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: 12/31/2012

Date of reporting period: 06/30/2012

Item 1 – Report to Stockholders

2

June 30, 2012

Semi-Annual Report (Unaudited)

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
Semi-Annual Report:
Fund Summary		4
About Fund Performance		6
Derivative Financial Instruments		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
Master Portfolio Information		16
Master Portfolio Financial Statements:
Schedule of Investments		17
Statement of Assets and Liabilities		28
Statement of Operations		29
Statements of Changes in Net Assets		30
Master Portfolio Financial Highlights		31
Master Portfolio Notes to Financial Statements		32
Disclosure of Investment Advisory Agreement		36
Officers and Trustees		40
Additional Information		41
A World-Class Mutual Fund Family		43

2 BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012

Dear Shareholder

One year ago, risk assets were in a broad retreat as sovereign debt problems loomed over Europe and confidence in both the US and global economic recoveries was waning. Last summer’s pro-longed debt ceiling debate in Washington, DC ended with Standard & Poor’s historic downgrade of US government debt, an event that triggered financial-market turmoil all over the world. Extraordinary levels of volatility persisted in the months that followed as the debt situation in Europe intensified. Macro-level news drove asset prices broadly up and down in lockstep, in a “risk on” — “risk off” trading pattern. Equity markets crumbled while safe-haven assets such as US Treasuries and gold rallied to historic highs by the end of the third quarter of 2011.

By October, however, improving economic data and more concerted efforts among European leaders toward stemming the region’s debt crisis drew investors back to the markets. Improving sentiment carried over into early 2012 as investors saw some relief from the world’s financial woes. Risk assets (including stocks, commodities and high yield bonds) moved boldly higher through the first two months of 2012 while climbing Treasury yields pressured higher-quality fixed income assets.

However, risk assets reversed course in the spring when Europe’s debt problems boiled over once again. Markets became highly volatile as political instability in Greece threatened the country’s membership in the euro zone. Spain faced severe deficit issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian government debt rose to levels deemed unsustainable. European leaders conferred and debated vehemently over the need for fiscal integration among the 17 euro-zone nations to resolve the crisis for the long term.

Alongside the drama in Europe, investors were discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key powerhouse for global growth, became particularly worrisome. In the United States, disappointing jobs reports dealt a crushing blow to sentiment. Risk assets sold off through April and May as investors ran back to safe havens including US, German and UK government debt as well as gold. As the period drew to a close, risk assets were beginning to rebound modestly as European leaders stepped up their efforts to move toward fiscal unity and investors anticipated additional stimulus from central banks on both sides of the Atlantic.

All asset classes posted gains for the 6-month period ended June 30, 2012, with US stocks delivering the largest returns. On a 12-month basis, US large-cap stocks generated positive results; however, small-cap stocks finished in negative territory and international and emerging equities, which experienced significant downturns in 2011, lagged the broader rebound. Among fixed income asset classes, safe-haven US Treasury bonds and municipal bonds outperformed corporate credits for the 12-month period. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities. We remain committed to working with you and your financial professional to identify actionable ideas for your portfolio. We encourage you to visit www.blackrock.com/newworld for more information.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of June 30, 2012
	6-month			12-month
US large cap equities (S&P 500® Index)		9.49	%		5.45	%
US small cap equities (Russell 2000® Index)		8.53			(2.08	)
International equities (MSCI Europe, Australasia, Far East Index)		2.96			(13.83	)
Emerging market equities (MSCI Emerging Markets Index)		3.93			(15.95	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.04			0.05
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		3.44			17.36
US investment grade bonds (Barclays US Aggregate Bond Index)		2.37			7.47
Tax-exempt municipal bonds (S&P Municipal Bond Index)		4.14			10.16
US high yield bonds (Barclays US Corporate High Yield 2% Issuer Capped Index)		7.23			7.21
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 June 30, 2012 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?

Ÿ For the six months ended June 30, 2012, the Fund’s Institutional, Investor A and Class K Shares returned 9.50%, 9.40% and 9.52%, respectively, while the benchmark Russell 1000^® Index returned 9.38%. 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.

Ÿ 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.

Ÿ Following a highly volatile 2011, financial markets began the year with relative calm as the debt situation in Europe stabilized and global liquidity conditions returned to normal, due mainly to the European Central Bank’s long-term refinancing operations. US economic indicators were positive, with particularly encouraging reports from the labor market, and the outlook for the global economy brightened. As the investment environment improved and corporate earnings continued to be strong, US equities moved boldly higher through the first two months of 2012.

Ÿ The rally softened in March when the tone of global news flow darkened. Investors reverted to risk averse mode and heightened volatility returned to the markets as Europe’s debt problems boiled over once again. Political instability in Greece caused anxiety about whether the country would continue its membership in the euro zone. In Spain, political leaders faced severe deficit and policymaking issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian

sovereign debt rose to levels deemed unsustainable. Stock markets around the world saw increased volatility as investors reacted to news from Europe where leaders conferred and debated vehemently over the need for fiscal integration among the 17 euro-zone nations.

Ÿ Alongside the drama in Europe, investors became discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key power house for global growth, was of particular concern. Chinese manufacturing and exports suffered due to weakening demand from larger, developed countries as consumers became more cautious in the mire of the financial situation in Europe. Many European countries fell into recession. In the United States, disappointing jobs reports in the second quarter dealt a crushing blow to sentiment for the US economy after the labor market had been a bright spot earlier in the year.

Ÿ The resurgence of concerns about global growth and Europe’s debt problems drove equity prices down through April and May. In June, US stocks began a modest rebound as European leaders ramped up their efforts to move toward fiscal unity and investors anticipated additional stimulus from central banks on both sides of the Atlantic. The US economy remained strong relative to other parts of the world and year-to-date, US stocks generally outperformed international equity markets, which experienced higher levels of volatility amid global uncertainty.

Describe recent portfolio activity.

Ÿ 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.

Ÿ 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 JUNE 30, 2012

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 1,000 of the largest securities based on a combination of their market capitalization and current index membership.

⁴  Commencement of operations.

Performance Summary for the Period Ended June 30, 2012

	Average Annual Total Returns5
	6-Month Total Returns			1 Year			Since Inception6
Institutional		9.50	%		4.31	%		3.44	%
Investor A		9.40			4.05			3.19
Class K		9.52			4.36			3.50
Russell 1000® Index		9.38			4.37			3.59

⁵  See “About Fund Performance” on page 6 for a detailed description of share classes, including any related sales charges and fees.

⁶  The Fund commenced operations on March 31, 2011.

Past performance is not indicative of future results.

Expense Example
	Actual						Hypothetical8
	Beginning Account Value January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period7		Beginning Account Value January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period7		Annualized Expense Ratio
Institutional		$1,000.00		$1,095.00		$1.15		$1,000.00		$1,023.77		$1.11		0.23%
Investor A		$1,000.00		$1,094.00		$2.29		$1,000.00		$1,022.68		$2.21		0.44%
Class K		$1,000.00		$1,095.20		$0.94		$1,000.00		$1,023.97		$0.91		0.18%

⁷  For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period shown). Because the Fund invests significantly in the Master Portfolio, the expense table example reflects the expenses of both the Fund and the Master Portfolio in which it invests.

⁸  Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 366.

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

BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012 5

About Fund Performance BlackRock Russell 1000 Index Fund

Ÿ 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.

Ÿ Investor A Shares are not subject to any sales charge and bear no ongoing distribution fee. These 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 (“NAV”) 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. 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 Fund’s administrator waived and/or reimbursed a portion of the Fund’s expenses. Without such waiver, the Fund’s performance would have been lower.

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 security, index and/or 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 they might otherwise sell. The Master Portfolio’s investments in these instruments are discussed in detail in the Master Portfolio’s Notes to Financial Statements.

Disclosure of Expenses

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 on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2012 and held through June 30, 2012) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.

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

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

The expenses shown in the expense example 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.

6 BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012

Statement of Assets and Liabilities BlackRock Russell 1000 Index Fund

June 30, 2012 (Unaudited)
Assets
Investments at value — Master Portfolio (cost — $50,845,676)	$	53,270,893
Capital shares sold receivable		246,764
Receivable from administrator		8,686
Prepaid expenses		32,268
Total assets		53,558,611
Liabilities
Contributions payable to the Master Portfolio		246,764
Income dividends payable		239,896
Registration fees payable		2,191
Printing fees payable		37,567
Transfer agent fees payable		3,337
Service fees payable		424
Professional fees payable		19,860
Other accrued expenses payable		3,071
Total liabilities		553,110
Net Assets	$	53,005,501
Net Assets Consist of
Paid-in capital	$	51,051,286
Undistributed net investment income		9,729
Accumulated net realized loss allocated from the Master Portfolio		(480,731	)
Net unrealized appreciation/depreciation allocated from the Master Portfolio		2,425,217
Net Assets	$	53,005,501
Net Asset Value
Institutional — Based on net assets of $25,494 and 2,500 shares outstanding, unlimited number of shares authorized, no par value	$	10.20
Investor A — Based on net assets of $2,251,550 and 220,950 shares outstanding, unlimited number of shares authorized, no par value	$	10.19
Class K — Based on net assets of $50,728,457 and 4,975,268 shares outstanding, unlimited number of shares authorized, no par value	$	10.20

See Notes to Financial Statements.
	BLACKROCK RUSSELL 1000 INDEX FUND	JUNE 30, 2012	7

Statement of Operations BlackRock Russell 1000 Index Fund

Six Months Ended June 30, 2012 (Unaudited)
Investment Income
Net investment income allocated from the Master Portfolio:
Dividends — unaffiliated	$	523,784
Dividends — affiliated		3,011
Securities lending — affiliated		7,762
Income — affiliated		3,018
Interest — unaffiliated		29
Expenses		(39,295	)
Fees waived		1,173
Total income		499,482
Expenses
Administration		20,588
Service — Investor A		2,669
Registration		10,145
Transfer Agent — Institutional		20
Transfer Agent — Investor A		74
Transfer Agent — Class K		870
Professional		25,197
Printing		15,073
Offering costs		49,107
Miscellaneous		3,083
Recoupment of past waived fees — Investor A		48
Total expenses		126,874
Less administration fees waived		(20,588	)
Less transfer agent fees waived — Institutional		(2	)
Less transfer agent fees waived — Class K		(199	)
Less transfer agent fees reimbursed — Institutional		(12	)
Less transfer agent fees reimbursed — Class K		(671	)
Less fees waived and/or reimbursed by administrator		(94,404	)
Total expenses after fees waived and/or reimbursed		10,998
Net investment income		488,484
Realized and Unrealized Gain (Loss) Allocated from the Master Portfolio
Net realized loss from investments and financial futures contracts		(114,783	)
Net change in unrealized appreciation/depreciation on investments and financial futures contracts		4,263,179
Total realized and unrealized gain		4,148,396
Net Increase in Net Assets Resulting from Operations	$	4,636,880

See Notes to Financial Statements.
8	BLACKROCK RUSSELL 1000 INDEX FUND	JUNE 30, 2012

Statements of Changes in Net Assets BlackRock Russell 1000 Index Fund

Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Period March 31, 20111 to December 31, 2011
Operations
Net investment income	$	488,484		$	475,161
Net realized loss		(114,783	)		(363,500	)
Net change in unrealized appreciation/depreciation		4,263,179			(1,837,962	)
Net increase (decrease) in net assets resulting from operations		4,636,880			(1,726,301	)
Dividends to Shareholders From
Net investment income:
Institutional		(235	)		(305	)
Investor A		(18,119	)		(10,478	)
Class K		(468,537	)		(456,242	)
Net realized capital gain:
Institutional		—			(2	)
Investor A		—			(55	)
Class K		—			(2,391	)
Tax return of capital:
Institutional		—			(7	)
Investor A		—			(257	)
Class K		—			(11,181	)
Decrease in net assets resulting from dividends to shareholders		(486,891	)		(480,918	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		129,191			50,933,540
Net Assets
Total increase in net assets		4,279,180			48,726,321
Beginning of period		48,726,321			—
End of period	$	53,005,501		$	48,726,321
Undistributed net investment income	$	9,729		$	8,136

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK RUSSELL 1000 INDEX FUND	JUNE 30, 2012	9

Financial Highlights BlackRock Russell 1000 Index Fund

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Period March 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.40		$	10.00
Net investment income2		0.09			0.13
Net realized and unrealized gain (loss)		0.80			(0.60	)
Net increase (decrease) from investment operations		0.89			(0.47	)
Dividends and distributions from:
Net investment income		(0.09	)		(0.13	)
Net realized capital gain		—			(0.00	)3
Tax return of capital		—			(0.00	)3
Total dividends and distributions		(0.09	)		(0.13	)
Net asset value, end of period	$	10.20		$	9.40
Total Investment Return4,5
Based on net asset value		9.50%			(4.72	)%
Ratios to Average Net Assets6,7
Total expenses		0.78%	8		1.84%	9,10
Total expenses after fees waived and/or reimbursed		0.23%	8		0.22%	9
Net investment income		1.87%	8		1.86%	9
Supplemental Data
Net assets, end of period (000)	$	25		$	24
Portfolio turnover of the Master Portfolio		21%			10%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Amount is 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 fees waived of 0.01%.

⁹  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.24%.

¹⁰  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 1.84%.

See Notes to Financial Statements.
10	BLACKROCK RUSSELL 1000 INDEX FUND	JUNE 30, 2012

Financial Highlights (continued) BlackRock Russell 1000 Index Fund

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Period March 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.39		$	10.00
Net investment income2		0.08			0.13
Net realized and unrealized gain (loss)		0.80			(0.62	)
Net increase (decrease) from investment operations		0.88			(0.49	)
Dividends and distributions from:
Net investment income		(0.08	)		(0.12	)
Net realized capital gain		—			(0.00	)3
Tax return of capital		—			(0.00	)3
Total dividends and distributions		(0.08	)		(0.12	)
Net asset value, end of period	$	10.19		$	9.39
Total Investment Return4,5
Based on net asset value		9.40%			(4.93	)%
Ratios to Average Net Assets6,7
Total expenses		0.89%	8		1.40%	9,10
Total expenses after fees waived and/or reimbursed		0.44%	8		0.45%	9
Net investment income		1.65%	8		1.80%	9
Supplemental Data
Net assets, end of period (000)	$	2,252		$	1,918
Portfolio turnover of the Master Portfolio		21%			10%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Amount is 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 fees waived of 0.01%.

⁹  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.24%.

¹⁰  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 1.40%.

See Notes to Financial Statements.
	BLACKROCK RUSSELL 1000 INDEX FUND	JUNE 30, 2012	11

Financial Highlights (concluded) BlackRock Russell 1000 Index Fund

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Period March 31, 20111 to December  31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.40		$	10.00
Net investment income2		0.10			0.13
Net realized and unrealized gain (loss)		0.80			(0.60	)
Net increase (decrease) from investment operations		0.90			(0.47	)
Dividends and distributions from:
Net investment income		(0.10	)		(0.13	)
Net realized capital gain		—			(0.00	)3
Tax return of capital		—			(0.00	)3
Total dividends and distributions		(0.10	)		(0.13	)
Net asset value, end of period	$	10.20		$	9.40
Total Investment Return4,5
Based on net asset value		9.52%			(4.68	)%
Ratios to Average Net Assets6,7
Total expenses		0.64%	8		1.11%	9,10
Total expenses after fees waived and/or reimbursed		0.18%	8		0.18%	9
Net investment income		1.91%	8		2.02%	9
Supplemental Data
Net assets, end of period (000)	$	50,728		$	46,785
Portfolio turnover of the Master Portfolio		21%			10%

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Amount is 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 gross expenses and/or net investment income.

⁷  Annualized.

⁸  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.01%.

⁹  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.24%.

¹⁰  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 1.12%.

See Notes to Financial Statements.
12	BLACKROCK RUSSELL 1000 INDEX FUND	JUNE 30, 2012

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

1. Organization and Significant Accounting Policies:

BlackRock Russell 1000 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 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 June 30, 2012 was 15.15%. 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 generally sold without a front-end 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 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 exceed 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 return remains open for the period 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.

Offering Costs: Offering costs associated with the establishment of the Fund are amortized over a 12-month period beginning with the commencement 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. Expenses directly related to the Fund and other shared expenses pro rated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.

2. Administration Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

The Trust, on behalf of the Fund, entered into an Administration Agreement with BlackRock Institutional Trust Company, N.A. (the “Administrator” or “BTC”), 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.

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

BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012 13

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

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 June 30, 2012, 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:

Institutional	$	12
Class K	$	671

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. The expense limitation as a percentage of average daily net assets is as follows: 0.23% for Institutional, 0.48% for Investor A and 0.18% for Class K. BFA and BTC have agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2013 unless approved by the Board, including a majority of the independent trustees. These amounts are shown as or included in administration fees waived, transfer agent fees waived — class specific, transfer agent fees reimbursed — class specific and fees reimbursed by administrator.

If during the Fund’s fiscal year the operating expenses of a share class, that at any time during the prior fiscal year 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 the prior fiscal year 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.

For the six months ended June 30, 2012, the Administrator recouped the following waivers previously recorded by the Fund:

Investor A $ 48

On June 30, 2012, the amount subject to possible future recoupment under the expense limitation agreement is $214,245, which expires December 31, 2013.

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

3. Capital Share Transactions:

Transactions in capital shares for each class were as follows:

	Six Months Ended June 30, 2012						Period March 31, 20111 to December 31, 2011
	Shares			Amount			Shares			Amount
Institutional
Shares sold		—		$	—			2,500		$	25,000
Net increase		—		$	—			2,500		$	25,000
Investor A
Shares sold		19,447		$	197,690			214,918		$	2,004,613
Shares issued to shareholders in reinvestment of dividends and distributions		1,726			17,909			1,119			10,502
Shares redeemed		(4,339	)		(44,250	)		(11,921	)		(111,943	)
Net increase		16,834		$	171,349			204,116		$	1,903,172

14 BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012

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

	Six Months Ended June 30, 2012						Period March 31, 20111 to December 31, 2011
	Shares			Amount			Shares			Amount
Class K
Shares sold		248,400		$	2,554,802			6,295,842		$	61,804,812
Shares issued to shareholders in reinvestment of dividends and distributions		2			16			—			—
Shares redeemed		(250,597	)		(2,596,976	)		(1,318,379	)		(12,799,444	)
Net increase (decrease)		(2,195	)	$	(42,158	)		4,977,463		$	49,005,368
Total Net Increase		14,639		$	129,191			5,184,079		$	50,933,540
1   Commencement of operations.

4. 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 JUNE 30, 2012 15

Master Portfolio Information as of June 30, 2012 Russell 1000 Index Master Portfolio

Ten Largest Holdings Percent of
Long-Term Investments

Apple, Inc.	4	%
Exxon Mobil Corp.	3
Microsoft Corp.	2
General Electric Co.	2
International Business Machines Corp.	2
AT&T, Inc.	1
Chevron Corp.	1
Johnson & Johnson	1
Pfizer, Inc.	1
The Procter & Gamble Co.	1

Sector Allocation Percent of
Long-Term Investments

Information Technology	19	%
Financials	15
Consumer Discretionary	12
Health Care	12
Industrials	10
Consumer Staples	10
Energy	10
Materials	4
Utilities	4
Telecommunication Services	3
Investment Companies	1

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.

16 BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012

Schedule of Investments June 30, 2012 (Unaudited) Russell 1000 Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Aerospace & Defense — 2.3%
Alliant Techsystems, Inc.		812	$	41,063
BE Aerospace, Inc. (a)		2,394		104,522
The Boeing Co.		18,301		1,359,764
Exelis, Inc.		4,488		44,252
General Dynamics Corp.		7,763		512,047
Goodrich Corp.		3,078		390,598
Honeywell International, Inc.		19,038		1,063,082
Huntington Ingalls Industries, Inc. (a)		1,205		48,489
L-3 Communications Holdings, Inc. (b)		2,382		176,292
Lockheed Martin Corp.		6,370		554,700
Northrop Grumman Corp. (b)		6,146		392,053
Precision Castparts Corp.		3,551		584,104
Raytheon Co. (b)		8,146		460,982
Rockwell Collins, Inc. (b)		3,546		174,995
Spirit Aerosystems Holdings, Inc., Class A (a)		2,865		68,273
Textron, Inc.		6,853		170,434
TransDigm Group, Inc. (a)		1,249		167,741
Triumph Group, Inc.		1,203		67,693
United Technologies Corp.		22,266		1,681,751
				8,062,835
Air Freight & Logistics — 0.7%
C.H. Robinson Worldwide, Inc.		3,975		232,657
Expeditors International of Washington, Inc.		5,193		201,229
FedEx Corp. (b)		7,706		705,947
United Parcel Service, Inc., Class B (b)		17,699		1,393,973
UTi Worldwide, Inc.		2,484		36,291
				2,570,097
Airlines — 0.2%
Copa Holdings SA		792		65,324
Delta Air Lines, Inc. (a)		20,769		227,421
Southwest Airlines Co.		18,769		173,050
United Continental Holdings, Inc. (a)(b)		8,118		197,511
				663,306
Auto Components — 0.4%
Allison Transmission Holdings, Inc.		649		11,396
BorgWarner, Inc. (a)(b)		2,802		183,783
Delphi Automotive Plc (a)		8,024		204,612
Gentex Corp. (b)		3,504		73,128
The Goodyear Tire & Rubber Co. (a)		5,990		70,742
Johnson Controls, Inc. (b)		16,622		460,596
Lear Corp.		2,433		91,797
TRW Automotive Holdings Corp. (a)		2,464		90,577
Visteon Corp. (a)		1,235		46,312
WABCO Holdings, Inc. (a)		1,577		83,471
				1,316,414
Automobiles — 0.5%
Ford Motor Co.		91,661		879,029
General Motors Co. (a)		18,713		369,021
Harley-Davidson, Inc.		5,659		258,786
Tesla Motors, Inc. (a)(b)		1,535		48,030
Thor Industries, Inc. (b)		1,027		28,150
				1,583,016
Beverages — 2.2%
Beam, Inc.		3,852		240,711
Brown-Forman Corp., Class B		2,440		236,314
The Coca-Cola Co.		47,453		3,710,350
Coca-Cola Enterprises, Inc.		7,335		205,673

Common Stocks	Shares		Value
Beverages (concluded)
Constellation Brands, Inc. (a)		3,845	$	104,046
Dr Pepper Snapple Group, Inc. (b)		5,178		226,538
Molson Coors Brewing Co., Class B		3,133		130,364
Monster Beverage Corp. (a)		3,523		250,838
PepsiCo Inc.		38,209		2,699,848
				7,804,682
Biotechnology — 1.6%
Alexion Pharmaceuticals, Inc. (a)		4,694		466,114
Amgen, Inc.		19,001		1,387,833
Amylin Pharmaceuticals, Inc. (a)		3,983		112,440
Ariad Pharmaceuticals, Inc. (a)		4,007		68,961
Biogen Idec, Inc. (a)		5,853		845,056
BioMarin Pharmaceutical, Inc. (a)		2,988		118,265
Celgene Corp. (a)		10,763		690,554
Gilead Sciences, Inc. (a)		18,504		948,885
Human Genome Sciences, Inc. (a)		5,009		65,768
Incyte Corp. Ltd. (a)		2,268		51,484
Medivation, Inc. (a)		885		80,889
Myriad Genetics, Inc. (a)		2,079		49,418
Onyx Pharmaceuticals, Inc. (a)		1,575		104,659
Regeneron Pharmaceuticals, Inc. (a)		1,888		215,647
United Therapeutics Corp. (a)		1,283		63,355
Vertex Pharmaceuticals, Inc. (a)		5,159		288,491
				5,557,819
Building Products — 0.1%
Armstrong World Industries, Inc. (b)		517		25,416
Fortune Brands Home & Security, Inc. (a)		3,817		85,005
Lennox International, Inc.		1,221		56,935
Masco Corp. (b)		8,734		121,140
Owens Corning (a)		2,977		84,964
				373,460
Capital Markets — 1.8%
Affiliated Managers Group, Inc. (a)		1,256		137,469
American Capital Ltd. (a)		8,130		81,869
Ameriprise Financial, Inc.		5,344		279,277
Ares Capital Corp.		5,429		86,647
The Bank of New York Mellon Corp.		29,144		639,711
BlackRock, Inc. (c)		3,112		528,480
The Charles Schwab Corp.		26,259		339,529
E*TRADE Financial Corp. (a)		6,746		54,238
Eaton Vance Corp. (b)		2,826		76,161
Federated Investors, Inc., Class B (b)		2,226		48,638
Franklin Resources, Inc.		3,402		377,588
The Goldman Sachs Group, Inc.		12,018		1,152,045
Invesco Ltd.		10,956		247,606
Janus Capital Group, Inc. (b)		4,567		35,714
Jefferies Group, Inc.		3,293		42,776
Lazard Ltd, Class A (b)		2,736		71,109
Legg Mason, Inc.		3,455		91,108
LPL Financial Holdings, Inc. (b)		1,302		43,969
Morgan Stanley		37,648		549,284
Northern Trust Corp.		5,270		242,525
Raymond James Financial, Inc. (b)		2,782		95,256
SEI Investments Co.		3,360		66,830
State Street Corp.		11,939		532,957
T Rowe Price Group, Inc. (b)		6,234		392,493
TD Ameritrade Holding Corp. (b)		5,674		96,458
Waddell & Reed Financial, Inc. (b)		2,114		64,012
				6,373,749

See Notes to Financial Statements.

BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012 17

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

Common Stocks	Shares		Value
Chemicals — 2.4%
Air Products & Chemicals, Inc.		5,167	$	417,132
Airgas, Inc. (b)		1,679		141,053
Albemarle Corp.		2,181		130,075
Ashland, Inc.		1,919		133,006
Cabot Corp.		1,552		63,166
Celanese Corp.		3,825		132,421
CF Industries Holdings, Inc.		1,605		310,953
Cytec Industries, Inc.		1,116		65,442
The Dow Chemical Co.		29,207		920,020
E.I. du Pont de Nemours & Co.		22,894		1,157,750
Eastman Chemical Co.		3,373		169,898
Ecolab, Inc.		6,355		435,508
FMC Corp.		3,353		179,318
Huntsman Corp. (b)		4,682		60,585
International Flavors & Fragrances, Inc.		1,983		108,668
Intrepid Potash, Inc. (a)		1,285		29,247
Kronos Worldwide, Inc. (b)		538		8,495
LyondellBasell Industries NV, Class A		7,851		316,160
Monsanto Co.		13,033		1,078,872
The Mosaic Co.		7,247		396,846
NewMarket Corp.		203		43,970
PPG Industries, Inc.		3,722		394,979
Praxair, Inc.		7,298		793,511
Rockwood Holdings, Inc.		1,680		74,508
RPM International, Inc.		3,218		87,530
The Sherwin-Williams Co.		2,123		280,979
Sigma-Aldrich Corp. (b)		2,955		218,463
Solutia, Inc.		3,006		84,318
The Scotts Miracle-Gro Co., Class A		1,030		42,354
Valspar Corp.		2,277		119,520
Westlake Chemical Corp. (b)		490		25,607
WR Grace & Co. (a)		1,825		92,071
				8,512,425
Commercial Banks — 2.7%
Associated Banc-Corp.		4,258		56,163
Bank of Hawaii Corp. (b)		1,082		49,718
BB&T Corp.		17,072		526,671
BOK Financial Corp. (b)		628		36,550
CapitalSource, Inc.		5,315		35,717
CIT Group, Inc. (a)		4,910		174,992
City National Corp.		1,137		55,235
Comerica, Inc.		4,809		147,684
Commerce Bancshares, Inc.		1,838		69,660
Cullen/Frost Bankers, Inc. (b)		1,304		74,967
East West Bancorp, Inc. (b)		3,538		83,002
Fifth Third Bancorp		22,487		301,326
First Citizens Bancshares, Inc., Class A		134		22,331
First Horizon National Corp.		6,019		52,064
First Niagara Financial Group, Inc.		8,491		64,956
First Republic Bank (a)		2,496		83,866
Fulton Financial Corp.		4,869		48,641
Huntington Bancshares, Inc.		21,146		135,334
KeyCorp		23,303		180,365
M&T Bank Corp. (b)		3,093		255,389
PNC Financial Services Group, Inc. (c)		12,920		789,541
Popular, Inc. (a)		2,650		44,017
Regions Financial Corp.		34,526		233,051
Signature Bank/New York NY (a)		1,178		71,823
SunTrust Banks, Inc.		13,153		318,697

Common Stocks	Shares		Value
Commercial Banks (concluded)
SVB Financial Group (a)		1,060	$	62,243
Synovus Financial Corp. (b)		3,304		6,542
TCF Financial Corp.		3,897		44,738
U.S. Bancorp		46,279		1,488,333
Valley National Bancorp (b)		4,729		50,127
Wells Fargo & Co.		119,696		4,002,634
Zions BanCorp. (b)		4,507		87,526
				9,653,903
Commercial Services & Supplies — 0.4%
Avery Dennison Corp.		2,537		69,362
Cintas Corp.		2,689		103,822
Clean Harbors, Inc. (a)		1,142		64,432
Copart, Inc. (a)		2,453		58,112
Corrections Corp. of America		2,447		72,064
Covanta Holding Corp.		2,555		43,818
Iron Mountain, Inc.		3,701		121,985
KAR Auction Services, Inc. (a)		711		12,222
Pitney Bowes, Inc. (b)		4,121		61,691
R.R. Donnelley & Sons Co. (b)		4,304		50,658
Republic Services, Inc.		7,413		196,148
Rollins, Inc.		1,643		36,754
Stericycle, Inc. (a)		2,080		190,674
Waste Connections, Inc. (b)		3,018		90,298
Waste Management, Inc. (b)		11,313		377,854
				1,549,894
Communications Equipment — 1.6%
Acme Packet, Inc. (a)(b)		1,548		28,870
Brocade Communications Systems, Inc. (a)		11,235		55,389
Cisco Systems, Inc.		130,875		2,247,124
EchoStar Corp. (a)		937		24,755
F5 Networks, Inc. (a)		1,941		193,246
Harris Corp. (b)		2,783		116,468
JDS Uniphase Corp. (a)		5,574		61,314
Juniper Networks, Inc. (a)		12,945		211,133
Motorola Solutions, Inc. (b)		7,138		343,409
Polycom, Inc. (a)		4,271		44,931
QUALCOMM, Inc.		41,882		2,331,990
Riverbed Technology, Inc. (a)		3,746		60,498
				5,719,127
Computers & Peripherals — 4.8%
Apple, Inc. (a)		22,844		13,340,896
Dell, Inc. (a)		36,031		451,108
Diebold, Inc.		1,542		56,915
EMC Corp. (a)		51,301		1,314,845
Fusion-io, Inc. (a)(b)		1,736		36,265
Hewlett-Packard Co.		48,313		971,574
Lexmark International, Inc., Class A		1,743		46,329
NCR Corp. (a)		3,886		88,329
NetApp, Inc. (a)		8,872		282,307
SanDisk Corp. (a)		5,956		217,275
Western Digital Corp. (a)		5,747		175,169
				16,981,012
Construction & Engineering — 0.2%
AECOM Technology Corp. (a)		2,703		44,464
Chicago Bridge & Iron Co. NV		2,373		90,079
Fluor Corp.		4,134		203,972
Jacobs Engineering Group, Inc. (a)		3,156		119,486

See Notes to Financial Statements.

18 BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012

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

Common Stocks	Shares		Value
Construction & Engineering (concluded)
KBR, Inc.		3,631	$	89,722
Quanta Services, Inc. (a)		5,111		123,022
The Shaw Group, Inc. (a)		1,603		43,778
URS Corp.		1,854		64,667
				779,190
Construction Materials — 0.1%
Martin Marietta Materials, Inc. (b)		1,119		88,200
Vulcan Materials Co. (b)		3,165		125,682
				213,882
Consumer Finance — 0.8%
American Express Co.		24,464		1,424,049
Capital One Financial Corp.		14,180		775,079
Discover Financial Services		12,960		448,157
SLM Corp.		11,924		187,326
				2,834,611
Containers & Packaging — 0.3%
Aptargroup, Inc.		1,629		83,160
Ball Corp.		3,831		157,263
Bemis Co., Inc. (b)		2,523		79,071
Crown Holdings, Inc. (a)		3,641		125,578
Greif Inc, Class A (b)		822		33,702
Owens-Illinois, Inc. (a)		4,034		77,332
Packaging Corp. of America		2,400		67,776
Rock-Tenn Co, Class A		1,721		93,881
Sealed Air Corp.		4,704		72,630
Silgan Holdings, Inc.		1,202		51,313
Sonoco Products Co.		2,450		73,867
				915,573
Distributors — 0.1%
Genuine Parts Co.		3,811		229,613
LKQ Corp. (a)		3,606		120,440
				350,053
Diversified Consumer Services — 0.1%
Apollo Group, Inc., Class A (a)		2,500		90,475
DeVry, Inc.		1,550		48,003
H&R Block, Inc.		7,180		114,736
ITT Educational Services, Inc. (a)(b)		607		36,875
Service Corp. International (b)		5,315		65,747
Weight Watchers International, Inc. (a)		685		35,319
				391,155
Diversified Financial Services — 2.5%
Bank of America Corp. (b)		263,289		2,153,704
CBOE Holdings, Inc.		2,085		57,713
Citigroup, Inc.		71,637		1,963,570
CME Group, Inc.		1,625		435,679
Interactive Brokers Group, Inc., Class A		900		13,248
IntercontinentalExchange, Inc. (a)		1,778		241,772
JPMorgan Chase & Co.		92,999		3,322,854
Leucadia National Corp.		4,828		102,692
Moody’s Corp. (b)		4,796		175,294
MSCI, Inc. (a)		2,973		101,142
The NASDAQ OMX Group, Inc.		2,823		63,997
NYSE Euronext		6,211		158,877
				8,790,542

Common Stocks	Shares		Value
Diversified Telecommunication Services — 2.6%
AT&T, Inc. (b)		143,235	$	5,107,760
CenturyLink, Inc.		15,180		599,458
Frontier Communications Corp. (b)		24,427		93,556
Level 3 Communications, Inc. (a)		3,911		86,629
tw telecom, Inc. (a)		3,682		94,480
Verizon Communications, Inc. (b)		69,409		3,084,536
Windstream Corp. (b)		14,388		138,988
				9,205,407
Electric Utilities — 2.0%
American Electric Power Co., Inc.		11,835		472,216
Duke Energy Corp. (b)		31,292		721,594
Edison International		7,962		367,844
Entergy Corp.		4,330		293,964
Exelon Corp.		20,828		783,549
FirstEnergy Corp.		10,220		502,722
Great Plains Energy, Inc.		3,336		71,424
Hawaiian Electric Industries, Inc.		2,343		66,822
ITC Holdings Corp. (b)		1,257		86,620
N.V. Energy, Inc.		5,773		101,489
NextEra Energy, Inc.		10,191		701,243
Northeast Utilities		7,665		297,479
OGE Energy Corp.		2,411		124,866
Pepco Holdings, Inc. (b)		5,584		109,279
Pinnacle West Capital Corp.		2,677		138,508
PPL Corp.		14,175		394,207
Progress Energy, Inc.		7,769		467,461
Southern Co.		21,225		982,717
Westar Energy, Inc.		3,087		92,456
Xcel Energy, Inc.		11,901		338,107
				7,114,567
Electrical Equipment — 0.6%
AMETEK, Inc.		3,930		196,146
The Babcock & Wilcox Co. (a)		2,875		70,438
Cooper Industries Plc, Class A		3,888		265,084
Emerson Electric Co.		17,925		834,946
General Cable Corp. (a)(b)		1,304		33,826
GrafTech International Ltd. (a)		3,144		30,340
Hubbell, Inc. Class B (b)		1,449		112,935
Polypore International, Inc. (a)(b)		1,088		43,944
Regal-Beloit Corp.		946		58,898
Rockwell Automation, Inc.		3,489		230,483
Roper Industries, Inc.		2,382		234,818
				2,111,858
Electronic Equipment, Instruments & Components — 0.5%
Amphenol Corp., Class A		3,960		217,483
Arrow Electronics, Inc. (a)		2,729		89,539
Avnet, Inc. (a)		3,548		109,491
AVX Corp.		1,187		12,689
Corning, Inc.		37,085		479,509
Dolby Laboratories, Inc., Class A (a)		1,198		49,477
FLIR Systems, Inc.		3,774		73,593
Ingram Micro, Inc., Class A (a)		3,661		63,958
IPG Photonics Corp. (a)(b)		839		36,572
Itron, Inc. (a)		996		41,075
Jabil Circuit, Inc.		4,523		91,953
Molex, Inc.		3,333		79,792
National Instruments Corp. (b)		2,221		59,656

See Notes to Financial Statements.

BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012 19

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

Common Stocks	Shares		Value
Electronic Equipment, Instruments & Components (concluded)
Tech Data Corp. (a)		977	$	47,062
Trimble Navigation Ltd. (a)		3,059		140,745
Vishay Intertechnology, Inc. (a)		3,454		32,571
				1,625,165
Energy Equipment & Services — 1.6%
Atwood Oceanics, Inc. (a)		1,377		52,106
Baker Hughes, Inc.		10,715		440,386
Cameron International Corp. (a)		6,020		257,114
CARBO Ceramics, Inc. (b)		463		35,526
Diamond Offshore Drilling, Inc. (b)		1,684		99,575
Dresser-Rand Group, Inc. (a)		1,851		82,444
FMC Technologies, Inc. (a)		5,845		229,299
Halliburton Co.		22,554		640,308
Helmerich & Payne, Inc.		2,347		102,048
McDermott International, Inc. (a)		5,759		64,155
Nabors Industries Ltd. (a)		7,102		102,269
National Oilwell Varco, Inc. (b)		10,414		671,078
Oceaneering International, Inc.		2,649		126,781
Oil States International, Inc. (a)		1,264		83,677
Patterson-UTI Energy, Inc. (b)		3,750		54,600
Rowan Cos. Plc, Class A (a)		3,038		98,218
RPC, Inc. (b)		1,582		18,810
Schlumberger Ltd.		32,580		2,114,768
SEACOR Holdings, Inc. (a)(b)		518		46,299
Superior Energy Services, Inc. (a)		3,789		76,651
Tidewater, Inc.		1,255		58,182
Unit Corp. (a)		1,148		42,350
				5,496,644
Food & Staples Retailing — 2.1%
Costco Wholesale Corp. (b)		10,585		1,005,575
CVS Caremark Corp.		31,310		1,463,116
The Fresh Market, Inc. (a)		708		37,970
The Kroger Co.		13,710		317,935
Safeway, Inc. (b)		5,880		106,722
Sysco Corp.		14,315		426,730
Wal-Mart Stores, Inc. (b)		41,291		2,878,808
Walgreen Co.		21,081		623,576
Whole Foods Market, Inc. (b)		4,486		427,606
				7,288,038
Food Products — 1.7%
Archer Daniels Midland Co.		16,092		475,036
Bunge Ltd.		3,567		223,794
Campbell Soup Co. (b)		4,272		142,599
ConAgra Foods, Inc.		10,153		263,267
Dean Foods Co. (a)		4,508		76,771
Flowers Foods, Inc.		2,745		63,766
General Mills, Inc.		15,817		609,587
Green Mountain Coffee Roasters, Inc. (a)		3,333		72,593
H.J. Heinz Co.		7,817		425,089
The Hershey Co.		3,668		264,206
Hillshire Brands Co.		2,904		84,187
Hormel Foods Corp.		3,289		100,051
Ingredion, Inc.		1,870		92,602
The J.M. Smucker Co.		2,738		206,774
Kellogg Co.		5,906		291,343
Kraft Foods, Inc., Class A		43,317		1,672,903
McCormick & Co., Inc. (b)		3,242		196,627
Mead Johnson Nutrition Co.		4,983		401,181

Common Stocks	Shares		Value
Food Products (concluded)
Ralcorp Holdings, Inc. (a)		1,351	$	90,166
Smithfield Foods, Inc. (a)		3,941		85,244
Tyson Foods, Inc., Class A		7,107		133,825
				5,971,611
Gas Utilities — 0.2%
AGL Resources, Inc.		2,869		111,174
Atmos Energy Corp. (b)		2,203		77,259
National Fuel Gas Co.		1,774		83,342
ONEOK, Inc.		5,081		214,977
Questar Corp. (b)		4,360		90,950
UGI Corp. (b)		2,749		80,903
				658,605
Health Care Equipment & Supplies — 1.8%
Alere, Inc. (a)		1,969		38,277
Baxter International, Inc.		13,453		715,027
Becton Dickinson & Co.		4,954		370,312
Boston Scientific Corp. (a)		34,942		198,121
C.R. Bard, Inc.		2,052		220,467
CareFusion Corp. (a)		5,427		139,365
The Cooper Cos., Inc.		1,149		91,644
Covidien Plc		11,784		630,444
DENTSPLY International, Inc. (b)		3,467		131,087
Edwards Lifesciences Corp. (a)		2,801		289,343
Gen-Probe, Inc. (a)		1,115		91,653
Hill-Rom Holdings, Inc.		1,520		46,892
Hologic, Inc. (a)		6,471		116,737
IDEXX Laboratories, Inc. (a)		1,346		129,391
Intuitive Surgical, Inc. (a)		971		537,730
Medtronic, Inc.		25,342		981,496
ResMed, Inc. (a)(b)		3,492		108,950
Sirona Dental Systems, Inc. (a)		1,362		61,304
St. Jude Medical, Inc.		7,670		306,110
Stryker Corp.		7,568		416,997
Teleflex, Inc.		988		60,179
Thoratec Corp. (a)		1,408		47,281
Varian Medical Systems, Inc. (a)		2,726		165,659
Zimmer Holdings, Inc.		4,305		277,070
				6,171,536
Health Care Providers & Services — 2.1%
Aetna, Inc.		8,490		329,157
AMERIGROUP Corp. (a)		1,184		78,037
AmerisourceBergen Corp.		6,183		243,301
Brookdale Senior Living, Inc. (a)		2,382		42,257
Cardinal Health, Inc.		8,458		355,236
Catalyst Health Solutions, Inc. (a)		1,238		115,679
Cigna Corp.		7,047		310,068
Community Health Systems, Inc. (a)		2,200		61,666
Coventry Health Care, Inc.		3,494		111,074
DaVita, Inc. (a)		2,298		225,687
Express Scripts Holding Co. (a)		19,680		1,098,734
HCA Holdings, Inc.		4,035		122,785
Health Management Associates, Inc. (a)		6,280		49,298
Health Net, Inc. (a)		2,024		49,123
Henry Schein, Inc. (a)		2,197		172,443
Humana, Inc.		3,988		308,831
Laboratory Corp. of America Holdings (a)		2,366		219,115
LifePoint Hospitals, Inc. (a)		1,191		48,807
Lincare Holdings, Inc. (b)		2,108		71,714

See Notes to Financial Statements.

20 BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012

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

Common Stocks	Shares		Value
Health Care Providers & Services (concluded)
McKesson Corp.		5,752	$	539,250
MEDNAX, Inc. (a)		1,191		81,631
Omnicare, Inc.		2,764		86,320
Patterson Cos., Inc. (b)		2,281		78,626
Quest Diagnostics Inc.		3,878		232,292
Tenet Healthcare Corp. (a)		10,135		53,107
UnitedHealth Group, Inc.		25,347		1,482,800
Universal Health Services, Inc.		2,189		94,477
VCA Antech, Inc. (a)		2,117		46,532
WellPoint, Inc.		8,084		515,678
				7,223,725
Health Care Technology — 0.1%
Allscripts Healthcare Solutions, Inc. (a)		4,614		50,431
Cerner Corp. (a)		3,541		292,699
SXC Health Solutions Corp. (a)		1,684		167,070
				510,200
Hotels, Restaurants & Leisure — 1.9%
Bally Technologies, Inc. (a)		1,056		49,273
Brinker International, Inc. (b)		1,846		58,832
Carnival Corp.		10,157		348,080
Chipotle Mexican Grill, Inc. (a)		775		294,461
Choice Hotels International, Inc. (b)		703		28,071
Darden Restaurants, Inc. (b)		3,146		159,282
Dunkin’ Brands Group, Inc.		1,963		67,409
Hyatt Hotels Corp, Class A (a)		1,164		43,254
International Game Technology		7,220		113,715
Las Vegas Sands Corp.		9,711		422,331
Marriott International, Inc., Class A (b)		6,214		243,589
McDonald’s Corp.		24,828		2,198,023
MGM Resorts International (a)		9,723		108,509
Panera Bread Co., Class A (a)		693		96,632
Penn National Gaming, Inc. (a)		1,613		71,924
Royal Caribbean Cruises Ltd.		3,704		96,415
Starbucks Corp.		18,533		988,180
Starwood Hotels & Resorts Worldwide, Inc.		4,831		256,236
The Wendy’s Co.		7,336		34,626
Wyndham Worldwide Corp.		3,567		188,124
Wynn Resorts Ltd.		1,949		202,150
Yum! Brands, Inc. (b)		11,253		724,918
				6,794,034
Household Durables — 0.4%
D.R. Horton, Inc. (b)		6,798		124,947
Garmin Ltd.		2,667		102,119
Harman International Industries, Inc.		1,707		67,597
Jarden Corp.		1,949		81,897
Leggett & Platt, Inc. (b)		3,431		72,497
Lennar Corp., Class A (b)		3,957		122,311
Mohawk Industries, Inc. (a)		1,394		97,343
Newell Rubbermaid, Inc.		7,090		128,613
NVR, Inc. (a)		124		105,400
PulteGroup, Inc. (a)		8,374		89,602
Tempur-Pedic International, Inc. (a)		1,449		33,892
Toll Brothers, Inc. (a)		3,516		104,531
Tupperware Brands Corp.		1,368		74,912
Whirlpool Corp.		1,890		115,592
				1,321,253

Common Stocks	Shares		Value
Household Products — 1.9%
Church & Dwight Co., Inc.		3,396	$	188,376
The Clorox Co.		3,179		230,350
Colgate-Palmolive Co.		11,660		1,213,806
Energizer Holdings, Inc. (a)		1,599		120,325
Kimberly-Clark Corp.		9,581		802,600
The Procter & Gamble Co.		66,942		4,100,198
				6,655,655
Independent Power Producers & Energy Traders — 0.1%
The AES Corp. (a)		15,685		201,239
Calpine Corp. (a)		9,893		163,333
NRG Energy, Inc. (a)		5,571		96,713
				461,285
Industrial Conglomerates — 2.4%
3M Co.		16,953		1,518,989
Carlisle Cos., Inc.		1,508		79,954
Danaher Corp.		14,185		738,755
General Electric Co. (b)		258,847		5,394,371
Tyco International Ltd.		11,310		597,734
				8,329,803
Insurance — 3.7%
ACE Ltd.		8,276		613,500
Aflac, Inc.		11,427		486,676
Alleghany Corp. (a)		414		140,656
Allied World Assurance Co. Holdings Ltd.		889		70,649
The Allstate Corp.		11,987		420,624
American Financial Group, Inc.		2,091		82,030
American International Group, Inc. (a)		15,754		505,546
American National Insurance Co.		169		12,045
Aon Plc		7,977		373,164
Arch Capital Group Ltd. (a)		3,313		131,493
Arthur J Gallagher & Co. (b)		2,900		101,703
Aspen Insurance Holdings Ltd.		1,739		50,257
Assurant, Inc. (b)		2,099		73,129
Assured Guaranty Ltd.		3,846		54,228
Axis Capital Holdings Ltd.		2,679		87,201
Berkshire Hathaway, Inc., Class B (a)		43,508		3,625,522
Brown & Brown, Inc.		2,861		78,019
Chubb Corp.		6,597		480,393
Cincinnati Financial Corp.		3,571		135,948
CNA Financial Corp.		656		18,184
Endurance Specialty Holdings Ltd.		1,054		40,389
Erie Indemnity Co., Class A (b)		606		43,396
Everest Re Group Ltd.		1,290		133,502
Fidelity National Financial, Inc.		5,450		104,967
Genworth Financial, Inc., Class A (a)		12,032		68,101
The Hanover Insurance Group, Inc.		1,104		43,199
Hartford Financial Services Group, Inc.		10,778		190,016
HCC Insurance Holdings, Inc.		2,477		77,778
Kemper Corp. (b)		1,208		37,146
Lincoln National Corp.		6,979		152,631
Loews Corp.		7,623		311,857
Markel Corp. (a)		237		104,683
Marsh & McLennan Cos., Inc.		13,350		430,270
MBIA, Inc. (a)		3,627		39,208
Mercury General Corp.		107		4,459
MetLife, Inc.		20,787		641,279
Old Republic International Corp.		6,244		51,763

See Notes to Financial Statements.

BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012 21

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

Common Stocks	Shares		Value
Insurance (concluded)
PartnerRe Ltd.		1,579	$	119,483
Principal Financial Group, Inc.		7,338		192,476
ProAssurance Corp.		739		65,837
The Progressive Corp.		14,937		311,138
Protective Life Corp. (b)		1,968		57,879
Prudential Financial, Inc.		11,415		552,828
Reinsurance Group of America, Inc.		1,803		95,938
RenaissanceRe Holdings Ltd.		1,266		96,229
StanCorp Financial Group, Inc. (b)		1,024		38,052
Torchmark Corp.		2,408		121,724
The Travelers Cos., Inc.		9,506		606,863
Unum Group		6,990		133,719
Validus Holdings Ltd.		2,424		77,641
White Mountains Insurance Group Ltd.		141		73,567
WR Berkley Corp.		2,714		105,629
XL Group Plc		7,622		160,367
				12,824,981
Internet & Catalog Retail — 1.0%
Amazon.com, Inc. (a)		8,839		2,018,386
Expedia, Inc. (b)		2,139		102,822
Groupon, Inc. (a)(b)		993		10,556
HomeAway, Inc. (a)(b)		814		17,696
Liberty Interactive Corp. Series A (a)		13,655		242,922
NetFlix, Inc. (a)		1,358		92,982
priceline.com, Inc. (a)		1,217		808,721
TripAdvisor, Inc. (a)		2,000		89,380
				3,383,465
Internet Software & Services — 1.9%
Akamai Technologies, Inc. (a)		4,382		139,128
AOL, Inc. (a)		2,289		64,275
eBay, Inc. (a)		28,299		1,188,841
Equinix, Inc. (a)		1,176		206,564
Facebook, Inc. (a)		10,294		320,349
Google, Inc., Class A (a)		6,325		3,668,943
IAC/InterActiveCorp		1,793		81,761
LinkedIn Corp. (a)		1,513		160,787
Rackspace Hosting, Inc. (a)		2,668		117,232
VeriSign, Inc. (a)		3,863		168,311
Yahoo!, Inc. (a)		29,781		471,433
				6,587,624
IT Services — 3.6%
Accenture Plc, Class A		15,732		945,336
Alliance Data Systems Corp. (a)		1,231		166,185
Amdocs Ltd. (a)		4,126		122,625
Automatic Data Processing, Inc.		11,951		665,193
Booz Allen Hamilton Holding Corp. (b)		576		8,801
Broadridge Financial Solutions, Inc.		3,029		64,427
Cognizant Technology Solutions Corp., Class A (a)		7,441		446,460
Computer Sciences Corp. (b)		3,797		94,242
CoreLogic, Inc. (a)		2,667		48,833
DST Systems, Inc. (b)		817		44,371
Fidelity National Information Services, Inc.		6,133		209,013
Fiserv, Inc. (a)		3,336		240,926
FleetCor Technologies, Inc. (a)		1,258		44,080
Gartner, Inc. (a)		2,282		98,240
Genpact Ltd. (a)		3,087		51,337
Global Payments, Inc.		1,922		83,088
International Business Machines Corp.		26,631		5,208,491

Common Stocks	Shares		Value
IT Services (concluded)
Jack Henry & Associates, Inc.		2,119	$	73,148
Lender Processing Services, Inc.		2,070		52,330
MasterCard, Inc., Class A		2,650		1,139,791
NeuStar Inc, Class A (a)		1,648		55,043
Paychex, Inc.		7,922		248,830
SAIC, Inc.		6,949		84,222
Teradata Corp. (a)(b)		4,123		296,897
Total System Services, Inc.		3,964		94,858
Vantiv Inc, Class A (a)		1,005		23,406
VeriFone Systems, Inc. (a)		2,634		87,159
Visa, Inc., Class A		12,767		1,578,384
The Western Union Co.		14,982		252,297
				12,528,013
Leisure Equipment & Products — 0.1%
Hasbro, Inc. (b)		2,823		95,615
Mattel, Inc.		8,324		270,031
Polaris Industries, Inc. (b)		1,582		113,081
				478,727
Life Sciences Tools & Services — 0.5%
Agilent Technologies, Inc.		8,496		333,383
Bio-Rad Laboratories, Inc., Class A (a)		483		48,305
Bruker Corp. (a)		2,412		32,104
Charles River Laboratories International, Inc. (a)		1,191		39,017
Covance, Inc. (a)		1,358		64,980
Illumina, Inc. (a)		3,019		121,937
Life Technologies Corp. (a)		4,366		196,426
Mettler-Toledo International, Inc. (a)		770		120,005
PerkinElmer, Inc.		2,761		71,234
QIAGEN NV (a)(b)		5,761		96,209
Techne Corp. (b)		901		66,854
Thermo Fisher Scientific, Inc. (b)		8,976		465,944
Waters Corp. (a)		2,173		172,688
				1,829,086
Machinery — 2.0%
AGCO Corp. (a)		2,373		108,517
Caterpillar, Inc.		15,942		1,353,635
CNH Global NV (a)(b)		650		25,259
Colfax Corp. (a)		1,120		30,878
Crane Co.		1,185		43,110
Cummins, Inc.		4,697		455,186
Deere & Co.		9,718		785,895
Donaldson Co., Inc.		3,642		121,534
Dover Corp.		4,489		240,655
Eaton Corp.		8,253		327,066
Flowserve Corp. (b)		1,337		153,421
Gardner Denver, Inc. (b)		1,226		64,868
Graco, Inc.		1,477		68,060
Harsco Corp.		1,967		40,088
IDEX Corp.		2,043		79,636
Illinois Tool Works, Inc.		10,405		550,321
Ingersoll-Rand Plc		7,301		307,956
ITT Corp.		2,209		38,878
Joy Global, Inc.		2,588		146,817
Kennametal, Inc.		1,960		64,974
Lincoln Electric Holdings, Inc.		2,048		89,682
Navistar International Corp. (a)		1,411		40,030
Nordson Corp.		1,571		80,577
Oshkosh Corp. (a)		2,217		46,446

See Notes to Financial Statements.

22 BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012

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

Common Stocks	Shares		Value
Machinery (concluded)
PACCAR, Inc.		8,717	$	341,619
Pall Corp. (b)		2,831		155,167
Parker Hannifin Corp.		3,692		283,841
Pentair, Inc. (b)		2,423		92,753
Snap-on, Inc.		1,422		88,520
SPX Corp.		1,240		80,997
Stanley Black & Decker, Inc.		4,177		268,832
Terex Corp. (a)		2,670		47,606
The Manitowoc Co., Inc. (b)		3,232		37,814
Timken Co.		2,137		97,853
Toro Co.		733		53,722
Trinity Industries, Inc.		1,947		48,636
Valmont Industries, Inc.		557		67,380
Wabtec Corp. (b)		1,179		91,974
Xylem, Inc.		4,536		114,171
				7,134,374
Marine — 0.0%
Kirby Corp. (a)		1,409		66,336
Matson, Inc.		1,118		59,533
				125,869
Media — 3.4%
AMC Networks, Inc., Class A (a)		1,463		52,010
Cablevision Systems Corp., New York Group, Class A		4,925		65,453
CBS Corp., Class B		15,838		519,170
Charter Communications, Inc. (a)		1,193		84,548
Cinemark Holdings, Inc.		2,755		62,952
Clear Channel Outdoor Holdings, Inc., Class A (a)		1,017		6,122
Comcast Corp, Class A		65,607		2,097,456
DIRECTV, Class A (a)		16,004		781,315
Discovery Communications, Inc., Class A (a)		6,231		336,474
DISH Network Corp.		4,994		142,579
DreamWorks Animation SKG, Inc. (a)(b)		1,752		33,393
Gannett Co., Inc. (b)		5,749		84,683
Interpublic Group of Cos., Inc.		10,836		117,571
John Wiley & Sons, Inc., Class A (b)		1,150		56,338
Lamar Advertising Co. (a)		1,812		51,823
Liberty Global, Inc. (a)		6,411		318,178
Liberty Media Corp. — Liberty Capital (a)		2,653		233,225
Madison Square Garden, Inc. (a)		1,473		55,149
The McGraw-Hill Cos., Inc.		6,836		307,620
Morningstar, Inc. (b)		598		34,588
News Corp., Class A (b)		51,178		1,140,758
Omnicom Group, Inc. (b)		6,663		323,822
Pandora Media, Inc. (a)(b)		2,616		28,436
Regal Entertainment Group		1,988		27,355
Scripps Networks Interactive, Inc., Class A (b)		2,078		118,155
Sirius XM Radio, Inc. (a)		92,931		171,922
Thomson Reuters Corp.		9,074		258,155
Time Warner Cable, Inc.		7,636		626,916
Time Warner, Inc.		23,454		902,979
Viacom, Inc., Class B		12,897		606,417
Virgin Media, Inc. (b)		6,791		165,632
The Walt Disney Co. (b)		43,668		2,117,898
The Washington Post Co., Class B (b)		97		36,261
				11,965,353
Metals & Mining — 0.9%
Alcoa, Inc. (b)		26,075		228,156
Allegheny Technologies, Inc.		2,620		83,552

Common Stocks	Shares		Value
Metals & Mining (concluded)
Allied Nevada Gold Corp. (a)		2,192	$	62,209
Carpenter Technology Corp. (b)		1,079		51,619
Cliffs Natural Resources, Inc.		3,484		171,726
Commercial Metals Co. (b)		2,831		35,784
Compass Minerals International, Inc. (b)		807		61,558
Freeport-McMoRan Copper & Gold, Inc.		23,191		790,118
Molycorp, Inc. (a)		1,695		36,527
Newmont Mining Corp.		11,988		581,538
Nucor Corp.		7,749		293,687
Reliance Steel & Aluminum Co.		1,838		92,819
Royal Gold, Inc. (b)		1,437		112,661
Southern Copper Corp.		3,969		125,063
Steel Dynamics, Inc.		5,364		63,027
Tahoe Resources, Inc. (a)		2,085		28,961
Titanium Metals Corp. (b)		2,097		23,717
United States Steel Corp. (b)		3,525		72,615
Walter Energy, Inc.		1,525		67,344
				2,982,681
Multi-Utilities — 1.2%
Alliant Energy Corp.		2,714		123,677
Ameren Corp.		5,932		198,959
Centerpoint Energy, Inc.		10,445		215,898
CMS Energy Corp.		6,397		150,330
Consolidated Edison, Inc.		7,158		445,156
Dominion Resources, Inc.		13,964		754,056
DTE Energy Co.		4,158		246,694
Integrys Energy Group, Inc.		1,915		108,906
MDU Resources Group, Inc.		4,619		99,817
NiSource, Inc.		6,946		171,914
PG&E Corp.		10,320		467,186
Public Service Enterprise Group, Inc.		12,363		401,797
SCANA Corp. (b)		2,866		137,109
Sempra Energy		5,889		405,634
TECO Energy, Inc.		5,276		95,285
Vectren Corp.		2,007		59,247
Wisconsin Energy Corp. (b)		5,633		222,898
				4,304,563
Multiline Retail — 0.8%
Big Lots, Inc. (a)(b)		1,616		65,917
Dillard’s Inc, Class A		693		44,130
Dollar General Corp. (a)		4,515		245,571
Dollar Tree, Inc. (a)		6,070		326,566
Family Dollar Stores, Inc.		2,363		157,092
J.C. Penney Co., Inc. (b)		3,904		91,002
Kohl’s Corp.		5,946		270,484
Macy’s, Inc.		10,133		348,069
Nordstrom, Inc.		3,844		191,008
Sears Holdings Corp. (a)(b)		860		51,342
Target Corp.		16,155		940,059
				2,731,240
Office Electronics — 0.1%
Xerox Corp.		32,943		259,261
Zebra Technologies Corp., Class A (a)		1,268		43,569
				302,830
Oil, Gas & Consumable Fuels — 8.2%
Alpha Natural Resources, Inc. (a)		5,398		47,017
Anadarko Petroleum Corp.		12,206		808,037

See Notes to Financial Statements.

BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012 23

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

Common Stocks	Shares		Value
Oil, Gas & Consumable Fuels (concluded)
Apache Corp.		9,550	$	839,349
Cabot Oil & Gas Corp.		5,129		202,083
Cheniere Energy, Inc. (a)		4,473		65,932
Chesapeake Energy Corp. (b)		16,188		301,097
Chevron Corp. (b)		48,193		5,084,361
Cimarex Energy Co.		2,097		115,587
Cobalt International Energy, Inc. (a)		4,501		105,773
Concho Resources, Inc. (a)		2,543		216,460
ConocoPhillips		30,895		1,726,413
CONSOL Energy, Inc. (b)		5,563		168,225
Continental Resources, Inc. (a)(b)		1,020		67,952
Denbury Resources, Inc. (a)		9,553		144,346
Devon Energy Corp.		9,882		573,057
Energen Corp.		1,765		79,654
EOG Resources, Inc.		6,588		593,645
EQT Corp.		3,218		172,581
EXCO Resources, Inc. (b)		3,011		22,853
Exxon Mobil Corp.		114,239		9,775,431
Golar LNG Ltd.		1,121		42,262
Hess Corp.		7,439		323,225
HollyFrontier Corp.		5,056		179,134
Kinder Morgan, Inc.		11,940		384,707
Kosmos Energy Ltd. (a)(b)		1,794		19,824
Laredo Petroleum Holdings, Inc. (a)		497		10,338
Marathon Oil Corp. (b)		17,236		440,725
Marathon Petroleum Corp.		8,327		374,049
Murphy Oil Corp.		4,746		238,676
Newfield Exploration Co. (a)		3,298		96,664
Noble Energy, Inc.		4,345		368,543
Occidental Petroleum Corp.		19,816		1,699,618
Peabody Energy Corp.		6,660		163,303
Phillips 66 (a)		15,279		507,874
Pioneer Natural Resources Co. (b)		3,007		265,247
Plains Exploration & Production Co. (a)		3,153		110,923
QEP Resources, Inc.		4,363		130,759
Range Resources Corp.		3,964		245,253
SandRidge Energy, Inc. (a)		11,938		79,865
SM Energy Co.		1,560		76,612
Southwestern Energy Co. (a)		8,533		272,459
Spectra Energy Corp.		15,951		463,536
Sunoco, Inc.		2,558		121,505
Teekay Corp.		846		24,771
Tesoro Corp. (a)		3,434		85,713
Ultra Petroleum Corp. (a)(b)		3,742		86,328
Valero Energy Corp.		13,512		326,315
Whiting Petroleum Corp. (a)		2,877		118,302
The Williams Cos., Inc.		15,289		440,629
World Fuel Services Corp.		1,730		65,792
WPX Energy, Inc. (a)		4,836		78,246
				28,951,050
Paper & Forest Products — 0.1%
Domtar Corp.		884		67,811
International Paper Co.		10,688		308,990
MeadWestvaco Corp.		4,229		121,584
				498,385
Personal Products — 0.2%
Avon Products, Inc.		10,558		171,145
The Estee Lauder Cos., Inc., Class A		5,625		304,425
Herbalife Ltd.		2,857		138,079

Common Stocks	Shares		Value
Personal Products (concluded)
Nu Skin Enterprises, Inc.		1,357	$	63,643
				677,292
Pharmaceuticals — 5.4%
Abbott Laboratories		38,440		2,478,227
Allergan, Inc.		7,416		686,499
Bristol-Myers Squibb Co. (b)		41,268		1,483,585
Eli Lilly & Co.		25,035		1,074,252
Endo Health Solutions, Inc. (a)		2,867		88,820
Forest Laboratories, Inc. (a)		6,495		227,260
Hospira, Inc. (a)		4,038		141,249
Johnson & Johnson (b)		67,095		4,532,938
Merck & Co., Inc.		74,308		3,102,359
Mylan, Inc. (a)		10,478		223,915
Perrigo Co.		2,283		269,234
Pfizer, Inc.		182,939		4,207,597
Salix Pharmaceuticals Ltd. (a)		1,414		76,978
Warner Chilcott Plc, Class A (a)		4,100		73,472
Watson Pharmaceuticals, Inc. (a)		3,114		230,405
				18,896,790
Professional Services — 0.3%
The Dun & Bradstreet Corp.		1,171		83,340
Equifax, Inc.		2,944		137,190
IHS Inc, Class A (a)		1,231		132,616
Manpower, Inc.		1,963		71,944
Nielsen Holdings NV (a)		2,966		77,769
Robert Half International, Inc.		3,498		99,938
Towers Watson & Co., Class A (b)		1,486		89,011
Verisk Analytics, Inc., Class A (a)		3,593		176,991
				868,799
Real Estate Investment Trusts (REITs) — 3.1%
Alexandria Real Estate Equities, Inc.		1,519		110,462
American Campus Communities, Inc.		1,828		82,223
American Capital Agency Corp. (b)		7,333		246,462
American Tower Corp.		9,642		674,072
Annaly Capital Management, Inc. (b)		23,817		399,649
Apartment Investment & Management Co., Class A		3,258		88,064
AvalonBay Communities, Inc.		2,330		329,648
BioMed Realty Trust, Inc.		3,728		69,639
Boston Properties, Inc.		3,661		396,743
Brandywine Realty Trust (b)		3,346		41,290
BRE Properties, Inc.		1,856		92,837
Camden Property Trust (b)		1,963		132,836
CBL & Associates Properties, Inc.		3,591		70,168
Chimera Investment Corp.		24,849		58,644
CommonWealth REIT (b)		2,053		39,253
Corporate Office Properties Trust (b)		1,739		40,884
DDR Corp. (b)		5,332		78,060
Digital Realty Trust, Inc.		2,694		202,239
Douglas Emmett, Inc. (b)		3,413		78,840
Duke Realty Corp.		6,519		95,438
Equity Lifestyle Properties, Inc.		998		68,832
Equity Residential		7,346		458,097
Essex Property Trust, Inc. (b)		861		132,525
Extra Space Storage, Inc.		2,528		77,357
Federal Realty Investment Trust (b)		1,563		162,693
General Growth Properties, Inc.		12,907		233,488
Hatteras Financial Corp.		2,363		67,582
HCP, Inc.		10,251		452,582

See Notes to Financial Statements.

24 BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012

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

Common Stocks	Shares		Value
Real Estate Investment Trusts (REITs) (concluded)
Health Care REIT, Inc.		5,226	$	304,676
Home Properties, Inc.		1,181		72,466
Hospitality Properties Trust (b)		3,024		74,904
Host Hotels & Resorts, Inc.		17,577		278,068
Kilroy Realty Corp. (b)		1,671		80,893
Kimco Realty Corp.		9,948		189,310
Liberty Property Trust (b)		2,534		93,353
Mack-Cali Realty Corp. (b)		2,137		62,123
MFA Financial, Inc.		8,630		68,091
Mid-America Apartment Communities, Inc.		988		67,421
National Retail Properties, Inc.		2,601		73,582
Piedmont Office Realty Trust, Inc.		4,228		72,764
Plum Creek Timber Co., Inc.		3,949		156,775
Post Properties, Inc. (b)		1,299		63,586
Prologis, Inc.		11,252		373,904
Public Storage		3,487		503,558
Rayonier, Inc.		2,994		134,431
Realty Income Corp. (b)		3,262		136,254
Regency Centers Corp.		2,200		104,654
Retail Properties of America, Inc.		2,159		20,985
Senior Housing Properties Trust		3,980		88,834
Simon Property Group, Inc.		7,408		1,153,129
SL Green Realty Corp.		2,191		175,806
Tanger Factory Outlet Centers		2,246		71,984
Taubman Centers, Inc.		1,438		110,956
The Macerich Co.		3,241		191,381
UDR, Inc.		6,048		156,280
Ventas, Inc.		7,063		445,817
Vornado Realty Trust		4,537		381,017
Weingarten Realty Investors (b)		2,966		78,124
Weyerhaeuser Co.		13,136		293,721
				11,059,454
Real Estate Management & Development — 0.1%
CBRE Group, Inc., Class A (a)		8,023		131,256
Forest City Enterprises, Inc., Class A (a)		3,389		49,479
The Howard Hughes Corp. (a)		708		43,641
Jones Lang LaSalle, Inc.		1,053		74,100
The St Joe Co. (a)		1,597		25,249
				323,725
Road & Rail — 0.9%
Con-way, Inc.		1,358		49,037
CSX Corp.		25,392		567,765
Hertz Global Holdings, Inc. (a)		6,011		76,941
JB Hunt Transport Services, Inc.		2,196		130,882
Kansas City Southern		2,689		187,047
Landstar System, Inc. (b)		1,150		59,478
Norfolk Southern Corp. (b)		7,960		571,289
Ryder System, Inc.		1,232		44,364
Union Pacific Corp.		11,635		1,388,172
				3,074,975
Semiconductors & Semiconductor Equipment — 2.3%
Advanced Micro Devices, Inc. (a)		15,211		87,159
Altera Corp.		7,886		266,862
Analog Devices, Inc.		7,292		274,690
Applied Materials, Inc. (b)		31,324		358,973
Atmel Corp. (a)		10,862		72,775
Avago Technologies Ltd.		5,962		214,036
Broadcom Corp., Class A (a)		13,465		455,117

Common Stocks	Shares		Value
Semiconductors & Semiconductor Equipment (concluded)
Cree, Inc. (a)		2,843	$	72,980
Cypress Semiconductor Corp. (a)(b)		3,732		49,337
Fairchild Semiconductor International, Inc. (a)		3,120		43,992
Freescale Semiconductor Holdings I Ltd. (a)(b)		1,072		10,988
Intel Corp. (b)		122,911		3,275,578
KLA-Tencor Corp.		4,091		201,482
Lam Research Corp. (a)(b)		4,925		185,869
Linear Technology Corp.		5,628		176,325
LSI Corp. (a)		13,920		88,670
Marvell Technology Group Ltd.		11,492		129,630
Maxim Integrated Products, Inc.		7,144		183,172
Microchip Technology, Inc. (b)		4,733		156,568
Micron Technology, Inc. (a)		24,199		152,696
NVIDIA Corp. (a)		15,127		209,055
ON Semiconductor Corp. (a)		10,936		77,646
PMC - Sierra, Inc. (a)		5,665		34,783
Silicon Laboratories, Inc. (a)		1,034		39,189
Skyworks Solutions, Inc. (a)		4,638		126,942
Teradyne, Inc. (a)		4,508		63,382
Texas Instruments, Inc.		27,961		802,201
Xilinx, Inc.		6,451		216,560
				8,026,657
Software — 3.7%
Activision Blizzard, Inc.		10,359		124,204
Adobe Systems, Inc. (a)		12,125		392,486
ANSYS, Inc. (a)		2,278		143,765
Ariba, Inc. (a)		2,399		107,379
Autodesk, Inc. (a)		5,649		197,659
BMC Software, Inc. (a)		3,938		168,074
CA, Inc.		8,674		234,979
Cadence Design Systems, Inc. (a)		6,597		72,501
Citrix Systems, Inc. (a)		4,550		381,927
Compuware Corp. (a)		5,336		49,571
Concur Technologies, Inc. (a)		1,108		75,455
Electronic Arts, Inc. (a)		7,777		96,046
FactSet Research Systems, Inc. (b)		1,099		102,141
Fortinet, Inc. (a)		3,164		73,468
Informatica Corp. (a)		2,648		112,169
Intuit, Inc. (b)		7,177		425,955
MICROS Systems, Inc. (a)		1,965		100,608
Microsoft Corp. (b)		183,891		5,625,226
NetSuite, Inc. (a)		810		44,364
Nuance Communications, Inc. (a)		5,909		140,752
Oracle Corp. (b)		93,348		2,772,436
Red Hat, Inc. (a)		4,714		266,247
Rovi Corp. (a)		2,710		53,170
Salesforce.com, Inc. (a)		3,390		468,701
SolarWinds, Inc. (a)		1,481		64,512
Solera Holdings, Inc. (b)		1,701		71,085
Splunk, Inc. (a)		385		10,819
Symantec Corp. (a)		17,617		257,384
Synopsys, Inc. (a)		3,567		104,977
TIBCO Software, Inc. (a)		4,035		120,727
VMware, Inc., Class A (a)		2,162		196,828
Zynga Inc, Class A (a)		2,993		16,282
				13,071,897
Specialty Retail — 2.2%
Aaron’s, Inc. (b)		1,856		52,543
Abercrombie & Fitch Co., Class A		2,077		70,909

See Notes to Financial Statements.

BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012 25

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

Common Stocks	Shares		Value
Specialty Retail (concluded)
Advance Auto Parts, Inc. (b)		1,798	$	122,660
American Eagle Outfitters, Inc.		4,795		94,605
Ascena Retail Group, Inc. (a)		2,910		54,184
AutoNation, Inc. (a)(b)		847		29,882
AutoZone, Inc. (a)		931		341,835
Bed Bath & Beyond, Inc. (a)		5,682		351,148
Best Buy Co., Inc. (b)		6,586		138,043
CarMax, Inc. (a)		5,580		144,745
Chico’s FAS, Inc.		4,042		59,983
Dick’s Sporting Goods, Inc. (b)		2,271		109,008
DSW Inc, Class A		852		46,349
Foot Locker, Inc.		3,715		113,605
GameStop Corp., Class A (b)		3,232		59,340
The Gap, Inc.		7,406		202,628
GNC Holdings Inc, Class A		1,789		70,129
Guess?, Inc. (b)		1,587		48,197
The Home Depot, Inc.		37,396		1,981,614
Limited Brands, Inc.		5,901		250,970
Lowe’s Cos., Inc.		29,294		833,121
O’Reilly Automotive, Inc. (a)		3,082		258,179
PetSmart, Inc. (b)		2,650		180,677
Ross Stores, Inc.		5,537		345,896
Sally Beauty Holdings, Inc. (a)		3,789		97,529
Signet Jewelers Ltd.		2,082		91,629
Staples, Inc.		16,847		219,853
Tiffany & Co.		3,099		164,092
The TJX Cos., Inc.		18,104		777,205
Tractor Supply Co.		1,762		146,352
Ulta Salon Cosmetics & Fragrance, Inc.		1,538		143,618
Urban Outfitters, Inc. (a)		2,605		71,872
Williams-Sonoma, Inc.		2,164		75,675
				7,748,075
Textiles, Apparel & Luxury Goods — 0.6%
Carter’s, Inc. (a)		1,158		60,911
Coach, Inc.		7,023		410,705
Deckers Outdoor Corp. (a)(b)		922		40,577
Fossil, Inc. (a)		1,336		102,258
Hanesbrands, Inc. (a)		2,359		65,415
Michael Kors Holdings Ltd. (a)		2,074		86,776
NIKE, Inc., Class B		8,836		775,624
PVH Corp.		1,721		133,877
Ralph Lauren Corp.		1,507		211,070
Under Armour Inc, Class A (a)(b)		950		89,756
VF Corp. (b)		2,142		285,850
				2,262,819
Thrifts & Mortgage Finance — 0.1%
BankUnited, Inc. (b)		841		19,831
Capitol Federal Financial, Inc.		4,018		47,734
Hudson City Bancorp, Inc. (b)		12,924		82,326
New York Community Bancorp, Inc. (b)		10,739		134,560
People’s United Financial, Inc.		8,707		101,088
TFS Financial Corp. (a)		1,964		18,756
Washington Federal, Inc.		2,498		42,191
				446,486
Tobacco — 1.7%
Altria Group, Inc.		49,715		1,717,653
Lorillard, Inc.		3,190		420,921
Philip Morris International, Inc. (b)		41,668		3,635,950

Common Stocks	Shares		Value
Tobacco (concluded)
Reynolds American, Inc. (b)		8,045	$	360,979
				6,135,503
Trading Companies & Distributors — 0.2%
Air Lease Corp. (a)		1,732		33,584
Fastenal Co. (b)		7,236		291,683
GATX Corp.		1,130		43,505
MRC Global, Inc. (a)		564		12,002
MSC Industrial Direct Co., Inc.		1,086		71,187
United Rentals, Inc. (a)		2,281		77,645
W.W. Grainger, Inc. (b)		1,429		273,282
WESCO International, Inc. (a)(b)		1,047		60,255
				863,143
Water Utilities — 0.1%
American Water Works Co., Inc.		4,309		147,712
Aqua America, Inc. (b)		3,404		84,964
				232,676
Wireless Telecommunication Services — 0.3%
Clearwire Corp, Class A (a)		9,605		10,758
Crown Castle International Corp. (a)		7,160		420,006
MetroPCS Communications, Inc. (a)		7,596		45,956
NII Holdings, Inc. (a)		4,118		42,127
SBA Communications Corp, Class A (a)		2,965		169,153
Sprint Nextel Corp. (a)		73,302		238,963
Telephone & Data Systems, Inc. (b)		2,248		47,860
United States Cellular Corp. (a)		357		13,787
				988,610
Investment Companies — 1.0%
iShares Russell 1000 Index Fund (b)(c)		48,002		3,610,231
Total Long-Term Investments (Cost — $330,832,668) — 97.5%				342,851,504
Short-Term Securities
Money Market Funds — 11.7%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.25% (c)(d)(e)		34,299,696		34,299,696
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(d)(e)		6,688,495		6,688,495
				40,988,191
	Par (000)
U.S. Treasury Obligations — 0.2%
U.S. Treasury Bill, 0.00%, 9/20/12 (f)(g)	$	628		627,856
Total Short-Term Securities (Cost — $41,616,047) — 11.9%				41,616,047
Total Investments (Cost — $372,448,715*) — 109.4%				384,467,551
Liabilities in Excess of Other Assets — (9.4)%				(32,923,122	)
Net Assets — 100.0%			$	351,544,429

See Notes to Financial Statements.

26 BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012

Schedule of Investments (concluded) Russell 1000 Index Master Portfolio

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Tax cost	$	372,859,668
Gross unrealized appreciation		16,719,766
Gross unrealized depreciation		(5,111,883	)
Net unrealized appreciation	$	11,607,883

(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, 2011		Shares Purchased			Shares Sold			Shares Held at June 30, 2012		Value at June 30, 2012		Realized Loss			Income
BlackRock Cash Funds: Institutional, SL Agency Shares		5,774,817		28,524,879	1		—			34,299,696	$	34,299,696		—		$	29,042
BlackRock Cash Funds: Prime, SL Agency Shares		1,293,201		5,395,294	1		—			6,688,495	$	6,688,495		—		$	4,707
BlackRock Inc.		364		2,970			(222	)		3,112	$	528,480	$	(6,421	)	$	4,302
iShares Russell 1000 Index Fund		1		48,001			—			48,002	$	3,610,231		—		$	12,927
PNC Financial Services Group, Inc.		2,272		11,539			(891	)		12,920	$	789,541	$	(1,779	)	$	2,718

¹ Represents net shares activity.

(d) All or a portion of 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 industry sub-classifications for reporting ease.

Ÿ Financial futures contracts purchased as of June 30, 2012 were as follows:

Contracts	Issue	Exchange	Expiration	Notional Value		Unrealized Appreciation
14	S&P 400 Midcap Index	Chicago Mercantile	September 2012	$	1,315,300	$	28,822
123	S&P 500 Index	Chicago Mercantile	September 2012	$	8,341,860		238,284
						$	267,106

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques 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 into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. 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 is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments and derivatives financial instruments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments in Securities:
Long-Term Investments1:
Common Stocks	$	339,241,273		—		—	$	339,241,273
Investment Companies		3,610,231		—		—		3,610,231
Short-Term Securities:
Money Market Funds		40,988,191		—		—		40,988,191
U.S. Treasury Obligations		—	$	627,856		—		627,856
Total	$	383,839,695	$	627,856		—	$	384,467,551

¹  See above Schedule of Investments for values in each industry.

	Level 1		Level 2		Level 3		Total
Derivative Financial Instruments2
Assets:
Equity Contracts	$	267,106		—		—	$	267,106

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

Certain of the Master Portfolio’s liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of June 30, 2012, collateral on securities loaned at value of $31,086,959 is categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the six months ended June 30, 2012.

See Notes to Financial Statements.

BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012 27

Statement of Assets and Liabilities Russell 1000 Index Master Portfolio

June 30, 2012 (Unaudited)
Assets
Investments at value — unaffiliated (including securities loaned of $30,923,947) (cost — $326,604,461)	$	338,551,108
Investments at value — affiliated (cost — $45,844,254)		45,916,443
Investments sold receivable		24,892,775
Dividends receivable		475,737
Contributions receivable from investors		246,764
Securities lending income receivable — affiliated		8,228
Interest receivable		6,521
Margin variation receivable		288,954
Prepaid expenses		127
Total assets		410,386,657
Liabilities
Collateral on securities loaned at value		31,086,959
Investments purchased payable		86,906
Trustees’ fees payable		480
Withdrawals payable to investors		27,592,608
Investment advisory fees payable		14,918
Custodian fees payable		8
Printing fees payable		1,521
Professional fees payable		55,124
Foreign taxes payable		210
Other accrued expenses payable		3,494
Total liabilities		58,842,228
Net Assets	$	351,544,429
Net Assets Consist of
Investors’ capital	$	339,258,487
Net unrealized appreciation/depreciation		12,285,942
Net Assets	$	351,544,429

See Notes to Financial Statements.
28	BLACKROCK RUSSELL 1000 INDEX FUND	JUNE 30, 2012

Statement of Operations Russell 1000 Index Master Portfolio

Six Months Ended June 30, 2012 (Unaudited)
Investment Income
Dividends — unaffiliated	$	1,484,894
Foreign taxes withheld		(751	)
Dividends — affiliated		19,947
Securities lending — affiliated		21,879
Income — affiliated		11,870
Interest		74
Total income		1,537,913
Expenses
Investment advisory		36,307
Professional		26,630
Printing		520
Trustees		1,979
Custodian		29,898
Offering costs		1,673
Miscellaneous		1,181
Total expenses		98,188
Less fees waived and/or reimbursed by advisor		(1,790	)
Total expenses after fees waived and/or reimbursed		96,398
Net investment income		1,441,515
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments — unaffiliated		(989,644	)
Investments — affiliated		(8,200	)
Financial futures contracts		36,576
		(961,268	)
Net change in unrealized appreciation/depreciation on:
Investments		14,416,233
Financial futures contracts		245,070
		14,661,303
Total realized and unrealized gain		13,700,035
Net Increase in Net Assets Resulting from Operations	$	15,141,550

See Notes to Financial Statements.
	BLACKROCK RUSSELL 1000 INDEX FUND	JUNE 30, 2012	29

Statements of Changes in Net Assets Russell 1000 Index Master Portfolio

Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Period March 31, 20111 to December  31, 2011
Operations
Net investment income	$	1,441,515		$	573,634
Net realized loss		(961,268	)		(464,335	)
Net change in unrealized appreciation/depreciation		14,661,303			(2,375,361	)
Net increase (decrease) in net assets resulting from operations		15,141,550			(2,266,062	)
Capital Transactions
Proceeds from contributions		312,096,218			72,436,022
Value of withdrawals		(32,574,519	)		(13,288,780	)
Net increase in net assets derived from capital transactions		279,521,699			59,147,242
Net Assets
Total increase in net assets		294,663,249			56,881,180
Beginning of period		56,881,180			—
End of period	$	351,544,429		$	56,881,180

¹  Commencement of operations.

See Notes to Financial Statements.
30	BLACKROCK RUSSELL 1000 INDEX FUND	JUNE 30, 2012

Financial Highlights Russell 1000 Index Master Portfolio

	Six Months Ended June 30, 2012 (Unaudited)		Period March 31, 20111 to December 31, 2011
Total Investment Return2
Total investment return		9.53%		(4.68	)%
Ratios to Average Net Assets3
Total expenses		0.14%		0.40%	4
Total expenses after fees waived		0.13%		0.16%
Net investment income		1.98%		2.04%
Supplemental Data
Net assets, end of period (000)	$	351,544	$	56,881
Portfolio turnover		21%		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 these expenses were annualized, the total expenses would have been 0.40%.

See Notes to Financial Statements.
	BLACKROCK RUSSELL 1000 INDEX FUND	JUNE 30, 2012	31

Notes to Financial Statements (Unaudited) Russell 1000 Index Master Portfolio

1. Organization and Significant Accounting Policies:

Russell 1000 Index Master Portfolio (the “Master Portfolio”), a series of 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 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 annually by the Board of Trustees of MIP (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Master Portfolio for all financial instruments.

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 NAV 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 by the Global Valuation Committee, or its delegate, 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 Global Valuation Committee, or its delegate, 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. These factors include but are not limited to (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or default rates. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches, including regular due diligence of the Master Portfolio’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof on a quarterly basis.

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. Interest income, including amortization and accretion of premiums and discounts on debt securities, is recognized on the accrual basis.

32 BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012

Notes to Financial Statements (continued) Russell 1000 Index Master Portfolio

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 six months ended June 30, 2012, 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 return remains open for the period 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 December 2011, the Financial Accounting Standards Board issued guidance that will expand 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 or similar agreements which are eligible for offset in the Statement of Assets and Liabilities and will require an entity to disclose both gross and net information about such investments and transactions in the financial statements. 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.

Offering Costs: Offering costs associated with the establishment of the Master Portfolio are amortized over a 12-month period beginning with the commencement 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, financial 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

BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012 33

Notes to Financial Statements (continued) Russell 1000 Index Master Portfolio

known as variation margin 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.

Derivative Financial Instruments Categorized by Risk Exposure:
Fair Values of Derivative Financial Instruments as of June 30, 2012
	Asset Derivatives
	Statement of Assets and Liabilities Location	Value
Equity contracts	Net unrealized appreciation/depreciation*	$	267,106

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

The Effect of Derivative Financial Instruments in the Statement of Operations Period Ended June 30, 2012
	Net Realized Gain From
Equity contracts:
Financial futures contracts		$36,576
	Net Change in Unrealized Appreciation/Depreciation on
Equity contracts:
Financial futures contracts		$245,070

For the six months ended June 30, 2012, the average quarterly balances of outstanding derivative financial instruments were as follows:

Financial futures contracts:
Average number of contracts purchased	80
Average notional value of contracts purchased	$5,664,517

3. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

MIP, on behalf of the Master Portfolio, entered into an Investment Advisory Agreement (the “Investment Advisory Agreement”) with 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%.

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 their assets in the Master Portfolio. BFA has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2013 unless approved by the Board, including a majority of the independent trustees. For the six months ended June 30, 2012, BFA waived $1,314, 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. 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, if any. 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 is shown as securities lending – affiliated in the Statement of Operations. For the six months ended June 30, 2012, BTC received $11,760 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 June 30, 2012, were $307,948,493 and $34,216,077, respectively.

34 BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012

Notes to Financial Statements (concluded) Russell 1000 Index Master Portfolio

5. Borrowings:

The Master Portfolio, along with certain other funds managed by the BFA and its affiliates, is a party to a $500 million credit agreement with a group of lenders. The Master Portfolio may borrow under the credit agreement to fund shareholder redemptions. The credit agreement, which expired in November 2011, was renewed until November 2012. Effective November 2011 to November 2012, the credit agreement has the following terms: a commitment fee of 0.065% per annum based on the Master Portfolio’s pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus 0.80% per annum or (b) the Fed Funds rate plus 0.80% per annum on amounts borrowed. In addition, administration and arrangement fees were allocated to the Master Portfolio based on its net assets as of October 31, 2011. The Master Portfolio’s commitment fee and administration and arrangement fees were paid by the investment advisor. The Master Portfolio did not borrow under the credit agreement during the six months ended June 30, 2012.

6. 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.

7. 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 JUNE 30, 2012 35

Disclosure of Investment Advisory Agreement

The Board of Trustees of Master Investment Portfolio (the “Master Fund”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Master Fund’s investment advisory agreement (the “Agreement”) with BlackRock Fund Advisors (“BlackRock”), the Master Fund’s investment advisor, on behalf of Russell 1000 Index Master Portfolio (the “Master Portfolio”), a series of the Master Fund. BlackRock Russell 1000 Index Fund (the “Portfolio”), a series of BlackRock Funds III (the “Fund”), is a “feeder” fund that invests all of its investable assets in the Master Portfolio. Accordingly, the Board of Trustees of the Fund also considered the approval of the Agreement with respect to the Master Portfolio. For simplicity, the Board of Trustees of the Master Fund and the Board of Trustees of the Fund are referred to herein collectively as the “Board,” and the members are referred to as “Board Members.”

Activities and Composition of the Board

The Board consists of fourteen individuals, twelve of whom are not “interested persons” of the Master Fund or the Fund as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of the Master Fund or the Fund, as pertinent, and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Co-Chairs of the Board are each Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight and Contract Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).

The Agreement

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreement on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreement. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Master Portfolio and the Portfolio by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreement, including the services and support provided by BlackRock to the Master

Portfolio, the Portfolio and their shareholders. Among the matters the Board considered were: (a) investment performance for one-, three-, five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against its peers and/or benchmark, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Master Portfolio and/or the Portfolio for services, such as marketing and distribution, call center and fund accounting; (c) the Master Portfolio’s and/or the Portfolio’s operating expenses and how BlackRock allocates expenses to the Master Portfolio and the Portfolio; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Master Portfolio’s and the Portfolio’s investment objective, policies and restrictions; (e) the Master Fund’s and the Fund’s compliance with its respective Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) the use of brokerage commissions and execution quality of portfolio transactions; (j) BlackRock’s implementation of the Master Fund’s and/or the Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.

Board Considerations in Approving the Agreement

The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreement. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the

36 BLACKROCK FUNDS III JUNE 30, 2012

Disclosure of Investment Advisory Agreement (continued)

information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on fees and expenses of the Master Portfolio and the Portfolio, as applicable, and the investment performance of the Portfolio as compared with a peer group of funds as determined by Lipper (collectively, “Peers”), as well as the gross investment performance of the Portfolio as compared with its benchmark; (b) information on the profitability of the Agreement to BlackRock and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of economies of scale; (e) a summary of aggregate amounts paid by the Master Portfolio and/or the Portfolio to BlackRock; (f) sales and redemption data regarding the Portfolio’s shares; and (g) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.

At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreement. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.

At an in-person meeting held on May 15-16, 2012, the Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund with respect to the Master Portfolio for a one-year term ending June 30, 2013. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement and found the Agreement to be satisfactory. In approving the continuation of the Agreement, the Board of the Master Fund considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of the Master Portfolio, the Portfolio and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Master Portfolio and the Portfolio; (d) economies of scale; (e) fall-out benefits to BlackRock as a result of its relationship with the Master Portfolio and the Portfolio; and (f) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to the distribution of Portfolio shares and securities lending, services related to the valuation and pricing of portfolio holdings of the Master Portfolio, direct and indirect benefits to BlackRock and its affili-

ates from their relationship with the Master Portfolio and the Portfolio and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of the Portfolio. Throughout the year, the Board compared the Portfolio’s performance to the performance of a comparable group of mutual funds and/or the performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the portfolio management team discussing Master Portfolio performance and the Master Portfolio’s investment objective, strategies and outlook.

The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and the Master Portfolio’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to the Master Portfolio’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Master Portfolio and the Portfolio. BlackRock and its affiliates provide the Master Portfolio and the Portfolio with certain administrative, shareholder and other services (in addition to any such services provided to the Master Portfolio and the Portfolio by third parties) and officers and other personnel as are necessary for the operations of the Master Portfolio and the Portfolio. In particular, BlackRock and its affiliates provide the Master Portfolio and the Portfolio with the following administrative services, including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions

BLACKROCK FUNDS III JUNE 30, 2012 37

Disclosure of Investment Advisory Agreement (continued)

necessary for the operation of the Master Portfolio and the Portfolio, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Master Portfolio, the Portfolio and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of the Master Portfolio and the Portfolio, as applicable. The Board noted that the Master Portfolio’s investment results correspond directly to the investment results of the Portfolio. In preparation for the April 17, 2012 meeting, the Board worked with its independent counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive analysis of the Portfolio’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information regarding the investment performance of the Portfolio as compared to funds in the Portfolio’s applicable Lipper category and the gross investment performance of the Portfolio as compared with its benchmark. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Master Portfolio management to discuss, the performance of the Master Portfolio and the Portfolio, as applicable, throughout the year.

The Board noted that the Portfolio’s gross performance was below its benchmark index during the since-inception period reported. Based on its discussions with BlackRock and the Board’s review of the Portfolio’s investment performance compared to its Lipper Peer Group, the methodology used by Lipper to select peer funds, and other relevant information provided by BlackRock, the Board noted that the Portfolio’s gross investment performance as compared to its benchmark index provided a more meaningful comparison of the Portfolio’s relative performance.

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Master Portfolio and the Portfolio: The Board, including the Independent Board Members, reviewed the Master Portfolio’s/Portfolio’s contractual management fee rate compared with the other funds in the Portfolio’s Lipper category. It also compared the Portfolio’s total expense ratio, as well as the Master Portfolio’s/Portfolio’s actual management fee rate, to those of other funds in the Portfolio’s Lipper category. The Board considered the services provided

and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided the Master Portfolio and the Portfolio. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Master Portfolio and the Portfolio. The Board reviewed BlackRock’s profitability with respect to the Master Portfolio and the Portfolio, as applicable, and other funds the Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31, 2009. The Board reviewed BlackRock’s profitability with respect to other fund complexes managed by BlackRock and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by BlackRock, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRock’s operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management and the relative product mix.

In addition, the Board considered the cost of the services provided to the Master Portfolio and the Portfolio by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Master Portfolio and the Portfolio and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of the Master Portfolio and the Portfolio. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreement and to continue to provide the high quality of services that is expected by the Board.

The Board noted that the Master Portfolio’s/Portfolio’s contractual management fee ratio (a combination of the advisory fee and the

38 BLACKROCK FUNDS III JUNE 30, 2012

Disclosure of Investment Advisory Agreement (concluded)

administration fee, if any) was lower than or equal to the median contractual management fee ratio paid by the Portfolio’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted that BlackRock has contractually agreed to waive fees and/or reimburse expenses in order to limit, to a specified amount, the Portfolio’s total operating expenses as a percentage of the Portfolio’s average daily net assets on a class-by-class basis, as applicable.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Master Portfolio and the Portfolio increase, as well as the existence of expense caps. The Board also considered the extent to which the Master Portfolio and the Portfolio benefit from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Master Portfolio and the Portfolio to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the asset level of the Master Portfolio. In its consideration, the Board took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Master Portfolio and the Portfolio, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Master Portfolio and the Portfolio, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.

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

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

Conclusion

The Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund, with respect to the Master Portfolio, for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board of the Master Fund, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of the Master Portfolio and its shareholders. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement with respect to the Master Portfolio and found the Agreement to be satisfactory. In arriving at its decision to approve the Agreement, the Board of the Master Fund did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Master Portfolio reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

BLACKROCK FUNDS III JUNE 30, 2012 39

Officers and Trustees

Ronald W. Forbes, Co-Chair of the Board and Trustee

Rodney D. Johnson, Co-Chair of the Board and Trustee

Paul L. Audet, Trustee

David O. Beim, Trustee

Henry Gabbay, Trustee

Dr. Matina S. Horner, Trustee

Herbert I. London, Trustee

Ian A. MacKinnon, Trustee¹

Cynthia A. Montgomery, Trustee

Joseph P. Platt, Trustee

Robert C. Robb, Jr., Trustee

Toby Rosenblatt, Trustee

Kenneth L. Urish, Trustee

Frederick W. Winter, Trustee

John M. Perlowski, President and Chief Executive Officer

Richard Hoerner, CFA, Vice President

Brendan Kyne, Vice President

Simon Mendelson, Vice President

Christopher Stavrakos, CFA, Vice President

Neal Andrews, Chief Financial Officer

Jay Fife, Treasurer

Brian Kindelan, Chief Compliance Officer and Anti-Money Laundering Officer

Benjamin Archibald, Secretary²

¹  Effective May 14, 2012, Ian A. MacKinnon became a Director of the Fund/Master Portfolio.

²  Effective May 16, 2012, Ira P. Shapiro resigned as Secretary of the Fund/Master Portfolio and Benjamin Archibald became Secretary of the Fund/Master Portfolio.

Investment Advisor

BlackRock Fund Advisors

San Francisco, CA 94105

Administrator

BlackRock Institutional Trust Company, N.A.

San Francisco, CA 94105

Custodian and Accounting Agent

State Street Bank and Trust Company

Boston, MA 02110

Transfer Agent

BNY Mellon Investment Servicing (US) Inc.

Wilmington, DE 19809

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 Fund

400 Howard Street

San Francisco, CA 94105

40 BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012

Additional Information

General Information

Electronic Delivery

Electronic copies of most financial reports and prospectuses are available on the Funds’ websites or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Funds’ electronic delivery program.

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

Please contact your financial advisor. Please note that not all investment advisors, banks or brokerages may offer this service.

Shareholders Who Hold Accounts Directly with BlackRock:

I) Access the BlackRock website at http://www.blackrock.com/edelivery

2) Select “eDelivery” under the “More Information” section

3) Log into your account

Householding

The Funds will mail only one copy of shareholder documents, including prospectuses [open end only], annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do

not want the mailing of these documents to be combined with those for other members of your household, please call the Funds at (800) 441-7762.

Availability of Quarterly Schedule of Investments

The Fund/Master Portfolio file their 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, D.C. 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 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 the 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 (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 www.blackrock.com/funds.

Automatic Investment Plans

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

Systematic Withdrawal Plans

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

Retirement Plans

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

BLACKROCK RUSSELL 1000 INDEX FUND JUNE 30, 2012 41

Additional Information (concluded)

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 JUNE 30, 2012

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 Balanced Capital Fund†

BlackRock Basic Value Fund

BlackRock Capital Appreciation Fund

BlackRock China Fund

BlackRock Commodity Strategies Fund

BlackRock Emerging Markets Fund

BlackRock Emerging Markets Long/Short Equity Fund

BlackRock Energy & Resources Portfolio

BlackRock Equity Dividend Fund

BlackRock EuroFund

BlackRock Flexible Equity Fund

BlackRock Focus Growth Fund

BlackRock Global Allocation Fund†

BlackRock Global Dividend Income Portfolio

BlackRock Global Dynamic Equity 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 Managed Volatility Portfolio†

BlackRock Mid-Cap Growth 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 CoreAlpha Bond Fund

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 Secured Credit Portfolio

BlackRock Strategic Income Opportunities Portfolio

BlackRock Total Return Fund

BlackRock US Government Bond Portfolio

BlackRock US Mortgage Portfolio

BlackRock World Income Fund

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 Date Funds†

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

† 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 JUNE 30, 2012 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 Fund unless accompanied or preceded by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.

# R1000-6/12-SAR

June 30, 2012

Semi-Annual Report (Unaudited)

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
Semi-Annual Report:
Fund Summary		4
About Fund Performance		6
Disclosure of Expenses		6
Derivative Financial Instruments		7
Fund Financial Statements:
Statement of Assets and Liabilities		8
Statement of Operations		9
Statements of Changes in Net Assets		10
Fund Financial Highlights		11
Fund Notes to Financial Statements		14
Master Portfolio Information		17
Master Portfolio Financial Statements:
Schedule of Investments		18
Statement of Assets and Liabilities		36
Statement of Operations		37
Statements of Changes in Net Assets		38
Master Portfolio Financial Highlights		39
Master Portfolio Notes to Financial Statements		40
Disclosure of Investment Advisory Agreement		45
Officers and Trustees		49
Additional Information		50
A World-Class Mutual Fund Family		52

2 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

Dear Shareholder

One year ago, risk assets were in a broad retreat as sovereign debt problems loomed over Europe and confidence in both the US and global economic recoveries was waning. Last summer’s prolonged debt ceiling debate in Washington, DC ended with Standard & Poor’s historic downgrade of US government debt, an event that triggered financial-market turmoil all over the world. Extraordinary levels of volatility persisted in the months that followed as the debt situation in Europe intensified. Macro-level news drove asset prices broadly up and down in lockstep, in a “risk on” — “risk off” trading pattern. Equity markets crumbled while safe-haven assets such as US Treasuries and gold rallied to historic highs by the end of the third quarter of 2011.

By October, however, improving economic data and more concerted efforts among European leaders toward stemming the region’s debt crisis drew investors back to the markets. Improving sentiment carried over into early 2012 as investors saw some relief from the world’s financial woes. Risk assets (including stocks, commodities and high yield bonds) moved boldly higher through the first two months of 2012 while climbing Treasury yields pressured higher-quality fixed income assets.

However, risk assets reversed course in the spring when Europe’s debt problems boiled over once again. Markets became highly volatile as political instability in Greece threatened the country’s membership in the euro zone. Spain faced severe deficit issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian government debt rose to levels deemed unsustainable. European leaders conferred and debated vehemently over the need for fiscal integration among the 17 euro-zone nations to resolve the crisis for the long term.

Alongside the drama in Europe, investors were discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key powerhouse for global growth, became particularly worrisome. In the United States, disappointing jobs reports dealt a crushing blow to sentiment. Risk assets sold off through April and May as investors ran back to safe havens including US, German and UK government debt as well as gold. As the period drew to a close, risk assets were beginning to rebound modestly as European leaders stepped up their efforts to move toward fiscal unity and investors anticipated additional stimulus from central banks on both sides of the Atlantic.

All asset classes posted gains for the 6-month period ended June 30, 2012, with US stocks delivering the largest returns. On a 12-month basis, US large-cap stocks generated positive results; however, small-cap stocks finished in negative territory and international and emerging equities, which experienced significant downturns in 2011, lagged the broader rebound. Among fixed income asset classes, safe-haven US Treasury bonds and municipal bonds outperformed corporate credits for the 12-month period. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities. We remain committed to working with you and your financial professional to identify actionable ideas for your portfolio. We encourage you to visit www.blackrock.com/newworld for more information.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of June 30, 2012
	6-month			12-month
US large cap equities (S&P 500® Index)		9.49	%		5.45	%
US small cap equities (Russell 2000® Index)		8.53			(2.08	)
International equities (MSCI Europe, Australasia, Far East Index)		2.96			(13.83	)
Emerging market equities (MSCI Emerging Markets Index)		3.93			(15.95	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.04			0.05
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		3.44			17.36
US investment grade bonds (Barclays US Aggregate Bond Index)		2.37			7.47
Tax-exempt municipal bonds (S&P Municipal Bond Index)		4.14			10.16
US high yield bonds (Barclays US Corporate High Yield 2% Issuer Capped Index)		7.23			7.21
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 June 30, 2012 BlackRock ACWI ex-US Index Fund

Investment Objective

BlackRock ACWI ex-US Index Fund’s (the “Fund”), a series of BlackRock Funds III (the “Trust”), 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?

Ÿ For the six months ended June 30, 2012, the Fund’s Institutional, Investor A and Class K Shares returned 2.88%, 2.63% and 2.76%, respectively, while the benchmark MSCI ACWI ex-US Index returned 2.77%. 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.

Ÿ 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.

Ÿ Following a highly volatile 2011, financial markets began the year with relative calm as the debt situation in Europe stabilized and global liquidity conditions returned to normal, due mainly to the European Central Bank’s long-term refinancing operations. Positive economic indicators, particularly from the United States, brightened the outlook for the global economy. As the market environment improved and corporate earnings continued to be strong, international equities moved boldly higher through the first two months of 2012.

Ÿ The rally ended in March when the tone of global news flow darkened. Investors reverted to risk averse mode and heightened volatility returned to the markets as Europe’s debt problems boiled over once again. Political instability in Greece caused anxiety about whether the country would continue its membership in the euro zone. In Spain, political leaders faced severe deficit and policymaking issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian

Ÿ government debt rose to levels deemed unsustainable. Stock markets around the world saw increased volatility as investors reacted to news from Europe where leaders conferred and debated vehemently over the need for fiscal integration among the 17 euro-zone nations.

Ÿ Alongside the drama in Europe, investors became discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key power house for global growth, was of particular concern. Chinese manufacturing and exports suffered due to weakening demand from larger, developed countries as consumers became more cautious in the mire of the financial situation in Europe. Many European countries fell into recession and disappointing reports from the United States reinforced fears about the slowing world economy.

Ÿ The resurgence of concerns about global growth and Europe’s debt problems drove equity prices down through April and May. In June, stocks began a global rebound as European leaders ramped up their efforts to move toward fiscal unity and investors anticipated additional stimulus from central banks on both sides of the Atlantic. Overall, international stocks underperformed US stocks as the US economy remained strong relative to other parts of the world.

Describe recent portfolio activity.

Ÿ 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.

Describe portfolio positioning at period end.

Ÿ 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 JUNE 30, 2012

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. The Master Portfolio invests primarily in a diversified portfolio of equity securities of companies located in developed and emerging market countries excluding the United States.

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 June 30, 2012

	6-Month Total Returns			Average Annual Total Returns Since Inception5
Institutional		2.88	%		(15.65	)%
Investor A		2.63			(15.91	)
Class K		2.76			(15.73	)
MSCI ACWI ex-US Index		2.77			(14.57	)

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.

Expense Example
	Actual						Hypothetical7
	Beginning Account Value January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period6		Beginning Account Value January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period6		Annualized Expense Ratio
Institutional		$1,000.00		$1,028.80		$1.72		$1,000.00		$1,023.17		$1.71		0.34%
Investor A		$1,000.00		$1,026.30		$3.17		$1,000.00		$1,021.73		$3.17		0.63%
Class K		$1,000.00		$1,027.60		$1.66		$1,000.00		$1,023.22		$1.66		0.33%

⁶  For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period shown). Because the Fund invests significantly in the Master Portfolio, the expense example reflects the net expenses of both the Fund and the Master Portfolio in which it invests.

⁷  Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.

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

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 5

About Fund Performance BlackRock ACWI ex-US Index Fund

Ÿ 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.

Ÿ Investor A Shares are not subject to any sales charge and bear no ongoing distribution fee. These 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 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 preceeding page assume reinvestment of all dividends and distributions, if any, at net asset value (“NAV”) 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 and/or reimbursed a portion of the Fund’s expenses. Without such waiver and/or reimbursement, 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.

Disclosure of Expenses

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 on the preceeding page (which is based on a hypothetical investment of $1,000 invested on January 1, 2012 and held through June 30, 2012) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.

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

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

The expenses shown in the expense example 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.

6 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

Derivative Financial Instruments BlackRock ACWI ex-US Index Fund

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 security, index and/or 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 investment in these instruments is discussed in detail in the Master Portfolio’s Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 7

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

June 30, 2012 (Unaudited)
Assets
Investments at value — Master Portfolio (cost — $61,886,214)	$	58,862,279
Capital shares sold receivable		50,376,005
Receivable from administrator		34,191
Prepaid expenses		31,688
Total assets		109,304,163
Liabilities
Contributions payable to the Master Portfolio		40,686,574
Capital shares redeemed payable		9,689,431
Income dividends payable		105,838
Registration fees payable		914
Printing fees payable		36,760
Transfer agent fees payable		2,166
Service fees payable		6
Professional fees payable		14,418
Other accrued expenses payable		1,616
Total liabilities		50,537,723
Net Assets	$	58,766,440
Net Assets Consist of
Paid-in capital	$	62,180,692
Accumulated net investment loss		(11,762	)
Accumulated net realized loss allocated from the Master Portfolio		(378,555	)
Net unrealized appreciation/depreciation allocated from the Master Portfolio		(3,023,935	)
Net Assets	$	58,766,440
Net Asset Value
Institutional — Based on net assets of $50,511,775 and 6,130,827 shares outstanding, unlimited number of shares authorized, no par value	$	8.24
Investor A — Based on net assets of $30,833 and 3,748 shares outstanding, unlimited number of shares authorized, no par value	$	8.23
Class K — Based on net assets of $8,223,831 and 998,974 shares outstanding, unlimited number of shares authorized, no par value	$	8.23

See Notes to Financial Statements.
8	BLACKROCK ACWI ex-US INDEX FUND	JUNE 30, 2012

Statement of Operations BlackRock ACWI ex-US Index Fund

Six Months Ended June 30, 2012 (Unaudited)
Investment Income
Net investment income allocated from the Master Portfolio:
Dividends — unaffiliated	$	390,466
Foreign taxes withheld		(54,999	)
Dividends — affiliated		1,456
Income — affiliated		899
Interest — unaffiliated		15
Expenses		(54,008	)
Fees waived		25,410
Total income		309,239
Expenses
Administration		8,726
Transfer agent — Institutional		25
Transfer agent — Investor A		25
Transfer agent — Class K		805
Service — Investor A		29
Offering		101,420
Printing		12,711
Professional		12,039
Registration		10,077
Miscellaneous		2,074
Total expenses		147,931
Less administration fees waived		(8,726	)
Less transfer agent fees waived — Institutional		(1	)
Less transfer agent fees waived — Investor A		(2	)
Less transfer agent fees waived — Class K		(134	)
Less transfer agent fees reimbursed — Institutional		(8	)
Less transfer agent fees reimbursed — Investor A		(17	)
Less transfer agent fees reimbursed — Class K		(665	)
Less fees reimbursed by administrator		(138,256	)
Total expenses after fees waived and reimbursed		122
Net investment income		309,117
Realized and Unrealized Gain (Loss) Allocated from the Master Portfolio
Net realized loss from investments, financial futures contracts and foreign currency transactions		(147,993	)
Net change in unrealized appreciation/depreciation on investments, financial futures contracts and foreign currency transactions		414,268
Total realized and unrealized gain		266,275
Net Increase in Net Assets Resulting from Operations	$	575,392

See Notes to Financial Statements.
	BLACKROCK ACWI ex-US INDEX FUND	JUNE 30, 2012	9

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

Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Period June 30, 20111 to December  31, 2011
Operations
Net investment income	$	309,117		$	176,245
Net realized loss		(147,993	)		(345,155	)
Net change in unrealized appreciation/depreciation		414,268			(3,438,203	)
Net increase (decrease) in net assets resulting from operations		575,392			(3,607,113	)
Dividends to Shareholders From
Net investment income:
Institutional		(119,122	)		(102	)
Investor A		(381	)		(93	)
Class K		(180,752	)		(82,081	)
Tax return of capital:
Institutional		—			(56	)
Investor A		—			(51	)
Class K		—			(45,667	)
Decrease in net assets resulting from dividends to shareholders		(300,255	)		(128,050	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		42,201,466			20,025,000
Net Assets
Total increase in net assets		42,476,603			16,289,837
Beginning of period		16,289,837			—
End of period	$	58,766,440		$	16,289,837
Accumulated net investment loss	$	(11,762	)	$	(20,624	)

¹  Commencement of operations.

See Notes to Financial Statements.
10	BLACKROCK ACWI ex-US INDEX FUND	JUNE 30, 2012

Financial Highlights BlackRock ACWI ex-US Index Fund

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Period June 30, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	8.13		$	10.00
Net investment income2		0.15			0.08
Net realized and unrealized gain (loss)		0.09			(1.89	)
Net increase (decrease) from investment operations		0.24			(1.81	)
Dividends and distributions from:
Net investment income		(0.13	)		(0.04	)
Tax return of capital		—			(0.02	)
Total dividends and distributions		(0.13	)		(0.06	)
Net asset value, end of period	$	8.24		$	8.13
Total Investment Return3,4
Based on net asset value		2.88%			(18.05	)%
Ratios to Average Net Assets5,6
Total expenses		2.95%	7		2.04%	8,9
Total expenses after fees waived		0.34%	7		0.37%	8
Net investment income		3.74%	7		1.78%	8
Supplemental Data
Net assets, end of period (000)	$	50,512		$	46
Portfolio turnover of the Master Portfolio		8%			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 0.19%.

⁸  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 1.14%.

⁹  Organization costs were not annualized in the calculation of the expense ratio. If this expense was annualized, the total expenses would have been 2.08%.

See Notes to Financial Statements.
	BLACKROCK ACWI ex-US INDEX FUND	JUNE 30, 2012	11

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

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Period June 30, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	8.13		$	10.00
Net investment income2		0.14			0.08
Net realized and unrealized gain (loss)		0.08			(1.89	)
Net increase (decrease) from investment operations		0.22			(1.81	)
Dividends and distributions from:
Net investment income		(0.12	)		(0.04	)
Tax return of capital		—			(0.02	)
Total dividends and distributions		(0.12	)		(0.06	)
Net asset value, end of period	$	8.23		$	8.13
Total Investment Return3,4
Based on net asset value		2.63%			(18.11	)%
Ratios to Average Net Assets5,6
Total expenses		2.51%	7		2.30%	8,9
Total expenses after fees waived		0.63%	7		0.62%	8
Net investment income		3.22%	7		1.74%	8
Supplemental Data
Net assets, end of period (000)	$	31		$	20
Portfolio turnover of the Master Portfolio		8%			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 0.19%.

⁸  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 1.14%.

⁹  Organization costs were not annualized in the calculation of the expense ratio. If this expense was annualized, the total expenses would have been 2.36%.

See Notes to Financial Statements.
12	BLACKROCK ACWI ex-US INDEX FUND	JUNE 30, 2012

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

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Period June 30, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	8.13		$	10.00
Net investment income2		0.15			0.09
Net realized and unrealized gain (loss)		0.08			(1.90	)
Net increase (decrease) from investment operations		0.23			(1.81	)
Dividends and distributions from:
Net investment income		(0.13	)		(0.04	)
Tax return of capital		—			(0.02	)
Total dividends and distributions		(0.13	)		(0.06	)
Net asset value, end of period	$	8.23		$	8.13
Total Investment Return3,4
Based on net asset value		2.76%			(18.04	)%
Ratios to Average Net Assets5,6
Total expenses		1.92%	7		1.73%	8,9
Total expenses after fees waived		0.33%	7		0.32%	8
Net investment income		3.52%	7		2.03%	8
Supplemental Data
Net assets, end of period (000)	$	8,224		$	16,224
Portfolio turnover of the Master Portfolio		8%			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 0.19%.

⁸  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 1.14%.

⁹  Organization costs were not annualized in the calculation of the expense ratio. If this expense was annualized, the total expenses would have been 1.79%.

See Notes to Financial Statements.
	BLACKROCK ACWI ex-US INDEX FUND	JUNE 30, 2012	13

Notes to Financial Statements (Unaudited) 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 June 30, 2012 was 17.26%. 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 expenditures.

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. Realized and unrealized gains and losses are adjusted for utilizing partnership tax allocation rules. 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 exceed 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 return remains open for the period 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.

Offering Costs: Offering costs associated with the establishment of the Fund are amortized over a 12-month period beginning with the commencement 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”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

The Trust, on behalf of the Fund, entered into an Administration Agreement with Blackrock Institutional Trust Company, N.A. (the “Administrator” or “BTC”), 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.

BlackRock Fund Advisors (“BFA”), the investment advisor for the Master Portfolio, and BTC contractually agreed to waive and/or reimburse fees

14 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

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

or expenses, excluding interest expense, dividend expense, acquired fund fees and expenses and certain other fund expenses, in order to limit expenses. 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. BFA and BTC have agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2013 unless approved by the Board, including a majority of the independent trustees. These amounts are shown as or included in administration fees waived, transfer agent fees waived — class specific, transfer agent fees reimbursed — class specific and fees reimbursed by administrator.

If during the Fund’s fiscal year the operating expenses of a share class, that at any time during the prior fiscal year 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 the prior fiscal year 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.

On June 30, 2012, the amount subject to possible future recoupment under the expense limitation agreement is $119,874, which expires December 31, 2013.

The Trust, on behalf of the Fund, 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 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 Investor A Shares.

Pursuant to sub-agreements with BRIL, broker-dealers and BRIL provide shareholder servicing related services to the Fund. The ongoing service fee compensates BRIL and each broker-dealer for providing shareholder servicing 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 six months ended June 30, 2012, 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:

Institutional .	$	8
Investor A	$	17
Class K	$	665

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

3. Capital Loss Carryforwards:

As of December 31, 2011, the Fund had a capital loss carryforward of $237,641. The capital loss carryforward has no expiration date and is available to offset future realized capital gains.

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 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:

	Six Months Ended June 30, 2012						Period June 30, 20111  to December 31, 2011
	Shares			Amount			Shares		Amount
Institutional
Shares sold		7,317,400		$	59,794,981			5,657	$	50,000
Shares issued to shareholders in reinvestment of dividends		10,882			89,677			—		—
Shares redeemed		(1,203,112	)		(9,908,650	)		—		—
Net increase		6,125,170		$	49,976,008			5,657	$	50,000

	Six Months Ended June 30, 2012						Period June 30, 20111  to December 31, 2011
	Shares			Amount			Shares		Amount
Investor A
Shares sold		1,253		$	10,156			2,500	$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		11			88			—		—
Shares redeemed		(16	)		(126	)		—		—
Net increase		1,248		$	10,118			2,500	$	25,000
Class K
Shares sold		1,461		$	11,189			1,995,000	$	19,950,000
Shares issued to shareholders in reinvestment of dividends and distributions		13			112			—		—
Shares redeemed		(997,500	)		(7,795,961	)		—		—
Net increase (decrease)		(996,026	)	$	(7,784,660	)		1,995,000	$	19,950,000
Total Net Increase		5,130,392		$	42,201,466			2,003,157	$	20,025,000
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 JUNE 30, 2012

Master Portfolio Information as of June 30, 2012 ACWI ex-US Index Master 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

United Kingdom	15	%
Japan	14
Canada	8
France	6
Australia	6
Switzerland	6
Germany	5
China	4
South Korea	3
Brazil	3
Taiwan	2
Hong Kong	2
Sweden	2
South Africa	2
Spain	2
Netherlands	2
India	2
Other1	16

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

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 17

Schedule of Investments June 30, 2012 (Unaudited) ACWI ex-US Index Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Australia — 5.1%
AGL Energy Ltd.		11,710	$	177,954
Alumina Ltd.		48,915		40,120
Amcor Ltd.		26,279		191,839
AMP Ltd.		59,989		238,715
APA Group		13,257		68,054
Asciano Ltd.		19,753		88,723
ASX Ltd.		3,993		122,569
Australia & New Zealand Banking Group Ltd.		55,176		1,256,914
Bendigo and Adelaide Bank Ltd.		8,135		62,168
BHP Billiton Ltd.		66,809		2,176,123
Boral Ltd.		14,925		45,487
Brambles Ltd.		32,978		209,156
Caltex Australia Ltd.		2,725		38,060
Campbell Brothers Ltd.		1,528		85,662
Centro Retail Australia		26,219		53,215
CFS Retail Property Trust		39,551		78,940
Coca-Cola Amatil Ltd.		12,490		171,643
Cochlear Ltd.		1,140		77,421
Commonwealth Bank of Australia		32,602		1,785,436
Computershare Ltd.		8,951		68,418
Crown Ltd.		8,017		70,107
CSL Ltd.		10,902		442,203
Dexus Property Group		92,419		88,436
Echo Entertainment Group Ltd.		15,086		66,514
Fairfax Media Ltd.		49,695		28,506
Fortescue Metals Group Ltd.		29,762		152,073
Goodman Group		32,996		124,937
GPT Group		28,862		97,627
Harvey Norman Holdings Ltd.		10,354		20,819
Iluka Resources Ltd.		9,298		109,738
Incitec Pivot Ltd.		32,700		96,607
Insurance Australia Group Ltd.		45,160		161,972
Leighton Holdings Ltd.		3,034		51,103
Lend Lease Group		10,905		81,101
Lynas Corp. Ltd. (a)		34,627		30,646
Macquarie Group Ltd.		7,104		191,836
Metcash Ltd.		15,414		53,399
Mirvac Group		68,528		90,044
National Australia Bank Ltd.		46,146		1,124,005
Newcrest Mining Ltd.		15,936		370,848
Orica Ltd.		7,678		195,572
Origin Energy Ltd.		22,613		284,787
OZ Minerals Ltd.		6,208		50,649
Qantas Airways Ltd. (a)		22,658		25,172
QBE Insurance Group Ltd.		24,499		338,594
QR National Ltd.		36,021		126,179
Ramsay Health Care Ltd.		2,668		61,992
Rio Tinto Ltd.		9,087		533,469
Santos Ltd.		19,250		212,010
Sims Metal Management Ltd.		3,328		32,960
Sonic Healthcare Ltd.		7,477		97,792
SP AusNet		35,355		37,052
Stockland		48,881		155,143
Suncorp Group Ltd.		27,073		226,224
Sydney Airport		7,383		22,004
Tabcorp Holdings Ltd.		14,422		43,491
Tatts Group Ltd.		29,580		79,710
Telstra Corp. Ltd.		89,914		340,677
Toll Holdings Ltd.		13,701		56,334

Common Stocks	Shares		Value
Australia (concluded)
Transurban Group		27,356	$	159,787
Wesfarmers Ltd.		20,914		643,766
Westfield Group		45,274		443,295
Westfield Retail Trust		61,060		179,100
Westpac Banking Corp.		62,958		1,374,764
Whitehaven Coal Ltd.		9,068		38,984
Woodside Petroleum Ltd.		13,334		427,302
Woolworths Ltd.		25,391		698,967
WorleyParsons Ltd.		4,274		110,982
				17,485,896
Austria — 0.2%
Andritz AG		1,556		80,017
Erste Group Bank AG (a)		4,457		84,644
IMMOFINANZ AG (a)		22,194		70,619
OMV AG		3,062		96,299
Raiffeisen Bank International AG		1,106		36,210
Telekom Austria AG		7,581		74,513
Verbund AG		1,432		32,803
Vienna Insurance Group AG		905		36,584
Voestalpine AG		2,234		59,334
				571,023
Belgium — 0.7%
Ageas		47,346		94,023
Anheuser-Busch InBev NV		16,683		1,315,308
Belgacom SA		3,448		98,051
Colruyt SA		1,514		67,545
Delhaize Group		2,076		76,048
Groupe Bruxelles Lambert SA		1,724		117,024
KBC Groep NV		3,346		70,759
Mobistar SA		644		22,037
Solvay SA		1,206		119,070
Telenet Group Holding NV		1,169		51,153
UCB SA		2,274		114,872
Umicore SA		2,316		107,080
				2,252,970
Brazil — 2.7%
AES Tiete SA, Preference Shares		2,400		34,163
All America Latina Logistica SA		9,100		38,421
Amil Participacoes SA		2,300		23,017
Anhanguera Educacional Participacoes SA		2,800		35,688
Banco Bradesco SA, Preference Shares		39,900		594,775
Banco do Brasil SA		11,800		114,739
Banco do Estado do Rio Grande do Sul, Preference Shares		4,200		29,694
Banco Santander (Brasil) SA		15,500		118,845
BM&F Bovespa SA		38,000		193,926
BR Malls Participacoes SA		8,100		92,756
BR Properties SA		3,700		43,659
Bradespar SA, Preference Shares		4,500		73,801
Braskem SA, Preference ‘A’ Shares		2,800		18,653
BRF — Brasil Foods SA		13,800		208,804
CCR SA		18,700		152,039
Centrais Eletricas Brasileiras SA		6,000		42,569
Centrais Eletricas Brasileiras SA, Preference ‘B” Shares		4,200		40,819
CETIP SA — Mercados Organizados		4,100		51,237
Cielo SA		6,200		182,373
Companhia Brasileira de Distribuicao Grupo Pao de Acucar, Preference Shares		1,900		75,678

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:	ADR     American Depositary Receipts	GBP     British Pound	NVDR    Non-Voting Depositary Receipts
	AUD     Australian Dollar	HKD     Hong Kong Dollar	PLN      Polish New Zloty
	BRL      Brazilian Real	JPY       Japanese Yen	SEK      Swedish Krona
	CAD     Canadian Dollar	KRW     South Korean Won	SGD     Singapore Dollar
	CHF      Swiss Franc	MXN     Mexican Peso	USD     US Dollar
	DKK     Danish Krone	MYR     Malaysian Ringgit	ZAR      South African Rand
	EUR     Euro	NOK     Norwegian Krone

See Notes to Financial Statements.

18 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

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

Common Stocks	Shares		Value
Brazil (continued)
Companhia de Bebidas das Americas, Preference Shares		15,700	$	604,237
Companhia de Saneamento Basico do Estado de Sao Paulo		2,300		88,175
Companhia de Saneamento de Minas Gerais-COPASA		1,300		28,155
Companhia de Transmissao de Energia Electrica Paulista		600		19,149
Companhia Energetica de Minas Gerais, Preference Shares		10,200		190,593
Companhia Energetica de Sao Paulo, Preference ‘B’ Shares		3,100		56,644
Companhia Hering SA		2,800		53,114
Companhia Paranaense de Energia, Preference ‘B’ Shares		2,000		44,013
Companhia Siderurgica Nacional SA		14,700		83,289
Cosan SA Industria e Comercio		2,500		38,574
CPFL Energia SA		4,800		60,702
Cyrela Brazil Realty SA		6,000		44,212
Diagnosticos da America SA		5,100		33,543
Duratex SA		5,700		30,167
EcoRodovias Infraestrutura e Logistica SA		4,000		32,203
EDP — Energias do Brasil SA		5,000		32,089
Eletropaulo Metropolitana Eletricidade de Sao Paulo SA, Preference Shares		1,700		21,448
Embraer SA		11,000		73,169
Fibria Celulose SA (a)		5,100		37,783
Gerdau SA, Preference Shares		18,500		163,032
HRT Participacoes em Petroleo SA (a)		5,000		15,584
Hypermarcas SA (a)		6,900		40,778
Itau Unibanco Holding SA, Preference Shares		47,400		667,636
Itausa — Investimentos Itau SA, Preference Shares		54,640		231,237
JBS SA (a)		10,200		30,623
Klabin SA, Preference Shares		9,000		40,777
Light SA		1,300		16,052
Localiza Rent a Car SA		2,600		39,288
Lojas Americanas SA, Preference Shares		8,057		53,150
Lojas Renner SA		2,500		70,139
Metalurgica Gerdau SA, Preference Shares		5,500		60,627
MMX Mineracao e Metalicos SA (a)		4,900		14,272
MPX Energia SA (a)		1,300		19,935
MRV Engenharia e Participacoes SA		6,700		31,023
Multiplan Empreendimentos Imobiliarios SA		1,600		39,162
Multiplus SA		1,200		28,182
Natura Cosmeticos SA		3,500		81,902
Obrascon Huarte Lain Brasil SA		2,900		25,773
Odontoprev SA		5,800		29,455
OGX Petroleo e Gas Participacoes SA (a)		26,100		71,471
Oi SA		4,605		21,667
Oi SA, Preference Shares		16,998		69,819
PDG Realty SA Empreendimentos e Participacoes		22,800		39,845
Petroleo Brasileiro SA		62,100		584,362
Petroleo Brasileiro SA, Preference Shares		87,200		792,333
Porto Seguro SA		1,900		16,186
Raia Drogasil SA		3,900		39,320
Redecard SA		7,400		121,031
Souza Cruz SA		8,400		123,292
Sul America SA		1,908		14,819
Telefonica Brasil SA, Preference Shares		6,100		151,794
Tim Participacoes SA		18,540		103,015
Totvs SA		2,200		42,390

Common Stocks	Shares		Value
Brazil (concluded)
Tractebel Energia SA		3,200	$	59,188
Ultrapar Participacoes SA		6,600		148,529
Usinas Siderurgicas de Minas Gerais SA, Preference ‘A’ Shares		7,500		23,600
Vale SA		27,100		541,460
Vale SA, Preference ‘A’ Shares		41,600		811,081
				9,210,744
Canada — 7.0%
Agnico-Eagle Mines Ltd.		3,460		140,154
Agrium, Inc.		3,293		291,845
Alimentation Couche Tard, Inc.		2,403		104,938
ARC Resources Ltd.		5,985		134,620
Athabasca Oil Corp. (a)		6,300		69,306
Bank of Montreal		13,137		725,948
Bank of Nova Scotia		22,636		1,172,599
Barrick Gold Corp.		20,760		781,992
Baytex Energy Corp.		2,412		101,612
BCE, Inc.		5,283		217,837
Bell Aliant, Inc.		1,486		37,263
Bombardier, Inc.		28,084		110,891
Bonavista Energy Corp.		2,857		44,675
Brookfield Asset Management Inc., Class A		11,726		388,256
Brookfield Office Properties, Inc.		5,601		98,035
CAE, Inc.		4,623		44,909
Cameco Corp.		8,137		178,789
Canadian Imperial Bank of Commerce		8,235		579,548
Canadian National Railway Co.		9,166		775,162
Canadian Natural Resources Ltd.		22,780		611,062
Canadian Oil Sands Ltd.		10,312		199,737
Canadian Pacific Railway Ltd.		3,582		262,889
Canadian Tire Corp. Ltd., Class A		1,606		108,655
Canadian Utilities Ltd.		1,189		77,604
Cenovus Energy, Inc.		15,717		499,714
Centerra Gold, Inc.		3,201		22,386
CGI Group Inc., Class A (a)		4,787		115,055
CI Financial Corp.		3,060		66,364
Crescent Point Energy Corp.		5,870		219,094
Eldorado Gold Corp.		14,320		176,380
Empire Co. Ltd.		650		34,259
Enbridge, Inc.		15,355		613,235
Encana Corp.		15,085		314,116
Enerplus Corp.		3,852		49,488
Fairfax Financial Holdings Ltd.		406		160,765
Finning International, Inc.		3,430		79,778
First Quantum Minerals Ltd.		9,880		174,678
Fortis, Inc.		4,208		133,461
Franco-Nevada Corp.		2,802		126,711
George Weston Ltd.		1,074		61,016
Gildan Activewear, Inc.		2,324		64,029
Goldcorp, Inc.		16,822		633,324
Great-West Lifeco, Inc.		6,144		133,187
H&R Real Estate Investment Trust		1,769		42,570
Husky Energy, Inc.		6,792		169,783
IAMGOLD Corp.		7,439		87,973
IGM Financial, Inc.		2,121		83,415
Imperial Oil Ltd.		5,983		250,286
Industrial Alliance Insurance & Financial Services, Inc.		1,801		43,287
Inmet Mining Corp.		1,052		43,119
Intact Financial Corp.		2,655		165,308

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 19

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

Common Stocks	Shares		Value
Canada (concluded)
Ivanhoe Mines Ltd. (a)		5,826	$	57,453
Kinross Gold Corp.		23,891		195,005
Loblaw Cos. Ltd.		2,295		73,036
Magna International Inc., Class A		4,589		181,243
Manulife Financial Corp.		37,595		409,516
MEG Energy Corp. (a)		2,800		100,356
Metro Inc., Class A		2,183		111,777
National Bank of Canada		3,281		234,514
New Gold, Inc. (a)		9,084		86,637
Nexen, Inc.		11,269		190,824
Onex Corp.		1,929		74,898
Open Text Corp. (a)		1,186		59,422
Osisko Mining Corp. (a)		7,362		50,618
Pacific Rubiales Energy Corp.		5,902		124,985
Pan American Silver Corp.		3,082		52,159
Pembina Pipeline Corp.		6,113		156,232
Pengrowth Energy Corp.		11,060		70,177
Penn West Petroleum Ltd.		9,875		132,494
Potash Corp. of Saskatchewan, Inc.		17,863		780,772
Power Corp. of Canada		7,639		179,476
Power Financial Corp.		5,021		125,513
Precision Drilling Corp. (a)		4,515		30,733
Progress Energy Resources Corp.		3,603		71,027
Research In Motion Ltd. (a)		9,446		69,957
RioCan Real Estate Investment Trust		2,737		74,467
Ritchie Bros Auctioneers, Inc.		1,783		38,213
Rogers Communications, Inc., Class B		8,187		296,810
Royal Bank of Canada		29,684		1,520,791
Saputo, Inc.		2,801		116,458
Shaw Communications, Inc., Class B		8,340		157,609
Shoppers Drug Mart Corp.		4,538		182,973
Silver Wheaton Corp.		7,565		203,373
SNC-Lavalin Group, Inc.		3,056		114,484
Sun Life Financial, Inc.		12,196		265,339
Suncor Energy, Inc.		32,752		947,077
SXC Health Solutions Corp. (a)		1,271		126,226
Talisman Energy, Inc.		22,116		253,505
Teck Resources Ltd., Class B		12,046		373,058
TELUS Corp.		4,184		244,810
Thomson Reuters Corp.		8,062		229,404
Tim Hortons, Inc.		3,400		179,234
TMX Group, Inc.		1,523		69,411
The Toronto-Dominion Bank		18,634		1,458,361
Tourmaline Oil Corp. (a)		2,500		66,005
TransAlta Corp.		4,521		76,601
TransCanada Corp.		14,545		609,601
Valeant Pharmaceuticals International, Inc. (a)		6,095		273,410
Vermilion Energy, Inc.		1,845		83,307
Viterra, Inc.		7,028		111,484
Yamana Gold, Inc.		15,600		240,719
				23,752,661
Chile — 0.4%
AES Gener SA		49,161		28,337
Aguas Andinas SA		46,912		29,039
Banco de Chile		399,365		56,441
Banco de Credito e Inversiones		628		39,073
Banco Santander Chile		1,380,925		102,973
CAP SA		1,399		51,666
Cencosud SA		18,377		101,407

Common Stocks	Shares		Value
Chile (concluded)
Cia Cervecerias Unidas SA		2,257	$	28,301
Colbun SA (a)		151,013		41,864
CorpBanca		1,784,754		22,533
E.CL SA, Class S		9,083		21,598
Empresa Nacional de Electricidad SA		67,079		113,751
Empresas CMPC SA		21,683		86,490
Empresas COPEC SA		10,386		153,273
Enersis SA		267,355		100,594
ENTEL Chile SA		2,216		41,441
LATAM Airlines Group SA		4,649		122,104
Latam Airlines Group SA (a)		1,440		37,568
SACI Falabella		9,788		90,716
Sociedad Quimica y Minera de Chile SA, Preference ‘B’ Shares		1,775		99,003
Vina Concha y Toro SA		7,977		15,606
				1,383,778
China — 3.5%
Agile Property Holdings Ltd.		34,000		44,306
Agricultural Bank of China Ltd., Class H		438,000		177,396
Air China Ltd., Class H		44,000		26,121
Airtac International Group (a)		2,000		11,521
Aluminum Corp. of China Ltd., Class H (a)		80,000		34,774
Angang Steel Co. Ltd. (a)		26,000		14,409
Anhui Conch Cement Co. Ltd., Class H		25,000		68,787
AviChina Industry & Technology Co. Ltd.		40,000		13,316
Bank of China Ltd., Class H		1,555,000		597,314
Bank of Communications Co. Ltd., Class H		150,700		102,284
BBMG Corp.		24,500		17,273
Beijing Capital International Airport Co. Ltd.		48,000		29,327
Beijing Enterprises Holdings Ltd.		10,000		60,337
Belle International Holdings Ltd.		98,000		167,890
Brilliance China Automotive Holdings Ltd. (a)		50,000		44,191
Byd Co. Ltd., Class H (a)		8,500		16,304
China Agri-Industries Holdings Ltd.		28,000		15,445
China BlueChemical Ltd., Class H		30,000		17,158
China Citic Bank Corp. Ltd., Class H		154,000		79,605
China Coal Energy Co. Ltd., Class H		83,000		68,913
China Communications Construction Co. Ltd., Class H		89,000		79,003
China Communications Services Corp. Ltd. (a)		50,000		24,855
China Construction Bank Corp., Class H		1,502,000		1,037,693
China COSCO Holdings Co. Ltd., Class H (a)		46,500		20,871
China International Marine Containers Group Co. Ltd.		11,300		14,451
China Life Insurance Co. Ltd., Class H		154,000		405,559
China Longyuan Power Group Corp., Class H		38,000		25,094
China Mengniu Dairy Co. Ltd.		25,000		66,200
China Merchants Bank Co. Ltd., Class H		79,500		150,739
China Merchants Holdings International Co. Ltd.		22,000		67,303
China Minsheng Banking Corp. Ltd., Class H		106,500		95,367
China Mobile Ltd.		125,500		1,377,675
China National Building Material Co. Ltd., Class H		58,000		63,366
China Oilfield Services Ltd., Class H		32,000		46,468
China Overseas Land & Investment Ltd.		86,000		202,532
China Pacific Insurance Group Co. Ltd., Class H		34,800		113,566
China Petroleum & Chemical Corp., Class H		352,000		314,592
China Railway Construction Corp. Ltd.		42,500		35,632
China Railway Group Ltd.		87,000		36,739
China Resources Cement Holdings Ltd.		42,000		24,645

See Notes to Financial Statements.

20 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

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

Common Stocks	Shares		Value
China (continued)
China Resources Enterprise Ltd.		24,000	$	71,706
China Resources Land Ltd.		42,000		86,846
China Resources Power Holdings Co. Ltd.		38,000		78,493
China Shanshui Cement Group Ltd.		40,000		27,596
China Shenhua Energy Co. Ltd., Class H		71,500		252,989
China Shipping Container Lines Co. Ltd. (a)		76,000		18,462
China Shipping Development Co. Ltd.		26,000		12,252
China Southern Airlines Co. Ltd.		44,000		19,528
China Taiping Insurance Holdings Co. Ltd. (a)		19,400		31,596
China Telecom Corp. Ltd., Class H		280,000		122,905
China Unicom Hong Kong Ltd.		96,000		120,718
China Vanke Co. Ltd. (a)		27,000		35,594
China Yurun Food Group Ltd.		32,000		28,265
Chongqing Rural Commercial Bank		49,000		19,997
Citic Pacific Ltd.		27,000		41,210
CITIC Securities Co. Ltd. (a)		13,000		27,613
CNOOC Ltd.		371,000		747,980
COSCO Pacific Ltd.		36,000		49,395
Country Garden Holdings Co. Ltd. (a)		90,129		35,789
CSG Holding Co. Ltd.		7,000		4,712
CSR Corp. Ltd.		45,000		35,322
Daphne International Holdings Ltd.		16,000		16,324
Datang International Power Generation Co. Ltd.		60,000		23,745
Dongfang Electric Corp. Ltd.		6,600		13,534
Dongfeng Motor Group Co. Ltd., Class H		60,000		93,783
ENN Energy Holdings Ltd.		16,000		56,480
Evergrande Real Estate Group Ltd.		107,000		55,415
Foxconn International Holdings Ltd. (a)		46,000		16,805
GCL-Poly Energy Holdings Ltd.		158,000		34,928
Golden Eagle Retail Group Ltd.		15,000		30,723
GOME Electrical Appliances Holding Ltd.		205,000		27,428
Great Wall Motor Co. Ltd.		21,000		42,339
Guangzhou Automobile Group Co. Ltd., Class H (a)		44,000		36,990
Guangzhou R&F Properties Co. Ltd.		16,000		21,306
Hengan International Group Co. Ltd.		15,000		146,117
Hengdeli Holdings Ltd.		60,000		19,168
Huabao International Holdings Ltd.		35,000		17,408
Huaneng Power International, Inc., Class H		66,000		49,907
Industrial & Commercial Bank of China Ltd., Class H		1,358,000		761,279
Inner Mongolia Yitai Coal Co. (a)		11,300		64,157
Intime Department Store Group Co. Ltd.		20,000		19,776
Jiangsu Expressway Co. Ltd.		22,000		20,712
Jiangxi Copper Co. Ltd., Class H		28,000		62,344
Kingboard Chemical Holdings Ltd.		14,000		27,267
Kunlun Energy Co. Ltd.		66,000		106,325
Lenovo Group Ltd.		134,000		114,346
Longfor Properties Co. Ltd.		26,000		41,004
Metallurgical Corp. of China Ltd. (a)		65,000		13,983
Parkson Retail Group Ltd.		29,500		26,352
PetroChina Co. Ltd., Class H		440,000		569,475
PICC Property & Casualty Co. Ltd., Class H		54,800		62,333
Ping An Insurance (Group) Co. of China Ltd., Class H		36,500		295,134
Shandong Weigao Group Medical Polymer Co. Ltd., Class H		36,000		40,186
Shanghai Electric Group Co. Ltd., Class H		68,000		27,852
Shanghai Industrial Holdings Ltd.		13,000		34,520
Shanghai Pharmaceuticals Holding Co. Ltd.		11,700		14,707
Shimao Property Holdings Ltd.		28,500		44,174
Shougang Fushan Resources Group Ltd.		54,000		14,079
Sinopec Shanghai Petrochemical Co. Ltd.		48,000		14,146

Common Stocks	Shares		Value
China (concluded)
Sinopharm Group Co. Ltd., Class H		16,000	$	44,478
Soho China Ltd.		47,500		36,460
Tencent Holdings Ltd.		21,200		626,063
Tingyi Cayman Islands Holding Corp.		40,000		103,056
Tsingtao Brewery Co. Ltd.		6,000		34,286
Uni-President China Holdings Ltd.		27,000		25,194
Want Want China Holdings Ltd.		125,000		154,580
Weichai Power Co. Ltd., Class H (a)		8,000		31,956
Wumart Stores, Inc. (a)		11,000		22,363
Yanzhou Coal Mining Co. Ltd., Class H (a)		40,000		63,035
Zhaojin Mining Industry Co. Ltd., Class H		23,000		30,242
Zhejiang Expressway Co. Ltd.		24,000		15,927
Zhongsheng Group Holdings Ltd.		9,500		11,612
Zhuzhou CSR Times Electric Co. Ltd.		8,000		21,975
Zijin Mining Group Co. Ltd., Class H		122,000		41,511
Zoomlion Heavy Industry Science and Technology Co. Ltd., Class H (a)		27,400		35,242
ZTE Corp., Class H		11,000		21,456
				12,073,976
Colombia — 0.3%
Almacenes Exito SA		4,521		74,903
Banco Davivienda SA, Preference Shares		1,821		22,469
Bancolombia SA		4,376		66,218
Bancolombia SA, Preference Shares		6,701		104,481
Cementos Argos SA		9,593		37,662
Corp. Financiera Colombiana SA		1,443		24,522
Ecopetrol SA		105,361		294,578
Grupo Aval Acciones y Valores SA, Preference Shares		37,834		24,296
Grupo de Inversiones Suramericana SA		5,568		96,497
Grupo de Inversiones Suramericana SA, Preference Shares		1,342		24,462
Interconexion Electrica SA		7,266		47,273
Inversiones Argos SA		7,328		67,815
Inversiones Argos SA, Preference Shares		1,293		11,603
Isagen SA ESP		18,177		24,977
				921,756
Czech Republic — 0.1%
CEZ AS		3,981		137,577
Komercni Banka AS		311		54,254
Telefonica Czech Republic AS		2,970		56,702
				248,533
Denmark — 0.7%
A.P. Moller — Maersk A/S, Class A		28		183,611
A.P. Moller — Maersk A/S, Class B		11		68,469
Carlsberg A/S, Class B		2,245		177,204
Coloplast A/S, Class B		465		83,611
Danske Bank A/S (a)		13,913		193,452
DSV A/S		3,935		78,023
Novo Nordisk A/S, Class B		8,490		1,231,362
Novozymes A/S, Class B		4,941		128,127
TDC A/S		10,271		71,380
Tryg A/S		550		30,918
William Demant Holding A/S (a)		541		48,629
				2,294,786
Egypt — 0.1%
Commercial International Bank SAE		11,885		51,619
Egyptian Financial Group-Hermes Holding (a)		2,111		3,613

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 21

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

Common Stocks	Shares		Value
Egypt (concluded)
Egyptian Kuwaiti Holding Co. SAE		4,648	$	5,451
National Societe Generale Bank SAE		2,451		11,897
Orascom Construction Industries		1,908		79,641
Orascom Telecom Holding SAE (a)		62,500		31,875
Orascom Telecom Media & Technology Holding SAE (a)		75,427		18,426
Talaat Moustafa Group (a)		21,069		15,232
Telecom Egypt Co.		6,786		14,897
				232,651
Finland — 0.4%
Elisa OYJ		2,847		57,331
Fortum OYJ		9,006		171,028
Kesko OYJ, Class B		1,417		37,043
Kone OYJ, Class B		3,136		189,393
Metso OYJ		2,805		96,714
Neste Oil OYJ		2,286		25,724
Nokia OYJ		76,968		157,014
Nokian Renkaat OYJ		2,302		87,446
Orion OYJ, Class B		2,080		39,396
Pohjola Bank Plc, Class A		3,214		37,507
Sampo OYJ, Class A		8,525		221,180
Stora Enso OYJ, Class R		11,237		69,182
UPM-Kymmene OYJ		10,915		123,476
Wartsila OYJ		3,419		112,013
				1,424,447
France — 5.2%
Accor SA		2,992		93,761
Aeroports de Paris		605		45,760
Air Liquide SA		6,489		741,877
Alcatel-Lucent (a)		47,107		77,533
ALSTOM SA		4,171		131,964
ArcelorMittal		19,780		302,624
Arkema		1,247		81,764
AtoS		1,099		65,723
AXA SA		36,810		492,102
BNP Paribas SA		20,078		774,101
Bouygues SA		3,808		102,182
Bureau Veritas SA		1,212		107,820
Cap Gemini SA		3,190		117,410
Carrefour SA		12,057		222,637
Casino Guichard-Perrachon SA		1,126		98,974
Christian Dior SA		1,108		152,380
CNP Assurances (a)		3,130		38,230
Compagnie de Saint-Gobain		8,434		311,629
Essilor International SA		4,264		396,124
Compagnie Generale de Geophysique-Veritas (a)		2,781		71,930
Compagnie Generale des Etablissements Michelin, Class B		3,767		246,461
Credit Agricole SA (a)		20,760		91,602
Danone SA		12,032		747,747
Dassault Systemes SA		1,278		119,904
Edenred		3,429		97,210
EDF SA		4,928		109,646
Eurazeo		638		24,568
Eutelsat Communications SA		2,787		85,733
Fonciere Des Regions		519		37,315
France Telecom SA		38,444		505,476
GDF Suez		25,859		616,681
Gecina SA		445		39,670
Groupe Eurotunnel SA		11,693		95,044

Common Stocks	Shares		Value
France (concluded)
Icade		477	$	36,076
Iliad SA		458		66,321
Imerys SA		685		34,922
JC Decaux SA		1,435		31,646
Klepierre		1,967		64,643
L’Oreal SA		4,995		584,441
Lafarge SA		3,805		169,924
Lagardere S.C.A.		2,463		68,751
Legrand SA		5,079		172,383
LVMH Moet Hennessy Louis Vuitton SA		5,286		804,475
Natixis		19,615		52,836
Pernod-Ricard SA		4,428		473,495
Peugeot SA (a)		4,734		46,687
PPR SA		1,559		222,207
Publicis Groupe		3,159		144,472
Remy Cointreau SA		445		48,890
Renault SA		4,071		162,565
Rexel SA		2,180		37,236
Safran SA		4,720		175,284
Sanofi		25,008		1,893,125
Schneider Electric SA		10,887		605,139
SCOR SE		3,273		79,346
SES SA		5,975		141,271
Societe BIC SA		566		58,468
Societe Generale SA (a)		14,594		342,223
Sodexo		1,911		148,796
Suez Environnement Co.		5,762		61,956
Technip SA		2,091		217,916
Thales SA		1,801		59,503
Total SA		43,894		1,975,620
Unibail-Rodamco SE		1,911		352,025
Vallourec SA		2,083		85,114
Veolia Environnement SA		6,910		87,502
Vinci SA		9,503		444,123
Vivendi SA		26,828		498,488
Wendel SA		682		50,502
Zodiac Aerospace		681		69,275
				17,811,228
Germany — 4.7%
Adidas AG		4,312		309,075
Allianz AG, Registered Shares		9,443		949,822
Axel Springer AG		838		36,004
BASF SE		19,065		1,325,673
Bayer AG, Registered Shares		17,199		1,239,347
Bayerische Motoren Werke AG		6,912		500,207
Bayerische Motoren Werke AG, Preference Shares		985		48,589
Beiersdorf AG		2,177		141,129
Brenntag AG		927		102,589
Celesio AG		1,907		31,214
Commerzbank AG (a)		74,658		126,802
Continental AG		1,641		136,795
Daimler AG, Registered Shares		18,820		845,759
Deutsche Bank AG, Registered Shares		19,383		699,595
Deutsche Boerse AG		4,011		216,398
Deutsche Lufthansa AG, Registered Shares		4,594		53,110
Deutsche Post AG, Registered Shares		17,275		305,654
Deutsche Telekom AG, Registered Shares		58,355		639,537
E.ON AG		37,476		809,823
Fraport AG		759		40,868
Fresenius Medical Care AG & Co. KGaA		4,420		312,176

See Notes to Financial Statements.

22 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

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

Common Stocks	Shares		Value
Germany (concluded)
Fresenius SE & Co. KGaA		2,656	$	274,996
GEA Group AG		3,495		93,152
Hannover Rueckversicherung AG, Registered Shares		1,197		71,303
HeidelbergCement AG		2,866		137,595
Henkel AG & Co. KGaA		2,769		153,657
Henkel AG & Co. KGaA, Preference Shares		3,696		245,584
Hochtief AG (a)		536		25,982
Hugo Boss AG		417		41,313
Infineon Technologies AG		22,919		155,120
K+S AG		3,460		158,402
Kabel Deutschland Holding AG (a)		1,908		118,906
Lanxess AG		1,678		106,191
Linde AG		3,562		554,748
MAN SE		852		87,139
Merck KGaA		1,405		140,312
Metro AG		2,643		77,070
Muenchener Rueckversicherungs AG, Registered Shares		3,707		523,073
Porsche Automobil Holding SE, Preference Shares		3,110		154,703
ProSiebenSat.1 Media AG, Preference Shares		1,849		41,449
RWE AG		10,521		430,251
RWE AG, Non-Voting Preference Shares		517		19,198
Salzgitter AG		772		31,780
SAP AG		19,186		1,136,106
Siemens AG, Registered Shares		17,089		1,435,938
Suedzucker AG		1,318		46,757
ThyssenKrupp AG		7,800		127,059
United Internet AG		1,986		34,141
Volkswagen AG		598		90,366
Volkswagen AG, Preference Shares		3,005		476,076
Wacker Chemie AG		311		21,425
				15,879,958
Greece — 0.0%
Coca Cola Hellenic Bottling Co. SA (a)		4,042		71,612
OPAP SA		5,670		35,489
				107,101
Hong Kong — 1.9%
AIA Group Ltd.		213,600		737,787
Anta Sports Products Ltd.		17,000		10,365
ASM Pacific Technology Ltd.		4,000		51,129
Bank of East Asia Ltd.		27,600		99,476
BOC Hong Kong Holdings Ltd.		78,000		240,119
Bosideng International Holdings Ltd.		60,000		15,582
Cathay Pacific Airways Ltd.		24,000		38,910
Cheung Kong Holdings Ltd.		29,000		358,043
Cheung Kong Infrastructure Holdings Ltd.		10,000		60,538
China Everbright Ltd.		14,000		20,006
China Gas Holdings Ltd.		66,000		33,157
China Resources Gas Group Ltd.		14,000		24,243
China Rongsheng Heavy Industries Group Holdings Ltd.		51,000		11,975
China State Construction International Holdings Ltd.		26,000		24,674
China ZhengTong Auto Services Holdings Ltd. (a)		19,000		10,103
China Zhongwang Holdings Ltd. (a)		37,200		14,337
CLP Holdings Ltd.		37,500		318,707
Dah Chong Hong Holdings Ltd.		16,000		14,396
Dongyue Group		22,000		10,349
Far East Horizon Ltd.		21,000		14,873
First Pacific Co., Ltd		42,000		43,565

Common Stocks	Shares		Value
Hong Kong (concluded)
Fosun International Ltd.		27,000	$	14,142
Franshion Properties China Ltd.		56,000		17,010
Galaxy Entertainment Group Ltd. (a)		30,000		75,476
Geely Automobile Holdings Ltd.		85,000		30,145
Guangdong Investment Ltd.		50,000		36,195
Haier Electronics Group Co., Ltd. (a)		18,000		21,735
Hang Lung Group Ltd.		20,000		123,663
Hang Lung Properties Ltd.		45,000		153,928
Hang Seng Bank Ltd.		15,600		214,468
Henderson Land Development Co., Ltd.		19,000		105,629
Hong Kong & China Gas Co., Ltd.		109,600		232,823
Hong Kong Exchanges & Clearing Ltd.		21,500		309,359
Hopewell Holdings Ltd.		11,500		32,922
Hutchison Whampoa Ltd.		44,000		381,652
Hysan Development Co., Ltd.		13,000		49,553
Kerry Properties Ltd.		14,500		62,396
Lee & Man Paper Manufacturing Ltd.		35,000		14,154
Li & Fung Ltd.		122,000		236,222
Lifestyle International Holdings Ltd.		9,500		20,933
The Link REIT		49,000		200,844
Lonking Holdings Ltd.		45,000		10,877
MGM China Holdings Ltd.		20,000		30,667
Minmetals Resources Ltd. (a)		36,000		15,208
MTR Corp.		29,000		99,553
New World Development Co., Ltd.		74,000		87,198
Nine Dragons Paper Holdings Ltd.		27,000		15,284
NWS Holdings Ltd.		27,000		39,489
Orient Overseas International Ltd.		4,000		19,618
PCCW Ltd.		85,000		31,348
Poly Hong Kong Investments Ltd. (a)		35,000		19,075
Power Assets Holdings Ltd.		29,000		217,621
Sands China Ltd.		49,600		159,564
Sany Heavy Equipment International Holdings Co., Ltd.		22,000		11,884
Shangri-La Asia Ltd.		32,000		61,466
Shui On Land Ltd.		50,500		20,695
Sihuan Pharmaceutical Holdings Group Ltd.		42,000		15,344
Sino Land Co., Ltd.		58,800		89,286
Sino-Ocean Land Holdings Ltd.		56,500		28,312
SJM Holdings Ltd.		39,000		73,077
Sun Art Retail Group Ltd.		38,500		42,428
Sun Hung Kai Properties Ltd.		33,000		392,335
Swire Pacific Ltd., Class A		15,000		174,463
Wharf Holdings Ltd.		31,000		172,390
Wheelock & Co., Ltd.		18,000		68,397
Wing Hang Bank Ltd.		4,500		43,757
Wynn Macau Ltd.		31,600		74,567
Yingde Gases		16,500		15,101
Yue Yuen Industrial Holdings Ltd.		14,500		45,589
Yuexiu Property Co., Ltd.		112,000		27,538
				6,587,714
Hungary — 0.1%
Magyar Telekom Telecommunications Plc		7,781		15,353
MOL Hungarian Oil & Gas Plc		823		59,603
OTP Bank Plc		4,637		73,733
Richter Gedeon Nyrt		269		44,395
				193,084
Indonesia — 0.6%
PT Adaro Energy Tbk		293,500		45,876
PT Astra Agro Lestari Tbk		7,500		16,198

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 23

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

Common Stocks	Shares		Value
Indonesia (concluded)
PT Astra International Tbk		410,000	$	302,251
PT Bank Central Asia Tbk		249,000		194,755
PT Bank Danamon Indonesia Tbk		69,000		44,315
PT Bank Mandiri Tbk		190,000		147,426
PT Bank Negara Indonesia Persero Tbk		151,500		62,292
PT Bank Rakyat Indonesia Persero Tbk		226,500		155,131
PT Bukit Asam Persero Tbk		13,500		21,272
PT Bumi Resources Tbk		296,000		35,464
PT Charoen Pokphand Indonesia Tbk		147,000		54,313
PT Gudang Garam Tbk		9,500		62,762
PT Indo Tambangraya Megah Tbk		8,500		32,916
PT Indocement Tunggal Prakarsa Tbk		29,500		54,981
PT Indofood Sukses Makmur Tbk		88,500		46,031
PT Indosat Tbk		32,000		14,883
PT Jasa Marga Persero Tbk		48,000		27,803
PT Kalbe Farma Tbk		93,000		37,611
PT Perusahaan Gas Negara Persero Tbk		221,000		83,667
PT Semen Gresik Persero Tbk		60,000		72,818
PT Telekomunikasi Indonesia Persero Tbk		203,500		177,795
PT Unilever Indonesia Tbk		30,500		74,802
PT United Tractors Tbk		34,000		78,229
PT Vale Indonesia Tbk		52,000		14,963
PT XL Axiata Tbk		26,000		17,152
				1,875,706
Ireland — 0.2%
CRH Plc		833		16,071
CRH Plc		14,297		273,903
Elan Corp. Plc (a)		6,946		101,867
Elan Corp. Plc (a)		3,662		53,294
James Hardie Industries SE		8,714		71,847
Kerry Group Plc		1,670		73,212
Kerry Group Plc		1,139		49,881
				640,075
Israel — 0.3%
Bank Hapoalim BM		21,648		66,764
Bank Leumi Le-Israel BM (a)		25,683		62,745
Bezeq The Israeli Telecommunication Corp., Ltd.		37,843		40,264
Delek Group Ltd.		87		12,954
Elbit Systems Ltd.		485		16,700
Israel Chemicals Ltd.		8,910		98,583
The Israel Corp. Ltd.		50		28,276
Mizrahi Tefahot Bank Ltd. (a)		2,057		16,049
NICE Systems Ltd. (a)		1,200		43,942
Teva Pharmaceutical Industries Ltd.		20,181		795,484
				1,181,761
Italy — 1.3%
Assicurazioni Generali SpA		24,431		331,256
Atlantia SpA		6,702		85,541
Autogrill SpA		1,811		16,431
Banca Monte dei Paschi di Siena SpA (a)		134,036		33,416
Banco Popolare SpA (a)		36,595		49,135
Enel Green Power SpA		34,760		55,082
Enel SpA		140,380		453,267
ENI SpA		50,102		1,064,424
Exor SpA		1,084		23,304
Fiat Industrial SpA		17,855		175,747
Fiat SpA (a)		17,783		89,658
Finmeccanica SpA (a)		9,342		37,773

Common Stocks	Shares		Value
Italy (concluded)
Intesa Sanpaolo SpA		214,498	$	305,284
Intesa Sanpaolo SpA, Risparmio Shares		14,637		16,665
Luxottica Group SpA		2,360		82,407
Mediaset SpA		12,905		22,601
Mediobanca SpA		10,665		47,033
Pirelli & C SpA		4,788		50,498
Prysmian SpA		4,069		60,693
Saipem SpA		5,541		246,765
Snam SpA		32,455		145,402
Telecom Italia SpA		200,991		198,607
Telecom Italia SpA, Risparmio Shares		118,104		95,708
Tenaris SA		10,170		178,849
Terna SpA		26,165		94,549
UniCredit SpA (a)		84,252		319,450
Unione di Banche Italiane ScpA		17,756		58,013
				4,337,558
Japan — 12.8%
ABC-Mart, Inc.		500		18,708
Advantest Corp.		3,000		46,897
Aeon Co., Ltd.		12,200		152,049
Aeon Credit Service Co., Ltd.		1,500		27,824
Aeon Mall Co., Ltd.		1,800		38,355
Air Water, Inc.		3,000		36,375
Aisin Seiki Co., Ltd.		3,900		130,369
Ajinomoto Co., Inc.		14,000		194,846
Alfresa Holdings Corp.		1,000		53,122
All Nippon Airways Co., Ltd.		17,000		48,162
Amada Co., Ltd.		7,000		41,418
Aozora Bank Ltd.		14,000		33,339
Asahi Glass Co., Ltd.		21,000		141,670
Asahi Group Holdings Ltd.		8,000		171,875
Asahi Kasei Corp.		25,000		135,515
Asics Corp.		3,400		43,131
Astellas Pharma, Inc.		9,300		405,840
The Bank of Kyoto Ltd.		7,000		53,037
The Bank of Yokohama Ltd.		25,000		118,203
Benesse Holdings, Inc.		1,300		58,205
Bridgestone Corp.		13,500		310,015
Brother Industries Ltd.		4,700		53,810
Canon, Inc.		23,600		941,888
Casio Computer Co., Ltd.		5,100		33,441
Central Japan Railway Co.		31		244,152
The Chiba Bank Ltd.		16,000		96,106
Chiyoda Corp.		3,000		36,757
Chubu Electric Power Co., Inc.		13,400		217,290
Chugai Pharmaceutical Co., Ltd.		4,700		89,099
The Chugoku Bank Ltd.		4,000		52,128
The Chugoku Electric Power Co., Inc.		6,300		103,904
Citizen Holdings Co., Ltd.		5,500		32,256
Coca-Cola West Co., Ltd.		1,400		24,411
Cosmo Oil Co., Ltd.		14,000		35,634
Credit Saison Co., Ltd.		3,200		71,149
Dai Nippon Printing Co., Ltd.		11,000		86,173
The Dai-ichi Life Insurance Co., Ltd.		176		203,832
Daicel Chemical Corp.		6,000		36,910
Daido Steel Co., Ltd.		6,000		37,389
Daihatsu Motor Co., Ltd.		4,000		70,029
Daiichi Sankyo Co., Ltd.		13,900		234,380
Daikin Industries Ltd.		4,700		132,363
Dainippon Sumitomo Pharma Co., Ltd.		3,800		38,826

See Notes to Financial Statements.

24 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

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

Common Stocks	Shares		Value
Japan (continued)
Daito Trust Construction Co., Ltd.		1,500	$	142,188
Daiwa House Industry Co., Ltd.		11,000		156,034
Daiwa Securities Group, Inc.		34,000		128,137
Dena Co., Ltd.		2,100		55,275
Denki Kagaku Kogyo KK		10,000		34,957
Denso Corp.		10,000		341,710
Dentsu, Inc.		3,700		109,671
East Japan Railway Co.		7,000		439,538
Eisai Co., Ltd.		5,100		223,334
Electric Power Development Co., Ltd.		2,400		63,070
FamilyMart Co., Ltd.		1,200		54,923
FANUC Corp.		4,000		657,524
Fast Retailing Co., Ltd.		1,100		220,101
Fuji Electric Co., Ltd.		14,000		34,151
Fuji Heavy Industries Ltd.		12,000		97,225
FUJIFILM Holdings Corp.		9,900		187,567
Fujitsu Ltd.		40,000		191,429
Fukuoka Financial Group, Inc.		17,000		66,384
Furukawa Electric Co., Ltd.		15,000		35,479
Gree, Inc. (a)		2,200		43,763
GS Yuasa Corp.		7,000		32,004
The Gunma Bank Ltd.		10,000		47,314
The Hachijuni Bank Ltd.		9,000		46,783
Hakuhodo DY Holdings, Inc.		540		35,835
Hamamatsu Photonics KK		1,400		47,496
Hankyu Hanshin Holdings, Inc.		24,000		121,200
Hino Motors Ltd.		6,000		43,427
Hirose Electric Co., Ltd.		600		59,394
Hisamitsu Pharmaceutical Co., Inc.		1,300		63,979
Hitachi Chemical Co., Ltd.		2,400		37,810
Hitachi Construction Machinery Co., Ltd.		2,200		41,549
Hitachi High-Technologies Corp.		1,200		29,549
Hitachi Ltd.		95,000		585,755
Hitachi Metals Ltd.		3,000		35,802
Hokkaido Electric Power Co., Inc.		3,700		47,819
Hokuriku Electric Power Co.		3,400		52,945
Honda Motor Co., Ltd.		33,800		1,179,469
Hoya Corp.		9,100		200,473
Ibiden Co., Ltd.		2,400		43,474
Idemitsu Kosan Co., Ltd.		400		35,881
IHI Corp.		26,000		55,614
Inpex Corp.		44		247,126
Isetan Mitsukoshi Holdings Ltd.		7,100		75,433
Isuzu Motors Ltd.		24,000		128,553
ITOCHU Corp.		31,900		335,290
Itochu Techno-Solutions Corp.		500		24,132
The Iyo Bank Ltd.		6,000		47,915
J. Front Retailing Co., Ltd.		11,000		55,292
Japan Petroleum Exploration Co.		500		19,037
Japan Prime Realty Investment Corp.		14		39,407
Japan Real Estate Investment Corp.		11		100,856
Japan Retail Fund Investment Corp.		37		58,691
The Japan Steel Works Ltd.		6,000		33,127
Japan Tobacco, Inc.		18,600		551,037
JFE Holdings, Inc.		9,800		164,024
JGC Corp.		5,000		144,957
The Joyo Bank Ltd.		13,000		59,154
JS Group Corp.		5,300		111,852
JSR Corp.		3,500		60,731
JTEKT Corp.		4,400		45,556

Common Stocks	Shares		Value
Japan (continued)
Jupiter Telecommunications Co., Ltd.		44	$	44,861
JX Holdings, Inc.		46,400		239,146
Kajima Corp.		17,000		49,911
Kamigumi Co., Ltd.		6,000		47,731
Kaneka Corp.		6,000		33,183
The Kansai Electric Power Co., Inc.		15,500		185,884
Kansai Paint Co., Ltd.		4,000		42,863
Kao Corp.		10,800		297,847
Kawasaki Heavy Industries Ltd.		29,000		79,531
Kawasaki Kisen Kaisha Ltd. (a)		13,000		25,822
KDDI Corp.		56		361,251
Keikyu Corp.		10,000		90,984
Keio Corp.		12,000		86,976
Keisei Electric Railway Co., Ltd.		6,000		50,685
Keyence Corp.		1,020		252,320
Kikkoman Corp.		4,000		49,445
Kinden Corp.		3,000		19,648
Kintetsu Corp.		34,000		135,557
Kirin Holdings Co., Ltd.		18,000		212,149
Kobe Steel Ltd.		50,000		60,147
Koito Manufacturing Co., Ltd.		3,000		42,036
Komatsu Ltd.		19,500		465,491
Konami Corp.		2,000		45,318
Konica Minolta Holdings, Inc.		10,500		82,718
Kubota Corp.		22,000		203,311
Kuraray Co., Ltd.		6,800		88,124
Kurita Water Industries Ltd.		2,200		50,888
Kyocera Corp.		3,200		276,928
Kyowa Hakko Kirin Co., Ltd.		6,000		61,795
Kyushu Electric Power Co., Inc.		8,600		102,024
Lawson, Inc.		1,200		83,918
Mabuchi Motor Co., Ltd.		500		19,931
Makita Corp.		2,200		77,175
Marubeni Corp.		35,000		233,201
Marui Group Co., Ltd.		4,600		35,182
Maruichi Steel Tube Ltd.		800		17,219
Mazda Motor Corp. (a)		53,000		72,173
McDonald’s Holdings Co. Japan Ltd.		1,400		39,405
Medipal Holdings Corp.		3,200		45,328
MEIJI Holdings Co., Ltd.		1,200		55,104
Miraca Holdings, Inc.		1,100		45,670
Mitsubishi Chemical Holdings Corp.		27,500		121,228
Mitsubishi Corp.		29,200		590,257
Mitsubishi Electric Corp.		39,000		326,292
Mitsubishi Estate Co., Ltd.		27,000		484,401
Mitsubishi Gas Chemical Co., Inc.		8,000		45,480
Mitsubishi Heavy Industries Ltd.		63,000		256,105
Mitsubishi Logistics Corp.		3,000		31,721
Mitsubishi Materials Corp.		23,000		66,697
Mitsubishi Motors Corp. (a)		78,000		78,654
Mitsubishi Tanabe Pharma Corp.		4,500		64,708
Mitsubishi UFJ Financial Group, Inc.		262,200		1,256,167
Mitsubishi UFJ Lease & Finance Co., Ltd.		1,210		50,331
Mitsui & Co., Ltd.		36,100		536,440
Mitsui Chemicals, Inc.		18,000		45,075
Mitsui Fudosan Co., Ltd.		18,000		349,251
Mitsui OSK Lines Ltd.		22,000		79,307
Mizuho Financial Group, Inc.		467,200		789,214
MS&AD Insurance Group Holdings, Inc.		10,900		190,699
Murata Manufacturing Co., Ltd.		4,200		220,922

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 25

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

Common Stocks	Shares		Value
Japan (continued)
Nabtesco Corp.		2,000	$	44,608
Namco Bandai Holdings, Inc.		3,600		49,369
NEC Corp. (a)		53,000		82,467
Nexon Co., Ltd. (a)		2,300		45,026
NGK Insulators Ltd.		6,000		66,441
NGK Spark Plug Co., Ltd.		5,000		66,042
NHK Spring Co., Ltd.		3,200		34,556
Nidec Corp.		2,300		174,878
Nikon Corp.		7,000		213,085
Nintendo Co., Ltd.		2,200		256,918
Nippon Building Fund, Inc.		12		116,024
Nippon Electric Glass Co., Ltd.		8,000		47,780
Nippon Express Co., Ltd.		17,000		70,200
Nippon Meat Packers, Inc.		5,000		66,183
Nippon Paper Group, Inc.		2,200		34,926
Nippon Steel Corp.		107,000		242,694
Nippon Telegraph & Telephone Corp.		9,000		419,675
Nippon Yusen KK		33,000		87,280
The Nishi-Nippon City Bank Ltd.		17,000		41,274
Nissan Motor Co., Ltd.		51,500		489,030
Nisshin Seifun Group, Inc.		3,500		40,975
Nisshin Steel Co., Ltd.		15,000		21,054
Nissin Foods Holdings Co., Ltd.		1,100		41,830
Nitori Holdings Co., Ltd.		650		61,463
Nitto Denko Corp.		3,400		145,672
NKSJ Holdings, Inc.		7,600		161,788
NOK Corp.		2,100		44,838
Nomura Holdings, Inc.		76,700		286,746
Nomura Real Estate Holdings, Inc.		2,100		38,456
Nomura Real Estate Office Fund, Inc.		6		33,848
Nomura Research Institute Ltd.		2,000		44,011
NSK Ltd.		9,000		58,315
NTN Corp.		11,000		34,627
NTT Data Corp.		26		79,801
NTT DoCoMo, Inc.		315		524,161
NTT Urban Development Corp.		21		16,990
Obayashi Corp.		13,000		57,087
Odakyu Electric Railway Co., Ltd.		13,000		129,250
OJI Paper Co., Ltd.		16,000		61,304
Olympus Corp. (a)		4,400		71,300
Omron Corp.		4,100		86,885
Ono Pharmaceutical Co., Ltd.		1,700		106,827
Oracle Corp. Japan		700		30,130
Oriental Land Co., Ltd		1,000		114,344
ORIX Corp.		2,150		200,371
Osaka Gas Co., Ltd.		39,000		163,399
Otsuka Corp.		300		25,540
Otsuka Holdings Co., Ltd.		7,300		224,075
Panasonic Corp.		46,400		379,311
Rakuten, Inc.		14,700		151,978
Resona Holdings, Inc.		39,100		161,076
Ricoh Co., Ltd.		13,000		109,714
Rinnai Corp.		700		48,301
Rohm Co., Ltd.		2,100		80,922
Sankyo Co., Ltd.		1,000		48,799
Sanrio Co., Ltd.		1,100		40,104
Santen Pharmaceutical Co., Ltd.		1,500		61,642
SBI Holdings, Inc.		485		36,039
Secom Co., Ltd.		4,400		201,780
Sega Sammy Holdings, Inc.		4,000		81,366

Common Stocks	Shares		Value
Japan (continued)
Seiko Epson Corp.		3,000	$	30,444
Sekisui Chemical Co., Ltd.		9,000		83,617
Sekisui House Ltd.		11,000		103,862
Seven & I Holdings Co., Ltd.		15,600		470,267
Seven Bank Ltd.		10,200		26,193
Sharp Corp.		20,000		101,899
Shikoku Electric Power Co., Inc.		3,400		72,275
Shimadzu Corp.		6,000		51,918
Shimamura Co., Ltd.		500		57,778
Shimano, Inc.		1,500		98,344
Shimizu Corp.		13,000		45,102
Shin-Etsu Chemical Co., Ltd.		8,500		468,078
Shinsei Bank Ltd.		33,000		40,148
Shionogi & Co., Ltd.		6,000		81,581
Shiseido Co., Ltd.		8,200		129,393
The Shizuoka Bank Ltd.		11,000		113,181
Shoei Co., Ltd/Chiyoda-ku (a)		5,500		30,249
Showa Denko KK		28,000		54,399
Showa Shell Sekiyu KK		3,500		21,486
SMC Corp.		1,200		208,053
Softbank Corp.		18,400		684,915
Sojitz Corp.		25,400		42,026
Sony Corp.		21,100		301,714
Sony Financial Holdings, Inc.		3,400		55,494
Square Enix Holdings Co., Ltd.		1,400		22,051
Stanley Electric Co., Ltd.		2,800		43,483
Sumco Corp. (a)		2,000		18,193
Sumitomo Chemical Co., Ltd.		30,000		92,216
Sumitomo Corp.		23,200		324,610
Sumitomo Electric Industries Ltd.		16,000		199,374
Sumitomo Heavy Industries Ltd.		11,000		49,533
Sumitomo Metal Industries Ltd.		67,000		110,524
Sumitomo Metal Mining Co., Ltd.		11,000		123,960
Sumitomo Mitsui Financial Group, Inc.		27,500		908,460
Sumitomo Mitsui Trust Holdings, Inc.		64,000		191,272
Sumitomo Realty & Development Co., Ltd.		8,000		196,771
Sumitomo Rubber Industries Ltd.		3,500		45,587
Suruga Bank Ltd.		3,000		30,727
Suzuken Co., Ltd.		1,400		47,259
Suzuki Motor Corp.		7,400		151,943
Sysmex Corp.		1,400		55,367
T&D Holdings, Inc.		11,600		123,574
Taiheiyo Cement Corp.		23,000		52,813
Taisei Corp.		20,000		53,606
Taisho Pharmaceutical Holdings Co., Ltd.		700		59,197
Taiyo Nippon Sanso Corp.		6,000		35,056
Takashimaya Co., Ltd.		6,000		46,117
Takeda Pharmaceutical Co., Ltd.		16,300		740,050
TDK Corp.		2,500		101,771
Teijin Ltd.		19,000		57,839
Terumo Corp.		3,000		123,290
THK Co., Ltd.		2,400		45,372
Tobu Railway Co., Ltd.		21,000		110,405
Toho Co., Ltd.		2,400		41,520
Toho Gas Co., Ltd.		8,000		49,650
Tohoku Electric Power Co., Inc. (a)		9,100		91,435
Tokio Marine Holdings, Inc.		15,100		378,906
The Tokyo Electric Power Co., Inc. (a)		29,300		56,713
Tokyo Electron Ltd.		3,500		164,132
Tokyo Gas Co., Ltd.		50,000		255,551

See Notes to Financial Statements.

26 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

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

Common Stocks	Shares		Value
Japan (concluded)
Tokyu Corp.		24,000	$	112,975
Tokyu Land Corp.		9,000		44,674
TonenGeneral Sekiyu KK		6,000		53,350
Toppan Printing Co., Ltd.		11,000		73,478
Toray Industries, Inc.		30,000		204,566
Toshiba Corp.		85,000		323,540
Tosoh Corp.		10,000		27,272
TOTO Ltd.		6,000		44,739
Toyo Seikan Kaisha Ltd.		3,000		36,409
Toyo Suisan Kaisha Ltd.		2,000		53,334
Toyoda Gosei Co., Ltd.		1,200		27,664
Toyota Boshoku Corp.		1,400		17,014
Toyota Industries Corp.		3,300		94,614
Toyota Motor Corp.		57,200		2,308,718
Toyota Tsusho Corp.		4,300		82,197
Trend Micro, Inc.		2,100		61,867
Tsumura & Co.		1,400		37,076
Ube Industries Ltd.		20,000		46,520
Unicharm Corp.		2,300		130,919
Ushio, Inc.		1,600		19,831
USS Co. Ltd.		430		46,398
West Japan Railway Co.		3,500		143,983
Yahoo Japan Corp.		309		100,043
Yakult Honsha Co., Ltd.		1,900		74,406
Yamada Denki Co., Ltd.		1,750		89,597
Yamaguchi Financial Group, Inc.		4,000		35,277
Yamaha Corp.		3,400		34,988
Yamaha Motor Co., Ltd.		5,600		53,623
Yamato Holdings Co., Ltd.		7,500		120,763
Yamato Kogyo Co., Ltd.		800		22,279
Yamazaki Baking Co., Ltd.		2,000		26,191
Yaskawa Electric Corp.		4,000		30,475
Yokogawa Electric Corp.		4,200		43,421
				43,798,432
Malaysia — 0.7%
AirAsia Bhd		29,200		33,050
Alliance Financial Group Bhd		23,100		30,479
AMMB Holdings Bhd		32,700		65,103
Axiata Group Bhd		51,400		88,976
Berjaya Corp. Bhd		57,600		14,323
Berjaya Sports Toto Bhd		14,800		20,101
British American Tobacco (Malaysia) Bhd		2,400		42,502
Bumi Armada Bhd (a)		24,700		31,266
CIMB Group Holdings Bhd		106,400		254,977
DiGi.Com Bhd		62,600		84,072
Gamuda Bhd		31,900		35,424
Genting Bhd		44,600		133,187
Genting Malaysia Bhd		57,700		65,854
Genting Plantations Bhd		5,300		15,654
Hong Leong Bank Bhd		12,040		47,282
Hong Leong Financial Group Bhd		4,000		15,503
IJM Corp. Bhd		22,900		36,445
IOI Corp. Bhd		64,100		105,363
Kuala Lumpur Kepong Bhd		9,500		69,033
Lafarge Malayan Cement Bhd		6,700		15,464
Malayan Banking Bhd		71,200		195,830
Malaysia Airports Holdings Bhd		20,100		35,309
Malaysia Marine & Heavy Engineering Holdings Bhd		9,200		15,453
Maxis Communications Bhd		45,200		91,229

Common Stocks	Shares		Value
Malaysia (concluded)
MISC Bhd		26,600	$	38,876
MMC Corp. Bhd		17,000		14,031
Parkson Holdings Bhd		9,500		13,770
Petronas Chemicals Group Bhd		55,800		114,355
Petronas Dagangan Bhd		5,300		35,362
Petronas Gas Bhd		11,900		67,700
PPB Group Bhd		8,800		44,377
Public Bank Bhd		22,500		97,792
RHB Capital Bhd		14,300		33,490
Sapurakencana Petroleum Bhd (a)		47,300		32,770
Sime Darby Bhd		62,200		194,631
SP Setia Bhd		11,900		14,078
Telekom Malaysia Bhd		21,800		38,969
Tenaga Nasional Bhd		55,300		117,851
UEM Land Holdings Bhd (a)		23,400		15,489
UMW Holdings Bhd		11,200		32,398
YTL Corp. Bhd		101,760		65,112
YTL Power International Bhd		40,300		22,443
				2,535,373
Mexico — 1.0%
Alfa SAB de CV		5,800		92,719
America Movil SAB de CV		817,400		1,065,585
Arca Continental SAB de CV		6,672		38,782
Cemex SAB de CV (a)		222,620		149,696
Coca-Cola Femsa SAB de CV		8,800		115,089
Compartamos SAB de CV		25,800		30,404
El Puerto de Liverpool SAB de CV		3,200		26,934
Fomento Economico Mexicano SAB de CV		40,600		362,273
Grupo Aeroportuario del Pacifico SAB de CV		7,000		27,702
Grupo Bimbo SAB de CV		33,700		82,736
Grupo Carso SAB de CV		11,400		37,012
Grupo Financiero Banorte SAB de CV		38,700		200,612
Grupo Financiero Inbursa SAB de CV		39,300		89,355
Grupo Mexico SAB de CV		79,723		236,605
Grupo Modelo SAB de CV		12,700		112,303
Grupo Televisa SAB CPO		54,300		233,691
Industrias Penoles SAB de CV		2,815		121,227
Kimberly-Clark de Mexico SAB de CV		31,500		61,892
Mexichem SAB de CV		15,130		65,024
Minera Frisco SAB de CV (a)		12,300		51,783
Wal-Mart de Mexico SAB de CV		109,500		293,457
				3,494,881
Morocco — 0.0%
Attijariwafa Bank		352		13,497
Douja Promotion Groupe Addoha SA		1,712		13,158
Maroc Telecom SA		868		11,019
				37,674
Netherlands — 1.6%
Aegon NV		36,359		168,618
Akzo Nobel NV		5,030		236,735
ASML Holding NV		8,765		450,136
Corio NV		1,304		57,412
DE Master Blenders 1753 NV (a)		12,661		142,760
Delta Lloyd NV		2,329		32,388
European Aeronautic Defence and Space Co. NV		8,601		305,256
Fugro NV		1,401		84,983
Gemalto NV		1,634		117,359
Heineken Holding NV		2,051		91,866

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 27

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

Common Stocks	Shares		Value
Netherlands (concluded)
Heineken NV		4,660	$	243,003
ING Groep NV CVA (a)		80,091		536,938
Koninklijke Ahold NV		21,086		261,199
Koninklijke Boskalis Westminster NV		1,398		46,131
Koninklijke DSM NV		3,098		152,730
Koninklijke KPN NV		30,352		290,225
Koninklijke Philips Electronics NV		20,727		408,439
Koninklijke Vopak NV		1,412		90,568
QIAGEN NV (a)		5,038		84,359
Randstad Holding NV		2,407		70,975
Reed Elsevier NV		15,151		172,850
SBM Offshore NV (a)		3,486		48,310
STMicroelectronics NV		12,884		70,110
TNT Express NV		6,584		77,233
Unilever NV CVA		33,701		1,125,796
Wolters Kluwer NV		6,328		100,613
				5,466,992
New Zealand — 0.1%
Auckland International Airport Ltd.		18,230		35,754
Contact Energy Ltd. (a)		7,946		30,745
Fletcher Building Ltd.		13,180		62,384
SKYCITY Entertainment Group Ltd.		11,610		31,716
Telecom Corp. of New Zealand Ltd.		37,809		71,992
				232,591
Norway — 0.5%
Aker Solutions ASA		3,393		48,144
DnB NOR ASA		20,403		202,877
Gjensidige Forsikring ASA		3,994		46,535
Norsk Hydro ASA		19,018		85,765
Orkla ASA		15,541		112,780
Seadrill Ltd.		7,410		264,281
Statoil ASA		23,148		552,045
Subsea 7 SA		6,043		119,592
Telenor ASA		15,137		253,065
Veripos, Inc.		572		180
Yara International ASA		3,994		174,784
				1,860,048
Peru — 0.1%
Compania de Minas Buenaventura SA — ADR		4,159		157,959
Credicorp Ltd.		1,535		193,241
Southern Copper Corp.		3,980		125,410
Volcan Cia Minera SAA		28,729		32,334
				508,944
Philippines — 0.2%
Aboitiz Equity Ventures, Inc.		38,000		44,342
Aboitiz Power Corp.		39,000		31,727
Alliance Global Group, Inc.		71,500		19,740
Ayala Corp.		3,610		40,427
Ayala Land, Inc.		103,500		53,379
Bank of the Philippine Islands		16,340		29,053
BDO Unibank, Inc.		30,104		45,513
DMCI Holdings, Inc.		18,000		24,456
Energy Development Corp.		118,200		16,980
Globe Telecom, Inc.		600		15,937
International Container Terminal Services, Inc.		13,500		23,697
Jollibee Foods Corp.		13,160		32,633
Manila Electric Co.		3,560		21,501

Common Stocks	Shares		Value
Philippines (concluded)
Metropolitan Bank & Trust		8,570	$	18,915
Philippine Long Distance Telephone Co.		890		56,428
San Miguel Corp.		7,952		21,635
SM Investments Corp.		4,370		76,040
SM Prime Holdings, Inc.		139,350		43,193
Universal Robina Corp.		18,500		27,736
				643,332
Poland — 0.3%
Asseco Poland SA		1,413		20,770
Bank Handlowy w Warszawie SA (a)		705		17,133
Bank Millennium SA (a)		13,346		14,821
Bank Pekao SA		2,452		111,846
BRE Bank SA (a)		362		32,376
Cyfrowy Polsat SA (a)		3,713		16,309
Enea SA		923		4,406
Eurocash SA		991		12,235
Grupa Lotos SA (a)		1,964		16,533
Jastrzebska Spolka Weglowa SA (a)		778		23,476
Kernel Holding SA (a)		1,059		19,475
KGHM Polska Miedz SA		3,119		136,502
PGE SA		15,039		88,060
Polski Koncern Naftowy Orlen SA (a)		6,513		73,370
Polskie Gornictwo Naftowe i Gazownictwo SA		34,823		43,438
Powszechna Kasa Oszczednosci Bank Polski SA		12,896		134,380
Powszechny Zaklad Ubezpieczen SA		1,115		112,125
Synthos SA		9,354		16,755
Tauron Polska Energia SA		18,989		26,108
Telekomunikacja Polska SA		14,803		69,180
TVN SA		1,471		3,875
				993,173
Portugal — 0.1%
Banco Espirito Santo SA, Registered Shares (a)		33,546		22,936
EDP — Energias de Portugal SA		38,628		91,379
Galp Energia SGPS SA		4,687		59,421
Jeronimo Martins SGPS SA		4,440		75,066
Portugal Telecom SGPS SA, Registered Shares		12,811		56,108
				304,910
Russia — 1.2%
AK Transneft OAO, Preference Shares		32		46,680
Federal Grid Co. Unified Energy System JSC (a)		6,570,000		39,887
Federal Hydrogenerating Co. JSC		2,420,000		59,098
Gazprom OAO		221,370		1,054,894
IDGC Holding JSC (a)		375,700		20,517
Inter Rao Ues OAO (a)		41,100,000		35,674
LSR Group		3,461		14,844
Lukoil OAO		10,623		592,708
Magnit OJSC (a)		5,133		155,128
Mechel		3,335		21,511
MMC Norilsk Nickel OJSC		977		162,783
Mobile Telesystems OJSC (a)		11,154		191,849
NovaTek OAO		1,864		197,584
Novolipetsk Steel OJSC		953		15,631
Rosneft Oil Co.		26,940		170,521
Rostelecom OJSC		23,940		86,559
Sberbank of Russia		179,530		480,951
Sberbank of Russia, Preference Shares		21,500		41,681
Severstal OAO		4,210		49,444
Sistema JSFC		2,096		39,111

See Notes to Financial Statements.

28 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

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

Common Stocks	Shares		Value
Russia (concluded)
Surgutneftegas OJSC		145,600	$	120,912
Surgutneftegas OJSC, Preference Shares		140,400		81,097
Tatneft		28,620		159,839
TMK OAO		1,167		14,004
Uralkali OJSC		29,910		230,131
VTB Bank OJSC		56,760,000		100,454
				4,183,492
Singapore — 1.1%
Ascendas Real Estate Investment Trust		41,000		69,944
CapitaLand Ltd.		54,000		116,432
CapitaMall Trust		50,000		75,734
CapitaMalls Asia Ltd.		30,000		37,420
City Developments Ltd.		10,000		89,139
ComfortDelGro Corp. Ltd.		41,000		50,207
Cosco Corp. (Singapore) Ltd.		20,000		15,708
DBS Group Holdings Ltd.		38,684		427,291
Fraser and Neave Ltd.		19,000		105,797
Genting Singapore Plc		125,000		140,424
Global Logistic Properties Ltd. (a)		44,000		73,249
Golden Agri-Resources Ltd.		139,000		74,236
Hutchison Port Holdings Trust		107,000		76,485
Jardine Cycle & Carriage Ltd.		3,000		110,568
Keppel Corp. Ltd.		31,000		253,968
Keppel Land Ltd.		17,000		43,747
Neptune Orient Lines Ltd. (a)		17,000		15,003
Noble Group Ltd.		80,000		71,482
Olam International Ltd.		34,000		49,244
Oversea-Chinese Banking Corp.		55,000		384,609
SembCorp Industries Ltd.		21,000		85,955
SembCorp Marine Ltd.		17,000		64,891
Singapore Airlines Ltd.		11,000		90,706
Singapore Exchange Ltd.		18,000		90,429
Singapore Press Holdings Ltd.		4,000		12,357
Singapore Technologies Engineering Ltd.		32,000		78,889
Singapore Telecommunications Ltd.		167,000		436,511
StarHub Ltd.		13,000		35,236
United Overseas Bank Ltd.		28,000		415,787
UOL Group Ltd.		13,000		50,959
Wilmar International Ltd.		40,000		115,335
Yangzijiang Shipbuilding Holdings Ltd.		41,000		32,880
				3,790,622
South Africa — 1.6%
ABSA Group Ltd.		5,804		100,554
African Bank Investments Ltd.		15,297		68,085
African Rainbow Minerals Ltd.		2,125		43,310
Anglo American Platinum Ltd.		1,387		82,606
AngloGold Ashanti Ltd.		7,977		272,447
ArcelorMittal South Africa Ltd.		4,174		26,822
Aspen Pharmacare Holdings Ltd. (a)		5,759		88,744
Assore Ltd.		780		28,525
Aveng Ltd.		7,855		34,416
Barloworld Ltd.		4,410		43,721
Bidvest Group Ltd.		5,878		131,254
Discovery Holdings Ltd.		5,764		36,701
Exxaro Resources Ltd.		2,488		58,099
FirstRand Ltd.		64,084		207,430
The Foschini Group Ltd.		4,085		64,091
Gold Fields Ltd.		15,668		199,294
Growthpoint Properties Ltd.		32,835		92,448

Common Stocks	Shares		Value
South Africa (concluded)
Harmony Gold Mining Co. Ltd.		7,829	$	73,163
Impala Platinum Holdings Ltd.		11,375		188,887
Imperial Holdings Ltd.		3,607		76,137
Investec Ltd.		5,327		31,381
Kumba Iron Ore Ltd.		1,645		110,903
Liberty Holdings Ltd.		2,156		22,919
Life Healthcare Group Holdings Ltd.		18,851		71,893
Massmart Holdings Ltd.		2,139		44,289
MMI Holdings Ltd.		19,469		42,938
Mr Price Group Ltd.		4,767		65,356
MTN Group Ltd.		35,660		617,514
Naspers Ltd.		8,318		444,284
Nedbank Group Ltd.		4,533		96,680
Netcare Ltd.		19,113		37,434
Northam Platinum Ltd.		4,502		12,877
Pick n Pay Stores Ltd.		5,077		27,305
Pretoria Portland Cement Co. Ltd.		10,191		33,347
Redefine Properties Ltd.		55,900		58,601
Remgro Ltd.		8,699		140,175
Reunert Ltd.		3,702		30,844
RMB Holdings Ltd.		14,294		61,143
RMI Holdings		15,431		32,865
Sanlam Ltd.		35,766		157,036
Sappi Ltd. (a)		10,911		36,677
Sasol Ltd.		11,513		485,645
Shoprite Holdings Ltd.		9,384		173,247
The Spar Group Ltd.		3,434		47,841
Standard Bank Group Ltd.		25,080		339,984
Steinhoff International Holdings Ltd. (a)		23,593		71,321
Tiger Brands Ltd.		3,256		97,804
Truworths International Ltd.		8,701		95,472
Vodacom Group Ltd.		7,776		88,568
Woolworths Holdings Ltd.		15,101		93,022
				5,586,099
South Korea — 3.2%
Amorepacific Corp.		68		63,209
BS Financial Group, Inc.		3,510		39,241
Celltrion, Inc.		2,210		59,083
Cheil Industries, Inc.		954		84,175
CJ CheilJedang Corp.		170		48,560
CJ Corp.		313		21,987
Daelim Industrial Co. Ltd.		594		47,479
Daewoo Engineering & Construction Co. Ltd. (a)		2,620		20,266
Daewoo International Corp.		760		22,082
Daewoo Securities Co. Ltd.		3,770		35,079
Daewoo Shipbuilding & Marine Engineering Co. Ltd.		2,040		47,478
DGB Financial Group, Inc.		3,100		37,907
Dongbu Insurance Co. Ltd.		620		22,890
Dongkuk Steel Mill Co. Ltd.		960		13,033
Doosan Corp.		172		19,664
Doosan Heavy Industries & Construction Co. Ltd.		1,027		52,173
Doosan Infracore Co. Ltd. (a)		2,230		36,332
E-Mart Co. Ltd.		440		96,578
GS Engineering & Construction Corp.		762		51,514
GS Holdings		1,089		50,244
Hana Financial Group, Inc.		4,740		151,529
Hankook Tire Co. Ltd.		1,920		76,568
Hanwha Chem Corp.		1,830		34,308
Hanwha Corp.		1,200		29,833
Honam Petrochemical Corp.		301		63,266

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 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)
Hynix Semiconductor, Inc. (a)		10,740	$	226,786
Hyosung Corp.		594		28,714
Hyundai Department Store Co. Ltd.		327		40,873
Hyundai Development Co.		1,060		22,674
Hyundai Engineering & Construction Co. Ltd.		1,407		80,908
Hyundai Glovis Co. Ltd.		282		53,960
Hyundai Heavy Industries Co. Ltd.		860		196,234
Hyundai Hysco Co. Ltd.		600		21,631
Hyundai Marine & Fire Insurance Co. Ltd.		910		23,710
Hyundai Merchant Marine Co. Ltd. (a)		860		18,952
Hyundai Mipo Dockyard		217		22,698
Hyundai Mobis		1,401		339,597
Hyundai Motor Co.		3,174		651,604
Hyundai Motor Co., Preference Shares		517		30,250
Hyundai Motor Co., Second Preference Shares		769		50,527
Hyundai Securities Co. Ltd.		2,820		21,177
Hyundai Steel Co.		1,168		86,951
Hyundai Wia Corp.		326		48,700
Industrial Bank of Korea		3,800		42,822
Kangwon Land, Inc.		2,130		45,500
KB Financial Group, Inc.		7,737		252,744
KCC Corp.		87		21,327
Kia Motors Corp.		5,376		354,330
Korea Aerospace Industries Ltd.		810		20,969
Korea Electric Power Corp. (a)		5,460		123,017
Korea Exchange Bank (a)		4,640		33,247
Korea Gas Corp.		440		15,665
Korea Investment Holdings Co. Ltd.		940		31,511
Korea Life Insurance Co. Ltd.		3,190		17,988
Korea Zinc Co. Ltd.		181		61,573
Korean Air Lines Co. Ltd. (a)		810		35,935
KP Chemical Corp.		1,170		13,784
KT Corp.		800		21,236
KT&G Corp.		2,219		157,317
Kumho Petro Chemical Co. LTD.		321		34,189
LG Chem Ltd.		953		246,708
LG Chem Ltd., Preference Shares		179		13,991
LG Corp.		1,974		95,882
LG Display Co. Ltd. (a)		4,860		91,754
LG Electronics, Inc.		2,195		118,272
LG Household & Health Care Ltd.		192		103,588
LG Innotek Co. Ltd. (a)		213		16,816
LG Uplus Corp.		6,320		30,790
Lotte Confectionery Co. Ltd.		16		21,873
Lotte Shopping Co. Ltd.		217		59,329
LS Corp.		424		32,039
LS Industrial Systems Co. Ltd.		305		17,423
Mando Corp.		280		41,795
Mirae Asset Securities Co. Ltd.		530		14,531
NCSoft Corp.		320		76,768
NHN Corp.		848		185,995
OCI Co. Ltd.		325		65,042
Orion Corp.		77		63,786
POSCO		1,338		428,363
S-Oil Corp.		942		75,962
S1 Corp.		324		16,316
Samsung C&T Corp.		2,549		147,220
Samsung Card Co.		1,190		33,399
Samsung Electro-Mechanics Co. Ltd.		1,236		115,795
Samsung Electronics Co. Ltd.		2,292		2,427,197

Common Stocks	Shares		Value
South Korea (concluded)
Samsung Electronics Co. Ltd., Preference Shares		421	$	277,924
Samsung Engineering Co. Ltd.		628		99,644
Samsung Fire & Marine Insurance Co. Ltd.		716		142,084
Samsung Heavy Industries Co. Ltd.		3,350		110,938
Samsung Life Insurance Co. Ltd.		1,137		92,912
Samsung SDI Co. Ltd.		708		94,821
Samsung Securities Co. Ltd.		1,326		57,441
Samsung Techwin Co. Ltd.		803		54,698
Shinhan Financial Group Co. Ltd.		8,786		308,016
Shinsegae Co. Ltd.		171		31,513
SK C&C Co. Ltd.		489		45,780
SK Holdings Co. Ltd.		553		64,961
SK Innovation Co. Ltd.		1,231		150,807
SK Networks Co. Ltd.		2,710		20,716
SK Telecom Co. Ltd.		176		19,260
STX Pan Ocean Co. Ltd.		3,380		13,430
Woongjin Coway Co. Ltd.		1,210		37,781
Woori Finance Holdings Co. Ltd.		7,880		86,863
Woori Investment & Securities Co. Ltd.		2,770		27,171
Yuhan Corp.		183		21,396
				10,772,368
Spain — 1.6%
Abertis Infraestructuras SA		7,582		102,452
Acciona SA		369		22,058
Acerinox SA		1,638		18,357
ACS Actividades de Construccion y Servicios SA		2,842		60,877
Amadeus IT Holding SA, Class A		6,835		144,808
Banco Bilbao Vizcaya Argentaria SA		98,288		701,909
Banco de Sabadell SA		44,000		85,450
Banco Popular Espanol SA		22,678		51,296
Banco Santander SA		193,892		1,282,645
Bankia SA (a)		18,610		21,776
CaixaBank		16,681		54,310
Distribuidora Internacional de Alimentacion SA (a)		1,012		4,758
Enagas SA		3,584		65,394
Ferrovial SA		8,015		90,390
Gas Natural SDG SA		7,229		92,818
Grifols SA (a)		3,023		76,585
Iberdrola SA		81,657		385,520
Inditex SA		4,516		466,797
International Consolidated Airlines Group SA (a)		17,999		45,159
Mapfre SA		15,782		32,106
Red Electrica Corp. SA		2,177		95,016
Repsol YPF SA		16,302		262,056
Telefonica SA		85,431		1,124,566
Zardoya Otis SA		3,026		33,640
				5,320,743
Sweden — 1.8%
Alfa Laval AB		6,691		114,649
Assa Abloy AB, Class B		6,919		193,220
Atlas Copco AB, Class A		15,824		340,545
Atlas Copco AB, Class B		6,062		115,512
Boliden AB		6,087		84,937
Electrolux AB, Class B		4,850		96,517
Elekta AB		1,843		84,217
Getinge AB, Class B		4,034		100,102
Hennes & Mauritz AB, Class B		19,656		705,531
Hexagon AB, Class B		4,818		82,700
Holmen AB, Class B		1,116		30,386

See Notes to Financial Statements.

30 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

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

Common Stocks	Shares		Value
Sweden (concluded)
Husqvarna AB, Class B		8,290	$	39,100
Industrivarden AB, Class C		2,661		34,284
Investment AB Kinnevik, Class B		4,127		82,838
Investor AB, Class B		9,169		175,065
Lundin Petroleum AB (a)		4,497		84,185
Millicom International Cellular SA		1,266		119,480
Modern Times Group AB, Class B		956		44,249
Nordea Bank AB		53,724		462,990
Ratos AB, Class B		3,897		37,004
Sandvik AB		21,151		271,255
Scania AB, Class B		6,406		109,781
Securitas AB, Class B		6,299		48,979
Skandinaviska Enskilda Banken AB, Class A		28,768		186,833
Skanska AB, Class B		8,028		123,025
SKF AB, Class B		8,303		163,669
SSAB AB, Class A		2,688		22,342
Svenska Cellulosa AB		12,301		184,557
Svenska Handelsbanken AB, Class A		9,882		324,878
Swedbank AB, Class A		16,886		266,021
Swedish Match AB		4,548		183,310
Tele2 AB, Class B		6,375		98,777
Telefonaktiebolaget LM Ericsson, Class B		62,593		572,709
TeliaSonera AB		44,602		284,950
Volvo AB, Class B		29,143		333,206
				6,201,803
Switzerland — 5.1%
ABB Ltd., Registered Shares (a)		45,812		748,027
Actelion Ltd., Registered Shares (a)		2,256		92,794
Adecco SA, Registered Shares (a)		2,882		128,162
Aryzta AG (a)		1,955		97,309
Baloise Holding AG, Registered Shares		985		65,075
Banque Cantonale Vaudoise		54		28,618
Barry Callebaut AG (a)		39		35,480
Cie Financiere Richemont SA, Bearer A Shares		10,904		598,736
Credit Suisse Group AG		24,283		444,307
GAM Holding AG (a)		3,750		41,866
Geberit AG, Registered Shares (a)		818		161,373
Givaudan SA, Registered Shares (a)		182		178,627
Glencore International Plc		28,683		133,009
Holcim Ltd., Registered Shares (a)		4,829		267,553
Julius Baer Group Ltd. (a)		4,418		160,182
Kuehne & Nagel International AG, Registered Shares		1,112		117,809
Lindt & Spruengli AG, Registered Shares (a)		18		55,629
Lindt & Spruengli AG (a)		2		73,448
Lonza Group AG, Registered Shares (a)		1,100		45,766
Nestle SA, Registered Shares		68,358		4,079,460
Novartis AG, Registered Shares		47,638		2,663,503
Pargesa Holding SA		576		34,292
Partners Group Holding AG		269		47,842
Roche Holding AG		14,564		2,515,682
Schindler Holding AG, Registered Shares		456		51,424
Schindler Holding AG Participation Certificates		996		111,360
SGS SA, Registered Shares		116		217,497
Sika AG, Registered Shares		43		83,034
Sonova Holding AG, Registered Shares (a)		990		95,757
Straumann Holding AG, Registered Shares		181		26,622
Sulzer AG		481		57,028
Swatch Group AG, Bearer Shares		670		264,812
Swatch Group AG, Registered Shares		771		53,640

Common Stocks	Shares		Value
Switzerland (concluded)
Swiss Life Holding AG, Registered Shares (a)		628	$	59,191
Swiss Prime Site AG (a)		1,010		84,245
Swiss Re AG (a)		7,337		462,537
Swisscom AG		486		195,800
Syngenta AG, Registered Shares		1,967		673,353
Transocean Ltd.		7,213		323,457
UBS AG, Registered Shares (a)		75,872		887,867
Wolseley Plc		6,051		225,537
Zurich Insurance Group AG (a)		3,031		685,382
				17,373,092
Taiwan — 2.3%
Acer, Inc.		49,000		51,137
Advanced Semiconductor Engineering, Inc.		107,574		88,306
Advantech Co. Ltd.		5,000		16,628
Asia Cement Corp.		38,080		48,204
Asustek Computer, Inc.		13,220		121,514
AU Optronics Corp.		153,000		62,178
Capital Securities Corp.		44,000		14,820
Catcher Technology Co. Ltd.		11,000		74,245
Cathay Financial Holding Co. Ltd. (a)		135,140		134,104
Chang Hwa Commercial Bank		83,540		44,528
Cheng Shin Rubber Industry Co. Ltd.		32,400		82,031
Cheng Uei Precision Industry Co. Ltd.		8,000		15,972
Chicony Electronics Co. Ltd.		9,000		16,708
Chimei Innolux Corp. (a)		104,000		43,352
China Airlines Ltd.		45,687		20,676
China Development Financial Holding Corp.		265,765		63,410
China Life Insurance Co. Ltd.		37,380		35,372
China Motor Corp.		5,000		4,577
China Petrochemical Development Corp.		28,500		24,127
China Steel Corp.		244,550		230,191
Chinatrust Financial Holding Co. Ltd.		208,803		120,532
Chunghwa Telecom Co. Ltd.		81,000		254,903
Clevo Co.		10,000		14,519
Compal Electronics, Inc.		83,000		76,858
CTCI Corp.		14,000		26,212
Delta Electronics, Inc.		38,000		116,645
E Ink Holdings, Inc.		18,000		19,956
E.Sun Financial Holding Co. Ltd.		76,180		39,441
Epistar Corp.		17,000		37,787
Eternal Chemical Co. Ltd.		7,000		5,277
Eva Airways Corp.		38,000		23,322
Evergreen Marine Corp. Taiwan Ltd.		28,000		15,233
Everlight Electronics Co. Ltd.		9,000		15,472
Far Eastern Department Stores Co. Ltd.		18,180		17,150
Far Eastern New Century Corp.		59,090		62,842
Far EasTone Telecommunications Co. Ltd.		32,000		69,621
Farglory Land Development Co. Ltd.		9,000		16,022
Feng Hsin Iron & Steel Co.		9,000		15,153
First Financial Holding Co. Ltd.		124,915		73,362
Formosa Chemicals & Fibre Corp.		63,000		166,927
Formosa International Hotels Corp.		1,000		10,709
Formosa Petrochemical Corp.		23,000		62,647
Formosa Plastics Corp.		85,000		229,069
Formosa Taffeta Co. Ltd.		17,000		15,369
Foxconn Technology Co. Ltd.		14,050		51,155
Fubon Financial Holding Co. Ltd.		109,249		110,566
Giant Manufacturing Co. Ltd.		5,000		23,158
Highwealth Construction Corp.		10,000		15,748

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 31

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

Common Stocks	Shares		Value
Taiwan (continued)
Hiwin Technologies Corp.		3,000	$	30,808
Hon Hai Precision Industry Co. Ltd.		189,000		571,450
Hotai Motor Co. Ltd.		6,000		39,122
HTC Corp.		16,050		211,909
Hua Nan Financial Holdings Co. Ltd.		102,372		56,924
Inotera Memories, Inc. (a)		57,000		13,354
Inventec Corp.		42,000		13,682
Kinsus Interconnect Technology Corp.		6,000		16,558
Largan Precision Co. Ltd.		2,000		41,820
LCY Chemical Corp.		10,000		16,129
Lite-On Technology Corp.		41,020		51,668
Macronix International		54,000		17,135
MediaTek, Inc.		21,000		193,959
Mega Financial Holding Co. Ltd.		160,160		118,821
Motech Industries, Inc.		3,000		4,166
MStar Semiconductor, Inc.		8,100		54,638
Nan Kang Rubber Tire Co. Ltd.		12,000		16,830
Nan Ya Plastics Corp.		95,000		171,193
Nan Ya Printed Circuit Board Corp.		6,000		10,211
Novatek Microelectronics Corp.		9,000		27,884
Pegatron Corp.		32,000		42,218
Phison Electronics Corp.		3,000		24,346
Pou Chen Corp.		44,000		37,722
Powertech Technology, Inc.		13,100		25,587
President Chain Store Corp.		11,000		58,691
Quanta Computer, Inc.		54,000		145,013
Radiant Opto-Electronics Corp. (a)		10,000		50,822
Realtek Semiconductor Corp.		9,000		16,506
Richtek Technology Corp.		3,000		17,800
Ruentex Development Co. Ltd.		11,000		17,012
Ruentex Industries Ltd.		10,000		16,688
Shin Kong Financial Holding Co. Ltd. (a)		124,000		36,068
Siliconware Precision Industries Co.		59,000		62,030
Simplo Technology Co. Ltd.		6,000		41,438
Sino-American Silicon Products, Inc.		9,000		14,156
SinoPac Financial Holdings Co. Ltd.		122,516		46,444
Standard Foods Corp.		6,000		17,373
Synnex Technology International Corp.		25,000		61,180
Taishin Financial Holding Co. Ltd.		107,630		41,643
Taiwan Business Bank (a)		52,000		15,123
Taiwan Cement Corp.		63,000		75,345
Taiwan Cooperative Financial Holding (a)		83,360		49,588
Taiwan Fertilizer Co. Ltd.		17,000		39,280
Taiwan Glass Industry Corp.		16,000		13,565
Taiwan Mobile Co. Ltd.		33,800		111,776
Taiwan Semiconductor Manufacturing Co. Ltd. (a)		515,000		1,409,795
Teco Electric & Machinery Co. Ltd.		31,000		20,197
TPK Holding Co. Ltd.		3,887		49,431
Transcend Information, Inc.		2,000		5,578
Tripod Technology Corp.		8,000		22,740
TSRC Corp.		8,000		19,827
Tung Ho Steel Enterprise Corp.		16,000		15,656
U-Ming Marine Transport Corp.		10,000		15,995
Uni-President Enterprises Corp.		78,240		126,132
Unimicron Technology Corp.		23,000		26,326
United Microelectronics Corp.		278,000		121,029
Walsin Lihwa Corp.		51,000		14,253
Wan Hai Lines Ltd.		31,000		15,323
Wintek Corp.		28,399		15,729
Wistron Corp.		40,149		49,561

Common Stocks	Shares		Value
Taiwan (concluded)
WPG Holdings Ltd.		30,270	$	35,652
Yang Ming Marine Transport Corp.		33,000		14,895
Yuanta Financial Holding Co. Ltd. (a)		161,733		74,105
Yulon Motor Co. Ltd.		15,000		26,641
Zhen Ding Technology Holding Ltd. (a)		4,000		12,528
				7,744,803
Thailand — 0.4%
Advanced Info Service PCL		20,400		119,364
Bangkok Bank PCL Foreign Registered		17,900		117,709
Bangkok Bank PCL — NVDR		11,900		72,399
Bank of Ayudhya PCL		40,200		37,661
Banpu PCL		2,400		34,113
Charoen Pokphand Foods PCL		61,200		74,802
CP ALL PCL		90,700		102,080
Indorama Ventures PCL		34,700		30,411
IRPC PCL		245,000		27,864
Kasikornbank PCL Foreign Registered		25,000		131,190
Kasikornbank PCL — NVDR		15,000		77,345
Krung Thai Bank PCL		65,500		33,511
PTT Exploration & Production PCL		23,900		127,388
PTT Global Chemical PCL		5,600		9,869
PTT Global Chemical PCL		33,068		58,279
PTT PCL		18,100		185,411
Siam Cement PCL		7,900		90,636
Siam Commercial Bank PCL		34,300		160,515
Thai Oil PCL		18,500		33,849
				1,524,396
Turkey — 0.3%
Akbank TAS		36,636		134,316
Anadolu Efes Biracilik Ve Malt Sanayii AS		3,880		49,684
Arcelik AS		5,894		29,827
Asya Katilim Bankasi AS (a)		15,805		15,843
BIM Birlesik Magazalar AS		2,105		86,897
Coca-Cola Icecek AS		1,137		17,642
Emlak Konut Gayrimenkul Yatirim Ortakligi AS		11,843		14,571
Enka Insaat ve Sanayi AS		6,617		17,781
Eregli Demir ve Celik Fabrikalari TAS		17,126		19,095
Ford Otomotiv Sanayi AS		1,680		15,250
Haci Omer Sabanci Holding AS		16,203		68,226
KOC Holding AS		12,465		47,728
Koza Altin Isletmeleri AS		816		15,775
TAV Havalimanlari Holding AS		3,097		16,684
Tupras Turkiye Petrol Rafinerileri AS		2,472		53,025
Turk Hava Yollari (a)		10,553		18,608
Turk Telekomunikasyon AS		10,253		41,959
Turkcell Iletisim Hizmetleri AS (a)		15,137		76,763
Turkiye Garanti Bankasi AS		47,028		185,126
Turkiye Halk Bankasi AS		6,394		50,164
Turkiye Is Bankasi		32,065		85,370
Turkiye Sise ve Cam Fabrikalari AS		9,388		15,397
Turkiye Vakiflar Bankasi Tao		17,759		37,028
Yapi ve Kredi Bankasi AS (a)		20,230		41,617
				1,154,376
United Kingdom — 13.6%
3i Group Plc		20,276		62,696
Aberdeen Asset Management Plc		17,571		71,567
Admiral Group Plc		4,104		76,557
Aggreko Plc		5,502		178,929

See Notes to Financial Statements.

32 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

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

Common Stocks	Shares		Value
United Kingdom (continued)
AMEC Plc		6,743	$	106,300
Anglo American Plc		27,601		907,116
Antofagasta Plc		8,216		140,542
ARM Holdings Plc		28,885		228,845
Associated British Foods Plc		7,549		151,896
AstraZeneca Plc		26,483		1,183,463
Aviva Plc		61,131		261,760
Babcock International Group Plc		7,294		97,691
BAE Systems Plc		67,769		307,240
Balfour Beatty Plc		13,925		65,111
Barclays Plc		241,056		615,958
BG Group Plc		70,492		1,443,075
BHP Billiton Plc		43,876		1,247,063
BP Plc		393,231		2,626,075
British American Tobacco Plc		40,856		2,077,119
British Land Co. Plc		17,360		139,010
British Sky Broadcasting Group Plc		23,634		257,655
BT Group Plc		162,045		536,941
Bunzl Plc		6,674		109,085
Burberry Group Plc		9,087		189,199
The Capita Group Plc		14,041		144,280
Capital Shopping Centres Group Plc		11,817		59,698
Carnival Plc		3,692		126,231
Centrica Plc		108,139		540,691
Cobham Plc		21,814		79,471
Compass Group Plc		39,549		415,147
Croda International Plc		2,743		97,459
Diageo Plc		52,030		1,341,073
Eurasian Natural Resources Corp. Plc		5,385		35,146
Evraz Plc		7,013		28,761
Experian Plc		21,123		298,006
Fresnillo Plc		3,660		83,836
G4S Plc		30,310		132,470
GKN Plc		31,623		89,657
GlaxoSmithKline Plc		104,713		2,378,455
Hammerson Plc		14,618		101,524
HSBC Holdings Plc		372,500		3,282,410
ICAP Plc		11,243		59,512
IMI Plc		6,517		85,139
Imperial Tobacco Group Plc		20,816		802,004
Inmarsat Plc		9,148		70,597
Intercontinental Hotels Group Plc		6,264		150,803
International Power Plc		32,735		214,300
Intertek Group Plc		3,368		141,105
Invensys Plc		16,479		57,433
Investec Plc		11,330		66,141
ITV Plc		81,960		98,622
J Sainsbury Plc		24,816		117,284
Johnson Matthey Plc		4,607		159,770
Kazakhmys Plc		4,368		49,524
Kingfisher Plc		48,970		220,905
Land Securities Group Plc		16,394		189,940
Legal & General Group Plc		123,117		246,144
Lloyds Banking Group Plc (a)		864,446		422,290
London Stock Exchange Group Plc		3,648		57,590
Lonmin Plc		3,350		40,751
Man Group Plc		37,292		44,622
Marks & Spencer Group Plc		34,905		178,003
Meggitt Plc		15,712		95,074

Common Stocks	Shares		Value
United Kingdom (concluded)
National Grid Plc		74,021	$	784,477
Next Plc		3,641		182,822
Old Mutual Plc		100,850		239,847
Pearson Plc		17,396		345,167
Petrofac Ltd.		5,267		114,964
Prudential Plc		53,033		614,919
Randgold Resources Ltd.		1,875		168,342
Reckitt Benckiser Group Plc		13,726		725,515
Reed Elsevier Plc		26,315		210,919
Resolution Ltd.		27,902		85,831
Rexam Plc		17,920		118,271
Rio Tinto Plc		27,990		1,330,187
Rolls-Royce Holdings Plc (a)		39,082		526,738
Royal Bank of Scotland Group Plc (a)		42,956		145,506
Royal Dutch Shell Plc, Class A		75,621		2,547,895
Royal Dutch Shell Plc, Class B		55,378		1,934,006
RSA Insurance Group Plc		71,943		122,130
SABMiller Plc		19,906		798,653
The Sage Group Plc		28,792		125,311
Schroders Plc		2,334		48,923
Segro Plc		15,612		53,190
Serco Group Plc		10,087		84,711
Severn Trent Plc		5,187		134,463
Shire Plc		11,990		344,951
Smith & Nephew Plc		19,798		198,029
Smiths Group Plc		7,930		125,939
SSE Plc		19,453		424,377
Standard Chartered Plc		49,446		1,074,114
Standard Life Plc		48,040		175,895
Tate & Lyle Plc		9,501		96,491
Tesco Plc		166,758		810,414
TUI Travel Plc		8,724		23,193
Tullow Oil Plc		18,830		435,210
Unilever Plc		26,702		896,486
United Utilities Group Plc		14,129		149,671
Vedanta Resources Plc		2,240		32,107
Vodafone Group Plc		1,032,526		2,902,178
The Weir Group Plc		4,285		102,967
Whitbread Plc		3,618		115,035
WM Morrison Supermarkets Plc		50,521		210,813
WPP Plc		27,025		328,077
Xstrata Plc		43,247		543,762
				46,315,257
Total Common Stocks — 85.1%				290,310,807
Investment Companies
India — 1.3%
iShares S&P India Nifty 50 Index Fund (b)		206,093		4,509,315
Total Investment Companies — 1.3%				4,509,315
Rights
Canada — 0.0%
Ivanhoe Mines Ltd. (Expires 7/19/12) (a)		5,826		5,265

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 33

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

Rights	Shares		Value
Chile — 0.0%
Cencosud SA (Expires 7/21/12) (a)		1,972	$	645
Spain — 0.0%
Zardoya Otis SA (Expires 7/05/12) (a)		3,026		1,635
Total Rights — 0.0%				7,545
Total Long-Term Investments (Cost — $288,822,775) — 86.4%				294,827,667
Short-Term Securities
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.25% (b)(c)		6,737,291		6,737,291
Total Short-Term Securities (Cost — $6,737,291) — 2.0%				6,737,291
Total Investments (Cost — $295,560,066*) — 88.4%				301,564,958
Other Assets in Excess of Liabilities — 11.6%				39,483,606
Net Assets — 100.0%			$	341,048,564

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Tax cost	$	295,560,090
Gross unrealized appreciation	$	11,449,220
Gross unrealized depreciation		(5,444,352	)
Net unrealized appreciation	$	6,004,868

(a) Non-income producing security.

(b) Investment 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, 2011		Shares Purchased			Shares Sold			Shares Held at June 30, 2012		Value at June 30, 2012		Realized Loss			Income
BlackRock Cash Funds: Institutional, SL Agency Shares		3,240,217		3,497,074	1		—			6,737,291	$	6,737,291		—		$	5,903
iShares S&P India Nifty 50 Index Fund		31,280		193,982			(19,169	)		206,093	$	4,509,315	$	(106,699	)	$	20,808

¹  Represents net shares purchased.

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

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 industry sub-classifications for reporting ease.

Ÿ Financial futures contracts purchased as of June 30, 2012 were as follows:

Contracts	Issue	Exchange	Expiration	Notional Value		Unrealized Appreciation
67	E-mini MSCI EAFE Index	NYSE Liffe U.S.	September 2012	$	4,769,730	$	215,406
32	MSCI Emerging Markets Mini Index	NYSE Liffe U.S.	September 2012	$	1,511,520	$	65,839
						$	281,245

Ÿ Foreign currency exchange contracts as of June 30, 2012 were as follows:

Currency Purchased		Currency Sold			Counterparty	Settlement Date		Unrealized Appreciation (Depreciation)
USD	541,405		AUD	528,274	Credit Suisse Group AG		7/05/12	$	717
USD	258,194		BRL	520,777	WestPac Banking Corp.		7/05/12		(1,093	)
USD	773,633		CAD	788,713	Credit Suisse Group AG		7/05/12		(1,058	)
USD	567,918		CHF	537,512	HSBC Holdings Plc		7/05/12		1,610
USD	58,591		DKK	343,222	Credit Suisse Group AG		7/05/12		170
USD	1,503,675		EUR	1,184,854	HSBC Holdings Plc		7/05/12		4,243
USD	1,347,583		GBP	860,442	HSBC Holdings Plc		7/05/12		1,974
USD	537,862		HKD	4,172,116	Westpac Banking Corp.		7/05/12		76
USD	1,299,072		JPY	103,649,486	Westpac Banking Corp.		7/05/12		2,400
USD	343,726		KRW	393,635,409	State Street Bank & Trust		7/03/12		45
USD	139,226		MXN	1,869,507	Credit Suisse Group AG		7/05/12		(920	)
USD	19,675		MYR	62,563	State Street Bank & Trust		7/05/12		(27	)
USD	61,159		NOK	363,579	Credit Suisse Group AG		7/05/12		39
USD	14,394		PLN	48,048	UBS AG		7/05/12		(28	)
USD	219,582		SEK	1,515,765	Credit Suisse Group AG		7/05/12		460
USD	38,837		SGD	49,198	Westpac Banking Corp.		7/05/12		(1	)
USD	101,231		ZAR	828,307	UBS AG		7/06/12		(92	)
Total								$	8,515

See Notes to Financial Statements.

34 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

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

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques 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 into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. 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 is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments and derivative financial instruments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Long-Term Investments:
Common Stocks:
Australia		—	$	17,485,896		—	$	17,485,896
Austria		—		571,023		—		571,023
Belgium	$	22,037		2,230,933		—		2,252,970
Brazil		9,169,966		—	$	40,778		9,210,744
Canada		23,752,661		—		—		23,752,661
Chile		1,383,778		—		—		1,383,778
China		—		12,073,976		—		12,073,976
Colombia		921,756		—		—		921,756
Czech Republic		194,279		54,254		—		248,533
Denmark		—		2,294,786		—		2,294,786
Egypt		45,220		187,431		—		232,651
Finland		—		1,424,447		—		1,424,447
France		—		17,811,228		—		17,811,228
Germany		—		15,879,958		—		15,879,958
Greece		71,612		35,489		—		107,101
Hong Kong		—		6,587,714		—		6,587,714
Hungary		—		193,084		—		193,084
Indonesia		—		1,875,706		—		1,875,706
Ireland		53,294		586,781		—		640,075
Israel		—		1,181,761		—		1,181,761
Italy		—		4,337,558		—		4,337,558
Japan		44,861		43,753,571		—		43,798,432
Malaysia		32,770		2,502,603		—		2,535,373
Mexico		3,494,881		—		—		3,494,881
Morocco		13,497		24,177		—		37,674

	Level 1		Level 2		Level 3		Total
Netherlands	$	142,760	$	5,324,232		—	$	5,466,992
New Zealand		—		232,591		—		232,591
Norway		—		1,859,868	$	180		1,860,048
Peru		508,944		—		—		508,944
Philippines		—		643,332		—		643,332
Poland		69,180		923,993		—		993,173
Portugal		—		304,910		—		304,910
Russia		478,903		3,704,589		—		4,183,492
Singapore		—		3,790,622		—		3,790,622
South Africa		91,948		5,494,151		—		5,586,099
South Korea		220,526		10,551,842		—		10,772,368
Spain		4,836		5,315,907		—		5,320,743
Sweden		—		6,201,803		—		6,201,803
Switzerland		—		17,373,092		—		17,373,092
Taiwan		12,528		7,732,275		—		7,744,803
Thailand		—		1,524,396		—		1,524,396
Turkey		—		1,154,376		—		1,154,376
United Kingdom		214,300		46,100,957		—		46,315,257
Investment Companies:
India		4,509,315		—		—		4,509,315
Rights:
Canada		5,265		—		—		5,265
Chile		645		—		—		645
Spain		1,635		—		—		1,635
Short-Term Securities:		6,737,291		—		—		6,737,291
Total	$	52,198,688	$	249,325,312	$	40,958	$	301,564,958

	Level 1		Level 2			Level 3		Total
Derivative Financial Instruments1
Assets:
Equity contracts	$	281,245		—			—	$	281,245
Foreign currency transactions		—	$	11,734			—		11,734
Liabilities:
Foreign currency transactions		—		(3,219	)		—		(3,219	)
Total	$	281,245	$	8,515			—	$	289,760

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

Certain of the Master Portfolio’s assets are held at carrying amount which approximates fair value for financial statement purposes. As of June 30, 2012, such assets are categorized within the disclosure hierarchy as follows:

	Level 1		Level 2		Level 3		Total
Assets:
Cash pledged as collateral for financial futures contracts	$	541,000		—		—	$	541,000
Foreign currency at value		894,710		—		—		894,710
Total	$	1,435,710		—		—	$	1,435,710

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 35

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

June 30, 2012 (Unaudited)
Assets
Investments at value — unaffiliated (cost — $284,548,225)	$	290,318,352
Investments at value — affiliated (cost — $11,011,841)		11,246,606
Foreign currency at value (cost — $882,998)		894,710
Investments sold receivable		9,092,351
Contributions receivable from investors		41,956,574
Dividends receivable		789,821
Cash pledged as collateral for financial futures contracts		541,000
Variation margin receivable		328,202
Unrealized appreciation on foreign currency exchange contracts		11,734
Interest receivable		1,712
Prepaid expenses		80
Total assets	$	355,181,142
Liabilities
Withdrawals payable to investors		13,720,857
Investments purchased payable		228,647
Foreign taxes payable		86,230
Professional fees payable		47,180
Investment advisory fees payable		31,166
Custodian fees payable		4,374
Printing fees payable		1,527
Trustees’ fees payable		599
Unrealized depreciation on foreign currency exchange contracts		3,219
Other accrued expenses payable		8,779
Total liabilities		14,132,578
Net Assets	$	341,048,564
Net Assets Consist of
Investors’ capital	$	334,751,019
Net unrealized appreciation/depreciation		6,297,545
Net Assets	$	341,048,564

See Notes to Financial Statements.
36	BLACKROCK ACWI ex-US INDEX FUND	JUNE 30, 2012

Statement of Operations ACWI ex-US Index Master Portfolio

Six Months Ended June 30, 2012 (Unaudited)
Investment Income
Dividends — unaffiliated	$	2,626,602
Foreign taxes withheld		(373,902	)
Dividends — affiliated		20,808
Income — affiliated		5,903
Interest — unaffiliated		106
Total income		2,279,517
Expenses
Investment advisory		84,192
Professional		32,024
Printing		528
Trustees		1,579
Custodian		167,913
Miscellaneous		3,672
Total expenses		289,908
Less fees waived and/or reimbursed by advisor		(103,675	)
Total expenses after fees waived		186,233
Net investment income		2,093,284
Realized and Unrealized Gain (Loss)
Net realized loss from:
Investments — unaffiliated		(2,068,062	)
Investments — affiliated		(106,699	)
Financial futures contracts		(173,418	)
Foreign currency transactions		(31,994	)
		(2,380,173	)
Net change in unrealized appreciation/depreciation on:
Investments		9,085,486
Financial futures contracts		262,049
Foreign currency transactions		11,558
		9,359,093
Total realized and unrealized gain		6,978,920
Net Increase in Net Assets Resulting from Operations	$	9,072,204

See Notes to Financial Statements.
	BLACKROCK ACWI ex-US INDEX FUND	JUNE 30, 2012	37

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

Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Period June 30, 20111 to December 31, 2011
Operations
Net investment income	$	2,093,284		$	239,468
Net realized loss		(2,380,173	)		(138,828	)
Net change in unrealized appreciation/depreciation		9,359,093			(3,061,548	)
Net increase (decrease) in net assets resulting from operations		9,072,204			(2,960,908	)
Capital Transactions
Proceeds from contributions		405,015,543			49,234,708
Value of withdrawals		(116,593,428	)		(2,719,555	)
Net increase in net assets derived from capital transactions		288,422,115			46,515,153
Net Assets
Total increase in net assets		297,494,319			43,554,245
Beginning of period		43,554,245			—
End of period	$	341,048,564		$	43,554,245

¹  Commencement of operations.

See Notes to Financial Statements.
38	BLACKROCK ACWI ex-US INDEX FUND	JUNE 30, 2012

Financial Highlights ACWI ex-US Index Master Portfolio

	Six Months Ended June 30, 2012 (Unaudited)		Period June 30, 20111 to December 31, 2011
Total Investment Return2
Total investment return		2.76%		(18.04	)%
Ratios to Average Net Assets3
Total expenses		0.52%		1.47%	4
Total expenses after fees waived		0.33%		0.33%
Net investment income		3.73%		1.76%
Supplemental Data
Net assets, end of period (000)	$	341,049	$	43,554
Portfolio turnover		8%		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 expenses would have been 1.48%.

See Notes to Financial Statements.
	BLACKROCK ACWI ex-US INDEX FUND	JUNE 30, 2012	39

Notes to Financial Statements (Unaudited) 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 under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, open-end management investment company. 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 annually by the Board of Trustees of MIP (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Master Portfolio for all financial instruments.

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 NAV 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 by the Global Valuation Committee, or its delegate, 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 Global Valuation Committee, or its delegate, 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. These factors include but are not limited to (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or default rates. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches, including regular due diligence of the Master Portfolio’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof on a quarterly basis.

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 affect the value of such instruments materially, those instruments may be Fair Value Assets and valued at their fair value, as determined in good faith by the Global Valuation Committee 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 over-the-counter (“OTC”) options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of 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

40 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

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

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 that 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 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 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 six months ended June 30, 2012, 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 the period 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 December 2011, the Financial Accounting Standards Board issued guidance that will expand 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 or similar agreements which are eligible for offset in the Statements of Assets and Liabilities and will require an entity to disclose both gross and net information about such investments and transactions in the financial statements. The guidance is effective for financial statements with fiscal years beginning on or after January 1, 2013, and interim periods within

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 41

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

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.

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/or 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 or 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 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, financial 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 variation margin 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 the counterparty to the contract does not perform its obligations under the agreement.

42 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

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

Derivative Financial Instruments Categorized by Risk Exposure:
Fair Value of Derivative Financial Instruments as of June 30, 2012
	Asset Derivatives
	Statement of Assets and Liabilities Location	Value
Equity contracts	Net unrealized appreciation/depreciation1	$	281,245
Foreign currency exchange contracts	Unrealized appreciation on foreign currency exchange contracts		11,734

	Liability Derivatives
	Statement of Assets and Liabilities Location	Value
Foreign currency exchange contracts	Unrealized depreciation on foreign currency exchange contracts	$	3,219

¹  Includes cumulative appreciation/depreciation on financial futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities.

The Effect of Derivative Financial Instruments in the Statement of Operations Six Months Ended June 30, 2012
	Net Realized Gain (Loss) From
	Financial Futures Contracts	Foreign Currency Exchange Contracts
Equity contracts	$(173,418)	—
Foreign currency exchange contracts	—	$(31,994)
	Net Change in Unrealized Appreciation/Depreciation on
	Financial Futures Contracts	Foreign Currency Exchange Contracts
Equity contracts	$262,049	—
Foreign currency exchange contracts	—	$11,558

For the six months ended June 30, 2012, the average quarterly balances of outstanding derivative financial instruments were as follows:

Financial futures contracts:
Average number of contracts purchased	74
Average notional value of contracts purchased	$4,802,145
Foreign currency exchange contracts:
Average number of contracts — US dollars purchased	12
Average number of contracts — US dollars sold	9
Average US dollar amounts purchased	$5,474,259
Average US dollar amounts sold	$3,909,611

3. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

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 their assets in the Master Portfolio. BFA has agreed not to reduce or discontinue this contractual waiver or reimbursement prior to May 1, 2013 unless approved by the Board, including a majority of the independent trustees. For the six months ended June 30, 2012, BFA waived $95,745, 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.

4. Investments:

Purchases and sales of investments, excluding short-term securities, for the six months ended June 30, 2012, were $255,057,434 and $9,695,966, respectively.

5. Borrowings:

The Master Portfolio, along with certain other funds managed by the Manager and its affiliates, is a party to a $500 million credit agreement with a group of lenders. The Master Portfolio may borrow under the credit agreement to fund shareholder redemptions. The credit agreement, which expired in November 2011, was renewed until November 2012. Effective November 2011 to November 2012, the credit agreement has the following terms: a commitment fee of 0.065% per annum based on the Master Portfolio’s pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus 0.80% per annum or (b) the Fed Funds rate plus 0.80% per annum on amounts borrowed. In addition, administration and arrangement fees were allocated to the Master Portfolio based on its net assets as of October 31, 2011. The Master Portfolio’s commitment, administration and arrangement fees were paid by the investment

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 43

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

advisor. The Master Portfolio did not borrow under the credit agreement during the six month ended June 30, 2012.

6. 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.

The Master Portfolio invests a significant portion of its assets in securities of issuers located in Europe or with significant exposure to European issuers or countries. The European financial markets have recently experienced volatility and adverse trends due to concerns about economic downturns in, or rising government debt levels of several European countries, including Greece, Ireland, Italy, Portugal and Spain. As of June 30, 2012, these events have adversely affected the exchange rate of the euro and may continue to spread to other countries in Europe, including countries that do not use the euro. These events may affect the value and liquidity of certain of the Master Portfolio’s investments.

As of June 30, 2012, the Master Portfolio had the following industry classifications:

Industry Allocation	Percent of Long-Term Investments
Commercial Banks		13	%
Oil, Gas & Consumable Fuels		9	%
Metals & Mining		6	%
Pharmaceuticals		6	%
Other*		66	%

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

7. 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.

44 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

Disclosure of Investment Advisory Agreement

The Board of Trustees of Master Investment Portfolio (the “Master Fund”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Master Fund’s investment advisory agreement (the “Agreement”) with BlackRock Fund Advisors (“BlackRock”), the Master Fund’s investment advisor, on behalf of ACWI Ex-US Index Master Portfolio (the “Master Portfolio”), a series of the Master Fund. BlackRock ACWI Ex-US Index Fund (the “Portfolio”), a series of BlackRock Funds III (the “Fund”), is a “feeder” fund that invests all of its investable assets in the Master Portfolio. Accordingly, the Board of Trustees of the Fund also considered the approval of the Agreement with respect to the Master Portfolio. For simplicity, the Board of Trustees of the Master Fund and the Board of Trustees of the Fund are referred to herein collectively as the “Board,” and the members are referred to as “Board Members.”

Activities and Composition of the Board

The Board consists of fourteen individuals, twelve of whom are not “interested persons” of the Master Fund or the Fund as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of the Master Fund or the Fund, as pertinent, and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Co-Chairs of the Board are each Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight and Contract Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).

The Agreement

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreement on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreement. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Master Portfolio and the Portfolio by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreement, including the services and support provided by BlackRock to the Master

Portfolio, the Portfolio and their shareholders. Among the matters the Board considered were: (a) investment performance for one-, three-, five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against its peers and/or benchmark, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Master Portfolio and/or the Portfolio for services, such as marketing and distribution, call center and fund accounting; (c) the Master Portfolio’s and/or the Portfolio’s operating expenses and how BlackRock allocates expenses to the Master Portfolio and the Portfolio; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Master Portfolio’s and the Portfolio’s investment objective, policies and restrictions; (e) the Master Fund’s and the Fund’s compliance with its respective Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) the use of brokerage commissions and execution quality of portfolio transactions; (j) BlackRock’s implementation of the Master Fund’s and/or the Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.

Board Considerations in Approving the Agreement

The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreement. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 45

Disclosure of Investment Advisory Agreement (continued)

information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on fees and expenses of the Master Portfolio and the Portfolio, as applicable, and the investment performance of the Portfolio as compared with a peer group of funds as determined by Lipper (collectively, “Peers”), as well as the gross investment performance of the Portfolio as compared with its benchmark; (b) information on the profitability of the Agreement to BlackRock and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of economies of scale; (e) a summary of aggregate amounts paid by the Master Portfolio and/or the Portfolio to BlackRock; (f) sales and redemption data regarding the Portfolio’s shares; and (g) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.

At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreement. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.

At an in-person meeting held on May 15-16, 2012, the Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund with respect to the Master Portfolio for a one-year term ending June 30, 2013. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement and found the Agreement to be satisfactory. In approving the continuation of the Agreement, the Board of the Master Fund considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of the Master Portfolio, the Portfolio and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Master Portfolio and the Portfolio; (d) economies of scale; (e) fall-out benefits to BlackRock as a result of its relationship with the Master Portfolio and the Portfolio; and (f) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to the distribution of Portfolio shares and securities lending, services related to the valuation and pricing of portfolio holdings of the Master Portfolio, direct and indirect benefits to BlackRock and its

affiliates from their relationship with the Master Portfolio and the Portfolio and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of the Portfolio. Throughout the year, the Board compared the Portfolio’s performance to the performance of a comparable group of mutual funds and/or the performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the portfolio management team discussing Master Portfolio performance and the Master Portfolio’s investment objective, strategies and outlook.

The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and the Master Portfolio’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to the Master Portfolio’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Master Portfolio and the Portfolio. BlackRock and its affiliates provide the Master Portfolio and the Portfolio with certain administrative, shareholder and other services (in addition to any such services provided to the Master Portfolio and the Portfolio by third parties) and officers and other personnel as are necessary for the operations of the Master Portfolio and the Portfolio. In particular, BlackRock and its affiliates provide the Master Portfolio and the Portfolio with the following administrative services, including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions

46 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

Disclosure of Investment Advisory Agreement (continued)

necessary for the operation of the Master Portfolio and the Portfolio, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Master Portfolio, the Portfolio and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of the Master Portfolio and the Portfolio, as applicable. The Board noted that the Master Portfolio’s investment results correspond directly to the investment results of the Portfolio. In preparation for the April 17, 2012 meeting, the Board worked with its independent counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive analysis of the Portfolio’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information regarding the investment performance of the Portfolio as compared to funds in the Portfolio’s applicable Lipper category and the gross investment performance of the Portfolio as compared with its benchmark. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Master Portfolio management to discuss, the performance of the Master Portfolio and the Portfolio, as applicable, throughout the year.

The Board noted that the Portfolio’s gross performance was below its benchmark index during the since-inception period reported. Based on its discussions with BlackRock and the Board’s review of the Portfolio’s investment performance compared to its Lipper Peer Group, the methodology used by Lipper to select peer funds, and other relevant information provided by BlackRock, the Board noted that the Portfolio’s gross investment performance as compared to its benchmark index provided a more meaningful comparison of the Portfolio’s relative performance.

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Master Portfolio and the Portfolio: The Board, including the Independent Board Members, reviewed the Master Portfolio’s/Portfolio’s contractual management fee rate compared with the other funds in the Portfolio’s Lipper category. It also compared the Portfolio’s total expense ratio, as well as the Master Portfolio’s/Portfolio’s actual management fee rate, to those of other funds in the Portfolio’s Lipper category. The Board considered the services provided

and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided the Master Portfolio and the Portfolio. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Master Portfolio and the Portfolio. The Board reviewed BlackRock’s profitability with respect to the Master Portfolio and the Portfolio, as applicable, and other funds the Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31, 2009. The Board reviewed BlackRock’s profitability with respect to other fund complexes managed by BlackRock and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by BlackRock, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRock’s operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management and the relative product mix.

In addition, the Board considered the cost of the services provided to the Master Portfolio and the Portfolio by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Master Portfolio and the Portfolio and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of the Master Portfolio and the Portfolio. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreement and to continue to provide the high quality of services that is expected by the Board.

The Board noted that the Master Portfolio’s/Portfolio’s contractual management fee ratio (a combination of the advisory fee and the

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 47

Disclosure of Investment Advisory Agreement (concluded)

administration fee, if any) was lower than or equal to the median contractual management fee ratio paid by the Portfolio’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted that BlackRock has contractually agreed to waive fees and/or reimburse expenses in order to limit, to a specified amount, the Portfolio’s total operating expenses as a percentage of the Portfolio’s average daily net assets on a class-by-class basis, as applicable.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Master Portfolio and the Portfolio increase, as well as the existence of expense caps. The Board also considered the extent to which the Master Portfolio and the Portfolio benefit from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Master Portfolio and the Portfolio to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the asset level of the Master Portfolio. In its consideration, the Board took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Master Portfolio and the Portfolio, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Master Portfolio and the Portfolio, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.

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

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

Conclusion

The Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund, with respect to the Master Portfolio, for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board of the Master Fund, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of the Master Portfolio and its shareholders. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement with respect to the Master Portfolio and found the Agreement to be satisfactory. In arriving at its decision to approve the Agreement, the Board of the Master Fund did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Master Portfolio reflect the results of several years of review by the Board Members and predecessor Board Members and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

48 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

Officers and Trustees

Ronald W. Forbes, Co-Chair of the Board and Trustee

Rodney D. Johnson, Co-Chair of the Board and Trustee

Paul L. Audet, Trustee

David O. Beim, Trustee

Henry Gabbay, Trustee

Dr. Matina S. Horner, Trustee

Herbert I. London, Trustee

Ian A. MacKinnon, Trustee¹

Cynthia A. Montgomery, Trustee

Joseph P. Platt, Trustee

Robert C. Robb, Jr., Trustee

Toby Rosenblatt, Trustee

Kenneth L. Urish, Trustee

Frederick W. Winter, Trustee

John M. Perlowski, President and Chief Executive Officer

Richard Hoerner, CFA, Vice President

Brendan Kyne, Vice President

Simon Mendelson, Vice President

Christopher Stavrakos, CFA, Vice President

Neal Andrews, Chief Financial Officer

Jay Fife, Treasurer

Brian Kindelan, Chief Compliance Officer and Anti-Money Laundering Officer

Benjamin Archibald, Secretary²

¹  Effective May 14, 2012, Ian A. MacKinnon became a Director of the Fund/Master Portfolio.

² Effective May 16, 2012, Ira P. Shapiro resigned as Secretary of the Fund/Master Portfolio and Benjamin Archibald became Secretary of the Fund/Master Portfolio.

Investment Advisor

BlackRock Fund Advisors

San Francisco, CA 94105

Administrator

BlackRock Institutional Trust Company, N.A.

San Francisco, CA 94105

Custodian and Accounting Agent

State Street Bank and Trust Company

Boston, MA 02110

Transfer Agent

BNY Mellon Investment Servicing (US) Inc.

Wilmington, DE 19809

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 Fund

400 Howard Street

San Francisco, CA 94105

BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012 49

Additional Information

General Information

Electronic Delivery

Electronic copies of most financial reports and prospectuses are available on the Funds’ websites or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Funds’ electronic delivery program.

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

Please contact your financial advisor. Please note that not all investment advisors, banks or brokerages may offer this service.

Shareholders Who Hold Accounts Directly with BlackRock:

1) Access the BlackRock website at

http://www.blackrock.com/edelivery

2) Select “eDelivery” under the “More Information” section

3) Log into your account

Householding

The Funds will mail only one copy of shareholder documents, including prospectuses [open end only], annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for

other members of your household, please call the Funds at (800) 441-7762.

Availability of Quarterly Portfolio Schedule of Investments

The Fund/Master Portfolio file their complete schedules 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, D.C. 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 use 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 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 (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 www.blackrock.com/funds.

Automatic Investment Plans

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

Systematic Withdrawal Plans

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

Retirement Plans

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

50 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

Additional Information (concluded)

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 JUNE 30, 2012 51

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 Balanced Capital Fund†

BlackRock Basic Value Fund

BlackRock Capital Appreciation Fund

BlackRock China Fund

BlackRock Commodity Strategies Fund

BlackRock Emerging Markets Fund

BlackRock Emerging Markets Long/Short Equity Fund

BlackRock Energy & Resources Portfolio

BlackRock Equity Dividend Fund

BlackRock EuroFund

BlackRock Flexible Equity Fund

BlackRock Focus Growth Fund

BlackRock Global Allocation Fund†

BlackRock Global Dividend Income Portfolio

BlackRock Global Dynamic Equity 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 Managed Volatility Portfolio†

BlackRock Mid-Cap Growth 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 CoreAlpha Bond Fund

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 Secured Credit Portfolio

BlackRock Strategic Income Opportunities Portfolio

BlackRock Total Return Fund

BlackRock US Government Bond Portfolio

BlackRock US Mortgage Portfolio

BlackRock World Income Fund

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 Date Funds†

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

† 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.

52 BLACKROCK ACWI ex-US INDEX FUND JUNE 30, 2012

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

# ACWI-6/12-SAR

June 30, 2012

Semi-Annual Report (Unaudited)

BlackRock CoreAlpha Bond Fund  |  of BlackRock Funds III

Not FDIC Insured     No Bank Guarantee    May Lose Value

Table of Contents

	Page
Dear Shareholder		3
Semi-Annual Report:
Fund Summary		4
About Fund Performance		6
Disclosure of Expenses		6
Derivative Financial Instruments		7
Fund Financial Statements:
Statement of Assets and Liabilities		8
Statement of Operations		9
Statements of Changes in Net Assets		10
Fund Financial Highlights		11
Fund Notes to Financial Statements		14
Master Portfolio Information		16
Master Portfolio Financial Statements:
Schedule of Investments		17
Statement of Assets and Liabilities		29
Statement of Operations		30
Statements of Changes in Net Assets		31
Master Portfolio Financial Highlights		32
Master Portfolio Notes to Financial Statements		33
Disclosure of Investment Advisory Agreement		40
Officers and Trustees		44
Additional Information		45
A World Class Mutual Fund Family		47

2 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

Dear Shareholder

One year ago, risk assets were in a broad retreat as sovereign debt problems loomed over Europe and confidence in both the US and global economic recoveries was waning. Last summer’s prolonged debt ceiling debate in Washington, DC ended with Standard & Poor’s historic downgrade of US government debt, an event that triggered financial-market turmoil all over the world. Extraordinary levels of volatility persisted in the months that followed as the debt situation in Europe intensified. Macro-level news drove asset prices broadly up and down in lockstep, in a “risk on” — “risk off” trading pattern. Equity markets crumbled while safe-haven assets such as US Treasuries and gold rallied to historic highs by the end of the third quarter of 2011.

By October, however, improving economic data and more concerted efforts among European leaders toward stemming the region’s debt crisis drew investors back to the markets. Improving sentiment carried over into early 2012 as investors saw some relief from the world’s financial woes. Risk assets (including stocks, commodities and high yield bonds) moved boldly higher through the first two months of 2012 while climbing Treasury yields pressured higher-quality fixed income assets.

However, risk assets reversed course in the spring when Europe’s debt problems boiled over once again. Markets became highly volatile as political instability in Greece threatened the country’s membership in the euro zone. Spain faced severe deficit issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian government debt rose to levels deemed unsustainable. European leaders conferred and debated vehemently over the need for fiscal integration among the 17 euro-zone nations to resolve the crisis for the long term.

Alongside the drama in Europe, investors were discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key powerhouse for global growth, became particularly worrisome. In the United States, disappointing jobs reports dealt a crushing blow to sentiment. Risk assets sold off through April and May as investors ran back to safe havens including US, German and UK government debt as well as gold. As the period drew to a close, risk assets were beginning to rebound modestly as European leaders stepped up their efforts to move toward fiscal unity and investors anticipated additional stimulus from central banks on both sides of the Atlantic.

All asset classes posted gains for the 6-month period ended June 30, 2012, with US stocks delivering the largest returns. On a 12-month basis, US large-cap stocks generated positive results; however, small-cap stocks finished in negative territory and international and emerging equities, which experienced significant downturns in 2011, lagged the broader rebound. Among fixed income asset classes, safe-haven US Treasury bonds and municipal bonds outperformed corporate credits for the 12-month period. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities. We remain committed to working with you and your financial professional to identify actionable ideas for your portfolio. We encourage you to visit www.blackrock.com/newworld for more information.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of June 30, 2012
	6-month			12-month
US large cap equities (S&P 500® Index)		9.49	%		5.45	%
US small cap equities (Russell 2000® Index)		8.53			(2.08	)
International equities (MSCI Europe, Australasia, Far East Index)		2.96			(13.83	)
Emerging market equities (MSCI Emerging Markets Index)		3.93			(15.95	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.04			0.05
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		3.44			17.36
US investment grade bonds (Barclays US Aggregate Bond Index)		2.37			7.47
Tax-exempt municipal bonds (S&P Municipal Bond Index)		4.14			10.16
US high yield bonds (Barclays US Corporate High Yield 2% Issuer Capped Index)		7.23			7.21
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 June 30, 2012 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?

Ÿ For the six-month period ended June 30, 2012, the Fund’s Institutional Shares returned 2.40%, performing in line with its benchmark, the Barclays US Aggregate Bond Index (the “Index”), which returned 2.37%. The Index is comprised of US government securities and investment-grade corporate bonds, as well as mortgage-backed securities, asset-backed securities (“ABS”) and commercial mortgage-backed securities (“MBS”).

Ÿ For the period beginning with their initial trading date of April 30, 2012 through June 30, 2012, the Fund’s Investor A and Investor C Shares returned 0.98% and 0.85%, respectively. For the same period, the Index returned 0.94%.

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

What factors influenced performance?

Ÿ The Master Portfolio’s overweight to non-government spread sectors contributed positively to performance during the period. All spread sectors in the Index outperformed similarly-dated Treasuries. In particular, an overweight allocation to investment grade credit and security selection among industrial and financial names had a positive impact on performance. The Master Portfolio’s overweight to ABS also helped performance. The Fund benefited from the Master Portfolio’s exposure to high yield debt and non-agency residential MBS, neither of which are represented in the benchmark index. Security selection within agency MBS boosted returns while the sector experienced increased volatility due to prepayment activity and speculation that the US Federal Reserve might implement additional monetary easing policies that focus exclusively on agency MBS. In addition, the Master Portfolio’s long duration bias (higher sensitivity to interest rate movements versus the Index) enhanced results as interest rates fell over the six-month period.

Ÿ The Master Portfolio held derivatives during the period as part of its investment strategy. The Master Portfolio uses derivatives as a means to hedge and/or take outright views on interest rates, credit risk and/or foreign exchange positions in the portfolio. Specifically, the Master Portfolio held futures, forwards, credit default swaps and interest rate swaps to manage duration, yield curve positioning and as an efficient way to express sector views. The Master Portfolio’s derivatives holdings had a negative impact on the Fund’s returns for the period.

Describe recent portfolio activity.

Ÿ Throughout the six-month period, the Master Portfolio actively managed duration while generally maintaining a long bias relative to the Index. The Master Portfolio tactically managed investment grade credits throughout the period, cautiously seeking to take advantage of relative value opportunities in industrials and financials. The Master Portfolio generally maintained an overweight to the credit sector as balance sheets remained strong, default rates were historically low and spreads were attractive. In addition, the Master Portfolio tactically traded MBS throughout the six-month period, but recently reduced exposure following a period of strong performance from the sector in order to take advantage of better relative value opportunities elsewhere in the fixed income markets. Also during the period, the Master Portfolio maintained modest out-of-index allocations to high yield debt and non-agency residential MBS. The Master Portfolio held cash committed for pending transactions. The cash balance did not have a material impact on performance.

Describe portfolio positioning at period end.

Ÿ At period end, the Master Portfolio remained overweight relative to the Index in non-government spread sectors and generally underweight Treasuries. Within spread sectors, the Master Portfolio was overweight in investment grade corporate credit and ABS, and underweight in agency MBS. The Master Portfolio also held out-of-index positions in high yield debt and non-agency residential MBS. The Master Portfolio ended the period with a long duration position versus the Index given the environment of slow economic growth and the possibility that spreads may tighten further in the near term.

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 COREALPHA BOND FUND JUNE 30, 2012

BlackRock CoreAlpha Bond Fund

Total Return Based on a $10,000 Investment

¹  Assuming maximum sales charges, transaction costs and other operating expenses, including advisory fees, if any. Institutional Shares do not have a sales charge.

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, 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), mortgages and U.S. Treasury and government agency issues with at least one year to maturity.

⁴  Commencement of operations of the Master Portfolio.

Performance Summary for the Period Ended June 30, 2012

				Average Annual Total Returns
				1 Year						5 Years						Since Inception5
	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
Institutional		2.40	%		8.18	%		N/A			7.36	%		N/A			5.40	%		N/A
Investor A		2.26			7.85			3.54	%		7.01			6.14	%		5.06			4.55	%
Investor C		1.88			7.05			6.05			6.22			6.22			4.28			4.28
Barclays US Aggregate Bond Index		2.37			7.47			N/A			6.79			N/A			5.19			N/A

⁵  The Master Portfolio commenced operations on March 15, 2004.

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							Hypothetical6
	Beginning Account Value January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period7			Beginning Account Value January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period7			Annualized Expense Ratio
Institutional	$	1,000.00	$	1,024.00	$	1.71		$	1,000.00	$	1,023.20	$	1.71			0.34	%
Investor A	$	1,000.00	$	1,009.80	$	1.17	8	$	1,000.00	$	1,021.40	$	3.52	8		0.70	%
Investor C	$	1,000.00	$	1,008.50	$	2.43	8	$	1,000.00	$	1,017.70	$	7.27	8		1.45	%

⁶  Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.

⁷  Expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period shown). Because the Fund invests significantly in the Master Portfolio, the expense table example reflects the expenses of both the Fund and the Master Portfolio.

⁸  Expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 61/366.

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

BLACKROCK COREALPHA BOND FUND JUNE 30, 2012 5

About Fund Performance BlackRock CoreAlpha Bond Fund

Ÿ 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.

Ÿ Investor A Shares incur a maximum initial sales charge (front-end load) of 4.00%. Investor A Shares are subject to a service fee of 0.25% per year (but no distribution fee).

Ÿ 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.

Prior to February 28, 2011 for Institutional Shares and prior to April 30, 2012 for Investor A and Investor C Shares, the performance of the classes are based on the returns of the Master Portfolio in which the Fund invests all of its assets for each complete calendar year since the commencement of the Master Portfolio’s operations, March 15, 2004,

adjusted to reflect the estimated annual fund fees and operating expenses of each respective share class of the Fund.

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 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.

Disclosure of Expenses

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 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 January 1, 2012 and held through June 30, 2012) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.

The expense example 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 corresponding to their share class under the heading entitled “Expenses Paid During the Period.”

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

6 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

Derivative Financial Instruments BlackRock CoreAlpha Bond Fund

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 Notes to Financial Statements, which may constitute forms of economic leverage. Such derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to hedge credit risk, interest rate risk 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 Notes to Financial Statements.

BLACKROCK COREALPHA BOND FUND JUNE 30, 2012 7

Statement of Assets and Liabilities BlackRock CoreAlpha Bond Fund

June 30, 2012 (Unaudited)
Assets
Investments at value — Master Portfolio (Cost — $88,399,491)	$	89,539,496
Withdrawals receivable from the Master Portfolio		9,391
Total assets		89,548,887
Liabilities
Capital shares redeemed payable		9,391
Income dividends payable		103,910
Administration fees payable		5,721
Service fees payable		20
Professional fees payable		10,900
Total liabilities		129,942
Net Assets	$	89,418,945
Net Assets Consist of
Paid-in capital	$	87,328,784
Distributions in excess of net investment income		(91,522	)
Accumulated net realized gain allocated from the Master Portfolio		1,041,678
Net unrealized appreciation/depreciation allocated from the Master Portfolio		1,140,005
Net Assets	$	89,418,945
Net Asset Value
Institutional — Based on net assets of $89,378,587 and 8,425,785 shares outstanding, unlimited number of shares authorized, no par value	$	10.61
Investor A — Based on net assets of $20,192 and 1,904 shares outstanding, unlimited number of shares authorized, no par value	$	10.61
Class K — Based on net assets of $20,166 and 1,901 shares outstanding, unlimited number of shares authorized, no par value	$	10.61

See Notes to Financial Statements.
8	BLACKROCK COREALPHA BOND FUND	JUNE 30, 2012

Statement of Operations BlackRock CoreAlpha Bond Fund

Six Months Ended June 30, 2012 (Unaudited)
Investment Income
Net investment income allocated from the Master Portfolio:
Dividends	$	5,536
Securities lending — affiliated		3,011
Income — affiliated		17,914
Interest		997,755
Expenses		(93,701	)
Fees waived		1,703
Total income		932,218
Expenses
Administration		37,235
Service — Investor A		9
Service and distribution — Investor C		34
Professional		9,461
Total expenses		46,739
Less fees waived and/or reimbursed by administrator — Institutional		(9,459	)
Less fees waived and/or reimbursed by administrator — Investor A		(1	)
Less fees waived and/or reimbursed by administrator — Investor C		(1	)
Total expenses after fees waived		37,278
Net investment income		894,940
Realized and Unrealized Gain (Loss) Allocated from the Master Portfolio
Net realized gain from investments, financial futures contracts, swaps and foreign currency transactions		752,082
Net change in unrealized appreciation/depreciation on investments, financial futures contracts, swaps and foreign currency transactions		200,027
Total realized and unrealized gain		952,109
Net Increase in Net Assets Resulting from Operations	$	1,847,049

See Notes to Financial Statements.
	BLACKROCK COREALPHA BOND FUND	JUNE 30, 2012	9

Statements of Changes in Net Assets BlackRock CoreAlpha Bond Fund

Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Period February 28, 20111 to December  31, 2011
Operations
Net investment income	$	894,940		$	629,461
Net realized gain		752,082			290,164
Net change in unrealized appreciation/depreciation		200,027			939,978
Net increase in net assets resulting from operations		1,847,049			1,859,603
Dividends to Shareholders From
Net investment income:
Institutional		(1,014,693	)		(601,659	)
Investor A		(82	)		—
Investor C		(57	)		—
Return of capital:
Institutional		—			(27,824	)
Decrease in net assets resulting from dividends to shareholders		(1,014,832	)		(629,483	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		29,336,923			58,019,685
Net Assets
Total increase in net assets		30,169,140			59,249,805
Beginning of period		59,249,805			—
End of period	$	89,418,945		$	59,249,805
Undistributed (distributions in excess of) net investment income	$	(91,522	)	$	28,370

¹  Commencement of operations.

See Notes to Financial Statements.
10	BLACKROCK COREALPHA BOND FUND	JUNE 30, 2012

Financial Highlights BlackRock CoreAlpha Bond Fund

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Period February 28, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	10.50		$	10.00
Net investment income2		0.12			0.25
Net realized and unrealized gain		0.13			0.52
Net increase from investment operations		0.25			0.77
Dividends from:
Net investment income		(0.14	)		(0.26	)
Return of capital		—			(0.01	)
Total dividends		(0.14	)		(0.27	)
Net asset value, end of period	$	10.61		$	10.50
Total Investment Return3,4
Based on net asset value		2.40%			7.80%
Ratios to Average Net Assets5,6
Total expenses		0.37%			0.44%	7
Total expenses after fees waived		0.34%			0.35%	7
Net investment income		2.38%			2.93%	7
Supplemental Data
Net assets, end of period (000)	$	89,379		$	59,250
Portfolio turnover of the Master Portfolio		1,388%			1,646%	8

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 fees 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.
	BLACKROCK COREALPHA BOND FUND	JUNE 30, 2012	11

Financial Highlights (continued) BlackRock CoreAlpha Bond Fund

	Investor A
	Period April 30, 20121 to June  30, 2012 (Unaudited)
Per Share Operating Performance
Net asset value, beginning of period	$	10.55
Net investment income2		0.03
Net realized and unrealized gain		0.07
Net increase from investment operations		0.10
Dividends from net investment income		(0.04	)
Net asset value, end of period	$	10.61
Total Investment Return3,4
Based on net asset value		0.98%
Ratios to Average Net Assets5,6
Total expenses		0.72%
Total expenses after fees waived		0.70%
Net investment income		1.49%
Supplemental Data
Net assets, end of period (000)	$	20
Portfolio turnover of the Master Portfolio		1,388%

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.

See Notes to Financial Statements.
12	BLACKROCK COREALPHA BOND FUND	JUNE 30, 2012

Financial Highlights (concluded) BlackRock CoreAlpha Bond Fund

	Investor C
	Period April 30, 20121 to June  30, 2012 (Unaudited)
Per Share Operating Performance
Net asset value, beginning of period	$	10.55
Net investment income2		0.01
Net realized and unrealized gain		0.08
Net increase from investment operations		0.09
Dividends from net investment income		(0.03	)
Net asset value, end of period	$	10.61
Total Investment Return3,4
Based on net asset value		0.85%
Ratios to Average Net Assets5,6,7
Total expenses		1.47%
Total expenses after fees waived		1.45%
Net investment income		0.74%
Supplemental Data
Net assets, end of period (000)	$	20
Portfolio turnover of the Master Portfolio		1,388%

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 fees waived of 0.01%.

See Notes to Financial Statements.
	BLACKROCK COREALPHA BOND FUND	JUNE 30, 2012	13

Notes to Financial Statements (Unaudited) BlackRock CoreAlpha Bond Fund

1. Organization and Significant Accounting Policies:

BlackRock CoreAlpha Bond 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 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 June 30, 2012 was 3.53%. 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 Investor C 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 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. Realized and unrealized gains and losses are adjusted for utilizing partnership tax allocations rules. 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 return remains open for the period 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. Expenses directly related to the Fund and other shared expenses pro rated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.

2. Administration Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

The Trust entered into an Administration Agreement 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 0.10% based on the average daily net assets of Institutional Shares and 0.20% of the average daily net assets of Investor A and Investor C Shares.

14 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

Notes to Financial Statements (concluded) BlackRock CoreAlpha Bond 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 Fund’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 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, 2013.

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 Investor A Shares and 1.00% based upon the average daily net assets of Investor C 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. Capital Loss Carryforwards:

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 each class were as follows:

	Six Months Ended June 30, 2012						Period February 28, 20112 to December 31, 2011
	Shares			Amount			Shares			Amount
Institutional
Shares sold		3,463,916		$	36,474,441			5,801,715		$	59,651,623
Shares issued to shareholders in reinvestment of dividends and distributions		53,727			567,452			45,330			469,499
Shares redeemed		(735,159	)		(7,745,109	)		(203,744	)		(2,101,437	)
Net increase		2,782,484		$	29,296,784			5,643,301		$	58,019,685
Investor A1
Shares sold		1,896		$	20,000			—		$	—
Shares issued to shareholders in reinvestment of dividends and distributions		8			82			—			—
Net increase		1,904		$	20,082			—		$	—
Investor C1
Shares sold		1,896		$	20,000			—		$	—
Shares issued to shareholders in reinvestment of dividends and distributions		5			57			—			—
Net increase		1,901		$	20,057			—		$	—
Total Net Increase		2,786,289		$	29,336,923			5,643,301		$	58,019,685
1   For the period April 30, 2012 (commencement of operations) to June 30, 2012. 2   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 COREALPHA BOND FUND JUNE 30, 2012 15

Master Portfolio Information CoreAlpha Bond Master Portfolio

As of June 30, 2012

Portfolio Composition Percent of
Long-Term Investments

U.S. Government Sponsored Agency Securities	75	%
Corporate Bonds	12
U.S. Treasury Obligations	7
Asset-Backed Securities	4
Non-Agency Mortgage-Backed Securities	2

Credit Quality Allocation¹ Percent of
Long-Term Investments

AAA/Aaa2	84	%
AA/Aa	2
A	6
BBB/Baa	6
BB/Ba	1
NR	1

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 were deemed AAA/Aaa by the investment advisor.

16 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

Schedule of Investments June 30, 2012 (Unaudited) CoreAlpha Bond Master Portfolio (Percentages shown are based on Net Assets)

Asset-Backed Securities	Par (000)		Value
Access Group, Inc., 0.58%, 3/23/20 (a)	$	7,158	$	7,116,135
ACE Securities Corp., Series 2005-AG1, Class A2D, 0.61%, 8/25/35 (a)		3,753		3,173,354
AH Mortgage Advance Trust, Series SART-1, Class A1R, 2.23%, 5/10/43 (b)		4,000		4,002,352
AmeriCredit Automobile Receivables Trust, Series 2012-1, Class D, 4.72%, 3/08/18		6,600		6,969,787
Ameriquest Mortgage Securities, Inc.:
Series 2005-R6, Class A2, 0.45%, 8/25/35 (a)		598		576,038
Series 2006-R1, Class A2C, 0.44%, 3/25/36 (a)		667		662,391
Asset Backed Funding Corp. Certificates:
Series 2005-HE2, Class M1, 0.73%, 6/25/35 (a)		641		634,414
Series 2005-OPT1, Class A1SS, 0.49%, 7/25/35 (a)		619		603,535
BA Credit Card Trust:
0.64%, 1/15/16 (a)		5,105		5,077,366
4.99%, 3/15/16 (a)		8,400		8,820,463
Bear Stearns Asset Backed Securities Trust, Series 2007-HE2, Class 1A1, 0.35%, 3/25/37 (a)		852		844,925
BNC Mortgage Loan Trust, Series 2007-4, Class A3A, 0.50%, 11/25/37 (a)		1,379		1,352,496
Carrington Mortgage Loan Trust, Series 2007-FRE1, Class A1, 0.37%, 2/25/37 (a)		4,339		4,257,586
Chase Funding Mortgage Loan Asset-Backed Certificates, Series 2003-5, Class 1A4, 4.40%, 2/25/30		370		372,250
Chesapeake Funding LLC, Series 2009-1, Class A, 2.24%, 12/15/20 (a)(b)		2,886		2,889,458
CIT Mortgage Loan Trust, Series 2007-1, Class 2A1, 1.25%, 10/25/37 (a)(b)		3,440		3,424,551
Citibank Credit Card Issuance Trust, Series 2006-C1, Class C1, 0.64%, 2/20/15 (a)		5,150		5,145,710
Citigroup Mortgage Loan Trust, Inc., Series 2007-WFH4, Class A2A, 1.15%, 7/25/37 (a)		111		108,997
Countrywide Asset-Backed Certificates:
0.72%, 12/25/35 (a)		3,700		3,452,866
Series 2005-4, Class MV1, 0.71%, 10/25/35 (a)		3,270		3,184,140

Asset-Backed Securities	Par (000)		Value
Series 2006-20, Class 2A2, 0.37%, 4/25/47 (a)	$	1,612	$	1,564,329
Series 2006-22, Class 2A2, 0.36%, 5/25/47 (a)		4,916		4,856,898
Series 2006-25, Class 2A2, 0.37%, 6/25/47 (a)		3,474		3,422,097
Series 2007-10, Class 2A1, 0.30%, 6/25/47 (a)		508		503,065
Series 2007-12, Class 2A1, 0.60%, 8/25/47 (a)		4,605		4,543,572
Series 2007-4, Class A1B, 5.81%, 2/25/27		356		355,016
Series 2007-5, Class 2A1, 0.35%, 9/25/47 (a)		18		18,167
Series 2007-6, Class 2A1, 0.35%, 9/25/37 (a)		352		351,447
Series 2007-7, Class 2A1, 0.33%, 10/25/47 (a)		32		31,492
Series 2007-8, Class 2A1, 0.31%, 11/25/37 (a)		1,221		1,202,203
Credit-Based Asset Servicing & Securitization LLC, Series 2006-CB8, Class A2A, 0.30%, 10/25/36 (a)		15		14,876
Ellington Loan Acquisition Trust, Series 2007-1, Class A2A1, 1.25%, 5/26/37 (b)		2,460		2,432,083
First Franklin Mortgage Loan Asset Backed Certificates:
Series 2004-FF10, Class A3, 0.79%, 9/25/34 (a)		193		187,813
Series 2005-FF10, Class A4, 0.57%, 11/25/35 (a)		1,740		1,477,872
Series 2005-FF4, Class M1, 0.68%, 5/25/35 (a)		2,258		1,942,185
Series 2006-FF13, Class A2B, 0.35%, 10/25/36 (a)		107		106,944
Series 2006-FF14, Class A2, 0.31%, 10/25/36 (a)		1,918		1,907,557
GSAMP Trust, Series 2007-HE2, Class A2A, 0.37%, 3/25/47 (a)		531		398,428
JPMorgan Mortgage Acquisition Corp., Series 2006-CH1, Class A3, 0.35%, 7/25/36 (a)		2,795		2,757,885
Long Beach Mortgage Loan Trust, Series 2005-WL1, Class M2, 0.80%, 6/25/35 (a)		1,592		1,384,085
Morgan Stanley Capital, Inc., Series 2006, Class A3, 0.44%, 12/25/35 (a)		342		340,101

Portfolio Abbreviations

To simplify the listings of portfolio holdings in the Schedule of Investments, the names and descriptions of many of securities have been abbreviated according to the following list:	AUD         Australian Dollar	LIBOR       London Interbank Offered Rate
	CAD         Canadian Dollar	NOK         Norwegian Krone
	CHF          Swiss Franc	NZD         New Zealand Dollar
	EUR         Euro	SEK          Swedish Krona
	EURIBOR   Euro Interbank Offered Rate	TBA          To Be Announced
	GBP         British Pound	USD         US Dollar
	JPY          Japanese Yen

See Notes to Financial Statements.

BLACKROCK COREALPHA BOND FUND JUNE 30, 2012 17

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

Asset-Backed Securities	Par (000)		Value
National Collegiate Student Loan Trust:
0.49%, 7/25/28 (a)	$	7,731	$	7,171,386
Series 2005-1, Class A3, 0.39%, 10/26/26 (a)		6,159		6,015,671
Series 2006-2, Class A2, 0.40%, 7/25/26 (a)		4,690		4,230,166
Nationstar Home Equity Loan Trust, Series 2006-B, Class AV2, 0.38%, 9/25/36 (a)		1,764		1,726,506
New Century Home Equity Loan Trust:
Series 2005-3, Class A2D, 0.63%, 7/25/35 (a)		4,109		4,001,241
Series 2005-3, Class M1, 0.73%, 7/25/35 (a)		5,500		5,189,047
Series 2005-3, Class M2, 0.74%, 7/25/35 (a)		1,590		1,094,097
Option One Mortgage Loan Trust, Series 2007-5, Class 2A1, 0.34%, 5/25/37 (a)		16		16,010
Park Place Securities, Inc., Series 2005-WCW3, Class A2C, 0.63%, 8/25/35 (a)		6,052		5,795,708
Residential Asset Mortgage Products, Inc.:
Series 2005-EFC3, Class M1, 0.70%, 8/25/35 (a)		2,086		2,041,624
Series 2005-RS6, Class M1, 0.75%, 6/25/35 (a)		4,300		3,531,358
Residential Asset Securities Corp.:
Series 2005-AHL1, Class A2, 0.52%, 7/25/35 (a)		151		149,710
Series 2007-KS4, Class A1, 0.35%, 5/25/37 (a)		56		55,642
Santander Drive Auto Receivables Trust:
Series 2010-B, Class C, 3.02%, 10/17/16 (b)		12,000		12,210,866
Series 2011-3, Class D, 4.23%, 5/15/17		3,900		3,997,952
Series 2011-S1A, Class D, 3.10%, 5/15/17 (b)		3,255		3,263,387
Series 2012-1, Class A2, 1.25%, 4/15/15		3,600		3,615,717
Series 2012-2, Class A2, 0.91%, 5/15/15		3,600		3,606,509
SLC Student Loan Trust, 4.75%, 6/15/33 (b)		12,057		11,571,367
SLM Student Loan Trust:
1.34%, 12/15/21 (b)		3,634		3,639,394
0.61%, 12/15/22 (a)		3,549		3,526,348
Series 2004-A, Class A2, 0.67%, 3/16/20 (a)		3,052		2,983,676
Series 2006-C, Class A3, 0.60%, 6/15/21 (a)		11,100		10,910,221
Series 2009-CT, Class 2A, 2.09%, 4/15/39 (b)		3,027		3,036,147
Series 2009-D, Class A, 3.50%, 8/17/43 (b)		10,401		10,223,545
Soundview Home Equity Loan Trust:
Series 2006-EQ1, Class A2, 0.36%, 10/25/36 (a)		777		771,315
Series 2007-1, Class 2A1, 0.34%, 3/25/37 (a)		984		934,695

Asset-Backed Securities	Par (000)		Value
Structured Asset Investment Loan Trust, Series 2005-1, Class A5, 0.60%, 2/25/35 (b)	$	178	$	177,130
Structured Asset Securities Corp., Series 2006-BC5, Class A2, 0.30%, 12/25/36 (a)		262		260,700
Terwin Mortgage Trust, Series 2005-12AL, Class AF2, 4.65%, 7/25/36		217		217,500
WAMU Asset-Backed Certificates, 0.34%, 5/25/47 (a)		613		610,649
Wheels SPV LLC, Series 2009-1, Class A, 1.79%, 3/15/18 (a)(b)		1,259		1,259,583
Total Asset-Backed Securities — 8.3%				210,301,796
Corporate Bonds
Aerospace & Defense — 0.8%
BE Aerospace, Inc.:
6.88%, 10/01/20		1,900		2,099,500
5.25%, 4/01/22 (c)		2,100		2,163,000
L-3 Communications Corp.:
3.95%, 11/15/16		1,250		1,327,556
4.75%, 7/15/20		900		959,954
4.95%, 2/15/21		600		648,874
Series B, 6.38%, 10/15/15		2,396		2,448,413
Lockheed Martin Corp.:
3.35%, 9/15/21		1,649		1,704,421
5.50%, 11/15/39		1,900		2,231,514
TransDigm, Inc., 7.75%, 12/15/18		2,200		2,414,500
United Technologies Corp., 3.10%, 6/01/22 (c)		5,250		5,501,275
				21,499,007
Air Freight & Logistics — 0.1%
FedEx Corp., 8.00%, 1/15/19		600		790,831
United Parcel Service, Inc., 4.88%, 11/15/40		400		477,594
				1,268,425
Beverages — 0.3%
Bottling Group LLC, 5.13%, 1/15/19		1,100		1,295,377
Diageo Finance BV, 3.25%, 1/15/15		2,000		2,117,510
Dr Pepper Snapple Group, Inc.:
2.35%, 12/21/12 (c)		1,000		1,007,757
2.90%, 1/15/16		1,250		1,308,986
Molson Coors Brewing Co., 3.50%, 5/01/22		1,200		1,232,142
PepsiCo, Inc., 4.88%, 11/01/40		1,000		1,166,792
				8,128,564
Biotechnology — 0.6%
Amgen, Inc.:
2.30%, 6/15/16		800		822,218
6.40%, 2/01/39		900		1,075,570

See Notes to Financial Statements.

18 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

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

Corporate Bonds	Par (000)		Value
Biotechnology (concluded)
Biogen Idec, Inc., 6.88%, 3/01/18	$	7,528	$	9,187,510
Celgene Corp., 3.95%, 10/15/20		4,000		4,201,636
Genentech, Inc., 4.75%, 7/15/15		625		690,698
				15,977,632
Capital Markets — 0.8%
The Bear Stearns Cos., Inc., 6.40%, 10/02/17		2,500		2,882,955
The Bear Stearns Cos., Inc./JPMorgan Chase & Co., 5.70%, 11/15/14		800		865,672
Credit Suisse First Boston USA, Inc., 5.13%, 1/15/14		1,400		1,467,316
The Goldman Sachs Group, Inc.:
5.95%, 1/18/18		1,500		1,605,432
6.15%, 4/01/18		1,500		1,626,120
7.50%, 2/15/19		1,200		1,368,482
5.75%, 1/24/22		1,400		1,477,846
6.75%, 10/01/37		1,650		1,617,087
6.25%, 2/01/41		950		990,617
Merrill Lynch & Co., Inc., 6.88%, 4/25/18		550		615,415
Morgan Stanley:
2.88%, 7/28/14 (c)		3,400		3,367,605
6.00%, 4/28/15		1,400		1,447,188
6.25%, 8/28/17		1,500		1,548,287
				20,880,022
Chemicals — 0.2%
LyondellBasell Industries N.V., 6.00%, 11/15/21 (b)(c)		1,800		1,975,500
RPM International, Inc., 6.13%, 10/15/19		2,453		2,807,456
Valspar Corp., 4.20%, 1/15/22		300		314,581
				5,097,537
Commercial Banks — 0.7%
HSBC Bank USA NA, 5.88%, 11/01/34		1,700		1,770,728
HSBC Holdings Plc, 6.50%, 9/15/37		700		776,637
JPMorgan Chase Bank NA, Series BKNT, 6.00%, 10/01/17		800		895,698
US Bancorp, 2.20%, 11/15/16		4,000		4,125,424
Wachovia Bank NA, 6.00%, 11/15/17		5,400		6,292,177
Wells Fargo & Co., 3.50%, 3/08/22		3,900		4,012,956
				17,873,620
Communications Equipment — 0.1%
Omnicom Group, Inc., 4.45%, 8/15/20		2,700		2,911,326

Corporate Bonds	Par (000)		Value
Consumer Finance — 0.4%
American Express Credit Co.:
2.75%, 9/15/15	$	2,600	$	2,713,071
8.13%, 5/20/19		4,800		6,391,695
				9,104,766
Containers & Packaging — 0.5%
Ball Corp., 5.00%, 3/15/22 (c)		2,100		2,184,000
Crown Americas LLC and Crown Americas Capital Corp. II, 7.63%, 5/15/17 (c)		3,900		4,212,000
Rock-Tenn Co.:
4.45%, 3/01/19 (b)		1,750		1,797,584
4.90%, 3/01/22 (b)		1,900		1,957,361
Sealed Air Corp., 6.88%, 7/15/33 (b)		1,500		1,440,000
				11,590,945
Diversified Financial Services — 1.8%
American Express Credit Corp., 2.38%, 3/24/17 (c)		3,000		3,074,796
Associates Corp. of North America, 6.95%, 11/01/18		1,500		1,691,265
Bank of America Corp.:
4.50%, 4/01/15		4,300		4,432,281
3.70%, 9/01/15		1,000		1,010,246
3.75%, 7/12/16		2,400		2,419,522
5.49%, 3/15/19		1,500		1,527,597
5.70%, 1/24/22		1,500		1,651,941
5.88%, 2/07/42		750		821,535
Citigroup, Inc.:
6.50%, 8/19/13		1,400		1,466,868
6.38%, 8/12/14		1,400		1,498,619
4.45%, 1/10/17		4,200		4,402,621
6.13%, 11/21/17		1,000		1,107,923
8.50%, 5/22/19		1,600		1,976,050
8.13%, 7/15/39		400		533,798
5.88%, 1/30/42		350		382,258
General Electric Capital Corp.:
2.25%, 11/09/15		2,000		2,040,576
4.38%, 9/16/20		4,000		4,327,372
4.63%, 1/07/21		1,600		1,759,843
6.75%, 3/15/32		500		619,091
6.88%, 1/10/39		1,000		1,290,132
JPMorgan Chase & Co.:
3.45%, 3/01/16		3,300		3,420,387
3.15%, 7/05/16		1,100		1,131,244
5.60%, 7/15/41		1,000		1,133,640
SLM Corp., 6.00%, 1/25/17		2,600		2,685,868
				46,405,473
Diversified Telecommunication Services — 1.6%
AT&T, Inc.:
2.40%, 8/15/16 (c)		1,250		1,298,691
3.00%, 2/15/22		7,700		7,822,330
6.55%, 2/15/39		2,000		2,574,040
5.35%, 9/01/40		1,231		1,412,773
5.55%, 8/15/41		3,800		4,529,437

See Notes to Financial Statements.

BLACKROCK COREALPHA BOND FUND JUNE 30, 2012 19

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

Corporate Bonds	Par (000)		Value
Diversified Telecommunication Services (concluded)
BellSouth Corp., 6.55%, 6/15/34	$	2,400	$	2,818,558
British Telecommunications Plc, 9.63%, 12/15/30		400		601,573
Embarq Corp., 8.00%, 6/01/36		1,000		1,044,595
Telefonica Emisiones SAU, 5.86%, 2/04/13 (c)		3,600		3,608,600
Verizon Communications, Inc.:
8.75%, 11/01/18		2,000		2,749,088
6.90%, 4/15/38		900		1,238,327
8.95%, 3/01/39		500		823,543
7.35%, 4/01/39		1,700		2,439,667
4.75%, 11/01/41		2,100		2,309,800
Windstream Corp., 7.88%, 11/01/17 (c)		5,350		5,831,500
				41,102,522
Electric Utilities — 1.6%
Commonwealth Edison Co.:
4.70%, 4/15/15		1,000		1,093,767
5.88%, 2/01/33		3,500		4,467,533
Duke Energy Corp.:
2.15%, 11/15/16		2,100		2,151,041
5.05%, 9/15/19		2,000		2,332,404
FirstEnergy Solutions Corp., 6.05%, 8/15/21		1,200		1,317,942
Ipalco Enterprises, Inc., 5.00%, 5/01/18		850		860,625
MidAmerican Energy Holdings Co., 5.75%, 4/01/18		6,550		7,769,374
Northern States Power Co ., 5.25%, 7/15/35		2,500		3,006,782
Pacific Gas & Electric Co.:
5.63%, 11/30/17		1,500		1,799,147
3.25%, 9/15/21 (c)		2,900		3,038,669
PacifiCorp:
5.50%, 1/15/19		1,300		1,554,289
6.25%, 10/15/37		1,000		1,344,624
Progress Energy, Inc.:
4.88%, 12/01/19		3,100		3,558,719
4.40%, 1/15/21		3,700		4,113,667
3.15%, 4/01/22		950		958,710
Southern Co. (The), 4.15%, 5/15/14		900		951,004
				40,318,297
Electrical Equipment — 0.1%
Roper Industries, Inc., 6.25%, 9/01/19		1,500		1,785,165
Electronic Equipment, Instruments & Components — 0.1%
Tyco Electronics Group SA, 6.55%, 10/01/17		2,900		3,462,058
Food & Staples Retailing — 0.1%
Wal-Mart Stores, Inc., 5.63%, 4/01/40		1,500		1,937,016
Food Products — 0.8%
ConAgra Foods, Inc., 7.13%, 10/01/26		2,400		3,004,706
General Mills, Inc., 5.65%, 2/15/19		1,400		1,689,894

Corporate Bonds	Par (000)		Value
Food Products (concluded)
Hershey Co. (The), 4.13%, 12/01/20	$	1,550	$	1,738,606
Kellogg Co.:
4.45%, 5/30/16		100		110,656
3.25%, 5/21/18		1,550		1,661,279
Kraft Foods, Inc., 5.38%, 2/10/20		3,600		4,260,078
Mead Johnson Nutrition Co., 4.90%, 11/01/19		4,500		5,118,345
Tyson Foods, Inc., 4.50%, 6/15/22		2,800		2,884,000
				20,467,564
Health Care Equipment & Supplies — 0.1%
Covidien International Finance SA, 4.20%, 6/15/20		1,700		1,879,931
Health Care Providers & Services — 1.1%
AmerisourceBergen Corp.:
4.88%, 11/15/19		900		1,029,212
3.50%, 11/15/21		6,250		6,543,256
Cardinal Health, Inc.:
4.63%, 12/15/20		4,300		4,817,767
3.20%, 6/15/22		1,600		1,620,389
DaVita, Inc., 6.38%, 11/01/18 (c)		3,550		3,665,375
Health Net, Inc., 6.38%, 6/01/17		2,300		2,351,750
Humana, Inc., 6.45%, 6/01/16		4,100		4,662,725
UnitedHealth Group, Inc., 4.70%, 2/15/21 (c)		3,100		3,573,451
				28,263,925
Hotels, Restaurants & Leisure — 0.8%
McDonald’s Corp.:
6.30%, 10/15/37		1,000		1,400,303
4.88%, 7/15/40		1,600		1,892,859
Wyndham Worldwide Corp.:
6.00%, 12/01/16 (c)		24		26,697
5.75%, 2/01/18		3,400		3,780,324
4.25%, 3/01/22		1,550		1,560,759
Yum! Brands, Inc.:
4.25%, 9/15/15		2,000		2,165,412
6.25%, 3/15/18		2,500		2,962,378
5.30%, 9/15/19		2,241		2,575,337
6.88%, 11/15/37		2,100		2,781,202
				19,145,271
Household Durables — 0.0%
Tupperware Brands Corp., 4.75%, 6/01/21		900		932,366
Household Products — 0.0%
Kimberly-Clark Corp., 2.40%, 3/01/22		1,250		1,249,974
Independent Power Producers & Energy Traders — 0.3%
Constellation Energy Group, Inc., 5.15%, 12/01/20 (c)		3,200		3,542,211
Exelon Generation Co. LLC, 5.75%, 10/01/41		500		520,487
PSEG Power LLC, 4.15%, 9/15/21		1,150		1,193,608

See Notes to Financial Statements.

20 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

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 (concluded)
Southern Power Co., 5.15%, 9/15/41	$	1,000	$	1,086,614
				6,342,920
Industrial Conglomerates — 0.4%
Tyco International Finance SA, 8.50%, 1/15/19		8,000		10,955,464
Insurance — 0.6%
The Allstate Corp., 5.20%, 1/15/42		1,500		1,684,658
American International Group, Inc., 6.40%, 12/15/20		1,200		1,357,772
American International Group, Inc., 8.18%, 5/15/68 (a)		500		542,500
Berkshire Hathaway, Inc., 1.90%, 1/31/17		2,400		2,447,467
Markel Corp., 5.35%, 6/01/21 (c)		1,300		1,369,557
Marsh & McLennan Cos., Inc.:
5.75%, 9/15/15		400		443,636
9.25%, 4/15/19		200		265,137
4.80%, 7/15/21		1,600		1,742,195
Protective Life Corp., 8.45%, 10/15/39		300		361,124
Willis Group Holdings Plc, 4.13%, 3/15/16		2,600		2,718,071
XL Group Ltd., 5.75%, 10/01/21		1,400		1,548,830
				14,480,947
Internet & Catalog Retail — 0.1%
Export-Import Bank of Korea, 4.00%, 1/29/21		1,446		1,492,595
Internet Software & Services — 0.1%
Digital Realty Trust LP, 5.88%, 2/01/20		2,800		3,084,250
IT Services — 0.5%
International Business Machines Corp.:
2.00%, 1/05/16		8,600		8,879,741
7.63%, 10/15/18		2,050		2,731,178
5.60%, 11/30/39		88		114,696
4.00%, 6/20/42		1,746		1,825,097
				13,550,712
Leisure Equipment & Products — 0.1%
Mattel, Inc.:
2.50%, 11/01/16		750		770,435
5.45%, 11/01/41		1,800		1,967,481
				2,737,916
Life Sciences Tools & Services — 0.2%
Bio-Rad Laboratories, Inc., 4.88%, 12/15/20		3,100		3,251,897
Thermo Fisher Scientific, Inc., 3.25%, 11/20/14		1,600		1,685,974
				4,937,871
Machinery — 0.3%
Case New Holland, Inc., 7.75%, 9/01/13		3,191		3,390,437
Danaher Corp., 2.30%, 6/23/16		450		469,813
Dover Corp., 4.30%, 3/01/21		2,400		2,746,349
				6,606,599
Media — 1.1%
CBS Corp., 5.90%, 10/15/40		2,200		2,470,030
Comcast Corp.:
5.70%, 5/15/18		2,450		2,889,368
3.13%, 7/15/22		2,550		2,561,998

Corporate Bonds	Par (000)		Value
Media (concluded)
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., 5.15%, 3/15/42 (c)	$	1,100	$	1,107,094
Discovery Communications LLC, 4.95%, 5/15/42 (c)		2,500		2,609,102
DISH DBS Corp.:
4.63%, 7/15/17 (b)		800		801,000
7.88%, 9/01/19 (c)		2,700		3,111,750
6.75%, 6/01/21		1,200		1,296,000
NBCUniversal Media LLC, 6.40%, 4/30/40		500		610,843
News America, Inc., 4.50%, 2/15/21 (c)		2,500		2,740,880
Scripps Networks Interactive, Inc., 2.70%, 12/15/16		2,300		2,372,984
Time Warner, Inc., 8.25%, 4/01/19		2,350		3,070,740
Viacom, Inc., 4.38%, 9/15/14		1,300		1,391,572
				27,033,361
Metals & Mining — 0.1%
Xstrata Canada Corp., 6.20%, 6/15/35		1,000		1,017,559
Xstrata Canada Financial Corp., 6.00%, 11/15/41 (b)		650		649,318
				1,666,877
Multi-Utilities — 0.4%
Consolidated Edison Co. of New York, Inc., 4.20%, 3/15/42 (c)		2,400		2,557,908
Dominion Resources, Inc.:
6.40%, 6/15/18		4,050		4,949,696
4.45%, 3/15/21		2,100		2,388,252
SCANA Corp., 4.13%, 2/01/22		500		504,520
				10,400,376
Multiline Retail — 0.1%
Nordstrom, Inc.:
4.00%, 10/15/21 (c)		1,200		1,316,168
7.00%, 1/15/38		600		834,678
				2,150,846
Oil, Gas & Consumable Fuels — 2.6%
BP Capital Markets Plc:
3.13%, 10/01/15		700		744,191
3.20%, 3/11/16		1,500		1,595,412
3.56%, 11/01/21		1,900		2,011,454
Buckeye Partners LP, 4.88%, 2/01/21		550		546,747
ConocoPhillips, 6.50%, 2/01/39		4,500		6,231,627
ConocoPhillips Canada Funding Co. I, 5.63%, 10/15/16		500		591,038
Encana Corp., 6.50%, 5/15/19		400		476,373
Energy Transfer Partners LP:
9.70%, 3/15/19		842		1,079,631
9.00%, 4/15/19		373		465,868
Enterprise Products Operating LLC:
5.20%, 9/01/20		500		572,034
5.75%, 3/01/35		1,500		1,658,541
5.95%, 2/01/41		900		1,017,773
Husky Energy, Inc.:
3.95%, 4/15/22		5,300		5,403,143
6.80%, 9/15/37		1,000		1,228,530
Kinder Morgan Energy Partners LP, 3.95%, 9/01/22		4,400		4,457,693

See Notes to Financial Statements.

BLACKROCK COREALPHA BOND FUND JUNE 30, 2012 21

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

Corporate Bonds	Par (000)		Value
Oil, Gas & Consumable Fuels (concluded)
Linn Energy LLC/Linn Energy Finance Corp.:
6.50%, 5/15/19 (b)	$	300	$	297,000
6.25%, 11/01/19 (b)		3,200		3,136,000
8.63%, 4/15/20 (c)		3,200		3,448,000
7.75%, 2/01/21		250		261,250
Marathon Petroleum Corp., 6.50%, 3/01/41		1,830		2,079,718
ONEOK Partners LP, 6.85%, 10/15/37		1,300		1,548,624
Petrobras International Finance Co.,
5.38%, 1/27/21		2,200		2,371,096
6.75%, 1/27/41		500		586,492
Petroleos Mexicanos:
5.50%, 1/21/21		1,100		1,243,000
4.88%, 1/24/22 (b)		2,600		2,808,000
Petronas Capital Ltd., 5.25%, 8/12/19		2,200		2,528,125
Phillips 66, 4.30%, 4/01/22 (b)		3,700		3,892,278
Pioneer Natural Resources Co., 3.95%, 7/15/22		300		300,726
Plains All American Pipeline LP/PAA Finance Corp.:
8.75%, 5/01/19		600		791,363
6.70%, 5/15/36		1,000		1,169,108
5.15%, 6/01/42		700		739,710
TransCanada PipeLines Ltd.:
6.50%, 8/15/18		2,850		3,543,220
3.80%, 10/01/20		4,200		4,623,868
Williams Partners LP:
3.80%, 2/15/15		800		841,586
4.00%, 11/15/21 (c)		1,150		1,194,590
				65,483,809
Paper & Forest Products — 0.3%
Domtar Corp.:
10.75%, 6/01/17		1,500		1,927,446
4.40%, 4/01/22		4,400		4,310,887
International Paper Co., 9.38%, 5/15/19		1,600		2,147,945
				8,386,278
Pharmaceuticals — 0.9%
Abbott Laboratories:
4.13%, 5/27/20		2,000		2,263,634
5.30%, 5/27/40		1,400		1,710,404
AstraZeneca Plc, 6.45%, 9/15/37		2,500		3,384,918
Eli Lilly & Co., 5.55%, 3/15/37		1,700		2,181,158
GlaxoSmithKline Capital Plc, 2.85%, 5/08/22		4,500		4,577,431
GlaxoSmithKline Capital, Inc.:
5.65%, 5/15/18		1,200		1,450,596
6.38%, 5/15/38		500		687,534
Pfizer, Inc., 6.20%, 3/15/19		1,500		1,880,025
Sanofi-Aventis SA, 2.63%, 3/29/16		2,400		2,518,094
Teva Pharmaceutical Finance IV BV, 3.65%, 11/10/21		2,800		2,944,978
				23,598,772
Professional Services — 0.0%
Dun & Bradstreet Corp. (The), 2.88%, 11/15/15		600		616,897
Real Estate — 0.1%
Simon Property Group LP, 4.75%, 3/15/42		1,900		1,900,766

Corporate Bonds	Par (000)		Value
Real Estate Investment Trusts (REITs) — 0.5%
American Tower Corp.:
4.63%, 4/01/15	$	4,000	$	4,233,988
4.70%, 3/15/22 (c)		4,400		4,516,974
Health Care REIT, Inc., 5.25%, 1/15/22		2,000		2,121,528
Hospitality Properties Trust, 6.70%, 1/15/18		1,400		1,532,514
Simon Property Group LP, 5.65%, 2/01/20		1,000		1,166,498
				13,571,502
Road & Rail — 0.3%
Burlington Northern Santa Fe LLC, 5.40%, 6/01/41		2,700		3,087,334
CSX Corp., 5.75%, 3/15/13		2,600		2,686,765
Norfolk Southern Corp., 5.75%, 1/15/16		1,100		1,265,738
Union Pacific Corp., 6.13%, 2/15/20		1,300		1,605,445
				8,645,282
Semiconductors & Semiconductor Equipment — 0.1%
Intel Corp., 3.30%, 10/01/21		2,100		2,244,936
Software — 0.2%
BMC Software, Inc., 4.25%, 2/15/22		700		700,520
Oracle Corp.:
5.25%, 1/15/16		1,500		1,719,810
5.75%, 4/15/18		550		667,312
5.38%, 7/15/40		800		980,184
				4,067,826
Specialty Retail — 1.5%
Advance Auto Parts, Inc., 4.50%, 1/15/22		3,100		3,246,177
AutoZone, Inc.:
4.00%, 11/15/20		6,600		7,054,437
3.70%, 4/15/22		600		617,997
The Gap, Inc., 5.95%, 4/12/21		2,135		2,212,945
The Home Depot Inc., 5.88%, 12/16/36		2,500		3,200,558
Limited Brands, Inc.:
6.90%, 7/15/17		2,167		2,405,370
8.50%, 6/15/19		4,000		4,700,000
Macy’s Retail Holdings, Inc.:
7.45%, 7/15/17		1,000		1,217,654
3.88%, 1/15/22 (c)		1,950		2,050,177
McDonald’s Corp., 3.70%, 2/15/42		1,800		1,791,270
O’Reilly Automotive, Inc., 4.63%, 9/15/21		5,300		5,538,839
The Sherwin-Williams Co., 3.13%, 12/15/14		3,300		3,463,505
				37,498,929
Tobacco — 0.8%
Altria Group, Inc.:
9.70%, 11/10/18		2,750		3,805,362
9.25%, 8/06/19		1,100		1,528,216
9.95%, 11/10/38		200		318,013
Lorillard Tobacco Co., 3.50%, 8/04/16		1,200		1,250,954
Philip Morris International, Inc.:
4.88%, 5/16/13		2,200		2,281,565
5.65%, 5/16/18		4,300		5,193,063
2.90%, 11/15/21		2,700		2,780,479
6.38%, 5/16/38		1,500		2,006,661
				19,164,313
Transportation Infrastructure — 0.0%
Canadian Pacific Railway Co., 7.13%, 10/15/31		1,000		1,262,737
Wireless Telecommunication Services — 0.3%
America Movil SAB de CV, 5.00%, 3/30/20		800		908,515

See Notes to Financial Statements.

22 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

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

Corporate Bonds	Par (000)			Value
Wireless Telecommunication Services (concluded)
American Tower Corp.:
4.50%, 1/15/18	$	2,100		$	2,219,729
5.05%, 9/01/20		2,300			2,415,862
Vodafone Group Plc:
2.88%, 3/16/16 (c)		1,800			1,893,919
5.63%, 2/27/17		950			1,111,603
					8,549,628
Total Corporate Bonds — 24.5%					621,713,815
Foreign Agency Obligations
Brazilian Government International Bond, 5.63%, 1/07/41		1,500			1,839,750
Colombia Government International Bond:
4.38%, 7/12/21 (c)		2,000			2,246,000
7.38%, 9/18/37		800			1,181,600
Covidien International Finance SA, 3.20%, 6/15/22		2,600			2,680,524
Mexico Government International Bond:
6.05%, 1/11/40		1,300			1,677,000
4.75%, 3/08/44		5,800			6,249,500
Panama Government International Bond, 6.70%, 1/26/36		800			1,080,000
Peruvian Government International Bond, 7.13%, 3/30/19		3,000			3,855,000
South Africa Government International Bond, 5.50%, 3/09/20		2,000			2,305,000
Total Foreign Agency Obligations — 0.9%					23,114,374
Non-Agency Mortgage-Backed Securities
Collateralized Mortgage Obligations — 2.7%
Arkle Master Issuer PLC, 1.87%, 5/17/60 (b)		8,155			8,191,820
Banc of America Funding Corp.:
Series 2005-6, Class 1A5, 5.50%, 10/25/35		894			899,268
Series 2005-8, Class 4A27, 5.75%, 1/25/36		663			667,543
Citicorp Mortgage Securities, Inc.:
Series 2006-1, Class 2A1, 5.00%, 2/25/21		710			719,437
Series 2007-3, Class 1A7, 6.00%, 4/25/37		98			97,644
Countrywide Alternative Loan Trust:
Series 2005-51, Class 1A2A, 0.53%, 11/20/35 (a)		1,093			1,066,522
Series 2006-HY12, Class A1, 5.48%, 8/25/36 (a)		477			479,757
GMAC Mortgage Corp. Loan Trust, Series 2005-AR3, Class 4A3, 3.43%, 6/19/35 (a)		1,765			1,772,536
Greenpoint Mortgage Funding Trust:
Series 2006-AR4, Class A1A, 1.00%, 9/25/46 (a)		—	(d)		17
Series 2006-AR5, Class A1A, 0.33%, 10/25/46 (a)		—	(d)		313
GSR Mortgage Loan Trust, Series 2006-AR1, Class 2A2, 2.71%, 1/25/36 (a)		2,198			2,158,451

Non-Agency Mortgage-Backed Securities	Par (000)		Value
Collateralized Mortgage Obligations (concluded)
Holmes Master Issuer PLC:
0.57%, 7/15/30 (a)	$	9,700	$	9,687,438
1.87%, 10/15/54 (b)		8,230		8,268,977
Series 2007-2A, Class 4A, 0.57%, 7/15/20 (a)		7,200		7,199,273
HSI Asset Securitization Corp. Trust, Series 2005, Class 2A4, 0.64%, 8/25/35 (a)		1,048		984,889
Permanent Master Issuer PLC:
1.87%, 7/15/42 (b)		8,500		8,543,622
Series 2010-1A, Class 1A, 1.62%, 7/15/42		9,776		9,795,317
Residential Accredit Loans, Inc., Series 2004-QS9, Class A1, 5.00%, 6/25/19		579		581,664
Thornburg Mortgage Securities Trust, Series 2007-3, Class 4A3, 0.46%, 6/25/47 (a)		6,243		6,242,242
Wells Fargo Mortgage Backed Securities Trust:
Series 2003-11, Class 1A13, 4.75%, 10/25/18		567		583,901
Series 2005-7, Class A3, 5.25%, 9/25/35		478		478,255
				68,418,886
Commercial Mortgage-Backed Securities — 0.4%
Banc of America Merrill Lynch Commercial Mortgage, Inc.:
Series 2003-1, Class A2, 4.65%, 9/11/36		585		593,103
Series 2004-6, Class A3, 4.51%, 12/10/42		483		487,269
Bear Stearns Commercial Mortgage Securities, Series 2002-TOP8, Class A2, 4.83%, 8/15/38		2,254		2,258,993
Credit Suisse First Boston Mortgage Securities Corp., Series 2002-CKN2, Class A3, 6.13%, 4/15/37		46		45,934
GE Capital Commercial Mortgage Corp., Series 2007-C1, Class A2, 5.42%, 12/10/49		1,412		1,410,382
LB-UBS Commercial Mortgage Trust, Series 2006-C7, Class A2, 5.30%, 11/15/38		3,503		3,561,350
Merrill Lynch Countrywide Commercial Mortgage Trust, Series 2006-1, Class A2, 5.44%, 2/12/39 (a)		178		178,188
Merrill Lynch Mortgage Trust, Series 2004-MKB1, Class A3, 4.89%, 2/12/42		345		346,412
Morgan Stanley Dean Witter Capital I, Series 2002-IQ3, Class A4, 5.08%, 9/15/37		1,177		1,185,299
				10,066,930
Total Non-Agency Mortgage-Backed Securities — 3.1%				78,485,816

See Notes to Financial Statements.

BLACKROCK COREALPHA BOND FUND JUNE 30, 2012 23

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

Preferred Securities	Par (000)		Value
Capital Trusts
Insurance — 0.2%
Chubb Corp. (The):
6.00%, 5/11/37	$	800	$	1,027,042
6.38%, 3/29/67 (a)		2,550		2,632,875
				3,659,917
Total Capital Trusts — 0.2%				3,659,917
	Shares
Trust Preferred — 0.1%
Diversified Financial Services — 0.1%
JPMorgan Chase Capital XXVII, 7.00%, 11/01/39		3,500		3,500,000
Total Preferred Securities — 0.3%				7,159,917
Preferred Stocks
Diversified Telecommunication Services — 0.2%
Qwest Corp., 7.38%		196		5,188,120
Total Preferred Stocks — 0.2%				5,188,120
	Par (000)
Taxable Municipal Bonds
Chicago, Illinois Waterworks Revenue, 6.74%, 11/01/40	$	150		200,294
Massachusetts State Transportation Fund Revenue, 5.73%, 6/01/40		150		199,889
New Jersey State Turnpike Authority Revenue, 7.10%, 1/01/41		700		988,029
New York City Transitional Finance Authority Revenue, 5.57%, 11/01/38		450		546,147
Orange County Local Transportation Authority Sales Tax Revenue, 6.91%, 2/15/41		450		628,114
Port Authority of New York & New Jersey Revenue, 5.65%, 11/01/40		800		971,000
San Diego County Regional Transportation Commission Revenue, 5.91%, 4/01/48		600		795,306
San Francisco City & County Public Utilities Commission Revenue, 6.95%, 11/01/50		900		1,264,464
State of California:
7.55%, 4/01/39		400		518,192
7.63%, 3/01/40		1,150		1,485,305
7.60%, 11/01/40		250		322,742
State of Mississippi, 5.25%, 11/01/34		600		714,462
University of Missouri System Facilities Revenue, 5.79%, 11/01/41		300		396,108
Total Taxable Municipal Bonds — 0.4%				9,030,052
US Government Sponsored Agency Securities
Collateralized Mortgage Obligations — 0.9%
Fannie Mae REMICS:
Series 2007-54, Class PF, 0.47%, 6/25/37 (a)		5,159		5,153,334

US Government Sponsored Agency Securities	Par (000)		Value
Collateralized Mortgage Obligations (concluded)
Series 2010-35, Class EF, 0.80%, 4/25/40 (a)	$	5,989	$	6,008,840
Series 2010-89, Class CF, 0.70%, 2/25/38 (a)		5,325		5,334,864
Freddie Mac Mortgage Backed Securities:
Series 3667, Class FW, 0.79%, 2/15/38 (a)		3,707		3,719,832
Series 3807, Class FN, 0.74%, 2/15/41 (a)		3,519		3,528,309
				23,745,179
Mortgage-Backed Securities — 159.8%
Fannie Mae Mortgage Backed Securities:
2.34%, 5/01/33 (a)		3,515		3,730,633
2.35%, 8/01/33		2,703		2,865,483
2.46%, 2/01/42 (a)		44		45,631
2.48%, 1/01/36 (a)		1,620		1,723,292
2.51%, 1/01/35 (a)		1,541		1,634,482
2.75%, 8/01/41 (a)		3,501		3,649,449
2.81%, 1/01/42 (a)		1,003		1,047,008
3.00%, 2/01/26—7/01/42 (e)		256,417		263,324,973
3.30%, 9/01/41 (a)		2,037		2,141,693
3.36%, 4/01/40 (a)		488		512,347
3.50%, 2/01/26—7/01/42 (e)		1,448,230		1,522,428,998
3.60%, 5/01/40 (a)		3,251		3,425,982
4.00%, 8/01/25—7/01/42 (e)		551,764		587,519,506
4.50%, 10/01/24—7/01/42 (e)		534,173		573,130,913
5.00%, 1/01/18—7/01/42 (e)		354,357		383,743,817
5.50%, 9/01/19—7/01/42 (e)		102,497		112,099,678
6.00%, 11/01/22—7/01/42 (e)		146,495		161,257,480
6.50%, 12/01/30—12/01/32		15,140		17,403,891
Freddie Mac Mortgage Backed Securities:
2.22%, 10/01/33 (a)		1,541		1,594,762
2.65%, 1/01/42 (a)		50		51,883
2.88%, 11/01/36 (a)		1,683		1,759,284
3.00%, 1/01/27—7/01/27 (e)		10,832		11,333,489
3.26%, 8/01/41 (a)		2,397		2,512,837
3.34%, 2/01/40 (a)		3,300		3,463,975
3.34%, 7/01/41 (a)		1,390		1,461,764
3.50%, 12/01/25—7/01/42 (e)		20,818		21,936,823
4.00%, 3/01/26—4/01/42 (e)		38,703		41,081,140
4.50%, 8/01/20—7/01/42 (e)		49,504		52,909,875
4.58%, 4/01/38 (a)		3,485		3,719,535
5.00%, 10/01/20—7/01/42 (e)		34,076		36,713,188
5.50%, 12/01/27—7/01/42 (e)		23,706		25,839,985
6.00%, 12/01/28—1/01/38		18,580		20,495,580
6.50%, 5/01/21—1/01/36		3,602		4,094,096
Ginnie Mae Mortgage Backed Securities:
3.50%, 12/15/40—7/01/42 (e)		17,934		19,173,781
4.00%, 9/15/40—7/01/42 (e)		31,300		34,295,957
4.50%, 3/15/39—7/01/42 (e)		50,861		56,047,671
5.00%, 9/15/39—5/20/41		40,566		45,005,209
5.50%, 6/15/34—11/20/39		14,464		16,073,114
6.00%, 9/20/38—7/01/42 (e)		8,235		9,238,550
				4,050,487,754
Total US Government Sponsored Agency Securities — 160.7%				4,074,232,933

See Notes to Financial Statements.

24 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio

US Treasury Obligations	Par (000)		Value
US Treasury Bonds:
6.38%, 8/15/27 (c)	$	24,068	$	37,068,475
6.25%, 5/15/30 (c)		27,228		42,977,394
5.00%, 5/15/37 (c)		23,800		34,346,375
4.38%, 5/15/40 (c)(f)		23,100		30,784,354
3.88%, 8/15/40		20,650		25,422,091
4.25%, 11/15/40		4,640		6,069,700
4.38%, 5/15/41		4,931		6,585,967
US Treasury Notes:
1.25%, 2/15/14		61,000		61,912,621
1.75%, 3/31/14 (c)		33,000		33,814,704
2.63%, 12/31/14 (c)		61,990		65,462,432
2.75%, 12/31/17 (c)		26,500		29,201,754
1.75%, 10/31/18		1,041		1,089,227
Total US Treasury Obligations — 14.8%				374,735,094
Total Long-Term Investments (Cost — $5,287,558,459) — 213.2%				5,403,961,917
Short-Term Securities	Shares
Money Market Funds — 27.6%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.25% (g)(h)(i)		649,781,401		649,781,401
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (g)(h)(i)		51,948,605		51,948,605
				701,730,006
Total Short-Term Securities (Cost — $701,730,006) — 27.6%				701,730,006
Total Investments Before TBA Sale Commitments (Cost — $5,981,138,465*) — 240.8%				6,105,691,923
TBA Sale Commitments (e)	Par (000)
Fannie Mae Mortgage Backed Securities:
3.00%, 2/01/26—7/01/42	$	333,400		(341,891,281	)
3.50%, 2/01/26—7/01/42		1,453,200		(1,527,449,438	)
4.00%, 8/01/25—7/01/42		735,200		(782,413,625	)
4.50%, 10/01/24—7/01/42		509,500		(546,518,359	)
5.00%, 1/01/18—7/01/42		328,300		(355,282,156	)
5.50%, 9/01/19—7/01/42		74,000		(80,685,938	)
6.00%, 11/01/22—7/01/42		148,400		(163,077,688	)
Ginnie Mae Mortgage Backed Securities:
5.00%, 9/15/39—5/20/41		8,000		(8,802,500	)
Total TBA Sale Commitments (Proceeds — $3,806,959,788) — (150.1)%				(3,806,120,985	)
Total Investments, Net of TBA Sale Commitments — 90.7%				2,299,570,938
Other Assets, Less Liabilities — 9.3%				235,919,090
Net Assets — 100.0%			$	2,535,490,028

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Tax cost	$	5,983,106,793
Gross unrealized appreciation	$	118,177,688
Gross unrealized depreciation		(3,742,558	)
Net unrealized appreciation	$	114,435,130

(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, as amended. 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 TBA transaction. Unsettled TBA transactions as of June 30, 2012 were as follows:

Counterparty	Market Value			Unrealized Appreciation (Depreciation)
Bank of America Corp.	$	(112,936,859	)	$	6,727
Barclays Plc	$	44,719,203		$	(243,829	)
BNP Paribas SA	$	104,658,984		$	172,796
Citigroup Inc.	$	115,738,211		$	294,095
Credit Suisse Group AG	$	(342,077,813	)	$	15,767
Deutsche Bank AG	$	(501,728,258	)	$	(1,292	)
Goldman Sachs Group, Inc.	$	(153,825,688	)	$	(236,051	)
JPMorgan Chase & Co.	$	163,973,813		$	(158,671	)
Morgan Stanley	$	(64,244,867	)	$	139,160
Nomura Trust and Banking Co., Ltd.	$	4,966,438		$	18,357
R.B.C. Dominion Securities	$	21,555,188		$	139,594
Royal Bank of Scotland Group Plc	$	346,199,188		$	259,543
UBS AG	$	(26,399,008	)	$	(22,505	)
Wells Fargo & Co.	$	(13,778,188	)	$	(26,525	)

(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 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, 2011		Net Activity		Shares Held at June 30, 2012		Income
BlackRock Cash Funds:
Institutional, SL Agency Shares		559,553,070		90,228,331		649,781,401	$	664,203
BlackRock Cash Funds:
Prime, SL Agency Shares		36,989,307		14,959,298		51,948,605	$	21,498

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

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

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 industry sub-classifications for reporting ease.

See Notes to Financial Statements.

BLACKROCK COREALPHA BOND FUND JUNE 30, 2012 25

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio

Ÿ Financial futures contracts purchased as of June 30, 2012 were as follows:

Contracts	Issue	Exchange	Expiration	Notional Value		Unrealized Appreciation (Depreciation)
1,800	2-Year US Treasury Note	Chicago Mercantile	September 2012	$	396,337,500	$	(57,378	)
2,299	5-Year US Treasury Note	Chicago Mercantile	September 2012	$	285,004,156		(70,668	)
553	10-Year Australian Bond Future	Australian Securities	September 2012	$	69,378,141		102,457
2,270	10-Year US Treasury Note	Chicago Mercantile	September 2012	$	302,761,250		(570,143	)
403	Euro BOBL	Eurex	September 2012	$	50,733,670		(136,990	)
38	10-Year Japanese Yen Future	Chicago Mercantile	September 2012	$	5,460,220,000		2,823,466
180	U.K. Long Gilt Bond	NYSE Liffe	September 2012	$	21,439,800		(71,280	)
5	Ultra Long-Term US Treasury Bond	Chicago Mercantile	September 2012	$	834,219		185
Total						$	2,019,649

Ÿ Financial futures contracts sold as of June 30, 2012 were as follows:

Contracts	Issue	Exchange	Expiration	Notional Value		Unrealized Appreciation (Depreciation)
219	10-Year Canada Bond Future	Chicago Mercantile	September 2012	$	30,320,550	$	(36,609	)
145	30-Year US Treasury Bond	Chicago Mercantile	September 2012	$	21,455,469		199,404
99	Euro-Bund Future	Eurex	September 2012	$	13,949,100		85,138
18	Euro BUXL Future	Eurex	September 2012	$	2,356,920		(16,053	)
736	Euro-Schatz Future	Eurex	September 2012	$	81,324,320		10,336
Total						$	242,216

Ÿ Foreign currency exchange contracts as of June 30, 2012 were as follows:

Currency Purchased		Currency Sold		Counterparty	Settlement Date		Unrealized Appreciation (Depreciation)
AUD	5,109,000	USD	5,081,922	Credit Suisse Group AG		7/11/12	$	151,082
AUD	13,201,000	USD	12,981,480	HSBC Holdings Plc		7/11/12		539,930
AUD	4,941,000	USD	4,910,583	JPMorgan Chase & Co.		7/11/12		150,343
AUD	8,104,000	USD	7,780,780	Royal Bank of Scotland Group PLC		7/11/12		519,918
AUD	7,291,000	USD	7,420,269	Westpac Banking Corp.		7/11/12		47,696
CAD	29,613,000	USD	28,958,265	Credit Suisse Group AG		7/11/12		84,678
CAD	9,296,000	USD	9,051,927	HSBC Holdings Plc		7/11/12		65,123
CAD	4,785,000	USD	4,591,981	JPMorgan Chase & Co.		7/11/12		100,907
CAD	6,108,000	USD	5,937,937	UBS AG		7/11/12		52,482

Foreign currency exchange contracts as of June 30, 2012 were as follows (continued):

Currency Purchased		Currency Sold		Counterparty	Settlement Date		Unrealized Appreciation (Depreciation)
CAD	571,000	USD	556,334	Westpac Banking Corp.		7/11/12	$	3,674
CHF	16,450,000	USD	17,176,300	Citigroup Inc.		7/11/12		206,791
CHF	6,123,000	USD	6,401,992	Credit Suisse Group AG		7/11/12		68,321
CHF	3,872,000	USD	4,036,941	HSBC Holdings Plc		7/11/12		54,689
EUR	1,160,000	USD	1,456,612	Credit Suisse Group AG		7/11/12		15,579
EUR	15,936,000	USD	19,895,942	HSBC Holdings Plc		7/11/12		328,914
EUR	398,000	USD	498,382	JPMorgan Chase & Co.		7/11/12		6,732
EUR	42,565,000	USD	53,236,300	UBS AG		7/11/12		784,219
GBP	5,281,000	USD	8,231,283	Deutsche Bank AG		7/11/12		51,553
GBP	12,952,000	USD	20,286,069	HSBC Holdings Plc		7/11/12		28,132
GBP	34,013,000	USD	53,076,993	UBS AG		7/11/12		269,742
GBP	4,409,000	USD	6,889,843	Westpac Banking Corp.		7/11/12		25,329
JPY	289,000,000	USD	3,656,367	HSBC Holdings Plc		7/11/12		(33,945	)
JPY	785,000,000	USD	9,937,149	JPMorgan Chase & Co.		7/11/12		(97,699	)
JPY	206,500,000	USD	2,607,883	UBS AG		7/11/12		(19,543	)
NOK	59,780,000	USD	9,992,142	Deutsche Bank AG		7/11/12		61,416
NOK	11,824,000	USD	1,982,156	HSBC Holdings Plc		7/11/12		6,356
NOK	108,469,000	USD	18,301,317	UBS AG		7/11/12		(59,439	)
NZD	21,072,000	USD	16,447,792	HSBC Holdings Plc		7/11/12		479,841
NZD	23,453,000	USD	18,596,111	JPMorgan Chase & Co.		7/11/12		244,236
NZD	10,114,000	USD	7,792,512	UBS AG		7/11/12		332,302
NZD	650,000	USD	518,044	Westpac Banking Corp.		7/11/12		4,116
SEK	174,212,000	USD	24,871,291	Deutsche Bank AG		7/11/12		360,565
SEK	179,867,000	USD	25,496,116	HSBC Holdings Plc		7/11/12		554,778
SEK	34,601,000	USD	4,964,877	JPMorgan Chase & Co.		7/11/12		46,531
USD	21,533,724	AUD	21,748,000	Credit Suisse Group AG		7/11/12		(742,136	)
USD	20,074,322	AUD	20,312,000	HSBC Holdings Plc		7/11/12		(730,685	)
USD	13,996,676	AUD	13,917,000	JPMorgan Chase & Co.		7/11/12		(258,112	)
USD	14,612,104	AUD	14,577,000	UBS AG		7/11/12		(318,704	)
USD	4,286,212	AUD	4,261,000	Westpac Banking Corp.		7/11/12		(78,209	)
USD	2,890,523	CAD	2,962,000	Credit Suisse Group AG		7/11/12		(14,458	)
USD	9,388,720	CAD	9,634,000	Royal Bank of Canada		7/11/12		(59,824	)
USD	4,985,784	CAD	5,132,000	UBS AG		7/11/12		(47,423	)
USD	10,240,166	CHF	9,776,000	JPMorgan Chase & Co.		7/11/12		(90,356	)
USD	28,863,992	CHF	27,754,000	UBS AG		7/11/12		(464,293	)
USD	3,939,272	CHF	3,767,000	Westpac Banking Corp.		7/11/12		(41,403	)
USD	40,724,041	EUR	32,501,000	Deutsche Bank AG		7/11/12		(523,953	)
USD	10,134,945	EUR	8,114,000	HSBC Holdings Plc		7/11/12		(162,775	)
USD	1,467,145	EUR	1,174,000	JPMorgan Chase & Co.		7/11/12		(22,813	)
USD	20,675,804	EUR	16,447,000	UBS AG		7/11/12		(197,577	)
USD	11,177,279	EUR	8,952,000	Westpac Banking Corp.		7/11/12		(183,973	)
USD	14,466,861	GBP	9,247,000	HSBC Holdings Plc		7/11/12		(36,336	)
USD	58,777,859	GBP	37,817,000	UBS AG		7/11/12		(535,153	)
USD	9,066,707	JPY	719,200,000	Credit Suisse Group AG		7/11/12		52,016
USD	1,557,756	JPY	124,400,000	HSBC Holdings Plc		7/11/12		(1,517	)
USD	28,320,037	JPY	2,246,100,000	JPMorgan Chase & Co.		7/11/12		166,674
USD	15,801,523	JPY	1,257,200,000	UBS AG		7/11/12		43,361
USD	5,920,518	JPY	471,700,000	Westpac Banking Corp.		7/11/12		8,074
USD	1,508,077	NOK	9,058,000	HSBC Holdings Plc		7/11/12		(15,260	)

See Notes to Financial Statements.

26 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

Schedule of Investments (continued) CoreAlpha Bond Master Portfolio

Foreign currency exchange contracts as of June 30, 2012 were as follows (concluded):

Currency Purchased		Currency Sold		Counterparty	Settlement Date		Unrealized Appreciation (Depreciation)
USD	15,482,682	NOK	93,058,000	JPMorgan Chase & Co.		7/11/12	$	(167,435	)
USD	1,479,762	NOK	8,820,000	UBS AG		7/11/12		(3,549	)
USD	5,027,346	NZD	6,598,000	Credit Suisse Group AG		7/11/12		(272,982	)
USD	8,904,029	NZD	11,742,000	HSBC Holdings Plc		7/11/12		(528,596	)
USD	15,589,292	NZD	19,891,000	JPMorgan Chase & Co.		7/11/12		(389,615	)
USD	1,453,592	NZD	1,916,000	UBS AG		7/11/12		(85,575	)
USD	14,078,647	SEK	100,878,000	Deutsche Bank AG		7/11/12		(531,937	)
USD	6,518,034	SEK	45,524,000	HSBC Holdings Plc		7/11/12		(75,398	)
USD	4,503,147	SEK	31,874,000	Westpac Banking Corp.		7/11/12		(113,298	)
Total							$	(987,871	)

Ÿ Credit default swaps on single-name issues — sold protection outstanding as of June 30, 2012 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+

USD 4,000

$

138,453

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.

Ÿ Credit default swaps on traded indexes — sold protection outstanding as of June 30, 2012 were as follows:

Index	Receive Fixed Rate			Counterparty	Expiration Date		Issuer Credit Rating3		Notional Amount (000)4		Unrealized Depreciation
Dow Jones CDX North America Investment Grade Index Series 17		1.00	%	Deutsche Bank AG		12/20/16		BBB+		USD 62,500	$	(256,832	)
Dow Jones CDX North America Investment Grade Index Series 18		1.00	%	BNP Paribas SA		6/20/17		BBB+		USD 80,000		(694,252	)
iTraxx — Europe Sub Financial Index Series 17		5.00	%	BNP Paribas SA		6/20/17		CCC+		EUR 22,065		(2,099,037	)
iTraxx — Europe Sub Financial Index Series 17		5.00	%	BNP Paribas SA		6/20/17		CCC+		EUR 22,695		(2,158,968	)
iTraxx — Europe Sub Financial Index Series 17		5.00	%	Deutsche Bank AG		6/20/17		CCC+		EUR 12,020		(1,143,459	)
Total											$	(6,352,548	)

³  Using S&P’s rating of the underlying securities.

⁴  The maximum potential amount the Master Portfolio may pay should a negative event take place as defined under the terms of agreement.

Ÿ Interest rate swaps outstanding as of June 30, 2012 were as follows:

Fixed Rate	Floating Rate	Counterparty	Expiration Date		Notional Amount (000)		Unrealized Depreciation
0.59%5	3-month LIBOR	Royal Bank of Scotland Group Plc	3/15/14	USD		148,400	$	(150,299	)
1.50%5	3-month LIBOR	Deutsche Bank AG	5/15/19	USD		80,960		(708,224	)
0.59%5	6-month LIBOR	Deutsche Bank AG	9/20/19	JPY		4,248,000		(72,520	)
1.55%6	6-month EURIBOR	Deutsche Bank AG	7/4/21	EUR		25,630		(959,283	)
1.71%6	6-month EURIBOR	Deutsche Bank AG	7/4/21	EUR		4,100		(86,936	)
1.79%6	6-month EURIBOR	Deutsche Bank AG	7/4/21	EUR		4,100		(52,656	)
2.09%5	6-month LIBOR	Royal Bank of Scotland Group Plc	9/7/21	GBP		13,380		(121,392	)
Total							$	(2,151,310	)

⁵ Master Portfolio pays a fixed rate and receives a floating rate.

⁶  Master Portfolio pays a floating rate and receives a fixed rate.

Ÿ Total return swaps outstanding as of June 30, 2012 were as follows:

Reference Entity

Master Portfolio Pays/Receives the Total Return of the Reference Entity

Fixed Rate

Counterparty

Expiration Date

Notional Amount (000)

Unrealized Appreciation

Change in Return of the Consumer Price Index for All Urban Consumers

Pays

2.85

%7

Royal Bank of Scotland Group Plc

6/12/22

$

23,300

$

7,515

⁷  Net payment made at termination.

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques 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 into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. 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 is not necessarily an indication of the risks associated with investing in those securities. For

See Notes to Financial Statements.

BLACKROCK COREALPHA BOND FUND JUNE 30, 2012 27

Schedule of Investments (concluded) CoreAlpha Bond Master Portfolio

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 investments and derivative financial instruments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Long-Term Investments:
Asset-Backed Securities		—	$	210,301,796		—	$	210,301,796
Corporate Bonds		—		621,713,815		—		621,713,815
Foreign Agency Obligations		—		23,114,374		—		23,114,374
Non-Agency Mortgage-Backed Securities		—		78,485,816		—		78,485,816
Preferred Securities	$	5,188,120		7,159,917		—		12,348,037
Taxable Municipal Bonds		—		9,030,052		—		9,030,052

	Level 1		Level 2			Level 3		Total
U.S. Government Sponsored Agency Securities		—	$	4,074,232,933			—	$	4,074,232,933
U.S. Treasury Obligations		—		374,735,094			—		374,735,094
Short-Term Securities:
Money Market Funds	$	701,730,006		—			—		701,730,006
Liabilities:
TBA Sale
Commitments		—		(3,806,120,985	)		—		(3,806,120,985	)
Total	$	706,918,126	$	1,592,652,812		$	—	$	2,299,570,938

	Level 1			Level 2			Level 3		Total
Derivative Financial Instruments1
Assets:
Credit contracts		—		$	138,453			—	$	138,453
Foreign currency transactions		—			5,916,100			—		5,916,100
Interest rate contracts	$	3,220,986			—			—		3,220,986
Other contracts		—			7,515			—		7,515
Liabilities:
Credit contracts		—			(6,352,548	)		—		(6,352,548	)
Foreign currency transactions		—			(6,903,971	)		—		(6,903,971	)
Interest rate contracts		(959,121	)		(2,151,310	)		—		(3,110,431	)
Total	$	2,261,865		$	(9,345,761	)	$	—	$	(7,083,896	)

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

Certain of the Master Portfolio’s assets and liabilities are held at carrying amount which approximates fair value for financial statement purposes. As of June 30, 2012, such assets and liabilities would categorized within the disclosure hierarchy as follows:

	Level 1		Level 2			Level 3		Total
Assets:
Foreign currency at value	$	2,173,983		—			—	$	2,173,983
Liabilities:
Collateral on securities loaned at value		—	$	(241,448,066	)		—		(241,448,066	)
Total	$	2,173,983	$	(241,448,066	)	$	—	$	(239,274,083	)

There were no transfers between levels during the six months ended June 30, 2012.

See Notes to Financial Statements.

28 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

Statement of Assets and Liabilities CoreAlpha Bond Master Portfolio

June 30, 2012 (Unaudited)
Assets
Investments at value — unaffiliated (including securities loaned of $233,317,760) (cost — $5,287,558,459)	$	5,403,961,917
Investments at value — affiliated (cost — $701,730,006)		701,730,006
Foreign currency at value (cost — $2,132,328)		2,173,983
TBA sale commitments receivable		3,806,959,788
Contributions receivable from investors		36,086,847
Investments sold receivable		34,741,145
Unrealized appreciation on swaps		145,970
Unrealized appreciation on foreign currency exchange contracts		5,916,100
Swaps premiums paid		560,781
Securities lending income receivable		15,780
Interest receivable		14,489,986
Total assets		10,006,782,303
Liabilities
Collateral on securities loaned at value		241,448,066
Investments purchased payable		3,397,355,450
TBA sale commitments at value (proceeds — $3,806,959,788)		3,806,120,985
Swaps premiums received		5,255,170
Variation margin payable		1,702,712
Cash due to broker for swaps		8,150,000
Unrealized depreciation on swaps		3,809,471
Investment advisory fees payable		498,606
Professional fees payable		23,120
Trustees’ fees payable		15,333
Withdrawals payable to investors		9,391
Unrealized depreciation on foreign currency exchange contracts		6,903,971
Total liabilities		7,471,292,275
Net Assets	$	2,535,490,028
Net Assets Consist of
Investors’ capital	$	2,424,275,243
Net unrealized appreciation/depreciation		111,214,785
Net Assets	$	2,535,490,028

See Notes to Financial Statements.
	BLACKROCK COREALPHA BOND FUND	JUNE 30, 2012	29

Statement of Operations CoreAlpha Bond Master Portfolio

Six Months Ended June 30, 2012 (Unaudited)
Investment Income
Interest	$	33,276,713
Income — affiliated		585,782
Dividends		180,674
Securities lending — affiliated		99,919
Total income		34,143,088
Expenses
Investment advisory		3,034,601
Professional		26,598
Independent Trustees		29,504
Total expenses		3,090,703
Less fees waived by advisor		(56,102	)
Total expenses after fees waived		3,034,601
Net investment income		31,108,487
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		29,059,026
Financial futures contracts		(6,111,023	)
Swaps		(1,407,020	)
Foreign currency transactions		(109,198	)
		21,431,785
Net change in unrealized appreciation/depreciation on:
Investments		13,211,857
Financial futures contracts		(1,866,182	)
Swaps		(1,998,067	)
Foreign currency transactions		(783,288	)
		8,564,320
Total realized and unrealized gain		29,996,105
Net Increase in Net Assets Resulting from Operations	$	61,104,592

See Notes to Financial Statements.
30	BLACKROCK COREALPHA BOND FUND	JUNE 30, 2012

Statements of Changes in Net Assets CoreAlpha Bond Master Portfolio

Increase in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	31,108,487		$	73,808,502
Net realized gain		21,431,785			68,066,011
Net change in unrealized appreciation/depreciation		8,564,320			46,053,042
Net increase in net assets resulting from operations		61,104,592			187,927,555
Capital Transactions
Proceeds from contributions		437,253,794			709,072,896
Value of withdrawals		(325,320,908	)		(685,111,132	)
Net increase in net assets derived from capital transactions		111,932,886			23,961,764
Net Assets
Total increase in net assets		173,037,478			211,889,319
Beginning of period		2,362,452,550			2,150,563,231
End of period	$	2,535,490,028		$	2,362,452,550

See Notes to Financial Statements.
	BLACKROCK COREALPHA BOND FUND	JUNE 30, 2012	31

Financial Highlights CoreAlpha Bond Master Portfolio

	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008		2007
Total Investment Return
Total investment return		2.44%	1		8.38%			6.56%			11.67%			3.62%		5.10%
Ratios to Average Net Assets
Total expenses		0.25%	2		0.27%			0.36%			0.35%			0.36%		0.36%
Total expenses after fees waived		0.24%	2		0.26%			0.35%			0.35%			0.36%		0.35%
Net investment income		2.50%	2		3.22%			3.19%			4.33%			4.47%		5.18%
Supplemental Data
Net assets, end of period (000)	$	2,535,490		$	2,362,453		$	2,150,563		$	1,633,960		$	1,115,903	$	1,479,888
Portfolio turnover3		1,388%			1,646%	4		621%	5		278%	6		351%		466%

¹  Aggregate total investment return.

²  Annualized.

³  Portfolio turnover rates include TBA transactions, if any.

⁴  Includes mortgage dollar roll transactions. Excluding these transactions the portfolio turnover rate would have been 1,510%.

⁵  Includes TBA transactions. Excluding these transactions, the portfolio turnover rate would have been 170%.

⁶  Includes TBA transactions. Excluding these transactions, the portfolio turnover rate would have been 199%.

See Notes to Financial Statements.
32	BLACKROCK COREALPHA BOND FUND	JUNE 30, 2012

Notes to Financial Statements CoreAlpha Bond Master Portfolio

1. Organization and Significant Accounting Policies:

CoreAlpha Bond Master Portfolio (the “Master Portfolio”), a series of 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 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 annually by the Board of Trustees of MIP (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Master Portfolio for all financial instruments.

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 by the Global Valuation Committee, or its delegate, 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 Global Valuation Committee, or its delegate, 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. These factors include but are not limited to (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or default rates. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches, including regular due diligence of the Master Portfolio’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof on a quarterly basis.

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 affect the value of such instruments materially, those instruments may be Fair Value Assets and valued at their fair value, as determined in good faith by the Global Valuation Committee using a pricing service and/or

BLACKROCK COREALPHA BOND FUND JUNE 30, 2012 33

Notes to Financial Statements (continued) CoreAlpha Bond Master Portfolio

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 over-the-counter (“OTC”) options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of 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 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-backed 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

34 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

Notes to Financial Statements (continued) CoreAlpha Bond Master Portfolio

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 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.

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 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 six months ended June 30, 2012, 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 years 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 December 2011, the Financial Accounting Standards Board issued guidance that will expand 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 or similar agreements which are eligible for offset in the Statements of Assets and Liabilities and will require an entity to disclose both gross and net information about such investments and transactions in the financial statements. 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.

BLACKROCK COREALPHA BOND FUND JUNE 30, 2012 35

Notes to Financial Statements (continued) CoreAlpha Bond Master Portfolio

Other: Expenses directly related to the 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:

The Master Portfolio engages in various portfolio investment strategies using derivative contracts both to increase the return of the Master Portfolio and/or 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 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 speci-

fied price and at a specified date. Depending on the terms of the particular contract, financial 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 variation margin 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 the counterparty to the contract does not perform its obligations under the agreement.

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. Swap agreements are privately negotiated in the OTC market and may be executed on a registered financial and commodities exchange (“centrally cleared swaps”). In a centrally cleared swap, the Master Portfolio (’s) typically enters into an agreement with a counterparty; however, performance is guaranteed by the central clearinghouse reducing or eliminating the Master Portfolio (’s) exposure to the credit risk of the counterparty. These payments received or made by the Master Portfolio are recorded in the Statement 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). The daily change in valuation of centrally cleared swaps, if any, is recorded as a receivable or payable for variation margin in the Statement of Assets and Liabilities. When the swap is terminated, the

36 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

Notes to Financial Statements (continued) CoreAlpha Bond Master Portfolio

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.

Ÿ 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.

Ÿ Total return swaps — The Master Portfolio enters into total return swaps to obtain exposure to a security or market without owning such security or investing directly in that market or to transfer the risk/return of one market (e.g., fixed income) to another market (e.g., equity) (equity risk and/or interest rate risk). Total return swaps are agreements in which

there is an exchange of cash flows whereby one party commits to make payments based on the total return (coupons plus capital gains/losses) of an underlying instrument in exchange for fixed or floating rate interest payments. To the extent the total return of the instrument or index underlying the transaction exceeds or falls short of the offsetting interest rate obligation, the Master Portfolio will receive a payment from or make a payment to the counterparty.

Ÿ 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 June 30, 2012
	Asset Derivatives
	Statement of Assets and Liabilities Location	Value
Interest rate contracts	Net unrealized appreciation/depreciation1; Unrealized appreciation on swaps1	$	3,220,986
Foreign currency exchange contracts	Unrealized appreciation on foreign currency exchange contracts		5,916,100
Credit contracts	Unrealized appreciation on swaps1		138,453
Other contracts	Unrealized appreciation on swaps1		7,517
Total		$	9,283,056

	Liability Derivatives
	Statement of Assets and Liabilities Location	Value
Interest rate contracts	Net unrealized appreciation/depreciation1; Unrealized depreciation on swaps1	$	3,110,432
Foreign currency exchange contracts	Unrealized depreciation on foreign currency exchange contracts		6,903,971
Credit contracts	Unrealized depreciation on swaps1		6,352,549
Total		$	16,366,952

¹ Includes cumulative unrealized appreciation/depreciation on financial futures contracts and centrally cleared swaps as reported in the Schedule of Investments. Only the current day’s variation margin is reported within the Statement of Assets and Liabilities.

BLACKROCK COREALPHA BOND FUND JUNE 30, 2012 37

Notes to Financial Statements (continued) CoreAlpha Bond Master Portfolio

The Effect of Derivative Financial Instruments in the Statement of Operations Six Months Ended June 30, 2012
	Net Realized Gain (Loss) From
	Financial Futures Contracts			Swaps			Foreign Currency Exchange Contracts
Interest rate contracts	$	(6,111,023	)	$	66,083			—
Foreign currency exchange contracts		—			—		$	(109,198	)
Credit contracts		—			1,159,013			—
Other contracts		—			(2,632,116	)		—
Total	$	(6,111,023	)	$	(1,407,020	)	$	(109,198	)
	Net Change in Unrealized Appreciation/Depreciation on
	Financial Futures Contracts			Swaps			Foreign Currency Exchange Contracts
Interest rate contracts	$	(1,866,182	)	$	(695,674	)		—
Foreign currency exchange contracts		—			—		$	(783,288	)
Credit contracts		—			(1,309,910	)		—
Other contracts		—			7,517			—
Total	$	(1,866,182	)	$	(1,998,067	)	$	(783,288	)

For the six months ended June 30, 2012, the average quarterly balances of outstanding derivative financial instruments were as follows:

Financial futures contracts:
Average number of contracts purchased	8,373
Average number of contracts sold	618
Average notional value of contracts purchased	$4,045,350,971
Average notional value of contracts sold	$107,487,680
Foreign currency exchange contracts:
Average number of contracts — US dollars purchased	17
Average number of contracts — US dollars sold	17
Average US dollar amounts purchased	$213,723,289
Average US dollar amounts sold	$211,810,946
Credit default swaps:
Average number of contracts — sell protection	2
Average notional value — sell protection	$192,790,000
Interest rate swaps:
Average number of contracts — pays fixed rate	2
Average number of contracts — receives fixed rate	2
Average notional value — pays fixed rate	$45,915,000
Average notional value — receives fixed rate	$2,245,370,000
Total return swaps:
Average number of contracts	1
Average notional value	$11,650,000

3. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

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 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, 2013. The amount of the waivers, if any, 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 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, if any. 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

38 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

Notes to Financial Statements (concluded) CoreAlpha Bond Master Portfolio

and pays a fee to BTC equal to 35% of such income. The share of income earned by the Master Portfolio is shown as securities lending — affiliated in the Statement of Operations. For the six months ended June 30, 2012, BTC received $53,803 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 rolls and TBA transactions and excluding short-term securities and US government securities for the six months ended June 30, 2012, were $29,152,713,614 and $29,480,934,410, respectively.

Purchases and sales of US government securities for the Master Portfolio for the six months ended June 30, 2012, were $794,813,272 and $795,833,778, respectively.

5. Borrowings:

The Master Portfolio, along with certain other funds managed by BFA and its affiliates, is a party to a $500 million credit agreement with a group of lenders. The Master Portfolio may borrow under the credit agreement to fund shareholder redemptions. Effective November 2011 to November 2012, the credit agreement has the following terms: a commitment fee of 0.065% per annum based on the Master Portfolio’s pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus 0.80% per annum or (b) the Fed Funds rate plus 0.80% per annum on amounts borrowed. In addition, administration and arrangement fees were allocated to the Master Portfolio based on its net assets as of October 31, 2011. The Master Portfolio’s commitment, administration and arrangement fees were paid by the investment advisor. The Master Portfolio did not borrow under the credit agreement during the six months ended June 30, 2012.

6. 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.

7. 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.

BLACKROCK COREALPHA BOND FUND JUNE 30, 2012 39

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement

The Board of Trustees of Master Investment Portfolio (the “Master Fund”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Master Fund’s investment advisory agreement (the “Advisory Agreement”) with BlackRock Fund Advisors (the “Manager”), the Master Fund’s investment advisor, on behalf of CoreAlpha Bond Master Portfolio (the “Master Portfolio”), a series of the Master Fund. The Board of the Master Fund also considered the approval of the sub-advisory agreement (the “Sub-Advisory Agreement”) between the Manager and BlackRock International Limited (the “Sub-Advisor”), with respect to the Master Portfolio. BlackRock CoreAlpha Bond Fund (the “Portfolio”), a series of BlackRock Funds III (the “Fund”), is a “feeder” fund that invests all of its investable assets in the Master Portfolio. Accordingly, the Board of Trustees of the Fund also considered the approval of the Advisory Agreement and the Sub-Advisory Agreement with respect to the Master Portfolio. The Manager and the Sub-Advisor are referred to herein as “BlackRock.” The Advisory Agreement and the Sub-Advisory Agreement are referred to herein as the “Agreements.” For simplicity, the Board of Trustees of the Master Fund and the Board of Trustees of the Fund are referred to herein collectively as the “Board,” and the members are referred to as “Board Members.”

Activities and Composition of the Board

The Board consists of fourteen individuals, twelve of whom are not “interested persons” of the Master Fund or the Fund as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of the Master Fund or the Fund, as pertinent, and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Co-Chairs of the Board are each Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight and Contract Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).

The Agreements

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreements on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreements. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Master Portfolio and the Portfolio by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting

and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by BlackRock to the Master Portfolio, the Portfolio and their shareholders. Among the matters the Board considered were: (a) investment performance for one-, three- and five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against its peers and/or benchmark, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Master Portfolio and/or the Portfolio for services, such as marketing and distribution, call center and fund accounting; (c) the Master Portfolio’s and/or the Portfolio’s operating expenses and how BlackRock allocates expenses to the Master Portfolio and the Portfolio; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Master Portfolio’s and the Portfolio’s investment objective, policies and restrictions; (e) the Master Fund’s and the Fund’s compliance with its respective Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) execution quality of portfolio transactions; (j) BlackRock’s implementation of the Master Fund’s and/or the Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.

40 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

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

Board Considerations in Approving the Agreements

The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreements. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on fees and expenses of the Master Portfolio and the Portfolio, as applicable, and the investment performance of the Portfolio as compared with a peer group of funds as determined by Lipper (collectively, “Peers”); (b) information on the profitability of the Agreements to BlackRock and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of economies of scale; (e) a summary of aggregate amounts paid by the Master Portfolio and/or the Portfolio to BlackRock; (f) sales and redemption data regarding the Portfolio’s shares; and (g) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.

At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreements. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.

At an in-person meeting held on May 15-16, 2012, the Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Advisory Agreement between the Manager and the Master Fund with respect to the Master Portfolio and the Sub-Advisory Agreement between the Manager and the Sub-Advisor with respect to the Master Portfolio, each for a one-year term ending June 30, 2013. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreements and found the Agreements to be satisfactory. In approving the continuation of the Agreements, the Board of the Master Fund considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of the Master Portfolio, the Portfolio and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Master Portfolio and the Portfolio; (d) economies of scale; (e) fall-out benefits to BlackRock as a result of its relationship with the Master Portfolio and the Portfolio; and (f) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to the distribution of Portfolio shares and securities lending, services related to the valuation and pricing of portfolio holdings of the Master Portfolio, direct and indirect benefits to BlackRock and its affiliates from their relationship with the Master Portfolio and the Portfolio and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of the Portfolio. Throughout the year, the Board compared the Portfolio’s performance to the performance of a comparable group of mutual funds and/or the performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the portfolio management team discussing Master Portfolio performance and the Master Portfolio’s investment objective, strategies and outlook.

The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and the Master Portfolio’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to the Master Portfolio’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Master Portfolio and the Portfolio. BlackRock and its affiliates provide the Master Portfolio and the Portfolio with certain administrative, shareholder and other services (in addition to any such services provided to the Master Portfolio and the Portfolio by third parties) and officers and other personnel as are necessary for the operations of the Master Portfolio and the Portfolio. In particular, BlackRock and its affiliates provide the Master Portfolio and the Portfolio with the following administrative services, including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional

BLACKROCK COREALPHA BOND FUND JUNE 30, 2012 41

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

information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions necessary for the operation of the Master Portfolio and the Portfolio, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Master Portfolio, the Portfolio and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of the Master Portfolio and the Portfolio, as applicable. The Board noted that the Master Portfolio’s investment results correspond directly to the investment results of the Portfolio. In preparation for the April 17, 2012 meeting, the Board worked with its independent counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive analysis of the Portfolio’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information regarding the investment performance of the Portfolio as compared to funds in the Portfolio’s applicable Lipper category. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Master Portfolio management to discuss, the performance of the Master Portfolio and the Portfolio, as applicable, throughout the year.

The Board noted that, in general, the Portfolio performed better than its Peers in that the Portfolio’s performance was at or above the median of its Lipper Performance Universe in two of the one-, three- and five-year periods reported.

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Master Portfolio and the Portfolio: The Board, including the Independent Board Members, reviewed the Master Portfolio’s contractual advisory fee rate compared with the other funds in the Portfolio’s Lipper category. It also compared the Portfolio’s total expense ratio, as well as the Master Portfolio’s actual advisory fee rate, to those of other funds in the Portfolio’s Lipper category. The Board considered the services provided and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided the Master Portfolio and the Portfolio. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Master Portfolio and the Portfolio. The Board reviewed BlackRock’s profitability with respect to the Master Portfolio and the Portfolio, as applicable, and other funds the Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31, 2009. The Board reviewed BlackRock’s profitability with respect to other fund complexes managed by BlackRock and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRock’s operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management and the relative product mix.

In addition, the Board considered the cost of the services provided to the Master Portfolio and the Portfolio by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Master Portfolio and the Portfolio and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of the Master Portfolio and the Portfolio. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreements and to continue to provide the high quality of services that is expected by the Board.

The Board noted that the Master Portfolio’s contractual advisory fee ratio was lower than or equal to the median contractual advisory fee ratio paid by the Portfolio’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted that the Master Portfolio has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Master

42 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement (concluded)

Portfolio increases above certain contractually specified levels. The Board noted that BlackRock and its affiliates have agreed to provide an offsetting credit against certain expenses incurred by the Master Portfolio and the Portfolio.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Master Portfolio and the Portfolio increase, as well as the existence of expense caps. The Board also considered the extent to which the Master Portfolio and the Portfolio benefit from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Master Portfolio and the Portfolio to participate in these economies of scale, for example through the use of revised breakpoints in the advisory fee based upon the asset level of the Master Portfolio. In its consideration, the Board took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Master Portfolio and the Portfolio, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Master Portfolio and the Portfolio, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.

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

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

Conclusion

The Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Advisory Agreement between the Manager and the Master Fund, with respect to the Master Portfolio, for a one-year term ending June 30, 2013 and the Sub-Advisory Agreement between the Manager and the Sub-Advisor, with respect to the Master Portfolio, for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board of the Master Fund, including the Independent Board Members, was satisfied that the terms of the Agreements were fair and reasonable and in the best interest of the Master Portfolio and its shareholders. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreements with respect to the Master Portfolio and found the Agreements to be satisfactory. In arriving at its decision to approve the Agreements, the Board of the Master Fund did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Master Portfolio reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

BLACKROCK COREALPHA BOND FUND JUNE 30, 2012 43

Officers and Trustees

Ronald W. Forbes, Co-Chair of the Board and Trustee

Rodney D. Johnson, Co-Chair of the Board and Trustee

Paul L. Audet, Trustee

David O. Beim, Trustee

Henry Gabbay, Trustee

Dr. Matina S. Horner, Trustee

Herbert I. London, Trustee

Ian A. MacKinnon, Trustee¹

Cynthia A. Montgomery, Trustee

Joseph P. Platt, Trustee

Robert C. Robb, Jr., Trustee

Toby Rosenblatt, Trustee

Kenneth L. Urish, Trustee

Frederick W. Winter, Trustee

John M. Perlowski, President and Chief Executive Officer

Richard Hoerner, CFA, Vice President

Brendan Kyne, Vice President

Simon Mendelson, Vice President

Christopher Stavrakos, CFA, Vice President

Neal Andrews, Chief Financial Officer

Jay Fife, Treasurer

Brian Kindelan, Chief Compliance Officer and Anti-Money Laundering Officer

Benjamin Archibald, Secretary²

¹  Effective May 14, 2012, Ian A. MacKinnon became a Trustee of the Trust/MIP.

²  Effective May 16, 2012, Ira P. Shapiro resigned as Secretary of the Trust/MIP and Benjamin Archibald became Secretary of the Trust/MIP.

Investment Advisor

BlackRock Fund Advisors

San Francisco, CA 94105

Administrator

BlackRock Institutional Trust Company, N.A.

San Francisco, CA 94105

Custodian and Accounting Agent

State Street Bank and Trust Company

Boston, MA 02110

Transfer Agent

BNY Mellon Investment Servicing (US) Inc.

Wilmington, DE 19809

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 Trust

400 Howard Street

San Francisco, CA 94105

44 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

Additional Information

General Information

Electronic Delivery

Electronic copies of most financial reports and prospectuses are available on the Fund’s websites or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Fund’s electronic delivery program.

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

Please contact your financial advisor. Please note that not all investment advisors, banks or brokerages may offer this service.

Shareholders Who Hold Accounts Directly with BlackRock:

1) Access the BlackRock website at

http://www.blackrock.com/edelivery

2) Select “eDelivery” under the “More Information” section

3) Log into your account

Householding

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

Availability of Quarterly Schedule of Investments

The Fund/Master Portfolio file their 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 use 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.

Automatic Investment Plans

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

Systematic Withdrawal Plans

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

Retirement Plans

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

BLACKROCK COREALPHA BOND FUND JUNE 30, 2012 45

Additional Information (concluded)

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.

46 BLACKROCK COREALPHA BOND FUND JUNE 30, 2012

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 Balanced Capital Fund†

BlackRock Basic Value Fund

BlackRock Capital Appreciation Fund

BlackRock China Fund

BlackRock Commodity Strategies Fund

BlackRock Emerging Markets Fund

BlackRock Emerging Markets Long/Short Equity Fund

BlackRock Energy & Resources Portfolio

BlackRock Equity Dividend Fund

BlackRock EuroFund

BlackRock Flexible Equity Fund

BlackRock Focus Growth Fund

BlackRock Global Allocation Fund†

BlackRock Global Dividend Income Portfolio

BlackRock Global Dynamic Equity 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 Managed Volatility Portfolio†

BlackRock Mid-Cap Growth 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 CoreAlpha Bond Fund

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 Secured Credit Portfolio

BlackRock Strategic Income Opportunities Portfolio

BlackRock Total Return Fund

BlackRock US Government Bond Portfolio

BlackRock US Mortgage Portfolio

BlackRock World Income Fund

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 Date Funds†

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

† 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 JUNE 30, 2012 47

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

# CAB-6/12-SAR

June 30, 2012

Semi-Annual Report (Unaudited)

BlackRock Bond Index Fund  |  of BlackRock Funds III

Not FDIC Insured     No Bank Guarantee    May Lose Value

Table of Contents

	Page
Dear Shareholder		3
Semi-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
Master Portfolio Information		15
Master Portfolio Financial Statements:
Schedule of Investments		16
Statement of Assets and Liabilities		30
Statement of Operations		31
Statements of Changes in Net Assets		32
Master Portfolio Financial Highlights		33
Master Portfolio Notes to Financial Statements		34
Disclosure of Investment Advisory Agreement		38
Officers and Trustees		42
Additional Information		43
A World-Class Mutual Fund Family		45

2 BLACKROCK BOND INDEX FUND JUNE 30, 2012

Dear Shareholder

One year ago, risk assets were in a broad retreat as sovereign debt problems loomed over Europe and confidence in both the US and global economic recoveries was waning. Last summer’s prolonged debt ceiling debate in Washington, DC ended with Standard & Poor’s historic downgrade of US government debt, an event that triggered financial-market turmoil all over the world. Extraordinary levels of volatility persisted in the months that followed as the debt situation in Europe intensified. Macro-level news drove asset prices broadly up and down in lockstep, in a “risk on” – “risk off” trading pattern. Equity markets crumbled while safe-haven assets such as US Treasuries and gold rallied to historic highs by the end of the third quarter of 2011.

By October, however, improving economic data and more concerted efforts among European leaders toward stemming the region’s debt crisis drew investors back to the markets. Improving sentiment carried over into early 2012 as investors saw some relief from the world’s financial woes. Risk assets (including stocks, commodities and high yield bonds) moved boldly higher through the first two months of 2012 while climbing Treasury yields pressured higher-quality fixed income assets.

However, risk assets reversed course in the spring when Europe’s debt problems boiled over once again. Markets became highly volatile as political instability in Greece threatened the country’s membership in the euro zone. Spain faced severe deficit issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian government debt rose to levels deemed unsustainable. European leaders conferred and debated vehemently over the need for fiscal integration among the 17 euro-zone nations to resolve the crisis for the long term.

Alongside the drama in Europe, investors were discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key powerhouse for global growth, became particularly worrisome. In the United States, disappointing jobs reports dealt a crushing blow to sentiment. Risk assets sold off through April and May as investors ran back to safe havens including US, German and UK government debt as well as gold. As the period drew to a close, risk assets were beginning to rebound modestly as European leaders stepped up their efforts to move toward fiscal unity and investors anticipated additional stimulus from central banks on both sides of the Atlantic.

All asset classes posted gains for the 6-month period ended June 30, 2012, with US stocks delivering the largest returns. On a 12-month basis, US large-cap stocks generated positive results; however, small-cap stocks finished in negative territory and international and emerging equities, which experienced significant downturns in 2011, lagged the broader rebound. Among fixed income asset classes, safe-haven US Treasury bonds and municipal bonds outperformed corporate credits for the 12-month period. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities. We remain committed to working with you and your financial professional to identify actionable ideas for your portfolio. We encourage you to visit www.blackrock.com/newworld for more information.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of June 30, 2012
	6-month	12-month
US large cap equities (S&P 500® Index)	9.49%	5.45%
US small cap equities (Russell 2000® Index)	8.53	(2.08)
International equities (MSCI Europe, Australasia, Far East Index)	2.96	(13.83)
Emerging market equities (MSCI Emerging Markets Index)	3.93	(15.95)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)	0.04	0.05
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)	3.44	17.36
US investment grade bonds (Barclays US Aggregate Bond Index)	2.37	7.47
Tax-exempt municipal bonds (S&P Municipal Bond Index)	4.14	10.16
US high yield bonds (Barclays US Corporate High Yield 2% Issuer Capped Index)	7.23	7.21
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 June 30, 2012 BlackRock Bond Index Fund

Investment Objective

BlackRock Bond Index Fund’s (the “Fund”), a series of BlackRock Funds III (the “Trust”), 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 U.S. Aggregate Bond Index.

Portfolio Management Commentary

How did the Fund perform?

Ÿ For the six-month period ended June 30, 2012, the Fund’s Institutional, Investor A and Class K Shares returned 2.21%, 2.09% and 2.31%, respectively, while the benchmark Barclays US Aggregate Bond Index (the “Index”) returned 2.37%. The Index is comprised of US government securities and investment-grade corporate bonds, as well as mortgage-backed securities (“MBS”), asset-backed securities (“ABS”) and commercial mortgage-backed securities (“CMBS”).

Ÿ Returns for the Fund’s respective share classes differ from the 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.

Ÿ Risk asset markets in the United States continued to rally in early 2012, extending the strong performance witnessed at the end of 2011. Reduced systemic risk levels stemming from the euro zone’s sovereign debt crisis and better economic data in the United States together supported the rally. Global central bank stimulus was vital to calming financial markets. In addition to improving liquidity conditions, the European Central Bank’s long-term refinancing operation (LTRO) program appeared to begin rebuilding confidence in euro-zone banks by reducing the rollover risk of wholesale funding. Beyond Europe, massive global central bank liquidity infusions and broadly accommodative policies intended to mitigate shock risks and stimulate economic growth helped drive risk asset rallies globally. In the United States, there was an unmistakable improvement in economic data through the first quarter, including meaningful gains in labor market statistics. Additionally, housing activity improved by most metrics, while commercial and industrial loans (and other forms of lending) grew alongside of broad improvements to loan credit quality. That said, first-quarter economic data was likely influenced by atypical weather patterns across the United States, which can have a wide-ranging positive impact on consumer spending behavior, heating expenses, and the ability to perform seasonal outdoor work.

Ÿ In sharp contrast with the first quarter, a broad range of economic indicators markedly deteriorated in the second quarter. Most importantly, the US labor market recovery materially weakened. Manufacturing and production data (a former source of strength for the recovery) also decreased and consumer confidence and investor sentiment declined meaningfully. At the same time, the euro zone’s debt troubles resurfaced in the headlines, the US election became more contentious and the end-of-year “fiscal cliff” and debt ceiling debate added to concerns. Risk assets globally sold off as investors flocked to safe-haven investments, pushing US Treasury yields to record lows. Near the end of the period, the US Federal Reserve extended its accommodative Operation Twist program through year end, a modest short-term positive for the US economy and financial markets.

Ÿ Bond markets saw yields move in a dramatic fashion as investor sentiment shifted between risk-on and risk-off tones, but on the whole, yields fell over the six-month period. Credit sectors outperformed government-related sectors, with particular strength from financial names, while MBS was the weakest performing non-Treasury sector.

Describe recent portfolio activity.

Ÿ During the 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 call features. The Master Portfolio held cash committed for pending transactions. The cash balance did not have a material impact on performance.

Describe portfolio positioning at period end.

Ÿ The Master Portfolio remains positioned to attempt to match the risk characteristics of the 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 BOND INDEX FUND JUNE 30, 2012

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), ABS, MBS, CMBS, and U.S. Treasury and government agency issues with at least one year to maturity.

Performance Summary for the Period Ended June 30, 2012

	Standardized 30-Day Yields			6-Month Total Returns			Average Annual Total Returns
							1 Year			5 Years			10 Years
Institutional		0.01	%		2.21	%		7.14	%		6.75	%		5.57	%
Investor A		0.09			2.09			6.90			6.54			5.39
Class K		0.11			2.31			7.27			6.81			5.60
Barclays US Aggregate Bond Index		—			2.37			7.47			6.79			5.63

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						Hypothetical5
	Beginning Account Value January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period4		Beginning Account Value January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period4		Annualized Expense Ratio
Institutional		$1,000.00		$1,022.10		$1.26		$1,000.00		$1,023.62		$1.26		0.25%
Investor A		$1,000.00		$1,020.90		$2.51		$1,000.00		$1,022.38		$2.51		0.50%
Class K		$1,000.00		$1,023.10		$1.01		$1,000.00		$1,023.87		$1.01		0.20%

⁴ For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period shown). Because the Fund invests significantly in the Master Portfolio, the expense example reflects the net expenses of both the Fund and the Master Portfolio in which it invests.

⁵ Hypothetical 5% annual return before expenses is calculated by pro rating the number of days in the most recent fiscal half year divided by 366.

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

BLACKROCK BOND INDEX FUND JUNE 30, 2012 5

About Fund Performance BlackRock Bond Index Fund

Ÿ 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.

Ÿ 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 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. Dividends paid to each class of shares will vary because of the different levels of services 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 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, service and/or distribution fees, including 12b-1 fees, and other Fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on January 1, 2012 and held through June 30, 2012) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.

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

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

The expenses shown in the expense example 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.

6 BLACKROCK BOND INDEX FUND JUNE 30, 2012

Statement of Assets and Liabilities BlackRock Bond Index Fund

June 30, 2012 (Unaudited)
Assets
Investments at value — Master Portfolio (cost — $139,398,113)	$	147,906,368
Capital shares sold receivable		205,855
Total assets		148,112,223
Liabilities
Contributions payable to the Master Portfolio		120,183
Capital shares redeemed payable		85,672
Income dividends payable		45,721
Administration fees payable		13,260
Service fees payable		142
Professional fees payable		10,844
Total liabilities		275,822
Net Assets	$	147,836,401
Net Assets Consist of
Paid-in capital	$	135,827,130
Distributions in excess of net investment income		(224,064	)
Accumulated net realized gain allocated from the Master Portfolio		3,725,080
Net unrealized appreciation/depreciation allocated from the Master Portfolio		8,508,255
Net Assets	$	147,836,401
Net Asset Value
Institutional — Based on net assets of $11,303,235 and 1,058,970 shares outstanding, unlimited number of shares authorized, no par value	$	10.67
Investor A — Based on net assets of $826,856 and 77,482 shares outstanding, unlimited number of shares authorized, no par value	$	10.67
Class K — Based on net assets of $135,706,310 and 12,711,781 shares outstanding, unlimited number of shares authorized, no par value	$	10.68

See Notes to Financial Statements.
	BLACKROCK BOND INDEX FUND	JUNE 30, 2012	7

Statement of Operations BlackRock Bond Index Fund

Six Months Ended June 30, 2012 (Unaudited)
Investment Income
Net investment income allocated from the Master Portfolio:
Securities lending — affiliated	$	12,273
Income — affiliated		48,355
Interest		1,640,994
Expenses		(67,691	)
Fees waived		14,369
Total income		1,648,300
Expenses
Administration — Institutional		4,613
Administration — Investor A		342
Administration — Class K		76,855
Service — Investor A		507
Professional		9,546
Total expenses		91,863
Less fees waived by administrator — Institutional		(383	)
Less fees waived by administrator — Investor A		(29	)
Less fees waived by administrator — Class K		(9,134	)
Total expenses after fees waived		82,317
Net investment income		1,565,983
Realized and Unrealized Gain Allocated from the Master Portfolio
Net realized gain from investments		314,094
Net change in unrealized appreciation/depreciation on investments		1,138,803
Total realized and unrealized gain		1,452,897
Net Increase in Net Assets Resulting from Operations	$	3,018,880

See Notes to Financial Statements.
8	BLACKROCK BOND INDEX FUND	JUNE 30, 2012

Statements of Changes in Net Assets BlackRock Bond Index Fund

Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	1,565,983		$	3,405,028
Net realized gain		314,094			831,963
Net change in unrealized appreciation/depreciation		1,138,803			3,625,776
Net increase in net assets resulting from operations		3,018,880			7,862,767
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(73,550	)		(690	)1
Investor A		(4,411	)		(1,931	)1
Class K		(1,526,882	)		(3,612,372	)
Net realized gain:
Institutional		(8,143	)		(19	)1
Investor A		(585	)		(83	)1
Class K		(97,715	)		(49,563	)
Decrease in net assets resulting from dividends to shareholders		(1,711,286	)		(3,664,658	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		24,259,384			19,512,360
Net Assets
Total increase in net assets		25,566,978			23,710,469
Beginning of period		122,269,423			98,558,954
End of period	$	147,836,401		$	122,269,423
Distributions in excess of net investment income	$	(224,064	)	$	(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	JUNE 30, 2012	9

Financial Highlights BlackRock Bond Index Fund

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Period March 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	10.57		$	10.11
Net investment income2		0.11			0.25
Net realized and unrealized gain		0.12			0.46
Net increase from investment operations		0.23			0.71
Dividends and distributions from:
Net investment income		(0.12	)		(0.25	)
Net realized gain		(0.01	)		(0.00	)3
Total dividends and distributions		(0.13	)		(0.25	)
Net asset value, end of period	$	10.67		$	10.57
Total Investment Return4,5
Based on net asset value		2.21%			7.18%
Ratios to Average Net Assets6,7
Total expenses		0.26%	8		0.27%	9
Total expenses after fees waived		0.25%	8		0.25%	9
Net investment income		2.13%	8		2.98%	9
Supplemental Data
Net assets, end of period (000)	$	11,303		$	53
Portfolio turnover of the Master Portfolio		167%			122%	10

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Amount is 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 fees waived of 0.02%.

⁹  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.05%.

¹⁰  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	JUNE 30, 2012

Financial Highlights (continued) BlackRock Bond Index Fund

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Period March 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	10.57		$	10.11
Net investment income2		0.11			0.22
Net realized and unrealized gain		0.11			0.48
Net increase from investment operations		0.22			0.70
Dividends and distributions from:
Net investment income		(0.11	)		(0.24	)
Net realized gain		(0.01	)		(0.00	)3
Total dividends and distributions		(0.12	)		(0.24	)
Net asset value, end of period	$	10.67		$	10.57
Total Investment Return4,5
Based on net asset value		2.09%			7.01%
Ratios to Average Net Assets6,7
Total expenses		0.52%	8		0.53%	9
Total expenses after fees waived		0.50%	8		0.50%	9
Net investment income		1.99%	8		2.65%	9
Supplemental Data
Net assets, end of period (000)	$	827		$	202
Portfolio turnover of the Master Portfolio		167%			122%	10

¹  Commencement of operations.

²  Based on average shares outstanding.

³  Amount is 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 fees waived of 0.02%.

⁹  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.05%.

¹⁰  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	JUNE 30, 2012	11

Financial Highlights (concluded) BlackRock Bond Index Fund

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	10.57		$	10.17		$	9.90		$	9.82		$	9.74		$	9.59
Net investment income		0.13	1		0.35	1		0.37	1		0.40	1		0.47			0.48
Net realized and unrealized gain		0.11			0.40			0.30			0.10			0.09			0.19
Net increase from investment operations		0.24			0.75			0.67			0.50			0.56			0.67
Dividends and distributions from:
Net investment income		(0.12	)		(0.35	)		(0.40	)		(0.42	)		(0.48	)		(0.52	)
Net realized gain		(0.01	)		(0.00	)2		—			—			—			—
Return of capital		—			—			—			—			(0.00	)2		—
Total dividends and distributions		(0.13	)		(0.35	)		(0.40	)		(0.42	)		(0.48	)		(0.52	)
Net asset value, end of period	$	10.68		$	10.57		$	10.17		$	9.90		$	9.82		$	9.74
Total Investment Return3
Based on net asset value		2.31%	4		7.55%			6.79%			5.21%			5.91%			7.16%
Ratios to Average Net Assets5
Total expenses		0.22%	6,7		0.23%	8		0.26%			0.25%			0.26%			0.28%
Total expenses after fees waived		0.20%	6,7		0.20%	8		0.23%			0.23%			0.23%			0.23%
Net investment income		2.43%	6,7		3.19%	8		3.65%			4.05%			4.84%			5.00%
Supplemental Data
Net assets, end of period (000)	$	135,706		$	122,015		$	98,559		$	156,688		$	132,997		$	111,847
Portfolio turnover of the Master Portfolio		167%			122%	9		59%	10		103%	11		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  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 fees waived of 0.02%.

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

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

¹⁰ Includes mortgage dollar roll transactions. Excluding these transactions, the portfolio turnover rate would have been 54%.

¹¹ 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	JUNE 30, 2012

Notes to Financial Statements (Unaudited) 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 June 30, 2012 was 34.24%. 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 expenditures.

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. Realized and unrealized gains and losses are adjusted for utilizing partnership tax allocations. 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 exceed 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. Expenses directly related to the Fund and other shared expenses pro rated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.

2. Administration Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

The Trust, on behalf of the Fund, entered into an Administration Agreement 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 Shares and 0.17% of the average daily net assets of Institutional and Investor A Shares.

BLACKROCK BOND INDEX FUND JUNE 30, 2012 13

Notes to Financial Statements (concluded) 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 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 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, 2013.

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 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 fee compensates BRIL and each broker-dealer for providing shareholder servicing 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. Capital Share Transactions:

Transactions in capital shares for each class were as follows:

	Six Months Ended June 30, 2012						Year Ended December 31, 2011*
	Shares			Amount			Shares			Amount
Institutional
Shares sold		1,049,047		$	11,133,277			9,869		$	101,838
Shares issued to shareholders in reinvestment of dividends and distributions		7,643			81,366			7			70
Shares redeemed		(2,750	)		(29,214	)		(4,845	)		(50,004	)
Net increase		1,053,940		$	11,185,429			5,031		$	51,904
Investor A
Shares sold		58,928		$	626,864			19,264		$	201,272
Shares issued to shareholders in reinvestment of dividends and distributions		442			4,700			135			1,414
Shares redeemed		(966	)		(10,258	)		(321	)		(3,363	)
Net increase		58,404		$	621,306			19,078		$	199,323
Class K
Shares sold		2,379,702		$	25,260,554			4,681,283		$	48,629,757
Shares issued to shareholders in reinvestment of dividends and distributions		127,135			1,351,479			299,480			3,098,229
Shares redeemed		(1,335,253	)		(14,159,384	)		(3,134,942	)		(32,466,853	)
Net increase		1,171,584		$	12,452,649			1,845,821		$	19,261,133
Total Net Increase		2,283,928		$	24,259,384			1,869,930		$	19,512,360
*  For the period March 31, 2011 (commencement of operations) to December 31, 2011 for Institutional and Investor A Shares.

4. 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.

14 BLACKROCK BOND INDEX FUND JUNE 30, 2012

Master Portfolio Information as of June 30, 2012 Bond Index Master Portfolio

Portfolio Composition

Percent of
Long-Term Investments

U.S. Government Sponsored Agency Securities	37	%
U.S. Treasury Obligations	36
Corporate Bonds	22
Foreign Agency Obligations	2
Non-Agency Mortgage-Backed Securities	2
Taxable Municipal Bonds	1

Credit Quality Allocation¹

Percent of
Long-Term Investments

AAA/Aaa2	75	%
AA/Aa	4
A/A	12
BBB/Baa	9

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

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

BLACKROCK BOND INDEX FUND JUNE 30, 2012 15

Schedule of Investments June 30, 2012 (Unaudited) Bond Index Master Portfolio (Percentages shown are based on Net Assets)

Asset-Backed Securities	Par (000)		Value
AmeriCredit Automobile Receivables Trust, Series 2011-4, Class B, 2.26%, 9/08/16	$	650	$	661,349
Citibank Credit Card Issuance Trust:
Series 2006-A3, Class A3, 5.30%, 3/15/18		100		115,841
Series 2008-A1, Class A1, 5.35%, 2/07/20		170		204,627
Total Asset-Backed Securities — 0.2%				981,817
Corporate Bonds
Aerospace & Defense — 0.4%
The Boeing Co., 6.13%, 2/15/33		100		130,856
General Dynamics Corp., 3.88%, 7/15/21		50		56,126
Honeywell International, Inc., 5.30%, 3/01/18		100		119,206
L-3 Communications Corp.:
3.95%, 11/15/16		250		265,511
4.95%, 2/15/21		50		54,073
Lockheed Martin Corp., 3.35%, 9/15/21		250		258,402
Raytheon Co., 4.70%, 12/15/41		100		110,075
United Technologies Corp.:
1.80%, 6/01/17		250		255,310
3.10%, 6/01/22		100		104,786
5.70%, 4/15/40		50		63,414
4.50%, 6/01/42		200		219,681
				1,637,440
Agriculture — 0.0%
Bunge Ltd. Finance Corp., 3.20%, 6/15/17		150		150,332
Air Freight & Logistics — 0.1%
United Parcel Service, Inc.:
5.13%, 4/01/19		50		60,293
6.20%, 1/15/38		100		137,434
				197,727
Airlines — 0.0%
Continental Airlines 2012-1 Class A Pass Thru Trusts, 4.15%, 10/11/25		50		49,125
Auto Components — 0.0%
Johnson Controls, Inc., 1.75%, 3/01/14		50		50,717
Automobiles — 0.2%
DaimlerChrysler North America Holding Corp., 8.50%, 1/18/31		100		152,992
Ford Motor Co., 7.45%, 7/16/31		150		187,875
Toyota Motor Credit Corp., 1.00%, 2/17/15		500		500,592
				841,459
Beverages — 0.5%
Anheuser-Busch Cos. LLC, 6.45%, 9/01/37		100		135,751

Corporate Bonds	Par (000)		Value
Beverages — (concluded)
Anheuser-Busch InBev Worldwide, Inc.:
5.38%, 11/15/14	$	150	$	165,363
7.75%, 1/15/19		250		330,189
Beam, Inc., 1.88%, 5/15/17		100		100,482
The Coca-Cola Co.:
0.75%, 11/15/13		100		100,344
1.80%, 9/01/16		50		51,354
4.88%, 3/15/19 (a)		150		178,131
Diageo Capital Plc:
1.50%, 5/11/17 (a)		200		200,737
5.75%, 10/23/17		100		120,210
Diageo Investment Corp., 2.88%, 5/11/22 (a)		100		102,725
Dr Pepper Snapple Group, Inc., 3.20%, 11/15/21		25		25,556
Molson Coors Brewing Co., 3.50%, 5/01/22 (a)		75		77,009
PepsiCo, Inc.:
0.75%, 3/05/15		100		99,726
2.75%, 3/05/22		250		252,328
4.88%, 11/01/40		100		116,679
				2,056,584
Biotechnology — 0.2%
Amgen, Inc.:
2.13%, 5/15/17		50		50,587
3.45%, 10/01/20 (a)		100		103,556
5.15%, 11/15/41		300		313,175
Gilead Sciences, Inc.:
3.05%, 12/01/16 (a)		150		158,356
5.65%, 12/01/41		50		58,283
				683,957
Capital Markets — 0.9%
The Bear Stearns Cos., Inc./JPMorgan Chase & Co., 5.70%, 11/15/14		200		216,418
The Charles Schwab Corp., 4.45%, 7/22/20		100		110,901
The Goldman Sachs Group, Inc.:
3.30%, 5/03/15		500		499,931
3.70%, 8/01/15		150		151,326
3.63%, 2/07/16		150		150,017
5.95%, 1/18/18		300		321,086
5.75%, 1/24/22		350		369,461
6.13%, 2/15/33 (a)		100		102,692
6.75%, 10/01/37		200		196,011
Jefferies Group, Inc., 8.50%, 7/15/19		125		135,625
Morgan Stanley:
4.75%, 4/01/14 (a)		150		151,320
5.75%, 10/18/16		225		230,974
4.75%, 3/22/17		200		199,560
6.63%, 4/01/18		500		522,784
5.50%, 7/28/21		100		98,526
7.25%, 4/01/32		50		53,110

Portfolio Abbreviations

To simplify the listings of portfolio holdings in the Schedule of Investments, the name and descriptions of many of the securities have been abbreviated according to the following list:

GO       General Obligation Bonds RB       Revenue Bonds

See Notes to Financial Statements.

16 BLACKROCK BOND INDEX FUND JUNE 30, 2012

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

Corporate Bonds	Par (000)		Value
Capital Markets — (concluded)
Nomura Holdings, Inc., 5.00%, 3/04/15 (a)	$	50	$	51,910
Raymond James Financial, Inc., 4.25%, 4/15/16		100		103,987
State Street Corp., 2.88%, 3/07/16 (a)		100		105,921
				3,771,560
Chemicals — 0.4%
CF Industries, Inc., 6.88%, 5/01/18		200		237,250
The Dow Chemical Co.:
8.55%, 5/15/19		100		133,007
4.25%, 11/15/20 (a)		50		54,243
4.13%, 11/15/21		50		53,630
5.25%, 11/15/41		100		110,544
E.I. du Pont de Nemours & Co., 6.00%, 7/15/18		325		403,879
Eastman Chemical Co., 3.60%, 8/15/22		200		203,986
Ecolab, Inc., 4.35%, 12/08/21		150		166,255
The Mosaic Co., 3.75%, 11/15/21		50		52,249
Potash Corp. of Saskatchewan, Inc., 3.25%, 12/01/17		250		268,309
Praxair, Inc., 4.63%, 3/30/15		100		110,176
				1,793,528
Commercial Banks — 2.8%
Abbey National Treasury Services PLC, 4.00%, 4/27/16 (a)		150		147,800
Bank of Montreal, 2.50%, 1/11/17		150		155,057
The Bank of New York Mellon Corp.:
2.30%, 7/28/16		50		51,589
1.97%, 6/20/17 (b)		250		252,934
3.55%, 9/23/21		50		53,169
Bank of Nova Scotia:
3.40%, 1/22/15		200		210,829
2.90%, 3/29/16		100		104,688
Barclays Bank Plc:
2.75%, 2/23/15		100		100,672
5.00%, 9/22/16		175		190,043
5.13%, 1/08/20		150		162,775
BB&T Corp., 5.25%, 11/01/19		100		113,004
Council of Europe Development Bank, 1.50%, 1/15/15		50		50,731
Credit Suisse AG, 5.40%, 1/14/20		150		156,010
Credit Suisse New York:
2.20%, 1/14/14		100		100,650
3.50%, 3/23/15		300		310,996
European Investment Bank:
1.25%, 2/14/14		250		252,560
3.13%, 6/04/14		1,000		1,044,082
2.50%, 5/16/16		100		104,490
5.13%, 9/13/16		225		260,293
1.25%, 10/14/16		100		100,120
1.63%, 6/15/17		500		503,664
Export-Import Bank of Korea, 4.00%, 1/11/17		400		426,726
Fifth Third Bancorp:
3.63%, 1/25/16		50		52,738
3.50%, 3/15/22		100		101,057
HSBC Holdings Plc:
4.88%, 1/14/22		150		165,814
6.80%, 6/01/38		250		286,345

Corporate Bonds	Par (000)		Value
Commercial Banks — (concluded)
HSBC USA, Inc., 2.38%, 2/13/15	$	300	$	303,419
International Bank for Reconstruction & Development:
1.75%, 7/15/13		300		304,133
2.38%, 5/26/15		500		528,046
1.00%, 9/15/16		75		75,572
International Finance Corp., 0.50%, 5/15/15		500		498,244
JPMorgan Chase Bank NA, 6.00%, 10/01/17		250		279,905
KeyCorp, 5.10%, 3/24/21		100		111,531
Korea Development Bank, 3.25%, 3/09/16		100		103,226
Landwirtschaftliche Rentenbank, 3.13%, 7/15/15		200		213,608
Lloyds TSB Bank Plc:
4.88%, 1/21/16		50		52,492
4.20%, 3/28/17		50		51,575
6.38%, 1/21/21		50		56,664
National Australia Bank, NY, 2.00%, 3/09/15		250		250,635
Oesterreichische Kontrollbank AG:
1.38%, 1/21/14		200		201,733
2.00%, 6/03/16		100		102,096
PNC Funding Corp.:
5.63%, 2/01/17 (c)		150		166,899
3.30%, 3/08/22 (c)		150		152,971
Rabobank Nederland, 3.38%, 1/19/17 (a)		100		102,919
RaboBank Nederland, 3.88%, 2/08/22		150		152,585
Rabobank Nederland, 5.25%, 5/24/41		25		26,923
Royal Bank of Canada, 1.45%, 10/30/14		100		101,269
SunTrust Banks, Inc., 3.50%, 1/20/17		50		51,761
Svensk Exportkredit AB, 2.13%, 7/13/16		200		205,882
Swiss Bank Corp., 7.00%, 10/15/15		150		162,322
The Toronto-Dominion Bank, 2.38%, 10/19/16		50		51,346
US Bancorp:
1.38%, 9/13/13		100		100,850
1.65%, 5/15/17		250		251,826
4.13%, 5/24/21		50		56,056
Wachovia Bank NA/Wells Fargo & Co., 6.60%, 1/15/38		50		63,102
Wachovia Corp., 5.63%, 10/15/16		250		281,812
Wells Fargo & Co.:
2.63%, 12/15/16		100		102,769
2.10%, 5/08/17		150		150,335
5.63%, 12/11/17		250		291,932
3.50%, 3/08/22		350		360,137
Wells Fargo Bank NA, 4.75%, 2/09/15		500		535,847
Westpac Banking Corp.:
3.00%, 8/04/15		250		258,960
4.88%, 11/19/19		50		54,144
				12,274,362
Commercial Services & Supplies — 0.1%
The ADT Corp., 4.88%, 7/15/42 (d)		100		97,959
Republic Services, Inc.:
5.25%, 11/15/21		50		57,405
3.55%, 6/01/22		250		252,702
Vanderbilt University, 5.25%, 4/01/19		100		120,679
				528,745

See Notes to Financial Statements.

BLACKROCK BOND INDEX FUND JUNE 30, 2012 17

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	$	101,899
4.95%, 2/15/19		200		235,820
5.50%, 1/15/40		150		185,690
Motorola Solutions, Inc., 3.75%, 5/15/22 (a)		150		147,926
				671,335
Computers & Peripherals — 0.2%
ACE INA Holdings, Inc., 2.60%, 11/23/15		300		312,015
Dell, Inc., 5.65%, 4/15/18 (a)		75		86,452
Hewlett-Packard Co.:
4.75%, 6/02/14		150		158,593
3.30%, 12/09/16		150		156,788
4.65%, 12/09/21		100		104,820
6.00%, 9/15/41		150		165,328
				983,996
Construction & Engineering — 0.1%
ABB Finance USA, Inc.:
1.63%, 5/08/17		150		150,724
2.88%, 5/08/22		100		101,156
URS Corp., 3.85%, 4/01/17 (d)		100		98,753
				350,633
Consumer Finance — 0.3%
American Express Credit Co.:
2.75%, 9/15/15		250		260,872
8.13%, 5/20/19		200		266,320
Capital One Financial Corp.:
7.38%, 5/23/14		250		274,629
6.75%, 9/15/17		100		118,643
Caterpillar Financial Services Corp., 1.10%, 5/29/15		250		251,399
HSBC Finance Corp., 6.68%, 1/15/21		161		174,317
				1,346,180
Diversified Financial Services — 2.7%
American Express Credit Corp., 2.38%, 3/24/17 (a)		200		204,986
Bank of America Corp.:
7.38%, 5/15/14		150		161,315
4.50%, 4/01/15		50		51,538
7.75%, 8/15/15		250		272,160
3.63%, 3/17/16		150		150,686
3.75%, 7/12/16		250		252,034
3.88%, 3/22/17 (a)		300		305,609
5.63%, 7/01/20		150		160,595
5.00%, 5/13/21		100		103,171
5.88%, 2/07/42		100		109,538
BNP Paribas SA:
3.25%, 3/11/15 (a)		100		100,833
5.00%, 1/15/21		100		102,652
Citigroup, Inc.:
6.50%, 8/19/13		150		157,164
6.38%, 8/12/14		150		160,566
2.65%, 3/02/15		400		399,951
3.95%, 6/15/16 (a)		150		153,699
4.45%, 1/10/17		400		419,297
8.50%, 5/22/19		250		308,758
6.63%, 6/15/32		100		104,272

Corporate Bonds	Par (000)		Value
Diversified Financial Services — (concluded)
6.88%, 3/05/38	$	100	$	122,318
5.88%, 1/30/42		150		163,825
Deutsche Bank AG London, 3.25%, 1/11/16 (a)		300		308,744
Ford Motor Credit Co. LLC:
7.00%, 4/15/15		250		277,845
2.75%, 5/15/15		500		504,057
4.25%, 2/03/17		250		262,057
General Electric Capital Corp.:
2.15%, 1/09/15 (a)		500		508,426
2.25%, 11/09/15		100		102,029
2.90%, 1/09/17		100		103,291
6.38%, 11/15/17 (e)		250		260,313
5.63%, 5/01/18		300		344,862
4.38%, 9/16/20		50		54,092
4.65%, 10/17/21		200		222,105
5.88%, 1/14/38		350		401,801
Series G, 6.00%, 8/07/19		100		117,008
John Deere Capital Corp.:
0.88%, 4/17/15		250		250,281
2.25%, 4/17/19		100		102,210
3.90%, 7/12/21 (a)		50		55,154
JPMorgan Chase & Co.:
1.65%, 9/30/13 (a)		150		150,943
1.88%, 3/20/15		350		349,729
5.25%, 5/01/15		250		269,506
3.15%, 7/05/16		300		308,521
4.50%, 1/24/22		300		323,165
6.40%, 5/15/38		100		120,234
5.50%, 10/15/40		125		137,894
5.60%, 7/15/41		50		56,682
Merrill Lynch & Co., Inc.:
6.88%, 4/25/18		400		447,574
6.11%, 1/29/37		100		94,226
Murray Street Investment Trust I, 4.65%, 3/09/17 (b)		200		200,386
National Rural Utilities Cooperative Finance Corp.:
1.00%, 2/02/15		200		200,997
3.05%, 3/01/16		50		53,259
ORIX Corp., 3.75%, 3/09/17		100		99,182
The Royal Bank of Scotland Plc:
4.38%, 3/16/16 (a)		250		256,196
6.13%, 1/11/21		100		111,092
SLM Corp.:
6.00%, 1/25/17		300		309,908
8.45%, 6/15/18		100		112,000
UBS AG Stamford, 5.75%, 4/25/18		300		332,327
				11,773,063
Diversified Telecommunication Services — 1.1%
AT&T Corp., 8.00%, 11/15/31		4		5,926
AT&T Mobility LLC, 7.13%, 12/15/31		100		132,419
AT&T, Inc.:
5.10%, 9/15/14		300		327,548
1.60%, 2/15/17		400		400,512
4.45%, 5/15/21		200		226,403
6.15%, 9/15/34		400		482,042
5.35%, 9/01/40		213		244,452
British Telecommunications Plc, 9.63%, 12/15/30		50		75,197

See Notes to Financial Statements.

18 BLACKROCK BOND INDEX FUND JUNE 30, 2012

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

Corporate Bonds	Par (000)		Value
Diversified Telecommunication Services — (concluded)
CenturyLink, Inc.:
5.80%, 3/15/22	$	100	$	99,551
7.65%, 3/15/42		100		97,056
Deutsche Telekom International Finance BV:
5.25%, 7/22/13		100		104,374
8.75%, 6/15/30		150		208,205
France Telecom SA:
2.75%, 9/14/16		200		203,806
4.13%, 9/14/21		150		156,947
5.38%, 1/13/42		25		26,410
Qwest Corp.:
6.50%, 6/01/17 (a)		150		168,528
6.75%, 12/01/21		50		56,259
Telecom Italia Capital SA:
5.25%, 11/15/13		150		150,375
7.18%, 6/18/19		100		99,500
7.72%, 6/04/38		50		43,750
Telefonaktiebolaget LM Ericsson, 4.13%, 5/15/22		100		100,277
Telefonica Emisiones SAU:
3.99%, 2/16/16		100		89,398
5.46%, 2/16/21		50		43,540
7.05%, 6/20/36		75		65,572
Telefonica Europe BV, 8.25%, 9/15/30		50		48,363
Verizon Communications, Inc.:
1.95%, 3/28/14		200		204,410
8.75%, 11/01/18		100		137,454
6.40%, 2/15/38		200		259,714
6.00%, 4/01/41		100		126,775
Verizon Global Funding Corp., 7.75%, 12/01/30		100		141,053
				4,525,816
Electric Utilities — 0.8%
Alabama Power Co., 5.50%, 10/15/17		100		118,430
Carolina Power & Light Co., 4.10%, 5/15/42		150		156,425
Commonwealth Edison Co., 5.90%, 3/15/36		50		64,846
Consolidated Edison Co. of New York, Inc., 6.65%, 4/01/19		100		126,936
Duke Energy Carolinas LLC, 6.05%, 4/15/38		100		132,643
Duke Energy Indiana, Inc., 4.20%, 3/15/42		150		154,993
Entergy Corp.:
3.63%, 9/15/15 (a)		50		51,399
4.70%, 1/15/17		150		157,340
Florida Power & Light Co.:
5.95%, 2/01/38		50		66,423
4.05%, 6/01/42		150		158,125
Georgia Power Co., 4.30%, 3/15/42		200		208,333
Great Plains Energy, Inc., 5.29%, 6/15/22 (b)		150		161,807
Indiana Michigan Power Co., 6.05%, 3/15/37		175		212,884
LG&E & KU Energy LLC, 3.75%, 11/15/20 (a)		50		51,226
Nevada Power Co., 5.45%, 5/15/41		50		60,043
Nisource Finance Corp., 5.25%, 2/15/43		75		76,047
Oncor Electric Delivery Co. LLC:
7.00%, 9/01/22		100		121,469
5.30%, 6/01/42 (d)		75		78,983

Corporate Bonds	Par (000)		Value
Electric Utilities — (concluded)
PacifiCorp, 2.95%, 2/01/22 (a)	$	100	$	102,691
Progress Energy, Inc.:
4.40%, 1/15/21		100		111,180
7.75%, 3/01/31		50		70,308
Public Service Electric & Gas Co.:
3.50%, 8/15/20		50		54,377
3.95%, 5/01/42		50		51,721
Southern California Edison Co.:
5.00%, 1/15/16		100		113,009
5.50%, 3/15/40		50		63,402
4.05%, 3/15/42		150		156,443
The Toledo Edison Co., 6.15%, 5/15/37		100		122,692
Virginia Electric & Power Co., 2.95%, 1/15/22		400		412,087
				3,416,262
Electrical Equipment — 0.0%
Emerson Electric Co., 5.00%, 4/15/19		100		117,952
Electronic Equipment, Instruments & Components — 0.1%
Corning, Inc., 4.75%, 3/15/42		50		52,395
Tyco Electronics Group SA:
6.55%, 10/01/17		50		59,691
3.50%, 2/03/22 (a)		100		99,675
				211,761
Energy Equipment & Services — 0.2%
Baker Hughes, Inc., 5.13%, 9/15/40		100		116,903
Ensco Plc, 3.25%, 3/15/16		100		105,008
Halliburton Co.:
6.15%, 9/15/19		100		123,596
4.50%, 11/15/41		50		52,433
Transocean, Inc.:
5.05%, 12/15/16		250		271,161
6.80%, 3/15/38		50		56,218
				725,319
Food & Staples Retailing — 0.3%
CVS Caremark Corp.:
6.60%, 3/15/19		200		249,411
6.13%, 9/15/39		50		62,148
The Kroger Co.:
6.15%, 1/15/20		100		119,743
3.40%, 4/15/22 (a)		100		99,914
Safeway, Inc., 4.75%, 12/01/21		100		99,173
Wal-Mart Stores, Inc.:
1.50%, 10/25/15		100		102,265
3.63%, 7/08/20		150		165,616
5.63%, 4/15/41		350		455,515
				1,353,785
Food Products — 0.5%
Archer-Daniels-Midland Co., 4.54%, 3/26/42		75		80,477
ConAgra Foods, Inc., 5.88%, 4/15/14		250		269,956
Delhaize Group SA, 4.13%, 4/10/19 (a)		150		145,127
General Mills, Inc.:
1.55%, 5/16/14		100		101,448
3.15%, 12/15/21		150		153,497
Ingredion Inc., 3.20%, 11/01/15		50		52,158
The JM Smucker Co., 3.50%, 10/15/21		50		52,341

See Notes to Financial Statements.

BLACKROCK BOND INDEX FUND JUNE 30, 2012 19

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

Corporate Bonds	Par (000)		Value
Food Products — (concluded)
Kellogg Co.:
1.88%, 11/17/16	$	200	$	202,555
3.13%, 5/17/22		100		101,658
Kraft Foods Group, Inc., 5.00%, 6/04/42 (d)		100		105,838
Kraft Foods, Inc.:
4.13%, 2/09/16		150		163,336
6.13%, 8/23/18		150		182,536
5.38%, 2/10/20		100		118,335
6.50%, 2/09/40		150		192,688
Tyson Foods, Inc., 4.50%, 6/15/22		150		154,500
Unilever Capital Corp., 4.25%, 2/10/21		200		233,317
				2,309,767
Gas Utilities — 0.0%
AGL Capital Corp., 3.50%, 9/15/21		50		51,591
ONEOK, Inc., 4.25%, 2/01/22		100		104,726
				156,317
Health Care Equipment & Supplies — 0.3%
Boston Scientific Corp.:
4.50%, 1/15/15		250		266,388
6.00%, 1/15/20		100		119,263
Covidien International Finance SA:
1.35%, 5/29/15		250		250,325
6.55%, 10/15/37		25		34,157
Hospira, Inc., 6.05%, 3/30/17 (a)		125		140,997
Medtronic, Inc.:
4.13%, 3/15/21		50		55,898
3.13%, 3/15/22 (a)		250		259,016
Zimmer Holdings, Inc., 1.40%, 11/30/14		250		250,671
				1,376,715
Health Care Providers & Services — 0.4%
Aetna, Inc., 6.75%, 12/15/37		50		65,415
Cardinal Health, Inc., 3.20%, 6/15/22		50		50,637
Cigna Corp.:
2.75%, 11/15/16		100		103,027
4.00%, 2/15/22		25		26,072
5.38%, 2/15/42		50		53,200
Kaiser Foundation Hospitals, 3.50%, 4/01/22		100		103,764
McKesson Corp., 3.25%, 3/01/16		250		268,357
Medco Health Solutions, Inc., 2.75%, 9/15/15		50		51,414
Quest Diagnostics, Inc.:
3.20%, 4/01/16		50		52,296
4.70%, 4/01/21		100		111,352
UnitedHealth Group, Inc.:
2.88%, 3/15/22		200		202,065
5.95%, 2/15/41		100		128,242
WellPoint, Inc.:
5.25%, 1/15/16		150		167,497
3.13%, 5/15/22 (a)		200		201,603
4.63%, 5/15/42		50		51,544
				1,636,485
Hotels, Restaurants & Leisure — 0.2%
Marriott International, Inc., 3.00%, 3/01/19		100		101,107
McDonald’s Corp.:
0.75%, 5/29/15		250		249,971
1.88%, 5/29/19		100		99,774
3.50%, 7/15/20		50		54,528

Corporate Bonds	Par (000)		Value
Hotels, Restaurants & Leisure — (concluded)
Starwood Hotels & Resorts Worldwide, Inc., 7.88%, 10/15/14	$	300	$	340,366
Wyndham Worldwide Corp., 4.25%, 3/01/22		50		50,347
Yum! Brands, Inc., 5.30%, 9/15/19		100		114,919
				1,011,012
Household Durables — 0.0%
Whirlpool Corp., 8.60%, 5/01/14		100		111,334
Household Products — 0.2%
Energizer Holdings, Inc., 4.70%, 5/19/21		50		52,705
Kimberly-Clark Corp.:
6.13%, 8/01/17		200		245,002
3.63%, 8/01/20		50		54,816
The Procter & Gamble Co.:
1.80%, 11/15/15		100		103,228
2.30%, 2/06/22 (a)		250		249,570
				705,321
Independent Power Producers & Energy Traders — 0.1%
Ameren Corp., 8.88%, 5/15/14		150		167,083
Exelon Generation Co. LLC:
6.25%, 10/01/39		150		162,487
5.60%, 6/15/42 (d)		50		50,899
PPL Energy Supply LLC, 4.60%, 12/15/21		150		153,928
				534,397
Industrial Conglomerates — 0.1%
Koninklijke Philips Electronics N.V., 3.75%, 3/15/22		100		103,788
Tyco International Finance SA:
4.13%, 10/15/14		150		161,886
8.50%, 1/15/19		100		136,943
Waste Management, Inc., 4.60%, 3/01/21		100		111,227
				513,844
Insurance — 0.9%
Aflac, Inc., 2.65%, 2/15/17 (a)		250		255,777
Alleghany Corp., 4.95%, 6/27/22		50		50,946
The Allstate Corp.:
5.00%, 8/15/14		100		108,189
7.45%, 5/16/19		150		192,087
5.20%, 1/15/42		50		56,155
American International Group, Inc.:
4.25%, 9/15/14		100		103,633
4.88%, 9/15/16		150		159,110
3.80%, 3/22/17		100		101,939
8.25%, 8/15/18		100		120,719
8.18%, 5/15/38 (e)		175		189,875
Aon Corp., 3.13%, 5/27/16		50		52,095
AXA SA, 8.60%, 12/15/30		50		53,481
Berkshire Hathaway Finance Corp.:
5.10%, 7/15/14		100		108,810
4.40%, 5/15/42		100		102,571
Berkshire Hathaway, Inc., 1.90%, 1/31/17		100		101,978
CNA Financial Corp., 5.75%, 8/15/21		100		109,881
Genworth Financial, Inc., 7.70%, 6/15/20		50		49,328
Hartford Financial Services Group, Inc., 6.10%, 10/01/41		100		96,723

See Notes to Financial Statements.

20 BLACKROCK BOND INDEX FUND JUNE 30, 2012

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

Corporate Bonds	Par (000)		Value
Insurance — (concluded)
Lincoln National Corp.:
4.85%, 6/24/21	$	50	$	52,369
4.20%, 3/15/22		100		99,917
Marsh & McLennan Cos., Inc., 4.80%, 7/15/21		50		54,444
MetLife, Inc.:
5.00%, 6/15/15		100		109,940
4.75%, 2/08/21		200		222,644
6.40%, 12/15/36		100		98,027
The Progressive Corp., 3.75%, 8/23/21 (a)		50		53,971
Prudential Financial, Inc.:
3.00%, 5/12/16		150		154,289
5.38%, 6/21/20		350		387,305
Travelers Property Casualty Corp., 6.38%, 3/15/33		100		128,128
Willis Group Holdings Plc, 4.13%, 3/15/16		200		209,082
XL Group Ltd., 5.75%, 10/01/21		100		110,631
				3,694,044
Internet Software & Services — 0.0%
eBay, Inc., 3.25%, 10/15/20		50		52,378
Google, Inc., 3.63%, 5/19/21		25		27,686
				80,064
IT Services — 0.2%
Fiserv, Inc., 6.80%, 11/20/17		50		59,636
International Business Machines Corp.:
0.55%, 2/06/15		250		248,378
2.00%, 1/05/16		150		154,879
1.88%, 5/15/19		250		252,657
2.90%, 11/01/21		100		104,750
The Western Union Co., 6.20%, 11/17/36		25		26,609
				846,909
Life Sciences Tools & Services — 0.0%
Life Technologies Corp., 6.00%, 3/01/20		100		117,317
Thermo Fisher Scientific, Inc.:
2.05%, 2/21/14		25		25,549
2.25%, 8/15/16		50		51,710
				194,576
Machinery — 0.1%
Caterpillar, Inc.:
5.70%, 8/15/16		100		117,816
3.90%, 5/27/21		50		55,677
5.20%, 5/27/41		100		121,284
Danaher Corp., 3.90%, 6/23/21		50		55,702
Deere & Co., 3.90%, 6/09/42		50		49,675
Illinois Tool Works, Inc., 4.88%, 9/15/41		50		56,958
Ingersoll-Rand Global Holding Co. Ltd., 6.88%, 8/15/18		50		60,896
Joy Global, Inc., 5.13%, 10/15/21		50		54,890
				572,898
Media — 1.2%
CBS Corp.:
7.88%, 7/30/30		75		96,378
4.85%, 7/01/42		75		73,407
Cintas Corp. No 2, 4.30%, 6/01/21		25		27,217

Corporate Bonds	Par (000)		Value
Media — (concluded)
Comcast Corp.:
5.15%, 3/01/20 (a)	$	350	$	406,310
6.45%, 3/15/37		200		243,220
4.65%, 7/15/42		150		150,069
COX Communications, Inc., 5.50%, 10/01/15		100		112,584
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc., 5.15%, 3/15/42		150		150,967
DIRECTV Holdings LLC/DIRECTV Financing Co., Inc.,:
3.13%, 2/15/16		100		104,180
3.50%, 3/01/16		250		263,685
Discovery Communications LLC:
4.38%, 6/15/21		50		54,294
4.95%, 5/15/42		50		52,182
NBC Universal Media LLC:
3.65%, 4/30/15		250		265,608
4.38%, 4/01/21		100		110,013
News America, Inc.:
4.50%, 2/15/21		100		109,635
6.20%, 12/15/34		100		113,771
6.15%, 2/15/41		150		175,404
Omnicom Group, Inc., 3.63%, 5/01/22		125		127,013
TCI Communications, Inc., 8.75%, 8/01/15 (a)		50		61,006
Thomson Reuters Corp., 6.50%, 7/15/18		250		308,450
Time Warner Cable, Inc.:
7.50%, 4/01/14		250		277,173
4.13%, 2/15/21		100		106,137
6.55%, 5/01/37		150		177,873
6.75%, 6/15/39		50		60,939
Time Warner, Inc.:
8.25%, 4/01/19		150		196,005
4.88%, 3/15/20 (a)		250		281,435
7.70%, 5/01/32		250		326,459
Viacom, Inc.:
3.13%, 6/15/22		150		150,189
6.75%, 10/05/37		50		63,509
The Walt Disney Co.:
0.88%, 12/01/14		250		251,543
3.75%, 6/01/21		50		54,919
WPP Finance 2010, 4.75%, 11/21/21		100		104,935
				5,056,509
Metals & Mining — 0.7%
Alcoa, Inc.:
5.55%, 2/01/17 (a)		200		218,318
5.90%, 2/01/27		100		98,936
ArcelorMittal:
3.75%, 2/25/15		200		202,736
3.75%, 8/05/15 (a)		150		150,831
3.75%, 3/01/16 (a)		150		148,968
6.75%, 3/01/41		100		93,339
Barrick Gold Corp.:
2.90%, 5/30/16		250		262,237
3.85%, 4/01/22		100		103,532
Barrick North America Finance LLC, 5.70%, 5/30/41		50		56,508
BHP Billiton Finance USA Ltd.:
1.63%, 2/24/17		100		100,687
2.88%, 2/24/22		250		252,625

See Notes to Financial Statements.

BLACKROCK BOND INDEX FUND JUNE 30, 2012 21

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

Corporate Bonds	Par (000)		Value
Metals & Mining — (concluded)
Cliffs Natural Resources, Inc., 4.88%, 4/01/21	$	50	$	49,107
Freeport-McMoRan Copper & Gold, Inc.:
2.15%, 3/01/17 (a)		100		98,595
3.55%, 3/01/22		50		49,194
Newmont Mining Corp.:
3.50%, 3/15/22		50		49,350
4.88%, 3/15/42		50		48,755
Rio Tinto Finance USA Ltd.:
2.50%, 5/20/16		50		51,963
4.13%, 5/20/21		150		164,900
Rio Tinto Finance USA Plc:
1.13%, 3/20/15		250		250,562
4.75%, 3/22/42 (a)		100		111,897
Southern Copper Corp., 6.75%, 4/16/40		100		105,896
Teck Resources Ltd.:
10.25%, 5/15/16		100		111,625
3.00%, 3/01/19		100		99,341
4.75%, 1/15/22		50		53,725
5.20%, 3/01/42		50		47,906
Vale Overseas Ltd., 6.88%, 11/21/36		200		231,991
				3,213,524
Multi-Utilities — 0.2%
Consolidated Edison Co. of New York, Inc., 4.20%, 3/15/42 (a)		150		159,869
Dominion Resources, Inc., 4.90%, 8/01/41		50		56,508
Nisource Finance Corp., 5.95%, 6/15/41		50		55,880
Pacific Gas & Electric Co., 6.05%, 3/01/34		250		315,047
San Diego Gas & Electric Co., 4.30%, 4/01/42		100		111,592
SCANA Corp., 4.13%, 2/01/22		100		100,904
				799,800
Multiline Retail — 0.1%
Kohl’s Corp., 4.00%, 11/01/21 (a)		50		51,968
Nordstrom, Inc., 4.00%, 10/15/21 (a)		100		109,681
Target Corp.:
2.90%, 1/15/22		150		153,265
7.00%, 1/15/38		100		140,473
				455,387
Office Electronics — 0.1%
Xerox Corp.:
4.25%, 2/15/15		250		265,064
5.63%, 12/15/19		100		112,701
				377,765
Oil, Gas & Consumable Fuels — 2.7%
Alberta Energy Co. Ltd., 7.38%, 11/01/31		50		59,028
Anadarko Petroleum Corp.:
6.38%, 9/15/17		250		290,408
6.45%, 9/15/36		100		115,613
Apache Corp., 6.00%, 1/15/37		100		126,372
BP Capital Markets Plc:
3.63%, 5/08/14		100		104,822
3.20%, 3/11/16		100		106,361
1.85%, 5/05/17		250		252,486
4.74%, 3/11/21		50		57,230
Canadian Natural Resources Ltd.:
1.45%, 11/14/14		50		50,610
3.45%, 11/15/21		100		103,646
6.25%, 3/15/38		50		61,255

Corporate Bonds	Par (000)		Value
Oil, Gas & Consumable Fuels — (continued)
Cenovus Energy, Inc., 5.70%, 10/15/19	$	150	$	176,725
ConocoPhillips:
4.60%, 1/15/15 (a)		200		218,959
6.50%, 2/01/39		150		207,721
ConocoPhillips Holding Co., 6.95%, 4/15/29		100		137,184
Devon Energy Corp.:
1.88%, 5/15/17		250		250,044
4.00%, 7/15/21 (a)		150		162,588
4.75%, 5/15/42		50		52,468
Ecopetrol SA, 7.63%, 7/23/19		100		126,000
El Paso Pipeline Partners Operating Co. LLC, 5.00%, 10/01/21		200		216,386
Enbridge Energy Partners LP, 4.20%, 9/15/21 (a)		100		105,781
Encana Corp., 3.90%, 11/15/21		200		197,828
Energy Transfer Partners LP:
9.70%, 3/15/19		44		56,418
5.20%, 2/01/22		250		267,728
Ensco Plc, 4.70%, 3/15/21		100		108,924
Enterprise Products Operating LLC:
5.60%, 10/15/14		200		219,207
5.95%, 2/01/41		150		169,629
EOG Resources, Inc.:
2.50%, 2/01/16		50		52,050
5.63%, 6/01/19		150		179,978
EQT Corp., 4.88%, 11/15/21		50		51,072
Hess Corp.:
8.13%, 2/15/19		200		257,437
5.60%, 2/15/41		50		53,058
Husky Energy, Inc., 3.95%, 4/15/22		150		152,919
Kinder Morgan Energy Partners LP:
3.95%, 9/01/22		225		227,950
6.50%, 2/01/37		100		112,551
Marathon Oil Corp., 5.90%, 3/15/18		100		117,063
Marathon Petroleum Corp.:
3.50%, 3/01/16		250		262,060
5.13%, 3/01/21		50		55,980
MidAmerican Energy Holdings Co., 6.13%, 4/01/36		250		312,811
Nabors Industries, Inc., 5.00%, 9/15/20		50		53,353
Nexen, Inc., 6.40%, 5/15/37		100		105,968
Noble Energy, Inc., 4.15%, 12/15/21		150		157,732
Noble Holding International Ltd.:
2.50%, 3/15/17		150		152,322
5.25%, 3/15/42		50		49,570
Occidental Petroleum Corp., 4.10%, 2/01/21		50		56,056
ONEOK Partners LP, 6.13%, 2/01/41		50		56,379
Pemex Project Funding Master Trust, 5.75%, 3/01/18		100		113,000
Petrobras International Finance Co.:
2.88%, 2/06/15		100		101,500
3.50%, 2/06/17		500		513,242
5.75%, 1/20/20		400		437,551
Petrohawk Energy Corp., 7.88%, 6/01/15		50		51,978
Petroleos Mexicanos:
4.88%, 1/24/22 (d)		400		432,000
6.50%, 6/02/41		50		58,375
5.50%, 6/27/44 (d)		100		102,250

See Notes to Financial Statements.

22 BLACKROCK BOND INDEX FUND JUNE 30, 2012

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

Corporate Bonds	Par (000)		Value
Oil, Gas & Consumable Fuels — (concluded)
Phillips 66:
1.95%, 3/05/15 (d)	$	250	$	251,790
5.88%, 5/01/42 (d)		100		107,649
Pioneer Natural Resources Co., 3.95%, 7/15/22		50		50,121
Plains All American Pipeline LP/PAA Finance Corp., 5.15%, 6/01/42		50		52,836
Sempra Energy:
2.00%, 3/15/14		100		101,564
2.30%, 4/01/17		250		256,212
Shell International Finance BV:
3.10%, 6/28/15		150		160,031
4.38%, 3/25/20		100		116,447
6.38%, 12/15/38		50		70,755
5.50%, 3/25/40		50		64,928
Southwestern Energy Co., 4.10%, 3/15/22 (d)		100		101,354
Statoil ASA, 5.10%, 8/17/40		100		118,332
Suncor Energy, Inc., 6.50%, 6/15/38		100		119,088
Talisman Energy, Inc.:
3.75%, 2/01/21		50		50,108
5.50%, 5/15/42		50		51,359
Tennessee Gas Pipeline Co. LLC, 7.50%, 4/01/17		100		119,349
Total Capital International SA, 1.50%, 2/17/17		100		100,396
TransCanada PipeLines Ltd.:
0.88%, 3/02/15		100		99,819
6.20%, 10/15/37		200		257,951
Valero Energy Corp., 6.13%, 2/01/20		150		173,184
Weatherford International Ltd.:
6.00%, 3/15/18		150		171,019
5.13%, 9/15/20		50		53,677
5.95%, 4/15/42		50		52,595
The Williams Cos., Inc., 7.88%, 9/01/21		31		39,151
Williams Partners LP:
3.80%, 2/15/15		150		157,797
4.00%, 11/15/21		250		259,693
				11,434,831
Paper & Forest Products — 0.1%
Celulosa Arauco y Constitucion SA, 4.75%, 1/11/22 (d)		50		51,114
Georgia-Pacific LLC, 8.88%, 5/15/31		25		35,245
International Paper Co.:
7.95%, 6/15/18		225		283,529
7.50%, 8/15/21		100		127,554
				497,442
Pharmaceuticals — 0.8%
Abbott Laboratories:
5.60%, 11/30/17		150		181,358
4.13%, 5/27/20		50		56,591
5.30%, 5/27/40		100		122,172
Aristotle Holding, Inc.:
3.50%, 11/15/16 (d)		100		105,286
4.75%, 11/15/21 (d)		50		55,329
AstraZeneca Plc:
5.90%, 9/15/17		100		120,137
6.45%, 9/15/37		100		135,397
Eli Lilly & Co., 5.50%, 3/15/27		50		62,459

Corporate Bonds	Par (000)		Value
Pharmaceuticals — (concluded)
Express Scripts Holding Co., 2.65%, 2/15/17 (d)	$	350	$	356,079
GlaxoSmithKline Capital Plc:
0.75%, 5/08/15		150		149,983
2.85%, 5/08/22		150		152,581
GlaxoSmithKline Capital, Inc.:
5.65%, 5/15/18		100		120,883
6.38%, 5/15/38		50		68,753
Johnson & Johnson:
2.15%, 5/15/16		100		104,651
4.50%, 9/01/40		100		117,473
Merck & Co., Inc.:
3.88%, 1/15/21		250		281,155
5.95%, 12/01/28		100		131,013
Novartis Capital Corp., 4.40%, 4/24/20		100		115,769
Pfizer, Inc.:
5.35%, 3/15/15		100		111,807
7.20%, 3/15/39		200		303,647
Pharmacia Corp., 6.50%, 12/01/18		150		190,173
Sanofi, 1.20%, 9/30/14		300		303,400
Teva Pharmaceutical Finance Co. BV, 2.40%, 11/10/16		200		206,641
				3,552,737
Real Estate — 0.2%
Boston Properties LP, 3.70%, 11/15/18		200		208,979
Simon Property Group LP:
5.25%, 12/01/16		50		56,196
2.80%, 1/30/17		100		102,941
2.15%, 9/15/17		200		199,694
3.38%, 3/15/22		100		100,442
Ventas Realty LP/Ventas Capital Corp., 4.25%, 3/01/22		100		100,692
				768,944
Real Estate Investment Trusts (REITs) — 0.2%
ERP Operating LP, 4.75%, 7/15/20		100		110,005
HCP, Inc., 6.00%, 1/30/17		100		112,034
Health Care REIT, Inc.:
4.13%, 4/01/19		200		203,151
5.25%, 1/15/22		50		53,038
ProLogis LP:
6.25%, 3/15/17		50		56,829
6.63%, 5/15/18		150		173,014
				708,071
Road & Rail — 0.3%
Burlington Northern Santa Fe LLC:
5.40%, 6/01/41		50		57,173
4.40%, 3/15/42		150		151,049
Canadian National Railway Co., 1.45%, 12/15/16		50		50,277
Canadian Pacific Railway Ltd., 5.75%, 1/15/42		25		28,481
CSX Corp.:
3.70%, 10/30/20		100		105,419
4.75%, 5/30/42		100		103,105
Norfolk Southern Corp.:
7.70%, 5/15/17		150		189,485
3.00%, 4/01/22		250		252,887

See Notes to Financial Statements.

BLACKROCK BOND INDEX FUND JUNE 30, 2012 23

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

Corporate Bonds	Par (000)		Value
Road & Rail — (concluded)
Union Pacific Corp.:
4.16%, 7/15/22	$	100	$	111,409
4.30%, 6/15/42		50		50,357
				1,099,642
Semiconductors & Semiconductor Equipment — 0.1%
Altera Corp., 1.75%, 5/15/17		200		201,480
Applied Materials, Inc., 5.85%, 6/15/41		50		60,335
Intel Corp., 4.80%, 10/01/41		50		57,262
Texas Instruments, Inc., 1.38%, 5/15/14		50		50,552
				369,629
Software — 0.2%
Microsoft Corp.:
3.00%, 10/01/20		50		54,335
5.30%, 2/08/41		100		127,934
Oracle Corp.:
5.75%, 4/15/18		150		181,994
3.88%, 7/15/20		100		111,951
5.38%, 7/15/40		150		183,785
Symantec Corp., 2.75%, 6/15/17		150		150,673
				810,672
Specialty Retail — 0.2%
AutoZone, Inc., 3.70%, 4/15/22		50		51,500
The Home Depot, Inc.:
4.40%, 4/01/21		150		173,135
5.88%, 12/16/36		100		128,022
Lowe’s Cos., Inc.:
1.63%, 4/15/17 (a)		200		201,483
4.63%, 4/15/20 (a)		100		112,970
3.12%, 4/15/22		100		102,323
4.65%, 4/15/42		50		53,095
Macy’s Retail Holdings, Inc.:
5.90%, 12/01/16		25		28,816
3.88%, 1/15/22		150		157,706
				1,009,050
Textiles, Apparel & Luxury Goods — 0.0%
VF Corp., 3.50%, 9/01/21		100		106,622
Tobacco — 0.3%
Altria Group, Inc.:
9.70%, 11/10/18		100		138,377
9.25%, 8/06/19		200		277,857
10.20%, 2/06/39		100		162,672
Lorillard Tobacco Co., 6.88%, 5/01/20		100		118,256
Philip Morris International, Inc.:
1.63%, 3/20/17 (a)		250		252,655
4.13%, 5/17/21		50		55,751
4.50%, 3/20/42		50		53,174
				1,058,742
Transportation Infrastructure — 0.0%
Ryder System, Inc., 2.50%, 3/01/17		150		151,352
Water Utilities — 0.0%
United Utilities Plc, 5.38%, 2/01/19		50		53,294
Wireless Telecommunication Services — 0.3%
America Movil SAB de CV:
2.38%, 9/08/16		250		256,475
5.00%, 3/30/20		200		227,129

Corporate Bonds	Par (000)		Value
Wireless Telecommunication Services — (concluded)
American Tower Corp.:
5.05%, 9/01/20	$	25	$	26,259
4.70%, 3/15/22		100		102,659
Cellco Partnership / Verizon Wireless Capital LLC, 5.55%, 2/01/14		250		267,633
Vodafone Group Plc:
1.63%, 3/20/17		250		250,043
7.88%, 2/15/30		100		141,397
				1,271,595
Total Corporate Bonds — 22.3%				96,050,929
Foreign Agency Obligations
Asian Development Bank:
2.75%, 5/21/14		200		208,914
1.75%, 3/21/19		400		410,461
Brazilian Government International Bond:
8.00%, 1/15/18		167		194,167
4.88%, 1/22/21 (a)		500		578,250
5.63%, 1/07/41		300		367,950
Canada Government International Bond, 2.38%, 9/10/14		250		260,908
Colombia Government International Bond:
4.38%, 7/12/21		250		280,750
7.38%, 9/18/37		100		147,700
European Bank for Reconstruction & Development, 1.00%, 2/16/17		250		249,763
Hydro Quebec, 2.00%, 6/30/16		350		362,349
Inter-American Development Bank:
3.00%, 4/22/14		250		261,369
1.38%, 10/18/16		250		255,695
Italian Republic:
4.50%, 1/21/15		500		504,127
6.88%, 9/27/23		100		101,440
Japan Bank for International Cooperation, 2.13%, 2/07/19		200		203,749
KFW:
3.50%, 3/10/14		100		104,972
1.00%, 1/12/15		750		757,012
1.25%, 10/26/15		250		253,984
2.63%, 2/16/16 (a)		100		106,193
1.25%, 2/15/17		750		758,088
Mexico Government International Bond:
8.13%, 12/30/19		100		134,000
5.13%, 1/15/20		100		117,250
3.63%, 3/15/22 (a)		300		318,450
6.75%, 9/27/34		150		204,750
4.75%, 3/08/44		200		215,500
Panama Government International Bond:
5.20%, 1/30/20		100		116,750
6.70%, 1/26/36		100		135,000
Peruvian Government International Bond, 8.75%, 11/21/33		191		313,240
Poland Government International Bond:
3.88%, 7/16/15		100		105,580
6.38%, 7/15/19		250		294,460

See Notes to Financial Statements.

24 BLACKROCK BOND INDEX FUND JUNE 30, 2012

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

Foreign Agency Obligations	Par (000)		Value
Province of British Columbia Canada, 2.85%, 6/15/15	$	150	$	159,501
Province of Manitoba Canada, 1.38%, 4/28/14		250		254,366
Province of Nova Scotia Canada, 2.38%, 7/21/15		200		209,148
Province of Ontario Canada:
4.10%, 6/16/14		250		266,740
2.30%, 5/10/16		100		104,325
4.40%, 4/14/20 (a)		200		232,507
Province of Quebec Canada, 5.00%, 3/01/16		350		400,170
Republic of Korea, 5.75%, 4/16/14		250		269,222
South Africa Government International Bond, 4.67%, 1/17/24		200		216,500
Total Foreign Agency Obligations — 2.4%				10,435,300
Non-Agency Mortgage-Backed Securities
Commercial Mortgage-Backed Securities — 1.8%
Bear Stearns Commercial Mortgage Securities, Series 2007-PW16, Class AM, 5.91%, 6/11/40 (e)		700		738,195
Citigroup/Deutsche Bank Commercial Mortgage Trust, Series 2007-CD4, Class A4, 5.32%, 12/11/49		600		666,431
CS First Boston Mortgage Securities Corp., Series 2004-C2, Class A2, 5.42%, 5/15/36 (e)		500		532,007
GE Capital Commercial Mortgage Corp., Series 2005-C3, Class A7A, 4.97%, 7/10/45 (e)		1,000		1,099,602
Greenwich Capital Commercial Funding Corp.:
Series 2007-GG11, Class A4, 5.74%, 12/10/49		350		387,853
Series 2007-GG9, Class A4, 5.44%, 3/10/39		200		221,866
GS Mortgage Securities Corp. II, Series 2007-GG10, Class A4, 5.98%, 8/10/45 (e)		300		332,944
JP Morgan Chase Commercial Mortgage Securities Corp.:
Series 2005-LDP1, Class A4, 5.04%, 3/15/46 (e)		1,050		1,139,843
Series 2006-LDP9, Class A3, 5.34%, 5/15/47		900		995,711
LB-UBS Commercial Mortgage Trust:
Series 2004-C2, Class A4, 4.37%, 3/15/36		500		522,790
Series 2006-C4, Class AM, 6.09%, 6/15/38 (e)		475		502,083
Wachovia Bank Commercial Mortgage Trust, Series 2007-C33, Class A3, 6.10%, 2/15/51 (e)		474		498,610
				7,637,935
Total Non-Agency Mortgage-Backed Securities — 1.8%				7,637,935

Preferred Securities	Par (000)		Value
Capital Trusts — 0.0%
Insurance — 0.0%
Chubb Corp. (The), 6.00%, 5/11/37	$	50	$	64,190
	Shares
Trust Preferred — 0.0%
Diversified Financial Services — 0.0%
JPMorgan Chase Capital XVIII, 6.95%, 8/17/36		75		75,000
Total Preferred Securities — 0.0%				139,190
Taxable Municipal Bonds	Par (000)
Bay Area Toll Authority, 7.04%, 4/01/41	$	100		142,532
Chicago Transit Authority, Series A, 6.90%, 12/01/40		100		117,871
City of New York, Series G, 5.97%, 3/01/36		100		124,221
City of San Antonio TX, 4.43%, 2/01/42		100		110,776
Commonwealth of Massachusetts, 5.46%, 12/01/39		100		125,424
County of Sonoma CA, 6.00%, 12/01/29		100		112,912
Los Angeles Community College District, GO, Unlimited, Build America Bonds, 6.75%, 8/01/49		50		67,853
Los Angeles Unified School District, 6.76%, 7/01/34		150		194,469
Massachusetts School Building Authority, 5.72%, 8/15/39		100		128,228
Metropolitan Transportation Authority, RB, Build America Bonds, 6.69%, 11/15/40		50		64,537
Metropolitan Water Reclamation District of Greater Chicago, 5.72%, 12/01/38		150		189,549
New Jersey Economic Development Authority, 7.43%, 2/15/29		200		245,308
New Jersey State Turnpike Authority, RB:
4.25%, 1/01/16		155		160,575
7.41%, 1/01/40		100		146,338
New York City Municipal Water Finance Authority, 5.95%, 6/15/41		100		131,779
Ohio State Water Development Authority, Water Pollution Control, RB, Build America Bonds, 4.88%, 12/01/34		100		113,419
Port Authority of New York & New Jersey, 5.86%, 12/01/24		100		127,431
San Francisco City & County Public Utilities Commission Revenue, 6.95%, 11/01/31		100		140,496
Santa Clara Valley Transportation Authority, 5.88%, 4/01/32		100		123,354
State of California:
7.55%, 4/01/39		175		226,709
7.60%, 11/01/40		200		258,194
State of Connecticut, 5.09%, 10/01/30		150		170,160

See Notes to Financial Statements.

BLACKROCK BOND INDEX FUND JUNE 30, 2012 25

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

Taxable Municipal Bonds	Par (000)		Value
State of Illinois, GO, Unlimited:
5.67%, 3/01/18	$	200	$	221,494
5.10%, 6/01/33		200		188,808
State of Texas, GO, Build America Bonds, 5.52%, 4/01/39		100		130,079
State of Washington, 5.48%, 8/01/39		100		125,362
Texas Transportation Commission, 5.18%, 4/01/30		100		122,045
Total Taxable Municipal Bonds — 0.9%				4,009,923
U.S. Government Sponsored Agency Securities
Agency Obligations — 5.2%
Fannie Mae:
0.50%, 9/19/14		1,000		1,000,842
0.50%, 7/02/15		2,000		1,997,528
0.65%, 8/28/14		600		600,356
1.13%, 4/27/17 (a)		2,310		2,331,682
1.63%, 10/26/15 (a)		350		362,534
2.38%, 7/28/15		600		633,121
2.75%, 2/05/14		300		311,806
4.63%, 10/15/13		900		949,980
6.63%, 11/15/30 (a)		149		226,054
Federal Home Loan Banks:
0.38%, 11/27/13		1,500		1,500,990
0.38%, 1/29/14 (a)		3,300		3,301,284
5.50%, 8/13/14		425		471,155
5.50%, 7/15/36		100		134,887
Financing Corp., 8.60%, 9/26/19		200		292,539
Freddie Mac:
0.38%, 10/30/13		1,000		1,002,448
0.38%, 11/27/13		2,160		2,161,676
0.50%, 4/17/15 (a)		900		900,057
1.75%, 5/30/19		420		429,584
2.00%, 8/25/16		750		788,072
2.38%, 1/13/22		420		431,027
4.50%, 1/15/14		700		744,402
4.88%, 6/13/18		250		302,770
6.25%, 7/15/32		395		587,577
6.75%, 3/15/31		250		383,620
Tennessee Valley Authority, 6.25%, 12/15/17		400		508,303
				22,354,294
Mortgage-Backed Securities — 32.1%
Fannie Mae Mortgage Backed Securities:
2.75%, 8/01/41 (e)		244		254,162
3.00%, 1/01/27—7/01/27 (f)		2,979		3,122,086
3.19%, 11/01/40 (e)		130		136,501
3.50%, 2/01/26—7/01/42 (f)		11,446		12,075,057
4.00%, 10/01/25—7/01/42 (f)		11,722		12,482,101
4.50%, 5/01/24—7/01/42 (f)		16,251		17,442,805
5.00%, 1/01/19—9/01/41 (f)		9,803		10,619,613
5.50%, 6/01/25—7/01/42 (f)		6,645		7,264,475
6.00%, 3/01/34—7/01/42 (f)		8,625		9,495,287
6.50%, 7/01/32		501		573,730
7.00%, 2/01/32		111		131,686
Freddie Mac Mortgage Backed Securities:
3.00%, 7/01/27 (f)		1,500		1,568,203
3.26%, 8/01/41 (e)		171		179,488

U.S. Government Sponsored Agency Securities	Par (000)		Value
Mortgage-Backed Securities — (concluded)
3.50%, 7/01/27—7/01/42 (f)	$	3,600	$	3,781,672
3.69%, 9/01/40 (e)		186		196,385
4.00%, 5/01/19—7/01/42 (f)		5,973		6,333,910
4.50%, 4/01/18—7/01/42 (f)		10,600		11,364,859
5.00%, 10/01/18—7/01/42 (f)		5,301		5,705,658
5.06%, 7/01/38 (e)		251		267,060
5.50%, 6/01/35—7/01/42 (f)		3,732		4,066,313
6.00%, 7/01/42 (f)		1,000		1,096,563
6.50%, 6/01/31		147		167,953
8.00%, 12/01/24		362		432,439
Ginnie Mae Mortgage Backed Securities:
3.50%, 4/20/42—7/01/42 (f)		3,997		,272,174
4.00%, 3/15/41—7/01/42 (f)		6,420		7,013,409
4.50%, 7/15/39—7/01/42 (f)		8,440		9,265,907
5.00%, 11/15/39—7/01/42 (f)		6,119		6,746,713
5.50%, 12/15/32—7/01/42 (f)		1,263		1,402,199
6.00%, 3/15/35—10/15/37		229		258,760
6.50%, 9/15/36		371		427,458
7.50%, 12/15/23		419		457,449
				138,602,075
Total U.S. Government Sponsored Agency Securities — 37.3%				160,956,369
U.S. Treasury Obligations
U.S. Treasury Bonds:
8.75%, 5/15/17		500		691,680
8.75%, 5/15/20 (a)		500		782,227
8.75%, 8/15/20 (a)		400		630,875
6.25%, 8/15/23 (a)		450		653,625
7.63%, 2/15/25 (a)		375		613,828
6.13%, 11/15/27 (a)		780		1,178,653
6.25%, 5/15/30		1,100		1,736,282
5.38%, 2/15/31 (a)		350		510,016
4.50%, 2/15/36 (a)		966		1,297,459
3.50%, 2/15/39		3,300		3,818,721
4.25%, 5/15/39		25		32,652
4.38%, 11/15/39		300		399,609
4.63%, 2/15/40 (a)		730		1,009,795
4.38%, 5/15/40		250		333,164
3.88%, 8/15/40		360		443,194
4.25%, 11/15/40		1,428		1,868,003
4.75%, 2/15/41 (a)		200		282,500
4.38%, 5/15/41		610		814,731
3.75%, 8/15/41 (a)		1,550		1,869,204
3.13%, 11/15/41 (a)		400		430,000
3.13%, 2/15/42		5,350		5,746,232
U.S. Treasury Notes:
3.13%, 8/31/13		10,700		11,054,020
0.13%, 9/30/13 (a)		4,500		4,491,387
2.75%, 10/31/13		1,423		1,469,303
0.25%, 11/30/13 (a)		4,500		4,497,012
0.25%, 1/31/14		2,150		2,148,069
4.75%, 5/15/14		2,525		2,732,919
0.25%, 5/31/14		11,000		10,986,250
0.75%, 6/15/14		1,350		1,361,179
0.50%, 8/15/14		1,750		1,755,878
2.38%, 8/31/14 (a)		950		991,414
0.50%, 10/15/14 (a)		1,500		1,505,274

See Notes to Financial Statements.

26 BLACKROCK BOND INDEX FUND JUNE 30, 2012

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

U.S. Treasury Obligations	Par (000)		Value
U.S. Treasury Bonds (concluded)
0.38%, 11/15/14 (a)	$	1,250	$	1,250,684
0.25%, 12/15/14		2,550		2,543,426
0.25%, 1/15/15 (a)		700		697,976
0.25%, 2/15/15		1,750		1,743,847
2.50%, 4/30/15		2,690		2,847,408
0.25%, 5/15/15 (a)		16,000		15,930,000
1.88%, 6/30/15		1,000		1,042,656
1.75%, 7/31/15		750		779,707
1.25%, 9/30/15 (a)		900		922,219
2.00%, 1/31/16		400		420,875
4.50%, 2/15/16 (a)		1,200		1,370,719
2.13%, 2/29/16		600		634,547
2.00%, 4/30/16		1,679		1,770,821
5.13%, 5/15/16 (a)		250		293,457
1.50%, 6/30/16		500		517,969
1.50%, 7/31/16		550		569,809
4.63%, 11/15/16		250		292,598
2.75%, 11/30/16		850		927,230
0.88%, 12/31/16		250		252,246
0.88%, 1/31/17		800		806,938
4.63%, 2/15/17		650		765,781
0.88%, 2/28/17		1,950		1,966,910
0.63%, 5/31/17 (a)		13,500		13,437,779
2.50%, 6/30/17		2,290		2,486,081
4.75%, 8/15/17		375		449,853
1.88%, 8/31/17		370		390,350
4.25%, 11/15/17		275		324,328
2.75%, 2/28/18 (a)		1,300		1,434,774
4.00%, 8/15/18		500		591,640
1.38%, 9/30/18		600		614,250
1.75%, 10/31/18		250		261,582
1.38%, 12/31/18 (a)		1,030		1,053,014
1.25%, 1/31/19 (a)		1,200		1,216,500
1.38%, 2/28/19 (a)		10,500		10,721,487
1.25%, 4/30/19		2,800		2,831,063
1.13%, 5/31/19		1,130		1,132,212
3.38%, 11/15/19		1,100		1,272,648
3.63%, 2/15/20		500		588,164
2.63%, 8/15/20 (a)		750		825,410
3.63%, 2/15/21 (a)		110		129,869
2.13%, 8/15/21 (a)		450		472,992
2.00%, 11/15/21 (a)		1,350		1,399,676
1.75%, 5/15/22 (a)		4,400		4,435,750
Total U.S. Treasury Obligations — 35.3%				152,552,400
Total Long-Term Investments (Cost — $423,389,045) — 100.2 %				432,763,863

Short-Term Securities	Shares		Value
Money Market Funds — 40.4%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.25% (c)(g)(h)		156,635,723	$	156,635,723
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(g)(h)		17,797,212		17,797,212
				174,432,935
Total Short-Term Securities (Cost — $174,432,935) — 40.4 %				174,432,935
Total Investments Before TBA Sale Commitments (Cost — $597,821,980*) — 140.6 %				607,196,798
TBA Sale Commitments (f)	Par (000)
Fannie Mae Mortgage Backed Securities:
4.50%, 5/01/24- 7/01/42	$	4,000		(4,275,000	)
Freddie Mac Mortgage Backed Securities
4.50%, 4/01/18-7/01/42		2,000		(2,128,750	)
Ginnie Mae Mortgage Backed Securities:
3.50%, 4/20/42- 7/01/42		700		(746,922	)
Total TBA Sale Commitments (Proceeds — $7,182,303) — (1.7)%				(7,150,672	)
Total Investments Net of Outstanding TBA Sale Commitments — 138.9%				600,046,126
Liabilities in Excess of Other Assets — (38.9)%				(175,212,657	)
Net Assets — 100.0%			$	431,984,141

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	597,821,980
Gross unrealized appreciation		9,752,663
Gross unrealized depreciation		(377,845	)
Net unrealized appreciation	$	9,374,818

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

(b) Represents a step-down bond that pays an initial coupon rate for the first period and then a lower coupon rate for the following periods. Rate shown is as of report date.

See Notes to Financial Statements.

BLACKROCK BOND INDEX FUND JUNE 30, 2012 27

Schedule of Investments (continued) Bond Index Master Portfolio

(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	Par/Shares Held at December 31, 2011		Par/Shares Purchased			Par/Shares Sold		Par/Shares Held at June 30, 2012		Value at June 30, 2012		Income
BlackRock Cash Funds:
Institutional, SL Agency Shares		25,385,409		131,250,314	1		—		156,635,723	$	156,635,723	$	59,986
BlackRock Cash Funds:
Prime, SL Agency Shares		5,275,209		12,522,003	1		—		17,797,212	$	17,797,212	$	4,442
PNC Funding Corp.,
5.63%, 2/01/17		150		—			—		150	$	166,899	$	4,219
3.30%, 3/08/22		—		150			—		150	$	152,971	$	353

¹ Represents net shares purchased.

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

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

(f)  Represents or includes a TBA transaction. Unsettled TBA transactions as of June 30, 2012 were as follows:

Counterparty	Value		Unrealized Appreciation (Depreciation)
Bank of America Corp.	$	3,279,844	$	(8,906	)
Barclays Plc	$	9,212,688	$	23,281
BNP Paribas SA	$	5,948,266	$	41,250
Citigroup, Inc.	$	9,344,219	$	(18,906	)
Credit Suisse Group AG	$	10,808,438	$	47,188
Deutsche Bank AG	$	8,743,438	$	5,831
Goldman Sachs Group, Inc.	$	4,813,047	$	6,378
JPMorgan Chase & Co.	$	7,547,516	$	10,276
Morgan Stanley	$	1,783,406	$	9,961
Nomura Trust and Banking Co., Ltd.	$	1,062,656	$	781
R.B.C. Dominion Securities	$	1,107,656	$	(3,945	)
Royal Bank of Scotland Group Plc	$	21,415,000	$	64,239
UBS AG	$	1,056,563	$	2,214

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

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

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 industry sub-classifications for reporting ease.

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques 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 into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. 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 is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Long-Term1:
Asset-Backed Securities		—	$	981,817		—	$	981,817
Corporate Bonds		—		96,050,929		—		96,050,929
Foreign Agency Obligations		—		10,435,300		—		10,435,300
Non-Agency Mortgage- Backed Securities		—		7,637,935		—		7,637,935
Preferred Securities		—		139,190		—		139,190
Taxable Municipal Bonds		—		4,009,923		—		4,009,923
U.S. Government Sponsored Agency Securities		—		160,956,369		—		160,956,369
U.S. Treasury Obligations		—		152,552,400		—		152,552,400

See Notes to Financial Statements.

28 BLACKROCK BOND INDEX FUND JUNE 30, 2012

Schedule of Investments (concluded) Bond Index Master Portfolio

	Level 1		Level 2			Level 3		Total
Short-Term Securities:
Money Market Funds	$	174,432,935		—			—	$	174,432,935
Liabilities:
TBA Sale Commitments		—	$	(7,150,672	)		—		(7,150,672	)
Total	$	174,432,935	$	425,613,191			—	$	600,046,126

¹  See above Schedule of Investments for values in each sector and industry.

Certain of the Master Portfolio’s liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of June 30, 2012, collateral on securities loaned at value of $82,718,339 is categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

BLACKROCK BOND INDEX FUND JUNE 30, 2012 29

Statement of Assets and Liabilities Bond Index Master Portfolio

June 30, 2012 (Unaudited)
Assets
Investments at value — unaffiliated (including securities loaned of $80,655,304) (cost — $423,087,291)	$	432,443,993
Investments at value — affiliated (cost — $174,734,689)		174,752,805
TBA sale commitments receivable		7,182,303
Contributions receivable from investors		5,257,784
Investments sold receivable		519,826
Securities lending income receivable — affiliated		8,247
Interest receivable		2,341,334
Total assets		622,506,292
Liabilities
Collateral on securities loaned at value		82,718,339
Investments purchased payable		100,606,352
TBA sale commitments at value		7,150,672
Investment advisory fees payable		24,464
Professional fees payable		21,339
Trustees’ fees payable		985
Total liabilities		190,522,151
Net Assets	$	431,984,141
Net Assets Consist of
Investors’ capital	$	422,609,323
Net unrealized appreciation/depreciation		9,374,818
Net Assets	$	431,984,141

See Notes to Financial Statements.
30	BLACKROCK BOND INDEX FUND	JUNE 30, 2012

Statement of Operations Bond Index Master Portfolio

Six Months Ended June 30, 2012 (Unaudited)
Investment Income
Securities lending — affiliated	$	20,645
Income — affiliated		48,355
Interest		2,417,091
Total income		2,486,091
Expenses
Investment advisory		85,334
Professional		17,507
Trustees		2,918
Total expenses		105,759
Less fees waived by advisor		(20,425	)
Total expenses after fees waived		85,334
Net investment income		2,400,757
Realized and Unrealized Gain
Net realized gain from investments — unaffiliated		462,397
Net change in unrealized appreciation/depreciation on investments		1,900,771
Total realized and unrealized gain		2,363,168
Net Increase in Net Assets Resulting from Operations	$	4,763,925

See Notes to Financial Statements.
	BLACKROCK BOND INDEX FUND	JUNE 30, 2012	31

Statements of Changes in Net Assets Bond Index Master Portfolio

Increase in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	2,400,757		$	3,598,436
Net realized gain		462,397			830,872
Net change in unrealized appreciation/depreciation		1,900,771			3,730,381
Net increase in net assets resulting from operations		4,763,925			8,159,689
Capital Transactions
Proceeds from contributions		308,313,307			36,757,406
Value of withdrawals		(8,577,538	)		(15,921,683	)
Net increase in net assets derived from capital transactions		299,735,769			20,835,723
Net Assets
Total increase in net assets		304,499,694			28,995,412
Beginning of period		127,484,447			98,489,035
End of period	$	431,984,141		$	127,484,447

See Notes to Financial Statements.
32	BLACKROCK BOND INDEX FUND	JUNE 30, 2012

Financial Highlights Bond Index Master Portfolio

	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008		2007
Total Investment Return
Total investment return		2.37%	1		7.67%			6.94%			5.36%			6.06%		7.31%
Ratios to Average Net Assets
Total expenses		0.10%	2		0.13%			0.10%			0.09%			0.10%		0.11%
Total expenses after fees waived		0.08%	2		0.08%			0.08%			0.08%			0.08%		0.08%
Net investment income		2.25%	2		3.36%			3.80%			4.20%			4.99%		5.15%
Supplemental Data
Net assets, end of period (000)	$	431,984		$	127,484		$	98,489		$	156,465		$	133,478	$	119,907
Portfolio turnover		167%			122%	3		59%	4		103%	5		89%		61%

¹  Aggregate total investment return.

²  Annualized.

³  Includes mortgage dollar roll transactions. Excluding these transactions, the portfolio turnover rate would have been 121%.

⁴  Includes mortgage dollar roll transactions. Excluding these transactions, the portfolio turnover rate would have been 54%.

⁵  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	JUNE 30, 2012	33

Notes to Financial Statements (Unaudited) 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 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 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 annually by the Board of Trustees of MIP (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Master Portfolio for all financial instruments.

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 by the Global Valuation Committee, or its delegate, 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 Global Valuation Committee, or its delegate, 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. These factors include but are not limited to (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or default rates. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches, including regular due diligence of the Master Portfolio’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof on a quarterly basis.

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

34 BLACKROCK BOND INDEX FUND JUNE 30, 2012

Notes to Financial Statements (continued) Bond Index Master Portfolio

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.

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.

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 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,

BLACKROCK BOND INDEX FUND JUNE 30, 2012 35

Notes to Financial Statements (continued) Bond Index Master Portfolio

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 six months ended June 30, 2012, 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 years 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 December 2011, the Financial Accounting Standards Board issued guidance that will expand 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 or similar agreements which are eligible for offset in the Statement of Assets and Liabilities and will require an entity to disclose both gross and net information about such investments and transactions in the financial statements. 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”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

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 0.08%.

The fees and expenses of 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, 2013. The amount of the waiver, if any, is shown as fees waived by advisor 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 activ-

36 BLACKROCK BOND INDEX FUND JUNE 30, 2012

Notes to Financial Statements (concluded) Bond Index Master Portfolio

ities and has retained BTC 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, if any. 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 is shown as securities lending — affiliated in the Statement of Operations. For the six months ended June 30, 2012, BTC received $11,117 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 and TBA transactions and excluding short-term securities and US government securities for the six months ended June 30, 2012, were $538,106,680 and $377,056,218, respectively.

Purchases and sales of US government securities for the six months ended June 30, 2012, were $154,969,119 and $13,830,171, respectively.

4. Borrowings:

The Master Portfolio, along with certain other funds managed by the Manager and its affiliates, is a party to a $500 million credit agreement with a group of lenders. The Master Portfolio may borrow under the credit agreement to fund shareholder redemptions. The credit agreement, which expired in November 2011, was renewed until November 2012. Effective November 2011 to November 2012, the credit agreement has the following terms: a commitment fee of 0.065% per annum based on the Master Portfolio’s pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus 0.80% per annum or (b) the Fed Funds rate plus

0.80% per annum on amounts borrowed. In addition, administration and arrangement fees were allocated to the Master Portfolio based on its net assets as of October 31, 2011. The Master Portfolio’s commitment, administration and arrangement fees were paid by the investment advisor. The Master Portfolio did not borrow under the credit agreement during the six months ended June 30, 2012.

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 BOND INDEX FUND JUNE 30, 2012 37

Disclosure of Investment Advisory Agreement

The Board of Trustees of Master Investment Portfolio (the “Master Fund”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Master Fund’s investment advisory agreement (the “Agreement”) with BlackRock Fund Advisors (“BlackRock”), the Master Fund’s investment advisor, on behalf of Bond Index Master Portfolio (the “Master Portfolio”), a series of the Master Fund. BlackRock Bond Index Fund (the “Portfolio”), a series of BlackRock Funds III (the “Fund”), is a “feeder” fund that invests all of its investable assets in the Master Portfolio. Accordingly, the Board of Trustees of the Fund also considered the approval of the Agreement with respect to the Master Portfolio. For simplicity, the Board of Trustees of the Master Fund and the Board of Trustees of the Fund are referred to herein collectively as the “Board,” and the members are referred to as “Board Members.”

Activities and Composition of the Board

The Board consists of fourteen individuals, twelve of whom are not “interested persons” of the Master Fund or the Fund as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of the Master Fund or the Fund, as pertinent, and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Co-Chairs of the Board are each Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight and Contract Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).

The Agreement

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreement on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreement. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Master Portfolio and the Portfolio by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreement, including the services and support provided by BlackRock to the Master Portfolio, the Portfolio and their shareholders. Among the matters the

Board considered were: (a) investment performance for one-, three- and five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against its peers and/or benchmark, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Master Portfolio and/or the Portfolio for services, such as marketing and distribution, call center and fund accounting; (c) the Master Portfolio’s and/or the Portfolio’s operating expenses and how BlackRock allocates expenses to the Master Portfolio and the Portfolio; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Master Portfolio’s and the Portfolio’s investment objective, policies and restrictions; (e) the Master Fund’s and the Fund’s compliance with its respective Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) execution quality of portfolio transactions; (j) BlackRock’s implementation of the Master Fund’s and/or the Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.

Board Considerations in Approving the Agreement

The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreement. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information

38 BLACKROCK BOND INDEX FUND JUNE 30, 2012

Disclosure of Investment Advisory Agreement (continued)

independently compiled and prepared by Lipper, Inc. (“Lipper”) on fees and expenses of the Master Portfolio and the Portfolio, as applicable, and the investment performance of the Portfolio as compared with a peer group of funds as determined by Lipper (collectively, “Peers”), as well as the gross investment performance of the Portfolio as compared with its benchmark; (b) information on the profitability of the Agreement to BlackRock and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of economies of scale; (e) a summary of aggregate amounts paid by the Master Portfolio and/or the Portfolio to BlackRock; (f) sales and redemption data regarding the Portfolio’s shares; and (g) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.

At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreement. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.

At an in-person meeting held on May 15-16, 2012, the Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund with respect to the Master Portfolio for a one-year term ending June 30, 2013. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement and found the Agreement to be satisfactory. In approving the continuation of the Agreement, the Board of the Master Fund considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of the Master Portfolio, the Portfolio and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Master Portfolio and the Portfolio; (d) economies of scale; (e) fall-out benefits to BlackRock as a result of its relationship with the Master Portfolio and the Portfolio; and (f) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to the distribution of Portfolio shares and securities lending, services related to the valuation and pricing of portfolio holdings of the Master Portfolio, direct and indirect benefits to BlackRock and its affiliates from their relationship with the Master Portfolio and the Portfolio and advice from independent legal counsel with respect to the review

process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of the Portfolio. Throughout the year, the Board compared the Portfolio’s performance to the performance of a comparable group of mutual funds and/or the performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the portfolio management team discussing Master Portfolio performance and the Master Portfolio’s investment objective, strategies and outlook.

The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and the Master Portfolio’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to the Master Portfolio’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Master Portfolio and the Portfolio. BlackRock and its affiliates provide the Master Portfolio and the Portfolio with certain administrative, shareholder and other services (in addition to any such services provided to the Master Portfolio and the Portfolio by third parties) and officers and other personnel as are necessary for the operations of the Master Portfolio and the Portfolio. In particular, BlackRock and its affiliates provide the Master Portfolio and the Portfolio with the following administrative services, including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions necessary for the operation of the Master Portfolio and the Portfolio,

BLACKROCK BOND INDEX FUND JUNE 30, 2012 39

Disclosure of Investment Advisory Agreement (continued)

such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Master Portfolio, the Portfolio and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of the Master Portfolio and the Portfolio, as applicable. The Board noted that the Master Portfolio’s investment results correspond directly to the investment results of the Portfolio. In preparation for the April 17, 2012 meeting, the Board worked with its independent counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive analysis of the Portfolio’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information regarding the investment performance of the Portfolio as compared to funds in the Portfolio’s applicable Lipper category and the gross investment performance of the Portfolio as compared with its benchmark. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Master Portfolio management to discuss, the performance of the Master Portfolio and the Portfolio, as applicable, throughout the year.

The Board noted that the Portfolio’s gross performance was below its benchmark index in the one- and three-year periods reported, but that the Portfolio’s gross performance exceeded its benchmark index for the five-year period reported. Based on its discussions with BlackRock and the Board’s review of the Portfolio’s investment performance compared to its Lipper Peer Group, the methodology used by Lipper to select peer funds, and other relevant information provided by BlackRock, the Board noted that the Portfolio’s gross investment performance as compared to its benchmark index provided a more meaningful comparison of the Portfolio’s relative performance. The Board and BlackRock reviewed and discussed the reasons for the Portfolio’s underperformance during the one- and three-year periods compared with its benchmark index. The Portfolio employs a stratified sampling approach to index replication. Tracking differences over the previous one- and three-year periods are primarily due to small differences in risk exposures resulting from this index replication approach.

The Board and BlackRock discussed BlackRock’s strategy for improving the Master Portfolio’s/Portfolio’s performance and BlackRock’s

commitment to providing the resources necessary to assist the Master Portfolio’s portfolio managers and to improve the Master Portfolio’s/Portfolio’s performance.

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Master Portfolio and the Portfolio: The Board, including the Independent Board Members, reviewed the Master Portfolio’s contractual advisory fee rate compared with the other funds in the Portfolio’s Lipper category. It also compared the Portfolio’s total expense ratio, as well as the Master Portfolio’s actual advisory fee rate, to those of other funds in the Portfolio’s Lipper category. The Board considered the services provided and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided the Master Portfolio and the Portfolio. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Master Portfolio and the Portfolio. The Board reviewed BlackRock’s profitability with respect to the Master Portfolio and the Portfolio, as applicable, and other funds the Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31, 2009. The Board reviewed BlackRock’s profitability with respect to other fund complexes managed by BlackRock and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRock’s operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management and the relative product mix.

40 BLACKROCK BOND INDEX FUND JUNE 30, 2012

Disclosure of Investment Advisory Agreement (concluded)

In addition, the Board considered the cost of the services provided to the Master Portfolio and the Portfolio by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Master Portfolio and the Portfolio and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of the Master Portfolio and the Portfolio. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreement and to continue to provide the high quality of services that is expected by the Board.

The Board noted that the Master Portfolio’s contractual advisory fee ratio was lower than or equal to the median contractual advisory fee ratio paid by the Portfolio’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board noted that BlackRock and its affiliates have agreed to provide an offsetting credit against certain expenses incurred by the Master Portfolio and the Portfolio.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Master Portfolio and the Portfolio increase, as well as the existence of expense caps. The Board also considered the extent to which the Master Portfolio and the Portfolio benefit from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Master Portfolio and the Portfolio to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the asset level of the Master Portfolio. In its consideration, the Board took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Master Portfolio and the Portfolio, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Master Portfolio and the Portfolio, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s

overall operations and its efforts to expand the scale of, and improve the

quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.

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

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

Conclusion

The Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund with respect to the Master Portfolio, for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board of the Master Fund, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of the Master Portfolio and its shareholders. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement with respect to the Master Portfolio and found the Agreement to be satisfactory. In arriving at its decision to approve the Agreement, the Board of the Master Fund did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Master Portfolio reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

BLACKROCK BOND INDEX FUND JUNE 30, 2012 41

Officers and Trustees

Ronald W. Forbes, Co-Chair of the Board and Trustee

Rodney D. Johnson, Co-Chair of the Board and Trustee

Paul L. Audet, Trustee

David O. Beim, Trustee

Henry Gabbay, Trustee

Dr. Matina S. Horner, Trustee

Herbert I. London, Trustee

Ian A. MacKinnon, Trustee¹

Cynthia A. Montgomery, Trustee

Joseph P. Platt, Trustee

Robert C. Robb, Jr., Trustee

Toby Rosenblatt, Trustee

Kenneth L. Urish, Trustee

Frederick W. Winter, Trustee

John M. Perlowski, President and Chief Executive Officer

Richard Hoerner, CFA, Vice President

Brendan Kyne, Vice President

Simon Mendelson, Vice President

Christopher Stavrakos, CFA, Vice President

Neal Andrews, Chief Financial Officer

Jay Fife, Treasurer

Brian Kindelan, Chief Compliance Officer and Anti-Money Laundering Officer

Benjamin Archibald, Secretary²

¹ Effective May 14, 2012, Ian A. MacKinnon became a Director of the Fund/Master Portfolio.

² Effective May 16, 2012, Ira P. Shapiro resigned as Secretary of the Fund/Master Portfolio and Benjamin Archibald became Secretary of the Fund/Master Portfolio.

Investment Advisor

BlackRock Fund Advisors

San Francisco, CA 94105

Administrator

BlackRock Institutional Trust Company, N.A.

San Francisco, CA 94105

Custodian and Accounting Agent

State Street Bank and Trust Company

Boston, MA 02110

Transfer Agent

BNY Mellon Investment Servicing (US) Inc.

Wilmington, DE 19809

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 Fund

400 Howard Street

San Francisco, CA 94105

42 BLACKROCK BOND INDEX FUND JUNE 30, 2012

Additional Information

General Information

Electronic Delivery

Electronic copies of most financial reports and prospectuses are available on the Funds’ websites or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Funds’ electronic delivery program.

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

Please contact your financial advisor. Please note that not all investment advisors, banks or brokerages may offer this service.

Shareholders Who Hold Accounts Directly with BlackRock:

1) Access the BlackRock website at

http://www.blackrock.com/edelivery

2) Select “eDelivery” under the “More Information” section

3) Log into your account

Householding

The Funds will mail only one copy of shareholder documents, including prospectuses [open end only], annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the

mailing of these documents to be combined with those for other members of your household, please call the Funds at (800) 441-7762.

Availability of Quarterly Schedule of Investments

The Fund/Master Portfolio file their 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, D.C. 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 use 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 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 (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 www.blackrock.com/funds.

Automatic Investment Plans

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

Systematic Withdrawal Plans

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

Retirement Plans

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

BLACKROCK BOND INDEX FUND JUNE 30, 2012 43

Additional Information (concluded)

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.

44 BLACKROCK BOND INDEX FUND JUNE 30, 2012

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 Balanced Capital Fund†

BlackRock Basic Value Fund

BlackRock Capital Appreciation Fund

BlackRock China Fund

BlackRock Commodity Strategies Fund

BlackRock Emerging Markets Fund

BlackRock Emerging Markets Long/Short Equity Fund

BlackRock Energy & Resources Portfolio

BlackRock Equity Dividend Fund

BlackRock EuroFund

BlackRock Flexible Equity Fund

BlackRock Focus Growth Fund

BlackRock Global Allocation Fund†

BlackRock Global Dividend Income Portfolio

BlackRock Global Dynamic Equity 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 Managed Volatility Portfolio†

BlackRock Mid-Cap Growth 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 CoreAlpha Bond Fund

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 Secured Credit Portfolio

BlackRock Strategic Income Opportunities Portfolio

BlackRock Total Return Fund

BlackRock US Government Bond Portfolio

BlackRock US Mortgage Portfolio

BlackRock World Income Fund

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 Date Funds†

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

† 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 JUNE 30, 2012 45

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

# BINF-6/12-SAR

June 30, 2012

Semi-Annual Report (Unaudited)

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
Semi-Annual Report:
Fund Summary		4
About Fund Performance		6
Derivative Financial Instruments		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		11
Master Portfolio Information		13
Master Portfolio Financial Statements:
Schedule of Investments		14
Statement of Assets and Liabilities		21
Statement of Operations		22
Statements of Changes in Net Assets		23
Master Portfolio Financial Highlights		23
Master Portfolio Notes to Financial Statements		24
Disclosure of Investment Advisory Agreement		28
Officers and Trustees		32
Additional Information		33
A World-Class Mutual Fund Family		35

2 BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012

Dear Shareholder

One year ago, risk assets were in a broad retreat as sovereign debt problems loomed over Europe and confidence in both the US and global economic recoveries was waning. Last summer’s prolonged debt ceiling debate in Washington, DC ended with Standard & Poor’s historic downgrade of US government debt, an event that triggered financial-market turmoil all over the world. Extraordinary levels of volatility persisted in the months that followed as the debt situation in Europe intensified. Macro-level news drove asset prices broadly up and down in lockstep, in a “risk on” — “risk off” trading pattern. Equity markets crumbled while safe-haven assets such as US Treasuries and gold rallied to historic highs by the end of the third quarter of 2011.

By October, however, improving economic data and more concerted efforts among European leaders toward stemming the region’s debt crisis drew investors back to the markets. Improving sentiment carried over into early 2012 as investors saw some relief from the world’s financial woes. Risk assets (including stocks, commodities and high yield bonds) moved boldly higher through the first two months of 2012 while climbing Treasury yields pressured higher-quality fixed income assets.

However, risk assets reversed course in the spring when Europe’s debt problems boiled over once again. Markets became highly volatile as political instability in Greece threatened the country’s membership in the euro zone. Spain faced severe deficit issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian government debt rose to levels deemed unsustainable. European leaders conferred and debated vehemently over the need for fiscal integration among the 17 euro-zone nations to resolve the crisis for the long term.

Alongside the drama in Europe, investors were discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key powerhouse for global growth, became particularly worrisome. In the United States, disappointing jobs reports dealt a crushing blow to sentiment. Risk assets sold off through April and May as investors ran back to safe havens including US, German and UK government debt as well as gold. As the period drew to a close, risk assets were beginning to rebound modestly as European leaders stepped up their efforts to move toward fiscal unity and investors anticipated additional stimulus from central banks on both sides of the Atlantic.

All asset classes posted gains for the 6-month period ended June 30, 2012, with US stocks delivering the largest returns. On a 12-month basis, US large-cap stocks generated positive results; however, small-cap stocks finished in negative territory and international and emerging equities, which experienced significant downturns in 2011, lagged the broader rebound. Among fixed income asset classes, safe-haven US Treasury bonds and municipal bonds outperformed corporate credits for the 12-month period. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities. We remain committed to working with you and your financial professional to identify actionable ideas for your portfolio. We encourage you to visit www.blackrock.com/newworld for more information.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of June 30, 2012
	6-month			12-month
US large cap equities (S&P 500® Index)		9.49	%		5.45	%
US small cap equities (Russell 2000® Index)		8.53			(2.08	)
International equities (MSCI Europe, Australasia, Far East Index)		2.96			(13.83	)
Emerging market equities (MSCI Emerging Markets Index)		3.93			(15.95	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.04			0.05
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		3.44			17.36
US investment grade bonds (Barclays US Aggregate Bond Index)		2.37			7.47
Tax-exempt municipal bonds (S&P Municipal Bond Index)		4.14			10.16
US high yield bonds (Barclays US Corporate High Yield 2% Issuer Capped Index)		7.23			7.21
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 June 30, 2012 BlackRock S&P 500 Stock Fund

Investment Objective

BlackRock S&P 500 Stock Fund’s (the “Fund”), a series of BlackRock Funds III, 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?

Ÿ For the six months ended June 30, 2012, the Fund returned 9.41% while the benchmark S&P 500^® Index returned 9.49%. 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 75% of NYSE market capitalization and 30% of NYSE issues.

Ÿ 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.

Ÿ Following a highly volatile 2011, financial markets began the year with relative calm as the debt situation in Europe stabilized and global liquidity conditions returned to normal, due mainly to the European Central Bank’s long-term refinancing operations. US economic indicators were positive, with particularly encouraging reports from the labor market, and the outlook for the global economy brightened. As the investment environment improved and corporate earnings continued to be strong, US equities moved boldly higher through the first two months of 2012.

Ÿ The rally softened in March when the tone of global news flow darkened. Investors reverted to risk averse mode and heightened volatility returned to the markets as Europe’s debt problems boiled over once again. Political instability in Greece caused anxiety about whether the country would continue its membership in the euro zone. In Spain, political leaders faced severe deficit and policymaking issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian sovereign debt rose to levels deemed unsustainable. Stock markets around the world saw increased volatility as investors reacted to news from Europe where leaders conferred and debated vehemently over the need for fiscal integration among the 17 euro-zone nations.

Ÿ Alongside the drama in Europe, investors became discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key power house for global growth, was of particular concern. Chinese manufacturing and exports suffered due to weakening demand from larger, developed countries as consumers became more cautious in the mire of the financial situation in Europe. Many Euro-

pean countries fell into recession. In the United States, disappointing jobs reports in the second quarter dealt a crushing blow to sentiment for the US economy after the labor market had been a bright spot earlier in the year.

Ÿ The resurgence of concerns about global growth and Europe’s debt problems drove equity prices down through April and May. In June, US stocks began a modest rebound as European leaders ramped up their efforts to move toward fiscal unity and investors anticipated additional stimulus from central banks on both sides of the Atlantic.

Ÿ The US economy remained strong relative to other parts of the world and year-to-date, US stocks generally outperformed international equity markets, which experienced higher levels of volatility amid global uncertainty. Telecommunications services (+16.51%) was the strongest-performing sector in the S&P 500^® Index for the period. Financials (+13.72%) staged a rebound from their 2011 lows. Information technology (+13.34%), consumer discretionary (+12.95%) and health care stocks (+10.97%) also performed particularly well. Energy (-2.34%) was the only sector to finish in negative territory as falling natural gas prices hurt returns in that space.

Describe recent portfolio activity.

Ÿ During the 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.

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

Ÿ On May 16, 2012, the Board of Trustees of the Trust approved separate plans of reorganization whereby the Fund will acquire substantially all of the assets and assume certain stated liabilities of BlackRock S&P 500 Index Fund, a series of BlackRock Index Funds, Inc., and BlackRock Index Equity Portfolio, a series of BlackRock Funds^SM (each a “Target Fund”) in exchange for newly issued shares of the Fund. Each Target Fund reorganization is subject to shareholder approval by the respective Target Fund’s shareholders and certain other conditions. Each Target Fund invests all of its assets in Master S&P 500 Index

4 BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012

BlackRock S&P 500 Stock Fund

Portfolio Management Commentary (concluded)

Series, a series of Quantitative Master Series LLC (the “Target Master Portfolio”). Each reorganization is contingent on the completion of the reorganization of the Target Master Portfolio with the Master Portfolio.

Each Target Fund reorganization is not, however, contingent on the completion of the other Target Fund reorganization. If approved, each reorganization is expected to close in the fourth quarter of 2012.

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.

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 June 30, 2012

	6-Month			Average Annual Total Returns
	Total Returns			1 Year			5 Years			10 Years
BlackRock S&P 500 Stock Fund		9.41	%		5.30	%		0.14	%		5.20	%
S&P 500® Index		9.49			5.45			0.22			5.33

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 January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period3		Beginning Account Value January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period3		Annualized Expense Ratio
BlackRock S&P 500 Stock Fund	$	1,000	$	1,094.10	$	0.94	$	1,000	$	1,024.00	$	0.91		0.18	%

³  Expenses are equal to the annualized expense ratio, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period shown). Because the Fund invests significantly in the Master Portfolio, the expense example reflects the 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 366.

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

BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012 5

About Fund Performance BlackRock S&P 500 Stock Fund

Performance information reflects past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Call toll free, (800) 441-7762, 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 preceding page

assume reinvestment of all dividends and capital gain distributions, if any, at net asset value (“NAV”) 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 its fee. Without such waiver, the Fund’s performance would have been lower.

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 security, index and/or 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.

Disclosure of Expenses

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 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 January 1, 2012 and held through June 30, 2012) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds.

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

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

6 BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012

Statement of Assets and Liabilities BlackRock S&P 500 Stock Fund

June 30, 2012 (Unaudited)
Assets
Investments at value — Master Portfolio (cost — $330,585,235)	$	335,444,580
Capital shares sold receivable		4,178,542
Total assets		339,623,122
Liabilities
Contributions payable to the Master Portfolio		3,872,986
Capital shares redeemed payable		305,556
Income dividends payable		737,244
Administration fees payable		32,590
Professional fees payable		10,844
Total liabilities		4,959,220
Net Assets	$	334,663,902
Net Assets Consist of
Paid-in capital	$	573,038,446
Undistributed net investment income		62,543
Accumulated net realized loss		(243,296,432	)
Net unrealized appreciation/depreciation		4,859,345
Net Assets	$	334,663,902
Net Asset Value
Based on net assets of $334,663,902 and 2,049,269 shares outstanding, unlimited number of shares authorized, no par value	$	163.31

See Notes to Financial Statements.
	BLACKROCK S&P 500 STOCK FUND	JUNE 30, 2012	7

Statement of Operations BlackRock S&P 500 Stock Fund

Six Months Ended June 30, 2012 (Unaudited)
Investment Income
Net investment income allocated from the Master Portfolio:
Dividends — unaffiliated	$	3,250,892
Dividends — affiliated		25,174
Securities lending — affiliated		35,794
Income — affiliated		8,854
Interest		170
Expenses		(86,926	)
Fees waived		7,652
Total income		3,241,610
Expenses
Administration		204,921
Professional		9,546
Total expenses		214,467
Less fees waived by administrator		(9,546	)
Total expenses after fees waived		204,921
Net investment income		3,036,689
Realized and Unrealized Gain (Loss) Allocated from the Master Portfolio
Net realized gain from investments, redemptions-in-kind, and financial futures contracts		40,580,549
Net change in unrealized appreciation/depreciation on investments and financial futures contracts		(21,111,552	)
Total realized and unrealized gain		19,468,997
Net Increase in Net Assets Resulting from Operations	$	22,505,686

See Notes to Financial Statements.
8	BLACKROCK S&P 500 STOCK FUND	JUNE 30, 2012

Statements of Changes in Net Assets BlackRock S&P 500 Stock Fund

Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	3,036,689		$	5,227,745
Net realized gain (loss)		40,580,549			(16,427,086	)
Net change in unrealized appreciation/depreciation		(21,111,552	)		18,093,455
Net increase in net assets resulting from operations		22,505,686			6,894,114
Dividends to Shareholders From
Net investment income		(3,071,783	)		(5,150,567	)
Return of capital		—			(45,376	)
		(3,071,783	)		(5,195,943	)
Capital Share Transactions
Net increase (decrease) in net assets derived from capital share transactions		59,949,924			(24,079,131	)
Net Assets
Total increase (decrease) in net assets		79,383,827			(22,380,960	)
Beginning of period		255,280,075			277,661,035
End of period	$	334,663,902		$	255,280,075
Undistributed net investment income	$	62,543		$	97,637

See Notes to Financial Statements.
	BLACKROCK S&P 500 STOCK FUND	JUNE 30, 2012	9

Financial Highlights BlackRock S&P 500 Stock Fund

	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	150.57		$	150.60		$	133.49		$	107.85		$	175.47		$	169.53
Net investment income		1.55	1		2.97	1		2.55	1		2.50	1		3.28			3.14
Net realized and unrealized gain (loss)		12.63			(0.05	)		17.10			25.60			(67.60	)		5.94
Net increase (decrease) from investment operations		14.18			2.92			19.65			28.10			(64.32	)		9.08
Dividends from:
Net investment income		(1.44	)		(2.92	)		(2.54	)		(2.46	)		(3.27	)		(3.14	)
Return of capital		—			(0.03	)		—			—			(0.03	)		—
Total dividends		(1.44	)		(2.95	)		(2.54	)		(2.46	)		(3.30	)		(3.14	)
Net asset value, end of period	$	163.31		$	150.57		$	150.60		$	133.49		$	107.85		$	175.47
Total Investment Return2
Based on net asset value		9.41%	3		2.00%			14.91%			26.48%			(37.01	)%		5.39%
Ratios to Average Net Assets4
Total expenses		0.19%	5,6		0.19%	7		0.21%			0.21%			0.21%			0.21%
Total expenses after fees waived		0.18%	5,6		0.18%	7		0.20%			0.20%			0.20%			0.20%
Net investment income		1.93%	5,6		1.95%	7		1.87%			2.20%			2.16%			1.83%
Supplemental Data
Net assets, end of period (000)	$	334,664		$	255,280		$	277,661		$	215,333		$	169,425		$	330,892
Portfolio turnover of the Master Portfolio		7%			5%			9%			5%			8%			7%

¹  Based on average shares outstanding.

²  Where applicable, includes 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 include gross expenses.

⁵  Annualized.

⁶  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of less than 0.01%.

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

See Notes to Financial Statements.
10	BLACKROCK S&P 500 STOCK FUND	JUNE 30, 2012

Notes to Financial Statements (Unaudited) 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 June 30, 2012 was 19.85%. 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.

Reorganization: On May 16, 2012, the Board of Trustees of the Trust approved separate plans of reorganization whereby the Fund will acquire substantially all of the assets and assume certain stated liabilities of BlackRock S&P 500 Index Fund, a series of BlackRock Index Funds, Inc., and BlackRock Index Equity Portfolio, a series of BlackRock FundsSM (each a “Target Fund”) in exchange for newly issued shares of the Fund. Each Target Fund reorganization is subject to shareholder approval by the respective Target Fund’s shareholders and certain other conditions. Each Target Fund invests all of its assets in Master S&P 500 Index Series, a series of Quantitative Master Series LLC (the “Target Master Portfolio”). Each reorganization is contingent on the completion of the reorganization of the Target Master Portfolio with the Master Portfolio. Each Target Fund reorganization is not, however, contingent on the completion of the other Target Fund reorganization. If approved, each reorganization is expected to close in the fourth quarter of 2012.

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. Realized and unrealized gains and losses are adjusted for utilizing partnership tax allocation rules. 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 years 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”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

The Trust, on behalf of the Fund, entered into an Administration Agreement 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.

BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012 11

Notes to Financial Statements (concluded) BlackRock S&P 500 Stock 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 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 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, 2013.

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

3. Capital Loss Carryforwards:

As of December 31, 2011, the Fund had the following 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:

	Six Months Ended June 30, 2012
	Shares			Amount
Shares sold		997,499		$	163,632,600
Shares issued to shareholders in reinvestment of dividends		10,665			1,769,424
Shares redeemed		(654,276	)		(105,452,100	)
Net increase		353,888		$	59,949,924
	Year Ended December 31, 2011
	Shares			Amount
Shares sold		452,342		$	68,863,218
Shares issued to shareholders in reinvestment of dividends		30,661			4,567,355
Shares redeemed		(631,334	)		(97,509,704	)
Net decrease		(148,331	)	$	(24,079,131	)

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 JUNE 30, 2012

Master Portfolio Information S&P 500 Stock Master Portfolio

As of June 30, 2012

Ten Largest Holdings Percent of
Long-Term Investments

Apple, Inc.	4	%
Exxon Mobil Corp.	3
Microsoft Corp.	2
International Business Machines Corp.	2
General Electric Co.	2
AT&T, Inc.	2
Chevron Corp.	2
Johnson & Johnson	2
Wells Fargo & Co.	1
Coca-Cola Co.	1

Sector Allocation Percent of
Long-Term Investments

Information Technology	20	%
Financials	14
Health Care	12
Consumer Staples	11
Consumer Discretionary	11
Energy	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.

BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012 13

Schedule of Investments June 30, 2012 (Unaudited) S&P 500 Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Aerospace & Defense — 2.4%
The Boeing Co.		99,386	$	7,384,380
General Dynamics Corp. (a)		47,819		3,154,141
Goodrich Corp.		16,739		2,124,179
Honeywell International, Inc.		103,373		5,772,348
L-3 Communications Holdings, Inc.		12,887		953,767
Lockheed Martin Corp. (a)		35,325		3,076,101
Northrop Grumman Corp. (a)		33,332		2,126,248
Precision Castparts Corp.		19,296		3,173,999
Raytheon Co. (a)		44,307		2,507,333
Rockwell Collins, Inc. (a)		19,315		953,195
Textron, Inc. (a)		37,335		928,522
United Technologies Corp.		120,932		9,133,994
				41,288,207
Air Freight & Logistics — 1.0%
C.H. Robinson Worldwide, Inc. (a)		21,530		1,260,151
Expeditors International of Washington, Inc. (a)		28,275		1,095,656
FedEx Corp. (a)		41,827		3,831,771
United Parcel Service, Inc., Class B		127,323		10,027,960
				16,215,538
Airlines — 0.1%
Southwest Airlines Co.		101,558		936,365
Auto Components — 0.2%
BorgWarner, Inc. (a)(b)		15,262		1,001,034
The Goodyear Tire & Rubber Co. (b)		32,402		382,668
Johnson Controls, Inc. (a)		90,204		2,499,553
				3,883,255
Automobiles — 0.4%
Ford Motor Co.		506,291		4,855,331
Harley-Davidson, Inc.		30,670		1,402,539
				6,257,870
Beverages — 2.7%
Beam, Inc.		20,930		1,307,915
Brown-Forman Corp., Class B (a)		13,162		1,274,740
The Coca-Cola Co.		299,494		23,417,436
Coca-Cola Enterprises, Inc. (a)		39,794		1,115,824
Constellation Brands, Inc., Class A (b)		21,522		582,385
Dr Pepper Snapple Group, Inc. (a)		28,101		1,229,419
Molson Coors Brewing Co., Class B (a)		20,810		865,904
Monster Beverage Corp. (b)		20,330		1,447,496
PepsiCo, Inc. (a)		207,644		14,672,125
				45,913,244
Biotechnology — 1.4%
Alexion Pharmaceuticals, Inc. (b)		25,465		2,528,675
Amgen, Inc.		103,277		7,543,352
Biogen Idec, Inc. (b)		31,777		4,587,963
Celgene Corp. (b)		58,424		3,748,484
Gilead Sciences, Inc. (b)		100,554		5,156,409
				23,564,883
Building Products — 0.0%
Masco Corp. (a)		47,341		656,620
Capital Markets — 1.8%
Ameriprise Financial, Inc.		29,086		1,520,034
The Bank of New York Mellon Corp. (a)		158,472		3,478,460
BlackRock, Inc. (c)		17,008		2,888,299
The Charles Schwab Corp. (a)		143,892		1,860,524

Common Stocks	Shares		Value
Capital Markets (concluded)
E*TRADE Financial Corp. (b)		33,642	$	270,482
Federated Investors, Inc., Class B (a)		12,457		272,185
Franklin Resources, Inc. (a)		18,822		2,089,054
The Goldman Sachs Group, Inc.		65,325		6,262,055
Invesco Ltd.		59,580		1,346,508
Legg Mason, Inc.		16,805		443,148
Morgan Stanley		202,377		2,952,680
Northern Trust Corp. (a)		31,949		1,470,293
State Street Corp. (a)		64,874		2,895,975
T. Rowe Price Group, Inc. (a)		33,810		2,128,678
				29,878,375
Chemicals — 2.3%
Air Products & Chemicals, Inc. (a)		28,034		2,263,185
Airgas, Inc.		9,224		774,908
CF Industries Holdings, Inc.		8,731		1,691,544
The Dow Chemical Co.		158,579		4,995,239
E.I. du Pont de Nemours & Co.		124,320		6,286,863
Eastman Chemical Co. (a)		18,367		925,146
Ecolab, Inc. (a)		38,746		2,655,263
FMC Corp.		18,265		976,812
International Flavors & Fragrances, Inc. (a)		10,723		587,620
Monsanto Co. (a)		70,767		5,858,092
The Mosaic Co.		39,599		2,168,441
PPG Industries, Inc.		20,241		2,147,975
Praxair, Inc. (a)		39,637		4,309,731
The Sherwin-Williams Co. (a)		11,355		1,502,834
Sigma-Aldrich Corp. (a)		16,091		1,189,608
				38,333,261
Commercial Banks — 2.8%
BB&T Corp. (a)		92,734		2,860,844
Comerica, Inc. (a)		26,186		804,172
Fifth Third Bancorp		121,889		1,633,313
First Horizon National Corp. (a)		33,133		286,600
Huntington Bancshares, Inc. (a)		114,531		732,998
KeyCorp		126,276		977,376
M&T Bank Corp. (a)		16,839		1,390,396
PNC Financial Services Group, Inc. (c)		70,138		4,286,133
Regions Financial Corp.		187,004		1,262,277
SunTrust Banks, Inc.		71,300		1,727,599
U.S. Bancorp		251,535		8,089,366
Wells Fargo & Co.		705,268		23,584,162
Zions Bancorporation		24,399		473,829
				48,109,065
Commercial Services & Supplies — 0.4%
Avery Dennison Corp. (a)		13,641		372,945
Cintas Corp. (a)		14,611		564,131
Iron Mountain, Inc.		22,669		747,170
Pitney Bowes, Inc. (a)		26,471		396,271
R.R. Donnelley & Sons Co. (a)		23,649		278,349
Republic Services, Inc.		41,681		1,102,879
Stericycle, Inc. (b)		11,329		1,038,529
Waste Management, Inc. (a)		61,444		2,052,230
				6,552,504
Communications Equipment — 1.8%
Cisco Systems, Inc.		711,254		12,212,231
F5 Networks, Inc. (b)		10,569		1,052,250
Harris Corp. (a)		15,088		631,433

See Notes to Financial Statements.

14 BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012

Schedule of Investments (continued) S&P 500 Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Communications Equipment (concluded)
JDS Uniphase Corp. (b)		30,452	$	334,972
Juniper Networks, Inc. (b)		70,358		1,147,539
Motorola Solutions, Inc.		38,702		1,861,953
QUALCOMM, Inc.		227,500		12,667,200
				29,907,578
Computers & Peripherals — 5.5%
Apple, Inc. (b)		124,114		72,482,576
Dell, Inc. (a)(b)		197,594		2,473,877
EMC Corp. (b)		278,590		7,140,262
Hewlett-Packard Co.		262,344		5,275,738
Lexmark International, Inc., Class A (a)		9,324		247,832
NetApp, Inc. (a)(b)		48,098		1,530,478
SanDisk Corp. (b)		32,396		1,181,806
Seagate Technology Plc		50,197		1,241,372
Western Digital Corp. (b)		30,998		944,819
				92,518,760
Construction & Engineering — 0.1%
Fluor Corp.		22,394		1,104,920
Jacobs Engineering Group, Inc. (b)		17,216		651,798
Quanta Services, Inc. (b)		28,419		684,045
				2,440,763
Construction Materials — 0.0%
Vulcan Materials Co. (a)		17,125		680,034
Consumer Finance — 0.9%
American Express Co. (a)		132,967		7,740,009
Capital One Financial Corp.		76,976		4,207,508
Discover Financial Services (a)		70,492		2,437,613
SLM Corp.		64,963		1,020,569
				15,405,699
Containers & Packaging — 0.1%
Ball Corp.		20,874		856,878
Bemis Co., Inc. (a)		13,659		428,073
Owens-Illinois, Inc. (b)		21,784		417,599
Sealed Air Corp. (a)		25,969		400,961
				2,103,511
Distributors — 0.1%
Genuine Parts Co. (a)		20,747		1,250,007
Diversified Consumer Services — 0.1%
Apollo Group, Inc., Class A (b)		14,348		519,254
DeVry, Inc.		7,915		245,127
H&R Block, Inc. (a)		38,809		620,168
				1,384,549
Diversified Financial Services — 2.8%
Bank of America Corp.		1,430,088		11,698,120
Citigroup, Inc.		389,103		10,665,313
CME Group, Inc.		8,834		2,368,484
IntercontinentalExchange, Inc. (b)		9,681		1,316,423
JPMorgan Chase & Co.		505,384		18,057,370
Leucadia National Corp. (a)		26,250		558,338
Moody’s Corp. (a)		26,275		960,351
The NASDAQ OMX Group, Inc.		16,102		365,032
NYSE Euronext (a)		33,585		859,104
				46,848,535

Common Stocks	Shares		Value
Diversified Telecommunication Services — 2.9%
AT&T, Inc.		778,337	$	27,755,497
CenturyLink, Inc. (a)		82,382		3,253,265
Frontier Communications Corp. (a)		131,843		504,959
Verizon Communications, Inc.		377,046		16,755,924
Windstream Corp. (a)		78,430		757,634
				49,027,279
Electric Utilities — 2.1%
American Electric Power Co., Inc.		64,309		2,565,929
Duke Energy Corp. (a)		177,488		4,092,873
Edison International (a)		43,316		2,001,199
Entergy Corp.		23,555		1,599,149
Exelon Corp.		113,068		4,253,618
FirstEnergy Corp. (a)		55,579		2,733,931
NextEra Energy, Inc. (a)		55,317		3,806,363
Northeast Utilities (a)		41,711		1,618,804
Pepco Holdings, Inc. (a)		30,158		590,192
Pinnacle West Capital Corp. (a)		14,476		748,988
PPL Corp. (a)		77,105		2,144,290
Progress Energy, Inc.		39,287		2,363,899
Southern Co.		115,246		5,335,890
Xcel Energy, Inc.		64,746		1,839,434
				35,694,559
Electrical Equipment — 0.5%
Cooper Industries Plc		21,151		1,442,075
Emerson Electric Co.		97,318		4,533,073
Rockwell Automation, Inc.		18,990		1,254,479
Roper Industries, Inc. (a)		12,940		1,275,625
				8,505,252
Electronic Equipment, Instruments & Components — 0.4%
Amphenol Corp., Class A		21,448		1,177,924
Corning, Inc. (a)		201,658		2,607,438
FLIR Systems, Inc. (a)		20,410		397,995
Jabil Circuit, Inc. (a)		23,972		487,351
Molex, Inc. (a)		18,194		435,564
TE Connectivity Ltd.		56,783		1,811,946
				6,918,218
Energy Equipment & Services — 1.6%
Baker Hughes, Inc. (a)		58,240		2,393,664
Cameron International Corp. (b)		32,762		1,399,265
Diamond Offshore Drilling, Inc. (a)		9,211		544,647
FMC Technologies, Inc. (b)		31,679		1,242,767
Halliburton Co.		122,630		3,481,466
Helmerich & Payne, Inc.		14,229		618,677
Nabors Industries Ltd. (b)		38,784		558,490
National Oilwell Varco, Inc.		56,530		3,642,793
Noble Corp. (a)(b)		33,414		1,086,957
Rowan Cos. Plc, Class A (b)		16,586		536,225
Schlumberger Ltd.		176,967		11,486,928
				26,991,879
Food & Staples Retailing — 2.3%
Costco Wholesale Corp. (a)		57,424		5,455,280
CVS Caremark Corp.		170,174		7,952,231
The Kroger Co. (a)		74,610		1,730,206
Safeway, Inc. (a)		31,853		578,132
Sysco Corp. (a)		77,810		2,319,516
Wal-Mart Stores, Inc. (a)		229,101		15,972,922

See Notes to Financial Statements.

BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012 15

Schedule of Investments (continued) S&P 500 Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Food & Staples Retailing (concluded)
Walgreen Co.		114,622	$	3,390,519
Whole Foods Market, Inc. (a)		21,652		2,063,868
				39,462,674
Food Products — 1.7%
Archer-Daniels-Midland Co.		87,312		2,577,450
Campbell Soup Co. (a)		23,389		780,725
ConAgra Foods, Inc.		55,072		1,428,017
Dean Foods Co. (b)		24,410		415,702
General Mills, Inc.		85,844		3,308,428
H.J. Heinz Co. (a)		42,520		2,312,238
The Hershey Co. (a)		20,142		1,450,828
Hormel Foods Corp. (a)		18,192		553,401
The J.M. Smucker Co.		15,022		1,134,461
Kellogg Co.		32,805		1,618,271
Kraft Foods, Inc., Class A (a)		235,266		9,085,973
McCormick & Co., Inc. (a)		17,629		1,069,199
Mead Johnson Nutrition Co.		27,102		2,181,982
Tyson Foods, Inc., Class A (a)		38,163		718,609
				28,635,284
Gas Utilities — 0.1%
AGL Resources, Inc. (a)		15,516		601,245
ONEOK, Inc.		27,665		1,170,506
				1,771,751
Health Care Equipment & Supplies — 1.7%
Baxter International, Inc. (a)		73,148		3,887,816
Becton Dickinson & Co.		26,949		2,014,438
Boston Scientific Corp. (b)		190,275		1,078,859
C.R. Bard, Inc.		11,138		1,196,667
CareFusion Corp. (b)		29,329		753,169
Covidien Plc		64,046		3,426,461
DENTSPLY International, Inc. (a)		18,821		711,622
Edwards Lifesciences Corp. (b)		15,236		1,573,879
Intuitive Surgical, Inc. (b)		5,264		2,915,151
Medtronic, Inc. (a)		138,156		5,350,782
St. Jude Medical, Inc. (a)		41,744		1,666,003
Stryker Corp. (a)		43,041		2,371,559
Varian Medical Systems, Inc. (b)		14,748		896,236
Zimmer Holdings, Inc. (a)		23,432		1,508,083
				29,350,725
Health Care Providers & Services — 2.0%
Aetna, Inc.		46,189		1,790,748
AmerisourceBergen Corp.		33,377		1,313,385
Cardinal Health, Inc.		46,013		1,932,546
Cigna Corp. (a)		38,204		1,680,976
Coventry Health Care, Inc.		19,017		604,550
DaVita, Inc. (b)		12,516		1,229,196
Express Scripts Holding Co. (b)		106,862		5,966,105
Humana, Inc.		21,620		1,674,253
Laboratory Corp. of America Holdings (b)		12,879		1,192,724
McKesson Corp.		31,281		2,932,594
Patterson Cos., Inc. (a)		11,600		399,852
Quest Diagnostics, Inc., (a)		21,115		1,264,789
Tenet Healthcare Corp. (b)		54,320		284,637
UnitedHealth Group, Inc.		137,763		8,059,135
WellPoint, Inc.		43,959		2,804,145
				33,129,635

Common Stocks	Shares		Value
Health Care Technology — 0.1%
Cerner Corp. (b)		19,462	$	1,608,729
Hotels, Restaurants & Leisure — 1.9%
Carnival Corp. (a)		60,245		2,064,596
Chipotle Mexican Grill, Inc. (b)		4,201		1,596,170
Darden Restaurants, Inc. (a)		17,019		861,672
International Game Technology		39,419		620,849
Marriott International, Inc., Class A (a)		35,065		1,374,548
McDonald’s Corp.		134,859		11,939,067
Starbucks Corp. (a)		100,624		5,365,272
Starwood Hotels & Resorts Worldwide, Inc. (a)		26,185		1,388,852
Wyndham Worldwide Corp. (a)		19,338		1,019,886
Wynn Resorts Ltd.		10,523		1,091,446
Yum! Brands, Inc. (a)		61,168		3,940,443
				31,262,801
Household Durables — 0.2%
D.R. Horton, Inc. (a)		37,398		687,375
Harman International Industries, Inc. (a)		9,299		368,240
Leggett & Platt, Inc. (a)		18,552		392,004
Lennar Corp., Class A (a)		21,505		664,720
Newell Rubbermaid, Inc.		38,653		701,165
PulteGroup, Inc. (b)		44,610		477,327
Whirlpool Corp.		10,309		630,499
				3,921,330
Household Products — 2.0%
The Clorox Co.		17,308		1,254,138
Colgate-Palmolive Co. (a)		63,380		6,597,858
Kimberly-Clark Corp.		52,012		4,357,045
The Procter & Gamble Co.		363,768		22,280,790
				34,489,831
Independent Power Producers & Energy Traders — 0.1%
The AES Corp. (b)		85,831		1,101,212
NRG Energy, Inc. (a)(b)		30,168		523,716
				1,624,928
Industrial Conglomerates — 2.7%
3M Co.		92,140		8,255,744
Danaher Corp. (a)		76,264		3,971,829
General Electric Co. (a)		1,406,255		29,306,354
Tyco International Ltd.		61,382		3,244,039
				44,777,966
Insurance — 3.4%
ACE Ltd.		44,915		3,329,549
Aflac, Inc.		62,142		2,646,628
The Allstate Corp. (a)		65,315		2,291,903
American International Group, Inc. (b)		84,993		2,727,425
Aon Plc (a)		43,305		2,025,808
Assurant, Inc. (a)		11,288		393,274
Berkshire Hathaway, Inc., Class B (b)		233,394		19,448,722
The Chubb Corp. (a)		35,788		2,606,082
Cincinnati Financial Corp. (a)		21,503		818,619
Genworth Financial, Inc., Class A (b)		65,106		368,500
Hartford Financial Services Group, Inc. (a)		58,333		1,028,411
Lincoln National Corp.		38,037		831,869
Loews Corp.		40,485		1,656,241
Marsh & McLennan Cos., Inc.		72,329		2,331,164
MetLife, Inc.		140,871		4,345,870
Principal Financial Group, Inc. (a)		39,944		1,047,731

See Notes to Financial Statements.

16 BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012

Schedule of Investments (continued) S&P 500 Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Insurance (concluded)
The Progressive Corp. (a)		81,028	$	1,687,813
Prudential Financial, Inc.		62,278		3,016,124
Torchmark Corp. (a)		13,003		657,302
The Travelers Cos., Inc.		51,691		3,299,954
Unum Group (a)		37,779		722,712
XL Group Plc		41,219		867,248
				58,148,949
Internet & Catalog Retail — 1.0%
Amazon.com, Inc. (b)		47,856		10,927,918
Expedia, Inc.		12,043		578,907
NetFlix, Inc. (b)		7,343		502,775
priceline.com, Inc. (b)		6,614		4,395,135
TripAdvisor, Inc. (b)		12,720		568,457
				16,973,192
Internet Software & Services — 1.8%
Akamai Technologies, Inc. (b)		23,891		758,539
eBay, Inc. (b)		152,468		6,405,181
Google, Inc., Class A (b)		33,750		19,577,363
VeriSign, Inc. (a)(b)		20,895		910,395
Yahoo! Inc. (b)		161,574		2,557,716
				30,209,194
IT Services — 3.8%
Accenture Plc, Class A		85,489		5,137,034
Automatic Data Processing, Inc. (a)		64,861		3,610,163
Cognizant Technology Solutions Corp., Class A (b)		40,370		2,422,200
Computer Sciences Corp. (a)		20,547		509,977
Fidelity National Information Services, Inc.		31,605		1,077,098
Fiserv, Inc. (b)		18,162		1,311,660
International Business Machines Corp. (a)		153,128		29,948,774
MasterCard, Inc., Class A		14,099		6,064,121
Paychex, Inc.		42,740		1,342,463
SAIC, Inc.		36,619		443,822
Teradata Corp. (b)		22,349		1,609,352
Total System Services, Inc.		21,272		509,039
Visa, Inc., Class A (a)		66,071		8,168,358
The Western Union Co. (a)		81,560		1,373,470
				63,527,531
Leisure Equipment & Products — 0.1%
Hasbro, Inc. (a)		15,584		527,830
Mattel, Inc.		45,234		1,467,391
				1,995,221
Life Sciences Tools & Services — 0.4%
Agilent Technologies, Inc.		46,062		1,807,473
Life Technologies Corp. (b)		23,780		1,069,862
PerkinElmer, Inc. (a)		15,034		387,877
Thermo Fisher Scientific, Inc. (a)		48,695		2,527,757
Waters Corp. (b)		11,801		937,826
				6,730,795
Machinery — 1.8%
Caterpillar, Inc.		86,555		7,349,385
Cummins, Inc.		25,539		2,474,985
Deere & Co. (a)		52,838		4,273,009
Dover Corp.		24,335		1,304,599
Eaton Corp.		44,749		1,773,403
Flowserve Corp. (a)		7,285		835,954

Common Stocks	Shares		Value
Machinery (concluded)
Illinois Tool Works, Inc.		63,421	$	3,354,337
Ingersoll-Rand Plc		39,658		1,672,774
Joy Global, Inc. (a)		14,022		795,468
PACCAR, Inc. (a)		47,288		1,853,217
Pall Corp. (a)		15,430		845,718
Parker Hannifin Corp.		20,090		1,544,519
Snap-on, Inc. (a)		7,737		481,628
Stanley Black & Decker, Inc. (a)		22,636		1,456,853
Xylem, Inc. (a)		24,739		622,681
				30,638,530
Media — 3.3%
Cablevision Systems Corp., New York Group, Class A (a)		28,156		374,193
CBS Corp., Class B		86,008		2,819,342
Comcast Corp., Class A (a)		357,787		11,438,450
DIRECTV, Class A (b)		87,017		4,248,170
Discovery Communications, Inc., Class A (b)		33,904		1,830,816
Gannett Co., Inc. (a)		31,393		462,419
The Interpublic Group of Cos., Inc.		59,110		641,344
The McGraw-Hill Cos., Inc.		37,072		1,668,240
News Corp., Class A (a)		279,812		6,237,009
Omnicom Group, Inc. (a)		36,148		1,756,793
Scripps Networks Interactive, Class A (a)		12,360		702,790
Time Warner Cable, Inc.		41,440		3,402,224
Time Warner, Inc.		127,508		4,909,058
Viacom, Inc., Class B		70,130		3,297,513
The Walt Disney Co. (a)		237,185		11,503,472
The Washington Post Co., Class B (a)		645		241,114
				55,532,947
Metals & Mining — 0.7%
Alcoa, Inc. (a)		141,264		1,236,060
Allegheny Technologies, Inc.		14,137		450,829
Cliffs Natural Resources, Inc.		18,979		935,475
Freeport-McMoRan Copper & Gold, Inc.		125,901		4,289,447
Newmont Mining Corp.		65,798		3,191,861
Nucor Corp. (a)		42,172		1,598,319
Titanium Metals Corp. (a)		11,215		126,841
United States Steel Corp. (a)		19,080		393,048
				12,221,880
Multi-Utilities — 1.3%
Ameren Corp.		32,150		1,078,311
CenterPoint Energy, Inc.		56,874		1,175,586
CMS Energy Corp. (a)		34,515		811,102
Consolidated Edison, Inc.		38,930		2,421,057
Dominion Resources, Inc.		75,804		4,093,416
DTE Energy Co.		22,618		1,341,926
Integrys Energy Group, Inc. (a)		10,373		589,913
NiSource, Inc. (a)		37,786		935,203
PG&E Corp. (a)		55,992		2,534,758
Public Service Enterprise Group, Inc. (a)		67,055		2,179,287
SCANA Corp. (a)		15,517		742,333
Sempra Energy (a)		31,880		2,195,894
TECO Energy, Inc. (a)		28,594		516,408
Wisconsin Energy Corp. (a)		30,537		1,208,349
				21,823,543
Multiline Retail — 0.8%
Big Lots, Inc. (a)(b)		8,373		341,535
Dollar Tree, Inc. (b)		30,848		1,659,622

See Notes to Financial Statements.

BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012 17

Schedule of Investments (continued) S&P 500 Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Multiline Retail (concluded)
Family Dollar Stores, Inc.		15,451	$	1,027,182
J.C. Penney Co., Inc. (a)		19,573		456,247
Kohl’s Corp. (a)		31,901		1,451,176
Macy’s, Inc.		54,884		1,885,265
Nordstrom, Inc. (a)		21,327		1,059,739
Sears Holdings Corp. (a)(b)		5,054		301,724
Target Corp.		87,821		5,110,304
				13,292,794
Office Electronics — 0.1%
Xerox Corp. (a)		178,509		1,404,866
Oil, Gas & Consumable Fuels — 8.8%
Alpha Natural Resources, Inc. (b)		29,151		253,905
Anadarko Petroleum Corp.		66,264		4,386,677
Apache Corp. (a)		51,842		4,556,393
Cabot Oil & Gas Corp. (a)		27,803		1,095,438
Chesapeake Energy Corp. (a)		88,104		1,638,734
Chevron Corp.		261,886		27,628,973
ConocoPhillips (a)		167,914		9,383,034
CONSOL Energy, Inc. (a)		30,090		909,922
Denbury Resources, Inc. (b)		51,713		781,383
Devon Energy Corp.		53,724		3,115,455
EOG Resources, Inc.		35,764		3,222,694
EQT Corp. (a)		19,808		1,062,303
Exxon Mobil Corp.		620,747		53,117,321
Hess Corp.		40,326		1,752,165
Kinder Morgan, Inc.		67,132		2,162,993
Marathon Oil Corp.		93,684		2,395,500
Marathon Petroleum Corp.		45,308		2,035,235
Murphy Oil Corp. (a)		25,844		1,299,695
Newfield Exploration Co. (b)		17,928		525,470
Noble Energy, Inc.		23,568		1,999,038
Occidental Petroleum Corp.		107,624		9,230,910
Peabody Energy Corp.		36,075		884,559
Phillips 66 (b)		83,094		2,762,045
Pioneer Natural Resources Co. (a)		16,333		1,440,734
QEP Resources, Inc.		23,801		713,316
Range Resources Corp.		21,474		1,328,596
Southwestern Energy Co. (b)		46,250		1,476,763
Spectra Energy Corp.		86,646		2,517,933
Sunoco, Inc. (a)		13,989		664,478
Tesoro Corp. (b)		18,769		468,474
Valero Energy Corp.		73,243		1,768,818
The Williams Cos., Inc.		82,947		2,390,533
WPX Energy, Inc. (b)		26,317		425,809
				149,395,296
Paper & Forest Products — 0.1%
International Paper Co. (a)		57,916		1,674,352
MeadWestvaco Corp.		22,991		660,991
				2,335,343
Personal Products — 0.2%
Avon Products, Inc.		57,518		932,367
The Estée Lauder Cos., Inc., Class A		29,980		1,622,517
				2,554,884
Pharmaceuticals — 6.0%
Abbott Laboratories (a)		208,801		13,461,401
Allergan, Inc.		40,788		3,775,745
Bristol-Myers Squibb Co. (a)		224,120		8,057,114

Common Stocks	Shares		Value
Pharmaceuticals (concluded)
Eli Lilly & Co.		135,552	$	5,816,536
Forest Laboratories, Inc. (b)		35,184		1,231,088
Hospira, Inc. (b)		21,828		763,544
Johnson & Johnson (a)		364,503		24,625,823
Merck & Co., Inc.		403,656		16,852,638
Mylan, Inc. (b)		57,049		1,219,137
Perrigo Co. (a)		12,429		1,465,752
Pfizer, Inc.		994,107		22,864,461
Watson Pharmaceuticals, Inc. (b)		16,958		1,254,722
				101,387,961
Professional Services — 0.1%
The Dun & Bradstreet Corp. (a)		6,323		450,008
Equifax, Inc.		16,047		747,790
Robert Half International, Inc.		19,091		545,430
				1,743,228
Real Estate Investment Trusts (REITs) — 2.1%
American Tower Corp.		52,331		3,658,460
Apartment Investment & Management Co., Class A		17,457		471,863
AvalonBay Communities, Inc. (a)		12,679		1,793,825
Boston Properties, Inc.		19,856		2,151,795
Equity Residential (a)		39,949		2,491,220
HCP, Inc. (a)		55,612		2,455,270
Health Care REIT, Inc. (a)		28,328		1,651,522
Host Hotels & Resorts, Inc. (a)		95,160		1,505,431
Kimco Realty Corp.		53,926		1,026,212
Plum Creek Timber Co., Inc. (a)		21,387		849,064
Prologis, Inc.		61,132		2,031,416
Public Storage		18,912		2,731,082
Simon Property Group, Inc.		40,254		6,265,938
Ventas, Inc.		38,419		2,425,007
Vornado Realty Trust (a)		24,649		2,070,023
Weyerhaeuser Co. (a)		71,495		1,598,628
				35,176,756
Real Estate Management & Development — 0.0%
CBRE Group, Inc., Class A (b)		43,454		710,907
Road & Rail — 0.8%
CSX Corp.		138,081		3,087,491
Norfolk Southern Corp.		43,288		3,106,780
Ryder System, Inc.		6,780		244,148
Union Pacific Corp. (a)		63,240		7,545,164
				13,983,583
Semiconductors & Semiconductor Equipment —2.2%
Advanced Micro Devices, Inc. (b)		77,740		445,450
Altera Corp. (a)		42,921		1,452,447
Analog Devices, Inc.		39,687		1,495,009
Applied Materials, Inc.		169,841		1,946,378
Broadcom Corp., Class A (a)(b)		65,737		2,221,911
First Solar, Inc. (a)(b)		7,604		114,516
Intel Corp. (a)		667,696		17,794,099
KLA-Tencor Corp. (a)		22,277		1,097,142
Lam Research Corp. (a)(b)		26,685		1,007,092
Linear Technology Corp. (a)		30,664		960,703
LSI Corp. (b)		75,097		478,368
Microchip Technology, Inc. (a)		25,762		852,207
Micron Technology, Inc. (b)		130,888		825,903
NVIDIA Corp. (b)		81,895		1,131,789
Teradyne, Inc. (a)(b)		24,705		347,352

See Notes to Financial Statements.

18 BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012

Schedule of Investments (continued) S&P 500 Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Semiconductors & Semiconductor Equipment (concluded)
Texas Instruments, Inc.		152,013	$	4,361,253
Xilinx, Inc.		35,004		1,175,084
				37,706,703
Software — 3.6%
Adobe Systems, Inc. (b)		65,761		2,128,684
Autodesk, Inc. (b)		30,409		1,064,011
BMC Software, Inc. (b)		21,454		915,657
CA, Inc. (a)		47,098		1,275,885
Citrix Systems, Inc. (b)		24,722		2,075,165
Electronic Arts, Inc. (b)		42,449		524,245
Intuit, Inc.		38,925		2,310,199
Microsoft Corp.		992,355		30,356,139
Oracle Corp.		515,220		15,302,034
Red Hat, Inc. (b)		25,592		1,445,436
Salesforce.com, Inc. (b)		18,294		2,529,328
Symantec Corp. (b)		95,891		1,400,967
				61,327,750
Specialty Retail — 2.0%
Abercrombie & Fitch Co., Class A		10,856		370,624
AutoNation, Inc. (a)(b)		5,600		197,568
AutoZone, Inc. (b)		3,545		1,301,618
Bed Bath & Beyond, Inc. (b)		30,903		1,909,805
Best Buy Co., Inc. (a)		36,955		774,577
CarMax, Inc. (b)		30,395		788,446
GameStop Corp., Class A (a)		17,469		320,731
The Gap, Inc.		44,281		1,211,528
The Home Depot, Inc. (a)		203,240		10,769,688
Limited Brands, Inc. (a)		32,148		1,367,254
Lowe’s Cos., Inc.		156,313		4,445,542
O’Reilly Automotive, Inc. (b)		16,705		1,399,378
Ross Stores, Inc.		29,992		1,873,600
Staples, Inc. (a)		91,229		1,190,538
Tiffany & Co. (a)		16,822		890,725
The TJX Cos., Inc.		98,429		4,225,557
Urban Outfitters, Inc. (b)		14,712		405,904
				33,443,083
Textiles, Apparel & Luxury Goods — 0.6%
Coach, Inc. (a)		38,131		2,229,901
Fossil, Inc. (b)		6,877		526,366
NIKE, Inc., Class B		48,648		4,270,321
Ralph Lauren Corp.		8,636		1,209,558
VF Corp.		11,467		1,530,271
				9,766,417
Thrifts & Mortgage Finance — 0.1%
Hudson City Bancorp, Inc. (a)		69,901		445,269
People’s United Financial, Inc. (a)		46,970		545,322
				990,591
Tobacco — 2.0%
Altria Group, Inc.		270,197		9,335,306
Lorillard, Inc. (a)		17,350		2,289,333
Philip Morris International, Inc.		226,431		19,758,369
Reynolds American, Inc.		43,925		1,970,915
				33,353,923

Common Stocks	Shares		Value
Trading Companies & Distributors — 0.2%
Fastenal Co. (a)		39,126	$	1,577,169
W.W. Grainger, Inc. (a)		8,117		1,552,295
				3,129,464
Wireless Telecommunication Services — 0.2%
Crown Castle International Corp. (b)		34,174		2,004,647
MetroPCS Communications, Inc. (b)		38,903		235,363
Sprint Nextel Corp. (b)		397,165		1,294,758
				3,534,768
Total Long-Term Investments (Cost — $1,328,749,437) — 96.7%				1,634,341,563
Short-Term Securities
Money Market Funds — 15.5%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.25% (c)(d)(e)		215,816,336		215,816,336
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(d)(e)		46,364,712		46,364,712
				262,181,048
	Par (000)
U.S. Treasury Obligations — 0.2%
U.S. Treasury Bill, 0.08%, 9/20/12 (f)(g)	$	3,155		3,154,492
Total Short-Term Securities (Cost — $265,335,350) — 15.7%				265,335,540

Total Investments (Cost — $1,594,084,787*) — 112.4%		1,899,677,103
Liabilities in Excess of Other Assets — (12.4)%		(209,636,878	)
Net Assets — 100.0%	$	1,690,040,225

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Tax cost	$	1,666,307,524
Gross unrealized appreciation	$	428,744,635
Gross unrealized depreciation		(195,375,056	)
Net unrealized appreciation	$	233,369,579

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

(b) Non-income producing security.

See Notes to Financial Statements.

BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012 19

Schedule of Investments (concluded) S&P 500 Stock Master Portfolio

See Notes to Financial Statements.

(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, 2011		Shares Purchased			Shares Sold			Shares Held at June 30, 2012		Value at June 30, 2012		Realized Gain (Loss)			Income
BlackRock Cash Funds:
Institutional, SL Agency Shares		170,771,686		45,044,650	1		—			215,816,336	$	215,816,336		—		$	248,776
BlackRock Cash Funds:
Prime, SL Agency Shares		53,764,558		—			(7,399,846	)2		46,364,712	$	46,364,712		—		$	52,453
BlackRock Inc.		18,408		4,969			(6,369	)		17,008	$	2,888,299	$	(107,398	)	$	54,642
PNC Financial Services Group, Inc.		96,666		6,051			(32,579	)		70,138	$	4,286,133	$	324,801		$	73,396

¹  Represents net shares purchased.

²  Represents net shares sold.

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

(e) All or a portion of 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) Represents the current yield as of report date.

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. These definitions may not apply for purposes of this report, which may combine industry sub-classifications for reporting ease.

Ÿ Financial futures contracts purchased as of June 30, 2012 were as follows:

Contracts	Issue	Exchange	Expiration Date	Notional Value		Unrealized Appreciation
761	S&P 500 E-Mini	Chicago Mercantile	September 2012	$	51,611,020	$	2,100,741

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques 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 into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed

to have occurred as of the beginning of the reporting period. 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 is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments and derivative financial instruments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3	Total
Assets:
Investments:
Long-Term Investments:
Common Stocks1	$	1,634,341,563		—	—	$	1,634,341,563
Short-Term Securities:
Money Market Funds		262,181,048		—	—		262,181,048
U.S. Treasury Obligations		—	$	3,154,492	—		3,154,492
Total	$	1,896,522,611	$	3,154,492	—	$	1,899,677,103
1   See above Schedule of Investments for values in each industry.
	Level 1		Level 2		Level 3	Total
Derivative Financial Instruments2
Assets:
Equity contracts	$	2,100,741		—	—	$	2,100,741

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

Certain of the Master Portfolio’s liabilities are held at carrying amount which approximates fair value for financial statement purposes. As of June 30, 2012, collateral on securities loaned at value of $215,495,106 are categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

20 BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012

Statement of Assets and Liabilities S&P 500 Stock Master Portfolio

June 30, 2012 (Unaudited)
Assets
Investments at value — unaffiliated (including securities loaned of $215,447,389) (cost — $1,324,640,137)	$	1,630,321,623
Investments at value — affiliated (cost — $269,444,650)		269,355,480
Investments sold receivable		1,463,756
Contributions receivable from investors		4,068,696
Receivable from custodian		3,847
Dividends receivable		2,129,522
Securities lending income receivable — affiliated		5,167
Interest receivable		8,848
Variation margin receivable		1,329,716
Total assets		1,908,686,655
Liabilities
Collateral on securities loaned at value		215,495,106
Investments purchased payable		2,636,583
Withdrawals payable to investors		416,672
Investment advisory fees payable		58,814
Professional fees payable		25,224
Trustees’ fees payable		14,031
Total liabilities		218,646,430
Net Assets	$	1,690,040,225
Net Assets Consist of
Investors’ capital	$	1,382,347,168
Net unrealized appreciation/depreciation		307,693,057
Net Assets	$	1,690,040,225

See Notes to Financial Statements.
	BLACKROCK S&P 500 STOCK FUND	JUNE 30, 2012	21

Statement of Operations S&P 500 Stock Master Portfolio

Six Months Ended June 30, 2012 (Unaudited)
Investment Income
Dividends — unaffiliated	$	21,914,775
Dividends — affiliated		128,038
Securities lending — affiliated		243,791
Income — affiliated		57,438
Interest		1,032
Total income		22,345,074
Expenses
Investment advisory		534,967
Professional		20,374
Independent Trustees		30,142
Total expenses		585,483
Less fees waived by advisor		(50,516	)
Total expenses after fees waived		534,967
Net investment income		21,810,107
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		(22,561,249	)
Investments — affiliated		217,403
Redemptions-in-kind		231,258,145
Financial futures contracts		(469,938	)
		208,444,361
Net change in unrealized appreciation/depreciation on:
Investments		(44,779,648	)
Financial futures contracts		2,041,704
		(42,737,944	)
Total realized and unrealized gain		165,706,417
Net Increase in Net Assets Resulting from Operations	$	187,516,524

See Notes to Financial Statements.
22	BLACKROCK S&P 500 STOCK FUND	JUNE 30, 2012

Statements of Changes in Net Assets S&P 500 Stock Master Portfolio

Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	21,810,107		$	45,199,220
Net realized gain (loss)		208,444,361			(26,094,326	)
Net change in unrealized appreciation/depreciation		(42,737,944	)		26,305,661
Net increase in net assets resulting from operations		187,516,524			45,410,555
Capital Transactions
Proceeds from contributions		253,220,032			195,530,480
Value of withdrawals		(859,012,539	)		(291,341,608	)
Net decrease in net assets derived from capital transactions		(605,792,507	)		(95,811,128	)
Net Assets
Total decrease in net assets		(418,275,983	)		(50,400,573	)
Beginning of period		2,108,316,208			2,158,716,781
End of period	$	1,690,040,225		$	2,108,316,208

Financial Highlights S&P 500 Stock Master Portfolio

	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Total Investment Return
Total investment return		9.48	%1		2.13	%		15.06	%		26.63	%		(36.86)	%		5.54	%
Ratios to Average Net Assets
Total expenses		0.05	%2		0.06	%		0.05	%		0.05	%		0.05	%		0.05	%
Total expenses after fees waived		0.05	%2		0.05	%		0.05	%		0.05	%		0.05	%		0.05	%
Net investment income		2.04	%2		2.08	%		2.01	%		2.35	%		2.32	%		1.98	%
Supplemental Data
Net assets, end of period (000)	$	1,690,040		$	2,108,316		$	2,158,717		$	2,049,062		$	1,690,980		$	2,920,748
Portfolio turnover		7	%		5	%		9	%		5	%		8	%		7	%

¹  Aggregate total investment return.

²  Annualized.

See Notes to Financial Statements.
	BLACKROCK S&P 500 STOCK FUND	JUNE 30, 2012	23

Notes to Financial Statements (Unaudited) 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 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 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.

Reorganization: On May 16, 2012, the Board of Trustees of MIP (the “Board”) approved a plan of reorganization whereby the Master Portfolio will acquire substantially all of the assets and assume certain stated liabilities of Master S&P 500 Index Series, a series of Quantitative Master Series LLC (the “Target Master Portfolio”). The reorganization is subject to shareholder approval by the shareholders of the feeder funds that invest their assets in the Target Master Portfolio and certain other conditions. If approved, the reorganization is expected to close in the fourth quarter of 2012.

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 annually by the Board. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Master Portfolio for all financial instruments.

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 by the Global Valuation Committee, or its delegate, 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 Global Valuation Committee, or its delegate, 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. These factors include but are not limited to (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or default rates. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches, including regular due diligence of the Master Portfolio’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof on a quarterly basis.

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

24 BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012

Notes to Financial Statements (continued) S&P 500 Stock Master Portfolio

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.

Redemptions-In-Kind: The Master Portfolio transferred securities and cash to shareholders in connection with a redemption-in-kind transaction. For purposes of US GAAP, these transactions were treated as a sale of securities and the resulting gains and losses were recognized based on the market value of the securities on the date of the transfer. For tax purposes, no gains or losses were recognized. Gains and losses resulting from such redemptions-in-kind are shown as redemption-in-kind transactions 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 six months ended June 30, 2012, 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 years 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 December 2011, the Financial Accounting Standards Board issued guidance that will expand 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 or similar agreements which are eligible for offset in the Statement of Assets and Liabilities and will require an entity to disclose both gross and net information about such investments and transactions in the financial statements. 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/or 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.

BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012 25

Notes to Financial Statements (continued) S&P 500 Stock Master Portfolio

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, financial 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 variation margin 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.

Derivative Financial Instruments Categorized by Risk Exposure:
Fair Value of Derivative Financial Instruments as of June 30, 2012
	Asset Derivatives
	Statement of Assets and Liabilities Location	Value
Equity contracts	Net unrealized appreciation/depreciation1	$	2,100,741

¹  Includes cumulative appreciation/depreciation on financial futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities.

The Effect of Derivative Financial Instruments in the Statement of Operations Six Months Ended June 30, 2012
	Net Realized Loss From
Equity contracts:
Financial futures contracts	$	(469,938	)
	Net Change in Unrealized Appreciation/Depreciation on
Equity contracts:
Financial futures contracts	$	2,041,704

For the six months ended June 30, 2012, the average quarterly balances of outstanding derivative financial instruments were as follows:

Financial futures contracts:
Average number of contracts purchased		881
Average notional value of contracts purchased	$	60,921,842

3. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

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 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, 2013. 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 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 BTC as the securities lending agent.

26 BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012

Notes to Financial Statements (concluded) S&P 500 Stock Master Portfolio

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, if any. 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 is shown as securities lending — affiliated in the Statement of Operations. For the six months ended June 30, 2012, BTC received $131,272 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 June 30, 2012, were $149,080,035 and $191,576,288, respectively.

5. Borrowings:

The Master Portfolio, along with certain other funds managed by the Manager and its affiliates, is a party to a $500 million credit agreement with a group of lenders. The Master Portfolio may borrow under the credit agreement to fund shareholder redemptions. Effective November 2011 to November 2012, the credit agreement has the following terms: a commitment fee of 0.065% per annum based on the Master Portfolio’s pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus

0.80% per annum or (b) the Fed Funds rate plus 0.80% per annum on amounts borrowed. In addition, administration and arrangement fees were allocated to the Master Portfolio based on its net assets as of October 31, 2011. The Master Portfolio’s commitment, administration and arrangement fees were paid by the investment advisor. The Master Portfolio did not borrow under the credit agreement during the six months ended June 30, 2012.

6. 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.

7. 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.

BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012 27

Disclosure of Investment Advisory Agreement

The Board of Trustees of Master Investment Portfolio (the “Master Fund”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Master Fund’s investment advisory agreement (the “Agreement”) with BlackRock Fund Advisors (“BlackRock”), the Master Fund’s investment advisor, on behalf of S&P 500 Stock Master Portfolio (the “Master Portfolio”), a series of the Master Fund. BlackRock S&P 500 Stock Fund (the “Portfolio”), a series of BlackRock Funds III (the “Fund”), is a “feeder” fund that invests all of its investable assets in the Master Portfolio. Accordingly, the Board of Trustees of the Fund also considered the approval of the Agreement with respect to the Master Portfolio. For simplicity, the Board of Trustees of the Master Fund and the Board of Trustees of the Fund are referred to herein collectively as the “Board,” and the members are referred to as “Board Members.”

Activities and Composition of the Board

The Board consists of fourteen individuals, twelve of whom are not “interested persons” of the Master Fund or the Fund as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of the Master Fund or the Fund, as pertinent, and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Co-Chairs of the Board are each Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight and Contract Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).

The Agreement

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreement on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreement. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Master Portfolio and the Portfolio by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreement, including the services and support provided by BlackRock to the Master

Portfolio, the Portfolio and their shareholders. Among the matters the Board considered were: (a) investment performance for one-, three- and five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against its peers and/or benchmark, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Master Portfolio and/or the Portfolio for services, such as marketing and distribution, call center and fund accounting; (c) the Master Portfolio’s and/or the Portfolio’s operating expenses and how BlackRock allocates expenses to the Master Portfolio and the Portfolio; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Master Portfolio’s and the Portfolio’s investment objective, policies and restrictions; (e) the Master Fund’s and the Fund’s compliance with its respective Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) the use of brokerage commissions and execution quality of portfolio transactions; (j) BlackRock’s implementation of the Master Fund’s and/or the Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.

Board Considerations in Approving the Agreement

The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreement. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the

28 BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012

Disclosure of Investment Advisory Agreement (continued)

information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on fees and expenses of the Master Portfolio and the Portfolio, as applicable, and the investment performance of the Portfolio as compared with a peer group of funds as determined by Lipper (collectively, “Peers”), as well as the gross investment performance of the Portfolio as compared with its benchmark; (b) information on the profitability of the Agreement to BlackRock and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of economies of scale; (e) a summary of aggregate amounts paid by the Master Portfolio and/or the Portfolio to BlackRock; (f) sales and redemption data regarding the Portfolio’s shares; and (g) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.

At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreement. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.

At an in-person meeting held on May 15-16, 2012, the Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between the Manager and the Master Fund with respect to the Master Portfolio for a one-year term ending June 30, 2013. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement and found the Agreement to be satisfactory. In approving the continuation of the Agreement, the Board of the Master Fund considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of the Master Portfolio, the Portfolio and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Master Portfolio and the Portfolio; (d) economies of scale; (e) fall-out benefits to BlackRock as a result of its relationship with the Master Portfolio and the Portfolio; and (f) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to the distribution of Portfolio shares and securities lending, services related to the valuation and pricing of portfolio holdings of the Master Portfolio, direct and indirect benefits to BlackRock and its affiliates from

their relationship with the Master Portfolio and the Portfolio and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of the Portfolio. Throughout the year, the Board compared the Portfolio’s performance to the performance of a comparable group of mutual funds and/or the performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the portfolio management team discussing Master Portfolio performance and the Master Portfolio’s investment objective, strategies and outlook.

The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and the Master Portfolio’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to the Master Portfolio’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Master Portfolio and the Portfolio. BlackRock and its affiliates provide the Master Portfolio and the Portfolio with certain administrative, shareholder and other services (in addition to any such services provided to the Master Portfolio and the Portfolio by third parties) and officers and other personnel as are necessary for the operations of the Master Portfolio and the Portfolio. In particular, BlackRock and its affiliates provide the Master Portfolio and the Portfolio with the following administrative services, including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions

BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012 29

Disclosure of Investment Advisory Agreement (continued)

necessary for the operation of the Master Portfolio and the Portfolio, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Master Portfolio, the Portfolio and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of the Master Portfolio and the Portfolio, as applicable. The Board noted that the Master Portfolio’s investment results correspond directly to the investment results of the Portfolio. In preparation for the April 17, 2012 meeting, the Board worked with its independent counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive analysis of the Portfolio’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information regarding the investment performance of the Portfolio as compared to funds in the Portfolio’s applicable Lipper category and the gross investment performance of the Portfolio as compared with its benchmark. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Master Portfolio management to discuss, the performance of the Master Portfolio and the Portfolio, as applicable, throughout the year.

The Board noted that the Portfolio’s gross performance, as agreed upon by the Board, was within tolerance of its benchmark index during the one-year period reported. Also, the Portfolio’s gross performance exceeded its benchmark index during the three- and five-year periods reported. Based on its discussions with BlackRock and the Board’s review of the Portfolio’s investment performance compared to its Lipper Peer Group, the methodology used by Lipper to select peer funds, and other relevant information provided by BlackRock, the Board noted that the Portfolio’s gross investment performance as compared to its benchmark index provided a more meaningful comparison of the Portfolio’s relative performance.

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Master Portfolio and the Portfolio: The Board, including the Independent Board Members, reviewed the Master Portfolio’s contractual advisory fee rate compared with the other funds in the Portfolio’s Lipper category. It also compared the Portfolio’s total

expense ratio, as well as the Master Portfolio’s actual advisory fee rate, to those of other funds in the Portfolio’s Lipper category. The Board considered the services provided and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided the Master Portfolio and the Portfolio. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Master Portfolio and the Portfolio. The Board reviewed BlackRock’s profitability with respect to the Master Portfolio and the Portfolio, as applicable, and other funds the Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31, 2009. The Board reviewed BlackRock’s profitability with respect to other fund complexes managed by BlackRock and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRock’s operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management and the relative product mix.

In addition, the Board considered the cost of the services provided to the Master Portfolio and the Portfolio by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Master Portfolio and the Portfolio and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of the Master Portfolio and the Portfolio. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreement and to continue to provide the high quality of services that is expected by the Board.

30 BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012

Disclosure of Investment Advisory Agreement (concluded)

The Board noted that the Master Portfolio’s contractual advisory fee ratio was lower than or equal to the median contractual advisory fee ratio paid by the Portfolio’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board noted that BlackRock and its affiliates have agreed to provide an offsetting credit against certain expenses incurred by the Master Portfolio and the Portfolio.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Master Portfolio and the Portfolio increase, as well as the existence of expense caps. The Board also considered the extent to which the Master Portfolio and the Portfolio benefit from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Master Portfolio and the Portfolio to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the asset level of the Master Portfolio. In its consideration, the Board took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Master Portfolio and the Portfolio, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Master Portfolio and the Portfolio, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.

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

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

Conclusion

The Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund, with respect to the Master Portfolio, for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board of the Master Fund, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of the Master Portfolio and its shareholders. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement with respect to the Master Portfolio and found the Agreement to be satisfactory. In arriving at its decision to approve the Agreement, the Board of the Master Fund did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Master Portfolio reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012 31

Officers and Trustees

Ronald W. Forbes, Co-Chair of the Board and Trustee

Rodney D. Johnson, Co-Chair of the Board and Trustee

Paul L. Audet, Trustee

David O. Beim, Trustee

Henry Gabbay, Trustee

Dr. Matina S. Horner, Trustee

Herbert I. London, Trustee

Ian A. MacKinnon, Trustee¹

Cynthia A. Montgomery, Trustee

Joseph P. Platt, Trustee

Robert C. Robb, Jr., Trustee

Toby Rosenblatt, Trustee

Kenneth L. Urish, Trustee

Frederick W. Winter, Trustee

John M. Perlowski, President and Chief Executive Officer

Richard Hoerner, CFA, Vice President

Brendan Kyne, Vice President

Simon Mendelson, Vice President

Christopher Stavrakos, CFA, Vice President

Neal Andrews, Chief Financial Officer

Jay Fife, Treasurer

Brian Kindelan, Chief Compliance Officer and Anti-Money Laundering     Officer

Benjamin Archibald, Secretary²

¹  Effective May 14, 2012, Ian A. MacKinnon became a Trustee of the Trust/MIP.

²  Effective May 16, 2012, Ira P. Shapiro resigned as Secretary of the Trust/MIP and Benjamin Archibald became Secretary of the Trust/MIP.

Investment Advisor

BlackRock Fund Advisors

San Francisco, CA 94105

Administrator

BlackRock Institutional Trust Company, N.A.

San Francisco, CA 94105

Custodian and Accounting Agent

State Street Bank and Trust Company

Boston, MA 02110

Transfer Agent

BNY Mellon Investment Servicing (US) Inc.

Wilmington, DE 19809

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 Trust

400 Howard Street

San Francisco, CA 94105

32 BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012

Additional Information

General Information

Electronic Delivery

Electronic copies of most financial reports and prospectuses are available on the Fund’s websites or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Fund’s electronic delivery program.

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

Please contact your financial advisor. Please note that not all investment advisors, banks or brokerages may offer this service.

Shareholders Who Hold Accounts Directly with BlackRock:

1) Access the BlackRock website at http://www.blackrock.com/edelivery

2) Select “eDelivery” under the “More Information” section

3) Log into your account

Householding

The Fund will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “house holding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing

of these documents to be combined with those for other members of your household, please call the Fund at (800) 441-7762.

Availability of Quarterly Schedule of Investments

The Fund/Master Portfolio file their 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 use 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 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.

Automatic Investment Plans

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

Systematic Withdrawal Plans

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

Retirement Plans

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

BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012 33

Additional Information (concluded)

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.

34 BLACKROCK S&P 500 STOCK FUND JUNE 30, 2012

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 Balanced Capital Fund†

BlackRock Basic Value Fund

BlackRock Capital Appreciation Fund

BlackRock China Fund

BlackRock Commodity Strategies Fund

BlackRock Emerging Markets Fund

BlackRock Emerging Markets Long/Short Equity Fund

BlackRock Energy & Resources Portfolio

BlackRock Equity Dividend Fund

BlackRock EuroFund

BlackRock Flexible Equity Fund

BlackRock Focus Growth Fund

BlackRock Global Allocation Fund†

BlackRock Global Dividend Income Portfolio

BlackRock Global Dynamic Equity 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 Managed Volatility Portfolio†

BlackRock Mid-Cap Growth 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 CoreAlpha Bond Fund

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 Secured Credit Portfolio

BlackRock Strategic Income Opportunities Portfolio

BlackRock Total Return Fund

BlackRock US Government Bond Portfolio

BlackRock US Mortgage Portfolio

BlackRock World Income Fund

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 Date Funds†

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

† 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 S&P 500 STOCK FUND JUNE 30, 2012 35

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

# SPSF-6/12-SAR

June 30, 2012

Semi-Annual Report (Unaudited)

BlackRock Funds III

^u  LifePath^® 2025 Portfolio

^u  LifePath^® 2035 Portfolio

^u  LifePath^® 2045 Portfolio

^u  LifePath^® 2055 Portfolio

Not FDIC Insured     No Bank Guarantee    May Lose Value

Table of Contents

	Page
Dear Shareholder		3
Semi-Annual Report:
Portfolio Summaries		4
About Portfolio Performance		9
Derivative Financial Instruments		9
Disclosure of Expenses		10
Portfolio Financial Statements:
Statements of Assets and Liabilities		11
Statements of Operations		12
Statements of Changes in Net Assets		13
Portfolio Financial Highlights		15
Portfolio Notes to Financial Statements		35
Master Portfolio Information		40
Master Portfolio Financial Statements:
Schedules of Investments		43
Statements of Assets and Liabilities		54
Statements of Operations		56
Statements of Changes in Net Assets		58
Master Portfolio Financial Highlights		60
Master Portfolio Notes to Financial Statements		65
Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement		69
Officers and Trustees		77
Additional Information		78
A World-Class Mutual Fund Family		80

2 BLACKROCK FUNDS III JUNE 30, 2012

Dear Shareholder

One year ago, risk assets were in a broad retreat as sovereign debt problems loomed over Europe and confidence in both the US and global economic recoveries was waning. Last summer’s prolonged debt ceiling debate in Washington, DC ended with Standard & Poor’s historic downgrade of US government debt, an event that triggered financial-market turmoil all over the world. Extraordinary levels of volatility persisted in the months that followed as the debt situation in Europe intensified. Macro-level news drove asset prices broadly up and down in lockstep, in a “risk on” — “risk off” trading pattern. Equity markets crumbled while safe-haven assets such as US Treasuries and gold rallied to historic highs by the end of the third quarter of 2011.

By October, however, improving economic data and more concerted efforts among European leaders toward stemming the region’s debt crisis drew investors back to the markets. Improving sentiment carried over into early 2012 as investors saw some relief from the world’s financial woes. Risk assets (including stocks, commodities and high yield bonds) moved boldly higher through the first two months of 2012 while climbing Treasury yields pressured higher-quality fixed income assets.

However, risk assets reversed course in the spring when Europe’s debt problems boiled over once again. Markets became highly volatile as political instability in Greece threatened the country’s membership in the euro zone. Spain faced severe deficit issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian government debt rose to levels deemed unsustainable. European leaders conferred and debated vehemently over the need for fiscal integration among the 17 euro-zone nations to resolve the crisis for the long term.

Alongside the drama in Europe, investors were discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key powerhouse for global growth, became particularly worrisome. In the United States, disappointing jobs reports dealt a crushing blow to sentiment. Risk assets sold off through April and May as investors ran back to safe havens including US, German and UK government debt as well as gold. As the period drew to a close, risk assets were beginning to rebound modestly as European leaders stepped up their efforts to move toward fiscal unity and investors anticipated additional stimulus from central banks on both sides of the Atlantic.

All asset classes posted gains for the 6-month period ended June 30, 2012, with US stocks delivering the largest returns. On a 12-month basis, US large-cap stocks generated positive results; however, small-cap stocks finished in negative territory and international and emerging equities, which experienced significant downturns in 2011, lagged the broader rebound. Among fixed income asset classes, safe-haven US Treasury bonds and municipal bonds outperformed corporate credits for the 12-month period. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities. We remain committed to working with you and your financial professional to identify actionable ideas for your portfolio. We encourage you to visit www.blackrock.com/newworld for more information.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of June 30, 2012
	6-month			12-month
US large cap equities (S&P 500® Index)		9.49	%		5.45	%
US small cap equities (Russell 2000® Index)		8.53			(2.08	)
International equities (MSCI Europe, Australasia, Far East Index)		2.96			(13.83	)
Emerging market equities (MSCI Emerging Markets Index)		3.93			(15.95	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.04			0.05
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		3.44			17.36
US investment grade bonds (Barclays US Aggregate Bond Index)		2.37			7.47
Tax-exempt municipal bonds (S&P Municipal Bond Index)		4.14			10.16
US high yield bonds (Barclays US Corporate High Yield 2% Issuer Capped Index)		7.23			7.21
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 June 30, 2012 LifePath Portfolios

Portfolio Management Commentary

How did each Portfolio perform?

Ÿ All share classes of the LifePath Portfolios with target dates of 2025, 2035, 2045 and 2055 (together, the “LifePath Portfolios”) invest in their respective LifePath Master Portfolio.

Ÿ For the six-month period ended June 30, 2012, all of the LifePath Portfolios underperformed their respective custom benchmarks. The returns for the LifePath Portfolios include fund expenses. The custom benchmarks have no expenses associated with performance.

What factors influenced performance?

Ÿ Equity markets generally outperformed fixed income markets during the period. While all of the LifePath Portfolios generated positive absolute returns for the period, those with longer time horizons benefited most from the strong performance of equities given their larger allocations to equity investments.

Ÿ The LifePath Portfolios underperformed relative to their respective custom benchmarks primarily due to their investment in the Active Stock Master Portfolio (“Active Stock”), which is held in greater proportions in the longer-dated LifePath Portfolios. Active Stock invests in BlackRock’s Scientific Active Large Cap Equity strategy and four fundamental active large cap strategies including Large Cap Growth, Fundamental Large Cap Growth, Basic Value and Equity Dividend. All of the strategies delivered strong performance in the first quarter of 2012 as equity markets broadly rallied; however, the Fundamental Large Cap Growth and Basic Value strategies underperformed as risk assets sold off amid heightened uncertainty in the second quarter. In addition, stock selection within information technology and financials, as well as underweight positioning

in the defensive consumer staples sector, contributed to Active Stock’s underperformance relative to its benchmark, the Russell 1000^® Index.

Ÿ Contributing positively to the LifePath Portfolios’ performance relative to their respective custom benchmarks was their investment in the CoreAlpha Bond Master Portfolio (“CoreAlpha Bond”). CoreAlpha Bond performed well as a result of its overweight allocation (relative to its benchmark, the Barclays US Aggregate Bond Index) in high-quality securitized credit assets as well as security selection among industrial and financial names. An overweight to asset-backed securities also had a positive impact on CoreAlpha Bond’s returns, as did out-of-index exposure to high yield debt and non-agency residential mortgage-backed securities (“MBS”). Additionally, CoreAlpha Bond’s security selection in agency MBS and its long duration bias enhanced results for the period.

Describe recent portfolio activity.

Ÿ 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 shareholders’ remaining investment time horizon. During the period, the LifePath Portfolios were rebalanced in accordance with their updated strategic allocations, and daily cash flows were allocated to the underlying funds and instruments as appropriate.

Describe portfolio positioning at period end.

Ÿ 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.

Glidepath Evolution

Under normal circumstances, the asset allocation of each LifePath Portfolio (the “Portfolio” or “each Portfolio”) will change over time according to a “glidepath” as each of the Portfolios approaches its respective target date. The glide path represents the shifting of asset classes over time. Each Portfolio’s asset mix becomes more conservative prior to retirement as time elapses. This reflects the need for reduced investment risks as retirement approaches and the need for lower volatility of each Portfolio, which may be a primary source of income after retirement. As each Portfolio approaches its target date, its asset allocation will shift so that each Portfolio invests a greater percentage of its assets in fixed income funds. The asset allocation targets are established by a committee of BlackRock investment professionals that includes the portfolio managers. The investment team, including the portfolio managers and this investment committee, meets regularly to assess market conditions, review the asset allocation targets of each Portfolio,

and determine whether any changes are required to enable each Portfolio to achieve its investment objective.

Although the asset allocation targets listed for the glidepath are general, long-term targets, BlackRock investment professionals may periodically adjust the proportion of equity and fixed income funds in each Portfolio, based on an assessment of the current market conditions, the potential contribution of each asset class to the expected risk and return characteristics of each Portfolio, reallocations of each Portfolio’s composition to reflect intra-year movement along the glidepath and other factors. In general, such adjustments will be limited, however, BlackRock investment professionals may determine that a greater degree of variation is warranted to protect each Portfolio or achieve each Portfolio’s investment objective.

4 BLACKROCK FUNDS III JUNE 30, 2012

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  Assuming maximum sales charges, transaction costs and other operating expenses, including advisory fees, if any. Institutional Shares do not have a sales charge.

²  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2025 Portfolio 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.

³  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

⁴  Commencement of operations.

Period	Barclays US Aggregate Bond Index			Barclays US Treasury Inflation Protected Securities (TIPS) Index			FTSE EPRA/NAREIT Developed Real Estate Index			MSCI ACWI ex- US IMI Index			Russell 1000® Index			Russell 2000® Index			S&P MidCap 400®  Index			S&P  500® Index			S&P SmallCap 600®  Index
7/01/10 to 6/30/11		28.9	%		4.5	%		4.9	%		18.8	%		N/A			N/A			5.9	%		34.4	%		2.6	%
7/01/11 to 6/30/12		30.8	%		4.8	%		4.8	%		18.7	%		34.3	%		3.1	%		0.5	%		2.8	%		0.2	%

See “About Portfolio Performance” on page 9 for descriptions of the indexes.

Performance Summary for the Period Ended June 30, 2012

				Average Annual Total Returns
				1 Year						Since Inception1
	6 Month w/o sales charge			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge
Institutional		5.68	%		0.81	%		N/A			11.64	%		N/A
Investor A		5.55			0.49			(4.79	)%		11.33			8.37	%
Investor C		5.06			(0.24	)		(1.22	)		10.48			10.48
Class K		5.82			1.19			N/A			12.02			N/A
Class R		5.33			0.29			N/A			11.06			N/A
Citigroup 3-Month Treasury Bill Index		0.03			0.04			N/A			N/A			N/A
Barclays US Aggregate Bond Index		2.37			7.47			N/A			N/A			N/A
LifePath 2025 Portfolio Custom Benchmark		6.17			1.80			N/A			N/A			N/A
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		N/A			N/A			N/A
Russell 1000® Index		9.38			4.37			N/A			N/A			N/A
Russell 2000® Index		8.53			(2.08	)		N/A			N/A			N/A

¹  The LifePath Portfolio commenced operations on June 30, 2010.

Past performance is not indicative of future results.

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

BLACKROCK FUNDS III JUNE 30, 2012 5

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  Assuming maximum sales charges, transaction costs and other operating expenses, including advisory fees, if any. Institutional Shares do not have a sales charge.

²  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2035 Portfolio 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.

³  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

⁴  Commencement of operations.

Period	Barclays US Aggregate Bond Index			Barclays US Treasury Inflation Protected Securities (TIPS) Index			FTSE EPRA/NAREIT Developed Real Estate Index			MSCI ACWI ex - US IMI Index			Russell 1000® Index			Russell 2000® Index			S&P MidCap 400®  Index			S&P  500® Index			S&P SmallCap 600®  Index
7/01/10 to 6/30/11		17.0	%		2.2	%		6.9	%		22.7	%		N/A			N/A			6.4	%		42.0	%		2.8	%
7/01/11 to 6/30/12		18.9	%		2.5	%		7.1	%		22.6	%		42.1	%		2.7	%		0.5	%		3.4	%		0.2	%

See “About Portfolio Performance” on page 9 for descriptions of the indexes.

Performance Summary for the Period Ended June 30, 2012

				Average Annual Total Returns
				1 Year						Since Inception1
	6 Month w/o sales charge			w/o sales charge			w/ sales charge			w/o sales charge			w/sales charge
Institutional		6.39	%		(0.59	)%		N/A			12.67	%		N/A
Investor A		6.26			(0.91	)		(6.12	)%		12.37			9.38	%
Investor C		5.81			(1.68	)		(2.66	)		11.51			11.51
Class K		6.60			(0.21	)		N/A			13.10			N/A
Class R		6.13			(1.10	)		N/A			12.10			N/A
Citigroup 3-Month Treasury Bill Index		0.03			0.04			N/A			N/A			N/A
Barclays US Aggregate Bond Index		2.37			7.47			N/A			N/A			N/A
LifePath 2035 Portfolio Custom Benchmark		6.98			0.33			N/A			N/A			N/A
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		N/A			N/A			N/A
Russell 1000® Index		9.38			4.37			N/A			N/A			N/A
Russell 2000® Index		8.53			(2.08	)		N/A			N/A			N/A

¹  The LifePath Portfolio commenced operations on June 30, 2010.

Past performance is not indicative of future results.

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

6 BLACKROCK FUNDS III JUNE 30, 2012

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  Assuming maximum sales charges, transaction costs and other operating expenses, including advisory fees, if any. Institutional Shares do not have a sales charge.

²  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2045 Portfolio 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.

³  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

⁴  Commencement of operations.

Period	Barclays US Aggregate Bond Index			FTSE EPRA/NAREIT Developed Real Estate Index			MSCI ACWI ex - US IMI Index			Russell 1000® Index			Russell 2000® Index			S&P MidCap 400®  Index			S&P  500® Index			S&P SmallCap 600®  Index
7/01/10 to 6/30/11		7.3	%		8.5	%		26.0	%		N/A			N/A			6.8	%		48.4	%		3.0	%
7/01/11 to 6/30/12		9.5	%		9.1	%		25.8	%		48.6	%		2.3	%		0.6	%		3.9	%		0.2	%

See “About Portfolio Performance” on page 9 for descriptions of the indexes.

Performance Summary for the Period Ended June 30, 2012

				Average Annual Total Returns
				1 Year						Since Inception1
	6 Month w/o sales charge			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge
Institutional		6.97	%		(2.11	)%		N/A			13.73	%		N/A
Investor A		6.76			(2.35	)		(7.47	)%		13.46			10.45	%
Investor C		6.40			(3.06	)		(4.02	)		12.59			12.59
Class K		7.10			(1.74	)		N/A			14.12			N/A
Class R		6.71			(2.55	)		N/A			13.17			N/A
Citigroup 3-Month Treasury Bill Index		0.03			0.04			N/A			N/A			N/A
Barclays US Aggregate Bond Index		2.37			7.47			N/A			N/A			N/A
LifePath 2045 Portfolio Custom Benchmark		7.63			(0.98	)		N/A			N/A			N/A
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		N/A			N/A			N/A
Russell 1000® Index		9.38			4.37			N/A			N/A			N/A
Russell 2000® Index		8.53			(2.08	)		N/A			N/A			N/A

¹  The LifePath Portfolio commenced operations on June 30, 2010.

Past performance is not indicative of future results.

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

BLACKROCK FUNDS III JUNE 30, 2012 7

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  Assuming maximum sales charges, transaction costs and other operating expenses, including advisory fees, if any. Institutional Shares do not have a sales charge.

²  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2055 Portfolio 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.

³  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

⁴  Commencement of operations.

Period	Barclays US Aggregate Bond Index			FTSE EPRA/NAREIT Developed Real Estate Index			MSCI ACWI ex - US IMI Index			Russell 1000® Index			Russell 2000® Index			S&P MidCap 400®  Index			S&P  500® Index			S&P SmallCap 600®  Index
7/01/10 to 6/30/11		1.0	%		9.2	%		28.4	%		N/A			N/A			8.3	%		49.5	%		3.6	%
7/01/11 to 6/30/12		1.0	%		10.6	%		29.0	%		50.1	%		4.2	%		0.7	%		4.1	%		0.3	%

See “About Portfolio Performance” on page 9 for descriptions of the indexes.

Performance Summary for the Period Ended June 30, 2012

				Average Annual Total Returns
				1 Year						Since Inception1
	6 Month w/o sales charge			w/o sales charge			w/sales charge			w/o sales charge			w/sales charge
Institutional		7.28	%		(3.15	)%		N/A			13.69	%		N/A
Investor A		7.08			(3.42	)		(8.49	)%		13.36			10.34	%
Investor C		6.76			(4.14	)		(5.09	)		12.56			12.56
Class K		7.48			(2.74	)		N/A			14.10			N/A
Class R		7.00			(3.64	)		N/A			13.13			N/A
Citigroup 3-Month Treasury Bill Index		0.03			0.04			N/A			N/A			N/A
Barclays US Aggregate Bond Index		2.37			7.47			N/A			N/A			N/A
LifePath 2055 Portfolio Custom Benchmark		8.03			(2.07	)		N/A			N/A			N/A
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		N/A			N/A			N/A
Russell 1000® Index		9.38			4.37			N/A			N/A			N/A
Russell 2000® Index		8.53			(2.08	)		N/A			N/A			N/A

¹  The LifePath Portfolio commenced operations on June 30, 2010.

Past performance is not indicative of future results.

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

8 BLACKROCK FUNDS III JUNE 30, 2012

About Portfolio Performance BlackRock Funds III

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

Ÿ Investor A Shares are subject to a maximum initial sales charge (front-end load) of 5.25% and a service fee of 0.25% per year (but no distribution fee).

Ÿ Investor C Shares are subject to a 1.00% contingent deferred sales charge (“CDSC”) if redeemed within one year of purchase. In addition, these shares are subject to a distribution fee of 0.75% per year and a service fee of 0.25% per year.

Ÿ 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.

Ÿ Class R Shares are not subject to any sales charge (front-end load) or deferred sales charge. These shares are subject to a distribution fee of 0.25% per year and a service fee of 0.25% per year. These shares are available only to certain retirement and other similar plans.

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 (“NAV”) 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 Russell 3000 Index is comprised of the Russell 1000 Index and the Russell 2000 Index, which together represent approximately 98% of the total US equity market. The Barclays US Aggregate Bond Index (formerly 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 June 30, 2012, the following indexes are used to calculate the LifePath Portfolios’ custom benchmarks: Barclays US Aggregate Bond Index, Barclays US TIPS Index (formerly Barclays Capital US 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

Active Stock 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 security, index and/or 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. Active Stock 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 Active Stock Master Portfolio to sell or purchase portfolio investments at inopportune times or for distressed values, may limit the amount of appreciation Active Stock Master Portfolio can realize on an investment, may result in lower dividends paid to shareholders or may cause Active Stock Master Portfolio to hold an investment that it might otherwise sell. Active Stock Master Portfolio’s investments in these instruments are discussed in detail in the Master Portfolio’s Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 9

Disclosure of Expenses BlackRock Funds III

Shareholders of each LifePath Portfolio 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 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 January 1, 2012 and held through June 30, 2012 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 expense examples 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 expense examples also provide information about hypothetical account values and hypothetical expenses based on each LifePath Portfolio’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 examples with the 5% hypothetical examples that appear in other funds’ shareholder reports.

The expenses shown in the expense examples 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 January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period1		Beginning Account Value January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period1		Annualized Expense Ratio
LifePath® 2025 Portfolio
Institutional		$1,000.00		$1,056.80		$3.89		$1,000.00		$1,021.08		$3.82		0.76%
Investor A		$1,000.00		$1,055.50		$5.16		$1,000.00		$1,019.84		$5.07		1.01%
Investor C		$1,000.00		$1,050.60		$8.97		$1,000.00		$1,016.11		$8.82		1.76%
Class K		$1,000.00		$1,058.20		$2.05		$1,000.00		$1,022.87		$2.01		0.40%
Class R		$1,000.00		$1,053.30		$6.43		$1,000.00		$1,018.60		$6.32		1.26%
LifePath® 2035 Portfolio
Institutional		$1,000.00		$1,063.90		$3.85		$1,000.00		$1,021.13		$3.77		0.75%
Investor A		$1,000.00		$1,062.60		$5.13		$1,000.00		$1,019.89		$5.02		1.00%
Investor C		$1,000.00		$1,058.10		$8.95		$1,000.00		$1,016.16		$8.77		1.75%
Class K		$1,000.00		$1,066.00		$2.05		$1,000.00		$1,022.87		$2.01		0.40%
Class R		$1,000.00		$1,061.30		$6.41		$1,000.00		$1,018.65		$6.27		1.25%
LifePath® 2045 Portfolio
Institutional		$1,000.00		$1,069.70		$3.86		$1,000.00		$1,021.13		$3.77		0.75%
Investor A		$1,000.00		$1,067.60		$5.14		$1,000.00		$1,019.89		$5.02		1.00%
Investor C		$1,000.00		$1,064.00		$8.98		$1,000.00		$1,016.16		$8.77		1.75%
Class K		$1,000.00		$1,071.00		$2.01		$1,000.00		$1,022.92		$1.96		0.39%
Class R		$1,000.00		$1,067.10		$6.42		$1,000.00		$1,018.65		$6.27		1.25%
LifePath® 2055 Portfolio
Institutional		$1,000.00		$1,072.80		$3.92		$1,000.00		$1,021.08		$3.82		0.76%
Investor A		$1,000.00		$1,070.80		$5.20		$1,000.00		$1,019.84		$5.07		1.01%
Investor C		$1,000.00		$1,067.60		$9.00		$1,000.00		$1,016.16		$8.77		1.75%
Class K		$1,000.00		$1,074.80		$2.06		$1,000.00		$1,022.87		$2.01		0.40%
Class R		$1,000.00		$1,070.00		$6.43		$1,000.00		$1,018.65		$6.27		1.25%

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 182/366 (to reflect the one-half year period shown). Because each LifePath Portfolio invests significantly in a Master Portfolio, the expense examples reflect the 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 366.

10 BLACKROCK FUNDS III JUNE 30, 2012

Statements of Assets and Liabilities BlackRock Funds III

June 30, 2012 (Unaudited)	LifePath 2025 Portfolio			LifePath 2035 Portfolio			LifePath 2045 Portfolio			LifePath 2055 Portfolio
Assets
Investments at value — from the applicable Master Portfolio1	$	16,336,141		$	12,401,960		$	5,532,808		$	1,176,609
Capital shares sold receivable		17,312			14,744			10,537			1,072
Receivable from administrator		7,269			8,916			11,267			13,158
Total assets		16,360,722			12,425,620			5,554,612			1,190,839
Liabilities
Capital shares redeemed payable		12,128			478			41			31
Income dividends payable		4,286			3,538			1,428			743
Capital gain distributions payable		—			—			—			66
Contributions payable to the Master Portfolios		5,184			14,266			10,496			1,041
Service and distribution fees payable		2,256			1,529			627			184
Professional fees payable		10,836			10,837			10,837			11,104
Total liabilities		34,690			30,648			23,429			13,169
Net Assets	$	16,326,032		$	12,394,972		$	5,531,183		$	1,177,670
Net Assets Consist of
Paid-in capital	$	16,166,231		$	12,396,508		$	5,540,278		$	1,159,811
Undistributed (distributions in excess of) net investment income		(1,323	)		1,166			1,279			681
Accumulated net realized loss allocated from the Master Portfolio		(51,099	)		(134,127	)		(88,124	)		(19,914	)
Net unrealized appreciation/depreciation allocated from the Master Portfolio		212,223			131,425			77,750			37,092
Net Assets	$	16,326,032		$	12,394,972		$	5,531,183		$	1,177,670
Net Asset Value
Institutional
Net assets	$	5,018,614		$	4,149,213		$	2,668,893		$	512,258
Shares outstanding2		433,154			352,068			223,918			43,263
Net asset value	$	11.59		$	11.79		$	11.92		$	11.84
Investor A
Net assets	$	9,232,587		$	6,646,829		$	2,199,877		$	498,217
Shares outstanding2		797,325			564,182			184,555			42,100
Net asset value	$	11.58		$	11.78		$	11.92		$	11.83
Maximum offering price per share (100/94.75 of net asset value)	$	12.22		$	12.43		$	12.58		$	12.49
Investor C
Net assets	$	418,063		$	222,309		$	140,340		$	99,483
Shares outstanding2		36,187			18,932			11,846			8,459
Net asset value	$	11.55		$	11.74		$	11.85		$	11.76
Class K
Net assets	$	1,349,021		$	1,261,991		$	278,636		$	23,742
Shares outstanding2		116,220			106,812			23,345			2,001
Net asset value	$	11.61		$	11.82		$	11.94		$	11.87
Class R
Net assets	$	307,747		$	114,630		$	243,437		$	43,970
Shares outstanding2		26,534			9,711			20,448			3,718
Net asset value	$	11.60		$	11.80		$	11.91		$	11.83
1 Cost — from the applicable Master Portfolio	$	16,123,918		$	12,270,535		$	5,455,058		$	1,139,517
2 No par value, unlimited number of shares authorized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	11

Statements of Operations BlackRock Funds III

Six Months Ended June 30, 2012 (Unaudited)	LifePath 2025 Portfolio			LifePath 2035 Portfolio			LifePath 2045 Portfolio			LifePath 2055 Portfolio
Investment Income
Net investment income allocated from the applicable Master Portfolio:
Dividends — affiliated	$	135,893		$	113,381		$	57,338		$	12,510
Interest — affiliated		65,149			28,092			6,744			197
Securities lending — affiliated		352			382			147			25
Income — affiliated		51			44			19			5
Expenses		(57,093	)		(44,547	)		(28,028	)		(16,562	)
Fees waived		37,968			31,622			22,410			15,457
Total income		182,320			128,974			58,630			11,632
Expenses
Administration		34,867			23,624			10,959			2,132
Service — Investor A		10,733			7,245			2,161			425
Service and distribution — Investor C		1,548			1,044			672			511
Service and distribution — Class R		708			238			438			101
Professional		9,546			9,546			9,546			9,378
Total expenses		57,402			41,697			23,776			12,547
Less fees waived by administrator		(9,546	)		(9,546	)		(9,546	)		(9,378	)
Total expenses after fees waived		47,856			32,151			14,230			3,169
Net investment income		134,464			96,823			44,400			8,463
Realized and Unrealized Gain (Loss) Allocated from the Master Portfolios
Net realized gain (loss) from investments, financial futures contracts, swaps and foreign currency transactions		124,710			9,429			(11,349	)		(15,944	)
Net change in unrealized appreciation/depreciation on investments, financial futures contracts, swaps and foreign currency transactions		463,066			391,066			193,180			37,196
Total realized and unrealized gain		587,776			400,495			181,831			21,252
Net Increase in Net Assets Resulting from Operations	$	722,240		$	497,318		$	226,231		$	29,715

See Notes to Financial Statements.
12	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Changes in Net Assets BlackRock Funds III

	LifePath 2025 Portfolio						LifePath 2035 Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	134,464		$	159,967		$	96,823		$	98,949
Net realized gain (loss)		124,710			(171,742	)		9,429			(138,750	)
Net change in unrealized appreciation/depreciation		463,066			(266,934	)		391,066			(279,386	)
Net increase (decrease) in net assets resulting from operations		722,240			(278,709	)		497,318			(319,187	)
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(45,901	)		(42,732	)		(33,730	)		(27,579	)
Investor A		(73,360	)		(83,474	)		(48,808	)		(50,150	)
Investor C		(2,121	)		(1,017	)		(894	)		(887	)
Class K		(14,437	)		(31,159	)		(12,474	)		(20,070	)
Class R		(2,124	)		(246	)		(709	)		(240	)
Net realized gain:
Institutional		—			(7	)		—			(5	)
Investor A		—			(16	)		—			(9	)
Class K		—			(5	)		—			(3	)
Decrease in net assets resulting from dividends and distributions to shareholders		(137,943	)		(158,656	)		(96,615	)		(98,943	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		3,574,954			12,491,883			4,576,959			7,709,336
Net Assets
Total increase in net assets		4,159,251			12,054,518			4,977,662			7,291,206
Beginning of period		12,166,781			112,263			7,417,310			126,104
End of period	$	16,326,032		$	12,166,781		$	12,394,972		$	7,417,310
Undistributed (distributions in excess of) net investment income	$	(1,323	)	$	2,156		$	1,166		$	958

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	13

Statements of Changes in Net Assets (concluded) BlackRock Funds III

	LifePath 2045 Portfolio						LifePath 2055 Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	44,400		$	37,394		$	8,463		$	3,864
Net realized gain (loss)		(11,349	)		(71,148	)		(15,944	)		5,284
Net change in unrealized appreciation/depreciation		193,180			(137,673	)		37,196			(23,807	)
Net increase (decrease) in net assets resulting from operations		226,231			(171,427	)		29,715			(14,659	)
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(22,453	)		(18,495	)		(3,883	)		(1,496	)
Investor A		(15,937	)		(13,393	)		(3,252	)		(914	)
Investor C		(536	)		(589	)		(357	)		(715	)
Class K		(2,777	)		(4,510	)		(220	)		(375	)
Class R		(1,662	)		(221	)		(234	)		(196	)
Net realized gain:
Institutional		—			(147	)		(226	)		(1,174	)
Investor A		—			(145	)		(220	)		(1,050	)
Investor C		—			(6	)		(44	)		(873	)
Class K		—			(36	)		(11	)		(188	)
Class R		—			(3	)		(19	)		(187	)
Decrease in net assets resulting from dividends and distributions to shareholders		(43,365	)		(37,545	)		(8,466	)		(7,168	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		2,097,665			3,342,643			676,132			383,669
Net Assets
Total increase in net assets		2,280,531			3,133,671			697,381			361,842
Beginning of period		3,250,652			116,981			480,289			118,447
End of period	$	5,531,183		$	3,250,652		$	1,177,670		$	480,289
Undistributed net investment income	$	1,279		$	244		$	681		$	164

See Notes to Financial Statements.
14	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights LifePath 2025 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.07		$	11.21		$	10.00
Net investment income2		0.12			0.25			0.11
Net realized and unrealized gain (loss)		0.51			(0.19	)		1.63
Net increase from investment operations		0.63			0.06			1.74
Dividends and distributions from:
Net investment income		(0.11	)		(0.20	)		(0.11	)
Net realized gain		—			(0.00	)3		(0.42	)
Total dividends and distributions		(0.11	)		(0.20	)		(0.53	)
Net asset value, end of period	$	11.59		$	11.07		$	11.21
Total Investment Return4
Based on net asset value		5.68%	5		0.49%			17.40%	5
Ratios to Average Net Assets6
Total expenses		0.89%	7,8,9		1.06%	10,11		24.41%	7
Total expenses after fees waived		0.76%	7,8,9		0.74%	10,11		0.73%	7
Net investment income		1.99%	7,8,9		2.25%	10,11		1.93%	7
Supplemental Data
Net assets, end of period (000)	$	5,019		$	3,233		$	22
Portfolio turnover of the Master Portfolio		6%			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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.51%.

⁹  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.10%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.82%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	15

Financial Highlights (continued) LifePath 2025 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.06		$	11.21		$	10.00
Net investment income2		0.10			0.21			0.09
Net realized and unrealized gain (loss)		0.51			(0.19	)		1.63
Net increase from investment operations		0.61			0.02			1.72
Dividends and distributions from:
Net investment income		(0.09	)		(0.17	)		(0.09	)
Net realized gain		—			(0.00	)3		(0.42	)
Total dividends and distributions		(0.09	)		(0.17	)		(0.51	)
Net asset value, end of period	$	11.58		$	11.06		$	11.21
Total Investment Return4
Based on net asset value		5.55%	5		0.18%			17.26%	5
Ratios to Average Net Assets6
Total expenses		1.14%	7,8,9		1.32%	10,11		24.68%	7
Total expenses after fees waived		1.01%	7,8,9		0.99%	10,11		0.98%	7
Net investment income		1.68%	7,8,9		1.87%	10,11		1.67%	7
Supplemental Data
Net assets, end of period (000)	$	9,233		$	7,076		$	22
Portfolio turnover of the Master Portfolio		6%			24%			2%

¹  Commencement of operations.

²  Based on average shares outstanding throughout the period.

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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.51%.

⁹  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.10%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.86%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
16	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath 2025 Portfolio

	Investor C
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.05		$	11.21		$	10.00
Net investment income2		0.06			0.14			0.05
Net realized and unrealized gain (loss)		0.50			(0.20	)		1.63
Net increase (decrease) from investment operations		0.56			(0.06	)		1.68
Dividends and distributions from:
Net investment income		(0.06	)		(0.10	)		(0.05	)
Net realized gain		—			(0.00	)3		(0.42	)
Total dividends and distributions		(0.06	)		(0.10	)		(0.47	)
Net asset value, end of period	$	11.55		$	11.05		$	11.21
Total Investment Return4
Based on net asset value		5.06%	5		(0.54	)%		16.84%	5
Ratios to Average Net Assets6
Total expenses		1.89%	7,8,9		2.10%	10,11		25.46%	7
Total expenses after fees waived		1.76%	7,8,9		1.75%	10,11		1.72%	7
Net investment income		1.07%	7,8,9		1.25%	10,11		0.95%	7
Supplemental Data
Net assets, end of period (000)	$	418		$	245		$	22
Portfolio turnover of the Master Portfolio		6%			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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.51%.

⁹  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.10%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.82%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	17

Financial Highlights (continued) LifePath 2025 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December  31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.09		$	11.21		$	10.00
Net investment income2		0.13			0.26			0.13
Net realized and unrealized gain (loss)		0.52			(0.16	)		1.63
Net increase from investment operations		0.65			0.10			1.76
Dividends and distributions from:
Net investment income		(0.13	)		(0.22	)		(0.13	)
Net realized gain		—			(0.00	)3		(0.42	)
Total dividends and distributions		(0.13	)		(0.22	)		(0.55	)
Net asset value, end of period	$	11.61		$	11.09		$	11.21
Total Investment Return4
Based on net asset value		5.82%	5		0.87%			17.60%	5
Ratios to Average Net Assets6
Total expenses		0.54%	7,8,9		0.71%	10,11		24.05%	7
Total expenses after fees waived		0.40%	7,8,9		0.38%	10,11		0.38%	7
Net investment income		2.20%	7,8,9		2.31%	10,11		2.29%	7
Supplemental Data
Net assets, end of period (000)	$	1,349		$	1,590		$	22
Portfolio turnover of the Master Portfolio		6%			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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.51%.

⁹  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.10%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.89%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
18	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (concluded) LifePath 2025 Portfolio

	Class R
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.09		$	11.21		$	10.00
Net investment income2		0.08			0.17			0.08
Net realized and unrealized gain (loss)		0.51			(0.17	)		1.63
Net increase from investment operations		0.59			—			1.71
Dividends and distributions from:
Net investment income		(0.08	)		(0.12	)		(0.08	)
Net realized gain		—			(0.00	)3		(0.42	)
Total dividends and distributions		(0.08	)		(0.12	)		(0.50	)
Net asset value, end of period	$	11.60		$	11.09		$	11.21
Total Investment Return4
Based on net asset value		5.33%	5		0.02%			17.12%	5
Ratios to Average Net Assets6
Total expenses		1.39%	7,8,9		1.57%	10,11		24.94%	7
Total expenses after fees waived		1.26%	7,8,9		1.23%	10,11		1.23%	7
Net investment income		1.46%	7,8,9		1.46%	10,11		1.43%	7
Supplemental Data
Net assets, end of period (000)	$	308		$	22		$	22
Portfolio turnover of the Master Portfolio		6%			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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.51%.

⁹  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.10%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.91%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	19

Financial Highlights LifePath 2035 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.18		$	11.52		$	10.00
Net investment income2		0.12			0.24			0.11
Net realized and unrealized gain (loss)		0.59			(0.39	)		1.99
Net increase (decrease) from investment operations		0.71			(0.15	)		2.10
Dividends and distributions from:
Net investment income		(0.10	)		(0.19	)		(0.10	)
Net realized gain		—			(0.00	)3		(0.48	)
Total dividends and distributions		(0.10	)		(0.19	)		(0.58	)
Net asset value, end of period	$	11.79		$	11.18		$	11.52
Total Investment Return4
Based on net asset value		6.39%	5		(1.32	)%		20.96%	5
Ratios to Average Net Assets6
Total expenses		0.94%	7,8,9		1.22%	10,11		24.07%	7
Total expenses after fees waived		0.75%	7,8,9		0.72%	10,11		0.71%	7
Net investment income		2.12%	7,8,9		2.13%	10,11		1.88%	7
Supplemental Data
Net assets, end of period (000)	$	4,149		$	2,033		$	23
Portfolio turnover of the Master Portfolio		5%			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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.62%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 1.10%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
20	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath 2035 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.17		$	11.51		$	10.00
Net investment income2		0.10			0.20			0.10
Net realized and unrealized gain (loss)		0.60			(0.37	)		1.98
Net increase (decrease) from investment operations		0.70			(0.17	)		2.08
Dividends and distributions from:
Net investment income		(0.09	)		(0.17	)		(0.09	)
Net realized gain		—			(0.00	)3		(0.48	)
Total dividends and distributions		(0.09	)		(0.17	)		(0.57	)
Net asset value, end of period	$	11.78		$	11.17		$	11.51
Total Investment Return4
Based on net asset value		6.26%	5		(1.55	)%		20.74%	5
Ratios to Average Net Assets6
Total expenses		1.19%	7,8,9		1.48%	10,11		22.59%	7
Total expenses after fees waived		1.00%	7,8,9		0.97%	10,11		0.96%	7
Net investment income		1.73%	7,8,9		1.77%	10,11		1.71%	7
Supplemental Data
Net assets, end of period (000)	$	6,647		$	4,121		$	27
Portfolio turnover of the Master Portfolio		5%			21%			1%

¹  Commencement of operations.

²  Based on average shares outstanding throughout the period.

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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.62%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 1.15%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	21

Financial Highlights (continued) LifePath 2035 Portfolio

	Investor C
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.14		$	11.49		$	10.00
Net investment income2		0.05			0.09			0.05
Net realized and unrealized gain (loss)		0.60			(0.35	)		1.98
Net increase (decrease) from investment operations		0.65			(0.26	)		2.03
Dividends and distributions from:
Net investment income		(0.05	)		(0.09	)		(0.06	)
Net realized gain		—			(0.00	)3		(0.48	)
Total dividends and distributions		(0.05	)		(0.09	)		(0.54	)
Net asset value, end of period	$	11.74		$	11.14		$	11.49
Total Investment Return4
Based on net asset value		5.81%	5		(2.28	)%		20.30%	5
Ratios to Average Net Assets6
Total expenses		1.94%	7,8,9		2.24%	10,11		25.11%	7
Total expenses after fees waived		1.75%	7,8,9		1.72%	10,11		1.70%	7
Net investment income		0.89%	7,8,9		0.80%	10,11		0.89%	7
Supplemental Data
Net assets, end of period (000)	$	222		$	190		$	30
Portfolio turnover of the Master Portfolio		5%			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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.62%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 1.09%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
22	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath 2035 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.20		$	11.52		$	10.00
Net investment income2		0.13			0.25			0.13
Net realized and unrealized gain (loss)		0.61			(0.35	)		1.99
Net increase (decrease) from investment operations		0.74			(0.10	)		2.12
Dividends and distributions from:
Net investment income		(0.12	)		(0.22	)		(0.12	)
Net realized gain		—			(0.00	)3		(0.48	)
Total dividends and distributions		(0.12	)		(0.22	)		(0.60	)
Net asset value, end of period	$	11.82		$	11.20		$	11.52
Total Investment Return4
Based on net asset value		6.60%	5		(0.94	)%		21.16%	5
Ratios to Average Net Assets6
Total expenses		0.59%	7,8,9		0.87%	10,11		23.70%	7
Total expenses after fees waived		0.40%	7,8,9		0.36%	10,11		0.36%	7
Net investment income		2.28%	7,8,9		2.17%	10,11		2.23%	7
Supplemental Data
Net assets, end of period (000)	$	1,262		$	1,050		$	23
Portfolio turnover of the Master Portfolio		5%			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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.62%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 1.20%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	23

Financial Highlights (concluded) LifePath 2035 Portfolio

	Class R
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.19		$	11.52		$	10.00
Net investment income2		0.09			0.15			0.08
Net realized and unrealized gain (loss)		0.60			(0.36	)		1.99
Net increase (decrease) from investment operations		0.69			(0.21	)		2.07
Dividends and distributions from:
Net investment income		(0.08	)		(0.12	)		(0.07	)
Net realized gain		—			(0.00	)3		(0.48	)
Total dividends and distributions		(0.08	)		(0.12	)		(0.55	)
Net asset value, end of period	$	11.80		$	11.19		$	11.52
Total Investment Return4
Based on net asset value		6.13%	5		(1.85	)%		20.67%	5
Ratios to Average Net Assets6
Total expenses		1.44%	7,8,9		1.72%	10,11		24.60%	7
Total expenses after fees waived		1.25%	7,8,9		1.21%	10,11		1.22%	7
Net investment income		1.51%	7,8,9		1.31%	10,11		1.39%	7
Supplemental Data
Net assets, end of period (000)	$	115		$	22		$	23
Portfolio turnover of the Master Portfolio		5%			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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.62%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 1.19%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
24	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights LifePath 2045 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.24		$	11.70		$	10.00
Net investment income2		0.12			0.23			0.10
Net realized and unrealized gain (loss)		0.66			(0.51	)		2.30
Net increase (decrease) from investment operations		0.78			(0.28	)		2.40
Dividends and distributions from:
Net investment income		(0.10	)		(0.18	)		(0.10	)
Net realized gain		—			(0.00	)3		(0.60	)
Total dividends and distributions		(0.10	)		(0.18	)		(0.70	)
Net asset value, end of period	$	11.92		$	11.24		$	11.70
Total Investment Return4
Based on net asset value		6.97%	5		(2.46	)%		24.01%	5
Ratios to Average Net Assets6
Total expenses		1.17%	7,8,9		2.00%	10,11		23.73%	7
Total expenses after fees waived		0.75%	7,8,9		0.70%	10,11		0.68%	7
Net investment income		2.04%	7,8,9		2.02%	10,11		1.81%	7
Supplemental Data
Net assets, end of period (000)	$	2,669		$	1,646		$	23
Portfolio turnover of the Master Portfolio		3%			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 includes gross expenses.

⁷  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.98%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 2.51%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	25

Financial Highlights (continued) LifePath 2045 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.25		$	11.70		$	10.00
Net investment income2		0.11			0.19			0.09
Net realized and unrealized gain (loss)		0.65			(0.49	)		2.29
Net increase (decrease) from investment operations		0.76			(0.30	)		2.38
Dividends and distributions from:
Net investment income		(0.09	)		(0.15	)		(0.08	)
Net realized gain		—			(0.00	)3		(0.60	)
Total dividends and distributions		(0.09	)		(0.15	)		(0.68	)
Net asset value, end of period	$	11.92		$	11.25		$	11.70
Total Investment Return4
Based on net asset value		6.76%	5		(2.61	)%		23.86%	5
Ratios to Average Net Assets6
Total expenses		1.41%	7,8,9		2.20%	10,11		24.00%	7
Total expenses after fees waived		1.00%	7,8,9		0.95%	10,11		0.93%	7
Net investment income		1.86%	7,8,9		1.65%	10,11		1.56%	7
Supplemental Data
Net assets, end of period (000)	$	2,200		$	1,228		$	23
Portfolio turnover of the Master Portfolio		3%			35%			1%

¹  Commencement of operations.

²  Based on average shares outstanding throughout the period.

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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.98%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 2.23%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
26	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath 2045 Portfolio

	Investor C
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.18		$	11.67		$	10.00
Net investment income2		0.06			0.11			0.05
Net realized and unrealized gain (loss)		0.66			(0.50	)		2.28
Net increase (decrease) from investment operations		0.72			(0.39	)		2.33
Dividends and distributions from:
Dividends from net investment income		(0.05	)		(0.10	)		(0.06	)
Net realized gain		—			(0.00	)3		(0.60	)
Total dividends and distributions		(0.05	)		(0.10	)		(0.66	)
Net asset value, end of period	$	11.85		$	11.18		$	11.67
Total Investment Return4
Based on net asset value		6.40%	5		(3.37	)%		23.33%	5
Ratios to Average Net Assets6
Total expenses		2.17%	7,8,9		2.99%	10,11		24.78%	7
Total expenses after fees waived		1.75%	7,8,9		1.70%	10,11		1.69%	7
Net investment income		1.02%	7,8,9		0.94%	10,11		0.81%	7
Supplemental Data
Net assets, end of period (000)	$	140		$	95		$	23
Portfolio turnover of the Master Portfolio		3%			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 includes gross expenses.

⁷  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.98%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 2.41%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

)

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	27

Financial Highlights (continued) LifePath 2045 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.26		$	11.70		$	10.00
Net investment income2		0.14			0.24			0.12
Net realized and unrealized gain (loss)		0.66			(0.48	)		2.30
Net increase (decrease) from investment operations		0.80			(0.24	)		2.42
Dividends and distributions from:
Net investment income		(0.12	)		(0.20	)		(0.12	)
Net realized gain		—			(0.00	)3		(0.60	)
Total dividends and distributions		(0.12	)		(0.20	)		(0.72	)
Net asset value, end of period	$	11.94		$	11.26		$	11.70
Total Investment Return4
Based on net asset value		7.10%	5		(2.08	)%		24.22%	5
Ratios to Average Net Assets6
Total expenses		0.82%	7,8,9		1.72%	10,11		23.37%	7
Total expenses after fees waived		0.39%	7,8,9		0.35%	10,11		0.33%	7
Net investment income		2.28%	7,8,9		2.04%	10,11		2.17%	7
Supplemental Data
Net assets, end of period (000)	$	279		$	259		$	23
Portfolio turnover of the Master Portfolio		3%			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 includes gross expenses.

⁷  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.98%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 2.71%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
28	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (concluded) LifePath 2045 Portfolio

	Class R
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.24		$	11.69		$	10.00
Net investment income2		0.10			0.14			0.07
Net realized and unrealized gain (loss)		0.66			(0.48	)		2.30
Net increase (decrease) from investment operations		0.76			(0.34	)		2.37
Dividends and distributions from:
Dividends from net investment income		(0.09	)		(0.11	)		(0.08	)
Net realized gain		—			(0.00	)3		(0.60	)
Total dividends and distributions		(0.09	)		(0.11	)		(0.68	)
Net asset value, end of period	$	11.91		$	11.24		$	11.69
Total Investment Return4
Based on net asset value		6.71%	5		(2.93	)%		23.68%	5
Ratios to Average Net Assets6
Total expenses		1.66%	7,8,9		2.57%	10,11		24.26%	7
Total expenses after fees waived		1.25%	7,8,9		1.19%	10,11		1.19%	7
Net investment income		1.72%	7,8,9		1.17%	10,11		1.31%	7
Supplemental Data
Net assets, end of period (000)	$	243		$	22		$	23
Portfolio turnover of the Master Portfolio		3%			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 includes gross expenses.

⁷  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.97%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 2.71%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	29

Financial Highlights LifePath 2055 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.13		$	11.85		$	10.00
Net investment income2		0.13			0.23			0.10
Net realized and unrealized gain (loss)		0.68			(0.70	)		2.45
Net increase (decrease) from investment operations		0.81			(0.47	)		2.55
Dividends and distributions from:
Net investment income		(0.09	)		(0.16	)		(0.09	)
Net realized gain		(0.01	)		(0.09	)		(0.61	)
Total dividends and distributions		(0.10	)		(0.25	)		(0.70	)
Net asset value, end of period	$	11.84		$	11.13		$	11.85
Total Investment Return3
Based on net asset value		7.28%	4		(4.02	)%		25.58%	4
Ratios to Average Net Assets5
Total expenses		2.88%	6,7,8		9.82%	9,10		23.56%	6
Total expenses after fees waived		0.76%	6,7,8		0.69%	9,10		0.66%	6
Net investment income		2.23%	6,7,8		1.94%	9,10		1.78%	6
Supplemental Data
Net assets, end of period (000)	$	512		$	164		$	24
Portfolio turnover of the Master Portfolio		26%			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  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.48%.

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

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 15.11%.

¹⁰  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
30	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath 2055 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.13		$	11.85		$	10.00
Net investment income2		0.12			0.16			0.09
Net realized and unrealized gain (loss)		0.67			(0.67	)		2.46
Net increase (decrease) from investment operations		0.79			(0.51	)		2.55
Dividends and distributions from:
Net investment income		(0.08	)		(0.12	)		(0.09	)
Net realized gain		(0.01	)		(0.09	)		(0.61	)
Total dividends and distributions		(0.09	)		(0.21	)		(0.70	)
Net asset value, end of period	$	11.83		$	11.13		$	11.85
Total Investment Return3
Based on net asset value		7.08%	4		(4.35	)%		25.50%	4
Ratios to Average Net Assets5
Total expenses		3.16%	6,7,8		8.94%	9,10		23.83%	6
Total expenses after fees waived		1.01%	6,7,8		0.94%	9,10		0.91%	6
Net investment income		1.97%	6,7,8		1.43%	9,10		1.53%	6
Supplemental Data
Net assets, end of period (000)	$	498		$	163		$	24
Portfolio turnover of the Master Portfolio		26%			51%			1%

¹  Commencement of operations.

²  Based on average shares outstanding throughout the period.

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  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.56%.

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

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 12.56%.

¹⁰  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	31

Financial Highlights (continued) LifePath 2055 Portfolio

	Investor C
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.06		$	11.82		$	10.00
Net investment income2		0.05			0.10			0.04
Net realized and unrealized gain (loss)		0.70			(0.69	)		2.45
Net increase (decrease) from investment operations		0.75			(0.59	)		2.49
Dividends and distributions from:
Net investment income		(0.04	)		(0.08	)		(0.06	)
Net realized gain		(0.01	)		(0.09	)		(0.61	)
Total dividends and distributions		(0.05	)		(0.17	)		(0.67	)
Net asset value, end of period	$	11.76		$	11.06		$	11.82
Total Investment Return3
Based on net asset value		6.76%	4		(5.01	)%		24.98%	4
Ratios to Average Net Assets5
Total expenses		3.99%	6,7,8		11.00%	9,10		24.62%	6
Total expenses after fees waived		1.75%	6,7,8		1.69%	9,10		1.67%	6
Net investment income		0.92%	6,7,8		0.88%	9,10		0.78%	6
Supplemental Data
Net assets, end of period (000)	$	99		$	109		$	24
Portfolio turnover of the Master Portfolio		26%			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  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.71%.

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

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 14.29%.

¹⁰  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
32	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath 2055 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.15		$	11.86		$	10.00
Net investment income2		0.14			0.23			0.12
Net realized and unrealized gain (loss)		0.70			(0.66	)		2.46
Net increase (decrease) from investment operations		0.84			(0.43	)		2.58
Dividends and distributions from:
Net investment income		(0.11	)		(0.19	)		(0.11	)
Net realized gain		(0.01	)		(0.09	)		(0.61	)
Total dividends and distributions		(0.12	)		(0.28	)		(0.72	)
Net asset value, end of period	$	11.87		$	11.15		$	11.86
Total Investment Return3
Based on net asset value		7.48%	4		(3.71	)%		25.84%	4
Ratios to Average Net Assets5
Total expenses		2.61%	6,7,8		9.68%	9,10		23.20%	6
Total expenses after fees waived		0.40%	6,7,8		0.33%	9,10		0.31%	6
Net investment income		2.32%	6,7,8		1.99%	9,10		2.14%	6
Supplemental Data
Net assets, end of period (000)	$	24		$	22		$	24
Portfolio turnover of the Master Portfolio		26%			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  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.66%.

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

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 16.23%.

¹⁰  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	33

Financial Highlights (concluded) LifePath 2055 Portfolio

	Class R
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.12		$	11.84		$	10.00
Net investment income2		0.09			0.13			0.07
Net realized and unrealized gain (loss)		0.69			(0.66	)		2.46
Net increase (decrease) from investment operations		0.78			(0.53	)		2.53
Dividends and distributions from:
Net investment income		(0.06	)		(0.10	)		(0.08	)
Net realized gain		(0.01	)		(0.09	)		(0.61	)
Total dividends and distributions		(0.07	)		(0.19	)		(0.69	)
Net asset value, end of period	$	11.83		$	11.12		$	11.84
Total Investment Return3
Based on net asset value		7.00%	4		(4.54	)%		25.33%	4
Ratios to Average Net Assets5
Total expenses		3.48%	6,7,8		10.53%	9,10		24.09%	6
Total expenses after fees waived		1.25%	6,7,8		1.18%	9,10		1.16%	6
Net investment income		1.53%	6,7,8		1.14%	9,10		1.29%	6
Supplemental Data
Net assets, end of period (000)	$	44		$	22		$	24
Portfolio turnover of the Master Portfolio		26%			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  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.67%.

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

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 16.23%.

¹⁰  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
34	BLACKROCK FUNDS III	JUNE 30, 2012

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. LifePath 2025 Portfolio, LifePath 2035 Portfolio, LifePath 2045 Portfolio and LifePath 2055 Portfolio (each, a “LifePath Portfolio” and collectively, the “LifePath Portfolios”) are each a series of the 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. 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 2025 Master Portfolio, LifePath 2035 Master Portfolio, LifePath 2045 Master Portfolio and LifePath 2055 Master Portfolio (each, a “LifePath Master Portfolio” and collectively, the “Master Portfolios”). Each 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 Master Portfolio reflects that LifePath Portfolio’s proportionate interest in the net assets of that Master Portfolio (99.92%, 99.90%, 99.77% and 98.91% for the LifePath 2025 Portfolio, LifePath 2035 Portfolio, LifePath 2045 Portfolio and LifePath 2055 Portfolio, respectively, as of June 30, 2012).

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 the LifePath 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 Portfolios’ policy is to fair value their financial instruments at market value. The LifePath Portfolios record their investments in the LifePath Master Portfolios 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 Portfolios are 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 each LifePath Portfolio’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.

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 each LifePath Portfolio’s 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 a LifePath Portfolio 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”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

The Trust, on behalf of the LifePath Portfolios, entered into an administration services arrangement with BlackRock Institutional Trust Company, N.A. (“BTC”) (the “Administrator”), 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

BLACKROCK FUNDS III JUNE 30, 2012 35

Notes to Financial Statements (continued) BlackRock Funds III

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, 2022. These amounts are included in fees waived by administrator in the Statements of Operations.

The Trust, on behalf of the LifePath Portfolios, 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, each LifePath Portfolio pays BRIL ongoing service and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the 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 six months ended June 30, 2012, 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 2025 Portfolio	$	48
LifePath 2035 Portfolio	$	64
LifePath 2045 Portfolio	$	85
LifePath 2055 Portfolio	$	67

For the six months ended June 30, 2012, affiliates of LifePath 2035 Portfolio received CDSCs relating to transactions in Investor A Shares of $371.

For the six months ended June 30, 2012, affiliates received CDSCs relating to transactions in Investor C Shares as follows:

	Investor C
LifePath 2025 Portfolio	$	197
LifePath 2045 Portfolio	$	208
LifePath 2055 Portfolio	$	600

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

3. Capital Loss Carryforwards:

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:

	Six Months Ended June 30, 2012						Year Ended December 31, 2011
LifePath 2025 Portfolio	Shares			Amount			Shares			Amount
Institutional
Shares sold		152,361		$	1,787,426			308,420		$	3,585,836
Shares issued to shareholders in reinvestment of dividends and distributions		3,912			45,682			3,779			42,343
Shares redeemed		(15,090	)		(177,697	)		(22,232	)		(250,826	)
Net increase		141,183		$	1,655,411			289,967		$	3,377,353
Investor A
Shares sold		177,019		$	2,021,763			743,173		$	8,518,519
Shares issued to shareholders in reinvestment of dividends and distributions		6,082			70,873			7,269			81,569
Shares redeemed		(25,295	)		(295,580	)		(112,926	)		(1,286,222	)
Net increase		157,806		$	1,797,056			637,516		$	7,313,866

36 BLACKROCK FUNDS III JUNE 30, 2012

Notes to Financial Statements (continued) BlackRock Funds III

LifePath 2025 Portfolio (concluded)	Six Months Ended June 30, 2012						Year Ended December 31, 2011
	Shares			Amount			Shares			Amount
Investor C
Shares sold		16,417		$	187,639			20,186		$	219,747
Shares issued to shareholders in reinvestment of dividends and distributions		79			910			27			302
Shares redeemed		(2,521	)		(29,638	)		—			—
Net increase		13,975		$	158,911			20,213		$	220,049
Class K
Shares sold		4,581		$	53,124			282,594		$	3,190,420
Shares issued to shareholders in reinvestment of dividends and distributions		1,212			14,185			2,730			30,725
Shares redeemed		(32,996	)		(381,462	)		(143,907	)		(1,640,530	)
Net increase (decrease)		(27,203	)	$	(314,153	)		141,417		$	1,580,615
Class R
Shares sold		31,812		$	363,111			—			—
Shares issued to shareholders in reinvestment of dividends and distributions		90			1,056			—			—
Shares redeemed		(7,370	)		(86,438	)		—			—
Net increase		24,532		$	277,729			—			—
Total Net Increase		310,293		$	3,574,954			1,089,113		$	12,491,883
LifePath 2035 Portfolio
Institutional
Shares sold		179,919		$	2,163,340			187,358		$	2,242,066
Shares issued to shareholders in reinvestment of dividends and distributions		2,820			33,517			2,382			27,198
Shares redeemed		(12,581	)		(148,613	)		(9,833	)		(113,675	)
Net increase		170,158		$	2,048,244			179,907		$	2,155,589
Investor A
Shares sold		218,353		$	2,535,121			411,896		$	4,866,349
Shares issued to shareholders in reinvestment of dividends and distributions		3,841			45,606			4,340			49,724
Shares redeemed		(26,819	)		(314,800	)		(49,782	)		(580,912	)
Net increase		195,375		$	2,265,927			366,454		$	4,335,161
Investor C
Shares sold		5,486		$	64,612			18,711		$	215,709
Shares issued to shareholders in reinvestment of dividends and distributions		32			381			50			559
Shares redeemed		(3,665	)		(43,858	)		(4,277	)		(47,057	)
Net increase		1,853		$	21,135			14,484		$	169,211
Class K
Shares sold		13,134		$	153,402			134,726		$	1,559,562
Shares issued to shareholders in reinvestment of dividends and distributions		1,024			12,232			1,711			19,640
Shares redeemed		(1,107	)		(12,647	)		(44,680	)		(529,827	)
Net increase		13,051		$	152,987			91,757		$	1,049,375

BLACKROCK FUNDS III JUNE 30, 2012 37

Notes to Financial Statements (continued) BlackRock Funds III

LifePath 2035 Portfolio (concluded)	Six Months Ended June 30, 2012						Year Ended December 31, 2011
	Shares			Amount			Shares			Amount
Class R
Shares sold		8,976		$	104,182			—			—
Shares issued to shareholders in reinvestment of dividends and distributions		40			479			—			—
Shares redeemed		(1,305	)		(15,995	)		—			—
Net increase		7,711		$	88,666			—			—
Total Net Increase		388,148		$	4,576,959			652,602		$	7,709,336
LifePath 2045 Portfolio
Institutional
Shares sold		83,466		$	1,018,095			150,876		$	1,790,065
Shares issued to shareholders in reinvestment of dividends and distributions		1,846			22,245			1,575			18,285
Shares redeemed		(7,764	)		(92,451	)		(8,082	)		(94,178	)
Net increase		77,548		$	947,889			144,369		$	1,714,172
Investor A
Shares sold		78,995		$	930,512			126,500		$	1,525,233
Shares issued to shareholders in reinvestment of dividends and distributions		1,286			15,442			1,134			13,226
Shares redeemed		(4,938	)		(59,021	)		(20,422	)		(231,972	)
Net increase		75,343		$	886,933			107,212		$	1,306,487
Investor C
Shares sold		7,405		$	87,610			8,267		$	94,835
Shares issued to shareholders in reinvestment of dividends and distributions		6			77			16			185
Shares redeemed		(4,087	)		(48,590	)		(1,761	)		(21,566	)
Net increase		3,324		$	39,097			6,522		$	73,454
Class K
Shares sold		2,368		$	28,435			21,328		$	252,476
Shares issued to shareholders in reinvestment of dividends and distributions		210			2,534			355			4,140
Shares redeemed		(2,240	)		(26,324	)		(679	)		(8,086	)
Net increase		338		$	4,645			21,004		$	248,530
Class R
Shares sold		18,897		$	224,313			—			—
Shares issued to shareholders in reinvestment of dividends and distributions		115			1,382			—			—
Shares redeemed		(564	)		(6,594	)		—			—
Net increase		18,448		$	219,101			—			—
Total Net Increase		175,001		$	2,097,665			279,107		$	3,342,643
LifePath 2055 Portfolio
Institutional
Shares sold		32,097		$	390,731			12,679		$	147,015
Shares issued to shareholders in reinvestment of dividends and distributions		326			3,906			189			2,160
Shares redeemed		(3,905	)		(47,959	)		(123	)		(1,420	)
Net increase		28,518		$	346,678			12,745		$	147,755

38 BLACKROCK FUNDS III JUNE 30, 2012

Notes to Financial Statements (concluded) BlackRock Funds III

LifePath 2055 Portfolio (concluded)	Six Months Ended June 30, 2012						Year Ended December 31, 2011
	Shares			Amount			Shares			Amount
Investor A
Shares sold		34,175		$	404,824			24,017		$	280,326
Shares issued to shareholders in reinvestment of dividends and distributions		275			3,277			138			1,533
Shares redeemed		(7,005	)		(82,132	)		(11,500	)		(141,503	)
Net increase		27,445		$	325,969			12,655		$	140,356
Investor C
Shares sold		3,813		$	46,583			8,004		$	97,427
Shares issued to shareholders in reinvestment of dividends and distributions		16			197			98			1,138
Shares redeemed		(5,191	)		(63,042	)		(281	)		(3,007	)
Net increase (decrease)		(1,362	)	$	(16,262	)		7,821		$	95,558
Class R
Shares sold		1,709		$	19,631			—			—
Shares issued to shareholders in reinvestment of dividends and distributions		9			116			—			—
Net increase		1,718		$	19,747			—			—
Total Net Increase		56,319		$	676,132			33,221		$	383,669

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 JUNE 30, 2012 39

Master Portfolio Information as of June 30, 2012 Master Investment Portfolio

LifePath 2025 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment  Companies

Equity Funds	62	%
Fixed Income Funds	36
Short-Term Securities	2

Portfolio Holdings Percent of
Affiliated Investment  Companies

Active Stock Master Portfolio	36	%
CoreAlpha Bond Master Portfolio	31
iShares MSCI EAFE Index Fund	9
iShares Barclays TIPS Bond Fund	5
ACWI ex-US Index Master Portfolio	4
iShares MSCI Emerging Markets Index Fund	3
Master Small Cap Index Series	3
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	3
iShares Cohen & Steers Realty Majors Index Fund	2
BlackRock Cash Funds: Institutional, SL Agency Shares	2
iShares MSCI EAFE Small Cap Index Fund	1
iShares MSCI Canada Index Fund	1

LifePath 2035 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment  Companies

Equity Funds	76	%
Fixed Income Funds	22
Short-Term Securities	2

Portfolio Holdings Percent of
Affiliated Investment  Companies

Active Stock Master Portfolio	43	%
CoreAlpha Bond Master Portfolio	20
ACWI ex-US Index Master Portfolio	8
iShares MSCI EAFE Index Fund	8
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	4
iShares Cohen & Steers Realty Majors Index Fund	4
iShares MSCI Emerging Markets Index Fund	3
Master Small Cap Index Series	3
iShares Barclays TIPS Bond Fund	2
BlackRock Cash Funds: Institutional, SL Agency Shares	2
iShares MSCI EAFE Small Cap Index Fund	2
iShares MSCI Canada Index Fund	1

The Portfolios’ allocation and holdings listed above are current as the report date. However, the Portfolios are regularly monitored and their composition may vary throughout various periods.

40 BLACKROCK FUNDS III JUNE 30, 2012

Master Portfolio Information as of June 30, 2012 (concluded) Master Investment Portfolio

LifePath 2045 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment  Companies

Equity Funds	87	%
Fixed Income Funds	11
Short-Term Securities	2

Portfolio Holdings Percent of
Affiliated Investment  Companies

Active Stock Master Portfolio	50	%
CoreAlpha Bond Master Portfolio	11
ACWI ex-US Index Master Portfolio	11
iShares MSCI EAFE Index Fund	8
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	3
Master Small Cap Index Series	2
iShares MSCI EAFE Small Cap Index Fund	2
BlackRock Cash Funds: Institutional, SL Agency Shares	2
iShares MSCI Canada Index Fund	1

LifePath 2055 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment  Companies

Equity Funds	99	%
Fixed Income Funds	1

Portfolio Holdings Percent of
Affiliated Investment  Companies

Active Stock Master Portfolio	56	%
ACWI ex-US Index Master Portfolio	19
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	6
iShares Cohen & Steers Realty Majors Index Fund	6
iShares MSCI EAFE Index Fund	5
iShares MSCI Emerging Markets Index Fund	2
iShares MSCI EAFE Small Cap Index Fund	2
Master Small Cap Index Series	2
CoreAlpha Bond Master Portfolio	1
iShares MSCI Canada Index Fund	1

The Portfolios’ 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 JUNE 30, 2012 41

Master Portfolio Information as of June 30, 2012 (concluded) Master Investment Portfolio

Active Stock Master Portfolio

Ten Largest Holdings Percent of
Long-Term Investments

Apple, Inc.	4	%
Microsoft Corp.	3
Wells Fargo & Co.	2
Exxon Mobil Corp.	2
Verizon Communications, Inc.	2
International Business Machines Corp.	2
Google, Inc., Class A	2
Pfizer, Inc.	1
Boeing Co.	1
JPMorgan Chase & Co.	1

Sector Allocation Percent of
Long-Term Investments

Information Technology	21	%
Consumer Discretionary	14
Industrials	13
Health Care	12
Financials	11
Consumer Staples	10
Energy	9
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.

42 BLACKROCK FUNDS III JUNE 30, 2012

The Portfolios’ 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.

Schedule of Investments June 30, 2012 (Unaudited) LifePath 2025 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 63.6%
Active Stock Master Portfolio	$	5,950,723	$	5,950,723
ACWI ex-US Index Master Portfolio	$	673,996		673,996
iShares Cohen & Steers Realty Majors Index Fund (b)		4,908		385,965
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		14,602		416,303
iShares MSCI Canada Index Fund		7,673		198,270
iShares MSCI EAFE Index Fund		28,450		1,421,362
iShares MSCI EAFE Small Cap Index Fund		6,454		233,247
iShares MSCI Emerging Markets Index Fund		14,584		571,547
Master Small Cap Index Series	$	538,196		538,196
				10,389,609
Fixed Income Funds — 36.5%
CoreAlpha Bond Master Portfolio	$	5,194,594		5,194,594
iShares Barclays TIPS Bond Fund		6,520		780,444
				5,975,038

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 1.9%
BlackRock Cash Funds: Institutional, SL Agency Shares 0.25%, (c)(d)		245,305	$	245,305
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(d)		57,242		57,242
				302,547
Total Affiliated Investment Companies (Cost — $16,453,030*) — 102.0%				16,667,194
Liabilities in Excess of Other Assets — (2.0)%				(318,518	)
Net Assets — 100.0%			$	16,348,676

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	16,453,030
Gross unrealized appreciation	$	576,001
Gross unrealized depreciation		(361,837	)
Net unrealized appreciation	$	214,164

(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 Held at December 31, 2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June 30, 2012		Value at June 30,2012		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	4,575,528	$	1,375,195	1		—		$	5,950,723	$	5,950,723	$	115,074		$	56,542
ACWI US Index Master Portfolio	$	71,013	$	602,983	1		—		$	673,996	$	673,996	$	(4,625	)	$	6,493
BlackRock Cash Funds: Institutional, SL Agency Shares		253,632		—			(8,327	)2		245,305	$	245,305		—		$	327
BlackRock Cash Funds: Prime, SL Agency Shares		77,542		—			(20,300	)2		57,242	$	57,242		—		$	76
Core Alpha Bond Master Portfolio	$	3,701,752	$	1,492,842	1		—		$	5,194,594	$	5,194,594	$	5,085		$	64,342
iShares Barclays TIPS Bond Fund		4,832		1,688			—			6,520	$	780,444		—		$	10,114
iShares Cohen & Steers Realty Majors Index Fund		3,901		1,169			(162	)		4,908	$	385,965	$	1,225		$	5,243
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		11,898		3,249			(545	)		14,602	$	416,303	$	(2,208	)	$	9,284
iShares MSCI Canada Index Fund		7,352		321			—			7,673	$	198,270		—		$	1,656
iShares MSCI EAFE Index Fund		26,801		1,649			—			28,450	$	1,421,362		—		$	32,692
iShares MSCI EAFE Small Cap Index Fund		5,331		1,123			—			6,454	$	233,247		—		$	3,557
iShares MSCI Emerging Markets Index Fund		13,412		1,172			—			14,584	$	571,547		—		$	6,831
Master Small Cap Index Series	$	412,480	$	125,716	1		—		$	538,196	$	538,196	$	10,264		$	4,456

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. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 the Financial Statements.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 43

Schedule of Investments (concluded) LifePath 2025 Master Portfolio

The following table summarizes the Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	4,309,685	$	12,357,509		—	$	16,667,194

Certain of the Master Portfolio’s liabilities are held at carrying amounts which approximates fair value for financial statement purposes. As of June 30, 2012, collateral on securities loaned at value of $266,050 is categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

44 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments June 30, 2012 (Unaudited) LifePath 2035 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 77.2%
Active Stock Master Portfolio	$	5,502,249	$	5,502,249
ACWI ex-US Index Master Portfolio	$	1,078,624		1,078,624
iShares Cohen & Steers Realty Majors Index Fund (b)		5,883		462,639
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		16,866		480,850
iShares MSCI Canada Index Fund		5,359		138,476
iShares MSCI EAFE Index Fund		19,462		972,321
iShares MSCI EAFE Small Cap Index Fund		6,197		223,960
iShares MSCI Emerging Markets Index Fund		9,863		386,531
Master Small Cap Index Series	$	341,370		341,370
				9,587,020
Fixed Income Funds — 22.7%
CoreAlpha Bond Master Portfolio	$	2,496,764		2,496,764
iShares Barclays TIPS Bond Fund		2,641		316,128
				2,812,892

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 2.3%
BlackRock Cash Funds: Institutional, SL Agency Shares 0.25%, (c)(d)		227,907	$	227,907
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(d)		57,242		57,242
				285,149
Total Affiliated Investment Companies (Cost — $ 12,551,276*) — 102.2%				12,685,061
Liabilities in Excess of Other Assets — (2.2)%				(270,338	)
Net Assets — 100.0%			$	12,414,723

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	12,558,719
Gross unrealized appreciation	$	426,901
Gross unrealized depreciation		(300,559	)
Net unrealized appreciation	$	126,342

(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 held at December  31, 2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest held at June  30, 2012		Value at June 30, 2012		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	3,428,411	$	2,073,838	1		—		$	5,502,249	$	5,502,249	$	30,375		$	48,013
ACWI ex-US Index Master Portfolio	$	166,164	$	912,460	1		—		$	1,078,624	$	1,078,624	$	(20,824	)	$	11,985
BlackRock Cash Funds: Institutional, SL Agency Shares		169,991		57,916	1		—			227,907	$	227,907		—		$	344
BlackRock Cash Funds: Prime, SL Agency Shares		49,989		7,253	1		—			57,242	$	57,242		—		$	82
CoreAlpha Bond Master Portfolio	$	1,392,205	$	1,104,559	1		—		$	2,496,764	$	2,496,764	$	372		$	27,491
iShares Barclays TIPS Bond Fund		1,528		1,113			—			2,641	$	316,128		—		$	3,784
iShares Cohen & Steers Realty Majors Index Fund		3,512		2,371			—			5,883	$	462,639		—		$	5,886
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		10,719		6,176			(29	)		16,866	$	480,850	$	(104	)	$	10,136
iShares MSCI Canada Index Fund		4,932		427			—			5,359	$	138,476		—		$	1,157
iShares MSCI EAFE Index Fund		18,186		1,869			(593	)		19,462	$	972,321	$	(6,312	)	$	22,364
iShares MSCI EAFE Small Cap Index Fund		3,878		2,319			—			6,197	$	223,960		—		$	3,566
iShares MSCI Emerging Markets Index Fund		9,150		856			(143	)		9,863	$	386,531	$	(807	)	$	4,619
Master Small Cap Index Series	$	215,825	$	125,545	1		—		$	341,370	$	341,370	$	6,760		$	2,635

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. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers

between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 the Financial Statements.

The following table summarizes the Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	3,266,054	$	9,419,007		—	$	12,685,061

Certain of the Master Portfolio’s liabilities are held at carrying amounts which approximates fair value for financial statement purposes. As of June 30, 2012, collateral on securities loaned at value of $266,050 is categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 45

Schedule of Investments June 30, 2012 (Unaudited) LifePath 2045 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 88.8%
Active Stock Master Portfolio	$	2,834,559	$	2,834,559
ACWI ex-US Index Master Portfolio	$	598,282		598,282
iShares Cohen & Steers Realty Majors Index Fund		3,266		256,838
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (b)		9,855		280,966
iShares MSCI Canada Index Fund		2,455		63,437
iShares MSCI EAFE Index Fund		9,274		463,329
iShares MSCI EAFE Small Cap Index Fund		3,137		113,371
iShares MSCI Emerging Markets Index Fund		4,722		185,055
Master Small Cap Index Series	$	130,288		130,288
				4,926,125
Fixed Income Funds — 11.1%
CoreAlpha Bond Master Portfolio	$	613,286		613,286
				613,286

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 2.2%
BlackRock Cash Funds: Institutional, SL Agency Shares 0.25%, (c)(d)		95,104	$	95,104
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(d)		24,528		24,528
				119,632
Total Affiliated Investment Companies (Cost — $ 5,578,537*) — 102.1%				5,659,043
Liabilities in Excess of Other Assets — (2.1)%				(113,226	)
Net Assets — 100.0%			$	5,545,817

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	5,580,521
Gross unrealized appreciation	$	381,169
Gross unrealized depreciation		(302,647	)
Net unrealized appreciation	$	78,522

(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 Held at December  31, 2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June  30, 2012		Value at June 30, 2012		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	1,730,629	$	1,103,930	1		—		$	2,834,559	$	2,834,559	$	2,436		$	24,762
ACWI US Index Master Portfolio	$	106,097	$	492,185	1		—		$	598,282	$	598,282	$	(14,259	)	$	7,545
BlackRock Cash Funds: Institutional, SL Agency Shares		80,415		14,689	1		—			95,104	$	95,104		—		$	137
BlackRock Cash Funds: Prime, SL Agency Shares		24,127		401	1		—			24,528	$	24,528		—		$	31
Core Alpha Bond Master Portfolio	$	307,353	$	305,934	1		—		$	613,287	$	613,287	$	(1,047	)	$	6,465
iShares Cohen & Steers Realty Majors Index Fund		1,953		1,340			(27	)		3,266		256,838	$	204		$	3,376
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		5,953		3,963			(61	)		9,855		280,966	$	75		$	5,921
iShares MSCI Canada Index Fund		2,376		119			(40	)		2,455		63,437	$	(119	)	$	530
iShares MSCI EAFE Index Fund		8,758		666			(150	)		9,274		463,329	$	(763	)	$	10,657
iShares MSCI EAFE Small Cap Index Fund		1,914		1,129			(6	)		3,137		113,371	$	(7	)	$	1,771
iShares MSCI Emerging Markets Index Fund		4,402		386			(66	)		4,722		185,055	$	(384	)	$	2,212
Master Small Cap Index Series	$	80,949	$	49,339	1		—		$	130,288	$	130,288	$	2,513		$	1,011

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. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers

between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 the Financial Statements.

The following table summarizes the Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	1,482,628	$	4,176,415		—	$	5,659,043

Certain of the Master Portfolio’s liabilities are held at carrying amounts which approximates fair value for financial statement purposes. As of June 30, 2012, collateral on securities loaned at value of $114,000 is categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

46 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments June 30, 2012 (Unaudited) LifePath 2055 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 98.7%
Active Stock Master Portfolio	$	665,514	$	665,514
ACWI ex-US Index Master Portfolio	$	219,524		219,524
iShares Cohen & Steers Realty Majors Index Fund		830		65,271
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		2,543		72,501
iShares MSCI Canada Index Fund		373		9,638
iShares MSCI EAFE Index Fund		1,208		60,352
iShares MSCI EAFE Small Cap Index Fund		751		27,141
iShares MSCI Emerging Markets Index Fund		694		27,198
Master Small Cap Index Series	$	26,695		26,695
				1,173,834

Affiliated Investment Companies (a)	Shares		Value
Fixed Income Funds — 1.0%
CoreAlpha Bond Master Portfolio	$	11,703	$	11,703
				11,703
Total Affiliated Investment Companies (Cost — $ 1,146,435*) — 99.7 %				1,185,537
Other Assets in Excess of Liabilities — 0.3%				4,053
Net Assets — 100.0%			$	1,189,590

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	1,146,599
Gross unrealized appreciation	$	95,026
Gross unrealized depreciation		(56,088	)
Net unrealized appreciation	$	38,938

(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 Held at December  31, 2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June  30, 2012		Value at June 30, 2012		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	275,426	$	390,088	1		—		$	665,514	$	665,514	$	(8,744	)	$	4,928
ACWI US Index Master Portfolio	$	31,897	$	187,627	1		—		$	219,524	$	219,524	$	(7,644	)	$	2,858
BlackRock Cash Funds: Institutional, SL Agency Shares		12,295		—			(12,295	)2		—		—		—			26
BlackRock Cash Funds: Prime, SL Agency Shares		2,603		—			(2,603	)2		—		—		—			5
Core Alpha Bond Master Portfolio	$	4,789	$	6,914	1		—		$	11,703	$	11,703	$	(30	)	$	118
iShares Cohen & Steers Realty Majors Index Fund		366		511			(47	)		830		65,271		666			826
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		1,088		1,575			(120	)		2,543		72,501		135			1,449
iShares MSCI Canada Index Fund		355		50			(32	)		373		9,638		1			81
iShares MSCI EAFE Index Fund		1,302		189			(283	)		1,208		60,352		(1,867	)		1,498
iShares MSCI EAFE Small Cap Index Fund		315		449			(13	)		751		27,141		61			411
iShares MSCI Emerging Markets Index Fund		655		93			(54	)		694		27,198		20			325
Master Small Cap Index Series	$	18,578	$	8,118	1		—		$	26,696	$	26,696	$	1,324		$	382

¹  Represents net shares/beneficial interest purchased.

²  Represents net shares sold.

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, trans-

fers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 the Financial Statements.

The following table summarizes the Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	262,101	$	923,436		—	$	1,185,537

Certain of the Master Portfolio’s liabilities are held at carrying amounts which approximates fair value for financials statement purposes. As of June 30, 2012, bank overdraft of $3,532 is categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 47

Schedule of Investments June 30, 2012 (Unaudited) Active Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Aerospace & Defense — 4.4%
Alliant Techsystems, Inc.		2,903	$	146,805
The Boeing Co.		526,800		39,141,240
Exelis, Inc.		132,585		1,307,288
General Dynamics Corp.		87,565		5,775,787
Goodrich Corp.		2,499		317,123
Honeywell International, Inc.		216,670		12,098,853
L-3 Communications Holdings, Inc.		13,008		962,722
Lockheed Martin Corp.		96,100		8,368,388
Northrop Grumman Corp. (a)		80,360		5,126,164
Precision Castparts Corp.		47,200		7,763,928
Raytheon Co.		140,990		7,978,624
Rockwell Collins, Inc.		20,770		1,024,999
Textron, Inc.		303,100		7,538,097
Triumph Group, Inc.		5,465		307,516
United Technologies Corp.		304,945		23,032,496
				120,890,030
Air Freight & Logistics — 0.4%
C.H. Robinson Worldwide, Inc.		27,369		1,601,908
Expeditors International of Washington, Inc.		33,582		1,301,302
United Parcel Service, Inc., Class B		90,535		7,130,537
				10,033,747
Airlines — 0.8%
Copa Holdings SA (a)		73,967		6,100,798
Delta Air Lines, Inc. (b)		1,542,610		16,891,580
				22,992,378
Auto Components — 0.2%
Allison Transmission Holdings, Inc.		110,600		1,942,136
Delphi Automotive Plc (b)		18,810		479,655
Federal-Mogul Corp. (b)		5,189		57,079
Johnson Controls, Inc.		80,610		2,233,703
Lear Corp.		16,736		631,449
Visteon Corp. (b)		600		22,500
WABCO Holdings, Inc. (a)(b)		19,781		1,047,009
				6,413,531
Automobiles — 0.2%
Ford Motor Co.		185,420		1,778,178
Tesla Motors, Inc. (b)		139,400		4,361,826
				6,140,004
Beverages — 2.2%
Brown-Forman Corp., Class B (a)		20,352		1,971,091
The Coca-Cola Co.		459,713		35,944,959
Diageo Plc		255,680		6,584,771
Molson Coors Brewing Co., Class B		20,816		866,154
Monster Beverage Corp. (b)		26,160		1,862,592
PepsiCo Inc.		208,104		14,704,629
				61,934,196
Biotechnology — 1.4%
Amgen, Inc.		65,846		4,809,392
Biogen Idec, Inc. (b)		84,639		12,220,179
Celgene Corp. (b)		171,860		11,026,537
Gilead Sciences, Inc. (b)		67,844		3,479,040
Medivation, Inc. (b)		442		40,399
Myriad Genetics, Inc. (b)		265,644		6,314,358
Vertex Pharmaceuticals, Inc. (b)		5,989		334,905
				38,224,810
Building Products — 0.1%
Fortune Brands Home & Security, Inc. (b)		56,403		1,256,095
Capital Markets — 0.6%
American Capital Ltd. (b)		38,654		389,246
Ameriprise Financial, Inc.		30,201		1,578,304
The Bank of New York Mellon Corp.		6		132

Common Stocks	Shares		Value
Capital Markets (concluded)
The Goldman Sachs Group, Inc.		84,062	$	8,058,183
Jefferies Group, Inc.		305,499		3,968,432
Legg Mason, Inc.		52,686		1,389,330
Morgan Stanley		27,558		402,071
T Rowe Price Group, Inc.		2,233		140,590
				15,926,288
Chemicals — 2.3%
Airgas, Inc.		1,512		127,023
Cabot Corp.		5,754		234,188
Celanese Corp.		163,100		5,646,522
CF Industries Holdings, Inc.		40,459		7,838,527
Cytec Industries, Inc.		3,729		218,668
The Dow Chemical Co.		102,340		3,223,710
E.I. du Pont de Nemours & Co.		367,870		18,603,186
LyondellBasell Industries NV, Class A		24,207		974,816
Monsanto Co.		140,903		11,663,950
Olin Corp.		96,800		2,022,152
PPG Industries, Inc.		69,300		7,354,116
Praxair, Inc.		38,120		4,144,788
The Scotts Miracle-Gro Co., Class A		6,200		254,944
				62,306,590
Commercial Banks — 3.3%
Bank of Nova Scotia		104,890		5,426,356
BOK Financial Corp. (a)		1,913		111,337
First Citizens Bancshares, Inc., Class A		2,488		414,625
First Niagara Financial Group, Inc.		7,122		54,483
First Republic Bank (b)		73,729		2,477,294
M&T Bank Corp.		14,888		1,229,302
National Bank of Canada		86,900		6,203,064
SunTrust Banks, Inc.		56,492		1,368,801
The Toronto-Dominion Bank		64,740		5,060,065
U.S. Bancorp		511,609		16,453,346
Wells Fargo & Co.		1,590,664		53,191,804
				91,990,477
Commercial Services & Supplies — 0.1%
ACCO Brands Corp. (b)		39,735		410,860
The Brink’s Co.		5,229		121,208
Corrections Corp. of America		2,129		62,699
Republic Services, Inc.		9,902		262,007
Waste Connections, Inc. (a)		15,266		456,759
				1,313,533
Communications Equipment — 1.9%
Cisco Systems, Inc.		819,367		14,068,531
EchoStar Corp. (b)		3,933		103,910
F5 Networks, Inc. (b)		48,734		4,851,957
Harris Corp.		178,300		7,461,855
QUALCOMM, Inc.		459,738		25,598,212
				52,084,465
Computers & Peripherals — 5.2%
Apple, Inc. (b)		201,329		117,576,136
Dell, Inc. (b)		682,500		8,544,900
EMC Corp. (b)		298,200		7,642,866
Fusion-io, Inc. (b)		113,020		2,360,988
NetApp, Inc. (b)		155,700		4,954,374
QLogic Corp. (b)		322,900		4,420,501
				145,499,765
Construction & Engineering — 1.0%
Chicago Bridge & Iron Co. NV		128,700		4,885,452
Fluor Corp.		164,400		8,111,496
Jacobs Engineering Group, Inc. (b)		277,320		10,499,335
KBR, Inc.		157,500		3,891,825
				27,388,108

See Notes to Financial Statements.

48 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments (continued) Active Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Consumer Finance — 0.6%
American Express Co.		117,639	$	6,847,766
Capital One Financial Corp.		35,362		1,932,887
Discover Financial Services		227,800		7,877,324
Green Dot Corp., Class A (a)(b)		5,000		110,600
				16,768,577
Containers & Packaging — 0.3%
Ball Corp.		113,900		4,675,595
Crown Holdings, Inc. (b)		27,527		949,406
Owens-Illinois, Inc. (b)		1,260		24,154
Rock-Tenn Co, Class A		14,913		813,504
Sealed Air Corp.		107,810		1,664,587
				8,127,246
Diversified Consumer Services — 0.5%
Apollo Group, Inc., Class A (b)		226,800		8,207,892
ITT Educational Services, Inc. (a)(b)		110,404		6,707,043
Weight Watchers International, Inc. (a)(b)		3,657		188,555
				15,103,490
Diversified Financial Services — 2.2%
Bank of America Corp.		560,821		4,587,516
Citigroup, Inc.		509,708		13,971,096
JPMorgan Chase & Co.		1,027,708		36,720,007
Leucadia National Corp.		7,670		163,141
Moody’s Corp.		135,700		4,959,835
The NASDAQ OMX Group, Inc.		8,607		195,120
NYSE Euronext (a)		27,729		709,308
				61,306,023
Diversified Telecommunication Services — 2.7%
AT&T, Inc.		581,585		20,739,321
BCE, Inc.		47,070		1,939,284
CenturyLink, Inc.		210,100		8,296,849
Level 3 Communications, Inc. (b)		110,100		2,438,715
Verizon Communications, Inc.		950,430		42,237,109
				75,651,278
Electric Utilities — 1.5%
American Electric Power Co., Inc.		102,579		4,092,902
Duke Energy Corp.		101,810		2,347,739
Edison International		46,850		2,164,470
Entergy Corp.		3,608		244,947
Exelon Corp.		11,260		423,601
FirstEnergy Corp.		68,370		3,363,120
ITC Holdings Corp. (a)		24,255		1,671,412
NextEra Energy, Inc.		73,800		5,078,178
Northeast Utilities		52,070		2,020,837
OGE Energy Corp.		1,496		77,478
PPL Corp.		46,210		1,285,100
Southern Co.		372,360		17,240,268
Xcel Energy, Inc.		39,838		1,131,797
				41,141,849
Electrical Equipment — 0.3%
The Babcock & Wilcox Co. (b)		39,724		973,238
Cooper Industries Plc, Class A		3,412		232,630
Hubbell, Inc. Class B (a)		12,092		942,451
Rockwell Automation, Inc.		23,850		1,575,531
Roper Industries, Inc.		33,900		3,341,862
				7,065,712
Electronic Equipment, Instruments & Components — 0.7%
AVX Corp.		2,150		22,984
Corning, Inc.		995,300		12,869,229
Dolby Laboratories, Inc., Class A (b)		28,484		1,176,389
Jabil Circuit, Inc.		209,000		4,248,970
				18,317,572

Common Stocks	Shares		Value
Energy Equipment & Services — 1.6%
CARBO Ceramics, Inc. (a)		456	$	34,989
Dresser-Rand Group, Inc. (b)		5,717		254,635
Ensco PLC, Class A		125,600		5,899,432
Halliburton Co.		263,790		7,488,998
McDermott International, Inc. (b)		8,442		94,044
National Oilwell Varco, Inc.		109,481		7,054,956
Noble Corp. (b)		456,555		14,851,734
Schlumberger Ltd.		68,196		4,426,602
Weatherford International Ltd. (b)		408,368		5,157,688
				45,263,078
Food & Staples Retailing — 2.4%
Costco Wholesale Corp.		167,900		15,950,500
CVS Caremark Corp.		80,329		3,753,774
The Fresh Market, Inc. (b)		1,700		91,171
The Kroger Co.		674,340		15,637,945
Wal-Mart Stores, Inc.		324,785		22,644,010
Walgreen Co.		98,664		2,918,481
Whole Foods Market, Inc.		70,055		6,677,643
				67,673,524
Food Products — 1.9%
Archer Daniels Midland Co.		314,850		9,294,372
ConAgra Foods, Inc.		178,300		4,623,319
General Mills, Inc.		116,280		4,481,431
H.J. Heinz Co.		62,830		3,416,695
Kraft Foods, Inc., Class A		183,090		7,070,936
Mead Johnson Nutrition Co.		96,678		7,783,546
Post Holdings, Inc. (a)(b)		29,890		919,118
Ralcorp Holdings, Inc. (b)		1,289		86,028
Unilever NV		465,910		15,538,098
				53,213,543
Gas Utilities — 0.1%
Atmos Energy Corp.		22,548		790,758
ONEOK, Inc.		64,384		2,724,087
				3,514,845
Health Care Equipment & Supplies — 1.4%
Baxter International, Inc.		167,468		8,900,924
Gen-Probe, Inc. (b)		910		74,802
Hill-Rom Holdings, Inc.		17,939		553,418
Intuitive Surgical, Inc. (b)		12,535		6,941,758
Medtronic, Inc.		379,181		14,685,680
ResMed, Inc. (b)		141,600		4,417,920
Sirona Dental Systems, Inc. (b)		27,780		1,250,378
Thoratec Corp. (b)		26,203		879,897
				37,704,777
Health Care Providers & Services — 2.8%
Aetna, Inc.		150,780		5,845,740
AmerisourceBergen Corp.		415,831		16,362,950
Cardinal Health, Inc. (a)		349,028		14,659,176
Catalyst Health Solutions, Inc. (b)		869		81,199
Express Scripts Holding Co. (b)		240,507		13,427,496
HCA Holdings, Inc.		296,318		9,016,957
Health Net, Inc. (b)		958		23,251
Humana, Inc.		14,002		1,084,315
Lincare Holdings, Inc.		124,800		4,245,696
McKesson Corp.		103,100		9,665,625
Quest Diagnostics Inc.		37,230		2,230,077
WellCare Health Plans, Inc. (b)		17,713		938,789
				77,581,271
Health Care Technology — 0.4%
Allscripts Healthcare Solutions, Inc. (b)		2,512		27,456
Cerner Corp. (b)		136,700		11,299,622
				11,327,078

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 49

Schedule of Investments (continued) Active Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Hotels, Restaurants & Leisure — 2.1%
Brinker International, Inc.		228,800	$	7,291,856
Choice Hotels International, Inc. (a)		5,057		201,926
Hyatt Hotels Corp, Class A (b)		7,880		292,821
Las Vegas Sands Corp.		157,600		6,854,024
Marriott International, Inc., Class A		196,100		7,687,120
Marriott Vacations Worldwide Corp. (a)(b)		15,084		467,302
McDonald’s Corp.		262,299		23,221,330
Panera Bread Co., Class A (b)		743		103,604
Starbucks Corp.		215,111		11,469,719
Starwood Hotels & Resorts Worldwide, Inc.		2		106
Wynn Resorts Ltd.		7,739		802,689
Yum! Brands, Inc.		7,900		508,918
				58,901,415
Household Durables — 0.4%
Garmin Ltd.		100,000		3,829,000
NVR, Inc. (b)		1,368		1,162,800
Tempur-Pedic International, Inc. (b)		32,141		751,778
Tupperware Brands Corp.		72,080		3,947,101
Whirlpool Corp.		4,407		269,532
				9,960,211
Household Products — 0.8%
The Clorox Co.		2,609		189,048
Kimberly-Clark Corp.		139,260		11,665,810
The Procter & Gamble Co.		182,431		11,173,899
				23,028,757
Independent Power Producers & Energy Traders — 0.1%
International Power Plc		468,400		3,070,887
NRG Energy, Inc. (b)		12,955		224,899
				3,295,786
Industrial Conglomerates — 2.4%
3M Co.		92,718		8,307,533
Danaher Corp.		319,700		16,649,976
General Electric Co.		1,396,547		29,104,039
Tyco International Ltd.		241,354		12,755,559
				66,817,107
Insurance — 3.5%
ACE Ltd.		200,520		14,864,548
Aflac, Inc.		140,392		5,979,295
American National Insurance Co. (a)		1,700		121,159
Aspen Insurance Holdings Ltd.		23,580		681,462
Axis Capital Holdings Ltd.		16,847		548,370
Berkshire Hathaway, Inc., Class B (b)		4,465		372,068
Chubb Corp.		84,760		6,172,223
CNA Financial Corp.		18,037		499,986
Endurance Specialty Holdings Ltd.		24,174		926,348
Everest Re Group Ltd.		993		102,766
Genworth Financial, Inc., Class A (b)		108,566		614,483
The Hanover Insurance Group, Inc.		22,485		879,838
Hartford Financial Services Group, Inc.		625,026		11,019,208
Kemper Corp.		3		92
Lincoln National Corp.		239,862		5,245,782
MetLife, Inc.		356,276		10,991,115
PartnerRe Ltd.		10,008		757,305
Prudential Financial, Inc.		228,426		11,062,671
Reinsurance Group of America, Inc.		4,100		218,161
RenaissanceRe Holdings Ltd.		1		76
The Travelers Cos., Inc.		318,920		20,359,853
Validus Holdings Ltd.		141,172		4,521,739
Willis Group Holdings Plc		38,208		1,394,210
XL Group Plc		39,170		824,137
				98,156,895

Common Stocks	Shares		Value
Internet & Catalog Retail — 1.6%
Amazon.com, Inc. (b)		99,100	$	22,629,485
Expedia, Inc.		158,500		7,619,095
Groupon, Inc. (a)(b)		10,685		113,581
priceline.com, Inc. (b)		19,088		12,684,358
TripAdvisor, Inc. (b)		10,153		453,738
				43,500,257
Internet Software & Services — 2.2%
eBay, Inc. (b)		211,500		8,885,115
ExactTarget, Inc. (a)(b)		823		17,991
Facebook, Inc. (b)		17,180		534,642
Google, Inc., Class A (b)		72,324		41,952,983
IAC/InterActiveCorp		19,059		869,090
Millennial Media, Inc. (b)		2,336		30,812
Rackspace Hosting, Inc. (b)		182,000		7,997,080
VeriSign, Inc. (b)		21,148		921,418
				61,209,131
IT Services — 4.3%
Accenture Plc, Class A		190,100		11,423,109
Alliance Data Systems Corp. (b)		45,600		6,156,000
Amdocs Ltd. (b)		26,011		773,047
Automatic Data Processing, Inc.		26,840		1,493,914
Broadridge Financial Solutions, Inc.		21,209		451,116
Cognizant Technology Solutions Corp., Class A (b)		22,107		1,326,420
CoreLogic, Inc. (b)		12,681		232,189
DST Systems, Inc.		87,200		4,735,832
International Business Machines Corp.		215,885		42,222,788
Lender Processing Services, Inc.		145,600		3,680,768
MasterCard, Inc., Class A (a)		8,129		3,496,364
NeuStar Inc, Class A (b)		1,401		46,793
SAIC, Inc.		614,100		7,442,892
Total System Services, Inc.		3,535		84,593
Vantiv Inc, Class A (b)		3,667		85,405
VeriFone Systems, Inc. (b)		117,057		3,873,416
Visa, Inc., Class A (a)		95,421		11,796,898
The Western Union Co.		1,156,580		19,476,807
				118,798,351
Leisure Equipment & Products — 0.3%
Mattel, Inc.		94,034		3,050,463
Polaris Industries, Inc. (a)		83,328		5,956,285
				9,006,748
Life Sciences Tools & Services — 0.0%
Agilent Technologies, Inc.		5,951		233,517
Bio-Rad Laboratories, Inc., Class A (b)		524		52,405
Bruker Corp. (b)		2,415		32,144
Illumina, Inc. (b)		2,296		92,735
Thermo Fisher Scientific, Inc.		15,415		800,193
				1,210,994
Machinery — 2.7%
AGCO Corp. (b)		7,646		349,651
Caterpillar, Inc.		110,320		9,367,271
Crane Co.		7,513		273,323
Cummins, Inc.		99,580		9,650,298
Deere & Co.		123,310		9,972,080
Dover Corp.		38,593		2,068,971
Eaton Corp.		170,200		6,745,026
Gardner Denver, Inc. (a)		5,618		297,248
Ingersoll-Rand Plc		197,100		8,313,678
PACCAR, Inc.		104,900		4,111,031
Parker Hannifin Corp.		94,100		7,234,408
Stanley Black & Decker, Inc.		151,725		9,765,021
Terex Corp. (b)		228,109		4,067,183
Toro Co. (a)		8,909		652,941
Trinity Industries, Inc.		5,661		141,412

See Notes to Financial Statements.

50 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments (continued) Active Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Machinery (concluded)
Xylem, Inc. (a)		100,469	$	2,528,805
				75,538,347
Media — 3.9%
CBS Corp., Class B		141,200		4,628,536
Comcast Corp, Class A		272,700		8,718,219
Comcast Corp, Special Class A		431,370		13,545,018
DIRECTV, Class A (b)		259,598		12,673,574
DISH Network Corp.		182,233		5,202,752
Interpublic Group of Cos., Inc.		614,100		6,662,985
John Wiley & Sons, Inc., Class A (a)		32,457		1,590,068
Liberty Media Corp. — Liberty Capital (b)		2,418		212,566
The McGraw-Hill Cos., Inc.		188,819		8,496,855
Regal Entertainment Group		212,000		2,917,120
Scripps Networks Interactive, Inc., Class A		11,049		628,246
Time Warner Cable, Inc.		195,517		16,051,946
Time Warner, Inc.		237,895		9,158,958
Viacom, Inc., Class B		186,996		8,792,552
The Walt Disney Co.		175,210		8,497,685
The Washington Post Co., Class B (a)		1,846		690,072
				108,467,152
Metals & Mining — 1.5%
Alcoa, Inc. (a)		628,678		5,500,932
Barrick Gold Corp.		58,030		2,182,991
BHP Billiton Ltd.		308,920		9,958,910
Freeport-McMoRan Copper & Gold, Inc.		259,346		8,835,918
Newmont Mining Corp.		2,837		137,623
Nucor Corp.		153,080		5,801,732
Rio Tinto Ltd.		54,630		3,163,915
Schnitzer Steel Industries, Inc. (a)		849		23,789
Southern Copper Corp.		61,982		1,953,063
Steel Dynamics, Inc.		315,900		3,711,825
Walter Energy, Inc.		6,949		306,868
				41,577,566
Multi-Utilities — 1.0%
Consolidated Edison, Inc.		22,790		1,417,310
Dominion Resources, Inc.		303,530		16,390,620
DTE Energy Co. (a)		5,112		303,295
PG&E Corp.		970		43,912
Public Service Enterprise Group, Inc. (a)		134,894		4,384,055
Sempra Energy		32,050		2,207,604
Wisconsin Energy Corp.		54,410		2,153,004
				26,899,800
Multiline Retail — 1.6%
Big Lots, Inc. (b)		184,200		7,513,518
Dollar General Corp. (b)		43,098		2,344,100
Dollar Tree, Inc. (b)		170,862		9,192,376
Family Dollar Stores, Inc.		1,957		130,101
J.C. Penney Co., Inc. (a)		128,303		2,990,743
Macy’s, Inc.		181,300		6,227,655
Nordstrom, Inc.		161,500		8,024,935
Target Corp.		119,800		6,971,162
				43,394,590
Oil, Gas & Consumable Fuels — 7.0%
Anadarko Petroleum Corp.		174,804		11,572,025
Apache Corp.		121,505		10,679,074
Cheniere Energy, Inc. (b)		11,492		169,392
Chevron Corp.		338,515		35,713,332
ConocoPhillips		124,293		6,945,493
CONSOL Energy, Inc.		14,700		444,528
Denbury Resources, Inc. (b)		507,100		7,662,281
Devon Energy Corp.		172,460		10,000,955
Enbridge, Inc.		200,090		7,980,440
EQT Corp.		60,600		3,249,978

Common Stocks	Shares		Value
Oil, Gas & Consumable Fuels (concluded)
Exxon Mobil Corp. (a)		514,006	$	43,983,493
Hess Corp.		73,060		3,174,457
HollyFrontier Corp.		10,054		356,213
Kinder Morgan Management LLC (a)(b)		7,709		565,995
Kinder Morgan, Inc.		56,363		1,816,016
Kosmos Energy Ltd. (a)(b)		5,450		60,223
Marathon Oil Corp.		481,539		12,312,952
Marathon Petroleum Corp.		81,651		3,667,763
Noble Energy, Inc.		17,800		1,509,796
Occidental Petroleum Corp.		141,411		12,128,821
Peabody Energy Corp.		261,927		6,422,450
Phillips 66 (b)		74,573		2,478,807
Royal Dutch Shell Plc Class A		49,940		1,682,103
Spectra Energy Corp.		87,860		2,553,212
Total SA		165,800		7,452,710
The Williams Cos., Inc.		10,375		299,007
				194,881,516
Paper & Forest Products — 0.3%
Domtar Corp. (a)		11,556		886,461
International Paper Co.		147,600		4,267,116
MeadWestvaco Corp.		120,330		3,459,487
				8,613,064
Personal Products — 0.5%
The Estee Lauder Cos., Inc., Class A		42,354		2,292,198
Herbalife Ltd.		249,408		12,053,889
Nu Skin Enterprises, Inc.		624		29,266
				14,375,353
Pharmaceuticals — 6.1%
Abbott Laboratories		351,390		22,654,113
Allergan, Inc.		11,080		1,025,676
Bristol-Myers Squibb Co.		249,931		8,985,019
Eli Lilly & Co.		377,055		16,179,430
Forest Laboratories, Inc. (b)		17,813		623,277
Johnson & Johnson (a)		486,763		32,885,708
Merck & Co., Inc.		818,493		34,172,083
Pfizer, Inc.		1,715,549		39,457,627
Valeant Pharmaceuticals International, Inc. (b)		132,700		5,943,633
Warner Chilcott Plc, Class A (b)		367,493		6,585,475
				168,512,041
Professional Services — 0.2%
Manpower, Inc. (a)		114,096		4,181,618
Verisk Analytics, Inc., Class A (b)		7,758		382,159
				4,563,777
Real Estate Investment Trusts (REITs) — 0.6%
Alexandria Real Estate Equities, Inc.		2,734		198,817
American Tower Corp.		102,100		7,137,811
BRE Properties, Inc. (a)		3,871		193,627
Camden Property Trust (a)		18,820		1,273,549
Home Properties, Inc.		8,736		536,041
Piedmont Office Realty Trust, Inc. (a)		26,985		464,412
Public Storage (a)		13,266		1,915,743
Rayonier, Inc.		1		23
Simon Property Group, Inc.		6,141		955,908
Taubman Centers, Inc. (a)		3,800		293,208
Ventas, Inc.		7,709		486,592
Weyerhaeuser Co.		96,050		2,147,678
				15,603,409
Real Estate Management & Development — 0.0%
The Howard Hughes Corp. (b)		3,873		238,732
Road & Rail — 0.4%
Canadian National Railway Co.		78,050		6,585,859
Landstar System, Inc.		2,771		143,316

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 51

Schedule of Investments (continued) Active Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Road & Rail (concluded)
Union Pacific Corp.		36,950	$	4,408,505
				11,137,680
Semiconductors & Semiconductor Equipment — 1.6%
Advanced Micro Devices, Inc. (b)		77,649		444,929
Altera Corp.		20,374		689,456
Avago Technologies Ltd.		89,810		3,224,179
Broadcom Corp., Class A (b)		180,736		6,108,877
Intel Corp.		270,451		7,207,519
KLA-Tencor Corp.		7,709		379,668
Linear Technology Corp.		1,136		35,591
LSI Corp. (b)		1,739,234		11,078,920
Marvell Technology Group Ltd.		265,950		2,999,916
Micron Technology, Inc. (b)		901,460		5,688,213
Silicon Laboratories, Inc. (a)(b)		24,064		912,026
Xilinx, Inc.		140,300		4,709,871
				43,479,165
Software — 4.2%
Ariba, Inc. (b)		2,120		94,891
Autodesk, Inc. (b)		4,698		164,383
Fortinet, Inc. (b)		12,427		288,555
Intuit, Inc.		6,132		363,934
Microsoft Corp.		2,601,811		79,589,399
Oracle Corp.		250,400		7,436,880
Red Hat, Inc. (b)		122,400		6,913,152
Salesforce.com, Inc. (b)		64,992		8,985,794
Splunk, Inc. (a)(b)		1,992		55,975
Symantec Corp. (b)		553,700		8,089,557
VMware, Inc., Class A (b)		59,600		5,425,984
				117,408,504
Specialty Retail — 2.2%
Abercrombie & Fitch Co., Class A (a)		15,630		533,608
Advance Auto Parts, Inc. (a)		132,128		9,013,772
Bed Bath & Beyond, Inc. (b)		7,930		490,074
Chico’s FAS, Inc.		304,100		4,512,844
The Home Depot, Inc.		380,843		20,180,871
Limited Brands, Inc.		155,900		6,630,427
PetSmart, Inc.		120,800		8,236,144
Ross Stores, Inc.		6,473		404,368
Sally Beauty Holdings, Inc. (b)		19,598		504,453
The TJX Cos., Inc.		268,244		11,515,715
				62,022,276
Textiles, Apparel & Luxury Goods — 0.9%
Coach, Inc.		133,091		7,783,161
Michael Kors Holdings Ltd. (b)		128,988		5,396,858
NIKE, Inc., Class B		960		84,269
Tumi Holdings, Inc. (a)(b)		3,072		53,760
Under Armour Inc, Class A (b)		65,300		6,169,544
VF Corp.		49,520		6,608,444
				26,096,036
Thrifts & Mortgage Finance — 0.0%
BankUnited, Inc. (a)		2,115		49,872
Tobacco — 1.6%
Altria Group, Inc.		101,590		3,509,935
Lorillard, Inc.		61,899		8,167,573
Philip Morris International, Inc.		378,836		33,057,229
				44,734,737
Trading Companies & Distributors — 0.1%
Air Lease Corp. (b)		4,557		88,360
MSC Industrial Direct Co., Inc.		13,441		881,058
WESCO International, Inc. (a)(b)		7,713		443,883
				1,413,301

Common Stocks	Shares		Value
Water Utilities — 0.2%
American Water Works Co., Inc.		175,899	$	6,029,818
Wireless Telecommunication Services — 0.1%
MetroPCS Communications, Inc. (b)		53,457		323,415
Telephone & Data Systems, Inc.		43,995		936,653
United States Cellular Corp. (b)		6,834		263,929
Vodafone Group Plc		87,320		2,460,678
				3,984,675
Total Long-Term Investments (Cost — $ 2,527,683,050) — 97.9%				2,717,060,943
Short-Term Securities
Money Market Funds — 2.6%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.25% (c)(d)(e)		68,060,767		68,060,767
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(d)(e)		4,684,953		4,684,953
				72,745,720
	Par (000)
U.S. Treasury Obligations — 0.1%
U.S. Treasury Bill, 0.00%, 9/20/12 (f)(g)	$	890		889,857
Total Short-Term Securities (Cost — $ 73,635,523) — 2.7 %				73,635,577
Total Investments* (Cost — $ 2,601,318,573) — 100.6 %				2,790,696,520
Liabilities in Excess of Other Assets — (0.6)%				(15,330,206	)
Net Assets — 100.0%			$	2,775,366,314

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	2,639,607,955
Gross unrealized appreciation	$	266,919,212
Gross unrealized depreciation		(115,830,647	)
Net unrealized appreciation	$	151,088,565

(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 Held at December 31, 2011		Net Activity			Shares Held at June 30, 2012		Income
BlackRock Cash Funds:
Institutional, SL Agency Shares		128,263,976		(60,203,209	)		68,060,767	$	180,124
BlackRock Cash Funds:
Prime, SL Agency Shares		20,162,910		(15,477,957	)		4,684,953	$	32,394

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

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

(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.

See Notes to Financial Statements.

52 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments (concluded) Active Stock Master Portfolio

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. These definitions 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 June 30, 2012 were as follows:

Contracts	Issue	Exchange	Expiration	Notional Value		Unrealized Appreciation
93	S&P 500 Index	Chicago Mercantile	September 2012	$	6,307,260	$	201,592

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques 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 into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. 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 is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments and derivative financial instruments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Long-Term Investments1:
Common Stocks	$	2,717,060,943		—		—	$	2,717,060,943
Short-Term Securities:
Money Market Funds		72,745,720		—		—		72,745,720
U.S. Treasury Obligations		—	$	889,857		—		889,857
Total	$	2,789,806,663	$	889,857		—	$	2,790,696,520
	Level 1		Level 2		Level 3		Total
Derivative Financial Instruments2
Liabilities:
Equity Contracts	$	201,592		—		—	$	201,592

¹  See above Schedule of Investments for values in each industry.

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

Certain of the Master Portfolio's assets and liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of June 30, 2012, such assets and liabilities are categorized within the disclosure hierarchy as follows:

	Level 1		Level 2			Level 3		Total
Assets:
Foreign currency at value	$	42,861		—			—	$	42,861
Liabilities:
Collateral on securities
loned at value		—	$	(21,774,844	)		—		(21,774,844	)
Total	$	42,861	$	(21,774,844	)	$	—	$	(21,731,983	)

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 53

Statements of Assets and Liabilities Master Investment Portfolio

June 30, 2012 (Unaudited)	LifePath 2025 Master Portfolio		LifePath 2035 Master Portfolio		LifePath 2045 Master Portfolio		LifePath 2055 Master Portfolio
Assets
Investments at value — affiliated1,2	$	16,667,194	$	12,685,061	$	5,659,043	$	1,185,537
Contributions receivable from investors		5,184		14,266		10,496		1,041
Investments sold receivable		17,000		25,000		12,000		40,772
Interest receivable		6		8		3		1
Securities lending income receivable		83		83		35		6
Receivable from advisor		18,842		19,141		19,554		19,944
Total assets		16,708,309		12,743,559		5,701,131		1,247,301
Liabilities
Collateral on securities loaned at value		266,050		266,050		114,000		—
Investments purchased payable		76,857		46,009		24,616		37,300
Bank overdraft		—		—		—		3,532
Professional fees payable		16,315		16,319		16,314		16,528
Trustees’ fees payable		411		458		384		351
Total liabilities		359,633		328,836		155,314		57,711
Net Assets	$	16,348,676	$	12,414,723	$	5,545,817	$	1,189,590
Net Assets Consist of
Investors’ capital	$	16,134,512	$	12,280,938	$	5,465,311	$	1,150,488
Net unrealized appreciation/depreciation		214,164		133,785		80,506		39,102
Net Assets	$	16,348,676	$	12,414,723	$	5,545,817	$	1,189,590
1 Investments at cost — affiliated	$	16,453,030	$	12,551,276	$	5,578,537	$	1,146,435
2 Securities loaned at value	$	267,376	$	267,376	$	114,040	$	—

See Notes to Financial Statements.
54	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Assets and Liabilities (concluded) Master Investment Portfolio

June 30, 2012 (Unaudited)	Active Stock Master Portfolio
Assets
Investments at value — unaffiliated1,2	$	2,717,950,800
Investments at value —affiliated3		72,745,720
Foreign currencies, at value (Cost — $42,391)		42,861
Contributions receivable from investors		37,160
Investments sold receivable		82,581,119
Cash		1,340
Dividends receivable		3,100,592
Securities lending income receivable		23,105
Interest receivable		349
Variation margin receivable		156,893
Total assets		2,876,639,939
Liabilities
Collateral on securities loaned at value		21,774,844
Investments purchased payable		57,177,122
Withdrawals payable to investors		21,654,000
Investment advisory fees payable		364,260
Administration fees payable		210,570
Professional fees payable		35,607
Trustees’ fees payable		5,433
Foreign taxes payable		51,789
Total liabilities		101,273,625
Net Assets	$	2,775,366,314
Net Assets Consist of
Investors’ capital	$	2,585,784,710
Net unrealized appreciation/depreciation		189,581,604
Net Assets	$	2,775,366,314
1 Investments at cost — unaffiliated	$	2,528,572,853
2 Securities loaned at value	$	21,838,718
3 Investments at cost — affiliated	$	72,745,720

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	55

Statements of Operations Master Investment Portfolio

Six Months Ended June 30, 2012 (Unaudited)	LifePath 2025 Master Portfolio			LifePath 2035 Master Portfolio			LifePath 2045 Master Portfolio			LifePath 2055 Master Portfolio
Investment Income
Dividends — affiliated	$	69,377		$	51,512		$	24,469		$	4,591
Securities lending — affiliated		352			382			147			26
Income — affiliated		51			44			19			5
Net investment income allocated from the applicable Master Portfolios:
Dividends		66,631			61,998			33,020			8,087
Interest		65,202			28,126			6,763			199
Expenses		(16,425	)		(12,041	)		(5,626	)		(1,146	)
Fees waived		2,652			2,335			1,226			271
Total income		187,840			132,356			60,018			12,033
Expenses
Investment advisory		26,144			17,992			8,030			1,545
Professional		13,031			13,029			13,029			12,758
Independent Trustees		1,542			1,542			1,424			1,364
Total expenses		40,717			32,563			22,483			15,667
Less fees waived by advisor		(35,349	)		(29,328	)		(21,249	)		(15,422	)
Total expenses after fees waived		5,368			3,235			1,234			245
Net investment income		182,472			129,121			58,784			11,788
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments — affiliated		(983	)		(7,223	)		(994	)		(984	)
Allocations from the applicable Master Portfolios from investments, financial futures contracts, swaps and foreign currency transactions		125,798			16,683			(10,357	)		(15,094	)
		124,815			9,460			(11,351	)		(16,078	)
Net change in unrealized appreciation/depreciation on:
Investments — affiliated		15,579			74,032			51,186			5,211
Allocated from the applicable Master Portfolios from investments, financial futures contracts, swaps and foreign currency transactions		447,929			317,647			142,715			32,874
		463,508			391,679			193,901			38,085
Total realized and unrealized gain		588,323			401,139			182,550			22,007
Net Increase in Net Assets Resulting from Operations	$	770,795		$	530,260		$	241,334		$	33,795

See Notes to Financial Statements.
56	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Operations (concluded) Master Investment Portfolio

Six Months Ended June 30, 2012 (Unaudited)	Active Stock Master Portfolio
Investment Income
Dividends	$	28,748,204
Foreign taxes withheld		(155,195	)
Securities lending — affiliated		150,563
Income — affiliated		61,955
Interest		221
Total income		28,805,748
Expenses
Investment advisory		3,424,937
Administration		1,406,338
Professional		24,756
Independent Trustees		34,264
Total expenses		4,890,295
Less fees waived by advisor		(1,184,090	)
Total expenses after fees waived		3,706,205
Net investment income		25,099,543
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		100,671,271
Payment by affiliate		773,484
Financial futures contracts		903,374
Foreign currency transactions		(353,791	)
		101,994,338
Net change in unrealized appreciation/depreciation on:
Investments		106,702,528
Financial futures contracts		206,428
Foreign currency transactions		1,967
		106,910,923
Total realized and unrealized gain		208,905,261
Net Increase in Net Assets Resulting from Operations	$	234,004,804

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	57

Statements of Changes in Net Assets Master Investment Portfolio

	LifePath 2025 Master Portfolio						LifePath 2035 Master Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	182,472		$	205,398		$	129,121		$	129,199
Net realized gain (loss)		124,815			(171,841	)		9,460			(138,974	)
Net change in unrealized appreciation/depreciation		463,508			(267,008	)		391,679			(279,531	)
Net increase (decrease) in net assets resulting from operations		770,795			(233,451	)		530,260			(289,306	)
Capital Transactions
Proceeds from contributions		4,098,111			15,755,466			4,791,492			9,169,420
Value of withdrawals		(698,345	)		(3,478,395	)		(332,764	)		(1,603,644	)
Net increase in net assets derived from capital transactions		3,399,766			12,277,071			4,458,728			7,565,776
Net Assets
Total increase in net assets		4,170,561			12,043,620			4,988,988			7,276,470
Beginning of period		12,178,115			134,495			7,425,735			149,265
End of period	$	16,348,676		$	12,178,115		$	12,414,723		$	7,425,735
	LifePath 2045 Master Portfolio						LifePath 2055 Master Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	58,784		$	49,485		$	11,788		$	6,398
Net realized gain (loss)		(11,351	)		(71,506	)		(16,078	)		5,774
Net change in unrealized appreciation/depreciation		193,901			(137,806	)		38,085			(25,000	)
Net increase (decrease) in net assets resulting from operations		241,334			(159,827	)		33,795			(12,828	)
Capital Transactions
Proceeds from contributions		2,150,296			4,417,801			823,033			562,534
Value of withdrawals		(94,341	)		(1,151,200	)		(160,884	)		(199,584	)
Net increase in net assets derived from capital transactions		2,055,955			3,266,601			662,149			362,950
Net Assets
Total increase in net assets		2,297,289			3,106,774			695,944			350,122
Beginning of period		3,248,528			141,754			493,646			143,524
End of period	$	5,545,817		$	3,248,528		$	1,189,590		$	493,646

See Notes to Financial Statements.
58	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Changes in Net Assets (concluded) Master Investment Portfolio

	Active Stock Master Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	25,099,543		$	44,115,776
Net realized gain		101,994,338			194,035,159
Net change in unrealized appreciation/depreciation		106,910,923			(191,461,710	)
Net increase (decrease) in net assets resulting from operations		234,004,804			46,689,225
Capital Transactions
Proceeds from contributions		205,493,909			657,028,420
Value of withdrawals		(381,382,101	)		(499,892,059	)
Net increase in net assets derived from capital transactions		(175,888,192	)		157,136,361
Net Assets
Total increase in net assets		58,116,612			203,825,586
Beginning of period		2,717,249,702			2,513,424,116
End of period	$	2,775,366,314		$	2,717,249,702

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	59

Financial Highlights Master Investment Portfolio

	LifePath 2025 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December  31, 2010
Total Investment Return
Total investment return		5.93%	2		0.99%			17.65%	2
Ratios to Average Net Assets
Total expenses3		0.72%	4,5,6		1.07%	7,8		13.61%	4
Total expenses after fees waived3		0.26%	4,5,6		0.24%	7,8		0.22%	4
Net investment income9		2.44%	4,5,6		2.62%	7,8		2.37%	4
Supplemental Data
Net assets, end of period (000)	$	16,349		$	12,178		$	134
Portfolio turnover		6%			24%			2%

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  Annualized.

⁵  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%.

⁶  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.10%, although the ratio does include the LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁷  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%.

⁸  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.12%, although the ratio does include the LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁹  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.
60	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) Master Investment Portfolio

	LifePath 2035 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Total Investment Return
Total investment return		6.64%	2		(0.82	)%		21.21%	2
Ratios to Average Net Assets
Total expenses3		0.82%	4,5,6		1.34%	7,8		13.23%	4
Total expenses after fees waived3		0.25%	4,5,6		0.22%	7,8		0.19%	4
Net investment income9		2.51%	4,5,6		2.50%	7,8		2.33%	4
Supplemental Data
Net assets, end of period (000)	$	12,415		$	7,426		$	149
Portfolio turnover		5%			21%			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  Annualized.

⁵  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%.

⁶  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.11%, although the ratio does include the LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁷  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%.

⁸  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.14%, although the ratio does include the LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁹  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.
	BLACKROCK FUNDS III	JUNE 30, 2012	61

Financial Highlights (continued) Master Investment Portfolio

	LifePath 2045 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Total Investment Return
Total investment return		7.22%	2		(1.96	)%		24.26%	2
Ratios to Average Net Assets
Total expenses3		1.17%	4,5,6		2.58%	7,8		13.23%	4
Total expenses after fees waived3		0.25%	4,5,6		0.20%	7,8		0.17%	4
Net investment income9		2.56%	4,5,6		2.43%	7,8		2.25%	4
Supplemental Data
Net assets, end of period (000)	$	5,546		$	3,249		$	142
Portfolio turnover		3%			35%			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  Annualized.

⁵  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%.

⁶  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.12%, although the ratio does include the LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁷  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%.

⁸  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.16%, although the ratio does include the LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁹  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.
62	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) Master Investment Portfolio

	LifePath 2055 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period June 30, 20101 to December 31, 2010
Total Investment Return
Total investment return		7.53%	2		(3.52	)%		25.83%	2
Ratios to Average Net Assets
Total expenses3		3.75%	4,5,6		14.66%	7,8		13.13%	4
Total expenses after fees waived3		0.25%	4,5,6		0.19%	7,8		0.16%	4
Net investment income9		2.67%	4,5,6		2.30%	7,8		2.21%	4
Supplemental Data
Net assets, end of period (000)	$	1,190		$	494		$	144
Portfolio turnover		26%			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  Annualized.

⁵  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%.

⁶  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.11%, although the ratio does include the LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁷  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%.

⁸  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.17%, although the ratio does include the LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁹  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.
	BLACKROCK FUNDS III	JUNE 30, 2012	63

Financial Highlights (concluded) Master Investment Portfolio

	Active Stock Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011		2010		2009		2008			2007
Total Investment Return
Total investment return		8.53%	1		2.20%		11.04%		24.86%		(36.65	)%		0.58%
Ratios to Average Net Assets
Total expenses		0.35%	2		0.35%		0.35%		0.35%		0.35%			0.35%
Total expenses after fees waived		0.26%	2		0.27%		0.29%		0.30%		0.32%			0.34%
Net investment income		1.78%	2		1.70%		1.50%		1.99%		1.96%			1.70%
Supplemental Data
Net assets, end of period (000)	$	2,775,366		$	2,717,250	$	2,513,424	$	1,838,453	$	1,250,987		$	2,085,214
Portfolio turnover		58%			275%		120%		149%		98%			80%

¹  Aggregate total investment return.

²  Annualized.

See Notes to Financial Statements.
64	BLACKROCK FUNDS III	JUNE 30, 2012

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 five series of MIP: LifePath 2025 Master Portfolio, LifePath 2035 Master Portfolio, LifePath 2045 Master Portfolio, LifePath 2055 Master Portfolio and Active Stock 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 2025 Master Portfolio, LifePath 2035 Master Portfolio, LifePath 2045 Master Portfolio and LifePath 2055 Master Portfolio (each, a “LifePath Master Porfolio” 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, 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 June 30, 2012, 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 2025 Master Portfolio		0.21	%		0.20	%		0.20	%		0.13	%
LifePath 2035 Master Portfolio		0.20	%		0.32	%		0.10	%		0.08	%
LifePath 2044 Master Portfolio		0.10	%		0.18	%		0.02	%		0.03	%
LifePath 2055 Master Portfolio		0.02	%		0.06	%		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 annually by the Board of Trustees of MIP (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global

pricing policies and procedures and to provide oversight of the pricing function for the Master Portfolio for all financial instruments.

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 stale price. Investments in open-end registered investment companies are valued at NAV each business day. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value. The market value of each LifePath Master Portfolio’s investments in the Underlying Funds is based on the published NAV of each Underlying Fund computed as of the close of regular trading on the New York Stock Exchange (“NYSE”) on days when the NYSE is open.

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 by the Global Valuation Committee, or its delegate, 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 Global Valuation Committee, or its delegate, seeks to determine the price that each 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. These factors include but are not limited to (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or default rates. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches, including regular due diligence of the Master Portfolio’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof on a quarterly basis.

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

BLACKROCK FUNDS III JUNE 30, 2012 65

Notes to Financial Statements (continued) Master Investment Portfolio

contracts), 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 six months ended June 30, 2012, 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, 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 Active Stock Master Portfolio’s US federal tax returns remains open for each of the four years ended December 31, 2011 and for the two periods ended December 31, 2011 for the LifePath Master Portfolios. 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 December 2011, the Financial Accounting Standards Board issued guidance that will expand 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 or similar agreements which are eligible for offset in the Statements of Assets and Liabilities and will require an entity to disclose both gross and net information about such investments and transactions in the financial statements. 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:

Active Stock Master Portfolio engages in various portfolio investment strategies using derivative contracts both to increase the returns of Active Stock 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: Active Stock 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 Active Stock Master Portfolio and counterparty to buy or sell a specific quantity of an under-

66 BLACKROCK FUNDS III JUNE 30, 2012

Notes to Financial Statements (continued) Master Investment Portfolio

lying instrument at a specified price and at a specified date. Depending on the terms of the particular contract, financial 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, Active Stock 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 variation margin and are recorded by Active Stock Master Portfolio as unrealized appreciation or depreciation. When the contract is closed, Active Stock 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.

Derivative Financial Instruments Categorized by Risk Exposure:
Fair Value of Derivative Financial Instruments as of June 30, 2012
	Asset Derivatives
	Active Stock Master Portfolio
	Statement of Assets and Liabilities Location	Value
Equity contracts	Net unrealized appreciation/depreciation*	$	201,592

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

The Effect of Derivative Financial Instruments in the Statement of Operations Six Months Ended June 30, 2012
	Net Realized Gain From
	Active Stock Master Portfolio
Financial futures contracts	$ 903,374
	Net Change in Unrealized Appreciation/Depreciation on
	Active Stock Master Portfolio
Financial futures contracts	$ 206,428

For the six months ended June 30, 2012, the average quarterly balances of outstanding derivative financial instruments were as follows:

	Active Stock Master Portfolio
Financial futures contracts:
Average number of contracts purchased		105
Average notional value of contracts purchased	$	7,223,055

3. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

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 a monthly fee based on a percentage of Active Stock 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, 2013. 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, 2022. 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.

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 Active Stock Master Portfolio in an amount sufficient to maintain the advisory fees payable by each of the LifePath Master Portfolios at an

BLACKROCK FUNDS III JUNE 30, 2012 67

Notes to Financial Statements (concluded) Master Investment Portfolio

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 administration fees paid by Active Stock Master Portfolio in an amount equal to the independent expenses, through April 30, 2013. 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. BTC 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, if any. 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 pay a fee to BTC equal to 35% of such income. The share of income earned by each Master Portfolio is shown as securities lending – affiliated in the Statements of Operations. For the six months ended June 30, 2012, BTC received securities lending agent fees related to securities lending activities for the Master Portfolios as follows:

LifePath 2025 Master Portfolio	$	190
LifePath 2035 Master Portfolio	$	206
LifePath 2045 Master Portfolio	$	79
LifePath 2055 Master Portfolio	$	14

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.

BFA reimbursed Active Stock Master Portfolio $773,484 for a loss associated with a December 2011 trading error.

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 six months ended June 30, 2012, were as follows:

	Purchases		Sales
LifePath 2025 Master Portfolio	$	4,389,501	$	892,562
LifePath 2035 Master Portfolio	$	4,960,721	$	461,584
LifePath 2045 Master Portfolio	$	2,194,938	$	132,201
LifePath 2055 Master Portfolio	$	894,240	$	231,716
Active Stock Master Portfolio	$	1,593,187,701	$	1,786,805,177

5. Borrowings:

The Master Portfolios, along with certain other funds managed by BFA and its affiliates, is a party to a $500 million credit agreement with a group of lenders. The Master Portfolios may borrow under the credit agreement to fund shareholder redemptions. Effective November 2011 to November 2012, the credit agreement has the following terms: a commitment fee of 0.065% per annum based on the Master Portfolios’ pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus 0.80% per annum or (b) the Fed Funds rate plus 0.80% per annum on amounts borrowed. In addition, administration and arrangement fees were allocated to the Master Portfolios based on their net assets as of October 31, 2011. The Master Portfolios’ commitment, administration and arrangement fees were paid by the investment advisor. The Master Portfolios did not borrow under the credit agreement during the six months ended June 30, 2012.

6. 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.

7. 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.

68 BLACKROCK FUNDS III JUNE 30, 2012

Disclosure of Investment Advisory Agreement

The Board of Trustees of Master Investment Portfolio (the “Master Fund”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Master Fund’s investment advisory agreement (the “Agreement”) with BlackRock Fund Advisors (“BlackRock”), the Master Fund’s investment advisor, with respect to the Master Fund’s series, including LifePath 2025 Master Portfolio, LifePath 2035 Master Portfolio, LifePath 2045 Master Portfolio and LifePath 2055 Master Portfolio (each, a “Master Portfolio” and collectively, the “Master Portfolios”). Each of LifePath 2025 Portfolio, LifePath 2035 Portfolio, LifePath 2045 Portfolio and LifePath 2055 Portfolio (each, a “Portfolio” and collectively, the “Portfolios”), each a series of BlackRock Funds III (the “Fund”), is a “feeder” fund that invests all of its investable assets in the corresponding Master Portfolio. Accordingly, the Board of Trustees of the Fund also considered the approval of the Agreement with respect to each Master Portfolio. For simplicity, the Board of Trustees of the Master Fund and the Board of Trustees of the Fund are referred to herein collectively as the “Board,” and the members are referred to as “Board Members.”

Activities and Composition of the Board

The Board consists of fourteen individuals, twelve of whom are not “interested persons” of the Master Fund or the Fund as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of the Master Fund or the Fund, as pertinent, and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Co-Chairs of the Board are each Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight and Contract Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).

The Agreement

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreement on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreement. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Master Portfolios and the Portfolios by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreement, including the services and support provided by BlackRock to the Master Portfolios, the Portfolios and their shareholders. Among the matters the Board considered were: (a) investment performance for one-, three-,

five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against their peers and/or benchmarks, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Master Portfolios and/or the Portfolios for services, such as marketing and distribution, call center and fund accounting; (c) the Master Portfolios’ and/or the Portfolios’ operating expenses and how BlackRock allocates expenses to the Master Portfolios and the Portfolios; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of each Master Portfolio’s and Portfolio’s investment objective, policies and restrictions; (e) the Master Fund’s and the Fund’s compliance with its respective Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) the use of brokerage commissions and execution quality of portfolio transactions; (j) BlackRock’s implementation of the Master Fund’s and/or the Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.

Board Considerations in Approving the Agreement

The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreement. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on fees and expenses of each Master Portfolio and Portfolio, as applicable, and the investment performance of each Portfolio as compared with a peer group of funds as determined by Lipper and a customized peer group selected by BlackRock (collectively, “Peers”); (b) information on the profitability of the Agreement to BlackRock and a discussion of fall-out benefits to BlackRock and its

BLACKROCK FUNDS III JUNE 30, 2012 69

Disclosure of Investment Advisory Agreement (continued)

affiliates; (c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of potential economies of scale; (e) a summary of aggregate amounts paid by each Master Portfolio and/or Portfolio to BlackRock; (f) sales and redemption data regarding each Portfolio’s shares; and (g) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.

At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreement. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.

At an in-person meeting held on May 15-16, 2012, the Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund with respect to each Master Portfolio for a one-year term ending June 30, 2013. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement and found the Agreement to be satisfactory. In approving the continuation of the Agreement, the Board of the Master Fund considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of each Master Portfolio, each Portfolio and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Master Portfolios and the Portfolios; (d) economies of scale; (e) fall-out benefits to BlackRock as a result of its relationship with the Master Portfolios and the Portfolios; and (f) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to the distribution of Portfolio shares and securities lending, services related to the valuation and pricing of portfolio holdings of each Master Portfolio, direct and indirect benefits to BlackRock and its affiliates from their relationship with the Master Portfolios and the Portfolios and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of each Portfolio. Throughout the year, the Board compared each Portfolio’s performance to the performance of a comparable group of mutual funds

and/or the performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the Master Portfolio’s portfolio management team discussing Master Portfolio performance and each Master Portfolio’s investment objective, strategies and outlook.

The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and each Master Portfolio’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to each Master Portfolio’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to each Master Portfolio and Portfolio. BlackRock and its affiliates provide the Master Portfolios and the Portfolios with certain administrative, shareholder and other services (in addition to any such services provided to the Master Portfolios and the Portfolios by third parties) and officers and other personnel as are necessary for the operations of the Master Portfolios and the Portfolios. In particular, BlackRock and its affiliates provide the Master Portfolios and the Portfolios with the following administrative services including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions necessary for the operation of the Master Portfolios and the Portfolios, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Master Portfolios, the Portfolios and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of each Master Portfolio and Portfolio, as applicable. The Board noted that each Master Portfolio’s investment results correspond directly to the investment results of the applicable Portfolio. In preparation for the April 17, 2012 meeting, the Board worked with its independent legal counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive analysis of each Portfolio’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information

70 BLACKROCK FUNDS III JUNE 30, 2012

Disclosure of Investment Advisory Agreement (continued)

regarding the investment performance of each Portfolio as compared to funds in the Portfolio’s applicable Lipper category and the customized peer group selected by BlackRock. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Master Portfolio management to discuss, the performance of each Master Portfolio and Portfolio, as applicable, throughout the year.

The Board noted that, in general, each of LifePath 2025 Portfolio, LifePath 2035 Portfolio and LifePath 2045 Portfolio performed better than its Peers in that the Portfolio’s performance was at or above the median of its Customized Lipper Peer Group in both the one-year and since-inception periods reported. Based on its discussions with BlackRock and the Board’s review of each Portfolio’s investment performance compared to its Lipper Peer Group, the methodology used by Lipper to select peer funds, and other relevant information provided by BlackRock, the Board noted that each Portfolio’s investment performance as compared to its Customized Lipper Peer Group provided a more meaningful comparison of the Portfolio’s relative performance.

The Board noted that LifePath 2055 Portfolio performed below the median of its Customized Lipper Peer Group in the one-year period, but at or above the median in the since-inception period reported. The Board and BlackRock reviewed and discussed the reasons for the Portfolio’s underperformance during the one-year period and will monitor closely the Portfolio’s performance in the coming year. Based on its discussions with BlackRock and the Board’s review of the Portfolio’s investment performance compared to its Lipper Peer Group, the methodology used by Lipper to select peer funds, and other relevant information provided by BlackRock, the Board noted that the Portfolio’s investment performance as compared to its Customized Lipper Peer Group provided a more meaningful comparison of the Portfolio’s relative performance.

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Master Portfolios and the Portfolios: The Board, including the Independent Board Members, reviewed each Master Portfolio’s contractual advisory fee rate compared with the other funds in the corresponding Portfolio’s Lipper category. It also compared each Portfolio’s total expense ratio, as well as each Master Portfolio’s actual advisory fee rate, to those of other funds in the corresponding Portfolio’s Lipper category. The Board considered the services provided and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided each Master Portfolio and Portfolio. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Master Portfolios and the Portfolios. The Board reviewed BlackRock’s profitability with respect to each Master Portfolio and Portfolio, as applicable, and other funds the Board currently oversees for the year ended December 31, 2011

compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31, 2009. The Board reviewed BlackRock’s profitability with respect to other fund complexes managed by BlackRock and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by BlackRock, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRock’s operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management, and the relative product mix.

In addition, the Board considered the cost of the services provided to the Master Portfolios and the Portfolios by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Master Portfolios and the Portfolios and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of the Master Portfolios and the Portfolios. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreement and to continue to provide the high quality of services that is expected by the Board.

The Board noted that each Master Portfolio’s contractual advisory fee ratio was above the median contractual advisory fee ratio paid by the corresponding Portfolio’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted, however, that each Master Portfolio’s actual advisory fee ratio, after giving effect to any expense reimbursements or fee waivers by BlackRock, was lower than or equal to the median actual advisory fee ratio paid by the corresponding Portfolio’s Peers, after giving effect to any expense reimbursements or fee waivers. The Board further noted that, with respect to each Master Portfolio, BlackRock has contractually agreed to waive its advisory fee at the Master Portfolio level in an amount equal to the advisory and administration fees, if any, received by it or its affiliates from underlying funds, and that BlackRock and its affiliates have agreed to provide an offsetting credit against certain additional expenses incurred by each Master Portfolio and its corresponding Portfolio.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Master Portfolios and the Portfolios increase,

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Disclosure of Investment Advisory Agreement (concluded)

as well as the existence of expense caps. The Board also considered the extent to which the Master Portfolios and the Portfolios benefit from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Master Portfolios and the Portfolios to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the asset level of the Master Portfolios. In its consideration, the Board Members took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Master Portfolios and the Portfolios, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Master Portfolios and the Portfolios, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.

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

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

Conclusion

The Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund, with respect to each Master Portfolio, for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board of the Master Fund, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of each Master Portfolio and its shareholders. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement with respect to each Master Portfolio and found the Agreement to be satisfactory. In arriving at its decision to approve the Agreement, the Board of the Master Fund did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Master Portfolios reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

72 BLACKROCK FUNDS III JUNE 30, 2012

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement

The Board of Directors (the “Board,” and the members of which are referred to as “Board Members”) of Master Investment Portfolio (the “Master Fund”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Master Fund’s investment advisory agreement (the “Agreement”) with BlackRock Fund Advisors (“BlackRock”), the Master Fund’s investment advisor, on behalf of Active Stock Master Portfolio (the “Portfolio”), a series of the Master Fund.

Activities and Composition of the Board

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

The Agreement

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreement on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreement. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Portfolio by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreement, including the services and support provided by BlackRock to the Portfolio and its shareholders. Among the matters the Board considered were: (a) investment performance for one-, three- and five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against its peers and/or benchmark, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Portfolio for services, such as marketing and distribution, call center and fund accounting; (c) Portfolio operating expenses and how BlackRock allocates expenses to the Portfolio; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Portfolio’s investment objective, policies and restrictions; (e) the

Master Fund’s compliance with its Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) the use of brokerage commissions and execution quality of portfolio transactions; (j) BlackRock’s implementation of the Master Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.

Board Considerations in Approving the Agreement

The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreement. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on Portfolio fees and expenses and the investment performance of the Portfolio as compared with a peer group of funds as determined by Lipper (collectively, “Peers”); (b) information on the profitability of the Agreement to BlackRock and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of economies of scale; (e) a summary of aggregate amounts paid by the Portfolio to BlackRock; (f) sales and redemption data regarding the Portfolio; and (g) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.

At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreement. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board

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

presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.

At an in-person meeting held on May 15-16, 2012, the Board, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund, with respect to the Portfolio, for a one-year term ending June 30, 2013. In approving the continuation of the Agreement, the Board considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of the Portfolio and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Portfolio; (d) economies of scale; (e) fall out benefits to BlackRock as a result of its relationship with the Portfolio; and (f) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to securities lending, services related to the valuation and pricing of portfolio holdings of the Portfolio, direct and indirect benefits to BlackRock and its affiliates from their relationship with the Portfolio and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of the Portfolio. Throughout the year, the Board compared the Portfolio performance to the performance of a comparable group of mutual funds and/or the performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the portfolio management team discussing Portfolio performance and the Portfolio’s investment objective, strategies and outlook.

The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and the Portfolio’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to the Portfolio’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Portfolio. BlackRock and its affiliates provide the Portfolio with certain administrative, shareholder and other services (in addition to any such services provided to the Portfolio by third parties) and officers and other personnel as are necessary for the operations of the Portfolio. In particular, BlackRock and its affiliates provide the Portfolio with the following administrative services, including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions necessary for the operation of the Portfolio, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Portfolio and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of the Portfolio. In preparation for the April 17, 2012 meeting, the Board worked with its independent legal counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive analysis of the Portfolio’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information regarding the investment performance of the Portfolio as compared to funds in the Portfolio’s applicable Lipper category. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Portfolio management to discuss, the performance of the Portfolio throughout the year.

The Board noted that the Portfolio performed below the median of its Lipper Performance Universe in the three- and five-year periods reported, but that the Portfolio performed at or above the median of its Lipper Performance Universe in the one-year period reported. The Board and BlackRock reviewed and discussed the reasons for the Portfolio’s underperformance during the three- and five-year periods compared with its Peers. The Board was informed that, among other things, prior to 2011, the portfolio management team’s strategy struggled as stock prices were increasingly driven less by bottom-up stock fundamentals and more by macro-economic forces and demand/flow oriented forces.

The Board and BlackRock discussed BlackRock’s strategy for improving the Portfolio’s performance and BlackRock’s commitment to providing the resources necessary to assist the Portfolio’s portfolio managers and to improve the Portfolio’s performance.

74 BLACKROCK FUNDS III JUNE 30, 2012

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

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Portfolio: The Board, including the Independent Board Members, reviewed the Portfolio’s contractual advisory fee rate compared with the other funds in its Lipper category. It also compared the Portfolio’s total expense ratio, as well as the Portfolio’s actual advisory fee rate, to those of other funds in its Lipper category. The Board considered the services provided and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided the Portfolio. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Portfolio. The Board reviewed BlackRock’s profitability with respect to the Portfolio and other funds the Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31, 2009. The Board reviewed BlackRock’s profitability with respect to other fund complexes managed by BlackRock and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by BlackRock, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRock’s operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management, and the relative product mix.

In addition, the Board considered the cost of the services provided to the Portfolio by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Portfolio and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of the Portfolio. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreement and to continue to provide the high quality of services that is expected by the Board.

The Board noted that the Portfolio’s contractual advisory fee ratio was lower than or equal to the median contractual advisory fee ratio paid by

its Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted that the Portfolio has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Portfolio increases above certain contractually specified levels. The Board further noted that BlackRock and its affiliates have agreed to provide an offsetting credit against certain expenses incurred by the Portfolio.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Portfolio increase, as well as the existence of expense caps. The Board also considered the extent to which the Portfolio benefits from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Portfolio to participate in these economies of scale, for example through the use of revised breakpoints in the advisory fee based upon the asset level of the Portfolio. In its consideration, the Board Members took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Portfolio, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Portfolio, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.

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

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

Conclusion

The Board, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund, with respect to the Portfolio, for a one-year term ending

BLACKROCK FUNDS III JUNE 30, 2012 75

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement (concluded)

June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of the Portfolio and its shareholders. In arriving at its decision to approve the Agreement, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The

Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Portfolio reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

76 BLACKROCK FUNDS III JUNE 30, 2012

Officers and Trustees

Ronald W. Forbes, Co-Chair of the Board and Trustee

Rodney D. Johnson, Co-Chair of the Board and Trustee

Paul L. Audet, Trustee

David O. Beim, Trustee

Henry Gabbay, Trustee

Dr. Matina S. Horner, Trustee

Herbert I. London, Trustee

Ian A. MacKinnon, Trustee¹

Cynthia A. Montgomery, Trustee

Joseph P. Platt, Trustee

Robert C. Robb, Jr., Trustee

Toby Rosenblatt, Trustee

Kenneth L. Urish, Trustee

Frederick W. Winter, Trustee

John M. Perlowski, President and Chief Executive Officer

Richard Hoerner, CFA, Vice President

Brendan Kyne, Vice President

Simon Mendelson, Vice President

Christopher Stavrakos, CFA, Vice President

Neal Andrews, Chief Financial Officer

Jay Fife, Treasurer

Brian Kindelan, Chief Compliance Officer and Anti-Money Laundering Officer

Benjamin Archibald, Secretary²

¹  Effective May 14, 2012, Ian A. MacKinnon became a Trustee of the Trust/MIP.

²  Effective May 16, 2012, Ira P. Shapiro resigned as secretary of the Trust/MIP and Benjamin Archibald became secretary of the Trust/MIP.

Investment Advisor

BlackRock Fund Advisors

San Francisco, CA 94105

Administrator

BlackRock Institutional Trust Company, N.A.

San Francisco, CA 94105

Custodian and Accounting Agent

State Street Bank and Trust Company

Boston, MA 02110

Transfer Agent

BNY Mellon Investment Servicing (US) Inc.

Wilmington, DE 19809

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 Trust/MIP

400 Howard Street

San Francisco, CA 94105

BLACKROCK FUNDS III JUNE 30, 2012 77

Additional Information

General Information

Electronic Delivery

Electronic copies of most financial reports and prospectuses are available on the Portfolio’s/Master Portfolio’s websites or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Portfolio’s/Master Portfolio’s electronic delivery program.

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

Please contact your financial advisor. Please note that not all investment advisors, banks or brokerages may offer this service.

Shareholders Who Hold Accounts Directly with BlackRock:

1) Access the BlackRock website at http://www.blackrock.com/edelivery 2) Select “eDelivery” under the “More Information” section 3) Log into your account

Householding

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

of your household, please call the Portfolio/Master Portfolio Fund at (800) 441-7762.

Availability of Quarterly Schedule of Investments

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, DC. 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 (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 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.

Automatic Investment Plans

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

Systematic Withdrawal Plans

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

Retirement Plans

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

78 BLACKROCK FUNDS III JUNE 30, 2012

Additional Information (concluded)

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 JUNE 30, 2012 79

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 Balanced Capital Fund†

BlackRock Basic Value Fund

BlackRock Capital Appreciation Fund

BlackRock China Fund

BlackRock Commodity Strategies Fund

BlackRock Emerging Markets Fund

BlackRock Emerging Markets Long/Short Equity Fund

BlackRock Energy & Resources Portfolio

BlackRock Equity Dividend Fund

BlackRock EuroFund

BlackRock Flexible Equity Fund

BlackRock Focus Growth Fund

BlackRock Global Allocation Fund†

BlackRock Global Dividend Income Portfolio

BlackRock Global Dynamic Equity 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 Managed Volatility Portfolio†

BlackRock Mid-Cap Growth 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 CoreAlpha Bond Fund

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 Secured Credit Portfolio

BlackRock Strategic Income Opportunities Portfolio

BlackRock Total Return Fund

BlackRock US Government Bond Portfolio

BlackRock US Mortgage Portfolio

BlackRock World Income Fund

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 Date 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.

80 BLACKROCK FUNDS III JUNE 30, 2012

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.

# LPincre-6/12-SAR

June 30, 2012

Semi-Annual Report (Unaudited)

BlackRock Funds III

^u  LifePath^® Retirement Portfolio

^u  LifePath 2020 Portfolio^®

^u  LifePath 2030 Portfolio^®

^u  LifePath 2040 Portfolio^®

^u  LifePath^® 2050 Portfolio

Not FDIC Insured     No Bank Guarantee    May Lose Value

Table of Contents

	Page
Dear Shareholder		3
Semi-Annual Report:
Portfolio Summaries		4
About Portfolio Performance		15
Derivative Financial Instruments		15
Disclosure of Expenses		16
Portfolio Financial Statements:
Statements of Assets and Liabilities		17
Statements of Operations		18
Statements of Changes in Net Assets		19
Portfolio Financial Highlights		22
Portfolio Notes to Financial Statements		47
Master Portfolio Information		53
Master Portfolio Financial Statements:
Schedules of Investments		55
Statements of Assets and Liabilities		71
Statements of Operations		73
Statements of Changes in Net Assets		75
Master Portfolio Financial Highlights		78
Master Portfolio Notes to Financial Statements		84
Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement		88
Officers and Trustees		97
Additional Information		98
A World-Class Mutual Fund Family		99

2 BLACKROCK FUNDS III JUNE 30, 2012

Dear Shareholder

One year ago, risk assets were in a broad retreat as sovereign debt problems loomed over Europe and confidence in both the US and global economic recoveries was waning. Last summer’s prolonged debt ceiling debate in Washington, DC ended with Standard & Poor’s historic downgrade of US government debt, an event that triggered financial-market turmoil all over the world. Extraordinary levels of volatility persisted in the months that followed as the debt situation in Europe intensified. Macro-level news drove asset prices broadly up and down in lockstep, in a “risk on” — ”risk off” trading pattern. Equity markets crumbled while safe-haven assets such as US Treasuries and gold rallied to historic highs by the end of the third quarter of 2011.

By October, however, improving economic data and more concerted efforts among European leaders toward stemming the region’s debt crisis drew investors back to the markets. Improving sentiment carried over into early 2012 as investors saw some relief from the world’s financial woes. Risk assets (including stocks, commodities and high yield bonds) moved boldly higher through the first two months of 2012 while climbing Treasury yields pressured higher-quality fixed income assets.

However, risk assets reversed course in the spring when Europe’s debt problems boiled over once again. Markets became highly volatile as political instability in Greece threatened the country’s membership in the euro zone. Spain faced severe deficit issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian government debt rose to levels deemed unsustainable. European leaders conferred and debated vehemently over the need for fiscal integration among the 17 euro-zone nations to resolve the crisis for the long term.

Alongside the drama in Europe, investors were discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key powerhouse for global growth, became particularly worrisome. In the United States, disappointing jobs reports dealt a crushing blow to sentiment. Risk assets sold off through April and May as investors ran back to safe havens including US, German and UK government debt as well as gold. As the period drew to a close, risk assets were beginning to rebound modestly as European leaders stepped up their efforts to move toward fiscal unity and investors anticipated additional stimulus from central banks on both sides of the Atlantic.

All asset classes posted gains for the 6-month period ended June 30, 2012, with US stocks delivering the largest returns. On a 12-month basis, US large-cap stocks generated positive results; however, small-cap stocks finished in negative territory and international and emerging equities, which experienced significant downturns in 2011, lagged the broader rebound. Among fixed income asset classes, safe-haven US Treasury bonds and municipal bonds outperformed corporate credits for the 12-month period. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities. We remain committed to working with you and your financial professional to identify actionable ideas for your portfolio. We encourage you to visit www.blackrock.com/newworld for more information.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of June 30, 2012
	6-month			12-month
US large cap equities (S&P 500® Index)		9.49	%		5.45	%
US small cap equities (Russell 2000® Index)		8.53			(2.08	)
International equities (MSCI Europe, Australasia, Far East Index)		2.96			(13.83	)
Emerging market equities (MSCI Emerging Markets Index)		3.93			(15.95	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.04			0.05
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		3.44			17.36
US investment grade bonds (Barclays US Aggregate Bond Index)		2.37			7.47
Tax-exempt municipal bonds (S&P Municipal Bond Index)		4.14			10.16
US high yield bonds (Barclays US Corporate High Yield 2% Issuer Capped Index)		7.23			7.21
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 IS NOT PART OF YOUR FUND REPORT 3

Portfolio Summary as of June 30, 2012 LifePath Portfolios

Portfolio Management Commentary

How did each Portfolio perform?

Ÿ All share classes of the LifePath Portfolios with target dates of 2020, 2030, 2040, 2050 and LifePath Retirement Portfolio (together, the “LifePath Portfolios”) invest in their respective LifePath Master Portfolio.

Ÿ For the six-month period ended June 30, 2012, all of the LifePath Portfolios underperformed their respective custom benchmarks. The returns for the LifePath Portfolios include fund expenses. The custom benchmarks have no expenses associated with performance.

What factors influenced performance?

Ÿ Equity markets generally outperformed fixed income markets during the period. While all of the LifePath Portfolios generated positive absolute returns for the period, those with longer time horizons benefited most from the strong performance of equities given their larger allocations to equity investments.

Ÿ The LifePath Portfolios underperformed relative to their respective custom benchmarks primarily due to their investment in the Active Stock Master Portfolio (“Active Stock”), which is held in greater proportions in the longer-dated LifePath Portfolios. Active Stock invests in BlackRock’s Scientific Active Large Cap Equity strategy and four fundamental active large cap strategies including Large Cap Growth, Fundamental Large Cap Growth, Basic Value and Equity Dividend. All of the strategies delivered strong performance in the first quarter of 2012 as equity markets broadly rallied; however, the Fundamental Large Cap Growth and Basic Value strategies underperformed as risk assets sold off amid heightened uncertainty in the second quarter. In addition, stock selection within information technology and financials, as well as underweight positioning

in the defensive consumer staples sector, contributed to Active Stock’s underperformance relative to its benchmark, the Russell 1000^® Index.

Ÿ Contributing positively to the LifePath Portfolios’ performance relative to their respective custom benchmarks was their investment in the Core- Alpha Bond Master Portfolio (“CoreAlpha Bond”). CoreAlpha Bond performed well as a result of its overweight allocation (relative to its benchmark, the Barclays US Aggregate Bond Index) in high-quality securitized credit assets as well as security selection among industrial and financial names. An overweight to asset-backed securities also had a positive impact on CoreAlpha Bond’s returns, as did out-of-index exposure to high yield debt and non-agency residential mortgage-backed securities (“MBS”). Additionally, CoreAlpha Bond’s security selection in agency MBS and its long duration bias enhanced results for the period.

Describe recent portfolio activity.

Ÿ 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 shareholders’ remaining investment time horizon. During the period, the LifePath Portfolios were rebalanced in accordance with their updated strategic allocations, and daily cash flows were allocated to the underlying funds and instruments as appropriate.

Describe portfolio positioning at period end.

Ÿ 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.

Glidepath Evolution

Under normal circumstances, the asset allocation of each LifePath Portfolio (the “Portfolio” or “each Portfolio”) will change over time according to a “glidepath” as each of the Portfolios approaches its respective target date. The glidepath represents the shifting of asset classes over time. Each Portfolio’s asset mix becomes more conservative prior to retirement as time elapses. This reflects the need for reduced investment risks as retirement approaches and the need for lower volatility of each Portfolio, which may be a primary source of income after retirement. As each Portfolio approaches its target date, its asset allocation will shift so that each Portfolio invests a greater percentage of its assets in fixed income funds. The asset allocation targets are established by a committee of BlackRock investment professionals that includes the portfolio managers. The investment team, including the portfolio managers and this investment committee, meets regularly to assess market conditions, review the asset allocation targets of each Portfolio,

and determine whether any changes are required to enable each Portfolio to achieve its investment objective.

Although the asset allocation targets listed for the glidepath are general, long-term targets, BlackRock investment professionals may periodically adjust the proportion of equity and fixed income funds in each Portfolio, based on an assessment of the current market conditions, the potential contribution of each asset class to the expected risk and return characteristics of each Portfolio, reallocations of each Portfolio’s composition to reflect intra-year movement along the glidepath and other factors. In general, such adjustments will be limited, however, BlackRock investment professionals may determine that a greater degree of variation is warranted to protect each Portfolio or achieve each Portfolio’s investment objective.

4 BLACKROCK FUNDS III JUNE 30, 2012

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  Assuming maximum sales charges, transaction costs and other operating expenses, including advisory fees, if any. Institutional Shares do not have a sales charge.

²  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath Retirement Portfolio 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.

³  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

Period	Barclays US Aggregate Bond Index			Barclays US Treasury Inflation Protected Securities (TIPS) Index			Cohen & Steers Realty Majors Index			FTSE EPRA /NAREIT Developed Real Estate Index			MSCI ACWI ex-US IMI Index			MSCI EAFE Index			Russell 1000® Index			Russell 2000® Index			S&P MidCap 400® Index			S&P 500® Index			S&P SmallCap 600® Index
7/01/02 to 6/30/03		65.0	%		N/A			N/A			N/A			N/A			9.6	%		N/A			N/A			1.9	%		21.9	%		1.6	%
7/01/03 to 6/30/04		65.0			N/A			N/A			N/A			N/A			8.8			N/A			N/A			2.3			21.8			2.1
7/01/04 to 6/30/05		65.0			N/A			N/A			N/A			N/A			8.6			N/A			N/A			2.4			21.5			2.5
7/01/05 to 6/30/06		58.5			5.1	%		1.3	%		N/A			N/A			9.2			N/A			N/A			3.6			20.5			1.8
7/01/06 to 6/30/07		52.2			9.9			2.8			N/A			N/A			10.2			N/A			N/A			3.6			19.5			1.8
7/01/07 to 6/30/08		52.8			9.2			2.7			N/A			11.0	%		N/A			N/A			N/A			3.7			18.8			1.8
7/01/08 to 6/30/09		53.0			9.0			N/A			2.0	%		11.3			N/A			N/A			N/A			4.5			18.1			2.1
7/01/09 to 6/30/10		52.9			9.1			N/A			1.5			10.7			N/A			N/A			N/A			4.9			18.7			2.2
7/01/10 to 6/30/11		53.0			9.1			N/A			0.9			10.9			N/A			N/A			N/A			4.9			19.1			2.1
7/01/11 to 6/30/12		52.9			9.0			N/A			0.5			11.7			N/A			19.8	%		3.9	%		0.4			1.6			0.2

See “About Portfolio Performance” on page 15 for descriptions of the indexes.

BLACKROCK FUNDS III JUNE 30, 2012 5

LifePath^® Retirement Portfolio (concluded)

Performance Summary for the Period Ended June 30, 2012

				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		4.11	%		3.97	%		N/A			3.87	%		N/A			5.21	%		N/A			5.75	%1		N/A
Investor A		4.08			3.72			(1.72	)%		3.61			2.50	%		5.20			4.64	%		6.02	2		5.40	%2
Investor C		3.63			2.97			1.99			N/A			N/A			N/A			N/A			4.99	3		4.99	3
Class K		4.30			4.36			N/A			N/A			N/A			N/A			N/A			4.47	4		N/A
Class R		3.91			3.43			N/A			N/A			N/A			N/A			N/A			5.49	3		N/A
Citigroup 3-Month Treasury Bill Index		0.03			0.04			N/A			0.87			N/A			1.77			N/A			N/A			N/A
Barclays US Aggregate Bond Index		2.37			7.47			N/A			6.79			N/A			5.63			N/A			N/A			N/A
LifePath Retirement Portfolio Custom Benchmark		4.59			4.50			N/A			4.49			N/A			6.06			N/A			N/A			N/A
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		N/A			(4.46	)		N/A			7.19			N/A			N/A			N/A
Russell 1000® Index		9.38			4.37			N/A			0.39			N/A			5.72			N/A			N/A			N/A
Russell 2000® Index		8.53			(2.08	)		N/A			0.54			N/A			7.00			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 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 4.43%, without sales charge.

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.

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

6 BLACKROCK FUNDS III JUNE 30, 2012

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  Assuming maximum sales charges, transaction costs and other operating expenses, including advisory fees, if any. Institutional Shares do not have a sales charge.

²  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2020 Portfolio 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.

³  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

Period	Barclays US Aggregate Bond Index			Barclays US Treasury Inflation Protected Securities (TIPS) Index			Cohen & Steers Realty Majors Index			FTSE EPRA /NAREIT Developed Real Estate Index			MSCI ACWI ex-US IMI Index			MSCI EAFE Index			Russell 1000® Index			Russell 2000® Index			S&P MidCap 400® Index			S&P 500® Index			S&P SmallCap 600® Index
7/01/02 to 6/30/03		34.5	%		N/A			N/A			N/A			N/A			16.5	%		N/A			N/A			3.6	%		42.3	%		3.1	%
7/01/03 to 6/30/04		35.9			N/A			N/A			N/A			N/A			15.5			N/A			N/A			3.3			42.3			3.0
7/01/04 to 6/30/05		34.8			N/A			N/A			N/A			N/A			15.8			N/A			N/A			3.1			43.1			3.2
7/01/05 to 6/30/06		32.0			2.6	%		2.1	%		N/A			N/A			16.2			N/A			N/A			5.2			39.4			2.5
7/01/06 to 6/30/07		29.2			5.1			4.4			N/A			N/A			17.0			N/A			N/A			5.4			36.1			2.8
7/01/07 to 6/30/08		30.5			5.0			4.5			N/A			17.9	%		N/A			N/A			N/A			5.5			33.9			2.7
7/01/08 to 6/30/09		32.7			5.3			N/A			4.5	%		18.0			N/A			N/A			N/A			5.9			30.8			2.8
7/01/09 to 6/30/10		34.5			5.6			N/A			4.7			16.5			N/A			N/A			N/A			5.9			30.1			2.7
7/01/10 to 6/30/11		36.0			5.8			N/A			3.7			16.5			N/A			N/A			N/A			5.6			30.0			2.4
7/01/11 to 6/30/12		37.9			6.1			N/A			3.4			16.5			N/A			29.6	%		3.4	%		0.5			2.4			0.2

See “About Portfolio Performance” on page 15 for descriptions of the indexes.

BLACKROCK FUNDS III JUNE 30, 2012 7

LifePath 2020 Portfolio^® (concluded)

Performance Summary for the Period Ended June 30, 2012

				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		5.21	%		1.90	%		N/A			1.47	%		N/A			5.26	%		N/A			6.76	%1		N/A
Investor A		4.99			1.59			(3.74	)%		1.20			0.11	%		5.00			4.44	%		3.95	2		3.41	%2
Investor C		4.64			0.86			(0.09	)		N/A			N/A			N/A			N/A			4.69	3		4.69	3
Class K		5.34			2.15			N/A			N/A			N/A			N/A			N/A			2.31	4		N/A
Class R		4.90			1.42			N/A			N/A			N/A			N/A			N/A			5.24	3		N/A
Citigroup 3-Month Treasury Bill Index		0.03			0.04			N/A			0.87			N/A			1.77			N/A			N/A			N/A
Barclays US Aggregate Bond Index		2.37			7.47			N/A			6.79			N/A			5.63			N/A			N/A			N/A
LifePath 2020 Portfolio Custom Benchmark		5.68			2.65			N/A			2.35			N/A			6.03			N/A			N/A			N/A
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		N/A			(4.46	)		N/A			7.19			N/A			N/A			N/A
Russell 1000® Index		9.38			4.37			N/A			0.39			N/A			5.72			N/A			N/A			N/A
Russell 2000® Index		8.53			(2.08	)		N/A			0.54			N/A			7.00			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 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 3.28%, without sales charge.

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.

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

8 BLACKROCK FUNDS III JUNE 30, 2012

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  Assuming maximum sales charges, transaction costs and other operating expenses, including advisory fees, if any. Institutional Shares do not have a sales charge.

²  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2030 Portfolio 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.

³  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

Period	Barclays US Aggregate Bond Index			Barclays US Treasury Inflation Protected Securities (TIPS) Index			Cohen & Steers Realty Majors Index			FTSE EPRA /NAREIT Developed Real Estate Index			MSCI ACWI ex-US IMI Index			MSCI EAFE Index			Russell 1000® Index			Russell 2000® Index			S&P MidCap 400® Index			S&P 500® Index			S&P SmallCap 600® Index
7/01/02 to 6/30/03		23.2	%		N/A			N/A			N/A			N/A			19.2	%		N/A			N/A			4.3	%		49.7	%		3.6	%
7/01/03 to 6/30/04		23.2			N/A			N/A			N/A			N/A			18.9			N/A			N/A			3.8			50.7			3.4
7/01/04 to 6/30/05		21.2			N/A			N/A			N/A			N/A			19.1			N/A			N/A			3.5			52.7			3.5
7/01/05 to 6/30/06		19.3			1.3	%		2.5	%		N/A			N/A			19.5			N/A			N/A			6.0			48.5			2.9
7/01/06 to 6/30/07		17.1			2.7			5.2			N/A			N/A			20.6			N/A			N/A			6.4			44.7			3.3
7/01/07 to 6/30/08		18.0			2.7			5.5			N/A			21.7	%		N/A			N/A			N/A			6.5			42.4			3.2
7/01/08 to 6/30/09		20.0			2.9			N/A			6.1	%		22.2			N/A			N/A			N/A			6.8			38.8			3.2
7/01/09 to 6/30/10		21.6			3.2			N/A			7.0			20.6			N/A			N/A			N/A			6.6			38.0			3.0
7/01/10 to 6/30/11		22.6			3.3			N/A			5.9			20.9			N/A			N/A			N/A			6.2			38.4			2.7
7/01/11 to 6/30/12		24.5			3.6			N/A			6.0			20.8			N/A			38.4	%		2.9	%		0.5			3.1			0.2

See “About Portfolio Performance” on page 15 for descriptions of the indexes.

BLACKROCK FUNDS III JUNE 30, 2012 9

LifePath 2030 Portfolio^® (concluded)

Performance Summary for the Period Ended June 30, 2012

				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		6.07	%		0.06	%		N/A			0.03	%		N/A			5.12	%		N/A			6.92	%1		N/A
Investor A		5.87			(0.23	)		(5.47	)%		(0.23	)		(1.30	)%		4.82			4.26	%		6.23	2		5.61	%2
Investor C		5.50			(0.92	)		(1.89	)		N/A			N/A			N/A			N/A			4.35	3		4.35	3
Class K		6.18			0.43			N/A			N/A			N/A			N/A			N/A			1.01	4		N/A
Class R		5.77			(0.42	)		N/A			N/A			N/A			N/A			N/A			4.87	3		N/A
Citigroup 3-Month Treasury Bill Index		0.03			0.04			N/A			0.87			N/A			1.77			N/A			N/A			N/A
Barclays US Aggregate Bond Index		2.37			7.47			N/A			6.79			N/A			5.63			N/A			N/A			N/A
LifePath 2030 Portfolio Custom Benchmark		6.60			1.04			N/A			1.09			N/A			5.92			N/A			N/A			N/A
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		N/A			(4.46	)		N/A			7.19			N/A			N/A			N/A
Russell 1000® Index		9.38			4.37			N/A			0.39			N/A			5.72			N/A			N/A			N/A
Russell 2000® Index		8.53			(2.08	)		N/A			0.54			N/A			7.00			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 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 2.79%, without sales charge.

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.

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

10 BLACKROCK FUNDS III JUNE 30, 2012

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  Assuming maximum sales charges, transaction costs and other operating expenses, including advisory fees, if any. Institutional Shares do not have a sales charge.

²  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2040 Portfolio 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.

³  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

Period	Barclays US Aggregate Bond Index			Barclays US Treasury Inflation Protected Securities (TIPS) Index			Cohen & Steers Realty Majors Index			FTSE EPRA/ NAREIT Developed Real Estate Index			MSCI ACWI ex-US IMI Index			MSCI EAFE Index			Russell 1000® Index			Russell 2000® Index			S&P MidCap 400® Index			S&P 500® Index			S&P SmallCap 600® Index
7/01/02 to 6/30/03		7.8	%		N/A			N/A			N/A			N/A			20.0	%		N/A			N/A			5.2	%		62.2	%		4.8	%
7/01/03 to 6/30/04		12.1			N/A			N/A			N/A			N/A			20.0			N/A			N/A			4.4			59.5			4.0
7/01/04 to 6/30/05		10.1			N/A			N/A			N/A			N/A			20.0			N/A			N/A			3.9			62.0			4.0
7/01/05 to 6/30/06		9.1			N/A			2.8	%		N/A			N/A			21.2			N/A			N/A			6.8			56.8			3.3
7/01/06 to 6/30/07		7.7			N/A			5.9			N/A			N/A			23.5			N/A			N/A			7.2			52.0			3.7
7/01/07 to 6/30/08		8.3			0.1	%		6.4			N/A			18.8	%		6.1			N/A			N/A			7.4			49.3			3.6
7/01/08 to 6/30/09		9.5			1.0			N/A			7.4	%		25.7			N/A			N/A			N/A			7.6			45.2			3.6
7/01/09 to 6/30/10		11.0			1.1			N/A			8.9			24.0			N/A			N/A			N/A			7.1			44.7			3.2
7/01/10 to 6/30/11		11.8			1.2			N/A			7.7			24.5			N/A			N/A			N/A			6.6			45.3			2.9
7/01/11 to 6/30/12		13.9			1.5			N/A			8.1			24.2			N/A			45.4	%		2.5	%		0.6			3.6			0.2

See “About Portfolio Performance” on page 15 for descriptions of the indexes.

BLACKROCK FUNDS III JUNE 30, 2012 11

LifePath 2040 Portfolio^® (concluded)

Performance Summary for the Period Ended June 30, 2012

				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		6.68	%		(1.49	)%		N/A			(1.23	)%		N/A			4.93	%		N/A			6.96	%1		N/A
Investor A		6.53			(1.72	)		(6.88	)%		(1.48	)		(2.53	)%		4.70			4.14	%		6.23	2		5.61	%2
Investor C		6.19			(2.45	)		(3.41	)		N/A			N/A			N/A			N/A			4.02	3		4.02	3
Class K		6.83			(1.06	)		N/A			N/A			N/A			N/A			N/A			(0.14	)4		N/A
Class R		6.45			(1.95	)		N/A			N/A			N/A			N/A			N/A			4.54	3		N/A
Citigroup 3-Month Treasury Bill Index		0.03			0.04			N/A			0.87			N/A			1.77			N/A			N/A			N/A
Barclays US Aggregate Bond Index		2.37			7.47			N/A			6.79			N/A			5.63			N/A			N/A			N/A
LifePath 2040 Portfolio Custom Benchmark		7.32			(0.34	)		N/A			(0.04	)		N/A			5.75			N/A			N/A			N/A
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		N/A			(4.46	)		N/A			7.19			N/A			N/A			N/A
Russell 1000® Index		9.38			4.37			N/A			0.39			N/A			5.72			N/A			N/A			N/A
Russell 2000® Index		8.53			(2.08	)		N/A			0.54			N/A			7.00			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 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%, without sales charge.

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.

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

12 BLACKROCK FUNDS III JUNE 30, 2012

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  Assuming maximum sales charges, transaction costs and other operating expenses, including advisory fees, if any. Institutional Shares do not have a sales charge.

²  The LifePath Portfolio compares its performance to that of a customized weighted index (the “LifePath 2050 Portfolio 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.

³  The Russell 1000 Index and the Russell 2000 Index replaced the S&P 1500 Index on July 29, 2011.

⁴  Commencement of operations.

Period	Barclays US Aggregate Bond Index			FTSE EPRA/NAREIT Developed Real Estate Index			MSCI ACWI ex-US IMI Index			Russell 1000® Index			Russell 2000® Index			S&P MidCap 400®  Index			S&P  500® Index			S&P SmallCap 600®  Index
6/30/08 to 6/30/09		1.0	%		5.4	%		30.0	%		N/A			N/A			10.6	%		48.0	%		5.0	%
7/01/09 to 6/30/10		1.0			10.5			27.2			N/A			N/A			8.2			49.4			3.7
7/01/10 to 6/30/11		1.7			9.5			27.7			N/A			N/A			7.2			50.8			3.1
7/01/11 to 6/30/12		4.1			10.1			27.2			51.4	%		2.2	%		0.6			4.1			0.3

See “About Portfolio Performance” on page 15 for descriptions of the indexes.

BLACKROCK FUNDS III JUNE 30, 2012 13

LifePath^® 2050 Portfolio (concluded)

Performance Summary for the Period Ended June 30, 2012

				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		7.20	%		(2.82	)%		N/A			0.85	%1		N/A
Investor A		7.08			(3.05	)		(8.14	)%		0.59	1		(0.75	)%1
Investor C		6.66			(3.74	)		(4.68	)		3.73	2		3.73	2
Class K		7.42			(2.46	)		N/A			1.19	1		N/A
Class R		7.00			(3.25	)		N/A			4.26	2		N/A
Citigroup 3-Month Treasury Bill Index		0.03			0.04			N/A			N/A			N/A
Barclays US Aggregate Bond Index		2.37			7.47			N/A			N/A			N/A
LifePath 2050 Portfolio Custom Benchmark		7.94			(1.57	)		N/A			N/A			N/A
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		N/A			N/A			N/A
Russell 1000® Index		9.38			4.37			N/A			N/A			N/A
Russell 2000® Index		8.53			(2.08	)		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.

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

14 BLACKROCK FUNDS III JUNE 30, 2012

About Portfolio Performance BlackRock Funds III

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

Ÿ Investor A Shares are subject to a maximum initial sales charge (front-end load) of 5.25% and a service fee of 0.25% per year (but no distribution fee).

Ÿ Investor C Shares are subject to a 1.00% contingent deferred sales charge (“CDSC”) if redeemed within one year of purchase. In addition, these shares are subject to a distribution fee of 0.75% per year and a service fee of 0.25% per year.

Ÿ 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.

Ÿ Class R Shares are not subject to any sales charge (front-end load) or deferred sales charge. These shares are subject to a distribution fee of 0.25% per year and a service fee of 0.25% per year. These shares are available only to certain retirement and other similar plans.

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 (“NAV”) on the ex-dividend. 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 administration and distribution fees applicable to each class, which are deducted from the income available to be paid to shareholders. The LifePath Portfolios’ administrator waived and/or reimbursed a portion of each LifePath Portfolio’s expenses. Without such waiver, each LifePath Portfolio’s performance would have been lower.

The Russell 3000 Index is comprised of the Russell 1000 Index and the Russell 2000 Index, which together represent approximately 98% of the total US equity market. The Barclays US Aggregate Bond Index (formerly 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 June 30, 2012, the following indexes are used to calculate the LifePath Portfolios’ custom benchmarks: Barclays US Aggregate Bond Index, Barclays US 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

Active Stock Master Portfolio may invest in various derivative financial instruments, including financial futures contracts, as specified in Note 2 of the Master Portfolio Notes to Financial Statements, which may constitute forms of economic leverage. Such derivative financial instruments are used to obtain exposure to a security, index and/or 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. Active Stock Master Portfolio’s ability to use a derivative financial instrument success-

fully 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 Active Stock Master Portfolio to sell or purchase portfolio investments at inopportune times or for distressed values, may limit the amount of appreciation Active Stock Master Portfolio can realize on an investment, may result in lower dividends paid to shareholders or may cause Active Stock Master Portfolio to hold an investment that it might otherwise sell. Active Stock Master Portfolio’s investments in these instruments are discussed in detail in the Master Portfolio’s Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 15

Disclosure of Expenses BlackRock Funds III

Shareholders of each LifePath Portfolio 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 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 January 1, 2012 and held through June 30, 2012) 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 expense examples 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 expense examples 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 examples with the 5% hypothetical examples that appear in other funds’ shareholder reports.

The expenses shown in the expense examples 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 January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the Period1		Beginning Account Value January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the Period1		Annualized Expense Ratio
LifePath® Retirement Portfolio
Institutional		$1,000.00		$1,041.10		$4.01		$1,000.00		$1,020.94		$3.97		0.79%
Investor A		$1,000.00		$1,040.80		$5.28		$1,000.00		$1,019.69		$5.22		1.04%
Investor C		$1,000.00		$1,036.30		$9.11		$1,000.00		$1,015.91		$9.02		1.80%
Class K		$1,000.00		$1,043.00		$2.24		$1,000.00		$1,022.68		$2.21		0.44%
Class R		$1,000.00		$1,039.10		$6.54		$1,000.00		$1,018.45		$6.47		1.29%
LifePath 2020 Portfolio®
Institutional		$1,000.00		$1,052.10		$3.88		$1,000.00		$1,021.08		$3.82		0.76%
Investor A		$1,000.00		$1,049.90		$5.15		$1,000.00		$1,019.84		$5.07		1.01%
Investor C		$1,000.00		$1,046.40		$9.01		$1,000.00		$1,016.06		$8.87		1.77%
Class K		$1,000.00		$1,053.40		$2.09		$1,000.00		$1,022.83		$2.06		0.41%
Class R		$1,000.00		$1,049.00		$6.42		$1,000.00		$1,018.60		$6.32		1.26%
LifePath 2030 Portfolio®
Institutional		$1,000.00		$1,060.70		$3.79		$1,000.00		$1,021.18		$3.72		0.74%
Investor A		$1,000.00		$1,058.70		$5.07		$1,000.00		$1,019.94		$4.97		0.99%
Investor C		$1,000.00		$1,055.00		$8.89		$1,000.00		$1,016.21		$8.72		1.74%
Class K		$1,000.00		$1,061.80		$2.00		$1,000.00		$1,022.92		$1.96		0.39%
Class R		$1,000.00		$1,057.70		$6.40		$1,000.00		$1,018.65		$6.27		1.25%
LifePath 2040 Portfolio®
Institutional		$1,000.00		$1,066.80		$3.70		$1,000.00		$1,021.28		$3.62		0.72%
Investor A		$1,000.00		$1,065.30		$4.98		$1,000.00		$1,020.04		$4.87		0.97%
Investor C		$1,000.00		$1,061.90		$8.87		$1,000.00		$1,016.26		$8.67		1.73%
Class K		$1,000.00		$1,068.30		$1.90		$1,000.00		$1,023.02		$1.86		0.37%
Class R		$1,000.00		$1,064.50		$6.26		$1,000.00		$1,018.80		$6.12		1.22%
LifePath® 2050 Portfolio
Institutional		$1,000.00		$1,072.00		$3.66		$1,000.00		$1,021.33		$3.57		0.71%
Investor A		$1,000.00		$1,070.80		$4.94		$1,000.00		$1,020.09		$4.82		0.96%
Investor C		$1,000.00		$1,066.60		$8.84		$1,000.00		$1,016.31		$8.62		1.72%
Class K		$1,000.00		$1,074.20		$1.86		$1,000.00		$1,023.07		$1.81		0.36%
Class R		$1,000.00		$1,070.00		$6.28		$1,000.00		$1,018.80		$6.12		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 182/366 (to reflect the one-half year period shown). Because each LifePath Portfolio invests significantly in a Master Portfolio, the expense examples reflect 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 366.

16 BLACKROCK FUNDS III JUNE 30, 2012

Statements of Assets and Liabilities BlackRock Funds III

June 30, 2012 (Unaudited)	LifePath Retirement Portfolio			LifePath 2020 Portfolio			LifePath 2030 Portfolio			LifePath 2040 Portfolio			LifePath 2050 Portfolio
Assets
Investments at value — from the applicable Master Portfolio1	$	585,406,878		$	1,093,729,939		$	960,940,694		$	767,668,876		$	121,368,345
Capital shares sold receivable		615,862			973,232			1,262,525			1,228,192			584,729
Withdrawals receivable from the Master Portfolio		215,339			942,718			—			—			—
Total assets		586,238,079			1,095,645,889			962,203,219			768,897,068			121,953,074
Liabilities
Capital shares redeemed payable		831,201			1,915,950			1,153,466			402,184			260,292
Contributions payable to the Master Portfolio		—			—			109,059			826,008			324,437
Income dividends payable		179,948			252,144			250,407			245,589			26,794
Administration fees payable		235,565			440,961			382,950			303,984			46,080
Capital gain distributions payable		81,788			—			2,886			—			2,637
Service and distribution fees payable		38,271			86,444			70,584			49,719			7,321
Professional fees payable		10,844			10,844			10,844			10,844			10,844
Total liabilities		1,377,617			2,706,343			1,980,196			1,838,328			678,405
Net Assets	$	584,860,462		$	1,092,939,546		$	960,223,023		$	767,058,740		$	121,274,669
Net Assets Consist of
Paid-in capital	$	526,389,777		$	998,630,763		$	906,674,805		$	702,443,282		$	116,714,391
Undistributed (distributions in excess of) net investment income		(416,162	)		(1,095,813	)		(344,847	)		(139,829	)		21,007
Accumulated net realized gain (loss) allocated from the Master Portfolio		11,112,189			(23,956,593	)		(16,921,069	)		(14,694,385	)		1,654,327
Net unrealized appreciation/depreciation allocated from the Master Portfolio		47,774,658			119,361,189			70,814,134			79,449,672			2,884,944
Net Assets	$	584,860,462		$	1,092,939,546		$	960,223,023		$	767,058,740		$	121,274,669
Net Asset Value
Institutional
Net assets	$	392,017,666		$	663,492,405		$	604,563,583		$	514,104,728		$	83,594,138
Shares outstanding2		33,468,604			41,847,512			40,797,751			28,661,323			4,591,004
Net asset value	$	11.71		$	15.86		$	14.82		$	17.94		$	18.21
Investor A
Net assets	$	188,624,350		$	423,618,749		$	349,190,963		$	246,776,535		$	36,852,933
Shares outstanding2		17,481,883			28,215,665			24,091,197			14,447,170			2,024,849
Net asset value	$	10.79		$	15.01		$	14.49		$	17.08		$	18.20
Maximum offering price per share (100/94.75 of net asset value)	$	11.39		$	15.84		$	15.29		$	18.03		$	19.21
Investor C
Net assets	$	144,974		$	708,623		$	279,534		$	532,205		$	107,769
Shares outstanding2		12,427			44,932			18,979			29,823			5,944
Net asset value	$	11.67		$	15.77		$	14.73		$	17.85		$	18.13
Class K
Net assets	$	4,008,149		$	4,359,020		$	5,746,169		$	4,877,742		$	558,479
Shares outstanding2		342,851			275,295			387,722			270,793			30,577
Net asset value	$	11.69		$	15.83		$	14.82		$	18.01		$	18.26
Class R
Net assets	$	65,323		$	760,749		$	442,774		$	767,530		$	161,350
Shares outstanding2		5,590			48,095			29,974			42,935			8,877
Net asset value	$	11.68	3	$	15.82		$	14.77		$	17.88		$	18.18
1   Cost — from the applicable Master Portfolio	$	537,632,220		$	974,368,750		$	890,126,560		$	688,219,204		$	118,483,401

²  No par value, unlimited number of shares authorized.

³  The net asset value is calculated based on net assets of $65,322.92 and shares outstanding of 5,590.404.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	17

Statements of Operations BlackRock Funds III

Six Months Ended June 30, 2012 (Unaudited)	LifePath Retirement Portfolio			LifePath 2020 Portfolio			LifePath 2030 Portfolio			LifePath 2040 Portfolio			LifePath 2050 Portfolio
Investment Income
Net investment income allocated from the applicable Master Portfolio:
Interest — affiliated	$	4,481,867		$	6,140,958		$	3,506,150		$	1,634,916		$	87,549
Dividends — affiliated		3,503,786			8,921,661			9,573,096			8,784,312			1,494,658
Securities lending — affiliated		15,374			35,591			33,497			24,982			6,251
Income — affiliated		1,430			2,739			2,399			1,911			372
Expenses		(1,738,650	)		(3,263,811	)		(2,818,009	)		(2,245,402	)		(350,766	)
Fees waived		862,353			1,764,162			1,627,354			1,372,199			223,077
Total income		7,126,160			13,601,300			11,924,487			9,572,918			1,461,141
Expenses
Administration		1,518,653			2,869,329			2,484,871			1,967,347			296,393
Service — Investor A		231,654			516,116			433,071			302,261			44,185
Service and distribution — Investor C		597			2,947			980			2,078			477
Service and distribution — Class R		153			1,689			793			1,538			328
Professional		9,546			9,546			9,546			9,546			9,546
Total expenses		1,760,603			3,399,627			2,929,261			2,282,770			350,929
Less fees waived by administrator		(9,546	)		(9,546	)		(9,546	)		(9,546	)		(9,546	)
Total expenses after fees waived		1,751,057			3,390,081			2,919,715			2,273,224			341,383
Net investment income		5,375,103			10,211,219			9,004,772			7,299,694			1,119,758
Realized and Unrealized Gain Allocated from the Master Portfolios
Net realized gain from investments, financial futures contracts, swaps and foreign currency transactions		8,318,174			17,457,983			14,063,742			11,934,463			844,138
Net change in unrealized appreciation/depreciation on investments, financial futures contracts, swaps and foreign currency transactions		11,107,809			30,129,756			34,635,627			30,186,264			5,035,190
Total realized and unrealized gain		19,425,983			47,587,739			48,699,369			42,120,727			5,879,328
Net Increase in Net Assets Resulting from Operations	$	24,801,086		$	57,798,958		$	57,704,141		$	49,420,421		$	6,999,086

See Notes to Financial Statements.
18	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Changes in Net Assets BlackRock Funds III

	LifePath Retirement Portfolio						LifePath 2020 Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	5,375,103		$	14,580,793		$	10,211,219		$	24,446,937
Net realized gain		8,318,174			41,995,331			17,457,983			75,927,187
Net change in unrealized appreciation/depreciation		11,107,809			(31,336,679	)		30,129,756			(81,367,233	)
Net increase in net assets resulting from operations		24,801,086			25,239,445			57,798,958			19,006,891
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(3,840,025	)		(10,236,151	)		(6,643,705	)		(16,447,568	)
Investor A		(1,785,698	)		(4,275,518	)		(3,912,607	)		(7,869,105	)
Investor C		(799	)		(456	)		(4,059	)		(2,279	)
Class K		(46,484	)		(64,821	)		(55,507	)		(113,033	)
Class R		(489	)		(685	)		(5,907	)		(1,386	)
Net realized gain:
Institutional		(1,171,196	)		(13,363,681	)		—			(30,476,493	)
Investor A		(613,797	)		(6,141,919	)		—			(16,228,359	)
Investor C		(436	)		(1,658	)		—			(10,481	)
Class K		(11,951	)		(127,622	)		—			(232,409	)
Class R		(195	)		(1,249	)		—			(6,211	)
Decrease in net assets resulting from dividends and distributions to shareholders		(7,471,070	)		(34,213,760	)		(10,621,785	)		(71,387,324	)
Capital Share Transactions
Net decrease in net assets derived from capital share transactions		(52,823,990	)		(43,210,433	)		(114,493,203	)		(10,235,703	)
Net Assets
Total decrease in net assets		(35,493,974	)		(52,184,748	)		(67,316,030	)		(62,616,136	)
Beginning of period		620,354,436			672,539,184			1,160,255,576			1,222,871,712
End of period	$	584,860,462		$	620,354,436		$	1,092,939,546		$	1,160,255,576
Distributions in excess of net investment income	$	(416,162	)	$	(117,770	)	$	(1,095,813	)	$	(685,247	)

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	19

Statements of Changes in Net Assets (continued) BlackRock Funds III

	LifePath 2030 Portfolio						LifePath 2040 Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	9,004,772		$	18,795,428		$	7,299,694		$	13,496,738
Net realized gain		14,063,742			61,537,208			11,934,463			48,872,629
Net change in unrealized appreciation/depreciation		34,635,627			(87,579,262	)		30,186,264			(82,350,608	)
Net increase (decrease) in net assets resulting from operations		57,704,141			(7,246,626	)		49,420,421			(19,981,241	)
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(6,038,740	)		(12,860,342	)		(5,062,273	)		(9,617,428	)
Investor A		(3,105,967	)		(5,790,050	)		(2,254,502	)		(3,802,401	)
Investor C		(1,695	)		(1,039	)		(3,470	)		(404	)
Class K		(69,065	)		(85,036	)		(55,474	)		(45,690	)
Class R		(3,410	)		(1,547	)		(5,879	)		(3,323	)
Net realized gain:
Institutional		(50,164	)		(7,507,892	)		—			(2,721,253	)
Investor A		(29,732	)		(3,877,262	)		—			(1,212,903	)
Investor C		(23	)		(1,725	)		—			(309	)
Class K		(476	)		(70,970	)		—			(23,338	)
Class R		(37	)		(2,104	)		—			(2,278	)
Decrease in net assets resulting from dividends and distributions to shareholders		(9,299,309	)		(30,197,967	)		(7,381,598	)		(17,429,327	)
Capital Share Transactions
Net increase (decrease) in net assets derived from capital share transactions		(77,088,360	)		20,401,130			(42,369,273	)		23,719,820
Net Assets
Total decrease in net assets		(28,683,528	)		(17,043,463	)		(330,450	)		(13,690,748	)
Beginning of period		988,906,551			1,005,950,014			767,389,190			781,079,938
End of period	$	960,223,023		$	988,906,551		$	767,058,740		$	767,389,190
Distributions in excess of net investment income	$	(344,847	)	$	(130,742	)	$	(139,829	)	$	(57,925	)

See Notes to Financial Statements.
20	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Changes in Net Assets (concluded) BlackRock Funds III

	LifePath 2050 Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	1,119,758		$	1,551,815
Net realized gain		844,138			3,477,747
Net change in unrealized appreciation/depreciation		5,035,190			(10,043,951	)
Net increase (decrease) in net assets resulting from operations		6,999,086			(5,014,389	)
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(794,803	)		(1,153,867	)
Investor A		(303,237	)		(393,898	)
Investor C		(566	)		(256	)
Class K		(6,914	)		(6,355	)
Class R		(1,163	)		(545	)
Net realized gain:
Institutional		(59,134	)		(1,957,237	)
Investor A		(26,050	)		(795,921	)
Investor C		(77	)		(905	)
Class K		(394	)		(13,967	)
Class R		(114	)		(1,319	)
Decrease in net assets resulting from dividends and distributions to shareholders		(1,192,452	)		(4,324,270	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		11,579,082			43,659,392
Net Assets
Total increase in net assets		17,385,716			34,320,733
Beginning of period		103,888,953			69,568,220
End of period	$	121,274,669		$	103,888,953
Undistributed net investment income	$	21,007		$	7,932

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	21

Financial Highlights LifePath Retirement Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	11.39		$	11.55		$	10.80		$	9.42		$	11.46		$	11.59
Net investment income		0.11	1		0.27	1		0.23	1		0.32	1		0.37			0.39
Net realized and unrealized gain (loss)		0.36			0.18			0.76			1.37			(2.06	)		0.12
Net increase (decrease) from investment operations		0.47			0.45			0.99			1.69			(1.69	)		0.51
Dividends and distributions from:
Net investment income		(0.11	)		(0.26	)		(0.22	)		(0.31	)		(0.31	)		(0.37	)
Net realized gain		(0.04	)		(0.35	)		(0.02	)		(0.00	)2		(0.04	)		(0.27	)
Total dividends and distributions		(0.15	)		(0.61	)		(0.24	)		(0.31	)		(0.35	)		(0.64	)
Net asset value, end of period	$	11.71		$	11.39		$	11.55		$	10.80		$	9.42		$	11.46
Total Investment Return3
Based on net asset value		4.11%	4		3.96%			9.33%			18.25%			(15.04	)%		4.50%
Ratios to Average Net Assets5
Total expenses		0.79%	6,7,8		0.77%	9,10		1.11%			1.10%			1.11%			1.12%
Total expenses after fees waived		0.79%	6,7,8		0.77%	9,10		0.76%			0.76%			0.76%			0.77%
Net investment income		1.82%	6,7,8		2.27%	9,10		2.10%			3.13%			3.29%			3.43%
Supplemental Data
Net assets, end of period (000)	$	392,018		$	431,982		$	490,419		$	438,987		$	92,717		$	136,923
Portfolio turnover of the Master Portfolio		6%			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  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 four years ended December 31, 2010, which include gross expenses.

⁶  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.28%.

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

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.30%.

¹⁰  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 Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
22	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath Retirement Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	10.50		$	10.71		$	10.03		$	8.77		$	10.70		$	10.87
Net investment income		0.09	1		0.22	1		0.19	1		0.27	1		0.32			0.36
Net realized and unrealized gain (loss)		0.34			0.16			0.71			1.28			(1.92	)		0.09
Net increase (decrease) from investment operations		0.43			0.38			0.90			1.55			(1.60	)		0.45
Dividends and distributions from:
Net investment income		(0.10	)		(0.24	)		(0.20	)		(0.29	)		(0.29	)		(0.35	)
Net realized gain		(0.04	)		(0.35	)		(0.02	)		(0.00	)2		(0.04	)		(0.27	)
Total dividends and distributions		(0.14	)		(0.59	)		(0.22	)		(0.29	)		(0.33	)		(0.62	)
Net asset value, end of period	$	10.79		$	10.50		$	10.71		$	10.03		$	8.77		$	10.70
Total Investment Return3
Based on net asset value		4.08%	4		3.60%			9.12%			17.96%			(15.24	)%		4.17%
Ratios to Average Net Assets5
Total expenses		1.04%	6,7,8		1.02%	9,10		1.37%			1.34%			1.36%			1.37%
Total expenses after fees waived		1.04%	6,7,8		1.02%	9,10		1.02%			1.00%			1.01%			1.02%
Net investment income		1.61%	6,7,8		2.03%	9,10		1.86%			2.83%			3.11%			3.06%
Supplemental Data
Net assets, end of period (000)	$	188,624		$	183,967		$	181,297		$	147,741		$	25,030		$	22,185
Portfolio turnover of the Master Portfolio		6%			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  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 four years ended December 31, 2010, which include gross expenses.

⁶  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.28%.

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

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.30%.

¹⁰  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 Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	23

Financial Highlights (continued) LifePath Retirement Portfolio

	Investor C
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period May 3, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.36		$	11.55		$	11.22
Net investment income2		0.06			0.17			0.09
Net realized and unrealized gain		0.35			0.16			0.37
Net increase from investment operations		0.41			0.33			0.46
Dividends and distributions from:
Net investment income		(0.06	)		(0.17	)		(0.11	)
Net realized gain		(0.04	)		(0.35	)		(0.02	)
Total dividends and distributions		(0.10	)		(0.52	)		(0.13	)
Net asset value, end of period	$	11.67		$	11.36		$	11.55
Total Investment Return3
Based on net asset value		3.63%	4		2.86%			4.22%	4
Ratios to Average Net Assets5
Total expenses		1.80%	6,7,8		1.78%	9,10		2.11%	6
Total expenses after fees waived		1.80%	6,7,8		1.78%	9,10		1.77%	6
Net investment income		0.97%	6,7,8		1.42%	9,10		1.23%	6
Supplemental Data
Net assets, end of period (000)	$	145		$	55		$	21
Portfolio turnover of the Master Portfolio		6%			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  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.28%.

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

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.30%.

¹⁰  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 Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
24	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath Retirement Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			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	$	11.37		$	11.54		$	10.78		$	9.44		$	11.46
Net investment income		0.13	2		0.32	2		0.28	2		0.35	2		0.25
Net realized and unrealized gain (loss)		0.36			0.17			0.76			1.33			(1.97	)
Net increase (decrease) from investment operations		0.49			0.49			1.04			1.68			(1.72	)
Dividends and distributions from:
Net investment income		(0.13	)		(0.31	)		(0.26	)		(0.34	)		(0.26	)
Net realized gain		(0.04	)		(0.35	)		(0.02	)		(0.00	)3		(0.04	)
Total dividends and distributions		(0.17	)		(0.66	)		(0.28	)		(0.34	)		(0.30	)
Net asset value, end of period	$	11.69		$	11.37		$	11.54		$	10.78		$	9.44
Total Investment Return4
Based on net asset value		4.30%	5		4.27%			9.82%			18.53%			(15.53	)%5
Ratios to Average Net Assets6
Total expenses		0.44%	7,8,9		0.44%	10,11		0.76%			0.74%			0.79%	7
Total expenses after fees waived		0.44%	7,8,9		0.43%	10,11		0.41%			0.40%			0.44%	7
Net investment income		2.18%	7,8,9		2.69%	10,11		2.49%			3.43%			4.08%	7
Supplemental Data
Net assets, end of period (000)	$	4,008		$	4,309		$	769		$	292		$	35
Portfolio turnover of the Master Portfolio		6%			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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.28%.

⁹  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 Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.29%.

¹¹  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 Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	25

Financial Highlights (concluded) LifePath Retirement Portfolio

	Class R
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period May 3, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	11.36		$	11.54		$	11.22
Net investment income2		0.08			0.21			0.14
Net realized and unrealized gain		0.36			0.17			0.36
Net increase from investment operations		0.44			0.38			0.50
Dividends and distributions from:
Net investment income		(0.08	)		(0.21	)		(0.16	)
Net realized gain		(0.04	)		(0.35	)		(0.02	)
Total dividends and distributions		(0.12	)		(0.56	)		(0.18	)
Net asset value, end of period	$	11.68		$	11.36		$	11.54
Total Investment Return3
Based on net asset value		3.91%	4		3.32%			4.55%	4
Ratios to Average Net Assets5
Total expenses		1.29%	6,7,8		1.28%	9,10		1.61%	6
Total expenses after fees waived		1.29%	6,7,8		1.27%	9,10		1.26%	6
Net investment income		1.39%	6,7,8		1.76%	9,10		1.84%	6
Supplemental Data
Net assets, end of period (000)	$	65		$	41		$	33
Portfolio turnover of the Master Portfolio		6%			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  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.28%.

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

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.29%.

¹⁰  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 Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
26	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights LifePath 2020 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	15.22		$	15.92		$	14.62		$	12.32		$	16.98		$	17.48
Net investment income		0.15	1		0.33	1		0.29	1		0.35	1		0.44			0.45
Net realized and unrealized gain (loss)		0.64			(0.09	)		1.28			2.38			(4.67	)		0.14
Net increase (decrease) from investment operations		0.79			0.24			1.57			2.73			(4.23	)		0.59
Dividends and distributions from:
Net investment income		(0.15	)		(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		(0.15	)		(0.94	)		(0.27	)		(0.43	)		(0.43	)		(1.09	)
Net asset value, end of period	$	15.86		$	15.22		$	15.92		$	14.62		$	12.32		$	16.98
Total Investment Return3
Based on net asset value		5.21%	4		1.46%			10.90%			22.71%			(25.42	)%		3.34%
Ratios to Average Net Assets5
Total expenses		0.76%	6,7,8		0.75%	9,10		1.08%			1.08%			1.07%			1.08%
Total expenses after fees waived		0.76%	6,7,8		0.74%	9,10		0.73%			0.72%			0.73%			0.74%
Net investment income		1.83%	6,7,8		2.05%	9,10		1.95%			2.65%			2.65%			2.52%
Supplemental Data
Net assets, end of period (000)	$	663,492		$	752,092		$	843,339		$	663,890		$	432,717		$	781,519
Portfolio turnover of the Master Portfolio		8%			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  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 four years ended December 31, 2010, which include gross expenses.

⁶  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.31%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.10%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.32%.

¹⁰ 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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	27

Financial Highlights (continued) LifePath 2020 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	14.43		$	15.14		$	13.93		$	11.75		$	16.24		$	16.77
Net investment income		0.12	1		0.28	1		0.24	1		0.30	1		0.37			0.38
Net realized and unrealized gain (loss)		0.60			(0.09	)		1.21			2.28			(4.45	)		0.13
Net increase (decrease) from investment operations		0.72			0.19			1.45			2.58			(4.08	)		0.51
Dividends and distributions from:
Net investment income		(0.14	)		(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		(0.14	)		(0.90	)		(0.24	)		(0.40	)		(0.41	)		(1.04	)
Net asset value, end of period	$	15.01		$	14.43		$	15.14		$	13.93		$	11.75		$	16.24
Total Investment Return3
Based on net asset value		4.99%	4		1.26%			10.56%			22.42%			(25.57	)%		3.06%
Ratios to Average Net Assets5
Total expenses		1.01%	6,7,8		1.00%	9,10		1.34%			1.33%			1.32%			1.33%
Total expenses after fees waived		1.01%	6,7,8		1.00%	9,10		0.99%			0.97%			0.98%			0.99%
Net investment income		1.67%	6,7,8		1.82%	9,10		1.71%			2.42%			2.51%			2.26%
Supplemental Data
Net assets, end of period (000)	$	423,619		$	401,477		$	376,851		$	268,514		$	179,389		$	180,740
Portfolio turnover of the Master Portfolio		8%			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  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 four years ended December 31, 2010, which include gross expenses.

⁶  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.31%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.10%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.32%.

¹⁰  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
28	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath 2020 Portfolio

	Investor C
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period May 3, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	15.16		$	15.89		$	15.29
Net investment income2		0.08			0.17			0.12
Net realized and unrealized gain (loss)		0.62			(0.09	)		0.64
Net increase from investment operations		0.70			0.08			0.76
Dividends and distributions from:
Net investment income		(0.09	)		(0.20	)		(0.16	)
Net realized gain		—			(0.61	)		—
Total dividends and distributions		(0.09	)		(0.81	)		(0.16	)
Net asset value, end of period	$	15.77		$	15.16		$	15.89
Total Investment Return3
Based on net asset value		4.64%	4		0.47%			5.03%	4
Ratios to Average Net Assets5
Total expenses		1.77%	6,7,8		1.75%	9,10		2.09%	6
Total expenses after fees waived		1.77%	6,7,8		1.75%	9,10		1.74%	6
Net investment income		1.06%	6,7,8		1.05%	9,10		1.23%	6
Supplemental Data
Net assets, end of period (000)	$	709		$	301		$	116
Portfolio turnover of the Master Portfolio		8%			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  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.31%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.10%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.32%.

¹⁰  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	29

Financial Highlights (continued) LifePath 2020 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			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	$	15.20		$	15.91		$	14.61		$	12.33		$	16.90
Net investment income		0.17	2		0.40	2		0.34	2		0.40	2		0.30
Net realized and unrealized gain (loss)		0.64			(0.12	)		1.28			2.35			(4.48	)
Net increase (decrease) from investment operations		0.81			0.28			1.62			2.75			(4.18	)
Dividends and distributions from:
Net investment income		(0.18	)		(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		(0.18	)		(0.99	)		(0.32	)		(0.47	)		(0.39	)
Net asset value, end of period	$	15.83		$	15.20		$	15.91		$	14.61		$	12.33
Total Investment Return4
Based on net asset value		5.34%	5		1.78%			11.28%			23.15%			(25.28	)%5
Ratios to Average Net Assets6
Total expenses		0.41%	7,8,9		0.40%	10,11		0.74%			0.73%			0.76%	7
Total expenses after fees waived		0.41%	7,8,9		0.40%	10,11		0.39%			0.37%			0.42%	7
Net investment income		2.12%	7,8,9		2.47%	10,11		2.29%			3.05%			4.27%	7
Supplemental Data
Net assets, end of period (000)	$	4,359		$	6,224		$	2,485		$	967		$	416
Portfolio turnover of the Master Portfolio		8%			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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.31%.

⁹  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.10%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.32%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
30	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (concluded) LifePath 2020 Portfolio

	Class R
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period May 3, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	15.20		$	15.88		$	15.29
Net investment income2		0.12			0.24			0.23
Net realized and unrealized gain (loss)		0.63			(0.07	)		0.57
Net increase from investment operations		0.75			0.17			0.80
Dividends and distributions from:
Net investment income		(0.13	)		(0.24	)		(0.21	)
Net realized gain		—			(0.61	)		—
Total dividends and distributions		(0.13	)		(0.85	)		(0.21	)
Net asset value, end of period	$	15.82		$	15.20		$	15.88
Total Investment Return3
Based on net asset value		4.90%	4		1.06%			5.34%	4
Ratios to Average Net Assets5
Total expenses		1.26%	6,7,8		1.25%	9,10		1.58%	6
Total expenses after fees waived		1.26%	6,7,8		1.25%	9,10		1.23%	6
Net investment income		1.50%	6,7,8		1.51%	9,10		2.29%	6
Supplemental Data
Net assets, end of period (000)	$	761		$	161		$	81
Portfolio turnover of the Master Portfolio		8%			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  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.31%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.10%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.32%.

¹⁰  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	31

Financial Highlights LifePath 2030 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	14.11		$	14.63		$	13.31		$	10.92		$	16.19		$	16.90
Net investment income		0.14	1		0.28	1		0.25	1		0.29	1		0.35			0.34
Net realized and unrealized gain (loss)		0.72			(0.37	)		1.31			2.46			(5.29	)		0.11
Net increase (decrease) from investment operations		0.86			(0.09	)		1.56			2.75			(4.94	)		0.45
Dividends and distributions from:
Net investment income		(0.15	)		(0.27	)		(0.24	)		(0.36	)		(0.25	)		(0.35	)
Net realized gain		(0.00	)2		(0.16	)		—			—			(0.08	)		(0.81	)
Return of capital		—			—			—			(0.00	)2		—			—
Total dividends and distributions		(0.15	)		(0.43	)		(0.24	)		(0.36	)		(0.33	)		(1.16	)
Net asset value, end of period	$	14.82		$	14.11		$	14.63		$	13.31		$	10.92		$	16.19
Total Investment Return3
Based on net asset value		6.07%	4		(0.63	)%		11.86%			25.77%			(31.03	)%		2.64%
Ratios to Average Net Assets5
Total expenses		0.74%	6,7,8		0.73%	9,10		1.07%			1.06%			1.06%			1.07%
Total expenses after fees waived		0.74%	6,7,8		0.72%	9,10		0.70%			0.70%			0.72%			0.73%
Net investment income		1.87%	6,7,8		1.88%	9,10		1.85%			2.47%			2.29%			2.10%
Supplemental Data
Net assets, end of period (000)	$	604,564		$	642,867		$	696,817		$	517,817		$	315,028		$	564,348
Portfolio turnover of the Master Portfolio		8%			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  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 four years ended December 31, 2010, which include gross expenses.

⁶  Annualized.

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 0.12%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.34%.

¹⁰  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
32	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath 2030 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	13.81		$	14.33		$	13.05		$	10.71		$	15.90		$	16.62
Net investment income		0.12	1		0.24	1		0.21	1		0.26	1		0.29			0.31
Net realized and unrealized gain (loss)		0.69			(0.36	)		1.28			2.41			(5.17	)		0.09
Net increase (decrease) from investment operations		0.81			(0.12	)		1.49			2.67			(4.88	)		0.40
Dividends and distributions from:
Net investment income		(0.13	)		(0.24	)		(0.21	)		(0.33	)		(0.23	)		(0.31	)
Net realized gain		(0.00	)2		(0.16	)		—			—			(0.08	)		(0.81	)
Return of capital		—			—			—			(0.00	)2		—			—
Total dividends and distributions		(0.13	)		(0.40	)		(0.21	)		(0.33	)		(0.31	)		(1.12	)
Net asset value, end of period	$	14.49		$	13.81		$	14.33		$	13.05		$	10.71		$	15.90
Total Investment Return3
Based on net asset value		5.87%	4		(0.87	)%		11.53%			25.51%			(31.19	)%		2.38%
Ratios to Average Net Assets5
Total expenses		0.99%	6,7,8		0.98%	9,10		1.32%			1.31%			1.31%			1.32%
Total expenses after fees waived		0.99%	6,7,8		0.97%	9,10		0.96%			0.95%			0.97%			0.98%
Net investment income		1.68%	6,7,8		1.65%	9,10		1.60%			2.23%			2.13%			1.85%
Supplemental Data
Net assets, end of period(000)	$	349,191		$	339,249		$	307,189		$	210,372		$	133,199		$	135,684
Portfolio turnover of the Master Portfolio		8%			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  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 four years ended December 31, 2010, which include gross expenses.

⁶  Annualized.

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 0.12%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.34%.

¹⁰ 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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	33

Financial Highlights (continued) LifePath 2030 Portfolio

	Investor C
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period May 3, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	14.05		$	14.62		$	13.97
Net investment income2		0.09			0.14			0.10
Net realized and unrealized gain (loss)		0.68			(0.38	)		0.67
Net increase (decrease) from investment operations		0.77			(0.24	)		0.77
Dividends and distributions from:
Net investment income		(0.09	)		(0.17	)		(0.12	)
Net realized gain		(0.00	)3		(0.16	)		—
Total dividends and distributions		(0.09	)		(0.33	)		(0.12	)
Net asset value, end of period	$	14.73		$	14.05		$	14.62
Total Investment Return4
Based on net asset value		5.50%	5		(1.63	)%		5.64%	5
Ratios to Average Net Assets6
Total expenses		1.74%	7,8,9		1.74%	10,11		2.07%	7
Total expenses after fees waived		1.74%	7,8,9		1.74%	10,11		1.71%	7
Net investment income		1.27%	7,8,9		1.01%	10,11		1.09%	7
Supplemental Data
Net assets, end of period (000)	$	280		$	154		$	21
Portfolio turnover of the Master Portfolio		8%			7%			3%

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, 2010, which include gross expenses.

⁷  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.32%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.34%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
34	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath 2030 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			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	$	14.12		$	14.63		$	13.30		$	10.92		$	16.07
Net investment income		0.16	2		0.35	2		0.29	2		0.38	2		0.25
Net realized and unrealized gain (loss)		0.71			(0.37	)		1.32			2.40			(5.09	)
Net increase (decrease) from investment operations		0.87			(0.02	)		1.61			2.78			(4.84	)
Dividends and distributions from:
Net investment income		(0.17	)		(0.33	)		(0.28	)		(0.40	)		(0.23	)
Net realized gain		(0.00	)3		(0.16	)		—			—			(0.08	)
Return of capital		—			—			—			(0.00	)3		—
Total dividends and distributions		(0.17	)		(0.49	)		(0.28	)		(0.40	)		(0.31	)
Net asset value, end of period	$	14.82		$	14.12		$	14.63		$	13.30		$	10.92
Total Investment Return4
Based on net asset value		6.18%	5		(0.20	)%		12.32%			26.23%			(30.65	)%5
Ratios to Average Net Assets6
Total expenses		0.39%	7,8,9		0.38%	10,11		0.72%			0.71%			0.73%	7
Total expenses after fees waived		0.39%	7,8,9		0.38%	10,11		0.35%			0.35%			0.39%	7
Net investment income		2.21%	7,8,9		2.41%	10,11		2.17%			3.19%			3.44%	7
Supplemental Data
Net assets, end of period (000)	$	5,746		$	6,448		$	1,849		$	396		$	95
Portfolio turnover of the Master Portfolio		8%			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 December 31, 2008 and two years ended December 31, 2010, which include gross expenses.

⁷  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.32%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰ Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.34%.

¹¹ 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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	35

Financial Highlights (concluded) LifePath 2030 Portfolio

	Class R
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period May 3, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	14.08		$	14.60		$	13.97
Net investment income2		0.13			0.20			0.22
Net realized and unrealized gain (loss)		0.68			(0.36	)		0.60
Net increase (decrease) from investment operations		0.81			(0.16	)		0.82
Dividends and distributions from:
Net investment income		(0.12	)		(0.20	)		(0.19	)
Net realized gain		(0.00	)3		(0.16	)		—
Total dividends and distributions		(0.12	)		(0.36	)		(0.19	)
Net asset value, end of period	$	14.77		$	14.08		$	14.60
Total Investment Return4
Based on net asset value		5.77%	5		(1.12	)%		5.96%	5
Ratios to Average Net Assets6
Total expenses		1.25%	7,8,9		1.23%	10,11		1.56%	7
Total expenses after fees waived		1.25%	7,8,9		1.23%	10,11		1.20%	7
Net investment income		1.77%	7,8,9		1.41%	10,11		2.39%	7
Supplemental Data
Net assets, end of period (000)	$	443		$	188		$	75
Portfolio turnover of the Master Portfolio		8%			7%			3%

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, 2010, which include gross expenses.

⁷  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.32%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.34%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
36	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights LifePath 2040 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	16.98		$	17.78		$	16.04		$	12.88		$	20.32		$	20.90
Net investment income		0.17	1		0.31	1		0.28	1		0.32	1		0.35			0.34
Net realized and unrealized gain (loss)		0.97			(0.73	)		1.73			3.22			(7.45	)		0.08
Net increase (decrease) from investment operations		1.14			(0.42	)		2.01			3.54			(7.10	)		0.42
Dividends and distributions from:
Net investment income		(0.18	)		(0.30	)		(0.27	)		(0.38	)		(0.26	)		(0.35	)
Net realized gain		—			(0.08	)		—			—			(0.08	)		(0.65	)
Total dividends and distributions		(0.18	)		(0.38	)		(0.27	)		(0.38	)		(0.34	)		(1.00	)
Net asset value, end of period	$	17.94		$	16.98		$	17.78		$	16.04		$	12.88		$	20.32
Total Investment Return2
Based on net asset value		6.68%	3		(2.38	)%		12.71%			28.08%			(35.40	)%		2.03%
Ratios to Average Net Assets4
Total expenses		0.73%	5,6,7		0.71%	8,9		1.06%			1.05%			1.04%			1.06%
Total expenses after fees waived		0.72%	5,6,7		0.70%	8,9		0.69%			0.69%			0.69%			0.72%
Net investment income		1.90%	5,6,7		1.73%	8,9		1.75%			2.33%			2.02%			1.71%
Supplemental Data
Net assets, end of period (000)	$	514,105		$	528,655		$	556,626		$	435,317		$	248,491		$	383,391
Portfolio turnover of the Master Portfolio		7%			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  Aggregate total investment return.

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  Annualized.

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 0.14%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.35%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	37

Financial Highlights (continued) LifePath 2040 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	16.18		$	16.97		$	15.33		$	12.32		$	19.46		$	20.06
Net investment income		0.15	1		0.25	1		0.23	1		0.28	1		0.29			0.30
Net realized and unrealized gain (loss)		0.91			(0.70	)		1.65			3.08			(7.13	)		0.06
Net increase (decrease) from investment operations		1.06			(0.45	)		1.88			3.36			(6.84	)		0.36
Dividends and distributions from:
Net investment income		(0.16	)		(0.26	)		(0.24	)		(0.35	)		(0.22	)		(0.31	)
Net realized gain		—			(0.08	)		—			—			(0.08	)		(0.65	)
Total dividends and distributions		(0.16	)		(0.34	)		(0.24	)		(0.35	)		(0.30	)		(0.96	)
Net asset value, end of period	$	17.08		$	16.18		$	16.97		$	15.33		$	12.32		$	19.46
Total Investment Return2
Based on net asset value		6.53%	3		(2.65	)%		12.40%			27.85%			(35.56	)%		1.78%
Ratios to Average Net Assets4
Total expenses		0.98%	5,6,7		0.96%	8,9		1.31%			1.30%			1.29%			1.31%
Total expenses after fees waived		0.97%	5,6,7		0.95%	8,9		0.94%			0.94%			0.94%			0.97%
Net investment income		1.72%	5,6,7		1.50%	8,9		1.50%			2.08%			1.80%			1.49%
Supplemental Data
Net assets, end of period (000)	$	246,777		$	233,427		$	224,164		$	156,564		$	96,873		$	110,528
Portfolio turnover of the Master Portfolio		7%			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  Aggregate total investment return.

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  Annualized.

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 0.14%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.35%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
38	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath 2040 Portfolio

	Investor C
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period May 3, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	16.92		$	17.77		$	16.89
Net investment income2		0.12			0.13			0.12
Net realized and unrealized gain (loss)		0.93			(0.73	)		0.90
Net increase (decrease) from investment operations		1.05			(0.60	)		1.02
Dividends and distributions from:
Net investment income		(0.12	)		(0.17	)		(0.14	)
Net realized gain		—			(0.08	)		—
Total dividends and distributions		(0.12	)		(0.25	)		(0.14	)
Net asset value, end of period	$	17.85		$	16.92		$	17.77
Total Investment Return3
Based on net asset value		6.19%	4		(3.39	)%		6.15%	4
Ratios to Average Net Assets5
Total expenses		1.73%	6,7,8		1.72%	9,10		2.06%	6
Total expenses after fees waived		1.73%	6,7,8		1.71%	9,10		1.69%	6
Net investment income		1.29%	6,7,8		0.72%	9,10		1.11%	6
Supplemental Data
Net assets, end of period (000)	$	532		$	98		$	21
Portfolio turnover of the Master Portfolio		7%			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  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.35%.

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

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.35%.

¹⁰  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	39

Financial Highlights (continued) LifePath 2040 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			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	$	17.05		$	17.84		$	16.03		$	12.87		$	20.11
Net investment income		0.21	2		0.46	2		0.39	2		0.38	2		0.31
Net realized and unrealized gain (loss)		0.96			(0.80	)		1.70			3.21			(7.21	)
Net increase (decrease) from investment operations		1.17			(0.34	)		2.09			3.59			(6.90	)
Dividends and distributions from:
Net investment income		(0.21	)		(0.37	)		(0.28	)		(0.43	)		(0.26	)
Net realized gain		—			(0.08	)		—			—			(0.08	)
Total dividends and distributions		(0.21	)		(0.45	)		(0.28	)		(0.43	)		(0.34	)
Net asset value, end of period	$	18.01		$	17.05		$	17.84		$	16.03		$	12.87
Total Investment Return3
Based on net asset value		6.83%	4		(1.95	)%		13.18%			28.52%			(34.75	)%4
Ratios to Average Net Assets5
Total expenses		0.38%	6,7,8		0.37%	9,10		0.70%			0.70%			0.69%	6
Total expenses after fees waived		0.37%	6,7,8		0.36%	9,10		0.33%			0.34%			0.36%	6
Net investment income		2.31%	6,7,8		2.60%	9,10		2.34%			2.73%			3.31%	6
Supplemental Data
Net assets, end of period (000)	$	4,878		$	4,749		$	144		$	11		$	6
Portfolio turnover of the Master Portfolio		7%			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  Annualized.

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 0.14%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.35%.

¹⁰ 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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
40	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (concluded) LifePath 2040 Portfolio

	Class R
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period May 3, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	16.93		$	17.74		$	16.89
Net investment income2		0.15			0.23			0.34
Net realized and unrealized gain (loss)		0.94			(0.74	)		0.73
Net increase (decrease) from investment operations		1.09			(0.51	)		1.07
Dividends and distributions from:
Net investment income		(0.14	)		(0.22	)		(0.22	)
Net realized gain		—			(0.08	)		—
Total dividends and distributions		(0.14	)		(0.30	)		(0.22	)
Net asset value, end of period	$	17.88		$	16.93		$	17.74
Total Investment Return3
Based on net asset value		6.45%	4		(2.88	)%		6.47%	4
Ratios to Average Net Assets5
Total expenses		1.23%	6,7,8		1.22%	9,10		1.55%	6
Total expenses after fees waived		1.22%	6,7,8		1.22%	9,10		1.19%	6
Net investment income		1.70%	6,7,8		1.35%	9,10		3.13%	6
Supplemental Data
Net assets, end of period (000)	$	768		$	460		$	126
Portfolio turnover of the Master Portfolio		7%			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  Annualized.

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 0.14%, although the ratio does include the LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.35%.

¹⁰  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	41

Financial Highlights LifePath 2050 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			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	$	17.16		$	18.58		$	16.81		$	13.46		$	20.00
Net investment income		0.18	2		0.31	2		0.31	2		0.38	2		0.10
Net realized and unrealized gain (loss)		1.06			(0.99	)		1.91			3.68			(6.52	)
Net increase (decrease) from investment operations		1.24			(0.68	)		2.22			4.06			(6.42	)
Dividends and distributions from:
Net investment income		(0.18	)		(0.29	)		(0.28	)		(0.16	)		(0.09	)
Net realized gain		(0.01	)		(0.45	)		(0.17	)		(0.55	)		(0.00	)3
Return of capital		—			—			—			—			(0.03	)
Total dividends and distributions		(0.19	)		(0.74	)		(0.45	)		(0.71	)		(0.12	)
Net asset value, end of period	$	18.21		$	17.16		$	18.58		$	16.81		$	13.46
Total Investment Return4
Based on net asset value		7.20%	5		(3.78	)%		13.43%			30.35%			(32.18	)%5
Ratios to Average Net Assets6
Total expenses		0.73%	7,8,9		0.71%	10,11		1.09%			1.27%			12.80%	7
Total expenses after fees waived		0.71%	7,8,9		0.68%	10,11		0.67%			0.67%			0.68%	7
Net investment income		1.95%	7,8,9		1.69%	10,11		1.83%			2.39%			2.14%	7
Supplemental Data
Net assets, end of period (000)	$	83,594		$	70,555		$	50,613		$	13,992		$	444
Portfolio turnover of the Master Portfolio		8%			13%			5%			12%			0%	12

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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.37%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.40%.

¹¹ 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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹² Rounds to less than 1%.

See Notes to Financial Statements.
42	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath 2050 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			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	$	17.15		$	18.58		$	16.82		$	13.47		$	20.00
Net investment income		0.16	2		0.26	2		0.28	2		0.41	2		0.14
Net realized and unrealized gain (loss)		1.06			(0.99	)		1.90			3.63			(6.59	)
Net increase (decrease) from investment operations		1.22			(0.73	)		2.18			4.04			(6.45	)
Dividends and distributions from:
Net investment income		(0.16	)		(0.25	)		(0.25	)		(0.14	)		(0.06	)
Net realized gain		(0.01	)		(0.45	)		(0.17	)		(0.55	)		(0.00	)3
Return of capital		—			—			—			—			(0.02	)
Total dividends and distributions		(0.17	)		(0.70	)		(0.42	)		(0.69	)		(0.08	)
Net asset value, end of period	$	18.20		$	17.15		$	18.58		$	16.82		$	13.47
Total Investment Return4
Based on net asset value		7.08%	5		(4.06	)%		13.14%			30.08%			(32.28	)%5
Ratios to Average Net Assets6
Total expenses		0.98%	7,8,9		0.96%	10,11		1.34%			1.35%			13.04%	7
Total expenses after fees waived		0.96%	7,8,9		0.94%	10,11		0.92%			0.84%			0.91%	7
Net investment income		1.73%	7,8,9		1.44%	10,11		1.67%			2.45%			1.68%	7
Supplemental Data
Net assets, end of period (000)	$	36,853		$	32,617		$	18,809		$	3,056		$	34
Portfolio turnover of the Master Portfolio		8%			13%			5%			12%			0%	12

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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.37%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.40%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹²  Rounds to less than 1% .

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	43

Financial Highlights (continued) LifePath 2050 Portfolio

	Investor C
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period May 3, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	17.10		$	18.57		$	17.75
Net investment income2		0.10			0.12			0.12
Net realized and unrealized gain (loss)		1.04			(0.99	)		1.02
Net increase (decrease) from investment operations		1.14			(0.87	)		1.14
Dividends and distributions from:
Net investment income		(0.10	)		(0.15	)		(0.15	)
Net realized gain		(0.01	)		(0.45	)		(0.17	)
Total dividends and distributions		(0.11	)		(0.60	)		(0.32	)
Net asset value, end of period	$	18.13		$	17.10		$	18.57
Total Investment Return3
Based on net asset value		6.66%	4		(4.76	)%		6.55%	4
Ratios to Average Net Assets5
Total expenses		1.74%	6,7,8		1.71%	9,10		2.07%	6
Total expenses after fees waived		1.72%	6,7,8		1.69%	9,10		1.64%	6
Net investment income		1.08%	6,7,8		0.63%	9,10		1.04%	6
Supplemental Data
Net assets, end of period (000)	$	108		$	39		$	21
Portfolio turnover of the Master Portfolio		8%			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  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.37%.

⁸  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.40%.

¹⁰  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
44	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath 2050 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			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	$	17.20		$	18.63		$	16.85		$	13.46		$	20.00
Net investment income		0.21	2		0.47	2		0.37	2		0.64	2		0.17
Net realized and unrealized gain (loss)		1.07			(1.10	)		1.91			3.49			(6.57	)
Net increase (decrease) from investment operations		1.28			(0.63	)		2.28			4.13			(6.40	)
Dividends and distributions from:
Net investment income		(0.21	)		(0.35	)		(0.33	)		(0.19	)		(0.11	)
Net realized gain		(0.01	)		(0.45	)		(0.17	)		(0.55	)		(0.00	)3
Return of capital		—			—			—			—			(0.03	)
Total dividends and distributions		(0.22	)		(0.80	)		(0.50	)		(0.74	)		(0.14	)
Net asset value, end of period	$	18.26		$	17.20		$	18.63		$	16.85		$	13.46
Total Investment Return4
Based on net asset value		7.42%	5		(3.48	)%		13.79%			30.89%			(32.10	)%5
Ratios to Average Net Assets6
Total expenses		0.38%	7,8,9		0.36%	10,11		0.76%			1.37%			12.41%	7
Total expenses after fees waived		0.36%	7,8,9		0.34%	10,11		0.33%			0.58%			0.29%	7
Net investment income		2.24%	7,8,9		2.56%	10,11		2.19%			4.34%			3.94%	7
Supplemental Data
Net assets, end of period (000)	$	558		$	625		$	86		$	55		$	24
Portfolio turnover of the Master Portfolio		8%			13%			5%			12%			0%	12

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  Annualized.

⁸  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.37%.

⁹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹⁰  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.40%.

¹¹  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

¹²  Rounds to less than 1% .

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	45

Financial Highlights (concluded) LifePath 2050 Portfolio

	Class R
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Period May 3, 20101 to December 31, 2010
Per Share Operating Performance
Net asset value, beginning of period	$	17.13		$	18.56		$	17.75
Net investment income2		0.15			0.22			0.22
Net realized and unrealized gain (loss)		1.05			(1.00	)		0.97
Net increase (decrease) from investment operations		1.20			(0.78	)		1.19
Dividends and distributions from:
Net investment income		(0.14	)		(0.20	)		(0.21	)
Net realized gain		(0.01	)		(0.45	)		(0.17	)
Total dividends and distributions		(0.15	)		(0.65	)		(0.38	)
Net asset value, end of period	$	18.18		$	17.13		$	18.56
Total Investment Return3
Based on net asset value		7.00%	4		(4.29	)%		6.87%	4
Ratios to Average Net Assets5
Total expenses		1.24%	6,7,8		1.21%	9,10		1.57%	6
Total expenses after fees waived		1.22%	6,7,8		1.19%	9,10		1.16%	6
Net investment income		1.66%	6,7,8		1.18%	9,10		1.99%	6
Supplemental Data
Net assets, end of period (000)	$	161		$	53		$	40
Portfolio turnover of the Master Portfolio		8%			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  Annualized.

⁷  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.37%.

⁸  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Portfolio’s share of the Master Portfolio’s allocated fees waived of 0.40%.

¹⁰  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 LifePath Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

See Notes to Financial Statements.
46	BLACKROCK FUNDS III	JUNE 30, 2012

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. LifePath Retirement Portfolio, LifePath 2020 Portfolio, LifePath 2030 Portfolio, LifePath 2040 Portfolio and LifePath 2050 Portfolio (each, a “LifePath Portfolio” and collectively, the “LifePath Portfolios”) are each a series of the 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. 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 2030 Master Portfolio, LifePath 2040 Master Portfolio and LifePath 2050 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 LifePath 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 (41.74%, 46.07%, 46.28%, 48.70% and 58.20% for the LifePath Retirement Portfolio, LifePath 2020 Portfolio, LifePath 2030 Portfolio, LifePath 2040 Portfolio and LifePath 2050 Portfolio, respectively, as of June 30, 2012).

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 the LifePath 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 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 exceed 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 each LifePath Portfolio’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.

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 each LifePath Portfolio’s US federal tax returns remains open for each of the four years 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 a LifePath Portfolio 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”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

The Trust, on behalf of the LifePath Portfolios, entered into an administration services arrangement with BlackRock Institutional Trust Company, N.A. (“BTC”) (the “Administrator”), 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,

BLACKROCK FUNDS III JUNE 30, 2012 47

Notes to Financial Statements (continued) BlackRock Funds III

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, 2022. These amounts are included in fees waived by administrator in the Statements of Operations.

The Trust, on behalf of 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, each LifePath Portfolio pays BRIL ongoing service and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the 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 six months ended June 30, 2012, 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	$	192
LifePath 2020 Portfolio	$	603
LifePath 2030 Portfolio	$	235
LifePath 2040 Portfolio	$	203
LifePath 2050 Portfolio	$	15

For the six months ended June 30, 2012, affiliates of LifePath 2030 Portfolio received CDSCs relating to transactions in Investor A Shares of $42 and Investor C Shares of $48.

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

3. Capital Share Transactions:

Transactions in capital shares for each class were as follows:

	Six Months Ended June 30, 2012						Year Ended December 31, 2011
LifePath Retirement Portfolio	Shares			Amount			Shares			Amount
Institutional
Shares sold		4,082,448		$	48,118,973			8,526,399		$	99,878,871
Shares issued to shareholders in reinvestment of dividends and distributions		402,389			4,730,493			1,918,046			22,032,862
Shares redeemed		(8,954,522	)		(105,098,503	)		(14,957,769	)		(175,099,515	)
Net decrease		(4,469,685	)	$	(52,249,037	)		(4,513,324	)	$	(53,187,782	)
Investor A
Shares sold		2,039,845		$	22,173,575			5,225,379		$	56,814,487
Shares issued to shareholders in reinvestment of dividends and distributions		216,013			2,338,749			926,518			9,818,452
Shares redeemed		(2,289,030	)		(24,766,846	)		(5,567,375	)		(60,354,430	)
Net increase (decrease)		(33,172	)	$	(254,522	)		584,522		$	6,278,509
Investor C
Shares sold		7,605		$	88,525			3,029		$	35,464
Shares issued to shareholders in reinvestment of dividends and distributions		14			163			—			—
Shares redeemed		(4	)		(49	)		—			—
Net increase		7,615		$	88,639			3,029		$	35,464

48 BLACKROCK FUNDS III JUNE 30, 2012

Notes to Financial Statements (continued) BlackRock Funds III

LifePath Retirement Portfolio (concluded)	Six Months Ended June 30, 2012						Year Ended December 31, 2011
	Shares			Amount			Shares			Amount
Class K
Shares sold		21,636		$	254,672			312,296		$	3,656,159
Shares issued to shareholders in reinvestment of dividends and distributions		4,978			58,435			16,847			192,443
Shares redeemed		(62,928	)		(744,811	)		(16,648	)		(194,056	)
Net increase (decrease)		(36,314	)	$	(431,704	)		312,495		$	3,654,546
Class R
Shares sold		2,682		$	31,043			1,106		$	12,968
Shares issued to shareholders in reinvestment of dividends and distributions		38			450			81			934
Shares redeemed		(754	)		(8,859	)		(428	)		(5,072	)
Net increase		1,966		$	22,634			759		$	8,830
Total Net Decrease		(4,529,590	)	$	(52,823,990	)		(3,612,519	)	$	(43,210,433	)
LifePath 2020 Portfolio
Institutional
Shares sold		4,703,205		$	75,032,950			10,721,352		$	172,562,315
Shares issued to shareholders in reinvestment of dividends and distributions		399,846			6,386,765			2,908,861			44,888,727
Shares redeemed		(12,668,746	)		(200,500,584	)		(17,203,959	)		(275,663,564	)
Net decrease		(7,565,695	)	$	(119,080,869	)		(3,573,746	)	$	(58,212,522	)
Investor A
Shares sold		3,727,054		$	55,951,688			6,800,305		$	104,196,707
Shares issued to shareholders in reinvestment of dividends and distributions		253,044			3,821,277			1,619,642			23,691,305
Shares redeemed		(3,592,295	)		(54,023,063	)		(5,486,607	)		(84,222,849	)
Net increase		387,803		$	5,749,902			2,933,340		$	43,665,163
Investor C
Shares sold		32,498		$	515,829			12,546		$	198,694
Shares issued to shareholders in reinvestment of dividends and distributions		70			1,112			461			7,045
Shares redeemed		(7,516	)		(117,616	)		(405	)		(6,638	)
Net increase		25,052		$	399,325			12,602		$	199,101
Class K
Shares sold		101,777		$	1,641,656			573,362		$	9,228,551
Shares issued to shareholders in reinvestment of dividends and distributions		3,474			55,507			22,482			345,441
Shares redeemed		(239,305	)		(3,842,133	)		(342,692	)		(5,540,687	)
Net increase (decrease)		(134,054	)	$	(2,144,970	)		253,152		$	4,033,305
Class R
Shares sold		45,789		$	713,492			9,263		$	142,158
Shares issued to shareholders in reinvestment of dividends and distributions		130			2,070			426			6,486
Shares redeemed		(8,424	)		(132,153	)		(4,186	)		(69,394	)
Net increase		37,495		$	583,409			5,503		$	79,250
Total Net Decrease		(7,249,399	)	$	(114,493,203	)		(369,149	)	$	(10,235,703	)

BLACKROCK FUNDS III JUNE 30, 2012 49

Notes to Financial Statements (continued) BlackRock Funds III

	Six Months Ended June 30, 2012						Year Ended December 31, 2011
LifePath 2030 Portfolio	Shares			Amount			Shares			Amount
Institutional
Shares sold		4,953,994		$	73,926,928			10,864,175		$	160,331,087
Shares issued to shareholders in reinvestment of dividends and distributions		386,210			5,776,599			1,336,585			19,251,879
Shares redeemed		(10,090,394	)		(149,003,183	)		(14,267,842	)		(209,352,604	)
Net decrease		(4,750,190	)	$	(69,299,656	)		(2,067,082	)	$	(29,769,638	)
Investor A
Shares sold		2,355,957		$	34,222,009			6,266,205		$	90,818,114
Shares issued to shareholders in reinvestment of dividends and distributions		212,480			3,103,957			681,295			9,600,090
Shares redeemed		(3,041,468	)		(44,401,401	)		(3,816,165	)		(55,267,286	)
Net increase (decrease)		(473,031	)	$	(7,075,435	)		3,131,335		$	45,150,918
Investor C
Shares sold		8,381		$	122,175			9,967		$	139,574
Shares issued to shareholders in reinvestment of dividends and distributions		45			662			108			1,502
Shares redeemed		(391	)		(5,928	)		(563	)		(8,015	)
Net increase		8,035		$	116,909			9,512		$	133,061
Class K
Shares sold		23,146		$	348,245			372,886		$	5,420,324
Shares issued to shareholders in reinvestment of dividends and distributions		4,642			69,541			10,919			156,006
Shares redeemed		(96,854	)		(1,486,797	)		(53,380	)		(799,211	)
Net increase (decrease)		(69,066	)	$	(1,069,011	)		330,425		$	4,777,119
Class R
Shares sold		19,620		$	284,965			11,693		$	159,449
Shares issued to shareholders in reinvestment of dividends and distributions		162			2,403			221			3,134
Shares redeemed		(3,182	)		(48,535	)		(3,648	)		(52,913	)
Net increase		16,600		$	238,833			8,266		$	109,670
Total Net Increase (Decrease)		(5,267,652	)	$	(77,088,360	)		1,412,456		$	20,401,130
LifePath 2040 Portfolio
Institutional
Shares sold		3,690,642		$	66,931,091			8,158,582		$	145,577,946
Shares issued to shareholders in reinvestment of dividends and distributions		262,593			4,761,592			664,823			11,635,668
Shares redeemed		(6,433,641	)		(114,745,053	)		(8,989,028	)		(159,145,410	)
Net decrease		(2,480,406	)	$	(43,052,370	)		(165,623	)	$	(1,931,796	)
Investor A
Shares sold		1,511,209		$	25,950,557			3,456,802		$	59,040,725
Shares issued to shareholders in reinvestment of dividends and distributions		129,826			2,236,933			299,265			4,996,722
Shares redeemed		(1,622,957	)		(28,082,779	)		(2,539,137	)		(43,509,075	)
Net increase		18,078		$	104,711			1,216,930		$	20,528,372

50 BLACKROCK FUNDS III JUNE 30, 2012

Notes to Financial Statements (continued) BlackRock Funds III

LifePath 2040 Portfolio (concluded)	Six Months Ended June 30, 2012						Year Ended December 31, 2011
	Shares			Amount			Shares			Amount
Investor C
Shares sold		25,352		$	462,146			4,607		$	78,201
Shares issued to shareholders in reinvestment of dividends and distributions		22			397			6			97
Shares redeemed		(1,346	)		(24,432	)		(2	)		(25	)
Net increase		24,028		$	438,111			4,611		$	78,273
Class K
Shares sold		7,897		$	142,831			276,335		$	4,827,363
Shares issued to shareholders in reinvestment of dividends and distributions		3,044			55,474			4,005			69,028
Shares redeemed		(18,710	)		(335,620	)		(9,824	)		(175,325	)
Net increase (decrease)		(7,769	)	$	(137,315	)		270,516		$	4,721,066
Class R
Shares sold		15,985		$	282,023			20,087		$	323,569
Shares issued to shareholders in reinvestment of dividends and distributions		316			5,677			305			5,236
Shares redeemed		(553	)		(10,110	)		(279	)		(4,900	)
Net increase		15,748		$	277,590			20,113		$	323,905
Total Net Increase (Decrease)		(2,430,321	)	$	(42,369,273	)		1,346,547		$	23,719,820
LifePath 2050 Portfolio
Institutional
Shares sold		1,515,183		$	27,975,448			2,655,350		$	49,273,547
Shares issued to shareholders in reinvestment of dividends and distributions		44,501			819,468			170,482			3,015,086
Shares redeemed		(1,081,020	)		(19,425,479	)		(1,436,859	)		(25,788,852	)
Net increase		478,664		$	9,369,437			1,388,973		$	26,499,781
Investor A
Shares sold		460,053		$	8,454,752			1,020,026		$	18,983,705
Shares issued to shareholders in reinvestment of dividends and distributions		17,850			327,634			67,355			1,189,240
Shares redeemed		(355,065	)		(6,631,891	)		(197,703	)		(3,619,720	)
Net increase		122,838		$	2,150,495			889,678		$	16,553,225
Investor C
Shares sold		3,838		$	68,455			1,195		$	20,927
Shares issued to shareholders in reinvestment of dividends and distributions		11			204			1			11
Shares redeemed		(165	)		(2,910	)		(63	)		(1,115	)
Net increase		3,684		$	65,749			1,133		$	19,823
Class K
Shares sold		13,304		$	252,865			30,546		$	548,675
Shares issued to shareholders in reinvestment of dividends and distributions		393			7,308			1,165			20,322
Shares redeemed		(19,432	)		(369,303	)		(6	)		(119	)
Net increase (decrease)		(5,735	)	$	(109,130	)		31,705		$	568,878

BLACKROCK FUNDS III JUNE 30, 2012 51

Notes to Financial Statements (concluded) BlackRock Funds III

LifePath 2050 Portfolio (concluded)	Six Months Ended June 30, 2012						Year Ended December 31, 2011
	Shares			Amount			Shares			Amount
Class R
Shares sold		6,930		$	124,058			1,245		$	22,576
Shares issued to shareholders in reinvestment of dividends and distributions		59			1,071			64			1,132
Shares redeemed		(1,224	)		(22,598	)		(345	)		(6,023	)
Net increase		5,765		$	102,531			964		$	17,685
Total Net Increase		605,216		$	11,579,082			2,312,453		$	43,659,392

4. 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.

52 BLACKROCK FUNDS III JUNE 30, 2012

Master Portfolio Information as of June 30, 2012 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	6
Master Small Cap Index Series	4
iShares MSCI Emerging Markets Index Fund	2
ACWI ex-US Index Master Portfolio	2
iShares MSCI EAFE Small Cap Index Fund	1
iShares MSCI Canada Index Fund	1
BlackRock Cash Funds: Institutional, SL Agency Shares	1

LifePath 2020 Master Portfolio^®

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	54	%
Fixed Income Funds	45
Short-Term Securities	1

Portfolio Holdings Percent of
Affiliated Investment Companies

CoreAlpha Bond Master Portfolio	38	%
Active Stock Master Portfolio	31
iShares MSCI EAFE Index Fund	9
iShares Barclays TIPS Bond Fund	6
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	2
ACWI ex-US Index Master Portfolio	1
iShares MSCI EAFE Small Cap Index Fund	1
iShares MSCI Canada Index Fund	1
BlackRock Cash Funds: Institutional, SL Agency Shares	1

LifePath 2030 Master Portfolio^®

Portfolio Composition Percent of
Affiliated Investment  Companies

Equity Funds	68	%
Fixed Income Funds	28
Short-Term Securities	4

Portfolio Holdings Percent of
Affiliated Investment Companies

Active Stock Master Portfolio	39	%
CoreAlpha Bond Master Portfolio	25
iShares MSCI EAFE Index Fund	11
iShares MSCI Emerging Markets Index Fund	4
iShares Barclays TIPS Bond Fund	4
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	3
BlackRock Cash Funds: Institutional, SL Agency Shares	3
iShares Cohen & Steers Realty Majors Index Fund	3
Master Small Cap Index Series	3
ACWI ex-US Index Master Portfolio	2
iShares MSCI EAFE Small Cap Index Fund	1
iShares MSCI Canada Index Fund	1
BlackRock Cash Funds: Prime, SL Agency Shares	1

The Portfolios’ 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 JUNE 30, 2012 53

Master Portfolio Information as of June 30, 2012 (concluded) Master Investment Portfolio

LifePath 2040 Master Portfolio^®

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	75	%
Fixed Income Funds	15
Short-Term Securities	10

Portfolio Holdings Percent of
Affiliated Investment Companies

Active Stock Master Portfolio	43	%
CoreAlpha Bond Master Portfolio	13
iShares MSCI EAFE Index Fund	12
BlackRock Cash Funds: Institutional, SL Agency Shares	8
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
Master Small Cap Index Series	2
BlackRock Cash Funds: Prime, 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
iShares Barclays TIPS Bond Fund	1

LifePath^® 2050 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	90	%
Fixed Income Funds	6
Short-Term Securities	4

Portfolio Holdings Percent of
Affiliated Investment Companies

Active Stock Master Portfolio	52	%
iShares MSCI EAFE Index Fund	12
CoreAlpha Bond Master Portfolio	6
ACWI ex-US Index Master Portfolio	5
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
BlackRock Cash Funds: Institutional, SL Agency Shares	3
Master Small Cap Index Series	2
iShares MSCI EAFE Small Cap Index Fund	2
iShares MSCI Canada Index Fund	2
BlackRock Cash Funds: Prime, SL Agency Shares	1

Active Stock Master Portfolio

Ten Largest Holdings Percent of
Long-Term Investments

Apple, Inc.	4	%
Microsoft Corp.	3
Wells Fargo & Co.	2
Exxon Mobil Corp.	2
Verizon Communications, Inc.	2
International Business Machines Corp.	2
Google, Inc., Class A	2
Pfizer, Inc.	1
Boeing Co.	1
JPMorgan Chase & Co.	1

Sector Allocation Percent of
Long-Term Investments

Information Technology	21	%
Consumer Discretionary	14
Industrials	13
Health Care	12
Financials	11
Consumer Staples	10
Energy	9
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.

54 BLACKROCK FUNDS III JUNE 30, 2012

The Portfolios’ 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.

Schedule of Investments June 30, 2012 (Unaudited) LifePath Retirement Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 38.5%
Active Stock Master Portfolio	$	305,984,142	$	305,984,142
ACWI ex-US Index Master Portfolio	$	23,000,693		23,000,693
iShares Cohen & Steers Realty Majors Index Fund		28,506		2,241,712
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (b)		84,931		2,421,383
iShares MSCI Canada Index Fund (b)		479,126		12,380,616
iShares MSCI EAFE Index Fund		1,733,033		86,582,329
iShares MSCI EAFE Small Cap Index Fund		348,726		12,602,957
iShares MSCI Emerging Markets Index Fund		894,610		35,059,766
Master Small Cap Index Series	$	59,813,471		59,813,471
				540,087,069
Fixed Income Funds — 61.5%
CoreAlpha Bond Master Portfolio	$	735,475,013		735,475,013
iShares Barclays TIPS Bond Fund		1,062,526		127,184,362
				862,659,375

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 1.0%
BlackRock Cash Funds: Institutional, SL Agency Shares 0.25% (c)(d)		11,628,099	$	11,628,099
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(d)		2,179,643		2,179,643
				13,807,742
Total Affiliated Investment Companies (Cost — $ 1,331,253,654*) — 101.0 %				1,416,554,186
Liabilities in Excess of Other Assets — (1.0)%				(13,941,619	)
Net Assets — 100.0%			$	1,402,612,567

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	1,333,575,622
Gross unrealized appreciation	$	86,333,613
Gross unrealized depreciation		(3,355,049	)
Net unrealized appreciation	$	82,978,564

(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 Held at December  31, 2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June  30, 2012		Value at June 30, 2012		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	298,043,934	$	7,940,208	1		—		$	305,984.142	$	305,984,142	$	11,098,958		$	3,092,352
ACWI ex-US Index Master Portfolio	$	5,548,263	$	17,452,430	1		—		$	23,000,693	$	23,000,693	$	95,849		$	163,168
BlackRock Cash Funds: Institutional, SL Agency Shares		19,603,098		—			(7,974,999	)2		11,628,099	$	11,628,099		—		$	30,950
BlackRock Cash Funds: Prime, SL Agency Shares		5,266,000		—			(3,086,357	)2		2,179,643	$	2,179,643		—		$	7,590
CoreAlpha Bond Master Portfolio	$	725,793,169	$	9,681,844	1		—		$	735,475,013	$	735,475,013	$	7,467,495		$	10,162,949
iShares Barclays TIPS Bond Fund		1,059,111		25,722			(22,307	)		1,062,526	$	127,184,362	$	231,887		$	1,675,862
iShares Cohen & Steers Realty Majors Index Fund		19,438		9,576			(508	)		28,506	$	2,241,712	$	36,919		$	27,268
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		59,926		26,269			(1,264	)		84,931	$	2,421,383	$	(6,734	)	$	44,387
iShares MSCI Canada Index Fund		520,174		—			(41,048	)		479,126	$	12,380,616	$	(200,890	)	$	103,436
iShares MSCI EAFE Index Fund		1,903,131		39,135			(209,233	)		1,733,033	$	86,582,329	$	(293,544	)	$	1,989,093
iShares MSCI EAFE Small Cap Index Fund		354,938		—			(6,212	)		348,726	$	12,602,957	$	(55,884	)	$	200,681
iShares MSCI Emerging Markets Index Fund		939,069		28,664			(73,123	)		894,610	$	35,059,766	$	(483,468	)	$	405,572
Master Small Cap Index Series	$	59,483,717	$	329,754	1		—		$	59,813,471	$	59,813,471	$	1,163,821		$	521,779

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 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. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 the Financial Statements.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 55

Schedule of Investments (concluded) LifePath Retirement Master Portfolio

The following table summarizes the Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	292,280,867	$	1,124,273,319		—	$	1,416,554,186

Certain of the Master Portfolio’s liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of June 30, 2012, collateral on securities loaned at value of $10,130,600 is categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

56 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments June 30, 2012 (Unaudited) LifePath 2020 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 54.9%
Active Stock Master Portfolio	$	743,339,617	$	743,339,617
ACWI ex-US Index Master Portfolio	$	34,732,450		34,732,450
iShares Cohen & Steers Realty Majors Index Fund (b)		508,166		39,962,174
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (b)		1,521,082		43,366,048
iShares MSCI Canada Index Fund (b)		1,139,167		29,436,075
iShares MSCI EAFE Index Fund (b)		4,260,103		212,834,746
iShares MSCI EAFE Small Cap Index Fund		828,954		29,958,397
iShares MSCI Emerging Markets Index Fund		2,153,647		84,401,426
Master Small Cap Index Series	$	85,995,436		85,995,436
				1,304,026,369
Fixed Income Funds — 45.2%
CoreAlpha Bond Master Portfolio	$	921,968,521		921,968,521
iShares Barclays TIPS Bond Fund		1,260,095		150,833,372
				1,072,801,893

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 1.2%
BlackRock Cash Funds: Institutional, SL Agency Shares 0.25% (c)(d)		23,550,691	$	23,550,691
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(d)		5,426,451		5,426,451
				28,977,142
Total Affiliated Investment Companies (Cost — $2,257,481,415*) — 101.3%				2,405,805,404
Liabilities in Excess of Other Assets — (1.3)%				(31,549,754	)
Net Assets — 100.0%			$	2,374,255,650

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	2,276,746,394
Gross unrealized appreciation	$	152,784,789
Gross unrealized depreciation		(23,725,779	)
Net unrealized appreciation	$	129,059,010

(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 Held at December  31, 2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June  30, 2012		Value at June 30, 2012		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	748,693,513		—		$	(5,353,896	)1	$	743,339,617	$	743,339,617	$	29,591,405		$	7,799,654
ACWI ex-US Index Master Portfolio	$	5,969,722	$	28,762,728	2		—		$	34,732,450	$	34,732,450	$	350,814		$	204,193
BlackRock Cash Funds: Institutional, SL Agency Shares		101,724,838		—			(78,174,147	)1		23,550,691	$	23,550,691		—		$	63,593
BlackRock Cash Funds: Prime, SL Agency Shares		32,812,403		—			(27,385,952	)1		5,426,451	$	5,426,451		—		$	15,878
CoreAlpha Bond Master Portfolio	$	877,647,887	$	44,320,634	2		—		$	921,968,521	$	921,968,521	$	8,523,238		$	12,585,971
iShares Barclays TIPS Bond Fund		1,219,031		80,364			(39,300	)		1,260,095	$	150,833,372	$	397,485		$	2,003,916
iShares Cohen & Steers Realty Majors Index Fund		513,326		33,686			(38,846	)		508,166	$	39,962,174	$	577,554		$	569,274
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		1,583,649		27,720			(90,287	)		1,521,082	$	43,366,048	$	(796,238	)	$	1,004,481
iShares MSCI Canada Index Fund		1,190,355		—			(51,188	)		1,139,167	$	29,436,075	$	(346,551	)	$	245,928
iShares MSCI EAFE Index Fund		4,619,681		132,777			(492,355	)		4,260,103	$	212,834,746	$	(2,379,422	)	$	4,891,930
iShares MSCI EAFE Small Cap Index Fund		848,248		—			(19,294	)		828,954	$	29,958,397	$	(199,123	)	$	477,037
iShares MSCI Emerging Markets Index Fund		2,251,118		46,678			(144,149	)		2,153,647	$	84,401,426	$	(1,338,332	)	$	1,008,676
Master Small Cap Index Series	$	86,267,134		—		$	(271,698	)1	$	85,995,436	$	85,995,436	$	1,631,020		$	762,194

¹ Represents net shares/beneficial interest sold.

² 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 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. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 the Financial Statements.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 57

Schedule of Investments (concluded) LifePath 2020 Master Portfolio

The following table summarizes the Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	619,769,380	$	1,786,036,024		—	$	2,405,805,404

Certain of the Master Portfolio’s liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of June 30, 2012, collateral on securities loaned at value of $25,221,200 is categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

58 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments June 30, 2012 (Unaudited) LifePath 2030 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 70.6%
Active Stock Master Portfolio	$	841,045,916	$	841,045,916
ACWI ex-US Index Master Portfolio	$	38,104,395		38,104,395
iShares Cohen & Steers Realty Majors Index Fund (b)		813,263		63,955,002
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		2,433,496		69,378,971
iShares MSCI Canada Index Fund (b)		1,219,934		31,523,095
iShares MSCI EAFE Index Fund (b)		4,664,178		233,022,333
iShares MSCI EAFE Small Cap Index Fund		923,899		33,389,710
iShares MSCI Emerging Markets Index Fund		2,374,866		93,070,999
Master Small Cap Index Series	$	61,558,704		61,558,704
				1,465,049,125
Fixed Income Funds — 29.4%
CoreAlpha Bond Master Portfolio	$	531,934,343		531,934,343
iShares Barclays TIPS Bond Fund		656,161		78,542,472
				610,476,815

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 3.9%
BlackRock Cash Funds: Institutional, SL Agency Shares 0.25% (c)(d)		64,583,583	$	64,583,583
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(d)		16,664,147		16,664,147
				81,247,730
Total Affiliated Investment Companies (Cost — $2,031,883,340*) — 103.9%				2,156,773,670
Liabilities in Excess of Other Assets — (3.9)%				(80,269,158	)
Net Assets — 100.0%			$	2,076,504,512

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	2,058,653,835
Gross unrealized appreciation	$	131,391,777
Gross unrealized depreciation		(33,271,942	)
Net unrealized appreciation	$	98,119,835

(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 Held at December 31, 2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June 30, 2012		Value at June 30, 2012		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	828,107,242	$	12,938,674	1		—		$	841,045,916	$	841,045,916	$	31,358,541		$	8,778,539
ACWI ex-US Index Master Portfolio	$	6,940,554	$	31,163,841	1		—		$	38,104,395	$	38,104,395	$	25,766		$	292,935
BlackRock Cash Funds: Institutional, SL Agency Shares		57,414,496		7,169,087	1		—			64,583,583	$	64,583,583		—		$	59,734
BlackRock Cash Funds: Prime, SL Agency Shares		18,184,839		—			(1,520,692	)2		16,664,147	$	16,664,147		—		$	15,009
CoreAlpha Bond Master Portfolio	$	483,730,118	$	48,204,225	1		—		$	531,934,343	$	531,934,343	$	4,322,875		$	7,166,358
iShares Barclays TIPS Bond Fund		647,298		24,435			(15,572	)		656,161	$	78,542,472	$	142,953		$	1,038,554
iShares Cohen & Steers Realty Majors Index Fund		779,965		65,390			(32,092	)		813,263	$	63,955,002	$	(166,230	)	$	903,226
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		2,439,821		154,193			(160,518	)		2,433,496	$	69,378,971	$	(1,603,639	)	$	1,582,133
iShares MSCI Canada Index Fund		1,299,183		2,889			(82,138	)		1,219,934	$	31,523,095	$	(471,019	)	$	262,741
iShares MSCI EAFE Index Fund		4,939,362		194,247			(469,431	)		4,664,178	$	233,022,333	$	(4,202,929	)	$	5,315,192
iShares MSCI EAFE Small Cap Index Fund		909,785		34,062			(19,948	)		923,899	$	33,389,710	$	(170,023	)	$	512,074
iShares MSCI Emerging Markets Index Fund		2,471,377		116,370			(212,881	)		2,374,866	$	93,070,999	$	(1,876,500	)	$	1,110,390
Master Small Cap Index Series	$	62,185,765	$	—			(627,061	)2	$	61,558,704	$	61,558,704	$	1,129,245		$	553,530

¹  Represents net shares/beneficial interest purchased.

²  Represents net shares/beneficial interest 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 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. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 the Financial Statements.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 59

Schedule of Investments (concluded) LifePath 2030 Master Portfolio

The following table summarizes the Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	684,130,312	$	1,472,643,358		—	$	2,156,773,670

Certain of the Master Portfolio’s liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of June 30, 2012, collateral on securities loaned at value of $77,452,050 is categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

60 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments June 30, 2012 (Unaudited) LifePath 2040 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 83.3%
Active Stock Master Portfolio	$	757,175,456	$	757,175,456
ACWI ex-US Index Master Portfolio	$	29,918,028		29,918,028
iShares Cohen & Steers Realty Majors Index Fund (b)		844,901		66,443,015
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund (b)		2,528,605		72,090,528
iShares MSCI Canada Index Fund		1,088,701		28,132,034
iShares MSCI EAFE Index Fund (b)		4,153,207		207,494,222
iShares MSCI EAFE Small Cap Index Fund		788,513		28,496,860
iShares MSCI Emerging Markets Index Fund (b)		2,114,584		82,870,547
Master Small Cap Index Series	$	40,438,120		40,438,120
				1,313,058,810
Fixed Income Funds — 16.5%
CoreAlpha Bond Master Portfolio	$	236,012,509		236,012,509
iShares Barclays TIPS Bond Fund		197,825		23,679,652
				259,692,161

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities —10.7%
BlackRock Cash Funds: Institutional, SL Agency Shares 0.25% (c)(d)		132,795,493	$	132,795,493
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(d)		35,551,513		35,551,513
				168,347,006
Total Affiliated Investment Companies (Cost — $1,655,380,576*) —110.5%				1,741,097,977
Liabilities in Excess of Other Assets — (10.5)%				(164,891,889	)
Net Assets — 100.0%			$	1,576,206,088

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	1,683,343,105
Gross unrealized appreciation	$	96,543,834
Gross unrealized depreciation		(38,788,962	)
Net unrealized appreciation	$	57,754,872

(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 Held at December  31, 2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June  30, 2012		Value at June 30, 2012		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	736,182,388	$	20,993,068	1		—		$	757,175,456	$	757,175,456	$	27,197,441		$	7,870,032
ACWI ex-US Index Master Portfolio	$	6,288,397	$	23,629,631	1		—		$	29,918,028	$	29,918,028	$	35,009		$	241,857
BlackRock Cash Funds: Institutional, SL Agency Shares		46,040,413		86,755,080	1		—			132,795,493	$	132,795,493		—		$	43,010
BlackRock Cash Funds: Prime, SL Agency Shares		14,394,378		21,157,135	1		—			35,551,513	$	35,551,513		—		$	10,747
CoreAlpha Bond Master Portfolio	$	203,336,372	$	32,676,137	1		—		$	236,012,509	$	236,012,509	$	1,625,793		$	3,160,702
iShares Barclays TIPS Bond Fund		180,235		21,788			(4,198	)		197,825	$	23,679,652	$	43,782		$	313,094
iShares Cohen & Steers Realty Majors Index Fund		795,460		67,371			(17,930	)		844,901	$	66,443,015	$	371,104		$	938,710
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		2,481,690		116,078			(69,163	)		2,528,605	$	72,090,528	$	(694,352	)	$	1,653,540
iShares MSCI Canada Index Fund		1,113,860		—			(25,159	)		1,088,701	$	28,132,034	$	(205,186	)	$	235,033
iShares MSCI EAFE Index Fund		4,317,966		113,057			(277,816	)		4,153,207	$	207,494,222	$	(4,539,797	)	$	4,756,534
iShares MSCI EAFE Small Cap Index Fund		796,836		8,411			(16,734	)		788,513	$	28,496,860	$	(150,540	)	$	453,765
iShares MSCI Emerging Markets Index Fund		2,136,980		71,328			(93,724	)		2,114,584	$	82,870,547	$	(879,062	)	$	990,380
Master Small Cap Index Series	$	40,190,017	$	248,103	1		—		$	40,438,120	$	40,438,120	$	748,965		$	362,312

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 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. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 the Financial Statements.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 61

Schedule of Investments (concluded) LifePath 2040 Master Portfolio

The following table summarizes the Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	677,553,864	$	1,063,544,113		—	$	1,741,097,977

Certain of the Master Portfolio’s liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of June 30, 2012, collateral on securities loaned at value of $165,237,240 is categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

62 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments June 30, 2012 (Unaudited) LifePath 2050 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 93.8%
Active Stock Master Portfolio	$	112,868,118	$	112,868,118
ACWI ex-US Index Master Portfolio	$	12,116,246		12,116,246
iShares Cohen & Steers Realty Majors Index Fund (b)		134,002		10,537,917
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		399,335		11,385,041
iShares MSCI Canada Index Fund		141,295		3,651,063
iShares MSCI EAFE Index Fund (b)		514,871		25,722,955
iShares MSCI EAFE Small Cap Index Fund		120,555		4,356,858
iShares MSCI Emerging Markets Index Fund		266,258		10,434,651
Master Small Cap Index Series	$	4,606,672		4,606,672
				195,679,521
Fixed Income Funds — 5.9%
CoreAlpha Bond Master Portfolio	$	12,243,774		12,243,774
				12,243,774

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 4.2%
BlackRock Cash Funds: Institutional, SL Agency Shares 0.25% (c)(d)		6,946,195	$	6,946,195
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(d)		1,794,678		1,794,678
				8,740,873
Total Affiliated Investment Companies (Cost — $209,024,920*) — 103.9%				216,664,168
Liabilities in Excess of Other Assets — (3.9)%				(8,118,290	)
Net Assets — 100.0%			$	208,545,878

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	209,906,255
Gross unrealized appreciation	$	9,633,645
Gross unrealized depreciation		(2,875,732	)
Net unrealized appreciation	$	6,757,913

(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 Held at December 31, 2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June 30,  2012		Value at June 30, 2012		Realized Gain (Loss)			Income
Active Stock Master Portfolio	$	96,212,649	$	16,655,469	1		—		$	112,868,118	$	112,868,118	$	2,611,042		$	1,130,924
ACWI ex-US Index Master Portfolio	$	2,165,187	$	9,951,059	1		—		$	12,116,246	$	12,116,246	$	(293,607	)	$	145,299
BlackRock Cash Funds: Institutional, SL Agency Shares		6,374,294		571,901	1		—			6,946,195	$	6,946,195		—		$	8,836
BlackRock Cash Funds: Prime, SL Agency Shares		1,943,189		—			(148,511	)2		1,794,678	$	1,794,678		—		$	2,252
CoreAlpha Bond Master Portfolio	$	7,200,788	$	5,042,986	1		—		$	12,243,774	$	12,243,774	$	(7,580	)	$	133,719
iShares Cohen & Steers Realty Majors Index Fund		116,706		23,245			(5,949	)		134,002	$	10,537,917	$	18,102		$	148,237
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		358,521		62,203			(21,389	)		399,335	$	11,385,041	$	(119,753	)	$	257,516
iShares MSCI Canada Index Fund		147,564		7,933			(14,202	)		141,295	$	3,651,063	$	(83,519	)	$	30,503
iShares MSCI EAFE Index Fund		541,724		24,255			(51,108	)		514,871	$	25,722,955	$	(548,457	)	$	591,633
iShares MSCI EAFE Small Cap Index Fund		109,510		19,962			(8,917	)		120,555	$	4,356,858	$	(66,680	)	$	69,376
iShares MSCI Emerging Markets Index Fund		274,352		20,183			(28,277	)		266,258	$	10,434,651	$	(244,388	)	$	124,704
Master Small Cap Index Series	$	3,997,168	$	609,504	1		—		$	4,606,672	$	4,606,672	$	83,167		$	39,725

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 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. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 63

Schedule of Investments (concluded) LifePath 2050 Master Portfolio

The following table summarizes the Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	74,829,358	$	141,834,810		—	$	216,664,168

Certain of the Master Portfolio’s liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of June 30, 2012, collateral on securities loaned at value of $8,341,350 is categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

64 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments June 30, 2012 (Unaudited) Active Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Aerospace & Defense — 4.4%
Alliant Techsystems, Inc.		2,903	$	146,805
The Boeing Co.		526,800		39,141,240
Exelis, Inc.		132,585		1,307,288
General Dynamics Corp.		87,565		5,775,787
Goodrich Corp.		2,499		317,123
Honeywell International, Inc.		216,670		12,098,853
L-3 Communications Holdings, Inc.		13,008		962,722
Lockheed Martin Corp.		96,100		8,368,388
Northrop Grumman Corp. (a)		80,360		5,126,164
Precision Castparts Corp.		47,200		7,763,928
Raytheon Co.		140,990		7,978,624
Rockwell Collins, Inc.		20,770		1,024,999
Textron, Inc.		303,100		7,538,097
Triumph Group, Inc.		5,465		307,516
United Technologies Corp.		304,945		23,032,496
				120,890,030
Air Freight & Logistics — 0.4%
C.H. Robinson Worldwide, Inc.		27,369		1,601,908
Expeditors International of Washington, Inc.		33,582		1,301,302
United Parcel Service, Inc., Class B		90,535		7,130,537
				10,033,747
Airlines — 0.8%
Copa Holdings SA (a)		73,967		6,100,798
Delta Air Lines, Inc. (b)		1,542,610		16,891,580
				22,992,378
Auto Components — 0.2%
Allison Transmission Holdings, Inc.		110,600		1,942,136
Delphi Automotive Plc (b)		18,810		479,655
Federal-Mogul Corp. (b)		5,189		57,079
Johnson Controls, Inc.		80,610		2,233,703
Lear Corp.		16,736		631,449
Visteon Corp. (b)		600		22,500
WABCO Holdings, Inc. (a)(b)		19,781		1,047,009
				6,413,531
Automobiles — 0.2%
Ford Motor Co.		185,420		1,778,178
Tesla Motors, Inc. (b)		139,400		4,361,826
				6,140,004
Beverages — 2.2%
Brown-Forman Corp., Class B (a)		20,352		1,971,091
The Coca-Cola Co.		459,713		35,944,959
Diageo Plc		255,680		6,584,771
Molson Coors Brewing Co., Class B		20,816		866,154
Monster Beverage Corp. (b)		26,160		1,862,592
PepsiCo Inc.		208,104		14,704,629
				61,934,196
Biotechnology — 1.4%
Amgen, Inc.		65,846		4,809,392
Biogen Idec, Inc. (b)		84,639		12,220,179
Celgene Corp. (b)		171,860		11,026,537
Gilead Sciences, Inc. (b)		67,844		3,479,040
Medivation, Inc. (b)		442		40,399
Myriad Genetics, Inc. (b)		265,644		6,314,358
Vertex Pharmaceuticals, Inc. (b)		5,989		334,905
				38,224,810
Building Products — 0.1%
Fortune Brands Home & Security, Inc. (b)		56,403		1,256,095
Capital Markets — 0.6%
American Capital Ltd. (b)		38,654		389,246
Ameriprise Financial, Inc.		30,201		1,578,304
The Bank of New York Mellon Corp.		6		132

Common Stocks	Shares		Value
Capital Markets (concluded)
The Goldman Sachs Group, Inc.		84,062	$	8,058,183
Jefferies Group, Inc.		305,499		3,968,432
Legg Mason, Inc.		52,686		1,389,330
Morgan Stanley		27,558		402,071
T Rowe Price Group, Inc.		2,233		140,590
				15,926,288
Chemicals — 2.3%
Airgas, Inc.		1,512		127,023
Cabot Corp.		5,754		234,188
Celanese Corp.		163,100		5,646,522
CF Industries Holdings, Inc.		40,459		7,838,527
Cytec Industries, Inc.		3,729		218,668
The Dow Chemical Co.		102,340		3,223,710
E.I. du Pont de Nemours & Co.		367,870		18,603,186
LyondellBasell Industries NV, Class A		24,207		974,816
Monsanto Co.		140,903		11,663,950
Olin Corp.		96,800		2,022,152
PPG Industries, Inc.		69,300		7,354,116
Praxair, Inc.		38,120		4,144,788
The Scotts Miracle-Gro Co., Class A		6,200		254,944
				62,306,590
Commercial Banks — 3.3%
Bank of Nova Scotia		104,890		5,426,356
BOK Financial Corp. (a)		1,913		111,337
First Citizens Bancshares, Inc., Class A		2,488		414,625
First Niagara Financial Group, Inc.		7,122		54,483
First Republic Bank (b)		73,729		2,477,294
M&T Bank Corp.		14,888		1,229,302
National Bank of Canada		86,900		6,203,064
SunTrust Banks, Inc.		56,492		1,368,801
The Toronto-Dominion Bank		64,740		5,060,065
U.S. Bancorp		511,609		16,453,346
Wells Fargo & Co.		1,590,664		53,191,804
				91,990,477
Commercial Services & Supplies — 0.1%
ACCO Brands Corp. (b)		39,735		410,860
The Brink’s Co.		5,229		121,208
Corrections Corp. of America		2,129		62,699
Republic Services, Inc.		9,902		262,007
Waste Connections, Inc. (a)		15,266		456,759
				1,313,533
Communications Equipment — 1.9%
Cisco Systems, Inc.		819,367		14,068,531
EchoStar Corp. (b)		3,933		103,910
F5 Networks, Inc. (b)		48,734		4,851,957
Harris Corp.		178,300		7,461,855
QUALCOMM, Inc.		459,738		25,598,212
				52,084,465
Computers & Peripherals — 5.2%
Apple, Inc. (b)		201,329		117,576,136
Dell, Inc. (b)		682,500		8,544,900
EMC Corp. (b)		298,200		7,642,866
Fusion-io, Inc. (b)		113,020		2,360,988
NetApp, Inc. (b)		155,700		4,954,374
QLogic Corp. (b)		322,900		4,420,501
				145,499,765
Construction & Engineering — 1.0%
Chicago Bridge & Iron Co. NV		128,700		4,885,452
Fluor Corp.		164,400		8,111,496
Jacobs Engineering Group, Inc. (b)		277,320		10,499,335
KBR, Inc.		157,500		3,891,825
				27,388,108

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 65

Schedule of Investments (continued) Active Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Consumer Finance — 0.6%
American Express Co.		117,639	$	6,847,766
Capital One Financial Corp.		35,362		1,932,887
Discover Financial Services		227,800		7,877,324
Green Dot Corp., Class A (a)(b)		5,000		110,600
				16,768,577
Containers & Packaging — 0.3%
Ball Corp.		113,900		4,675,595
Crown Holdings, Inc. (b)		27,527		949,406
Owens-Illinois, Inc. (b)		1,260		24,154
Rock-Tenn Co, Class A		14,913		813,504
Sealed Air Corp.		107,810		1,664,587
				8,127,246
Diversified Consumer Services — 0.5%
Apollo Group, Inc., Class A (b)		226,800		8,207,892
ITT Educational Services, Inc. (a)(b)		110,404		6,707,043
Weight Watchers International, Inc. (a)(b)		3,657		188,555
				15,103,490
Diversified Financial Services — 2.2%
Bank of America Corp.		560,821		4,587,516
Citigroup, Inc.		509,708		13,971,096
JPMorgan Chase & Co.		1,027,708		36,720,007
Leucadia National Corp.		7,670		163,141
Moody’s Corp.		135,700		4,959,835
The NASDAQ OMX Group, Inc.		8,607		195,120
NYSE Euronext (a)		27,729		709,308
				61,306,023
Diversified Telecommunication Services — 2.7%
AT&T, Inc.		581,585		20,739,321
BCE, Inc.		47,070		1,939,284
CenturyLink, Inc.		210,100		8,296,849
Level 3 Communications, Inc. (b)		110,100		2,438,715
Verizon Communications, Inc.		950,430		42,237,109
				75,651,278
Electric Utilities — 1.5%
American Electric Power Co., Inc.		102,579		4,092,902
Duke Energy Corp.		101,810		2,347,739
Edison International		46,850		2,164,470
Entergy Corp.		3,608		244,947
Exelon Corp.		11,260		423,601
FirstEnergy Corp.		68,370		3,363,120
ITC Holdings Corp. (a)		24,255		1,671,412
NextEra Energy, Inc.		73,800		5,078,178
Northeast Utilities		52,070		2,020,837
OGE Energy Corp.		1,496		77,478
PPL Corp.		46,210		1,285,100
Southern Co.		372,360		17,240,268
Xcel Energy, Inc.		39,838		1,131,797
				41,141,849
Electrical Equipment — 0.3%
The Babcock & Wilcox Co. (b)		39,724		973,238
Cooper Industries Plc, Class A		3,412		232,630
Hubbell, Inc. Class B (a)		12,092		942,451
Rockwell Automation, Inc.		23,850		1,575,531
Roper Industries, Inc.		33,900		3,341,862
				7,065,712
Electronic Equipment, Instruments & Components — 0.7%
AVX Corp.		2,150		22,984
Corning, Inc.		995,300		12,869,229
Dolby Laboratories, Inc., Class A (b)		28,484		1,176,389
Jabil Circuit, Inc.		209,000		4,248,970
				18,317,572

Common Stocks	Shares		Value
Energy Equipment & Services — 1.6%
CARBO Ceramics, Inc. (a)		456	$	34,989
Dresser-Rand Group, Inc. (b)		5,717		254,635
Ensco PLC, Class A		125,600		5,899,432
Halliburton Co.		263,790		7,488,998
McDermott International, Inc. (b)		8,442		94,044
National Oilwell Varco, Inc.		109,481		7,054,956
Noble Corp. (b)		456,555		14,851,734
Schlumberger Ltd.		68,196		4,426,602
Weatherford International Ltd. (b)		408,368		5,157,688
				45,263,078
Food & Staples Retailing — 2.4%
Costco Wholesale Corp.		167,900		15,950,500
CVS Caremark Corp.		80,329		3,753,774
The Fresh Market, Inc. (b)		1,700		91,171
The Kroger Co.		674,340		15,637,945
Wal-Mart Stores, Inc.		324,785		22,644,010
Walgreen Co.		98,664		2,918,481
Whole Foods Market, Inc.		70,055		6,677,643
				67,673,524
Food Products — 1.9%
Archer Daniels Midland Co.		314,850		9,294,372
ConAgra Foods, Inc.		178,300		4,623,319
General Mills, Inc.		116,280		4,481,431
H.J. Heinz Co.		62,830		3,416,695
Kraft Foods, Inc., Class A		183,090		7,070,936
Mead Johnson Nutrition Co.		96,678		7,783,546
Post Holdings, Inc. (a)(b)		29,890		919,118
Ralcorp Holdings, Inc. (b)		1,289		86,028
Unilever NV		465,910		15,538,098
				53,213,543
Gas Utilities — 0.1%
Atmos Energy Corp.		22,548		790,758
ONEOK, Inc.		64,384		2,724,087
				3,514,845
Health Care Equipment & Supplies — 1.4%
Baxter International, Inc.		167,468		8,900,924
Gen-Probe, Inc. (b)		910		74,802
Hill-Rom Holdings, Inc.		17,939		553,418
Intuitive Surgical, Inc. (b)		12,535		6,941,758
Medtronic, Inc.		379,181		14,685,680
ResMed, Inc. (b)		141,600		4,417,920
Sirona Dental Systems, Inc. (b)		27,780		1,250,378
Thoratec Corp. (b)		26,203		879,897
				37,704,777
Health Care Providers & Services — 2.8%
Aetna, Inc.		150,780		5,845,740
AmerisourceBergen Corp.		415,831		16,362,950
Cardinal Health, Inc. (a)		349,028		14,659,176
Catalyst Health Solutions, Inc. (b)		869		81,199
Express Scripts Holding Co. (b)		240,507		13,427,496
HCA Holdings, Inc.		296,318		9,016,957
Health Net, Inc. (b)		958		23,251
Humana, Inc.		14,002		1,084,315
Lincare Holdings, Inc.		124,800		4,245,696
McKesson Corp.		103,100		9,665,625
Quest Diagnostics Inc.		37,230		2,230,077
WellCare Health Plans, Inc. (b)		17,713		938,789
				77,581,271
Health Care Technology — 0.4%
Allscripts Healthcare Solutions, Inc. (b)		2,512		27,456
Cerner Corp. (b)		136,700		11,299,622
				11,327,078

See Notes to Financial Statements.

66 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments (continued) Active Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Hotels, Restaurants & Leisure — 2.1%
Brinker International, Inc.		228,800	$	7,291,856
Choice Hotels International, Inc. (a)		5,057		201,926
Hyatt Hotels Corp, Class A (b)		7,880		292,821
Las Vegas Sands Corp.		157,600		6,854,024
Marriott International, Inc., Class A		196,100		7,687,120
Marriott Vacations Worldwide Corp. (a)(b)		15,084		467,302
McDonald’s Corp.		262,299		23,221,330
Panera Bread Co., Class A (b)		743		103,604
Starbucks Corp.		215,111		11,469,719
Starwood Hotels & Resorts Worldwide, Inc.		2		106
Wynn Resorts Ltd.		7,739		802,689
Yum! Brands, Inc.		7,900		508,918
				58,901,415
Household Durables — 0.4%
Garmin Ltd.		100,000		3,829,000
NVR, Inc. (b)		1,368		1,162,800
Tempur-Pedic International, Inc. (b)		32,141		751,778
Tupperware Brands Corp.		72,080		3,947,101
Whirlpool Corp.		4,407		269,532
				9,960,211
Household Products — 0.8%
The Clorox Co.		2,609		189,048
Kimberly-Clark Corp.		139,260		11,665,810
The Procter & Gamble Co.		182,431		11,173,899
				23,028,757
Independent Power Producers & Energy Traders — 0.1%
International Power Plc		468,400		3,070,887
NRG Energy, Inc. (b)		12,955		224,899
				3,295,786
Industrial Conglomerates — 2.4%
3M Co.		92,718		8,307,533
Danaher Corp.		319,700		16,649,976
General Electric Co.		1,396,547		29,104,039
Tyco International Ltd.		241,354		12,755,559
				66,817,107
Insurance — 3.5%
ACE Ltd.		200,520		14,864,548
Aflac, Inc.		140,392		5,979,295
American National Insurance Co. (a)		1,700		121,159
Aspen Insurance Holdings Ltd.		23,580		681,462
Axis Capital Holdings Ltd.		16,847		548,370
Berkshire Hathaway, Inc., Class B (b)		4,465		372,068
Chubb Corp.		84,760		6,172,223
CNA Financial Corp.		18,037		499,986
Endurance Specialty Holdings Ltd.		24,174		926,348
Everest Re Group Ltd.		993		102,766
Genworth Financial, Inc., Class A (b)		108,566		614,483
The Hanover Insurance Group, Inc.		22,485		879,838
Hartford Financial Services Group, Inc.		625,026		11,019,208
Kemper Corp.		3		92
Lincoln National Corp.		239,862		5,245,782
MetLife, Inc.		356,276		10,991,115
PartnerRe Ltd.		10,008		757,305
Prudential Financial, Inc.		228,426		11,062,671
Reinsurance Group of America, Inc.		4,100		218,161
RenaissanceRe Holdings Ltd.		1		76
The Travelers Cos., Inc.		318,920		20,359,853
Validus Holdings Ltd.		141,172		4,521,739
Willis Group Holdings Plc		38,208		1,394,210
XL Group Plc		39,170		824,137
				98,156,895

Common Stocks	Shares		Value
Internet & Catalog Retail — 1.6%
Amazon.com, Inc. (b)		99,100	$	22,629,485
Expedia, Inc.		158,500		7,619,095
Groupon, Inc. (a)(b)		10,685		113,581
priceline.com, Inc. (b)		19,088		12,684,358
TripAdvisor, Inc. (b)		10,153		453,738
				43,500,257
Internet Software & Services — 2.2%
eBay, Inc. (b)		211,500		8,885,115
ExactTarget, Inc. (a)(b)		823		17,991
Facebook, Inc. (b)		17,180		534,642
Google, Inc., Class A (b)		72,324		41,952,983
IAC/InterActiveCorp		19,059		869,090
Millennial Media, Inc. (b)		2,336		30,812
Rackspace Hosting, Inc. (b)		182,000		7,997,080
VeriSign, Inc. (b)		21,148		921,418
				61,209,131
IT Services — 4.3%
Accenture Plc, Class A		190,100		11,423,109
Alliance Data Systems Corp. (b)		45,600		6,156,000
Amdocs Ltd. (b)		26,011		773,047
Automatic Data Processing, Inc.		26,840		1,493,914
Broadridge Financial Solutions, Inc.		21,209		451,116
Cognizant Technology Solutions Corp., Class A (b)		22,107		1,326,420
CoreLogic, Inc. (b)		12,681		232,189
DST Systems, Inc.		87,200		4,735,832
International Business Machines Corp.		215,885		42,222,788
Lender Processing Services, Inc.		145,600		3,680,768
MasterCard, Inc., Class A (a)		8,129		3,496,364
NeuStar Inc, Class A (b)		1,401		46,793
SAIC, Inc.		614,100		7,442,892
Total System Services, Inc.		3,535		84,593
Vantiv Inc, Class A (b)		3,667		85,405
VeriFone Systems, Inc. (b)		117,057		3,873,416
Visa, Inc., Class A (a)		95,421		11,796,898
The Western Union Co.		1,156,580		19,476,807
				118,798,351
Leisure Equipment & Products — 0.3%
Mattel, Inc.		94,034		3,050,463
Polaris Industries, Inc. (a)		83,328		5,956,285
				9,006,748
Life Sciences Tools & Services — 0.0%
Agilent Technologies, Inc.		5,951		233,517
Bio-Rad Laboratories, Inc., Class A (b)		524		52,405
Bruker Corp. (b)		2,415		32,144
Illumina, Inc. (b)		2,296		92,735
Thermo Fisher Scientific, Inc.		15,415		800,193
				1,210,994
Machinery — 2.7%
AGCO Corp. (b)		7,646		349,651
Caterpillar, Inc.		110,320		9,367,271
Crane Co.		7,513		273,323
Cummins, Inc.		99,580		9,650,298
Deere & Co.		123,310		9,972,080
Dover Corp.		38,593		2,068,971
Eaton Corp.		170,200		6,745,026
Gardner Denver, Inc. (a)		5,618		297,248
Ingersoll-Rand Plc		197,100		8,313,678
PACCAR, Inc.		104,900		4,111,031
Parker Hannifin Corp.		94,100		7,234,408
Stanley Black & Decker, Inc.		151,725		9,765,021
Terex Corp. (b)		228,109		4,067,183
Toro Co. (a)		8,909		652,941
Trinity Industries, Inc.		5,661		141,412

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 67

Schedule of Investments (continued) Active Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Machinery (concluded)
Xylem, Inc. (a)		100,469	$	2,528,805
				75,538,347
Media — 3.9%
CBS Corp., Class B		141,200		4,628,536
Comcast Corp, Class A		272,700		8,718,219
Comcast Corp, Special Class A		431,370		13,545,018
DIRECTV, Class A (b)		259,598		12,673,574
DISH Network Corp.		182,233		5,202,752
Interpublic Group of Cos., Inc.		614,100		6,662,985
John Wiley & Sons, Inc., Class A (a)		32,457		1,590,068
Liberty Media Corp. — Liberty Capital (b)		2,418		212,566
The McGraw-Hill Cos., Inc.		188,819		8,496,855
Regal Entertainment Group		212,000		2,917,120
Scripps Networks Interactive, Inc., Class A		11,049		628,246
Time Warner Cable, Inc.		195,517		16,051,946
Time Warner, Inc.		237,895		9,158,958
Viacom, Inc., Class B		186,996		8,792,552
The Walt Disney Co.		175,210		8,497,685
The Washington Post Co., Class B (a)		1,846		690,072
				108,467,152
Metals & Mining — 1.5%
Alcoa, Inc. (a)		628,678		5,500,932
Barrick Gold Corp.		58,030		2,182,991
BHP Billiton Ltd.		308,920		9,958,910
Freeport-McMoRan Copper & Gold, Inc.		259,346		8,835,918
Newmont Mining Corp.		2,837		137,623
Nucor Corp.		153,080		5,801,732
Rio Tinto Ltd.		54,630		3,163,915
Schnitzer Steel Industries, Inc. (a)		849		23,789
Southern Copper Corp.		61,982		1,953,063
Steel Dynamics, Inc.		315,900		3,711,825
Walter Energy, Inc.		6,949		306,868
				41,577,566
Multi-Utilities — 1.0%
Consolidated Edison, Inc.		22,790		1,417,310
Dominion Resources, Inc.		303,530		16,390,620
DTE Energy Co. (a)		5,112		303,295
PG&E Corp.		970		43,912
Public Service Enterprise Group, Inc. (a)		134,894		4,384,055
Sempra Energy		32,050		2,207,604
Wisconsin Energy Corp.		54,410		2,153,004
				26,899,800
Multiline Retail — 1.6%
Big Lots, Inc. (b)		184,200		7,513,518
Dollar General Corp. (b)		43,098		2,344,100
Dollar Tree, Inc. (b)		170,862		9,192,376
Family Dollar Stores, Inc.		1,957		130,101
J.C. Penney Co., Inc. (a)		128,303		2,990,743
Macy’s, Inc.		181,300		6,227,655
Nordstrom, Inc.		161,500		8,024,935
Target Corp.		119,800		6,971,162
				43,394,590
Oil, Gas & Consumable Fuels — 7.0%
Anadarko Petroleum Corp.		174,804		11,572,025
Apache Corp.		121,505		10,679,074
Cheniere Energy, Inc. (b)		11,492		169,392
Chevron Corp.		338,515		35,713,332
ConocoPhillips		124,293		6,945,493
CONSOL Energy, Inc.		14,700		444,528
Denbury Resources, Inc. (b)		507,100		7,662,281
Devon Energy Corp.		172,460		10,000,955
Enbridge, Inc.		200,090		7,980,440
EQT Corp.		60,600		3,249,978

Common Stocks	Shares		Value
Oil, Gas & Consumable Fuels (concluded)
Exxon Mobil Corp. (a)		514,006	$	43,983,493
Hess Corp.		73,060		3,174,457
HollyFrontier Corp.		10,054		356,213
Kinder Morgan Management LLC (a)(b)		7,709		565,995
Kinder Morgan, Inc.		56,363		1,816,016
Kosmos Energy Ltd. (a)(b)		5,450		60,223
Marathon Oil Corp.		481,539		12,312,952
Marathon Petroleum Corp.		81,651		3,667,763
Noble Energy, Inc.		17,800		1,509,796
Occidental Petroleum Corp.		141,411		12,128,821
Peabody Energy Corp.		261,927		6,422,450
Phillips 66 (b)		74,573		2,478,807
Royal Dutch Shell Plc Class A		49,940		1,682,103
Spectra Energy Corp.		87,860		2,553,212
Total SA		165,800		7,452,710
The Williams Cos., Inc.		10,375		299,007
				194,881,516
Paper & Forest Products — 0.3%
Domtar Corp. (a)		11,556		886,461
International Paper Co.		147,600		4,267,116
MeadWestvaco Corp.		120,330		3,459,487
				8,613,064
Personal Products — 0.5%
The Estee Lauder Cos., Inc., Class A		42,354		2,292,198
Herbalife Ltd.		249,408		12,053,889
Nu Skin Enterprises, Inc.		624		29,266
				14,375,353
Pharmaceuticals — 6.1%
Abbott Laboratories		351,390		22,654,113
Allergan, Inc.		11,080		1,025,676
Bristol-Myers Squibb Co.		249,931		8,985,019
Eli Lilly & Co.		377,055		16,179,430
Forest Laboratories, Inc. (b)		17,813		623,277
Johnson & Johnson (a)		486,763		32,885,708
Merck & Co., Inc.		818,493		34,172,083
Pfizer, Inc.		1,715,549		39,457,627
Valeant Pharmaceuticals International, Inc. (b)		132,700		5,943,633
Warner Chilcott Plc, Class A (b)		367,493		6,585,475
				168,512,041
Professional Services — 0.2%
Manpower, Inc. (a)		114,096		4,181,618
Verisk Analytics, Inc., Class A (b)		7,758		382,159
				4,563,777
Real Estate Investment Trusts (REITs) — 0.6%
Alexandria Real Estate Equities, Inc.		2,734		198,817
American Tower Corp.		102,100		7,137,811
BRE Properties, Inc. (a)		3,871		193,627
Camden Property Trust (a)		18,820		1,273,549
Home Properties, Inc.		8,736		536,041
Piedmont Office Realty Trust, Inc. (a)		26,985		464,412
Public Storage (a)		13,266		1,915,743
Rayonier, Inc.		1		23
Simon Property Group, Inc.		6,141		955,908
Taubman Centers, Inc. (a)		3,800		293,208
Ventas, Inc.		7,709		486,592
Weyerhaeuser Co.		96,050		2,147,678
				15,603,409
Real Estate Management & Development — 0.0%
The Howard Hughes Corp. (b)		3,873		238,732
Road & Rail — 0.4%
Canadian National Railway Co.		78,050		6,585,859
Landstar System, Inc.		2,771		143,316

See Notes to Financial Statements.

68 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments (continued) Active Stock Master Portfolio (Percentages shown are based on Net Assets)

Common Stocks	Shares		Value
Road & Rail (concluded)
Union Pacific Corp.		36,950	$	4,408,505
				11,137,680
Semiconductors & Semiconductor Equipment — 1.6%
Advanced Micro Devices, Inc. (b)		77,649		444,929
Altera Corp.		20,374		689,456
Avago Technologies Ltd.		89,810		3,224,179
Broadcom Corp., Class A (b)		180,736		6,108,877
Intel Corp.		270,451		7,207,519
KLA-Tencor Corp.		7,709		379,668
Linear Technology Corp.		1,136		35,591
LSI Corp. (b)		1,739,234		11,078,920
Marvell Technology Group Ltd.		265,950		2,999,916
Micron Technology, Inc. (b)		901,460		5,688,213
Silicon Laboratories, Inc. (a)(b)		24,064		912,026
Xilinx, Inc.		140,300		4,709,871
				43,479,165
Software — 4.2%
Ariba, Inc. (b)		2,120		94,891
Autodesk, Inc. (b)		4,698		164,383
Fortinet, Inc. (b)		12,427		288,555
Intuit, Inc.		6,132		363,934
Microsoft Corp.		2,601,811		79,589,399
Oracle Corp.		250,400		7,436,880
Red Hat, Inc. (b)		122,400		6,913,152
Salesforce.com, Inc. (b)		64,992		8,985,794
Splunk, Inc. (a)(b)		1,992		55,975
Symantec Corp. (b)		553,700		8,089,557
VMware, Inc., Class A (b)		59,600		5,425,984
				117,408,504
Specialty Retail — 2.2%
Abercrombie & Fitch Co., Class A (a)		15,630		533,608
Advance Auto Parts, Inc. (a)		132,128		9,013,772
Bed Bath & Beyond, Inc. (b)		7,930		490,074
Chico’s FAS, Inc.		304,100		4,512,844
The Home Depot, Inc.		380,843		20,180,871
Limited Brands, Inc.		155,900		6,630,427
PetSmart, Inc.		120,800		8,236,144
Ross Stores, Inc.		6,473		404,368
Sally Beauty Holdings, Inc. (b)		19,598		504,453
The TJX Cos., Inc.		268,244		11,515,715
				62,022,276
Textiles, Apparel & Luxury Goods — 0.9%
Coach, Inc.		133,091		7,783,161
Michael Kors Holdings Ltd. (b)		128,988		5,396,858
NIKE, Inc., Class B		960		84,269
Tumi Holdings, Inc. (a)(b)		3,072		53,760
Under Armour Inc, Class A (b)		65,300		6,169,544
VF Corp.		49,520		6,608,444
				26,096,036
Thrifts & Mortgage Finance — 0.0%
BankUnited, Inc. (a)		2,115		49,872
Tobacco — 1.6%
Altria Group, Inc.		101,590		3,509,935
Lorillard, Inc.		61,899		8,167,573
Philip Morris International, Inc.		378,836		33,057,229
				44,734,737
Trading Companies & Distributors — 0.1%
Air Lease Corp. (b)		4,557		88,360
MSC Industrial Direct Co., Inc.		13,441		881,058
WESCO International, Inc. (a)(b)		7,713		443,883
				1,413,301

Common Stocks	Shares		Value
Water Utilities — 0.2%
American Water Works Co., Inc.		175,899	$	6,029,818
Wireless Telecommunication Services — 0.1%
MetroPCS Communications, Inc. (b)		53,457		323,415
Telephone & Data Systems, Inc.		43,995		936,653
United States Cellular Corp. (b)		6,834		263,929
Vodafone Group Plc		87,320		2,460,678
				3,984,675
Total Long-Term Investments (Cost — $ 2,527,683,050) — 97.9%				2,717,060,943
Short-Term Securities
Money Market Funds — 2.6%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.25% (c)(d)(e)		68,060,767		68,060,767
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(d)(e)		4,684,953		4,684,953
				72,745,720
	Par (000)
U.S. Treasury Obligations — 0.1%
U.S. Treasury Bill, 0.00%, 9/20/12 (f)(g)	$	890		889,857
Total Short-Term Securities (Cost — $ 73,635,523) — 2.7 %				73,635,577
Total Investments* (Cost — $ 2,601,318,573) — 100.6 %				2,790,696,520
Liabilities in Excess of Other Assets — (0.6)%				(15,330,206	)
Net Assets — 100.0%			$	2,775,366,314

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	2,639,607,955
Gross unrealized appreciation	$	266,919,212
Gross unrealized depreciation		(115,830,647	)
Net unrealized appreciation	$	151,088,565

(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 Held at December 31, 2011		Net Activity			Shares Held at June 30, 2012		Income
BlackRock Cash Funds:
Institutional, SL Agency Shares		128,263,976		(60,203,209	)		68,060,767	$	180,124
BlackRock Cash Funds:
Prime, SL Agency Shares		20,162,910		(15,477,957	)		4,684,953	$	32,394

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

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

(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.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 69

Schedule of Investments (concluded) Active Stock Master Portfolio

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. These definitions 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 June 30, 2012 were as follows:

Contracts	Issue	Exchange	Expiration	Notional Value		Unrealized Appreciation
93	S&P 500 Index	Chicago Mercantile	September 2012	$	6,307,260	$	201,592

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments and derivative financial instruments. These inputs to valuation techniques 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 into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. 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 is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments and derivative financial instruments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Long-Term Investments1:
Common Stocks	$	2,717,060,943		—		—	$	2,717,060,943
Short-Term Securities:
Money Market Funds		72,745,720		—		—		72,745,720
U.S. Treasury Obligations		—	$	889,857		—		889,857
Total	$	2,789,806,663	$	889,857		—	$	2,790,696,520
	Level 1		Level 2		Level 3		Total
Derivative Financial Instruments2
Liabilities:
Equity Contracts	$	201,592		—		—	$	201,592

¹  See above Schedule of Investments for values in each industry.

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

Certain of the Master Portfolio's assets and liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of June 30, 2012, such assets and liabilities are categorized within the disclosure hierarchy as follows:

	Level 1		Level 2			Level 3		Total
Assets:
Foreign currency at value	$	42,861		—			—	$	42,861
Liabilities:
Collateral on securities loaned at value		—	$	(21,774,844	)		—		(21,774,844	)
Total	$	42,861	$	(21,774,844	)	$	—	$	(21,731,983	)

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

70 BLACKROCK FUNDS III JUNE 30, 2012

Statements of Assets and Liabilities Master Investment Portfolio

June 30, 2012 (Unaudited)	LifePath Retirement Master Portfolio		LifePath 2020 Master Portfolio		LifePath 2030 Master Portfolio		LifePath 2040 Master Portfolio		LifePath 2050 Master Portfolio
Assets
Investments at value — affiliated1,2	$	1,416,554,186	$	2,405,805,404	$	2,156,773,670	$	1,741,097,977	$	216,664,168
Contributions receivable from investors		1,712,254		781,599		1,806,848		1,475,001		540,209
Investments sold receivable		2,200,000		9,500,000		9,900,000		—		—
Securities lending income receivable		3,595		12,046		9,401		9,484		2,102
Interest receivable		509		885		752		634		86
Total assets		1,420,470,544		2,416,099,934		2,168,490,671		1,742,583,096		217,206,565
Liabilities
Collateral on securities loaned at value		10,130,600		25,221,200		77,452,050		165,237,240		8,341,350
Investments purchased payable		7,379,540		15,500,000		14,401,076		1,051,929		297,154
Withdrawal payable to investors		215,339		942,718		—		—		—
Investment advisory fees payable		104,572		144,944		100,650		59,254		4,469
Professional fees payable		18,569		20,135		19,566		18,748		16,525
Trustees’ fees payable		9,357		15,287		12,817		9,837		1,189
Total liabilities		17,857,977		41,844,284		91,986,159		166,377,008		8,660,687
Net Assets	$	1,402,612,567	$	2,374,255,650	$	2,076,504,512	$	1,576,206,088	$	208,545,878
Net Assets Consist of
Investors’ capital	$	1,317,312,035	$	2,225,931,661	$	1,951,614,182	$	1,490,488,687	$	200,906,630
Net unrealized appreciation/depreciation		85,300,532		148,323,989		124,890,330		85,717,401		7,639,248
Net Assets	$	1,402,612,567	$	2,374,255,650	$	2,076,504,512	$	1,576,206,088	$	208,545,878
1 Investments at cost — affiliated	$	1,331,253,654	$	2,257,481,415	$	2,031,883,340	$	1,655,380,576	$	209,024,920
2 Securities loaned at value	$	10,218,476	$	25,424,804	$	78,441,324	$	167,708,119	$	8,439,512

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	71

Statements of Assets and Liabilities (concluded) Master Investment Portfolio

June 30, 2012 (Unaudited)	Active Stock Master Portfolio
Assets
Investments at value — unaffiliated1,2	$	2,717,950,800
Investments at value —affiliated3		72,745,720
Foreign currency at value (cost — $42,391)		42,861
Contributions receivable from investors		37,160
Investments sold receivable		82,581,119
Cash		1,340
Dividends receivable		3,100,592
Securities lending income receivable		12,746
Interest receivable		10,708
Variation margin receivable		156,893
Total assets		2,876,639,939
Liabilities
Collateral on securities loaned at value		21,774,844
Investments purchased payable		57,177,122
Withdrawals payable to investors		21,654,000
Investment advisory fees payable		364,260
Administration fees payable		210,570
Professional fees payable		35,607
Trustees’ fees payable		5,433
Foreign taxes payable		51,789
Total liabilities		101,273,625
Net Assets	$	2,775,366,314
Net Assets Consist of
Investors’ capital	$	2,585,784,710
Net unrealized appreciation/depreciation		189,581,604
Net Assets	$	2,775,366,314
1 Investments at cost — unaffiliated	$	2,528,572,853
2 Securities loaned at value	$	21,838,718
3 Investments at cost — affiliated	$	72,745,720

See Notes to Financial Statements.
72	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Operations Master Investment Portfolio

Six Months Ended June 30, 2012 (Unaudited)	LifePath Retirement Master Portfolio			LifePath 2020 Master Portfolio			LifePath 2030 Master Portfolio			LifePath 2040 Master Portfolio			LifePath 2050 Master Portfolio
Investment Income
Dividends — affiliated	$	4,446,299		$	10,201,242		$	10,724,310		$	9,341,056		$	1,221,969
Securities lending — affiliated		35,276			73,797			69,759			49,952			10,469
Income — affiliated		3,264			5,674			4,984			3,805			619
Net investment income allocated from the applicable Master Portfolios:
Dividends		3,703,744			8,634,634			9,506,251			8,380,546			1,303,426
Interest		10,236,504			12,717,378			7,285,111			3,254,357			146,241
Expenses		(1,496,018	)		(2,535,092	)		(2,180,235	)		(1,678,713	)		(220,854	)
Fees waived		155,291			356,608			360,818			339,063			50,463
Total income		17,084,360			29,454,241			25,770,998			19,690,066			2,512,333
Expenses
Investment advisory		2,438,638			4,171,260			3,626,823			2,751,463			347,590
Professional		14,620			15,698			15,302			14,716			13,167
Independent Trustees		18,856			31,196			27,056			20,908			3,680
Total expenses		2,472,114			4,218,154			3,669,181			2,787,087			364,437
Less fees waived by advisor		(1,811,737	)		(3,291,462	)		(3,015,033	)		(2,388,741	)		(321,587	)
Total expenses after fees waived		660,377			926,692			654,148			398,346			42,850
Net investment income		16,423,983			28,527,549			25,116,850			19,291,720			2,469,483
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments — unaffiliated		3,164			18,236			586,543			8,490			—
Investments — affiliated		(771,714	)		(4,084,627	)		(8,347,387	)		(6,054,051	)		(1,044,695	)
Allocations from the applicable Master Portfolios from investments, financial futures contracts, swaps and foreign currency transactions		19,826,123			40,096,477			36,836,427			29,607,208			2,393,022
		19,057,573			36,030,086			29,075,583			23,561,647			1,348,327
Net change in unrealized appreciation/depreciation on:
Investments — affiliated		6,976,608			22,740,450			29,902,224			25,990,296			4,570,980
Allocated from the applicable Master Portfolios from investments, financial futures contracts, swaps and foreign currency transactions		17,283,588			36,775,243			38,974,439			32,952,993			3,935,005
		24,260,196			59,515,693			68,876,663			58,943,289			8,505,985
Total realized and unrealized gain		43,317,769			95,545,779			97,952,246			82,504,936			9,854,312
Net Increase in Net Assets Resulting from Operations	$	59,741,752		$	124,073,328		$	123,069,096		$	101,796,656		$	12,323,795

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	73

Statements of Operations (concluded) Master Investment Portfolio

Six Months Ended June 30, 2012 (Unaudited)	Active Stock Master Portfolio
Investment Income
Dividends	$	28,748,204
Foreign taxes withheld		(155,195	)
Securities lending — affiliated		150,563
Income — affiliated		61,955
Interest		221
Total income		28,805,748
Expenses
Investment advisory		3,424,937
Administration		1,406,338
Professional		24,756
Independent Trustees		34,264
Total expenses		4,890,295
Less fees waived by advisor		(1,184,090	)
Total expenses after fees waived		3,706,205
Net investment income		25,099,543
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments		100,671,271
Payment by affiliate		773,484
Financial futures contracts		903,374
Foreign currency transactions		(353,791	)
		101,994,338
Net change in unrealized appreciation/depreciation on:
Investments		106,702,528
Financial futures contracts		206,428
Foreign currency transactions		1,967
		106,910,923
Total realized and unrealized gain		208,905,261
Net Increase in Net Assets Resulting from Operations	$	234,004,804

See Notes to Financial Statements.
74	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Changes in Net Assets Master Investment Portfolio

	LifePath Retirement Master Portfolio						LifePath 2020 Master Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	16,423,983		$	38,067,629		$	28,527,549		$	60,372,244
Net realized gain		19,057,573			83,442,854			36,030,086			142,008,444
Net change in unrealized appreciation/depreciation		24,260,196			(62,125,719	)		59,515,693			(155,171,111	)
Net increase in net assets resulting from operations		59,741,752			59,384,764			124,073,328			47,209,577
Capital Transactions
Proceeds from contributions		98,706,618			146,032,233			155,199,297			253,699,470
Value of withdrawals		(142,868,352	)		(198,525,183	)		(263,599,659	)		(286,287,280	)
Net decrease in net assets derived from capital transactions		(44,161,734	)		(52,492,950	)		(108,400,362	)		(32,587,810	)
Net Assets
Total increase in net assets		15,580,018			6,891,814			15,672,966			14,621,767
Beginning of period		1,387,032,549			1,380,140,735			2,358,582,684			2,343,960,917
End of period	$	1,402,612,567		$	1,387,032,549		$	2,374,255,650		$	2,358,582,684

	LifePath 2030 Master Portfolio						LifePath 2040 Master Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	25,116,850		$	48,007,839		$	19,291,720		$	34,237,278
Net realized gain		29,075,583			116,683,095			23,561,647			90,966,772
Net change in unrealized appreciation/depreciation		68,876,663			(168,358,770	)		58,943,289			(154,925,236	)
Net increase (decrease) in net assets resulting from operations		123,069,096			(3,667,836	)		101,796,656			(29,721,186	)
Capital Transactions
Proceeds from contributions		138,384,263			258,359,711			96,002,251			183,590,711
Value of withdrawals		(199,059,719	)		(212,656,069	)		(131,349,083	)		(163,316,566	)
Net increase (decrease) in net assets derived from capital transactions		(60,675,456	)		45,703,642			(35,346,832	)		20,274,145
Net Assets
Total increase (decrease) in net assets		62,393,640			42,035,806			66,499,824			(9,447,041	)
Beginning of period		2,014,110,872			1,972,075,066			1,509,756,264			1,519,203,305
End of period	$	2,076,504,512		$	2,014,110,872		$	1,576,206,088		$	1,509,756,264

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	75

Statements of Changes in Net Assets (continued) Master Investment Portfolio

	LifePath 2050 Master Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	2,469,483		$	3,366,572
Net realized gain		1,348,327			5,616,076
Net change in unrealized appreciation/depreciation		8,505,985			(15,828,122	)
Net increase (decrease) in net assets resulting from operations		12,323,795			(6,845,474	)
Capital Transactions
Proceeds from contributions		46,101,091			76,805,333
Value of withdrawals		(29,965,786	)		(9,263,627	)
Net increase in net assets derived from capital transactions		16,135,305			67,541,706
Net Assets
Total increase in net assets		28,459,100			60,696,232
Beginning of period		180,086,778			119,390,546
End of period	$	208,545,878		$	180,086,778

See Notes to Financial Statements.
76	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Changes in Net Assets (concluded) Master Investment Portfolio

	Active Stock Master Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	25,099,543		$	44,115,776
Net realized gain		101,994,338			194,035,159
Net change in unrealized appreciation/depreciation		106,910,923			(191,461,710	)
Net increase (decrease) in net assets resulting from operations		234,004,804			46,689,225
Capital Transactions
Proceeds from contributions		205,493,909			657,028,420
Value of withdrawals		(381,382,101	)		(499,892,059	)
Net increase in net assets derived from capital transactions		(175,888,192	)		157,136,361
Net Assets
Total increase in net assets		58,116,612			203,825,586
Beginning of period		2,717,249,702			2,513,424,116
End of period	$	2,775,366,314		$	2,717,249,702

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	77

Financial Highlights Master Investment Portfolio

	LifePath Retirement Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010		2009			2008			2007
Total Investment Return
Total investment return		4.36%	1		4.46%			9.83%		18.75%			(14.54	)%		5.00%
Ratios to Average Net Assets
Total expenses2		0.55%	3,4,5		0.55%	6,7		0.61%		0.59%			0.61%			0.61%
Total expenses after fees waived2		0.29%	3,4,5		0.27%	6,7		0.26%		0.26%			0.27%			0.27%
Net investment income8		2.36%	3,4,5		2.77%	6,7		2.60%		3.61%			3.81%			3.87%
Supplemental Data
Net assets, end of period (000)	$	1,402,613		$	1,387,033		$	1,380,141	$	1,165,307		$	253,604		$	331,733
Portfolio turnover		6%			4%			4%		6%	9		11%			6%

¹  Aggregate total investment return.

²  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.

³  Annualized.

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 0.02%.

⁵  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.07%, although the ratio does include the LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

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 0.02%.

⁷  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.08%, although the ratio does include the LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁸  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.

⁹  Excludes in-kind contribution of portfolio securities received in a tax-free reorganization on November 20, 2009.

See Notes to Financial Statements.
78	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) Master Investment Portfolio

	LifePath 2020 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010		2009		2008			2007
Total Investment Return
Total investment return		5.46%	1		1.96%			11.40%		23.21%		(24.92	)%		3.84%
Ratios to Average Net Assets
Total expenses2		0.54%	3,4,5		0.53%	6,7		0.59%		0.58%		0.57%			0.58%
Total expenses after fees waived2		0.26%	3,4,5		0.25%	6,7		0.23%		0.23%		0.23%			0.25%
Net investment income8		2.39%	3,4,5		2.56%	6,7		2.45%		3.15%		3.18%			3.01%
Supplemental Data
Net assets, end of period (000)	$	2,374,256		$	2,358,583		$	2,343,961	$	1,779,673	$	1,245,671		$	1,827,888
Portfolio turnover		8%			5%			4%		6%		13%			7%

¹  Aggregate total investment return.

²  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.

³  Annualized.

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 0.10%, although the ratio does include the LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

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 LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁸  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.
	BLACKROCK FUNDS III	JUNE 30, 2012	79

Financial Highlights (continued) Master Investment Portfolio

	LifePath 2030 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010		2009		2008			2007
Total Investment Return
Total investment return		6.32%	1		(0.13	)%		12.36%		26.27%		(30.53	)%		3.14%
Ratios to Average Net Assets
Total expenses2		0.53%	3,4,5		0.52%	6,7		0.57%		0.56%		0.55%			0.57%
Total expenses after fees waived2		0.24%	3,4,5		0.22%	6,7		0.21%		0.20%		0.21%			0.23%
Net investment income8		2.42%	3,4,5		2.39%	6,7		2.34%		2.97%		2.82%			2.57%
Supplemental Data
Net assets, end of period (000)	$	2,076,505		$	2,014,111		$	1,972,075	$	1,433,256	$	952,181		$	1,393,178
Portfolio turnover		8%			7%			3%		7%		13%			7%

¹  Aggregate total investment return.

²  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.

³  Annualized.

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 LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

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 0.04%.

⁷  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.13%, although the ratio does include the LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁸  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.
80	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) Master Investment Portfolio

	LifePath 2040 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010		2009		2008			2007
Total Investment Return
Total investment return		6.93%	1		(1.88	)%		13.21%		28.58%		(34.90	)%		2.53%
Ratios to Average Net Assets
Total expenses2		0.53%	3,4,5		0.52%	6,7		0.55%		0.55%		0.53%			0.56%
Total expenses after fees waived2		0.22%	3,4,5		0.20%	6,7		0.19%		0.18%		0.19%			0.22%
Net investment income8		2.45%	3,4,5		2.24%	6,7		2.24%		2.82%		2.52%			2.20%
Supplemental Data
Net assets, end of period (000)	$	1,576,206		$	1,509,756		$	1,519,203	$	1,133,675	$	720,539		$	1,022,941
Portfolio turnover		7%			8%			4%		6%		14%			8%

¹  Aggregate total investment return.

²  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.

³  Annualized.

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 LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

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 0.04%.

⁷  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.15%, although the ratio does include the LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁸  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.
	BLACKROCK FUNDS III	JUNE 30, 2012	81

Financial Highlights (continued) Master Investment Portfolio

	LifePath 2050 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,							Period June 30, 20081 to December 31, 2008
				2011			2010		2009
Total Investment Return
Total investment return		7.45%	2		(3.28	)%		13.93%		30.85%		(31.93	)%2
Ratios to Average Net Assets
Total expenses3		0.54%	4,5,6		0.53%	7,8		0.56%		0.59%		1.11%	4
Total expenses after fees waived3		0.21%	4,5,6		0.18%	7,8		0.17%		0.16%		0.17%	4
Net investment income9		2.49%	4,5,6		2.18%	7,8		2.31%		2.84%		3.05%	4
Supplemental Data
Net assets, end of period (000)	$	208,546		$	180,087		$	119,391	$	40,164	$	6,895
Portfolio turnover		8%			13%			5%		12%		0%	10

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, 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.

⁴  Annualized.

⁵  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%.

⁶  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.15%, although the ratio does include the LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁷  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%.

⁸  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.17%, although the ratio does include the LifePath Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁹  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.

¹⁰  Rounds to less than 1% .

See Notes to Financial Statements.
82	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (concluded) Master Investment Portfolio

	Active Stock Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011		2010		2009		2008			2007
Total Investment Return
Total investment return		8.53%	1		2.20%		11.04%		24.86%		(36.65	)%		0.58%
Ratios to Average Net Assets
Total expenses		0.35%	2		0.35%		0.35%		0.35%		0.35%			0.35%
Total expenses after fees waived		0.26%	2		0.27%		0.29%		0.30%		0.32%			0.34%
Net investment income		1.78%	2		1.70%		1.50%		1.99%		1.96%			1.70%
Supplemental Data
Net assets, end of period (000)	$	2,775,366		$	2,717,250	$	2,513,424	$	1,838,453	$	1,250,987		$	2,085,214
Portfolio turnover		58%			275%		120%		149%		98%			80%

¹  Aggregate total investment return.

²  Annualized.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	83

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. LifePath Retirement Master Portfolio, LifePath 2020 Master Portfolio, LifePath 2030 Master Portfolio, LifePath 2040 Master Portfolio, LifePath 2050 Master Portfolio and Active Stock Master Portfolio (each, a “Master Portfolio” and collectively, the “Master Portfolios”) are each a series of MIP. 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.

As of June 30, 2012, LifePath Retirement Master Portfolio’s investment in the CoreAlpha Bond Master Portfolio was 52.4% of net assets. The financial statements of the CoreAlpha Bond Master Portfolio, including the Schedule of Investments, can be read in conjunction with the LifePath Retirement Master Portfolio’s financial statements. CoreAlpha Bond Master Portfolio’s financial statements, included in filings under MIP, are available, without charge, upon request by calling (800) 441-7762 or on the SEC’s website at http://www.sec.gov.

Each of the LifePath Retirement Master Portfolio, LifePath 2020 Master Portfolio, LifePath 2030 Master Portfolio, LifePath 2040 Master Portfolio and LifePath 2050 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, 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 June 30, 2012, 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		11.03	%		6.74	%		29.01	%		13.95	%
LifePath 2020 Master Portfolio		26.78	%		10.18	%		36.36	%		20.06	%
LifePath 2030 Master Portfolio		30.30	%		11.17	%		20.98	%		14.36	%
LifePath 2040 Master Portfolio		27.28	%		8.77	%		9.31	%		9.43	%
LifePath 2050 Master Portfolio		4.07	%		3.55	%		0.48	%		1.07	%

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 annually by the Board of Trustees of MIP (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Master Portfolios for all financial instruments.

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. Investments in open-end registered investment companies are valued at NAV each business day. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value. The market value of each LifePath Master Portfolio’s investments in the Underlying Funds is based on the published NAV of each Underlying Fund computed as of the close of regular trading on the New York Stock Exchange (“NYSE”) on days when the NYSE is open.

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 by the Global Valuation Committee, or its delegate, 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 Global Valuation Committee, or its delegate, seeks to determine the price that each 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. These factors include but are not limited to (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or default rates. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches, including regular due diligence of the Master Portfolio’s pricing vendors, a regular review of key

84 BLACKROCK FUNDS III JUNE 30, 2012

Notes to Financial Statements (continued) Master Investment Portfolio

inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof on a quarterly basis.

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 ), 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, Core- Alpha 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 six months ended June 30, 2012, 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, 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 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.

Recent Accounting Standard: In December 2011, the Financial Accounting Standards Board issued guidance that will expand 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 or similar agreements which are eligible for offset in the Statements of Assets and Liabilities and will require an entity to disclose both gross and net information about such investments and transactions in the financial statements. 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:

Active Stock Master Portfolio engages in various portfolio investment strategies using derivative contracts both to increase the returns of Active Stock 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

BLACKROCK FUNDS III JUNE 30, 2012 85

Notes to Financial Statements (continued) Master Investment Portfolio

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: Active Stock 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 Active Stock 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, financial 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, Active Stock 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 variation margin and are recorded by Active Stock Master Portfolio as unrealized appreciation or depreciation. When the contract is closed, Active Stock 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.

Derivative Financial Instruments Categorized by Risk Exposure:
Fair Value of Derivative Financial Instruments as of June 30, 2012
	Asset Derivatives
	Active Stock Master Portfolio
	Statement of Assets and Liabilities Location	Value
Equity contracts	Net unrealized appreciation/depreciation*	$	201,592

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

The Effect of Derivative Financial Instruments in the Statement of Operations
Six Months Ended June 30, 2012
	Net Realized Gain From
	Active Stock Master Portfolio
Equity contracts:
Financial futures contracts		$	903,374
	Net Change in Unrealized Appreciation/Depreciation on
	Active Stock Master Portfolio
Equity contracts:
Financial futures contracts		$	206,428

For the six months ended June 30, 2012, the average quarterly balances of outstanding derivative financial instruments were as follows:

	Active Stock Master Portfolio
Financial futures contracts:
Average number of contracts purchased		105
Average notional value of contracts purchased		$7,223,055

3. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

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 a monthly fee based on a percentage of Active Stock 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, 2013. 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, 2022. 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.

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Notes to Financial Statements (concluded) Master Investment Portfolio

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 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 an offsetting credit against the administration fees paid by Active Stock Master Portfolio in an amount equal to the independent expenses, through April 30, 2013. 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. BTC 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, if any. 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 pay a fee to BTC equal to 35% of such income. The share of income earned by each Master Portfolio is shown as securities lending — affiliated in the Statements of Operations. For the six months ended June 30, 2012, BTC received securities lending agent fees related to securities lending activities for the Master Portfolios as follows:

LifePath Retirement Master Portfolio	$	18,995
LifePath 2020 Master Portfolio	$	39,737
LifePath 2030 Master Portfolio	$	37,563
LifePath 2040 Master Portfolio	$	26,897
LifePath 2050 Master Portfolio	$	5,637
Active Stock Master Portfolio	$	81,073

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.

BFA reimbursed Active Stock Master Portfolio $773,484 for a loss associated with a December 2011 trading error.

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 six months ended June 30, 2012, were as follows:

	Purchases		Sales
LifePath Retirement Master Portfolio	$	85,509,431	$	102,849,558
LifePath 2020 Master Portfolio	$	187,350,097	$	237,451,540
LifePath 2030 Master Portfolio	$	176,071,560	$	190,926,236
LifePath 2040 Master Portfolio	$	103,048,525	$	107,910,495
LifePath 2050 Master Portfolio	$	40,951,578	$	16,407,687
Active Stock Master Portfolio	$	1,593,187,701	$	1,786,805,177

5. Borrowings:

The Master Portfolios, along with certain other funds managed by BFA and its affiliates, is a party to a $500 million credit agreement with a group of lenders. The Master Portfolios may borrow under the credit agreement to fund shareholder redemptions. Effective November 2011 to November 2012, the credit agreement has the following terms: a commitment fee of 0.065% per annum based on the Master Portfolios’ pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus 0.80% per annum or (b) the Fed Funds rate plus 0.80% per annum on amounts borrowed. In addition, administration and arrangement fees were allocated to the Master Portfolios based on their net assets as of October 31, 2011. The Master Portfolios’ commitment, administration and arrangement fees were paid by the investment advisor. The Master Portfolios did not borrow under the credit agreement during the six months ended June 30, 2012.

6. 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.

7. 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.

BLACKROCK FUNDS III JUNE 30, 2012 87

Disclosure of Investment Advisory Agreement

The Board of Trustees of Master Investment Portfolio (the “Master Fund”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Master Fund’s investment advisory agreement (the “Agreement”) with BlackRock Fund Advisors (“BlackRock”), the Master Fund’s investment advisor, with respect to the Master Fund’s series, including LifePath 2020 Master Portfolio, LifePath 2030 Master Portfolio, LifePath 2040 Master Portfolio, LifePath 2050 Master Portfolio and LifePath Retirement Master Portfolio (each, a “Master Portfolio” and collectively, the “Master Portfolios”). Each of LifePath 2020 Portfolio, LifePath 2030 Portfolio, LifePath 2040 Portfolio, LifePath 2050 Portfolio and LifePath Retirement Portfolio (each, a “Portfolio” and collectively, the “Portfolios”), each a series of BlackRock Funds III (the “Fund”), is a “feeder” fund that invests all of its investable assets in the corresponding Master Portfolio. Accordingly, the Board of Trustees of the Fund also considered the approval of the Agreement with respect to each Master Portfolio. For simplicity, the Board of Trustees of the Master Fund and the Board of Trustees of the Fund are referred to herein collectively as the “Board,” and the members are referred to as “Board Members.”

Activities and Composition of the Board

The Board consists of fourteen individuals, twelve of whom are not “interested persons” of the Master Fund or the Fund as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of the Master Fund or the Fund, as pertinent, and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Co-Chairs of the Board are each Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight and Contract Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).

The Agreement

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreement on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreement. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Master Portfolios and the Portfolios by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreement, including the services and support provided by BlackRock to the Master Portfolios, the Portfolios and their shareholders. Among the matters the Board considered were: (a) investment performance for one-, three- and

five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against their peers and/or benchmarks, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Master Portfolios and/or the Portfolios for services, such as marketing and distribution, call center and fund accounting; (c) the Master Portfolios’ and/or the Portfolios’ operating expenses and how BlackRock allocates expenses to the Master Portfolios and the Portfolios; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of each Master Portfolio’s and Portfolio’s investment objective, policies and restrictions; (e) the Master Fund’s and the Fund’s compliance with its respective Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) the use of brokerage commissions and execution quality of portfolio transactions; (j) BlackRock’s implementation of the Master Fund’s and/or the Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.

Board Considerations in Approving the Agreement

The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreement. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on fees and expenses of each Master Portfolio and Portfolio, as applicable, and the investment performance of each Portfolio as compared with a peer group of funds as determined by Lipper and a customized peer group selected by BlackRock (collectively, “Peers”); (b) information on the profitability of the Agreement to BlackRock and a discussion of fall-out benefits to BlackRock and its

88 BLACKROCK FUNDS III JUNE 30, 2012

Disclosure of Investment Advisory Agreement (continued)

affiliates; (c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of potential economies of scale; (e) a summary of aggregate amounts paid by each Master Portfolio and/or Portfolio to BlackRock; (f) sales and redemption data regarding each Portfolio’s shares; and (g) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.

At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreement. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.

At an in-person meeting held on May 15-16, 2012, the Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund with respect to each Master Portfolio for a one-year term ending June 30, 2013. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement and found the Agreement to be satisfactory. In approving the continuation of the Agreement, the Board of the Master Fund considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of each Master Portfolio, each Portfolio and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Master Portfolios and the Portfolios; (d) economies of scale; (e) fall-out benefits to BlackRock as a result of its relationship with the Master Portfolios and the Portfolios; and (f) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to the distribution of Portfolio shares and securities lending, services related to the valuation and pricing of portfolio holdings of each Master Portfolio, direct and indirect benefits to BlackRock and its affiliates from their relationship with the Master Portfolios and the Portfolios and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of each Portfolio. Throughout the year, the Board compared each Portfolio’s performance to the performance of a comparable group of mutual funds

and/or the performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the Master Portfolio’s portfolio management team discussing Master Portfolio performance and each Master Portfolio’s investment objective, strategies and outlook.

The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and each Master Portfolio’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to each Master Portfolio’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to each Master Portfolio and Portfolio. BlackRock and its affiliates provide the Master Portfolios and the Portfolios with certain administrative, shareholder and other services (in addition to any such services provided to the Master Portfolios and the Portfolios by third parties) and officers and other personnel as are necessary for the operations of the Master Portfolios and the Portfolios. In particular, BlackRock and its affiliates provide the Master Portfolios and the Portfolios with the following administrative services including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions necessary for the operation of the Master Portfolios and the Portfolios, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Master Portfolios, the Portfolios and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of each Master Portfolio and Portfolio, as applicable. The Board noted that each Master Portfolio’s investment results correspond directly to the investment results of the applicable Portfolio. In preparation for the April 17, 2012 meeting, the Board worked with its independent legal counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive analysis of each Portfolio’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In

BLACKROCK FUNDS III JUNE 30, 2012 89

Disclosure of Investment Advisory Agreement (continued)

connection with its review, the Board received and reviewed information regarding the investment performance of each Portfolio as compared to funds in the Portfolio’s applicable Lipper category and the customized peer group selected by BlackRock. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Master Portfolio management to discuss, the performance of each Master Portfolio and Portfolio, as applicable, throughout the year.

The Board noted that, in general, each of LifePath Retirement Portfolio, LifePath 2020 Portfolio and LifePath 2030 Portfolio performed better than its Peers in that the Portfolio’s performance was at or above the median of its Customized Lipper Peer Group in two of the one-, three- and five-year periods reported. Based on its discussions with BlackRock and the Board’s review of each Portfolio’s investment performance compared to its Lipper Peer Group, the methodology used by Lipper to select peer funds, and other relevant information provided by BlackRock, the Board noted that each Portfolio’s investment performance as compared to its Customized Lipper Peer Group provided a more meaningful comparison of the Portfolio’s relative performance.

The Board noted that LifePath 2040 Portfolio performed below the median of its Customized Lipper Peer Group in the three- and five-year periods reported, but that the Portfolio performed at or above the median of its Customized Lipper Peer Group in the one-year period reported. Based on its discussions with BlackRock and the Board’s review of the Portfolio’s investment performance compared to its Lipper Peer Group, the methodology used by Lipper to select peer funds, and other relevant information provided by BlackRock, the Board noted that the Portfolio’s investment performance as compared to its Customized Lipper Peer Group provided a more meaningful comparison of the Portfolio’s relative performance. The Board and BlackRock reviewed and discussed the reasons for the Portfolio’s underperformance during the three- and five-year periods compared with its Peers. The Board was informed that, among other things, asset allocation is the primary driver of performance. While this more measured glide path approach has benefited the Portfolio over the longer time periods by limiting the downside exposure in 2008, performance has lagged somewhat given the underperformance of the large cap equity strategy.

The Board noted that LifePath 2050 Portfolio performed below the median of its Customized Lipper Peer Group in the three-year and since-inception periods reported, but that the Fund performed at or above the median of its Customized Lipper Peer Group in the one-year period reported. Based on its discussions with BlackRock and the Board’s review of the Portfolio’s investment performance compared to its Lipper Peer Group, the methodology used by Lipper to select peer funds, and other relevant information provided by BlackRock, the Board noted that the Portfolio’s investment performance as compared to its Customized Lipper Peer Group provided a more meaningful comparison of the Portfolio’s relative performance. The Board and BlackRock reviewed and discussed the reasons for the Portfolio’s underperformance during the three-year and since-inception periods compared with its Peers. The Board was informed

that, among other things, asset allocation is the primary driver of performance. Performance has lagged somewhat given the underperformance of the large cap equity strategy.

The Board and BlackRock discussed BlackRock’s strategy for improving the performance of LifePath 2040 Portfolio and LifePath 2050 Portfolio and their respective Master Portfolios and BlackRock’s commitment to providing the resources necessary to assist each Master Portfolio’s portfolio managers and to improve the performance of each Master Portfolio/Portfolio.

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Master Portfolios and the Portfolios: The Board, including the Independent Board Members, reviewed each Master Portfolio’s contractual advisory fee rate compared with the other funds in the corresponding Portfolio’s Lipper category. It also compared each Portfolio’s total expense ratio, as well as each Master Portfolio’s actual advisory fee rate, to those of other funds in the corresponding Portfolio’s Lipper category. The Board considered the services provided and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided each Master Portfolio and Portfolio. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Master Portfolios and the Portfolios. The Board reviewed BlackRock’s profitability with respect to each Master Portfolio and Portfolio, as applicable, and other funds the Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31, 2009. The Board reviewed BlackRock’s profitability with respect to other fund complexes managed by BlackRock and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by BlackRock, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRock’s operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management, and the relative product mix.

90 BLACKROCK FUNDS III JUNE 30, 2012

Disclosure of Investment Advisory Agreement (continued)

In addition, the Board considered the cost of the services provided to the Master Portfolios and the Portfolios by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Master Portfolios and the Portfolios and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of the Master Portfolios and the Portfolios. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreement and to continue to provide the high quality of services that is expected by the Board.

The Board noted that the contractual advisory fee ratio of the LifePath Retirement Master Portfolio was above the median contractual advisory fee ratio paid by the Portfolio’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted, however, that the Master Portfolio’s actual advisory fee ratio, after giving effect to any expense reimbursements or fee waivers by BlackRock, was reasonable relative to the median actual advisory fee ratio paid by the Portfolio’s Peers, after giving effect to any expense reimbursements or fee waivers.

The Board noted that the contractual advisory fee ratio of the LifePath 2020 Master Portfolio was lower than or equal to the median contractual advisory fee ratio paid by the Portfolio’s Peers, in each case before taking into account any expense reimbursements or fee waivers.

In addition, the Board noted that the contractual advisory fee ratio of each of the LifePath 2030 Master Portfolio, the LifePath 2040 Master Portfolio and the LifePath 2050 Master Portfolio was above the median contractual advisory fee ratio paid by the corresponding Portfolio’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted, however, that each Master Portfolio’s actual advisory fee ratio, after giving effect to any expense reimbursements or fee waivers by BlackRock, was lower than or equal to the median actual advisory fee ratio paid by the corresponding Portfolio’s Peers, after giving effect to any expense reimbursements or fee waivers.

The Board also noted that, with respect to each Master Portfolio, BlackRock has contractually agreed to waive its advisory fee at the Master Portfolio level in an amount equal to the advisory and administration fees, if any, received by it or its affiliates from underlying funds, and that BlackRock and its affiliates have agreed to provide an offsetting credit against certain additional expenses incurred by each Master Portfolio and its corresponding Portfolio.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Master Portfolios and the Portfolios increase, as well as the existence of expense caps. The Board also considered the extent to which the Master Portfolios and the Portfolios benefit from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Master Portfolios and the Portfolios to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the asset level of the Master

Portfolios. In its consideration, the Board Members took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Master Portfolios and the Portfolios, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Master Portfolios and the Portfolios, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.

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

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

Conclusion

The Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund, with respect to each Master Portfolio, for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board of the Master Fund, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of each Master Portfolio and its shareholders. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement with respect to each Master Portfolio and found the Agreement to be satisfactory. In arriving at its decision to approve the Agreement, the Board of the Master Fund did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Master Portfolios reflect the results of several

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Disclosure of Investment Advisory Agreement (concluded)

years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

92 BLACKROCK FUNDS III JUNE 30, 2012

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement

The Board of Directors (the “Board,” and the members of which are referred to as “Board Members”) of Master Investment Portfolio (the “Master Fund”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Master Fund’s investment advisory agreement (the “Agreement”) with BlackRock Fund Advisors (“BlackRock”), the Master Fund’s investment advisor, on behalf of Active Stock Master Portfolio (the “Portfolio”), a series of the Master Fund.

Activities and Composition of the Board

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

The Agreement

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreement on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreement. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Portfolio by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreement, including the services and support provided by BlackRock to the Portfolio and its shareholders. Among the matters the Board considered were: (a) investment performance for one-, three- and five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against its peers and/or benchmark, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Portfolio for services, such as marketing and distribution, call center and fund accounting; (c) Portfolio operating expenses and how BlackRock allocates expenses to the Portfolio; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Portfolio’s investment objective, policies and restrictions; (e) the

Master Fund’s compliance with its Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) the use of brokerage commissions and execution quality of portfolio transactions; (j) BlackRock’s implementation of the Master Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.

Board Considerations in Approving the Agreement

The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreement. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on Portfolio fees and expenses and the investment performance of the Portfolio as compared with a peer group of funds as determined by Lipper (collectively, “Peers”); (b) information on the profitability of the Agreement to BlackRock and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of economies of scale; (e) a summary of aggregate amounts paid by the Portfolio to BlackRock; (f) sales and redemption data regarding the Portfolio; and (g) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.

At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreement. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board

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

presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.

At an in-person meeting held on May 15-16, 2012, the Board, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund, with respect to the Portfolio, for a one-year term ending June 30, 2013. In approving the continuation of the Agreement, the Board considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of the Portfolio and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Portfolio; (d) economies of scale; (e) fall out benefits to BlackRock as a result of its relationship with the Portfolio; and (f) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to securities lending, services related to the valuation and pricing of portfolio holdings of the Portfolio, direct and indirect benefits to BlackRock and its affiliates from their relationship with the Portfolio and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of the Portfolio. Throughout the year, the Board compared the Portfolio performance to the performance of a comparable group of mutual funds and/or the performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the portfolio management team discussing Portfolio performance and the Portfolio’s investment objective, strategies and outlook.

The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and the Portfolio’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to the Portfolio’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to the Portfolio. BlackRock and its affiliates provide the Portfolio with certain administrative, shareholder and other services (in addition to any such services provided to the Portfolio by third parties) and officers and other personnel as are necessary for the operations of the Portfolio. In particular, BlackRock and its affiliates provide the Portfolio with the following administrative services, including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions necessary for the operation of the Portfolio, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Portfolio and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of the Portfolio. In preparation for the April 17, 2012 meeting, the Board worked with its independent legal counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive analysis of the Portfolio’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information regarding the investment performance of the Portfolio as compared to funds in the Portfolio’s applicable Lipper category. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Portfolio management to discuss, the performance of the Portfolio throughout the year.

The Board noted that the Portfolio performed below the median of its Lipper Performance Universe in the three- and five-year periods reported, but that the Portfolio performed at or above the median of its Lipper Performance Universe in the one-year period reported. The Board and BlackRock reviewed and discussed the reasons for the Portfolio’s underperformance during the three- and five-year periods compared with its Peers. The Board was informed that, among other things, prior to 2011, the portfolio management team’s strategy struggled as stock prices were increasingly driven less by bottom-up stock fundamentals and more by macro-economic forces and demand/flow oriented forces.

The Board and BlackRock discussed BlackRock’s strategy for improving the Portfolio’s performance and BlackRock’s commitment to providing the resources necessary to assist the Portfolio’s portfolio managers and to improve the Portfolio’s performance.

94 BLACKROCK FUNDS III JUNE 30, 2012

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

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Portfolio: The Board, including the Independent Board Members, reviewed the Portfolio’s contractual advisory fee rate compared with the other funds in its Lipper category. It also compared the Portfolio’s total expense ratio, as well as the Portfolio’s actual advisory fee rate, to those of other funds in its Lipper category. The Board considered the services provided and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided the Portfolio. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Portfolio. The Board reviewed BlackRock’s profitability with respect to the Portfolio and other funds the Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31, 2009. The Board reviewed BlackRock’s profitability with respect to other fund complexes managed by BlackRock and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by BlackRock, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRock’s operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management, and the relative product mix.

In addition, the Board considered the cost of the services provided to the Portfolio by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Portfolio and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of the Portfolio. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreement and to continue to provide the high quality of services that is expected by the Board.

The Board noted that the Portfolio’s contractual advisory fee ratio was lower than or equal to the median contractual advisory fee ratio paid by

its Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted that the Portfolio has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Portfolio increases above certain contractually specified levels. The Board further noted that BlackRock and its affiliates have agreed to provide an offsetting credit against certain expenses incurred by the Portfolio.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Portfolio increase, as well as the existence of expense caps. The Board also considered the extent to which the Portfolio benefits from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Portfolio to participate in these economies of scale, for example through the use of revised breakpoints in the advisory fee based upon the asset level of the Portfolio. In its consideration, the Board Members took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Portfolio, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Portfolio, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.

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

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

Conclusion

The Board, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund, with respect to the Portfolio, for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board, including the Independent Board

BLACKROCK FUNDS III JUNE 30, 2012 95

Disclosure of Investment Advisory Agreement and Sub-Advisory Agreement (concluded)

Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of the Portfolio and its shareholders. In arriving at its decision to approve the Agreement, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of

independent legal counsel in making this determination. The contractual fee arrangements for the Portfolio reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

96 BLACKROCK FUNDS III JUNE 30, 2012

Officers and Trustees

Ronald W. Forbes, Co-Chair of the Board and Trustee

Rodney D. Johnson, Co-Chair of the Board and Trustee

Paul L. Audet, Trustee

David O. Beim, Trustee

Henry Gabbay, Trustee

Dr. Matina S. Horner, Trustee

Herbert I. London, Trustee

Ian A. MacKinnon, Trustee¹

Cynthia A. Montgomery, Trustee

Joseph P. Platt, Trustee

Robert C. Robb, Jr., Trustee

Toby Rosenblatt, Trustee

Kenneth L. Urish, Trustee

Frederick W. Winter, Trustee

John M. Perlowski, President and Chief Executive Officer

Richard Hoerner, CFA, Vice President

Brendan Kyne, Vice President

Simon Mendelson, Vice President

Christopher Stavrakos, CFA, Vice President

Neal Andrews, Chief Financial Officer

Jay Fife, Treasurer

Brian Kindelan, Chief Compliance Officer and Anti-Money Laundering Officer

Benjamin Archibald, Secretary²

¹  Effective May 14, 2012, Ian A. MacKinnon became a Trustee of the Trust/MIP.

²  Effective May 16, 2012, Ira P. Shapiro resigned as secretary of the Trust/MIP and Benjamin Archibald became secretary of the Trust/MIP.

Investment Advisor

BlackRock Fund Advisors

San Francisco, CA 94105

Administrator

BlackRock Institutional Trust Company, N.A.

San Francisco, CA 94105

Custodian and Accounting Agent

State Street Bank and Trust Company

Boston, MA 02110

Transfer Agent

BNY Mellon Investment Servicing (US) Inc.

Wilmington, DE 19809

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 Trust/MIP

400 Howard Street

San Francisco, CA 94105

BLACKROCK FUNDS III JUNE 30, 2012 97

Additional Information

General Information

Electronic Delivery

Electronic copies of most financial reports and prospectuses are available on the Portfolio’s/Master Portfolio’s websites or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Portfolio’s/Master Portfolio’s electronic delivery program.

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

Please contact your financial advisor. Please note that not all investment advisors, banks or brokerages may offer this service.

Shareholders Who Hold Accounts Directly with BlackRock:

1) Access the BlackRock website at

http://www.blackrock.com/edelivery

2) Select “eDelivery” under the “More Information” section

3) Log into your account

Householding

The Portfolio/Master Portfolio will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the

mailing of these documents to be combined with those for other members of your household, please call the Portfolio/Master Portfolio at

(800) 441-7762.

Availability of Quarterly Schedule of Investments

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, DC. 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 (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 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.

Automatic Investment Plans

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

Systematic Withdrawal Plans

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

Retirement Plans

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

BlackRock Privacy Principles

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

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

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

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.

98 BLACKROCK FUNDS III JUNE 30, 2012

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 Balanced Capital Fund†

BlackRock Basic Value Fund

BlackRock Capital Appreciation Fund

BlackRock China Fund

BlackRock Commodity Strategies Fund

BlackRock Emerging Markets Fund

BlackRock Emerging Markets Long/Short Equity Fund

BlackRock Energy & Resources Portfolio

BlackRock Equity Dividend Fund

BlackRock EuroFund

BlackRock Focus Growth Fund

BlackRock Flexible Equity Fund

BlackRock Global Allocation Fund†

BlackRock Global Dividend Income Portfolio

BlackRock Global Dynamic Equity 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 Managed Volatility Portfolio†

BlackRock Mid-Cap Growth 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 CoreAlpha Bond Fund

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 Secured Credit Portfolio

BlackRock Strategic Income Opportunities Portfolio

BlackRock Total Return Fund

BlackRock US Government Bond Portfolio

BlackRock US Mortgage Portfolio

BlackRock World Income Fund

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 Date Funds†

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

† 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 FUNDS III JUNE 30, 2012 99

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 Portfolios unless accompanied or preceded by that Portfolio’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-6/12-SAR

June 30, 2012

Semi-Annual Report (Unaudited)

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
Semi-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		52
Master Portfolio Information		59
Master Portfolio Financial Statements:
Schedules of Investments		62
Statements of Assets and Liabilities		71
Statements of Operations		73
Statements of Changes in Net Assets		75
Master Portfolio Financial Highlights		78
Master Portfolio Notes to Financial Statements		87
Disclosure of Investment Advisory Agreement		90
Officers and Trustees		94
Additional Information		95
A World-Class Mutual Fund Family		97

2 BLACKROCK FUNDS III JUNE 30, 2012

Dear Shareholder

One year ago, risk assets were in a broad retreat as sovereign debt problems loomed over Europe and confidence in both the US and global economic recoveries was waning. Last summer’s prolonged debt ceiling debate in Washington, DC ended with Standard & Poor’s historic downgrade of US government debt, an event that triggered financial-market turmoil all over the world. Extraordinary levels of volatility persisted in the months that followed as the debt situation in Europe intensified. Macro-level news drove asset prices broadly up and down in lockstep, in a “risk on” — “risk off” trading pattern. Equity markets crumbled while safe-haven assets such as US Treasuries and gold rallied to historic highs by the end of the third quarter of 2011.

By October, however, improving economic data and more concerted efforts among European leaders toward stemming the region’s debt crisis drew investors back to the markets. Improving sentiment carried over into early 2012 as investors saw some relief from the world’s financial woes. Risk assets (including stocks, commodities and high yield bonds) moved boldly higher through the first two months of 2012 while climbing Treasury yields pressured higher-quality fixed income assets.

However, risk assets reversed course in the spring when Europe’s debt problems boiled over once again. Markets became highly volatile as political instability in Greece threatened the country’s membership in the euro zone. Spain faced severe deficit issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian government debt rose to levels deemed unsustainable. European leaders conferred and debated vehemently over the need for fiscal integration among the 17 euro-zone nations to resolve the crisis for the long term.

Alongside the drama in Europe, investors were discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key powerhouse for global growth, became particularly worrisome. In the United States, disappointing jobs reports dealt a crushing blow to sentiment. Risk assets sold off through April and May as investors ran back to safe havens including US, German and UK government debt as well as gold. As the period drew to a close, risk assets were beginning to rebound modestly as European leaders stepped up their efforts to move toward fiscal unity and investors anticipated additional stimulus from central banks on both sides of the Atlantic.

All asset classes posted gains for the 6-month period ended June 30, 2012, with US stocks delivering the largest returns. On a 12-month basis, US large-cap stocks generated positive results; however, small-cap stocks finished in negative territory and international and emerging equities, which experienced significant downturns in 2011, lagged the broader rebound. Among fixed income asset classes, safe-haven US Treasury bonds and municipal bonds outperformed corporate credits for the 12-month period. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities. We remain committed to working with you and your financial professional to identify actionable ideas for your portfolio. We encourage you to visit www.blackrock.com/newworld for more information.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of June 30, 2012
	6-month			12-month
US large cap equities (S&P 500® Index)		9.49	%		5.45	%
US small cap equities (Russell 2000® Index)		8.53			(2.08	)
International equities (MSCI Europe, Australasia, Far East Index)		2.96			(13.83	)
Emerging market equities (MSCI Emerging Markets Index)		3.93			(15.95	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.04			0.05
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		3.44			17.36
US investment grade bonds (Barclays US Aggregate Bond Index)		2.37			7.47
Tax-exempt municipal bonds (S&P Municipal Bond Index)		4.14			10.16
US high yield bonds (Barclays US Corporate High Yield 2% Issuer Capped Index)		7.23			7.21
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 June 30, 2012 LifePath Index Portfolios

Portfolio Management Commentary

How did each Portfolio perform?

Ÿ 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 (together the “LifePath Index Portfolios”) invest in their respective LifePath Index Master Portfolio. The returns for the LifePath Index Portfolios include fund expenses. The custom benchmarks have no expenses associated with performance.

Ÿ For the six-month period ended June 30, 2012, the Institutional and Class K Shares of the LifePath Index Retirement Portfolio and the LifePath Index 2025 Portfolio performed in line with their respective custom benchmarks while the Investor A Shares underperformed. For the same period, the Institutional Shares of LifePath Index 2020 Portfolio performed in line with its custom benchmark while the Investor A and Class K Shares underperformed. The Institutional Shares of LifePath Index 2030 Portfolio outperformed the custom benchmark while the Investor A Shares underperformed and the Class K Shares performed in line with the benchmark. The Institutional and Investor A Shares of LifePath Index 2035 Portfolio underperformed the custom benchmark while the Class K Shares performed in line with the benchmark. The Institutional and Class K Shares of LifePath Index 2040 Portfolio outperformed the custom benchmark while the Investor A Shares performed in line with the benchmark. The Institutional Shares of LifePath Index 2045 Portfolio performed in line with the custom benchmark while the Class K Shares outperformed and the Investor A Shares underperformed. The Institutional and Class K Shares of LifePath Index 2050 Portfolio outperformed the custom benchmark while Investor A Shares underperformed. The Institutional and Class K Shares of LifePath Index 2055 Portfolio outperformed the custom benchmark while the Investor A Shares performed in line with the benchmark.

What factors influenced performance?

Ÿ Equity markets generally outperformed fixed income markets during the period. While all of the LifePath Index Portfolios generated positive absolute returns for the period, those with longer time horizons benefited most from the strong performance of equities given their larger allocations to equity investments.

Ÿ Relative to their respective custom benchmarks, more share classes in the longer-dated LifePath Index Portfolios outperformed due to their greater exposure to the ACWI ex-US Index Master Portfolio, which benefited from the effects of positive fair value pricing during the period.

Describe recent portfolio activity.

Ÿ 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 shareholders’ 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 allocated to the underlying funds and instruments as appropriate.

Describe portfolio positioning at period end.

Ÿ 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.

Glidepath Evolution

Under normal circumstances, the asset allocation of each LifePath Index Portfolio (the “LifePath Index Portfolio” or “each LifePath Index Portfolio”) will change over time according to a “glidepath” as each of the LifePath Index Portfolios approaches its respective target date. The glidepath represents the shifting of asset classes over time. Each LifePath Index Portfolio’s asset mix becomes more conservative prior to retirement as time elapses. This reflects the need for reduced investment risks as retirement approaches and the need for lower volatility of each LifePath Index Portfolio, which may be a primary source of income after retirement. As each LifePath Index Portfolio approaches its target date, its asset allocation will shift so that each LifePath Index Portfolio invests a greater percentage of its assets in fixed income funds. The asset allocation targets are established by a committee of BlackRock investment professionals that includes the portfolio managers. The investment team, including the portfolio managers and this investment committee, meets regularly to assess market conditions, review the asset allocation targets

of each LifePath Index Portfolio, and determine whether any changes are required to enable each LifePath Index Portfolio to achieve its investment objective.

Although the asset allocation targets listed for the glidepath are general, long-term targets, BlackRock investment professionals may periodically adjust the proportion of equity and fixed income funds in each LifePath Index Portfolio, based on an assessment of the current market conditions, the potential contribution of each asset class to the expected risk and return characteristics of each LifePath Index Portfolio, reallocations of each LifePath Index Portfolio’s composition to reflect intra-year movement along the glidepath and other factors. In general, such adjustments will be limited, however, BlackRock investment professionals may determine that a greater degree of variation is warranted to protect each LifePath Index Portfolio or achieve each LifePath Index Portfolio’s investment objective.

4 BLACKROCK FUNDS III JUNE 30, 2012

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 Portfolio 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	Barclays US Aggregate Bond Index			Barclays US Treasury Inflation Protected Securities (TIPS) Index			MSCI ACWI ex-US IMI Index			Russell 1000® Index			Russell 2000® Index
7/01/11 to 6/30/12		52.9	%		9.1	%		10.9	%		23.2	%		3.9	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended June 30, 2012

	6-Month Total Returns			Average Annual Total Returns
				1 Year			Since Inception3
Institutional		4.57	%		4.67	%		3.62	%
Investor A		4.44			4.40			3.36
Class K		4.57			4.69			3.64
Citigroup 3-Month Treasury Bill Index		0.03			0.04			0.04
Barclays US Aggregate Index		2.37			7.47			6.60
LifePath Index Retirement Portfolio Custom Benchmark		4.62			4.67			3.59
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		(14.98	)
Russell 1000® Index		9.38			4.37			2.35
Russell 2000® Index		8.53			(2.08	)		(4.01	)
Barclays US TIPS Index		4.04			11.66			11.56

³  The LifePath Index Portfolio commenced operations on May 31, 2011.

Past performance is not indicative of future results.

BLACKROCK FUNDS III JUNE 30, 2012 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 Portfolio 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	Barclays US Aggregate Bond Index			Barclays US Treasury Inflation Protected Securities (TIPS) Index			MSCI ACWI ex-US IMI Index			Russell 1000® Index			Russell 2000® Index
7/01/11 to 6/30/12		37.9	%		6.1	%		17.3	%		35.0	%		3.7	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended June 30, 2012

	6-Month Total Returns			Average Annual Total Returns
				1 Year			Since Inception3
Institutional		5.49	%		2.62	%		1.44	%
Investor A		5.27			2.26			1.10
Class K		5.39			2.54			1.37
Citigroup 3-Month Treasury Bill Index		0.03			0.04			0.04
Barclays US Aggregate Index		2.37			7.47			6.60
LifePath Index 2020 Portfolio Custom Benchmark		5.45			2.54			1.36
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		(14.98	)
Russell 1000® Index		9.38			4.37			2.35
Russell 2000® Index		8.53			(2.08	)		(4.01	)
Barclays US TIPS Index		4.04			11.66			11.56

³  The LifePath Index Portfolio commenced operations on May 31, 2011.

Past performance is not indicative of future results.

6 BLACKROCK FUNDS III JUNE 30, 2012

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 Portfolio 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	Barclays US Aggregate Bond Index			Barclays US Treasury Inflation Protected Securities (TIPS) Index			MSCI ACWI ex-US IMI Index			Russell 1000® Index			Russell 2000® Index
7/01/11 to 6/30/12		30.9	%		4.8	%		20.3	%		40.5	%		3.5	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended June 30, 2012

	6-Month Total Returns			Average Annual Total Returns
				1 Year			Since Inception3
Institutional		5.84	%		1.59	%		0.40	%
Investor A		5.65			1.27			0.09
Class K		5.85			1.61			0.42
Citigroup 3-Month Treasury Bill Index		0.03			0.04			0.04
Barclays US Aggregate Index		2.37			7.47			6.60
LifePath Index 2025 Portfolio Custom Benchmark		5.81			1.58			0.36
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		(14.98	)
Russell 1000® Index		9.38			4.37			2.35
Russell 2000® Index		8.53			(2.08	)		(4.01	)
Barclays US TIPS Index		4.04			11.66			11.56

³  The LifePath Index Portfolio commenced operations on May 31, 2011.

Past performance is not indicative of future results.

BLACKROCK FUNDS III JUNE 30, 2012 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 Portfolio 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	Barclays US Aggregate Bond Index			Barclays US Treasury Inflation Protected Securities (TIPS) Index			MSCI ACWI ex-US IMI Index			Russell 1000® Index			Russell 2000® Index
7/01/11 to 6/30/12		24.7	%		3.6	%		22.9	%		45.4	%		3.4	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended June 30, 2012

	6-Month Total Returns			Average Annual Total Returns
				1 Year			Since Inception3
Institutional		6.19	%		0.76	%		(0.46	)%
Investor A		6.06			0.51			(0.71	)
Class K		6.08			0.67			(0.54	)
Citigroup 3-Month Treasury Bill Index		0.03			0.04			0.04
Barclays US Aggregate Index		2.37			7.47			6.60
LifePath Index 2030 Portfolio Custom Benchmark		6.12			0.72			(0.54	)
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		(14.98	)
Russell 1000® Index		9.38			4.37			2.35
Russell 2000® Index		8.53			(2.08	)		(4.01	)
Barclays US TIPS Index		4.04			11.66			11.56

³  The LifePath Index Portfolio commenced operations on May 31, 2011.

Past performance is not indicative of future results.

8 BLACKROCK FUNDS III JUNE 30, 2012

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 Portfolio 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	Barclays US Aggregate Bond Index			Barclays US Treasury Inflation Protected Securities (TIPS) Index			MSCI ACWI ex-US IMI Index			Russell 1000® Index			Russell 2000® Index
7/01/11 to 6/30/12		19.1	%		2.5	%		25.3	%		49.8	%		3.3	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended June 30, 2012

	6-Month Total Returns			Average Annual Total Returns
				1 Year			Since Inception3
Institutional		6.33	%		(0.15	)%		(1.39	)%
Investor A		6.23			(0.38	)		(1.62	)
Class K		6.34			(0.12	)		(1.36	)
Citigroup 3-Month Treasury Bill Index		0.03			0.04			0.04
Barclays US Aggregate Index		2.37			7.47			6.60
LifePath Index 2035 Portfolio Custom Benchmark		6.39			(0.08	)		(1.36	)
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		(14.98	)
Russell 1000® Index		9.38			4.37			2.35
Russell 2000® Index		8.53			(2.08	)		(4.01	)
Barclays US TIPS Index		4.04			11.66			11.56

³  The LifePath Index Portfolio commenced operations on May 31, 2011.

Past performance is not indicative of future results.

BLACKROCK FUNDS III JUNE 30, 2012 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 Portfolio 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	Barclays US Aggregate Bond Index			Barclays US Treasury Inflation Protected Securities (TIPS) Index			MSCI ACWI ex-US IMI Index			Russell 1000® Index			Russell 2000® Index
7/01/11 to 6/30/12		14.1	%		1.4	%		27.4	%		53.8	%		3.3	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended June 30, 2012

	6-Month Total Returns			Average Annual Total Returns
				1 Year			Since Inception3
Institutional		6.78	%		(0.77	)%		(2.05	)%
Investor A		6.66			(1.02	)		(2.30	)
Class K		6.78			(0.75	)		(2.04	)
Citigroup 3-Month Treasury Bill Index		0.03			0.04			0.04
Barclays US Aggregate Index		2.37			7.47			6.60
LifePath Index 2040 Portfolio Custom Benchmark		6.63			(0.82	)		(2.13	)
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		(14.98	)
Russell 1000® Index		9.38			4.37			2.35
Russell 2000® Index		8.53			(2.08	)		(4.01	)
Barclays US TIPS Index		4.04			11.66			11.56

³  The LifePath Index Portfolio commenced operations on May 31, 2011.

Past performance is not indicative of future results.

10 BLACKROCK FUNDS III JUNE 30, 2012

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 Portfolio 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	Barclays US Aggregate Bond Index			MSCI ACWI ex-US IMI Index			Russell 1000® Index			Russell 2000® Index
7/01/11 to 6/30/12		9.8	%		29.5	%		57.5	%		3.2	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended June 30, 2012

	6-Month Total Returns			Average Annual Total Returns
				1 Year			Since Inception3
Institutional		6.87	%		(1.84	)%		(3.04	)%
Investor A		6.78			(2.05	)		(3.25	)
Class K		6.99			(1.71	)		(2.92	)
Citigroup 3-Month Treasury Bill Index		0.03			0.04			0.04
Barclays US Aggregate Index		2.37			7.47			6.60
LifePath Index 2045 Portfolio Custom Benchmark		6.84			(1.54	)		(2.87	)
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		(14.98	)
Russell 1000® Index		9.38			4.37			2.35
Russell 2000® Index		8.53			(2.08	)		(4.01	)
Barclays US TIPS Index		4.04			11.66			11.56

³  The LifePath Index Portfolio commenced operations on May 31, 2011.

Past performance is not indicative of future results.

BLACKROCK FUNDS III JUNE 30, 2012 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 Portfolio 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	Barclays US Aggregate Bond Index			MSCI ACWI ex-US IMI Index			Russell 1000® Index			Russell 2000® Index
7/01/11 to 6/30/12		4.4	%		31.5	%		60.8	%		3.3	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended June 30, 2012

	6-Month Total Returns			Average Annual Total Returns
				1 Year			Since Inception3
Institutional		7.22	%		(2.34	)%		(3.59	)%
Investor A		6.99			(2.67	)		(3.91	)
Class K		7.23			(2.32	)		(3.56	)
Citigroup 3-Month Treasury Bill Index		0.03			0.04			0.04
Barclays US Aggregate Index		2.37			7.47			6.60
LifePath Index 2050 Portfolio Custom Benchmark		7.05			(2.22	)		(3.56	)
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		(14.98	)
Russell 1000® Index		9.38			4.37			2.35
Russell 2000® Index		8.53			(2.08	)		(4.01	)
Barclays US TIPS Index		4.04			11.66			11.56

³  The LifePath Index Portfolio commenced operations on May 31, 2011.

Past performance is not indicative of future results.

12 BLACKROCK FUNDS III JUNE 30, 2012

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 Portfolio 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	Barclays US Aggregate Bond Index			MSCI ACWI ex-US IMI Index			Russell 1000® Index			Russell 2000® Index
7/01/11 to 6/30/12		1.0	%		33.9	%		58.7	%		6.4	%

See “About Portfolio Performance” on page 14 for descriptions of the indexes.

Performance Summary for the Period Ended June 30, 2012

	6-Month Total Returns			Average Annual Total Returns
				1 Year			Since Inception3
Institutional		7.18	%		(3.05	)%		(4.23	)%
Investor A		7.08			(3.28	)		(4.45	)
Class K		7.20			(3.02	)		(4.20	)
Citigroup 3-Month Treasury Bill Index		0.03			0.04			0.04
Barclays US Aggregate Index		2.37			7.47			6.60
LifePath Index 2055 Portfolio Custom Benchmark		7.07			(2.94	)		(4.24	)
MSCI ACWI ex-US IMI Index		2.93			(14.79	)		(14.98	)
Russell 1000® Index		9.38			4.37			2.35
Russell 2000® Index		8.53			(2.08	)		(4.01	)
Barclays US TIPS Index		4.04			11.66			11.56

³  The LifePath Index Portfolio commenced operations on May 31, 2011.

Past performance is not indicative of future results.

BLACKROCK FUNDS III JUNE 30, 2012 13

About Portfolio Performance BlackRock Funds III

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

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

Ÿ 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.

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 (“NAV”) 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 and/or reimbursed a portion of each LifePath Index Portfolio’s expenses. Without such waiver and/or reimbursement, 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 US Aggregate Bond Index (formerly 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 June 30, 2012, the following indexes are used to calculate the LifePath Index Portfolios’ custom benchmarks: Barclays US Aggregate Bond Index, Barclays US TIPS Index, MSCI ACWI ex-US IMI Index, Russell 1000^® Index and Russell 2000^® Index.

Disclosure of Expenses

Shareholders of each LifePath Index Portfolio may incur the following charges: (a) expenses related to transactions, including sales charges and exchange fees; and (b) operating expenses, including administration fees, distribution fees, including 12b-1 fees, service and distribution fees and other portfolio expenses. The expense examples shown below (which are based on a hypothetical investment of $1,000 invested on January 1, 2012 and held through June 30, 2012) 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 expense examples 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 expense examples also provide information about hypothetical account values and hypothetical expenses based on each LifePath Index Portfolio’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 example with the 5% hypothetical examples that appear in other funds’ shareholder reports.

The expenses shown in the expense examples are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, or exchange fees. 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 JUNE 30, 2012

Disclosure of Expenses (concluded) BlackRock Funds III

Expense Examples
	Actual						Hypothetical2
	Beginning Account Value January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period1		Beginning Account Value January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period1		Annualized Expense Ratio
LifePath® Index Retirement Portfolio
Institutional		$1,000.00		$1,045.70		$0.86		$1,000.00		$1,024.02		$0.86		0.17%
Investor A		$1,000.00		$1,044.40		$2.08		$1,000.00		$1,022.83		$2.06		0.41%
Class K		$1,000.00		$1,045.70		$0.81		$1,000.00		$1,024.07		$0.81		0.16%
LifePath® Index 2020 Portfolio
Institutional		$1,000.00		$1,054.90		$0.97		$1,000.00		$1,023.92		$0.96		0.19%
Investor A		$1,000.00		$1,052.70		$2.19		$1,000.00		$1,022.73		$2.16		0.43%
Class K		$1,000.00		$1,053.90		$0.92		$1,000.00		$1,023.97		$0.91		0.18%
LifePath® Index 2025 Portfolio
Institutional		$1,000.00		$1,058.40		$1.07		$1,000.00		$1,023.82		$1.06		0.21%
Investor A		$1,000.00		$1,056.50		$2.35		$1,000.00		$1,022.58		$2.31		0.46%
Class K		$1,000.00		$1,058.50		$0.97		$1,000.00		$1,023.92		$0.96		0.19%
LifePath® Index 2030 Portfolio
Institutional		$1,000.00		$1,061.90		$1.03		$1,000.00		$1,023.87		$1.01		0.20%
Investor A		$1,000.00		$1,060.60		$2.31		$1,000.00		$1,022.63		$2.26		0.45%
Class K		$1,000.00		$1,060.80		$1.02		$1,000.00		$1,023.87		$1.01		0.20%
LifePath® Index 2035 Portfolio
Institutional		$1,000.00		$1,063.30		$1.18		$1,000.00		$1,023.72		$1.16		0.23%
Investor A		$1,000.00		$1,062.30		$2.56		$1,000.00		$1,022.38		$2.51		0.50%
Class K		$1,000.00		$1,063.40		$1.08		$1,000.00		$1,023.82		$1.06		0.21%
LifePath® Index 2040 Portfolio
Institutional		$1,000.00		$1,067.80		$1.13		$1,000.00		$1,023.77		$1.11		0.22%
Investor A		$1,000.00		$1,066.60		$2.41		$1,000.00		$1,022.53		$2.36		0.47%
Class K		$1,000.00		$1,067.80		$1.13		$1,000.00		$1,023.77		$1.11		0.22%
LifePath® Index 2045 Portfolio
Institutional		$1,000.00		$1,068.70		$1.29		$1,000.00		$1,023.62		$1.26		0.25%
Investor A		$1,000.00		$1,067.80		$2.62		$1,000.00		$1,022.33		$2.56		0.51%
Class K		$1,000.00		$1,069.90		$1.13		$1,000.00		$1,023.77		$1.11		0.22%
LifePath® Index 2050 Portfolio
Institutional		$1,000.00		$1,072.20		$1.19		$1,000.00		$1,023.72		$1.16		0.23%
Investor A		$1,000.00		$1,069.90		$2.68		$1,000.00		$1,022.28		$2.61		0.52%
Class K		$1,000.00		$1,072.30		$1.13		$1,000.00		$1,023.77		$1.11		0.22%
LifePath® Index 2055 Portfolio
Institutional		$1,000.00		$1,071.80		$1.39		$1,000.00		$1,023.52		$1.36		0.27%
Investor A		$1,000.00		$1,070.80		$2.68		$1,000.00		$1,022.28		$2.61		0.52%
Class K		$1,000.00		$1,072.00		$1.13		$1,000.00		$1,023.77		$1.11		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 182/366 (to reflect the one-half year period shown). Because each LifePath Index Portfolio invests significantly in a Master Portfolio, the expense 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 366.

BLACKROCK FUNDS III JUNE 30, 2012 15

Statements of Assets and Liabilities BlackRock Funds III

June 30, 2012 (Unaudited)	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	$	181,939,164		$	233,775,242		$	89,014,396		$	165,733,293		$	57,731,646
Capital shares sold receivable		252,591			258,883			4,540			400,142			294,886
Receivable from advisor		7,704			7,612			7,610			7,613			7,624
Withdrawals receivable from the Master Portfolio		—			—			2,257			—			—
Prepaid expenses		29,807			29,808			29,807			29,806			29,807
Total assets		182,229,266			234,071,545			89,058,610			166,170,854			58,063,963
Liabilities
Contributions payable to the Master Portfolio		230,299			233,463			—			396,318			282,952
Income dividends payable		32,540			20,894			95			17,130			86
Capital shares redeemed payable		22,292			25,420			6,797			3,824			11,934
Professional fees payable		16,952			16,952			16,952			16,952			16,952
Printing fees payable		10,182			10,222			10,239			10,254			10,268
Service fees payable		778			2,254			104			1,732			29
Registration fees payable		91			91			91			91			91
Transfer agent fees payable		5			163			432			216			438
Other accrued expenses payable		3,004			2,669			2,661			2,669			2,640
Total liabilities		316,143			312,128			37,371			449,186			325,390
Net Assets	$	181,913,123		$	233,759,417		$	89,021,239		$	165,721,668		$	57,738,573
Net Assets Consist of
Paid-in capital	$	179,687,371		$	229,878,351		$	87,102,746		$	162,375,515		$	56,228,542
Undistributed net investment income		35,860			78,120			33,354			74,768			27,710
Accumulated net realized loss allocated from the Master Portfolio		(3,687	)		(100,294	)		(44,783	)		(132,230	)		(76,377	)
Net unrealized appreciation/depreciation allocated from the Master Portfolio		2,193,579			3,903,240			1,929,922			3,403,615			1,558,698
Net Assets	$	181,913,123		$	233,759,417		$	89,021,239		$	165,721,668		$	57,738,573
Net Asset Value
Institutional
Net assets	$	14,358,745		$	11,475,375		$	769,663		$	10,558,157		$	338,199
Shares outstanding2		1,411,433			1,153,700			78,155			1,081,232			34,959
Net asset value	$	10.17		$	9.95		$	9.85		$	9.76		$	9.67
Investor A
Net assets	$	3,996,688		$	11,821,341		$	593,168		$	9,222,093		$	169,185
Shares outstanding2		392,994			1,189,483			60,283			944,543			17,495
Net asset value	$	10.17		$	9.94		$	9.84		$	9.76		$	9.67
Class K
Net assets	$	163,557,690		$	210,462,701		$	87,658,408		$	145,941,418		$	57,231,189
Shares outstanding2		16,086,075			21,164,924			8,903,550			14,961,463			5,919,011
Net asset value	$	10.17		$	9.94		$	9.85		$	9.75		$	9.67
1 Cost — from the applicable Master Portfolio	$	179,745,585		$	229,872,002		$	87,084,474		$	162,329,678		$	56,172,948

²  No par value, unlimited number of shares authorized.

See Notes to Financial Statements.
16	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Assets and Liabilities (concluded) BlackRock Funds III

June 30, 2012 (Unaudited)	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	$	82,356,785		$	19,754,499		$	15,824,762		$	2,421,156
Capital shares sold receivable		280,669			46,974			38,158			—
Receivable from advisor		7,608			7,628			7,634			7,615
Withdrawals receivable from the Master Portfolio		—			—			—			900
Prepaid expenses		29,807			29,807			29,807			29,807
Total assets		82,674,869			19,838,908			15,900,361			2,459,478
Liabilities
Contributions payable to the Master Portfolio		280,127			46,881			38,158			—
Income dividends payable		14,305			98			306			12,134
Capital shares redeemed payable		542			93			—			900
Professional fees payable		16,952			16,952			16,952			16,952
Printing fees payable		10,281			10,295			10,304			10,304
Service fees payable		825			20			20			9
Registration fees payable		91			91			91			91
Transfer agent fees payable		267			427			435			432
Other accrued expenses payable		2,669			2,640			2,640			2,640
Total liabilities		326,059			77,497			68,906			43,462
Net Assets	$	82,348,810		$	19,761,411		$	15,831,455		$	2,416,016
Net Assets Consist of
Paid-in capital	$	80,724,218		$	19,291,871		$	15,551,792		$	2,548,600
Undistributed net investment income		45,801			12,000			11,206			3,552
Accumulated net realized loss allocated from the Master Portfolio		(188,231	)		(92,168	)		(110,540	)		(139,585	)
Net unrealized appreciation/depreciation allocated from the Master Portfolio		1,767,022			549,708			378,997			3,449
Net Assets	$	82,348,810		$	19,761,411		$	15,831,455		$	2,416,016
Net Asset Value
Institutional
Net assets	$	8,001,887		$	159,492		$	1,140,831		$	23,345
Shares outstanding2		833,329			16,780			120,842			2,500
Net asset value	$	9.60		$	9.50		$	9.44		$	9.34
Investor A
Net assets	$	4,412,222		$	120,134		$	115,131		$	44,341
Shares outstanding2		459,833			12,642			12,203			4,750
Net asset value	$	9.60		$	9.50		$	9.43		$	9.34	3
Class K
Net assets	$	69,934,701		$	19,481,785		$	14,575,493		$	2,348,330
Shares outstanding2		7,286,582			2,049,287			1,544,222			251,475
Net asset value	$	9.60		$	9.51		$	9.44		$	9.34
1 Cost — from the applicable Master Portfolio	$	80,589,763		$	19,204,791		$	15,445,765		$	2,417,707
2 No par value, unlimited number of shares authorized.
3 The net asset value is calculated based on net assets of $44,341.37 and shares outstanding of 4,749.608.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	17

Statements of Operations BlackRock Funds III

Six Months Ended June 30, 2012 (Unaudited)	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:
Dividends — affiliated	$	395,073		$	660,645		$	208,834		$	577,599		$	148,710
Interest — affiliated		256,865			278,584			55,287			144,550			23,039
Income — affiliated		612			680			208			419			101
Securities lending — affiliated		66			831			—			487			—
Expenses		(63,572	)		(89,762	)		(39,728	)		(77,278	)		(33,195	)
Fees waived		24,690			27,455			21,884			25,544			20,902
Total income		613,734			878,433			246,485			671,321			159,557
Expenses
Administration		7,331			10,312			2,823			7,752			1,798
Service — Investor A		5,347			14,308			467			11,103			130
Registration		10,019			10,019			10,019			10,019			10,019
Transfer agent — Institutional		386			193			33			170			32
Transfer agent — Investor A		39			46			39			46			55
Transfer agent — Class K		166			166			162			166			161
Professional		11,667			11,667			11,667			11,667			11,667
Printing		4,016			4,016			4,016			4,016			4,016
Offering		26,885			27,362			26,582			26,877			26,942
Miscellaneous		3,493			2,896			2,896			2,896			2,896
Recoupment of past waived fees — class specific		29			29			21			29			—
Total expenses		69,378			81,014			58,725			74,741			57,716
Less administration fees waived		(7,331	)		(10,312	)		(2,823	)		(7,752	)		(1,798	)
Less transfer agent fees reimbursed — Institutional		(1	)		(1	)		(3	)		(1	)		(3	)
Less transfer agent fees reimbursed — Investor A		(1	)		(1	)		(2	)		(1	)		(30	)
Less transfer agent fees reimbursed — Class K		(162	)		(162	)		(159	)		(162	)		(160	)
Less fees reimbursed by administrator		(56,081	)		(55,961	)		(55,181	)		(55,475	)		(55,540	)
Total expenses after fees waived and reimbursed		5,802			14,577			557			11,350			185
Net investment income		607,932			863,856			245,928			659,971			159,372
Realized and Unrealized Gain (Loss) Allocated from the Master Portfolios
Net realized gain (loss) from investments, financial futures contracts and foreign currency transactions		19,445			(66,043	)		(8,454	)		(92,543	)		(33,586	)
Net change in unrealized appreciation/depreciation on investments, financial futures contracts and foreign currency transactions		2,214,836			3,972,964			2,022,824			3,515,382			1,688,130
Total realized and unrealized gain		2,234,281			3,906,921			2,014,370			3,422,839			1,654,544
Net Increase in Net Assets Resulting from Operations	$	2,842,213		$	4,770,777		$	2,260,298		$	4,082,810		$	1,813,916

See Notes to Financial Statements.
18	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Operations (concluded) BlackRock Funds III

Six Months Ended June 30, 2012 (Unaudited)	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:
Dividends — affiliated	$	353,493		$	66,149		$	75,527		$	27,266
Interest — affiliated		49,818			6,424			4,190			660
Income — affiliated		180			25			26			6
Securities lending — affiliated		234			—			11			—
Expenses		(53,674	)		(26,143	)		(26,862	)		(21,872	)
Fees waived		23,044			20,560			20,592			19,564
Total income		373,095			67,015			73,484			25,624
Expenses
Administration		4,257			771			841			312
Service — Investor A		5,358			80			99			42
Registration		10,019			10,019			10,019			10,019
Transfer agent — Institutional		138			32			38			24
Transfer agent — Investor A		47			47			72			31
Transfer agent — Class K		158			161			165			140
Professional		11,667			11,667			11,667			11,667
Printing		4,016			4,016			4,016			4,016
Offering		26,232			26,200			26,157			26,401
Miscellaneous		2,896			2,896			2,896			2,896
Recoupment of past waived fees — class specific		29			—			—			—
Total expenses		64,817			55,889			55,970			55,548
Less administration fees waived		(4,257	)		(771	)		(841	)		(312	)
Less transfer agent fees reimbursed — Institutional		(1	)		(10	)		(1	)		(19	)
Less transfer agent fees reimbursed — Investor A		(1	)		(31	)		(53	)		(23	)
Less transfer agent fees reimbursed — Class K		(155	)		(160	)		(163	)		(139	)
Less fees reimbursed by administrator		(54,830	)		(54,798	)		(54,756	)		(55,000	)
Total expenses after fees waived and reimbursed		5,573			119			156			55
Net investment income		367,522			66,896			73,328			25,569
Realized and Unrealized Gain (Loss) Allocated from the Master Portfolios
Net realized loss from investments, financial futures contracts and foreign currency transactions		(140,178	)		(38,482	)		(55,330	)		(77,964	)
Net change in unrealized appreciation/depreciation on investments, financial futures contracts and foreign currency transactions		1,910,627			706,879			552,297			181,804
Total realized and unrealized gain		1,770,449			668,397			496,967			103,840
Net Increase in Net Assets Resulting from Operations	$	2,137,971		$	735,293		$	570,295		$	129,409

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	19

Statements of Changes in Net Assets BlackRock Funds III

	LifePath Index Retirement Portfolio						LifePath Index 2020 Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	607,932		$	32,734		$	863,856		$	30,013
Net realized gain (loss)		19,445			(24,166	)		(66,043	)		(35,916	)
Net change in unrealized appreciation/depreciation		2,214,836			(21,257	)		3,972,964			(69,724	)
Net increase (decrease) in net assets resulting from operations		2,842,213			(12,689	)		4,770,777			(75,627	)
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(67,191	)		(396	)		(57,131	)		(339	)
Investor A		(13,732	)		(360	)		(46,728	)		(305	)
Class K		(490,856	)		(31,237	)		(682,715	)		(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 and distributions to shareholders		(571,779	)		(33,438	)		(786,574	)		(29,223	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		177,688,816			2,000,000			227,880,064			2,000,000
Net Assets
Total increase in net assets		179,959,250			1,953,873			231,864,267			1,895,150
Beginning of period		1,953,873			—			1,895,150			—
End of period	$	181,913,123		$	1,953,873		$	233,759,417		$	1,895,150
Undistributed (distributions in excess of) net investment income	$	35,860		$	(293	)	$	78,120		$	838

¹  Commencement of operations.

See Notes to Financial Statements.
20	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Changes in Net Assets (continued) BlackRock Funds III

	LifePath Index 2025 Portfolio						LifePath Index 2030 Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	245,928		$	28,408		$	659,971		$	27,262
Net realized loss		(8,454	)		(38,267	)		(92,543	)		(41,867	)
Net change in unrealized appreciation/depreciation		2,022,824			(92,902	)		3,515,382			(111,767	)
Net increase (decrease) in net assets resulting from operations		2,260,298			(102,761	)		4,082,810			(126,372	)
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(2,967	)		(318	)		(56,013	)		(297	)
Investor A		(1,980	)		(282	)		(37,978	)		(262	)
Class K		(208,411	)		(25,086	)		(492,286	)		(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 and distributions to shareholders		(213,358	)		(27,410	)		(586,277	)		(25,811	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		85,104,470			2,000,000			160,377,318			2,000,000
Net Assets
Total increase in net assets		87,151,410			1,869,829			163,873,851			1,847,817
Beginning of period		1,869,829			—			1,847,817			—
End of period	$	89,021,239		$	1,869,829		$	165,721,668		$	1,847,817
Undistributed net investment income	$	33,354		$	784		$	74,768		$	1,074

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	21

Statements of Changes in Net Assets (continued) BlackRock Funds III

	LifePath Index 2035 Portfolio						LifePath Index 2040 Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	159,372		$	26,244		$	367,522		$	25,305
Net realized loss		(33,586	)		(45,187	)		(140,178	)		(50,650	)
Net change in unrealized appreciation/depreciation		1,688,130			(129,432	)		1,910,627			(143,605	)
Net increase (decrease) in net assets resulting from operations		1,813,916			(148,375	)		2,137,971			(168,950	)
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(1,438	)		(278	)		(43,959	)		(261	)
Investor A		(535	)		(244	)		(19,398	)		(228	)
Class K		(131,008	)		(22,007	)		(259,906	)		(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 and distributions to shareholders		(132,981	)		(24,349	)		(323,263	)		(23,101	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		54,230,226			2,000,136			78,726,153			2,000,000
Net Assets
Total increase in net assets		55,911,161			1,827,412			80,540,861			1,807,949
Beginning of period		1,827,412			—			1,807,949			—
End of period	$	57,738,573		$	1,827,412		$	82,348,810		$	1,807,949
Undistributed net investment income	$	27,710		$	1,319		$	45,801		$	1,542

¹  Commencement of operations.

See Notes to Financial Statements.
22	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Changes in Net Assets (continued) BlackRock Funds III

	LifePath Index 2045 Portfolio						LifePath Index 2050 Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	66,896		$	24,284		$	73,328		$	23,716
Net realized loss		(38,482	)		(56,467	)		(55,330	)		(58,176	)
Net change in unrealized appreciation/depreciation		706,879			(157,171	)		552,297			(173,300	)
Net increase (decrease) in net assets resulting from operations		735,293			(189,354	)		570,295			(207,760	)
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(784	)		(243	)		(6,747	)		(230	)
Investor A		(415	)		(210	)		(537	)		(225	)
Class K		(55,437	)		(19,310	)		(56,790	)		(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 and distributions to shareholders		(56,636	)		(21,748	)		(64,074	)		(20,836	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		17,293,856			2,000,000			13,550,720			2,003,110
Net Assets
Total increase in net assets		17,972,513			1,788,898			14,056,941			1,774,514
Beginning of period		1,788,898			—			1,774,514			—
End of period	$	19,761,411		$	1,788,898		$	15,831,455		$	1,774,514
Undistributed net investment income	$	12,000		$	1,740		$	11,206		$	1,952

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	23

Statements of Changes in Net Assets (concluded) BlackRock Funds III

	LifePath Index 2055 Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	25,569		$	23,461
Net realized loss		(77,964	)		(64,676	)
Net change in unrealized appreciation/depreciation		181,804			(178,355	)
Net increase (decrease) in net assets resulting from operations		129,409			(219,570	)
Dividends and Distributions to Shareholders From
Net investment income:
Institutional		(234	)		(226	)
Investor A		(369	)		(194	)
Class K		(23,417	)		(17,983	)
Return of capital:
Institutional		—			(26	)
Investor A		—			(25	)
Class K		—			(1,982	)
Decrease in net assets resulting from dividends and distributions to shareholders		(24,020	)		(20,436	)
Capital Share Transactions
Net increase in net assets derived from capital share transactions		550,633			2,000,000
Net Assets
Total increase in net assets		656,022			1,759,994
Beginning of period		1,759,994			—
End of period	$	2,416,016		$	1,759,994
Undistributed net investment income	$	3,552		$	2,003

¹  Commencement of operations.

See Notes to Financial Statements.
24	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights LifePath Index Retirement Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.77		$	10.00
Net investment income2		0.12			0.16
Net realized and unrealized gain (loss)		0.33			(0.22	)
Net increase (decrease) from investment operations		0.45			(0.06	)
Dividends and distributions from:
Net investment income		(0.05	)		(0.16	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.05	)		(0.17	)
Net asset value, end of period	$	10.17		$	9.77
Total Investment Return3,4
Based on net asset value		4.57%			(0.61	)%
Ratios to Average Net Assets5,6
Total expenses		0.48%	7,8		6.81%	9,10,11
Total expenses after fees waived		0.17%	7,8		0.18%	9,10
Net investment income		2.30%	7,8		2.84%	9,10
Supplemental Data
Net assets, end of period (000)	$	14,359		$	24
Portfolio turnover of the Master Portfolio		10%			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 returns.

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 0.12%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.37%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 6.84%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	25

Financial Highlights (continued) LifePath Index Retirement Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.77		$	10.00
Net investment income2		0.09			0.15
Net realized and unrealized gain (loss)		0.34			(0.23	)
Net increase (decrease) from investment operations		0.43			(0.08	)
Dividends and distributions from:
Net investment income		(0.03	)		(0.14	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.03	)		(0.15	)
Net asset value, end of period	$	10.17		$	9.77
Total Investment Return3,4
Based on net asset value		4.44%			(0.76	)%
Ratios to Average Net Assets5,6
Total expenses		1.09%	7,8		7.06%	9,10,11
Total expenses after fees waived		0.41%	7,8		0.43%	9,10
Net investment income		1.85%	7,8		2.58%	9,10
Supplemental Data
Net assets, end of period (000)	$	3,997		$	24
Portfolio turnover of the Master Portfolio		10%			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 returns.

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 0.26%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.37%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.10%.

See Notes to Financial Statements.
26	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (concluded) LifePath Index Retirement Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.77		$	10.00
Net investment income2		0.13			0.16
Net realized and unrealized gain (loss)		0.32			(0.22	)
Net increase (decrease) from investment operations		0.45			(0.06	)
Dividends and distributions from:
Net investment income		(0.05	)		(0.16	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.05	)		(0.17	)
Net asset value, end of period	$	10.17		$	9.77
Total Investment Return3,4
Based on net asset value		4.57%			(0.59	)%
Ratios to Average Net Assets5,6
Total expenses		0.36%	7,8		6.71%	9,10,11
Total expenses after fees waived		0.16%	7,8		0.15%	9,10
Net investment income		2.61%	7,8		2.87%	9,10
Supplemental Data
Net assets, end of period (000)	$	163,558		$	1,905
Portfolio turnover of the Master Portfolio		10%			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 returns.

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 0.08%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.38%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 6.74%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	27

Financial Highlights LifePath Index 2020 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.48		$	10.00
Net investment income2		0.12			0.15
Net realized and unrealized gain (loss)		0.40			(0.53	)
Net increase (decrease) from investment operations		0.52			(0.38	)
Dividends and distributions from:
Net investment income		(0.05	)		(0.13	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.05	)		(0.14	)
Net asset value, end of period	$	9.95		$	9.48
Total Investment Return3,4
Based on net asset value		5.49%			(3.72	)%
Ratios to Average Net Assets5,6
Total expenses		0.44%	7,8		6.91%	9,10,11
Total expenses after fees waived		0.19%	7,8		0.20%	9,10
Net investment income		2.35%	7,8		2.66%	9,10
Supplemental Data
Net assets, end of period (000)	$	11,475		$	24
Portfolio turnover of the Master Portfolio		16%			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 returns.

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 0.10%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.48%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 6.94%.

See Notes to Financial Statements.
28	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath Index 2020 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.48		$	10.00
Net investment income2		0.10			0.13
Net realized and unrealized gain (loss)		0.40			(0.52	)
Net increase (decrease) from investment operations		0.50			(0.39	)
Dividends and distributions from:
Net investment income		(0.04	)		(0.12	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.04	)		(0.13	)
Net asset value, end of period	$	9.94		$	9.48
Total Investment Return3,4
Based on net asset value		5.27%			(3.87	)%
Ratios to Average Net Assets5,6
Total expenses		0.77%	7,8		7.16%	9,10,11
Total expenses after fees waived		0.43%	7,8		0.46%	9,10
Net investment income		2.00%	7,8		2.42%	9,10
Supplemental Data
Net assets, end of period (000)	$	11,821		$	24
Portfolio turnover of the Master Portfolio		16%			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 returns.

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 0.14%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.48%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.19%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	29

Financial Highlights (concluded) LifePath Index 2020 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.48		$	10.00
Net investment income2		0.09			0.15
Net realized and unrealized gain (loss)		0.42			(0.52	)
Net increase (decrease) from investment operations		0.51			(0.37	)
Dividends and distributions from:
Net investment income		(0.05	)		(0.14	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.05	)		(0.15	)
Net asset value, end of period	$	9.94		$	9.48
Total Investment Return3,4
Based on net asset value		5.39%			(3.71	)%
Ratios to Average Net Assets5,6
Total expenses		0.33%	7,8		6.81%	9,10,11
Total expenses after fees waived		0.18%	7,8		0.18%	9,10
Net investment income		2.65%	7,8		2.70%	9,10
Supplemental Data
Net assets, end of period (000)	$	210,463		$	1,848
Portfolio turnover of the Master Portfolio		16%			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 returns.

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 0.07%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.48%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 6.84%.

See Notes to Financial Statements.
30	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights LifePath Index 2025 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.35		$	10.00
Net investment income2		0.11			0.14
Net realized and unrealized gain (loss)		0.44			(0.65	)
Net increase (decrease) from investment operations		0.55			(0.51	)
Dividends and distributions from:
Net investment income		(0.05	)		(0.13	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.05	)		(0.14	)
Net asset value, end of period	$	9.85		$	9.35
Total Investment Return3,4
Based on net asset value		5.84%			(5.12	)%
Ratios to Average Net Assets5,6
Total expenses		1.65%	7,8		6.97%	9,10,11
Total expenses after fees waived		0.21%	7,8		0.21%	9,10
Net investment income		2.24%	7,8		2.55%	9,10
Supplemental Data
Net assets, end of period (000)	$	770		$	23
Portfolio turnover of the Master Portfolio		21%			0%	12

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 returns.

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 0.51%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.53%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 6.99%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	31

Financial Highlights (continued) LifePath Index 2025 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.35		$	10.00
Net investment income2		0.10			0.13
Net realized and unrealized gain (loss)		0.43			(0.66	)
Net increase (decrease) from investment operations		0.53			(0.53	)
Dividends and distributions from:
Net investment income		(0.04	)		(0.11	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.04	)		(0.12	)
Net asset value, end of period	$	9.84		$	9.35
Total Investment Return3,4
Based on net asset value		5.65%			(5.26	)%
Ratios to Average Net Assets5,6
Total expenses		2.01%	7,8		7.22%	9,10,11
Total expenses after fees waived		0.46%	7,8		0.46%	9,10
Net investment income		2.00%	7,8		2.30%	9,10
Supplemental Data
Net assets, end of period (000)	$	593		$	23
Portfolio turnover of the Master Portfolio		21%			0%	12

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 returns.

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 0.56%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.53%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.24%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
32	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (concluded) LifePath Index 2025 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.35		$	10.00
Net investment income2		0.13			0.14
Net realized and unrealized gain (loss)		0.42			(0.65	)
Net increase (decrease) from investment operations		0.55			(0.51	)
Dividends and distributions from:
Net investment income		(0.05	)		(0.13	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.05	)		(0.14	)
Net asset value, end of period	$	9.85		$	9.35
Total Investment Return3,4
Based on net asset value		5.85%			(5.10	)%
Ratios to Average Net Assets5,6
Total expenses		0.77%	7,8		6.87%	9,10,11
Total expenses after fees waived		0.19%	7,8		0.18%	9,10
Net investment income		2.63%	7,8		2.58%	9,10
Supplemental Data
Net assets, end of period (000)	$	87,658		$	1,823
Portfolio turnover of the Master Portfolio		21%			0%	12

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 returns.

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 0.22%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.53%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 6.89%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	33

Financial Highlights LifePath Index 2030 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December  31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.24		$	10.00
Net investment income2		0.12			0.13
Net realized and unrealized gain (loss)		0.45			(0.76	)
Net increase (decrease) from investment operations		0.57			(0.63	)
Dividends and distributions from:
Net investment income		(0.05	)		(0.12	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.05	)		(0.13	)
Net asset value, end of period	$	9.76		$	9.24
Total Investment Return3,4
Based on net asset value		6.19%			(6.30	)%
Ratios to Average Net Assets5,6
Total expenses		0.53%	7,8		7.04%	9,10,11
Total expenses after fees waived		0.20%	7,8		0.22%	9,10
Net investment income		2.41%	7,8		2.47%	9,10
Supplemental Data
Net assets, end of period (000)	$	10,558		$	23
Portfolio turnover of the Master Portfolio		26%			0%	12

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 returns.

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 0.12%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.57%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.06%.

¹² Rounds to less than 1%.

See Notes to Financial Statements.
34	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath Index 2030 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.24		$	10.00
Net investment income2		0.10			0.12
Net realized and unrealized gain (loss)		0.46			(0.77	)
Net increase (decrease) from investment operations		0.56			(0.65	)
Dividends and distributions from:
Net investment income		(0.04	)		(0.10	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.04	)		(0.11	)
Net asset value, end of period	$	9.76		$	9.24
Total Investment Return3,4
Based on net asset value		6.06%			(6.44	)%
Ratios to Average Net Assets5,6
Total expenses		0.84%	7,8		7.29%	9,10,11
Total expenses after fees waived		0.45%	7,8		0.47%	9,10
Net investment income		2.10%	7,8		2.22%	9,10
Supplemental Data
Net assets, end of period (000)	$	9,222		$	23
Portfolio turnover of the Master Portfolio		26%			0%	12

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 returns.

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 0.16%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.57%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.32%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	35

Financial Highlights (concluded) LifePath Index 2030 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.24		$	10.00
Net investment income2		0.13			0.14
Net realized and unrealized gain (loss)		0.43			(0.77	)
Net increase (decrease) from investment operations		0.56			(0.63	)
Dividends and distributions from:
Net investment income		(0.05	)		(0.12	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.05	)		(0.13	)
Net asset value, end of period	$	9.75		$	9.24
Total Investment Return3,4
Based on net asset value		6.08%			(6.28	)%
Ratios to Average Net Assets5,6
Total expenses		0.39%	7,8		6.94%	9,10,11
Total expenses after fees waived		0.20%	7,8		0.19%	9,10
Net investment income		2.70%	7,8		2.50%	9,10
Supplemental Data
Net assets, end of period (000)	$	145,941		$	1,802
Portfolio turnover of the Master Portfolio		26%			0%	12

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 returns.

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 0.08%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.57%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 6.96%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
36	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights LifePath Index 2035 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December  31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.14		$	10.00
Net investment income2		0.11			0.13
Net realized and unrealized gain (loss)		0.47			(0.87	)
Net increase (decrease) from investment operations		0.58			(0.74	)
Dividends and distributions from:
Net investment income		(0.05	)		(0.11	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.05	)		(0.12	)
Net asset value, end of period	$	9.67		$	9.14
Total Investment Return3,4
Based on net asset value		6.33%			(7.37	)%
Ratios to Average Net Assets5,6
Total expenses		2.58%	7,8		7.12%	9,10,11
Total expenses after fees waived		0.23%	7,8		0.23%	9,10
Net investment income		2.30%	7,8		2.40%	9,10
Supplemental Data
Net assets, end of period (000)	$	338		$	23
Portfolio turnover of the Master Portfolio		54%			0%	12

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 returns.

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 0.80%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.61%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.15%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	37

Financial Highlights (continued) LifePath Index 2035 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December  31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.14		$	10.00
Net investment income2		0.10			0.12
Net realized and unrealized gain (loss)		0.47			(0.87	)
Net increase (decrease) from investment operations		0.57			(0.75	)
Dividends and distributions from:
Net investment income		(0.04	)		(0.10	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.04	)		(0.11	)
Net asset value, end of period	$	9.67		$	9.14
Total Investment Return3,4
Based on net asset value		6.23%			(7.52	)%
Ratios to Average Net Assets5,6
Total expenses		3.06%	7,8		7.47%	9,10,11
Total expenses after fees waived		0.50%	7,8		0.48%	9,10
Net investment income		2.03%	7,8		2.14%	9,10
Supplemental Data
Net assets, end of period (000)	$	169		$	23
Portfolio turnover of the Master Portfolio		54%			0%	12

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 returns.

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 0.88%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.61%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.50%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
38	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (concluded) LifePath Index 2035 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December  31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.14		$	10.00
Net investment income2		0.13			0.13
Net realized and unrealized gain (loss)		0.45			(0.87	)
Net increase (decrease) from investment operations		0.58			(0.74	)
Dividends and distributions from:
Net investment income		(0.05	)		(0.11	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.05	)		(0.12	)
Net asset value, end of period	$	9.67		$	9.14
Total Investment Return3,4
Based on net asset value		6.34%			(7.35	)%
Ratios to Average Net Assets5,6
Total expenses		1.13%	7,8		7.02%	9,10,11
Total expenses after fees waived		0.21%	7,8		0.19%	9,10
Net investment income		2.67%	7,8		2.43%	9,10
Supplemental Data
Net assets, end of period (000)	$	57,231		$	1,782
Portfolio turnover of the Master Portfolio		54%			0%	12

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 returns.

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 0.33%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.61%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.05%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	39

Financial Highlights LifePath Index 2040 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.04		$	10.00
Net investment income2		0.12			0.13
Net realized and unrealized gain (loss)		0.49			(0.98	)
Net increase (decrease) from investment operations		0.61			(0.85	)
Dividends and distributions from:
Net investment income		(0.05	)		(0.10	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.05	)		(0.11	)
Net asset value, end of period	$	9.60		$	9.04
Total Investment Return3,4
Based on net asset value		6.78%			(8.44	)%
Ratios to Average Net Assets5,6
Total expenses		0.72%	7,8		7.17%	9,10,11
Total expenses after fees waived		0.22%	7,8		0.23%	9,10
Net investment income		2.49%	7,8		2.34%	9,10
Supplemental Data
Net assets, end of period (000)	$	8,002		$	23
Portfolio turnover of the Master Portfolio		32%			0%	12

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 returns.

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 0.19%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.65%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.19%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
40	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath Index 2040 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.04		$	10.00
Net investment income2		0.10			0.11
Net realized and unrealized gain (loss)		0.50			(0.97	)
Net increase (decrease) from investment operations		0.60			(0.86	)
Dividends and distributions from:
Net investment income		(0.04	)		(0.09	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.04	)		(0.10	)
Net asset value, end of period	$	9.60		$	9.04
Total Investment Return3,4
Based on net asset value		6.66%			(8.58	)%
Ratios to Average Net Assets5,6
Total expenses		1.11%	7,8		7.42%	9,10,11
Total expenses after fees waived		0.47%	7,8		0.48%	9,10
Net investment income		2.19%	7,8		2.08%	9,10
Supplemental Data
Net assets, end of period (000)	$	4,412		$	23
Portfolio turnover of the Master Portfolio		32%			0%	12

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 returns.

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 0.25%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.65%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.45%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	41

Financial Highlights (concluded) LifePath Index 2040 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	9.04		$	10.00
Net investment income2		0.13			0.13
Net realized and unrealized gain (loss)		0.48			(0.97	)
Net increase (decrease) from investment operations		0.61			(0.84	)
Dividends and distributions from:
Net investment income		(0.05	)		(0.11	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.05	)		(0.12	)
Net asset value, end of period	$	9.60		$	9.04
Total Investment Return3,4
Based on net asset value		6.78%			(8.42	)%
Ratios to Average Net Assets5,6
Total expenses		0.56%	7,8		7.06%	9,10,11
Total expenses after fees waived		0.22%	7,8		0.20%	9,10
Net investment income		2.71%	7,8		2.36%	9,10
Supplemental Data
Net assets, end of period (000)	$	69,935		$	1,763
Portfolio turnover of the Master Portfolio		32%			0%	12

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 returns.

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 0.13%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.65%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.09%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
42	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights LifePath Index 2045 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	8.94		$	10.00
Net investment income2		0.11			0.12
Net realized and unrealized gain (loss)		0.51			(1.07	)
Net increase (decrease) from investment operations		0.62			(0.95	)
Dividends and distributions from:
Net investment income		(0.06	)		(0.10	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.06	)		(0.11	)
Net asset value, end of period	$	9.50		$	8.94
Total Investment Return3,4
Based on net asset value		6.87%			(9.51	)%
Ratios to Average Net Assets5,6
Total expenses		3.66%	7,8		7.23%	9,10,11
Total expenses after fees waived		0.25%	7,8		0.24%	9,10
Net investment income		2.37%	7,8		2.26%	9,10
Supplemental Data
Net assets, end of period (000)	$	159		$	22
Portfolio turnover of the Master Portfolio		37%			0%	12

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 returns.

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 1.17%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.69%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.25%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	43

Financial Highlights (continued) LifePath Index 2045 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	8.94		$	10.00
Net investment income2		0.10			0.11
Net realized and unrealized gain (loss)		0.51			(1.08	)
Net increase (decrease) from investment operations		0.61			(0.97	)
Dividends and distributions from:
Net investment income		(0.05	)		(0.08	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.05	)		(0.09	)
Net asset value, end of period	$	9.50		$	8.94
Total Investment Return3,4
Based on net asset value		6.78%			(9.64	)%
Ratios to Average Net Assets5,6
Total expenses		3.98%	7,8		7.48%	9,10,11
Total expenses after fees waived		0.51%	7,8		0.49%	9,10
Net investment income		2.13%	7,8		2.00%	9,10
Supplemental Data
Net assets, end of period (000)	$	120		$	22
Portfolio turnover of the Master Portfolio		37%			0%	12

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 returns.

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 1.18%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.69%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.50%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
44	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (concluded) LifePath Index 2045 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	8.94		$	10.00
Net investment income2		0.12			0.12
Net realized and unrealized gain (loss)		0.51			(1.07	)
Net increase (decrease) from investment operations		0.63			(0.95	)
Dividends and distributions from:
Net investment income		(0.06	)		(0.10	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.06	)		(0.11	)
Net asset value, end of period	$	9.51		$	8.94
Total Investment Return3,4
Based on net asset value		6.99%			(9.49	)%
Ratios to Average Net Assets5,6
Total expenses		2.34%	7,8		7.12%	9,10,11
Total expenses after fees waived		0.22%	7,8		0.21%	9,10
Net investment income		2.61%	7,8		2.29%	9,10
Supplemental Data
Net assets, end of period (000)	$	19,482		$	1,744
Portfolio turnover of the Master Portfolio		37%			0%	12

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 returns.

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 0.79%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.69%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.15%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	45

Financial Highlights LifePath Index 2050 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	8.86		$	10.00
Net investment income2		0.12			0.12
Net realized and unrealized gain (loss)		0.52			(1.16	)
Net increase (decrease) from investment operations		0.64			(1.04	)
Dividends and distributions from:
Net investment income		(0.06	)		(0.09	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.06	)		(0.10	)
Net asset value, end of period	$	9.44		$	8.86
Total Investment Return3,4
Based on net asset value		7.22%			(10.36	)%
Ratios to Average Net Assets5,6
Total expenses		2.71%	7,8		7.27%	9,10,11
Total expenses after fees waived		0.23%	7,8		0.24%	9,10
Net investment income		2.47%	7,8		2.22%	9,10
Supplemental Data
Net assets, end of period (000)	$	1,141		$	22
Portfolio turnover of the Master Portfolio		52%			0%	12

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 returns.

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 0.89%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.71%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.30%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
46	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) LifePath Index 2050 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December  31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	8.86		$	10.00
Net investment income2		0.10			0.10
Net realized and unrealized gain (loss)		0.52			(1.15	)
Net increase (decrease) from investment operations		0.62			(1.05	)
Dividends and distributions from:
Net investment income		(0.05	)		(0.08	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.05	)		(0.09	)
Net asset value, end of period	$	9.43		$	8.86
Total Investment Return3,4
Based on net asset value		6.99%			(10.49	)%
Ratios to Average Net Assets5,6
Total expenses		3.13%	7,8		7.69%	9,10,11
Total expenses after fees waived		0.52%	7,8		0.49%	9,10
Net investment income		2.19%	7,8		1.97%	9,10
Supplemental Data
Net assets, end of period (000)	$	115		$	25
Portfolio turnover of the Master Portfolio		52%			0%	12

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 returns.

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 0.89%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.71%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.71%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	47

Financial Highlights (concluded) LifePath Index 2050 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December  31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	8.86		$	10.00
Net investment income2		0.12			0.12
Net realized and unrealized gain (loss)		0.52			(1.16	)
Net increase (decrease) from investment operations		0.64			(1.04	)
Dividends and distributions from:
Net investment income		(0.06	)		(0.09	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.06	)		(0.10	)
Net asset value, end of period	$	9.44		$	8.86
Total Investment Return3,4
Based on net asset value		7.23%			(10.34	)%
Ratios to Average Net Assets5,6
Total expenses		2.10%	7,8		7.17%	9,10,11
Total expenses after fees waived		0.22%	7,8		0.21%	9,10
Net investment income		2.65%	7,8		2.25%	9,10
Supplemental Data
Net assets, end of period (000)	$	14,575		$	1,727
Portfolio turnover of the Master Portfolio		52%			0%	12

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 returns.

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 0.70%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.71%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.19%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
48	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights LifePath Index 2055 Portfolio

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December  31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	8.80		$	10.00
Net investment income2		0.11			0.12
Net realized and unrealized gain (loss)		0.52			(1.22	)
Net increase (decrease) from investment operations		0.63			(1.10	)
Dividends and distributions from:
Net investment income		(0.09	)		(0.09	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.09	)		(0.10	)
Net asset value, end of period	$	9.34		$	8.80
Total Investment Return3,4
Based on net asset value		7.18%			(10.98	)%
Ratios to Average Net Assets5,6
Total expenses		5.77%	7,8		7.32%	9,10,11
Total expenses after fees waived		0.27%	7,8		0.24%	9,10
Net investment income		2.39%	7,8		2.21%	9,10
Supplemental Data
Net assets, end of period (000)	$	23		$	22
Portfolio turnover of the Master Portfolio		52%			0%	12

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 returns.

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 1.90%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.03%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.73%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.34%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	49

Financial Highlights (continued) LifePath Index 2055 Portfolio

	Investor A
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	8.80		$	10.00
Net investment income2		0.10			0.10
Net realized and unrealized gain (loss)		0.52			(1.21	)
Net increase (decrease) from investment operations		0.62			(1.11	)
Dividends and distributions from:
Net investment income		(0.08	)		(0.08	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.08	)		(0.09	)
Net asset value, end of period	$	9.34		$	8.80
Total Investment Return3,4
Based on net asset value		7.08%			(11.11	)%
Ratios to Average Net Assets5,6
Total expenses		6.00%	7,8		7.57%	9,10,11
Total expenses after fees waived		0.52%	7,8		0.49%	9,10
Net investment income		2.20%	7,8		1.95%	9,10
Supplemental Data
Net assets, end of period (000)	$	44		$	22
Portfolio turnover of the Master Portfolio		52%			0%	12

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 returns.

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 1.86%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.03%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.73%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.59%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
50	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (concluded) LifePath Index 2055 Portfolio

	Class K
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Per Share Operating Performance
Net asset value, beginning of period	$	8.80		$	10.00
Net investment income2		0.12			0.12
Net realized and unrealized gain (loss)		0.52			(1.22	)
Net increase (decrease) from investment operations		0.64			(1.10	)
Dividends and distributions from:
Net investment income		(0.10	)		(0.09	)
Return of capital		—			(0.01	)
Total dividends and distributions		(0.10	)		(0.10	)
Net asset value, end of period	$	9.34		$	8.80
Total Investment Return3,4
Based on net asset value		7.20%			(10.96	)%
Ratios to Average Net Assets5,6
Total expenses		5.55%	7,8		7.21%	9,10,11
Total expenses after fees waived		0.22%	7,8		0.21%	9,10
Net investment income		2.46%	7,8		2.24%	9,10
Supplemental Data
Net assets, end of period (000)	$	2,348		$	1,716
Portfolio turnover of the Master Portfolio		52%			0%	12

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 returns.

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 1.89%.

⁸  Excludes expenses incurred indirectly as a result of the Master Portfolio’s investments in underlying funds of approximately 0.03%, although the ratio does include the LifePath Index Portfolio’s share of the Master Portfolio’s allocated expenses and/or net investment income.

⁹  Includes the LifePath Index Portfolio’s share of the Master Portfolio’s allocated fees waived of 3.74%.

¹⁰  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.

¹¹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 7.22%.

¹²  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	51

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. 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”) are each a series of the 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. 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 “LifePath Index Master Portfolios”). Each LifePath Index 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 LifePath Index Master Portfolio.

The value of each LifePath Index Portfolio’s investment in its corresponding LifePath Index Master Portfolio reflects that LifePath Index Portfolio’s proportionate interest in the net assets of that LifePath Index Master Portfolio (99.99%, 99.99%, 99.99%, 99.99%, 99.98%, 99.99%, 99.95%, 99.94% and 99.61% for 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, respectively, as of June 30, 2012).

Each LifePath 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 the LifePath Index 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 Portfolios’ policy is to fair value their financial instruments at market value. The LifePath Index Portfolios record their

investments in the LifePath Index Master Portfolios at fair value based on the LifePath Index Portfolio’s proportionate interest in the net assets of the LifePath Index Master Portfolio. Valuation of securities held by the LifePath Index Master Portfolios are discussed in Note 1 of the LifePath Index 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 Index Master Portfolio are accounted on a trade date basis. Each LifePath Index Portfolio records daily its proportionate share of its LifePath Index 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 each LifePath Index Portfolio’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.

Each LifePath Index 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 LifePath Index Portfolio’s US federal tax returns remains open for the period ended December 31, 2011. The statutes of limitations on each LifePath Index 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.

Offering Costs: Offering costs are amortized over a 12-month period beginning with the commencement of operations. BlackRock Fund Advisors (“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	$	56,081
LifePath Index 2020 Portfolio	$	55,961
LifePath Index 2025 Portfolio	$	55,181
LifePath Index 2030 Portfolio	$	55,475
LifePath Index 2035 Portfolio	$	55,540
LifePath Index 2040 Portfolio	$	54,830
LifePath Index 2045 Portfolio	$	54,798
LifePath Index 2050 Portfolio	$	54,756
LifePath Index 2055 Portfolio	$	55,000

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

52 BLACKROCK FUNDS III JUNE 30, 2012

Notes to Financial Statements (continued) BlackRock Funds III

basis of relative net assets or other appropriate methods. Other expenses of a LifePath Index Portfolio 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”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

The Trust, on behalf of the LifePath Index Portfolios, entered into an administration services arrangement with BlackRock Institutional Trust Company, N.A. (“BTC”) (the “Administrator”), 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 until May 1, 2013. 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 administrator, and shown as transfer agent fees reimbursed — class specific, respectively, in the Statements of Operations. For the six months ended June 30, 2012, the amounts included in fees reimbursed by administrator were as follows:

LifePath Index Retirement Portfolio	$	164
LifePath Index 2020 Portfolio	$	164
LifePath Index 2025 Portfolio	$	164
LifePath Index 2030 Portfolio	$	164
LifePath Index 2035 Portfolio	$	193
LifePath Index 2040 Portfolio	$	157
LifePath Index 2045 Portfolio	$	201
LifePath Index 2050 Portfolio	$	217
LifePath Index 2055 Portfolio	$	181

If during the LifePath Index Portfolio’s fiscal year the operating expenses of a share class, that at any time during the prior fiscal year received a waiver or reimbursement from BTC, are less than the expense limit for that share class, BTC is entitled to be reimbursed by such share class up to the lesser of (a) the amount of fees waived or expenses reimbursed during the prior fiscal year 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 LifePath Index Portfolio of which the share class is a part has more than $50 million in assets for the fiscal year and (2) BTC or an affiliate continues to serve as the LifePath Index Portfolio’s investment advisor or administrator. In the event the

expense limit for a share class is changed subsequent to a fiscal year in which BTC becomes entitled to reimbursement for fees waived or reimbursed, the amount available to reimburse BTC shall be calculated by reference to the expense limit for that share class in effect at the time BTC became entitled to receive such reimbursement, rather than the subsequently changed expense limit for that share class.

For the six months ended June 30, 2012, BTC recouped the following waivers previously recorded by the LifePath Index Portfolios:

Share Classes	Institutional		Investor A
LifePath Index Retirement	$	15	$	14
LifePath Index 2020	$	15	$	14
LifePath Index 2025	$	12	$	9
LifePath Index 2030	$	14	$	15
LifePath Index 2040	$	15	$	14

On June 30, 2012 the amounts subject to possible future recoupment under the expense limitation agreement are as follows:

	Expiring December 31, 2013
LifePath Index Retirement	$	74,731
LifePath Index 2020	$	73,824
LifePath Index 2025	$	73,559
LifePath Index 2030	$	73,638
LifePath Index 2035	$	73,717
LifePath Index 2040	$	73,422
LifePath Index 2045	$	73,428
LifePath Index 2050	$	73,439
LifePath Index 2055	$	73,490

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 Trust, on behalf of 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, each LifePath Index Portfolio pays 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.

The Administrator maintains a call center, which is responsible for providing certain shareholder services to the LifePath Index Portfolio, such as responding to shareholder inquiries and processing transactions based upon instructions from shareholders with respect to the subscription and redemption of LifePath Index Portfolio shares. These amounts are included in transfer agent — class specific in the Statements of Operations.

BLACKROCK FUNDS III JUNE 30, 2012 53

Notes to Financial Statements (continued) BlackRock Funds III

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. Capital Loss Carryforwards:

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

4. Capital Share Transactions:

Transactions in capital shares for each class were as follows:

LifePath Index Retirement Portfolio	Six Months Ended June 30, 2012						Period May 31, 20111 to December 31, 2011
	Shares			Amount			Shares		Amount
Institutional
Shares sold		1,611,815		$	16,433,125			2,500	$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		1,076			10,964			—		—
Shares redeemed		(203,958	)		(2,061,044	)		—		—
Net increase		1,408,933		$	14,383,045			2,500	$	25,000
Investor A
Shares sold		543,093		$	5,355,932			2,500	$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		1,339			13,646			—		—
Shares redeemed		(153,938	)		(1,561,300	)		—		—
Net increase		390,494		$	3,808,278			2,500	$	25,000
Class K
Shares sold		16,263,041		$	163,229,162			195,000	$	1,950,000
Shares issued to shareholders in reinvestment of dividends and distributions		47,904			487,329			—		—
Shares redeemed		(419,870	)		(4,218,998	)		—		—
Net increase		15,891,075		$	159,497,493			195,000	$	1,950,000
Total Net Increase		17,690,502		$	177,688,816			200,000	$	2,000,000
LifePath Index 2020 Portfolio
Institutional
Shares sold		1,281,694		$	12,778,883			2,500	$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		2,100			21,041			—		—
Shares redeemed		(132,594	)		(1,332,590	)		—		—
Net increase		1,151,200		$	11,467,334			2,500	$	25,000
1   Commencement of operations.

54 BLACKROCK FUNDS III JUNE 30, 2012

Notes to Financial Statements (continued) BlackRock Funds III

LifePath Index 2020 Portfolio (concluded)	Six Months Ended June 30, 2012						Period May 31, 20111 to December 31, 2011
	Shares			Amount			Shares		Amount
Investor A
Shares sold		1,348,352		$	12,975,984			2,500	$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		4,657			46,629			—		—
Shares redeemed		(166,026	)		(1,657,923	)		—		—
Net increase		1,186,983		$	11,364,690			2,500	$	25,000
Class K
Shares sold		21,306,579		$	208,348,984			195,000	$	1,950,000
Shares issued to shareholders in reinvestment of dividends and distributions		68,155			678,463			—		—
Shares redeemed		(404,810	)		(3,979,407	)		—		—
Net increase		20,969,924		$	205,048,040			195,000	$	1,950,000
Total Net Increase		23,308,107		$	227,880,064			200,000	$	2,000,000
LifePath Index 2025 Portfolio
Institutional
Shares sold		76,161		$	748,034			2,500	$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		287			2,850			—		—
Shares redeemed		(793	)		(7,887	)		—		—
Net increase		75,655		$	742,997			2,500	$	25,000
Investor A
Shares sold		59,924		$	588,626			2,500	$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		189			1,884			—		—
Shares redeemed		(2,330	)		(23,173	)		—		—
Net increase		57,783		$	567,337			2,500	$	25,000
Class K
Shares sold		8,980,458		$	86,405,958			195,000	$	1,950,000
Shares issued to shareholders in reinvestment of dividends and distributions		20,636			203,465			—		—
Shares redeemed		(292,544	)		(2,815,287	)		—		—
Net increase		8,708,550		$	83,794,136			195,000	$	1,950,000
Total Net Increase		8,841,988		$	85,104,470			200,000	$	2,000,000
LifePath Index 2030 Portfolio
Institutional
Shares sold		1,164,703		$	11,375,155			2,500	$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		2,654			26,242			—		—
Shares redeemed		(88,625	)		(866,042	)		—		—
Net increase		1,078,732		$	10,535,355			2,500	$	25,000
Investor A
Shares sold		1,122,980		$	10,569,583			2,500	$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		3,834			37,876			—		—
Shares redeemed		(184,771	)		(1,801,978	)		—		—
Net increase		942,043		$	8,805,481			2,500	$	25,000
1  Commencement of operations.

BLACKROCK FUNDS III JUNE 30, 2012 55

Notes to Financial Statements (continued) BlackRock Funds III

LifePath Index 2030 Portfolio (concluded)	Six Months Ended June 30, 2012						Period May 31, 20111 to December 31, 2011
	Shares			Amount			Shares			Amount
Class K
Shares sold		15,094,185		$	144,171,361			195,000		$	1,950,000
Shares issued to shareholders in reinvestment of dividends and distributions		49,907			487,889			—			—
Shares redeemed		(377,629	)		(3,622,768	)		—			—
Net increase		14,766,463		$	141,036,482			195,000		$	1,950,000
Total Net Increase		16,787,238		$	160,377,318			200,000		$	2,000,000
LifePath Index 2035 Portfolio
Institutional
Shares sold		36,255		$	352,180			2,500		$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		133			1,313			—			—
Shares redeemed		(3,929	)		(38,479	)		—			—
Net increase		32,459		$	315,014			2,500		$	25,000
Investor A
Shares sold		15,365		$	148,265			2,515		$	25,151
Shares issued to shareholders in reinvestment of dividends and distributions		44			434			—			—
Shares redeemed		(427	)		(4,242	)		(2	)		(15	)
Net increase		14,982		$	144,457			2,513		$	25,136
Class K
Shares sold		6,076,076		$	57,081,406			195,000		$	1,950,000
Shares issued to shareholders in reinvestment of dividends and distributions		12,919			125,098			—			—
Shares redeemed		(364,984	)		(3,435,749	)		—			—
Net increase		5,724,011		$	53,770,755			195,000		$	1,950,000
Total Net Increase		5,771,452		$	54,230,226			200,013		$	2,000,136
LifePath Index 2040 Portfolio
Institutional
Shares sold		858,340		$	8,302,669			2,500		$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		2,048			19,979			—			—
Shares redeemed		(29,559	)		(284,922	)		—			—
Net increase		830,829		$	8,037,726			2,500		$	25,000
Investor A
Shares sold		532,737		$	4,928,944			2,500		$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		1,981			19,291			—			—
Shares redeemed		(77,385	)		(756,422	)		—			—
Net increase		457,333		$	4,191,813			2,500		$	25,000
1   Commencement of operations.

56 BLACKROCK FUNDS III JUNE 30, 2012

Notes to Financial Statements (continued) BlackRock Funds III

LifePath Index 2040 Portfolio (concluded)	Six Months Ended June 30, 2012						Period May 31, 20111 to December 31, 2011
	Shares			Amount			Shares			Amount
Class K
Shares sold		7,364,953		$	69,047,206			195,000		$	1,950,000
Shares issued to shareholders in reinvestment of dividends and distributions		26,515			255,537			—			—
Shares redeemed		(299,886	)		(2,806,129	)		—			—
Net increase		7,091,582		$	66,496,614			195,000		$	1,950,000
Total Net Increase		8,379,744		$	78,726,153			200,000		$	2,000,000
LifePath Index 2045 Portfolio
Institutional
Shares sold		14,222		$	136,559			2,500		$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		66			646			—			—
Shares redeemed		(8	)		(75	)		—			—
Net increase		14,280		$	137,130			2,500		$	25,000
Investor A
Shares sold		10,448		$	99,793			2,500		$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		29			277			—			—
Shares redeemed		(335	)		(3,299	)		—			—
Net increase		10,142		$	96,771			2,500		$	25,000
Class K
Shares sold		2,058,445		$	18,931,490			195,000		$	1,950,000
Shares issued to shareholders in reinvestment of dividends and distributions		5,119			48,798			—			—
Shares redeemed		(209,277	)		(1,920,333	)		—			—
Net increase		1,854,287		$	17,059,955			195,000		$	1,950,000
Total Net Increase		1,878,709		$	17,293,856			200,000		$	2,000,000
LifePath Index 2050 Portfolio
Institutional
Shares sold		138,900		$	1,284,434			2,500		$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		657			6,343			—			—
Shares redeemed		(21,215	)		(202,735	)		—			—
Net increase		118,342		$	1,088,042			2,500		$	25,000
Investor A
Shares sold		11,016		$	103,945			2,830		$	28,096
Shares issued to shareholders in reinvestment of dividends and distributions		46			408			3			29
Shares redeemed		(1,690	)		(16,406	)		(2	)		(15	)
Net increase		9,372		$	87,947			2,831		$	28,110
1  Commencement of operations.

BLACKROCK FUNDS III JUNE 30, 2012 57

Notes to Financial Statements (concluded) BlackRock Funds III

LifePath Index 2050 Portfolio (concluded)	Six Months Ended June 30, 2012						Period May 31, 20111 to December 31, 2011
	Shares			Amount			Shares		Amount
Class K
Shares sold		1,572,874		$	14,410,152			195,000	$	1,950,000
Shares issued to shareholders in reinvestment of dividends and distributions		5,343			50,647			—		—
Shares redeemed		(228,995	)		(2,086,068	)		—		—
Net increase		1,349,222		$	12,374,731			195,000	$	1,950,000
Total Net Increase		1,476,936		$	13,550,720			200,331	$	2,003,110
LifePath Index 2055 Portfolio
Institutional
Shares sold		—			—			2,500	$	25,000
Net increase		—			—			2,500	$	25,000
Investor A
Shares sold		2,704		$	25,486			2,500	$	25,000
Shares issued to shareholders in reinvestment of dividends and distributions		17			158			—		—
Shares redeemed		(471	)		(4,318	)		—		—
Net increase		2,250		$	21,326			2,500	$	25,000
Class K
Shares sold		73,727		$	696,719			195,000	$	1,950,000
Shares issued to shareholders in reinvestment of dividends and distributions		505			4,788			—		—
Shares redeemed		(17,757	)		(172,200	)		—		—
Net increase		56,475		$	529,307			195,000	$	1,950,000
Total Net Increase		58,725		$	550,633			200,000	$	2,000,000
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.

58 BLACKROCK FUNDS III JUNE 30, 2012

Master Portfolio Information as of June 30, 2012 Master Investment Portfolio

LifePath^® Index Retirement Master Portfolio

Portfolio Composition Percent of
Affiliated Investment  Companies

Fixed Income Funds	61	%
Equity Funds	39
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	22
ACWI ex-US Index Master Portfolio	11
iShares Barclays TIPS Bond Fund	9
Master Small Cap Index Series	4
iShares MSCI EAFE Small Cap Index Fund	1

LifePath^® Index 2020 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment  Companies

Equity Funds	54	%
Fixed Income Funds	45
Short-Term Securities	1

Portfolio Holdings Percent of
Affiliated Investment  Companies

Bond Index Master Portfolio	38	%
Russell 1000 Index Master Portfolio	31
ACWI ex-US Index Master Portfolio	15
iShares Barclays TIPS Bond Fund	6
Master Small Cap Index Series	4
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	2
iShares Cohen & Steers Realty Majors Index Fund	2
iShares MSCI EAFE Small Cap Index Fund	1
BlackRock Cash Funds: Institutional, SL Agency Shares	1

LifePath^® Index 2025 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment  Companies

Equity Funds	63	%
Fixed Income Funds	37
Short-Term Securities	0	1

¹  Rounds to less than 1%.

Portfolio Holdings Percent of
Affiliated Investment  Companies

Russell 1000 Index Master Portfolio	36	%
Bond Index Master Portfolio	32
ACWI ex-US Index Master Portfolio	17
iShares Barclays TIPS Bond Fund	5
Master Small Cap Index Series	3
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	3
iShares Cohen & Steers Realty Majors 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	70	%
Fixed Income Funds	29
Short-Term Securities	1

Portfolio Holdings Percent of
Affiliated Investment  Companies

Russell 1000 Index Master Portfolio	40	%
Bond Index Master Portfolio	25
ACWI ex-US Index Master Portfolio	19
iShares Barclays TIPS Bond Fund	4
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	3
Master Small Cap Index Series	3
iShares Cohen & Steers Realty Majors Index Fund	3
iShares MSCI EAFE Small Cap Index Fund	2
BlackRock Cash Funds: Institutional, SL Agency Shares	1

The Portfolios’ 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 JUNE 30, 2012 59

Master Portfolio Information as of June 30, 2012 (continued) Master Investment Portfolio

LifePath^® Index 2035 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment  Companies

Equity Funds	77	%
Fixed Income Funds	23
Short-Term Securities	0	1

¹  Rounds to less than 1%.

Portfolio Holdings Percent of
Affiliated Investment  Companies

Russell 1000 Index Master Portfolio	44	%
ACWI ex-US Index Master Portfolio	21
Bond Index Master Portfolio	20
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	4
iShares Cohen & Steers Realty Majors Index Fund	4
Master Small Cap Index Series	3
iShares Barclays TIPS Bond Fund	2
iShares MSCI EAFE Small Cap Index Fund	2

LifePath^® Index 2040 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	82	%
Fixed Income Funds	16
Short-Term Securities	2

Portfolio Holdings Percent of
Affiliated Investment Companies

Russell 1000 Index Master Portfolio	47	%
ACWI ex-US Index Master Portfolio	22
Bond Index Master Portfolio	15
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	4
iShares Cohen & Steers Realty Majors Index Fund	4
Master Small Cap Index Series	2
iShares MSCI EAFE Small Cap Index Fund	2
iShares Barclays TIPS Bond Fund	2
BlackRock Cash Funds: Institutional, SL Agency Shares	2

LifePath^® Index 2045 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	89	%
Fixed Income Funds	11
Short-Term Securities	0	1

¹  Rounds to less than 1%.

Portfolio Holdings Percent of
Affiliated Investment Companies

Russell 1000 Index Master Portfolio	51	%
ACWI ex-US Index Master Portfolio	24
Bond Index Master Portfolio	11
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	5
iShares Cohen & Steers Realty Majors Index Fund	5
iShares MSCI EAFE Small Cap Index Fund	2
Master Small Cap Index Series	2

LifePath^® Index 2050 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	94	%
Fixed Income Funds	6
Short-Term Securities	0	1

¹  Rounds to less than 1%.

Portfolio Holdings Percent of
Affiliated Investment Companies

Russell 1000 Index Master Portfolio	54	%
ACWI ex-US Index Master Portfolio	25
Bond Index Master Portfolio	6
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	6
iShares Cohen & Steers Realty Majors Index Fund	5
iShares MSCI EAFE Small Cap Index Fund	2
Master Small Cap Index Series	2

The Portfolios’ 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.

60 BLACKROCK FUNDS III JUNE 30, 2012

Master Portfolio Information as of June 30, 2012 (concluded) Master Investment Portfolio

LifePath^® Index 2055 Master Portfolio

Portfolio Composition Percent of
Affiliated Investment Companies

Equity Funds	98	%
Fixed Income Funds	1
Short-Term Securities	1

Portfolio Holdings Percent of
Affiliated Investment Companies

Russell 1000 Index Master Portfolio	56	%
ACWI ex-US Index Master Portfolio	26
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund	6
iShares Cohen & Steers Realty Majors Index Fund	5
iShares MSCI EAFE Small Cap Index Fund	3
Master Small Cap Index Series	2
Bond Index Master Portfolio	1
BlackRock Cash Funds: Institutional, SL Agency Shares	1

The Portfolios’ 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 JUNE 30, 2012 61

Schedule of Investments June 30, 2012 (Unaudited) LifePath Index Retirement Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 38.5%
ACWI ex-US Index Master Portfolio	$	20,049,842	$	20,049,842
iShares Cohen & Steers Realty Majors Index Fund		4,438		349,004
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		13,411		382,348
iShares MSCI EAFE Small Cap Index Fund		43,901		1,586,582
Master Small Cap Index Series	$	7,204,917		7,204,917
Russell 1000 Index Master Portfolio	$	40,466,536		40,466,536
				70,039,229
Fixed Income Funds — 61.3%
Bond Index Master Portfolio	$	95,287,015		95,287,015
iShares Barclays TIPS Bond Fund		135,838		16,259,808
				111,546,823

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 0.1%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.25% (b)		189,354	$	189,354
				189,354
Total Affiliated Investment Companies (Cost — $179,581,593*) — 99.9%				181,775,406
Other Assets in Excess of Liabilities — 0.1%				174,159
Net Assets — 100.0%			$	181,949,565

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	179,581,593
Gross unrealized appreciation	$	2,254,556
Gross unrealized depreciation		(60,743	)
Net unrealized appreciation	$	2,193,813

(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 Held at December 31,  2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June 30,  2012		Value at June 30, 2012		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio	$	5,157	$	20,044,685	1		—		$	20,049,842	$	20,049,842	$	(37,633	)	$	99,317
BlackRock Cash Funds: Institutional, SL Agency Shares		5,082		184,272	1		—			189,354	$	189,354		—		$	678
Bond Index Master Portfolio	$	1,055,367	$	94,231,648	1		—		$	95,287,015	$	95,287,015	$	(12,335	)	$	251,679
iShares Barclays TIPS Bond Fund		1,556		136,832			(2,550	)		135,838	$	16,259,808	$	13,274		$	130,409
iShares Cohen & Steers Realty Majors Index Fund		—		4,438			—			4,438	$	349,004		—			—
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		—		13,411			—			13,411	$	382,348		—			—
iShares MSCI Canada Index Fund		682		2,379			(3,061	)		—		—	$	(1,887	)		—
iShares MSCI EAFE Small Cap Index Fund		485		43,416			—			43,901	$	1,586,582		—		$	25,264
iShares MSCI Emerging Markets Index Fund		1,290		4,562			(5,852	)		—		—	$	(2,183	)		—
Master International Index Series	$	122,801		—		$	(122,801	)2		—		—	$	231,833		$	1,342
Master Small Cap Index Series	$	77,362	$	7,127,555	1		—		$	7,204,917	$	7,204,917	$	11		$	23,617
Russell 1000 Index Master Portfolio	$	462,961	$	40,003,575	1		—		$	40,466,536	$	40,466,536	$	(171,618	)	$	120,420

¹ Represents net shares/beneficial interest purchased.

² Represents net beneficial interest sold.

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

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	18,767,096	$	163,008,310		—	$	181,775,406

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

62 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments June 30, 2012 (Unaudited) LifePath Index 2020 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 54.7%
ACWI ex-US Index Master Portfolio	$	35,259,688	$	35,259,688
iShares Cohen & Steers Realty Majors Index Fund		48,286		3,797,211
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		145,929		4,160,436
iShares MSCI EAFE Small Cap Index Fund (b)		87,038		3,145,553
Master Small Cap Index Series	$	8,353,874		8,353,874
Russell 1000 Index Master Portfolio	$	73,261,265		73,261,265
				127,978,027
Fixed Income Funds — 45.1%
Bond Index Master Portfolio	$	90,792,700		90,792,700
iShares Barclays TIPS Bond Fund		121,833		14,583,410
				105,376,110

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 1.2%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.25% (c)(d)		2,311,480	$	2,311,480
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(d)		501,570		501,570
				2,813,050
Total Affiliated Investment Companies (Cost — $232,263,899*) — 101.0%				236,167,187
Liabilities in Excess of Other Assets — (1.0)%				(2,381,786	)
Net Assets — 100.0%			$	233,785,401

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	232,264,494
Gross unrealized appreciation	$	3,941,803
Gross unrealized depreciation		(39,110	)
Net unrealized appreciation	$	3,902,693

(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 Held at December 31,  2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June 30,  2012		Value at June 30, 2012		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio		—	$	35,259,688	1		—		$	35,259,688	$	35,259,688	$	(79,350	)	$	216,609
BlackRock Cash Funds: Institutional, SL Agency Shares		5,467		2,306,013	1		—			2,311,480	$	2,311,480		—		$	1,332
BlackRock Cash Funds: Prime, SL Agency Shares		—		501,570	1		—			501,570	$	501,570		—		$	179
Bond Index Master Portfolio	$	728,061	$	90,064,639	1		—		$	90,792,700	$	90,792,700	$	(19,457	)	$	269,498
iShares Barclays TIPS Bond Fund		1,016		121,422			(605	)		121,833	$	14,583,410	$	(287	)	$	116,959
iShares Cohen & Steers Realty Majors Index Fund		—		48,286			—			48,286	$	3,797,211		—			—
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		—		145,929			—			145,929	$	4,160,436		—			—
iShares MSCI Canada Index Fund		1,026		10,171			(11,197	)		—		—	$	732			—
iShares MSCI EAFE Small Cap Index Fund		744		86,494			(200	)		87,038	$	3,145,553	$	(1,176	)	$	50,088
iShares MSCI Emerging Markets Index Fund		1,943		19,113			(21,056	)		—		—	$	11,298			—
Master International Index Series	$	192,815		—		$	(192,815	)2		—		—	$	7		$	4,674
Master Small Cap Index Series	$	73,681	$	8,280,193	1		—		$	8,353,874	$	8,353,874	$	267,898		$	30,203
Russell 1000 Index Master Portfolio	$	689,398	$	72,571,867	1		—		$	73,261,265	$	73,261,265	$	(245,681	)	$	251,318

¹ Represents net shares/beneficial interest purchased.

² Represents net beneficial interest 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 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. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and other significant accounting policies, please refer to the Note 1 of the Notes to Financial Statements.

The following table summarizes the Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	28,499,660	$	207,667,527		—	$	236,167,187

Certain of the Master Portfolio’s liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of June 30, 2012 collateral on securities loaned at value of $2,331,210 is categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 63

Schedule of Investments June 30, 2012 (Unaudited) LifePath Index 2025 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 63.3%
ACWI ex-US Index Master Portfolio	$	15,243,553	$	15,243,553
iShares Cohen & Steers Realty Majors Index Fund		26,635		2,094,576
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		80,512		2,295,397
iShares MSCI EAFE Small Cap Index Fund		39,478		1,426,735
Master Small Cap Index Series	$	2,986,966		2,986,966
Russell 1000 Index Master Portfolio	$	32,317,290		32,317,290
				56,364,517
Fixed Income Funds — 36.7%
Bond Index Master Portfolio	$	28,311,696		28,311,696
iShares Barclays TIPS Bond Fund		36,057		4,316,023
				32,627,719

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 0.2%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.25% (b)		204,701	$	204,701
				204,701
Total Affiliated Investment Companies (Cost — $87,267,000*) — 100.2%				89,196,937
Liabilities in Excess of Other Assets — (0.2)%				(172,496	)
Net Assets — 100.0%			$	89,024,441

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	87,267,639
Gross unrealized appreciation	$	1,955,427
Gross unrealized depreciation		(26,129	)
Net unrealized appreciation	$	1,929,298

(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 Held at December 31, 2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June 30,  2012		Value at June 30, 2012		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio	$	2,608	$	15,240,945	1		—		$	15,243,553	$	15,243,553	$	(12,216	)	$	67,768
BlackRock Cash Funds: Institutional, SL Agency Shares		4,643		200,058	1		—			204,701	$	204,701		—		$	208
Bond Index Master Portfolio	$	581,850	$	27,729,846	1		—		$	28,311,696	$	28,311,696	$	(3,857	)	$	52,336
iShares Barclays TIPS Bond Fund		788		35,369			(100	)		36,057	$	4,316,023	$	899		$	30,718
iShares Cohen & Steers Realty Majors Index Fund		—		26,635			—			26,635	$	2,094,576		—			—
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		—		80,512			—			80,512	$	2,295,397		—			—
iShares MSCI Canada Index Fund		1,140		707			(1,847	)		—		—	$	(4,019	)		—
iShares MSCI EAFE Small Cap Index Fund		865		38,613			—			39,478	$	1,426,735		—		$	22,718
iShares MSCI Emerging Markets Index Fund		2,264		1,291			(3,555	)		—		—	$	(5,966	)		—
Master International Index Series	$	223,117		—		$	(223,117	)2		—		—	$	107,090		$	1,259
Master Small Cap Index Series	$	69,031	$	2,917,935	1		—		$	2,986,966	$	2,986,966	$	41		$	9,201
Russell 1000 Index Master Portfolio	$	789,091	$	31,528,199	1		—		$	32,317,290	$	32,317,290	$	(90,443	)	$	80,228

¹ Represents net shares/beneficial interest purchased.

² Represents net beneficial interest sold.

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

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	10,337,432	$	78,859,505		—	$	89,196,937

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

64 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments June 30, 2012 (Unaudited) LifePath Index 2030 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 70.6%
ACWI ex-US Index Master Portfolio	$	31,568,925	$	31,568,925
iShares Cohen & Steers Realty Majors Index Fund		63,080		4,960,611
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		190,598		5,433,949
iShares MSCI EAFE Small Cap Index Fund (b)		81,974		2,962,540
Master Small Cap Index Series	$	4,978,610		4,978,610
Russell 1000 Index Master Portfolio	$	67,073,283		67,073,283
				116,977,918
Fixed Income Funds — 29.4%
Bond Index Master Portfolio	$	42,478,527		42,478,527
iShares Barclays TIPS Bond Fund		51,782		6,198,306
				48,676,833

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 0.7%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.25% (c)(d)		1,042,791	$	1,042,791
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(d)		192,025		192,025
				1,234,816
Total Affiliated Investment Companies (Cost — $163,486,063*) — 100.7 %				166,889,567
Liabilities in Excess of Other Assets — (0.7)%				(1,146,314	)
Net Assets — 100.0%			$	165,743,253

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	163,486,763
Gross unrealized appreciation	$	3,419,654
Gross unrealized depreciation		(16,850	)
Net unrealized appreciation	$	3,402,804

(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 Held at December 31,  2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June 30,  2012		Value at June 30, 2012		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio		—	$	31,568,925	1		—		$	31,568,925	$	31,568,925	$	(88,159	)	$	214,255
BlackRock Cash Funds: Institutional, SL Agency Shares		9,277		1,033,514	1		—			1,042,791	$	1,042,791		—		$	801
BlackRock Cash Funds: Prime, SL Agency Shares		—		192,025	1		—			192,025	$	192,025		—		$	105
Bond Index Master Portfolio	$	454,601	$	42,023,926	1		—		$	42,478,527	$	42,478,527	$	(8,816	)	$	136,488
iShares Barclays TIPS Bond Fund		575		51,441			(234	)		51,782	$	6,198,306	$	(21	)	$	51,160
iShares Cohen & Steers Realty Majors Index Fund		—		63,080			—			63,080	$	4,960,611		—			—
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		—		190,598			—			190,598	$	5,433,949		—			—
iShares MSCI Canada Index Fund		1,315		13,587			(14,902	)		—		—	$	6,401			—
iShares MSCI EAFE Small Cap Index Fund		965		81,591			(582	)		81,974	$	2,962,540	$	(4,551	)	$	46,884
iShares MSCI Emerging Markets Index Fund		2,519		25,444			(27,963	)		—		—	$	40,020			—
Master International Index Series	$	249,180		—		$	(249,180	)2		—		—	$	109		$	7,215
Master Small Cap Index Series	$	67,825	$	4,910,785	1		—		$	4,978,610	$	4,978,610	$	174,168		$	20,728
Russell 1000 Index Master Portfolio	$	874,441	$	66,198,842	1		—		$	67,073,283	$	67,073,283	$	(211,665	)	$	245,541

¹ Represents net shares/beneficial interest purchased.

² Represents net beneficial interest 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 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. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with investing in those securities. For information about the Master Portfolio’s policy regarding valuation of investments and other significant accounting policies, please refer to the Note 1 of the Notes to Financial Statements.

The following table summarizes the Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	20,790,222	$	146,099,345		—	$	166,889,567

Certain of the master portfolio’s liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of June 30, 2012 collateral on securities loaned at value of $892,500 is categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 65

Schedule of Investments June 30, 2012 (Unaudited) LifePath Index 2035 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 77.3%
ACWI ex-US Index Master Portfolio	$	11,991,396	$	11,991,396
iShares Cohen & Steers Realty Majors Index Fund		26,121		2,054,155
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		78,927		2,250,209
iShares MSCI EAFE Small Cap Index Fund		30,220		1,092,151
Master Small Cap Index Series	$	1,606,536		1,606,536
Russell 1000 Index Master Portfolio	$	25,634,154		25,634,154
				44,628,601
Fixed Income Funds — 22.7%
Bond Index Master Portfolio	$	11,623,891		11,623,891
iShares Barclays TIPS Bond Fund		12,251		1,466,445
				13,090,336

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 0.2%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.25% (b)		123,795	$	123,795
				123,795
Total Affiliated Investment Companies (Cost — $56,284,165*) — 100.2%				57,842,732
Liabilities in Excess of Other Assets — (0.2)%				(101,224	)
Net Assets — 100.0%			$	57,741,508

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	56,284,918
Gross unrealized appreciation	$	1,568,824
Gross unrealized depreciation		(11,010	)
Net unrealized appreciation	$	1,557,814

(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 Held at December 31,  2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June 30, 2012		Value at June 30, 2012		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio	$	2,608	$	11,988,788	1		—		$	11,991,396	$	11,991,396	$	(8,146	)	$	52,081
BlackRock Cash Funds: Institutional, SL Agency Shares		4,730		119,065	1		—			123,795	$	123,795		—		$	101
Bond Index Master Portfolio	$	351,541	$	11,272,350	1		—		$	11,623,891	$	11,623,891	$	(841	)	$	20,867
iShares Barclays TIPS Bond Fund		378		11,873			—			12,251	$	1,466,445		—		$	10,270
iShares Cohen & Steers Realty Majors Index Fund		—		26,121			—			26,121	$	2,054,155		—			—
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		—		78,927			—			78,927	$	2,250,209		—			—
iShares MSCI Canada Index Fund		1,402		834			(2,236	)		—		—	$	(4,678	)		—
iShares MSCI EAFE Small Cap Index Fund		1,045		31,320			(2,145	)		30,220	$	1,092,151	$	(12,482	)	$	18,525
iShares MSCI Emerging Markets Index Fund		2,772		1,513			(4,285	)		—		—	$	(7,087	)		—
Master International Index Series	$	274,385		—		$	(274,385	)2		—		—	$	65,247		$	1,624
Master Small Cap Index Series	$	63,824	$	1,542,712	1		—		$	1,606,536	$	1,606,536	$	51		$	5,542
Russell 1000 Index Master Portfolio	$	943,795	$	24,690,359	1		—		$	25,634,154	$	25,634,154	$	(65,669	)	$	62,952

¹ Represents net shares/beneficial interest purchased.

² Represents net shares/beneficial interest sold.

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

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	6,986,755	$	50,855,977		—	$	57,842,732

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

66 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments June 30, 2012 (Unaudited) LifePath Index 2040 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 83.3%
ACWI ex-US Index Master Portfolio	$	18,325,557	$	18,325,557
iShares Cohen & Steers Realty Majors Index Fund		42,814		3,366,893
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		129,323		3,686,999
iShares MSCI EAFE Small Cap Index Fund (b)		46,764		1,690,051
Master Small Cap Index Series	$	2,078,295		2,078,295
Russell 1000 Index Master Portfolio	$	39,442,996		39,442,996
				68,590,791
Fixed Income Funds — 16.7%
Bond Index Master Portfolio	$	12,481,772		12,481,772
iShares Barclays TIPS Bond Fund		10,556		1,263,553
				13,745,325

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 1.9%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.25% (c)(d)		1,260,761	$	1,260,761
BlackRock Cash Funds: Prime, SL Agency Shares, 0.24% (c)(d)		307,240		307,240
				1,568,001
Total Affiliated Investment Companies (Cost — $82,137,599*) — 101.9%				83,904,117
Liabilities in Excess of Other Assets — (1.9)%				(1,537,548	)
Net Assets — 100.0%			$	82,366,569

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	82,137,599
Gross unrealized appreciation	$	1,771,831
Gross unrealized depreciation		(5,313	)
Net unrealized appreciation	$	1,766,518

(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 Held at December 31,  2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June 30, 2012		Value at June 30, 2012		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio	$	1,705	$	18,323,852	1		—		$	18,325,557	$	18,325,557	$	(69,831	)	$	142,592
BlackRock Cash Funds: Institutional, SL Agency Shares		6,541		1,254,220	1		—			1,260,761	$	1,260,761		—		$	364
BlackRock Cash Funds: Prime, SL Agency Shares		—		307,240	1		—			307,240	$	307,240		—		$	50
Bond Index Master Portfolio	$	253,518	$	12,228,254	1		—		$	12,481,772	$	12,481,772	$	(2,636	)	$	44,883
iShares Barclays TIPS Bond Fund		202		10,354			—			10,556	$	1,263,553		—		$	10,629
iShares Cohen & Steers Realty Majors Index Fund		—		42,814			—			42,814	$	3,366,893		—			—
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		—		129,323			—			129,323	$	3,686,999		—			—
iShares MSCI Canada Index Fund		1,569		10,330			(11,899	)		—		—	$	3,535			—
iShares MSCI EAFE Small Cap Index Fund		1,124		47,967			(2,327	)		46,764	$	1,690,051	$	(12,955	)	$	28,064
iShares MSCI Emerging Markets Index Fund		2,948		19,275			(22,223	)		—		—	$	27,413			—
Master International Index Series	$	294,880		—		$	(294,880	)2		—		—	$	93		$	6,461
Master Small Cap Index Series	$	62,432	$	2,015,863	1		—		$	2,078,295	$	2,078,295	$	78,177		$	10,481
Russell 1000 Index Master Portfolio	$	1,010,878	$	38,432,118	1		—		$	39,442,996	$	39,442,996	$	(163,978	)	$	160,321

¹ Represents net shares/beneficial interest purchased.

² Represents net beneficial interest 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. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	11,575,497	$	72,328,620		—	$	83,904,117

Certain of the Master Portfolio’s liabilities are held at carrying amount, which approximates fair value for financial statement purposes. As of June 30, 2012 collateral on securities loaned at value of $1,428,000 is categorized as Level 2 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 67

Schedule of Investments June 30, 2012 (Unaudited) LifePath Index 2045 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 89.1%
ACWI ex-US Index Master Portfolio	$	4,684,407	$	4,684,407
iShares Cohen & Steers Realty Majors Index Fund		11,487		903,338
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		34,708		989,525
iShares MSCI EAFE Small Cap Index Fund		12,748		460,713
Master Small Cap Index Series	$	456,291		456,291
Russell 1000 Index Master Portfolio	$	10,126,518		10,126,518
				17,620,792
Fixed Income Funds — 11.1%
Bond Index Master Portfolio	$	2,191,114		2,191,114
				2,191,114

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 0.3%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.25% (b)		49,435	$	49,435
				49,435
Total Affiliated Investment Companies (Cost — $19,311,791*) — 100.5 %				19,861,341
Liabilities in Excess of Other Assets — (0.5)%				(97,157	)
Net Assets — 100.0%			$	19,764,184

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	19,314,548
Gross unrealized appreciation	$	551,717
Gross unrealized depreciation		(4,924	)
Net unrealized appreciation	$	546,793

(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 Held at December 31,  2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June 30, 2012		Value at June 30, 2012		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio	$	2,508	$	4,681,899	1		—		$	4,684,407	$	4,684,407	$	(9,672	)	$	25,244
BlackRock Cash Funds: Institutional, SL Agency Shares		5,019		44,416	1		—			49,435	$	49,435		—		$	25
Bond Index Master Portfolio	$	171,154	$	2,019,960	1		—		$	2,191,114	$	2,191,114	$	162		$	5,464
iShares Cohen & Steers Realty Majors Index Fund		—		11,487			—			11,487	$	903,338		—			—
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		—		34,708			—			34,708	$	989,525		—			—
iShares MSCI Canada Index Fund		1,631		357			(1,988	)		—		—	$	(5,240	)		—
iShares MSCI EAFE Small Cap Index Fund		1,179		11,569			—			12,748	$	460,713		—		$	7,279
iShares MSCI Emerging Markets Index Fund		3,061		857			(3,918	)		—		—	$	(8,491	)		—
Master International Index Series	$	316,913		—		$	(316,913	)2		—		—	$	62		$	1,678
Master Small Cap Index Series	$	59,434	$	396,857	1		—		$	456,291	$	456,291	$	19,774		$	2,010
Russell 1000 Index Master Portfolio	$	1,069,178	$	9,057,340	1		—		$	10,126,518	$	10,126,518	$	(35,178	)	$	31,012

¹ Represents net shares/beneficial interest purchased.

² Represents net beneficial interest sold.

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

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	2,403,011	$	17,458,330		—	$	19,861,341

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

68 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments June 30, 2012 (Unaudited) LifePath Index 2050 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 94.4%
ACWI ex-US Index Master Portfolio	$	3,970,283	$	3,970,283
iShares Cohen & Steers Realty Majors Index Fund		10,178		800,398
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		30,752		876,739
iShares MSCI EAFE Small Cap Index Fund		10,230		369,712
Master Small Cap Index Series	$	362,180		362,180
Russell 1000 Index Master Portfolio	$	8,578,517		8,578,517
				14,957,829
Fixed Income Funds — 5.6%
Bond Index Master Portfolio	$	885,463		885,463
				885,463

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 0.2%
BlackRock Cash Funds: Institutional, SL Agency Shares, 0.25% (b)		28,511	$	28,511
				28,511
Total Affiliated Investment Companies (Cost — $15,493,083*) — 100.2 %				15,871,803
Liabilities in Excess of Other Assets — (0.2)%				(37,425	)
Net Assets — 100.0%			$	15,834,378

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	15,494,234
Gross unrealized appreciation	$	379,983
Gross unrealized depreciation		(2,414	)
Net unrealized appreciation	$	377,569

(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 Held at December 31,  2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June 30, 2012		Value at June 30, 2012		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio	$	2,508	$	3,967,775	1		—		$	3,970,283	$	3,970,283	$	(16,767	)	$	30,187
BlackRock Cash Funds: Institutional, SL Agency Shares		5,192		23,319	1		—			28,511	$	28,511		—		$	37
Bond Index Master Portfolio	$	72,275	$	813,188	1		—		$	885,463	$	885,463	$	7		$	3,134
iShares Cohen & Steers Realty Majors Index Fund		—		10,178			—			10,178	$	800,398		—			—
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		—		30,752			—			30,752	$	876,739		—			—
iShares MSCI Canada Index Fund		1,692		1,264			(2,956	)		—		—	$	(4,383	)		—
iShares MSCI EAFE Small Cap Index Fund		1,263		9,825			(858	)		10,230	$	369,712	$	(7,435	)	$	6,299
iShares MSCI Emerging Markets Index Fund		3,332		2,288			(5,620	)		—		—	$	(1,833	)		—
Master International Index Series	$	331,764		—		$	(331,764	)2		—		—	$	15,013		$	2,423
Master Small Cap Index Series	$	59,143	$	303,037	1		—		$	362,180	$	362,180	$	85		$	2,002
Russell 1000 Index Master Portfolio	$	1,123,015	$	7,455,502	1		—		$	8,578,517	$	8,578,517	$	(40,066	)	$	35,793

¹ Represents net shares/beneficial interest purchased.

² Represents net beneficial interest sold.

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

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	2,075,360	$	13,796,443		—	$	15,871,803

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 69

Schedule of Investments June 30, 2012 (Unaudited) LifePath Index 2055 Master Portfolio (Percentages shown are based on Net Assets)

Affiliated Investment Companies (a)	Shares/Beneficial Interest		Value
Equity Funds — 99.8%
ACWI ex-US Index Master Portfolio	$	641,972	$	641,972
iShares Cohen & Steers Realty Majors Index Fund		1,760		138,406
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		5,318		151,616
iShares MSCI EAFE Small Cap Index Fund		1,794		64,835
Master Small Cap Index Series	$	55,755		55,755
Russell 1000 Index Master Portfolio	$	1,372,980		1,372,980
				2,425,564
Fixed Income Funds — 1.0%
Bond Index Master Portfolio	$	25,290		25,290
				25,290

Affiliated Investment Companies (a)	Shares		Value
Short-Term Securities — 0.7%
BlackRock Cash Funds: Institutional, SL Agency Shares , 0.25% (b)		15,691	$	15,691
				15,691
Total Affiliated Investment Companies (Cost — $2,463,107*) — 101.5 %				2,466,545
Liabilities in Excess of Other Assets — (1.5)%				(35,841	)
Net Assets — 100.0%			$	2,430,704

* As of June 30, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for federal income tax purposes were as follows:

Aggregate cost	$	2,464,341
Gross unrealized appreciation	$	49,960
Gross unrealized depreciation		(47,756	)
Net unrealized appreciation	$	2,204

(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 Held at December 31,  2011		Shares/ Beneficial Interest Purchased			Shares/ Beneficial Interest Sold			Shares/ Beneficial Interest Held at June 30, 2012		Value at June 30, 2012		Realized Gain (Loss)			Income
ACWI ex-US Index Master Portfolio	$	5,015	$	636,957	1		—		$	641,972	$	641,972	$	(44,880	)	$	11,195
BlackRock Cash Funds: Institutional, SL Agency Shares		5,013		10,678	1		—			15,691	$	15,691		—		$	6
Bond Index Master Portfolio	$	15,948	$	9,342	1		—		$	25,290	$	25,290	$	31		$	262
iShares Cohen & Steers Realty Majors Index Fund		—		1,760			—			1,760	$	138,406		—			—
iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. Index Fund		—		5,318			—			5,318	$	151,616		—			—
iShares MSCI Canada Index Fund		1,788		—			(1,788	)		—		—	$	(6,418	)		—
iShares MSCI EAFE Small Cap Index Fund		1,295		599			(100	)		1,794	$	64,835	$	(553	)	$	1,032
iShares MSCI Emerging Markets Index Fund		3,466		—			(3,466	)		—		—	$	(10,886	)		—
Master International Index Series	$	349,044		—		$	(349,044	)2		—		—	$	2,289		$	1,654
Master Small Cap Index Series	$	122,459		—		$	(66,704	)2	$	55,755	$	55,755	$	69		$	1,168
Russell 1000 Index Master Portfolio	$	1,110,241	$	262,739	1		—		$	1,372,980	$	1,372,980	$	(17,959	)	$	12,729

¹ Represents net shares/beneficial interest purchased.

² Represents net beneficial interest sold.

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

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Affiliated Investment Companies	$	370,548	$	2,095,997		—	$	2,466,545

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

70 BLACKROCK FUNDS III JUNE 30, 2012

Statements of Assets and Liabilities Master Investment Portfolio

June 30, 2012 (Unaudited)	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 — affiliated1,2	$	181,775,406	$	236,167,187	$	89,196,937	$	166,889,567	$	57,842,732
Contributions receivable from investors		230,299		233,463		—		396,318		282,952
Investments sold receivable		2,413,294		9,518,004		5,116,004		10,863,404		4,488,986
Interest receivable		348		356		142		199		66
Securities lending income receivable		36		373		—		215		—
Receivable from advisor		—		—		206		—		1,273
Total assets		184,419,383		245,919,383		94,313,289		178,149,703		62,616,009
Liabilities
Collateral on securities loaned at value		—		2,331,210		—		892,500		—
Investments purchased payable		2,436,960		9,768,228		5,257,344		11,482,000		4,845,381
Professional fees payable		22,443		22,443		22,444		22,444		22,444
Investment advisory fees payable		3,693		5,447		—		2,921		—
Printing fees payable		1,524		1,524		1,524		1,524		1,524
Trustees’ fees payable		413		420		399		416		398
Custodian fees payable		373		298		468		202		311
Withdrawals payable to investors		—		—		2,257		—		—
Other accrued expenses payable		4,412		4,412		4,412		4,443		4,443
Total liabilities		2,469,818		12,133,982		5,288,848		12,406,450		4,874,501
Net Assets	$	181,949,565	$	233,785,401	$	89,024,441	$	165,743,253	$	57,741,508
Net Assets Consist of
Investors’ capital	$	179,755,752	$	229,882,113	$	87,094,504	$	162,339,749	$	56,182,941
Net unrealized appreciation/depreciation		2,193,813		3,903,288		1,929,937		3,403,504		1,558,567
Net Assets	$	181,949,565	$	233,785,401	$	89,024,441	$	165,743,253	$	57,741,508
1 Investments at cost — affiliated	$	179,581,593	$	232,263,899	$	87,267,000	$	163,486,063	$	56,284,165
2 Securities loaned at value		—	$	2,359,942		—	$	903,500		—

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	71

Statements of Assets and Liabilities (concluded) Master Investment Portfolio

June 30, 2012 (Unaudited)	LifePath Index 2040 Master Portfolio		LifePath Index 2045 Master Portfolio		LifePath Index 2050 Master Portfolio		LifePath Index 2055 Master Portfolio
Assets
Investments at value — affiliated1,2	$	83,904,117	$	19,861,341	$	15,871,803	$	2,466,545
Contributions receivable from investors		280,127		46,881		38,158		—
Investments sold receivable		7,174,181		1,862,990		1,714,553		281,113
Interest receivable		72		17		7		—
Securities lending income receivable		209		—		—		—
Receivable from advisor		228		2,809		2,870		3,045
Total assets		91,358,934		21,774,038		17,627,391		2,750,703
Liabilities
Collateral on securities loaned at value		1,428,000		—		—		—
Investments purchased payable		7,535,187		1,980,331		1,763,780		289,788
Professional fees payable		22,444		22,444		22,443		22,444
Printing fees payable		1,524		1,524		1,524		1,524
Trustees’ fees payable		409		398		399		398
Custodian fees payable		294		650		360		486
Withdrawals payable to investors		—		—		—		900
Other accrued expenses payable		4,507		4,507		4,507		4,459
Total liabilities		8,992,365		2,009,854		1,793,013		319,999
Net Assets	$	82,366,569	$	19,764,184	$	15,834,378	$	2,430,704
Net Assets Consist of
Investors’ capital	$	80,600,051	$	19,214,634	$	15,455,658	$	2,427,266
Net unrealized appreciation/depreciation		1,766,518		549,550		378,720		3,438
Net Assets	$	82,366,569	$	19,764,184	$	15,834,378	$	2,430,704
1 Investments at cost — affiliated	$	82,137,599	$	19,311,791	$	15,493,083	$	2,463,107
2 Securities loaned at value	$	1,445,600		—		—		—

See Notes to Financial Statements.
72	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Operations Master Investment Portfolio

Six Months Ended June 30, 2012 (Unaudited)	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	$	155,673		$	167,047		$	53,436		$	98,044		$	28,796
Income — affiliated		612			680			208			419			101
Securities lending — affiliated		66			831			—			487			—
Net investment income allocated from the applicable Master Portfolios:
Interest		256,916			278,626			55,309			144,580			23,054
Dividends		239,459			493,676			155,483			479,647			120,012
Expenses		(30,840	)		(51,739	)		(14,510	)		(44,052	)		(10,101	)
Fees waived		4,089			6,502			1,357			5,152			794
Total income		625,975			895,623			251,283			684,277			162,656
Expenses
Investment advisory		12,217			17,186			4,704			12,919			2,995
Professional		15,167			15,167			15,167			15,167			15,167
Custodian		2,139			2,357			2,359			1,891			1,973
Independent Trustees		1,620			1,721			1,429			1,658			1,413
Printing		525			525			525			525			525
Miscellaneous		1,084			1,084			1,084			1,084			1,084
Total expenses		32,752			38,040			25,268			33,244			23,157
Less fees waived/reimbursed by advisor		(20,614	)		(20,962	)		(20,568	)		(20,400	)		(20,162	)
Total expenses after fees waived		12,138			17,078			4,700			12,844			2,995
Net investment income		613,837			878,545			246,583			671,433			159,661
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments — affiliated		9,204			10,567			(9,086	)		41,849			(24,247	)
Allocations from the applicable Master Portfolios from investments, financial futures contracts and foreign currency transactions		10,258			(76,583	)		615			(134,363	)		(9,358	)
		19,462			(66,016	)		(8,471	)		(92,514	)		(33,605	)
Net change in unrealized appreciation/depreciation on:
Investments — affiliated		(36,051	)		22,234			30,445			60,525			66,307
Allocated from the applicable Master Portfolios from investments, financial futures contracts and foreign currency transactions		2,251,226			3,951,122			1,992,852			3,455,301			1,622,336
		2,215,175			3,973,356			2,023,297			3,515,826			1,688,643
Total realized and unrealized gain		2,234,637			3,907,340			2,014,826			3,423,312			1,655,038
Net Increase in Net Assets Resulting from Operations	$	2,848,474		$	4,785,885		$	2,261,409		$	4,094,745		$	1,814,699

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	73

Statements of Operations (concluded) Master Investment Portfolio

Six Months Ended June 30, 2012 (Unaudited)	LifePath Index 2040 Master Portfolio			LifePath Index 2045 Master Portfolio			LifePath Index 2050 Master Portfolio			LifePath Index 2055 Master Portfolio
Investment Income
Dividends — affiliated	$	38,693		$	7,279		$	6,299		$	1,032
Income — affiliated		180			25			26			6
Securities lending — affiliated		234			—			11			—
Net investment income allocated from the applicable Master Portfolios:
Interest		49,835			6,436			4,197			664
Dividends		314,903			58,972			69,342			26,344
Expenses		(26,611	)		(4,725	)		(5,449	)		(2,074	)
Fees waived		3,028			416			570			279
Total income		380,262			68,403			74,996			26,251
Expenses
Investment advisory		7,094			1,283			1,400			518
Professional		15,167			15,165			15,167			15,166
Custodian		1,659			2,031			1,878			1,200
Independent Trustees		1,557			1,406			1,415			1,402
Printing		525			525			525			525
Miscellaneous		1,084			1,084			1,084			1,084
Total expenses		27,086			21,494			21,469			19,895
Less fees waived/reimbursed by advisor		(20,029	)		(20,211	)		(20,069	)		(19,374	)
Total expenses after fees waived		7,057			1,283			1,400			521
Net investment income		373,205			67,120			73,596			25,730
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investments — affiliated		17,993			(13,731	)		(13,651	)		(17,857	)
Allocations from the applicable Master Portfolios from investments, financial futures contracts and foreign currency transactions		(158,175	)		(24,852	)		(41,728	)		(60,450	)
		(140,182	)		(38,583	)		(55,379	)		(78,307	)
Net change in unrealized appreciation/depreciation on:
Investments — affiliated		64,332			49,808			57,526			45,640
Allocated from the applicable Master Portfolios from investments, financial futures contracts and foreign currency transactions		1,846,812			657,691			495,357			137,041
		1,911,144			707,499			552,883			182,681
Total realized and unrealized gain		1,770,962			668,916			497,504			104,374
Net Increase in Net Assets Resulting from Operations	$	2,144,167		$	736,036		$	571,100		$	130,104

See Notes to Financial Statements.
74	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Changes in Net Assets Master Investment Portfolio

	LifePath Index Retirement Master Portfolio						LifePath Index 2020 Master Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	613,837		$	32,947		$	878,545		$	30,209
Net realized gain (loss)		19,462			(24,286	)		(66,016	)		(36,096	)
Net change in unrealized appreciation/depreciation		2,215,175			(21,362	)		3,973,356			(70,068	)
Net increase (decrease) in net assets resulting from operations		2,848,474			(12,701	)		4,785,885			(75,955	)
Capital Transactions
Proceeds from contributions		183,353,797			2,025,317			229,609,613			2,024,638
Value of withdrawals		(6,220,965	)		(44,357	)		(2,517,682	)		(41,098	)
Net increase in net assets derived from capital transactions		177,132,832			1,980,960			227,091,931			1,983,540
Net Assets
Total increase in net assets		179,981,306			1,968,259			231,877,816			1,907,585
Beginning of period		1,968,259			—			1,907,585			—
End of period	$	181,949,565		$	1,968,259		$	233,785,401		$	1,907,585
	LifePath Index 2025 Master Portfolio						LifePath Index 2030 Master Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	246,583		$	28,595		$	671,433		$	27,445
Net realized loss		(8,471	)		(38,459	)		(92,514	)		(42,078	)
Net change in unrealized appreciation/depreciation		2,023,297			(93,360	)		3,515,826			(112,322	)
Net increase (decrease) in net assets resulting from operations		2,261,409			(103,224	)		4,094,745			(126,955	)
Capital Transactions
Proceeds from contributions		85,427,019			2,024,525			162,225,360			2,024,448
Value of withdrawals		(546,305	)		(38,983	)		(2,436,022	)		(38,323	)
Net increase in net assets derived from capital transactions		84,880,714			1,985,542			159,789,338			1,986,125
Net Assets
Total increase in net assets		87,142,123			1,882,318			163,884,083			1,859,170
Beginning of period		1,882,318			—			1,859,170			—
End of period	$	89,024,441		$	1,882,318		$	165,743,253		$	1,859,170

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	75

Statements of Changes in Net Assets (continued) Master Investment Portfolio

	LifePath Index 2035 Master Portfolio						LifePath Index 2040 Master Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	159,661		$	26,424		$	373,205		$	25,478
Net realized loss		(33,605	)		(45,414	)		(140,182	)		(50,597	)
Net change in unrealized appreciation/depreciation		1,688,643			(130,076	)		1,911,144			(144,626	)
Net increase (decrease) in net assets resulting from operations		1,814,699			(149,066	)		2,144,167			(169,745	)
Capital Transactions
Proceeds from contributions		55,244,356			2,024,586			79,264,814			2,024,475
Value of withdrawals		(1,155,508	)		(37,559	)		(861,196	)		(35,946	)
Net increase in net assets derived from capital transactions		54,088,848			1,987,027			78,403,618			1,988,529
Net Assets
Total increase in net assets		55,903,547			1,837,961			80,547,785			1,818,784
Beginning of period		1,837,961			—			1,818,784			—
End of period	$	57,741,508		$	1,837,961		$	82,366,569		$	1,818,784
	LifePath Index 2045 Master Portfolio						LifePath Index 2050 Master Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	67,120		$	24,448		$	73,596		$	23,884
Net realized loss		(38,583	)		(56,751	)		(55,379	)		(58,467	)
Net change in unrealized appreciation/depreciation		707,499			(157,949	)		552,883			(174,163	)
Net increase (decrease) in net assets resulting from operations		736,036			(190,252	)		571,100			(208,746	)
Capital Transactions
Proceeds from contributions		17,373,597			2,024,410			13,818,329			2,027,364
Value of withdrawals		(144,572	)		(35,035	)		(339,326	)		(34,343	)
Net increase in net assets derived from capital transactions		17,229,025			1,989,375			13,479,003			1,993,021
Net Assets
Total increase in net assets		17,965,061			1,799,123			14,050,103			1,784,275
Beginning of period		1,799,123			—			1,784,275			—
End of period	$	19,764,184		$	1,799,123		$	15,834,378		$	1,784,275

¹  Commencement of operations.

See Notes to Financial Statements.
76	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Changes in Net Assets (concluded) Master Investment Portfolio

	LifePath Index 2055 Master Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Operations
Net investment income	$	25,730		$	23,624
Net realized loss		(78,307	)		(65,000	)
Net change in unrealized appreciation/depreciation		182,681			(179,243	)
Net increase (decrease) in net assets resulting from operations		130,104			(220,619	)
Capital Transactions
Proceeds from contributions		758,544			2,024,315
Value of withdrawals		(227,130	)		(34,510	)
Net increase in net assets derived from capital transactions		531,414			1,989,805
Net Assets
Total increase in net assets		661,518			1,769,186
Beginning of period		1,769,186			—
End of period	$	2,430,704		$	1,769,186

¹  Commencement of operations.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	77

Financial Highlights Master Investment Portfolio

	LifePath Index Retirement Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Total Investment Return
Total investment return2		4.57%			(0.59	)%
Ratios to Average Net Assets
Total expenses3,4		0.24%	5,6		3.44%	7,8,9
Total expenses after fees waived3,4		0.16%	5,6		0.15%	7,8
Net investment income4,10		2.51%	5,6		2.87%	7,8
Supplemental Data
Net assets, end of period (000)	$	181,950		$	1,968
Portfolio turnover		10%			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  Includes the LifePath Index 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 0.02%.

⁶  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁷  Includes the LifePath Index 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%.

⁸  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.04%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 3.45%.

¹⁰  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.
78	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) Master Investment Portfolio

	LifePath Index 2020 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Total Investment Return
Total investment return2		5.39%			(3.71	)%
Ratios to Average Net Assets
Total expenses3,4		0.24%	5,6		3.55%	7,8,9
Total expenses after fees waived3,4		0.18%	5,6		0.18%	7,8
Net investment income4,10		2.56%	5,6		2.70%	7,8
Supplemental Data
Net assets, end of period (000)	$	233,785		$	1,908
Portfolio turnover		16%			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  Includes the LifePath Index 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 0.02%.

⁶  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁷  Includes the LifePath Index 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%.

⁸  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.05%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 3.56%.

¹⁰  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	JUNE 30, 2012	79

Financial Highlights (continued) Master Investment Portfolio

	LifePath Index 2025 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Total Investment Return
Total investment return2		5.85%			(5.10	)%
Ratios to Average Net Assets
Total expenses3,4		0.41%	5,6		3.59%	7,8,9
Total expenses after fees waived3,4		0.19%	5,6		0.18%	7,8
Net investment income4,10		2.62%	5,6		2.58%	7,8
Supplemental Data
Net assets, end of period (000)	$	89,024		$	1,882
Portfolio turnover		21%			0%	11

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  Includes the LifePath Index 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 0.01%.

⁶  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁷  Includes the LifePath Index 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%.

⁸  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.06%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 3.60%.

¹⁰  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.

¹¹  Rounds to less than 1%.

See Notes to Financial Statements.
80	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) Master Investment Portfolio

	LifePath Index 2030 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Total Investment Return
Total investment return2		6.08%			(6.28	)%
Ratios to Average Net Assets
Total expenses3,4		0.28%	5,6		3.63%	7,8,9
Total expenses after fees waived3,4		0.20%	5,6		0.19%	7,8
Net investment income4,10		2.60%	5,6		2.50%	7,8
Supplemental Data
Net assets, end of period (000)	$	165,743		$	1,859
Portfolio turnover		26%			0%	11

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  Includes the LifePath Index 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 0.02%.

⁶  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁷  Includes the LifePath Index 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%.

⁸  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.06%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 3.64%.

¹⁰  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.

¹¹  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	81

Financial Highlights (continued) Master Investment Portfolio

	LifePath Index 2035 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Total Investment Return
Total investment return2		6.34%			(7.35	)%
Ratios to Average Net Assets
Total expenses3,4		0.54%	5,6		3.67%	7,8,9
Total expenses after fees waived3,4		0.21%	5,6		0.19%	7,8
Net investment income4,10		2.66%	5,6		2.43%	7,8
Supplemental Data
Net assets, end of period (000)	$	57,742		$	1,838
Portfolio turnover		54%			0%	11

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  Includes the LifePath Index 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 0.01%.

⁶  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁷  Includes the LifePath Index 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%.

⁸  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.06%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 3.68%.

¹⁰  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.

¹¹  Rounds to less than 1%.

See Notes to Financial Statements.
82	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) Master Investment Portfolio

	LifePath Index 2040 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Total Investment Return
Total investment return2		6.78%			(8.42	)%
Ratios to Average Net Assets
Total expenses3,4		0.36%	5,6		3.70%	7,8,9
Total expenses after fees waived3,4		0.22%	5,6		0.20%	7,8
Net investment income4,10		2.63%	5,6		2.36%	7,8
Supplemental Data
Net assets, end of period (000)	$	82,367		$	1,819
Portfolio turnover		32%			0%	11

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  Includes the LifePath Index 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 0.02%.

⁶  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁷  Includes the LifePath Index 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%.

⁸  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.07%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 3.71%.

¹⁰  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.

¹¹  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	83

Financial Highlights (continued) Master Investment Portfolio

	LifePath Index 2045 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Total Investment Return
Total investment return2		6.99%			(9.49	)%
Ratios to Average Net Assets
Total expenses3,4		1.00%	5,6		3.74%	7,8,9
Total expenses after fees waived3,4		0.22%	5,6		0.21%	7,8
Net investment income4,10		2.61%	5,6		2.29%	7,8
Supplemental Data
Net assets, end of period (000)	$	19,764		$	1,799
Portfolio turnover		37%			0%	11

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  Includes the LifePath Index 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 0.02%.

⁶  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁷  Includes the LifePath Index 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%.

⁸  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.07%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 3.75%.

¹⁰  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.

¹¹  Rounds to less than 1%.

See Notes to Financial Statements.
84	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights (continued) Master Investment Portfolio

	LifePath Index 2050 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Total Investment Return
Total investment return2		7.23%			(10.34	)%
Ratios to Average Net Assets
Total expenses3,4		0.94%	5,6		3.76%	7,8,9
Total expenses after fees waived3,4		0.22%	5,6		0.21%	7,8
Net investment income4,10		2.63%	5,6		2.25%	7,8
Supplemental Data
Net assets, end of period (000)	$	15,834		$	1,784
Portfolio turnover		52%			0%	11

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  Includes the LifePath Index 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 0.02%.

⁶  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.02%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁷  Includes the LifePath Index 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%.

⁸  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.07%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 3.77%.

¹⁰  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.

¹¹  Rounds to less than 1%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	85

Financial Highlights (concluded) Master Investment Portfolio

	LifePath Index 2055 Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Period May 31, 20111 to December 31, 2011
Total Investment Return
Total investment return2		7.20%			(10.96	)%
Ratios to Average Net Assets
Total expenses3,4		2.09%	5,6		3.79%	7,8,9
Total expenses after fees waived3,4		0.22%	5,6		0.21%	7,8
Net investment income4,10		2.48%	5,6		2.24%	7,8
Supplemental Data
Net assets, end of period (000)	$	2,431		$	1,769
Portfolio turnover		52%			0%	11

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  Includes the LifePath Index 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 0.03%.

⁶  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.03%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁷  Includes the LifePath Index 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%.

⁸  Excludes expenses incurred indirectly as a result of investments in underlying funds of approximately 0.08%, although the ratio does include the LifePath Index Master Portfolio’s share of the Master Portfolios allocated expenses and/or net investment income.

⁹  Organization costs were not annualized in the calculation of the expense ratio. If these expenses were annualized, the total expenses would have been 3.79%.

¹⁰  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.

¹¹  Rounds to less than 1%.

See Notes to Financial Statements.
86	BLACKROCK FUNDS III	JUNE 30, 2012

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. 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”) are each a series of MIP. 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.

As of June 30, 2012, LifePath Index Retirement Master Portfolio’s investment in the Bond Index Master Portfolio was 52.4% of net assets and LifePath Index 2045, LifePath Index 2050 and LifePath Index 2055 Master Portfolios’ investment in the Russell 1000 Index Master Portfolio was 51.4%, 54.3% and 56.5% of net assets, respectively. The financial statements of the Bond Index Master Portfolio and Russell 1000 Index Master Portfolio, including the Schedules of Investments, can be read in conjunction with the LifePath Index Retirement Master Portfolio and LifePath Index 2045, LifePath Index 2050 and LifePath Index 2055 Master Portfolios’ financial statements, respectively. Bond Index Master Portfolio’s and Russell 1000 Index Master Portfolio’s financial statements, included in filings under MIP, are available, without charge, upon request by calling (800) 441-7762 or on the SEC’s website at http://www.sec.gov.

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”) or BlackRock Investment Management, LLC, 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 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 June 30, 2012, 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 Small Cap Index Series		Russell 1000 Index Master Portfolio
LifePath Index Retirement Master Portfolio		5.88%		22.06%		1.68%		11.51%
LifePath Index 2020 Master Portfolio		10.34%		21.02%		1.95%		20.84%
LifePath Index 2025 Master Portfolio		4.47%		6.55%		0.70%		9.19%
LifePath Index 2030 Master Portfolio		9.26%		9.83%		1.16%		19.08%
LifePath Index 2035 Master Portfolio		3.52%		2.69%		0.37%		7.29%
LifePath Index 2040 Master Portfolio		5.37%		2.89%		0.48%		11.22%
LifePath Index 2045 Master Portfolio		1.37%		0.51%		0.11%		2.88%
LifePath Index 2050 Master Portfolio		1.16%		0.20%		0.08%		2.44%
LifePath Index 2055 Master Portfolio		0.19%		0.01%		0.01%		0.39%

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 annually by the Board of Trustees of MIP (the “Board”). The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the LifePath Index Master Portfolio for all financial instruments.

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 NAV each business day. Short-term securities with remaining maturities of 60 days or less may be valued at amortized cost, which approximates fair value. The market value of each LifePath Index Master Portfolio’s investments in the Underlying Funds is based on the published NAV of each Underlying Fund computed as of the close of regular trading on the New York Stock Exchange (“NYSE”) on days when the NYSE is open.

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 by the Global Valuation Committee, or its delegate, 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 Global Valuation Committee, or its delegate, 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.

BLACKROCK FUNDS III JUNE 30, 2012 87

Notes to Financial Statements (continued) Master Investment Portfolio

Fair value determinations shall be based upon all available factors that the investment advisor deems relevant. These factors include but are not limited to (i) attributes specific to the investment or asset; (ii) the principal market for the investment or asset; (iii) the customary participants in the principal market for the investment or asset; (iv) data assumptions by market participants for the investment or asset, if reasonably available; (v) quoted prices for similar investments or assets in active markets; and (vi) other factors, such as future cash flows, interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and/or default rates. The Global Valuation Committee, or its delegate, employs various methods for calibrating valuation approaches, including regular due diligence of the LifePath Index Master Portfolio’s pricing vendors, a regular review of key inputs and assumptions, transactional back-testing or disposition analysis to compare unrealized gains and losses to realized gains and losses, reviews of missing or stale prices and large movements in market values and reviews of any market related activity. The pricing of all Fair Value Assets is subsequently reported to the Board or a committee thereof on a quarterly basis.

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. 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. Dividend income is recorded on the ex-divided dates.

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 six months ended June 30, 2012, 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. No income tax returns are currently under examination. The statute of limitations on each LifePath Index Portfolio’s US federal tax returns remains open for the period ended December 31, 2011. The statutes of limitations on each LifePath Index 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 December 2011, the Financial Accounting Standards Board issued guidance that will expand 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 or similar agreements which are eligible for offset in the Statements of Assets and Liabilities and will require an entity to disclose both gross and net information about such investments and transactions in the financial statements. 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.

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.

2. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

MIP, on behalf of the LifePath Index Master Portfolios, entered into an Investment Advisory Agreement (the “Investment Advisory Agreement”) with BFA, the LifePath Index Master Portfolios’ investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment

88 BLACKROCK FUNDS III JUNE 30, 2012

Notes to Financial Statements (concluded) Master Investment Portfolio

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, if any. 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 pay a fee to BTC equal to 35% of such income. The share of income earned by each LifePath Index Master Portfolio is shown as securities lending — affiliated in the Statements of Operations. For the six months ended June 30, 2012, BTC received securities lending agent fees related to securities lending activities for the LifePath Index Master Portfolios as follows:

LifePath Index Retirement Master Portfolio	$	35
LifePath Index 2020 Master Portfolio	$	447
LifePath Index 2030 Master Portfolio	$	262
LifePath Index 2040 Master Portfolio	$	126
LifePath Index 2045 Master Portfolio	$	0	1
LifePath Index 2050 Master Portfolio	$	6

¹ Rounds to less than $1.

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 Statements 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, for the six months ended June 30, 2012, were as follows:

	Purchases		Sales
LifePath Index Retirement Master Portfolio	$	183,517,397	$	6,612,709
LifePath Index 2020 Master Portfolio	$	241,396,015	$	14,594,166
LifePath Index 2025 Master Portfolio	$	90,910,171	$	6,025,337
LifePath Index 2030 Master Portfolio	$	176,499,203	$	16,722,677
LifePath Index 2035 Master Portfolio	$	60,246,922	$	6,168,732
LifePath Index 2040 Master Portfolio	$	89,593,663	$	11,200,120
LifePath Index 2045 Master Portfolio	$	19,871,314	$	2,603,712
LifePath Index 2050 Master Portfolio	$	16,342,780	$	2,865,481
LifePath Index 2055 Master Portfolio	$	1,635,710	$	1,099,424

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.

BLACKROCK FUNDS III JUNE 30, 2012 89

Disclosure of Investment Advisory Agreement

The Board of Trustees of Master Investment Portfolio (the “Master Fund”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Master Fund’s investment advisory agreement (the “Agreement”) with BlackRock Fund Advisors (“BlackRock”), the Master Fund’s investment advisor, with respect to the Master Fund’s series, including 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 “Master Portfolio” and collectively, the “Master Portfolios”). Each of 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 “Portfolio” and collectively, the “Portfolios”), each a series of BlackRock Funds III (the “Fund”), is a “feeder” fund that invests all of its investable assets in the corresponding Master Portfolio. Accordingly, the Board of Trustees of the Fund also considered the approval of the Agreement with respect to each Master Portfolio. For simplicity, the Board of Trustees of the Master Fund and the Board of Trustees of the Fund are referred to herein collectively as the “Board,” and the members are referred to as “Board Members.”

Activities and Composition of the Board

The Board consists of fourteen individuals, twelve of whom are not “interested persons” of the Master Fund or the Fund as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of the Master Fund or the Fund, as pertinent, and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Co-Chairs of the Board are each Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight and Contract Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).

The Agreement

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreement on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreement. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Master Portfolios and the Portfolios by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are

relevant to its annual consideration of the renewal of the Agreement, including the services and support provided by BlackRock to the Master Portfolios, the Portfolios and their shareholders. Among the matters the Board considered were: (a) investment performance for one-, three-, five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against their peers and/or benchmarks, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Master Portfolios and/or the Portfolios for services, such as marketing and distribution, call center and fund accounting; (c) the Master Portfolios’ and/or the Portfolios’ operating expenses and how BlackRock allocates expenses to the Master Portfolios and the Portfolios; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of each Master Portfolio’s and Portfolio’s investment objective, policies and restrictions; (e) the Master Fund’s and the Fund’s compliance with its respective Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) the use of brokerage commissions and execution quality of portfolio transactions; (j) BlackRock’s implementation of the Master Fund’s and/or the Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.

Board Considerations in Approving the Agreement

The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreement. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on fees and expenses of each Master Portfolio and Portfolio, as applicable, and the investment

90 BLACKROCK FUNDS III JUNE 30, 2012

Disclosure of Investment Advisory Agreement (continued)

performance of each Portfolio as compared with a peer group of funds as determined by Lipper and a customized peer group selected by BlackRock (collectively, “Peers”); (b) information on the profitability of the Agreement to BlackRock and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of potential economies of scale; (e) a summary of aggregate amounts paid by each Master Portfolio and/or Portfolio to BlackRock; (f) sales and redemption data regarding each Portfolio’s shares; and (g) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.

At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreement. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.

At an in-person meeting held on May 15-16, 2012, the Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund with respect to each Master Portfolio for a one-year term ending June 30, 2013. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement and found the Agreement to be satisfactory. In approving the continuation of the Agreement, the Board of the Master Fund considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of each Master Portfolio, each Portfolio and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Master Portfolios and the Portfolios; (d) economies of scale; (e) fall-out benefits to BlackRock as a result of its relationship with the Master Portfolios and the Portfolios; and (f) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to the distribution of Portfolio shares and securities lending, services related to the valuation and pricing of portfolio holdings of each Master Portfolio, direct and indirect benefits to BlackRock and its affiliates from their relationship with the Master Portfolios and the Portfolios and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature,

extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of each Portfolio. Throughout the year, the Board compared each Portfolio’s performance to the performance of a comparable group of mutual funds and/or the performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the Master Portfolio’s portfolio management team discussing Master Portfolio performance and each Master Portfolio’s investment objective, strategies and outlook.

The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and each Master Portfolio’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to each Master Portfolio’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to each Master Portfolio and Portfolio. BlackRock and its affiliates provide the Master Portfolios and the Portfolios with certain administrative, shareholder and other services (in addition to any such services provided to the Master Portfolios and the Portfolios by third parties) and officers and other personnel as are necessary for the operations of the Master Portfolios and the Portfolios. In particular, BlackRock and its affiliates provide the Master Portfolios and the Portfolios with the following administrative services including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions necessary for the operation of the Master Portfolios and the Portfolios, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Master Portfolios, the Portfolios and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of each Master Portfolio and Portfolio, as applicable. The Board noted that each Master Portfolio’s investment results correspond directly to the investment results of the applicable Portfolio. In preparation for the April 17, 2012 meeting, the Board worked with its independent legal counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive

BLACKROCK FUNDS III JUNE 30, 2012 91

Disclosure of Investment Advisory Agreement (continued)

analysis of each Portfolio’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information regarding the investment performance of each Portfolio as compared to funds in the Portfolio’s applicable Lipper category and the customized peer group selected by BlackRock. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Master Portfolio management to discuss, the performance of each Master Portfolio and Portfolio, as applicable, throughout the year.

The Board noted that, in general, each of LifePath Index Retirement Portfolio, LifePath Index 2020 Portfolio, LifePath Index 2025 Portfolio, LifePath Index 2030 Portfolio, LifePath Index 2035 Portfolio, LifePath Index 2040 Portfolio and LifePath Index 2045 Portfolio performed better than its Peers in that the Portfolio’s performance was at or above the median of its Customized Lipper Peer Group in the since-inception period reported. Based on its discussions with BlackRock and the Board’s review of each Portfolio’s investment performance compared to its Lipper Peer Group, the methodology used by Lipper to select peer funds, and other relevant information provided by BlackRock, the Board noted that each Portfolio’s investment performance as compared to its Customized Lipper Peer Group provided a more meaningful comparison of the Portfolio’s relative performance.

The Board noted that each of LifePath Index 2050 Portfolio and LifePath Index 2055 Portfolio performed below the median of its Customized Lipper Peer Group in the since-inception period reported. Based on its discussions with BlackRock and the Board’s review of each Portfolio’s investment performance compared to its Lipper Peer Group, the methodology used by Lipper to select peer funds, and other relevant information provided by BlackRock, the Board noted that each Portfolio’s investment performance as compared to its Customized Lipper Peer Group provided a more meaningful comparison of the Portfolio’s relative performance.

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Master Portfolios and the Portfolios: The Board, including the Independent Board Members, reviewed each Master Portfolio’s/Portfolio’s contractual management fee rate compared with the other funds in the corresponding Portfolio’s Lipper category. It also compared each Portfolio’s total expense ratio, as well as each Master Portfolio’s/Portfolio’s actual management fee rate, to those of other funds in the corresponding Portfolio’s Lipper category. The Board considered the services provided and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided each Master Portfolio and Portfolio. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses

incurred by BlackRock for services provided to the Master Portfolios and the Portfolios. The Board reviewed BlackRock’s profitability with respect to each Master Portfolio and Portfolio, as applicable, and other funds the Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31, 2009. The Board reviewed BlackRock’s profitability with respect to other fund complexes managed by BlackRock and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by BlackRock, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRock’s operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management, and the relative product mix.

In addition, the Board considered the cost of the services provided to the Master Portfolios and the Portfolios by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Master Portfolios and the Portfolios and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of the Master Portfolios and the Portfolios. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreement and to continue to provide the high quality of services that is expected by the Board.

The Board noted that each Master Portfolio’s/Portfolio’s contractual management fee ratio (a combination of the advisory fee and the administration fee, if any) was lower than or equal to the median contractual management fee ratio paid by the corresponding Portfolio’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted that BlackRock has contractually agreed to waive fees and/or reimburse expenses in order to limit, to a specified amount, each Master Portfolio’s/Portfolio’s total operating expenses as a percentage of the corresponding Portfolio’s average daily net assets on a class-by-class basis, as applicable.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Master Portfolios and the Portfolios increase, as well as the existence of expense caps. The Board also considered the

92 BLACKROCK FUNDS III JUNE 30, 2012

Disclosure of Investment Advisory Agreement (concluded)

extent to which the Master Portfolios and the Portfolios benefit from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Master Portfolios and the Portfolios to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the asset level of the Master Portfolios. In its consideration, the Board Members took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Master Portfolios and the Portfolios, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Master Portfolios and the Portfolios, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.

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

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

Conclusion

The Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund, with respect to each Master Portfolio, for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board of the Master Fund, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of each Master Portfolio and its shareholders. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement with respect to each Master Portfolio and found the Agreement to be satisfactory. In arriving at its decision to approve the Agreement, the Board of the Master Fund did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Master Portfolios reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

BLACKROCK FUNDS III JUNE 30, 2012 93

Officers and Trustees

Ronald W. Forbes, Co-Chair of the Board and Trustee

Rodney D. Johnson, Co-Chair of the Board and Trustee

Paul L. Audet, Trustee

David O. Beim, Trustee

Henry Gabbay, Trustee

Dr. Matina S. Horner, Trustee

Herbert I. London, Trustee

Ian A. MacKinnon, Trustee¹

Cynthia A. Montgomery, Trustee

Joseph P. Platt, Trustee

Robert C. Robb, Jr., Trustee

Toby Rosenblatt, Trustee

Kenneth L. Urish, Trustee

Frederick W. Winter, Trustee

John M. Perlowski, President and Chief Executive Officer

Richard Hoerner, CFA, Vice President

Brendan Kyne, Vice President

Simon Mendelson, Vice President

Christopher Stavrakos, CFA, Vice President

Neal Andrews, Chief Financial Officer

Jay Fife, Treasurer

Brian Kindelan, Chief Compliance Officer and Anti-Money Laundering Officer

Benjamin Archibald, Secretary²

¹  Effective May 14, 2012, Ian A. MacKinnon became a Trustee of the Trust/MIP.

²  Effective May 16, 2012, Ira P. Shapiro resigned as secretary of the Trust/MIP and Benjamin Archibald became secretary of the Trust/MIP.

Investment Advisor

BlackRock Fund Advisors

San Francisco, CA 94105

Administrator

BlackRock Institutional Trust Company, N.A.

San Francisco, CA 94105

Custodian and Accounting Agent

State Street Bank and Trust Company

Boston, MA 02110

Transfer Agent

BNY Mellon Investment Servicing (US) Inc.

Wilmington, DE 19809

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 Trust/MIP

400 Howard Street

San Francisco, CA 94105

94 BLACKROCK FUNDS III JUNE 30, 2012

Additional Information

General Information

Electronic Delivery

Electronic copies of most financial reports and prospectuses are available on the Fund’s websites or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Fund’s electronic delivery program.

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

Please contact your financial advisor. Please note that not all investment advisors, banks or brokerages may offer this service.

Shareholders Who Hold Accounts Directly with BlackRock:

1) Access the BlackRock website at

http://www.blackrock.com/edelivery

2) Select “eDelivery” under the “More Information” section

3) Log into your account

Householding

The Portfolio/Master Portfolio will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents

to be combined with those for other members of your household, please call the Portfolio/Master Portfolio at (800) 441-7762.

Availability of Quarterly Schedule of Investments

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 (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 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.

Automatic Investment Plans

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

Systematic Withdrawal Plans

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

Retirement Plans

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

BLACKROCK FUNDS III JUNE 30, 2012 95

Additional Information (concluded)

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.

96 BLACKROCK FUNDS III JUNE 30, 2012

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 Balanced Capital Fund†

BlackRock Basic Value Fund

BlackRock Capital Appreciation Fund

BlackRock China Fund

BlackRock Commodity Strategies Fund

BlackRock Emerging Markets Fund

BlackRock Emerging Markets Long/Short Equity Fund

BlackRock Energy & Resources Portfolio

BlackRock Equity Dividend Fund

BlackRock EuroFund

BlackRock Focus Growth Fund

BlackRock Flexible Equity Fund

BlackRock Global Allocation Fund†

BlackRock Global Dividend Income Portfolio

BlackRock Global Dynamic Equity 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 Managed Volatility Portfolio†

BlackRock Mid-Cap Growth 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 CoreAlpha Bond Fund

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 Secured Credit Portfolio

BlackRock Strategic Income Opportunities Portfolio

BlackRock Total Return Fund

BlackRock US Government Bond Portfolio

BlackRock US Mortgage Portfolio

BlackRock World Income Fund

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 Date Funds†

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

† 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 FUNDS III JUNE 30, 2012 97

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 Portfolios unless accompanied or preceded by that Portfolio’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-6/12-SAR

June 30, 2012

Semi-Annual Report (Unaudited)

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
Semi-Annual Report:
Money Market Overview		4
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
Master Portfolio Information		38
Master Portfolio Financial Statements:
Schedules of Investments		39
Statements of Assets and Liabilities		47
Statements of Operations		47
Statements of Changes in Net Assets		48
Master Portfolio Financial Highlights		49
Master Portfolio Notes to Financial Statements		51
Disclosure of Investment Advisory Agreement		53
Officers and Trustees		57
Additional Information		58

2 BLACKROCK FUNDS III JUNE 30, 2012

Dear Shareholder

One year ago, risk assets were in a broad retreat as sovereign debt problems loomed over Europe and confidence in both the US and global economic recoveries was waning. Last summer’s prolonged debt ceiling debate in Washington, DC ended with Standard & Poor’s historic downgrade of US government debt, an event that triggered financial-market turmoil all over the world. Extraordinary levels of volatility persisted in the months that followed as the debt situation in Europe intensified. Macro-level news drove asset prices broadly up and down in lockstep, in a “risk on” — “risk off” trading pattern. Equity markets crumbled while safe-haven assets such as US Treasuries and gold rallied to historic highs by the end of the third quarter of 2011.

By October, however, improving economic data and more concerted efforts among European leaders toward stemming the region’s debt crisis drew investors back to the markets. Improving sentiment carried over into early 2012 as investors saw some relief from the world’s financial woes. Risk assets (including stocks, commodities and high yield bonds) moved boldly higher through the first two months of 2012 while climbing Treasury yields pressured higher-quality fixed income assets.

However, risk assets reversed course in the spring when Europe’s debt problems boiled over once again. Markets became highly volatile as political instability in Greece threatened the country’s membership in the euro zone. Spain faced severe deficit issues while the nation’s banks clamored for liquidity. Yields on Spanish and Italian government debt rose to levels deemed unsustainable. European leaders conferred and debated vehemently over the need for fiscal integration among the 17 euro-zone nations to resolve the crisis for the long term.

Alongside the drama in Europe, investors were discouraged by gloomy economic reports from various parts of the world. A slowdown in China, a key powerhouse for global growth, became particularly worrisome. In the United States, disappointing jobs reports dealt a crushing blow to sentiment. Risk assets sold off through April and May as investors ran back to safe havens including US, German and UK government debt as well as gold. As the period drew to a close, risk assets were beginning to rebound modestly as European leaders stepped up their efforts to move toward fiscal unity and investors anticipated additional stimulus from central banks on both sides of the Atlantic.

All asset classes posted gains for the 6-month period ended June 30, 2012, with US stocks delivering the largest returns. On a 12-month basis, US large-cap stocks generated positive results; however, small-cap stocks finished in negative territory and international and emerging equities, which experienced significant downturns in 2011, lagged the broader rebound. Among fixed income asset classes, safe-haven US Treasury bonds and municipal bonds outperformed corporate credits for the 12-month period. Continued low short-term interest rates kept yields on money market securities near their all-time lows.

We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities. We remain committed to working with you and your financial professional to identify actionable ideas for your portfolio. We encourage you to visit www.blackrock.com/newworld for more information.

Sincerely,

Rob Kapito

President, BlackRock Advisors, LLC

“We know that investors continue to face a world of uncertainty and highly volatile markets, but we also believe these challenging times present many opportunities.”

Rob Kapito

President, BlackRock Advisors, LLC

Total Returns as of June 30, 2012
	6-month			12-month
US large cap equities (S&P 500® Index)		9.49	%		5.45	%
US small cap equities (Russell 2000® Index)		8.53			(2.08	)
International equities (MSCI Europe, Australasia, Far East Index)		2.96			(13.83	)
Emerging market equities (MSCI Emerging Markets Index)		3.93			(15.95	)
3-month Treasury bill (BofA Merrill Lynch 3-Month Treasury Bill Index)		0.04			0.05
US Treasury securities (BofA Merrill Lynch 10-Year US Treasury Index)		3.44			17.36
US investment grade bonds (Barclays US Aggregate Bond Index)		2.37			7.47
Tax-exempt municipal bonds (S&P Municipal Bond Index)		4.14			10.16
US high yield bonds (Barclays US Corporate High Yield 2% Issuer Capped Index)		7.23			7.21
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

Money Market Overview

For the 6-month period ended June 30, 2012

The Federal Open Market Committee (“FOMC”) continued to maintain its target range for the federal funds rate at 0.00% to 0.25% throughout the six-month reporting period ended June 30, 2012. During the period, the FOMC reaffirmed its intention to keep short-term interest rates low through 2014. Long-term interest rates also remained low with the help of the FOMC’s stimulus program known as “Operation Twist.” The program, which was first instituted in September 2011 and originally set to expire at the end of June 2012, entailed the selling of $400 billion of short-term US Treasury securities while simultaneously purchasing an equal amount of longer-dated Treasury bonds in order to extend the average duration of the US Treasury security portfolio. In June, the FOMC announced the extension of the program through the end of 2012 with plans to swap maturities on an additional $267 billion of Treasury securities by the end of the year. In the weeks leading up to the FOMC’s June policy meeting, many investors speculated that an extension of Operation Twist might be accompanied by an outright purchase of agency mortgage-backed securities (“MBS”), which would effectively expand the US Federal Reserve’s balance sheet. This was not the case, however, as the FOMC committed only to reinvesting principal payments from its existing agency MBS holdings for the time being.

As primary market dealers are obligated to participate in the FOMC’s policy programs, Operation Twist has resulted in many dealers being forced to retain short-dated Treasury securities sold by the Federal Reserve on their balance sheets, driving up funding costs for these positions. Dealers have relied upon overnight repurchase agreements (“repos”) in order to finance the Treasury securities, to the benefit of short-term investors who have seen repo rates nearly double this year. It follows that Operation Twist has led to a direct increase in short-term US Treasury yields. Three-month US Treasury bill yields, for instance, averaged 0.073% through the first six months of 2012 after averaging only 0.012% for the prior six months.

On the heels of a successful long-term refinancing operation (“LTRO”) in December, the European Central Bank (“ECB”) offered euro-zone banks a second round of unlimited three-year loans in February. In addition, the ECB recently enhanced the program by relaxing collateral requirements and extending loan terms. The program was met with strong demand and has undoubtedly strengthened liquidity in the bank funding market; however, there is some debate as to whether the program is working as the ECB intended. The central bank sought to increase private sector lending, but European banks have been reluctant to make loans in the fragile economic environment. Instead,

the banks have grown their deposits in the ECB’s overnight deposit facility, which in the aggregate reached nearly 800 billion euros during the period.

During the period, Moody’s Investors Services (“Moody’s”) rating agency reviewed seventeen global banks and securities firms with capital markets operations. As the agency provided a host of guidance at the onset of the review in February, financial markets had sufficient time to price in the anticipated downgrades before the review was completed in June and Moody’s announced the results, which were largely in line with expectations.

In the six months ended June 30, 2012, US dollar London Interbank Offered Rates (“LIBOR”) moved lower across the curve. The sharpest drop came in the three-month LIBOR, which fell 12 basis points from the start of the year to 0.461% at the end of June.

In the short-term tax-exempt market, while remaining low overall from a historical perspective, yields rose steadily in the months leading up to the April 15th tax filing deadline, and fell slightly though the month of June due to strong cash inflows resulting from coupon payment reinvestment activity. 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 note (“VRDN”) securities (as calculated by Municipal Market Data), opened the year at 0.07%, reached a high of 0.26% on April 18th and fell to 0.18% as of June 30, 2012.

As the FOMC’s easy monetary policy has kept rates on taxable overnight repos low from a historical perspective, demand for VRDN securities from taxable money funds continued to be strong in 2012. This put additional supply pressures on an already shrinking VRDN market and also allowed the dealer community to maintain yields on VRDNs that continue to attract buyers from the taxable market.

As state and local municipalities continue to limit spending and reduce debt, new-issue supply of one-year, fixed-rate notes remained diminished in 2012. Nevertheless, municipalities began their annual issuance of one-year, fixed-rate notes in June. Generally speaking, municipal money market funds take advantage of “note season” to extend their weighted average maturity, pick up yield and diversify beyond bank exposure. The municipal yield curve continued to be extremely flat with longer-dated one-year municipal notes yielding 0.20% as of June 30, 2012, representing only a nominal premium for the extension risk over VRDNs.

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 JUNE 30, 2012

Fund Information as of June 30, 2012 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		0.12	%		0.12	%
Institutional		0.22	%		0.22	%
Select		0.14	%		0.14	%
SL Agency		0.25	%		0.25	%
Trust		0.00	%		0.00	%

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		0.19	%		0.19	%
Institutional		0.21	%		0.21	%
Premium		0.16	%		0.16	%
Select		0.13	%		0.13	%
SL Agency		0.24	%		0.24	%
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		0.03	%		0.03	%
Institutional		0.04	%		0.04	%
Select		0.00	%		0.00	%
SL Agency		0.07	%		0.07	%
Trust		0.00	%		0.00	%

The 7-Day SEC Yields 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 JUNE 30, 2012 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 January 1, 2012 and held through June 30, 2012) 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 expense examples 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 expense examples 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 expense examples 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 Example
	Actual						Hypothetical2
	Beginning Account Value January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period1		Beginning Account Value January 1, 2012		Ending Account Value June 30, 2012		Expenses Paid During the  Period1		Annualized Expense Ratio
BlackRock Cash Funds: Government
Select		$1,000.00		$1,000.00		$0.70		$1,000.00		$1,024.17		$0.70		0.14%
Trust		$1,000.00		$1,000.00		$0.75		$1,000.00		$1,024.12		$0.75		0.15%
BlackRock Cash Funds: Institutional
Aon Captives		$1,000.00		$1,000.60		$1.09		$1,000.00		$1,023.77		$1.11		0.22%
Institutional		$1,000.00		$1,001.10		$0.60		$1,000.00		$1,024.27		$0.60		0.12%
Select		$1,000.00		$1,000.70		$0.99		$1,000.00		$1,023.87		$1.01		0.20%
SL Agency		$1,000.00		$1,001.20		$0.45		$1,000.00		$1,024.42		$0.45		0.09%
Trust		$1,000.00		$1,000.00		$1.64		$1,000.00		$1,023.22		$1.66		0.33%
BlackRock Cash Funds: Prime
Capital		$1,000.00		$1,000.90		$0.70		$1,000.00		$1,024.17		$0.70		0.14%
Institutional		$1,000.00		$1,001.00		$0.60		$1,000.00		$1,024.27		$0.60		0.12%
Premium		$1,000.00		$1,000.70		$0.85		$1,000.00		$1,024.02		$0.86		0.17%
Select		$1,000.00		$1,000.60		$0.99		$1,000.00		$1,023.87		$1.01		0.20%
SL Agency		$1,000.00		$1,001.10		$0.45		$1,000.00		$1,024.42		$0.45		0.09%
Trust		$1,000.00		$1,000.00		$1.59		$1,000.00		$1,023.27		$1.61		0.32%
BlackRock Cash Funds: Treasury
Capital		$1,000.00		$1,000.00		$0.60		$1,000.00		$1,024.27		$0.60		0.12%
Institutional		$1,000.00		$1,000.10		$0.55		$1,000.00		$1,024.32		$0.55		0.11%
Select		$1,000.00		$1,000.00		$0.65		$1,000.00		$1,024.22		$0.65		0.13%
SL Agency		$1,000.00		$1,000.20		$0.45		$1,000.00		$1,024.42		$0.45		0.09%
Trust		$1,000.00		$1,000.00		$0.65		$1,000.00		$1,024.22		$0.65		0.13%

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 182/366 (to reflect the one-half year period shown). Because each Fund invest significantly in the corresponding master portfolios, the expense examples reflect 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 366.

6 BLACKROCK FUNDS III JUNE 30, 2012

Statements of Assets and Liabilities BlackRock Funds III

June 30, 2012 (Unaudited)	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	$	6,129,162	$	37,067,238,806	$	8,839,525,303		$	1,650,070,244
Capital shares sold receivable		2		438		8,194			—
Receivable from administrator		428		—		—			—
Total assets		6,129,592		37,067,239,244		8,839,533,497			1,650,070,244
Liabilities
Income dividends payable		—		4,736,171		1,322,877			81,138
Administration fees payable		—		641,041		383,244			24,838
Contributions payable to the Master Portfolio		2		438		8,194			—
Service fees payable — Aon Captives		—		618		—			—
Professional fees payable		7,111		7,113		7,113			7,113
Total liabilities		7,113		5,385,381		1,721,428			113,089
Net Assets	$	6,122,479	$	37,061,853,863	$	8,837,812,069		$	1,649,957,155
Net Assets Consist of
Paid-in capital	$	6,122,474	$	37,060,204,934	$	8,838,774,992		$	1,649,937,888
Accumulated net realized gain (loss)		5		1,648,929		(962,923	)		19,267
Net Assets	$	6,122,479	$	37,061,853,863	$	8,837,812,069		$	1,649,957,155
1 Investments at cost	$	6,129,162	$	37,067,238,806	$	8,839,525,303		$	1,650,070,244
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”).

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	7

Statements of Assets and Liabilities (concluded) BlackRock Funds III

June 30, 2012 (Unaudited)	BlackRock Cash Funds: Government		BlackRock Cash Funds: Institutional		BlackRock Cash Funds: Prime		BlackRock Cash Funds: Treasury
Net Asset Value
Aon Captives
Net Assets		—	$	7,543,104		—		—
Shares outstanding3		—		7,541,790		—		—
Net asset value		—	$	1.00		—		—
Capital
Net Assets		—		—	$	723,762,173	$	98,620,833
Shares outstanding3		—		—		723,840,157		98,625,635
Net asset value		—		—	$	1.00	$	1.00
Institutional
Net Assets		—	$	898,916,161	$	2,007,916,080	$	6,319,056
Shares outstanding3		—		898,793,386		2,008,336,597		6,321,431
Net asset value		—	$	1.00	$	1.00	$	1.00
Premium
Net Assets		—		—	$	2,329,986,284		—
Shares outstanding3		—		—		2,330,068,176		—
Net asset value		—		—	$	1.00		—
Select
Net Assets	$	4,754,328	$	14,276,788	$	6,741,457	$	17,813,055
Shares outstanding3		4,754,315		14,277,013		6,741,699		17,816,524
Net asset value	$	1.00	$	1.00	$	1.00	$	1.00
SL Agency
Net Assets		—	$	36,134,817,298	$	3,747,546,099	$	1,507,597,688
Shares outstanding3		—		36,134,622,250		3,748,033,474		1,507,566,266
Net asset value		—	$	1.00	$	1.00	$	1.00
Trust
Net Assets	$	1,368,151	$	6,300,512	$	21,859,976	$	19,606,523
Shares outstanding3		1,368,159		6,301,281		21,863,266		19,608,034
Net asset value	$	1.00	$	1.00	$	1.00	$	1.00

³  Unlimited number of shares authorized, no par value.

See Notes to Financial Statements.
8	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Operations BlackRock Funds III

Six Months Ended June 30, 2012 (Unaudited)	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	$	7,117		$	58,452,007		$	14,737,196		$	617,438
Expenses		(14,503	)		(17,701,177	)		(4,678,264	)		(481,825	)
Fees waived		11,136			5,453,996			1,451,794			157,634
Total income		3,750			46,204,826			11,510,726			293,247
Expenses
Administration — class specific		9,018			3,700,139			2,178,939			146,486
Service — Aon Captives		—			3,895			—			—
Professional		6,922			6,922			6,922			6,922
Total expenses		15,940			3,710,956			2,185,861			153,408
Less fees waived by administrator — class specific		(5,312	)		(6,838	)		(23,835	)		(50,345	)
Less fees reimbursed by administrator		(6,922	)		(6,922	)		(6,922	)		(6,922	)
Total expenses after fees waived		3,706			3,697,196			2,155,104			96,141
Net investment income		44			42,507,630			9,355,622			197,106
Realized Gain Allocated from the Master Portfolios
Net realized gain from investments		—			898,604			529,018			10,756
Net Increase in Net Assets Resulting from Operations	$	44		$	43,406,234		$	9,884,640		$	207,862

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	9

Statements of Changes in Net Assets BlackRock Funds III

	BlackRock Cash Funds: Government						BlackRock Cash Funds: Institutional
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	44		$	76,766		$	42,507,630		$	52,806,655
Net realized gain		—			—			898,604			1,739,894
Net increase in net assets resulting from operations		44			76,766			43,406,234			54,546,549
Dividends and Distributions to Shareholders From
Net investment income:
Aon Captives		—			—			(4,430	)		(11,185	)
Institutional		—			(879	)		(1,208,832	)		(1,993,214	)
Select		(44	)		(133	)		(16,265	)		(21,870	)
SL Agency		—			(75,750	)		(41,278,102	)		(50,780,386	)
Trust		—			(4	)		(1	)		—
Net realized gain:
Aon Captives		—			—			—			(569	)
Institutional		—			—			—			(107,118	)
Select		(47	)		(2,045	)		—			(1,564	)
SL Agency		—			—			—			(1,794,681	)
Trust		(13	)		(355	)		—			(751	)
Decrease in net assets resulting from dividends to shareholders		(104	)		(79,166	)		(42,507,630	)		(54,711,338	)
Capital Share Transactions
Net increase (decrease) in net assets derived from capital share transactions		(4,220,629	)		(16,112,757	)		9,091,208,413			8,857,754,718
Net Assets
Total increase (decrease) in net assets		(4,220,689	)		(16,115,157	)		9,092,107,017			8,857,589,929
Beginning of period		10,343,168			26,458,325			27,969,746,846			19,112,156,917
End of period	$	6,122,479		$	10,343,168		$	37,061,853,863		$	27,969,746,846

See Notes to Financial Statements.
10	BLACKROCK FUNDS III	JUNE 30, 2012

Statements of Changes in Net Assets (concluded) BlackRock Funds III

	BlackRock Cash Funds: Prime						BlackRock Cash Funds: Treasury
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	9,355,622		$	15,624,534		$	197,106		$	235,732
Net realized gain		529,018			1,500,843			10,756			19,669
Net increase in net assets resulting from operations		9,884,640			17,125,377			207,862			255,401
Dividends and Distributions to Shareholders From
Net investment income:
Capital		(433,930	)		(870,399	)		(993	)		(1,304	)
Institutional		(2,888,182	)		(5,027,475	)		(621	)		(3,362	)
Premium		(1,154,838	)		(2,034,580	)		—			—
Select		(33,916	)		(65,381	)		—			—
SL Agency		(4,844,754	)		(7,626,699	)		(195,492	)		(231,066	)
Trust		(2	)		—			—			—
Net realized gain:
Capital		—			—			—			(5,607	)
Institutional		—			—			—			(2,525	)
Select		—			—			—			(3,953	)
SL Agency		—			—			—			(233,923	)
Trust		—			—			—			(5,751	)
Decrease in net assets resulting from dividends to shareholders		(9,355,622	)		(15,624,534	)		(197,106	)		(487,491	)
Capital Share Transactions
Net increase (decrease) in net assets derived from capital share transactions		(292,428,327	)		(6,805,294	)		903,054,542			(988,554,001	)
Net Assets
Total increase (decrease) in net assets		(291,899,309	)		(5,304,451	)		903,065,298			(988,786,091	)
Beginning of period		9,129,711,378			9,135,015,829			746,891,857			1,735,677,948
End of period	$	8,837,812,069		$	9,129,711,378		$	1,649,957,155		$	746,891,857

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	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 and during the six months ended June 30, 2012.

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 include 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	JUNE 30, 2012

Financial Highlights (continued) BlackRock Cash Funds: Government

	Select
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0000			0.0002			0.0003			0.0008			0.0200			0.0500
Dividends from net investment income		(0.0000	)		(0.0002	)		(0.0003	)		(0.0008	)		(0.0200	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.00%	2		0.02%			0.03%			0.08%			1.89%			5.06%
Ratios to Average Net Assets3
Total expenses		0.35%	4,5		0.30%	6		0.29%			0.25%			0.23%			0.28%
Total expenses after fees waived		0.14%	4,5		0.10%	6		0.13%			0.09%			0.07%			0.20%
Net investment income		0.00%	4,5		0.00%	6		0.03%			0.08%			0.82%			5.03%
Supplemental Data
Net assets, end of period (000)	$	4,754		$	8,973		$	17,263		$	69,139		$	81,424		$	14,269

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Aggregate total investment return.

³  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 include gross expenses.

⁴  Annualized.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.22%.

⁶  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.17%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	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, 20093 to December 31, 2009
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, from December 15, 2011 through December 31, 2011 and during the six months ended June 30, 2012.

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 include 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	JUNE 30, 2012

Financial Highlights (concluded) BlackRock Cash Funds: Government

	Trust
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0000			0.0002			0.0002			0.0008			0.0200			0.0500
Dividends from net investment income		(0.0000	)		(0.0002	)		(0.0002	)		(0.0008	)		(0.0200	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.00%	2		0.02%			0.02%			0.08%			1.69%			4.80%
Ratios to Average Net Assets3
Total expenses		0.60%	4,5		0.54%	6		0.53%			0.48%	7		0.47%			0.51%
Total expenses after fees waived		0.15%	4,5		0.10%	6		0.15%			0.09%			0.07%			0.45%
Net investment income		0.00%	4,5		0.00%	6		0.03%			0.08%			0.16%			4.78%
Supplemental Data
Net assets, end of period (000)	$	1,368		$	1,370		$	3,532		$	13,462		$	12,380		$	50

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Aggregate total investment return.

³  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 include gross expenses.

⁴  Annualized.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.23%.

⁶  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.18%.

⁷  Ratio revised to reflect exclusion of fees waived.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	15

Financial Highlights BlackRock Cash Funds: Institutional

	Aon Captives
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0006			0.0008			0.0012			0.0033			0.0300			0.0500
Dividends from net investment income		(0.0006	)		(0.0008	)		(0.0012	)		(0.0033	)		(0.0300	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.06%	2		0.08%			0.12%			0.33%			2.74%			5.26%
Ratios to Average Net Assets3
Total expenses		0.22%	4,5		0.22%	5		0.25%			0.25%			0.26%			0.26%
Total expenses after fees waived		0.22%	4,5		0.22%	5		0.22%			0.22%			0.23%			0.21%
Net investment income		0.11%	4,5		0.07%	5		0.11%			0.35%			2.67%			5.12%
Supplemental Data
Net assets, end of period (000)	$	7,543		$	9,167		$	59,237		$	72,949		$	97,273		$	90,192

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Aggregate total investment return.

³  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 include gross expenses.

⁴  Annualized.

⁵  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	JUNE 30, 2012

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 and the six months ended June 30, 2012.

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	JUNE 30, 2012	17

Financial Highlights (continued) BlackRock Cash Funds: Institutional

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0011			0.0018			0.0022			0.0043			0.0300			0.0500
Dividends from net investment income		(0.0011	)		(0.0018	)		(0.0022	)		(0.0043	)		(0.0300	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.11%	2		0.18%			0.22%			0.43%			2.85%			5.36%
Ratios to Average Net Assets3
Total expenses		0.12%	4,5		0.12%	5		0.15%			0.15%			0.15%			0.16%
Total expenses after fees waived		0.12%	4,5		0.12%	5		0.12%			0.12%			0.12%			0.11%
Net investment income		0.21%	4,5		0.17%	5		0.22%			0.78%			2.65%			5.25%
Supplemental Data
Net assets, end of period (000)	$	898,916		$	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  Aggregate total investment return.

³  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 include gross expenses.

⁴  Annualized.

⁵  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	JUNE 30, 2012

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 and the six months ended June 30, 2012.

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	JUNE 30, 2012	19

Financial Highlights (continued) BlackRock Cash Funds: Institutional

	Select
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0007			0.0010			0.0014			0.0035			0.0300			0.0500
Dividends from net investment income		(0.0007	)		(0.0010	)		(0.0014	)		(0.0035	)		(0.0300	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.07%	2		0.10%			0.14%			0.35%			2.76%			5.26%
Ratios to Average Net Assets3
Total expenses		0.22%	4,5		0.22%	5		0.25%			0.23%			0.28%			0.25%
Total expenses after fees waived		0.20%	4,5		0.20%	5		0.20%			0.20%			0.23%			0.20%
Net investment income		0.13%	4,5		0.09%	5		0.13%			0.57%			2.05%			5.11%
Supplemental Data
Net assets, end of period (000)	$	14,277		$	44,788		$	29,944		$	23,204		$	10,014		$	4,807

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Aggregate total investment return.

³  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 include gross expenses.

⁴  Annualized.

⁵  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	JUNE 30, 2012

Financial Highlights (continued) BlackRock Cash Funds: Institutional

	SL Agency
	Six Months Ended June 30, 2012 (Unaudited)			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		$	1.00
Net investment income		0.0012			0.0021			0.0025			0.0035
Dividends from net investment income		(0.0012	)		(0.0021	)		(0.0025	)		(0.0035	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return2
Based on net asset value		0.12%	3		0.21%			0.25%			0.36%	3
Ratios to Average Net Assets4
Total expenses		0.09%	5,6		0.09%	6		0.12%			0.12%	5
Total expenses after fees waived		0.09%	5,6		0.09%	6		0.09%			0.09%	5
Net investment income		0.24%	5,6		0.20%	6		0.24%			0.38%	5
Supplemental Data
Net assets, end of period (000)	$	36,134,817		$	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 include gross expenses.

⁵  Annualized.

⁶  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	21

Financial Highlights (concluded) BlackRock Cash Funds: Institutional

	Trust
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0000			0.0001			0.0001			0.0018			0.0200			0.0500
Dividends from net investment income		(0.0000	)		(0.0001	)		(0.0001	)		(0.0018	)		(0.0200	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.00%	2		0.01%			0.01%			0.18%			2.51%			5.01%
Ratios to Average Net Assets3
Total expenses		0.45%	4,5		0.45%	5		0.48%			0.48%			0.49%			0.48%
Total expenses after fees waived		0.33%	4,5		0.29%	5		0.31%			0.40%			0.46%			0.43%
Net investment income		0.00%	4,5		0.00%	5		0.01%			0.22%			2.50%			4.93%
Supplemental Data
Net assets, end of period (000)	$	6,301		$	10,640		$	7,776		$	19,713		$	76,334		$	85,774

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Aggregate total investment return.

³  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 include gross expenses.

⁴  Annualized.

⁵  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	JUNE 30, 2012

Financial Highlights BlackRock Cash Funds: Prime

	Capital
	Six Months Ended June 30, 2012 (Unaudited)			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		$	1.00
Net investment income		0.0009			0.0014			0.0018			0.0030			0.0200
Dividends from net investment income		(0.0009	)		(0.0014	)		(0.0018	)		(0.0030	)		(0.0200	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return2
Based on net asset value		0.09%	3		0.14%			0.18%			0.30%			2.13%	3
Ratios to Average Net Assets4
Total expenses		0.14%	5,6		0.14%	6		0.17%			0.19%			0.21%	5
Total expenses after fees waived		0.14%	5,6		0.14%	6		0.14%			0.16%			0.15%	5
Net investment income		0.18%	5,6		0.15%	6		0.17%			0.27%			2.23%	5
Supplemental Data
Net assets, end of period (000)	$	723,762		$	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 include gross expenses.

⁵  Annualized.

⁶  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	23

Financial Highlights (continued) BlackRock Cash Funds: Prime

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0010			0.0016			0.0020			0.0032			0.0300			0.0500
Dividends from net investment income		(0.0010	)		(0.0016	)		(0.0020	)		(0.0032	)		(0.0300	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.10%	2		0.16%			0.20%			0.32%			2.83%			5.32%
Ratios to Average Net Assets3
Total expenses		0.12%	4,5		0.12%	5		0.15%			0.17%			0.15%			0.15%
Total expenses after fees waived		0.12%	4,5		0.12%	5		0.12%			0.14%			0.11%			0.12%
Net investment income		0.20%	4,5		0.16%	5		0.20%			0.39%			2.80%			5.19%
Supplemental Data
Net assets, end of period (000)	$	2,007,916		$	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  Aggregate total investment return.

³  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 include gross expenses.

⁴  Annualized.

⁵  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	JUNE 30, 2012

Financial Highlights (continued) BlackRock Cash Funds: Prime

	Premium
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0007			0.0011			0.0015			0.0027			0.0270			0.0500
Dividends from net investment income		(0.0007	)		(0.0011	)		(0.0015	)		(0.0027	)		(0.0270	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.07%	2		0.11%			0.15%			0.27%			2.78%			5.27%
Ratios to Average Net Assets3
Total expenses		0.17%	4,5		0.17%	5		0.20%			0.23%			0.21%			0.20%
Total expenses after fees waived		0.17%	4,5		0.17%	5		0.17%			0.20%			0.17%			0.17%
Net investment income		0.15%	4,5		0.11%	5		0.14%			0.34%			2.60%			5.14%
Supplemental Data
Net assets, end of period (000)	$	2,329,986		$	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  Aggregate total investment return.

³  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 include gross expenses.

⁴  Annualized.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	25

Financial Highlights (continued) BlackRock Cash Funds: Prime

	Select
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0006			0.0008			0.0012			0.0024			0.0280			0.0500
Dividends from net investment income		(0.0006	)		(0.0008	)		(0.0012	)		(0.0024	)		(0.0280	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.06%	2		0.09%			0.12%			0.24%			2.75%			5.24%
Ratios to Average Net Assets3
Total expenses		0.22%	4,5		0.22%	5		0.25%			0.27%			0.25%			0.25%
Total expenses after fees waived		0.20%	4,5		0.20%	5		0.20%			0.22%			0.18%			0.20%
Net investment income		0.12%	4,5		0.08%	5		0.12%			0.24%			2.95%			5.06%
Supplemental Data
Net assets, end of period (000)	$	6,741		$	69,779		$	80,614		$	73,810		$	143,150		$	268,352

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Aggregate total investment return.

³  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 include gross expenses.

⁴  Annualized.

⁵  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	JUNE 30, 2012

Financial Highlights (continued) BlackRock Cash Funds: Prime

	SL Agency
	Six Months Ended June 30, 2012 (Unaudited)			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		$	1.00
Net investment income		0.0011			0.0019			0.0023			0.0028
Dividends from net investment income		(0.0011	)		(0.0019	)		(0.0023	)		(0.0028	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return2
Based on net asset value		0.11%	3		0.19%			0.23%			0.28%	3
Ratios to Average Net Assets4
Total expenses		0.09%	5,6		0.09%	6		0.12%			0.14%	5
Total expenses after fees waived		0.09%	5,6		0.09%	6		0.09%			0.11%	5
Net investment income		0.23%	5,6		0.19%	6		0.22%			0.31%	5
Supplemental Data
Net assets, end of period (000)	$	3,747,546		$	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 include gross expenses.

⁵  Annualized.

⁶  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	27

Financial Highlights (concluded) BlackRock Cash Funds: Prime

	Trust
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0000			0.0000			0.0001			0.0011			0.0200			0.0500
Dividends from net investment income		(0.0000	)		(0.0000	)		(0.0001	)		(0.0011	)		(0.0200	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.00%	2		0.00%			0.01%			0.11%			2.49%			4.98%
Ratios to Average Net Assets3
Total expenses		0.45%	4,5		0.45%	5		0.48%			0.51%			0.52%			0.48%
Total expenses after fees waived		0.32%	4,5		0.28%	5		0.29%			0.36%			0.48%			0.45%
Net investment income		0.00%	4,5		0.00%	5		0.01%			0.09%			1.34%			4.89%
Supplemental Data
Net assets, end of period (000)	$	21,860		$	29,657		$	37,044		$	96,349		$	3,370		$	50

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Aggregate total investment return.

³  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 include gross expenses.

⁴  Annualized.

⁵  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	JUNE 30, 2012

Financial Highlights BlackRock Cash Funds: Treasury

	Capital
	Six Months Ended June 30, 2012 (Unaudited)			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		$	1.00
Net investment income		0.0000			0.0004			0.0007			0.0008			0.0100
Dividends from net investment income		(0.0000	)		(0.0004	)		(0.0007	)		(0.0008	)		(0.0100	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return2
Based on net asset value		0.00%	3		0.04%			0.07%			0.08%			1.12%	3
Ratios to Average Net Assets4
Total expenses		0.14%	5,6		0.14%	7		0.17%			0.17%			0.19%	5
Total expenses after fees waived		0.12%	5,6		0.10%	7		0.12%			0.08%			0.05%	5
Net investment income		0.01%	5,6		0.01%	7		0.06%			0.07%			0.37%	5
Supplemental Data
Net assets, end of period (000)	$	98,621		$	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 include gross expenses.

⁵  Annualized.

⁶  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

⁷  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.04%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	29

Financial Highlights (continued) BlackRock Cash Funds: Treasury

	Institutional
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0001			0.0004			0.0009			0.0008			0.0200			0.0500
Dividends from net investment income		(0.0001	)		(0.0004	)		(0.0009	)		(0.0008	)		(0.0200	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.01%	2		0.04%			0.09%			0.08%			1.61%			4.95%
Ratios to Average Net Assets3
Total expenses		0.12%	4,5		0.12%	6		0.16%			0.12%			0.15%			0.18%
Total expenses after fees waived		0.11%	4,5		0.11%	6		0.11%			0.04%			0.04%			0.04%
Net investment income		0.02%	4,5		0.03%	6		0.08%			0.09%			0.39%			4.74%
Supplemental Data
Net assets, end of period (000)	$	6,319		$	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  Aggregate total investment return.

³  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 include gross expenses.

⁴  Annualized.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

⁶  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	JUNE 30, 2012

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 and the six months ended June 30, 2012.

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	JUNE 30, 2012	31

Financial Highlights (continued) BlackRock Cash Funds: Treasury

	Select
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0000			0.0003			0.0003			0.0007			0.0200			0.0500
Dividends from net investment income		(0.0000	)		(0.0003	)		(0.0003	)		(0.0007	)		(0.0200	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.00%	2		0.03%			0.03%			0.08%			1.55%			4.86%
Ratios to Average Net Assets3
Total expenses		0.22%	4,5		0.21%	6		0.25%			0.25%			0.25%			0.27%
Total expenses after fees waived		0.13%	4,5		0.08%	6		0.12%			0.08%			0.09%			0.10%
Net investment income		0.00%	4,5		0.00%	6		0.04%			0.08%			0.92%			5.06%
Supplemental Data
Net assets, end of period (000)	$	17,813		$	13,119		$	288		$	4,815		$	24,340		$	10,050

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Aggregate total investment return.

³  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 include gross expenses.

⁴  Annualized.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

⁶  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	JUNE 30, 2012

Financial Highlights (continued) BlackRock Cash Funds: Treasury

	SL Agency
	Six Months Ended June 30, 2012 (Unaudited)			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		$	1.00
Net investment income		0.0002			0.0005			0.0011			0.0008
Dividends from net investment income		(0.0002	)		(0.0005	)		(0.0011	)		(0.0008	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return2
Based on net asset value		0.02%	3		0.05%			0.12%			0.09%	3
Ratios to Average Net Assets4
Total expenses		0.09%	5,6		0.09%	7		0.13%			0.12%	5
Total expenses after fees waived		0.09%	5,6		0.08%	7		0.08%			0.07%	5
Net investment income		0.04%	5,6		0.03%	7		0.11%			0.08%	5
Supplemental Data
Net assets, end of period (000)	$	1,507,598		$	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 include gross expenses.

⁵  Annualized.

⁶  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

⁷  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.04%.

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	33

Financial Highlights (concluded) BlackRock Cash Funds: Treasury

	Trust
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011			2010			2009			2008			2007
Per Share Operating Performance
Net asset value, beginning of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Net investment income		0.0000			0.0003			0.0002			0.0007			0.0100			0.0500
Dividends from net investment income		(0.0000	)		(0.0003	)		(0.0002	)		(0.0007	)		(0.0100	)		(0.0500	)
Net asset value, end of period	$	1.00		$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
Total Investment Return1
Based on net asset value		0.00%	2		0.03%			0.02%			0.08%			1.45%			4.61%
Ratios to Average Net Assets3
Total expenses		0.45%	4,5		0.45%	6		0.48%			0.47%			0.47%			0.51%
Total expenses after fess waived		0.13%	4,5		0.10%	6		0.16%			0.08%			0.01%			0.36%
Net investment income		0.00%	4,5		0.00%	6		0.02%			0.08%			0.05%			4.65%
Supplemental Data
Net assets, end of period (000)	$	19,607		$	23,597		$	12,999		$	55,618		$	94,654		$	50

¹  Where applicable, total investment returns include the reinvestment of dividends and distributions.

²  Aggregate total investment return.

³  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 include gross expenses.

⁴  Annualized.

⁵  Includes the Fund’s share of the Master Portfolio’s allocated fees waived of 0.03%.

⁶  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	JUNE 30, 2012

Notes to Financial Statements (Unaudited) 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 June 30, 2012 was 100% for Government, 98.52% for Institutional, 86.65% for Prime and 67.92% 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 to which the classes are subject. The Aon Captives shares are also subject to service fees. 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 US federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Funds’ US federal tax returns remains open for each of the four years 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. Expenses directly related to the Funds and other shared expenses pro rated to the Funds are allocated daily to each class based on its relative net assets or other appropriate methods.

2. Administration Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

The Trust entered into 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:

	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 June 30, 2012.

BLACKROCK FUNDS III JUNE 30, 2012 35

Notes to Financial Statements (continued) BlackRock Funds III

For the six months ended June 30, 2012, 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	$	1,948		N/A		N/A
Capital		N/A		—	$	169,267	$	9,002
Institutional		—	$	284,148	$	722,450	$	1,739
Premium		N/A		—	$	769,483		—
Select	$	6,374	$	18,640	$	43,032	$	10,531
SL Agency		—	$	3,381,296	$	421,982	$	87,161
Trust	$	2,644	$	14,107	$	52,725	$	38,053

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, 2013. 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 Trusts’ 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, 2013. 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 six months ended June 30, 2012, BTC waived administration fees for the Funds as follows:

	Government		Institutional		Prime		Treasury
Aon Captives		N/A		—		N/A		N/A
Capital		N/A		—		—	$	2,738
Institutional		—		—		—	$	391
Premium		N/A		—		—		—
Select	$	3,206	$	2,485	$	5,737	$	6,242
SL Agency		—		—		—	$	8,631
Trust	$	2,106	$	4,353	$	18,098	$	32,343

As of June 30, 2012, 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:

The Trust, on behalf of the Funds, entered into a Distribution Agreement and Distribution and Service Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of BFA. Pursuant to the Distribution and Service Plan and in accordance with Rule 12b-1 under the 1940 Act, Institutional pays BRIL ongoing service fees with respect to Aon Captive Shares. The fees are accrued daily and paid monthly at an annual rate of 0.10% based upon the average daily net assets of the Aon Captive 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 BRIL by Institutional are shown as Service — Aon Captives Shares in the Statements of Operations.

4. Income Tax Information:

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.

Transactions in capital shares for each class were as follows:

Government	Six Months Ended June 30, 2012			Year Ended December 31, 2011
Institutional
Shares sold		—			21,120,001
Shares issued in reinvestment of dividends		—			2,431
Shares redeemed		—			(26,782,985	)
Net decrease		—			(5,660,553	)
Select
Shares sold		20,298,304			33,208,234
Shares issued in reinvestment of dividends		91			2,334
Shares redeemed		(24,517,394	)		(41,500,352	)
Net decrease		(4,218,999	)		(8,289,784	)
SL Agency
Shares sold		—			1,293,402,500
Shares issued in reinvestment of dividends		—			15,152
Shares redeemed		—			(1,293,417,652	)
Net increase		—			—
Trust
Shares sold		380,689			4,032,425
Shares issued in reinvestment of dividends		13			360
Shares redeemed		(382,332	)		(6,195,205	)
Net decrease		(1,630	)		(2,162,420	)
Total Net Decrease		(4,220,629	)		(16,112,757	)

36 BLACKROCK FUNDS III JUNE 30, 2012

Notes to Financial Statements (concluded) BlackRock Funds III

Institutional	Six Months Ended June 30, 2012			Year Ended December 31, 2011
Aon Captives
Shares sold		2,803			5,656,829
Shares issued in reinvestment of dividends		1,063			8,216
Shares redeemed		(1,628,258	)		(55,734,990	)
Net decrease		(1,624,392	)		(50,069,945	)
Capital
Shares sold		—			7,500
Shares redeemed		—			(7,500	)
Net increase		—			—
Institutional
Shares sold		6,364,775,475			8,651,733,281
Shares issued in reinvestment of dividends		811,787			1,360,520
Shares redeemed		(6,556,571,594	)		(8,639,461,080	)
Net increase (decrease)		(190,984,332	)		13,632,721
Select
Shares sold		67,672,187			80,468,223
Shares issued in reinvestment of dividends		19,897			23,644
Shares redeemed		(98,204,003	)		(65,647,366	)
Net increase (decrease)		(30,511,919	)		14,844,501
SL Agency
Shares sold		48,275,273,552			82,420,167,190
Shares issued in reinvestment of dividends		8,561			11,044
Shares redeemed		(38,956,612,961	)		(73,543,695,298	)
Net increase		9,318,669,152			8,876,482,936
Trust
Shares sold		5,038,246			43,919,299
Shares issued in reinvestment of dividends		235			807
Shares redeemed		(9,378,577	)		(41,055,601	)
Net increase (decrease)		(4,340,096	)		2,864,505
Total Net Increase		9,091,208,413			8,857,754,718
Prime
Capital
Shares sold		4,517,031,727			5,397,811,345
Shares issued in reinvestment of dividends		286,133			759,435
Shares redeemed		(4,250,238,684	)		(5,459,756,950	)
Net increase (decrease)		267,079,176			(61,186,170	)
Institutional
Shares sold		11,674,178,781			22,608,075,380
Shares issued in reinvestment of dividends		1,260,424			2,201,956
Shares redeemed		(11,950,619,105	)		(23,900,189,738	)
Net decrease		(275,179,900	)		(1,289,912,402	)
Premium
Shares sold		9,787,777,048			23,934,752,476
Shares issued in reinvestment of dividends		626,897			1,206,416
Shares redeemed		(8,918,680,882	)		(23,709,664,413	)
Net increase		869,723,063			226,294,479

Prime (concluded)	Six Months Ended June 30, 2012			Year Ended December 31, 2011
Select
Shares sold		230,396,618			551,229,916
Shares issued in reinvestment of dividends		37,906			69,707
Shares redeemed		(293,496,199	)		(562,087,435	)
Net decrease		(63,061,675	)		(10,787,812	)
SL Agency
Shares sold		2,748,686,491			4,537,643,287
Shares redeemed		(3,831,876,465	)		(3,401,487,734	)
Net increase (decrease)		(1,083,189,974	)		1,136,155,553
Trust
Shares sold		15,196,112			53,633,417
Shares redeemed		(22,995,129	)		(61,002,359	)
Net decrease		(7,799,017	)		(7,368,942	)
Total Net Decrease		(292,428,327	)		(6,805,294	)
Treasury
Capital
Shares sold		105,250,000			2,100,194
Shares issued in reinvestment of dividends		2,357			22,193
Shares redeemed		(25,001,722	)		(123,404,434	)
Net increase (decrease)		80,250,635			(121,282,047	)
Institutional
Shares sold		—			96,047,245
Shares issued in reinvestment of dividends		1,258			12,399
Shares redeemed		(2,623,537	)		(211,897,709	)
Net decrease		(2,622,279	)		(115,838,065	)
Select
Shares sold		18,837,806			36,511,128
Shares issued in reinvestment of dividends		963			2,759
Shares redeemed		(14,144,585	)		(23,679,366	)
Net increase		4,694,184			12,834,521
SL Agency
Shares sold		16,654,704,042			33,009,840,675
Shares issued in reinvestment of dividends		6,028			5,372
Shares redeemed		(15,829,987,051	)		(33,784,717,911	)
Net increase (decrease)		824,723,019			(774,871,864	)
Trust
Shares sold		14,865,333			37,454,464
Shares issued in reinvestment of dividends		1,620			4,391
Shares redeemed		(18,857,970	)		(26,855,401	)
Net increase (decrease)		(3,991,017	)		10,603,454
Total Net Increase (Decrease)		903,054,542			(988,554,001	)

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 July 1, 2012, BlackRock Advisors, LLC will replace BTC as the Funds’ administrator.

BLACKROCK FUNDS III JUNE 30, 2012 37

Master Portfolio Information as of June 30, 2012 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
Commercial Paper		33	%
Certificates of Deposit		19
U.S. Government Sponsored Agency Obligations		18
Repurchase Agreements		16
Time Deposits		6
U.S. Treasury Obligations		6
Corporate Notes		2
Total		100	%

Money Market Master Portfolio

Portfolio Composition	Percent of Net Assets
Commercial Paper		29	%
Certificates of Deposit		22
Repurchase Agreements		21
U.S. Government Sponsored Agency Obligations		17
U.S. Treasury Obligations		5
Time Deposits		5
Corporate Notes		1
Total		100	%

Treasury Money Market Master Portfolio

Portfolio Composition	Percent of Net Assets
Repurchase Agreements		71	%
U.S. Treasury Obligations		29
Total		100	%

38 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments June 30, 2012 (Unaudited) Government Money Market Master Portfolio (Percentages shown are based on Net Assets)

Repurchase Agreements	Par (000)		Value
Credit Suisse Securities (USA) LLC, 0.15%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $1,000,013, collateralized by U.S. Treasury obligations, 0.25%, due 4/30/14, par and fair value of $1,025,000 and $1,024,301, respectively)	$	1,000	$	1,000,000
Deutsche Bank Securities Inc., 0.20%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $1,000,017, collateralized by U.S. Treasury obligations, 2.00%, due 2/15/22, par and fair value of $972,800 and $1,020,066, respectively)		1,000		1,000,000
Goldman Sachs & Co., 0.18%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $1,000,015, collateralized by U.S. government obligations, 4.00%, due 4/01/42, par and fair value of $966,491 and $1,020,001, respectively)		1,000		1,000,000
HSBC Securities (USA) Inc., 0.15%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $1,131,014, collateralized by U.S. Treasury obligations, 4.38%, due 2/15/38, par and fair value of $845,000 and $1,154,199, respectively)		1,131		1,131,000
JPMorgan Securities LLC, 0.14%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $1,000,012, collateralized by U.S. Treasury obligations, 3.88%, due 8/15/40, par and fair value of $805,000 and $1,020,709, respectively)		1,000		1,000,000
Morgan Stanley & Co. LLC, 0.16%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $1,006,013, collateralized by U.S. Treasury obligations, 0.00%, due 6/27/13, par and fair value of $1,028,300 and $1,026,123, respectively)		1,006		1,006,000
Total Repurchase Agreements — 100.1%				6,137,000
Total Investments (Cost — $6,137,000*) — 100.1%				6,137,000
Liabilities in Excess of Other Assets — (0.1)%				(7,838	)
Net Assets — 100.0%			$	6,129,162

* Cost for federal income tax purposes.

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Short-Term Securities1		—	$	6,137,000		—	$	6,137,000

¹  See above Schedule of Investments for values in each security type.

Certain of the Master Portfolio’s assets are held at carrying amount which approximates fair value for financial statement purposes. As of June 30, 2012, cash in the amount of $625 would be categorized as Level 1 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 39

Schedule of Investments June 30, 2012 (Unaudited) Money Market Master Portfolio (Percentages shown are based on Net Assets)

Certificates of Deposit	Par (000)		Value
Euro
Mitsubishi UFJ Trust and Banking Corp., UK, 0.43%, 8/02/12	$	300,000	$	300,000,000
Mizuho Corporate Bank Ltd., London, 0.44%, 9/14/12		474,000		474,000,000
National Australia Bank Ltd., London (a):
0.47%, 12/20/12		300,000		300,000,000
0.45%, 1/16/13		212,000		212,000,000
				1,286,000,000
Yankee (b)
Bank of Montreal, Chicago:
0.21%, 8/29/12		150,000		150,000,000
0.20%, 8/29/12		150,000		150,000,000
Bank of Tokyo-Mitsubishi UFJ Ltd., New York:
0.37%, 7/11/12		400,000		400,000,000
0.35%, 7/12/12		4,600		4,600,000
Barclays Bank Plc, New York, 0.59%, 7/13/12		501,000		501,000,000
Canadian Imperial Bank of Commerce, New York, 0.33%, 1/02/13 (a)		553,015		553,015,000
Mizuho Corporate Bank Ltd., New York, 0.34%, 8/08/12		550,000		550,000,000
Natixis, New York, 0.48%, 8/01/12		828,000		828,000,000
Rabobank Nederland, New York:
0.61%, 8/07/12		250,000		250,000,000
0.61%, 8/08/12		500,000		500,000,000
0.65%, 4/24/13 (a)		285,500		285,500,000
0.62%, 5/09/13 (a)		225,000		225,000,000
Societe Generale NY, 0.51%, 8/03/12		853,000		853,000,000
Sumitomo Mitsui Banking Corp., New York:
0.40%, 9/10/12		490,000		490,000,000
0.39%, 9/12/12		580,000		580,000,000
Sumitomo Trust & Banking Co. Ltd., New York, 0.20%, 7/19/12		350,000		350,000,000
Svenska Handelsbanken, New York, 0.26%, 8/17/12		215,000		215,000,000
Westpac Banking Corp., New York, 0.34%, 1/04/13 (a)		99,000		99,000,000
Total Certificates of Deposit — 22.0%				8,270,115,000
Commercial Paper
Alpine Securitization Corp. (c):
0.21%, 7/10/12		100,000		99,994,750
0.22%, 7/18/12		170,000		169,982,339
Antalis US Funding Corp. (c):
0.47%, 7/24/12		1,000		999,700
0.58%, 8/02/12		580,100		579,800,926
ANZ National International Ltd., London (c):
0.52%, 8/03/12		200,000		199,904,667
0.52%, 8/07/12		100,000		99,946,556
Atlantis One Funding Corp. (c):
0.46%, 7/09/12		300,000		299,969,333
0.36%, 9/10/12		199,000		198,858,710
0.53%, 10/12/12		200,000		199,696,722
Barclays Bank Plc, US Collateralized CP Notes Series 2010-1, 0.35%, 8/09/12 (c)		250,000		249,905,208
Barton Capital Corp. (c):
0.43%, 7/06/12		150,000		149,991,042
0.52%, 8/01/12		100,000		99,955,222
0.53%, 8/02/12		250,000		249,882,222
Cancara Asset Securitisation Ltd., 0.40%, 7/19/12 (c)		150,000		149,970,000
Collateralized CP Co. LLC, 0.35%, 8/10/12 (c)		350,000		349,863,889
Commonwealth Bank of Australia (a):
0.32%, 9/19/12		250,000		250,000,000
0.38%, 1/14/13		380,000		380,000,000
DNB Bank ASA, 0.32%, 8/13/12 (c)		280,000		279,892,978

Commercial Paper	Par (000)		Value
Erste Abwicklungsanstalt (c):
0.38%, 8/21/12	$	50,000	$	49,973,083
0.44%, 9/25/12		50,000		49,947,444
0.48%, 10/24/12		100,000		99,846,667
0.48%, 10/26/12		100,000		99,844,000
0.52%, 11/26/12		50,000		49,893,111
0.60%, 1/22/13		50,000		49,829,167
0.60%, 2/11/13		100,000		99,625,000
0.64%, 2/21/13		50,000		49,791,111
0.65%, 2/28/13		150,000		149,344,583
HSBC Bank Plc, 0.51%, 11/28/12 (c)		390,000		389,171,250
Kells Funding LLC (c):
0.56%, 7/02/12		50,000		49,999,222
0.56%, 7/02/12		75,000		74,998,833
0.61%, 7/06/12		100,000		99,991,528
0.54%, 7/25/12		50,000		49,982,000
0.54%, 9/06/12		200,000		199,799,000
0.60%, 9/12/12		48,000		47,941,600
0.54%, 9/20/12		135,000		134,835,975
0.50%, 10/23/12		75,000		74,881,250
0.59%, 11/09/12		200,000		199,570,611
Matchpoint Master Trust, 0.45%, 8/03/12 (c)		135,000		134,944,313
Mont Blanc Capital Corp., 0.44%, 8/01/12 (c)		83,000		82,968,552
Nieuw Amsterdam Receivables Corp. (c):
0.45%, 7/10/12		50,000		49,994,375
0.45%, 7/11/12		50,000		49,993,750
Nordea North America Inc. (c):
0.61%, 8/07/12		161,600		161,498,686
0.26%, 8/16/12		435,000		434,858,262
NRW. BANK, 0.25%, 7/11/12 (c)		365,000		364,974,653
Oversea-Chinese Banking Corp. Ltd., 0.57%, 8/13/12 (c)		200,000		199,863,833
Royal Park Investments Funding Corp. (c):
0.70%, 7/09/12		150,000		149,976,667
0.70%, 7/16/12		41,000		40,988,042
0.70%, 7/24/12		100,000		99,955,278
0.90%, 8/31/12		13,000		12,980,175
Scaldis Capital LLC (c):
0.55%, 7/16/12		470,000		469,892,292
0.50%, 7/23/12		519,000		518,841,417
Starbird Funding Corp. (c):
0.45%, 7/06/12		180,000		179,988,750
0.45%, 7/10/12		95,000		94,989,313
Thames Asset Global Securitization No 1 Inc. (c):
0.50%, 7/02/12		124,976		124,974,264
0.45%, 7/11/12		138,000		137,982,750
0.48%, 7/18/12		73,005		72,988,452
Victory Receivables Corp. (c):
0.20%, 7/11/12		100,000		99,994,444
0.20%, 7/13/12		116,853		116,845,210
Westpac Banking Corp.:
0.48%, 7/10/12 (a)		350,000		350,000,000
0.50%, 8/01/12 (c)		50,000		49,978,472
0.50%, 8/03/12 (c)		75,000		74,965,625
Westpac Securities NZ Ltd.:
0.56%, 7/05/12 (c)		120,000		119,992,533
0.53%, 7/18/12 (c)		250,000		249,937,431
0.63%, 4/15/13 (a)		300,000		300,000,000
Windmill Funding Corp., 0.45%, 7/20/12 (c)		150,000		149,964,375
Total Commercial Paper — 29.0%				10,922,211,613
Corporate Notes
JPMorgan Chase Bank NA, 0.54%, 5/17/13 (a)		250,725		250,725,000
Total Corporate Notes — 0.6%				250,725,000

See Notes to Financial Statements.

40 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments (continued) Money Market Master Portfolio (Percentages shown are based on Net Assets)

Time Deposits	Par (000)		Value
Bank of Nova Scotia, 0.11%, 7/02/12	$	1,000,000	$	1,000,000,000
Northern Trust Co. Ltd., 0.06%, 7/02/12		600,000		600,000,000
Svenska Handelsbanken AB, 0.10%, 7/02/12		200,000		200,000,000
Total Time Deposits — 4.8%				1,800,000,000
U.S. Government Sponsored Agency Obligations
Fannie Mae, 4.75%, 2/21/13		70,304		72,363,898
Fannie Mae Discount Notes (c):
0.12%, 8/27/12		200,000		199,962,000
0.12%, 9/04/12		50,000		49,989,167
Fannie Mae Variable Rate Notes (a):
0.27%, 8/23/12		200,000		200,005,914
0.32%, 1/10/13		250,000		249,973,373
0.38%, 5/17/13		304,000		303,917,792
0.21%, 11/08/13		170,000		169,930,124
0.22%, 6/20/14		425,000		424,833,438
Federal Farm Credit Banks Variable Rate Notes (a):
0.16%, 6/18/13		66,000		66,000,000
0.19%, 3/07/14		40,000		39,993,786
Federal Home Loan Bank:
0.24%, 9/20/12		250,000		250,053,080
1.75%, 12/14/12		81,700		82,273,533
0.17%, 1/24/13		44,910		44,910,562
0.16%, 1/25/13		144,000		143,960,238
0.13%, 2/01/13		200,000		199,944,478
0.17%, 2/06/13		294,500		294,494,689
0.16%, 2/06/13		200,000		199,984,682
0.17%, 2/13/13		100,000		99,998,208
0.23%, 5/17/13		120,000		119,986,075
0.24%, 5/21/13		100,000		99,987,470
0.23%, 5/29/13		50,000		49,989,417
Federal Home Loan Bank Discount Notes (c):
0.16%, 11/02/12		125,000		124,932,188
0.14%, 11/30/12		175,000		174,894,444
0.21%, 5/21/13		100,000		99,811,000
Federal Home Loan Bank Variable Rate Notes (a):
0.20%, 4/12/13		114,500		114,486,589
0.32%, 7/08/13		50,000		50,000,000
Freddie Mac Discount Notes (c):
0.12%, 7/24/12		200,000		199,984,667
0.17%, 9/18/12		250,000		249,906,736
0.12%, 10/11/12		325,000		324,889,500
0.14%, 12/03/12		150,000		149,906,354
Freddie Mac Variable Rate Notes (a):
0.20%, 3/21/13		270,040		269,961,440
0.38%, 9/03/13		227,900		227,845,954
0.18%, 9/13/13		884,785		884,139,935
0.21%, 11/04/13		309,000		308,958,582
Total U.S. Government Sponsored Agency Obligations — 17.4%				6,542,269,313
U.S. Treasury Obligations
U.S. Treasury Bill (c):
0.13%, 8/23/12		160,000		159,969,231
0.14%, 9/06/12		250,000		249,935,562
0.14%, 11/08/12		140,000		139,929,222
U.S. Treasury Note:
1.38%, 10/15/12		200,000		200,736,811
0.38%, 10/31/12		300,000		300,271,589
1.38%, 11/15/12		250,000		251,183,169
3.38%, 11/30/12		175,000		177,357,132

U.S. Treasury Obligations	Par (000)		Value
1.38%, 3/15/13	$	280,000	$	282,289,442
1.13%, 6/15/13		120,000		121,008,142
Total U.S. Treasury Obligations — 5.0%				1,882,680,300
Repurchase Agreements
BNP Paribas Securities Corp. 0.19%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $250,003,958, collateralized by various U.S. government obligations, 4.50%, due 7/15/39 to 6/20/41, par and fair value of $350,000,595 and $255,000,001, respectively)		250,000		250,000,000
BNP Paribas Securities Corp. 0.20%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $310,005,167, collateralized by various corporate debt obligations, 0.59% to 7.88%, due 10/23/12 to 5/22/22, par and fair value of $298,648,073 and $319,300,001, respectively)		310,000		310,000,000
Citigroup Global Markets Inc., 0.16%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $850,011,333, collateralized by various U.S. Treasury obligations, 0.25% to 3.13%, due 3/31/14 to 5/15/21, par and fair value of $827,292,200 and $867,000,048, respectively)		850,000		850,000,000
Citigroup Global Markets Inc., 0.30%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $69,001,725, collateralized by U.S. Treasury obligations, 4.50%, due 5/15/38, par and fair value of $50,941,300 and $70,380,129, respectively)		69,000		69,000,000
Citigroup Global Markets Inc., 0.45%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $190,007,125, collateralized by various U.S. government obligations, U.S. Treasury obligations and municipal obligations, 0.00% to 7.94%, due 8/15/19 to 12/01/41, par and fair value of $194,919,800 and $204,451,097, respectively)		190,000		190,000,000
Citigroup Global Markets Inc., 0.55%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $250,011,458, collateralized by various U.S. government obligations, 0.00% to 4.50%, due 6/28/13 to 12/19/31, par and fair value of $244,231,000 and $255,000,302, respectively)		250,000		250,000,000
Credit Suisse Securities (USA) LLC, 0.78%, 8/03/12 (Purchased on 6/29/12 to be repurchased at $150,113,750, collateralized by various corporate debt obligations, 0.36% to 7.09%, due 2/15/32 to 9/25/47, par and fair value of $602,825,455 and $172,500,260, respectively)		150,000		150,000,000
Deutsche Bank Securities Inc., 0.20%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $874,014,567, collateralized by various U.S. Treasury obligations, 1.50% to 6.00%, due 11/30/13 to 8/15/40, par and fair value of $782,656,762 and $891,480,007, respectively)		874,000		874,000,000
Goldman Sachs & Co., 0.18%, 7/03/12 (Purchased on 6/29/12 to be repurchased at $200,004,000, collateralized by various U.S. government sponsored agency obligations, 2.43% to 5.65%, due 7/01/37 to 6/01/42, par and fair value of $224,259,896 and $204,000,000, respectively)		200,000		200,000,000

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 41

Schedule of Investments (continued) Money Market Master Portfolio (Percentages shown are based on Net Assets)

Repurchase Agreements	Par (000)		Value
Goldman Sachs & Co., 0.19%, 7/05/12 (Purchased on 6/29/12 to be repurchased at $875,027,708, collateralized by various U.S. government obligations, 2.10% to 6.50%, due 1/01/18 to 7/01/42, par and fair value of $2,225,360,651 and $892,500,000, respectively)	$	875,000	$	875,000,000
Goldman Sachs & Co., 0.20%, 7/06/12 (Purchased on 6/29/12 to be repurchased at $750,029,167, collateralized by various U.S. government obligations, 2.18% to 9.00%, due 5/01/17 to 7/01/42, par and fair value of $1,411,499,942 and $765,000,000, respectively)		750,000		750,000,000
HSBC Securities (USA) Inc., 0.18%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $200,003,000, collateralized by various corporate debt obligations, 0.68% to 0.71%, due 3/21/19 to 8/15/21, par and fair value of $222,950,000 and $210,000,676, respectively)		200,000		200,000,000
JPMorgan Securities LLC, 0.45%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $60,002,250, collateralized by various corporate debt obligations, 0.99% to 6.63%, due 4/01/16 to 11/07/23, par and fair value of $62,637,000 and $63,000,379, respectively)		60,000		60,000,000
Merrill Lynch, Pierce, Fenner & Smith Inc., 0.15%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $300,003,750, collateralized by various U.S. Treasury obligations, 0.63% to 2.25%, due 7/15/14 to 11/30/17, par and fair value of $297,654,300 and $306,000,104, respectively)		300,000		300,000,000
Merrill Lynch, Pierce, Fenner & Smith Inc., 0.20%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $800,013,333, collateralized by various U.S. government obligations, 0.54% to 7.00%, due 9/15/20 to 6/16/43, par and fair value of $1,307,514,251 and $824,000,000, respectively)		800,000		800,000,000
Merrill Lynch, Pierce, Fenner & Smith Inc., 0.25%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $100,002,083, collateralized by various U.S. government obligations, 3.50% to 4.00%, due 1/01/32 to 12/01/40, par and fair value of $107,482,438 and $102,000,001, respectively)		100,000		100,000,000
Morgan Stanley & Co. LLC, 0.16%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $221,972,960, collateralized by various U.S. Treasury obligations, 0.00% to 3.63%, due 10/04/12 to 2/15/21, par and fair value of $214,095,100 and $226,409,525, respectively)		221,970		221,970,000
Morgan Stanley & Co. LLC, 0.18%, 7/05/12 (Purchased on 6/29/12 to be repurchased at $500,015,000, collateralized by various U.S. government obligations, 2.22% to 6.50%, due 10/01/14 to 6/01/42, par and fair value of $908,676,593 and $510,000,001, respectively)		500,000		500,000,000

Repurchase Agreements	Par (000)		Value
Morgan Stanley & Co. LLC, 0.18%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $90,001,350, collateralized by various U.S. government obligations, 3.50%, due 6/01/42, par and fair value of $86,906,432 and $91,800,000, respectively)	$	90,000	$	90,000,000
Morgan Stanley & Co. LLC, 0.23%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $125,002,396, collateralized by various U.S. government obligations, 0.00% to 6.50%, due 8/01/25 to 7/01/42, par and fair value of $125,916,722 and $127,500,001, respectively)		125,000		125,000,000
RBS Securities Inc., 0.17%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $120,001,700, collateralized by various U.S. government obligations, 2.20% to 5.90%, due 11/01/33 to 7/01/42, par and fair value of $234,252,061 and $122,400,348, respectively)		120,000		120,000,000
RBS Securities Inc., 0.25%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $140,002,917, collateralized by various U.S. government obligations, 3.50% to 4.00%, due 1/01/27 to 4/01/42, par and fair value of $135,191,431 and $142,803,480, respectively)		140,000		140,000,000
Wells Fargo Bank Co. 0.20%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $320,005,333, collateralized by various corporate debt obligations, 0.00% to 12.75%, due 7/15/12 to 7/25/48, par and fair value of $4,064,832,432 and $335,077,883, respectively)		320,000		320,000,000
Total Repurchase Agreements — 20.6%				7,744,970,000
Total Investments (Cost — $37,412,971,226*) — 99.4%				37,412,971,226
Other Assets in Excess of Liabilities — 0.6%				210,070,205
Net Assets — 100.0%			$	37,623,041,431

* Cost for federal income tax purposes.

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

(b) Issuer is a US branch of a foreign domiciled bank.

(c) Rates shown are discount rates or a range of discount rates at the time of purchase.

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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.

See Notes to Financial Statements.

42 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments (concluded) Money Market Master Portfolio (Percentages shown are based on Net Assets)

The following table summarizes the Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Short-Term Securities1		—	$	37,412,971,226		—	$	37,412,971,226

¹ See above Schedule of Investments for values in each security type.

Certain of the Master Portfolio’s assets are held at carrying amount which approximates fair value for financial statement purposes. As of June 30, 2012, cash in the amount of $2,050 would be categorized as Level 1 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 43

Schedule of Investments June 30, 2012 (Unaudited) Prime Money Market Master Portfolio (Percentages shown are based on Net Assets)

Certificates of Deposit	Par (000)		Value
Euro
Mitsubishi UFJ Trust and Banking Corp., UK, 0.43%, 8/01/12	$	175,000	$	175,000,000
National Australia Bank Ltd., London (a):
0.47%, 12/20/12		87,000		87,000,000
0.45%, 1/16/13		100,000		100,000,000
				362,000,000
Yankee (b)
Bank of Montreal, Chicago:
0.21%, 8/29/12		50,000		50,000,000
0.20%, 8/29/12		50,000		50,000,000
Bank of Tokyo-Mitsubishi UFJ Ltd., New York, 0.37%, 7/11/12		168,000		168,000,000
Barclays Bank Plc, New York, 0.59%, 7/13/12		135,000		135,000,000
Canadian Imperial Bank of Commerce, New York, 0.33%, 1/02/13 (a)		162,470		162,470,000
Mizuho Corporate Bank Ltd., New York:
0.36%, 7/16/12		90,000		90,000,000
0.34%, 8/08/12		100,000		100,000,000
Natixis, New York, 0.48%, 8/01/12		200,000		200,000,000
Rabobank Nederland, New York (a):
0.65%, 4/24/13		91,500		91,500,000
0.62%, 5/09/13		75,000		75,000,000
Sumitomo Mitsui Banking Corp., New York, 0.40%, 9/10/12		150,000		150,000,000
Sumitomo Trust & Banking Co. Ltd., New York, 0.20%, 7/19/12		150,000		150,000,000
Svenska Handelsbanken, New York, 0.26%, 8/17/12		70,000		70,000,000
Westpac Banking Corp., New York, 0.34%, 1/04/13 (a)		125,000		125,000,000
Total Certificates of Deposit — 19.4%				1,978,970,000
Commercial Paper
Alpine Securitization Corp. (c):
0.21%, 7/10/12		100,000		99,994,750
0.21%, 7/11/12		115,000		114,993,292
Antalis US Funding Corp., 0.58%, 8/02/12 (c)		180,000		179,907,200
ASB Finance Ltd., London, 0.51%, 8/20/12 (c)		122,723		122,636,923
Atlantis One Funding Corp. (c):
0.36%, 9/10/12		145,000		144,897,050
0.54%, 10/12/12		179,450		179,176,469
Barclays Bank Plc, US Collateralized CP Notes Series 2010-1, 0.22%, 7/03/12 (c)		100,000		99,998,778
Barton Capital Corp., 0.43%, 7/06/12 (c)		50,000		49,997,014
BNZ International Funding, Ltd., 0.50%, 8/08/12 (c)		30,790		30,773,750
Commonwealth Bank of Australia, 0.38%, 1/14/13 (a)		110,000		110,000,000
DNB Bank ASA, 0.32%, 8/13/12 (c)		87,000		86,966,747
Erste Abwicklungsanstalt (c):
0.58%, 10/22/12		80,000		79,854,356
0.60%, 2/06/13		100,000		99,633,333
0.60%, 2/07/13		50,000		49,815,833
0.65%, 2/25/13		40,000		39,827,389
HSBC Bank Plc, 0.51%, 11/28/12 (c)		110,000		109,766,250
Kells Funding LLC (c):
0.43%, 7/11/12		50,000		49,994,028
0.54%, 9/06/12		50,000		49,949,750
0.59%, 9/12/12		100,000		99,880,361
0.54%, 9/20/12		30,000		29,963,550
0.52%, 10/03/12		91,000		90,876,442
Mizuho Funding LLC, 0.36%, 8/01/12 (c)		125,000		124,961,250

Commercial Paper	Par (000)		Value
Mont Blanc Capital Corp. (c):
0.45%, 7/09/12	$	115,119	$	115,107,488
0.42%, 9/10/12		75,000		74,937,875
Nieuw Amsterdam Receivables Corp. (c):
0.46%, 7/09/12		30,000		29,996,933
0.45%, 7/11/12		70,000		69,991,250
Nordea North America Inc. (c):
0.61%, 8/07/12		100,000		99,937,306
0.26%, 8/16/12		50,000		49,983,708
NRW. BANK, 0.25%, 7/11/12 (c)		110,000		109,992,361
Rabobank USA Financial Corp., 0.52%, 10/18/12 (c)		100,000		99,842,556
Solitaire Funding LLC, 0.28%, 7/09/12 (c)		50,000		49,996,889
Starbird Funding Corp., 0.45%, 7/10/12 (c)		63,000		62,992,913
Surrey Funding Corp., 0.22%, 7/11/12 (c)		35,000		34,997,861
Victory Receivables Corp. (c):
0.23%, 7/02/12		75,000		74,999,500
0.20%, 7/11/12		50,000		49,997,222
0.20%, 7/12/12		160,000		159,990,222
Westpac Banking Corp.:
0.50%, 7/09/12 (c)		80,000		79,991,111
0.48%, 7/10/12 (a)		115,000		115,000,000
Total Commercial Paper — 32.6%				3,321,619,710
Corporate Notes
JPMorgan Chase Bank NA, 0.54%, 5/17/13 (a)		121,710		121,710,000
National Australia Bank Ltd., 2.50%, 1/08/13 (d)		40,650		41,061,836
Total Corporate Notes — 1.6%				162,771,836
Time Deposits
Bank of Nova Scotia, 0.11%, 7/02/12		250,000		250,000,000
Svenska Handelsbanken AB, 0.10%, 7/02/12		400,000		400,000,000
Total Time Deposits — 6.4%				650,000,000
U.S. Government Sponsored Agency Obligations
Fannie Mae Variable Rate Notes (a):
0.24%, 7/26/12		125,000		124,998,290
0.27%, 8/23/12		100,000		100,002,957
0.32%, 1/10/13		121,000		120,987,113
0.38%, 5/17/13		103,000		102,972,147
0.22%, 6/20/14		115,000		114,954,930
Federal Farm Credit Banks Variable Rate Notes, 0.16%, 6/18/13 (a)		30,000		30,000,000
Federal Home Loan Bank:
0.24%, 9/20/12		100,000		100,021,232
0.20%, 12/06/12		100,000		100,011,778
0.16%, 1/25/13		82,000		81,977,358
0.18%, 2/01/13		34,000		34,001,444
0.17%, 2/01/13		75,000		74,998,678
0.17%, 2/06/13		50,000		49,999,172
0.16%, 2/08/13		52,000		51,986,131
0.20%, 3/01/13		50,000		49,992,378
Federal Home Loan Bank Discount Notes (c):
0.16%, 11/02/12		50,000		49,972,875
0.14%, 11/30/12		156,000		155,905,676
Freddie Mac Discount Notes, 0.12%, 10/11/12 (c)		75,000		74,974,500
Freddie Mac Variable Rate Notes (a):
0.38%, 9/03/13		75,000		74,982,214
0.18%, 9/13/13		246,700		246,520,140
0.21%, 11/04/13		100,000		99,986,596
Total U.S. Government Sponsored Agency Obligations — 18.0%				1,839,245,609

See Notes to Financial Statements.

44 BLACKROCK FUNDS III JUNE 30, 2012

Schedule of Investments (concluded) Prime Money Market Master Portfolio (Percentages shown are based on Net Assets)

U.S. Treasury Obligations	Par (000)		Value
U.S. Treasury Bill (c):
0.13%, 8/23/12	$	100,000	$	99,980,861
0.14%, 9/06/12		75,000		74,980,877
0.14%, 11/08/12		40,000		39,979,778
U.S. Treasury Note:
1.38%, 10/15/12		65,000		65,239,464
1.38%, 11/15/12		100,000		100,473,267
3.38%, 11/30/12		100,000		101,346,933
1.38%, 3/15/13		88,000		88,719,539
Total U.S. Treasury Obligations — 5.6%				570,720,719
Repurchase Agreements
BNP Paribas Securities Corp., 0.19%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $250,003,958, collateralized by various U.S. government obligations, 3.50% to 4.50%, due 9/20/40 to 5/20/42, par and fair value of $276,829,479 and $255,000,001, respectively)		250,000		250,000,000
BNP Paribas Securities Corp., 0.20%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $220,003,667, collateralized by various corporate debt obligations, 0.00% to 10.18%, due 4/07/14 to 6/30/30, par and fair value of $203,219,160 and $226,600,000, respectively)		220,000		220,000,000
Credit Suisse Securities (USA) LLC, 0.78%, 8/03/12 (Purchased on 6/29/12 to be repurchased at $50,037,917, collateralized by various corporate debt obligations, 0.35% to 0.90%, due 3/15/19 to 11/25/37, par and fair value of $420,611,113 and $57,500,991, respectively)		50,000		50,000,000
Deutsche Bank Securities Inc., 0.14%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $100,001,167, collateralized by U.S. Treasury obligations, 1.25%, due 4/30/19, par and fair value of $100,306,700 and $102,000,082, respectively)		100,000		100,000,000
Deutsche Bank Securities Inc., 0.20%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $250,004,167, collateralized by various U.S. government obligations and U.S. Treasury obligations, 0.38% to 6.50%, due 4/15/15 to 7/01/41, par and fair value of $301,074,919 and $257,000,039, respectively)		250,000		250,000,000
Goldman Sachs & Co., 0.19%, 7/05/12 (Purchased on 6/29/12 to be repurchased at $125,003,958, collateralized by various U.S. government obligations, 4.00% to 5.50%, due 10/01/31 to 12/01/40, par and fair value of $262,875,143 and $127,500,001, respectively)		125,000		125,000,000
JPMorgan Securities LLC, 0.25%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $110,002,292, collateralized by various corporate debt obligations, 0.49% to 6.20%, due 3/15/19 to 12/10/49, par and fair value of $185,623,305 and $115,505,038, respectively)		110,000		110,000,000
JPMorgan Securities LLC, 0.45%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $30,001,125, collateralized by corporate debt obligations, 1.06%, due 5/15/17, par and fair value of $31,420,000 and $31,500,267, respectively)		30,000		30,000,000

Repurchase Agreements	Par (000)		Value
Morgan Stanley & Co. LLC, 0.16%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $270,256,603, collateralized by U.S. Treasury obligations, 0.63%, due 7/15/14, par and fair value of $273,256,100 and $275,658,096, respectively)	$	270,253	$	270,253,000
RBS Securities Inc., 0.17%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $90,001,275, collateralized by various U.S. government obligations, 2.52% to 4.15%, due 3/01/37 to 6/01/42, par and fair value of $111,405,404 and $91,802,659, respectively)		90,000		90,000,000
Wells Fargo Bank Co. 0.20%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $180,003,000, collateralized by various corporate debt obligations, 0.00% to 6.50%, due 9/17/12 to 6/11/50, par and fair value of $176,422,976 and $186,896,094, respectively)		180,000		180,000,000
Total Repurchase Agreements — 16.4%				1,675,253,000
Total Investments (Cost — $10,198,580,874*) — 100.0%				10,198,580,874
Other Assets in Excess of Liabilities — 0.0%				2,752,078
Net Assets — 100.0%			$	10,201,332,952

* Cost for federal income tax purposes.

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

(b) Issuer is a US branch of a foreign domiciled bank.

(c) Rates shown are discount rates or a range of discount rates at the time of purchase.

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Short-Term Securities1		—	$	10,198,580,874		—	$	10,198,580,874

¹ See above Schedule of Investments for values in each security type.

Certain of the Master Portfolio’s assets are held at carrying amount which approximates fair value for financial statement purposes. As of June 30, 2012, cash in the amount of $24,395 would be categorized as Level 1 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

BLACKROCK FUNDS III JUNE 30, 2012 45

Schedule of Investments June 30, 2012 (Unaudited) Treasury Money Market Master Portfolio (Percentages shown are based on Net Assets)

U.S. Treasury Obligations	Par (000)		Value
U.S. Treasury Bill (a):
0.13%, 8/23/12	$	45,000	$	44,991,719
0.14%, 8/30/12		25,000		24,994,167
0.15%, 9/13/12		11,600		11,596,423
0.15%, 9/20/12		40,000		39,986,500
0.14%, 10/04/12		75,676		75,647,593
0.15%, 10/11/12		25,000		24,989,375
0.13%, 10/18/12		20,000		19,992,128
0.13%, 10/25/12		65,000		64,972,531
0.15%, 11/01/12		30,000		29,985,137
0.15%, 11/15/12		35,000		34,984,968
0.15%, 11/23/12		50,000		49,970,799
0.15%, 11/29/12		40,000		39,975,672
0.13%, 12/06/12		25,000		24,985,736
0.15%, 12/20/12		50,000		49,964,167
0.15%, 12/27/12		85,000		84,936,517
0.18%, 3/07/13		14,969		14,950,381
0.19%, 5/02/13		15,000		14,976,744
0.19%, 5/30/13		5,000		4,991,212
U.S. Treasury Note:
0.38%, 8/31/12		9,000		9,003,927
1.38%, 9/15/12		12,000		12,030,200
1.38%, 10/15/12		5,000		5,017,943
1.38%, 11/15/12		9,000		9,040,090
1.38%, 3/15/13		8,000		8,065,748
0.50%, 5/31/13		5,000		5,012,488
Total U.S. Treasury Obligations — 29.0%				705,062,165
Repurchase Agreements
BNP Paribas Securities Corp., 0.13%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $277,003,001, collateralized by various U.S. Treasury obligations, 0.00% to 0.50%, due 8/30/12 to 4/30/14, par and fair value of $282,475,200 and $282,542,779, respectively)		277,000		277,000,000
Citigroup Global Markets Inc., 0.16%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $242,003,227, collateralized by U.S. Treasury obligations, 6.63%, due 2/15/27, par and fair value of $153,745,500 and $246,840,052, respectively)		242,000		242,000,000
Credit Suisse Securities (USA) LLC, 0.15%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $111,001,388, collateralized by U.S. Treasury obligations, 2.50%, due 3/31/15, par and fair value of $106,425,000 and $113,223,172, respectively)		111,000		111,000,000
Deutsche Bank Securities Inc., 0.14%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $100,001,167, collateralized by various U.S. Treasury obligations, 0.00% to 3.13%, due 8/23/12 to 8/31/13, par and fair value of $100,032,100 and $102,000,046, respectively)		100,000		100,000,000
HSBC Securities (USA) Inc., 0.15%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $155,001,938, collateralized by various U.S. Treasury obligations, 2.38% to 4.50%, due 8/31/13 to 5/15/38, par and fair value of $141,983,400 and $158,105,535, respectively)		155,000		155,000,000
JPMorgan Securities LLC, 0.14%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $100,001,167, collateralized by various U.S. Treasury obligations, 1.38% to 8.75%, due 11/15/12 to 8/15/40, par and fair value of $79,436,900 and $102,001,238, respectively)		100,000		100,000,000

Repurchase Agreements	Par (000)		Value
Merrill Lynch, Pierce, Fenner & Smith Inc., 0.15%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $125,001,563, collateralized by U.S. Treasury obligations, 0.00%, due 4/04/13, par and fair value of $127,678,200 and $127,500,089, respectively)	$	125,000	$	125,000,000
Morgan Stanley & Co. LLC, 0.16%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $407,299,431, collateralized by various U.S. Treasury obligations, 0.63% to 7.13%, due 11/30/13 to 2/15/23, par and fair value of $396,445,800 and $415,439,973, respectively)		407,294		407,294,000
RBS Securities Inc., 0.15%, 7/02/12 (Purchased on 6/29/12 to be repurchased at $207,002,588, collateralized by U.S. Treasury obligations, 3.13%, 5/15/21, par and fair value of $183,705,000 and $211,145,270, respectively)		207,000		207,000,000
Total Repurchase Agreements — 71.0%				1,724,294,000
Total Investments (Cost — $2,429,356,165*) — 100.0%				2,429,356,165
Liabilities in Excess of Other Assets — (0.0)%				(620	)
Net Assets — 100.0%			$	2,429,355,545

* Cost for federal income tax purposes.

(a) Rates shown are discount rates or a range of discount rates at the time of purchase.

Ÿ Fair Value Measurements — Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a disclosure hierarchy consisting of three broad levels for financial reporting 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)

Changes in valuation techniques may result in transfers into or out of an assigned level within the disclosure hierarchy. In accordance with the Master Portfolio’s policy, transfers between different levels of the fair value disclosure hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with 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 Master Portfolio’s investments categorized in the disclosure hierarchy as of June 30, 2012:

	Level 1		Level 2		Level 3		Total
Assets:
Investments:
Short-Term Secu rities1		—	$	2,429,356,165		—	$	2,429,356,165

¹  See above Schedule of Investments for values in each security type.

Certain of the Master Portfolio’s assets are held at carrying amount which approximates fair value for financial statement purposes. As of June 30, 2012, cash in the amount of $1,577 would be categorized as Level 1 within the disclosure hierarchy.

There were no transfers between levels during the period ended June 30, 2012.

See Notes to Financial Statements.

46 BLACKROCK FUNDS III JUNE 30, 2012

Statements of Assets and Liabilities Master Investment Portfolio

June 30, 2012 (Unaudited)	Government Money Market Master Portfolio		Money Market Master Portfolio		Prime Money Market Master Portfolio		Treasury Money Market Master Portfolio
Assets
Investments at value — unaffiliated1		—	$	29,668,001,226	$	8,523,327,874	$	705,062,165
Repurchase agreements — unaffiliated2	$	6,137,000		7,744,970,000		1,675,253,000		1,724,294,000
Investments sold receivable		—		199,990,000		—		—
Contributions receivable from investors		2		438		8,199		—
Cash		625		2,050		24,395		1,577
Interest receivable		56		12,348,797		3,406,227		138,684
Receivable from advisor		1,054		—		—		—
Total assets		6,138,737		37,625,312,511		10,202,019,695		2,429,496,426
Liabilities
Investment advisory fees payable		—		2,130,607		622,463		120,445
Professional fees payable		9,130		50,945		27,017		14,366
Trustees’ fees payable		445		89,528		37,263		6,070
Total liabilities		9,575		2,271,080		686,743		140,881
Net Assets	$	6,129,162	$	37,623,041,431	$	10,201,332,952	$	2,429,355,545
Net Assets Consist of
Investors’ capital	$	6,129,162	$	37,623,041,431	$	10,201,332,952	$	2,429,355,545
1 Investments at cost — unaffiliated		—	$	29,668,001,226	$	8,523,327,874	$	705,062,165
2 Repurchase agreements at cost — unaffiliated	$	6,137,000	$	7,744,970,000	$	1,675,253,000	$	1,724,294,000

Statements of Operations Master Investment Portfolio

Six Months Ended June 30, 2012 (Unaudited)	Government Money Market Master Portfolio			Money Market Master Portfolio			Prime Money Market Master Portfolio			Treasury Money Market Master Portfolio
Investment Income
Income	$	7,117		$	59,372,992		$	17,306,836		$	1,096,882
Total income		7,117			59,372,992			17,306,836			1,096,882
Expenses
Investment advisory		4,948			17,771,602			5,412,677			841,707
Professional		8,073			36,306			20,650			11,936
Independent Trustees		1,482			172,232			60,518			11,208
Total expenses		14,503			17,980,140			5,493,845			864,851
Less fees waived by advisor		(11,136	)		(5,540,019	)		(1,704,971	)		(284,621	)
Total expenses after fees waived		3,367			12,440,121			3,788,874			580,230
Net investment income		3,750			46,932,871			13,517,962			516,652
Realized Gain
Net realized gain from investments		—			912,542			623,399			19,586
Net Increase in Net Assets Resulting from Operations	$	3,750		$	47,845,413		$	14,141,361		$	536,238

See Notes to Financial Statements.
	BLACKROCK FUNDS III	JUNE 30, 2012	47

Statements of Changes in Net Assets Master Investment Portfolio

	Government Money Market Master Portfolio						Money Market Master Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	3,750		$	101,405		$	46,932,871		$	60,329,486
Net realized gain		—			—			912,542			1,791,140
Net increase in net assets resulting from operations		3,750			101,405			47,845,413			62,120,626
Capital Transactions
Proceeds from contributions		20,294,322			1,348,250,366			35,304,682,955			52,848,164,282
Value of withdrawals		(24,523,716	)		(1,364,470,587	)		(26,257,533,486	)		(44,389,795,004	)
Net increase (decrease) in net assets derived from capital transactions		(4,229,394	)		(16,220,221	)		9,047,149,469			8,458,369,278
Net Assets
Total increase (decrease) in net assets		(4,225,644	)		(16,118,816	)		9,094,994,882			8,520,489,904
Beginning of period		10,354,806			26,473,622			28,528,046,549			20,007,556,645
End of period	$	6,129,162		$	10,354,806		$	37,623,041,431		$	28,528,046,549
	Prime Money Market Master Portfolio						Treasury Money Market Master Portfolio
Increase (Decrease) in Net Assets:	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011			Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31, 2011
Operations
Net investment income	$	13,517,962		$	22,972,083		$	516,652		$	551,263
Net realized gain		623,399			1,678,063			19,586			34,809
Net increase in net assets resulting from operations		14,141,361			24,650,146			536,238			586,072
Capital Transactions
Proceeds from contributions		26,169,936,615			47,593,540,246			10,000,720,294			18,466,639,450
Value of withdrawals		(26,715,042,255	)		(46,956,950,307	)		(9,174,368,828	)		(19,065,391,442	)
Net increase (decrease) in net assets derived from capital transactions		(545,105,640	)		636,589,939			826,351,466			(598,751,992	)
Net Assets
Total increase (decrease) in net assets		(530,964,279	)		661,240,085			826,887,704			(598,165,920	)
Beginning of period		10,732,297,231			10,071,057,146			1,602,467,841			2,200,633,761
End of period	$	10,201,332,952		$	10,732,297,231		$	2,429,355,545		$	1,602,467,841

See Notes to Financial Statements.
48	BLACKROCK FUNDS III	JUNE 30, 2012

Financial Highlights Master Investment Portfolio

	Government Money Market Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011		2010		2009		2008			2007
Total Investment Return
Total investment return		0.05%	1		0.08%		0.13%		0.12%		1.99%			5.20%
Ratios to Average Net Assets
Total expenses		0.29%	2		0.12%		0.11%		0.10%		0.10%			0.12%
Total expenses after fees waived		0.07%	2		0.07%		0.02%		0.05%		0.05%			0.07%
Net investment income		0.08%	2		0.09%		0.11%		0.12%		0.59%			4.93%
Supplemental Data
Net assets, end of period (000)	$	6,129		$	10,355	$	26,474	$	656,444	$	1,717,936		$	107,835
	Money Market Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011		2010		2009		2008			2007
Total Investment Return
Total investment return		0.14%	1		0.23%		0.27%		0.48%		2.90%	3		5.40%
Ratios to Average Net Assets
Total expenses		0.10%	2		0.10%		0.10%		0.10%		0.10%			0.10%
Total expenses after fees waived		0.07%	2		0.07%		0.07%		0.07%		0.07%			0.07%
Net investment income		0.26%	2		0.22%		0.26%		0.48%		2.88%			5.23%
Supplemental Data
Net assets, end of period (000)	$	37,623,041		$	28,528,047	$	20,007,557	$	21,134,748	$	22,488,961		$	31,492,404

¹  Aggregate total investment return.

²  Annualized.

³  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	JUNE 30, 2012	49

Financial Highlights (concluded) Master Investment Portfolio

	Prime Money Market Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011		2010		2009		2008			2007
Total Investment Return
Total investment return		0.13%	1		0.21%		0.25%		0.37%		2.88%	2		5.37%
Ratios to Average Net Assets
Total expenses		0.10%	3		0.10%		0.10%		0.10%		0.10%			0.10%
Total expenses after fees waived		0.07%	3		0.07%		0.07%		0.07%		0.06%			0.07%
Net investment income		0.25%	3		0.21%		0.25%		0.41%		2.77%			5.23%
Supplemental Data
Net assets, end of period (000)	$	10,201,333		$	10,732,297	$	10,071,057	$	12,208,516	$	16,570,735		$	11,022,281
	Treasury Money Market Master Portfolio
	Six Months Ended June 30, 2012 (Unaudited)			Year Ended December 31,
				2011		2010		2009		2008			2007
Total Investment Return
Total investment return		0.04%	1		0.09%		0.13%		0.11%		1.64%			4.98%
Ratios to Average Net Assets
Total expenses		0.10%	3		0.10%		0.10%		0.10%		0.10%			0.12%
Total expenses after fees waived		0.07%	3		0.06%		0.06%		0.05%		0.02%			0.01%
Net investment income		0.06%	3		0.03%		0.13%		0.10%		0.48%			4.81%
Supplemental Data
Net assets, end of period (000)	$	2,429,356		$	1,602,468	$	2,200,634	$	4,288,938	$	1,650,804		$	203,422

¹  Aggregate total investment return.

²  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%.

³  Annualized.

See Notes to Financial Statements.
50	BLACKROCK FUNDS III	JUNE 30, 2012

Notes to Financial Statements (Unaudited) 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 of discounts and amortization of 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. 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 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.

Recent Accounting Standard: In December 2011, the Financial Accounting Standards Board issued guidance that will expand 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 or similar agreements which are eligible for offset in the Statements of Assets and Liabilities and will require an entity to disclose both gross and net information about such investments and transactions in the financial statements. 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 each Master Portfolio’s 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. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. (“PNC”) is the largest stockholder and an affiliate, for 1940 Act purposes, of BlackRock, Inc. (“BlackRock”).

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 and administration 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 at an annual rate of 0.10% of the average daily

BLACKROCK FUNDS III JUNE 30, 2012 51

Notes to Financial Statements (concluded) Master Investment Portfolio

value of the Master Portfolio’s net assets. BFA has contractually agreed to waive 0.03% of its investment advisory fees through April 30, 2013. BFA 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. BFA may discontinue the voluntary waiver at anytime. For the six months ended June 30, 2012, the amounts included in fees waived by advisor in the Statements of Operations are as follows:

Government Money Market Master Portfolio	$	1,581
Money Market Master Portfolio	$	5,331,481
Prime Money Market Master Portfolio	$	1,623,803
Treasury Money Market Master Portfolio	$	261,477

The fees and expenses of 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 Portfolios. BFA has contractually agreed to cap the expenses of the Master Portfolios at the rate at which the Master Portfolios pay an advisory fee to BFA by providing an offsetting credit against the investment advisory fees paid by the Master Portfolios in an amount equal to the independent expenses. These contractual waivers are effective through April 30, 2013. The amounts waived are included in fees waived by advisor in the Statements of Operations. For the six months ended June 30, 2012, such waiver amounts are as follows:

Government Money Market Master Portfolio	$	9,555
Money Market Master Portfolio	$	208,538
Prime Money Market Master Portfolio	$	81,168
Treasury Money Market Master Portfolio	$	23,144

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 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 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. Borrowings:

The Master Portfolios, along with certain other funds managed by the Manager and its affiliates, is a party to a $500 million credit agreement with a group of lenders. Each Master Portfolio may borrow under the credit agreement to fund shareholder redemptions. Effective November

2011 to November 2012, the credit agreement has the following terms: a commitment fee of 0.065% per annum based on each Master Portfolio’s pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR plus 0.80% per annum or (b) the Fed Funds rate plus 0.80% per annum on amounts borrowed. In addition, administration and arrangement fees were allocated to the Master Portfolios based on its net assets as of October 31, 2011. The Master Portfolios’ commitment, administration and arrangement fees were paid by the investment advisor. The Master Portfolios did not borrow under the credit agreement during the six months ended June 30, 2012.

4. 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 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 Portfolios.

5. 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.

52 BLACKROCK FUNDS III JUNE 30, 2012

Disclosure of Investment Advisory Agreement

The Board of Trustees of Master Investment Portfolio (the “Master Fund”) met on April 17, 2012 and May 15-16, 2012 to consider the approval of the Master Fund’s investment advisory agreement (the “Agreement”) with BlackRock Fund Advisors (“BlackRock”), the Master Fund’s investment advisor, on behalf of Money Market Master Portfolio, Prime Money Market Master Portfolio, Government Money Market Master Portfolio and Treasury Money Market Master Portfolio (each, a “Master Portfolio” and collectively, the “Master Portfolios”), each a series of the Master Fund. Each of BlackRock Cash Funds: Institutional, BlackRock Cash Funds: Prime, BlackRock Cash Funds: Government and BlackRock Cash Funds: Treasury (each, a “Portfolio” and collectively, the “Portfolios”), each a series of BlackRock Funds III (the “Fund”), is a “feeder” fund that invests all of its investable assets in the corresponding Master Portfolio. Accordingly, the Board of Trustees of the Fund also considered the approval of the Agreement with respect to each Master Portfolio. For simplicity, the Board of Trustees of the Master Fund and the Board of Trustees of the Fund are referred to herein collectively as the “Board,” and the members are referred to as “Board Members.”

Activities and Composition of the Board

The Board consists of fourteen individuals, twelve of whom are not “interested persons” of the Master Fund or the Fund as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of the Master Fund or the Fund, as pertinent, and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Co-Chairs of the Board are each Independent Board Members. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight and Contract Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Executive Committee, which also has one interested Board Member).

The Agreement

Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreement on an annual basis. The Board has four quarterly meetings per year, each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreement. In connection with this process, the Board assessed, among other things, the nature, scope and quality of the services provided to the Master Portfolios and the Portfolios by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and assistance in meeting applicable legal and regulatory requirements.

The Board, acting directly and through its committees, considers at each of its meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreement, including the services and support provided by BlackRock to the Master Portfolios, the Portfolios and their shareholders. Among the matters the

Board considered were: (a) investment performance for one-, three- and five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior management’s and portfolio managers’ analysis of the reasons for any over performance or underperformance against its peers and/or benchmark, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by the Master Portfolios and/or the Portfolios for services, such as marketing and distribution, call center and fund accounting; (c) the Master Portfolios’ and/or the Portfolios’ operating expenses and how BlackRock allocates expenses to the Master Portfolios and the Portfolios; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation of the Master Portfolios’ and the Portfolios’ investment objective, policies and restrictions; (e) the Master Fund’s and the Fund’s compliance with its respective Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management services provided by BlackRock and its affiliates; (g) BlackRock’s and other service providers’ internal controls and risk and compliance oversight mechanisms; (h) BlackRock’s implementation of the proxy voting policies approved by the Board; (i) execution quality of portfolio transactions; (j) BlackRock’s implementation of the Master Fund’s and/or the Fund’s valuation and liquidity procedures; (k) an analysis of management fees for products with similar investment objectives across the open-end fund, exchange traded fund (“ETF”), closed-end fund and institutional account product channels, as applicable; (l) BlackRock’s compensation methodology for its investment professionals and the incentives it creates; and (m) periodic updates on BlackRock’s business.

The Board has engaged in an ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRock’s commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers’ investments in the funds they manage; (iii) BlackRock’s controls surrounding the coding of quantitative investment models; and (iv) BlackRock’s oversight of relationships with third party service providers.

Board Considerations in Approving the Agreement

The Approval Process: Prior to the April 17, 2012 meeting, the Board requested and received materials specifically relating to the Agreement. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the information provided to better assist its deliberations. The materials provided in connection with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (“Lipper”) on fees and expenses of each Master Portfolio and Portfolio, as applicable, and the investment performance of each Portfolio as compared with a peer group of funds as determined by Lipper (collectively, “Peers”); (b) information on the profitability of the Agreement to BlackRock and a discussion of fall-out benefits to BlackRock and its affiliates; (c) a general analysis provided by

BLACKROCK FUNDS III JUNE 30, 2012 53

Disclosure of Investment Advisory Agreement (continued)

BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of economies of scale; (e) a summary of aggregate amounts paid by each Master Portfolio and/or Portfolio to BlackRock; (f) sales and redemption data regarding each Portfolio’s shares; and (g) if applicable, a comparison of management fees to similar BlackRock open-end funds, as classified by Lipper.

At an in-person meeting held on April 17, 2012, the Board reviewed materials relating to its consideration of the Agreement. As a result of the discussions that occurred during the April 17, 2012 meeting, and as a culmination of the Board’s year-long deliberative process, the Board presented BlackRock with questions and requests for additional information. BlackRock responded to these requests with additional written information in advance of the May 15-16, 2012 Board meeting.

At an in-person meeting held on May 15-16, 2012, the Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund with respect to each Master Portfolio for a one-year term ending June 30, 2013. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement and found the Agreement to be satisfactory. In approving the continuation of the Agreement, the Board of the Master Fund considered: (a) the nature, extent and quality of the services provided by BlackRock; (b) the investment performance of each Master Portfolio, each Portfolio and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with the Master Portfolios and the Portfolios; (d) economies of scale; (e) fall-out benefits to BlackRock as a result of its relationship with the Master Portfolios and the Portfolios; and (f) other factors deemed relevant by the Board Members.

The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to the distribution of Portfolio shares and securities lending, services related to the valuation and pricing of portfolio holdings of each Master Portfolio, direct and indirect benefits to BlackRock and its affiliates from their relationship with the Master Portfolios and the Portfolios and advice from independent legal counsel with respect to the review process and materials submitted for the Board’s review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member may have attributed different weights to the various items considered.

A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board, including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of each Portfolio. Throughout the year, the Board compared Portfolio performance to the performance of a comparable group of mutual funds and/or the

performance of a relevant benchmark, if any. The Board met with BlackRock’s senior management personnel responsible for investment operations, including the senior investment officers. The Board also reviewed the materials provided by the portfolio management team discussing Master Portfolio performance and each Master Portfolio’s investment objective, strategies and outlook.

The Board considered, among other factors, the number, education and experience of BlackRock’s investment personnel generally and each Master Portfolio’s portfolio management team, investments by portfolio managers in the funds they manage, BlackRock’s portfolio trading capabilities, BlackRock’s use of technology, BlackRock’s commitment to compliance, BlackRock’s credit analysis capabilities, BlackRock’s risk analysis and oversight capabilities and BlackRock’s approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board engaged in a review of BlackRock’s compensation structure with respect to each Master Portfolio’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives.

In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory services provided to each Master Portfolio and the Portfolio. BlackRock and its affiliates provide the Master Portfolios and the Portfolios with certain administrative, shareholder and other services (in addition to any such services provided to the Master Portfolios and the Portfolios by third parties) and officers and other personnel as are necessary for the operations of the Master Portfolios and the Portfolios. In particular, BlackRock and its affiliates provide the Master Portfolios and the Portfolios with the following administrative services, including, among others: (i) preparing disclosure documents, such as the prospectus, the statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions necessary for the operation of the Master Portfolios and the Portfolios, such as tax reporting, fulfilling regulatory filing requirements and call center services. The Board reviewed the structure and duties of BlackRock’s fund administration, accounting, legal and compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.

B. The Investment Performance of the Master Portfolios, the Portfolios and BlackRock: The Board, including the Independent Board Members, also reviewed and considered the performance history of each Master Portfolio and Portfolio, as applicable. The Board noted that each Master Portfolio’s investment results correspond directly to the investment results of the applicable Portfolio. In preparation for the April 17, 2012 meeting, the Board worked with its independent counsel, BlackRock and Lipper to develop a template for, and was provided with, reports independently prepared by Lipper, which included a comprehensive analysis of each Portfolio’s performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors that affect Lipper’s rankings. In connection with its review, the Board received and reviewed information regarding the

54 BLACKROCK FUNDS III JUNE 30, 2012

Disclosure of Investment Advisory Agreement (continued)

investment performance of each Portfolio as compared to funds in the Portfolio’s applicable Lipper category. The Board was provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Board’s Performance Oversight and Contract Committee regularly review, and meet with Master Portfolio management to discuss, the performance of each Master Portfolio and Portfolio, as applicable, throughout the year.

The Board noted that, in general, each of BlackRock Cash Funds: Institutional, BlackRock Cash Funds: Prime and BlackRock Cash Funds: Treasury performed better than its Peers in that the Portfolio’s performance was at or above the median of its Lipper Performance Universe in each of the one-, three- and five-year periods reported.

The Board noted that BlackRock Cash Funds: Government performed below the median of its Lipper Performance Universe in the three- and five-year periods reported, but that the Portfolio performed at or above the median of its Lipper Performance Universe in the one-year period reported. The Board and BlackRock reviewed and discussed the reasons for the Portfolio’s underperformance during the three- and five-year periods compared with its Peers. The Board was informed that, among other things, due to the modest portfolio size and inherent volatility of the shareholder base, the Portfolio has consistently taken minimal interest rate risk by investing in short-dated repo contracts collateralized by agency mortgage securities. Given the general existence of a positively sloped yield curve since the Portfolio’s inception, the conservative positioning of the Portfolio has contributed to the relative underperformance.

The Board and BlackRock discussed BlackRock’s strategy for improving the Master Portfolio’s/Portfolio’s performance and BlackRock’s commitment to providing the resources necessary to assist the Master Portfolio’s portfolio managers and to improve the Master Portfolio’s/Portfolio’s performance.

C. Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Master Portfolios and the Portfolios: The Board, including the Independent Board Members, reviewed each Master Portfolio’s contractual advisory fee rate compared with the other funds in the Portfolio’s Lipper category. It also compared each Portfolio’s total expense ratio, as well as the Master Portfolio’s actual advisory fee rate, to those of other funds in the Portfolio’s Lipper category. The Board considered the services provided and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.

The Board received and reviewed statements relating to BlackRock’s financial condition and profitability with respect to the services it provided each Master Portfolio and Portfolio. The Board was also provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the Master Portfolios and the Portfolios. The Board reviewed BlackRock’s profitability with respect to each Master Portfolio and Portfolio, as applicable, and other funds the Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years

ended December 31, 2010 and December 31, 2009. The Board reviewed BlackRock’s profitability with respect to other fund complexes managed by BlackRock and/or its affiliates. The Board reviewed BlackRock’s assumptions and methodology of allocating expenses in the profitability analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the Manager, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.

The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRock’s operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third party data comparing BlackRock’s operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock, BlackRock’s expense management and the relative product mix.

In addition, the Board considered the cost of the services provided to the Master Portfolios and the Portfolios by BlackRock, and BlackRock’s and its affiliates’ profits relating to the management and distribution of the Master Portfolios and the Portfolios and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRock’s methodology in allocating its costs to the management of the Master Portfolios and the Portfolios. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its obligations under the Agreement and to continue to provide the high quality of services that is expected by the Board.

The Board noted that the contractual advisory fee ratio of each Master Portfolio was lower than or equal to the median contractual advisory fee ratio paid by the corresponding Portfolio’s Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted that BlackRock has contractually agreed to waive a portion of the advisory fees for each Master Portfolio and that BlackRock and its affiliates have agreed to provide an offsetting credit against certain expenses incurred by each Master Portfolio and Portfolio. BlackRock and each Portfolio’s administrator have voluntarily agreed to waive a portion of their respective fees and/or reimburse operating expenses to enable each Portfolio and corresponding Master Portfolio to maintain minimum levels of daily net investment income. This waiver and/or reimbursement may be discontinued at any time without notice.

D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Master Portfolios and the Portfolios increase, as well as the existence of expense caps. The Board also considered the extent to which the Master Portfolios and the Portfolios benefit from such economies and whether there should be changes in the advisory fee rate

BLACKROCK FUNDS III JUNE 30, 2012 55

Disclosure of Investment Advisory Agreement (concluded)

or structure in order to enable the Master Portfolios and the Portfolios to participate in these economies of scale, for example through the use of breakpoints in the advisory fee based upon the asset level of the pertinent Master Portfolio. In its consideration, the Board took into account the existence of expense caps and further considered the continuation and/or implementation, as applicable, of such caps.

E. Other Factors Deemed Relevant by the Board Members: The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from their respective relationships with the Master Portfolios and the Portfolios, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Master Portfolios and the Portfolios, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRock’s funds in ETFs without any offset against the management fees payable by the funds to BlackRock.

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

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

Conclusion

The Board of the Master Fund, including all the Independent Board Members, unanimously approved the continuation of the Agreement between BlackRock and the Master Fund with respect to each Master Portfolio, for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board of the Master Fund, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of each Master Portfolio and its shareholders. The Board of the Fund, including the Independent Board Members, also considered the continuation of the Agreement with respect to each Master Portfolio and found the Agreement to be satisfactory. In arriving at its decision to approve the Agreement, the Board of the Master Fund did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The contractual fee arrangements for the Master Portfolios reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the Board Members’ conclusions may be based in part on their consideration of these arrangements in prior years.

56 BLACKROCK FUNDS III JUNE 30, 2012

Officers and Trustees

Ronald W. Forbes, Co-Chair of the Board and Trustee

Rodney D. Johnson, Co-Chair of the Board and Trustee

David O. Beim, Trustee

Dr. Matina S. Horner, Trustee

Herbert I. London, Trustee

Ian A. MacKinnon, Trustee¹

Cynthia A. Montgomery, Trustee

Joseph P. Platt, Trustee

Robert C. Robb, Jr., Trustee

Toby Rosenblatt, Trustee

Kenneth L. Urish, Trustee

Frederick W. Winter, Trustee

Paul L. Audet, Trustee

Henry Gabbay, Trustee

John M. Perlowski, President and Chief Executive Officer

Richard Hoerner, CFA, Vice President

Brendan Kyne, Vice President

Simon Mendelson, Vice President

Christopher Stavrakos, CFA, Vice President

Neal Andrews, Chief Financial Officer

Jay Fife, Treasurer

Brian Kindelan, Chief Compliance Officer and Anti-Money Laundering Officer

Benjamin Archibald, Secretary²

¹  Effective May 14, 2012, Ian A. MacKinnon became a Director of the Trust/MIP.

²  Effective May 16, 2012, Ira P. Shapiro resigned as Secretary of the Trust/MIP and Benjamin Archibald became Secretary of the Trust/MIP.

Investment Advisor

BlackRock Fund Advisors

San Francisco, CA 94105

Administrator

BlackRock Advisors LLC

Wilmington, DE 19809

Custodian, Transfer Agent and 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 Trust/MIP

400 Howard Street

San Francisco, CA 94105

BLACKROCK FUNDS III JUNE 30, 2012 57

Additional Information

General Information

Electronic Delivery

Electronic copies of most financial reports and prospectuses are available on the Funds’ websites or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Funds’ electronic delivery program.

To enroll:

Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:

Please contact your financial advisor. Please note that not all investment advisors, banks or brokerages may offer this service.

Shareholders Who Hold Accounts Directly with BlackRock:

1) Access the BlackRock website at

http://www.blackrock.com/edelivery

2) Select “eDelivery” under the “More Information” section

3) Log into your account

Householding

The Funds will mail only one copy of shareholder documents, including prospectuses [open end only], annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the

mailing of these documents to be combined with those for other members of your household, please call the Funds at (800) 441-7762.

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

Automatic Investment Plans

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

Systematic Withdrawal Plans

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

Retirement Plans

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

58 BLACKROCK FUNDS III JUNE 30, 2012

Additional Information (concluded)

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 JUNE 30, 2012 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.

# MMF4-6/12-SAR

Item 2 –	Code of Ethics – Not Applicable to this semi-annual report
Item 3 –	Audit Committee Financial Expert – Not Applicable to this semi-annual report
Item 4 –	Principal Accountant Fees and Services – Not Applicable to this semi-annual report
Item 5 –	Audit Committee of Listed Registrants – Not Applicable
Item 6 –	Investments
	(a) The registrants’ Schedules of Investments are included as part of the Report to Stockholders filed under Item 1 of this Form. (b) Not Applicable due to no such divestments during the semi-annual period covered since the previous Form N-CSR filing.
Item 7 –	Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – Not Applicable
Item 8 –	Portfolio Managers of Closed-End Management Investment Companies – Not Applicable
Item 9 –	Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers – Not Applicable
Item 10 –	Submission of Matters to a Vote of Security Holders – There have been no material changes to these procedures.
Item 11 –	Controls and Procedures
	(a) – The 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.
	(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
	(a)(1) – Code of Ethics – Not Applicable to this semi-annual report
	(a)(2) – Certifications – Attached hereto
	(a)(3) – Not Applicable
	(b) – Certifications – Attached hereto

3

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: September 4, 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: September 4, 2012

By:	/s/ Neal J. Andrews
	Neal J. Andrews
	Chief Financial Officer (principal financial officer) of BlackRock Funds III and Master Investment Portfolio

Date: September 4, 2012

4