UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-10053 and 811-10089
Name of Fund: BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond
Series, Inc. and 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: 05/31/2009
Date of reporting period: 06/01/2008 - 11/30/2008
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.
SEMI-ANNUAL REPORT
NOVEMBER 30, 2008 | (UNAUDITED)
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
Table of Contents
================================================================================
Page
- --------------------------------------------------------------------------------
A Letter to Shareholders ................................................. 3
Semi-Annual Report:
Fund Summary ............................................................. 4
About Fund Performance ................................................... 6
Disclosure of Expenses ................................................... 6
Fund Financial Statements:
Statement of Assets and Liabilities .............................. 7
Statement of Operations .......................................... 8
Statements of Changes in Net Assets .............................. 9
Fund Financial Highlights ................................................ 10
Fund Notes to Financial Statements ....................................... 15
Master Portfolio Information ............................................. 19
Master Financial Statements:
Schedule of Investments .......................................... 20
Statement of Assets and Liabilities .............................. 25
Statement of Operations .......................................... 26
Statements of Changes in Net Assets .............................. 27
Master Financial Highlights .............................................. 28
Master Notes to Financial Statements ..................................... 29
Disclosure of Investment Advisory Agreement and Subadvisory Agreement .... 34
Officers and Directors ................................................... 37
Additional Information ................................................... 37
Mutual Fund Family ....................................................... 39
2 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
A Letter to Shareholders
Dear Shareholder
The present times may well be remembered as one of the most tumultuous periods
in financial market history. Over the past year, the bursting of the housing
bubble and the resultant credit crisis mushroomed into an all-out global
financial market meltdown, featuring the collapse of storied financial firms,
volatile swings in the world's financial markets and monumental government
responses designed to rescue the beleaguered financial system.
The U.S. economy appeared relatively resilient through the first half of 2008,
when rising food and energy prices stoked fears of inflation. The tenor changed
dramatically in the second half, as inflation pressures subsided amid plummeting
oil prices, but a uniform and rapid deterioration in key economic indicators
darkened growth prospects. Just after the close of the reporting period, the
National Bureau of Economic Research officially declared that the U.S. was in a
recession, and that it had begun in December 2007. The Federal Reserve Board
(the "Fed"), after slashing interest rates aggressively in the early months of
the year, resumed that rate-cutting campaign in the fall, bringing the target
federal funds rate to a record low range of between zero to 0.25% on December
16. More significant was the central bank's pledge that future policy moves to
revive the global economy and financial markets would comprise primarily
nontraditional and quantitative easing measures, such as capital injections,
lending programs and government guarantees.
Against this backdrop, U.S. equity markets experienced intense volatility, with
periods of downward pressure punctuated by sharp rebounds. Losses were
significant and broad-based, though non-U.S. markets decelerated at a
considerably faster pace than domestic equities -- a stark reversal of prior
years' trends, when international stocks generally outpaced U.S. stocks.
Treasury issues also traded in a volatile fashion, but rallied overall (yields
fell and prices correspondingly rose) and outperformed other fixed income assets
as investors retreated to the safest and most liquid investments. Amid spillover
from historic events in the financial sector, municipals contended with fewer
market participants, lack of liquidity, a challenging funding environment and a
backlog of new-issue supply, all of which contributed to the sector's
underperformance relative to its taxable counterparts. Similarly, economic
turmoil and badly broken credit markets plagued the high yield sector, with the
third quarter of 2008 marking one of the worst periods in history for the asset
class.
In all, an investor flight to safety prevailed, as evidenced in the six- and
12-month returns of the major benchmark indexes:
Total Returns as of November 30, 2008 6-month 12-month
=================================================================================================================
U.S. equities (S&P 500 Index) (35.20)% (38.09)%
- -----------------------------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) (36.26) (37.46)
- -----------------------------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) (44.92) (47.79)
- -----------------------------------------------------------------------------------------------------------------
U.S. Treasury securities (Merrill Lynch 10-Year U.S. Treasury Index) 11.62 12.69
- -----------------------------------------------------------------------------------------------------------------
Taxable fixed income (Barclays Capital U.S. Aggregate Index*) 0.24 1.74
- -----------------------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Barclays Capital Municipal Bond Index*) (4.98) (3.61)
- -----------------------------------------------------------------------------------------------------------------
High yield bonds (Barclays Capital U.S. Corporate High-Yield 2% Issuer Capped Index*) (31.73) (30.49)
- -----------------------------------------------------------------------------------------------------------------
* Formerly a Lehman Brothers index.
Past performance is no guarantee of future results. Index performance shown for
illustrative purposes only. You cannot invest directly in an index. Through
periods of market turbulence, as ever, BlackRock's full resources are dedicated
to the management of our clients' assets. For our most current views 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 investments, 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 recently changed its fiscal year end to May 31. Through its
investment in Short-Term Bond Master Portfolio (the "Portfolio"), the Fund
underperformed the benchmark Merrill Lynch 1 - 3 Year Corporate and
Government Index for the six-month period ended November 30, 2008.
What factors influenced performance?
o During the six-month period, the Portfolio's overweight in high-quality
spread assets, including asset-backed securities (ABS), mortgage-backed
securities (MBS) and commercial mortgage-backed securities (CMBS),
hindered performance relative to the benchmark. Overweight exposure to
non-agency adjustable rate mortgages (ARMs) and CMBS was particularly
detrimental.
o On the positive side, the Portfolio's yield curve positioning trade aided
performance, as the yield curve steepened over the period. An underweight
in investment-grade credit also proved beneficial, as spreads on corporate
securities widened dramatically following the failure of Lehman Brothers.
In addition, the Portfolio's overweight exposure to non-U.S. bonds in the
U.K. and the Eurozone helped performance, as rates rallied on the back of
interest rate cuts in these regions.
Describe recent portfolio activity.
o We generally maintained the Portfolio's sector allocations during the six
months. When spreads began to widen in June, we added agency pass-through
paper, as it cheapened to levels previously seen in March. We sold
corporate securities, taking profits, as we found superior value in other
sectors. In July, we reduced the Portfolio's overweight allocation to
non-agency MBS on opportunity and added to its fixed-rate agency MBS
overweight.
o More recently, we sold short-dated credit card ABS on relative strength
and purchased short-dated CMBS. We also purchased agency debentures (GSE
debt), as spreads remain wide relative to U.S. Treasury securities. We
also began to purchase pre-refunded municipal bonds, as we believe these
securities offer attractive value relative to U.S. Treasuries.
Describe Fund positioning at period-end.
o At period-end, we were underweight in U.S. Treasury and U.S. agency
securities, and maintained an overweight in high-quality spread assets,
preferring to buy and hold these securities that remain undervalued on a
historical basis. Toward the end of the period, the U.S. Treasury's $20
billion capital infusion into Citigroup, Inc., coupled with the U.S.
Federal Reserve's announcement to purchase MBS and provide term funding
for non-residential ABS, afforded some stability. We believe that as the
financial markets strengthen, spreads on these assets will gradually begin
to recover.
o We are neutral in duration and have a yield curve flattening bias, as
slowing growth and easing inflation has made the long end of the yield
curve appear more attractive.
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 Expenses Beginning Ending Expenses
Account Value Account Value Paid During Account Value Account Value Paid During
June 1, 2008 November 30, 2008 the Period 1 June 1, 2008 November 30, 2008 the Period 1
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional ................. $1,000 $ 918.30 $ 3.45 $1,000 $ 1,021.40 $ 3.64
Investor A .................... $1,000 $ 916.80 $ 4.98 $1,000 $ 1,019.80 $ 5.25
Investor B .................... $1,000 $ 914.40 $ 8.28 $1,000 $ 1,016.35 $ 8.72
Investor C .................... $1,000 $ 912.70 $ 9.04 $1,000 $ 1,015.55 $ 9.52
Investor C1 ................... $1,000 $ 914.50 $ 8.14 $1,000 $ 1,016.50 $ 8.57
Class R ....................... $1,000 $ 915.80 $ 6.90 $1,000 $ 1,017.80 $ 7.26
- -----------------------------------------------------------------------------------------------------------------------------------
1 For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (0.72% for Institutional, 1.04% for Investor A, 1.73%
for Investor B, 1.89% for Investor C, 1.70% for Investor C1 and 1.44% for
Class R), multiplied by the average account value over the period,
multiplied by 182/364 (to reflect the one-half year period shown). Because
the Fund is a feeder fund, the expense table example reflects the expenses
of both the Fund and the 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 364.
See "Disclosure of Expenses" on page 6 for further information on how
expenses were calculated.
4 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 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 November 1998 to
November 2008.
Merrill Lynch
1 - 3 Year
Corporate
Institutional Investor A & Government
Shares 1,2 Shares 1,2 Index 3
11/98 $10,000 $9,700 $10,000
11/99 $10,286 $9,953 $10,347
11/00 $11,053 $10,668 $11,068
11/01 $11,953 $11,500 $12,169
11/02 $12,364 $11,866 $12,788
11/03 $12,783 $12,239 $13,190
11/04 $13,016 $12,431 $13,402
11/05 $13,231 $12,616 $13,618
11/06 $13,833 $13,158 $14,244
11/07 $14,306 $13,564 $15,189
11/08 $13,227 $12,502 $15,762
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 November 30, 2008
Average Annual Total Returns 4
-----------------------------------------------------------
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 ......................... 5.33% (8.17)% (7.54)% -- 0.69% -- 2.84% --
Investor A ............................ 4.88 (8.32) (7.84) (10.60)% 0.43 (0.18)% 2.57 2.26%
Investor B ............................ 4.32 (8.56) (8.39) (11.94) (0.25) (0.60) 1.89 1.89
Investor C ............................ 4.18 (8.73) (8.70) (9.59) (0.41) (0.41) 1.77 1.77
Investor C1 ........................... 4.34 (8.55) (8.37) (9.26) (0.24) (0.24) 1.89 1.89
Class R ............................... 4.61 (8.52) (8.22) -- 0.11 -- 2.36 --
Merrill Lynch 1 - 3 Corporate
and Government Index ................ -- 1.62 3.77 -- 3.63 -- 4.66 --
- ------------------------------------------------------------------------------------------------------------------------------------
4 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.
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 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 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 are 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 June 1, 2008 and held through
November 30, 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 example is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
6 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
Statement of Assets and Liabilities BlackRock Short-Term Bond Fund
November 30, 2008 (Unaudited)
====================================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Investments at value -- Short-Term Bond Master Portfolio (the "Portfolio") (cost -- $638,804,894) ............. $ 561,083,505
Capital shares sold receivable ................................................................................ 947,287
Prepaid expenses .............................................................................................. 12,251
Other assets .................................................................................................. 100,270
--------------
Total assets .................................................................................................. 562,143,313
--------------
====================================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
Income dividends payable ...................................................................................... 1,832,865
Contribution payable to the Portfolio ......................................................................... 947,287
Other affiliates payable ...................................................................................... 317,229
Service and distribution fees payable ......................................................................... 181,592
Administration fees payable ................................................................................... 118,243
Officer's and Directors' fees payable ......................................................................... 420
--------------
Total liabilities ............................................................................................. 3,397,636
--------------
Net Assets .................................................................................................... $ 558,745,677
==============
====================================================================================================================================
Net Assets Consist of
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Shares, $0.01 par value, 100,000,000 shares authorized .......................................... $ 140,155
Investor A Shares, $0.01 par value, 100,000,000 shares authorized ............................................. 314,144
Investor B Shares, $0.01 par value, 200,000,000 shares authorized ............................................. 30,602
Investor C Shares, $0.01 par value, 100,000,000 shares authorized ............................................. 60,665
Investor C1 Shares, $0.01 par value, 100,000,000 shares authorized ............................................ 78,462
Class R Shares, $0.01 par value, 200,000,000 shares authorized ................................................ 8,358
Paid-in capital in excess of par .............................................................................. 659,041,682
Undistributed net investment income ........................................................................... 2,077,464
Accumulated net realized loss allocated from the Portfolio .................................................... (25,284,466)
Net unrealized appreciation/depreciation allocated from the Portfolio ......................................... (77,721,389)
--------------
Net Assets .................................................................................................... $ 558,745,677
==============
====================================================================================================================================
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional -- Based on net assets of $123,960,756 and 14,015,490 shares outstanding ........................ $ 8.84
==============
Investor A -- Based on net assets of $277,705,597 and 31,414,423 shares outstanding ........................... $ 8.84
==============
Investor B -- Based on net assets of $26,991,939 and 3,060,185 shares outstanding ............................. $ 8.82
==============
Investor C -- Based on net assets of $53,522,337 and 6,066,548 shares outstanding ............................. $ 8.82
==============
Investor C1 -- Based on net assets of $69,189,289 and 7,846,154 shares outstanding ............................ $ 8.82
==============
Class R -- Based on net assets of $7,375,759 and 835,796 shares outstanding ................................... $ 8.82
==============
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 7
Statement of Operations BlackRock Short-Term Bond Fund
Six Months Ended November 30, 2008 (Unaudited)
====================================================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Portfolio:
Interest ................................................................................................ $ 15,513,661
Income -- affiliated .................................................................................... 1,832
Expenses ................................................................................................ (888,086)
------------
Total income .............................................................................................. 14,627,407
------------
====================================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Administration ............................................................................................ 794,582
Service -- Investor A ..................................................................................... 373,618
Service and distribution -- Investor B .................................................................... 137,804
Service and distribution -- Investor C .................................................................... 253,332
Service and distribution -- Investor C1 ................................................................... 365,219
Service and distribution -- Class R ....................................................................... 19,172
Transfer agent -- Institutional ........................................................................... 128,658
Transfer agent -- Investor A .............................................................................. 332,546
Transfer agent -- Investor B .............................................................................. 39,455
Transfer agent -- Investor C .............................................................................. 82,410
Transfer agent -- Investor C1 ............................................................................. 93,633
Transfer agent -- Class R ................................................................................. 14,153
Printing .................................................................................................. 53,819
Registration .............................................................................................. 38,401
Professional .............................................................................................. 20,172
Officer and Directors ..................................................................................... 446
Miscellaneous ............................................................................................. 10,376
------------
Total expenses ............................................................................................ 2,757,796
------------
Net investment income ..................................................................................... 11,869,611
------------
====================================================================================================================================
Realized and Unrealized Loss Allocated from the Portfolio
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized loss from investments, futures and swaps, foreign currency,
options written and TBA sale commitments ................................................................ (1,555,943)
Net change in unrealized appreciation/depreciation on investments, futures
and swaps, foreign currency, options written and TBA sale commitments ................................... (63,192,437)
------------
Total realized and unrealized loss ........................................................................ (64,748,380)
------------
Net Decrease in Net Assets Resulting from Operations ...................................................... $(52,878,769)
============
See Notes to Financial Statements.
8 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
Statements of Changes in Net Assets BlackRock Short-Term Bond Fund
Six Months Period
Ended July 1,
November 30, 2007 to Year Ended
2008 May 31, June 30,
Increase (Decrease) in Net Assets: (Unaudited) 2008 2007
====================================================================================================================================
Operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .............................................................. $ 11,869,611 $ 25,312,646 $ 25,375,834
Net realized loss .................................................................. (1,555,943) (1,371,193) (7,047,013)
Net change in unrealized appreciation/depreciation ................................. (63,192,437) (10,189,278) 9,238,509
---------------------------------------------
Net increase (decrease) in net assets resulting from operations .................... (52,878,769) 13,752,175 27,567,330
---------------------------------------------
====================================================================================================================================
Dividends to Shareholders From
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income:
Institutional .................................................................... (3,245,883) (7,553,783) (8,402,051)
Investor A ....................................................................... (5,389,729) (11,045,183) (10,962,922)
Investor B ....................................................................... (446,404) (1,113,358) (1,626,913)
Investor C ....................................................................... (709,013) (935,644) (278,138)
Investor C1 ...................................................................... (1,190,953) (3,003,227) (4,176,074)
Class R .......................................................................... (123,613) (280,350) (261,107)
---------------------------------------------
Decrease in net assets resulting from dividends to shareholders .................... (11,105,595) (23,931,545) (25,707,205)
---------------------------------------------
====================================================================================================================================
Capital Share Transactions
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from capital share transactions ...... (59,661,893) 18,663,131 (5,691,836)
---------------------------------------------
====================================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ............................................ (123,646,257) 8,483,761 (3,831,711)
Beginning of period ................................................................ 682,391,934 673,908,173 677,739,884
---------------------------------------------
End of period ...................................................................... $ 558,745,677 $ 682,391,934 $ 673,908,173
=============================================
End of period undistributed (distributions in excess of) net investment income ..... $ 2,077,464 $ 1,313,448 $ (19,940)
=============================================
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 9
Financial Highlights BlackRock Short-Term Bond Fund
Institutional
----------------------------------------------------------------------------------------
Six Months Period
Ended July 1,
November 30, 2007 to Year Ended June 30,
2008 May 31, ---------------------------------------------------------------
(Unaudited) 2008 2007 2006 2005 2004 2003
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period .......................... $ 9.82 $ 9.97 $ 9.94 $ 10.10 $ 10.16 $ 10.39 $ 10.17
---------------------------------------------------------------------------------------
Net investment income 1 .............. 0.20 0.40 0.42 0.36 0.30 0.31 0.31
Net realized and unrealized
gain (loss) ........................ (0.99) (0.17) 0.03 (0.15) (0.06) (0.23) 0.25
---------------------------------------------------------------------------------------
Net increase (decrease) from
investment operations .............. (0.79) 0.23 0.45 0.21 0.24 0.08 0.56
---------------------------------------------------------------------------------------
Dividends from net investment income . (0.19) (0.38) (0.42) (0.37) (0.30) (0.31) (0.34)
=======================================================================================
Net asset value, end of period ....... $ 8.84 $ 9.82 $ 9.97 $ 9.94 $ 10.10 $ 10.16 $ 10.39
=======================================================================================
====================================================================================================================================
Total Investment Return 2
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value ............. (8.17)% 3 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% 5 0.72% 0.67% 0.69% 0.65% 0.70%
=======================================================================================
Total expenses ....................... 0.72% 5 0.72% 5 0.72% 0.67% 0.69% 0.65% 0.75%
=======================================================================================
Net investment income ................ 4.13% 5 4.40% 5 4.16% 3.61% 2.93% 3.00% 3.29%
=======================================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000) ...... $123,961 $184,616 $200,542 $203,377 $208,777 $240,749 $182,654
=======================================================================================
Portfolio turnover of the Portfolio .. 144% 6 230% 7 108% 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 104%.
7 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 NOVEMBER 30, 2008
Financial Highlights (continued) BlackRock Short-Term Bond Fund
Investor A
----------------------------------------------------------------------------------------
Six Months Period
Ended July 1,
November 30, 2007 to Year Ended June 30,
2008 May 31, ---------------------------------------------------------------
(Unaudited) 2008 2007 2006 2005 2004 2003
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period .......................... $ 9.82 $ 9.96 $ 9.94 $ 10.10 $ 10.16 $ 10.38 $ 10.16
---------------------------------------------------------------------------------------
Net investment income 1 .............. 0.18 0.38 0.39 0.34 0.27 0.29 0.31
Net realized and unrealized
gain (loss) ........................ (0.99) (0.17) 0.02 (0.16) (0.05) (0.22) 0.23
---------------------------------------------------------------------------------------
Net increase (decrease) from
investment operations .............. (0.81) 0.21 0.41 0.18 0.22 0.07 0.54
---------------------------------------------------------------------------------------
Dividends from net
investment income .................. (0.17) (0.35) (0.39) (0.34) (0.28) (0.29) (0.32)
---------------------------------------------------------------------------------------
Net asset value, end of period ....... $ 8.84 $ 9.82 $ 9.96 $ 9.94 $ 10.10 $ 10.16 $ 10.38
=======================================================================================
====================================================================================================================================
Total Investment Return 2
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value ............. (8.32)% 3 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 1.04% 5 1.00% 0.91% 0.93% 0.89% 0.95%
=======================================================================================
Total expenses ....................... 1.04% 5 1.04% 5 1.00% 0.91% 0.93% 0.89% 1.00%
=======================================================================================
Net investment income ................ 3.85% 5 4.09% 5 3.88% 3.37% 2.69% 2.78% 3.03%
=======================================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000) ...... $277,706 $320,418 $286,396 $267,411 $235,886 $125,950 $152,780
=======================================================================================
Portfolio turnover of the Portfolio .. 144% 6 230% 7 108% 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 104%.
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 NOVEMBER 30, 2008 11
Financial Highlights (continued) BlackRock Short-Term Bond Fund
Investor B
----------------------------------------------------------------------------------------
Six Months Period
Ended July 1,
November 30, 2007 to Year Ended June 30,
2008 May 31, ---------------------------------------------------------------
(Unaudited) 2008 2007 2006 2005 2004 2003
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period .......................... $ 9.79 $ 9.94 $ 9.91 $ 10.08 $ 10.14 $ 10.37 $ 10.14
---------------------------------------------------------------------------------------
Net investment income 1 .............. 0.15 0.31 0.32 0.27 0.20 0.22 0.24
Net realized and unrealized
gain (loss) ........................ (0.98) (0.17) 0.02 (0.16) (0.05) (0.23) 0.24
---------------------------------------------------------------------------------------
Net increase (decrease) from
investment operations .............. (0.83) 0.14 0.34 0.11 0.15 (0.01) 0.48
---------------------------------------------------------------------------------------
Dividends from net
investment income .................. (0.14) (0.29) (0.31) (0.28) (0.21) (0.22) (0.25)
---------------------------------------------------------------------------------------
Net asset value, end of period ....... $ 8.82 $ 9.79 $ 9.94 $ 9.91 $ 10.08 $ 10.14 $ 10.37
=======================================================================================
====================================================================================================================================
Total Investment Return 2
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value ............. (8.56)% 3 1.43% 3 3.61% 1.07% 1.46% (0.11)% 4.77%
=======================================================================================
====================================================================================================================================
Ratios to Average Net Assets 4
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses, excluding
reorganization expenses ............ 1.73% 5 1.70% 5 1.67% 1.59% 1.61% 1.56% 1.61%
=======================================================================================
Total expenses ....................... 1.73% 5 1.70% 5 1.67% 1.59% 1.61% 1.56% 1.66%
=======================================================================================
Net investment income ................ 3.16% 5 3.40% 5 3.21% 2.67% 2.00% 2.12% 2.00%
=======================================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000) ...... $ 26,992 $ 33,301 $ 42,358 $ 60,519 $ 97,090 $130,802 $139,688
=======================================================================================
Portfolio turnover of the Portfolio .. 144% 6 230% 7 108% 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 104%.
7 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 NOVEMBER 30, 2008
Financial Highlights (continued) BlackRock Short-Term Bond Fund
Investor C Investor C1
---------------------------------- ----------------------------------------------------------------------
Six Months Period Period Six Months Period
Ended July 1, October 2, Ended July 1,
November 30, 2007 to 2006 1 to November 30, 2007 to Year Ended June 30,
2008 May 31, June 30, 2008 May 31, ------------------------------------------------
(Unaudited) 2008 2007 (Unaudited) 2008 2007 2006 2005 2004 2003
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning
of period ............... $ 9.80 $ 9.94 $ 10.01 $ 9.79 $ 9.94 $ 9.91 $ 10.07 $ 10.13 $ 10.36 $ 10.14
-------------------------------- ----------------------------------------------------------------------
Net investment
income 2 ................ 0.14 0.29 0.19 0.15 0.31 0.32 0.27 0.20 0.22 0.24
Net realized and
unrealized gain
(loss) ................... (0.99) (0.17) (0.03) (0.98) (0.17) 0.04 (0.15) (0.05) (0.23) 0.23
-------------------------------- ----------------------------------------------------------------------
Net increase
(decrease) from
investment
operations .............. (0.85) 0.12 0.16 (0.83) 0.14 0.36 0.12 0.15 (0.01) 0.47
-------------------------------- ----------------------------------------------------------------------
Dividends from
net investment
income .................. (0.13) (0.26) (0.23) (0.14) (0.29) (0.33) (0.28) (0.21) (0.22) (0.25)
-------------------------------- ----------------------------------------------------------------------
Net asset value,
end of period ........... $ 8.82 $ 9.80 $ 9.94 $ 8.82 $ 9.79 $ 9.94 $ 9.91 $ 10.07 $ 10.13 $ 10.36
================================ ======================================================================
====================================================================================================================================
Total Investment Return 3
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value .. (8.73)% 4 1.21% 4 1.57% 4 (8.55)% 4 1.46%4 3.62% 1.17% 1.46% (0.11)% 4.68%
================================ ======================================================================
====================================================================================================================================
Ratios to Average Net Assets 5
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses, excluding
reorganization expenses . 1.89% 6 2.04% 6 2.09% 6 1.70% 6 1.68% 6 1.66% 1.59% 1.60% 1.56% 1.61%
================================ ======================================================================
Total expenses ............ 1.89% 6 2.04% 6 2.09% 6 1.70% 6 1.68% 6 1.66% 1.59% 1.60% 1.56% 1.66%
================================ ======================================================================
Net investment income ..... 3.05% 6 3.14% 6 2.81% 6 3.17% 6 3.43% 6 3.24% 2.68% 2.01% 2.12% 2.37%
================================ ======================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of
period (000) .............. $ 53,522 $ 47,140 $ 23,886 $ 69,189 $ 89,055 $111,844 $142,083 $179,290 $239,263 $263,066
================================ ======================================================================
Portfolio turnover of
the Portfolio ........... 144% 7 230% 8 108% 144% 7 230% 8 108% 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 104%.
8 Includes TBA transactions, excluding these transactions the portfolio
turnover rate would have been 13%.
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 13
Financial Highlights (concluded) BlackRock Short-Term Bond Fund
Class R
----------------------------------------------------------------------------------------
Six Months Period Period
Ended July 1, January 3,
November 30, 2007 to Year Ended June 30, 2003 1 to
2008 May 31, ------------------------------------------------- June 30,
(Unaudited) 2008 2007 2006 2005 2004 2003
====================================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of period .......................... $ 9.80 $ 9.94 $ 9.92 $ 10.08 $ 10.14 $ 10.37 $ 10.29
---------------------------------------------------------------------------------------
Net investment income 2 .............. 0.16 0.34 0.36 0.32 0.18 0.17 0.18
Net realized and
unrealized gain (loss) ............. (0.99) (0.16) 0.02 (0.16) 0.01 (0.11) 0.08
---------------------------------------------------------------------------------------
Net increase (decrease)
from investment operations ......... (0.83) 0.18 0.38 0.16 0.19 0.06 0.26
---------------------------------------------------------------------------------------
Dividends from net
investment income .................. (0.15) (0.32) (0.36) (0.32) (0.25) (0.29) (0.18)
---------------------------------------------------------------------------------------
Net asset value, end
of period .......................... $ 8.82 $ 9.80 $ 9.94 $ 9.92 $ 10.08 $ 10.14 $ 10.37
=======================================================================================
====================================================================================================================================
Total Investment Return
- ------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value ............. (8.52)% 3 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 ............ 1.44% 5 1.41% 5 1.30% 1.17% 1.19% 1.16% 1.19% 5
=======================================================================================
Total expenses ....................... 1.44% 5 1.41% 5 1.30% 1.17% 1.19% 1.16% 1.28% 5
=======================================================================================
Net investment income ................ 3.47% 5 3.70% 5 3.59% 3.15% 2.46% 2.42% 2.74% 5
=======================================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000) ...... $ 7,376 $ 7,861 $ 8,882 $ 4,350 $ 4,477 $ 2,387 -- 6
=======================================================================================
Portfolio turnover of the Portfolio .. 144% 7 230% 8 108% 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 104%.
8 Includes TBA transactions, excluding these transactions the portfolio
turnover rate would have been 13%.
14 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
Notes to Financial Statements (Unaudited) BlackRock Short-Term Bond Fund
1. Organization and Significant Accounting Policies:
BlackRock Short-Term Bond Fund (the "Fund"), a series of BlackRock Short-Term
Bond Series, Inc. (the "Bond Fund"), which is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified, open-end
management investment company. The Bond Fund is organized as a Maryland
corporation. 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 November 30,
2008 was 100%. 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 are allocated daily to each
class based on its relative net assets.
Effective June 1, 2008, the Fund adopted Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 157, "Fair Value Measurements"
("FAS 157"). FAS 157 clarifies the definition of fair value, establishes a
framework for measuring fair values and requires additional disclosures about
the use of fair value measurements. Various inputs are used in determining the
fair value of investments, which are as follows:
o Level 1 -- price quotations in active markets/exchanges for
identical securities
o Level 2 -- other observable inputs (including, but not limited to:
quoted prices for similar assets or liabilities in markets that are
not active, inputs other than quoted prices that are observable for
the assets or liabilities (such as interest rates, yield curves,
volatilities, prepayment speeds, loss severities, credit risks, and
default rates) or other market-corroborated inputs)
o Level 3 -- unobservable inputs based on the best information
available in the circumstance, to the extent observable inputs are
not available (including the Fund's own assumption used in
determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities.
The following table summarizes the inputs used as of November 30, 2008 in
determining the fair valuation of the Fund's investments:
- --------------------------------------------------------------------------------
Valuation Investments in
Inputs Securities
- --------------------------------------------------------------------------------
Level 1 ............................................ --
Level 2 ............................................ $561,083,505
Level 3 ............................................ --
- --------------------------------------------------------------------------------
Total $561,083,505
============
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.
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, 2006
through June 30, 2007 and the period July 1, 2007 through May 31, 2008. The
statutes of limitations on the Fund's state and local tax returns may remain
open for an additional year depending upon the jurisdiction.
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 15
Notes to Financial Statements (continued) BlackRock Short-Term Bond Fund
Recent Accounting Pronouncement: 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. 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. In September 2008, FASB Staff Position No. 133-1 and FASB
Interpretation No. 45-4 (the "FSP"), "Disclosures about Credit Derivatives and
Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB
Interpretation No. 45; and Clarification of the Effective Date of FASB Statement
No. 161," was issued and is effective for fiscal years and interim periods
ending after November 15, 2008. The FSP amends FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," to require
disclosures by sellers of credit derivatives, including credit derivatives
embedded in hybrid instruments. The FSP also clarifies the effective date of FAS
161, whereby disclosures required by FAS 161 are effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. 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"), a wholly owned
subsidiary of Bank of America Corporation ("BAC"), and The PNC Financial
Services Group, Inc. ("PNC") are the largest stockholders of BlackRock, Inc.
Effective October 1, 2008, the Bond Fund has entered into a Distribution
Agreement and Distribution Plans with BlackRock Investments, Inc. ("BII"), which
replaced FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc.
("BDI") (collectively, the "Distributor") as the sole distributor of the Fund.
FAMD is a wholly owned subsidiary of Merrill Lynch Group, Inc., BII and BDI are
affiliates of BlackRock, Inc. The service and distribution fees did not change
as a result of this transaction.
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 six months ended November 30, 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 $89,428. These amounts
include payments to Hilliard Lyons, which was considered to be an affiliate for
a portion of the period.
For the six months ended November 30, 2008, affiliates received contingent
deferred sales charges of $18,179, $30,149 and $751 relating to transactions in
Investor B, Investor C and Investor C1 Shares, respectively.
Furthermore, affiliates received contingent deferred sales charges of $998
relating to transactions subject to front-end sales charge waivers in Investor A
Shares.
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 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.
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 six months ended November 30,
16 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
Notes to Financial Statements (continued) BlackRock Short-Term Bond Fund
2008, the Fund paid $614,391 in return for these services, which are a component
of the transfer agent fees in the accompanying Statement of Operations.
The Fund may earn income on positive cash balances in demand deposit accounts
that are maintained by the transfer agent on behalf of the Fund. For the six
months ended November 30, 2008, the Fund earned $179, which is included in
income-affiliated in the Statement of Operations.
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 six
months ended November 30, 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 ............................................ $1,388
Investor A ............................................... $2,821
Investor B ............................................... $ 565
Investor C ............................................... $ 385
Investor C1 .............................................. $ 826
Class R .................................................. $ 48
- --------------------------------------------------------------------------------
Certain officers and/or directors of the Bond Fund are officers and/or directors
of BlackRock, Inc. or its affiliates. The Fund reimburses the Administrator for
compensation paid to the Fund's Chief Compliance Officer.
3. Capital Loss Carryforward:
On May 31, 2008, the Fund had capital loss carryforwards to offset future
realized capital gains through the indicated year of expiration:
- --------------------------------------------------------------------------------
Capital Loss
Expires May 31, Carryforward
- --------------------------------------------------------------------------------
2009 .................................................... $ 1,140,537
2011 .................................................... 971,617
2012 .................................................... 1,630,307
2013 .................................................... 6,250,370
2014 .................................................... 2,851,962
2015 .................................................... 4,506,787
2016 .................................................... 3,529,920
-----------
Total $20,881,500
===========
4. Capital Share Transactions:
Transactions in shares for each class were as follows:
Six Months Ended Period July 1, 2007 Year Ended
November 30, 2008 to May 31, 2008 June 30, 2007
------------------------ ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold .............................. 1,068,084 $ 10,159,133 2,200,480 $ 21,894,170 3,882,332 $ 38,889,841
Shares issued to shareholders in
reinvestment of dividends .............. 318,105 2,994,573 703,717 6,995,216 778,991 7,804,278
------------------------- ------------------------- -------------------------
Total issued ............................. 1,386,189 13,153,706 2,904,197 28,889,386 4,661,323 46,694,119
Shares redeemed .......................... (6,167,964) (58,012,522) (4,228,692) (42,045,899) (4,998,426) (50,085,942)
------------------------- ------------------------- -------------------------
Net decrease ............................. (4,781,775) $(44,858,816) (1,324,495) $(13,156,513) (337,103) $ (3,391,823)
========================= ========================= =========================
- -----------------------------------------------------------------------------------------------------------------------------------
Investor A
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold and automatic conversion
of shares .............................. 3,315,967 $ 31,442,671 7,578,148 $ 75,374,297 7,871,739 $ 78,746,999
Shares issued to shareholders in
reinvestment of dividends .............. 539,866 5,061,874 1,043,146 10,361,692 1,017,022 10,181,373
------------------------- ------------------------- -------------------------
Total issued ............................. 3,855,833 36,504,545 8,621,294 85,735,989 8,888,761 88,928,372
Shares redeemed .......................... (5,083,821) (48,527,108) (4,730,910) (46,987,766) (7,051,933) (70,623,994)
------------------------- ------------------------- -------------------------
Net increase (decrease) .................. (1,227,988) $(12,022,563) 3,890,384 $ 38,748,223 1,836,828 $ 18,304,378
========================= ========================= =========================
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 17
Notes to Financial Statements (concluded) BlackRock Short-Term Bond Fund
Six Months Ended Period July 1, 2007 Year Ended
November 30, 2008 to May 31, 2008 June 30, 2007
------------------------ ------------------------ ------------------------
Shares Amount Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Investor B
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold .............................. 338,747 $ 3,188,142 302,027 $ 2,997,999 382,971 $ 3,826,348
Shares issued to shareholders in
reinvestment of dividends .............. 33,427 312,635 79,414 787,241 115,734 1,156,044
------------------------- ------------------------- -------------------------
Total issued ............................. 372,174 3,500,777 381,441 3,785,240 498,705 4,982,392
Shares redeemed and automatic
conversion of shares ................... (711,953) (6,718,895) (1,243,283) (12,326,202) (2,341,683) (23,393,256)
------------------------- ------------------------- -------------------------
Net decrease ............................. (339,779) $ (3,218,118) (861,842) $ (8,540,962) (1,842,978) $(18,410,864)
========================= ========================= =========================
Period October 2, 2006*
to June 30, 2007
------------------------
Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Investor C
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold .............................. 3,084,881 $ 29,138,334 3,373,151 $ 33,495,381 2,588,797 $ 25,893,412
Shares issued to shareholders in
reinvestment of dividends .............. 64,919 605,053 80,345 796,156 22,869 228,442
------------------------- ------------------------- -------------------------
Total issued ............................. 3,149,800 29,743,387 3,453,496 34,291,537 2,611,666 26,121,854
Shares redeemed .......................... (1,895,264) (17,829,495) (1,044,224) (10,343,943) (208,926) (2,088,810)
------------------------- ------------------------- -------------------------
Net increase ............................. 1,254,536 $ 11,913,892 2,409,272 $ 23,947,594 2,402,740 $ 24,033,044
========================= ========================= =========================
* Commencement of operations.
Year Ended
June 30, 2007
------------------------
Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Investor C1
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold .............................. 83,526 $ 795,797 108,201 $ 1,072,933 1,095,000 $ 10,911,973
Shares issued to shareholders in
reinvestment of dividends .............. 98,211 918,846 231,364 2,293,336 322,310 3,219,362
------------------------- ------------------------- -------------------------
Total issued ............................. 181,737 1,714,643 339,565 3,366,269 1,417,310 14,131,335
Shares redeemed .......................... (1,430,315) (13,505,294) (2,500,710) (24,790,133) (4,497,738) (44,899,591)
------------------------- ------------------------- -------------------------
Net decrease ............................. (1,248,578) $(11,790,651) (2,161,145) $(21,423,864) (3,080,428) $(30,768,256)
========================= ========================= =========================
- -----------------------------------------------------------------------------------------------------------------------------------
Class R
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold .............................. 170,318 $ 1,617,928 375,902 $ 3,736,020 788,722 $ 7,885,609
Shares issued to shareholders in
reinvestment of dividends .............. 13,271 123,613 28,293 280,682 26,378 263,698
------------------------- ------------------------- -------------------------
Total issued ............................. 183,589 1,741,541 404,195 4,016,702 815,100 8,149,307
Shares redeemed .......................... (150,030) (1,427,178) (495,118) (4,928,049) (360,498) (3,607,622)
------------------------- ------------------------- -------------------------
Net increase (decrease) .................. 33,559 $ 314,363 (90,923) $ (911,347) 454,602 $ 4,541,685
========================= ========================= =========================
5. Subsequent Event:
On January 1, 2009, BAC announced that it had completed its acquisition of
Merrill Lynch, one of the largest stockholders of BlackRock, Inc.
18 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
Portfolio Information November 30, 2008 Short-Term Bond Master Portfolio
Percent of
Asset Mix Long-Term Investments
- --------------------------------------------------------------------------------
Non-U.S. Government Agency Mortgage-Backed Securities ..................... 30%
Asset-Backed Securities ................................................... 25
Corporate Bonds ........................................................... 17
U.S. Government Obligations ............................................... 13
U.S. Government Agency Mortgage-Backed Securities ......................... 11
U.S. Government Agency Mortgage-Backed Securities --
Collaterized Mortgage Obligations ....................................... 3
Municipal Bonds ........................................................... 1
- --------------------------------------------------------------------------------
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 19
Schedule of Investments November 30, 2008 (Unaudited)
Short-Term Bond Master Portfolio
(Percentages shown are based on Net Assets)
Par
Asset-Backed Securities (000) Value
===============================================================================
ACE Securities Corp. Series 2006-FM2 Class A2A,
1.445%, 8/25/36 (a) $ 3,409 $ 3,092,404
AEP Texas Central Transition Funding Series 2006-A
Class A2, 4.98%, 7/01/15 6,425 6,396,060
Aegis Asset Backed Securities Trust Series 2006-1
Class A1, 1.475%, 1/25/37 (a) 1,845 1,719,724
American Express Issuance Trust Series 2008-2
Class A, 4.02%, 1/18/11 (b) 5,475 5,269,385
Ameriquest Mortgage Securities, Inc. Series
2004-FR1 Class A5, 4.455%, 5/25/34 (a) 7,255 6,708,802
Asset Backed Funding Certificates Series 2006-OPT2
Class A3A, 1.455%, 10/25/36 (a) 1,093 1,061,081
Capital Auto Receivables Asset Trust Series 2004-2
Class D, 5.82%, 5/15/12 (c) 1,250 1,223,254
Citibank Credit Card Issuance Trust Series 2006-A2
Class A2, 4.85%, 2/10/11 6,900 6,894,195
Citigroup Mortgage Loan Trust, Inc. Series 2007-AHL3
Class A3A, 1.455%, 5/25/37 (a) 6,837 5,696,811
Countrywide Asset Backed Certificates (a):
Series 2004-13 Class AF3, 3.989%, 2/25/31 94 93,688
Series 2006-20 Class 2A1, 1.445%, 4/25/37 1,737 1,632,206
DaimlerChrysler Auto Trust Series 2006-C Class A3,
5.02%, 7/08/10 2,590 2,570,196
First Horizon Asset Backed Securities Trust
Series 2004-HE4 Class A2, 4.07%, 7/25/19 1,527 1,481,857
Ford Credit Auto Owner Trust Series 2008-A
Class A3A, 3.96%, 4/15/12 7,825 7,211,304
GCO Slims Trust Series 2006-1A Class NOTE,
5.72%, 3/01/22 (c) 4,180 3,531,759
GSAA Trust Series 2004-10 Class AF2,
4.22%, 8/25/34 (a) 1,019 971,741
GSAMP Trust Series 2005-AHL Class A3, 1.735%,
4/25/35 (a) 2,028 1,807,759
HSI Asset Securitization Corp. Trust Series 2006-HE1
Class 2A1, 1.445%, 10/25/36 (a) 2,436 2,198,926
Honda Auto Receivables Owner Trust:
Series 2006-1 Class A3, 5.07%, 2/18/10 331 330,807
Series 2006-3 Class A3, 5.115%, 10/15/10 2,945 2,925,486
JPMorgan Mortgage Acquisition Corp. Series 2007-CH5
Class A2, 1.445%, 11/25/29 (a) 5,494 4,814,640
Morgan Stanley ABS Capital I (a):
Series 2007-HE2 Class A2A, 1.435%, 1/25/37 2,292 2,116,806
Series 2007-HE6 Class A1, 1.455%, 5/25/37 4,346 3,897,039
National Collegiate Student Loan Trust (d):
Series 2005-GT1 Class AIO, 6.75%, 12/25/09 33,293 2,247,259
Series 2005-2 Class AIO, 7.73%, 3/25/12 16,400 1,571,940
PG&E Energy Recovery Funding LLC Series 2005-1
Class A4, 4.37%, 6/25/14 3,520 3,461,794
Popular ABS Mortgage Pass-Through Trust
Series 2005-1 Class AF3, 4.142%, 5/25/35 (a) 940 905,087
Residential Asset Mortgage Products, Inc.
Series 2003-RZ3 Class A6, 3.40%, 3/25/33 8,391 7,189,911
SLM Student Loan Trust (a):
Series 2002-1 Class A2, 3.645%, 4/25/17 2,327 2,153,497
Series 2002-4 Class A4, 2.959%, 3/15/17 3,840 3,581,196
Series 2005-8 Class A2, 3.625%, 7/25/22 5,750 5,347,500
Series 2008-5 Class A2, 4.635%, 10/25/16 8,775 8,449,518
Series 2008-5 Class A3, 4.835%, 1/25/18 9,400 8,525,772
Securitized Asset Backed Receivables LLC Trust
Series 2007-NC2 Class A2A, 1.435%, 1/25/37 (a) 2,402 2,116,535
Soundview Home Equity Loan Trust (a):
Series 2003-2 Class A2, 3.249%, 11/25/33 5,707 3,773,356
Series 2007-OPT3 Class 2A1, 1.455%, 8/25/37 2,786 2,550,563
USAA Auto Owner Trust Series 2006-1 Class A3,
5.01%, 9/15/10 1,241 1,235,928
WFS Financial Owner Trust Series 2004-4 Class A4,
3.44%, 5/17/12 5,060 4,889,621
Wells Fargo Home Equity Trust Series 2007-2
Class A1, 1.485%, 4/25/37 (a) 3,527 3,060,664
- -------------------------------------------------------------------------------
Total Asset-Backed Securities -- 24.0% 134,706,071
===============================================================================
Corporate Bonds
===============================================================================
Airlines -- 0.1%
American Airlines, Inc. Series 2003-1,
3.857%, 1/09/12 489 415,292
- -------------------------------------------------------------------------------
Beverages -- 0.2%
Bottling Group LLC, 6.95%, 3/15/14 1,290 1,351,042
- -------------------------------------------------------------------------------
Capital Markets -- 0.3%
Deutsche Bank AG, 5.375%, 10/12/12 1,790 1,777,161
Lehman Brothers Holdings, Inc., 2.951%,
5/25/10 (e)(f) 1,605 144,450
------------
1,921,611
- -------------------------------------------------------------------------------
Commercial Banks -- 2.0%
Fifth Third Bank, 4.20%, 2/23/10 4,785 4,439,772
National City Bank, 4.15%, 8/01/09 5,280 5,060,579
Wachovia Corp., 6.15%, 3/15/09 1,500 1,492,427
------------
10,992,778
- -------------------------------------------------------------------------------
Communications Equipment -- 0.2%
Cisco Systems, Inc., 2.892%, 2/20/09 (a) 955 952,978
- -------------------------------------------------------------------------------
Consumer Finance -- 1.0%
HSBC Finance Corp., 4.125%, 12/15/08 3,500 3,492,164
SLM Corp. Series A, 4%, 1/15/09 2,055 2,010,920
------------
5,503,084
- -------------------------------------------------------------------------------
iversified Financial Services -- 3.9%
Bank of America Corp., 4.875%, 9/15/12 2,255 2,182,680
Citigroup, Inc., 5.30%, 10/17/12 1,850 1,688,574
General Electric Capital Corp.:
3.323%, 11/01/12 (a) 10,350 8,818,272
Series A, 3.75%, 12/15/09 2,700 2,670,635
JPMorgan Chase & Co.:
5.60%, 6/01/11 3,750 3,706,909
4.75%, 5/01/13 3,000 2,871,570
------------
21,938,640
- -------------------------------------------------------------------------------
Diversified Telecommunication Services -- 1.1%
AT&T Inc.:
4.125%, 9/15/09 1,810 1,794,959
4.95%, 1/15/13 3,250 3,064,523
Qwest Corp., 6.069%, 6/15/13 (a) 250 175,000
Telefonica Emisiones SAU, 5.984%, 6/20/11 1,275 1,219,497
------------
6,253,979
- -------------------------------------------------------------------------------
See Notes to Financial Statements.
20 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
Schedule of Investments (continued) Short-Term Bond Master Portfolio
(Percentages shown are based on Net Assets)
Par
Corporate Bonds (concluded) (000) Value
===============================================================================
Electric Utilities -- 0.2%
Florida Power Corp., 6.65%, 7/15/11 $ 1,325 $ 1,374,554
- -------------------------------------------------------------------------------
Food Products -- 0.2%
Kraft Foods, Inc., 5.625%, 8/11/10 1,115 1,110,489
- -------------------------------------------------------------------------------
Insurance -- 0.9%
Metropolitan Life Global Funding I, 5.125%,
4/10/13 (c) 3,715 3,333,585
ZFS Finance (USA) (a)(c):
Trust I, 6.15%, 12/15/65 1,125 736,415
Trust IV, 5.875%, 5/09/32 1,900 1,133,578
------------
5,203,578
- -------------------------------------------------------------------------------
Media -- 2.0%
British Sky Broadcasting Group Plc, 8.20%, 7/15/09 2,825 2,805,281
Comcast Corp., 5.119%, 7/14/09 (a) 3,970 3,831,875
News America, Inc., 6.75%, 1/09/38 1,220 1,202,849
Time Warner Cable, Inc., 6.20%, 7/01/13 3,600 3,303,516
------------
11,143,521
- -------------------------------------------------------------------------------
Multi-Utilities -- 1.9%
CenterPoint Energy Transition Bond Co. LLC
Series A-2, 4.97%, 8/01/14 6,350 6,202,490
Dominion Resources, Inc. Series D,
5.125%, 12/15/09 2,000 1,946,590
Energy East Corp., 6.75%, 6/15/12 2,650 2,626,879
------------
10,775,959
- -------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels -- 1.0%
Anadarko Petroleum Corp., 3.20%, 9/15/09 (a) 790 757,207
Conoco Funding Co., 6.35%, 10/15/11 2,775 2,851,423
XTO Energy, Inc., 5%, 8/01/10 2,180 2,139,905
------------
5,748,535
- -------------------------------------------------------------------------------
Real Estate Investment Trusts (REITs) -- 0.3%
Nationwide Health Properties, Inc., 6.59%, 7/07/38 1,400 1,182,231
Rouse Co. LP, 3.625%, 3/15/09 815 244,500
------------
1,426,731
- -------------------------------------------------------------------------------
Thrifts & Mortgage Finance -- 0.6%
Sovereign Bancorp, Inc., 3.44%, 3/23/10 (a) 3,900 3,361,937
- -------------------------------------------------------------------------------
Wireless Telecommunication Services -- 0.4%
Vodafone Group Plc, 3.369%, 2/27/12 (a) 2,525 2,024,017
- -------------------------------------------------------------------------------
Total Corporate Bonds -- 16.3% 91,498,725
===============================================================================
U.S. Government Agency
Mortgage-Backed Securities
===============================================================================
Fannie Mae Guaranteed Pass Through Certificates:
5.00%, 12/15/38 (g) 6,100 6,140,028
5.50%, 11/01/17 - 12/15/38 (g) 24,603 25,111,065
6.00%, 9/01/36/ - 12/15/38 (g) 12,024 12,320,375
6.50%, 8/01/32 - 8/01/34 3,094 3,208,101
7.50%, 9/01/35 2,626 2,763,298
8.00%, 7/01/27 - 11/01/32 2,354 2,495,646
Freddie Mac Mortgage Participation Certificates:
5.50%, 10/01/17 1,351 1,380,317
5.804%, 11/01/36 3,935 4,007,334
Ginnie Mae MBS Certificates, 4.75%, 11/20/34 2,591 2,548,431
- -------------------------------------------------------------------------------
Total U.S. Government Agency
Mortgage-Backed Securities -- 10.7% 59,974,595
===============================================================================
U.S. Government Agency Mortgage-Backed
Securities -- Collateralized Mortgage Obligations
- -------------------------------------------------------------------------------
Fannie Mae Trust:
Series 360 Class 2, 5%, 8/01/35 (d) 14,257 2,337,439
Series 377 Class 2, 5%, 10/01/36 (d) 5,632 931,087
Series 2003-17 Class QR, 4.50%, 11/25/25 441 440,970
Series 2003-67 Class GL, 3%, 1/25/25 555 553,900
Series 2006-25 Class TA, 6%, 11/25/29 4,301 4,386,179
Series 2006-M2 Class A1A, 4.855%, 8/25/16 (a) 3,211 3,306,907
Series 2007-22 Class SD, 4.008%, 3/25/37 (d) 16,680 1,264,598
Series 2007-60 Class AX, 4.678%, 7/25/37 (d) 9,159 728,833
Freddie Mac Multiclass Certificates (d):
Series 3249 Class SM, 4.136%, 12/15/36 8,047 688,478
Series 3439 Class SB, 4.286%, 4/15/38 9,433 692,560
- -------------------------------------------------------------------------------
Total U.S. Government Agency
Mortgage-Backed Securities --
Collateralized Mortgage Obligations -- 2.7% 15,330,951
===============================================================================
Municipal Bonds
===============================================================================
Kentucky State Property and Buildings Commission,
Lease Rental Revenue Bonds (Project Number 67),
5.125%, 9/01/17 2,000 2,114,280
New York City, New York, City Transitional Finance
Authority, Future Tax Secured Revenue Bonds,
Series B, 6%, 5/15/10 (h) 3,180 3,411,981
- -------------------------------------------------------------------------------
Total Municipal Bonds -- 1.0% 5,526,261
===============================================================================
Non-U.S. Government Agency
Mortgage-Backed Securities
- -------------------------------------------------------------------------------
Collateralized Mortgage Obligations -- 16.5%
American Home Mortgage Assets Series 2006-6
Class A1A, 1.585%, 12/25/46 (a) 7,974 3,153,429
American Home Mortgage Investment Trust Series
2006-3 Class 11A1, 1.575%, 12/25/46 (a) 7,791 3,017,181
Banc of America Mortgage Securities Inc. Series
2006-B Class 3A1, 6.149%, 11/20/36 (a) 4,655 2,610,443
Bank of America Mortgage Securities Inc. Series
2003-J Class 2A1, 5.295%, 11/25/33 (a) 2,014 1,651,243
BlackRock Capital Finance LP Series 1997-R2
Class AP, 10.539%, 12/25/35 (a)(c)(i)(j) 56 56,143
Countrywide Home Loan Mortgage Pass-Through
Trust Series 2005-HYB8 Class 2A1, 5.173%,
12/20/35 (a) 3,570 1,963,822
Deutsche Alt-A Securities, Inc. Alternate Loan Trust
Series 2006-AF1 Class A1, 1.475%, 4/25/36 (a) 412 395,649
GMAC Mortgage Corp. Loan Trust Series 2003-J10
Class A1, 4.75%, 1/25/19 3,789 3,433,610
GSR Mortgage Loan Trust Series 2005-AR1
Class 2A1, 4.913%, 1/25/35 (a) 7,962 4,698,736
Harborview Mortgage Loan Trust Series 2006-11
Class A1A, 1.644%, 12/19/36 (a) 3,659 1,512,643
Homebanc Mortgage Trust Series 2005-3 Class A1,
1.635%, 7/25/35 (a) 6,799 3,878,041
Indymac Index Mortgage Loan Trust Series 2006-AR41
Class A3, 1.575%, 2/25/37 (a) 3,042 1,471,894
JPMorgan Mortgage Trust Series 2007-A1 Class 2A1,
4.768%, 7/25/35 (a) 5,832 4,374,112
Luminent Mortgage Trust Series 2006-7 Class 1A1,
1.575%, 12/25/36 (a) 3,770 1,526,279
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 21
Schedule of Investments (continued) Short-Term Bond Master Portfolio
(Percentages shown are based on Net Assets)
Non-U.S. Government Agency Par
Mortgage-Backed Securities (continued) (000) Value
===============================================================================
Ocwen Residential MBS Corp. Series 1998-R2
Class AP, 6.92%, 11/25/34 (a)(c) $ 126 $ 82,049
Permanent Financing Plc Series 5 Class 3A,
2.977%, 6/10/34 (a) 7,100 6,705,318
Permanent Master Issue Plc Series 2007-1
Class 2A1, 4.31%, 1/15/16 (a) 4,785 4,444,452
Residential Accredit Loans, Inc. Series 2006-QA9
Class A1, 1.575%, 11/25/36 (a) 3,526 1,494,292
Residential Asset Securitization Trust Series 2005-A5
Class A12, 1.695%, 5/25/35 (a) 2,821 1,742,037
Salomon Brothers Mortgage Securities VI, Inc.
Series 1986-1 Class A, 6%, 12/25/11 6 5,534
Structured Mortgage Asset Residential Trust
Series 1991-1 Class H, 8.25%, 6/25/22 5 5,040
SunTrust Adjustable Rate Mortgage Loan Trust
Series 2007-2 Class 3A3, 5.711%, 4/25/37 (a) 5,846 3,689,073
Thornburg Mortgage Securities Trust (a):
Series 2005-4 Class A4, 1.595%, 12/25/45 5,014 4,989,572
Series 2006-4 Class A2B, 1.515%, 7/25/36 1,857 1,542,802
Series 2007-1 Class A2B, 1.495%, 3/25/37 3,217 2,649,769
Series 2007-2 Class A2A, 1.525%, 6/25/37 3,170 2,593,366
WaMu Mortgage Pass-Through Certificates (a):
Series 2000-1 Class B1, 1.795%, 1/25/40 (c)(j) 4 642
Series 2004-AR3 Class A1, 3.918%, 6/25/34 12,155 8,656,410
Series 2005-AR12 Class 1A6, 4.835%,
10/25/35 7,175 3,072,921
Series 2007-HY3 Class 4A1, 5.349%, 3/25/37 6,755 4,120,803
Walsh Acceptance Series 1997-2 Class A,
5.25%, 3/01/27 (a) 37 4,581
Wells Fargo Mortgage Backed Securities Trust :
Series 2006-AR8 Class 2A1, 5.24%,
4/25/36 (a) 7,326 3,713,479
Series 2006-AR10 Class 2A1, 5.634%,
7/25/36 (a) 5,603 2,929,608
Series 2007-8 Class 2A7, 6%, 7/25/37 7,066 6,243,040
------------
92,428,013
- -------------------------------------------------------------------------------
Commercial Mortgage-Backed Securities -- 12.6%
Bank of America Commercial Mortgage, Inc.
Series 2000-1 Class A2A, 7.333%, 11/15/31 (a) 2,950 2,900,761
CS First Boston Mortgage Securities Corp.:
Series 1999-C1 Class A2, 7.29%, 9/15/41 2,843 2,803,566
Series 2002-CKS4 Class A1, 4.485%,
11/15/36 2,458 2,236,329
Series 2003-CPN1 Class ASP, 1.584%,
3/15/35 (a)(d) 62,178 956,500
Series 2004-C3 Class A2, 3.913%, 7/15/36 1,208 1,196,406
Chase Commercial Mortgage Securities Corp.
Series 1999-2 Class A2, 7.198%, 1/15/32 3,620 3,536,627
Chase Manhattan Bank-First Union National Bank
Series 1999-1 Class A2, 7.439%, 8/15/31 (a) 3,863 3,806,112
Citigroup Commercial Mortgage Trust Series 2007-C6
Class A4, 5.889%, 12/10/49 (a) 7,600 4,935,208
Commercial Mortgage Acceptance Corp.
Series 1999-C1 Class A2, 7.03%, 6/15/31 1,517 1,499,885
GMAC Commercial Mortgage Securities, Inc.:
Series 1999-C1 Class A2, 6.175%, 5/15/33 (a) 159 158,775
Series 2001-C2 Class A2, 6.70%, 4/15/34 5,300 4,954,158
Greenwich Capital Commercial Funding Corp.
Series 2002-C1 Class XP, 2.059%, 1/11/35 (a)(d) 37,280 664,004
JPMorgan Chase Commercial Mortgage
Securities Corp. Series 2001-CIBC
Class A3, 6.26%, 3/15/33 11,952 11,211,537
LB Commercial Conduit Mortgage Trust
Series 1999-C1 Class A2, 6.78%, 6/15/31 10,816 10,709,084
LB-UBS Commercial Mortgage Trust:
Series 2002-C4 Class XCP, 1.475%,
10/15/35 (a)(d) 59,742 653,801
Series 2004-C4 Class A2, 4.567%, 6/15/29 (a) 3,361 3,304,351
Series 2004-C7 Class A1, 3.625%, 10/15/29 1,909 1,859,615
Morgan Stanley Dean Witter Capital I
Series 2000-LIF2 Class A2, 7.20%, 10/15/33 1,543 1,486,069
PNC Mortgage Acceptance Corp. Series 2000-C2
Class A2, 7.30%, 10/12/33 (a) 4,288 4,125,933
TIAA Retail Commercial Trust Series 2007-C4
Class A1, 5.684%, 8/15/39 (a) 5,686 5,130,771
Wachovia Bank Commercial Mortgage Trust
Series 2006-C25 Class A4, 5.926%, 5/15/43 (a) 3,625 2,495,530
------------
70,625,022
- -------------------------------------------------------------------------------
Total Non-U.S. Government Agency
Mortgage-Backed Securities -- 29.1% 163,053,035
===============================================================================
U.S. Government Obligations
===============================================================================
Fannie Mae:
2.875%, 10/12/10 8,230 8,309,000
3.875%, 7/12/13 9,250 9,567,627
6.25%, 2/01/11 1,505 1,573,357
Freddie Mac 5.75%, 1/15/12 (b) 40,500 43,648,551
U.S. Treasury Notes:
1.75%, 11/15/11 3,640 3,685,784
2.75%, 10/31/13 2,857 2,970,163
3.875%, 5/15/18 3,150 3,400,277
- -------------------------------------------------------------------------------
Total U.S. Government Obligations -- 13.0% 73,154,759
===============================================================================
Capital Trusts
===============================================================================
Capital Markets -- 0.2%
Goldman Sachs Capital III Series F, 2.973% (a)(k) 2,810 966,528
- -------------------------------------------------------------------------------
Total Capital Trusts -- 0.2% 966,528
===============================================================================
Total Long-Term Investments
(Cost -- $619,282,111) -- 97.0% 544,210,925
===============================================================================
Short-Term Securities
===============================================================================
U.S. Government Agency Obligations -- 1.2%
Freddie Mac 1.28%, 12/02/08 (l)(m) 6,900 6,899,760
- -------------------------------------------------------------------------------
Total Short-Term Securities
(Cost -- $6,899,760) -- 1.2% 6,899,760
===============================================================================
See Notes to Financial Statements.
22 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
Schedule of Investments (continued) Short-Term Bond Master Portfolio
(Percentages shown are based on Net Assets)
Options Purchased Contracts (n) Value
===============================================================================
Exchange-Traded Call Options
Euro-Dollar Future, expiring December 2008
at USD 98.25 158 $ 15,800
- -------------------------------------------------------------------------------
Total Options Purchased
(Cost -- $22,207) -- 0.0% 15,800
===============================================================================
Total Investments Before Options Written and TBA
Sale Commitments (Cost -- $626,204,078*) -- 98.2% 551,126,485
===============================================================================
Options Written
===============================================================================
Exchange-Traded Put Options
Euro-Dollar Future, expiring December 2008
at USD 96.75 81 (1,519)
- -------------------------------------------------------------------------------
Total Options Written
(Premiums Received -- $40,253) -- (0.0)% (1,519)
===============================================================================
Par
TBA Sale Commitments (000)
- -------------------------------------------------------------------------------
Fannie Mae Guaranteed Pass Through Certificates:
5.50%, 11/01/17 - 12/15/38 $ 4,000 (4,072,544)
6.00%, 9/01/36/ - 12/15/38 12,100 (12,376,872)
6.50%, 8/01/32 - 8/01/34 3,100 (3,186,624)
- -------------------------------------------------------------------------------
Total TBA Sale Commitments
(Proceeds -- $19,378,347) -- (3.5)% (19,636,040)
===============================================================================
Total Investments, Net of Options Written and TBA
Sale Commitments -- 94.7% 531,488,926
Other Assets Less Liabilities -- 5.3% 29,594,579
------------
Net Assets -- 100.0% $561,083,505
============
- -------------------------------------------------------------------------------
* The cost and unrealized appreciation (depreciation) of investments as of
November 30, 2008, as computed for federal income tax purposes were as
follows:
Aggregate cost $626,204,078
============
Gross unrealized appreciation $ 2,452,593
Gross unrealized depreciation (77,530,186)
------------
Net unrealized depreciation $(75,077,593)
============
(a) Variable rate security. Rate shown is as of report date.
(b) All or a portion of security has been pledged as collateral in connection
with open financial futures contracts.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration to qualified institutional investors.
(d) Represents the interest only portion of a mortgage-backed security and has
either a nominal or a notional amount of principal.
(e) Issuer filed for bankruptcy and/or is in default of interest payments.
(f) Non-income producing security.
(g) Represents or includes a "to-be-announced" transaction. The Portfolio has
committed to purchasing securities for which all specific information is
not available at this time.
(h) U.S. government securities, held in escrow, are used to pay interest on
this security as well as to retire the bond in full at the date indicated,
typically at a premium to par.
(i) Investments in companies considered to be an affiliate of the Portfolio,
for purposes of Section 2(a)(3) of the Investment Company Act of 1940,
were as follows:
-------------------------------------------------------------------------
Purchase Sale Realized
Affiliate Cost Cost Gain Income
-------------------------------------------------------------------------
BlackRock Capital Finance LP
Series 1997-R2 Class AP,
10.539%, 12/25/35 -- $1,863 $11 $1,653
-------------------------------------------------------------------------
(j) Security is fair valued.
(k) Security is perpetual in nature and has no stated maturity date.
(l) Rate shown is the yield to maturity as of the date of purchase.
(m) All or a portion of security has been pledged as collateral in connection
with swaps.
(n) One contract represents a notional amount of $2,500.
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.
o Foreign currency exchange contracts as of November 30, 2008 were as
follows:
--------------------------------------------------------------------
Currency Currency Settlement Unrealized
Purchased Sold Date Appreciation
--------------------------------------------------------------------
USD 530,463 EUR 415,000 12/10/08 $3,344
--------------------------------------------------------------------
o Interest rate swap contracts outstanding as of November 30, 2008 were as
follows:
-------------------------------------------------------------------------
Notional
Amount Unrealized
(000) Depreciation
-------------------------------------------------------------------------
Pay a fixed rate of 4.055% and receive a
floating rate based on 3-month LIBOR
Broker, Credit Suisse International
Expires November 2018 $16,300 $(1,298,721)
-------------------------------------------------------------------------
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 23
Schedule of Investments (concluded) Short-Term Bond Master Portfolio
o Financial futures contracts purchased as of November 30, 2008 were as
follows:
- --------------------------------------------------------------------------------
Expiration Face Unrealized
Contracts Issue Exchange Date Value Appreciation
- --------------------------------------------------------------------------------
249 2-Year U.S.
Treasury Bond Chicago December 2008 $ 52,876,508 $1,498,867
94 10-Year
Australian
Bond Future Sydney December 2008 $ 6,554,964 302,958
145 10-Year U.S.
Treasury Bond Chicago December 2008 $ 17,482,216 336,925
38 EuroBobl
Future Eurex December 2008 $ 5,240,294 288,629
22 Euro Bund
Future Eurex December 2008 $ 3,184,883 210,332
138 Euro-Schartz
Future Eurex December 2008 $ 18,121,126 558,466
952 2-Year U.S.
Treasury Bond Chicago March 2009 $205,867,378 538,122
41 Long-Gilt
Future LIFFE March 2009 $ 7,294,657 67,713
7 Euro Dollar
Future Chicago June 2010 $ 1,687,634 23,954
7 Euro Dollar
Future Chicago September 2010 $ 1,683,959 24,566
7 Euro Dollar
Future Chicago December 2010 $ 1,680,459 23,254
- --------------------------------------------------------------------------------
Total $3,873,786
==========
o Financial futures contracts sold as of November 30, 2008 were as follows:
- -------------------------------------------------------------------------------
Expiration Face Unrealized
Contracts Issue Exchange Date Value Depreciation
- -------------------------------------------------------------------------------
326 5-Year U.S.
Treasury Bond Chicago December 2008 $37,002,613 $ (1,903,450)
63 10-Year U.S.
Treasury Bond Chicago December 2008 $ 7,314,855 (427,254)
10 30-Year U.S.
Treasury Bond Chicago December 2008 $ 1,192,287 (93,338)
33 Euro Dollar
Future Chicago December 2008 $ 7,940,173 (134,515)
187 10-Year U.S.
Treasury Bond Chicago March 2009 $21,083,544 (1,537,612)
42 Euro Dollar
Future Chicago March 2009 $10,076,206 (222,194)
26 Euro Dollar
Future Chicago June 2009 $ 6,240,656 (134,219)
26 Euro Dollar
Future Chicago September 2009 $ 6,232,594 (139,681)
26 Euro Dollar
Future Chicago December 2009 $ 6,223,569 (141,881)
37 Euro Dollar
Future Chicago March 2010 $ 8,833,684 (223,454)
11 Euro Dollar
Future Chicago March 2011 $ 2,627,954 (44,909)
- -------------------------------------------------------------------------------
Total $ (5,002,507)
============
o Effective June 1, 2008, the Portfolio adopted Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"). FAS 157 clarifies the definition of fair
value, establishes a framework for measuring fair values and requires
additional disclosures about the use of fair value measurements. Various
inputs are used in determining the fair value of investments, which are as
follows:
o Level 1 -- price quotations in active markets/exchanges for
identical securities
o Level 2 -- other observable inputs (including, but not limited to:
quoted prices for similar assets or liabilities in markets that are
not active, inputs other than quoted prices that are observable for
the assets or liabilities (such as interest rates, yield curves,
volatilities, prepayment speeds, loss severities, credit risks, and
default rates) or other market-corroborated inputs)
o Level 3 -- unobservable inputs based on the best information
available in the circumstance, to the extent observable inputs are
not available (including the Portfolio's own assumption used in
determining the fair value of investments)
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. For
information about the Portfolio's policy regarding valuation of investments and
other significant accounting policies, please refer to Note 1 of the Notes to
Financial Statements.
The following table summarizes the inputs used as of November 30, 2008 in
determining the fair valuation of the Portfolio's investments:
- -------------------------------------------------------------------------------
Investments in Other Financial
Valuation Inputs Securities Instruments*
- -------------------------------------------------------------------------------
Level 1 ........................ $ (1,092,766) $ (1,114,440)
Level 2 ........................ 532,510,626 (1,295,377)
Level 3 ........................ 56,785 --
- -------------------------------------------------------------------------------
Total $ 531,474,645 $ (2,409,817)
=====================================
* Other financial instruments are foreign currency exchange contracts,
swaps, futures and options.
The following is a reconciliation of investments for unobservable inputs (Level
3) used in determining fair value:
- -----------------------------------------------------------------------------
Investments
in Securities
- -----------------------------------------------------------------------------
Balance, as of June 1, 2008 .................................. $ 58,018
Change in unrealized appreciation (depreciation) ............. (3,036)
Net purchases (sales) ........................................ (1,874)
Net realized gain ............................................ 11
Net transfers into of Level 3 ................................ 3,666
- -----------------------------------------------------------------------------
Balance, as of November 30, 2008 $ 56,785
========
o Currency Abbreviations:
EUR Euro
USD U.S. Dollar
See Notes to Financial Statements.
24 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
Statement of Assets and Liabilities Short-Term Bond Master Portfolio
November 30, 2008 (Unaudited)
================================================================================
Assets
- --------------------------------------------------------------------------------
Investments at value -- unaffiliated (cost -- $626,148,277) .... $ 551,070,342
Investments at value -- affiliated (cost -- $55,801) ........... 56,143
Unrealized appreciation on foreign currency exchange contracts . 3,344
Cash ........................................................... 23,204,678
Foreign currency at value (cost -- $2,072) ..................... 1,788
Investments sold receivable .................................... 23,481,123
Interest receivable ............................................ 4,450,829
Contributions receivable from investors ........................ 947,287
Margin variation receivable .................................... 488,696
Paydowns receivable ............................................ 425,605
Swaps receivable ............................................... 5,878
Prepaid expenses ............................................... 18,324
Other assets ................................................... 5,943
-------------
Total assets ................................................... 604,159,980
-------------
================================================================================
Liabilities
- --------------------------------------------------------------------------------
TBA sale commitments (proceeds -- $19,378,347) ................. 19,636,040
Options written at value (premium received -- $40,253) ......... 1,519
Unrealized depreciation on swaps ............................... 1,298,721
Investments purchased payable .................................. 21,871,837
Investment advisory fees payable ............................... 99,487
Other accrued expenses payable ................................. 98,252
Swaps payable .................................................. 13,999
Other affiliates payable ....................................... 4,645
Officer's and Directors' fees payable .......................... 145
Other liabilities payable ...................................... 51,830
-------------
Total liabilities .............................................. 43,076,475
-------------
Net Assets ..................................................... $ 561,083,505
=============
================================================================================
Net Assets Consist of
- --------------------------------------------------------------------------------
Investors' capital ............................................. $ 638,804,894
Net unrealized appreciation/depreciation ....................... (77,721,389)
-------------
Net Assets ..................................................... $ 561,083,505
=============
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 25
Statement of Operations Short-Term Bond Master Portfolio
Six Months
Ended
November 30,
2008
(Unaudited)
================================================================================
Investment Income
- --------------------------------------------------------------------------------
Interest ...................................................... $ 15,513,661
Income -- affiliated .......................................... 1,832
------------
Total income .................................................. 15,515,493
------------
================================================================================
Expenses
- --------------------------------------------------------------------------------
Investment advisory ........................................... 668,468
Accounting services ........................................... 122,645
Custodian ..................................................... 36,340
Professional .................................................. 23,655
Officer and Directors ......................................... 15,506
Printing ...................................................... 2,442
Miscellaneous ................................................. 19,030
------------
Total expenses ................................................ 888,086
------------
Net investment income ......................................... 14,627,407
------------
================================================================================
Realized and Unrealized Gain (Loss)
- --------------------------------------------------------------------------------
Net realized gain (loss) from:
Investments (including $11 from affiliates) ................. (9,097,203)
Futures and swaps ........................................... 7,004,339
Foreign currency ............................................ (141,237)
Options written ............................................. (6,366)
TBA sale commitments ........................................ 684,524
------------
(1,555,943)
------------
Net change in unrealized appreciation/depreciation on:
Investments ................................................. (59,735,386)
Futures and swaps ........................................... (3,151,830)
Foreign currency ............................................ (167,338)
Options written ............................................. 47,011
TBA sale commitments ........................................ (184,894)
------------
(63,192,437)
------------
Total realized and unrealized loss ............................ (64,748,380)
------------
Net Decrease in Net Assets Resulting from Operations .......... $(50,120,973)
============
See Notes to Financial Statements.
26 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
Statements of Changes in Net Assets Short-Term Bond Master Portfolio
Six Months Period
Ended July 1,
November 30, 2007 to Year Ended
2008 May 31, June 30,
Increase (Decrease) in Net Assets: (Unaudited) 2008 2007
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income ..................................................... $ 14,627,407 $ 30,731,996 $ 30,980,138
Net realized loss ......................................................... (1,555,943) (1,371,193) (7,047,013)
Net change in unrealized appreciation/depreciation ........................ (63,192,437) (10,189,278) 9,238,509
---------------------------------------------------
Net increase (decrease) in net assets resulting from operations ........... (50,120,973) 19,171,525 33,171,634
---------------------------------------------------
===================================================================================================================================
Capital Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ............................................... 76,342,005 138,570,800 165,796,615
Fair value of withdrawals ................................................. (149,855,748) (149,724,799) (201,097,486)
---------------------------------------------------
Net decrease in net assets derived from capital transactions .............. (73,513,743) (11,153,999) (35,300,871)
---------------------------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ................................... (123,634,716) 8,017,526 (2,129,237)
Beginning of period ....................................................... 684,718,221 676,700,695 678,829,932
---------------------------------------------------
End of period ............................................................. $ 561,083,505 $ 684,718,221 $ 676,700,695
===================================================
See Notes to Financial Statements.
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 27
Financial Highlights Short-Term Bond Master Portfolio
Six Months Period
Ended July 1,
November 30, 2007 to Year Ended June 30,
2008 May 31, -------------------------------------------------------------
(Unaudited) 2008 2007 2006 2005 2004 2003
===================================================================================================================================
Total Investment Return
- -----------------------------------------------------------------------------------------------------------------------------------
Total investment return ................ (7.95)% 1 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% 2 0.28% 0.28% 0.28% 0.28% 0.28%
========================================================================================
Total expenses ......................... 0.28% 2 0.28% 2 0.28% 0.28% 0.28% 0.28% 0.28%
========================================================================================
Net investment income .................. 4.60% 2 4.83% 2 4.60% 4.00% 3.34% 3.39% 3.73%
========================================================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000) ........ $561,084 $684,718 $676,701 $678,830 $726,534 $740,024 $739,334
========================================================================================
Portfolio turnover ..................... 144% 3 230% 4 108% 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 104%.
4 Includes TBA transactions, excluding these transactions the portfolio
turnover rate would have been 13%.
See Notes to Financial Statements.
28 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
Notes to Financial Statements (Unaudited) Short-Term Bond Master Portfolio
1. Organization and Significant Accounting Policies:
Short-Term Bond Master Portfolio (the "Portfolio") is a series of Short-Term
Bond Master LLC (the "Master LLC"), which is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"). The Master LLC 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 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 traded
on exchanges are valued at their last sale price. Swap agreements are valued
utilizing quotes 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. An
exchange-traded option for which there is no mean price is valued at the last
bid (long positions) or ask (short positions) price. If no bid or ask price is
available, the prior day's price will be used unless it is determined that the
prior day's price no longer reflects the fair value of the option.
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 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 for investment purposes or to manage its
interest rate risk. Futures are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield.
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. The use of futures transactions
involves the risk of an imperfect correlation in the movements in the
price of futures contracts, interest rates and the underlying assets, and
the possible inability of counterparties to meet the terms of their
contracts.
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
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 29
Notes to Financial Statements (continued) Short-Term Bond Master Portfolio
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.
o Forward currency contracts -- A forward currency contract is an agreement
between two parties to buy and sell a currency at a set exchange rate on a
future date. The Portfolio may enter into foreign currency contracts as a
hedge against either specific transactions or portfolio positions. 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. The use of forward foreign currency
contracts involves the risk that counterparties may not meet the terms of
the agreement and market risk of unanticipated movements in the value of a
foreign currency relative to the U.S. dollar.
o Options -- The Portfolio may purchase and write call and put options. 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.
When the Portfolio purchases (writes) an option, an amount equal to the
premium paid (received) by the Portfolio is reflected as an asset and an
equivalent liability. The amount of the asset (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). When the Portfolio writes a call option,
such option is "covered," meaning that the Portfolio holds the underlying
security subject to being called by the option counterparty, or cash in an
amount sufficient to cover the obligation. When the Portfolio writes a put
option, such option is covered by cash in an amount sufficient to cover
the obligation. Certain call options are written as part of an arrangement
where the counterparty to the transaction borrows the underlying security
from the Portfolio in a securities lending transaction.
In purchasing and writing options, the Portfolio bears the market risk of
an unfavorable change in the price of the underlying security. Exercise of
a written option could result in the Portfolio purchasing a security at a
price different from the current market value. The Portfolio may execute
transactions in both listed and OTC options. Transactions in certain OTC
options may expose the Portfolio to the risk of default by the
counterparty to the transaction.
o Swaps -- The Portfolio may enter into swap agreements, in which the
Portfolio and the 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 Statement of Operations as
realized gains or losses, respectively. 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. Swap transactions involve, to varying degrees, elements
of credit and market risk in excess of the amounts recognized on the
Statement of Assets and Liabilities. Such risk involves the possibility
that there will be no liquid market for these agreements, that the
counterparty to the agreements may default on its obligation to perform or
disagree as to the meaning of the contractual terms in the agreements, and
there may be unfavorable changes in interest rates and/or market values
associated with these transactions.
Credit default swaps -- The Portfolio may enter into credit default swaps
for investment purposes or to manage its credit risk. 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 -- The Portfolio may enter into interest rate swaps
for investment purposes or to manage its interest rate risk. 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 Swaptions -- 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.
30 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
Notes to Financial Statements (continued) Short-Term Bond Master Portfolio
Asset-Backed and Mortgage-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.
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.
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. 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.
Dollar, Mortgage and Treasury Rolls: The Portfolio may sell mortgage-backed
securities or U.S. Treasury 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.
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.
These techniques involve the risk that the market value of the securities that
the Portfolio is required to purchase may decline below the agreed upon
repurchase price of those securities. If investment performance of securities
purchases with proceeds from these transactions 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
adversely impact the investment performance of the Portfolio.
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 31
Notes to Financial Statements (continued) Short-Term Bond Master Portfolio
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.
Stripped Mortgage-Backed Securities: The Portfolio my invest in stripped
mortgage-backed securities issued by the U.S. government, its agencies and
instrumentalities. Stripped mortgage-backed securities are usually structured
with two classes that receive different proportions of the interest and
principal distributions on a pool of mortgage assets. In certain cases, one
class will receive all of the interest (the interest-only or "IO" class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on IO's is sensitive to the rate of principal
repayments (including prepayments) on the related underlying mortgage assets and
principal prepayments may have a material effect on yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Portfolio may not fully recoup its initial investment in IO's.
The Portfolio also may invest in stripped mortgage-backed securities that are
privately issued.
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 and Collateralization: In cases in which the 1940 Act and the
interpretive positions of the Securities and Exchange Commission ("SEC") require
that the Portfolio segregates assets in connection with certain investments
(e.g., TBAs beyond normal settlement, options, swaps, written options, forward
foreign currency contracts or financial futures contracts), the Portfolio will,
consistent with certain interpretive letters issued by the SEC, designate on its
books and records cash or other liquid securities having a market value at least
equal to the amount that would otherwise be required to be physically
segregated. Furthermore, based on requirements and agreements with certain
exchanges and third party broker-dealers, the Portfolio may also be required to
deliver or deposit securities as collateral from certain investments (e.g.
financial futures contracts, swaps and written options).
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. Interest income is recorded 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.
Recent Accounting Pronouncement: 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. 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. FAS 161 is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008. 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 prorated 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"), a wholly
owned subsidiary of Bank of America Corporation ("BAC"), and The PNC Financial
Services Group, Inc. are the largest stockholders of BlackRock, Inc.
32 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
Notes to Financial Statements (concluded) Short-Term Bond Master Portfolio
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.
For the six months ended November 30, 2008, the Portfolio reimbursed the Advisor
$5,505 for certain accounting services, which is included in accounting services
expenses in the Statement of Operations.
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 loans, among other things, in a
private investment company managed by the Manager or in registered money market
funds advised by the Manager or its affiliates. For the six months ended
November 30, 2008, there were no securities lending fees paid to BIM.
The Portfolio may earn income on positive cash balances in demand deposit
accounts. For the year ended October 31, 2008, the Portfolio earned $179, which
is included in income -- affiliated 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. The Portfolio reimburses the
Advisor for compensation paid to the Master LLC's Chief Compliance Officer.
3. Investments:
Purchases and sales (including paydowns and TBA transactions), excluding
short-term securities and U.S. government securities, for the six months ended
November 30, 2008 were $439,618,711 and $467,075,194, respectively.
For the six months ended November 30, 2008, purchases and sales of U.S.
government securities were $440,774,285 and $430,509,842, respectively.
Transactions in call options written for the six months ended November 30, 2008
were as follows:
- --------------------------------------------------------------------------------
Premiums
Contracts* Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of period .............................. 163 $ 9,739
Options written .................................... 81 1,018,641
Options closed ..................................... (81) (1,018,641)
Options expired .................................... (163) (9,739)
======================
Outstanding call options written, end of period .... -- --
======================
Transactions in put options written for the six months ended November 30, 2008
were as follows:
- --------------------------------------------------------------------------------
Premiums
Contracts* Received
- --------------------------------------------------------------------------------
Outstanding put options written,
beginning of period ............................ 81 $ 40,253
Options written .................................. 81 1,018,641
Options closed ................................... (81) (1,018,641)
----------------------
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 a party to a $500,000,000 credit agreement with a group of
lenders, which expired November 2008 and was subsequently renewed until November
2009. 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. The Portfolio pays a commitment fee of
0.08% 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 Statement of
Operations. Amounts borrowed under the credit agreement bear interest at a rate
equal to the higher of the (a) federal funds effective rate and (b) reserve
adjusted one month LIBOR, plus, in each case, the higher of (i) 1.50% and (ii)
50% of the CDX Index (as defined in the credit agreement) in effect from time to
time. The Portfolio did not borrow under the credit agreement during the six
months ended November 30, 2008.
5. Subsequent Event:
On January 1, 2009, BAC announced that it had completed its acquisition of
Merrill Lynch, one of the largest stockholders of BlackRock, Inc.
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 33
Disclosure of Investment Advisory Agreement and Subadvisory Agreement
The Board of Directors (the "Board," the members of which are referred to as
"Directors") of BlackRock Short-Term Bond Fund (the "Fund") of BlackRock
Short-Term Bond Series, Inc. (the "Bond Fund") and of Short-Term Bond Master
Portfolio (the "Portfolioof Short-Term Bond Master LLC (the "Master LLC") met in
April and June 2008 to consider the approval of the Fund's investment advisory
agreement (the "Advisory Agreement") with BlackRock Advisors, LLC (the
"Advisor"), the Master LLC's investment advisor. The Fund is a "feeder" fund
that invests all of its assets in the Portfolio, which has the same investment
objective and strategies as the Fund. All investments are made at the Portfolio
level. The Board also considered the approval of the subadvisory agreement (the
"Subadvisory Agreement") between the Advisor and BlackRock Financial Management,
Inc. (the "Subadvisor"). The Advisor and the Subadvisor are referred to herein
as "BlackRock." For simplicity, the Fund, Bond Fund, Portfolio and Master LLC
are referred to herein as the "Fund." The Advisory Agreement and the Subadvisory
Agreement are referred to herein as the "Agreements."
Activities and Composition of the Board
The Board of the Fund consists of fifteen individuals, twelve of whom are not
"interested persons" of the Fund as defined in the Investment Company Act of
1940, as amended (the "1940 Act") (the "Independent Directors"). The Directors
are responsible for the oversight of the operations of the Fund and perform the
various duties imposed on the directors of investment companies by the 1940 Act.
The Independent Directors have retained independent legal counsel to assist them
in connection with their duties. The Chairman of the Board is an Independent
Director. The Board established four standing committees: an Audit Committee, a
Governance and Nominating Committee, a Compliance Committee and a Performance
Oversight Committee, each of which is composed of, and chaired by Independent
Directors.
The Agreements
Upon the consummation of the combination of BlackRock's investment management
business with Merrill Lynch & Co., Inc.'s investment management business,
including Merrill Lynch Investment Managers, L.P., and certain affiliates (the
"Transaction"), the Fund entered into the Advisory Agreement with an initial
two-year term and the Advisor entered into the Subadvisory Agreement with the
Subadvisor with an initial two-year term. Consistent with the 1940 Act, prior to
the expiration of the Agreements' respective initial two-year term, the Board is
required to consider the continuation of the Fund's Agreements on an annual
basis. In connection with this process, the Board assessed, among other things,
the nature, scope and quality of the services provided to the Fund by the
personnel of BlackRock and its affiliates, including investment management,
administrative services, shareholder services, oversight of fund accounting and
custody, marketing services and assistance in meeting legal and regulatory
requirements. The Board also received and assessed information regarding the
services provided to the Fund by certain unaffiliated service providers.
Throughout the year, the Board, acting directly and through its committees,
considers at each of its meetings factors that are relevant to its annual
consideration of the renewal of the Fund's Agreements, including the services
and support provided to the Fund and its shareholders. Among the matters the
Board considered were: (a) investment performance for one, three and five years,
as applicable, against peer funds, as well as senior management and portfolio
managers' analysis of the reasons for underperformance, if applicable; (b) fees,
including advisory, administration, if applicable, and other fees paid to
BlackRock and its affiliates by the Fund, such as transfer agency fees and fees
for marketing and distribution; (c) Fund operating expenses; (d) the resources
devoted to and compliance reports relating to the Fund's investment objective,
policies and restrictions; (e) the Fund's compliance with its Code of Ethics and
compliance policies and procedures; (f) the nature, cost and character of
non-investment management services provided by BlackRock and its affiliates; (g)
BlackRock's and other service providers' internal controls; (h) BlackRock's
implementation of the proxy voting guidelines approved by the Board; (i)
execution quality; (j) valuation and liquidity procedures; and (k) periodic
overview of BlackRock's business, including BlackRock's response to the
increasing scale of its business.
Board Considerations in Approving the Agreements
The Approval Process: At an in-person meeting held on April 10, 2008, the Board
reviewed materials relating to its consideration of the Agreements. At an
in-person meeting held on June 5 - 6, 2008, the Fund's Board, including the
Independent Directors, unanimously approved the continuation of the Advisory
Agreement between the Advisor and the Fund for a one-year term ending June 30,
2009 and the Subadvisory Agreement between the Advisor and BlackRock Financial
Management, Inc. for a one-year term ending June 30, 2009. In considering the
approval of the Agreements, the Board received and discussed various materials
provided to it in advance of the April 10, 2008 meeting. As a result of the
discussions that occurred during the April 10, 2008 meeting, the Board requested
and BlackRock provided additional information, as detailed below, in advance of
the June 5 - 6, 2008 Board meeting. The Board considered all factors it believed
relevant with respect to the Fund, including, among other factors: (a) the
nature, extent and quality of the services provided by BlackRock; (b) the
investment performance of the Fund and BlackRock portfolio management; (c) the
advisory fee and the cost of the services and profits to be realized by
BlackRock and certain affiliates from the relationship with the Fund; (d)
economies of scale; and (e) other factors.
Prior to the April 10, 2008 meeting, the Board requested and received materials
specifically relating to the Agreements. The Board is engaged in an ongoing
process with BlackRock to continuously review the nature and scope of the
information provided to better assist its deliberations. These materials
included (a) information independently compiled and prepared by Lipper, Inc.
("Lipper") on Fund fees and expenses, and the investment performance of the Fund
as compared with a peer group of funds as determined by Lipper ("Peers"); (b)
information on the profitability of the
34 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
Disclosure of Investment Advisory Agreement and Subadvisory Agreement
(continued)
Agreements to BlackRock and certain affiliates, including their other
relationships with the Fund, and a discussion of fall-out benefits; (c) a
general analysis provided by BlackRock concerning investment advisory fees
charged to other clients, such as institutional and closed-end funds, under
similar investment mandates, as well as the performance of such other clients;
(d) a report on economies of scale; (e) sales and redemption data regarding the
Fund's shares; and (f) an internal comparison of management fees classified by
Lipper, if applicable. At the April 10, 2008 meeting, the Board requested and
subsequently received from BlackRock (i) a comprehensive analysis of total
expenses on a fund-by-fund basis; (ii) further analysis of investment
performance; (iii) further data regarding Fund profitability, Fund size and Fund
fee levels; and (iv) additional information on sales and redemptions.
The Board also considered other matters it deemed important to the approval
process, such as payments made to BlackRock or its affiliates relating to the
distribution of Fund shares, services related to the valuation and pricing of
Fund portfolio holdings, and direct and indirect benefits to BlackRock and its
affiliates from their relationship with the Fund. The Board did not identify any
particular information as controlling, and each Director may have attributed
different weights to the various items considered.
A. Nature, Extent and Quality of the Services: The Board, including the
Independent Directors, reviewed the nature, extent and quality of services
provided by BlackRock, including the investment advisory services and the
resulting performance of the Fund. Throughout the year, the Board compared Fund
performance to the performance of a comparable group of mutual funds as
classified by Lipper and the performance of at least one relevant index or
combination of indices. The Board met with BlackRock's senior management
personnel responsible for investment operations, including the senior investment
officers. The Board also reviewed the materials provided by the Fund's portfolio
management team discussing Fund performance and the Fund's investment objective,
strategies and outlook.
The Board considered, among other factors, the number, education and experience
of BlackRock's investment personnel generally and the Fund's portfolio
management team, BlackRock's portfolio trading capabilities, BlackRock's use of
technology, BlackRock's commitment to compliance and BlackRock's approach to
training and retaining portfolio managers and other research, advisory and
management personnel. The Board also reviewed BlackRock's compensation structure
with respect to the Fund's portfolio management team and BlackRock's ability to
attract and retain high-quality talent.
In addition to advisory services, the Board considered the quality of the
administrative and non-investment advisory services provided to the Fund.
BlackRock and its affiliates provide the Fund with certain administrative,
transfer agency, shareholder and other services (in addition to any such
services provided to the Fund by third parties) and officers and other personnel
as are necessary for the operations of the Fund. In addition to investment
advisory services, BlackRock and its affiliates provide the Fund with other
services, including (i) preparing disclosure documents, such as the prospectus,
the statement of additional information and shareholder reports; (ii) assisting
with daily accounting and pricing; (iii) overseeing and coordinating the
activities of other service providers; (iv) organizing Board meetings and
preparing the materials for such Board meetings; (v) providing legal and
compliance support; and (vi) performing other administrative functions necessary
for the operation of the Fund, such as tax reporting and fulfilling regulatory
filing requirements. The Board reviewed the structure and duties of BlackRock's
fund administration, accounting, legal and compliance departments.
B. The Investment Performance of the Fund and BlackRock: The Board, including
the Independent Directors, also reviewed and considered the performance history
of the Fund. In preparation for the April 10, 2008 meeting, the Board was
provided with reports, independently prepared by Lipper, which included a
comprehensive analysis of the Fund's performance. The Board also reviewed a
narrative and statistical analysis of the Lipper data that was prepared by
BlackRock, which analyzed various factors that affect Lipper's rankings. In
connection with its review, the Board received and reviewed information
regarding the investment performance of the Fund as compared to a representative
group of similar funds as determined by Lipper and to all funds in the Fund's
applicable Lipper category. The Board was provided with a description of the
methodology used by Lipper to select peer funds. The Board regularly reviews the
performance of the Fund throughout the year. The Board attaches more importance
to performance over relatively long periods of time, typically three to five
years.
The Board noted with favor that BlackRock had generally avoided significant
credit quality and liquidity issues in the challenging fixed-income market that
prevailed during the last 18 months. The Fund ranked in the second, third and
third quartiles on a net basis against its Lipper peer universe for the one-,
three- and-five year periods ended December 31, 2007, respectively. The Board
expressed its concern with the Fund's longer-term performance, but noted more
recent investment results have been encouraging. The Board discussed the
processes and the resources dedicated to the management of the Fund with
BlackRock's senior management and will continue its ongoing dialogue with
BlackRock on the Fund's performance. There was discussion of the negative impact
on performance of investment decisions in respect of duration, yield curve
positioning and cash positions. The Board considered BlackRock's planned changes
in its fixed-income organization.
C. Consideration of the Advisory Fees and the Cost of the Services and Profits
to be Realized by BlackRock and its Affiliates from the Relationship with the
Fund: The Board, including the Independent Directors, reviewed the Fund's
contractual advisory fee rates compared with the other funds in its Lipper
category. It also compared the Fund's total expenses to those of other
comparable funds. The Board considered the
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 35
Disclosure of Investment Advisory Agreement and Subadvisory Agreement
(concluded)
services provided and the fees charged by BlackRock to other types of clients
with similar investment mandates, including separately managed institutional
accounts.
The Board received and reviewed statements relating to BlackRock's financial
condition and profitability with respect to the services it provided to the
Fund. The Board was also provided with a profitability analysis that detailed
the revenues earned and the expenses incurred by BlackRock and certain
affiliates that provide services to the Fund. The Board reviewed BlackRock's
profitability with respect to the Fund and each fund the Board currently
oversees for the year ended December 31, 2007 compared to aggregated
profitability data provided for the year ended December 31, 2005.
In addition, the Board considered the cost of the services provided to the Fund
by BlackRock, and BlackRock's and its affiliates' profits relating to the
management and distribution of the Fund and the other funds advised by BlackRock
and its affiliates. As part of its analysis, the Board reviewed BlackRock's
methodology in allocating its costs to the management of the Fund and concluded
that there was a reasonable basis for the allocation. The Board also considered
whether BlackRock has the financial resources necessary to attract and retain
high-quality investment management personnel to perform its obligations under
the Agreements and to continue to provide the high quality of services that are
expected by the Board.
D. Economies of Scale: The Board, including the Independent Directors,
considered the extent to which economies of scale might be realized as the
assets of the Fund increase and whether there should be changes in the advisory
fee rate or structure in order to enable the Fund to partici pate in these
economies of scale. The Board, including the Independent Directors, considered
whether the shareholders would benefit from economies of scale and whether there
was potential for future realization of economies with respect to the Fund. The
Board considered that the funds in the BlackRock fund complex share common
resources and, as a result, an increase in the overall size of the complex could
permit each fund to incur lower expenses than it would otherwise as stand-alone
entities. The Board also considered the anticipated efficiencies in the
processes of BlackRock's overall operations as it continues to add personnel and
commit capital to expand the scale of operations. The Board found, based on its
review of comparable funds, that the Fund's management fee is appropriate in
light of the scale of the Fund.
E. Other Factors: The Board also took into account other ancillary or "fall-out"
benefits that BlackRock may derive from its relationship with the Fund, both
tangible and intangible, such as BlackRock's ability to leverage its investment
professionals that manage other portfolios, an increase in BlackRock's profile
in the investment advisory community, and the engagement of BlackRock's
affiliates as service providers to the Fund, including for administrative,
transfer agency and distribution services. The Board also noted that BlackRock
may use third-party research obtained by soft dollars generated by certain
mutual fund transactions to assist itself in managing all or a number of its
other client accounts.
In connection with its consideration of the Agreements, the Board also received
information regarding BlackRock's brokerage and trade execution practices
throughout the year.
Conclusion
The Board approved the continuation of the Advisory Agreement between the
Advisor and the Fund for a one-year term ending June 30, 2009 and the
Subadvisory Agreement between the Advisor and BlackRock Financial Management,
Inc. for a one-year term ending June 30, 2009. Based upon its evaluation of all
these factors in their totality, the Board, including the Independent Directors,
was satisfied that the terms of the Agreements were fair and reasonable and in
the best interest of the Fund and the Fund's shareholders. In arriving at a
decision to approve the Agreements, the Board did not identify any single factor
or group of factors as all-important or controlling, but considered all factors
together. The Independent Directors were also assisted by the advice of
independent legal counsel in making this determination. The contractual fee
arrangements for the Fund reflect the result of several years of review by the
Directors and predecessor Directors, and discussions between the Directors (and
predecessor Directors) and BlackRock. Certain aspects of the arrangements may be
the subject of more attention in some years than in others, and the Directors'
conclusions may be based in part on their consideration of these arrangements in
prior years.
36 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
Officers and Directors
Robert M. Hernandez, Chairman of the Board, Director and
Member of the Audit Committee
Fred G. Weiss, Vice Chairman of the Board, Chairman of the Audit
Committee and Director
James H. Bodurtha, Director
Bruce R. Bond, Director
Donald W. Burton, Director
Richard S. Davis, Director
Stuart E. Eizenstat, Director
Laurence D. Fink, Director
Kenneth A. Froot, Director
Henry Gabbay, Director
John F. O'Brien, Director
Roberta Cooper Ramo, Director
Jean Margo Reid, Director
David H. Walsh, Director
Richard R. West, Director and Member of the Audit Committee
Donald C. Burke, Fund President and Chief Executive Officer
Anne F. Ackerley, Vice President
Neal J. Andrews, Chief Financial Officer
Jay M. Fife, Treasurer
Brian P. Kindelan, Chief Compliance Officer of the Fund
Howard B. Surloff, Secretary
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
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.
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 37
Additional Information (concluded)
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
Householding
The Fund will mail only one copy of shareholder documents, including
prospectuses, annual and semi-annual reports and proxy statements, to
shareholders with multiple accounts at the same address. This practice is
commonly called "householding" and 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/Master LLC 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.
Availability of Proxy Voting Record
Information about how the Fund/Master LLC votes proxies relating to securities
held in the Fund's/Master LLC'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/Master LLC files its complete schedule of portfolio holdings with the
SEC for the first and third quarters of each fiscal year on Form N-Q. The
Fund's/Master LLC'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/Master
LLC's Forms N-Q may also be obtained upon request and without charge by calling
(800) 441-7762.
38 BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008
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BlackRock Global Resources Portfolio
BlackRock Global SmallCap Fund
BlackRock Health Sciences Opportunities Portfolio
BlackRock Healthcare Fund
BlackRock Index Equity Portfolio*
BlackRock International Fund
BlackRock International Diversification Fund
BlackRock International Index Fund
BlackRock International Opportunities Portfolio
BlackRock International Value Fund
BlackRock Large Cap Core Fund
BlackRock Large Cap Core Plus Fund
BlackRock Large Cap Growth Fund
BlackRock Large Cap Value Fund
BlackRock Latin America Fund
BlackRock Mid-Cap Growth Equity Portfolio
BlackRock Mid-Cap Value Equity Portfolio
BlackRock Mid Cap Value Opportunities Fund
BlackRock Natural Resources Trust
BlackRock Pacific Fund
BlackRock Science & Technology
Opportunities Portfolio
BlackRock Small Cap Core Equity Portfolio
BlackRock Small Cap Growth Equity Portfolio
BlackRock Small Cap Growth Fund II
BlackRock Small Cap Index Fund
BlackRock Small Cap Value Equity Portfolio*
BlackRock Small/Mid-Cap Growth Portfolio
BlackRock S&P 500 Index Fund
BlackRock U.S. Opportunities Portfolio
BlackRock Utilities and Telecommunications Fund
BlackRock Value Opportunities Fund
Fixed Income Funds
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 currently distributed by BlackRock Investments, Inc.
You should consider the investment objectives, risks, charges and expenses of
the funds under consideration carefully before investing. Each fund's prospectus
contains this and other information and is available at www.blackrock.com or by
calling (800) 882-0052 or from your financial advisor. The prospectus should be
read carefully before investing.
BLACKROCK SHORT-TERM BOND FUND NOVEMBER 30, 2008 39
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-3070-11/08
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this
semi-annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Investments
(a) The 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 that 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
15(d)-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 last fiscal half-year 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 - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and
Short-Term Bond Master Portfolio of Short-Term Bond Master 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: January 20, 2009
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: January 20, 2009
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: January 20, 2009