Financial futures contracts purchased as of December 31, 2011 were as follows:

Contracts	Issue	Exchange	Expiration		Notional Value		Unrealized Appreciation
8	MSCI Emerging Markets Index	Chicago Mercantile		March 2012	$	368,600	$	1,947
19	MSCI EAFE Index	Chicago Mercantile		March 2012	$	1,338,930	$	17,248
							$	19,195

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

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities.

For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following tables summarize the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments and derivative financial instruments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Long-Term Investments:
Common Stocks:
Australia		—	$	2,479,332		—	$	2,479,332
Austria		—		61,458		—		61,458
Belgium		—		271,142		—		271,142
Brazil	$	1,478,835		—		—		1,478,835
Canada		3,505,540		—		—		3,505,540
Chile		178,720		—		—		178,720
China		—		1,677,120		—		1,677,120
Colombia		98,672		—		—		98,672
Czech Republic		33,970		—		—		33,970
Denmark		—		310,679		—		310,679
Egypt		3,586		20,327		—		23,913
Finland		—		235,482		—		235,482
France		—		2,585,082		—		2,585,082
Germany		—		2,247,190		—		2,247,190
Greece		7,957		9,905		—		17,862
Hong Kong		—		839,219		—		839,219
Hungary		—		25,327		—		25,327

Valuation Inputs	Level 1		Level 2		Level 3		Total
Indonesia		—	$	277,638		—	$	277,638
Ireland	$	22,006		57,938		—		79,944
Israel		—		184,533		—		184,533
Italy		642,720		—		—		642,720
Japan		7,717		6,845,332		—		6,853,049
Malaysia		—		329,625		—		329,625
Mexico		457,495		—		—		457,495
Morocco		13,483		3,239		—		16,722
Netherlands		35,694		690,683		—		726,377
New Zealand		—		36,035		—		36,035
Norway		—		266,317		—		266,317
Peru		63,307		—		—		63,307
Philippines		—		65,821		—		65,821
Poland		—		113,963		—		113,963
Portugal		8,703		44,320		—		53,023
Russia		37,149		585,239		—		622,388
Singapore		—		492,161		—		492,161
South Africa		8,699		761,519		—		770,218
South Korea		133,300		1,316,904		—		1,450,204
Spain		14,614		921,336		—		935,950
Sweden		—		889,744		—		889,744
Switzerland		—		2,495,630		—		2,495,630
Taiwan		3,823		1,054,757		—		1,058,580
Thailand		16,952		192,930		—		209,882
Turkey		—		100,525		—		100,525
United Kingdom		—		6,635,686		—		6,635,686
Investment Companies:
India		617,467		—		—		617,467
Short-Term Securities		3,240,217		—		—		3,240,217
Total	$	10,630,626	$	35,124,138		—	$	45,754,764
Valuation Inputs	Level 1		Level 2		Level 3		Total
Derivative Financial Instruments1
Assets:
Equity Contracts	$	19,195		—		—	$	19,195
Total	$	19,195		—		—	$	19,195

¹  Derivative financial instruments are financial futures contracts. Financial futures contracts are valued at the unrealized appreciation/depreciation on the instrument.

See Notes to Financial Statements.

34 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Statement of Assets and Liabilities ACWI ex-US Index Master Portfolio

December 31, 2011
Assets
Investments at value — unaffiliated (cost — $44,824,499)	$	41,897,080
Investments at value — affiliated (cost — $4,010,859)		3,857,684
Foreign currency at value (Cost — $666,943)		667,891
Cash pledged as collateral for financial futures contracts		155,000
Dividends receivable		58,543
Receivable from advisor		55,745
Investments sold receivable		12,247
Margin variation receivable		7,875
Interest receivable		358
Deferred offering costs		4,965
Prepaid expenses		199
Total assets		46,717,587
Liabilities
Investments purchased payable		3,057,049
Professional fees payable		59,442
Custodian fees payable		34,592
Foreign taxes payable		6,688
Trustees’ fees payable		918
Other accrued expenses payable		4,653
Total liabilities		3,163,342
Net Assets	$	43,554,245
Net Assets Consist of
Investors’ capital	$	46,615,793
Net unrealized appreciation/depreciation		(3,061,548	)
Net Assets	$	43,554,245

See Notes to Financial Statements.
	BLACKROCK ACWI ex-US INDEX FUND	DECEMBER 31, 2011	35

Statement of Operations ACWI ex-US Index Master Portfolio

Period June 30, 20111 to December 31, 20111
Investment Income
Dividends — unaffiliated	$	314,847
Foreign taxes withheld		(32,300	)
Dividends — affiliated		744
Income — affiliated		1,361
Total income		284,652
Expenses
Investment advisory		20,465
Professional		55,699
Printing		999
Independent Trustees		2,306
Custodian		110,477
Organization and offering costs		7,326
Miscellaneous		5,021
Total expenses		202,293
Less fees waived and/or reimbursed by advisor		(157,109	)
Total expenses after fees waived		45,184
Net investment income		239,468
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments — unaffiliated		(37,454	)
Investments — affiliated		(249,651	)
Financial futures contracts		174,344
Foreign currency transactions		(26,067	)
		(138,828	)
Net change in unrealized appreciation/depreciation on:
Investments		(3,080,594	)
Financial futures contracts		19,195
Foreign currency transactions		(149	)
		(3,061,548	)
Total realized and unrealized loss		(3,200,376	)
Net Decrease in Net Assets Resulting from Operations	$	(2,960,908	)

¹  Commencement of operations.

See Notes to Financial Statements.
36	BLACKROCK ACWI ex-US INDEX FUND	DECEMBER 31, 2011

Statement of Changes in Net Assets ACWI ex-US Index Master Portfolio

Increase (Decrease) in Net Assets:	Period June 30, 20111 to December 31, 2011
Operations
Net investment income	$	239,468
Net realized loss		(138,828	)
Net change in unrealized appreciation/depreciation		(3,061,548	)
Net decrease in net assets resulting from operations		(2,960,908	)
Capital Transactions
Proceeds from contributions		49,234,708
Fair value of withdrawals		(2,719,555	)
Net increase in net assets derived from capital transactions		46,515,153
Net Assets
Total increase in net assets		43,554,245
Beginning of period		—
End of period	$	43,554,245

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK ACWI ex-US INDEX FUND	DECEMBER 31, 2011	37

Financial Highlights ACWI ex-US Index Master Portfolio

	Period June 30, 20111 to December  31, 2011
Total Investment Return2
Total investment return		(18.04	)%
Ratios to Average Net Assets3
Total expenses		1.47%	4
Total expenses after fees waived and/or reimbursed		0.33%
Net investment income		1.76%
Supplemental Data
Net assets, end of period (000)	$	43,554
Portfolio turnover		4%

¹  Commencement of operations.

²  Aggregate total investment return.

³  Annualized.

⁴  Organization costs were not annualized in the calculation of the expense ratio. If this expense was annualized, the total expense would have been 1.48%.

See Notes to Financial Statements.
38	BLACKROCK ACWI ex-US INDEX FUND	DECEMBER 31, 2011

Notes to Financial Statements ACWI ex-US Index Master Portfolio

1. Organization and Significant Accounting Policies:

ACWI ex-US Index Master Portfolio (the “Master Portfolio”), a series of Master Investment Portfolio (“MIP”), is registered as a non-diversified open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). MIP is organized as a Delaware statutory trust. The Master Portfolio’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.

The following is a summary of significant accounting policies followed by the Master Portfolio:

Valuation: US GAAP defines fair value as the price the Master Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Master Portfolio fair values its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Trustees of MIP (the “Board”). Equity investments traded on a recognized securities exchange or the NASDAQ Global Market System (“NASDAQ”) are valued at the last reported sale price that day or the NASDAQ official closing price, if applicable. For equity investments traded on more than one exchange, the last reported sale price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last available bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s price will be used, unless it is determined that such prior day’s price no longer reflects the fair value of the security. Financial futures contracts traded on exchanges are valued at their last sale price. Investments in open-end registered investment companies are valued at net asset value each business day. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value.

Securities and other assets and liabilities denominated in foreign currencies are translated into US dollars using exchange rates determined as of the close of business on the New York Stock Exchange (“NYSE”). Foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of business on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available.

In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the market value of such investment or if a price is not available, the investment will be valued in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Assets”). When determining the price for Fair Value Assets, the investment advisor seeks to determine

the price that the Master Portfolio might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the investment advisor deems relevant. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof.

Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Master Portfolio’s net assets. If events (for example, a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Assets and be valued at their fair value, as determined in good faith by the investment advisor using a pricing service and/or policies approved by the Board. Each business day, the Master Portfolio uses a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and 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 business on the NYSE, which follows the close of the local markets.

Foreign Currency Transactions: The Master Portfolio’s books and records are maintained in US dollars. Purchases and sales of investment securities are recorded at the rates of exchange prevailing on the respective date of such transactions. Generally, when the US dollar rises in value against a foreign currency, the Master Portfolio’s investments denominated in that currency will lose value because its currency is worth fewer US dollars; the opposite effect occurs if the US dollar falls in relative value.

The Master Portfolio does not isolate the portion of the results of operations arising as a result of changes in the foreign exchange rates from the changes in the market prices of investments held or sold for financial reporting purposes. Accordingly, the effects of changes in foreign currency exchange rates on investments are not segregated on the Statement of Operations from the effects of changes in market prices of those investments but are included as a component of net realized and unrealized gain (loss) from investments. The Master Portfolio 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 treated as ordinary income for federal income tax purposes.

Segregation and Collateralization: In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (“SEC”) require that the Master Portfolio either deliver collateral or segregate assets in connection with certain investments (e.g., financial futures contracts and foreign currency exchange contracts), the Master

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 39

Notes to Financial Statements (continued) ACWI ex-US Index Master Portfolio

Portfolio will, consistent with SEC rules and/or certain interpretive letters issued by the SEC, segregate collateral or designate on its books and records cash or other liquid securities having a market value at least equal to the amount that would otherwise be required to be physically segregated. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, each party to such transactions has requirements to deliver/deposit securities as collateral for certain investments.

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend dates. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Master Portfolio 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.

Income Taxes: The Master Portfolio is classified as a partnership for federal income tax purposes. As such, each investor in the Master Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Master Portfolio. Therefore, no federal income tax provision is required. It is intended that the Master Portfolio’s assets will be managed so an investor in the Master Portfolio can satisfy the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended.

The Master Portfolio files US federal and various state and local tax returns. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.

Recent Accounting Standards: In May 2011, the Financial Accounting Standards Board (the “FASB”) issued amended guidance to improve disclosure about fair value measurements which will require the following disclosures for fair value measurements categorized as Level 3: quantitative information about the unobservable inputs and assumptions used in the fair value measurement, a description of the valuation policies and procedures and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, the amounts and reasons for all transfers in and out of Level 1 and Level 2 will be required to be disclosed. The amended guidance is effective for financial statements for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Master Portfolio’s financial statements and disclosures.

In December 2011, the FASB issued guidance that will enhance current disclosure requirements on the offsetting of certain assets and

liabilities. The new disclosures will be required for investments and derivative financial instruments subject to master netting agreements or similar agreements and will require an entity to disclose both gross and net information about such investments and transactions eligible for offset in the Statements of Assets and Liabilities. The guidance is effective for financial statements with fiscal years beginning on or after January 1, 2013, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Master Portfolio’s financial statement disclosures.

Organization and Offering Costs: Upon commencement of operations, organization costs associated with the establishment of the Master Portfolio were expensed by the Master Portfolio and reimbursed by the Manager. Offering costs associated with the establishment of the Master Portfolio are amortized over a 12-month period beginning with the commencement of operations. The Manager reimbursed the Master Portfolio $7,326, which is shown as fees waived and/or reimbursed by advisor in the Statement of Operations.

Other: Expenses directly related to the Master Portfolio are charged to the Master Portfolio. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods.

The Master Portfolio has an arrangement with the custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.

2. Derivative Financial Instruments:

The Master Portfolio engages in various portfolio investment strategies using derivative contracts both to increase the return of the Master Portfolio and to economically hedge or protect, its exposure to certain risks such as equity risk or foreign currency exchange rate risk. These contracts may be transacted on an exchange.

Losses may arise if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument or if the counterparty does not perform under the contract. Counterparty risk related to exchange-traded financial futures contracts is deemed to be minimal due to the protection against defaults provided by the exchange on which these contracts trade.

Financial Futures Contracts: The Master Portfolio purchases or sells financial futures contracts to gain exposure to, or economically hedge against, changes in the value of equity securities (equity risk). Financial futures contracts are agreements between the Master Portfolio and counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the

40 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Notes to Financial Statements (continued) ACWI ex-US Index Master Portfolio

terms of the particular contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. Pursuant to the contract, a Master Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as margin variation and are recorded by the Master Portfolio as unrealized appreciation or depreciation. When the contract is closed, the Master Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest rates and the underlying assets.

Foreign Currency Exchange Contracts: The Master Portfolio enters into foreign currency exchange contracts as an economic hedge against either specific transactions or portfolio instruments or to obtain exposure to foreign currencies (foreign currency exchange rate risk). A foreign currency exchange contract is an agreement between two parties to buy and sell a currency at a set exchange rate on a future date. Foreign currency exchange contracts, when used by the Master Portfolio, help to manage the overall exposure to the currencies in which some of the investments held by the Master Portfolio are denominated. The contract is marked-to-market daily and the change in market value is recorded by the Master Portfolio as an unrealized gain or loss. When the contract is closed, the Master Portfolio records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. The use of foreign currency exchange contracts involves the risk that the value of a foreign currency exchange contract changes unfavorably due to movements in the value of the referenced foreign currencies and the risk that a counterparty to the contract does not perform its obligations under the agreement.

Derivative Financial Instruments Categorized by Risk Exposure:
Fair Values of Derivative Financial Instruments as of December 31, 2011
	Asset Derivatives
	Statement of Assets and Liabilities Location
Equity contracts	Net unrealized appreciation/ depreciation*	$	19,195

* Includes cumulative appreciation/depreciation on financial futures contracts as reported in the Schedule of Investments. Only current day’s margin variation is reported within the Statement of Assets and Liabilities.

The Effect of Derivative Financial Instruments in the Statement of Operations Period Ended December 31, 2011
	Net Realized Gain (Loss) From
Equity contracts:
Financial futures contracts	$	174,344
Foreign currency exchange contracts:
Foreign currency exchange contracts	$	(26,067	)
	Net Change in Unrealized Appreciation/Depreciation on
Equity contracts:
Financial futures contracts	$	19,195
Foreign currency exchange contracts:
Foreign currency exchange contracts	$	(149	)

For the period ended December 31, 2011, the average quarterly balances of outstanding derivative financial instruments were as follows:

Financial futures contracts:
Average number of contracts — purchased		15
Average notional value of contracts — purchased	$	929,445
Foreign currency exchange contracts:
Average number of contracts — US dollars purchased		2
Average number of contracts — US dollars sold		8
Average US dollars amounts purchased	$	9,160
Average US dollars amounts sold	$	876,011

3. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”). Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

MIP, on behalf of the Master Portfolio, entered into an Investment Advisory Agreement (the “Investment Advisory Agreement”) with BlackRock Fund Advisors (“BFA”), the Master Portfolio’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory services. Pursuant to the Investment Advisory Agreement with MIP, BFA is responsible for the management of the Master Portfolio’s investments and provides the necessary personnel,

facilities, equipment and certain other services necessary to the operations of the Master Portfolio. For such services, the Master Portfolio pays BFA a monthly fee based on a percentage of the Master Portfolio’s average daily net assets at an annual rate of 0.15%.

BFA contractually agreed to waive and/or reimburse fees or expenses, excluding interest expense, dividend expense, acquired fund fees and expenses and certain other fund expenses, in order to limit expenses of certain feeder funds which invest its assets in the Master Portfolio. BFA has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to July 1, 2012 unless approved by the Board, including a majority of the independent trustees. For the period ended December 31, 2011, BFA waived $149,783, which is included in fees waived and/or reimbursed by advisor in the Statement of Operations.

Certain officers and/or trustees of MIP are officers and/or directors of BlackRock or its affiliates.

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 41

Notes to Financial Statements (concluded) ACWI ex-US Index Master Portfolio

4. Investments:

Purchases and sales of investments excluding short-term securities for the period ended December 31, 2011, were $46,876,393 and $995,811, respectively.

5. Concentration, Market and Credit Risk:

In the normal course of business, the Master Portfolio invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Master Portfolio may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Master Portfolio; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Master Portfolio may be exposed to counterparty credit risk, or the risk that an entity with which the Master Portfolio has unsettled or open transactions may fail to or be unable to perform on its commitments. The Master Portfolio manages counterparty credit risk by entering into transactions only with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Master Portfolio to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Master Portfolio’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Master Portfolio’s Statement of Assets and Liabilities, less any collateral held by the Master Portfolio.

The Master Portfolio invests a substantial amount of its assets in issuers located in a single country or a limited number of countries. When the Master Portfolio concentrates its investments in this manner, it assumes the risk that economic, political and social conditions in those countries may have a significant impact on their investment performance. Foreign issuers may not be subject to the same uniform accounting, auditing and financial reporting standards and practices as used in the U.S. Foreign securities markets may also be less liquid, more volatile, and less subject to governmental supervision not typically associated with investing in U.S. securities. Please see the Schedule of Investments for concentrations in specific countries.

As of December 31, 2011, the Master Portfolio had the following industry classifications:

Industry Allocation	Percent of Long-Term Investments
Commercial Banks		13	%
Oil, Gas & Consumable Fuels		11
Metals & Mining		7
Pharmaceuticals		6
Other*		63

* All other industries held were each less than 5% of long-term investments.

6. Subsequent Events:

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

42 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Report of Independent Registered Public Accounting Firm Master Investment Portfolio

To the Interestholders and Board of Trustees of Master Investment Portfolio:

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of BlackRock ACWI ex-US Index Master Portfolio, a portfolio of Master Investment Portfolio (the “Master Portfolio”), at December 31, 2011, and the results of its operations, the changes in its net assets and the financial highlights for the period June 30, 2011 (commencement of operations) through December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Master Portfolio’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these

financial statements in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provides a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 24, 2012

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 43

Officers and Trustees

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1
Ronald W. Forbes 55 East 52nd Street New York, NY 10055 1940	Co-Chairman of the Board and Trustee	Since 2009	Professor Emeritus of Finance, School of Business, State University of New York at Albany since 2000.	33 RICs consisting of 107 Portfolios	None
Rodney D. Johnson 55 East 52nd Street New York, NY 10055 1941	Co-Chairman of the Board and Trustee	Since 2009	President, Fairmount Capital Advisors, Inc. since 1987; Member of the Archdiocesan Investment Committee of the Archdiocese of Philadelphia since 2004; Director, The Committee of Seventy (civic) since 2006; Director, Fox Chase Cancer Center from 2004 to 2010.	33 RICs consisting of 107 Portfolios	None
David O. Beim 55 East 52nd Street New York, NY 10055 1940	Trustee	Since 2009	Professor of Professional Practice at the Columbia University Graduate School of Business since 1991; Trustee, Phillips Exeter Academy since 2002; Chairman, Wave Hill, Inc. (public garden and cultural center) from 1990 to 2006.	33 RICs consisting of 107 Portfolios	None
Dr. Matina S. Horner 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Executive Vice President of Teachers Insurance and Annuity Association and College Retirement Equities Fund from 1989 to 2003.	33 RICs consisting of 107 Portfolios	NSTAR (electric and gas utility)
Herbert I. London 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Professor Emeritus, New York University since 2005; John M. Olin Professor of Humanities, New York University from 1993 to 2005 and Professor thereof from 1980 to 2005; President, Hudson Institute (policy research organization) since 1997 and Trustee thereof since 1980; Chairman of the Board of Trustees for Grantham University since 2006; Director, InnoCentive, Inc. (strategic solutions company) since 2005; Director, Cerego, LLC (software development and design) since 2005; Director, Cybersettle (dispute resolution technology) since 2009.	33 RICs consisting of 107 Portfolios	AIMS Worldwide, Inc. (marketing)
Cynthia A. Montgomery 55 East 52nd Street New York, NY 10055 1952	Trustee	Since 2009	Professor, Harvard Business School since 1989; Director, McLean Hospital since 2005; Director, Harvard Business School Publishing from 2005 to 2010.	33 RICs consisting of 107 Portfolios	Newell Rubbermaid, Inc. (manufacturing)
Joseph P. Platt 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2009	Director, The West Penn Allegheny Health System (a not-for-profit health system) since 2008; Director, Jones and Brown (Canadian insurance broker) since 1998; General Partner, Thorn Partners, LP (private investment) since 1998; Director, WQED Multi-Media (public broadcasting not-for-profit) since 2001; Partner, Amarna Corporation, LLC (private investment company) from 2002 to 2008.	33 RICs consisting of 107 Portfolios	Greenlight Capital Re, Ltd. (reinsurance company)
Robert C. Robb, Jr. 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Partner, Lewis, Eckert, Robb and Company (management and financial consulting firm) since 1981.	33 RICs consisting of 107 Portfolios	None
Toby Rosenblatt 55 East 52nd Street New York, NY 10055 1938	Trustee	Since 2009	President, Founders Investments Ltd. (private investments) since 1999; Director, College Access Foundation of California (philanthropic foundation) since 2009; Director, Forward Management, LLC since 2007; Director, A.P. Pharma, Inc. (specialty pharmaceuticals) from 1983 to 2011; Director, The James Irvine Foundation (philanthropic foundation) from 1998 to 2008.	33 RICs consisting of 107 Portfolios	None

44 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Officers and Trustees (continued)

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1 (concluded)
Kenneth L. Urish 55 East 52nd Street New York, NY 10055 1951	Trustee	Since 2009	Managing Partner, Urish Popeck & Co., LLC (certified public accountants and consultants) since 1976; Chairman Elect of the Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants and Committee Member thereof since 2007; Member of External Advisory Board, The Pennsylvania State University Accounting Department since 2001; Trustee, The Holy Family Foundation from 2001 to 2010; President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Director, Inter-Tel from 2006 to 2007.	33 RICs consisting of 107 Portfolios	None
Frederick W. Winter 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Professor and Dean Emeritus of the Joseph M. Katz School of Business, University of Pittsburgh since 2005 and Dean thereof from 1997 to 2005; Director, Alkon Corporation (pneumatics) since 1992; Director, Tippman Sports (recreation) since 2005; Director, Indotronix International (IT services) from 2004 to 2008.	33 RICs consisting of 107 Portfolios	None
	1   Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved extensions in terms of Trustees who turn 72 prior to December 31, 2013. 2   Date shown is the earliest date a person has served for the Fund covered by this annual report. Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. (“BlackRock”) in September 2006, the various legacy MLIM and legacy BlackRock Fund boards were realigned and consolidated into three new Fund boards in 2007. As a result, although the chart shows certain Trustees as joining the Trust’s/MIP’s board in 2007, each Trustee first became a member of the board of other legacy MLIM or legacy BlackRock Funds as follows: David O. Beim, 1998; Ronald W. Forbes, 1977; Dr. Matina S. Horner, 2004; Rodney D. Johnson, 1995; Herbert I. London, 1987; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Robert C. Robb, Jr., 1998; Toby Rosenblatt, 2005; Kenneth L. Urish, 1999; and Frederick W. Winter, 1999.
Interested Trustees3
Paul L. Audet 55 East 52nd Street New York, NY 10055 1953	Trustee	Since 2011	Senior Managing Director, BlackRock, and Head of BlackRock’s Real Estate business from 2008 to 2011; Member of BlackRock’s Global Operating and Corporate Risk Management Committees and of the BlackRock Alternative Investors Executive Committee and Investment Committee for the Private Equity Fund of Funds business since 2008; Head of BlackRock’s Global Cash Management business from 2005 to 2010; Acting Chief Financial Officer of BlackRock from 2007 to 2008; Chief Financial Officer of BlackRock from 1998 to 2005.	159 RICs consisting of 286 Portfolios	None
Henry Gabbay 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2007	Consultant, BlackRock from 2007 to 2008; Managing Director, BlackRock from 1989 to 2007; Chief Administrative Officer, BlackRock Advisors, LLC from 1998 to 2007; President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007 and Treasurer of certain closed-end funds in the BlackRock fund complex from 1989 to 2006.	159 RICs consisting of 286 Portfolios	None
	3   Mr. Audet is an “interested person,” as defined in the 1940 Act, of the Trust/MIP based on his position with BlackRock and its affiliates. Mr. Gabbay is an “interested person” of the Trust/MIP based on his former positions with BlackRock and its affiliates as well as his ownership of BlackRock and The PNC Financial Services Group, Inc. securities. Mr. Audet and Mr. Gabbay are also Trustees of the BlackRock registered closed-end funds and Trustees of other BlackRock registered open-end funds. Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 45

Officers and Trustees (concluded)

Name, Address and Year of Birth	Position(s) Held with the Trust/MIP	Length of Time Served	Principal Occupation(s) During Past Five Years
Trust/MIP Officers*
John M. Perlowski 55 East 52nd Street New York, NY 10055 1964	President and Chief Executive Officer	Since 2010	Managing Director of BlackRock since 2009; Global Head of BlackRock Fund Administration since 2009; Managing Director and Chief Operating Officer of the Global Product Group at Goldman Sachs Asset Management, L.P. from 2003 to 2009; Treasurer of Goldman Sachs Mutual Funds from 2003 to 2009 and Senior Vice President thereof from 2007 to 2009; Director of Goldman Sachs Offshore Funds from 2002 to 2009; Director of Family Resource Network (charitable foundation) since 2009.
Richard Hoerner, CFA 55 East 52nd Street New York, NY 10055 1958	Vice President	Since 2009	Managing Director of BlackRock since 2000; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2002; Member of the Cash Management Group Executive Committee since 2005.
Brendan Kyne 55 East 52nd Street New York, NY 10055 1977	Vice President	Since 2009	Managing Director of BlackRock since 2010; Director of BlackRock from 2008 to 2009; Head of Product Development and Management for BlackRock’s U.S. Retail Group since 2009 and Co-head thereof from 2007 to 2009; Vice President of BlackRock from 2005 to 2008.
Simon Mendelson 55 East 52nd Street New York, NY 10055 1964	Vice President	Since 2009	Managing Director of BlackRock since 2005; Co-head of the Global Cash and Securities Lending Group since 2010; Chief Operating Officer and Head of the Global Client Group for BlackRock’s Global Cash Management Business from 2007 to 2010; Head of BlackRock’s Strategy and Development Group from 2005 to 2007; Partner of McKinsey & Co. from 1997 to 2005.
Christopher Stavrakos, CFA 55 East 52nd Street New York, NY 10055 1959	Vice President	Since 2009	Managing Director of BlackRock since 2006; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2006; Senior Vice President, CIO, and Director of Liability Management for the Securities Lending Group at Mellon Bank from 1999 to 2006.
Neal Andrews 55 East 52nd Street New York, NY 10055 1966	Chief Financial Officer	Since 2007	Managing Director of BlackRock since 2006; Senior Vice President and Line of Business Head of Fund Accounting and Administration at PNC Global Investment Servicing (U.S.) Inc. from 1992 to 2006.
Jay Fife 55 East 52nd Street New York, NY 10055 1970	Treasurer	Since 2007	Managing Director of BlackRock since 2007; Director of BlackRock in 2006; Assistant Treasurer of the MLIM and Fund Asset Management, L.P. advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006.
Brian Kindelan 55 East 52nd Street New York, NY 10055 1959	Chief Compliance Officer and Anti-Money Laundering Officer	Since 2007	Chief Compliance Officer of the BlackRock-advised funds since 2007; Managing Director and Senior Counsel of BlackRock since 2005.
Ira P. Shapiro 55 East 52nd Street New York, NY 10055 1963	Secretary	Since 2010	Managing Director of BlackRock since 2009; Managing Director and Associate General Counsel of Barclays Global Investors from 2008 to 2009 and Principal thereof from 2004 to 2008.
	*  Officers of the Trust/MIP serve at the pleasure of the Board of Trustees.

Investment Advisor BlackRock Fund Advisors San Francisco, CA 94105	Administrator BlackRock Institutional Trust Company, N.A. San Francisco, CA 94105	Custodian State Street Bank and Trust Company Boston, MA 02101	Transfer Agent BNY Mellon Investment Servicing (US) Inc. Wilmington, DE 19809	Accounting Agent State Street Bank and Trust Company Boston, MA 02110	Distributor BlackRock Investments, LLC New York, NY 10022
			Legal Counsel Sidley Austin LLP New York, NY 10019	Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP New York, NY 10017	Address of the Funds 400 Howard Street San Francisco, CA 94105

46 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

Additional Information

General Information

Availability of Quarterly Schedule of Investments

The Fund/Master Portfolio files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s/Master Portfolio’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. The Fund’s/Master Portfolio’s Forms N-Q may also be obtained upon request and without charge by calling (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

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

Availability of Proxy Voting Record

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

Shareholder Privileges

Account Information

Call us at (800) 441-7762 from 8:00 AM to 6:00 PM EST on any business day to get information about your account balances, recent

transactions and share prices. You can also reach us on the Web at http://www.blackrock.com/funds.

BlackRock Privacy Principles

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

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

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

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

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

BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011 47

A World-Class 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.

Equity Funds

BlackRock ACWI ex-US Index Fund

BlackRock All-Cap Energy & Resources Portfolio

BlackRock Asset Allocation Portfolio†

BlackRock Balanced Capital Fund†

BlackRock Basic Value Fund

BlackRock Capital Appreciation Fund

BlackRock China Fund

BlackRock Commodity Strategies Fund

BlackRock Emerging Markets Long/Short Equity Fund

BlackRock Energy & Resources Portfolio

BlackRock Equity Dividend Fund

BlackRock EuroFund

BlackRock Focus Growth Fund

BlackRock Global Allocation Fund†

BlackRock Global Dividend Income Portfolio

BlackRock Global Dynamic Equity Fund

BlackRock Global Emerging Markets Fund

BlackRock Global Opportunities Portfolio

BlackRock Global SmallCap Fund

BlackRock Health Sciences Opportunities Portfolio

BlackRock Index Equity Portfolio

BlackRock India Fund

BlackRock International Fund

BlackRock International Index Fund

BlackRock International Opportunities Portfolio

BlackRock Large Cap Core Fund

BlackRock Large Cap Core Plus Fund

BlackRock Large Cap Growth Fund

BlackRock Large Cap Value Fund

BlackRock Latin America Fund

BlackRock Mid-Cap Growth Equity Portfolio

BlackRock Mid-Cap Value Equity Portfolio

BlackRock Mid Cap Value Opportunities Fund

BlackRock Natural Resources Trust

BlackRock Pacific Fund

BlackRock Russell 1000 Index Fund

BlackRock Science & Technology Opportunities Portfolio

BlackRock Small Cap Growth Equity Portfolio

BlackRock Small Cap Growth Fund II

BlackRock Small Cap Index Fund

BlackRock S&P 500 Index Fund

BlackRock S&P 500 Stock Fund

BlackRock U.S. Opportunities Portfolio

BlackRock Value Opportunities Fund

BlackRock World Gold Fund

Fixed Income Funds

BlackRock Bond Index Fund

BlackRock Core Bond Portfolio

BlackRock Emerging Market Debt Portfolio

BlackRock Floating Rate Income Portfolio

BlackRock Global Long/Short Credit Fund

BlackRock GNMA Portfolio

BlackRock High Yield Bond Portfolio

BlackRock Inflation Protected Bond Portfolio

BlackRock International Bond Portfolio

BlackRock Long Duration Bond Portfolio

BlackRock Low Duration Bond Portfolio

BlackRock Multi-Asset Income Portfolio†

BlackRock Multi-Sector Bond Portfolio

BlackRock Strategic Income Opportunities Portfolio

BlackRock Total Return Fund

BlackRock US Government Bond Portfolio

BlackRock World Income Fund

US Mortgage Portfolio

Municipal Bond Funds

BlackRock California Municipal Bond Fund

BlackRock High Yield Municipal Fund

BlackRock Intermediate Municipal Fund

BlackRock National Municipal Fund

BlackRock New Jersey Municipal Bond Fund

BlackRock New York Municipal Bond Fund

BlackRock Pennsylvania Municipal Bond Fund

BlackRock Short-Term Municipal Fund

Target Risk & Target Data Funds†

BlackRock Prepared Portfolios	BlackRock Lifecycle Prepared Portfolios		LifePath Portfolios Retirement		LifePath Index Portfolios Retirement
Conservative Prepared Portfolio	2015	2035	2020	2040	2020	2040
Moderate Prepared Portfolio	2020	2040	2025	2045	2025	2045
Growth Prepared Portfolio	2025	2045	2030	2050	2030	2050
Aggressive Growth Prepared Portfolio	2030	2050	2035	2055	2035	2055

† Mixed asset fund.

BlackRock mutual funds are currently distributed by BlackRock Investments, LLC. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling (800) 441-7762 or from your financial advisor. The prospectus should be read carefully before investing.

48 BLACKROCK ACWI ex-US INDEX FUND DECEMBER 31, 2011

This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Funds unless accompanied or preceded by the Funds’ 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.

ACWI-12/11

December 31, 2011

Annual Report

BlackRock CoreAlpha Bond Fund | of BlackRock Funds III

Not FDIC Insured     No Bank Guarantee    May Lose Value

Table of Contents

	Page
Dear Shareholder		3
Annual Report:
Fund Summary		4
About Fund Performance		6
Disclosure of Expenses		6
Derivative Financial Instruments		6
Fund Financial Statements:
Statement of Assets and Liabilities		7
Statement of Operations		8
Statement of Changes in Net Assets		9
Fund Financial Highlights		10
Fund Notes to Financial Statements		11
Fund Report of Independent Registered Public Accounting Firm		13
Important Tax Information		13
Master Portfolio Information		14
Master Portfolio Financial Statements:
Schedule of Investments		15
Statement of Assets and Liabilities		25
Statement of Operations		26
Statements of Changes in Net Assets		27
Master Portfolio Financial Highlights		28
Master Portfolio Notes to Financial Statements		29
Master Portfolio Report of Independent Registered Public Accounting Firm		36
Officers and Trustees		37
Additional Information		40
A World-Class Mutual Fund Family		41

2 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

Dear Shareholder

Investors endured a very difficult environment in 2011. Financial markets were extremely volatile as a number of high-profile global events drove frequent about-face changes in investor sentiment. As the year progressed, news flow increasingly influenced trading decisions, to the point where company fundamentals were largely ignored. In the end, lower-risk assets won the “risk on – risk off” trading tug-of-war that characterized 2011’s market activity.

Early in the year, political turmoil swept across the Middle East/North Africa region and prices of oil and other commodities soared. Natural disasters in Japan disrupted global supply chains and concerns mounted regarding US debt and deficit issues. Nevertheless, equities, commodities and high yield bonds outpaced the less risky asset classes as investors chose to focus on the continuing stream of strong corporate earnings and positive economic data.

Markets reversed sharply in May, however, when the heightened possibility of Greece defaulting on its debt rekindled fears about sovereign debt problems spreading across Europe. Concurrently, economic indicators signaled that the recovery had slowed in the United States and other developed nations. Confidence was further shaken by the prolonged debt ceiling debate in Washington, DC. On August 5^th, Standard & Poor’s downgraded the US government’s credit rating and turmoil erupted in financial markets around the world. Extraordinary levels of volatility persisted in the months that followed as Greece teetered on the brink of default, debt problems escalated in Italy and Spain, and exposure to European sovereign bonds stressed banks globally. Late in the summer, economic data out of the United States and Europe grew increasingly bleak while China and other emerging economies began to show signs of slowing growth. By the end of the third quarter, equity markets had fallen nearly 20% from their April peak while safe-haven assets such as US Treasuries and gold had rallied to historical highs.

October brought enough positive economic data to assuage fears of a global double-dip recession. Additionally, after months of deliberation, European leaders began to show signs of progress toward stemming the region’s debt crisis. These encouraging developments brought investors back from the sidelines and risk assets rallied through the month. However, a lack of definitive details about Europe’s rescue plan soon raised doubts among investors and thwarted the rally at the end of October. The last two months of the year saw political instability in Greece, unsustainable yields on Italian bonds, and US policymakers bickering over budget issues. Global central bank actions and improving economic data energized investors, but confidence was easily tempered by sobering news flow that resurrected uncertainty about the ability of Europe’s leaders to ultimately contain the debt crisis.

Most equity markets failed to fully recover their late-summer losses, although US large cap stocks managed to finish the year with a marginal gain given their perceived safety and stronger US economic data. Conditions were worse overseas, and international markets experienced some significant downturns. Dividend-paying stocks performed relatively well as investors sought yield in the low interest rate environment. Fixed income securities benefited from declining yields and delivered positive returns for the year. US Treasury bonds outperformed other fixed income classes despite their quality rating downgrade, while municipal bonds also delivered superior results. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

Many of the themes that caused uncertainty in 2011 are likely to persist well into 2012. While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of December 31, 2011
	6-month			12-month
US large cap equities (S&P 500 Index)		(3.69	)%		2.11	%
US small cap equities (Russell 2000 Index)		(9.77	)		(4.18	)
International equities (MSCI Europe, Australasia, Far East Index)		(16.31	)		(12.14	)
Emerging market equities (MSCI Emerging Markets Index)		(19.13	)		(18.42	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.02			0.10
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		13.46			17.15
US investment grade bonds (Barclays Capital US Aggregate Bond Index)		4.98			7.84
Tax-exempt municipal bonds (S&P Municipal Bond Index)		5.78			10.62
US high yield bonds (Barclays Capital US Corporate High Yield 2% Issuer Capped Index)		(0.02	)		4.96
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

3

Fund Summary as of December 31, 2011 BlackRock CoreAlpha Bond Fund

Investment Objective

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

Portfolio Management Commentary

How did the Fund perform?

· For the period beginning with its initial trading date of February 28, 2011 through December 31, 2011, the Fund returned 7.80%, slightly outperforming its benchmark, the Barclays Capital US Aggregate Bond Index (the “Index”), which returned 7.45% for the same period. The Index is comprised of US government securities and investment-grade corporate bonds, as well as mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities.

· The Fund invests all of its assets in the CoreAlpha Bond Master Portfolio (the “Master Portfolio”), a series of Master Investment Portfolio.

What factors influenced performance?

· The Master Portfolio’s mortgage sector positioning had a positive impact on relative performance during the period. The Master Portfolio’s duration overweight versus the Index as well as its yield curve positioning contributed positively to results, as interest rates moved lower during the period.

· Detracting from performance during the period was security selection within securitized credit as well as an overweight to the sector in the third quarter when markets became extremely volatile amid heightened uncertainty.

· The Master Portfolio held cash in reserves as collateral for pending transactions in mortgage-backed securities and derivatives. Cash holdings did not have a material impact on portfolio performance.

Describe recent portfolio activity.

· During the 12-month period, the Master Portfolio did not make significant changes to its overall asset allocation. However, as the outlook for global growth deteriorated and markets became increasingly volatile, the Master Portfolio adopted a more defensive position, which entailed reducing its allocation to high yield debt.

Describe portfolio positioning at period end.

· At period end, the Master Portfolio was overweight relative to the Barclays Capital US Aggregate Bond Index in credit, with a focus in the industrial sector, and underweight mortgage-backed securities.

4 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

BlackRock CoreAlpha Bond Fund

Total Return Based on a $10,000 Investment

¹  The Fund invests all of its assets in the Master Portfolio. The Master Portfolio invests primarily in long-term, fixed income securities that are rated in the four highest categories of the recognized rating agencies (Baa or better by Moody’s Investors, Inc., or BBB or better by Standard & Poor’s).

²  The unmanaged market-weighted index is composed of investment grade corporate bonds (rated BBB or better), mortgages and U.S. Treasury and government agency issues with at least one year to maturity.

³  Commencement of operations.

Performance Summary for the Period Ended December 31, 2011

	Total Return
	6-Month			Since Inception4
Institutional Shares		5.65	%		7.80	%
Barclays Capital US Aggregate Bond Index		4.98			7.45

⁴  The Fund commenced operations on February 28, 2011.

See “About Fund Performance” on page 6 for a detailed description of share classes, including any related sales charges and fees.

Past performance is not indicative of future results.

Expense Example

	Actual						Hypothetical6
	Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the  Period5		Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the  Period5		Annualized Expense Ratio
Institutional	$	1,000.00	$	1,056.50	$	1.81	$	1,000.00	$	1,023.44	$	1.79		0.35	%

⁵  Expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period shown). Because the Fund invests significantly in the Master Portfolio, the expense table example reflects the net expenses of both the Fund and the Master Portfolio.

⁶  Hypothetical 5% return before expenses is calculated by pro-rating the number of days in the most recent fiscal half year divided by 365.

See “Disclosure of Expenses” on page 6 for further information on how expenses were calculated.

BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011 5

About Fund Performance BlackRock CoreAlpha Bond Fund

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

Performance information reflects past performance and does not guarantee future results. Current performance data may be lower or higher than the performance data quoted. Refer to www.blackrock.com/funds, to obtain performance data current to the most recent month end. Performance results do not reflect the

deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Figures shown in the performance table on the previous page assume reinvestment of all dividends and capital gain distributions, if any, at net asset value on the payable date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. The Fund’s administrator waived a portion of the Fund’s expenses. Without such waiver, the Fund’s performance would have been lower.

Disclosure of Expenses

Shareholders of the Fund may incur the following charges: operating expenses, including administration fees and other Fund expenses. The expense example on the preceding page (which is based on a hypothetical investment of $1,000 invested on July 1, 2011 and held through December 31, 2011) 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 table on the preceding page 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 under the heading entitled “Expenses Paid During the Period.”

The table 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 this Fund and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in other funds’ shareholder reports.

The expenses shown in the table are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges or exchange fees, 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 Master Portfolio may invest in various derivative financial instruments, including financial futures contracts, foreign currency exchange contracts and swaps, as specified in Note 2 of the Master Portfolio’s Notes to Financial Statements, which may constitute forms of economic leverage. Such derivative financial instruments are used to obtain exposure to a market without owning or taking physical custody of securities or to hedge credit, interest rate and foreign currency exchange rate risk. Derivative financial instruments 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 derivative financial instrument. The Master Portfolio’s ability to use a derivative financial

instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may require the Master Portfolio to sell or purchase portfolio investments at inopportune times or for distressed values, may limit the amount of appreciation the Master Portfolio can realize on an investment, may result in lower dividends paid to shareholders or may cause the Master Portfolio to hold an investment that it might otherwise sell. The Master Portfolio’s investments in these instruments are discussed in detail in the Master Portfolio’s Notes to Financial Statements.

6 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

Statement of Assets and Liabilities BlackRock CoreAlpha Bond Fund

December 31, 2011
Assets
Investments at value — Master Portfolio (cost — $58,398,140)	$	59,338,118
Total assets		59,338,118
Liabilities
Capital shares redeemed payable		6,545
Income dividends payable		62,048
Administration fees payable		2,940
Professional fees payable		16,780
Total liabilities		88,313
Net Assets	$	59,249,805
Net Assets Consist of
Paid-in capital	$	57,991,861
Undistributed net investment income		28,370
Accumulated net realized gain		289,596
Net unrealized appreciation/depreciation		939,978
Net Assets	$	59,249,805
Net Asset Value
Institutional
Net assets	$	59,249,805
Shares outstanding, unlimited number of shares authorized, no par value		5,643,301
Net asset value	$	10.50

See Notes to Financial Statements.
	BLACKROCK COREALPHA BOND FUND	DECEMBER 31, 2011	7

Statement of Operations BlackRock CoreAlpha Bond Fund

Period February 28, 20111 to December 31, 2011
Investment Income
Net investment income allocated from the Master Portfolio:
Dividends	$	3,210
Securities lending — affiliated		2,076
Income — affiliated		5,577
Interest		693,546
Expenses		(54,532	)
Fees waived		1,391
Total income		651,268
Expenses
Administration		21,807
Professional		18,672
Total expenses		40,479
Less fees waived and/or reimbursed by administrator		(18,672	)
Total expenses after fees waived		21,807
Net investment income		629,461
Realized and Unrealized Gain (Loss) Allocated from the Master Portfolio
Net realized gain from:
Investments		140,819
Financial futures contracts		130,972
Swaps		18,630
Foreign currency transactions		(257	)
		290,164
Net change in unrealized appreciation/depreciation on:
Investments		1,056,697
Financial futures contracts		(20,797	)
Swaps		(92,251	)
Foreign currency transactions		(3,671	)
		939,978
Total realized and unrealized gain		1,230,142
Net Increase in Net Assets Resulting from Operations	$	1,859,603

¹  Commencement of operations.

See Notes to Financial Statements.
8	BLACKROCK COREALPHA BOND FUND	DECEMBER 31, 2011

Statement of Changes in Net Assets BlackRock CoreAlpha Bond Fund

Increase (Decrease) in Net Assets:	Period February 28, 20111 to December 31,  2011
Operations
Net investment income	$	629,461
Net realized gain		290,164
Net change in unrealized appreciation/depreciation		939,978
Net increase in net assets resulting from operations		1,859,603
Dividends to Shareholders From
Net investment income:
Institutional		(601,659	)
Return of capital:
Institutional		(27,824	)
		(629,483	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		58,019,685
Net Assets
Total increase in net assets		59,249,805
Beginning of period		—
End of period	$	59,249,805
Undistributed net investment income	$	28,370

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK COREALPHA BOND FUND	DECEMBER 31, 2011	9

Financial Highlights BlackRock CoreAlpha Bond Fund

	Institutional
	Period February 28, 20111 to December 31,  2011
Per Share Operating Performance
Net asset value, beginning of period	$	10.00
Net investment income2		0.25
Net realized and unrealized gain		0.52
Net increase from investment operations		0.77
Dividends from:
Net investment income		(0.26	)
Return of capital		(0.01	)
		(0.27	)
Net asset value, end of period	$	10.50
Total Investment Return3,4
Based on net asset value		7.80%
Ratios to Average Net Assets5,6,7
Total expenses		0.44%
Total expenses after fees waived		0.35%
Net investment income		2.93%
Supplemental Data
Net assets, end of period (000)	$	59,250
Portfolio turnover of the Master Portfolio8		1,646%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Includes the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the Fund’s share of the Master Portfolio’s allocated fee waived of 0.01%.

⁸  Includes mortgage dollar roll transactions. Excluding these transactions the portfolio turnover rate would have been 1,510%.

See Notes to Financial Statements.
10	BLACKROCK COREALPHA BOND FUND	DECEMBER 31, 2011

Notes to Financial Statements BlackRock CoreAlpha Bond Fund

1. Organization and Significant Accounting Policies:

BlackRock CoreAlpha Bond Fund (the “Fund”) is a series of BlackRock Funds III (the “Trust”) and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a diversified, open-end management investment company. The Trust is organized as a Delaware statutory trust. The Fund seeks to achieve its investment objective by investing substantially all of its assets in CoreAlpha Bond Master Portfolio (the “Master Portfolio”), a series of Master Investment Portfolio (“MIP”), which has the same investment objective and strategies as the Fund. The value of the Fund’s investment in the Master Portfolio reflects the Fund’s proportionate interest in the net assets of the Master Portfolio. The percentage of the Master Portfolio owned by the Fund at December 31, 2011 was 2.51%. The performance of the Fund is directly affected by the performance of the Master Portfolio. The financial statements of the Master Portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the Fund’s financial statements. The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The Fund commenced operations on February 28, 2011.

The following is a summary of significant accounting policies followed by the Fund:

Valuation: US 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’s policy is to fair value its financial instruments at market value. The Fund records its investment in the Master Portfolio at fair value based on the Fund’s proportionate interest in the net assets of the Master Portfolio. Valuation of securities held by the Master Portfolio is discussed in Note 1 of the Master Portfolio’s Notes to Financial Statements, which are included elsewhere in this report.

Investment Transactions and Investment Income: For financial reporting purposes, contributions to and withdrawals from the Master Portfolio are accounted on a trade date basis. The Fund records daily its proportionate share of the Master Portfolio’s income, expenses and realized and unrealized gains and losses. In addition, the Fund accrues its own expenses. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Dividends and Distributions: Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. If the total dividends and distributions made in any tax year exceeds net investment income and accumulated

realized capital gains, a portion of the total distribution may be treated as a tax return of capital. The amount and timing of dividends and distributions are determined in accordance with federal income tax regulations, which may differ from US GAAP.

Income Taxes: 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 federal income tax provision is required.

The Fund files US federal and various state and local tax returns. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.

Other: Expenses directly related to the Fund are charged to the Fund. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods.

2. Administration Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”). Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

The Trust entered into an administration services arrangement with BlackRock Institutional Trust Company, N.A. (the “Administrator” or “BTC”), which has agreed to provide general administration services (other than investment advice and related portfolio activities). BTC, in consideration thereof, has agreed to bear all of the Fund’s ordinary operating expenses, excluding, generally, investment advisory fees, distribution fees, brokerage and other expenses related to the execution of portfolio transactions, extraordinary expenses and certain other expenses which are borne by the Fund. BTC is entitled to receive for these administration services an annual fee of 0.10% based on the average daily net assets of the Fund.

From time to time, BTC may waive such fees in whole or in part. Any such waiver will reduce the expenses of the Fund and, accordingly, have a favorable impact on its performance. BTC may delegate certain of its administration duties to sub-administrators.

The fees and expenses of the trustees who are not “interested persons” of the Trust, as defined in the 1940 Act (“Independent Trustees”), counsel to the Independent Trustees and the Trust’s independent registered public accounting firm (together, the “independent expenses”) are paid directly by the Fund. BTC has contractually agreed to provide an offsetting credit against the administration fees paid by the Fund in an amount equal to the independent expenses through April 30, 2012.

BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011 11

Notes to Financial Statements (concluded) BlackRock CoreAlpha Bond Fund

Certain officers and/or trustees are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Administrator for compensation paid to the Trust’s Chief Compliance Officer.

3. Income Tax Information:

US GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of December 31, 2011 attributable to foreign currency transactions were reclassified to the following accounts:

Undistributed net investment income	$	568
Accumulated net realized gain	$	(568	)

The tax character of distributions paid during the fiscal year ended December 31, 2011 was as follows:

	12/31/2011
Ordinary income	$	601,659
Tax return of capital		27,824
Total	$	629,483

As of December 31, 2011, the tax components of accumulated net earnings were as follows:

Capital loss carryforwards	$	(96,930	)
Net unrealized gains*		1,479,956
Qualified late-year losses**		(125,082	)
Total	$	1,257,944

* The difference between book-basis and tax-basis net unrealized gains was attributable primarily to the timing and recognition of partnership income.

** The Fund has elected to defer certain qualified late-year losses and recognize such losses in the year ending December 31, 2012.

As of December 31, 2011, the Fund had a capital loss carryforward of $96,930. The capital loss carryforward has no expiration date and is available to offset future realized capital gains.

4. Capital Share Transactions:

Transactions in capital shares for the Fund were as follows:

	Period February 28, 20111 to December 31, 2011
	Shares			Amount
Institutional
Shares sold		5,801,715		$	59,651,623
Shares issued to shareholders in reinvestment of dividends and distributions		45,330			469,499
Shares redeemed		(203,744	)		(2,101,437	)
Net increase		5,643,301		$	58,019,685

¹  Commencement of operations.

5. Subsequent Events:

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

12 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

Report of Independent Registered Public Accounting Firm BlackRock CoreAlpha Bond Fund

To the Shareholders and Board of Trustees of BlackRock Funds III:

In our opinion, the accompanying statement of assets and liabilities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the BlackRock CoreAlpha Bond Fund, a series of BlackRock Funds III (the “Trust”), at December 31, 2011, the results of its operations, the changes in its net assets and the financial highlights for the period February 28, 2011 (commencement of operations) to December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit

of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 24, 2012

Important Tax Information (Unaudited)

The following information is provided with respect to the ordinary income distributions paid by the Fund during the taxable year ended December 31, 2011:

Month(s) Paid
Interest Related Dividends for Non-U.S. Residents1	March 2011	88.56%
	April 2011	91.10%
	May 2011	88.61%
	June 2011	91.69%
	July 2011	91.45%
	August 2011	85.44%
	September 2011	90.92%
	October 2011	91.75%
	November 2011	84.10%
	December 2011	91.54%
Federal Obligation Interest2	March - December 2011	8.63%

¹  Represents the portion of taxable ordinary income dividends eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.

²  The law varies in each state as to whether and what percentage of dividend income attributable to federal obligations is exempt from state income tax. We recommend that you consult your tax advisor to determine if any portion of the dividends you received is exempt from state income taxes.

BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011 13

Master Portfolio Information as of December 31, 2011 CoreAlpha Bond Master Portfolio

Portfolio Composition

Percent of
Long-Term Investments

U.S. Government Sponsored Agency Securities	51	%
Corporate Bonds	22
U.S. Treasury Obligations	16
Asset-Backed Securities	6
Non-Agency Mortgage-Backed Securities	3
Foreign Agency Obligations	1
Taxable Municipal Bonds	1

Credit Quality Allocation¹

Percent of
Long-Term Investments

AAA/Aaa2	69	%
AA/Aa	5
A	11
BBB/Baa	12
BB/Ba	2
B	1

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

² Includes US Government Sponsored Agency Securities which were deemed AAA/Aaa by the investment advisor.

14 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

Schedule of Investments December 31, 2011 CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Asset-Backed Securities	Par (000)		Value
ACE Securities Corp., Series 2005-AG1, Class A2D, 0.65%, 8/25/35 (a)	$	3,963	$	3,377,287
AH Mortgage Advance Trust, Series SART-1, Class A1, 2.63%, 5/10/42 (b)		7,400		7,363,000
AmeriCredit Automobile Receivables Trust:
Series 2006-RM, Class A3, 5.53%, 1/06/14		2,373		2,375,256
Series 2007-CM, Class A4A, 5.55%, 4/07/14		3,117		3,148,873
Ameriquest Mortgage Securities, Inc.:
Series 2005-R6, Class A2, 0.49%, 8/25/35 (a)		726		682,472
Series 2006-R1, Class A2C, 0.48%, 3/25/36 (a)		1,278		1,262,836
Asset Backed Funding Corp. Certificates:
Series 2005-HE2, Class M1, 0.77%, 6/25/35 (a)		330		324,100
Series 2005-OPT1, Class A1SS, 0.54%, 7/25/35 (a)		809		782,927
BankAmerica Manufactured Housing Contract Trust, Series 1998-1, Class M, 6.94%, 4/10/23 (a)		264		264,560
BNC Mortgage Loan Trust, Series 2007-4, Class A3A, 0.54%, 11/25/37 (a)		1,818		1,773,774
Capital One Multi-Asset Execution Trust, Series 2007-C2, Class C2, 0.58%, 11/17/14 (a)		11,900		11,895,736
Carrington Mortgage Loan Trust, Series 2007-FRE1, Class A1, 0.41%, 2/25/37 (a)		744		722,435
Chase Funding Mortgage Loan Asset-Backed Certificates, Series 2003-5, Class 1A4, 4.40%, 2/25/30		496		498,522
Chesapeake Funding LLC, Series 2009-1, Class A, 2.28%, 12/15/20 (a)(b)		6,759		6,775,070
CIT Mortgage Loan Trust, Series 2007-1, Class 2A1, 1.29%, 10/25/37 (a)(b)		3,128		3,059,917
Citibank Credit Card Issuance Trust, Series 2002-C2, Class C2, 6.95%, 2/18/14		12,900		12,986,616
Citigroup Mortgage Loan Trust, Inc., Series 2007-WFH4, Class A2A, 1.19%, 7/25/37 (a)		194		187,258
Countrywide Asset-Backed Certificates:
Series 2005-4, Class MV1, 0.75%, 10/25/35 (a)		4,413		4,270,855
Series 2006-20, Class 2A2, 0.41%, 4/25/47 (a)		2,850		2,711,423
Series 2006-22, Class 2A2, 0.40%, 5/25/47 (a)		3,468		3,338,874
Series 2006-25, Class 2A2, 0.41%, 6/25/47 (a)		4,908		4,334,578
Series 2007-10, Class 2A1, 0.34%, 6/25/47 (a)		1,129		1,085,551
Series 2007-4, Class A1B, 5.81%, 9/25/37		647		634,800
Series 2007-5, Class 2A1, 0.39%, 9/25/47 (a)		888		872,970

Asset-Backed Securities	Par (000)		Value
Series 2007-6, Class 2A1, 0.39%, 9/25/37 (a)	$	1,144	$	1,127,438
Series 2007-7, Class 2A1, 0.37%, 10/25/47 (a)		107		105,180
Series 2007-8, Class 2A1, 0.35%, 11/25/37 (a)		2,067		1,982,507
Credit-Based Asset Servicing & Securitization LLC, Series 2006-CB8, Class A2A, 0.34%, 10/25/36 (a)		329		326,522
First Franklin Mortgage Loan Asset Backed Certificates:
Series 2004-FF10, Class A3, 0.83%, 9/25/34 (a)		244		229,788
Series 2005-FF10, Class A4, 0.61%, 11/25/35 (a)		1,914		1,477,296
Series 2005-FF4, Class M1, 0.72%, 5/25/35 (a)		2,258		1,802,664
GE-WMC Mortgage Securities LLC, Series 2005-1, Class A2C, 0.65%, 10/25/35 (a)		1,842		1,566,357
GMAC Mortgage Corp. Loan Trust, Series 2006-HLTV, Class A3, 5.59%, 10/25/29		195		193,229
GMAC Mortgage Servicer Advance Funding Co. Ltd., Series 2011-1A, Class A, 3.72%, 3/15/23 (b)		5,900		5,885,250
GSAA Home Equity Trust, Series 2005-12, Class AF3W, 5.00%, 9/25/35 (a)		4,553		4,252,512
GSAMP Trust, Series 2007-HE2, Class A2A, 0.36%, 3/25/47 (a)		623		611,562
Helios Finance LP:
Series 2007-S1, Class B1, 0.98%, 10/20/14 (a)(b)		1,421		1,417,716
Series 2007-S1, Class B2, 2.63%, 10/20/14 (a)(b)		3,589		3,583,905
IndyMac Residential Asset Backed Trust, Series 2007-A, Class 2A1, 0.42%, 4/25/47 (a)		133		132,691
JPMorgan Mortgage Acquisition Corp., Series 2006-CH1, Class A3, 0.39%, 7/25/36 (a)		3,928		3,857,318
Long Beach Mortgage Loan Trust, Series 2005-WL1, Class M2, 0.84%, 6/25/35 (a)		1,726		1,423,672
Morgan Stanley Capital, Inc., Series 2006, Class A3, 0.48%, 12/25/35 (a)		902		888,289
Morgan Stanley Home Equity Loan Trust, Series 2006-1, Class A2B, 0.49%, 12/25/35 (a)		347		341,669
Nationstar Home Equity Loan Trust, Series 2006-B, Class AV2, 0.42%, 9/25/36 (a)		2,728		2,638,380
New Century Home Equity Loan Trust:
Series 2005-3, Class A2D, 0.67%, 7/25/35 (a)		5,149		4,981,348
Series 2005-3, Class M1, 0.77%, 7/25/35 (a)		5,500		4,674,455
Series 2005-3, Class M2, 0.78%, 7/25/35 (a)		1,500		1,037,073
Park Place Securities, Inc., Series 2005-WCW3, Class A2C, 0.67%, 8/25/35 (a)		7,148		6,581,147

See Notes to Financial Statements.

BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011 15

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Asset-Backed Securities	Par (000)		Value
Residential Asset Mortgage Products, Inc.:
Series 2005-EFC3, Class M1, 0.74%, 8/25/35 (a)	$	3,125	$	3,054,220
Series 2005-RS6, Class M1, 0.79%, 6/25/35 (a)		4,300		3,314,152
Residential Asset Securities Corp.:
Series 2005-AHL1, Class A2, 0.56%, 7/25/35 (a)		387		382,294
Series 2007-KS3, Class AI1, 0.40%, 4/25/37 (a)		219		217,523
Series 2007-KS4, Class A1, 0.39%, 5/25/37 (a)		242		238,123
Santander Drive Auto Receivables Trust, Series 2011-S1A, Class D, 3.10%, 5/15/17 (b)		4,274		4,236,217
Securitized Asset Backed Receivables LLC Trust, Series 2005-FR5, Class A1A, 0.58%, 8/25/35 (a)		270		267,926
SG Mortgage Securities Trust, Series 2006-OPT2, Class A3A, 0.34%, 10/25/36 (a)		110		109,319
SLM Student Loan Trust, Series 2009-C, Class A, 4.50%, 11/16/43 (a)(b)		5,946		5,636,790
Soundview Home Equity Loan Trust:
Series 2006-EQ1, Class A2, 0.40%, 10/25/36 (a)		2,092		2,053,244
Series 2007-1, Class 2A1, 0.38%, 3/25/37 (a)		1,601		1,474,869
Series 2007-OPT5, Class 2A1, 1.09%, 10/25/37 (a)		57		56,822
Specialty Underwriting & Residential Finance, Series 2005-BC3, Class M2, 0.79%, 6/25/36 (a)		2,600		1,572,977
Structured Asset Investment Loan Trust, Series 2005-1, Class A5, 0.64%, 2/25/35 (a)(b)		818		808,447
Structured Asset Securities Corp., Series 2006-BC5, Class A2, 0.34%, 12/25/36 (a)		1,200		1,173,692
Terwin Mortgage Trust:
Series 2005-12AL, Class AF2, 4.65%, 7/25/36		373		372,356
Series 2005-14HE, Class AF2, 4.85%, 8/25/36		3,638		3,511,316
Wheels SPV LLC, Series 2009-1, Class A, 1.83%, 3/15/18 (a)(b)		3,497		3,508,970
Total Asset-Backed Securities — 6.7%				157,836,915
Corporate Bonds
Aerospace & Defense — 0.5%
BE Aerospace, Inc., 6.88%, 10/01/20 (c)		1,900		2,071,000
L-3 Communications Corp.:
3.95%, 11/15/16		1,250		1,261,653
4.75%, 7/15/20		900		889,245
4.95%, 2/15/21		600		594,635
Series B, 6.38%, 10/15/15		2,396		2,455,900
Lockheed Martin Corp., 5.50%, 11/15/39		1,900		2,052,705
TransDigm, Inc., 7.75%, 12/15/18		2,200		2,365,000
				11,690,138

Corporate Bonds	Par (000)		Value
Air Freight & Logistics — 0.1%
FedEx Corp., 8.00%, 1/15/19	$	600	$	787,854
United Parcel Service, Inc., 4.88%, 11/15/40		400		462,301
				1,250,155
Beverages — 0.3%
Bottling Group LLC, 5.13%, 1/15/19 (c)		1,100		1,283,327
Diageo Finance BV, 3.25%, 1/15/15		2,000		2,114,418
Dr Pepper Snapple Group, Inc.:
2.35%, 12/21/12		1,000		1,013,848
2.90%, 1/15/16		1,250		1,296,403
PepsiCo, Inc., 4.88%, 11/01/40		1,000		1,155,632
				6,863,628
Biotechnology — 0.8%
Amgen, Inc.:
2.30%, 6/15/16		800		805,466
6.40%, 2/01/39		900		1,061,196
5.15%, 11/15/41		1,250		1,295,855
Biogen Idec, Inc., 6.88%, 3/01/18		7,528		9,098,853
Celgene Corp., 3.95%, 10/15/20		4,000		4,028,488
Genentech, Inc., 4.75%, 7/15/15		625		697,151
Gilead Sciences, Inc., 4.40%, 12/01/21		2,200		2,329,122
				19,316,131
Capital Markets — 0.9%
The Bear Stearns Cos., Inc., 6.40%, 10/02/17		2,500		2,793,072
The Bear Stearns Cos., Inc./JPMorgan Chase & Co., 5.70%, 11/15/14		800		870,024
Credit Suisse First Boston USA, Inc.:
5.13%, 1/15/14		1,400		1,459,237
4.88%, 1/15/15		900		940,341
The Goldman Sachs Group, Inc.:
5.95%, 1/18/18		1,500		1,536,332
6.15%, 4/01/18		1,500		1,548,133
7.50%, 2/15/19		1,200		1,325,291
6.75%, 10/01/37		1,650		1,535,346
6.25%, 2/01/41		950		931,978
Merrill Lynch & Co., Inc., 6.88%, 4/25/18		550		542,266
Morgan Stanley:
2.88%, 7/28/14 (c)		3,400		3,201,987
6.00%, 4/28/15		1,400		1,402,436
6.25%, 8/28/17		1,500		1,467,968
5.50%, 7/28/21		1,150		1,063,330
7.25%, 4/01/32		600		611,828
Series F, 5.95%, 12/28/17		850		809,826
				22,039,395
Chemicals — 0.3%
Ecolab, Inc., 4.35%, 12/08/21		500		533,945
LyondellBasell Industries N.V., 6.00%, 11/15/21 (b)(c)		1,800		1,867,500
Nalco Co., 6.63%, 1/15/19 (b)		3,500		4,051,250
				6,452,695

See Notes to Financial Statements.

16 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Corporate Bonds	Par (000)		Value
Commercial Banks — 0.6%
HSBC Bank USA NA, 5.88%, 11/01/34	$	1,700	$	1,640,061
HSBC Holdings Plc, 6.50%, 9/15/37		700		690,964
JPMorgan Chase Bank NA, Series BKNT, 6.00%, 10/01/17		800		860,564
US Bancorp, 2.20%, 11/15/16		4,000		4,038,432
Wachovia Bank NA, 6.00%, 11/15/17		5,400		5,962,804
				13,192,825
Communications Equipment — 0.1%
Omnicom Group, Inc., 4.45%, 8/15/20		2,700		2,783,125
Consumer Finance — 0.4%
American Express Co., 8.13%, 5/20/19		4,800		6,205,781
American Express Credit Co., 2.75%, 9/15/15		2,600		2,613,790
				8,819,571
Containers & Packaging — 0.3%
Crown Americas LLC and Crown Americas Capital Corp. II, 7.63%, 5/15/17		3,900		4,255,875
Sealed Air Corp., 6.88%, 7/15/33 (b)		2,000		1,750,000
				6,005,875
Diversified Financial Services — 1.5%
Associates Corp. of North America, 6.95%, 11/01/18		1,500		1,629,949
Bank of America Corp.:
4.50%, 4/01/15		4,300		4,149,440
3.70%, 9/01/15		1,000		930,421
3.75%, 7/12/16 (c)		2,400		2,222,206
5.49%, 3/15/19		1,500		1,292,866
Citigroup, Inc.:
6.50%, 8/19/13		1,400		1,457,348
6.38%, 8/12/14		1,400		1,469,329
6.13%, 11/21/17		1,000		1,067,231
8.50%, 5/22/19		1,600		1,883,338
8.13%, 7/15/39		600		734,599
General Electric Capital Corp.:
2.25%, 11/09/15		2,000		2,008,942
4.38%, 9/16/20		4,000		4,087,540
4.63%, 1/07/21		1,600		1,659,923
6.75%, 3/15/32		500		585,471
6.88%, 1/10/39		1,000		1,198,032
JPMorgan Chase & Co.:
3.45%, 3/01/16		3,300		3,352,645
3.15%, 7/05/16		1,100		1,105,148
5.60%, 7/15/41		2,400		2,512,716
5.40%, 1/06/42		1,100		1,147,944
SLM Corp.:
6.25%, 1/25/16		300		291,744
8.00%, 3/25/20		950		959,500
				35,746,332
Diversified Telecommunication Services — 1.4%
AT&T, Inc.:
4.95%, 1/15/13		1,500		1,563,328
2.40%, 8/15/16		1,250		1,275,359
6.55%, 2/15/39		2,000		2,544,078
5.35%, 9/01/40		1,231		1,384,752

Corporate Bonds	Par (000)		Value
BellSouth Corp., 6.55%, 6/15/34	$	2,400	$	2,856,890
British Telecommunications Plc, 9.63%, 12/15/30		400		563,720
Embarq Corp., 8.00%, 6/01/36		3,000		3,108,564
Qwest Corp., 8.38%, 5/01/16		3,300		3,779,731
Telefonica Emisiones SAU, 5.86%, 2/04/13		3,600		3,660,358
Verizon Communications, Inc.:
8.75%, 11/01/18		2,000		2,701,452
6.90%, 4/15/38		900		1,202,935
8.95%, 3/01/39		500		800,730
7.35%, 4/01/39		1,700		2,376,625
Windstream Corp., 7.88%, 11/01/17 (c)		5,350		5,791,375
				33,609,897
Electric Utilities — 1.8%
Commonwealth Edison Co.:
4.70%, 4/15/15		1,000		1,094,030
5.88%, 2/01/33		3,500		4,234,727
Duke Energy Corp.:
2.15%, 11/15/16		2,100		2,105,970
5.05%, 9/15/19		2,000		2,269,110
FirstEnergy Solutions Corp., 6.05%, 8/15/21		1,200		1,331,634
Ipalco Enterprises, Inc., 5.00%, 5/01/18		850		833,000
MidAmerican Energy Holdings Co., 5.75%, 4/01/18		6,550		7,558,746
Northern States Power Co, 5.25%, 7/15/35		2,500		3,076,523
Oncor Electric Delivery Co. LLC, 5.95%, 9/01/13		2,750		2,942,536
Pacific Gas & Electric Co.:
5.63%, 11/30/17		1,500		1,774,998
3.25%, 9/15/21 (c)		2,900		2,942,674
PacifiCorp:
5.50%, 1/15/19		1,300		1,534,121
6.25%, 10/15/37		1,000		1,318,190
Progress Energy, Inc.:
4.88%, 12/01/19		3,100		3,524,433
4.40%, 1/15/21		3,700		4,078,454
Southern Co. (The), 4.15%, 5/15/14		900		961,424
				41,580,570
Electrical Equipment — 0.1%
Roper Industries, Inc., 6.25%, 9/01/19		1,500		1,772,388
Electronic Equipment, Instruments & Components — 0.1%
Tyco Electronics Group SA, 6.55%, 10/01/17		2,900		3,350,074
Food Products — 0.7%
ConAgra Foods, Inc., 7.13%, 10/01/26		2,400		2,824,138
General Mills, Inc., 5.65%, 2/15/19		1,400		1,661,358
Hershey Co. (The), 4.13%, 12/01/20		1,550		1,733,847
Kellogg Co.:
4.45%, 5/30/16		100		111,004
3.25%, 5/21/18		1,550		1,630,022
Series B, 7.45%, 4/01/31		100		136,372
Kraft Foods, Inc., 5.38%, 2/10/20		3,600		4,153,863
Mead Johnson Nutrition Co., 4.90%, 11/01/19		4,500		4,952,677
				17,203,281

See Notes to Financial Statements.

BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011 17

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Corporate Bonds	Par (000)		Value
Health Care Equipment & Supplies — 0.1%
Covidien International Finance SA, 6.55%, 10/15/37	$	1,600	$	2,032,723
Health Care Providers & Services — 1.1%
AmerisourceBergen Corp.:
4.88%, 11/15/19		900		1,009,161
3.50%, 11/15/21		3,950		4,056,294
Cardinal Health, Inc., 4.63%, 12/15/20		4,300		4,609,686
DaVita, Inc., 6.38%, 11/01/18		3,550		3,634,313
Health Net, Inc., 6.38%, 6/01/17		2,300		2,392,000
Humana, Inc., 6.45%, 6/01/16		4,100		4,539,114
UnitedHealth Group, Inc.:
4.70%, 2/15/21 (c)		3,100		3,485,060
6.88%, 2/15/38		1,700		2,279,807
5.70%, 10/15/40		250		299,315
				26,304,750
Hotels, Restaurants & Leisure — 0.7%
McDonald’s Corp.:
6.30%, 10/15/37		1,000		1,397,376
4.88%, 7/15/40		1,600		1,909,263
Wyndham Worldwide Corp., 6.00%, 12/01/16		3,100		3,343,040
Yum! Brands, Inc.:
4.25%, 9/15/15		2,000		2,138,298
6.25%, 3/15/18		2,500		2,929,555
5.30%, 9/15/19		2,241		2,507,316
6.88%, 11/15/37		2,100		2,680,822
				16,905,670
Household Durables — 0.0%
Tupperware Brands Corp., 4.75%, 6/01/21 (b)		900		901,792
Independent Power Producers & Energy Traders — 0.3%
Constellation Energy Group, Inc., 5.15%, 12/01/20		3,200		3,467,648
Exelon Generation Co. LLC, 5.75%, 10/01/41		500		575,298
PSEG Power LLC, 4.15%, 9/15/21		1,150		1,194,366
Southern Power Co., 5.15%, 9/15/41		1,000		1,060,945
				6,298,257
Industrial Conglomerates — 0.4%
Tyco International Finance SA, 8.50%, 1/15/19		8,000		10,304,632
Insurance — 0.6%
American International Group:
6.40%, 12/15/20		1,200		1,211,076
8.18%, 5/15/68 (a)		500		445,000
Markel Corp., 5.35%, 6/01/21		1,300		1,361,282
Marsh & McLennan Cos., Inc.:
5.75%, 9/15/15		400		442,980
9.25%, 4/15/19		2,300		3,033,213
4.80%, 7/15/21		1,600		1,751,307
Willis Group Holdings Plc:
4.13%, 3/15/16		2,600		2,640,656
5.75%, 3/15/21		1,300		1,378,650
XL Group Ltd., 5.75%, 10/01/21		1,400		1,477,528
				13,741,692

Corporate Bonds	Par (000)		Value
Internet Software & Services — 0.1%
Digital Realty Trust LP, 5.88%, 2/01/20	$	2,800	$	2,913,285
IT Services — 0.6%
International Business Machines Corp.:
2.00%, 1/05/16		8,600		8,821,166
7.63%, 10/15/18		2,050		2,751,016
5.60%, 11/30/39 (c)		1,600		2,055,488
The Western Union Co., 6.20%, 11/17/36		600		638,412
				14,266,082
Leisure Equipment & Products — 0.1%
Mattel, Inc.:
2.50%, 11/01/16		750		754,820
5.45%, 11/01/41		1,800		1,822,633
				2,577,453
Life Sciences Tools & Services — 0.3%
Bio-Rad Laboratories, Inc., 4.88%, 12/15/20		4,100		4,254,029
Thermo Fisher Scientific, Inc., 3.25%, 11/20/14		1,600		1,694,269
				5,948,298
Machinery — 0.3%
Case New Holland, Inc., 7.75%, 9/01/13 (c)		3,191		3,390,437
Danaher Corp., 2.30%, 6/23/16		450		467,725
Dover Corp., 4.30%, 3/01/21 (c)		2,400		2,704,884
				6,563,046
Media — 1.2%
CBS Corp.:
4.30%, 2/15/21 (c)		2,000		2,064,982
5.90%, 10/15/40		2,200		2,469,656
Comcast Corp., 5.70%, 5/15/18		2,450		2,819,360
DirecTV Holdings LLC/DirecTV Financing Co., Inc., 7.63%, 5/15/16		4,800		5,094,000
DISH DBS Corp.:
7.88%, 9/01/19 (c)		2,700		3,051,000
6.75%, 6/01/21		1,200		1,293,000
NBCUniversal Media LLC, 6.40%, 4/30/40		500		614,697
News America, Inc., 4.50%, 2/15/21		2,500		2,621,273
Scripps Networks Interactive, Inc., 2.70%, 12/15/16		2,300		2,301,221
Time Warner, Inc.:
8.25%, 4/01/19 (c)		2,350		2,951,628
6.25%, 3/29/41		1,100		1,318,846
Viacom, Inc., 4.38%, 9/15/14		1,300		1,392,624
				27,992,287
Metals & Mining — 0.4%
Freeport-McMoRan Copper & Gold, Inc., 8.38%, 4/01/17		2,200		2,337,500
Kinross Gold Corp., 6.88%, 9/01/41 (b)		1,100		1,122,501
Newmont Mining Corp., 6.25%, 10/01/39		3,000		3,552,036
Xstrata Canada Corp., 6.20%, 6/15/35		1,000		1,035,986
Xstrata Canada Financial Corp., 6.00%, 11/15/41 (b)		650		666,973
				8,714,996

See Notes to Financial Statements.

18 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Corporate Bonds	Par (000)		Value
Multi-Utilities — 0.3%
Dominion Resources, Inc.:
6.40%, 6/15/18 (c)	$	4,050	$	4,887,795
4.45%, 3/15/21		2,100		2,338,970
				7,226,765
Multiline Retail — 0.1%
Nordstrom, Inc.:
4.00%, 10/15/21		1,200		1,250,921
7.00%, 1/15/38		600		797,822
				2,048,743
Oil, Gas & Consumable Fuels — 2.0%
Anadarko Petroleum Corp.:
6.45%, 9/15/36		1,000		1,140,101
6.20%, 3/15/40		1,300		1,446,757
BP Capital Markets Plc:
3.13%, 10/01/15		700		733,196
3.20%, 3/11/16		1,500		1,572,033
3.56%, 11/01/21		1,900		1,978,060
Buckeye Partners LP, 4.88%, 2/01/21		550		578,903
ConocoPhillips, 6.50%, 2/01/39		1,400		1,936,574
ConocoPhillips Canada Funding Co. I, 5.63%, 10/15/16		500		583,767
Encana Corp., 6.50%, 5/15/19 (c)		400		478,058
Energy Transfer Partners LP:
9.70%, 3/15/19		1,900		2,327,785
9.00%, 4/15/19		800		951,574
Enterprise Products Operating LLC:
5.20%, 9/01/20		500		553,427
5.75%, 3/01/35		1,500		1,594,709
5.95%, 2/01/41		900		1,008,769
Linn Energy LLC/Linn Energy Finance Corp.:
6.50%, 5/15/19 (b)		300		297,750
8.63%, 4/15/20		3,200		3,472,000
7.75%, 2/01/21		250		260,000
Marathon Petroleum Corp., 6.50%, 3/01/41		1,000		1,133,226
Noble Energy, Inc., 4.15%, 12/15/21		2,100		2,172,435
ONEOK Partners LP, 6.85%, 10/15/37		1,300		1,578,409
Petrobras International Finance Co.:
5.75%, 1/20/20		1,500		1,605,180
5.38%, 1/27/21		2,200		2,311,322
Petroleos Mexicanos:
5.50%, 1/21/21		1,100		1,193,500
6.50%, 6/02/41		1,400		1,575,000
Petronas Capital Ltd., 5.25%, 8/12/19		2,200		2,467,067
Plains All American Pipeline LP/PAA Finance Corp.:
8.75%, 5/01/19		600		766,496
6.70%, 5/15/36		1,000		1,188,056
TransCanada PipeLines Ltd.:
6.50%, 8/15/18		2,850		3,487,733
3.80%, 10/01/20		4,200		4,532,670
Williams Partners LP:
3.80%, 2/15/15		800		839,834
4.00%, 11/15/21		1,150		1,180,844
				46,945,235
Paper & Forest Products — 0.3%
Domtar Corp., 10.75%, 6/01/17		1,500		1,890,000

Corporate Bonds	Par (000)		Value
International Paper Co.:
9.38%, 5/15/19 (c)	$	1,600	$	2,079,141
7.50%, 8/15/21		2,100		2,592,154
6.00%, 11/15/41		200		217,122
				6,778,417
Pharmaceuticals — 0.6%
Abbott Laboratories, 5.30%, 5/27/40		1,400		1,676,559
AstraZeneca Plc, 6.45%, 9/15/37		1,500		2,023,236
Eli Lilly & Co., 5.55%, 3/15/37		1,700		2,062,401
GlaxoSmithKline Capital, Inc.:
5.65%, 5/15/18		1,200		1,444,328
6.38%, 5/15/38		500		669,026
Pfizer, Inc., 6.20%, 3/15/19		1,500		1,850,860
Sanofi-Aventis SA, 2.63%, 3/29/16		2,400		2,502,545
Teva Pharmaceutical Finance IV BV, 3.65%, 11/10/21		2,800		2,847,978
				15,076,933
Professional Services — 0.0%
Dun & Bradstreet Corp. (The), 2.88%, 11/15/15		600		616,307
Real Estate — 0.0%
Boston Properties LP, 3.70%, 11/15/18		950		970,028
Real Estate Investment Trusts (REITs) — 0.2%
American Tower Corp., 4.63%, 4/01/15		4,000		4,169,248
Simon Property Group LP, 5.65%, 2/01/20		1,000		1,146,058
				5,315,306
Road & Rail — 0.4%
Burlington Northern Santa Fe LLC, 5.40%, 6/01/41		2,700		3,121,238
CSX Corp., 5.75%, 3/15/13		2,600		2,736,916
Norfolk Southern Corp., 5.75%, 1/15/16		1,100		1,273,390
Union Pacific Corp., 6.13%, 2/15/20		1,300		1,591,336
				8,722,880
Semiconductors & Semiconductor Equipment — 0.1%
Intel Corp., 3.30%, 10/01/21		2,100		2,212,201
Software — 0.3%
Oracle Corp.:
5.25%, 1/15/16		1,500		1,732,048
5.75%, 4/15/18		550		667,417
5.38%, 7/15/40		3,100		3,776,659
				6,176,124
Specialty Retail — 0.9%
AutoZone, Inc., 4.00%, 11/15/20		6,600		6,761,786
The Gap, Inc., 5.95%, 4/12/21		935		891,804
Limited Brands, Inc.:
6.90%, 7/15/17		2,167		2,334,942
8.50%, 6/15/19		4,000		4,660,000
Macy’s Retail Holdings, Inc., 7.45%, 7/15/17		1,000		1,167,590
O’Reilly Automotive, Inc., 4.63%, 9/15/21		2,300		2,411,594
The Sherwin-Williams Co., 3.13%, 12/15/14		3,300		3,477,299
				21,705,015

See Notes to Financial Statements.

BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011 19

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Corporate Bonds	Par (000)		Value
Tobacco — 0.6%
Altria Group, Inc.:
9.70%, 11/10/18	$	2,750	$	3,699,886
9.25%, 8/06/19		1,100		1,477,032
9.95%, 11/10/38		200		304,196
Lorillard Tobacco Co., 3.50%, 8/04/16		1,200		1,213,780
Philip Morris International, Inc.:
4.88%, 5/16/13		2,200		2,321,561
5.65%, 5/16/18		1,300		1,537,670
2.90%, 11/15/21		2,700		2,752,782
6.38%, 5/16/38		1,500		1,955,539
				15,262,446
Wireless Telecommunication Services — 0.4%
America Movil SAB de CV, 5.00%, 3/30/20		2,800		3,093,362
American Tower Corp.:
4.50%, 1/15/18		2,100		2,136,252
5.05%, 9/01/20		2,300		2,304,161
Vodafone Group Plc:
2.88%, 3/16/16 (c)		1,800		1,867,687
5.63%, 2/27/17		950		1,103,077
				10,504,539
Total Corporate Bonds — 22.3%				526,701,982
Foreign Agency Obligations
Brazilian Government International Bond, 5.63%, 1/07/41		1,500		1,740,000
Colombia Government International Bond:
4.38%, 7/12/21		4,300		4,622,500
7.38%, 9/18/37		800		1,124,000
Indonesia Government International Bond, 5.88%, 3/13/20 (b)		1,800		2,038,500
Mexico Government International Bond, 6.05%, 1/11/40		2,600		3,178,500
Panama Government International Bond, 6.70%, 1/26/36		800		1,044,000
Peruvian Government International Bond:
7.13%, 3/30/19 (c)		1,900		2,389,250
6.55%, 3/14/37		300		381,000
South Africa Government International Bond, 5.50%, 3/09/20		2,000		2,240,000
Total Foreign Agency Obligations — 0.8%				18,757,750
Non-Agency Mortgage-Backed Securities
Collateralized Mortgage Obligations — 1.5%
Banc of America Funding Corp.:
Series 2005-8, Class 4A27, 5.75%, 1/25/36		952		922,904
Series 2006-6, Class 1A12, 5.75%, 8/25/36		205		203,770
Citicorp Mortgage Securities, Inc.:
Series 2006-1, Class 2A1, 5.00%, 2/25/21		818		810,238
Series 2007-3, Class 1A7, 6.00%, 4/25/37		1,504		1,503,772
Countrywide Alternative Loan Trust:
Series 2005-51, Class 1A2A, 0.57%, 11/20/35 (a)		2,072		2,000,425

Non-Agency Mortgage-Backed Securities	Par (000)			Value
Series 2006-HY12, Class A1, 5.57%, 8/25/36 (a)	$	702		$	681,574
Series 2006-OA2, Class A2A, 0.43%, 5/20/46 (a)		25			24,537
Crusade Global Trust, Series 2004-1, Class A1, 0.55%, 1/16/35 (a)		3,238			3,236,015
First Horizon Asset Securities, Inc., Series 2006-2, Class 1A6, 6.00%, 8/25/36		109			108,641
GMAC Mortgage Corp. Loan Trust, Series 2005-AR3, Class 4A3, 4.89%, 6/19/35 (a)		3,583			3,462,682
Greenpoint Mortgage Funding Trust:
Series 2006-AR4, Class A1A, 1.00%, 9/25/46 (a)		—	(d)		76
Series 2006-AR5, Class A1A, 0.37%, 10/25/46 (a)		1,689			1,606,577
GSR Mortgage Loan Trust, Series 2006-AR1, Class 2A2, 2.77%, 1/25/36 (a)		2,797			2,626,543
HSI Asset Securitization Corp. Trust, Series 2005, Class 2A4, 0.68%, 8/25/35 (a)		1,266			1,176,010
JPMorgan Alternative Loan Trust, Series 2006-A7, Class 1A2, 0.35%, 12/25/36 (a)		1,188			1,157,529
Residential Accredit Loans, Inc., Series 2004-QS9, Class A1, 5.00%, 6/25/19		683			682,143
Structured Asset Mortgage Investments, Inc., Series 2007-AR4, Class A1, 0.49%, 9/25/47 (a)		1,087			1,067,269
Thornburg Mortgage Securities Trust:
Series 2007-1, Class A2B, 0.36%, 3/25/37 (a)		3,622			3,580,324
Series 2007-2, Class A1, 0.38%, 6/25/37 (a)		557			549,766
Series 2007-2, Class A3A, 0.37%, 6/25/37 (a)		7,557			7,472,613
Wells Fargo Mortgage Backed Securities Trust:
Series 2003-11, Class 1A13, 4.75%, 10/25/18		724			743,077
Series 2005-7, Class A3, 5.25%, 9/25/35		761			760,445
					34,376,930
Commercial Mortgage-Backed Securities — 2.1%
Banc of America Merrill Lynch Commercial Mortgage, Inc., Series 2004-6, Class A3, 4.51%, 12/10/42		605			614,781
Bear Stearns Commercial Mortgage Securities, Series 2002-TOP8, Class A2, 4.83%, 8/15/38		5,433			5,510,662
Citigroup Commercial Mortgage Trust, Series 2008-C7, Class A4, 6.07%, 12/10/49 (a)		2,500			2,776,728

See Notes to Financial Statements.

20 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Non-Agency Mortgage-Backed Securities	Par (000)		Value
Credit Suisse First Boston Mortgage Securities Corp.:
Series 2002-CKN2, Class A3, 6.13%, 4/15/37	$	826	$	827,735
Series 2005-C5, Class AM, 5.10%, 8/15/38 (a)		1,500		1,570,365
CW Capital Cobalt Ltd., Series 2006-C1, Class A4, 5.22%, 8/15/48		3,000		3,190,863
GE Capital Commercial Mortgage Corp.:
Series 2002-1A, Class A3, 6.27%, 12/10/35		2,191		2,200,061
Series 2007-C1, Class A2, 5.42%, 12/10/49		1,772		1,776,391
Greenwich Capital Commercial Funding Corp., Series 2005-GG5, Class A5, 5.22%, 4/10/37 (a)		1,000		1,070,683
JPMorgan Chase Commercial Mortgage Securities Corp.:
Series 2002-CIB4, Class A3, 6.16%, 5/12/34		4,771		4,773,357
Series 2005-CB12, Class A3A1, 4.82%, 9/12/37		1,605		1,604,100
Series 2007-CB19, Class A3, 5.74%, 2/12/49 (a)		4,300		4,573,244
LB-UBS Commercial Mortgage Trust:
Series 2006-C7, Class A2, 5.30%, 11/15/38		4,179		4,186,300
Series 2007-C6, Class A4, 5.86%, 7/15/40 (a)		5,700		6,243,763
Merrill Lynch Countrywide Commercial Mortgage Trust, Series 2006-1, Class A2, 5.44%, 2/12/39 (a)		239		238,816
Merrill Lynch Mortgage Trust, Series 2004-MKB1, Class A3, 4.89%, 2/12/42		449		453,880
Morgan Stanley Dean Witter Capital I, Series 2002-IQ3, Class A4, 5.08%, 9/15/37		2,165		2,203,468
Wachovia Bank Commercial Mortgage Trust, Series 2007-C34, Class A3, 5.68%, 5/15/46		6,000		6,582,084
				50,397,281
Total Non-Agency Mortgage-Backed Securities — 3.6%				84,774,211
Preferred Securities
Capital Trusts
Insurance — 0.3%
Aon Corp., 8.21%, 1/01/27		1,700		1,981,437
Chubb Corp. (The):
6.00%, 5/11/37		800		964,656
6.38%, 3/29/67 (a)		2,550		2,518,125
The Travelers Cos., Inc., 6.25%, 6/15/37		1,000		1,243,474
				6,707,692
Total Capital Trusts — 0.3%				6,707,692

Preferred Securities	Shares		Value
Trust Preferred — 0.1%
Diversified Financial Services — 0.1%
JPMorgan Chase Capital XXVII, 7.00%, 11/01/39		3,500	$	3,521,875
Total Preferred Securities — 0.4%				10,229,567
Preferred Stocks
Diversified Telecommunication Services — 0.2%
Qwest Corp., 7.38%		196		5,201,840
Total Preferred Stocks — 0.2%				5,201,840
	Par (000)
Taxable Municipal Bonds
Chicago, Illinois Waterworks Revenue, 6.74%, 11/01/40	$	150		188,553
Massachusetts State Transportation Fund Revenue, 5.73%, 6/01/40		150		190,836
New Jersey State Turnpike Authority Revenue, 7.10%, 1/01/41		700		958,342
New York City Transitional Finance Authority Revenue, 5.57%, 11/01/38		450		522,203
Orange County Local Transportation Authority Sales Tax Revenue, 6.91%, 2/15/41		450		593,644
Port Authority of New York & New Jersey Revenue, 5.65%, 11/01/40		800		907,992
San Diego County Regional Transportation Commission Revenue, 5.91%, 4/01/39		600		754,356
San Francisco City & County Public Utilities Commission Revenue, 6.95%, 11/01/31		900		1,185,507
State of California:
7.55%, 4/01/39		400		489,088
7.63%, 3/01/40		1,150		1,414,902
7.60%, 11/01/40		250		308,678
State of Illinois, 2.77%, 1/01/12		5,200		5,200,000
State of Mississippi, 5.25%, 11/01/34		600		677,502
University of Missouri System Facilities Revenue, 5.79%, 11/01/41		300		386,256
Total Taxable Municipal Bonds — 0.6%				13,777,859
U.S. Government Sponsored Agency Securities
Agency Obligations — 2.1%
Fannie Mae, 0.75%, 12/19/14		50,000		50,154,150
Collateralized Mortgage Obligations — 1.2%
Fannie Mae REMICS:
Series 2007-54, Class PF, 0.51%, 6/25/37 (a)		5,958		5,923,417
Series 2010-35, Class EF, 0.84%, 4/25/40 (a)		7,464		7,471,305
Series 2010-89, Class CF, 0.74%, 2/25/38 (a)		6,127		6,119,592
Freddie Mac Mortgage Backed Securities:
Series 3667, Class FW, 0.83%, 2/15/38 (a)		4,758		4,762,271

See Notes to Financial Statements.

BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011 21

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

U.S. Government Sponsored Agency Securities	Par (000)		Value
Series 3807, Class FN, 0.78%, 2/15/41 (a)	$	4,235	$	4,234,766
				28,511,351
Mortgage-Backed Securities — 49.1%
Fannie Mae Mortgage Backed Securities:
2.36%, 1/01/36 (a)		1,843		1,946,551
2.38%, 4/11/16		33,812		35,724,170
2.39%, 8/01/33		2,872		3,022,196
2.47%, 5/01/33 (a)		3,792		3,993,771
2.52%, 1/01/35 (a)		1,625		1,711,525
2.75%, 8/01/41 (a)		4,054		4,202,843
3.00%, 2/01/26—1/01/42 (e)		4,939		5,102,129
3.31%, 9/01/41 (a)		2,247		2,341,364
3.36%, 4/01/40 (a)		593		620,915
3.50%, 2/01/26—1/01/42 (e)		96,033		99,063,119
3.60%, 5/01/40 (a)		3,790		3,968,137
4.00%, 8/01/25—1/01/42 (e)		188,469		198,203,017
4.50%, 10/01/24—1/01/42 (e)		85,099		90,651,490
5.00%, 1/01/18—1/01/42 (e)		64,238		69,431,073
5.50%, 9/01/19—1/01/42 (e)		90,846		99,081,180
6.00%, 11/01/22—1/01/42 (e)		74,907		82,648,997
6.50%, 12/01/30—12/01/32		17,232		19,667,461
Freddie Mac Mortgage Backed Securities:
2.22%, 10/01/33 (a)		1,621		1,688,066
2.50%, 5/27/16 (c)		26,214		27,762,592
2.63%, 11/01/36 (a)		1,926		2,053,094
3.00%, 1/01/42 (e)		4,000		4,128,752
3.26%, 8/01/41 (a)		2,810		2,928,075
3.34%, 7/01/41 (a)		1,645		1,715,119
3.35%, 2/01/40 (a)		3,794		3,972,080
3.50%, 12/01/25—1/01/42 (e)		10,478		10,911,902
4.00%, 3/01/26—1/01/42 (e)		39,306		41,282,058
4.50%, 8/01/20—1/01/42 (e)		56,973		60,428,014
4.57%, 4/01/38 (a)		4,798		5,116,130
5.00%, 10/01/20—1/01/42 (e)		42,400		45,612,483
5.50%, 12/01/27—8/01/38		27,084		29,453,396
6.00%, 12/01/28—1/01/38		22,802		25,186,567
6.50%, 5/01/21—1/01/36		3,913		4,445,235
Ginnie Mae Mortgage Backed Securities:
3.50%, 12/15/40—1/01/42 (e)		2,968		3,097,334
4.00%, 9/15/40—1/01/42 (e)		26,397		28,354,576
4.50%, 3/15/39—1/01/42 (e)		53,617		58,610,027
5.00%, 9/15/39—1/01/42 (e)		46,912		52,174,465
5.50%, 6/15/34—11/20/39		16,530		18,584,072
6.00%, 1/01/42 (e)		9,000		10,186,875
				1,159,070,850
Total U.S. Government Sponsored Agency Securities — 52.4%				1,237,736,351
U.S. Treasury Obligations
U.S. Treasury Bonds:
6.38%, 8/15/27 (c)		24,068		36,481,817
6.25%, 5/15/30		17,228		26,643,861
5.00%, 5/15/37 (c)		23,800		33,487,338
4.38%, 5/15/40 (c)(f)		23,100		30,008,332

U.S. Treasury Obligations	Par (000)		Value
3.88%, 8/15/40	$	20,650	$	24,754,187
4.25%, 11/15/40		4,640		5,917,448
4.38%, 5/15/41		4,931		6,424,940
U.S. Treasury Inflation Indexed Notes:
1.88%, 7/15/13		24,655		25,782,017
0.13%, 4/15/16		59,388		61,912,021
U.S. Treasury Notes:
1.25%, 2/15/14		61,000		62,253,367
1.75%, 3/31/14 (c)		33,000		34,080,222
2.75%, 12/31/17 (c)		26,500		29,050,625
1.75%, 10/31/18		1,041		1,071,417
Total U.S. Treasury Obligations — 16.0%				377,867,592
Total Long-Term Investments (Cost — $2,329,716,966) — 103.0%				2,432,884,067
Short-Term Securities	Shares
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (g)(h)(i)		559,553,070		559,553,070
BlackRock Cash Funds: Prime, SL Agency Shares, 0.18% (g)(h)(i)		36,989,307		36,989,307
				596,542,377
Total Short-Term Securities (Cost — $596,542,377) — 25.2%				596,542,377
Total Investments Before TBA Sale Commitments (Cost — $2,926,259,343*) — 128.2%				3,029,426,444
TBA Sale Commitments (e)	Par (000)
Fannie Mae Mortgage Backed Securities:
3.50%, 2/01/26—1/01/42	$	40,200		(41,482,406	)
4.00%, 08/01/25—1/01/42		164,800		(173,117,250	)
4.50%, 10/01/24—1/01/42		19,600		(20,857,500	)
5.00%, 1/01/18—1/01/42		152,600		(164,855,188	)
5.50%, 9/01/19—1/01/42		101,000		(109,979,531	)
6.00%, 11/01/22—1/01/42		20,000		(22,021,875	)
Ginnie Mae Mortgage Backed Securities:
5.00%, 9/15/39—1/01/42		10,000		(11,072,188	)
Total TBA Sale Commitments (Proceeds — $541,008,937) — (23.0)%				(543,385,938	)
Total Investments Net of TBA Sale Commitments — 105.2%				2,486,040,506
Liabilities in Excess of Other Assets — (5.2)%				(123,587,956	)
Net Assets — 100.0%			$	2,362,452,550

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Tax cost	$	2,928,227,671
Gross unrealized appreciation	$	111,420,990
Gross unrealized depreciation		(10,222,217	)
Net unrealized appreciation	$	101,198,773

See Notes to Financial Statements.

22 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio

(a) Variable rate security. Rate shown is as of report date.

(b) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors.

(c) Security, or a portion of security, is on loan.

(d) Amount is less than $500.

(e) Represents or includes a “to-be-announced” (“TBA”) transaction. Unsettled TBA transactions as of December 31, 2011 were as follows:

Counterparty	Market Value			Unrealized Appreciation (Depreciation)
Bank of America Securities	$	15,244,688		$	49,154
Barclays Capital Inc.	$	(42,995,219	)	$	(216,118	)
BNP Paribas	$	18,933,875		$	86,037
Citigroup Global	$	94,999,407		$	462,062
Credit Suisse Securities LLC	$	(81,690,719	)	$	(449,546	)
Deutsche Bank Securities, Inc.	$	(1,165,017	)	$	(134,652	)
Goldman Sachs & Co.	$	7,885,702		$	11,457
JPMorgan Securities, Ltd.	$	(36,317,437	)	$	(33,251	)
Morgan Stanley Capital Services, Inc.	$	13,829,719		$	94,830
Nomura Securities	$	23,955,250		$	148,407
R.B.C. Dominion Securities	$	(2,879,844	)	$	(16,529	)
RBS Securities LLC	$	(80,102,984	)	$	(850,656	)
UBS Securities LLC	$	4,130,624		$	8,202
Wells Fargo Securities	$	(3,794,375	)	$	(22,729	)

(f) All or a portion of security has been pledged as collateral in connection with open financial futures contracts.

(g) Investments in companies considered to be an affiliate of the Master Portfolio during the year, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares Held at December 31, 2010		Net Activity		Shares Held at December 31, 2011		Income
BlackRock Cash Funds: Institutional, SL Agency Shares		519,520,789		40,032,281		559,553,070	$	699,708
BlackRock Cash Funds: Prime, SL Agency Shares		12,803,177		24,186,130		36,989,307	$	52,811

(h) Represents the current yield as of report date.

(i) All or a portion of this security was purchased with the cash collateral from loaned securities.

· For Master Portfolio compliance purposes, the Master Portfolio’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Master Portfolio management. These definitions may not apply for purposes of this report, which may combine such sector and industry sub-classifications for reporting ease.

· Financial futures contracts purchased as of December 31, 2011 were as follows:

Contracts	Issue	Exchange	Expiration	Notional Value		Unrealized Appreciation (Depreciation)
1,178	2-Year U.S. Treasury Notes	Chicago Mercantile	March 2012	$	259,804,220	$	(95,729	)
1,372	5-Year U.S. Treasury Notes	Chicago Mercantile	March 2012	$	169,109,719		195,963
2,339	10-Year U.S. Treasury Notes	Chicago Mercantile	March 2012	$	306,701,375		1,203,560
53	30-Year U.S. Treasury Bonds	Chicago Mercantile	March 2012	$	7,675,063		37,140
Total						$	1,340,934

· Financial futures contracts sold as of December 31, 2011 were as follows:

Contracts	Issue	Exchange	Expiration	Notional Value		Unrealized Depreciation
19	Ultra Long U.S. Treasury Bonds	Chicago Mercantile	March 2012	$	3,043,563	$	(53,709	)

· Credit default swaps on single-name issues – sold protection outstanding as of December 31, 2011 were as follows:

Issuer

Receive Fixed Rate

Counterparty

Expiration Date

Issuer Credit Rating1

Notional Amount (000)2

Unrealized Appreciation

General Electric Capital Corp.

3.25

%

Deutsche Bank AG

12/20/13

AA+

$

4,000

$

32,847

¹  Using S&P’s rating.

²  The maximum potential amount the Master Portfolio may pay should a negative event take place as defined under the terms of agreement.

· Credit default swaps on traded indexes — buy protection outstanding as of December 31, 2011 were as follows:

Index	Pay Fixed Rate			Counterparty		Expiration Date		Notional Amount (000)		Unrealized Depreciation
Dow Jones CDX North America High Yield		5.00	%		Deutsche Bank AG		6/20/16	$	26,460	$	(242,644	)

· Interest rate swaps outstanding as of December 31, 2011 were as follows:

Fixed Rate	Floating Rate	Counterparty	Expiration Date	Notional Amount (000)		Unrealized Depreciation
1.71%1	3-month LIBOR	RBS PLC	11/14/18	$	58,000	$	(335,965	)
1.89%1	3-month LIBOR	Deutsche Bank AG	10/20/18		60,300		(1,119,672	)
Total						$	(1,455,637	)

¹ Pays fixed interest rate and receives floating rate.

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

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

See Notes to Financial Statements.

BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011 23

Schedule of Investments (concluded) CoreAlpha Bond Master Portfolio

· 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 Fund’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities.

For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following tables summarize the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments and derivative financial instruments:

Valuation Inputs	Level 1			Level 2			Level 3		Total
Assets:
Investments:
Long-Term Investments:
Asset-Backed Securities		—		$	157,836,915			—	$	157,836,915
Corporate Bonds		—			526,701,982			—		526,701,982
Foreign Agency Obligations		—			18,757,750			—		18,757,750
Non-Agency Mortgage-Backed Securities		—			84,774,211			—		84,774,211
Preferred Securities		—			10,229,567			—		10,229,567
Preferred Stocks	$	5,201,840			—			—		5,201,840
Taxable Municipal Bonds		—			13,777,859			—		13,777,859
U.S. Government Sponsored Agency Securities		—			1,237,736,351			—		1,237,736,351
U.S. Treasury Obligations		—			377,867,592			—		377,867,592
Short-Term Securities:
Money Market Funds		596,542,377			—			—		596,542,377
Liabilities:
TBA Sale Commitments		—			(543,385,938	)		—		(543,385,938	)
Total	$	601,744,217		$	1,884,296,289		$	—	$	2,486,040,506
Valuation Inputs	Level 1			Level 2			Level 3		Total
Derivative Financial Instruments1
Assets:
Credit contracts		—			—			—		—
Interest rate contracts	$	1,340,934			—			—	$	1,340,934
Liabilities:
Credit contracts		—		$	(209,797	)		—		(209,797	)
Interest rate contracts		(53,709	)		(1,455,637	)		—		(1,509,346	)
Total	$	1,287,225		$	(1,665,434	)	$	—	$	(378,209	)

¹  Derivative financial instruments are swaps and financial futures contracts. Swaps and financial futures contracts are valued at the unrealized appreciation/depreciation on the instrument.

See Notes to Financial Statements.

24 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

Statement of Assets and Liabilities CoreAlpha Bond Master Portfolio

December 31, 2011
Assets
Investments at value — unaffiliated (including securities loaned of $142,514,270) (cost — $2,329,716,966)	$	2,432,884,067
Investments at value — affiliated (cost — $596,542,377)		596,542,377
Foreign currency at value (cost — $2,595,164)		2,432,236
TBA sale commitments receivable		541,008,937
Investments sold receivable		349,385
Unrealized appreciation on swaps		32,847
Swaps premiums paid		1,470,898
Securities lending income receivable		89,918
Interest receivable		13,209,634
Margin variation receivable		983,784
Cash pledged as collateral for swaps		310,000
Total assets		3,589,314,083
Liabilities
Collateral on securities loaned at value		146,351,011
Investments purchased payable		534,096,766
TBA sale commitments at value (proceeds — $541,008,937)		543,385,938
Cash held as collateral for swaps		793,293
Unrealized depreciation on swaps		1,698,281
Investment advisory fees payable		483,534
Professional fees payable		35,278
Trustees’ fees payable		17,432
Total liabilities		1,226,861,533
Net Assets	$	2,362,452,550
Net Assets Consist of
Investors’ capital	$	2,259,802,085
Net unrealized appreciation/depreciation		102,650,465
Net Assets	$	2,362,452,550

See Notes to Financial Statements.
	BLACKROCK COREALPHA BOND FUND	DECEMBER 31, 2011	25

Statement of Operations CoreAlpha Bond Master Portfolio

Year Ended December 31, 2011
Investment Income
Interest	$	78,890,312
Income — affiliated		543,532
Securities lending — affiliated		208,987
Dividends		173,656
Total income		79,816,487
Expenses
Investment advisory		5,657,549
Administration		350,436
Professional		73,275
Independent Trustees		58,042
Total expenses		6,139,302
Less fees waived by advisor		(131,317	)
Total expenses after fees waived		6,007,985
Net investment income		73,808,502
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		44,914,863
Financial futures contracts		18,379,097
Swaps		4,787,616
Foreign currency transactions		(15,565	)
		68,066,011
Net change in unrealized appreciation/depreciation on:
Investments		47,447,190
Financial futures contracts		4,944,532
Swaps		(6,175,752	)
Foreign currency transactions		(162,928	)
		46,053,042
Total realized and unrealized gain		114,119,053
Net Increase in Net Assets Resulting from Operations	$	187,927,555

See Notes to Financial Statements.
26	BLACKROCK COREALPHA BOND FUND	DECEMBER 31, 2011

Statements of Changes in Net Assets CoreAlpha Bond Master Portfolio

	Year Ended December 31,
Increase in Net Assets:	2011			2010
Operations
Net investment income	$	73,808,502		$	60,862,874
Net realized gain		68,066,011			38,222,728
Net change in unrealized appreciation/depreciation		46,053,042			16,401,998
Net increase in net assets resulting from operations		187,927,555			115,487,600
Capital Transactions
Proceeds from contributions		709,072,896			668,474,923
Value of withdrawals		(685,111,132	)		(267,359,402	)
Net increase in net assets derived from capital transactions		23,961,764			401,115,521
Net Assets
Total increase in net assets		211,889,319			516,603,121
Beginning of year		2,150,563,231			1,633,960,110
End of year	$	2,362,452,550		$	2,150,563,231

See Notes to Financial Statements.
	BLACKROCK COREALPHA BOND FUND	DECEMBER 31, 2011	27

Financial Highlights CoreAlpha Bond Master Portfolio

	Year Ended December 31,
	2011			2010			2009			2008		2007
Total Investment Return
Total investment return		8.38%			6.56%			11.67%			3.62%		5.10%
Ratios to Average Net Assets
Total expenses		0.27%			0.36%			0.35%			0.36%		0.36%
Total expenses after fees waived		0.26%			0.35%			0.35%			0.36%		0.35%
Net investment income		3.22%			3.19%			4.33%			4.47%		5.18%
Supplemental Data
Net assets, end of year (000)	$	2,362,453		$	2,150,563		$	1,633,960		$	1,115,903	$	1,479,888
Portfolio turnover1		1,646%	2		621%	3		278%	4		351%		466%

¹  Portfolio turnover rates include TBA transactions, if any.

²  Includes mortgage dollar roll transactions. Excluding these transactions the portfolio turnover rate would have been 1,510%.

³  Excluding TBA transactions, the portfolio turnover rate would have been 170%.

⁴  Excluding TBA transactions, the portfolio turnover rate would have been 199%.

See Notes to Financial Statements.
28	BLACKROCK COREALPHA BOND FUND	DECEMBER 31, 2011

Notes to Financial Statements CoreAlpha Bond Master Portfolio

1. Organization and Significant Accounting Policies:

CoreAlpha Bond Master Portfolio (the “Master Portfolio”) is a series of Master Investment Portfolio (“MIP”) and is registered as an open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). MIP is organized as a Delaware statutory trust. The Master Portfolio’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.

The following is a summary of significant accounting policies followed by the Master Portfolio:

Valuation: US GAAP defines fair value as the price the Master Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Master Portfolio fair values its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Trustees of MIP (the “Board”). The Master Portfolio values its bond investments on the basis of last available bid prices or current market quotations provided by dealers or pricing services. Floating rate loan interests are valued at the mean of the bid prices from one or more brokers or dealers as obtained from a pricing service. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments, various relationships observed in the market between investments and calculated yield measures. Asset-backed and mortgage-backed securities are valued by independent pricing services using models that consider estimated cash flows of each tranche of the security, establish a benchmark yield and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche. Financial futures contracts traded on exchanges are valued at their last sale price. To-be-announced (“TBA”) commitments are valued on the basis of last available bid prices or current market quotations provided by pricing services. Swap agreements are valued utilizing quotes received daily by the Master Portfolio’s pricing service 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. Investments in open-end registered investment companies are valued at net asset value each business day. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value. Municipal investments (including commitments to purchase such investments on a “when-issued” basis) are valued on the basis of prices provided by dealers or pricing services.

Securities and other assets and liabilities denominated in foreign currencies are translated into US dollars using exchange rates determined as of the close of business on the New York Stock Exchange (“NYSE”). Foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of business on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available.

In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the market value of such investment or if a price is not available, the investment will be valued in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Assets”). When determining the price for Fair Value Assets, the investment advisor seeks to determine the price that the Master Portfolio might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the investment advisor deems relevant. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof.

Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur

between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Master Portfolio’s net assets. If events (for example, a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Assets and be valued at their fair value, as determined in good faith by the investment advisor using a pricing service and/or policies approved by the Board. Each business day, the Master Portfolio uses a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and 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 business on the NYSE, which follows the close of the local markets.

Asset-Backed and Mortgage-Backed Securities: The Master Portfolio may invest in asset-backed securities. Asset-backed securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in an underlying pool of assets, or as debt instruments, which are also known as collateralized obligations, and are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Asset-backed securities are often backed by a pool of assets representing the obligations of a number of different parties. The yield characteristics of certain asset-backed securities may differ from traditional debt securities. One such major difference is that all or a principal part of the

BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011 29

Notes to Financial Statements (continued) CoreAlpha Bond Master Portfolio

obligations may be prepaid at any time because the underlying assets (i.e., loans) may be prepaid at any time. As a result, a decrease in interest rates in the market may result in increases in the level of prepayments as borrowers, particularly mortgagors, refinance and repay their loans. An increased prepayment rate with respect to an asset-backed security subject to such a prepayment feature will have the effect of shortening the maturity of the security. If the Master Portfolio has purchased such an asset-backed security at a premium, a faster than anticipated prepayment rate could result in a loss of principal to the extent of the premium paid.

The Master Portfolio may purchase certain mortgage pass-through securities. There are a number of important differences among the agencies and instrumentalities of the US government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed Mortgage Pass-Through Certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States but are supported by the right of the issuer to borrow from the Treasury.

Multiple Class Pass-Through Securities: The Master Portfolio may invest in multiple class pass-through securities, including collateralized mortgage obligations (“CMOs”) and commercial mortgage-backed securities. These multiple class securities may be issued by Ginnie Mae, US government agencies or instrumentalities or by trusts formed by private originators of, or investors in, mortgage loans. In general, CMOs are debt obligations of a legal entity that are collateralized by, and multiple class pass-through securities represent direct ownership interests in, a pool of residential or commercial mortgage loans or mortgage pass-through securities (the “Mortgage Assets”), the payments on which are used to make payments on the CMOs or multiple pass-through securities. Classes of CMOs include interest only (“IOs”), principal only (“POs”), planned amortization classes and targeted amortization classes. IOs and POs are stripped mortgage-back securities representing interests in a pool of mortgages, the cash flow from which has been separated into interest and principal components. IOs receive the interest portion of the cash flow while POs receive the principal portion. IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases the rate at which the principal is returned and the yield to maturity on the PO. When payments on mortgages underlying a PO are slower than anticipated, the life of the PO is lengthened and the yield to maturity is reduced. If the underlying Mortgage Assets experience greater than

anticipated pre-payments of principal, the Master Portfolio may not fully recoup its initial investment in IOs.

Stripped Mortgage-Backed Securities: The Master Portfolio may invest in stripped mortgage-backed securities issued by the US government, its agencies and instrumentalities. Stripped mortgage-backed securities are usually structured with two classes that receive different proportions of the interest (IOs) and principal (POs) distributions on a pool of Mortgage Assets. The Master Portfolio also may invest in stripped mortgage-backed securities that are privately issued.

Capital Trusts: The Master Portfolio may invest in capital trusts. These securities are typically issued by corporations, generally in the form of interest-bearing notes with preferred securities characteristics, or by an affiliated business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The securities can be structured as either fixed or adjustable coupon securities that can have either a perpetual or stated maturity date. Dividends can be deferred without creating an event of default or acceleration, although maturity cannot take place unless all cumulative payment obligations have been met. The deferral of payments does not affect the purchase or sale of these securities in the open market. Payments on these securities are treated as interest rather than dividends for federal income tax purposes. These securities generally are rated below that of the issuing company’s senior debt securities.

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

TBA Commitments: The Master Portfolio may enter into TBA commitments. TBA commitments are forward agreements for the purchase or sale of mortgage-backed securities for a fixed price, with payment and delivery on an agreed-upon future settlement date. The specific securities to be delivered are not identified at the trade date. However, delivered securities must meet specified terms, including issuer, rate and mortgage terms. The Master Portfolio generally enters into TBA commitments with the intent to take possession of or deliver the underlying mortgage-backed securities but can extend the settlement or roll

30 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

Notes to Financial Statements (continued) CoreAlpha Bond Master Portfolio

the transaction. TBA commitments involve a risk of loss if the value of the security to be purchased or sold declines or increases, respectively, prior to settlement date.

Mortgage Dollar Roll Transactions: The Master Portfolio may sell TBA mortgage-backed securities and simultaneously contract to repurchase substantially similar (same type, coupon and maturity) securities on a specific future date at an agreed upon price. During the period between the sale and repurchase, the Master Portfolio will not be entitled to receive interest and principal payments on the securities sold. The Master Portfolio accounts for mortgage dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. These transactions may increase the Master Portfolio’s portfolio turnover rate. Mortgage dollar rolls involve the risk that the market value of the securities that the Master Portfolio is required to purchase may decline below the agreed upon repurchase price of those securities.

Segregation and Collateralization: In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (“SEC”) require that the Master Portfolio either deliver collateral or segregate assets in connection with certain investments (e.g., dollar rolls, TBA sale commitments, financial futures contracts and swaps), the Master Portfolio will, consistent with SEC rules and/or certain interpretive letters issued by the SEC, segregate collateral or designate on its books and records cash or other liquid securities having a market value at least equal to the amount that would otherwise be required to be physically segregated. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, each party to such transactions has requirements to deliver/deposit securities as collateral for certain investments.

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis. Consent fees are compensation for agreeing to changes in the terms of debt instruments and are included in interest income in the Statement of Operations.

Securities Lending: The Master Portfolio may lend securities to approved borrowers, such as banks, brokers and other financial institutions. The borrower pledges cash, securities issued or guaranteed by the US government or irrevocable letters of credit issued by a bank as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Master Portfolio and any additional required collateral is delivered to the Master Portfolio on the next business day. Securities lending income, as disclosed in the Statement of Operations, represents

the income earned from the investment of the cash collateral, net of rebates paid to, or fees paid by, borrowers and less the fees paid to the securities lending agent. During the term of the loan, the Master Portfolio earns dividend or interest income on the securities loaned but does not receive interest income on the securities received as collateral. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Master Portfolio could experience delays and costs in gaining access to the collateral. The Master Portfolio also could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received. During the year ended December 31, 2011, any securities on loan were collateralized by cash.

Income Taxes: The Master Portfolio is classified as a partnership for federal income tax purposes. As such, each investor in the Master Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Master Portfolio. Therefore, no federal income tax provision is required. It is intended that the Master Portfolio’s assets will be managed so an investor in the Master Portfolio can satisfy the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended.

The Master Portfolio files US federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Master Portfolio’s US federal tax returns remains open for each of the four periods ended December 31, 2011. The statutes of limitations on the Master Portfolio’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.

Recent Accounting Standard: In May 2011, the Financial Accounting Standards Board (the “FASB”) issued amended guidance to improve disclosure about fair value measurements which will require the following disclosures for fair value measurements categorized as Level 3: quantitative information about the unobservable inputs and assumptions used in the fair value measurement, a description of the valuation policies and procedures and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, the amounts and reasons for all transfers in and out of Level 1 and Level 2 will be required to be disclosed. The amended guidance is effective for financial statements for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Master Portfolio’s financial statement disclosures.

BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011 31

Notes to Financial Statements (continued) CoreAlpha Bond Master Portfolio

In December 2011, the FASB issued guidance that will enhance current disclosure requirements on the offsetting of certain assets and liabilities. The new disclosures will be required for investments and derivative financial instruments subject to master netting agreements or similar agreements and will require an entity to disclose both gross and net information about such investments and transactions eligible for offset in the Statements of Assets and Liabilities. The guidance is effective for financial statements with fiscal years beginning on or after January 1, 2013, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Master Portfolio’s financial statement disclosures.

Other: Expenses directly related to the Master Portfolio are charged to the Master Portfolio. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods.

2. Derivative Financial Instruments:

The Master Portfolio engages in various portfolio investment strategies using derivative contracts both to increase the return of the Master Portfolio and to economically hedge, or protect, its exposure to certain risks such as credit risk, interest rate risk and foreign currency exchange rate risk. These contracts may be transacted on an exchange or over-the-counter (“OTC”).

Losses may arise if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument or if the counterparty does not perform under the contract. The Master Portfolio’s maximum risk of loss from counterparty credit risk on OTC derivatives is generally the aggregate unrealized gain netted against any collateral pledged by/posted to the counterparty. Counterparty risk related to exchange-traded financial futures contracts is deemed to be minimal due to the protection against defaults provided by the exchange on which these contracts trade.

The Master Portfolio may mitigate counterparty risk by procuring collateral and through netting provisions included within an International Swaps and Derivatives Association, Inc. master agreement (“ISDA Master Agreement”) implemented between the Master Portfolio and each of its respective counterparties. An ISDA Master Agreement allows the Master Portfolio to offset with each separate counterparty certain derivative financial instrument’s payables and/or receivables with collateral held. The amount of collateral moved to/from applicable counterparties is generally based upon minimum transfer amounts of up to $500,000. To the extent amounts due to the Master Portfolio from its counterparties are not fully collateralized contractually or otherwise, the Master Portfolio bears the risk of loss from counterparty non-performance. See Note 1 “Segregation and Collateralization” for information with respect to collateral practices. In addition, the Master Portfolio manages counterparty risk by entering into agreements only

with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties.

Certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Master Portfolio’s net assets decline by a stated percentage or the Master Portfolio fails to meet the terms of its ISDA Master Agreements, which would cause the Master Portfolio to accelerate payment of any net liability owed to the counterparty.

Financial Futures Contracts: The Master Portfolio purchases or sells financial futures contracts to gain exposure to, or economically hedge against, changes in interest rates (interest rate risk). Financial futures contracts are agreements between the Master Portfolio and counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. Pursuant to the contract, the Master Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as margin variation and are recorded by the Master Portfolio as unrealized appreciation or depreciation. When the contract is closed, the Master Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest rates and the underlying assets.

Swaps: The Master Portfolio enters into swap agreements, in which the Master Portfolio and a counterparty agree to either make periodic net payments on a specified notional amount or net payment upon termination. These payments received or made by the Master Portfolio are recorded in the Statements of Operations as realized gains or losses, respectively. Any upfront fees paid are recorded as assets and any upfront fees received are recorded as liabilities and amortized over the term of the swap. Swaps are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). When the swap is terminated, the Master Portfolio will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Master Portfolio’s basis in the contract, if any. Generally, the basis of the contracts is the premium received or paid. Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.

32 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

Notes to Financial Statements (continued) CoreAlpha Bond Master Portfolio

· Credit default swaps — The Master Portfolio enters into credit default swaps to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which it is not otherwise exposed (credit risk). The Master Portfolio enters into credit default swap agreements to provide a measure of protection against the default of an issuer (as buyer of protection) and/or gain credit exposure to an issuer to which it is not otherwise exposed (as seller of protection). The Master Portfolio may either buy or sell (write) credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of single-name issuers or traded indexes. Credit default swaps on single-name issuers are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the seller to make a specific payment should a negative credit event take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on traded indexes are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the seller to make a specific payment should a write-down, principal or interest shortfall or default of all or individual underlying securities included in the index occurs. As a buyer, if an underlying credit event occurs, the Master Portfolio will either receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising the index or receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. As a seller (writer), if an underlying credit event occurs, the Master Portfolio will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising the index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index.

· Interest rate swaps — The Master Portfolio enters into interest rate swaps to gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate risk by economically hedging the value of the fixed rate bonds which may decrease when interest rates rise (interest rate risk). Interest rate swaps are agreements in which one party pays a stream of interest payments, either fixed or floating rate, for another party’s stream of interest payments, either fixed or floating, on the same notional amount for a specified period of time. Interest rate floors, which are a type of interest rate swap, are agreements in which one party agrees to make payments to the other party to the extent that interest rates fall below a specified rate or floor in return for a premium. In more complex swaps, the notional principal amount may decline (or amortize) over time.

Derivative Financial Instruments Categorized by Risk Exposure:
Fair Values of Derivative Financial Instruments as of December 31, 2011
	Asset Derivatives
	Statement of Assets and Liabilities Location	Value
Interest rate contracts	Net unrealized appreciation/depreciation*	$	1,340,934
Credit  contracts	Unrealized appreciation on swaps, Swap premiums paid		1,503,745
Total		$	2,844,679

	Liability Derivatives
	Statement of Assets and Liabilities Location	Value
Interest rate contracts	Net unrealized appreciation/depreciation*; Unrealized depreciation on swaps	$	1,509,346
Credit contracts	Unrealized depreciation on swaps		242,644
Total		$	1,751,990

* Includes cumulative appreciation/depreciation on financial futures contracts as reported in the Schedule of Investments. Only current day’s margin variation is reported within the Statement of Assets and Liabilities.

The Effect of Derivative Financial Instruments in the Statement of Operations Year Ended December 31, 2011
	Net Realized Gain (Loss) From
	Interest Rate Contracts		Credit Contracts
Financial futures contracts		$18,379,097		—
Swaps		4,982,350		$(194,734)
Total		$23,361,447		$(194,734)
	Net Change in Unrealized Appreciation/Depreciation on
	Interest Rate Contracts		Credit Contracts
Financial futures contracts		$4,944,532		—
Swaps		(5,643,215)		$(532,537)
Total		$(698,683)		$(532,537)

BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011 33

Notes to Financial Statements (continued) CoreAlpha Bond Master Portfolio

For the year ended December 31, 2011, the average quarterly balances of outstanding derivative financial instruments were as follows:

Financial futures contracts:
Average number of contracts purchased	3,998
Average number of contracts sold	53
Average notional value of contracts purchased	$583,890,914
Average notional value of contracts sold	$6,661,082
Credit default swaps:
Average number of contracts – buy protection	2
Average number of contracts – sell protection	3
Average notional value – buy protection	$17,115,000
Average notional value – sell protection	$151,125,000
Interest rate swaps:
Average number of contracts – pays fixed rate	1
Average number of contracts – receives fixed rate	—
Average notional value – pays fixed rate	$45,075,000
Average notional value – receives fixed rate	$—

3. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”). Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

MIP, on behalf of the Master Portfolio, entered into an Investment Advisory Agreement (the “Investment Advisory Agreement”) with BlackRock Fund Advisors (“BFA”), the Master Portfolio’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory services. Pursuant to the Investment Advisory Agreement with MIP, BFA is responsible for the management of the Master Portfolio’s investments and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Master Portfolio. For such services, the Master Portfolio paid BFA an annual investment advisory rate of 0.25% based on the average daily net assets on the Master Portfolio from January 1, 2011 through May 31, 2011.

Effective June 1, 2011, the Master Portfolio pays BFA a monthly fee based on a percentage of the Master Portfolio’s average daily net assets at the following annual rates:

Average Daily Net Assets	Investment Advisory Fee
First $1 Billion		0.25	%
$1 Billion — $3 Billion		0.24	%
$3 Billion — $5 Billion		0.23	%
$5 Billion — $10 Billion		0.22	%
Greater than $10 Billion		0.21	%

The fees and expenses of the MIP’s trustees who are not “interested persons” of MIP, as defined in the 1940 Act (“Independent Trustees”),

counsel to the Independent Trustees and MIP’s independent registered public accounting firm (together, the “independent expenses”) are paid directly by the Master Portfolio. BFA has contractually agreed to cap the expenses of the Master Portfolio at the rate at which the Master Portfolio pays an advisory fee to BFA by providing an offsetting credit against the investment advisory fees paid by the Master Portfolio in an amount equal to the independent expenses. These contractual waivers are effective through April 30, 2012. The amount of the waivers, if any, are shown as fees waived in the Statement of Operations.

MIP entered into an administration services arrangement with BlackRock Institutional Trust Company, N.A. (“BTC”), which has agreed to provide general administration services (other than investment advice and related portfolio activities). BTC may delegate certain of its administration duties to sub-administrators. BTC, in consideration thereof, has agreed to bear all of the Master Portfolio’s and MIP’s ordinary operating expenses excluding, generally, investment advisory fees, distribution fees, brokerage and other expenses related to the execution of portfolio transactions, extraordinary expenses and certain other expenses which are borne by the Master Portfolio. BTC is entitled to receive for these administration services an annual fee of 0.10% based on the average daily net assets of the Master Portfolio. Effective March 1, 2011, BTC receives administration fees of 0.10% based on the average daily net assets of the Institutional shares of the BlackRock CoreAlpha Bond Fund.

BTC is not entitled to compensation for providing administration services to the Master Portfolio, for so long as BTC is entitled to compensation for providing administration services to corresponding feeder funds that invest substantially all of their assets in the Master Portfolio, or BTC (or an affiliate) receives investment advisory fees from the Master Portfolio.

With respect to the independent expenses discussed above, BTC has contractually agreed to provide and offsetting credit against the advisory fees paid by the Master Portfolio in an amount equal to the independent expenses, through April 30, 2012. The amount of the waiver and offsetting credits are shown as fees waived in the Statement of Operations.

The Master Portfolio received an exemptive order from the SEC permitting it, among other things, to pay an affiliated securities lending agent a fee based on a share of the income derived from the securities lending activities and has retained BTC, an affiliate of BFA, as the securities lending agent. BTC may, on behalf of the Master Portfolio, invest cash collateral received by the Master Portfolio for such loans, among other things, in a private investment company managed by BTC or in registered money market funds advised by BTC or its affiliates. As securities lending agent, BTC is responsible for all transaction fees and all other operational costs relating to securities lending activities, other

34 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

Notes to Financial Statements (continued) CoreAlpha Bond Master Portfolio

than extraordinary expenses. BTC does not receive any fees for managing the cash collateral. The market value of securities on loan and the value of the related collateral, if applicable, are shown in the Statement of Assets and Liabilities as securities loaned at value and collateral on securities loaned at value, respectively. The cash collateral invested by BTC is disclosed in the Schedule of Investments. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of rebates paid to, or fees paid by, borrowers of securities. The Fund retains 65% of securities lending income and pays a fee to BTC equal to 35% of such income. The share of income earned by the Master Portfolio on such investments is shown as securities lending – affiliated in the Statement of Operations. For the year ended December 31, 2011, BTC received $97,210 in securities lending agent fees related to securities lending activities for the Master Portfolio.

Certain officers and/or trustees of MIP are officers and/or directors of BlackRock or its affiliates.

4. Investments:

Purchases and sales of investments including paydowns, mortgage dollar roll and TBA transactions and excluding short-term securities and US government securities for the year ended December 31, 2011, were $35,009,575,305 and $35,521,110,050, respectively.

Purchases and sales of US government securities for the Master Portfolio for the year ended December 31, 2011, were $1,146,055,409 and $601,663,219, respectively.

For the year ended December 31, 2011, purchases and sales of mortgage dollar rolls were $2,975,643,297 and $2,972,952,383, respectively.

5. Concentration, Market and Credit Risk:

In the normal course of business, the Master Portfolio invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Master Portfolio may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Master Portfolio; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Master Portfolio may be exposed to counterparty credit risk, or the risk that an entity with which the Master Portfolio has unsettled or open transactions may fail to or be unable to perform on its commitments. The Master Portfolio manages counterparty credit risk by entering into transactions only with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which

potentially expose the Master Portfolio to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Master Portfolio’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Master Portfolio’s Statement of Assets and Liabilities, less any collateral held by the Master Portfolio.

The Master Portfolio invests a significant portion of its assets in securities backed by commercial or residential mortgage loans or in issuers that hold mortgage and other asset-backed securities. Please see the Schedule of Investments for these securities. Changes in economic conditions, including delinquencies and/or defaults on assets underlying these securities, can affect the value, income and/or liquidity of such positions.

6. Subsequent Events:

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

BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011 35

Report of Independent Registered Public Accounting Firm CoreAlpha Bond Master Portfolio

To the Interestholders and Board of Trustees of Master Investment Portfolio:

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the CoreAlpha Bond Master Portfolio, a portfolio of Master Investment Portfolio (the “Master Portfolio”), at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Master Portfolio’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these

financial statements in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 24, 2012

36 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

Officers and Trustees

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1
Ronald W. Forbes 55 East 52nd Street New York, NY 10055 1940	Co-Chairman of the Board and Trustee	Since 2009	Professor Emeritus of Finance, School of Business, State University of New York at Albany since 2000.	33 RICs consisting of 107 Portfolios	None
Rodney D. Johnson 55 East 52nd Street New York, NY 10055 1941	Co-Chairman of the Board and Trustee	Since 2009	President, Fairmount Capital Advisors, Inc. since 1987; Member of the Archdiocesan Investment Committee of the Archdiocese of Philadelphia since 2004; Director, The Committee of Seventy (civic) since 2006; Director, Fox Chase Cancer Center from 2004 to 2010.	33 RICs consisting of 107 Portfolios	None
David O. Beim 55 East 52nd Street New York, NY 10055 1940	Trustee	Since 2009	Professor of Professional Practice at the Columbia University Graduate School of Business since 1991; Trustee, Phillips Exeter Academy since 2002; Chairman, Wave Hill, Inc. (public garden and cultural center) from 1990 to 2006.	33 RICs consisting of 107 Portfolios	None
Dr. Matina S. Horner 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Executive Vice President of Teachers Insurance and Annuity Association and College Retirement Equities Fund from 1989 to 2003.	33 RICs consisting of 107 Portfolios	NSTAR (electric and gas utility)
Herbert I. London 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Professor Emeritus, New York University since 2005; John M. Olin Professor of Humanities, New York University from 1993 to 2005 and Professor thereof from 1980 to 2005; President, Hudson Institute (policy research organization) since 1997 and Trustee thereof since 1980; Chairman of the Board of Trustees for Grantham University since 2006; Director, InnoCentive, Inc. (strategic solutions company) since 2005; Director, Cerego, LLC (software development and design) since 2005; Director, Cybersettle (dispute resolution technology) since 2009.	33 RICs consisting of 107 Portfolios	AIMS Worldwide, Inc. (marketing)
Cynthia A. Montgomery 55 East 52nd Street New York, NY 10055 1952	Trustee	Since 2009	Professor, Harvard Business School since 1989; Director, McLean Hospital since 2005; Director, Harvard Business School Publishing from 2005 to 2010.	33 RICs consisting of 107 Portfolios	Newell Rubbermaid, Inc. (manufacturing)
Joseph P. Platt 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2009	Director, The West Penn Allegheny Health System (a not-for-profit health system) since 2008; Director, Jones and Brown (Canadian insurance broker) since 1998; General Partner, Thorn Partners, LP (private investment) since 1998; Director, WQED Multi-Media (public broadcasting not-for-profit) since 2001; Partner, Amarna Corporation, LLC (private investment company) from 2002 to 2008.	33 RICs consisting of 107 Portfolios	Greenlight Capital Re, Ltd. (reinsurance company)
Robert C. Robb, Jr. 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Partner, Lewis, Eckert, Robb and Company (management and financial consulting firm) since 1981.	33 RICs consisting of 107 Portfolios	None
Toby Rosenblatt 55 East 52nd Street New York, NY 10055 1938	Trustee	Since 2009	President, Founders Investments Ltd. (private investments) since 1999; Director, College Access Foundation of California (philanthropic foundation) since 2009; Director, Forward Management, LLC since 2007; Director, A.P. Pharma, Inc. (specialty pharmaceuticals) from 1983 to 2011; Director, The James Irvine Foundation (philanthropic foundation) from 1998 to 2008.	33 RICs consisting of 107 Portfolios	None

BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011 37

Officers and Trustees (continued)

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1 (concluded)
Kenneth L. Urish 55 East 52nd Street New York, NY 10055 1951	Trustee	Since 2009	Managing Partner, Urish Popeck & Co., LLC (certified public accountants and consultants) since 1976; Chairman Elect of the Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants and Committee Member thereof since 2007; Member of External Advisory Board, The Pennsylvania State University Accounting Department since 2001; Trustee, The Holy Family Foundation from 2001 to 2010; President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Director, Inter-Tel from 2006 to 2007.	33 RICs consisting of 107 Portfolios	None
Frederick W. Winter 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Professor and Dean Emeritus of the Joseph M. Katz School of Business, University of Pittsburgh since 2005 and Dean thereof from 1997 to 2005; Director, Alkon Corporation (pneumatics) since 1992; Director, Tippman Sports (recreation) since 2005; Director, Indotronix International (IT services) from 2004 to 2008.	33 RICs consisting of 107 Portfolios	None
	1   Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved extensions in terms of Trustees who turn 72 prior to December 31, 2013. 2   Date shown is the earliest date a person has served for the Fund covered by this annual report. Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. (“BlackRock”) in September 2006, the various legacy MLIM and legacy BlackRock Fund boards were realigned and consolidated into three new Fund boards in 2007. As a result, although the chart shows certain Trustees as joining the Trust’s/MIP’s board in 2007, each Trustee first became a member of the board of other legacy MLIM or legacy BlackRock Funds as follows: David O. Beim, 1998; Ronald W. Forbes, 1977; Dr. Matina S. Horner, 2004; Rodney D. Johnson, 1995; Herbert I. London, 1987; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Robert C. Robb, Jr., 1998; Toby Rosenblatt, 2005; Kenneth L. Urish, 1999; and Frederick W. Winter, 1999.
Interested Trustees3
Paul L. Audet 55 East 52nd Street New York, NY 10055 1953	Trustee	Since 2011	Senior Managing Director, BlackRock, and Head of BlackRock’s Real Estate business from 2008 to 2011; Member of BlackRock’s Global Operating and Corporate Risk Management Committees and of the BlackRock Alternative Investors Executive Committee and Investment Committee for the Private Equity Fund of Funds business since 2008; Head of BlackRock’s Global Cash Management business from 2005 to 2010; Acting Chief Financial Officer of BlackRock from 2007 to 2008; Chief Financial Officer of BlackRock from 1998 to 2005.	159 RICs consisting of 286 Portfolios	None
Henry Gabbay 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2007	Consultant, BlackRock from 2007 to 2008; Managing Director, BlackRock from 1989 to 2007; Chief Administrative Officer, BlackRock Advisors, LLC from 1998 to 2007; President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007 and Treasurer of certain closed-end funds in the BlackRock fund complex from 1989 to 2006.	159 RICs consisting of 286 Portfolios	None
	3   Mr. Audet is an “interested person,” as defined in the 1940 Act, of the Trust/MIP based on his position with BlackRock and its affiliates. Mr. Gabbay is an “interested person” of the Trust/MIP based on his former positions with BlackRock and its affiliates as well as his ownership of BlackRock and The PNC Financial Services Group, Inc. securities. Mr. Audet and Mr. Gabbay are also Trustees of the BlackRock registered closed-end funds and Trustees of other BlackRock registered open-end funds. Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.

38 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

Officers and Trustees (concluded)

Name, Address and Year of Birth	Position(s) Held with the Trust/MIP	Length of Time Served	Principal Occupation(s) During Past Five Years
Trust/MIP Officers*
John M. Perlowski 55 East 52nd Street New York, NY 10055 1964	President and Chief Executive Officer	Since 2010	Managing Director of BlackRock since 2009; Global Head of BlackRock Fund Administration since 2009; Managing Director and Chief Operating Officer of the Global Product Group at Goldman Sachs Asset Management, L.P. from 2003 to 2009; Treasurer of Goldman Sachs Mutual Funds from 2003 to 2009 and Senior Vice President thereof from 2007 to 2009; Director of Goldman Sachs Offshore Funds from 2002 to 2009; Director of Family Resource Network (charitable foundation) since 2009.
Richard Hoerner, CFA 55 East 52nd Street New York, NY 10055 1958	Vice President	Since 2009	Managing Director of BlackRock since 2000; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2002; Member of the Cash Management Group Executive Committee since 2005.
Brendan Kyne 55 East 52nd Street New York, NY 10055 1977	Vice President	Since 2009	Managing Director of BlackRock since 2010; Director of BlackRock from 2008 to 2009; Head of Product Development and Management for BlackRock’s U.S. Retail Group since 2009 and Co-head thereof from 2007 to 2009; Vice President of BlackRock from 2005 to 2008.
Simon Mendelson 55 East 52nd Street New York, NY 10055 1964	Vice President	Since 2009	Managing Director of BlackRock since 2005; Co-head of the Global Cash and Securities Lending Group since 2010; Chief Operating Officer and Head of the Global Client Group for BlackRock’s Global Cash Management Business from 2007 to 2010; Head of BlackRock’s Strategy and Development Group from 2005 to 2007; Partner of McKinsey & Co. from 1997 to 2005.
Christopher Stavrakos, CFA 55 East 52nd Street New York, NY 10055 1959	Vice President	Since 2009	Managing Director of BlackRock since 2006; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2006; Senior Vice President, CIO, and Director of Liability Management for the Securities Lending Group at Mellon Bank from 1999 to 2006.
Neal Andrews 55 East 52nd Street New York, NY 10055 1966	Chief Financial Officer	Since 2007	Managing Director of BlackRock since 2006; Senior Vice President and Line of Business Head of Fund Accounting and Administration at PNC Global Investment Servicing (U.S.) Inc. from 1992 to 2006.
Jay Fife 55 East 52nd Street New York, NY 10055 1970	Treasurer	Since 2007	Managing Director of BlackRock since 2007; Director of BlackRock in 2006; Assistant Treasurer of the MLIM and Fund Asset Management, L.P. advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006.
Brian Kindelan 55 East 52nd Street New York, NY 10055 1959	Chief Compliance Officer and Anti-Money Laundering Officer	Since 2007	Chief Compliance Officer of the BlackRock-advised funds since 2007; Managing Director and Senior Counsel of BlackRock since 2005.
Ira P. Shapiro 55 East 52nd Street New York, NY 10055 1963	Secretary	Since 2010	Managing Director of BlackRock since 2009; Managing Director and Associate General Counsel of Barclays Global Investors from 2008 to 2009 and Principal thereof from 2004 to 2008.
	*  Officers of the Trust/MIP serve at the pleasure of the Board of Trustees.

Investment Advisor BlackRock Fund Advisors San Francisco, CA 94105	Administrator BlackRock Institutional Trust Company, N.A. San Francisco, CA 94105	Custodian State Street Bank and Trust Company Boston, MA 02110	Transfer Agent BNY Mellon Investment Servicing (US) Inc. Wilmington, DE 19809	Accounting Agent State Street Bank and Trust Company Boston, MA 02110	Distributor BlackRock Investments, LLC New York, NY 10022
			Legal Counsel Sidley Austin LLP New York, NY 10019	Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP New York, NY 10017	Address of the Funds 400 Howard Street San Francisco, CA 94105

BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011 39

Additional Information

General Information

Availability of Quarterly Schedule of Investments

The Fund/Master Portfolio files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s/Master Portfolio’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. The Fund’s/Master Portfolio’s Forms N-Q may also be obtained upon request and without charge by calling (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

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

Availability of Proxy Voting Record

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

Shareholder Privileges

Account Information

Call us at (800) 441-7762 from 8:00 AM to 6:00 PM EST on any business day to get information about your account balances, recent

transactions and share prices. You can also reach us on the Web at http://www.blackrock.com/funds.

BlackRock Privacy Principles

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

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

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

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

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

40 BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011

A World-Class 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.

Equity Funds

BlackRock ACWI ex-US Index Fund

BlackRock All-Cap Energy & Resources Portfolio

BlackRock Asset Allocation Portfolio†

BlackRock Balanced Capital Fund†

BlackRock Basic Value Fund

BlackRock Capital Appreciation Fund

BlackRock China Fund

BlackRock Commodity Strategies Fund

BlackRock Emerging Markets Long/Short Equity Fund

BlackRock Energy & Resources Portfolio

BlackRock Equity Dividend Fund

BlackRock EuroFund

BlackRock Focus Growth Fund

BlackRock Global Allocation Fund†

BlackRock Global Dividend Income Portfolio

BlackRock Global Dynamic Equity Fund

BlackRock Global Emerging Markets Fund

BlackRock Global Opportunities Portfolio

BlackRock Global SmallCap Fund

BlackRock Health Sciences Opportunities Portfolio

BlackRock Index Equity Portfolio

BlackRock India Fund

BlackRock International Fund

BlackRock International Index Fund

BlackRock International Opportunities Portfolio

BlackRock Large Cap Core Fund

BlackRock Large Cap Core Plus Fund

BlackRock Large Cap Growth Fund

BlackRock Large Cap Value Fund

BlackRock Latin America Fund

BlackRock Mid-Cap Growth Equity Portfolio

BlackRock Mid-Cap Value Equity Portfolio

BlackRock Mid Cap Value Opportunities Fund

BlackRock Natural Resources Trust

BlackRock Pacific Fund

BlackRock Russell 1000 Index Fund

BlackRock Science & Technology Opportunities Portfolio

BlackRock Small Cap Growth Equity Portfolio

BlackRock Small Cap Growth Fund II

BlackRock Small Cap Index Fund

BlackRock S&P 500 Index Fund

BlackRock S&P 500 Stock Fund

BlackRock U.S. Opportunities Portfolio

BlackRock Value Opportunities Fund

BlackRock World Gold Fund

Fixed Income Funds

BlackRock Bond Index Fund

BlackRock Core Bond Portfolio

BlackRock Emerging Market Debt Portfolio

BlackRock Floating Rate Income Portfolio

BlackRock Global Long/Short Credit Fund

BlackRock GNMA Portfolio

BlackRock High Yield Bond Portfolio

BlackRock Inflation Protected Bond Portfolio

BlackRock International Bond Portfolio

BlackRock Long Duration Bond Portfolio

BlackRock Low Duration Bond Portfolio

BlackRock Multi-Asset Income Portfolio†

BlackRock Multi-Sector Bond Portfolio

BlackRock Strategic Income Opportunities Portfolio

BlackRock Total Return Fund

BlackRock US Government Bond Portfolio

BlackRock World Income Fund

US Mortgage Portfolio

Municipal Bond Funds

BlackRock California Municipal Bond Fund

BlackRock High Yield Municipal Fund

BlackRock Intermediate Municipal Fund

BlackRock National Municipal Fund

BlackRock New Jersey Municipal Bond Fund

BlackRock New York Municipal Bond Fund

BlackRock Pennsylvania Municipal Bond Fund

BlackRock Short-Term Municipal Fund

Target Risk & Target Data Funds†

BlackRock Prepared Portfolios	BlackRock Lifecycle Prepared Portfolios		LifePath Portfolios Retirement		LifePath Index Portfolios Retirement
Conservative Prepared Portfolio	2015	2035	2020	2040	2020	2040
Moderate Prepared Portfolio	2020	2040	2025	2045	2025	2045
Growth Prepared Portfolio	2025	2045	2030	2050	2030	2050
Aggressive Growth Prepared Portfolio	2030	2050	2035	2055	2035	2055

† Mixed asset fund.

BlackRock mutual funds are currently distributed by BlackRock Investments, LLC. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling (800) 441-7762 or from your financial advisor. The prospectus should be read carefully before investing.

BLACKROCK COREALPHA BOND FUND DECEMBER 31, 2011 41

This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Funds unless accompanied or preceded by the Funds’ 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.

# CAB-12/11

December 31, 2011

Annual Report

BlackRock Bond Index Fund | of BlackRock Funds III

Not FDIC Insured     No Bank Guarantee    May Lose Value

Table of Contents

	Page
Dear Shareholder		3
Annual Report:
Fund Summary		4
About Fund Performance		6
Disclosure of Expenses		6
Fund Financial Statements:
Statement of Assets and Liabilities		7
Statement of Operations		8
Statements of Changes in Net Assets		9
Fund Financial Highlights		10
Fund Notes to Financial Statements		13
Fund Report of Independent Registered Public Accounting Firm		16
Important Tax Information		16
Master Portfolio Information		17
Master Portfolio Financial Statements:
Schedule of Investments		18
Statement of Assets and Liabilities		26
Statement of Operations		27
Statements of Changes in Net Assets		28
Master Portfolio Financial Highlights		29
Master Portfolio Notes to Financial Statements		30
Master Portfolio Report of Independent Registered Public Accounting Firm		34
Officers and Trustees		35
Additional Information		38
A World-Class Mutual Fund Family		39

2 BLACKROCK BOND INDEX FUND DECEMBER 31, 2011

Dear Shareholder

Investors endured a very difficult environment in 2011. Financial markets were extremely volatile as a number of high-profile global events drove frequent about-face changes in investor sentiment. As the year progressed, news flow increasingly influenced trading decisions, to the point where company fundamentals were largely ignored. In the end, lower-risk assets won the “risk on — risk off” trading tug-of-war that characterized 2011’s market activity.

Early in the year, political turmoil swept across the Middle East/North Africa region and prices of oil and other commodities soared. Natural disasters in Japan disrupted global supply chains and concerns mounted regarding US debt and deficit issues. Nevertheless, equities, commodities and high yield bonds outpaced the less risky asset classes as investors chose to focus on the continuing stream of strong corporate earnings and positive economic data.

Markets reversed sharply in May, however, when the heightened possibility of Greece defaulting on its debt rekindled fears about sovereign debt problems spreading across Europe. Concurrently, economic indicators signaled that the recovery had slowed in the United States and other developed nations. Confidence was further shaken by the prolonged debt ceiling debate in Washington, DC. On August 5^th, Standard & Poor’s downgraded the US government’s credit rating and turmoil erupted in financial markets around the world. Extraordinary levels of volatility persisted in the months that followed as Greece teetered on the brink of default, debt problems escalated in Italy and Spain, and exposure to European sovereign bonds stressed banks globally. Late in the summer, economic data out of the United States and Europe grew increasingly bleak while China and other emerging economies began to show signs of slowing growth. By the end of the third quarter, equity markets had fallen nearly 20% from their April peak while safe-haven assets such as US Treasuries and gold had rallied to historical highs.

October brought enough positive economic data to assuage fears of a global double-dip recession. Additionally, after months of deliberation, European leaders began to show signs of progress toward stemming the region’s debt crisis. These encouraging developments brought investors back from the sidelines and risk assets rallied through the month. However, a lack of definitive details about Europe’s rescue plan soon raised doubts among investors and thwarted the rally at the end of October. The last two months of the year saw political instability in Greece, unsustainable yields on Italian bonds, and US policymakers bickering over budget issues. Global central bank actions and improving economic data energized investors, but confidence was easily tempered by sobering news flow that resurrected uncertainty about the ability of Europe’s leaders to ultimately contain the debt crisis.

Most equity markets failed to fully recover their late-summer losses, although US large cap stocks managed to finish the year with a marginal gain given their perceived safety and stronger US economic data. Conditions were worse overseas, and international markets experienced some significant downturns. Dividend-paying stocks performed relatively well as investors sought yield in the low interest rate environment. Fixed income securities benefited from declining yields and delivered positive returns for the year. US Treasury bonds outperformed other fixed income classes despite their quality rating downgrade, while municipal bonds also delivered superior results. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

Many of the themes that caused uncertainty in 2011 are likely to persist well into 2012. While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of December 31, 2011
	6-month			12-month
US large cap equities (S&P 500 Index)		(3.69	)%		2.11	%
US small cap equities (Russell 2000 Index)		(9.77	)		(4.18	)
International equities (MSCI Europe, Australasia, Far East Index)		(16.31	)		(12.14	)
Emerging market equities (MSCI Emerging Markets Index)		(19.13	)		(18.42	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.02			0.10
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		13.46			17.15
US investment grade bonds (Barclays Capital US Aggregate Bond Index)		4.98			7.84
Tax-exempt municipal bonds (S&P Municipal Bond Index)		5.78			10.62
US high yield bonds (Barclays Capital US Corporate High Yield 2% Issuer Capped Index)		(0.02	)		4.96
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

BLACKROCK BOND INDEX FUND 3

Fund Summary as of December 31, 2011 BlackRock Bond Index Fund

Investment Objective

BlackRock Bond Index Fund’s (the “Fund”) investment objective is to provide investment results that correspond to the total return performance of fixed-income securities in the aggregate, as represented by the Barclays Capital U.S. Aggregate Bond Index.

Portfolio Management Commentary

How did the Fund perform?

· For the 12-month period ended December 31, 2011, the Class K Shares of the Fund generated a total return of 7.55%, while the benchmark Barclays Capital US Aggregate Bond Index (the “Index”) returned 7.84%. The Index is comprised of US government securities and investment-grade corporate bonds, as well as mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities.

· For the period beginning with their initial trading date of March 31, 2011 through December 31, 2011, the Fund’s Institutional and Investor A Share Classes returned 7.18% and 7.01%, respectively. For the same period, the benchmark index returned 7.39%.

· Returns for the Fund’s respective share classes differ from the benchmark index based on individual share-class expenses. The Fund invests all of its assets in Bond Index Master Portfolio (the “Master Portfolio”), a series of Master Investment Portfolio.

Describe the market environment.

· Fixed income markets were impacted by various geopolitical and economic events in 2011. Although ongoing debt and deleveraging concerns have been with us for some time, the degree to which they escalated in 2011 was a surprise to many, with the European debt crisis becoming one of the most important driving forces for global financial markets. In the United States, economic growth weakened early in the year, although the data improved in the later quarters. On the political front, strident partisan disagreement reached new heights

as brinksmanship became the norm. The lack of leadership, cooperation and decisiveness ultimately served to damage corporate and consumer confidence. In this environment, financial markets endured unprecedented volatility as correlations between and within asset classes rose. Almost all areas of the global financial markets experienced a broad “risk on/risk off” trading pattern, with the “risk off” assets winning for the year.

· Bond markets saw yields move in a dramatic fashion, generally falling lower as investors continued to move into the relative safety of fixed income investments. As risk aversion grew in the middle of the year, the 10-year US Treasury yield fell to a historic low below 2% and remained roughly in that range for the subsequent months. Treasuries were the best performing sector in the Index, followed by the credit sector. The weakest sector was agency debt, followed by asset-backed securities.

Describe recent portfolio activity.

· During the 12-month period, the Master Portfolio maintained its objective of providing investment results that corresponded to the total return performance of the Index by selecting securities in accordance with their relative proportion within the Index. Other considerations for security selection included credit quality, issuer sector, maturity structure, coupon rates and callability.

Describe portfolio positioning at period end.

· The Master Portfolio remains positioned to attempt to match the risk characteristics of the Index, irrespective of the market’s future direction.

4 BLACKROCK BOND INDEX FUND DECEMBER 31, 2011

BlackRock Bond Index Fund

Total Return Based on a $10,000 Investment

¹  Assuming transaction costs and other operating expenses, including administration fees, if any.

² The Fund invests all of its assets in the Master Portfolio. The Master Portfolio invests primarily in long-term, fixed income securities that are rated in the four highest categories of the recognized rating agencies (Baa or better by Moody’s Investors Service, Inc., or BBB or better by Standard & Poor’s).

³  The unmanaged market-weighted index is composed of investment grade corporate bonds (rated BBB or better), asset-backed securities, mortgage-backed securities, commercial mortgage-backed securities, and U.S. Treasury and government agency issues with at least one year to maturity.

Performance Summary for the Period Ended December 31, 2011

	Standardized 30-Day Yields			6-Month Total Returns			Average Annual Total Returns
							1 Year			5 Years			10 Years
Institutional		1.10	%		4.82	%		7.46	%		6.49	%		5.69	%
Investor A		1.09			4.71			7.22			6.28			5.53
Class K		1.10			4.85			7.55			6.52			5.72
Barclays Capital US Aggregate Bond Index		—			4.98			7.84			6.50			5.78

See “About Fund Performance” on page 6 for further information on how performance was calculated.

Past performance is not indicative of future results.

BLACKROCK BOND INDEX FUND DECEMBER 31, 2011 5

About Fund Performance BlackRock Bond Index Fund

· Institutional and Class K Shares are not subject to any sales charge. Institutional and Class K Shares bear no ongoing distribution or service fees and are available only to eligible investors. Prior to March 31, 2011, Institutional Shares’ performance results are those of Class K Shares restated to reflect Institutional Shares’ fees.

· Investor A Shares are not subject to any sales charge and bear no ongoing distribution fee. Investor A Shares are subject to an ongoing service fee of 0.25% per year. Prior to March 31, 2011, Investor A Shares’ performance results are those of Class K Shares restated to reflect Investor A Shares’ fees.

Performance information reflects past performance and does not guarantee future results. Current performance data may be lower or higher than the performance data quoted. Refer to

www.blackrock.com/funds to obtain performance data current to the most recent month-end. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Figures shown in the performance table on the previous pages assume reinvestment of all dividends and capital gain distributions, if any, at net asset value on the payable date for the Fund. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Dividends paid to each class of shares will vary because of the different levels of service and transfer agency fees applicable to each class, which are deducted from the income available to be paid to shareholders. The Fund’s administrator waived a portion of the Fund’s fees. Without such waiver, the Fund’s performance would have been lower.

Disclosure of Expenses

Shareholders of the Fund may incur the following charges: operating expenses, including advisory fees and other Fund expenses. The expense example shown below (which is based on a hypothetical investment of $1,000 invested on July 1, 2011 and held through December 31, 2011) 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 table below 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 the share class under the heading entitled “Expenses Paid During the Period.”

The table 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 other funds’ shareholder reports.

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

Expense Example
	Actual						Hypothetical2
	Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the  Period1		Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the  Period1		Annualized Expense Ratio
Institutional		$1,000.00		$1,048.20		$1.29		$1,000.00		$1,023.95		$1.28		0.25%
Investor A		$1,000.00		$1,047.10		$2.58		$1,000.00		$1,022.69		$2.55		0.50%
Class K		$1,000.00		$1,048.50		$1.03		$1,000.00		$1,024.20		$1.02		0.20%

¹  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 one-half year period shown). Because the Fund invests significantly in the Master Portfolio, the expense table example reflects the net expenses of both the Fund and the Master Portfolio.

² Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the most recent fiscal half year divided by 365.

6 BLACKROCK BOND INDEX FUND DECEMBER 31, 2011

Statement of Assets and Liabilities BlackRock Bond Index Fund

December 31, 2011
Assets
Investments at value — Master Portfolio (cost — $116,430,373)	$	123,799,825
Capital shares sold receivable		200,807
Total assets		124,000,632
Liabilities
Capital shares redeemed payable		1,703,906
Administration fees payable		10,626
Service fees payable		39
Professional fees payable		16,638
Total liabilities		1,731,209
Net Assets	$	122,269,423
Net Assets Consist of
Paid-in capital	$	111,567,746
Distributions in excess of net investment income		(185,204	)
Accumulated net realized gain		3,517,429
Net unrealized appreciation/depreciation		7,369,452
Net Assets	$	122,269,423
Net Asset Value
Institutional
Net assets	$	53,192
Shares outstanding1		5,031
Net asset value	$	10.57
Investor A
Net assets	$	201,683
Shares outstanding1		19,078
Net asset value	$	10.57
Class K
Net assets	$	122,014,548
Shares outstanding1		11,540,197
Net asset value	$	10.57

¹  Unlimited number of shares authorized, no par value.

See Notes to Financial Statements.
	BLACKROCK BOND INDEX FUND	DECEMBER 31, 2011	7

Statement of Operations BlackRock Bond Index Fund

Year Ended December 31, 2011
Investment Income
Net investment income allocated from the Master Portfolio:
Securities lending — affiliated	$	21,396
Income — affiliated		17,658
Interest		3,579,507
Expenses		(140,951	)
Fees waived		55,582
Total income		3,533,192
Expenses
Administration — Institutional		37
Administration — Investor A		97
Administration — Class K		127,887
Service — Investor A		143
Professional		26,097
Total expenses		154,261
Less fees waived by administrator — Institutional		(5	)
Less fees waived by administrator — Investor A		(15	)
Less fees waived by administrator — Class K		(26,077	)
Total expenses after fees waived		128,164
Net investment income		3,405,028
Realized and Unrealized Gain Allocated from the Master Portfolio
Net realized gain from investments		831,963
Net change in unrealized appreciation/depreciation on investments		3,625,776
Total realized and unrealized gain		4,457,739
Net Increase in Net Assets Resulting from Operations	$	7,862,767

See Notes to Financial Statements.
8	BLACKROCK BOND INDEX FUND	DECEMBER 31, 2011

Statements of Changes in Net Assets BlackRock Bond Index Fund

	Year Ended December 31,
Increase (Decrease) in Net Assets:	2011			2010
Operations
Net investment income	$	3,405,028		$	4,554,692
Net realized gain		831,963			4,424,749
Net change in unrealized appreciation/depreciation		3,625,776			(230,800	)
Net increase in net assets resulting from operations		7,862,767			8,748,641
Dividends and Distributions to Shareholders From
Net investment income:
Institutional1		(690	)		—
Investor A1		(1,931	)		—
Class K		(3,612,372	)		(4,765,772	)
Net realized gain:
Institutional1		(19	)		—
Investor A1		(83	)		—
Class K		(49,563	)		—
Decrease in net assets resulting from dividends to shareholders		(3,664,658	)		(4,765,772	)
Capital Share Transactions
Net increase (decrease) in net assets derived from capital share transactions		19,512,360			(62,112,206	)
Net Assets
Total increase (decrease) in net assets		23,710,469			(58,129,337	)
Beginning of year		98,558,954			156,688,291
End of year	$	122,269,423		$	98,558,954
Distributions in excess of net investment income	$	(185,204	)		—

¹  Amounts are from March 31, 2011 (commencement of operations) to December 31, 2011.

See Notes to Financial Statements.
	BLACKROCK BOND INDEX FUND	DECEMBER 31, 2011	9

Financial Highlights BlackRock Bond Index Fund

	Institutional
	Period March 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	10.11
Net investment income2		0.25
Net realized and unrealized gain		0.46
Net increase from investment operations		0.71
Dividends and distributions from:
Net investment income		(0.25	)
Net realized gain		(0.00	)3
Total dividends and distributions		(0.25	)
Net asset value, end of period	$	10.57
Total Investment Return4,5
Based on net asset value		7.18%
Ratios to Average Net Assets6,7,8
Total expenses		0.27%
Total expenses after fees waived		0.25%
Net investment income		2.98%
Supplemental Data
Net assets, end of period (000)	$	53
Portfolio turnover of the Master Portfolio		122%	9

¹  Commencement of operations.

²  Based on average shares outstanding throughout the period.

³  Amount is less than $0.01 per share.

⁴  Includes the reinvestment of dividends.

⁵  Aggregate total investment return.

⁶  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income.

⁷  Annualized.

⁸  Includes the Fund’s share of the Master Portfolio’s allocated fee waived of 0.05%.

⁹  Includes mortgage dollar roll transactions. Excluding these transactions, the portfolio turnover rate would have been 121%.

See Notes to Financial Statements.
10	BLACKROCK BOND INDEX FUND	DECEMBER 31, 2011

Financial Highlights (continued) BlackRock Bond Index Fund

	Investor A
	Period March 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	10.11
Net investment income2		0.22
Net realized and unrealized gain		0.48
Net increase from investment operations		0.70
Dividends and distributions from:
Net investment income		(0.24	)
Net realized gain		(0.00	)3
Total dividends and distributions		(0.24	)
Net asset value, end of period	$	10.57
Total Investment Return4,5
Based on net asset value		7.01%
Ratios to Average Net Assets6,7,8
Total expenses		0.53%
Total expenses after fees waived		0.50%
Net investment income		2.65%
Supplemental Data
Net assets, end of period (000)	$	202
Portfolio turnover of the Master Portfolio		122%	9

¹  Commencement of operations.

²  Based on average shares outstanding throughout the period.

³  Amount is less than $0.01 per share.

⁴  Includes the reinvestment of dividends

⁵  Aggregate total investment return.

⁶  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income.

⁷  Annualized.

⁸  Includes the Fund’s share of the Master Portfolio’s allocated fee waived of 0.05%.

⁹  Includes mortgage dollar roll transactions. Excluding these transactions, the portfolio turnover rate would have been 121%.

See Notes to Financial Statements.
	BLACKROCK BOND INDEX FUND	DECEMBER 31, 2011	11

Financial Highlights (concluded) BlackRock Bond Index Fund

	Class K
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	10.17		$	9.90		$	9.82		$	9.74		$	9.59
Net investment income		0.35	1		0.37	1		0.40	1		0.47			0.48
Net realized and unrealized gain		0.40			0.30			0.10			0.09			0.19
Net increase from investment operations		0.75			0.67			0.50			0.56			0.67
Dividends and distributions from:
Net investment income		(0.35	)		(0.40	)		(0.42	)		(0.48	)		(0.52	)
Net realized gain		(0.00	)2					—			—			—
Return of capital		—			—			—			(0.00	)2		—
Total dividends and distributions		(0.35	)		(0.40	)		(0.42	)		(0.48	)		(0.52	)
Net asset value, end of year	$	10.57		$	10.17		$	9.90		$	9.82		$	9.74
Total Investment Return3
Based on net asset value		7.55%			6.79%			5.21%			5.91%			7.16%
Ratios to Average Net Assets4
Total expenses		0.23%	5		0.26%			0.25%			0.26%			0.28%
Total expenses after fees waived		0.20%			0.23%			0.23%			0.23%			0.23%
Net investment income		3.19%			3.65%			4.05%			4.84%			5.00%
Supplemental Data
Net assets, end of year (000)	$	122,015		$	98,559		$	156,688		$	132,997		$	111,847
Portfolio turnover of the Master Portfolio		122%	6		59%	7		103%	8		89%			61%

¹  Based on average shares outstanding.

²  Amount is less than $0.01 per share.

³  Includes the reinvestment of dividends and distributions.

⁴  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated fee waived of 0.05%.

⁶  Includes mortgage dollar roll transactions. Excluding these transactions, the portfolio turnover rate would have been 121%.

⁷  Includes mortgage dollar roll transactions. Excluding these transactions, the portfolio turnover rate would have been 54%.

⁸  Includes mortgage dollar roll transactions. Excluding these transactions, the portfolio turnover rate would have been 87%.

See Notes to Financial Statements.
12	BLACKROCK BOND INDEX FUND	DECEMBER 31, 2011

Notes to Financial Statements BlackRock Bond Index Fund

1. Organization and Significant Accounting Policies:

BlackRock Bond Index Fund (the “Fund”), a series of BlackRock Funds III (the “Trust”), is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a diversified, open-end management investment company. The Trust is organized as a Delaware statutory trust. The Fund seeks to achieve its investment objective by investing substantially all of its assets in Bond Index Master Portfolio (the “Master Portfolio”), a series of Master Investment Portfolio (“MIP”), which has the same investment objective and strategies as the Fund. The value of the Fund’s investment in the Master Portfolio reflects the Fund’s proportionate interest in the net assets of the Master Portfolio. The percentage of the Master Portfolio owned by the Fund at December 31, 2011 was 97.11%. The performance of the Fund is directly affected by the performance of the Master Portfolio. The financial statements of the Master Portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the Fund’s financial statements. The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The Fund offers multiple classes of shares. Institutional and Class K Shares are sold without a sales charge and only to certain eligible investors. Investor A Shares are sold without a sales charge. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Investor A Shares bear certain expenses related to the shareholder servicing of such shares. Each class has exclusive voting rights with respect to matters relating to its shareholder servicing and distribution expenditures. The Institutional and Investor A Shares commenced operations on March 31, 2011.

The following is a summary of significant accounting policies followed by the Fund:

Valuation: US 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’s policy is to fair value its financial instruments at market value. The Fund records its investment in the Master Portfolio at fair value based on the Fund’s proportionate interest in the net assets of the Master Portfolio. Valuation of securities held by the Master Portfolio is discussed in Note 1 of the Master Portfolio’s Notes to Financial Statements, which are included elsewhere in this report.

Investment Transactions and Investment Income: For financial reporting purposes, contributions to and withdrawals from the Master Portfolio are accounted on a trade date basis. The Fund records daily its proportionate share of the Master Portfolio’s income, expenses and realized and unrealized gains and losses. In addition, the Fund accrues its

own expenses. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Dividends and Distributions: Dividends from net investment income are declared and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. If the total dividends and distributions made in any tax year exceeds net investment income and accumulated realized capital gains, a portion of the total distribution may be treated as a tax return of capital. The amount and timing of dividends and distributions are determined in accordance with federal income tax regulations, which may differ from US GAAP.

Income Taxes: 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 federal income tax provision is required.

The Fund files US federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s US federal tax returns remains open for each of the four periods ended December 31, 2011. 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 does not believe there are any uncertain tax positions that require recognition of a tax liability.

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

2. Administration Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”). Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

The Trust, on behalf of the Fund, entered into an administration services arrangement with BlackRock Institutional Trust Company, N.A. (“BTC”), which has agreed to provide general administration services (other than investment advice and related portfolio activities). BTC, in consideration thereof, has agreed to bear all of the Fund’s ordinary operating expenses, excluding, generally, investment advisory fees, distribution fees, brokerage and other expenses related to the execution of portfolio transactions, extraordinary expenses and certain other expenses which are borne by the Fund. BTC is entitled to receive for these administration services an annual fee of 0.12% based on the average daily net assets of Class K and 0.17% of the average daily net assets of Institutional and Investor A Shares.

BLACKROCK BOND INDEX FUND DECEMBER 31, 2011 13

Notes to Financial Statements (continued) BlackRock Bond Index Fund

From time to time, BTC may waive such fees in whole or in part. Any such waiver will reduce the expenses of the Fund and, accordingly, have a favorable impact on its performance. BTC may delegate certain of its administration duties to sub-administrators.

The fees and expenses of the trustees of the Trust who are not “interested persons” of the Trust, as defined in the 1940 Act (“Independent Trustees”), counsel to the Independent Trustees and the Trust’s independent registered public accounting firm (together, the “independent expenses”) are paid directly by the Fund. BTC has contractually agreed to provide an offsetting credit against the administration fees paid by the Fund in an amount equal to the independent expenses through April 30, 2012.

The Trust, on behalf of the Fund, entered into a Distribution Agreement and Distribution and Service Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of BlackRock. Pursuant to the Distribution and Service Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL ongoing service fees. The fees are accrued daily and paid monthly at an annual rate of 0.25% based upon the average daily net assets of the Investor A Shares.

Pursuant to sub-agreements with BRIL, broker-dealers and 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 Investor A shareholders.

Certain officers and/or trustees of the Trust are officers and/or directors of BlackRock or its affiliates.

3. Income Tax Information:

US GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of December 31, 2011 attributable to the reclassification of distributions were reclassified to the following accounts:

Distributions in excess of net investment income	$	24,761
Accumulated net realized gain	$	(24,761	)

The tax character of distributions paid during the fiscal years ended December 31, 2011 and December 31, 2010 was as follows:

	12/31/2011		12/31/2010
Ordinary income	$	3,590,232	$	4,765,772
Long-term capital gains		74,426		—
Total	$	3,664,658	$	4,765,772

As of December 31, 2011, the tax components of accumulated net earnings were as follows:

Undistributed long-term capital gains	$	106,443
Net unrealized gains*		10,610,504
Qualified late year losses**		(15,270	)
Total	$	10,701,677

* The difference between book-basis and tax-basis net unrealized gains was attributable primarily to the timing and recognition of partnership income.

** The Fund has elected to defer certain qualified late-year losses and recognize such losses in the year ending December 31, 2012.

4. Capital Share Transactions:

Transactions in capital shares for the Fund were as follows:

	Year Ended December 31, 2011
BlackRock Bond Index Fund	Shares			Amount
Institutional1
Shares sold		9,869		$	101,838
Shares issued to shareholders in reinvestment of dividends and distributions		7			70
Shares redeemed		(4,845	)		(50,004	)
Net increase		5,031		$	51,904
Investor A1
Shares sold		19,264		$	201,272
Shares issued to shareholders in reinvestment of dividends and distributions		135			1,414
Shares redeemed		(321	)		(3,363	)
Net increase		19,078		$	199,323

14 BLACKROCK BOND INDEX FUND DECEMBER 31, 2011

Notes to Financial Statements (concluded) BlackRock Bond Index Fund

	Year Ended December 31, 2011						Year Ended December 31, 2010
	Shares			Amount			Shares			Amount
Class K
Shares sold		4,681,283		$	48,629,757			3,652,604		$	37,356,074
Shares issued to shareholders in reinvestment of dividends and distributions		299,480			3,098,229			420,234			4,277,019
Shares redeemed		(3,134,942	)		(32,466,853	)		(10,199,816	)		(103,745,299	)
Net increase (decrease)		1,845,821		$	19,261,133			(6,126,978	)	$	(62,112,206	)

¹  For the period March 31, 2011 (commencement of operations) to December 31, 2011.

5. Subsequent Events:

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

BLACKROCK BOND INDEX FUND DECEMBER 31, 2011 15

Report of Independent Registered Public Accounting Firm BlackRock Bond Index Fund

To the Shareholders and Board of Trustees of

BlackRock Funds III:

In our opinion, the accompanying statement of assets and liabilities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the BlackRock Bond Index Fund, a series of BlackRock Funds III (the “Trust”), at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these

financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 24, 2012

Important Tax Information (Unaudited)

The following information is provided with respect to the ordinary income distributions paid by the Fund during the taxable year ended December 31, 2011:

Month(s) Paid
Interest Related Dividends for Non-U.S. Residents1	January 2011	95.42%
	February 2011	79.12%
	March 2011	73.77%
	April 2011	93.17%
	May 2011	71.55%
	June 2011	83.58%
	July 2011	100.00%
	August 2011	62.31%
	September 2011	85.09%
	October 2011	94.14%
	November 2011	59.92%
	December 2011	73.88%
Federal Obligation Interest2	January-December 2011	22.58%

¹ Represents the portion of the taxable ordinary income dividends eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.

²  The law varies in each state as to whether and what percentage of dividend income attributable to federal obligations is exempt from state income tax. We recommend that you consult your tax advisor to determine if any portion of the dividends you received is exempt from state income taxes.

Additionally, the Fund distributed long-term capital gains of $0.004332 per share to shareholders of record on December 13, 2011.

16 BLACKROCK BOND INDEX FUND DECEMBER 31, 2011

Master Portfolio Information as of December 31, 2011 Bond Index Master Portfolio

Portfolio Composition

Percent of
Long-Term Investments

U.S. Government Sponsored Agency Securities	38	%
U.S. Treasury Obligations	35
Corporate Bonds	21
Foreign Agency Obligations	3
Non-Agency Mortgage-Backed Securities	2
Taxable Municipal Bonds	1

Credit Quality Allocation¹

Percent of
Long-Term Investments

AAA/Aaa2	77	%
AA/Aa	5
A/A	10
BBB/Baa	8

¹ Using the higher of Standard & Poor’s (“S&P’s”) or Moody’s Investors Service ratings.

² Includes US Government Sponsored Agency Securities which are deemed AAA/Aaa by the investment advisor.

BLACKROCK BOND INDEX FUND DECEMBER 31, 2011 17

Schedule of Investments December 31, 2011 Bond Index Master Portfolio (Percentages shown are based on Net Assets)

Asset-Backed Securities	Par (000)		Value
Citibank Credit Card Issuance Trust:
Series 2006-A3, Class A3, 5.30%, 3/15/18	$	100	$	115,810
Series 2008-A1, Class A1, 5.35%, 2/07/20		170		202,589
Total Asset-Backed Securities — 0.2%				318,399
Corporate Bonds
Aerospace & Defense — 0.3%
The Boeing Co., 6.13%, 2/15/33		100		126,055
General Dynamics Corp., 3.88%, 7/15/21		50		54,064
Honeywell International, Inc., 5.30%, 3/01/18		100		117,930
L-3 Communications Corp., 3.95%, 11/15/16		50		50,466
				348,515
Air Freight & Logistics — 0.1%
United Parcel Service, Inc., 5.13%, 4/01/19		50		60,398
Auto Components — 0.0%
Johnson Controls, Inc., 1.75%, 3/01/14		50		50,432
Beverages — 0.5%
Anheuser-Busch Cos. LLC, 6.45%, 9/01/37		100		133,894
The Coca-Cola Co.:
0.75%, 11/15/13		100		100,183
1.80%, 9/01/16		50		50,857
Diageo Capital Plc, 5.20%, 1/30/13		150		157,080
Dr Pepper Snapple Group, Inc., 3.20%, 11/15/21		25		25,367
PepsiCo, Inc., 4.88%, 11/01/40		100		115,563
				582,944
Biotechnology — 0.2%
Amgen, Inc.:
3.45%, 10/01/20		100		97,683
5.15%, 11/15/41		100		103,668
Gilead Sciences, Inc., 3.05%, 12/01/16		50		51,174
				252,525
Capital Markets — 1.0%
The Bear Stearns Cos., Inc./JPMorgan Chase & Co., 5.70%, 11/15/14		200		217,506
The Goldman Sachs Group, Inc.:
3.63%, 2/07/16		50		48,311
5.95%, 1/18/18		300		307,266
6.13%, 2/15/33 (a)		100		96,898
Jefferies Group, Inc., 8.50%, 7/15/19		25		25,375
Morgan Stanley:
5.30%, 3/01/13 (a)		150		151,836
5.75%, 10/18/16		225		219,132
5.50%, 7/28/21		50		46,232
7.25%, 4/01/32		50		50,986
Nomura Holdings, Inc., 5.00%, 3/04/15		50		50,349
State Street Corp., 2.88%, 3/07/16		100		102,927
				1,316,818

Corporate Bonds	Par (000)		Value
Chemicals — 0.4%
The Dow Chemical Co.:
4.25%, 11/15/20 (a)	$	50	$	51,972
4.13%, 11/15/21		50		51,286
E.I. du Pont de Nemours & Co., 6.00%, 7/15/18		125		152,785
Ecolab, Inc., 4.35%, 12/08/21		50		53,394
The Mosaic Co., 3.75%, 11/15/21		50		50,520
Potash Corp. of Saskatchewan, Inc., 3.25%, 12/01/17		50		52,305
Praxair, Inc., 4.63%, 3/30/15		100		110,383
				522,645
Commercial Banks — 2.7%
American Express Bank FSB, 5.50%, 4/16/13		250		261,313
BB&T Corp., 5.25%, 11/01/19		100		109,143
The Bank of New York Mellon Corp.:
2.30%, 7/28/16		50		50,155
3.55%, 9/23/21 (a)		50		50,722
Bank of Nova Scotia, 2.90%, 3/29/16		100		103,521
Barclays Bank Plc, 5.00%, 9/22/16		175		181,241
Council of Europe Development Bank, 1.50%, 1/15/15		50		50,204
Credit Suisse AG, 5.40%, 1/14/20		100		94,317
Credit Suisse New York, 2.20%, 1/14/14		100		98,899
European Investment Bank:
3.13%, 6/04/14		100		104,283
2.50%, 5/16/16		100		103,403
5.13%, 9/13/16		225		258,847
1.25%, 10/14/16		100		97,996
Fifth Third Bancorp, 3.63%, 1/25/16		50		50,730
HSBC Holdings Plc, 6.80%, 6/01/38		100		103,575
International Bank for Reconstruction & Development:
1.75%, 7/15/13		300		305,532
1.00%, 9/15/16		75		75,277
Korea Development Bank, 3.25%, 3/09/16		100		98,504
Lloyds TSB Bank Plc, 6.38%, 1/21/21		50		50,107
Oesterreichische Kontrollbank AG, 2.00%, 6/03/16		100		99,672
PNC Funding Corp., 5.63%, 2/01/17 (b)		150		163,331
Rabobank Nederland, 5.25%, 5/24/41		25		24,507
Royal Bank of Canada, 1.45%, 10/30/14		100		100,519
SunTrust Banks, Inc., 3.50%, 1/20/17		50		50,258
Swiss Bank Corp., 7.00%, 10/15/15		150		154,998
The Toronto-Dominion Bank, 2.38%, 10/19/16		50		50,880
US Bancorp:
1.38%, 9/13/13		100		100,609
4.13%, 5/24/21		50		55,553
Wachovia Bank NA/Wells Fargo & Co.,6.60%, 1/15/38		50		56,702
Wells Fargo & Co., 5.63%, 12/11/17		250		284,882
Westpac Banking Corp., 4.88%, 11/19/19		50		53,196
				3,442,876
Commercial Services & Supplies — 0.1%
Republic Services, Inc., 5.25%, 11/15/21		50		56,694
Vanderbilt University, 5.25%, 4/01/19		100		118,327
				175,021

Portfolio Abbreviations:

To simplify the listings of portfolio holdings in the Schedule of Investments, the names and descriptions of many of the securities have been abbreviated according to the following list:

FSB      Federal Savings Bank GO       General Obligations RB       Revenue Bond

See Notes to Financial Statements.

18 BLACKROCK BOND INDEX FUND DECEMBER 31, 2011

Schedule of Investments (continued) Bond Index Master Portfolio (Percentages shown are based on Net Assets)

Corporate Bonds	Par (000)		Value
Communications Equipment — 0.2%
Cisco Systems, Inc.:
1.63%, 3/14/14	$	100	$	101,874
4.95%, 2/15/19		100		115,924
				217,798
Computers & Peripherals — 0.2%
ACE INA Holdings, Inc., 2.60%, 11/23/15		50		50,894
Dell, Inc., 5.65%, 4/15/18 (a)		75		86,887
Hewlett-Packard Co., 4.75%, 6/02/14		150		158,409
				296,190
Consumer Finance — 0.2%
American Express Co., 8.13%, 5/20/19		100		129,287
Capital One Financial Corp., 6.75%, 9/15/17		100		112,052
HSBC Finance Corp., 6.68%, 1/15/21		61		63,098
				304,437
Diversified Financial Services — 1.9%
Bank of America Corp.:
4.50%, 4/01/15		50		48,249
7.75%, 8/15/15		250		253,187
3.75%, 7/12/16		100		92,592
5.00%, 5/13/21		100		91,084
BNP Paribas SA, 3.25%, 3/11/15 (a)		100		94,524
Citigroup, Inc.:
6.50%, 8/19/13		150		156,144
3.95%, 6/15/16		50		49,828
6.63%, 6/15/32		100		92,743
6.88%, 3/05/38		100		109,861
General Electric Capital Corp.:
2.25%, 11/09/15		100		100,447
5.63%, 5/01/18		300		336,001
4.38%, 9/16/20		50		51,094
4.65%, 10/17/21		200		208,733
Series G, 6.00%, 8/07/19		100		114,863
John Deere Capital Corp., 3.90%, 7/12/21 (a)		50		54,425
JPMorgan Chase & Co.:
1.65%, 9/30/13		150		151,077
5.50%, 10/15/40		125		129,526
5.60%, 7/15/41		50		52,348
Merrill Lynch & Co., Inc., 6.11%, 1/29/37		100		77,094
National Rural Utilities Cooperative Finance Corp., 3.05%, 3/01/16		50		52,517
SLM Corp., 8.45%, 6/15/18		100		103,000
				2,419,337
Diversified Telecommunication Services — 1.1%
AT&T Corp., 8.00%, 11/15/31		4		5,650
AT&T Mobility LLC, 7.13%, 12/15/31		100		129,415
AT&T, Inc.:
5.10%, 9/15/14		300		330,433
5.35%, 9/01/40		113		127,114
Deutsche Telekom International Finance BV, 8.75%, 6/15/30		50		69,745
Embarq Corp., 7.08%, 6/01/16		100		108,395
France Telecom SA, 4.13%, 9/14/21		50		50,404
Qwest Corp., 6.75%, 12/01/21		50		54,500
Telecom Italia Capital SA, 5.25%, 11/15/13		150		144,088
Telefonica Emisiones SAU, 5.46%, 2/16/21		50		47,713

Corporate Bonds	Par (000)		Value
Diversified Telecommunication Services (concluded)
Telefonica Europe BV, 8.25%, 9/15/30	$	50	$	54,990
Verizon Communications, Inc., 6.00%, 4/01/41		100		123,987
Verizon Global Funding Corp., 7.75%, 12/01/30		100		139,272
				1,385,706
Electric Utilities — 1.0%
Alabama Power Co., 5.50%, 10/15/17 (a)		100		118,485
Commonwealth Edison Co., 5.90%, 3/15/36		50		61,317
Consolidated Edison Co. of New York, Inc., 6.65%, 4/01/19		100		126,398
Duke Energy Carolinas LLC, 6.05%, 4/15/38		100		130,913
Entergy Corp., 3.63%, 9/15/15		50		50,755
Florida Power & Light Co./Progress Energy, 5.95%, 2/01/38		50		65,558
Indiana Michigan Power Co., 6.05%, 3/15/37		100		122,108
Nevada Power Co., 5.45%, 5/15/41		50		59,404
Progress Energy, Inc., 4.40%, 1/15/21		100		110,229
Public Service Electric & Gas Co., 3.50%, 8/15/20		50		52,767
Southern California Edison Co.:
5.00%, 1/15/16		100		113,900
5.50%, 3/15/40		50		62,471
The Toledo Edison Co., 6.15%, 5/15/37		100		120,272
Virginia Electric & Power Co., 4.75%, 3/01/13		100		104,246
				1,298,823
Electrical Equipment — 0.1%
Emerson Electric Co., 5.00%, 4/15/19		100		117,467
Electronic Equipment, Instruments & Components — 0.0%
Tyco Electronics Group SA, 6.55%, 10/01/17		50		57,760
Energy Equipment & Services — 0.3%
Ensco Plc, 3.25%, 3/15/16		100		102,014
Halliburton Co., 6.15%, 9/15/19		100		122,868
Transocean, Inc., 5.25%, 3/15/13 (a)		100		102,800
				327,682
Food & Staples Retailing — 0.5%
CVS Caremark Corp., 6.60%, 3/15/19		100		121,891
The Kroger Co., 6.15%, 1/15/20		100		121,352
Wal-Mart Stores, Inc.:
1.50%, 10/25/15		100		101,570
3.63%, 7/08/20		150		164,396
5.63%, 4/15/41		100		129,240
				638,449
Food Products — 0.4%
Corn Products International, Inc., 3.20%, 11/01/15		50		51,660
General Mills, Inc., 1.55%, 5/16/14		100		100,671
The JM Smucker Co., 3.50%, 10/15/21		50		51,153
Kraft Foods, Inc.:
6.13%, 8/23/18		150		176,991
6.50%, 2/09/40		50		65,047
				445,522
Gas Utilities — 0.0%
AGL Capital Corp., 3.50%, 9/15/21		50		50,027
Health Care Equipment & Supplies — 0.2%
Covidien International Finance SA, 6.55%, 10/15/37		25		31,761
Hospira, Inc., 6.05%, 3/30/17		125		138,001

See Notes to Financial Statements.

BLACKROCK BOND INDEX FUND DECEMBER 31, 2011 19

Schedule of Investments (continued) Bond Index Master Portfolio (Percentages shown are based on Net Assets)

Corporate Bonds	Par (000)		Value
Health Care Equipment & Supplies (concluded)
Medtronic, Inc., 4.13%, 3/15/21 (a)	$	50	$	55,026
				224,788
Health Care Providers & Services — 0.4%
Aetna, Inc., 6.75%, 12/15/37		50		62,520
Cigna Corp., 4.00%, 2/15/22		25		24,768
LG&E & KU Energy LLC, 3.75%, 11/15/20		50		50,476
Medco Health Solutions, Inc., 2.75%, 9/15/15		50		50,283
Quest Diagnostics, Inc., 3.20%, 4/01/16		50		51,771
UnitedHealth Group, Inc., 5.95%, 2/15/41		100		122,945
WellPoint, Inc., 5.25%, 1/15/16		150		167,934
				530,697
Hotels, Restaurants & Leisure — 0.1%
McDonald’s Corp., 3.50%, 7/15/20		50		53,927
Yum! Brands, Inc., 5.30%, 9/15/19		100		111,884
				165,811
Household Durables — 0.1%
Whirlpool Corp., 8.60%, 5/01/14		100		111,613
Household Products — 0.2%
Energizer Holdings, Inc., 4.70%, 5/19/21 (c)		50		52,620
Kimberly-Clark Corp., 3.63%, 8/01/20		50		54,064
The Procter & Gamble Co., 1.80%, 11/15/15		100		103,263
				209,947
Industrial Conglomerates — 0.2%
General Electric Co., 5.00%, 2/01/13		100		104,209
Tyco International Finance SA, 4.13%, 10/15/14		50		53,290
Waste Management, Inc., 4.60%, 3/01/21		100		108,364
				265,863
Insurance — 1.0%
Aon Corp., 3.13%, 5/27/16		50		50,568
The Allstate Corp., 5.00%, 8/15/14		100		107,914
American International Group, Inc.:
4.25%, 9/15/14		100		97,113
8.25%, 8/15/18		100		105,850
Berkshire Hathaway Finance Corp., 5.10%, 7/15/14		100		108,979
Genworth Financial, Inc., 7.70%, 6/15/20 (a)		50		47,525
Hartford Financial Services Group, Inc., 6.10%, 10/01/41		100		93,584
Lincoln National Corp., 4.85%, 6/24/21 (a)		50		50,939
Marsh & McLennan Cos., Inc., 4.80%, 7/15/21 (a)		50		54,728
MetLife, Inc.:
5.00%, 6/15/15		100		108,939
4.75%, 2/08/21		100		108,179
The Progressive Corp., 3.75%, 8/23/21 (a)		50		51,956
Prudential Financial, Inc.:
3.00%, 5/12/16		50		49,821
5.38%, 6/21/20		100		107,023
Travelers Property Casualty Corp., 6.38%, 3/15/33		100		121,342
				1,264,460
Internet Software & Services — 0.1%
eBay, Inc., 3.25%, 10/15/20		50		50,472
Google, Inc., 3.63%, 5/19/21		25		27,330
				77,802

Corporate Bonds	Par (000)		Value
IT Services — 0.3%
Fiserv, Inc., 6.80%, 11/20/17	$	50	$	58,152
International Business Machines Corp.:
2.00%, 1/05/16		150		153,858
2.90%, 11/01/21 (a)		100		103,084
The Western Union Co., 6.20%, 11/17/36		25		26,601
				341,695
Life Sciences Tools & Services — 0.1%
Thermo Fisher Scientific, Inc.:
2.05%, 2/21/14		25		25,604
2.25%, 8/15/16		50		50,974
				76,578
Machinery — 0.3%
Caterpillar, Inc.:
5.70%, 8/15/16		100		117,346
3.90%, 5/27/21		50		54,893
Danaher Corp., 3.90%, 6/23/21		50		55,199
Illinois Tool Works, Inc., 4.88%, 9/15/41 (c)		50		56,892
Ingersoll-Rand Global Holding Co. Ltd., 6.88%, 8/15/18		50		60,564
Joy Global, Inc., 5.13%, 10/15/21		50		53,373
				398,267
Media — 1.0%
Cintas Corp. No 2, 4.30%, 6/01/21		25		26,854
Comcast Corp., 6.45%, 3/15/37		100		121,224
COX Communications, Inc., 5.50%, 10/01/15		100		112,523
DIRECTV Holdings LLC/DIRECTV Financing Co.:
3.13%, 2/15/16		100		101,299
3.50%, 3/01/16		100		103,092
Discovery Communications LLC, 4.38%, 6/15/21		50		52,780
NBC Universal Media LLC, 4.38%, 4/01/21		100		105,535
News America, Inc., 6.20%, 12/15/34		100		107,504
TCI Communications, Inc., 8.75%, 8/01/15		50		60,741
Time Warner Cable, Inc.:
7.50%, 4/01/14		50		55,983
4.13%, 2/15/21		100		102,690
6.75%, 6/15/39		50		59,086
Time Warner, Inc., 7.70%, 5/01/32		100		130,468
Viacom, Inc., 6.75%, 10/05/37		50		62,050
The Walt Disney Co., 3.75%, 6/01/21		50		54,977
				1,256,806
Metals & Mining — 0.5%
Alcoa, Inc., 5.90%, 2/01/27		100		98,875
ArcelorMittal, 3.75%, 3/01/16 (a)		150		142,393
BHP Billiton Finance USA Ltd., 4.80%, 4/15/13		100		105,347
Barrick North America Finance LLC, 5.70%, 5/30/41		50		59,233
Rio Tinto Finance USA Ltd.:
2.50%, 5/20/16		50		51,004
4.13%, 5/20/21		50		53,749
Teck Resources Ltd., 4.75%, 1/15/22		50		53,745
Vale Overseas Ltd., 6.88%, 11/21/36		100		113,855
				678,201
Multi-Utilities — 0.2%
Dominion Resources, Inc., 4.90%, 8/01/41		50		53,990
Nisource Finance Corp., 5.95%, 6/15/41		50		53,664

See Notes to Financial Statements.

20 BLACKROCK BOND INDEX FUND DECEMBER 31, 2011

Schedule of Investments (continued) Bond Index Master Portfolio (Percentages shown are based on Net Assets)

Corporate Bonds	Par (000)		Value
Multi-Utilities (concluded)
Pacific Gas & Electric Co., 6.05%, 3/01/34	$	100	$	123,784
				231,438
Multiline Retail — 0.2%
Kohl’s Corp., 4.00%, 11/01/21 (a)		50		51,227
Nordstrom, Inc., 4.00%, 10/15/21		100		104,244
Target Corp., 7.00%, 1/15/38		100		139,781
				295,252
Office Electronics — 0.1%
Xerox Corp., 5.63%, 12/15/19		100		109,238
Oil, Gas & Consumable Fuels — 2.5%
Alberta Energy Co. Ltd., 7.38%, 11/01/31		50		62,531
Anadarko Petroleum Corp., 6.45%, 9/15/36		100		114,010
Apache Corp., 6.00%, 1/15/37		100		128,928
BP Capital Markets Plc:
3.63%, 5/08/14 (a)		100		105,084
3.20%, 3/11/16		100		104,802
Canadian Natural Resources Ltd., 1.45%, 11/14/14		50		50,291
ConocoPhillips, 4.60%, 1/15/15		200		221,199
ConocoPhillips Holding Co., 6.95%, 4/15/29		100		136,330
Devon Energy Corp., 4.00%, 7/15/21		50		54,691
Energy Transfer Partners LP, 9.70%, 3/15/19		100		122,515
Enterprise Products Operating LLC, 5.60%, 10/15/14		200		219,133
EOG Resources, Inc., 2.50%, 2/01/16		50		51,492
EQT Corp., 4.88%, 11/15/21		50		50,472
Hess Corp., 8.13%, 2/15/19		100		128,366
Kinder Morgan Energy Partners LP, 6.50%, 2/01/37		100		110,116
Marathon Petroleum Corp., 3.50%, 3/01/16		100		101,789
MidAmerican Energy Holdings Co., 6.13%, 4/01/36		100		119,435
Nabors Industries, Inc., 5.00%, 9/15/20		50		50,975
Occidental Petroleum Corp., 4.10%, 2/01/21		50		56,015
Pemex Project Funding Master Trust, 5.75%, 3/01/18		100		110,000
Petrobras International Finance Co., 5.75%, 1/20/20		150		160,518
Petrohawk Energy Corp., 7.88%, 6/01/15		50		53,250
Petroleos Mexicanos, 6.50%, 6/02/41		50		56,250
Sempra Energy, 2.00%, 3/15/14		100		101,267
Shell International Finance BV, 4.38%, 3/25/20		100		116,746
Statoil ASA, 5.10%, 8/17/40		100		118,375
Suncor Energy, Inc., 6.50%, 6/15/38		100		125,946
Talisman Energy, Inc., 3.75%, 2/01/21		50		49,156
Tennessee Gas Pipeline Co., 7.50%, 4/01/17		100		119,060
TransCanada PipeLines Ltd., 6.20%, 10/15/37		50		62,319
Valero Energy Corp., 6.13%, 2/01/20		75		83,425
Weatherford International Ltd., 5.13%, 9/15/20		50		51,959
The Williams Cos., Inc., 7.88%, 9/01/21		31		38,153
				3,234,598
Paper & Forest Products — 0.1%
Georgia-Pacific LLC, 8.88%, 5/15/31		25		34,364
International Paper Co., 7.95%, 6/15/18		75		91,292
				125,656
Pharmaceuticals — 0.7%
Abbott Laboratories:
5.60%, 11/30/17		50		59,708
4.13%, 5/27/20		50		55,427
AstraZeneca Plc, 5.90%, 9/15/17		100		120,790
Eli Lilly & Co., 5.50%, 3/15/27		50		59,333

Corporate Bonds	Par (000)		Value
Pharmaceuticals (concluded)
GlaxoSmithKline Capital, Inc., 6.38%, 5/15/38	$	50	$	66,903
Johnson & Johnson, 2.15%, 5/15/16		100		104,296
Merck & Co., Inc., 5.95%, 12/01/28		100		125,289
Pharmacia Corp., 6.50%, 12/01/18		150		187,817
Sanofi, 1.20%, 9/30/14		50		50,388
				829,951
Real Estate — 0.1%
Boston Properties LP, 3.70%, 11/15/18		50		51,054
Simon Property Group LP, 5.25%, 12/01/16		50		55,416
				106,470
Real Estate Investment Trusts (REITs) — 0.2%
ERP Operating LP, 4.75%, 7/15/20		100		103,742
HCP, Inc., 6.00%, 1/30/17		100		108,200
Health Care REIT, Inc., 5.25%, 1/15/22		50		48,985
ProLogis LP, 6.25%, 3/15/17		50		54,016
				314,943
Road & Rail — 0.3%
Burlington Northern Santa Fe LLC, 5.40%, 6/01/41		50		57,801
Canadian National Railway Co., 1.45%, 12/15/16		50		49,720
Canadian Pacific Railway Ltd., 5.75%, 1/15/42		25		26,428
CSX Corp., 3.70%, 10/30/20 (a)		100		101,937
Norfolk Southern Corp., 7.70%, 5/15/17		150		192,501
				428,387
Semiconductors & Semiconductor Equipment — 0.1%
Applied Materials, Inc., 5.85%, 6/15/41		50		56,986
Intel Corp., 4.80%, 10/01/41		50		56,036
Texas Instruments, Inc., 1.38%, 5/15/14 (a)		50		50,622
				163,644
Software — 0.2%
Microsoft Corp., 3.00%, 10/01/20		50		53,193
Oracle Corp., 5.75%, 4/15/18		150		182,023
				235,216
Specialty Retail — 0.1%
Lowe’s Cos., Inc., 4.63%, 4/15/20 (a)		100		111,654
Macy’s Retail Holdings, Inc., 5.90%, 12/01/16		25		27,937
				139,591
Tobacco — 0.2%
Altria Group, Inc., 9.25%, 8/06/19		100		134,276
Philip Morris International, Inc., 4.13%, 5/17/21		50		54,893
				189,169
Water Utilities — 0.0%
United Utilities Plc, 5.38%, 2/01/19		50		52,863
Wireless Telecommunication Services — 0.2%
America Movil SAB de CV, 5.00%, 3/30/20		100		110,477
American Tower Corp., 5.05%, 9/01/20		25		25,045
Vodafone Group Plc, 7.88%, 2/15/30		100		145,242
				280,764
Total Corporate Bonds — 20.9%				26,651,080

See Notes to Financial Statements.

BLACKROCK BOND INDEX FUND DECEMBER 31, 2011 21

Schedule of Investments (continued) Bond Index Master Portfolio (Percentages shown are based on Net Assets)

Foreign Agency Obligations	Par (000)		Value
Asian Development Bank, 2.75%, 5/21/14	$	200	$	210,089
Brazilian Government International Bond:
8.00%, 1/15/18		181		211,250
5.63%, 1/07/41		200		232,000
Colombia Government International Bond, 7.38%, 9/18/37		100		140,500
Hydro Quebec, 2.00%, 6/30/16		100		102,084
Inter-American Development Bank, 3.00%, 4/22/14		250		263,633
Israel Government International Bond, 4.63%, 6/15/13		100		104,162
Italian Republic, 6.88%, 9/27/23		100		96,340
KFW:
1.88%, 1/14/13		150		151,849
3.25%, 3/15/13		250		257,448
3.50%, 3/10/14		100		105,571
1.25%, 10/26/15		250		251,003
2.63%, 2/16/16		100		105,137
Mexico Government International Bond:
8.13%, 12/30/19		100		143,000
5.13%, 1/15/20		100		114,250
6.75%, 9/27/34		100		130,250
Ontario Electricity Financial Corp., 7.45%, 3/31/13		150		161,854
Panama Government International Bond, 5.20%, 1/30/20		100		113,250
Peruvian Government International Bond, 8.75%, 11/21/33		41		62,525
Poland Government International Bond, 6.38%, 7/15/19		100		110,750
Province of Ontario Canada, 2.30%, 5/10/16 (a)		100		102,980
Province of Quebec Canada, 5.00%, 3/01/16		100		113,782
Total Foreign Agency Obligations — 2.6%				3,283,707
Non-Agency Mortgage-Backed Securities
Commercial Mortgage-Backed Securities — 2.0%
Citigroup/Deutsche Bank Commercial Mortgage Trust, Series 2007-CD4, Class A4, 5.32%, 12/11/49		600		636,392
CS First Boston Mortgage Securities Corp., Series 2004-C2, Class A2, 5.42%, 5/15/36 (d)		500		533,978
Greenwich Capital Commercial Funding Corp., Series 2007-GG9, Class A4, 5.44%, 3/10/39		200		216,477
JP Morgan Chase Commercial Mortgage Securities Corp., Series 2006-LDP9, Class A3, 5.34%, 5/15/47		100		106,050
LB-UBS Commercial Mortgage Trust:
Series 2004-C2, Class A4, 4.37%, 3/15/36		500		522,389
Series 2006-C4, Class AM, 5.89%, 6/15/38 (d)		475		483,939
				2,499,225
Total Non-Agency Mortgage-Backed Securities — 2.0%				2,499,225
Preferred Securities
Trust Preferred — 0.1%	Shares
Diversified Financial Services — 0.1%
JPMorgan Chase Capital XVIII, 6.95%, 8/17/36		75		75,281
Total Preferred Securities — 0.1%				75,281

Taxable Municipal Bonds	Par (000)		Value
Bay Area Toll Authority, 7.04%, 4/01/41	$	100	$	131,574
City of New York, Series G, 5.97%, 3/01/36		100		120,258
Los Angeles Community College District, GO, Unlimited, Build America Bonds, 6.75%, 8/01/49		50		63,692
Massachusetts School Building Authority, 5.72%, 8/15/39		100		123,624
Metropolitan Transportation Authority, RB, Build America Bonds, 6.69%, 11/15/40		50		61,388
New Jersey State Turnpike Authority, RB, 4.25%, 1/01/16		190		197,228
Ohio State Water Development Authority, Water Pollution Control, RB, Build America Bonds, 4.88%, 12/01/34		100		111,008
State of California, 7.55%, 4/01/39		175		213,976
State of Illinois, GO, Unlimited, 5.10%, 6/01/33		100		90,764
State of Texas, GO, Build America Bonds, 5.52%, 4/01/39		100		121,511
Total Taxable Municipal Bonds — 1.0%				1,235,023
U.S. Government Sponsored Agency Securities
Agency Obligations — 5.6%
Fannie Mae:
0.65%, 8/28/14		600		599,315
1.45%, 1/24/14		600		600,406
1.63%, 10/26/15		350		358,683
2.38%, 7/28/15		600		633,042
2.75%, 2/05/14		300		313,645
3.00%, 9/01/16		200		200,803
4.38%, 3/15/13 (a)		850		891,651
4.63%, 10/15/13 (a)		900		967,855
6.63%, 11/15/30		149		220,692
Federal Home Loan Banks, 5.50%, 7/15/36		100		129,711
Financing Corp., 8.60%, 9/26/19		200		292,268
Freddie Mac:
0.38%, 11/27/13 (a)		500		499,192
2.00%, 8/25/16		450		467,940
4.88%, 6/13/18 (a)		250		301,230
6.25%, 7/15/32		95		138,265
Tennessee Valley Authority, 6.25%, 12/15/17		400		508,810
				7,123,508
Mortgage-Backed Securities — 31.5%
Fannie Mae Mortgage Backed Securities:
2.75%, 8/01/41 (d)		282		292,702
3.00%, 1/01/27 (e)		500		516,328
3.21%, 11/01/40 (d)		157		162,503
3.50%, 2/01/26—1/01/42 (e)		1,450		1,508,712
4.00%, 10/01/25—11/01/41 (e)		4,341		4,570,397
4.50%, 5/01/24—1/01/42 (e)		4,099		4,368,422
5.00%, 1/01/19—9/01/41		3,072		3,322,712
5.30%, 7/01/39 (d)		147		158,262
5.50%, 6/01/25—1/01/42 (e)		3,123		3,405,059
6.00%, 3/01/34		715		797,897
6.50%, 7/01/32		578		656,034
7.00%, 2/01/32		113		130,568
Freddie Mac Mortgage Backed Securities:
3.26%, 8/01/41 (d)		199		207,275
3.50%, 1/01/27 (e)		400		416,938

See Notes to Financial Statements.

22 BLACKROCK BOND INDEX FUND DECEMBER 31, 2011

Schedule of Investments (continued) Bond Index Master Portfolio (Percentages shown are based on Net Assets)

U.S. Government Sponsored Agency Securities	Par (000)		Value
Mortgage-Backed Securities (concluded)
3.67%, 9/01/40 (d)	$	213	$	222,665
4.00%, 5/01/19—1/01/41		1,211		1,272,209
4.50%, 4/01/18—10/01/39		3,270		3,471,448
5.00%, 10/01/18—8/01/35		2,077		2,233,031
5.04%, 7/01/38 (d)		333		355,648
5.50%, 4/01/33—1/01/42 (e)		1,557		1,693,858
6.00%, 1/01/42 (e)		1,000		1,098,125
6.50%, 6/01/31		151		172,453
8.00%, 12/01/24		398		468,955
Ginnie Mae Mortgage Backed Securities:
4.00%, 3/15/41—1/01/42 (e)		1,469		1,578,218
4.50%, 7/15/39—6/20/41		2,693		2,944,678
5.00%, 11/15/39—1/01/42 (e)		2,316		2,568,860
5.50%, 12/15/32		305		344,244
6.00%, 3/15/35—10/15/37		261		296,861
6.50%, 9/15/36		415		475,573
7.50%, 12/15/23		442		514,446
				40,225,081
Total U.S. Government Sponsored Agency Securities — 37.1%				47,348,589
U.S. Treasury Obligations
U.S. Treasury Bonds:
8.75%, 5/15/17 (a)		500		704,687
8.75%, 5/15/20 (a)		500		782,929
8.75%, 8/15/20		400		630,906
6.25%, 8/15/23 (a)		450		644,062
7.63%, 2/15/25 (a)		195		315,291
6.13%, 11/15/27 (a)		480		713,400
6.25%, 5/15/30		100		154,656
5.38%, 2/15/31 (a)		350		498,859
4.50%, 2/15/36		101		132,168
3.50%, 2/15/39		100		112,484
4.25%, 5/15/39		25		31,805
4.38%, 11/15/39		300		389,484
4.63%, 2/15/40 (a)		730		984,587
4.38%, 5/15/40		250		324,766
3.88%, 8/15/40		360		431,550
4.25%, 11/15/40		678		864,662
4.75%, 2/15/41 (a)		200		275,625
4.38%, 5/15/41		610		794,811
3.75%, 8/15/41 (a)		350		411,633
3.13%, 11/15/41		250		261,914
U.S. Treasury Notes:
1.38%, 1/15/13		1,500		1,518,633
1.75%, 4/15/13		400		407,938
0.63%, 4/30/13		1,300		1,307,566
1.38%, 5/15/13		1,250		1,269,824
3.38%, 6/30/13		370		387,373
3.13%, 8/31/13		700		733,359
0.13%, 9/30/13		1,000		998,008
2.75%, 10/31/13		1,423		1,487,423
0.25%, 11/30/13 (a)		1,700		1,700,199
4.75%, 5/15/14		775		856,012
0.75%, 6/15/14		350		353,801
0.50%, 8/15/14 (a)		1,750		1,757,929

U.S. Treasury Obligations	Par (000)		Value
2.38%, 8/31/14 (a)	$	950	$	1,000,766
0.50%, 10/15/14 (a)		1,500		1,506,211
0.38%, 11/15/14		500		500,312
0.25%, 12/15/14		450		448,524
2.50%, 4/30/15		790		843,079
1.88%, 6/30/15		1,500		1,571,718
1.75%, 7/31/15		750		782,812
1.25%, 9/30/15 (a)		900		923,344
2.00%, 1/31/16		400		422,000
4.50%, 2/15/16 (a)		300		346,852
2.13%, 2/29/16		600		636,563
2.00%, 4/30/16 (a)		1,179		1,244,951
5.13%, 5/15/16 (a)		250		297,481
1.50%, 6/30/16		500		517,070
1.50%, 7/31/16		550		568,605
4.63%, 11/15/16		250		295,235
2.75%, 11/30/16		850		928,027
0.88%, 12/31/16		250		250,449
4.63%, 2/15/17		150		177,996
2.50%, 6/30/17		790		854,372
4.75%, 8/15/17		375		451,523
1.88%, 8/31/17		370		387,257
4.25%, 11/15/17		275		324,822
2.75%, 2/28/18 (a)		1,300		1,425,328
4.00%, 8/15/18 (a)		500		588,867
1.38%, 9/30/18		600		603,235
1.75%, 10/31/18		250		257,305
1.38%, 12/31/18		180		180,338
3.38%, 11/15/19 (a)		800		911,938
3.63%, 2/15/20		500		579,883
2.63%, 8/15/20 (a)		750		808,887
2.63%, 11/15/20 (a)		800		861,250
3.63%, 2/15/21 (a)		110		127,712
3.13%, 5/15/21 (a)		550		614,109
2.00%, 11/15/21		150		151,711
Total U.S. Treasury Obligations — 35.0%				44,628,876
Total Long-Term Investments (Cost — $ 118,566,133) — 98.9 %				126,040,180
Short-Term Securities	Shares
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (b)(f)(g)		25,385,409		25,385,409
BlackRock Cash Funds: Prime, SL Agency Shares, 0.18% (b)(f)(g)		5,275,209		5,275,209
				30,660,618
Total Short-Term Securities (Cost—$ 30,660,618) — 24.0%				30,660,618
Total Investments (Cost—$ 149,226,751*) — 122.9%				156,700,798
Liabilities in Excess of Other Assets — (22.9)%				(29,216,351	)
Net Assets — 100.0%			$	127,484,447

See Notes to Financial Statements.

BLACKROCK BOND INDEX FUND DECEMBER 31, 2011 23

Schedule of Investments (continued) Bond Index Master Portfolio

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Tax cost	$	149,226,751
Gross unrealized appreciation		7,643,882
Gross unrealized depreciation		(169,835	)
Net unrealized appreciation	$	7,474,047

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

(b) Investments in companies considered to be an affiliate of the Master Portfolio during the year, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/Par Held at December 31, 2010		Shares Purchased			Shares Sold		Shares/Par Held at December 31, 2011		Value at December 31, 2011		Income
BlackRock Cash Funds:
Institutional, SL Agency Shares		14,588,515		10,796,894	1		—		25,385,409	$	25,385,409	$	25,850
BlackRock Cash Funds:
Prime, SL Agency Shares		1,952,973		3,322,236	1		—		5,275,209	$	5,275,209	$	5,514
PNC Funding Corp., 5.63%, 2/01/17		150		—			—		150	$	163,331	$	8,438

¹ Represents net shares purchased.

(c) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors.

(d) Variable rate security. Rate shown is as of report date.

(e) Represents or includes a TBA transaction. Unsettled TBA transactions as of December 31, 2011 were as follows:

Counterparty	Market Value		Unrealized Appreciation
Banc of America Securities	$	1,088,906	$	1,016
Citigroup Global Markets	$	1,515,063	$	6,906
Credit Suisse Securities	$	527,266	$	156
Deutsche Bank Securities	$	1,642,734	$	3,340
Goldman Sachs & Co.	$	1,077,266	$	4,844
JPMorgan Securities	$	1,578,281	$	11,172
Nomura Securities	$	319,781		—
RBS Securities	$	527,266	$	156
UBS Securities LLC	$	516,328	$	19

(f) All or a portion of this security was purchased with the cash collateral from loaned securities.

(g) Represents the current yield as of report date.

· For Master Portfolio compliance purposes, the Master Portfolio’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Master Portfolio management. This definition may not apply for purposes of this report, which may combine industry sub-classifications for reporting ease.

· Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes as follows:

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 Master Portfolio’s own assumptions used in determining the fair value of investments)

See Notes to Financial Statements.

24 BLACKROCK BOND INDEX FUND DECEMBER 31, 2011

Schedule of Investments (concluded) Bond Index Master Portfolio

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments is based on the pricing transparency of the investment and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities.

For information about the Master Portfolio’s policy regarding valuation of investments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Long-Term1:
Asset-Backed Securities		—	$	318,399		—	$	318,399
Corporate Bonds		—		26,651,080		—		26,651,080
Foreign Agency Obligations		—		3,283,707		—		3,283,707
Non-Agency Mortgage- Backed Securities		—		2,499,225		—		2,499,225
Preferred Securities		—		75,281		—		75,281
Taxable Municipal Bonds		—		1,235,023		—		1,235,023
U.S. Government Sponsored Agency Securities		—		47,348,589		—		47,348,589
U.S. Treasury Obligations		—		44,628,876		—		44,628,876
Short-Term Securities:
Money Market Funds	$	30,660,618		—		—		30,660,618
Total	$	30,660,618	$	126,040,180		—	$	156,700,798

¹  See above Schedule of Investments for values in each sector and industry.

See Notes to Financial Statements.

BLACKROCK BOND INDEX FUND DECEMBER 31, 2011 25

Statement of Assets and Liabilities Bond Index Master Portfolio

December 31, 2011
Assets
Investments at value — unaffiliated (including securities loaned of $20,326,320) (cost — $118,417,192)	$	125,876,849
Investments at value — affiliated (cost — $30,809,559)		30,823,949
Investments sold receivable		764,106
Securities lending income receivable — affiliated		4,220
Interest receivable		840,078
Total assets		158,309,202
Liabilities
Collateral on securities loaned at value		20,871,766
Investments purchased payable		9,916,249
Investment advisory fees payable		4,566
Professional fees payable		30,859
Trustees’ fees payable		1,315
Total liabilities		30,824,755
Net Assets	$	127,484,447
Net Assets Consist of
Investors’ capital	$	120,010,400
Net unrealized appreciation/depreciation		7,474,047
Net Assets	$	127,484,447

See Notes to Financial Statements.
26	BLACKROCK BOND INDEX FUND	DECEMBER 31, 2011

Statement of Operations Bond Index Master Portfolio

Year Ended December 31, 2011
Investment Income
Securities lending — affiliated	$	21,817
Income — affiliated		17,985
Interest		3,645,703
Total income		3,685,505
Expenses
Investment advisory		87,069
Professional		49,958
Trustees		6,745
Total expenses		143,772
Less fees waived by advisor		(56,703	)
Total expenses after fees waived		87,069
Net investment income		3,598,436
Realized and Unrealized Gain
Net realized gain from Investments — unaffiliated		830,872
Net change in unrealized appreciation/depreciation on Investments		3,730,381
Total realized and unrealized gain		4,561,253
Net Increase in Net Assets Resulting from Operations	$	8,159,689

See Notes to Financial Statements.
	BLACKROCK BOND INDEX FUND	DECEMBER 31, 2011	27

Statements of Changes in Net Assets Bond Index Master Portfolio

	Year Ended December 31,
Increase (Decrease) in Net Assets:	2011			2010
Operations
Net investment income	$	3,598,436		$	4,739,121
Net realized gain		830,872			4,424,757
Net change in unrealized appreciation/depreciation		3,730,381			(230,804	)
Net increase in net assets resulting from operations		8,159,689			8,933,074
Capital Transactions
Proceeds from contributions		36,757,406			22,565,984
Value of withdrawals		(15,921,683	)		(89,474,775	)
Net increase (decrease) in net assets derived from capital transactions		20,835,723			(66,908,791	)
Net Assets
Total increase (decrease) in net assets		28,995,412			(57,975,717	)
Beginning of year		98,489,035			156,464,752
End of year	$	127,484,447		$	98,489,035

See Notes to Financial Statements.
28	BLACKROCK BOND INDEX FUND	DECEMBER 31, 2011

Financial Highlights Bond Index Master Portfolio

	Year Ended December 31,
	2011			2010			2009			2008		2007
Total Investment Return
Total investment return		7.67%			6.94%			5.36%			6.06%		7.31%
Ratios to Average Net Assets
Total expenses		0.13%			0.10%			0.09%			0.10%		0.11%
Total expenses after fees waived		0.08%			0.08%			0.08%			0.08%		0.08%
Net investment income		3.36%			3.80%			4.20%			4.99%		5.15%
Supplemental Data
Net assets, end of year (000)	$	127,484		$	98,489		$	156,465		$	133,478	$	119,907
Portfolio turnover		122%	1		59%	2		103%	3		89%		61%

¹  Includes mortgage dollar roll transactions. Excluding these transactions the portfolio turnover rate would have been 121%.

²  Includes mortgage dollar roll transactions. Excluding these transactions the portfolio turnover rate would have been 54%.

³  Includes mortgage dollar roll transactions. Excluding these transactions the portfolio turnover rate would have been 87%.

See Notes to Financial Statements.
	BLACKROCK BOND INDEX FUND	DECEMBER 31, 2011	29

Notes to Financial Statements Bond Index Master Portfolio

1. Organization and Significant Accounting Policies:

Bond Index Master Portfolio (the “Master Portfolio”), a series of Master Investment Portfolio (“MIP”), is registered as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). MIP is organized as a Delaware statutory trust. The Master Portfolio’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.

The following is a summary of significant accounting policies followed by the Master Portfolio:

Valuation: US GAAP defines fair value as the price the Master Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Master Portfolio fair values its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Trustees of MIP (the “Board”). The Master Portfolio values its bond investments on the basis of last available bid prices or current market quotations provided by dealers or pricing services. Floating rate loan interests are valued at the mean of the bid prices from one or more brokers or dealers as obtained from a pricing service. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments, various relationships observed in the market between investments and calculated yield measures. Asset-backed and mortgage-backed securities are valued by independent pricing services using models that consider estimated cash flows of each tranche of the security, establish a benchmark yield and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche. To-be-announced (“TBA”) commitments are valued on the basis of last available bid prices or current market quotations provided by pricing services. Investments in open-end registered investment companies are valued at net asset value each business day. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value.

In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the market value of such investment or if a price is not available, the investment will be valued in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Assets”). When determining the price for Fair Value Assets, the investment advisor seeks to determine the price that the Master Portfolio might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available

factors that the investment advisor deems relevant. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof.

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

The Master Portfolio may purchase certain mortgage pass-through securities. There are a number of important differences among the agencies and instrumentalities of the US government that issue mortgage-related securities and among the securities that they issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed Mortgage Pass-Through Certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full faith and credit of the United States but are supported by the right of the issuer to borrow from the Treasury.

Multiple Class Pass-Through Securities: The Master Portfolio may invest in multiple class pass-through securities, including collateralized mortgage obligations (“CMOs”) and commercial mortgage-backed securities. These multiple class securities may be issued by Ginnie Mae, US government agencies or instrumentalities or by trusts formed by private originators of, or investors in, mortgage loans. In general, CMOs are debt obligations of a legal entity that are collateralized by, and multiple class pass-through securities represent direct ownership interests in, a pool of residential or commercial mortgage loans or mortgage pass-through securities (the “Mortgage Assets”), the payments on which

30 BLACKROCK BOND INDEX FUND DECEMBER 31, 2011

Notes to Financial Statements (continued) Bond Index Master Portfolio

are used to make payments on the CMOs or multiple pass-through securities. Classes of CMOs include interest only (“IOs”), principal only (“POs”), planned amortization classes and targeted amortization classes. IOs and POs are stripped mortgage-back securities representing interests in a pool of mortgages, the cash flow from which has been separated into interest and principal components. IOs receive the interest portion of the cash flow while POs receive the principal portion. IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases the rate at which the principal is returned and the yield to maturity on the PO. When payments on mortgages underlying a PO are slower than anticipated, the life of the PO is lengthened and the yield to maturity is reduced. If the underlying Mortgage Assets experience greater than anticipated pre-payments of principal, the Master Portfolio may not fully recoup its initial investment in IOs.

Stripped Mortgage-Backed Securities: The Master Portfolio may invest in stripped mortgage-backed securities issued by the US government, its agencies and instrumentalities. Stripped mortgage-backed securities are usually structured with two classes that receive different proportions of the interest (IOs) and principal (POs) distributions on a pool of Mortgage Assets. The Master Portfolio also may invest in stripped mortgage-backed securities that are privately issued.

Capital Trusts: The Master Portfolio may invest in capital trusts. These securities are typically issued by corporations, generally in the form of interest-bearing notes with preferred securities characteristics, or by an affiliated business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The securities can be structured as either fixed or adjustable coupon securities that can have either a perpetual or stated maturity date. Dividends can be deferred without creating an event of default or acceleration, although maturity cannot take place unless all cumulative payment obligations have been met. The deferral of payments does not affect the purchase or sale of these securities in the open market. Payments on these securities are treated as interest rather than dividends for federal income tax purposes. These securities generally are rated below that of the issuing company’s senior debt securities.

TBA Commitments: The Master Portfolio may enter into TBA commitments. TBA commitments are forward agreements for the purchase or sale of mortgage-backed securities for a fixed price, with payment and delivery on an agreed-upon future settlement date. The specific securities to be delivered are not identified at the trade date. However, delivered securities must meet specified terms, including issuer, rate and mortgage terms. The Master Portfolio generally enters into TBA commitments with the intent to take possession of or deliver the underlying mortgage-backed securities but can extend the settlement or roll

the transaction. TBA commitments involve a risk of loss if the value of the security to be purchased or sold declines or increases, respectively, prior to settlement date.

Mortgage Dollar Roll Transactions: The Master Portfolio may sell TBA mortgage-backed securities and simultaneously contract to repurchase substantially similar (same type, coupon and maturity) securities on a specific future date at an agreed upon price. During the period between the sale and repurchase, the Master Portfolio will not be entitled to receive interest and principal payments on the securities sold. The Master Portfolio accounts for mortgage dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. These transactions may increase the Master Portfolio’s portfolio turnover rate. Mortgage dollar rolls involve the risk that the market value of the securities that the Master Portfolio is required to purchase may decline below the agreed upon repurchase price of those securities.

Segregation and Collateralization: In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (“SEC”) require that the Master Portfolio either deliver collateral or segregate assets in connection with certain investments (e.g., dollar rolls and TBA sale commitments), the Master Portfolio will, consistent with SEC rules and/or certain interpretive letters issued by the SEC, segregate collateral or designate on its books and records cash or other liquid securities having a market value at least equal to the amount that would otherwise be required to be physically segregated. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, each party to such transactions has requirements to deliver/deposit securities as collateral for certain investments.

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis. Consent fees are compensation for agreeing to changes in the terms of debt instruments and are included in interest income in the Statement of Operations.

Securities Lending: The Master Portfolio may lend securities to approved borrowers, such as banks, brokers and other financial institutions. The borrower pledges cash, securities issued or guaranteed by the US government or irrevocable letters of credit issued by a bank as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Master Portfolio and any additional required collateral is delivered to the Master Portfolio on the next business day. Securities lending income, as disclosed in the Statement of Operations, represents the income earned from the investment of the cash collateral, net of

BLACKROCK BOND INDEX FUND DECEMBER 31, 2011 31

Notes to Financial Statements (continued) Bond Index Master Portfolio

rebates paid to, or fees paid by, borrowers and less the fees paid to the securities lending agent. During the term of the loan, the Master Portfolio earns dividend or interest income on the securities loaned but does not receive interest income on the securities received as collateral. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Master Portfolio could experience delays and costs in gaining access to the collateral. The Master Portfolio also could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received. During the year ended December 31, 2011, any securities on loan were collateralized by cash.

Income Taxes: The Master Portfolio is classified as a partnership for federal income tax purposes. As such, each investor in the Master Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Master Portfolio. Therefore, no federal income tax provision is required. It is intended that the Master Portfolio’s assets will be managed so an investor in the Master Portfolio can satisfy the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended.

The Master Portfolio files US federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Master Portfolio’s US federal tax returns remains open for each of the four periods ended December 31, 2011. The statutes of limitations on the Master Portfolio’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.

Recent Accounting Standards: In May 2011, the Financial Accounting Standards Board (the “FASB”) issued amended guidance to improve disclosure about fair value measurements which will require the following disclosures for fair value measurements categorized as Level 3: quantitative information about the unobservable inputs and assumptions used in the fair value measurement, a description of the valuation policies and procedures and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, the amounts and reasons for all transfers in and out of Level 1 and Level 2 will be required to be disclosed. The amended guidance is effective for financial statements for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Master Portfolio’s financial statement disclosures.

In December 2011, the FASB issued guidance that will enhance current disclosure requirements on the offsetting of certain assets and liabilities. The new disclosures will be required for investments and derivative financial instruments subject to master netting agreements or similar agreements and will require an entity to disclose both gross and net information about such investments and transactions eligible for offset in the Statement of Assets and Liabilities. The guidance is effective for financial statements with fiscal years beginning on or after January 1, 2013, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Master Portfolio’s financial statement disclosures.

Other: Expenses directly related to the Master Portfolio are charged to the Master Portfolio. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods.

2. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”). Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

MIP, on behalf of the Master Portfolio, entered into an Investment Advisory Agreement (the “Investment Advisory Agreement”) with BlackRock Fund Advisors (“BFA”), the Master Portfolio’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory services. Pursuant to the Investment Advisory Agreement with MIP, BFA is responsible for the management of the Master Portfolio’s investments and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Master Portfolio. For such services, the Master Portfolio pays BFA a monthly fee at an annual rate of 0.08% of the Master Portfolio’s average daily net assets.

The fees and expenses of the MIP’s trustees who are not “interested persons” of MIP, as defined in the 1940 Act (“Independent Trustees”), counsel to the Independent Trustees and MIP’s independent registered public accounting firm (together, the “independent expenses”) are paid directly by the Master Portfolio. BFA has contractually agreed to cap the expenses of the Master Portfolio at the rate at which the Master Portfolio pays an advisory fee to BFA by providing an offsetting credit against the investment advisory fees paid by the Master Portfolio in an amount equal to the independent expenses. This contractual waiver is effective through April 30, 2012. The amount of the waiver, if any, is shown as fees waived in the Statement of Operations.

MIP entered into an administration services arrangement with BlackRock Institutional Trust Company, N.A. (“BTC”), which has agreed to provide

32 BLACKROCK BOND INDEX FUND DECEMBER 31, 2011

Notes to Financial Statements (concluded) Bond Index Master Portfolio

general administration services (other than investment advice and related portfolio activities). BTC may delegate certain of its administration duties to sub-administrators. BTC, in consideration thereof, has agreed to bear all of the Master Portfolio’s and MIP’s ordinary operating expenses excluding, generally, investment advisory fees, distribution fees, brokerage and other expenses related to the execution of portfolio transactions, extraordinary expenses and certain other expenses which are borne by the Master Portfolio.

BTC is not entitled to compensation for providing administration services to the Master Portfolio, as long as BTC is entitled to compensation for providing administration services to corresponding feeder funds that invest substantially all of their assets in the Master Portfolio, or BTC (or an affiliate) receives investment advisory fees from the Master Portfolio.

The Master Portfolio received an exemptive order from the SEC permitting it, among other things, to pay an affiliated securities lending agent a fee based on a share of the income derived from the securities lending activities and has retained BTC, an affiliate of BFA, as the securities lending agent. BTC may, on behalf of the Master Portfolio, invest cash collateral received by the Master Portfolio for such loans, among other things, in a private investment company managed by BTC or in registered money market funds advised by BTC or its affiliates. As securities lending agent, BTC is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BTC does not receive any fees for managing the cash collateral. The market value of securities on loan and the value of the related collateral, if applicable, are shown in the Statement of Assets and Liabilities as securities loaned at value and collateral on securities loaned at value, respectively. The cash collateral invested by BTC is disclosed in the Schedule of Investments. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of rebates paid to, or fees paid by, borrowers of securities. The Fund retains 65% of securities lending income and pays a fee to BTC equal to 35% of such income. The share of income earned by the Master Portfolio on such investments is shown as securities lending – affiliated in the Statement of Operations. For the year ended December 31, 2011, BTC received $22,924 in securities lending agent fees related to securities lending activities for the Master Portfolio.

Certain officers and/or trustees of MIP are officers and/or directors of BlackRock or its affiliates.

3. Investments:

Purchases and sales of investments including paydowns, mortgage dollar rolls and TBA transactions and excluding short-term securities and US government securities for the year ended December 31, 2011, were $125,539,568 and $111,291,744, respectively.

Purchases and sales of US government securities for the Master Portfolio for the year ended December 31, 2011, were $36,702,154 and $19,424,337, respectively.

Purchases and sales of mortgage dollar roll securities for the Master Portfolio for the year ended December 31, 2011, were $983,438 and $986,406, respectively.

4. Concentration, Market and Credit Risk:

In the normal course of business, the Master Portfolio invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Master Portfolio may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Master Portfolio; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Master Portfolio may be exposed to counterparty credit risk, or the risk that an entity with which the Master Portfolio has unsettled or open transactions may fail to or be unable to perform on its commitments. The Master Portfolio manages counterparty credit risk by entering into transactions only with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Master Portfolio to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Master Portfolio’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Master Portfolio’s Statement of Assets and Liabilities, less any collateral held by the Master Portfolio.

The Master Portfolio invests a significant portion of its assets in securities backed by commercial or residential mortgage loans or in issuers that hold mortgage and other asset-backed securities. Please see the Schedule of Investments for these securities. Changes in economic conditions, including delinquencies and/or defaults on assets underlying these securities, can affect the value, income and/or liquidity of such positions.

5. Subsequent Events:

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

BLACKROCK BOND INDEX FUND DECEMBER 31, 2011 33

Report of Independent Registered Public Accounting Firm Bond Index Master Portfolio

To the Interestholders and Board of Trustees of

Master Investment Portfolio:

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of the Bond Index Master Portfolio , a portfolio of Master Investment Portfolio (the “Master Portfolio”), at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Master Portfolio’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these

financial statements in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 24, 2012

34 BLACKROCK BOND INDEX FUND DECEMBER 31, 2011

Officers and Trustees

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1
Ronald W. Forbes 55 East 52nd Street New York, NY 10055 1940	Co-Chairman of the Board and Trustee	Since 2009	Professor Emeritus of Finance, School of Business, State University of New York at Albany since 2000.	33 RICs consisting of 107 Portfolios	None
Rodney D. Johnson 55 East 52nd Street New York, NY 10055 1941	Co-Chairman of the Board and Trustee	Since 2009	President, Fairmount Capital Advisors, Inc. since 1987; Member of the Archdiocesan Investment Committee of the Archdiocese of Philadelphia since 2004; Director, The Committee of Seventy (civic) since 2006; Director, Fox Chase Cancer Center from 2004 to 2010.	33 RICs consisting of 107 Portfolios	None
David O. Beim 55 East 52nd Street New York, NY 10055 1940	Trustee	Since 2009	Professor of Professional Practice at the Columbia University Graduate School of Business since 1991; Trustee, Phillips Exeter Academy since 2002; Chairman, Wave Hill, Inc. (public garden and cultural center) from 1990 to 2006.	33 RICs consisting of 107 Portfolios	None
Dr. Matina S. Horner 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Executive Vice President of Teachers Insurance and Annuity Association and College Retirement Equities Fund from 1989 to 2003.	33 RICs consisting of 107 Portfolios	NSTAR (electric and gas utility)
Herbert I. London 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Professor Emeritus, New York University since 2005; John M. Olin Professor of Humanities, New York University from 1993 to 2005 and Professor thereof from 1980 to 2005; President, Hudson Institute (policy research organization) since 1997 and Trustee thereof since 1980; Chairman of the Board of Trustees for Grantham University since 2006; Director, InnoCentive, Inc. (strategic solutions company) since 2005; Director, Cerego, LLC (software development and design) since 2005; Director, Cybersettle (dispute resolution technology) since 2009.	33 RICs consisting of 107 Portfolios	AIMS Worldwide, Inc. (marketing)
Cynthia A. Montgomery 55 East 52nd Street New York, NY 10055 1952	Trustee	Since 2009	Professor, Harvard Business School since 1989; Director, McLean Hospital since 2005; Director, Harvard Business School Publishing from 2005 to 2010.	33 RICs consisting of 107 Portfolios	Newell Rubbermaid, Inc. (manufacturing)
Joseph P. Platt 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2009	Director, The West Penn Allegheny Health System (a not-for-profit health system) since 2008; Director, Jones and Brown (Canadian insurance broker) since 1998; General Partner, Thorn Partners, LP (private investment) since 1998; Director, WQED Multi-Media (public broadcasting not-for-profit) since 2001; Partner, Amarna Corporation, LLC (private investment company) from 2002 to 2008.	33 RICs consisting of 107 Portfolios	Greenlight Capital Re, Ltd. (reinsurance company)
Robert C. Robb, Jr. 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Partner, Lewis, Eckert, Robb and Company (management and financial consulting firm) since 1981.	33 RICs consisting of 107 Portfolios	None
Toby Rosenblatt 55 East 52nd Street New York, NY 10055 1938	Trustee	Since 2009	President, Founders Investments Ltd. (private investments) since 1999; Director, College Access Foundation of California (philanthropic foundation) since 2009; Director, Forward Management, LLC since 2007; Director, A.P. Pharma, Inc. (specialty pharmaceuticals) from 1983 to 2011; Director, The James Irvine Foundation (philanthropic foundation) from 1998 to 2008.	33 RICs consisting of 107 Portfolios	None

BLACKROCK BOND INDEX FUND DECEMBER 31, 2011 35

Officers and Trustees (continued)

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1 (concluded)
Kenneth L. Urish 55 East 52nd Street New York, NY 10055 1951	Trustee	Since 2009	Managing Partner, Urish Popeck & Co., LLC (certified public accountants and consultants) since 1976; Chairman Elect of the Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants and Committee Member thereof since 2007; Member of External Advisory Board, The Pennsylvania State University Accounting Department since 2001; Trustee, The Holy Family Foundation from 2001 to 2010; President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Director, Inter-Tel from 2006 to 2007.	33 RICs consisting of 107 Portfolios	None
Frederick W. Winter 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Professor and Dean Emeritus of the Joseph M. Katz School of Business, University of Pittsburgh since 2005 and Dean thereof from 1997 to 2005; Director, Alkon Corporation (pneumatics) since 1992; Director, Tippman Sports (recreation) since 2005; Director, Indotronix International (IT services) from 2004 to 2008.	33 RICs consisting of 107 Portfolios	None
	1   Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved extensions in terms of Trustees who turn 72 prior to December 31, 2013. 2   Date shown is the earliest date a person has served for the Fund covered by this annual report. Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. (“BlackRock”) in September 2006, the various legacy MLIM and legacy BlackRock Fund boards were realigned and consolidated into three new Fund boards in 2007. As a result, although the chart shows certain Trustees as joining the Trust’s/MIP’s board in 2007, each Trustee first became a member of the board of other legacy MLIM or legacy BlackRock Funds as follows: David O. Beim, 1998; Ronald W. Forbes, 1977; Dr. Matina S. Horner, 2004; Rodney D. Johnson, 1995; Herbert I. London, 1987; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Robert C. Robb, Jr., 1998; Toby Rosenblatt, 2005; Kenneth L. Urish, 1999; and Frederick W. Winter, 1999.
Interested Trustees3
Paul L. Audet 55 East 52nd Street New York, NY 10055 1953	Trustee	Since 2011	Senior Managing Director, BlackRock, and Head of BlackRock’s Real Estate business from 2008 to 2011; Member of BlackRock’s Global Operating and Corporate Risk Management Committees and of the BlackRock Alternative Investors Executive Committee and Investment Committee for the Private Equity Fund of Funds business since 2008; Head of BlackRock’s Global Cash Management business from 2005 to 2010; Acting Chief Financial Officer of BlackRock from 2007 to 2008; Chief Financial Officer of BlackRock from 1998 to 2005.	159 RICs consisting of 286 Portfolios	None
Henry Gabbay 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2007	Consultant, BlackRock from 2007 to 2008; Managing Director, BlackRock from 1989 to 2007; Chief Administrative Officer, BlackRock Advisors, LLC from 1998 to 2007; President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007 and Treasurer of certain closed-end funds in the BlackRock fund complex from 1989 to 2006.	159 RICs consisting of 286 Portfolios	None
	3   Mr. Audet is an “interested person,” as defined in the 1940 Act, of the Trust/MIP based on his position with BlackRock and its affiliates. Mr. Gabbay is an “interested person” of the Trust/MIP based on his former positions with BlackRock and its affiliates as well as his ownership of BlackRock and The PNC Financial Services Group, Inc. securities. Mr. Audet and Mr. Gabbay are also Trustees of the BlackRock registered closed-end funds and Trustees of other BlackRock registered open-end funds. Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.

36 BLACKROCK BOND INDEX FUND DECEMBER 31, 2011

Officers and Trustees (concluded)

Name, Address and Year of Birth	Position(s) Held with the Trust/MIP	Length of Time Served	Principal Occupation(s) During Past Five Years
Trust/MIP Officers*
John M. Perlowski 55 East 52nd Street New York, NY 10055 1964	President and Chief Executive Officer	Since 2010	Managing Director of BlackRock since 2009; Global Head of BlackRock Fund Administration since 2009; Managing Director and Chief Operating Officer of the Global Product Group at Goldman Sachs Asset Management, L.P. from 2003 to 2009; Treasurer of Goldman Sachs Mutual Funds from 2003 to 2009 and Senior Vice President thereof from 2007 to 2009; Director of Goldman Sachs Offshore Funds from 2002 to 2009; Director of Family Resource Network (charitable foundation) since 2009.
Richard Hoerner, CFA 55 East 52nd Street New York, NY 10055 1958	Vice President	Since 2009	Managing Director of BlackRock since 2000; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2002; Member of the Cash Management Group Executive Committee since 2005.
Brendan Kyne 55 East 52nd Street New York, NY 10055 1977	Vice President	Since 2009	Managing Director of BlackRock since 2010; Director of BlackRock from 2008 to 2009; Head of Product Development and Management for BlackRock’s U.S. Retail Group since 2009 and Co-head thereof from 2007 to 2009; Vice President of BlackRock from 2005 to 2008.
Simon Mendelson 55 East 52nd Street New York, NY 10055 1964	Vice President	Since 2009	Managing Director of BlackRock since 2005; Co-head of the Global Cash and Securities Lending Group since 2010; Chief Operating Officer and Head of the Global Client Group for BlackRock’s Global Cash Management Business from 2007 to 2010; Head of BlackRock’s Strategy and Development Group from 2005 to 2007; Partner of McKinsey & Co. from 1997 to 2005.
Christopher Stavrakos, CFA 55 East 52nd Street New York, NY 10055 1959	Vice President	Since 2009	Managing Director of BlackRock since 2006; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2006; Senior Vice President, CIO, and Director of Liability Management for the Securities Lending Group at Mellon Bank from 1999 to 2006.
Neal Andrews 55 East 52nd Street New York, NY 10055 1966	Chief Financial Officer	Since 2007	Managing Director of BlackRock since 2006; Senior Vice President and Line of Business Head of Fund Accounting and Administration at PNC Global Investment Servicing (U.S.) Inc. from 1992 to 2006.
Jay Fife 55 East 52nd Street New York, NY 10055 1970	Treasurer	Since 2007	Managing Director of BlackRock since 2007; Director of BlackRock in 2006; Assistant Treasurer of the MLIM and Fund Asset Management, L.P. advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006.
Brian Kindelan 55 East 52nd Street New York, NY 10055 1959	Chief Compliance Officer and Anti-Money Laundering Officer	Since 2007	Chief Compliance Officer of the BlackRock-advised funds since 2007; Managing Director and Senior Counsel of BlackRock since 2005.
Ira P. Shapiro 55 East 52nd Street New York, NY 10055 1963	Secretary	Since 2010	Managing Director of BlackRock since 2009; Managing Director and Associate General Counsel of Barclays Global Investors from 2008 to 2009 and Principal thereof from 2004 to 2008.
	*  Officers of the Trust/MIP serve at the pleasure of the Board of Trustees.

Investment Advisor BlackRock Fund Advisors San Francisco, CA 94105	Administrator BlackRock Institutional Trust Company, N.A. San Francisco, CA 94105	Custodian State Street Bank and Trust Company Boston, MA 02110	Transfer Agent BNY Mellon Investment Servicing (US) Inc. Wilmington, DE 19809	Accounting Agent State Street Bank and Trust Company Boston, MA 02110	Distributor BlackRock Investments, LLC New York, NY 10022
			Legal Counsel Sidley Austin LLP New York, NY 10019	Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP New York, NY 10017	Address of the Funds 400 Howard Street San Francisco, CA 94105

BLACKROCK BOND INDEX FUND DECEMBER 31, 2011 37

Additional Information

General Information

Availability of Quarterly Schedule of Investments

The Fund/Master Portfolio files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s/Master Portfolio’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. The Fund’s/Master Portfolio’s Forms N-Q may also be obtained upon request and without charge by calling (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

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

Availability of Proxy Voting Record

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

Shareholder Privileges

Account Information

Call us at (800) 441-7762 from 8:00 AM to 6:00 PM EST on any business day to get information about your account balances, recent

transactions and share prices. You can also reach us on the Web at http://www.blackrock.com/funds.

BlackRock Privacy Principles

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

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

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

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

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

38 BLACKROCK BOND INDEX FUND DECEMBER 31, 2011

A World-Class 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.

Equity Funds

BlackRock ACWI ex-US Index Fund

BlackRock All-Cap Energy & Resources Portfolio

BlackRock Asset Allocation Portfolio†

BlackRock Balanced Capital Fund†

BlackRock Basic Value Fund

BlackRock Capital Appreciation Fund

BlackRock China Fund

BlackRock Commodity Strategies Fund

BlackRock Emerging Markets Long/Short Equity Fund

BlackRock Energy & Resources Portfolio

BlackRock Equity Dividend Fund

BlackRock EuroFund

BlackRock Focus Growth Fund

BlackRock Global Allocation Fund†

BlackRock Global Dividend Income Portfolio

BlackRock Global Dynamic Equity Fund

BlackRock Global Emerging Markets Fund

BlackRock Global Opportunities Portfolio

BlackRock Global SmallCap Fund

BlackRock Health Sciences Opportunities Portfolio

BlackRock Index Equity Portfolio

BlackRock India Fund

BlackRock International Fund

BlackRock International Index Fund

BlackRock International Opportunities Portfolio

BlackRock Large Cap Core Fund

BlackRock Large Cap Core Plus Fund

BlackRock Large Cap Growth Fund

BlackRock Large Cap Value Fund

BlackRock Latin America Fund

BlackRock Mid-Cap Growth Equity Portfolio

BlackRock Mid-Cap Value Equity Portfolio

BlackRock Mid Cap Value Opportunities Fund

BlackRock Natural Resources Trust

BlackRock Pacific Fund

BlackRock Russell 1000 Index Fund

BlackRock Science & Technology Opportunities Portfolio

BlackRock Small Cap Growth Equity Portfolio

BlackRock Small Cap Growth Fund II

BlackRock Small Cap Index Fund

BlackRock S&P 500 Index Fund

BlackRock S&P 500 Stock Fund

BlackRock U.S. Opportunities Portfolio

BlackRock Value Opportunities Fund

BlackRock World Gold Fund

Fixed Income Funds

BlackRock Bond Index Fund

BlackRock Core Bond Portfolio

BlackRock Emerging Market Debt Portfolio

BlackRock Floating Rate Income Portfolio

BlackRock Global Long/Short Credit Fund

BlackRock GNMA Portfolio

BlackRock High Yield Bond Portfolio

BlackRock Inflation Protected Bond Portfolio

BlackRock International Bond Portfolio

BlackRock Long Duration Bond Portfolio

BlackRock Low Duration Bond Portfolio

BlackRock Multi-Asset Income Portfolio†

BlackRock Multi-Sector Bond Portfolio

BlackRock Strategic Income Opportunities Portfolio

BlackRock Total Return Fund

BlackRock US Government Bond Portfolio

BlackRock World Income Fund

US Mortgage Portfolio

Municipal Bond Funds

BlackRock California Municipal Bond Fund

BlackRock High Yield Municipal Fund

BlackRock Intermediate Municipal Fund

BlackRock National Municipal Fund

BlackRock New Jersey Municipal Bond Fund

BlackRock New York Municipal Bond Fund

BlackRock Pennsylvania Municipal Bond Fund

BlackRock Short-Term Municipal Fund

Target Risk & Target Data Funds†

BlackRock Prepared Portfolios	BlackRock Lifecycle Prepared Portfolios		LifePath Portfolios Retirement		LifePath Index Portfolios Retirement
Conservative Prepared Portfolio	2015	2035	2020	2040	2020	2040
Moderate Prepared Portfolio	2020	2040	2025	2045	2025	2045
Growth Prepared Portfolio	2025	2045	2030	2050	2030	2050
Aggressive Growth Prepared Portfolio	2030	2050	2035	2055	2035	2055

† Mixed asset fund.

BlackRock mutual funds are currently distributed by BlackRock Investments, LLC. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling (800) 441-7762 or from your financial advisor. The prospectus should be read carefully before investing.

BLACKROCK BOND INDEX FUND DECEMBER 31, 2011 39

This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Funds unless accompanied or preceded by the Funds’ 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.

# BINF-12/11

December 31, 2011

Annual Report

BlackRock S&P 500 Stock Fund | of BlackRock Funds III

Not FDIC Insured     No Bank Guarantee    May Lose Value

Table of Contents

	Page
Dear Shareholder		3
Annual Report:
Fund Summary		4
About Fund Performance		6
Disclosure of Expenses		6
Derivative Financial Instruments		6
Fund Financial Statements:
Statement of Assets and Liabilities		7
Statement of Operations		8
Statements of Changes in Net Assets		9
Fund Financial Highlights		10
Fund Notes to Financial Statements		11
Fund Report of Independent Registered Public Accounting Firm		13
Important Tax Information (Unaudited)		13
Master Portfolio Information		14
Master Portfolio Financial Statements:
Schedule of Investments		15
Statement of Assets and Liabilities		23
Statement of Operations		24
Statements of Changes in Net Assets		25
Master Portfolio Financial Highlights		26
Master Portfolio Notes to Financial Statements		27
Master Portfolio Report of Independent Registered Public Accounting Firm		31
Officers and Trustees		32
Additional Information		35
A World-Class Mutual Fund Family		36

2 BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011

Dear Shareholder

Investors endured a very difficult environment in 2011. Financial markets were extremely volatile as a number of high-profile global events drove frequent about-face changes in investor sentiment. As the year progressed, news flow increasingly influenced trading decisions, to the point where company fundamentals were largely ignored. In the end, lower-risk assets won the “risk on — risk off” trading tug-of-war that characterized 2011’s market activity.

Early in the year, political turmoil swept across the Middle East/North Africa region and prices of oil and other commodities soared. Natural disasters in Japan disrupted global supply chains and concerns mounted regarding US debt and deficit issues. Nevertheless, equities, commodities and high yield bonds outpaced the less risky asset classes as investors chose to focus on the continuing stream of strong corporate earnings and positive economic data.

Markets reversed sharply in May, however, when the heightened possibility of Greece defaulting on its debt rekindled fears about sovereign debt problems spreading across Europe. Concurrently, economic indicators signaled that the recovery had slowed in the United States and other developed nations. Confidence was further shaken by the prolonged debt ceiling debate in Washington, DC. On August 5^th, Standard & Poor’s downgraded the US government’s credit rating and turmoil erupted in financial markets around the world. Extraordinary levels of volatility persisted in the months that followed as Greece teetered on the brink of default, debt problems escalated in Italy and Spain, and exposure to European sovereign bonds stressed banks globally. Late in the summer, economic data out of the United States and Europe grew increasingly bleak while China and other emerging economies began to show signs of slowing growth. By the end of the third quarter, equity markets had fallen nearly 20% from their April peak while safe-haven assets such as US Treasuries and gold had rallied to historical highs.

October brought enough positive economic data to assuage fears of a global double-dip recession. Additionally, after months of deliberation, European leaders began to show signs of progress toward stemming the region’s debt crisis. These encouraging developments brought investors back from the sidelines and risk assets rallied through the month. However, a lack of definitive details about Europe’s rescue plan soon raised doubts among investors and thwarted the rally at the end of October. The last two months of the year saw political instability in Greece, unsustainable yields on Italian bonds, and US policymakers bickering over budget issues. Global central bank actions and improving economic data energized investors, but confidence was easily tempered by sobering news flow that resurrected uncertainty about the ability of Europe’s leaders to ultimately contain the debt crisis.

Most equity markets failed to fully recover their late-summer losses, although US large cap stocks managed to finish the year with a marginal gain given their perceived safety and stronger US economic data. Conditions were worse overseas, and international markets experienced some significant downturns. Dividend-paying stocks performed relatively well as investors sought yield in the low interest rate environment. Fixed income securities benefited from declining yields and delivered positive returns for the year. US Treasury bonds outperformed other fixed income classes despite their quality rating downgrade, while municipal bonds also delivered superior results. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

Many of the themes that caused uncertainty in 2011 are likely to persist well into 2012. While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of December 31, 2011
	6-month			12-month
US large cap equities (S&P 500 Index)		(3.69	)%		2.11	%
US small cap equities (Russell 2000 Index)		(9.77	)		(4.18	)
International equities (MSCI Europe, Australasia, Far East Index)		(16.31	)		(12.14	)
Emerging market equities (MSCI Emerging Markets Index)		(19.13	)		(18.42	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.02			0.10
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		13.46			17.15
US investment grade bonds (Barclays Capital US Aggregate Bond Index)		4.98			7.84
Tax-exempt municipal bonds (S&P Municipal Bond Index)		5.78			10.62
US high yield bonds (Barclays Capital US Corporate High Yield 2% Issuer Capped Index)		(0.02	)		4.96
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

THIS PAGE NOT PART OF YOUR FUND REPORT 3

Fund Summary as of December 31, 2011 BlackRock S&P 500 Stock Fund

Investment Objective

BlackRock S&P 500 Stock Fund’s (the “Fund”) investment objective is to provide investment results that correspond to the total return performance of publicly-traded common stocks in the aggregate, as represented by the Standard & Poor’s (“S&P”) 500^® Index.

Portfolio Management Commentary

How did the Fund perform?

· For the 12 months ended December 31, 2011, the Fund returned 2.00%, while the benchmark S&P 500^® Index returned 2.11% for the same period. The S&P 500^® Index is an unmanaged index that covers 500 industrial, utility, transportation and financial companies of the US markets (mostly New York Stock Exchange (“NYSE”) issues), representing about 75% of NYSE market capitalization and 30% of NYSE issues.

· The return for the Fund differs from the benchmark index based on Fund expenses. The Fund invests all of its assets in S&P 500 Stock Master Portfolio (the “Master Portfolio”), a series of Master Investment Portfolio.

Describe the market environment.

· Early in the year, stocks moved unevenly higher despite political upheaval spreading across the Middle East/North Africa region and a sharp rise in oil and other commodity prices. March brought devastating natural disasters in Japan, resulting in global supply chain disruptions. But equity markets were remarkably resilient as the global economic recovery appeared to be on track and investors were gradually increasing their appetite for risk. After peaking in late April, equities were met with a sharp reversal when the heightened possibility of Greece defaulting on its debt rekindled fears about the potential impact of the sovereign debt crisis spreading in Europe. In the United States, a prolonged debt ceiling debate ultimately led to S&P’s decision to downgrade the US government’s credit rating in early August. This announcement spurred one of the most volatile periods in trading history. Stock markets across the world whipsawed on hopes and fears driven by news flow. Equities swooned as debt problems in Europe spread to Italy and Spain, and global economic indicators grew increasingly bleak.

· US stocks staged a strong rebound in October as the domestic labor market improved and corporate profits continued to beat analyst

expectations. Encouraging news from Europe also contributed to the rally. After months of deliberation, European leaders agreed upon a new plan to reduce Greece’s debt burden, recapitalize the region’s banks and increase the size of the euro-zone bailout fund. However, a lack of definitive details about the rescue plan soon raised doubts among investors and thwarted the rally at the end of October. In November, political instability in Greece and Italy fueled uncertainty as to whether Europe’s leaders would be able to contain the crisis. In the United States, bickering lawmakers failed to reach an agreement on reducing the US budget deficit, further undermining investors’ confidence in policymakers on both sides of the Atlantic. Market volatility softened in December with the support of global central bank actions and continued improvement in economic data.

· For the year, US stocks outperformed most international markets given their relative safety during a time of heightened uncertainty overseas. Dividend-paying stocks performed particularly well as investors sought yield in a low interest rate environment. From a sector perspective, utilities (+19.91%) led the index for 2011. The defensive consumer staples sector (+13.99%) performed well amid high volatility, as did health care stocks (+12.73%), which benefited from increased merger and acquisition activity during the year. Battered by the world’s debt problems, financials (-17.06%) saw the largest losses. The more cyclical materials (-9.75%) and industrials (-0.59%) sectors also declined amid heightened uncertainty about the global economy.

Describe recent portfolio activity.

· During the 12-month period, as changes were made to the composition of the S&P 500^® Index, the Master Portfolio purchased and sold securities to maintain its objective of replicating the risks and return of the benchmark index.

Describe portfolio positioning at period end.

· The Master Portfolio remains positioned to match the risk characteristics of its benchmark index, irrespective of the market’s future direction.

4 BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011

BlackRock S&P 500 Stock Fund

Total Return Based on a $10,000 Investment

¹  The Fund invests all of its assets in the Master Portfolio. The Master Portfolio invests primarily in a diversified portfolio of equity securities of large companies located in the United States.

²  This unmanaged index covers 500 industrial, utility, transportation and financial companies of the US markets (mostly New York Stock Exchange (the “NYSE”) issues), representing about 75% of NYSE market capitalization and 30% of NYSE issues.

Performance Summary for the Period Ended December 31, 2011

	6-Month Total Returns			Average Annual Total Returns
				1 Year			5 Years			10 Years
BlackRock S&P 500 Stock Fund		(3.74	)%		2.00	%		(0.32	)%		2.79	%
S&P 500® Index		(3.69	)		2.11			(0.25	)		2.92

See “About Fund Performance” on page 6 for further information on how performance was calculated.

Past performance is not indicative of future results.

Expense Example

	Actual						Hypothetical4
	Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the  Period3		Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the  Period3		Annualized Expense Ratio
BlackRock S&P 500 Stock Fund	$	1,000.00	$	962.60	$	0.89	$	1,000.00	$	1,024.30	$	0.92		0.18	%

³  Expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period shown). Because the Fund invests significantly in the Master Portfolio, the expense table example reflects the net expenses of both the Fund and the Master Portfolio.

⁴  Hypothetical 5% return before expenses is calculated by pro-rating the number of days in the most recent fiscal half year divided by 365.

See “Disclosure of Expenses” on page 6 for further information on how expenses were calculated.

BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011 5

About Fund Performance BlackRock S&P 500 Stock Fund

Performance information reflects past performance and does not guarantee future results. Current performance data may be lower or higher than the performance data quoted. Refer to www.blackrock.com/funds, to obtain performance data current to the most recent month end. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Figures shown in the performance

table on the previous page assume reinvestment of all dividends and capital gain distributions, if any, at net asset value on the ex-dividend date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. The Fund’s administrator waived a portion of the Fund’s expenses. Without such waiver, the Fund’s performance would have been lower.

Disclosure of Expenses

Shareholders of the Fund may incur the following charges: operating expenses, including advisory fees, service and distribution fees, including 12b-1 fees and other Fund expenses. The expense example on the preceding page (which is based on a hypothetical investment of $1,000 invested on July 1, 2011 and held through December 31, 2011) 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 table on the preceding page 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 under the heading entitled “Expenses Paid During the Period.”

The table 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 this Fund and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in other funds’ shareholder reports.

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

Derivative Financial Instruments

The Master Portfolio may invest in various derivative financial instruments, including financial futures contracts, as specified in Note 2 of the Master Portfolio’s Notes to Financial Statements, which may constitute forms of economic leverage. Such derivative financial instruments are used to obtain exposure to a market without owning or taking physical custody of securities or to hedge equity risk. Derivative financial instruments 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 derivative financial instrument. The Master Portfolio’s ability to use a derivative financial instrument successfully depends on

the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may require the Master Portfolio to sell or purchase portfolio investments at inopportune times or for distressed values, may limit the amount of appreciation the Master Portfolio can realize on an investment, may result in lower dividends paid to shareholders or may cause the Master Portfolio to hold an investment that it might otherwise sell. The Master Portfolio’s investments in these instruments are discussed in detail in the Master Portfolio’s Notes to Financial Statements.

6 BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011

Statement of Assets and Liabilities BlackRock S&P 500 Stock Fund

December 31, 2011
Assets
Investments at value — Master Portfolio (Cost — $229,340,125)	$	255,311,022
Capital shares sold receivable		196,800
Total assets		255,507,822
Liabilities
Capital shares redeemed payable		184,810
Administration fees payable		26,299
Professional fees payable		16,638
Total liabilities		227,747
Net Assets	$	255,280,075
Net Assets Consist of
Paid-in capital	$	513,088,522
Undistributed net investment income		97,637
Accumulated net realized loss		(283,876,981	)
Net unrealized appreciation/depreciation		25,970,897
Net Assets	$	255,280,075
Net Asset Value
Net assets	$	255,280,075
Shares outstanding, unlimited number of shares authorized, no par value		1,695,381
Net asset value	$	150.57

See Notes to Financial Statements.
	BLACKROCK S&P 500 STOCK FUND	DECEMBER 31, 2011	7

Statement of Operations BlackRock S&P 500 Stock Fund

Year Ended December 31, 2011
Investment Income
Net investment income allocated from the Master Portfolio:
Dividends	$	5,624,500
Securities lending — affiliated		81,610
Income — affiliated		4,904
Interest		227
Expenses		(149,443	)
Fees waived		15,152
Total income		5,576,950
Expenses
Administration		349,205
Professional		26,095
Total expenses		375,300
Less fees waived by administrator		(26,095	)
Total expenses after fees waived		349,205
Net investment income		5,227,745
Realized and Unrealized Gain (Loss) Allocated from the Master Portfolio
Net realized loss from investments and financial futures contracts		(16,427,086	)
Net change in unrealized appreciation/depreciation on investments and financial futures contracts		18,093,455
Total realized and unrealized gain		1,666,369
Net Increase in Net Assets Resulting from Operations	$	6,894,114

See Notes to Financial Statements.
8	BLACKROCK S&P 500 STOCK FUND	DECEMBER 31, 2011

Statements of Changes in Net Assets BlackRock S&P 500 Stock Fund

	Year Ended December 31,
Increase (Decrease) in Net Assets:	2011			2010
Operations
Net investment income	$	5,227,745		$	4,526,872
Net realized loss		(16,427,086	)		(38,611,814	)
Net change in unrealized appreciation/depreciation		18,093,455			67,817,767
Net increase in net assets resulting from operations		6,894,114			33,732,825
Dividends to Shareholders From
Net investment income		(5,150,567	)		(4,632,747	)
Return of capital		(45,376	)		—
		(5,195,943	)		(4,632,747	)
Capital Share Transactions
Net increase (decrease) in net assets derived from capital share transactions		(24,079,131	)		33,227,758
Net Assets
Total increase (decrease) in net assets		(22,380,960	)		62,327,836
Beginning of year		277,661,035			215,333,199
End of year	$	255,280,075		$	277,661,035
Undistributed net investment income	$	97,637		$	59,627

See Notes to Financial Statements.
	BLACKROCK S&P 500 STOCK FUND	DECEMBER 31, 2011	9

Financial Highlights BlackRock S&P 500 Stock Fund

	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	150.60		$	133.49		$	107.85		$	175.47		$	169.53
Net investment income		2.97	1		2.55	1		2.50	1		3.28			3.14
Net realized and unrealized gain (loss)		(0.05	)		17.10			25.60			(67.60	)		5.94
Net increase (decrease) from investment operations		2.92			19.65			28.10			(64.32	)		9.08
Dividends and distributions from:
Net investment income		(2.92	)		(2.54	)		(2.46	)		(3.27	)		(3.14	)
Return of capital		(0.03	)		—			—			(0.03	)		—
Total dividends and distributions		(2.95	)		(2.54	)		(2.46	)		(3.30	)		(3.14	)
Net asset value, end of year	$	150.57		$	150.60		$	133.49		$	107.85		$	175.47
Total Investment Return2
Based on net asset value		2.00%			14.91%			26.48%			(37.01	)%		5.39%
Ratios to Average Net Assets3
Total expenses		0.19%	4		0.21%			0.21%			0.21%			0.21%
Total expenses after fees waived		0.18%			0.20%			0.20%			0.20%			0.20%
Net investment income		1.95%			1.87%			2.20%			2.16%			1.83%
Supplemental Data
Net assets, end of year (000)	$	255,280		$	277,661		$	215,333		$	169,425		$	330,892
Portfolio turnover of the Master Portfolio		5%			9%			5%			8%			7%

¹  Based on average shares outstanding.

²  Includes the reinvestment of dividends and distributions.

³  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income.

⁴  Includes the Fund’s share of the Master Portfolio’s allocated fee waived of 0.01%.

See Notes to Financial Statements.
10	BLACKROCK S&P 500 STOCK FUND	DECEMBER 31, 2011

Notes to Financial Statements BlackRock S&P 500 Stock Fund

1. Organization and Significant Accounting Policies:

BlackRock S&P 500 Stock Fund (the “Fund”), a series of BlackRock Funds III (the “Trust”), is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a diversified, open-end management investment company. The Trust is organized as a Delaware statutory trust. The Fund seeks to achieve its investment objective by investing substantially all of its assets in S&P 500 Stock Master Portfolio (the “Master Portfolio”), a series of Master Investment Portfolio (“MIP”), which has the same investment objective and strategies as the Fund. The value of the Fund’s investment in the Master Portfolio reflects the Fund’s proportionate interest in the net assets of the Master Portfolio. The percentage of the Master Portfolio owned by the Fund at December 31, 2011 was 12.11%. The performance of the Fund is directly affected by the performance of the Master Portfolio. The financial statements of the Master Portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the Fund’s financial statements. The Fund’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

The following is a summary of significant accounting policies followed by the Fund:

Valuation: US 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’s policy is to fair value its financial instruments at market value. The Fund records its investment in the Master Portfolio at fair value based on the Fund’s proportionate interest in the net assets of the Master Portfolio. Valuation of securities held by the Master Portfolio is discussed in Note 1 of the Master Portfolio’s Notes to Financial Statements, which are included elsewhere in this report.

Investment Transactions and Investment Income: For financial reporting purposes, contributions to and withdrawals from the Master Portfolio are accounted on a trade date basis. The Fund records daily its proportionate share of the Master Portfolio’s income, expenses and realized and unrealized gains and losses. In addition, the Fund accrues its own expenses.

Dividends and Distributions: Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. If the total dividends and distributions made in any tax year exceeds net investment income and accumulated realized capital gains, a portion of the total distribution may be treated as a tax return of capital. The amount and timing of dividends and distributions are determined in accordance with federal income tax regulations, which may differ from US GAAP.

Income Taxes: 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 federal income tax provision is required.

The Fund files US federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund’s US federal tax returns remains open for each of the four periods ended December 31, 2011. 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 does not believe there are any uncertain tax positions that require recognition of a tax liability.

Other: Expenses directly related to the Fund are charged to the Fund. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods.

2. Administration Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”). Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

The Trust entered into an administration services arrangement with BlackRock Institutional Trust Company, N.A. (“BTC”), which has agreed to provide general administration services (other than investment advice and related portfolio activities). BTC, in consideration thereof, has agreed to bear all of the Fund’s ordinary operating expenses, excluding, generally, investment advisory fees, distribution fees, brokerage and other expenses related to the execution of portfolio transactions, extraordinary expenses and certain other expenses which are borne by the Fund. BTC is entitled to receive for these administration services an annual fee of 0.13% based on the average daily net assets of the Fund.

From time to time, BTC may waive such fees in whole or in part. Any such waiver will reduce the expenses of the Fund and, accordingly, have a favorable impact on its performance. BTC may delegate certain of its administration duties to sub-administrators.

The fees and expenses of the trustees who are not “interested persons” of the Trust, as defined in the 1940 Act (“Independent Trustees”), counsel to the Independent Trustees and the Trust’s independent registered public accounting firm (together, the “independent expenses”) are paid directly by the Fund. BTC has contractually agreed to provide an offsetting credit against the administration fees paid by the Fund in an amount equal to the independent expenses through April 30, 2012.

BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011 11

Notes to Financial Statements (concluded) BlackRock S&P 500 Stock Fund

Certain officers and/or trustees are officers and/or directors of BlackRock or its affiliates.

3. Income Tax Information:

US GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of December 31, 2011 attributable to the accounting for real estate investment trusts and the sale of contributed securities were reclassified to the following accounts:

Paid-in capital	$	(278,403	)
Undistributed net investment income	$	(39,168	)
Accumulated net realized loss	$	317,571

The tax character of distributions paid during the fiscal years ended December 31, 2011 and December 31, 2010 was as follows:

	12/31/2011		12/31/2010
Ordinary income	$	5,150,567	$	4,632,747
Tax return of capital		45,376		—
Total	$	5,195,943	$	4,632,747

As of December 31, 2011, the tax components of accumulated net losses were as follows:

Capital loss carryforwards	$	(196,179,091	)
Net unrealized losses*		(58,183,161	)
Qualified late-year losses**		(3,446,195	)
Total	$	(257,808,447	)

* The difference between book-basis and tax-basis net unrealized losses was attributable primarily to the timing and recognition of partnership income.

** The Fund has elected to defer certain qualified late-year losses and recognize such losses in the year ending December 31, 2012.

As of December 31, 2011, the Fund had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as follows:

Expires December 31,
2012	$	1,601,227
2013		21,068,838
2014		31,394,394
2015		18,209,355
2016		55,579,530
2017		21,080,621
2018		29,366,509
No expiration date*		17,878,617
Total	$	196,179,091

* Must be utilized prior to losses subject to expiration.

4. Capital Share Transactions:

Transactions in capital shares for the Fund were as follows:

	Year Ended December 31, 2011						Year Ended December 31, 2010
	Shares			Amount			Shares			Amount
Shares sold		452,342		$	68,863,218			725,959		$	101,475,882
Shares issued to shareholders in reinvestment of dividends		30,661			4,567,355			28,468			3,914,161
Shares redeemed		(631,334	)		(97,509,704	)		(523,821	)		(72,162,285	)
Net decrease		(148,331	)	$	(24,079,131	)		230,606		$	33,227,758

5. Subsequent Events:

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

12 BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011

Report of Independent Registered Public Accounting Firm BlackRock S&P 500 Stock Fund

To the Shareholders and Board of Trustees of BlackRock Funds III:

In our opinion, the accompanying statement of assets and liabilities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the BlackRock S&P 500 Stock Fund, a series of BlackRock Funds III (the “Trust”), at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our

audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 24, 2012

Important Tax Information (Unaudited)

The following information is provided with respect to the ordinary income distributions paid by the Fund during the taxable year ended December 31, 2011:

	Payable Dates
Qualified Dividend Income for Individuals*		4/1/2011	85.48%
		7/1/2011	85.48%
		10/3/2011	85.48%
		12/15/2011	85.48%
Dividends Qualifying for the Dividend Received Deductions for Corporations*		4/1/2011	83.73%
		7/1/2011	83.73%
		10/3/2011	83.73%
		12/15/2011	83.73%

* The Fund hereby designates the percentage indicated above or the maximum amount allowable by law.

BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011 13

Master Portfolio Information as of December 31, 2011 S&P 500 Stock Master Portfolio

Ten Largest Holdings Percent of
Long-Term Investments

Exxon Mobil Corp.	4	%
Apple, Inc.	3
International Business Machines Corp.	2
Chevron Corp.	2
Microsoft Corp.	2
General Electric Co.	2
The Procter & Gamble Co.	2
AT&T, Inc.	2
Johnson & Johnson	2
Pfizer, Inc.	1

Sector Allocation Percent of
Long-Term Investments

Information Technology	19	%
Financials	13
Energy	12
Health Care	12
Consumer Staples	12
Consumer Discretionary	11
Industrials	11
Utilities	4
Materials	3
Telecommunication Services	3

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

14 BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011

Schedule of Investments December 31, 2011 S&P 500 Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Consumer Discretionary — 10.7%
Auto Components — 0.3%
BorgWarner, Inc. (a)(b)		20,140	$	1,283,724
The Goodyear Tire & Rubber Co. (a)		44,719		633,668
Johnson Controls, Inc.		125,015		3,907,969
				5,825,361
Automobiles — 0.4%
Ford Motor Co. (a)		698,204		7,512,675
Harley-Davidson, Inc. (b)		42,702		1,659,827
				9,172,502
Distributors — 0.1%
Genuine Parts Co. (b)		28,604		1,750,565
Diversified Consumer Services — 0.1%
Apollo Group, Inc., Class A (a)		21,359		1,150,609
DeVry, Inc. (b)		11,157		429,098
H&R Block, Inc. (b)		53,774		878,130
				2,457,837
Hotels, Restaurants & Leisure — 2.0%
Carnival Corp.		83,150		2,714,016
Chipotle Mexican Grill, Inc. (a)		5,751		1,942,343
Darden Restaurants, Inc. (b)		24,228		1,104,312
International Game Technology		54,433		936,248
Marriott International, Inc., Class A		49,270		1,437,206
McDonald’s Corp. (b)		187,993		18,861,338
Starbucks Corp.		136,956		6,301,345
Starwood Hotels & Resorts Worldwide, Inc. (b)		35,314		1,694,013
Wyndham Worldwide Corp.		28,050		1,061,131
Wynn Resorts Ltd.		14,553		1,607,961
Yum! Brands, Inc.		84,611		4,992,895
				42,652,808
Household Durables — 0.3%
D.R. Horton, Inc. (b)		50,872		641,496
Harman International Industries, Inc.		12,779		486,113
Leggett & Platt, Inc. (b)		25,683		591,736
Lennar Corp., Class A (b)		29,389		577,494
Newell Rubbermaid, Inc.		53,500		864,025
PulteGroup, Inc. (a)(b)		62,772		396,091
Stanley Black & Decker, Inc.		31,037		2,098,101
Whirlpool Corp. (b)		14,119		669,947
				6,325,003
Internet & Catalog Retail — 0.8%
Amazon.com, Inc. (a)		66,841		11,570,177
Expedia, Inc. (b)		17,267		501,088
NetFlix, Inc. (a)		10,229		708,768
priceline.com, Inc. (a)		9,148		4,278,611
TripAdvisor, Inc. (a)(b)		17,600		443,696
				17,502,340
Leisure Equipment & Products — 0.1%
Hasbro, Inc.		21,255		677,822
Mattel, Inc.		62,232		1,727,560
				2,405,382
Media — 3.1%
Cablevision Systems Corp.		40,354		573,834
CBS Corp., Class B		120,246		3,263,476
Comcast Corp, Class A		500,634		11,870,032

Common Stocks	Shares		Value
Consumer Discretionary (concluded)
Media (concluded)
DIRECTV, Class A (a)		129,641	$	5,543,449
Discovery Communications, Inc. (a)		48,563		1,989,626
Gannett Co., Inc.		44,022		588,574
Interpublic Group of Cos., Inc.		84,640		823,547
The McGraw-Hill Cos., Inc.		53,913		2,424,468
News Corp., Class A		402,919		7,188,075
Omnicom Group, Inc. (b)		50,694		2,259,938
Scripps Networks Interactive, Inc., Class A		17,971		762,330
Time Warner Cable, Inc. (b)		58,635		3,727,427
Time Warner, Inc. (b)		183,897		6,646,038
Viacom, Inc., Class B		101,463		4,607,435
The Walt Disney Co. (b)		330,072		12,377,700
The Washington Post Co., Class B (b)		906		341,390
				64,987,339
Multiline Retail — 0.8%
Big Lots, Inc. (a)		11,931		450,515
Dollar Tree, Inc. (a)		21,872		1,817,782
Family Dollar Stores, Inc. (b)		21,574		1,243,957
J.C. Penney Co., Inc. (b)		26,158		919,454
Kohl’s Corp.		46,569		2,298,180
Macy’s, Inc.		77,144		2,482,494
Nordstrom, Inc. (b)		29,730		1,477,878
Sears Holdings Corp. (a)(b)		7,168		227,799
Target Corp.		123,396		6,320,343
				17,238,402
Specialty Retail — 2.0%
Abercrombie & Fitch Co., Class A (b)		15,882		775,677
AutoNation, Inc. (a)(b)		8,869		327,000
AutoZone, Inc. (a)		5,132		1,667,746
Bed Bath & Beyond, Inc. (a)		44,113		2,557,231
Best Buy Co., Inc. (b)		53,932		1,260,391
CarMax, Inc. (a)		41,552		1,266,505
GameStop Corp., Class A (a)(b)		25,236		608,945
The Gap, Inc. (b)		63,644		1,180,596
The Home Depot, Inc. (b)		283,231		11,907,031
Limited Brands, Inc. (b)		45,200		1,823,820
Lowe’s Cos., Inc.		230,140		5,840,953
O’Reilly Automotive, Inc. (a)		23,582		1,885,381
Orchard Supply Hardware Stores Corp., Class A (a)(b)		315		1,184
Ross Stores, Inc.		42,374		2,014,036
Staples, Inc.		128,529		1,785,268
The TJX Cos., Inc.		69,296		4,473,057
Tiffany & Co.		23,331		1,545,912
Urban Outfitters, Inc. (a)		20,285		559,054
				41,479,787
Textiles, Apparel & Luxury Goods — 0.7%
Coach, Inc.		53,622		3,273,087
NIKE, Inc., Class B		68,154		6,568,001
Ralph Lauren Corp.		11,851		1,636,386
VF Corp. (b)		16,021		2,034,507
				13,511,981
Total Consumer Discretionary				225,309,307

See Notes to Financial Statements.

BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011 15

Schedule of Investments (continued) S&P 500 Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Consumer Staples — 11.4%
Beverages — 2.6%
Beam, Inc.		28,565	$	1,463,385
Brown-Forman Corp., Class B		18,536		1,492,333
The Coca-Cola Co.		417,284		29,197,361
Coca-Cola Enterprises, Inc.		57,340		1,478,225
Constellation Brands, Inc. (a)(b)		32,155		664,644
Dr Pepper Snapple Group, Inc.		39,397		1,555,394
Molson Coors Brewing Co., Class B		28,951		1,260,527
PepsiCo, Inc.		287,241		19,058,440
				56,170,309
Food & Staples Retailing — 2.4%
Costco Wholesale Corp.		79,624		6,634,271
CVS Caremark Corp.		239,149		9,752,496
The Kroger Co.		109,726		2,657,564
Safeway, Inc. (b)		62,467		1,314,305
SUPERVALU, Inc. (b)		39,608		321,617
Sysco Corp. (b)		108,393		3,179,167
Wal-Mart Stores, Inc.		320,897		19,176,805
Walgreen Co.		163,396		5,401,872
Whole Foods Market, Inc. (b)		29,357		2,042,660
				50,480,757
Food Products — 1.9%
Archer Daniels Midland Co.		122,737		3,510,278
Campbell Soup Co. (b)		32,863		1,092,366
ConAgra Foods, Inc.		76,168		2,010,835
Dean Foods Co. (a)		34,230		383,376
General Mills, Inc. (b)		118,228		4,777,593
H.J. Heinz Co. (b)		58,842		3,179,822
The Hershey Co.		28,131		1,737,933
Hormel Foods Corp. (b)		25,482		746,368
The J.M. Smucker Co.		20,920		1,635,316
Kellogg Co.		45,537		2,302,806
Kraft Foods, Inc., Class A		324,604		12,127,205
McCormick & Co., Inc. (b)		24,383		1,229,391
Mead Johnson Nutrition Co.		37,405		2,570,846
Sara Lee Corp.		108,555		2,053,861
Tyson Foods, Inc., Class A		53,601		1,106,325
				40,464,321
Household Products — 2.3%
The Clorox Co.		24,240		1,613,414
Colgate-Palmolive Co.		88,926		8,215,873
Kimberly-Clark Corp.		72,410		5,326,480
The Procter & Gamble Co.		505,487		33,721,038
				48,876,805
Personal Products — 0.2%
Avon Products, Inc.		79,116		1,382,157
The Estee Lauder Cos., Inc., Class A		20,525		2,305,368
				3,687,525
Tobacco — 2.0%
Altria Group, Inc. (b)		377,826		11,202,541
Lorillard, Inc. (b)		24,808		2,828,112
Philip Morris International, Inc.		319,129		25,045,244
Reynolds American, Inc.		62,124		2,573,176
				41,649,073
Total Consumer Staples				241,328,790

Common Stocks	Shares		Value
Energy — 12.2%
Energy Equipment & Services — 2.0%
Baker Hughes, Inc.		80,197	$	3,900,782
Cameron International Corp. (a)		45,057		2,216,354
Diamond Offshore Drilling, Inc. (b)		12,843		709,704
FMC Technologies, Inc. (a)(b)		43,785		2,286,890
Halliburton Co.		169,067		5,834,502
Helmerich & Payne, Inc. (b)		19,644		1,146,424
Nabors Industries Ltd. (a)		52,707		913,939
National Oilwell Varco, Inc.		77,876		5,294,789
Noble Corp. (a)		46,391		1,401,936
Rowan Cos., Inc. (a)		22,905		694,709
Schlumberger Ltd.		246,586		16,844,290
				41,244,319
Oil, Gas & Consumable Fuels — 10.2%
Alpha Natural Resources, Inc. (a)		40,329		823,921
Anadarko Petroleum Corp.		91,494		6,983,737
Apache Corp.		70,565		6,391,778
Cabot Oil & Gas Corp.		19,203		1,457,508
Chesapeake Energy Corp.		121,140		2,700,211
Chevron Corp.		365,886		38,930,270
ConocoPhillips (b)		243,942		17,776,054
CONSOL Energy, Inc.		41,683		1,529,766
Denbury Resources, Inc. (a)		73,013		1,102,496
Devon Energy Corp.		74,212		4,601,144
El Paso Corp.		141,702		3,765,022
EOG Resources, Inc.		49,398		4,866,197
EQT Corp. (b)		27,462		1,504,643
Exxon Mobil Corp.		880,628		74,642,029
Hess Corp.		54,758		3,110,254
Marathon Oil Corp.		129,304		3,784,728
Marathon Petroleum Corp.		65,513		2,180,928
Murphy Oil Corp.		35,562		1,982,226
Newfield Exploration Co. (a)		24,259		915,292
Noble Energy, Inc.		32,258		3,044,833
Occidental Petroleum Corp.		149,149		13,975,261
Peabody Energy Corp.		49,778		1,648,150
Pioneer Natural Resources Co.		22,489		2,012,316
QEP Resources, Inc.		32,465		951,224
Range Resources Corp.		28,745		1,780,465
Southwestern Energy Co. (a)		63,834		2,038,858
Spectra Energy Corp. (b)		119,496		3,674,502
Sunoco, Inc.		19,726		809,161
Tesoro Corp. (a)		26,348		615,489
Valero Energy Corp.		102,854		2,165,077
The Williams Cos., Inc. (b)		108,301		3,576,099
				215,339,639
Total Energy				256,583,958
Financials — 13.3%
Capital Markets — 1.8%
Ameriprise Financial, Inc.		41,576		2,063,833
The Bank of New York Mellon Corp. (b)		222,809		4,436,127
BlackRock, Inc. (c)		18,408		3,281,042
The Charles Schwab Corp. (b)		198,362		2,233,556
E*Trade Financial Corp. (a)		46,790		372,448
Federated Investors, Inc., Class B		16,973		257,141
Franklin Resources, Inc.		26,746		2,569,221
The Goldman Sachs Group, Inc.		90,454		8,179,755
Invesco Ltd.		82,878		1,665,019

See Notes to Financial Statements.

16 BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011

Schedule of Investments (continued) S&P 500 Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Financials (continued)
Capital Markets (concluded)
Legg Mason, Inc.		22,717	$	546,344
Morgan Stanley		272,690		4,125,800
Northern Trust Corp.		44,287		1,756,422
State Street Corp.		90,393		3,643,742
T Rowe Price Group, Inc. (b)		46,423		2,643,790
				37,774,240
Commercial Banks — 2.6%
BB&T Corp. (b)		128,093		3,224,101
Comerica, Inc.		36,346		937,727
Fifth Third Bancorp		169,017		2,149,896
First Horizon National Corp.		48,717		389,736
Huntington Bancshares, Inc.		159,688		876,687
KeyCorp		175,120		1,346,673
M&T Bank Corp.		23,086		1,762,385
PNC Financial Services Group, Inc. (c)		96,666		5,574,728
Regions Financial Corp.		230,526		991,262
SunTrust Banks, Inc.		98,682		1,746,671
U.S. Bancorp (b)		350,633		9,484,623
Wells Fargo & Co.		968,884		26,702,443
Zions BanCorp.		33,670		548,148
				55,735,080
Consumer Finance — 0.8%
American Express Co. (b)		185,659		8,757,535
Capital One Financial Corp.		84,463		3,571,940
Discover Financial Services		100,998		2,423,952
SLM Corp.		93,424		1,251,882
				16,005,309
Diversified Financial Services — 2.7%
Bank of America Corp.		1,862,269		10,354,216
Citigroup, Inc. (b)		537,168		14,132,890
CME Group, Inc.		12,199		2,972,530
IntercontinentalExchange, Inc. (a)		13,351		1,609,463
JPMorgan Chase & Co.		698,118		23,212,424
Leucadia National Corp.		36,356		826,735
Moody’s Corp. (b)		35,904		1,209,247
The NASDAQ OMX Group, Inc. (a)		23,588		578,142
NYSE Euronext		48,151		1,256,741
				56,152,388
Insurance — 3.5%
ACE Ltd.		61,888		4,339,587
Aflac, Inc.		85,769		3,710,367
The Allstate Corp.		92,860		2,545,293
American International Group, Inc. (a)		80,271		1,862,287
Aon Corp.		59,404		2,780,107
Assurant, Inc.		17,013		698,554
Berkshire Hathaway, Inc., Class B (a)		323,001		24,644,976
Chubb Corp. (b)		51,094		3,536,727
Cincinnati Financial Corp. (b)		29,632		902,591
Genworth Financial, Inc., Class A (a)		90,630		593,626
Hartford Financial Services Group, Inc.		81,848		1,330,030
Lincoln National Corp. (b)		55,265		1,073,246
Loews Corp.		56,112		2,112,617
Marsh & McLennan Cos., Inc.		98,850		3,125,637
MetLife, Inc.		194,325		6,059,053
Principal Financial Group, Inc.		56,080		1,379,568
The Progressive Corp.		113,323		2,210,932

Common Stocks	Shares		Value
Financials (concluded)
Insurance (concluded)
Prudential Financial, Inc.		86,725	$	4,346,657
Torchmark Corp. (b)		18,703		811,523
The Travelers Cos., Inc.		75,843		4,487,630
Unum Group		53,736		1,132,217
XL Group Plc		58,906		1,164,572
				74,847,797
Real Estate Investment Trusts (REITs) — 1.8%
Apartment Investment & Management Co.		22,349		512,016
AvalonBay Communities, Inc.		17,472		2,281,843
Boston Properties, Inc.		27,127		2,701,849
Equity Residential		54,505		3,108,420
HCP, Inc. (b)		74,930		3,104,350
Health Care REIT, Inc. (b)		34,874		1,901,679
Host Hotels & Resorts, Inc.		129,779		1,916,836
Kimco Realty Corp. (b)		74,789		1,214,573
Plum Creek Timber Co., Inc. (b)		29,641		1,083,675
ProLogis, Inc.		84,206		2,407,450
Public Storage		26,088		3,507,792
Simon Property Group, Inc.		53,980		6,960,181
Ventas, Inc.		52,905		2,916,653
Vornado Realty Trust		33,901		2,605,631
Weyerhaeuser Co.		98,574		1,840,377
				38,063,325
Real Estate Management & Development — 0.0%
CB Richard Ellis Group Inc. (a)		59,572		906,686
Thrifts & Mortgage Finance — 0.1%
Hudson City Bancorp, Inc. (b)		97,596		609,975
People’s United Financial, Inc. (b)		66,203		850,708
				1,460,683
Total Financials				280,945,508
Health Care — 11.8%
Biotechnology — 1.2%
Amgen, Inc. (b)		145,744		9,358,222
Biogen Idec, Inc. (a)		44,633		4,911,862
Celgene Corp. (a)		81,566		5,513,862
Gilead Sciences, Inc. (a)		138,012		5,648,831
				25,432,777
Health Care Equipment & Supplies — 1.8%
Baxter International, Inc.		103,603		5,126,277
Becton Dickinson & Co. (b)		39,486		2,950,394
Boston Scientific Corp. (a)		272,264		1,453,890
C.R. Bard, Inc.		15,752		1,346,796
CareFusion Corp. (a)		41,135		1,045,240
Covidien Plc		88,642		3,989,777
DENTSPLY International, Inc. (b)		25,887		905,786
Edwards Lifesciences Corp. (a)		20,963		1,482,084
Intuitive Surgical, Inc. (a)		7,165		3,317,467
Medtronic, Inc.		193,901		7,416,713
St. Jude Medical, Inc.		58,617		2,010,563
Stryker Corp.		59,768		2,971,067
Varian Medical Systems, Inc. (a)		20,686		1,388,651
Zimmer Holdings, Inc. (a)(b)		32,927		1,758,960
				37,163,665

See Notes to Financial Statements.

BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011 17

Schedule of Investments (continued) S&P 500 Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Health Care (concluded)
Health Care Providers & Services — 2.1%
Aetna, Inc.		66,572	$	2,808,673
AmerisourceBergen Corp.		47,474		1,765,558
Cardinal Health, Inc.		63,487		2,578,207
Cigna Corp.		52,456		2,203,152
Coventry Health Care, Inc. (a)		26,479		804,167
DaVita, Inc. (a)		17,165		1,301,279
Express Scripts, Inc. (a)		89,392		3,994,929
Humana, Inc.		30,044		2,632,155
Laboratory Corp. of America Holdings (a)		18,212		1,565,686
McKesson Corp.		45,120		3,515,299
Medco Health Solutions, Inc. (a)		71,136		3,976,502
Patterson Cos., Inc. (b)		16,099		475,243
Quest Diagnostics, Inc.		28,991		1,683,217
Tenet Healthcare Corp. (a)		80,364		412,267
UnitedHealth Group, Inc. (b)		195,862		9,926,286
WellPoint, Inc.		63,916		4,234,435
				43,877,055
Health Care Technology — 0.1%
Cerner Corp. (a)		26,773		1,639,846
Life Sciences Tools & Services — 0.4%
Agilent Technologies, Inc. (a)		63,803		2,228,639
Life Technologies Corp. (a)		32,750		1,274,302
PerkinElmer, Inc.		20,562		411,240
Thermo Fisher Scientific, Inc. (a)		69,508		3,125,775
Waters Corp. (a)		16,468		1,219,455
				8,259,411
Pharmaceuticals — 6.2%
Abbott Laboratories		286,210		16,093,588
Allergan, Inc.		56,046		4,917,476
Bristol-Myers Squibb Co. (b)		311,336		10,971,481
Eli Lilly & Co. (b)		187,192		7,779,700
Forest Laboratories, Inc. (a)		49,095		1,485,615
Hospira, Inc. (a)		30,177		916,475
Johnson & Johnson		501,727		32,903,257
Merck & Co., Inc.		559,985		21,111,434
Mylan, Inc. (a)		78,379		1,682,013
Perrigo Co. (b)		17,126		1,666,360
Pfizer, Inc.		1,412,293		30,562,021
Watson Pharmaceuticals, Inc. (a)		23,363		1,409,723
				131,499,143
Total Health Care				247,871,897
Industrials — 10.5%
Aerospace & Defense — 2.6%
The Boeing Co.		136,555		10,016,309
General Dynamics Corp.		65,432		4,345,339
Goodrich Corp.		23,010		2,846,337
Honeywell International, Inc.		142,117		7,724,059
L-3 Communications Holdings, Inc.		18,353		1,223,778
Lockheed Martin Corp. (b)		48,752		3,944,037
Northrop Grumman Corp.		48,010		2,807,625
Precision Castparts Corp.		26,493		4,365,781
Raytheon Co. (b)		63,595		3,076,726
Rockwell Collins, Inc. (b)		27,810		1,539,840
Textron, Inc.		50,881		940,790
United Technologies Corp.		166,475		12,167,658
				54,998,279

Common Stocks	Shares		Value
Industrials (continued)
Air Freight & Logistics — 1.0%
C.H. Robinson Worldwide, Inc.		30,169	$	2,105,193
Expeditors International of Washington, Inc.		38,965		1,596,007
FedEx Corp. (b)		58,285		4,867,380
United Parcel Service, Inc., Class B		177,296		12,976,294
				21,544,874
Airlines — 0.1%
Southwest Airlines Co. (b)		143,080		1,224,765
Building Products — 0.0%
Masco Corp.		65,371		685,088
Commercial Services & Supplies — 0.4%
Avery Dennison Corp. (b)		19,415		556,822
Cintas Corp.		20,361		708,766
Iron Mountain, Inc.		34,115		1,050,742
Pitney Bowes, Inc. (b)		36,560		677,822
R.R. Donnelley & Sons Co. (b)		34,697		500,678
Republic Services, Inc. (b)		57,852		1,593,823
Stericycle, Inc. (a)		15,643		1,218,903
Waste Management, Inc. (b)		84,586		2,766,808
				9,074,364
Construction & Engineering — 0.2%
Fluor Corp.		31,179		1,566,745
Jacobs Engineering Group, Inc. (a)		23,547		955,537
Quanta Services, Inc. (a)		38,574		830,884
				3,353,166
Electrical Equipment — 0.6%
Cooper Industries Plc, Class A		29,054		1,573,274
Emerson Electric Co.		135,183		6,298,176
Rockwell Automation, Inc. (b)		26,079		1,913,416
Roper Industries, Inc. (b)		17,730		1,540,205
				11,325,071
Industrial Conglomerates — 2.3%
3M Co.		128,766		10,524,045
General Electric Co.		1,939,653		34,739,185
Tyco International Ltd.		84,885		3,964,979
				49,228,209
Machinery — 2.1%
Caterpillar, Inc. (b)		118,804		10,763,642
Cummins, Inc.		35,436		3,119,077
Danaher Corp.		104,670		4,923,677
Deere & Co.		76,053		5,882,700
Dover Corp. (b)		34,065		1,977,473
Eaton Corp.		61,409		2,673,134
Flowserve Corp.		10,209		1,013,958
Illinois Tool Works, Inc. (b)		88,782		4,147,007
Ingersoll-Rand Plc		57,367		1,747,972
Joy Global, Inc.		19,314		1,447,971
PACCAR, Inc. (b)		65,823		2,466,388
Pall Corp.		21,162		1,209,408
Parker Hannifin Corp.		27,762		2,116,853
Snap-on, Inc. (b)		10,749		544,114
Xylem, Inc.		33,809		868,553
				44,901,927

See Notes to Financial Statements.

18 BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011

Schedule of Investments (continued) S&P 500 Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Industrials (concluded)
Professional Services — 0.1%
The Dun & Bradstreet Corp.		8,900	$	665,987
Equifax, Inc.		22,379		866,962
Robert Half International, Inc. (b)		26,211		745,965
				2,278,914
Road & Rail — 0.9%
CSX Corp.		192,920		4,062,895
Norfolk Southern Corp. (b)		61,756		4,499,542
Ryder System, Inc. (b)		9,326		495,584
Union Pacific Corp. (b)		88,756		9,402,811
				18,460,832
Trading Companies & Distributors — 0.2%
Fastenal Co. (b)		54,245		2,365,624
W.W. Grainger, Inc. (b)		11,151		2,087,356
				4,452,980
Total Industrials				221,528,469
Information Technology — 18.9%
Communications Equipment — 2.1%
Cisco Systems, Inc.		987,693		17,857,489
F5 Networks, Inc. (a)		14,607		1,550,095
Harris Corp. (b)		21,243		765,598
JDS Uniphase Corp. (a)		42,587		444,608
Juniper Networks, Inc. (a)		96,659		1,972,810
Motorola Mobility Holdings, Inc. (a)		48,437		1,879,356
Motorola Solutions, Inc.		52,640		2,436,706
QUALCOMM, Inc.		308,832		16,893,110
				43,799,772
Computers & Peripherals — 4.6%
Apple, Inc. (a)		170,756		69,156,180
Dell, Inc. (a)		280,578		4,104,856
EMC Corp. (a)		374,806		8,073,321
Hewlett-Packard Co.		365,068		9,404,152
Lexmark International, Inc., Class A (b)		13,069		432,192
NetApp, Inc. (a)		65,895		2,390,012
SanDisk Corp. (a)		44,156		2,172,917
Western Digital Corp. (a)		42,959		1,329,581
				97,063,211
Electronic Equipment, Instruments & Components — 0.4%
Amphenol Corp., Class A		30,459		1,382,534
Corning, Inc.		288,766		3,748,183
FLIR Systems, Inc. (b)		28,593		716,826
Jabil Circuit, Inc. (b)		33,839		665,275
Molex, Inc. (b)		25,077		598,337
TE Connectivity Ltd.		77,994		2,402,995
				9,514,150
Internet Software & Services — 2.0%
Akamai Technologies, Inc. (a)		32,978		1,064,530
eBay, Inc. (a)		211,098		6,402,602
Google, Inc., Class A (a)		46,415		29,979,449
VeriSign, Inc. (b)		29,235		1,044,274
Yahoo!, Inc. (a)		227,897		3,675,979
				42,166,834

Common Stocks	Shares		Value
Information Technology (concluded)
IT Services — 3.9%
Accenture Plc, Class A		117,758	$	6,268,258
Automatic Data Processing, Inc. (b)		89,793		4,849,720
Cognizant Technology Solutions Corp., Class A (a)		55,512		3,569,977
Computer Sciences Corp. (b)		28,395		672,962
Fidelity National Information Services, Inc.		44,581		1,185,409
Fiserv, Inc. (a)		25,886		1,520,544
International Business Machines Corp.		216,542		39,817,743
MasterCard, Inc., Class A		19,588		7,302,798
Paychex, Inc.		59,268		1,784,559
SAIC, Inc. (a)		51,008		626,888
Teradata Corp. (a)		30,763		1,492,313
Total System Services, Inc.		29,631		579,582
Visa, Inc., Class A (b)		93,442		9,487,166
The Western Union Co.		113,772		2,077,477
				81,235,396
Office Electronics — 0.1%
Xerox Corp.		254,883		2,028,869
Semiconductors & Semiconductor Equipment — 2.3%
Advanced Micro Devices, Inc. (a)		108,263		584,620
Altera Corp.		58,961		2,187,453
Analog Devices, Inc.		54,753		1,959,062
Applied Materials, Inc.		239,913		2,569,468
Broadcom Corp., Class A (a)		89,138		2,617,092
First Solar, Inc. (a)(b)		10,949		369,638
Intel Corp.		935,535		22,686,724
KLA-Tencor Corp. (b)		30,628		1,477,801
Linear Technology Corp.		41,799		1,255,224
LSI Corp. (a)		103,078		613,314
Microchip Technology, Inc. (b)		35,126		1,286,666
Micron Technology, Inc. (a)		181,000		1,138,490
Novellus Systems, Inc. (a)		12,279		507,000
NVIDIA Corp. (a)		112,220		1,555,369
Teradyne, Inc. (a)		33,524		456,932
Texas Instruments, Inc.		209,945		6,111,499
Xilinx, Inc. (b)		48,233		1,546,350
				48,922,702
Software — 3.5%
Adobe Systems, Inc. (a)		90,203		2,550,039
Autodesk, Inc. (a)		41,631		1,262,668
BMC Software, Inc. (a)		31,282		1,025,424
CA, Inc.		68,005		1,374,721
Citrix Systems, Inc. (a)		34,271		2,080,935
Electronic Arts, Inc. (a)		60,829		1,253,078
Intuit, Inc.		54,619		2,872,413
Microsoft Corp.		1,375,522		35,708,551
Oracle Corp.		722,928		18,543,103
Red Hat, Inc. (a)		35,439		1,463,276
Salesforce.com, Inc. (a)		24,990		2,535,486
Symantec Corp. (a)		135,459		2,119,933
				72,789,627
Total Information Technology				397,520,561
Materials — 3.5%
Chemicals — 2.2%
Air Products & Chemicals, Inc.		38,672		3,294,468
Airgas, Inc.		12,507		976,547
CF Industries Holdings, Inc.		12,016		1,742,080

See Notes to Financial Statements.

BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011 19

Schedule of Investments (continued) S&P 500 Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Materials (concluded)
Chemicals (concluded)
The Dow Chemical Co. (b)		217,140	$	6,244,947
E.I. du Pont de Nemours & Co.		169,754		7,771,338
Eastman Chemical Co.		25,286		987,671
Ecolab, Inc. (b)		55,151		3,188,279
FMC Corp.		12,908		1,110,604
International Flavors & Fragrances, Inc.		14,839		777,860
Monsanto Co.		98,373		6,892,996
The Mosaic Co.		54,710		2,759,025
PPG Industries, Inc. (b)		28,376		2,369,112
Praxair, Inc.		55,077		5,887,731
The Sherwin-Williams Co.		15,827		1,412,876
Sigma-Aldrich Corp. (b)		22,134		1,382,490
				46,798,024
Construction Materials — 0.1%
Vulcan Materials Co.		23,637		930,116
Containers & Packaging — 0.1%
Ball Corp.		29,796		1,064,015
Bemis Co., Inc.		18,766		564,482
Owens-Illinois, Inc. (a)		30,005		581,497
Sealed Air Corp.		29,944		515,336
				2,725,330
Metals & Mining — 0.9%
Alcoa, Inc.		195,584		1,691,802
Allegheny Technologies, Inc. (b)		19,546		934,299
Cliffs Natural Resources, Inc.		26,281		1,638,620
Freeport-McMoRan Copper & Gold, Inc.		174,164		6,407,493
Newmont Mining Corp.		90,916		5,455,869
Nucor Corp. (b)		58,196		2,302,816
Titanium Metals Corp.		15,393		230,587
United States Steel Corp. (b)		26,285		695,501
				19,356,987
Paper & Forest Products — 0.2%
International Paper Co.		80,314		2,377,295
MeadWestvaco Corp.		31,373		939,621
				3,316,916
Total Materials				73,127,373
Telecommunication Services — 3.1%
Diversified Telecommunication Services — 2.8%
AT&T, Inc. (b)		1,088,757		32,924,012
CenturyLink, Inc.		113,479		4,221,419
Frontier Communications Corp. (b)		182,784		941,337
Verizon Communications, Inc. (b)		520,147		20,868,298
Windstream Corp. (b)		106,960		1,255,710
				60,210,776
Wireless Telecommunication Services — 0.3%
American Tower Corp., Class A		72,214		4,333,562
MetroPCS Communications, Inc. (a)		53,415		463,642
Sprint Nextel Corp. (a)		549,844		1,286,635
				6,083,839
Total Telecommunication Services				66,294,615
Utilities — 3.8%
Electric Utilities — 2.1%
American Electric Power Co., Inc.		88,732		3,665,519
Duke Energy Corp. (b)		244,872		5,387,184
Edison International		59,869		2,478,577

Common Stocks	Shares		Value
Utilities (concluded)
Electric Utilities (concluded)
Entergy Corp.		32,362	$	2,364,044
Exelon Corp.		121,820		5,283,333
FirstEnergy Corp.		76,845		3,404,233
NextEra Energy, Inc.		77,636		4,726,480
Northeast Utilities		32,462		1,170,904
Pepco Holdings, Inc.		41,666		845,820
Pinnacle West Capital Corp.		20,006		963,889
PPL Corp.		106,260		3,126,169
Progress Energy, Inc.		54,206		3,036,620
Southern Co. (b)		158,365		7,330,716
				43,783,488
Gas Utilities — 0.1%
AGL Resources, Inc. (b)		21,370		903,096
ONEOK, Inc.		18,926		1,640,695
				2,543,791
Independent Power Producers & Energy Traders — 0.2%
The AES Corp. (a)		118,488		1,402,898
Constellation Energy Group, Inc.		37,042		1,469,456
NRG Energy, Inc. (a)		42,181		764,320
				3,636,674
Multi-Utilities — 1.4%
Ameren Corp.		44,516		1,474,815
Centerpoint Energy, Inc.		78,274		1,572,525
CMS Energy Corp. (b)		46,138		1,018,727
Consolidated Edison, Inc.		53,820		3,338,455
Dominion Resources, Inc.		104,658		5,555,247
DTE Energy Co.		31,103		1,693,558
Integrys Energy Group, Inc.		14,246		771,848
NiSource, Inc. (b)		51,664		1,230,120
PG&E Corp. (b)		74,580		3,074,188
Public Service Enterprise Group, Inc.		92,959		3,068,576
SCANA Corp. (b)		21,132		952,208
Sempra Energy		44,038		2,422,090
TECO Energy, Inc. (b)		39,568		757,331
Wisconsin Energy Corp. (b)		42,501		1,485,835
Xcel Energy, Inc.		89,112		2,463,056
				30,878,579
Total Utilities				80,842,532
Preferred Stocks
Consumer Discretionary — 0.0%
Orchard Supply Hardware Stores Corp., Series A 0.00% (b)		315		1,184
Total Long-Term Investments (Cost — $1,740,982,192) — 99.2%				2,091,354,194
Short-Term Securities
Money Market Funds — 10.6%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (c)(d)(e)		170,771,686		170,771,686
BlackRock Cash Funds: Prime, SL Agency Shares, 0.18% (c)(d)(e)		53,764,558		53,764,558
				224,536,244

See Notes to Financial Statements.

20 BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011

Schedule of Investments (continued) S&P 500 Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Par (000)		Value
U.S. Treasury Obligations — 0.1%
U.S. Treasury Bill, 0.04%, 3/22/12 (f)(g)	$	1,550	$	1,549,941
Total Short-Term Securities (Cost — $226,086,223) — 10.7%				226,086,185
Total Investments (Cost — $1,967,068,415*) — 109.9%				2,317,440,379
Liabilities in Excess of Other Assets — (9.9%)				(209,124,171	)
Net Assets — 100.0%			$	2,108,316,208

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Tax cost	$	2,039,291,152
Gross unrealized appreciation		562,476,334
Gross unrealized depreciation		(284,327,107	)
Net unrealized appreciation	$	278,149,227

(a) Non-income producing security.

(b) Security, or a portion of security, is on loan.

(c) Investments in companies considered to be an affiliate of the Master Portfolio during the year, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares Held at December 31, 2010		Shares Purchased			Shares Sold			Shares Held at December 31, 2011		Value at December 31, 2011		Realized Loss			Income
BlackRock Cash Funds: Institutional, SL Agency Shares		350,818,795		—			(180,047,109	)1		170,771,686	$	170,771,686		—		$	530,203
BlackRock Cash Funds: Prime, SL Agency Shares		53,051,433		713,125	2		—			53,764,558	$	53,764,558		—		$	166,200
BlackRock Inc.		—		18,995			(587	)		18,408	$	3,281,042	$	(7,268	)	$	74,649
PNC Financial Services Group, Inc.		98,114		3,182			(4,630	)		96,666	$	5,574,728	$	(78,804	)	$	112,887

¹  Represents net shares sold.

²  Represents net shares purchased.

(d) Represents the current yield as of report date.

(e) All or a portion of this security was purchased with the cash collateral from loaned securities.

(f) All or a portion of security has been pledged as collateral in connection with open financial futures contracts.

(g) Rate shown is the yield to maturity as of the date of purchase.

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

· Financial futures contracts purchased as of December 31, 2011 were as follows:

Contracts	Issue		Exchange		Expiration Date		Notional Value		Unreal ized Apprecia tion
261		S&P 500 Index		Chicago		March 2012	$	16,346,430	$	59,037

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

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities.

See Notes to Financial Statements.

BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011 21

Schedule of Investments (concluded) S&P 500 Stock Master Portfolio

For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following tables summarize the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments and derivative financial instruments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Long-Term Investments1:
Common Stocks	$	2,091,351,826	$	1,184		—	$	2,091,353,010
Preferred Stocks		—		1,184		—		1,184
Short-Term Securities:
Money Market Funds		224,536,244		—		—		224,536,244
U.S. Treasury Obligations		—		1,549,941		—		1,549,941
Total	$	2,315,888,070	$	1,552,309		—	$	2,317,440,379
Valuation Inputs	Level 1		Level 2		Level 3		Total
Derivative Financial Instruments2
Assets:
Equity Contracts	$	59,037		—		—	$	59,037

¹  See above Schedule of Investments for values in each sector and industry.

²  Derivative financial instruments are financial futures contracts. Financial futures contracts are valued at the unrealized appreciation/depreciation on the instrument.

See Notes to Financial Statements.

22 BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011

Statement of Assets and Liabilities S&P 500 Stock Master Portfolio

December 31, 2011
Assets
Investments at value — unaffiliated (including securities loaned of $206,365,071) (cost — $1,733,484,351)	$	2,084,048,365
Investments at value — affiliated (cost — $233,584,064)		233,392,014
Contributions receivable from investors		157,101
Investments sold receivable		334,407
Dividends receivable		3,261,668
Securities lending income receivable — affiliated		32,279
Interest receivable		72
Total assets		2,321,225,906
Liabilities
Collateral on securities loaned at value		212,723,572
Margin variation payable		60,767
Investment advisory fees payable		78,733
Professional fees payable		33,054
Trustees’ fees payable		13,572
Total liabilities		212,909,698
Net Assets	$	2,108,316,208
Net Assets Consist of
Investors’ capital	$	1,757,885,207
Net unrealized appreciation/depreciation		350,431,001
Net Assets	$	2,108,316,208

See Notes to Financial Statements.
	BLACKROCK S&P 500 STOCK FUND	DECEMBER 31, 2011	23

Statement of Operations S&P 500 Stock Master Portfolio

Year Ended December 31, 2011
Investment Income
Dividends — unaffiliated	$	45,400,452
Dividends — affiliated		187,536
Securities lending — affiliated		657,698
Income — affiliated		38,705
Interest		1,770
Total income		46,286,161
Expenses
Investment advisory		1,086,941
Professional		55,849
Independent Trustees		66,953
Total expenses		1,209,743
Less fees waived by advisor		(122,802	)
Total expenses after fees waived		1,086,941
Net investment income		45,199,220
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		(27,369,635	)
Investments — affiliated		(86,072	)
Financial futures contracts		1,361,381
		(26,094,326	)
Net change in unrealized appreciation/depreciation on:
Investments		26,921,118
Financial futures contracts		(615,457	)
		26,305,661
Total realized and unrealized gain		211,335
Net Increase in Net Assets Resulting from Operations	$	45,410,555

See Notes to Financial Statements.
24	BLACKROCK S&P 500 STOCK FUND	DECEMBER 31, 2011

Statements of Changes in Net Assets S&P 500 Stock Master Portfolio

	Year Ended December 31,
Increase (Decrease) in Net Assets	2011			2010
Operations
Net investment income	$	45,199,220		$	40,499,948
Net realized loss		(26,094,326	)		(97,772,658	)
Net change in unrealized appreciation/depreciation		26,305,661			343,783,895
Net increase in net assets resulting from operations		45,410,555			286,511,185
Capital Transactions
Proceeds from contributions		195,530,480			253,464,019
Value of withdrawals		(291,341,608	)		(430,320,410	)
Net decrease in net assets derived from capital transactions		(95,811,128	)		(176,856,391	)
Net Assets
Total increase (decrease) in net assets		(50,400,573	)		109,654,794
Beginning of year		2,158,716,781			2,049,061,987
End of year	$	2,108,316,208		$	2,158,716,781

See Notes to Financial Statements.
	BLACKROCK S&P 500 STOCK FUND	DECEMBER 31, 2011	25

Financial Highlights S&P 500 Stock Master Portfolio

	Year Ended December 31,
	2011		2010		2009		2008			2007
Total Investment Return
Total investment return		2.13%		15.06%		26.63%		(36.86	)%		5.54%
Ratios to Average Net Assets
Total expenses		0.06%		0.05%		0.05%		0.05%			0.05%
Total expenses after fees waived		0.05%		0.05%		0.05%		0.05%			0.05%
Net investment income		2.08%		2.01%		2.35%		2.32%			1.98%
Supplemental Data
Net assets, end of year (000)	$	2,108,316	$	2,158,717	$	2,049,062	$	1,690,980		$	2,920,748
Portfolio turnover1		5%		9%		5%		8%			7%

¹  Portfolio turnover rates include in-kind transactions, if any.

See Notes to Financial Statements.
26	BLACKROCK S&P 500 STOCK FUND	DECEMBER 31, 2011

Notes to Financial Statements S&P 500 Stock Master Portfolio

1. Organization and Significant Accounting Policies:

S&P 500 Stock Master Portfolio (the “Master Portfolio”), a series of Master Investment Portfolio (“MIP”), is registered as a diversified, open-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). MIP is organized as a Delaware statutory trust. The Master Portfolio’s financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.

The following is a summary of significant accounting policies followed by the Master Portfolio:

Valuation: US GAAP defines fair value as the price the Master Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Master Portfolio fair values its financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Trustees of MIP (the “Board”). Equity investments traded on a recognized securities exchange or the NASDAQ Global Market System (“NASDAQ”) are valued at the last reported sale price that day or the NASDAQ official closing price, if applicable. For equity investments traded on more than one exchange, the last reported sale price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last available bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s price will be used, unless it is determined that such prior day’s price no longer reflects the fair value of the security. Financial futures contracts traded on exchanges are valued at their last sale price. Investments in open-end registered investment companies are valued at net asset value each business day. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value.

In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the market value of such investment or if a price is not available, the investment will be valued in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Assets”). When determining the price for Fair Value Assets, the investment advisor seeks to determine the price that the Master Portfolio might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the investment advisor deems relevant. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof.

Preferred Stock: The Master Portfolio may invest in preferred stocks. Preferred stock has a preference over common stock in liquidation (and

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

Segregation and Collateralization: In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (“SEC”) require that the Master Portfolio either deliver collateral or segregate assets in connection with certain investments (e.g., financial futures contracts), the Master Portfolio will, consistent with SEC rules and/or certain interpretive letters issued by the SEC, segregate collateral or designate on its books and records cash or liquid securities having a market value at least equal to the amount that would otherwise be required to be physically segregated. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, each party to such transactions has requirements to deliver/deposit securities as collateral for certain investments.

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend dates. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Master Portfolio 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. Upon notification from issuers, some of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain.

Securities Lending: The Master Portfolio may lend securities to approved borrowers, such as banks, brokers and other financial institutions. The borrower pledges cash, securities issued or guaranteed by the US government or irrevocable letters of credit issued by a bank as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Master Portfolio and any additional required collateral is delivered to the Master Portfolio on the next business day. Securities lending income, as disclosed in the Statement of Operations, represents the income earned from the investment of the cash collateral, net of rebates paid to, or fees paid by, borrowers and less the fees paid to the

BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011 27

Notes to Financial Statements (continued) S&P 500 Stock Master Portfolio

securities lending agent. During the term of the loan, the Master Portfolio earns dividend or interest income on the securities loaned but does not receive interest income on the securities received as collateral. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Master Portfolio could experience delays and costs in gaining access to the collateral. The Master Portfolio also could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received. During the year ended December 31, 2011, any securities on loan were collateralized by cash.

Income Taxes: The Master Portfolio is classified as a partnership for federal income tax purposes. As such, each investor in the Master Portfolio is treated as the owner of its proportionate share of net assets, income, expenses and realized and unrealized gains and losses of the Master Portfolio. Therefore, no federal income tax provision is required. It is intended that the Master Portfolio’s assets will be managed so an investor in the Master Portfolio can satisfy the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended.

The Master Portfolio files US federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Master Portfolio’s US federal tax returns remains open for each of the four periods ended December 31, 2011. The statutes of limitations on the Master Portfolio’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.

Recent Accounting Standard: In May 2011, the Financial Accounting Standards Board (the “FASB”) issued amended guidance to improve disclosure about fair value measurements which will require the following disclosures for fair value measurements categorized as Level 3: quantitative information about the unobservable inputs and assumptions used in the fair value measurement, a description of the valuation policies and procedures and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, the amounts and reasons for all transfers in and out of Level 1 and Level 2 will be required to be disclosed. The amended guidance is effective for financial statements for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Master Portfolio’s financial statement disclosures.

In December 2011, the FASB issued guidance that will enhance current disclosure requirements on the offsetting of certain assets and

liabilities. The new disclosures will be required for investments and derivative financial instruments subject to master netting agreements or similar agreements and will require an entity to disclose both gross and net information about such investments and transactions eligible for offset in the Statement of Assets and Liabilities. The guidance is effective for financial statements with fiscal years beginning on or after January 1, 2013, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Master Portfolio’s financial statement disclosures.

Other: Expenses directly related to the Master Portfolio are charged to the Master Portfolio. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods.

2. Derivative Financial Instruments:

The Master Portfolio engages in various portfolio investment strategies using derivative contracts both to increase the return of the Master Portfolio and to economically hedge, or protect, its exposure to certain risks such as equity risk. These contracts may be transacted on an exchange.

Losses may arise if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument or if the counterparty does not perform under the contract. Counterparty risk related to exchange-traded financial futures contracts is deemed to be minimal due to the protection against defaults provided by the exchange on which these contracts trade.

Financial Futures Contracts: The Master Portfolio purchases or sells financial futures contracts to gain exposure to, or economically hedge against, changes in the value of equity securities (equity risk). Financial futures contracts are agreements between the Master Portfolio and counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. Pursuant to the contract, a Master Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as margin variation and are recorded by the Master Portfolio as unrealized appreciation or depreciation. When the contract is closed, the Master Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest rates and the underlying assets.

28 BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011

Notes to Financial Statements (continued) S&P 500 Stock Master Portfolio

Derivative Financial Instruments Categorized by Risk Exposure:
Fair Values of Derivative Financial Instruments as of December 31, 2011
	Asset Derivatives
	Statement of Assets and Liabilities Location	Value
Equity contracts	Net unrealized appreciation/ depreciation*	$	59,037

* Includes cumulative appreciation/depreciation on financial futures contracts as reported in the Schedule of Investments. Only current day’s margin variation is reported within the Statement of Assets and Liabilities.

The Effect of Derivative Financial Instruments in the Statement of Operations Year Ended December 31, 2011
	Net Realized Gain From
	Financial Futures Contracts
Equity contracts	$	1,361,381
	Net Change in  Unrealized Appreciation/Depreciation on
	Financial Futures Contracts
Equity contracts	$	(615,457	)

For the year ended December 31, 2011, the average quarterly balances of outstanding derivative financial instruments were as follows:

Financial futures contracts:
Average number of contracts purchased		244
Average notional value of contracts purchased	$	15,517,276

3. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”). Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

MIP, on behalf of the Master Portfolio, entered into an Investment Advisory Agreement (the “Investment Advisory Agreement”) with BlackRock Fund Advisors (“BFA”), the Master Portfolio’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory services. Pursuant to the Investment Advisory Agreement with MIP, BFA is responsible for the management of the Master Portfolio’s investments and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Master Portfolio. For such services, the Master Portfolio pays BFA a monthly fee based on a percentage of the Master Portfolio’s average daily net assets at an annual rate of 0.05%.

The fees and expenses of the MIP’s trustees who are not “interested persons” of MIP, as defined in the 1940 Act (“Independent Trustees”),

counsel to the Independent Trustees and MIP’s independent registered public accounting firm (together, the “independent expenses”) are paid directly by the Master Portfolio. BFA has contractually agreed to cap the expenses of the Master Portfolio at the rate at which the Master Portfolio pays an advisory fee to BFA by providing an offsetting credit against the investment advisory fees paid by the Master Portfolio in an amount equal to the independent expenses. These contractual waivers are effective through April 30, 2012. The amount of the waivers, if any, are shown as fees waived in the Statement of Operations.

MIP entered into an administration services arrangement with BlackRock Institutional Trust Company, N.A. (“BTC”), which has agreed to provide general administration services (other than investment advice and related portfolio activities). BTC may delegate certain of its administration duties to sub-administrators. BTC, in consideration thereof, has agreed to bear all of the Master Portfolio’s and MIP’s ordinary operating expenses excluding, generally, investment advisory fees, distribution fees, brokerage and other expenses related to the execution of portfolio transactions, extraordinary expenses and certain other expenses which are borne by the Master Portfolio.

BTC is not entitled to compensation for providing administration services to the Master Portfolio, for so long as BTC is entitled to compensation for providing administration services to corresponding feeder funds that invest substantially all of their assets in the Master Portfolio, or BTC (or an affiliate) receives investment advisory fees from the Master Portfolio.

The Master Portfolio received an exemptive order from the SEC permitting it, among other things, to pay an affiliated securities lending agent a fee based on a share of the income derived from the securities lending activities and has retained BlackRock Institutional Trust Company (“BTC”), an affiliate of BFA, as the securities lending agent. BTC may, on behalf of the Master Portfolio, invest cash collateral received by the Master Portfolio for such loans, among other things, in a private investment company managed by BTC or in registered money market funds advised by BTC or its affiliates. As securities lending agent, BTC is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BTC does not receive any fees for managing the cash collateral. The market value of securities on loan and the value of the related collateral, if applicable, are shown in the Statement of Assets and Liabilities as securities loaned at value and collateral on securities loaned at value, respectively. The cash collateral invested by BTC is disclosed in the Schedule of Investments. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of rebates paid to, or fees paid by, borrowers of securities. The Fund retains 65% of securities lending income and pays a fee to BTC equal to 35% of such income. The share of income earned by the Master Portfolio on such investments is shown as securities lending — affiliated in the Statement of Operations. For the year ended

BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011 29

Notes to Financial Statements (concluded) S&P 500 Stock Master Portfolio

December 31, 2011, BTC received $268,233 in securities lending agent fees related to securities lending activities for the Master Portfolio.

Certain officers and/or trustees of MIP are officers and/or directors of BlackRock or its affiliates.

4. Investments:

Purchases and sales of investments excluding short-term securities for the year ended December 31, 2011, were $108,528,939 and $148,812,436, respectively.

5. Concentration, Market and Credit Risk:

In the normal course of business, the Master Portfolio invests in securities and enters into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Master Portfolio may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Master Portfolio; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar

to issuer credit risk, the Master Portfolio may be exposed to counterparty credit risk, or the risk that an entity with which the Master Portfolio has unsettled or open transactions may fail to or be unable to perform on its commitments. The Master Portfolio manages counterparty credit risk by entering into transactions only with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Master Portfolio to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Master Portfolio’s exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Master Portfolio’s Statement of Assets and Liabilities, less any collateral held by the Master Portfolio.

6. Subsequent Events:

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

30 BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011

Report of Independent Registered Public Accounting Firm S&P 500 Stock Master Portfolio

To the Interestholders and Board of Trustees of Master Investment Portfolio:

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of the S&P 500 Stock Master Portfolio, a portfolio of Master Investment Portfolio (the “Master Portfolio”), at December 31, 2011, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Master Portfolio’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these

financial statements in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 24, 2012

BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011 31

Officers and Trustees

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1
Ronald W. Forbes 55 East 52nd Street New York, NY 10055 1940	Co-Chairman of the Board and Trustee	Since 2009	Professor Emeritus of Finance, School of Business, State University of New York at Albany since 2000.	33 RICs consisting of 107 Portfolios	None
Rodney D. Johnson 55 East 52nd Street New York, NY 10055 1941	Co-Chairman of the Board and Trustee	Since 2009	President, Fairmount Capital Advisors, Inc. since 1987; Member of the Archdiocesan Investment Committee of the Archdiocese of Philadelphia since 2004; Director, The Committee of Seventy (civic) since 2006; Director, Fox Chase Cancer Center from 2004 to 2010.	33 RICs consisting of 107 Portfolios	None
David O. Beim 55 East 52nd Street New York, NY 10055 1940	Trustee	Since 2009	Professor of Professional Practice at the Columbia University Graduate School of Business since 1991; Trustee, Phillips Exeter Academy since 2002; Chairman, Wave Hill, Inc. (public garden and cultural center) from 1990 to 2006.	33 RICs consisting of 107 Portfolios	None
Dr. Matina S. Horner 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Executive Vice President of Teachers Insurance and Annuity Association and College Retirement Equities Fund from 1989 to 2003.	33 RICs consisting of 107 Portfolios	NSTAR (electric and gas utility)
Herbert I. London 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Professor Emeritus, New York University since 2005; John M. Olin Professor of Humanities, New York University from 1993 to 2005 and Professor thereof from 1980 to 2005; President, Hudson Institute (policy research organization) since 1997 and Trustee thereof since 1980; Chairman of the Board of Trustees for Grantham University since 2006; Director, InnoCentive, Inc. (strategic solutions company) since 2005; Director, Cerego, LLC (software development and design) since 2005; Director, Cybersettle (dispute resolution technology) since 2009.	33 RICs consisting of 107 Portfolios	AIMS Worldwide, Inc. (marketing)
Cynthia A. Montgomery 55 East 52nd Street New York, NY 10055 1952	Trustee	Since 2009	Professor, Harvard Business School since 1989; Director, McLean Hospital since 2005; Director, Harvard Business School Publishing from 2005 to 2010.	33 RICs consisting of 107 Portfolios	Newell Rubbermaid, Inc. (manufacturing)
Joseph P. Platt 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2009	Director, The West Penn Allegheny Health System (a not-for-profit health system) since 2008; Director, Jones and Brown (Canadian insurance broker) since 1998; General Partner, Thorn Partners, LP (private investment) since 1998; Director, WQED Multi-Media (public broadcasting not-for-profit) since 2001; Partner, Amarna Corporation, LLC (private investment company) from 2002 to 2008.	33 RICs consisting of 107 Portfolios	Greenlight Capital Re, Ltd. (reinsurance company)
Robert C. Robb, Jr. 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Partner, Lewis, Eckert, Robb and Company (management and financial consulting firm) since 1981.	33 RICs consisting of 107 Portfolios	None
Toby Rosenblatt 55 East 52nd Street New York, NY 10055 1938	Trustee	Since 2009	President, Founders Investments Ltd. (private investments) since 1999; Director, College Access Foundation of California (philanthropic foundation) since 2009; Director, Forward Management, LLC since 2007; Director, A.P. Pharma, Inc. (specialty pharmaceuticals) from 1983 to 2011; Director, The James Irvine Foundation (philanthropic foundation) from 1998 to 2008.	33 RICs consisting of 107 Portfolios	None

32 BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011

Officers and Trustees (continued)

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1 (concluded)
Kenneth L. Urish 55 East 52nd Street New York, NY 10055 1951	Trustee	Since 2009	Managing Partner, Urish Popeck & Co., LLC (certified public accountants and consultants) since 1976; Chairman Elect of the Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants and Committee Member thereof since 2007; Member of External Advisory Board, The Pennsylvania State University Accounting Department since 2001; Trustee, The Holy Family Foundation from 2001 to 2010; President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Director, Inter-Tel from 2006 to 2007.	33 RICs consisting of 107 Portfolios	None
Frederick W. Winter 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Professor and Dean Emeritus of the Joseph M. Katz School of Business, University of Pittsburgh since 2005 and Dean thereof from 1997 to 2005; Director, Alkon Corporation (pneumatics) since 1992; Director, Tippman Sports (recreation) since 2005; Director, Indotronix International (IT services) from 2004 to 2008.	33 RICs consisting of 107 Portfolios	None
	1   Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved extensions in terms of Trustees who turn 72 prior to December 31, 2013. 2   Date shown is the earliest date a person has served for the Fund covered by this annual report. Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. (“BlackRock”) in September 2006, the various legacy MLIM and legacy BlackRock Fund boards were realigned and consolidated into three new Fund boards in 2007. As a result, although the chart shows certain Trustees as joining the Trust’s/MIP’s board in 2007, each Trustee first became a member of the board of other legacy MLIM or legacy BlackRock Funds as follows: David O. Beim, 1998; Ronald W. Forbes, 1977; Dr. Matina S. Horner, 2004; Rodney D. Johnson, 1995; Herbert I. London, 1987; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Robert C. Robb, Jr., 1998; Toby Rosenblatt, 2005; Kenneth L. Urish, 1999; and Frederick W. Winter, 1999.
Interested Trustees3
Paul L. Audet 55 East 52nd Street New York, NY 10055 1953	Trustee	Since 2011	Senior Managing Director, BlackRock, and Head of BlackRock’s Real Estate business from 2008 to 2011; Member of BlackRock’s Global Operating and Corporate Risk Management Committees and of the BlackRock Alternative Investors Executive Committee and Investment Committee for the Private Equity Fund of Funds business since 2008; Head of BlackRock’s Global Cash Management business from 2005 to 2010; Acting Chief Financial Officer of BlackRock from 2007 to 2008; Chief Financial Officer of BlackRock from 1998 to 2005.	159 RICs consisting of 286 Portfolios	None
Henry Gabbay 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2007	Consultant, BlackRock from 2007 to 2008; Managing Director, BlackRock from 1989 to 2007; Chief Administrative Officer, BlackRock Advisors, LLC from 1998 to 2007; President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007 and Treasurer of certain closed-end funds in the BlackRock fund complex from 1989 to 2006.	159 RICs consisting of 286 Portfolios	None
	3   Mr. Audet is an “interested person,” as defined in the 1940 Act, of the Trust/MIP based on his position with BlackRock and its affiliates. Mr. Gabbay is an “interested person” of the Trust/MIP based on his former positions with BlackRock and its affiliates as well as his ownership of BlackRock and The PNC Financial Services Group, Inc. securities. Mr. Audet and Mr. Gabbay are also Trustees of the BlackRock registered closed-end funds and Trustees of other BlackRock registered open-end funds. Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.

BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011 33

Officers and Trustees (concluded)

Name, Address and Year of Birth	Position(s) Held with the Trust/MIP	Length of Time Served	Principal Occupation(s) During Past Five Years
Trust/MIP Officers*
John M. Perlowski 55 East 52nd Street New York, NY 10055 1964	President and Chief Executive Officer	Since 2010	Managing Director of BlackRock since 2009; Global Head of BlackRock Fund Administration since 2009; Managing Director and Chief Operating Officer of the Global Product Group at Goldman Sachs Asset Management, L.P. from 2003 to 2009; Treasurer of Goldman Sachs Mutual Funds from 2003 to 2009 and Senior Vice President thereof from 2007 to 2009; Director of Goldman Sachs Offshore Funds from 2002 to 2009; Director of Family Resource Network (charitable foundation) since 2009.
Richard Hoerner, CFA 55 East 52nd Street New York, NY 10055 1958	Vice President	Since 2009	Managing Director of BlackRock since 2000; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2002; Member of the Cash Management Group Executive Committee since 2005.
Brendan Kyne 55 East 52nd Street New York, NY 10055 1977	Vice President	Since 2009	Managing Director of BlackRock since 2010; Director of BlackRock from 2008 to 2009; Head of Product Development and Management for BlackRock’s U.S. Retail Group since 2009 and Co-head thereof from 2007 to 2009; Vice President of BlackRock from 2005 to 2008.
Simon Mendelson 55 East 52nd Street New York, NY 10055 1964	Vice President	Since 2009	Managing Director of BlackRock since 2005; Co-head of the Global Cash and Securities Lending Group since 2010; Chief Operating Officer and Head of the Global Client Group for BlackRock’s Global Cash Management Business from 2007 to 2010; Head of BlackRock’s Strategy and Development Group from 2005 to 2007; Partner of McKinsey & Co. from 1997 to 2005.
Christopher Stavrakos, CFA 55 East 52nd Street New York, NY 10055 1959	Vice President	Since 2009	Managing Director of BlackRock since 2006; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2006; Senior Vice President, CIO, and Director of Liability Management for the Securities Lending Group at Mellon Bank from 1999 to 2006.
Neal Andrews 55 East 52nd Street New York, NY 10055 1966	Chief Financial Officer	Since 2007	Managing Director of BlackRock since 2006; Senior Vice President and Line of Business Head of Fund Accounting and Administration at PNC Global Investment Servicing (U.S.) Inc. from 1992 to 2006.
Jay Fife 55 East 52nd Street New York, NY 10055 1970	Treasurer	Since 2007	Managing Director of BlackRock since 2007; Director of BlackRock in 2006; Assistant Treasurer of the MLIM and Fund Asset Management, L.P. advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006.
Brian Kindelan 55 East 52nd Street New York, NY 10055 1959	Chief Compliance Officer and Anti-Money Laundering Officer	Since 2007	Chief Compliance Officer of the BlackRock-advised funds since 2007; Managing Director and Senior Counsel of BlackRock since 2005.
Ira P. Shapiro 55 East 52nd Street New York, NY 10055 1963	Secretary	Since 2010	Managing Director of BlackRock since 2009; Managing Director and Associate General Counsel of Barclays Global Investors from 2008 to 2009 and Principal thereof from 2004 to 2008.
	*  Officers of the Trust/MIP serve at the pleasure of the Board of Trustees.

Investment Advisor BlackRock Fund Advisors San Francisco, CA 94105	Administrator BlackRock Institutional Trust Company, N.A. San Francisco, CA 94105	Custodian State Street Bank and Trust Company Boston, MA 02110	Transfer Agent BNY Mellon Investment Servicing (US) Inc. Wilmington, DE 19809	Accounting Agent State Street Bank and Trust Company Boston, MA 02110	Distributor BlackRock Investments, LLC New York, NY 10022
			Legal Counsel Sidley Austin LLP New York, NY 10019	Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP New York, NY 10017	Address of the Funds 400 Howard Street San Francisco, CA 94105

34 BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011

Additional Information

General Information

Availability of Quarterly Schedule of Investments

The Fund/Master Portfolio files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s/Master Portfolio’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. The Fund’s/Master Portfolio’s Forms N-Q may also be obtained upon request and without charge by calling (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

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

Availability of Proxy Voting Record

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

Shareholder Privileges

Account Information

Call us at (800) 441-7762 from 8:00 AM to 6:00 PM EST on any business day to get information about your account balances, recent

transactions and share prices. You can also reach us on the Web at http://www.blackrock.com/funds.

BlackRock Privacy Principles

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

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

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

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

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

BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011 35

A World-Class 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.

Equity Funds

BlackRock ACWI ex-US Index Fund

BlackRock All-Cap Energy & Resources Portfolio

BlackRock Asset Allocation Portfolio†

BlackRock Balanced Capital Fund†

BlackRock Basic Value Fund

BlackRock Capital Appreciation Fund

BlackRock China Fund

BlackRock Commodity Strategies Fund

BlackRock Emerging Markets Long/Short Equity Fund

BlackRock Energy & Resources Portfolio

BlackRock Equity Dividend Fund

BlackRock EuroFund

BlackRock Focus Growth Fund

BlackRock Global Allocation Fund†

BlackRock Global Dividend Income Portfolio

BlackRock Global Dynamic Equity Fund

BlackRock Global Emerging Markets Fund

BlackRock Global Opportunities Portfolio

BlackRock Global SmallCap Fund

BlackRock Health Sciences Opportunities Portfolio

BlackRock Index Equity Portfolio

BlackRock India Fund

BlackRock International Fund

BlackRock International Index Fund

BlackRock International Opportunities Portfolio

BlackRock Large Cap Core Fund

BlackRock Large Cap Core Plus Fund

BlackRock Large Cap Growth Fund

BlackRock Large Cap Value Fund

BlackRock Latin America Fund

BlackRock Mid-Cap Growth Equity Portfolio

BlackRock Mid-Cap Value Equity Portfolio

BlackRock Mid Cap Value Opportunities Fund

BlackRock Natural Resources Trust

BlackRock Pacific Fund

BlackRock Russell 1000 Index Fund

BlackRock Science & Technology Opportunities Portfolio

BlackRock Small Cap Growth Equity Portfolio

BlackRock Small Cap Growth Fund II

BlackRock Small Cap Index Fund

BlackRock S&P 500 Index Fund

BlackRock S&P 500 Stock Fund

BlackRock U.S. Opportunities Portfolio

BlackRock Value Opportunities Fund

BlackRock World Gold Fund

Fixed Income Funds

BlackRock Bond Index Fund

BlackRock Core Bond Portfolio

BlackRock Emerging Market Debt Portfolio

BlackRock Floating Rate Income Portfolio

BlackRock Global Long/Short Credit Fund

BlackRock GNMA Portfolio

BlackRock High Yield Bond Portfolio

BlackRock Inflation Protected Bond Portfolio

BlackRock International Bond Portfolio

BlackRock Long Duration Bond Portfolio

BlackRock Low Duration Bond Portfolio

BlackRock Multi-Asset Income Portfolio†

BlackRock Multi-Sector Bond Portfolio

BlackRock Strategic Income Opportunities Portfolio

BlackRock Total Return Fund

BlackRock US Government Bond Portfolio

BlackRock World Income Fund

US Mortgage Portfolio

Municipal Bond Funds

BlackRock California Municipal Bond Fund

BlackRock High Yield Municipal Fund

BlackRock Intermediate Municipal Fund

BlackRock National Municipal Fund

BlackRock New Jersey Municipal Bond Fund

BlackRock New York Municipal Bond Fund

BlackRock Pennsylvania Municipal Bond Fund

BlackRock Short-Term Municipal Fund

Target Risk & Target Data Funds†

BlackRock Prepared Portfolios	BlackRock Lifecycle Prepared Portfolios		LifePath Portfolios Retirement		LifePath Index Portfolios Retirement
Conservative Prepared Portfolio	2015	2035	2020	2040	2020	2040
Moderate Prepared Portfolio	2020	2040	2025	2045	2025	2045
Growth Prepared Portfolio	2025	2045	2030	2050	2030	2050
Aggressive Growth Prepared Portfolio	2030	2050	2035	2055	2035	2055

† Mixed asset fund.

BlackRock mutual funds are currently distributed by BlackRock Investments, LLC. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling (800) 441-7762 or from your financial advisor. The prospectus should be read carefully before investing.

36 BLACKROCK S&P 500 STOCK FUND DECEMBER 31, 2011

This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Funds unless accompanied or preceded by the Funds’ 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.

#SPSF-12/11

December 31, 2011

Annual Report

BlackRock Funds III

^u  LifePath^® Retirement Portfolio

^u  LifePath 2020 Portfolio^®

^u  LifePath^® 2025 Portfolio

^u  LifePath 2030 Portfolio^®

^u  LifePath^® 2035 Portfolio

^u  LifePath 2040 Portfolio^®

^u  LifePath^® 2045 Portfolio

^u  LifePath^® 2050 Portfolio

^u  LifePath^® 2055 Portfolio

Not FDIC Insured     No Bank Guarantee    May Lose Value

Table of Contents

	Page
Dear Shareholder		3
Annual Report:
Portfolio Summaries		4
About Portfolio Performance		23
Derivative Financial Instruments		23
Disclosure of Expenses		24
Portfolio Financial Statements:
Statements of Assets and Liabilities		26
Statements of Operations		28
Statements of Changes in Net Assets		30
Portfolio Financial Highlights		35
Portfolio Notes to Financial Statements		80
Portfolio Report of Independent Registered Public Accounting Firm		90
Important Tax Information		90
Master Portfolio Information		92
Master Portfolio Financial Statements:
Schedules of Investments		96
Statements of Assets and Liabilities		129
Statements of Operations		133
Statements of Changes in Net Assets		137
Master Portfolio Financial Highlights		142
Master Portfolio Notes to Financial Statements		149
Master Portfolio Report of Independent Registered Public Accounting Firm		157
Officers and Trustees		158
Additional Information		161
A World-Class Mutual Fund Family		162

2 BLACKROCK FUNDS III DECEMBER 31, 2011

Dear Shareholder

Investors endured a very difficult environment in 2011. Financial markets were extremely volatile as a number of high-profile global events drove frequent about-face changes in investor sentiment. As the year progressed, news flow increasingly influenced trading decisions, to the point where company fundamentals were largely ignored. In the end, lower-risk assets won the “risk on – risk off” trading tug-of-war that characterized 2011’s market activity.

Early in the year, political turmoil swept across the Middle East/North Africa region and prices of oil and other commodities soared. Natural disasters in Japan disrupted global supply chains and concerns mounted regarding US debt and deficit issues. Nevertheless, equities, commodities and high yield bonds outpaced the less risky asset classes as investors chose to focus on the continuing stream of strong corporate earnings and positive economic data.

Markets reversed sharply in May, however, when the heightened possibility of Greece defaulting on its debt rekindled fears about sovereign debt problems spreading across Europe. Concurrently, economic indicators signaled that the recovery had slowed in the United States and other developed nations. Confidence was further shaken by the prolonged debt ceiling debate in Washington, DC. On August 5^th, Standard & Poor’s downgraded the US government’s credit rating and turmoil erupted in financial markets around the world. Extraordinary levels of volatility persisted in the months that followed as Greece teetered on the brink of default, debt problems escalated in Italy and Spain, and exposure to European sovereign bonds stressed banks globally. Late in the summer, economic data out of the United States and Europe grew increasingly bleak while China and other emerging economies began to show signs of slowing growth. By the end of the third quarter, equity markets had fallen nearly 20% from their April peak while safe-haven assets such as US Treasuries and gold had rallied to historical highs.

October brought enough positive economic data to assuage fears of a global double-dip recession. Additionally, after months of deliberation, European leaders began to show signs of progress toward stemming the region’s debt crisis. These encouraging developments brought investors back from the sidelines and risk assets rallied through the month. However, a lack of definitive details about Europe’s rescue plan soon raised doubts among investors and thwarted the rally at the end of October. The last two months of the year saw political instability in Greece, unsustainable yields on Italian bonds, and US policymakers bickering over budget issues. Global central bank actions and improving economic data energized investors, but confidence was easily tempered by sobering news flow that resurrected uncertainty about the ability of Europe’s leaders to ultimately contain the debt crisis.

Most equity markets failed to fully recover their late-summer losses, although US large cap stocks managed to finish the year with a marginal gain given their perceived safety and stronger US economic data. Conditions were worse overseas, and international markets experienced some significant downturns. Dividend-paying stocks performed relatively well as investors sought yield in the low interest rate environment. Fixed income securities benefited from declining yields and delivered positive returns for the year. US Treasury bonds outperformed other fixed income classes despite their quality rating downgrade, while municipal bonds also delivered superior results. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

Many of the themes that caused uncertainty in 2011 are likely to persist well into 2012. While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of December 31, 2011
	6-month			12-month
US large cap equities (S&P 500 Index)		(3.69	)%		2.11	%
US small cap equities (Russell 2000 Index)		(9.77	)		(4.18	)
International equities (MSCI Europe, Australasia, Far East Index)		(16.31	)		(12.14	)
Emerging market equities (MSCI Emerging Markets Index)		(19.13	)		(18.42	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.02			0.10
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		13.46			17.15
US investment grade bonds (Barclays Capital US Aggregate Bond Index)		4.98			7.84
Tax-exempt municipal bonds (S&P Municipal Bond Index)		5.78			10.62
US high yield bonds (Barclays Capital US Corporate High Yield 2% Issuer Capped Index)		(0.02	)		4.96
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

THIS PAGE NOT PART OF YOUR FUND REPORT 3

Portfolio Summary as of December 31, 2011 LifePath Portfolios

Portfolio Management Commentary

How did each Portfolio perform?

· All share classes of the LifePath Portfolios with target dates of 2020, 2025, 2030, 2035, 2040, 2045, 2050, 2055 and LifePath Retirement Portfolio (altogether, the “LifePath Portfolios”) invest in their respective LifePath Master Portfolio.

· For the 12-month period ended December 31, 2011, the Class K Shares of all of the LifePath Portfolios outperformed their respective custom benchmarks, while the Investor C Shares underperformed in all of the LifePath Portfolios. The Institutional Shares outperformed the respective benchmark in each of the LifePath Portfolios with target dates of 2035, 2045 and 2055, and underperformed in LifePath 2020, 2025, 2030, 2040, 2050 and the Retirement Portfolio. The Investor A and Class R Shares underperformed the benchmarks in all of the LifePath Portfolios with the exception of LifePath 2045, in which those share classes outperformed.

What factors influenced performance?

· Fixed income markets sharply outperformed equity markets for the period, which had a positive impact on absolute performance in LifePath Retirement Portfolio and LifePath 2020 and 2025, as these portfolios hold a larger portion of their assets in fixed income. Given their longer time horizon, LifePath 2030, 2035, 2040, 2045, 2050 and 2055 have greater exposure to equities, which had a negative impact on absolute performance for the period.

· Relative to their respective custom benchmarks, the most significant contributor to positive performance in the LifePath Portfolios was their investment in the Active Stock Master Portfolio (“Active Stock”), which changed its investment strategy during the period. Prior to its strategy change on July 29, 2011, Active Stock derived strong returns from its holdings that were selected using quantitative models based on sentiment insights, earnings quality measures and thematic drivers, while securities selected based on relative value metrics detracted.

· Also contributing positively to the LifePath Portfolios’ performance was their investment in the CoreAlpha Bond Master Portfolio (“CoreAlpha Bond”), which slightly outperformed its benchmark, the Barclays Capital US Aggregate Bond Index, for the period. Mortgage sector positioning had a positive impact on CoreAlpha Bond’s performance, as did its longer duration (relative to the Barclays Capital US Aggregate Bond Index) and yield curve positioning as interest rates moved lower during the period.

· The LifePath Portfolios gain exposure to various financial markets through their investment in iShares exchange-traded funds (“ETFs”), each of which seeks investment results that correspond generally to the performance, before fees and expenses, of its underlying index. Dividend distributions, pricing differences, premiums/discounts and other factors can cause an ETF’s return to lag the underlying index. During the period, pricing differences in iShares MSCI Emerging Markets Index Fund, iShares MSCI EAFE Index Fund and iShares MSCI EAFE Small Cap Index Fund detracted from relative performance. The underlying indices of each of these international equity ETFs are priced at the close of their respective local stock exchanges, whereas the corresponding iShares instruments continue to trade on the New York Stock Exchange until they are priced upon its close, thereby reflecting new US market information.

Describe recent portfolio activity.

· Each LifePath Portfolio has its own time horizon, which affects its acceptable level of risk and, in turn, the strategic allocation of its holdings across asset classes. On a quarterly basis, the strategic allocation of each LifePath Portfolio is systematically updated to reflect the remaining investment time horizon. During the period, the LifePath Portfolios were rebalanced in accordance with their updated strategic allocations and daily cash flows were appropriately allocated to the underlying funds and instruments.

· During the period, the LifePath Portfolios began investing in the ACWI ex-US Index Master Portfolio to obtain the equivalent benchmark exposure. The iShares S&P SmallCap 600 Index Fund and iShares S&P MidCap 400 Index Fund were eliminated from the LifePath Portfolios’ holdings, while the BlackRock SmallCap Index Master Portfolio was added to holdings.

· Effective July 29, 2011, Active Stock enhanced its diversification by adding to its overall alpha strategy BlackRock’s Scientific Active Large Cap Equity strategy and four fundamental active large cap equity strategies, including Large Cap Growth, Fundamental Large Cap Growth, Basic Value and Equity Dividend. In accordance with this strategy change, Active Stock changed its benchmark from the S&P 500^® Index to the Russell 1000^® Index. Also during the period, CoreAlpha Bond took a more defensive stance and reduced its allocation to high yield debt.

Describe portfolio positioning at period end.

· As of period end, each of the LifePath Portfolios was invested according to its respective strategic allocation benchmark within tolerance limits.

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.

The LifePath Portfolios are organized as “feeder” funds in a “master-feeder” structure. Instead of investing directly in individual securities, the feeder fund, which is offered to the public, holds interests in the net assets of its corresponding Master Portfolio. It is the Master Portfolio that actually invests in individual securities. References to the “LifePath Portfolios” are to the feeder funds or the Master Portfolios, as the context requires.

4 BLACKROCK FUNDS III DECEMBER 31, 2011

LifePath^® Retirement Portfolio

Investment Objective

LifePath^® Retirement Portfolio’s investment objective is managed for investors seeking income and moderate long-term growth of capital.

Total Return Based on a $10,000 Investment

¹  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath Retirement Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

²  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

Period	MSCI ACWI ex-US IMI Index			Barclays Capital US Aggregate Bond Index			Barclays Capital US Treasury Inflation Protected Securities (TIPS) Index			Citigroup 3-Month Treasury Bill Index			Cohen & Steers Realty Majors Index			FTSE EPRA/ NAREIT Developed Real Estate Index			MSCI EAFE Index			Russell 1000 Index			Russell 2000 Index			S&P Mid Cap 400 Index			S&P 500 Index			S&P SmallCap 600 Index
12/31/99 to12/31/00		N/A			69.2	%		N/A			11.0	%		N/A			N/A			6.9	%		N/A			N/A			0.8	%		11.2	%		0.9	%
1/01/01 to12/31/01		N/A			73.9			N/A			6.5			N/A			N/A			6.4			N/A			N/A			0.9			11.5			0.8
1/01/02 to12/31/02		N/A			65.0			N/A			N/A			N/A			N/A			9.7			N/A			N/A			1.9			21.8			1.6
1/01/03 to12/31/03		N/A			65.0			N/A			N/A			N/A			N/A			9.1			N/A			N/A			2.1			22.0			1.8
1/01/04 to12/31/04		N/A			65.0			N/A			N/A			N/A			N/A			8.7			N/A			N/A			2.3			21.7			2.3
1/01/05 to12/31/05		N/A			65.0			N/A			N/A			N/A			N/A			8.7			N/A			N/A			3.2			20.9			2.2
1/01/06 to12/31/06		N/A			52.0			10.2	%		N/A			2.7	%		N/A			9.9			N/A			N/A			3.3			20.2			1.7
1/01/07 to12/31/07		2.7	%		52.6			9.6			N/A			2.8			N/A			7.7			N/A			N/A			3.6			19.2			1.8
1/01/08 to12/31/08		11.4			53.0			9.0			N/A			1.3			1.3	%		N/A			N/A			N/A			4.1			18.0			1.9
1/01/09 to12/31/09		10.8			52.9			9.1			N/A			N/A			1.6			N/A			N/A			N/A			4.7			18.7			2.2
1/01/10 to12/31/10		10.8			52.9			9.1			N/A			N/A			1.1			N/A			N/A			N/A			5.0			18.9			2.2
1/01/11 to12/31/11		11.3			52.9			9.1			N/A			N/A			0.8			N/A			8.6	%		1.7	%		2.8			11.6			1.2

See “About Portfolio Performance” on page 23 for descriptions of the indexes.

BLACKROCK FUNDS III DECEMBER 31, 2011 5

LifePath^® Retirement Portfolio (concluded)

Performance Summary for the Period Ended December 31, 2011

				Average Annual Total Returns
				1 Year				5 Years						10 Years						Since Inception
	6-Month Total Returns			w/o sales       charge	w/sales charge			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge
Institutional		(0.14	)%	3.96%		N/A			3.60	%		N/A			4.61	%		N/A			5.68	%1		N/A
Investor A		(0.34	)	3.60		(1.84	)%		3.32			2.21	%		4.47			3.90	%		5.88	2		5.23	%2
Investor C		(0.63	)	2.86		1.87			N/A			N/A			N/A			N/A			4.26	3		4.26	3
Class K		0.06		4.27		N/A			N/A			N/A			N/A			N/A			3.88	4		N/A
Class R		(0.46	)	3.32		N/A			N/A			N/A			N/A			N/A			4.74	3		N/A
Citigroup 3-Month Treasury Bill Index		0.02		0.08		N/A			1.36			N/A			1.85			N/A			N/A			N/A
Barclays Capital US Aggregate Bond Index		4.98		7.84		N/A			6.50			N/A			5.78			N/A			N/A			N/A
LifePath Retirement Custom Benchmark		(0.09	)	4.11		N/A			4.27			N/A			5.52			N/A			N/A			N/A
S&P 1500 Index		(4.28	)	1.75		N/A			0.11			N/A			3.40			N/A			N/A			N/A
ACWI ex-US IMI Index		(17.22	)	(14.31)		N/A			(2.74	)		N/A			6.95			N/A			N/A			N/A
Russell 1000 Index		(4.58	)	1.50		N/A			(0.02	)		N/A			3.34			N/A			N/A			N/A
Russell 2000 Index		(9.77	)	(4.18)		N/A			0.15			N/A			5.62			N/A			N/A			N/A

¹  Total return is calculated from an inception date of March 1, 1994. The Institutional class of shares are successors to the assets of the Institutional class of shares of the Stagecoach Trust LifePath 2000 Fund (the “predecessor fund”), which began operations on March 1, 1994. Performance information for the period before March 26, 1996, the date the LifePath Portfolio began operations, reflects the performance of the predecessor fund.

²  Total return is calculated from an inception date of April 11, 2003, which represents the date investors began investing in the Investor A class of shares of the LifePath Portfolio. To establish the new share class, the LifePath Portfolio’s distributor privately seeded Investor A shares on April 30, 2001. The class had no activity from April 30, 2001 until investment began on the Investor A share class inception date. The since inception return calculated from April 30, 2001 for the LifePath Portfolio was 4.25.

³  Total return is calculated from an inception date of May 3, 2010.

⁴  Total return is calculated from an inception date of May 30, 2008.

Past performance is not indicative of future results.

6 BLACKROCK FUNDS III DECEMBER 31, 2011

LifePath 2020 Portfolio^®

Investment Objective

LifePath 2020 Portfolio’s^® investment objective is managed for investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2020.

Total Return Based on a $10,000 Investment

¹  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2020 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

²  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

Period	MSCI ACWI ex-US IMI Index			Barclays Capital US Aggregate Bond Index			Barclays Capital US Treasury Inflation Protected Securities (TIPS) Index			Cohen & Steers Realty Majors Index			FTSE EPRA /NAREIT Developed Real Estate Index			MSCI EAFE Index			Russell 1000 Index			Russell 2000 Index			S&P MidCap 400 Index			S&P 500 Index			S&P SmallCap 600 Index
12/31/99 to 12/31/00		N/A			35.0	%		N/A			N/A			N/A			18.4	%		N/A			N/A			3.0	%		40.6	%		3.0	%
1/01/01 to 12/31/01		N/A			36.6			N/A			N/A			N/A			17.0			N/A			N/A			3.1			40.3			3.0
1/01/02 to 12/31/02		N/A			33.0			N/A			N/A			N/A			17.0			N/A			N/A			3.7			43.0			3.3
1/01/03 to 12/31/03		N/A			36.5			N/A			N/A			N/A			15.4			N/A			N/A			3.7			41.1			3.3
1/01/04 to 12/31/04		N/A			34.2			N/A			N/A			N/A			16.2			N/A			N/A			3.0			43.8			2.8
1/01/05 to 12/31/05		N/A			35.4			N/A			N/A			N/A			15.9			N/A			N/A			4.3			41.4			3.0
1/01/06 to 12/31/06		N/A			28.5			5.2	%		4.3	%		N/A			16.8			N/A			N/A			5.1			37.5			2.6
1/01/07 to 12/31/07		17.2	%		29.7			5.0			4.5			N/A			N/A			N/A			N/A			5.4			35.4			2.8
1/01/08 to 12/31/08		18.4			31.6			5.1			2.2			2.2	%		N/A			N/A			N/A			5.8			32.0			2.7
1/01/09 to 12/31/09		16.9			33.8			5.5			N/A			4.8			N/A			N/A			N/A			5.8			30.4			2.8
1/01/10 to 12/31/10		16.5			35.2			5.7			N/A			4.0			N/A			N/A			N/A			5.8			30.2			2.6
1/01/11 to 12/31/11		16.6			36.9			6.0			N/A			3.6			N/A			13.1	%		1.5	%		3.3			17.6			1.4

See “About Portfolio Performance” on page 23 for descriptions of the indexes.

BLACKROCK FUNDS III DECEMBER 31, 2011 7

LifePath 2020 Portfolio^® (concluded)

Performance Summary for the Period Ended December 31, 2011

				Average Annual Total Returns
				1 Year						5 Years						10 Years						Since Inception
	6-Month Total Returns			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge
Institutional		(3.15	)%		1.46	%		N/A			1.25	%		N/A			3.97	%		N/A			6.65	%1		N/A
Investor A		(3.23	)		1.26			(4.06	)%		1.01			(0.08	)%		3.70			3.14	%		3.64	2		3.08	%2
Investor C		(3.61	)		0.47			(0.48	)		N/A			N/A			N/A			N/A			3.28	3		3.28	3
Class K		(3.03	)		1.78			N/A			N/A			N/A			N/A			N/A			1.15	4		N/A
Class R		(3.32	)		1.06			N/A			N/A			N/A			N/A			N/A			3.83	3		N/A
Citigroup 3-Month Treasury Bill Index		0.02			0.08			N/A			1.36			N/A			1.85			N/A			N/A			N/A
Barclays Capital US Aggregate Bond Index		4.98			7.84			N/A			6.50			N/A			5.78			N/A			N/A			N/A
LifePath 2020 Custom Benchmark		(2.87	)		1.64			N/A			2.24			N/A			4.92			N/A			N/A			N/A
S&P 1500 Index		(4.28	)		1.75			N/A			0.11			N/A			3.40			N/A			N/A			N/A
ACWI ex-US IMI Index		(17.22	)		(14.31	)		N/A			(2.74	)		N/A			6.95			N/A			N/A			N/A
Russell 1000 Index		(4.58	)		1.50			N/A			(0.02	)		N/A			3.34			N/A			N/A			N/A
Russell 2000 Index		(9.77	)		(4.18	)		N/A			0.15			N/A			5.62			N/A			N/A			N/A

¹ Total return is calculated from an inception date of March 1, 1994. The Institutional class of shares are successors to the assets of the Institutional class of shares of the Stagecoach Trust LifePath 2020 Fund (the “predecessor fund”), which began operations on March 1, 1994. Performance information for the period before March 26, 1996, the date the LifePath Portfolio began operations, reflects the performance of the predecessor fund.

²  Total return is calculated from an inception date of March 7, 2002, which represents the date investors began investing in the Investor A class of shares of the LifePath Portfolio. To establish the new share class, the LifePath Portfolio’s distributor privately seeded Investor A shares on April 30, 2001. The class had no activity from April 30, 2001 until investment began on the Investor A share class inception date. The since inception return calculated from April 30, 2001 for the LifePath Portfolio was 2.96.

³ Total return is calculated from an inception date of May 3, 2010.

⁴ Total return is calculated from an inception date of May 30, 2008.

Past performance is not indicative of future results.

8 BLACKROCK FUNDS III DECEMBER 31, 2011

LifePath^® 2025 Portfolio

Investment Objective

LifePath^® 2025 Portfolio’s investment objective is managed for investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2025.

Total Return Based on a $10,000 Investment

¹  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2025 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

²  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

³  Commencement of operations.

Period	MSCI ACWI ex-US IMI Index			Barclays Capital US Aggregate Bond Index			Barclays Capital US Treasury Inflation Protected Securities (TIPS) Index			FTSE EPRA/NAREIT Developed Real Estate Index			Russell 1000 Index			Russell 2000 Index			S&P MidCap 400 Index			S&P 500 Index			S&P SmallCap 600 Index
6/30/10 to 12/31/10		18.8	%		28.5	%		4.4	%		4.9	%		N/A			N/A			5.9	%		34.9	%		2.6	%
1/01/11 to 12/31/11		18.9			29.8			4.6			4.8			15.2	%		1.4	%		3.5			20.3			1.5

See “About Portfolio Performance” on page 23 for descriptions of the indexes.

BLACKROCK FUNDS III DECEMBER 31, 2011 9

LifePath^® 2025 Portfolio (concluded)

Performance Summary for the Period Ended December 31, 2011

				Average Annual Total Return
	6  Month w/o sales charge			1 Year						Since Inception1
				w/o sales charge			w/sales charge			w/o sales charge			w/sales charge
Institutional		(4.61	)%		0.49	%		N/A			11.60	%		N/A
Investor A		(4.79	)		0.18			(5.08	)%		11.27			7.36	%
Investor C		(5.04	)		(0.54	)		(1.53	)		10.48			10.48
Class K		(4.37	)		0.87			N/A			12.00			N/A
Class R		(4.79	)		0.02			N/A			11.07			N/A
Citigroup 3-Month Treasury Bill Index		0.02			0.08			N/A			N/A			N/A
Barclays Capital US Aggregate Bond Index		4.98			7.84			N/A			N/A			N/A
LifePath 2025 Custom Benchmark		(4.12	)		0.51			N/A			N/A			N/A
S&P 1500 Index		(4.28	)		1.75			N/A			N/A			N/A
ACWI ex-US IMI Index		(17.22	)		(14.31	)		N/A			N/A			N/A
Russell 1000 Index		(4.58	)		1.50			N/A			N/A			N/A
Russell 2000 Index		(9.77	)		(4.18	)		N/A			N/A			N/A

¹  Total return is calculated from an inception date of June 30, 2010.

Past performance is not indicative of future results.

10 BLACKROCK FUNDS III DECEMBER 31, 2011

LifePath 2030 Portfolio^®

Investment Objective

LifePath 2030 Portfolio’s^® investment objective is managed for investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2030.

Total Return Based on a $10,000 Investment

¹  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2030 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

²  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

Period	MSCI ACWI ex-US IMI Index			Barclays Capital US Aggregate Bond Index			Barclays Capital US Treasury Inflation Protected Securities (TIPS) Index			Cohen & Steers Realty Majors Index			FTSE EPRA/ NAREIT Developed Real Estate Index			MSCI EAFE Index			Russell 1000 Index			Russell 2000 Index			S&P MidCap 400 Index			S&P 500 Index			S&P SmallCap 600 Index
12/31/99 to 12/31/00		N/A			19.6	%		N/A			N/A			N/A			23.6	%		N/A			N/A			3.6	%		49.5	%		3.7	%
1/01/01 to 12/31/01		N/A			21.2			N/A			N/A			N/A			21.2			N/A			N/A			3.9			50.0			3.7
1/01/02 to 12/31/02		N/A			21.6			N/A			N/A			N/A			19.8			N/A			N/A			4.3			50.4			3.9
1/01/03 to 12/31/03		N/A			24.9			N/A			N/A			N/A			18.6			N/A			N/A			4.4			48.3			3.8
1/01/04 to 12/31/04		N/A			21.0			N/A			N/A			N/A			19.4			N/A			N/A			3.2			53.3			3.1
1/01/05 to 12/31/05		N/A			21.8			N/A			N/A			N/A			19.2			N/A			N/A			4.8			50.9			3.3
1/01/06 to 12/31/06		N/A			16.7			2.7	%		5.1	%		N/A			20.3			N/A			N/A			6.0			46.2			3.0
1/01/07 to 12/31/07		20.9	%		17.4			2.6			5.4			N/A			N/A			N/A			N/A			6.4			44.1			3.2
1/01/08 to 12/31/08		22.4			19.0			2.8			5.5			N/A			N/A			N/A			N/A			6.9			40.2			3.2
1/01/09 to 12/31/09		21.0			21.0			3.1			N/A			7.0	%		N/A			N/A			N/A			6.6			38.2			3.1
1/01/10 to 12/31/10		20.7			22.0			3.2			N/A			6.3			N/A			N/A			N/A			6.4			38.6			2.8
1/01/11 to 12/31/11		20.9			23.5			3.4			N/A			6.0			N/A			17.0	%		1.3	%		3.7			22.6			1.6

See “About Portfolio Performance” on page 23 for descriptions of the indexes.

BLACKROCK FUNDS III DECEMBER 31, 2011 11

LifePath 2030 Portfolio^® (concluded)

Performance Summary for the Period Ended December 31, 2011

				Average Annual Total Returns
				1 Year						5 Years						10 Years						Since Inception
	6-Month Total Returns			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge
Institutional		(5.67	)%		(0.63	)%		N/A			(0.21	)%		N/A			3.55	%		N/A			6.76	%1		N/A
Investor A		(5.77	)		(0.87	)		(6.08	)%		(0.45	)		(1.52	)%		3.28			2.72	%		5.90	2		5.25	%2
Investor C		(6.09	)		(1.63	)		(2.59	)		N/A			N/A			N/A			N/A			2.34	3		2.34	3
Class K		(5.41	)		(0.20	)		N/A			N/A			N/A			N/A			N/A			(0.53	)4		N/A
Class R		(5.85	)		(1.12	)		N/A			N/A			N/A			N/A			N/A			2.84	3		N/A
Citigroup 3-Month Treasury Bill Index		0.02			0.08			N/A			1.36			N/A			1.85			N/A			N/A			N/A
Barclays Capital US Aggregate Bond Index		4.98			7.84			N/A			6.50			N/A			5.78			N/A			N/A			N/A
LifePath 2030 Custom Benchmark		(5.22	)		(0.49	)		N/A			0.98			N/A			4.56			N/A			N/A			N/A
S&P 1500 Index		(4.28	)		1.75			N/A			0.11			N/A			3.40			N/A			N/A			N/A
ACWI ex-US IMI Index		(17.22	)		(14.31	)		N/A			(2.74	)		N/A			6.95			N/A			N/A			N/A
Russell 1000 Index		(4.58	)		1.50			N/A			(0.02	)		N/A			3.34			N/A			N/A			N/A
Russell 2000 Index		(9.77	)		(4.18	)		N/A			0.15			N/A			5.62			N/A			N/A			N/A

¹  Total return is calculated from an inception date of March 1, 1994. The Institutional class of shares are successors to the assets of the Institutional class of shares of the Stagecoach Trust LifePath 2030 Fund (the “predecessor fund”), which began operations on March 1, 1994. Performance information for the period before March 26, 1996, the date the LifePath Portfolio began operations, reflects the performance of the predecessor fund.

²  Total return is calculated from an inception date of April 8, 2003, which represents the date investors began investing in the Investor A class of shares of the LifePath Portfolio. To establish the new share class, the LifePath Portfolio’s distributor privately seeded Investor A shares on April 30, 2001. The class had no activity from April 30, 2001 until investment began on the Investor A share class inception date. The since inception return calculated from April 30, 2001 for the LifePath Portfolio was 2.37.

³  Total return is calculated from an inception date of May 3, 2010.

⁴  Total return is calculated from an inception date of May 30, 2008.

Past performance is not indicative of future results.

12 BLACKROCK FUNDS III DECEMBER 31, 2011

LifePath^® 2035 Portfolio

Investment Objective

LifePath^® 2035 Portfolio’s investment objective is managed for investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2035.

Total Return Based on a $10,000 Investment

¹  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2035 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

²  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

³  Commencement of operations.

Period	MSCI ACWI ex-US IMI Index			Barclays Capital US Aggregate Bond Index			Barclays Capital US Treasury Inflation Protected Securities (TIPS) Index			FTSE EPRA/NAREIT Developed Real Estate Index			Russell 1000 Index			Russell 2000 Index			S&P MidCap 400 Index			S&P 500 Index			S&P SmallCap 600 Index
6/30/10 to 12/31/10		22.7	%		16.6	%		2.2	%		6.8	%		N/A			N/A			6.4	%		42.5	%		2.8	%
1/01/11 to 12/31/11		22.8			17.8			2.3			7.0			18.6	%		1.2	%		3.9			24.7			1.7

See “About Portfolio Performance” on page 23 for descriptions of the indexes.

BLACKROCK FUNDS III DECEMBER 31, 2011 13

LifePath^® 2035 Portfolio (concluded)

Performance Summary for the Period Ended December 31, 2011

				Average Annual Total Returns
	6 Month w/o sales charge			1 Year						Since Inception1
				w/o sales charge			w/sales charge			w/o sales charge			w/sales charge
Institutional		(6.55	)%		(1.32	)%		N/A			12.47	%		N/A
Investor A		(6.75	)		(1.55	)		(6.72	)%		12.16			8.21	%
Investor C		(7.08	)		(2.28	)		(3.25	)		11.33			11.33
Class K		(6.39	)		(0.94	)		N/A			12.88			N/A
Class R		(6.81	)		(1.85	)		N/A			11.89			N/A
Citigroup 3-Month Treasury Bill Index		0.02			0.08			N/A			N/A			N/A
Barclays Capital US Aggregate Bond Index		4.98			7.84			N/A			N/A			N/A
LifePath 2035 Custom Benchmark		(6.21	)		(1.40	)		N/A			N/A			N/A
S&P 1500 Index		(4.28	)		1.75			N/A			N/A			N/A
ACWI ex-US IMI Index		(17.22	)		(14.31	)		N/A			N/A			N/A
Russell 1000 Index		(4.58	)		1.50			N/A			N/A			N/A
Russell 2000 Index		(9.77	)		(4.18	)		N/A			N/A			N/A

¹  Total return is calculated from an inception date of June 30, 2010.

Past performance is not indicative of future results.

14 BLACKROCK FUNDS III DECEMBER 31, 2011

LifePath 2040 Portfolio^®

Investment Objective

LifePath 2040 Portfolio’s^® investment objective is managed for investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2040.

Total Return Based on a $10,000 Investment

¹  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2040 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

²  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

Period	MSCI ACWI ex-US IMI Index			Barclays Capital US Aggregate Bond Index			Barclays Capital US Treasury Inflation Protected Securities (TIPS) Index		Cohen & Steers Realty Majors Index			FTSE EPRA/ NAREIT Developed Real Estate Index			MSCI EAFE Index			Russell 1000 Index			Russell 2000 Index			S&P MidCap 400 Index			S&P 500 Index			S&P SmallCap 600 Index
12/31/99 to 12/31/00		N/A			4.3	%		N/A		N/A			N/A			26.6	%		N/A			N/A			4.4	%		60.2	%		4.5	%
1/01/01 to 12/31/01		N/A			6.6			N/A		N/A			N/A			23.2			N/A			N/A			4.7			60.9			4.6
1/01/02 to 12/31/02		N/A			10.7			N/A		N/A			N/A			20.0			N/A			N/A			5.1			59.6			4.6
1/01/03 to 12/31/03		N/A			13.9			N/A		N/A			N/A			20.0			N/A			N/A			5.1			56.4			4.6
1/01/04 to 12/31/04		N/A			10.0			N/A		N/A			N/A			20.0			N/A			N/A			3.7			62.8			3.5
1/01/05 to 12/31/05		N/A			10.6			N/A		N/A			N/A			20.0			N/A			N/A			5.5			60.1			3.8
1/01/06 to 12/31/06		N/A			7.4			N/A		5.8	%		N/A			23.2			N/A			N/A			6.8			53.4			3.4
1/01/07 to 12/31/07		N/A			7.7			N/A		5.9			N/A			23.5			N/A			N/A			7.2			51.9			3.7
1/01/08 to 12/31/08		25.8	%		9.1			0.5		3.2			3.2	%		N/A			N/A			N/A			7.7			46.9			3.6
1/01/09 to 12/31/09		24.5			10.4			1.1		N/A			8.8			N/A			N/A			N/A			7.2			44.6			3.4
1/01/10 to 12/31/10		24.2			11.2			1.1		N/A			8.1			N/A			N/A			N/A			6.9			45.5			3.0
1/01/11 to 12/31/11		24.5			12.7			1.3		N/A			7.9			N/A			20.1	%		1.2	%		4.0			26.6			1.7

See “About Portfolio Performance” on page 23 for descriptions of the indexes.

BLACKROCK FUNDS III DECEMBER 31, 2011 15

LifePath 2040 Portfolio^® (concluded)

Performance Summary for the Period Ended December 31, 2011

				Average Annual Total Returns
				1 Year						5 Years						10 Years						Since Inception
	6-Month Total Returns			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge
Institutional		(7.65	)%		(2.38	)%		N/A			(1.47	)%		N/A			3.12	%		N/A			6.77	%1		N/A
Investor A		(7.75	)		(2.65	)		(7.76	)%		(1.71	)		(2.76	)%		2.93			2.37	%		5.82	2		5.17	%2
Investor C		(8.14	)		(3.39	)		(4.34	)		N/A			N/A			N/A			N/A			1.52	3		1.52	3
Class K		(7.39	)		(1.95	)		N/A			N/A			N/A			N/A			N/A			(1.99	)4		N/A
Class R		(7.89	)		(2.88	)		N/A			N/A			N/A			N/A			N/A			2.03	3		N/A
Citigroup 3-Month Treasury Bill Index		0.02			0.08			N/A			1.36			N/A			1.85			N/A			N/A			N/A
Barclays Capital US Aggregate Bond Index		4.98			7.84			N/A			6.50			N/A			5.78			N/A			N/A			N/A
LifePath 2040 Custom Benchmark		(7.13	)		(2.25	)		N/A			(0.14	)		N/A			4.13			N/A			N/A			N/A
S&P 1500 Index		(4.28	)		1.75			N/A			0.11			N/A			3.40			N/A			N/A			N/A
ACWI ex-US IMI Index		(17.22	)		(14.31	)		N/A			(2.74	)		N/A			6.95			N/A			N/A			N/A
Russell 1000 Index		(4.58	)		1.50			N/A			(0.02	)		N/A			3.34			N/A			N/A			N/A
Russell 2000 Index		(9.77	)		(4.18	)		N/A			0.15			N/A			5.62			N/A			N/A			N/A

¹  Total return is calculated from an inception date of March 1, 1994. The Institutional class of shares are successors to the assets of the Institutional class of shares of the Stagecoach Trust LifePath 2040 Fund (the “predecessor fund”), which began operations on March 1, 1994. Performance information for the period before March 26, 1996, the date the LifePath Portfolio began operations, reflects the performance of the predecessor fund.

²  Total return is calculated from an inception date of April 8, 2003, which represents the date investors began investing in the Investor A class of shares of the LifePath Portfolio. To establish the new share class, the LifePath Portfolio’s distributor privately seeded Investor A shares on April 30, 2001. The class had no activity from April 30, 2001 until investment began on the Investor A share class inception date. The since inception return calculated from April 30, 2001 for the LifePath Portfolio was 1.88%.

³ Total return is calculated from an inception date of May 3, 2010.

⁴ Total return is calculated from an inception date of May 30, 2008.

Past performance is not indicative of future results.

16 BLACKROCK FUNDS III DECEMBER 31, 2011

LifePath^® 2045 Portfolio

Investment Objective

LifePath^® 2045 Portfolio’s investment objective is managed for investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2045.

Total Return Based on a $10,000 Investment

¹  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2045 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

²  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

³  Commencement of operations.

Period	MSCI ACWI ex-US IMI Index			Barclays Capital US Aggregate Bond Index			FTSE EPRA/ NAREIT Developed Real Estate Index			Russell 1000 Index			Russell 2000 Index			S&P MidCap 400 Index			S&P 500 Index			S&P SmallCap 600 Index
6/30/10 to 12/31/10		25.9	%		6.8	%		8.5	%		N/A			N/A			6.8	%		49.0	%		3.0	%
1/01/11 to 12/31/11		26.1			8.2			8.7			21.5	%		1.1	%		4.2			28.4			1.8

See “About Portfolio Performance” on page 23 for descriptions of the indexes.

BLACKROCK FUNDS III DECEMBER 31, 2011 17

LifePath^® 2045 Portfolio (concluded)

Performance Summary for the Period Ended December 31, 2011

				Average Annual Total Returns
	6 Month w/o sales charge			1 Year						Since Inception1
				w/o sales charge			w/sales charge			w/o sales charge			w/sales charge
Institutional		(8.49	)%		(2.46	)%		N/A			13.46	%		N/A
Investor A		(8.53	)		(2.61	)		(7.73	)%		13.25			9.27	%
Investor C		(8.89	)		(3.37	)		(4.33	)		12.34			12.34
Class K		(8.26	)		(2.08	)		N/A			13.88			N/A
Class R		(8.68	)		(2.93	)		N/A			12.89			N/A
Citigroup 3-Month Treasury Bill Index		0.02			0.08			N/A			N/A			N/A
Barclays Capital US Aggregate Bond Index		4.98			7.84			N/A			N/A			N/A
LifePath 2045 Custom Benchmark		(8.00	)		(3.05	)		N/A			N/A			N/A
S&P 1500 Index		(4.28	)		1.75			N/A			N/A			N/A
ACWI ex-US IMI Index		(17.22	)		(14.31	)		N/A			N/A			N/A
Russell 1000 Index		(4.58	)		1.50			N/A			N/A			N/A
Russell 2000 Index		(9.77	)		(4.18	)		N/A			N/A			N/A

¹  Total return is calculated from an inception date of June 30, 2010.

Past performance is not indicative of future results.

18 BLACKROCK FUNDS III DECEMBER 31, 2011

LifePath^® 2050 Portfolio

Investment Objective

LifePath^® 2050 Portfolio’s investment objective is managed for investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2050.

Total Return Based on a $10,000 Investment

¹  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2050 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

²  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

³  Commencement of operations.

Period	MSCI ACWI ex–US IMI Index			Barclays Capital US Aggregate Bond Index			FTSE EPRA/ NAREIT Developed Real Estate Index			S&P MidCap 400 Index			Russell 1000 Index			Russell 2000 Index			S&P 500 Index			S&P SmallCap 600 Index
6/30/08 to 12/31/08		30.4	%		1.0	%		3.6	%		10.5	%		N/A			N/A			49.7	%		4.8	%
1/01/09 to 12/31/09		28.3			1.0			9.1			9.5			N/A			N/A			47.5			4.6
1/01/10 to 12/31/10		27.4			1.1			9.8			7.6			N/A			N/A			50.7			3.4
1/01/11 to 12/31/11		27.6			2.7			9.7			4.4			22.8	%		1.1	%		29.9			1.8

See “About Portfolio Performance” on page 23 for descriptions of the indexes.

BLACKROCK FUNDS III DECEMBER 31, 2011 19

LifePath^® 2050 Portfolio (concluded)

Performance Summary for the Period Ended December 31, 2011.

				Average Annual Total Returns
				1 Year						Since Inception
	6-Month Total Returns			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge
Institutional		(9.34	)%		(3.78	)%		N/A			(1.01	)%1		N/A
Investor A		(9.46	)		(4.06	)		(9.10	)%		(1.27	)1		(2.77	)%1
Investor C		(9.76	)		(4.76	)		(5.68	)		0.88	2		0.88	2
Class K		(9.19	)		(3.48	)		N/A			(0.69	)1		N/A
Class R		(9.58	)		(4.29	)		N/A			1.36	2		N/A
Citigroup 3-Month Treasury Bill Index		0.02			0.08			N/A			N/A			N/A
Barclays Capital US Aggregate Bond Index		4.98			7.84			N/A			N/A			N/A
LifePath 2050 Custom Benchmark		(8.81	)		(3.77	)		N/A			N/A			N/A
S&P 1500 Index		(4.28	)		1.75			N/A			N/A			N/A
ACWI ex-US IMI Index		(17.22	)		(14.31	)		N/A			N/A			N/A
Russell 1000 Index		(4.58	)		1.50			N/A			N/A			N/A
Russell 2000 Index		(9.77	)		(4.18	)		N/A			N/A			N/A

¹  Total return is calculated from an inception date of June 30, 2008.

²  Total return is calculated from an inception date of May 3, 2010.

Past performance is not indicative of future results.

20 BLACKROCK FUNDS III DECEMBER 31, 2011

LifePath^® 2055 Portfolio

Investment Objective

LifePath^® 2055 Portfolio’s investment objective is managed for investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2055.

Total Return Based on a $10,000 Investment

¹  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2055 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

²  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

³  Commencement of operations.

Period	MSCI ACWI ex-US IMI Index			Barclays Capital US Aggregate Bond Index			FTSE EPRA/ NAREIT Developed Real Estate Index			Russell 1000 Index			Russell 2000 Index			S&P MidCap 400 Index			S&P 500 Index			S&P SmallCap 600 Index
6/30/10 to 12/31/10		28.2	%		1.0	%		9.0	%		N/A			N/A			8.1	%		50.1	%		3.6	%
1/01/11 to 12/31/11		28.8			1.0			9.7			22.0	%		2.0	%		4.9			29.5			2.1

See “About Portfolio Performance” on page 23 for descriptions of the indexes.

BLACKROCK FUNDS III DECEMBER 31, 2011 21

LifePath^® 2055 Portfolio (concluded)

Performance Summary for the Period Ended December 31, 2011

	Average Annual Total Returns
	6 Month			1 Year						Since Inception1
	w/o sales charge			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge
Institutional		(9.72	)%		(4.02	)%		N/A			13.19	%		N/A
Investor A		(9.80	)		(4.35	)		(9.37	)%		12.89			8.92	%
Investor C		(10.21	)		(5.01	)		(5.94	)		12.06			12.06
Class K		(9.51	)		(3.71	)		N/A			13.59			N/A
Class R		(9.94	)		(4.54	)		N/A			12.64			N/A
Citigroup 3-Month Treasury Bill Index		0.02			0.08			N/A			N/A			N/A
Barclays Capital US Aggregate Bond Index		4.98			7.84			N/A			N/A			N/A
LifePath 2055 Custom Benchmark		(9.35	)		(4.33	)		N/A			N/A			N/A
S&P 1500 Index		(4.28	)		1.75			N/A			N/A			N/A
ACWI ex-US IMI Index		(17.22	)		(14.31	)		N/A			N/A			N/A
Russell 1000 Index		(4.58	)		1.50			N/A			N/A			N/A
Russell 2000 Index		(9.77	)		(4.18	)		N/A			N/A			N/A

¹  Total return is calculated from an inception date of June 30, 2010.

Past performance is not indicative of future results.

22 BLACKROCK FUNDS III DECEMBER 31, 2011

About Portfolio Performance BlackRock Funds III

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

· Investor A Shares incur a maximum initial sales charge (front-end load) of 5.25%. Investor A Shares are subject to a service fee of 0.25% per year (but no distribution fee).

· Investor C Shares are subject to a 1.00% contingent deferred sales charge (“CDSC”) if redeemed within one year of purchase. In addition, Investor C Shares are subject to a distribution fee of 0.75% per year and a service fee of 0.25% per year.

· Class R Shares are not subject to any sales charge (front-end load) or deferred sales charge. Class R Shares are subject to a distribution fee of 0.25% per year and a service fee of 0.25% per year. Class R Shares are available only to certain retirement and other similar plans.

· Class K Shares are not subject to any sales charge. Class K Shares bear no ongoing distribution or service fees and are available only to eligible investors.

Performance information reflects past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Refer to www.blackrock.com/funds to obtain performance data current to the most recent month-end. Performance results do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. Figures shown in each of the performance tables on the previous pages assume reinvestment of all dividends and distributions, if any, at net asset value on the payable date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost.

The LifePath Portfolios’ administrator waived a portion of each LifePath Portfolio’s expenses. Without such waiver, each LifePath Portfolio’s performance would have been lower. Dividends paid to each class of shares will vary because of the different levels of administration and distribution fees applicable to each class, which are deducted from the income available to be paid to shareholders.

The S&P 1500 Index is a market weighted index comprised of the S&P 500, S&P MidCap 400 and S&P SmallCap 600 Indexes, which together represent approximately 90% of the total US equity market. The Barclays Capital US Aggregate Bond Index is an unmanaged market weighted index comprised of investment grade corporate bonds (rated BBB or better), mortgages and US Treasury and government agencies with at least one year to maturity. The MSCI ACWI ex-US IMI Index is a free float-adjusted market capitalization-weighted index that measures the equity market performance of the developed (excluding the US) and emerging investable market universe. The Citigroup 3-Month Treasury Bill Index is a market value weighted index of public obligations of the US Treasury with maturities of three months.

The LifePath Portfolios’ custom benchmarks are hypothetical representations of the performance of the respective LifePath Portfolio’s asset classes according to their weightings as of the most recent quarter-end. The weightings of the various indexes that are included in the LifePath Portfolios’ custom benchmarks are adjusted quarterly to reflect the LifePath Portfolios’ changing asset allocations over time. As of December 31, 2011, the following indexes are used to calculate the LifePath Portfolios’ custom benchmarks: S&P 500 Index, S&P 400 Index, S&P 600 Index, Barclays Capital US Aggregate Bond Index, Barclays Capital US Treasury TIPS Index, MSCI ACWI ex-US IMI Index, FTSE EPRA/NAREIT Developed Real Estate Index, Russell 1000 Index and Russell 2000 Index.

Derivative Financial Instruments

The Active Stock Master Portfolio and CoreAlpha Bond Master Portfolio may invest in various derivative financial instruments, including financial futures contracts and swaps as specified in Note 2 of the Master Portfolio Notes to Financial Statements, which may constitute forms of economic leverage. Such derivative instruments are used to obtain exposure to a market without owning or taking physical custody of securities or to hedge market, equity, credit, interest rate and/or foreign currency exchange rate risks. Derivative financial instruments 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 derivative financial instrument. The Master Portfolio’s

ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may require the Master Portfolio to sell or purchase portfolio investments at inopportune times or for distressed values, may limit the amount of appreciation the Master Portfolios can realize on an investment or may cause the Master Portfolios to hold an investment that it might otherwise sell. The Master Portfolios’ investments in these instruments are discussed in detail in the Master Portfolio Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 23

Disclosure of Expenses BlackRock Funds III

Shareholders of each LifePath Portfolio may incur the following charges: operating expenses, including administration fees, distribution fees, including 12b-1 fees, and other portfolio expenses. The expense examples shown below (which are based on a hypothetical investment of $1,000 invested on July 1, 2011 and held through December 31, 2011) are intended to assist shareholders both in calculating expenses based on an investment in a LifePath Portfolio and in comparing these expenses with similar costs of investing in other mutual funds.

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

The tables also provide information about hypothetical account values and hypothetical expenses based on each LifePath Porfolio’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 a LifePath Portfolio and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in other funds’ shareholder reports.

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

Expense Examples
	Actual						Hypothetical2
	Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the Period1		Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the Period1		Annualized Expense Ratio
LifePath® Retirement Portfolio
Institutional	$	1,000.00	$	998.60	$	3.93	$	1,000.00	$	1,021.27	$	3.97		0.78%
Investor A	$	1,000.00	$	996.60	$	5.18	$	1,000.00	$	1,020.01	$	5.24		1.03%
Investor C	$	1,000.00	$	993.70	$	8.89	$	1,000.00	$	1,016.28	$	9.00		1.77%
Class K	$	1,000.00	$	1,000.60	$	2.22	$	1,000.00	$	1,022.99	$	2.24		0.44%
Class R	$	1,000.00	$	995.40	$	6.54	$	1,000.00	$	1,018.65	$	6.61		1.30%
LifePath 2020 Portfolio®
Institutional	$	1,000.00	$	968.50	$	3.77	$	1,000.00	$	1,021.37	$	3.87		0.76%
Investor A	$	1,000.00	$	967.70	$	5.01	$	1,000.00	$	1,020.11	$	5.14		1.01%
Investor C	$	1,000.00	$	963.90	$	8.76	$	1,000.00	$	1,016.28	$	9.00		1.77%
Class K	$	1,000.00	$	969.70	$	2.04	$	1,000.00	$	1,023.14	$	2.09		0.41%
Class R	$	1,000.00	$	966.80	$	6.30	$	1,000.00	$	1,018.80	$	6.46		1.27%
LifePath® 2025 Portfolio
Institutional	$	1,000.00	$	953.90	$	3.64	$	1,000.00	$	1,021.48	$	3.77		0.74%
Investor A	$	1,000.00	$	952.10	$	4.92	$	1,000.00	$	1,020.16	$	5.09		1.00%
Investor C	$	1,000.00	$	949.60	$	8.65	$	1,000.00	$	1,016.33	$	8.94		1.76%
Class K	$	1,000.00	$	956.30	$	1.97	$	1,000.00	$	1,023.19	$	2.04		0.40%
Class R	$	1,000.00	$	952.10	$	6.10	$	1,000.00	$	1,018.96	$	6.31		1.24%
LifePath 2030 Portfolio®
Institutional	$	1,000.00	$	943.30	$	3.58	$	1,000.00	$	1,021.53	$	3.72		0.73%
Investor A	$	1,000.00	$	942.30	$	4.85	$	1,000.00	$	1,020.22	$	5.04		0.99%
Investor C	$	1,000.00	$	939.10	$	8.50	$	1,000.00	$	1,016.43	$	8.84		1.74%
Class K	$	1,000.00	$	945.90	$	1.91	$	1,000.00	$	1,023.24	$	1.99		0.39%
Class R	$	1,000.00	$	941.50	$	6.07	$	1,000.00	$	1,018.96	$	6.31		1.24%
LifePath® 2035 Portfolio
Institutional	$	1,000.00	$	934.50	$	3.56	$	1,000.00	$	1,021.53	$	3.72		0.73%
Investor A	$	1,000.00	$	932.50	$	4.77	$	1,000.00	$	1,020.27	$	4.99		0.98%
Investor C	$	1,000.00	$	929.20	$	8.41	$	1,000.00	$	1,016.48	$	8.79		1.73%
Class K	$	1,000.00	$	936.10	$	1.85	$	1,000.00	$	1,023.29	$	1.94		0.38%
Class R	$	1,000.00	$	931.90	$	5.99	$	1,000.00	$	1,019.01	$	6.26		1.23%
LifePath 2040 Portfolio®
Institutional	$	1,000.00	$	923.50	$	3.49	$	1,000.00	$	1,021.58	$	3.67		0.72%
Investor A	$	1,000.00	$	922.50	$	4.70	$	1,000.00	$	1,020.32	$	4.94		0.97%
Investor C	$	1,000.00	$	918.60	$	8.37	$	1,000.00	$	1,016.48	$	8.79		1.73%
Class K	$	1,000.00	$	926.10	$	1.80	$	1,000.00	$	1,023.34	$	1.89		0.37%
Class R	$	1,000.00	$	921.10	$	5.91	$	1,000.00	$	1,019.06	$	6.21		1.22%

¹  For each class of the LifePath Portfolio, 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 one-half year period shown). Because each LifePath Portfolio invests significantly in a Master Portfolio, the expense table example reflects the net expenses of both the LifePath Portfolio and the Master Portfolio in which it invests.

²  Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the most recent fiscal half year divided by 365.

24 BLACKROCK FUNDS III DECEMBER 31, 2011

Disclosure of Expenses (concluded) BlackRock Funds III

Expense Examples (concluded)
	Actual						Hypothetical2
	Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the Period1		Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the Period1		Annualized Expense Ratio
LifePath® 2045 Portfolio
Institutional		$1,000.00		$915.10		$3.43		$1,000.00		$1,021.63		$3.62		0.71%
Investor A		$1,000.00		$914.70		$4.68		$1,000.00		$1,020.32		$4.94		0.97%
Investor C		$1,000.00		$911.10		$8.29		$1,000.00		$1,016.54		$8.74		1.72%
Class K		$1,000.00		$917.40		$1.79		$1,000.00		$1,023.34		$1.89		0.37%
Class R		$1,000.00		$913.20		$5.88		$1,000.00		$1,019.06		$6.21		1.22%
LifePath® 2050 Portfolio
Institutional		$1,000.00		$906.60		$3.36		$1,000.00		$1,021.68		$3.57		0.70%
Investor A		$1,000.00		$905.40		$4.56		$1,000.00		$1,020.42		$4.84		0.95%
Investor C		$1,000.00		$902.40		$8.20		$1,000.00		$1,016.59		$8.69		1.71%
Class K		$1,000.00		$908.10		$1.68		$1,000.00		$1,023.44		$1.79		0.35%
Class R		$1,000.00		$904.20		$5.76		$1,000.00		$1,019.16		$6.11		1.20%
LifePath® 2055 Portfolio
Institutional		$1,000.00		$902.80		$3.36		$1,000.00		$1,021.68		$3.57		0.70%
Investor A		$1,000.00		$902.00		$4.60		$1,000.00		$1,020.37		$4.89		0.96%
Investor C		$1,000.00		$897.90		$8.18		$1,000.00		$1,016.59		$8.69		1.71%
Class K		$1,000.00		$904.90		$1.68		$1,000.00		$1,023.44		$1.79		0.35%
Class R		$1,000.00		$900.60		$5.80		$1,000.00		$1,019.11		$6.16		1.21%

¹  For each class of the LifePath Portfolio, 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 one-half year period shown). Because each LifePath Portfolio invests significantly in a Master Portfolio, the expense table example reflects the net expenses of both the LifePath Portfolio and the Master Portfolio in which it invests.

²  Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the most recent fiscal half year divided by 365.

BLACKROCK FUNDS III DECEMBER 31, 2011 25

Statements of Assets and Liabilities BlackRock Funds III

December 31, 2011	LifePath Retirement Portfolio			LifePath 2020 Portfolio			LifePath 2025 Portfolio			LifePath 2030 Portfolio			LifePath 2035 Portfolio
Assets
Investments at value — from the applicable Master Portfolio1	$	642,451,437		$	1,205,782,816		$	12,166,278		$	1,021,994,194		$	7,413,764
Capital shares sold receivable		8,062,635			4,540,044			8,035			2,599,121			7,813
Receivable from investment advisor		—			—			12,441			—			13,983
Total assets		650,514,072			1,210,322,860			12,186,754			1,024,593,315			7,435,560
Liabilities
Capital shares redeemed payable		28,390,786			47,618,057			—			34,506,075			23
Income dividends payable		216,233			226,009			1,859			219,081			639
Administration fees payable		268,071			503,503			—			425,699			—
Capital gain distributions payable		1,227,833			1,618,144			—			447,377			—
Service and distribution fees payable		40,075			84,933			1,483			71,894			956
Professional fees payable		16,638			16,638			16,631			16,638			16,632
Total liabilities		30,159,636			50,067,284			19,973			35,686,764			18,250
Net Assets	$	620,354,436		$	1,160,255,576		$	12,166,781		$	988,906,551		$	7,417,310
Net Assets Consist of
Paid-in capital	$	579,213,767		$	1,113,123,966		$	12,591,277		$	983,763,165		$	7,819,549
Undistributed (distributions in excess of) net investment income		(117,770	)		(685,247	)		2,156			(130,742	)		958
Accumulated net realized gain (loss)		4,591,590			(41,414,576	)		(175,809	)		(30,904,379	)		(143,556	)
Net unrealized appreciation/depreciation		36,666,849			89,231,433			(250,843	)		36,178,507			(259,641	)
Net Assets	$	620,354,436		$	1,160,255,576		$	12,166,781		$	988,906,551		$	7,417,310
Net Asset Value
Institutional
Net assets	$	431,981,903		$	752,092,350		$	3,232,670		$	642,867,280		$	2,033,317
Shares outstanding2		37,938,289			49,413,207			291,972			45,547,941			181,910
Net asset value	$	11.39		$	15.22		$	11.07		$	14.11		$	11.18
Investor A
Net assets	$	183,967,460		$	401,476,953		$	7,076,219		$	339,249,351		$	4,120,995
Shares outstanding2		17,515,055			27,827,862			639,520			24,564,228			368,807
Net asset value	$	10.50		$	14.43		$	11.06		$	13.81		$	11.17
Maximum offering price per share (100/94.75 of net asset value)	$	11.08		$	15.23		$	11.67		$	14.58		$	11.79
Investor C
Net assets	$	54,643		$	301,449		$	245,400		$	153,742		$	190,287
Shares outstanding2		4,812			19,880			22,213			10,944			17,079
Net asset value	$	11.36		$	15.16		$	11.05		$	14.05		$	11.14
Class K
Net assets	$	4,309,244		$	6,223,750		$	1,590,295		$	6,447,903		$	1,050,320
Shares outstanding2		379,165			409,349			143,423			456,788			93,761
Net asset value	$	11.37		$	15.20		$	11.09		$	14.12		$	11.20
Class R
Net assets	$	41,186		$	161,074		$	22,197		$	188,275		$	22,391
Shares outstanding2		3,624			10,600			2,002			13,374			2,000
Net asset value	$	11.36		$	15.20		$	11.09		$	14.08		$	11.19	3
1 Cost — from the applicable Master Portfolio	$	605,784,588		$	1,116,551,383		$	12,417,121		$	985,815,687		$	7,673,405

²  No par value, unlimited number of shares authorized.

³  The net asset value is calculated based on net assets of $22,390.74 and shares outstanding of 2,000.400.

See Notes to Financial Statements.
26	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Assets and Liabilities (concluded) BlackRock Funds III

December 31, 2011	LifePath 2040 Portfolio			LifePath 2045 Portfolio			LifePath 2050 Portfolio			LifePath 2055 Portfolio
Assets
Investments at value — from the applicable Master Portfolio1	$	789,832,977		$	3,236,391		$	112,377,780		$	481,574
Capital shares sold receivable		2,222,187			16,460			716,880			424
Receivable from investment advisor		—			15,433			—			14,142
Total assets		792,055,164			3,268,284			113,094,660			496,140
Liabilities
Capital shares redeemed payable		23,929,799			—			9,068,635			193
Income dividends payable		179,270			703			13,950			448
Administration fees payable		328,398			—			44,524			—
Capital gain distributions payable		162,476			—			55,246			758
Service and distribution fees payable		49,393			298			6,714			127
Professional fees payable		16,638			16,631			16,638			14,325
Total liabilities		24,665,974			17,632			9,205,707			15,851
Net Assets	$	767,389,190		$	3,250,652		$	103,888,953		$	480,289
Net Assets Consist of
Paid-in capital	$	744,812,555		$	3,442,613		$	105,135,309		$	483,679
Undistributed (distributions in excess of) net investment income		(57,925	)		244			7,932			164
Accumulated net realized gain (loss)		(26,628,848	)		(76,775	)		895,958			(3,450	)
Net unrealized appreciation/depreciation		49,263,408			(115,430	)		(2,150,246	)		(104	)
Net Assets	$	767,389,190		$	3,250,652		$	103,888,953		$	480,289
Net Asset Value
Institutional
Net assets	$	528,655,455		$	1,645,709		$	70,555,396		$	164,090
Shares outstanding2		31,141,729			146,370			4,112,340			14,745
Net asset value	$	16.98		$	11.24		$	17.16		$	11.13
Investor A
Net assets	$	233,426,818		$	1,228,246		$	32,616,870		$	163,045
Shares outstanding2		14,429,092			109,212			1,902,011			14,655
Net asset value	$	16.18		$	11.25		$	17.15		$	11.13
Maximum offering price per share (100/94.75 of net asset value)	$	17.08		$	11.87		$	18.10		$	11.75
Investor C
Net assets	$	98,051		$	95,256		$	38,642		$	108,618
Shares outstanding2		5,795			8,522			2,260			9,821
Net asset value	$	16.92		$	11.18		$	17.10		$	11.06
Class K
Net assets	$	4,748,507		$	258,960		$	624,730		$	22,305
Shares outstanding2		278,562			23,007			36,312			2,001
Net asset value	$	17.05		$	11.26		$	17.20		$	11.15
Class R
Net assets	$	460,359		$	22,481		$	53,315		$	22,231
Shares outstanding2		27,187			2,000			3,112			2,000
Net asset value	$	16.93		$	11.24		$	17.13		$	11.12
1 Cost — from the applicable Master Portfolio	$	740,569,569		$	3,351,821		$	114,528,026		$	481,678

²  No par value, unlimited number of shares authorized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	27

Statements of Operations BlackRock Funds III

Year Ended December 31, 2011	LifePath Retirement Portfolio			LifePath 2020 Portfolio			LifePath 2025 Portfolio			LifePath 2030 Portfolio			LifePath 2035 Portfolio
Investment Income
Net investment income allocated from the applicable Master Portfolio:
Interest	$	12,335,070		$	16,142,887		$	81,111		$	8,737,872		$	32,743
Dividends		7,713,711			18,197,739			141,455			18,084,772			106,209
Securities lending — affiliated		130,088			323,382			915			319,144			1,037
Income — affiliated		2,615			5,354			156			5,202			99
Expenses		(3,787,506	)		(6,978,794	)		(85,870	)		(5,827,121	)		(70,411	)
Fees waived		1,973,373			3,945,179			67,341			3,521,741			59,250
Total income		18,367,351			31,635,747			205,108			24,841,610			128,927
Expenses
Administration		3,305,123			6,171,155			33,472			5,196,663			21,998
Service — Investor A		481,012			1,015,748			10,861			848,459			6,904
Service and distribution — Investor C		236			1,449			695			523			960
Service and distribution — Class R		187			458			113			537			116
Professional		26,095			26,095			26,089			26,095			26,089
Total expenses		3,812,653			7,214,905			71,230			6,072,277			56,067
Less fees waived by administrator		(26,095	)		(26,095	)		(26,089	)		(26,095	)		(26,089	)
Total expenses after fees waived		3,786,558			7,188,810			45,141			6,046,182			29,978
Net investment income		14,580,793			24,446,937			159,967			18,795,428			98,949
Realized and Unrealized Gain (Loss) Allocated from the Master Portfolios
Net realized gain (loss) from investments, financial futures contracts, swaps and foreign currency transactions		41,995,331			75,927,187			(171,742	)		61,537,208			(138,750	)
Net change in unrealized appreciation/depreciation on investments, financial futures contracts, swaps and foreign currency transactions		(31,336,679	)		(81,367,233	)		(266,934	)		(87,579,262	)		(279,386	)
Total realized and unrealized gain (loss)		10,658,652			(5,440,046	)		(438,676	)		(26,042,054	)		(418,136	)
Net Increase (Decrease) in Net Assets Resulting from Operations	$	25,239,445		$	19,006,891		$	(278,709	)	$	(7,246,626	)	$	(319,187	)

See Notes to Financial Statements.
28	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Operations (concluded) BlackRock Funds III

Year Ended December 31, 2011	LifePath 2040 Portfolio			LifePath 2045 Portfolio			LifePath 2050 Portfolio			LifePath 2055 Portfolio
Investment Income
Net investment income allocated from the applicable Master Portfolio:
Dividends	$	15,727,222		$	46,732		$	2,133,664		$	6,427
Interest		3,753,343			6,101			109,224			159
Securities lending — affiliated		294,586			404			33,433			47
Income — affiliated		4,021			43			907			6
Expenses		(4,509,304	)		(53,263	)		(554,907	)		(38,962	)
Fees waived		2,871,579			49,205			377,480			38,466
Total income		18,141,447			49,222			2,099,801			6,143
Expenses
Administration		4,044,111			9,236			479,127			1,246
Service — Investor A		599,218			2,082			68,403			163
Service and distribution — Investor C		260			393			226			752
Service and distribution — Class R		1,120			117			230			118
Professional		26,095			26,089			26,095			23,783
Total expenses		4,670,804			37,917			574,081			26,062
Less fees waived by administrator		(26,095	)		(26,089	)		(26,095	)		(23,783	)
Total expenses after fees waived		4,644,709			11,828			547,986			2,279
Net investment income		13,496,738			37,394			1,551,815			3,864
Realized and Unrealized Gain (Loss) Allocated from the Master Portfolios
Net realized gain (loss) from investments, financial futures contracts, swaps and foreign currency transactions		48,872,629			(71,148	)		3,477,747			5,284
Net change in unrealized appreciation/depreciation on investments, financial futures contracts, swaps and foreign currency transactions		(82,350,608	)		(137,673	)		(10,043,951	)		(23,807	)
Total realized and unrealized loss		(33,477,979	)		(208,821	)		(6,566,204	)		(18,523	)
Net Decrease in Net Assets Resulting from Operations	$	(19,981,241	)	$	(171,427	)	$	(5,014,389	)	$	(14,659	)

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	29

Statements of Changes in Net Assets BlackRock Funds III

	LifePath Retirement Portfolio						LifePath 2020 Portfolio
	Year Ended December 31,						Year Ended December 31,
Increase (Decrease) in Net Assets:	2011			2010			2011			2010
Operations
Net investment income	$	14,580,793		$	13,619,952		$	24,446,937		$	21,360,156
Net realized gain		41,995,331			22,014,130			75,927,187			30,305,176
Net change in unrealized appreciation/depreciation		(31,336,679	)		24,188,092			(81,367,233	)		69,383,863
Net increase in net assets resulting from operations		25,239,445			59,822,174			19,006,891			121,049,195
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(10,236,151	)		(10,003,521	)		(16,447,568	)		(15,188,056	)
Investor A		(4,275,518	)		(3,378,533	)		(7,869,105	)		(5,851,117	)
Investor C		(456	)		(200	)		(2,279	)		(1,117	)
Class K		(64,821	)		(14,062	)		(113,033	)		(54,736	)
Class R		(685	)		(341	)		(1,386	)		(615	)
Net realized gain:
Institutional		(13,363,681	)		(1,037,186	)		(30,476,493	)		—
Investor A		(6,141,919	)		(389,605	)		(16,228,359	)		—
Investor C		(1,658	)		(40	)		(10,481	)		—
Class K		(127,622	)		(1,179	)		(232,409	)		—
Class R		(1,249	)		(41	)		(6,211	)		—
Decrease in net assets resulting from dividends and distributions to shareholders		(34,213,760	)		(14,824,708	)		(71,387,324	)		(21,095,641	)
Capital Share Transactions
Net increase (decrease) in net assets derived from capital share transactions		(43,210,433	)		40,521,675			(10,235,703	)		189,547,268
Net Assets
Total increase (decrease) in net assets		(52,184,748	)		85,519,141			(62,616,136	)		289,500,822
Beginning of year		672,539,184			587,020,043			1,222,871,712			933,370,890
End of year	$	620,354,436		$	672,539,184		$	1,160,255,576		$	1,222,871,712
Distributions in excess of net investment income	$	(117,770	)	$	(177,525	)	$	(685,247	)	$	(811,802	)

See Notes to Financial Statements.
30	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Changes in Net Assets (continued) BlackRock Funds III

	LifePath 2025 Portfolio						LifePath 2030 Portfolio
	Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010			Year Ended December 31,
Increase (Decrease) in Net Assets:							2011			2010
Operations
Net investment income	$	159,967		$	916		$	18,795,428		$	16,077,504
Net realized gain (loss)		(171,742	)		210			61,537,208			25,400,572
Net change in unrealized appreciation/depreciation		(266,934	)		16,091			(87,579,262	)		66,253,687
Net increase (decrease) in net assets resulting from operations		(278,709	)		17,217			(7,246,626	)		107,731,763
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(42,732	)		(214	)		(12,860,342	)		(11,720,937	)
Investor A		(83,474	)		(186	)		(5,790,050	)		(4,207,651	)
Investor C		(1,017	)		(105	)		(1,039	)		(179	)
Class K		(31,159	)		(253	)		(85,036	)		(32,962	)
Class R		(246	)		(159	)		(1,547	)		(576	)
Net realized gain:
Institutional		(7	)		(845	)		(7,507,892	)		—
Investor A		(16	)		(845	)		(3,877,262	)		—
Investor C		—			(843	)		(1,725	)		—
Class K		(5	)		(846	)		(70,970	)		—
Class R		—			(844	)		(2,104	)		—
Decrease in net assets resulting from dividends and distributions to shareholders		(158,656	)		(5,140	)		(30,197,967	)		(15,962,305	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		12,491,883			100,186			20,401,130			185,595,544
Net Assets
Total increase (decrease) in net assets		12,054,518			112,263			(17,043,463	)		277,365,002
Beginning of period		112,263			—			1,005,950,014			728,585,012
End of period	$	12,166,781		$	112,263		$	988,906,551		$	1,005,950,014
Undistributed (distributions in excess of) net investment income	$	2,156		$	6		$	(130,742	)	$	(248,543	)

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	31

Statements of Changes in Net Assets (continued) BlackRock Funds III

	LifePath 2035 Portfolio						LifePath 2040 Portfolio
	Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010			Year Ended December 31,
Increase (Decrease) in Net Assets:							2011			2010
Operations
Net investment income	$	98,949		$	922		$	13,496,738		$	11,916,622
Net realized gain (loss)		(138,750	)		405			48,872,629			21,108,906
Net change in unrealized appreciation/depreciation		(279,386	)		19,745			(82,350,608	)		57,216,119
Net increase (decrease) in net assets resulting from operations		(319,187	)		21,072			(19,981,241	)		90,241,647
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(27,579	)		(196	)		(9,617,428	)		(8,927,793	)
Investor A		(50,150	)		(200	)		(3,802,401	)		(2,997,617	)
Investor C		(887	)		(161	)		(404	)		(167	)
Class K		(20,070	)		(235	)		(45,690	)		(2,570	)
Class R		(240	)		(139	)		(3,323	)		(885	)
Net realized gain:
Institutional		(5	)		(955	)		(2,721,253	)		—
Investor A		(9	)		(1,115	)		(1,212,903	)		—
Investor C		—			(1,225	)		(309	)		—
Class K		(3	)		(956	)		(23,338	)		—
Class R		—			(954	)		(2,278	)		—
Decrease in net assets resulting from dividends and distributions to shareholders		(98,943	)		(6,136	)		(17,429,327	)		(11,929,032	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		7,709,336			111,168			23,719,820			110,875,807
Net Assets
Total increase (decrease) in net assets		7,291,206			126,104			(13,690,748	)		189,188,422
Beginning of period		126,104			—			781,079,938			591,891,516
End of period	$	7,417,310		$	126,104		$	767,389,190		$	781,079,938
Undistributed (distributions in excess of) net investment income	$	958		$	(6	)	$	(57,925	)	$	(143,458	)

¹  Commencement of operations.

See Notes to Financial Statements.
32	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Changes in Net Assets (continued) BlackRock Funds III

	LifePath 2045 Portfolio						LifePath 2050 Portfolio
	Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010			Year Ended December 31,
Increase (Decrease) in Net Assets:							2011			2010
Operations
Net investment income	$	37,394		$	872		$	1,551,815		$	806,920
Net realized gain (loss)		(71,148	)		712			3,477,747			1,046,011
Net change in unrealized appreciation/depreciation		(137,673	)		22,243			(10,043,951	)		6,341,470
Net increase (decrease) in net assets resulting from operations		(171,427	)		23,827			(5,014,389	)		8,194,401
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(18,495	)		(197	)		(1,153,867	)		(654,541	)
Investor A		(13,393	)		(169	)		(393,898	)		(191,594	)
Investor C		(589	)		(123	)		(256	)		(164	)
Class K		(4,510	)		(237	)		(6,355	)		(1,247	)
Class R		(221	)		(153	)		(545	)		(337	)
Net realized gain:
Institutional		(147	)		(1,204	)		(1,957,237	)		(444,355	)
Investor A		(145	)		(1,203	)		(795,921	)		(151,468	)
Investor C		(6	)		(1,203	)		(905	)		(188	)
Class K		(36	)		(1,205	)		(13,967	)		(704	)
Class R		(3	)		(1,203	)		(1,319	)		(313	)
Decrease in net assets resulting from dividends and distributions to shareholders		(37,545	)		(6,897	)		(4,324,270	)		(1,444,911	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		3,342,643			100,051			43,659,392			45,716,060
Net Assets
Total increase in net assets		3,133,671			116,981			34,320,733			52,465,550
Beginning of period		116,981			—			69,568,220			17,102,670
End of period	$	3,250,652		$	116,981		$	103,888,953		$	69,568,220
Undistributed (distributions in excess of) net investment income	$	244		$	(6	)	$	7,932		$	1,009

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	33

Statements of Changes in Net Assets (concluded) BlackRock Funds III

	LifePath 2055 Portfolio
Increase (Decrease) in Net Assets:	Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Operations
Net investment income	$	3,864		$	862
Net realized gain		5,284			878
Net change in unrealized appreciation/depreciation		(23,807	)		23,703
Net increase (decrease) in net assets resulting from operations		(14,659	)		25,443
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(1,496	)		(188	)
Investor A		(914	)		(173	)
Investor C		(715	)		(128	)
Class K		(375	)		(218	)
Class R		(196	)		(158	)
Net realized gain:
Institutional		(1,174	)		(1,228	)
Investor A		(1,050	)		(1,228	)
Investor C		(873	)		(1,228	)
Class K		(188	)		(1,229	)
Class R		(187	)		(1,228	)
Decrease in net assets resulting from dividends and distributions to shareholders		(7,168	)		(7,006	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		383,669			100,010
Net Assets
Total increase in net assets		361,842			118,447
Beginning of period		118,447			—
End of period	$	480,289		$	118,447
Undistributed net investment income	$	164		$	3

¹ Commencement of operations.

See Notes to Financial Statements.
34	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights LifePath Retirement Portfolio

	Institutional
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	11.55		$	10.80		$	9.42		$	11.46		$	11.59
Net investment income		0.27	1		0.23	1		0.32	1		0.37			0.39
Net realized and unrealized gain (loss)		0.18			0.76			1.37			(2.06	)		0.12
Net increase (decrease) from investment operations		0.45			0.99			1.69			(1.69	)		0.51
Dividends and distributions from:
Net investment income		(0.26	)		(0.22	)		(0.31	)		(0.31	)		(0.37	)
Net realized gain		(0.35	)		(0.02	)		(0.00	)2		(0.04	)		(0.27	)
Total dividends and distributions		(0.61	)		(0.24	)		(0.31	)		(0.35	)		(0.64	)
Net asset value, end of year	$	11.39		$	11.55		$	10.80		$	9.42		$	11.46
Total Investment Return3
Based on net asset value		3.96%			9.33%			18.25%			(15.04	)%		4.50%
Ratios to Average Net Assets4
Total expenses		0.77%	5,6		1.11%			1.10%			1.11%			1.12%
Total expenses after fees waived		0.77%	5,6		0.76%			0.76%			0.76%			0.77%
Net investment income		2.27%	5,6		2.10%			3.13%			3.29%			3.43%
Supplemental Data
Net assets, end of year (000)	$	431,982		$	490,419		$	438,987		$	92,717		$	136,923
Portfolio turnover of the Master Portfolio		4%			4%			6%			11%			6%

¹  Based on average shares outstanding.

²  Amount is less than $0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which include gross expenses.

⁵  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.30%.

⁶  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.08%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	35

Financial Highlights (continued) LifePath Retirement Portfolio

	Investor A
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	10.71		$	10.03		$	8.77		$	10.70		$	10.87
Net investment income		0.22	1		0.19	1		0.27	1		0.32			0.36
Net realized and unrealized gain (loss)		0.16			0.71			1.28			(1.92	)		0.09
Net increase (decrease) from investment operations		0.38			0.90			1.55			(1.60	)		0.45
Dividends and distributions from:
Net investment income		(0.24	)		(0.20	)		(0.29	)		(0.29	)		(0.35	)
Net realized gain		(0.35	)		(0.02	)		(0.00	)2		(0.04	)		(0.27	)
Total dividends and distributions		(0.59	)		(0.22	)		(0.29	)		(0.33	)		(0.62	)
Net asset value, end of year	$	10.50		$	10.71		$	10.03		$	8.77		$	10.70
Total Investment Return3
Based on net asset value		3.60%			9.12%			17.96%			(15.24	)%		4.17%
Ratios to Average Net Assets4
Total expenses		1.02%	5,6		1.37%			1.34%			1.36%			1.37%
Total expenses after fees waived		1.02%	5,6		1.02%			1.00%			1.01%			1.02%
Net investment income		2.03%	5,6		1.86%			2.83%			3.11%			3.06%
Supplemental Data
Net assets, end of year (000)	$	183,967		$	181,297		$	147,741		$	25,030		$	22,185
Portfolio turnover of the Master Portfolio		4%			4%			6%			11%			6%

¹  Based on average shares outstanding.

²  Amount is less than $0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which include gross expenses.

⁵  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.30%.

⁶  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.08%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

See Notes to Financial Statements.
36	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath Retirement Portfolio

	Investor C
	Year Ended December 31, 2011			Period May 3, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.55		$	11.22
Net investment income2		0.17			0.09
Net realized and unrealized gain		0.16			0.37
Net increase from investment operations		0.33			0.46
Dividends and distributions from:
Net investment income		(0.17	)		(0.11	)
Net realized gain		(0.35	)		(0.02	)
Total dividends and distributions		(0.52	)		(0.13	)
Net asset value, end of period	$	11.36		$	11.55
Total Investment Return3
Based on net asset value		2.86	%		4.22	%4
Ratios to Average Net Assets5
Total expenses		1.78	%6,7		2.11	%8
Total expenses after fees waived		1.78	%6,7		1.77	%8
Net investment income		1.42	%6,7		1.23	%8
Supplemental Data
Net assets, end of period (000)	$	55		$	21
Portfolio turnover of the Master Portfolio		4	%		4	%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.30%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.08%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	37

Financial Highlights (continued) LifePath Retirement Portfolio

	Class K
	Year Ended December 31,									Period May 30, 20081 to December 31, 2008
	2011			2010			2009
Per Share Operating Performance
Net asset value, beginning of period	$	11.54		$	10.78		$	9.44		$	11.46
Net investment income		0.32	2		0.28	2		0.35	2		0.25
Net realized and unrealized gain (loss)		0.17			0.76			1.33			(1.97	)
Net increase (decrease) from investment operations		0.49			1.04			1.68			(1.72	)
Dividends and distributions from:
Net investment income		(0.31	)		(0.26	)		(0.34	)		(0.26	)
Net realized gain		(0.35	)		(0.02	)		(0.00	)3		(0.04	)
Total dividends and distributions		(0.66	)		(0.28	)		(0.34	)		(0.30	)
Net asset value, end of period	$	11.37		$	11.54		$	10.78		$	9.44
Total Investment Return4
Based on net asset value		4.27%			9.82%			18.53%			(15.53	)%5
Ratios to Average Net Assets6
Total expenses		0.44%	7,8		0.76%			0.74%			0.79%	9
Total expenses after fees waived		0.43%	7,8		0.41%			0.40%			0.44%	9
Net investment income		2.69%	7,8		2.49%			3.43%			4.08%	9
Supplemental Data
Net assets, end of period (000)	$	4,309		$	769		$	292		$	35
Portfolio turnover of the Master Portfolio		4%			4%			6%			11%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Amount is less than $0.01 per share.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2008 and the two years ended December 31, 2010, which include gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.29%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.08%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
38	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (concluded) LifePath Retirement Portfolio

	Class R
	Year Ended December 31, 2011			Period May 3, 20101 to December  31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.54		$	11.22
Net investment income2		0.21			0.14
Net realized and unrealized gain		0.17			0.36
Net increase from investment operations		0.38			0.50
Dividends and distributions from:
Net investment income		(0.21	)		(0.16	)
Net realized gain		(0.35	)		(0.02	)
Total dividends and distributions		(0.56	)		(0.18	)
Net asset value, end of period	$	11.36		$	11.54
Total Investment Return3
Based on net asset value		3.32%			4.55%	4
Ratios to Average Net Assets5
Total expenses		1.28%	6,7		1.61%	8
Total expenses after fees waived		1.27%	6,7		1.26%	8
Net investment income		1.76%	6,7		1.84%	8
Supplemental Data
Net assets, end of period (000)	$	41		$	33
Portfolio turnover of the Master Portfolio		4%			4%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.29%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.08%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	39

Financial Highlights LifePath 2020 Portfolio

	Institutional
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	15.92		$	14.62		$	12.32		$	16.98		$	17.48
Net investment income		0.33	1		0.29	1		0.35	1		0.44			0.45
Net realized and unrealized gain (loss)		(0.09	)		1.28			2.38			(4.67	)		0.14
Net increase (decrease) from investment operations		0.24			1.57			2.73			(4.23	)		0.59
Dividends and distributions from:
Net investment income		(0.33	)		(0.27	)		(0.43	)		(0.31	)		(0.44	)
Net realized gain		(0.61	)		—			—			(0.12	)		(0.65	)
Return of capital		—			—			(0.00	)2		—			—
Total dividends and distributions		(0.94	)		(0.27	)		(0.43	)		(0.43	)		(1.09	)
Net asset value, end of year	$	15.22		$	15.92		$	14.62		$	12.32		$	16.98
Total Investment Return3
Based on net asset value		1.46%			10.90%			22.71%			(25.42	)%		3.34%
Ratios to Average Net Assets4
Total expenses		0.75%	5,6		1.08%			1.08%			1.07%			1.08%
Total expenses after fees waived		0.74%	5,6		0.73%			0.72%			0.73%			0.74%
Net investment income		2.05%	5,6		1.95%			2.65%			2.65%			2.52%
Supplemental Data
Net assets, end of year (000)	$	752,092		$	843,339		$	663,890		$	432,717		$	781,519
Portfolio turnover of the Master Portfolio		5%			4%			6%			13%			7%

¹  Based on average shares outstanding.

²  Amount is less than $0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which include gross expenses.

⁵  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.32%.

⁶  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.11%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

See Notes to Financial Statements.
40	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath 2020 Portfolio

	Investor A
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	15.14		$	13.93		$	11.75		$	16.24		$	16.77
Net investment income		0.28	1		0.24	1		0.30	1		0.37			0.38
Net realized and unrealized gain (loss)		(0.09	)		1.21			2.28			(4.45	)		0.13
Net increase (decrease) from investment operations		0.19			1.45			2.58			(4.08	)		0.51
Dividends and distributions from:
Net investment income		(0.29	)		(0.24	)		(0.40	)		(0.29	)		(0.39	)
Net realized gain		(0.61	)		—			—			(0.12	)		(0.65	)
Return of capital		—			—			(0.00	)2		—			—
Total dividends and distributions		(0.90	)		(0.24	)		(0.40	)		(0.41	)		(1.04	)
Net asset value, end of year	$	14.43		$	15.14		$	13.93		$	11.75		$	16.24
Total Investment Return3
Based on net asset value		1.26%			10.56%			22.42%			(25.57	)%		3.06%
Ratios to Average Net Assets4
Total expenses		1.00%	5,6		1.34%			1.33%			1.32%			1.33%
Total expenses after fees waived		1.00%	5,6		0.99%			0.97%			0.98%			0.99%
Net investment income		1.82%	5,6		1.71%			2.42%			2.51%			2.26%
Supplemental Data
Net assets, end of year (000)	$	401,477		$	376,851		$	268,514		$	179,389		$	180,740
Portfolio turnover of the Master Portfolio		5%			4%			6%			13%			7%

¹  Based on average shares outstanding.

²  Amount is less than $0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which include gross expenses.

⁵  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.32%.

⁶  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.11%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	41

Financial Highlights (continued) LifePath 2020 Portfolio

	Investor C
	Year Ended December 31, 2011			Period May 3, 20101 to December  31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	15.89		$	15.29
Net investment income2		0.17			0.12
Net realized and unrealized gain (loss)		(0.09	)		0.64
Net increase from investment operations		0.08			0.76
Dividends and distributions from:
Net investment income		(0.20	)		(0.16	)
Net realized gain		(0.61	)		—
Total dividends and distributions		(0.81	)		(0.16	)
Net asset value, end of period	$	15.16		$	15.89
Total Investment Return3
Based on net asset value		0.47%			5.03%	4
Ratios to Average Net Assets5
Total expenses		1.75%	6,7		2.09%	8
Total expenses after fees waived		1.75%	6,7		1.74%	8
Net investment income		1.05%	6,7		1.23%	8
Supplemental Data
Net assets, end of period (000)	$	301		$	116
Portfolio turnover of the Master Portfolio		5%			4%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.32%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.11%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
42	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath 2020 Portfolio

	Class K
	Year Ended December 31,									Period May 30, 20081 to December 31, 2008
	2011			2010			2009
Per Share Operating Performance
Net asset value, beginning of period	$	15.91		$	14.61		$	12.33		$	16.90
Net investment income		0.40	2		0.34	2		0.40	2		0.30
Net realized and unrealized gain (loss)		(0.12	)		1.28			2.35			(4.48	)
Net increase (decrease) from investment operations		0.28			1.62			2.75			(4.18	)
Dividends and distributions from:
Net investment income		(0.38	)		(0.32	)		(0.47	)		(0.27	)
Net realized gain		(0.61	)		—			—			(0.12	)
Return of capital		—			—			(0.00	)3		—
Total dividends and distributions		(0.99	)		(0.32	)		(0.47	)		(0.39	)
Net asset value, end of period	$	15.20		$	15.91		$	14.61		$	12.33
Total Investment Return4
Based on net asset value		1.78%			11.28%			23.15%			(25.28	)%5
Ratios to Average Net Assets6
Total expenses		0.40%	7,8		0.74%			0.73%			0.76%	9
Total expenses after fees waived		0.40%	7,8		0.39%			0.37%			0.42%	9
Net investment income		2.47%	7,8		2.29%			3.05%			4.27%	9
Supplemental Data
Net assets, end of period (000)	$	6,224		$	2,485		$	967		$	416
Portfolio turnover of the Master Portfolio		5%			4%			6%			13%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Amount is less than $0.01 per share.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2008 and the two years ended December 31, 2010, which include gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.32%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.11%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	43

Financial Highlights (concluded) LifePath 2020 Portfolio

	Class R
	Year Ended December 31,			Period May 3, 20101 to December 31,
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	15.88		$	15.29
Net investment income2		0.24			0.23
Net realized and unrealized gain (loss)		(0.07	)		0.57
Net increase from investment operations		0.17			0.80
Dividends and distributions from:
Net investment income		(0.24	)		(0.21	)
Net realized gain		(0.61	)		—
Total dividends and distributions		(0.85	)		(0.21	)
Net asset value, end of period	$	15.20		$	15.88
Total Investment Return3
Based on net asset value		1.06%			5.34%	4
Ratios to Average Net Assets5
Total expenses		1.25%	6,7		1.58%	8
Total expenses after fees waived		1.25%	6,7		1.23%	8
Net investment income		1.51%	6,7		2.29%	8
Supplemental Data
Net assets, end of period (000)	$	161		$	81
Portfolio turnover of the Master Portfolio		5%			4%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.32%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.11%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
44	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights LifePath 2025 Portfolio

	Institutional
	Year Ended December 31,			Period June 30, 20101 to December 31,
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.21		$	10.00
Net investment income2		0.25			0.11
Net realized and unrealized gain (loss)		(0.19	)		1.63
Net increase from investment operations		0.06			1.74
Dividends and distributions from:
Net investment income		(0.20	)		(0.11	)
Net realized gain		(0.00	)3		(0.42	)
Total dividends and distributions		(0.20	)		(0.53	)
Net asset value, end of period	$	11.07		$	11.21
Total Investment Return4
Based on net asset value		0.49%			17.40%	5
Ratios to Average Net Assets6
Total expenses		1.06%	7,8		24.41%	9
Total expenses after fees waived		0.74%	7,8		0.73%	9
Net investment income		2.25%	7,8		1.93%	9
Supplemental Data
Net assets, end of period (000)	$	3,233		$	22
Portfolio turnover of the Master Portfolio		24%			2%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Rounds to less than $0.01.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which include gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.82%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.12%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	45

Financial Highlights (continued) LifePath 2025 Portfolio

	Investor A
	Year Ended December 31,			Period June 30, 20101 to December 31,
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.21		$	10.00
Net investment income2		0.21			0.09
Net realized and unrealized gain (loss)		(0.19	)		1.63
Net increase from investment operations		0.02			1.72
Dividends and distributions from:
Net investment income		(0.17	)		(0.09	)
Net realized gain		(0.00	)3		(0.42	)
Total dividends and distributions		(0.17	)		(0.51	)
Net asset value, end of period	$	11.06		$	11.21
Total Investment Return4
Based on net asset value		0.18%			17.26%	5
Ratios to Average Net Assets6
Total expenses		1.32%	7,8		24.68%	9
Total expenses after fees waived		0.99%	7,8		0.98%	9
Net investment income		1.87%	7,8		1.67%	9
Supplemental Data
Net assets, end of period (000)	$	7,076		$	22
Portfolio turnover of the Master Portfolio		24%			2%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Rounds to less than $0.01.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which include gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.86%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.12%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
46	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath 2025 Portfolio

	Investor C
	Year Ended December 31,			Period June 30, 20101 to December 31,
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.21		$	10.00
Net investment income2		0.14			0.05
Net realized and unrealized gain (loss)		(0.20	)		1.63
Net increase (decrease) from investment operations		(0.06	)		1.68
Dividends and distributions from:
Net investment income		(0.10	)		(0.05	)
Net realized gain		(0.00	)3		(0.42	)
Total dividends and distributions		(0.10	)		(0.47	)
Net asset value, end of period	$	11.05		$	11.21
Total Investment Return4
Based on net asset value		(0.54	)%		16.84%	5
Ratios to Average Net Assets6
Total expenses		2.10%	7,8		25.46%	9
Total expenses after fees waived		1.75%	7,8		1.72%	9
Net investment income		1.25%	7,8		0.95%	9
Supplemental Data
Net assets, end of period (000)	$	245		$	22
Portfolio turnover of the Master Portfolio		24%			2%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Rounds to less than $0.01.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.82%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.12%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	47

Financial Highlights (continued) LifePath 2025 Portfolio

	Class K
	Year Ended December 31,			Period June 30, 20101 to December 31,
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.21		$	10.00
Net investment income2		0.26			0.13
Net realized and unrealized gain (loss)		(0.16	)		1.63
Net increase from investment operations		0.10			1.76
Dividends and distributions from:
Net investment income		(0.22	)		(0.13	)
Net realized gain		(0.00	)3		(0.42	)
Total dividends and distributions		(0.22	)		(0.55	)
Net asset value, end of period	$	11.09		$	11.21
Total Investment Return4
Based on net asset value		0.87%			17.60%	5
Ratios to Average Net Assets6
Total expenses		0.71%	7,8		24.05%	9
Total expenses after fees waived		0.38%	7,8		0.38%	9
Net investment income		2.31%	7,8		2.29%	9
Supplemental Data
Net assets, end of period (000)	$	1,590		$	22
Portfolio turnover of the Master Portfolio		24%			2%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Rounds to less than $0.01.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which include gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.89%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.12%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
48	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (concluded) LifePath 2025 Portfolio

	Class R
	Year Ended December 31,			Period June 30, 20101 to December 31,
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.21		$	10.00
Net investment income2		0.17			0.08
Net realized and unrealized gain (loss)		(0.17	)		1.63
Net increase from investment operations		—			1.71
Dividends and distributions from:
Net investment income		(0.12	)		(0.08	)
Net realized gain		(0.00	)3		(0.42	)
Total dividends and distributions		(0.12	)		(0.50	)
Net asset value, end of period	$	11.09		$	11.21
Total Investment Return4
Based on net asset value		0.02%			17.12%	5
Ratios to Average Net Assets6
Total expenses		1.57%	7,8		24.94%	9
Total expenses after fees waived		1.23%	7,8		1.23%	9
Net investment income		1.46%	7,8		1.43%	9
Supplemental Data
Net assets, end of period (000)	$	22		$	22
Portfolio turnover of the Master Portfolio		24%			2%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Rounds to less than $0.01.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.91%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.12%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	49

Financial Highlights LifePath 2030 Portfolio

	Institutional
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	14.63		$	13.31		$	10.92		$	16.19		$	16.90
Net investment income		0.28	1		0.25	1		0.29	1		0.35			0.34
Net realized and unrealized gain (loss)		(0.37	)		1.31			2.46			(5.29	)		0.11
Net increase (decrease) from investment operations		(0.09	)		1.56			2.75			(4.94	)		0.45
Dividends and distributions from:
Net investment income		(0.27	)		(0.24	)		(0.36	)		(0.25	)		(0.35	)
Net realized gain		(0.16	)		—			—			(0.08	)		(0.81	)
Return of capital		—			—			(0.00	)2		—			—
Total dividends and distributions		(0.43	)		(0.24	)		(0.36	)		(0.33	)		(1.16	)
Net asset value, end of year	$	14.11		$	14.63		$	13.31		$	10.92		$	16.19
Total Investment Return3
Based on net asset value		(0.63	)%		11.86%			25.77%			(31.03	)%		2.64%
Ratios to Average Net Assets4
Total expenses		0.73%	5,6		1.07%			1.06%			1.06%			1.07%
Total expenses after fees waived		0.72%	5,6		0.70%			0.70%			0.72%			0.73%
Net investment income		1.88%	5,6		1.85%			2.47%			2.29%			2.10%
Supplemental Data
Net assets, end of year (000)	$	642,867		$	696,817		$	517,817		$	315,028		$	564,348
Portfolio turnover of the Master Portfolio		7%			3%			7%			13%			7%

¹  Based on average shares outstanding.

²  Amount is less than $0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which include gross expenses.

⁵  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.34%.

⁶  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.13%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

See Notes to Financial Statements.
50	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath 2030 Portfolio

	Investor A
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	14.33		$	13.05		$	10.71		$	15.90		$	16.62
Net investment income		0.24	1		0.21	1		0.26	1		0.29			0.31
Net realized and unrealized gain (loss)		(0.36	)		1.28			2.41			(5.17	)		0.09
Net increase (decrease) from investment operations		(0.12	)		1.49			2.67			(4.88	)		0.40
Dividends and distributions from:
Net investment income		(0.24	)		(0.21	)		(0.33	)		(0.23	)		(0.31	)
Net realized gain		(0.16	)		—			—			(0.08	)		(0.81	)
Return of capital		—			—			(0.00	)2		—			—
Total dividends and distributions		(0.40	)		(0.21	)		(0.33	)		(0.31	)		(1.12	)
Net asset value, end of year	$	13.81		$	14.33		$	13.05		$	10.71		$	15.90
Total Investment Return3
Based on net asset value		(0.87	)%		11.53%			25.51%			(31.19	)%		2.38%
Ratios to Average Net Assets4
Total expenses		0.98%	5,6		1.32%			1.31%			1.31%			1.32%
Total expenses after fees waived		0.97%	5,6		0.96%			0.95%			0.97%			0.98%
Net investment income		1.65%	5,6		1.60%			2.23%			2.13%			1.85%
Supplemental Data
Net assets, end of year (000)	$	339,249		$	307,189		$	210,372		$	133,199		$	135,684
Portfolio turnover of the Master Portfolio		7%			3%			7%			13%			7%

¹  Based on average shares outstanding.

²  Amount is less than $0.01 per share.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which include gross expenses.

⁵  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.34%.

⁶  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.13%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	51

Financial Highlights (continued) LifePath 2030 Portfolio

	Investor C
	Year Ended December 31,			Period May 3, 20101 to December 31,
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	14.62		$	13.97
Net investment income2		0.14			0.10
Net realized and unrealized gain (loss)		(0.38	)		0.67
Net increase (decrease) from investment operations		(0.24	)		0.77
Dividends and distributions from:
Net investment income		(0.17	)		(0.12	)
Net realized gain		(0.16	)		—
Total dividends and distributions		(0.33	)		(0.12	)
Net asset value, end of period	$	14.05		$	14.62
Total Investment Return3
Based on net asset value		(1.63	)%		5.64%	4
Ratios to Average Net Assets5
Total expenses		1.74%	6,7		2.07%	8
Total expenses after fees waived		1.74%	6,7		1.71%	8
Net investment income		1.01%	6,7		1.09%	8
Supplemental Data
Net assets, end of period (000)	$	154		$	21
Portfolio turnover of the Master Portfolio		7%			3%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.34%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.13%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
52	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath 2030 Portfolio

	Class K
	Year Ended December 31,									Period May 30, 20081 to December 31,
	2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of period	$	14.63		$	13.30		$	10.92		$	16.07
Net investment income		0.35	2		0.29	2		0.38	2		0.25
Net realized and unrealized gain (loss)		(0.37	)		1.32			2.40			(5.09	)
Net increase (decrease) from investment operations		(0.02	)		1.61			2.78			(4.84	)
Dividends and distributions from:
Net investment income		(0.33	)		(0.28	)		(0.40	)		(0.23	)
Net realized gain		(0.16	)		—			—			(0.08	)
Return of capital		—			—			(0.00	)3		—
Total dividends and distributions		(0.49	)		(0.28	)		(0.40	)		(0.31	)
Net asset value, end of period	$	14.12		$	14.63		$	13.30		$	10.92
Total Investment Return4
Based on net asset value		(0.20	)%		12.32%			26.23%			(30.65	)%5
Ratios to Average Net Assets6
Total expenses		0.38%	7,8		0.72%			0.71%			0.73%	9
Total expenses after fees waived		0.38%	7,8		0.35%			0.35%			0.39%	9
Net investment income		2.41%	7,8		2.17%			3.19%			3.44%	9
Supplemental Data
Net assets, end of period (000)	$	6,448		$	1,849		$	396		$	95
Portfolio turnover of the Master Portfolio		7%			3%			7%			13%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Amount is less than $0.01 per share.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2008 and the two years ended December 31, 2010, which include gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.34%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.13%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	53

Financial Highlights (concluded) LifePath 2030 Portfolio

	Class R
	Year Ended December 31,			Period May 3, 20101 to December 31,
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	14.60		$	13.97
Net investment income2		0.20			0.22
Net realized and unrealized gain (loss)		(0.36	)		0.60
Net increase (decrease) from investment operations		(0.16	)		0.82
Dividends and distributions from:
Net investment income		(0.20	)		(0.19	)
Net realized gain		(0.16	)		—
Total dividends and distributions		(0.36	)		(0.19	)
Net asset value, end of period	$	14.08		$	14.60
Total Investment Return3
Based on net asset value		(1.12	)%		5.96%	4
Ratios to Average Net Assets5
Total expenses		1.23%	6,7		1.56%	8
Total expenses after fees waived		1.23%	6,7		1.20%	8
Net investment income		1.41%	6,7		2.39%	8
Supplemental Data
Net assets, end of period (000)	$	188		$	75
Portfolio turnover of the Master Portfolio		7%			3%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.34%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.13%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
54	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights LifePath 2035 Portfolio

	Institutional
	Year Ended December 31,			Period June 30, 20101 to December 31,
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.52		$	10.00
Net investment income2		0.24			0.11
Net realized and unrealized gain (loss)		(0.39	)		1.99
Net increase (decrease) from investment operations		(0.15	)		2.10
Dividends and distributions from:
Net investment income		(0.19	)		(0.10	)
Net realized gain		(0.00	)3		(0.48	)
Total dividends and distributions		(0.19	)		(0.58	)
Net asset value, end of period	$	11.18		$	11.52
Total Investment Return4
Based on net asset value		(1.32	)%		20.96	%5
Ratios to Average Net Assets6
Total expenses		1.22	%7,8		24.07	%9
Total expenses after fees waived		0.72	%7,8		0.71	%9
Net investment income		2.13	%7,8		1.88	%9
Supplemental Data
Net assets, end of period (000)	$	2,033		$	23
Portfolio turnover of the Master Portfolio		21	%		1	%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Rounds to less than $0.01.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 1.10%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.14%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	55

Financial Highlights (continued) LifePath 2035 Portfolio

	Investor A
	Year Ended December 31,			Period June 30, 20101 to December 31,
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.51		$	10.00
Net investment income2		0.20			0.10
Net realized and unrealized gain (loss)		(0.37	)		1.98
Net increase (decrease) from investment operations		(0.17	)		2.08
Dividends and distributions from:
Net investment income		(0.17	)		(0.09	)
Net realized gain		(0.00	)3		(0.48	)
Total dividends and distributions		(0.17	)		(0.57	)
Net asset value, end of period	$	11.17		$	11.51
Total Investment Return4
Based on net asset value		(1.55	)%		20.74	%5
Ratios to Average Net Assets6
Total expenses		1.48	%7,8		22.59	%9
Total expenses after fees waived		0.97	%7,8		0.96	%9
Net investment income		1.77	%7,8		1.71	%9
Supplemental Data
Net assets, end of period (000)	$	4,121		$	27
Portfolio turnover of the Master Portfolio		21	%		1	%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Rounds to less than $0.01.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which include gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 1.15%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.14%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
56	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath 2035 Portfolio

	Investor C
	Year Ended December 31,			Period June 30, 20101 to December 31,
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.49		$	10.00
Net investment income2		0.09			0.05
Net realized and unrealized gain (loss)		(0.35	)		1.98
Net increase (decrease) from investment operations		(0.26	)		2.03
Dividends and distributions from:
Net investment income		(0.09	)		(0.06	)
Net realized gain		(0.00	)3		(0.48	)
Total dividends and distributions		(0.09	)		(0.54	)
Net asset value, end of period	$	11.14		$	11.49
Total Investment Return4
Based on net asset value		(2.28	)%		20.30%	5
Ratios to Average Net Assets6
Total expenses		2.24%	7,8		25.11%	9
Total expenses after fees waived		1.72%	7,8		1.70%	9
Net investment income		0.80%	7,8		0.89%	9
Supplemental Data
Net assets, end of period (000)	$	190		$	30
Portfolio turnover of the Master Portfolio		21%			1%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Rounds to less than $0.01.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵ Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 1.09%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.14%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	57

Financial Highlights (continued) LifePath 2035 Portfolio

	Class K
	Year Ended December 31,			Period June 30, 20101 to December 31,
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.52		$	10.00
Net investment income2		0.25			0.13
Net realized and unrealized gain (loss)		(0.35	)		1.99
Net increase (decrease) from investment operations		(0.10	)		2.12
Dividends and distributions from:
Net investment income		(0.22	)		(0.12	)
Net realized gain		(0.00	)3		(0.48	)
Total dividends and distributions		(0.22	)		(0.60	)
Net asset value, end of period	$	11.20		$	11.52
Total Investment Return4
Based on net asset value		(0.94	)%		21.16%	5
Ratios to Average Net Assets6
Total expenses		0.87%	7,8		23.70%	9
Total expenses after fees waived		0.36%	7,8		0.36%	9
Net investment income		2.17%	7,8		2.23%	9
Supplemental Data
Net assets, end of period (000)	$	1,050		$	23
Portfolio turnover of the Master Portfolio		21%			1%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Rounds to less than $0.01.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which include gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 1.20%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.14%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
58	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (concluded) LifePath 2035 Portfolio

	Class R
	Year Ended December 31,			Period June 30, 20101 to December 31,
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.52		$	10.00
Net investment income2		0.15			0.08
Net realized and unrealized gain (loss)		(0.36	)		1.99
Net increase (decrease) from investment operations		(0.21	)		2.07
Dividends and distributions from:
Net investment income		(0.12	)		(0.07	)
Net realized gain		(0.00	)3		(0.48	)
Total dividends and distributions		(0.12	)		(0.55	)
Net asset value, end of period	$	11.19		$	11.52
Total Investment Return4
Based on net asset value		(1.85	)%		20.67%	5
Ratios to Average Net Assets6
Total expenses		1.72%	7,8		24.60%	9
Total expenses after fees waived		1.21%	7,8		1.22%	9
Net investment income		1.31%	7,8		1.39%	9
Supplemental Data
Net assets, end of period (000)	$	22		$	23
Portfolio turnover of the Master Portfolio		21%			1%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Rounds to less than $0.01.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 1.19%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.14%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	59

Financial Highlights LifePath 2040 Portfolio

	Institutional
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	17.78		$	16.04		$	12.88		$	20.32		$	20.90
Net investment income		0.31	1		0.28	1		0.32	1		0.35			0.34
Net realized and unrealized gain (loss)		(0.73	)		1.73			3.22			(7.45	)		0.08
Net increase (decrease) from investment operations		(0.42	)		2.01			3.54			(7.10	)		0.42
Dividends and distributions from:
Net investment income		(0.30	)		(0.27	)		(0.38	)		(0.26	)		(0.35	)
Net realized gain		(0.08	)		—			—			(0.08	)		(0.65	)
Total dividends and distributions		(0.38	)		(0.27	)		(0.38	)		(0.34	)		(1.00	)
Net asset value, end of year	$	16.98		$	17.78		$	16.04		$	12.88		$	20.32
Total Investment Return2
Based on net asset value		(2.38	)%		12.71%			28.08%			(35.40	)%		2.03%
Ratios to Average Net Assets3
Total expenses		0.71%	4,5		1.06%			1.05%			1.04%			1.06%
Total expenses after fees waived		0.70%	4,5		0.69%			0.69%			0.69%			0.72%
Net investment income		1.73%	4,5		1.75%			2.33%			2.02%			1.71%
Supplemental Data
Net assets, end of year (000)	$	528,655		$	556,626		$	435,317		$	248,491		$	383,391
Portfolio turnover of the Master Portfolio		8%			4%			6%			14%			8%

¹  Based on average shares outstanding.

²  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

³  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which include gross expenses.

⁴  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.35%.

⁵  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.15%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

See Notes to Financial Statements.
60	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath 2040 Portfolio

	Investor A
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	16.97		$	15.33		$	12.32		$	19.46		$	20.06
Net investment income		0.25	1		0.23	1		0.28	1		0.29			0.30
Net realized and unrealized gain (loss)		(0.70	)		1.65			3.08			(7.13	)		0.06
Net increase (decrease) from investment operations		(0.45	)		1.88			3.36			(6.84	)		0.36
Dividends and distributions from:
Net investment income		(0.26	)		(0.24	)		(0.35	)		(0.22	)		(0.31	)
Net realized gain		(0.08	)		—			—			(0.08	)		(0.65	)
Total dividends and distributions		(0.34	)		(0.24	)		(0.35	)		(0.30	)		(0.96	)
Net asset value, end of year	$	16.18		$	16.97		$	15.33		$	12.32		$	19.46
Total Investment Return2
Based on net asset value		(2.65	)%		12.40%			27.85%			(35.56	)%		1.78%
Ratios to Average Net Assets3
Total expenses		0.96%	4,5		1.31%			1.30%			1.29%			1.31%
Total expenses after fees waived		0.95%	4,5		0.94%			0.94%			0.94%			0.97%
Net investment income		1.50%	4,5		1.50%			2.08%			1.80%			1.49%
Supplemental Data
Net assets, end of year (000)	$	233,427		$	224,164		$	156,564		$	96,873		$	110,528
Portfolio turnover of the Master Portfolio		8%			4%			6%			14%			8%

¹  Based on average shares outstanding.

²  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

³  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which include gross expenses.

⁴  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.35%.

⁵  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.15%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	61

Financial Highlights (continued) LifePath 2040 Portfolio

	Investor C
	Year Ended December 31,			Period May 3, 20101 to December 31,
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	17.77		$	16.89
Net investment income2		0.13			0.12
Net realized and unrealized gain (loss)		(0.73	)		0.90
Net increase (decrease) from investment operations		(0.60	)		1.02
Dividends and distributions from:
Net investment income		(0.17	)		(0.14	)
Net realized gain		(0.08	)		—
Total dividends and distributions		(0.25	)		(0.14	)
Net asset value, end of period	$	16.92		$	17.77
Total Investment Return3
Based on net asset value		(3.39	)%		6.15%	4
Ratios to Average Net Assets5
Total expenses		1.72%	6,7		2.06%	8
Total expenses after fees waived		1.71%	6,7		1.69%	8
Net investment income		0.72%	6,7		1.11%	8
Supplemental Data
Net assets, end of period (000)	$	98		$	21
Portfolio turnover of the Master Portfolio		8%			4%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.35%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.15%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
62	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath 2040 Portfolio

	Class K
	Year Ended December 31,									Period May 30, 20081 to December 31,
	2011			2010			2009			2008
Per Share Operating Performance
Net asset value, beginning of period	$	17.84		$	16.03		$	12.87		$	20.11
Net investment income		0.46	2		0.39	2		0.38	2		0.31
Net realized and unrealized gain (loss)		(0.80	)		1.70			3.21			(7.21	)
Net increase (decrease) from investment operations		(0.34	)		2.09			3.59			(6.90	)
Dividends and distributions from:
Net investment income		(0.37	)		(0.28	)		(0.43	)		(0.26	)
Net realized gain		(0.08	)		—			—			(0.08	)
Total dividends and distributions		(0.45	)		(0.28	)		(0.43	)		(0.34	)
Net asset value, end of period	$	17.05		$	17.84		$	16.03		$	12.87
Total Investment Return3
Based on net asset value		(1.95	)%		13.18%			28.52%			(34.75	)%4
Ratios to Average Net Assets5
Total expenses		0.37%	6,7		0.70%			0.70%			0.69%	8
Total expenses after fees waived		0.36%	6,7		0.33%			0.34%			0.36%	8
Net investment income		2.60%			2.34%			2.73%			3.31%	8
Supplemental Data
Net assets, end of period (000)	$	4,749		$	144		$	11		$	6
Portfolio turnover of the Master Portfolio		8%			4%			6%			14%

¹ Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2008 and the two years ended December 31, 2010, which include gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.35%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.15%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	63

Financial Highlights (concluded) LifePath 2040 Portfolio

	Class R
	Year Ended December 31,			Period May 3, 20101 to December 31,
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	17.74		$	16.89
Net investment income2		0.23			0.34
Net realized and unrealized gain (loss)		(0.74	)		0.73
Net increase (decrease) from investment operations		(0.51	)		1.07
Dividends and distributions from:
Net investment income		(0.22	)		(0.22	)
Net realized gain		(0.08	)		—
Total dividends and distributions		(0.30	)		(0.22	)
Net asset value, end of period	$	16.93		$	17.74
Total Investment Return3
Based on net asset value		(2.88	)%		6.47%	4
Ratios to Average Net Assets5
Total expenses		1.22%	6,7		1.55%	8
Total expenses after fees waived		1.22%	6,7		1.19%	8
Net investment income		1.35%	6,7		3.13%	8
Supplemental Data
Net assets, end of period (000)	$	460		$	126
Portfolio turnover of the Master Portfolio		8%			4%

¹  Commencement of operations.

² Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴ Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.35%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.15%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
64	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights LifePath 2045 Portfolio

	Institutional
	Year Ended December 31, 2011			Period June 30, 20101 to December  31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.70		$	10.00
Net investment income2		0.23			0.10
Net realized and unrealized gain (loss)		(0.51	)		2.30
Net increase (decrease) from investment operations		(0.28	)		2.40
Dividends and distributions from:
Net investment income		(0.18	)		(0.10	)
Net realized gain		(0.00	)3		(0.60	)
Total dividends and distributions		(0.18	)		(0.70	)
Net asset value, end of period	$	11.24		$	11.70
Total Investment Return4
Based on net asset value		(2.46	)%		24.01%	5
Ratios to Average Net Assets6
Total expenses		2.00%	7,8		23.73%	9
Total expenses after fees waived		0.70%	7,8		0.68%	9
Net investment income		2.02%	7,8		1.81%	9
Supplemental Data
Net assets, end of period (000)	$	1,646		$	23
Portfolio turnover of the Master Portfolio		35%			1%

¹ Commencement of operations.

²  Based on average shares outstanding.

³  Rounds to less than $0.01.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which include gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 2.51%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.16%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	65

Financial Highlights (continued) LifePath 2045 Portfolio

	Investor A
	Year Ended December 31, 2011			Period June 30, 20101 to December  31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.70		$	10.00
Net investment income2		0.19			0.09
Net realized and unrealized gain (loss)		(0.49	)		2.29
Net increase (decrease) from investment operations		(0.30	)		2.38
Dividends and distributions from:
Net investment income		(0.15	)		(0.08	)
Net realized gain		(0.00	)3		(0.60	)
Total dividends and distributions		(0.15	)		(0.68	)
Net asset value, end of period	$	11.25		$	11.70
Total Investment Return4
Based on net asset value		(2.61	)%		23.86%	5
Ratios to Average Net Assets6
Total expenses		2.20%	7,8		24.00%	9
Total expenses after fees waived		0.95%	7,8		0.93%	9
Net investment income		1.65%	7,8		1.56%	9
Supplemental Data
Net assets, end of period (000)	$	1,228		$	23
Portfolio turnover of the Master Portfolio		35%			1%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Rounds to less than $0.01.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which include gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 2.23%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.16%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
66	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath 2045 Portfolio

	Investor C
	Year Ended December 31, 2011			Period June 30, 20101 to December  31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.67		$	10.00
Net investment income2		0.11			0.05
Net realized and unrealized gain (loss)		(0.50	)		2.28
Net increase (decrease) from investment operations		(0.39	)		2.33
Dividends and distributions from:
Net investment income		(0.10	)		(0.06	)
Net realized gain		(0.00	)3		(0.60	)
Total dividends and distributions		(0.10	)		(0.66	)
Net asset value, end of period	$	11.18		$	11.67
Total Investment Return4
Based on net asset value		(3.37	)%		23.33%	5
Ratios to Average Net Assets6
Total expenses		2.99%	7,8		24.78%	9
Total expenses after fees waived		1.70%	7,8		1.69%	9
Net investment income		0.94%	7,8		0.81%	9
Supplemental Data
Net assets, end of period (000)	$	95		$	23
Portfolio turnover of the Master Portfolio		35%			1%

¹ Commencement of operations.

² Based on average shares outstanding.

³ Rounds to less than $0.01.

⁴ Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵ Aggregate total investment return.

⁶ Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which include gross expenses.

⁷ Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 2.41%.

⁸ Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.16%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹ Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	67

Financial Highlights (continued) LifePath 2045 Portfolio

	Class K
	Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.70		$	10.00
Net investment income2		0.24			0.12
Net realized and unrealized gain (loss)		(0.48	)		2.30
Net increase (decrease) from investment operations		(0.24	)		2.42
Dividends and distributions from:
Net investment income		(0.20	)		(0.12	)
Net realized gain		(0.00	)3		(0.60	)
Total dividends and distributions		(0.20	)		(0.72	)
Net asset value, end of period	$	11.26		$	11.70
Total Investment Return4
Based on net asset value		(2.08	)%		24.22%	5
Ratios to Average Net Assets6
Total expenses		1.72%	7,8		23.37%	9
Total expenses after fees waived		0.35%	7,8		0.33%	9
Net investment income		2.04%	7,8		2.17%	9
Supplemental Data
Net assets, end of period (000)	$	259		$	23
Portfolio turnover of the Master Portfolio		35%			1%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Rounds to less than $0.01.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which include gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 2.71%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.16%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
68	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (concluded) LifePath 2045 Portfolio

	Class R
	Year Ended December 31, 2011			Period June 30, 20101 to December  31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.69		$	10.00
Net investment income2		0.14			0.07
Net realized and unrealized gain (loss)		(0.48	)		2.30
Net increase (decrease) from investment operations		(0.34	)		2.37
Dividends and distributions from:
Net investment income		(0.11	)		(0.08	)
Net realized gain		(0.00	)3		(0.60	)
Total dividends and distributions		(0.11	)		(0.68	)
Net asset value, end of period	$	11.24		$	11.69
Total Investment Return4
Based on net asset value		(2.93	)%		23.68%	5
Ratios to Average Net Assets6
Total expenses		2.57%	7,8		24.26%	9
Total expenses after fees waived		1.19%	7,8		1.19%	9
Net investment income		1.17%	7,8		1.31%	9
Supplemental Data
Net assets, end of period (000)	$	22		$	23
Portfolio turnover of the Master Portfolio		35%			1%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Rounds to less than $0.01.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which include gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 2.71%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.16%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	69

Financial Highlights LifePath 2050 Portfolio

	Institutional
	Year Ended December 31,									Period June 30, 20081 to December  31, 2008
	2011			2010			2009
Per Share Operating Performance
Net asset value, beginning of period	$	18.58		$	16.81		$	13.46		$	20.00
Net investment income		0.31	2		0.31	2		0.38	2		0.10
Net realized and unrealized gain (loss)		(0.99	)		1.91			3.68			(6.52	)
Net increase (decrease) from investment operations		(0.68	)		2.22			4.06			(6.42	)
Dividends and distributions from:
Net investment income		(0.29	)		(0.28	)		(0.16	)		(0.09	)
Net realized gain		(0.45	)		(0.17	)		(0.55	)		(0.00	)3
Return of capital		—			—			—			(0.03	)
Total dividends and distributions		(0.74	)		(0.45	)		(0.71	)		(0.12	)
Net asset value, end of period	$	17.16		$	18.58		$	16.81		$	13.46
Total Investment Return4
Based on net asset value		(3.78	)%		13.43%			30.35%			(32.18	)%5
Ratios to Average Net Assets6
Total expenses		0.71%	7,8		1.09%			1.27%			12.80%	9
Total expenses after fees waived		0.68%	7,8		0.67%			0.67%			0.68%	9
Net investment income		1.69%	7,8		1.83%			2.39%			2.14%	9
Supplemental Data
Net assets, end of period (000)	$	70,555		$	50,613		$	13,992		$	444
Portfolio turnover of the Master Portfolio		13%			5%			12%			0%	10

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Amount is less than $0.01 per share.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2008 and the two years ended December 31, 2010, which include gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.40%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.17%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

¹⁰  Rounds to less than 1%.

See Notes to Financial Statements.
70	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath 2050 Portfolio

	Investor A
	Year Ended December 31,									Period from June 30, 20081 to December 31, 2008
	2011			2010			2009
Per Share Operating Performance
Net asset value, beginning of period	$	18.58		$	16.82		$	13.47		$	20.00
Net investment income		0.26	2		0.28	2		0.41	2		0.14
Net realized and unrealized gain (loss)		(0.99	)		1.90			3.63			(6.59	)
Net increase (decrease) from investment operations		(0.73	)		2.18			4.04			(6.45	)
Dividends and distributions from:
Net investment income		(0.25	)		(0.25	)		(0.14	)		(0.06	)
Net realized gain		(0.45	)		(0.17	)		(0.55	)		(0.00	)3
Return of capital		—			—			—			(0.02	)
Total dividends and distributions		(0.70	)		(0.42	)		(0.69	)		(0.08	)
Net asset value, end of period	$	17.15		$	18.58		$	16.82		$	13.47
Total Investment Return4
Based on net asset value		(4.06	)%		13.14%			30.08%			(32.28	)%5
Ratios to Average Net Assets6
Total expenses		0.96%	7,8		1.34%			1.35%			13.04%	9
Total expenses after fees waived		0.94%	7,8		0.92%			0.84%			0.91%	9
Net investment income		1.44%	7,8		1.67%			2.45%			1.68%	9
Supplemental Data
Net assets, end of period (000)	$	32,617		$	18,809		$	3,056		$	34
Portfolio turnover of the Master Portfolio		13%			5%			12%			0%	10

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Amount is less than $0.01 per share.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2008 and the two years ended December 31, 2010, which include gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.40%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.17%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

¹⁰  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	71

Financial Highlights (continued) LifePath 2050 Portfolio

	Investor C
	Year Ended December 31, 2011			Period May 3, 20101 to December  31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	18.57		$	17.75
Net investment income2		0.12			0.12
Net realized and unrealized gain (loss)		(0.99	)		1.02
Net increase (decrease) from investment operations		(0.87	)		1.14
Dividends and distributions from:
Net investment income		(0.15	)		(0.15	)
Net realized gain		(0.45	)		(0.17	)
Total dividends and distributions		(0.60	)		(0.32	)
Net asset value, end of period	$	17.10		$	18.57
Total Investment Return3
Based on net asset value		(4.76	)%		6.55%	4
Ratios to Average Net Assets5
Total expenses		1.71%	6,7		2.07%	8
Total expenses after fees waived		1.69%	6,7		1.64%	8
Net investment income		0.63%	6,7		1.04%	8
Supplemental Data
Net assets, end of period (000)	$	39		$	21
Portfolio turnover of the Master Portfolio		13%			5%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.40%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.17%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
72	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath 2050 Portfolio

	Class K
	Year Ended December 31,									Period June 30, 20081 to December 31, 2008
	2011			2010			2009
Per Share Operating Performance
Net asset value, beginning of period	$	18.63		$	16.85		$	13.46		$	20.00
Net investment income		0.47	2		0.37	2		0.64	2		0.17
Net realized and unrealized gain (loss)		(1.10	)		1.91			3.49			(6.57	)
Net increase (decrease) from investment operations		(0.63	)		2.28			4.13			(6.40	)
Dividends and distributions from:
Net investment income		(0.35	)		(0.33	)		(0.19	)		(0.11	)
Net realized gain		(0.45	)		(0.17	)		(0.55	)		(0.00	)3
Return of capital		—			—			—			(0.03	)
Total dividends and distributions		(0.80	)		(0.50	)		(0.74	)		(0.14	)
Net asset value, end of period	$	17.20		$	18.63		$	16.85		$	13.46
Total Investment Return4
Based on net asset value		(3.48	)%		13.79%			30.89%			(32.10	)%5
Ratios to Average Net Assets6
Total expenses		0.36%	7,8		0.76%			1.37%			12.41%	9
Total expenses after fees waived		0.34%	7,8		0.33%			0.58%			0.29%	9
Net investment income		2.56%	7,8		2.19%			4.34%			3.94%	9
Supplemental Data
Net assets, end of period (000)	$	625		$	86		$	55		$	24
Portfolio turnover of the Master Portfolio		13%			5%			12%			0%	10

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Amount is less than $0.01 per share.

⁴  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2008 and the two years ended December 31, 2010, which include gross expenses.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.40%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.17%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁹  Annualized.

¹⁰  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	73

Financial Highlights (concluded) LifePath 2050 Portfolio

	Class R
	Year Ended December 31, 2011			Period May 3, 20101 to December  31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	18.56		$	17.75
Net investment income2		0.22			0.22
Net realized and unrealized gain (loss)		(1.00	)		0.97
Net increase (decrease) from investment operations		(0.78	)		1.19
Dividends and distributions from:
Net investment income		(0.20	)		(0.21	)
Net realized gain		(0.45	)		(0.17	)
Total dividends and distributions		(0.65	)		(0.38	)
Net asset value, end of period	$	17.13		$	18.56
Total Investment Return3
Based on net asset value		(4.29	)%		6.87%	4
Ratios to Average Net Assets5
Total expenses		1.21%	6,7		1.57%	8
Total expenses after fees waived		1.19%	6,7		1.16%	8
Net investment income		1.18%	6,7		1.99%	8
Supplemental Data
Net assets, end of period (000)	$	53		$	40
Portfolio turnover of the Master Portfolio		13%			5%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.40%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.17%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
74	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights LifePath 2055 Portfolio

	Institutional
	Year Ended December 31, 2011			Period June 30, 20101 to December  31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.85		$	10.00
Net investment income2		0.23			0.10
Net realized and unrealized gain (loss)		(0.70	)		2.45
Net increase (decrease) from investment operations		(0.47	)		2.55
Dividends and distributions from:
Net investment income		(0.16	)		(0.09	)
Net realized gain		(0.09	)		(0.61	)
Total dividends and distributions		(0.25	)		(0.70	)
Net asset value, end of period	$	11.13		$	11.85
Total Investment Return3
Based on net asset value		(4.02	)%		25.58%	4
Ratios to Average Net Assets5
Total expenses		9.82	%6,7		23.56%	8
Total expenses after fees waived		0.69	%6,7		0.66%	8
Net investment income		1.94	%6,7		1.78%	8
Supplemental Data
Net assets, end of period (000)	$	164		$	24
Portfolio turnover of the Master Portfolio		51	%		1%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which include gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 15.11%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.17%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	75

Financial Highlights (continued) LifePath 2055 Portfolio

	Investor A
	Year Ended December 31, 2011			Period June 30, 20101 to December  31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.85		$	10.00
Net investment income2		0.16			0.09
Net realized and unrealized gain (loss)		(0.67	)		2.46
Net increase (decrease) from investment operations		(0.51	)		2.55
Dividends and distributions from:
Net investment income		(0.12	)		(0.09	)
Net realized gain		(0.09	)		(0.61	)
Total dividends and distributions		(0.21	)		(0.70	)
Net asset value, end of period	$	11.13		$	11.85
Total Investment Return3
Based on net asset value		(4.35	)%		25.50%	4
Ratios to Average Net Assets5
Total expenses		8.94	%6,7		23.83%	8
Total expenses after fees waived		0.94	%6,7		0.91%	8
Net investment income		1.43	%6,7		1.53%	8
Supplemental Data
Net assets, end of period (000)	$	163		$	24
Portfolio turnover of the Master Portfolio		51	%		1%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which include gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 12.56%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.17%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
76	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath 2055 Portfolio

	Investor C
	Year Ended December 31, 2011			Period June 30, 20101 to December  31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.82		$	10.00
Net investment income2		0.10			0.04
Net realized and unrealized gain (loss)		(0.69	)		2.45
Net increase (decrease) from investment operations		(0.59	)		2.49
Dividends and distributions from:
Net investment income		(0.08	)		(0.06	)
Net realized gain		(0.09	)		(0.61	)
Total dividends and distributions		(0.17	)		(0.67	)
Net asset value, end of period	$	11.06		$	11.82
Total Investment Return3
Based on net asset value		(5.01	)%		24.98%	4
Ratios to Average Net Assets5
Total expenses		11.00	%6,7		24.62%	8
Total expenses after fees waived		1.69	%6,7		1.67%	8
Net investment income		0.88	%6,7		0.78%	8
Supplemental Data
Net assets, end of period (000)	$	109		$	24
Portfolio turnover of the Master Portfolio		51	%		1%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 14.29%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.17%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	77

Financial Highlights (continued) LifePath 2055 Portfolio

	Class K
	Year Ended December 31, 2011			Period June 30, 20101 to December  31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.86		$	10.00
Net investment income2		0.23			0.12
Net realized and unrealized gain (loss)		(0.66	)		2.46
Net increase (decrease) from investment operations		(0.43	)		2.58
Dividends and distributions from:
Net investment income		(0.19	)		(0.11	)
Net realized gain		(0.09	)		(0.61	)
Total dividends and distributions		(0.28	)		(0.72	)
Net asset value, end of period	$	11.15		$	11.86
Total Investment Return3
Based on net asset value		(3.71	)%		25.84%	4
Ratios to Average Net Assets5
Total expenses		9.68	%6,7		23.20%	8
Total expenses after fees waived		0.33	%6,7		0.31%	8
Net investment income		1.99	%6,7		2.14%	8
Supplemental Data
Net assets, end of period (000)	$	22		$	24
Portfolio turnover of the Master Portfolio		51	%		1%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 16.23%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.17%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
78	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (concluded) LifePath 2055 Portfolio

	Class R
	Year Ended December 31, 2011			Period June 30, 20101 to December  31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.84		$	10.00
Net investment income2		0.13			0.07
Net realized and unrealized gain (loss)		(0.66	)		2.46
Net increase (decrease) from investment operations		(0.53	)		2.53
Dividends and distributions from:
Net investment income		(0.10	)		(0.08	)
Net realized gain		(0.09	)		(0.61	)
Total dividends and distributions		(0.19	)		(0.69	)
Net asset value, end of period	$	11.12		$	11.84
Total Investment Return3
Based on net asset value		(4.54	)%		25.33%	4
Ratios to Average Net Assets5
Total expenses		10.53	%6,7		24.09%	8
Total expenses after fees waived		1.18	%6,7		1.16%	8
Net investment income		1.14	%6,7		1.29%	8
Supplemental Data
Net assets, end of period (000)	$	22		$	24
Portfolio turnover of the Master Portfolio		51	%		1%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the period ended December 31, 2010, which includes gross expenses.

⁶  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 16.23%.

⁷  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.17%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁸  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	79

Notes to Financial Statements BlackRock Funds III

1. Organization and Significant Accounting Policies:

BlackRock Funds III (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 Delaware statutory trust. The LifePath Portfolios’ financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The financial statements and these accompanying notes relate to nine series of the Trust: LifePath Retirement Portfolio, LifePath 2020 Portfolio, LifePath 2025 Portfolio, LifePath 2030 Portfolio, LifePath 2035 Portfolio, LifePath 2040 Portfolio, LifePath 2045 Portfolio, LifePath 2050 Portfolio and LifePath 2055 Portfolio (each, a “LifePath Portfolio” and collectively, the “LifePath Portfolios”). Each LifePath Portfolio seeks to achieve its investment objective by investing substantially all of its assets in a separate series of Master Investment Portfolio (“MIP”): LifePath Retirement Master Portfolio, LifePath 2020 Master Portfolio, LifePath 2025 Master Portfolio, LifePath 2030 Master Portfolio, LifePath 2035 Master Portfolio, LifePath 2040 Master Portfolio, LifePath 2045 Master Portfolio, LifePath 2050 Master Portfolio and LifePath 2055 Master Portfolio (each, a “LifePath Master Portfolio” and collectively, the “LifePath Master Portfolios”). Each LifePath Master Portfolio has the same or substantially similar investment objective as its corresponding LifePath Portfolio. The performance of a LifePath Portfolio is directly affected by the performance of its corresponding Master Portfolio.

The value of each LifePath Portfolio’s investment in its corresponding LifePath Master Portfolio reflects that LifePath Portfolio’s proportionate interest in the net assets of that LifePath Master Portfolio (46.32%, 51.12%, 99.90%, 50.74%, 99.84%, 52.32%, 99.63%, 62.40% and 97.55% for the LifePath Retirement Portfolio, LifePath 2020 Portfolio, LifePath 2025 Portfolio, LifePath 2030 Portfolio, LifePath 2035 Portfolio, LifePath 2040 Portfolio, LifePath 2045 Portfolio, LifePath 2050 Portfolio and LifePath 2055 Portfolio, respectively, as of December 31, 2011).

Each LifePath Portfolio offers multiple classes of shares. Institutional and Class K Shares are sold without a sales charge and only to certain eligible investors. Investor A Shares are generally sold with a front-end sales charge. Investor C Shares may be subject to a CDSC. Class R Shares are sold without a sales charge and only to certain retirement or similar plans. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Investor A, Investor C and Class R Shares bear certain expenses related to the shareholder servicing of such shares, and Investor C and Class R Shares also bear certain expenses related to the distribution of such shares. Each class has exclusive voting rights with respect to matters relating to its shareholder servicing and distribution expenditures.

The following is a summary of significant accounting policies followed by the LifePath Portfolios:

Valuation: US GAAP defines fair value as the price each 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 Life-

Path Portfolios’ policy is to fair value their financial instruments at market value. The LifePath Portfolios record their investments in the LifePath Master Portfolio at fair value based on the LifePath Portfolio’s proportionate interest in the net assets of the LifePath Master Portfolio. Valuation of securities held by the LifePath Master Portfolio is discussed in Note 1 of the LifePath Master Portfolios’ Notes to Financial Statements, which are included elsewhere in this report.

Investment Transactions and Investment Income: For financial reporting purposes, contributions to and withdrawals from each LifePath Master Portfolio are accounted on a trade date basis. Each LifePath Portfolio records daily its proportionate share of its LifePath Master Portfolio’s income, expenses and realized and unrealized gains and losses. In addition, each LifePath Portfolio accrues its own expenses. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Dividends and Distributions: Dividends from net investment income are declared and paid quarterly. Distributions of capital gains are recorded on the ex-dividend dates. If the total dividends and distributions made in any tax year exceeds net investment income and accumulated realized capital gains, a portion of the total distribution may be treated as a tax return of capital. The amount and timing of dividends and distributions are determined in accordance with federal income tax regulations, which may differ from US GAAP.

Income Taxes: It is the LifePath Portfolios’ 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 federal income tax provision is required.

Each LifePath Portfolio files US federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on LifePath Retirement Portfolio, LifePath 2020 Portfolio, LifePath 2030 Portfolio, LifePath 2040 Portfolio and LifePath 2050 Portfolio US federal tax returns remains open for each of the four years ended December 31, 2011. The statute of limitations on LifePath 2025 Portfolio, LifePath 2035 Portfolio, LifePath 2045 Portfolio and LifePath 2055 Portfolio US federal tax returns remains open for each of the two periods ended December 31, 2011. The statutes of limitations on the LifePath Portfolios’ state and local tax returns may remain open for an additional year depending upon the jurisdiction. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.

Other: Expenses directly related to a LifePath Portfolio or its classes are charged to that LifePath Portfolio or class. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods. Other expenses of the LifePath Portfolio are allocated daily to each class based on its relative net assets.

80 BLACKROCK FUNDS III DECEMBER 31, 2011

Notes to Financial Statements (continued) BlackRock Funds III

2. Administration Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”). Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

The Trust entered into an administration services arrangement with BlackRock Institutional Trust Company, N.A. (“BTC”), which has agreed to provide general administration services (other than investment advice and related portfolio activities). BTC, in consideration thereof, has agreed to bear all of the LifePath Portfolios’ ordinary operating expenses, excluding, generally, investment advisory fees, distribution fees, brokerage and other expenses related to the execution of portfolio transactions, extraordinary expenses and certain other expenses which are borne by the LifePath Portfolios. BTC is entitled to receive for these administration services an annual fee of 0.50% based on the average daily net assets of each LifePath Portfolio’s Institutional, Investor A, Investor C and Class R Shares and 0.15% based on the average net assets of the Class K Shares.

From time to time, BTC may waive such fees in whole or in part. Any such waiver will reduce the expenses of a LifePath Portfolio and, accordingly, have a favorable impact on its performance. BTC may delegate certain of its administration duties to sub-administrators.

The fees of the Trust’s independent registered public accounting firm and legal counsel (the “independent expenses”) are paid directly by the LifePath Portfolios. BTC, has contractually agreed to provide an offsetting credit against the administration fees paid by the LifePath Portfolios in an amount equal to the independent expenses through April 30, 2021. These amounts are included in fees waived by administrator in the Statements of Operations.

The LifePath Portfolios entered into a Distribution Agreement and Distribution and Service Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of BlackRock. Pursuant to the Distribution and Service Plan and in accordance with Rule 12b-1 under the 1940 Act, the LifePath Portfolio’s pay 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 share classes as follows:

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

Pursuant to sub-agreements with BRIL, broker-dealers and BRIL provide shareholder servicing and distribution services to each LifePath Portfolio. The ongoing service and/or distribution fee compensates BRIL and each broker-dealer for providing shareholder servicing and/or distribution related services to Investor A, Investor C and Class R shareholders.

For the year ended December 31, 2011, affiliates earned underwriting discounts, direct commissions and/or dealer concessions on sales of each LifePath Portfolio’s Investor A Shares as follows:

	Investor A
LifePath Retirement Portfolio	$	142
LifePath 2020 Portfolio	$	952
LifePath 2025 Portfolio	$	32
LifePath 2030 Portfolio	$	610
LifePath 2035 Portfolio	$	589
LifePath 2040 Portfolio	$	554
LifePath 2045 Portfolio	$	111
LifePath 2050 Portfolio	$	181
LifePath 2055 Portfolio	$	7

For the year ended December 31, 2011, affiliates of LifePath 2030 Portfolio received contingent deferred sales charges relating to transactions in Investor A Shares of $159.

For the year ended December 31, 2011, affiliates received contingent deferred sales changes relating to transactions in Investor C Shares as follows:

	Investor C
LifePath 2035 Portfolio	$	62
LifePath 2045 Portfolio	$	214
LifePath 2050 Portfolio	$	11
LifePath 2055 Portfolio	$	28

Certain officers and/or trustees of the Trust are officers and/or directors of BlackRock or its affiliates.

BLACKROCK FUNDS III DECEMBER 31, 2011 81

Notes to Financial Statements (continued) BlackRock Funds III

3. Income Tax Information:

US GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of December 31, 2011 attributable to foreign currency transactions, the reclassification of distributions and distributions in excess of taxable income were reclassified to the following accounts:

	LifePath Retirement Portfolio			LifePath 2020 Portfolio			LifePath 2025 Portfolio			LifePath 2030 Portfolio			LifePath 2035 Portfolio
Paid-in capital		—		$	(338,843	)	$	(792	)		—		$	(955	)
Undistributed (distributions in excess of) net investment income	$	56,593		$	112,989		$	818		$	60,387		$	941
Undistributed net realized gain (accumulated net realized loss)	$	(56,593	)	$	225,854		$	(26	)	$	(60,387	)	$	14
	LifePath 2040 Portfolio			LifePath 2045 Portfolio			LifePath 2050 Portfolio			LifePath 2055 Portfolio
Paid-in capital	$	(88,078	)	$	(81	)		—			—
Undistributed (distributions in excess of) net investment income	$	58,041		$	65		$	10,029		$	(7	)
Undistributed net realized gain (accumulated net realized loss)	$	30,037		$	16		$	(10,029	)	$	7

The tax character of distributions paid during the fiscal years ended December 31, 2011 and December 31, 2010 were as follows:

		LifePath Retirement Portfolio		LifePath 2020 Portfolio		LifePath 2025 Portfolio		LifePath 2030 Portfolio		LifePath 2035 Portfolio
Ordinary income	12/31/2011	$	14,526,426	$	24,666,122	$	158,628	$	18,681,115	$	98,927
	12/31/2010	$	14,824,708	$	21,095,641	$	2,762	$	15,962,305	$	3,186
Long-term capital gains	12/31/2011	$	19,687,334	$	46,721,202	$	28	$	11,516,852	$	16
	12/31/2010		—		—	$	2,378		—	$	2,950
Total	12/31/2011	$	34,213,760	$	71,387,324	$	158,656	$	30,197,967	$	98,943
	12/31/2010	$	14,824,708	$	21,095,641	$	5,140	$	15,962,305	$	6,136
		LifePath 2040 Portfolio		LifePath 2045 Portfolio		LifePath 2050 Portfolio		LifePath 2055 Portfolio
Ordinary income	12/31/2011	$	13,500,354	$	37,326	$	1,644,950	$	3,984
	12/31/2010	$	11,929,032	$	3,512	$	1,181,921	$	3,538
Long-term capital gains	12/31/2011	$	3,928,973	$	219	$	2,679,320	$	3,184
	12/31/2010		—	$	3,385	$	262,990	$	3,468
Total	12/31/2011	$	17,429,327	$	37,545	$	4,324,270	$	7,168
	12/31/2010	$	11,929,032	$	6,897	$	1,444,911	$	7,006

82 BLACKROCK FUNDS III DECEMBER 31, 2011

Notes to Financial Statements (continued) BlackRock Funds III

As of December 31, 2011, the tax components of accumulated net earnings (losses) were as follows:

	LifePath Retirement Portfolio			LifePath 2020 Portfolio			LifePath 2025 Portfolio			LifePath 2030 Portfolio			LifePath 2035 Portfolio
Undistributed long-term capital gains	$	1,797,558		$	—		$	—		$	80,382		$	—
Capital loss carryforwards		—			—			(227,304	)		—			(180,304	)
Net unrealized gains (losses)*		39,351,087			67,472,485			(177,275	)		7,232,578			(207,961	)
Qualified late-year losses**		(7,976	)		(20,340,875	)		(19,917	)		(2,169,574	)		(13,974	)
Total	$	41,140,669		$	47,131,610		$	(424,496	)	$	5,143,386		$	(402,239	)

	LifePath 2040 Portfolio			LifePath 2045 Portfolio			LifePath 2050 Portfolio			LifePath 2055 Portfolio
Undistributed ordinary income	$	—		$	—		$	—		$	34
Undistributed long-term capital gains		—			—			85,769			520
Capital loss carryforwards		—			(85,468	)		—			—
Net unrealized gains (losses)*		25,171,706			(97,277	)		(906,473	)		(2,694	)
Qualified late-year losses**		(2,595,071	)		(9,216	)		(425,652	)		(1,250	)
Total	$	22,576,635		$	(191,961	)	$	(1,246,356	)	$	(3,390	)

  * The differences between book-basis and tax-basis net unrealized gains (losses) were attributable primarily to the timing and recognition of partnership income.

** The LifePath Portfolios have elected to defer certain qualified late-year losses and recognize such losses in the year ending December 31, 2012.

As of December 31, 2011, certain LifePath Portfolios had capital loss carryforwards with no expiration dates, available to offset future realized capital gains as follows:

LifePath 2025 Portfolio	$	227,304
LifePath 2035 Portfolio	$	180,304
LifePath 2045 Portfolio	$	85,468

4. Capital Share Transactions:

Transactions in capital shares for each class were as follows:

	Year Ended December 31, 2011						Year Ended December 31, 20101
LifePath Retirement Portfolio	Shares			Amount			Shares			Amount
Institutional
Shares sold		8,526,399		$	99,878,871			15,754,230		$	174,109,573
Shares issued to shareholders in reinvestment of dividends and distributions		1,918,046			22,032,862			925,464			10,208,251
Shares redeemed		(14,957,769	)		(175,099,515	)		(14,893,180	)		(166,597,185	)
Net increase (decrease)		(4,513,324	)	$	(53,187,782	)		1,786,514		$	17,720,639
Investor A
Shares sold		5,225,379		$	56,814,487			5,981,701		$	61,288,546
Shares issued to shareholders in reinvestment of dividends and distributions		926,518			9,818,452			342,275			3,502,038
Shares redeemed		(5,567,375	)		(60,354,430	)		(4,125,919	)		(42,481,568	)
Net increase		584,522		$	6,278,509			2,198,057		$	22,309,016
Investor C
Shares sold		3,029		$	35,464			1,783		$	20,000
Net increase		3,029		$	35,464			1,783		$	20,000
Class K
Shares sold		312,296		$	3,656,159			44,267		$	490,977
Shares issued to shareholders in reinvestment of dividends and distributions		16,847			192,443			1,377			15,241
Shares redeemed		(16,648	)		(194,056	)		(6,054	)		(66,623	)
Net increase		312,495		$	3,654,546			39,590		$	439,595

BLACKROCK FUNDS III DECEMBER 31, 2011 83

Notes to Financial Statements (continued) BlackRock Funds III

LifePath Retirement Portfolio (concluded)	Year Ended December 31, 2011						Year Ended December 31, 20101
	Shares			Amount			Shares			Amount
Class R
Shares sold		1,106		$	12,968			2,860		$	32,365
Shares issued to shareholders in reinvestment of dividends and distributions		81			934			5			60
Shares redeemed		(428	)		(5,072	)		—			—
Net increase		759		$	8,830			2,865		$	32,425
1   Period May 3, 2010 (commencement of operations) to December 31, 2010 for Investor C and Class R Shares.
LifePath 2020 Portfolio
Institutional
Shares sold		10,721,352		$	172,562,315			20,063,678		$	299,833,550
Shares issued to shareholders in reinvestment of dividends and distributions		2,908,861			44,888,727			957,387			14,301,293
Shares redeemed		(17,203,959	)		(275,663,564	)		(13,435,424	)		(205,358,149	)
Net increase (decrease)		(3,573,746	)	$	(58,212,522	)		7,585,641		$	108,776,694
Investor A
Shares sold		6,800,305		$	104,196,707			8,394,748		$	118,920,144
Shares issued to shareholders in reinvestment of dividends and distributions		1,619,642			23,691,305			404,293			5,752,447
Shares redeemed		(5,486,607	)		(84,222,849	)		(3,186,435	)		(45,410,726	)
Net increase		2,933,340		$	43,665,163			5,612,606		$	79,261,865
Investor C
Shares sold		12,546		$	198,694			7,216		$	105,360
Shares issued to shareholders in reinvestment of dividends and distributions		461			7,045			63			914
Shares redeemed		(405	)		(6,638	)		(1	)		(15	)
Net increase		12,602		$	199,101			7,278		$	106,259
Class K
Shares sold		573,362		$	9,228,551			174,581		$	2,596,584
Shares issued to shareholders in reinvestment of dividends and distributions		22,482			345,441			3,669			54,736
Shares redeemed		(342,692	)		(5,540,687	)		(88,260	)		(1,328,409	)
Net increase		253,152		$	4,033,305			89,990		$	1,322,911
Class R
Shares sold		9,263		$	142,158			5,076		$	79,201
Shares issued to shareholders in reinvestment of dividends and distributions		426			6,486			21			338
Shares redeemed		(4,186	)		(69,394	)		—			—
Net increase		5,503		$	79,250			5,097		$	79,539
1   Period May 3, 2010 (commencement of operations) to December 31, 2010 for Investor C and Class R Shares.
								Period Ended December 31, 20101
LifePath 2025 Portfolio								Shares			Amount
Institutional
Shares sold		308,420		$	3,585,836			2,000		$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		3,779			42,343			5			52
Shares redeemed		(22,232	)		(250,826	)		—			—
Net increase		289,967		$	3,377,353			2,005		$	20,052

84 BLACKROCK FUNDS III DECEMBER 31, 2011

Notes to Financial Statements (continued) BlackRock Funds III

LifePath 2025 Portfolio (concluded)	Year Ended December 31, 2011						Period Ended December 31, 20101
	Shares			Amount			Shares			Amount
Investor A
Shares sold		743,173		$	8,518,519			2,000		$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		7,269			81,569			4			39
Shares redeemed		(112,926	)		(1,286,222	)		—			—
Net increase		637,516		$	7,313,866			2,004		$	20,039
Investor C
Shares sold		20,186		$	219,747			2,000		$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		27			302			—			—
Net increase		20,213		$	220,049			2,000		$	20,000
Class K
Shares sold		282,594		$	3,190,420			2,000		$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		2,730			30,725			6			70
Shares redeemed		(143,907	)		(1,640,530	)		—			—
Net increase		141,417		$	1,580,615			2,006		$	20,070
Class R
Shares sold		—		$	—			2,000		$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		—			—			2			25
Net increase		—		$	—			2,002		$	20,025
1   For the period from June 30, 2010 (commencement of operations) to December 31, 2010.
								Year Ended December 31, 20101
LifePath 2030 Portfolio								Shares			Amount
Institutional
Shares sold		10,864,175		$	160,331,087			20,160,251		$	273,772,703
Shares issued to shareholders in reinvestment of dividends and distributions		1,336,585			19,251,879			804,161			10,873,869
Shares redeemed		(14,267,842	)		(209,352,604	)		(12,247,963	)		(170,749,570	)
Net increase (decrease)		(2,067,082	)	$	(29,769,638	)		8,716,449		$	113,897,002
Investor A
Shares sold		6,266,205		$	90,818,114			7,398,087		$	98,017,049
Shares issued to shareholders in reinvestment of dividends and distributions		681,295			9,600,090			314,564			4,176,888
Shares redeemed		(3,816,165	)		(55,267,286	)		(2,406,272	)		(31,900,908	)
Net increase		3,131,335		$	45,150,918			5,306,379		$	70,293,029
Investor C
Shares sold		9,967		$	139,574			1,520		$	21,193
Shares issued to shareholders in reinvestment of dividends and distributions		108			1,502			—			—
Shares redeemed		(563	)		(8,015	)		(88	)		(1,219	)
Net increase		9,512		$	133,061			1,432		$	19,974
Class K
Shares sold		372,886		$	5,420,324			187,972		$	2,547,559
Shares issued to shareholders in reinvestment of dividends and distributions		10,919			156,006			2,411			32,962
Shares redeemed		(53,380	)		(799,211	)		(93,819	)		(1,267,829	)
Net increase		330,425		$	4,777,119			96,564		$	1,312,692

BLACKROCK FUNDS III DECEMBER 31, 2011 85

Notes to Financial Statements (continued) BlackRock Funds III

LifePath 2030 Portfolio (concluded)	Year Ended December 31, 2011						Year Ended December 31, 20101
	Shares			Amount			Shares			Amount
Class R
Shares sold		11,693		$	159,449			5,165		$	73,669
Shares issued to shareholders in reinvestment of dividends and distributions		221			3,134			21			309
Shares redeemed		(3,648	)		(52,913	)		(78	)		(1,131	)
Net increase		8,266		$	109,670			5,108		$	72,847
1   Period May 3, 2010 (commencement of operations) to December 31, 2010 for Investor C and Class R Shares.
								Period Ended December 31, 20101
LifePath 2035 Portfolio								Shares			Amount
Institutional
Shares sold		187,358		$	2,242,066			2,000		$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		2,382			27,198			3			31
Shares redeemed		(9,833	)		(113,675	)		—			—
Net increase		179,907		$	2,155,589			2,003		$	20,031
Investor A
Shares sold		411,896		$	4,866,349			2,337		$	23,769
Shares issued to shareholders in reinvestment of dividends and distributions		4,340			49,724			18			209
Shares redeemed		(49,782	)		(580,912	)		(3	)		(30	)
Net increase		366,454		$	4,335,161			2,352		$	23,948
Investor C
Shares sold		18,711		$	215,709			2,568		$	26,828
Shares issued to shareholders in reinvestment of dividends and distributions		50			559			27			307
Shares redeemed		(4,277	)		(47,057	)		—			—
Net increase		14,484		$	169,211			2,595		$	27,135
Class K
Shares sold		134,726		$	1,559,562			2,000		$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		1,711			19,640			4			50
Shares redeemed		(44,680	)		(529,827	)		—			—
Net increase		91,757		$	1,049,375			2,004		$	20,050
Class R
Shares sold		—		$	—			2,000		$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		—			—			0	2		4
Net increase		—		$	—			2,000		$	20,004
1   For the period from June 30, 2010 (commencement of operations) to December 31, 2010.
2   Rounds to less than 0.5 shares.
								Year Ended December 31, 20101
LifePath 2040 Portfolio								Shares			Amount
Institutional
Shares sold		8,158,582		$	145,577,946			12,914,324		$	210,820,133
Shares issued to shareholders in reinvestment of dividends and distributions		664,823			11,635,668			508,414			8,241,327
Shares redeemed		(8,989,028	)		(159,145,410	)		(9,252,375	)		(154,832,555	)
Net increase (decrease)		(165,623	)	$	(1,931,796	)		4,170,363		$	64,228,905

86 BLACKROCK FUNDS III DECEMBER 31, 2011

Notes to Financial Statements (continued) BlackRock Funds III

LifePath 2040 Portfolio (concluded)	Year Ended December 31, 2011						Year Ended December 31, 20101
	Shares			Amount			Shares			Amount
Investor A
Shares sold		3,456,802		$	59,040,725			4,442,624		$	68,980,989
Shares issued to shareholders in reinvestment of dividends and distributions		299,265			4,996,722			192,095			2,981,575
Shares redeemed		(2,539,137	)		(43,509,075	)		(1,638,400	)		(25,566,500	)
Net increase		1,216,930		$	20,528,372			2,996,319		$	46,396,064
Investor C
Shares sold		4,607		$	78,201			1,184		$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		6			97			—			—
Shares redeemed		(2	)		(25	)		—			—
Net increase		4,611		$	78,273			1,184		$	20,000
Class K
Shares sold		276,335		$	4,827,363			37,758		$	624,131
Shares issued to shareholders in reinvestment of dividends and distributions		4,005			69,028			151			2,570
Shares redeemed		(9,824	)		(175,325	)		(30,552	)		(518,330	)
Net increase		270,516		$	4,721,066			7,357		$	108,371
Class R
Shares sold		20,087		$	323,569			7,189		$	124,454
Shares issued to shareholders in reinvestment of dividends and distributions		305			5,236			35			624
Shares redeemed		(279	)		(4,900	)		(150	)		(2,611	)
Net increase		20,113		$	323,905			7,074		$	122,467
1   Period May 3, 2010 (commencement of operations) to December 31, 2010 for Investor C and Class R Shares.
								Period Ended December 31, 20101
LifePath 2045 Portfolio							Shares			Amount
Institutional
Shares sold		150,876		$	1,790,065			2,000		$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		1,575			18,285			1			15
Shares redeemed		(8,082	)		(94,178	)		—			—
Net increase		144,369		$	1,714,172			2,001		$	20,015
Investor A
Shares sold		126,500		$	1,525,233			2,000		$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		1,134			13,226			0	2		2
Shares redeemed		(20,422	)		(231,972	)		—			—
Net increase		107,212		$	1,306,487			2,000		$	20,002
Investor C
Shares sold		8,267		$	94,835			2,000		$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		16			185			—			—
Shares redeemed		(1,761	)		(21,566	)		—			—
Net increase		6,522		$	73,454			2,000		$	20,000
Class K
Shares sold		21,328		$	252,476			2,000		$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		355			4,140			3			34
Shares redeemed		(679	)		(8,086	)		—			—
Net increase		21,004		$	248,530			2,003		$	20,034

BLACKROCK FUNDS III DECEMBER 31, 2011 87

Notes to Financial Statements (continued) BlackRock Funds III

LifePath 2045 Portfolio (concluded)	Year Ended December 31, 2011				Period Ended December 31, 20101
	Shares		Amount		Shares		Amount
Class R
Shares sold		—	$	—		2,000	$	20,000
Net increase		—	$	—		2,000	$	20,000

¹  For the period from June 30, 2010 (commencement of operations) to December 31, 2010.

²  Rounds to less than 0.5 shares.

LifePath 2050 Portfolio						Year Ended December 31, 20101
						Shares			Amount
Institutional
Shares sold	2,655,350		$	49,273,547			2,591,294		$	43,705,040
Shares issued to shareholders in reinvestment of dividends and distributions	170,482			3,015,086			59,713			1,034,800
Shares redeemed	(1,436,859	)		(25,788,852	)		(759,817	)		(13,186,393	)
Net increase	1,388,973		$	26,499,781			1,891,190		$	31,553,447
Investor A
Shares sold	1,020,026		$	18,983,705			897,906		$	15,222,321
Shares issued to shareholders in reinvestment of dividends and distributions	67,355			1,189,240			19,651			343,034
Shares redeemed	(197,703	)		(3,619,720	)		(86,923	)		(1,485,514	)
Net increase	889,678		$	16,553,225			830,634		$	14,079,841
Investor C
Shares sold	1,195		$	20,927			1,127		$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions	1			11			—			—
Shares redeemed	(63	)		(1,115	)		—			—
Net increase	1,133		$	19,823			1,127		$	20,000
Class K
Shares sold	30,546		$	548,675			1,247		$	22,177
Shares issued to shareholders in reinvestment of dividends and distributions	1,165			20,322			112			1,950
Shares redeemed	(6	)		(119	)		—			—
Net increase	31,705		$	568,878			1,359		$	24,127
Class R
Shares sold	1,245		$	22,576			2,135		$	38,417
Shares issued to shareholders in reinvestment of dividends and distributions	64			1,132			13			228
Shares redeemed	(345	)		(6,023	)		—			—
Net increase	964		$	17,685			2,148		$	38,645
1  Period May 3, 2010 (commencement of operations) to December 31, 2010 for Investor C and Class R Shares.
							Period Ended December 31, 20101
LifePath 2055 Portfolio						Shares			Amount
Institutional
Shares sold	12,679		$	147,015			2,000		$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions	189			2,160			—			—
Shares redeemed	(123	)		(1,420	)		—			—
Net increase	12,745		$	147,755			2,000		$	20,000

88 BLACKROCK FUNDS III DECEMBER 31, 2011

Notes to Financial Statements (concluded) BlackRock Funds III

LifePath 2055 Portfolio (concluded)	Year Ended December 31, 2011						Period Ended December 31, 20101
	Shares			Amount			Shares		Amount
Investor A
Shares sold		24,017		$	280,326			2,000	$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		138			1,533			—		—
Shares redeemed		(11,500	)		(141,503	)		—		—
Net increase		12,655		$	140,356			2,000	$	20,000
Investor C
Shares sold		8,004		$	97,427			2,000	$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		98			1,138			—		—
Shares redeemed		(281	)		(3,007	)		—		—
Net increase		7,821		$	95,558			2,000	$	20,000
Class K
Shares sold		—		$	—			2,000	$	20,000
Shares issued to shareholders in reinvestment of dividends and distributions		—			—			1		10
Net increase		—		$	—			2,001	$	20,010
Class R
Shares sold		—		$	—			2,000	$	20,000
Net increase		—		$	—			2,000	$	20,000

¹  For the period from June 30, 2010 (commencement of operations) to December 31, 2010.

5. Subsequent Events:

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

BLACKROCK FUNDS III DECEMBER 31, 2011 89

Report of Independent Registered Public Accounting Firm BlackRock Funds III

To the Shareholders and Board of Trustees of BlackRock Funds III:

In our opinion, the accompanying statements of assets and liabilities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the LifePath Retirement Portfolio, LifePath 2020 Portfolio, LifePath 2025 Portfolio, LifePath 2030 Portfolio, LifePath 2035 Portfolio, LifePath 2040 Portfolio, LifePath 2045 Portfolio, LifePath 2050 Portfolio and LifePath 2055 Portfolio, each a series of BlackRock Funds III (the “Trust”), at December 31, 2011, the results of each of their operations for the year then ended and the changes in each of their net assets and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Trust’s manage-

ment. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 24, 2012

Important Tax Information (Unaudited)

The following information is provided with respect to the ordinary income distributions paid during the tax year ended December 31, 2011.

	Period		LifePath Retirement Portfolio		LifePath 2020 Portfolio		LifePath 2025 Portfolio		LifePath 2030 Portfolio		LifePath 2035 Portfolio
Qualified Dividend Income for Individuals1		April—December 2011		23.81%		36.88%		61.92%		55.18%		79.59%
Dividends Qualifying for the Dividend Received Deduction for Corporations1		April—December 2011		14.54%		24.67%		29.62%		34.57%		37.70%
Federal Obligation Interest2		April—December 2011		4.62%		3.45%		2.72%		2.34%		1.71%
	Period		LifePath 2040 Portfolio		LifePath 2045 Portfolio		LifePath 2050 Portfolio		LifePath 2055 Portfolio
Qualified Dividend Income for Individuals1		April—December 2011		79.60%		95.49%		73.82%		100.00%
Dividends Qualifying for the Dividend Received Deduction for Corporations1		April—December 2011		44.09%		45.07%		48.34%		59.27%
Federal Obligation Interest2		April—December 2011		1.35%		—		—		—

¹  The LifePath Portfolios hereby designate the percentage indicated above or the maximum amount allowable by law.

²  The law varies in each state as to whether and what percentage of dividend income attributable to federal obligations is exempt from state income tax. We recommend that you consult your tax advisor to determine if any portion of the dividends you received is exempt from state income taxes.

90 BLACKROCK FUNDS III DECEMBER 31, 2011

BlackRock Funds III

Important Tax Information (concluded)

Additionally, the LifePath Portfolios distributed long-term capital gains per share to shareholders of record on the following dates:

Record date	June 30, 2011		December 30, 2011
LifePath Retirement Portfolio		—		0.352415
LifePath 2020 Portfolio		—		0.609304
LifePath 2025 Portfolio		0.000035		—
LifePath 2030 Portfolio		—		0.159839
LifePath 2035 Portfolio		0.000031		—
LifePath 2040 Portfolio		—		0.084814
LifePath 2045 Portfolio		0.001067		—
LifePath 2050 Portfolio		0.051305		0.376946
LifePath 2055 Portfolio		0.012110		0.068207

BLACKROCK FUNDS III DECEMBER 31, 2011 91

Master Portfolio Information as of December 31, 2011 Master Investment Portfolio

LifePath Retirement Master Portfolio

Portfolio Composition Percent of
Affiliated Investment  Companies

Fixed Income Funds	61	%
Equity Funds	38
Short-Term Securities	1

Portfolio Holdings Percent of
Affiliated Investment Companies

CoreAlpha Bond Master Portfolio	52	%
Active Stock Master Portfolio	22
iShares Barclays TIPS Bond Fund	9
iShares MSCI EAFE Index Fund	7
Master Small Cap Index Series	4
iShares MSCI Emerging Markets Index Fund	3
BlackRock Cash Funds: Institutional, SL Agency Shares	1
iShares MSCI Canada Index Fund	1
iShares MSCI EAFE Small Cap Index Fund	1

LifePath 2020 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	53	%
Fixed Income Funds	42
Short-Term Securities	5

Portfolio Holdings Percent of
Affiliated Investment Companies

CoreAlpha Bond Master Portfolio	36	%
Active Stock Master Portfolio	31
iShares MSCI EAFE Index Fund	9
iShares Barclays TIPS Bond Fund	6
BlackRock Cash Funds: Institutional, SL Agency Shares	4
Master Small Cap Index Series	4
iShares MSCI Emerging Markets Index Fund	4
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	2
iShares Cohen & Steers Realty Majors Index Fund	1
BlackRock Cash Funds: Prime, SL Agency Shares	1
iShares MSCI Canada Index Fund	1
iShares MSCI EAFE Small Cap Index Fund	1

LifePath 2025 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	63	%
Fixed Income Funds	35
Short-Term Securities	2

Portfolio Holdings Percent of
Affiliated Investment Companies

Active Stock Master Portfolio	37	%
CoreAlpha Bond Master Portfolio	30
iShares MSCI EAFE Index Fund	11
iShares Barclays TIPS Bond Fund	5
iShares MSCI Emerging Markets Index Fund	4
Master Small Cap Index Series	3
BlackRock Cash Funds: Institutional, SL Agency Shares	2
iShares Cohen & Steers Realty Majors Index Fund	2
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	2
iShares MSCI Canada Index Fund	2
iShares MSCI EAFE Small Cap Index Fund	2

The Portfolio allocation and holdings listed above are current as of the report date. However, the Portfolios are regularly monitored and their composition may vary throughout various periods.

92 BLACKROCK FUNDS III DECEMBER 31, 2011

Master Portfolio Information (continued) as of December 31, 2011 Master Investment Portfolio

LifePath 2030 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	69	%
Fixed Income Funds	27
Short-Term Securities	4

Portfolio Holdings Percent of
Affiliated Investment Companies

Active Stock Master Portfolio	40	%
CoreAlpha Bond Master Portfolio	23
iShares MSCI EAFE Index Fund	12
iShares Barclays TIPS Bond Fund	4
iShares MSCI Emerging Markets Index Fund	4
BlackRock Cash Funds: Institutional, SL Agency Shares	3
iShares Cohen & Steers Realty Majors Index Fund	3
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	3
Master Small Cap Index Series	3
iShares MSCI Canada Index Fund	2
iShares MSCI EAFE Small Cap Index Fund	2
BlackRock Cash Funds: Prime, SL Agency Shares	1

LifePath 2035 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	77	%
Fixed Income Funds	20
Short-Term Securities	3

Portfolio Holdings Percent of
Affiliated Investment Companies

Active Stock Master Portfolio	45	%
CoreAlpha Bond Master Portfolio	18
iShares MSCI EAFE Index Fund	12
iShares MSCI Emerging Markets Index Fund	4
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	4
iShares Cohen & Steers Realty Majors Index Fund	3
Master Small Cap Index Series	3
iShares Barclays TIPS Bond Fund	2
BlackRock Cash Funds: Institutional, SL Agency Shares	2
ACWI ex-US Index Master Portfolio	2
iShares MSCI EAFE Small Cap Index Fund	2
iShares MSCI Canada Index Fund	2
BlackRock Cash Funds: Prime, SL Agency Shares	1

LifePath 2040 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	82	%
Fixed Income Funds	14
Short-Term Securities	4

Portfolio Holdings Percent of
Affiliated Investment Companies

Active Stock Master Portfolio	48	%
iShares MSCI EAFE Index Fund	14
CoreAlpha Bond Master Portfolio	13
iShares MSCI Emerging Markets Index Fund	5
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	4
iShares Cohen & Steers Realty Majors Index Fund	4
BlackRock Cash Funds: Institutional, SL Agency Shares	3
Master Small Cap Index Series	3
iShares MSCI Canada Index Fund	2
iShares MSCI EAFE Small Cap Index Fund	2
iShares Barclays TIPS Bond Fund	1
BlackRock Cash Funds: Prime, SL Agency Shares	1

The Portfolio allocation and holdings listed above are current as of the report date. However, the Portfolios are regularly monitored and their composition may vary throughout various periods.

BLACKROCK FUNDS III DECEMBER 31, 2011 93

Master Portfolio Information (continued) as of December 31, 2011 Master Investment Portfolio

LifePath 2045 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	87	%
Fixed Income Funds	10
Short-Term Securities	3

Portfolio Holdings Percent of
Affiliated Investment Companies

Active Stock Master Portfolio	52	%
iShares MSCI EAFE Index Fund	13
CoreAlpha Bond Master Portfolio	10
iShares MSCI Emerging Markets Index Fund	5
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	4
iShares Cohen & Steers Realty Majors Index Fund	4
ACWI ex-US Index Master Portfolio	3
Master Small Cap Index Series	2
iShares MSCI EAFE Small Cap Index Fund	2
iShares MSCI Canada Index Fund	2
BlackRock Cash Funds: Institutional, SL Agency Shares	2
BlackRock Cash Funds: Prime, SL Agency Shares	1

LifePath 2050 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	91	%
Short-Term Securities	5
Fixed Income Funds	4

Portfolio Holdings Percent of
Affiliated Investment Companies

Active Stock Master Portfolio	53	%
iShares MSCI EAFE Index Fund	15
iShares MSCI Emerging Markets Index Fund	6
iShares Cohen & Steers Realty Majors Index Fund	5
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	5
CoreAlpha Bond Master Portfolio	4
BlackRock Cash Funds: Institutional, SL Agency Shares	4
iShares MSCI Canada Index Fund	2
iShares MSCI EAFE Small Cap Index Fund	2
Master Small Cap Index Series	2
ACWI ex-US Index Master Portfolio	1
BlackRock Cash Funds: Prime, SL Agency Shares	1

LifePath 2055 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	96	%
Short-Term Securities	3
Fixed Income Funds	1

Portfolio Holdings Percent of
Affiliated Investment Companies

Active Stock Master Portfolio	54	%
iShares MSCI EAFE Index Fund	13
ACWI ex-US Index Master Portfolio	6
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	5
iShares Cohen & Steers Realty Majors Index Fund	5
iShares MSCI Emerging Markets Index Fund	5
Master Small Cap Index Series	4
BlackRock Cash Funds: Institutional, SL Agency Shares	2
iShares MSCI EAFE Small Cap Index Fund	2
iShares MSCI Canada Index Fund	2
BlackRock Cash Funds: Prime, SL Agency Shares	1
CoreAlpha Bond Master Portfolio	1

The Portfolio allocation and holdings listed above are current as of the report date. However, the Portfolios are regularly monitored and their composition may vary throughout various periods.

94 BLACKROCK FUNDS III DECEMBER 31, 2011

Master Portfolio Information (concluded) as of December 31, 2011 Master Investment Portfolio

Active Stock Master Portfolio

Ten Largest Holdings Percent of
Long-Term Investments

Exxon Mobil Corp.	3	%
Apple, Inc.	3
Microsoft Corp.	3
JPMorgan Chase & Co.	2
Pfizer, Inc.	2
Wells Fargo & Co.	2
Chevron Corp.	1
Verizon Communications, Inc.	1
Philip Morris International, Inc.	1
Merck & Co., Inc.	1

Sector Allocation Percent of
Long-Term Investments

Information Technology	19	%
Health Care	13
Consumer Discretionary	13
Energy	12
Financials	12
Industrials	11
Consumer Staples	10
Materials	4
Utilities	3
Telecommunication Services	3

For Active Stock Master Portfolio compliance purposes, the Active Stock Master Portfolio’s sector classifications refer to any one or more of the sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Active Stock Master Portfolio management. These definitions may not apply for purposes of this report, which may combine such sector sub-classifications for reporting ease.

CoreAlpha Bond Master Portfolio

Portfolio Composition Percent of
Long-Term Investments

U.S. Government Sponsored Agency Securities	51	%
Corporate Bonds	22
U.S. Treasury Obligations	16
Asset-Backed Securities	6
Non-Agency Mortgage-Backed Securities	3
Foreign Agency Obligations	1
Taxable Municipal Bonds	1

Credit Quality Allocation¹ Percent of
Long-Term Investments

AAA/Aaa2	69	%
AA/Aa	5
A	11
BBB/Baa	12
BB/Ba	2
B	1

¹ Using the higher of Standard & Poor’s (“S&P’s”) or Moody’s Investors Service.

² Includes US Government Sponsored Agency Securities which were deemed AAA/Aaa by the investment advisor.

The Portfolio allocation and holdings listed above are current as of the report date. However, the Portfolios are regularly monitored and their composition may vary throughout various periods.

BLACKROCK FUNDS III DECEMBER 31, 2011 95

Schedule of Investments December 31, 2011 LifePath Retirement Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 37.6%
Active Stock Master Portfolio	$	298,043,934	$	298,043,934
ACWI ex-US Index Master Portfolio	$	5,548,263		5,548,263
iShares Cohen & Steers Realty Majors Index Fund (b)		19,438		1,364,936
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (b)		59,926		1,513,132
iShares MSCI Canada Index Fund		520,174		13,836,628
iShares MSCI EAFE Index Fund (b)		1,903,131		94,262,079
iShares MSCI EAFE Small Cap Index Fund		354,938		12,337,645
iShares MSCI Emerging Markets Index Fund (b)		939,069		35,628,278
Master Small Cap Index Series	$	59,483,717		59,483,717
				522,018,612
Fixed Income Funds — 61.3%
CoreAlpha Bond Master Portfolio	$	725,793,169		725,793,169
iShares Barclays TIPS Bond Fund (b)		1,059,111		123,587,662
				849,380,831

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 1.8%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (c)(d)		19,603,098	$	19,603,098
BlackRock Cash Funds: Prime, SL Agency Shares, 0.18% (c)(d)		5,266,000		5,266,000
				24,869,098
Total Affiliated Investment Companies (Cost — $1,335,228,205*) — 100.7%				1,396,268,541
Liabilities in Excess of Other Assets — (0.7)%				(9,235,992	)
Net Assets — 100.0%			$	1,387,032,549

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	1,337,550,173
Gross unrealized appreciation	$	65,435,441
Gross unrealized depreciation		(6,717,073	)
Net unrealized appreciation	$	58,718,368

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the year, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/ Beneficial Interest Held at December  31, 2010		Shares/ Beneficial Interest Purchased		Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at December  31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	272,611,476	$	25,432,4581		—		$	298,043,934	$	298,043,934	$	22,428,246		$	5,383,629
ACWI ex-US Index Master Portfolio		—	$	5,548,2631		—		$	5,548,263	$	5,548,263	$	85,672		$	18,386
BlackRock Cash Funds: Institutional, SL Agency Shares		75,437,346		—		(55,834,248	)2		19,603,098	$	19,603,098		—		$	204,623
BlackRock Cash Funds: Prime, SL Agency Shares		11,685,473		—		(6,419,473	)2		5,266,000	$	5,266,000		—		$	67,381
CoreAlpha Bond Master Portfolio	$	711,674,200	$	14,118,9691		—		$	725,793,169	$	725,793,169	$	23,465,567		$	25,344,759
iShares Barclays TIPS Bond Fund		1,104,097		46,057		(91,043	)		1,059,111	$	123,587,662	$	674,579		$	5,379,893
iShares Cohen & Steers Realty Majors Index Fund		71,293		7,507		(59,362	)		19,438	$	1,364,936	$	1,361,719		$	133,951
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		211,940		43,962		(195,976	)		59,926	$	1,513,132	$	1,181,996		$	255,601
iShares MSCI Canada Index Fund		402,132		123,033		(4,991	)		520,174	$	13,836,628	$	(7,114	)	$	248,911
iShares MSCI EAFE Index Fund		1,493,685		576,229		(166,783	)		1,903,131	$	94,262,079	$	132,261		$	2,850,197
iShares MSCI EAFE Small Cap Index Fund		273,404		81,534		—			354,938	$	12,337,645		—		$	366,645
iShares MSCI Emerging Markets Index Fund		740,724		258,673		(60,328	)		939,069	$	35,628,278	$	(536,765	)	$	683,110
iShares S&P MidCap 400 Index Fund		761,894		—		(761,894	)		—		—	$	25,915,728		$	322,015
iShares S&P SmallCap 600 Index Fund		415,539		12,376		(427,915	)		—		—	$	10,424,571		$	109,696
Master Small Cap Index Series		—	$	59,483,7171		—		$	59,483,717	$	59,483,717	$	(1,699,687	)	$	457,887

¹  Represents net shares/beneficial interest purchased.

² Represents net shares sold.

(b) Security, or a portion of security, is on loan.

(c) Represents the current yield as of report date.

(d) All or a portion of this security was purchased with the cash collateral from loaned securities.

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

Ÿ Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

Ÿ 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)

Ÿ Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative

See Notes to Financial Statements.

96 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (concluded) LifePath Retirement Master Portfolio

financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	307,399,458	$	1,088,869,083		—	$	1,396,268,541

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 97

Schedule of Investments December 31, 2011 LifePath 2020 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 54.8%
Active Stock Master Portfolio	$	748,693,513	$	748,693,513
ACWI ex-US Index Master Portfolio	$	5,969,722		5,969,722
iShares Cohen & Steers Realty Majors Index Fund (b)		513,326		36,045,752
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (b)		1,583,649		39,987,137
iShares MSCI Canada Index Fund (b)		1,190,355		31,663,443
iShares MSCI EAFE Index Fund (b)		4,619,681		228,812,800
iShares MSCI EAFE Small Cap Index Fund		848,248		29,485,101
iShares MSCI Emerging Markets Index Fund (b)		2,251,118		85,407,417
Master Small Cap Index Series	$	86,267,134		86,267,134
				1,292,332,019
Fixed Income Funds — 43.2%
CoreAlpha Bond Master Portfolio	$	877,647,887		877,647,887
iShares Barclays TIPS Bond Fund		1,219,031		142,248,728
				1,019,896,615

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 5.7%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (c)(d)		101,724,838	$	101,724,838
BlackRock Cash Funds: Prime, SL Agency Shares, 0.18% (c)(d)		32,812,403		32,812,403
				134,537,241
Total Affiliated Investment Companies (Cost — $2,357,957,579*) — 103.7%				2,446,765,875
Liabilities in Excess of Other Assets — (3.7)%				(88,183,191	)
Net Assets — 100.0%			$	2,358,582,684

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	2,377,222,558
Gross unrealized appreciation	$	103,886,437
Gross unrealized depreciation		(34,343,120	)
Net unrealized appreciation	$	69,543,317

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the year, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/ Beneficial Interest Held at December 31, 2010		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at December 31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	724,236,224	$	24,457,289	1		—		$	748,693,513	$	748,693,513	$	58,838,672		$	14,166,619
ACWI ex-US Index Master Portfolio		—	$	5,969,722	1		—		$	5,969,722	$	5,969,722	$	87,730		$	19,167
BlackRock Cash Funds: Institutional, SL Agency Shares		181,776,362		—			(80,051,524	)2		101,724,838	$	101,724,838		—		$	467,011
BlackRock Cash Funds: Prime, SL Agency Shares		28,477,459		4,334,944	1		—			32,812,403	$	32,812,403		—		$	154,523
CoreAlpha Bond Master Portfolio	$	819,101,109	$	58,546,778	1		—		$	877,647,887	$	877,647,887	$	25,827,939		$	30,332,653
iShares Barclays TIPS Bond Fund		1,198,837		111,814			(91,620	)		1,219,031	$	142,248,728	$	574,348		$	6,162,563
iShares Cohen & Steers Realty Majors Index Fund		523,257		8,750			(18,681	)		513,326	$	36,045,752	$	(90,746	)	$	1,080,344
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		1,606,198		58,027			(80,576	)		1,583,649	$	39,987,137	$	(710,751	)	$	1,763,041
iShares MSCI Canada Index Fund		978,834		211,521			—			1,190,355	$	31,663,443		—		$	635,392
iShares MSCI EAFE Index Fund		3,855,084		1,269,269			(504,672	)		4,619,681	$	228,812,800	$	739,192		$	7,184,715
iShares MSCI EAFE Small Cap Index Fund		727,889		120,359			—			848,248	$	29,485,101		—		$	919,980
iShares MSCI Emerging Markets Index Fund		1,894,873		452,770			(96,525	)		2,251,118	$	85,407,417	$	(858,826	)	$	1,718,309
iShares S&P MidCap 400 Index Fund		1,417,544		40,265			(1,457,809	)		—		—	$	42,186,667		$	643,284
iShares S&P SmallCap 600 Index Fund		782,366		62,304			(844,670	)		—		—	$	18,156,605		$	218,254
Master Small Cap Index Series		—	$	86,267,134	1		—		$	86,267,134	$	86,267,134	$	(2,781,389	)	$	685,895

¹ Represents net shares/beneficial interest purchased.

²  Represents net shares sold.

(b) Security, or a portion of security, is on loan.

(c) Represents the current yield as of report date.

(d) All or a portion of this security was purchased with the cash collateral from loaned securities.

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

Ÿ Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

Ÿ 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)

Ÿ Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative

See Notes to Financial Statements.

98 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (concluded) LifePath 2020 Master Portfolio

financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	728,187,619	$	1,718,578,256		—	$	2,446,765,875

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 99

Schedule of Investments December 31, 2011 LifePath 2025 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 64.5%
Active Stock Master Portfolio	$	4,575,528	$	4,575,528
ACWI ex-US Index Master Portfolio	$	71,013		71,013
iShares Cohen & Steers Realty Majors Index Fund		3,901		273,929
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (b)		11,898		300,425
iShares MSCI Canada Index Fund		7,352		195,563
iShares MSCI EAFE Index Fund		26,801		1,327,454
iShares MSCI EAFE Small Cap Index Fund		5,331		185,306
iShares MSCI Emerging Markets Index Fund		13,412		508,851
Master Small Cap Index Series	$	412,480		412,480
				7,850,549
Fixed Income Funds — 35.0%
CoreAlpha Bond Master Portfolio	$	3,701,752		3,701,752
iShares Barclays TIPS Bond Fund		4,832		563,846
				4,265,598

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 2.7%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (c)(d)		253,632	$	253,632
BlackRock Cash Funds: Prime, SL Agency Shares, 0.18% (c)(d)		77,542		77,542
				331,174
Total Affiliated Investment Companies (Cost — $12,696,665*) — 102.2%				12,447,321
Liabilities in Excess of Other Assets —(2.2)%				(269,206	)
Net Assets — 100.0%			$	12,178,115

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	12,696,665
Gross unrealized appreciation	$	251,356
Gross unrealized depreciation		(500,700	)
Net unrealized depreciation	$	(249,344	)

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the year, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/ Beneficial Interest Held at December  31, 2010		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at December  31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	50,786	$	4,524,742	1		—		$	4,575,528	$	4,575,528	$	(161,250	)	$	57,091
ACWI US Index Master Portfolio		—	$	71,013	1		—		$	71,013	$	71,013	$	101		$	105
BlackRock Cash Funds: Institutional, SL Agency Shares		595		253,037	1		—			253,632	$	253,632		—		$	853
BlackRock Cash Funds: Prime, SL Agency Shares		—		77,542	1		—			77,542	$	77,542		—		$	220
Core Alpha Bond Master Portfolio	$	38,127	$	3,663,625	1		—		$	3,701,752	$	3,701,752	$	26,344		$	80,066
iShares Barclays TIPS Bond Fund		54		5,724			(946	)		4,832	$	563,846	$	446		$	16,265
iShares Cohen & Steers Realty Majors Index Fund		40		4,682			(821	)		3,901	$	273,929	$	(164	)	$	5,849
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		128		13,993			(2,223	)		11,898	$	300,425	$	(3	)	$	8,682
iShares MSCI Canada Index Fund		68		8,292			(1,008	)		7,352	$	195,563	$	(250	)	$	3,101
iShares MSCI EAFE Index Fund		283		32,433			(5,915	)		26,801	$	1,327,454	$	(6,669	)	$	33,253
iShares MSCI EAFE Small Cap Index Fund		50		6,020			(739	)		5,331	$	185,306	$	(197	)	$	4,411
iShares MSCI Emerging Markets Index Fund		138		15,778			(2,504	)		13,412	$	508,851	$	(2,063	)	$	8,080
iShares S&P MidCap 400 Index Fund		93		7,249			(7,342	)		—		—	$	(11,015	)	$	2,138
iShares S&P SmallCap 600 Index Fund		56		4,179			(4,235	)		—		—	$	(3,065	)	$	722
Master Small Cap Index Series		—	$	412,480	1		—		$	412,480	$	412,480	$	(14,056	)	$	3,117

¹ Represents net shares/beneficial interest purchased.

(b) Security, or a portion of security, is on loan.

(c) Represents the current yield as of report date.

(d) All or a portion of this security was purchased with the cash collateral from loaned securities.

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

Ÿ Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

Ÿ 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)

Ÿ Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative

See Notes to Financial Statements.

100 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (concluded) LifePath 2025 Master Portfolio

financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	3,686,548	$	8,760,773		—	$	12,447,321

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 101

Schedule of Investments December 31, 2011 LifePath 2030 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 70.4%
Active Stock Master Portfolio	$	828,107,242	$	828,107,242
ACWI ex-US Index Master Portfolio	$	6,940,554		6,940,554
iShares Cohen & Steers Realty Majors Index Fund (b)		779,965		54,769,142
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (b)		2,439,821		61,605,480
iShares MSCI Canada Index Fund (b)		1,299,183		34,558,268
iShares MSCI EAFE Index Fund		4,939,362		244,646,600
iShares MSCI EAFE Small Cap Index Fund		909,785		31,624,127
iShares MSCI Emerging Markets Index Fund (b)		2,471,377		93,764,043
Master Small Cap Index Series	$	62,185,765		62,185,765
				1,418,201,221
Fixed Income Funds — 27.8%
CoreAlpha Bond Master Portfolio	$	483,730,118		483,730,118
iShares Barclays TIPS Bond Fund		647,298		75,533,204
				559,263,322

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 3.7%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (c)(d)		57,414,496	$	57,414,496
BlackRock Cash Funds: Prime, SL Agency Shares, 0.18% (c)(d)		18,184,839		18,184,839
				75,599,335
Total Affiliated Investment Companies (Cost — $1,997,050,211*) — 101.9%				2,053,063,878
Liabilities in Excess of Other Assets — (1.9)%				(38,953,006	)
Net Assets — 100.0%			$	2,014,110,872

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	2,023,820,706
Gross unrealized appreciation	$	74,530,049
Gross unrealized depreciation		(45,286,877	)
Net unrealized appreciation	$	29,243,172

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the year, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/ Beneficial Interest Held at December 31, 2010		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at December  31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	767,320,441	$	60,786,801	1		—		$	828,107,242	$	828,107,242	$	58,733,652		$	15,638,810
ACWI ex-US Index Master Portfolio		—	$	6,940,554	1		—		$	6,940,554	$	6,940,554	$	72,835		$	16,212
BlackRock Cash Funds: Institutional, SL Agency Shares		154,257,212		—			(96,842,716	)2		57,414,496	$	57,414,496		—		$	467,638
BlackRock Cash Funds: Prime, SL Agency Shares		24,170,906		—			(5,986,067	)2		18,184,839	$	18,184,839		—		$	154,786
CoreAlpha Bond Master Portfolio	$	439,888,230	$	43,841,888	1		—		$	483,730,118	$	483,730,118	$	13,492,269		$	16,445,047
iShares Barclays TIPS Bond Fund		554,791		99,927			(7,420	)		647,298	$	75,533,204	$	24,958		$	3,084,438
iShares Cohen & Steers Realty Majors Index Fund		680,971		114,140			(15,146	)		779,965	$	54,769,142	$	(131,526	)	$	1,535,135
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		2,128,614		323,981			(12,774	)		2,439,821	$	61,605,480	$	(63,857	)	$	2,435,415
iShares MSCI Canada Index Fund		1,040,900		258,283			—			1,299,183	$	34,558,268		—		$	685,085
iShares MSCI EAFE Index Fund		4,085,815		1,150,030			(296,483	)		4,939,362	$	244,646,600	$	(2,614,136	)	$	7,815,863
iShares MSCI EAFE Small Cap Index Fund		772,751		137,034			—			909,785	$	31,624,127		—		$	979,136
iShares MSCI Emerging Markets Index Fund		2,015,244		567,137			(111,004	)		2,471,377	$	93,764,043	$	(987,653	)	$	1,875,872
iShares S&P MidCap 400 Index Fund		1,267,897		63,261			(1,331,158	)		—		—	$	35,131,638		$	608,602
iShares S&P SmallCap 600 Index Fund		697,237		57,617			(754,854	)		—		—	$	15,120,201		$	201,925
Master Small Cap Index Series		—	$	62,185,765	1		—		$	62,185,765	$	62,185,765	$	(2,137,291	)	$	511,138

¹ Represents net shares/beneficial interest purchased.

² Represents net shares sold.

(b) Security, or a portion of security, is on loan.

(c) Represents the current yield as of report date.

(d) All or a portion of this security was purchased with the cash collateral from loaned securities.

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

Ÿ Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

Ÿ 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)

Ÿ Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative

See Notes to Financial Statements.

102 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (concluded) LifePath 2030 Master Portfolio

financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	672,100,199	$	1,380,963,679		—	$	2,053,063,878

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 103

Schedule of Investments December 31, 2011 LifePath 2035 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 78.7%
Active Stock Master Portfolio	$	3,428,411	$	3,428,411
ACWI ex-US Index Master Portfolio	$	166,164		166,164
iShares Cohen & Steers Realty Majors Index Fund		3,512		246,613
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (b)		10,719		270,655
iShares MSCI Canada Index Fund (b)		4,932		131,191
iShares MSCI EAFE Index Fund		18,186		900,752
iShares MSCI EAFE Small Cap Index Fund		3,878		134,799
iShares MSCI Emerging Markets Index Fund		9,150		347,151
Master Small Cap Index Series	$	215,825		215,825
				5,841,561
Fixed Income Funds — 21.1%
CoreAlpha Bond Master Portfolio	$	1,392,205		1,392,205
iShares Barclays TIPS Bond Fund		1,528		178,302
				1,570,507

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 3.0%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (c)(d)		169,991	$	169,991
BlackRock Cash Funds: Prime, SL Agency Shares, 0.18% (c)(d)		49,989		49,989
				219,980
Total Affiliated Investment Companies (Cost — $7,889,942*) — 102.8%				7,632,048
Liabilities in Excess of Other Assets — (2.8)%				(206,313	)
Net Assets — 100.0%			$	7,425,735

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	7,897,385
Gross unrealized appreciation	$	134,771
Gross unrealized depreciation		(400,108	)
Net unrealized depreciation	$	(265,337	)

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the year, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/ Beneficial Interest Held at December  31, 2010		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at December  31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	66,212	$	3,362,199	1		—		$	3,428,411	$	3,428,411	$	(122,755	)	$	45,833
ACWI Ex-U.S. Index Master Portfolio		—	$	166,164	1		—		$	166,164	$	166,164	$	289		$	223
BlackRock Cash Funds: Institutional, SL Agency Shares		1,969		168,022	1		—			169,991	$	169,991		—		$	879
BlackRock Cash Funds: Prime, SL Agency Shares		—		49,989	1		—			49,989	$	49,989		—		$	260
CoreAlpha Bond Master Portfolio	$	26,920	$	1,365,285	1		—		$	1,392,205	$	1,392,205	$	10,797		$	31,947
iShares Barclays TIPS Bond Fund		26		1,704			(202	)		1,528	$	178,302	$	(30	)	$	5,423
iShares Cohen & Steers Realty Majors Index Fund		69		3,823			(380	)		3,512	$	246,613	$	10		$	5,448
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		198		11,691			(1,170	)		10,719	$	270,655	$	(847	)	$	8,090
iShares MSCI Canada Index Fund		87		5,402			(557	)		4,932	$	131,191	$	(415	)	$	2,399
iShares MSCI EAFE Index Fund		359		20,937			(3,110	)		18,186	$	900,752	$	(1,810	)	$	26,232
iShares MSCI EAFE Small Cap Index Fund		64		4,222			(408	)		3,878	$	134,799	$	(393	)	$	3,497
iShares MSCI Emerging Markets Index Fund		185		10,495			(1,530	)		9,150	$	347,151	$	(4,416	)	$	6,270
iShares S&P MidCap 400 Index Fund		107		4,904			(5,011	)		—		—	$	(7,967	)	$	1,575
iShares S&P SmallCap 600 Index Fund		65		2,788			(2,853	)		—		—	$	(2,622	)	$	517
Master Small Cap Index Series		—	$	215,825	1		—		$	215,825	$	215,825	$	(8,815	)	$	1,795

¹ Represents net shares/beneficial interest purchased.

(b) Security, or a portion of security, is on loan.

(c) Represents the current yield as of report date.

(d) All or a portion of this security was purchased with the cash collateral from loaned securities.

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

Ÿ Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

Ÿ 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)

Ÿ Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative

See Notes to Financial Statements.

104 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (concluded) LifePath 2035 Master Portfolio

financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	2,429,443	$	5,202,605		—	$	7,632,048

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 105

Schedule of Investments December 31, 2011 LifePath 2040 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 83.0%
Active Stock Master Portfolio	$	736,182,388	$	736,182,388
ACWI ex-US Index Master Portfolio	$	6,288,397		6,288,397
iShares Cohen & Steers Realty Majors Index Fund (b)		795,460		55,857,201
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (b)		2,481,690		62,662,673
iShares MSCI Canada Index Fund		1,113,860		29,628,676
iShares MSCI EAFE Index Fund (b)		4,317,966		213,868,856
iShares MSCI EAFE Small Cap Index Fund		796,836		27,698,019
iShares MSCI Emerging Markets Index Fund (b)		2,136,980		81,077,021
Master Small Cap Index Series	$	40,190,017		40,190,017
				1,253,453,248
Fixed Income Funds — 14.9%
CoreAlpha Bond Master Portfolio	$	203,336,372		203,336,372
iShares Barclays TIPS Bond Fund		180,235		21,031,622
				224,367,994

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 4.0%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (c)(d)		46,040,413	$	46,040,413
BlackRock Cash Funds: Prime, SL Agency Shares, 0.18% (c)(d)		14,394,378		14,394,378
				60,434,791
Total Affiliated Investment Companies (Cost — $1,511,481,921*) —101.9%				1,538,256,033
Liabilities in Excess of Other Assets — (1.9)%				(28,499,769	)
Net Assets — 100.0%			$	1,509,756,264

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	1,539,444,450
Gross unrealized appreciation	$	51,176,089
Gross unrealized depreciation		(52,364,506	)
Net unrealized appreciation	$	(1,188,417	)

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the year, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/ Beneficial Interest Held at December  31, 2010		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at December  31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	687,896,852	$	48,285,536	1		—		$	736,182,388	$	736,182,388	$	51,290,024		$	14,082,805
ACWI ex-US Index Master Portfolio		—	$	6,288,397	1		—		$	6,288,397	$	6,288,397	$	102,112		$	20,389
BlackRock Cash Funds: Institutional, SL Agency Shares		139,976,764		—			(93,936,351	)2		46,040,413	$	46,040,413		—		$	421,479
BlackRock Cash Funds: Prime, SL Agency Shares		22,015,363		—			(7,620,985	)2		14,394,378	$	14,394,378		—		$	139,997
CoreAlpha Bond Master Portfolio	$	177,729,200	$	25,607,172	1		—		$	203,336,372	$	203,336,372	$	5,430,201		$	6,731,532
iShares Barclays TIPS Bond Fund		150,344		29,891			—			180,235	$	21,031,622		—		$	854,220
iShares Cohen & Steers Realty Majors Index Fund		693,309		124,169			(22,018	)		795,460	$	55,857,201	$	(222,200	)	$	1,545,148
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		2,156,480		353,525			(28,315	)		2,481,690	$	62,662,673	$	(141,547	)	$	2,448,622
iShares MSCI Canada Index Fund		949,552		164,308			—			1,113,860	$	29,628,676		—		$	593,663
iShares MSCI EAFE Index Fund		3,659,166		847,167			(188,367	)		4,317,966	$	213,868,856	$	(2,977,879	)	$	6,963,794
iShares MSCI EAFE Small Cap Index Fund		687,000		122,228			(12,392	)		796,836	$	27,698,019	$	(6,411	)	$	869,521
iShares MSCI Emerging Markets Index Fund		1,807,304		429,319			(99,643	)		2,136,980	$	81,077,021	$	(601,975	)	$	1,639,479
iShares S&P MidCap 400 Index Fund		1,012,776		116,124			(1,128,900	)		—		—	$	27,835,692		$	503,476
iShares S&P SmallCap 600 Index Fund		549,842		94,804			(644,646	)		—		—	$	11,698,883		$	168,904
Master Small Cap Index Series		—	$	40,190,017	1		—		$	40,190,017	$	40,190,017	$	(1,446,699	)	$	342,282

¹ Represents net shares/beneficial interest purchased.

² Represents net shares sold.

(b) Security, or a portion of security, is on loan.

(c) Represents the current yield as of report date.

(d) All or a portion of this security was purchased with the cash collateral from loaned securities.

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

Ÿ Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

Ÿ 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)

Ÿ Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative

See Notes to Financial Statements.

106 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (concluded) LifePath 2040 Master Portfolio

financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	552,258,859	$	985,997,174		—	$	1,538,256,033

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 107

Schedule of Investments December 31, 2011 LifePath 2045 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 90.4%
Active Stock Master Portfolio	$	1,730,629	$	1,730,629
ACWI ex-US Index Master Portfolio	$	106,097		106,097
iShares Cohen & Steers Realty Majors Index Fund		1,953		137,140
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (b)		5,953		150,313
iShares MSCI Canada Index Fund		2,376		63,201
iShares MSCI EAFE Index Fund		8,758		433,784
iShares MSCI EAFE Small Cap Index Fund		1,914		66,531
iShares MSCI Emerging Markets Index Fund		4,402		167,012
Master Small Cap Index Series	$	80,949		80,949
				2,935,656
Fixed Income Funds — 9.4%
CoreAlpha Bond Master Portfolio	$	307,353		307,353
				307,353

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 3.2%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (c)(d)		80,415	$	80,415
BlackRock Cash Funds: Prime, SL Agency Shares, 0.18% (c)(d)		24,127		24,127
				104,542
Total Affiliated Investment Companies (Cost — $3,460,946*) — 103.0%				3,347,551
Liabilities in Excess of Other Assets — (3.0)%				(99,023	)
Net Assets — 100.0%			$	3,248,528

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	3,462,930
Gross unrealized appreciation	$	55,270
Gross unrealized depreciation		(170,649	)
Net unrealized depreciation	$	(115,379	)

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the year, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/ Beneficial Interest Held at December  31, 2010		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at December  31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	72,994	$	1,657,635	1		—		$	1,730,629	$	1,730,629	$	(61,340	)	$	20,925
ACWI Ex-U.S. Index Master Portfolio		—	$	106,097	1		—		$	106,097	$	106,097	$	240		$	173
BlackRock Cash Funds: Institutional, SL Agency Shares		823		79,592	1		—			80,415	$	80,415		—		$	347
BlackRock Cash Funds: Prime, SL Agency Shares		—		24,127	1		—			24,127	$	24,127		—		$	103
CoreAlpha Bond Master Portfolio	$	9,261	$	298,092	1		—		$	307,353	$	307,353	$	1,954		$	5,769
iShares Cohen & Steers Realty Majors Index Fund		72		2,330			(449	)		1,953	$	137,140	$	(208	)	$	2,806
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		229		7,094			(1,370	)		5,953	$	150,313	$	(756	)	$	3,998
iShares MSCI Canada Index Fund		99		2,926			(649	)		2,376	$	63,201	$	(306	)	$	1,122
iShares MSCI EAFE Index Fund		408		11,294			(2,944	)		8,758	$	433,784	$	(1,496	)	$	12,172
iShares MSCI EAFE Small Cap Index Fund		73		2,263			(422	)		1,914	$	66,531	$	(379	)	$	1,690
iShares MSCI Emerging Markets Index Fund		189		5,651			(1,438	)		4,402	$	167,012	$	(3,252	)	$	2,955
iShares S&P MidCap 400 Index Fund		115		2,426			(2,541	)		—		—	$	(2,489	)	$	660
iShares S&P SmallCap 600 Index Fund		65		1,317			(1,382	)		—		—	$	(470	)	$	213
Master Small Cap Index Series		—	$	80,949	1		—		$	80,949	$	80,949	$	(3,004	)	$	636

¹ Represents net shares/beneficial interest purchased.

(b) Security, or a portion of security, is on loan.

(c) Represents the current yield as of report date.

(d) All or a portion of this security was purchased with the cash collateral from loaned securities.

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

Ÿ Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

Ÿ 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)

Ÿ Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative

See Notes to Financial Statements.

108 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (concluded) LifePath 2045 Master Portfolio

financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	1,122,523	$	2,225,028		—	$	3,347,551

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 109

Schedule of Investments December 31, 2011 LifePath 2050 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 91.4%
Active Stock Master Portfolio	$	96,212,649	$	96,212,649
ACWI ex-US Index Master Portfolio	$	2,165,187		2,165,187
iShares Cohen & Steers Realty Majors Index Fund		116,706		8,195,095
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (b)		358,521		9,052,655
iShares MSCI Canada Index Fund (b)		147,564		3,925,202
iShares MSCI EAFE Index Fund (b)		541,724		26,831,590
iShares MSCI EAFE Small Cap Index Fund		109,510		3,806,568
iShares MSCI Emerging Markets Index Fund		274,352		10,408,915
Master Small Cap Index Series	$	3,997,168		3,997,168
				164,595,029
Fixed Income Funds — 4.0%
CoreAlpha Bond Master Portfolio	$	7,200,788		7,200,788
				7,200,788

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 4.6%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (c)(d)		6,374,294	$	6,374,294
BlackRock Cash Funds: Prime, SL Agency Shares, 0.18% (c)(d)		1,943,189		1,943,189
				8,317,483
Total Affiliated Investment Companies (Cost — $180,980,037*) — 100.0%				180,113,300
Liabilities in Excess of Other Assets — (0.0)%				(26,522	)
Net Assets — 100.0%			$	180,086,778

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	181,861,372
Gross unrealized appreciation	$	3,537,943
Gross unrealized depreciation		(5,286,015	)
Net unrealized depreciation	$	(1,748,072	)

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the year, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/ Beneficial Interest Held at December  31, 2010		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at December  31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Interest Income
Active Stock Master Portfolio	$	61,094,483	$	35,118,166	1		—		$	96,212,649	$	96,212,649	$	3,088,398		$	1,629,052
ACWI ex-US Index Master Portfolio		—	$	2,165,187	1		—		$	2,165,187	$	2,165,187	$	4,198		$	5,004
BlackRock Cash Funds: Institutional, SL Agency Shares		11,027,847		—			(4,653,553	)2		6,374,294	$	6,374,294		—		$	41,609
BlackRock Cash Funds: Prime, SL Agency Shares		1,709,851		233,338	1		—			1,943,189	$	1,943,189		—		$	13,579
CoreAlpha Bond Master Portfolio	$	2,094,794	$	5,105,994	1		—		$	7,200,788	$	7,200,788	$	51,933		$	139,529
iShares Cohen & Steers Realty Majors Index Fund		67,805		51,763			(2,862	)		116,706	$	8,195,095	$	12,952		$	203,859
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		211,207		153,316			(6,002	)		358,521	$	9,052,655	$	(43,287	)	$	296,604
iShares MSCI Canada Index Fund		85,268		68,736			(6,440	)		147,564	$	3,925,202	$	(25,329	)	$	76,712
iShares MSCI EAFE Index Fund		326,243		240,053			(24,572	)		541,724	$	26,831,590	$	(210,549	)	$	825,763
iShares MSCI EAFE Small Cap Index Fund		62,233		50,790			(3,513	)		109,510	$	3,806,568	$	(23,685	)	$	109,727
iShares MSCI Emerging Markets Index Fund		160,758		125,064			(11,470	)		274,352	$	10,408,915	$	(102,045	)	$	200,925
iShares S&P MidCap 400 Index Fund		86,290		40,925			(127,215	)		—		—	$	2,131,959		$	52,811
iShares S&P SmallCap 600 Index Fund		47,346		24,960			(72,306	)		—		—	$	912,548		$	17,733
Master Small Cap Index Series		—	$	3,997,168	1		—		$	3,997,168	$	3,997,168	$	(181,017	)	$	38,311

¹ Represents net shares/beneficial interest purchased.

² Represents net shares sold.

(b) Security, or a portion of security, is on loan.

(c) Represents the current yield as of report date.

(d) All or a portion of this security was purchased with the cash collateral from loaned securities.

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

Ÿ Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

Ÿ 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)

Ÿ Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative

See Notes to Financial Statements.

110 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (concluded) LifePath 2050 Master Portfolio

financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	70,537,508	$	109,575,792		—	$	180,113,300

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 111

Schedule of Investments December 31, 2011 LifePath 2055 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 99.0%
Active Stock Master Portfolio	$	275,426	$	275,426
ACWI ex-US Index Master Portfolio	$	31,897		31,897
iShares Cohen & Steers Realty Majors Index Fund		366		25,701
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (b)		1,088		27,472
iShares MSCI Canada Index Fund		355		9,443
iShares MSCI EAFE Index Fund		1,302		64,488
iShares MSCI EAFE Small Cap Index Fund		315		10,949
iShares MSCI Emerging Markets Index Fund		655		24,851
Master Small Cap Index Series	$	18,578		18,578
				488,805
Fixed Income Funds — 1.0%
CoreAlpha Bond Master Portfolio	$	4,789		4,789
				4,789

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 3.0%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (c)(d)		12,295	$	12,295
BlackRock Cash Funds: Prime, SL Agency Shares, 0.18% (c)(d)		2,603		2,603
				14,898
Total Affiliated Investment Companies (Cost — $507,475*) — 103.0%				508,492
Liabilities in Excess of Other Assets — (3.0)%				(14,846	)
Net Assets —100.0%			$	493,646

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	507,639
Gross unrealized appreciation	$	11,349
Gross unrealized depreciation		(10,496	)
Net unrealized appreciation	$	853

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the year, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/ Beneficial Interest Held at December  31, 2010		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at December  31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	74,649	$	200,777	1		—		$	275,426	$	275,426	$	3,305		$	2,996
ACWI Ex-U.S. Index Master Portfolio		—	$	31,897	1		—		$	31,897	$	31,897	$	95		$	56
BlackRock Cash Funds: Institutional, SL Agency Shares		5,486		6,809	1		—			12,295	$	12,295		—		$	12
BlackRock Cash Funds: Prime, SL Agency Shares		744		1,859	1		—			2,603	$	2,603		—		$	43
CoreAlpha Bond Master Portfolio	$	1,390	$	3,399	1		—		$	4,789	$	4,789	$	35		$	97
iShares Cohen & Steers Realty Majors Index Fund		76		396			(106	)		366	$	25,701	$	92		$	423
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		243		1,138			(293	)		1,088	$	27,472	$	(113	)	$	493
iShares MSCI Canada Index Fund		109		415			(169	)		355	$	9,443	$	(36	)	$	155
iShares MSCI EAFE Index Fund		450		1,595			(743	)		1,302	$	64,488	$	597		$	1,602
iShares MSCI EAFE Small Cap Index Fund		80		345			(110	)		315	$	10,949	$	7		$	250
iShares MSCI Emerging Markets Index Fund		208		791			(344	)		655	$	24,851	$	(308	)	$	396
iShares S&P MidCap 400 Index Fund		143		316			(459	)		—		—	$	2,559		$	97
iShares S&P SmallCap 600 Index Fund		76		160			(236	)		—		—	$	910		$	30
Master Small Cap Index Series		—	$	18,578	1		—		$	18,578	$	18,578	$	(1,369	)	$	267

¹ Represents net shares/beneficial interest purchased.

(b) Security, or a portion of security, is on loan.

(c) Represents the current yield as of report date.

(d) All or a portion of this security was purchased with the cash collateral from loaned securities.

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

Ÿ Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

Ÿ 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)

Ÿ Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative

See Notes to Financial Statements.

112 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (concluded) LifePath 2055 Master Portfolio

financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	177,802	$	330,690		—	$	508,492

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 113

Schedule of Investments December 31, 2011 Active Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Consumer Discretionary — 13.0%
Auto Components — 0.5%
BorgWarner, Inc. (a)		30,800	$	1,963,191
Federal-Mogul Corp. (a)		6,131		90,432
Johnson Controls, Inc.		225,300		7,042,878
Lear Corp.		12,139		483,132
TRW Automotive Holdings Corp. (a)		21,310		694,706
WABCO Holdings, Inc. (a)		54,779		2,377,409
				12,651,748
Automobiles — 0.3%
General Motors Co. (a)		102,479		2,077,249
Harley-Davidson, Inc.		52,000		2,021,240
Tesla Motors, Inc. (a)		113,700		3,247,272
				7,345,761
Diversified Consumer Services — 0.8%
Apollo Group, Inc., Class A (a)		270,765		14,586,111
Career Education Corp. (a)		10,620		84,641
ITT Educational Services, Inc. (a)(b)		70,363		4,002,951
Weight Watchers International, Inc.		76,000		4,180,760
				22,854,463
Hotels, Restaurants & Leisure — 1.8%
Chipotle Mexican Grill, Inc. (a)		9,502		3,209,205
International Game Technology		286,000		4,919,201
Las Vegas Sands Corp. (a)		144,200		6,161,666
Marriott Vacations Worldwide Corp. (a)		1,747		29,979
McDonald’s Corp.		202,838		20,350,737
Penn National Gaming, Inc. (a)		56,961		2,168,505
Starbucks Corp.		138,800		6,386,188
Starwood Hotels & Resorts Worldwide, Inc.		2		96
Wynn Resorts Ltd. (b)		40,802		4,508,213
				47,733,790
Household Durables — 0.8%
Garmin Ltd.		113,000		4,498,530
NVR, Inc. (a)		4,466		3,063,676
Stanley Black & Decker, Inc.		80,900		5,468,840
Tempur-Pedic International, Inc. (a)		88,936		4,671,808
Tupperware Brands Corp.		70,003		3,918,068
				21,620,922
Internet & Catalog Retail — 0.7%
Amazon.com, Inc. (a)		62,400		10,801,440
Expedia, Inc.		84,000		2,437,680
NetFlix, Inc. (a)		2,337		161,931
priceline.com, Inc. (a)		8,112		3,794,063
TripAdvisor, Inc. (a)		84,000		2,117,640
				19,312,754
Leisure Equipment & Products — 0.4%
Hasbro, Inc. (b)		13,526		431,344
Mattel, Inc.		105,604		2,931,567
Polaris Industries, Inc. (b)		121,486		6,800,786
				10,163,697
Media — 3.7%
Cablevision Systems Corp. (b)		129,434		1,840,551
CBS Corp., Class B		174,000		4,722,360
Comcast Corp, Class A		823,950		19,448,450
DIRECTV, Class A (a)		234,143		10,011,955
DISH Network Corp.		165,000		4,699,200
Interpublic Group of Cos., Inc.		488,000		4,748,240
John Wiley & Sons, Inc., Class A		93,000		4,129,200
Liberty Media Corp.—Liberty Capital (a)(b)		5,259		410,465
The McGraw-Hill Cos., Inc.		53,330		2,398,250
Scripps Networks Interactive, Inc., Class A (b)		110,259		4,677,187

Common Stocks	Shares		Value
Consumer Discretionary (concluded)
Media (concluded)
Time Warner Cable, Inc. (b)		121,082	$	7,697,183
Time Warner, Inc.		308,100		11,134,734
Viacom, Inc., Class B		357,788		16,247,153
The Walt Disney Co.		185,300		6,948,750
The Washington Post Co., Class B (b)		3,693		1,391,559
				100,505,237
Multiline Retail — 0.5%
Dollar Tree, Inc. (a)		59,275		4,926,345
Family Dollar Stores, Inc.		5,202		299,947
J.C. Penney Co., Inc.		3		106
Macy’s, Inc.		146,000		4,698,280
Nordstrom, Inc.		97,000		4,821,870
				14,746,548
Specialty Retail — 2.3%
AutoZone, Inc. (a)		29,700		9,651,609
Bed Bath & Beyond, Inc. (a)		112,414		6,516,640
Best Buy Co., Inc. (b)		32,939		769,784
Chico’s FAS, Inc.		307,000		3,419,980
The Home Depot, Inc.		339,200		14,259,968
Limited Brands, Inc.		174,900		7,057,215
PetSmart, Inc.		102,000		5,231,580
Ross Stores, Inc. (b)		102,996		4,895,400
Signet Jewelers Ltd. (b)		35,885		1,577,505
Tiffany & Co.		71,200		4,717,712
Williams-Sonoma, Inc.		119,000		4,581,500
				62,678,893
Textiles, Apparel & Luxury Goods — 1.2%
Coach, Inc.		250,519		15,291,680
Michael Kors Holdings Ltd. (a)		26,600		724,850
NIKE, Inc., Class B		41,145		3,965,143
PVH Corp.		64,000		4,511,360
Ralph Lauren Corp. (b)		897		123,858
VF Corp.		57,500		7,301,925
				31,918,816
Total Consumer Discretionary				351,532,629
Consumer Staples — 10.3%
Beverages — 1.9%
Brown-Forman Corp., Class B (b)		16,214		1,305,389
The Coca-Cola Co. (b)		347,681		24,327,240
Coca-Cola Enterprises, Inc.		190,000		4,898,200
Dr Pepper Snapple Group, Inc.		173,413		6,846,345
Monster Beverage Corp.		50,421		4,645,791
PepsiCo, Inc.		154,100		10,224,535
				52,247,500
Food & Staples Retailing — 1.6%
Costco Wholesale Corp.		13,688		1,140,484
CVS Caremark Corp.		57,699		2,352,965
The Kroger Co.		654,700		15,856,834
Wal-Mart Stores, Inc.		239,386		14,305,707
Walgreen Co. (b)		119,492		3,950,406
Whole Foods Market, Inc. (b)		69,141		4,810,831
				42,417,227
Food Products — 3.0%
Archer Daniels Midland Co.		414,700		11,860,420
Campbell Soup Co.		144,000		4,786,560
ConAgra Foods, Inc.		180,000		4,752,000
General Mills, Inc.		203,000		8,203,230
Green Mountain Coffee Roasters, Inc. (a)		21,300		955,305
H.J. Heinz Co.		71,200		3,847,648

See Notes to Financial Statements.

114 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (continued) Active Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Consumer Staples (concluded)
Food Products (concluded)
The Hershey Co.		79,807	$	4,930,476
The J.M. Smucker Co.		19,517		1,525,644
Kraft Foods, Inc., Class A		137,400		5,133,264
Mead Johnson Nutrition Co.		119,303		8,199,695
Ralcorp Holdings, Inc. (a)		2,345		200,498
Tyson Foods, Inc., Class A		37,929		782,855
Unilever NV		735,400		25,275,698
				80,453,293
Household Products — 1.7%
The Clorox Co. (b)		5,681		378,127
Colgate-Palmolive Co.		35,493		3,279,198
Kimberly-Clark Corp.		195,500		14,380,980
The Procter & Gamble Co.		428,212		28,566,023
				46,604,328
Personal Products — 0.3%
Herbalife Ltd.		184,835		9,550,424
Tobacco — 1.8%
Altria Group, Inc.		114,600		3,397,890
Lorillard, Inc. (b)		92,066		10,495,524
Philip Morris International, Inc.		453,004		35,551,754
				49,445,168
Total Consumer Staples				280,717,940
Energy — 11.6%
Energy Equipment & Services — 2.4%
Baker Hughes, Inc.		2,900		141,056
Ensco International Plc		223,500		10,486,620
Exterran Holdings, Inc. (a)		52,541		478,123
Halliburton Co.		439,371		15,162,693
McDermott International, Inc. (a)		121,202		1,395,035
National Oilwell Varco, Inc.		73,200		4,976,868
Noble Corp. (a)		503,300		15,209,726
Oil States International, Inc. (a)		27,013		2,062,983
Schlumberger Ltd.		193,854		13,242,167
SEACOR Holdings, Inc. (a)(b)		15,804		1,405,924
				64,561,195
Oil, Gas & Consumable Fuels — 9.2%
Alpha Natural Resources, Inc. (a)		150,488		3,074,470
Anadarko Petroleum Corp.		116,500		8,892,445
Apache Corp.		23,902		2,165,043
Chevron Corp. (b)		356,556		37,937,558
ConocoPhillips		218,870		15,949,057
CONSOL Energy, Inc.		19,700		722,990
Devon Energy Corp.		352,631		21,863,122
El Paso Corp.		32,818		871,974
EQT Corp.		78,200		4,284,578
Exxon Mobil Corp. (b)		986,091		83,581,073
Hess Corp.		29,600		1,681,280
HollyFrontier Corp.		265,250		6,206,850
Kinder Morgan, Inc.		35,500		1,142,035
Kosmos Energy Ltd. (a)(b)		7,635		93,605
Marathon Oil Corp.		532,400		15,583,348
Marathon Petroleum Corp. (b)		159,014		5,293,576
Murphy Oil Corp.		77,200		4,303,128
Occidental Petroleum Corp.		64,200		6,015,540
Peabody Energy Corp.		268,400		8,886,724
QEP Resources, Inc.		6,772		198,420
Range Resources Corp.		125,000		7,742,500
Southern Union Co.		5,313		223,730
Spectra Energy Corp.		98,100		3,016,575

Common Stocks	Shares		Value
Energy (concluded)
Oil, Gas & Consumable Fuels (concluded)
Total SA		183,700	$	9,388,907
Valero Energy Corp.		107,754		2,268,222
				251,386,750
Total Energy				315,947,945
Financials — 11.5%
Capital Markets — 0.6%
Ameriprise Financial, Inc. (b)		99,785		4,953,327
The Bank of New York Mellon Corp.		56,406		1,123,043
E*Trade Financial Corp. (a)		5,936		47,251
Franklin Resources, Inc.		17,262		1,658,188
The Goldman Sachs Group, Inc.		15,331		1,386,382
Jefferies Group, Inc.		273,200		3,756,500
Morgan Stanley		232,900		3,523,777
				16,448,468
Commercial Banks — 2.8%
Associated Banc-Corp.		8,955		100,027
BOK Financial Corp. (b)		2,082		114,364
City National Corp. (b)		57,345		2,533,502
First Citizens Bancshares, Inc., Class A		2,736		478,773
First Republic Bank (a)		46,248		1,415,651
Huntington Bancshares, Inc.		9,553		52,446
M&T Bank Corp.		41,415		3,161,621
Regions Financial Corp.		344,654		1,482,012
SunTrust Banks, Inc.		156,432		2,768,847
SVB Financial Group (a)		2,938		140,113
U.S. Bancorp		726,500		19,651,825
Wells Fargo & Co.		1,566,992		43,186,300
				75,085,481
Consumer Finance — 0.5%
American Express Co.		127,900		6,033,043
Capital One Financial Corp.		85,979		3,636,052
Discover Financial Services		184,004		4,416,096
				14,085,191
Diversified Financial Services — 2.9%
Bank of America Corp.		379,993		2,112,761
Citigroup, Inc.		725,603		19,090,615
CME Group, Inc.		13,430		3,272,488
JPMorgan Chase & Co.		1,419,213		47,188,832
Moody’s Corp.		3		101
The NASDAQ OMX Group, Inc. (a)		203,187		4,980,114
NYSE Euronext		73,148		1,909,163
				78,554,074
Insurance — 4.2%
ACE Ltd.		211,902		14,858,568
Aflac, Inc.		209,802		9,076,035
Allied World Assurance Co. Holdings Ltd.		55,810		3,512,123
American National Insurance Co.		2,324		169,722
Aspen Insurance Holdings Ltd.		60,264		1,596,996
Axis Capital Holdings Ltd.		52,303		1,671,604
Berkshire Hathaway, Inc., Class B (a)		16,835		1,284,510
Brown & Brown, Inc.		6,021		136,255
Chubb Corp.		94,300		6,527,446
Endurance Specialty Holdings Ltd.		39,241		1,500,968
First American Financial Corp.		5,216		66,087
The Hanover Insurance Group, Inc. (b)		49,563		1,732,227
Hartford Financial Services Group, Inc.		443,200		7,202,000
Kemper Corp.		3		88
Lincoln National Corp.		180,900		3,513,078
MetLife, Inc.		541,300		16,877,734

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 115

Schedule of Investments (continued) Active Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Financials (concluded)
Insurance (concluded)
PartnerRe Ltd.		58,699	$	3,769,063
Prudential Financial, Inc.		247,900		12,424,748
RenaissanceRe Holdings Ltd.		1		74
Transatlantic Holdings, Inc.		2,667		145,965
The Travelers Cos., Inc.		487,882		28,867,978
Willis Group Holdings Plc		6		233
				114,933,502
Real Estate Investment Trusts (REITs) — 0.5%
Brandywine Realty Trust		70,506		669,807
Camden Property Trust		14,702		915,053
CommonWealth REIT		23,499		391,023
Home Properties, Inc. (b)		14,103		811,910
Hospitality Properties Trust		9,503		218,379
Host Hotels & Resorts, Inc.		11,025		162,839
Liberty Property Trust		22,563		696,745
National Retail Properties, Inc.		3,972		104,781
Public Storage		1,367		183,807
Rayonier, Inc. (b)		108,298		4,833,317
Taubman Centers, Inc.		8,269		513,505
UDR, Inc.		3,288		82,529
Ventas, Inc.		13,382		737,750
Vornado Realty Trust		18,395		1,413,840
Weyerhaeuser Co.		111,900		2,089,173
				13,824,458
Real Estate Management & Development — 0.0%
The Howard Hughes Corp. (a)		8,423		372,044
Thrifts & Mortgage Finance — 0.0%
First Niagara Financial Group, Inc.		12,935		111,629
Total Financials				313,414,847
Health Care — 13.0%
Biotechnology — 1.9%
Alexion Pharmaceuticals, Inc. (a)		7,538		538,967
Amgen, Inc.		194,800		12,508,108
Biogen Idec, Inc. (a)		169,043		18,603,182
Celgene Corp. (a)		27,142		1,834,799
Gilead Sciences, Inc. (a)		224,592		9,192,551
Myriad Genetics, Inc. (a)		246,547		5,162,694
United Therapeutics Corp. (a)		63,116		2,982,231
				50,822,532
Health Care Equipment & Supplies — 1.9%
Alere, Inc. (a)		11,895		274,656
Baxter International, Inc.		179,600		8,886,608
C.R. Bard, Inc.		58,000		4,959,000
The Cooper Cos., Inc. (b)		15,977		1,126,698
Hill-Rom Holdings, Inc.		108,000		3,638,520
Intuitive Surgical, Inc. (a)		11,599		5,370,453
Medtronic, Inc.		498,341		19,061,543
Sirona Dental Systems, Inc. (a)		24,007		1,057,268
Stryker Corp. (b)		109,785		5,457,413
Thoratec Corp. (a)(b)		29,104		976,730
				50,808,889
Health Care Providers & Services — 2.1%
Aetna, Inc.		198,900		8,391,591
AMERIGROUP Corp. (a)		76,000		4,490,080
AmerisourceBergen Corp.		322,800		12,004,932
Cardinal Health, Inc.		208,000		8,446,880
Express Scripts, Inc. (a)		21,843		976,164
HCA Holdings, Inc. (a)		107,196		2,361,528
Health Management Associates, Inc. (a)		509,000		3,751,330
Humana, Inc.		7,289		638,589

Common Stocks	Shares		Value
Health Care (concluded)
Health Care Providers & Services (concluded)
McKesson Corp.		86,136	$	6,710,856
Medco Health Solutions, Inc. (a)		91,109		5,092,993
WellCare Health Plans, Inc. (a)		1,306		68,565
WellPoint, Inc. (b)		66,230		4,387,737
				57,321,245
Health Care Technology — 0.3%
Cerner Corp. (a)		124,300		7,613,375
SXC Health Solutions Corp. (a)		9,717		548,816
				8,162,191
Life Sciences Tools & Services — 0.2%
Agilent Technologies, Inc. (a)		144,000		5,029,920
Bio-Rad Laboratories, Inc., Class A (a)		1,102		105,836
Thermo Fisher Scientific, Inc. (a)		41,197		1,852,629
				6,988,385
Pharmaceuticals — 6.6%
Abbott Laboratories		330,549		18,586,770
Allergan, Inc.		61,900		5,431,106
Bristol-Myers Squibb Co.		374,752		13,206,261
Eli Lilly & Co.		378,491		15,730,086
Forest Laboratories, Inc. (a)		99,053		2,997,344
Hospira, Inc. (a)		38,840		1,179,571
Johnson & Johnson		491,005		32,200,108
Medicis Pharmaceutical Corp., Class A (b)		26,840		892,430
Merck & Co., Inc.		889,530		33,535,281
Pfizer, Inc.		2,142,278		46,358,896
Valeant Pharmaceuticals International, Inc. (a)		55,500		2,591,295
Warner Chilcott Plc, Class A (a)		438,257		6,630,828
				179,339,976
Total Health Care				353,443,218
Industrials — 10.6%
Aerospace & Defense — 3.7%
Alliant Techsystems, Inc. (b)		28,503		1,629,231
The Boeing Co.		272,295		19,972,838
Esterline Technologies Corp. (a)		2,581		144,459
Exelis, Inc.		36,960		334,488
General Dynamics Corp.		99,065		6,578,907
Goodrich Corp.		5,435		672,309
Honeywell International, Inc.		283,200		15,391,920
L-3 Communications Holdings, Inc. (b)		38,171		2,545,242
Lockheed Martin Corp.		75,000		6,067,500
Northrop Grumman Corp. (b)		147,949		8,652,058
Precision Castparts Corp.		38,501		6,344,580
Raytheon Co.		163,100		7,890,778
Rockwell Collins, Inc.		23,100		1,279,047
Textron, Inc.		405,300		7,493,997
United Technologies Corp.		199,202		14,559,674
				99,557,028
Air Freight & Logistics — 0.3%
C.H. Robinson Worldwide, Inc. (b)		58,512		4,082,967
United Parcel Service, Inc., Class B		66,000		4,830,540
UTi Worldwide, Inc. (b)		4,755		63,194
				8,976,701
Airlines — 0.5%
Copa Holdings SA (b)		12,458		730,911
Delta Air Lines, Inc. (a)		1,188,200		9,612,538
Southwest Airlines Co.		503,000		4,305,680
				14,649,129

See Notes to Financial Statements.

116 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (continued) Active Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Industrials (concluded)
Commercial Services & Supplies — 0.2%
Copart, Inc. (a)		22,209	$	1,063,589
Iron Mountain, Inc.		151,000		4,650,800
				5,714,389
Construction & Engineering — 0.9%
Chicago Bridge & Iron Co. NV		124,000		4,687,200
Fluor Corp.		76,000		3,819,000
Jacobs Engineering Group, Inc. (a)		297,900		12,088,782
KBR, Inc.		155,000		4,319,850
				24,914,832
Electrical Equipment — 0.1%
Rockwell Automation, Inc.		26,000		1,907,620
Industrial Conglomerates — 2.3%
3M Co.		113,609		9,285,264
General Electric Co.		1,855,762		33,236,697
Tyco International Ltd.		392,221		18,320,643
				60,842,604
Machinery — 1.8%
Caterpillar, Inc.		124,100		11,243,460
CNH Global NV (a)(b)		41,397		1,489,878
Cummins, Inc.		29,450		2,592,189
Danaher Corp.		260,800		12,268,032
Deere & Co.		143,500		11,099,725
Eaton Corp.		138,700		6,037,611
Gardner Denver, Inc. (b)		3,592		276,799
Harsco Corp.		45,336		933,015
Navistar International Corp. (a)		1,602		60,684
Terex Corp. (a)		171,500		2,316,965
Xylem, Inc.		53,381		1,371,358
				49,689,716
Professional Services — 0.2%
Manpower, Inc.		117,195		4,189,721
Nielsen Holdings NV (a)		2,475		73,483
Verisk Analytics, Inc., Class A (a)		10,623		426,301
				4,689,505
Road & Rail — 0.5%
Canadian National Railway Co.		88,200		6,928,992
CSX Corp.		2,653		55,872
Union Pacific Corp.		56,809		6,018,346
				13,003,210
Trading Companies & Distributors — 0.1%
Air Lease Corp. (a)		16,109		381,944
WESCO International, Inc. (a)(b)		42,457		2,250,646
				2,632,590
Total Industrials				286,577,324
Information Technology — 19.0%
Communications Equipment — 1.5%
Acme Packet, Inc. (a)(b)		19,790		611,709
Cisco Systems, Inc.		895,377		16,188,416
EchoStar Corp. (a)		16,430		344,044
F5 Networks, Inc. (a)		12,783		1,356,532
Juniper Networks, Inc. (a)		20,909		426,753
Motorola Mobility Holdings, Inc. (a)		8,386		325,377
Polycom, Inc. (a)		57,756		941,423
QUALCOMM, Inc.		365,234		19,978,300
Riverbed Technology, Inc. (a)		6,793		159,635
				40,332,189

Common Stocks	Shares		Value
Information Technology (continued)
Computers & Peripherals — 3.2%
Apple, Inc. (a)		181,244	$	73,403,820
Dell, Inc. (a)		384,000		5,617,920
Hewlett-Packard Co.		44,137		1,136,969
QLogic Corp. (a)		295,000		4,425,000
SanDisk Corp. (a)		72,000		3,543,120
				88,126,829
Electronic Equipment, Instruments & Components — 1.0%
Corning, Inc.		1,606,840		20,856,783
Dolby Laboratories, Inc., Class A (a)(b)		89,379		2,726,953
IPG Photonics Corp. (a)(b)		11,658		394,857
Jabil Circuit, Inc.		234,000		4,600,440
				28,579,033
Internet Software & Services — 1.6%
eBay, Inc. (a)		172,700		5,237,991
Google, Inc., Class A (a)		46,207		29,845,101
IAC/InterActiveCorp (b)		82,358		3,508,451
Rackspace Hosting, Inc. (a)		87,500		3,763,375
VeriSign, Inc.		10,978		392,134
Yahoo!, Inc. (a)		56,843		916,878
				43,663,930
IT Services — 3.3%
Accenture Plc, Class A		97,962		5,214,517
Amdocs Ltd. (a)		97,978		2,795,312
Automatic Data Processing, Inc.		29,800		1,609,498
Broadridge Financial Solutions, Inc.		45,880		1,034,594
DST Systems, Inc.		88,000		4,005,760
International Business Machines Corp.		176,724		32,496,009
Lender Processing Services, Inc.		147,000		2,215,290
MasterCard, Inc., Class A		16,699		6,225,721
SAIC, Inc. (a)		341,000		4,190,890
Teradata Corp. (a)		23,925		1,160,602
VeriFone Systems, Inc. (a)		117,953		4,189,691
Visa, Inc., Class A		58,178		5,906,812
The Western Union Co.		994,700		18,163,222
				89,207,918
Semiconductors & Semiconductor Equipment — 3.8%
Altera Corp.		148,068		5,493,323
Applied Materials, Inc.		357,000		3,823,470
Avago Technologies Ltd.		316,517		9,134,681
Broadcom Corp., Class A (a)		195,800		5,748,688
First Solar, Inc. (a)(b)		11,573		390,704
Intel Corp.		527,981		12,803,539
Intersil Corp. Class A		171,000		1,785,240
KLA-Tencor Corp.		101,000		4,873,250
LSI Corp. (a)		3,231,600		19,228,020
Marvell Technology Group Ltd. (a)		415,800		5,758,830
Maxim Integrated Products, Inc.		196,000		5,103,840
Micron Technology, Inc. (a)		1,568,000		9,862,720
NVIDIA Corp. (a)		348,000		4,823,280
NXP Semiconductor NV (a)		152,800		2,348,536
Skyworks Solutions, Inc. (a)		31,454		510,184
Texas Instruments, Inc.		77,600		2,258,936
Xilinx, Inc.		271,400		8,701,084
				102,648,325
Software — 4.6%
BMC Software, Inc. (a)		95,920		3,144,258
Cadence Design Systems, Inc. (a)		408,000		4,243,200
Check Point Software Technologies (a)		126,100		6,625,294
Citrix Systems, Inc. (a)		68,011		4,129,628
Factset Research Systems, Inc. (b)		1,942		169,498

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 117

Schedule of Investments (continued) Active Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Information Technology (concluded)
Software (concluded)
Fortinet, Inc. (a)		204,000	$	4,449,240
MICROS Systems, Inc. (a)		40,833		1,902,001
Microsoft Corp.		2,684,618		69,692,683
Oracle Corp.		146,785		3,765,035
Red Hat, Inc. (a)		143,100		5,908,599
Rovi Corp. (a)		15,385		378,163
Salesforce.com, Inc. (a)		59,701		6,057,264
Solera Holdings, Inc.		4,426		197,134
Symantec Corp. (a)		336,000		5,258,400
TIBCO Software, Inc. (a)		167,790		4,011,859
VMware, Inc., Class A (a)		46,490		3,867,503
				123,799,759
Total Information Technology				516,357,983
Materials — 4.0%
Chemicals — 2.5%
Airgas, Inc.		3,294		257,195
Albemarle Corp.		44,593		2,296,985
Cabot Corp. (b)		25,356		814,942
Celanese Corp.		110,200		4,878,554
CF Industries Holdings, Inc. (b)		59,510		8,627,760
The Dow Chemical Co.		117,900		3,390,804
E.I. du Pont de Nemours & Co.		482,600		22,093,428
Huntsman Corp.		145,222		1,452,220
Kronos Worldwide, Inc. (b)		62,056		1,119,490
LyondellBasell Industries NV, Class A		172,673		5,610,146
Monsanto Co.		60,400		4,232,228
The Mosaic Co.		25,167		1,269,172
Olin Corp.		121,200		2,381,580
Potash Corp. of Saskatchewan, Inc.		22,800		941,184
Praxair, Inc.		42,800		4,575,320
Westlake Chemical Corp.		16,000		643,840
WR Grace & Co. (a)		91,000		4,178,720
				68,763,568
Containers & Packaging — 0.1%
Crown Holdings, Inc. (a)		53,962		1,812,044
Rock-Tenn Co, Class A		9,174		529,340
Temple-Inland, Inc.		4,608		146,120
				2,487,504
Metals & Mining — 1.0%
Alcoa, Inc.		900,762		7,791,591
Freeport-McMoRan Copper & Gold, Inc.		176,600		6,497,114
Newmont Mining Corp.		3,933		236,019
Nucor Corp.		201,400		7,969,398
Southern Copper Corp. (b)		120,732		3,643,692
Walter Energy, Inc.		1,749		105,920
				26,243,734
Paper & Forest Products — 0.4%
Domtar Corp. (b)		18,466		1,476,541
International Paper Co.		164,000		4,854,400
MeadWestvaco Corp.		132,400		3,965,380
				10,296,321
Total Materials				107,791,127
Telecommunication Services — 3.2%
Diversified Telecommunication Services — 2.7%
AT&T, Inc.		758,777		22,945,417
BCE, Inc.		54,700		2,279,349
CenturyLink, Inc.		240,221		8,936,221
Frontier Communications Corp.		32,100		165,315

Common Stocks	Shares		Value
Telecommunication Services (concluded)
Diversified Telecommunication Services (concluded)
Verizon Communications, Inc.		906,434	$	36,366,132
Windstream Corp.		146,300		1,717,562
				72,409,996
Wireless Telecommunication Services — 0.5%
American Tower Corp., Class A		60,600		3,636,606
MetroPCS Communications, Inc. (a)		611,583		5,308,540
NII Holdings, Inc. (a)		126,667		2,698,007
Telephone & Data Systems, Inc.		4,505		116,635
Vodafone Group Plc		97,000		2,718,910
				14,478,698
Total Telecommunication Services				86,888,694
Utilities — 3.3%
Electric Utilities — 1.5%
American Electric Power Co., Inc.		77,306		3,193,511
Duke Energy Corp.		113,500		2,497,000
Entergy Corp. (b)		60,478		4,417,918
FirstEnergy Corp.		56,584		2,506,671
ITC Holdings Corp.		18,000		1,365,840
NextEra Energy, Inc.		79,200		4,821,696
Northeast Utilities		57,700		2,081,239
PPL Corp.		50,200		1,476,884
Southern Co.		421,600		19,515,864
				41,876,623
Gas Utilities — 0.4%
Atmos Energy Corp.		20,263		675,771
Energen Corp.		58,795		2,939,750
National Fuel Gas Co. (b)		20,984		1,166,291
ONEOK, Inc.		56,698		4,915,149
UGI Corp. (b)		68,815		2,023,161
				11,720,122
Independent Power Producers & Energy Traders — 0.1%
Constellation Energy Group, Inc.		7,927		314,464
NRG Energy, Inc. (a)		94,749		1,716,852
				2,031,316
Multi-Utilities — 1.1%
Ameren Corp.		3,169		104,989
Consolidated Edison, Inc.		25,700		1,594,171
Dominion Resources, Inc.		379,300		20,133,244
DTE Energy Co.		8,320		453,024
NSTAR		4,788		224,844
OGE Energy Corp.		12,897		731,389
Public Service Enterprise Group, Inc.		103,200		3,406,632
Sempra Energy		39,480		2,171,400
Wisconsin Energy Corp.		59,300		2,073,128
				30,892,821
Water Utilities — 0.2%
American Water Works Co., Inc.		129,380		4,122,047
Total Utilities				90,642,929
Total Long-Term Investments (Cost — $ 2,620,639,194) — 99.5 %				2,703,314,636
Short-Term Securities
Money Market Funds — 5.5%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (c)(d)(e)		128,263,976		128,263,976
BlackRock Cash Funds: Prime, SL Agency Shares, 0.18% (c)(d)(e)		20,162,910		20,162,910
				148,426,886

See Notes to Financial Statements.

118 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (concluded) Active Stock Master Portfolio (Percentages shown are based on Net Assets)

	Par (000)		Value
U.S. Treasury Obligations — 0.0%
U.S. Treasury Bill, 0.04%, 3/22/12 (f)(g)	$	950	$	949,964
Total Short-Term Securities (Cost — $ 149,376,873) — 5.5%				149,376,850
Total Investments (Cost — $2,770,016,067*) — 105.0%				2,852,691,486
Liabilities in Excess of Other Assets — (5.0)%				(135,441,784	)
Net Assets — 100.0%			$	2,717,249,702

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	2,808,305,449
Gross unrealized appreciation	$	185,150,945
Gross unrealized depreciation		(140,764,908	)
Net unrealized appreciation	$	44,386,037

(a) Non-income producing security.

(b) Security, or a portion of security, is on loan.

(c) Investments in companies considered to be an affiliate of the Master Portfolio during the period, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares Held at December 31, 2010		Net Activity			Shares Held at December 31, 2011		Income
BlackRock Cash Funds:
Institutional, SL Agency Shares		259,245,739		(130,981,763	)		128,263,976	$	857,655
BlackRock Cash Funds:
Prime, SL Agency Shares		34,372,877		(14,209,967	)		20,162,910	$	237,143

(d) Represents the current yield as of report date.

(e) All or a portion of this security was purchased with the cash collateral from securities loaned.

(f) Rate shown is the yield to maturity as of the date of purchase.

(g) All or a portion of security has been pledged as collateral in connection with open financial futures contracts.

Ÿ For Master Portfolio compliance purposes, the Master Portfolio’s sector and industry classifications refer to any one or more of the sector and industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Master Portfolio management. These definitions may not apply for purposes of this report, which may combine such sector and industry sub-classifications for reporting ease.

Ÿ Financial futures contracts purchased as of December 31, 2011 were as follows:

Contracts	Issue		Exchange		Expiration		Notional Value		Unrealized Depreciation
187		S&P 500 Index		Chicago Mercantile		March 2012	$	11,711,810	$	(4,836	)

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

Ÿ Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

Ÿ 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)

Ÿ Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following tables summarize the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments and derivative financial instruments:

Valuation Inputs	Level 1			Level 2		Level 3		Total
Assets:
Investments:
Long-Term Investments1:
Common Stocks	$	2,703,314,636			—		—	$	2,703,314,636
Short-Term Securities:
Money Market Funds		148,426,886			—		—		148,426,886
U.S. Treasury Obligations		—		$	949,964		—		949,964
Total	$	2,851,741,522		$	949,964		—	$	2,852,691,486
Valuation Inputs	Level 1			Level 2		Level 3		Total
Derivative Financial Instruments2
Liabilities:
Equity Contracts	$	(4,836	)		—		—	$	(4,836	)

¹  See above Schedule of Investments for values in each sector and industry.

²  Derivative financial instruments are financial futures contracts, which are valued at the unrealized appreciation/depreciation on the instrument.

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 119

Schedule of Investments December 31, 2011 CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Asset-Backed Securities	Par (000)		Value
ACE Securities Corp., Series 2005-AG1, Class A2D, 0.65%, 8/25/35 (a)	$	3,963	$	3,377,287
AH Mortgage Advance Trust, Series SART-1, Class A1, 2.63%, 5/10/42 (b)		7,400		7,363,000
AmeriCredit Automobile Receivables Trust:
Series 2006-RM, Class A3, 5.53%, 1/06/14		2,373		2,375,256
Series 2007-CM, Class A4A, 5.55%, 4/07/14		3,117		3,148,873
Ameriquest Mortgage Securities, Inc.:
Series 2005-R6, Class A2, 0.49%, 8/25/35 (a)		726		682,472
Series 2006-R1, Class A2C, 0.48%, 3/25/36 (a)		1,278		1,262,836
Asset Backed Funding Corp. Certificates:
Series 2005-HE2, Class M1, 0.77%, 6/25/35 (a)		330		324,100
Series 2005-OPT1, Class A1SS, 0.54%, 7/25/35 (a)		809		782,927
BankAmerica Manufactured Housing Contract Trust, Series 1998-1, Class M, 6.94%, 4/10/23 (a)		264		264,560
BNC Mortgage Loan Trust, Series 2007-4, Class A3A, 0.54%, 11/25/37 (a)		1,818		1,773,774
Capital One Multi-Asset Execution Trust, Series 2007-C2, Class C2, 0.58%, 11/17/14 (a)		11,900		11,895,736
Carrington Mortgage Loan Trust, Series 2007-FRE1, Class A1, 0.41%, 2/25/37 (a)		744		722,435
Chase Funding Mortgage Loan Asset-Backed Certificates, Series 2003-5, Class 1A4, 4.40%, 2/25/30		496		498,522
Chesapeake Funding LLC, Series 2009-1, Class A, 2.28%, 12/15/20 (a)(b)		6,759		6,775,070
CIT Mortgage Loan Trust, Series 2007-1, Class 2A1, 1.29%, 10/25/37 (a)(b)		3,128		3,059,917
Citibank Credit Card Issuance Trust, Series 2002-C2, Class C2, 6.95%, 2/18/14		12,900		12,986,616
Citigroup Mortgage Loan Trust, Inc., Series 2007-WFH4, Class A2A, 1.19%, 7/25/37 (a)		194		187,258
Countrywide Asset-Backed Certificates:
Series 2005-4, Class MV1, 0.75%, 10/25/35 (a)		4,413		4,270,855
Series 2006-20, Class 2A2, 0.41%, 4/25/47 (a)		2,850		2,711,423
Series 2006-22, Class 2A2, 0.40%, 5/25/47 (a)		3,468		3,338,874
Series 2006-25, Class 2A2, 0.41%, 6/25/47 (a)		4,908		4,334,578
Series 2007-10, Class 2A1, 0.34%, 6/25/47 (a)		1,129		1,085,551
Series 2007-4, Class A1B, 5.81%, 9/25/37		647		634,800
Series 2007-5, Class 2A1, 0.39%, 9/25/47 (a)		888		872,970
Series 2007-6, Class 2A1, 0.39%, 9/25/37 (a)		1,144		1,127,438
Series 2007-7, Class 2A1, 0.37%, 10/25/47 (a)		107		105,180

Asset-Backed Securities	Par (000)		Value
Series 2007-8, Class 2A1, 0.35%, 11/25/37 (a)	$	2,067	$	1,982,507
Credit-Based Asset Servicing & Securitization LLC, Series 2006-CB8, Class A2A, 0.34%, 10/25/36 (a)		329		326,522
First Franklin Mortgage Loan Asset Backed Certificates:
Series 2004-FF10, Class A3, 0.83%, 9/25/34 (a)		244		229,788
Series 2005-FF10, Class A4, 0.61%, 11/25/35 (a)		1,914		1,477,296
Series 2005-FF4, Class M1, 0.72%, 5/25/35 (a)		2,258		1,802,664
GE-WMC Mortgage Securities LLC, Series 2005-1, Class A2C, 0.65%, 10/25/35 (a)		1,842		1,566,357
GMAC Mortgage Corp. Loan Trust, Series 2006-HLTV, Class A3, 5.59%, 10/25/29		195		193,229
GMAC Mortgage Servicer Advance Funding Co. Ltd., Series 2011-1A, Class A, 3.72%, 3/15/23 (b)		5,900		5,885,250
GSAA Home Equity Trust, Series 2005-12, Class AF3W, 5.00%, 9/25/35 (a)		4,553		4,252,512
GSAMP Trust, Series 2007-HE2, Class A2A, 0.36%, 3/25/47 (a)		623		611,562
Helios Finance LP:
Series 2007-S1, Class B1, 0.98%, 10/20/14 (a)(b)		1,421		1,417,716
Series 2007-S1, Class B2, 2.63%, 10/20/14 (a)(b)		3,589		3,583,905
IndyMac Residential Asset Backed Trust, Series 2007-A, Class 2A1, 0.42%, 4/25/47 (a)		133		132,691
JPMorgan Mortgage Acquisition Corp., Series 2006-CH1, Class A3, 0.39%, 7/25/36 (a)		3,928		3,857,318
Long Beach Mortgage Loan Trust, Series 2005-WL1, Class M2, 0.84%, 6/25/35 (a)		1,726		1,423,672
Morgan Stanley Capital, Inc., Series 2006, Class A3, 0.48%, 12/25/35 (a)		902		888,289
Morgan Stanley Home Equity Loan Trust, Series 2006-1, Class A2B, 0.49%, 12/25/35 (a)		347		341,669
Nationstar Home Equity Loan Trust, Series 2006-B, Class AV2, 0.42%, 9/25/36 (a)		2,728		2,638,380
New Century Home Equity Loan Trust:
Series 2005-3, Class A2D, 0.67%, 7/25/35 (a)		5,149		4,981,348
Series 2005-3, Class M1, 0.77%, 7/25/35 (a)		5,500		4,674,455
Series 2005-3, Class M2, 0.78%, 7/25/35 (a)		1,500		1,037,073
Park Place Securities, Inc., Series 2005-WCW3, Class A2C, 0.67%, 8/25/35 (a)		7,148		6,581,147
Residential Asset Mortgage Products, Inc.:
Series 2005-EFC3, Class M1, 0.74%, 8/25/35 (a)		3,125		3,054,220
Series 2005-RS6, Class M1, 0.79%, 6/25/35 (a)		4,300		3,314,152

See Notes to Financial Statements.

120 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Asset-Backed Securities	Par (000)		Value
Residential Asset Securities Corp.:
Series 2005-AHL1, Class A2, 0.56%, 7/25/35 (a)	$	387	$	382,294
Series 2007-KS3, Class AI1, 0.40%, 4/25/37 (a)		219		217,523
Series 2007-KS4, Class A1, 0.39%, 5/25/37 (a)		242		238,123
Santander Drive Auto Receivables Trust, Series 2011-S1A, Class D, 3.10%, 5/15/17 (b)		4,274		4,236,217
Securitized Asset Backed Receivables LLC Trust, Series 2005-FR5, Class A1A, 0.58%, 8/25/35 (a)		270		267,926
SG Mortgage Securities Trust, Series 2006-OPT2, Class A3A, 0.34%, 10/25/36 (a)		110		109,319
SLM Student Loan Trust, Series 2009-C, Class A, 4.50%, 11/16/43 (a)(b)		5,946		5,636,790
Soundview Home Equity Loan Trust:
Series 2006-EQ1, Class A2, 0.40%, 10/25/36 (a)		2,092		2,053,244
Series 2007-1, Class 2A1, 0.38%, 3/25/37 (a)		1,601		1,474,869
Series 2007-OPT5, Class 2A1, 1.09%, 10/25/37 (a)		57		56,822
Specialty Underwriting & Residential Finance, Series 2005-BC3, Class M2, 0.79%, 6/25/36 (a)		2,600		1,572,977
Structured Asset Investment Loan Trust, Series 2005-1, Class A5, 0.64%, 2/25/35 (a)(b)		818		808,447
Structured Asset Securities Corp., Series 2006-BC5, Class A2, 0.34%, 12/25/36 (a)		1,200		1,173,692
Terwin Mortgage Trust:
Series 2005-12AL, Class AF2, 4.65%, 7/25/36		373		372,356
Series 2005-14HE, Class AF2, 4.85%, 8/25/36		3,638		3,511,316
Wheels SPV LLC, Series 2009-1, Class A, 1.83%, 3/15/18 (a)(b)		3,497		3,508,970
Total Asset-Backed Securities — 6.7%				157,836,915
Corporate Bonds
Aerospace & Defense — 0.5%
BE Aerospace, Inc., 6.88%, 10/01/20 (c)		1,900		2,071,000
L-3 Communications Corp.:
3.95%, 11/15/16		1,250		1,261,653
4.75%, 7/15/20		900		889,245
4.95%, 2/15/21		600		594,635
Series B, 6.38%, 10/15/15		2,396		2,455,900
Lockheed Martin Corp., 5.50%, 11/15/39		1,900		2,052,705
TransDigm, Inc., 7.75%, 12/15/18		2,200		2,365,000
				11,690,138
Air Freight & Logistics — 0.1%
FedEx Corp., 8.00%, 1/15/19		600		787,854
United Parcel Service, Inc., 4.88%, 11/15/40		400		462,301
				1,250,155
Beverages — 0.3%
Bottling Group LLC, 5.13%, 1/15/19 (c)		1,100		1,283,327
Diageo Finance BV, 3.25%, 1/15/15		2,000		2,114,418

Corporate Bonds	Par (000)		Value
Dr Pepper Snapple Group, Inc.:
2.35%, 12/21/12	$	1,000	$	1,013,848
2.90%, 1/15/16		1,250		1,296,403
PepsiCo, Inc., 4.88%, 11/01/40		1,000		1,155,632
				6,863,628
Biotechnology — 0.8%
Amgen, Inc.:
2.30%, 6/15/16		800		805,466
6.40%, 2/01/39		900		1,061,196
5.15%, 11/15/41		1,250		1,295,855
Biogen Idec, Inc., 6.88%, 3/01/18		7,528		9,098,853
Celgene Corp., 3.95%, 10/15/20		4,000		4,028,488
Genentech, Inc., 4.75%, 7/15/15		625		697,151
Gilead Sciences, Inc., 4.40%, 12/01/21		2,200		2,329,122
				19,316,131
Capital Markets — 0.9%
The Bear Stearns Cos., Inc., 6.40%, 10/02/17		2,500		2,793,072
The Bear Stearns Cos., Inc./JPMorgan Chase & Co., 5.70%, 11/15/14		800		870,024
Credit Suisse First Boston USA, Inc.:
5.13%, 1/15/14		1,400		1,459,237
4.88%, 1/15/15		900		940,341
The Goldman Sachs Group, Inc.:
5.95%, 1/18/18		1,500		1,536,332
6.15%, 4/01/18		1,500		1,548,133
7.50%, 2/15/19		1,200		1,325,291
6.75%, 10/01/37		1,650		1,535,346
6.25%, 2/01/41		950		931,978
Merrill Lynch & Co., Inc., 6.88%, 4/25/18		550		542,266
Morgan Stanley:
2.88%, 7/28/14 (c)		3,400		3,201,987
6.00%, 4/28/15		1,400		1,402,436
6.25%, 8/28/17		1,500		1,467,968
5.50%, 7/28/21		1,150		1,063,330
7.25%, 4/01/32		600		611,828
Series F, 5.95%, 12/28/17		850		809,826
				22,039,395
Chemicals — 0.3%
Ecolab, Inc., 4.35%, 12/08/21		500		533,945
LyondellBasell Industries N.V., 6.00%, 11/15/21 (b)(c)		1,800		1,867,500
Nalco Co., 6.63%, 1/15/19 (b)		3,500		4,051,250
				6,452,695
Commercial Banks — 0.6%
HSBC Bank USA NA, 5.88%, 11/01/34		1,700		1,640,061
HSBC Holdings Plc, 6.50%, 9/15/37		700		690,964
JPMorgan Chase Bank NA, Series BKNT, 6.00%, 10/01/17		800		860,564
US Bancorp, 2.20%, 11/15/16		4,000		4,038,432
Wachovia Bank NA, 6.00%, 11/15/17		5,400		5,962,804
				13,192,825
Communications Equipment — 0.1%
Omnicom Group, Inc., 4.45%, 8/15/20		2,700		2,783,125
Consumer Finance — 0.4%
American Express Co., 8.13%, 5/20/19		4,800		6,205,781
American Express Credit Co., 2.75%, 9/15/15		2,600		2,613,790
				8,819,571

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 121

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Corporate Bonds	Par (000)		Value
Containers & Packaging — 0.3%
Crown Americas LLC and Crown Americas Capital Corp. II, 7.63%, 5/15/17	$	3,900	$	4,255,875
Sealed Air Corp., 6.88%, 7/15/33 (b)		2,000		1,750,000
				6,005,875
Diversified Financial Services — 1.5%
Associates Corp. of North America, 6.95%, 11/01/18		1,500		1,629,949
Bank of America Corp.:
4.50%, 4/01/15		4,300		4,149,440
3.70%, 9/01/15		1,000		930,421
3.75%, 7/12/16 (c)		2,400		2,222,206
5.49%, 3/15/19		1,500		1,292,866
Citigroup, Inc.:
6.50%, 8/19/13		1,400		1,457,348
6.38%, 8/12/14		1,400		1,469,329
6.13%, 11/21/17		1,000		1,067,231
8.50%, 5/22/19		1,600		1,883,338
8.13%, 7/15/39		600		734,599
General Electric Capital Corp.:
2.25%, 11/09/15		2,000		2,008,942
4.38%, 9/16/20		4,000		4,087,540
4.63%, 1/07/21		1,600		1,659,923
6.75%, 3/15/32		500		585,471
6.88%, 1/10/39		1,000		1,198,032
JPMorgan Chase & Co.:
3.45%, 3/01/16		3,300		3,352,645
3.15%, 7/05/16		1,100		1,105,148
5.60%, 7/15/41		2,400		2,512,716
5.40%, 1/06/42		1,100		1,147,944
SLM Corp.:
6.25%, 1/25/16		300		291,744
8.00%, 3/25/20		950		959,500
				35,746,332
Diversified Telecommunication Services — 1.4%
AT&T, Inc.:
4.95%, 1/15/13		1,500		1,563,328
2.40%, 8/15/16		1,250		1,275,359
6.55%, 2/15/39		2,000		2,544,078
5.35%, 9/01/40		1,231		1,384,752
BellSouth Corp., 6.55%, 6/15/34		2,400		2,856,890
British Telecommunications Plc, 9.63%, 12/15/30		400		563,720
Embarq Corp., 8.00%, 6/01/36		3,000		3,108,564
Qwest Corp., 8.38%, 5/01/16		3,300		3,779,731
Telefonica Emisiones SAU, 5.86%, 2/04/13		3,600		3,660,358
Verizon Communications, Inc.:
8.75%, 11/01/18		2,000		2,701,452
6.90%, 4/15/38		900		1,202,935
8.95%, 3/01/39		500		800,730
7.35%, 4/01/39		1,700		2,376,625
Windstream Corp., 7.88%, 11/01/17 (c)		5,350		5,791,375
				33,609,897
Electric Utilities — 1.8%
Commonwealth Edison Co.:
4.70%, 4/15/15		1,000		1,094,030
5.88%, 2/01/33		3,500		4,234,727
Duke Energy Corp.:
2.15%, 11/15/16		2,100		2,105,970
5.05%, 9/15/19		2,000		2,269,110
FirstEnergy Solutions Corp., 6.05%, 8/15/21		1,200		1,331,634
Ipalco Enterprises, Inc., 5.00%, 5/01/18		850		833,000
MidAmerican Energy Holdings Co., 5.75%, 4/01/18		6,550		7,558,746

Corporate Bonds	Par (000)		Value
Northern States Power Co, 5.25%, 7/15/35	$	2,500	$	3,076,523
Oncor Electric Delivery Co. LLC, 5.95%, 9/01/13		2,750		2,942,536
Pacific Gas & Electric Co.:
5.63%, 11/30/17		1,500		1,774,998
3.25%, 9/15/21 (c)		2,900		2,942,674
PacifiCorp:
5.50%, 1/15/19		1,300		1,534,121
6.25%, 10/15/37		1,000		1,318,190
Progress Energy, Inc.:
4.88%, 12/01/19		3,100		3,524,433
4.40%, 1/15/21		3,700		4,078,454
Southern Co. (The), 4.15%, 5/15/14		900		961,424
				41,580,570
Electrical Equipment — 0.1%
Roper Industries, Inc., 6.25%, 9/01/19		1,500		1,772,388
Electronic Equipment, Instruments & Components — 0.1%
Tyco Electronics Group SA, 6.55%, 10/01/17		2,900		3,350,074
Food Products — 0.7%
ConAgra Foods, Inc., 7.13%, 10/01/26		2,400		2,824,138
General Mills, Inc., 5.65%, 2/15/19		1,400		1,661,358
Hershey Co. (The), 4.13%, 12/01/20		1,550		1,733,847
Kellogg Co.:
4.45%, 5/30/16		100		111,004
3.25%, 5/21/18		1,550		1,630,022
Series B, 7.45%, 4/01/31		100		136,372
Kraft Foods, Inc., 5.38%, 2/10/20		3,600		4,153,863
Mead Johnson Nutrition Co., 4.90%, 11/01/19		4,500		4,952,677
				17,203,281
Health Care Equipment & Supplies — 0.1%
Covidien International Finance SA, 6.55%, 10/15/37		1,600		2,032,723
Health Care Providers & Services — 1.1%
AmerisourceBergen Corp.:
4.88%, 11/15/19		900		1,009,161
3.50%, 11/15/21		3,950		4,056,294
Cardinal Health, Inc., 4.63%, 12/15/20		4,300		4,609,686
DaVita, Inc., 6.38%, 11/01/18		3,550		3,634,313
Health Net, Inc., 6.38%, 6/01/17		2,300		2,392,000
Humana, Inc., 6.45%, 6/01/16		4,100		4,539,114
UnitedHealth Group, Inc.:
4.70%, 2/15/21 (c)		3,100		3,485,060
6.88%, 2/15/38		1,700		2,279,807
5.70%, 10/15/40		250		299,315
				26,304,750
Hotels, Restaurants & Leisure — 0.7%
McDonald’s Corp.:
6.30%, 10/15/37		1,000		1,397,376
4.88%, 7/15/40		1,600		1,909,263
Wyndham Worldwide Corp., 6.00%, 12/01/16		3,100		3,343,040
Yum! Brands, Inc.:
4.25%, 9/15/15		2,000		2,138,298
6.25%, 3/15/18		2,500		2,929,555
5.30%, 9/15/19		2,241		2,507,316
6.88%, 11/15/37		2,100		2,680,822
				16,905,670
Household Durables — 0.0%
Tupperware Brands Corp., 4.75%, 6/01/21 (b)		900		901,792

See Notes to Financial Statements.

122 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Corporate Bonds	Par (000)		Value
Independent Power Producers & Energy Traders — 0.3%
Constellation Energy Group, Inc., 5.15%, 12/01/20	$	3,200	$	3,467,648
Exelon Generation Co. LLC, 5.75%, 10/01/41		500		575,298
PSEG Power LLC, 4.15%, 9/15/21		1,150		1,194,366
Southern Power Co., 5.15%, 9/15/41		1,000		1,060,945
				6,298,257
Industrial Conglomerates — 0.4%
Tyco International Finance SA, 8.50%, 1/15/19		8,000		10,304,632
Insurance — 0.6%
American International Group:
6.40%, 12/15/20		1,200		1,211,076
8.18%, 5/15/68 (a)		500		445,000
Markel Corp., 5.35%, 6/01/21		1,300		1,361,282
Marsh & McLennan Cos., Inc.:
5.75%, 9/15/15		400		442,980
9.25%, 4/15/19		2,300		3,033,213
4.80%, 7/15/21		1,600		1,751,307
Willis Group Holdings Plc:
4.13%, 3/15/16		2,600		2,640,656
5.75%, 3/15/21		1,300		1,378,650
XL Group Ltd., 5.75%, 10/01/21		1,400		1,477,528
				13,741,692
Internet Software & Services — 0.1%
Digital Realty Trust LP, 5.88%, 2/01/20		2,800		2,913,285
IT Services — 0.6%
International Business Machines Corp.:
2.00%, 1/05/16		8,600		8,821,166
7.63%, 10/15/18		2,050		2,751,016
5.60%, 11/30/39 (c)		1,600		2,055,488
The Western Union Co., 6.20%, 11/17/36		600		638,412
				14,266,082
Leisure Equipment & Products — 0.1%
Mattel, Inc.:
2.50%, 11/01/16		750		754,820
5.45%, 11/01/41		1,800		1,822,633
				2,577,453
Life Sciences Tools & Services — 0.3%
Bio-Rad Laboratories, Inc., 4.88%, 12/15/20		4,100		4,254,029
Thermo Fisher Scientific, Inc., 3.25%, 11/20/14		1,600		1,694,269
				5,948,298
Machinery — 0.3%
Case New Holland, Inc., 7.75%, 9/01/13 (c)		3,191		3,390,437
Danaher Corp., 2.30%, 6/23/16		450		467,725
Dover Corp., 4.30%, 3/01/21 (c)		2,400		2,704,884
				6,563,046
Media — 1.2%
CBS Corp.:
4.30%, 2/15/21 (c)		2,000		2,064,982
5.90%, 10/15/40		2,200		2,469,656
Comcast Corp., 5.70%, 5/15/18		2,450		2,819,360
DirecTV Holdings LLC/DirecTV Financing Co., Inc., 7.63%, 5/15/16		4,800		5,094,000
DISH DBS Corp.:
7.88%, 9/01/19 (c)		2,700		3,051,000
6.75%, 6/01/21		1,200		1,293,000
NBCUniversal Media LLC, 6.40%, 4/30/40		500		614,697

Corporate Bonds	Par (000)		Value
News America, Inc., 4.50%, 2/15/21	$	2,500	$	2,621,273
Scripps Networks Interactive, Inc., 2.70%, 12/15/16		2,300		2,301,221
Time Warner, Inc.:
8.25%, 4/01/19 (c)		2,350		2,951,628
6.25%, 3/29/41		1,100		1,318,846
Viacom, Inc., 4.38%, 9/15/14		1,300		1,392,624
				27,992,287
Metals & Mining — 0.4%
Freeport-McMoRan Copper & Gold, Inc., 8.38%, 4/01/17		2,200		2,337,500
Kinross Gold Corp., 6.88%, 9/01/41 (b)		1,100		1,122,501
Newmont Mining Corp., 6.25%, 10/01/39		3,000		3,552,036
Xstrata Canada Corp., 6.20%, 6/15/35		1,000		1,035,986
Xstrata Canada Financial Corp., 6.00%, 11/15/41 (b)		650		666,973
				8,714,996
Multi-Utilities — 0.3%
Dominion Resources, Inc.:
6.40%, 6/15/18 (c)		4,050		4,887,795
4.45%, 3/15/21		2,100		2,338,970
				7,226,765
Multiline Retail — 0.1%
Nordstrom, Inc.:
4.00%, 10/15/21		1,200		1,250,921
7.00%, 1/15/38		600		797,822
				2,048,743
Oil, Gas & Consumable Fuels — 2.0%
Anadarko Petroleum Corp.:
6.45%, 9/15/36		1,000		1,140,101
6.20%, 3/15/40		1,300		1,446,757
BP Capital Markets Plc:
3.13%, 10/01/15		700		733,196
3.20%, 3/11/16		1,500		1,572,033
3.56%, 11/01/21		1,900		1,978,060
Buckeye Partners LP, 4.88%, 2/01/21		550		578,903
ConocoPhillips, 6.50%, 2/01/39		1,400		1,936,574
ConocoPhillips Canada Funding Co. I, 5.63%, 10/15/16		500		583,767
Encana Corp., 6.50%, 5/15/19 (c)		400		478,058
Energy Transfer Partners LP:
9.70%, 3/15/19		1,900		2,327,785
9.00%, 4/15/19		800		951,574
Enterprise Products Operating LLC:
5.20%, 9/01/20		500		553,427
5.75%, 3/01/35		1,500		1,594,709
5.95%, 2/01/41		900		1,008,769
Linn Energy LLC/Linn Energy Finance Corp.:
6.50%, 5/15/19 (b)		300		297,750
8.63%, 4/15/20		3,200		3,472,000
7.75%, 2/01/21		250		260,000
Marathon Petroleum Corp., 6.50%, 3/01/41		1,000		1,133,226
Noble Energy, Inc., 4.15%, 12/15/21		2,100		2,172,435
ONEOK Partners LP, 6.85%, 10/15/37		1,300		1,578,409
Petrobras International Finance Co.:
5.75%, 1/20/20		1,500		1,605,180
5.38%, 1/27/21		2,200		2,311,322
Petroleos Mexicanos:
5.50%, 1/21/21		1,100		1,193,500
6.50%, 6/02/41		1,400		1,575,000
Petronas Capital Ltd., 5.25%, 8/12/19		2,200		2,467,067

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 123

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Corporate Bonds	Par (000)		Value
Plains All American Pipeline LP/PAA Finance Corp.:
8.75%, 5/01/19	$	600	$	766,496
6.70%, 5/15/36		1,000		1,188,056
TransCanada PipeLines Ltd.:
6.50%, 8/15/18		2,850		3,487,733
3.80%, 10/01/20		4,200		4,532,670
Williams Partners LP:
3.80%, 2/15/15		800		839,834
4.00%, 11/15/21		1,150		1,180,844
				46,945,235
Paper & Forest Products — 0.3%
Domtar Corp., 10.75%, 6/01/17		1,500		1,890,000
International Paper Co.:
9.38%, 5/15/19 (c)		1,600		2,079,141
7.50%, 8/15/21		2,100		2,592,154
6.00%, 11/15/41		200		217,122
				6,778,417
Pharmaceuticals — 0.6%
Abbott Laboratories, 5.30%, 5/27/40		1,400		1,676,559
AstraZeneca Plc, 6.45%, 9/15/37		1,500		2,023,236
Eli Lilly & Co., 5.55%, 3/15/37		1,700		2,062,401
GlaxoSmithKline Capital, Inc.:
5.65%, 5/15/18		1,200		1,444,328
6.38%, 5/15/38		500		669,026
Pfizer, Inc., 6.20%, 3/15/19		1,500		1,850,860
Sanofi-Aventis SA, 2.63%, 3/29/16		2,400		2,502,545
Teva Pharmaceutical Finance IV BV, 3.65%, 11/10/21		2,800		2,847,978
				15,076,933
Professional Services — 0.0%
Dun & Bradstreet Corp. (The), 2.88%, 11/15/15		600		616,307
Real Estate — 0.0%
Boston Properties LP, 3.70%, 11/15/18		950		970,028
Real Estate Investment Trusts (REITs) — 0.2%
American Tower Corp., 4.63%, 4/01/15		4,000		4,169,248
Simon Property Group LP, 5.65%, 2/01/20		1,000		1,146,058
				5,315,306
Road & Rail — 0.4%
Burlington Northern Santa Fe LLC, 5.40%, 6/01/41		2,700		3,121,238
CSX Corp., 5.75%, 3/15/13		2,600		2,736,916
Norfolk Southern Corp., 5.75%, 1/15/16		1,100		1,273,390
Union Pacific Corp., 6.13%, 2/15/20		1,300		1,591,336
				8,722,880
Semiconductors & Semiconductor Equipment — 0.1%
Intel Corp., 3.30%, 10/01/21		2,100		2,212,201
Software — 0.3%
Oracle Corp.:
5.25%, 1/15/16		1,500		1,732,048
5.75%, 4/15/18		550		667,417
5.38%, 7/15/40		3,100		3,776,659
				6,176,124
Specialty Retail — 0.9%
AutoZone, Inc., 4.00%, 11/15/20		6,600		6,761,786
The Gap, Inc., 5.95%, 4/12/21		935		891,804
Limited Brands, Inc.:
6.90%, 7/15/17		2,167		2,334,942
8.50%, 6/15/19		4,000		4,660,000

Corporate Bonds	Par (000)		Value
Macy’s Retail Holdings, Inc., 7.45%, 7/15/17	$	1,000	$	1,167,590
O’Reilly Automotive, Inc., 4.63%, 9/15/21		2,300		2,411,594
The Sherwin-Williams Co., 3.13%, 12/15/14		3,300		3,477,299
				21,705,015
Tobacco — 0.6%
Altria Group, Inc.:
9.70%, 11/10/18		2,750		3,699,886
9.25%, 8/06/19		1,100		1,477,032
9.95%, 11/10/38		200		304,196
Lorillard Tobacco Co., 3.50%, 8/04/16		1,200		1,213,780
Philip Morris International, Inc.:
4.88%, 5/16/13		2,200		2,321,561
5.65%, 5/16/18		1,300		1,537,670
2.90%, 11/15/21		2,700		2,752,782
6.38%, 5/16/38		1,500		1,955,539
				15,262,446
Wireless Telecommunication Services — 0.4%
America Movil SAB de CV, 5.00%, 3/30/20		2,800		3,093,362
American Tower Corp.:
4.50%, 1/15/18		2,100		2,136,252
5.05%, 9/01/20		2,300		2,304,161
Vodafone Group Plc:
2.88%, 3/16/16 (c)		1,800		1,867,687
5.63%, 2/27/17		950		1,103,077
				10,504,539
Total Corporate Bonds — 22.3%				526,701,982
Foreign Agency Obligations
Brazilian Government International Bond, 5.63%, 1/07/41		1,500		1,740,000
Colombia Government International Bond:
4.38%, 7/12/21		4,300		4,622,500
7.38%, 9/18/37		800		1,124,000
Indonesia Government International Bond, 5.88%, 3/13/20 (b)		1,800		2,038,500
Mexico Government International Bond, 6.05%, 1/11/40		2,600		3,178,500
Panama Government International Bond, 6.70%, 1/26/36		800		1,044,000
Peruvian Government International Bond:
7.13%, 3/30/19 (c)		1,900		2,389,250
6.55%, 3/14/37		300		381,000
South Africa Government International Bond, 5.50%, 3/09/20		2,000		2,240,000
Total Foreign Agency Obligations — 0.8%				18,757,750
Non-Agency Mortgage-Backed Securities
Collateralized Mortgage Obligations — 1.5%
Banc of America Funding Corp.:
Series 2005-8, Class 4A27, 5.75%, 1/25/36		952		922,904
Series 2006-6, Class 1A12, 5.75%, 8/25/36		205		203,770
Citicorp Mortgage Securities, Inc.:
Series 2006-1, Class 2A1, 5.00%, 2/25/21		818		810,238
Series 2007-3, Class 1A7, 6.00%, 4/25/37		1,504		1,503,772
Countrywide Alternative Loan Trust:
Series 2005-51, Class 1A2A, 0.57%, 11/20/35 (a)		2,072		2,000,425

See Notes to Financial Statements.

124 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Non-Agency Mortgage-Backed Securities	Par (000)			Value
Series 2006-HY12, Class A1, 5.57%, 8/25/36 (a)	$	702		$	681,574
Series 2006-OA2, Class A2A, 0.43%, 5/20/46 (a)		25			24,537
Crusade Global Trust, Series 2004-1, Class A1, 0.55%, 1/16/35 (a)		3,238			3,236,015
First Horizon Asset Securities, Inc., Series 2006-2, Class 1A6, 6.00%, 8/25/36		109			108,641
GMAC Mortgage Corp. Loan Trust, Series 2005-AR3, Class 4A3, 4.89%, 6/19/35 (a)		3,583			3,462,682
Greenpoint Mortgage Funding Trust:
Series 2006-AR4, Class A1A, 1.00%, 9/25/46 (a)		—	(d)		76
Series 2006-AR5, Class A1A, 0.37%, 10/25/46 (a)		1,689			1,606,577
GSR Mortgage Loan Trust, Series 2006-AR1, Class 2A2, 2.77%, 1/25/36 (a)		2,797			2,626,543
HSI Asset Securitization Corp. Trust, Series 2005, Class 2A4, 0.68%, 8/25/35 (a)		1,266			1,176,010
JPMorgan Alternative Loan Trust, Series 2006-A7, Class 1A2, 0.35%, 12/25/36 (a)		1,188			1,157,529
Residential Accredit Loans, Inc., Series 2004-QS9, Class A1, 5.00%, 6/25/19		683			682,143
Structured Asset Mortgage Investments, Inc., Series 2007-AR4, Class A1, 0.49%, 9/25/47 (a)		1,087			1,067,269
Thornburg Mortgage Securities Trust:
Series 2007-1, Class A2B, 0.36%, 3/25/37 (a)		3,622			3,580,324
Series 2007-2, Class A1, 0.38%, 6/25/37 (a)		557			549,766
Series 2007-2, Class A3A, 0.37%, 6/25/37 (a)		7,557			7,472,613
Wells Fargo Mortgage Backed Securities Trust:
Series 2003-11, Class 1A13, 4.75%, 10/25/18		724			743,077
Series 2005-7, Class A3, 5.25%, 9/25/35		761			760,445
					34,376,930
Commercial Mortgage-Backed Securities — 2.1%
Banc of America Merrill Lynch Commercial Mortgage, Inc., Series 2004-6, Class A3, 4.51%, 12/10/42		605			614,781
Bear Stearns Commercial Mortgage Securities, Series 2002-TOP8, Class A2, 4.83%, 8/15/38		5,433			5,510,662
Citigroup Commercial Mortgage Trust, Series 2008-C7, Class A4, 6.07%, 12/10/49 (a)		2,500			2,776,728
Credit Suisse First Boston Mortgage Securities Corp.:
Series 2002-CKN2, Class A3, 6.13%, 4/15/37		826			827,735
Series 2005-C5, Class AM, 5.10%, 8/15/38 (a)		1,500			1,570,365

Non-Agency Mortgage-Backed Securities	Par (000)		Value
CW Capital Cobalt Ltd., Series 2006-C1, Class A4, 5.22%, 8/15/48	$	3,000	$	3,190,863
GE Capital Commercial Mortgage Corp.:
Series 2002-1A, Class A3, 6.27%, 12/10/35		2,191		2,200,061
Series 2007-C1, Class A2, 5.42%, 12/10/49		1,772		1,776,391
Greenwich Capital Commercial Funding Corp., Series 2005-GG5, Class A5, 5.22%, 4/10/37 (a)		1,000		1,070,683
JPMorgan Chase Commercial Mortgage Securities Corp.:
Series 2002-CIB4, Class A3, 6.16%, 5/12/34		4,771		4,773,357
Series 2005-CB12, Class A3A1, 4.82%, 9/12/37		1,605		1,604,100
Series 2007-CB19, Class A3, 5.74%, 2/12/49 (a)		4,300		4,573,244
LB-UBS Commercial Mortgage Trust:
Series 2006-C7, Class A2, 5.30%, 11/15/38		4,179		4,186,300
Series 2007-C6, Class A4, 5.86%, 7/15/40 (a)		5,700		6,243,763
Merrill Lynch Countrywide Commercial Mortgage Trust, Series 2006-1, Class A2, 5.44%, 2/12/39 (a)		239		238,816
Merrill Lynch Mortgage Trust, Series 2004-MKB1, Class A3, 4.89%, 2/12/42		449		453,880
Morgan Stanley Dean Witter Capital I, Series 2002-IQ3, Class A4, 5.08%, 9/15/37		2,165		2,203,468
Wachovia Bank Commercial Mortgage Trust, Series 2007-C34, Class A3, 5.68%, 5/15/46		6,000		6,582,084
				50,397,281
Total Non-Agency Mortgage-Backed Securities — 3.6%				84,774,211
Preferred Securities
Capital Trusts
Insurance — 0.3%
Aon Corp., 8.21%, 1/01/27		1,700		1,981,437
Chubb Corp. (The):
6.00%, 5/11/37		800		964,656
6.38%, 3/29/67 (a)		2,550		2,518,125
The Travelers Cos., Inc., 6.25%, 6/15/37		1,000		1,243,474
				6,707,692
Total Capital Trusts — 0.3%				6,707,692
	Shares
Trust Preferred — 0.1%
Diversified Financial Services — 0.1%
JPMorgan Chase Capital XXVII, 7.00%, 11/01/39		3,500		3,521,875
Total Preferred Securities — 0.4%				10,229,567

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 125

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Preferred Stocks	Shares		Value
Diversified Telecommunication Services — 0.2%
Qwest Corp., 7.38%		196	$	5,201,840
Total Preferred Stocks — 0.2%				5,201,840
	Par (000)
Taxable Municipal Bonds
Chicago, Illinois Waterworks Revenue, 6.74%, 11/01/40	$	150		188,553
Massachusetts State Transportation Fund Revenue, 5.73%, 6/01/40		150		190,836
New Jersey State Turnpike Authority Revenue, 7.10%, 1/01/41		700		958,342
New York City Transitional Finance Authority Revenue, 5.57%, 11/01/38		450		522,203
Orange County Local Transportation Authority Sales Tax Revenue, 6.91%, 2/15/41		450		593,644
Port Authority of New York & New Jersey Revenue, 5.65%, 11/01/40		800		907,992
San Diego County Regional Transportation Commission Revenue, 5.91%, 4/01/39		600		754,356
San Francisco City & County Public Utilities Commission Revenue, 6.95%, 11/01/31		900		1,185,507
State of California:
7.55%, 4/01/39		400		489,088
7.63%, 3/01/40		1,150		1,414,902
7.60%, 11/01/40		250		308,678
State of Illinois, 2.77%, 1/01/12		5,200		5,200,000
State of Mississippi, 5.25%, 11/01/34		600		677,502
University of Missouri System Facilities Revenue, 5.79%, 11/01/41		300		386,256
Total Taxable Municipal Bonds — 0.6%				13,777,859
U.S. Government Sponsored Agency Securities
Agency Obligations — 2.1%
Fannie Mae, 0.75%, 12/19/14		50,000		50,154,150
Collateralized Mortgage Obligations — 1.2%
Fannie Mae REMICS:
Series 2007-54, Class PF, 0.51%, 6/25/37 (a)		5,958		5,923,417
Series 2010-35, Class EF, 0.84%, 4/25/40 (a)		7,464		7,471,305
Series 2010-89, Class CF, 0.74%, 2/25/38 (a)		6,127		6,119,592
Freddie Mac Mortgage Backed Securities:
Series 3667, Class FW, 0.83%, 2/15/38 (a)		4,758		4,762,271
Series 3807, Class FN, 0.78%, 2/15/41 (a)		4,235		4,234,766
				28,511,351
Mortgage-Backed Securities — 49.1%
Fannie Mae Mortgage Backed Securities:
2.36%, 1/01/36 (a)		1,843		1,946,551
2.38%, 4/11/16		33,812		35,724,170
2.39%, 8/01/33		2,872		3,022,196
2.47%, 5/01/33 (a)		3,792		3,993,771
2.52%, 1/01/35 (a)		1,625		1,711,525
2.75%, 8/01/41 (a)		4,054		4,202,843
3.00%, 2/01/26—1/01/42 (e)		4,939		5,102,129
3.31%, 9/01/41 (a)		2,247		2,341,364

U.S. Government Sponsored Agency Securities	Par (000)		Value
3.36%, 4/01/40 (a)	$	593	$	620,915
3.50%, 2/01/26—1/01/42 (e)		96,033		99,063,119
3.60%, 5/01/40 (a)		3,790		3,968,137
4.00%, 8/01/25—1/01/42 (e)		188,469		198,203,017
4.50%, 10/01/24—1/01/42 (e)		85,099		90,651,490
5.00%, 1/01/18—1/01/42 (e)		64,238		69,431,073
5.50%, 9/01/19—1/01/42 (e)		90,846		99,081,180
6.00%, 11/01/22—1/01/42 (e)		74,907		82,648,997
6.50%, 12/01/30—12/01/32		17,232		19,667,461
Freddie Mac Mortgage Backed Securities:
2.22%, 10/01/33 (a)		1,621		1,688,066
2.50%, 5/27/16 (c)		26,214		27,762,592
2.63%, 11/01/36 (a)		1,926		2,053,094
3.00%, 1/01/42 (e)		4,000		4,128,752
3.26%, 8/01/41 (a)		2,810		2,928,075
3.34%, 7/01/41 (a)		1,645		1,715,119
3.35%, 2/01/40 (a)		3,794		3,972,080
3.50%, 12/01/25—1/01/42 (e)		10,478		10,911,902
4.00%, 3/01/26—1/01/42 (e)		39,306		41,282,058
4.50%, 8/01/20—1/01/42 (e)		56,973		60,428,014
4.57%, 4/01/38 (a)		4,798		5,116,130
5.00%, 10/01/20—1/01/42 (e)		42,400		45,612,483
5.50%, 12/01/27—8/01/38		27,084		29,453,396
6.00%, 12/01/28—1/01/38		22,802		25,186,567
6.50%, 5/01/21—1/01/36		3,913		4,445,235
Ginnie Mae Mortgage Backed Securities:
3.50%, 12/15/40—1/01/42 (e)		2,968		3,097,334
4.00%, 9/15/40—1/01/42 (e)		26,397		28,354,576
4.50%, 3/15/39—1/01/42 (e)		53,617		58,610,027
5.00%, 9/15/39—1/01/42 (e)		46,912		52,174,465
5.50%, 6/15/34—11/20/39		16,530		18,584,072
6.00%, 1/01/42 (e)		9,000		10,186,875
				1,159,070,850
Total U.S. Government Sponsored Agency Securities —52.4%				1,237,736,351
U.S. Treasury Obligations
U.S. Treasury Bonds:
6.38%, 8/15/27 (c)		24,068		36,481,817
6.25%, 5/15/30		17,228		26,643,861
5.00%, 5/15/37 (c)		23,800		33,487,338
4.38%, 5/15/40 (c)(f)		23,100		30,008,332
3.88%, 8/15/40		20,650		24,754,187
4.25%, 11/15/40		4,640		5,917,448
4.38%, 5/15/41		4,931		6,424,940
U.S. Treasury Inflation Indexed Notes:
1.88%, 7/15/13		24,655		25,782,017
0.13%, 4/15/16		59,388		61,912,021
U.S. Treasury Notes:
1.25%, 2/15/14		61,000		62,253,367
1.75%, 3/31/14 (c)		33,000		34,080,222
2.75%, 12/31/17 (c)		26,500		29,050,625
1.75%, 10/31/18		1,041		1,071,417
Total U.S. Treasury Obligations — 16.0%				377,867,592
Total Long-Term Investments (Cost — $2,329,716,966) — 103.0%				2,432,884,067

See Notes to Financial Statements.

126 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Short-Term Securities	Shares		Value
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (g)(h)(i)		559,553,070	$	559,553,070
BlackRock Cash Funds: Prime, SL Agency Shares, 0.18% (g)(h)(i)		36,989,307		36,989,307
				596,542,377
Total Short-Term Securities (Cost — $596,542,377) — 25.2%				596,542,377
Total Investments Before TBA Sale Commitments (Cost — $2,926,259,343*) — 128.2%				3,029,426,444
TBA Sale Commitments (e)	Par (000)
Fannie Mae Mortgage Backed Securities:
3.50%, 2/01/26—1/01/42	$	40,200		(41,482,406	)
4.00%, 08/01/25—1/01/42		164,800		(173,117,250	)
4.50%, 10/01/24—1/01/42		19,600		(20,857,500	)
5.00%, 1/01/18—1/01/42		152,600		(164,855,188	)
5.50%, 9/01/19—1/01/42		101,000		(109,979,531	)
6.00%, 11/01/22—1/01/42		20,000		(22,021,875	)
Ginnie Mae Mortgage Backed Securities:
5.00%, 9/15/39—1/01/42		10,000		(11,072,188	)
Total TBA Sale Commitments (Proceeds — $541,008,937) — (23.0)%				(543,385,938	)
Total Investments Net of TBA Sale Commitments — 105.2%				2,486,040,506
Liabilities in Excess of Other Assets — (5.2)%				(123,587,956	)
Net Assets — 100.0%			$	2,362,452,550

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Tax cost	$	2,928,227,671
Gross unrealized appreciation	$	111,420,990
Gross unrealized depreciation		(10,222,217	)
Net unrealized appreciation	$	101,198,773

(a) Variable rate security. Rate shown is as of report date.

(b) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors.

(c) Security, or a portion of security, is on loan.

(d) Amount is less than $500.

(e) Represents or includes a “to-be-announced” (“TBA”) transaction. Unsettled TBA transactions as of December 31, 2011 were as follows:

Counterparty	Market Value			Unrealized Appreciation (Depreciation)
Bank of America Securities	$	15,244,688		$	49,154
Barclays Capital Inc.	$	(42,995,219	)	$	(216,118	)
BNP Paribas	$	18,933,875		$	86,037
Citigroup Global	$	94,999,407		$	462,062
Credit Suisse Securities LLC	$	(81,690,719	)	$	(449,546	)
Deutsche Bank Securities, Inc.	$	(1,165,017	)	$	(134,652	)
Goldman Sachs & Co.	$	7,885,702		$	11,457
JPMorgan Securities, Ltd.	$	(36,317,437	)	$	(33,251	)
Morgan Stanley Capital Services, Inc.	$	13,829,719		$	94,830
Nomura Securities	$	23,955,250		$	148,407
R.B.C. Dominion Securities	$	(2,879,844	)	$	(16,529	)
RBS Securities LLC	$	(80,102,984	)	$	(850,656	)
UBS Securities LLC	$	4,130,624		$	8,202
Wells Fargo Securities	$	(3,794,375	)	$	(22,729	)

(f) All or a portion of security has been pledged as collateral in connection with open financial futures contracts.

(g) Investments in companies considered to be an affiliate of the Master Portfolio during the year, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares Held at December 31, 2010		Net Activity		Shares Held at December 31, 2011		Income
BlackRock Cash Funds: Institutional, SL Agency Shares		519,520,789		40,032,281		559,553,070	$	699,708
BlackRock Cash Funds: Prime, SL Agency Shares		12,803,177		24,186,130		36,989,307	$	52,811

(h) Represents the current yield as of report date.

(i) All or a portion of this security was purchased with the cash collateral from loaned securities.

^· For Master Portfolio compliance purposes, the Master Portfolio’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Master Portfolio management. These definitions may not apply for purposes of this report, which may combine such sector and industry sub-classifications for reporting ease.

^· Financial futures contracts purchased as of December 31, 2011 were as follows:

Contracts	Issue	Exchange	Expiration	Notional Value		Unrealized Appreciation (Depreciation)
1,178	2-Year U.S. Treasury Notes	Chicago Mercantile	March 2012	$	259,804,220	$	(95,729	)
1,372	5-Year U.S. Treasury Notes	Chicago Mercantile	March 2012	$	169,109,719		195,963
2,339	10-Year U.S. Treasury Notes	Chicago Mercantile	March 2012	$	306,701,375		1,203,560
53	30-Year U.S. Treasury Bonds	Chicago Mercantile	March 2012	$	7,675,063		37,140
Total						$	1,340,934

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 127

Schedule of Investments (concluded) CoreAlpha Bond Master Portfolio

^· Financial futures contracts sold as of December 31, 2011 were as follows:

Contracts	Issue	Exchange	Expiration	Notional Value		Unrealized Depreciation
19	Ultra Long U.S. Treasury Bonds	Chicago Mercantile	March 2012	$	3,043,563	$	(53,709	)

^· Credit default swaps on single-name issues — sold protection outstanding as of December 31, 2011 were as follows:

Issuer

Receive Fixed Rate

Counterparty

Expiration Date

Issuer Credit Rating1

Notional Amount (000)2

Unrealized Appreciation

General Electric Capital Corp.

3.25

%

Deutsche Bank AG

12/20/13

AA+

$

4,000

$

32,847

¹  Using S&P’s rating.

²  The maximum potential amount the Master Portfolio may pay should a negative event take place as defined under the terms of agreement.

^· Credit default swaps on traded indexes — buy protection outstanding as of December 31, 2011 were as follows:

Index	Pay Fixed Rate			Counterparty		Expiration Date		Notional Amount (000)		Unrealized Depreciation
Dow Jones CDX North America High Yield		5.00	%		Deutsche Bank AG		6/20/16	$	26,460	$	(242,644	)

^· Interest rate swaps outstanding as of December 31, 2011 were as follows:

Fixed Rate	Floating Rate	Counterparty	Expiration Date	Notional Amount (000)		Unrealized Depreciation
1.71%1	3-month LIBOR	RBS PLC	11/14/18	$	58,000	$	(335,965	)

Fixed Rate	Floating Rate	Counterparty	Expiration Date	Notional Amount (000)		Unrealized Depreciation
1.89%1	3-month LIBOR	Deutsche Bank AG	10/20/18		60,300		(1,119,672	)
Total						$	(1,455,637	)

¹ Pays fixed interest rate and receives floating rate.

^· Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes as follows:

^· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

^· 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 Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1			Level 2			Level 3		Total
Assets:
Investments:
Long-Term Investments:
Asset-Backed Securities		—		$	157,836,915			—	$	157,836,915
Corporate Bonds		—			526,701,982			—		526,701,982
Foreign Agency Obligations		—			18,757,750			—		18,757,750
Non-Agency Mortgage-Backed Securities		—			84,774,211			—		84,774,211
Preferred Securities		—			10,229,567			—		10,229,567
Preferred Stocks	$	5,201,840			—			—		5,201,840
Taxable Municipal Bonds		—			13,777,859			—		13,777,859
U.S. Government Sponsored Agency Securities		—			1,237,736,351			—		1,237,736,351
U.S. Treasury Obligations		—			377,867,592			—		377,867,592
Short-Term Securities:
Money Market Funds		596,542,377			—			—		596,542,377
Liabilities:
TBA Sale Commitments		—			(543,385,938	)		—		(543,385,938	)
Total	$	601,744,217		$	1,884,296,289		$	—	$	2,486,040,506
Valuation Inputs	Level 1			Level 2			Level 3		Total
Derivative Financial Instruments1
Assets:
Credit contracts		—			—			—		—
Interest rate contracts	$	1,340,934			—			—	$	1,340,934
Liabilities:
Credit contracts		—		$	(209,797	)		—		(209,797	)
Interest rate contracts		(53,709	)		(1,455,637	)		—		(1,509,346	)
Total	$	1,287,225		$	(1,665,434	)	$	—	$	(378,209	)

¹  Derivative financial instruments are swaps and financial futures contracts. Swaps and financial futures contracts are valued at the unrealized appreciation/depreciation on the instrument.

See Notes to Financial Statements.

128 BLACKROCK FUNDS III DECEMBER 31, 2011

Statements of Assets and Liabilities Master Investment Portfolio

December 31, 2011	LifePath Retirement Master Portfolio		LifePath 2020 Master Portfolio		LifePath 2025 Master Portfolio			LifePath 2030 Master Portfolio		LifePath 2035 Master Portfolio
Assets
Investments at value — affiliated1,2	$	1,396,268,541	$	2,446,765,875	$	12,447,321		$	2,053,063,878	$	7,632,048
Contributions receivable from investors		234,361		481,645		45,177			654,241		7,150
Investments sold receivable		20,198,620		41,319,486		39,000			32,460,988		—
Securities lending income receivable		4,813		23,467		127			15,992		50
Interest receivable		24		29		—			22		—
Receivable from investment advisor		—		—		21,829			—		22,103
Total assets		1,416,706,359		2,488,590,502		12,553,454			2,086,195,121		7,661,351
Liabilities
Collateral on securities loaned at value		20,835,330		129,824,775		306,800			71,949,702		197,784
Investments purchased payable		1,476,504		—		45,177			—		14,478
Withdrawals payable to investors		7,226,998		—		—			—		2
Investment advisory fees payable		102,372		144,031		—			98,011		—
Professional fees payable		23,299		23,787		22,634			23,614		22,638
Trustees’ fees payable		9,307		15,225		728			12,922		714
Total liabilities		29,673,810		130,007,818		375,339			72,084,249		235,616
Net Assets	$	1,387,032,549	$	2,358,582,684	$	12,178,115		$	2,014,110,872	$	7,425,735
Net Assets Consist of
Investors’ capital	$	1,325,992,213	$	2,269,774,388	$	12,427,459		$	1,958,097,205	$	7,683,629
Net unrealized appreciation/depreciation		61,040,336		88,808,296		(249,344	)		56,013,667		(257,894	)
Net Assets	$	1,387,032,549	$	2,358,582,684	$	12,178,115		$	2,014,110,872	$	7,425,735
1 Investments at cost — affiliated	$	1,335,228,205	$	2,357,957,579	$	12,696,665		$	1,997,050,211	$	7,889,942
2 Securities loaned at value	$	20,401,228	$	127,434,704	$	297,596		$	70,418,793	$	193,913

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	129

Statements of Assets and Liabilities (continued) Master Investment Portfolio

December 31, 2011	LifePath 2040 Master Portfolio		LifePath 2045 Master Portfolio			LifePath 2050 Master Portfolio			LifePath 2055 Master Portfolio
Assets
Investments at value — affiliated1,2	$	1,538,256,033	$	3,347,551		$	180,113,300		$	508,492
Contributions receivable from investors		7,280,873		15,733			561,710			—
Investments sold receivable		29,372,629		—			7,877,121			—
Securities lending income receivable		11,985		33			2,577			5
Interest receivable		21		—			4			—
Receivable from investment advisor		—		22,311			—			19,675
Total assets		1,574,921,541		3,385,628			188,554,712			528,172
Liabilities
Collateral on securities loaned at value		56,952,455		95,460			7,688,374			10,300
Investments purchased payable		8,121,215		18,308			752,395			3,622
Investment advisory fees payable		58,355		—			2,866			—
Professional fees payable		23,382		22,635			22,709			19,921
Trustees’ fees payable		9,870		697			1,590			683
Total liabilities		65,165,277		137,100			8,467,934			34,526
Net Assets	$	1,509,756,264	$	3,248,528		$	180,086,778		$	493,646
Net Assets Consist of
Investors’ capital	$	1,482,982,152	$	3,361,923		$	180,953,515		$	492,629
Net unrealized appreciation/depreciation		26,774,112		(113,395	)		(866,737	)		1,017
Net Assets	$	1,509,756,264	$	3,248,528		$	180,086,778		$	493,646
1 Investments at cost — affiliated	$	1,511,481,921	$	3,460,946		$	180,980,037		$	507,475
2 Securities loaned at value	$	55,788,539	$	93,425		$	7,541,539		$	10,100

See Notes to Financial Statements.
130	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Assets and Liabilities (continued) Master Investment Portfolio

December 31, 2011	Active Stock Master Portfolio
Assets
Investments at value — unaffiliated1,2	$	2,704,264,600
Investments at value — affiliated3		148,426,886
Investments sold receivable		47,814,127
Dividends receivable		3,735,162
Securities lending income receivable		18,979
Interest receivable		421
Total assets		2,904,260,175
Liabilities
Collateral on securities loaned at value		79,776,091
Investments purchased payable		1,987,261
Capital shares redeemed payable		104,495,872
Margin variation payable		48,014
Investment advisory fees payable		387,427
Administration fees payable		232,467
Professional fees payable		42,162
Trustees’ fees payable		8,195
Foreign taxes payable		32,984
Total liabilities		187,010,473
Net Assets	$	2,717,249,702
Net Assets Consist of
Investors’ capital	$	2,634,579,021
Net unrealized appreciation/depreciation		82,670,681
Net Assets	$	2,717,249,702
1 Investments at cost — unaffiliated	$	2,621,589,181
2 Securities loaned at value	$	77,439,469
3 Investments at cost — affiliated	$	148,426,886

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	131

Statement of Assets and Liabilities (concluded) Master Investment Portfolio

December 31, 2011	CoreAlpha Bond Master Portfolio
Assets
Investments at value — unaffiliated1,2	$	2,432,884,067
Investments at value — affiliated3		596,542,377
Foreign currency at value (cost — $2,595,164)		2,432,236
TBA sale commitments receivable		541,008,937
Investments sold receivable		349,385
Unrealized appreciation on swaps		32,847
Swaps premiums paid		1,470,898
Securities lending income receivable		89,918
Interest receivable		13,209,634
Margin variation receivable		983,784
Cash pledged as collateral for swaps		310,000
Total assets		3,589,314,083
Liabilities
Collateral on securities loaned at value		146,351,011
Investments purchased payable		534,096,766
TBA sale commitments at value (proceeds — $541,008,937)		543,385,938
Cash held as collateral for swaps		793,293
Unrealized depreciation on swaps		1,698,281
Investment advisory fees payable		483,534
Professional fees payable		35,278
Trustees’ fees payable		17,432
Total liabilities		1,226,861,533
Net Assets	$	2,362,452,550
Net Assets Consist of
Investors’ capital	$	2,259,802,085
Net unrealized appreciation/depreciation		102,650,465
Net Assets	$	2,362,452,550
! Investments at cost — unaffiliated	$	2,329,716,966
2 Securities loaned at value	$	142,514,270
3 Investments at cost — affiliated	$	596,542,377

See Notes to Financial Statements.
132	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Operations Master Investment Portfolio

Year Ended December 31, 2011	LifePath Retirement Master Portfolio			LifePath 2020 Master Portfolio			LifePath 2025 Master Portfolio			LifePath 2030 Master Portfolio			LifePath 2035 Master Portfolio
Investment Income
Dividends — affiliated	$	10,350,019		$	20,325,882		$	82,501		$	19,221,471		$	59,451
Securities lending — affiliated		266,598			611,382			917			612,424			1,040
Income — affiliated		5,406			10,152			156			10,000			99
Net investment income allocated from the applicable Master Portfolios:
Dividends		5,699,091			14,496,037			59,146			15,777,868			46,979
Interest		25,505,570			30,708,297			81,233			16,833,339			32,819
Expenses		(2,950,153	)		(4,919,542	)		(16,165	)		(4,097,902	)		(10,703	)
Fees waived		289,950			682,490			2,677			719,771			2,231
Total income		39,166,481			61,914,698			210,465			49,076,971			131,916
Expenses
Investment advisory		4,801,759			8,245,442			27,477			7,028,876			18,076
Professional		42,153			44,398			39,040			43,600			39,040
Independent Trustees		43,824			71,521			3,323			61,219			3,261
Total expenses		4,887,736			8,361,361			69,840			7,133,695			60,377
Less fees waived by advisor		(3,788,884	)		(6,818,907	)		(64,773	)		(6,064,563	)		(57,660	)
Total expenses after fees waived		1,098,852			1,542,454			5,067			1,069,132			2,717
Net investment income		38,067,629			60,372,244			205,398			48,007,839			129,199
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments — unaffiliated		16,081			39,003			—			42,005			—
Investments — affiliated		39,146,975			59,996,489			(22,980	)		46,479,625			(18,490	)
Allocations from the applicable Master Portfolios from investments, financial futures contracts, swaps and foreign currency transactions		44,279,798			81,972,952			(148,861	)		70,161,465			(120,484	)
		83,442,854			142,008,444			(171,841	)		116,683,095			(138,974	)
Net change in unrealized appreciation/depreciation on:
Investments — affiliated		(51,488,110	)		(113,304,020	)		(295,789	)		(116,802,642	)		(303,140	)
Allocated from the applicable Master Portfolios from investments, financial futures contracts, swaps and foreign currency transactions		(10,637,609	)		(41,867,091	)		28,781			(51,556,128	)		23,609
		(62,125,719	)		(155,171,111	)		(267,008	)		(168,358,770	)		(279,531	)
Total realized and unrealized gain (loss)		21,317,135			(13,162,667	)		(438,849	)		(51,675,675	)		(418,505	)
Net Increase (Decrease) in Net Assets Resulting from Operations	$	59,384,764		$	47,209,577		$	(233,451	)	$	(3,667,836	)	$	(289,306	)

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	133

Statements of Operations (continued) Master Investment Portfolio

Year Ended December 31, 2011	LifePath 2040 Master Portfolio			LifePath 2045 Master Portfolio			LifePath 2050 Master Portfolio			LifePath 2055 Master Portfolio
Investment Income
Dividends — affiliated	$	15,586,827		$	25,616		$	1,784,134		$	3,446
Securities lending — affiliated		553,909			407			53,728			49
Income — affiliated		7,567			43			1,460			6
Net investment income allocated from the applicable Master Portfolios:
Dividends		14,106,757			21,366			1,636,632			3,248
Interest		7,070,251			6,137			175,264			168
Expenses		(3,064,798	)		(4,285	)		(303,651	)		(589	)
Fees waived		634,772			1,052			73,534			171
Total income		34,895,285			50,336			3,421,101			6,499
Expenses
Investment advisory		5,342,974			7,125			539,526			976
Professional		42,515			39,032			39,372			36,316
Independent Trustees		47,623			3,183			7,935			3,136
Total expenses		5,433,112			49,340			586,833			40,428
Less fees waived by advisor		(4,775,105	)		(48,489	)		(532,304	)		(40,327	)
Total expenses after fees waived		658,007			851			54,529			101
Net investment income		34,237,278			49,485			3,366,572			6,398
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments — unaffiliated		6,571			—			—			—
Investments — affiliated		35,584,563			(9,356	)		2,652,564			3,708
Allocations from the applicable Master Portfolios from investments, financial futures contracts, swaps and foreign currency transactions		55,375,638			(62,150	)		2,963,512			2,066
		90,966,772			(71,506	)		5,616,076			5,774
Net change in unrealized appreciation/depreciation on:
Investments — affiliated		(104,537,746	)		(153,589	)		(12,784,114	)		(22,132	)
Allocated from the applicable Master Portfolios from investments, financial futures contracts, swaps and foreign currency transactions		(50,387,490	)		15,783			(3,044,008	)		(2,868	)
		(154,925,236	)		(137,806	)		(15,828,122	)		(25,000	)
Total realized and unrealized loss		(63,958,464	)		(209,312	)		(10,212,046	)		(19,226	)
Net Decrease in Net Assets Resulting from Operations	$	(29,721,186	)	$	(159,827	)	$	(6,845,474	)	$	(12,828	)

See Notes to Financial Statements.
134	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Operations (continued) Master Investment Portfolio

Year Ended December 31, 2011	Active Stock Master Portfolio
Investment Income
Dividends	$	49,930,002
Securities lending — affiliated		938,438
Income — affiliated		156,360
Interest		2,961
Total income		51,027,761
Expenses
Investment advisory		6,392,846
Administration		2,595,698
Professional		70,941
Independent Trustees		57,674
Total expenses		9,117,159
Less fees waived by advisor		(2,205,174	)
Total expenses after fees waived		6,911,985
Net investment income		44,115,776
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		209,278,080
Financial futures contracts		(15,241,124	)
Foreign currency transactions		(1,797	)
		194,035,159
Net change in unrealized appreciation/depreciation on:
Investments		(190,593,343	)
Financial futures contracts		(868,465	)
Foreign currency transactions		98
		(191,461,710	)
Total realized and unrealized gain		2,573,449
Net Increase in Net Assets Resulting from Operations	$	46,689,225

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	135

Statement of Operations (concluded) Master Investment Portfolio

Year Ended December 31, 2011	CoreAlpha Bond Master Portfolio
Investment Income
Interest	$	78,890,312
Income — affiliated		543,532
Securities lending — affiliated		208,987
Dividends		173,656
Total income		79,816,487
Expenses
Investment advisory		5,657,549
Administration		350,436
Professional		73,275
Independent Trustees		58,042
Total expenses		6,139,302
Less fees waived by advisor		(131,317	)
Total expenses after fees waived		6,007,985
Net investment income		73,808,502
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		44,914,863
Financial futures contracts		18,379,097
Swaps		4,787,616
Foreign currency transactions		(15,565	)
		68,066,011
Net change in unrealized appreciation/depreciation on:
Investments		47,447,190
Financial futures contracts		4,944,532
Swaps		(6,175,752	)
Foreign currency transactions		(162,928	)
		46,053,042
Total realized and unrealized gain		114,119,053
Net Increase in Net Assets Resulting from Operations	$	187,927,555

See Notes to Financial Statements.
136	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Changes in Net Assets Master Investment Portfolio

	LifePath Retirement Master Portfolio						LifePath 2020 Master Portfolio
	Year Ended December 31,						Year Ended December 31,
Increase (Decrease) in Net Assets:	2011			2010			2011			2010
Operations
Net investment income	$	38,067,629		$	33,389,199		$	60,372,244		$	50,556,334
Net realized gain		83,442,854			38,905,084			142,008,444			51,298,017
Net change in unrealized appreciation/depreciation		(62,125,719	)		50,211,454			(155,171,111	)		129,783,615
Net increase in net assets resulting from operations		59,384,764			122,505,737			47,209,577			231,637,966
Capital Transactions
Proceeds from contributions		146,032,233			188,899,681			253,699,470			403,212,898
Value of withdrawals		(198,525,183	)		(96,571,523	)		(286,287,280	)		(70,562,768	)
Net increase (decrease) in net assets derived from capital transactions		(52,492,950	)		92,328,158			(32,587,810	)		332,650,130
Net Assets
Total increase in net assets		6,891,814			214,833,895			14,621,767			564,288,096
Beginning of year		1,380,140,735			1,165,306,840			2,343,960,917			1,779,672,821
End of year	$	1,387,032,549		$	1,380,140,735		$	2,358,582,684		$	2,343,960,917
	LifePath 2025 Master Portfolio						LifePath 2030 Master Portfolio
	Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010			Year Ended December 31,
Increase (Decrease) in Net Assets:							2011			2010
Operations
Net investment income	$	205,398		$	1,478		$	48,007,839		$	39,411,964
Net realized gain (loss)		(171,841	)		227			116,683,095			44,387,854
Net change in unrealized appreciation/depreciation		(267,008	)		17,664			(168,358,770	)		125,415,216
Net increase (decrease) in net assets resulting from operations		(233,451	)		19,369			(3,667,836	)		209,215,034
Capital Transactions
Proceeds from contributions		15,755,466			115,367			258,359,711			376,110,374
Value of withdrawals		(3,478,395	)		(241	)		(212,656,069	)		(46,506,661	)
Net increase in net assets derived from capital transactions		12,277,071			115,126			45,703,642			329,603,713
Net Assets
Total increase in net assets		12,043,620			134,495			42,035,806			538,818,747
Beginning of period		134,495			—			1,972,075,066			1,433,256,319
End of period	$	12,178,115		$	134,495		$	2,014,110,872		$	1,972,075,066

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	137

Statements of Changes in Net Assets (continued) Master Investment Portfolio

	LifePath 2035 Master Portfolio						LifePath 2040 Master Portfolio
	Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010			Year Ended December 31,
Increase (Decrease) in Net Assets:							2011			2010
Operations
Net investment income	$	129,199		$	1,499		$	34,237,278		$	29,075,411
Net realized gain (loss)		(138,974	)		446			90,966,772			34,764,764
Net change in unrealized appreciation/depreciation		(279,531	)		21,637			(154,925,236	)		108,028,620
Net increase (decrease) in net assets resulting from operations		(289,306	)		23,582			(29,721,186	)		171,868,795
Capital Transactions
Proceeds from contributions		9,169,420			125,963			183,590,711			260,954,409
Value of withdrawals		(1,603,644	)		(280	)		(163,316,566	)		(47,294,585	)
Net increase in net assets derived from capital transactions		7,565,776			125,683			20,274,145			213,659,824
Net Assets
Total increase (decrease) in net assets		7,276,470			149,265			(9,447,041	)		385,528,619
Beginning of period		149,265			—			1,519,203,305			1,133,674,686
End of period	$	7,425,735		$	149,265		$	1,509,756,264		$	1,519,203,305
	LifePath 2045 Master Portfolio						LifePath 2050 Master Portfolio
	Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010			Year Ended December 31,
Increase (Decrease) in Net Assets:							2011			2010
Operations
Net investment income	$	49,485		$	1,447		$	3,366,572		$	1,795,067
Net realized gain (loss)		(71,506	)		778			5,616,076			2,021,948
Net change in unrealized appreciation/depreciation		(137,806	)		24,411			(15,828,122	)		9,846,769
Net increase (decrease) in net assets resulting from operations		(159,827	)		26,636			(6,845,474	)		13,663,784
Capital Transactions
Proceeds from contributions		4,417,801			115,366			76,805,333			70,700,398
Value of withdrawals		(1,151,200	)		(249	)		(9,263,627	)		(5,138,081	)
Net increase in net assets derived from capital transactions		3,266,601			115,117			67,541,706			65,562,317
Net Assets
Total increase in net assets		3,106,774			141,754			60,696,232			79,226,101
Beginning of period		141,754			—			119,390,546			40,164,445
End of period	$	3,248,528		$	141,754		$	180,086,778		$	119,390,546

¹  Commencement of operations.

See Notes to Financial Statements.
138	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Changes in Net Assets (continued) Master Investment Portfolio

	LifePath 2055 Master Portfolio
Increase (Decrease) in Net Assets:	Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Operations
Net investment income	$	6,398		$	1,430
Net realized gain		5,774			962
Net change in unrealized appreciation/depreciation		(25,000	)		26,017
Net increase (decrease) in net assets resulting from operations		(12,828	)		28,409
Capital Transactions
Proceeds from contributions		562,534			115,365
Value of withdrawals		(199,584	)		(250	)
Net increase in net assets derived from capital transactions		362,950			115,115
Net Assets
Total increase in net assets		350,122			143,524
Beginning of period		143,524			—
End of period	$	493,646		$	143,524

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	139

Statements of Changes in Net Assets (continued) Master Investment Portfolio

	Active Stock Master Portfolio
	Year Ended December 31,
Increase in Net Assets:	2011			2010
Operations
Net investment income	$	44,115,776		$	32,224,963
Net realized gain		194,035,159			150,754,297
Net change in unrealized appreciation/depreciation		(191,461,710	)		76,421,362
Net increase in net assets resulting from operations		46,689,225			259,400,622
Capital Transactions
Proceeds from contributions		657,028,420			542,158,731
Value of withdrawals		(499,892,059	)		(126,588,351	)
Net increase in net assets derived from capital transactions		157,136,361			415,570,380
Net Assets
Total increase in net assets		203,825,586			674,971,002
Beginning of year		2,513,424,116			1,838,453,114
End of year	$	2,717,249,702		$	2,513,424,116

See Notes to Financial Statements.
140	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Changes in Net Assets (concluded) Master Investment Portfolio

	CoreAlpha Bond Master Portfolio
	Year Ended December 31,
Increase in Net Assets:	2011			2010
Operations
Net investment income	$	73,808,502		$	60,862,874
Net realized gain		68,066,011			38,222,728
Net change in unrealized appreciation/depreciation		46,053,042			16,401,998
Net increase in net assets resulting from operations		187,927,555			115,487,600
Capital Transactions
Proceeds from contributions		709,072,896			668,474,923
Value of withdrawals		(685,111,132	)		(267,359,402	)
Net increase in net assets derived from capital transactions		23,961,764			401,115,521
Net Assets
Total increase in net assets		211,889,319			516,603,121
Beginning of year		2,150,563,231			1,633,960,110
End of year	$	2,362,452,550		$	2,150,563,231

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	141

Financial Highlights Master Investment Portfolio

	LifePath Retirement Master Portfolio
	Year Ended December 31,
	2011			2010		2009			2008			2007
Total Investment Return
Total investment return		4.46%			9.83%		18.75%			(14.54	)%		5.00%
Ratios to Average Net Assets
Total expenses1		0.55%	2,3		0.61%		0.59%			0.61%			0.61%
Total expenses after fees waived1		0.27%	2,3		0.26%		0.26%			0.27%			0.27%
Net investment income4		2.77%	2,3		2.60%		3.61%			3.81%			3.87%
Supplemental Data
Net assets, end of year (000)	$	1,387,033		$	1,380,141	$	1,165,307		$	253,604		$	331,733
Portfolio turnover		4%			4%		6%	5		11%			6%
	LifePath 2020 Master Portfolio
	Year Ended December 31,
	2011			2010		2009			2008			2007
Total Investment Return
Total investment return		1.96%			11.40%		23.21%			(24.92	)%		3.84%
Ratios to Average Net Assets
Total expenses1		0.53%	6,7		0.59%		0.58%			0.57%			0.58%
Total expenses after fees waived1		0.25%	6,7		0.23%		0.23%			0.23%			0.25%
Net investment income4		2.56%	6,7		2.45%		3.15%			3.18%			3.01%
Supplemental Data
Net assets, end of year (000)	$	2,358,583		$	2,343,961	$	1,779,673		$	1,245,671		$	1,827,888
Portfolio turnover		5%			4%		6%			13%			7%

¹  Includes the Master Portfolio’s pro rata portion of expenses from Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series, except the total expenses for the four years ended December 31, 2010, which include gross expenses. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

²  Includes the Master Portfolio’s share of the Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series’s allocated fees waived of 0.02%.

³  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.08%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁴  Includes the Master Portfolio’s share of the allocated net investment income from Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series.

⁵  Excludes in-kind contribution of portfolio securities received in a tax-free reorganization on November 20, 2009.

⁶  Includes the Master Portfolio’s share of the Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series’s allocated fees waived of 0.03%.

⁷  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.11%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

See Notes to Financial Statements.
142	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) Master Investment Portfolio

	LifePath 2025 Master Portfolio
	Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Total Investment Return
Total investment return		0.99%			17.65%	2
Ratios to Average Net Assets
Total expenses3		1.07%	4,5		13.61%	6
Total expenses after fees waived3		0.24%	4,5		0.22%	6
Net investment income7		2.62%	4,5		2.37%	6
Supplemental Data
Net assets, end of period (000)	$	12,178		$	134
Portfolio turnover		24%			2%

	LifePath 2030 Master Portfolio
	Year Ended December 31,
	2011			2010		2009		2008			2007
Total Investment Return
Total investment return		(0.13	)%		12.36%		26.27%		(30.53	)%		3.14%
Ratios to Average Net Assets
Total expenses8		0.52%	9,10		0.57%		0.56%		0.55%			0.57%
Total expenses after fees waived8		0.22%	9,10		0.21%		0.20%		0.21%			0.23%
Net investment income7		2.39%	9,10		2.34%		2.97%		2.82%			2.57%
Supplemental Data
Net assets, end of year (000)	$	2,014,111		$	1,972,075	$	1,433,256	$	952,181		$	1,393,178
Portfolio turnover		7%			3%		7%		13%			7%

¹  Commencement of operations.

²  Aggregate total investment return.

³  Includes the Master Portfolio’s pro rata portion of expenses from Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series, except the total expenses for the period ended December 31, 2010, which include gross expenses. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁴  Includes the Master Portfolio’s share of the Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series’s allocated fees waived of 0.03%.

⁵  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.12%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the Master Portfolio’s share of the allocated net investment income from Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series.

⁸  Includes the Master Portfolio’s pro rata portion of expenses from Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series, except the total expenses for the four years ended December 31, 2010 which include gross expenses. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁹  Includes the Master Portfolio’s share of the Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series’s allocated fees waived of 0.04%.

¹⁰  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.13%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	143

Financial Highlights (continued) Master Investment Portfolio

	LifePath 2035 Master Portfolio
	Year Ended December 31, 2011			Period June 30, 20101 to December  31, 2010
Total Investment Return
Total investment return		(0.82	)%		21.21%	2
Ratios to Average Net Assets
Total expenses3		1.34%	4,5		13.23%	6
Total expenses after fees waived3		0.22%	4,5		0.19%	6
Net investment income7		2.50%	4,5		2.33%	6
Supplemental Data
Net assets, end of period (000)	$	7,426		$	149
Portfolio turnover		21%			1%

	LifePath 2040 Master Portfolio
	Year Ended December 31,
	2011			2010		2009		2008			2007
Total Investment Return
Total investment return		(1.88	)%		13.21%		28.58%		(34.90	)%		2.53%
Ratios to Average Net Assets
Total expenses8		0.52%	9,10		0.55%		0.55%		0.53%			0.56%
Total expenses after fees waived8		0.20%	9,10		0.19%		0.18%		0.19%			0.22%
Net investment income7		2.24%	9,10		2.24%		2.82%		2.52%			2.20%
Supplemental Data
Net assets, end of year (000)	$	1,509,756		$	1,519,203	$	1,133,675	$	720,539		$	1,022,941
Portfolio turnover		8%			4%		6%		14%			8%

¹ Commencement of operations.

² Aggregate total investment return.

³ Includes the Master Portfolio’s pro rata portion of expenses from Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series, except the total expenses for the period ended December 31, 2010, which include gross expenses. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁴ Includes the Master Portfolio’s share of the Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series’s allocated fees waived of 0.04%.

⁵ Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.14%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the Master Portfolio’s share of the allocated net investment income from Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series.

⁸  Includes the Master Portfolio’s pro rata portion of expenses from Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series, except the total expenses for the four years ended December 31, 2010 which include gross expenses. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁹  Includes the Master Portfolio’s share of the Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series’s allocated fees waived of 0.04%.

¹⁰  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.15%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

See Notes to Financial Statements.
144	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) Master Investment Portfolio

	LifePath 2045 Master Portfolio
	Year Ended December 31, 2011			Period June 30, 20101 to December  31, 2010
Total Investment Return
Total investment return		(1.96	)%		24.26%	2
Ratios to Average Net Assets
Total expenses3		2.58%	4,5		13.23%	6
Total expenses after fees waived3		0.20%	4,5		0.17%	6
Net investment income7		2.43%	4,5		2.25%	6
Supplemental Data
Net assets, end of period (000)	$	3,249		$	142
Portfolio turnover		35%			1%

	LifePath 2050 Master Portfolio
	Year Ended December 31,							Period June 30, 20081 to December 31, 2008
	2011			2010		2009
Total Investment Return
Total investment return		(3.28	)%		13.93%		30.85%		(31.93	)%2
Ratios to Average Net Assets
Total expenses8		0.53%	9,10		0.56%		0.59%		1.11%	6
Total expenses after fees waived8		0.18%	9,10		0.17%		0.16%		0.17%	6
Net investment income7		2.18%	9,10		2.31%		2.84%		3.05%	6
Supplemental Data
Net assets, end of period (000)	$	180,087		$	119,391	$	40,164	$	6,895
Portfolio turnover		13%			5%		12%		0%	11

¹ Commencement of operations.

² Aggregate total investment return.

³ Includes the Master Portfolio’s pro rata portion of expenses from Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series, except the total expenses for the period ended December 31, 2010, which include gross expenses. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁴  Includes the Master Portfolio’s share of the Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series’s allocated fees waived of 0.03%.

⁵  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.16%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the Master Portfolio’s share of the allocated net investment income from Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series.

⁸  Includes the Master Portfolio’s pro rata portion of expenses from Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series, except the total expenses for the period ended December 31, 2008 and the two years ended December 31, 2010, which include gross expenses. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁹  Includes the Master Portfolio’s share of the Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series’s allocated fees waived of 0.05%.

¹⁰  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.17%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

¹¹  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	145

Financial Highlights (continued) Master Investment Portfolio

	LifePath 2055 Master Portfolio
	Year Ended December 31, 2011			Period June 30, 20101 to December  31, 2010
Total Investment Return
Total investment return		(3.52	)%		25.83%	2
Ratios to Average Net Assets
Total expenses3		14.66%	4,5		13.13%	6
Total expenses after fees waived3		0.19%	4,5		0.16%	6
Net investment income7		2.30%	4,5		2.21%	6
Supplemental Data
Net assets, end of period (000)	$	494		$	144
Portfolio turnover		51%			1%

¹ Commencement of operations.

²  Aggregate total investment return.

³ Includes the Master Portfolio’s pro rata portion of expenses from Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series, except the total expenses for the period ended December 31, 2010, which include gross expenses. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁴  Includes the Master Portfolio’s share of the Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series’s allocated fees waived of 0.06%.

⁵ Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.17%, although the ratio does include the Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁶ Annualized.

⁷ Includes the Master Portfolio’s share of the allocated net investment income from Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series.

See Notes to Financial Statements.
146	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) Master Investment Portfolio

	Active Stock Master Portfolio
	Year Ended December 31,
	2011		2010		2009		2008			2007
Total Investment Return
Total investment return		2.20%		11.04%		24.86%		(36.65	)%		0.58%
Ratios to Average Net Assets
Total expenses		0.35%		0.35%		0.35%		0.35%			0.35%
Total expenses after fees waived		0.27%		0.29%		0.30%		0.32%			0.34%
Net investment income		1.70%		1.50%		1.99%		1.96%			1.70%
Supplemental Data
Net assets, end of year (000)	$	2,717,250	$	2,513,424	$	1,838,453	$	1,250,987		$	2,085,214
Portfolio turnover		275%		120%		149%		98%			80%

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	147

Financial Highlights (concluded) Master Investment Portfolio

	CoreAlpha Bond Master Portfolio
	Year Ended December 31,
	2011			2010			2009			2008		2007
Total Investment Return
Total investment return		8.38%			6.56%			11.67%			3.62%		5.10%
Ratios to Average Net Assets
Total expenses		0.27%			0.36%			0.35%			0.36%		0.36%
Total expenses after fees waived		0.26%			0.35%			0.35%			0.36%		0.35%
Net investment income		3.22%			3.19%			4.33%			4.47%		5.18%
Supplemental Data
Net assets, end of year (000)	$	2,362,453		$	2,150,563		$	1,633,960		$	1,115,903	$	1,479,888
Portfolio turnover1		1,646%	2		621%	3		278%	4		351%		466%

¹  Portfolio turnover rates include TBA transactions, if any.

²  Includes mortgage dollar roll transactions. Excluding these transactions the portfolio turnover rate would have been 1,510%.

³  Excluding TBA transactions, the portfolio turnover rate would have been 170%.

⁴  Excluding TBA transactions, the portfolio turnover rate would have been 199%.

See Notes to Financial Statements.
148	BLACKROCK FUNDS III	DECEMBER 31, 2011

Notes to Financial Statements Master Investment Portfolio

1. Organization and Significant Accounting Policies:

Master Investment Portfolio (“MIP”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a diversified, open-end management investment company. MIP is organized as a Delaware statutory trust. The financial statements and these accompanying notes relate to eleven series of MIP: LifePath Retirement Master Portfolio, LifePath 2020 Master Portfolio, LifePath 2025 Master Portfolio, LifePath 2030 Master Portfolio, LifePath 2035 Master Portfolio, LifePath 2040 Master Portfolio, LifePath 2045 Master Portfolio, LifePath 2050 Master Portfolio, Lifepath 2055 Master Portfolio, Active Stock Master Portfolio and CoreAlpha Bond Master Portfolio (each, a “Master Portfolio” and collectively, the “Master Portfolios”). The Master Portfolios’ financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.

Each of the LifePath Retirement Master Portfolio, LifePath 2020 Master Portfolio, LifePath 2025 Master Portfolio, LifePath 2030 Master Portfolio, LifePath 2035 Master Portfolio, LifePath 2040 Master Portfolio, LifePath 2045 Master Portfolio, LifePath 2050 Master Portfolio and LifePath 2055 Master Portfolio (each a “LifePath Master Portfolio” and collectively the “LifePath Master Portfolios”) seeks to achieve its investment objective by investing in a combination of domestic equity, international equity, bond and money market funds (the “Underlying Funds”) in proportions suggested by its own comprehensive investment strategy. The Underlying Funds are advised by BlackRock Fund Advisors (“BFA”), and include the Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio, Master Small Cap Index Series and the BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

The value of a LifePath Master Portfolio’s investment in each of the Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series reflects that LifePath Master Portfolio’s proportionate interest in the net assets of that Master Portfolio. As of December 31, 2011, the interests of the Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series held by each LifePath Master Portfolio were as follows:

	Active Stock Master Portfolio			ACWI ex-US Index Master Portfolio			CoreAlpha Bond Master Portfolio			Master Small Cap Index Series
LifePath Retirement Master Portfolio		10.97	%		12.74	%		30.72	%		11.24	%
LifePath 2020 Master Portfolio		27.55	%		13.71	%		37.15	%		16.31	%
LifePath 2025 Master Portfolio		0.17	%		0.16	%		0.16	%		0.08	%
LifePath 2030 Master Portfolio		30.48	%		15.94	%		20.48	%		11.75	%
LifePath 2035 Master Portfolio		0.13	%		0.38	%		0.06	%		0.04	%
LifePath 2040 Master Portfolio		27.09	%		14.44	%		8.61	%		7.60	%
LifePath 2045 Master Portfolio		0.06	%		0.24	%		0.01	%		0.02	%
LifePath 2050 Master Portfolio		3.54	%		4.97	%		0.30	%		0.76	%
LifePath 2055 Master Portfolio		0.01	%		0.07	%		0.00	%1		0.00	%1

¹  Rounds to less than 0.01%.

The following is a summary of significant accounting policies followed by the Master Portfolios:

Valuation: US GAAP defines fair value as the price the Master Portfolios would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Master Portfolios fair value their financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Trustees of MIP (the “Board”). Equity investments, including exchange traded Funds, traded on a recognized securities exchange or the NASDAQ Global Market System (“NASDAQ”) are valued at the last reported sale price that day or the NASDAQ official closing price, if applicable. For equity investments traded on more than one exchange, the last reported sale price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last available bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s price will be used, unless it is determined that such prior day’s price no longer reflects the fair value of the security. Financial futures contracts traded on exchanges are valued at their last sale price. To-be-announced (“TBA”) commitments are valued on the basis of last available bid prices or current market quotations provided by pricing services. Swap agreements are valued utilizing quotes received daily by the Master Portfolio’s pricing service 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. Investments in open-end registered investment companies are valued at net asset value each business day. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value. Municipal investments (including commitments to purchase such investments on a “ when-issued” basis) are valued on the basis of prices provided by dealers or pricing services.

The Master Portfolios value their bond investments on the basis of last available bid prices or current market quotations provided by dealers or pricing services. Floating rate loan interests are valued at the mean of the bid prices from one or more brokers or dealers as obtained from a pricing service. In determining the value of a particular investment, pricing services may use certain information with respect to transactions in such investments, quotations from dealers, pricing matrixes, market transactions in comparable investments, various relationships observed in the market between investments and calculated yield measures. Asset-backed and mortgage-backed securities are valued by independent pricing services using models that consider estimated cash flows of each tranche of the security, establish a benchmark yield and develop an estimated tranche specific spread to the benchmark yield based on the unique attributes of the tranche.

Securities and other assets and liabilities denominated in foreign currencies are translated into US dollars using exchange rates determined as of the close of business on the New York Stock Exchange (“NYSE”). Foreign currency exchange contracts are valued at the mean between the bid and ask prices and are determined as of the close of business on the NYSE. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available.

BLACKROCK FUNDS III DECEMBER 31, 2011 149

Notes to Financial Statements (continued) Master Investment Portfolio

In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the market value of such investment or if a price is not available, the investment will be valued in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Assets”). When determining the price for Fair Value Assets, the investment advisor seeks to determine the price that the Master Portfolio might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the investment advisor deems relevant. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof.

Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of business on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of business on the NYSE that may not be reflected in the computation of the Master Portfolio’s net assets. If events (for example, a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such instruments, those instruments may be Fair Value Assets and be valued at their fair value, as determined in good faith by the investment advisor using a pricing service and/or policies approved by the Board. Each business day, the Master Portfolio uses a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and 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 business on the NYSE, which follows the close of the local markets.

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

The CoreAlpha Bond Master Portfolio may purchase certain mortgage pass-through securities. There are a number of important differences among the agencies and instrumentalities of the US government that issue mortgage-related securities and among the securities that they

issue. For example, mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. However, mortgage-related securities issued by Freddie Mac and Fannie Mae, including Freddie Mac and Fannie Mae guaranteed Mortgage Pass-Through Certificates, which are solely the obligations of Freddie Mac and Fannie Mae, are not backed by or entitled to the full

faith and credit of the United States but are supported by the right of the issuer to borrow from the Treasury.

Multiple Class Pass-Through Securities: The CoreAlpha Bond Master Portfolio may invest in multiple class pass-through securities, including collateralized mortgage obligations (“CMOs”) and commercial mortgage-backed securities. These multiple class securities may be issued by Ginnie Mae, US government agencies or instrumentalities or by trusts formed by private originators of, or investors in, mortgage loans. In general, CMOs are debt obligations of a legal entity that are collateralized by, and multiple class pass-through securities represent direct ownership interests in, a pool of residential or commercial mortgage loans or mortgage pass-through securities (the “Mortgage Assets”), the payments on which are used to make payments on the CMOs or multiple pass-through securities. Classes of CMOs include interest only (“IOs”), principal only (“POs”), planned amortization classes and targeted amortization classes. IOs and POs are stripped mortgage-back securities representing interests in a pool of mortgages, the cash flow from which has been separated into interest and principal components. IOs receive the interest portion of the cash flow while POs receive the principal portion. IOs and POs can be extremely volatile in response to changes in interest rates. As interest rates rise and fall, the value of IOs tends to move in the same direction as interest rates. POs perform best when prepayments on the underlying mortgages rise since this increases the rate at which the principal is returned and the yield to maturity on the PO. When payments on mortgages underlying a PO are slower than anticipated, the life of the PO is lengthened and the yield to maturity is reduced. If the underlying Mortgage Assets experience greater than anticipated pre-payments of principal, the Master Portfolio may not fully recoup its initial investment in IOs.

Stripped Mortgage-Backed Securities: The CoreAlpha Bond Master Portfolio may invest in stripped mortgage-backed securities issued by the US government, its agencies and instrumentalities. Stripped mortgage-backed securities are usually structured with two classes that receive different proportions of the interest (IOs) and principal (POs) distributions on a pool of Mortgage Assets. The CoreAlpha Bond Master Portfolio also may invest in stripped mortgage-backed securities that are privately issued.

Capital Trusts: The CoreAlpha Bond Master Portfolio may invest in capital trusts. These securities are typically issued by corporations, generally in the form of interest-bearing notes with preferred securities characteristics, or by an affiliated business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The securities can be structured as either fixed or adjustable coupon securities that can have either a perpetual or stated maturity date. Dividends can be deferred without creating an event of default or acceleration, although maturity cannot take place unless all cumulative payment obligations have been met. The deferral of payments does not

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affect the purchase or sale of these securities in the open market. Payments on these securities are treated as interest rather than dividends for federal income tax purposes. These securities generally are rated below that of the issuing company’s senior debt securities.

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

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

Mortgage Dollar Roll Transactions: The CoreAlpha Bond Master Portfolio may sell TBA mortgage-backed securities and simultaneously contract to repurchase substantially similar (same type, coupon and maturity) securities on a specific future date at an agreed upon price. During the period between the sale and repurchase, the Master Portfolio will not be entitled to receive interest and principal payments on the securities sold. The Master Portfolio accounts for mortgage dollar roll transactions as purchases and sales and realizes gains and losses on these transactions. These transactions may increase the Master Portfolio’s portfolio turnover rate. Mortgage dollar rolls involve the risk that the market value of the securities that the Master Portfolio is required to purchase may decline below the agreed upon repurchase price of those securities.

Segregation and Collateralization: In cases in which the 1940 Act and the interpretive positions of the Securities and Exchange Commission (“SEC”) require that the Master Portfolio either deliver collateral or segregate assets in connection with certain investments (e.g., TBA sale commitments, financial futures contracts and swaps), each Master Portfolio will, consistent with SEC rules and/or certain interpretive letters issued by the SEC, segregate collateral or designate on its books and records cash or other liquid securities having a market value at least

equal to the amount that would otherwise be required to be physically segregated. Furthermore, based on requirements and agreements with certain exchanges and third party broker-dealers, each party to such transactions has requirements to deliver/deposit securities as collateral for certain investments.

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-divided dates. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Master Portfolio 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. Upon notification from issuers, some of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis.

Each LifePath Master Portfolio records daily its proportionate share of the Active Stock Master Portfolio, ACWI ex-US Index Master Portfolio, CoreAlpha Bond Master Portfolio and Master Small Cap Index Series income, expenses and realized and unrealized gains and losses.

Securities Lending: The Master Portfolios may lend securities to approved borrowers, such as banks, brokers and other financial institutions. The borrower pledges cash, securities issued or guaranteed by the US government or irrevocable letters of credit issued by a bank as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Master Portfolio and any additional required collateral is delivered to the Master Portfolio on the next business day. Securities lending income, as disclosed in the Statement of Operations, represents the income earned from the investment of the cash collateral, net of rebates paid to, or fees paid by, borrowers and less the fees paid to the securities lending agent. During the term of the loan, the Master Portfolio earns dividend or interest income on the securities loaned but does not receive interest income on the securities received as collateral. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Master Portfolio could experience delays and costs in gaining access to the collateral. A Master Portfolio also could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received. During the year ended December 31, 2011, any securities on loan were collateralized by cash.

Income Taxes: Each Master Portfolio is classified as a partnership for federal income tax purposes. As such, each investor in a Master Portfolio is treated as the owner of its proportionate share of the net assets,

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income, expenses and realized and unrealized gains and losses of the Master Portfolio. Therefore, no federal income tax provision is required. It is intended that each Master Portfolio’s assets will be managed so an investor in the Master Portfolio can satisfy the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended.

Each Master Portfolio files US federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on each Master Portfolio’s US federal tax returns remains open for each of the four periods ended December 31, 2011. The statutes of limitations on each Master Portfolio’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.

Recent Accounting Standard: In May 2011, the Financial Accounting Standards Board (the “FASB”) issued amended guidance to improve disclosure about fair value measurements which will require the following disclosures for fair value measurements categorized as Level 3: quantitative information about the unobservable inputs and assumptions used in the fair value measurement, a description of the valuation policies and procedures and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs. In addition, the amounts and reasons for all transfers in and out of Level 1 and Level 2 will be required to be disclosed. The amended guidance is effective for financial statements for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Master Portfolios’ financial statement disclosures.

In December 2011, the FASB issued guidance that will enhance current disclosure requirements on the offsetting of certain assets and liabilities. The new disclosures will be required for investments and derivative financial instruments subject to master netting agreements or similar agreements and will require an entity to disclose both gross and net information about such investments and transactions eligible for offset in the Statements of Assets and Liabilities. The guidance is effective for financial statements with fiscal years beginning on or after January 1, 2013, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Master Portfolios’ financial statement disclosures.

Other: Expenses directly related to a Master Portfolio are charged to that Master Portfolio. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods.

2. Derivative Financial Instruments:

Each Master Portfolio engages in various portfolio investment strategies using derivative contracts both to increase the returns of the Master Portfolio and to economically hedge, or protect its exposure to certain risks such as credit risk, interest rate risk and foreign currency exchange rate risk. These contracts may be transacted on an exchange or over-the-counter (“OTC”).

Losses may arise if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument or if the counterparty does not perform under the contract. Each Master Portfolio’s maximum risk of loss from counterparty credit risk on OTC derivatives is generally the aggregate unrealized appreciation netted against any collateral pledged by/posted to the counterparty. Counterparty risk related to exchange-traded financial futures contracts is deemed to be minimal due to the protection against defaults provided by the exchange on which these contracts trade.

A Master Portfolio may mitigate counterparty risk by procuring collateral and through netting provisions included within an International Swaps and Derivatives Association, Inc. master agreement (“ISDA Master Agreement”) implemented between the Master Portfolio and each of its respective counterparties. An ISDA Master Agreement allows each Master Portfolio to offset with each separate counterparty certain derivative financial instrument’s payables and/or receivables with collateral held. The amount of collateral moved to/from applicable counterparties is generally based upon minimum transfer amounts of up to $500,000. To the extent amounts due to a Master Portfolio from its counterparties are not fully collateralized contractually or otherwise, the Master Portfolio bears the risk of loss from counterparty non-performance. See Note 1 “Segregation and Collateralization” for information with respect to collateral practices. In addition, each Master Portfolio manages counterparty risk by entering into agreements only with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties.

Certain ISDA Master Agreements allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Master Portfolio’s net assets decline by a stated percentage or the Master Portfolios fail to meet the terms of its ISDA Master Agreements, which would cause the Master Portfolios to accelerate payment of any net liability owed to the counterparty.

Financial Futures Contracts: The Master Portfolios purchase or sell financial futures contracts to gain exposure to, or economically hedge against, changes in interest rates (interest rate risk) or changes in the value of equity securities (equity risk). Financial futures contracts are agreements between a Master Portfolio and counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, futures contracts are settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash settlement amount on the settlement date. Pursuant to the contract, a Master Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as margin variation and are recorded by the Master Portfolio as unrealized appreciation or depreciation. When the contract is closed, the Master Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The use of financial futures contracts involves the risk of an imperfect correlation in the movements in the price of financial futures contracts, interest rates and the underlying assets.

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Swaps: The CoreAlpha Bond Master Portfolio enters into swap agreements, in which the Master Portfolio and a counterparty agree to either make periodic net payments on a specified notional amount or net payment upon termination. These payments received or made by the Master Portfolio are recorded in the Statements of Operations as realized gains or losses, respectively. Any upfront fees paid are

recorded as assets and any upfront fees received are recorded as liabilities and amortized over the term of the swap. Swaps are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). When the swap is terminated, the Master Portfolio will record a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Master Portfolio’s basis in the contract, if any. Generally, the basis of the contracts is the premium received or paid. Swap transactions involve, to varying degrees, elements of interest rate, credit and market risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavorable changes in interest rates and/or market values associated with these transactions.

· Credit default swaps — The CoreAlpha Bond Master Portfolio enters into credit default swaps to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults of corporate and/or sovereign issuers or to create exposure to corporate and/or sovereign issuers to which it is not otherwise exposed (credit risk). The Master Portfolio enters into credit default swap agreements to provide a measure of protection against the default of an issuer (as buyer of protection) and/or gain credit exposure to an issuer to which it is not otherwise exposed (as seller of protection). The Master Portfolio may either buy or sell (write) credit default swaps on single-name issuers (corporate or sovereign), a combination or basket of single-name issuers or traded indexes. Credit default swaps on single-name issuers are agreements in which the buyer

pays fixed periodic payments to the seller in consideration for a guarantee from the seller to make a specific payment should a negative credit event take place with respect to the referenced entity (e.g., bankruptcy, failure to pay, obligation accelerators, repudiation, moratorium or restructuring). Credit default swaps on traded indexes are agreements in which the buyer pays fixed periodic payments to the seller in consideration for a guarantee from the seller to make a specific payment should a write-down, principal or interest shortfall or default of all or individual underlying securities included in the index occurs. As a buyer, if an underlying credit event occurs, the Master Portfolio will either receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising the index or receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index. As a seller (writer), if an underlying credit event occurs, the Master Portfolio will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising the index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising the index.

· Interest rate swaps — The CoreAlpha Bond Master Portfolio enters into interest rate swaps to gain or reduce exposure to interest rates or to manage duration, the yield curve or interest rate risk by economically hedging the value of the fixed rate bonds which may decrease when interest rates rise (interest rate risk). Interest rate swaps are agreements in which one party pays a stream of interest payments, either fixed or floating rate, for another party’s stream of interest payments, either fixed or floating, on the same notional amount for a specified period of time. Interest rate floors, which are a type of interest rate swap, are agreements in which one party agrees to make payments to the other party to the extent that interest rates fall below a specified rate or floor in return for a premium. In more complex swaps, the notional principal amount may decline (or amortize) over time.

Derivative Financial Instruments Categorized by Risk Exposure:
Fair Values of Derivative Financial Instruments as of December 31, 2011
	Asset Derivatives
		Active Stock Master Portfolio		CoreAlpha Bond Master Portfolio
	Statements of Assets and Liabilities Location	Value
Interest rate contracts	Net unrealized appreciation/depreciation*		—	$	1,340,934
Credit contracts	Unrealized appreciation on swaps, Swap premiums paid		—		1,503,745
Equity contracts	Net unrealized appreciation/depreciation*	$	4,836		—
Total		$	4,836	$	2,844,679
	Liability Derivatives
				CoreAlpha Bond Master Portfolio
	Statements of Assets and Liabilities Location			Value
Interest rate contracts	Net unrealized appreciation/depreciation*;
	Unrealized depreciation on swaps			$	1,509,346
Credit contracts	Unrealized depreciation on swaps				242,644
Total				$	1,751,990

*Includes cumulative appreciation/depreciation on financial futures contracts as reported in the Schedule of Investments. Only current day’s margin variation is reported within the Statements of Assets and Liabilities.

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The Effect of Derivative Financial Instruments in the Statement of Operations Year Ended December 31, 2011
	Net Realized Gain (Loss) From
	Active Stock Master Portfolio			CoreAlpha Bond Master Portfolio
Interest rate contracts:
Financial futures contracts		—		$	18,379,097
Swaps		—			4,982,350
Credit contracts:
Swaps		—			(194,734	)
Equity contracts:
Financial futures contracts	$	(15,241,124	)		—
Total	$	(15,241,124	)	$	23,166,713

	Net Change in Unrealized Appreciation/Depreciation on
	Active Stock Master Portfolio			CoreAlpha Bond Master Portfolio
Interest rate contracts:
Financial futures contracts		—		$	4,944,532
Swaps		—			(5,643,215	)
Credit contracts:
Swaps		—			(532,537	)
Equity contracts:
Financial futures contracts	$	(868,465	)		—
Total	$	(868,465	)	$	(1,231,220	)

For the year ended December 31, 2011, the average quarterly balances of outstanding derivative financial instruments were as follows:

	Active Stock Master Portfolio		CoreAlpha Bond Master Portfolio
Financial futures contracts:
Average number of contracts purchased		496		3,998
Average number of contracts sold		—		53
Average notional value of contracts purchased	$	32,020,378	$	583,890,914
Average notional value of contracts sold		—	$	6,661,082
Credit default swaps:
Average number of contracts — buy protection		—		2
Average number of contracts — sell protection		—		3
Average notional value — buy protection		—	$	17,115,000
Average notional value — sell protection		—	$	151,125,000
Interest rate swaps:
Average number of contracts — pays fixed rate		—		1
Average notional value — pays fixed rate		—	$	45,075,000

3. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”). Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

MIP, on behalf of the Master Portfolios, entered into an Investment Advisory Agreement (the “Investment Advisory Agreement”) with BlackRock Fund Advisors (“BFA”), the Master Portfolios’ investment advisor, an indirect,

wholly owned subsidiary of BlackRock, to provide investment advisory services. Pursuant to the Investment Advisory Agreement with MIP, BFA is responsible for the management of each Master Portfolio’s investments and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of each Master Portfolio. For such services, each Master Portfolio pays BFA a monthly fee based on a percentage of each LifePath Master Portfolio’s average daily net assets at an annual rate of 0.35% and an annual rate of 0.25% of the average daily nets assets of each of the Active Stock Master Portfolio and CoreAlpha Bond Master Portfolio from January 1, 2011 through May 31, 2011.

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Notes to Financial Statements (continued) Master Investment Portfolio

Effective June 1, 2011, each Master Portfolio paid BFA a monthly fee based on a percentage of each LifePath Master Portfolio’s average daily net assets at an annual rate of 0.35% and a monthly fee based on a percentage of each of the Active Stock Master Portfolio and CoreAlpha Bond Master Portfolio’s average daily net assets at the following annual rates:

Average Daily Net Assets	Investment Advisory Fee
First $1 Billion		0.25	%
$1 Billion — $3 Billion		0.24	%
$3 Billion — $5 Billion		0.23	%
$5 Billion — $10 Billion		0.22	%
Greater than $10 Billion		0.21	%

The fees and expenses of the Master Portfolios’ trustees who are not “interested persons” of MIP, as defined in the 1940 Act (“Independent Trustees”), counsel to the Independent Trustees and MIP’s independent registered public accounting firm (together, the “independent expenses”) are paid directly by the Master Portfolios. BFA has contractually agreed to waive investment advisory fees charged to the LifePath Master Portfolios in an amount equal to investment advisory fees and administration fees, if any, received by BFA or BlackRock Institutional Trust Company, N.A. (“BTC”), from each investment company in which the Master Portfolios invest through April 30, 2012. BFA has also contractually agreed to cap the expenses of the LifePath Master Portfolios at the rate at which the LifePath Master Portfolios pay an advisory fee to BFA by providing an offsetting credit against the investment advisory fees paid by the LifePath Master Portfolios in an amount equal to the independent expenses. These contractual waivers are effective through April 30, 2021. The amounts of the waivers, if any, are shown as fees waived in the Statements of Operations.

MIP entered into an administration services arrangement with BTC, which has agreed to provide general administration services (other than investment advice and related portfolio activities). BTC may delegate certain of its administration duties to sub-administrators. BTC, in consideration thereof, has agreed to bear all of the Master Portfolios’ and MIP’s ordinary operating expenses excluding, generally, investment advisory fees, distribution fees, brokerage and other expenses related to the execution of portfolio transactions, extraordinary expenses and certain other expenses which are borne by the Master Portfolios. BTC is entitled to receive for these administration services an annual fee of 0.10% based on the average daily net assets of Active Stock Master Portfolio and CoreAlpha Bond Master Portfolio. Effective March 1, 2011, BTC receives administration fees of 0.10% based on the average daily net assets of the Institutional shares of the BlackRock CoreAlpha Bond Fund.

BTC is not entitled to compensation for providing administration services to the Master Portfolios, for so long as BTC is entitled to compensation for providing administration services to corresponding feeder funds that invest substantially all of their assets in the Master Portfolios, or BTC (or an affiliate) receives investment advisory fees from the Master Portfolios.

BTC voluntarily agreed to waive a portion of its administration fees paid by the Active Stock Master Portfolio in an amount sufficient to maintain the advisory fees payable by each of the LifePath Master Portfolios at an

annual rate of 0.35% based on the average daily net assets. This arrangement is voluntary and may be terminated by BTC at any time. With respect to the independent expenses discussed above, BTC has contractually agreed to provide and offsetting credit against the advisory fees paid by the Active Stock Master Portfolio and CoreAlpha Bond Master Portfolio in an amount equal to the independent expenses, through April 30, 2012. The amounts of the waiver and offsetting credits are shown as fees waived in the Statements of Operations.

The Master Portfolios received an exemptive order from the SEC permitting it, among other things, to pay an affiliated securities lending agent a fee based on a share of the income derived from the securities lending activities and has retained BTC, an affiliate of BFA, as the securities lending agent. BFA may, on behalf of a Master Portfolio, invest cash collateral received by the Master Portfolio for such loans, among other things, in a private investment company managed by BTC or in registered money market funds advised by BTC or its affiliates. As securities lending agent, BTC is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BTC does not receive any fees for managing the cash collateral. The market value of securities on loan and the value of the related collateral, if applicable, are shown in the Statements of Assets and Liabilities as securities loaned at value and collateral on securities loaned at value, respectively. The cash collateral invested by BTC is disclosed in the Schedules of Investments. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of rebates paid to, or fees paid by, borrowers of securities. The Master Portfolios retain 65% of securities lending income and pays a fee to BTC equal to 35% of such income. The share of income earned by each Master Portfolio on such investments is shown as securities lending – affiliated in the Statements of Operations. For the year ended December 31, 2011, BTC received securities lending agent fees related to securities lending activities for the Master Portfolios as follows:

LifePath Retirement Master Portfolio	$	96,945
LifePath 2020 Master Portfolio	$	217,210
LifePath 2025 Master Portfolio	$	459
LifePath 2030 Master Portfolio	$	216,547
LifePath 2035 Master Portfolio	$	532
LifePath 2040 Master Portfolio	$	201,948
LifePath 2045 Master Portfolio	$	211
LifePath 2050 Master Portfolio	$	20,896
LifePath 2055 Master Portfolio	$	22
Active Stock Master Portfolio	$	282,244
CoreAlpha Bond Master Portfolio	$	97,210

Each Master Portfolio may invest its positive cash balances in certain money market funds managed by BFA or an affiliate. The income earned on these temporary cash investments is included in income-affiliated in the Statements of Operations.

Certain officers and/or trustees of MIP are officers and/or directors of BlackRock or its affiliates.

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Notes to Financial Statements (concluded) Master Investment Portfolio

4. Investments:

Purchases and sales of investments including paydowns, mortgage dollar roll and TBA transactions and excluding short-term securities and US government securities for the year ended December 31, 2011, were as follows:

	Purchases		Sales
LifePath Retirement Master Portfolio	$	55,756,628	$	134,711,295
LifePath 2020 Master Portfolio	$	120,834,648	$	245,266,934
LifePath 2025 Master Portfolio	$	5,482,487	$	1,755,595
LifePath 2030 Master Portfolio	$	137,137,786	$	202,731,678
LifePath 2035 Master Portfolio	$	3,554,448	$	1,050,220
LifePath 2040 Master Portfolio	$	114,980,998	$	170,390,772
LifePath 2045 Master Portfolio	$	1,802,430	$	687,181
LifePath 2050 Master Portfolio	$	36,797,847	$	19,450,108
LifePath 2055 Master Portfolio	$	252,817	$	145,115
Active Stock Master Portfolio	$	7,218,410,170	$	6,939,899,349
CoreAlpha Bond Master Portfolio	$	35,009,575,305	$	35,521,110,050

Purchases and sales of US government securities for the CoreAlpha Bond Master Portfolio for the year ended December 31, 2011, were $1,146,055,409 and $601,663,219, respectively.

For the year ended December 31, 2011, purchases and sales of mortgage dollar roll securities for the CoreAlpha Bond Master Portfolio were $2,975,643,297 and $2,972,952,383, respectively.

5. Concentration, Market and Credit Risk:

In the normal course of business, the Master Portfolios invest in securities and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the Master Portfolios may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Master

Portfolios; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Master Portfolios may be exposed to counterparty credit risk, or the risk that an entity with which the Master Portfolios have unsettled or open transactions may fail to or be unable to perform on its commitments. The Master Portfolios manage counterparty credit risk by entering into transactions only with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Master Portfolios to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Master Portfolios’ exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Master Portfolios’ Statements of Assets and Liabilities, less any collateral held by the Master Portfolio.

The CoreAlpha Bond Master Portfolio invests a significant portion of its assets in securities backed by commercial or residential mortgage loans or in issuers that hold mortgage and other asset-backed securities. Please see the Schedule of Investments for these securities. Changes in economic conditions, including delinquencies and/or defaults on assets underlying these securities, can affect the value, income and/or liquidity of such positions.

6. Subsequent Events:

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

156 BLACKROCK FUNDS III DECEMBER 31, 2011

Report of Independent Registered Public Accounting Firm Master Investment Portfolio

To the Interestholders and Board of Trustees of

Master Investment Portfolio:

In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of the LifePath Retirement Master Portfolio, LifePath 2020 Master Portfolio, LifePath 2025 Master Portfolio, LifePath 2030 Master Portfolio, LifePath 2035 Master Portfolio, LifePath 2040 Master Portfolio, LifePath 2045 Master Portfolio, LifePath 2050 Master Portfolio, LifePath 2055 Master Portfolio, Active Stock Master Portfolio and CoreAlpha Bond Master Portfolio, each a portfolio of Master Investment Portfolio (the “Master Portfolios”), at December 31, 2011, the results of each of their operations for the year then ended and the changes in each of their net assets and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Master Portfolios’ management. Our responsibility

is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 24, 2012

BLACKROCK FUNDS III DECEMBER 31, 2011 157

Officers and Trustees

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1
Ronald W. Forbes 55 East 52nd Street New York, NY 10055 1940	Co-Chairman of the Board and Trustee	Since 2009	Professor Emeritus of Finance, School of Business, State University of New York at Albany since 2000.	33 RICs consisting of 107 Portfolios	None
Rodney D. Johnson 55 East 52nd Street New York, NY 10055 1941	Co-Chairman of the Board and Trustee	Since 2009	President, Fairmount Capital Advisors, Inc. since 1987; Member of the Archdiocesan Investment Committee of the Archdiocese of Philadelphia since 2004; Director, The Committee of Seventy (civic) since 2006; Director, Fox Chase Cancer Center from 2004 to 2010.	33 RICs consisting of 107 Portfolios	None
David O. Beim 55 East 52nd Street New York, NY 10055 1940	Trustee	Since 2009	Professor of Professional Practice at the Columbia University Graduate School of Business since 1991; Trustee, Phillips Exeter Academy since 2002; Chairman, Wave Hill, Inc. (public garden and cultural center) from 1990 to 2006.	33 RICs consisting of 107 Portfolios	None
Dr. Matina S. Horner 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Executive Vice President of Teachers Insurance and Annuity Association and College Retirement Equities Fund from 1989 to 2003.	33 RICs consisting of 107 Portfolios	NSTAR (electric and gas utility)
Herbert I. London 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Professor Emeritus, New York University since 2005; John M. Olin Professor of Humanities, New York University from 1993 to 2005 and Professor thereof from 1980 to 2005; President, Hudson Institute (policy research organization) since 1997 and Trustee thereof since 1980; Chairman of the Board of Trustees for Grantham University since 2006; Director, InnoCentive, Inc. (strategic solutions company) since 2005; Director, Cerego, LLC (software development and design) since 2005; Director, Cybersettle (dispute resolution technology) since 2009.	33 RICs consisting of 107 Portfolios	AIMS Worldwide, Inc. (marketing)
Cynthia A. Montgomery 55 East 52nd Street New York, NY 10055 1952	Trustee	Since 2009	Professor, Harvard Business School since 1989; Director, McLean Hospital since 2005; Director, Harvard Business School Publishing from 2005 to 2010.	33 RICs consisting of 107 Portfolios	Newell Rubbermaid, Inc. (manufacturing)
Joseph P. Platt 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2009	Director, The West Penn Allegheny Health System (a not-for-profit health system) since 2008; Director, Jones and Brown (Canadian insurance broker) since 1998; General Partner, Thorn Partners, LP (private investment) since 1998; Director, WQED Multi-Media (public broadcasting not-for-profit) since 2001; Partner, Amarna Corporation, LLC (private investment company) from 2002 to 2008.	33 RICs consisting of 107 Portfolios	Greenlight Capital Re, Ltd. (reinsurance company)
Robert C. Robb, Jr. 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Partner, Lewis, Eckert, Robb and Company (management and financial consulting firm) since 1981.	33 RICs consisting of 107 Portfolios	None
Toby Rosenblatt 55 East 52nd Street New York, NY 10055 1938	Trustee	Since 2009	President, Founders Investments Ltd. (private investments) since 1999; Director, College Access Foundation of California (philanthropic foundation) since 2009; Director, Forward Management, LLC since 2007; Director, A.P. Pharma, Inc. (specialty pharmaceuticals) from 1983 to 2011; Director, The James Irvine Foundation (philanthropic foundation) from 1998 to 2008.	33 RICs consisting of 107 Portfolios	None

158 BLACKROCK FUNDS III DECEMBER 31, 2011

Officers and Trustees (continued)

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1 (concluded)
Kenneth L. Urish 55 East 52nd Street New York, NY 10055 1951	Trustee	Since 2009	Managing Partner, Urish Popeck & Co., LLC (certified public accountants and consultants) since 1976; Chairman Elect of the Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants and Committee Member thereof since 2007; Member of External Advisory Board, The Pennsylvania State University Accounting Department since 2001; Trustee, The Holy Family Foundation from 2001 to 2010; President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Director, Inter-Tel from 2006 to 2007.	33 RICs consisting of 107 Portfolios	None
Frederick W. Winter 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Professor and Dean Emeritus of the Joseph M. Katz School of Business, University of Pittsburgh since 2005 and Dean thereof from 1997 to 2005; Director, Alkon Corporation (pneumatics) since 1992; Director, Tippman Sports (recreation) since 2005; Director, Indotronix International (IT services) from 2004 to 2008.	33 RICs consisting of 107 Portfolios	None
	1   Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved extensions in terms of Trustees who turn 72 prior to December 31, 2013. 2   Date shown is the earliest date a person has served for the Fund covered by this annual report. Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. (“BlackRock”) in September 2006, the various legacy MLIM and legacy BlackRock Fund boards were realigned and consolidated into three new Fund boards in 2007. As a result, although the chart shows certain Trustees as joining the Trust’s/MIP’s board in 2007, each Trustee first became a member of the board of other legacy MLIM or legacy BlackRock Funds as follows: David O. Beim, 1998; Ronald W. Forbes, 1977; Dr. Matina S. Horner, 2004; Rodney D. Johnson, 1995; Herbert I. London, 1987; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Robert C. Robb, Jr., 1998; Toby Rosenblatt, 2005; Kenneth L. Urish, 1999; and Frederick W. Winter, 1999.
Interested Trustees3
Paul L. Audet 55 East 52nd Street New York, NY 10055 1953	Trustee	Since 2011	Senior Managing Director, BlackRock, and Head of BlackRock’s Real Estate business from 2008 to 2011; Member of BlackRock’s Global Operating and Corporate Risk Management Committees and of the BlackRock Alternative Investors Executive Committee and Investment Committee for the Private Equity Fund of Funds business since 2008; Head of BlackRock’s Global Cash Management business from 2005 to 2010; Acting Chief Financial Officer of BlackRock from 2007 to 2008; Chief Financial Officer of BlackRock from 1998 to 2005.	159 RICs consisting of 286 Portfolios	None
Henry Gabbay 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2007	Consultant, BlackRock from 2007 to 2008; Managing Director, BlackRock from 1989 to 2007; Chief Administrative Officer, BlackRock Advisors, LLC from 1998 to 2007; President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007 and Treasurer of certain closed-end funds in the BlackRock fund complex from 1989 to 2006.	159 RICs consisting of 286 Portfolios	None
	3   Mr. Audet is an “interested person,” as defined in the 1940 Act, of the Trust/MIP based on his position with BlackRock and its affiliates. Mr. Gabbay is an “interested person” of the Trust/MIP based on his former positions with BlackRock and its affiliates as well as his ownership of BlackRock and The PNC Financial Services Group, Inc. securities. Mr. Audet and Mr. Gabbay are also Trustees of the BlackRock registered closed-end funds and Trustees of other BlackRock registered open-end funds. Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.

BLACKROCK FUNDS III DECEMBER 31, 2011 159

Officers and Trustees (concluded)

Name, Address and Year of Birth	Position(s) Held with the Trust/MIP	Length of Time Served	Principal Occupation(s) During Past Five Years
Trust/MIP Officers*
John M. Perlowski 55 East 52nd Street New York, NY 10055 1964	President and Chief Executive Officer	Since 2010	Managing Director of BlackRock since 2009; Global Head of BlackRock Fund Administration since 2009; Managing Director and Chief Operating Officer of the Global Product Group at Goldman Sachs Asset Management, L.P. from 2003 to 2009; Treasurer of Goldman Sachs Mutual Funds from 2003 to 2009 and Senior Vice President thereof from 2007 to 2009; Director of Goldman Sachs Offshore Funds from 2002 to 2009; Director of Family Resource Network (charitable foundation) since 2009.
Richard Hoerner, CFA 55 East 52nd Street New York, NY 10055 1958	Vice President	Since 2009	Managing Director of BlackRock since 2000; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2002; Member of the Cash Management Group Executive Committee since 2005.
Brendan Kyne 55 East 52nd Street New York, NY 10055 1977	Vice President	Since 2009	Managing Director of BlackRock since 2010; Director of BlackRock from 2008 to 2009; Head of Product Development and Management for BlackRock’s U.S. Retail Group since 2009 and Co-head thereof from 2007 to 2009; Vice President of BlackRock from 2005 to 2008.
Simon Mendelson 55 East 52nd Street New York, NY 10055 1964	Vice President	Since 2009	Managing Director of BlackRock since 2005; Co-head of the Global Cash and Securities Lending Group since 2010; Chief Operating Officer and Head of the Global Client Group for BlackRock’s Global Cash Management Business from 2007 to 2010; Head of BlackRock’s Strategy and Development Group from 2005 to 2007; Partner of McKinsey & Co. from 1997 to 2005.
Christopher Stavrakos, CFA 55 East 52nd Street New York, NY 10055 1959	Vice President	Since 2009	Managing Director of BlackRock since 2006; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2006; Senior Vice President, CIO, and Director of Liability Management for the Securities Lending Group at Mellon Bank from 1999 to 2006.
Neal Andrews 55 East 52nd Street New York, NY 10055 1966	Chief Financial Officer	Since 2007	Managing Director of BlackRock since 2006; Senior Vice President and Line of Business Head of Fund Accounting and Administration at PNC Global Investment Servicing (U.S.) Inc. from 1992 to 2006.
Jay Fife 55 East 52nd Street New York, NY 10055 1970	Treasurer	Since 2007	Managing Director of BlackRock since 2007; Director of BlackRock in 2006; Assistant Treasurer of the MLIM and Fund Asset Management, L.P. advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006.
Brian Kindelan 55 East 52nd Street New York, NY 10055 1959	Chief Compliance Officer and Anti-Money Laundering Officer	Since 2007	Chief Compliance Officer of the BlackRock-advised funds since 2007; Managing Director and Senior Counsel of BlackRock since 2005.
Ira P. Shapiro 55 East 52nd Street New York, NY 10055 1963	Secretary	Since 2010	Managing Director of BlackRock since 2009; Managing Director and Associate General Counsel of Barclays Global Investors from 2008 to 2009 and Principal thereof from 2004 to 2008.
	*  Officers of the Trust/MIP serve at the pleasure of the Board of Trustees.

Investment Advisor BlackRock Fund Advisors San Francisco, CA 94105	Administrator BlackRock Institutional Trust Company, N.A. San Francisco, CA 94105	Custodian State Street Bank and Trust Company Boston, MA 02110	Transfer Agent BNY Mellon Investment Servicing (US) Inc. Wilmington, DE 19809	Accounting Agent State Street Bank and Trust Company Boston, MA 02110	Distributor BlackRock Investments, LLC New York, NY 10022
			Legal Counsel Sidley Austin LLP New York, NY 10019	Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP New York, NY 10017	Address of the Funds 400 Howard Street San Francisco, CA 94105

160 BLACKROCK FUNDS III DECEMBER 31, 2011

Additional Information

General Information

Availability of Quarterly Portfolio Schedule

Each Portfolio/Master Portfolio files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Each Portfolio’s/Master Portfolio’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. Each Portfolio’s/Master Portfolio’s Forms N-Q may also be obtained upon request

and without charge by calling (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

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

Availability of Proxy Voting Record

Information about how each Portfolio/Master Portfolio voted proxies relating to securities held in the Portfolio’s/Master Portfolio’s portfolios during the most recent 12-month period ended December 31 is available upon request and without charge (1) at http://www.blackrock.com or by calling (800) 441-7762 and (2) on the SEC’s website at http://www.sec.gov.

Shareholder Privileges

Account Information

Call us at (800) 441-7762 from 8:00 AM to 6:00 PM EST on any business day to get information about your account balances, recent

transactions and share prices. You can also reach us on the Web at http://www.blackrock.com/funds.

BlackRock Privacy Principles

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

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

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

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

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

BLACKROCK FUNDS III DECEMBER 31, 2011 161

A World-Class 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.

Equity Funds

BlackRock ACWI ex-US Index Fund

BlackRock All-Cap Energy & Resources Portfolio

BlackRock Asset Allocation Portfolio†

BlackRock Balanced Capital Fund†

BlackRock Basic Value Fund

BlackRock Capital Appreciation Fund

BlackRock China Fund

BlackRock Commodity Strategies Fund

BlackRock Emerging Markets Long/Short Equity Fund

BlackRock Energy & Resources Portfolio

BlackRock Equity Dividend Fund

BlackRock EuroFund

BlackRock Focus Growth Fund

BlackRock Global Allocation Fund†

BlackRock Global Dividend Income Portfolio

BlackRock Global Dynamic Equity Fund

BlackRock Global Emerging Markets Fund

BlackRock Global Opportunities Portfolio

BlackRock Global SmallCap Fund

BlackRock Health Sciences Opportunities Portfolio

BlackRock Index Equity Portfolio

BlackRock India Fund

BlackRock International Fund

BlackRock International Index Fund

BlackRock International Opportunities Portfolio

BlackRock Large Cap Core Fund

BlackRock Large Cap Core Plus Fund

BlackRock Large Cap Growth Fund

BlackRock Large Cap Value Fund

BlackRock Latin America Fund

BlackRock Mid-Cap Growth Equity Portfolio

BlackRock Mid-Cap Value Equity Portfolio

BlackRock Mid Cap Value Opportunities Fund

BlackRock Natural Resources Trust

BlackRock Pacific Fund

BlackRock Russell 1000 Index Fund

BlackRock Science & Technology Opportunities Portfolio

BlackRock Small Cap Growth Equity Portfolio

BlackRock Small Cap Growth Fund II

BlackRock Small Cap Index Fund

BlackRock S&P 500 Index Fund

BlackRock S&P 500 Stock Fund

BlackRock U.S. Opportunities Portfolio

BlackRock Value Opportunities Fund

BlackRock World Gold Fund

Fixed Income Funds

BlackRock Bond Index Fund

BlackRock Core Bond Portfolio

BlackRock Emerging Market Debt Portfolio

BlackRock Floating Rate Income Portfolio

BlackRock Global Long/Short Credit Fund

BlackRock GNMA Portfolio

BlackRock High Yield Bond Portfolio

BlackRock Inflation Protected Bond Portfolio

BlackRock International Bond Portfolio

BlackRock Long Duration Bond Portfolio

BlackRock Low Duration Bond Portfolio

BlackRock Multi-Asset Income Portfolio†

BlackRock Multi-Sector Bond Portfolio

BlackRock Strategic Income Opportunities Portfolio

BlackRock Total Return Fund

BlackRock US Government Bond Portfolio

BlackRock World Income Fund

US Mortgage Portfolio

Municipal Bond Funds

BlackRock California Municipal Bond Fund

BlackRock High Yield Municipal Fund

BlackRock Intermediate Municipal Fund

BlackRock National Municipal Fund

BlackRock New Jersey Municipal Bond Fund

BlackRock New York Municipal Bond Fund

BlackRock Pennsylvania Municipal Bond Fund

BlackRock Short-Term Municipal Fund

Target Risk & Target Data Funds†

BlackRock Prepared Portfolios	BlackRock Lifecycle Prepared Portfolios		LifePath Portfolios Retirement		LifePath Index Portfolios Retirement
Conservative Prepared Portfolio	2015	2035	2020	2040	2020	2040
Moderate Prepared Portfolio	2020	2040	2025	2045	2025	2045
Growth Prepared Portfolio	2025	2045	2030	2050	2030	2050
Aggressive Growth Prepared Portfolio	2030	2050	2035	2055	2035	2055

† Mixed asset fund.

BlackRock mutual funds are currently distributed by BlackRock Investments, LLC. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling (800) 441-7762 or from your financial advisor. The prospectus should be read carefully before investing.

162 BLACKROCK FUNDS III DECEMBER 31, 2011

This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Funds unless accompanied or preceded by that 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.

Investment in foreign securities involves special risks including fluctuating foreign exchange rates, foreign government regulations, differing degrees of liquidity and the possibility of substantial volatility due to adverse political, economic or other developments.

# LIFEPATH-12/11

December 31, 2011

Annual Report

BlackRock Funds III

^u  LifePath^® Index Retirement Portfolio

^u  LifePath^® Index 2020 Portfolio

^u  LifePath^® Index 2025 Portfolio

^u  LifePath^® Index 2030 Portfolio

^u  LifePath^® Index 2035 Portfolio

^u  LifePath^® Index 2040 Portfolio

^u  LifePath^® Index 2045 Portfolio

^u  LifePath^® Index 2050 Portfolio

^u  LifePath^® Index 2055 Portfolio

Not FDIC Insured    No Bank Guarantee    May Lose Value

Table of Contents

	Page
Dear Shareholder		3
Annual Report:
Portfolio Summaries		4
About Portfolio Performance		14
Disclosure of Expenses		14
Portfolio Financial Statements:
Statements of Assets and Liabilities		16
Statements of Operations		18
Statements of Changes in Net Assets		20
Portfolio Financial Highlights		25
Portfolio Notes to Financial Statements		34
Portfolio Report of Independent Registered Public Accounting Firm		39
Important Tax Information (Unaudited)		39
Master Portfolio Information		40
Master Portfolio Financial Statements:
Schedules of Investments		42
Statements of Assets and Liabilities		51
Statements of Operations		53
Statements of Changes in Net Assets		55
Master Portfolio Financial Highlights		57
Master Portfolio Notes to Financial Statements		66
Master Portfolio Report of Independent Registered Public Accounting Firm		69
Officers and Trustees		70
Additional Information		73
A World Class Mutual Fund Family		74

2 BLACKROCK FUNDS III DECEMBER 31, 2011

Dear Shareholder:

Investors endured a very difficult environment in 2011. Financial markets were extremely volatile as a number of high-profile global events drove frequent about-face changes in investor sentiment. As the year progressed, news flow increasingly influenced trading decisions, to the point where company fundamentals were largely ignored. In the end, lower-risk assets won the “risk on – risk off” trading tug-of-war that characterized 2011’s market activity.

Early in the year, political turmoil swept across the Middle East/North Africa region and prices of oil and other commodities soared. Natural disasters in Japan disrupted global supply chains and concerns mounted regarding US debt and deficit issues. Nevertheless, equities, commodities and high yield bonds outpaced the less risky asset classes as investors chose to focus on the continuing stream of strong corporate earnings and positive economic data.

Markets reversed sharply in May, however, when the heightened possibility of Greece defaulting on its debt rekindled fears about sovereign debt problems spreading across Europe. Concurrently, economic indicators signaled that the recovery had slowed in the United States and other developed nations. Confidence was further shaken by the prolonged debt ceiling debate in Washington, DC. On August 5^th, Standard & Poor’s downgraded the US government’s credit rating and turmoil erupted in financial markets around the world. Extraordinary levels of volatility persisted in the months that followed as Greece teetered on the brink of default, debt problems escalated in Italy and Spain, and exposure to European sovereign bonds stressed banks globally. Late in the summer, economic data out of the United States and Europe grew increasingly bleak while China and other emerging economies began to show signs of slowing growth. By the end of the third quarter, equity markets had fallen nearly 20% from their April peak while safe-haven assets such as US Treasuries and gold had rallied to historical highs.

October brought enough positive economic data to assuage fears of a global double-dip recession. Additionally, after months of deliberation, European leaders began to show signs of progress toward stemming the region’s debt crisis. These encouraging developments brought investors back from the sidelines and risk assets rallied through the month. However, a lack of definitive details about Europe’s rescue plan soon raised doubts among investors and thwarted the rally at the end of October. The last two months of the year saw political instability in Greece, unsustainable yields on Italian bonds, and US policymakers bickering over budget issues. Global central bank actions and improving economic data energized investors, but confidence was easily tempered by sobering news flow that resurrected uncertainty about the ability of Europe’s leaders to ultimately contain the debt crisis.

Most equity markets failed to fully recover their late-summer losses, although US large cap stocks managed to finish the year with a marginal gain given their perceived safety and stronger US economic data. Conditions were worse overseas, and international markets experienced some significant downturns. Dividend-paying stocks performed relatively well as investors sought yield in the low interest rate environment. Fixed income securities benefited from declining yields and delivered positive returns for the year. US Treasury bonds outperformed other fixed income classes despite their quality rating downgrade, while municipal bonds also delivered superior results. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

Many of the themes that caused uncertainty in 2011 are likely to persist well into 2012. While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of December 31, 2011
	6-month			12-month
US large cap equities (S&P 500 Index)		(3.69	)%		2.11	%
US small cap equities (Russell 2000 Index)		(9.77	)		(4.18	)
International equities (MSCI Europe, Australasia, Far East Index)		(16.31	)		(12.14	)
Emerging market equities (MSCI Emerging Markets Index)		(19.13	)		(18.42	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.02			0.10
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		13.46			17.15
US investment grade bonds (Barclays Capital US Aggregate Bond Index)		4.98			7.84
Tax-exempt municipal bonds (S&P Municipal Bond Index)		5.78			10.62
US high yield bonds (Barclays Capital US Corporate High Yield 2% Issuer Capped Index)		(0.02	)		4.96
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

THIS PAGE NOT PART OF YOUR FUND REPORT 3

Portfolio Summary as of December 31, 2011 LifePath Index Portfolios

Portfolio Management Commentary

How did each Portfolio perform?

· All share classes of the LifePath Index Portfolios with target dates of 2020, 2025, 2030, 2035, 2040, 2045, 2050, 2055 and LifePath Index Retirement Portfolio (altogether, the “LifePath Index Portfolios”) invest in their respective LifePath Index Master Portfolio.

· For the period beginning with their initial trading date of May 31, 2011 through December 31, 2011, the Investor A Shares of all of the LifePath Index Portfolios underperformed their respective custom benchmarks. The Institutional and Class K Shares outperformed their respective benchmarks in the LifePath Index Portfolios with target dates of 2020, 2025, 2030, 2035 and the LifePath Index Retirement Portfolio, and underperformed in LifePath Index 2040, 2045, 2050 and 2055.

What factors influenced performance?

· All of the LifePath Index Portfolios generated negative returns on an absolute basis as equity markets broadly declined during the period. Relative to their respective custom benchmarks, the longer-dated LifePath Index 2040, 2045, 2050 and 2055 underperformed due to a negative fair value pricing effect in the BlackRock International Index Master Portfolio.

· The LifePath Index Portfolios gain exposure to various financial markets through their investment in iShares exchange-traded funds (“ETFs”), each of which seeks investment results that correspond generally to the performance, before fees and expenses, of its underlying index. Dividend distributions, pricing differences, premiums/discounts and other factors can cause an ETF’s return to lag the underlying Index Fund. During the

period, pricing differences in iShares MSCI Emerging Markets Index Fund and iShares MSCI EAFE Small Cap Index Fund detracted from relative performance. The underlying indices of each of these international equity ETFs are priced at the close of their respective local stock exchanges, whereas the corresponding iShares instruments continue to trade on the New York Stock Exchange until they are priced upon its close, thereby reflecting new US market information.

Describe recent portfolio activity.

· Each LifePath Index Portfolio has its own time horizon, which affects its acceptable level of risk and, in turn, the strategic allocation of its holdings across asset classes. On a quarterly basis, the strategic allocation of each LifePath Index Portfolio is systematically updated to reflect the remaining investment time horizon. During the period, the LifePath Index Portfolios were rebalanced in accordance with their updated strategic allocations and daily cash flows were appropriately allocated to the underlying funds and instruments.

· During the period, the LifePath Index Portfolios began investing in the ACWI ex-US Index Master Portfolio to obtain the equivalent benchmark exposure.

Describe portfolio positioning at period end.

· As of period end, each of the LifePath Index Portfolios was invested according to its respective strategic allocation benchmark within tolerance limits.

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.

The LifePath Index Portfolios are organized as “feeder” funds in a “master-feeder” structure. Instead of investing directly in individual securities, the feeder fund, which is offered to the public, holds interests in the net assets of its corresponding Master Portfolio. It is the Master Portfolio that actually invests in individual securities. References to the “LifePath Index Portfolios” are to the feeder funds or the Master Portfolios, as the context requires.

4 BLACKROCK FUNDS III DECEMBER 31, 2011

LifePath^® Index Retirement Portfolio

Investment Objective

LifePath^® Index Retirement Portfolio’s investment objective is to seek to maximize return consistent with the quantitatively measured risk that investors planning to retire (or begin to withdraw substantial portions of their investment) now or in the near future may be willing to accept.

Total Return Based on a $10,000 Investment

¹  The LifePath Index Portfolio compares its performance to that of a customized weighted index (the “LifePath Index Retirement Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Index Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

² Commencement of operations.

Period	ACWI ex-US IMI Index			Barclays Capital US Aggregate Bond Index			Barclays Capital US Treasury Inflation Protected Securities (TIPS) Index			Russell 1000 Index			Russell 2000 Index
5/31/11 to 12/31/11		10.9	%		52.9	%		9.1	%		23.2	%		3.9	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended December 31, 2011

	Total Returns
	6-Month			Since Inception1
Institutional		0.09	%		(0.61	)%
Investor A		(0.04	)		(0.76	)
Class K		0.11			(0.59	)
Citigroup 3-Month Treasury Bill Index		0.02			0.02
Barclays Capital US Aggregate Bond Index		4.98			4.68
LifePath Index Retirement Custom Benchmark		0.05			(0.70	)
ACWI ex-US IMI Index		(17.22	)		(18.49	)
Russell 1000 Index		(4.58	)		(6.25	)
Russell 2000 Index		(9.77	)		(11.86	)
Barclays US Treasury TIPS Index		7.32			8.19

¹  Total return is calculated from an inception date of May 31, 2011.

Past performance is not indicative of future results.

BLACKROCK FUNDS III DECEMBER 31, 2011 5

LifePath^® Index 2020 Portfolio

Investment Objective

LifePath^® Index 2020 Portfolio’s investment objective is to seek to maximize return consistent with the quantitatively measured risk that investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2020 may be willing to accept.

Total Return Based on a $10,000 Investment

¹  The LifePath Index Portfolio compares its performance to that of a customized weighted index (the “LifePath Index 2020 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Index Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

² Commencement of operations.

Period	ACWI ex-US IMI Index			Barclays Capital US Aggregate Bond Index			Barclays Capital US Treasury Inflation Protected Securities (TIPS) Index			Russell 1000 Index			Russell 2000 Index
5/31/11 to 12/31/11		17.5	%		37.1	%		6.0	%		35.7	%		3.7	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended December 31, 2011

	Total Returns
	6-Month			Since Inception1
Institutional		(2.72	)%		(3.72	)%
Investor A		(2.85	)		(3.87	)
Class K		(2.71	)		(3.71	)
Citigroup 3-Month Treasury Bill Index		0.02			0.02
Barclays Capital US Aggregate Bond Index		4.98			4.68
LifePath Index 2020 Custom Benchmark		(2.76	)		(3.78	)
ACWI ex-US IMI Index		(17.22	)		(18.49	)
Russell 1000 Index		(4.58	)		(6.25	)
Russell 2000 Index		(9.77	)		(11.86	)
Barclays US Treasury TIPS Index		7.32			8.19

¹  Total return is calculated from an inception date of May 31, 2011.

Past performance is not indicative of future results.

6 BLACKROCK FUNDS III DECEMBER 31, 2011

LifePath^® Index 2025 Portfolio

Investment Objective

LifePath^® Index 2025 Portfolio’s investment objective is to seek to maximize return consistent with the quantitatively measured risk that investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2025 may be willing to accept.

Total Return Based on a $10,000 Investment

¹  The LifePath Index Portfolio compares its performance to that of a customized weighted index (the “LifePath Index 2025 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Index Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

² Commencement of operations.

Period	ACWI ex-US IMI Index	Barclays Capital US Aggregate Bond Index	Barclays Capital US Treasury Inflation Protected Securities (TIPS) Index	Russell 1000 Index	Russell 2000 Index
5/31/11 to 12/31/11	20.5%	30.0%	4.7%	41.2%	3.6%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended December 31, 2011

	Total Returns
	6-Month			Since Inception1
Institutional		(4.02	)%		(5.12	)%
Investor A		(4.15	)		(5.26	)
Class K		(4.01	)		(5.10	)
Citigroup 3-Month Treasury Bill Index		0.02			0.02
Barclays Capital US Aggregate Bond Index		4.98			4.68
LifePath Index 2025 Custom Benchmark		(3.99	)		(5.13	)
ACWI ex-US IMI Index		(17.22	)		(18.49	)
Russell 1000 Index		(4.58	)		(6.25	)
Russell 2000 Index		(9.77	)		(11.86	)
Barclays US Treasury TIPS Index		7.32			8.19

¹  Total return is calculated from an inception date of May 31, 2011.

Past performance is not indicative of future results.

BLACKROCK FUNDS III DECEMBER 31, 2011 7

LifePath^® Index 2030 Portfolio

Investment Objective

LifePath^® Index 2030 Portfolio’s investment objective is to seek to maximize return consistent with the quantitatively measured risk that investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2030 may be willing to accept.

Total Return Based on a $10,000 Investment

¹  The LifePath Index Portfolio compares its performance to that of a customized weighted index (the “LifePath Index 2030 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Index Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

² Commencement of operations.

Period	ACWI ex-US IMI Index			Barclays Capital US Aggregate Bond Index			Barclays Capital US Treasury Inflation Protected Securities (TIPS) Index			Russell 1000 Index			Russell 2000 Index
5/31/11 to 12/31/11		23.1	%		23.8	%		3.5	%		46.1	%		3.5	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended December 31, 2011

	Total Returns
	6-Month			Since Inception1
Institutional		(5.11	)%		(6.30	)%
Investor A		(5.24	)		(6.44	)
Class K		(5.10	)		(6.28	)
Citigroup 3-Month Treasury Bill Index		0.02			0.02
Barclays Capital US Aggregate Bond Index		4.98			4.68
LifePath Index 2030 Custom Benchmark		(5.09	)		(6.31	)
ACWI ex-US IMI Index		(17.22	)		(18.49	)
Russell 1000 Index		(4.58	)		(6.25	)
Russell 2000 Index		(9.77	)		(11.86	)
Barclays US Treasury TIPS Index		7.32			8.19

¹  Total return is calculated from an inception date of May 31, 2011.

Past performance is not indicative of future results.

8 BLACKROCK FUNDS III DECEMBER 31, 2011

LifePath^® Index 2035 Portfolio

Investment Objective

LifePath^® Index 2035 Portfolio’s investment objective is to seek to maximize return consistent with the quantitatively measured risk that investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2035 may be willing to accept.

Total Return Based on a $10,000 Investment

¹  The LifePath Index Portfolio compares its performance to that of a customized weighted index (the “LifePath Index 2035 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Index Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

² Commencement of operations.

Period	ACWI ex-US IMI Index			Barclays Capital US Aggregate Bond Index			Barclays Capital US Treasury Inflation Protected Securities (TIPS) Index			Russell 1000 Index			Russell 2000 Index
5/31/11 to 12/31/11		25.4	%		18.2	%		2.4	%		50.5	%		3.5	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended December 31, 2011

	Total Returns
	6-Month			Since Inception1
Institutional		(6.10	)%		(7.37	)%
Investor A		(6.23	)		(7.52	)
Class K		(6.08	)		(7.35	)
Citigroup 3-Month Treasury Bill Index		0.02			0.02
Barclays Capital US Aggregate Bond Index		4.98			4.68
LifePath Index 2035 Custom Benchmark		(6.08	)		(7.39	)
ACWI ex-US IMI Index		(17.22	)		(18.49	)
Russell 1000 Index		(4.58	)		(6.25	)
Russell 2000 Index		(9.77	)		(11.86	)
Barclays US Treasury TIPS Index		7.32			8.19

¹  Total return is calculated from an inception date of May 31, 2011.

Past performance is not indicative of future results.

BLACKROCK FUNDS III DECEMBER 31, 2011 9

LifePath^® Index 2040 Portfolio

Investment Objective

LifePath^® Index 2040 Portfolio’s investment objective is to seek to maximize return consistent with the quantitatively measured risk that investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2040 may be willing to accept.

Total Return Based on a $10,000 Investment

¹  The LifePath Index Portfolio compares its performance to that of a customized weighted index (the “LifePath Index 2040 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Index Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

² Commencement of operations.

Period	ACWI ex- US IMI Index			Barclays Capital US Aggregate Bond Index			Barclays Capital US Treasury Inflation Protected Securities (TIPS) Index			Russell 1000 Index			Russell 2000 Index
5/31/11 to 12/31/11		27.6	%		13.1	%		1.3	%		54.6	%		3.4	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended December 31, 2011

	Total Returns
	6-Month			Since Inception1
Institutional		(7.07	)%		(8.44	)%
Investor A		(7.20	)		(8.58	)
Class K		(7.06	)		(8.42	)
Citigroup 3-Month Treasury Bill Index		0.02			0.02
Barclays Capital US Aggregate Bond Index		4.98			4.68
LifePath Index 2040 Custom Benchmark		(6.99	)		(8.38	)
ACWI ex-US IMI Index		(17.22	)		(18.49	)
Russell 1000 Index		(4.58	)		(6.25	)
Russell 2000 Index		(9.77	)		(11.86	)
Barclays US Treasury TIPS Index		7.32			8.19

¹  Total return is calculated from an inception date of May 31, 2011.

Past performance is not indicative of future results.

10 BLACKROCK FUNDS III DECEMBER 31, 2011

LifePath^® Index 2045 Portfolio

Investment Objective

LifePath^® Index 2045 Portfolio’s investment objective is to seek to maximize return consistent with the quantitatively measured risk that investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2045 may be willing to accept.

Total Return Based on a $10,000 Investment

¹  The LifePath Index Portfolio compares its performance to that of a customized weighted index (the “LifePath Index 2045 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Index Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

² Commencement of operations.

Period	ACWI ex- US IMI Index			Barclays Capital US Aggregate Bond Index			Russell 1000 Index			Russell 2000 Index
5/31/11 to 12/31/11		29.6	%		8.7	%		58.3	%		3.4	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended December 31, 2011

	Total Returns
	6-Month			Since Inception1
Institutional		(8.15	)%		(9.51	)%
Investor A		(8.27	)		(9.64	)
Class K		(8.13	)		(9.49	)
Citigroup 3-Month Treasury Bill Index		0.02			0.02
Barclays Capital US Aggregate Bond Index		4.98			4.68
LifePath Index 2045 Custom Benchmark		(7.85	)		(9.31	)
ACWI ex-US IMI Index		(17.22	)		(18.49	)
Russell 1000 Index		(4.58	)		(6.25	)
Russell 2000 Index		(9.77	)		(11.86	)
Barclays US Treasury TIPS Index		7.32			8.19

¹  Total return is calculated from an inception date of May 31, 2011.

Past performance is not indicative of future results.

BLACKROCK FUNDS III DECEMBER 31, 2011 11

LifePath^® Index 2050 Portfolio

Investment Objective

LifePath^® Index 2050 Portfolio’s investment objective is to seek to maximize return consistent with the quantitatively measured risk that investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2050 may be willing to accept.

Total Return Based on a $10,000 Investment

¹  The LifePath Index Portfolio compares its performance to that of a customized weighted index (the “LifePath Index 2050 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Index Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

² Commencement of operations.

Period	ACWI ex- US IMI Index			Barclays Capital US Aggregate Bond Index			Russell 1000 Index			Russell 2000 Index
5/31/11 to 12/31/11		31.6	%		3.3	%		61.7	%		3.4	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended December 31, 2011

	Total Returns
	6-Month			Since Inception1
Institutional		(8.92	)%		(10.36	)%
Investor A		(9.04	)		(10.49	)
Class K		(8.90	)		(10.34	)
Citigroup 3-Month Treasury Bill Index		0.02			0.02
Barclays Capital US Aggregate Bond Index		4.98			4.68
LifePath Index 2050 Custom Benchmark		(8.66	)		(10.18	)
ACWI ex-US IMI Index		(17.22	)		(18.49	)
Russell 1000 Index		(4.58	)		(6.25	)
Russell 2000 Index		(9.77	)		(11.86	)
Barclays US Treasury TIPS Index		7.32			8.19

¹  Total return is calculated from an inception date of May 31, 2011.

Past performance is not indicative of future results.

12 BLACKROCK FUNDS III DECEMBER 31, 2011

LifePath^® Index 2055 Portfolio

Investment Objective

LifePath^® Index 2055 Portfolio’s investment objective is to seek to maximize return consistent with the quantitatively measured risk that investors planning to retire (or begin to withdraw substantial portions of their investment) approximately in the year 2055 may be willing to accept.

Total Return Based on a $10,000 Investment

¹  The LifePath Index Portfolio compares its performance to that of a customized weighted index (the “LifePath Index 2055 Custom Benchmark”), comprised of the indexes indicated below, and reflecting the investment advisor’s changes of the benchmarks’ weightings over time. The investment advisor adjusts the weightings of these indexes periodically with its evaluation and adjustment of the LifePath Index Portfolio’s asset allocation strategy. The weightings are presented annually but they are adjusted quarterly.

² Commencement of operations.

Period	ACWI ex- US IMI Index			Barclays Capital US Aggregate Bond Index			Russell 1000 Index			Russell 2000 Index
5/31/11 to 12/31/11		33.2	%		1.0	%		59.8	%		6.0	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended December 31, 2011

	Total Returns
	6-Month			Since Inception1
Institutional		(9.55	)%		(10.98	)%
Investor A		(9.67	)		(11.11	)
Class K		(9.53	)		(10.96	)
Citigroup 3-Month Treasury Bill Index		0.02			0.02
Barclays Capital US Aggregate Bond Index		4.98			4.68
LifePath Index 2055 Custom Benchmark		(9.35	)		(10.88	)
ACWI ex-US IMI Index		(17.22	)		(18.49	)
Russell 1000 Index		(4.58	)		(6.25	)
Russell 2000 Index		(9.77	)		(11.86	)
Barclays US Treasury TIPS Index		7.32			8.19

¹  Total return is calculated from an inception date of May 31, 2011.

Past performance is not indicative of future results.

BLACKROCK FUNDS III DECEMBER 31, 2011 13

About Portfolio Performance BlackRock Funds III

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

· Investor A Shares are not subject to any sales charge and bear no ongoing distribution fee. Investor A Shares are subject to an ongoing service fee of 0.25% per year.

· Class K Shares are not subject to any sales charge. Class K Shares bear no ongoing distribution or service fees and are available only to eligible investors.

Performance information reflects past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Refer to www.blackrock.com/funds to obtain performance data current to the most recent month-end. Performance results do not reflect the deduction of taxes that a shareholder would pay on portfolio distributions or the redemption of portfolio shares. Figures shown in each of the performance tables on the previous pages assume reinvestment of all dividends and distributions, if any, at net asset value on the payable date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. The LifePath Index Portfolios’ administrator waived a portion of each LifePath Index Portfolio’s expenses. Without such waiver, each LifePath Index Portfolio’s performance would have been

lower. Dividends paid to each class of shares will vary because of the different levels of administration and distribution fees applicable to each class, which are deducted from the income available to be paid to shareholders.

The Barclays Capital US Aggregate Bond Index is an unmanaged market weighted index comprised of investment grade corporate bonds (rated BBB or better), mortgages and US Treasury and government agencies with at least one year to maturity. The MSCI ACWI ex-US IMI Index is a free float-adjusted market capitalization-weighted index that measures the equity market performance of the developed (excluding the US) and emerging investable market universe. The Citigroup 3-Month Treasury Bill Index is a market value weighted index of public obligations of the US Treasury with maturities of three months.

The LifePath Index Portfolios’ custom benchmarks are hypothetical representations of the performance of the respective LifePath Index Portfolio’s asset classes according to their weightings as of the most recent quarter-end. The weightings of the various indexes that are included in the LifePath Index Portfolios’ custom benchmarks are adjusted quarterly to reflect the LifePath Index Portfolios’ changing asset allocations over time. As of December 31, 2011, the following indexes are used to calculate the LifePath Index Portfolios’ custom benchmarks: ACWI ex-US IMI Index, Barclays Capital US Aggregate Bond Index, Barclays Capital US Treasury TIPS Index, Russell 1000 Index and Russell 2000 Index.

Disclosure of Expenses

Shareholders of each LifePath Index Portfolio may incur the following charges: operating expenses, including administration fees, distribution fees, including 12b-1 fees, and other portfolio expenses. The expense examples shown below (which are based on a hypothetical investment of $1,000 invested on July 1, 2011 and held through December 31, 2011) are intended to assist shareholders both in calculating expenses based on an investment in a LifePath Index Portfolio and in comparing these expenses with similar costs of investing in other mutual funds.

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

The tables also provide information about hypothetical account values and hypothetical expenses based on each LifePath Index Porfolio’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 a LifePath Index Portfolio and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in other funds’ shareholder reports.

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

14 BLACKROCK FUNDS III DECEMBER 31, 2011

Disclosure of Expenses (concluded) BlackRock Funds III

Expense Examples
	Actual						Hypothetical2
	Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the  Period1		Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the  Period1		Annualized Expense Ratio
LifePath Index Retirement Portfolio
Institutional		$1,000.00		$1,000.90		$0.91		$1,000.00		$1,024.30		$0.92		0.18%
Investor A		$1,000.00		$999.60		$2.17		$1,000.00		$1,023.04		$2.19		0.43%
Class K		$1,000.00		$1,001.10		$0.76		$1,000.00		$1,024.45		$0.77		0.15%
LifePath Index 2020 Portfolio
Institutional		$1,000.00		$972.80		$1.04		$1,000.00		$1,024.15		$1.07		0.21%
Investor A		$1,000.00		$971.50		$2.29		$1,000.00		$1,022.89		$2.35		0.46%
Class K		$1,000.00		$972.90		$0.90		$1,000.00		$1,024.30		$0.92		0.18%
LifePath Index 2025 Portfolio
Institutional		$1,000.00		$959.80		$1.04		$1,000.00		$1,024.15		$1.07		0.21%
Investor A		$1,000.00		$958.50		$2.27		$1,000.00		$1,022.89		$2.35		0.46%
Class K		$1,000.00		$959.90		$0.89		$1,000.00		$1,024.30		$0.92		0.18%
LifePath Index 2030 Portfolio
Institutional		$1,000.00		$948.90		$1.08		$1,000.00		$1,024.10		$1.12		0.22%
Investor A		$1,000.00		$947.60		$2.31		$1,000.00		$1,022.84		$2.40		0.47%
Class K		$1,000.00		$949.00		$0.93		$1,000.00		$1,024.25		$0.97		0.19%
LifePath Index 2035 Portfolio
Institutional		$1,000.00		$939.00		$1.12		$1,000.00		$1,024.05		$1.17		0.23%
Investor A		$1,000.00		$937.70		$2.39		$1,000.00		$1,022.74		$2.50		0.49%
Class K		$1,000.00		$939.20		$0.98		$1,000.00		$1,024.20		$1.02		0.20%
LifePath Index 2040 Portfolio
Institutional		$1,000.00		$929.30		$1.17		$1,000.00		$1,024.00		$1.22		0.24%
Investor A		$1,000.00		$928.00		$2.38		$1,000.00		$1,022.74		$2.50		0.49%
Class K		$1,000.00		$929.40		$1.02		$1,000.00		$1,024.15		$1.07		0.21%
LifePath Index 2045 Portfolio
Institutional		$1,000.00		$918.50		$1.16		$1,000.00		$1,024.00		$1.22		0.24%
Investor A		$1,000.00		$917.30		$2.42		$1,000.00		$1,022.69		$2.55		0.50%
Class K		$1,000.00		$918.70		$1.02		$1,000.00		$1,024.15		$1.07		0.21%
LifePath Index 2050 Portfolio
Institutional		$1,000.00		$910.80		$1.20		$1,000.00		$1,023.95		$1.28		0.25%
Investor A		$1,000.00		$909.60		$2.41		$1,000.00		$1,022.69		$2.55		0.50%
Class K		$1,000.00		$911.00		$1.06		$1,000.00		$1,024.10		$1.12		0.22%
LifePath Index 2055 Portfolio
Institutional		$1,000.00		$904.50		$1.20		$1,000.00		$1,023.95		$1.28		0.25%
Investor A		$1,000.00		$903.30		$2.40		$1,000.00		$1,022.69		$2.55		0.50%
Class K		$1,000.00		$904.70		$1.06		$1,000.00		$1,024.10		$1.12		0.22%

¹  For each class of the LifePath Index Portfolio, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 184/365. Because each LifePath Index Portfolio invests significantly in a Master Portfolio, the expense table example reflects the net expenses of both the LifePath Index Portfolio and the Master Portfolio in which it invests.

²  Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the most recent fiscal half year divided by 365.

BLACKROCK FUNDS III DECEMBER 31, 2011 15

Statements of Assets and Liabilities BlackRock Funds III

December 31, 2011	LifePath Index Retirement Portfolio			LifePath Index 2020 Portfolio			LifePath Index 2025 Portfolio			LifePath Index 2030 Portfolio			LifePath Index 2035 Portfolio
Assets
Investments at value — from the applicable Master Portfolio1	$	1,958,316		$	1,897,957		$	1,872,826		$	1,849,796		$	1,828,696
Receivable from advisor		13,590			13,054			12,896			12,945			12,980
Prepaid expenses		26,290			26,956			26,176			26,590			26,536
Deferred offering costs		854			665			665			546			665
Total assets		1,999,050			1,938,632			1,912,563			1,889,877			1,868,877
Liabilities
Professional fees payable		20,636			20,636			20,636			20,636			20,636
Income dividends payable		13,437			11,670			10,922			10,248			9,651
Printing fees payable		7,998			7,998			7,998			7,998			7,998
Transfer agent fees payable		348			348			348			348			352
Registration fees payable		85			85			85			85			85
Administration fees payable		50			48			48			48			46
Service fees payable		5			5			5			5			5
Other accrued expenses payable		2,618			2,692			2,692			2,692			2,692
Total liabilities		45,177			43,482			42,734			42,060			41,465
Net Assets	$	1,953,873		$	1,895,150		$	1,869,829		$	1,847,817		$	1,827,412
Net Assets Consist of
Paid-in capital	$	1,998,555		$	1,998,287		$	1,998,276		$	1,998,197		$	1,998,316
Undistributed (distributions in excess of) net investment income		(293	)		838			784			1,074			1,319
Accumulated net realized loss		(23,132	)		(34,251	)		(36,329	)		(39,687	)		(42,791	)
Net unrealized appreciation/depreciation		(21,257	)		(69,724	)		(92,902	)		(111,767	)		(129,432	)
Net Assets	$	1,953,873		$	1,895,150		$	1,869,829		$	1,847,817		$	1,827,412
Net Asset Value
Institutional
Net assets	$	24,423		$	23,690		$	23,373		$	23,098		$	22,841
Shares outstanding2		2,500			2,500			2,500			2,500			2,500
Net asset value	$	9.77		$	9.48		$	9.35		$	9.24		$	9.14
Investor A
Net assets	$	24,424		$	23,691		$	23,373		$	23,099		$	22,967
Shares outstanding2		2,500			2,500			2,500			2,500			2,513
Net asset value	$	9.77		$	9.48		$	9.35		$	9.24		$	9.14
Class K
Net assets	$	1,905,026		$	1,847,769		$	1,823,083		$	1,801,620		$	1,781,604
Shares outstanding2		195,000			195,000			195,000			195,000			195,000
Net asset value	$	9.77		$	9.48		$	9.35		$	9.24		$	9.14
1 Cost — from the applicable Master Portfolio	$	1,979,573		$	1,967,681		$	1,965,728		$	1,961,563		$	1,958,128

²  No par value, unlimited number of shares authorized.

See Notes to Financial Statements.
16	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Assets and Liabilities (concluded) BlackRock Funds III

December 31, 2011	LifePath Index 2040 Portfolio			LifePath Index 2045 Portfolio			LifePath Index 2050 Portfolio			LifePath Index 2055 Portfolio
Assets
Investments at value — from the applicable Master Portfolio1	$	1,809,622		$	1,790,064		$	1,775,307		$	1,760,278
Receivable from advisor		12,826			12,810			12,815			12,847
Prepaid expenses		25,826			25,854			25,847			26,194
Deferred offering costs		665			605			569			466
Total assets		1,848,939			1,829,333			1,814,538			1,799,785
Liabilities
Professional fees payable		20,636			20,636			20,636			20,636
Income dividends payable		9,180			8,625			8,207			7,982
Printing fees payable		7,998			7,998			7,998			7,998
Transfer agent fees payable		348			348			356			348
Registration fees payable		85			85			85			85
Administration fees payable		46			46			45			45
Service fees payable		5			5			5			5
Other accrued expenses payable		2,692			2,692			2,692			2,692
Total liabilities		40,990			40,435			40,024			39,791
Net Assets	$	1,807,949		$	1,788,898		$	1,774,514		$	1,759,994
Net Assets Consist of
Paid-in capital	$	1,998,065		$	1,998,015		$	2,001,072		$	1,997,967
Undistributed net investment income		1,542			1,740			1,952			2,003
Accumulated net realized loss		(48,053	)		(53,686	)		(55,210	)		(61,621	)
Net unrealized appreciation/depreciation		(143,605	)		(157,171	)		(173,300	)		(178,355	)
Net Assets	$	1,807,949		$	1,788,898		$	1,774,514		$	1,759,994
Net Asset Value
Institutional
Net assets	$	22,599		$	22,361		$	22,146		$	22,000
Shares outstanding2		2,500			2,500			2,500			2,500
Net asset value	$	9.04		$	8.94		$	8.86		$	8.80
Investor A
Net assets	$	22,601		$	22,362		$	25,082		$	22,001
Shares outstanding2		2,500			2,500			2,831			2,500
Net asset value	$	9.04		$	8.94		$	8.86		$	8.80
Class K
Net assets	$	1,762,749		$	1,744,175		$	1,727,286		$	1,715,993
Shares outstanding2		195,000			195,000			195,000			195,000
Net asset value	$	9.04		$	8.94		$	8.86		$	8.80
1 Cost — from the applicable Master Portfolio	$	1,953,227		$	1,947,235		$	1,948,607		$	1,938,633

²  No par value, unlimited number of shares authorized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	17

Statements of Operations BlackRock Funds III

Period May 31, 20111 to December 31, 2011	LifePath Index Retirement Portfolio			LifePath Index 2020 Portfolio			LifePath Index 2025 Portfolio			LifePath Index 2030 Portfolio			LifePath Index 2035 Portfolio
Investment Income
Net investment income allocated from the applicable Master Portfolio:
Interest	$	19,389		$	13,400		$	10,790		$	8,546		$	6,528
Dividends		15,075			18,575			19,562			20,756			21,771
Securities lending — affiliated		39			30			68			39			86
Income — affiliated		7			7			7			7			7
Expenses		(40,347	)		(40,789	)		(40,904	)		(41,055	)		(41,189	)
Fees waived		38,616			38,835			38,929			39,013			39,086
Total income		32,779			30,058			28,452			27,306			26,289
Expenses
Administration		343			334			331			327			324
Service — Investor A		36			35			35			34			35
Registration		106			106			106			106			106
Transfer agent — Institutional		19			19			19			19			19
Transfer agent — Investor A		19			19			19			19			31
Transfer agent — Class K		346			346			346			346			346
Professional		22,528			22,528			22,528			22,528			22,528
Organization and offering		36,410			36,360			36,090			36,062			36,223
Printing		7,999			7,999			7,999			7,999			7,999
Miscellaneous		7,584			6,546			6,547			6,546			6,546
Total expenses		75,390			74,292			74,020			73,986			74,157
Less administration fees waived		(343	)		(334	)		(331	)		(327	)		(324	)
Less transfer agent fees reimbursed — Institutional		(15	)		(14	)		(15	)		(14	)		(15	)
Less transfer agent fees reimbursed — Investor A		(14	)		(14	)		(15	)		(15	)		(26	)
Less transfer agent fees reimbursed — Class K		(346	)		(346	)		(346	)		(345	)		(345	)
Less expenses reimbursed by advisor		(74,627	)		(73,539	)		(73,269	)		(73,241	)		(73,402	)
Total expenses after fees waived and reimbursed		45			45			44			44			45
Net investment income		32,734			30,013			28,408			27,262			26,244
Realized and Unrealized Gain (Loss) Allocated from the Master Portfolios
Net realized loss from investments, financial futures contracts and foreign currency transactions		(24,166	)		(35,916	)		(38,267	)		(41,867	)		(45,187	)
Net change in unrealized appreciation/depreciation on investments, financial futures contracts and foreign currency transactions		(21,257	)		(69,724	)		(92,902	)		(111,767	)		(129,432	)
Total realized and unrealized loss		(45,423	)		(105,640	)		(131,169	)		(153,634	)		(174,619	)
Net Decrease in Net Assets Resulting from Operations	$	(12,689	)	$	(75,627	)	$	(102,761	)	$	(126,372	)	$	(148,375	)

¹  Commencement of operations.

See Notes to Financial Statements.
18	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Operations (concluded) BlackRock Funds III

Period May 31, 20111 to December 31, 2011	LifePath Index 2040 Portfolio			LifePath Index 2045 Portfolio			LifePath Index 2050 Portfolio			LifePath Index 2055 Portfolio
Investment Income
Net investment income allocated from the applicable Master Portfolio:
Interest	$	4,705		$	3,167		$	1,251		$	617
Dividends		22,699			23,315			24,648			25,003
Securities lending — affiliated		90			43			103			106
Income — affiliated		7			7			7			7
Expenses		(41,307	)		(41,424	)		(41,483	)		(41,420	)
Fees waived		39,153			39,218			39,236			39,190
Total income		25,347			24,326			23,762			23,503
Expenses
Administration		322			319			317			315
Service — Investor A		34			33			37			33
Registration		106			106			106			106
Transfer agent — Institutional		19			19			19			19
Transfer agent — Investor A		19			19			44			19
Transfer agent — Class K		346			346			346			346
Professional		22,528			22,528			22,528			22,528
Organization and offering		35,971			35,891			35,875			35,833
Printing		7,999			7,999			7,999			7,999
Miscellaneous		6,545			6,546			6,546			6,546
Total expenses		73,889			73,806			73,817			73,744
Less administration fees waived		(322	)		(319	)		(317	)		(315	)
Less transfer agent fees reimbursed — Institutional		(15	)		(15	)		(14	)		(15	)
Less transfer agent fees reimbursed — Investor A		(15	)		(15	)		(39	)		(14	)
Less transfer agent fees reimbursed — Class K		(345	)		(345	)		(346	)		(345	)
Less expenses reimbursed by advisor		(73,150	)		(73,070	)		(73,055	)		(73,013	)
Total expenses after fees waived and reimbursed		42			42			46			42
Net investment income		25,305			24,284			23,716			23,461
Realized and Unrealized Gain (Loss) Allocated from the Master Portfolios
Net realized loss from investments, financial futures contracts and foreign currency transactions		(50,650	)		(56,467	)		(58,176	)		(64,676	)
Net change in unrealized appreciation/depreciation on investments, financial futures contracts and foreign currency transactions		(143,605	)		(157,171	)		(173,300	)		(178,355	)
Total realized and unrealized loss		(194,255	)		(213,638	)		(231,476	)		(243,031	)
Net Decrease in Net Assets Resulting from Operations	$	(168,950	)	$	(189,354	)	$	(207,760	)	$	(219,570	)

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	19

Statements of Changes in Net Assets BlackRock Funds III

	LifePath Index Retirement Portfolio			LifePath Index 2020 Portfolio
Increase (Decrease) in Net Assets:	Period May 31, 20111 to December 31, 2011			Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	32,734		$	30,013
Net realized loss		(24,166	)		(35,916	)
Net change in unrealized appreciation/depreciation		(21,257	)		(69,724	)
Net decrease in net assets resulting from operations		(12,689	)		(75,627	)
Dividends to Shareholders From
Net investment income:
Institutional		(396	)		(339	)
Investor A		(360	)		(305	)
Class K		(31,237	)		(26,866	)
Return of capital:
Institutional		(18	)		(22	)
Investor A		(18	)		(21	)
Class K		(1,409	)		(1,670	)
Decrease in net assets resulting from dividends to shareholders		(33,438	)		(29,223	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		2,000,000			2,000,000
Net Assets
Total increase in net assets		1,953,873			1,895,150
Beginning of period		—			—
End of period	$	1,953,873		$	1,895,150
Undistributed (distributions in excess of) net investment income	$	(293	)	$	838

¹  Commencement of operations.

See Notes to Financial Statements.
20	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Changes in Net Assets (continued) BlackRock Funds III

	LifePath Index 2025 Portfolio			LifePath Index 2030 Portfolio
Increase (Decrease) in Net Assets:	Period May 31, 20111 to December 31, 2011			Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	28,408		$	27,262
Net realized loss		(38,267	)		(41,867	)
Net change in unrealized appreciation/depreciation		(92,902	)		(111,767	)
Net decrease in net assets resulting from operations		(102,761	)		(126,372	)
Dividends to Shareholders From
Net investment income:
Institutional		(318	)		(297	)
Investor A		(282	)		(262	)
Class K		(25,086	)		(23,449	)
Return of capital:
Institutional		(21	)		(22	)
Investor A		(22	)		(23	)
Class K		(1,681	)		(1,758	)
Decrease in net assets resulting from dividends to shareholders		(27,410	)		(25,811	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		2,000,000			2,000,000
Net Assets
Total increase in net assets		1,869,829			1,847,817
Beginning of period		—			—
End of period	$	1,869,829		$	1,847,817
Undistributed net investment income	$	784		$	1,074

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	21

Statements of Changes in Net Assets (continued) BlackRock Funds III

	LifePath Index 2035 Portfolio			LifePath Index 2040 Portfolio
Increase (Decrease) in Net Assets:	Period May 31, 20111 to December 31, 2011			Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	26,244		$	25,305
Net realized loss		(45,187	)		(50,650	)
Net change in unrealized appreciation/depreciation		(129,432	)		(143,605	)
Net decrease in net assets resulting from operations		(148,375	)		(168,950	)
Dividends to Shareholders From
Net investment income:
Institutional		(278	)		(261	)
Investor A		(244	)		(228	)
Class K		(22,007	)		(20,677	)
Return of capital:
Institutional		(23	)		(24	)
Investor A		(23	)		(24	)
Class K		(1,774	)		(1,887	)
Decrease in net assets resulting from dividends to shareholders		(24,349	)		(23,101	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		2,000,136			2,000,000
Net Assets
Total increase in net assets		1,827,412			1,807,949
Beginning of period		—			—
End of period	$	1,827,412		$	1,807,949
Undistributed net investment income	$	1,319		$	1,542

¹  Commencement of operations.

See Notes to Financial Statements.
22	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Changes in Net Assets (continued) BlackRock Funds III

	LifePath Index 2045 Portfolio			LifePath Index 2050 Portfolio
Increase (Decrease) in Net Assets:	Period May 31, 20111 to December 31, 2011			Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	24,284		$	23,716
Net realized loss		(56,467	)		(58,176	)
Net change in unrealized appreciation/depreciation		(157,171	)		(173,300	)
Net decrease in net assets resulting from operations		(189,354	)		(207,760	)
Dividends to Shareholders From
Net investment income:
Institutional		(243	)		(230	)
Investor A		(210	)		(225	)
Class K		(19,310	)		(18,343	)
Return of capital:
Institutional		(25	)		(26	)
Investor A		(25	)		(28	)
Class K		(1,935	)		(1,984	)
Decrease in net assets resulting from dividends to shareholders		(21,748	)		(20,836	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		2,000,000			2,003,110
Net Assets
Total increase in net assets		1,788,898			1,774,514
Beginning of period		—			—
End of period	$	1,788,898		$	1,774,514
Undistributed net investment income	$	1,740		$	1,952

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	23

Statements of Changes in Net Assets (concluded) BlackRock Funds III

	LifePath Index 2055 Portfolio
Increase (Decrease) in Net Assets:	Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	23,461
Net realized loss		(64,676	)
Net change in unrealized appreciation/depreciation		(178,355	)
Net decrease in net assets resulting from operations		(219,570	)
Dividends to Shareholders From
Net investment income:
Institutional		(226	)
Investor A		(194	)
Class K		(17,983	)
Return of capital:
Institutional		(26	)
Investor A		(25	)
Class K		(1,982	)
Decrease in net assets resulting from dividends to shareholders		(20,436	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		2,000,000
Net Assets
Total increase in net assets		1,759,994
Beginning of period		—
End of period	$	1,759,994
Undistributed net investment income	$	2,003

¹  Commencement of operations.

See Notes to Financial Statements.
24	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights LifePath Index Retirement Portfolio

	Period May 31, 20111  to December 31, 2011
	Institutional			Investor A			Class K
Per Share Operating Performance
Net asset value, beginning of period	$	10.00		$	10.00		$	10.00
Net investment income2		0.16			0.15			0.16
Net realized and unrealized loss		(0.22	)		(0.23	)		(0.22	)
Net decrease from investment operations		(0.06	)		(0.08	)		(0.06	)
Dividends from:
Net investment income		(0.16	)		(0.14	)		(0.16	)
Return of capital		(0.01	)		(0.01	)		(0.01	)
Total dividends		(0.17	)		(0.15	)		(0.17	)
Net asset value, end of period	$	9.77		$	9.77		$	9.77
Total Investment Return3,4
Based on net asset value		(0.61	)%		(0.76	)%		(0.59	)%
Ratios to Average Net Assets5,6,7,8
Total expenses		6.81%	9		7.06%	9		6.71%	9
Total expenses after fees waived		0.18%			0.43%			0.15%
Net investment income		2.84%			2.58%			2.87%
Supplemental Data
Net assets, end of period (000)	$	24		$	24		$	1,905
Portfolio turnover of the Master Portfolio		1%			1%			1%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Index Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.37%, 3.37% and 3.38% for Institutional, Investor A and Class K Shares, respectively.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.04%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses for Institutional, Investor A and Class K would have been 6.84%, 7.10% and 6.74%, respectively.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	25

Financial Highlights (continued) LifePath Index 2020 Portfolio

	Period May 31, 20111  to December 31, 2011
	Institutional			Investor A			Class K
Per Share Operating Performance
Net asset value, beginning of period	$	10.00		$	10.00		$	10.00
Net investment income2		0.15			0.13			0.15
Net realized and unrealized loss		(0.53	)		(0.52	)		(0.52	)
Net decrease from investment operations		(0.38	)		(0.39	)		(0.37	)
Dividends from:
Net investment income		(0.13	)		(0.12	)		(0.14	)
Return of capital		(0.01	)		(0.01	)		(0.01	)
Total dividends		(0.14	)		(0.13	)		(0.15	)
Net asset value, end of period	$	9.48		$	9.48		$	9.48
Total Investment Return3,4
Based on net asset value		(3.72	)%		(3.87	)%		(3.71	)%
Ratios to Average Net Assets5,6,7,8
Total expenses		6.91%	9		7.16%	9		6.81%	9
Total expenses after fees waived		0.20%			0.46%			0.18%
Net investment income		2.66%			2.42%			2.70%
Supplemental Data
Net assets, end of period (000)	$	24		$	24		$	1,848
Portfolio turnover of the Master Portfolio		1%			1%			1%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Index Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.48%, 3.48% and 3.48% for Institutional, Investor A and Class K Shares, respectively.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.05%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses for Institutional, Investor A and Class K would have been 6.94%, 7.19% and 6.84%, respectively.

See Notes to Financial Statements.
26	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath Index 2025 Portfolio

	Period May 31, 20111  to December 31, 2011
	Institutional			Investor A			Class K
Per Share Operating Performance
Net asset value, beginning of period	$	10.00		$	10.00		$	10.00
Net investment income2		0.14			0.13			0.14
Net realized and unrealized loss		(0.65	)		(0.66	)		(0.65	)
Net decrease from investment operations		(0.51	)		(0.53	)		(0.51	)
Dividends from:
Net investment income		(0.13	)		(0.11	)		(0.13	)
Return of capital		(0.01	)		(0.01	)		(0.01	)
Total dividends		(0.14	)		(0.12	)		(0.14	)
Net asset value, end of period	$	9.35		$	9.35		$	9.35
Total Investment Return3,4
Based on net asset value		(5.12	)%		(5.26	)%		(5.10	)%
Ratios to Average Net Assets5,6,7,8
Total expenses		6.97%	9		7.22%	9		6.87%	9
Total expenses after fees waived		0.21%			0.46%			0.18%
Net investment income		2.55%			2.30%			2.58%
Supplemental Data
Net assets, end of period (000)	$	23		$	23		$	1,823
Portfolio turnover of the Master Portfolio		0%	10		0%	10		0%	10

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Index Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.53%, 3.53% and 3.53% for Institutional, Investor A and Class K Shares, respectively.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.06%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses for Institutional, Investor A and Class K would have been 6.99%, 7.24% and 6.89%, respectively.

¹⁰  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	27

Financial Highlights (continued) LifePath Index 2030 Portfolio

	Period May 31, 20111  to December 31, 2011
	Institutional			Investor A			Class K
Per Share Operating Performance
Net asset value, beginning of period	$	10.00		$	10.00		$	10.00
Net investment income2		0.13			0.12			0.14
Net realized and unrealized loss		(0.76	)		(0.77	)		(0.77	)
Net decrease from investment operations		(0.63	)		(0.65	)		(0.63	)
Dividends from:
Net investment income		(0.12	)		(0.10	)		(0.12	)
Return of capital		(0.01	)		(0.01	)		(0.01	)
Total dividends		(0.13	)		(0.11	)		(0.13	)
Net asset value, end of period	$	9.24		$	9.24		$	9.24
Total Investment Return3,4
Based on net asset value		(6.30	)%		(6.44	)%		(6.28	)%
Ratios to Average Net Assets5,6,7,8
Total expenses		7.04%	9		7.29%	9		6.94%	9
Total expenses after fees waived		0.22%			0.47%			0.19%
Net investment income		2.47%			2.22%			2.50%
Supplemental Data
Net assets, end of period (000)	$	23		$	23		$	1,802
Portfolio turnover of the Master Portfolio		0%	10		0%	10		0%	10

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Index Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.57%, 3.57% and 3.57% for Institutional, Investor A and Class K Shares, respectively.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.06%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses for Institutional, Investor A and Class K would have been 7.06%, 7.32% and 6.96%, respectively.

¹⁰  Rounds to less than 1%.

See Notes to Financial Statements.
28	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath Index 2035 Portfolio

	Period May 31, 20111 to December 31, 2011
	Institutional			Investor A			Class K
Per Share Operating Performance
Net asset value, beginning of period	$	10.00		$	10.00		$	10.00
Net investment income2		0.13			0.12			0.13
Net realized and unrealized loss		(0.87	)		(0.87	)		(0.87	)
Net decrease from investment operations		(0.74	)		(0.75	)		(0.74	)
Dividends from:
Net investment income		(0.11	)		(0.10	)		(0.11	)
Return of capital		(0.01	)		(0.01	)		(0.01	)
Total dividends		(0.12	)		(0.11	)		(0.12	)
Net asset value, end of period	$	9.14		$	9.14		$	9.14
Total Investment Return3,4
Based on net asset value		(7.37	)%		(7.52	)%		(7.35	)%
Ratios to Average Net Assets5,6,7,8
Total expenses		7.12%	9		7.47%	9		7.02%	9
Total expenses after fees waived		0.23%			0.48%			0.19%
Net investment income		2.40%			2.14%			2.43%
Supplemental Data
Net assets, end of period (000)	$	23		$	23		$	1,782
Portfolio turnover of the Master Portfolio		0%	10		0%	10		0%	10

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Index Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.61%, 3.61% and 3.61% for Institutional, Investor A and Class K Shares, respectively.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.06%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses for Institutional, Investor A and Class K would have been 7.15%, 7.50% and 7.05%, respectively.

¹⁰  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	29

Financial Highlights (continued) LifePath Index 2040 Portfolio

	Period May 31, 20111 to December 31, 2011
	Institutional			Investor A			Class K
Per Share Operating Performance
Net asset value, beginning of period	$	10.00		$	10.00		$	10.00
Net investment income2		0.13			0.11			0.13
Net realized and unrealized loss		(0.98	)		(0.97	)		(0.97	)
Net decrease from investment operations		(0.85	)		(0.86	)		(0.84	)
Dividends from:
Net investment income		(0.10	)		(0.09	)		(0.11	)
Return of capital		(0.01	)		(0.01	)		(0.01	)
Total dividends		(0.11	)		(0.10	)		(0.12	)
Net asset value, end of period	$	9.04		$	9.04		$	9.04
Total Investment Return3,4
Based on net asset value		(8.44	)%		(8.58	)%		(8.42	)%
Ratios to Average Net Assets5,6,7,8
Total expenses		7.17%	9		7.42%	9		7.06%	9
Total expenses after fees waived		0.23%			0.48%			0.20%
Net investment income		2.34%			2.08%			2.36%
Supplemental Data
Net assets, end of period (000)	$	23		$	23		$	1,763
Portfolio turnover of the Master Portfolio		0%	10		0%	10		0%	10

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Index Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.65%, 3.65% and 3.65% for Institutional, Investor A and Class K Shares, respectively.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.07%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses for Institutional, Investor A and Class K would have been 7.19%, 7.45% and 7.09%, respectively.

¹⁰  Rounds to less than 1%.

See Notes to Financial Statements.
30	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) LifePath Index 2045 Portfolio

	Period May 31, 20111 to December 31, 2011
	Institutional			Investor A			Class K
Per Share Operating Performance
Net asset value, beginning of period	$	10.00		$	10.00		$	10.00
Net investment income2		0.12			0.11			0.12
Net realized and unrealized loss		(1.07	)		(1.08	)		(1.07	)
Net decrease from investment operations		(0.95	)		(0.97	)		(0.95	)
Dividends from:
Net investment income		(0.10	)		(0.08	)		(0.10	)
Return of capital		(0.01	)		(0.01	)		(0.01	)
Total dividends		(0.11	)		(0.09	)		(0.11	)
Net asset value, end of period	$	8.94		$	8.94		$	8.94
Total Investment Return3,4
Based on net asset value		(9.51	)%		(9.64	)%		(9.49	)%
Ratios to Average Net Assets5,6,7,8
Total expenses		7.23%	9		7.48%	9		7.12%	9
Total expenses after fees waived		0.24%			0.49%			0.21%
Net investment income		2.26%			2.00%			2.29%
Supplemental Data
Net assets, end of period (000)	$	22		$	22		$	1,744
Portfolio turnover of the Master Portfolio		0%	10		0%	10		0%	10

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Index Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.69%, 3.69% and 3.69% for Institutional, Investor A and Class K Shares, respectively.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.07%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses for Institutional, Investor A and Class K would have been 7.25%, 7.50% and 7.15%, respectively.

¹⁰  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	31

Financial Highlights (continued) LifePath Index 2050 Portfolio

	Period May 31, 20111 to December 31, 2011
	Institutional			Investor A			Class K
Per Share Operating Performance
Net asset value, beginning of period	$	10.00		$	10.00		$	10.00
Net investment income2		0.12			0.10			0.12
Net realized and unrealized loss		(1.16	)		(1.15	)		(1.16	)
Net decrease from investment operations		(1.04	)		(1.05	)		(1.04	)
Dividends from:
Net investment income		(0.09	)		(0.08	)		(0.09	)
Return of capital		(0.01	)		(0.01	)		(0.01	)
Total dividends		(0.10	)		(0.09	)		(0.10	)
Net asset value, end of period	$	8.86		$	8.86		$	8.86
Total Investment Return3,4
Based on net asset value		(10.36	)%		(10.49	)%		(10.34	)%
Ratios to Average Net Assets5,6,7,8
Total expenses		7.27%	9		7.69%	9		7.17%	9
Total expenses after fees waived		0.24%			0.49%			0.21%
Net investment income		2.22%			1.97%			2.25%
Supplemental Data
Net assets, end of period (000)	$	22		$	25		$	1,727
Portfolio turnover of the Master Portfolio		0%	10		0%	10		0%	10

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Index Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.71%, 3.71% and 3.71% for Institutional, Investor A and Class K Shares, respectively.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.07%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses for Institutional, Investor A and Class K would have been 7.30%, 7.71% and 7.19%, respectively.

¹⁰  Rounds to less than 1%.

See Notes to Financial Statements.
32	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (concluded) LifePath Index 2055 Portfolio

	Period May 31, 20111 to December 31, 2011
	Institutional			Investor A			Class K
Per Share Operating Performance
Net asset value, beginning of period	$	10.00		$	10.00		$	10.00
Net investment income2		0.12			0.10			0.12
Net realized and unrealized loss		(1.22	)		(1.21	)		(1.22	)
Net decrease from investment operations		(1.10	)		(1.11	)		(1.10	)
Dividends from:
Net investment income		(0.09	)		(0.08	)		(0.09	)
Return of capital		(0.01	)		(0.01	)		(0.01	)
Total dividends		(0.10	)		(0.09	)		(0.10	)
Net asset value, end of period	$	8.80		$	8.80		$	8.80
Total Investment Return3,4
Based on net asset value		(10.98	)%		(11.11	)%		(10.96	)%
Ratios to Average Net Assets5,6,7,8
Total expenses		7.32%	9		7.57%	9		7.21%	9
Total expenses after fees waived		0.24%			0.49%			0.21%
Net investment income		2.21%			1.95%			2.24%
Supplemental Data
Net assets, end of period (000)	$	22		$	22		$	1,716
Portfolio turnover of the Master Portfolio		0%	10		0%	10		0%	10

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Where applicable, total investment returns exclude the effects of any sales charges and include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the LifePath Index Portfolio’s share of its corresponding Master Portfolio’s allocated net expenses and/or net investment income.

⁶  Annualized.

⁷  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.73%, 3.73% and 3.74% for Institutional, Investor A and Class K Shares, respectively.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.08%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses for Institutional, Investor A and Class K would have been 7.34%, 7.59% and 7.22%, respectively.

¹⁰  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	33

Notes to Financial Statements BlackRock Funds III

1. Organization and Significant Accounting Policies:

BlackRock Funds III (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 Delaware statutory trust. The LifePath Index Portfolios’ financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The financial statements and these accompanying notes relate to nine series of the Trust: LifePath Index Retirement Portfolio, LifePath Index 2020 Portfolio, LifePath Index 2025 Portfolio, LifePath Index 2030 Portfolio, LifePath Index 2035 Portfolio, LifePath Index 2040 Portfolio, LifePath Index 2045 Portfolio, LifePath Index 2050 Portfolio and LifePath Index 2055 Portfolio (each, a “LifePath Index Portfolio” and collectively, the “LifePath Index Portfolios”). Each LifePath Index Portfolio seeks to achieve its investment objective by investing substantially all of its assets in a separate series of Master Investment Portfolio (“MIP”): LifePath Index Retirement Master Portfolio, LifePath Index 2020 Master Portfolio, LifePath Index 2025 Master Portfolio, LifePath Index 2030 Master Portfolio, LifePath Index 2035 Master Portfolio, LifePath Index 2040 Master Portfolio, LifePath Index 2045 Master Portfolio, LifePath Index 2050 Master Portfolio and LifePath Index 2055 Master Portfolio (each, a “LifePath Index Master Portfolio” and collectively, the “Master Portfolios”). Each Master Portfolio has the same or substantially similar investment objective as its corresponding LifePath Index Portfolio. The performance of a LifePath Index Portfolio is directly affected by the performance of its corresponding Master Portfolio.

The value of each LifePath Index Portfolio’s investment in its corresponding Master Portfolio reflects that LifePath Index Portfolio’s proportionate interest in the net assets of that Master Portfolio (99.50% for each of the Master Portfolios respectively, as of December 31, 2011).

Each LifePath Index Index Portfolio offers multiple classes of shares. Institutional, Investor A and Class K Shares are sold without a sales charge. Institutional and Class K Shares are available only to certain eligible investors. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Investor A Shares bear certain expenses related to the shareholder servicing of such shares. Each class has exclusive voting rights with respect to matters relating to its shareholder servicing and distribution expenditures.

The following is a summary of significant accounting policies followed by the LifePath Index Portfolios:

Valuation: US GAAP defines fair value as the price each LifePath Index Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The LifePath Index Portfolios’ policy is to fair value their financial instruments at market value. The LifePath Index Portfolios record their investments in the Master Portfolio at fair value based on the LifePath Index Portfolio’s proportionate interest in the net assets of the Master Portfolio. Valuation of securities held by the Master Portfolio is discussed in Note 1

of the Master Portfolios’ Notes to Financial Statements, which are included elsewhere in this report.

Investment Transactions and Investment Income: For financial reporting purposes, contributions to and withdrawals from each Master Portfolio are accounted on a trade date basis. Each LifePath Index Portfolio records daily its proportionate share of its Master Portfolio’s income, expenses and realized and unrealized gains and losses. In addition, each LifePath Index Portfolio accrues its own expenses. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Dividends and Distributions: Dividends from net investment income are declared and paid quarterly. Distributions of capital gains are recorded on the ex-dividend dates. If the total dividends and distributions made in any tax year exceeds net investment income and accumulated realized capital gains, a portion of the total distribution may be treated as a tax return of capital. The amount and timing of dividends and distributions are determined in accordance with federal income tax regulations, which may differ from US GAAP.

Income Taxes: It is the LifePath Index Portfolios’ 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 federal income tax provision is required.

Each LifePath Index Portfolio files US federal and various state and local tax returns. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.

Organization and Offering Costs: Upon commencement of operations, organization costs associated with the establishment of the LifePath Index Portfolios were expensed by the LifePath Index Portfolios and reimbursed by BlackRock Fund Advisors (“BFA”), the investment manager for the Master Portfolios. Offering costs associated with the establishment of each LifePath Index Portfolio are amortized over a 12-month period beginning with the commencement of operations. BFA reimbursed the LifePath Index Portfolios which are shown as expenses reimbursed by advisor in the Statements of Operations, for the following amounts:

LifePath Index Retirement Portfolio	$	74,627
LifePath Index 2020 Portfolio	$	73,539
LifePath Index 2025 Portfolio	$	73,269
LifePath Index 2030 Portfolio	$	73,241
LifePath Index 2035 Portfolio	$	73,402
LifePath Index 2040 Portfolio	$	73,150
LifePath Index 2045 Portfolio	$	73,070
LifePath Index 2050 Portfolio	$	73,055
LifePath Index 2055 Portfolio	$	73,013

Other: Expenses directly related to a LifePath Index Portfolio or its classes are charged to that LifePath Index Portfolio or class. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods. Other expenses of the LifePath Index Portfolio are allocated daily to each class based on its relative net assets.

34 BLACKROCK FUNDS III DECEMBER 31, 2011

Notes to Financial Statements (continued) BlackRock Funds III

2. Administration Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”). Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

The Trust entered into an administration services arrangement with BlackRock Institutional Trust Company, N.A. (“BTC”), which has agreed to provide general administration services (other than investment advice and related portfolio activities). BTC is entitled to receive for these administration services an annual fee of 0.03% based on the average daily net assets of each LifePath Index Portfolio.

From time to time, BTC may waive such fees in whole or in part. Any such waiver will reduce the expenses of a LifePath Index Portfolio and, accordingly, have a favorable impact on its performance. BTC may delegate certain of its administration duties to sub-administrators.

BFA and BTC contractually agreed to waive and/or reimburse fees or expenses, excluding interest expense, dividend expense, acquired fund fees and expenses and certain other fund expenses, in order to limit expenses. The expense limitations as a percentage of average daily net assets are as follows: 0.10% for Institutional, 0.35% for Investor A and 0.05% for Class K Shares until June 1, 2012. A LifePath Index Portfolio may have to repay some of these waivers and reimbursements to BTC in the following two years. The agreement may be terminated upon 90 days notice by a majority of the non-interested trustees of the Trust or by a vote of majority of the outstanding voting shares. These amounts are included in expenses reimbursed by advisor, and shown as transfer agent fees reimbursed – class specific, respectively, in the Statements of Operations.

For the period ended December 31, 2011, the amounts included in fees reimbursed by advisor were as follows:

LifePath Index Retirement Portfolio..	$	375
LifePath Index 2020 Portfolio	$	374
LifePath Index 2025 Portfolio	$	376
LifePath Index 2030 Portfolio	$	374
LifePath Index 2035 Portfolio	$	386
LifePath Index 2040 Portfolio	$	375
LifePath Index 2045 Portfolio	$	375
LifePath Index 2050 Portfolio	$	399
LifePath Index 2055 Portfolio	$	374

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

The LifePath Index Portfolios entered into a Distribution Agreement and Distribution Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of BFA. Pursuant to the Distribution Plan and in accordance with Rule 12b-1 under the 1940 Act, the LifePath Index Portfolios pay BRIL ongoing service and distribution fees. The fees are accrued daily and paid monthly at annual rate of 0.25% based upon the average daily net assets of the Investor A Share class.

Pursuant to sub-agreements with BRIL, broker-dealers and BRIL provide shareholder servicing services to each LifePath Index Portfolio. The ongoing service and/or distribution fee compensates BRIL and each broker-dealer for providing shareholder servicing and/or distribution related services to Investor A shareholders.

Certain officers and/or trustees of the Trust are officers and/or directors of BlackRock or its affiliates. The LifePath Index Portfolios reimburse BTC for compensation paid to the LifePath Index Portfolios’ Chief Compliance Officer.

3. Income Tax Information:

US GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The following permanent differences as of December 31, 2011 attributable to foreign currency transactions were reclassified to the following accounts:

	LifePath Index Retirement Portfolio			LifePath Index 2020 Portfolio			LifePath Index 2025 Portfolio			LifePath Index 2030 Portfolio			LifePath Index 2035 Portfolio
Undistributed (distributions in excess of) net investment income	$	(1,034	)	$	(1,665	)	$	(1,938	)	$	(2,180	)	$	(2,396	)
Accumulated net realized loss	$	1,034		$	1,665		$	1,938		$	2,180		$	2,396

	LifePath Index 2040 Portfolio			LifePath Index 2045 Portfolio			LifePath Index 2050 Portfolio			LifePath Index 2055 Portfolio
Undistributed (distributions in excess of) net investment income	$	(2,597	)	$	(2,781	)	$	(2,966	)	$	(3,055	)
Accumulated net realized loss	$	2,597		$	2,781		$	2,966		$	3,055

BLACKROCK FUNDS III DECEMBER 31, 2011 35

Notes to Financial Statements (continued) BlackRock Funds III

The tax character of distributions paid during the fiscal year ended December 31, 2011 was as follows:

	LifePath Index Retirement Portfolio		LifePath Index 2020 Portfolio		LifePath Index 2025 Portfolio		LifePath Index 2030 Portfolio		LifePath Index 2035 Portfolio
Ordinary income	$	31,993	$	27,510	$	25,686	$	24,008	$	22,529
Tax return of capital		1,445		1,713		1,724		1,803		1,820
Total	$	33,438	$	29,223	$	27,410	$	25,811	$	24,349

	LifePath Index 2040 Portfolio		LifePath Index 2045 Portfolio		LifePath Index 2050 Portfolio		LifePath Index 2055 Portfolio
Ordinary income	$	21,166	$	19,763	$	18,798	$	18,403
Tax return of capital		1,935		1,985		2,038		2,033
Total	$	23,101	$	21,748	$	20,836	$	20,436

As of December 31, 2011, the tax components of accumulated net losses were as follows:

	LifePath Index Retirement Portfolio			LifePath Index 2020 Portfolio			LifePath Index 2025 Portfolio			LifePath Index 2030 Portfolio			LifePath Index 2035 Portfolio
Capital loss carryforwards	$	(17,339	)	$	(22,825	)	$	(25,169	)	$	(27,192	)	$	(29,014	)
Net unrealized losses*		(24,830	)		(76,411	)		(99,114	)		(118,720	)		(137,134	)
Qualified late-year losses**		(2,513	)		(3,901	)		(4,164	)		(4,468	)		(4,756	)
Total	$	(44,682	)	$	(103,137	)	$	(128,447	)	$	(150,380	)	$	(170,904	)

	LifePath Index 2040 Portfolio			LifePath Index 2045 Portfolio			LifePath Index 2050 Portfolio			LifePath Index 2055 Portfolio
Capital loss carryforwards	$	(30,742	)	$	(29,377	)	$	(34,324	)	$	(38,294	)
Net unrealized losses*		(154,330	)		(171,281	)		(186,437	)		(184,956	)
Qualified late-year losses**		(5,044	)		(8,459	)		(5,797	)		(14,723	)
Total	$	(190,116	)	$	(209,117	)	$	(226,558	)	$	(237,973	)

  * The differences between book-basis and tax-basis net unrealized losses were attributable primarily to the timing and recognition of partnership income.

** The LifePath Index Portfolios have elected to defer certain qualified late-year losses and recognize such losses in the year ending December 31, 2012.

As of December 31, 2011, the LifePath Index Portfolios had capital loss carryforwards with no expiration dates, available to offset future realized capital gains as follows:

LifePath Index Retirement Portfolio	$	17,339
LifePath Index 2020 Portfolio	$	22,825
LifePath Index 2025 Portfolio	$	25,169
LifePath Index 2030 Portfolio	$	27,192
LifePath Index 2035 Portfolio	$	29,014
LifePath Index 2040 Portfolio	$	30,742
LifePath Index 2045 Portfolio	$	29,377
LifePath Index 2050 Portfolio	$	34,324
LifePath Index 2055 Portfolio	$	38,294

36 BLACKROCK FUNDS III DECEMBER 31, 2011

Notes to Financial Statements (continued) BlackRock Funds III

4. Capital Share Transactions:

Transactions in capital shares for each class were as follows:

LifePath Index Retirement Portfolio	Period May 31, 20111 to December 31, 2011
	Shares		Amount
Institutional
Shares sold		2,500	$	25,000
Net increase		2,500	$	25,000
Investor A
Shares sold		2,500	$	25,000
Net increase		2,500	$	25,000
Class K
Shares sold		195,000	$	1,950,000
Net increase		195,000	$	1,950,000

¹  Commencement of operations.

LifePath Index 2020 Portfolio	Period May 31, 20111 to December 31, 2011
	Shares		Amount
Institutional
Shares sold		2,500	$	25,000
Net increase		2,500	$	25,000
Investor A
Shares sold		2,500	$	25,000
Net increase		2,500	$	25,000
Class K
Shares sold		195,000	$	1,950,000
Net increase		195,000	$	1,950,000

¹  Commencement of operations.

	Period May 31, 20111 to December 31, 2011
LifePath Index 2025 Portfolio	Shares		Amount
Institutional
Shares sold		2,500	$	25,000
Net increase		2,500	$	25,000
Investor A
Shares sold		2,500	$	25,000
Net increase		2,500	$	25,000
Class K
Shares sold		195,000	$	1,950,000
Net increase		195,000	$	1,950,000

¹ Commencement of operations.

	Period May 31, 20111 to December 31, 2011
LifePath Index 2030 Portfolio	Shares		Amount
Institutional
Shares sold		2,500	$	25,000
Net increase		2,500	$	25,000
Investor A
Shares sold		2,500	$	25,000
Net increase		2,500	$	25,000
Class K
Shares sold		195,000	$	1,950,000
Net increase		195,000	$	1,950,000

¹  Commencement of operations.

	Period May 31, 20111 to December 31, 2011
LifePath Index 2035 Portfolio	Shares			Amount
Institutional
Shares sold		2,500		$	25,000
Net increase		2,500		$	25,000
Investor A
Shares sold		2,515		$	25,151
Shares redeemed		(2	)		(15	)
Net increase		2,513		$	25,136
Class K
Shares sold		195,000		$	1,950,000
Net increase		195,000		$	1,950,000

¹ Commencement of operations.

	Period May 31, 20111 to December 31, 2011
LifePath Index 2040 Portfolio	Shares		Amount
Institutional
Shares sold		2,500	$	25,000
Net increase		2,500	$	25,000
Investor A
Shares sold		2,500	$	25,000
Net increase		2,500	$	25,000
Class K
Shares sold		195,000	$	1,950,000
Net increase		195,000	$	1,950,000

¹ Commencement of operations.

BLACKROCK FUNDS III DECEMBER 31, 2011 37

Notes to Financial Statements (concluded) BlackRock Funds III

	Period May 31, 20111 to December 31, 2011
LifePath Index 2045 Portfolio	Shares		Amount
Institutional
Shares sold		2,500	$	25,000
Net increase		2,500	$	25,000
Investor A
Shares sold		2,500	$	25,000
Net increase		2,500	$	25,000
Class K
Shares sold		195,000	$	1,950,000
Net increase		195,000	$	1,950,000

¹ Commencement of operations.

	Period May 31, 20111 to December 31, 2011
LifePath Index 2050 Portfolio	Shares			Amount
Institutional
Shares sold		2,500		$	25,000
Net increase		2,500		$	25,000
Investor A
Shares sold		2,830		$	28,096
Shares issued to shareholders in reinvestment of dividends and distributions		3			29
Shares redeemed		(2	)		(15	)
Net increase		2,831		$	28,110
Class K
Shares sold		195,000		$	1,950,000
Net increase		195,000		$	1,950,000

¹ Commencement of operations.

	Period May 31, 20111 to December 31, 2011
LifePath Index 2055 Portfolio	Shares		Amount
Institutional
Shares sold		2,500	$	25,000
Net increase		2,500	$	25,000
Investor A
Shares sold		2,500	$	25,000
Net increase		2,500	$	25,000
Class K
Shares sold		195,000	$	1,950,000
Net increase		195,000	$	1,950,000

¹ Commencement of operations.

5. Subsequent Events:

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

38 BLACKROCK FUNDS III DECEMBER 31, 2011

Report of Independent Registered Public Accounting Firm BlackRock Funds III

To the Shareholders and Board of Trustees of

BlackRock Funds III:

In our opinion, the accompanying statements of assets and liabilities, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the LifePath Index Retirement Portfolio, LifePath Index 2020 Portfolio, LifePath Index 2025 Portfolio, LifePath Index 2030 Portfolio, LifePath Index 2035 Portfolio, LifePath Index 2040 Portfolio, LifePath Index 2045 Portfolio, LifePath Index 2050 Portfolio and LifePath Index 2055 Portfolio (together, the “Portfolios”), each a series of BlackRock Funds III, at December 31, 2011, the results of each of their operations and the changes in each of their net assets and the financial highlights for the period May 31, 2011 (commencement of operations) through December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are

the responsibility of the Portfolios’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 24, 2012

Important Tax Information (Unaudited)

The following information is provided with respect to the ordinary income distributions paid during the taxable year ended December 31, 2011.

	Period		LifePath Index Retirement Portfolio			LifePath Index 2020 Portfolio			LifePath Index 2025 Portfolio			LifePath Index 2030 Portfolio			LifePath Index 2035 Portfolio			LifePath Index 2040 Portfolio			LifePath Index 2045 Portfolio			LifePath Index 2050 Portfolio			LifePath Index 2055 Portfolio
Qualified Dividend Income for Individuals1		July - December 2011		24.95	%		43.10	%		52.69	%		62.25	%		71.83	%		81.48	%		91.82	%		100.00	%		100.00	%
Dividends Qualifying for the Dividend Received Deduction for Corporations1		July - December 2011		15.78	%		26.63	%		32.39	%		38.04	%		43.77	%		49.48	%		55.74	%		61.27	%		61.17	%
Federal Obligation Interest2		July - December 2011		12.72	%		9.52	%		8.06	%		6.61	%		5.20	%		3.84	%		2.96	%		—			—

¹  The LifePath Portfolios hereby designate the percentage indicated above or the maximum amount allowable by law.

²  The law varies in each state as to whether and what percentage of dividend income attributable to federal obligations is exempt from state income tax. We recommend that you consult your tax advisor to determine if any portion of the dividends you received is exempt from state income taxes.

BLACKROCK FUNDS III DECEMBER 31, 2011 39

Master Portfolio Information as of December 31, 2011 Master Investment Portfolio

LifePath^® Index Retirement Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Fixed Income Funds	62	%
Equity Funds	38
Short-Term Securities	0	1

¹  Rounds to less than 1%.

Portfolio Holdings Percent of
Affiliated Investment Companies

Bond Index Master Portfolio	53	%
Russell 1000® Index Master Portfolio	23
iShares Barclays TIPS Bond Fund	9
Master International Index Series	6
Master Small Cap Index Series	4
iShares MSCI Emerging Markets Index Fund	3
iShares MSCI Canada Index Fund	1
iShares MSCI EAFE Small Cap Index Fund	1

LifePath^® Index 2020 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	56	%
Fixed Income Funds	44
Short-Term Securities	0	1

¹  Rounds to less than 1%.

Portfolio Holdings Percent of
Affiliated Investment Companies

Bond Index Master Portfolio	38	%
Russell 1000® Index Master Portfolio	36
Master International Index Series	10
iShares Barclays TIPS Bond Fund	6
iShares MSCI Emerging Markets Index Fund	4
Master Small Cap Index Series	4
iShares MSCI Canada Index Fund	1
iShares MSCI EAFE Small Cap Index Fund	1

LifePath^® Index 2025 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	64	%
Fixed Income Funds	36
Short-Term Securities	0	1

¹  Rounds to less than 1%.

Portfolio Holdings Percent of
Affiliated Investment Companies

Russell 1000® Index Master Portfolio	41	%
Bond Index Master Portfolio	30
Master International Index Series	12
iShares Barclays TIPS Bond Fund	5
iShares MSCI Emerging Markets Index Fund	4
Master Small Cap Index Series	4
iShares MSCI Canada Index Fund	2
iShares MSCI EAFE Small Cap Index Fund	2

LifePath^® Index 2030 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	72	%
Fixed Income Funds	28
Short-Term Securities	0	1

¹  Rounds to less than 1%.

Portfolio Holdings Percent of
Affiliated Investment Companies

Russell 1000® Index Master Portfolio	46	%
Bond Index Master Portfolio	24
Master International Index Series	13
iShares MSCI Emerging Markets Index Fund	5
iShares Barclays TIPS Bond Fund	4
Master Small Cap Index Series	4
iShares MSCI Canada Index Fund	2
iShares MSCI EAFE Small Cap Index Fund	2

40 BLACKROCK FUNDS III DECEMBER 31, 2011

Master Portfolio Information (concluded) as of December 31, 2011 Master Investment Portfolio

LifePath^® Index 2035 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	79	%
Fixed Income Funds	21
Short-Term Securities	0	1

¹  Rounds to less than 1%.

Portfolio Holdings Percent of
Affiliated Investment Companies

Russell 1000® Index Master Portfolio	51	%
Bond Index Master Portfolio	19
Master International Index Series	15
iShares MSCI Emerging Markets Index Fund	6
Master Small Cap Index Series	3
iShares Barclays TIPS Bond Fund	2
iShares MSCI Canada Index Fund	2
iShares MSCI EAFE Small Cap Index Fund	2

LifePath^® Index 2040 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	85	%
Fixed Income Funds	15
Short-Term Securities	0	1

¹  Rounds to less than 1%.

Portfolio Holdings Percent of
Affiliated Investment Companies

Russell 1000® Index Master Portfolio	55	%
Master International Index Series	16
Bond Index Master Portfolio	14
iShares MSCI Emerging Markets Index Fund	6
Master Small Cap Index Series	3
iShares MSCI Canada Index Fund	2
iShares MSCI EAFE Small Cap Index Fund	2
iShares Barclays TIPS Bond Fund	2

LifePath^® Index 2045 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	91	%
Fixed Income Funds	9
Short-Term Securities	0	1

¹  Rounds to less than 1%.

Portfolio Holdings Percent of
Affiliated Investment Companies

Russell 1000® Index Master Portfolio	59	%
Master International Index Series	18
Bond Index Master Portfolio	9
iShares MSCI Emerging Markets Index Fund	6
Master Small Cap Index Series	3
iShares MSCI Canada Index Fund	3
iShares MSCI EAFE Small Cap Index Fund	2

LifePath^® Index 2050 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	96	%
Fixed Income Funds	4
Short-Term Securities	0	1

¹  Rounds to less than 1%.

Portfolio Holdings Percent of
Affiliated Investment Companies

Russell 1000® Index Master Portfolio	62	%
Master International Index Series	18
iShares MSCI Emerging Markets Index Fund	7
Bond Index Master Portfolio	4
iShares MSCI Canada Index Fund	3
iShares MSCI EAFE Small Cap Index Fund	3
Master Small Cap Index Series	3

LifePath^® Index 2055 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	99	%
Fixed Income Funds	1
Short-Term Securities	0	1

¹  Rounds to less than 1%.

Portfolio Holdings Percent of
Affiliated Investment Companies

Russell 1000® Index Master Portfolio	61	%
Master International Index Series	19
iShares MSCI Emerging Markets Index Fund	7
Master Small Cap Index Series	7
iShares MSCI Canada Index Fund	3
iShares MSCI EAFE Small Cap Index Fund	2
Bond Index Master Portfolio	1

BLACKROCK FUNDS III DECEMBER 31, 2011 41

Schedule of Investments December 31, 2011 LifePath Index Retirement Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 38.2%
ACWI ex-US Index Master Portfolio	$	5,157	$	5,157
iShares MSCI Canada Index Fund		682		18,141
iShares MSCI EAFE Small Cap Index Fund		485		16,859
iShares MSCI Emerging Markets Index Fund		1,290		48,943
Master International Index Series	$	122,801		122,801
Master Small Cap Index Series	$	77,362		77,362
Russell 1000 Index Master Portfolio	$	462,961		462,961
				752,224
Fixed Income Funds — 62.9%
Bond Index Master Portfolio	$	1,055,367		1,055,367
iShares Barclays TIPS Bond Fund		1,556		181,570
				1,236,937

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 0.2%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (b)		5,082	$	5,082
				5,082
Total Affiliated Investment Companies (Cost—$2,015,605*) — 101.3%				1,994,243
Liabilities in Excess of Other Assets — (1.3)%				(25,984	)
Net Assets — 100.0%			$	1,968,259

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	2,015,605
Gross unrealized appreciation	$	50,079
Gross unrealized depreciation		(71,441	)
Net unrealized depreciation	$	(21,362	)

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the period, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/Beneficial Interest Purchased			Shares Sold			Shares/Beneficial Interest Held at December 31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio	$	5,157	1		—		$	5,157	$	5,157		—			—
BlackRock Cash Funds: Institutional, SL Agency Shares		5,082	1		—			5,082	$	5,082		—		$	46
Bond Index Master Portfolio	$	1,055,367	1		—		$	1,055,367	$	1,055,367	$	648		$	19,334
iShares Barclays TIPS Bond Fund		1,643			(87	)		1,556	$	181,570	$	297		$	5,140
iShares MSCI Canada Index Fund		682			—			682	$	18,141		—		$	359
iShares MSCI EAFE Small Cap Index Fund		485			—			485	$	16,859		—		$	506
iShares MSCI Emerging Markets Index Fund		1,290			—			1,290	$	48,943		—		$	937
Master International Index Series	$	122,801	1		—		$	122,801	$	122,801	$	(11,385	)	$	1,922
Master Small Cap Index Series	$	77,362	1		—		$	77,362	$	77,362	$	(7,775	)	$	810
Russell 1000 Index Master Portfolio	$	462,961	1		—		$	462,961	$	462,961	$	(6,071	)	$	5,631

¹  Represents net shares/beneficial interest purchased.

(b) Represents the current yield as of report date.

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

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 circum stances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	270,595	$	1,723,648		—	$	1,994,243

See Notes to Financial Statements.

42 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments December 31, 2011 LifePath Index 2020 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 56.7%
iShares MSCI Canada Index Fund	$	1,026	$	27,292
iShares MSCI EAFE Small Cap Index Fund		744		25,861
iShares MSCI Emerging Markets Index Fund		1,943		73,717
Master International Index Series	$	192,815		192,815
Master Small Cap Index Series	$	73,681		73,681
Russell 1000 Index Master Portfolio	$	689,398		689,398
				1,082,764
Fixed Income Funds — 44.4%
Bond Index Master Portfolio	$	728,061		728,061
iShares Barclays TIPS Bond Fund		1,016		118,557
				846,618

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 0.3%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (b)		5,467	$	5,467
				5,467
Total Affiliated Investment Companies (Cost - $2,004,917*) — 101.4%				1,934,849
Liabilities in Excess of Other Assets — (1.4)%				(27,264	)
Net Assets — 100.0%			$	1,907,585

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	2,005,512
Gross unrealized appreciation	$	45,769
Gross unrealized depreciation		(116,432	)
Net unrealized depreciation	$	(70,663	)

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the period, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/Beneficial Interest Purchased			Shares Sold			Shares/Beneficial Interest Held at December 31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
BlackRock Cash Funds: Institutional, SL Agency Shares		5,467	1		—			5,467	$	5,467		—		$	37
Bond Index Master Portfolio	$	728,061	1		—		$	728,061	$	728,061	$	454		$	13,293
iShares Barclays TIPS Bond Fund		1,073			(57	)		1,016	$	118,557	$	194		$	3,356
iShares MSCI Canada Index Fund		1,026			—			1,026	$	27,292		—		$	554
iShares MSCI EAFE Small Cap Index Fund		744			—			744	$	25,861		—		$	795
iShares MSCI Emerging Markets Index Fund		2,036			(93	)		1,943	$	73,717	$	(814	)	$	1,466
Master International Index Series	$	192,815	1		—		$	192,815	$	192,815	$	(20,242	)	$	3,482
Master Small Cap Index Series	$	73,681	1		—		$	73,681	$	73,681	$	(7,450	)	$	711
Russell 1000 Index Master Portfolio	$	689,398	1		—		$	689,398	$	689,398	$	(8,238	)	$	8,478

¹  Represents net shares/beneficial interest purchased.

(b) Represents the current yield as of report date.

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

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 circum stances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	250,894	$	1,683,955		—	$	1,934,849

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 43

Schedule of Investments December 31, 2011 LifePath Index 2025 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 65.4%
ACWI ex-US Index Master Portfolio	$	2,608	$	2,608
iShares MSCI Canada Index Fund		1,140		30,324
iShares MSCI EAFE Small Cap Index Fund		865		30,067
iShares MSCI Emerging Markets Index Fund		2,264		85,896
Master International Index Series	$	223,117		223,117
Master Small Cap Index Series	$	69,031		69,031
Russell 1000 Index Master Portfolio	$	789,091		789,091
				1,230,134
Fixed Income Funds — 35.8%
Bond Index Master Portfolio	$	581,850		581,850
iShares Barclays TIPS Bond Fund		788		91,952
				673,802

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 0.2%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (b)		4,643	$	4,643
				4,643
Total Affiliated Investment Companies (Cost—$2,001,939*) — 101.4%				1,908,579
Liabilities in Excess of Other Assets — (1.4)%				(26,261	)
Net Assets —100.0%			$	1,882,318

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	2,002,578
Gross unrealized appreciation	$	41,099
Gross unrealized depreciation		(135,098	)
Net unrealized depreciation	$	(93,999	)

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the period, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/Beneficial Interest Purchased			Shares Sold			Shares/Beneficial Interest Held at December 31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio	$	2,608	1		—		$	2,608	$	2,608		—			—
BlackRock Cash Funds: Institutional, SL Agency Shares		4,643	1		—			4,643	$	4,643		—		$	75
Bond Index Master Portfolio	$	581,850	1		—		$	581,850	$	581,850	$	364		$	10,657
iShares Barclays TIPS Bond Fund		832			(44	)		788	$	91,952	$	150		$	2,603
iShares MSCI Canada Index Fund		1,140			—			1,140	$	30,324		—		$	625
iShares MSCI EAFE Small Cap Index Fund		865			—			865	$	30,067		—		$	925
iShares MSCI Emerging Markets Index Fund		2,350			(86	)		2,264	$	85,896	$	(753	)	$	1,707
Master International Index Series	$	223,117	1		—		$	223,117	$	223,117	$	(21,204	)	$	3,543
Master Small Cap Index Series	$	69,031	1		—		$	69,031	$	69,031	$	(7,533	)	$	728
Russell 1000 Index Master Portfolio	$	789,091	1		—		$	789,091	$	789,091	$	(9,483	)	$	9,717

¹ Represents net shares/beneficial interest purchased.

(b) Represents the current yield as of report date.

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

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	242,882	$	1,665,697		—	$	1,908,579

See Notes to Financial Statements.

44 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments December 31, 2011 LifePath Index 2030 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 72.9%
iShares MSCI Canada Index Fund	$	1,315	$	34,979
iShares MSCI EAFE Small Cap Index Fund		965		33,543
iShares MSCI Emerging Markets Index Fund		2,519		95,571
Master International Index Series	$	249,180		249,180
Master Small Cap Index Series	$	67,825		67,825
Russell 1000 Index Master Portfolio	$	874,441		874,441
				1,355,539
Fixed Income Funds — 28.1%
Bond Index Master Portfolio	$	454,601		454,601
iShares Barclays TIPS Bond Fund		575		67,097
				521,698

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 0.5%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (b)		9,277	$	9,277
				9,277
Total Affiliated Investment Companies (Cost—$1,998,836*) — 101.5%				1,886,514
Liabilities in Excess of Other Assets — (1.5)%				(27,344	)
Net Assets — 100.0%			$	1,859,170

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	1,999,536
Gross unrealized appreciation	$	40,341
Gross unrealized depreciation		(153,363	)
Net unrealized depreciation	$	(113,022	)

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the period, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/Beneficial Interest Purchased			Shares Sold			Shares/Beneficial Interest Held at December 31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
BlackRock Cash Funds: Institutional, SL Agency Shares		9,277	1		—			9,277	$	9,277		—		$	46
Bond Index Master Portfolio	$	454,601	1		—		$	454,601	$	454,601	$	287		$	8,394
iShares Barclays TIPS Bond Fund		619			(44	)		575	$	67,097	$	149		$	1,928
iShares MSCI Canada Index Fund		1,315			—			1,315	$	34,979		—		$	715
iShares MSCI EAFE Small Cap Index Fund		965			—			965	$	33,543		—		$	1,035
iShares MSCI Emerging Markets Index Fund		2,599			(80	)		2,519	$	95,571	$	(700	)	$	1,911
Master International Index Series	$	249,180	1		—		$	249,180	$	249,180	$	(23,949	)	$	3,974
Master Small Cap Index Series	$	67,825	1		—		$	67,825	$	67,825	$	(7,307	)	$	707
Russell 1000 Index Master Portfolio	$	874,441	1		—		$	874,441	$	874,441	$	(10,558	)	$	10,787

¹ Represents net shares/beneficial interest purchased.

(b) Represents the current yield as of report date.

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

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 circum stances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	240,467	$	1,646,047		—	$	1,886,514

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 45

Schedule of Investments December 31, 2011 LifePath Index 2035 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 79.6%
ACWI ex-US Index Master Portfolio	$	2,608	$	2,608
iShares MSCI Canada Index Fund		1,402		37,293
iShares MSCI EAFE Small Cap Index Fund		1,045		36,324
iShares MSCI Emerging Markets Index Fund		2,772		105,170
Master International Index Series	$	274,385		274,385
Master Small Cap Index Series	$	63,824		63,824
Russell 1000 Index Master Portfolio	$	943,795		943,795
				1,463,399
Fixed Income Funds — 21.5%
Bond Index Master Portfolio	$	351,541		351,541
iShares Barclays TIPS Bond Fund		378		44,109
				395,650

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 0.3%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (b)		4,730	$	4,730
				4,730
Total Affiliated Investment Companies (Cost—$1,993,855*) — 101.4%				1,863,779
Liabilities in Excess of Other Assets — (1.4)%				(25,818	)
Net Assets — 100.0%			$	1,837,961

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	1,994,608
Gross unrealized appreciation	$	36,308
Gross unrealized depreciation		(167,137	)
Net unrealized depreciation	$	(130,829	)

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the period, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/Beneficial Interest Purchased			Shares Sold			Shares/Beneficial Interest Held at December 31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio	$	2,608	1		—		$	2,608	$	2,608		—			—
BlackRock Cash Funds: Institutional, SL Agency Shares		4,730	1		—			4,730	$	4,730		—		$	93
Bond Index Master Portfolio	$	351,541	1		—		$	351,541	$	351,541	$	227		$	6,358
iShares Barclays TIPS Bond Fund		421			(43	)		378	$	44,109	$	173		$	1,301
iShares MSCI Canada Index Fund		1,402			—			1,402	$	37,293		—		$	771
iShares MSCI EAFE Small Cap Index Fund		1,045			—			1,045	$	36,324		—		$	1,130
iShares MSCI Emerging Markets Index Fund		2,858			(86	)		2,772	$	105,170	$	(753	)	$	2,103
Master International Index Series	$	274,385	1		—		$	274,385	$	274,385	$	(26,339	)	$	4,351
Master Small Cap Index Series	$	63,824	1		—		$	63,824	$	63,824	$	(7,192	)	$	690
Russell 1000 Index Master Portfolio	$	943,795	1		—		$	943,795	$	943,795	$	(11,530	)	$	11,737

¹ Represents net shares/beneficial interest purchased.

(b) Represents the current yield as of report date.

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

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 circum stances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	227,626	$	1,636,153		—	$	1,863,779

See Notes to Financial Statements.

46 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments December 31, 2011 LifePath Index 2040 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 85.9%
ACWI ex-US Index Master Portfolio	$	1,705	$	1,705
iShares MSCI Canada Index Fund		1,569		41,735
iShares MSCI EAFE Small Cap Index Fund		1,124		39,070
iShares MSCI Emerging Markets Index Fund		2,948		111,847
Master International Index Series	$	294,880		294,880
Master Small Cap Index Series	$	62,432		62,432
Russell 1000 Index Master Portfolio	$	1,010,878		1,010,878
				1,562,547
Fixed Income Funds — 15.2%
Bond Index Master Portfolio	$	253,518		253,518
iShares Barclays TIPS Bond Fund		202		23,572
				277,090

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 0.4%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (b)		6,541	$	6,541
				6,541
Total Affiliated Investment Companies (Cost—$1,990,804*) — 101.5%				1,846,178
Liabilities in Excess of Other Assets — (1.5)%				(27,394	)
Net Assets — 100.0%			$	1,818,784

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	1,990,804
Gross unrealized appreciation	$	36,895
Gross unrealized depreciation		(181,521	)
Net unrealized depreciation	$	(144,626	)

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the period, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/Beneficial Interest Purchased			Shares Sold		Shares/Beneficial Interest Held at December 31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio	$	1,705	1		—	$	1,705	$	1,705		—			—
BlackRock Cash Funds: Institutional, SL Agency Shares		6,541	1		—		6,541	$	6,541		—		$	97
Bond Index Master Portfolio	$	253,518	1		—	$	253,518	$	253,518	$	165		$	4,521
iShares Barclays TIPS Bond Fund		231			29		202	$	23,572	$	129		$	710
iShares MSCI Canada Index Fund		1,569			—		1,569	$	41,735		—		$	853
iShares MSCI EAFE Small Cap Index Fund		1,124			—		1,124	$	39,070		—		$	1,220
iShares MSCI Emerging Markets Index Fund		2,948			—		2,948	$	111,847		—		$	2,260
Master International Index Series	$	294,880	1		—	$	294,880	$	294,880	$	(28,504	)	$	4,700
Master Small Cap Index Series	$	62,432	1		—	$	62,432	$	62,432	$	(7,076	)	$	662
Russell 1000 Index Master Portfolio	$	1,010,878	1		—	$	1,010,878	$	1,010,878	$	(15,311	)	$	12,618

¹ Represents net shares/beneficial interest purchased.

(b) Represents the current yield as of report date.

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

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 circum stances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	222,765	$	1,623,413		—	$	1,846,178

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 47

Schedule of Investments December 31, 2011 LifePath Index 2045 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 91.6%
ACWI ex-US Index Master Portfolio	$	2,508	$	2,508
iShares MSCI Canada Index Fund		1,631		43,385
iShares MSCI EAFE Small Cap Index Fund		1,179		40,982
iShares MSCI Emerging Markets Index Fund		3,061		116,134
Master International Index Series	$	316,913		316,913
Master Small Cap Index Series	$	59,434		59,434
Russell 1000 Index Master Portfolio	$	1,069,178		1,069,178
				1,648,534
Fixed Income Funds — 9.5%
Bond Index Master Portfolio		171,154		171,154
				171,154

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 0.3%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (b)		5,019	$	5,019
				5,019
Total Affiliated Investment Companies (Cost—$1,982,656*) — 101.4%				1,824,707
Liabilities in Excess of Other Assets — (1.4)%				(25,584	)
Net Assets — 100.0%			$	1,799,123

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	1,985,413
Gross unrealized appreciation	$	32,099
Gross unrealized depreciation		(192,805	)
Net unrealized depreciation	$	(160,706	)

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the period, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/Beneficial Interest Purchased			Shares Sold			Shares/Beneficial Interest Held at December 31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio	$	2,508	1		—		$	2,508	$	2,508		—			—
BlackRock Cash Funds: Institutional, SL Agency Shares		5,019	1		—			5,019	$	5,019		—		$	50
Bond Index Master Portfolio	$	171,154	1		—		$	171,154	$	171,154	$	(114	)	$	2,968
iShares MSCI Canada Index Fund		1,668			(37	)		1,631	$	43,385	$	(317	)	$	896
iShares MSCI EAFE Small Cap Index Fund		1,179			—			1,179	$	40,982		—		$	1,292
iShares MSCI Emerging Markets Index Fund		3,239			178			3,061	$	116,134	$	(2,440	)	$	2,388
Master International Index Series	$	316,913	1		—		$	316,913	$	316,913	$	(30,541	)	$	5,016
Master Small Cap Index Series	$	59,434	1		—		$	59,434	$	59,434	$	(6,987	)	$	652
Russell 1000 Index Master Portfolio	$	1,069,178	1		—		$	1,069,178	$	1,069,178	$	(16,580	)	$	13,402

¹ Represents net shares/beneficial interest purchased.

(b) Represents the current yield as of report date.

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

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 circum stances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	205,520	$	1,619,187		—	$	1,824,707

See Notes to Financial Statements.

48 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments December 31, 2011 LifePath Index 2050 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 97.1%
ACWI ex-US Index Master Portfolio	$	2,508	$	2,508
iShares MSCI Canada Index Fund		1,692		45,007
iShares MSCI EAFE Small Cap Index Fund		1,263		43,902
iShares MSCI Emerging Markets Index Fund		3,332		126,416
Master International Index Series	$	331,764		331,764
Master Small Cap Index Series	$	59,143		59,143
Russell 1000 Index Master Portfolio	$	1,123,015		1,123,015
				1,731,755
Fixed Income Funds — 4.0%
Bond Index Master Portfolio	$	72,275		72,275
				72,275

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 0.3%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (b)		5,192	$	5,192
				5,192
Total Affiliated Investment Companies (Cost—$1,983,385*) — 101.4%				1,809,222
Liabilities in Excess of Other Assets — (1.4)%				(24,947	)
Net Assets — 100.0%			$	1,784,275

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	1,984,536
Gross unrealized appreciation	$	28,086
Gross unrealized depreciation		(203,400	)
Net unrealized depreciation	$	(175,314	)

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the period, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/Beneficial Interest Purchased			Shares Sold			Shares/Beneficial Interest Held at December 31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio	$	2,508	1		—		$	2,508	$	2,508		—			—
BlackRock Cash Funds: Institutional, SL Agency Shares		5,192	1		—			5,192	$	5,192		—		$	110
Bond Index Master Portfolio	$	72,275	1		—		$	72,275	$	72,275	$	47		$	1,034
iShares MSCI Canada Index Fund		1,692			—			1,692	$	45,007		—		$	939
iShares MSCI EAFE Small Cap Index Fund		1,263			—			1,263	$	43,902		—		$	1,382
iShares MSCI Emerging Markets Index Fund		3,416			(84	)		3,332	$	126,416	$	(1,151	)	$	2,570
Master International Index Series	$	331,764	1		—		$	331,764	$	331,764	$	(32,480	)	$	5,320
Master Small Cap Index Series	$	59,143	1		—		$	59,143	$	59,143	$	(7,226	)	$	669
Russell 1000 Index Master Portfolio	$	1,123,015	1		—		$	1,123,015	$	1,123,015	$	(17,657	)	$	14,116

¹ Represents net shares/beneficial interest purchased.

(b) Represents the current yield as of report date.

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

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 circum stances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	220,517	$	1,588,705		—	$	1,809,222

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 49

Schedule of Investments December 31, 2011 LifePath Index 2055 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 102.3%
ACWI ex-US Index Master Portfolio	$	5,015	$	5,015
iShares MSCI Canada Index Fund		1,788		47,561
iShares MSCI EAFE Small Cap Index Fund		1,295		45,014
iShares MSCI Emerging Markets Index Fund		3,466		131,500
Master International Index Series	$	349,044		349,044
Master Small Cap Index Series	$	122,459		122,459
Russell 1000 Index Master Portfolio	$	1,110,241		1,110,241
				1,810,834
Fixed Income Funds — 0.9%
Bond Index Master Portfolio	$	15,948		15,948
				15,948

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Short-Term Securities — 0.3%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.22% (b)		5,013	$	5,013
				5,013
Total Affiliated Investment Companies (Cost—$2,011,038*) — 103.5%				1,831,795
Liabilities in Excess of Other Assets — (3.5)%				(62,609	)
Net Assets — 100.0%			$	1,769,186

* As of December 31, 2011, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	2,012,272
Gross unrealized appreciation	$	15,892
Gross unrealized depreciation		(196,369	)
Net unrealized depreciation	$	(180,477	)

(a) Investments in companies considered to be an affiliate of the Master Portfolio during the period, for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

Affiliate	Shares/Beneficial Interest Purchased			Shares Sold			Shares/Beneficial Interest Held at December 31, 2011		Value at December 31, 2011		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio	$	5,015	1		—		$	5,015	$	5,015		—			—
BlackRock Cash Funds: Institutional, SL Agency Shares		5,013	1		—			5,013	$	5,013		—		$	113
Bond Index Master Portfolio	$	15,948	1		—		$	15,948	$	15,948	$	10		$	346
iShares MSCI Canada Index Fund		1,788			—			1,788	$	47,561		—		$	984
iShares MSCI EAFE Small Cap Index Fund		1,295			—			1,295	$	45,014		—		$	1,420
iShares MSCI Emerging Markets Index Fund		3,556			(90	)		3,466	$	131,500	$	(1,234	)	$	2,661
Master International Index Series	$	349,044	1		—		$	349,044	$	349,044	$	(34,679	)	$	5,602
Master Small Cap Index Series	$	122,459	1		—		$	122,459	$	122,459	$	(13,199	)	$	1,162
Russell 1000 Index Master Portfolio	$	1,110,241	1		—		$	1,110,241	$	1,110,241	$	(15,898	)	$	13,575

¹ Represents net shares/beneficial interest purchased.

(b) Represents the current yield as of report date.

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

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 circum stances, to the extent observable inputs are not available (including the Master Portfolio’s own assumptions used in determining the fair value of investments and derivative financial instruments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments and derivative financial instruments is based on the pricing transparency of the investment and derivative financial instrument and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and derivative financial instruments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	229,088	$	1,602,707		—	$	1,831,795

See Notes to Financial Statements.

50 BLACKROCK FUNDS III DECEMBER 31, 2011

Statements of Assets and Liabilities Master Investment Portfolio

December 31, 2011	LifePath Index Retirement Master Portfolio			LifePath Index 2020 Master Portfolio			LifePath Index 2025 Master Portfolio			LifePath Index 2030 Master Portfolio			LifePath Index 2035 Master Portfolio
Assets
Investments at value — affiliated1	$	1,994,243		$	1,934,849		$	1,908,579		$	1,886,514		$	1,863,779
Contributions receivable from investors		—			—			11,000			—			14,900
Investments sold receivable		13,307			11,500			21,000			7,650			23,500
Receivable from advisor		4,718			4,721			4,722			4,723			4,723
Prepaid expenses		1,541			1,541			1,540			1,542			1,539
Deferred offering costs		271			271			271			271			271
Total assets		2,014,080			1,952,882			1,947,112			1,900,700			1,908,712
Liabilities
Professional fees payable		30,762			30,762			30,762			30,794			30,794
Withdrawals payable to investors		12,057			11,500			20,000			7,650			22,000
Printing fees payable		999			999			999			999			999
Trustees’ fees payable		708			708			708			709			709
Custodian fees payable		295			328			325			378			349
Investments purchased payable		—			—			11,000			—			14,900
Other accrued expenses payable		1,000			1,000			1,000			1,000			1,000
Total liabilities		45,821			45,297			64,794			41,530			70,751
Net Assets	$	1,968,259		$	1,907,585		$	1,882,318		$	1,859,170		$	1,837,961
Net Assets Consist of
Investors’ capital	$	1,989,621		$	1,977,653		$	1,975,678		$	1,971,492		$	1,968,037
Net unrealized appreciation/depreciation		(21,362	)		(70,068	)		(93,360	)		(112,322	)		(130,076	)
Net Assets	$	1,968,259		$	1,907,585		$	1,882,318		$	1,859,170		$	1,837,961
1 Investments at cost — affiliated	$	2,015,605		$	2,004,917		$	2,001,939		$	1,998,836		$	1,993,855

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	51

Statements of Assets and Liabilities (concluded) Master Investment Portfolio

December 31, 2011	LifePath Index 2040 Master Portfolio			LifePath Index 2045 Master Portfolio			LifePath Index 2050 Master Portfolio			LifePath Index 2055 Master Portfolio
Assets
Investments at value — affiliated1	$	1,846,178		$	1,824,707		$	1,809,222		$	1,831,795
Contributions receivable from investors		—			20,600			23,100			35,600
Investments sold receivable		9,180			27,800			29,700			77,400
Receivable from advisor		4,724			4,725			4,725			4,726
Prepaid expenses		1,538			1,541			1,601			1,569
Deferred offering costs		271			271			239			255
Total assets		1,861,891			1,879,644			1,868,587			1,951,345
Liabilities
Professional fees payable		30,858			30,858			30,889			30,826
Withdrawals payable to investors		9,180			26,000			27,300			77,400
Printing fees payable		999			999			999			999
Trustees’ fees payable		709			709			709			710
Custodian fees payable		362			355			315			325
Investments purchased payable		—			20,600			23,100			70,900
Other accrued expenses payable		999			1,000			1,000			999
Total liabilities		43,107			80,521			84,312			182,159
Net Assets	$	1,818,784		$	1,799,123		$	1,784,275		$	1,769,186
Net Assets Consist of
Investors’ capital	$	1,963,410		$	1,957,072		$	1,958,438		$	1,948,429
Net unrealized appreciation/depreciation		(144,626	)		(157,949	)		(174,163	)		(179,243	)
Net Assets	$	1,818,784		$	1,799,123		$	1,784,275		$	1,769,186
1 Investments at cost — affiliated	$	1,990,804		$	1,982,656		$	1,983,385		$	2,011,038

See Notes to Financial Statements.
52	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Operations Master Investment Portfolio

Period May 31, 20111 to December 31, 2011	LifePath Index Retirement Master Portfolio			LifePath Index 2020 Master Portfolio			LifePath Index 2025 Master Portfolio			LifePath Index 2030 Master Portfolio			LifePath Index 2035 Master Portfolio
Investment Income
Dividends — affiliated	$	6,942		$	6,171		$	5,860		$	5,589		$	5,305
Securities lending — affiliated		39			30			68			39			86
Income — affiliated		7			7			7			7			7
Net investment income allocated from applicable Master Portfolios:
Interest		19,487			13,467			10,843			8,589			6,561
Dividends		8,210			12,497			13,802			15,273			16,575
Expenses		(2,117	)		(2,577	)		(2,699	)		(2,856	)		(2,995	)
Fees waived		951			1,171			1,266			1,350			1,424
Total income		33,519			30,766			29,147			27,991			26,963
Expenses
Investment advisory		574			560			554			548			543
Professional		29,909			29,909			29,909			29,909			29,909
Organization and offering		3,200			3,200			3,200			3,200			3,198
Independent Trustees		1,897			1,897			1,897			1,897			1,897
Printing		999			999			999			999			999
Custodian		850			850			850			850			850
Miscellaneous		1,001			1,001			1,001			1,001			1,001
Total expenses		38,430			38,416			38,410			38,404			38,397
Less fees waived/reimbursed by advisor		(37,858	)		(37,859	)		(37,858	)		(37,858	)		(37,858	)
Total expenses after fees waived		572			557			552			546			539
Net investment income		32,947			30,209			28,595			27,445			26,424
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments — affiliated		297			(620	)		(603	)		(551	)		(580	)
Allocations from applicable Master Portfolios from investments, financial futures contracts and foreign currency transactions		(24,583	)		(35,476	)		(37,856	)		(41,527	)		(44,834	)
		(24,286	)		(36,096	)		(38,459	)		(42,078	)		(45,414	)
Net change in unrealized appreciation/depreciation on:
Investments — affiliated		(10,105	)		(23,886	)		(30,445	)		(36,119	)		(41,189	)
Allocated from applicable Master Portfolios from investments, financial futures contracts and foreign currency transactions		(11,257	)		(46,182	)		(62,915	)		(76,203	)		(88,887	)
		(21,362	)		(70,068	)		(93,360	)		(112,322	)		(130,076	)
Total realized and unrealized loss		(45,648	)		(106,164	)		(131,819	)		(154,400	)		(175,490	)
Net Decrease in Net Assets Resulting from Operations	$	(12,701	)	$	(75,955	)	$	(103,224	)	$	(126,955	)	$	(149,066	)
1   Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	53

Statements of Operations (concluded) Master Investment Portfolio

Period May 31, 20111 to December 31, 2011	LifePath Index 2040 Master Portfolio			LifePath Index 2045 Master Portfolio			LifePath Index 2050 Master Portfolio			LifePath Index 2055 Master Portfolio
Investment Income
Dividends — affiliated	$	5,043		$	4,576		$	4,891		$	5,065
Securities lending — affiliated		90			43			103			106
Income — affiliated		7			7			7			7
Net investment income allocated from applicable Master Portfolios:
Interest		4,729			3,183			1,257			621
Dividends		17,772			18,855			19,882			20,064
Expenses		(3,119	)		(3,241	)		(3,334	)		(3,258	)
Fees waived		1,492			1,557			1,606			1,544
Total income		26,014			24,980			24,412			24,149
Expenses
Investment advisory		539			534			531			528
Professional		29,909			29,909			29,909			29,909
Organization and offering		3,200			3,200			3,168			3,184
Independent Trustees		1,897			1,897			1,897			1,897
Printing		1,000			1,000			999			999
Custodian		849			850			850			849
Miscellaneous		1,000			1,000			1,001			1,001
Total expenses		38,394			38,390			38,355			38,367
Less fees waived/reimbursed by advisor		(37,858	)		(37,858	)		(37,827	)		(37,842	)
Total expenses after fees waived		536			532			528			525
Net investment income		25,478			24,448			23,884			23,624
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments — affiliated		129			(2,757	)		(1,151	)		(1,234	)
Allocations from applicable Master Portfolios from investments, financial futures contracts and foreign currency transactions		(50,726	)		(53,994	)		(57,316	)		(63,766	)
		(50,597	)		(56,751	)		(58,467	)		(65,000	)
Net change in unrealized appreciation/depreciation on:
Investments — affiliated		(47,142	)		(49,050	)		(54,021	)		(56,032	)
Allocated from applicable Master Portfolios from investments, financial futures contracts and foreign currency transactions		(97,484	)		(108,899	)		(120,142	)		(123,211	)
		(144,626	)		(157,949	)		(174,163	)		(179,243	)
Total realized and unrealized loss		(195,223	)		(214,700	)		(232,630	)		(244,243	)
Net Decrease in Net Assets Resulting from Operations	$	(169,745	)	$	(190,252	)	$	(208,746	)	$	(220,619	)
1   Commencement of operations.

See Notes to Financial Statements.
54	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Changes in Net Assets Master Investment Portfolio

	LifePath Index Retirement Master Portfolio			LifePath Index 2020 Master Portfolio			LifePath Index 2025 Master Portfolio			LifePath Index 2030 Master Portfolio
Increase (Decrease) in Net Assets:	Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	32,947		$	30,209		$	28,595		$	27,445
Net realized loss		(24,286	)		(36,096	)		(38,459	)		(42,078	)
Net change in unrealized appreciation/depreciation		(21,362	)		(70,068	)		(93,360	)		(112,322	)
Net decrease in net assets resulting from operations		(12,701	)		(75,955	)		(103,224	)		(126,955	)
Capital Transactions
Proceeds from contributions		2,025,317			2,024,638			2,024,525			2,024,448
Value of withdrawals		(44,357	)		(41,098	)		(38,983	)		(38,323	)
Net increase in net assets derived from capital transactions		1,980,960			1,983,540			1,985,542			1,986,125
Net Assets
Total increase in net assets		1,968,259			1,907,585			1,882,318			1,859,170
Beginning of period		—			—			—			—
End of period	$	1,968,259		$	1,907,585		$	1,882,318		$	1,859,170
	LifePath Index 2035 Master Portfolio			LifePath Index 2040 Master Portfolio			LifePath Index 2045 Master Portfolio			LifePath Index 2050 Master Portfolio
Increase (Decrease) in Net Assets:	Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	26,424		$	25,478		$	24,448		$	23,884
Net realized loss		(45,414	)		(50,597	)		(56,751	)		(58,467	)
Net change in unrealized appreciation/depreciation		(130,076	)		(144,626	)		(157,949	)		(174,163	)
Net decrease in net assets resulting from operations		(149,066	)		(169,745	)		(190,252	)		(208,746	)
Capital Transactions
Proceeds from contributions		2,024,586			2,024,475			2,024,410			2,027,364
Value of withdrawals		(37,559	)		(35,946	)		(35,035	)		(34,343	)
Net increase in net assets derived from capital transactions		1,987,027			1,988,529			1,989,375			1,993,021
Net Assets
Total increase in net assets		1,837,961			1,818,784			1,799,123			1,784,275
Beginning of period		—			—			—			—
End of period	$	1,837,961		$	1,818,784		$	1,799,123		$	1,784,275

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	55

Statements of Changes in Net Assets (concluded) Master Investment Portfolio

	LifePath Index 2055 Master Portfolio
Increase (Decrease) in Net Assets:	Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	23,624
Net realized loss		(65,000	)
Net change in unrealized appreciation/depreciation		(179,243	)
Net decrease in net assets resulting from operations		(220,619	)
Capital Transactions
Proceeds from contributions		2,024,315
Value of withdrawals		(34,510	)
Net increase in net assets derived from capital transactions		1,989,805
Net Assets
Total increase in net assets		1,769,186
Beginning of period		—
End of period	$	1,769,186

¹  Commencement of operations.

See Notes to Financial Statements.
56	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights Master Investment Portfolio

	LifePath Index Retirement Master Portfolio
	Period May 31, 20111 to December 31, 2011
Total Investment Return
Total investment return2		(0.59)%
Ratios to Average Net Assets
Total expenses3,4,5,6		3.44%	7
Total expenses after fees waived3,4,6		0.15%
Net investment income4,6,8		2.87%
Supplemental Data
Net assets, end of period (000)	$	1,968
Portfolio turnover		1%

¹  Commencement of operations.

²  Aggregate total investment return.

³  Includes the Master Portfolio’s pro rata portion of expenses from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁴  Annualized.

⁵  Ratio includes Master Portfolio’s share of the ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master SmallCap Index Series and Russell 1000 Index Master Portfolio’s allocated fees waived of 0.08%.

⁶  Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.04%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁷  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 3.45%.

⁸  Includes the Master Portfolio’s share of the allocated net investment income from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	57

Financial Highlights (continued) Master Investment Portfolio

	LifePath Index 2020 Master Portfolio
	Period May 31, 20111 to December  31, 2011
Total Investment Return
Total investment return2		(3.71)%
Ratios to Average Net Assets
Total expenses3,4,5,6		3.55%	7
Total expenses after fees waived3,4,6		0.18%
Net investment income4,6,8		2.70%
Supplemental Data
Net assets, end of period (000)	$	1,908
Portfolio turnover		1%

¹  Commencement of operations.

²  Aggregate total investment return.

³  Includes the Master Portfolio’s pro rata portion of expenses from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁴  Annualized.

⁵  Ratio includes Master Portfolio’s share of the ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master SmallCap Index Series and Russell 1000 Index Master Portfolio’s allocated fees waived of 0.10%.

⁶  Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.05%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁷  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 3.56%.

⁸  Includes the Master Portfolio’s share of the allocated net investment income from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio.

See Notes to Financial Statements.
58	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) Master Investment Portfolio

	LifePath Index 2025 Master Portfolio
	Period May 31, 20111 to December  31, 2011
Total Investment Return
Total investment return2		(5.10)%
Ratios to Average Net Assets
Total expenses3,4,5,6		3.59%	7
Total expenses after fees waived3,4,6		0.18%
Net investment income4,6,8		2.58%
Supplemental Data
Net assets, end of period (000)	$	1,882
Portfolio turnover		0%	9

¹  Commencement of operations.

²  Aggregate total investment return.

³  Includes the Master Portfolio’s pro rata portion of expenses from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁴  Annualized.

⁵  Ratio includes Master Portfolio’s share of the ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master SmallCap Index Series and Russell 1000 Index Master Portfolio’s allocated fees waived of 0.11%.

⁶  Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.06%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁷  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 3.60%.

⁸  Includes the Master Portfolio’s share of the allocated net investment income from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio.

⁹  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	59

Financial Highlights (continued) Master Investment Portfolio

	LifePath Index 2030 Master Portfolio
	Period May 31, 20111 to December  31, 2011
Total Investment Return
Total investment return2		(6.28	)%
Ratios to Average Net Assets
Total expenses3,4,5,6		3.63	%7
Total expenses after fees waived3,4,6		0.19	%
Net investment income4,6,8		2.50	%
Supplemental Data
Net assets, end of period (000)	$	1,859
Portfolio turnover		0	%9

¹  Commencement of operations.

²  Aggregate total investment return.

³  Includes the Master Portfolio’s pro rata portion of expenses from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁴  Annualized.

⁵  Ratio includes Master Portfolio’s share of the ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master SmallCap Index Series and Russell 1000 Index Master Portfolio’s allocated fees waived of 0.12%.

⁶  Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.06%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁷  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 3.64%.

⁸  Includes the Master Portfolio’s share of the allocated net investment income from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio.

⁹  Rounds to less than 1%.

See Notes to Financial Statements.
60	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) Master Investment Portfolio

	LifePath Index 2035 Master Portfolio
	Period May 31, 20111 to December  31, 2011
Total Investment Return
Total investment return2		(7.35)%
Ratios to Average Net Assets
Total expenses3,4,5,6		3.67%	7
Total expenses after fees waived3,4,6		0.19%
Net investment income4,6,8		2.43%
Supplemental Data
Net assets, end of period (000)	$	1,838
Portfolio turnover		0%	9

¹  Commencement of operations.

²  Aggregate total investment return.

³  Includes the Master Portfolio’s pro rata portion of expenses from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁴  Annualized.

⁵  Ratio includes Master Portfolio’s share of the ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master SmallCap Index Series and Russell 1000 Index Master Portfolio’s allocated fees waived of 0.13%.

⁶  Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.06%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁷  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 3.68%.

⁸  Includes the Master Portfolio’s share of the allocated net investment income from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio.

⁹  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	61

Financial Highlights (continued) Master Investment Portfolio

	LifePath Index 2040 Master Portfolio
	Period May 31, 20111 to December  31, 2011
Total Investment Return
Total investment return2		(8.42	)%
Ratios to Average Net Assets
Total expenses3,4,5,6		3.70	%7
Total expenses after fees waived3,4,6		0.20	%
Net investment income4,6,8		2.36	%
Supplemental Data
Net assets, end of period (000)	$	1,819
Portfolio turnover		0	%9

¹  Commencement of operations.

²  Aggregate total investment return.

³  Includes the Master Portfolio’s pro rata portion of expenses from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁴  Annualized.

⁵  Ratio includes Master Portfolio’s share of the ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master SmallCap Index Series and Russell 1000 Index Master Portfolio’s allocated fees waived of 0.14%.

⁶  Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.07%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁷  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 3.71%.

⁸  Includes the Master Portfolio’s share of the allocated net investment income from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio.

⁹  Rounds to less than 1%.

See Notes to Financial Statements.
62	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) Master Investment Portfolio

	LifePath Index 2045 Master Portfolio
	Period May 31, 20111 to December 31, 2011
Total Investment Return
Total investment return2		(9.49	)%
Ratios to Average Net Assets
Total expenses3,4,5,6		3.74	%7
Total expenses after fees waived3,4,6		0.21	%
Net investment income4,6,8		2.29	%
Supplemental Data
Net assets, end of period (000)	$	1,799
Portfolio turnover		0	%9

¹  Commencement of operations.

²  Aggregate total investment return.

³  Includes the Master Portfolio’s pro rata portion of expenses from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁴  Annualized.

⁵  Ratio includes Master Portfolio’s share of the ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master SmallCap Index Series and Russell 1000 Index Master Portfolio’s allocated fees waived of 0.15%.

⁶  Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.07%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁷  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 3.75%.

⁸  Includes the Master Portfolio’s share of the allocated net investment income from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio.

⁹  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	63

Financial Highlights (continued) Master Investment Portfolio

	LifePath Index 2050 Master Portfolio
	Period May 31, 20111 to December  31, 2011
Total Investment Return
Total investment return2		(10.34	)%
Ratios to Average Net Assets
Total expenses3,4,5,6		3.76	%7
Total expenses after fees waived3,4,6		0.21	%
Net investment income4,6,8		2.25	%
Supplemental Data
Net assets, end of period (000)	$	1,784
Portfolio turnover		0	%9

¹  Commencement of operations.

²  Aggregate total investment return.

³  Includes the Master Portfolio’s pro rata portion of expenses from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁴  Annualized.

⁵  Ratio includes Master Portfolio’s share of the ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master SmallCap Index Series and Russell 1000 Index Master Portfolio’s allocated fees waived of 0.15%.

⁶  Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.07%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁷  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 3.77%.

⁸  Includes the Master Portfolio’s share of the allocated net investment income from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio.

⁹  Rounds to less than 1%.

See Notes to Financial Statements.
64	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (concluded) Master Investment Portfolio

	LifePath Index 2055 Master Portfolio
	Period May 31, 20111 to December  31, 2011
Total Investment Return
Total investment return2		(10.96	)%
Ratios to Average Net Assets
Total expenses3,4,5,6		3.79	%7
Total expenses after fees waived3,4,6		0.21	%
Net investment income4,6,8		2.24	%
Supplemental Data
Net assets, end of period (000)	$	1,769
Portfolio turnover		0	%9

¹  Commencement of operations.

²  Aggregate total investment return.

³  Includes the Master Portfolio’s pro rata portion of expenses from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio. These ratios do not reflect any expenses incurred indirectly as a result of investments in BlackRock Cash Funds: Institutional and iShares exchange-traded funds.

⁴  Annualized.

⁵  Ratio includes Master Portfolio’s share of the ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master SmallCap Index Series and Russell 1000 Index Master Portfolio’s allocated fees waived of 0.15%.

⁶  Ratios do not include expenses incurred indirectly as a result of investments in underlying funds of approximately 0.08%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolios’ allocated expenses and/or net investment income.

⁷  Organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 3.79%.

⁸  Includes the Master Portfolio’s share of the allocated net investment income from ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio.

⁹  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	65

Notes to Financial Statements Master Investment Portfolio

1. Organization and Significant Accounting Policies:

Master Investment Portfolio (“MIP”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a diversified, open-end management investment company. MIP is organized as a Delaware statutory trust. The financial statements and these accompanying notes relate to nine series of MIP: LifePath Index Retirement Master Portfolio, LifePath Index 2020 Master Portfolio, LifePath Index 2025 Master Portfolio, LifePath Index 2030 Master Portfolio, LifePath Index 2035 Master Portfolio, LifePath Index 2040 Master Portfolio, LifePath Index 2045 Master Portfolio, LifePath Index 2050 Master Portfolio and LifePath Index 2055 Master Portfolio (each, a “LifePath Index Master Portfolio” and collectively, the “LifePath Index Master Portfolios”). The LifePath Index Master Portfolios’ financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.

Each of the LifePath Index Master Portfolios seek to achieve its investment objective by investing in a combination of domestic equity, international

equity, bond and money market funds (the “Underlying Funds”) in proportions suggested by its own comprehensive investment strategy. The Underlying Funds are advised by BlackRock Fund Advisors (“BFA”), and include the ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series, Russell 1000 Index Master Portfolio (together, the “Master Portfolios”) BlackRock Cash Funds: Institutional and iShares exchange-traded funds. The financial statements of the Master Portfolios, including the Schedule of Investments, should be read in conjunction with the LifePath Index Portfolios’ financial statements. The Master Portfolios’ financial statements are available, without charge, upon request by calling (800) 441-7762 or on the SEC’s website at http://www.sec.gov.

The value of a LifePath Index Master Portfolio’s investment in each of the ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio reflects that LifePath Index Master Portfolio’s proportionate interest in the net assets of that Master Portfolio. As of December 31, 2011, the interests of the ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio held by each LifePath Index Master Portfolio were as follows:

	ACWI ex-US Index Master Portfolio			Bond Index Master Portfolio			Master International Index Series			Master Small Cap Index Series			Russell 1000 Index Master Portfolio
LifePath Index Retirement Master Portfolio		0.01	%		0.83	%		0.01	%		0.01	%		0.81	%
LifePath Index 2020 Master Portfolio		—			0.57	%		0.02	%		0.01	%		1.21	%
LifePath Index 2025 Master Portfolio		0.01	%		0.46	%		0.03	%		0.01	%		1.39	%
LifePath Index 2030 Master Portfolio		—			0.36	%		0.03	%		0.01	%		1.54	%
LifePath Index 2035 Master Portfolio		0.01	%		0.28	%		0.03	%		0.01	%		1.66	%
LifePath Index 2040 Master Portfolio		0.00	%1		0.20	%		0.03	%		0.01	%		1.78	%
LifePath Index 2045 Master Portfolio		0.01	%		0.13	%		0.04	%		0.01	%		1.88	%
LifePath Index 2050 Master Portfolio		0.01	%		0.06	%		0.04	%		0.01	%		1.97	%
LifePath Index 2055 Master Portfolio		0.01	%		0.01	%		0.04	%		0.02	%		1.95	%

¹  Rounds to less than 0.01%.

The following is a summary of significant accounting policies followed by the LifePath Index Master Portfolios:

Valuation: US GAAP defines fair value as the price the LifePath Index Master Portfolios would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The LifePath Index Master Portfolios fair value their financial instruments at market value using independent dealers or pricing services under policies approved by the Board of Trustees of MIP (the “Board”). Equity investments, including exchange traded funds, traded on a recognized securities exchange or the NASDAQ Global Market System (“NASDAQ”) are valued at the last reported sale price that day or the NASDAQ official closing price, if applicable. For equity investments traded on more than one exchange, the last reported sale price on the exchange where the stock is primarily traded is used. Equity investments traded on a recognized exchange for which there were no sales on that day are valued at the last available bid (long positions) or ask (short positions) price. If no bid or ask price is available, the prior day’s price will be used, unless it is determined that such prior day’s price no longer reflects the fair value of the security. Investments in open-end registered investment

companies are valued at net asset value each business day. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value.

In the event that application of these methods of valuation results in a price for an investment which is deemed not to be representative of the market value of such investment or if a price is not available, the investment will be valued in accordance with a policy approved by the Board as reflecting fair value (“Fair Value Assets”). When determining the price for Fair Value Assets, the investment advisor seeks to determine the price that each LifePath Index Master Portfolio might reasonably expect to receive from the current sale of that asset in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the investment advisor deems relevant. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof.

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-divided dates.

66 BLACKROCK FUNDS III DECEMBER 31, 2011

Notes to Financial Statements (continued) Master Investment Portfolio

Each LifePath Index Master Portfolio records daily its proportionate share of the ACWI ex-US Index Master Portfolio, Bond Index Master Portfolio, Master International Index Series, Master Small Cap Index Series and Russell 1000 Index Master Portfolio income, expenses and realized and unrealized gains and losses.

Securities Lending: The LifePath Index Master Portfolios may lend securities to approved borrowers, such as banks, brokers and other financial institutions. The borrower pledges cash, securities issued or guaranteed by the US government or irrevocable letters of credit issued by a bank as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the LifePath Index Master Portfolio and any additional required collateral is delivered to the LifePath Index Master Portfolio on the next business day. Securities lending income, as disclosed in the Statement of Operations, represents the income earned from the investment of the cash collateral, net of rebates paid to, or fees paid by, borrowers and less the fees paid to the securities lending agent. During the term of the loan, the LifePath Index Master Portfolio earns dividend or interest income on the securities loaned but does not receive interest income on the securities received as collateral. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the LifePath Index Master Portfolio could experience delays and costs in gaining access to the collateral. A LifePath Index Master Portfolio also could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received. During the period ended December 31, 2011, any securities on loan were collateralized by cash.

Income Taxes: Each LifePath Index Master Portfolio is classified as a partnership for federal income tax purposes. As such, each investor in a LifePath Index Master Portfolio is treated as the owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the LifePath Index Master Portfolio. Therefore, no federal income tax provision is required. It is intended that each LifePath Index Master Portfolio’s assets will be managed so an investor in the LifePath Index Master Portfolio can satisfy the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended.

Each LifePath Index Master Portfolio files US federal and various state and local tax returns. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.

Recent Accounting Standard: In May 2011, the Financial Accounting Standards Board (the “FASB”) issued amended guidance to improve disclosure about fair value measurements which will require the following disclosures for fair value measurements categorized as Level 3: quantitative information about the unobservable inputs and assumptions used in the fair value measurement, a description of the valuation policies and procedures and a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelation-

ships between those unobservable inputs. In addition, the amounts and reasons for all transfers in and out of Level 1 and Level 2 will be required to be disclosed. The amended guidance is effective for financial statements for fiscal years beginning after December 15, 2011, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the LifePath Index Master Portfolios’ financial statement disclosures.

In December 2011, the FASB issued guidance that will enhance current disclosure requirements on the offsetting of certain assets and liabilities. The new disclosures will be required for investments and derivative financial instruments subject to master netting agreements or similar agreements and will require an entity to disclose both gross and net information about such investments and transactions eligible for offset in the Statements of Assets and Liabilities. The guidance is effective for financial statements with fiscal years beginning on or after January 1, 2013, and interim periods within those fiscal years. Management is evaluating the impact of this guidance on the LifePath Index Master Portfolios’ financial statement disclosures.

Organization and Offering Costs: Upon commencement of operations, organization costs associated with the establishment of the LifePath Index Master Portfolios were expensed by the LifePath Index Master Portfolios and reimbursed by BlackRock Fund Advisors (“BFA”), the investment manager for the LifePath Index Master Portfolios. Offering costs associated with the establishment of the LifePath Index Master Portfolios are amortized over a 12-month period beginning with the commencement of operations. BFA reimbursed the LifePath Index Master Portfolios which is shown as expenses reimbursed by advisor in the Statements of Operations, for the following amounts:

LifePath Index Retirement Master Portfolio	$	37,858
LifePath Index 2020 Master Portfolio	$	37,859
LifePath Index 2025 Master Portfolio	$	37,858
LifePath Index 2030 Master Portfolio	$	37,858
LifePath Index 2035 Master Portfolio	$	37,858
LifePath Index 2040 Master Portfolio	$	37,858
LifePath Index 2045 Master Portfolio	$	37,858
LifePath Index 2050 Master Portfolio	$	37,827
LifePath Index 2055 Master Portfolio	$	37,842

Other: Expenses directly related to a LifePath Index Master Portfolio are charged to that LifePath Index Master Portfolio. Other operating expenses shared by several funds are pro rated among those funds on the basis of relative net assets or other appropriate methods.

The LifePath Index Master Portfolios have an arrangement with the custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statements of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.

2. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”).

BLACKROCK FUNDS III DECEMBER 31, 2011 67

Notes to Financial Statements (concluded) Master Investment Portfolio

Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

MIP, on behalf of the LifePath Index Master Portfolios, entered into an Investment Advisory Agreement (the “Investment Advisory Agreement”) with BFA, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory services. Pursuant to the Investment Advisory Agreement with MIP, BFA is responsible for the management of each LifePath Index Master Portfolio’s investments and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of each LifePath Index Master Portfolio. For such services, each LifePath Index Master Portfolio pays BFA a monthly fee based on a percentage of each LifePath Index Master Portfolio’s average daily net assets at an annual rate of 0.05%.

The LifePath Index Master Portfolios received an exemptive order from the SEC permitting it, among other things, to pay an affiliated securities lending agent a fee based on a share of the income derived from the securities lending activities and has retained BlackRock Institutional Trust Company, N.A. (“BTC”), an affiliate of BFA, as the securities lending agent. BTC may, on behalf of a LifePath Index Master Portfolio, invest cash collateral received by the LifePath Index Master Portfolio for such loans, among other things, in a private investment company managed by BTC or in registered money market funds advised by BTC or its affiliates. As securities lending agent, BTC is responsible for all transaction fees and all other operational costs relating to securities lending activities, other than extraordinary expenses. BTC does not receive any fees for managing the cash collateral. The market value of securities on loan and the value of the related collateral, if applicable, are shown in the Statements of Assets and Liabilities as securities loaned at value and collateral on securities loaned at value, respectively. The cash collateral invested by BTC is disclosed in the Schedules of Investments. Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of rebates paid to, or fees paid by, borrowers of securities. The LifePath Index Master Portfolios retain 65% of securities lending income and pays a fee to BTC equal to 35% of such income. The share of net income earned by each LifePath Index Master Portfolio on such investments is shown as securities lending – affiliated in the Statements of Operations. For the period ended December 31, 2011, BTC received securities lending agent fees related to securities lending activities for the LifePath Index Master Portfolios as follows:

LifePath Index Retirement Master Portfolio	$	21
LifePath Index 2020 Master Portfolio	$	16
LifePath Index 2025 Master Portfolio	$	37
LifePath Index 2030 Master Portfolio	$	21
LifePath Index 2035 Master Portfolio	$	48
LifePath Index 2040 Master Portfolio	$	50
LifePath Index 2045 Master Portfolio	$	23
LifePath Index 2050 Master Portfolio	$	57
LifePath Index 2055 Master Portfolio	$	59

Each LifePath Index Master Portfolio may invest its positive cash balances in certain money market funds managed by BFA or an affiliate. The

income earned on these temporary cash investments is included in income-affiliated in the Statement of Operations.

Certain officers and/or trustees of MIP are officers and/or directors of BlackRock or its affiliates.

3. Investments:

Purchases and sales of investments excluding short-term securities and US government securities for the period ended December 31, 2011, were as follows:

	Purchases		Sales
LifePath Index Retirement Master Portfolio	$	285,263	$	9,943
LifePath Index 2020 Master Portfolio	$	280,150	$	10,216
LifePath Index 2025 Master Portfolio	$	277,740	$	8,452
LifePath Index 2030 Master Portfolio	$	276,074	$	8,213
LifePath Index 2035 Master Portfolio	$	273,029	$	8,365
LifePath Index 2040 Master Portfolio	$	266,582	$	3,344
LifePath Index 2045 Master Portfolio	$	259,414	$	7,106
LifePath Index 2050 Master Portfolio	$	273,426	$	2,928
LifePath Index 2055 Master Portfolio	$	284,479	$	3,138

4. Market and Credit Risk:

In the normal course of business, the LifePath Index Master Portfolios invest in securities and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all its obligations (issuer credit risk). The value of securities held by the LifePath Index Master Portfolios may decline in response to certain events, including those directly involving the issuers whose securities are owned by the LifePath Index Master Portfolios; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the LifePath Index Master Portfolios may be exposed to counterparty credit risk, or the risk that an entity with which the LifePath Index Master Portfolios have unsettled or open transactions may fail to or be unable to perform on its commitments. The LifePath Index Master Portfolios manage counterparty credit risk by entering into transactions only with counterparties that it believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the LifePath Index Master Portfolios to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the LifePath Index Master Portfolios’ exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the LifePath Index Master Portfolios’ Statements of Assets and Liabilities, less any collateral held by the LifePath Index Master Portfolio.

5. Subsequent Events:

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

68 BLACKROCK FUNDS III DECEMBER 31, 2011

Report of Independent Registered Public Accounting Firm

To the Interestholders and Board of Trustees of

Master Investment Portfolio:

In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the LifePath Index Retirement Master Portfolio, LifePath Index 2020 Master Portfolio, LifePath Index 2025 Master Portfolio, LifePath Index 2030 Master Portfolio, LifePath Index 2035 Master Portfolio, LifePath Index 2040 Master Portfolio, LifePath Index 2045 Master Portfolio, LifePath Index 2050 Master Portfolio and LifePath Index 2055 Master Portfolio, each a portfolio of Master Investment Portfolio (the “Master Portfolios”), at December 31, 2011, the results of each of their operations and the changes in each of their net assets and the financial highlights for the period May 31, 2011 (commencement of operations) through December 31, 2011, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are

the responsibility of the Master Portfolios’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 24, 2012

BLACKROCK FUNDS III DECEMBER 31, 2011 69

Officers and Trustees

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1
Ronald W. Forbes 55 East 52nd Street New York, NY 10055 1940	Co-Chairman of the Board and Trustee	Since 2009	Professor Emeritus of Finance, School of Business, State University of New York at Albany since 2000.	33 RICs consisting of 107 Portfolios	None
Rodney D. Johnson 55 East 52nd Street New York, NY 10055 1941	Co-Chairman of the Board and Trustee	Since 2009	President, Fairmount Capital Advisors, Inc. since 1987; Member of the Archdiocesan Investment Committee of the Archdiocese of Philadelphia since 2004; Director, The Committee of Seventy (civic) since 2006; Director, Fox Chase Cancer Center from 2004 to 2010.	33 RICs consisting of 107 Portfolios	None
David O. Beim 55 East 52nd Street New York, NY 10055 1940	Trustee	Since 2009	Professor of Professional Practice at the Columbia University Graduate School of Business since 1991; Trustee, Phillips Exeter Academy since 2002; Chairman, Wave Hill, Inc. (public garden and cultural center) from 1990 to 2006.	33 RICs consisting of 107 Portfolios	None
Dr. Matina S. Horner 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Executive Vice President of Teachers Insurance and Annuity Association and College Retirement Equities Fund from 1989 to 2003.	33 RICs consisting of 107 Portfolios	NSTAR (electric and gas utility)
Herbert I. London 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Professor Emeritus, New York University since 2005; John M. Olin Professor of Humanities, New York University from 1993 to 2005 and Professor thereof from 1980 to 2005; President, Hudson Institute (policy research organization) since 1997 and Trustee thereof since 1980; Chairman of the Board of Trustees for Grantham University since 2006; Director, InnoCentive, Inc. (strategic solutions company) since 2005; Director, Cerego, LLC (software development and design) since 2005; Director, Cybersettle (dispute resolution technology) since 2009.	33 RICs consisting of 107 Portfolios	AIMS Worldwide, Inc. (marketing)
Cynthia A. Montgomery 55 East 52nd Street New York, NY 10055 1952	Trustee	Since 2009	Professor, Harvard Business School since 1989; Director, McLean Hospital since 2005; Director, Harvard Business School Publishing from 2005 to 2010.	33 RICs consisting of 107 Portfolios	Newell Rubbermaid, Inc. (manufacturing)
Joseph P. Platt 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2009	Director, The West Penn Allegheny Health System (a not-for-profit health system) since 2008; Director, Jones and Brown (Canadian insurance broker) since 1998; General Partner, Thorn Partners, LP (private investment) since 1998; Director, WQED Multi-Media (public broadcasting not-for-profit) since 2001; Partner, Amarna Corporation, LLC (private investment company) from 2002 to 2008.	33 RICs consisting of 107 Portfolios	Greenlight Capital Re, Ltd. (reinsurance company)
Robert C. Robb, Jr. 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Partner, Lewis, Eckert, Robb and Company (management and financial consulting firm) since 1981.	33 RICs consisting of 107 Portfolios	None
Toby Rosenblatt 55 East 52nd Street New York, NY 10055 1938	Trustee	Since 2009	President, Founders Investments Ltd. (private investments) since 1999; Director, College Access Foundation of California (philanthropic foundation) since 2009; Director, Forward Management, LLC since 2007; Director, A.P. Pharma, Inc. (specialty pharmaceuticals) from 1983 to 2011; Director, The James Irvine Foundation (philanthropic foundation) from 1998 to 2008.	33 RICs consisting of 107 Portfolios	None

70 BLACKROCK FUNDS III DECEMBER 31, 2011

Officers and Trustees (continued)

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1 (concluded)
Kenneth L. Urish 55 East 52nd Street New York, NY 10055 1951	Trustee	Since 2009	Managing Partner, Urish Popeck & Co., LLC (certified public accountants and consultants) since 1976; Chairman Elect of the Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants and Committee Member thereof since 2007; Member of External Advisory Board, The Pennsylvania State University Accounting Department since 2001; Trustee, The Holy Family Foundation from 2001 to 2010; President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Director, Inter-Tel from 2006 to 2007.	33 RICs consisting of 107 Portfolios	None
Frederick W. Winter 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Professor and Dean Emeritus of the Joseph M. Katz School of Business, University of Pittsburgh since 2005 and Dean thereof from 1997 to 2005; Director, Alkon Corporation (pneumatics) since 1992; Director, Tippman Sports (recreation) since 2005; Director, Indotronix International (IT services) from 2004 to 2008.	33 RICs consisting of 107 Portfolios	None
	1   Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved extensions in terms of Trustees who turn 72 prior to December 31, 2013. 2   Date shown is the earliest date a person has served for the Fund covered by this annual report. Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. (“BlackRock”) in September 2006, the various legacy MLIM and legacy BlackRock Fund boards were realigned and consolidated into three new Fund boards in 2007. As a result, although the chart shows certain Trustees as joining the Trust’s/MIP’s board in 2007, each Trustee first became a member of the board of other legacy MLIM or legacy BlackRock Funds as follows: David O. Beim, 1998; Ronald W. Forbes, 1977; Dr. Matina S. Horner, 2004; Rodney D. Johnson, 1995; Herbert I. London, 1987; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Robert C. Robb, Jr., 1998; Toby Rosenblatt, 2005; Kenneth L. Urish, 1999; and Frederick W. Winter, 1999.
Interested Trustees3
Paul L. Audet 55 East 52nd Street New York, NY 10055 1953	Trustee	Since 2011	Senior Managing Director, BlackRock, and Head of BlackRock’s Real Estate business from 2008 to 2011; Member of BlackRock’s Global Operating and Corporate Risk Management Committees and of the BlackRock Alternative Investors Executive Committee and Investment Committee for the Private Equity Fund of Funds business since 2008; Head of BlackRock’s Global Cash Management business from 2005 to 2010; Acting Chief Financial Officer of BlackRock from 2007 to 2008; Chief Financial Officer of BlackRock from 1998 to 2005.	159 RICs consisting of 286 Portfolios	None
Henry Gabbay 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2007	Consultant, BlackRock from 2007 to 2008; Managing Director, BlackRock from 1989 to 2007; Chief Administrative Officer, BlackRock Advisors, LLC from 1998 to 2007; President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007 and Treasurer of certain closed-end funds in the BlackRock fund complex from 1989 to 2006.	159 RICs consisting of 286 Portfolios	None
	3   Mr. Audet is an “interested person,” as defined in the 1940 Act, of the Trust/MIP based on his position with BlackRock and its affiliates. Mr. Gabbay is an “interested person” of the Trust/MIP based on his former positions with BlackRock and its affiliates as well as his ownership of BlackRock and The PNC Financial Services Group, Inc. securities. Mr. Audet and Mr. Gabbay are also Trustees of the BlackRock registered closed-end funds and Trustees of other BlackRock registered open-end funds. Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.

BLACKROCK FUNDS III DECEMBER 31, 2011 71

Officers and Trustees (concluded)

Name, Address and Year of Birth	Position(s) Held with the Trust/MIP	Length of Time Served	Principal Occupation(s) During Past Five Years
Trust/MIP Officers*
John M. Perlowski 55 East 52nd Street New York, NY 10055 1964	President and Chief Executive Officer	Since 2010	Managing Director of BlackRock since 2009; Global Head of BlackRock Fund Administration since 2009; Managing Director and Chief Operating Officer of the Global Product Group at Goldman Sachs Asset Management, L.P. from 2003 to 2009; Treasurer of Goldman Sachs Mutual Funds from 2003 to 2009 and Senior Vice President thereof from 2007 to 2009; Director of Goldman Sachs Offshore Funds from 2002 to 2009; Director of Family Resource Network (charitable foundation) since 2009.
Richard Hoerner, CFA 55 East 52nd Street New York, NY 10055 1958	Vice President	Since 2009	Managing Director of BlackRock since 2000; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2002; Member of the Cash Management Group Executive Committee since 2005.
Brendan Kyne 55 East 52nd Street New York, NY 10055 1977	Vice President	Since 2009	Managing Director of BlackRock since 2010; Director of BlackRock from 2008 to 2009; Head of Product Development and Management for BlackRock’s U.S. Retail Group since 2009 and Co-head thereof from 2007 to 2009; Vice President of BlackRock from 2005 to 2008.
Simon Mendelson 55 East 52nd Street New York, NY 10055 1964	Vice President	Since 2009	Managing Director of BlackRock since 2005; Co-head of the Global Cash and Securities Lending Group since 2010; Chief Operating Officer and Head of the Global Client Group for BlackRock’s Global Cash Management Business from 2007 to 2010; Head of BlackRock’s Strategy and Development Group from 2005 to 2007; Partner of McKinsey & Co. from 1997 to 2005.
Christopher Stavrakos, CFA 55 East 52nd Street New York, NY 10055 1959	Vice President	Since 2009	Managing Director of BlackRock since 2006; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2006; Senior Vice President, CIO, and Director of Liability Management for the Securities Lending Group at Mellon Bank from 1999 to 2006.
Neal Andrews 55 East 52nd Street New York, NY 10055 1966	Chief Financial Officer	Since 2007	Managing Director of BlackRock since 2006; Senior Vice President and Line of Business Head of Fund Accounting and Administration at PNC Global Investment Servicing (U.S.) Inc. from 1992 to 2006.
Jay Fife 55 East 52nd Street New York, NY 10055 1970	Treasurer	Since 2007	Managing Director of BlackRock since 2007; Director of BlackRock in 2006; Assistant Treasurer of the MLIM and Fund Asset Management, L.P. advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006.
Brian Kindelan 55 East 52nd Street New York, NY 10055 1959	Chief Compliance Officer and Anti-Money Laundering Officer	Since 2007	Chief Compliance Officer of the BlackRock-advised funds since 2007; Managing Director and Senior Counsel of BlackRock since 2005.
Ira P. Shapiro 55 East 52nd Street New York, NY 10055 1963	Secretary	Since 2010	Managing Director of BlackRock since 2009; Managing Director and Associate General Counsel of Barclays Global Investors from 2008 to 2009 and Principal thereof from 2004 to 2008.
	*  Officers of the Trust/MIP serve at the pleasure of the Board of Trustees.

Investment Advisor BlackRock Fund Advisors San Francisco, CA 94105	Administrator BlackRock Institutional Trust Company, N.A. San Francisco, CA 94105	Custodian State Street Bank and Trust Company Boston, MA 02110	Transfer Agent BNY Mellon Investment Servicing (US) Inc. Wilmington, DE 19809	Accounting Agent State Street Bank and Trust Company Boston, MA 02110	Distributor BlackRock Investments, LLC New York, NY 10022
			Legal Counsel Sidley Austin LLP New York, NY 10019	Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP New York, NY 10017	Address of the Funds 400 Howard Street San Francisco, CA 94105

72 BLACKROCK FUNDS III DECEMBER 31, 2011

Additional Information

General Information

Availability of Quarterly Portfolio Schedule

Each Portfolio/Master Portfolio files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Each Portfolio’s/Master Portfolio’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on how to access documents on the SEC’s website without charge may be obtained by calling (800) SEC-0330. Each Portfolio’s/Master Portfolio’s Forms N-Q may also be obtained upon request and without charge by calling (800) 441-7762.

Availability of Proxy Voting Policies and Procedures

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

Availability of Proxy Voting Record

Information about how each Portfolio/Master Portfolio voted proxies relating to securities held in the Portfolio’s/Master Portfolio’s portfolios during the most recent 12-month period ended December 31 is available upon request and without charge (1) at http://www.blackrock.com or by calling (800) 441-7762 and (2) on the SEC’s website at http://www.sec.gov.

Shareholder Privileges

Account Information

Call us at (800) 441-7762 from 8:00 AM to 6:00 PM EST on any business day to get information about your account balances, recent trans-

actions and share prices. You can also reach us on the Web at http://www.blackrock.com/funds.

BlackRock Privacy Principles

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

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

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

consumer reporting agency; and (iv) from visits to our websites.

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

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

BLACKROCK FUNDS III DECEMBER 31, 2011 73

A World-Class 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.

Equity Funds

BlackRock ACWI ex-US Index Fund

BlackRock All-Cap Energy & Resources Portfolio

BlackRock Asset Allocation Portfolio†

BlackRock Balanced Capital Fund†

BlackRock Basic Value Fund

BlackRock Capital Appreciation Fund

BlackRock China Fund

BlackRock Commodity Strategies Fund

BlackRock Emerging Markets Long/Short Equity Fund

BlackRock Energy & Resources Portfolio

BlackRock Equity Dividend Fund

BlackRock EuroFund

BlackRock Focus Growth Fund

BlackRock Global Allocation Fund†

BlackRock Global Dividend Income Portfolio

BlackRock Global Dynamic Equity Fund

BlackRock Global Emerging Markets Fund

BlackRock Global Opportunities Portfolio

BlackRock Global SmallCap Fund

BlackRock Health Sciences Opportunities Portfolio

BlackRock Index Equity Portfolio

BlackRock India Fund

BlackRock International Fund

BlackRock International Index Fund

BlackRock International Opportunities Portfolio

BlackRock Large Cap Core Fund

BlackRock Large Cap Core Plus Fund

BlackRock Large Cap Growth Fund

BlackRock Large Cap Value Fund

BlackRock Latin America Fund

BlackRock Mid-Cap Growth Equity Portfolio

BlackRock Mid-Cap Value Equity Portfolio

BlackRock Mid Cap Value Opportunities Fund

BlackRock Natural Resources Trust

BlackRock Pacific Fund

BlackRock Russell 1000 Index Fund

BlackRock Science & Technology Opportunities Portfolio

BlackRock Small Cap Growth Equity Portfolio

BlackRock Small Cap Growth Fund II

BlackRock Small Cap Index Fund

BlackRock S&P 500 Index Fund

BlackRock S&P 500 Stock Fund

BlackRock U.S. Opportunities Portfolio

BlackRock Value Opportunities Fund

BlackRock World Gold Fund

Fixed Income Funds

BlackRock Bond Index Fund

BlackRock Core Bond Portfolio

BlackRock Emerging Market Debt Portfolio

BlackRock Floating Rate Income Portfolio

BlackRock Global Long/Short Credit Fund

BlackRock GNMA Portfolio

BlackRock High Yield Bond Portfolio

BlackRock Inflation Protected Bond Portfolio

BlackRock International Bond Portfolio

BlackRock Long Duration Bond Portfolio

BlackRock Low Duration Bond Portfolio

BlackRock Multi-Asset Income Portfolio†

BlackRock Multi-Sector Bond Portfolio

BlackRock Strategic Income Opportunities Portfolio

BlackRock Total Return Fund

BlackRock US Government Bond Portfolio

BlackRock World Income Fund

US Mortgage Portfolio

Municipal Bond Funds

BlackRock California Municipal Bond Fund

BlackRock High Yield Municipal Fund

BlackRock Intermediate Municipal Fund

BlackRock National Municipal Fund

BlackRock New Jersey Municipal Bond Fund

BlackRock New York Municipal Bond Fund

BlackRock Pennsylvania Municipal Bond Fund

BlackRock Short-Term Municipal Fund

Target Risk & Target Data Funds†

BlackRock Prepared Portfolios	BlackRock Lifecycle Prepared Portfolios		LifePath Portfolios Retirement		LifePath Index Portfolios Retirement
Conservative Prepared Portfolio	2015	2035	2020	2040	2020	2040
Moderate Prepared Portfolio	2020	2040	2025	2045	2025	2045
Growth Prepared Portfolio	2025	2045	2030	2050	2030	2050
Aggressive Growth Prepared Portfolio	2030	2050	2035	2055	2035	2055

† Mixed asset fund.

BlackRock mutual funds are currently distributed by BlackRock Investments, LLC. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund’s prospectus contains this and other information and is available at www.blackrock.com or by calling (800) 441-7762 or from your financial advisor. The prospectus should be read carefully before investing.

74 BLACKROCK FUNDS III DECEMBER 31, 2011

This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Funds unless accompanied or preceded by that 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.

Investment in foreign securities involves special risks including fluctuating foreign exchange rates, foreign government regulations, differing degrees of liquidity and the possibility of substantial volatility due to adverse political, economic or other developments.

#LPindex-12/11

December 31, 2011

Annual Report

BlackRock Funds III

^u  BlackRock Cash Funds: Government

^u  BlackRock Cash Funds: Institutional

^u  BlackRock Cash Funds: Prime

^u  BlackRock Cash Funds: Treasury

Not FDIC Insured     No Bank Guarantee    May Lose Value

Table of Contents

	Page
Dear Shareholder		3
Money Market Overview		4
Annual Report:
Fund Information		5
Disclosure of Expenses		6
Fund Financial Statements:
Statements of Assets and Liabilities		7
Statements of Operations		9
Statements of Changes in Net Assets		10
Fund Financial Highlights		12
Fund Notes to Financial Statements		35
Fund Report of Independent Registered Public Accounting Firm		39
Important Tax Information		39
Master Portfolio Information		40
Master Portfolio Financial Statements:
Schedules of Investments		41
Statements of Assets and Liabilities		48
Statements of Operations		49
Statements of Changes in Net Assets		50
Master Portfolio Financial Highlights		51
Master Portfolio Notes to Financial Statements		53
Master Portfolio Report of Independent Registered Public Accounting Firm		55
Officers and Trustees		56
Additional Information		59

2 BLACKROCK FUNDS III DECEMBER 31, 2011

Dear Shareholder

Investors endured a very difficult environment in 2011. Financial markets were extremely volatile as a number of high-profile global events drove frequent about-face changes in investor sentiment. As the year progressed, news flow increasingly influenced trading decisions, to the point where company fundamentals were largely ignored. In the end, lower-risk assets won the “risk on – risk off” trading tug-of-war that characterized 2011’s market activity.

Early in the year, political turmoil swept across the Middle East/North Africa region and prices of oil and other commodities soared. Natural disasters in Japan disrupted global supply chains and concerns mounted regarding US debt and deficit issues. Nevertheless, equities, commodities and high yield bonds outpaced the less risky asset classes as investors chose to focus on the continuing stream of strong corporate earnings and positive economic data.

Markets reversed sharply in May, however, when the heightened possibility of Greece defaulting on its debt rekindled fears about sovereign debt problems spreading across Europe. Concurrently, economic indicators signaled that the recovery had slowed in the United States and other developed nations. Confidence was further shaken by the prolonged debt ceiling debate in Washington, DC. On August 5^th, Standard & Poor’s downgraded the US government’s credit rating and turmoil erupted in financial markets around the world. Extraordinary levels of volatility persisted in the months that followed as Greece teetered on the brink of default, debt problems escalated in Italy and Spain, and exposure to European sovereign bonds stressed banks globally. Late in the summer, economic data out of the United States and Europe grew increasingly bleak while China and other emerging economies began to show signs of slowing growth. By the end of the third quarter, equity markets had fallen nearly 20% from their April peak while safe-haven assets such as US Treasuries and gold had rallied to historical highs.

October brought enough positive economic data to assuage fears of a global double-dip recession. Additionally, after months of deliberation, European leaders began to show signs of progress toward stemming the region’s debt crisis. These encouraging developments brought investors back from the sidelines and risk assets rallied through the month. However, a lack of definitive details about Europe’s rescue plan soon raised doubts among investors and thwarted the rally at the end of October. The last two months of the year saw political instability in Greece, unsustainable yields on Italian bonds, and US policymakers bickering over budget issues. Global central bank actions and improving economic data energized investors, but confidence was easily tempered by sobering news flow that resurrected uncertainty about the ability of Europe’s leaders to ultimately contain the debt crisis.

Most equity markets failed to fully recover their late-summer losses, although US large cap stocks managed to finish the year with a marginal gain given their perceived safety and stronger US economic data. Conditions were worse overseas, and international markets experienced some significant downturns. Dividend-paying stocks performed relatively well as investors sought yield in the low interest rate environment. Fixed income securities benefited from declining yields and delivered positive returns for the year. US Treasury bonds outperformed other fixed income classes despite their quality rating downgrade, while municipal bonds also delivered superior results. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

Many of the themes that caused uncertainty in 2011 are likely to persist well into 2012. While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“While the investment landscape appears treacherous, BlackRock is working for you. We have a roadmap to show you the way.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of December 31, 2011
	6-month			12-month
US large cap equities (S&P 500 Index)		(3.69	)%		2.11	%
US small cap equities (Russell 2000 Index)		(9.77	)		(4.18	)
International equities (MSCI Europe, Australasia, Far East Index)		(16.31	)		(12.14	)
Emerging market equities (MSCI Emerging Markets Index)		(19.13	)		(18.42	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.02			0.10
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		13.46			17.15
US investment grade bonds (Barclays Capital US Aggregate Bond Index)		4.98			7.84
Tax-exempt municipal bonds (S&P Municipal Bond Index)		5.78			10.62
US high yield bonds (Barclays Capital US Corporate High Yield 2% Issuer Capped Index)		(0.02	)		4.96
Past performance is no guarantee of future results. Index performance shown for illustrative purposes only. You cannot invest directly in an index.

THIS PAGE NOT PART OF YOUR FUND REPORT 3

Money Market Overview

For the 12-month period ended December 31, 2011

Throughout the 12-month period ended December 31, 2011, the Federal Open Market Committee (“FOMC”) maintained its target range for the federal funds rate at 0.00% to 0.25%. In June 2011, the FOMC completed its program under which it purchased $600 billion of longer-term US Treasury securities for the purpose of keeping interest rates low. Following its August 9th meeting, the FOMC announced its intention to keep rates low through mid-2013. At its September 21st meeting, the FOMC noted that recent data indicates that economic growth remained slow and inflation had moderated since earlier in the year. Considering these conditions, the FOMC announced its intention to extend the average duration of the US Treasury security portfolio by purchasing an additional $400 billion of long-term Treasury bonds and selling an equal amount of short-term Treasury securities before the end of June 2012. Known as “Operation Twist,” this policy action is designed to put downward pressure on long-term interest rates and make overall conditions more accommodative for economic growth.

In Europe, the sovereign debt crisis escalated in mid-2011 as fiscal problems spread from the peripheral countries of Greece, Portugal and Ireland to the larger nations of Italy and Spain, and ultimately to the core European economies of France and Germany. To help support bank liquidity, the US Federal Reserve Bank lengthened the term of its US dollar liquidity swap facilities with the European Central Bank (“ECB”), the Bank of Canada, the Bank of England and the Swiss National Bank to August 1, 2012. Later in the period, the aforementioned central banks along with the Bank of Japan agreed to reduce the interest rate on loans made through US dollar liquidity swap lines by fifty basis points, thus making it less expensive for banks around the world to borrow US dollars.

In December, the ECB expanded its long-term refinancing operations (“LTRO”) by allowing Euro-zone banks to access loans with maturities of three years against a broader set of eligible collateral. In its first 3-year allotment, 523 banks borrowed €489 billion from the ECB. The second 3-year LTRO is scheduled for February 2012.

London Interbank Offered Rates (“LIBOR”) moved higher by as much as 0.35% during the 12-month period, due in large part to ongoing concerns about European sovereign debt risk. The slope of the LIBOR curve, as measured from one month to one year, steepened to 0.83% at the end of December, from 0.52% a year earlier.

In the short-term tax-exempt market, yields continued to trade at or near historic lows in the 12-month period ended December 31, 2011. The benchmark Securities Industry and Financial Markets Association (“SIFMA”) Index, which represents the average rate on seven-day, high-quality, tax-exempt variable rate demand obligations (as calculated by Municipal Market Data), averaged 0.18% for the period, four basis points lower than the previous 12 months. Longer dated 1-year note levels also moved lower falling by 12 basis points to finish 2011 in the 25 basis points range. The zero interest rate policy by the Federal Reserve and continued strong demand by non-traditional buyers, especially in the variable rate space, were important contributing factors to these lower yields.

Against this rate backdrop, municipal money funds continued to experience outflows in 2011 with total assets falling by 11.5% to $290 billion. Funds were conservative with respect to duration and maintained ample short-term liquidity that positioned weighted average maturities for much of the year in the 30- to 35-day range out of a maximum of 60 days.

The credit outlook for municipals improved in 2011 as tax receipts trended higher and state and local governments were proactive in addressing structural budget imbalances. While this resulted in significant progress with respect to deficit reduction it also contributed to a meaningful decrease in the amount of new issuance on the short end of the curve. For 2011, variable rate supply was down 20% while note issuance fell by 14% over the same period. This trend is expected to continue in 2012 as municipalities look to limit spending further in the face of diminishing stimulus from the federal government.

Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

4 BLACKROCK FUNDS III DECEMBER 31, 2011

Fund Information as of December 31, 2011 BlackRock Funds III

BlackRock Cash Funds: Government

BlackRock Cash Funds: Government’s (the “Fund”) investment objective is to seek a high level of current income consistent with the preservation of capital and liquidity.

	7-Day SEC Yield			7-Day Yield
Select		0.00	%		0.00	%
Trust		0.00	%		0.00	%

BlackRock Cash Funds: Institutional

BlackRock Cash Funds: Institutional’s (the “Fund”) investment objective is to seek a high level of income consistent with liquidity and the preservation of capital.

	7-Day SEC Yield			7-Day Yield
Aon Captives		0.09	%		0.10	%
Institutional		0.19	%		0.20	%
Select		0.11	%		0.12	%
SL Agency		0.22	%		0.23	%
Trust		0.00	%		0.01	%

BlackRock Cash Funds: Prime

BlackRock Cash Funds: Prime’s (the “Fund”) investment objective is to seek a high level of income consistent with liquidity and the preservation of capital.

	7-Day SEC Yield			7-Day Yield
Capital		0.13	%		0.13	%
Institutional		0.15	%		0.15	%
Premium		0.10	%		0.10	%
Select		0.07	%		0.07	%
SL Agency		0.18	%		0.18	%
Trust		0.00	%		0.00	%

BlackRock Cash Funds: Treasury

BlackRock Cash Funds: Treasury’s (the “Fund”) investment objective is to seek a high level of current income consistent with the preservation of capital and liquidity.

	7-Day SEC Yield			7-Day Yield
Capital		0.00	%		0.02	%
Institutional		0.00	%		0.02	%
Select		0.00	%		0.02	%
SL Agency		0.00	%		0.02	%
Trust		0.00	%		0.02	%

The 7-Day SEC Yields shown above may differ from the 7-Day Yields shown due to the fact that the 7-Day SEC Yields exclude distributed capital gains.

Past performance is not indicative of future results.

BLACKROCK FUNDS III DECEMBER 31, 2011 5

Disclosure of Expenses BlackRock Funds III

Shareholders of the Funds may incur the following charges: (a) expenses related to transactions, including sales charges and exchange fees; and (b) operating expenses including administration fees, service and/or distribution fees, including 12b-1 fees, and other Fund expenses. The expense examples shown below (which are based on a hypothetical investment of $1,000 invested on July 1, 2011 and held through December 31, 2011) are intended to assist shareholders both in calculating expenses based on an investment in the Funds and in comparing these expenses with similar costs of investing in other mutual funds.

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

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

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

	Actual						Hypothetical2
	Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the  Period1		Beginning Account Value July 1, 2011		Ending Account Value December 31, 2011		Expenses Paid During the  Period1		Annualized Expense Ratio
BlackRock Cash Funds: Government
Select		$1,000.00		$1,000.20		$0.35		$1,000.00		$1,024.85		$0.36		0.07%
Trust		$1,000.00		$1,000.20		$0.35		$1,000.00		$1,024.85		$0.36		0.07%
BlackRock Cash Funds: Institutional
Aon Captives		$1,000.00		$1,000.30		$1.11		$1,000.00		$1,024.10		$1.12		0.22%
Institutional		$1,000.00		$1,000.90		$0.61		$1,000.00		$1,024.60		$0.61		0.12%
Select		$1,000.00		$1,000.50		$1.01		$1,000.00		$1,024.20		$1.02		0.20%
SL Agency		$1,000.00		$1,001.00		$0.45		$1,000.00		$1,024.75		$0.46		0.09%
Trust		$1,000.00		$1,000.10		$1.41		$1,000.00		$1,023.79		$1.43		0.28%
BlackRock Cash Funds: Prime
Capital		$1,000.00		$1,000.60		$0.71		$1,000.00		$1,024.50		$0.71		0.14%
Institutional		$1,000.00		$1,000.70		$0.61		$1,000.00		$1,024.60		$0.61		0.12%
Premium		$1,000.00		$1,000.50		$0.86		$1,000.00		$1,024.35		$0.87		0.17%
Select		$1,000.00		$1,000.30		$1.01		$1,000.00		$1,024.20		$1.02		0.20%
SL Agency		$1,000.00		$1,000.90		$0.45		$1,000.00		$1,024.75		$0.46		0.09%
Trust		$1,000.00		$1,000.00		$1.31		$1,000.00		$1,023.90		$1.33		0.26%
BlackRock Cash Funds: Treasury
Capital		$1,000.00		$1,000.30		$0.35		$1,000.00		$1,024.85		$0.36		0.07%
Institutional		$1,000.00		$1,000.30		$0.40		$1,000.00		$1,024.80		$0.41		0.08%
Select		$1,000.00		$1,000.30		$0.40		$1,000.00		$1,024.80		$0.41		0.08%
SL Agency		$1,000.00		$1,000.30		$0.35		$1,000.00		$1,024.85		$0.36		0.07%
Trust		$1,000.00		$1,000.30		$0.40		$1,000.00		$1,024.80		$0.41		0.08%

¹  For each class, 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 one-half year period shown). Because the Funds invest significantly in the Master Portfolios, the expense table examples reflect the net expenses of both the Funds and the Master Portfolio in which it invests.

²  Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the most recent fiscal half year divided by 365.

6 BLACKROCK FUNDS III DECEMBER 31, 2011

Statements of Assets and Liabilities BlackRock Funds III

December 31, 2011	BlackRock Cash Funds: Government		BlackRock Cash Funds: Institutional		BlackRock Cash Funds: Prime			BlackRock Cash Funds: Treasury
Assets
Investments at value — from the applicable Master Portfolio1,2	$	10,354,806	$	27,973,950,074	$	9,131,242,565		$	746,962,163
Receivable from administrator		1,146		—		—			—
Total assets		10,355,952		27,973,950,074		9,131,242,565			746,962,163
Liabilities
Income dividends payable		—		3,623,788		1,180,446			56,791
Administration fees payable		—		564,343		337,955			729
Distribution fees payable — Aon Captives		—		2,311		—			—
Professional fees payable		12,784		12,786		12,786			12,786
Total liabilities		12,784		4,203,228		1,531,187			70,306
Net Assets	$	10,343,168	$	27,969,746,846	$	9,129,711,378		$	746,891,857
Net Assets Consist of
Paid-in capital	$	10,343,103	$	27,968,996,521	$	9,131,203,319		$	746,883,346
Accumulated net realized gain (loss)		65		750,325		(1,491,941	)		8,511
Net Assets	$	10,343,168	$	27,969,746,846	$	9,129,711,378		$	746,891,857
1 Investments at cost	$	10,354,806	$	27,973,950,074	$	9,131,242,565		$	746,962,163
2 Government Money Market Master Portfolio, Money Market Master Portfolio, Prime Money Market Master Portfolio and Treasury Money Market Master Portfolio (each, a “Master Portfolio”), respectively.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	7

Statements of Assets and Liabilities (concluded) BlackRock Funds III

December 31, 2011	BlackRock Cash Funds: Government		BlackRock Cash Funds: Institutional		BlackRock Cash Funds: Prime		BlackRock Cash Funds: Treasury
Net Asset Value
Aon Captives
Net Assets	$	—	$	9,167,302	$	—	$	—
Shares outstanding3		—		9,166,182		—		—
Net asset value	$	—	$	1.00	$	—	$	—
Capital
Net Assets	$	—	$	—	$	456,656,539	$	18,369,949
Shares outstanding3		—		—		456,760,981		18,375,000
Net asset value	$	—	$	—	$	1.00	$	1.00
Institutional
Net Assets	$	—	$	1,089,872,255	$	2,282,923,166	$	8,941,272
Shares outstanding3		—		1,089,777,718		2,283,516,497		8,943,710
Net asset value	$	—	$	1.00	$	1.00	$	1.00
Premium
Net Assets	$	—	$	—	$	1,460,178,000	$	—
Shares outstanding3		—		—		1,460,345,113		—
Net asset value	$	—	$	—	$	1.00	$	—
Select
Net Assets	$	8,973,377	$	44,788,065	$	69,779,095	$	13,118,697
Shares outstanding3		8,973,314		44,788,932		69,803,374		13,122,340
Net asset value	$	1.00	$	1.00	$	1.00	$	1.00
SL Agency
Net Assets	$	—	$	26,815,278,807	$	4,830,517,179	$	682,864,611
Shares outstanding3		—		26,815,953,098		4,831,223,448		682,843,247
Net asset value	$	—	$	1.00	$	1.00	$	1.00
Trust
Net Assets	$	1,369,791	$	10,640,417	$	29,657,399	$	23,597,328
Shares outstanding3		1,369,789		10,641,377		29,662,283		23,599,051
Net asset value	$	1.00	$	1.00	$	1.00	$	1.00

³  No par value, unlimited number of shares authorized.

See Notes to Financial Statements.
8	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Operations BlackRock Funds III

Year Ended December 31, 2011	BlackRock Cash Funds: Government			BlackRock Cash Funds: Institutional			BlackRock Cash Funds: Prime			BlackRock Cash Funds: Treasury
Investment Income
Net investment income allocated from the applicable Master Portfolio:
Income	$	178,101		$	77,559,787		$	27,191,953		$	959,409
Expenses		(135,478	)		(27,466,460	)		(9,824,414	)		(969,575	)
Fees waived		58,782			8,543,748			3,066,109			373,632
Total income		101,405			58,637,075			20,433,648			363,466
Expenses
Administration — class specific		44,690			5,836,132			4,876,087			270,463
Service — Aon Captives		—			15,801			—			—
Professional		15,816			15,816			15,816			15,837
Total expenses		60,506			5,867,749			4,891,903			286,300
Less fees waived by administrator — class specific		(20,051	)		(21,513	)		(66,973	)		(142,750	)
Less fees reimbursed by administrator		(15,816	)		(15,816	)		(15,816	)		(15,816	)
Total expenses after fees waived		24,639			5,830,420			4,809,114			127,734
Net investment income		76,766			52,806,655			15,624,534			235,732
Realized Gain Allocated from the Master Portfolios
Net realized gain from investments		—			1,739,894			1,500,843			19,669
Net Increase in Net Assets Resulting from Operations	$	76,766		$	54,546,549		$	17,125,377		$	255,401

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	9

Statements of Changes in Net Assets BlackRock Funds III

	BlackRock Cash Funds: Government						BlackRock Cash Funds: Institutional
	Year Ended December 31,						Year Ended December 31,
Increase (Decrease) in Net Assets:	2011			2010			2011			2010
Operations
Net investment income	$	76,766		$	136,686		$	52,806,655		$	42,802,481
Net realized gain		—			2,954			1,739,894			1,533,172
Net increase in net assets resulting from operations		76,766			139,640			54,546,549			44,335,653
Dividends and Distributions to Shareholders From
Net investment income:
Aon Captives		—			—			(11,185	)		(71,463	)
Capital		—			—			—			(322,253	)
Institutional		(879	)		(37,830	)		(1,993,214	)		(1,563,708	)
Premium		—			—			—			(23,806	)
Select		(133	)		(8,003	)		(21,870	)		(29,103	)
SL Agency		(75,750	)		(88,963	)		(50,780,386	)		(40,790,821	)
Trust		(4	)		(1,890	)		—			(1,327	)
Net realized gain:
Aon Captives		—			—			(569	)		(3,891	)
Capital		—			—			—			(5,488	)
Institutional		—			(394	)		(107,118	)		(70,937	)
Premium		—			—			—			(158	)
Select		(2,045	)		(74	)		(1,564	)		(1,821	)
SL Agency		—			—			(1,794,681	)		(1,286,835	)
Trust		(355	)		(21	)		(751	)		(555	)
Decrease in net assets resulting from dividends and distributions to shareholders		(79,166	)		(137,175	)		(54,711,338	)		(44,172,166	)
Capital Share Transactions
Net increase (decrease) in net assets derived from capital share transactions		(16,112,757	)		(629,928,342	)		8,857,754,718			(1,184,480,338	)
Net Assets
Total increase (decrease) in net assets		(16,115,157	)		(629,925,877	)		8,857,589,929			(1,184,316,851	)
Beginning of year		26,458,325			656,384,202			19,112,156,917			20,296,473,768
End of year	$	10,343,168		$	26,458,325		$	27,969,746,846		$	19,112,156,917

See Notes to Financial Statements.
10	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Changes in Net Assets (concluded) BlackRock Funds III

	BlackRock Cash Funds: Prime						BlackRock Cash Funds: Treasury
	Year Ended December 31,						Year Ended December 31,
Increase (Decrease) in Net Assets:	2011			2010			2011			2010
Operations
Net investment income	$	15,624,534		$	20,508,082		$	235,732		$	4,640,815
Net realized gain		1,500,843			1,317,216			19,669			293,999
Net increase in net assets resulting from operations		17,125,377			21,825,298			255,401			4,934,814
Dividends and Distributions to Shareholders From
Net investment income:
Capital		(870,399	)		(784,850	)		(1,304	)		(34,225	)
Institutional		(5,027,475	)		(6,796,261	)		(3,362	)		(73,605	)
Premium		(2,034,580	)		(2,073,025	)		—			(625	)
Select		(65,381	)		(100,741	)		—			(740	)
SL Agency		(7,626,699	)		(10,747,124	)		(231,066	)		(4,521,543	)
Trust		—			(6,081	)		—			(10,077	)
Net realized gain:
Capital		—			—			(5,607	)		(10,213	)
Institutional		—			—			(2,525	)		(3,678	)
Select		—			—			(3,953	)		(40	)
SL Agency		—			—			(233,923	)		(65,356	)
Trust		—			—			(5,751	)		(713	)
Decrease in net assets resulting from dividends and distributions to shareholders		(15,624,534	)		(20,508,082	)		(487,491	)		(4,720,815	)
Capital Share Transactions
Net decrease in net assets derived from capital share transactions		(6,805,294	)		(2,402,394,681	)		(988,554,001	)		(2,399,013,443	)
Net Assets
Total decrease in net assets		(5,304,451	)		(2,401,077,465	)		(988,786,091	)		(2,398,799,444	)
Beginning of year		9,135,015,829			11,536,093,294			1,735,677,948			4,134,477,392
End of year	$	9,129,711,378		$	9,135,015,829		$	746,891,857		$	1,735,677,948

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	11

Financial Highlights BlackRock Cash Funds: Government

	Institutional
	Period January 1, 2011 to April 18, 20111			Year Ended December 31,
				2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0001			0.0008			0.0009			0.0200			0.0500
Dividends from net investment income		(0.0001	)		(0.0008	)		(0.0009	)		(0.0200	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return2
Based on net asset value		0.01%	3		0.09%			0.09%			1.96%			5.15%
Ratios to Average Net Assets4
Total expenses		0.13%	5,6		0.19%			0.15%			0.16%			0.18%
Total expenses after fees waived		0.11%	5,6		0.11%			0.08%			0.10%			0.12%
Net investment income		0.05%	5,6		0.09%			0.11%			0.29%			4.67%
Supplemental Data
Net assets, end of period (000)	$	—	1	$	5,663		$	10,496		$	1,594,728		$	3,031

¹  There were no Institutional Shares outstanding from April 19, 2011 through December 31, 2011.

²  Where applicable, total investment returns include the reinvestment of dividends and distributions.

³  Aggregate total investment return.

⁴  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which includes gross expenses.

⁵  Annualized.

⁶  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.06%.

See Notes to Financial Statements.
12	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) BlackRock Cash Funds: Government

	Select
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0002			0.0003			0.0008			0.0200			0.0500
Dividends from net investment income		(0.0002	)		(0.0003	)		(0.0008	)		(0.0200	)		(0.0500	)
Net asset value, end of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.02%			0.03%			0.08%			1.89%			5.06%
Ratios to Average Net Assets2
Total expenses		0.30%	3		0.29%			0.25%			0.23%			0.28%
Total expenses after fees waived		0.10%	3		0.13%			0.09%			0.07%			0.20%
Net investment income		0.00%	3		0.03%			0.08%			0.82%			5.03%
Supplemental Data
Net assets, end of year (000)	$	8,973		$	17,263		$	69,139		$	81,424		$	14,269

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which includes gross expenses.

³  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.17%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	13

Financial Highlights (continued) BlackRock Cash Funds: Government

	SL Agency
	Period January 1, 2011 to December  14, 20111			Period January 1, 2010 to March  14, 20102			Period February 4, 2009 to December 31, 20093
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00
Net investment income		0.0002			0.0002			0.0009
Dividends from net investment income		(0.0002	)		(0.0002	)		(0.0009	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00
Total Investment Return4,5
Based on net asset value		0.02%			0.02%			0.09%
Ratios to Average Net Assets6,7
Total expenses		0.10%	8		0.12%			0.12%
Total expenses after fees waived		0.09%	8		0.02%			0.07%
Net investment income		0.08%	8		0.08%			0.10%
Supplemental Data
Net assets, end of period (000)	$	—	1	$	—	2	$	563,288

¹  There were no SL Agency Shares outstanding from March 31, 2011 through December 1, 2011 and from December 15, 2011 through December 31, 2011.

²  There were no SL Agency Shares outstanding from March 15, 2010 through December 31, 2010.

³  Commencement of operations.

⁴  Where applicable, total investment returns include the reinvestment of dividends and distributions.

⁵  Aggregate total investment return.

⁶  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the periods ended March 14, 2010 and December 31, 2009, which includes gross expenses.

⁷  Annualized.

⁸  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.04%.

See Notes to Financial Statements.
14	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (concluded) BlackRock Cash Funds: Government

	Trust
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0002			0.0002			0.0008			0.0200			0.0500
Dividends from net investment income		(0.0002	)		(0.0002	)		(0.0008	)		(0.0200	)		(0.0500	)
Net asset value, end of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.02%			0.02%			0.08%			1.69%			4.80%
Ratios to Average Net Assets2
Total expenses		0.54%	3		0.53%			0.48%	4		0.47%			0.51%
Total expenses after fess waived		0.10%	3		0.15%			0.09%			0.07%			0.45%
Net investment income		0.00%	3		0.03%			0.08%			0.16%			4.78%
Supplemental Data
Net assets, end of year (000)	$	1,370		$	3,532		$	13,462		$	12,380		$	50

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which includes gross expenses.

³  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.18%.

⁴  Ratio revised to reflect exclusion of fees waived.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	15

Financial Highlights BlackRock Cash Funds: Institutional

	Aon Captives
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0008			0.0012			0.0033			0.0300			0.0500
Dividends from net investment income		(0.0008	)		(0.0012	)		(0.0033	)		(0.0300	)		(0.0500	)
Net asset value, end of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.08%			0.12%			0.33%			2.74%			5.26%
Ratios to Average Net Assets2
Total expenses		0.22%	3		0.25%			0.25%			0.26%			0.26%
Total expenses after fees waived		0.22%	3		0.22%			0.22%			0.23%			0.21%
Net investment income		0.07%	3		0.11%			0.35%			2.67%			5.12%
Supplemental Data
Net assets, end of year (000)	$	9,167		$	59,237		$	72,949		$	97,273		$	90,192

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which includes gross expenses.

³  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

See Notes to Financial Statements.
16	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) BlackRock Cash Funds: Institutional

	Capital
	Period January 1, 2010 to December 1, 20101			Year Ended December 31, 2009			Period February 28, 20082 to December  31, 2008
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00
Net investment income		0.0018			0.0041			0.0200
Dividends from net investment income		(0.0018	)		(0.0041	)		(0.0200	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00
Total Investment Return3
Based on net asset value		0.18%	4		0.41%			2.14%	4
Ratios to Average Net Assets5
Total expenses		0.17%	6		0.17%			0.19%	6
Total expenses after fees waived		0.14%	6		0.14%			0.14%	6
Net investment income		0.18%	6		0.33%			2.57%	6
Supplemental Data
Net assets, end of period (000)	$	—	1	$	277,382		$	101

¹  There were no Capital Shares outstanding from December 2, 2010 through December 31, 2010 and during the fiscal year ended December 31, 2011.

²  Commencement of operations.

³  Where applicable, total investment returns include the reinvestment of dividends and distributions.

⁴  Aggregate total investment return.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated gross expenses and/or net investment income.

⁶  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	17

Financial Highlights (continued) BlackRock Cash Funds: Institutional

	Institutional
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0018			0.0022			0.0043			0.0300			0.0500
Dividends from net investment income		(0.0018	)		(0.0022	)		(0.0043	)		(0.0300	)		(0.0500	)
Net asset value, end of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.18%			0.22%			0.43%			2.85%			5.36%
Ratios to Average Net Assets2
Total expenses		0.12%	3		0.15%			0.15%			0.15%			0.16%
Total expenses after fees waived		0.12%	3		0.12%			0.12%			0.12%			0.11%
Net investment income		0.17%	3		0.22%			0.78%			2.65%			5.25%
Supplemental Data
Net assets, end of year (000)	$	1,089,872		$	1,076,268		$	973,221		$	20,223,437		$	6,653,737

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which includes gross expenses.

³  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

See Notes to Financial Statements.
18	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) BlackRock Cash Funds: Institutional

	Premium
	Period January 1, 2010 to November 11, 20101			Year Ended December 31,
				2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0003			0.0038			0.0300			0.0500
Dividends from net investment income		(0.0003	)		(0.0038	)		(0.0300	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return2
Based on net asset value		0.03%	3		0.38%			2.80%			5.31%
Ratios to Average Net Assets4
Total expenses		0.20%	5		0.20%			0.21%			0.21%
Total expenses after fees waived		0.17%	5		0.17%			0.18%			0.16%
Net investment income		0.10%	5		0.48%			2.79%			5.21%
Supplemental Data
Net assets, end of period (000)	$	—	1	$	97,513		$	1,021,216		$	746,582

¹  There were no Premium Shares outstanding from November 12, 2010 through December 31, 2010 and during the fiscal year ended December 31, 2011.

²  Where applicable, total investment returns include the reinvestment of dividends and distributions.

³  Aggregate total investment return.

⁴  Includes the Fund’s share of the Master Portfolio’s allocated gross expenses and/or net investment income.

⁵  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	19

Financial Highlights (continued) BlackRock Cash Funds: Institutional

	Select
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0010			0.0014			0.0035			0.0300			0.0500
Dividends from net investment income		(0.0010	)		(0.0014	)		(0.0035	)		(0.0300	)		(0.0500	)
Net asset value, end of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.10%			0.14%			0.35%			2.76%			5.26%
Ratios to Average Net Assets2
Total expenses		0.22%	3		0.25%			0.23%			0.28%			0.25%
Total expenses after fees waived		0.20%	3		0.20%			0.20%			0.23%			0.20%
Net investment income		0.09%	3		0.13%			0.57%			2.05%			5.11%
Supplemental Data
Net assets, end of year (000)	$	44,788		$	29,944		$	23,204		$	10,014		$	4,807

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which includes gross expenses.

³  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

See Notes to Financial Statements.
20	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) BlackRock Cash Funds: Institutional

	SL Agency
	Year Ended December 31,						Period February 4, 20091 to December 31, 2009
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00
Net investment income		0.0021			0.0025			0.0035
Dividends from net investment income		(0.0021	)		(0.0025	)		(0.0035	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00
Total Investment Return2
Based on net asset value		0.21%			0.25%			0.36%	3
Ratios to Average Net Assets4
Total expenses		0.09%	5		0.12%			0.12%	6
Total expenses after fees waived		0.09%	5		0.09%			0.09%	6
Net investment income		0.20%	5		0.24%			0.38%	6
Supplemental Data
Net assets, end of period (000)	$	26,815,279		$	17,938,932		$	18,832,492

¹  Commencement of operations.

²  Where applicable, total investment returns include the reinvestment of dividends and distributions.

³  Aggregate total investment return.

⁴  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the year ended December 31, 2010 and the period ended December 31, 2009, which includes gross expenses.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

⁶  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	21

Financial Highlights (concluded) BlackRock Cash Funds: Institutional

	Trust
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0001			0.0001			0.0018			0.0200			0.0500
Dividends from net investment income		(0.0001	)		(0.0001	)		(0.0018	)		(0.0200	)		(0.0500	)
Net asset value, end of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.01%			0.01%			0.18%			2.51%			5.01%
Ratios to Average Net Assets2
Total expenses		0.45%	3		0.48%			0.48%			0.49%			0.48%
Total expenses after fess waived		0.29%	3		0.31%			0.40%			0.46%			0.43%
Net investment income		0.00%	3		0.01%			0.22%			2.50%			4.93%
Supplemental Data
Net assets, end of year (000)	$	10,640		$	7,776		$	19,713		$	76,334		$	85,774

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which includes gross expenses.

³  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

See Notes to Financial Statements.
22	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights BlackRock Cash Funds: Prime

	Capital
	Year Ended December 31,									Period February 28, 20081 to December 31, 2008
	2011			2010			2009
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0014			0.0018			0.0030			0.0200
Dividends from net investment income		(0.0014	)		(0.0018	)		(0.0030	)		(0.0200	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return2
Based on net asset value		0.14%			0.18%			0.30%			2.13%	3
Ratios to Average Net Assets4
Total expenses		0.14%	5		0.17%			0.19%			0.21%	6
Total expenses after fees waived		0.14%	5		0.14%			0.16%			0.15%	6
Net investment income		0.15%	5		0.17%			0.27%			2.23%	6
Supplemental Data
Net assets, end of period (000)	$	456,657		$	517,988		$	673,375		$	226,487

¹  Commencement of operations.

²  Where applicable, total investment returns include the reinvestment of dividends and distributions.

³  Aggregate total investment return.

⁴  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the two years ended December 31, 2010 and the period ended December 31, 2008, which includes gross expenses.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

⁶  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	23

Financial Highlights (continued) BlackRock Cash Funds: Prime

	Institutional
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0016			0.0020			0.0032			0.0300			0.0500
Dividends from net investment income		(0.0016	)		(0.0020	)		(0.0032	)		(0.0300	)		(0.0500	)
Net asset value, end of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.16%			0.20%			0.32%			2.83%			5.32%
Ratios to Average Net Assets2
Total expenses		0.12%	3		0.15%			0.17%			0.15%			0.15%
Total expenses after fees waived		0.12%	3		0.12%			0.14%			0.11%			0.12%
Net investment income		0.16%	3		0.20%			0.39%			2.80%			5.19%
Supplemental Data
Net assets, end of year (000)	$	2,282,923		$	3,570,577		$	3,014,591		$	10,812,890		$	8,363,790

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which includes gross expenses.

³  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

See Notes to Financial Statements.
24	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) BlackRock Cash Funds: Prime

	Premium
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0011			0.0015			0.0027			0.0270			0.0500
Dividends from net investment income		(0.0011	)		(0.0015	)		(0.0027	)		(0.0270	)		(0.0500	)
Net asset value, end of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.11%			0.15%			0.27%			2.78%			5.27%
Ratios to Average Net Assets2
Total expenses		0.17%	3		0.20%			0.23%			0.21%			0.20%
Total expenses after fees waived		0.17%	3		0.17%			0.20%			0.17%			0.17%
Net investment income		0.11%	3		0.14%			0.34%			2.60%			5.14%
Supplemental Data
Net assets, end of year (000)	$	1,460,178		$	1,232,743		$	1,817,088		$	4,304,633		$	1,795,477

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which includes gross expenses.

³  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	25

Financial Highlights (continued) BlackRock Cash Funds: Prime

	Select
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0008			0.0012			0.0024			0.0280			0.0500
Dividends from net investment income		(0.0008	)		(0.0012	)		(0.0024	)		(0.0280	)		(0.0500	)
Net asset value, end of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.09%			0.12%			0.24%			2.75%			5.24%
Ratios to Average Net Assets2
Total expenses		0.22%	3		0.25%			0.27%			0.25%			0.25%
Total expenses after fees waived		0.20%	3		0.20%			0.22%			0.18%			0.20%
Net investment income		0.08%	3		0.12%			0.24%			2.95%			5.06%
Supplemental Data
Net assets, end of year (000)	$	69,779		$	80,614		$	73,810		$	143,150		$	268,352

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which includes gross expenses.

³  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

See Notes to Financial Statements.
26	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) BlackRock Cash Funds: Prime

	SL Agency
	Year Ended December 31,						Period February 4, 20091 to December  31, 2009
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00
Net investment income		0.0019			0.0023			0.0028
Dividends from net investment income		(0.0019	)		(0.0023	)		(0.0028	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00
Total Investment Return2
Based on net asset value		0.19%			0.23%			0.28%	3
Ratios to Average Net Assets4
Total expenses		0.09%	5		0.12%			0.14%	6
Total expenses after fees waived		0.09%	5		0.09%			0.11%	6
Net investment income		0.19%	5		0.22%			0.31%	6
Supplemental Data
Net assets, end of period (000)	$	4,830,517		$	3,696,051		$	5,860,881

¹  Commencement of operations.

²  Where applicable, total investment returns include the reinvestment of dividends and distributions.

³  Aggregate total investment return.

⁴  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the year ended December 31, 2010 and the period ended December 31, 2009, which includes gross expenses.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

⁶  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	27

Financial Highlights (concluded) BlackRock Cash Funds: Prime

	Trust
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0000			0.0001			0.0011			0.0200			0.0500
Dividends from net investment income		(0.0000	)		(0.0001	)		(0.0011	)		(0.0200	)		(0.0500	)
Net asset value, end of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.00%			0.01%			0.11%			2.49%			4.98%
Ratios to Average Net Assets2
Total expenses		0.45%	3		0.48%			0.51%			0.52%			0.48%
Total expenses after fees waived		0.28%	3		0.29%			0.36%			0.48%			0.45%
Net investment income		0.00%	3		0.01%			0.09%			1.34%			4.89%
Supplemental Data
Net assets, end of year (000)	$	29,657		$	37,044		$	96,349		$	3,370		$	50

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which includes gross expenses.

³  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

See Notes to Financial Statements.
28	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights BlackRock Cash Funds: Treasury

	Capital
	Year Ended December 31,									Period February 28, 20081 to December 31, 2008
	2011			2010			2009
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0004			0.0007			0.0008			0.0100
Dividends from net investment income		(0.0004	)		(0.0007	)		(0.0008	)		(0.0100	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return2
Based on net asset value		0.04%			0.07%			0.08%			1.12%	3
Ratios to Average Net Assets4
Total expenses		0.14%	5		0.17%			0.17%			0.19%	6
Total expenses after fees waived		0.10%	5		0.12%			0.08%			0.05%	6
Net investment income		0.01%	5		0.06%			0.07%			0.37%	6
Supplemental Data
Net assets, end of period (000)	$	18,370		$	139,657		$	32,419		$	44,698

¹  Commencement of operations.

²  Where applicable, total investment returns include the reinvestment of dividends and distributions.

³  Aggregate total investment return.

⁴  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the two years ended December 31, 2010 and the period ended December 31, 2008, which includes gross expenses.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.04%.

⁶  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	29

Financial Highlights (continued) BlackRock Cash Funds: Treasury

	Institutional
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0004			0.0009			0.0008			0.0200			0.0500
Dividends from net investment income		(0.0004	)		(0.0009	)		(0.0008	)		(0.0200	)		(0.0500	)
Net asset value, end of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.04%			0.09%			0.08%			1.61%			4.95%
Ratios to Average Net Assets2
Total expenses		0.12%	3		0.16%			0.12%			0.15%			0.18%
Total expenses after fees waived		0.11%	3		0.11%			0.04%			0.04%			0.04%
Net investment income		0.03%	3		0.08%			0.09%			0.39%			4.74%
Supplemental Data
Net assets, end of year (000)	$	8,941		$	124,791		$	30,011		$	1,305,944		$	131,190

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which includes gross expenses.

³  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.04%.

See Notes to Financial Statements.
30	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) BlackRock Cash Funds: Treasury

	Premium
	Period January 1, 2010 to July 26, 20101			Year Ended December 31,
				2009			2008			2007			2006
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0003			0.0007			0.0200			0.0500			0.0500
Dividends from net investment income		(0.0003	)		(0.0007	)		(0.0200	)		(0.0500	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return2
Based on net asset value		0.03%	3		0.08%			1.57%			4.90%			4.99%
Ratios to Average Net Assets4
Total expenses		0.20%	5		0.19%			0.20%			0.23%			0.23%
Total expenses after fees waived		0.11%	5		0.08%			0.07%			0.09%			0.05%
Net investment income		0.05%	5		0.09%			1.17%			4.44%			4.61%
Supplemental Data
Net assets, end of period (000)	$	—	1	$	2,542		$	65,095		$	61,513		$	2,112

¹  There were no Premium Shares outstanding from July 27, 2010 through December 31, 2010 and during the fiscal year ended December 31, 2011.

²  Where applicable, total investment returns include the reinvestment of dividends and distributions.

³  Aggregate total investment return.

⁴  Includes the Fund’s share of the Master Portfolio’s allocated gross expenses and/or net investment income.

⁵  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	31

Financial Highlights (continued) BlackRock Cash Funds: Treasury

	Select
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0003			0.0003			0.0007			0.0200			0.0500
Dividends from net investment income		(0.0003	)		(0.0003	)		(0.0007	)		(0.0200	)		(0.0500	)
Net asset value, end of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.03%			0.03%			0.08%			1.55%			4.86%
Ratios to Average Net Assets2
Total expenses		0.21%	3		0.25%			0.25%			0.25%			0.27%
Total expenses after fees waived		0.08%	3		0.12%			0.08%			0.09%			0.10%
Net investment income		0.00%	3		0.04%			0.08%			0.92%			5.06%
Supplemental Data
Net assets, end of year (000)	$	13,119		$	288		$	4,815		$	24,340		$	10,050

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which includes gross expenses.

³  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.04%.

See Notes to Financial Statements.
32	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights (continued) BlackRock Cash Funds: Treasury

	SL Agency
	Year Ended December 31,						Period February 4, 20091 to December 31, 2009
	2011			2010
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00
Net investment income		0.0005			0.0011			0.0008
Dividends from net investment income		(0.0005	)		(0.0011	)		(0.0008	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00
Total Investment Return2
Based on net asset value		0.05%			0.12%			0.09%	3
Ratios to Average Net Assets4
Total expenses		0.09%	5		0.13%			0.12%	6
Total expenses after fees waived		0.08%	5		0.08%			0.07%	6
Net investment income		0.03%	5		0.11%			0.08%	6
Supplemental Data
Net assets, end of period (000)	$	682,865		$	1,457,943		$	4,009,074

¹  Commencement of operations.

²  Where applicable, total investment returns include the reinvestment of dividends and distributions.

³  Aggregate total investment return.

⁴  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the year ended December 31, 2010 and the period ended December 31, 2009, which includes gross expenses.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.04%.

⁶  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	33

Financial Highlights (concluded) BlackRock Cash Funds: Treasury

	Trust
	Year Ended December 31,
	2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0003			0.0002			0.0007			0.0100			0.0500
Dividends from net investment income		(0.0003	)		(0.0002	)		(0.0007	)		(0.0100	)		(0.0500	)
Net asset value, end of year	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.03%			0.02%			0.08%			1.45%			4.61%
Ratios to Average Net Assets2
Total expenses		0.45%	3		0.48%			0.47%			0.47%			0.51%
Total expenses after fess waived		0.10%	3		0.16%			0.08%			0.01%			0.36%
Net investment income		0.00%	3		0.02%			0.08%			0.05%			4.65%
Supplemental Data
Net assets, end of year (000)	$	23,597		$	12,999		$	55,618		$	94,654		$	50

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Includes the Fund’s share of the Master Portfolio’s allocated net expenses and/or net investment income, except the total expenses for the four years ended December 31, 2010, which includes gross expenses.

³  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.04%.

See Notes to Financial Statements.
34	BLACKROCK FUNDS III	DECEMBER 31, 2011

Notes to Financial Statements BlackRock Funds III

1. Organization and Significant Accounting Policies:

BlackRock Funds III (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 Delaware statutory trust. The financial statements and these accompanying notes relate to four series of the Trust: BlackRock Cash Funds: Government (“Government”), BlackRock Cash Funds: Institutional (“Institutional”), BlackRock Cash Funds: Prime (“Prime”) and BlackRock Cash Funds: Treasury (“Treasury”) (each a “Fund” and together, the “Funds”). The Funds are classified as diversified. Each Fund seeks to achieve its investment objective by investing all of its assets in a corresponding series of Master Investment Portfolio (“MIP”): Government Money Market Master Portfolio, Money Market Master Portfolio, Prime Money Market Master Portfolio and Treasury Money Market Master Portfolio (each a “Master Portfolio” and together, the “Master Portfolios”). Each Master Portfolio has the same or substantially similar investment objective as its corresponding Fund. The value of each Fund’s investment in its corresponding Master Portfolio reflects that Fund’s proportionate interest in the net assets of that Master Portfolio. The percentage of the Master Portfolio owned by the corresponding Fund at December 31, 2011 was 100% for Government, 98.06% for Institutional, 85.08% for Prime and 46.61% for Treasury. The performance of each Fund is directly affected by the performance of its corresponding Master Portfolio. The financial statements of the Master Portfolios, including the Schedules of Investments, are included elsewhere in this report and should be read in conjunction with the Funds’ financial statements. The Funds’ financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. The Funds offer multiple classes of shares although certain share classes may not be outstanding at report date. Each Fund offers the following classes of shares: Institutional Shares, Select Shares, SL Agency Shares and Trust Shares. Institutional, Prime and Treasury offer Capital Shares and Premium Shares and Institutional also offers Aon Captives Shares. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions and differ principally with respect to administration fees and Aon shares service fees to which the classes are subject. The Aon Captives shares have exclusive voting rights with respect to matters relating to their shareholder servicing expenditures.

The following is a summary of significant accounting policies followed by the Funds:

Valuation: US GAAP defines fair value as the price the Funds would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. Each Fund’s policy is to fair value its financial instruments at market value. Each Fund records its investment in its corresponding Master Portfolio at fair value based on the Fund’s proportionate interest in the net assets of the respective Master Portfolio. Valuation of securities held by the Master Portfolios is discussed in Note 1 of the Master Portfolios’ Notes to Financial Statements, which are included elsewhere in this report.

Investment Transactions and Investment Income: For financial reporting purposes, contributions to and withdrawals from the Master Portfolios are accounted on a trade date basis. Each Fund records daily its proportionate share of its Master Portfolio’s income, expenses and realized gains and losses. In addition, each Fund accrues its own expenses. Income, expenses and realized gains and losses are allocated daily to each class based on its relative net assets.

Dividends and Distributions: Dividends from net investment income are declared daily and paid monthly. Distributions of capital gains, if any, are recorded on the ex-dividend dates. The amount and timing of dividends and distributions are determined in accordance with federal income tax regulations, which may differ from US GAAP.

Income Taxes: It is each 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 federal income tax provision is required.

The Funds file U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Funds’ U.S. federal tax returns remains open for each of the four periods ended December 31, 2011. The statutes of limitations on the Funds’ state and local tax returns may remain open for an additional year depending upon the jurisdiction. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.

Other: Expenses directly related to a Fund or its classes are charged to that Fund or class. Other operating expenses shared by several funds are pro-rated among those funds on the basis of relative net assets or other appropriate methods. Other expenses of the Funds are allocated daily to each class based on its relative net assets.

2. Administration Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”). Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

The Trust entered into an administration services arrangement with BlackRock Institutional Trust Company, N.A. (“BTC”), which has agreed to provide general administration services (other than investment advice and related portfolio activities). BTC, in consideration thereof, has agreed to bear all of the Funds’ ordinary operating expenses, excluding, generally, investment advisory fees, distribution fees, brokerage and other expenses related to the execution of portfolio transactions, extraordinary expenses and certain other expenses which are borne by the Funds. BTC is entitled to receive for these administration services an annual fee based on the average daily net assets of each class of each Fund as follows:

BLACKROCK FUNDS III DECEMBER 31, 2011 35

Notes to Financial Statements (continued) BlackRock Funds III

	Government			Institutional			Prime		Treasury
Aon Captives		N/A			0.05%			N/A		N/A
Capital		N/A			0.07%	*		0.07%		0.07%
Institutional		0.05%	*		0.05%			0.05%		0.05%
Premium		N/A			0.10%	*		0.10%		0.10%	*
Select		0.15%			0.15%			0.15%		0.15%
SL Agency		0.02%	*		0.02%			0.02%		0.02%
Trust		0.38%			0.38%			0.38%		0.38%

* There were no shares outstanding as of December 31, 2011.

For the year ended December 31, 2011, the administration fees, which are included in administration — class specific in the Statements of Operations, for each class of each Fund are as follows:

	Government			Institutional		Prime		Treasury
Aon Captives		N/A		$	7,901		N/A		N/A
Capital		N/A			—	$	418,250	$	13,665
Institutional	$	920	*	$	595,815	$	1,542,487	$	5,626
Premium		N/A			—	$	1,888,184		—
Select	$	16,586		$	35,016	$	115,582	$	13,437
SL Agency	$	19,531	*	$	5,157,965	$	795,038	$	176,945
Trust	$	7,653		$	39,435	$	116,546	$	60,790

* There were no shares outstanding as of December 31, 2011.

From time to time, BTC may waive such fees in whole or in part. Any such waiver will reduce the expenses of the Fund and, accordingly, have a favorable impact on its performance. BTC may delegate certain of its administration duties to sub-administrators.

BTC contractually agreed to waive a portion of its administration fees for the Select Shares through April 30, 2012. After giving effect to such contractual waiver, the administration fees for the Select Shares will be 0.13%. These amounts are included in fees waived by administrator — class specific in the Statements of Operations.

The fees and expenses of the Trust’s trustees who are not “interested persons” of the Trust, as defined in the 1940 Act (“Independent Trustees”), counsel to the Independent Trustees and the Trust’s independent registered public accounting firm (together, the “independent expenses”) are paid directly by the Funds. BTC has contractually agreed to provide an offsetting credit against the administration fees paid by the Funds in an amount equal to the independent expenses through April 30, 2012. These amounts are included in fees reimbursed by administrator in the Statements of Operations.

BTC has voluntarily agreed to waive administration fees to enable each Fund to maintain a minimum daily net investment income dividend. These amounts are included in fees waived by administrator — class specific in the Statements of Operations. BTC may discontinue the waiver at any time.

For the year ended December 31, 2011, BTC waived administration fees for the Funds as follows:

	Government		Institutional		Prime		Treasury
Aon Captives		N/A		—		N/A		N/A
Capital		N/A		—		—	$	7,247
Institutional	$	89		—		—	$	1,193
Premium		N/A		—		—		—
Select	$	11,636	$	4,669	$	15,411	$	11,601
SL Agency	$	1,518		—		—	$	67,219
Trust	$	6,808	$	16,844	$	51,562	$	55,490

As of December 31, 2011, the only eligible investors for the SL Agency Shares of the Funds are investment companies for which (i) BlackRock Fund Advisors (“BFA”), the investment advisor to the Master Portfolios, BTC, or an affiliate provides investment advisory or administration services, or (ii) BTC acts as securities lending agent and which have directed BTC on their behalf to invest securities lending cash collateral in the Funds. Affiliated shareholders in the SL Agency Shares of the Funds represent a significant portion of the outstanding shares and net assets of Institutional, Prime and Treasury.

Certain officers and/or trustees of the trust are officers and/or directors of BlackRock or its affiliates.

3. Shareholder Servicing Plan:

SEI Investments Distribution Co. (“SEI”) is the distributor for the Funds. Institutional has adopted a plan pursuant to Rule 12b-1 under the 1940 Act, which authorizes the Aon Captives Shares of Institutional to pay expenses relating to the shareholder servicing of such shares. Under the plan, SEI is entitled to receive an annual fee for these services of 0.10% of the average daily net assets of the Aon Captives Shares. The Capital Shares, Institutional Shares, Premium Shares, Select Shares and SL Agency Shares of Institutional do not pay any fees for shareholder servicing. The fees paid to SEI by Institutional are shown as Service — Aon Captives Shares in the Statements of Operations.

4. Income Tax Information:

The tax character of distributions paid during the fiscal years ended December 31, 2011 and December 31, 2010 was as follows:

		Government			Institutional			Prime			Treasury
Ordinary income	12/31/2011		$	79,166		$	54,604,114		$	15,624,534		$	487,491
	12/31/2010			137,175			44,172,166			20,508,082			4,720,815
Long-term capital gains	12/31/2011			—			107,224			—			—
	12/31/2010			—			—			—			—
Total	12/31/2011		$	79,166		$	54,711,338		$	15,624,534		$	487,491
	12/31/2010		$	137,175		$	44,172,166		$	20,508,082		$	4,720,815

As of December 31, 2011, the tax components of accumulated net earnings (losses) were as follows:

	Government		Institutional		Prime			Treasury
Undistributed ordinary income.	$	65	$	750,325		—		$	8,511
Capital loss carryforwards		—		—	$	(1,491,941	)		—
Total	$	65	$	750,325	$	(1,491,941	)	$	8,511

As of December 31, 2011, Prime had a capital loss carryforward of $1,491,941, all of which is due to expire December 31, 2016.

5. Capital Share Transactions:

The number of shares sold, reinvested and redeemed corresponds to the net proceeds from the sale of shares, reinvestment of dividends and distributions and cost of shares redeemed, respectively, since shares are sold and redeemed at $1.00 per share.

36 BLACKROCK FUNDS III DECEMBER 31, 2011

Notes to Financial Statements (continued) BlackRock Funds III

Transactions in capital shares for each class were as follows:

	Year Ended December 31,
Government	2011			2010
Institutional
Shares sold		21,120,001			592,921,890
Shares issued in reinvestment of dividends		2,431			37,427
Shares redeemed		(26,782,985	)		(597,794,818	)
Net decrease		(5,660,553	)		(4,835,501	)
Select
Shares sold		33,208,234			99,014,400
Shares issued in reinvestment of dividends		2,334			12,017
Shares redeemed		(41,500,352	)		(150,902,208	)
Net decrease		(8,289,784	)		(51,875,791	)
SL Agency
Shares sold		1,293,402,500			801,229,411
Shares issued in reinvestment of dividends		15,152			—
Shares redeemed		(1,293,417,652	)		(1,364,516,935	)
Net decrease		—			(563,287,524	)
Trust
Shares sold		4,032,425			5,004,885
Shares issued in reinvestment of dividends		360			2,924
Shares redeemed		(6,195,205	)		(14,937,335	)
Net decrease		(2,162,420	)		(9,929,526	)
Institutional
Aon Captives
Shares sold		5,656,829			10,063,063
Shares issued in reinvestment of dividends		8,216			20,132
Shares redeemed		(55,734,990	)		(23,797,290	)
Net decrease		(50,069,945	)		(13,714,095	)
Capital
Shares sold		7,500			1,572,533,625
Shares issued in reinvestment of dividends		—			362,375
Shares redeemed		(7,500	)		(1,850,277,220	)
Net decrease		—			(277,381,220	)
Institutional
Shares sold		8,651,733,281			7,331,073,034
Shares issued in reinvestment of dividends		1,360,520			864,648
Shares redeemed		(8,639,461,080	)		(7,228,877,516	)
Net increase		13,632,721			103,060,166
Premium
Shares sold		—			485,300,001
Shares issued in reinvestment of dividends		—			17,598
Shares redeemed		—			(582,820,676	)
Net decrease		—			(97,503,077	)

	Year Ended December 31,
Institutional (concluded)	2011			2010
Select
Shares sold		80,468,223			54,213,075
Shares issued in reinvestment of dividends		23,644			29,032
Shares redeemed		(65,647,366	)		(47,502,671	)
Net increase		14,844,501			6,739,436
SL Agency
Shares sold		82,420,167,190			70,137,158,166
Shares issued in reinvestment of dividends		11,044			7,205
Shares redeemed		(73,543,695,298	)		(71,030,909,239	)
Net increase (decrease)		8,876,482,936			(893,743,868	)
Trust
Shares sold		43,919,299			42,283,652
Shares issued in reinvestment of dividends		807			2,504
Shares redeemed		(41,055,601	)		(54,223,836	)
Net increase (decrease)		2,864,505			(11,937,680	)
Prime
Capital
Shares sold		5,397,811,345			4,560,700,637
Shares issued in reinvestment of dividends		759,435			763,522
Shares redeemed		(5,459,756,950	)		(4,716,905,406	)
Net decrease		(61,186,170	)		(155,441,247	)
Institutional
Shares sold		22,608,075,380			19,420,053,454
Shares issued in reinvestment of dividends		2,201,956			2,619,911
Shares redeemed		(23,900,189,738	)		(18,867,130,981	)
Net increase (decrease)		(1,289,912,402	)		555,542,384
Premium
Shares sold		23,934,752,476			21,165,592,835
Shares issued in reinvestment of dividends		1,206,416			1,156,263
Shares redeemed		(23,709,664,413	)		(21,751,251,754	)
Net increase (decrease)		226,294,479			(584,502,656	)
Select
Shares sold		551,229,916			746,666,852
Shares issued in reinvestment of dividends		69,707			93,798
Shares redeemed		(562,087,435	)		(739,969,815	)
Net increase (decrease)		(10,787,812	)		6,790,835
SL Agency
Shares sold		4,537,643,287			668,882,337
Shares issued in reinvestment of dividends		—			—
Shares redeemed		(3,401,487,734	)		(2,834,355,287	)
Net increase (decrease)		1,136,155,553			(2,165,472,950	)

BLACKROCK FUNDS III DECEMBER 31, 2011 37

Notes to Financial Statements (concluded) BlackRock Funds III

	Year Ended December 31,
Prime (concluded)	2011			2010
Trust
Shares sold		53,633,417			82,329,392
Shares issued in reinvestment of dividends		—			9,509
Shares redeemed		(61,002,359	)		(141,649,948	)
Net decrease		(7,368,942	)		(59,311,047	)
Treasury
Capital
Shares sold		2,100,194			460,067,303
Shares issued in reinvestment of dividends		22,193			29,950
Shares redeemed		(123,404,434	)		(352,858,461	)
Net increase (decrease)		(121,282,047	)		107,238,792
Institutional
Shares sold		96,047,245			1,755,315,568
Shares issued in reinvestment of dividends		12,399			69,870
Shares redeemed		(211,897,709	)		(1,660,614,707	)
Net increase (decrease)		(115,838,065	)		94,770,731
Premium
Shares sold		—			19,296,388
Shares issued in reinvestment of dividends		—			789
Shares redeemed		—			(21,838,781	)
Net decrease		—			(2,541,604	)
Select
Shares sold		36,511,128			45,406,723
Shares issued in reinvestment of dividends		2,759			924
Shares redeemed		(23,679,366	)		(49,934,402	)
Net increase (decrease)		12,834,521			(4,526,755	)
SL Agency
Shares sold		33,009,840,675			32,115,170,740
Shares issued in reinvestment of dividends		5,372			2,808
Shares redeemed		(33,784,717,911	)		(34,666,506,887	)
Net decrease		(774,871,864	)		(2,551,333,339	)
Trust
Shares sold		37,454,464			219,161,537
Shares issued in reinvestment of dividends		4,391			11,988
Shares redeemed		(26,855,401	)		(261,794,793	)
Net increase (decrease)		10,603,454			(42,621,268	)

6. Subsequent Events:

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

Effective January 3, 2012, the Trust, on behalf of the Funds, entered into a Distribution Agreement with BlackRock Investments, LLC (“BRIL”), an affiliate of BFA.

38 BLACKROCK FUNDS III DECEMBER 31, 2011

Report of Independent Registered Public Accounting Firm BlackRock Funds III

To the Shareholders and Board of Trustees of BlackRock Funds III:

In our opinion, the accompanying statements of assets and liabilities and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the BlackRock Cash Funds: Government, BlackRock Cash Funds: Institutional, BlackRock Cash Funds: Prime and BlackRock Cash Funds: Treasury, (each a “Fund” and together, the “Funds”), at December 31, 2011, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to

express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

Pricewaterhouse Coopers LLP

New York, New York

February 24, 2012

Important Tax Information

The following information is provided with respect to the ordinary income distributions paid by Government, Institutional, Prime and Treasury for the taxable year ended December 31, 2011:

Interest Related Dividends and Qualified Short-Term Capital Gains for Non-U.S. Residents*
Month Paid:	Government		Institutional		Prime		Treasury
January 2011		100.00%		63.70%		62.91%		100.00%
February 2011		100.00%		63.70%		62.91%		100.00%
March 2011		100.00%		63.70%		62.91%		100.00%
April 2011		100.00%		63.70%		62.91%		100.00%
May 2011		100.00%		63.70%		62.91%		100.00%
June 2011		100.00%		63.70%		62.91%		100.00%
July 2011		100.00%		63.70%		62.91%		100.00%
August 2011		100.00%		63.70%		62.91%		100.00%
September 2011		100.00%		63.70%		62.91%		100.00%
October 2011		100.00%		81.85%		62.91%		100.00%
November 2011		100.00%		81.85%		62.91%		100.00%
December 2011		100.00%		81.85%		62.91%		100.00%
Federal Obligation Interest**
							January 2011 - December 2011
Institutional								3.04%
Prime								2.47%
Treasury								34.19%

* Represents the portion of the taxable ordinary dividends eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.

** The law varies in each state as to whether and what percentage of dividend income attributable to Federal obligations is exempt from state income tax. We recommend that you consult your tax advisor to determine if any of the dividends you received is exempt from state income taxes.

Additionally, Institutional distributed long-term capital gains of $0.000003516 per share to shareholders of record on December 20, 2011.

BLACKROCK FUNDS III DECEMBER 31, 2011 39

Portfolio Information as of December 31, 2011 Master Investment Portfolio

Government Money Market Master Portfolio

Portfolio Composition	Percent of Net Assets
Repurchase Agreements		100	%
Total		100	%

Prime Money Market Master Portfolio

Portfolio Composition	Percent of Net Assets
Certificates of Deposit		36	%
U.S. Government Sponsored Agency Obligations		19
Commercial Paper		18
Repurchase Agreements		17
Time Deposits		9
Corporate Notes		2
Liabilities in Excess of Other Assets		(1	)
Total		100	%

Money Market Master Portfolio

Portfolio Composition	Percent of Net Assets
Commercial Paper		29	%
Certificates of Deposit		28
U.S. Government Sponsored Agency Obligations		18
Repurchase Agreements		9
Time Deposits		7
U.S. Treasury Obligations		7
Corporate Notes		2
Total		100	%

Treasury Money Market Master Portfolio

Portfolio Composition	Percent of Net Assets
Repurchase Agreements		64	%
U.S. Treasury Obligations		36
Total		100	%

40 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments December 31, 2011 Government Money Market Master Portfolio (Percentages shown are based on Net Assets)

Repurchase Agreements	Par (000)		Value
BNP Paribas Securities Corp., 0.02%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $1,000,002, collateralized by U.S. Treasury obligations, 2.38%, due 1/15/25, par and fair value of $662,800 and $1,020,072, respectively)	$	1,000	$	1,000,000
Credit Suisse Securities (USA) LLC, 0.02%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $2,000,004, collateralized by U.S. Treasury obligations, 2.25%, due 7/31/18, par and fair value of $1,910,000 and $2,045,213, respectively)		2,000		2,000,000
Deutsche Bank Securities Inc., 0.08%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $2,000,018, collateralized by U.S. government obligations, 0.00%, due 6/27/12, par and fair value of $2,041,000 and $2,040,694, respectively)		2,000		2,000,000
Goldman Sachs & Co. Inc., 0.10%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $1,543,017, collateralized by various U.S. government obligations, 2.42% to 6.50%, due 12/1/30 to 12/1/40, par and fair value of $2,977,517 and $1,573,860, respectively)		1,543		1,543,000
HSBC Securities (USA) Inc., 0.01%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $2,000,002, collateralized by U.S. Treasury obligations, 4.75%, due 2/15/41, par and fair value of $1,470,000 and $2,044,025, respectively)		2,000		2,000,000
JPMorgan Securities Inc., 0.01%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $1,000,001, collateralized by U.S. Treasury obligations, 2.38%, due 10/31/14, par and fair value of $965,000 and $1,022,528, respectively)		1,000		1,000,000
Morgan Stanley & Co. Inc., 0.01%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $833,001, collateralized by U.S. Treasury obligations, 0.50%, due 10/15/13, par and fair value of $845,300 and $849,711, respectively)		833		833,000
Total Repurchase Agreements — 100.2%				10,376,000
Total Investments (Cost — $10,376,000*) — 100.2%				10,376,000
Liabilities in Excess of Other Assets — (0.2)%				(21,194	)
Net Assets — 100.0%			$	10,354,806

* Cost for federal income tax purposes.

· Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes as follows:

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 Master Portfolio’s own assumptions used in determining the fair value of investments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments is based on the pricing transparency of the investment and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities:
Short-Term Securities1		—	$	10,376,000		—	$	10,376,000

¹ See above Schedule of Investments for values in each security type.

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 41

Schedule of Investments December 31, 2011 Money Market Master Portfolio (Percentages shown are based on Net Assets)

Certificates of Deposit	Par (000)		Value
Yankee (a)
Bank of Montreal, Chicago:
0.12%, 1/03/12	$	380,000	$	380,000,000
0.38%, 2/29/12 (b)		100,000		100,000,000
Bank of Nova Scotia, Houston:
0.35%, 2/27/12		100,000		100,000,000
0.48%, 6/26/12		100,000		100,000,000
Bank of Tokyo-Mitsubishi UFJ Ltd., New York:
0.37%, 1/26/12		50,000		50,000,000
0.36%, 2/07/12		45,000		45,000,000
0.47%, 2/29/12		575,000		575,000,000
0.50%, 4/03/12		435,000		435,000,000
Credit Suisse, New York, 0.54%, 3/07/12		350,000		350,000,000
Deutsche Bank AG, New York, 0.25%, 1/04/12		450,000		450,000,000
HSBC Bank:
0.54%, 2/22/12		175,000		175,002,512
0.52%, 2/28/12		200,000		200,003,206
Lloyds TSB Bank Plc, New York, 0.70%, 2/14/12 (b)		256,640		256,640,000
Mizuho Corporate Bank Ltd., New York:
0.14%, 1/05/12		300,000		300,000,000
0.30%, 1/17/12		300,000		300,000,000
0.40%, 1/26/12		50,000		50,000,000
National Australia Bank Ltd., New York, 0.49%, 6/18/12		148,300		148,300,000
National Bank of Canada, New York, 0.15%, 1/13/12		440,500		440,500,000
Nordea Bank Finland Plc, New York, 0.29%, 1/09/12		92,000		91,999,993
Norinchukin Bank, New York, 0.31%, 1/13/12		500,000		500,000,000
Rabobank Nederland N.V., New York:
0.43%, 3/07/12		45,000		45,000,000
0.67%, 5/25/12		3,000		3,000,000
Royal Bank of Canada, New York, 0.44%, 5/03/12 (b)		325,000		325,000,000
Sumitomo Mitsui Banking Corp., New York:
0.35%, 1/10/12		376,500		376,500,000
0.35%, 1/11/12		500,000		500,000,000
0.38%, 1/24/12		50,000		50,000,000
0.38%, 2/07/12		45,000		45,000,000
Svenska Handelsbanken AB, New York:
0.35%, 1/12/12		725,000		725,000,000
0.51%, 3/29/12		100,000		100,001,220
UBS AG, Connecticut, 0.20%, 1/13/12		300,000		300,000,000
Westpac Banking Corp., New York (b):
0.37%, 4/04/12		74,000		74,000,112
0.37%, 6/11/12		400,000		400,000,000
Total Certificates of Deposit — 28.0%				7,990,947,043
Commercial Paper
Argento Variable Funding Co. Ltd., 0.31%, 1/04/12 (c)(d)		190,000		189,995,092
Atlantis One Funding, 0.41%, 2/09/12 (c)(d)		300,000		299,866,750
Bank of Nova Scotia, New York, 0.31%, 2/13/12 (d)		50,000		49,981,785
BNZ International Funding Ltd. (b)(c):
0.43%, 1/06/12		100,000		100,000,134
0.43%, 1/13/12		135,000		135,000,434
0.44%, 1/20/12		45,500		45,500,231
0.43%, 2/02/12		150,000		150,001,337
0.43%, 2/14/12		150,000		150,001,865
0.42%, 4/16/12		100,000		100,000,000
0.44%, 5/22/12		75,000		75,001,521
0.62%, 5/31/12		100,000		100,005,471
CAFCO LLC, 0.34%, 1/30/12 (c)(d)		51,342		51,327,938

Commercial Paper	Par (000)		Value
Caisse d’Amortissement de la Dette Sociale, 0.44%, 5/25/12 (b)(c)	$	650,000	$	649,971,701
Cancara Asset Securitization Ltd., 0.31%, 1/11/12 (c)(d)		130,000		129,988,806
Chariot Funding LLC, 0.14%, 1/17/12 (c)(d)		227,421		227,406,849
Commonwealth Bank of Australia (c):
0.49%, 3/19/12 (d)		149,100		148,943,321
0.06%, 6/22/12		87,000		86,976,137
Credit Suisse, New York, 0.47%, 2/17/12 (d)		500,000		499,693,195
Deutsche Bank Financial LLC, 0.53%, 3/14/12 (d)		3,000		2,996,776
DNB NOR Bank ASA, 0.54%, 4/12/12 (c)(d)		50,000		49,923,500
Grampian Funding LLC, 0.31%, 1/05/12 (c)(d)		110,000		109,996,211
Kells Funding LLC (c):
0.34%, 1/06/12 (b)		225,000		225,000,000
0.29%, 1/17/12 (d)		125,000		124,983,889
0.56%, 3/02/12 (b)		125,000		125,000,000
0.56%, 3/05/12 (b)		218,000		218,000,000
0.56%, 3/07/12 (b)		125,000		125,000,000
0.47%, 4/16/12 (b)		50,000		50,000,000
0.47%, 4/17/12 (b)		150,000		150,000,000
Mont Blanc Capital Corp., 0.37%, 1/05/12 (d)		150,000		149,993,833
Nordea North America Inc. (d):
0.35%, 1/13/12		490,000		489,942,833
0.50%, 3/16/12		161,600		161,431,667
Oversea-Chinese Banking Corp. Ltd., 0.56%, 3/15/12 (d)		90,000		89,896,400
Rabobank USA Finance Corp., 0.42%, 2/29/12 (d)		750,000		749,483,750
Solitaire Funding LLC, 0.46%, 2/22/12 (c)(d)		87,000		86,942,193
Sumitomo Mitsui Banking Corp., New York, 0.20%, 1/06/12 (c)(d)		150,000		149,995,833
Svenska Handelsbanken Inc., 0.50%, 3/21/12 (c)(d)		10,000		9,989,000
Toyota Motor Credit Corp. (d):
0.27%, 1/06/12		150,000		149,994,375
0.40%, 2/13/12		200,000		199,904,444
0.40%, 2/16/12		125,000		124,936,111
UBS Finance Delaware LLC, 0.48%, 2/13/12 (d)		450,000		449,742,000
Westpac Banking Corp. (c):
0.50%, 6/29/12 (d)		110,000		109,725,000
0.62%, 7/10/12 (b)		350,000		350,000,000
Westpac Securities NZ Ltd. (c)(d):
0.40%, 2/09/12		250,000		249,891,667
0.40%, 2/10/12		250,000		249,888,889
0.51%, 3/16/12		50,300		50,246,556
Total Commercial Paper — 28.7%				8,192,567,494
Corporate Notes (b)
JPMorgan Chase Bank NA, 0.43%, 1/18/13		250,725		250,725,000
Royal Bank of Scotland Plc, 0.69%, 1/03/12		242,000		242,000,000
Total Corporate Notes — 1.7%				492,725,000
Time Deposits
Bank of Nova Scotia, 0.01%, 1/03/12		650,000		650,000,000
Barclays Bank Plc, 0.09%, 1/03/12		300,000		300,000,000
Chase Bank USA NA, 0.01%, 1/03/12		220,000		220,000,000
Deutsche Bank AG, 0.06%, 1/03/12		381,926		381,926,000
Svenska Handelsbanken AB, 0.01%, 1/03/12		600,000		600,000,000
Total Time Deposits — 7.6%				2,151,926,000

See Notes to Financial Statements.

42 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments (continued) Money Market Master Portfolio (Percentages shown are based on Net Assets)

U.S. Government Sponsored Agency Obligations	Par (000)		Value
Fannie Mae Discount Notes (d):
0.10%, 2/16/12	$	175,000	$	174,977,639
0.02%, 3/14/12		7,000		6,999,716
0.06%, 5/16/12		21,429		21,424,143
0.06%, 5/21/12		394,000		393,907,410
0.18%, 7/16/12		450,000		449,564,958
Fannie Mae Variable Rate Notes (b):
0.29%, 8/23/12		200,000		200,026,221
0.26%, 1/10/13		250,000		249,948,264
0.41%, 5/17/13		304,000		303,871,036
0.28%, 11/08/13		170,000		169,904,433
Federal Farm Credit Bank Variable Rate Notes, 0.29%, 4/27/12 (b)		144,460		144,452,922
Federal Home Loan Bank:
0.11%, 5/09/12		100,000		99,994,330
0.12%, 5/25/12		20,000		19,996,993
0.32%, 12/19/12		20,600		20,600,000
Federal Home Loan Bank Discount Notes (d):
0.08%, 4/25/12		100,000		99,974,444
0.08%, 4/27/12		115,000		114,970,100
0.07%, 5/11/12		142,000		141,966,413
0.12%, 6/25/12		25,000		24,985,333
Freddie Mac Discount Notes (d):
0.07%, 5/21/12		50,000		49,988,250
0.17%, 9/18/12		250,000		249,691,875
Freddie Mac Variable Rate Notes (b):
0.13%, 1/13/12		280,000		279,994,417
0.28%, 2/16/12		110,000		109,994,413
0.29%, 3/21/13		270,040		269,907,075
0.32%, 9/03/13		227,900		227,823,025
0.28%, 9/13/13		884,785		883,872,505
0.25%, 11/04/13		309,000		308,943,230
Total U.S. Government Sponsored Agency Obligations — 17.6%				5,017,779,145
U.S. Treasury Obligations
U.S. Treasury Note:
0.88%, 1/31/12		991,253		991,863,483
1.38%, 2/15/12		150,000		150,244,085
1.38%, 3/15/12		150,000		150,405,680
1.38%, 5/15/12		450,000		451,866,008
0.63%, 6/30/12		400,000		401,017,215
Total U.S. Treasury Obligations — 7.5%				2,145,396,471
Repurchase Agreements
Banc of America Securities LLC, 0.14%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $320,004,978, collateralized by various non-U.S. government debt securities, 0.00% to 11.88%, due 1/9/12 to 6/12/46, par and fair value of $1,884,206,986 and $334,963,257, respectively)		320,000		320,000,000
Banc of America Securities LLC, 0.39%, 2/3/12 (Purchased on 12/30/11 to be repurchased at $500,189,583, collateralized by various non-U.S. government debt securities, 0.00% to 8.38%, due 2/1/12 to 2/12/51, par and fair value of $632,768,940 and $525,560,327, respectively)		500,000		500,000,000
BNP Paribas Securities Corp., 0.14%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $310,004,822, collateralized by various non-U.S. government debt securities, 0.66% to 10.25%, due 2/1/12 to 1/15/31, par and fair value of $293,482,103 and $319,300,001, respectively)		310,000		310,000,000

Repurchase Agreements	Par (000)		Value
Citigroup Global Markets Inc., 0.24%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $69,001,840, collateralized by various U.S. government obligations, 0.50% to 5.50%, due 9/6/13 to 7/15/36, par and fair value of $66,526,000 and $70,382,551, respectively)	$	69,000	$	69,000,000
Citigroup Global Markets Inc., 0.39%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $190,008,233, collateralized by various non-U.S. government debt securities, 0.00% to 0.54%, due 1/26/12 to 6/15/12, par and fair value of $193,889,789 and $193,800,000, respectively)		190,000		190,000,000
Citigroup Global Markets Inc., 0.60%, 1/31/12 (Purchased on 12/30/11 to be repurchased at $250,133,333, collateralized by various non-U.S. government debt securities, 0.00% to 6.24%, due 6/17/13 to 11/15/28, par and fair value of $572,569,671 and $274,750,078, respectively)		250,000		250,000,000
Greenwich Capital Markets, Inc., 0.19%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $140,002,956, collateralized by various U.S. government obligations, 3.50% to 6.00%, due 1/1/26 to 11/1/41, par and fair value of $247,579,463 and $142,804,783, respectively)		140,000		140,000,000
HSBC Securities (USA) Inc., 0.12%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $100,001,333, collateralized by various non-U.S. government debt securities, 4.25% to 10.75%, due 6/15/12 to 2/15/42, par and fair value of $94,292,989 and $103,002,389, respectively)		100,000		100,000,000
JPMorgan Securities Inc., 0.39%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $60,002,600, collateralized by various non-U.S. government debt securities, 7.00% to 7.25%, due 3/15/15 to 6/5/20, par and fair value of $56,680,000 and $63,005,026, respectively)		60,000		60,000,000
Merrill Lynch & Co. Inc., 0.19%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $100,002,111, collateralized by various U.S. government obligations, 3.43% to 4.50%, due 7/1/24 to 1/1/40, par and fair value of $237,403,755 and $102,000,000, respectively)		100,000		100,000,000
RBS Securities Inc., 0.11%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $120,001,467, collateralized by various U.S. government obligations, 4.00% to 6.00%, due 3/1/21 to 1/1/42, par and fair value of $151,266,587 and $122,403,908, respectively)		120,000		120,000,000
RBS Securities Inc., 0.79%, 2/17/12 (Purchased on 12/30/11 to be repurchased at $300,322,583, collateralized by various non-U.S. government debt securities, 0.85% to 5.50%, due 5/1/26 to 12/1/41, par and fair value of $503,379,878 and $306,943,445, respectively)		300,000		300,000,000
Total Repurchase Agreements — 8.6%				2,459,000,000
Total Investments (Cost — $28,450,341,153*) — 99.7%				28,450,341,153
Other Assets in Excess of Liabilities — 0.3%				77,705,396
Net Assets — 100.0%			$	28,528,046,549

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 43

Schedule of Investments (concluded) Money Market Master Portfolio (Percentages shown are based on Net Assets)

* Cost for federal income tax purposes.

(a) Issuer is a US branch of a foreign domiciled bank.

(b) Variable rate security. Rate shown is as of report date.

(c) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors.

(d) Rate shown reflects the discount rate at the time of purchase.

· Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes as follows:

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 Master Portfolio’s own assumptions used in determining the fair value of investments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments is based on the pricing transparency of the investment and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities:
Short-Term Securities1		—	$	28,450,341,153		—	$	28,450,341,153

¹ See above Schedule of Investments for values in each security type.

See Notes to Financial Statements.

44 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments December 31, 2011 Prime Money Market Master Portfolio (Percentages shown are based on Net Assets)

Certificates of Deposit	Par (000)		Value
Yankee (a)
Bank of Montreal, Chicago:
0.12%, 1/03/12	$	103,000	$	103,000,000
0.11%, 1/31/12		150,000		150,000,000
0.38%, 2/29/12 (b)		50,000		50,000,000
Bank of Nova Scotia, Houston:
0.30%, 4/12/12		105,000		105,000,000
0.48%, 6/26/12		53,000		53,000,000
Bank of Tokyo-Mitsubishi UFJ Ltd., New York:
0.47%, 2/29/12		325,000		325,000,000
0.50%, 4/03/12		165,000		165,000,000
Credit Suisse, New York, 0.54%, 3/07/12		110,000		110,000,000
Deutsche Bank AG, New York,     0.25%, 1/04/12		150,000		150,000,000
HSBC Bank:
0.54%, 2/22/12		75,000		75,001,076
0.52%, 2/28/12		100,000		100,001,603
Lloyds TSB Bank Plc, New York, 0.70%, 2/14/12 (b)		125,000		125,000,000
Mizuho Corporate Bank Ltd., New York:
0.14%, 1/05/12		200,000		200,000,000
0.30%, 1/17/12		100,000		100,000,000
National Australia Bank Ltd., New York:
0.29%, 4/12/12		100,000		100,000,000
0.43%, 4/13/12 (b)		150,000		150,000,000
0.49%, 6/18/12		50,000		50,000,000
National Bank of Canada, New York,     0.15%, 1/13/12		145,500		145,500,000
Norinchukin Bank, New York,     0.31%, 1/13/12		150,000		150,000,000
Rabobank Nederland N.V., New York,     0.39%, 2/27/12 (b)		100,000		100,000,000
Royal Bank of Canada, New York,     0.44%, 5/03/12 (b)		175,000		175,000,000
Sumitomo Mitsui Banking Corp., New York:
0.19%, 1/06/12		200,000		200,000,000
0.35%, 1/13/12		50,000		50,000,000
Svenska Handelsbanken AB, New York:
0.35%, 1/12/12		255,000		255,000,000
0.47%, 3/05/12		187,000		187,000,000
0.51%, 3/29/12		40,080		40,080,489
UBS AG, Connecticut:
0.20%, 1/13/12		150,000		150,000,000
0.47%, 3/07/12		45,000		45,000,000
Westpac Banking Corp., New York (b):
0.37%, 4/04/12		35,000		35,000,053
0.37%, 6/11/12		200,000		200,000,000
Total Certificates of Deposit — 35.8%				3,843,583,221
Commercial Paper
Argento Variable Funding Co. Ltd.,     0.31%, 1/04/12 (c)(d)		60,000		59,998,450
Atlantis One Funding (c)(d):
0.35%, 1/04/12		50,000		49,998,542
0.41%, 2/09/12		200,000		199,911,167
Ciesco LLC, 0.32%, 1/30/12 (c)(d)		20,000		19,994,844
Commonwealth Bank of Australia,     0.06%, 6/22/12 (c)		35,493		35,483,265
Credit Suisse, New York, 0.47%, 2/21/12 (d)		250,000		249,833,542
Grampian Funding LLC,     0.31%, 1/05/12 (c)(d)		40,000		39,998,622
Kells Funding LLC (b)(c):
0.34%, 1/06/12		275,000		275,000,000
0.56%, 3/05/12		20,000		20,000,000
0.47%, 4/17/12		100,000		100,000,000

Commercial Paper	Par (000)		Value
National Australia Funding Delaware inc., 0.42%, 4/16/12 (c)(d)	$	40,060	$	40,011,049
Nordea North America Inc. (d):
0.44%, 2/22/12		200,000		199,874,333
0.45%, 3/06/12		174,000		173,858,625
Rabobank USA Finance Corp.,     0.42%, 2/29/12 (d)		100,000		99,931,167
Sumitomo Mitsui Banking Corp., New York,     0.20%, 1/06/12 (c)(d)		50,000		49,998,611
Toyota Motor Credit Corp., 0.27%, 1/05/12 (d)		100,000		99,997,000
Westpac Banking Corp. (c):
0.50%, 6/28/12 (d)		100,000		99,751,389
0.62%, 7/10/12 (b)		115,000		115,000,000
Total Commercial Paper — 18.0%				1,928,640,606
Corporate Notes (b)
JPMorgan Chase Bank NA, 0.43%, 1/16/13		121,710		121,710,000
Royal Bank of Scotland Plc, 0.69%, 1/03/12		97,000		97,000,000
Total Corporate Notes — 2.0%				218,710,000
Time Deposits
Bank of Nova Scotia, 0.01%, 1/03/12		350,000		350,000,000
Barclays Bank Plc, 0.09%, 1/03/12		125,000		125,000,000
Chase Bank USA NA, 0.01%, 1/03/12		275,000		275,000,000
Citibank NA, New York, 0.06%, 1/03/12		165,000		165,000,000
Deutsche Bank AG, 0.06%, 1/03/12		49,560		49,560,000
Total Time Deposits — 9.0%				964,560,000
U.S. Government Sponsored Agency Obligations
Fannie Mae Discount Notes (d):
0.07%, 5/02/12		16,650		16,646,050
0.06%, 5/21/12		471,302		471,187,528
0.18%, 7/16/12		150,000		149,854,986
Fannie Mae Variable Rate Notes (b):
0.30%, 7/26/12		125,000		124,985,841
0.29%, 8/23/12		100,000		100,013,111
0.26%, 1/10/13		121,000		120,974,960
0.41%, 5/17/13		103,000		102,956,305
Federal Home Loan Bank, 0.19%, 5/25/12		10,000		9,998,496
Federal Home Loan Bank Discount Notes, 0.07%, 5/04/12 (d)		42,500		42,489,753
Freddie Mac Discount Notes (d):
0.08%, 4/16/12		90,000		89,978,800
0.08%, 4/23/12		99,712		99,686,961
0.06%, 5/29/12		100,000		99,975,167
Freddie Mac Variable Rate Notes (b):
0.32%, 9/03/13		75,000		74,974,668
0.28%, 9/13/13		396,700		396,290,876
0.25%, 11/04/13		100,000		99,981,628
Total U.S. Government Sponsored Agency Obligations — 18.6%				1,999,995,130
Repurchase Agreements
Banc of America Securities LLC, 0.14%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $180,002,800, collateralized by various non-U.S. government debt securities, 0.00% to 9.75%, due 1/11/12 to 12/1/45, par and fair value of $225,382,093 and $187,840,926, respectively)		180,000		180,000,000

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 45

Schedule of Investments (concluded) Prime Money Market Master Portfolio (Percentages shown are based on Net Assets)

Repurchase Agreements	Par (000)		Value
BNP Paribas Securities Corp., 0.14%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $220,003,422, collateralized by various non-U.S. government debt securities, 4.25% to 12.75%, due 11/15/12 to 9/30/27, par and fair value of $190,859,480 and $226,600,001, respectively)	$	220,000	$	220,000,000
Deutsche Bank Securities Inc., 0.05%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $225,001,250, collateralized by various U.S. government obligations, 0.05% to 3.00%, due 9/16/14 to 6/30/15, par and fair value of $228,309,000 and $229,500,886, respectively)		225,000		225,000,000
Deutsche Bank Securities Inc., 0.08%, 1/3/12 (Purchased on 12/30/11 to be repurchased at 525,004,667, collateralized by various U.S. Treasury obligations, 0.00% to 6.50%, due 3/29/12 to 11/15/26, par and fair value of $466,766,800 and $535,500,111, respectively)		525,000		525,000,000
HSBC Securities (USA) Inc., 0.05%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $100,000,556, collateralized by U.S. Treasury obligations, 0.25%, due 10/31/13, par and fair value of $101,975,000 and $102,004,783, respectively)		100,000		100,000,000
JPMorgan Securities Inc., 0.19%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $110,002,322, collateralized by various non-U.S. government debt securities, 0.60% to 7.44%, due 11/15/28 to 2/15/51, par and fair value of $384,523,656 and $115,501,342, respectively)		110,000		110,000,000
JPMorgan Securities Inc., 0.39%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $30,001,300, collateralized by various non-U.S. government debt securities, 3.88% to 12.00%, due 10/1/13 to 6/5/20, par and fair value of $28,576,000 and $31,504,356, respectively)		30,000		30,000,000
Morgan Stanley & Co. Inc., 0.01%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $269,775,300, collateralized by U.S. Treasury obligations, 2.75%, due 2/15/19, par and fair value of $249,391,500 and $275,170,544, respectively)		269,775		269,775,000
Morgan Stanley & Co. Inc., 0.14%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $90,001,400, collateralized by various non-U.S. government debt securities, 0.00%, due 1/3/12, par and fair value of $94,502,731 and $94,500,001, respectively)		90,000		90,000,000
RBS Securities Inc., 0.11%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $90,001,100, collateralized by various U.S. government obligations, 3.50% to 5.50%, due 2/1/25 to 12/1/41, par and fair value of $101,373,415 and $91,800,229, respectively)		90,000		90,000,000
Total Repurchase Agreements — 17.2%				1,839,775,000
Total Investments (Cost — $ 10,795,263,957*) — 100.6 %				10,795,263,957
Liabilities in Excess of Other Assets — (0.6)%				(62,966,726	)
Net Assets — 100.0%			$	10,732,297,231

* Cost for federal income tax purposes.

(a) Issuer is a US branch of a foreign domiciled bank.

(b) Variable rate security. Rate shown is as of report date.

(c) Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933. These securities may be resold in transactions exempt from registration to qualified institutional investors.

(d) Rate shown reflects the discount rate at the time of purchase.

· Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes as follows:

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 Master Portfolio’s own assumptions used in determining the fair value of investments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments is based on the pricing transparency of the investment and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities:
Short-Term Securities1		—	$	10,795,263,957		—	$	10,795,263,957

¹ See above Schedule of Investments for values in each security type.

See Notes to Financial Statements.

46 BLACKROCK FUNDS III DECEMBER 31, 2011

Schedule of Investments December 31, 2011 Treasury Money Market Master Portfolio (Percentages shown are based on Net Assets)

U.S. Treasury Obligations	Par (000)		Value
U.S. Treasury Bill (a):
0.29%, 1/12/12	$	13,000	$	12,999,087
0.08%, 2/16/12		20,000		19,998,044
0.05%, 3/01/12		25,000		24,998,187
0.05%, 3/15/12		25,000		24,997,500
0.06%, 4/26/12		25,000		24,995,250
0.06%, 5/03/12		75,000		74,994,996
0.08%, 5/31/12		25,000		24,992,240
0.05%, 6/14/12		35,000		34,992,076
0.10%, 8/23/12		40,000		39,974,888
0.10%, 11/15/12		25,000		24,977,986
U.S. Treasury Note:
0.88%, 1/31/12		112,000		112,066,759
0.88%, 2/29/12		119,000		119,148,289
1.38%, 5/15/12		15,000		15,061,283
0.38%, 8/31/12		9,000		9,015,517
1.38%, 10/15/12		5,000		5,048,411
1.38%, 11/15/12		9,000		9,092,764
Total U.S. Treasury Obligations — 36.1%				577,353,277
Repurchase Agreements
BNP Paribas Securities Corp., 0.02%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $235,000,522, collateralized by U.S. Treasury obligations, 3.00%, due 7/15/12, par and fair value of $ 183,935,400 and $239,700,077, respectively)		235,000		235,000,000
Citigroup Global Markets Inc., 0.03%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $70,000,233, collateralized by U.S. Treasury obligations, 2.25%, due 11/30/17, par and fair value of $66,916,400 and $71,400,084, respectively)		70,000		70,000,000
Credit Suisse Securities (USA) LLC, 0.02%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $75,000,167, collateralized by various U.S. Treasury obligations, 4.25% to 7.13%, due 11/15/14 to 2/15/23, par and fair value of $62,418,000 and $76,501,502, respectively)		75,000		75,000,000
Deutsche Bank Securities Inc., 0.01%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $75,000,083, collateralized by various U.S. Treasury obligations, 1.00% to 1.38%, due 10/31/16 to 9/30/18, par and fair value of $75,787,500 and $76,500,019, respectively)		75,000		75,000,000
HSBC Securities (USA) Inc., 0.01%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $75,000,083, collateralized by various U.S. Treasury obligations, 0.00% to 9.00%, due 2/23/12 to 8/15/27, par and fair value of $49,218,000 and $76,503,281, respectively)		75,000		75,000,000
JPMorgan Securities Inc., 0.01%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $50,000,056, collateralized by various U.S. Treasury obligations, 1.13% to 5.50%, due 1/15/12 to 8/15/39, par and fair value of $41,549,200 and $51,001,071, respectively)		50,000		50,000,000
Merrill Lynch & Co. Inc., 0.01%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $50,000,056, collateralized by U.S. Treasury obligations, 0.25%, due 12/15/14, par and fair value of $51,210,900 and $51,000,037, respectively)		50,000		50,000,000

Repurchase Agreements	Par (000)		Value
Morgan Stanley & Co. Inc., 0.01%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $319,392,355, collateralized by various U.S. Treasury obligations, 1.25% to 3.13%, due 2/15/14 to 5/15/19, par and fair value of $307,404,400 and $325,779,931, respectively)	$	319,392	$	319,392,000
RBS Securities Inc., 0.02%, 1/3/12 (Purchased on 12/30/11 to be repurchased at $75,000,167, collateralized by various U.S. Treasury obligations, 0.63%, due 12/31/12 to 1/31/13, par and fair value of $75,910,000 and $76,501,297, respectively)		75,000		75,000,000
Total Repurchase Agreements — 63.9%				1,024,392,000
Total Investments (Cost — $1,601,745,277*) — 100.0 %				1,601,745,277
Other Assets in Excess of Liabilities — 0.0%				722,564
Net Assets — 100.0%			$	1,602,467,841

* Cost for federal income tax purposes.

(a) Rate shown reflects the discount rate at the time of purchase.

· Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs are categorized into a disclosure hierarchy consisting of three broad levels for financial statement purposes as follows:

· Level 1 — unadjusted price quotations in active markets/exchanges for identical assets and liabilities

· 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 Master Portfolio’s own assumptions used in determining the fair value of investments)

Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The categorization of a value determined for investments is based on the pricing transparency of the investment and does not necessarily correspond to the Master Portfolio’s perceived risk of investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and other significant accounting policies, please refer to Note 1 of the Notes to Financial Statements. The following table summarizes the inputs used as of December 31, 2011 in determining the fair valuation of the Master Portfolio’s investments:

Valuation Inputs	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities:
Short-Term Securities1		—	$	1,601,745,277		—	$	1,601,745,277

¹ See above Schedule of Investments for values in each security type.

See Notes to Financial Statements.

BLACKROCK FUNDS III DECEMBER 31, 2011 47

Statements of Assets and Liabilities Master Investment Portfolio

December 31, 2011	Government Money Market Master Portfolio		Money Market Master Portfolio		Prime Money Market Master Portfolio		Treasury Money Market Master Portfolio
Assets
Investments at value — unaffiliated1		—	$	25,991,341,153	$	8,955,488,957	$	577,353,277
Repurchase agreements — unaffiliated2	$	10,376,000		2,459,000,000		1,839,775,000		1,024,392,000
Investments sold receivable		—		500,399,288		100,079,857		—
Cash		49		241		611		842
Interest receivable		22		14,157,597		2,602,637		831,486
Total assets		10,376,071		28,964,898,279		10,897,947,062		1,602,577,605
Liabilities
Investments purchased payable		—		435,000,000		165,000,000		—
Investment advisory fees payable		5,391		1,733,481		593,009		87,256
Professional fees payable		15,169		28,751		20,479		16,542
Trustees’ fees payable		705		89,498		36,343		5,966
Total liabilities		21,265		436,851,730		165,649,831		109,764
Net Assets	$	10,354,806	$	28,528,046,549	$	10,732,297,231	$	1,602,467,841
Net Assets Consist of
Investors’ capital	$	10,354,806	$	28,528,046,549	$	10,732,297,231	$	1,602,467,841
1 Investments at cost — unaffiliated		—	$	25,991,341,153	$	8,955,488,957	$	577,353,277
2 Repurchase agreements at cost — unaffiliated	$	10,376,000	$	2,459,000,000	$	1,839,775,000	$	1,024,392,000

See Notes to Financial Statements.
48	BLACKROCK FUNDS III	DECEMBER 31, 2011

Statements of Operations Master Investment Portfolio

Year Ended December 31, 2011	Government Money Market Master Portfolio			Money Market Master Portfolio			Prime Money Market Master Portfolio			Treasury Money Market Master Portfolio
Investment Income
Income	$	178,101		$	79,786,414		$	30,584,865		$	1,559,900
Total income		178,101			79,786,414			30,584,865			1,559,900
Expenses
Investment advisory		112,576			27,795,612			10,875,403			1,590,178
Professional		19,328			80,893			44,639			24,409
Independent Trustees		3,574			364,359			148,138			24,737
Total expenses		135,478			28,240,864			11,068,180			1,639,324
Less fees waived by advisor		(58,782	)		(8,783,936	)		(3,455,398	)		(630,687	)
Total expenses after fees waived		76,696			19,456,928			7,612,782			1,008,637
Net investment income		101,405			60,329,486			22,972,083			551,263
Realized Gain
Net realized gain from investments		—			1,791,140			1,678,063			34,809
Net Increase in Net Assets Resulting from Operations	$	101,405		$	62,120,626		$	24,650,146		$	586,072

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	49

Statements of Changes in Net Assets Master Investment Portfolio

	Government Money Market Master Portfolio						Money Market Master Portfolio
	Year Ended December 31,						Year Ended December 31,
Increase (Decrease) in Net Assets:	2011			2010			2011			2010
Operations
Net investment income	$	101,405		$	204,797		$	60,329,486		$	49,216,953
Net realized gain		—			2,954			1,791,140			1,613,682
Net increase in net assets resulting from operations		101,405			207,751			62,120,626			50,830,635
Capital Transactions
Proceeds from contributions		1,348,250,366			1,493,830,921			52,848,164,282			62,142,807,899
Value of withdrawals		(1,364,470,587	)		(2,124,008,682	)		(44,389,795,004	)		(63,320,829,417	)
Net increase (decrease) in net assets derived from capital transactions		(16,220,221	)		(630,177,761	)		8,458,369,278			(1,178,021,518	)
Net Assets
Total increase (decrease) in net assets		(16,118,816	)		(629,970,010	)		8,520,489,904			(1,127,190,883	)
Beginning of year		26,473,622			656,443,632			20,007,556,645			21,134,747,528
End of year	$	10,354,806		$	26,473,622		$	28,528,046,549		$	20,007,556,645
	Prime Money Market Master Portfolio						Treasury Money Market Master Portfolio
	Year Ended December 31,						Year Ended December 31,
Increase (Decrease) in Net Assets:	2011			2010			2011			2010
Operations
Net investment income	$	22,972,083		$	28,242,352		$	551,263		$	5,860,036
Net realized gain		1,678,063			1,499,723			34,809			352,179
Net increase in net assets resulting from operations		24,650,146			29,742,075			586,072			6,212,215
Capital Transactions
Proceeds from contributions		47,593,540,246			42,435,553,226			18,466,639,450			24,950,734,675
Value of withdrawals		(46,956,950,307	)		(44,602,753,943	)		(19,065,391,442	)		(27,045,251,038	)
Net increase (decrease) in net assets derived from capital transactions		636,589,939			(2,167,200,717	)		(598,751,992	)		(2,094,516,363	)
Net Assets
Total increase (decrease) in net assets		661,240,085			(2,137,458,642	)		(598,165,920	)		(2,088,304,148	)
Beginning of year		10,071,057,146			12,208,515,788			2,200,633,761			4,288,937,909
End of year	$	10,732,297,231		$	10,071,057,146		$	1,602,467,841		$	2,200,633,761

See Notes to Financial Statements.
50	BLACKROCK FUNDS III	DECEMBER 31, 2011

Financial Highlights Master Investment Portfolio

	Government Money Market Master Portfolio
	Year Ended December 31,
	2011		2010		2009		2008			2007
Total Investment Return
Total investment return		0.08%		0.13%		0.12%		1.99%			5.20%
Ratios to Average Net Assets
Total expenses		0.12%		0.11%		0.10%		0.10%			0.12%
Total expenses after fees waived		0.07%		0.02%		0.05%		0.05%			0.07%
Net investment income		0.09%		0.11%		0.12%		0.59%			4.93%
Supplemental Data
Net assets, end of year (000)	$	10,355	$	26,474	$	656,444	$	1,717,936		$	107,835
	Money Market Master Portfolio
	Year Ended December 31,
	2011		2010		2009		2008			2007
Total Investment Return
Total investment return		0.23%		0.27%		0.48%		2.90%	1		5.40%
Ratios to Average Net Assets
Total expenses		0.10%		0.10%		0.10%		0.10%			0.10%
Total expenses after fees waived		0.07%		0.07%		0.07%		0.07%			0.07%
Net investment income		0.22%		0.26%		0.48%		2.88%			5.23%
Supplemental Data
Net assets, end of year (000)	$	28,528,047	$	20,007,557	$	21,134,748	$	22,488,961		$	31,492,404

¹  For the year ended December 31, 2008, 0.01% of the total return consists of purchases of securities by BlackRock Fund Advisors (“BFA” or the “Manager”) at prices in excess of the securities’ then current fair value. Excluding these items, total return would have been 2.89%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	DECEMBER 31, 2011	51

Financial Highlights (concluded) Master Investment Portfolio

	Prime Money Market Master Portfolio
	Year Ended December 31,
	2011		2010		2009		2008			2007
Total Investment Return
Total investment return		0.21%		0.25%		0.37%		2.88%	1		5.37%
Ratios to Average Net Assets
Total expenses		0.10%		0.10%		0.10%		0.10%			0.10%
Total expenses after fees waived		0.07%		0.07%		0.07%		0.06%			0.07%
Net investment income		0.21%		0.25%		0.41%		2.77%			5.23%
Supplemental Data
Net assets, end of year (000)	$	10,732,297	$	10,071,057	$	12,208,516	$	16,570,735		$	11,022,281
1   For the year ended December 31, 2008, 0.01% of the total return consists of purchases of securities by BFA at prices in excess of the securities’ then current fair value. Excluding these items, total return would have been 2.87%.
	Treasury Money Market Master Portfolio
	Year Ended December 31,
	2011		2010		2009		2008			2007
Total Investment Return
Total investment return		0.09%		0.13%		0.11%		1.64%			4.98%
Ratios to Average Net Assets
Total expenses		0.10%		0.10%		0.10%		0.10%			0.12%
Total expenses after fees waived		0.06%		0.06%		0.05%		0.02%			0.01%
Net investment income		0.03%		0.13%		0.10%		0.48%			4.81%
Supplemental Data
Net assets, end of year (000)	$	1,602,468	$	2,200,634	$	4,288,938	$	1,650,804		$	203,422

See Notes to Financial Statements.
52	BLACKROCK FUNDS III	DECEMBER 31, 2011

Notes to Financial Statements Master Investment Portfolio

1. Organization and Significant Accounting Policies:

Master Investment Portfolio (“MIP”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. MIP is organized as a Delaware statutory trust. The financial statements and these accompanying notes relate to four series of MIP: Government Money Market Master Portfolio, Money Market Master Portfolio, Prime Money Market Master Portfolio and Treasury Money Market Master Portfolio (each a “Master Portfolio” and together, the “Master Portfolios”). The Master Portfolios’ financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which may require management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

The following is a summary of significant accounting policies followed by the Master Portfolios:

Valuation: US GAAP defines fair value as the price the Master Portfolios would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Master Portfolios’ investments are valued under the amortized cost method which approximates current market value in accordance with Rule 2a-7 under the 1940 Act. Under this method, investments are valued at cost when purchased and thereafter, a constant proportionate accretion and amortization of any discounts and premiums are recorded until the maturity of the security. Each Master Portfolio seeks to maintain its net asset value per share at $1.00, although there is no assurance that it will be able to do so on a continuing basis.

Repurchase Agreements: The Master Portfolios may invest in repurchase agreements. In a repurchase agreement, a Master Portfolio purchases a security from a counterparty who agrees to repurchase the same security at a mutually agreed upon date and price. On a daily basis, the counterparty is required to maintain collateral subject to the agreement and in value no less than the agreed repurchase amount. The agreements are conditioned upon the collateral being deposited under the Federal Reserve book entry system or held in a segregated account by the Master Portfolio’s custodian or designated sub-custodians under tri-party repurchase agreements. In the event the counterparty defaults and the fair value of the collateral declines, a Master Portfolio could experience losses, delays and costs in liquidating the collateral.

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis.

Income Taxes: Money Market Master Portfolio, Prime Money Market Master Portfolio and Treasury Money Market Master Portfolio are each classified as a partnership for federal income tax purposes. As such, each investor in the Master Portfolio is treated as the owner of its proportionate share of net assets, income, expenses and realized gains and losses of the Master Portfolio. Therefore, no federal income tax provision is

required. It is intended that the Master Portfolio’s assets will be managed so an investor in the Master Portfolio can satisfy the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended.

Each of Money Market Master Portfolio, Prime Money Market Master Portfolio and Treasury Money Market Master Portfolio file US federal and various state and local tax returns. The statute of limitations on each Master Portfolio’s US federal tax returns remains open for each of the four years ended December 31, 2011. The statutes of limitations on each Master Portfolio’s state and local tax returns may remain open for an additional year depending upon the jurisdiction. Management does not believe there are any uncertain tax positions that require recognition of a tax liability.

Government Money Market Master Portfolio is disregarded as an entity separate from its owner for tax purposes. As such, the owner of the Master Portfolio is treated as the owner of the net assets, income, expenses and realized gains and losses of the Master Portfolio. Therefore, no federal income tax provision is required. It is intended that the Master Portfolio’s assets will be managed so the owner of the Master Portfolio can satisfy the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended.

Other: Expenses directly related to a Master Portfolio are charged to that Master Portfolio. Other operating expenses shared by several funds are pro-rated among those funds on the basis of relative net assets or other appropriate methods.

2. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) and Barclays Bank PLC (“Barclays”) are the largest stockholders of BlackRock, Inc. (“BlackRock”). Due to the ownership structure, PNC is an affiliate for 1940 Act purposes, but Barclays is not.

MIP, on behalf of the Master Portfolios, entered into an Investment Advisory Agreement with the Manager, the Master Portfolios’ investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of each Master Portfolio’s portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of each Master Portfolio. For such services, each Master Portfolio pays the Manager a monthly fee at an annual rate of 0.10% of the average daily value of the Master Portfolio’s net assets. The Manager has contractually agreed to waive 0.03% of its investment advisory fees through April 30, 2012. The Manager has also voluntarily agreed to waive investment advisory fees to enable the feeders that invest in the Master Portfolios to maintain a minimum daily net investment income dividend. The Manager may discontinue the voluntary waiver at anytime. For the year ended December 31, 2011, the amounts included in fees waived by advisor in the Statements of Operations are as follows:

Government Money Market Master Portfolio	$	35,879
Money Market Master Portfolio	$	8,338,684
Prime Money Market Master Portfolio	$	3,262,621
Treasury Money Market Master Portfolio	$	581,541

BLACKROCK FUNDS III DECEMBER 31, 2011 53

Notes to Financial Statements (concluded) Master Investment Portfolio

The fees and expenses of the trustees of MIP who are not “interested persons” of MIP, as defined in the 1940 Act (“Independent Trustees”), counsel to the Independent Trustees and MIP’s independent registered public accounting firm (together, the “independent expenses”) are paid directly by the Master Portfolios. The Manager has contractually agreed to cap the expenses of the Master Portfolios at the rate at which the Master Portfolios pay an investment advisory fee to the Manager by waiving the investment advisory fees paid by the Master Portfolios in an amount equal to the independent expenses, through April 30, 2012. The amounts waived are included in fees waived by advisor in the Statements of Operations. For the year ended December 31, 2011, such waiver amounts are as follows:

Government Money Market Master Portfolio	$	22,903
Money Market Master Portfolio	$	445,252
Prime Money Market Master Portfolio	$	192,777
Treasury Money Market Master Portfolio	$	49,146

MIP entered into an administration services arrangement with BlackRock Institutional Trust Company, N.A. (“BTC”), which has agreed to provide general administration services (other than investment advice and related portfolio activities, BTC may delegate certain of its administration duties to sub-administrators. BTC, in consideration thereof, has agreed to bear all of the Master Portfolios’ and MIP’s ordinary expenses excluding, generally, investment advisory fees, distribution fees, brokerage and other expenses related to the execution of portfolio transactions, extraordinary expenses and certain other expenses which are borne by the Master Portfolios.

BTC is not entitled to compensation for providing administration services to the Master Portfolios, for so long as BTC is entitled to compensation for providing administration services to corresponding feeder funds that invest substantially all of their assets in the Master Portfolios, or BTC (or an affiliate) receives investment advisory fees from the Master Portfolios.

Certain officers and/or trustees of MIP are officers and/or directors of BlackRock or its affiliates.

3. Concentration, Market and Credit Risk:

In the normal course of business, the Master Portfolios invest in securities and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all of its obligations (issuer credit risk). The value of securities held by the Master Portfolios may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Master Portfolios; conditions affecting the general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Master Portfolios may be exposed to counterparty credit risk, or the risk that an entity with which the Master Portfolios have unsettled or open transactions may fail to or be unable to perform on its commitments. The Master Portfolios manage counterparty risk by entering into transactions only with counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those conterparties. Financial assets, which potentially expose the Master Portfolios to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Master Portfolios’ exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value recorded in the Master Portfolios’ Statements of Assets and Liabilities, less any collateral held by the Master Portfolios.

4. Subsequent Events:

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

54 BLACKROCK FUNDS III DECEMBER 31, 2011

Report of Independent Registered Public Accounting Firm Master Investment Portfolio

To the Interestholders and Board of Trustees of

Master Investment Portfolio:

In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Government Money Market Master Portfolio, Money Market Master Portfolio, Prime Money Market Master Portfolio and Treasury Money Market Master Portfolio, each a portfolio of Master Investment Portfolio (the “Master Portfolios”), at December 31, 2011, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Master Portfolios’ management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which include confirmation of securities at December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 24, 2012

BLACKROCK FUNDS III DECEMBER 31, 2011 55

Officers and Trustees

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1
Ronald W. Forbes 55 East 52nd Street New York, NY 10055 1940	Co-Chairman of the Board and Trustee	Since 2009	Professor Emeritus of Finance, School of Business, State University of New York at Albany since 2000.	33 RICs consisting of 107 Portfolios	None
Rodney D. Johnson 55 East 52nd Street New York, NY 10055 1941	Co-Chairman of the Board and Trustee	Since 2009	President, Fairmount Capital Advisors, Inc. since 1987; Member of the Archdiocesan Investment Committee of the Archdiocese of Philadelphia since 2004; Director, The Committee of Seventy (civic) since 2006; Director, Fox Chase Cancer Center from 2004 to 2010.	33 RICs consisting of 107 Portfolios	None
David O. Beim 55 East 52nd Street New York, NY 10055 1940	Trustee	Since 2009	Professor of Professional Practice at the Columbia University Graduate School of Business since 1991; Trustee, Phillips Exeter Academy since 2002; Chairman, Wave Hill, Inc. (public garden and cultural center) from 1990 to 2006.	33 RICs consisting of 107 Portfolios	None
Dr. Matina S. Horner 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Executive Vice President of Teachers Insurance and Annuity Association and College Retirement Equities Fund from 1989 to 2003.	33 RICs consisting of 107 Portfolios	NSTAR (electric and gas utility)
Herbert I. London 55 East 52nd Street New York, NY 10055 1939	Trustee	Since 2009	Professor Emeritus, New York University since 2005; John M. Olin Professor of Humanities, New York University from 1993 to 2005 and Professor thereof from 1980 to 2005; President, Hudson Institute (policy research organization) since 1997 and Trustee thereof since 1980; Chairman of the Board of Trustees for Grantham University since 2006; Director, InnoCentive, Inc. (strategic solutions company) since 2005; Director, Cerego, LLC (software development and design) since 2005; Director, Cybersettle (dispute resolution technology) since 2009.	33 RICs consisting of 107 Portfolios	AIMS Worldwide, Inc. (marketing)
Cynthia A. Montgomery 55 East 52nd Street New York, NY 10055 1952	Trustee	Since 2009	Professor, Harvard Business School since 1989; Director, McLean Hospital since 2005; Director, Harvard Business School Publishing from 2005 to 2010.	33 RICs consisting of 107 Portfolios	Newell Rubbermaid, Inc. (manufacturing)
Joseph P. Platt 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2009	Director, The West Penn Allegheny Health System (a not-for-profit health system) since 2008; Director, Jones and Brown (Canadian insurance broker) since 1998; General Partner, Thorn Partners, LP (private investment) since 1998; Director, WQED Multi-Media (public broadcasting not-for-profit) since 2001; Partner, Amarna Corporation, LLC (private investment company) from 2002 to 2008.	33 RICs consisting of 107 Portfolios	Greenlight Capital Re, Ltd. (reinsurance company)
Robert C. Robb, Jr. 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Partner, Lewis, Eckert, Robb and Company (management and financial consulting firm) since 1981.	33 RICs consisting of 107 Portfolios	None
Toby Rosenblatt 55 East 52nd Street New York, NY 10055 1938	Trustee	Since 2009	President, Founders Investments Ltd. (private investments) since 1999; Director, College Access Foundation of California (philanthropic foundation) since 2009; Director, Forward Management, LLC since 2007; Director, A.P. Pharma, Inc. (specialty pharmaceuticals) from 1983 to 2011; Director, The James Irvine Foundation (philanthropic foundation) from 1998 to 2008.	33 RICs consisting of 107 Portfolios	None

56 BLACKROCK FUNDS III DECEMBER 31, 2011

Officers and Trustees (continued)

Name, Address and Year of Birth	Position(s) Held with Trust/MIP	Length of Time Served as a Trustee2	Principal Occupation(s) During Past Five Years	Number of BlackRock- Advised Registered Investment Companies (“RICs”) Consisting of Investment Portfolios (“Portfolios”) Overseen	Public Directorships
Independent Trustees1 (concluded)
Kenneth L. Urish 55 East 52nd Street New York, NY 10055 1951	Trustee	Since 2009	Managing Partner, Urish Popeck & Co., LLC (certified public accountants and consultants) since 1976; Chairman Elect of the Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants and Committee Member thereof since 2007; Member of External Advisory Board, The Pennsylvania State University Accounting Department since 2001; Trustee, The Holy Family Foundation from 2001 to 2010; President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Director, Inter-Tel from 2006 to 2007.	33 RICs consisting of 107 Portfolios	None
Frederick W. Winter 55 East 52nd Street New York, NY 10055 1945	Trustee	Since 2009	Professor and Dean Emeritus of the Joseph M. Katz School of Business, University of Pittsburgh since 2005 and Dean thereof from 1997 to 2005; Director, Alkon Corporation (pneumatics) since 1992; Director, Tippman Sports (recreation) since 2005; Director, Indotronix International (IT services) from 2004 to 2008.	33 RICs consisting of 107 Portfolios	None
	1   Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. The Board has approved extensions in terms of Trustees who turn 72 prior to December 31, 2013. 2   Date shown is the earliest date a person has served for the Fund covered by this annual report. Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. (“BlackRock”) in September 2006, the various legacy MLIM and legacy BlackRock Fund boards were realigned and consolidated into three new Fund boards in 2007. As a result, although the chart shows certain Trustees as joining the Trust’s/MIP’s board in 2007, each Trustee first became a member of the board of other legacy MLIM or legacy BlackRock Funds as follows: David O. Beim, 1998; Ronald W. Forbes, 1977; Dr. Matina S. Horner, 2004; Rodney D. Johnson, 1995; Herbert I. London, 1987; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Robert C. Robb, Jr., 1998; Toby Rosenblatt, 2005; Kenneth L. Urish, 1999; and Frederick W. Winter, 1999.
Interested Trustees3
Paul L. Audet 55 East 52nd Street New York, NY 10055 1953	Trustee	Since 2011	Senior Managing Director, BlackRock, and Head of BlackRock’s Real Estate business from 2008 to 2011; Member of BlackRock’s Global Operating and Corporate Risk Management Committees and of the BlackRock Alternative Investors Executive Committee and Investment Committee for the Private Equity Fund of Funds business since 2008; Head of BlackRock’s Global Cash Management business from 2005 to 2010; Acting Chief Financial Officer of BlackRock from 2007 to 2008; Chief Financial Officer of BlackRock from 1998 to 2005.	159 RICs consisting of 286 Portfolios	None
Henry Gabbay 55 East 52nd Street New York, NY 10055 1947	Trustee	Since 2007	Consultant, BlackRock from 2007 to 2008; Managing Director, BlackRock from 1989 to 2007; Chief Administrative Officer, BlackRock Advisors, LLC from 1998 to 2007; President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007 and Treasurer of certain closed-end funds in the BlackRock fund complex from 1989 to 2006.	159 RICs consisting of 286 Portfolios	None
	3   Mr. Audet is an “interested person,” as defined in the 1940 Act, of the Trust/MIP based on his position with BlackRock and its affiliates. Mr. Gabbay is an “interested person” of the Trust/MIP based on his former positions with BlackRock and its affiliates as well as his ownership of BlackRock and The PNC Financial Services Group, Inc. securities. Mr. Audet and Mr. Gabbay are also Trustees of the BlackRock registered closed-end funds and Trustees of other BlackRock registered open-end funds. Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.

BLACKROCK FUNDS III DECEMBER 31, 2011 57

Officers and Trustees (concluded)

Name, Address and Year of Birth	Position(s) Held with the Trust/MIP	Length of Time Served	Principal Occupation(s) During Past Five Years
Trust/MIP Officers*
John M. Perlowski 55 East 52nd Street New York, NY 10055 1964	President and Chief Executive Officer	Since 2010	Managing Director of BlackRock since 2009; Global Head of BlackRock Fund Administration since 2009; Managing Director and Chief Operating Officer of the Global Product Group at Goldman Sachs Asset Management, L.P. from 2003 to 2009; Treasurer of Goldman Sachs Mutual Funds from 2003 to 2009 and Senior Vice President thereof from 2007 to 2009; Director of Goldman Sachs Offshore Funds from 2002 to 2009; Director of Family Resource Network (charitable foundation) since 2009.
Richard Hoerner, CFA 55 East 52nd Street New York, NY 10055 1958	Vice President	Since 2009	Managing Director of BlackRock since 2000; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2002; Member of the Cash Management Group Executive Committee since 2005.
Brendan Kyne 55 East 52nd Street New York, NY 10055 1977	Vice President	Since 2009	Managing Director of BlackRock since 2010; Director of BlackRock from 2008 to 2009; Head of Product Development and Management for BlackRock’s U.S. Retail Group since 2009 and Co-head thereof from 2007 to 2009; Vice President of BlackRock from 2005 to 2008.
Simon Mendelson 55 East 52nd Street New York, NY 10055 1964	Vice President	Since 2009	Managing Director of BlackRock since 2005; Co-head of the Global Cash and Securities Lending Group since 2010; Chief Operating Officer and Head of the Global Client Group for BlackRock’s Global Cash Management Business from 2007 to 2010; Head of BlackRock’s Strategy and Development Group from 2005 to 2007; Partner of McKinsey & Co. from 1997 to 2005.
Christopher Stavrakos, CFA 55 East 52nd Street New York, NY 10055 1959	Vice President	Since 2009	Managing Director of BlackRock since 2006; Co-head of BlackRock’s Cash Management Portfolio Management Group since 2006; Senior Vice President, CIO, and Director of Liability Management for the Securities Lending Group at Mellon Bank from 1999 to 2006.
Neal Andrews 55 East 52nd Street New York, NY 10055 1966	Chief Financial Officer	Since 2007	Managing Director of BlackRock since 2006; Senior Vice President and Line of Business Head of Fund Accounting and Administration at PNC Global Investment Servicing (U.S.) Inc. from 1992 to 2006.
Jay Fife 55 East 52nd Street New York, NY 10055 1970	Treasurer	Since 2007	Managing Director of BlackRock since 2007; Director of BlackRock in 2006; Assistant Treasurer of the MLIM and Fund Asset Management, L.P. advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006.
Brian Kindelan 55 East 52nd Street New York, NY 10055 1959	Chief Compliance Officer and Anti-Money Laundering Officer	Since 2007	Chief Compliance Officer of the BlackRock-advised funds since 2007; Managing Director and Senior Counsel of BlackRock since 2005.
Ira P. Shapiro 55 East 52nd Street New York, NY 10055 1963	Secretary	Since 2010	Managing Director of BlackRock since 2009; Managing Director and Associate General Counsel of Barclays Global Investors from 2008 to 2009 and Principal thereof from 2004 to 2008.
	*  Officers of the Trust/MIP serve at the pleasure of the Board of Trustees.

Investment Advisor BlackRock Fund Advisors San Francisco, CA 94105	Custodian State Street Bank and Trust Company Boston, MA 02110	Transfer Agent State Street Bank and Trust Company Boston, MA 02110	Accounting Agent State Street Bank and Trust Company Boston, MA 02110	Distributor BlackRock Investments, LLC New York, NY 10022
	Administrator BlackRock Institutional Trust Company, N.A. San Francisco, CA 94105	Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP New York, NY 10017	Legal Counsel Sidley Austin LLP New York, NY 10019	Address of the Funds 400 Howard Street San Francisco, CA 94105

58 BLACKROCK FUNDS III DECEMBER 31, 2011

Additional Information

General Information

Availability of Quarterly Portfolio Schedule

The Funds/Master Portfolios file their complete schedules of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Each Fund’s/Master Portfolio’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information on how to access documents on the SEC’s website without charge may be obtained by calling (202) SEC-0330. Each Fund’s/Master Portfolio’s Forms N-Q may also be obtained upon request and without charge by calling (877) 244-1544.

Availability of Proxy Voting Policies and Procedures

A description of the policies and procedures that the Funds/Master Portfolios use to determine how to vote proxies relating to portfolio securities is available (1) without charge, upon request, by calling toll-free (877) 244-1544; (2) at www.blackrock.com; and (3) on the Securities and Exchange Commission’s (the “SEC”) website at http://www.sec.gov.

Availability of Proxy Voting Record

Information about how each Fund/Master Portfolio voted proxies relating to securities held in the Fund’s/Master Portfolio’s portfolios during the most recent 12-month period ended June 30 is available upon request and without charge (1) at http://www.blackrock.com or by calling (877) 244-1544 and (2) on the SEC’s website at http://www.sec.gov.

Shareholder Privileges

Account Information

Call us at (877) 244-1544 from 8:00 AM to 6:00 PM EST on any business day to get information about your account balances, recent trans-

actions and share prices. You can also reach us on the Web at http://www.blackrock.com/funds.

BlackRock Privacy Principles

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

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

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

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

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

BLACKROCK FUNDS III DECEMBER 31, 2011 59

This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Funds unless accompanied or preceded by the Funds’ current prospectus. An investment in a Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a Fund. Performance data quoted represents past performance and does not guarantee future results. Total return information assumes reinvestment of all distributions. Current performance may be higher or lower than the performance data quoted. For current month-end performance information, call (800) 768-2836. Each Fund’s current 7-day yield more closely reflects the current earnings of the Fund than the total returns quoted. Statements and other information herein are as dated and are subject to change.

# MMF4-12/11

Item 2	–	Code of Ethics – Each registrant (for “Fund”) has adopted a code of ethics, as of the end of the period covered by this report, applicable to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. During the period covered by this report, there have been no amendments to or waivers granted under the code of ethics. A copy of the code of ethics is available without charge at www.blackrock.com.
Item 3	–	Audit Committee Financial Expert – Each registrant’s board of directors (the “board of directors”), has determined that (i) the registrant has the following audit committee financial expert serving on its audit committee and (ii) each audit committee financial expert is independent: Kenneth L. Urish
		Under applicable securities laws, a person determined to be an audit committee financial expert will not be deemed an “expert” for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification.
Item 4	–	Principal Accountant Fees and Services
		The following table presents fees billed by PricewaterhouseCoopers in each of the last two fiscal years for the services rendered to the Funds:

	(a) Audit Fees				(b) Audit-Related Fees1				(c) Tax Fees2				(d) All Other Fees3
Entity Name	Current Fiscal Year End		Previous Fiscal Year End		Current Fiscal Year End		Previous Fiscal Year End		Current Fiscal Year End		Previous Fiscal Year End		Current Fiscal Year End		Previous Fiscal Year End
BlackRock Funds III	$	306,936	$	142,506	$	0	$	0	$	183,718	$	92,928	$	0	$	0
Master Investment Portfolio	$	422,030	$	227,270	$	0	$	0	$	351,500	$	203,177	$	0	$	0

The following table presents fees billed by Deloitte & Touche LLP that were required to be approved by each registrant’s audit committee (each a “Committee”) for services that relate directly to the operations or financial reporting of the registrant and that are rendered on behalf of BlackRock Advisors, LLC (“Investment Adviser” or “BlackRock”) and entities controlling, controlled by, or under common control with BlackRock (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) that provide ongoing services to the Fund (“Fund Service Providers”):

	Current Fiscal Year End		Previous Fiscal Year End
(b) Audit-Related Fees1	$	0	$	0
(c) Tax Fees2	$	0	$	0
(d) All Other Fees3	$	3,030,000	$	2,950,000

¹  The nature of the services includes assurance and related services reasonably related to the performance of the audit of financial statements not included in Audit Fees.

²  The nature of the services includes tax compliance, tax advice and tax planning.

³  Aggregate fees borne by BlackRock in connection with the review of compliance procedures and attestation thereto performed by D&T with respect to all of the registered closed-end funds and some of the registered open-end funds advised by BlackRock.

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(e)(1) Audit Committee Pre-Approval Policies and Procedures:

Each Committee has adopted policies and procedures with regard to the pre-approval of services. Audit, audit-related and tax compliance services provided to the registrants on an annual basis require specific pre-approval by the registrant’s Committee. The Committee also must approve other non-audit services provided to the registrant and those non-audit services provided to the Investment Adviser and Fund Service Providers that relate directly to the operations and the financial reporting of the registrant. Certain of these non-audit services that the Committee believes are a) consistent with the SEC’s auditor independence rules and b) routine and recurring services that will not impair the independence of the independent accountants may be approved by the Committee without consideration on a specific case-by-case basis (“general pre-approval”). The term of any general pre-approval is 12 months from the date of the pre-approval, unless the Committee provides for a different period. Tax or other non-audit services provided to registrant which have a direct impact on the operations or financial reporting of the registrant will only be deemed pre-approved provided that any individual project does not exceed $10,000 attributable to the registrant or $50,000 per project. For this purpose, multiple projects will be aggregated to determine if they exceed the previously mentioned cost levels.

Any proposed services exceeding the pre-approved cost levels will require specific pre-approval by the registrant’s Committee, as will any other services not subject to general pre-approval (e.g., unanticipated but permissible services). The Committee is informed of each service approved subject to general pre-approval at the next regularly scheduled in-person board meeting. At this meeting, an analysis of such services is presented to the Committee for ratification. The Committee may delegate to the Committee Chairman the authority to approve the provision of and fees for any specific engagement of permitted non-audit services, including services exceeding pre-approved cost levels.

(e)(2) None of the services described in each of Items 4(b) through (d) were approved by either Committee pursuant to the de minimus exception in paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Not Applicable

(g) The aggregate non-audit fees paid to the accountant for services rendered by the accountant to the registrants, the Investment Adviser and the Fund Service Providers were:

Entity Name	Current Fiscal Year End		Previous Fiscal Year End
BlackRock Funds III	$	183,718	$	2,849,859
Master Investment Portfolio	$	351,500	$	2,960,108

		Additionally, SAS No. 70 fees for the current and previous fiscal years of $3,030,000 and $2,950,000, respectively, were billed by D&T to the Investment Adviser. (h) Each Committee has considered and determined that the provision of non-audit services that were rendered to the Investment Adviser and the Fund Service Providers that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5	–	Audit Committee of Listed Registrants – Not Applicable

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Item 6	–	Investments
		(a) The registrants’ Schedules of Investments are included as part of the Reports 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

11(a) –		The registrants’ principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrants’ 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.
11(b) –		There were no changes in the registrants’ internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrants’ internal control over financial reporting.
Item 12	–	Exhibits attached hereto
12(a)(1)	–	Code of Ethics – See Item 2
12(a)(2)	–	Certifications – Attached hereto
12(a)(3)	–	Not Applicable
12(b) –		Certifications – Attached hereto

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

BlackRock Funds III and Master Investment Portfolio

By:	/s/ John M. Perlowski
	John M. Perlowski
	Chief Executive Officer (principal executive officer) of
	BlackRock Funds III and Master Investment Portfolio

Date: March 1, 2012

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 each registrant and in the capacities and on the dates indicated.

By:	/s/ John M. Perlowski
	John M. Perlowski
	Chief Executive Officer (principal executive officer) of
	BlackRock Funds III and Master Investment Portfolio

Date: March 1, 2012

By:	/s/ Neal J. Andrews
	Neal J. Andrews
	Chief Financial Officer (principal financial officer ) of
	BlackRock Funds III and Master Investment Portfolio

Date: March 1, 2012

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