ANNUAL REPORT. BlackRock Funds III BlackRock Cash Funds: Institutional BlackRock Cash Funds: Prime BlackRock Cash Funds: Treasury DECEMBER 31, 2016

Transcription

1 DECEMBER 31, 2016 ANNUAL REPORT BlackRock Funds III BlackRock Cash Funds: Institutional BlackRock Cash Funds: Prime BlackRock Cash Funds: Treasury Not FDIC Insured May Lose Value No Bank Guarantee

2 Table of Contents TheMarketsinReview... 3 Annual Report: MoneyMarketOverview... 4 Fund Information... 5 DisclosureofExpenses... 6 Fund Financial Statements: Statements of Assets and Liabilities... 7 StatementsofOperations... 8 Statements of Changes in Net Assets... 9 Fund Financial Highlights Fund Notes to Financial Statements Fund Report of Independent Registered Public Accounting Firm Important Tax Information Master Portfolio Information Master Portfolio Financial Statements: SchedulesofInvestments Statements of Assets and Liabilities StatementsofOperations Statements of Changes in Net Assets Master Portfolio Financial Highlights Master Portfolio Notes to Financial Statements Master Portfolio Report of Independent Registered Public Accounting Firm OfficersandTrustees Additional Information Page 2 BLACKROCK FUNDS III DECEMBER 31, 2016

3 The Markets in Review Dear Shareholder, The year 2016 started on a fraught note with worries about slowing growth in China, plunging oil prices and sliding share prices. Then reflationary expectations in the United States helped drive a second-half global growth pick-up and big market reversals. As such, higher-quality asset classes such as Treasury bonds, municipals and investment grade credit prevailed in the first half of the year, only to struggle in the second. In contrast, risk assets sold off at the start of the year and rebounded in the latter half, with some asset classes posting strong year-end returns. A key takeaway from 2016 s market performance is that economics can trump politics. The global reflationary theme governments taking policy action to support growth was the dominant driver of 2016 asset returns, outweighing significant political upheavals and uncertainty. This trend accelerated after the U.S. election on expectations for an extra boost to U.S. growth via fiscal policy. Markets were remarkably resilient during the year. Spikes in equity volatility after big surprises such as the U.K. s vote to leave the European Union and the outcome of the U.S. presidential election were short-lived. Instead, political surprises and initial sell-offs were seized upon as buying opportunities. We believe this reinforces the case for taking the long view rather than reacting to short-term market noise. Asset returns varied widely in Perceived safe assets such as government bonds and lowvolatility shares underperformed the higher-risk areas of the market. And the reversal of longstanding trends created opportunities, such as in the recovery of value stocks and commodities. We expect some of these trends to extend into 2017 and see the potential for more flows into risk assets this year. Learn more by reading our market insights at blackrock.com. Sincerely, Rob Kapito President, BlackRock Advisors, LLC Total Returns as of December 31, 2016 U.S. large cap equities (S&P 500 Index) U.S. small cap equities (Russell 2000 Index) International equities (MSCI Europe, Australasia, Far East Index) Emerging market equities (MSCI Emerging Markets Index) 3-month Treasury bills (BofA Merrill Lynch 3-Month U.S. Treasury Bill Index) 6-month 12-month 7.82% 11.96% Rob Kapito President, BlackRock Advisors, LLC U.S. Treasury securities (BofA Merrill Lynch 10-Year U.S. Treasury Index) U.S. investment grade bonds (Bloomberg Barclays U.S. Aggregate Bond Index) Tax-exempt municipal bonds (S&P Municipal Bond Index) U.S. high yield bonds (Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index) (7.51) (0.16) (2.53) 2.65 (3.43) 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

4 Money Market Overview For the 12-Month Period Ended December 31, 2016 After seven years of near-zero interest rate policy, the Federal Open Market Committee (the FOMC ) in a unanimous decision raised the target range for the federal funds rate by 25 basis points (0.25%) to % at its December 2015 meeting. The FOMC was clear in its expectation that the future removal of monetary accommodation would likely be gradual and dependent on incoming data. Following broader financial market turmoil in early 2016, the FOMC left rates unchanged for the majority of the year. In late June the United Kingdom voted to leave the European Union. This led markets to factor in expectations that the FOMC would not resume its course of raising interest rates before Markets further reflected that investors anticipated the Bank of England and European Central Bank would turn more accommodative. Additionally, major credit rating agencies generally viewed the result of the leave decision unfavorably, assigning or maintaining a negative outlook on the United Kingdom, and in certain cases, downgrading the nation s long-term credit rating by as much as two notches to AA. October 14, 2016 represented the final compliance date of the SEC s Rule 2a-7 money market reform, marking the completion of an effort that began over two years ago. While the movement of assets to government money market funds from prime funds was substantial at approximately $1 trillion since these reforms were announced, the defensive positioning of prime funds ensured that the process remained manageable. At the same time, fears that government money market funds would be unable to accommodate the large shift in assets were put to rest, in part due to increased issuance of treasury bills and higher-than-usual utilization of the Federal Reserve Bank of New York s Reverse Repo Program. After leaving rates unchanged for the majority of the year the FOMC, at its December 14, 2016 meeting, announced a 0.25% increase in the target range for the federal funds rate to 0.50%--0.75%. The decision to raise interest rates was unanimous, and widely expected. This was the first rate hike since December 2015 and only the second to occur in the United States since the global financial crisis which contributed to a prolonged period of near-zero interest rates. This further reduction in monetary accommodation is demonstrative of the FOMC s conviction that the economy is on an upward trajectory. The FOMC continues to believe that the risks to the economic outlook in the near term are roughly balanced. Despite the nudging up of interest rates, the FOMC acknowledged that monetary policy remains accommodative. The London Interbank Offered Rate ( LIBOR ) moved higher over the period in response to both speculation of another possible rate hike from the FOMC as well as money market reform, which created a shift in assets away from credit products into government products. The benchmark three-month LIBOR ended the period at 0.85% (rising over 20 basis points from the 0.63% March 31 level), which is over 50 basis points higher than it had been at the beginning of the year. Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index. 4 BLACKROCK FUNDS III DECEMBER 31, 2016

5 Fund Information as of December 31, 2016 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 AonCaptives % 0.76% Select % 0.90% SLAgency % 0.89% 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 % 0.59% Institutional % 0.57% Premium % 0.52% BlackRock Cash Funds: Treasury BlackRock Cash Funds: Treasury s (the Fund ) investment objective is to seek current income consistent with liquidity and stability of principal. 7-Day SEC Yield 7-Day Yield Institutional % 0.41% SLAgency % 0.44% 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. On May 19, 2016, the Board of Trustees approved the designation of each of BlackRock Cash Funds: Institutional, BlackRock Cash Funds: Prime and their corresponding Master Portfolios as a money market fund that does not qualify as a government money market fund or as a retail money market fund under Rule 2a-7 under the Investment Company Act of 1940, as amended (each an Institutional Money Market Fund ). This designation became effective October 11, Institutional Money Market Funds will no longer value their investments under the amortized cost method and will be required to price and transact in their shares at a NAV per share reflecting market-based values of their portfolio holdings (i.e., at a floating NAV). The NAV of certain Institutional Money Market Funds may be priced multiple times each day such Fund accepts purchase orders and redemption requests. The Boards of the Institutional Money Market Funds will be permitted to impose a liquidity fee of up to 2% on the value of shares redeemed or temporarily restrict redemptions from each Institutional Money Market Fund for up to 10 business days during a 90 day period, in the event that such Institutional Money Market Fund s weekly liquid assets fall below certain thresholds. BLACKROCK FUNDS III DECEMBER 31,

6 Disclosure of Expenses Shareholders of these Funds may incur the following charges: (a) transactional expenses; and (b) operating expenses, including administration fees, service and distribution fees, and other fund expenses. The expense examples shown below (which are based on a hypothetical investment of $1,000 invested on July 1, 2016 and held through December 31, 2016) are intended to assist shareholders both in calculating expenses based on an investment in each Fund 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 Fund and 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 a 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 examples with the 5% hypothetical examples that appear in shareholder reports of other funds. 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, 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 Beginning Account Value July 1, 2016 Actual Hypothetical 2 Ending Account Value December 31, 2016 Expenses Paid During the Period 1 Beginning Account Value July 1, 2016 Ending Account Value December 31, 2016 Expenses Paid During the Period 1 Annualized Expense Ratio BlackRock Cash Funds: Institutional AonCaptives... $1, $1, $1.11 $1, $1, $ % Institutional... $1, $1, $0.60 $1, $1, $ % Select... $1, $1, $0.96 $1, $1, $ % SLAgency... $1, $1, $0.45 $1, $1, $ % BlackRock Cash Funds: Prime Capital... $1, $1, $0.70 $1, $1, $ % Institutional... $1, $1, $0.60 $1, $1, $ % Premium... $1, $1, $0.86 $1, $1, $ % Select... $1, $1, $1.01 $1, $1, $ % SLAgency... $1, $1, $0.45 $1, $1, $ % BlackRock Cash Funds: Treasury Institutional... $1, $1, $0.60 $1, $1, $ % SLAgency... $1, $1, $0.45 $1, $1, $ % 1 For each class of a Fund, expenses are equal to the annualized net expense ratio for the class, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period shown). Because each Fund invests all of its assets in its corresponding Master Portfolio, 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 prorating the number of days in the most recent fiscal half year divided by BLACKROCK FUNDS III DECEMBER 31, 2016

7 Statements of Assets and Liabilities December 31, 2016 BlackRock Cash Funds: Institutional BlackRock Cash Funds: Prime BlackRock Cash Funds: Treasury Assets Investments at value from the applicable Master Portfolio 1,2... $41,223,923,991 $285,823,612 $3,652,094,956 Capitalsharessoldreceivable... 3, Totalassets... 41,223,927, ,823,910 3,652,094,960 Liabilities Payables: Incomedividends... 28,630,562 33,945 1,182,813 Administrationfees ,560 9,690 69,543 ContributionstotheapplicableMasterPortfolio... 3, Distributionfees Professionalfees... 8,909 8,917 8,968 Total liabilities... 29,339,765 52,850 1,261,328 Net Assets... $41,194,587,482 $285,771,060 $3,650,833,632 Net Assets Consist of Paid-incapital... $41,183,736,400 $285,752,689 $3,650,659,586 Undistributednetinvestmentincome... 13,514 AccumulatednetrealizedgainallocatedfromtheapplicableMasterPortfolio , ,046 Netunrealizedappreciation(depreciation)allocatedfromtheapplicableMasterPortfolio... 10,104,155 4,857 Net Assets... $41,194,587,482 $285,771,060 $3,650,833,632 Net Asset Value Aon Captives: Netassets... $ 5,560,075 Shares outstanding ,558,807 Netassetvalue... $ Capital: Netassets... $ 67,482,164 Shares outstanding ,482,349 Netassetvalue... $ Institutional: Netassets... $214,691,687 $ 80,257,384 Shares outstanding ,684,928 80,253,557 Netassetvalue... $ $ 1.00 Premium: Netassets... $ 3,597,209 Shares outstanding ,597,017 Netassetvalue... $ Select: Netassets... $ 762 Shares outstanding Netassetvalue... $ SL Agency: Netassets... $41,189,026,645 $3,570,576,248 Shares outstanding ,179,766,646 3,570,406,031 Netassetvalue... $ $ Investments at cost from the applicable Master Portfolio... $41,213,819,836 $285,818,755 $3,652,094,956 2 Money Market Master Portfolio, Prime Money Market Master Portfolio and Treasury Money Market Master Portfolio (each, a Master Portfolio ), respectively. 3 Unlimited number of shares authorized, no par value. BLACKROCK FUNDS III DECEMBER 31,

8 Statements of Operations Year Ended December 31, 2016 BlackRock Cash Funds: Institutional BlackRock Cash Funds: Prime BlackRock Cash Funds: Treasury Investment Income Net investment income allocated from the applicable Master Portfolio: Interest unaffiliated... $270,469,178 $106,608,525 $11,908,509 Expenses... (40,989,475) (19,000,174) (3,154,287) Feeswaived... 12,695,981 5,862, ,683 Totalinvestmentincome ,175,684 93,471,183 9,733,905 Fund Expenses Administration classspecific... 8,439,450 8,573, ,565 Professional... 15,854 15,081 11,140 Miscellaneous... 14,100 14, Distribution AonCaptives... 7,527 Totalexpenses... 8,476,931 8,602, ,761 Less: FeesreimbursedbytheAdministrator... (15,854) (15,081) (11,140) Administrationfeeswaived classspecific... (273) Totalexpensesafterfeeswaivedand/orreimbursed... 8,461,077 8,586, ,621 Netinvestmentincome ,714,607 84,884,294 9,105,284 Realized and Unrealized Gain Allocated from the Master Portfolios Netrealizedgainfrominvestments... 3,815, , ,137 Netchangeinunrealizedappreciation(depreciation)oninvestments... 10,104,155 4,857 Netrealizedandunrealizedgain... 13,919, , ,137 Net Increase in Net Assets Resulting from Operations... $247,633,821 $ 85,565,065 $ 9,549,421 8 BLACKROCK FUNDS III DECEMBER 31, 2016

9 Statements of Changes in Net Assets BlackRock Cash Funds: Institutional BlackRock Cash Funds: Prime Year Ended December 31, Year Ended December 31, Increase (Decrease) in Net Assets: Operations Netinvestmentincome... $ 233,714,607 $ 78,123,251 $ 84,884,294 $ 36,457,663 Netrealizedgain... 3,815,059 1,366, , ,515 Netchangeinunrealizedappreciation(depreciation)... 10,104,155 4,857 Netincreaseinnetassetsresultingfromoperations ,633,821 79,489,891 85,565,065 37,028,178 Distributions to Shareholders 1 From net investment income: AonCaptives... (32,990) (4,715) Capital... (7,597,597) (2,423,327) Institutional... (5,693,492) (4,942,131) (42,412,234) (15,039,119) Premium... (5,472,321) (1,252,061) Select... (16) (13) (5,076) (1,082) SLAgency... (227,988,109) (73,176,392) (29,398,609) (17,730,967) From net realized gain: AonCaptives... (629) (270) Capital... (224,218) (28,402) Institutional... (25,496) (72,604) (924,451) (170,670) Premium... (1,660) (17,796) Select... (19) SLAgency... (4,280,941) (1,333,902) (131,220) Decreaseinnetassetsresultingfromdistributionstoshareholders... (238,021,673) (79,530,027) (86,036,166) (36,794,663) Capital Share Transactions Netincrease(decrease)innetassetsderivedfromcapitalsharetransactions... (1,323,776,641) 2,500,790,392 (25,164,637,725) 2,758,323,754 Net Assets Totalincrease(decrease)innetassets... (1,314,164,493) 2,500,750,256 (25,165,108,826) 2,758,557,269 Beginningofyear... 42,508,751,975 40,008,001,719 25,450,879,886 22,692,322,617 Endofyear... $41,194,587,482 $42,508,751,975 $ 285,771,060 $25,450,879,886 Undistributednetinvestmentincome,endofyear... $ 13,514 $ 3,950 1 Distributions for annual periods determined in accordance with federal income tax regulations. BLACKROCK FUNDS III DECEMBER 31,

10 Statements of Changes in Net Assets BlackRock Cash Funds: Treasury Year Ended December 31, Increase (Decrease) in Net Assets: Operations Netinvestmentincome... $ 9,105,284 $ 546,933 Netrealizedgain ,137 98,963 Netincreaseinnetassetsresultingfromoperations... 9,549, ,896 Distributions to Shareholders 1 From net investment income: Institutional... (69,601) (279) Select... (1) SLAgency... (9,035,683) (546,653) From net realized gain: Institutional... (5,210) (51) SLAgency... (280,502) (90,949) Decreaseinnetassetsresultingfromdistributionstoshareholders... (9,390,996) (637,933) Capital Share Transactions Netincrease(decrease)innetassetsderivedfromcapitalsharetransactions... 1,496,101,672 (231,225,048) Net Assets Totalincrease(decrease)innetassets... 1,496,260,097 (231,217,085) Beginningofyear... 2,154,573,535 2,385,790,620 Endofyear... $3,650,833,632 $2,154,573,535 1 Distributions for annual periods determined in accordance with federal income tax regulations. 10 BLACKROCK FUNDS III DECEMBER 31, 2016

11 Financial Highlights BlackRock Cash Funds: Institutional Per Share Operating Performance Aon Captives Year Ended December 31, Netassetvalue,beginningofyear... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedandunrealizedgain Netincreasefrominvestmentoperations Distributions: 2 Fromnetinvestmentincome... (0.0045) (0.0006) (0.0000) 3 (0.0005) (0.0012) Fromnetrealizedgain... (0.0001) (0.0000) 3 (0.0001) (0.0000) 3 Totaldistributions... (0.0046) (0.0006) (0.0001) (0.0005) (0.0012) Netassetvalue,endofyear... $ $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total Return 4 Basedonnetassetvalue % 0.06% 0.01% 0.05% 0.12% Ratios to Average Net Assets 5,6 Totalexpenses % 0.22% 0.22% 0.22% 0.22% Totalexpensesafterfeeswaivedand/orreimbursed % 0.22% 0.22% 0.22% 0.22% Netinvestmentincome % 0.06% 0.01% 0.04% 0.12% Supplemental Data Netassets,endofyear(000)... $ 5,560 $ 8,558 $ 7,999 $ 9,166 $ 11,003 1 Amount is less than $ per share. 2 Distributions for annual periods determined in accordance with federal income tax regulations. 3 Amount is greater than $( ) per share. 4 Where applicable, assumes the reinvestment of distributions. 5 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 6 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.03%. BLACKROCK FUNDS III DECEMBER 31,

12 Financial Highlights (continued) BlackRock Cash Funds: Institutional Per Share Operating Performance Institutional Period January 1, 2016 to December 2, Year Ended December 31, Netassetvalue,beginningofperiod... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedandunrealizedgain Netincreasefrominvestmentoperations Distributions: 3 Fromnetinvestmentincome... (0.0049) (0.0016) (0.0010) (0.0015) (0.0022) Fromnetrealizedgain... (0.0001) (0.0000) 4 (0.0001) (0.0000) 4 Totaldistributions... (0.0050) (0.0016) (0.0011) (0.0015) (0.0022) Netassetvalue,endofperiod... $ $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total Return 5 Basedonnetassetvalue % % 0.11% 0.15% 0.22% Ratios to Average Net Assets 7,8 Totalexpenses % % 0.12% 0.12% 0.12% Totalexpensesafterfeeswaivedand/orreimbursed % % 0.12% 0.12% 0.12% Netinvestmentincome % % 0.11% 0.14% 0.22% Supplemental Data Netassets,endofperiod(000)... 1 $ 2,056,594 $ 2,251,121 $ 2,802,911 $ 1,211,912 1 There were no Institutional Shares outstanding since December 2, Amount is less than $ per share. 3 Distributions for annual periods determined in accordance with federal income tax regulations. 4 Amount is greater than $( ) per share. 5 Where applicable, assumes the reinvestment of distributions. 6 Aggregate total return. 7 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 8 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.03%. 9 Annualized. 12 BLACKROCK FUNDS III DECEMBER 31, 2016

13 Financial Highlights (continued) BlackRock Cash Funds: Institutional Per Share Operating Performance Select Year Ended December 31, Netassetvalue,beginningofyear... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedandunrealizedgain Netincreasefrominvestmentoperations Distributions: 2 Fromnetinvestmentincome... (0.0047) (0.0008) (0.0002) (0.0007) (0.0014) Fromnetrealizedgain... (0.0001) (0.0000) 3 (0.0001) (0.0000) 3 Totaldistributions... (0.0048) (0.0008) (0.0003) (0.0007) (0.0014) Netassetvalue,endofyear... $ $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total Return 4 Basedonnetassetvalue % 0.08% 0.03% 0.07% 0.14% Ratios to Average Net Assets 5,6 Totalexpenses % 0.22% 0.22% 0.22% 0.22% Totalexpensesafterfeeswaivedand/orreimbursed % 0.20% 0.20% 0.20% 0.20% Netinvestmentincome % 0.07% 0.03% 0.06% 0.14% Supplemental Data Netassets,endofyear(000)... $ 1 $ 5 $ 109 $ 4,324 $ 11,459 1 Amount is less than $ per share. 2 Distributions for annual periods determined in accordance with federal income tax regulations. 3 Amount is greater than $( ) per share. 4 Where applicable, assumes the reinvestment of distributions. 5 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 6 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.03%. BLACKROCK FUNDS III DECEMBER 31,

14 Financial Highlights (continued) BlackRock Cash Funds: Institutional Per Share Operating Performance SL Agency Year Ended December 31, Netassetvalue,beginningofyear... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedandunrealizedgain Netincreasefrominvestmentoperations Distributions: 2 Fromnetinvestmentincome... (0.0058) (0.0019) (0.0013) (0.0018) (0.0025) Fromnetrealizedgain... (0.0001) (0.0000) 3 (0.0001) (0.0000) 3 Totaldistributions... (0.0059) (0.0019) (0.0014) (0.0018) (0.0025) Netassetvalue,endofyear... $ $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total Return 4 Basedonnetassetvalue % 0.19% 0.14% 0.18% 0.25% Ratios to Average Net Assets 5,6 Totalexpenses % 0.09% 0.09% 0.09% 0.09% Totalexpensesafterfeeswaivedand/orreimbursed % 0.09% 0.09% 0.09% 0.09% Netinvestmentincome % 0.19% 0.14% 0.17% 0.25% Supplemental Data Netassets,endofyear(000)... $ 41,189,027 $ 40,443,595 $ 37,748,773 $ 37,867,084 $ 33,350,562 1 Amount is less than $ per share. 2 Distributions for annual periods determined in accordance with federal income tax regulations. 3 Amount is greater than $( ) per share. 4 Where applicable, assumes the reinvestment of distributions. 5 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 6 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.03%. 14 BLACKROCK FUNDS III DECEMBER 31, 2016

15 Financial Highlights (concluded) BlackRock Cash Funds: Institutional Per Share Operating Performance Trust Period January 1, 2014 to November 10, Year Ended December 31, Netassetvalue,beginningofperiod... $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedgain Netincreasefrominvestmentoperations Distributions: 3 Fromnetinvestmentincome... (0.0000) 4 (0.0001) (0.0000) 4 Fromnetrealizedgain... (0.0000) 4 (0.0000) 4 Totaldistributions... (0.0000) (0.0001) (0.0000) Netassetvalue,endofperiod... $ 1.00 $ 1.00 $ 1.00 Total Return 5 Basedonnetassetvalue % % % Ratios to Average Net Assets 7,8 Totalexpenses % % 0.45% Totalexpensesafterfeeswaivedand/orreimbursed % % 0.34% Netinvestmentincome % % 0.00% Supplemental Data Netassets,endofperiod(000)... 1 $ 547 $ 8,215 1 There were no Trust Shares outstanding from November 11, 2014 through December 31, 2014 and during the years ended December 31, 2015 and December 31, Amount is less than $ per share. 3 Distributions for annual periods determined in accordance with federal income tax regulations. 4 Amount is greater than $( ) per share. 5 Where applicable, assumes the reinvestment of distributions. 6 Aggregate total return. 7 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 8 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.03%. 9 Annualized. BLACKROCK FUNDS III DECEMBER 31,

16 Financial Highlights BlackRock Cash Funds: Prime Per Share Operating Performance Capital Year Ended December 31, Netassetvalue,beginningofyear... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedandunrealizedgain Netincreasefrominvestmentoperations Distributions: 2 Fromnetinvestmentincome... (0.0041) (0.0013) (0.0007) (0.0011) (0.0018) Fromnetrealizedgain... (0.0005) (0.0000) 3 (0.0000) 3 (0.0000) 3 Totaldistributions... (0.0046) (0.0013) (0.0007) (0.0011) (0.0018) Netassetvalue,endofyear... $ $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total Return 4 Basedonnetassetvalue % 0.13% 0.07% 0.11% 0.18% Ratios to Average Net Assets 5,6 Totalexpenses % 0.14% 0.14% 0.14% 0.14% Totalexpensesafterfeeswaivedand/orreimbursed % 0.14% 0.14% 0.14% 0.14% Netinvestmentincome % 0.13% 0.07% 0.10% 0.18% Supplemental Data Netassets,endof year(000)... $ 67,482 $ 2,125,858 $ 1,747,725 $ 1,472,926 $ 1,394,794 1 Amount is less than $ per share. 2 Distributions for annual periods determined in accordance with federal income tax regulations. 3 Amount is greater than $( ) per share. 4 Where applicable, assumes the reinvestment of distributions. 5 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 6 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.03%. 16 BLACKROCK FUNDS III DECEMBER 31, 2016

17 Financial Highlights (continued) BlackRock Cash Funds: Prime Per Share Operating Performance Institutional Year Ended December 31, Netassetvalue,beginningofyear... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedandunrealizedgain Netincreasefrominvestmentoperations Distributions: 2 Fromnetinvestmentincome... (0.0043) (0.0015) (0.0009) (0.0013) (0.0020) Fromnetrealizedgain... (0.0005) (0.0000) 3 (0.0000) 3 (0.0000) 3 Totaldistributions... (0.0048) (0.0015) (0.0009) (0.0013) (0.0020) Netassetvalue,endofyear... $ $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total Return 4 Basedonnetassetvalue % 0.15% 0.09% 0.13% 0.20% Ratios to Average Net Assets 5,6 Totalexpenses % 0.12% 0.12% 0.12% 0.12% Totalexpensesafterfeeswaivedand/orreimbursed % 0.12% 0.12% 0.12% 0.12% Netinvestmentincome % 0.15% 0.09% 0.12% 0.20% Supplemental Data Netassets,endofyear(000)... $ 214,692 $ 13,516,545 $ 9,074,064 $ 5,269,961 $ 3,236,082 1 Amount is less than $ per share. 2 Distributions for annual periods determined in accordance with federal income tax regulations. 3 Amount is greater than $( ) per share. 4 Where applicable, assumes the reinvestment of distributions. 5 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 6 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.03%. BLACKROCK FUNDS III DECEMBER 31,

18 Financial Highlights (continued) BlackRock Cash Funds: Prime Per Share Operating Performance Premium Year Ended December 31, Netassetvalue,beginningofyear... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedandunrealizedgain Netincreasefrominvestmentoperations Distributions: 2 Fromnetinvestmentincome... (0.0038) (0.0010) (0.0004) (0.0008) (0.0015) Fromnetrealizedgain... (0.0005) (0.0000) 3 (0.0000) 3 (0.0000) 3 Totaldistributions... (0.0043) (0.0010) (0.0004) (0.0008) (0.0015) Netassetvalue,endofyear... $ $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total Return 4 Basedonnetassetvalue % % 0.04% 0.08% 0.15% Ratios to Average Net Assets 5,6 Totalexpenses % 0.17% 0.17% 0.17% 0.17% Totalexpensesafterfeeswaivedand/orreimbursed % 0.17% 0.17% 0.17% 0.17% Netinvestmentincome % 0.10% 0.04% 0.07% 0.16% Supplemental Data Netassets,endofyear(000)... $ 3,597 $ 1,132,614 $ 1,254,768 $ 4,669,369 $ 3,481,506 1 Amount is less than $ per share. 2 Distributions for annual periods determined in accordance with federal income tax regulations. 3 Amount is greater than $( ) per share. 4 Where applicable, assumes the reinvestment of distributions. 5 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 6 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.03%. 18 BLACKROCK FUNDS III DECEMBER 31, 2016

19 Financial Highlights (continued) BlackRock Cash Funds: Prime Per Share Operating Performance Period January 1, 2016 to December 21, Period January 1, 2015 to December 31, Select Period January 1, 2014 to December 21, Year Ended December 31, Netassetvalue,beginningofperiod... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedandunrealizedgain Netincreasefrominvestmentoperations Distributions: 5 Fromnetinvestmentincome... (0.0003) (0.0000) 6 (0.0000) 6 (0.0005) (0.0012) Fromnetrealizedgain... (0.0000) 6 (0.0000) 6 Totaldistributions... (0.0003) (0.0000) (0.0000) (0.0005) (0.0012) Netassetvalue,endofperiod... $ $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total Return 7 Basedonnetassetvalue % % % % 0.12% Ratios to Average Net Assets 9,10 Totalexpenses % % % % 0.22% Totalexpensesafterfeeswaivedand/orreimbursed % % % % 0.20% Netinvestmentincome % % % % 0.12% Supplemental Data Netassets,endofperiod(000) $ 90 $ 10,454 1 There were no Select Shares outstanding from January 1, 2016 through January 18, 2016, January 20, 2016 through February 17, 2016, February 22, 2016 through March 17, 2016, March 21, 2016 through April 17, 2016, April 21, 2016 through May 17, 2016, May 20, 2016 through June 20, 2016, June 23, 2016 through July 17, 2016, July 21, 2016 through August 17, 2016, August 23, 2016 through September 18, 2016, September 22, 2016 through October 18, 2016, October 21, 2016 through December 18, 2016, and December 21, 2016 through December 31, There were no Select Shares outstanding from January 1, 2015 through January 19, 2015, January 21, 2015 through February 17, 2015, February 20, 2015 through March 17, 2015, March 20, 2015 through April 19, 2015, April 22, 2015 through May 17, 2015, May 20, 2015 through June 18, 2015 and June 22, 2015 through December 31, There were no Select Shares outstanding from November 11, 2014 through November 17, 2014, November 18, 2014 through December 18, 2014 and December 22, 2014 through December 31, Amount is less than $ per share. 5 Distributions for annual periods determined in accordance with federal income tax regulations. 6 Amount is greater than $( ) per share. 7 Where applicable, assumes the reinvestment of distributions. 8 Aggregate total return. 9 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 10 Includes the Fund s share of the Master Portfolio s annualized allocated fees waived of 0.03%. 11 Annualized. BLACKROCK FUNDS III DECEMBER 31,

20 Financial Highlights (continued) BlackRock Cash Funds: Prime Per Share Operating Performance SL Agency Period January 1, 2016 to September 14, Year Ended December 31, Netassetvalue,beginningofperiod... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedandunrealizedgain Netincreasefrominvestmentoperations Distributions: 3 Fromnetinvestmentincome... (0.0034) (0.0018) (0.0012) (0.0016) (0.0023) Fromnetrealizedgain... (0.0000) 4 (0.0000) 4 (0.0000) 4 Totaldistributions... (0.0034) (0.0018) (0.0012) (0.0016) (0.0023) Netassetvalue,endofperiod... $ $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total Return 5 Basedonnetassetvalue % % 0.12% 0.16% 0.23% Ratios to Average Net Assets 7,8 Totalexpenses % % 0.09% 0.09% 0.09% Totalexpensesafterfeeswaivedand/orreimbursed % % 0.09% 0.09% 0.09% Netinvestmentincome % % 0.12% 0.15% 0.23% Supplemental Data Netassets,endofperiod(000)... 1 $ 8,675,863 $ 10,615,765 $ 5,689,192 $ 5,877,464 1 There were no SL Agency Shares outstanding since September 14, Amount is less than $ per share. 3 Distributions for annual periods determined in accordance with federal income tax regulations. 4 Amount is greater than $( ) per share. 5 Where applicable, assumes the reinvestment of distributions. 6 Aggregate total return. 7 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 8 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.03%. 9 Annualized. 20 BLACKROCK FUNDS III DECEMBER 31, 2016

21 Financial Highlights (concluded) BlackRock Cash Funds: Prime Per Share Operating Performance Trust Period January 1, 2014 to November 10, Year Ended December 31, Netassetvalue,beginningofperiod... $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedgain Netincreasefrominvestmentoperations Distributions: 3 Fromnetinvestmentincome... (0.0000) 4 (0.0001) (0.0000) 4 Fromnetrealizedgain... (0.0000) 4 (0.0000) 4 Totaldistributions... (0.0000) (0.0001) (0.0000) Netassetvalue,endofperiod... $ 1.00 $ 1.00 $ 1.00 Total Return 5 Basedonnetassetvalue % % 0.00% Ratios to Average Net Assets 7 Totalexpenses % 8,9 0.45% % 9 Totalexpensesafterfeeswaivedand/orreimbursed % 8,9 0.24% % 9 Netinvestmentincome % 8,9 0.00% % 9 Supplemental Data Netassets,endofperiod(000)... 1 $ 8,086 $ 21,702 1 There were no Trust Shares outstanding from November 11, 2014 through December 31, 2014 and during the years ended December 31, 2015 and December 31, Amount is less than $ per share. 3 Distributions for annual periods determined in accordance with federal income tax regulations. 4 Amount is greater than $( ) per share. 5 Where applicable, assumes the reinvestment of distributions. 6 Aggregate total return. 7 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 8 Annualized. 9 Includes the Fund s share of the Master Portfolio s annualized allocated fees waived of 0.03%. BLACKROCK FUNDS III DECEMBER 31,

22 Financial Highlights BlackRock Cash Funds: Treasury Per Share Operating Performance Capital Period January 1, 2014 to November 10, Year Ended December 31, Netassetvalue,beginningofperiod... $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedgain Netincreasefrominvestmentoperations Distributions: 3 Fromnetinvestmentincome... (0.0001) (0.0002) Fromnetrealizedgain... (0.0000) 4 (0.0000) 4 Totaldistributions... (0.0000) (0.0001) (0.0002) Netassetvalue,endofperiod... $ 1.00 $ 1.00 $ 1.00 Total Return 5 Basedonnetassetvalue % % 0.02% Ratios to Average Net Assets 7 Totalexpenses % 8,9 0.14% % 10 Totalexpensesafterfeeswaivedand/orreimbursed % 8,9 0.12% % 10 Netinvestmentincome % 8,9 0.00% % 10 Supplemental Data Netassets,endofperiod(000)... 1 $ 715 $ 273,121 1 There were no Capital Shares outstanding from November 11, 2014 through December 31, 2014 and during the years ended December 31, 2015 and December 31, Amount is less than $ per share. 3 Distributions for annual periods determined in accordance with federal income tax regulations. 4 Amount is greater than $( ) per share. 5 Where applicable, assumes the reinvestment of distributions. 6 Aggregate total return. 7 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 8 Annualized. 9 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.04%. 10 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.03%. 22 BLACKROCK FUNDS III DECEMBER 31, 2016

23 Financial Highlights (continued) BlackRock Cash Funds: Treasury Per Share Operating Performance Period June 6, to December 31, 2016 Institutional Period January 1, 2015 to December 31, Year Ended December 31, Netassetvalue,beginningofperiod... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedgain Netincreasefrominvestmentoperations Distributions: 4 Fromnetinvestmentincome... (0.0015) (0.0000) 5 (0.0001) (0.0002) Fromrealizedgain... (0.0001) (0.0000) 5 (0.0000) 5 (0.0000) 5 Totaldistributions... (0.0016) (0.0000) (0.0000) (0.0001) (0.0002) Netassetvalue,endofperiod... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total Return 6 Basedonnetassetvalue % % 0.00% 0.01% 0.02% Ratios to Average Net Assets 8 Totalexpenses % 9, % % % % 10 Totalexpensesafterfeeswaivedand/orreimbursed % 9, % % % % 10 Netinvestmentincome % 9, % % % % 10 Supplemental Data Netassets,endofperiod(000)... $ 80,257 1 $ 4 $ 4 $ 4 1 Recommencement of operations. 2 There were no Institutional Shares outstanding as of the year ended December 31, Amount is less than $ per share. 4 Distributions for annual periods determined in accordance with federal income tax regulations. 5 Amount is greater than $( ) per share. 6 Where applicable, assumes the reinvestment of distributions. 7 Aggregate total return. 8 Includes the Fund s share of the Master Portfolio s allocated expenses and/or net investment income. 9 Annualized. 10 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.03%. 11 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.04%. BLACKROCK FUNDS III DECEMBER 31,

24 Financial Highlights (continued) BlackRock Cash Funds: Treasury Per Share Operating Performance Premium Period December 20, Netassetvalue,beginningofperiod... $ 1.00 Netinvestmentincome Netrealizedgain Netincreasefrominvestmentoperations Distributions: 3 Fromnetinvestmentincome... (0.0000) 4 Fromnetrealizedgain... (0.0000) 4 Totaldistributions..... (0.0000) Netassetvalue,endofperiod... $ 1.00 Total Return 5 Basedonnetassetvalue % 6 Ratios to Average Net Assets 7 Totalexpenses % 8,9 Totalexpensesafterfeeswaived % 8,9 Netinvestmentincome % 8,9 Supplemental Data Netassets,endofperiod(000)... _ 1 1 There were no Premium Shares outstanding during the fiscal years ended December 31, 2012, December 31, 2013, December 31, 2014, December 31, 2015 and December 31, 2016, except for December 20, Amount is less than $ per share. 3 Distributions for annual periods determined in accordance with federal income tax regulations. 4 Amount is greater than $( ) per share. 5 Where applicable, assumes the reinvestment of distributions. 6 Aggregate total return. 7 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 8 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.03%. 9 Annualized. 24 BLACKROCK FUNDS III DECEMBER 31, 2016

25 Financial Highlights (continued) BlackRock Cash Funds: Treasury Per Share Operating Performance Period January 1, 2014 to December 22, Select Year Ended December 31, Netassetvalue,beginningofperiod... $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedgain Netincreasefrominvestmentoperations Distributions from: 3 Netinvestmentincome... (0.0001) (0.0000) 4 Netrealizedgain... (0.0000) 4 (0.0000) 4 Totaldistributions... (0.0000) (0.0001) (0.0000) Netassetvalue,endofperiod... $ 1.00 $ 1.00 $ 1.00 Total Return 5 Basedonnetassetvalue % % 0.00% Ratios to Average Net Assets 7 Totalexpenses % 8,9 0.21% % 10 Totalexpensesafterfeeswaivedand/orreimbursed % 8,9 0.09% % 10 Netinvestmentincome % 8,9 0.00% % 10 Supplemental Data Netassets,endofperiod(000)... 1 $ 10,398 $ 10,543 1 There were no Select Shares outstanding from December 22, 2014 through December 31, 2014 and during the years ended December 31, 2015 and December 31, Amount is less than $ per share. 3 Distributions for annual periods determined in accordance with federal income tax regulations. 4 Amount is greater than $( ) per share. 5 Where applicable, assumes the reinvestment of distributions. 6 Aggregate total return. 7 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 8 Annualized. 9 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.04%. 10 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.03%. BLACKROCK FUNDS III DECEMBER 31,

26 Financial Highlights (continued) BlackRock Cash Funds: Treasury Per Share Operating Performance SL Agency Year Ended December 31, Netassetvalue,beginningofyear... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedgain Netincreasefrominvestmentoperations Distributions: 2 Fromnetinvestmentincome... (0.0029) (0.0003) (0.0002) (0.0006) Fromrealizedgain... (0.0001) (0.0000) 3 (0.0000) 3 (0.0000) 3 Totaldistributions... (0.0030) (0.0003) (0.0000) (0.0002) (0.0006) Netassetvalue,endofyear... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 Total Return 4 Basedonnetassetvalue % 0.03% 0.00% 0.02% 0.06% Ratios to Average Net Assets 5 Totalexpenses % % % % % 6 Totalexpensesafterfeeswaivedand/orreimbursed % % % % % 6 Netinvestmentincome % % % % % 6 Supplemental Data Netassets,endofyear(000)... $ 3,570,576 $ 2,154,574 $ 2,385,787 $ 1,548,187 $ 1,525,904 1 Amount is less than $ per share. 2 Distributions for annual periods determined in accordance with federal income tax regulations. 3 Amount is greater than $( ) per share. 4 Where applicable, assumes the reinvestment of distributions. 5 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 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%. 26 BLACKROCK FUNDS III DECEMBER 31, 2016

27 Financial Highlights (concluded) BlackRock Cash Funds: Treasury Per Share Operating Performance Trust Period January 1, 2014 to November 10, Year Ended December 31, Netassetvalue,beginningofperiod... $ 1.00 $ 1.00 $ 1.00 Netinvestmentincome Netrealizedgain Netincreasefrominvestmentoperations Distributions from: 3 Netinvestmentincome... (0.0001) (0.0000) 4 Netrealizedgain... (0.0000) 4 (0.0000) 4 Totaldistributions... (0.0000) (0.0001) (0.0000) Netassetvalue,endofperiod... $ 1.00 $ 1.00 $ 1.00 Total Return 5 Basedonnetassetvalue % % 0.00% Ratios to Average Net Assets 7 Totalexpenses % 8,9 0.44% % 10 Totalexpensesafterfeeswaivedand/orreimbursed % 8,9 0.09% % 10 Netinvestmentincome % 8,9 0.00% % 10 Supplemental Data Netassets,endofperiod(000)... 1 $ 25,914 $ 15,407 1 There were no Trust Shares outstanding from November 11, 2014 through December 31, 2014 and during the years ended December 31, 2015 and December 31, Amount is less than $ per share. 3 Distributions for annual periods determined in accordance with federal income tax regulations. 4 Amount is greater than $( ) per share. 5 Where applicable, assumes the reinvestment of distributions. 6 Aggregate total return. 7 Includes the Fund s share of the Master Portfolio s allocated net expenses and/or net investment income. 8 Annualized. 9 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.04%. 10 Includes the Fund s share of the Master Portfolio s allocated fees waived of 0.03%. BLACKROCK FUNDS III DECEMBER 31,

28 Notes to Financial Statements BlackRock Funds III 1. Organization: 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 following series of the Trust are referred to herein collectively as the Funds or individually, a Fund : Fund Name Herein Referred To As Diversification Classification BlackRockCashFunds:Institutional... Institutional Diversified BlackRockCashFunds:Prime... Prime Diversified BlackRockCashFunds:Treasury... Treasury Diversified Each Fund seeks to achieve its investment objective by investing all of its assets in a corresponding series of Master Investment Portfolio ( MIP ): Money Market Master Portfolio, Prime Money Market Master Portfolio and Treasury Money Market Master Portfolio (each, a Master Portfolio and together, the Master Portfolios ). MIP is an affiliate of the Trust. Each Master Portfolio has the same investment objective and strategies as its corresponding Fund. The value of each Fund s investment in its corresponding Master Portfolio reflects the Fund s proportionate interest in the net assets of the Master Portfolio. The performance of the Funds is directly affected by the performance of the Master Portfolios. At December 31, 2016, the percentage of the Master Portfolio owned by the corresponding Fund was 100% for Institutional, 100% for Prime and 60.2% for Treasury. As such, 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. Treasury and Prime each offers multiple classes of shares. Institutional, Select, SL Agency, Capital, Premium and Trust Shares are sold without a sales charge and only to certain eligible investors. Institutional only offers SL Agency share class and is only available for certain eligible investors. All classes of shares have identical voting, dividend, liquidation and other rights and are subject to the same terms and conditions, and differ principally with respect to administration fees. The Aon Captives Shares also bear certain expenses related to the distribution of such shares. The Aon Captives Shares have exclusive voting rights with respect to matters relating to their distribution expenditures. The Boards of Trustees of the Trust and Boards of Directors of MIP are referred to throughout this report as the Board of Directors or the Board and the members are referred to as Directors. Effective as of the close of business on the dates below, Institutional no longer accepts purchase orders on the following share classes. Shareholdersof each share class may continue to redeem their shares after the closure date. Closure Date March 1, June1, August1, Share Class CapitalShares, PremiumShares, SelectSharesandTrustShares AonCaptivesShares InstitutionalShares Treasury operates as a government money market fund under Rule 2a-7 under the 1940 Act. The Fund is not subject to liquidity fees or temporary suspensions of redemptions due to declines in the Fund s weekly liquid assets. On October 11, 2016, Institutional and Prime began pricing and transacting their shares at a net asset value ( NAV ) per share calculated to four decimal places, reflecting market-based values of their portfolio holdings (i.e., at a floating NAV). The NAV of Prime is priced multiple times each day such Fund accepts purchase orders and redemption requests. Prior to the Funds adoption of the floating NAV, their portfolio holdings were valued at amortized cost. With respect to each of Institutional and Prime, the Board is permitted to impose a liquidity fee of up to 2% on the value redeemed or temporarily restrict redemptions from each of Institutional and Prime for up to 10 business days during a 90 day period, in the event that Institutional s or Prime s weekly liquid assets fall below certain thresholds. The Funds, together with certain other registered investment companies are included in a complex of open-end funds referred to as the Equity-Liquidity Complex. 2. Significant Accounting Policies: The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ( U.S. GAAP ), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Each Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. Below is a summary of significant accounting policies: Investment Transactions and Investment Income: For financial reporting purposes, contributions to and withdrawals from the Master Portfolios are accounted for on a trade date basis. The Funds record their proportionate share of the Master Portfolios income, expenses and realized and unrealized gains and losses on a daily basis. In addition, the Funds accrue their own expenses. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets. 28 BLACKROCK FUNDS III DECEMBER 31, 2016