UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21162
Name of Fund: BlackRock Fundamental Growth Principal Protected Fund of
BlackRock Principal Protected Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock Fundamental Growth Principal Protected Fund of
BlackRock Principal Protected Trust, 800 Scudders Mill Road, Plainsboro,
NJ, 08536. Mailing address: P.O. Box 9011, Princeton, NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 08/31/06
Date of reporting period: 09/01/05 - 08/31/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES FIXED INCOME LIQUIDITY
REAL ESTATE
BlackRock Fundamental Growth
Principal Protected Fund
OF BLACKROCK PRINCIPAL
PROTECTED TRUST
ANNUAL REPORT AUGUST 31, 2006
(BLACKROCK logo)
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
This report is not authorized for use as an offer of sale or a solicitation
of an offer to buy shares of the Fund unless accompanied or preceded by the
Fund's current prospectus. Past performance results shown in this report
should not be considered a representation of future performance. Investment
return and principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost. Statements and
other information herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine
how to vote proxies relating to portfolio securities is available (1)
without charge, upon request, by calling toll-free 1-800-441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's Web
site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.blackrock.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
BlackRock Fundamental Growth
Principal Protected Fund of
BlackRock Principal Protected Trust
Box 9011 Princeton, NJ 08543-9011
(GO PAPERLESS...logo)
It's Fast, Convenient, & Timely!
To sign up today, go to www.blackrock.com/edelivery.
BlackRock Fundamental Growth Principal Protected Fund
Portfolio Information as of August 31, 2006
Ten Largest Holdings Percent of
(Equity Investments) Net Assets
Exxon Mobil Corp. 2.6%
General Electric Co. 2.2
The Procter & Gamble Co. 2.2
WellPoint, Inc. 1.9
Alcon, Inc. 1.8
Altria Group, Inc. 1.6
Praxair Inc. 1.5
PepsiCo, Inc. 1.4
Bank of America Corp. 1.4
Air Products & Chemicals, Inc. 1.3
Percent of
Total
Asset Mix Investments
Common Stocks 59.0%
U.S. Government Obligations 40.4
Other* 0.6
* Includes portfolio holdings in short-term investments.
Five Largest Industries Percent of
(Equity Investments) Net Assets
Energy Equipment & Services 5.3%
Oil, Gas & Consumable Fuels 4.5
Health Care Providers & Services 4.1
IT Services 3.9
Diversified Financial Services 3.5
For Fund compliance purposes, the Fund'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 Fund management. This definition
may not apply for purposes of this report, which may combine
industry sub-classifications for reporting ease.
Proxy Results
During the six-month period ended August 31, 2006, BlackRock Fundamental
Growth Principal Protected Fund of BlackRock Principal Protected Trust's
shareholders voted on the following proposals. Proposals 1 and 3 were
approved at a shareholders' meeting on August 15, 2006. A description of the
proposals and number of shares voted were as follows:
Shares Voted Shares Voted Shares Voted
For Against Abstain
1. To approve a new investment advisory agreement. 5,699,759 125,567 107,992
3. To approve a contingent subadvisory agreement. 5,676,271 136,672 120,376
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
A Letter to Shareholders
Dear Shareholder
It is my pleasure to welcome you to BlackRock.
On September 29, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch
Investment Managers, L.P. ("MLIM") united to form one of the largest asset
management firms in the world. Now with more than $1 trillion in assets under
management, over 4,000 employees in 18 countries and representation in key
markets worldwide, BlackRock's global presence means greater depth and scale
to serve you.
The new BlackRock unites some of the finest money managers in the industry.
Our ranks include more than 500 investment professionals globally - portfolio
managers, research analysts, risk management professionals and traders. With
offices strategically located around the world, our investment professionals
have in-depth local knowledge and the ability to leverage our global presence
and robust infrastructure to deliver focused investment solutions. BlackRock's
professional investors are supported by disciplined investment processes and
best-in-class technology, ensuring that our portfolio managers are well
equipped to research, uncover and capitalize on the opportunities the world's
markets have to offer.
The BlackRock culture emphasizes excellence, teamwork and integrity in the
management of a variety of equity, fixed income, cash management, alternative
investment and real estate products. Our firm's core philosophy is grounded in
the belief that experienced investment and risk professionals using disciplined
investment processes and sophisticated analytical tools can consistently add
value to client portfolios.
As you probably are aware, former MLIM investment products now carry the
"BlackRock" name. This is reflected in newspapers and online fund reporting
resources. Your account statements will reflect the BlackRock name beginning
with the October month-end reporting period. Unless otherwise communicated to
you, your funds maintain the same investment objectives that they did prior to
the combination of MLIM and BlackRock. Importantly, this union does not affect
your brokerage account or your relationship with your financial advisor.
Clients of Merrill Lynch remain clients of Merrill Lynch.
We view this combination of asset management leaders as a complementary union
that reinforces our commitment to shareholders. Individually, each firm made
investment performance its single most important mission. Together, we are
even better prepared to capitalize on market opportunities on behalf of our
shareholders. Our focus on investment excellence is accompanied by an
unwavering commitment to service, enabling us to assist clients, in
cooperation with their financial professionals, in working toward their
investment goals. We thank you for allowing us the opportunity, and we look
forward to serving your investment needs in the months and years ahead as the
new BlackRock.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
Vice Chairman
BlackRock, Inc.
Data, including assets under management, are as of June 30, 2006.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
A Discussion With Your Fund's Portfolio Manager
How did the Fund perform during the fiscal year in light of the existing
market conditions?
For the 12-month period ended August 31, 2006, BlackRock Fundamental Growth
Principal Protected Fund's Class A, Class B, Class C and Class I Shares had
total returns of +1.99%, +1.16%, +1.23% and +2.32%, respectively. (Fund
results shown do not reflect sales charges and would be lower if sales charges
were included. Complete performance information can be found on pages 6 and 7
of this report to shareholders.) For the same period, the Fund's all-equity
benchmarks, the Standard & Poor's (S&P) 500 Index and the S&P 500 Citigroup
Growth Index, returned +8.88% and +4.16%, respectively. The Fund incorporates
a fixed income component and, therefore, its returns may be greater or less
than those provided by the equity markets alone. The fixed income market, as
measured by the Lehman Brothers Aggregate Bond Index, returned +1.71% for the
12-month period. The Lipper Mixed-Asset Target Allocation Growth Funds
category posted an average return of +6.99% for the 12-month period. (By
portfolio practice, funds in this Lipper category maintain a mix of 60% - 80%
equity securities, with the remainder invested in bonds, cash and cash
equivalents.)
Large cap companies underperformed small- and mid-sized companies for the
first nine months of the year, while value outperformed growth for most of the
12-month period. The large cap growth category started to show signs of
outperformance late in the fiscal year as concerns over U.S. economic activity
increased.
During the period, market performance varied widely and was significantly
influenced by shifting investor preferences. Economic growth rates that
continued above the long-term trend in the United States and other regions -
particularly driven by China and India - contributed to high demand for energy
and materials. This led to an extended, and perhaps speculative, upward price
spiral in many of these inputs. After a strong start in 2006, a nearly 8%
correction in the S&P 500 Index followed in early May, triggered by global
liquidity concerns as many monetary authorities around the world adopted a
decidedly "tighter" interest rate stance. In addition, dramatically increased
inflationary expectations among U.S. investors and growing uncertainty over
the interest rate policy intentions of the Federal Reserve Board and new
chairman Ben Bernanke contributed to an increase in risk premium levels and
decreasing stock market valuations. Bernanke's challenge was to tactfully
manage inflationary expectations without damaging underlying economic growth
as the end of a two-year monetary tightening campaign neared.
While equity markets had retraced a significant portion of the sell-off by the
end of August, a distinct change in market leadership ensued. The cyclically
biased outperformance of the energy, industrials and materials sectors
transitioned to a more risk-averse, defensive market posture where consumer
staples, health care and financials performed well. As is typical with this
type of market action, these notable changes in the equity market are more
reflective of a shift in investor sentiment than any dramatic change in
underlying fundamentals to date.
What factors most influenced Fund performance?
In the Fund's equity portfolio, performance benefited from successful stock
selection and favorable allocation weightings in the consumer discretionary
and information technology sectors (IT), as well as strong stock selection in
industrials. Top performers in these three groups included hotel chain Wynn
Resorts Ltd., software giant Microsoft Corp., IT service provider Cognizant
Technology Solutions Corp. and aerospace/defense contractor Lockheed Martin
Corp. A meaningful overweighting of energy, particularly energy and equipment
services holdings Schlumberger Ltd. and Baker Hughes, Inc., also contributed
significantly to returns, as did our position in Exxon-Mobil Corp.
Detracting from the performance of the equity portfolio was the combination of
poor stock selection and allocation decisions within the health care sector,
particularly the underweighting of the pharmaceuticals industry. Healthcare
providers UnitedHealth Group, Inc., optical supply company Alcon, Inc. and
biomedical company Genzyme Corp. detracted from performance, as did our lack
of pharmaceutical holdings earlier in the period. An underweight position in
consumer staples and disappointing performance from consumer discretionary
holdings Yahoo!, Inc. and Coach, Inc. also detracted from returns.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
What changes were made to the portfolio during the period?
During the 12-month period, the Fund's equity component ranged from 57.4% of
net assets to 70.9%, and the fixed income allocation ranged from 29.1% of net
assets to 42.6%. The Fund's fixed income component was invested in U.S.
Treasury zero-coupon bonds set to mature close to the expiration of the Fund,
which is seven years from its commencement of operations (November 13, 2009).
Within the equity portfolio, we reduced exposure to the industrials, health
care and consumer discretionary sectors and reinvested the proceeds into the
consumer staples, financials and IT sectors. While our energy position, as a
percent of net assets, was unchanged, we did take select profits during the
year, especially in the energy equipment and services industry. These changes
reflected our more cautious view of the U.S. economy, and were also related to
individual security decisions.
Within industrials, we trimmed our position in General Electric Co. and
eliminated industrial conglomerate 3M Co., aerospace and defense company
Boeing Co. and heavy machinery company Caterpillar, Inc. At the same time, we
added industrial equipment company Emerson Electric Co. and engineering and
construction companies Fluor Corp. and Jacobs Engineering Group Inc. We sold
Johnson & Johnson and healthcare equipment companies Medtronic, Inc., Varian
Medical Systems and Waters from the portfolio for stock-specific reasons. We
also sold Humana Inc. and replaced Caremark Rx, Inc. with Medco Health
Solutions, Inc. In the pharmaceutical segment, we established positions in
Novartis AG, GlaxoSmithKline Plc and Roche Holding AG.
In the consumer sectors, we eliminated consumer discretionary holdings
Starwood Hotels and Wynn Resorts and replaced specialty retailer Coach with
drug retailer CVS Corp. in consumer staples. Also in consumer staples, we
added tobacco company Altria Group, Inc. and increased our position in
beverage company PepsiCo, Inc. Our holdings in financials were increased with
the additions of JP Morgan Chase & Co., Bank of America Corp., Citigroup,
Inc., State Street Corp. and The Charles Schwab Corp. A more constructive view
of the IT sector at the end of the fiscal year resulted in the additions of
communications equipment companies Cisco Systems, Inc., QUALCOMM Inc.,
Motorola, Inc. and Corning, Inc. Earlier in the period, we swapped Microsoft
Corp. for offshore IT service companies Cognizant Technology Solutions Corp.,
Infosys Technologies Ltd., Satyam Computer Services Ltd. and Tata Consultancy
Services Ltd.
How would you characterize the Fund's position at the close of the period?
In seeking to meet its objective of principal protection and potential for
capital growth, the allocation between the Fund's fixed income and equity
components will continue to vary as market conditions change. As of August 31,
2006, the Fund was invested 58.9% in equities, 40.4% in fixed income
securities and 0.7% in cash and cash equivalents. This compared to 65.6%
equities, 33.8% fixed income securities and 0.6% in cash and cash equivalents
at February 28, 2006 and 59.8% equities, 37.7% fixed income securities and
2.5% in cash and cash equivalents at August 31, 2005.
While U.S. economic growth is slowing to a typical later cycle trend rate of
expansion (that is, in the area of 2% - 3%), many other global economies
continue to experience strong rates of growth. This is an important
consideration, as many of the Fund's investments are multinational companies
that rely on the health of the global economy. Although we are not expecting a
significant slowdown in the U.S. economy, we are cautious given the unfolding
housing slowdown and the potential negative impact that higher energy prices
could have on consumers' budgets and expectations.
At the close of the period, the Fund's equity portfolio was overweight in the
energy, industrials and materials sectors. These have been long-term positions
that had been tactically reduced from peak levels earlier in the fiscal year.
While our outlook continues to favor this posture as fundamentals remain
intact, we have been responsive to the changed sentiment evident in the
broader market. This has prompted us to decrease our underweight position in
consumer staples, financials and information technology. With regard to our IT
exposure, we have increased our investments in key niche areas, such as
wireless communication, networking infrastructure and IT services, based on an
improved global outlook.
Thomas E. Burke, CFA
Vice President and Equity Portfolio Manager
September 12, 2006
Effective October 2, 2006, the Fund's Class A, Class B, Class C and Class I
Shares were redesignated Investor A, Investor B, Investor C and Institutional
Shares, respectively.
If you would like a copy, free of charge, of the most recent annual or
quarterly report of Main Place Funding, LLC, the Warranty Provider, or its
parent corporation, Bank of America Corporation, please contact the Fund at
1-800-441-7762.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end load) of 5.25%
and an account maintenance fee of 0.25% per year (but no distribution fee).
* Class B Shares are subject to a maximum contingent deferred sales charge of
4% declining to 0% after six years. In addition, Class B Shares are subject to
a distribution fee of 0.75% per year and an account maintenance fee of 0.25%
per year. These shares automatically convert to Class A Shares after
approximately eight years. (There is no initial sales charge for automatic
share conversions.) All returns for periods greater than eight years reflect
this conversion.
* Class C Shares are subject to a distribution fee of 0.75% per year and an
account maintenance fee of 0.25% per year. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within one year
of purchase.
* Class I Shares are not subject to any front-end sales charge. Class I Shares
bear no ongoing distribution or account maintenance fees and are available
only to eligible investors.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.blackrock.com to obtain performance data current to
the most recent month-end. Performance results do not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption of
fund shares. Figures shown in each of the following tables assume reinvestment
of all dividends and capital gain distributions, if any, at net asset value on
the ex-dividend 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 account maintenance, distribution and transfer agency fees
applicable to each class, which are deducted from the income available to be
paid to shareholders.
Recent Performance Results
6-Month 12-Month Since Inception
As of August 31, 2006 Total Return Total Return Total Return
Class A Shares* -0.63% +1.99% +14.90%
Class B Shares* -1.02 +1.16 +11.60
Class C Shares* -0.92 +1.23 +11.65
Class I Shares* -0.44 +2.32 +16.05
S&P 500 (R) Index** +2.79 +8.88 +58.28
S&P 500 Citigroup Growth Index*** +0.70 +4.16 +38.01
Lehman Brothers Aggregate Bond Index**** +1.82 +1.71 +15.23
* Investment results shown do not reflect sales charges; results shown would be lower if a sales
charge was included. Cumulative total investment returns are based on changes in net asset values
for the periods shown, and assume reinvestment of all dividends and capital gains distributions
at net asset value on the ex-dividend date. The Fund's inception date is 11/13/02.
** This unmanaged Index covers 500 industrial, utility, transportation and financial companies of
the U.S. markets (mostly NYSE issues) representing about 75% of NYSE market capitalization and
30% of NYSE issues. Since inception total return is from 11/13/02.
*** This unmanaged Index is designed to provide a comprehensive measure of large-cap U.S. equity
"growth" performance. It is an unmanaged float adjusted market capitalization weighted index
comprised of stocks representing approximately half the market capitalization of the S&P 500
Index that have been identified as being on the growth end of the growth-value spectrum.
Since inception total return is from 11/13/02.
**** This unmanaged market-weighted Index is comprised of investment grade corporate bonds (rated
BBB or better), mortgages and U.S. Treasury and government agency issues with at least one year
to maturity. Since inception total return is from 11/13/02.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Performance Data (concluded)
Total Return Based on a $10,000 Investment
A line graph illustrating the growth of a $10,000 investment in Class A, Class
B, Class C and Class I Shares*+ compared to a similar investment in S&P 500
Citigroup Growth Index++, S&P 500 Index+++ and Lehman Brothers Aggregate Bond
Index++++. Values illustrated are as follows:
Class A Shares*+
Date Value
11/13/2002** $ 9,475.00
August 2003 $ 9,845.00
August 2004 $ 9,993.00
August 2005 $10,674.00
August 2006 $10,887.00
Class B Shares*+
Date Value
11/13/2002** $10,000.00
August 2003 $10,320.00
August 2004 $10,403.00
August 2005 $11,031.00
August 2006 $10,860.00
Class C Shares*+
Date Value
11/13/2002** $10,000.00
August 2003 $10,320.00
August 2004 $10,400.00
August 2005 $11,029.00
August 2006 $11,165.00
Class I Shares*+
Date Value
11/13/2002** $10,000.00
August 2003 $10,410.00
August 2004 $10,596.00
August 2005 $11,341.00
August 2006 $11,605.00
S&P 500 Citigroup Growth Index++
Date Value
11/13/2002** $10,000.00
August 2003 $11,405.00
August 2004 $12,230.00
August 2005 $13,250.00
August 2006 $13,801.00
S&P 500 Index+++
Date Value
11/13/2002** $10,000.00
August 2003 $11,587.00
August 2004 $12,915.00
August 2005 $14,537.00
August 2006 $15,828.00
Lehman Brothers Aggregate Bond Index++++
Date Value
11/13/2002** $10,000.00
August 2003 $10,249.00
August 2004 $10,878.00
August 2005 $11,329.00
August 2006 $11,523.00
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ The Fund consists primarily of common stocks and U.S. Treasury bonds,
including zero coupon bonds.
++ This unmanaged Index is designed to provide a comprehensive measure of
large-cap U.S. equity "growth" performance. It is an unmanaged float
adjusted market capitalization weighted index comprised of stocks
representing approximately half the market capitalization of the S&P 500
Index that have been identified as being on the growth end of the growth-
value spectrum.
+++ This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues) representing
about 75% of NYSE market capitalization and 30% of NYSE issues.
++++ This unmanaged market-weighted Index is comprised of investment grade
corporate bonds (rated BBB or better), mortgages and U.S. Treasury and
government agency issues with at least one year to maturity.
Past performance is not indicative of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 8/31/06 +1.99% -3.37%
Inception (11/13/02)
through 8/31/06 +3.72 +2.26
Return Without Return With
CDSC CDSC++++++
Class B Shares++
One Year Ended 8/31/06 +1.16% -2.75%
Inception (11/13/02)
through 8/31/06 +2.93 +2.20
Return Without Return With
CDSC CDSC++++++
Class C Shares++++
One Year Ended 8/31/06 +1.23% +0.25%
Inception (11/13/02)
through 8/31/06 +2.94 +2.94
Class I Shares Return
One Year Ended 8/31/06 +2.32%
Inception (11/13/02)
through 8/31/06 +4.00
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
++ Maximum contingent deferred sales charge is 4% and is reduced
to 0% after six years.
++++ Maximum contingent deferred sales charge is 1% and is reduced
to 0% after one year.
++++++ Assuming payment of applicable contingent deferred sales
charge.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses
related to transactions, including sales charges, redemption fees and exchange
fees; and (b) operating expenses including advisory fees, distribution fees
including 12b-1 fees, and other Fund expenses. The following example (which is
based on a hypothetical investment of $1,000 invested on March 1, 2006 and
held through August 31, 2006) is intended to assist shareholders both in
calculating expenses based on an investment in the Fund and in comparing these
expenses with similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during
the period covered by this report, shareholders can divide their account value
by $1,000 and then multiply the result by the number in the first line under
the heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as
sales charges, redemption fees or exchange fees. Therefore, the second table
is useful in comparing ongoing expenses only, and will not help shareholders
determine the relative total expenses of owning different funds. If these
transactional expenses were included, shareholder expenses would have been
higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value March 1, 2006
March 1, August 31, to August 31,
2006 2006 2006
Actual
Class A $1,000 $ 993.70 $10.00
Class B $1,000 $ 989.80 $13.79
Class C $1,000 $ 990.80 $13.85
Class I $1,000 $ 995.60 $ 8.75
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,015.17 $10.11
Class B $1,000 $1,011.34 $13.94
Class C $1,000 $1,011.29 $13.99
Class I $1,000 $1,016.43 $ 8.84
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class
(1.99% for Class A, 2.75% for Class B, 2.76% for Class C and 1.74% for Class I), multiplied by
the average account value over the period, multiplied by 184/365 (to reflect the one-half year
period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in
the most recent fiscal half year divided by 365.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Schedule of Investments
Shares
Industry Common Stocks Held Value
Aerospace & Defense--1.7%
Lockheed Martin Corp. 14,300 $ 1,181,180
United Technologies Corp. 10,500 658,455
-------------
1,839,635
Beverages--1.4%
PepsiCo, Inc. 23,900 1,560,192
Biotechnology--2.4%
Amgen, Inc. (a) 14,700 998,571
Genentech, Inc. (a) 16,500 1,361,580
Genzyme Corp. (a) 3,000 198,690
-------------
2,558,841
Capital Markets--2.5%
The Charles Schwab Corp. 63,900 1,042,209
Franklin Resources, Inc. 8,000 787,280
State Street Corp. 13,500 834,300
-------------
2,663,789
Chemicals--3.3%
Air Products & Chemicals, Inc. 21,900 1,451,751
Nalco Holding Co. (a) 28,400 528,524
Praxair, Inc. 28,700 1,647,667
-------------
3,627,942
Communications Equipment--3.2%
Cisco Systems, Inc. (a) 46,000 1,011,540
Corning, Inc. (a) 46,000 1,023,040
Motorola, Inc. 30,000 701,400
QUALCOMM Inc. 19,000 715,730
-------------
3,451,710
Construction & Engineering--0.7%
Fluor Corp. 4,600 397,532
Jacobs Engineering Group Inc. (a) 3,700 322,233
-------------
719,765
Diversified Financial Services--3.5%
Bank of America Corp. 29,300 1,508,071
Citigroup, Inc. 22,600 1,115,310
JPMorgan Chase & Co. 25,000 1,141,500
-------------
3,764,881
Electrical Equipment--1.1%
Emerson Electric Co. 15,200 1,248,680
Energy Equipment & Services--5.3%
Baker Hughes, Inc. 8,400 597,912
Grant Prideco, Inc. (a) 23,900 992,567
Halliburton Co. 20,200 658,924
National Oilwell Varco, Inc. (a) 17,800 1,162,340
Schlumberger Ltd. 20,800 1,275,040
Transocean, Inc. (a) 9,600 640,800
Weatherford International Ltd. (a) 8,700 374,100
-------------
5,701,683
Food & Staples Retailing--1.2%
CVS Corp. 40,000 1,342,000
Health Care Equipment & Supplies--1.8%
Alcon, Inc. 16,800 1,978,872
Health Care Providers & Services--4.1%
Laboratory Corp. of America
Holdings (a) 4,500 307,890
Medco Health Solutions, Inc. (a) 21,800 1,381,466
Shares
Industry Common Stocks Held Value
Health Care Providers & Services (concluded)
Quest Diagnostics, Inc. 5,000 $ 321,400
Sierra Health Services, Inc. (a) 9,400 403,260
WellPoint, Inc. (a) 26,100 2,020,401
-------------
4,434,417
Hotels, Restaurants & Leisure--1.8%
Starbucks Corp. (a) 39,200 1,215,592
Yum! Brands, Inc. 15,400 752,752
-------------
1,968,344
Household Products--2.2%
The Procter & Gamble Co. 38,700 2,395,530
IT Services--3.9%
Cognizant Technology Solutions Corp. (a) 14,900 1,041,659
Infosys Technologies Ltd. 26,800 1,040,325
Paychex, Inc. 20,800 746,928
Satyam Computer Services Ltd. 55,000 955,394
Tata Consultancy Services Ltd. 23,800 510,446
-------------
4,294,752
Industrial Conglomerates--2.2%
General Electric Co. 71,700 2,442,102
Internet Software & Services--2.4%
Google, Inc. Class A (a) 3,500 1,324,855
Yahoo!, Inc. (a) 44,700 1,288,254
-------------
2,613,109
Life Sciences Tools & Services--0.3%
Covance, Inc. (a) 6,000 377,220
Machinery--1.2%
ITT Corp. 13,600 665,720
Pall Corp. 23,500 639,670
-------------
1,305,390
Media--0.9%
Walt Disney Co. 33,900 1,005,135
Oil, Gas & Consumable Fuels--4.5%
Exxon Mobil Corp. 41,900 2,835,373
Sunoco, Inc. 12,700 913,257
Valero Energy Corp. 19,900 1,142,260
-------------
4,890,890
Pharmaceuticals--3.4%
GlaxoSmithKline Plc 36,500 1,033,097
GlaxoSmithKline Plc (b) 6,000 340,680
Novartis AG (b) 6,000 342,720
Novartis AG Registered Shares 21,000 1,196,520
Roche Holding AG 4,300 791,330
-------------
3,704,347
Software--0.6%
SAP AG (b) 13,700 654,038
Specialty Retail--1.1%
Staples, Inc. 54,750 1,235,160
Textiles, Apparel & Luxury Goods--0.6%
Nike, Inc. Class B 8,100 654,156
Tobacco--1.6%
Altria Group, Inc. 20,200 1,687,306
Total Common Stocks
(Cost--$54,522,804)--58.9% 64,119,886
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Schedule of Investments (concluded)
Face
Amount U.S. Government Obligations Value
U.S. Treasury STRIPS (d)(f):
$ 28,802,000 3.963% due 8/15/2009 $ 25,099,589
21,855,000 3.858% due 11/15/2009 18,819,341
Total U.S. Government Obligations
(Cost--$45,009,201)--40.4% 43,918,930
Beneficial
Interest Short-Term Securities Value
$ 602,141 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I, 5.11% (c)(e) $ 602,141
Total Short-Term Securities
(Cost--$602,141)--0.6% 602,141
Total Investments (Cost--$100,134,146*)--99.9% 108,640,957
Other Assets Less Liabilities--0.1% 130,819
-------------
Net Assets--100.0% $ 108,771,776
=============
* The cost and unrealized appreciation (depreciation) of investments
as of August 31, 2006, as computed for federal income tax purposes,
were as follows:
Aggregate cost $ 100,759,853
================
Gross unrealized appreciation $ 9,948,871
Gross unrealized depreciation (2,067,767)
----------------
Net unrealized appreciation $ 7,881,104
================
(a) Non-income producing security.
(b) Depositary receipts.
(c) Investments in companies considered to be an affiliate of the Fund,
for purposes of Section 2(a)(3) of the Investment Company Act of 1940,
were as follows:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $(1,773,406) $ 89,095
Merrill Lynch Liquidity Series, LLC
Money Market Series -- $ 11,449
(d) Separately Traded Registered Interest and Principal of
Securities (STRIPS).
(e) Represents the current yield as of August 31, 2006.
(f) Represents a zero coupon bond; the interest rate shown reflects the
effective yield at the time of purchase.
o For Fund compliance purposes, the Fund'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 Fund 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.
These industry classifications are unaudited.
See Notes to Financial Statements.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Statement of Assets and Liabilities
As of August 31, 2006
Assets
Investments in unaffiliated securities, at value (identified cost--$99,532,005) $ 108,038,816
Investments in affiliated securities, at value (identified cost--$602,141) 602,141
Foreign cash (cost--$14,425) 14,259
Receivables:
Securities sold $ 4,005,531
Dividends 80,327 4,085,858
---------------
Prepaid expenses 1,327
---------------
Total assets 112,742,401
---------------
Liabilities
Deferred foreign capital gain tax 39,988
Payables:
Securities purchased 3,326,715
Beneficial interest redeemed 329,613
Distributor 86,431
Financial warranty fee 75,556
Investment adviser 52,680
Other affiliates 12,534 3,883,529
---------------
Accrued expenses 47,108
---------------
Total liabilities 3,970,625
---------------
Net Assets
Net assets $ 108,771,776
===============
Net Assets Consist of
Paid-in capital, unlimited number of shares of beneficial interest authorized $ 96,184,075
Accumulated investment loss--net $ (7,361)
Undistributed realized capital gains--net 4,129,682
Unrealized appreciation--net 8,465,380
---------------
Total accumulated earnings--net 12,587,701
---------------
Net Assets $ 108,771,776
===============
Net Asset Value
Class A--Based on net assets of $3,265,048 and 315,054 shares of beneficial
interest outstanding $ 10.36
===============
Class B--Based on net assets of $60,613,241 and 5,905,955 shares of beneficial
interest outstanding $ 10.26
===============
Class C--Based on net assets of $39,560,551 and 3,845,735 shares of beneficial
interest outstanding $ 10.29
===============
Class I--Based on net assets of $5,332,936 and 514,372 shares of beneficial
interest outstanding $ 10.37
===============
See Notes to Financial Statements.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Statement of Operations
For the Year Ended August 31, 2006
Investment Income
Interest (including $89,095 from affiliates) $ 1,671,056
Dividends (net of $15,737 foreign withholding tax) 1,035,859
Securities lending--net 11,449
---------------
Total income 2,718,364
---------------
Expenses
Financial warranty fee $ 1,035,565
Investment advisory fees 829,871
Account maintenance and distribution fees--Class B 706,035
Account maintenance and distribution fees--Class C 466,518
Transfer agent fees--Class B 87,399
Accounting services 84,455
Transfer agent fees--Class C 59,523
Printing and shareholder reports 39,162
Professional fees 34,077
Custodian fees 25,374
Trustees' fees and expenses 18,457
Account maintenance fees--Class A 10,045
Transfer agent fees--Class I 6,816
Transfer agent fees--Class A 4,280
Pricing fees 1,963
Other 17,863
---------------
Total expenses 3,427,403
---------------
Investment loss--net (709,039)
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss) on:
Investments--net 4,800,890
Options written--net 33,861
Foreign currency transactions--net (7,361) 4,827,390
---------------
Change in unrealized appreciation/depreciation on:
Investments--net (including $39,988 deferred foreign capital gain tax) (2,070,821)
Foreign currency transactions--net (1,205) (2,072,026)
--------------- ---------------
Total realized and unrealized gain--net 2,755,364
---------------
Net Increase in Net Assets Resulting from Operations $ 2,046,325
===============
See Notes to Financial Statements.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Statements of Changes in Net Assets
For the Year Ended
August 31,
Increase (Decrease) in Net Assets: 2006 2005
Operations
Investment income (loss)--net $ (709,039) $ 55,947
Realized gain--net 4,827,390 7,373,394
Change in unrealized appreciation/depreciation--net (2,072,026) 2,801,411
--------------- ---------------
Net increase in net assets resulting from operations 2,046,325 10,230,752
--------------- ---------------
Dividends and Distributions to Shareholders
Investment income--net:
Class A (1,577) --
Class B (28,563) --
Class C (18,733) --
Class I (2,545) --
Realized gain--net:
Class A (165,171) (427,659)
Class B (2,574,206) (4,486,776)
Class C (1,696,805) (3,048,456)
Class I (289,864) (636,382)
--------------- ---------------
Net decrease in net assets resulting from dividends and distributions to shareholders (4,777,464) (8,599,273)
--------------- ---------------
Beneficial Interest Transactions
Net decrease in net assets derived from beneficial interest transactions (34,010,687) (44,278,072)
--------------- ---------------
Net Assets
Total decrease in net assets (36,741,826) (42,646,593)
Beginning of year 145,513,602 188,160,195
--------------- ---------------
End of year* $ 108,771,776 $ 145,513,602
=============== ===============
* Undistributed (accumulated) investment income (loss)--net $ (7,361) $ 51,417
=============== ===============
See Notes to Financial Statements.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Financial Highlights
Class A Class B
For the For the
Period Period
The following per share data Nov. 13, Nov. 13,
and ratios have been derived For the Year 2002+ to For the Year 2002+ to
from information provided in Ended August 31, Aug. 31, Ended August 31, Aug. 31,
the financial statements. 2006 2005 2004 2003 2006 2005 2004 2003
Per Share Operating Performance
Net asset value, beginning of period $ 10.57 $ 10.49 $ 10.38 $ 10.00 $ 10.50 $ 10.39 $ 10.31 $ 10.00
------------------------------------------- -------------------------------------------
Investment income (loss)--net .01*** .08*** --***++++ .04 (.07)*** (.01)*** (.08)*** (.03)
Realized and unrealized gain--net .20 .63 .16 .35 .19 .63 .16 .35
------------------------------------------- -------------------------------------------
Total from investment operations .21 .71 .16 .39 .12 .62 .08 .32
------------------------------------------- -------------------------------------------
Less dividends and distributions:
Investment income--net --+++ -- (.05) (.01) --+++ -- --+++ (.01)
Realized gain--net (.42) (.63) -- -- (.36) (.51) -- --
------------------------------------------- -------------------------------------------
Total dividends and distributions (.42) (.63) (.05) (.01) (.36) (.51) --+++ (.01)
------------------------------------------- -------------------------------------------
Net asset value, end of period $ 10.36 $ 10.57 $ 10.49 $ 10.38 $ 10.26 $ 10.50 $ 10.39 $ 10.31
=========================================== ===========================================
Total Investment Return**
Based on net asset value per share 1.99% 6.82% 1.50% 3.90%++ 1.16% 6.04% .81% 3.20%++
=========================================== ===========================================
Ratios to Average Net Assets
Expenses, net of waiver 1.99% 1.98% 1.99% 2.11%* 2.76% 2.75% 2.76% 2.88%*
=========================================== ===========================================
Expenses 1.99% 1.98% 2.00% 2.11%* 2.76% 2.75% 2.76% 2.88%*
=========================================== ===========================================
Investment income (loss)--net .14% .75% .02% .41%* (.63%) (.06%) (.74%) (.36%)*
=========================================== ===========================================
Supplemental Data
Net assets, end of period (in thousands) $ 3,265 $ 4,955 $ 8,309 $ 15,668 $ 60,613 $ 79,793 $ 96,961 $ 117,426
=========================================== ===========================================
Portfolio turnover 45.60% 58.17% 71.29% 106.91% 45.60% 58.17% 71.29% 106.91%
=========================================== ===========================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Commencement of operations.
++ Aggregate total investment return.
+++ Amount is less than ($.01) per share.
++++ Amount is less than $.01 per share.
See Notes to Financial Statements.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Financial Highlights (concluded)
Class C Class I
For the For the
Period Period
The following per share data Nov. 13, Nov. 13,
and ratios have been derived For the Year 2002+ to For the Year 2002+ to
from information provided in Ended August 31, Aug. 31, Ended August 31, Aug. 31,
the financial statements. 2006 2005 2004 2003 2006 2005 2004 2003
Per Share Operating Performance
Net asset value, beginning of period $ 10.52 $ 10.39 $ 10.31 $ 10.00 $ 10.57 $ 10.52 $ 10.40 $ 10.00
------------------------------------------- -------------------------------------------
Investment income (loss)--net (.07)*** (.01)*** (.08)*** (.03) .04*** .10*** .03*** .06
Realized and unrealized gain--net .20 .63 .16 .35 .21 .63 .16 .35
------------------------------------------- -------------------------------------------
Total from investment operations .13 .62 .08 .32 .25 .73 .19 .41
------------------------------------------- -------------------------------------------
Less dividends and distributions:
Investment income--net --+++ -- -- (.01) --+++ -- (.07) (.01)
Realized gain--net (.36) (.49) -- -- (.45) (.68) -- --
------------------------------------------- -------------------------------------------
Total dividends and distributions (.36) (.49) -- (.01) (.45) (.68) (.07) (.01)
------------------------------------------- -------------------------------------------
Net asset value, end of period $ 10.29 $ 10.52 $ 10.39 $ 10.31 $ 10.37 $ 10.57 $ 10.52 $ 10.40
=========================================== ===========================================
Total Investment Return**
Based on net asset value per share 1.23% 6.05% .78% 3.20%++ 2.32% 7.03% 1.79% 4.10%++
=========================================== ===========================================
Ratios to Average Net Assets
Expenses, net of waiver 2.76% 2.75% 2.76% 2.88%* 1.74% 1.73% 1.74% 1.86%*
=========================================== ===========================================
Expenses 2.76% 2.75% 2.76% 2.88%* 1.74% 1.73% 1.75% 1.86%*
=========================================== ===========================================
Investment income (loss)--net (.63%) (.06%) (.75%) (.36%)* .39% .99% .27% .67%*
=========================================== ===========================================
Supplemental Data
Net assets, end of period (in thousands) $ 39,561 $ 53,459 $ 71,216 $ 101,111 $ 5,333 $ 7,306 $ 11,675 $ 17,503
=========================================== ===========================================
Portfolio turnover 45.60% 58.17% 71.29% 106.91% 45.60% 58.17% 71.29% 106.91%
=========================================== ===========================================
* Annualized.
** Total investment returns exclude the effects of sales charges. Effective December 28, 2005,
Class I Shares are no longer subject to any front-end sales charge.
*** Based on average shares outstanding.
+ Commencement of operations.
++ Aggregate total investment return.
+++ Amount is less than ($.01) per share.
See Notes to Financial Statements.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Notes to Financial Statements
1. Significant Accounting Policies:
On September 29, 2006, Merrill Lynch Fundamental Growth Principal Protected
Fund and Merrill Lynch Principal Protected Trust, of which the Fund is part
of, were renamed BlackRock Fundamental Growth Principal Protected Fund (the
"Fund") and BlackRock Principal Protected Trust (the "Trust"), respectively.
The Fund is a separate diversified series of the Trust, which is registered as
an open-end management investment company under the Investment Company Act of
1940, as amended. The Fund's financial statements are prepared in conformity
with U.S. generally accepted accounting principles, which may require the use
of management accruals and estimates. Actual results may differ from these
estimates. The Fund offers multiple classes of shares. Shares of the Fund were
offered during the initial offering period but will not be offered during the
Guarantee Period from November 13, 2002 through November 13, 2009 (the
"Guarantee Maturity Date"), except in connection with reinvestment of
dividends and distributions. The Fund will be offered on a continuous basis
after the Guarantee Maturity Date without the principal protection feature.
Class A Shares are sold with a front-end sales charge. Shares of Class B and
Class C may be subject to a contingent deferred sales charge. Class I Shares
are sold only to certain eligible investors. All classes of shares have
identical voting, dividend, liquidation and other rights and the same terms
and conditions, except that Class A, Class B and Class C Shares bear certain
expenses related to the account maintenance of such shares, and Class B and
Class C Shares also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to matters
relating to its account maintenance and distribution expenditures (except that
Class B shareholders may vote on certain changes to the Class 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--Equity securities that are held by the Fund that
are traded on stock exchanges or the Nasdaq National Market are valued at the
last sale price or official close price on the exchange, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price for long positions, and at the last available
asked price for short positions. In cases where equity securities are traded
on more than one exchange, the securities are valued on the exchange
designated as the primary market by or under the authority of the Board of
Trustees of the Fund. Long positions traded in the over-the-counter ("OTC")
market, Nasdaq Small Cap or Bulletin Board are valued at the last available
bid price or yield equivalent obtained from one or more dealers or pricing
services approved by the Board of Trustees of the Fund. 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.
Options written are valued at the last sale price in the case of exchange-
traded options or, in the case of options traded in the OTC market, the last
asked price. Options purchased are valued at their last sale price in the case
of exchange-traded options or, in the case of options traded in the OTC
market, the last bid price. Swap agreements are valued based upon quoted fair
valuations received daily by the Fund from a pricing service or counterparty.
Financial futures contracts and options thereon, which are traded on
exchanges, are valued at their last sale price as of the close of such
exchanges. Obligations with remaining maturities of 60 days or less are valued
at amortized cost unless the Investment Adviser believes that this method no
longer produces fair valuations. Valuation of other short-term investment
vehicles is generally based on the net asset value of the underlying
investment vehicle or amortized cost.
Repurchase agreements are valued at cost plus accrued interest. The Fund
employs pricing services to provide certain securities prices for the Fund.
Securities and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by or under the direction
of the Board of Trustees of the Fund, including valuations furnished by the
pricing services retained by the Fund, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are
reviewed by the officers of the Fund under the general supervision of the
Fund's Board of Trustees. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Fund.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Notes to Financial Statements (continued)
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 asset value of the Fund's shares are determined as
of such times. Foreign currency exchange rates also are generally determined
prior to the close of business on the NYSE. As of October 2, 2006, foreign
currency exchange rates will be determined at 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 Fund's net asset value. If events (for example, a company announcement,
market volatility or a natural disaster) occur during such periods that are
expected to materially affect the value of such securities, those securities
may be valued at their fair value as determined in good faith by the Fund's
Board of Trustees or by the Investment Adviser using a pricing service
and/or procedures approved by the Fund's Board of Trustees.
(b) Derivative financial instruments--The Fund may engage in various portfolio
strategies both to increase the return of the Fund and to hedge, or protect,
its exposure to interest rate movements and movements in the securities
markets. Losses may arise due to changes in the value of the contract or if
the counterparty does not perform under the contract.
* Financial futures contracts--The Fund 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 Fund deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount of
cash equal to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund as
unrealized gains or losses. When the contract is closed, the Fund 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.
* Options--The Fund may write and purchase call and put options. When the Fund
writes an option, an amount equal to the premium received by the Fund is
reflected as an asset and an equivalent liability. The amount of the liability
is subsequently marked-to-market to reflect the current 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 Fund enters into a
closing transaction), the Fund realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the extent the
cost of the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
(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 Fund 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--It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
(e) Recent accounting pronouncement--In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48") entitled
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109." FIN 48 prescribes the minimum recognition threshold a tax
position must meet in connection with accounting for uncertainties in income
tax positions taken or expected to be taken by an entity including mutual
funds before being measured and recognized in the financial statements.
Adoption of FIN 48 is required for fiscal years beginning after December 15,
2006. The impact on the Fund's financial statements, if any, is currently
being assessed.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Notes to Financial Statements (continued)
(f) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed
are subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities.
(g) Dividends and distributions--Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(h) Securities lending--The Fund 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
Fund and any additional required collateral is delivered to the Fund on the
next business day. Where the Fund receives securities as collateral for the
loaned securities, it collects a fee from the borrower. The Fund typically
receives the income on the loaned securities but does not receive the income
on the collateral. Where the Fund 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 Fund may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Fund could experience
delays and costs in gaining access to the collateral. The Fund 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.
(i) Reclassifications--U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the
current year, $709,039 has been reclassified between paid-in capital and
accumulated net investment loss and $7,360 has been reclassified between
accumulated net investment loss and undistributed net realized capital gains
as a result of permanent differences attributable to net operating losses and
foreign currency transactions. These reclassifications have no effect on net
assets or on net asset values per share.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with Merrill Lynch
Investment Managers, L.P. ("MLIM"). The general partner of MLIM is Princeton
Services, Inc. ("PSI"), an indirect, wholly owned subsidiary of Merrill Lynch
& Co., Inc. ("ML & Co."), which is the limited partner. The Fund has also
entered into a Distribution Agreement and Distribution Plan with FAM
Distributors, Inc. ("FAMD" or the "Distributor"), which is a wholly owned
subsidiary of Merrill Lynch Group, Inc.
MLIM is responsible for the management of the Fund's portfolio and provides
the necessary personnel, facilities, equipment and certain other services
necessary to the operations of the Fund. For such services, the Fund pays a
monthly fee at the annual rate of .65% of the Fund's average daily net assets.
MLIM has entered into a contractual arrangement with the Fund under which the
expenses incurred by each class of shares of the Fund (excluding distribution
and/or account maintenance fees) will not exceed 1.99%. This arrangement has a
one-year term and is automatically renewable.
Pursuant to the Distribution Plan adopted by the Fund in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance 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:
Account
Maintenance Distribution
Fee Fee
Class A .25% --
Class B .25% .75%
Class C .25% .75%
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Notes to Financial Statements (continued)
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of MLIM, also provides
account maintenance and distribution services to the Fund. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B and Class C shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
For the year ended August 31, 2006, MLPF&S received contingent deferred sales
charges of $351,878 relating to transactions in Class B Shares.
The Trust, on behalf of the Fund, has entered into a Financial Warranty
Agreement with Main Place Funding, LLC (the "Warranty Provider"). The
Financial Warranty Agreement is intended to make sure that on the Guarantee
Maturity Date, each shareholder of the Fund will be entitled to redeem his or
her shares for an amount no less than the initial value of that shareholder's
account (less expenses and sales charges not covered by the Financial Warranty
Agreement), provided that all dividends and distributions received from the
Fund have been reinvested and no shares have been redeemed (the "Guaranteed
Amount"). The Fund will pay to the Warranty Provider, under the Financial
Warranty Agreement, an annual fee equal to .80% of the Fund's average daily
net assets during the Guarantee Period. If the value of the Fund's assets on
the Guarantee Maturity Date is insufficient to result in the value of each
shareholder's account being at least equal to the shareholder's Guaranteed
Amount, the Warranty Provider will pay the Fund an amount sufficient to make
sure that each shareholder's account can be redeemed for an amount equal to
his or her Guaranteed Amount.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to MLPF&S or its
affiliates. Pursuant to that order, the Fund also has retained Merrill Lynch
Investment Managers, LLC ("MLIM, LLC"), an affiliate of MLIM, as the
securities lending agent for a fee based on a share of the returns on
investment of cash collateral. MLIM, LLC may, on behalf of the Fund, invest
cash collateral received by the Fund for such loans, among other things, in a
private investment company managed by MLIM, LLC or in registered money market
funds advised by MLIM. For the year ended August 31, 2006, MLIM, LLC received
$4,907 in securities lending agent fees.
In addition, MLPF&S received $10,638 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
August 31, 2006.
For the year ended August 31, 2006, the Fund reimbursed MLIM $2,879 for
certain accounting services.
Financial Data Services, Inc. ("FDS"), a wholly owned subsidiary of ML & Co.,
is the Fund's transfer agent.
In February 2006, ML & Co. and BlackRock, Inc. entered into an agreement to
contribute ML & Co.'s investment management business, including MLIM, to the
investment management business of BlackRock, Inc. The transaction will close
on September 29, 2006.
On August 15, 2006, shareholders of the Fund approved a new Investment
Advisory Agreement with BlackRock Advisors, Inc. (the "Manager"), a wholly
owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was reorganized
into BlackRock Advisors, LLC. The new advisory agreement will become effective
on September 29, 2006 and the investment advisory fee is unchanged. In
addition, the Manager has entered into a sub-advisory agreement with BlackRock
Investment Management, LLC, an affiliate, under which the Manager pays the Sub-
Adviser for services it provides a fee equal to 74% of the management fee paid
to the Manager.
In connection with the closing, the Fund's Transfer Agent will become PFPC,
Inc., an affiliate of the Fund. In addition, BlackRock Distributors, Inc., an
affiliate of BlackRock, Inc., will become an additional distributor. MLIM,
LLC, the security lending agent, will become BlackRock Investment Management,
LLC.
During the year ended August 31, 2006, certain officers and/or trustees of the
Fund are officers and/or directors of MLIM, FDS, PSI, FAMD, ML & Co., and/or
MLIM, LLC.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended August 31, 2006 were $57,506,683 and $95,703,641, respectively.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Notes to Financial Statements (continued)
Transactions in call options written for the year ended August 31, 2006
were as follows:
Number of Premiums
Contracts Received
Outstanding call options written,
beginning of year -- --
Options written 161 $ 33,861
Options expired (161) (33,861)
--------------- ---------------
Outstanding call options written,
end of year -- --
=============== ===============
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest
transactions was $34,010,687 and $44,278,072 for the years ended
August 31, 2006 and August 31, 2005, respectively.
Transactions in beneficial interest for each class were as follows:
Class A Shares for the Year Dollar
Ended August 31, 2006 Shares Amount
Shares issued to shareholders in
reinvestment of dividends and
distributions 15,274 $ 160,236
Shares redeemed (169,014) (1,777,713)
--------------- ---------------
Net decrease (153,740) $ (1,617,477)
=============== ===============
Class A Shares for the Year Dollar
Ended August 31, 2005 Shares Amount
Shares issued to shareholders in
reinvestment of distributions 38,340 $ 398,731
Shares redeemed (361,735) (3,783,704)
--------------- ---------------
Net decrease (323,395) $ (3,384,973)
=============== ===============
Class B Shares for the Year Dollar
Ended August 31, 2006 Shares Amount
Shares issued to shareholders in
reinvestment of dividends and
distributions 231,229 $ 2,414,202
Shares redeemed (1,927,923) (20,074,084)
--------------- ---------------
Net decrease (1,696,694) $ (17,659,882)
=============== ===============
Class B Shares for the Year Dollar
Ended August 31, 2005 Shares Amount
Shares issued to shareholders in
reinvestment of distributions 407,336 $ 4,228,151
Shares redeemed (2,139,405) (22,253,217)
--------------- ---------------
Net decrease (1,732,069) $ (18,025,066)
=============== ===============
Class C Shares for the Year Dollar
Ended August 31, 2006 Shares Amount
Shares issued to shareholders in
reinvestment of dividends and
distributions 154,053 $ 1,613,048
Shares redeemed (1,391,597) (14,500,751)
--------------- ---------------
Net decrease (1,237,544) $ (12,887,703)
=============== ===============
Class C Shares for the Year Dollar
Ended August 31, 2005 Shares Amount
Shares issued to shareholders in
reinvestment of distributions 280,613 $ 2,918,381
Shares redeemed (2,051,749) (21,374,920)
--------------- ---------------
Net decrease (1,771,136) $ (18,456,539)
=============== ===============
Class I Shares for the Year Dollar
Ended August 31, 2006 Shares Amount
Shares issued to shareholders in
reinvestment of dividends and
distributions 25,624 $ 268,304
Shares redeemed (202,234) (2,113,929)
--------------- ---------------
Net decrease (176,610) $ (1,845,625)
=============== ===============
Class I Shares for the Year Dollar
Ended August 31, 2005 Shares Amount
Shares issued to shareholders in
reinvestment of distributions 57,454 $ 596,380
Shares redeemed (476,633) (5,007,874)
--------------- ---------------
Net decrease (419,179) $ (4,411,494)
=============== ===============
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Notes to Financial Statements (concluded)
5. Short-Term Borrowings:
The Fund, along with certain other funds managed by MLIM and its affiliates,
is a party to a $500,000,000 credit agreement with a group of lenders, which
expires November 2006. The Fund may borrow under the credit agreement to fund
shareholder redemptions and for other lawful purposes other than for leverage.
The Fund may borrow up to the maximum amount allowable under the Fund's current
prospectus and statement of additional information, subject to various other
legal, regulatory or contractual limits. The Fund pays a commitment fee of .07%
per annum based on the Fund'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 .50% or
a base rate as defined in the credit agreement. The Fund did not borrow under
the credit agreement during the year ended August 31, 2006.
6. Commitments:
At August 31, 2006, the Fund had entered into a foreign exchange contract
under which it had agreed to sell various foreign currencies with an
approximate value of $808,000.
7. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended
August 31, 2006 and August 31, 2005 was as follows:
8/31/2006 8/31/2005
Distributions paid from:
Ordinary income $ 259,422 $ 2,899,613
Net long-term capital gains 4,518,042 5,699,660
--------------- ---------------
Total taxable distributions $ 4,777,464 $ 8,599,273
=============== ===============
As of August 31, 2006, the components of accumulated earnings on a tax
basis were as follows:
Undistributed ordinary income--net $ --
Undistributed long-term capital gains--net 4,755,389
---------------
Total undistributed earnings--net 4,755,389
Capital loss carryforward --
Unrealized gains--net 7,832,312*
---------------
Total accumulated earnings--net $ 12,587,701
===============
* The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
wash sales, the realization for tax purposes of unrealized gains
(losses) on certain foreign currency contracts and the deferral
of post-October currency losses for tax purposes.
8. Share Class Redesignation:
Effective October 2, 2006, Class A, Class B, Class C and Class I Shares will
be redesignated to Investor A, Investor B, Investor C and Institutional
Shares, respectively.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees
of BlackRock Principal Protected Trust:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of BlackRock Fundamental Growth
Principal Protected Fund (the "Fund") (formerly Merrill Lynch Fundamental
Growth Principal Protected Fund), one of the series constituting BlackRock
Principal Protected Trust (the "Trust") (formerly Merrill Lynch Principal
Protected Trust) as of August 31, 2006, and the related statement of
operations, the statement of changes in net assets, and the financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The financial statements of the Fund for the year ended
August 31, 2005 and the financial highlights for each of the two years in the
period ended August 31, 2005 and for the period November 13, 2002 through
August 31, 2003, were audited by other auditors whose report, dated October 14,
2005, expressed an unqualified opinion on those financial statements and
financial highlights.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. The Trust is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Trust's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements and
financial highlights, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. Our procedures included confirmation of securities
owned as of August 31, 2006, by correspondence with the custodian and brokers;
where replies were not received from brokers, we performed other auditing
procedures. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BlackRock Fundamental Growth Principal Protected Fund of BlackRock Principal
Protected Trust as of August 31, 2006, the results of its operations, the
changes in its net assets, and the financial highlights for the year then
ended, in conformity with U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
October 19, 2006
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Change in Fund's Independent Registered Public Accounting Firm
On August 28, 2006, Ernst & Young LLP ("E&Y") resigned as the Independent
Registered Public Accounting Firm of BlackRock Fundamental Growth Principal
Protected Fund of BlackRock Principal Protected Trust (the "Fund").
E&Y's reports on the financial statements of the Fund for the past two fiscal
years did not contain an adverse opinion or a disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principles.
In connection with its audits for the two most recent fiscal years and through
August 28, 2006 (1) there were no disagreements with E&Y on any matter of
accounting principle or practices, financial statement disclosure or auditing
scope or procedure, whereby such disagreements, if not resolved to the
satisfaction of E&Y, would have caused them to make reference to the subject
matter of the disagreements in connection with their report on the financial
statements for such years; and (2) there have been no reportable events (as
defined in item 304(a)(1)(v) of Regulation S-K).
The Audit Committee of the Fund's Board of Directors approved the engagement
of Deloitte & Touche LLP as the Fund's Independent Registered Public
Accounting Firm for the fiscal year ended August 31, 2006.
Important Tax Information
The following information is provided with respect to the ordinary income
distributions paid by BlackRock Fundamental Growth Principal Protected Fund of
BlackRock Principal Protected Trust during the fiscal year ended August 31,
2006:
Record Date December 12, 2005 April 24, 2006
Payable Date December 16, 2005 April 28, 2006
Qualified Dividend Income for Individuals* 100% 100%
Dividends Qualifying for the Dividends Received Deduction for Corporations 100% 100%
Federal Obligation Interest** 60.63% 60.63%
* The Fund hereby designates the percentage indicated above or the maximum amount allowable by law.
** The law varies in each state as to whether and what percentage of dividend income attributable to
federal obligations is exempt from state income tax. We recommend that you consult your tax adviser
to determine if any portion of the dividends you received is exempt from state income taxes.
Additionally, the Fund distributed long-term capital gains of $.352692 per
share to shareholders of record on December 12, 2005.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreement--Matters Considered by the Board
In connection with the combination of Merrill Lynch's investment advisory
business, including Merrill Lynch Investment Managers, L.P. (the "Previous
Investment Adviser"), with that of BlackRock, Inc. ("BlackRock") to create a
new independent company ("New BlackRock") (the "Transaction"), the Trust's
Board of Trustees considered and approved a new investment advisory agreement
(the "BlackRock Investment Advisory Agreement") between the Trust and
BlackRock Advisors, LLC ("BlackRock Advisors"). Shareholders subsequently
approved the BlackRock Investment Advisory Agreement and it became effective
on September 29, 2006, replacing the investment advisory agreement with the
Previous Investment Adviser (the "Previous Investment Advisory Agreement").
The Board discussed the BlackRock Investment Advisory Agreement at telephonic
and in-person meetings held during April and May 2006. The Board, including
the independent trustees, approved the BlackRock Investment Advisory Agreement
at an in-person meeting held on May 10, 2006.
To assist the Board in its consideration of the BlackRock Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent trustees, through their independent legal
counsel, also requested and received additional information from Merrill Lynch
and BlackRock in connection with their consideration of the BlackRock
Investment Advisory Agreement. The additional information was provided in
advance of the May 10, 2006 meeting. In addition, the independent trustees
consulted with their counsel and Trust counsel on numerous occasions,
discussing, among other things, the legal standards and certain other
considerations relevant to the trustees' deliberations.
At the Board meetings, the trustees discussed with Merrill Lynch management
and certain BlackRock representatives the Transaction, its strategic rationale
and BlackRock's general plans and intentions regarding the Trust. At these
Board meetings, representatives of Merrill Lynch and BlackRock made
presentations to and responded to questions from the Board. The trustees also
inquired about the plans for and anticipated roles and responsibilities of
certain employees and officers of the Previous Investment Adviser, and of its
affiliates, to be transferred to BlackRock in connection with the Transaction.
The independent trustees of the Board also conferred separately and with their
counsel about the Transaction and other matters related to the Transaction on
a number of occasions, including in connection with the April and May 2006
meetings. After the presentations and after reviewing the written materials
provided, the independent trustees met in executive sessions with their
counsel to consider the BlackRock Investment Advisory Agreement.
In connection with the Board's review of the BlackRock Investment Advisory
Agreement, Merrill Lynch and/or BlackRock advised the trustees about a variety
of matters. The advice included the following, among other matters:
* that there was not expected to be any diminution in the nature, quality
and extent of services provided to the Trust and its shareholders by
BlackRock Advisors, including compliance services;
* that operation of New BlackRock as an independent investment management
firm would enhance its ability to attract and retain talented
professionals;
* that the Trust was expected to benefit from having access to BlackRock's
state of the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions (R) brand name;
* that BlackRock had no present intention to alter any applicable expense
waivers or reimbursements that were currently in effect and, while it
reserved the right to do so in the future, it would seek the approval of
the Board before making any changes;
* that in connection with the Transaction, Merrill Lynch and BlackRock had
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Previous Investment Adviser (or affiliates),
respectively; and
* that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they had a financial interest in the
matters being considered that was different from that of Trust
shareholders.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
In addition, BlackRock agreed to assume all agreements and obligations of the
Previous Investment Adviser necessary to ensure the continuation of the
financial warranty provided to the Trust by Main Place Funding LLC.
The trustees considered the information provided by Merrill Lynch and
BlackRock above, and, among other factors, the following:
* the potential benefits to Trust shareholders from being part of a combined
fund family with BlackRock-sponsored funds, including possible economies
of scale and access to investment opportunities;
* the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
* the compliance policies and procedures of BlackRock Advisors;
* the terms and conditions of the BlackRock Investment Advisory Agreement,
including the fact that the schedule of the Trust's total advisory fees
would not increase under the BlackRock Investment Advisory Agreement, but
would remain the same;
* that in February 2006, the Board had performed a full annual review of the
Previous Investment Advisory Agreement, as required by the 1940 Act, and
had determined that the Previous Investment Adviser had the capabilities,
resources and personnel necessary to provide the advisory and
administrative services that were then being provided to the Trust; and
that the advisory and/or management fees paid by the Trust, taking into
account any applicable agreed-upon fee waivers and breakpoints, had
represented reasonable compensation to the Previous Investment Adviser in
light of the services provided, the costs to the Previous Investment
Adviser of providing those services, economies of scale, the fees and
other expenses paid by similar funds (including information provided by
Lipper Inc. ["Lipper"]), and such other matters as the trustees had
considered relevant in the exercise of their reasonable judgment; and
* that Merrill Lynch had agreed to pay all expenses of the Trust in
connection with the Board's consideration of the BlackRock Investment
Advisory Agreement and related agreements and all costs of shareholder
approval of the BlackRock Investment Advisory Agreement and as a result
the Trust would bear no costs in obtaining shareholder approval of the
BlackRock Investment Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the BlackRock Investment Advisory Agreement, the Board
assessed the nature, quality and scope of the services to be provided to the
Trust by the personnel of BlackRock Advisors and its affiliates, including
administrative services, shareholder services, oversight of fund accounting,
marketing services and assistance in meeting legal and regulatory
requirements. In its review of the BlackRock Investment Advisory Agreement,
the Board also considered a range of information in connection with its
oversight of the services to be provided by BlackRock Advisors and its
affiliates. Among the matters considered were: (a) fees (in addition to
management fees) to be paid to BlackRock Advisors and its affiliates by the
Trust; (b) Trust operating expenses paid to third parties; (c) the resources
devoted to and compliance reports relating to the Trust's investment
objective, policies and restrictions, and its compliance with its Code of
Ethics and BlackRock Advisors' compliance policies and procedures; and (d) the
nature, cost and character of non-investment management services to be
provided by BlackRock Advisors and its affiliates.
In the period prior to the Board meeting to consider renewal of the Previous
Investment Advisory Agreement, the Board had requested and received materials
specifically relating to the Previous Investment Advisory Agreement. These
materials included (a) information compiled by Lipper on the fees and expenses
and the investment performance of the Trust as compared to a comparable group
of funds as classified by Lipper; (b) a discussion by the Trust's portfolio
management team on investment strategies used by the Trust during its most
recent fiscal year; (c) information on the profitability to the Previous
Investment Adviser of the Previous Investment Advisory Agreement and other
payments received by the Previous Investment Adviser and its affiliates from
the Trust; and (d) information provided by the Previous Investment Adviser
concerning services related to the valuation and pricing of the Trust's
portfolio holdings, allocation of brokerage fees, the Trust's portfolio
turnover statistics, and direct and indirect benefits to the Previous
Investment Adviser and its affiliates from their relationship with the Trust.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Disclosure of New Investment Advisory Agreement (continued)
In their deliberations, the trustees considered information received in
connection with their most recent approval of the continuance of the Previous
Investment Advisory Agreement, in addition to information provided by
BlackRock and BlackRock Advisors in connection with their evaluation of the
terms and conditions of the BlackRock Investment Advisory Agreement. The
trustees did not identify any particular information that was all-important or
controlling, and each trustee attributed different weights to the various
factors. The trustees, including a majority of the independent trustees,
concluded that the terms of the BlackRock Investment Advisory Agreement are
appropriate, that the fees to be paid are reasonable in light of the services
to be provided to the Trust, and that the BlackRock Investment Advisory
Agreement should be approved and recommended to Trust shareholders.
Nature, Quality and Extent of Services Provided--The Board reviewed the
nature, quality and extent of services provided by the Previous Investment
Adviser, including the investment advisory services and the resulting
performance of the Trust, as well as the nature, quality and extent of services
expected to be provided by BlackRock Advisors. The Board focused primarily on
the Previous Investment Adviser's investment advisory services and the Trust's
investment performance, but also considered certain areas in which both the
Previous Investment Adviser and the Trust receive services as part of the
Merrill Lynch complex. The Board compared the Trust's performance - both
including and excluding the effects of fees and expenses - to the performance
of a comparable group of mutual funds, and the performance of a relevant index
or combination of indexes. While the Board reviews performance data at least
quarterly, consistent with the Previous Investment Adviser's investment goals,
the Board attaches more importance to performance over relatively long periods
of time.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the BlackRock Investment Advisory Agreement, the
trustees considered, among other things, the expected impact of the Transaction
on the operations, facilities, organization and personnel of BlackRock Advisors
and how it would affect the Trust; the ability of BlackRock Advisors to perform
its duties after the Transaction; and any anticipated changes to the investment
and other practices of the Trust.
The trustees were given information with respect to the potential benefits to
the Trust and its shareholders from having access to BlackRock's state of the
art technology and risk management analytic tools, including the investment
tools provided under the BlackRock Solutions brand name.
The trustees were advised that, as a result of Merrill Lynch's equity interest
in BlackRock after the Transaction, the Trust would continue to be subject to
restrictions concerning certain transactions involving Merrill Lynch affiliates
(for example, transactions with a Merrill Lynch broker-dealer acting as
principal) absent revised or new regulatory relief. The trustees were advised
that a revision of existing regulatory relief with respect to these
restrictions was being sought from the Securities and Exchange Commission and
were advised of the possibility of receipt of such revised regulatory relief.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the trustees
determined that the nature and quality of services to be provided to the Trust
under the BlackRock Investment Advisory Agreement were expected to be as good
as or better than that provided under the Previous Investment Advisory
Agreement. The trustees were advised that BlackRock Advisors did not plan to
change the Trust's portfolio management team upon the closing of the
transaction. It was noted, however, that other changes in personnel were
expected to follow the Transaction and the combination of the operations of
the Previous Investment Adviser and its affiliates with those of BlackRock.
The trustees noted that if portfolio managers or other personnel were to cease
to be available prior to the closing of the Transaction, the Board would
consider all available options, including seeking the investment advisory or
other services of BlackRock affiliates. Accordingly, the trustees concluded
that, overall, they were satisfied at the present time with assurances from
BlackRock and BlackRock Advisors as to the expected nature, quality and extent
of the services to be provided to the Trust under the BlackRock Investment
Advisory Agreement.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Costs of Services Provided and Profitability--It was noted that, in
conjunction with the recent review of the Previous Investment Advisory
Agreement, the trustees had received, among other things, a report from Lipper
comparing the Trust's fees and expenses to those of a peer group selected by
Lipper, and information as to the fees charged by the Previous Investment
Adviser or its affiliates to other registered investment company clients for
investment management services. The Board reviewed the Trust's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels - the actual rate includes advisory fees and the
effects of any fee waivers - compared to the other funds in its Lipper
category. They also compared the Trust's total expenses to those of other
comparable funds. The information showed that the Trust had fees and expenses
within the range of fees and expenses of comparable funds. The Board noted
that if all assets are irreversibly allocated to the Protection Component
under the terms of the Trust's Warranty Agreement, the management fee will be
reduced. The Board concluded that the Trust's management fee and fee rate and
overall expense ratio are reasonable compared to those of other comparable
funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the BlackRock Investment Advisory Agreement, the trustees considered,
among other things, whether advisory fees or other expenses would change as a
result of the Transaction. Based on their review of the materials provided and
the fact that the BlackRock Investment Advisory Agreement is substantially
similar to the Previous Investment Advisory Agreement in all material
respects, including the rate of compensation, the trustees determined that the
Transaction should not increase the total fees payable, including any fee
waivers and expense reimbursements, for advisory and administrative services.
The trustees noted that it was not possible to predict with certainty New
BlackRock's future profitability from its relationship with the Trust.
The trustees discussed with BlackRock Advisors its general methodology to be
used in determining New BlackRock's profitability with respect to its
relationship with the Trust. The trustees noted that they expect to receive
profitability information from New BlackRock on at least an annual basis and
thus be in a position to evaluate whether any adjustments in the Trust's fees
and/or fee breakpoints would be appropriate.
Fees and Economies of Scale--The Board considered the extent to which
economies of scale might be realized as the assets of the Trust increase and
whether there should be changes in the management fee rate or structure in
order to enable the Trust to participate in these economies of scale. The
Board determined that changes were not currently necessary and that the Trust
appropriately participated in these economies of scale.
In reviewing the Transaction, the trustees considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that the BlackRock Investment Advisory
Agreement is substantially similar to the Previous Investment Advisory
Agreement in all material respects, including the rate of compensation, the
trustees determined that as a result of the Transaction, the Trust's total
advisory fees would be no higher than the fees under the Previous Investment
Advisory Agreement. The trustees noted that in conjunction with their most
recent deliberations concerning the Previous Investment Advisory Agreement,
they had determined that the total fees for advisory and administrative
services for the Trust were reasonable in light of the services provided. It
was noted that in conjunction with the recent review of the Previous
Investment Advisory Agreement, the trustees had received, among other things,
a report from Lipper comparing the Trust's fees, expenses and performance to
those of a peer group selected by Lipper, and information as to the fees
charged by the Previous Investment Adviser or its affiliates to other
registered investment company clients for investment management services. The
trustees concluded that because the rates for advisory fees for the Trust
would be no higher than the fee rates in effect at the time, the proposed
management fee structure, including any fee waivers, was reasonable and that
no additional changes were currently necessary.
Fall-Out Benefits--In evaluating the fall-out benefits to be received by
BlackRock Advisors under the BlackRock Investment Advisory Agreement, the
trustees considered whether BlackRock Advisors would experience such benefits
to the same extent that the Previous Investment Adviser was experiencing such
benefits under the Previous Investment Advisory Agreement. Based on their
review of the materials provided, including materials received in connection
with their most recent approval of the continuance of the Previous Investment
Advisory Agreement, and their discussions with management of the Previous
Investment Adviser and BlackRock, the trustees determined that BlackRock
Advisors' fall out benefits could include increased ability for BlackRock to
distribute shares of its funds and other investment products and to obtain
research services using portfolio transaction brokerage commissions. The
trustees also considered possible benefits stemming from the proposal that
PFPC Financial Services, an affiliate of BlackRock, serve as transfer agent
for the Trust following the Transaction. The trustees noted that any fall-out
benefits were difficult to quantify with certainty at this time, and indicated
that they would continue to evaluate them going forward.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Disclosure of New Investment Advisory Agreement (concluded)
Investment Performance--The trustees considered investment performance for the
Trust. The trustees compared the Trust's performance - both including and
excluding the effects of the Trust's fees and expenses - to the performance of
a comparable group of mutual funds, and the performance of a relevant index or
combination of indexes. The comparative information received from Lipper
showed Trust performance at various levels within the range of performance of
comparable funds over different time periods. While the Board reviews
performance data at least quarterly, consistent with the Previous Investment
Adviser's investment goals, the Board attaches more importance over relatively
long periods of time. The trustees believed the Trust's performance was
satisfactory. Also, the trustees took into account the investment performance
of funds advised by BlackRock Advisors. The Board considered comparative
information from Lipper which showed that the performance of the funds
advised by BlackRock Advisors was within the range of performance of
comparable funds over different time periods. The Board noted BlackRock's
considerable investment management experience and capabilities, but was unable
to predict what effect, if any, consummation of the Transaction would have on
the future performance of the Trust.
Conclusion--After the independent trustees of the Trust deliberated in
executive session, the entire Board, including the independent trustees,
approved the BlackRock Investment Advisory Agreement, concluding that the
advisory fee rate was reasonable in relation to the services provided and that
the BlackRock Investment Advisory Agreement was in the best interests of the
shareholders. In approving the BlackRock Investment Advisory Agreement, the
Board noted that it anticipated reviewing the continuance of the agreement in
advance of the expiration of the initial two-year period.
New BlackRock Sub-Advisory Agreement--Matters Considered by the Board
At an in-person meeting held on August 24 - 25, 2006, the Board of Trustees,
including the independent trustees, discussed and approved the sub-advisory
agreement (the "BlackRock Sub-Advisory Agreement") between BlackRock Advisors
and its affiliate, BlackRock Investment Management, LLC (the "Sub-Adviser").
The BlackRock Sub-Advisory Agreement became effective on September 29, 2006,
at the same time the BlackRock Investment Advisory Agreement became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors equal to 74% of the advisory fee received
by BlackRock Advisors from the Trust. BlackRock Advisors pays the Sub-Adviser
out of its own resources, and there is no increase in Trust expenses as a
result of the BlackRock Sub-Advisory Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, the Board reviewed its considerations in connection with its approval
of the BlackRock Investment Advisory Agreement in May 2006. The Board relied
on the same information and considered the same factors as those discussed
above in connection with the approval of the BlackRock Investment Advisory
Agreement. In reviewing the sub-advisory fee rate provided in the BlackRock
Sub-Advisory Agreement, the Board noted the fact that both BlackRock Advisors
and the Sub-Adviser have significant responsibilities under their respective
advisory agreements. BlackRock Advisors remains responsible for oversight of
the Trust's operations and administration, and the Sub-Adviser provides
advisory services to the Trust and is responsible for the day-to-day management
of the Trust's portfolio under the BlackRock Sub-Advisory Agreement. The Board
also took into account the fact that there is no increase in total advisory
fees paid by the Trust as a result of the BlackRock Sub-Advisory Agreement.
Under all of the circumstances, the Board concluded that it was a reasonable
allocation of fees for the Sub-Adviser to receive 74% of the advisory fee paid
by the Trust to BlackRock Advisors.
After the independent trustees deliberated in executive session, the entire
Board, including the independent trustees, approved the BlackRock Sub-Advisory
Agreement, concluding that the sub-advisory fee was reasonable in relation to
the services provided and that the BlackRock Sub-Advisory Agreement was in the
best interests of shareholders.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Officers and Trustees
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
Interested Trustee
Robert C. Doll, Jr.* President 2005 to Vice Chairman and Director of BlackRock, and 129 Funds None
P.O. Box 9011 and present Global Chief Investment Officer for Equities, 174 Portfolios
Princeton, Director Chairman of the BlackRock Private Client
NJ 08543-9011 Operating Committee, and member of the
Age: 52 BlackRock Executive Committee since 2006;
President of the Funds advised by Merrill Lynch
Investment Managers ("MLIM") and its affiliates
("MLIM/FAM-advised funds") from 2005 to
2006 and Chief Investment Officer thereof from
2001 to 2006; President of MLIM and Fund
Asset Management, L.P. ("FAM") from 2001
to 2006; Co-Head (Americas Region) thereof
from 2000 to 2001 and Senior Vice President
from 1999 to 2001; President and Director
of Princeton Services, Inc. ("Princeton
Services") since 2001; President of Princeton
Administrators, L.P. ("Princeton Administrators")
from 2001 to 2006; Chief Investment Officer
of OppenheimerFunds, Inc. in 1999 and
Executive Vice President thereof from 1991
to 1999.
* Mr. Doll is a director, trustee or member of an advisory board of certain other
investment companies for which BlackRock acts as investment adviser. Mr. Doll is
an "interested person," as defined in the Investment Company Act, of the Fund
based on his current and former positions with BlackRock, Inc. and its affiliates.
Trustees serve until their resignation, removal or death, or until December 31 of
the year in which they turn 72. As Fund President, Mr. Doll serves at the pleasure
of the Board of Trustees.
Independent Trustees*
David O. Beim** Trustee 2002 to Professor of Finance and Economics at the 20 Funds None
P.O. Box 9095 present Columbia University Graduate School of Business 26 Portfolios
Princeton, since 1991; Chairman of Outward Bound USA
NJ 08543-9095 from 1997 to 2001; Chairman of Wave Hill Inc.,
Age: 66 since 1990; Trustee of Phillips Exeter Academy
from 2002 to present.
James T. Flynn Trustee 2002 to Chief Financial Officer of JPMorgan & Co., Inc. 20 Funds None
P.O. Box 9095 present from 1990 to 1995 and an employee of JPMorgan 26 Portfolios
Princeton, in various capacities from 1967 to 1995.
NJ 08543-9095
Age: 66
W. Carl Kester Trustee 2002 to Deputy Dean for Academic Affairs, Harvard 21 Funds None
P.O. Box 9095 present Business School since 2006; Mizuho Financial 27 Portfolios
Princeton, Group, Professor of Finance, Harvard Business
NJ 08543-9095 School, Unit Head, Finance since 2005; Senior
Age: 54 Associate Dean and Chairman of the MBA
Program of Harvard Business School, 1999 to
2005; Member of the faculty of Harvard
Business School since 1981; Independent
Consultant since 1978.
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Officers and Trustees (concluded)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
Independent Trustees* (concluded)
Karen P. Robards*** Trustee 2002 to President of Robards & Company, a financial 20 Funds AtriCure, Inc.
P.O. Box 9095 present advisory firm since 1987; formerly an investment 26 Portfolios (medical
Princeton, banker with Morgan Stanley for more than ten devices)
NJ 08543-9095 years; Director of Enable Medical Corp. from
Age: 56 1996 to 2005; Director of AtriCure, Inc. since
2000; Director of the Cooke Center for Learning
and Development, a not-for-profit organization,
since 1987.
* Trustees serve until their resignation, removal or death, or until December 31
of the year in which they turn 72.
** Chairman of the Audit Committee.
*** Chair of the Board of Trustees.
Position(s) Length of
Held with Time
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Treasurer 2002 to Managing Director of BlackRock since 2006; Managing Director of MLIM and FAM
P.O. Box 9011 present from 2005 to 2006 and Treasurer thereof from 1999 to 2006; First Vice President of
Princeton, MLIM and FAM from 1997 to 2005; Senior Vice President and Treasurer of Princeton
NJ 08543-9011 Services from 1999 to 2006 and Director from 2004 to 2006; Vice President of FAM
Age: 46 Distributors, Inc. ("FAMD") from 1999 to 2006 and Director from 2004 to 2006; Vice
President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from
1990 to 2001; Vice President, Treasurer and Secretary of the IQ Funds from 2004
to 2006.
Thomas E. Burke Vice 2006 to Director of BlackRock since 2006; Director of MLIM from 1998 to 2006.
P.O. Box 9011 President present
Princeton,
NJ 08543-9011
Age: 48
Jeffrey Hiller Fund Chief 2004 to Managing Director of BlackRock and Fund Chief Compliance Officer since 2006; Chief
P.O. Box 9011 Compliance present Compliance Officer of the MLIM/FAM-advised funds and First Vice President and Chief
Princeton, Officer Compliance Officer of MLIM (Americas Region) from 2004 to 2006; Chief Compliance
NJ 08543-9011 Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
Age: 55 Investment Management from 2002 to 2004; Managing Director and Global Director
of Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance
Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential
Financial from 1995 to 2000; Senior Counsel in the Securities and Exchange
Commission's Division of Enforcement in Washington, D.C. from 1990 to 1995.
Alice A. Pellegrino Secretary 2004 to Director of BlackRock since 2006; Director (Legal Advisory) of MLIM from 2002 to
P.O. Box 9011 present 2006; Vice President of MLIM from 1999 to 2002; Attorney associated with MLIM
Princeton, from 1997 to 2006; Secretary of MLIM, FAM, FAMD and Princeton Services from
NJ 08543-9011 2004 to 2006.
Age: 46
* Officers of the Fund serve at the pleasure of the Board of Trustees.
Further information about the Fund's Officers and Trustees is available in
the Fund's Statement of Additional Information, which can be obtained without
charge by calling 1-800-441-7762.
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
Pre Transaction (Until September 29, 2006)
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville FL 32246-6484
Post Transaction (After September 29, 2006)
PFPC Inc.
Wilmington, DE 19809
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former
fund investors and individual clients (collectively, "Clients") and to
safeguarding their nonpublic personal information. The following information
is provided to help you understand what personal information BlackRock
collects, how we protect that information and why in certain cases we share
such information with select parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about
you from different sources, including the following: (i) information we
receive from you or, if applicable, your financial intermediary, on
applications, forms or other documents; (ii) information about your
transactions with us, our affiliates, or others; (iii) information we receive
from a consumer reporting agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any
nonpublic personal information about its Clients, except as permitted by law
or as is necessary to service Client accounts. These nonaffiliated third
parties are required to protect the confidentiality and security of this
information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that
may be of interest to you. In addition, BlackRock restricts access to
nonpublic personal information about its Clients to those BlackRock employees
with a legitimate business need for the information. BlackRock maintains
physical, electronic and procedural safeguards that are designed to protect
the nonpublic personal information of its Clients, including procedures
relating to the proper storage and disposal of such information.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. 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 adviser. Please note that not all investment
advisers, banks or brokerages may offer this service.
Shareholders Who Hold Accounts Directly with BlackRock:
1) Access the BlackRock Web site at
http://www.blackrock.com/edelivery
2) Log into your account
BLACKROCK FUNDAMENTAL GROWTH PRINCIPAL PROTECTED FUND AUGUST 31, 2006
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of
the end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial
officer and principal accounting officer, or persons performing
similar functions. A copy of the code of ethics is available
without charge at www.blackrock.com.
Item 3 - Audit Committee Financial Expert - The registrant's board of
directors has determined that (i) the registrant has the following
audit committee financial experts serving on its audit committee and
(ii) each audit committee financial expert is independent: (1) David
O. Beim, (2) W. Carl Kester, (3) James T. Flynn and (4) Karen P.
Robards.
The registrant's board of directors has determined that David O.
Beim, W. Carl Kester and Karen P. Robards qualify as financial
experts pursuant to Item 3(c)(4) of Form N-CSR.
Mr. Beim has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions. For
25 years, Mr. Beim was an investment banker actively engaged in
financial analysis for securities transactions and mergers. These
transactions presented a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised by
the Registrant's financial statements. Mr. Beim has also been a
professor of finance and economics at the Columbia University
Graduate School of Business for the past 13 years.
Prof. Kester has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions.
Prof. Kester has been involved in providing valuation and other
financial consulting services to corporate clients since 1978.
Prof. Kester's financial consulting services present a breadth and
level of complexity of accounting issues that are generally
comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the Registrant's financial
statements.
Ms. Robards has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions. Ms.
Robards has been President of Robards & Company, a financial
advisory firm, since 1987. Ms. Robards was formerly an investment
banker for more than 10 years where she was responsible for
evaluating and assessing the performance of companies based on their
financial results. Ms. Robards has over 30 years of experience
analyzing financial statements. She also is the member of the Audit
Committees of two privately held companies and a non-profit
organization.
Item 4 - Principal Accountant Fees and Services
Note: The Fund changed auditors effective August, 28, 2006. Prior
to that date, Ernst & Young LLP provided services as the Fund's
independent registered public accountant.
(a) Audit Fees - Fiscal Year Ending August 31, 2006 - $26,900
Fiscal Year Ending August 31, 2005 - $28,000
(b) Audit-Related Fees -
Fiscal Year Ending August 31, 2006 - $0
Fiscal Year Ending August 31, 2005 - $0
(c) Tax Fees - Fiscal Year Ending August 31, 2006 - $6,954
Fiscal Year Ending August 31, 2005 - $5,700
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending August 31, 2006 - $0
Fiscal Year Ending August 31, 2005 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services provided
to the registrant on an annual basis require specific pre-approval
by the Committee. The Committee also must approve other non-audit
services provided to the registrant and those non-audit services
provided to the registrant's affiliated service providers that
relate directly to the operations and the financial reporting of the
registrant. Certain of these non-audit services that the Committee
believes are a) consistent with the SEC's auditor independence rules
and b) routine and recurring services that will not impair the
independence of the independent accountants may be approved by the
Committee without consideration on a specific case-by-case basis
("general pre-approval"). However, such services will only be
deemed pre-approved provided that any individual project does not
exceed $5,000 attributable to the registrant or $50,000 for all of
the registrants the Committee oversees. Any proposed services
exceeding the pre-approved cost levels will require specific pre-
approval by the Committee, as will any other services not subject to
general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to
general pre-approval at the next regularly scheduled in-person board
meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending August 31, 2006 - $3,098,500
Fiscal Year Ending August 31, 2005 - $7,377,027
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling,
controlled by, or under common control with the investment adviser
that provides ongoing services to the registrant that were not pre-
approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation
S-X is compatible with maintaining the principal accountant's
independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $1,739,500, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating Committee will consider nominees to the
Board recommended by shareholders when a vacancy becomes available.
Shareholders who wish to recommend a nominee should send nominations
which include biographical information and sets 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 certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Fundamental Growth Principal Protected Fund of
BlackRock Principal Protected Trust
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Fundamental Growth Principal Protected Fund of
BlackRock Principal Protected Trust
Date: October 19, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Fundamental Growth Principal Protected Fund of
BlackRock Principal Protected Trust
Date: October 19, 2006
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock Fundamental Growth Principal Protected Fund of
BlackRock Principal Protected Trust
Date: October 19, 2006