UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-10053
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 LLC
Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809
Name and address of agent for service: Donald C. Burke, 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 LLC, 800 Scudders Mill Road, Plainsboro, NJ 08536. Mailing
address: P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (800) 441-7762
Date of fiscal year end: 05/31/2008
Date of reporting period: 06/01/2007 - 05/31/2008
Item 1 - Report to Stockholders
EQUITIES FIXED INCOME REAL ESTATE
LIQUIDITY ALTERNATIVES BLACKROCK SOLUTIONS
BlackRock Short-Term BLACKROCK
Bond Fund
OF BLACKROCK SHORT-TERM BOND SERIES, INC.
ANNUAL REPORT | MAY 31, 2008
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
Table of Contents
================================================================================
Page
- --------------------------------------------------------------------------------
A Letter to Shareholders ................................................. 3
Annual Report:
Fund Summary ............................................................. 4
About Fund Performance ................................................... 6
Disclosure of Expenses ................................................... 6
Fund Financial Statements:
Statement of Assets and Liabilities .................................. 7
Statements of Operations ............................................. 8
Statements of Changes in Net Assets .................................. 9
Fund Financial Highlights ................................................ 10
Fund Notes to Financial Statements ....................................... 15
Fund Report of Independent Registered Public Accounting Firm ............. 19
Important Tax Information (Unaudited) .................................... 19
Portfolio Information .................................................... 20
Portfolio Financial Statements:
Schedule of Investments .............................................. 21
Statement of Assets and Liabilities .................................. 26
Statements of Operations ............................................. 27
Statements of Changes in Net Assets .................................. 28
Portfolio Financial Highlights ........................................... 29
Portfolio Notes to Financial Statements .................................. 30
Portfolio Report of Independent Registered Public Accounting Firm ........ 35
Officers and Directors ................................................... 36
Additional Information ................................................... 40
Mutual Fund Family ....................................................... 42
2 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
A Letter to Shareholders
Dear Shareholder
For much of the reporting period, investors grappled with the repercussions of
the credit crisis that surfaced last summer, and with the effects of a weakening
economy and surging energy and food prices. These factors were offset by the
positive impact from robust export activity, strength in the non-financial
corporate sector and monetary and fiscal stimuli.
Amid the market turbulence, the Federal Reserve Board (the "Fed") initiated a
series of moves to restore liquidity and bolster financial market stability.
Since September 2007, the central bank slashed the target federal funds rate 325
basis points (3.25%), bringing the rate to 2.0% as of period-end. Also of
significance were its other policy decisions, which included extending use of
the discount window to broker-dealers and investment banks and backstopping the
rescue of ill-fated Bear Stearns. Notably, on April 30, the Fed dropped previous
references to downside growth risks and added more emphasis on inflationary
pressures, indicating the central bankers have likely concluded the current
cycle of monetary easing.
Nevertheless, the Fed's response to the financial crisis helped to ease credit
turmoil and investor anxiety. Since hitting a low point on March 17, following
the collapse of Bear Stearns, stocks appreciated 10% (through May 30). Most
international markets, which had outperformed U.S. stocks for some time, saw a
reversal in that trend, as the troubled credit situation and downward pressures
on growth fanned recession fears.
In fixed income markets, Treasury securities rallied (yields fell as prices
correspondingly rose), as a broad "flight-to-quality" theme persisted. The yield
on 10-year Treasury issues, which touched 5.30% in June 2007 (its highest level
in five years), fell to a low of 3.34% in March 2008 before rising to 4.06% by
May 31 as investors grew more risk tolerant and shifted out of Treasury issues
in favor of stocks and other high-quality fixed income sectors. Tax-exempt
issues underperformed throughout most of the reporting period, pressured by
problems among municipal bond insurers and the freeze in the market for auction
rate securities. However, the final two months saw a firmer tone in the
municipal market, as investors took advantage of unusually high yields.
On the whole, results for the major benchmark indexes generally reflected
heightened investor risk aversion:
Total Returns as of May 31, 2008 6-month 12-month
===========================================================================================================
U.S. equities (S&P 500 Index) (4.47%) (6.70%)
- -----------------------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) (1.87) (10.53)
- -----------------------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) (5.21) (2.53)
- -----------------------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers U.S. Aggregate Index) 1.49 6.89
- -----------------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) 1.44 3.87
- -----------------------------------------------------------------------------------------------------------
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Capped Index) 1.81 (1.08)
- -----------------------------------------------------------------------------------------------------------
Past performance is no guarantee of future results. Index performance shown for
illustrative purposes only.
You cannot invest directly in an index.
As you navigate today's volatile markets, we encourage you to review your
investment goals with your financial professional and to make portfolio changes,
as needed. For more up-to-date commentary on the economy and financial markets,
we invite you to visit www.blackrock.com/funds. As always, we thank you for
entrusting BlackRock with your investment assets, and we look forward to
continuing to serve you in the months and years ahead.
Sincerely,
/s/ Rob Kapito
Rob Kapito
President, BlackRock Advisors, LLC
3
THIS PAGE NOT PART OF YOUR FUND REPORT
Fund Summary
Portfolio Management Commentary
How did the Fund perform?
o The Fund generated positive returns, through its investment in Short-Term
Bond Master Portfolio, amid a difficult investment backdrop, but
underperformed the benchmark Merrill Lynch 1 - 3 Year Corporate and
Government Index for the 12-month period. The Fund and Portfolio recently
changed their fiscal year end to May 31.
What factors influenced performance?
o The subprime mortgage turmoil and ensuing credit crisis caused significant
underperformance in fixed income securities over the reporting period,
regardless of their quality. Spreads widened (prices fell) substantially
as investors embarked on a flight to quality, pouring assets into Treasury
issues. Consequently, the Portfolio's overweight position in high-quality
spread products, such as asset-backed securities (ABS), mortgage-backed
securities (MBS) and commercial mortgage-backed securities (CMBS), was the
main detractor from relative performance. Notably, spreads have tightened
(versus U.S. Treasury issues) in recent months, as some appetite for risk
returned to the market following the JPMorgan Chase/Bear Stearns
transaction.
o In contrast, the Portfolio's underweight in corporate debt benefited
comparative performance, as yield spreads continued to widen versus U.S.
Treasury securities. Earlier in the period, Portfolio performance also was
enhanced by a relatively small exposure to non-U.S. dollar assets. Other
positive contributors included our allocation to hybrid adjustable-rate
mortgages (ARMs) within the MBS sector, as well as our overall bias toward
a steeper yield curve.
Describe recent portfolio activity.
o We increased the Portfolio's cash position midway through the period, as
we delayed reinvesting proceeds from maturing securities until
high-quality securities could be found at discounted prices. While the
market volatility has created bargains lately, we utilized some cash
earlier in the period to increase the Portfolio's exposure to ABS,
specifically short-dated AAA-rated home equity bonds and fixed-rate
automobile ABS with low subprime borrower exposure.
o During the reporting period, we sold most of the Portfolio's agency
30-year fixed-rate MBS, preferring to increase holdings in non-agency
mortgages. We reduced the duration of the Portfolio and trimmed its
outright swap spread exposure and yield curve steepening position.
Recently, we have increased that steepened trade, as the market is pricing
in monetary policy tightening by the end of the year; in our view, such a
quick reversal by the Federal Reserve Board seems unlikely.
Describe Portfolio positioning at period-end.
o As of May 31, 2008, the Portfolio was short duration relative to the
benchmark and maintained a bias toward a steepening yield curve.
o The Portfolio was underweight in U.S. Treasury and Agency securities. From
a duration contribution standpoint (the amount of duration derived from an
individual sector), the Portfolio was neutral in fixed-rate pass-through
MBS and hybrid ARMs, while it held overweights in short-duration CMOs,
CMBS and ABS. These securities remain undervalued on a historical basis,
and we believe that as stability returns to the financial markets, spreads
on these assets will continue to tighten. Finally, the Portfolio was
neutral in corporate bonds, with a positive bias toward financials and
issues with higher credit quality.
The views expressed reflect the opinions of BlackRock as of the date of this
report and are subject to change based on changes in market, economic or other
conditions. These views are not intended to be a forecast of future events and
are no guarantee of future results.
Expense Example
Actual Hypothetical 2
------------------------------------------------------ -----------------------------------------------------
Beginning Ending Beginning Ending
Account Value Account Value Expenses Paid Account Value Account Value Expenses Paid
December 1, 2007 May 31, 2008 During the Period 1 December 1, 2007 May 31, 2008 During the Period 1
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional ......... $1,000 $1,006.80 $ 3.64 $1,000 $1,021.27 $ 3.67
Investor A ............ $1,000 $1,005.20 $ 5.23 $1,000 $1,019.68 $ 5.27
Investor B ............ $1,000 $1,001.90 $ 8.51 $1,000 $1,016.40 $ 8.57
Investor C ............ $1,000 $1,000.30 $10.05 $1,000 $1,014.86 $10.12
Investor C1 ........... $1,000 $1,002.00 $ 8.41 $1,000 $1,016.50 $ 8.47
Class R ............... $1,000 $1,003.30 $ 7.12 $1,000 $1,017.79 $ 7.17
- ------------------------------------------------------------------------------------------------------------------------------------
1 For each class of the Portfolio, expenses are equal to the annualized
expense ratio for the class (0.73% for Institutional, 1.05% for Investor
A, 1.71% for Investor B, 2.02% for Investor C, 1.69% for Investor C1 and
1.43% for Class R), multiplied by the average account value over the
period, multiplied by 182/366 (to reflect the one-half year period shown).
Because the Portfolio is a feeder fund, the expense table example reflects
the expenses of both the feeder fund and the master portfolio in which it
invests.
2 Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 366.
See "Disclosure of Expenses" on page 6 for further information on how
expenses were calculated.
4 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Institutional
Shares and Investor A Shares compared to growth of an investment in the Merrill
Lynch 1 - 3 Year Corporate & Government Index. Values are from May 1998 to May
2008.
Merrill Lynch
1 - 3 Year
Corporate
Institutional Investor A & Government
Shares(1,2) Shares(1,2) Index(3)
5/98 $10,000 $9,700 $10,000
5/99 $10,387 $10,050 $10,540
5/00 $10,808 $10,432 $10,972
5/01 $11,761 $11,315 $12,092
5/02 $12,408 $11,908 $12,866
5/03 $13,085 $12,529 $13,666
5/04 $13,170 $12,591 $13,796
5/05 $13,482 $12,844 $14,066
5/06 $13,757 $13,072 $14,345
5/07 $14,399 $13,645 $15,075
5/08 $14,766 $13,961 $16,125
1 Assuming maximum sales charge, if any, transaction costs and other
operating expenses, including advisory fees.
2 The Fund invests all of its assets in the Portfolio. The Portfolio invests
in bonds of varying maturities with a portfolio duration of one to three
years.
3 This unmanaged Index is comprised of investment grade corporate bonds and
U.S. Government Agency and U.S. Treasury securities with a maturity
ranging from one year to three years.
Performance Summary for the Period Ended May 31, 2008
Average Annual Total Returns 1
-----------------------------------------------------------
1 Year 5 Years 10 Years
------------------ ------------------ ------------------
Standardized 6-Month w/o sales w/sales w/o sales w/sales w/o sales w/sales
30-Day Yields Total Returns charge charge charge charge charge charge
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional ........................... 3.96% 0.68% 2.55% -- 2.45% -- 3.97% --
Investor A .............................. 3.55 0.52 2.31 (0.76%) 2.19 1.57% 3.71 3.39%
Investor B .............................. 3.01 0.19 1.53 (2.40) 1.49 1.13 3.02 3.02
Investor C .............................. 2.65 0.03 1.26 0.28 1.35 1.35 2.90 2.90
Investor C1 ............................. 3.01 0.20 1.56 0.58 1.50 1.50 3.01 3.01
Class R ................................. 3.42 0.33 1.82 -- 1.97 -- 3.50 --
Merrill Lynch 1 - 3 Corporate
and Government Index .................. -- 2.12 6.96 -- 3.36 -- 4.89 --
- ------------------------------------------------------------------------------------------------------------------------------------
1 Assuming maximum sales charges. See "About Fund Performance" on page 6 for
a detailed description of share classes, including any related sales
charges and fees.
Past performance is not indicative of future results.
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 5
About Fund Performance
o Institutional Shares are not subject to any sales charge. Institutional
Shares bear no ongoing distribution or service fees and are available only
to eligible investors.
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.)
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 are 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 C1 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 initial 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 to reflect the Class R Share
fees.
The performance results for Investor A, Investor B, Investor C, Investor
C1 and Institutional Shares depicted on page 5 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 class' 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/funds to obtain
performance data current to the most recent month-end. Performance results
do not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Figures shown in the
performance tables on page 5 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.
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges and redemption fees, and (b) operating
expenses including advisory fees, distribution fees including 12b-1 fees and
other Fund expenses. The expense example on page 4 (which is based on a
hypothetical investment of $1,000 invested on December 1, 2007 and held through
May 31, 2008) is intended to assist shareholders both in calculating expenses
based on an investment in the Fund and in comparing these expenses with similar
costs of investing in other mutual funds.
The table provides information about actual account values and actual expenses.
In order to estimate the expenses a shareholder paid during the period covered
by this report, shareholders can divide their account value by $1,000 and then
multiply the result by the number corresponding to their share class under the
heading entitled "Expenses Paid During the Period."
The table also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses. In order to assist shareholders
in comparing the ongoing expenses of investing in this Fund and other funds,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders' ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees or exchange fees. Therefore, the hypothetical 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.
6 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Statement of Assets and Liabilities BlackRock Short-Term Bond Fund
May 31, 2008
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investment at value -- Short-Term Bond Master Portfolio (the "Portfolio") (cost -- $699,247,173) ................. $ 684,718,221
Capital shares sold receivable ................................................................................... 2,167,210
Prepaid expenses ................................................................................................. 12,251
-------------
Total assets ..................................................................................................... 686,897,682
-------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Income dividends payable ......................................................................................... 1,715,502
Portfolio payable ................................................................................................ 1,525,142
Capital shares redeemed payable .................................................................................. 642,068
Other affiliates payable ......................................................................................... 231,513
Distribution fees payable ........................................................................................ 212,366
Administration fees payable ...................................................................................... 149,301
Officer's and Directors' fees payable ............................................................................ 712
Other accrued expenses payable ................................................................................... 29,144
-------------
Total liabilities ................................................................................................ 4,505,748
-------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets ....................................................................................................... $ 682,391,934
=============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional Shares, $0.01 par value ............................................................................ $ 187,973
Investor A Shares, $0.01 par value ............................................................................... 326,424
Investor B Shares, $0.01 par value ............................................................................... 34,000
Investor C Shares, $0.01 par value ............................................................................... 48,120
Investor C1 Shares, $0.01 par value .............................................................................. 90,947
Class R Shares, $0.01 par value .................................................................................. 8,022
Paid-in capital in excess of par ................................................................................. 718,640,475
Undistributed net investment income .............................................................................. 1,313,448
Accumulated net realized losses allocated from the Portfolio ..................................................... (23,728,523)
Net unrealized appreciation/depreciation allocated from the Portfolio ............................................ (14,528,952)
-------------
Net assets ....................................................................................................... $ 682,391,934
=============
===================================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional -- Based on net assets of $184,616,264 and 18,797,265 shares outstanding ........................... $ 9.82
=============
Investor A -- Based on net assets of $320,418,243 and 32,642,411 shares outstanding .............................. $ 9.82
=============
Investor B -- Based on net assets of $33,300,736 and 3,399,964 shares outstanding ................................ $ 9.79
=============
Investor C -- Based on net assets of $47,140,147 and 4,812,012 shares outstanding ................................ $ 9.80
=============
Investor C1 -- Based on net assets of $89,055,149 and 9,094,732 shares outstanding ............................... $ 9.79
=============
Class R -- Based on net assets of $7,861,395 and 802,237 shares outstanding ...................................... $ 9.80
=============
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 7
Statements of Operations BlackRock Short-Term Bond Fund
Period
July 1, 2007 to Year Ended
May 31, 2008 June 30, 2007
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Portfolio:
Interest ..................................................................................... $ 32,513,239 $ 32,812,868
Dividends .................................................................................... -- 22,961
Securities lending ........................................................................... -- 17,698
Expenses ..................................................................................... (1,781,243) (1,873,389)
-----------------------------
Total income ..................................................................................... 30,731,996 30,980,138
-----------------------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Administration fees .............................................................................. 1,581,948 1,681,744
Service -- Investor A ............................................................................ 713,659 697,008
Service and distribution -- Investor B ........................................................... 310,275 450,583
Service and distribution -- Investor C ........................................................... 331,933 93,465
Service and distribution -- Investor C1 .......................................................... 830,302 1,150,701
Service and distribution -- Class R .............................................................. 39,832 35,659
Transfer agent -- Institutional .................................................................. 255,323 256,389
Transfer agent -- Investor A ..................................................................... 625,801 533,785
Transfer agent -- Investor B ..................................................................... 80,019 100,008
Transfer agent -- Investor C ..................................................................... 156,645 82,646
Transfer agent -- Investor C1 .................................................................... 190,099 229,127
Transfer agent -- Class R ........................................................................ 27,464 20,210
Printing ......................................................................................... 127,843 148,115
Registration ..................................................................................... 81,848 85,741
Professional ..................................................................................... 46,218 22,362
Directors ........................................................................................ 831 --
Miscellaneous .................................................................................... 19,310 16,761
-----------------------------
Total expenses ................................................................................... 5,419,350 5,604,304
-----------------------------
Net investment income ............................................................................ 25,312,646 25,375,834
-----------------------------
===================================================================================================================================
Realized and Unrealized Gain (Loss) Allocated from the Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments .................................................................................. 1,821,667 (5,704,143)
Futures and swaps ............................................................................ (4,035,864) (1,836,808)
Foreign currency ............................................................................. 63,961 203,618
Options written .............................................................................. 779,043 290,320
-----------------------------
(1,371,193) (7,047,013)
-----------------------------
Net change in unrealized appreciation/depreciation on:
Investments .................................................................................. (10,353,315) 9,731,460
Futures and swaps ............................................................................ 1,058,875 (220,553)
Foreign currency ............................................................................. 300,210 (130,269)
TBA sale commitments ......................................................................... (1,328,900) --
Options written .............................................................................. 133,852 (142,129)
-----------------------------
(10,189,278) 9,238,509
-----------------------------
Total realized and unrealized gain (loss) ........................................................ (11,560,471) 2,191,496
-----------------------------
Net Increase in Net Assets Resulting from Operations ............................................. $ 13,752,175 $ 27,567,330
=============================
See Notes to Financial Statements.
8 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Statements of Changes in Net Assets BlackRock Short-Term Bond Fund
Period
July 1, Year Ended
2007 to June 30,
May 31, -------------------------------
Increase (Decrease) in Net Assets: 2008 2007 2006
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income ........................................................ $ 25,312,646 $ 25,375,834 $ 22,254,247
Net realized loss ............................................................ (1,371,193) (7,047,013) (2,431,805)
Net change in unrealized appreciation/depreciation ........................... (10,189,278) 9,238,509 (8,404,614)
-------------------------------------------------
Net increase in net assets resulting from operations ......................... 13,752,175 27,567,330 11,417,828
-------------------------------------------------
===================================================================================================================================
Dividends to Shareholders From
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income:
Institutional ............................................................ (7,553,783) (8,402,051) (7,412,136)
Investor A ............................................................... (11,045,183) (10,962,922) (8,619,359)
Investor B ............................................................... (1,113,358) (1,626,913) (2,128,686)
Investor C ............................................................... (935,644) (278,138) --
Investor C1 .............................................................. (3,003,227) (4,176,074) (4,405,599)
Class R .................................................................. (280,350) (261,107) (146,884)
-------------------------------------------------
Decrease in net assets resulting from dividends to shareholders .............. (23,931,545) (25,707,205) (22,712,664)
-------------------------------------------------
===================================================================================================================================
Capital Share Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from capital share transactions 18,663,131 (5,691,836) (36,485,602)
-------------------------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ...................................... 8,483,761 (3,831,711) (47,780,438)
Beginning of period .......................................................... 673,908,173 677,739,884 725,520,322
-------------------------------------------------
End of period ................................................................ $ 682,391,934 $ 673,908,173 $ 677,739,884
=================================================
End of period undistributed (distributions in excess of) net investment income $ 1,313,448 $ (19,940) $ (165,146)
=================================================
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 9
Financial Highlights BlackRock Short-Term Bond Fund
Institutional
-----------------------------------------------------------------------------
Period
July 1,
2007 to Year Ended June 30,
May 31, ----------------------------------------------------------------
2008 2007 2006 2005 2004 2003
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............ $ 9.97 $ 9.94 $ 10.10 $ 10.16 $ 10.39 $ 10.17
-----------------------------------------------------------------------------
Net investment income 1 ......................... 0.40 0.42 0.36 0.30 0.31 0.31
Net realized and unrealized gain (loss) ......... (0.17) 0.03 (0.15) (0.06) (0.23) 0.25
-----------------------------------------------------------------------------
Net increase from investment operations ......... 0.23 0.45 0.21 0.24 0.08 0.56
-----------------------------------------------------------------------------
Dividends from net investment income ............ (0.38) (0.42) (0.37) (0.30) (0.31) (0.34)
-----------------------------------------------------------------------------
Net asset value, end of period .................. $ 9.82 $ 9.97 $ 9.94 $ 10.10 $ 10.16 $ 10.39
=============================================================================
==================================================================================================================================
Total Investment Return 2
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value ........................ 2.36% 3 4.59% 2.11% 2.39% 0.81% 5.61%
==============================================================================
==================================================================================================================================
Ratios to Average Net Assets 4
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses, excluding reorganization expenses 0.72% 5 0.72% 0.67% 0.69% 0.65% 0.70%
==============================================================================
Total expenses .................................. 0.72% 5 0.72% 0.67% 0.69% 0.65% 0.75%
==============================================================================
Net investment income ........................... 4.40% 5 4.16% 3.61% 2.93% 3.00% 3.29%
==============================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000) ................. $184,616 $200,542 $203,377 $208,777 $240,749 $182,654
==============================================================================
Portfolio turnover of the Portfolio ............. 230% 6 108% 80% 75% 107% 198%
==============================================================================
1 Based on average shares outstanding.
2 Total investment returns exclude the effects of any sales charges.
3 Aggregate total investment return.
4 Includes the Fund's share of the Portfolio's allocated expenses and/or net
investment income.
5 Annualized.
6 Includes TBA transactions, excluding these transactions the portfolio
turnover rate would have been 13%.
See Notes to Financial Statements.
10 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Financial Highlights (continued) BlackRock Short-Term Bond Fund
Investor A
-----------------------------------------------------------------------------
Period
July 1,
2007 to Year Ended June 30,
May 31, ----------------------------------------------------------------
2008 2007 2006 2005 2004 2003
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............ $ 9.96 $ 9.94 $ 10.10 $ 10.16 $ 10.38 $ 10.16
-----------------------------------------------------------------------------
Net investment income 1 ......................... 0.38 0.39 0.34 0.27 0.29 0.31
Net realized and unrealized gain (loss) ......... (0.17) 0.02 (0.16) (0.05) (0.22) 0.23
-----------------------------------------------------------------------------
Net increase from investment operations ......... 0.21 0.41 0.18 0.22 0.07 0.54
-----------------------------------------------------------------------------
Dividends from net investment income ............ (0.35) (0.39) (0.34) (0.28) (0.29) (0.32)
-----------------------------------------------------------------------------
Net asset value, end of period .................. $ 9.82 $ 9.96 $ 9.94 $ 10.10 $ 10.16 $ 10.38
=============================================================================
==================================================================================================================================
Total Investment Return 2
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share .............. 2.16% 3 4.20% 1.84% 2.14% 0.66% 5.36%
=============================================================================
==================================================================================================================================
Ratios to Average Net Assets 4
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses, excluding reorganization expenses 1.04% 5 1.00% 0.91% 0.93% 0.89% 0.95%
=============================================================================
Total expenses .................................. 1.04% 5 1.00% 0.91% 0.93% 0.89% 1.00%
=============================================================================
Net investment income ........................... 4.09% 5 3.88% 3.37% 2.69% 2.78% 3.03%
=============================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000) ................. $320,418 $286,396 $267,411 $235,886 $125,950 $152,780
=============================================================================
Portfolio turnover of the Portfolio ............. 230% 6 108% 80% 75% 107% 198%
=============================================================================
1 Based on average shares outstanding.
2 Total investment returns exclude the effects of sales charges.
3 Aggregate total investment return.
4 Includes the Fund's share of the Portfolio's allocated expenses and/or net
investment income.
5 Annualized.
6 Includes TBA transactions, excluding these transactions the portfolio
turnover rate would have been 13%.
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 11
Financial Highlights (continued) BlackRock Short-Term Bond Fund
Investor B
-----------------------------------------------------------------------------
Period
July 1,
2007 to Year Ended June 30,
May 31, ----------------------------------------------------------------
2008 2007 2006 2005 2004 2003
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 9.94 $ 9.91 $ 10.08 $ 10.14 $ 10.37 $ 10.14
-----------------------------------------------------------------------------
Net investment income 1 .......................... 0.31 0.32 0.27 0.20 0.22 0.24
Net realized and unrealized gain (loss) .......... (0.17) 0.02 (0.16) (0.05) (0.23) 0.24
-----------------------------------------------------------------------------
Net increase (decrease) from investment operations 0.14 0.34 0.11 0.15 (0.01) 0.48
-----------------------------------------------------------------------------
Dividends from net investment income ............. (0.29) (0.31) (0.28) (0.21) (0.22) (0.25)
-----------------------------------------------------------------------------
Net asset value, end of period ................... $ 9.79 $ 9.94 $ 9.91 $ 10.08 $ 10.14 $ 10.37
=============================================================================
==================================================================================================================================
Total Investment Return 2
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value ......................... 1.43% 3 3.61% 1.07% 1.46% (0.11%) 4.77%
=============================================================================
==================================================================================================================================
Ratios to Average Net Assets 4
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses, excluding reorganization expenses 1.70% 5 1.67% 1.59% 1.61% 1.56% 1.61%
=============================================================================
Total expenses ................................... 1.70% 5 1.67% 1.59% 1.61% 1.56% 1.66%
=============================================================================
Net investment income ............................ 3.40% 5 3.21% 2.67% 2.00% 2.12% 2.00%
=============================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000) .................. $ 33,301 $ 42,358 $ 60,519 $ 97,090 $130,802 $139,688
=============================================================================
Portfolio turnover of the Portfolio .............. 230% 6 108% 80% 75% 107% 198%
=============================================================================
1 Based on average shares outstanding.
2 Total investment returns exclude the effects of sales charges.
3 Aggregate total investment return.
4 Includes the Fund's share of the Portfolio's allocated expenses and/or net
investment income.
5 Annualized.
6 Includes TBA transactions, excluding these transactions the portfolio
turnover rate would have been 13%.
See Notes to Financial Statements.
12 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Financial Highlights (continued) BlackRock Short-Term Bond Fund
Investor C
---------------------
Period Period
July 1, October 2,
2007 to 2006 1
May 31, to June 30,
2008 2007
===========================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 9.94 $ 10.01
---------------------
Net investment income 2 .......................... 0.29 0.19
Net realized and unrealized gain (loss) .......... (0.17) (0.03)
---------------------
Net increase (decrease) from investment operations 0.12 0.16
---------------------
Dividends from net investment income ............. (0.26) (0.23)
---------------------
Net asset value, end of period ................... $ 9.80 $ 9.94
=====================
===========================================================================
Total Investment Return 3
- ---------------------------------------------------------------------------
Based on net asset value ......................... 1.21% 4 1.57% 4
=====================
===========================================================================
Ratios to Average Net Assets 5
- ---------------------------------------------------------------------------
Total expenses, excluding reorganization expenses 2.04% 6 2.09% 6
=====================
Total expenses ................................... 2.04% 6 2.09% 6
=====================
Net investment income ............................ 3.14% 6 2.81% 6
=====================
===========================================================================
Supplemental Data
- ---------------------------------------------------------------------------
Net assets, end of period (000) .................. $ 47,140 $ 23,886
=====================
Portfolio turnover of the Portfolio .............. 230% 7 108%
=====================
Investor C1
-----------------------------------------------------------------------------
Period
July 1,
2007 to Year Ended June 30,
May 31, ----------------------------------------------------------------
2008 2007 2006 2005 2004 2003
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 9.94 $ 9.91 $ 10.07 $ 10.13 $ 10.36 $ 10.14
-----------------------------------------------------------------------------
Net investment income 2 .......................... 0.31 0.32 0.27 0.20 0.22 0.24
Net realized and unrealized gain (loss) .......... (0.17) 0.04 (0.15) (0.05) (0.23) 0.23
-----------------------------------------------------------------------------
Net increase (decrease) from investment operations 0.14 0.36 0.12 0.15 (0.01) 0.47
-----------------------------------------------------------------------------
Dividends from net investment income ............. (0.29) (0.33) (0.28) (0.21) (0.22) (0.25)
-----------------------------------------------------------------------------
Net asset value, end of period ................... $ 9.79 $ 9.94 $ 9.91 $ 10.07 $ 10.13 $ 10.36
=============================================================================
===================================================================================================================================
Total Investment Return 3
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value ......................... 1.46% 4 3.62% 1.17% 1.46% (0.11%) 4.68%
=============================================================================
===================================================================================================================================
Ratios to Average Net Assets 5
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses, excluding reorganization expenses 1.68% 6 1.66% 1.59% 1.60% 1.56% 1.61%
=============================================================================
Total expenses ................................... 1.68% 6 1.66% 1.59% 1.60% 1.56% 1.66%
=============================================================================
Net investment income ............................ 3.43% 6 3.24% 2.68% 2.01% 2.12% 2.37%
=============================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000) .................. $ 89,055 $111,844 $142,083 $179,290 $239,263 $263,066
=============================================================================
Portfolio turnover of the Portfolio .............. 230% 7 108% 80% 75% 107% 198%
=============================================================================
1 Commencement of operations.
2 Based on average shares outstanding.
3 Total investment returns exclude the effects of sales charges.
4 Aggregate total investment return.
5 Includes the Fund's share of the Portfolio's allocated expenses and/or net
investment income.
6 Annualized.
7 Includes TBA transactions, excluding these transactions the portfolio
turnover rate would have been 13%.
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 13
Financial Highlights (concluded) BlackRock Short-Term Bond Fund
Class R
-----------------------------------------------------------------------------
Period Period
July 1, January 3,
2007 to Year Ended June 30, 2003 1 to
May 31, -------------------------------------------------- June 30,
2008 2007 2006 2005 2004 2003
=================================================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............ $ 9.94 $ 9.92 $ 10.08 $ 10.14 $ 10.37 $ 10.29
-----------------------------------------------------------------------------
Net investment income 2 ......................... 0.34 0.36 0.32 0.18 0.17 0.18
Net realized and unrealized gain (loss) ......... (0.16) 0.02 (0.16) 0.01 (0.11) 0.08
-----------------------------------------------------------------------------
Net increase from investment operations ......... 0.18 0.38 0.16 0.19 0.06 0.26
-----------------------------------------------------------------------------
Dividends from net investment income ............ (0.32) (0.36) (0.32) (0.25) (0.29) (0.18)
-----------------------------------------------------------------------------
Net asset value, end of period .................. $ 9.80 $ 9.94 $ 9.92 $ 10.08 $ 10.14 $ 10.37
=============================================================================
=================================================================================================================================
Total Investment Return
- ---------------------------------------------------------------------------------------------------------------------------------
Based on net asset value ........................ 1.80% 3 3.91% 1.58% 1.88% 0.56% 2.55% 3
=============================================================================
=================================================================================================================================
Ratios to Average Net Assets 4
- ---------------------------------------------------------------------------------------------------------------------------------
Total expenses, excluding reorganization expenses 1.41% 5 1.30% 1.17% 1.19% 1.16% 1.19% 5
=============================================================================
Total expenses .................................. 1.41% 5 1.30% 1.17% 1.19% 1.16% 1.28% 5
=============================================================================
Net investment income ........................... 3.70% 5 3.59% 3.15% 2.46% 2.42% 2.74% 5
=============================================================================
=================================================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000) ................. $ 7,861 $ 8,882 $ 4,350 $ 4,477 $ 2,387 -- 6
=============================================================================
Portfolio turnover of the Portfolio ............. 230% 7 108% 80% 75% 107% 198%
=============================================================================
1 Commencement of operations.
2 Based on average shares outstanding.
3 Aggregate total investment return.
4 Includes the Fund's share of the Portfolio's allocated expenses and/or net
investment income.
5 Annualized.
6 Amount is less than $1,000.
7 Includes TBA transactions, excluding these transactions the portfolio
turnover rate would have been 13%.
See Notes to Financial Statements.
14 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Notes to Financial Statements BlackRock Short-Term Bond Fund
1. Significant Accounting Policies:
BlackRock Short-Term Bond Fund (the "Fund"), a series of BlackRock Short-Term
Bond Series, Inc. (the "Bond Fund") is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as a diversified, open-end management
investment company. The Fund seeks to achieve its investment objective by
investing all or a portion of its assets in Short-Term Bond Master Portfolio
(the "Portfolio"), of Short-Term Bond Master LLC (the "Master LLC"), 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 Fund's financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America, which may require
the use of management accruals and estimates. Actual results may differ from
these estimates. The percentage of the Portfolio owned by the Fund at May 31,
2008 was 100%. The Fund and Portfolio recently changed their fiscal year end to
May 31. The Fund offers multiple classes of shares. Institutional Shares are
sold without a sales charge and only to certain eligible investors. Investor A
Shares are generally sold with a front-end sales charge. Investor B, Investor C
and Investor C1 Shares may be subject to a contingent deferred sales charge.
Class R Shares are available only 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 shareholder
servicing 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
shareholder servicing and distribution expenditures (except that Investor B
shareholders may vote on material changes to the Investor A distribution plan).
The following is a summary of significant accounting policies followed by the
Fund:
Valuation of Investments: The Fund records its investments in the Portfolio at
fair value. Valuation of securities held by the Portfolio is discussed in Note 1
of the Portfolio's Notes to Financial Statements, which are included elsewhere
in this report.
Investment Transactions and Net Investment Income: Investment transactions in
the Portfolio are accounted for on a trade date basis. 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.
Income and realized and unrealized gains and losses on investments are allocated
daily to each class based on its relative net assets.
Dividends and Distributions to Shareholders: Dividends from net investment
income are declared daily and paid monthly. Distributions of capital gains are
recorded on the ex-dividend dates.
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 its shareholders.
Therefore, no federal income tax provision is required.
Effective December 31, 2007, the Fund implemented Financial Accounting Standards
Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes -- an interpretation of FASB Statement No. 109" ("FIN 48"). 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 investment companies, before being
measured and recognized in the financial statements. The administrator has
evaluated the application of FIN 48 to the Fund, and has determined that the
adoption of FIN 48 does not have a material impact on the Fund's financial
statements. The Fund files U.S. federal and various state and local tax returns.
No income tax returns are currently under examination. The statute of
limitations on the Fund's U.S. federal tax returns remains open for the years
ended June 30, 2005 through June 30, 2007. The statutes of limitations on the
Fund's state and local tax returns may remain open for an additional year
depending upon the jurisdiction.
Recent Accounting Pronouncements: 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. The impact on the Fund's financial
statement disclosures, if any, is currently being assessed.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. FAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value that are not currently
required to be measured at fair value. FAS 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and
liabilities. The impact on the Fund's financial statement disclosures, if any,
is currently being assessed.
In March 2008, Statement of Financial Accounting Standards No. 161, "Disclosures
about Derivative Instruments and Hedging Activities -- an amendment of FASB
Statement No. 133" ("FAS 161"), was issued and is effective for fiscal years
beginning after November 15, 2008. FAS 161 is intended to improve financial
reporting for derivative instruments by requiring enhanced disclosure that
enables investors to understand how
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 15
Notes to Financial Statements (continued) BlackRock Short-Term Bond Fund
and why an entity uses derivatives, how derivatives are accounted for, and how
derivative instruments affect an entity's results of operations and financial
position. The impact on the Fund's financial statement disclosures, if any, is
currently being assessed.
Other: Expenses directly related to the Fund or its classes are charged to that
Fund or class. Other operating expenses shared by several funds are pro-rated
among those funds on the basis of relative net assets or other appropriate
methods. Other expenses of the Fund are allocated daily to each class based on
its relative net assets.
2. Transactions with Affiliates:
The Bond Fund has entered into an Administration Agreement with BlackRock
Advisors, LLC (the "Administrator"), an indirect, wholly owned subsidiary of
BlackRock, Inc., to provide administrative services (other than investment
advice and related portfolio activities). For such services the Fund pays the
Administrator a monthly fee at an annual rate of 0.25% of the Fund's average
daily net assets. Merrill Lynch & Co., Inc. ("Merrill Lynch") and The PNC
Financial Services Group, Inc. ("PNC") are principal owners of BlackRock, Inc.
The Bond Fund has also entered into separate Distribution Agreements and
Distribution Plans with FAM Distributors, Inc. ("FAMD") and BlackRock
Distributors, Inc. and its affiliates ("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 Bond Fund in accordance with
Rule 12b-1 under the 1940 Act, the Fund pays the Distributor ongoing service and
distribution fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
- --------------------------------------------------------------------------------
Service Distribution
Fee Fee
- --------------------------------------------------------------------------------
Investor A ........................................ 0.25% --
Investor B ........................................ 0.25% 0.65%
Investor C ........................................ 0.25% 0.75%
Investor C1 ....................................... 0.25% 0.65%
Class R ........................................... 0.25% 0.25%
- --------------------------------------------------------------------------------
Pursuant to sub-agreements with the Distributor, broker-dealers, including
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a wholly owned
subsidiary of Merrill Lynch, and the Distributor provide shareholder servicing
and distribution services to the Fund. The ongoing service and/or distribution
fee compensates the Distributor and each broker-dealer for providing shareholder
servicing and/or distribution-related services to Investor A, Investor B,
Investor C, Investor C1, and Class R shareholders.
For the period July 1, 2007 to May 31, 2008, the Distributor earned underwriting
discounts and direct commissions and its affiliates earned dealer concessions on
sales of the Fund's Investor A Shares, which totaled $151,871. These amounts
include payments to Hilliard Lyons, which was considered to be an affiliate for
a portion of the period.
For the period July 1, 2007 to May 31, 2008, affiliates received contingent
deferred sales charges of $34,115, $17,485 and $4,751 relating to transactions
in Investor B, Investor C and Investor C1 Shares, respectively.
Furthermore, affiliates received contingent deferred sales charges of $363
relating to transactions subject to front-end sales charge waivers in Investor A
Shares.
Pursuant to written agreements, certain affiliates provide the Fund with
sub-accounting, recordkeeping, sub-transfer agency and other administrative
services with respect to sub-accounts they service. For these services, these
affiliates receive an annual fee per shareholder account which will vary
depending on share class. For the period July 1, 2007 to May 31, 2008, the Fund
paid $1,169,736 in return for these services.
PNC Global Investment Servicing (U.S.) Inc., formerly PFPC Inc., an indirect,
wholly owned subsidiary of PNC and an affiliate of the Administrator, serves as
transfer agent. Each class of the Fund bears the costs of transfer agent fees
associated with such respective classes. Transfer agency fees borne by each
class of the Fund are comprised of those fees charged for all shareholder
communications including the mailing of shareholder reports, dividend and
distribution notices, and proxy materials for shareholders meetings, as well as
per account and per transaction fees related to servicing and maintenance of
shareholder accounts, including the issuing, redeeming and transferring of
shares of each class of the Fund, 12b-1 fee calculation, check writing,
anti-money laundering services, and customer identification services.
The Administrator maintains a call center, which is responsible for providing
certain shareholder services to the Fund, such as responding to shareholder
inquiries and processing transactions based upon instructions from shareholders
with respect to the subscription and redemption of Fund shares. During the
period July 1, 2007 to May 31, 2008, the following amounts have been accrued by
the Fund to reimburse the Administrator for costs incurred running the call
center, which are a component of the transfer agent fees in the accompanying
Statement of Operations.
- --------------------------------------------------------------------------------
Call Center Fees
- --------------------------------------------------------------------------------
Institutional ................................................. $1,479
Investor A .................................................... $2,709
Investor B .................................................... $ 622
Investor C .................................................... $ 325
Investor C1 ................................................... $ 890
Class R ....................................................... $ 48
- --------------------------------------------------------------------------------
Certain officers and/or directors of the Bond Fund are officers and/or directors
of BlackRock, Inc. or its affiliates.
16 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Notes to Financial Statements (continued) BlackRock Short-Term Bond Fund
3. Capital Share Transactions:
Institutional, Investor A, Investor C and Investor C1 Classes have 100,000,000
shares authorized and Investor B and Class R Classes have 200,000,000 shares
authorized. Transactions in common stock for each class were as follows:
Period July 1, 2007 Year Ended Year Ended
to May 31, 2008 June 30, 2007 June 30, 2006
----------------------------- ----------------------------- -----------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold .................... 2,200,480 $ 21,894,170 3,882,332 $ 38,889,841 4,589,347 $ 45,878,308
Shares issued to shareholders in
reinvestment of dividends .... 703,717 6,995,216 778,991 7,804,278 629,194 6,294,006
----------------------------- ----------------------------- -----------------------------
Total issued ................... 2,904,197 28,889,386 4,661,323 46,694,119 5,218,541 52,172,314
Shares redeemed ................ (4,228,692) (42,045,899) (4,998,426) (50,085,942) (5,423,759) (54,309,989)
----------------------------- ----------------------------- -----------------------------
Net decrease ................... (1,324,495) $(13,156,513) (337,103) $ (3,391,823) (205,218) $ (2,137,675)
============================= ============================= =============================
- -----------------------------------------------------------------------------------------------------------------------------------
Investor A
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold and automatic
conversion of shares ......... 7,578,148 $ 75,374,297 7,871,739 $ 78,746,999 8,034,020 $ 80,395,661
Shares issued to shareholders in
reinvestment of dividends .... 1,043,146 10,361,692 1,017,022 10,181,373 720,378 7,200,366
----------------------------- ----------------------------- -----------------------------
Total issued ................... 8,621,294 85,735,989 8,888,761 88,928,372 8,754,398 87,596,027
Shares redeemed ................ (4,730,910) (46,987,766) (7,051,933) (70,623,994) (5,202,244) (52,071,208)
----------------------------- ----------------------------- -----------------------------
Net increase ................... 3,890,384 $ 38,748,223 1,836,828 $ 18,304,378 3,552,154 $ 35,524,819
============================= ============================= =============================
- -----------------------------------------------------------------------------------------------------------------------------------
Investor B
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold .................... 302,027 $ 2,997,999 382,971 $ 3,826,348 764,008 $ 7,626,851
Shares issued to shareholders in
reinvestment of dividends .... 79,414 787,241 115,734 1,156,044 138,454 1,381,959
----------------------------- ----------------------------- -----------------------------
Total issued ................... 381,441 3,785,240 498,705 4,982,392 902,462 9,008,810
Shares redeemed and automatic
conversion of shares ......... (1,243,283) (12,326,202) (2,341,683) (23,393,256) (4,432,931) (44,271,486)
----------------------------- ----------------------------- -----------------------------
Net decrease ................... (861,842) $ (8,540,962) (1,842,978) $(18,410,864) (3,530,469) $(35,262,676)
============================= ============================= =============================
Period July 1, 2007 Period October 2, 2006*
to May 31, 2008 to June 30, 2007
----------------------------- -----------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------
Investor C
- --------------------------------------------------------------------------------------------------
Shares sold .................... 3,373,151 $ 33,495,381 2,588,797 $ 25,893,412
Shares issued to shareholders in
reinvestment of dividends .... 80,345 796,156 22,869 228,442
----------------------------- -----------------------------
Total issued ................... 3,453,496 34,291,537 2,611,666 26,121,854
Shares redeemed ................ (1,044,224) (10,343,943) (208,926) (2,088,810)
----------------------------- -----------------------------
Net increase ................... 2,409,272 $ 23,947,594 2,402,740 $ 24,033,044
============================= =============================
* Commencement of operations
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 17
Notes to Financial Statements (concluded) BlackRock Short-Term Bond Fund
Period July 1, 2007 Year Ended Year Ended
to May 31, 2008 June 30, 2007 June 30, 2006
----------------------------- ----------------------------- -----------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Investor C1
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold .................... 108,201 $ 1,072,933 1,095,000 $ 10,911,973 4,003,186 $ 39,947,150
Shares issued to shareholders in
reinvestment of dividends .... 231,364 2,293,336 322,310 3,219,362 318,879 3,180,745
----------------------------- ----------------------------- -----------------------------
Total issued ................... 339,565 3,366,269 1,417,310 14,131,335 4,322,065 43,127,895
Shares redeemed ................ (2,500,710) (24,790,133) (4,497,738) (44,899,591) (7,784,003) (77,684,767)
----------------------------- ----------------------------- -----------------------------
Net decrease ................... (2,161,145) $(21,423,864) (3,080,428) $(30,768,256) (3,461,938) $(34,556,872)
============================= ============================= =============================
- -----------------------------------------------------------------------------------------------------------------------------------
Class R
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold .................... 375,902 $ 3,736,020 788,722 $ 7,885,609 340,042 $ 3,397,077
Shares issued to shareholders in
reinvestment of dividends .... 28,293 280,682 26,378 263,698 14,555 145,278
----------------------------- ----------------------------- -----------------------------
Total issued ................... 404,195 4,016,702 815,100 8,149,307 354,597 3,542,355
Shares redeemed ................ (495,118) (4,928,049) (360,498) (3,607,622) (360,251) (3,595,553)
----------------------------- ----------------------------- -----------------------------
Net increase (decrease) ........ (90,923) $ (911,347) 454,602 $ 4,541,685 (5,654) $ (53,198)
============================= ============================= =============================
4. Income Tax Information:
Reclassifications: Accounting principles generally accepted in the United States
of America require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting. Accordingly, during
the current year, $6,549,324 has been reclassified between paid-in capital in
excess of par and accumulated net realized losses allocated from the Portfolio,
and $47,713 has been reclassified between undistributed net investment income
and net realized losses allocated from the Portfolio as a result of permanent
differences attributable to the expiration of capital loss carryforwards,
foreign currency transactions, swap agreements and accounting for paydowns.
These reclassifications have no effect on net assets or net asset values per
share.
The tax character of distributions paid during the period July 1, 2007 to May
31, 2008 and the years ended June 30, 2007 and June 30, 2006 was as follows:
- --------------------------------------------------------------------------------
5/31/2008 6/30/2007 6/30/2006
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ................ $23,931,545 $25,707,205 $22,712,664
-------------------------------------------
Total taxable distributions ...... $23,931,545 $25,707,205 $22,712,664
===========================================
As of May 31, 2008, the components of accumulated losses on a tax basis were as
follows:
- -----------------------------------------------------------------------------
Net ordinary income ......................................... $ 1,422,349
------------
Capital loss carryforward ................................... (20,881,500)*
Net unrealized losses ....................................... (17,484,876)**
------------
Total accumulated net losses ................................ $(36,944,027)
============
* On May 31, 2008, the Fund had a capital loss carryforward of $20,881,500,
of which $1,140,537 expires in 2009, $971,617 expires in 2011, $1,630,307
expires in 2012, $6,250,370 expires in 2013, $2,851,962 expires in 2014,
$4,506,787 expires in 2015 and $3,529,920 expires in 2016. This amount
will be available to offset future realized capital gains.
** The difference between book-basis and tax-basis net unrealized losses is
attributable primarily to the realization for tax purposes of unrealized
gains (losses) on certain futures contracts.
18 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Report of Independent Registered Public Accounting Firm
BlackRock Short-Term Bond Fund
To the Board of Directors and Shareholders of
BlackRock Short-Term Bond Series, Inc.:
We have audited the accompanying statement of assets and liabilities of
BlackRock Short-Term Bond Series, Inc. (the "Fund"), comprising BlackRock
Short-Term Bond Fund as of May 31, 2008, and the related statements of
operations and changes in net assets and the financial highlights for the period
July 1, 2007 to May 31, 2008 and for the year ended June 30, 2007. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The statement
of changes in net assets of the Fund for the year ended June 30, 2006 and the
financial highlights for each of the four years in the period ended June 30,
2006 were audited by other auditors whose report, dated August 9, 2006,
expressed an unqualified opinion on those financial statements and financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. as of
May 31, 2008, the results of its operations, changes in its net assets, and the
financial highlights for the period July 1, 2007 to May 31, 2008 and the year
ended June 30, 2007, in conformity with accounting principles generally accepted
in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
July 28, 2008
Important Tax Information (Unaudited)
The following information is provided with respect to the ordinary income
distributions paid monthly by BlackRock Short-Term Bond Fund for the period
ended May 31, 2008:
================================================================================
Interest-Related Dividends for Non-U.S. Residents*
================================================================================
Month(s) Paid: July 2007 ............................................. 92.28%
August 2007 - December 2007 ........................... 92.27%
January 2008 - May 2008 ............................... 78.83%
- --------------------------------------------------------------------------------
* Represents the portion of the taxable ordinary income dividends eligible
for exemption from U.S. withholding tax for nonresident aliens and foreign
corporations.
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 19
Portfolio Information May 31, 2008 Short-Term Bond Master Portfolio
Percent of
Asset Mix Long-Term Investments
- --------------------------------------------------------------------------------
Non-Government Agency Mortgage-Backed Securities ........................ 42%
Asset-Backed Securities ................................................. 26
Government Agency Mortgage-Backed Securities ............................ 13
Corporate Bonds ......................................................... 16
Government Agency Mortgage-Backed Obligations --
Collateralized Mortgage Obligations ................................... 3
Capital Trusts .......................................................... -- 1
- --------------------------------------------------------------------------------
1 Amount is less than 1%.
20 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Schedule of Investments May 31, 2008
Short-Term Bond Master Portfolio (Percentages shown are based on Net Assets)
Par
Asset-Backed Securities -- 24.8% (000) Value
===============================================================================
ACE Securities Corp. Series 2006-FM2 Class A2A,
2.443%, 8/25/36 (a) $ 4,556 $ 4,329,011
AEP Texas Central Transition Funding Series 2006-A
Class A2, 4.98%, 7/01/15 6,425 6,493,974
Aegis Asset Backed Securities Trust Series 2006-1
Class A1, 2.473%, 1/25/37 (a) 2,956 2,860,424
Ameriquest Mortgage Securities, Inc. Series
2004-FR1 Class A5, 4.455%, 5/25/34 (a) 8,382 8,018,460
Asset Backed Funding Certificates Series
2006-OPT2 Class A3A, 2.453%, 10/25/36 (a) 2,433 2,347,128
Bank of America Credit Card Trust Series 2007-A7
Class A7, 2.514%, 8/15/12 (a) 5,350 5,289,108
Capital Auto Receivables Asset Trust Series 2004-2
Class D, 5.82%, 5/15/12 1,250 1,245,037
Chase Manhattan Auto Owner Trust Series 2005-A
Class A3, 3.87%, 6/15/09 729 729,456
Citibank Credit Card Issuance Trust Series 2006-A2
Class A2, 4.85%, 2/10/11 6,900 6,951,982
Citigroup Mortgage Loan Trust, Inc. Series
2007-AHL3 Class A3A, 2.453%, 5/25/37 (a) 7,790 7,228,726
Countrywide Asset Backed Certificates (a):
Series 2004-13 Class AF3, 3.989%, 2/25/31 662 657,640
Series 2006-20 Class 2A1, 2.443%, 4/25/37 2,598 2,514,927
DaimlerChrysler Auto Trust Series 2006-C Class A3,
5.02%, 7/08/10 5,443 5,475,046
First Horizon Asset Backed Securities Trust
Series 2004-HE4 Class A2, 4.07%, 7/25/19 2,657 2,556,558
Ford Credit Auto Owner Trust:
Series 2005-A Class A4, 3.72%, 10/15/09 2,444 2,444,334
Series 2005-B Class A4, 4.38%, 1/15/10 2,990 2,990,440
Series 2005-C Class A3, 4.30%, 8/15/09 621 621,201
Series 2008-A Class A3A, 3.96%, 4/15/12 7,825 7,738,188
Fremont Home Loan Trust Series 2005-E Class 2A2,
2.563%, 1/25/36 (a) 312 308,967
GCO Slims Trust Series 2006-1A Class NOTE,
5.72%, 3/01/22 4,520 4,067,898
GSAA Trust Series 2004-10 Class AF2, 4.22%,
8/25/34 (a) 1,339 1,231,236
GSAMP Trust Series 2005-AHL Class A3, 2.733%,
4/25/35 (a) 2,029 1,907,930
HSI Asset Securitization Corp. Trust Series
2006-HE1 Class 2A1, 2.443%, 10/25/36 (a) 3,195 3,046,669
Honda Auto Receivables Owner Trust:
Series 2006-1 Class A3, 5.07%, 2/18/10 1,246 1,252,068
Series 2006-3 Class A3, 5.12%, 10/15/10 5,024 5,063,532
JPMorgan Mortgage Acquisition Corp. Series
2007-CH5 Class A2, 2.443%, 6/25/37 (a) 6,624 6,291,763
Morgan Stanley ABS Capital I (a):
Series 2007-HE2 Class A2A, 2.453%, 1/25/37 3,214 3,034,561
Series 2007-HE6 Class A1, 2.453%, 5/25/37 5,422 5,084,308
National Collegiate Student Loan Trust (b):
Series 2005-2 Class AIO, 7.73%, 3/25/12 16,400 2,121,340
Series 2005-GT1 Class AIO, 6.75%, 12/25/09 33,293 3,462,443
Popular ABS Mortgage Pass-Through Trust Series
2005-1 Class AF3, 4.142%, 5/25/35 (a) 940 925,814
Residential Asset Mortgage Products, Inc.
Series 2003-RZ3 Class A6, 3.40%, 3/25/33 5,190 4,501,839
SLM Student Loan Trust (a):
Series 2002-1 Class A2, 3.03%, 4/25/17 2,781 2,769,150
Series 2002-4 Class A4, 2.94%, 3/15/17 4,483 4,458,692
Series 2005-8 Class A2, 3.01%, 7/25/22 5,750 5,698,916
Series 2008-5 Class A2, 4.0%, 10/25/16 8,775 8,801,676
Series 2008-5 Class A3, 4.197%, 1/25/18 8,775 8,817,032
Securitized Asset Backed Receivables LLC Trust
Series 2007-NC2 Class A2A, 2.433%, 1/25/37 (a) 3,228 3,024,043
Soundview Home Equity Loan Trust :
Series 2003-2 Class A2, 3.043%, 11/25/33 (a) 5,707 4,764,218
Series 2007-OPT3 Class 2A1, 2.453%,
8/25/37 (a) 3,549 3,365,895
USAA Auto Owner Trust Series 2006-1 Class A3,
5.01%, 9/15/10 3,119 3,135,706
WFS Financial Owner Trust Series 2004-4 Class A4,
3.44%, 5/17/12 7,484 7,473,157
Wells Fargo Home Equity Trust Series 2007-2
Class A1, 2.483%, 4/25/37 (a) 4,659 4,466,171
- -------------------------------------------------------------------------------
Total Asset-Backed Securities 169,566,664
===============================================================================
===============================================================================
Government Agency Mortgage-Backed
Securities -- 12.3%
===============================================================================
Fannie Mae Guaranteed Pass Through Certificates:
4.208%, 3/01/34 (a) 1,677 1,675,047
4.642%, 2/01/35 (a) 1,834 1,851,009
5.41%, 5/01/37 (a) 4,578 4,668,233
5.50%, 11/01/17 -- 12/01/17 11,032 11,221,568
6.50%, 8/01/32 --8/1/34 (c) 30,547 31,527,482
7.50%, 9/01/35 2,847 3,065,653
8.00%, 7/01/27 -- 11/01/32 2,584 2,792,371
Freddie Mac Mortgage Participation Certificates (a):
4.425%, 4/01/35 2,061 2,061,622
4.633%, 4/01/35 4,927 4,983,601
5.795%, 11/01/36 4,213 4,310,062
6.036%, 11/01/36 12,523 12,832,641
Ginnie Mae MBS Certificates 4.75%, 11/20/34 (a) 2,971 2,985,780
- -------------------------------------------------------------------------------
Total Government Agency
Mortgage-Backed Securities 83,975,069
===============================================================================
===============================================================================
Government Agency Mortgage-Backed
Obligations -- Collateralized Mortgage
Obligations -- 2.3%
===============================================================================
Fannie Mae Trust:
Series 360 Class 2, 5%, 8/01/35 (b) 14,911 3,748,853
Series 377 Class 2, 5%, 10/01/36 (b) 5,857 1,503,892
Series 2003-17 Class QR, 4.50%, 11/25/25 1,903 1,904,684
Series 2003-67 Class GL, 3%, 1/25/25 1,204 1,200,419
Series 2006-M2 Class A1A, 4.855%,
8/25/16 (a) 3,381 3,458,060
Series 2007-22 Class SD, 4.008%,
3/25/37 (a)(b) 13,311 1,116,633
Freddie Mac Multiclass Certificates:
Series 2673 Class ML, 4%, 12/15/22 1,027 1,025,736
Series 3249 Class SM, 4.136%,
12/15/36 (a)(b) 8,597 767,722
Series 3439 Class SB, 4.286%, 4/15/38 (a)(b) 9,930 944,417
- -------------------------------------------------------------------------------
Total Government Agency Mortgage-Backed
Obligations -- Collateralized Mortgage Obligations 15,670,416
===============================================================================
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 21
Schedule of Investments (continued)
Short-Term Bond Master Portfolio (Percentages shown are based on Net Assets)
Non-Government Agency Par
Mortgage-Backed Securities --39.4% (000) Value
===============================================================================
Collateralized Mortgage Obligations -- 25.7%
American Home Mortgage Assets Series 2006-6
Class A1A, 2.583%, 12/25/46 (a) $ 8,096 $ 6,338,563
American Home Mortgage Investment Trust
Series 2006-3 Class 11A1, 2.573%, 12/25/46 (a) 8,029 6,272,520
Banc of America Funding Corp. Series 2006-I
Class 1A1, 4.592%, 12/20/36 (a) 5,866 5,490,137
Banc of America Mortgage Securities Inc.:
Series 2003-J Class 2A1, 4.082%,
11/25/33 (a) 2,816 2,744,602
Series 2006-B Class 3A1, 6.143%,
10/20/46 (a) 5,173 4,774,854
BlackRock Capital Finance LP Series 1997-R2
Class AP, 10.809%, 12/25/35 (a)(d)(e) 58 58,018
Countrywide Alternative Loan Trust Series 2005-56
Class 1A1, 3.123%, 11/25/35 (a) 5,158 4,201,433
Countrywide Home Loan Mortgage Pass-Through
Trust Series 2005-HYB8 Class 2A1, 5.197%,
12/20/35 (a) 3,850 3,388,140
Deutsche Alt-A Securities, Inc. Alternative Loan Trust
Series 2006-AF1 Class A1, 2.473%, 4/25/36 (a) 1,162 1,085,503
GMAC Mortgage Corp. Loan Trust Series 2003-J10
Class A1, 4.75%, 1/25/19 8,218 7,934,959
GSR Mortgage Loan Trust Series 2005-AR1
Class 2A1, 4.917%, 1/25/35 (a) 8,480 7,987,136
GSR Mortgage Loan Trust Series 2007-AR1
Class 2A1, 5.997%, 3/25/37 (a) 6,351 6,160,644
Harborview Mortgage Loan Trust (a):
Series 2006-11 Class A1A, 2.668%, 12/19/36 3,836 2,876,856
Series 2006-12 Class 2A2B, 2.748%, 1/19/38 4,768 3,019,239
Homebanc Mortgage Trust Series 2005-3 Class A1,
2.633%, 7/25/35 (a) 7,320 6,695,260
Indymac Index Mortgage Loan Trust Series
2006-AR41 Class A3, 2.573%, 2/25/37 (a) 3,276 2,358,871
JPMorgan Mortgage Trust Series 2007-A1 Class 2A1,
4.744%, 7/25/35 (a) 6,497 6,470,863
Luminent Mortgage Trust Series 2006-7 Class 1A1,
2.573%, 5/25/36 (a) 4,054 2,839,114
Ocwen Residential MBS Corp. Series 1998-R2
Class AP, 9.254%, 11/25/34 (a) 143 93,190
Permanent Financing Plc (a):
Series 5 Class 3A, 3.15%, 6/10/34 7,100 7,031,890
Series 8 Class 2A, 3.06%, 6/10/14 5,215 5,214,286
Permanent Master Issue Plc Series 2007-1
Class 2A1, 2.763%, 1/15/16 (a) 4,785 4,653,460
Residential Accredit Loans, Inc. Series 2006-QA9
Class A1, 2.573%, 11/25/36 (a) 3,855 2,782,443
Residential Asset Securitization Trust Series
2005-A5 Class A12, 2.693%, 5/25/35 (a) 3,129 2,888,946
Salomon Brothers Mortgage Securities VI, Inc.
Series 1986-1 Class A, 6%, 12/25/11 10 9,884
Structured Mortgage Asset Residential Trust Series
1991-1 Class H, 8.25%, 6/25/22 5 5,334
SunTrust Adjustable Rate Mortgage Loan Trust Series
2007-2 Class 3A3, 5.716%, 4/25/37 (a) 6,123 5,700,297
Thornburg Mortgage Securities Trust Series 2005-4
Class A4, 2.593%, 12/25/45 (a) 5,162 5,113,640
WaMu Mortgage Pass-Through Certificates (a):
Series 2000-1 Class B1, 5.448%, 1/25/40 4 1,466
Series 2004-AR3 Class A1, 3.918%, 6/25/34 13,444 13,304,907
Series 2005-AR12 Class 1A6,
4.833%, 10/25/35 7,175 6,804,762
Series 2006-AR12 Class 1A4,
6.069%, 10/25/36 6,271 6,118,557
Series 2007-HY3 Class 4A1, 5.349%, 3/25/37 7,262 6,974,476
Walsh Acceptance Series 1997-2 Class A, 4.393%,
3/01/27 (a) 40 5,057
Wells Fargo Mortgage Backed Securities Trust:
Series 2004-3 Class A1, 4.75%, 4/25/19 7,781 7,518,323
Series 2006-AR8 Class 2A1, 5.241%,
4/25/36 (a) 7,678 7,360,163
Series 2006-AR10 Class 2A1,
5.65%, 7/25/36 (a) 5,809 5,635,052
Series 2007-8 Class 2A7, 6%, 7/25/37 7,778 7,740,754
------------
175,653,599
- -------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities -- 13.7%
Banc of America Commercial Mortgage, Inc. Series
2000-1 Class A2A, 7.333%, 11/15/31 (a)(e) 3,426 3,511,074
CS First Boston Mortgage Securities Corp.:
Series 1999-C1 Class A2, 7.29%, 9/15/41 3,668 3,761,302
Series 2002-CKS4 Class A1,
4.485%, 11/15/36 2,639 2,622,992
Series 2003-CPN1 Class ASP, 1.376%,
3/15/35 (a)(b) 62,178 1,411,119
Series 2004-C3 Class A2, 3.913%, 7/15/36 1,815 1,809,219
Chase Commercial Mortgage Securities Corp.
Series 1999-2 Class A2, 7.198%, 1/15/32 3,665 3,774,023
Chase Manhattan Bank-First Union National Bank
Series 1999-1 Class A2, 7.439%, 8/15/31 (a) 4,111 4,217,593
Citigroup Commercial Mortgage Trust Series
2007-C6 Class A4, 5.70%, 12/10/49 (a) 7,600 7,456,738
Commercial Mortgage Acceptance Corp. Series
1999-C1 Class A2, 7.03%, 6/15/31 3,226 3,277,496
GE Capital Mall Finance Corp. Series 1998-1A
Class A2, 6.32%, 9/13/28 4,955 4,974,494
GMAC Commercial Mortgage Securities, Inc.:
Series 1998-C2 Class A2, 6.42%, 5/15/35 2,884 2,881,412
Series 1999-C1 Class A2, 6.175%, 5/15/33 (a) 3,310 3,329,505
Greenwich Capital Commercial Funding Corp. Series
2002-C1 Class XP, 1.978%, 1/11/35 (a)(b) 37,280 1,045,720
JPMorgan Chase Commercial Mortgage
Securities Corp.:
Series 2001-CIBC Class A3, 6.26%, 3/15/33 12,127 12,489,410
Series 2007-CB20 Class A4, 5.794%,
2/12/51 (a) 4,030 3,990,800
LB Commercial Conduit Mortgage Trust Series
1999-C1 Class A2, 6.78%, 6/15/31 12,986 13,162,958
LB-UBS Commercial Mortgage Trust:
Series 2002-C4 Class XCP, 1.393%,
10/15/35 (a)(b) 65,292 1,116,247
Series 2004-C4 Class A2, 4.567%,
6/15/29 (a) 6,635 6,641,464
Series 2004-C7 Class A1, 3.625%, 10/15/29 2,854 2,838,631
See Notes to Financial Statements.
22 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Schedule of Investments (continued)
Short-Term Bond Master Portfolio (Percentages shown are based on Net Assets)
Non-Government Agency Par
Mortgage-Backed Securities (concluded) (000) Value
===============================================================================
Commercial Mortgage-Backed
Securities (concluded)
TIAA Retail Commercial Trust Series 2007-C4
Class A1, 5.697%, 8/15/39 (a) $ 6,133 $ 6,201,529
Wachovia Bank Commercial Mortgage Trust Series
2006-C25 Class A4, 5.742%, 5/15/43 (a) 3,625 3,641,779
------------
94,155,505
- -------------------------------------------------------------------------------
Total Non-Government Agency
Mortgage-Backed Securities 269,809,104
===============================================================================
===============================================================================
Corporate Bonds -- 14.7%
===============================================================================
Airlines -- 0.1%
American Airlines, Inc. Series 2003-1,
3.857%, 1/09/12 539 508,905
- -------------------------------------------------------------------------------
Automobiles -- 0.3%
DaimlerChrysler NA Holding Corp., 4.05%, 6/04/08 2,000 2,000,000
- -------------------------------------------------------------------------------
Capital Markets -- 1.5%
Deutsche Bank AG, 5.375%, 10/12/12 1,790 1,823,358
Lehman Brothers Holdings, Inc.:
3.50%, 8/07/08 1,535 1,530,836
2.778%, 5/25/10 (a) 1,605 1,508,233
Morgan Stanley, 5.625%, 1/09/12 5,043 4,984,779
------------
9,847,206
- -------------------------------------------------------------------------------
Commercial Banks -- 0.2%
Wachovia Corp., 6.15%, 3/15/09 1,500 1,515,662
- -------------------------------------------------------------------------------
Communications Equipment -- 0.1%
Cisco Systems, Inc., 2.738%, 2/20/09 (a) 955 954,574
- -------------------------------------------------------------------------------
Consumer Finance -- 0.8%
HSBC Finance Corp., 4.125%, 12/15/08 3,500 3,502,107
SLM Corp. Series A, 4%, 1/15/09 2,055 2,023,246
------------
5,525,353
- -------------------------------------------------------------------------------
Diversified Financial Services -- 3.1%
Citigroup, Inc., 5.30%, 10/17/12 5,850 5,785,545
General Electric Capital Corp.:
3.003%, 11/01/12 (a)(e) 10,350 10,000,760
Series A, 3.75%, 12/15/09 2,700 2,699,854
JPMorgan Chase & Co., 4.75%, 5/01/13 3,000 2,944,659
------------
21,430,818
- -------------------------------------------------------------------------------
Diversified Telecommunication Services -- 1.7%
AT&T Inc.:
4.125%, 9/15/09 1,810 1,812,482
4.95%, 1/15/13 3,250 3,240,162
Deutsche Telekom International Finance BV,
3.875%, 7/22/08 2,500 2,499,700
Qwest Corp., 6.05%, 6/15/13 (a) 250 242,500
Telecom Italia Capital SA, 4%, 11/15/08 2,250 2,242,413
Telefonica Emisiones SAU, 5.984%, 6/20/11 1,275 1,290,157
------------
11,327,414
- -------------------------------------------------------------------------------
Electric Utilities -- 0.1%
Xcel Energy, Inc., 3.40%, 7/01/08 685 684,658
- -------------------------------------------------------------------------------
Food Products -- 0.2%
Kraft Foods, Inc., 5.625%, 8/11/10 1,115 1,131,437
- -------------------------------------------------------------------------------
Gas Utilities -- 0.0%
Transcontinental Gas Pipe Line Corp. Series B,
8.875%, 7/15/12 180 199,350
- -------------------------------------------------------------------------------
Insurance -- 0.9%
Metropolitan Life Global Funding I, 5.125%,
4/10/13 (f) 3,715 3,659,379
ZFS Finance (USA) Trust I, 6.15%, 12/15/65 (a)(f) 1,125 1,025,488
ZFS Finance (USA) Trust IV, 5.875%, 5/09/32 (a)(f) 1,900 1,728,468
------------
6,413,335
- -------------------------------------------------------------------------------
Media -- 0.8%
British Sky Broadcasting Plc, 8.20%, 7/15/09 2,825 2,926,494
Comcast Corp., 3.01%, 7/14/09 (a) 1,470 1,457,467
News America, Inc., 6.75%, 1/09/38 1,220 1,272,038
------------
5,655,999
- -------------------------------------------------------------------------------
Multi-Utilities -- 1.6%
CenterPoint Energy Transition Bond Co. LLC
Series A-2, 4.97%, 8/01/14 6,350 6,439,535
Dominion Resources, Inc. Series D,
5.125%, 12/15/09 2,000 2,022,386
Energy East Corp., 6.75%, 6/15/12 2,650 2,758,245
------------
11,220,166
- -------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels -- 1.8%
Anadarko Petroleum Corp., 3.20%, 9/15/09 (a) 2,475 2,450,750
Conoco Funding Co., 6.35%, 10/15/11 6,775 7,147,069
XTO Energy, Inc., 4.625%, 6/15/13 3,015 2,919,057
------------
12,516,876
- -------------------------------------------------------------------------------
Pharmaceuticals -- 0.5%
GlaxoSmithKline Capital, Inc., 4.85%, 5/15/13 3,505 3,491,187
- -------------------------------------------------------------------------------
Real Estate Investment Trusts (REITs) -- 0.6%
Nationwide Health Properties, Inc.:
7.60%, 11/20/28 1,400 1,537,404
6.59%, 7/07/38 1,400 1,461,250
Rouse Co. LP, 3.625%, 3/15/09 815 777,919
------------
3,776,573
- -------------------------------------------------------------------------------
Wireless Telecommunication Services -- 0.4%
Vodafone Group Plc, 2.918%, 2/27/12 (a) 2,525 2,388,390
- -------------------------------------------------------------------------------
Total Corporate Bonds 100,587,903
===============================================================================
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 23
Schedule of Investments (continued)
Short-Term Bond Master Portfolio (Percentages shown are based on Net Assets)
Par
Capital Trusts -- 0.3% (000) Value
===============================================================================
Capital Markets -- 0.3%
Credit Suisse Guernsey Ltd. Series 1,
3.366% (a)(g) $ 285 $ 212,773
Goldman Sachs Capital III Series F, 3.452% (a)(g) 3,180 2,240,628
- -------------------------------------------------------------------------------
Total Capital Trusts 2,453,401
- -------------------------------------------------------------------------------
Total Long-Term Investments
(Cost -- $657,627,597) -- 93.8% 642,062,557
===============================================================================
===============================================================================
Short-Term Securities
===============================================================================
Time Deposits -- 4.8%
Brown Brothers Harriman & Co.,
1.46%, 6/02/08 32,580 32,579,825
- -------------------------------------------------------------------------------
Total Short-Term Securities
(Cost -- $32,579,825) -- 4.8% 32,579,825
===============================================================================
===============================================================================
Options Purchased Contracts
===============================================================================
Call Options Purchased
Swaptions
Receive a fixed rate of 5.36% and pay a floating rate
based on 3-month LIBOR, expiring February 2011,
Broker Credit Suisse First Boston 34 (h) 1,472,019
Receive a fixed rate of 5.705% and pay a floating
rate based on 3-month LIBOR, expiring May 2012,
Broker Deutsche Bank AG, 33 (h) 2,017,830
------------
3,489,849
===============================================================================
Index Future
Euro-Dollar Future, expiring September 2008
at $97.375 163 (i) 41,769
===============================================================================
===============================================================================
Options Purchased (concluded) Contracts (h) Value
===============================================================================
Put Options Purchased
Swaptions
Pay a fixed rate of 5.36% and receive a floating rate
based on 3-month LIBOR, expiring February 2011,
Broker Credit Suisse First Boston 34 $ 1,714,040
Pay a fixed rate of 5.705% and receive a floating
rate based on 3-month LIBOR, expiring May 2012,
Broker Deutsche Bank AG 33 1,312,296
------------
3,026,336
- -------------------------------------------------------------------------------
Total Options Purchased
(Cost -- $6,335,121) -- 0.9% 6,557,954
===============================================================================
Total Investments before TBA Sale Commitments
and Options Written (Cost -- $696,542,543*) -- 99.5% 681,200,336
===============================================================================
===============================================================================
Par
TBA Sale Commitments (000)
===============================================================================
Fannie Mae Guaranteed Pass Through
Certificates, 6.5%, 8/01/32 - 8/01/34 (c) $30,500 (31,474,292)
- -------------------------------------------------------------------------------
Total TBA Sale Commitments
(Proceeds -- $31,401,494) -- (4.6%) (31,474,292)
===============================================================================
===============================================================================
Options Written Contracts (i)
===============================================================================
Call Options Written
Euro-Dollar Future, expiring September 2008
at $97.875 163 (8,150)
- -------------------------------------------------------------------------------
Put Options Written
Euro-Dollar Future, expiring December 2008
at $96.75 81 (50,119)
- -------------------------------------------------------------------------------
Total Options Written
(Premiums Received -- $49,992) -- (0.0%) (58,269)
===============================================================================
Total Investments net of TBA Sale
Commitments and Options Written -- 94.9% 649,667,775
Other Assets in Excess of Liabilities -- 5.1% 35,050,446
------------
Net Assets -- 100.0% $684,718,221
============
* The cost and unrealized appreciation (depreciation) of investments, as of
May 31, 2008, as computed for federal income tax purposes, were as
follows:
Aggregate cost ......................................... $ 696,542,543
=============
Gross unrealized appreciation .......................... $ 4,028,620
Gross unrealized depreciation .......................... (19,370,827)
-------------
Net unrealized depreciation ............................ $ (15,342,207)
=============
(a) Variable rate security. Rate shown is as of report date.
(b) Represents the interest only portion of a mortgage-backed security and has
either a nominal or a notional amount of principal.
(c) Represents or includes a "to-be-announced" transaction. The Fund has
committed to purchasing securities for which all specific information is
not available at this time.
(d) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Purchase Sale Realized Interest
Affiliate Cost Cost Gain Income
--------------------------------------------------------------------------
BlackRock Capital Finance LP
Series 1997 -- R2 Class AP,
10.809% due 12/25/35 -- $23,083 $141 $5,958
--------------------------------------------------------------------------
(e) All or a portion of security, has been pledged as collateral in connection
with open financial futures contracts.
(f) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold to transactions exempt from
registration to qualified Institutional Investors. Unless otherwise
indicated, these securities are not considered to be illiquid.
(g) Security is perpetual in nature and has no stated maturity date.
(h) One contract represents a notional amount of $1,000,000.
(i) One contract represents a notional amount of $2,500.
See Notes to Financial Statements.
24 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Schedule of Investments (concluded) Short-Term Bond Master Portfolio
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. These industry
classifications are unaudited.
o Forward foreign currency contracts as of May 31, 2008 were as follows:
--------------------------------------------------------------------------
Unrealized
Currency Currency Settlement Appreciation
Purchased Sold Date (Depreciation)
--------------------------------------------------------------------------
$ 1,307,856 EUR 831,125 July 23, 2008 $ 18,278
JPY 844,034,999 $ 8,278,172 July 11, 2008 (253,119)
$ 7,955,323 JPY 800,000,000 July 23, 2008 343,742
--------------------------------------------------------------------------
Net Unrealized Appreciation $ 108,901
==============
o Swaps contracts outstanding as of May 31, 2008 were as follows:
--------------------------------------------------------------------------
Notional Unrealized
Amount Appreciation
(000) (Depreciation)
--------------------------------------------------------------------------
Bought credit default protection on
Dow Jones CDX North America Investment
Grade Index and pay 1.55%
Broker, Credit Suisse First Boston
Expires June 2013 $ 3,510 $ 13,721
Pay a fixed rate of 4.96% and receive a
floating rate based on 3-month USD LIBOR
Broker, Deutsche Bank Securities A.G. London
Expires May 2018 $ 12,400 (116,821)
Receive a fixed rate of 7.1192% and pay a
floating rate based on 6-month AUD Bank Bill Rate
Broker, Deutsche Bank A.G. London
Expires October 2012 AUD 21,555 (410,801)
--------------------------------------------------------------------------
Net Unrealized Depreciation $(513,901)
==========
o Financial futures contracts purchased as of May 31, 2008 were as follows:
-------------------------------------------------------------------------------------
Unrealized
Number of Expiration Face Appreciation
Contracts Issue Exchange Date Value (Depreciation)
-------------------------------------------------------------------------------------
185 Euro-Schatz
Future Eurex June 2008 $ 30,379,002 $ (427,547)
120 EuroBobl Future Eurex June 2008 $ 20,462,445 (798,288)
53 Euro Bund
Future Eurex June 2008 $ 9,415,222 (411,340)
7 Euro Dollar
Future Chicago June 2010 $ 1,687,634 (13,584)
7 Euro Dollar
Future Chicago Sept. 2010 $ 1,683,959 (12,271)
7 Euro Dollar
Future Chicago Dec. 2010 $ 1,680,459 (11,134)
2,051 2-Year U.S.
Treasury Bond Chicago Sept. 2008 $431,636,018 355,857
-------------------------------------------------------------------------------------
Net Unrealized Depreciation $(1,318,307)
============
o Financial futures contracts sold as of May 31, 2008 were as follows:
-------------------------------------------------------------------------------------
Unrealized
Number of Expiration Face Appreciation
Contracts Issue Exchange Date Value (Depreciation)
-------------------------------------------------------------------------------------
33 Euro Dollar
Future Chicago June 2008 $ 7,953,601 $ (73,443)
33 Euro Dollar
Future Chicago September 2008 $ 7,950,797 (64,903)
33 Euro Dollar
Future Chicago December 2008 $ 7,940,172 (53,253)
42 Euro Dollar
Future Chicago March 2009 $10,076,206 (74,669)
26 Euro Dollar
Future Chicago June 2009 $ 6,240,656 (26,969)
26 Euro Dollar
Future Chicago September 2009 $ 6,232,594 (20,406)
26 Euro Dollar
Future Chicago December 2009 $ 6,223,569 (14,806)
37 Euro Dollar
Future Chicago March 2010 $ 8,833,721 (29,204)
11 Euro Dollar
Future Chicago March 2011 $ 2,627,954 6,929
77 5-Year U.S.
Treasury Bond Chicago June 2008 $ 8,809,513 279,357
779 10-Year U.S.
Treasury Bond Chicago June 2008 $91,360,107 2,590,873
10 30-Year U.S.
Treasury Bond Chicago June 2008 $ 1,181,777 37,090
-------------------------------------------------------------------------------------
Net Unrealized Appreciation $2,556,596
===========
o Currency Abbreviations:
AUD Australian Dollar
EUR Euro
JPY Japanese Yen
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 25
Statement of Assets and Liabilities Short-Term Bond Master Portfolio
May 31, 2008
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investments at value -- unaffiliated (cost -- $696,484,879) ...................................................... $ 681,142,318
Investments at value -- affiliated (cost -- $57,664) ............................................................. 58,018
Unrealized appreciation on swaps ................................................................................. 13,721
Unrealized appreciation on forward foreign currency contracts .................................................... 362,020
Cash ............................................................................................................. 16
Foreign currency at value (cost -- $2,947,749) ................................................................... 3,020,374
Investments sold receivable ...................................................................................... 108,291,334
Paydowns receivable .............................................................................................. 4,303,974
Interest receivable .............................................................................................. 3,837,226
Contributions receivable ......................................................................................... 1,525,142
Margin variation receivable ...................................................................................... 76,197
Prepaid expenses ................................................................................................. 18,324
Other assets ..................................................................................................... 6,629
-------------
Total assets ..................................................................................................... 802,655,293
-------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
TBA sale commitments (proceeds -- $31,401,494) ................................................................... 31,474,292
Cash collateral .................................................................................................. 2,700,000
Unrealized depreciation on swaps ................................................................................. 527,622
Swaps payable .................................................................................................... 42,830
Swaps premiums ................................................................................................... 241,855
Options written at value (premium received -- $49,992) ........................................................... 58,269
Unrealized depreciation on forward foreign currency contracts .................................................... 253,119
Investments purchased payable .................................................................................... 82,365,641
Other accrued expenses payable ................................................................................... 139,153
Investment advisory fees payable ................................................................................. 125,614
Officer's and Directors' fees payable ............................................................................ 3,716
Other affiliates payable ......................................................................................... 4,961
-------------
Total liabilities ................................................................................................ 117,937,072
-------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets ....................................................................................................... $ 684,718,221
=============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Investor's capital ............................................................................................... $ 699,247,173
Net unrealized appreciation/depreciation ......................................................................... (14,528,952)
-------------
Net assets ....................................................................................................... $ 684,718,221
=============
See Notes to Financial Statements.
26 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Statements of Operations Short-Term Bond Master Portfolio
Period
July 1,
2007 to Year Ended
May 31, June 30,
2008 2007
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Interest (including $5,958 from affiliates) ...................................................... $ 32,513,239 $ 32,812,868
Dividends ........................................................................................ -- 22,961
Securities lending ............................................................................... -- 17,698
-----------------------------
Total income ..................................................................................... 32,513,239 32,853,527
-----------------------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Investment advisory .............................................................................. 1,331,430 1,414,905
Accounting services .............................................................................. 233,942 249,940
Custodian ........................................................................................ 86,447 78,180
Officer and Directors ............................................................................ 32,664 28,918
Professional ..................................................................................... 45,878 54,499
Printing ......................................................................................... 4,603 3,126
Miscellaneous .................................................................................... 41,495 43,821
-----------------------------
Total expenses excluding interest expense ........................................................ 1,776,459 1,873,389
Interest expense ................................................................................. 4,784 --
-----------------------------
Total expenses ................................................................................... 1,781,243 1,873,389
-----------------------------
Net investment income ............................................................................ 30,731,996 30,980,138
-----------------------------
===================================================================================================================================
Realized and Unrealized Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments (includes gains of $141 and $175 from affiliates) ................................ 1,671,231 (5,704,143)
Futures and swaps ............................................................................ (4,035,864) (1,836,808)
Foreign currency ............................................................................. 214,397 203,618
Options written .............................................................................. 779,043 290,320
-----------------------------
(1,371,193) (7,047,013)
-----------------------------
Net change in unrealized appreciation/depreciation on:
Investments .................................................................................. (10,353,315) 9,731,460
Futures and swaps ............................................................................ 1,058,875 (220,553)
Foreign currency ............................................................................. 300,210 (130,269)
TBA sale commitments ......................................................................... (1,328,900) --
Options written .............................................................................. 133,852 (142,129)
-----------------------------
(10,189,278) 9,238,509
-----------------------------
Total realized and unrealized gain (loss) ........................................................ (11,560,471) 2,191,496
-----------------------------
Net Increase in Net Assets Resulting from Operations ............................................. $ 19,171,525 $ 33,171,634
=============================
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 27
Statements of Changes in Net Assets Short-Term Bond Master Portfolio
Period
July 1, Year Ended
2007 to June 30,
May 31, -------------------------------
Increase (Decrease) in Net Assets: 2008 2007 2006
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income ........................................................ $ 30,731,996 $ 30,980,138 $ 27,804,920
Net realized loss ............................................................ (1,371,193) (7,047,013) (2,431,805)
Net change in unrealized appreciation/depreciation ........................... (10,189,278) 9,238,509 (8,404,614)
-------------------------------------------------
Net increase in net assets resulting from operations ......................... 19,171,525 33,171,634 16,968,501
-------------------------------------------------
===================================================================================================================================
Capital Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions .................................................. 138,570,800 165,796,615 175,591,581
Fair value of withdrawals .................................................... (149,724,799) (201,097,486) (240,264,379)
-------------------------------------------------
Net decrease in net assets derived from capital transactions ................. (11,153,999) (35,300,871) (64,672,798)
-------------------------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ...................................... 8,017,526 (2,129,237) (47,704,297)
Beginning of period .......................................................... 676,700,695 678,829,932 726,534,229
-------------------------------------------------
End of period ................................................................ $ 684,718,221 $ 676,700,695 $ 678,829,932
=================================================
See Notes to Financial Statements.
28 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Financial Highlights Short-Term Bond Master Portfolio
Period
July 1,
2007 to Year Ended June 30,
May 31, ------------------------------------------------------------
2008 2007 2006 2005 2004 2003
=======================================================================================================================
Total Investment Return
- -----------------------------------------------------------------------------------------------------------------------
Total investment return ................. 2.76% 1 5.03% 2.50% 2.80% 1.18% 6.05%
==========================================================================
=======================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Total expenses excluding interest expense 0.28% 2 0.28% 0.28% 0.28% 0.28% 0.28%
==========================================================================
Total expenses .......................... 0.28% 2 0.28% 0.28% 0.28% 0.28% 0.28%
==========================================================================
Net investment income ................... 4.83% 2 4.60% 4.00% 3.34% 3.39% 3.73%
==========================================================================
=======================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000) ......... $684,718 $676,701 $678,830 $726,534 $740,024 $739,334
==========================================================================
Portfolio turnover ...................... 230% 3 108% 80% 75% 107% 198%
==========================================================================
1 Aggregate total investment return.
2 Annualized.
3 Includes TBA transactions, excluding these transactions, the Portfolio
turnover rate would have been 13%.
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 29
Notes to Financial Statements Short-Term Bond Master Portfolio
1. Significant Accounting Policies:
Short-Term Bond Master Portfolio (the "Portfolio") is a series of Short-Term
Bond Master LLC (the "Master LLC") and is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), and is organized as a Delaware
limited liability company. The Limited Liability Company Agreement permits the
Directors to issue non-transferable interests in the Master LLC, subject to
certain limitations. The Portfolio's financial statements are prepared in
conformity with accounting principles generally accepted in the United States of
America, which may require the use of management accruals and estimates. Actual
results may differ from these estimates. The Portfolio recently changed its
fiscal year end to May 31.
The following is a summary of significant accounting policies followed by the
Portfolio:
Valuation of Investments: The Portfolio values its bond investments on the basis
of last available bid price or current market quotations provided by dealers or
pricing services selected under the supervision of the Master LLC's Board of
Directors (the "Board"). In determining the value of a particular investment,
pricing services may use certain information with respect to transactions in
such investments, quotations from dealers, pricing matrixes, market transactions
in comparable investments, various relationships observed in the market between
investments, and calculated yield measures based on valuation technology
commonly employed in the market for such investments. Financial futures
contracts are traded on exchanges and are valued at their last sale price. Swap
agreements are valued by quoted fair values received daily by the Portfolio's
pricing service, or through brokers. Short-term securities are valued at
amortized cost. Investments in open-end investment companies are valued at net
asset value each business day. TBA commitments are valued at the current market
value of the underlying securities.
Exchange-traded options are valued at the mean between the last bid and ask
prices at the close of the options market in which the options trade.
Over-the-counter ("OTC") options are valued by an independent pricing service
using a mathematical model which incorporates a number of market data factors.
In the event that application of these methods of valuation results in a price
for an investment which is deemed not to be representative of the market value
of such investment, the investment will be valued by a method approved by the
Board as reflecting fair value ("Fair Value Assets"). When determining the price
for Fair Value Assets, the investment advisor and/or sub-advisor seeks to
determine the price that the Portfolio might reasonably expect to receive from
the current sale of that asset in an arm's-length transaction. Fair value
determinations shall be based upon all available factors that the investment
advisor and/or sub-advisor deems relevant. The pricing of all Fair Value Assets
is subsequently reported to the Board or a committee thereof.
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
generally will be 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 may be valued
at their fair value as determined in good faith by the Board or by the
investment advisor using a pricing service and/or procedures approved by the
Board.
Derivative Financial Instruments: The Portfolio may engage in various portfolio
investment strategies 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 if the value of the contract decreases due to an
unfavorable change in the price of the underlying security, 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 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 value of the contract. Such receipts or payments are known
as margin variation and are recognized 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.
30 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Notes to Financial Statements (continued) Short-Term Bond Master Portfolio
o Forward foreign currency contracts -- The Portfolio may enter into forward
foreign currency contracts as a hedge against either specific transactions
or portfolio positions. Forward foreign currency contracts, when used by
the Portfolio, help to manage the overall exposure to the foreign currency
backing some of the investments held by the Portfolio. The contract is
marked-to-market daily and the change in market value is recorded by the
Portfolio as an unrealized gain or loss. When the contract is closed, the
Portfolio records a realized gain or loss equal to the difference between
the value at the time it was opened and the value at the time it was
closed.
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 gain or loss to the extent the
cost of the closing transaction exceeds the premium received or paid).
A call option gives the purchaser of the option the right (but not the
obligation) to buy, and obligates the seller to sell (when the option is
exercised), the underlying position at the exercise price at any time or
at a specified time during the option period. A put option gives the
holder the right to sell and obligates the writer to buy the underlying
position at the exercise price at any time or at a specified time during
the option period.
o Swap Options -- Swap options (swaptions) are similar to options on
securities except that instead of selling or purchasing the right to buy
or sell a security, the writer or purchaser of the swap option is granting
or buying the right to enter into a previously agreed upon interest rate
swap agreement at any time before the expiration of the option.
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. These periodic payments
received or made by the Portfolio are recorded in the accompanying
Statements of Operations as realized gains or losses, respectively. Gains
or losses are also realized upon termination of the swap agreements. Swaps
are marked-to-market daily and changes in value are recorded as unrealized
appreciation (depreciation). When the swap is terminated, the Portfolio
will record a realized gain or loss equal to the difference between the
proceeds from (or cost of) the closing transaction and the Portfolio's
basis in the contract, if any.
Credit default swaps -- Credit default swaps are agreements in which one
party pays fixed periodic payments to a counterparty in consideration for
a guarantee from the counterparty to make a specific payment should a
negative credit event take place.
Interest rate swaps -- Interest rate swaps are agreements in which one
party pays a floating rate of interest on a notional principal amount and
receives a fixed rate of interest on the same notional principal amount
for a specified period of time. Alternatively, a party may pay a fixed
rate and receive a floating rate. In more complex swaps, the notional
principal amount may decline (or amortize) over time.
o Foreign currency options and futures -- The Portfolio may also purchase or
sell listed or OTC foreign currency options, foreign currency futures and
related options on foreign currency futures as a short or long hedge
against possible variations in foreign exchange rates. When foreign
currency is purchased or sold through an exercise of a foreign currency
option, the related premium paid (or received) is added to (or deducted
from) the basis of the foreign currency acquired or deducted from (or
added to) the proceeds of the foreign currency sold. Such transactions may
be effected with respect to hedges on non-U.S. dollar denominated
securities owned by the Portfolio, sold by the Portfolio but not yet
delivered, or committed or anticipated to be purchased by the Portfolio.
Asset-Backed Securities: The Portfolio may invest in asset-backed securities.
Asset-backed securities are generally issued as pass-through certificates, which
represent undivided fractional ownership interests in an underlying pool of
assets, or as debt instruments, which are also known as collateralized
obligations, and are generally issued as the debt of a special purpose entity
organized solely for the purpose of owning such assets and issuing such debt.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. The yield characteristics of
certain asset-backed securities may differ from traditional debt securities. One
such major difference is that all or a principal part of the obligations may be
prepaid at any time because the underlying assets (i.e., loans) may be prepaid
at any time. As a result, a decrease in interest rates in the market may result
in increases in the level of prepayments as borrowers, particularly mortgagors,
refinance and repay their loans. An increased prepayment rate with respect to an
asset-backed security subject to such a prepayment feature will have the effect
of shortening the maturity of the security. If the Portfolio has purchased such
an asset-backed security at a premium, a faster than anticipated prepayment rate
could result in a loss of principal to the extent of the premium paid.
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 31
Notes to Financial Statements (continued) Short-Term Bond Master Portfolio
The Portfolio invests a significant portion of its assets in securities backed
by commercial or residential mortgage loans or in issuers that hold mortgage and
other asset-backed securities. Please see the Schedule of Investments for these
securities. Changes in economic conditions, including delinquencies and/or
defaults or assets underlying these securities, can affect the value, income
and/or liquidity of such positions.
Capital Trusts: These securities are typically issued by corporations, generally
in the form of interest-bearing notes with preferred securities characteristics,
or by an affiliated business trust of a corporation, generally in the form of
beneficial interests in subordinated debentures or similarly structured
securities. The securities can be structured as either fixed or adjustable
coupon securities that can have either a perpetual or stated maturity date.
Dividends can be deferred without creating an event of default or acceleration,
although maturity cannot take place unless all cumulative payment obligations
have been met. The deferral of payments does not affect the purchase or sale of
these securities in the open market. Payments on these securities are treated as
interest rather than dividends for Federal income tax purposes. These securities
can have a rating that is slightly below that of the issuing company's senior
debt securities.
Collateralized Mortgage Obligations: The Portfolio may invest in multiple class
pass-through securities, including collateralized mortgage obligations ("CMOs").
These multiple class securities may be issued by GNMA, U.S. government agencies
or instrumentalities or by trusts formed by private originators of, or investors
in, mortgage loans. In general, CMOs are debt obligations of a legal entity that
are collateralized by, and multiple class pass-through securities represent
direct ownership interests in, a pool of residential or commercial mortgage
loans or mortgage pass-through securities (the "Mortgage Assets"), the payments
on which are used to make payments on the CMOs or multiple pass-through
securities. The markets for CMOs may be more illiquid than those of other
securities. Classes of CMOs include interest only ("IOs"), principal only
("POs"), planned amortization classes ("PACs") and targeted amortization classes
("TACs"). IOs and POs are stripped mortgage-backed securities representing
interests in a pool of mortgages the cash flow from which has been separated
into interest and principal components. IOs receive the interest portion of the
cash flow while POs receive the principal portion. IOs and POs can be extremely
volatile in response to changes in interest rates. As interest rates rise and
fall, the value of IOs tends to move in the same direction as interest rates.
POs perform best when prepayments on the underlying mortgages rise since this
increases the rate at which the investment is returned and the yield to maturity
on the PO. When payments on mortgages underlying a PO are slow, the life of the
PO is lengthened and the yield to maturity is reduced.
Mortgage-Backed Securities: The Portfolio may purchase in the secondary market
certain mortgage pass-through securities. There are a number of important
differences among the agencies and instrumentalities of the U.S. government that
issue mortgage-related securities and among the securities that they issue. For
example, mortgage-related securities guaranteed by the Government National
Mortgage Association ("GNMA") are guaranteed as to the timely payment of
principal and interest by GNMA and such guarantee is backed by the full faith
and credit of the United States. However, mortgage-related securities issued by
the Federal National Mortgage Association ("FNMA") include FNMA guaranteed
Mortgage Pass-Through Certificates which are solely the obligations of the FNMA,
are not backed by or entitled to the full faith and credit of the United States
and are supported by the right of the issuer to borrow from the Treasury.
Mortgage Dollar Rolls: The Portfolio may sell mortgage-backed securities for
delivery in the current month and simultaneously contract to repurchase
substantially similar (same type, coupon and maturity) securities on a specific
future date at an agreed-upon price. The market value of the securities that the
Portfolio is required to purchase may decline below the agreed upon repurchase
price of those securities. Pools of mortgages collateralizing those securities
may have different prepayment histories than those sold. During the period
between the sale and the repurchase, the Portfolio will not be entitled to
receive interest and principal payments on the securities sold. Proceeds of the
sale will be invested in additional instruments for the Portfolio, and the
income from these investments will generate income for the Portfolio.
If such income does not exceed the income, capital appreciation and gain or loss
that would have been realized on the securities sold as part of the dollar roll,
the use of this technique will diminish the investment performance of the
Portfolio compared with what the performance would have been without the use of
dollar rolls.
Foreign Currency Transactions: Foreign currency amounts are translated into
United States dollars on the following basis: (i) market value of investment
securities, assets and liabilities at the current rate of exchange; and (ii)
purchases and sales of investment securities, income and expenses at the rates
of exchange prevailing on the respective dates of such transactions.
The Portfolio reports foreign currency related transactions as components of
realized gains for financial reporting purposes, whereas such components are
treated as ordinary income for federal income tax purposes.
TBA Commitments: The Portfolio may enter into to-be-announced ("TBA")
commitments to purchase or sell securities for a fixed price at a future date.
TBA commitments are considered securities in themselves, and involve a risk of
loss if the value of the security to be purchased or sold declines or increases
prior to settlement date, which is in addition to the risk of decline in the
value of the Portfolio's other assets.
Segregation: In cases in which the 1940 Act and the interpretive positions of
the Securities and Exchange Commission ("SEC") require that the Portfolio
segregate assets in connection with certain investments (e.g., futures) and
certain borrowings, the Portfolio will, consistent with certain
32 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Notes to Financial Statements (continued) Short-Term Bond Master Portfolio
interpretive letters issued by the SEC, designate on its books and records cash
or other liquid debt securities having a market value at least equal to the
amount that would otherwise be required to be physically segregated.
Investment Transactions and Investment Income: Investment transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Portfolio has determined the ex-dividend date.
Interest income is recognized on the accrual basis. The Portfolio amortizes all
premiums and discounts on debt securities.
Income Taxes: The Portfolio is classified as a "pass-through entity" for federal
income tax purposes. As such, each investor in the Portfolio is treated as owner
of its proportionate share of the net assets, income, expenses or 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.
Effective December 31, 2007, the Portfolio implemented Financial Accounting
Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in
Income Taxes -- an interpretation of FASB Statement No. 109" ("FIN 48"). 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 investment companies, before being
measured and recognized in the financial statements. The investment advisor has
evaluated the application of FIN 48 to the Portfolio, and has determined that
the adoption of FIN 48 does not have a material impact on the Portfolio's
financial statements. The Portfolio files U.S. federal and various state and
local tax returns. No income tax returns are currently under examination. The
statute of limitations on the Portfolio's U.S. federal tax returns remains open
for the years ended June 30, 2005 through June 30, 2007. The statutes of
limitations on the Portfolio's state and local tax returns may remain open for
an additional year depending upon the jurisdiction.
Recent Accounting Pronouncements: 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. The impact on the Portfolio's
financial statement disclosures, if any, is currently being assessed.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. FAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value that are not currently
required to be measured at fair value. FAS 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and
liabilities. The impact on the Portfolio's financial statement disclosures, if
any, is currently being assessed.
In March 2008, Statement of Financial Accounting Standards No. 161, "Disclosures
about Derivative Instruments and Hedging Activities -- an amendment of FASB
Statement No. 133" ("FAS 161"), was issued and is effective for fiscal years
beginning after November 15, 2008. FAS 161 is intended to improve financial
reporting for derivative instruments by requiring enhanced disclosure that
enables investors to understand how and why an entity uses derivatives, how
derivatives are accounted for, and how derivative instruments affect an entity's
results of operations and financial position. The impact on the Portfolio's
financial statement disclosures, if any, is currently being assessed.
Other: Expenses directly related to the Portfolio are charged to that Portfolio.
Other operating expenses shared by several funds are pro-rated among those funds
on the basis of relative net assets or other appropriate methods.
2. Investment Advisory Agreement and Other Transactions with Affiliates:
The Master LLC, on behalf of the Portfolio, has entered into an Investment
Advisory Agreement with BlackRock Advisors, LLC (the "Advisor"), an indirect,
wholly owned subsidiary of BlackRock, Inc., to provide investment advisory and
administration services. Merrill Lynch & Co., Inc. ("Merrill Lynch") and The PNC
Financial Services Group, Inc. are principal owners of BlackRock, Inc.
The Advisor 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 the Advisor a monthly fee at an annual rate of 0.21% of the
average daily value of the Portfolio's net assets.
The Advisor has entered into a separate sub-advisory agreement with BlackRock
Financial Management, Inc. ("BFM"), an affiliate of the Advisor, under which the
Advisor pays BFM for services it provides, a monthly fee that is a percentage of
the investment advisory fee paid by the Portfolio to the Advisor.
The Portfolio has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), a wholly owned subsidiary of Merrill
Lynch, 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. BIM may, on behalf of the Portfolio, invest cash
collateral received by the Portfolio for such
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 33
Notes to Financial Statements (concluded) Short-Term Bond Master Portfolio
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 period July 1, 2007 to May 31, 2008, there were no securities lending
fees paid to BIM.
For the period July 1, 2007 to May 31, 2008, the Portfolio reimbursed the
Advisor $11,104 for certain accounting services, which is included in accounting
services expenses in the Statement of Operations.
Certain officers and/or directors of the Master LLC are officers and/or
directors of BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales (including paydowns and TBA transactions) of investments,
excluding short-term securities, for the period July 1, 2007 to May 31, 2008
were $1,496,899,335 and $1,577,328,252, respectively.
Transactions in call options written for the period July 1, 2007 to May 31, 2008
were as follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts* Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of period ......................... 12 $ 147,250
Options written ............................... 17,203 253,411
Options expired ............................... (17,040) (243,672)
Options exercised ............................. (12) (147,250)
------------------------
Outstanding call options written, end of period 163 $ 9,739
========================
* One contract represents a notional amount of $2,500.
Transactions in put options written for the period July 1, 2007 to May 31, 2008
were as follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts* Received
- --------------------------------------------------------------------------------
Outstanding put options written,
beginning of period ........................ 12 $ 147,250
Options written .............................. 1,245 428,374
Options expired .............................. (1,176) (535,371)
------------------------
Outstanding put options written, end of period 81 $ 40,253
========================
* One contract represents a notional amount of $2,500.
4. Short-Term Borrowings:
The Portfolio, along with certain other funds managed by the Advisor and its
affiliates, is 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 21, 2007, the credit
agreement was renewed for one year under substantially the same terms. The
Portfolio pays a commitment fee of 0.06% per annum based on the Portfolio's pro
rata share of the unused portion of the credit agreement, which is included in
miscellaneous in the Statements of Operations. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the federal
funds rate plus 0.35% or a base rate as defined in the credit agreement. The
Portfolio did not borrow under the credit agreement during the period July 1,
2007 to May 31, 2008.
34 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Report of Independent Registered Public Accounting Firm
Short-Term Bond Master Portfolio
To the Board of Directors and Investors of
Short-Term Bond Master LLC:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Short-Term Bond Master LLC (the "Fund"),
comprising Short-Term Bond Master Portfolio as of May 31, 2008, and the related
statements of operations and changes in net assets and the financial highlights
for the period July 1, 2007 to May 31, 2008 and for the year ended June 30,
2007. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The statement
of changes in net assets of the Fund for the year ended June 30, 2006 and the
financial highlights for each of the four years in the period ended June 30,
2006 were audited by other auditors whose report, dated August 9, 2006,
expressed an unqualified opinion on those financial statements and financial
highlights.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of May 31, 2008, by correspondence with the custodian and
financial intermediaries; where replies were not received from financial
intermediaries, we performed other auditing procedures. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Short-Term Bond Master Portfolio of Short-Term Bond Master LLC as of May 31,
2008, and the results of its operations, changes in its net assets and the
financial highlights for the period July 1, 2007 to May 31, 2008 and the year
ended June 30, 2007 in conformity with accounting principles generally accepted
in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
July 28, 2008
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 35
Officers and Directors
Number of
Position(s) Length of BlackRock-
Held with Time Served Advised Funds
Name, Address Bond Fund/ as a Principal Occupation(s) and Portfolios
and Year of Birth Master LLC Director 2 During Past Five Years Overseen Public Directorships
====================================================================================================================================
Non-Interested Directors 1
- ------------------------------------------------------------------------------------------------------------------------------------
James H. Bodurtha Director Since 2002 Director, The China Business Group, Inc. 37 Funds None
40 East 52nd Street (consulting firm) since 1996 and formerly 104 Portfolios
New York, NY 10022 Executive Vice President thereof from
1944 1996 to 2003; Chairman of the Board,
Berkshire Holding Corporation since 1980.
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce R. Bond Director Since 2007 Formerly Trustee and Member of the 37 Funds None
40 East 52nd Street Governance Committee, State Street 104 Portfolios
New York, NY 10022 Research Mutual Funds from 1997 to 2005;
1946 Formerly Board Member of Governance,
Audit and Finance Committee, Avaya Inc.
(computer equipment) from 2003 to 2007.
- ------------------------------------------------------------------------------------------------------------------------------------
Donald W. Burton Director Since 2007 Managing General Partner, The Burton 37 Funds Knology, Inc.
40 East 52nd Street Partnership, LP (an investment 104 Portfolios (telecommunications);
New York, NY 10022 partnership) since 1979; Managing General Capital Southwest
1944 Partner, The South Atlantic Venture Funds (financial)
since 1983; Member of the Investment
Advisory Council of the Florida State
Board of Administration from 2001 to
2007.
- ------------------------------------------------------------------------------------------------------------------------------------
Honorable Director Since 2007 Partner and Head of International 37 Funds UPS Corporation
Stuart E. Eizenstat Practice, Covington and Burling (law 104 Portfolios (delivery service)
40 East 52nd Street firm) since 2001; International Advisory
New York, NY 10022 Board Member, The Coca Cola Company since
1943 2002; Advisory Board Member BT Americas
(telecommunications) since 2004; Member
of the Board of Directors, Chicago
Climate Exchange (environmental) since
2006; Member of the International
Advisory Board GML (energy) since 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. Froot Director Since 2005 Professor, Harvard University since 1992. 37 Funds None
40 East 52nd Street 104 Portfolios
New York, NY 10022
1957
- ------------------------------------------------------------------------------------------------------------------------------------
Robert M. Hernandez Chairman of Since 2007 Formerly Director, Vice Chairman and 37 Funds ACE Limited
40 East 52nd Street the Board, Chief Financial Officer of USX 104 Portfolios (insurance company);
New York, NY 10022 Director and Corporation (energy and steel business) Eastman Chemical
1944 Member of the from 1991 to 2001. Company (chemical);
Audit RTI International
Committee Metals, Inc.
(metals); TYCO
Electronics
(electronics)
- ------------------------------------------------------------------------------------------------------------------------------------
John F. O'Brien Director Since 2007 Trustee, Woods Hole Oceanographic 37 Funds Cabot Corporation
40 East 52nd Street Institute since 2003; Formerly Director, 104 Portfolios (chemicals); LKQ
New York, NY 10022 Allmerica Financial Corporation from 1995 Corporation (auto
1943 to 2003; Formerly Director, ABIOMED from parts manufacturing);
1989 to 2006; Formerly Director, TJX Companies, Inc.
Ameresco, Inc. (energy solutions company) (retailer)
from 2006 to 2007.
- ------------------------------------------------------------------------------------------------------------------------------------
36 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Officers and Directors (continued)
Number of
Position(s) Length of BlackRock-
Held with Time Served Advised Funds
Name, Address Bond Fund/ as a Principal Occupation(s) and Portfolios
and Year of Birth Master LLC Director 2 During Past Five Years Overseen Public Directorships
====================================================================================================================================
Non-Interested Directors 1 (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta Cooper Ramo Director Since 2002 Shareholder, Modrall, Sperling, Roehl, 37 Funds None
40 East 52nd Street Harris & Sisk, P.A. (law firm) since 104 Portfolios
New York, NY 10022 1993; Chairman of the Board, Cooper's
1942 Inc. (retail) since 2000; Director of
ECMC Group (service provider to students,
schools and lenders) since 2001;
President Elect, The American Law
Institute (non-profit), 2007; Formerly
President, American Bar Association from
1995 to 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
Jean Margo Reid Director Since 2007 Self-employed consultant since 2001; 37 Funds None
40 East 52nd Street Director and Secretary, SCB, Inc. 104 Portfolios
New York, NY 10022 (holding company) since 1998; Director
1945 and Secretary, SCB Partners, Inc.
(holding company) since 2000; Formerly
Director, Covenant House (non-profit)
from 2001 to 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
David H. Walsh Director Since 2007 Director, National Museum of Wildlife Art 37 Funds None
40 East 52nd Street since 2007; Director, Ruckleshaus 104 Portfolios
New York, NY 10022 Institute and Haub School of Natural
1941 Resources at the University of Wyoming
since 2006; Director, The American Museum
of Fly Fishing since 1997; Formerly
Consultant with Putnam Investments from
1993 to 2003; Formerly Director, The
National Audubon Society from 1998 to
2005.
- ------------------------------------------------------------------------------------------------------------------------------------
Fred G. Weiss Chairman of Since 2007 Managing Director, FGW Associates 37 Funds Watson
40 East 52nd Street the Audit (consulting and investment company) since 104 Portfolios Pharmaceutical Inc.
New York, NY 10022 Committee and 1997; Director, Michael J. Fox Foundation
1941 Director for Parkinson's Research since 2000;
Formerly Director of BTG International
Plc (a global technology
commercialization company) from 2001 to
2007.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard R. West Director and Since 2007 Dean Emeritus, New York University's 37 Funds Bowne & Co., Inc.
40 East 52nd Street Member of the Leonard N. Stern School of Business 104 Portfolios (financial printers);
New York, NY 10022 Audit Committee Administration since 1995. Vornado Realty Trust
1938 (real estate
company); Alexander's
Inc. (real estate
company)
------------------------------------------------------------------------------------------------------------
1 Directors serve until their resignation, removal or death, or until December 31 of the year in which
they turn 72.
2 Following the combination of Merrill Lynch Investment Managers, L.P. ("MLIM") and BlackRock, Inc.
("BlackRock") in September 2006, the various legacy MLIM and legacy BlackRock Fund boards were
realigned and consolidated into three new Fund boards in 2007. As a result, although the chart shows
certain directors as joining the Fund's board in 2007, each director first became a member of the
board of directors of other legacy MLIM or legacy BlackRock Funds as follows: James H. Bodurtha since
1995; Bruce R. Bond since 2005; Donald W. Burton since 2002; Stuart E. Eizenstat since 2001; Kenneth
A. Froot since 2005; Robert M. Hernandez since 1996; John F. O'Brien since 2004; Roberta Cooper Ramo
since 2000; Jean Margo Reid since 2004; David H. Walsh since 2003; Fred G. Weiss since 1998; and
Richard R. West since 1978.
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 37
Officers and Directors (continued)
Number of
Position(s) Length of BlackRock-
Held with Time Served Advised Funds
Name, Address Bond Fund/ as a Principal Occupation(s) and Portfolios
and Year of Birth Master LLC Director During Past Five Years Overseen Public Directorships
====================================================================================================================================
Interested Directors 1
- ------------------------------------------------------------------------------------------------------------------------------------
Richard S. Davis Director Since 2007 Managing Director, BlackRock, Inc. since 185 Funds None
40 East 52nd Street 2005; Formerly Chief Executive Officer, 295 Portfolios
New York, NY 10022 State Street Research & Management
1945 Company from 2000 to 2005; Formerly
Chairman of the Board of Trustees, State
Street Research Mutual Funds from 2000 to
2005; Formerly Chairman, SSR Realty from
2000 to 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Laurence D. Fink Director Since 2007 Chairman and Chief Executive Officer of 37 Funds None
40 East 52nd Street BlackRock, Inc. since its formation in 104 Portfolios
New York, NY 10022 1998 and of BlackRock, Inc.'s predecessor
1952 entities since 1988 and Chairman of the
Executive and Management Committees;
Formerly Managing Director, The First
Boston Corporation, Member of its
Management Committee, Co-head of its
Taxable Fixed Income Division and Head of
its Mortgage and Real Estate Products
Group; Chairman of the Board of several
of BlackRock's alternative investment
vehicles; Director of several of
BlackRock's offshore funds; Member of the
Board of Trustees of New York University,
Chair of the Financial Affairs Committee
and a member of the Executive Committee,
the Ad Hoc Committee on Board Governance,
and the Committee on Trustees;
Co-Chairman of the NYU Hospitals Center
Board of Trustees, Chairman of the
Development/ Trustee Stewardship
Committee and Chairman of the Finance
Committee; Trustee, The Boys' Club of New
York.
- ------------------------------------------------------------------------------------------------------------------------------------
Henry Gabbay Director Since 2007 Consultant, BlackRock, Inc. since 2007; 184 Funds None
40 East 52nd Street Formerly Managing Director, BlackRock, 294 Portfolios
New York, NY 10022 Inc. from 1989 to 2007; Formerly Chief
1947 Administrative Officer, BlackRock
Advisors, LLC from 1998 to 2007; Formerly
President of BlackRock Funds and
BlackRock Bond Allocation Target Shares
from 2005 to 2007 and Treasurer of
certain closed-end Funds in the BlackRock
fund complex from 1989 to 2006.
------------------------------------------------------------------------------------------------------------
1 Messrs. Davis, Fink and Gabbay are all "interested persons," as defined in the Investment Company Act
of 1940, of the Bond Fund/Master LLC based on their positions with BlackRock, Inc. and its affiliates.
Directors serve until their resignation, removal or death, or until December 31 of the year in which
they turn 72.
38 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Officers and Directors (concluded)
Position(s)
Held with
Name, Address Bond Fund/ Length of
and Year of Birth Master LLC Time Served Principal Occupation(s) During Past Five Years
====================================================================================================================================
Fund Officers 1
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. Burke Fund President Since 2007 Managing Director of BlackRock, Inc. since 2006; Formerly Managing Director of
40 East 52nd Street and Chief Merrill Lynch Investment Managers, L.P. ("MLIM") and Fund Asset Management,
New York, NY 10022 Executive L.P. ("FAM") in 2006; First Vice President thereof from 1997 to 2005; Treasurer
1960 Officer thereof from 1999 to 2006 and Vice President thereof from 1990 to 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
Anne F. Ackerley Vice Since 2007 Managing Director of BlackRock, Inc. since 2000; Chief Operating Officer of
40 East 52nd Street President BlackRock's U.S. Retail Group since 2006; Head of BlackRock's Mutual Fund Group
New York, NY 10022 from 2000 to 2006; Merrill Lynch & Co., Inc. from 1984 to 1986 and from 1988 to
1962 2000, most recently as First Vice President and Operating Officer of the
Mergers and Acquisitions Group.
- ------------------------------------------------------------------------------------------------------------------------------------
Neal J. Andrews Chief Since 2007 Managing Director of BlackRock, Inc. since 2006; Formerly Senior Vice President
40 East 52nd Street Financial and Line of Business Head of Fund Accounting and Administration at PFPC Inc.
New York, NY 10022 Officer from 1992 to 2006.
1966
- ------------------------------------------------------------------------------------------------------------------------------------
Jay M. Fife Treasurer Since 2007 Managing Director of BlackRock, Inc. since 2007 and Director in 2006; Formerly
40 East 52nd Street Assistant Treasurer of the MLIM/FAM-advised Funds from 2005 to 2006; Director
New York, NY 10022 of MLIM Fund Services Group from 2001 to 2006.
1970
- ------------------------------------------------------------------------------------------------------------------------------------
Brian P. Kindelan Chief Since 2007 Chief Compliance Officer of the BlackRock-advised Funds since 2007; Anti-Money
40 East 52nd Street Compliance Laundering Officer of the BlackRock-advised Funds since 2007; Managing Director
New York, NY 10022 Officer of and Senior Counsel of BlackRock, Inc. since 2005; Director and Senior Counsel
1959 the Fund of BlackRock Advisors, Inc. from 2001 to 2004 and Vice President and Senior
Counsel thereof from 1998 to 2000; Formerly Senior Counsel of The PNC Bank
Corp. from 1995 to 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
Howard Surloff Secretary Since 2007 Managing Director of BlackRock, Inc. and General Counsel of U.S. Funds at
40 East 52nd Street BlackRock, Inc. since 2006; Formerly General Counsel (U.S.) of Goldman Sachs
New York, NY 10022 Asset Management, L.P. from 1993 to 2006.
1965
------------------------------------------------------------------------------------------------------------
1 Officers of the Bond Fund/Master LLC serve at the pleasure of the Board of Directors.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Bond Fund's/Master LLC's Officers and Directors is available in Bond Fund's
Statement of Additional Information, which can be obtained without charge by calling (800) 441-7762.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
Brown Brothers Harriman & Co.
Boston, MA 02109
Transfer Agent
PNC Global Investment
Servicing (U.S.) Inc.
Wilmington, DE 19809
Accounting Agent
State Street Bank and
Trust Company
Princeton, NJ 08540
Independent Registered Public
Accounting Firm
Deloitte & Touche LLP
Princeton, NJ 08540
Legal Counsel
Willkie Farr & Gallagher LLP
New York, NY 10019
- --------------------------------------------------------------------------------
We are pleased to announce that, effective July 8, 2008, Curtis Arledge and
Thomas F. Musmanno have joined the management team for BlackRock Short-Term Bond
Fund's portfolio.
Mr. Arledge is a Managing Director of BlackRock, Inc., a Portfolio Manager and
co-head of U.S. Fixed Income within BlackRock's Fixed Income Portfolio
Management Group. Prior to joining BlackRock in 2008, Mr Arledge had a 12-year
career at Wachovia Corporation, where he held a variety of positions, most
recently serving as a Managing Director and Head of Fixed Income Division.
Mr. Musmanno is a Director of BlackRock, Inc. and a Portfolio Manager within
BlackRock's Fixed Income Portfolio Management Group. He joined the firm
following the merger with Merrill Lynch Investment Managers (MLIM) in 2006. Mr.
Musmanno had a 15-year career at MLIM, where he held a variety of positions,
most recently serving as a Director and Portfolio Manager in the Derivatives &
Structured Products group.
- --------------------------------------------------------------------------------
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 39
Additional Information
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their non-public personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal non-public information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our websites.
BlackRock does not sell or disclose to non-affiliated third parties any
non-public personal information about its Clients, except as permitted by law or
as is necessary to respond to regulatory requests or to service Client accounts.
These non-affiliated third parties are required to protect the confidentiality
and security of this information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to non-public
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the non-public
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
Availability of Additional Information
Electronic copies of most financial reports and prospectuses are available on
the Fund's website or shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:
Please contact your financial advisor. Please note that not all investment
advisors, banks or brokerages may offer this service.
Shareholders Who Hold Accounts Directly with BlackRock:
1) Access the BlackRock website at http://www.blackrock.com/edelivery
2) Click on the applicable link and follow the steps to sign up
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 Funds at (800)
441-7762.
Availability of Proxy Voting Policies and Procedures
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free (800) 441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's (the
"SEC") website at http://www.sec.gov.
40 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
Availability of Additional Information (concluded)
Availability of Proxy Voting Record
Information about how the Fund votes proxies relating to securities held in the
Fund's portfolio during the most recent 12-month period ended June 30 is
available upon request and without charge (1) at www.blackrock.com or by calling
(800) 441-7762 and (2) on the SEC's website at http://www.sec.gov.
Availability of Quarterly Portfolio Schedule
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at http://www.sec.gov and may also be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) SEC-0330. The Fund's Forms N-Q may also be obtained upon request
and without charge by calling (800) 441-7762.
Shareholder Privileges
Account Information
Call us at (800) 441-7762 from 8:00 AM to 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/funds.
Automatic Investment Plans
Investor Class shareholders who want to invest regularly can arrange to have $50
or more automatically deducted from their checking or savings account and
invested in any of the BlackRock funds.
Systematic Withdrawal Plans
Investor Class shareholders can establish a systematic withdrawal plan and
receive periodic payments of $50 or more from their BlackRock funds, as long as
their account is at least $10,000.
Retirement Plans
Shareholders may make investments in conjunction with Traditional, Rollover,
Roth, Coverdell, Simple IRAs, SEP IRAs and 403(b) Plans.
BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008 41
A World-Class Mutual Fund Family
BlackRock offers a diverse lineup of open-end mutual funds crossing all
investment styles and managed by experts in equity, fixed income and tax-exempt
investing.
Equity Funds
BlackRock All-Cap Global Resources Portfolio
BlackRock Asset Allocation Portfolio+
BlackRock Aurora Portfolio
BlackRock Balanced Capital Fund+
BlackRock Basic Value Fund
BlackRock Capital Appreciation Portfolio
BlackRock Equity Dividend Fund
BlackRock EuroFund
BlackRock Focus Growth Fund
BlackRock Focus Value Fund
BlackRock Fundamental Growth Fund
BlackRock Global Allocation Fund+
BlackRock Global Dynamic Equity Fund
BlackRock Global Emerging Markets 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 Health Sciences Opportunities Portfolio*
BlackRock Healthcare Fund
BlackRock Index Equity Portfolio*
BlackRock International Fund
BlackRock International Index Fund
BlackRock International Opportunities Portfolio
BlackRock International Value Fund
BlackRock Large Cap Core Fund
BlackRock Large Cap Growth Fund
BlackRock Large Cap Value Fund
BlackRock Latin America Fund
BlackRock Mid-Cap Growth Equity Portfolio
BlackRock Mid-Cap Value Equity Portfolio
BlackRock Mid Cap Value Opportunities Fund
BlackRock Natural Resources Trust
BlackRock Pacific Fund
BlackRock 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 Technology Fund
BlackRock U.S. Opportunities Portfolio
BlackRock Utilities and Telecommunications Fund
BlackRock Value Opportunities Fund
Fixed Income Funds
BlackRock Commodity Strategies Fund
BlackRock Emerging Market Debt Portfolio
BlackRock Enhanced Income Portfolio
BlackRock GNMA Portfolio
BlackRock Government Income Portfolio
BlackRock High Income Fund
BlackRock High Yield Bond Portfolio
BlackRock Income Portfolio
BlackRock Income Builder Portfolio
BlackRock Inflation Protected Bond Portfolio
BlackRock Intermediate Bond Portfolio II
BlackRock Intermediate Government Bond Portfolio
BlackRock International Bond Portfolio
BlackRock Long Duration Bond Portfolio
BlackRock Low Duration Bond Portfolio
BlackRock Managed Income Portfolio
BlackRock Short-Term Bond Fund
BlackRock Strategic Income Portfolio
BlackRock Total Return Fund
BlackRock Total Return Portfolio II
BlackRock World Income Fund
Municipal Bond Funds
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
Target Risk & Target Date Funds
BlackRock Prepared Portfolios
Conservative Prepared Portfolio
Moderate Prepared Portfolio
Growth Prepared Portfolio
Aggressive Growth Prepared Portfolio
BlackRock Lifecycle Prepared Portfolios
Prepared Portfolio 2010
Prepared Portfolio 2015
Prepared Portfolio 2020
Prepared Portfolio 2025
Prepared Portfolio 2030
Prepared Portfolio 2035
Prepared Portfolio 2040
Prepared Portfolio 2045
Prepared Portfolio 2050
* See the prospectus for information on specific limitations on investments
in the fund.
+ Mixed asset 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.
42 BLACKROCK SHORT-TERM BOND FUND MAY 31, 2008
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment returns and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
BlackRock Short-Term Bond Fund of
BlackRock Short-Term Bond Series, Inc.
100 Bellevue Parkway
Wilmington, DE 19809
BLACKROCK
#BR-3070-5/08
Item 2 - Code of Ethics - The registrant (or the "Fund") has adopted a code
of ethics, as of the end of the period covered by this report,
applicable to the registrant's principal executive officer,
principal financial officer and principal accounting officer, or
persons performing similar functions. During the period covered by
this report, there have been no amendments to or waivers granted
under the code of ethics. A copy of the code of ethics is available
without charge at www.blackrock.com.
Item 3 - Audit Committee Financial Expert - The registrant's board of
directors or trustees, as applicable (the "board of directors") has
determined that (i) the registrant has the following audit committee
financial experts serving on its audit committee and (ii) each audit
committee financial expert is independent:
Joe Grills (not reappointed to the Audit Committee, effective
November 1, 2007)
Robert M. Hernandez (term began, effective November 1, 2007)
Robert S. Salomon, Jr. (term ended, effective November 1, 2007)
Fred G. Weiss (term began, effective November 1, 2007)
Richard R. West (term began, effective November 1, 2007)
Under applicable securities laws, a person determined to be an audit
committee financial expert will not be deemed an "expert" for any
purpose, including without limitation for the purposes of Section 11
of the Securities Act of 1933, as a result of being designated or
identified as an audit committee financial expert. The designation
or identification as an audit committee financial expert does not
impose on such person any duties, obligations, or liabilities
greater than the duties, obligations, and liabilities imposed on
such person as a member of the audit committee and board of
directors in the absence of such designation or identification.
Item 4 - Principal Accountant Fees and Services
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Audit Fees (b) Audit-Related Fees(1) (c) Tax Fees(2) (d) All Other Fees(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Current Previous Current Previous Current Previous Current Previous
Fiscal Year Fiscal Fiscal Year Fiscal Fiscal Year Fiscal Fiscal Year Fiscal
Entity Name End Year End End Year End End Year End End Year End
- -----------------------------------------------------------------------------------------------------------------------------------
BlackRock
Short-Term Bond $6,800 $6,600 $0 $0 $0 $6,100 $1,049 $1,042
Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Short-Term Bond
Master Portfolio $34,300 $36,500 $0 $0 $6,100 $9,200 $0 $0
- -----------------------------------------------------------------------------------------------------------------------------------
1 The nature of the services include assurance and related services reasonably
related to the performance of the audit of financial statements not included in
Audit Fees.
2 The nature of the services include tax compliance, tax advice and tax
planning.
3 The nature of the services include a review of compliance procedures and
attestation thereto.
(e)(1) Audit Committee Pre-Approval Policies and Procedures:
The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to
the registrant's affiliated service providers that relate directly
to the operations and the financial reporting of the registrant.
Certain of these non-audit services that the Committee believes are
a) consistent with the SEC's auditor independence rules and b)
routine and recurring services that will not impair the independence
of the independent accountants may be approved by the Committee
without consideration on a specific case-by-case basis ("general
pre-approval"). The term of any general pre-approval is 12 months
from the date of the pre-approval, unless the Committee provides for
a different period. Tax or other non-audit services provided to the
registrant which have a direct impact on the operation or financial
reporting of the registrant will only be deemed pre-approved
provided that any individual project does not exceed $10,000
attributable to the registrant or $50,000 for all of the registrants
the Committee oversees. For this purpose, multiple projects will be
aggregated to determine if they exceed the previously mentioned cost
levels.
Any proposed services exceeding the pre-approved cost levels
will require specific pre-approval by the Committee, as will any
other services not subject to general pre-approval (e.g.,
unanticipated but permissible services). The Committee is informed
of each service approved subject to general pre-approval at the next
regularly scheduled in-person board meeting. At this meeting, an
analysis of such services is presented to the Committee for
ratification. The Committee may delegate to one or more of its
members the authority to approve the provision of and fees for any
specific engagement of permitted non-audit services, including
services exceeding pre-approved cost levels.
(e)(2) None of the services described in each of Items 4(b) through
(d) were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not Applicable
(g) Affiliates' Aggregate Non-Audit Fees:
--------------------------------------------------------------------
Current Fiscal Previous Fiscal
Entity Name Year End Year End
--------------------------------------------------------------------
BlackRock Short-Term Bond Fund $288,549 $2,986,459
--------------------------------------------------------------------
Short-Term Bond Master Portfolio $293,600 $2,988,517
--------------------------------------------------------------------
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any non-affiliated
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by the registrant's investment
adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services
to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with
maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $287,500, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Investments
(a) The registrant's Schedule of Investments is included as part of
the Report to Stockholders filed under Item 1 of this form.
(b) Not Applicable due to no such divestments during the semi-annual
period covered since the previous Form N-CSR filing.
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating and Governance Committee will consider
nominees to the board of directors recommended by shareholders when
a vacancy becomes available. Shareholders who wish to recommend a
nominee should send nominations which include biographical
information and set forth the qualifications of the proposed nominee
to the registrant's Secretary. There have been no material changes
to these procedures.
Item 11 - Controls and Procedures
11(a) - The registrant's principal executive and principal financial
officers or persons performing similar functions have concluded that
the registrant's disclosure controls and procedures (as defined in
Rule 30a-3(c) under the Investment Company Act of 1940, as amended
(the "1940 Act")) are effective as of a date within 90 days of the
filing of this report based on the evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act and Rule
15d-15(b) under the Securities Exchange Act of 1934, as amended.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act)
that occurred during the second fiscal quarter of the period covered
by this report that have materially affected, or are reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
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 LLC
By: /s/ Donald C. Burke
-----------------------------------
Donald C. Burke
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 LLC
Date: July 18, 2008
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/ Donald C. Burke
-----------------------------------
Donald C. Burke
Chief Executive Officer (principal 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 LLC
Date: July 18, 2008
By: /s/ Neal J. Andrews
-----------------------------------
Neal J. Andrews
Chief Financial Officer (principal 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 LLC
Date: July 18, 2008