N-CSR 1 e602558_ncsr-shortterm.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-10053 811-10089 Name of Fund: BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. Short-Term Bond Master Portfolio of Short-Term Bond Master LLC Fund Address: P.O. Box 9011 Princeton, NJ 08543-9011 Name and address of agent for service: Robert C. Doll, Jr., Chief Executive Officer, BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and Short-Term Bond Master Portfolio of Short-Term Bond Master 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: 06/30/07 Date of reporting period: 07/01/06 - 06/30/07 Item 1 - Report to Stockholders EQUITIES FIXED INCOME REAL ESTATE LIQUIDITY ALTERNATIVES BLACKROCK SOLUTIONS BlackRock Short-Term BLACKROCK Bond Fund OF BLACKROCK SHORT-TERM BOND SERIES, INC. ANNUAL REPORT | JUNE 30, 2007 NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE BlackRock Short-Term Bond Fund Important Tax Information Of the ordinary income distributions paid by BlackRock Short-Term Bond Fund during the year ended June 30, 2007, 2.92% was attributable to federal obligations. In calculating the foregoing percentage, Fund expenses have been allocated on a pro rata basis. The law varies in each state as to whether and what percentage of dividend income attributable to federal obligations is exempt from state income tax. We recommend that you consult your tax adviser to determine if any portion of the dividends you received is exempt from state income taxes. The following information is provided with respect to the ordinary income distributions paid monthly by BlackRock Short-Term Bond Fund for the fiscal year ended June 30, 2007: -------------------------------------------------------------------------------- Interest-Related Dividends for Non-U.S. Residents -------------------------------------------------------------------------------- Month Paid: July 2006 ......................................... 92.20%* August 2006 - December 2006 ....................... 95.66%* January 2007 - June 2007 .......................... 92.79%* -------------------------------------------------------------------------------- * Represents the portion of the taxable ordinary income dividends eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations. Change in Portfolio's Independent Registered Public Accounting Firm On August 28, 2006, Ernst & Young llp ("E&Y") resigned as the Independent Registered Public Accounting Firm of BlackRock Short-Term Bond Fund (the "Fund"). E&Y's report on the financial statements of the Fund for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with its audits for the two most recent fiscal years through August 28, 2006 (1) there were no disagreements with E&Y on any matter of accounting principle or practice, financial statement disclosure or auditing scope or procedure, whereby such disagreements, if not resolved to the satisfaction of E&Y, would have caused them to make reference to the subject matter of the disagreements in connection with their report on the financial statements for such years; and (2) there have been no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K). The Audit Committee of the Fund's Board of Directors approved the engagement of Deloitte & Touche llp as the Fund's Independent Registered Public Accounting Firm for the fiscal year ending June 30, 2007. 2 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 A Letter to Shareholders Dear Shareholder At the mid-point of 2007, investor sentiment appeared quite buoyant, notwithstanding some undertones of caution. For equity markets, positive momentum as the year began was interrupted by a notable but transitory set-back at the end of February. Markets resumed their ascent through May, but entered a trading range in June as investors began to question the sustainability of the rally. For the most part, equities found support in robust merger-and-acquisition activity, healthy global economies, tame inflation, relatively low interest rates, still-positive earnings growth and attractive valuations. These tailwinds prevailed over such headwinds as a weakening U.S. economy, slowing housing market, credit-related lending problems, escalating geopolitical concerns and high energy prices, leading the Standard & Poor's (S&P) 500 Index to a new record high in May. Meanwhile, turmoil in the subprime mortgage market and generally mixed economic signals weighed on bonds. In June, bond prices dropped precipitously as long-term yields rose to their highest levels in five years. The 10-year Treasury yield, which began 2007 at 4.68%, reached nearly 5.30% in mid-June before retracing to 5.03% by month's end. Notably, this year has brought some re-steepening of the yield curve, which had been flat to inverted throughout 2006. Still, at the end of June, yields along the curve remained below the federal funds rate of 5.25%, the level at which the Federal Reserve Board (the Fed) has left it since first pausing in August 2006. While first-quarter gross domestic product growth of 0.7% represented the slowest rate of expansion since 2002, the Fed reiterated that inflation, not a slowing economy, remains its primary concern. Many observers interpreted the Fed's reaction to mean that the economy has hit its low and is bound for renewed strength, thereby reducing the likelihood of an interest rate cut in the near future. Against this backdrop, the major equity market indexes posted strong returns for the annual and semi-annual periods ended June 30, 2007, while fixed income assets were more mixed:
Total Returns as of June 30, 2007 6-month 12-month ============================================================================================================== U.S. equities (S&P 500 Index) + 6.96% +20.59% -------------------------------------------------------------------------------------------------------------- Small cap U.S. equities (Russell 2000 Index) + 6.45 +16.43 -------------------------------------------------------------------------------------------------------------- International equities (MSCI Europe, Australasia, Far East Index) +10.74 +27.00 -------------------------------------------------------------------------------------------------------------- Fixed income (Lehman Brothers U.S. Aggregate Bond Index) + 0.98 + 6.12 -------------------------------------------------------------------------------------------------------------- Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 0.14 + 4.69 -------------------------------------------------------------------------------------------------------------- High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index) + 2.96 +11.22 --------------------------------------------------------------------------------------------------------------
We expect market volatility to linger throughout the second half of 2007. As you navigate the uncertainties, we encourage you to review your investment goals with your financial professional and to make portfolio changes, as needed. For more market insight, we invite you to view "What's Ahead in 2007: The Second-Quarter Update" and "Are You Prepared for Volatility?" at www.blackrock.com/funds. We thank you for entrusting BlackRock with your investment assets, and we look forward to continuing to serve you in the months and years ahead. Sincerely, /s/ Robert C. Doll, Jr. Robert C. Doll, Jr. Fund President and Director BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 3 A Discussion With Your Fund's Portfolio Managers We maintained our focus on mortgage-related securities and believe the Fund is positioned to perform well upon a return to strength in that market. How did the Fund perform during the fiscal year in light of the existing market conditions? For the 12-month period ended June 30, 2007, BlackRock Short Term Bond Fund's Institutional, Investor A, Investor B, Investor C, Investor C1 and Class R Shares had total returns of +4.59%, +4.20%, +3.61%, +3.39%, +3.62% and +3.91%, respectively. For the same period, the Fund's unmanaged benchmark, the Merrill Lynch 1 - 3 Year Corporate and Government Index, returned +5.32%. (Fund results shown do not reflect sales charges and would be lower if sales charges were included. Complete performance information can be found on pages 6 - 8 of this report to shareholders.) Amid ample volatility, bond yields generally moved lower over the past 12 months as their prices, which move opposite of yields, increased. As the 12-month period began, bond prices were improving (and yields falling) against a backdrop of weakening economic growth. The bond price improvement accelerated in response to the Federal Reserve Board's (the Fed) decision in August 2006 to keep its target interest rate on hold at 5.25% after 17 consecutive interest rate hikes since mid-2004. The rally continued in the fall as oil prices moderated and gross domestic product growth slowed. By the end of December 2006, 10-year U.S. Treasury bond yields had fallen to 4.71%, a decline of 44 basis points (.44%) from June 30. The latter six months of the period were more challenging for fixed income markets in general. Strong U.S. equity markets, continued moderate employment growth, higher bond yields overseas and growing investor conviction that the Fed would keep interest rates steady for the remainder of 2007 combined to push bond prices lower, erasing much of the market's earlier gains. The 10-year Treasury yield increased more than 30 basis points during the first six months of 2007, as bond prices correspondingly fell. June was particularly volatile, with the 10-year Treasury yield reaching 5.30%, its highest level in more than five years, before retracing to 5.03% by period-end. During this time, a crisis in the subprime mortgage market rekindled fears of a housing-induced slowdown in the United States and led to increased financial market volatility and expanded risk premiums. With the jump in volatility came a decline in investor risk appetite. Although the subprime fears had eased somewhat by second quarter 2007, credit spreads had widened from their historically tight levels. Mortgage securities, even the high-quality, securitized product in which we invest, were among the most punished. At the end of June 2007, 30-year Treasury bond yields stood at 5.12%, a decline of 7 basis points year-over-year, while 10-year Treasury yields fell 12 basis points to 5.03% during the same period. Shorter-term securities outperformed longer-dated bonds on a year-over-year basis, with two-year Treasury yields falling nearly 30 basis points to 4.87%. The market's movement over the course of the 12 months resulted in some renormalization (that is, resteepening) of the yield curve, which had been flat to inverted for much of 2006. What factors most influenced Fund performance? The Fund's underperformance of the benchmark for the 12-month period is attributed to a few factors. The first was our duration positioning. While we adjusted the Fund's duration (a measure of interest rate sensitivity) throughout the period based on our assessment of interest rate direction, the volatile nature of the market meant that at times we found ourselves with inopportune duration biases. Also detracting from performance relative to the benchmark was an opportunistic position we had established in the Japanese yen. Given the yen's decline versus the U.S. dollar during the period, this currency position failed to perform as anticipated. Finally, in recent months, the aforementioned widening in credit spreads was most evident in higher-quality assets, such as mortgage securities, and our exposure to this asset class detracted from performance. The spread widening later crept into the credit markets (that is, investment-grade and non-investment-grade corporate bonds), causing our exposures there to detract marginally from performance in the final month of the period as well. Prior to this, spreads had remained at historically tight levels and the Fund benefited from its ample positions in adjustable-rate mortgages (ARMs) and commercial mortgage-backed securities (CMBS). We would expect a return to strength among mortgage securities once the market reaffirms their value as a high-quality asset with the potential to offer yields beyond those available in the Treasury market alone. 4 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 On the positive side of the ledger, Fund performance benefited from some investments we had made based on our expectation for a resteepening yield curve. In addition, we had reduced exposure to the subprime segment of the mortgage market dramatically in the fall of 2006, and this proved quite advantageous as that market collapsed in early 2007. What changes were made to the portfolio during the period? Upon assuming management of the Fund in October, we established a short duration bias in the portfolio. We have since moved to a neutral to slightly long duration relative to our benchmark, reflecting our expectation for a more range-bound interest rate environment, but also our relatively balanced assessment of the market. Essentially, we believe that rising financing costs could lead to problems in the credit market, which saw aggressive leveraged buyout and recapitalization activity when interest rates were low. There are fears that a deterioration in the credit market could impact the macro-economic statistics. At the same time, the global economy remains strong, inflation is trending slowly downward, manufacturing activity is picking up thanks to the solid global growth, and corporate earnings are positive. All of this points toward a rebound in the U.S. economy in the second half of the year. So, we have these countertrends in the fixed income market, where there is a deleveraging effect that could ultimately bleed into the economy and, at the same time, there is strong global growth. We do not want to be short duration in an environment where credit could underperform, but at the same time we have already priced in the likelihood of the Fed cutting interest rates in the future. At 4.87% on June 30, 2007, the two-year Treasury rate was well below the federal funds rate of 5.25%. Under these circumstances, we believe a neutral to slightly long duration posture is most prudent and could be a relative advantage compared to funds with a more extreme duration bias. In terms of specific fixed income sectors, we viewed the recent spread widening in the mortgage market as an opportunity to increase our position in what we consider to be a very high-quality fixed income asset with yield-enhancement potential. Over the course of the full year, the Fund's exposure to ARMs, CMBS and mortgage passthrough securities was increased considerably. Conversely, as mentioned earlier, we sold a number of subprime-related mortgage securities in October 2006, a move that ultimately proved beneficial. We decreased exposure to U.S. agency securities dramatically, as we did not find a lot of relative value in these assets compared to other opportunities in the fixed income markets. We also trimmed exposure to credit product, both investment-grade and non-investment-grade. With these changes, we have essentially structured a more conservative portfolio, but also enhanced the Fund's credit quality and liquidity. How would you characterize the Fund's position at the close of the period? Compared to its benchmark, the Fund ended the period with underweight positions in U.S. Treasury and agency securities, reflecting our preference for mortgage-related product, including ARMs, CMBS and other asset-backed securities (ABS). Our negligible exposure to agency securities compared to 26% in the benchmark, while our 20% allocation to ABS compared to 0% in the benchmark. In terms of credit exposure, the Fund's 22.5% allocation at period-end compared to 19% in the benchmark, although our credit exposure is much shorter in duration than that of the benchmark. As such, should credit spreads widen further, our bonds should outperform from a price perspective. Finally, the Fund ended the period with a 1% weighting in high yield bonds, compared to 0% in the index. Our duration remains relatively neutral, reflecting the fairly balanced outlook described above. Keith Anderson Portfolio Manager Scott Amero Portfolio Manager Todd Kopstein Portfolio Manager July 18, 2007 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 5 Performance Data About Fund Performance Effective October 2, 2006, the Fund's Class A, Class B, Class C and Class I Shares were redesignated Investor A, Investor B, Investor C1, and Institutional Shares, respectively. Class R Shares did not change their designation. Also, effective October 2, 2006, the Fund's Investor C Shares commenced operations. As previously communicated to shareholders, new sales charge schedules came into effect at the same time for certain of these classes. The Fund has multiple classes of shares: o Institutional Shares are not subject to any 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 were those of Institutional Shares (which have no distribution or service fees) restated to reflect the Investor C Share fees. o Investor C1 Shares are subject to a distribution fee of 0.65% per year and a service fee of 0.25% per year. In addition, Investor C1 Shares are subject to a 1% contingent deferred sales charge if redeemed within one year of purchase. o Class R Shares do not incur a maximum initial sales charge (front-end load) or deferred sales charge. These shares are subject to a distribution fee of 0.25% per year and a service fee of 0.25% per year. Class R Shares are available only to certain retirement plans. Prior to inception, Class R Share performance results are those of Institutional Shares (which have no distribution or service fees) restated to reflect the Class R Share fees. The performance results for Investor A, Investor B, Investor C, Investor C1 and Institutional Shares depicted on pages 7 and 8 are those of BlackRock Short-Term Bond Fund and, prior to October 6, 2000 (commencement of operations), share performance results were those of Institutional Shares of a predecessor Fund (which have no distribution or service fees) restated to reflect each share 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 to obtain performance data current to the most recent month-end. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Figures shown in each of the following tables assume reinvestment of all dividends and capital gain distributions, if any, at net asset value on the payable date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Dividends paid to each class of shares will vary because of the different levels of service, distribution and transfer agency fees applicable to each class, which are deducted from the income available to be paid to shareholders. 6 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Performance Data (continued) Recent Performance Results*
6-Month 12-Month 10-Year Standardized As of June 30, 2007 Total Return Total Return Total Return 30-Day Yield ============================================================================================================================ Institutional Shares* +1.54% +4.59% +53.44% 4.53% ---------------------------------------------------------------------------------------------------------------------------- Investor A Shares* +1.39 +4.20 +49.52 4.00 ---------------------------------------------------------------------------------------------------------------------------- Investor B Shares* +1.06 +3.61 +40.00 3.49 ---------------------------------------------------------------------------------------------------------------------------- Investor C Shares* +0.89 +3.39 +38.67 2.89 ---------------------------------------------------------------------------------------------------------------------------- Investor C1 Shares* +1.07 +3.62 +39.95 3.53 ---------------------------------------------------------------------------------------------------------------------------- Class R Shares* +1.13 +3.91 +46.78 3.73 ---------------------------------------------------------------------------------------------------------------------------- Merrill Lynch 1 - 3 Year Corporate & GovernmentIndex** +2.18 +5.32 +60.90 -- ----------------------------------------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results shown would be lower if a sales charge was included. Cumulative total investment returns are based on changes in net asset values for the periods shown, and assume reinvestment of all dividends and capital gains distributions at net asset value on the payable date. ** This unmanaged Index is comprised of investment grade corporate bonds and U.S. Treasury and agency securities with a maturity ranging from one year to three years. BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 7 Performance Data (concluded) Short-Term Bond Fund BlackRock Short-Term Bond Fund--Edgar Total Return Based on a $10,000 Investment A line graph depicting the growth of an investment in the Fund's Institutional Shares, Investor A Shares, Investor B Shares, Investor C Shares, Investor C1 Shares and Class R Shares compared to growth of an investment in the Merrill Lynch 1 - 3 Year Corporate & Government Index. Values are from June 1997 to June 2007.
Merrill Lynch 1 - 3 Year Corporate Institutional Investor A Investor B Investor C Investor C1 Class R & Government Shares*+ Shares*+ Shares*+ Shares*+ Shares*+ Shares*+ Index++ 6/97 $10,000 $ 9,700 $10,000 $10,000 $10,000 $10,000 $10,000 6/98 $10,695 $10,348 $10,599 $10,589 $10,599 $10,642 $10,685 6/99 $11,052 $10,667 $10,856 $10,834 $10,856 $10,943 $11,239 6/00 $11,647 $11,214 $11,339 $11,305 $11,339 $11,475 $11,791 6/01 $12,591 $12,072 $12,136 $12,099 $12,129 $12,343 $12,902 6/02 $13,180 $12,618 $12,591 $12,540 $12,584 $12,856 $13,782 6/03 $13,919 $13,294 $13,192 $13,112 $13,172 $13,572 $14,558 6/04 $14,032 $13,382 $13,178 $13,087 $13,158 $13,649 $14,664 6/05 $14,368 $13,668 $13,369 $13,267 $13,349 $13,906 $14,986 6/06 $14,671 $13,919 $13,512 $13,412 $13,506 $14,126 $15,277 6/07 $15,344 $14,504 $14,000 $13,867 $13,995 $14,678 $16,090
* Assuming maximum sales charge, if any, transaction costs and other operating expenses, including advisory fees. + The Fund invests all of its assets in Short-Term Bond Master Portfolio of Short-Term Bond Master LLC. The Portfolio invests in bonds of varying maturities with a portfolio duration of one to three years. ++ This unmanaged Index is comprised of investment grade corporate bonds and U.S. Treasury and agency securities with a maturity ranging from one year to three years. Past performance is not indicative of future results. Average Annual Total Return Return ================================================================================ Institutional Shares ================================================================================ One Year Ended 6/30/07 +4.59% -------------------------------------------------------------------------------- Five Years Ended 6/30/07 +3.09 -------------------------------------------------------------------------------- Ten Years Ended 6/30/07 +4.37 -------------------------------------------------------------------------------- Return Without Return With Sales Charge Sales Charge* ================================================================================ Investor A Shares ================================================================================ One Year Ended 6/30/07 +4.20% +1.07% -------------------------------------------------------------------------------- Five Years Ended 6/30/07 +2.82 +2.20 -------------------------------------------------------------------------------- Ten Years Ended 6/30/07 +4.10 +3.79 -------------------------------------------------------------------------------- Return Return Without CDSC With CDSC+++ ================================================================================ Investor B Shares+ ================================================================================ One Year Ended 6/30/07 +3.61% -0.39% -------------------------------------------------------------------------------- Five Years Ended 6/30/07 +2.14 +1.78 -------------------------------------------------------------------------------- Ten Years Ended 6/30/07 +3.42 +3.42 -------------------------------------------------------------------------------- Return Return Without CDSC With CDSC+++ ================================================================================ Investor C Shares++ ================================================================================ One Year Ended 6/30/07 +3.39% +2.39% -------------------------------------------------------------------------------- Five Years Ended 6/30/07 +2.03 +2.03 -------------------------------------------------------------------------------- Ten Years Ended 6/30/07 +3.32 +3.32 -------------------------------------------------------------------------------- Return Return Without CDSC With CDSC+++ ================================================================================ Investor C1 Shares++ ================================================================================ One Year Ended 6/30/07 +3.62% +2.62% -------------------------------------------------------------------------------- Five Years Ended 6/30/07 +2.15 +2.15 -------------------------------------------------------------------------------- Ten Years Ended 6/30/07 +3.42 +3.42 -------------------------------------------------------------------------------- * Assuming maximum sales charge of 3%. + Maximum contingent deferred sales charge is 4% and is reduced to 0% after six years. Return ================================================================================ Class R Shares ================================================================================ One Year Ended 6/30/07 +3.91% -------------------------------------------------------------------------------- Five Years Ended 6/30/07 +2.69 -------------------------------------------------------------------------------- Ten Years Ended 6/30/07 +3.91 -------------------------------------------------------------------------------- ++ Maximum contingent deferred sales charge is 1% and is reduced to 0% after one year. +++ Assuming payment of applicable contingent deferred sales charge. 8 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Disclosure of Expenses Shareholders of this Fund may incur the following charges: (a) expenses related to transactions, including sales charges, redemption fees and exchange fees; and (b) operating expenses including advisory fees, distribution fees including 12b-1 fees, and other Fund expenses. The following example (which is based on a hypothetical investment of $1,000 invested on January 1, 2007 and held through June 30, 2007) is intended to assist shareholders both in calculating expenses based on an investment in the Fund and in comparing these expenses with similar costs of investing in other mutual funds. The first table below provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number in the first line under the heading entitled "Expenses Paid During the Period." The second table below provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in this Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in other funds' shareholder reports. The expenses shown in the table are intended to highlight shareholders' ongoing costs only and do not reflect any transactional expenses, such as sales charges, redemption fees or exchange fees. Therefore, the second table is useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
Expenses Paid Beginning Ending During the Period* Account Value Account Value January 1, 2007 January 1, 2007 June 30, 2007 to June 30, 2007 ================================================================================================================== Actual ================================================================================================================== Institutional $1,000 $1,015.40 $ 3.80 ------------------------------------------------------------------------------------------------------------------ Investor A $1,000 $1,013.90 $ 5.34 ------------------------------------------------------------------------------------------------------------------ Investor B $1,000 $1,010.60 $ 8.62 ------------------------------------------------------------------------------------------------------------------ Investor C $1,000 $1,008.90 $10.71 ------------------------------------------------------------------------------------------------------------------ Investor C1 $1,000 $1,010.70 $ 8.57 ------------------------------------------------------------------------------------------------------------------ Class R $1,000 $1,011.30 $ 6.93 ================================================================================================================== Hypothetical (5% annual return before expenses)** ================================================================================================================== Institutional $1,000 $1,021.03 $ 3.81 ------------------------------------------------------------------------------------------------------------------ Investor A $1,000 $1,019.49 $ 5.36 ------------------------------------------------------------------------------------------------------------------ Investor B $1,000 $1,016.22 $ 8.65 ------------------------------------------------------------------------------------------------------------------ Investor C $1,000 $1,014.14 $10.74 ------------------------------------------------------------------------------------------------------------------ Investor C1 $1,000 $1,016.27 $ 8.60 ------------------------------------------------------------------------------------------------------------------ Class R $1,000 $1,017.91 $ 6.95 ------------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the expense ratio for the class (.76% for Institutional, 1.07% for Investor A, 1.73% for Investor B, 2.15% for Investor C, 1.72% for Investor C1 and 1.39% for Class R), multiplied by the average account value over the period, multiplied by 182/365 (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 feeder fund and master portfolio in which it invests. ** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the most recent fiscal half year divided by 365. BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 9 Statement of Assets and Liabilities BlackRock Short-Term Bond Fund
As of June 30, 2007 =================================================================================================================================== Assets ----------------------------------------------------------------------------------------------------------------------------------- Investment in Short-Term Bond Master Portfolio (the "Portfolio"), at value (identified cost -- $681,040,369) ................................................ $ 676,700,695 Prepaid expenses ................................................................... 16,888 ------------- Total assets ....................................................................... 676,717,583 ------------- =================================================================================================================================== Liabilities ----------------------------------------------------------------------------------------------------------------------------------- Payables: Dividends to shareholders ...................................................... $ 2,199,452 Distributor .................................................................... 202,423 Administrator .................................................................. 142,797 Other affiliates ............................................................... 220,741 2,765,413 ------------- Accrued expenses ................................................................... 43,997 ------------- Total liabilities .................................................................. 2,809,410 ------------- =================================================================================================================================== Net Assets ----------------------------------------------------------------------------------------------------------------------------------- Net assets ......................................................................... $ 673,908,173 ============= =================================================================================================================================== Net Assets Consist of ----------------------------------------------------------------------------------------------------------------------------------- Institutional Shares of Common Stock, $.01 par value, 100,000,000 shares authorized ................................................................ $ 201,218 Investor A Shares of Common Stock, $.01 par value, 100,000,000 shares authorized ................................................................ 287,520 Investor B Shares of Common Stock, $.01 par value, 200,000,000 shares authorized ................................................................ 42,618 Investor C Shares of Common Stock, $.01 par value, 100,000,000 shares authorized ................................................................ 24,027 Investor C1 Shares of Common Stock, $.01 par value, 100,000,000 shares authorized ................................................................ 112,559 Class R Shares of Common Stock, $.01 par value, 200,000,000 shares authorized ................................................................ 8,932 Paid-in capital in excess of par ................................................... 706,545,280 Accumulated distributions in excess of investment income -- net .................... $ (19,940) Accumulated realized capital losses allocated from the Portfolio -- net ............ (28,954,367) Unrealized depreciation allocated from the Portfolio -- net ........................ (4,339,674) ------------- Total accumulated losses -- net .................................................... (33,313,981) ------------- Net Assets ......................................................................... $ 673,908,173 ============= =================================================================================================================================== Net Asset Value ----------------------------------------------------------------------------------------------------------------------------------- Institutional -- Based on net assets of $200,542,398 and 20,121,760 shares outstanding ............................................................... $ 9.97 ============= Investor A -- Based on net assets of $286,395,554 and 28,752,027 shares outstanding ............................................................... $ 9.96 ============= Investor B -- Based on net assets of $42,358,095 and 4,261,806 shares outstanding ............................................................... $ 9.94 ============= Investor C -- Based on net assets of $23,886,081 and 2,402,740 shares outstanding ............................................................... $ 9.94 ============= Investor C1 -- Based on net assets of $111,843,961 and 11,255,877 shares outstanding ............................................................... $ 9.94 ============= Class R -- Based on net assets of $8,882,084 and 893,160 shares outstanding ............................................................... $ 9.94 =============
See Notes to Financial Statements. 10 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Statement of Operations BlackRock Short-Term Bond Fund
For the Year Ended June 30, 2007 =================================================================================================================================== Investment Income ----------------------------------------------------------------------------------------------------------------------------------- Net investment income allocated from the Portfolio: Interest ....................................................................... $ 32,812,868 Dividends ...................................................................... 22,961 Securities lending -- net ...................................................... 17,698 Expenses ....................................................................... (1,873,389) ------------- Total income ....................................................................... 30,980,138 ------------- =================================================================================================================================== Expenses ----------------------------------------------------------------------------------------------------------------------------------- Administration fees ................................................................ $ 1,681,744 Service and distribution fees -- Investor C1 ....................................... 1,150,701 Service fees -- Investor A ......................................................... 697,008 Transfer agent fees -- Investor A .................................................. 533,785 Service and distribution fees -- Investor B ........................................ 450,583 Transfer agent fees -- Institutional ............................................... 256,389 Transfer agent fees -- Investor C1 ................................................. 229,127 Printing and shareholder reports ................................................... 148,115 Transfer agent fees -- Investor B .................................................. 100,008 Service and distribution fees -- Investor C ........................................ 93,465 Registration fees .................................................................. 85,741 Transfer agent fees -- Investor C .................................................. 82,646 Service and distribution fees -- Class R ........................................... 35,659 Professional fees .................................................................. 22,362 Transfer agent fees -- Class R ..................................................... 20,210 Other .............................................................................. 16,761 ------------- Total expenses ..................................................................... 5,604,304 ------------- Investment income -- net ........................................................... 25,375,834 ------------- =================================================================================================================================== Realized & Unrealized Gain (Loss) Allocated from the Portfolio -- Net ----------------------------------------------------------------------------------------------------------------------------------- Realized gain (loss) on: Investments -- net ............................................................. (5,704,143) Financial futures contracts and swaps -- net ................................... (1,836,808) Foreign currency transactions -- net ........................................... 203,618 Options written -- net ......................................................... 290,320 (7,047,013) ------------- Change in unrealized appreciation/depreciation on: Investments -- net ............................................................. 9,731,460 Financial futures contracts and swaps -- net ................................... (220,553) Foreign currency transactions -- net ........................................... (130,269) Options written -- net ......................................................... (142,129) 9,238,509 ------------------------------- Total realized and unrealized gain -- net .......................................... 2,191,496 ------------- Net Increase in Net Assets Resulting from Operations ............................... $ 27,567,330 =============
See Notes to Financial Statements. BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 11 Statements of Changes in Net Assets BlackRock Short-Term Bond Fund
For the Year Ended June 30, ------------------------------- Increase (Decrease) in Net Assets: 2007 2006 =================================================================================================================================== Operations ----------------------------------------------------------------------------------------------------------------------------------- Investment income -- net ........................................................... $ 25,375,834 $ 22,254,247 Realized loss -- net ............................................................... (7,047,013) (2,431,805) Change in unrealized appreciation/depreciation -- net .............................. 9,238,509 (8,404,614) ------------------------------- Net increase in net assets resulting from operations ............................... 27,567,330 11,417,828 ------------------------------- =================================================================================================================================== Dividends to Shareholders ----------------------------------------------------------------------------------------------------------------------------------- Investment income -- net: Institutional .................................................................. (8,402,051) (7,412,136) Investor A ..................................................................... (10,962,922) (8,619,359) Investor B ..................................................................... (1,626,913) (2,128,686) Investor C ..................................................................... (278,138) -- Investor C1 .................................................................... (4,176,074) (4,405,599) Class R ........................................................................ (261,107) (146,884) ------------------------------- Net decrease in net assets resulting from dividends to shareholders ................ (25,707,205) (22,712,664) ------------------------------- =================================================================================================================================== Capital Share Transactions ----------------------------------------------------------------------------------------------------------------------------------- Net decrease in net assets derived from capital share transactions ................. (5,691,836) (36,485,602) ------------------------------- =================================================================================================================================== Net Assets ----------------------------------------------------------------------------------------------------------------------------------- Total decrease in net assets ....................................................... (3,831,711) (47,780,438) Beginning of year .................................................................. 677,739,884 725,520,322 ------------------------------- End of year* ....................................................................... $ 673,908,173 $ 677,739,884 =============================== * Accumulated distributions in excess of investment income -- net .............. $ (19,940) $ (165,146) ===============================
See Notes to Financial Statements. 12 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Financial Highlights BlackRock Short-Term Bond Fund
Institutional --------------------------------------------------------------------------------- The following per share data For the Year Ended and ratios have been derived June 30, from information provided in --------------------------------------------------------------------------------- the financial statements. 2007 2006 2005 2004 2003 =============================================================================================================================== Per Share Operating Performance ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year ....... $ 9.94 $ 10.10 $ 10.16 $ 10.39 $ 10.17 --------------------------------------------------------------------------------- Investment income -- net** ............... .42 .36 .30 .31 .31 Realized and unrealized gain (loss) -- net .03 (.15) (.06) (.23) .25 --------------------------------------------------------------------------------- Total from investment operations ......... .45 .21 .24 .08 .56 --------------------------------------------------------------------------------- Less dividends and distributions: Investment income -- net ............. (.42) (.37) (.30) (.31) (.34) Realized gain -- net ................. -- -- -- -- -- --------------------------------------------------------------------------------- Total dividends and distributions ........ (.42) (.37) (.30) (.31) (.34) --------------------------------------------------------------------------------- Net asset value, end of year ............. $ 9.97 $ 9.94 $ 10.10 $ 10.16 $ 10.39 ================================================================================= =============================================================================================================================== Total Investment Return* ------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share ....... 4.59% 2.11% 2.39% .81% 5.61% ================================================================================= =============================================================================================================================== Ratios to Average Net Assets+ ------------------------------------------------------------------------------------------------------------------------------- Expenses, net of waiver and reimbursement and excluding reorganization expenses .. .72% .67% .69% .65% .70% ================================================================================= Expenses ................................. .72% .67% .69% .65% .75% ================================================================================= Investment income -- net ................. 4.16% 3.61% 2.93% 3.00% 3.29% ================================================================================= =============================================================================================================================== Supplemental Data ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in thousands) ... $ 200,542 $ 203,377 $ 208,777 $ 240,749 $ 182,654 ================================================================================= Portfolio turnover of the Portfolio ...... 108%++ 80% 75% 107% 198% ================================================================================= Investor A --------------------------------------------------------------------------------- The following per share data For the Year Ended and ratios have been derived June 30, from information provided in --------------------------------------------------------------------------------- the financial statements. 2007 2006 2005 2004 2003 =============================================================================================================================== Per Share Operating Performance ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year ....... $ 9.94 $ 10.10 $ 10.16 $ 10.38 $ 10.16 --------------------------------------------------------------------------------- Investment income -- net** ............... .39 .34 .27 .29 .31 Realized and unrealized gain (loss) -- net .02 (.16) (.05) (.22) .23 --------------------------------------------------------------------------------- Total from investment operations ......... .41 .18 .22 .07 .54 --------------------------------------------------------------------------------- Less dividends and distributions: Investment income -- net ............. (.39) (.34) (.28) (.29) (.32) Realized gain -- net ................. -- -- -- -- -- --------------------------------------------------------------------------------- Total dividends and distributions ........ (.39) (.34) (.28) (.29) (.32) --------------------------------------------------------------------------------- Net asset value, end of year ............. $ 9.96 $ 9.94 $ 10.10 $ 10.16 $ 10.38 ================================================================================= =============================================================================================================================== Total Investment Return* ------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share ....... 4.20% 1.84% 2.14% .66% 5.36% ================================================================================= =============================================================================================================================== Ratios to Average Net Assets+ ------------------------------------------------------------------------------------------------------------------------------- Expenses, net of waiver and reimbursement and excluding reorganization expenses .. 1.00% .91% .93% .89% .95% ================================================================================= Expenses ................................. 1.00% .91% .93% .89% 1.00% ================================================================================= Investment income -- net ................. 3.88% 3.37% 2.69% 2.78% 3.03% ================================================================================= =============================================================================================================================== Supplemental Data ------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in thousands) ... $ 286,396 $ 267,411 $ 235,886 $ 125,950 $ 152,780 ================================================================================= Portfolio turnover of the Portfolio ...... 108%++ 80% 75% 107% 198% =================================================================================
* Total investment returns exclude the effects of any sales charges. ** Based on average shares outstanding. + Includes the Fund's share of the Portfolio's allocated expenses and/or investment income -- net. ++ Excludes dollar roll transactions. See Notes to Financial Statements. BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 13 Financial Highlights (continued) BlackRock Short-Term Bond Fund
Investor B ------------------------------------------------------------ For the Year Ended June 30, The following per share data and ratios have been derived ------------------------------------------------------------ from information provided in the financial statements. 2007 2006 2005 2004 2003 =================================================================================================================================== Per Share Operating Performance ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of year .................... $ 9.91 $ 10.08 $ 10.14 $ 10.37 $ 10.14 ------------------------------------------------------------ Investment income -- net** ............................ .32 .27 .20 .22 .24 Realized and unrealized gain (loss) -- net ............ .02 (.16) (.05) (.23) .24 ------------------------------------------------------------ Total from investment operations ...................... .34 .11 .15 (.01) .48 ------------------------------------------------------------ Less dividends from investment income -- net .......... (.31) (.28) (.21) (.22) (.25) ------------------------------------------------------------ Net asset value, end of year .......................... $ 9.94 $ 9.91 $ 10.08 $ 10.14 $ 10.37 ============================================================ =================================================================================================================================== Total Investment Return* ----------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share .................... 3.61% 1.07% 1.46% (.11%) 4.77% ============================================================ =================================================================================================================================== Ratios to Average Net Assets+ ----------------------------------------------------------------------------------------------------------------------------------- Expenses, net of waiver and reimbursement and excluding reorganization expenses ............................. 1.67% 1.59% 1.61% 1.56% 1.61% ============================================================ Expenses .............................................. 1.67% 1.59% 1.61% 1.56% 1.66% ============================================================ Investment income -- net .............................. 3.21% 2.67% 2.00% 2.12% 2.00% ============================================================ =================================================================================================================================== Supplemental Data ----------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in thousands) ................ $ 42,358 $ 60,519 $ 97,090 $130,802 $139,688 ============================================================ Portfolio turnover of the Portfolio ................... 108%++ 80% 75% 107% 198% ============================================================
* Total investment returns exclude the effects of sales charges. ** Based on average shares outstanding. + Includes the Fund's share of the Portfolio's allocated expenses and/or investment income -- net. ++ Excludes dollar roll transactions. See Notes to Financial Statements. 14 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Financial Highlights (continued) BlackRock Short-Term Bond Fund
Investor C Investor C1 ---------- ----------------------------------------------------------- For the Period October 2, 2006++ to For the Year Ended June 30, The following per share data and ratios have been derived June 30, ----------------------------------------------------------- from information provided in the financial statements. 2007 2007 2006 2005 2004 2003 =================================================================================================================================== Per Share Operating Performance ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period .................. $ 10.01 $ 9.91 $ 10.07 $ 10.13 $ 10.36 $ 10.14 -------- ---------------------------------------------------------- Investment income -- net*** ........................... .19 .32 .27 .20 .22 .24 Realized and unrealized gain (loss) -- net ............ (.03) .04 (.15) (.05) (.23) .23 -------- ---------------------------------------------------------- Total from investment operations ...................... .16 .36 .12 .15 (.01) .47 -------- ---------------------------------------------------------- Less dividends from investment income -- net .......... (.23) (.33) (.28) (.21) (.22) (.25) -------- ---------------------------------------------------------- Net asset value, end of period ........................ $ 9.94 $ 9.94 $ 9.91 $ 10.07 $ 10.13 $ 10.36 ======== ========================================================== =================================================================================================================================== Total Investment Return** ----------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share .................... 1.57%@ 3.62% 1.17% 1.46% (.11%) 4.68% ======== ========================================================== =================================================================================================================================== Ratios to Average Net Assets+ ----------------------------------------------------------------------------------------------------------------------------------- Expenses, net of waiver and reimbursement and excluding reorganization expenses ............................. 2.09%* 1.66% 1.59% 1.60% 1.56% 1.61% ======== ========================================================== Expenses .............................................. 2.09%* 1.66% 1.59% 1.60% 1.56% 1.66% ======== ========================================================== Investment income -- net .............................. 2.81%* 3.24% 2.68% 2.01% 2.12% 2.37% ======== ========================================================== =================================================================================================================================== Supplemental Data ----------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) .............. $ 23,886 $111,844 $142,083 $179,290 $239,263 $263,066 ======== ========================================================== Portfolio turnover of the Portfolio ................... 108%+++ 108%+++ 80% 75% 107% 198% ======== ==========================================================
* Annualized. ** Total investment returns exclude the effects of sales charges. *** Based on average shares outstanding. + Includes the Fund's share of the Portfolio's allocated expenses and/or investment income -- net. ++ Commencement of operations. +++ Excludes dollar roll transactions. @ Aggregate total investment return. See Notes to Financial Statements. BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 15 Financial Highlights (concluded) BlackRock Short-Term Bond Fund
Class R ------------------------------------------------------------- For the For the Year Ended Period June 30, Jan. 3, 2003++ The following per share data and ratios have been derived -------------------------------------------- to June 30, from information provided in the financial statements. 2007 2006 2005 2004 2003 ==================================================================================================================================== Per Share Operating Performance ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period .................. $ 9.92 $10.08 $10.14 $10.37 $ 10.29 ------------------------------------------------------------- Investment income -- net** ............................ .36 .32 .18 .17 .18 Realized and unrealized gain (loss) -- net ............ .02 (.16) .01 (.11) .08 ------------------------------------------------------------- Total from investment operations ...................... .38 .16 .19 .06 .26 ------------------------------------------------------------- Less dividends from investment income -- net .......... (.36) (.32) (.25) (.29) (.18) ------------------------------------------------------------- Net asset value, end of period ........................ $ 9.94 $ 9.92 $10.08 $10.14 $ 10.37 ------------------------------------------------------------- ==================================================================================================================================== Total Investment Return ------------------------------------------------------------------------------------------------------------------------------------ Based on net asset value per share .................... 3.91% 1.58% 1.88% .56% 2.55%@ ------------------------------------------------------------- ==================================================================================================================================== Ratios to Average Net Assets+ ------------------------------------------------------------------------------------------------------------------------------------ Expenses, excluding reorganization expenses ........... 1.30% 1.17% 1.19% 1.16% 1.19%* ------------------------------------------------------------- Expenses .............................................. 1.30% 1.17% 1.19% 1.16% 1.28%* ------------------------------------------------------------- Investment income -- net .............................. 3.59% 3.15% 2.46% 2.42% 2.74%* ------------------------------------------------------------- ==================================================================================================================================== Supplemental Data ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) .............. $8,882 $4,350 $4,477 $2,387 --@@ ============================================================= Portfolio turnover of the Portfolio ................... 108%+++ 80% 75% 107% 198% =============================================================
* Annualized. ** Based on average shares outstanding. + Includes the Fund's share of the Portfolio's allocated expenses and/or investment income -- net. ++ Commencement of operations. +++ Excludes dollar roll transactions. @ Aggregate total investment return. @@ Amount is less than $1,000. See Notes to Financial Statements. 16 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Notes to Financial Statements BlackRock Short-Term Bond Fund 1. Significant Accounting Policies: On September 29, 2006, Merrill Lynch Low Duration Fund and Merrill Lynch Investment Managers Funds, Inc., of which the ML Fund is a series, were renamed BlackRock Short-Term Bond Fund (the "Fund") and BlackRock Short-Term Bond Series, Inc. (the "Company"), respectively. The Company is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company, which is organized as a Maryland Corporation. The Fund seeks to achieve its investment objective by investing all of its assets in Short-Term Bond Master Portfolio (the "Portfolio") of Short-Term Bond Master LLC (the "Master LLC"), which has the same investment objective and strategies as the Fund. Effective June 15, 2007, the Master LLC was converted from a Delaware statutory trust to a Delaware limited liability company. The value of the Fund's investment in the Portfolio reflects the Fund's proportionate interest in the net assets of the Portfolio. The performance of the Fund is directly affected by the performance of the Portfolio. The financial statements of the Portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The percentage of the Portfolio owned by the Fund at June 30, 2007 was 100%. The Fund's financial statements are prepared in conformity with U.S. generally accepted accounting principles, which may require the use of management accruals and estimates. Actual results may differ from these estimates. The Fund offers multiple classes of shares. Effective October 2, 2006, Class I, Class A, Class B and Class C Shares were redesignated Institutional, Investor A, Investor B and Investor C1 Shares, respectively. Class R Shares did not change their designation. Investor C Shares commenced operations on October 2, 2006. Institutional Shares are sold only to certain eligible investors. Investor A Shares are sold with a front-end sales charge. Shares of Investor B, Investor C and Investor C1 may be subject to a contingent deferred sales charge. Class R Shares are sold to certain retirement plans. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Investor A, Investor B, Investor C, Investor C1 and Class R Shares bear certain expenses related to the 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 certain changes to the Investor A distribution plan). Income, expenses (other than expenses attributable to a specific class) and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments -- The Fund records its investment in the Portfolio at fair value. Valuation of securities held by the Portfolio is discussed in Note 1(a) of the Portfolio's Notes to Financial Statements, which are included elsewhere in this report. (b) Investment income and expenses -- The Fund records daily its proportionate share of the Portfolio's income, expenses and realized and unrealized gains and losses. In addition, the Fund accrues its own expenses. (c) Income taxes -- It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to shareholders. Therefore, no federal income tax provision is required. (d) Prepaid registration fees -- Prepaid registration fees are charged to expense as the related shares are issued. (e) Dividends and distributions -- Dividends from net investment income are declared daily and paid monthly. Distributions of capital gains are recorded on the ex-dividend dates. (f) Investment transactions -- Investment transactions in the Portfolio are accounted for on a trade-date basis. (g) Recent accounting pronouncements -- In July 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109." FIN 48 prescribes the minimum recognition threshold a tax position must meet in connection with accounting for uncertainties in income tax positions taken or expected to be taken by an entity, including mutual funds, before being measured and recognized in the financial statements. Adoption of FIN 48 is required for the last net asset value calculation in the first required financial statement reporting period for fiscal years beginning after December 15, 2006. The impact on the Fund's financial statements, if any, is currently being assessed. In September 2006, Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. At this time, management is BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 17 Notes to Financial Statements (continued) BlackRock Short-Term Bond Fund evaluating the implications of FAS 157 and its impact on the Fund's financial statements, if any, has not been determined. In addition, in February 2007, Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("FAS 159"), was issued and is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FAS 157. FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. FAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. At this time, management is evaluating the implications of FAS 159 and its impact on the Fund's financial statements, if any, has not been determined. (h) Reclassifications -- U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, during the current year, $2,721,252 has been reclassified between paid-in capital in excess of par and accumulated net realized capital losses on investments, and $476,577 has been reclassified between accumulated net realized capital losses on investments and accumulated distributions in excess of net investment income as a result of permanent differences attributable to the expiration of capital loss carryforwards, accounting for paydowns, foreign currency transactions, and swap agreements. These reclassifications have no effect on net assets or net asset values per share. 2. Transactions with Affiliates: On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill Lynch") combined Merrill Lynch's investment management business, Merrill Lynch Investment Managers, L.P. ("MLIM"), and its affiliates, including Fund Asset Management, L.P. ("FAM"), with BlackRock, Inc. to create a new independent company. Merrill Lynch has a 49.8% economic interest and a 45% voting interest in the combined company and The PNC Financial Services Group, Inc. has approximately a 34% economic and voting interest. The new company operates under the BlackRock name and is governed by a board of directors with a majority of independent members. On August 15, 2006, shareholders of the Fund approved a new Investment Advisory Agreement for the Master LLC, with respect to the Portfolio, with BlackRock Advisors, Inc., an indirect, wholly owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was reorganized into a limited liability company and renamed BlackRock Advisors, LLC (the "Manager"). The new Investment Advisory Agreement between the Master LLC and the Manager became effective on September 29, 2006. Prior to September 29, 2006, FAM was the Portfolio's manager. The Fund has entered into an Administration Agreement with BlackRock Advisors, LLC. The Fund pays a monthly fee at an annual rate of .25% of the Fund's average daily net assets for the performance of administrative services (other than investment advice and related portfolio activities) necessary for the operation of the Fund. Prior to September 29, 2006, FAM acted as the Fund's administrator and was compensated at the same fee rate. The Company has also entered into separate Distribution Agreements and Distribution Plans, with respect to the Fund, with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned subsidiary of Merrill Lynch Group, Inc. and BDI is an affiliate of BlackRock, Inc. Pursuant to the Distribution Plans adopted by the Company in accordance with Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor ongoing shareholder servicing and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the shares as follows: -------------------------------------------------------------------------------- Service Distribution Fee Fee -------------------------------------------------------------------------------- Investor A ........................................ .25% -- Investor B ........................................ .25% .65% Investor C ........................................ .25% .75% Investor C1 ....................................... .25% .65% Class R ........................................... .25% .25% -------------------------------------------------------------------------------- Pursuant to sub-agreements with each Distributor, broker-dealers, including Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a wholly owned subsidiary of Merrill Lynch, and each Distributor provide shareholder servicing and distribution services to the Fund. The ongoing service fee compensates the Distributor and each broker-dealer (including MLPF&S) for providing shareholder servicing to Investor A, Investor B, Investor C, Investor C1 and Class R shareholders. The ongoing distribution fee compensates the Distributor and the broker-dealers for providing shareholder and distribution-related services to Investor B, Investor C, Investor C1 and Class R shareholders. 18 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Notes to Financial Statements (continued) BlackRock Short-Term Bond Fund For the year ended June 30, 2007, FAMD, the Fund's sole Distributor until September 29, 2006, and BDI earned underwriting discounts and direct commissions and MLPF&S earned dealer concessions on sales of the Fund's Investor A Shares as follows: -------------------------------------------------------------------------------- FAMD MLPF&S -------------------------------------------------------------------------------- Investor A ............................... $16,979 $118,291 -------------------------------------------------------------------------------- For the year ended June 30, 2007, MLPF&S received contingent deferred sales charges of $73,866, $5,788 and $11,811 relating to transactions in Investor B, Investor C and Investor C1 Shares, respectively. Furthermore, FAMD paid MLPF&S sales charges of $9 relating to transactions subject to front-end sales charge waivers in Investor A Shares. The Manager maintains a call center, which is responsible for providing certain shareholder services to the Fund, such as responding to shareholder inquiries and processing transactions based upon instructions from shareholders with respect to the subscription and redemption of Fund shares. During the period September 29, 2006 to June 30, 2007, the following amounts have been accrued by the Fund to reimburse the Manager for costs incurred running the call center, which are a component of the transfer agent fees in the accompanying Statements of Operations. -------------------------------------------------------------------------------- Call Center Fees -------------------------------------------------------------------------------- Institutional ......................................... $2,599 Investor A ............................................ $4,485 Investor B ............................................ $1,177 Investor C ............................................ -- Investor C1 ........................................... $1,952 Class R ............................................... $ 74 -------------------------------------------------------------------------------- Prior to September 29, 2006, certain officers and/or directors of the Fund were officers and/or directors of FAM, FAMD, Financial Data Services, and/or Merrill Lynch. Commencing September 29, 2006, certain officers and/or directors of the Fund are officers and/or directors of BlackRock, Inc. or its affiliates. 3. Capital Share Transactions: Net decrease in net assets derived from capital share transactions was $5,691,836 and $36,485,602 for the years ended June 30, 2007 and June 30, 2006, respectively. Transactions in capital shares for each class were as follows: ------------------------------------------------------------------------------- Institutional Shares for the Year Dollar Ended June 30, 2007 Shares Amount ------------------------------------------------------------------------------- Shares sold .................................. 3,882,332 $ 38,889,841 Shares issued to shareholders in reinvestment of dividends .................. 778,991 7,804,278 --------------------------- Total issued ................................. 4,661,323 46,694,119 Shares redeemed .............................. (4,998,426) (50,085,942) --------------------------- Net decrease ................................. (337,103) $ (3,391,823) =========================== ------------------------------------------------------------------------------- Institutional Shares for the Year Dollar Ended June 30, 2006 Shares Amount ------------------------------------------------------------------------------- Shares sold .................................. 4,589,347 $ 45,878,308 Shares issued to shareholders in reinvestment of dividends .................. 629,194 6,294,006 --------------------------- Total issued ................................. 5,218,541 52,172,314 Shares redeemed .............................. (5,423,759) (54,309,989) --------------------------- Net decrease ................................. (205,218) $ (2,137,675) =========================== ------------------------------------------------------------------------------- Investor A Shares for the Year Dollar Ended June 30, 2007 Shares Amount ------------------------------------------------------------------------------- Shares sold .................................. 7,835,850 $ 78,389,432 Automatic conversion of shares ............... 35,889 357,567 Share issued to shareholders in reinvestment of dividends .................. 1,017,022 10,181,373 --------------------------- Total issued ................................. 8,888,761 88,928,372 Shares redeemed .............................. (7,051,933) (70,623,994) --------------------------- Net increase ................................. 1,836,828 $ 18,304,378 =========================== ------------------------------------------------------------------------------- Investor A Shares for the Year Dollar Ended June 30, 2006 Shares Amount ------------------------------------------------------------------------------- Shares sold .................................. 7,868,571 $ 78,742,195 Automatic conversion of shares ............... 165,449 1,653,466 Shares issued to shareholders in reinvestment of dividends .................. 720,378 7,200,366 --------------------------- Total issued ................................. 8,754,398 87,596,027 Shares redeemed .............................. (5,202,244) (52,071,208) --------------------------- Net increase ................................. 3,552,154 $ 35,524,819 =========================== ------------------------------------------------------------------------------- Investor B Shares for the Year Dollar Ended June 30, 2007 Shares Amount ------------------------------------------------------------------------------- Shares sold .................................. 382,971 $ 3,826,348 Shares issued to shareholders in reinvestment of dividends .................. 115,734 1,156,044 --------------------------- Total issued ................................. 498,705 4,982,392 --------------------------- Automatic conversion of shares ............... (35,961) (357,567) Shares redeemed .............................. (2,305,722) (23,035,689) --------------------------- Total redeemed ............................... (2,341,683) (23,393,256) --------------------------- Net decrease ................................. (1,842,978) $(18,410,864) =========================== BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 19 Notes to Financial Statements (concluded) BlackRock Short-Term Bond Fund ------------------------------------------------------------------------------- Investor B Shares for the Year Dollar Ended June 30, 2006 Shares Amount ------------------------------------------------------------------------------- Shares sold .................................. 764,008 $ 7,626,851 Shares issued to shareholders in reinvestment of dividends .................. 138,454 1,381,959 --------------------------- Total issued ................................. 902,462 9,008,810 --------------------------- Automatic conversion of shares ............... (165,800) (1,653,466) Shares redeemed .............................. (4,267,131) (42,618,020) --------------------------- Total redeemed ............................... (4,432,931) (44,271,486) --------------------------- Net decrease ................................. (3,530,469) $(35,262,676) =========================== ------------------------------------------------------------------------------- Investor C Shares for the Period October 2, 2006* to Dollar June 30, 2007 Shares Amount ------------------------------------------------------------------------------- Shares sold .................................. 2,588,797 $ 25,893,412 Shares issued to shareholders in reinvestment of dividends .................. 22,869 228,442 --------------------------- Total issued ................................. 2,611,666 26,121,854 Shares redeemed .............................. (208,926) (2,088,810) --------------------------- Net increase ................................. 2,402,740 $ 24,033,044 =========================== * Commencement of operations. ------------------------------------------------------------------------------- Investor C1 Shares for the Year Dollar Ended June 30, 2007 Shares Amount ------------------------------------------------------------------------------- Shares sold .................................. 1,095,000 $ 10,911,973 Shares issued to shareholders in reinvestment of dividends .................. 322,310 3,219,362 --------------------------- Total issued ................................. 1,417,310 14,131,335 Shares redeemed .............................. (4,497,738) (44,899,591) --------------------------- Net decrease ................................. (3,080,428) $(30,768,256) =========================== ------------------------------------------------------------------------------- Investor C1 Shares for the Year Dollar Ended June 30, 2006 Shares Amount ------------------------------------------------------------------------------- Shares sold .................................. 4,003,186 $ 39,947,150 Shares issued to shareholders in reinvestment of dividends .................. 318,879 3,180,745 --------------------------- Total issued ................................. 4,322,065 43,127,895 Shares redeemed .............................. (7,784,003) (77,684,767) --------------------------- Net decrease ................................. (3,461,938) $(34,556,872) =========================== ------------------------------------------------------------------------------- Class R Shares for the Year Dollar Ended June 30, 2007 Shares Amount ------------------------------------------------------------------------------- Shares sold .................................. 788,722 $ 7,885,609 Share issued to shareholders in reinvestment of dividends .................. 26,378 263,698 --------------------------- Total issued ................................. 815,100 8,149,307 Shares redeemed .............................. (360,498) (3,607,622) --------------------------- Net increase ................................. 454,602 $ 4,541,685 =========================== ------------------------------------------------------------------------------- Class R Shares for the Year Dollar Ended June 30, 2006 Shares Amount ------------------------------------------------------------------------------- Shares sold .................................. 340,042 $ 3,397,077 Shares issued to shareholders in reinvestment of dividends .................. 14,555 145,278 --------------------------- Total issued ................................. 354,597 3,542,355 Shares redeemed .............................. (360,251) (3,595,553) --------------------------- Net decrease ................................. (5,654) $ (53,198) =========================== 4. Distributions to Shareholders: The tax character of distributions paid during the fiscal years ended June 30, 2007 and June 30, 2006 was as follows: -------------------------------------------------------------------------------- 6/30/2007 6/30/2006 -------------------------------------------------------------------------------- Distributions paid from: Ordinary income .............................. $ 25,707,205 $ 22,712,664 ---------------------------- Total taxable distributions .................... $ 25,707,205 $ 22,712,664 ============================ As of June 30, 2007, the components of accumulated losses on a tax basis were as follows: ----------------------------------------------------------------------------- Ordinary income -- net ...................................... $ 47,644 Undistributed long-term capital gains -- net ................ -- ------------ Total undistributed earnings -- net ......................... 47,644 Capital loss carryforward ................................... (23,900,904)* Unrealized losses -- net .................................... (9,460,721)** ------------ Total accumulated losses -- net ............................. $(33,313,981) ============ * On June 30, 2007, the Fund had a net capital loss carryforward of $23,900,904, of which $6,549,324 expires in 2008, $1,140,537 expires in 2009, $971,617 expires in 2011, $1,630,307 expires in 2012, $6,250,370 expires in 2013, $2,851,962 expires in 2014 and $4,506,787 expires in 2015. This amount will be available to offset like amounts of any future taxable gains. ** The difference between book-basis and tax-basis net unrealized losses is attributable primarily to the tax deferral of losses on wash sales, accounting for swap agreements, the realization for tax purposes of unrealized gains (losses) on certain futures contracts and the deferral of post-October capital losses for tax purposes. 20 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Report of Independent Registered Public Accounting Firm BlackRock Short-Term Bond Fund To the Board of Directors and Shareholders of BlackRock Short-Term Bond Series, Inc.: We have audited the accompanying statement of assets and liabilities of BlackRock Short-Term Bond Fund (formerly Merrill Lynch Low Duration Fund) (the "Fund") of BlackRock Short-Term Bond Series, Inc. (formerly Merrill Lynch Investment Managers Funds, Inc.) as of June 30, 2007, and the related statement of operations, the statement of changes in net assets, and the financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The financial statements of the Fund for the year ended June 30, 2006 and the financial highlights for each of the four years in the period ended June 30, 2006 were audited by other auditors whose report, dated August 9, 2006, expressed an unqualified opinion on those financial statements and financial highlights. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. as of June 30, 2007, the results of its operations, the changes in its net assets, and its financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Princeton, New Jersey August 27, 2007 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 21 Portfolio Information as of June 30, 2007 Short-Term Bond Master Portfolio Percent of Asset Mix Long-Term Investments -------------------------------------------------------------------------------- Government Agency Mortgage-Backed Securities ..................................................... 30.8% Asset-Backed Securities .......................................... 22.9 Corporate Bonds .................................................. 19.3 Non-Government Agency Mortgage-Backed Securities ..................................................... 18.4 Government Agency Mortgage-Backed Obligations -- Collateralized Mortgage Obligations .................................................... 7.4 Capital Trusts ................................................... 1.2 -------------------------------------------------------------------------------- 22 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Schedule of Investments as of June 30, 2007 Short-Term Bond Master Portfolio (in U.S. dollars)
Face Amount Asset-Backed Securities+ Value ============================================================================================== $ 5,347,883 ACE Securities Corp. Series 2006-FM2 Class A2A, 5.37% due 8/25/2036 (a) $ 5,347,868 3,754,781 Aegis Asset Backed Securities Trust Series 2006-1 Class A1, 5.40% due 1/25/2037 (a) 3,754,771 11,000,000 Ameriquest Mortgage Securities, Inc. Series 2004-FR1 Class A5, 4.455% due 5/25/2034 10,827,719 4,319,474 Asset Backed Funding Certificates Series 2006-OPT2 Class A3A, 5.38% due 10/25/2036 (a) 4,319,463 Bank of America Credit Card Trust: 5,650,000 Series 2006-A16 Class A16, 4.72% due 5/15/2013 5,537,447 5,350,000 Series 2007-A7 Class A7, 5.32% due 8/15/2012 (a) 5,348,534 Capital Auto Receivables Asset Trust: 1,250,000 Series 2004-2 Class D, 5.82% due 5/15/2012 (b) 1,234,194 7,090,195 Series 2006-SN1A Class A2A, 5.40% due 1/20/2009 (b) 7,090,671 1,550,000 Chase Issuance Trust Series 2007-A1 Class A1, 5.34% due 3/15/2013 (a) 1,549,984 4,171,689 Chase Manhattan Auto Owner Trust Series 2005-A Class A3, 3.87% due 6/15/2009 4,139,115 2,764,733 Countrywide Asset Backed Certificates Series 2004-13 Class AF3, 3.989% due 12/25/2034 (a) 2,746,849 6,525,000 DaimlerChrysler Auto Trust Series 2006-C Class A3, 5.02% due 7/08/2010 6,503,759 5,241,781 First Horizon Asset Backed Securities Trust Series 2004-HE4 Class A2, 4.07% due 7/25/2019 5,155,931 Ford Credit Auto Owner Trust: 6,300,000 Series 2005-A Class A4, 3.72% due 10/15/2009 (b) 6,221,299 5,625,000 Series 2005-B Class A4, 4.38% due 1/15/2010 5,576,449 5,418,937 Series 2005-C Class A3, 4.30% due 8/15/2009 5,392,673 3,182,664 Fremont Home Loan Trust Series 2005-E Class 2A2, 5.49% due 1/25/2036 (a) 3,183,286 4,942,563 GCO Slims Trust Series 2006-1A Class NOTE, 5.72% due 3/01/2022 (b) 4,874,603 650,690 GSAA Home Equity Trust Series 2006-8N Class N1, 6% due 10/26/2036 (b) 642,556 2,508,537 GSAA Trust Series 2004-10 Class AF2, 4.22% due 8/25/2034 (a) 2,488,904 6,777,339 GSAMP Trust Series 2005-AHL Class A3, 5.66% due 4/25/2035 (a) 6,785,001 4,310,216 HSI Asset Securitization Corp. Trust Series 2006-HE1 Class 2A1, 5.37% due 10/25/2036 (a) 4,305,219 Honda Auto Receivables Owner Trust: 2,890,333 Series 2004-1 Class A4, 3.06% due 10/21/2009 2,873,205 2,850,000 Series 2006-1 Class A3, 5.07% due 2/18/2010 2,844,624 5,425,000 Series 2006-3 Class A3, 5.12% due 10/15/2010 5,406,884 National Collegiate Student Loan Trust (c): 16,400,000 Series 2005-2 Class AIO, 7.73% due 3/25/2012 3,172,744 33,292,725 Series 2005-GT1 Class AIO, 6.75% due 12/25/2009 5,170,776 2,548,933 Popular ABS Mortgage Pass-Through Trust Series 2005-1 Class AF3, 4.142% due 5/25/2035 (a) 2,522,825 9,708,580 Residential Asset Mortgage Products, Inc. Series 2003-RZ3 Class A6, 3.40% due 3/25/2033 9,292,952 SLM Student Loan Trust (a): 4,228,851 Series 2002-1 Class A2, 5.47% due 4/25/2017 4,238,831 5,949,066 Series 2002-4 Class A4, 5.50% due 3/15/2017 5,966,174 5,750,000 Series 2005-8 Class A2, 5.445% due 7/25/2022 5,723,723 5,706,718 Soundview Home Equity Loan Trust Series 2003-2 Class A2, 5.797% due 11/25/2033 (a) 5,779,901 7,000,000 USAA Auto Owner Trust Series 2006-1 Class A3, 5.01% due 9/15/2010 6,984,732 WFS Financial Owner Trust: 1,239,681 Series 2003-4 Class B, 2.73% due 5/20/2011 1,230,103 10,800,000 Series 2004-4 Class A4, 3.44% due 5/17/2012 10,602,870 ---------------------------------------------------------------------------------------------- Total Asset-Backed Securities (Cost -- $175,681,991) -- 25.8% 174,836,639 ============================================================================================== Government Agency Mortgage-Backed Securities+ ============================================================================================== Fannie Mae Guaranteed Pass Through Certificates: 5,063,394 5.41% due 5/01/2037 (a) 5,018,177 8,202,455 5.48% due 12/01/2036 (a) 8,152,908 67,309,024 5.50% due 11/01/2017 - 7/15/2037 (e) 65,236,944 5,531,651 5.70% due 10/01/2036 (a) 5,542,432 2,252,990 5.91% due 9/01/2036 (a) 2,264,242 102,500,000 6.00% due 7/15/2037 (e) 101,378,855 3,913,097 6.50% due 8/01/2032 - 8/01/2034 3,992,915 3,430,434 7.50% due 9/01/2035 3,582,928 3,175,851 8.00% due 7/01/2027 - 11/01/2032 3,346,531 Freddie Mac Mortgage Participation Certificates (a): 4,965,501 4.64% due 4/01/2035 4,863,187 9,611,283 5.61% due 3/01/2037 9,571,885 4,901,713 5.82% due 11/01/2036 4,915,142 13,039,914 6.04% due 11/01/2036 13,127,660 4,340,618 Ginnie Mae MBS Certificates, 5% due 11/20/2034 (a) 4,355,630 ---------------------------------------------------------------------------------------------- Total Government Agency Mortgage-Backed Securities (Cost -- $236,204,051) -- 34.8% 235,349,436 ============================================================================================== Government Agency Mortgage-Backed Obligations -- Collateralized Mortgage Obligations ============================================================================================== Fannie Mae Trust: 16,258,055 Series 360 Class 2, 5% due 8/01/2035 (c) 4,225,129 6,343,935 Series 377 Class 2, 5% due 10/01/2036 (c) 1,690,968 5,320,168 Series 2003-17 Class QR, 4.50% due 11/25/2025 5,277,418 2,517,975 Series 2003-67 Class GL, 3% due 1/25/2025 2,464,241 3,868,236 Series 2005-70 Class GA, 5.50% due 12/25/2034 3,837,135 8,415,457 Series 2006-53 Class BA, 6% due 2/25/2027 8,459,021 9,745,996 Series 2006-106 Class PA, 5.50% due 6/25/2030 9,706,672 4,068,853 Series 2006-M2 Class A1A, 4.855% due 7/25/2016 (a) 4,034,359
BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 23 Schedule of Investments (continued) Short-Term Bond Master Portfolio (in U.S. dollars)
Government Agency Face Mortgage-Backed Obligations -- Amount Collateralized Mortgage Obligations Value ============================================================================================== Freddie Mac Multiclass Certificates: $ 6,818,842 Series 2485 Class AS, 5.50% due 8/15/2017 $ 6,793,186 5,969,886 Series 2673 Class ML, 4% due 12/15/2022 5,918,441 1,896,160 Series 2996 Class PB, 5.50% due 5/15/2035 1,885,158 49,648,641 Series 3309 Class SA, 0.77% due 4/15/2037 (a)(c) 1,401,705 20,749,005 Series 3318 Class SK, 0.77% due 5/15/2037 (a)(c) 499,209 56,577,972 Ginnie Mae Trust Series 2002-94 Class XB, 2.349% due 11/16/2007 (a)(c) 96,607 ---------------------------------------------------------------------------------------------- Total Government Agency Mortgage-Backed Obligations -- Collateralized Mortgage Obligations (Cost -- $57,347,901) -- 8.3% 56,289,249 ============================================================================================== Non-Government Agency Mortgage-Backed Securities+ ============================================================================================== Collateralized Mortgage Obligations -- 11.2% 6,616,945 Banc of America Funding Corp. Series 2006-I Class 1A1, 4.576% due 12/20/2036 (a) 6,511,196 3,562,084 Banc of America Mortgage Securities Inc. Series 2003-J Class 2A1, 4.081% due 11/25/2033 (a) 3,522,938 81,242 BlackRock Capital Finance LP Series 1997-R2 Class AP, 1.268% due 12/25/2035 (a)(b)(f) 80,960 4,414,900 Countrywide Home Loan Mortgage Pass-Through Trust Series 2005-HYB8 Class 2A1, 5.255% due 12/20/2035 (a) 4,385,655 2,453,654 Deutsche Alt-A Securities, Inc. Mortgage Loan Series 2006-AF1 Class A1, 5.40% due 4/25/2036 (a) 2,453,900 4,441,137 Harborview Mortgage Loan Trust Series 2006-11 Class A1A, 5.49% due 12/19/2036 (a) 4,446,866 3,693,452 Indymac Index Mortgage Loan Trust Series 2006-AR41 Class A3, 5.50% due 2/25/2037 (a) 3,701,501 7,653,956 JPMorgan Mortgage Trust Series 2007-A1 Class 2A1, 4.763% due 7/25/2035 (a) 7,550,711 4,576,862 Luminent Mortgage Trust Series 2006-7 Class 1A1, 5.50% due 5/25/2036 (a) 4,574,858 162,916 Ocwen Residential MBS Corp. Series 1998-R2 Class AP, 9.111% due 11/25/2034 (a)(b) 130,332 Residential Accredit Loans, Inc. (a): 4,078,214 Series 2005-QS12 Class A8, 5.646% due 8/25/2035 4,074,995 4,755,552 Series 2006-QA9 Class A1, 5.50% due 11/25/2036 4,749,018 19,230 Salomon Brothers Mortgage Securities Series 1986-1 Class A, 6% due 12/25/2011 19,169 5,857 Structured Mortgage Asset Residential Trust Series 1991-1 Class H, 8.25% due 6/25/2022 5,830 6,715,476 Suntrust Adjustable Rate Mortgage Loan Trust Series 2007-2 Class 3A3, 5.731% due 4/25/2037 (a) 6,700,420 46,557 Walsh Acceptance Series 1997-2 Class A, 7.32% due 3/01/2027 (a) 18,623 Washington Mutual (a): 3,666 Series 2000-1 Class B1, 9.32% due 1/25/2040 (b) 2,933 14,778,057 Series 2004-AR3 Class A1, 3.918% due 6/25/2034 14,507,082 8,903,426 Wells Fargo Mortgage Backed Securities Trust Series 2004-3 Class A1, 4.75% due 4/25/2019 8,455,468 -------------- 75,892,455 ---------------------------------------------------------------------------------------------- Commercial Mortgage-Backed Securities -- 9.6% 3,465,000 Banc of America Commercial Mortgage, Inc. Series 2000-1 Class A2A, 7.333% due 11/15/2031 3,574,670 CS First Boston Mortgage Securities Corp.: 4,824,811 Series 1999-C1 Class A2, 7.29% due 9/15/2041 4,957,224 3,358,229 Series 2002-CKS4 Class A1, 4.485% due 11/15/2036 3,277,485 65,866,385 Series 2003-CPN1 Class ASP, 1.584% due 3/15/2035 (a)(c) 2,216,885 2,946,054 Series 2004-C3 Class A2, 3.913% due 7/15/2036 2,894,891 3,862,838 Chase Commercial Mortgage Securities Corp. Series 1999-2 Class A2, 7.198% due 1/15/2032 3,984,689 4,332,045 Chase Manhattan Bank-First Union National Series 1999-1 Class A2, 7.439% due 8/15/2031 4,471,844 3,827,080 Commercial Mortgage Acceptance Corp. Series 1999-C1 Class A2, 7.03% due 6/15/2031 3,906,593 707,320 Commercial Mortgage Pass-Through Certificates Series 2004-LB4A Class A1, 3.566% due 10/15/2037 703,797 4,955,000 GE Capital Mall Finance Corp. Series 1998-1A Class A2, 6.32% due 9/13/2028 4,994,663 GMAC Commercial Mortgage Securities, Inc.: Series 1998-C2 Class A2, 6.42% due 5/15/2035 4,571,934 4,265,131 Series 1999-C1 Class A2, 6.175% due 5/15/2033 4,293,729 Greenwich Capital Commercial Funding Corp.: 20,524,183 Series 2002-C1 Class XP, 2.059% due 1/11/2035 (a)(c) 1,542,659 656,082 Series 2004-GG1 Class A2, 3.835% due 6/10/2036 654,003 4,008,772 JPMorgan Chase Commercial Mortgage Securities Corp. Series 2001-CIBC Class A3, 6.26% due 3/15/20334,085,181 4,683,042 LB Commercial Conduit Mortgage Trust Series 1999-C1 Class A2, 6.78% due 6/15/2031 4,758,922 LB-UBS Commercial Mortgage Trust: 70,606,349 Series 2002-C4 Class XCP, 1.475% due 10/15/2035 (a)(c) 1,968,837 4,538,427 Series 2004-C7 Class A1, 3.625% due 10/15/2029 4,443,424 3,625,000 Wachovia Bank Commercial Mortgage Trust Series 2006-C25 Class A4, 5.764% due 5/15/2043 (a) 3,612,417 -------------- 64,913,847 ---------------------------------------------------------------------------------------------- Total Non-Government Agency Mortgage-Backed Securities (Cost -- $142,299,040) -- 20.8% 140,806,302 ==============================================================================================
24 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Schedule of Investments (continued) Short-Term Bond Master Portfolio (in U.S. dollars)
Face Amount Corporate Bonds Value ============================================================================================== Aerospace & Defense -- 0.5% $ 1,250,000 Goodrich Corp., 6.45% due 4/15/2008 $ 1,257,272 L-3 Communications Corp.: 80,000 5.875% due 1/15/2015 74,200 360,000 Series B, 6.375% due 10/15/2015 340,200 1,700,000 Raytheon Co., 6.75% due 8/15/2007 1,702,208 -------------- 3,373,880 ---------------------------------------------------------------------------------------------- Airlines -- 0.1% 618,550 American Airlines, Inc. Series 2003-1, 3.857% due 1/09/2012 (d) 593,035 ---------------------------------------------------------------------------------------------- Automobiles -- 0.8% DaimlerChrysler NA Holding Corp.: 3,400,000 4.75% due 1/15/2008 3,388,246 2,000,000 4.05% due 6/04/2008 1,971,942 -------------- 5,360,188 ---------------------------------------------------------------------------------------------- Capital Markets -- 2.4% 1,070,000 The Bank of New York Co., Inc., 3.80% due 2/01/2008 1,060,371 3,180,000 Goldman Sachs Capital III Series F, 6.13% due (a)(h) 3,178,442 2,225,000 Lehman Brothers Holdings Capital Trust V, 6.19% due (a)(h) 2,224,223 3,340,000 Lehman Brothers Holdings, Inc., 5.50% due 5/25/2010 (a) 3,337,051 Morgan Stanley: 1,000,000 5.61% due 1/09/2012 (a) 998,172 5,043,000 5.625% due 1/09/2012 5,032,117 610,000 UBS Preferred Funding Trust I, 8.622% due (a)(h) 662,513 -------------- 16,492,889 ---------------------------------------------------------------------------------------------- Chemicals -- 0.1% 146,000 Equistar Chemicals LP, 10.125% due 9/01/2008 151,840 525,000 Lyondell Chemical Co., 8.25% due 9/15/2016 (d) 548,625 -------------- 700,465 ---------------------------------------------------------------------------------------------- Commercial Banks -- 2.6% 3,125,000 Glitnir Banki HF, 5.618% due 4/20/2010 (a)(b) 3,119,759 2,425,000 HBOS Treasury Services Plc, 3.50% due 11/30/2007 (b) 2,409,148 2,500,000 U.S. Bank, NA, 4.125% due 3/17/2008 2,476,775 Wachovia Corp.: 1,500,000 6.15% due 3/15/2009 1,519,050 1,570,000 5.75% due 6/15/2017 1,548,975 Wells Fargo & Co.: 2,200,000 4% due 8/15/2008 2,164,287 4,100,000 5.445% due 1/24/2012 (a) 4,098,745 -------------- 17,336,739 ---------------------------------------------------------------------------------------------- Communications Equipment -- 0.2% 955,000 Cisco Systems, Inc., 5.44% due 2/20/2009 (a) 956,639 300,000 Wind Acquisition Finance SA, 10.75% due 12/01/2015 (b) 344,250 -------------- 1,300,889 ---------------------------------------------------------------------------------------------- Computers & Peripherals -- 0.0% 135,000 Seagate Technology HDD Holdings, 6.80% due 10/01/2016 129,600 ---------------------------------------------------------------------------------------------- Consumer Finance -- 0.5% 3,500,000 HSBC Finance Corp., 4.125% due 12/15/2008 3,437,035 ---------------------------------------------------------------------------------------------- Diversified Financial Services -- 4.0% 3,800,000 Citigroup, Inc., 3.50% due 2/01/2008 3,761,571 4,300,000 Credit Suisse Guernsey Ltd. Series 1, 6.05% due (a)(h) 4,302,752 1,030,000 Ford Motor Credit Co. LLC, 7.80% due 6/01/2012 1,004,793 General Electric Capital Corp.: 10,350,000 5.486% due 11/01/2012 (a) 10,344,856 2,700,000 Series A, 3.75% due 12/15/2009 (d) 2,601,399 4,800,000 JPMorgan Chase & Co., 3.625% due 5/01/2008 4,729,056 -------------- 26,744,427 ---------------------------------------------------------------------------------------------- Diversified Telecommunication Services -- 2.0% 1,810,000 AT&T, Inc., 4.125% due 9/15/2009 1,760,067 1,960,000 BellSouth Corp., 5.485% due 11/15/2007 (a) 1,960,900 260,000 Cincinnati Bell, Inc., 7.25% due 7/15/2013 266,500 2,500,000 Deutsche Telekom International Finance BV, 3.875% due 7/22/2008 2,458,400 250,000 Qwest Corp., 8.61% due 6/15/2013 (a) 271,250 2,250,000 Telecom Italia Capital SA, 4% due 11/15/2008 2,202,174 1,275,000 Telefonica Emisiones SAU, 5.984% due 6/20/2011 1,286,733 3,225,000 Verizon Global Funding Corp., 4% due 1/15/2008 3,201,112 -------------- 13,407,136 ---------------------------------------------------------------------------------------------- Electric Utilities -- 1.5% 1,485,000 American Electric Power Co., Inc., 4.709% due 8/16/2007 (g) 1,483,459 210,000 Reliant Energy, Inc., 6.75% due 12/15/2014 214,200 7,730,000 TXU Energy Co. LLC, 5.85% due 9/16/2008 (a)(b) 7,732,991 685,000 Xcel Energy, Inc., 3.40% due 7/01/2008 670,565 -------------- 10,101,215 ---------------------------------------------------------------------------------------------- Gas Utilities -- 0.1% 670,000 Targa Resources, Inc., 8.50% due 11/01/2013 (b) 680,050 180,000 Transcontinental Gas Pipe Line Corp. Series B, 8.875% due 7/15/2012 201,600 -------------- 881,650 ---------------------------------------------------------------------------------------------- Health Care Providers & Services -- 0.3% 1,940,000 WellPoint, Inc., 3.75% due 12/14/2007 1,924,802 ---------------------------------------------------------------------------------------------- Hotels, Restaurants & Leisure -- 0.1% 195,000 American Real Estate Partners LP, 8.125% due 6/01/2012 195,731 335,000 Seneca Gaming Corp., 7.25% due 5/01/2012 339,606 -------------- 535,337 ---------------------------------------------------------------------------------------------- Household Durables -- 0.2% 1,095,000 Centex Corp., 5.606% due 8/01/2007 (a) 1,095,113 ---------------------------------------------------------------------------------------------- Insurance -- 1.2% 385,000 Monumental Global Funding II, 3.85% due 3/03/2008 (b) 380,831 1,470,000 Protective Life Secured Trust, 5.436% due 1/14/2008 (a) 1,470,878 1,500,000 Prudential Financial, Inc., 3.75% due 5/01/2008 1,479,381 1,250,000 The St. Paul Travelers Cos., Inc., 5.01% due 8/16/2007 1,249,461 ZFS Finance USA Trust I (a)(b): 1,900,000 5.875% due 5/09/2032 1,871,977 1,735,000 6.15% due 12/15/2065 1,737,580 -------------- 8,190,108 ----------------------------------------------------------------------------------------------
BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 25 Schedule of Investments (continued) Short-Term Bond Master Portfolio (in U.S. dollars)
Face Amount Corporate Bonds Value ============================================================================================== Media -- 1.3% $ 1,655,000 COX Communications, Inc., 4.625% due 1/15/2010 $ 1,616,510 1,200,000 Comcast Cable Communications, 6.20% due 11/15/2008 1,209,521 1,470,000 Comcast Corp., 5.656% due 7/14/2009 (a) 1,470,120 315,000 Intelsat Bermuda Ltd., 9.25% due 6/15/2016 334,687 650,000 Intelsat Corp., 9% due 6/15/2016 680,875 1,220,000 News America, Inc., 6.75% due 1/09/2038 1,276,907 2,000,000 Time Warner Companies, Inc., 8.18% due 8/15/2007 2,006,814 -------------- 8,595,434 ---------------------------------------------------------------------------------------------- Metals & Mining -- 0.1% 725,000 Freeport-McMoRan Copper & Gold, Inc., 8.375% due 4/01/2017 773,937 ---------------------------------------------------------------------------------------------- Multi-Utilities -- 0.6% Dominion Resources, Inc.: 2,395,000 5.688% due 5/15/2009 (g) 2,397,884 2,000,000 Series D, 5.125% due 12/15/2009 1,985,692 -------------- 4,383,576 ---------------------------------------------------------------------------------------------- Oil, Gas & Consumable Fuels -- 2.2% 2,475,000 Anadarko Petroleum Corp., 5.755% due 9/15/2009 (a) 2,477,203 350,000 Chesapeake Energy Corp., 6.375% due 6/15/2015 333,812 350,000 Compton Petroleum Finance Corp., 7.625% due 12/01/2013 345,625 3,775,000 Conoco Funding Co, 6.35% due 10/15/2011 3,892,542 Midamerican Energy Holdings Co.: 2,250,000 4.625% due 10/01/2007 2,244,523 1,910,000 3.50% due 5/15/2008 1,877,580 3,430,000 Pemex Project Funding Master Trust, 6.66% due 6/15/2010 (a)(b) 3,519,180 190,000 Williams Cos Inc, 7.625% due 7/15/2019 200,450 -------------- 14,890,915 ---------------------------------------------------------------------------------------------- Real Estate Investment Trusts (REITs) -- 0.6% Nationwide Health Properties, Inc.: 1,400,000 6.59% due 7/07/2038 1,399,020 1,400,000 7.60% due 11/20/2028 1,472,170 815,000 The Rouse Co., 3.625% due 3/15/2009 781,137 325,000 Ventas Realty LP, 6.625% due 10/15/2014 320,531 -------------- 3,972,858 ---------------------------------------------------------------------------------------------- Wireless Telecommunication Services -- 0.4% 400,000 Rogers Wireless, Inc., 7.50% due 3/15/2015 428,484 2,525,000 Vodafone Group Plc, 5.64% due 2/27/2012 (a) 2,528,707 -------------- 2,957,191 ---------------------------------------------------------------------------------------------- Total Corporate Bonds (Cost -- $147,813,370) -- 21.8% 147,178,419 ============================================================================================== Face Amount Capital Trusts (a) Value ============================================================================================== Capital Markets -- 0.4% $ 2,690,000 State Street Capital Trust IV, 6.355% due 6/01/2067 (a) $ 2,697,941 ---------------------------------------------------------------------------------------------- Commercial Banks -- 0.6% 2,725,000 BAC Capital Trust XV, 6.16% due 6/01/2056 (a) 2,721,218 1,450,000 USB Capital IX, 6.189% due (a)(h) 1,460,707 -------------- 4,181,925 ---------------------------------------------------------------------------------------------- Diversified Financial Services -- 0.4% 2,785,000 JPM Chase Capital XXI, 6.36% due 5/15/2077 (a) 2,752,995 ---------------------------------------------------------------------------------------------- Total Capital Trusts (Cost -- $9,674,860) -- 1.4% 9,632,861 ============================================================================================== Short-Term Investments ============================================================================================== Time Deposits -- 7.8% 52,988,815 Brown Brothers Harriman & Co., 4.63% due 7/2/2007 52,988,815 ---------------------------------------------------------------------------------------------- Total Short-Term Investments (Cost -- $52,988,815) -- 7.8% 52,988,815 ============================================================================================== Number of Contracts++ Options Purchased ============================================================================================== Call Options Purchased 33 Receive a fixed rate of 5.705% and pay a floating rate based on 3-month LIBOR, expiring May 2012, broker Deutsche Bank AG 1,590,114 ---------------------------------------------------------------------------------------------- Put Currency Options Purchased 18 Japanese Yen, expiring September 2007 at USD 120 123,714 ---------------------------------------------------------------------------------------------- Put Options Purchased 23 Pay a fixed rate of 5.95% and receive a floating rate based on 3-month LIBOR, expiring August 2007, broker Deutsche Bank AG 64,145 33 Pay a fixed rate of 5.705% and receive a floating rate based on 3-month LIBOR, expiring May 2012, broker Deutsche Bank AG 921,964 -------------- 986,109 ---------------------------------------------------------------------------------------------- Total Investments in Options Purchased (Premiums Paid -- $2,760,522) -- 0.4% 2,699,937 ============================================================================================== Total Investments (Cost -- $824,770,550) -- 121.1% 819,781,658 ==============================================================================================
26 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Schedule of Investments (continued) Short-Term Bond Master Portfolio (in U.S. dollars)
Face Amount TBA Sale Commitments Value ============================================================================================== $ 54,000,000 Fannie Mae Guaranteed Pass Through Certificates, 5.50% due 7/12/2007 $ (52,083,432) ---------------------------------------------------------------------------------------------- Total TBA Sale Commitments (Premiums Received -- $53,339,534) -- (7.7%) (52,083,432) ============================================================================================== Number of Contracts++ Options Written ============================================================================================== Call Options Written 12 Pay a fixed rate of 4.96% and receive a floating rate based on 3-month LIBOR, expiring May 2008, broker Deutsche Bank AG (48,224) ---------------------------------------------------------------------------------------------- Put Options Written 12 Receive a fixed rate of 5.46% and pay a floating rate based on 3-month LIBOR, expiring May 2008, broker Deutsche Bank AG (388,405) ---------------------------------------------------------------------------------------------- Total Options Written (Premiums Received -- $294,500) -- (0.0%) (436,629) ============================================================================================== Total Investments (Cost -- $771,136,516*) -- 113.4% 767,261,597 Liabilities in Excess of Other Assets -- (13.4%) (90,560,902) -------------- Net Assets -- 100.0% $ 676,700,695 ==============
+ Asset-Backed and Mortgage-Backed Obligations are subject to principal paydowns. As a result of prepayments or refinancings of the underlying instruments, the average life may be substantially less than the original maturity. ++ One contract represents a notional amount of $1,000,000. (a) Floating rate security. (b) The security may be offered and sold to "qualified institutional buyers" under Rule 144A of the Securities Act of 1933. (c) Represents the interest only portion of a mortgage-backed security and has either a nominal or a notional amount of principal. (d) All or a portion of security held as collateral in connection with open financial futures contracts. (e) 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. (f) 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 Dividend Affiliate Cost Cost Gain Income ---------------------------------------------------------------------------------------------- BlackRock Capital Finance LP Series 1997-R2 Class AP, 1.268% due 12/25/2035 -- $ 28,504 $175 $ 6,933 BlackRock Liquidity Series LLC Money Market Series -- $(51,000,000)* -- $17,698 ---------------------------------------------------------------------------------------------- * Represents net sale cost.
(g) Represents a step bond; the interest rate shown reflects the effective yield at the time of purchase. (h) The security is a perpetual bond and has no definite maturity date. * The cost and unrealized appreciation (depreciation) of investments, net of TBA sales commitments and options written as of June 30, 2007, as computed for federal income tax purposes, were as follows: Aggregate cost ..................................... $ 771,813,953 ============= Gross unrealized appreciation ...................... $ 2,646,118 Gross unrealized depreciation ...................... (7,198,474) ------------- Net unrealized depreciation ........................ $ (4,552,356) ============= o For Portfolio compliance purposes, the Portfolio's industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Portfolio management. This definition may not apply for purposes of this report which may combine industry sub-classifications for reporting ease. Industries are shown as percent of net assets. o Financial futures contracts purchased as of June 30, 2007 were as follows:
------------------------------------------------------------------------------------ Unrealized Number of Expiration Face Appreciation Contracts Issue Exchange Date Value (Depreciation) ------------------------------------------------------------------------------------ 83 Euro-Bund Frankfurt September $12,583,410 $(142,116) Future 2007 414 2-Year U.S. Chicago September 84,257,904 107,534 Treasury Bond 2007 49 5-Year U.S. Chicago September 5,100,477 (649) Treasury Bond 2007 ------------------------------------------------------------------------------------ Total $ (35,231) ==========
BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 27 Schedule of Investments (concluded) Short-Term Bond Master Portfolio (in U.S. dollars) o Financial futures contracts sold as of June 30, 2007 were as follows:
------------------------------------------------------------------------------------ Unrealized Number of Expiration Face Appreciation Contracts Issue Date Value (Depreciation) ------------------------------------------------------------------------------------ 63 Eurodollar Futures September 2007 $14,917,937 $ 7,412 63 Eurodollar Futures December 2007 14,936,874 19,262 63 Eurodollar Futures March 2008 14,957,312 27,887 52 Eurodollar Futures June 2008 12,356,800 29,549 52 Eurodollar Futures September 2008 12,361,935 35,985 52 Eurodollar Futures December 2008 12,362,335 40,935 52 Eurodollar Futures March 2009 12,360,885 44,685 40 Eurodollar Futures June 2009 9,503,272 34,272 40 Eurodollar Futures September 2009 9,499,435 34,935 40 Eurodollar Futures December 2009 9,495,260 35,760 40 Eurodollar Futures March 2010 9,492,585 36,085 728 10-Year U.S. September 2007 76,454,395 (497,480) Treasury Bond 10 30-Year U.S. September 2007 1,059,272 (18,228) Treasury Bond ------------------------------------------------------------------------------------ Total $(168,941) ==========
o Forward foreign exchange contracts purchased as of June 30, 2007 were as follows:
------------------------------------------------------------------------------------ Unrealized Foreign currency Settlement Appreciation Purchased Date (Depreciation) ------------------------------------------------------------------------------------ JPY 62,605,000 July 2007 $(16,439) NOK 31,014,683 July 2007 73,235 SEK 35,351,341 July 2007 (47,393) ------------------------------------------------------------------------------------ Total Unrealized Appreciation on Forward Foreign Exchange Contracts -- Net (USD Commitment -- $10,937,918) $ 9,403 ========
o Forward foreign exchange contracts sold as of June 30, 2007 were as follows:
----------------------------------------------------------------------------------- Foreign Currency Settlement Unrealized Sold Date Appreciation ----------------------------------------------------------------------------------- EUR 7,665,000 July 2007 $28,285 JPY 832,530,000 July 2007 29,896 ----------------------------------------------------------------------------------- Total Unrealized Appreciation on Forward Foreign Exchange Contracts -- Net (USD Commitment -- $17,224,910) $58,181 =======
o Swap contracts outstanding as of June 30, 2007 were as follows:
------------------------------------------------------------------------------------ Unrealized Notional Appreciation Amount (Depreciation) ------------------------------------------------------------------------------------ Receive (pay) a variable return based on the change in the spread return of the Lehman Brothers CMBS AAA 8.5+ Index and receive a floating rate based on the spread Broker, Credit Suisse First Boston Expires September 2007 $33,000,000 -- Receive a fixed rate of 5.42% and pay a floating rate based on 3-month LIBOR Broker, Deutsche Bank AG London Expires June 2009 $65,600,000 $ 64,047 Receive a fixed rate of 5.39% and pay a floating rate based on 3-month LIBOR Broker, Deutsche Bank AG London Expires July 2009 $43,095,000 18,660 Receive a fixed rate of 5.0125% and pay a floating rate based on 3-month LIBOR Broker, Union Bank of Switzerland AG Expires October 2010 $37,000,000 (444,061) Pay a fixed rate of 4.9335% and receive a floating rate based on 3-month LIBOR Broker, JPMorgan Chase Expires March 2012 $31,200,000 703,420 Receive a fixed rate of 5.406% and pay a floating rate based on 3-month LIBOR Broker, JPMorgan Chase Expires June 2012 $62,900,000 (229,061) Pay a fixed rate of 5.57225% and receive a floating rate based on 3-month LIBOR Broker, Deutsche Bank AG London Expires June 2012 $28,400,000 (98,114) Pay a fixed rate of 5.225% and receive a floating rate based on 3-month LIBOR Broker, Deutsche Bank AG London Expires January 2017 $ 1,500,000 47,326 Pay a fixed rate of 5.725% and receive a floating rate based on 3-month LIBOR Broker, Deutsche Bank AG London Expires June 2017 $11,800,000 (50,626) Sold credit default protection on Morgan Stanley Capital I and receive 1.10% Broker, Lehman Brothers Special Finance Expires November 2042 $ 5,000,000 (44,795) Sold credit default protection on Wachovia Bank Commercial Mortgage Trust and receive 1.10% Broker, Lehman Brothers Special Finance Expires October 2044 $ 1,700,000 (15,097) Sold credit default protection on Wachovia Bank Commercial Mortgage Trust and receive 1.05% Broker, Lehman Brothers Special Finance Expires December 2044 $ 6,700,000 (82,014) ------------------------------------------------------------------------------------ Total $(130,315) =========
o Currency Abbreviations: EUR Euro JPY Japanese Yen NOK Norwegian Krone SEK Swedish Krona USD U.S. Dollar See Notes to Financial Statements. 28 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Statement of Assets and Liabilities Short-Term Bond Master Portfolio As of June 30, 2007 =================================================================================================================================== Assets ----------------------------------------------------------------------------------------------------------------------------------- Investments in unaffiliated securities, at value (identified cost -- $821,929,281) .. $ 817,000,761 Investments in affiliated securities, at value (identified cost -- $80,747) ......... 80,960 Options purchased, at value (premiums paid -- $2,760,522) ........................... 2,699,937 Unrealized appreciation on swaps .................................................... 833,453 Unrealized appreciation on forward foreign contracts ................................ 131,416 Cash ................................................................................ 164,064 Foreign cash (identified cost -- $6,712,275) ........................................ 6,514,487 Receivables: Securities sold ................................................................. $ 132,404,232 Interest ........................................................................ 4,072,090 Contributions ................................................................... 3,035,790 Paydowns ........................................................................ 302,039 Swaps ........................................................................... 17,533 139,831,684 ------------- Prepaid expenses and other assets ................................................... 2,883 ------------- Total assets ........................................................................ 967,259,645 ------------- =================================================================================================================================== Liabilities ----------------------------------------------------------------------------------------------------------------------------------- Unrealized depreciation on swaps .................................................... 963,768 Unrealized depreciation on forward foreign contracts ................................ 63,832 Options written, at value (premiums received -- $294,500) ........................... 436,629 TBA sale commitments, at value (premiums received -- $53,339,534) ................... 52,083,432 Payables: Securities purchased ............................................................ 234,685,168 Withdrawals ..................................................................... 1,019,036 Variation margin ................................................................ 263,178 Swaps ........................................................................... 748,597 Investment adviser .............................................................. 120,187 Other affiliates ................................................................ 3,192 236,839,358 ------------- Accrued expenses and other liabilities .............................................. 171,931 ------------- Total liabilities ................................................................... 290,558,950 ------------- =================================================================================================================================== Net Assets ----------------------------------------------------------------------------------------------------------------------------------- Net Assets .......................................................................... $ 676,700,695 ============= =================================================================================================================================== Net Assets Consist of ----------------------------------------------------------------------------------------------------------------------------------- Investor's capital .................................................................. $ 681,040,369 Unrealized depreciation -- net ...................................................... (4,339,674) ------------- Net assets .......................................................................... $ 676,700,695 =============
See Notes to Financial Statements. BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 29 Statement of Operations Short-Term Bond Master Portfolio For the Year Ended June 30, 2007 =================================================================================================================================== Investment Income ----------------------------------------------------------------------------------------------------------------------------------- Interest (income from affiliates -- $6,933) ......................................... $ 32,812,868 Dividends ........................................................................... 22,961 Securities lending -- net ........................................................... 17,698 ------------- Total income ........................................................................ 32,853,527 ------------- =================================================================================================================================== Expenses ----------------------------------------------------------------------------------------------------------------------------------- Investment advisory fees ............................................................ $ 1,414,905 Accounting services ................................................................. 249,940 Custodian fees ...................................................................... 78,180 Professional fees ................................................................... 54,499 Trustees' fees and expenses ......................................................... 28,918 Pricing fees ........................................................................ 22,739 Printing and shareholder reports .................................................... 3,126 Other ............................................................................... 21,082 ------------- Total expenses ...................................................................... 1,873,389 ------------- Investment income -- net ............................................................ 30,980,138 ------------- =================================================================================================================================== Realized & Unrealized Gain (Loss) -- Net ----------------------------------------------------------------------------------------------------------------------------------- Realized gain (loss) on: Investments (includes $175 gain from affiliates) -- net ......................... (5,704,143) Financial futures contracts and swaps -- net .................................... (1,836,808) Foreign currency transactions -- net ............................................ 203,618 Options written -- net .......................................................... 290,320 (7,047,013) ------------- Change in unrealized appreciation/depreciation on: Investments -- net .............................................................. 9,731,460 Financial futures contracts and swaps -- net .................................... (220,553) Foreign currency transactions -- net ............................................ (130,269) Options written ................................................................. (142,129) 9,238,509 ------------------------------ Total realized and unrealized gain -- net ........................................... 2,191,496 ------------- Net Increase in Net Assets Resulting from Operations ................................ $ 33,171,634 =============
See Notes to Financial Statements. 30 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Statements of Changes in Net Assets Short-Term Bond Master Portfolio
For the Year Ended June 30, ------------------------------ Increase (Decrease) in Net Assets: 2007 2006 =================================================================================================================================== Operations ----------------------------------------------------------------------------------------------------------------------------------- Investment income -- net ............................................................ $ 30,980,138 $ 27,804,920 Realized loss -- net ................................................................ (7,047,013) (2,431,805) Change in unrealized appreciation/depreciation -- net ............................... 9,238,509 (8,404,614) ------------------------------ Net increase in net assets resulting from operations ................................ 33,171,634 16,968,501 ------------------------------ =================================================================================================================================== Capital Transactions ----------------------------------------------------------------------------------------------------------------------------------- Proceeds from contributions ......................................................... 165,796,615 175,591,581 Fair value of withdrawals ........................................................... (201,097,486) (240,264,379) ------------------------------ Net decrease in net assets derived from capital transactions ........................ (35,300,871) (64,672,798) ------------------------------ =================================================================================================================================== Net Assets ----------------------------------------------------------------------------------------------------------------------------------- Total decrease in net assets ........................................................ (2,129,237) (47,704,297) Beginning of year ................................................................... 678,829,932 726,534,229 ------------------------------ End of year ......................................................................... $ 676,700,695 $ 678,829,932 ==============================
See Notes to Financial Statements. Financial Highlights Short-Term Bond Master Portfolio
For the Year Ended June 30, The following ratios have been derived from ---------------------------------------------------------------------------- information provided in the financial statements. 2007 2006 2005 2004 2003 =================================================================================================================================== Total Investment Return ----------------------------------------------------------------------------------------------------------------------------------- Total investment return ................ 5.03% 2.50% 2.80% 1.18% 6.05% ============================================================================ =================================================================================================================================== Ratios to Average Net Assets ----------------------------------------------------------------------------------------------------------------------------------- Expenses ............................... .28% .28% .28% .28% .28% ============================================================================ Investment income -- net ............... 4.60% 4.00% 3.34% 3.39% 3.73% ============================================================================ =================================================================================================================================== Supplemental Data ----------------------------------------------------------------------------------------------------------------------------------- Net assets, end of year (in thousands) . $ 676,701 $ 678,830 $ 726,534 $ 740,024 $ 739,334 ============================================================================ Portfolio turnover ..................... 108%+ 80% 75% 107% 198% ============================================================================
+ Excludes dollar roll transactions. See Notes to Financial Statements. BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 31 Notes to Financial Statements Short-Term Bond Master Portfolio 1. Significant Accounting Policies: On September 29, 2006, Low Duration Master Portfolio and Fund Asset Management Master Trust, of which Low Duration Master Portfolio is a series, were renamed Short-Term Bond Master Portfolio (the "Portfolio") and Short-Term Bond Master Trust (the "Trust"), respectively. Effective June 15, 2007, the Trust was converted from a Delaware statutory trust to a Delaware limited liability company and, in accordance with the Limited Liability Company Agreement (the "LLC Agreement"), was renamed Short-Term Bond Master LLC (the "Master LLC"). The Master LLC is registered under the Investment Company Act of 1940, as amended. The LLC Agreement permits the Directors (and prior to June 15, 2007, the Declaration of Trust permitted the Trustees) to issue non-transferable interests in the Portfolio subject to certain limitations. Throughout this report the Trust and the Master LLC are referred to as the Master LLC and the Board of Trustees is referred to as the Board of Directors. The Portfolio's financial statements are prepared in conformity with U.S. generally accepted accounting principles, which may require the use of management accruals and estimates. Actual results may differ from these estimates. The following is a summary of significant accounting policies followed by the Portfolio. (a) Valuation of investments -- Debt securities are traded primarily in the over-the-counter ("OTC") markets and are valued at the last available bid price in the OTC market or on the basis of values obtained by a pricing service. Pricing services use valuation matrixes that incorporate both dealer-supplied valuations and valuation models. The procedures of the pricing service and its valuations are reviewed by the officers of the Master LLC under the general direction of the Board of Directors. Such valuations and procedures will be reviewed periodically by the Board of Directors of the Master LLC. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Options written or purchased are valued at the last sale price in the case of exchange-traded options. In the case of options traded in the OTC market, valuation is the last asked price (options written) or the last bid price (options purchased). Swap agreements are valued based upon quoted fair valuations received daily by the Master LLC from a pricing service or counterparty. Valuation of short-term investment vehicles is generally based on the net asset value of the underlying investment vehicle or amortized cost. Securities and other assets for which market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Master LLC. Equity securities that are held by the Portfolio, which are traded on stock exchanges or the NASDAQ Global Market, are valued at the last sale price or official close price on the exchange, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price for long positions, and at the last available asked price for short positions. In cases where equity securities are traded on more than one exchange, the securities are valued on the exchange designated as the primary market by or under the authority of the Board of Directors of the Master LLC. Long positions traded in the OTC market, NASDAQ Capital Market or Bulletin Board are valued at the last available bid price obtained from one or more dealers or pricing services approved by the Board of Directors of the Master LLC. Short positions traded in the OTC market are valued at the last available asked price. Portfolio securities that are traded both in the OTC market and on a stock exchange are valued according to the broadest and most representative market. Generally, trading in foreign securities, as well as U.S. government securities, money market instruments and certain fixed income securities, is substantially completed each day at various times prior to the close of business on the New York Stock Exchange ("NYSE"). The values of such securities used in computing the net assets of the Portfolio are determined as of such times. Foreign currency exchange rates also are generally determined as of the close of business on the NYSE. Occasionally, events affecting the values of such securities and such exchange rates may occur between the times at which they are determined and the close of business on the NYSE that may not be reflected in the computation of the Portfolio's net assets. If events (for example, a company announcement, market volatility or a natural disaster) occur during such periods that are expected to materially affect the value of such securities, those securities will be valued at their fair value as determined in good faith by the Master LLC's Board of Directors or by BlackRock Advisors, LLC (the "Manager"), an indirect, wholly owned subsidiary of BlackRock, Inc. using a pricing service and/or procedures approved by the Master LLC's Board of Directors. (b) Derivative financial instruments -- The Portfolio may engage in various portfolio investment strategies both to 32 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Notes to Financial Statements (continued) Short-Term Bond Master Portfolio increase the return of the Portfolio and to hedge, or protect, its exposure to interest rate movements and movements in the securities markets. Losses may arise due to changes in the value of the contract due to an unfavorable change in the price of the underlying security or if the counterparty does not perform under the contract. o Financial futures contracts -- The Portfolio may purchase or sell financial futures contracts and options on such financial futures contracts. Financial futures contracts are contracts for delayed delivery of securities at a specific future date and at a specific price or yield. Upon entering into a contract, the Portfolio deposits and maintains as collateral such initial margin as required by the exchange on which the transaction is effected. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. o Options -- The Portfolio may purchase and write call and put options. When the Portfolio writes an option, an amount equal to the premium received by the Portfolio is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Portfolio enters into a closing transaction), the Portfolio realizes a gain or loss on the option to the extent of the premiums received or paid (or a gain or loss to the extent that the cost of the closing transaction exceeds the premium paid or received). Written and purchased options are non-income producing investments. o Swaps -- The Portfolio may enter into swap agreements, which are OTC contracts in which the Portfolio and a counterparty agree to make periodic net payments on a specified notional amount. The net payments can be made for a set period of time or may be triggered by a predetermined credit event. The net periodic payments may be based on a fixed or variable interest rate; the change in market value of a specified security, basket of securities, or index; or the return generated by a security. These periodic payments received or made by the Portfolio are recorded in the accompanying Statement of Operations as realized gains or losses, respectively. Gains or losses are realized upon termination of the swap agreements. Swaps are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). Risks include changes in the returns of the underlying instruments, failure of the counterparties to perform under the contracts' terms and the possible lack of liquidity with respect to the swap agreements. (c) Foreign currency transactions -- Transactions denominated in foreign currencies are recorded at the exchange rate prevailing when recognized. Assets and liabilities denominated in foreign currencies are valued at the exchange rate at the end of the period. Foreign currency transactions are the result of settling (realized) or valuing (unrealized) assets or liabilities expressed in foreign currencies into U.S. dollars. Realized and unrealized gains or losses from investments include the effects of foreign exchange rates on investments. The Portfolio invests in foreign securities, which may involve a number of risk factors and special considerations not present with investments in securities of U.S. corporations. (d) Income taxes -- The Portfolio is considered a "pass-through" entity for federal income tax purposes. As such, each investor in the Portfolio is treated as an owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. Therefore, no federal income tax provision is required. It is intended that the Portfolio's assets will be managed so an investor in the Portfolio can satisfy the requirements of Subchapter M of the Internal Revenue Code. (e) Security transactions and investment income -- Security transactions are accounted for on the date the securities are purchased or sold (the trade dates). Realized gains and losses on security transactions are determined on the identified cost basis. Interest income is recognized on the accrual basis. (f) Securities lending -- The Portfolio may lend securities to financial institutions that provide cash or securities issued or guaranteed by the U.S. government as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Portfolio and any additional required collateral is delivered to the Portfolio on the next business day. Where the Portfolio receives securities as collateral for BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 33 Notes to Financial Statements (continued) Short-Term Bond Master Portfolio the loaned securities, it collects a fee from the borrower. The Portfolio typically receives the income on the loaned securities but does not receive the income on the collateral. Where the Portfolio receives cash collateral, it may invest such collateral and retain the amount earned on such investment, net of any amount rebated to the borrower. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within five business days. The Portfolio may pay reasonable finder's, lending agent, administrative and custodial fees in connection with its loans. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Portfolio could experience delays and costs in gaining access to the collateral. The Portfolio also could suffer a loss where the value of the collateral falls below the market value of the borrowed securities, in the event of borrower default or in the event of losses on investments made with cash collateral. (g) 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/sold declines/increases prior to settlement date, which is in addition to the risk of decline in the value of a Portfolio's other assets. Unsettled TBA commitments are valued at the current market value of the underlying securities, according to the procedures described under "Valuation of investments." (h) Recent accounting pronouncements -- In July 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109." FIN 48 prescribes the minimum recognition threshold a tax position must meet in connection with accounting for uncertainties in income tax positions taken or expected to be taken by an entity, including mutual funds, before being measured and recognized in the financial statements. Adoption of FIN 48 is required for the last net asset value calculation in the first required financial statement reporting period for fiscal years beginning after December 15, 2006. The impact on the Portfolio's financial statements, if any, is currently being assessed. In September 2006, Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for fiscal years beginning after November 15, 2007. FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. At this time, management is evaluating the implications of FAS 157 and its impact on the Portfolio's financial statements, if any, has not been determined. In addition, in February 2007, Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("FAS 159"), was issued and is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FAS 157. FAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. FAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. At this time, management is evaluating the implications of FAS 159 and its impact on the Portfolio's financial statements, if any, has not been determined. 2. Investment Advisory Agreement and Transactions with Affiliates: On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill Lynch") combined Merrill Lynch's investment management business, Merrill Lynch Investment Managers, L.P. ("MLIM"), and its affiliates, including Fund Asset Management, L.P. ("FAM"), with BlackRock, Inc. to create a new independent company. Merrill Lynch has a 49.8% economic interest and a 45% voting interest in the combined company and The PNC Financial Services Group, Inc. has approximately a 34% economic and voting interest. The new company operates under the BlackRock name and is governed by a board of directors with a majority of independent members. On August 15, 2006, shareholders of the investor of the Master LLC approved a new Investment Advisory Agreement with BlackRock Advisors, Inc. BlackRock Advisors, Inc. was reorganized into a limited liability company and renamed BlackRock Advisors, LLC. The new Investment Advisory Agreement between the Master LLC and the Manager, with respect to the Portfolio, became effective on September 29, 2006. Prior to September 29, 2006, FAM was the Master LLC's manager. The general partner of FAM is an indirect, wholly owned subsidiary of Merrill Lynch, which is the limited partner. The Manager is responsible for the management of the Portfolio's investments and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Portfolio. For such services, the Portfolio pays a monthly fee at the annual rate of .21% based upon 34 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Notes to Financial Statements (concluded) Short-Term Bond Master Portfolio the average daily value of the Portfolio's net assets. In addition, the Manager has entered into a Sub-Advisory Agreement with BlackRock Financial Management, Inc., an affiliate of the Manager, under which the Manager pays the sub-adviser for services it provides a fee equal to a percentage of the management fee paid by the Portfolio to the Manager. The Portfolio has received an exemptive order from the Securities and Exchange Commission permitting it to lend portfolio securities to 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. Prior to September 29, 2006, BIM was organized as Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, and MLIM, LLC was the securities lending agent. BIM may, on behalf of the Portfolio, invest cash collateral received by the Portfolio for such loans, among other things, in a private investment company managed by the Manager or in registered money market funds advised by the Manager or its affiliates. For the year ended June 30, 2007, BIM received $6,592 in securities lending agent fees. For the year ended June 30, 2007, the Portfolio reimbursed FAM and the Manager $4,052 and $860, respectively, for certain accounting services. Prior to September 29, 2006, certain officers and/or directors of the Master LLC were officers and/or directors of MLIM, FAM, Merrill Lynch and/or MLIM, LLC. Commencing September 29, 2006, certain officers and/or directors of the Master LLC are officers and/or directors of BlackRock, Inc. or its affiliates. 3. Investments: Purchases and sales (including paydowns and maturities and excluding dollar roll transactions) of investments, excluding short-term securities, for the year ended June 30, 2007 were $726,773,098 and $712,296,303, respectively. Transactions in call options written for the year ended June 30, 2007 were as follows: -------------------------------------------------------------------------------- Number of Premiums Contracts* Received -------------------------------------------------------------------------------- Outstanding call options written, beginning of year .................. -- -- Options written ............................ 31 $ 567,450 Options closed ............................. (19) (420,200) Outstanding call options written, end of year ........................ 12 $ 147,250 * One contract represents a notional amount of $1,000,000. Transactions in put options written for the year ended June 30, 2007 were as follows: -------------------------------------------------------------------------------- Number of Premiums Contracts* Received -------------------------------------------------------------------------------- Outstanding put options written, beginning of year .................. -- -- Options written ............................ 31 $ 567,450 Options closed ............................. (19) (420,200) Outstanding put options written, end of year ........................ 12 $ 147,250 * One contract represents a notional amount of $1,000,000. 4. Short-Term Borrowings: The Master LLC, on behalf of the Portfolio, along with certain other funds managed by the Manager and its affiliates, is party to a $500,000,000 credit agreement with a group of lenders, which expires November 2007. The Master LLC may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Master LLC may borrow up to the maximum amount allowable under the Master LLC's current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The Master LLC pays a commitment fee of .06% per annum based on the Master LLC's pro rata share of the unused portion of the credit agreement. Amounts borrowed under the credit agreement bear interest at a rate equal to, at each fund's election, the federal funds rate plus .35% or a base rate as defined in the credit agreement. The Master LLC did not borrow under the credit agreement during the year ended June 30, 2007. BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 35 Report of Independent Registered Public Accounting Firm Short-Term Bond Master Portfolio To the Board of Directors and Investors of Short-Term Bond Master LLC: We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Short-Term Bond Master Portfolio (the "Portfolio") (formerly Low Duration Master Portfolio) of Short-Term Bond Master LLC (formerly Fund Asset Management Master Trust) as of June 30, 2007, and the related statement of operations, the statement of changes in net assets, and the financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Portfolio's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The financial statements of the Portfolio for the year ended June 30, 2006 and the financial highlights for each of the four years in the period ended June 30, 2006 were audited by other auditors whose report, dated August 9, 2006, expressed an unqualified opinion on those financial statements and financial highlights. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Portfolio is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Portfolio's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of June 30, 2007, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Short-Term Bond Master Portfolio of Short-Term Bond Master LLC as of June 30, 2007, the results of its operations, the changes in its net assets, and its financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Deloitte & Touche LLP Princeton, New Jersey August 27, 2007 Change in Portfolio's Independent Registered Public Accounting Firm On August 28, 2006, Ernst & Young llp ("E&Y") resigned as the Independent Registered Public Accounting Firm of Short-Term Bond Master Portfolio (the "Portfolio"). E&Y's report on the financial statements of the Portfolio for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In connection with its audits for the two most recent fiscal years through August 28, 2006 (1) there were no disagreements with E&Y on any matter of accounting principle or practice, financial statement disclosure or auditing scope or procedure, whereby such disagreements, if not resolved to the satisfaction of E&Y, would have caused them to make reference to the subject matter of the disagreements in connection with their report on the financial statements for such years; and (2) there have been no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K). The Audit Committee of the Portfolio's Board of Directors approved the engagement of Deloitte & Touche llp as the Portfolio's Independent Registered Public Accounting Firm for the fiscal year ending June 30, 2007. 36 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Officers and Directors
Number of Funds and Portfolios in Other Public Position(s) Length of Fund Complex Directorships Held with Time Overseen by Held by Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director ==================================================================================================================================== Interested Director ------------------------------------------------------------------------------------------------------------------------------------ Robert C. P.O. Box 9011 Fund 2005 to Vice Chairman and Director of BlackRock, Inc., 121 Funds None Doll, Jr.* Princeton, NJ President present Global Chief Investment Officer for Equities, 161 Portfolios 08543-9011 and Chairman of the BlackRock Retail Operating Age: 52 Director Committee, and member of the BlackRock Executive Committee since 2006; President of the funds advised by Merrill Lynch Investment Managers, L.P. ("MLIM") and its affiliates ("MLIM/FAM-advised funds") from 2005 to 2006 and Chief Investment Officer thereof from 2001 to 2006; President of MLIM and Fund Asset Management, L.P. ("FAM") from 2001 to 2006; Co-Head (Americas Region) thereof from 2000 to 2001 and Senior Vice President from 1999 to 2001; President and Director of Princeton Services, Inc. ("Princeton Services") and President of Princeton Administrators, L.P. ("Princeton Administrators") from 2001 to 2006; Chief Investment Officer of OppenheimerFunds, Inc. in 1999 and Executive Vice President thereof from 1991 to 1999. ------------------------------------------------------------------------------------------------------------------------ * Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which BlackRock Advisors, LLC and its affiliates act as investment adviser. Mr. Doll is an "interested person," as defined in the Investment Company Act, of the Fund based on his positions with BlackRock, Inc. and its affiliates. Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund President, Mr. Doll serves at the pleasure of the Board of Directors.
BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 37 Officers and Directors (continued)
Number of Funds and Portfolios in Other Public Position(s) Length of Fund Complex Directorships Held with Time Overseen by Held by Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director ==================================================================================================================================== Independent Directors* ------------------------------------------------------------------------------------------------------------------------------------ James H. P.O. Box 9095 Director 2002 to Director, The China Business Group, Inc. since 37 Funds None Bodurtha** Princeton, NJ present 1996 and Executive Vice President thereof from 57 Portfolios 08543-9095 1996 to 2003; Chairman of the Board, Berkshire Age: 63 Holding Corporation since 1980; Partner, Squire, Sanders & Dempsey from 1980 to 1993. ------------------------------------------------------------------------------------------------------------------------------------ Kenneth A. P.O. Box 9095 Director 2005 to Professor, Harvard University since 1992; 37 Funds None Froot Princeton, NJ present Professor, Massachusetts Institute of Technology 57 Portfolios 08543-9095 from 1986 to 1992. Age: 49 ------------------------------------------------------------------------------------------------------------------------------------ Joe P.O. Box 9095 Director 2000 to Member of the Committee of Investment of Employee 37 Funds Kimco Grills** Princeton, NJ present Benefit Assets of the Association of Financial 57 Portfolios Realty 08543-9095 Professionals ("CIEBA") since 1986; Member of Corporation Age: 72 CIEBA's Executive Committee since 1988 and its Chairman from 1991 to 1992; Assistant Treasurer of International Business Machines Corporation ("IBM") and Chief Investment Officer of IBM Retirement Funds from 1986 to 1993; Member of the Investment Advisory Committee of the State of New York Common Retirement Fund from 1989 to 2006; Member of the Investment Advisory Committee of the Howard Hughes Medical Institute from 1997 to 2000; Director, Duke University Management Company from 1992 to 2004, Vice Chairman thereof from 1998 to 2004, and Director Emeritus thereof since 2004; Director, LaSalle Street Fund from 1995 to 2001; Director, Kimco Realty Corporation since 1997; Member of the Investment Advisory Committee of the Virginia Retirement System since 1998, Vice Chairman thereof from 2002 to 2005, and Chairman thereof since 2005; Director, Montpelier Foundation since 1998, its Vice Chairman from 2000 to 2006, and Chairman, thereof, since 2006; Member of the Investment Committee of the Woodberry Forest School since 2000; Member of the Investment Committee of the National Trust for Historic Preservation since 2000.
38 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 Officers and Directors (continued)
Number of Funds and Portfolios in Other Public Position(s) Length of Fund Complex Directorships Held with Time Overseen by Held by Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director ==================================================================================================================================== Independent Directors* (concluded) ------------------------------------------------------------------------------------------------------------------------------------ Herbert I. P.O. Box 9095 Director 2002 to Professor Emeritus, New York University since 37 Funds None London Princeton, NJ present 2005; John M. Olin Professor of Humanities, New 57 Portfolios 08543-9095 York University from 1993 to 2005 and Professor Age: 68 thereof from 1980 to 2005; President, Hudson Institute since 1997 and Trustee thereof since 1980; Dean, Gallatin Division of New York University from 1976 to 1993; Distinguished Fellow, Herman Kahn Chair, Hudson Institute from 1984 to 1985; Chairman of the Board of Directors of Vigilant Research, Inc. since 2006; Member of the Board of Directors for Grantham University since 2006; Director of AIMS since 2006; Director of Reflex Security since 2006; Director of InnoCentive, Inc. since 2006; Director of Cerego, LLC since 2005; Director, Damon Corp. from 1991 to 1995; Overseer, Center for Naval Analyses from 1983 to 1993. ------------------------------------------------------------------------------------------------------------------------------------ Roberta P.O. Box 9095 Director 2002 to Shareholder, Modrall, Sperling, Roehl, Harris & 37 Funds None Cooper Princeton, NJ present Sisk, P.A. since 1993; President, American Bar 57 Portfolios Ramo 08543-9095 Association from 1995 to 1996 and Member of the Age: 64 Board of Governors thereof from 1994 to 1997; Shareholder, Poole, Kelly & Ramo, Attorneys at Law, P.C. from 1977 to 1993; Director of ECMC Group (service provider to students, schools and lenders) since 2001; Director, United New Mexico Bank (now Wells Fargo) from 1983 to 1988; Director, First National Bank of New Mexico (now Wells Fargo) from 1975 to 1976; Vice President, American Law Institute since 2004. ------------------------------------------------------------------------------------------------------------------------------------ Robert S. P.O. Box 9095 Director 2002 to Principal of STI Management (investment adviser) 37 Funds None Salomon, Princeton, NJ present from 1994 to 2005; Chairman and CEO of Salomon 57 Portfolios Jr. 08543-9095 Brothers Asset Management Inc. from 1992 to 1995; Age: 70 Chairman of Salomon Brothers Equity Mutual Funds from 1992 to 1995; regular columnist with Forbes Magazine from 1992 to 2002; Director of Stock Research and U.S. Equity Strategist at Salomon Brothers Inc. from 1975 to 1991; Trustee, Commonfund from 1980 to 2001. ------------------------------------------------------------------------------------------------------------------------ * Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72. ** Co-Chairman of the Board of Directors and the Audit Committee.
BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 39 Officers and Directors (concluded)
Position(s) Length of Held with Time Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years ==================================================================================================================================== Fund Officers* ------------------------------------------------------------------------------------------------------------------------------------ Donald C. P.O. Box 9011 Vice 2002 to Managing Director of BlackRock, Inc. since 2006; Managing Director of Merrill Burke Princeton, NJ President present Lynch Investment Managers, L.P. ("MLIM") and Fund Asset Management, L.P. ("FAM") 08543-9011 and in 2006; First Vice President of MLIM and FAM from 1997 to 2005 and Treasurer Age: 47 Treasurer thereof from 1999 to 2006; Vice President of MLIM and FAM from 1990 to 1997. ------------------------------------------------------------------------------------------------------------------------------------ Karen P.O. Box 9011 Fund Chief 2007 to Managing Director of BlackRock, Inc. and Chief Compliance Officer of certain Clark Princeton, NJ Compliance present BlackRock-advised funds since 2007; Director of BlackRock, Inc. from 2005 to 08543-9011 Officer 2007; Principal and Senior Compliance Officer, State Street Global Advisors, Age: 42 from 2001 to 2005; Principal Consultant, PricewaterhouseCoopers, LLP from 1998 to 2001; and Branch Chief, Division of Investment Management and Office of Compliance Inspections and Examinations, U.S. Securities and Exchange Commission, from 1993 to 1998. ------------------------------------------------------------------------------------------------------------------------------------ Alice A. P.O. Box 9011 Secretary 2004 to Director of BlackRock, Inc. since 2006; Director (Legal Advisory) of MLIM from Pellegrino Princeton, NJ present 2002 to 2006; Vice President of MLIM from 1999 to 2002; Attorney associated with 08543-9011 MLIM from 1997 to 1999; Secretary of MLIM, FAM, FAM Distributors, Inc. and Age: 47 Princeton Services from 2004 to 2006. ------------------------------------------------------------------------------------------------------------------------ * Officers of the Fund serve at the pleasure of the Board of Directors. ------------------------------------------------------------------------------------------------------------------------------------ Further information about the Fund's Officers and Directors is available in the Fund's Statement of Additional Information, which can be obtained without charge by calling 1-800-441-7762. ------------------------------------------------------------------------------------------------------------------------------------
Custodian Brown Brothers Harriman & Co. 40 Water Street Boston, MA 02109-3661 Transfer Agent PFPC Inc. Wilmington, DE 19809 40 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 BlackRock Funds BlackRock Privacy Principles BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, "Clients") and to safeguarding their 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 Web sites. BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients, except as permitted by law or as is necessary to respond to regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended purpose. We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information. Availability of Additional Information Electronic copies of most financial reports and prospectuses are available on the Fund's Web site or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Fund's electronic delivery program. To enroll: Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages: Please contact your financial advisor. Please note that not all investment advisers, banks or brokerages may offer this service. Shareholders Who Hold Accounts Directly with BlackRock: 1) Access the BlackRock Web site at http://www.blackrock.com/edelivery 2) Select eDelivery under the More Information section 3) Log into your account The Fund will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called "householding" and it is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact the Fund at (800) 441-7762. BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 41 BlackRock Funds (concluded) Availability of Additional Information (concluded) Availability of Proxy Voting Policies and Procedures The Fund has delegated proxy voting responsibilities to BlackRock and its affiliates, subject to the general oversight of the Fund's Board of Directors. A description of the policies and procedures that BlackRock and its affiliates use to determine how to vote proxies relating to portfolio securities is available without charge, upon request, on our Web site at www.blackrock.com, by calling (800) 441-7762, or on the Web site of the Securities and Exchange Commission (the"Commission") at http://www.sec.gov. Availability of Proxy Voting Record Information on how proxies relating to the Fund's voting securities were voted (if any) by BlackRock during the most recent 12-month period ended June 30 is available, upon request and without charge, on our Web site at www.blackrock.com, by calling (800) 441-7762 or on the Web site of the Commission at http://www.sec.gov. Availability of Quarterly Portfolio Schedule The Fund files its complete schedule of portfolio holdings for the first and third quarters of its fiscal year with the Commission on Form N-Q. The Fund's Forms N-Q are available on the Commission's Web site at http://www.sec.gov and may be reviewed and copied at the Commission's Public Reference Room in Washington, D.C. Information regarding the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. The Fund's Forms N-Q may also be obtained upon request, without charge, by calling (800) 441-7762. Shareholder Privileges Account Information Call us at (800) 441-7762 8:00 AM - 6:00 PM EST to get information about your account balances, recent transactions and share prices. You can also reach us on the Web at www.blackrock.com. Automatic Investment Plans Investor Class shareholders who want to invest regularly can arrange to have $50 or more automatically deducted from their checking or savings account and invested in any of the BlackRock funds. Systematic Withdrawal Plans Investor Class shareholders can establish a systematic withdrawal plan and receive periodic payments of $50 or more from their BlackRock funds, as long as their account is at least $10,000. Retirement Plans Shareholders may make investments in conjunction with Traditional, Rollover, Roth, Coverdell, Simple IRAs, SEP IRAs and 403(b) Plans. 42 BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 A World-Class Mutual Fund Family BlackRock offers a diverse lineup of open-end mutual funds crossing all investment styles and managed by experts in equity, fixed income and tax-exempt investing. Equity Funds BlackRock All-Cap Global Resources Portfolio BlackRock Aurora Portfolio BlackRock Asset Allocation Portfolio+ BlackRock Balanced Capital Fund+ BlackRock Basic Value Fund BlackRock Capital Appreciation Portfolio BlackRock Developing Capital Markets Fund BlackRock Equity Dividend Fund BlackRock EuroFund BlackRock Focus Twenty Fund BlackRock Focus Value Fund BlackRock Fundamental Growth Fund BlackRock Global Allocation Fund+ BlackRock Global Dynamic Equity Fund BlackRock Global Financial Services Fund BlackRock Global Growth Fund BlackRock Global Opportunities Portfolio BlackRock Global Resources Portfolio* BlackRock Global Science & Technology Opportunities Portfolio BlackRock Global SmallCap Fund BlackRock Healthcare Fund BlackRock Health Sciences Opportunities Portfolio BlackRock Index Equity Portfolio* BlackRock International Fund BlackRock International Index Fund BlackRock International Opportunities Portfolio* BlackRock International Value Fund BlackRock Investment Trust BlackRock Large Cap Core Fund BlackRock Large Cap Growth Fund BlackRock Large Cap Value Fund BlackRock Latin America Fund BlackRock Mid-Cap Growth Equity Portfolio BlackRock Mid-Cap Value Equity Portfolio BlackRock Mid Cap Value Opportunities Fund BlackRock Natural Resources Trust BlackRock Pacific Fund BlackRock Small Cap Core Equity Portfolio BlackRock Small Cap Growth Equity Portfolio BlackRock Small Cap Growth Fund II BlackRock Small Cap Index Fund BlackRock Small Cap Value Equity Portfolio* BlackRock Small/Mid-Cap Growth Portfolio BlackRock S&P 500 Index Fund BlackRock Technology Fund BlackRock U.S. Opportunities Portfolio BlackRock Utilities and Telecommunications Fund BlackRock Value Opportunities Fund Fixed Income Funds BlackRock Bond Fund BlackRock Commodity Strategies Fund BlackRock Enhanced Income Portfolio BlackRock GNMA Portfolio BlackRock Government Income Portfolio BlackRock High Income Fund BlackRock High Yield Bond Portfolio BlackRock Inflation Protected Bond Portfolio BlackRock Intermediate Bond Portfolio II BlackRock Intermediate Government Bond Portfolio BlackRock International Bond Portfolio BlackRock Low Duration Bond Portfolio BlackRock Managed Income Portfolio BlackRock Short-Term Bond Fund BlackRock Total Return Portfolio BlackRock Total Return Portfolio II BlackRock World Income Fund Municipal Bond Funds BlackRock AMT-Free Municipal Bond Portfolio BlackRock California Insured Municipal Bond Fund BlackRock Delaware Municipal Bond Portfolio BlackRock Florida Municipal Bond Fund BlackRock High Yield Municipal Fund BlackRock Intermediate Municipal Fund BlackRock Kentucky Municipal Bond Portfolio BlackRock Municipal Insured Fund BlackRock National Municipal Fund BlackRock New Jersey Municipal Bond Fund BlackRock New York Municipal Bond Fund BlackRock Ohio Municipal Bond Portfolio BlackRock Pennsylvania Municipal Bond Fund BlackRock Short-Term Municipal Fund Target Risk & Target Date Funds BlackRock Prepared Portfolios Conservative Prepared Portfolio Moderate Prepared Portfolio Growth Prepared Portfolio Aggressive Growth Prepared Portfolio BlackRock Lifecycle Prepared Portfolios Prepared Portfolio 2010 Prepared Portfolio 2015 Prepared Portfolio 2020 Prepared Portfolio 2025 Prepared Portfolio 2030 Prepared Portfolio 2035 Prepared Portfolio 2040 Prepared Portfolio 2045 Prepared Portfolio 2050 * See the prospectus for information on specific limitations on investments in the fund. + Mixed asset fund. BlackRock mutual funds are distributed by BlackRock Distributors, Inc. and certain funds are also distributed by FAM Distributors, Inc. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund's prospectus contains this and other information and is available at www.blackrock.com or by calling 800-882-0052 or from your financial advisor. The prospectus should be read carefully before investing. BLACKROCK SHORT-TERM BOND FUND JUNE 30, 2007 43 This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund's current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change. BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. P.O. Box 9011 Princeton, NJ 08543-9011 BLACKROCK #BR-3070-6/07 Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the end of the period covered by this report, that applies to the registrant's principal executive officer, principal financial officer and principal accounting officer, or persons performing similar functions. A copy of the code of ethics is available without charge at www.blackrock.com. Item 3 - Audit Committee Financial Expert - The registrant's board of directors has determined that (i) the registrant has the following audit committee financial experts serving on its audit committee and (ii) each audit committee financial expert is independent: (1) Joe Grills and (2) Robert S. Salomon, Jr. Item 4 - Principal Accountant Fees and Services Note: The Fund changed auditors effective August, 28, 2006. Prior to that date, Ernst & Young LLP provided services as the Fund's independent registered public accountant. BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. (a) Audit Fees - Fiscal Year Ended June 30, 2007 - $6,600 Fiscal Year Ended June 30, 2006 - $0 (b) Audit-Related Fees - Fiscal Year Ended June 30, 2007 - $0 Fiscal Year Ended June 30, 2006 - $0 (c) Tax Fees - Fiscal Year Ended June 30, 2007 - $6,100 Fiscal Year Ended June 30, 2006 - $0 The nature of the services include tax compliance, tax advice and tax planning. (d) All Other Fees - Fiscal Year Ended June 30, 2007 - $0 Fiscal Year Ended June 30, 2006 - $0 Short-Term Bond Master Portfolio of Short-Term Bond Master LLC (a) Audit Fees - Fiscal Year Ended June 30, 2007 - $32,700 Fiscal Year Ended June 30, 2006 - $41,000 (b) Audit-Related Fees - Fiscal Year Ended June 30, 2007 - $0 Fiscal Year Ended June 30, 2006 - $0 (c) Tax Fees - Fiscal Year Ended June 30, 2007 - $9,200 Fiscal Year Ended June 30, 2006 - $5,700 The nature of the services include tax compliance, tax advice and tax planning. (d) All Other Fees - Fiscal Year Ended June 30, 2007 - $0 Fiscal Year Ended June 30, 2006 - $0 (e)(1) The registrant's audit committee (the "Committee") has adopted policies and procedures with regard to the pre-approval of services. Audit, audit-related and tax compliance services provided to the registrant on an annual basis require specific pre-approval by the Committee. The Committee also must approve other non-audit services provided to the registrant and those non-audit services provided to the registrant's affiliated service providers that relate directly to the operations and the financial reporting of the registrant. Certain of these non-audit services that the Committee believes are a) consistent with the SEC's auditor independence rules and b) routine and recurring services that will not impair the independence of the independent accountants may be approved by the Committee without consideration on a specific case-by-case basis ("general pre-approval"). However, such services will only be deemed pre-approved provided that any individual project does not exceed $5,000 attributable to the registrant or $50,000 for all of the registrants the Committee oversees. Any proposed services exceeding the pre-approved cost levels will require specific pre-approval by the Committee, as will any other services not subject to general pre-approval (e.g., unanticipated but permissible services). The Committee is informed of each service approved subject to general pre-approval at the next regularly scheduled in-person board meeting. (e)(2) 0% (f) Not Applicable (g) BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. Fiscal Year Ended June 30, 2007 - $2,967,000 Fiscal Year Ended June 30, 2006 - $0 Short-Term Bond Master Portfolio of Short-Term Bond Master LLC Fiscal Year Ended June 30, 2007 - $2,970,100 Fiscal Year Ended June 30, 2006 - $0 (h) The registrant's audit committee has considered and determined that the provision of non-audit services that were rendered to the registrant's investment adviser and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. Regulation S-X Rule 2-01(c)(7)(ii) - $1,735,000, 0% Item 5 - Audit Committee of Listed Registrants - Not Applicable Item 6 - Schedule of Investments - The registrant's Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this form. 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 Committee will consider nominees to the Board recommended by shareholders when a vacancy becomes available. Shareholders who wish to recommend a nominee should send nominations which include biographical information and set forth the qualifications of the proposed nominee to the registrant's Secretary. There have been no material changes to these procedures. Item 11 - Controls and Procedures 11(a) - The registrant's principal executive and principal financial officers or persons performing similar functions have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act")) are effective as of a date within 90 days of the filing of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 15d-15(b) under the Securities and 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 (17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12 - Exhibits attached hereto 12(a)(1) - Code of Ethics - See Item 2 12(a)(2) - Certifications - Attached hereto 12(a)(3) - Not Applicable 12(b) - Certifications - Attached hereto Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and Short-Term Bond Master Portfolio of Short-Term Bond Master LLC By: /s/ Robert C. Doll, Jr. ----------------------------------- Robert C. Doll, Jr., Chief Executive Officer of BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and Short-Term Bond Master Portfolio of Short-Term Bond Master LLC Date: August 20, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Robert C. Doll, Jr. ----------------------------------- Robert C. Doll, Jr., Chief Executive Officer of BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and Short-Term Bond Master Portfolio of Short-Term Bond Master LLC Date: August 20, 2007 By: /s/ Donald C. Burke ----------------------------------- Donald C. Burke, Chief Financial Officer of BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and Short-Term Bond Master Portfolio of Short-Term Bond Master LLC Date: August 20, 2007