-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SAP1BKEWwBedtgdcHkTuuzGaIZXhlwnEiPzr+V1meG25Rp6RF/Ap6RVEhIDaabFC UzVDe8XH1e1EYqhWjlVY8Q== 0001193805-08-000767.txt : 20080306 0001193805-08-000767.hdr.sgml : 20080306 20080306113727 ACCESSION NUMBER: 0001193805-08-000767 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20071231 FILED AS OF DATE: 20080306 DATE AS OF CHANGE: 20080306 EFFECTIVENESS DATE: 20080306 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLACKROCK SHORT TERM BOND SERIES, INC. CENTRAL INDEX KEY: 0001119261 IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-10053 FILM NUMBER: 08670025 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS ROAD STREET 2: SUITE 4000 CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092820785 MAIL ADDRESS: STREET 1: 800 SCUDDERS ROAD STREET 2: SUITE 4000 CITY: PLAINSBORO STATE: NJ ZIP: 08536 FORMER COMPANY: FORMER CONFORMED NAME: MERRILL LYNCH INVESTMENT MANAGERS FUNDS INC DATE OF NAME CHANGE: 20000712 0001119261 S000002543 BlackRock Short Term Bond Fund C000007004 Investor A C000007005 Investor B C000007006 Investor C1 C000007007 Institutional C000007008 Class R C000038164 Investor C N-CSRS 1 e603418_ncsrs-shortterm.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSRS CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-10053 811-10089 Name of Fund: BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. Short-Term Bond Master Portfolio of Short-Term Bond Master LLC Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809 Name and address of agent for service: Donald C. Burke, Chief Executive Officer (principal 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: 06/30/2008 Date of reporting period: 07/01/2007 - 12/31/2007 Item 1 - Report to Stockholders EQUITIES FIXED INCOME REAL ESTATE LIQUIDITY ALTERNATIVES BLACKROCK SOLUTIONS BlackRock Short-Term BLACKROCK Bond Fund OF BLACKROCK SHORT-TERM BOND SERIES, INC. SEMI-ANNUAL REPORT DECEMBER 31, 2007 | (UNAUDITED) NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Table of Contents ================================================================================ Page - -------------------------------------------------------------------------------- A Letter to Shareholders ................................................. 3 Semi-Annual Report: Fund Summary ............................................................. 4 About Fund Performance ................................................... 6 Disclosure of Expenses ................................................... 6 Fund Financial Statements: Statement of Assets and Liabilities .................................... 7 Statement of Operations ................................................ 8 Statements of Changes in Net Assets .................................... 9 Fund Financial Highlights ................................................ 10 Fund Notes to Financial Statements ....................................... 15 Proxy Results ............................................................ 18 Master Portfolio Information ............................................. 18 Master Financial Statements: Schedule of Investments ................................................ 19 Statement of Assets and Liabilities .................................... 25 Statement of Operations ................................................ 26 Statements of Changes in Net Assets .................................... 27 Master Financial Highlights .............................................. 27 Master Notes to Financial Statements ..................................... 28 Officers and Directors ................................................... 32 BlackRock Fund Information ............................................... 33 Mutual Fund Family ....................................................... 35 2 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 A Letter to Shareholders Dear Shareholder Financial markets endured heightened volatility during 2007, culminating in mixed results for some of the major benchmark indexes:
Total Returns as of December 31, 2007 6-month 12-month ===================================================================================================================== U.S. equities (S&P 500 Index) -1.37% + 5.49% - --------------------------------------------------------------------------------------------------------------------- Small cap U.S. equities (Russell 2000 Index) -7.53 - 1.57 - --------------------------------------------------------------------------------------------------------------------- International equities (MSCI Europe, Australasia, Far East Index) +0.39 +11.17 - --------------------------------------------------------------------------------------------------------------------- Fixed income (Lehman Brothers U.S. Aggregate Bond Index) +5.93 + 6.97 - --------------------------------------------------------------------------------------------------------------------- Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +3.22 + 3.36 - --------------------------------------------------------------------------------------------------------------------- High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Cap Index) -0.67 + 2.27 - ---------------------------------------------------------------------------------------------------------------------
Past performance is no guarantee of future results. Index performance shown for illustrative purposes only. You cannot invest directly in an index. Subprime mortgage woes dominated headlines for much of 2007, spawning a widespread liquidity and credit crisis with ramifications across global markets. The Federal Reserve Board (the "Fed") stepped in to inject liquidity into the markets and bolster investor confidence, cutting the federal funds rate by 0.50% in September, 0.25% in October and 0.25% in December, which brought the target short-term interest rate to 4.25%. In taking action, the central bankers, who had long deemed themselves inflation fighters, were seeking to stem the fallout from the credit crunch and forestall a wider economic unraveling. Amid the volatility, equity markets displayed surprising resilience. Market fundamentals generally held firm, dividend payouts and share buybacks continued, and valuations remained attractive. To some extent, the credit turmoil dampened corporate merger-and-acquisition (M&A) activity, a key source of strength for equity markets, but 2007 remained a record year for global M&A nonetheless. As the returns indicate, the most recent six months were more trying, reflecting the slowing U.S. economy, a troubled housing market and a more difficult corporate earnings backdrop. Overall, large cap stocks outperformed small caps as investors grew increasingly risk averse. International markets fared better than their U.S. counterparts, benefiting from generally stronger economies. In fixed income markets, mixed economic signals and subprime fallout resulted in a flight to quality. Investors shunned bonds associated with the housing and credit markets in favor of higher-quality Treasury issues. The yield on 10-year Treasury issues, which touched 5.30% in June (its highest level in five years), fell to 4.04% by year-end, while prices correspondingly rose. The tax-exempt bond market waffled amid the economic uncertainty and concerns around the credit worthiness of bond insurers, but set a new-issuance record in 2007. A drop in municipal bond prices created buying opportunities, and the heightened supply was generally well absorbed. As you navigate the uncertainties inherent in the financial markets, we encourage you to start the year by reviewing your investment goals with your financial professional and making portfolio changes, as needed. For more reflection on 2007 and our 10 predictions for 2008, please ask your financial professional for a copy of "What's Ahead in 2008: An Investment Perspective," or view it online at www.blackrock.com/funds. As always, we thank you for entrusting BlackRock with your investment assets, and we look forward to continuing to serve you in the new year and beyond. Sincerely, /s/ Rob Kapito Rob Kapito President, BlackRock Advisors, LLC 3 THIS PAGE NOT PART OF YOUR FUND REPORT Fund Summary Portfolio Management Commentary How did the Fund perform? o The Fund underperformed the benchmark for the six-month period ended December 31, 2007. What factors influenced performance? o Financial markets were highly volatile during the period as fears spread about which investments might have exposure to the troubled subprime mortgage market. The liquidity of mortgage-backed securities began drying up, which led to a wider liquidity crisis as banks restricted their short-term lending. Fundamentally, most spread product remained fairly sound, but the lack of buyers caused spreads to widen as investors fled to the safety of Treasury issues. The Fund concentrates its investment in high-quality spread product (issues that generally have higher yield potential and less correlation to Treasury issues), and this proved detrimental against the underlying backdrop. o In addition, the portfolio had long positions in Europe, Australia and Sweden (including both government bonds and swap rates) against a short position in the U.S. bond market. The theory was that the U.S. economic slowdown and trouble in the subprime market would not be contained to the United States, but would impact other markets as well, leading to a slowdown across the globe. While the U.S. market was priced for a slowdown (and for Federal Reserve Board interest rate cuts), the other economies were not. As such, the U.S. continued to outperform and our positioning detracted. o Although it was nearly impossible to outperform Treasury issues during this period, we were effective in avoiding problem securities, which proved advantageous versus competitor funds. In particular, we avoided collateralized debt obligations and structured investment vehicles within the financial products markets. Our yield curve positioning also was a benefit. We had positioned the Fund for a steepening yield curve, a move that proved advantageous as short-term interest rates fell more than long-term interest rates and the curve steepened. We were short BBB-rated home equities, which was a relative positive as well. Describe recent portfolio activity. o We established a short position in the home-equity sector, which we removed in August to realize profits. Although the mortgage market was battered, unduly in many cases, we continued to see good relative value and selectively took advantage of this. We purchased some AAA-rated front cash-flow one-year home equity floaters. These have an 18- to 24-month payment window and are the first bonds in the payment structure to receive principal. We also continued to add hybrid adjustable rate mortgage product to the portfolio. o Our aforementioned long position in Europe and Australia was put in place early in this reporting period. Describe Fund positioning at period-end. o The Fund ended the period with a duration (a measure of interest rate sensitivity) similar to that of its benchmark. We continue to overweight high-quality spread product and remain long in Europe versus a short in the United States. Expense Example
Actual Hypothetical** ------------------------------------------------------- ------------------------------------------------------- Beginning Ending Beginning Ending Account Value Account Value Expenses Paid Account Value Account Value Expenses Paid July 1, 2007 December 31, 2007 During the Period* July 1, 2007 December 31, 2007 During the Period* - ------------------------------------------------------------------------------------------------------------------------------------ Institutional $1,000 $1,018.20 $ 3.56 $1,000 $1,021.67 $ 3.57 Investor A $1,000 $1,017.60 $ 5.29 $1,000 $1,019.96 $ 5.30 Investor B $1,000 $1,014.20 $ 8.63 $1,000 $1,016.63 $ 8.64 Investor C $1,000 $1,012.30 $10.50 $1,000 $1,014.76 $10.51 Investor C1 $1,000 $1,013.30 $ 8.42 $1,000 $1,016.83 $ 8.44 Class R $1,000 $1,015.70 $ 7.11 $1,000 $1,018.14 $ 7.12 - ------------------------------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class (.70% for Institutional, 1.04% for Investor A, 1.70% for Investor B, 2.07% for Investor C, 1.66% for Investor C1 and 1.40% for Class R), multiplied by the average account value over the period, multiplied by 184/365 (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 the 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. See "Disclosure of Expenses" on page 6 for further information on how expenses were calculated. 4 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 Total Return Based on a $10,000 Investment A line graph depicting the growth of an investment in the Fund's Institutional Shares and Investor A Shares compared to growth of an investment in the Merrill Lynch 1 - 3 Year Corporate & Government Index. Values are from December 1997 to December 2007. Merrill Lynch 1 - 3 Year Corporate Institutional Investor A & Government Shares*+ Shares*+ Index++ 12/97 $10,000 $9,700 $10,000 12/98 $10,565 $10,223 $10,701 12/99 $10,920 $10,540 $11,049 12/00 $11,677 $11,243 $11,940 12/01 $12,579 $12,073 $12,980 12/02 $13,147 $12,587 $13,771 12/03 $13,538 $12,930 $14,149 12/04 $13,760 $13,109 $14,321 12/05 $13,993 $13,296 $14,571 12/06 $14,593 $13,832 $15,191 12/07 $15,092 $14,273 $16,235 * 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 (the "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. Performance Summary for the Period Ended December 31, 2007
Average Annual Total Returns* -------------------------------------------------------------------- 1 Year 5 Years 10 Years --------------------- ------------------- -------------------- Standardized 6-Month w/o sales w/sales w/o sales w/sales w/o sales w/sales 30-Day Yields Total Returns charge charge charge charge charge charge - ------------------------------------------------------------------------------------------------------------------------------------ Institutional 4.46% +1.82% +3.42% -- +2.80% -- +4.20% -- Investor A 4.01 +1.76 +3.19 +0.10% +2.55 +1.92% +3.94 +3.62% Investor B 3.46 +1.42 +2.51 -1.45 +1.87 +1.51 +3.26 +3.26 Investor C 3.15 +1.23 +2.14 +1.15 +1.73 +1.73 +3.14 +3.14 Investor C1 3.50 +1.33 +2.44 +1.45 +1.85 +1.85 +3.24 +3.24 Class R 3.71 +1.57 +2.74 -- +2.40 -- +3.74 -- Merrill Lynch 1 - 3 Corporate and Government Index -- +4.59 +6.87 -- +3.35 -- +4.97 -- - ------------------------------------------------------------------------------------------------------------------------------------
* Assuming maximum sales charges. See "About Fund Performance" on page 6 for a detailed description of share classes, including any related sales charges and fees. Past performance is not indicative of future results. BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 5 About Fund Performance o Institutional Shares are not subject to any sales charge. Institutional Shares bear no ongoing distribution or service fees and are available only to eligible investors. o Investor A Shares incur a maximum initial sales charge (front-end load) of 3% and a service fee of 0.25% per year (but no distribution fee). o Investor B Shares are subject to a maximum contingent deferred sales charge of 4%, declining to 0% after six years. In addition, Investor B Shares are subject to a distribution fee of 0.65% per year and a service fee of 0.25% per year. These shares automatically convert to Investor A Shares after approximately 10 years. (There is no initial sales charge for automatic share conversions.) o Investor C Shares are subject to a distribution fee of 0.75% per year and a service fee of 0.25% per year. In addition, Investor C Shares are subject to a 1% contingent deferred sales charge if redeemed within one year of purchase. Prior to October 2, 2006, Investor C Share performance results 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 page 5 are those of BlackRock Short-Term Bond Fund and, prior to October 6, 2000 (commencement of operations), share performance results were those of Institutional Shares of a predecessor Fund (which have no distribution or service fees) restated to reflect each share class' fees. Performance information reflects past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Refer to www.blackrock.com/funds to obtain performance data current to the most recent month-end. Performance results do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Figures shown in the performance tables on page 5 assume reinvestment of all dividends and capital gain distributions, if any, at net asset value on the payable date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Dividends paid to each class of shares will vary because of the different levels of service, distribution and transfer agency fees applicable to each class, which are deducted from the income available to be paid to shareholders. The Portfolio's Manager has voluntarily waived a portion of its fee. Without such a waiver, the Fund's returns would have been lower. 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 expense example on page 4 (which is based on a hypothetical investment of $1,000 invested on July 1, 2007 and held through December 31, 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 table provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their share class under the heading entitled "Expenses Paid During the Period." The table also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in this Fund and other funds, compare the 5% hypothetical example with the 5% hypothetical examples that appear in other funds' shareholder reports. The expenses shown in the table are intended to highlight shareholders' ongoing costs only and do not reflect any transactional expenses, such as sales charges, redemption fees or exchange fees. Therefore, the hypothetical table is useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher. 6 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 Statement of Assets and Liabilities BlackRock Short-Term Bond Fund As of December 31, 2007 (Unaudited) =================================================================================================================================== Assets - ----------------------------------------------------------------------------------------------------------------------------------- Investment in Short-Term Bond Master Portfolio (the "Portfolio"), at value (identified cost -- $694,665,326) ............................................................ $ 693,729,997 Prepaid expenses ............................................................................... 16,886 ------------- Total assets ................................................................................... 693,746,883 ------------- =================================================================================================================================== Liabilities - ----------------------------------------------------------------------------------------------------------------------------------- Payables: Dividends to shareholders .................................................................. $ 2,186,416 Other affiliates ........................................................................... 237,518 Distributor ................................................................................ 207,851 Administrator .............................................................................. 150,686 2,782,471 ------------- Accrued expenses ............................................................................... 16,992 ------------- Total liabilities .............................................................................. 2,799,463 ------------- =================================================================================================================================== Net Assets - ----------------------------------------------------------------------------------------------------------------------------------- Net Assets ..................................................................................... $ 690,947,420 ============= =================================================================================================================================== Net Assets Consist of - ----------------------------------------------------------------------------------------------------------------------------------- Institutional Shares of Common Stock, $.01 par value, 100,000,000 shares authorized ............ $ 199,030 Investor A Shares of Common Stock, $.01 par value, 100,000,000 shares authorized ............... 313,677 Investor B Shares of Common Stock, $.01 par value, 200,000,000 shares authorized ............... 36,836 Investor C Shares of Common Stock, $.01 par value, 100,000,000 shares authorized ............... 37,235 Investor C1 Shares of Common Stock, $.01 par value, 100,000,000 shares authorized .............. 100,437 Class R Shares of Common Stock, $.01 par value, 200,000,000 shares authorized .................. 9,005 Paid-in capital in excess of par ............................................................... 725,822,811 Undistributed investment income -- net ......................................................... 298,943 Accumulated realized capital losses allocated from the Portfolio -- net ........................ (34,935,225) Unrealized depreciation allocated from the Portfolio -- net .................................... (935,329) ------------- Net assets ..................................................................................... $ 690,947,420 ============= =================================================================================================================================== Net Asset Value - ----------------------------------------------------------------------------------------------------------------------------------- Institutional -- Based on net assets of $197,718,257 and 19,903,049 shares outstanding ......... $ 9.93 ============= Investor A -- Based on net assets of $311,440,450 and 31,367,683 shares outstanding ............ $ 9.93 ============= Investor B -- Based on net assets of $36,492,249 and 3,683,629 shares outstanding .............. $ 9.91 ============= Investor C -- Based on net assets of $36,896,441 and 3,723,545 shares outstanding .............. $ 9.91 ============= Investor C1 -- Based on net assets of $99,474,261 and 10,043,725 shares outstanding ............ $ 9.90 ============= Class R -- Based on net assets of $8,925,762 and 900,507 shares outstanding .................... $ 9.91 =============
See Notes to Financial Statements. BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 7 Statement of Operations BlackRock Short-Term Bond Fund For the Six Months Ended December 31, 2007 (Unaudited) =================================================================================================================================== Investment Income - ----------------------------------------------------------------------------------------------------------------------------------- Net investment income allocated from the Portfolio: Interest ................................................................................... $ 18,045,155 Expenses ................................................................................... (968,344) ------------- Total income ................................................................................... 17,076,811 ------------- =================================================================================================================================== Expenses - ----------------------------------------------------------------------------------------------------------------------------------- Administration fees ............................................................................ $ 864,285 Service and distribution fees -- Investor C1 ................................................... 475,453 Service fees -- Investor A ..................................................................... 382,896 Transfer agent fees -- Investor A .............................................................. 339,536 Service and distribution fees -- Investor B .................................................... 178,125 Service and distribution fees -- Investor C .................................................... 151,897 Transfer agent fees -- Institutional ........................................................... 135,024 Transfer agent fees -- Investor C1 ............................................................. 106,495 Transfer agent fees -- Investor C .............................................................. 76,823 Printing and shareholder reports ............................................................... 64,837 Transfer agent fees -- Investor B .............................................................. 46,394 Registration fees .............................................................................. 36,992 Service and distribution fees -- Class R ....................................................... 23,098 Professional fees .............................................................................. 19,696 Transfer agent fees -- Class R ................................................................. 15,662 Other .......................................................................................... 8,942 ------------- Total expenses ................................................................................. 2,926,155 ------------- Investment income -- net ....................................................................... 14,150,656 ------------- =================================================================================================================================== Realized & Unrealized Gain (Loss) Allocated from the Portfolio -- Net - ----------------------------------------------------------------------------------------------------------------------------------- Realized gain (loss) on: Investments -- net ......................................................................... (1,513,761) Financial futures contracts and swaps -- net ............................................... (5,185,062) Foreign currency transactions -- net ....................................................... 329,844 Options written -- net ..................................................................... 388,121 (5,980,858) ------------- Change in unrealized appreciation/depreciation on: Investments -- net ......................................................................... 2,559,617 Financial futures contracts and swaps -- net ............................................... 922,382 Foreign currency transactions -- net ....................................................... (42,401) Options written -- net ..................................................................... (35,253) 3,404,345 ------------------------------- Total realized and unrealized loss -- net ...................................................... (2,576,513) ------------- Net Increase in Net Assets Resulting from Operations ........................................... $ 11,574,143 =============
See Notes to Financial Statements. 8 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 Statements of Changes in Net Assets BlackRock Short-Term Bond Fund
For the Six Months Ended For the December 31, Year Ended 2007 June 30, Increase (Decrease) in Net Assets: (Unaudited) 2007 =================================================================================================================================== Operations - ----------------------------------------------------------------------------------------------------------------------------------- Investment income -- net ....................................................................... $ 14,150,656 $ 25,375,834 Realized loss -- net ........................................................................... (5,980,858) (7,047,013) Change in unrealized appreciation/depreciation -- net .......................................... 3,404,345 9,238,509 ------------------------------- Net increase in net assets resulting from operations ........................................... 11,574,143 27,567,330 ------------------------------- =================================================================================================================================== Dividends to Shareholders - ----------------------------------------------------------------------------------------------------------------------------------- Investment income -- net: Institutional .............................................................................. (4,430,666) (8,402,051) Investor A ................................................................................. (6,260,233) (10,962,922) Investor B ................................................................................. (678,245) (1,626,913) Investor C ................................................................................. (463,152) (278,138) Investor C1 ................................................................................ (1,827,569) (4,176,074) Class R .................................................................................... (171,908) (261,107) ------------------------------- Net decrease in net assets resulting from dividends to shareholders ............................ (13,831,773) (25,707,205) ------------------------------- =================================================================================================================================== Capital Share Transactions - ----------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets derived from capital share transactions .................. 19,296,877 (5,691,836) ------------------------------- =================================================================================================================================== Net Assets - ----------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets ........................................................ 17,039,247 (3,831,711) Beginning of period ............................................................................ 673,908,173 677,739,884 ------------------------------- End of period* ................................................................................. $ 690,947,420 $ 673,908,173 =============================== * Undistributed (accumulated distributions in excess of) investment income -- net .......... $ 298,943 $ (19,940) ===============================
See Notes to Financial Statements. BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 9 Financial Highlights BlackRock Short-Term Bond Fund
Institutional --------------------------------------------------------------------- For the Six Months Ended December 31, For the Year Ended June 30, The following per share data and ratios have been derived 2007 ------------------------------------------------------ from information provided in the financial statements. (Unaudited) 2007 2006 2005 2004 2003 =================================================================================================================================== Per Share Operating Performance - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period .................. $ 9.97 $ 9.94 $ 10.10 $ 10.16 $ 10.39 $ 10.17 ------------------------------------------------------------------- Investment income -- net*** ........................... .23 .42 .36 .30 .31 .31 Realized and unrealized gain (loss) -- net ............ (.05) .03 (.15) (.06) (.23) .25 ------------------------------------------------------------------- Total from investment operations ...................... .18 .45 .21 .24 .08 .56 ------------------------------------------------------------------- Less dividends from investment income -- net .......... (.22) (.42) (.37) (.30) (.31) (.34) ------------------------------------------------------------------- Net asset value, end of period ........................ $ 9.93 $ 9.97 $ 9.94 $ 10.10 $ 10.16 $ 10.39 =================================================================== =================================================================================================================================== Total Investment Return** - ----------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share .................... 1.82%@ 4.59% 2.11% 2.39% .81% 5.61% =================================================================== =================================================================================================================================== Ratios to Average Net Assets+ - ----------------------------------------------------------------------------------------------------------------------------------- Expenses, net of waiver and reimbursement and excluding reorganization expenses ............................. .70%* .72% .67% .69% .65% .70% =================================================================== Expenses .............................................. .70%* .72% .67% .69% .65% .75% =================================================================== Investment income -- net .............................. 4.50%* 4.16% 3.61% 2.93% 3.00% 3.29% =================================================================== =================================================================================================================================== Supplemental Data - ----------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) .............. $197,718 $200,542 $203,377 $208,777 $240,749 $182,654 =================================================================== Portfolio turnover of the Portfolio ................... 36%++ 108%++ 80% 75% 107% 198% ===================================================================
* Annualized. ** 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. @ Aggregate total investment return. See Notes to Financial Statements. 10 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 Financial Highlights (continued) BlackRock Short-Term Bond Fund
Investor A --------------------------------------------------------------------- For the Six Months Ended December 31, For the Year Ended June 30, The following per share data and ratios have been derived 2007 ------------------------------------------------------ from information provided in the financial statements. (Unaudited) 2007 2006 2005 2004 2003 =================================================================================================================================== Per Share Operating Performance - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period .................. $ 9.96 $ 9.94 $ 10.10 $ 10.16 $ 10.38 $ 10.16 ------------------------------------------------------------------- Investment income -- net*** ........................... .21 .39 .34 .27 .29 .31 Realized and unrealized gain (loss) -- net ............ (.04) .02 (.16) (.05) (.22) .23 ------------------------------------------------------------------- Total from investment operations ...................... .17 .41 .18 .22 .07 .54 ------------------------------------------------------------------- Less dividends from investment income -- net .......... (.20) (.39) (.34) (.28) (.29) (.32) ------------------------------------------------------------------- Net asset value, end of period ........................ $ 9.93 $ 9.96 $ 9.94 $ 10.10 $ 10.16 $ 10.38 =================================================================== =================================================================================================================================== Total Investment Return** - ----------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share .................... 1.76%@ 4.20% 1.84% 2.14% .66% 5.36% =================================================================== =================================================================================================================================== Ratios to Average Net Assets+ - ----------------------------------------------------------------------------------------------------------------------------------- Expenses, net of waiver and reimbursement and excluding reorganization expenses ............................. 1.04%* 1.00% .91% .93% .89% .95% =================================================================== Expenses .............................................. 1.04%* 1.00% .91% .93% .89% 1.00% =================================================================== Investment income -- net .............................. 4.18%* 3.88% 3.37% 2.69% 2.78% 3.03% =================================================================== =================================================================================================================================== Supplemental Data - ----------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) .............. $311,440 $286,396 $267,411 $235,886 $125,950 $152,780 =================================================================== Portfolio turnover of the Portfolio ................... 36%++ 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. ++ Excludes dollar roll transactions. @ Aggregate total investment return. See Notes to Financial Statements. BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 11 Financial Highlights (continued) BlackRock Short-Term Bond Fund
Investor B --------------------------------------------------------------------- For the Six Months Ended December 31, For the Year Ended June 30, The following per share data and ratios have been derived 2007 ------------------------------------------------------ from information provided in the financial statements. (Unaudited) 2007 2006 2005 2004 2003 =================================================================================================================================== Per Share Operating Performance - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period .................. $ 9.94 $ 9.91 $ 10.08 $ 10.14 $ 10.37 $ 10.14 ------------------------------------------------------------------- Investment income -- net*** ........................... .17 .32 .27 .20 .22 .24 Realized and unrealized gain (loss) -- net ............ (.03) .02 (.16) (.05) (.23) .24 ------------------------------------------------------------------- Total from investment operations ...................... .14 .34 .11 .15 (.01) .48 ------------------------------------------------------------------- Less dividends from investment income -- net .......... (.17) (.31) (.28) (.21) (.22) (.25) ------------------------------------------------------------------- Net asset value, end of period ........................ $ 9.91 $ 9.94 $ 9.91 $ 10.08 $ 10.14 $ 10.37 =================================================================== =================================================================================================================================== Total Investment Return** - ----------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share .................... 1.42%@ 3.61% 1.07% 1.46% (.11%) 4.77% =================================================================== =================================================================================================================================== Ratios to Average Net Assets+ - ----------------------------------------------------------------------------------------------------------------------------------- Expenses, net of waiver and reimbursement and excluding reorganization expenses ............................. 1.70%* 1.67% 1.59% 1.61% 1.56% 1.61% =================================================================== Expenses .............................................. 1.70%* 1.67% 1.59% 1.61% 1.56% 1.66% =================================================================== Investment income -- net .............................. 3.46%* 3.21% 2.67% 2.00% 2.12% 2.00% =================================================================== =================================================================================================================================== Supplemental Data - ----------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) .............. $ 36,492 $ 42,358 $ 60,519 $ 97,090 $130,802 $139,688 =================================================================== Portfolio turnover of the Portfolio ................... 36%++ 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. ++ Excludes dollar roll transactions. @ Aggregate total investment return. See Notes to Financial Statements. 12 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 Financial Highlights (continued) BlackRock Short-Term Bond Fund
Investor C Investor C1 ------------------------ --------------------------------------------------------------- For the For the For the Six Months Period Six Months Ended October 2, Ended The following per share data and ratios December 31, 2006+++ December 31, For the Year Ended June 30, have been derived from information 2007 to June 30, 2007 -------------------------------------------------- provided in the financial statements. (Unaudited) 2007 (Unaudited) 2007 2006 2005 2004 2003 =================================================================================================================================== Per Share Operating Performance - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period ... $ 9.94 $ 10.01 $ 9.94 $ 9.91 $ 10.07 $ 10.13 $ 10.36 $ 10.14 -------------------- -------------------------------------------------------------- Investment income -- net*** ............ .16 .19 .18 .32 .27 .20 .22 .24 Realized and unrealized gain (loss) -- net ........................ (.04) (.03) (.05) .04 (.15) (.05) (.23) .23 -------------------- -------------------------------------------------------------- Total from investment operations ....... .12 .16 .13 .36 .12 .15 (.01) .47 -------------------- -------------------------------------------------------------- Less dividends from investment income -- net ........................ (.15) (.23) (.17) (.33) (.28) (.21) (.22) (.25) -------------------- -------------------------------------------------------------- Net asset value, end of period ......... $ 9.91 $ 9.94 $ 9.90 $ 9.94 $ 9.91 $ 10.07 $ 10.13 $ 10.36 ==================== ============================================================== =================================================================================================================================== Total Investment Return** - ----------------------------------------------------------------------------------------------------------------------------------- Based on net asset value per share ..... 1.23%@ 1.57%@ 1.33%@ 3.62% 1.17% 1.46% (.11%) 4.68% ==================== ============================================================== =================================================================================================================================== Ratios to Average Net Assets+ - ----------------------------------------------------------------------------------------------------------------------------------- Expenses, net of waiver and reimbursement and excluding reorganization expenses. 2.07%* 2.09%* 1.66%* 1.66% 1.59% 1.60% 1.56% 1.61% ==================== ============================================================== Expenses ............................... 2.07%* 2.09%* 1.66%* 1.66% 1.59% 1.60% 1.56% 1.66% ==================== ============================================================== Investment income -- net ............... 3.29%* 2.81%* 3.50%* 3.24% 2.68% 2.01% 2.12% 2.37% ==================== ============================================================== =================================================================================================================================== Supplemental Data - ----------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $ 36,896 $ 23,886 $ 99,474 $111,844 $142,083 $179,290 $239,263 $263,066 ==================== ============================================================== Portfolio turnover of the Portfolio ... 36%++ 108%++ 36%++ 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. ++ Excludes dollar roll transactions. +++ Commencement of operations. @ Aggregate total investment return. See Notes to Financial Statements. BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 13 Financial Highlights (concluded) BlackRock Short-Term Bond Fund
Class R ----------------------------------------------------------------------- For the For the Six Months Period Ended For the Year Ended January 3, December 31, June 30, 2003+++ The following per share data and ratios have been derived 2007 --------------------------------------- to June 30, from information provided in the financial statements. (Unaudited) 2007 2006 2005 2004 2003 ==================================================================================================================================== Per Share Operating Performance - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period ............... $ 9.94 $ 9.92 $ 10.08 $ 10.14 $ 10.37 $ 10.29 --------------------------------------------------------------------- Investment income -- net** ......................... .19 .36 .32 .18 .17 .18 Realized and unrealized gain (loss) -- net ......... (.03) .02 (.16) .01 (.11) .08 --------------------------------------------------------------------- Total from investment operations ................... .16 .38 .16 .19 .06 .26 --------------------------------------------------------------------- Less dividends from investment income -- net ....... (.19) (.36) (.32) (.25) (.29) (.18) --------------------------------------------------------------------- Net asset value, end of period ..................... $ 9.91 $ 9.94 $ 9.92 $ 10.08 $ 10.14 $ 10.37 ===================================================================== ==================================================================================================================================== Total Investment Return - ------------------------------------------------------------------------------------------------------------------------------------ Based on net asset value per share ................. 1.57%@ 3.91% 1.58% 1.88% .56% 2.55%@ ===================================================================== ==================================================================================================================================== Ratios to Average Net Assets+ - ------------------------------------------------------------------------------------------------------------------------------------ Expenses, excluding reorganization expenses ........ 1.40%* 1.30% 1.17% 1.19% 1.16% 1.19%* ===================================================================== Expenses ........................................... 1.40%* 1.30% 1.17% 1.19% 1.16% 1.28%* ===================================================================== Investment income -- net ........................... 3.78%* 3.59% 3.15% 2.46% 2.42% 2.74%* ===================================================================== ==================================================================================================================================== Supplemental Data - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of period (in thousands) ........... $ 8,926 $ 8,882 $ 4,350 $ 4,477 $ 2,387 --@@ ===================================================================== Portfolio turnover of the Portfolio ................ 36%++ 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. ++ Excludes dollar roll transactions. +++ Commencement of operations. @ Aggregate total investment return. @@ Amount is less than $1,000. See Notes to Financial Statements. 14 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 Notes to Financial Statements (Unaudited) BlackRock Short-Term Bond Fund 1. Significant Accounting Policies: BlackRock Short-Term Bond Fund (the "Fund"), a series of BlackRock Short-Term Bond Series, Inc. (the "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. Prior to June 15, 2007, the Master LLC was organized as a Delaware statutory trust. The value of the Fund's investment in the Portfolio reflects the Fund's proportionate interest in the net assets of the Portfolio. The performance of the Fund is directly affected by the performance of the Portfolio. The financial statements of the Portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The percentage of the Portfolio owned by the Fund at December 31, 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. These unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary to present a fair statement of the results for the interim period. All such adjustments are of a normal, recurring nature. The Fund offers multiple classes of shares. Institutional Shares are sold only to certain eligible investors. Investor A Shares are generally 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 require-ments 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 -- Effective June 29, 2007, the Fund implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition threshold a tax position must meet in connection with accounting for uncertainties in income tax positions taken or expected to be taken by an entity, including investment companies, before being measured and recognized in the financial statements. Management has evaluated the application of FIN 48 to the Fund, and has determined that the adoption of FIN 48 does not have a material impact on the Fund's financial statements. The Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Fund's U.S. federal tax returns remains open for the years ended June 30, 2004 through June 30, 2007. The statute of limitations on the Fund's state and local tax returns may remain open for an additional year depending upon the jurisdiction. 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 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 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 15 Notes to Financial Statements (continued) BlackRock Short-Term Bond Fund 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. 2. Transactions with Affiliates: The Fund has entered into an Administration Agreement with BlackRock Advisors, LLC (the "Administrator"), an indirect, wholly owned subsidiary of BlackRock Inc. 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. The Company has also entered into separate Distribution Agreements with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and its affiliates ("BDI") (collectively, the "Distributor") and has adopted separate Distribution Plans with respect to its Investor A, Investor B, Investor C, Investor C1 and Class R Shares. FAMD is a wholly owned subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock, Inc. Merrill Lynch & Co., Inc. ("Merrill Lynch") and The PNC Financial Services Group, Inc. ("PNC") are the principal owners 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 service and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the shares as follows: - -------------------------------------------------------------------------------- Service Distribution Fee Fee - -------------------------------------------------------------------------------- Investor A ......................................... .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 the 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 distribution-related services to Investor B, Investor C, Investor C1 and Class R shareholders. For the six months ended December 31, 2007, FAMD earned underwriting discounts and direct commissions and MLPF&S earned dealer concessions on sales of the Fund's Investor A Shares which totaled $76,943. For the six months ended December 31, 2007, affiliates received contingent deferred sales charges of $24,146, $7,557 and $2,646 relating to transactions in Investor B, Investor C and Investor C1 Shares, respectively. The Administrator maintains a call center, which is responsible for providing certain shareholder services to the Fund, such as responding to shareholder inquiries and processing transactions based upon instructions from shareholders with respect to the subscription and redemption of Fund shares. During the six months ended December 31, 2007, the following amounts have been accrued by the Fund to reimburse the Administrator for costs incurred running the call center, which are a component of the transfer agent fees in the accompanying Statements of Operations. - -------------------------------------------------------------------------------- Call Center Fees - -------------------------------------------------------------------------------- Institutional ................................................... $4,306 Investor A ...................................................... $7,517 Investor B ...................................................... $1,906 Investor C ...................................................... $ 665 Investor C1 ..................................................... $2,617 Class R ......................................................... $ 139 - -------------------------------------------------------------------------------- PFPC Inc., an indirect, wholly owned subsidiary of PNC and an affiliate of the Administrator, is the Fund's transfer agent. Certain officers and/or directors of the Fund are officers and/or directors of BlackRock, Inc. or its affiliates. 3. Capital Share Transactions: Net increase (decrease) in net assets derived from capital share transactions was $19,296,877 and $(5,691,836) for the six months ended December 31, 2007 and the year ended June 30, 2007, respectively. Transactions in capital shares for each class were as follows: - ------------------------------------------------------------------------------- Institutional Shares for the Six Months Dollar Ended December 31, 2007 Shares Amount - ------------------------------------------------------------------------------- Shares sold .................................. 1,223,263 $ 12,181,178 Shares issued to shareholders in reinvestment of dividends .................. 411,770 4,098,540 --------------------------- Total issued ................................. 1,635,033 16,279,718 Shares redeemed .............................. (1,853,744) (18,456,397) --------------------------- Net decrease ................................. (218,711) $ (2,176,679) =========================== - ------------------------------------------------------------------------------- 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) =========================== 16 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 Notes to Financial Statements (concluded) BlackRock Short-Term Bond Fund - ------------------------------------------------------------------------------- Investor A Shares for the Six Months Dollar Ended December 31, 2007 Shares Amount - ------------------------------------------------------------------------------- Shares sold and automatic conversion of shares 4,571,228 $ 45,513,089 Shares issued to shareholders in reinvestment of dividends .................. 588,751 5,857,070 --------------------------- Total issued ................................. 5,159,979 51,370,159 Shares redeemed .............................. (2,544,323) (25,311,676) --------------------------- Net increase ................................. 2,615,656 $ 26,058,483 =========================== - ------------------------------------------------------------------------------- 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 Shares 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 B Shares for the Six Months Dollar Ended December 31, 2007 Shares Amount - ------------------------------------------------------------------------------- Shares sold .................................. 142,735 $ 1,417,364 Shares issued to shareholders in reinvestment of dividends .................. 48,325 479,640 --------------------------- Total issued ................................. 191,060 1,897,004 Shares redeemed and automatic conversion of shares .................................. (769,237) (7,637,814) --------------------------- Net decrease ................................. (578,177) $ (5,740,810) =========================== - ------------------------------------------------------------------------------- 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) =========================== - ------------------------------------------------------------------------------- Investor C Shares for the Six Months Dollar Ended December 31, 2007 Shares Amount - ------------------------------------------------------------------------------- Shares sold .................................. 1,657,408 $ 16,458,416 Shares issued to shareholders in reinvestment of dividends .................. 39,564 392,841 --------------------------- Total issued ................................. 1,696,972 16,851,257 Shares redeemed .............................. (376,167) (3,733,809) --------------------------- Net increase ................................. 1,320,805 $ 13,117,448 =========================== - ------------------------------------------------------------------------------- Investor C Shares for the Period Dollar October 2, 2006* to 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 Six Months Dollar Ended December 31, 2007 Shares Amount - ------------------------------------------------------------------------------- Shares sold .................................. 63,894 $ 633,808 Shares issued to shareholders in reinvestment of dividends .................. 139,838 1,387,711 --------------------------- Total issued ................................. 203,732 2,021,519 Shares redeemed .............................. (1,415,884) (14,056,780) --------------------------- Net decrease ................................. (1,212,152) $(12,035,261) =========================== - ------------------------------------------------------------------------------- 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) =========================== - ------------------------------------------------------------------------------- Class R Shares for the Six Months Dollar Ended December 31, 2007 Shares Amount - ------------------------------------------------------------------------------- Shares sold .................................. 233,558 $ 2,320,103 Shares issued to shareholders in reinvestment of dividends .................. 17,304 171,859 --------------------------- Total issued ................................. 250,862 2,491,962 Shares redeemed .............................. (243,515) (2,418,266) --------------------------- Net increase ................................. 7,347 $ 73,696 =========================== - ------------------------------------------------------------------------------- Class R Shares for the Year Dollar Ended June 30, 2007 Shares Amount - ------------------------------------------------------------------------------- Shares sold .................................. 788,722 $ 7,885,609 Shares 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 =========================== 4. Capital Loss Carryforward: 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. BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 17 Proxy Results During the six-month period ended December 31, 2007, the shareholders* of BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. voted on the following proposal, which was approved at an annual shareholders' meeting on September 7, 2007. This proposal was a part of the reorganization of the Fund's Board of Directors that took effect on November 1, 2007. A description of the proposal and number of shares voted are as follows:
- ------------------------------------------------------------------------------------------------------------ Shares Voted Shares Withheld For From Voting - ------------------------------------------------------------------------------------------------------------ To elect the Fund's Board of Directors: James H. Bodurtha 62,651,823 2,597,228 Bruce R. Bond 62,651,823 2,597,228 Donald W. Burton 62,651,823 2,597,228 Richard S. Davis 62,650,224 2,598,827 Stuart E. Eizenstat 62,651,921 2,597,130 Laurence D. Fink 62,650,224 2,598,827 Kenneth A. Froot 62,651,823 2,597,228 Henry Gabbay 62,650,226 2,598,825 Robert M. Hernandez 62,651,823 2,597,228 John F. O'Brien 62,651,125 2,597,926 Roberta Cooper Ramo 62,652,725 2,596,326 Jean Margo Reid 62,652,725 2,596,326 David H. Walsh 62,652,525 2,596,526 Fred G. Weiss 62,652,525 2,596,526 Richard R. West 62,652,203 2,596,848 - ------------------------------------------------------------------------------------------------------------
* As a feeder fund of Short-Term Bond Master Portfolio of Short-Term Bond Master LLC, the shareholders of BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. also voted to elect the above-named individuals as Directors of Short-Term Bond Master Portfolio of Short-Term Bond Master LLC. Portfolio Information as of December 31, 2007 Short-Term Bond Master Portfolio Percent of Asset Mix Long-Term Investments - -------------------------------------------------------------------------------- Non-U.S. Government Agency Mortgage-Backed Securities ...................................................... 36.9% Asset-Backed Securities ........................................... 25.0 U.S. Government Agency Mortgage-Backed Securities ...................................................... 17.5 Corporate Bonds ................................................... 16.1 U.S. Government Agency Mortgage-Backed Obligations -- Collateralized Mortgage Obligations ..................................................... 4.2 Foreign Government Obligations .................................... 0.2 Capital Trusts .................................................... 0.1 - -------------------------------------------------------------------------------- 18 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 Schedule of Investments as of December 31, 2007 (Unaudited) Short-Term Bond Master Portfolio (in U.S. dollars) Face Amount Asset-Backed Securities+ Value =============================================================================== USD 5,466,890 ACE Securities Corp. Series 2006-FM2 Class A2A, 4.915% due 8/25/2036 (a) $ 5,212,898 2,999,780 Aegis Asset Backed Securities Trust Series 2006-1 Class A1, 4.945% due 1/25/2037 (a) 2,925,211 9,604,003 Ameriquest Mortgage Securities, Inc. Series 2004-FR1 Class A5, 4.455% due 5/25/2034 (a) 9,404,864 3,168,544 Asset Backed Funding Certificates Series 2006-OPT2 Class A3A, 4.925% due 10/25/2036 (a) 3,093,673 5,350,000 Bank of America Credit Card Trust Series 2007-A7 Class A7, 4.652% due 8/15/2012 (a)(b) 5,318,123 Capital Auto Receivables Asset Trust (b): 1,250,000 Series 2004-2 Class D, 5.82% due 5/15/2012 1,246,298 2,798,605 Series 2006-SN1A Class A2A, 5.40% due 1/20/2009 2,801,106 2,139,345 Chase Manhattan Auto Owner Trust Series 2005-A Class A3, 3.87% due 6/15/2009 2,131,461 Countrywide Asset Backed Certificates (a): 804,123 Series 2004-13 Class AF3, 3.989% due 12/25/2034 789,326 1,307,626 Series 2006-20 Class 2A1, 4.915% due 4/25/2037 1,280,264 6,525,000 Daimler Chrysler Auto Trust Series 2006-C Class A3, 5.02% due 7/08/2010 6,542,050 3,791,082 First Horizon Asset Backed Securities Trust Series 2004-HE4 Class A2, 4.07% due 7/25/2019 3,709,707 Ford Credit Auto Owner Trust: 5,035,928 Series 2005-A Class A4, 3.72% due 10/15/2009 5,010,395 5,286,554 Series 2005-B Class A4, 4.38% due 1/15/2010 5,278,539 2,557,375 Series 2005-C Class A3, 4.30% due 8/15/2009 2,553,112 1,531,115 Fremont Home Loan Trust Series 2005-E Class 2A2, 5.035% due 1/25/2036 (a) 1,523,454 4,543,170 GCO Slims Trust Series 2006-1A Class NOTE, 5.72% due 3/01/2022 (b) 4,497,738 166,811 GSAA Home Equity Trust Series 2006-8N Class N1, 6% due 10/26/2036 (b) 50,043 1,461,477 GSAA Trust Series 2004-10 Class AF2, 4.22% due 8/25/2034 (a) 1,457,185 3,621,458 GSAMP Trust Series 2005-AHL Class A3, 5.205% due 4/25/2035 (a) 3,440,385 3,780,983 HSI Asset Securitization Corp. Trust Series 2006-HE1 Class 2A1, 4.915% due 10/25/2036 (a) 3,709,432 Honda Auto Receivables Owner Trust Class A3: 2,128,420 Series 2006-1, 5.07% due 2/18/2010 2,131,700 5,425,000 Series 2006-3, 5.12% due 10/15/2010 5,446,983 7,533,155 JPMorgan Mortgage Acquisition Corp. Series 2007-CH5 Class A2, 4.915% due 11/25/2029 (a) 7,323,269 Morgan Stanley ABS Capital I (a): 3,820,393 Series 2007-HE2 Class A2A, 4.905% due 1/25/2037 3,728,228 6,198,123 Series 2007-HE6 Class A1, 4.925% due 5/25/2037 6,045,578 National Collegiate Student Loan Trust Class AIO (c): 16,400,000 Series 2005-2, 7.73% due 3/25/2012 2,639,252 33,292,725 Series 2005-GT1, 6.75% due 12/25/2009 4,177,197 1,181,755 Popular ABS Mortgage Pass-Through Trust Series 2005-1 Class AF3, 4.142% due 5/25/2035 (a) 1,168,656 9,272,853 Residential Asset Mortgage Products, Inc. Series 2003-RZ3 Class A6, 3.40% due 3/25/2033 8,232,530 SLM Student Loan Trust (a): 3,320,346 Series 2002-1 Class A2, 5.194% due 4/25/2017 3,328,614 4,744,251 Series 2002-4 Class A4, 5.131% due 3/15/2017 4,756,302 5,750,000 Series 2005-8 Class A2, 5.445% due 7/25/2022 5,672,375 3,684,535 Securitized Asset Backed Receivables LLC Trust Series 2007-NC2 Class A2A, 4.905% due 1/25/2037 (a) 3,581,117 Soundview Home Equity Loan Trust (a): 5,706,718 Series 2003-2 Class A2, 5.515% due 11/25/2033 5,453,735 4,035,225 Series 2007-OPT3 Class 2A1, 4.925% due 8/25/2037 3,957,783 4,936,394 USAA Auto Owner Trust Series 2006-1 Class A3, 5.01% due 9/15/2010 4,944,694 9,987,869 WFS Financial Owner Trust Series 2004-4 Class A4, 3.44% due 5/17/2012 9,899,466 5,586,233 Wells Fargo Home Equity Trust Series 2007-2 Class A1, 4.955% due 4/25/2037 (a) 5,398,691 - ------------------------------------------------------------------------------- Total Asset-Backed Securities (Cost -- $161,998,973) -- 23.0% 159,861,434 =============================================================================== =============================================================================== U.S. Government Agency Mortgage-Backed Securities+ =============================================================================== Fannie Mae Guaranteed Pass Through Certificates: 1,911,853 4.226% due 3/01/2034 (a) 1,901,810 2,066,585 4.627% due 2/01/2035 (a) 2,076,606 4,848,815 5.407% due 5/01/2037 (a) 4,941,341 7,698,157 5.472% due 12/01/2036 (a) 7,802,262 12,095,223 5.50% due 11/01/2017 -- 12/01/2017 12,278,098 5,584,656 5.708% due 10/01/2036 (a) 5,654,715 32,591,101 6.50% due 8/01/2032 -- 3/01/2037 33,545,191 3,047,243 7.50% due 9/01/2035 3,252,563 2,870,451 8.00% due 7/01/2027 -- 11/01/2032 3,064,784 Freddie Mac Mortgage Participation Certificates (a): 2,289,771 4.429% due 4/01/2035 2,274,607 4,787,031 4.635% due 4/01/2035 4,743,078 9,082,103 5.581% due 3/01/2037 9,214,292 4,761,840 5.807% due 11/01/2036 4,837,507 12,689,994 6.039% due 11/01/2036 12,897,589 3,394,273 Ginnie Mae MBS Certificates, 5% due 11/20/2034 (a) 3,419,187 - ------------------------------------------------------------------------------- Total U.S. Government Agency Mortgage-Backed Securities (Cost -- $110,795,524) -- 16.1% 111,903,630 =============================================================================== BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 19 Schedule of Investments (continued) Short-Term Bond Master Portfolio (in U.S. dollars) U.S. Government Agency Face Mortgage-Backed Obligations -- Amount Collateralized Mortgage Obligations Value =============================================================================== Fannie Mae Trust: due 8/01/2035 (c) $ 3,794,719 6,091,313 Series 377 Class 2, 5% due 10/01/2036 (c) 1,525,045 3,588,874 Series 2003-17 Class QR, 4.50% due 11/25/2025 3,576,844 1,820,561 Series 2003-67 Class GL, 3% due 1/25/2025 1,798,978 3,514,397 Series 2006-M2 Class A1A, 4.855% due 7/25/2016 (a) 3,583,686 Freddie Mac Multiclass Certificates: 6,114,651 Series 2485 Class AS, 5.50% due 8/15/2017 6,225,752 3,179,652 Series 2673 Class ML, 4% due 12/15/2022 3,170,161 47,458,581 Series 3309 Class SA, 0.77% due 4/15/2037 (a)(c) 2,275,520 20,073,682 Series 3318 Class SK, 0.77% due 5/15/2037 (a)(c) 933,460 - ------------------------------------------------------------------------------- Total U.S. Government Agency Mortgage-Backed Obligations -- Collateralized Mortgage Obligations (Cost -- $25,662,611) -- 3.9% 26,884,165 =============================================================================== =============================================================================== Non-U.S. Government Agency Mortgage-Backed Securities+ =============================================================================== Collateralized Mortgage Obligations -- 21.6% 6,167,483 Banc of America Funding Corp. Series 2006-I Class 1A1, 4.591% due 12/20/2036 (a) 6,138,746 Banc of America Mortgage Securities Inc. (a): 3,283,243 Series 2003-J Class 2A1, 4.086% due 11/25/2033 3,297,654 5,838,821 Series 2006-B Class 3A1, 6.158% due 11/20/2036 5,879,903 59,488 BlackRock Capital Finance LP Series 1997-R2 Class AP, 9.308% due 12/25/2035 (a)(b)(f) 59,488 4,163,875 Countrywide Home Loan Mortgage Pass-Through Trust Series 2005-HYB8 Class 2A1, 5.209% due 12/20/2035 (a) 4,116,962 1,654,644 Deutsche Alt-A Securities, Inc. Alternative Loan Trust Series 2006-AF1 Class A1, 4.945% due 4/25/2036 (a) 1,649,738 6,782,939 GMAC Mortgage Corp. Loan Trust Series 2003-J10 Class A1, 4.75% due 1/25/2019 6,662,232 GSR Mortgage Loan Trust Class 2A1 (a): 8,824,031 Series 2005-AR1, 4.919% due 1/25/2035 8,808,339 6,806,403 Series 2007-AR1, 6.006% due 3/25/2037 6,811,148 Harborview Mortgage Loan Trust (a): 4,101,733 Series 2006-11 Class A1A, 5.135% due 12/19/2036 3,868,314 4,996,924 Series 2006-12 Class 2A2B, 5.215% due 1/19/2038 4,568,349 7,974,273 Homebanc Mortgage Trust Series 2005-3 Class A1, 5.105% due 7/25/2035 (a) 7,514,436 3,498,921 Indymac Index Mortgage Loan Trust Series 2006-AR41 Class A3, 5.045% due 2/25/2037 (a) 3,028,539 6,974,898 JPMorgan Mortgage Trust Series 2007-A1 Class 2A1, 4.768% due 7/25/2035 (a) 6,962,570 4,248,075 Luminent Mortgage Trust Series 2006-7 Class 1A1, 5.045% due 5/25/2036 (a) 4,010,465 145,330 Ocwen Residential MBS Corp. Series 1998-R2 Class AP, 10.006% due 11/25/2034 (a)(b) 94,464 4,144,673 Residential Accredit Loans, Inc. Series 2006-QA9 Class A1, 5.045% due 11/25/2036 (a) 3,773,748 13,954 Salomon Brothers Mortgage Securities VI, Inc. Series 1986-1 Class A, 6% due 12/25/2011 13,915 5,583 Structured Mortgage Asset Residential Trust Series 1991-1 Class H, 8.25% due 6/25/2022 5,559 6,379,205 SunTrust Adjustable Rate Mortgage Loan Trust Series 2007-2 Class 3A3, 5.719% due 4/25/2037 (a) 6,290,558 WaMu Mortgage Pass-Through Certificates (a): 3,666 Series 2000-1 Class B1, 5.708% due 1/25/2040 (b) 3,373 14,117,699 Series 2004-AR3 Class A1, 3.918% due 6/25/2034 14,024,199 7,175,000 Series 2005-AR12 Class 1A6, 4.835% due 10/25/2035 7,107,661 6,792,122 Series 2006-AR12 Class 1A4, 6.073% due 10/25/2036 6,881,758 7,592,238 Series 2007-HY3 Class 4A1, 5.35% due 3/25/2037 7,557,239 42,872 Walsh Acceptance Series 1997-2 Class A, 6.813% due 3/01/2027 (a) 5,359 Wells Fargo Mortgage Backed Securities Trust: 8,261,950 Series 2004-3 Class A1, 4.75% due 4/25/2019 8,132,857 8,105,651 Series 2006-AR8 Class 2A1, 5.24% due 4/25/2036 (a) 8,107,188 6,084,201 Series 2006-AR10 Class 2A1, 5.646% due 7/25/2036 (a) 6,126,620 8,192,692 Series 2007-8 Class 2A7, 6% due 7/25/2037 8,282,840 ------------ 149,784,221 - ------------------------------------------------------------------------------- Commercial Mortgage-Backed Securities -- 12.4% 3,465,000 Banc of America Commercial Mortgage, Inc. Series 2000-1 Class A2A, 7.333% due 11/15/2031 (a) 3,581,658 CS First Boston Mortgage Securities Corp.: 4,209,991 Series 1999-C1 Class A2, 7.29% due 9/15/2041 4,336,834 2,834,250 Series 2002-CKS4 Class A1, 4.485% due 11/15/2036 2,821,246 65,866,385 Series 2003-CPN1 Class ASP, 1.584% due 3/15/2035 (a)(c) 1,784,880 2,323,729 Series 2004-C3 Class A2, 3.913% due 7/15/2036 2,301,411 3,702,086 Chase Commercial Mortgage Securities Corp. Series 1999-2 Class A2, 7.198% due 1/15/2032 3,847,500 4,157,673 Chase Manhattan Bank-First Union National Bank Series 1999-1 Class A2, 7.439% due 8/15/2031 (a) 4,300,285 20 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 Schedule of Investments (continued) Short-Term Bond Master Portfolio (in U.S. dollars) Face Non-U.S. Government Agency Amount Mortgage-Backed Securities+ Value =============================================================================== Commercial Mortgage-Backed Securities (concluded) USD 7,600,000 Citigroup Commercial Mortgage Trust Series 2007-C6 Class A4, 5.889% due 12/10/2049 (a) $ 7,814,955 3,518,451 Commercial Mortgage Acceptance Corp. Series 1999-C1 Class A2, 7.03% due 6/15/2031 3,593,658 4,955,000 GE Capital Mall Finance Corp. Series 1998-1A Class A2, 6.32% due 9/13/2028 4,988,379 GMAC Commercial Mortgage Securities, Inc. Class A2: 4,017,223 Series 1998-C2, 6.42% due 5/15/2035 4,028,050 4,103,260 Series 1999-C1, 6.175% due 5/15/2033 (a) 4,133,621 37,279,907 Greenwich Capital Commercial Funding Corp. Series 2002-C1 Class XP, 2.059% due 1/11/2035 (a) 1,353,138 JPMorgan Chase Commercial Mortgage Securities Corp.: 12,435,721 Series 2001-CIBC Class A3, 6.26% due 3/15/2033 12,899,812 4,030,000 Series 2007-CB20 Class A4, 5.794% due 2/12/2051 (a) 4,151,343 4,530,683 LB Commercial Conduit Mortgage Trust Series 1999-C1 Class A2, 6.78% due 6/15/2031 4,607,965 LB-UBS Commercial Mortgage Trust: 65,291,737 Series 2002-C4 Class XCP, 1.475% due 10/15/2035 (a)(c) 1,500,143 3,638,080 Series 2004-C7 Class A1, 3.625% due 10/15/2029 3,595,836 6,575,186 TIAA Retail Commercial Trust Series 2007-C4 Class A1, 5.701% due 8/15/2039 (a) 6,676,100 3,625,000 Wachovia Bank Commercial Mortgage Trust Series 2006-C25 Class A4, 5.954% due 5/15/2043 (a) 3,742,766 ------------ 86,059,580 - ------------------------------------------------------------------------------- Total Non-U.S. Government Agency Mortgage-Backed Securities (Cost -- $236,738,930) -- 34.0% 235,843,801 =============================================================================== =============================================================================== Corporate Bonds =============================================================================== Aerospace & Defense -- 0.2% 1,250,000 Goodrich Corp., 6.45% due 4/15/2008 1,253,836 - ------------------------------------------------------------------------------- Airlines -- 0.1% 556,806 American Airlines, Inc. Series 2003-1, 3.857% due 1/09/2012 (e) 528,270 - ------------------------------------------------------------------------------- Automobiles -- 0.8% DaimlerChrysler NA Holding Corp.: 3,400,000 4.75% due 1/15/2008 3,399,255 2,000,000 4.05% due 6/04/2008 1,992,300 ------------ 5,391,555 - ------------------------------------------------------------------------------- Capital Markets -- 2.2% 1,525,000 Credit Suisse Guernsey Ltd. Series 1, 5.559% (a)(h) 1,311,500 1,790,000 Deutsche Bank AG, 5.375% due 10/12/2012 1,834,138 3,180,000 Goldman Sachs Capital III Series F, 5.894% (a)(h) 2,575,800 1,330,000 Lehman Brothers Holdings Capital Trust V, 5.911% (a)(h) 1,064,411 3,340,000 Lehman Brothers Holdings, Inc., 5.645% due 5/25/2010 (a) 3,210,662 5,043,000 Morgan Stanley, 5.625% due 1/09/2012 5,129,977 ------------ 15,126,488 - ------------------------------------------------------------------------------- Commercial Banks -- 1.0% 3,125,000 Glitnir Banki HF, 5.44% due 4/20/2010 (a)(b) 3,058,031 1,500,000 Wachovia Corp., 6.15% due 3/15/2009 1,509,114 2,240,000 Wells Fargo & Co., 5.445% due 1/24/2012 (a) 2,198,018 ------------ 6,765,163 - ------------------------------------------------------------------------------- Communications Equipment -- 0.1% 955,000 Cisco Systems, Inc., 5.095% due 2/20/2009 (a) 953,921 - ------------------------------------------------------------------------------- Computers & Peripherals -- 0.3% 1,700,000 International Business Machines Corp., 5.70% due 9/14/2017 1,757,395 - ------------------------------------------------------------------------------- Consumer Finance -- 0.5% 3,500,000 HSBC Finance Corp., 4.125% due 12/15/2008 3,467,951 - ------------------------------------------------------------------------------- Diversified Financial Services --2.7% 5,850,000 Citigroup, Inc., 5.30% due 10/17/2012 5,926,463 General Electric Capital Corp.: 10,350,000 5.041% due 11/01/2012 (a) 10,198,797 2,700,000 Series A, 3.75% due 12/15/2009 (d) 2,677,712 ------------ 18,802,972 - ------------------------------------------------------------------------------- Diversified Telecommunication Services -- 1.2% 1,810,000 AT&T, Inc., 4.125% due 9/15/2009 1,798,490 2,500,000 Deutsche Telekom International Finance BV, 3.875% due 7/22/2008 2,481,745 250,000 Qwest Corp., 8.241% due 6/15/2013 (a) 255,000 2,250,000 Telecom Italia Capital SA, 4% due 11/15/2008 2,220,946 1,275,000 Telefonica Emisiones SAU, 5.984% due 6/20/2011 1,311,577 ------------ 8,067,758 - ------------------------------------------------------------------------------- Electric Utilities -- 0.1% 685,000 Xcel Energy, Inc., 3.40% due 7/01/2008 678,873 - ------------------------------------------------------------------------------- Energy Equipment & Services -- 0.2% 1,280,000 Transocean, Inc., 5.25% due 3/15/2013 1,282,836 - ------------------------------------------------------------------------------- Food Products -- 0.2% 1,115,000 Kraft Foods, Inc., 5.625% due 8/11/2010 1,146,262 - ------------------------------------------------------------------------------- Gas Utilities -- 0.0% 180,000 Transcontinental Gas Pipe Line Corp. Series B, 8.875% due 7/15/2012 203,400 - ------------------------------------------------------------------------------- Insurance -- 0.9% 1,470,000 Protective Life Secured Trust, 5.436% due 1/14/2008 (a) 1,470,323 1,500,000 Prudential Financial, Inc., 3.75% due 5/01/2008 1,491,639 ZFS Finance USA (a)(b): 1,735,000 Trust I, 6.15% due 12/15/2065 1,679,386 1,900,000 Trust IV, 5.875% due 5/09/2032 1,771,047 ------------ 6,412,395 - ------------------------------------------------------------------------------- BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 21 Schedule of Investments (continued) Short-Term Bond Master Portfolio (in U.S. dollars) Face Amount Corporate Bonds Value =============================================================================== Media -- 1.2% USD 2,825,000 British Sky Broadcasting Plc, 8.20% due 7/15/2009 $ 2,955,481 1,655,000 COX Communications, Inc., 4.625% due 1/15/2010 1,642,161 1,200,000 Comcast Cable Communications LLC, 6.20% due 11/15/2008 1,209,764 1,470,000 Comcast Corp., 5.656% due 7/14/2009 (a) 1,464,649 1,220,000 News America, Inc., 6.75% due 1/09/2038 1,331,279 ------------ 8,603,334 - ------------------------------------------------------------------------------- Multi-Utilities -- 1.0% Dominion Resources, Inc.: 2,395,000 5.688% due 5/15/2008 (g) 2,400,293 2,000,000 Series D, 5.125% due 12/15/2009 2,018,740 2,650,000 Energy East Corp., 6.75% due 6/15/2012 2,811,231 ------------ 7,230,264 - ------------------------------------------------------------------------------- Oil, Gas & Consumable Fuels -- 1.2% 2,475,000 Anadarko Petroleum Corp., 5.755% due 9/15/2009 (a) 2,436,698 3,775,000 Conoco Funding Co, 6.35% due 10/15/2011 4,009,545 1,910,000 Midamerican Energy Holdings Co., 3.50% due 5/15/2008 1,897,451 ------------ 8,343,694 - ------------------------------------------------------------------------------- Real Estate Investment Trusts (REITs) -- 0.6% Nationwide Health Properties, Inc.: 1,400,000 7.60% due 11/20/2028 1,582,841 1,400,000 6.59% due 7/07/2038 1,495,666 815,000 Rouse Co. LP, 3.625% due 3/15/2009 776,498 ------------ 3,855,005 - ------------------------------------------------------------------------------- Wireless Telecommunication Services -- 0.4% 400,000 Rogers Wireless, Inc., 7.50% due 3/15/2015 437,434 2,525,000 Vodafone Group Plc, 5.32% due 2/27/2012 (a) 2,469,208 ------------ 2,906,642 - ------------------------------------------------------------------------------- Total Corporate Bonds (Cost -- $103,931,130) -- 14.9% 102,778,014 =============================================================================== =============================================================================== Foreign Government Obligations =============================================================================== EUR 900,000 Bundesrepublik Deutschland Series 07, 4.25% due 7/04/2039 1,241,233 - ------------------------------------------------------------------------------- Total Foreign Government Obligations (Cost -- $1,235,151) -- 0.2% 1,241,233 =============================================================================== =============================================================================== Face Amount Capital Trusts Value =============================================================================== Capital Markets -- 0.1% USD 1,210,000 State Street Capital Trust IV, 5.991% due 6/01/2067 (a) 938,722 - ------------------------------------------------------------------------------- Total Capital Trusts (Cost -- $1,210,000) -- 0.1% 938,722 =============================================================================== =============================================================================== Short-Term Securities =============================================================================== Time Deposits -- 5.9% 41,124,134 Brown Brothers Harriman & Co., 2.53% due 1/01/2008 41,124,134 - ------------------------------------------------------------------------------- Total Short-Term Securities (Cost -- $41,124,134) -- 5.9% 41,124,134 =============================================================================== =============================================================================== Number of Contracts++ Options Purchased =============================================================================== Call Currency Options Purchased 17 Deutsche Mark, expiring January 2008 at USD 935 108,034 - ------------------------------------------------------------------------------- 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 2,105,444 - ------------------------------------------------------------------------------- Put Options Purchased 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 1,322,588 - ------------------------------------------------------------------------------- Total Options Purchased (Premiums Paid -- $2,587,919) -- 0.5% 3,536,066 =============================================================================== Total Investments Before Options Written (Cost -- $685,284,372*) -- 98.6% 684,111,199 =============================================================================== =============================================================================== 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 (425,308) - ------------------------------------------------------------------------------- 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 (46,574) - ------------------------------------------------------------------------------- Total Options Written (Premiums Received -- $294,500) -- (0.1%) (471,882) =============================================================================== Total Investments, Net of Options Written (Cost -- $684,989,872) -- 98.5% 683,639,317 Other Assets Less Liabilities -- 1.5% 10,090,680 ------------ Net Assets -- 100.0% $693,729,997 ============ 22 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 Schedule of Investments (continued) Short-Term Bond Master Portfolio (in U.S. dollars) + 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. * The cost and unrealized appreciation (depreciation) of investments as of December 31, 2007, as computed for federal income tax purposes, were as follows: Aggregate cost ......................................... $ 685,961,809 ============= Gross unrealized appreciation .......................... $ 6,189,146 Gross unrealized depreciation .......................... (8,039,756) ------------- Net unrealized depreciation ............................ $ (1,850,610) ============= (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) Subject to principal paydowns. (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 Interest Affiliate Cost Cost Gain Income -------------------------------------------------------------------------- BlackRock Capital Finance LP Series 1997 -- R2 Class AP, 9.308% due 12/25/2035 -- $21,621 $133 $3,301 -------------------------------------------------------------------------- (g) Represents a step bond; the interest rate shown is the effective yield at the time of purchase. (h) The security is a perpetual bond and has no definite maturity date. o For Portfolio compliance purposes, the Portfolio's industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Portfolio management. This definition may not apply for purposes of this report which may combine industry sub-classifications for reporting ease. Industries are shown as a percent of net assets. o Financial futures contracts purchased as of December 31, 2007 were as follows:
------------------------------------------------------------------------------------------ Unrealized Number of Expiration Face Appreciation Contracts Issue Exchange Date Value (Depreciation) ------------------------------------------------------------------------------------------ 298 Euro BOBL Future Eurex March 2008 $ 47,711,494 $(682,940) 97 Euro BUND Future Frankfurt March 2008 $ 16,398,290 (357,133) 766 2-Year U.S. Treasury Bond Chicago March 2008 $160,855,520 195,980 289 5-Year U.S. Treasury Bond Chicago March 2008 $ 31,763,133 108,149 ------------------------------------------------------------------------------------------ Total Unrealized Depreciation -- Net $(735,944) =========
o Financial futures contracts sold as of December 31, 2007 were as follows:
------------------------------------------------------------------------------------------ Number of Expiration Face Unrealized Contracts Issue Exchange Date Value Depreciation ------------------------------------------------------------------------------------------ 63 EuroDollar Future Chicago March 2008 $14,957,312 $ (125,675) 52 EuroDollar Future Chicago June 2008 $12,356,800 (156,351) 52 EuroDollar September Future Chicago 2008 $12,361,935 (184,366) 52 EuroDollar December Future Chicago 2008 $12,362,335 (199,565) 52 EuroDollar Future Chicago March 2009 $12,360,885 (201,016) 40 EuroDollar Future Chicago June 2009 $ 9,503,273 (147,727) 40 EuroDollar September Future Chicago 2009 $ 9,499,435 (135,565) 40 EuroDollar December Future Chicago 2009 $ 9,495,260 (122,740) 40 EuroDollar Future Chicago March 2010 $ 9,492,585 (109,915) 727 10-Year U.S. Treasury Bond Chicago March 2008 $82,361,989 (72,995) 10 30-Year U.S. Treasury Bond Chicago March 2008 $ 1,148,197 (15,553) ------------------------------------------------------------------------------------------ Total Unrealized Depreciation -- Net $(1,471,468) ===========
o Forward foreign exchange contracts as of December 31, 2007 were as follows: -------------------------------------------------------------------------- Unrealized Foreign Currency Foreign Currency Settlement Appreciation Purchased Sold Date (Depreciation) -------------------------------------------------------------------------- JPY 844,034,999 USD 7,315,390 1/15/08 $ 253,342 AUD 305,000 USD 270,907 1/23/08 (3,435) EUR 1,030,375 USD 1,527,802 1/23/08 (20,681) SEK 1,755,000 USD 280,201 1/23/08 (8,598) USD 2,637,745 EUR 1,861,500 1/23/08 (85,054) USD 6,879,886 JPY 800,000,000 1/23/08 (300,290) -------------------------------------------------------------------------- Total Unrealized Depreciation on Forward Foreign Exchange Contracts -- Net $ (164,716) =========== BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 23 Schedule of Investments (concluded) Short-Term Bond Master Portfolio (in U.S. dollars) o Swap contracts outstanding as of December 31, 2007 were as follows: -------------------------------------------------------------------------- Unrealized Notional Appreciation Amount (Depreciation) -------------------------------------------------------------------------- Receive a fixed rate of 5.366% and pay a floating rate based on 3-month LIBOR Broker, Credit Suisse First Boston Expires July 2009 USD 95,500,000 $ 2,138,300 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 USD 43,095,000 945,634 Receive a fixed rate of 4.4325% and pay a floating rate based on 3-month LIBOR Broker, Deutsche Bank AG London Expires August 2009 SEK 40,864,258 (170,337) Receive a fixed rate of 4.256% and pay a floating rate based on 3-month LIBOR Broker, Credit Suisse First Boston Expires November 2009 USD 43,360,000 327,418 Pay a fixed rate of 5.0125% and receive a floating rate based on 3-month LIBOR Broker, Union Bank of Switzerland AG Expires October 2010 USD 37,000,000 1,083,103 Receive a fixed rate of 4.217% and pay a floating rate based on 3-month LIBOR Broker, Credit Suisse First Boston Expires May 2012 USD 35,395,000 213,036 Receive a fixed rate of 7.1192% and pay a floating rate based on 6-month LIBOR Broker, Deutsche Bank AG London Expires October 2012 AUD 19,754,025 (265,155) Pay a fixed rate of 5.19375% and receive a floating rate based on 3-month LIBOR Broker, Citibank N.A. Expires October 2017 USD 7,000,000 (296,575) Pay a fixed rate of 5.025% and receive a floating rate based on 3-month LIBOR Broker, Deutsche Bank AG London Expires November 2017 USD 41,000,000 (1,180,117) -------------------------------------------------------------------------- Total $ 2,795,307 =========== o Currency Abbreviations: AUD Australian Dollar EUR Euro JPY Japanese Yen SEK Swedish Krona USD U.S. Dollar See Notes to Financial Statements. 24 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 Statement of Assets and Liabilities Short-Term Bond Master Portfolio As of December 31, 2007 (Unaudited) =================================================================================================================================== Assets - ----------------------------------------------------------------------------------------------------------------------------------- Investments in unaffiliated securities, at value (identified cost -- $682,637,327) ............. $ 680,515,645 Investments in affiliated securities, at value (identified cost -- $59,126) .................... 59,488 Options purchased, at value (premiums paid -- $2,587,919) ...................................... 3,536,066 Unrealized appreciation on swaps ............................................................... 4,707,491 Unrealized appreciation on forward foreign exchange contracts .................................. 253,342 Cash ........................................................................................... 159,453 Foreign cash (identified cost -- $97,231) ...................................................... 97,095 Receivables: Interest ................................................................................... $ 3,640,186 Contributions .............................................................................. 2,763,566 Swaps ...................................................................................... 2,353,048 Paydowns ................................................................................... 534,378 9,291,178 ------------- Prepaid expenses and other assets .............................................................. 15,057 ------------- Total assets ................................................................................... 698,634,815 ------------- =================================================================================================================================== Liabilities - ----------------------------------------------------------------------------------------------------------------------------------- Unrealized depreciation on swaps ............................................................... 1,912,184 Unrealized depreciation on forward foreign exchange contracts .................................. 418,058 Options written, at value (premiums received -- $294,500) ...................................... 471,882 Payables: Withdrawals ................................................................................ 1,658,301 Investment adviser ......................................................................... 126,870 Swaps ...................................................................................... 126,034 Variation margin ........................................................................... 124,480 Other affiliates ........................................................................... 5,978 2,041,663 ------------- Accrued expenses and other liabilities ......................................................... 61,031 ------------- Total liabilities .............................................................................. 4,904,818 ------------- =================================================================================================================================== Net Assets - ----------------------------------------------------------------------------------------------------------------------------------- Net Assets ..................................................................................... $ 693,729,997 ============= =================================================================================================================================== Net Assets Consist of - ----------------------------------------------------------------------------------------------------------------------------------- Investor's capital ............................................................................. $ 694,665,326 Unrealized depreciation -- net ................................................................. (935,329) ------------- Net assets ..................................................................................... $ 693,729,997 =============
See Notes to Financial Statements. BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 25 Statement of Operations Short-Term Bond Master Portfolio For the Six Months Ended December 31, 2007 (Unaudited) =================================================================================================================================== Investment Income - ----------------------------------------------------------------------------------------------------------------------------------- Interest (including $3,301 from affiliates) .................................................... $ 18,045,155 ------------- Total income ................................................................................... 18,045,155 ------------- =================================================================================================================================== Expenses - ----------------------------------------------------------------------------------------------------------------------------------- Investment advisory fees ....................................................................... $ 727,509 Accounting services ............................................................................ 126,557 Custodian fees ................................................................................. 44,459 Professional fees .............................................................................. 24,885 Directors' fees and expenses ................................................................... 20,374 Pricing fees ................................................................................... 12,425 Printing and shareholder reports ............................................................... 933 Other .......................................................................................... 11,202 ------------- Total expenses ................................................................................. 968,344 ------------- Investment income -- net ....................................................................... 17,076,811 ------------- =================================================================================================================================== Realized & Unrealized Gain (Loss) -- Net - ----------------------------------------------------------------------------------------------------------------------------------- Realized gain (loss) on: Investments -- net ......................................................................... (1,513,761) Financial futures contracts and swaps -- net ............................................... (5,185,062) Foreign currency transactions -- net ....................................................... 329,844 Options written -- net ..................................................................... 388,121 (5,980,858) ------------- Change in unrealized appreciation/depreciation on: Investments -- net ......................................................................... 2,559,617 Financial futures contracts and swaps -- net ............................................... 922,382 Foreign currency transactions -- net ....................................................... (42,401) Options written -- net ..................................................................... (35,253) 3,404,345 ------------------------------- Total realized and unrealized loss -- net ...................................................... (2,576,513) ------------- Net Increase in Net Assets Resulting from Operations ........................................... $ 14,500,298 =============
See Notes to Financial Statements. 26 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 Statements of Changes in Net Assets Short-Term Bond Master Portfolio
For the Six Months Ended For the December 31, Year Ended 2007 June 30, Increase (Decrease) in Net Assets: (Unaudited) 2007 =================================================================================================================================== Operations - ----------------------------------------------------------------------------------------------------------------------------------- Investment income -- net ....................................................................... $ 17,076,811 $ 30,980,138 Realized loss -- net ........................................................................... (5,980,858) (7,047,013) Change in unrealized appreciation/depreciation -- net .......................................... 3,404,345 9,238,509 ------------------------------- Net increase in net assets resulting from operations ........................................... 14,500,298 33,171,634 ------------------------------- =================================================================================================================================== Capital Transactions - ----------------------------------------------------------------------------------------------------------------------------------- Proceeds from contributions .................................................................... 78,523,958 165,796,615 Fair value of withdrawals ...................................................................... (75,994,954) (201,097,486) ------------------------------- Net increase (decrease) in net assets derived from capital transactions ........................ 2,529,004 (35,300,871) ------------------------------- =================================================================================================================================== Net Assets - ----------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets ........................................................ 17,029,302 (2,129,237) Beginning of period ............................................................................ 676,700,695 678,829,932 ------------------------------- End of period .................................................................................. $ 693,729,997 $ 676,700,695 ===============================
See Notes to Financial Statements. Financial Highlights Short-Term Bond Master Portfolio
For the Six Months Ended December 31, For the Year Ended June 30, The following ratios have been derived from 2007 ------------------------------------------------------------- information provided in the financial statements. (Unaudited) 2007 2006 2005 2004 2003 =================================================================================================================================== Total Investment Return - ----------------------------------------------------------------------------------------------------------------------------------- Total investment return ............................ 2.03%@ 5.03% 2.50% 2.80% 1.18% 6.05% =========================================================================== =================================================================================================================================== Ratios to Average Net Assets - ----------------------------------------------------------------------------------------------------------------------------------- Expenses ........................................... .28%* .28% .28% .28% .28% .28% =========================================================================== Investment income -- net ........................... 4.92%* 4.60% 4.00% 3.34% 3.39% 3.73% =========================================================================== =================================================================================================================================== Supplemental Data - ----------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) ........... $693,730 $676,701 $678,830 $726,534 $740,024 $739,334 =========================================================================== Portfolio turnover ................................. 36%+ 108%+ 80% 75% 107% 198% ===========================================================================
* Annualized. + Excludes dollar roll transactions. @ Aggregate total investment return. See Notes to Financial Statements. BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 27 Notes to Financial Statements (Unaudited) Short-Term Bond Master Portfolio 1. Significant Accounting Policies: Short-Term Bond Master Portfolio (the "Portfolio") of Short-Term Bond Master LLC (the "Master LLC") is registered under the Investment Company Act of 1940, as amended and is organized as a Delaware limited liability company. Prior to June 15, 2007, the Master LLC was organized as a Delaware statutory trust. The Limited Liability Company Agreement permits the Directors to issue nontransferable interests in the Master LLC, subject to certain limitations. The Portfolio's financial statements are prepared in conformity with U.S. generally accepted accounting principles, which may require the use of management accruals and estimates. Actual results may differ from these estimates. These unaudited financial statements reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the results for the interim period. All such adjustments are of a normal, recurring nature. The following is a summary of significant accounting policies followed by the Portfolio. (a) Valuation of investments -- Debt securities are traded primarily in the over-the-counter ("OTC") markets and are valued at the last available bid price in the OTC market or on the basis of values obtained by a pricing service. Pricing services use valuation matrixes that incorporate both dealer-supplied valuations and valuation models. The procedures of the pricing service and its valuations are reviewed by the officers of the Master LLC under the general direction of the Board of Directors. Such valuations and procedures will be reviewed periodically by the Board of Directors. Financial futures contracts and options thereon, which are traded on exchanges, are valued at their closing prices as of the close of such exchanges. Effective September 4, 2007, exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in which the options trade and previously were valued at the last sales price as of the close of options trading on applicable exchanges. 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. 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. 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. 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 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 Board of Directors. (b) Derivative financial instruments -- The Portfolio may engage in various portfolio investment strategies both to increase the return of the Portfolio and to hedge, or protect, its exposure to interest rate movements and movements in the securities markets. Losses may arise due to changes in the value of the contract due to an unfavorable change in the price of the underlying security or if the counterparty does not perform under the contract. The counterparty, for certain instruments, may pledge cash or securities as collateral. 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. 28 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 Notes to Financial Statements (continued) Short-Term Bond Master Portfolio 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. Swap options are similar to options on securities except that instead of selling or purchasing the right to buy or sell a security, the writer or purchaser of the swap option is granting or buying the right to enter into a previously agreed upon interest rate swap agreement at any time before the expiration of the option. Premiums received or paid from writing or purchasing options are recorded as liabilities or assets and are subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options which expire unexercised are treated by a Fund on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commission, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the cost of the purchase or the proceeds from the sale in determining whether a Fund has realized a gain or loss on investment transactions. The main risk that is associated with purchasing swap options is that the swap option expires without being exercised. In this case, the option expires worthless and the premium paid for the swap option is considered the loss. The main risk that is associated with the writing of a swap option is the market risk of an unfavorable change in the value of the interest rate swap underlying the written swap option. Swap options may be used by the Fund to manage the duration of the Fund's portfolio in a manner similar to more generic options described above. (c) Foreign currency transactions -- Transactions denominated in foreign currencies are recorded at the exchange rate prevailing when recognized. Assets and liabilities denominated in foreign currencies are valued at the exchange rate at the end of the period. Foreign currency transactions are the result of settling (realized) or valuing (unrealized) assets or liabilities expressed in foreign currencies into U.S. dollars. Realized and unrealized gains or losses from investments include the effects of foreign exchange rates on investments. The Portfolio invests in foreign securities, which may involve a number of risk factors and special considerations not present with investments in securities of U.S. corporations. (d) Income taxes -- The Portfolio is considered a "pass-through" entity for federal income tax purposes. As such, each investor in the Portfolio is treated as an owner of its proportionate share of the net assets, income, expenses and realized and unrealized gains and losses of the Portfolio. Therefore, no federal income tax provision is required. It is intended that the Portfolio's assets will be managed so an investor in the Portfolio can satisfy the requirements of Subchapter M of the Internal Revenue Code. (e) Security transactions and investment income -- Security transactions are accounted for on the date the securities are purchased or sold (the trade dates). Realized gains and losses on security transactions are determined on the identified cost basis. Interest income is recognized on the accrual basis. (f) Securities lending -- The Portfolio may lend securities to financial institutions that provide cash or securities issued or guaranteed by the U.S. government as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The market value of the loaned securities is determined at the close of business of the Portfolio and any additional required collateral is delivered to the Portfolio on the next business day. Where the Portfolio receives securities as collateral for the loaned securities, it collects a fee from the borrower. The Portfolio typically receives the income on the loaned securities but does not receive the income on the collateral. Where the Portfolio receives cash collateral, it may invest such collateral and retain the amount earned on such investment, net of any amount rebated to the borrower. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within five business days. The Portfolio may pay reasonable lending agent, administrative and custodial fees in connection with its loans. In the event that the BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 29 Notes to Financial Statements (continued) Short-Term Bond Master Portfolio 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) Mortgage dollar rolls -- The Portfolio may sell mortgage-backed securities for delivery in the current month and simultaneously contract to repurchase substantially similar (same type, coupon and maturity) securities on a specific future date. The Portfolio receives compensation as consideration for entering into the commitment to repurchase. The Portfolio must maintain liquid securities having a value not less than the repurchase price (including accrued interest) for such dollar rolls. The market value of the securities that the Portfolio is required to purchase may decline below the agreed upon repurchase price of those securities. (i) Recent accounting pronouncements -- Effective June 29, 2007, the Portfolio implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition threshold a tax position must meet in connection with accounting for uncertainties in income tax positions taken or expected to be taken by an entity, including investment companies, before being measured and recognized in the financial statements. Management has evaluated the application of FIN 48 to the Portfolio, and has determined that the adoption of FIN 48 does not have a material impact on the Portfolio's financial statements. The Portfolio files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on the Portfolio's U.S. federal tax returns remains open for the years ended June 2004 through June 2007. The statute of limitations on the Portfolio's state and local tax returns may remain open for an additional year depending upon the jurisdiction. 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: The Master LLC, on behalf of the Portfolio, has entered into an Investment Advisory Agreement with the Manager. Merrill Lynch & Co., Inc. ("Merrill Lynch") and The PNC Financial Services Group, Inc. are the principal owners of BlackRock, Inc. 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 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 monthly fee at an annual rate that is 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. BIM may, on behalf of the Portfolio, invest cash collateral received by the Portfolio for such loans, among other things, in a private investment company managed by the Manager or in registered money market funds advised by the Manager or its affiliates. For the six months ended December 31, 2007, there were no securities lending agent fees paid to BIM. For the six months ended December 31, 2007, the Portfolio reimbursed the Manager $5,924 for certain accounting services. 30 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 Notes to Financial Statements (concluded) Short-Term Bond Master Portfolio 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) of investments, excluding short-term securities and mortgage dollar rolls, for the six months ended December 31, 2007 were $571,119,039 and $238,720,247, respectively. Transactions in call options written for the six months ended December 31, 2007 were as follows: - -------------------------------------------------------------------------------- Number of Premiums Contracts* Received - -------------------------------------------------------------------------------- Outstanding call options written, beginning of period .............................. 12 $ 147,250 ----------------------- Outstanding call options written, end of period .... 12 $ 147,250 ======================= * One contract represents a notional amount of $1,000,000. Transactions in put options written for the six months ended December 31, 2007 were as follows: - -------------------------------------------------------------------------------- Number of Premiums Contracts* Received - -------------------------------------------------------------------------------- Outstanding put options written, beginning of period .............................. 12 $ 147,250 Options written .................................... 1,164 388,121 Options expired .................................... (1,164) (388,121) ----------------------- Outstanding put options written, end of period ..... 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. 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 Portfolio did not borrow under the credit agreement during the six months ended December 31, 2007. On November 21, 2007, the credit agreement was renewed for one year under substantially the same terms. BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 31 Officers and Directors James H. Bodurtha, Director Bruce R. Bond, Director Donald W. Burton, Director Richard S. Davis, Director Stuart E. Eizenstat, Director Laurence D. Fink, Director Kenneth A. Froot, Director Henry Gabbay, Director Robert M. Hernandez, Director John F. O'Brien, Director Roberta Cooper Ramo, Director Jean Margo Reid, Director David H. Walsh, Director Fred G. Weiss, Director Richard R. West, Director Joe Grills, Advisory Board Member* Anne F. Ackerley, Vice President Neal J. Andrews, Chief Financial Officer Donald C. Burke, Fund President and Chief Executive Officer Jay M. Fife, Treasurer Brian P. Kindelan, Chief Compliance Officer Howard Surloff, Secretary Custodian Brown Brothers Harriman & Co. Boston, MA 02109 Transfer Agent PFPC Inc. Wilmington, DE 19809 Accounting Agent State Street Bank and Trust Company Princeton, NJ 08540 Independent Registered Public Accounting Firm Deloitte & Touche LLP Princeton, NJ 08540 Legal Counsel Willkie Farr & Gallagher LLP New York, NY 10019 * Joe Grills resigned from the Advisory Board of the Fund and Master LLC, effective December 31, 2007. 32 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 BlackRock Fund Information BlackRock Privacy Principles BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, "Clients") and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information BlackRock collects, how we protect that information and why in certain cases we share such information with select parties. If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you with additional or different privacy-related rights beyond what is set forth below, then BlackRock will comply with those specific laws, rules or regulations. BlackRock obtains or verifies personal non-public information from and about you from different sources, including the following: (i) information we receive from you or, if applicable, your financial intermediary, on applications, forms or other documents; (ii) information about your transactions with us, our affiliates, or others; (iii) information we receive from a consumer reporting agency; and (iv) from visits to our websites. BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients, except as permitted by law or as is necessary to respond to regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended purpose. We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information. Availability of Additional Information Electronic copies of most financial reports and prospectuses are available on the Fund's website or shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Fund's electronic delivery program. To enroll: Shareholders Who Hold Accounts with Investment 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 website at http://www.blackrock.com/edelivery 2) Select "eDelivery" under the "More Information" section 3) Log into your account The Fund will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called "householding" and it is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please contact the Fund at (800) 441-7762. BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 33 BlackRock Fund Information (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 website at www.blackrock.com, by calling (800) 441-7762, or on the website of the Securities and Exchange Commission (the "Commission") at http://www.sec.gov. 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 website at www.blackrock.com, by calling (800) 441-7762 or on the website 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 website 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/funds. Automatic Investment Plans Investor Class shareholders who want to invest regularly can arrange to have $50 or more automatically deducted from their checking or savings account and invested in any of the BlackRock portfolios. Systematic Withdrawal Plans Investor Class shareholders can establish a systematic withdrawal plan and receive periodic payments of $50 or more from their BlackRock portfolios, as long as their account is at least $10,000. Retirement Plans Shareholders may make investments in conjunction with Traditional, Rollover, Roth, Coverdell, Simple IRAs, SEP IRAs and 403(b) Plans. 34 BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 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 Growth 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 Large Cap Core Fund BlackRock Large Cap Growth Fund BlackRock Large Cap Value Fund BlackRock Latin America Fund BlackRock Mid-Cap Growth Equity Portfolio BlackRock Mid-Cap Value Equity Portfolio BlackRock Mid Cap Value Opportunities Fund BlackRock Natural Resources Trust BlackRock Pacific Fund BlackRock Small Cap Core Equity Portfolio BlackRock Small Cap Growth Equity Portfolio BlackRock Small Cap Growth Fund II BlackRock Small Cap Index Fund BlackRock Small Cap Value Equity Portfolio* BlackRock Small/Mid-Cap Growth Portfolio BlackRock S&P 500 Index Fund BlackRock Technology Fund BlackRock U.S. Opportunities Portfolio BlackRock Utilities and Telecommunications Fund BlackRock Value Opportunities Fund Fixed Income Funds BlackRock Commodity Strategies Fund BlackRock 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 Fund BlackRock Total Return Portfolio II BlackRock World Income Fund Municipal Bond Funds BlackRock AMT-Free Municipal Bond Portfolio BlackRock California Insured Municipal Bond Fund BlackRock Delaware Municipal Bond Portfolio BlackRock Florida Municipal Bond Fund BlackRock High Yield Municipal Fund BlackRock Intermediate Municipal Fund BlackRock Kentucky Municipal Bond Portfolio BlackRock Municipal Insured Fund BlackRock National Municipal Fund BlackRock New Jersey Municipal Bond Fund BlackRock New York Municipal Bond Fund BlackRock Ohio Municipal Bond Portfolio BlackRock Pennsylvania Municipal Bond Fund BlackRock Short-Term Municipal Fund Target Risk & Target Date Funds BlackRock Prepared Portfolios Conservative Prepared Portfolio Moderate Prepared Portfolio Growth Prepared Portfolio Aggressive Growth Prepared Portfolio BlackRock Lifecycle Prepared Portfolios Prepared Portfolio 2010 Prepared Portfolio 2015 Prepared Portfolio 2020 Prepared Portfolio 2025 Prepared Portfolio 2030 Prepared Portfolio 2035 Prepared Portfolio 2040 Prepared Portfolio 2045 Prepared Portfolio 2050 * See the prospectus for information on specific limitations on investments in the fund. + Mixed asset fund. BlackRock mutual funds are distributed by BlackRock Distributors, Inc. and certain funds are also distributed by FAM Distributors, Inc. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each fund's prospectus contains this and other information and is available at www.blackrock.com or by calling 800-882-0052 or from your financial advisor. The prospectus should be read carefully before investing. BLACKROCK SHORT-TERM BOND FUND DECEMBER 31, 2007 35 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. 100 Bellevue Parkway Wilmington, DE 19809 BLACKROCK #BR-3070-12/07 Item 2 - Code of Ethics - Not Applicable to this semi-annual report Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual report Item 4 - Principal Accountant Fees and Services - Not Applicable to this semi-annual report Item 5 - Audit Committee of Listed Registrants - Not Applicable Item 6 - Schedule of Investments - 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 and Governance 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 Exchange Act of 1934, as amended. 11(b) - There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12 - Exhibits attached hereto 12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report 12(a)(2) - Certifications - Attached hereto 12(a)(3) - Not Applicable 12(b) - Certifications - Attached hereto Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and Short-Term Bond Master Portfolio of Short-Term Bond Master LLC By: /s/ Donald C. Burke ------------------- Donald C. Burke Chief Executive Officer of BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and Short-Term Bond Master Portfolio of Short-Term Bond Master LLC Date: February 21, 2008 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Donald C. Burke ------------------- Donald C. Burke Chief Executive Officer (principal executive officer) of BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and Short-Term Bond Master Portfolio of Short-Term Bond Master LLC Date: February 21, 2008 By: /s/ Neal J. Andrews ------------------- Neal J. Andrews Chief Financial Officer (principal financial officer) of BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and Short-Term Bond Master Portfolio of Short-Term Bond Master LLC Date: February 21, 2008 EX-99.CERT 2 e603418_ex99-cert.txt EX-99. CERT CERTIFICATION PURSUANT TO RULE 30a-2(a) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - -------------------------------------------------------------------------------- I, Donald C. Burke, Chief Executive Officer (principal executive officer) of BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and Short-Term Bond Master Portfolio of Short-Term Bond Master LLC, certify that: 1. I have reviewed this report on Form N-CSR 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; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrants as of, and for, the periods presented in this report; 4. The registrants' other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrants and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrants' disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and d) disclosed in this report any change in the registrants' internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants' internal control over financial reporting; and 5. The registrants' other certifying officer(s) and I have disclosed to the registrants' auditors and the audit committees of the registrants' boards of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants' ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal control over financial reporting. Date: February 21, 2008 /s/ Donald C. Burke - ------------------- Donald C. Burke Chief Executive Officer (principal executive officer) of BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and Short-Term Bond Master Portfolio of Short-Term Bond Master LLC EX-99. CERT CERTIFICATION PURSUANT TO RULE 30a-2(a) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - -------------------------------------------------------------------------------- I, Neal J. Andrews, Chief Financial Officer (principal financial officer) of BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and Short-Term Bond Master Portfolio of Short-Term Bond Master LLC, certify that: 1. I have reviewed this report on Form N-CSR 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; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrants as of, and for, the periods presented in this report; 4. The registrants' other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrants and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrants' disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and d) disclosed in this report any change in the registrants' internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants' internal control over financial reporting; and 5. The registrants' other certifying officer(s) and I have disclosed to the registrants' auditors and the audit committees of the registrants' boards of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants' ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants' internal control over financial reporting. Date: February 21, 2008 /s/ Neal J. Andrews - ------------------- Neal J. Andrews Chief Financial Officer (principal financial officer) of BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and Short-Term Bond Master Portfolio of Short-Term Bond Master LLC EX-99.1350CERT 3 e603418_ex99-1350cert.txt Exhibit 99.1350CERT Certification Pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes Oxley Act Pursuant to 18 U.S.C. ss. 1350, the undersigned 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 (together, the "Registrants"), hereby certifies, to the best of his knowledge, that the Registrants' Report on Form N-CSR for the period ended December 31, 2007, (the "Report") fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of each Registrant. Date: February 21, 2008 /s/ Donald C. Burke - ------------------- Donald C. Burke Chief Executive Officer (principal executive officer) of BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and Short-Term Bond Master Portfolio of Short-Term Bond Master LLC Pursuant to 18 U.S.C. ss. 1350, the undersigned 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 (together, the "Registrants"), hereby certifies, to the best of his knowledge, that the Registrants' Report on Form N-CSR for the period ended December 31, 2007, (the "Report") fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of each Registrant. Date: February 21, 2008 /s/ Neal J. Andrews - ------------------- Neal J. Andrews Chief Financial Officer (principal financial officer) of BlackRock Short-Term Bond Fund of BlackRock Short-Term Bond Series, Inc. and Short-Term Bond Master Portfolio of Short-Term Bond Master LLC This certification is being furnished pursuant to Rule 30a-2(b) under the Investment Company Act of 1940, as amended, and 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR with the Securities and Exchange Commission. -----END PRIVACY-ENHANCED MESSAGE-----