UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-10053
811-10089
Name of Fund: BlackRock Short Term Bond Fund of BlackRock Short Term Bond
Series, Inc.
Short Term Bond Master Portfolio of Short Term Bond Master Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock Short Term Bond Fund of BlackRock Short Term Bond
Series, Inc. and Short Term Bond Master Portfolio of Short Term Bond
Master Trust, 800 Scudders Mill Road, Plainsboro, NJ 08536. Mailing
address: P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 06/30/07
Date of reporting period: 07/01/06 - 12/31/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES
FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock Short-Term BLACKROCK
Bond Fund
OF BLACKROCK SHORT-TERM BOND SERIES, INC.
SEMI-ANNUAL REPORT | DECEMBER 31, 2006
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock Short-Term Bond Fund
Officers and Directors/Trustees
Robert C. Doll, Jr., President and Director/Trustee
James H. Bodurtha, Director/Trustee
Kenneth A. Froot, Director/Trustee
Joe Grills, Director/Trustee
Herbert I. London, Director/Trustee
Roberta Cooper Ramo, Director/Trustee
Robert S. Salomon, Jr., Director/Trustee
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Fund Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
PFPC Inc.
Wilmington, DE 19809
Proxy Results
During the six-month period ended December 31, 2006, BlackRock Short-Term Bond
Fund of BlackRock Short-Term Bond Series Inc.'s shareholders voted on the
following proposals, which were approved at a special shareholders' meeting on
August 15, 2006. A description of the proposals and number of shares voted are
as follows:
- --------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- --------------------------------------------------------------------------------------------------
To approve a new investment advisory agreement
with BlackRock Advisors, Inc. 41,670,058 668,181 652,281
- --------------------------------------------------------------------------------------------------
To approve a contingent subadvisory agreement
with BlackRock Advisors, Inc. 41,657,819 655,635 677,066
- --------------------------------------------------------------------------------------------------
2 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
A Letter to Shareholders
Dear Shareholder
As 2007 begins, we are able to look back on 2006 as a volatile, but ultimately,
a positive year for most major markets. Returns for the annual and semi-annual
periods ended December 31, 2006 were as follows:
Total Returns as of December 31, 2006 6-month 12-month
================================================================================================
U.S. equities (Standard & Poor's 500 Index) +12.74% +15.79%
- ------------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) + 9.38 +18.37
- ------------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) +14.69 +26.34
- ------------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) + 5.09 + 4.33
- ------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 4.55 + 4.84
- ------------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse High Yield Index) + 8.14 +11.92
- ------------------------------------------------------------------------------------------------
After raising the target short-term interest rate 17 times between June 2004 and
June 2006, the Federal Reserve Board (the Fed) finally opted to pause on August
8, 2006. This left the federal funds rate at 5.25%, where it remained through
year-end. In interrupting its two-year interest rate-hiking campaign, the Fed
acknowledged that economic growth is slowing, led by a downturn in the housing
market, but has maintained a cautionary view on inflation.
Overall, it was a good 12 months for U.S. equities, despite a significant
correction in the middle of the year that was largely triggered by rising
interest rates, inflation fears, elevated oil prices and geopolitical
uncertainties. Nevertheless, strong corporate earnings, abundant liquidity and
record merger-and-acquisition activity provided a solid backdrop for stocks.
Many international equity markets (with the notable exception of Japan)
performed even better, outpacing U.S. stocks for the fifth consecutive year.
Strength was especially notable in European equities and select emerging
markets.
Bonds experienced a more modest annual return than stocks. Interest rates and
bond yields moved higher for much of the year as bond prices, which move
opposite of yields, declined. Prices began to improve in the summer as the
economy showed signs of weakening and the Fed paused. Notably, the Treasury
curve remained inverted for much of 2006. The 10-year Treasury yield ended
December at 4.71%, well below the federal funds rate.
As we begin a new year, investors are left with a few key questions: Will the
U.S. economy achieve a soft landing, will the Fed reverse its prior policy and
cut interest rates, and how might these outcomes impact the investment climate.
As you navigate the uncertainties inherent in the financial markets, we
encourage you to start the year by reviewing your investment goals with your
financial professional and making portfolio changes, as needed. For more
reflection on 2006 and our thoughts on the year ahead, please ask your financial
professional for a copy of "What's Ahead in 2007: An Investment Perspective," or
view it online at www.blackrock.com/funds. We thank you for trusting BlackRock
with your investment assets, and we look forward to continuing to serve you in
the new year and beyond.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director/Trustee
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 3
A Discussion With Your Fund's Portfolio Managers
We continued to emphasize high-quality credit and spread product for yield
enhancement and total return potential in the portfolio, as the Treasury yield
curve remained flat to inverted, offering little investment value.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended December 31, 2006, BlackRock Short-Term Bond Fund
of BlackRock Short-Term Bond Series Inc.'s (formerly Merrill Lynch Low Duration
Fund of Merrill Lynch Investment Managers Funds, Inc.) Institutional, Investor
A, Investor B, Investor C, Investor C1 and Class R Shares had total returns of
+3.00%, +2.77%, +2.52%, +2.49%, +2.52% and +2.75%, respectively. For the same
period, the Fund's unmanaged benchmark, the Merrill Lynch 1 - 3 Year Corporate
and Government Index, returned +3.08%. (Fund results shown do not reflect sales
charges and would be lower if sales charges were included Prior to October 2,
2006, Investor C Shares' performance was based on the performance of
Institutional Shares (which have no distribution or service fees) restated to
reflect the Investor C Share fees. Complete performance information can be found
on pages 6 - 8 of this report to shareholders.)
Short-term interest rates, which rose steadily between January and June,
declined for most of the remainder of 2006 before backing up sharply in
December. Bond prices move in the opposite direction of yields and, as such,
this meant that the Fund's semi-annual reporting period was generally
characterized by a return to strength for fixed income assets. The improvement
in bond prices came amid a slowdown in U.S. economic growth and the Federal
Reserve Board's (the Fed) decision at its August 8 meeting to refrain from
raising its target interest rate after 17 consecutive increases since June 2004.
Bond prices found additional support in moderating oil prices. Between June 30
and November 30, 10-year Treasury yields declined 69 basis points (.69%) from
5.15% to 4.46%. However, stronger-than-expected economic releases and year-end
profit taking pushed yields higher during December. For the six-month period
overall, 10-year Treasury note yields declined 44 basis points to 4.71% and
two-year Treasury yields declined 34 basis points to 4.82%. These yields reflect
the inverted shape of the yield curve at period-end. In fact, for much of 2006,
short-term issues had higher yields than longer-term bonds.
What factors most influenced Fund performance?
Fund performance during the six-month period benefited from our overweight
exposure to high-quality, short-duration assets, including asset-backed
securities (ABS), commercial mortgage-backed securities (CMBS), adjustable rate
mortgages (ARMs) and collateralized mortgage obligations (CMOs). We maintained a
position in spread and credit sectors representing more than 80% of portfolio
assets. This compares to the index's composition of 40% spread sectors and 60%
Treasury and agency securities. We focused particularly on high-quality spread
sectors. We felt that risk premia were likely to remain constant or decline in
these sectors, and that helped them to perform quite well. Conversely, the Fund
was underweight in the corporate and agency sectors, and this detracted from
performance somewhat. Our short duration profile and our yield curve positioning
also hindered relative performance as interest rates declined for much of the
period.
What changes were made to the Portfolio during the period?
Despite price improvement in the Treasury market, we continued to see greater
relative value in spread sectors. Consistent with our somewhat defensive market
posture, we maintained our emphasis on high-quality spread sectors and continued
to favor structured assets, such as ABS, CMBS, ARMS and CMOs.
In the last three months of the semi-annual period, we modestly increased our
exposure to the high yield asset class, as valuations in some non-investment
grade issues began to look attractive relative to BBB-rated issues. We also
added a small currency position in the Japanese yen.
The Portfolio maintained a short duration relative to its benchmark throughout
the six-month period.
4 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
How would you characterize the Portfolio's position at the close of the period?
At December 31, 2006, the Portfolio continued to focus on positions in ABS, CMBS
and higher-quality issues within the corporate sector. We recently increased the
Portfolio's exposure to fixed rate mortgages to capitalize on what appears to be
stronger demand given these issues' higher yields. We also modestly increased
our exposure to floating rate mortgages to capitalize on large money manager
demand ahead of their inclusion in the Lehman Brothers Aggregate Bond Index in
April.
The Portfolio ended the period with a short duration versus its benchmark, as we
continue to believe that both a modest rebound in economic growth during the
fourth quarter and core inflation remaining outside of the Fed's comfort zone
will keep the central bank on hold. The Portfolio's duration at period-end was
1.39 years, compared to the index's duration of 1.68 years.
Keith Anderson
Portfolio Manager
Scott Amero
Portfolio Manager
Todd Kopstein
Portfolio Manager
January 16, 2007
- --------------------------------------------------------------------------------
Effective October 2, 2006, the Fund is managed by a team of investment
professionals comprised of Keith Anderson, Scott Amero and Todd Kopstein. Mr.
Anderson is a Vice Chairman of BlackRock, a member of the firm's Executive and
Management Committees, Chief Investment Officer for Fixed Income and Chairman of
the Investment Strategy Group. He is a founding member of BlackRock, having been
with the firm since 1988. Mr. Amero is a Managing Director of BlackRock, co-head
of the fixed income portfolio management team and a member of the Management
Committee and the Investment Strategy Group. He is a senior strategist and
portfolio manager with responsibility for overseeing all fixed income sector
strategy and the overall management of client portfolios. Mr. Amero has been
with BlackRock since 1990. Mr. Kopstein is a Managing Director of and portfolio
manager with BlackRock and a member of the Investment Strategy Group. He joined
BlackRock in 1994 and became part of the firm's Portfolio Management Group in
1998, specializing in short duration securities.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Effective October 2, 2006, the Fund's Class A, Class B, Class C and Class I
Shares were redesignated Investor A, Investor B, Investor C1 and Institutional
Shares, respectively. Class R Shares did not change their designation.
- --------------------------------------------------------------------------------
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 5
Performance Data
About Fund Performance
Effective October 2, 2006, the Fund's Class A, Class B, Class C and Class I
Shares were redesignated Investor A, Investor B, Investor C1, and Institutional
Shares, respectively. Class R Shares did not change their designation. Also,
effective October 2, 2006, the Fund's Investor C Shares commenced operations. As
previously communicated to shareholders, new sales charge schedules came into
effect at the same time for certain of these classes.
The Fund has multiple classes of shares:
o Institutional Shares are not subject to any front-end sales charge.
Institutional Shares bear no ongoing distribution or service fees and are
available only to eligible investors.
o Investor A Shares incur a maximum initial sales charge (front-end load) of
3% and a service fee of 0.25% per year (but no distribution fee).
o Investor B Shares are subject to a maximum contingent deferred sales
charge of 4%, declining to 0% after six years. In addition, Investor B
Shares are subject to a distribution fee of 0.65% per year and a service
fee of 0.25% per year. These shares automatically convert to Investor A
Shares after approximately 10 years. (There is no initial sales charge for
automatic share conversions.) All returns for periods greater than 10
years reflect this conversion.
o Investor C Shares are subject to a distribution fee of 0.75% per year and
a service fee of 0.25% per year. In addition, Investor C Shares are
subject to a 1% contingent deferred sales charge if redeemed within one
year of purchase. Prior to October 2, 2006, Investor C Share performance
results were those of Institutional Shares (which have no distribution or
service fees) restated to reflect the Investor C Share fees.
o Investor C1 Shares are subject to a distribution fee of 0.65% per year and
a service fee of 0.25% per year. In addition, Investor C Shares are
subject to a 1% contingent deferred sales charge if redeemed within one
year of purchase.
o Class R Shares do not incur a maximum 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. Class R Shares are
available only to certain retirement plans. Prior to inception, Class R
Share performance results are those of Institutional Shares (which have no
distribution or service fees) restated for Class R Share fees.
The performance results for Investor A, Investor B, Investor C, Investor C1 and
Institutional Shares depicted on pages 7 and 8 are those of BlackRock Short-Term
Bond Fund and, prior to October 6, 2000 (commencement of operations), share
performance results were those of Institutional Shares of a predecessor Fund
(which have no distribution or service fees) restated to reflect each share's
fees.
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 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 following tables 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 service, distribution and transfer agency fees applicable to each class,
which are deducted from the income available to be paid to shareholders.
6 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
Performance Data (continued)
Recent Performance Results*
6-Month 12-Month 10-Year Standardized
As of December 31, 2006 Total Return Total Return Total Return 30-Day Yield
========================================================================================================================
Institutional Shares* +3.00% +4.29% +56.68% 4.37%
- ------------------------------------------------------------------------------------------------------------------------
Investor A Shares* +2.77 +4.03 +52.72 4.00
- ------------------------------------------------------------------------------------------------------------------------
Investor B Shares* +2.52 +3.32 +43.00 3.43
- ------------------------------------------------------------------------------------------------------------------------
Investor C Shares* +2.49 +3.25 +41.82 3.37
- ------------------------------------------------------------------------------------------------------------------------
Investor C1 Shares* +2.52 +3.33 +42.93 3.43
- ------------------------------------------------------------------------------------------------------------------------
Class R Shares* +2.75 +3.77 +50.11 3.87
- ------------------------------------------------------------------------------------------------------------------------
Merrill Lynch 1 - 3 Year Corporate & Government Index** +3.08 +4.25 +62.08 --
- ------------------------------------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Cumulative total investment
returns are based on changes in net asset values for the periods shown,
and assume reinvestment of all dividends and capital gains distributions
at net asset value on the payable date.
** This unmanaged Index is comprised of investment grade corporate bonds and
U.S. Treasury and agency securities with a maturity ranging from one year
to three years.
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 7
Performance Data (concluded)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Institutional
Shares, Investor A Shares, Investor B Shares, Investor C Shares, Investor C1
Shares and Class R Shares compared to growth of an investment in the Merrill
Lynch 1 - 3 Year Corporate & Government Index. Values are from December 1996 to
December 2006.
Merrill Lynch
1 - 3 Year
Corporate
Institutional Investor A Investor B Investor C Investor C1 Class R & Government
Shares*+ Shares*+ Shares*+ Shares*+ Shares*+ Shares*+ Index++
12/96 $10,000 $9,700 $10,000 $10,000 $10,000 $10,000 $10,000
12/97 $10,736 $10,388 $10,641 $10,630 $10,641 $10,683 $10,669
12/98 $11,343 $10,948 $11,142 $11,120 $11,142 $11,231 $11,417
12/99 $11,724 $11,288 $11,413 $11,379 $11,413 $11,550 $11,788
12/00 $12,537 $12,041 $12,091 $12,048 $12,079 $12,290 $12,740
12/01 $13,506 $12,930 $12,915 $12,850 $12,895 $13,174 $13,849
12/02 $14,115 $13,480 $13,365 $13,297 $13,357 $13,700 $14,693
12/03 $14,535 $13,848 $13,652 $13,556 $13,631 $14,138 $15,096
12/04 $14,773 $14,040 $13,734 $13,642 $13,727 $14,284 $15,279
12/05 $15,024 $14,240 $13,840 $13,735 $13,833 $14,466 $15,547
12/06 $15,668 $14,814 $14,300 $14,182 $14,293 $15,011 $16,208
* Assuming maximum sales charge, if any, transaction costs and other
operating expenses, including advisory fees.
+ The Fund invests all of its assets in Short-Term Bond Master Portfolio of
Short-Term Bond Master Trust. The Portfolio invests in bonds of varying
maturities with a portfolio duration of one to three years.
++ This unmanaged Index is comprised of investment grade corporate bonds and
U.S. Treasury and agency securities with a maturity ranging from one year
to three years.
Past performance is not indicative of future results.
Average Annual Total Return
Return
================================================================================
Institutional Shares
================================================================================
One Year Ended 12/31/06 +4.29%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/06 +3.01
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/06 +4.59
- --------------------------------------------------------------------------------
Return Without Return With
Sales Charge Sales Charge*
================================================================================
Investor A Shares
================================================================================
One Year Ended 12/31/06 +4.03% +0.91%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/06 +2.76 +2.13
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/06 +4.33 +4.01
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Investor B Shares+
================================================================================
One Year Ended 12/31/06 +3.32% -0.68%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/06 +2.06 +1.70
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/06 +3.64 +3.64
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Investor C Shares++
================================================================================
One Year Ended 12/31/06 +3.25% +2.25%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/06 +1.99 +1.99
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/06 +3.56 +3.56
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Investor C1 Shares++
================================================================================
One Year Ended 12/31/06 +3.33% +2.33%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/06 +2.08 +2.08
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/06 +3.64 +3.64
- --------------------------------------------------------------------------------
Return
================================================================================
Class R Shares
================================================================================
One Year Ended 12/31/06 +3.77%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/06 +2.65
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/06 +4.15
- --------------------------------------------------------------------------------
* Assuming maximum sales charge of 3%.
+ Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
++ Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
+++ Assuming payment of applicable contingent deferred sales charge.
8 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The following example (which is based on a
hypothetical investment of $1,000 invested on July 1, 2006 and held through
December 31, 2006) 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 first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders' ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees or exchange fees. Therefore, the second table 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.
Expenses Paid
Ending During the Period
Beginning Account Value Ended++
Account Value+ December 31, 2006 December 31, 2006*
=======================================================================================================
Actual
=======================================================================================================
Institutional $1,000 $1,030.00 $ 3.46
- -------------------------------------------------------------------------------------------------------
Investor A $1,000 $1,027.70 $ 4.73
- -------------------------------------------------------------------------------------------------------
Investor B $1,000 $1,025.20 $ 8.17
- -------------------------------------------------------------------------------------------------------
Investor C $1,000 $1,024.90 $ 4.27
- -------------------------------------------------------------------------------------------------------
Investor C1 $1,000 $1,025.20 $ 8.17
- -------------------------------------------------------------------------------------------------------
Class R $1,000 $1,027.50 $ 6.00
=======================================================================================================
Hypothetical (5% annual return before expenses)**
=======================================================================================================
Institutional $1,000 $1,021.69 $ 3.45
- -------------------------------------------------------------------------------------------------------
Investor A $1,000 $1,020.44 $ 4.71
- -------------------------------------------------------------------------------------------------------
Investor B $1,000 $1,017.03 $ 8.14
- -------------------------------------------------------------------------------------------------------
Investor C $1,000 $1,024.80 $ 4.23
- -------------------------------------------------------------------------------------------------------
Investor C1 $1,000 $1,017.03 $ 8.14
- -------------------------------------------------------------------------------------------------------
Class R $1,000 $1,019.18 $ 5.97
- -------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the expense ratio for
the class (.68% for Institutional, .93% for Investor A, 1.61% for Investor
B, 1.69% for Investor C, 1.61% for Investor C1 and 1.18% for Class R),
multiplied by the average account value over the period, multiplied by
183/365 for Institutional, Investor A, Investor B, Investor C1 and Class R
and 92/365 for Investor C Shares (to reflect the one-half year period for
Investor A, Investor B, Investor C1 and Class R and the actual days since
inception for Investor C Shares). Because the Fund is a feeder fund, the
expense table example reflects the expenses of both the feeder fund and
master portfolio in which it invests.
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year for Institutional,
Investor A, Investor B, Investor C1 and Class R Shares and the actual days
since inception for Investor C Shares divided by 365.
+ July 1, 2006 for Institutional, Investor A, Investor B, Investor C1 and
Class R Shares and October 2, 2006 (commencement of operations) for
Investor C Shares.
++ The period represents the six months ended for Institutional, Investor A,
Investor B, Investor C1 and Class R Shares and October 2, 2006
(commencement of operations) for Investor C Shares.
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 9
Statement of Assets and Liabilities BlackRock Short-Term Bond Fund
As of December 31, 2006
==================================================================================================================================
Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Investment in Short-Term Bond Master Portfolio (the "Portfolio"), at value
(identified cost -- $675,942,647) ................................................... $672,127,733
Prepaid expenses and other assets .................................................... 209,162
------------
Total assets ......................................................................... 672,336,895
------------
==================================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------------
Payables:
Dividends to shareholders ......................................................... $ 2,076,103
Distributor ....................................................................... 212,305
Administrator ..................................................................... 146,877
Other affiliates .................................................................. 214,919
------------
Total liabilities .................................................................... 2,650,204
------------
==================================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets ........................................................................... $669,686,691
============
==================================================================================================================================
Net Assets Consist of
- ----------------------------------------------------------------------------------------------------------------------------------
Institutional Shares of Common Stock, $.01 par value, 100,000,000 shares authorized .. $ 198,613
Investor A Shares of Common Stock, $.01 par value, 100,000,000 shares authorized ..... 275,498
Investor B Shares of Common Stock, $.01 par value, 200,000,000 shares authorized ..... 49,377
Investor C Shares of Common Stock, $.01 par value, 100,000,000 shares authorized ..... 8,838
Investor C1 Shares of Common Stock, $.01 par value, 100,000,000 shares authorized .... 129,113
Class R Shares of Common Stock, $.01 par value, 200,000,000 shares authorized ........ 6,958
Paid-in capital in excess of par ..................................................... 700,763,808
Accumulated distributions in excess of investment income -- net ...................... $ (448,487)
Accumulated realized capital losses allocated from the Portfolio -- net .............. (27,482,113)
Unrealized depreciation allocated from the Portfolio -- net .......................... (3,814,914)
------------
Total accumulated losses -- net ...................................................... (31,745,514)
------------
Net Assets ........................................................................... $669,686,691
============
==================================================================================================================================
Net Asset Value
- ----------------------------------------------------------------------------------------------------------------------------------
Institutional -- Based on net assets of $199,211,440 and 19,861,315 shares outstanding $ 10.03
============
Investor A -- Based on net assets of $276,169,523 and 27,549,811 shares outstanding .. $ 10.02
============
Investor B -- Based on net assets of $49,389,515 and 4,937,736 shares outstanding .... $ 10.00
============
Investor C -- Based on net assets of $8,841,910 and 883,839 shares outstanding ....... $ 10.00
============
Investor C1 -- Based on net assets of $129,111,031 and 12,911,324 shares outstanding . $ 10.00
============
Class R -- Based on net assets of $6,963,272 and 695,763 shares outstanding .......... $ 10.01
============
See Notes to Financial Statements.
10 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
Statement of Operations BlackRock Short-Term Bond Fund
For the Six Months Ended December 31, 2006
==================================================================================================================================
Investment Income
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Portfolio:
Interest ............................................................... $ 15,886,719
Dividends .............................................................. 22,961
Securities lending -- net .............................................. 17,698
Expenses ............................................................... (932,479)
------------
Total income .............................................................. 14,994,899
------------
==================================================================================================================================
Expenses
- ----------------------------------------------------------------------------------------------------------------------------------
Administration fees ....................................................... $ 849,634
Service and distribution fees -- Investor C1 .............................. 616,165
Service fees -- Investor A ................................................ 345,482
Service and distribution fees -- Investor B ............................... 248,252
Transfer agent fees -- Investor A ......................................... 165,625
Transfer agent fees -- Institutional ...................................... 121,495
Transfer agent fees -- Investor C1 ........................................ 102,350
Printing and shareholder reports .......................................... 63,058
Registration fees ......................................................... 44,365
Transfer agent fees -- Investor B ......................................... 42,025
Service and distribution fees -- Class R .................................. 15,557
Service and distribution fees -- Investor C ............................... 11,477
Professional fees ......................................................... 10,534
Transfer agent fees -- Class R ............................................ 3,743
Transfer agent fees -- Investor C ......................................... 1,416
Other ..................................................................... 9,614
------------
Total expenses ............................................................ 2,650,792
------------
Investment income -- net .................................................. 12,344,107
------------
==================================================================================================================================
Realized & Unrealized Gain (Loss) Allocated from the Portfolio -- Net
- ----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments -- net ..................................................... (3,208,437)
Financial futures contracts and swaps -- net ........................... (133,721)
Foreign currency transactions -- net ................................... 12,074 (3,330,084)
------------
Change in unrealized appreciation/depreciation on:
Investments -- net ..................................................... 9,093,639
Financial futures contacts and swaps -- net ............................ 363,448
Options written -- net ................................................. 107,132
Foreign currency transactions -- net ................................... 199,050 9,763,269
----------------------------
Total realized and unrealized gain -- net ................................. 6,433,185
------------
Net Increase in Net Assets Resulting from Operations ...................... $ 18,777,292
============
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 11
Statements of Changes in Net Assets BlackRock Short-Term Bond Fund
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2006 2006
==================================================================================================================================
Operations
- ----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net .................................................. $ 12,344,107 $ 22,254,247
Realized loss -- net ...................................................... (3,330,084) (2,431,805)
Change in unrealized appreciation/depreciation -- net ..................... 9,763,269 (8,404,614)
----------------------------
Net increase in net assets resulting from operations ...................... 18,777,292 11,417,828
----------------------------
==================================================================================================================================
Dividends to Shareholders
- ----------------------------------------------------------------------------------------------------------------------------------
Investment income -- net:
Institutional .......................................................... (4,144,086) (7,412,136)
Investor A ............................................................. (5,303,955) (8,619,359)
Investor B ............................................................. (869,456) (2,128,686)
Investor C ............................................................. (36,285) --
Investor C1 ............................................................ (2,161,742) (4,405,599)
Class R ................................................................ (111,924) (146,884)
----------------------------
Net decrease in net assets resulting from dividends to shareholders ....... (12,627,448) (22,712,664)
----------------------------
==================================================================================================================================
Capital Share Transactions
- ----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from capital share transactions ........ (14,203,037) (36,485,602)
----------------------------
==================================================================================================================================
Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets .............................................. (8,053,193) (47,780,438)
Beginning of period ....................................................... 677,739,884 725,520,322
----------------------------
End of period* ............................................................ $669,686,691 $677,739,884
============================
* Accumulated distributions in excess of investment income -- net ...... $ (448,487) $ (165,146)
============================
See Notes to Financial Statements.
12 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
Financial Highlights BlackRock Short-Term Bond Fund
Institutional
---------------------------------------------------------------------
For the Six
Months Ended For the Year Ended June 30,
The following per share data and ratios have been derived December 31, -------------------------------------------------------
from information provided in the financial statements. 2006 2006 2005 2004 2003 2002
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ........... $ 9.94 $ 10.10 $ 10.16 $ 10.39 $ 10.17 $ 10.21
--------------------------------------------------------------------
Investment income -- net** ..................... .20 .36 .30 .31 .31 .45
Realized and unrealized gain (loss) -- net ..... .10 (.15) (.06) (.23) .25 .02
--------------------------------------------------------------------
Total from investment operations ............... .30 .21 .24 .08 .56 .47
--------------------------------------------------------------------
Less dividends and distributions:
Investment income -- net .................... (.21) (.37) (.30) (.31) (.34) (.50)
Realized gain -- net ........................ -- -- -- -- -- (.01)
--------------------------------------------------------------------
Total dividends and distributions .............. (.21) (.37) (.30) (.31) (.34) (.51)
--------------------------------------------------------------------
Net asset value, end of period ................. $ 10.03 $ 9.94 $ 10.10 $ 10.16 $ 10.39 $ 10.17
====================================================================
==================================================================================================================================
Total Investment Return
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ............. 3.00%@ 2.11% 2.39% .81% 5.61% 4.68%
====================================================================
==================================================================================================================================
Ratios to Average Net Assets+
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement
and excluding reorganization expenses ........ .68%* .67% .69% .65% .70% .58%
====================================================================
Expenses ....................................... .68%* .67% .69% .65% .75% .78%
====================================================================
Investment income -- net ....................... 4.01%* 3.61% 2.93% 3.00% 3.29% 4.51%
====================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ....... $199,211 $203,377 $208,777 $240,749 $182,654 $ 23,325
====================================================================
Portfolio turnover of the Portfolio ............ 66.51% 79.97% 74.53% 107.13% 198.09% 70.92%
====================================================================
* Annualized.
** Based on average shares outstanding.
+ Includes the Fund's share of the Portfolio's allocated expenses and/or
investment income -- net.
@ Aggregate total investment return.
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 13
Financial Highlights (continued) BlackRock Short-Term Bond Fund
Investor A
----------------------------------------------------------------------
For the Six
Months Ended For the Year Ended June 30,
The following per share data and ratios have been derived December 31, --------------------------------------------------------
from information provided in the financial statements. 2006 2006 2005 2004 2003 2002
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ........... $ 9.94 $ 10.10 $ 10.16 $ 10.38 $ 10.16 $ 10.19
---------------------------------------------------------------------
Investment income -- net*** .................... .19 .34 .27 .29 .31 .34
Realized and unrealized gain (loss) -- net ..... .08 (.16) (.05) (.22) .23 .12
---------------------------------------------------------------------
Total from investment operations ............... .27 .18 .22 .07 .54 .46
---------------------------------------------------------------------
Less dividends and distributions:
Investment income -- net (.19) (.34) (.28) (.29) (.32) (.48)
Realized gain -- net ........................ -- -- -- -- -- (.01)
---------------------------------------------------------------------
Total dividends and distributions .............. (.19) (.34) (.28) (.29) (.32) (.49)
---------------------------------------------------------------------
Net asset value, end of period ................. $ 10.02 $ 9.94 $ 10.10 $ 10.16 $ 10.38 $ 10.16
=====================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ............. 2.77%@ 1.84% 2.14% .66% 5.36% 4.53%
=====================================================================
===================================================================================================================================
Ratios to Average Net Assets+
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement and
excluding reorganization expenses ............ .93%* .91% .93% .89% .95% .83%
=====================================================================
Expenses ....................................... .93%* .91% .93% .89% 1.00% 1.02%
=====================================================================
Investment income -- net ....................... 3.75%* 3.37% 2.69% 2.78% 3.03% 4.04%
=====================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ....... $276,170 $267,411 $235,886 $125,950 $152,780 $110,014
=====================================================================
Portfolio turnover of the Portfolio ............ 66.51% 79.97% 74.53% 107.13% 198.09% 70.92%
=====================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Includes the Fund's share of the Portfolio's allocated expenses and/or
investment income -- net.
@ Aggregate total investment return.
See Notes to Financial Statements.
14 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
Financial Highlights (continued) BlackRock Short-Term Bond Fund
Investor B
----------------------------------------------------------------------
For the Six
Months Ended For the Year Ended June 30,
The following per share data and ratios have been derived December 31, --------------------------------------------------------
from information provided in the financial statements. 2006 2006 2005 2004 2003 2002
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ........... $ 9.91 $ 10.08 $ 10.14 $ 10.37 $ 10.14 $ 10.18
---------------------------------------------------------------------
Investment income -- net*** .................... .15 .27 .20 .22 .24 .37
Realized and unrealized gain (loss) -- net ..... .10 (.16) (.05) (.23) .24 .01
---------------------------------------------------------------------
Total from investment operations ............... .25 .11 .15 (.01) .48 .38
---------------------------------------------------------------------
Less dividends and distributions:
Investment income -- net .................... (.16) (.28) (.21) (.22) (.25) (.41)
Realized gain -- net ........................ -- -- -- -- -- (.01)
---------------------------------------------------------------------
Total dividends and distributions .............. (.16) (.28) (.21) (.22) (.25) (.42)
---------------------------------------------------------------------
Net asset value, end of period ................. $ 10.00 $ 9.91 $ 10.08 $ 10.14 $ 10.37 $ 10.14
=====================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ............. 2.52%@ 1.07% 1.46% (.11%) 4.77% 3.75%
=====================================================================
===================================================================================================================================
Ratios to Average Net Assets+
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement and
excluding reorganization expenses ............ 1.61%* 1.59% 1.61% 1.56% 1.61% 1.48%
=====================================================================
Expenses ....................................... 1.61%* 1.59% 1.61% 1.56% 1.66% 1.70%
=====================================================================
Investment income -- net ....................... 3.07%* 2.67% 2.00% 2.12% 2.00% 3.75%
=====================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ....... $ 49,390 $ 60,519 $ 97,090 $130,802 $139,688 $ 64,457
=====================================================================
Portfolio turnover of the Portfolio ............ 66.51% 79.97% 74.53% 107.13% 198.09% 70.92%
=====================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Includes the Fund's share of the Portfolio's allocated expenses and/or
investment income -- net.
@ Aggregate total investment return.
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 15
Financial Highlights (continued) BlackRock Short-Term Bond Fund
Investor C1
Investor C --------------------------------------------------------------------------
For the For the
Period Six Months
The following per share data and Oct. 2++ to Ended For the Year Ended June 30,
ratios have been derived from information Dec. 31, Dec. 31, -----------------------------------------------------------
provided in the financial statements. 2006 2006 2006 2005 2004 2003 2002
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ..... $ 10.01 $ 9.91 $ 10.07 $ 10.13 $ 10.36 $ 10.14 $ 10.18
-------- -------------------------------------------------------------------------
Investment income -- net*** .............. .05 .15 .27 .20 .22 .24 .35
Realized and unrealized gain (loss) -- net .02 .10 (.15) (.05) (.23) .23 .03
-------- -------------------------------------------------------------------------
Total from investment operations ......... .07 .25 .12 .15 (.01) .47 .38
-------- -------------------------------------------------------------------------
Less dividends and distributions:
Investment income -- net .............. (.08) (.16) (.28) (.21) (.22) (.25) (.41)
Realized gain -- net .................. -- -- -- -- -- -- (.01)
-------- -------------------------------------------------------------------------
Total dividends and distributions ........ (.08) (.16) (.28) (.21) (.22) (.25) (.42)
-------- -------------------------------------------------------------------------
Net asset value, end of period ........... $ 10.00 $ 10.00 $ 9.91 $ 10.07 $ 10.13 $ 10.36 $ 10.14
======== =========================================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ....... .68%@ 2.52%@ 1.17% 1.46% (.11%) 4.68% 3.75%
======== =========================================================================
===================================================================================================================================
Ratios to Average Net Assets+
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver and reimbursement
and excluding reorganization expenses .. 1.69%* 1.61%* 1.59% 1.60% 1.56% 1.61% 1.48%
======== =========================================================================
Expenses ................................. 1.69%* 1.61%* 1.59% 1.60% 1.56% 1.66% 1.68%
======== =========================================================================
Investment income -- net ................. 2.84%* 3.08%* 2.68% 2.01% 2.12% 2.37% 3.62%
======== =========================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) . $ 8,842 $129,111 $142,083 $179,290 $239,263 $263,066 $126,380
======== =========================================================================
Portfolio turnover of the Portfolio ...... 66.51% 66.51% 79.97% 74.53% 107.13% 198.09% 70.92%
======== =========================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Includes the Fund's share of the Portfolio's allocated expenses and/or
investment income -- net.
++ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
16 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
Financial Highlights (concluded) BlackRock Short-Term Bond Fund
Class R
---------------------------------------------------------------------
For the
For the Six For the Year Ended Period
Months Ended June 30, Jan. 3, 2003++
The following per share data and ratios have been derived Dec. 31, ------------------------------------ to June 30,
from information provided in the financial statements. 2006 2006 2005 2004 2003
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ....... $ 9.92 $ 10.08 $ 10.14 $ 10.37 $ 10.29
-------------------------------------------------------------------
Investment income -- net** ................. .18 .32 .18 .17 .18
Realized and unrealized gain (loss) -- net . .09 (.16) .01 (.11) .08
-------------------------------------------------------------------
Total from investment operations ........... .27 .16 .19 .06 .26
-------------------------------------------------------------------
Less dividends from investment income -- net (.18) (.32) (.25) (.29) (.18)
-------------------------------------------------------------------
Net asset value, end of period ............. $ 10.01 $ 9.92 $ 10.08 $ 10.14 $ 10.37
-------------------------------------------------------------------
====================================================================================================================================
Total Investment Return
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ......... 2.75%@ 1.58% 1.88% .56% 2.55%@
-------------------------------------------------------------------
====================================================================================================================================
Ratios to Average Net Assets+
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding reorganization expenses 1.18%* 1.17% 1.19% 1.16% 1.19%*
-------------------------------------------------------------------
Expenses ................................... 1.18%* 1.17% 1.19% 1.16% 1.28%*
-------------------------------------------------------------------
Investment income -- net ................... 3.50%* 3.15% 2.46% 2.42% 2.74%*
-------------------------------------------------------------------
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ... $ 6,963 $ 4,350 $ 4,477 $ 2,387 --@@
===================================================================
Portfolio turnover of the Portfolio ........ 66.51% 79.97% 74.53% 107.13% 198.09%
===================================================================
* Annualized.
** Based on average shares outstanding.
+ Includes the Fund's share of the Portfolio's allocated expenses and/or
investment income -- net.
++ Commencement of operations.
@ Aggregate total investment return.
@@ Amount is less than $1,000.
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 17
Notes to Financial Statements BlackRock Short-Term Bond Fund
1. Significant Accounting Policies:
On September 29, 2006, Merrill Lynch Low Duration Fund (the "ML Fund") and
Merrill Lynch Investment Managers Funds, Inc., of which the ML Fund is a series,
were renamed BlackRock Short-Term Bond Fund (the "Fund") and BlackRock
Short-Term Bond Series, Inc. (the "Company"), respectively. The Company is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company, which is organized as a
Maryland Corporation. The Fund seeks to achieve its investment objective by
investing all of its assets in Short-Term Bond Master Portfolio (the
"Portfolio") of Short-Term Bond Master Trust, which has the same investment
objective and strategies as the Fund. The value of the Fund's investment in the
Portfolio reflects the Fund's proportionate interest in the net assets of the
Portfolio. The performance of the Fund is directly affected by the performance
of the Portfolio. The financial statements of the 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 percentage of the
Portfolio owned by the Fund at December 31, 2006 was 100%. The Fund's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. These unaudited financial
statements reflect all adjustments, which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period. All
such adjustments are of a normal, recurring nature. The Fund offers multiple
classes of shares. Effective October 2, 2006, Class I, Class A, Class B and
Class C Shares were redesignated Institutional, Investor A, Investor B and
Investor C1 Shares, respectively. Class R Shares did not change their
designation. Investor C Shares commenced operations on October 2, 2006.
Institutional Shares are sold only to certain eligible investors. Investor A
Shares are sold with a front-end sales charge. Shares of Investor B, Investor C
and Investor C1 may be subject to a contingent deferred sales charge. Class R
Shares are sold to certain retirement plans. All classes of shares have
identical voting, dividend, liquidation and other rights and the same terms and
conditions, except that Investor A, Investor B, Investor C, Investor C1 and
Class R Shares bear certain expenses related to the account maintenance of such
shares, and Investor B, Investor C, Investor C1 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 account
maintenance and distribution expenditures (except that Investor B shareholders
may vote on certain changes to the Investor A distribution plan).
Income, expenses (other than expenses attributable to a specific class) and
realized and unrealized gains and losses are allocated daily to each class based
on its relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- The Fund records its investment in the Portfolio
at fair value. Valuation of securities held by the Portfolio is discussed in
Note 1(a) of the Portfolio's Notes to Financial Statements, which are included
elsewhere in this report.
(b) Investment income and expenses -- The Fund records daily its proportionate
share of the Portfolio's income, expenses and realized and unrealized gains and
losses. In addition, the Fund accrues its own expenses.
(c) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to shareholders. Therefore,
no federal income tax provision is required.
(d) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(e) Dividends and distributions -- Dividends from net investment income are
declared daily and paid monthly. Distributions of capital gains are recorded on
the ex-dividend dates.
(f) Investment transactions -- Investment transactions in the Portfolio are
accounted for on a trade-date basis.
(g) Recent accounting pronouncements -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109."
FIN 48 prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity including mutual funds before being measured
and recognized in the financial statements. Adoption of FIN 48 is required for
the last net asset value calculation in the first required financial statement
reporting period for fiscal years beginning after December 15, 2006. The impact
on the Fund's financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair
18 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
Notes to Financial Statements (continued) BlackRock Short-Term Bond Fund
value, establishes a framework for measuring fair value and expands disclosures
about fair value measurements. Management is currently evaluating the
implications of FAS 157. At this time, its impact on the Fund's financial
statements has not been determined.
2. Transactions with Affiliates:
On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill
Lynch") combined Merrill Lynch's investment management business, Merrill Lynch
Investment Managers, L.P. ("MLIM"), and its affiliates, including Fund Asset
Management, L.P. ("FAM"), with BlackRock, Inc. to create a new independent
company. Merrill Lynch has a 49.8% economic interest and a 45% voting interest
in the combined company and The PNC Financial Services Group, Inc. ("PNC"), has
approximately a 34% economic and voting interest. The new company operates under
the BlackRock name and is governed by a board of directors with a majority of
independent members.
On August 15, 2006, shareholders of the Fund approved a new Investment Advisory
Agreement for the Portfolio with BlackRock Advisors, LLC (the "Manager"), an
indirect, wholly owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc.
was recently reorganized into a limited liability company and renamed BlackRock
Advisors, LLC. The new Investment Advisory Agreement became effective on
September 29, 2006. Prior to September 29, 2006, FAM was the Portfolio's
Manager. The general partner of FAM is Princeton Services, Inc. ("PSI"), an
indirect, wholly owned subsidiary of Merrill Lynch, which is the limited
partner.
The Fund has entered into an Administration Agreement with BlackRock Advisors,
LLC. The Fund pays a monthly fee at an annual rate of .25% of the Fund's average
daily net assets for the performance of administrative services (other than
investment advice and related portfolio activities) necessary for the operation
of the Fund. Prior to September 29, 2006, FAM acted as the Fund's administrator
and was compensated at the same fee rate. The Fund has also entered into
separate Distribution Agreements and Distribution Plans with FAM Distributors,
Inc. ("FAMD") and BlackRock Distributors, Inc. ("BDI") (collectively, the
"Distributor"). FAMD is a wholly owned subsidiary of Merrill Lynch Group, Inc.
and BDI is an affiliate of BlackRock, Inc.
Pursuant to the Distribution Plans adopted by the Company in accordance with
Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the
Distributor ongoing account maintenance ("service fees") and distribution fees.
The fees are accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
- --------------------------------------------------------------------------------
Service Distribution
Fee Fee
- --------------------------------------------------------------------------------
Investor A ...................................... .25% --
Investor B ...................................... .25% .65%
Investor C ...................................... .25% .75%
Investor C1 ..................................... .25% .65%
Class R ......................................... .25% .25%
- --------------------------------------------------------------------------------
Pursuant to sub-agreements with each Distributor, broker-dealers, including
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a wholly owned
subsidiary of Merrill Lynch, and an affiliate of the Distributor, also provide
service fees and distribution services to the Fund. The ongoing service fee
compensates the Distributors and each broker-dealer (including MLPF&S) for
providing account maintenance services to Investor A, Investor B, Investor C,
Investor C1 and Class R shareholders. The ongoing distribution fee compensates
the Distributors and the broker-dealers for providing shareholder and
distribution-related services to Investor B, Investor C, Investor C1 and Class R
shareholders.
For the six months ended December 31, 2006, FAMD, the Fund's sole Distributor
until September 29, 2006, and BDI earned underwriting discounts and direct
commissions and MLPF&S earned dealer concessions on sales of the Fund's Investor
A Shares as follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Investor A .................................... $10,440 $63,329
- --------------------------------------------------------------------------------
For the six months ended December 31, 2006, MLPF&S received contingent deferred
sales charges of $15,663 and $572 and $3,339 relating to transactions in
Investor B, Investor C and Investor C1 Shares, respectively. Furthermore, FAMD
paid MLPF&S sales charges of $2 relating to transactions subject to front-end
sales charge waivers.
BlackRock 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. During the period
September 29, 2006 to December 31, 2006, the following amounts have been accrued
by the Fund to reimburse BlackRock for costs incurred running the call center,
which are
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 19
Notes to Financial Statements (continued) BlackRock Short-Term Bond Fund
a component of the transfer agent fees in the accompanying Statements of
Operations.
- --------------------------------------------------------------------------------
Call Center Fees
- --------------------------------------------------------------------------------
Institutional ........................................... $ 876
Investor A .............................................. $1,512
Investor B .............................................. $ 397
Investor C1 ............................................. $ 658
Class R ................................................. $ 25
- --------------------------------------------------------------------------------
Prior to September 29, 2006, certain officers and/or directors of the Fund were
officers and/or directors of FAM, PSI, FAMD, FDS, and/or Merrill Lynch.
Commencing September 29, 2006, certain officers and/or directors of the Fund are
officers and/or directors of BlackRock, Inc. or its affiliates.
3. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$14,203,037 and $36,485,602 for the six months ended December 31, 2006 and the
year ended June 30, 2006, respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Institutional Shares for the Six Dollar
Months Ended December 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 1,520,173 $ 15,221,203
Shares issued to shareholders in
reinvestment of dividends .............. 389,284 3,899,996
------------------------------
Total issued ............................. 1,909,457 19,121,199
Shares redeemed .......................... (2,507,005) (25,109,177)
------------------------------
Net decrease ............................. (597,548) $ (5,987,978)
==============================
- -------------------------------------------------------------------------------
Institutional Shares for the Year Dollar
Ended June 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 4,589,347 $ 45,878,308
Shares issued to shareholders in
reinvestment of dividends .............. 629,194 6,294,006
------------------------------
Total issued ............................. 5,218,541 52,172,314
Shares redeemed .......................... (5,423,759) (54,309,989)
------------------------------
Net decrease ............................. (205,218) $ (2,137,675)
==============================
- -------------------------------------------------------------------------------
Investor A Shares for the Six Dollar
Months Ended December 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 4,458,489 $ 44,554,446
Automatic conversion of shares ........... 35,889 357,567
Shares issued to shareholders in
reinvestment of dividends .............. 495,963 4,965,357
------------------------------
Total issued ............................. 4,990,341 49,877,370
Shares redeemed .......................... (4,355,729) (43,626,292)
------------------------------
Net increase ............................. 634,612 $ 6,251,078
==============================
- -------------------------------------------------------------------------------
Investor A Shares for the Year Dollar
Ended June 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 7,868,571 $ 78,742,195
Automatic conversion of shares ........... 165,449 1,653,466
Shares issued to shareholders in
reinvestment of dividends .............. 720,378 7,200,366
------------------------------
Total issued ............................. 8,754,398 87,596,027
Shares redeemed .......................... (5,202,244) (52,071,208)
------------------------------
Net increase ............................. 3,552,154 $ 35,524,819
==============================
- -------------------------------------------------------------------------------
Investor B Shares for the Six Dollar
Months Ended December 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 186,074 $ 1,856,498
Shares issued to shareholders in
reinvestment of dividends .............. 62,833 627,594
------------------------------
Total issued ............................. 248,907 2,484,092
------------------------------
Automatic conversion of shares ........... (35,961) (357,567)
Shares redeemed .......................... (1,379,994) (13,778,206)
------------------------------
Total redeemed ........................... (1,415,955) (14,135,773)
------------------------------
Net decrease ............................. (1,167,048) $(11,651,681)
==============================
- -------------------------------------------------------------------------------
Investor B Shares for the Year Dollar
Ended June 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 764,008 $ 7,626,851
Shares issued to shareholders in
reinvestment of dividends .............. 138,454 1,381,959
------------------------------
Total issued ............................. 902,462 9,008,810
------------------------------
Automatic conversion of shares ........... (165,800) (1,653,466)
Shares redeemed .......................... (4,267,131) (42,618,020)
------------------------------
Total redeemed ........................... (4,432,931) (44,271,486)
------------------------------
Net decrease ............................. (3,530,469) $(35,262,676)
==============================
- -------------------------------------------------------------------------------
Investor C Shares for the Period
October 2, 2006* to Dollar
December 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 910,723 $ 9,115,355
Shares issued to shareholders in
reinvestment of dividends .............. 2,807 28,105
------------------------------
Total issued ............................. 913,530 9,143,460
Shares redeemed .......................... (29,691) (297,381)
------------------------------
Net increase ............................. 883,839 $ 8,846,079
==============================
* Commencement of operations.
- -------------------------------------------------------------------------------
Investor C1 Shares for the Six Dollar
Months Ended December 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 1,035,146 $ 10,313,742
Shares issued to shareholders in
reinvestment of dividends .............. 170,279 1,700,662
------------------------------
Total issued ............................. 1,205,425 12,014,404
Shares redeemed .......................... (2,630,406) (26,238,669)
------------------------------
Net decrease ............................. (1,424,981) $(14,224,265)
==============================
20 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
Notes to Financial Statements (concluded) BlackRock Short-Term Bond Fund
- -------------------------------------------------------------------------------
Investor C1 Shares for the Year Dollar
Ended June 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 4,003,186 $ 39,947,150
Shares issued to shareholders in
reinvestment of dividends .............. 318,879 3,180,745
------------------------------
Total issued ............................. 4,322,065 43,127,895
Shares redeemed .......................... (7,784,003) (77,684,767)
------------------------------
Net decrease ............................. (3,461,938) $(34,556,872)
==============================
- -------------------------------------------------------------------------------
Class R Shares for the Six Months Dollar
Ended December 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 340,166 $ 3,392,674
Shares issued to shareholders in
reinvestment of dividends .............. 11,511 115,115
------------------------------
Total issued ............................. 351,677 3,507,789
Shares redeemed .......................... (94,472) (944,059)
------------------------------
Net increase ............................. 257,205 $ 2,563,730
==============================
- -------------------------------------------------------------------------------
Class R Shares for the Year Dollar
Ended June 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .............................. 340,042 $ 3,397,077
Shares issued to shareholders in
reinvestment of dividends .............. 14,555 145,278
------------------------------
Total issued ............................. 354,597 3,542,355
Shares redeemed .......................... (360,251) (3,595,553)
------------------------------
Net decrease ............................. (5,654) $ (53,198)
==============================
4. Capital Loss Carryforward:
On June 30, 2006, the Fund had a net capital loss carryforward of $22,115,369,
of which $2,721,252 expires in 2007, $6,549,324 expires in 2008, $1,140,537
expires in 2009, $971,617 expires in 2011, $1,630,307 expires in 2012,
$6,250,370 expires in 2013 and $2,851,962 expires in 2014. This amount will be
available to offset like amounts of any future taxable gains.
5. Change in Independent Registered Public Accounting Firm:
Effective August 28, 2006, Ernst & Young LLP ("E&Y") resigned as Independent
Registered Public Accounting Firm of the Fund.
E&Y's report on the financial statements of the Fund for the past five fiscal
years did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with its audits for the two most recent fiscal years through June
30, 2006 (1) there were no disagreements with E&Y on any matter of accounting
principle or practices, financial statement disclosure or auditing scope or
procedure, whereby such disagreements, if not resolved to the satisfaction of
E&Y, would have caused them to make reference to the subject matter of the
disagreements in connection with their report on the financial statements for
such years; and (2) there have been no reportable events (as defined in Item
304(a)(1)(v) of Regulation S-K).
The Fund engaged Deloitte & Touche LLP as the Fund's Independent Registered
Public Accounting Firm for the fiscal year ending June 30, 2007.
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 21
Portfolio Information as of December 31, 2006 Short-Term Bond Master Portfolio
Percent of
Asset Mix Total Investments
- --------------------------------------------------------------------------------
Asset-Backed Securities ........................................ 26.2%
Government Agency Mortgage-Backed
Securities ................................................... 23.4
Corporate Bonds ................................................ 20.7
Non-Government Agency Mortgage-Backed
Securities ................................................... 18.7
Government Agency Mortgage-Backed
Obligations -- Collateralized Mortgage
Obligations .................................................. 5.6
Government & Agency Obligations ................................ 1.9
Other* ......................................................... 3.5
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments and options.
22 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
Schedule of Investments as of December 31, 2006
Short-Term Bond Master Portfolio (in U.S. dollars)
Face
Amount Asset-Backed Securities+ Value
====================================================================================================
$ 6,730,101 ACE Securities Corp. Series 2006-FM2 Class A2A,
5.37% due 8/25/2036 (a) $ 6,730,208
4,771,858 Aegis Asset Backed Securities Trust Series 2006-1
Class A1, 5.43% due 1/25/2037 (a) 4,771,522
11,000,000 Ameriquest Mortgage Securities, Inc.
Series 2004-FR1 Class A5, 4.455% due 5/25/2034 10,813,265
5,682,012 Asset Backed Funding Certificates
Series 2006-OPT2 Class A3A, 5.38% due 10/25/2036 (a) 5,681,675
5,650,000 Bank of America Credit Card Trust
Series 2006-A16 Class A16, 4.72% due 5/15/2013 5,580,349
Capital Auto Receivables Asset Trust (b):
1,250,000 Series 2004-2 Class D, 5.82% due 5/15/2012 1,233,611
8,300,000 Series 2006-SN1A Class A2A, 5.40%
due 1/20/2009 8,302,158
2,104,233 Capital One Auto Finance Trust Series 2003-A
Class A4A, 2.47% due 1/15/2010 2,092,623
Chase Manhattan Auto Owner Trust:
527,725 Series 2003-A Class CTFS, 2.04%
due 12/15/2009 523,374
6,713,381 Series 2005-A Class A3, 3.87% due 6/15/2009 6,645,673
6,323,943 Countrywide Asset Backed Certificates
Series 2004-13 Class AF3, 3.989% due 12/25/2034 (a) 6,269,057
6,525,000 Daimler Chrysler Auto Trust Series 2006-C
Class A3, 5.02% due 7/08/2010 6,511,639
7,613,994 First Horizon Asset Backed Securities Trust
Series 2004-HE4 Class A2, 4.07% due 7/25/2019 7,482,687
Ford Credit Auto Owner Trust:
6,300,000 Series 2005-A Class A4, 3.72%
due 10/15/2009 6,197,014
5,625,000 Series 2005-B Class A4, 4.38%
due 1/15/2010 5,560,275
7,450,000 Series 2005-C Class A3, 4.30%
due 8/15/2009 7,384,418
4,925,000 Fremont Home Loan Trust Series 2005-E
Class 2A2, 5.52% due 1/25/2036 (a) 4,926,593
5,312,703 GCO Slims Trust Series 2006-1A Class NOTE,
5.72% due 3/01/2022 (b) 5,267,047
1,593,577 GSAA Home Equity Trust Series 2006-8N
Class N1, 6% due 10/26/2036 (b) 1,561,705
GSAA Trust (a):
4,079,672 Series 2004-10 Class AF2, 4.22%
due 8/25/2034 4,041,941
5,908,000 Series 2005-12 Class AF2, 4.972%
due 9/25/2035 5,838,392
7,375,000 GSAMP Trust Series 2005-AHL Class A3,
5.69% due 4/25/2035 (a) 7,450,515
5,198,531 HSI Asset Securitization Corp. Trust
Series 2006-HE1 Class 2A1, 5.37% due 10/25/2036 (a) 5,198,158
Honda Auto Receivables Owner Trust:
3,860,000 Series 2004-1 Class A4, 3.06%
due 10/21/2009 3,809,316
2,850,000 Series 2006-1 Class A3, 5.07%
due 2/18/2010 2,845,008
5,425,000 Series 2006-3 Class A3, 5.12%
due 10/15/2010 5,418,319
Popular ABS Mortgage Pass-Through Trust (a):
306,962 Series 2004-5 Class AF2, 3.735%
due 12/25/2034 305,862
3,500,000 Series 2005-1 Class AF3, 4.142%
due 5/25/2035 3,465,887
10,440,018 Residential Asset Mortgage Products, Inc.
Series 2003-RZ3 Class A6, 3.40% due 3/25/2033 9,951,914
SLM Student Loan Trust (a):
5,305,810 Series 2002-1 Class A2, 5.49%
due 4/25/2017 5,318,332
7,402,799 Series 2002-4 Class A4, 5.50%
due 3/15/2017 7,426,277
5,706,718 Soundview Home Equity Loan Trust Series 2003-2
Class A2, 5.797% due 11/25/2033 (a) 5,751,242
7,000,000 USAA Auto Owner Trust Series 2006-1 Class A3,
5.01% due 9/15/2010 (b) 6,984,314
WFS Financial Owner Trust:
329,628 Series 2003-2 Class B, 2.48% due 12/20/2010 327,114
1,806,964 Series 2003-4 Class B, 2.73% due 5/20/2011 1,783,362
10,800,000 Series 2004-4 Class A4, 3.44% due 5/17/2012 10,553,791
157,768 Whole Auto Loan Trust Series 2004-1 Class D,
5.60% due 3/15/2011 157,514
- ----------------------------------------------------------------------------------------------------
Total Asset-Backed Securities
(Cost -- $191,031,662) -- 28.3% 190,162,151
====================================================================================================
Government & Agency Obligations
====================================================================================================
4,530,000 Fannie Mae, 4% due 2/28/2007 4,521,588
9,237,967 U.S. Treasury Inflation Indexed Bonds, 2.50%
due 7/15/2016 9,307,973
- ----------------------------------------------------------------------------------------------------
Total Government & Agency Obligations
(Cost -- $13,901,116) -- 2.1% 13,829,561
====================================================================================================
Government Agency
Mortgage-Backed Securities+
====================================================================================================
Fannie Mae Guaranteed Pass-Through Certificates:
3,325,718 4.968% due 8/01/2035 (a) 3,252,377
3,932,658 5.099% due 10/01/2035 (a) 3,901,636
61,867,173 5.50% due 11/01/2017 - 1/15/2037 (f) 61,341,679
6,348,442 5.713% due 10/01/2036 (a) 6,388,087
7,478,975 5.72% due 10/01/2036 (a) 7,526,633
19,700,000 6.00% due 1/15/2022 (f) 19,970,875
6,274,115 6.048% due 10/01/2036 (a) 6,359,156
4,974,332 6.131% due 10/01/2036 (a) 5,037,443
4,141,291 6.50% due 8/01/2032 - 8/01/2034 (f) 4,249,845
4,017,463 7.50% due 9/01/2035 4,183,375
3,737,221 8.00% due 7/01/2027 - 11/01/2032 3,943,517
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 23
Schedule of Investments (continued)
Short-Term Bond Master Portfolio (in U.S. dollars)
Face Government Agency
Amount Mortgage-Backed Securities+ Value
====================================================================================================
Freddie Mac Mortgage Participation Certificates (a):
$ 7,700,000 5.752% due 11/01/2036 $ 7,740,800
12,450,000 5.95% due 12/01/2036 12,507,221
23,750,000 6.045% due 11/01/2036 - 12/01/2036 23,926,713
- ----------------------------------------------------------------------------------------------------
Total Government Agency
Mortgage-Backed Securities
(Cost -- $170,741,862) -- 25.4% 170,329,357
Government Agency
Mortgage-Backed Obligations --
Collateralized Mortgage Obligations+
====================================================================================================
Fannie Mae Trust:
17,184,122 Series 360 Class 2 5.00% due 8/01/2035 (c) 4,122,260
6,618,458 Series 377 Class 2 5.00% due 10/01/2036 (c) 1,614,732
7,532,629 Series 2003-17 Class QR 4.50% due 11/25/2025 7,469,400
3,362,997 Series 2003-67 Class GL 3.00% due 1/25/2025 3,286,302
10,782,256 Series 2006-106 Class PA 5.50% due 6/25/2030 10,804,183
4,225,000 Series 2006-M2 Class A1A 4.855%
due 7/25/2016 (a) 4,177,469
9,119,314 Freddie Mac Multiclass Certificates Series 2673
Class ML 4.00% due 12/15/2022 9,020,520
Ginnie Mae Trust Series 2002-94 Class XB
56,577,972 2.349% due 11/16/2007 (c) 435,922
- ----------------------------------------------------------------------------------------------------
Total Government Agency
Mortgage-Backed ObligationsMortgage Obligations
(Cost -- $41,766,815) -- 6.1% 40,930,788
Non-Government Agency
Mortgage-Backed Securities+
====================================================================================================
Collateralized Mortgage Obligations -- 12.8%
5,072,833 Banc of America Funding Corp. Series 2006-I
Class 1A1, 4.581% due 12/20/2036 4,997,533
3,891,328 Bank of America Mortgage Securities
Series 2003-J Class 2A1, 4.084% due 11/25/2033 (a) 3,821,669
82,838 BlackRock Capital Finance LP Series 1997-R2
Class AP, 9.20% due 12/25/2035 (a)(b)(g) 82,838
4,122,694 Deutsche Alt-A Securities, Inc. Mortgage Loan
Series 2006-AF1 Class A1, 5.43% due 4/25/2036 (a) 4,123,897
5,208,956 Harborview Mortgage Loan Trust Series 2006-11
Class A1A, 5.49% due 12/19/2036 (a) 5,219,458
3,975,000 Indymac Index Mortgage Loan Trust
Series 2006-AR41 Class A3, 5.53% due 1/25/2037 (a) 3,975,000
8,686,498 JPMorgan Mortgage Trust Series 2005-A2
Class 4A1, 5.21% due 4/25/2035 (a) 8,518,263
5,475,000 Luminent Mortgage Trust Series 2006-7
Class 1A1, 5.53% due 5/25/2036 (a) 5,474,962
17,772,400 Morgan Stanley Mortgage Loan Trust
Series 2006-3AR Class 2A3, 5.92% due 3/25/2036 (a) 17,923,504
231,691 Ocwen Residential MBS Corp. Series 1998-R2
Class AP, 8.35% due 11/25/2034 (a)(b) 185,353
Residential Accredit Loans, Inc. (a):
4,768,228 Series 2005-QS12 Class A8, 5.66%
due 8/25/2035 4,770,822
5,668,049 Series 2006-QA9 Class A1, 5.50%
due 11/25/2036 5,658,023
24,576 Salomon Brothers Mortgage Securities
Series 1986-1 Class A, 6% due 12/25/2011 24,490
Structured Mortgage Asset Residential Trust:
6,121 Series 1991-1 Class H, 8.25% due 6/25/2022 6,100
413 Series 1992-3A Class AA, 8% due 10/25/2007 412
60,534 Walsh Acceptance Series 1997-2 Class A,
7.32% due 3/01/2027 (a)(b) 24,213 Washington Mutual (a):
3,666 Series 2000-1 Class B1, 9.35%
due 1/25/2040 (b) 3,666
15,651,531 Series 2004-AR3 Class A1, 3.918%
due 6/25/2034 15,262,637
6,062,925 Wells Fargo Mortgage Backed Securities Trust
Series 2004-3 Class A1, 4.75% due 4/25/2019 5,856,403
------------
85,929,243
====================================================================================================
Commercial Mortgage-Backed Securities -- 5.0%
CS First Boston Mortgage Securities Corp.:
4,054,381 Series 2002-CKS4 Class A1, 4.485%
due 11/15/2036 3,973,191
3,463,899 Series 2004-C3 Class A2, 3.913%
due 7/15/2036 3,393,336
3,900,000 Chase Commercial Mortgage Securities Corp.
Series 1999-2 Class A2, 7.198% due 1/15/2032 4,069,679
4,055,937 Commercial Mortgage Acceptance Corp.
Series 1999-C1 Class A2, 7.03% due 6/15/2031 4,180,276
1,592,141 Commercial Mortgage Pass-Through Certificates
Series 2004-LB4A Class A1, 3.566%
due 10/15/2037 1,576,412
4,384,962 GMAC Commercial Mortgage Securities, Inc.
Series 1999-C1 Class A2, 6.175% due 5/15/2033 4,438,567
1,589,421 Greenwich Capital Commercial Funding Corp.
Series 2004-GG1 Class A2, 3.835% due 6/10/2036 1,577,155
4,758,783 LB Commercial Conduit Mortgage Trust
Series 1999-C1 Class A2, 6.78% due 6/15/2031 4,878,192
5,398,140 LB-UBS Commercial Mortgage Trust
Series 2004-C7 Class A1, 3.625% due 10/15/2029 5,270,551
------------
33,357,359
====================================================================================================
Stripped Mortgage Backed Securities -- 2.4%
77,225,777 CS First Boston Mortgage Securities Corp.
Series 2003-CPN1 Class ASP, 1.584% due 3/15/2035 (a)(c) 2,672,529
20,524,183 Greenwich Capital Commercial Funding Corp.
Series 2002-C1 Class XP, 2.059% due 1/11/2035 (a)(c) 1,692,453
70,606,349 LB-UBS Commercial Mortgage Trust
Series 2002-C4 Class XCP, 1.475% due 10/15/2035 (a)(c) 2,432,608
National Collegiate Student Loan Trust Class A10 (c):
16,400,000 Series 2005-2, 7.73% due 3/25/2012 3,721,160
33,292,725 Series 2005-GT1, 6.75% due 12/25/2009 6,179,130
------------
16,697,880
- ----------------------------------------------------------------------------------------------------
Total Non-Government Agency
Mortgage-Backed Securities
(Cost -- $137,352,486) -- 20.2% 135,984,482
====================================================================================================
24 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
Schedule of Investments (continued)
Short-Term Bond Master Portfolio (in U.S. dollars)
Face
Amount Corporate Bonds Value
====================================================================================================
Aerospace & Defense -- 0.6%
$ 1,250,000 Goodrich Corp., 6.45% due 4/15/2008 $ 1,259,255
80,000 L-3 Communications Corp., 5.875% due 1/15/2015 77,200
Raytheon Co.:
1,700,000 6.75% due 8/15/2007 1,712,521
880,000 6.15% due 11/01/2008 891,263
------------
3,940,239
====================================================================================================
Airlines -- 0.4%
639,511 American Airlines, Inc. Series 2003-1, 3.85% due 1/09/2012 (d) 620,645
1,768,033 Systems 2001 Asset Trust Pass-Through Trusts, 6.664%
due 9/15/2013 (b) 1,851,184
------------
2,471,829
====================================================================================================
Automobiles -- 0.8%
DaimlerChrysler NA Holding Corp.:
3,400,000 4.75% due 1/15/2008 3,368,995
2,000,000 4.05% due 6/04/2008 1,957,274
------------
5,326,269
====================================================================================================
Capital Markets -- 0.8%
1,070,000 The Bank of New York Co., Inc., 3.80% due 2/01/2008 1,052,679
2,220,000 Goldman Sachs Group, Inc., 4.125% due 1/15/2008 2,194,634
2,510,000 Lehman Brothers Holdings, Inc., 3.60% due 3/13/2009 2,425,872
------------
5,673,185
====================================================================================================
Chemicals -- 0.1%
255,000 Equistar Chemicals LP,10.125% due 9/01/2008 270,937
525,000 Lyondell Chemical Co., 8.25% due 9/15/2016 551,250
------------
822,187
====================================================================================================
Commercial Banks -- 1.6%
2,000,000 FleetBoston Financial Corp., 3.85% due 2/15/2008 1,969,264
2,425,000 HBOS Treasury Services Plc, 3.50% due 11/30/2007 (b) 2,385,234
2,500,000 US Bank NA, 4.125% due 3/17/2008 2,459,810
1,500,000 Wachovia Corp., 6.15% due 3/15/2009 1,528,395
2,200,000 Wells Fargo & Co., 4% due 8/15/2008 2,155,078
------------
10,497,781
====================================================================================================
Communications Equipment -- 0.2%
955,000 Cisco Systems, Inc., 5.451% due 2/20/2009 (a) 955,912
300,000 Wind Acquisition Finance SA,10.75% due 12/01/2015 (b) 341,250
------------
1,297,162
====================================================================================================
Computers & Peripherals -- 0.0%
135,000 Seagate Technology HDD Holdings, 6.80% due 10/01/2016 135,675
====================================================================================================
Consumer Finance -- 1.0%
3,500,000 HSBC Finance Corp., 4.125% due 12/15/2008 3,430,497
3,060,000 MBNA Corp., 5.625% due 11/30/2007 3,065,572
------------
6,496,069
====================================================================================================
Containers & Packaging -- 0.0%
220,000 Crown Cork & Seal Company, Inc., 7.375% due 12/15/2026 205,700
====================================================================================================
Diversified Financial Services -- 4.0%
3,800,000 Citigroup, Inc., 3.50% due 2/01/2008 3,731,622
2,700,000 General Electric Capital Corp. Series A, 3.75%
due 12/15/2009 (d) 2,598,825
JPMorgan Chase & Co.:
2,970,000 5.25% due 5/30/2007 2,968,865
4,800,000 3.625% due 5/01/2008 4,688,880
Links Finance Corp. (a):
1,500,000 5.61% due 9/15/2010 1,501,260
1,500,000 Series 54, 5.61% due 9/15/2010 1,501,260
1,500,000 Series 55, 5.61% due 9/15/2010 1,499,125
Sigma Finance Corp. (e):
5,500,000 7.374% due 8/15/2011 5,500,000
2,700,000 5.3718% due 3/31/2014 (a) 2,709,021
------------
26,698,858
====================================================================================================
Diversified Telecommunication Services -- 2.0%
1,810,000 AT&T, Inc., 4.125% due 9/15/2009 1,757,970
1,960,000 BellSouth Corp., 5.499% due 11/15/2007 (a) 1,962,210
260,000 Cincinnati Bell, Inc., 7.25% due 7/15/2013 269,100
2,500,000 Deutsche Telekom International Finance BV, 3.875% due 7/22/2008 2,446,820
250,000 Qwest Corp., 8.61% due 6/15/2013 (a) 270,625
2,250,000 Telecom Italia Capital SA, 4% due 11/15/2008 2,191,172
Verizon Global Funding Corp.:
1,250,000 7.60% due 3/15/2007 1,255,151
3,225,000 4% due 1/15/2008 3,181,846
------------
13,334,894
====================================================================================================
Electric Utilities -- 0.6%
1,485,000 American Electric Power Co., Inc., 4.709% due 8/16/2007 1,477,715
1,615,000 CC Funding Trust I, 6.90% due 2/16/2007 1,616,959
210,000 Reliant Energy, Inc., 6.75% due 12/15/2014 205,275
685,000 Xcel Energy, Inc., 3.40% due 7/01/2008 664,945
------------
3,964,894
====================================================================================================
Gas Utilities -- 0.7%
4,040,000 Nisource Finance Corp., 5.94% due 11/23/2009 (a) 4,041,200
670,000 Targa Resources, Inc., 8.50% due 11/01/2013 (b) 675,025
180,000 Transcontinental Gas Pipe Line Corp. Series B, 8.875%
due 7/15/2012 203,400
------------
4,919,625
====================================================================================================
Health Care Providers & Services -- 0.3%
1,940,000 WellPoint, Inc., 3.75% due 12/14/2007 1,909,379
====================================================================================================
Hotels, Restaurants & Leisure -- 0.1%
195,000 American Real Estate Partners LP, 8.125% due 6/01/2012 201,338
405,000 MGM Mirage, 6% due 10/01/2009 403,988
335,000 Seneca Gaming Corp., 7.25% due 5/01/2012 340,863
------------
946,189
====================================================================================================
Household Durables -- 1.1%
1,095,000 Centex Corp., 5.621% due 8/01/2007 (a) 1,095,888
4,075,000 DR Horton, Inc., 7.50% due 12/01/2007 4,146,336
2,420,000 Pulte Homes, Inc., 4.875% due 7/15/2009 2,382,996
------------
7,625,220
====================================================================================================
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 25
Schedule of Investments (continued)
Short-Term Bond Master Portfolio (in U.S. dollars)
Face
Amount Corporate Bonds Value
====================================================================================================
Industrial Conglomerates -- 0.1%
$ 500,000 Tyco International Group SA, 6.125% due 11/01/2008 $ 506,189
====================================================================================================
Insurance -- 0.7%
385,000 Monumental Global Funding II, 3.85% due 3/03/2008 (b) 377,862
1,470,000 Protective Life Secured Trust, 5.454% due 1/14/2008 (a) 1,471,247
1,500,000 Prudential Financial, Inc., 3.75% due 5/01/2008 1,464,545
1,250,000 The St. Paul Travelers Cos., Inc., 5.01% due 8/16/2007 1,245,216
------------
4,558,870
====================================================================================================
Media -- 2.2%
Comcast Cable Communications:
2,600,000 8.375% due 5/01/2007 2,624,055
1,200,000 6.20% due 11/15/2008 1,218,997
1,470,000 Comcast Corp., 5.674% due 7/14/2009 (a) 1,473,270
1,655,000 Cox Communications, Inc., 4.625% due 1/15/2010 1,619,960
315,000 Intelsat Bermuda Ltd., 9.25% due 6/15/2016 (b) 338,625
1,220,000 News America, Inc., 6.75% due 1/09/2038 1,297,398
650,000 PanAmSat Corp., 9% due 6/15/2016 (b) 688,188
2,000,000 Time Warner Companies, Inc., 8.18% due 8/15/2007 2,032,870
3,545,000 Time Warner, Inc., 6.15% due 5/01/2007 3,551,984
------------
14,845,347
====================================================================================================
Multi-Utilities -- 0.6%
Dominion Resources, Inc.:
2,395,000 5.688% due 5/15/2008 2,398,466
2,000,000 Series D, 5.125% due 12/15/2009 1,987,234
------------
4,385,700
====================================================================================================
Oil, Gas & Consumable Fuels -- 1.3%
350,000 Chesapeake Energy Corp., 6.375% due 6/15/2015 346,500
350,000 Compton Petroleum Finance Corp., 7.625% due 12/01/2013 337,750
Midamerican Energy Holdings Co.:
2,250,000 4.625% due 10/01/2007 2,235,373
1,910,000 3.50% due 5/15/2008 1,862,313
260,000 Northwest Pipeline Corporation, 8.125% due 3/01/2010 270,725
162,917 Pemex Finance Ltd., 8.45% due 2/15/2007 163,757
3,430,000 Pemex Project Funding Master Trust, 6.66% due 6/15/2010 (a)(b) 3,520,895
190,000 Williams Cos Inc, 7.625% due 7/15/2019 203,300
------------
8,940,613
====================================================================================================
Real Estate Investment Trusts (REITs) -- 0.6%
Nationwide Health Properties, Inc.:
1,400,000 7.60% due 11/20/2028 1,513,221
1,400,000 6.59% due 7/07/2038 1,406,511
815,000 The Rouse Co., 3.625% due 3/15/2009 771,368
325,000 Ventas Realty LP, 6.625% due 10/15/2014 332,313
------------
4,023,413
====================================================================================================
Road & Rail -- 1.1%
6,800,000 CSX Corp., 7.45% due 5/01/2007 6,841,881
870,000 Norfolk Southern Corp., 7.35% due 5/15/2007 876,029
------------
7,717,910
====================================================================================================
Software -- 0.6%
3,850,000 Oracle Corp. and Ozark Holding, Inc., 5.603% due 1/13/2009 (a) 3,855,506
====================================================================================================
Thrifts & Mortgage Finance -- 0.7%
4,390,000 Residential Capital Corp., 6.125% due 11/21/2008 4,411,748
====================================================================================================
Wireless Telecommunication Services -- 0.1%
575,000 Rogers Wireless, Inc., 7.50% due 3/15/2015 623,876
- ----------------------------------------------------------------------------------------------------
Total Corporate Bonds
(Cost -- $150,809,742) -- 22.3% 150,134,327
====================================================================================================
Short-Term Securities
====================================================================================================
Time Deposits -- 3.8%
25,751,680 Brown Brothers Harriman & Co., 4.55% due 1/02/2007 25,751,680
- ----------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost -- $25,751,680) -- 3.8% 25,751,680
====================================================================================================
Number of
Contracts++ Options Purchased
====================================================================================================
Call Options Purchased
10 Receive a fixed rate of 4.9% and pay a floating
rate based on the 3-month LIBOR, expiring
March 2007, Broker Deutsche Bank AG 21,053
====================================================================================================
Put Options Purchased
10 Pay a fixed rate of 5.2775% and receive a floating
rate based on the 3-month LIBOR, expiring
March 2007, Broker Deutsche Bank AG 59,914
- ----------------------------------------------------------------------------------------------------
Total Options Purchased
(Premiums Paid -- $218,560) -- 0.0% 80,967
====================================================================================================
Total Investments
(Cost -- $731,573,923) -- 108.2% 727,203,313
====================================================================================================
Number of
Contracts++ Options Written
====================================================================================================
Call Options Written
19 Pay a fixed rate of 5.29% and receive a floating
rate based on the 3-month LIBOR, expiring
October 2007, Broker Deutsche Bank AG (452,154)
====================================================================================================
Put Options Written
19 Receive a fixed rate of 5.29% and pay a floating
rate based on the 3-month LIBOR, expiring
October 2007, Broker Deutsche Bank AG (281,114)
- ----------------------------------------------------------------------------------------------------
Total Options Written
(Premiums Received -- ($840,400) -- (0.1%) (733,268)
====================================================================================================
Total Investments, Net of Options Written
(Cost -- $730,733,523*) -- 108.1% 726,470,045
Liabilities in Excess of Other Assets -- (8.1%) (54,342,312)
------------
Net Assets -- 100.0% $672,127,733
============
26 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
Schedule of Investments (concluded)
Short-Term Bond Master Portfolio (in U.S. dollars)
* The cost and unrealized appreciation (depreciation) of investments, net of
options written as of December 31, 2006, as computed for federal income
tax purposes, were as follows:
Aggregate cost .......................................... $730,731,227
============
Gross unrealized appreciation ........................... $ 985,736
Gross unrealized depreciation ........................... (5,246,918)
------------
Net unrealized depreciation ............................. $ (4,261,182)
============
+ Asset-Backed and Mortgage-Backed Obligations are subject to principal
paydowns. As a result of prepayments or refinancings of the underlying
instruments, the average life may be substantially less than the original
maturity.
++ One contract represents a notional amount of $1,000,000.
(a) Floating rate security.
(b) The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
(c) Represents the interest only portion of a mortgage-backed obligation.
(d) All or a portion of security held as collateral in connection with open
financial futures contracts.
(e) Restricted securities as to resale, representing approximately 1.2% of net
assets were as follows:
--------------------------------------------------------------------------
Acquisition
Issue Date Cost Value
--------------------------------------------------------------------------
Sigma Finance Corp.
7.374% due 8/15/2011 2/13/2004 5,500,000 5,500,000
Sigma Finance Corp.
5.3718% due 3/31/2014 3/26/2004 2,700,000 2,709,021
--------------------------------------------------------------------------
Total $8,200,000 $8,209,021
=========================
(f) Represents or includes a "to-be-announced" transaction. The Portfolio has
committed to purchasing and/or selling securities for which all specific
information is not available at this time.
(g) Investments in companies considered to be an affiliate of the Portfolio,
for purposes of Section 2(a)(3) of the Investment Company Act of 1940,
were as follows:
--------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
BlackRock Capital Finance LP Series 1997-R2
Class AP, 9.20% due 12/25/2035 $ (27,083) $ 3,729
BlackRock Liquidity Series LLC
Money Market Series $(51,000,000) $17,698
--------------------------------------------------------------------------
o For Portfolio compliance purposes, the 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 Portfolio management. This
definition may not apply for purposes of this report which may combine
industry sub-classifications for reporting ease. Industries are shown as a
percent of net assets.
o Financial futures contracts purchased as of December 31, 2006 were as
follows:
---------------------------------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
---------------------------------------------------------------------------------------------------
1,016 2-Year U.S.
Treasury Bond March 2007 $208,107,057 $(811,307)
---------------------------------------------------------------------------------------------------
o Financial futures contracts sold as of December 31, 2006 were as follows:
---------------------------------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Appreciation
---------------------------------------------------------------------------------------------------
394 Eurodollar Futures December 2007 $93,852,078 $ 227,828
707 5-Year U.S.
Treasury Bond March 2007 74,976,986 697,798
178 10-Year U.S.
Treasury Bond March 2007 19,374,934 245,496
10 30-Year U.S.
Treasury Bond March 2007 1,140,290 25,915
---------------------------------------------------------------------------------------------------
Total $1,197,037
===========
o Forward foreign exchange contracts purchased as of December 31, 2006 were
as follows:
--------------------------------------------------------------------------
Unrealized
Foreign currency Settlement Appreciation
Purchased Date (Depreciation)
--------------------------------------------------------------------------
NOK 31,139,379 January 2007 $ (2,902)
SEK 34,727,632 January 2007 13,367
SGD 11,000,000 January 2007 220,676
--------------------------------------------------------------------------
Total Unrealized Appreciation on Forward Foreign Exchange
Contracts -- Net (USD Commitment -- $17,020,206) $231,141
==========
o Forward foreign exchange contracts sold as of December 31, 2006 were as
follows:
--------------------------------------------------------------------------
Foreign Currency Settlement Unrealized
Sold Date Depreciation
--------------------------------------------------------------------------
EUR 7,665,000 January 2007 $(60,855)
--------------------------------------------------------------------------
Total Unrealized Depreciation on Forward Foreign Exchange
Contracts -- Net (USD Commitment -- $10,064,071) $(60,855)
==========
o Swap contracts outstanding as of December 31, 2006 were as follows:
----------------------------------------------------------------------------------------------------
Unrealized
Notional Appreciation
Amount (Depreciation)
----------------------------------------------------------------------------------------------------
Receive a fixed rate of 5.0125% and pay a
floating rate based on 3-month LIBOR
Broker, Union Bank of Switzerland
Expires October 2010 $37,000,000 $ (99,839)
Sold credit default on WFS Financial Owner
Trust Series 2003-2 Class C and receive 0.41%
Broker, Morgan Stanley Capital Services, Inc.
Expires December 2010 $ 987,000 103
Receive a fixed rate of 5.085% and pay a
floating rate based on 3-month LIBOR
Broker, Deutsche Bank AG London
Expires November 2016 $ 3,600,000 (36,480)
----------------------------------------------------------------------------------------------------
Total $(136,216)
===========
o Currency Abbreviations:
EUR Euro
NOK Norwegian Krone
SEK Swedish Krona
SGD Singapore Dollar
USD U.S. Dollar
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 27
Statement of Assets and Liabilities Short-Term Bond Master Portfolio
As of December 31, 2006
===============================================================================================================================
Assets
- -------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified cost -- $731,273,030) $727,039,508
Investments in affiliated securities, at value (identified cost -- $82,333) ...... 82,838
Options purchased, at value (premiums paid -- $218,560) .......................... 80,967
Unrealized appreciation on swaps ................................................. 103
Unrealized appreciation on forward foreign exchange contracts .................... 234,043
Cash ............................................................................. 172,006
Foreign cash (identified cost -- $6,712,152) ..................................... 6,740,917
Receivables:
Interest (including $21 from affiliates) ...................................... $ 4,208,960
Securities sold ............................................................... 4,185,559
Contributions ................................................................. 3,036,142
Paydowns ...................................................................... 136,034
Swaps ......................................................................... 10,821
Variation margin .............................................................. 7,703 11,585,219
------------
Accrued expenses and other assets ................................................ 3,186
------------
Total assets ..................................................................... 745,938,787
------------
===============================================================================================================================
Liabilities
- -------------------------------------------------------------------------------------------------------------------------------
Unrealized depreciation on swaps ................................................. 136,319
Unrealized depreciation on forward foreign exchange contracts .................... 63,757
Options written, at value (premiums received -- $840,400) ........................ 733,268
Payables:
Securities purchased .......................................................... 71,289,618
Withdrawals ................................................................... 1,347,587
Investment adviser ............................................................ 123,559
Swaps ......................................................................... 43,130
Other affiliates .............................................................. 6,639 72,810,533
------------
Accrued expenses ................................................................. 67,177
------------
Total liabilities ................................................................ 73,811,054
------------
===============================================================================================================================
Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
Net assets ....................................................................... $672,127,733
============
===============================================================================================================================
Net Assets Consist of
- -------------------------------------------------------------------------------------------------------------------------------
Investors' capital ............................................................... $675,942,647
Unrealized depreciation -- net ................................................... (3,814,914)
------------
Net Assets ....................................................................... $672,127,733
============
See Notes to Financial Statements.
28 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
Statement of Operations Short-Term Bond Master Portfolio
For the Six Months Ended December 31, 2006
===============================================================================================================================
Investment Income
- -------------------------------------------------------------------------------------------------------------------------------
Interest (including $3,729 from affiliates) .......................... $ 15,886,719
Dividends ............................................................ 22,961
Securities lending -- net ............................................ 17,698
------------
Total income ......................................................... 15,927,378
------------
===============================================================================================================================
Expenses
- -------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................. $ 714,676
Accounting services .................................................. 124,872
Professional fees .................................................... 27,687
Custodian fees ....................................................... 25,965
Trustees' fees and expenses .......................................... 15,141
Pricing fees ......................................................... 11,489
Printing and shareholder reports ..................................... 1,612
Other ................................................................ 11,037
------------
Total expenses ....................................................... 932,479
------------
Investment income -- net ............................................. 14,994,899
------------
===============================================================================================================================
Realized & Unrealized Gain (Loss) -- Net
- -------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments -- net ................................................ (3,208,437)
Financial futures contracts and swaps -- net ...................... (133,721)
Foreign currency transactions -- net .............................. 12,074 (3,330,084)
------------
Change in unrealized appreciation/depreciation on:
Investments -- net ................................................ 9,093,639
Financial futures contracts and swaps -- net ...................... 363,448
Options written ................................................... 107,132
Foreign currency transactions -- net .............................. 199,050 9,763,269
-----------------------------
Total realized and unrealized gain -- net ............................ 6,433,185
------------
Net Increase in Net Assets Resulting from Operations ................. $ 21,428,084
------------
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 29
Statements of Changes in Net Assets Short-Term Bond Master Portfolio
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2006 2006
===============================================================================================================================
Operations
- -------------------------------------------------------------------------------------------------------------------------------
Investment income -- net ............................................. $ 14,994,899 $ 27,804,920
Realized loss -- net ................................................. (3,330,084) (2,431,805)
Change in unrealized appreciation/depreciation -- net ................ 9,763,269 (8,404,614)
-----------------------------
Net increase in net assets resulting from operations ................. 21,428,084 16,968,501
-----------------------------
===============================================================================================================================
Capital Transactions
- -------------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions .......................................... 90,071,486 175,591,581
Fair value of withdrawals ............................................ (118,201,769) (240,264,379)
-----------------------------
Net decrease in net assets derived from capital transactions ......... (28,130,283) (64,672,798)
-----------------------------
===============================================================================================================================
Net Assets
- -------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ......................................... (6,702,199) (47,704,297)
Beginning of period .................................................. 678,829,932 726,534,229
-----------------------------
End of period ........................................................ $672,127,733 $678,829,932
=============================
See Notes to Financial Statements.
Financial Highlights Short-Term Bond Master Portfolio
For the Six
Months Ended For the Year Ended June 30,
The following ratios have been derived from December 31, -------------------------------------------------------------
information provided in the financial statements. 2006 2006 2005 2004 2003 2002
=================================================================================================================================
Total Investment Return
- ---------------------------------------------------------------------------------------------------------------------------------
Total investment return ................ 3.21%@ 2.50% 2.80% 1.18% 6.05% 5.59%
===========================================================================
=================================================================================================================================
Ratios to Average Net Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... .27%* .28% .28% .28% .28% .32%
===========================================================================
Investment income -- net ............... 4.41%* 4.00% 3.34% 3.39% 3.73% 5.03%
===========================================================================
=================================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $672,128 $678,830 $726,534 $740,024 $739,334 $512,335
===========================================================================
Portfolio turnover ..................... 66.51% 79.97% 74.53% 107.13% 198.09% 70.92%
===========================================================================
* Annualized.
@ Aggregate total investment return.
See Notes to Financial Statements.
30 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
Notes to Financial Statements Short-Term Bond Master Portfolio
1. Significant Accounting Policies:
On September 29, 2006, Low Duration Master Portfolio and Fund Asset Management
Master Trust, of which Low Duration Master Portfolio is a series, were renamed
Short-Term Bond Master Portfolio (the "Portfolio") and Short-Term Bond Master
Trust (the "Trust"), respectively. The Trust is registered under the Investment
Company Act of 1940, as amended, and is organized as a Delaware statutory trust.
The Declaration of Trust permits the Trustees to issue nontransferable interests
in the Portfolio, subject to certain limitations. The Portfolio's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. These unaudited financial
statements reflect all adjustments which are, in the opinion of management,
necessary to present a fair statement of the results for the interim period. All
such adjustments are of a normal, recurring nature. The following is a summary
of significant accounting policies followed by the Portfolio.
(a) Valuation of investments -- Debt securities are traded primarily in the
over-the-counter ("OTC") markets and are valued at the last available bid price
in the OTC market or on the basis of values obtained by a pricing service.
Pricing services use valuation matrixes that incorporate both dealer-supplied
valuations and valuation models. The procedures of the pricing service and its
valuations are reviewed by the officers of the Trust under the general direction
of the Board of Trustees. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Trust. Financial futures contracts
and options thereon, which are traded on exchanges, are valued at their closing
prices as of the close of such exchanges. Options written or purchased are
valued at the last sale price in the case of exchange-traded options. In the
case of options traded in the OTC market, valuation is the last asked price
(options written) or the last bid price (options purchased). Swap agreements are
valued based upon quoted fair valuations received daily by the Trust from a
pricing service or counterparty. Short-term investments with a remaining
maturity of 60 days or less are valued at amortized cost, which approximates
market value, under which method the investment is valued at cost and any
premium or discount is amortized on a straight line basis to maturity.
Repurchase agreements are valued at cost plus accrued interest. Investments in
open-end investment companies are valued at their net asset value each business
day. Securities and other assets for which market quotations are not readily
available are valued at fair value as determined in good faith by or under the
direction of the Board of Trustees of the Trust.
Equity securities that are held by the Portfolio, which are traded on stock
exchanges or the NASDAQ Global Market, are valued at the last sale price or
official close price on the exchange, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price for long positions, and at the last available asked price for short
positions. In cases where equity securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by or under the authority of the Board of Trustees of the Trust. Long
positions traded in the OTC market, NASDAQ Capital Market or Bulletin Board are
valued at the last available bid price obtained from one or more dealers or
pricing services approved by the Board of Trustees of the Trust. Short positions
traded in the OTC market are valued at the last available asked price. Portfolio
securities that are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of business on the New York Stock Exchange
("NYSE"). The values of such securities used in computing the net assets of the
Portfolio are determined as of such times. Foreign currency exchange rates also
are generally determined as of the close of business on the NYSE. Occasionally,
events affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Portfolio's net assets.
If events (for example, a company announcement, market volatility or a natural
disaster) occur during such periods that are expected to materially affect the
value of such securities, those securities will be valued at their fair value as
determined in good faith by the Trust's Board of Trustees or by BlackRock
Advisors, LLC (the "Manager"), an indirect, wholly owned subsidiary of
BlackRock, Inc. using a pricing service and/or procedures approved by the
Trust's Board of Trustees.
(b) Derivative financial instruments -- The Portfolio may engage in various
portfolio investment strategies both to increase the return of the Portfolio and
to hedge, or protect, its exposure to interest rate movements and movements in
the securities markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts -- The Portfolio may purchase or sell
financial futures contracts and options on such financial futures
contracts. Financial futures contracts are
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 31
Notes to Financial Statements (continued) Short-Term Bond Master Portfolio
contracts for delayed delivery of securities at a specific future date and
at a specific price or yield. Upon entering into a contract, the Portfolio
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Portfolio agrees to receive from or pay to the broker an
amount of cash equal to the daily fluctuation in the value of the
contract. Such receipts or payments are known as variation margin and are
recorded by the Portfolio as unrealized gains or losses. When the contract
is closed, the 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.
o Options -- The Portfolio may purchase and write call and put options. When
the Portfolio writes an option, an amount equal to the premium received by
the Portfolio is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the
current market value of the option written. When a security is purchased
or sold through an exercise of an option, the related premium paid (or
received) is added to (or deducted from) the basis of the security
acquired or deducted from (or added to) the proceeds of the security sold.
When an option expires (or the Portfolio enters into a closing
transaction), the Portfolio realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent
that the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
o Swaps -- The Portfolio may enter into swap agreements, which are OTC
contracts in which the Portfolio and a counterparty agree to make periodic
net payments on a specified notional amount. The net payments can be made
for a set period of time or may be triggered by a predetermined credit
event. The net periodic payments may be based on a fixed or variable
interest rate; the change in market value of a specified security, basket
of securities, or index; or the return generated by a security. These
periodic payments received or made by the Portfolio are recorded in the
accompanying Statement of Operations as realized gains or losses,
respectively. Gains or losses are realized upon termination of the swap
agreements. Swaps are marked-to-market daily and changes in value are
recorded as unrealized appreciation (depreciation). Risks include changes
in the returns of the underlying instruments, failure of the
counterparties to perform under the contracts' terms and the possible lack
of liquidity with respect to the swap agreements.
(c) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Portfolio invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(d) Income taxes -- The Portfolio is considered a "pass-through" entity for
federal income tax purposes. As such, each investor in the Portfolio is treated
as an owner of its proportionate share of the net assets, income, expenses and
realized and unrealized gains and losses of the Portfolio. Therefore, no federal
income tax provision is required. It is intended that the Portfolio's assets
will be managed so an investor in the Portfolio can satisfy the requirements of
Subchapter M of the Internal Revenue Code.
(e) Security transactions and investment income -- Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Realized gains and losses on security transactions are determined on the
identified cost basis. Interest income is recognized on the accrual basis.
(f) Securities lending -- The Portfolio may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government 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 Portfolio and any additional required collateral is delivered to the
Portfolio on the next business day. Where the Portfolio receives securities as
collateral for the loaned securities, it collects a fee from the borrower. The
Portfolio typically receives the income on the loaned securities but does not
receive the income on the collateral. Where the Portfolio receives cash
collateral, it may invest such collateral and retain the amount earned on such
investment, net of any amount rebated to the borrower. Loans of securities are
terminable at any time and the borrower, after notice, is required to return
borrowed securities within five business
32 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
Notes to Financial Statements (continued) Short-Term Bond Master Portfolio
days. The Portfolio may pay reasonable finder's, lending agent, administrative
and custodial fees in connection with its loans. In the event that the borrower
defaults on its obligation to return borrowed securities because of insolvency
or for any other reason, the Portfolio could experience delays and costs in
gaining access to the collateral. The Portfolio also could suffer a loss where
the value of the collateral falls below the market value of the borrowed
securities, in the event of borrower default or in the event of losses on
investments made with cash collateral.
(g) Recent accounting pronouncement -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109."
FIN 48 prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity including mutual funds before being measured
and recognized in the financial statements. Adoption of FIN 48 is required for
the last net asset value calculation in the first required financial statement
reporting period for fiscal years beginning after December 15, 2006. The impact
on the Portfolio's financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the implications of
FAS 157. At this time its impact on the Portfolio's financial statements has not
been determined.
2. Investment Advisory Agreement and Transactions with Affiliates:
On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill
Lynch") combined Merrill Lynch's investment management business, Merrill Lynch
Investment Managers, L.P. ("MLIM"), and its affiliates, including Fund Asset
Management, L.P. ("FAM"), with BlackRock, Inc. to create a new independent
company. Merrill Lynch has a 49.8% economic interest and a 45% voting interest
in the combined company and The PNC Financial Services Group, Inc. has
approximately a 34% economic and voting interest. The new company operates under
the BlackRock name and is governed by a board of directors with a majority of
independent members.
On August 15, 2006, shareholders of the investor of the Trust approved a new
Investment Advisory Agreement with the Manager. BlackRock Advisors, Inc. was
recently reorganized into a limited liability company and renamed BlackRock
Advisors, LLC. The new Investment Advisory Agreement between the Trust and the
Manager became effective on September 29, 2006. Prior to September 29, 2006, FAM
was the Trust's Manager. The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly owned subsidiary of Merrill Lynch, which is the
limited partner.
The Manager is responsible for the management of the Portfolio's investments and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Portfolio. For such services, the
Portfolio pays a monthly fee based upon the average daily value of the
Portfolio's net assets at the annual rate of .21%. In addition, the Manager has
entered into a Sub-Advisory Agreement with BlackRock Financial Management, Inc.,
an affiliate of the Manager, under which the Manager pays the sub-adviser for
services it provides a fee equal to a percentage of the management fee paid by
the Portfolio to the Manager.
The Portfolio has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to MLPF&S, or its
affiliates. Pursuant to that order, the Portfolio has retained BlackRock
Investment Management, LLC ("BIM"), an affiliate of the Manager, as the
securities lending agent for a fee based on a share of the returns on investment
of cash collateral. Prior to September 29, 2006, BIM was organized as Merrill
Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, and MLIM, LLC
was the securities lending agent. BIM may, on behalf of the Portfolio, invest
cash collateral received by the Portfolio for such loans, among other things, in
a private investment company managed by the Manager or in registered money
market funds advised by the Manager or its affiliates. For the six months ended
December 31, 2006, BIM received $6,592 in securities lending agent fees.
For the six months ended December 31, 2006, the Portfolio reimbursed FAM and the
Manager $3,597 and $3,597, respectively, for certain accounting services.
Prior to September 29, 2006, certain officers and/or trustees of the Trust were
officers and/or directors of MLIM, PSI, FAM, Merrill Lynch, and/or MLIM, LLC.
Commencing September 29, 2006, certain officers and/or trustees of the Trust are
officers and/or directors of BlackRock, Inc. or its affiliates.
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 33
Notes to Financial Statements (concluded) Short-Term Bond Master Portfolio
3. Investments:
Purchases and sales (including paydowns and maturities) of investments,
excluding short-term securities, for the six months ended December 31, 2006 were
$515,581,149 and $410,218,958, respectively.
Transactions in call options written for the six months ended December 31, 2006
were as follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts* Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of period .......................... -- --
Options written ................................ 19 $420,200
-------------------------
Outstanding call options written,
end of period ................................ 19 $420,200
=========================
* One contract represents a notional amount of $1,000,000.
Transactions in put options written for the six months ended December 31, 2006
were as follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts* Received
- --------------------------------------------------------------------------------
Outstanding put options written,
beginning of period .......................... -- --
Options written ................................ 19 $420,200
-------------------------
Outstanding put options written,
end of period ................................ 19 $420,200
=========================
* One contract represents a notional amount of $1,000,000.
4. Short-Term Borrowings:
The Trust, on behalf of the Portfolio, along with certain other funds managed by
the Manager and its affiliates (or FAM and its affiliates) is a party to a
$500,000,000 credit agreement with a group of lenders. The Portfolio may borrow
under the credit agreement to fund shareholder redemptions and for other lawful
purposes other than for leverage. The Portfolio may borrow up to the maximum
amount allowable under the Portfolio's current prospectus and statement of
additional information, subject to various other legal, regulatory or
contractual limits. On November 22, 2006, the credit agreement was renewed for
one year under substantially the same terms. The Portfolio pays a commitment fee
of .06% per annum based on the Portfolio's pro rata share of the unused portion
of the credit agreement. Amounts borrowed under the credit agreement bear
interest at a rate equal to, at each borrower's election, the federal funds rate
plus .35% or a base rate as defined in the credit agreement. The Portfolio did
not borrow under the credit agreement during the six months ended December 31,
2006.
5. Change in Independent Registered Public Accounting Firm:
Effective August 28, 2006, Ernst & Young LLP ("E&Y") resigned as Independent
Registered Public Accounting Firm of the Trust.
E&Y's report on the financial statements of the Trust for the past five fiscal
years did not contain an adverse opinion or a disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
In connection with its audits for the two most recent fiscal years through June
30, 2006 (1) there were no disagreements with E&Y on any matter of accounting
principle or practices, financial statement disclosure or auditing scope or
procedure, whereby such disagreements, if not resolved to the satisfaction of
E&Y, would have caused them to make reference to the subject matter of the
disagreements in connection with their report on the financial statements for
such years; and (2) there have been no reportable events (as defined in Item
304(a)(1)(v) of Regulation S-K).
The Trust engaged Deloitte & Touche LLP as the Trust's Independent Registered
Public Accounting Firm for the fiscal year ending June 30, 2007.
34 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
Disclosure of Investment Advisory Agreement
BlackRock Investment Advisory Agreement -- Matters Considered by the Boards
The following disclosure appeared in the June 30, 2006 Annual Report of the Fund
and the Portfolio and is the discussion referred to in "New BlackRock
Sub-Advisory Agreement -- Matters Considered by the Boards" below. The term
"Investment Adviser" as used herein refers to Fund Asset Management, L.P.
In connection with the Transaction between Merrill Lynch and BlackRock, the
Board of Trustees of Fund Asset Management Master Trust (the "Trust") considered
a new investment advisory agreement (the "New Investment Advisory Agreement")
between the Trust and BlackRock Advisors, Inc. or its successor ("BlackRock
Advisors"). Because Merrill Lynch Investment Managers Funds, Inc. (the "Fund")
is a feeder fund that invests all of its assets in the Trust, the Board of
Directors of the Fund also considered the New Investment Advisory Agreement.
When voting with respect to the New Investment Advisory Agreement, the Fund
votes its interest in the Trust proportionately to the voting instructions
received from Fund shareholders. If the New Investment Advisory Agreement is
approved by shareholders of the Fund and the Trust's other feeder fund, it will
become effective upon the closing of the Transaction, which is expected in the
third quarter of 2006.
Each Board discussed the New Investment Advisory Agreement at telephonic and
in-person meetings held during April and May 2006. Each Board, including the
independent directors/trustees, approved the New Investment Advisory Agreement
at a meeting held on May 9, 2006. The Fund's Board also approved the issuance of
new classes of shares and new distribution arrangements with respect to these
new share classes, including higher distribution fees for certain new share
classes, to take effect after the closing of the Transaction. The Fund's Board
also approved revised front-end sales charge schedules with respect to certain
classes of shares of the Fund.
To assist each Board in its consideration of the New Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent directors/trustees, through their independent legal
counsel, also requested and received additional information from Merrill Lynch
and BlackRock in connection with their consideration of the New Investment
Advisory Agreement. The additional information was provided in advance of the
May 9, 2006 meetings. In addition, the independent directors/trustees consulted
with their counsel and counsel for the Fund and Trust on numerous occasions,
discussing, among other things, the legal standards and certain other
considerations relevant to each Board's deliberations.
At each Board meeting, the directors/trustees discussed with Merrill Lynch
management and certain BlackRock representatives the Transaction, its strategic
rationale and BlackRock's general plans and intentions regarding the Fund and
the Trust. At these Board meetings, representatives of Merrill Lynch and
BlackRock made presentations to and responded to questions from each Board. Each
Board also inquired about the plans for and anticipated roles and
responsibilities of certain employees and officers of the Investment Adviser and
certain affiliates being transferred to BlackRock in connection with the
Transaction. The independent directors/trustees also conferred separately and
with their counsel about the Transaction and other matters related to the
Transaction on a number of occasions, including in connection with the April and
May 2006 meetings. After the presentations and after reviewing the written
materials provided, the independent directors/ trustees met in executive
sessions with their counsel to consider the New Investment Advisory Agreement.
In connection with each Board's review of the New Investment Advisory Agreement,
Merrill Lynch and/or BlackRock advised the Board about a variety of matters. The
advice included the following, among other matters:
o that there is not expected to be any diminution in the nature, quality and
extent of services provided to the Fund and the Trust and their
shareholders by BlackRock Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm will enhance its ability to attract and retain talented
professionals;
o that the Fund and Trust should benefit from having access to BlackRock's
state of the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions(R) brand name;
o that BlackRock has no present intention to alter any applicable expense
waivers, expense caps or reimbursements currently in effect and, while it
reserves the right to do so in the future, it would seek the approval of
each Board before making any changes;
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 35
Disclosure of Investment Advisory Agreement (continued)
o that BlackRock and Merrill Lynch will enter into an agreement, for an
initial three-year period and automatically renewable from year to year
thereafter, in connection with the Transaction under which Merrill
Lynch-affiliated broker-dealers will continue to offer the Fund as an
investment product;
o that BlackRock Advisors will have substantially the same access to the
Merrill Lynch sales force when distributing shares of the Fund as is
currently provided to the Investment Adviser and that other arrangements
between the Investment Adviser and Merrill Lynch sales channels will be
preserved;
o that the Fund will have access to BlackRock's network of third party
brokers, retirement plan platforms and registered investment advisers;
o that in connection with the Transaction, Merrill Lynch and BlackRock have
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Investment Adviser (or its affiliates), respectively; and
o that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they have a different financial
interest in the matters that were being considered than do Fund or Trust
shareholders.
Each Board considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
o the potential benefits to Fund and Trust shareholders from being part of a
combined fund family with BlackRock-sponsored funds, including possible
economies of scale and access to investment opportunities;
o the potential for expanding distribution of Fund shares through improved
access to third party distribution;
o the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
o the compliance policies and procedures of BlackRock Advisors;
o the terms and conditions of the New Investment Advisory Agreement,
including the fact that the schedule of the Fund's/Trust's total advisory
and administrative fees will not increase by virtue of the New Investment
Advisory Agreement, but will remain the same;
o that in November 2005, each Board performed a full annual review of the
investment advisory agreement currently in effect for the Fund/Trust (the
"Current Investment Advisory Agreement") as required by the 1940 Act and
has determined that the Investment Adviser has the capabilities, resources
and personnel necessary to provide the advisory and administrative
services currently provided to the Fund/Trust; and that the advisory
and/or management fees paid by the Trust, taking into account any
applicable agreed-upon fee waivers and breakpoints, represent reasonable
compensation to the Investment Adviser in light of the services provided,
the costs to the Investment Adviser of providing those services, economies
of scale, the fees and other expenses paid by similar funds (including
information provided by Lipper Inc. ["Lipper"]), and such other matters as
the directors/trustees have considered relevant in the exercise of their
reasonable judgment; and
o that Merrill Lynch agreed to pay all expenses of the Fund and Trust in
connection with each Board's consideration of the New Investment Advisory
Agreement and related agreements and all costs of shareholder approval of
the New Investment Advisory Agreement and as a result neither the Fund nor
Trust would bear costs in obtaining shareholder approval of the New
Investment Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the New Investment Advisory Agreement, each Board assessed the
nature, scope and quality of the services to be provided to the Fund and the
Trust by the personnel of BlackRock Advisors and its affiliates, including
administrative services, shareholder services, oversight of fund accounting,
marketing services and assistance in meeting legal and regulatory requirements.
In its review of the New Investment Advisory Agreement, each Board also
considered a range of information in connection with its over sight of the
services to be provided by BlackRock Advisors and its affiliates. Among the
matters considered were: (a) fees (in addition to management fees) to be paid to
BlackRock Advisors and its affiliates by the Fund and Trust;
36 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
(b) Fund and Trust operating expenses paid to third parties; (c) the resources
devoted to and compliance reports relating to the Fund's and Trust's investment
objectives, policies and restrictions, and their compliance with their Code of
Ethics and BlackRock Advisors' compliance policies and procedures; and (d) the
nature, cost and character of non-investment management services to be provided
by BlackRock Advisors and its affiliates.
In the period prior to the Board meetings to consider renewal of the Current
Investment Advisory Agreement, each Board had requested and received materials
specifically relating to the Current Investment Advisory Agreement. These
materials included (a) information compiled by Lipper on the fees and expenses
and the investment performance of the Fund as compared to a comparable group of
funds as classified by Lipper; (b) a discussion by the Trust's portfolio
management team on investment strategies used by the Trust during its most
recent fiscal year; (c) information on the profitability to the Investment
Adviser of the Current Investment Advisory Agreement and other payments received
by the Investment Adviser and its affiliates from the Fund and the Trust; and
(d) information provided by the Investment Adviser concerning services related
to the valuation and pricing of Trust portfolio holdings, the Trust's portfolio
turnover statistics, and direct and indirect benefits to the Investment Adviser
and its affiliates from their relationship with the Fund and the Trust.
In its deliberations, each Board considered information received in connection
with its most recent continuation of the Current Investment Advisory Agreement,
in addition to information provided by BlackRock and BlackRock Advisors in
connection with its evaluation of the terms and conditions of the New Investment
Advisory Agreement. The directors/trustees did not identify any particular
information that was all-important or controlling. Each Board, including a
majority of the Board's independent directors/trustees, concluded that the terms
of the New Investment Advisory Agreement are appropriate, that the fees to be
paid are reasonable in light of the services to be provided to the Fund/Trust,
and that the New Investment Advisory Agreement should be approved and
recommended to Fund/Trust shareholders.
Nature, Quality and Extent of Services Provided -- Each Board reviewed the
nature, extent and quality of services provided by the Investment Adviser,
including the investment advisory services and the resulting performance of the
Fund and Trust, as well as the nature, quality and extent of services expected
to be provided by BlackRock Advisors. Each Board focused primarily on the
Investment Adviser's investment advisory services and the investment performance
of the Fund and Trust, but also considered certain areas in which both the
Investment Adviser and the Fund/Trust receive services as part of the Merrill
Lynch complex. Each Board compared the performance of the Fund -- both including
and excluding the effects of fees and expenses -- to the performance of a
comparable group of mutual funds, and the performance of a relevant index or
combination of indexes. While each Board reviews performance data at least
quarterly, consistent with the Investment Adviser's investment goals, the Board
attaches more importance to performance over relatively long periods of time,
typically three to five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the New Investment Advisory Agreement, each Board
considered, among other things, the expected impact of the Transaction on the
operations, facilities, organization and personnel of New BlackRock and how it
would affect the Fund and the Trust; the ability of BlackRock Advisors to
perform its duties after the Transaction; and any anticipated changes to the
current investment and other practices of the Fund or Trust.
Each Board was given information with respect to the potential benefits to the
Fund and Trust and their shareholders from having access to BlackRock's state of
the art technology and risk management analytic tools, including the investment
tools provided under the BlackRock Solutions brand name.
Each Board was advised that, as a result of Merrill Lynch's equity interest in
BlackRock after the Transaction, the Fund and Trust will continue to be subject
to restrictions concerning certain transactions involving Merrill Lynch
affiliates (for example, transactions with a Merrill Lynch broker-dealer acting
as principal) absent revised or new regulatory relief. Each Board was advised
that a revision of existing regulatory relief with respect to these restrictions
was being sought from the Securities and Exchange Commission and were advised of
the possibility of receipt of such revised regulatory relief. There can be no
assurance that such relief will be obtained.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the
directors/trustees determined that the nature and quality of services to be
provided to the Fund/Trust under the New Investment Advisory Agreement were
expected to be as good or better than that provided under the Current Investment
Advisory Agreement. It was noted, however, that it is expected that there will
be changes in personnel following the Transaction and the combination of
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 37
Disclosure of Investment Advisory Agreement (continued)
the operations of the Investment Adviser and its affiliates with those of
BlackRock. Each Board noted that if current portfolio managers or other
personnel cease to be available, the Board would consider all available options,
which could include seeking the investment advisory or other services of
BlackRock affiliates. Accordingly, each Board concluded that, overall, the Board
was satisfied at the present time with assurances from BlackRock and BlackRock
Advisors as to the expected nature, extent and quality of the services to be
provided to the Fund/Trust under the New Investment Advisory Agreement.
Costs of Services Provided and Profitability -- It was noted that, in
conjunction with the recent review of the Current Investment Advisory Agreement,
each Board had received, among other things, a report from Lipper comparing the
Fund's fees, expenses and performance to those of a peer group selected by
Lipper, and information as to the fees charged by the Investment Adviser or its
affiliates to other registered investment company clients for investment
management services. Each Board reviewed the Fund's/Trust's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels -- the actual rate includes advisory and
administrative service fees and the effects of any fee waivers -- compared to
the other funds in the Fund's Lipper category. They also compared the Fund's
total expenses to those of other comparable funds. The information showed that
the Fund had fees and expenses within the range of fees and expenses of
comparable funds. Each Board considered the services to be provided by and the
fees to be charged by BlackRock Advisors to other funds with similar investment
mandates and noted that the fees charged by BlackRock Advisors in those cases,
including fee waivers and expense reimbursements, were generally comparable to
those being charged to the Fund/Trust. Each Board also noted that, as a general
matter, according to the information provided by BlackRock, fees charged to
institutional clients were lower than the fees charged to the Fund, but
BlackRock Advisors provided less extensive services to such clients. Each Board
concluded that the Fund's/Trust's management fee and fee rate and overall
expense ratio are reasonable compared to those of other comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the New Investment Advisory Agreement, each Board considered, among other
things, whether advisory and administrative fees or other expenses would change
as a result of the Transaction.
Based on its review of the materials provided and the fact that each New
Investment Advisory Agreement, as well as a new administrative agreement between
the Fund and BlackRock Advisors as administrator, is substantially similar to
its corresponding current agreement in all material respects, including the rate
of compensation, each Board determined that the Transaction should not increase
the total fees payable, including any fee waivers and expense reimbursements,
for advisory and administrative services. Each Board noted that it was not
possible to predict how the Transaction would affect BlackRock Advisors'
profitability from its relationship with the Fund and Trust.
Each Board discussed with BlackRock Advisors its general methodology to be used
in determining its profitability with respect to its relationship with the Fund
and Trust and noted that the Board expects to receive profitability information
from BlackRock Advisors on at least an annual basis.
Fees and Economies of Scale -- Each Board considered the extent to which
economies of scale might be realized as the assets of the Fund and Trust
increase and whether there should be changes in the management fee rate or
structure in order to enable the Fund and Trust to participate in these
economies of scale. Each Board determined that changes were not currently
necessary and that the Fund and Trust appropriately participated in these
economies of scale.
In reviewing the Transaction, each Board considered, among other things, whether
advisory and administrative fees or other expenses would change as a result of
the Transaction. Based on the fact that the New Investment Advisory Agreement
and administrative agreement are substantially similar to the Current Investment
Advisory Agreement and administrative agreement in all material respects,
including the rate of compensation, each Board determined that as a result of
the Transaction, the Fund's/Trust's total advisory and administrative fees would
be no higher than the fees under the Current Investment Advisory Agreement. Each
Board concluded that, because the rates for advisory and administrative fees for
the Fund/Trust would be no higher than current fee rates, the proposed
management fee structure, including any fee waivers, was reasonable and that no
additional changes were currently necessary.
Fall-Out Benefits -- The directors considered whether the Fund would generate
any fall-out benefits to BlackRock Advisors. Fall-out benefits are indirect
profits from other activities that accrue to the adviser or its affiliates
solely because of the existence of the Fund. In evaluating the fall-out benefits
38 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
to be received by BlackRock Advisors under the New Investment Advisory
Agreement, each Board considered whether the Transaction would have an impact on
the fall-out benefits received by the Investment Adviser by virtue of the
Current Investment Advisory Agreement. Based on their review of the materials
provided, including materials received in connection with their most recent
approval or continuance of the Current Investment Advisory Agreement, and their
discussions with management of the Investment Adviser and BlackRock, the
directors/trustees determined that those benefits could include increased
ability for BlackRock to distribute shares of its funds and other investment
products. Each Board noted that any such benefits were difficult to quantify
with certainty at this time, and indicated that the Board would continue to
evaluate them going forward.
Investment Performance -- Each Board considered investment performance for the
Fund and Trust. Each Board compared the performance of the Fund and Trust --
both including and excluding the effects of fees and expenses -- to the
performance of a comparable group of mutual funds, and the performance of a
relevant index or combination of indexes. The comparative information received
from Lipper showed Fund performance at various levels within the range of
performance of comparable funds over different time periods. Each Board believed
the Fund's performance was satisfactory. Also, each Board took into account the
investment performance of funds currently advised by BlackRock Advisors. Each
Board considered comparative information from Lipper which showed that the
performance of the funds advised by BlackRock Advisors was within the range of
performance of comparable funds over different time periods. Each Board noted
BlackRock's considerable investment management experience and capabilities, but
was unable to predict what effect, if any, consummation of the Transaction would
have on the future performance of the Fund.
Conclusion -- After the independent directors of the Fund and independent
trustees of the Trust deliberated in executive session, each entire Board,
including the independent directors/trustees, approved the New Investment
Advisory Agreement, concluding that the advisory fee rate was reasonable in
relation to the services provided and that the New Investment Advisory Agreement
was in the best interests of the shareholders. In approving the New Investment
Advisory Agreement, each Board noted that it anticipated reviewing the
continuance of the agreement in advance of the expiration of the initial
two-year period.
Contingent BlackRock Sub-Advisory Agreement -- Matters Considered by Each Board
At the telephonic and in-person meetings held during April and May 2006 at which
each Board discussed and approved the New Investment Advisory Agreement, the
Board, including the independent directors/trustees, also discussed and approved
a contingent sub-advisory agreement (the "Contingent Sub-Advisory Agreement")
between the Investment Adviser and BlackRock Advisors (the "BlackRock
Sub-Adviser"). The Contingent Sub-Advisory Agreement is intended to ensure that
the Trust operates with efficient portfolio management services until the
closing of the Transaction, in the event that each Board deems it necessary and
in the best interests of the Fund and Trust and their shareholders that the
BlackRock Sub-Adviser assist in managing the operations of the Trust during the
interim period until the closing of the Transaction. If shareholders approve the
Contingent Sub-Advisory Agreement, it will take effect only upon recommendation
from the Investment Adviser and upon subsequent approval of each Board in the
period up to the closing of the Transaction. The effectiveness of the Contingent
Sub-Advisory Agreement, therefore, would be contingent on further Board approval
after shareholders approve it. Pursuant to the Contingent Sub-Advisory
Agreement, the BlackRock Sub-Adviser would receive a monthly fee from the
Investment Adviser equal to 50% of the advisory fee received by the Investment
Adviser. The Investment Adviser would pay the BlackRock Sub-Adviser out of its
own resources. There would be no increase in Fund expenses as a result of the
Contingent Sub-Advisory Agreement.
In making its approval at the May in-person meeting, each Board considered the
Contingent Sub-Advisory Agreement in conjunction with the New Investment
Advisory Agreement and reviewed the same information and factors discussed
above, and came to the same conclusions. Each Board also considered in
conjunction with the Contingent Sub-Advisory Agreement the necessity of ensuring
that the Trust operates with effective management services until the closing of
the Transaction. In reviewing the sub-advisory fee rate provided in the
Contingent Sub-Advisory Agreement, each Board took note of the fact that both
the Investment Adviser and the BlackRock Sub-Adviser would have significant
responsibilities under their respective advisory agreements. The Investment
Adviser would remain responsible for oversight of the operations and
administration of the Fund and Trust, and the BlackRock Sub-Adviser would
provide advisory services to the Trust under the Contingent Sub-Advisory
Agreement. Each Board also took into account the expected short dura-
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 39
Disclosure of Investment Advisory Agreement (concluded)
tion of the term of any Contingent Sub-Advisory Agreement and the fact that
total advisory fees paid by the Fund and Trust would not increase as a result of
the Contingent Sub-Advisory Agreement. Under all of the circumstances, each
Board concluded that it was a reasonable allocation of fees for the BlackRock
Sub-Adviser to receive 50% of the advisory fee paid by the Trust to the
Investment Adviser. After the independent directors/trustees deliberated in
executive session, each entire Board, including the independent
directors/trustees, approved the Contingent Sub-Advisory Agreement, concluding
that the advisory fee was reasonable in relation to the services provided and
that the Contingent Sub-Advisory Agreement was in the best interests of
shareholders.
Disclosure of Sub-Advisory Agreement
New BlackRock Sub-Advisory Agreement -- Matters Considered by the Boards
At an in-person meeting held on August 22-23, 2006, the Board of Directors of
the Fund and the Board of Trustees of the Trust, including the independent
directors/trustees, discussed and approved the sub-advisory agreement with
respect to the Portfolio between BlackRock Advisors, LLC (previously organized
as BlackRock Advisors, Inc.) ("BlackRock Advisors") and its affiliate BlackRock
Financial Management, Inc. (the "Sub-Adviser") (the "BlackRock Sub-Advisory
Agreement"). The BlackRock Sub-Advisory Agreement became effective on September
29, 2006, at the same time the New Investment Advisory Agreement with BlackRock
Advisors (which had been approved by the Fund's shareholders) became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors at an annual rate equal to 59% of the
advisory fee received by BlackRock Advisors from the Portfolio. BlackRock
Advisors pays the Sub-Adviser out of its own resources, and there is no increase
in Fund or Portfolio expenses as a result of the BlackRock Sub-Advisory
Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, the Boards reviewed their considerations in connection with their
approval of the New Investment Advisory Agreement in May 2006. The Boards relied
on the same information and considered the same factors as those discussed above
in connection with the approval of the New Investment Advisory Agreement, and
came to the same conclusions. In reviewing the sub-advisory fee rate provided
for in the BlackRock Sub-Advisory Agreement, the Boards noted the fact that both
BlackRock Advisors and the Sub-Adviser have significant responsibilities under
their respective advisory agreements. Under the New Investment Advisory
Agreement, BlackRock Advisors remains responsible for the overall management of
the Fund and the Portfolio and for oversight of the Fund's and the Portfolio's
operations and administration. Under the BlackRock Sub-Advisory Agreement, the
Sub-Adviser provides advisory services to the Portfolio and is responsible for
the day-to-day management of the Portfolio's portfolio. The Boards also took
into account the fact that there is no increase in total advisory fees paid by
the Fund or the Portfolio as a result of the BlackRock Sub-Advisory Agreement.
Based on its considerations, each Board concluded that it was a reasonable
allocation of fees for the Sub-Adviser to receive a fee at an annual rate equal
to 59% of the advisory fee paid by the Portfolio to BlackRock Advisors.
After the independent directors/trustees deliberated in executive session, the
entire Board of the Fund and the entire Board of the Trust, including the
independent directors/trustees, approved the BlackRock Sub-Advisory Agreement,
concluding that the sub-advisory fee was reasonable in relation to the services
provided and that the BlackRock Sub-Advisory Agreement was in the best interests
of Fund shareholders.
40 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
BlackRock Funds
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their nonpublic 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 nonpublic 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 Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any nonpublic
personal information about its Clients, except as permitted by law or as is
necessary to service Client accounts. These nonaffiliated third parties are
required to protect the confidentiality and security of this information and to
use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to nonpublic
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the nonpublic
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
Availability of Additional Information
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site 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 Advisers, Banks or Brokerages:
Please contact your financial advisor. Please note that not all investment
advisers, banks or brokerages may offer this service.
Shareholders Who Hold Accounts Directly with BlackRock:
1) Access the BlackRock Web site at http://www.blackrock.com/edelivery
2) Select eDelivery under the More Information section
3) Log into your account
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 it 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 contact the Fund at (800)
441-7762.
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 41
BlackRock Funds (concluded)
Availability of Additional Information (concluded)
Availability of Proxy Voting Policies and Procedures
The Fund/Trust has delegated proxy voting responsibilities to BlackRock and its
affiliates, subject to the general oversight of the Fund's/Trust's Board of
Directors/Trustees. A description of the policies and procedures that BlackRock
and its affiliates use to determine how to vote proxies relating to portfolio
securities is available without charge, upon request, on our Web site at
www.blackrock.com, by calling (800) 441-7762, or on the Web site of the
Securities and Exchange Commission (the"Commission") at http://www.sec.gov.
Availability of Proxy Voting Record
Information on how proxies relating to the Fund's/Trust's voting securities were
voted (if any) by BlackRock during the most recent 12-month period ended June 30
is available, upon request and without charge, on our Web site at
www.blackrock.com, by calling (800) 441-7762 or on the Web site of the
Commission at http://www.sec.gov.
Availability of Quarterly Portfolio Schedule
The Fund/Trust files its complete schedule of portfolio holdings for the first
and third quarters of its fiscal year with the Commission on Form N-Q. The
Fund's/Trust's Forms N-Q are available on the Commission's Web site at
http://www.sec.gov and may be reviewed and copied at the Commission's Public
Reference Room in Washington, D.C. Information regarding the operation of the
Public Reference Room may be obtained by calling (800) SEC-0330. The
Fund's/Trust's Forms N-Q may also be obtained upon request, without charge, by
calling (800) 441-7762.
Shareholder Privileges
Account Information
Call us at (800) 441-7762 8:00 AM - 6:00 PM EST to get information about your
account balances, recent transactions and share prices. You can also reach us on
the Web at www.blackrock.com.
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 portfolios.
Systematic Withdrawal Plans
Investor Class shareholders can establish a systematic withdrawal plan and
receive periodic payments of $50 or more from their BlackRock portfolios, as
long as their account 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.
42 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006
A World-Class Mutual Fund Family
BlackRock now offers an expanded lineup of open-end mutual funds. Our range
includes more than 85 funds crossing all investment styles and managed by
experts in equity, fixed income and tax-exempt investing.
Equity Portfolios
BlackRock All-Cap Global Resources Portfolio
BlackRock Aurora Portfolio
BlackRock Asset Allocation Portfolio+
BlackRock Balanced Capital Fund+
BlackRock Basic Value Fund
BlackRock Developing Capital Markets Fund
BlackRock Equity Dividend Fund
BlackRock EuroFund
BlackRock Focus Twenty Fund
BlackRock Focus Value Fund
BlackRock Fundamental Growth Fund
BlackRock Global Allocation Fund+
BlackRock Global Dynamic Equity Fund
BlackRock Global Financial Services Fund
BlackRock Global Growth Fund
BlackRock Global Opportunities Portfolio
BlackRock Global Resources Portfolio*
BlackRock Global Science & Technology Opportunities Portfolio
BlackRock Global SmallCap Fund
BlackRock Global Technology Fund
BlackRock Global Value Fund
BlackRock Healthcare Fund
BlackRock Health Sciences Opportunities Portfolio
BlackRock Index Equity Portfolio*
BlackRock International Fund
BlackRock International Index Fund
BlackRock International Opportunities Portfolio*
BlackRock International Value Fund
BlackRock Investment Trust
BlackRock Large Cap Core Fund
BlackRock Large Cap Growth Fund
BlackRock Large Cap Value Fund
BlackRock Latin America Fund
BlackRock Capital Appreciation Portfolio
BlackRock Mid-Cap Growth Equity Portfolio
BlackRock Mid-Cap Value Equity Portfolio
BlackRock Mid Cap Value Opportunities Fund
BlackRock Natural Resources Trust
BlackRock Pacific Fund
BlackRock Small Cap Core Equity Portfolio
BlackRock Small Cap Growth Equity Portfolio
BlackRock Small Cap Growth Fund II
BlackRock Small Cap Index Fund
BlackRock Small Cap Value Equity Portfolio*
BlackRock Small/Mid-Cap Growth Portfolio
BlackRock S&P 500 Index Fund
BlackRock U.S. Opportunities Portfolio
BlackRock Utilities and Telecommunications Fund
BlackRock Value Opportunities Fund
Fixed Income Portfolios
BlackRock Bond Fund
BlackRock Enhanced Income Portfolio
BlackRock GNMA Portfolio
BlackRock Government Income Portfolio
BlackRock High Income Fund
BlackRock High Yield Bond Portfolio
BlackRock Inflation Protected Bond Portfolio
BlackRock Intermediate Bond Portfolio
BlackRock Intermediate Bond Portfolio II
BlackRock Intermediate Government Bond Portfolio
BlackRock International Bond Portfolio
BlackRock Low Duration Bond Portfolio
BlackRock Managed Income Portfolio
BlackRock Real Investment Fund
BlackRock Short-Term Bond Fund
BlackRock Total Return Portfolio
BlackRock Total Return Portfolio II
BlackRock World Income Fund
Municipal Bond Portfolios
BlackRock AMT-Free Municipal Bond Portfolio
BlackRock California Insured Municipal Bond Fund
BlackRock Delaware Municipal Bond Portfolio
BlackRock Florida Municipal Bond Fund
BlackRock High Yield Municipal Fund
BlackRock Intermediate Municipal Fund
BlackRock Kentucky Municipal Bond Portfolio
BlackRock Municipal Insured Fund
BlackRock National Municipal Fund
BlackRock New Jersey Municipal Bond Fund
BlackRock New York Municipal Bond Fund
BlackRock Ohio Municipal Bond Portfolio
BlackRock Pennsylvania Municipal Bond Fund
BlackRock Short-Term Municipal Fund
Money Market Portfolios
BlackRock Money Market Portfolio
BlackRock Municipal Money Market Portfolio@
BlackRock NC Municipal MM Portfolio@
BlackRock NJ Municipal MM Portfolio@
BlackRock OH Municipal MM Portfolio@
BlackRock PA Municipal MM Portfolio@
BlackRock Summit Cash Reserves Fund*
BlackRock U.S. Treasury MM Portfolio
BlackRock VA Municipal MM Portfolio@
* See the prospectus for information on specific limitations on investments
in the fund.
+ Mixed asset fund.
@ Tax-exempt fund.
BlackRock mutual funds are distributed by BlackRock Distributors, Inc. and
certain funds are also distributed by FAM Distributors, Inc. 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
800-882-0052 or from your financial advisor. The prospectus should be read
carefully before investing.
BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2006 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 return 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.
BlackRock Short-Term Bond Fund of
BlackRock Short-Term Bond Series, Inc.
P.O. Box 9011
Princeton, NJ 08543-9011
BLACKROCK
#BR-3070-12/06
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 - Schedule of Investments - Not Applicable
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 - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - As of September 29, 2006, with the conclusion of the combination of
Merrill Lynch's asset management business with BlackRock, the registrant
was migrated to BlackRock's trading and compliance monitoring systems,
and various personnel changes occurred. In conjunction with these
business improvements, there were no changes in the registrants internal
control over financial reporting (as defined in Rule 30a-3(d) under Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-year of
the period covered by this report that has materially affected, or is
reasonably likely to affect, the registrant's internal control over
financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Short Term Bond Fund of BlackRock Short Term Bond Series, Inc. and
Short Term Bond Master Portfolio of Short Term Bond Master Trust
By: /s/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Short Term Bond Fund of BlackRock Short Term Bond Series, Inc.
and Short Term Bond Master Portfolio of Short Term Bond Master Trust
Date: February 20, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Short Term Bond Fund of BlackRock Short Term Bond Series, Inc.
and Short Term Bond Master Portfolio of Short Term Bond Master Trust
Date: February 20, 2007
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock Short Term Bond Fund of BlackRock Short Term Bond Series, Inc.
and Short Term Bond Master Portfolio of Short Term Bond Master Trust
Date: February 20, 2007