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
811-09739
Name of Fund: BlackRock Core Principal Protected Fund of BlackRock Principal
Protected Trust
Master Large Cap Core Portfolio of Master Large Cap Series 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 Core Principal Protected Fund of BlackRock Principal
Protected Trust and Master Large Cap Core Portfolio of Master Large Cap
Series 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: 10/31/06
Date of reporting period: 11/01/05 - 10/31/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES
FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock Core Principal BLACKROCK
Protected Fund
Of BlackRock Principal Protected Trust
ANNUAL REPORT | OCTOBER 31, 2006
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock Core Principal Protected Fund
Proxy Results
During the six-month period ended October 31, 2006, BlackRock Core Principal
Protected Fund of BlackRock Principal Protected Trust s shareholders voted on
the following proposals. Proposals 1 and 3 were approved at a special
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
with BlackRock Advisors, Inc. 7,961,458 158,327 224,860
- -------------------------------------------------------------------------------------------------------------------------
3. To approve a contingent subadvisory agreement
with BlackRock Advisors, Inc. 7,928,103 185,612 230,929
- -------------------------------------------------------------------------------------------------------------------------
2 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
A Letter to Shareholders
Dear Shareholder
Ten months into 2006, we are able to say it has been an interesting year for
investors. After a volatile start and far-reaching mid-year correction, the
financial markets regained some positive momentum through late summer and fall.
For the six- and 12-month periods ended October 31, 2006, most major market
indexes managed to post positive returns:
Total Returns as of October 31, 2006 6-month 12-month
========================================================================================
U.S. equities (Standard & Poor's 500 Index) +6.11% +16.34%
- ----------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) +0.90 +19.98
- ----------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) +3.77 +27.52
- ----------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) +4.60 + 5.19
- ----------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +4.12 + 5.75
- ----------------------------------------------------------------------------------------
High yield bonds (Credit Suisse High Yield Index) +4.66 +10.29
- ----------------------------------------------------------------------------------------
The Federal Reserve Board (the Fed), after raising the target short-term
interest rate 17 times between June 2004 and June 2006, finally opted to pause
on August 8, 2006. This left the federal funds rate at 5.25%, where it remained
through the September and October Fed meetings. In interrupting its two-year
rate-hiking campaign, the Fed acknowledged that economic growth is slowing, led
by softness in the housing market. However, the central bankers continue to take
a cautionary position on inflation, despite a decline in energy prices in recent
months. At the time of this writing, the price of oil had settled into the
$60-per-barrel range after reaching nearly $78 per barrel earlier in the year.
Notwithstanding the mid-year correction, equity markets generally found support
in solid corporate earnings reports in the first three quarters of the year.
Overall corporate health, including strong company balance sheets, helped to
sustain robust dividend-distribution, share-buyback and merger-and-acquisition
activity. Many international equity markets fared equally well or better, thanks
in part to higher economic growth rates and low inflation.
In the U.S. bond market, prices declined for much of the year as investors
focused on decent economic activity and inflation concerns. Bond prices began to
improve in late June as the economy showed signs of weakening and inflation
pressures subsided. Notably, the Treasury curve inverted periodically, a
phenomenon typically associated with periods of economic weakness. At the end of
October, the one-month Treasury bill offered the highest yield on the curve at
5.18%, while the 30-year Treasury bond had a yield of 4.72%.
Amid the uncertainty inherent in the financial markets, we encourage you to
review your goals periodically with your financial professional and to make
portfolio changes, as needed. For additional insight and timely "food for
thought" for investors, we also invite you to visit Shareholder magazine at
www.blackrock.com/shareholdermagazine. We are pleased to make our
investor-friendly magazine available to you online. We thank you for trusting
BlackRock with your investment assets, and we look forward to continuing to
serve your investment needs.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Trustee
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 3
A Discussion With Your Fund's Portfolio Manager
The Fund met its objective of preserving investor principal while also
providing favorable returns relative to the Russell 1000 Index and the Lipper
Mixed-Asset Target Allocation Growth Funds average for the fiscal year.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended October 31, 2006, BlackRock Core Principal
Protected Fund's (formerly Merrill Lynch Core Principal Protected Fund)
Institutional, Investor A, Investor B and Investor C Shares had total returns of
+16.25%, +16.02%, +15.11% and +15.03%, 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.) The Fund's net performance was competitive with the +16.02%
return of its all-equity benchmark, the Russell 1000 Index, and exceeded the
+12.47% average return of the Lipper Mixed-Asset Target Allocation Growth Funds
category 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.)
Throughout the 12-month period, the Fund's equity allocation remained at 100% of
net assets. (Accordingly, the fixed income allocation was 0%.) Within the equity
portion of the Fund, we invest primarily in a diversified portfolio of large cap
companies selected from securities found in the Russell 1000 Index.
Stock selection contributed positively to returns in a majority of sectors,
including industrials (particularly airlines, aerospace & defense and
machinery), information technology (computers & peripherals and software),
materials (metals & mining) and consumer discretionary (retailers). The
underweighting of the financials and utilities sectors hindered performance, as
did the overweighting of the health care sector. Additionally, the combination
of stock selection and an overweight position in energy had a negative impact on
the Fund's results. At the individual stock level, the largest positive
contributors to performance were Nucor Corp., BEA Systems, Inc., Kerr-McGee
Corp., Qwest Communications International Inc. and AMR Corp. The largest
detractors were Tellabs, Inc., McAfee, Inc., Valero Energy Corp., Pioneer
Natural Resources Co. and Amgen, Inc.
Because the Fund invests in large-capitalization stocks that represent a
significant part of the U.S. stock market, its portfolio was influenced by the
same economic and market events that affected the broader stock market during
the past 12 months. After a marked and far-reaching mid-year correction that
spanned all sectors, styles and market-capitalization ranges, U.S. equities
rallied to record highs, with the Dow Jones Industrial Average soaring above
12,150 in late October. Overall performance was positive for large cap stocks as
they outperformed their small- to mid-sized counterparts 50% of the time, with
value outperforming growth the majority of the time. During the latter months of
the reporting period, the majority of corporate earnings reports were positive,
with most companies meeting or exceeding expectations. The Federal Reserve Board
(the Fed), under the leadership of new chairman Dr. Ben Bernanke, finally opted
to interrupt its interest rate-hiking campaign on August 8, and remained at a
pause in September and October. This came after 17 consecutive interest rate
increases over the previous 24 months. The price of crude oil escalated to a
summer peak near $78 a barrel, then stabilized toward the end of the reporting
period and stayed below $60 per barrel. The moderation in oil prices came in
response to rising U.S. oil inventories and a quiet hurricane season. However,
the elevated energy prices throughout the year had a negative impact on consumer
spending. A retreating consumer, coupled with a slowdown in the residential
housing sector, adversely affected gross domestic product (GDP), which was
estimated at 1.6% for the third quarter of 2006, compared to a growth rate of
2.6% in the second quarter and 5.6% in the first quarter.
What changes were made to the Portfolio during the fiscal period?
The Fund seeks long-term capital growth while protecting the principal value of
investor shares. This is accomplished through investments in a core equity
component for growth and a fixed income component for an element of protection.
A mathematical formula is used to determine the allocation between these two
components. Throughout the fiscal year, the portfolio remained fully invested in
equities. This proved advantageous as stocks outpaced bonds, as measured by the
+5.19% return of the Lehman Brothers Aggregate Bond Index for the 12-month
period.
4 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Overall, we continued to identify companies with favorable characteristics and
earnings developments selling at attractive relative valuations. As a result of
our bottom-up stock-selection process, we increased the portfolio's positions in
the consumer discretionary and industrial sectors while reducing exposure to the
information technology, health care, energy, utilities and financials sectors.
The largest purchases during the period included JPMorgan Chase Bank, N.A.,
Chevron Corp., Cisco Systems, Inc., AMR and Morgan Stanley. The largest sales
included Nvidia Corp., Amgen, Intel Corp., ConocoPhillips Co. and UnitedHealth
Group, Inc. These transactions reflect our ongoing refinement of the portfolio,
as we continue to look for stocks that best meet our investment criteria while
pruning those that have deteriorated versus our original assessment.
How would you characterize the Portfolio's position at the close of the period?
As of October 31, 2006, the portfolio remained 100% invested in equities. The
Fund's largest overweights were in the consumer discretionary, energy,
information technology, industrials and health care sectors. The largest
underweights were in financials, consumer staples and utilities and
telecommunication services.
We believe the U.S. economy is headed for a housing- and consumer-led mid-cycle
slowdown that will reduce inflation pressures, encourage the Fed to cut interest
rates next year, and ultimately should allow equity prices to move higher.
Concerns about inflation are starting to give way to concerns about weak
economic growth. Fears about a hard economic landing are likely to intensify in
the months ahead as the housing downturn feeds into a further consumer
retrenchment. Nonetheless, we do not believe a recession is in the cards given
that the Fed has gone on hold without imposing a painful monetary squeeze. In
our opinion, corporate earnings growth in 2007 is likely to be lower than in
2006. Currently, we are expecting growth levels to be around the 5% mark for
next year. At present, our view is that the stock market may be slightly
overbought, and the correction that occurred at the middle of this year may have
a bit further to run as earnings estimates come down, concerns about inflation
continue and the impact of the November elections unwinds. Equity markets have
had a tremendous rally over the past three months, and we would view potentially
softer markets as a digestion of these gains rather than as the start of any
significant decline.
Robert C. Doll, Jr.
President, Trustee and Portfolio Manager
November 14, 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 Ambac Assurance Corporation, the Guarantor; please contact the Fund at
1-800-441-7762.
- --------------------------------------------------------------------------------
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 5
Performance Data
About Fund Performance
Effective October 2, 2006, the Fund's Class A, Class B, Class C and Class I
Shares were redesignated Investor A, Investor B, Investor C and Institutional
Shares, respectively. As previously communicated to shareholders, new sales
charge schedules came into effect at the same time for certain of these classes.
The Fund has multiple classes of shares:
o Institutional Shares are not subject to any front-end sales charge.
Institutional Shares bear no ongoing distribution or service fees and are
available only to eligible investors.
o Investor A Shares incur a maximum initial sales charge (front-end load) of
5.25% and a service fee of 0.25% per year (but no distribution fee).
o Investor B Shares are subject to a maximum contingent deferred sales
charge of 4.50% declining to 0% after six years. In addition, Investor B
Shares are subject to a distribution fee of 0.75% per year and a service
fee of 0.25% per year. These shares automatically convert to Investor 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.
o Investor C Shares are subject to a distribution fee of 0.75% per year and
a service fee of 0.25% per year. In addition, Investor C Shares are
subject to a 1% contingent deferred sales charge if redeemed within one
year of purchase.
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. The Fund's Investment Adviser waived a portion of the
Fund's expenses. Without such waiver, the Fund's performance would have been
lower. Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost.
Dividends paid to each class of shares will vary because of the different levels
of service, distribution and transfer agency fees applicable to each class,
which are deducted from the income available to be paid to shareholders.
Recent Performance Results
6-Month 12-Month Since Inception
As of October 31, 2006 Total Return Total Return Total Return
===========================================================================================================
Institutional Shares* +2.18% +16.25% +54.04%
- -----------------------------------------------------------------------------------------------------------
Investor A Shares* +2.10 +16.02 +52.66
- -----------------------------------------------------------------------------------------------------------
Investor B Shares* +1.71 +15.11 +48.45
- -----------------------------------------------------------------------------------------------------------
Investor C Shares* +1.62 +15.03 +48.39
- -----------------------------------------------------------------------------------------------------------
Merrill Lynch U.S. Corporate Master Index** +5.40 + 5.44 +18.46
- -----------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index*** +4.60 + 5.19 +14.03
- -----------------------------------------------------------------------------------------------------------
Russell 1000(R) Index**** +5.55 +16.02 +79.52
- -----------------------------------------------------------------------------------------------------------
* 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
2/28/03.
** This unmanaged Index is comprised of all investment grade corporate bonds,
rated BBB or higher, of all maturities. Since inception total return is
from 2/28/03.
*** This unmanaged market-weighted Index is comprised of U.S. government and
agency securities, mortgage-backed securities issued by the Government
National Mortgage Association, Freddie Mac or Fannie Mae and investment
grade (rated BBB or better) corporate bonds with at least one year to
maturity. Since inception total return is from 2/28/03.
**** This unmanaged broad-based Index measures the performance of the 1,000
largest companies in the Russell 3000(R) Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index. Since inception total return is from 2/28/03.
Russell 1000 and Russell 3000 are registered trademarks of the Frank
Russell Company.
6 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Performance Data (concluded)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Institutional,
Investor A, Investor B & Investor C Shares compared to growth of an investment
in the Merrill Lynch U.S. Corporate Master Index, Lehman Brothers Aggregate Bond
Index and the Russell 1000 Index. Values are from February 28, 2003 to October
2006:
Merrill Lynch Lehman Brothers
Institutional Investor A Investor B Investor C U.S. Corporate Aggregate Bond Russell 1000
Shares*+ Shares*+ Shares*+ Shares*+ Master Index++ Index+++ Index++++
2/28/03** $10,000 $ 9,475 $10,000 $10,000 $10,000 $10,000 $10,000
10/03 $11,340 $10,726 $11,260 $11,260 $10,425 $10,157 $12,811
10/04 $11,843 $11,170 $11,639 $11,639 $11,146 $10,719 $14,007
10/05 $13,251 $12,468 $12,897 $12,899 $11,235 $10,841 $15,473
10/06 $15,404 $14,465 $14,545 $14,839 $11,846 $11,403 $17,952
* Assuming maximum sales charge, if any, transaction costs and other
operating expenses, including administration fees.
** Commencement of operations.
+ The Fund invests all of its equity component assets in Master Large Cap
Core Portfolio of Master Large Cap Series Trust. The Portfolio invests
primarily in a diversified portfolio of equity securities of large cap
companies located in the United States that the Investment Adviser
believes blends growth and value.
++ This unmanaged Index is comprised of all investment grade corporate bonds,
rated BBB or higher, of all maturities.
+++ This unmanaged market-weighted Index is comprised of U.S. government and
agency securities, mortgage-backed securities issued by the Government
National Mortgage Association, Freddie Mac or Fannie Mae and investment
grade (rated BBB or better) corporate bonds with at least one year to
maturity.
++++ This unmanaged broad-based Index measures the performance of the 1,000
largest companies in the Russell 3000(R) Index, which represents
approximately 92% of the total market capitalization of the Russell 3000
Index.
Past performance is not indicative of future results.
Average Annual Total Return
- --------------------------------------------------------------------------------
Institutional Shares Return
================================================================================
One Year Ended 10/31/06 +16.25%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 10/31/06 +12.48
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Return Without Return With
Sales Charge Sales Charge*
================================================================================
Investor A Shares
================================================================================
One Year Ended 10/31/06 +16.02% + 9.93%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 10/31/06 +12.20 +10.57
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Investor B Shares+
================================================================================
One Year Ended 10/31/06 +15.11% +10.61%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 10/31/06 +11.35 +10.74
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Investor C Shares++
================================================================================
One Year Ended 10/31/06 +15.03% +14.03%
- --------------------------------------------------------------------------------
Inception (2/28/03)
through 10/31/06 +11.34 +11.34
- --------------------------------------------------------------------------------
* Assuming maximum sales charge of 5.25%.
+ Maximum contingent deferred sales charge is 4.5% 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 CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 7
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 May 1, 2006 and held through
October 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 May 1, 2006 to
May 1, 2006 October 31, 2006 October 31, 2006
====================================================================================================================
Actual
====================================================================================================================
Institutional $ 1,000 $1,021.80 $ 7.98
- --------------------------------------------------------------------------------------------------------------------
Investor A $ 1,000 $1,021.00 $ 9.27
- --------------------------------------------------------------------------------------------------------------------
Investor B $ 1,000 $1,017.10 $ 13.16
- --------------------------------------------------------------------------------------------------------------------
Investor C $ 1,000 $1,016.20 $ 13.15
====================================================================================================================
Hypothetical (5% annual return before expenses)**
====================================================================================================================
Institutional $ 1,000 $1,017.60 $ 7.97
- --------------------------------------------------------------------------------------------------------------------
Investor A $ 1,000 $1,016.33 $ 9.25
- --------------------------------------------------------------------------------------------------------------------
Investor B $ 1,000 $1,012.45 $ 13.13
- --------------------------------------------------------------------------------------------------------------------
Investor C $ 1,000 $1,012.45 $ 13.13
- --------------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (1.55% for Institutional, 1.80% for Investor A, 2.56%
for Investor B and 2.56% for Investor C), multiplied by the average
account value over the period, multiplied by 186/365 (to reflect the
one-half year period shown). Because the Fund invests significantly in a
master portfolio, the expense table example reflects the expenses of both
the fund and the master portfolio in which it invests.
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
8 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Statement of Assets and Liabilities BlackRock Core Principal Protected Fund
As of October 31, 2006
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investment in Master Large Cap Core Portfolio (the "Portfolio"), at value
(identified cost--$144,702,467*) ............................................... $ 186,417,048
Prepaid expenses and other assets ............................................... 5,895
---------------
Total assets .................................................................... 186,422,943
---------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Payables:
Distributor .................................................................. $ 147,123
Financial warranty fee ....................................................... 98,370
Advisory fee ................................................................. 46,487
Other affiliates ............................................................. 2,008 293,988
---------------
Accrued expenses ................................................................ 53,532
---------------
Total liabilities ............................................................... 347,520
---------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets ...................................................................... $ 186,075,423
===============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Paid-in capital, unlimited shares of no par value authorized .................... $ 127,816,591
Undistributed realized capital gains--net ....................................... $ 16,544,251
Unrealized appreciation--net .................................................... 41,714,581
---------------
Total accumulated earnings--net ................................................. 58,258,832
---------------
Net Assets ...................................................................... $ 186,075,423
===============
===================================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional--Based on net assets of $5,823,985 and 460,070 shares outstanding . $ 12.66
===============
Investor A--Based on net assets of $15,413,926 and 1,219,921 shares outstanding . $ 12.64
===============
Investor B--Based on net assets of $100,973,894 and 8,079,756 shares outstanding $ 12.50
===============
Investor C--Based on net assets of $63,863,618 and 5,099,961 shares outstanding . $ 12.52
===============
* The cost and unrealized appreciation of investments as of October 31,
2006, as computed for federal income tax purposes, were as follows:
Aggregate cost ............................................ $144,702,467
============
Gross unrealized appreciation ............................. $ 41,714,581
Gross unrealized depreciation ............................. --
------------
Net unrealized appreciation ............................... $ 41,714,581
============
See Notes to Financial Statements.
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 9
Statement of Operations BlackRock Core Principal Protected Fund
For the Year Ended October 31, 2006
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income allocated from the Portfolio:
Dividends .................................................................... $ 2,095,409
Securities lending--net ...................................................... 26,000
Interest from affiliates ..................................................... 15,989
Expenses ..................................................................... (978,823)
---------------
Total income .................................................................... 1,158,575
---------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ........................................................ $ 1,480,498
Financial warranty fees ......................................................... 1,233,749
Service and distribution fees--Investor B ....................................... 1,157,202
Service and distribution fees--Investor C ....................................... 671,704
Transfer agent fees--Investor B ................................................. 80,994
Accounting services ............................................................. 54,002
Printing and shareholder reports ................................................ 49,668
Transfer agent fees--Investor C ................................................. 48,229
Professional fees ............................................................... 23,959
Trustees' fees and expenses ..................................................... 23,349
Service fees--Investor A ........................................................ 20,452
Custodian fees .................................................................. 6,205
Transfer agent fees--Investor A ................................................. 4,897
Transfer agent fees--Institutional .............................................. 3,797
Pricing fees .................................................................... 824
Other ........................................................................... 15,216
---------------
Total expenses before waiver .................................................... 4,874,745
Waiver of expenses .............................................................. (919,499)
---------------
Total expenses after waiver ..................................................... 3,955,246
---------------
Investment loss--net ............................................................ (2,796,671)
---------------
===================================================================================================================================
Realized & Unrealized Gain Allocated from the Portfolio--Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ............................................... 16,640,357
Change in unrealized appreciation on investments--net ........................... 14,361,843
---------------
Total realized and unrealized gain--net ......................................... 31,002,200
---------------
Net Increase in Net Assets Resulting from Operations ............................ $ 28,205,529
===============
See Notes to Financial Statements.
10 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Statements of Changes in Net Assets BlackRock Core Principal Protected Fund
For the Year Ended
October 31,
----------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment loss--net ............................................................ $ (2,796,671) $ (2,192,994)
Realized gain--net .............................................................. 16,640,357 16,634,852
Change in unrealized appreciation--net .......................................... 14,361,843 9,039,933
----------------------------------
Net increase in net assets resulting from operations ............................ 28,205,529 23,481,791
----------------------------------
===================================================================================================================================
Distributions to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain:
Institutional .................................................................. (477,242) (940,591)
Investor A ..................................................................... (501,048) (984,088)
Investor B ..................................................................... (7,011,819) (11,314,489)
Investor C ..................................................................... (3,979,145) (6,752,309)
----------------------------------
Net decrease in net assets resulting from distributions to shareholders ......... (11,969,254) (19,991,477)
----------------------------------
===================================================================================================================================
Beneficial Interest Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from capital share transactions .............. (33,246,056) (34,244,888)
----------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets .................................................... (17,009,781) (30,754,574)
Beginning of year ............................................................... 203,085,204 233,839,778
----------------------------------
End of year ..................................................................... $ 186,075,423 $ 203,085,204
==================================
See Notes to Financial Statements.
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 11
Financial Highlights BlackRock Core Principal Protected Fund
Institutional
--------------------------------------------------------------
For the
Period
For the Year Ended Feb. 28,
The following per share data and ratios October 31, 2003+ to
have been derived from information ------------------------------------------- October 31,
provided in the financial statements. 2006 2005 2004 2003
==============================================================================================================
Per Share Operating Performance
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ....... $ 11.66 $ 11.48 $ 11.34 $ 10.00
--------------------------------------------------------------
Investment income (loss)--net .............. (.06)@@ --+++@@ .04 .03
Realized and unrealized gain--net .......... 1.88 1.31 .45 1.31
--------------------------------------------------------------
Total from investment operations ........... 1.82 1.31 .49 1.34
--------------------------------------------------------------
Less distributions from realized gain--net . (.82) (1.13) (.35) --
--------------------------------------------------------------
Net asset value, end of period ............. $ 12.66 $ 11.66 $ 11.48 $ 11.34
==============================================================
==============================================================================================================
Total Investment Return**
- --------------------------------------------------------------------------------------------------------------
Based on net asset value per share ......... 16.25% 11.88% 4.44% 13.40%@
==============================================================
==============================================================================================================
Ratios to Average Net Assets++
- --------------------------------------------------------------------------------------------------------------
Expenses, net of waiver .................... 1.55% 1.58% 1.58% 1.75%*
==============================================================
Expenses ................................... 2.02% 2.00% 1.91% 2.01%*
==============================================================
Investment income (loss)--net .............. (.47%) (.01%) .39% .35%*
==============================================================
==============================================================================================================
Supplemental Data
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ... $ 5,824 $ 7,034 $ 9,893 $ 14,290
==============================================================
Portfolio turnover of the Fund ............. .00% 186.21% 167.08% 175.43%
==============================================================
Portfolio turnover of the Portfolio ........ 87.67% 93.95% 135.48% 138.73%
==============================================================
Investor A
--------------------------------------------------------------
For the
Period
For the Year Ended Feb. 28,
The following per share data and ratios October 31, 2003+ to
have been derived from information ------------------------------------------- October 31,
provided in the financial statements. 2006 2005 2004 2003
==============================================================================================================
Per Share Operating Performance
- --------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ....... $ 11.63 $ 11.44 $ 11.32 $ 10.00
--------------------------------------------------------------
Investment income (loss)--net .............. (.11)@@ (.03)@@ .01 .01
Realized and unrealized gain--net .......... 1.90 1.31 .44 1.31
--------------------------------------------------------------
Total from investment operations ........... 1.79 1.28 .45 1.32
--------------------------------------------------------------
Less distributions from realized gain--net . (.78) (1.09) (.33) --
--------------------------------------------------------------
Net asset value, end of period ............. $ 12.64 $ 11.63 $ 11.44 $ 11.32
==============================================================
==============================================================================================================
Total Investment Return**
- --------------------------------------------------------------------------------------------------------------
Based on net asset value per share ......... 16.02% 11.62% 4.14% 13.20%@
==============================================================
==============================================================================================================
Ratios to Average Net Assets++
- --------------------------------------------------------------------------------------------------------------
Expenses, net of waiver .................... 1.80% 1.83% 1.83% 2.00%*
==============================================================
Expenses ................................... 2.27% 2.25% 2.16% 2.26%*
==============================================================
Investment income (loss)--net .............. (.74%) (.26%) .13% .10%*
==============================================================
==============================================================================================================
Supplemental Data
- --------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ... $ 15,414 $ 7,932 $ 11,534 $ 18,674
==============================================================
Portfolio turnover of the Fund ............. .00% 186.21% 167.08% 175.43%
==============================================================
Portfolio turnover of the Portfolio ........ 87.67% 93.95% 135.48% 138.73%
==============================================================
* Annualized.
** Total investment returns exclude the effect of sales charges. Effective
December 28, 2005, Institutional Shares are no longer subject to any
front-end sales charge.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses and/or
investment income--net.
+++ Amount is less than $(.01) per share.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
See Notes to Financial Statements.
12 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Financial Highlights (concluded) BlackRock Core Principal Protected Fund
Investor B
---------------------------------------------------------------
For the
Period
For the Year Ended Feb. 28,
The following per share data and ratios October 31, 2003+ to
have been derived from information ------------------------------------------- October 31,
provided in the financial statements. 2006 2005 2004 2003
===============================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ....... $ 11.51 $ 11.33 $ 11.26 $ 10.00
---------------------------------------------------------------
Investment loss--net ....................... (.19)@@ (.12)@@ (.07) (.05)
Realized and unrealized gain--net .......... 1.87 1.30 .44 1.31
---------------------------------------------------------------
Total from investment operations ........... 1.68 1.18 .37 1.26
---------------------------------------------------------------
Less distributions from realized gain--net . (.69) (1.00) (.30) --
---------------------------------------------------------------
Net asset value, end of period ............. $ 12.50 $ 11.51 $ 11.33 $ 11.26
===============================================================
===============================================================================================================
Total Investment Return**
- ---------------------------------------------------------------------------------------------------------------
Based on net asset value per share ......... 15.11% 10.81% 3.36% 12.60%@
===============================================================
===============================================================================================================
Ratios to Average Net Assets++
- ---------------------------------------------------------------------------------------------------------------
Expenses, net of waiver .................... 2.56% 2.59% 2.58% 2.76%*
===============================================================
Expenses ................................... 3.03% 3.01% 2.91% 3.03%*
===============================================================
Investment loss--net ....................... (1.48%) (1.07%) (.59%) (.68%)*
===============================================================
===============================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ... $ 100,974 $ 118,858 $ 130,014 $ 145,568
===============================================================
Portfolio turnover of the Fund ............. .00% 186.21% 167.08% 175.43%
===============================================================
Portfolio turnover of the Portfolio ........ 87.67% 93.95% 135.48% 138.73%
===============================================================
Investor C
---------------------------------------------------------------
For the
Period
For the Year Ended Feb. 28,
The following per share data and ratios October 31, 2003+ to
have been derived from information ------------------------------------------- October 31,
provided in the financial statements. 2006 2005 2004 2003
===============================================================================================================
Per Share Operating Performance
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ....... $ 11.53 $ 11.33 $ 11.26 $ 10.00
---------------------------------------------------------------
Investment loss--net ....................... (.18)@@ (.12)@@ (.07) (.05)
Realized and unrealized gain--net .......... 1.86 1.30 .44 1.31
---------------------------------------------------------------
Total from investment operations ........... 1.68 1.18 .37 1.26
---------------------------------------------------------------
Less distributions from realized gain--net . (.69) (.98) (.30) --
---------------------------------------------------------------
Net asset value, end of period ............. $ 12.52 $ 11.53 $ 11.33 $ 11.26
===============================================================
===============================================================================================================
Total Investment Return**
- ---------------------------------------------------------------------------------------------------------------
Based on net asset value per share ......... 15.03% 10.83% 3.37% 12.60%@
===============================================================
===============================================================================================================
Ratios to Average Net Assets++
- ---------------------------------------------------------------------------------------------------------------
Expenses, net of waiver .................... 2.56% 2.59% 2.59% 2.76%*
===============================================================
Expenses ................................... 3.03% 3.01% 2.91% 3.03%*
===============================================================
Investment loss--net ....................... (1.48%) (1.05%) (.61%) (.68%)*
===============================================================
===============================================================================================================
Supplemental Data
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ... $ 63,864 $ 69,261 $ 82,398 $ 108,700
===============================================================
Portfolio turnover of the Fund ............. .00% 186.21% 167.08% 175.43%
===============================================================
Portfolio turnover of the Portfolio ........ 87.67% 93.95% 135.48% 138.73%
===============================================================
* Annualized.
** Total investment returns exclude the effect of sales charges.
+ Commencement of operations.
++ Includes the Fund's share of the Portfolio's allocated expenses and/or
investment income--net.
@ Aggregate total investment return.
@@ Based on average shares outstanding.
See Notes to Financial Statements.
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 13
Notes to Financial Statements BlackRock Core Principal Protected Fund
1. Significant Accounting Policies:
On September 29, 2006, Merrill Lynch Core Principal Protected Fund and Merrill
Lynch Principal Protected Trust were renamed BlackRock Core Principal Protected
Fund (the "Fund") and BlackRock Principal Protected Trust ("the Trust"). Under
the Investment Company Act of 1940, as amended, the Fund is diversified and the
Trust is registered as an open-end management investment company. The Fund
invests all or a portion of its assets in Master Large Cap Core Portfolio (the
"Portfolio"), which is a series of Master Large Cap Series Trust. The value of
the Fund's investment in the Portfolio reflects the Fund's proportionate
interest in the net assets of the Portfolio. The performance of the Fund is
directly affected by the performance of the Portfolio. The financial statements
of the Portfolio, including the Schedule of Investments, are included elsewhere
in this report and should be read in conjunction with the Fund's financial
statements. The 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 percentage of the Portfolio owned by the Fund at October 31, 2006
was 4.8%. 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 February 28, 2003 through February 28, 2010 (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. Effective October 2, 2006, Class I, Class A, Class B
and Class C Shares were redesignated Institutional, Investor A, Investor B and
Investor C Shares, respectively. Institutional Shares are sold only to certain
eligible investors. Investor A Shares are sold with a front-end sales charge.
Shares of Investor B and Investor C may be subject to a contingent deferred
sales charge. All classes of shares have identical voting, dividend, liquidation
and other rights and the same terms and conditions, except that Investor A,
Investor B and Investor C Shares bear certain expenses related to the account
maintenance of such shares, and Investor B and Investor 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 Investor B shareholders
may vote on material changes to the Investor A distribution plan). Income,
expenses (other than expenses attributable to a specific class) and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments -- The Fund records its investments in the
Portfolio at fair value. Valuation of securities held by the Portfolio is
discussed in Note 1(a) of the Portfolio's Notes to Financial Statements, which
are included elsewhere in this report.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
investment 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.
o 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.
14 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Notes to Financial Statements (continued)
BlackRock Core Principal Protected Fund
o 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 market
value of the option written. When a security is purchased or sold through
an exercise of an option, the related premium paid (or received) is added
to (or deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option expires
(or the 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) Security transactions, investment income and expenses -- Security
transactions are recorded on the dates the transactions are entered into (the
trade dates). Investment transactions in the Portfolio are accounted for on a
trade date basis. Realized gains and losses on security transactions are
determined on the identified cost basis. Dividend income is recorded on the
ex-dividend dates. Interest income is recognized on the accrual basis. The Fund
amortizes all premiums and discounts on debt securities. The Fund records daily
its proportionate share of the Portfolio's income, expenses and realized and
unrealized gains and losses. In addition, the Fund accrues its own expenses.
(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.
(e) Dividends and distributions -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(f) Recent accounting pronouncements -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109."
FIN 48 prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity including mutual funds before being measured
and recognized in the financial statements. Adoption of FIN 48 is required for
fiscal years beginning after December 15, 2006. The impact on the Fund's
financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the implication of
FAS 157. At this time its impact on the Fund's financial statements has not been
determined.
(g) Reclassifications -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $2,796,671 has been reclassified between paid-in capital in excess of par
and accumulated net investment loss, and $96,078 has been reclassified between
paid-in capital in excess of par and accumulated net realized capital gains
allocated from the Portfolios as a result of permanent differences attributable
to net operating losses and other permanent differences. These reclassifications
have no effect on net assets or net asset values per share.
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 15
Notes to Financial Statements (continued)
BlackRock Core Principal Protected Fund
2. Investment Advisory Agreements and Transactions with Affiliates:
On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill
Lynch") combined Merrill Lynch's investment management business, Merrill Lynch
Investment Managers, L.P. ("MLIM") and its affiliates, including Fund Asset
Management, L.P. ("FAM"), with BlackRock, Inc. to create a new independent
company. Merrill Lynch has a 49.8% economic interest and a 45% voting interest
in the combined company and The PNC Financial Services Group, Inc. ("PNC"), has
approximately a 34% economic and voting interest. The new company operates under
the BlackRock name and is governed by a board of directors with a majority of
independent members.
On August 15, 2006, shareholders of the Fund approved a new Investment Advisory
Agreement with BlackRock Advisors, Inc. (the "Manager"), an indirect, wholly
owned subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was recently
reorganized into a limited liability company and renamed BlackRock Advisors,
LLC. The new Investment Advisory Agreement between the Fund and the Manager
became effective on September 29, 2006. Prior to September 29, 2006, FAM was the
Fund's investment adviser. The general partner of FAM is Princeton Services,
Inc. ("PSI"), an indirect, wholly owned subsidiary of Merrill Lynch, which is
the limited partner. The Fund has also entered into a separate Distribution
Agreement and Distribution Plan with FAM Distributors, Inc. ("FAMD") and
BlackRock Distributors, Inc. ("BDI") (collectively, the "Distributor"). FAMD is
a wholly owned subsidiary of Merrill Lynch Group, Inc. and BDI is an affiliate
of BlackRock, Inc.
The Manager 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 .75% of the Fund's average daily net
assets. FAM and/or the Manager has contractually agreed to waive its management
fee by the amount of management fees the Fund pays FAM and/or the Manager
indirectly through its investment in the Portfolio. For the period November 1,
2005 to September 29, 2006, FAM earned fees of $1,358,701, of which $844,189 was
waived. For the period September 30, 2006 to October 31, 2006, the Manager
earned fees of $121,797, of which $75,310 was waived. In addition, FAM and/or
the Manager 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 renewable. In addition, the Manager has
entered into a sub-advisory agreement with BlackRock Investment Management, LLC,
an affiliate of the Manager, under which the Manager pays the sub-advisor for
services it provides a fee equal to 74% of the management fee paid by the Fund
to the Manager.
Pursuant to the Distribution Plans 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:
- --------------------------------------------------------------------------------
Service Distribution
Fee Fee
- --------------------------------------------------------------------------------
Investor A .............................................. .25% --
Investor B .............................................. .25% .75%
Investor C .............................................. .25% .75%
- --------------------------------------------------------------------------------
Pursuant to sub-agreements with each Distributor, broker-dealers, including
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a wholly owned
subsidiary of Merrill Lynch, and an affiliate of each of the Distributors, also
provides account maintenance fees ("service fees") and distribution services to
the Fund. The ongoing service fee compensates the Distributor and each
broker-dealer (including MLPF&S) for providing account maintenance services to
Investor A, Investor B and Investor C shareholders. The ongoing distribution fee
compensates the Distributors and broker-dealers for providing shareholder and
distribution-related services to Investor B and Investor C shareholders.
16 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Notes to Financial Statements (continued)
BlackRock Core Principal Protected Fund
For the year ended October 31, 2006, FAMD paid MLPF&S contingent deferred sales
charges of $337,486 and $50 relating to transactions in Investor B and Investor
C Shares, respectively.
BlackRock maintains a call center, which is responsible for providing certain
shareholder services to the Fund, such as responding to shareholder inquiries
and processing transactions based upon instructions from shareholders with
respect to the subscription and redemption of Fund shares. During the period
September 29, 2006 to October 31, 2006, the following amounts have been accrued
by the Fund to reimburse BlackRock for costs incurred running the call center,
which are a component of the transfer agent fees in the accompanying Statement
of Operations.
- --------------------------------------------------------------------------------
Call Center Fees
- --------------------------------------------------------------------------------
Institutional .......................................................... $ 7
Investor A ............................................................. $ 13
Investor B ............................................................. $108
Investor C ............................................................. $102
- --------------------------------------------------------------------------------
The Trust, on behalf of the Fund, and the Manager have entered into a Financial
Guarantee Agreement with Ambac Assurance Corporation ("Ambac"). The Financial
Guarantee 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 Guarantee 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 Ambac, under the Financial Guarantee Agreement, an annual fee equal
to .625% 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, Ambac 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.
Effective September 29, 2006, PFPC, Inc., an indirect, wholly owned subsidiary
of PNC and an affiliate of the Manager, became the Fund's transfer agent. Prior
to September 29, 2006, the Fund's transfer agent was Financial Data Services,
Inc. ("FDS"), a wholly owned subsidiary of Merrill Lynch.
For the year ended October 31, 2006, the Fund reimbursed FAM and the Manager
$3,777 and $314, respectively, for certain accounting services.
Prior to September 29, 2006, certain officers and/or trustees of the Fund were
officers and/or directors of FAM, FAMD, FDS, PSI, and/or Merrill Lynch.
Commencing September 29, 2006, certain officers and/or trustees of the Fund are
officers and/or directors of BlackRock, Inc. or its affiliates.
3. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions was
$33,246,056 and $34,244,888 for the years ended October 31, 2006 and October 31,
2005, respectively.
Transactions in beneficial interest for each class were as follows:
- -------------------------------------------------------------------------------
Institutional Shares for the Year Dollar
Ended October 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .......... 10,970 $ 127,250
Shares redeemed .......................... (154,237) (1,859,945)
-------------------------------
Net decrease ............................. (143,267) $ (1,732,695)
===============================
- -------------------------------------------------------------------------------
Institutional Shares for the Year Dollar
Ended October 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .......... 21,706 $ 240,715
Shares redeemed .......................... (280,520) (3,188,749)
-------------------------------
Net decrease ............................. (258,814) $ (2,948,034)
===============================
- -------------------------------------------------------------------------------
Investor A Shares for the Year Dollar
Ended October 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares converted* ........................ 810,674 $ 9,768,858
Shares issued to shareholders in
reinvestment of distributions .......... 37,792 438,385
-------------------------------
Total issued ............................. 848,466 10,207,243
Shares redeemed .......................... (310,493) (3,745,822)
-------------------------------
Net increase ............................. 537,973 $ 6,461,421
===============================
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 17
Notes to Financial Statements (concluded)
BlackRock Core Principal Protected Fund
- -------------------------------------------------------------------------------
Investor A Shares for the Year Dollar
Ended October 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .......... 80,389 $ 891,509
Shares redeemed .......................... (406,697) (4,620,834)
-------------------------------
Net decrease ............................. (326,308) $ (3,729,325)
===============================
- -------------------------------------------------------------------------------
Investor B Shares for the Year Dollar
Ended October 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .......... 561,268 $ 6,482,761
Shares redeemed or converted* ............ (2,808,283) (33,508,192)
-------------------------------
Net decrease ............................. (2,247,015) $(27,025,431)
===============================
- -------------------------------------------------------------------------------
Investor B Shares for the Year Dollar
Ended October 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .......... 959,658 $ 10,604,221
Shares redeemed .......................... (2,106,262) (23,728,752)
-------------------------------
Net decrease ............................. (1,146,604) $(13,124,531)
===============================
- -------------------------------------------------------------------------------
Investor C Shares for the Year Dollar
Ended October 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .......... 320,589 $ 3,712,581
Shares redeemed .......................... (1,229,286) (14,661,932)
-------------------------------
Net decrease ............................. (908,697) $(10,949,351)
===============================
- -------------------------------------------------------------------------------
Investor C Shares for the Year Dollar
Ended October 31, 2005 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .......... 579,383 $ 6,407,980
Shares redeemed .......................... (1,842,425) (20,850,978)
-------------------------------
Net decrease ............................. (1,263,042) $(14,442,998)
===============================
* In September 2006, certain brokerages, including a wholly owned subsidiary
of Merrill Lynch, entered into a remediation agreement with a regulatory
organization, which among other things, permitted certain shareholders of
Investor B Shares to convert their shares into the Fund's Investor A
Shares.
4. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended October
31, 2006 and October 31, 2005 was as follows:
- --------------------------------------------------------------------------------
10/31/2006 10/31/2005
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ........................ $ 3,285,416 $ 3,734,969
Net long-term capital gains ............ 8,683,838 16,256,508
-------------------------------
Total taxable distributions .............. $ 11,969,254 $ 19,991,477
===============================
As of October 31, 2006, the components of accumulated earnings on a tax basis
were as follows:
- --------------------------------------------------------------------------------
Undistributed ordinary income -- net ............................ $ --
Undistributed long-term capital gains -- net .................... 16,544,251
-----------
Total undistributed earnings -- net ............................. 16,544,251
Capital loss carryforward ....................................... --
Unrealized gains -- net ......................................... 41,714,581
-----------
Total accumulated earnings -- net ............................... $58,258,832
===========
18 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Report of Independent Registered Public Accounting Firm
BlackRock Core Principal Protected Fund
To the Shareholders and Board of Trustees of BlackRock Principal Protected
Trust:
We have audited the accompanying statement of assets and liabilities of
BlackRock Core Principal Protected Fund (formerly Merrill Lynch Core Principal
Protected Fund), one of the series constituting BlackRock Principal Protected
Trust (formerly Merrill Lynch Principal Protected Trust) (the "Trust"), as of
October 31, 2006, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the respective
periods 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
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Trust
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the 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, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BlackRock Core Principal Protected Fund of BlackRock Principal Protected Trust
as of October 31, 2006, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and its financial highlights for each of the respective periods then ended, in
conformity with U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 21, 2006
Important Tax Information (unaudited)
The following information is provided with respect to the ordinary income
distributions paid by BlackRock Core Principal Protected Fund of BlackRock
Principal Protected Trust to shareholders of record on December 12, 2005:
- ------------------------------------------------------------------------------------
Qualified Dividend Income for Individuals ................................ 76.60%*
Dividends Qualifying for the Dividends Received Deduction for Corporations 76,79%*
Federal Obligation Interest .............................................. 9.30%***
Short-Term Capital Gain Dividends for Non-U.S. Residents ................. 100.00%**
- ------------------------------------------------------------------------------------
* The Fund hereby designates the percentage indicated above or the maximum
amount allowable by law.
** Represents the portion of the taxable ordinary income dividends eligible
for exemption from U.S. withholding tax for nonresident aliens and foreign
corporations.
*** 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 tax.
Additionally, the Fund distributed long-term capital gains of $.506663 per share
to shareholders of record on December 12, 2005.
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 19
Officers and Trustees of the Trust
Number of
Funds and
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held Time Overseen by Held by
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to Vice Chairman and Director of BlackRock, Inc., 122 Funds None
Doll, Jr.* Princeton, NJ and present Global Chief Investment Officer for Equities, 168 Portfolios
08543-9011 Trustee Chairman of the BlackRock Retail Operating
Age: 52 Committee, and member of the BlackRock Executive
Committee since 2006; President of the funds
advised by Merrill Lynch Investment Managers, L.P.
("MLIM") and its affiliates ("MLIM/FAM-advised
funds") from 2005 to 2006 and Chief Investment
Officer thereof from 2001 to 2006; President of
MLIM and Fund Asset Management, L.P. ("FAM") from
2001 to 2006; Co-Head (Americas Region) thereof
from 2000 to 2001 and Senior Vice President from
1999 to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") 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 described 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. P.O. Box 9095 Trustee 2002 to Professor of Finance and Economics at the Columbia 17 Funds None
Beim** Princeton, NJ present University Graduate School of Business since 1991; 24 Portfolios
08543-9095 Chairman of Outward Bound U.S.A. from 1997 to 2001;
Age: 66 Chairman of Wave Hill Inc. since 1990; Trustee of
Phillips Exeter Academy from 2002 to present.
- ------------------------------------------------------------------------------------------------------------------------------------
James T. P.O. Box 9095 Trustee 2002 to Chief Financial Officer of JPMorgan & Co., Inc. 17 Funds None
Flynn Princeton, NJ present from 1990 to 1995 and an employee of JPMorgan in 24 Portfolios
08543-9095 various capacities from 1967 to 1995.
Age: 67
- ------------------------------------------------------------------------------------------------------------------------------------
W. Carl P.O. Box 9095 Trustee 2002 to Deputy Dean for Academic Affairs, Harvard Business 17 Funds None
Kester Princeton, NJ present School since 2006; Mizuho Financial Group, 24 Portfolios
08543-9095 Professor of Finance, Harvard Business School, Unit
Age: 54 Head, Finance since 2005; Senior 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.
- ------------------------------------------------------------------------------------------------------------------------------------
Karen P. P.O. Box 9095 Trustee 2002 to President of Robards & Company, a financial 17 Funds AtriCure,
Robards*** Princeton, NJ present advisory firm since 1987; formerly an investment 24 Portfolios Inc. (medical
08543-9095 banker with Morgan Stanley for more than ten years; devices)
Age: 56 Director of Enable Medical Corp. from 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.
20 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Officers and Trustees of the Trust (concluded)
Position(s) Length of
Held Time
Name Address & Age with Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 2002 to Managing Director of BlackRock since 2006; Managing Director of MLIM and FAM in
Burke Princeton, NJ President present 2006; First Vice President of MLIM and FAM from 1997 to 2005 and Treasurer thereof
08543-9011 and from 1999 to 2006; Vice President of MLIM and FAM from 1990 to 1997.
Age: 46 Treasurer
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Fund Chief 2004 to Managing Director of BlackRock and Fund Chief Compliance Officer since 2006; Chief
Hiller Princeton, NJ Compliance present Compliance Officer of the MLIM/FAM-advised funds and First Vice President and Chief
08543-9011 Officer Compliance Officer of MLIM (Americas Region) from 2004 to 2006; Chief Compliance
Age: 55 Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
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. P.O. Box 9011 Secretary 2004 to Director of BlackRock since 2006; Director (Legal Advisory) of MLIM from 2002 to
Pellegrino Princeton, NJ present 2006; Vice President of MLIM from 1999 to 2002; Attorney associated with MLIM from
08543-9011 1997 to 2006; Secretary of MLIM, FAM, FAM Distributors, Inc. and Princeton Services
Age: 46 from 2004 to 2006.
------------------------------------------------------------------------------------------------------------------------
* 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
PFPC Inc.
Wilmington, DE 19809
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 21
Portfolio Information as of October 31, 2006 Master Large Cap Core Portfolio
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
Exxon Mobil Corp. ...................................................... 4.2%
JPMorgan Chase & Co. ................................................... 2.2
Chevron Corp. .......................................................... 2.1
Cisco Systems, Inc. .................................................... 2.0
Hewlett-Packard Co. .................................................... 1.8
General Electric Co. ................................................... 1.7
Morgan Stanley ......................................................... 1.6
Goldman Sachs Group, Inc. .............................................. 1.5
Merck & Co., Inc. ...................................................... 1.5
Walt Disney Co. ........................................................ 1.4
- --------------------------------------------------------------------------------
Percent of
Sector Representation Total Investments
- --------------------------------------------------------------------------------
Information Technology ................................................ 16.1%
Consumer Discretionary ................................................ 15.7
Energy ................................................................ 12.7
Health Care ........................................................... 11.9
Industrials ........................................................... 10.9
Financials ............................................................ 10.5
Materials ............................................................. 3.5
Consumer Staples ...................................................... 3.4
Telecommunication Services ............................................ 1.0
Other* ................................................................ 14.3
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
Percent of
Five Largest Industries Net Assets
- --------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels ........................................... 14.8%
Specialty Retail ...................................................... 7.5
Health Care Providers & Services ...................................... 7.3
Semiconductors & Semiconductor Equipment .............................. 5.8
Software .............................................................. 5.0
- --------------------------------------------------------------------------------
For Portfolio compliance purposes, the Portfolio's sector and industry
classifications refer to any one or more of the sector and industry
sub-classifications used by one or more widely recognized market indexes
or ratings group indexes, and/or as defined by Portfolio management. This
definition may not apply for purposes of this report, which may combine
sector and industry sub-classifications for reporting ease.
22 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Schedule of Investments Master Large Cap Core Portfolio
Shares
Sector Industry Common Stocks Held Value
===============================================================================
Consumer Discretionary--18.4%
Auto Components--0.6%
The Goodyear Tire & Rubber Co. (c)(d) 1,610,000 $ 24,681,300
-----------------------------------------------------------------------
Automobiles--1.9%
General Motors Corp. (d) 1,270,000 44,348,400
Harley-Davidson, Inc. (d) 440,000 30,197,200
--------------
74,545,600
-----------------------------------------------------------------------
Hotels, Restaurants &
Leisure--0.6%
Darden Restaurants, Inc. (d) 500,000 20,950,000
-----------------------------------------------------------------------
Media--3.9%
Clear Channel Communications, Inc. 140,000 4,879,000
The DIRECTV Group, Inc. (c)(d) 2,050,000 45,674,000
Omnicom Group 443,000 44,942,350
Walt Disney Co. (d) 1,780,000 55,998,800
--------------
151,494,150
-----------------------------------------------------------------------
Multiline Retail--3.9%
Dillard's, Inc. Class A (d) 440,000 13,274,800
Dollar Tree Stores, Inc. (c) 90,000 2,798,100
JC Penney Co., Inc. 600,000 45,138,000
Kohl's Corp. (c)(d) 660,000 46,596,000
Nordstrom, Inc. (d) 890,000 42,141,500
--------------
149,948,400
-----------------------------------------------------------------------
Specialty Retail--7.5%
Abercrombie & Fitch Co. Class A 540,000 41,391,000
American Eagle Outfitters (d) 890,000 40,762,000
AnnTaylor Stores Corp. (c) 770,000 33,895,400
AutoNation, Inc. (c)(d) 420,000 8,421,000
Circuit City Stores, Inc. 1,370,000 36,962,600
Dick's Sporting Goods, Inc. (c)(d) 140,000 6,966,400
Office Depot, Inc. (c) 1,020,000 42,829,800
OfficeMax, Inc. 260,000 12,370,800
The Sherwin-Williams Co. 400,000 23,692,000
TJX Cos., Inc. 1,470,000 42,556,500
--------------
289,847,500
-----------------------------------------------------------------------
Total Consumer Discretionary 711,466,950
===============================================================================
Consumer Staples--3.9%
Food & Staples Retailing--2.2%
The Kroger Co. 1,790,000 40,257,100
Safeway, Inc. 1,500,000 44,040,000
--------------
84,297,100
-----------------------------------------------------------------------
Food Products--1.0%
Archer-Daniels-Midland Co. 1,027,500 39,558,750
-----------------------------------------------------------------------
Household Products--0.5%
The Procter & Gamble Co. 320,000 20,284,800
-----------------------------------------------------------------------
Tobacco--0.2%
Altria Group, Inc. 110,000 8,946,300
-----------------------------------------------------------------------
Total Consumer Staples 153,086,950
===============================================================================
Energy--14.8%
Oil, Gas & Consumable
Fuels--14.8%
Anadarko Petroleum Corp. 850,000 39,457,000
Chevron Corp. 1,220,000 81,984,000
Devon Energy Corp. 630,000 42,109,200
Exxon Mobil Corp. 2,260,000 161,409,200
Frontier Oil Corp. 1,370,000 40,278,000
Holly Corp. 830,000 39,474,800
Marathon Oil Corp. 560,000 48,384,000
Occidental Petroleum Corp. 1,050,000 49,287,000
Sunoco, Inc. 483,300 31,960,629
Tesoro Corp. 620,000 39,642,800
-----------------------------------------------------------------------
Total Energy 573,986,629
===============================================================================
Financials--12.2%
Capital Markets--4.3%
The Bear Stearns Cos., Inc. 310,000 46,918,500
Goldman Sachs Group, Inc. (d) 310,000 58,834,900
Morgan Stanley 816,000 62,366,880
--------------
168,120,280
-----------------------------------------------------------------------
Diversified Financial
Services--4.1%
Bank of America Corp. 583,500 31,433,145
Citigroup, Inc. 860,000 43,137,600
JPMorgan Chase & Co. 1,800,000 85,392,000
--------------
159,962,745
-----------------------------------------------------------------------
Insurance--3.8%
AMBAC Financial Group, Inc. 260,000 21,707,400
The Allstate Corp. 810,000 49,701,600
American International Group, Inc. 60,000 4,030,200
Prudential Financial, Inc. 200,000 15,386,000
Safeco Corp. 80,000 4,655,200
The St. Paul Travelers Cos., Inc. 723,400 36,987,442
W.R. Berkley Corp. 345,750 12,744,345
--------------
145,212,187
-----------------------------------------------------------------------
Total Financials 473,295,212
===============================================================================
Health Care--13.9%
Health Care Equipment &
Supplies--0.4%
Becton Dickinson & Co. 240,000 16,807,200
-----------------------------------------------------------------------
Health Care Providers &
Services--7.3%
AmerisourceBergen Corp. 876,000 41,347,200
Cardinal Health, Inc. 624,000 40,840,800
Caremark Rx, Inc. 920,000 45,291,600
Humana, Inc. (c) 680,000 40,800,000
Laboratory Corp. of America
Holdings (c)(d) 610,000 41,778,900
McKesson Corp. 740,000 37,066,600
WellPoint, Inc. (c) 504,000 38,465,280
--------------
285,590,380
-----------------------------------------------------------------------
Health Care Technology--0.6%
Emdeon Corp. (c) 1,918,000 22,344,700
-----------------------------------------------------------------------
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 23
Schedule of Investments (continued) Master Large Cap Core Portfolio
Shares
Sector Industry Common Stocks Held Value
===============================================================================
Health Care (concluded)
Life Sciences Tools &
Services--0.6%
Applera Corp.--Applied
Biosystems Group 600,000 $ 22,380,000
-----------------------------------------------------------------------
Pharmaceuticals--5.0%
Forest Laboratories, Inc. (c)(d) 900,000 44,046,000
Johnson & Johnson 270,000 18,198,000
King Pharmaceuticals, Inc. (c)(d) 1,211,000 20,260,030
Merck & Co., Inc. 1,240,000 56,320,800
Pfizer, Inc. 2,038,000 54,312,700
--------------
193,137,530
-----------------------------------------------------------------------
Total Health Care 540,259,810
===============================================================================
Industrials--12.7%
Aerospace & Defense--3.6%
Honeywell International, Inc. 1,150,000 48,438,000
Lockheed Martin Corp. 560,000 48,680,800
Raytheon Co. 867,200 43,316,640
--------------
140,435,440
-----------------------------------------------------------------------
Airlines--2.2%
AMR Corp. (c)(d) 1,490,000 42,226,600
Continental Airlines, Inc. Class B
(c)(d) 1,120,000 41,305,600
--------------
83,532,200
-----------------------------------------------------------------------
Commercial Services &
Supplies--2.0%
Covanta Holding Corp. (c) 440,000 8,945,200
Manpower, Inc. 390,000 26,430,300
Waste Management, Inc. 1,168,000 43,776,640
--------------
79,152,140
-----------------------------------------------------------------------
Diversified Consumer
Services--0.4%
ITT Educational Services, Inc. (c) 220,000 15,169,000
-----------------------------------------------------------------------
Industrial Conglomerates--1.7%
General Electric Co. 1,840,000 64,602,400
-----------------------------------------------------------------------
Machinery--1.6%
Cummins, Inc. (d) 290,000 36,824,200
Manitowoc Co. 176,000 9,658,880
Terex Corp. (c) 150,000 7,764,000
Toro Co. 210,000 9,063,600
--------------
63,310,680
-----------------------------------------------------------------------
Road & Rail--1.2%
CSX Corp. (d) 1,170,000 41,733,900
Ryder System, Inc. 90,000 4,738,500
--------------
46,472,400
-----------------------------------------------------------------------
Total Industrials 492,674,260
===============================================================================
Information Technology--18.8%
Communications Equipment--3.4%
Cisco Systems, Inc. (c) 3,260,000 78,663,800
Motorola, Inc. 2,360,000 54,421,600
--------------
133,085,400
-----------------------------------------------------------------------
Computers & Peripherals--3.5%
Hewlett-Packard Co. 1,820,000 70,506,800
International Business Machines Corp. 400,000 36,932,000
NCR Corp. (c) 653,000 27,112,560
--------------
134,551,360
-----------------------------------------------------------------------
Office Electronics--1.1%
Xerox Corp. (c) 2,570,000 43,690,000
-----------------------------------------------------------------------
Semiconductors & Semiconductor
Equipment--5.8%
Intersil Corp. Class A (d) 1,130,000 26,498,500
LSI Logic Corp. (c) 3,100,000 31,155,000
Micron Technology, Inc. (c) 2,720,000 39,304,000
National Semiconductor Corp. (d) 1,410,000 34,248,900
Novellus Systems, Inc. (c)(d) 1,430,000 39,539,500
Texas Instruments, Inc. 1,710,000 51,607,800
--------------
222,353,700
-----------------------------------------------------------------------
Software--5.0%
BEA Systems, Inc. (c) 2,630,000 42,790,100
BMC Software, Inc. (c) 1,370,000 41,524,700
Cadence Design Systems, Inc. (c) 410,000 7,322,600
Compuware Corp. (c) 1,110,000 8,924,400
Intuit, Inc. (c)(d) 1,220,000 43,066,000
Microsoft Corp. 1,130,000 32,442,300
Oracle Corp. (c) 1,000,000 18,470,000
--------------
194,540,100
-----------------------------------------------------------------------
Total Information Technology 728,220,560
===============================================================================
Materials--4.1%
Chemicals--0.3%
Lyondell Chemical Co. 430,000 11,038,100
-----------------------------------------------------------------------
Containers & Packaging--0.7%
Pactiv Corp. (c) 940,000 28,989,600
-----------------------------------------------------------------------
Metals & Mining--3.1%
Carpenter Technology Corp. (d) 330,000 35,306,700
Freeport-McMoRan Copper &
Gold, Inc. Class B (d) 650,000 39,312,000
Nucor Corp. 760,000 44,391,600
--------------
119,010,300
-----------------------------------------------------------------------
Total Materials 159,038,000
===============================================================================
Telecommunications Services--1.2%
Diversified Telecommunication
Services--1.2%
Qwest Communications
International Inc. (c)(d) 5,170,000 44,617,100
-----------------------------------------------------------------------
Total Telecommunications Services 44,617,100
===============================================================================
Total Common Stocks
(Cost--$3,223,063,674)--100.0% 3,876,645,471
===============================================================================
Short-Term Beneficial
Securities Interest
===============================================================================
BlackRock Liquidity Series, LLC
Money Market Series, 5.29%
(a)(b)(e) $648,878,800 648,878,800
-----------------------------------------------------------------------
Total Short-Term Securities
(Cost--$648,878,800)--16.7% 648,878,800
===============================================================================
Total Investments (Cost--$3,871,942,474*)--116.7% 4,525,524,271
Liabilities in Excess of Other Assets--(16.7%) (648,885,481)
--------------
Net Assets--100.0% $3,876,638,790
==============
24 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Schedule of Investments (concluded) Master Large Cap Core Portfolio
* The cost and unrealized appreciation (depreciation) of investments as of
October 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost .......................................... $3,883,911,354
==============
Gross unrealized appreciation ........................... $ 685,050,214
Gross unrealized depreciation ........................... (43,437,297)
--------------
Net unrealized appreciation ............................. $ 641,612,917
==============
(a) Investments in companies considered to be an affiliate of the Portfolio,
for purposes of Section 2(a)(3) of the Investment Company Act of 1940,
were as follows:
--------------------------------------------------------------------------
Net Interest
Affiliates Activity Income
--------------------------------------------------------------------------
BlackRock Liquidity Series, LLC
Cash Sweep Series I $ (4,121,341) $ 259,462
BlackRock Liquidity Series, LLC
Money Market Series $512,086,600 $ 460,320
--------------------------------------------------------------------------
(b) Security was purchased with the cash proceeds from securities loans.
(c) Non-income producing security.
(d) Security, or a portion of security, is on loan.
(e) Represents the current yield as of October 31, 2006.
o For Portfolio compliance purposes, the Portfolio's sector and industry
classifications refer to any one or more of the sector and industry
sub-classifications used by one or more widely recognized market indexes
or ratings group indexes, and/or as defined by Portfolio management. This
definition may not apply for purposes of this report, which may combine
sector and industry sub-classifications for reporting ease. Sectors and
industries are shown as a percent of net assets. These sector and industry
classifications are unaudited.
See Notes to Financial Statements.
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 25
Statement of Assets and Liabilities Master Large Cap Core Portfolio
As of October 31, 2006
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (including securities loaned
of $626,206,524) (identified cost--$3,223,063,674) ............................. $ 3,876,645,471
Investments in affiliated securities, at value (identified cost--$648,878,800) .. 648,878,800
Receivables:
Securities sold .............................................................. $ 65,869,792
Contributions ................................................................ 9,549,945
Dividends .................................................................... 1,904,103
Securities lending ........................................................... 54,913
Interest from affiliates ..................................................... 10,215 77,388,968
---------------
Prepaid expenses ................................................................ 58,616
---------------
Total assets .................................................................... 4,602,971,855
---------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ....................................... 648,878,800
Bank overdraft .................................................................. 887,895
Payables:
Securities purchased ......................................................... 67,230,509
Withdrawals .................................................................. 7,496,924
Investment adviser ........................................................... 1,545,237
Other affiliates ............................................................. 22,280 76,294,950
---------------
Accrued expenses and other liabilities .......................................... 271,420
---------------
Total liabilities ............................................................... 726,333,065
---------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets ...................................................................... $ 3,876,638,790
===============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Investors' capital .............................................................. $ 3,223,056,993
Unrealized appreciation--net .................................................... 653,581,797
---------------
Net Assets ...................................................................... $ 3,876,638,790
===============
See Notes to Financial Statements.
26 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Statement of Operations Master Large Cap Core Portfolio
For the Year Ended October 31, 2006
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends ....................................................................... $ 35,266,989
Securities lending--net ......................................................... 460,320
Interest from affiliates ........................................................ 259,462
---------------
Total income .................................................................... 35,986,771
---------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ........................................................ $ 15,513,784
Accounting services ............................................................. 575,677
Custodian fees .................................................................. 166,270
Trustees' fees and expenses ..................................................... 95,643
Professional fees ............................................................... 93,581
Pricing fees .................................................................... 1,072
Other ........................................................................... 63,937
---------------
Total expenses .................................................................. 16,509,964
---------------
Investment income--net .......................................................... 19,476,807
---------------
===================================================================================================================================
Realized & Unrealized Gain--Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ............................................... 195,731,487
Change in unrealized appreciation on investments--net ........................... 289,376,493
---------------
Total realized and unrealized gain--net ......................................... 485,107,980
---------------
Net Increase in Net Assets Resulting from Operations ............................ $ 504,584,787
===============
See Notes to Financial Statements.
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 27
Statements of Changes in Net Assets Master Large Cap Core Portfolio
For the Year Ended
October 31,
----------------------------------
Increase (Decrease) in Net Assets: 2006 2005
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net .......................................................... $ 19,476,807 $ 16,926,054
Realized gain--net .............................................................. 195,731,487 185,237,400
Change in unrealized appreciation--net .......................................... 289,376,493 159,284,150
----------------------------------
Net increase in net assets resulting from operations ............................ 504,584,787 361,447,604
----------------------------------
===================================================================================================================================
Capital Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Proceeds from contributions ..................................................... 1,448,673,363 1,040,896,976
Fair value of withdrawals ....................................................... (743,318,106) (566,946,131)
----------------------------------
Net increase in net assets derived from capital transactions .................... 705,355,257 473,950,845
----------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets .................................................... 1,209,940,044 835,398,449
Beginning of year ............................................................... 2,666,698,746 1,831,300,297
----------------------------------
End of year ..................................................................... $ 3,876,638,790 $ 2,666,698,746
==================================
See Notes to Financial Statements
Financial Highlights Master Large Cap Core Portfolio
For the Year Ended
October 31,
The following ratios have been derived from ------------------------------------------------------------------------------
information provided in the financial statements. 2006 2005 2004 2003 2002
====================================================================================================================================
Total Investment Return
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return ................ 17.32% 18.35% 9.61% 25.11% (8.13%)
==============================================================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses ............................... .49% .51% .52% .54% .57%
==============================================================================
Investment income--net ................. .58% .72% .57% .48% .83%
==============================================================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 3,876,639 $ 2,666,699 $ 1,831,300 $ 1,454,109 $ 873,704
==============================================================================
Portfolio turnover ..................... 87.67% 93.95% 135.48% 138.73% 150.18%
==============================================================================
See Notes to Financial Statements.
28 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Notes to Financial Statements Master Large Cap Core Portfolio
1. Significant Accounting Policies:
Master Large Cap Core Portfolio (the "Portfolio") is a series of Master Large
Cap Series Trust (the "Trust"). The Trust is registered under the Investment
Company Act of 1940, as amended, and is organized as a Delaware statutory trust.
The Declaration of Trust permits the Trustees to issue nontransferable interests
in the Portfolio, subject to certain limitations. The Portfolio's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. All such adjustments are of a
normal, recurring nature. The following is a summary of significant accounting
policies followed by the Portfolio.
(a) Valuation of investments -- Equity securities held by the Portfolio 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 Trust.
Long positions traded in over-the-counter ("OTC") markets, 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 Trust. Short positions traded in OTC markets are valued at the
last available asked price. Portfolio securities that are traded both in OTC
markets 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. Options traded in the OTC market are valued at the last
bid price. Swap agreements are valued based upon quoted fair valuations received
daily by the Portfolio 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
Manager 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 Portfolio
employs pricing services to provide certain securities prices for the Portfolio.
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 Trust, including valuations furnished by the
pricing services retained by the Portfolio, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Trust under the general supervision of the Board of
Trustees of the Trust. Such valuations and procedures will be reviewed
periodically by the Board of Trustees of the Trust.
Generally, trading in foreign securities, as well as U.S. government securities,
money market instruments and certain fixed income securities, is substantially
completed each day at various times prior to the close of business on the New
York Stock Exchange ("NYSE"). The values of such securities used in computing
the net assets of the Portfolio are determined as of such times. Foreign
currency exchange rates will be determined as of the close of business on the
NYSE. Occasionally, events affecting the values of such securities and such
exchange rates may occur between the times at which they are determined and the
close of business on the NYSE that may not be reflected in the computation of
the Portfolio's net assets. If events (for example, a company announcement,
market volatility or a natural disaster) occur during such periods that are
expected to materially affect the value of such securities, those securities
will be valued at their fair value as determined in good faith by the Board of
Trustees of the Trust or by the Manager using a pricing service and/or
procedures approved by the Board of Trustees of the Trust.
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 29
Notes to Financial Statements (continued) Master Large Cap Core Portfolio
(b) Derivative financial instruments -- The Portfolio may engage in various
portfolio investment strategies both to increase the return of the Portfolio and
to hedge, or protect, its exposure to interest rate movements and movements in
the securities markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
o Financial futures contracts -- The Portfolio may purchase or sell
financial futures contracts and options on such financial futures
contracts. Financial futures contracts are contracts for delayed delivery
of securities at a specific future date and at a specific price or yield.
Upon entering into a contract, the Portfolio deposits and maintains as
collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Portfolio agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Portfolio as unrealized gains
or losses. When the contract is closed, the Portfolio records a realized
gain or loss equal to the difference between the value of the contract at
the time it was opened and the value at the time it was closed.
o Options -- The Portfolio may purchase and write call and put options. When
the Portfolio writes an option, an amount equal to the premium received by
the Portfolio is reflected as an asset and an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the
current market value of the option written. When a security is purchased
or sold through an exercise of an option, the related premium paid (or
received) is added to (or deducted from) the basis of the security
acquired or deducted from (or added to) the proceeds of the security sold.
When an option expires (or the Portfolio enters into a closing
transaction), the Portfolio realizes a gain or loss on the option to the
extent of the premiums received or paid (or a gain or loss to the extent
that the cost of the closing transaction exceeds the premium paid or
received).
Written and purchased options are non-income producing investments.
(c) Income taxes -- The Portfolio is classified as a partnership for federal
income tax purposes. As such, each investor in the Portfolio is treated as owner
of its proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Portfolio. 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. It is
intended that the Portfolio's assets will be managed so an investor in the
Portfolio can satisfy the requirements of Subchapter M of the Internal Revenue
Code.
(d) Security transactions and investment income -- Security transactions are
accounted for on the date the securities are purchased or sold (the trade
dates). Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Portfolio has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(e) Securities lending -- The Portfolio may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
market value of the loaned securities is determined at the close of business of
the Portfolio and any additional required collateral is delivered to the
Portfolio on the next business day. Where the Portfolio receives securities as
collateral for the loaned securities, it collects a fee from the borrower. The
Portfolio typically receives the income on the loaned securities but does not
receive the income on the collateral. Where the Portfolio receives cash
collateral, it may invest such collateral and retain the amount earned on such
investment, net of any amount rebated to the borrower. Loans of securities are
terminable at any time and the borrower, after notice, is required to return
borrowed securities within five business days. The Portfolio may pay reasonable
finder's, lending agent, administrative and custodial fees in connection with
its loans. In the event that the borrower defaults on its obligation to return
borrowed securities because of insolvency or for any other reason, the Portfolio
could experience delays and costs in gaining access to the collateral. The
Portfolio
30 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Notes to Financial Statements (continued) Master Large Cap Core Portfolio
also could suffer a loss where the value of the collateral falls below the
market value of the borrowed securities, in the event of borrower default or in
the event of losses on investments made with cash collateral.
(f) Bank overdraft -- The Portfolio recorded a bank overdraft, which resulted
from management estimates of available cash.
(g) Recent accounting pronouncements -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109."
FIN 48 prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity including mutual funds before being measured
and recognized in the financial statements. Adoption of FIN 48 is required for
fiscal years beginning after December 15, 2006. The impact on the Portfolio's
financial statements, if any, is currently being assessed.
In addition, in September 2006, Statement of Financial Accounting Standards No.
157, "Fair Value Measurements" ("FAS 157"), was issued and is effective for
fiscal years beginning after November 15, 2007. FAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management is currently evaluating the implication of
FAS 157. At this time its impact on the Portfolio's financial statements has not
been determined.
2. Investment Advisory Agreement and Transactions with Affiliates:
On September 29, 2006, BlackRock, Inc. and Merrill Lynch & Co., Inc. ("Merrill
Lynch") combined Merrill Lynch's investment management business, Merrill Lynch
Investment Managers ("MLIM") and its affiliates, including Fund Asset
Management, L.P. ("FAM"), with BlackRock, Inc. to create a new independent
company. Merrill Lynch has a 49.8% economic interest and a 45% voting interest
in the combined company and The PNC Financial Services Group, Inc. ("PNC"), has
approximately a 34% economic and voting interest. The new company operates under
the BlackRock name and is governed by a board of directors with a majority of
independent members.
On August 15, 2006, the shareholders of each of the investors of the Portfolio
approved a new Investment Advisory Agreement with BlackRock Advisors, Inc. (the
"Manager"), an indirect, wholly owned subsidiary of BlackRock, Inc. BlackRock
Advisors, Inc. was recently reorganized into a limited liability company and
renamed BlackRock Advisors, LLC. The new Investment Advisory Agreement between
the Trust, on behalf of the Portfolio and the Manager became effective on
September 29, 2006. Prior to September 29, 2006, FAM was the Port folio's
investment adviser. The general partner of FAM is Princeton Services, Inc.
("PSI"), an indirect, wholly owned subsidiary of Merrill Lynch, which is the
limited partner.
The Manager is responsible for the management of the Portfolio's investments and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Portfolio. For such services, the
Portfolio pays a monthly fee at an annual rate of .50% of the average daily
value of the Portfolio's net assets not exceeding $1 billion and .45% of average
daily net assets in excess of $1 billion. Effective May 9, 2006, the Manager has
contractually agreed to implement an additional breakpoint for a portion of its
investment advisory fee. For such services, the Portfolio pays a monthly fee at
an annual rate of .50% of the average daily net assets not exceeding $1 billion,
..45% of average daily net assets in excess of $1 billion but not exceeding $5
billion and .40% of average daily net assets in excess of $5 billion.
In addition, the Manager has entered into a sub-advisory agreement with
BlackRock Investment Management, LLC ("BIM"), an affiliate of the Manager, under
which the Manager pays the Sub-Adviser for services it provides to the Portfolio
a fee equal to 74% of the management fee paid by the Portfolio to the Manager.
The Portfolio has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("MLPF&S"), an affiliate of the Manager, or its
affiliates. As of October 31, 2006, the Portfolio lent securities with a value
of $257,949,987 to MLPF&S or its affiliates.
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 31
Notes to Financial Statements (concluded) Master Large Cap Core Portfolio
Pursuant to that order, the Portfolio has retained BIM as the securities lending
agent for a fee based on a share of the returns on investment of cash
collateral. Prior to September 29, 2006, BIM was organized as Merrill Lynch
Investment Managers, LLC ("MLIM, LLC"), an affiliate of FAM, and MLIM, LLC was
the securities lending agent. BIM may, on behalf of the Portfolio, invest cash
collateral received by the Portfolio for such loans, among other things, in a
private investment company managed by the Manager or in registered money market
funds advised by the Manager or its affiliates. For the year ended October 31,
2006, BIM received $197,604 in securities lending agent fees.
For the year ended October 31, 2006, the Fund reimbursed FAM and the Manager
$67,319 and $5,570, respectively, for certain accounting services.
Prior to September 29, 2006, certain officers and/or trustees of the Trust were
officers and/or trustees of FAM, PSI, MLAM U.K., Merrill Lynch, MLIM, and/or
MLIM, LLC.
Commencing September 29, 2006, certain officers and/or trustees of the Trust are
officers and/or directors of BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended October 31, 2006 were $3,600,544,853 and $2,914,034,828,
respectively.
4. Short-Term Borrowings:
The Portfolio, along with certain other funds managed by the Manager and its
affiliates (or FAM and its affiliates), is a party to a $500,000,000 credit
agreement with a group of lenders, which expires November 2006 and was
subsequently renewed for one year under substantially the same terms. The
Portfolio may borrow under the credit agreement to fund shareholder redemptions
and for other lawful purposes other than for leverage. The Portfolio may borrow
up to the maximum amount allowable under the Portfolio's current prospectus and
statement of additional information, subject to various other legal, regulatory
or contractual limits. The Portfolio pays a commitment fee of .07% per annum
based on the Portfolio'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 Portfolio's election, the federal funds rate plus .35% or a
base rate as defined in the credit agreement. The Portfolio did not borrow under
the credit agreement during the year ended October 31, 2006.
5. Acquisition:
On August 28, 2006, an investor of the Portfolio acquired all of the net assets
of Merrill Lynch Disciplined Equity Fund, Inc. pursuant to a plan of
reorganization. As a result of the reorganization, which included $4,652,234 of
net unrealized appreciation, the Portfolio received an in-kind contribution of
portfolio securities.
32 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Report of Independent Registered Public Accounting Firm
Master Large Cap Core Portfolio
To the Investors and Board of Trustees of Master Large Cap Series Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments of Master Large Cap Core Portfolio, one of the
portfolios constituting Master Large Cap Series Trust (the "Trust"), as of
October 31, 2006, the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
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
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Trust
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the 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, 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 October 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 audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Master
Large Cap Core Portfolio of Master Large Cap Series Trust as of October 31,
2006, the results of its operations for the year then ended, the changes in its
net assets for each of the two years in the period then ended and its financial
highlights for each of the five years in the period then ended, in conformity
with U.S. generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
December 21, 2006
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 33
Officers and Trustees of Master Large Cap Series Trust
Number of
Funds and
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to Vice Chairman and Director of BlackRock, Inc., 122 Funds None
Doll, Jr.* Princeton, NJ and present Global Chief Investment Officer for Equities, 168 Portfolios
08543-9011 Trustee Chairman of the BlackRock Retail Operating
Age: 52 Committee, and member of the BlackRock Executive
Committee since 2006; President of the Funds
advised by Merrill Lynch Investment Managers, L.P.
("MLIM") and its affiliates ("MLIM/FAM-advised
funds") from 2005 to 2006 and Chief Investment
Officer thereof from 2001 to 2006; President of
MLIM and Fund Asset Management, L.P. ("FAM") from
2001 to 2006; Co-Head (Americas Region) thereof
from 2000 to 2001 and Senior Vice President from
1999 to 2001; President and Director of Princeton
Services, Inc. ("Princeton Services") 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 described in the Investment Company
Act, of the Trust 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*
- ------------------------------------------------------------------------------------------------------------------------------------
James H. P.O. Box 9095 Trustee 1999 to Director, The China Business Group, Inc. since 1996 37 Funds None
Bodurtha** Princeton, NJ present and Executive Vice President thereof from 1996 to 57 Portfolios
08543-9095 2003; Chairman of the Board, Berkshire Holding
Age: 62 Corporation since 1980; Partner, Squire, Sanders &
Dempsey from 1980 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. P.O. Box 9095 Trustee 2005 to Professor, Harvard University since 1992; 37 Funds None
Froot Princeton, NJ present Professor, Massachusetts Institute of Technology 57 Portfolios
08543-9095 from 1986 to 1992.
Age: 49
- ------------------------------------------------------------------------------------------------------------------------------------
34 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Officers and Trustees of Master Large Cap Series Trust (continued)
Number of
Funds and
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Trustees* (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
Joe P.O. Box 9095 Trustee 2002 to Member of the Committee of Investment of Employee 37 Funds Kimco
Grills** Princeton, NJ present Benefit Assets of the Association of Financial 57 Portfolios Realty
08543-9095 Professionals ("CIEBA") since 1986; Member of Corporation
Age: 71 CIEBA's Executive Committee since 1988 and its
Chairman from 1991 to 1992; Assistant Treasurer of
International Business Machines Corporation ("IBM")
and Chief Investment Officer of IBM Retirement
Funds from 1986 to 1993; Member of the Investment
Advisory Committee of the State of New York Common
Retirement Fund since 1989; Member of the
Investment Advisory Committee of the Howard Hughes
Medical Institute from 1997 to 2000; Director, Duke
University Management Company from 1992 to 2004,
Vice Chairman thereof from 1998 to 2004, and
Director Emeritus thereof since 2004; Director,
LaSalle Street Fund from 1995 to 2001; Director,
Kimco Realty Corporation since 1997; Member of the
Investment Advisory Committee of the Virginia
Retirement System since 1998, Vice Chairman thereof
from 2002 to 2005, and Chairman thereof since 2005;
Director, Montpelier Foundation since 1998 and its
Vice Chairman since 2000; Member of the Investment
Committee of the Woodberry Forest School since
2000; Member of the Investment Committee of the
National Trust for Historic Preservation since
2000.
- ------------------------------------------------------------------------------------------------------------------------------------
Herbert I. P.O. Box 9095 Trustee 1999 to Chairman of the Board of Directors of Vigilant 37 Funds None
London Princeton, NJ present Research, Inc. since 2006; Member of the Board of 57 Portfolios
08543-9095 Directors for Grantham University since 2006;
Age: 67 Director of AIMS since 2006; Director of Reflex
Security since 2006; Director of InnoCentive, Inc.
since 2006; Director of Cerego, LLC since 2005;
Professor Emeritus, New York University since 2005;
John M. Olin Professor of Humanities, New York
University from 1993 to 2005; and Professor thereof
from 1980 to 2005; President, Hudson Institute
since 1997 and Trustee thereof since 1980; Dean,
Gallatin Division of New York University from 1976
to 1993; Distinguished Fellow, Herman Kahn Chair,
Hudson Institute from 1984 to 1985; Director, Damon
Corp. from 1991 to 1995; Overseer, Center for Naval
Analyses from 1983 to 1993.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta P.O. Box 9095 Trustee 1999 to Shareholder, Modrall, Sperling, Roehl, Harris & 37 Funds None
Cooper Princeton, NJ present Sisk, P.A. since 1993; President, American Bar 57 Portfolios
Ramo 08543-9095 Association from 1995 to 1996 and Member of the
Age: 64 Board of Governors thereof from 1994 to 1997;
Shareholder, Poole, Kelly & Ramo, Attorneys at Law,
P.C. from 1977 to 1993; Director of ECMC Group
(service provider to students, schools and lenders)
since 2001; Director, United New Mexico Bank (now
Wells Fargo) from 1983 to 1988; Director, First
National Bank of New Mexico (now Wells Fargo) from
1975 to 1976; Vice President, American Law
Institute since 2004.
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 35
Officers and Trustees of Master Large Cap Series Trust (concluded)
Number of
Funds and
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Robert S. P.O. Box 9095 Trustee 2002 to Principal of STI Management (investment adviser) 37 Funds None
Salomon, Princeton, NJ present from 1994 to 1995; Chairman and CEO of Salomon 57 Portfolios
Jr. 08543-9095 Brothers Asset Management Inc. from 1992 to 1995;
Age: 69 Chairman of Salomon Brothers Equity Mutual Funds
from 1992 to 1995; regular columnist with Forbes
Magazine from 1992 to 2002; Director of Stock
Research and U.S. Equity Strategist at Salomon
Brothers Inc. from 1975 to 1991; Trustee,
Commonfund from 1980 to 2001.
------------------------------------------------------------------------------------------------------------------------
* Trustees serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
** Co-Chairman of the Board of Trustees and the Audit Committee.
- ------------------------------------------------------------------------------------------------------------------------------------
Position(s) Length of
Held with Time
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Trust Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1999 to Managing Director of BlackRock since 2006; Managing Director of MLIM and FAM in
Burke Princeton, NJ President present 2006; First Vice President of MLIM and FAM from 1997 to 2005 and Treasurer thereof
08543-9011 and from 1999 to 2006; Vice President of MLIM and FAM from 1990 to 1997.
Age: 46 Treasurer
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Fund Chief 2004 to Managing Director of BlackRock and Fund Chief Compliance Officer since 2006; Chief
Hiller Princeton, NJ Compliance present Compliance Officer of the MLIM/FAM-advised funds and First Vice President and Chief
08543-9011 Officer Compliance Officer of MLIM (Americas Region) from 2004 to 2006; Chief Compliance
Age: 55 Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
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. P.O. Box 9011 Secretary 2004 to Director of BlackRock since 2006; Director (Legal Advisory) of MLIM from 2002 to
Pellegrino Princeton, NJ present 2006; Vice President of MLIM from 1999 to 2002; Attorney associated with MLIM from
08543-9011 1997 to 2006; Secretary of MLIM, FAM, FAM Distributors, Inc. and Princeton Services
Age: 46 from 2004 to 2006.
------------------------------------------------------------------------------------------------------------------------
* Officers of the Trust serve at the pleasure of the Board of Trustees.
------------------------------------------------------------------------------------------------------------------------
Further information about the Trust's Officers and Trustees is available in the Trust'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
36 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
Disclosure of Investment Advisory Agreement
Disclosure of FAM Investment Advisory Agreements
The Board of Trustees of the Trust (the "Fund Board") met in May 2006 to
consider approval of the investment advisory agreement between the Trust, on
behalf of the Fund, and Fund Asset Management, L.P. ("FAM"), the Fund's
investment adviser at that time. The Fund invests a portion of its assets into
Master Cap Core Portfolio of the Master Large Cap Series Trust (the
"Portfolio"). The Board of Trustees of the Master Large Cap Series Trust (the
"Portfolio Board"), the members of which are different from the Fund Board, met
in June 2006 to consider approval of the Portfolio's investment advisory
agreement with FAM, the Portfolio's investment adviser at that time, and the
sub-advisory agreement on behalf of the Portfolio between FAM and Merrill Lynch
Asset Management U.K. Limited, an affiliate.
Activities and Composition of the Boards
All but one member of the Fund Board is an independent trustee, whose only
affiliation with FAM or other Merrill Lynch affiliates was as a trustee of the
Fund and as a director or trustee of certain other funds advised by FAM or its
affiliates. All but one member of the Portfolio Board is an independent trustee,
whose only affiliation with FAM or other Merrill Lynch affiliates was as a
trustee of the Portfolio and as a director or trustee of certain other funds
advised by FAM or its affiliates. The Chairman of the Fund Board and the
Co-chairmen of the Portfolio Board are independent trustees. New trustee
nominees for each Board are chosen by a Nominating Committee comprised entirely
of independent trustees. All independent trustees also are members of the
pertinent Board's Audit Committee, and the independent trustees meet in
executive session at each in-person Board meeting. Each Board and each Audit
Committee meet in person for at least two days each quarter and conduct other
in-person and telephone meetings throughout the year, some of which are formal
Board meetings and some of which are informational meetings. Independent counsel
to the each group of independent trustees attends all in-person Board and Audit
Committee meetings and other meetings at the independent trustees' request.
FAM Investment Advisory Agreements -- Matters Considered by the Boards
Every year, the Portfolio Board considers approval of the Portfolio's investment
advisory agreement and any sub- advisory agreement. Every year, the Fund Board
considers approval of the Fund's investment advisory agreement, taking into
consideration the Portfolio's investment advisory and sub-advisory agreements.
Each Board, as pertinent, assesses the nature, scope and quality of the services
provided to the Fund or the Portfolio by the personnel of the investment
adviser, the sub-adviser and their affiliates, including administrative
services, shareholder services, oversight of fund accounting, marketing services
and assistance in meeting legal and regulatory requirements. Each Board, as
pertinent, also receives and assesses information regarding the services
provided to the Fund or the Portfolio by certain unaffiliated service providers.
At various times throughout the year, each Board also considers a range of
information in connection with its oversight of the services provided by the
investment adviser and its affiliates, including the sub-adviser. Among the
matters considered, as pertinent, are: (a) fees (in addition to management fees)
paid to the investment adviser and its affiliates by the Fund or the Portfolio;
(b) Fund or Portfolio operating expenses paid to third parties; (c) the
resources devoted to and compliance reports relating to the Fund's or the
Portfolio's investment objective, policies and restrictions, and the Fund's or
the Portfolio's compliance with its Code of Ethics and compliance policies and
procedures; and (d) the nature, cost and character of non-investment management
services provided by the investment adviser and its affiliates.
Each Board noted its view of FAM as one of the most experienced global asset
management firms and considered the overall services provided by FAM to be of
high quality. Each Board also noted its view of FAM as financially sound and
well managed and noted FAM's affiliation with one of America's largest financial
firms. Each Board works closely with the investment adviser in overseeing the
investment adviser's efforts to achieve good performance. As part of this
effort, each Board discusses portfolio manager effectiveness and, when
performance is not satisfactory, discusses with the investment adviser taking
steps such as changing investment personnel.
Annual Consideration of Approval by the Boards
In the period prior to the Board meeting to consider renewal of the pertinent
investment advisory agreement and/or sub-advisory agreement, each Board requests
and receives materials specifically relating to the investment advisory
agreement and/or sub-advisory agreement. These materials include, as pertinent,
(a) information compiled by Lipper Inc. ("Lipper") on the fees and expenses,
investment performance and leverage of the Fund or Portfolio as compared to a
comparable group of funds as classified by Lipper; (b) sales
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 37
Disclosure of Investment Advisory Agreement (concluded)
and redemption data for the Fund or Portfolio; (c) a discussion by the Fund's or
the Portfolio's portfolio management team regarding investment strategies used
by the Fund or the Portfolio during its most recent fiscal year; (d) information
on the profitability to the investment adviser and its affiliates of the
investment advisory agreements, the sub-advisory agreement and other
relationships with the Fund or the Portfolio; and (e) information provided by
the investment adviser concerning investment advisory fees charged to other
clients, such as retail insurance funds or retail offshore funds, under similar
investment mandates. Since the Portfolio's sub-advisory services were provided
by an affiliate of FAM and no additional fee is paid for these services, the
Portfolio Board considered the existing sub-advisory agreement and the
Portfolio's investment advisory agreement together. Each Board also considers,
as pertinent, other matters it deems important to the approval process, such as
payments made for services related to the valuation and pricing of Fund or
Portfolio portfolio holdings, allocation of Fund or Portfolio brokerage fees
(including the related benefits to the investment adviser of "soft dollars"),
the Fund's or Portfolio's portfolio turnover statistics, and direct and indirect
benefits to the investment adviser, the sub-adviser and their affiliates from
their relationship with the Fund or the Portfolio. Neither Board identified any
particular information as controlling, and each member of the Boards attributed
different weights to the various items considered.
Certain Specific Renewal Data
In connection with the most recent renewal of the Fund's investment advisory
agreement with FAM in May 2006 and the Portfolio's investment advisory agreement
with FAM and the sub-advisory agreement in June 2006 (together, the "FAM
Investment Advisory Agreements"), the respective independent trustees' and
Board's review included, as pertinent, the following:
Services Provided by the Investment Adviser -- Each Board reviewed the nature,
extent and quality of services provided by FAM, including the investment
advisory services and the resulting performance of the Fund or Portfolio. Each
Board focused primarily on FAM's investment advisory services and the Fund's or
the Portfolio's investment performance. Each Board, as pertinent, compared Fund
or Portfolio performance -- both including and excluding the effects of the
Fund's or the Portfolio's fees and expenses -- to the performance of a
comparable group of funds and the performance of a relevant index or combination
of indexes. While each Board reviews performance data at least quarterly,
consistent with the investment adviser's investment goals, each Board attaches
more importance to performance over relatively long periods of time, typically
three to five years, or a shorter period in the case of a fund that has been in
existence less than five years. According to Lipper's ranking of all retain and
institutional balanced target maturity funds, the Fund Board noted that for the
periods ended February 28, 2006, the Fund's performance after fees and expenses
ranked in the first quintile for each of the one-year and three-year periods.
Each Board concluded that the nature and quality of the services supported the
continuation of the pertinent FAM Investment Advisory Agreement.
FAM's Personnel and Investment Process -- Each Board reviews at least annually,
as pertinent, the Fund's or the Portfolio's investment objectives and
strategies. Each Board discussed with FAM's senior management responsible for
investment operations and the senior management of FAM's equity investing group
the strategies being used to achieve the stated objectives. Among other things,
each Board considered the size, education and experience of FAM's investment
staff, its use of technology, and FAM's approach to training and retaining
portfolio managers and other research, advisory and management personnel. Each
Board also reviewed FAM's compensation policies and practices with respect to
the Fund's and the Portfolio's portfolio manager. Each Board also considered the
experience of the Fund's and the Portfolio's portfolio manager and noted that
Mr. Doll has more than 20 years' experience in portfolio management. The Boards
considered the extensive experience of FAM and its investment staff in analyzing
and managing the types of investments used by the Funds. The Boards concluded
that the Fund and the Portfolio benefit from that experience.
Management Fees and Other Expenses -- Each Board reviewed, as pertinent, the
Fund's or the Portfolio'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 and administrative service fees and the effects of any
fee waivers -- compared to the other funds in its Lipper category. Each Board
also compared the Fund's or the Portfolio's total expenses to those of other
comparable funds. Each Board considered the services provided to and the fees
charged by FAM to other types of clients with similar investment mandates,
including, in the case of the Fund, a retail fund, retail insurance funds,
retail offshore funds, institutional clients, sub-advised funds and separate
accounts. The Fund Board noted that the fees charged to the retail fund were
comparable to, the fees charged to the retail insurance funds were lower than
and the fees charged to the retail offshore funds and the separate
38 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
accounts were higher than the fees being charged to the Fund. The Fund Board
also noted that the fees charged to the institutional clients and the
sub-advised funds were less than the fees being charged to the Fund but
determined that FAM generally provided less extensive services to such clients.
The Fund Board noted that the Fund's contractual management fee rate and actual
management fee rate were higher than the medians of such fees charged by
comparable funds, as determined by Lipper, while the Fund's total expenses were
slightly higher than the median of total expenses for comparable funds. Each
Board concluded, as pertinent, that the Fund's or the Portfolio's management fee
rate and overall expense ratio were reasonable compared to those of other
comparable funds.
Profitability -- Each Board considers, as pertinent, the cost of the services
provided to the Fund or the Portfolio by the investment adviser and the
investment adviser's and its affiliates' profits relating to the management
and/or distribution of the Fund or the Portfolio and the funds advised by the
investment manager and its affiliates. As part of its analysis, each Board
reviewed FAM's methodology in allocating its costs to the management of the Fund
or the Portfolio and concluded that there was a reasonable basis for the
allocation. Each Board concluded that the profits of FAM and its affiliates were
acceptable in relation to the nature and quality of services provided and given
the level of fees and expenses overall.
Economies of Scale -- Each Board considered, as pertinent, the extent to which
economies of scale might be realized as the assets of the Fund or the Portfolio
increase and whether there should be changes in the management fee rate or
structure in order to enable the Fund or the Portfolio to participate in these
economies of scale. The Boards noted that the Portfolio's management fee
schedule included contractual and voluntary breakpoints that reduce the
management fee rate as the Portfolio's assets increase above certain levels. The
Fund Board also considered FAM's agreement to waive the Fund's advisory fee by
the amount it pays FAM indirectly through its investment in the Portfolio. The
Fund Board also noted that if all the Fund's assets are irreversibly allocated
to the Fund's Protection Component under the terms of the Financial Guarantee
Agreement, the Fund's management fee would be reduced to 0.25%. Each Board
determined that the management fee structure of the Fund or the Portfolio, as
pertinent, was reasonable and that no changes were currently necessary.
Conclusion
After the independent trustees of each Board deliberated in executive session,
the entire Board of the Fund and the entire Board of the Portfolio, including
all of each Board's independent trustees, approved the renewal of the pertinent
FAM Investment Advisory Agreement, concluding that the advisory fee was
reasonable in relation to the services provided and that a contract renewal was
in the best interests of the shareholders.
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreements -- Matters Considered by the Boards
In connection with the combination of Merrill Lynch's investment advisory
business, including Fund Asset Management, L.P. (the "Previous Investment
Adviser"), with that of BlackRock, Inc. ("BlackRock") to create a new
independent company ("New BlackRock") (the "Transaction"), the Board of Trustees
of the Trust (the "Fund Board") considered and approved a new investment
advisory agreement between the Trust, on behalf of the Fund, and BlackRock
Advisors, LLC ("BlackRock Advisors"). The Board of Trustees of Master Large Cap
Core Portfolio (the "Portfolio"), the master fund into which the Fund invests a
portion of its assets (the "Portfolio Board"), the members of which are
different from the Fund Board, also considered and approved a new investment
advisory agreement with BlackRock Advisors (together with the Fund's new
investment advisory agreement, the "BlackRock Investment Advisory Agreements").
Fund shareholders and Portfolio shareholders subsequently approved the pertinent
BlackRock Investment Advisory Agreement and each BlackRock Investment Advisory
Agreement became effective on September 29, 2006, replacing the corresponding
investment advisory agreement with the Previous Investment Adviser (each, a
"Previous Investment Advisory Agreement").
Each Board discussed the pertinent BlackRock Investment Advisory Agreement at
telephonic and in-person meetings held during April and May 2006. Each Board,
including the independent trustees, approved the pertinent BlackRock Investment
Advisory Agreement at an in-person meeting
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 39
Disclosure of New Investment Advisory Agreement (continued)
held on May 9, 2006, in the case of the Portfolio Board, and May 10, 2006, in
the case of the Trust Board.
To assist each Board in its consideration of the pertinent 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 respective independent
legal counsel, also requested and received additional information from Merrill
Lynch and BlackRock in connection with their consideration of the pertinent
BlackRock Investment Advisory Agreement. The additional information was provided
in advance of the May 9, 2006 and May 10, 2006 meetings. In addition, the
independent trustees consulted with their respective counsel and Fund or
Portfolio 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 Boards. 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 each 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, each
Board's independent trustees met in executive sessions with their counsel to
consider the pertinent BlackRock Investment Advisory Agreement.
In connection with each Board's review of the pertinent 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:
o that there was not expected to be any diminution in the nature, quality
and extent of services provided to the Fund or the Portfolio and their
shareholders by BlackRock Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm would enhance its ability to attract and retain talented
professionals;
o that the Fund and the Portfolio were 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;
o 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 pertinent Board before making any changes;
o 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
o 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 Fund or Portfolio
shareholders.
In addition, BlackRock agreed to assume all agreements and obligations of the
Previous Investment Adviser necessary to ensure the continuation of the
financial guarantee insurance policy provided to the Trust by Ambac Assurance
Corporation.
Each Board considered, as pertinent, the information provided by Merrill Lynch
and BlackRock above, and, among other factors, the following:
o the potential benefits to shareholders from being part of a combined fund
family with BlackRock-sponsored funds, including possible economies of
scale and access to investment opportunities;
o the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
o the compliance policies and procedures of BlackRock Advisors;
40 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
o the terms and conditions of the pertinent BlackRock Investment Advisory
Agreement, including the fact that the schedule of the Fund's or
Portfolio's total advisory fees would not increase under the BlackRock
Investment Advisory Agreement, but would remain the same, or, with respect
to the Portfolio, because an additional breakpoint was added to the
advisory fee schedule, the average fee rate could be lower if the
Portfolio grows in size;
o that in May 2005, in the case of the Fund, and in June 2005, in the case
of the Portfolio, the corresponding Board had performed a full annual
review of the pertinent 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 Fund or the Portfolio; and that the advisory and/or management fees
paid by the Fund or the Portfolio, 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
o that Merrill Lynch had agreed to pay all expenses of the Fund or the
Portfolio in connection with the corresponding 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 Fund or the Portfolio would bear no costs in
obtaining shareholder approval of the corresponding BlackRock Investment
Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the pertinent BlackRock Investment Advisory Agreement, each
Board assessed the nature, quality and scope of the services to be provided to
the Fund or the Portfolio 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 pertinent BlackRock Investment
Advisory Agreement, each 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 Fund or the Portfolio; (b) Fund or Portfolio operating expenses paid to
third parties; (c) the resources devoted to and compliance reports relating to
the Fund's or the Portfolio'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 pertinent
Previous Investment Advisory Agreement, each 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 Fund or the Portfolio as compared
to a comparable group of funds as classified by Lipper; (b) a discussion by the
Fund's or the Portfolio's portfolio management team on investment strategies
used by the Fund or the Portfolio 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 Fund or the Portfolio;
and (d) information provided by the Previous Investment Adviser concerning
services related to the valuation and pricing of the Fund's or the Portfolio's
portfolio holdings, allocation of Fund or Portfolio brokerage fees, the Fund's
or the Portfolio's portfolio turnover statistics, and direct and indirect
benefits to the Previous Investment Adviser and its affiliates from their
relationship with the Fund or the Portfolio.
In their deliberations, each Board considered information received in connection
with their most recent approval of the continuance of the pertinent 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. Each Board,
including a majority of the independent trustees, concluded that the terms of
the pertinent BlackRock Investment Advisory Agreement are appropriate, that the
fees to be paid are reasonable in light of the services to be
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 41
Disclosure of New Investment Advisory Agreement (continued)
provided to the Fund or the Portfolio, and that the BlackRock Investment
Advisory Agreement should be approved and recommended to shareholders.
Nature, Quality and Extent of Services Provided -- Each 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 Fund or the Portfolio, as well as the nature, quality and
extent of services expected to be provided by BlackRock Advisors. Each Board
focused primarily on the Previous Investment Adviser's investment advisory
services and the Fund's or the Portfolio's investment performance, but also
considered certain areas in which both the Previous Investment Adviser and the
Fund or the Portfolio receive services as part of the Merrill Lynch complex.
Each Board compared, as pertinent, the Fund's or the Portfolio'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 each Board reviews performance
data at least quarterly, consistent with the Previous Investment Adviser's
investment goals, each 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 pertinent BlackRock Investment Advisory Agreement,
each Board 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 Fund or the Portfolio; the
ability of BlackRock Advisors to perform its duties after the Transaction; and
any anticipated changes to the investment and other practices of the Fund or the
Portfolio.
Each Board was given information with respect to the potential benefits to the
Fund or the Portfolio 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.
Each Board was advised that, as a result of Merrill Lynch's equity interest in
BlackRock after the Transaction, the Fund or the Portfolio 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 Boards 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, each Board
determined that the nature and quality of services to be provided to the Fund or
the Portfolio, as pertinent, under the corresponding BlackRock Investment
Advisory Agreement were expected to be as good as or better than that provided
under the corresponding Previous Investment Advisory Agreement. Each Board was
advised that BlackRock Advisors did not plan to change the Fund's or the
Portfolio'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. Each Board 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, each Board concluded that, overall, it was 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 Fund
or the Portfolio under the pertinent BlackRock Investment Advisory Agreement.
Costs of Services Provided and Profitability -- Each Board noted that, in
conjunction with the recent review of the pertinent Previous Investment Advisory
Agreement, the trustees had received, among other things, a report from Lipper
comparing the Fund's or the Portfolio'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. Each Board reviewed, as pertinent,
the Fund's or the Portfolio'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. Each Board also compared the
Fund's or the Portfolio's total expenses to those of other comparable funds. The
information showed that the Fund and the Portfolio had fees and expenses within
the range of fees and expenses of comparable funds. The Fund Board noted that if
all assets are irreversibly allocated to the Fund's Protection Component under
the terms of the Financial Guarantee Agreement, the management fee will be
reduced. Each Board concluded, as
42 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
pertinent, that the Fund's or the Portfolio'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 pertinent BlackRock Investment Advisory Agreement, each Board
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 pertinent BlackRock Investment Advisory Agreement
is substantially similar to the corresponding Previous Investment Advisory
Agreement in all material respects, including the rate of compensation, each
Board determined that the Transaction should not increase the total fees
payable, including any fee waivers and expense reimbursements, for advisory and
administrative services. Each Board noted that it was not possible to predict
with certainty New BlackRock's future profitability from its relationship with
the Fund or the Portfolio.
Each Board discussed with BlackRock Advisors its general methodology to be used
in determining New BlackRock's profitability with respect to its relationship
with the Fund or the Portfolio. Each Board noted that it expects 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 Fund's or the
Portfolio's fees and/or fee breakpoints would be appropriate.
Fees and Economies of Scale -- Each Board considered the extent to which
economies of scale might be realized as the assets of the Fund or the Portfolio,
as pertinent, increase and whether there should be changes in the management fee
rate or structure in order to enable the Fund or the Portfolio to participate in
these economies of scale. Each Board determined that changes were not currently
necessary and that the Fund or the Portfolio, as pertinent, appropriately
participated in these economies of scale.
In reviewing the Transaction, each Board considered, among other things, whether
advisory fees or other expenses would change as a result of the Transaction.
Based on the fact that the pertinent BlackRock Investment Advisory Agreement is
substantially similar to the corresponding Previous Investment Advisory
Agreement in all material respects, including the rate of compensation, each
Board determined that as a result of the Transaction, the Fund's or the
Portfolio's total advisory fees would be no higher than the fees under the
corresponding Previous Investment Advisory Agreement. Each Board noted that in
conjunction with its most recent deliberations concerning the pertinent Previous
Investment Advisory Agreement, it had determined that the total fees for
advisory and administrative services for the Fund or the Portfolio were
reasonable in light of the services provided. Each Board noted that in
conjunction with the most recent review of the Previous Investment Advisory
Agreement, the trustees had received, among other things, a report from Lipper
comparing, as pertinent, the Fund's or the Portfolio'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. Each
Board, as pertinent, concluded that because the rates for advisory fees for the
Fund or the Portfolio would be no higher than the fee rates in effect at the
time, the proposed management fee structure, including any fee waivers and, in
the case of the Portfolio, the addition of a breakpoint, 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 pertinent BlackRock Investment Advisory Agreement,
each Board considered whether BlackRock Advisors would experience such benefits
to the same extent that the Previous Investment Adviser was experiencing such
benefits under the corresponding 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 pertinent
Previous Investment Advisory Agreement, and their discussions with management of
the Previous Investment Adviser and BlackRock, each Board 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
Fund Board also considered possible benefits stemming from the proposal that
PFPC Financial Services, an affiliate of BlackRock, serve as transfer agent for
the Fund following the Transaction. Each Board 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.
Investment Performance -- Each Board considered, as pertinent, investment
performance for the Fund or the Portfolio. The trustees compared the Fund's or
the Portfolio's performance -- both including and excluding the effects of the
Fund's or the Portfolio's fees and expenses -- to the performance of a
comparable group of mutual funds, and the
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 43
Disclosure of New Investment Advisory Agreement (concluded)
performance of a relevant index or combination of indexes. The comparative
information received from Lipper showed Fund or Portfolio performance at various
levels within the range of performance of comparable funds over different time
periods. While each Board reviews performance data at least quarterly,
consistent with the Previous Investment Adviser's investment goals, each Board
attaches more importance over relatively long periods of time. Each Board
believed, as pertinent, that the Fund's or the Portfolio's performance was
satisfactory. Also, each Board took into account the investment performance of
funds advised by BlackRock Advisors. Each 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. Each 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 Fund or the Portfolio.
Conclusion -- After the independent trustees of each Board deliberated in
executive session, each entire Board, including the independent trustees,
approved the pertinent 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 pertinent BlackRock Investment Advisory
Agreement, each 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 Agreements -- Matters Considered by the Boards
At in-person meetings held on August 22-23, 2006, in the case of the Portfolio
Board, and on August 24-25, 2006, in the case of the Fund Board, each Board,
including the independent trustees, discussed and approved the pertinent
sub-advisory agreement between BlackRock Advisors and its affiliate, BlackRock
Investment Management, LLC (the "Sub-Adviser"), for each of the Fund and the
Portfolio (together, the "BlackRock Sub-Advisory Agreements"). Each BlackRock
Sub-Advisory Agreement became effective on September 29, 2006, at the same time
the corresponding BlackRock Investment Advisory Agreement became effective.
Pursuant to each 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 Fund or the Portfolio, as pertinent. BlackRock
Advisors pays the Sub-Adviser out of its own resources, and there is no increase
in Fund or Portfolio expenses as a result of the corresponding BlackRock
Sub-Advisory Agreement.
In approving the pertinent BlackRock Sub-Advisory Agreement at the August
in-person meeting, each Board reviewed its considerations in connection with its
approval of the corresponding BlackRock Investment Advisory Agreement in May
2006. Each Board relied on the same information and considered the same factors
as those discussed above in connection with the approval of the corresponding
BlackRock Investment Advisory Agreement. In reviewing the sub- advisory fee rate
provided in the pertinent BlackRock Sub-Advisory Agreement, each Board noted the
fact that both BlackRock Advisors and the Sub-Adviser have significant
responsibilities under their respective advisory agreements. BlackRock Advisors
remains responsible, as pertinent, for oversight of the Fund's or Portfolio's
operations and administration, and the Sub-Adviser provides advisory services to
the Fund or the Portfolio and is responsible for the day-to-day management of
the Fund's or the Portfolio's portfolio under the pertinent BlackRock
Sub-Advisory Agreement. Each Board also took into account the fact that there is
no increase in total advisory fees paid by the Fund or the Portfolio as a result
of the corresponding BlackRock Sub-Advisory Agreement. Under all of the
circumstances, each Board concluded that it was a reasonable allocation of fees
for the Sub-Adviser to receive 74% of the advisory fee paid by the Fund or the
Portfolio, as pertinent, to BlackRock Advisors.
After the independent trustees of each Board deliberated in executive session,
the entire Fund Board and the entire Portfolio Board, including the independent
trustees, approved the pertinent 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.
44 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
BlackRock Funds
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their 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 Additional Information
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site or shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial 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) Select eDelivery under the More Information section
3) Log into your account
The Fund will mail only one copy of shareholder documents, including
prospectuses, annual and semi-annual reports and proxy statements, to
shareholders with multiple accounts at the same address. This practice is
commonly called "householding" and it is intended to reduce expenses and
eliminate duplicate mailings of shareholder documents. Mailings of your
shareholder documents may be householded indefinitely unless you instruct us
otherwise. If you do not want the mailing of these documents to be combined with
those for other members of your household, please contact the Fund at (800)
441-7762.
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 45
BlackRock Funds (concluded)
Availability of Additional Information (concluded)
Availability of Proxy Voting Policies and Procedures
The Fund has delegated proxy voting responsibilities to BlackRock and its
affiliates, subject to the general oversight of the Fund's Board of Trustees. A
description of the policies and procedures that BlackRock and its affiliates use
to determine how to vote proxies relating to portfolio securities is available
without charge, upon request, on our Web site at www.blackrock.com, by calling
(800) 441-7762, or on the Web site of the Securities and Exchange Commission
(the"Commission") at http://www.sec.gov.
Availability of Proxy Voting Record
Information on how proxies relating to the Fund's voting securities were voted
(if any) by BlackRock during the most recent 12-month period ended June 30 is
available, upon request and without charge, on our Web site at
www.blackrock.com, by calling (800) 441-7762 or on the Web site of the
Commission at http://www.sec.gov.
Availability of Quarterly Portfolio Schedule
The Fund files its complete schedule of portfolio holdings for the first and
third quarters of its fiscal year with the Commission on Form N-Q. The Fund's
Form N-Q is available on the Commission's Web site at http://www.sec.gov and may
be reviewed and copied at the Commission's Public Reference Room in Washington,
D.C. Information regarding the operation of the Public Reference Room may be
obtained by calling (800) SEC-0330. The Fund's Forms N-Q may also be obtained
upon request, without charge, by calling (800) 441-7762.
Shareholder Privileges
Account Information
Call us at (800) 441-7762 8:00 AM - 6:00 PM EST to get information about your
account balances, recent transactions and share prices. You can also reach us on
the web at www.blackrock.com.
Automatic Investment Plans
Investor Class shareholders who want to invest regularly can arrange to have $50
or more automatically deducted from their checking or savings account and
invested in any of the BlackRock portfolios.
Systematic Withdrawal Plans
Investor Class shareholders can establish a systematic withdrawal plan and
receive periodic payments of $50 or more from their BlackRock portfolios, as
long as their account is at least $10,000.
Retirement Plans
Shareholders may make investments in conjunction with Traditional, Rollover,
Roth, Coverdell, Simple IRAs, SEP IRAs and 403(b) Plans.
46 BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006
A World-Class Mutual Fund Family
BlackRock now offers an expanded lineup of open-end mutual funds. Our range
includes more than 85 funds crossing all investment styles and managed by
experts in equity, fixed income and tax-exempt investing.
Equity Portfolios
BlackRock All-Cap Global Resources Portfolio
BlackRock Aurora Portfolio
BlackRock Asset Allocation Portfolio+
BlackRock Balanced Capital Fund+
BlackRock Basic Value Fund
BlackRock Developing Capital Markets Fund
BlackRock Equity Dividend Fund
BlackRock EuroFund
BlackRock Focus Twenty Fund
BlackRock Focus Value Fund
BlackRock Fundamental Growth Fund
BlackRock Global Allocation Fund+
BlackRock Global Dynamic Equity Fund
BlackRock Global Financial Services Fund
BlackRock Global Growth Fund
BlackRock Global Opportunities Portfolio
BlackRock Global Resources Portfolio*
BlackRock Global Science & Technology Opportunities Portfolio
BlackRock Global SmallCap Fund
BlackRock Global Technology Fund
BlackRock Global Value Fund
BlackRock Healthcare Fund
BlackRock Health Sciences Opportunities Portfolio
BlackRock Index Equity Portfolio*
BlackRock International Fund
BlackRock International Index Fund
BlackRock International Opportunities Portfolio*
BlackRock International Value Fund
BlackRock Investment Trust
BlackRock Large Cap Core Fund
BlackRock Large Cap Growth Fund
BlackRock Large Cap Value Fund
BlackRock Latin America Fund
BlackRock Legacy Portfolio
BlackRock Mid-Cap Growth Equity Portfolio
BlackRock Mid-Cap Value Equity Portfolio
BlackRock Mid Cap Value Opportunities Fund
BlackRock Natural Resources Trust
BlackRock Pacific Fund
BlackRock Small Cap Core Equity Portfolio
BlackRock Small Cap Growth Equity Portfolio
BlackRock Small Cap Growth Fund II
BlackRock Small Cap Index Fund
BlackRock Small Cap Value Equity Portfolio*
BlackRock Small/Mid-Cap Growth Portfolio
BlackRock S&P 500 Index Fund
BlackRock U.S. Opportunities Portfolio
BlackRock Utilities and Telecommunications Fund
BlackRock Value Opportunities Fund
Fixed Income Portfolios
BlackRock Bond Fund
BlackRock Enhanced Income Portfolio
BlackRock GNMA Portfolio
BlackRock Government Income Portfolio
BlackRock High Income Fund
BlackRock High Yield Bond Portfolio
BlackRock Inflation Protected Bond Portfolio
BlackRock Intermediate Bond Portfolio
BlackRock Intermediate Bond Portfolio II
BlackRock Intermediate Government Bond Portfolio
BlackRock International Bond Portfolio
BlackRock Low Duration Bond Portfolio
BlackRock Managed Income Portfolio
BlackRock Real Investment Fund
BlackRock Short-Term Bond Fund
BlackRock Total Return Portfolio
BlackRock Total Return Portfolio II
BlackRock World Income Fund
Municipal Bond Portfolios
BlackRock AMT-Free Municipal Bond Portfolio
BlackRock California Insured Municipal Bond Fund
BlackRock Delaware Municipal Bond Portfolio
BlackRock Florida Municipal Bond Fund
BlackRock High Yield Municipal Fund
BlackRock Intermediate Municipal Fund
BlackRock Kentucky Municipal Bond Portfolio
BlackRock Municipal Insured Fund
BlackRock National Municipal Fund
BlackRock New Jersey Municipal Bond Fund
BlackRock New York Municipal Bond Fund
BlackRock Ohio Municipal Bond Portfolio
BlackRock Pennsylvania Municipal Bond Fund
BlackRock Short-Term Municipal Fund
Money Market Portfolios
BlackRock Money Market Portfolio
BlackRock Municipal Money Market Portfolio@
BlackRock NC Municipal MM Portfolio@
BlackRock NJ Municipal MM Portfolio@
BlackRock OH Municipal MM Portfolio@
BlackRock PA Municipal MM Portfolio@
BlackRock Summit Cash Reserves Fund*
BlackRock U.S. Treasury MM Portfolio
BlackRock VA Municipal MM Portfolio@
* See the prospectus for information on specific limitations on investments
in the fund.
+ Mixed asset fund.
@ Tax-exempt fund.
BlackRock mutual funds are distributed by BlackRock Distributors, Inc. You
should consider the investment objectives, risks, charges and expenses of the
funds under consideration carefully before investing. Each fund's prospectus
contains this and other information and is available at www.blackrock.com or by
calling 800-882-0052 or from your financial advisor. The prospectus should be
read carefully before investing.
BLACKROCK CORE PRINCIPAL PROTECTED FUND OCTOBER 31, 2006 47
This report is transmitted to shareholders only. It is not authorized for use as
an offer of sale or a solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past performance
results shown in this report should not be considered a representation of future
performance. Investment 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.
BlackRock Core Principal Protected Fund
Of BlackRock Principal Protected Trust
P.O. Box 9011
Princeton, NJ 08543-9011
BLACKROCK
#CPP-10/06
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 12 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
BlackRock Core Principal Protected Fund of BlackRock Principal
Protected Trust
(a) Audit Fees - Fiscal Year Ending October 31, 2006 - $26,900
Fiscal Year Ending October 31, 2005 - $26,500
(b) Audit-Related Fees - Fiscal Year Ending October 31, 2006 - $0
Fiscal Year Ending October 31, 2005 - $0
(c) Tax Fees - Fiscal Year Ending October 31, 2006 - $6,000
Fiscal Year Ending October 31, 2005 - $5,700
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending October 31, 2006 - $0
Fiscal Year Ending October 31, 2005 - $0
Master Large Cap Core Portfolio of Master Large Cap Series Trust
(a) Audit Fees - Fiscal Year Ending October 31, 2006 - $36,000
Fiscal Year Ending October 31, 2005 - $35,000
(b) Audit-Related Fees - Fiscal Year Ending October 31, 2006 - $10,400
Fiscal Year Ending October 31, 2005 - $0
The nature of the services include merger related fees paid by the
Adviser
(c) Tax Fees - Fiscal Year Ending October 31, 2006 - $9,200
Fiscal Year Ending October 31, 2005 - $8,700
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending October 31, 2006 - $0
Fiscal Year Ending October 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 October 31, 2006 - $3,206,783
Fiscal Year Ending October 31, 2005 - $6,277,749
(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 - Not Applicable
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) - As of September 29, 2006, with the conclusion of the combination of
Merrill Lynch's asset management business with BlackRock, the registrant
was migrated to BlackRock's trading and compliance monitoring systems,
and various personnel changes occurred. In conjunction with these
business improvements, there were no changes in the registrants internal
control over financial reporting (as defined in Rule 30a-3(d) under Act
(17 CFR 270.30a-3(d)) that occurred during the last fiscal half-year of
the period covered by this report that has materially affected, or is
reasonably likely to 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 Core Principal Protected Fund of BlackRock Principal Protected Trust
and Master Large Cap Core Portfolio of Master Large Cap Series Trust
By: /s/ Robert C. Doll, Jr.
----------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Core Principal Protected Fund of BlackRock Principal Protected
Trust and Master Large Cap Core Portfolio of Master Large Cap Series Trust
Date: January 3, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
----------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Core Principal Protected Fund of BlackRock Principal Protected
Trust and Master Large Cap Core Portfolio of Master Large Cap Series Trust
Date: January 3, 2007
By: /s/ Donald C. Burke
----------------------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock Core Principal Protected Fund of BlackRock Principal Protected
Trust and Master Large Cap Core Portfolio of Master Large Cap Series Trust
Date: January 3, 2007