UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21162
Name of Fund: BlackRock Basic Value Principal Protected Fund
of BlackRock Principal Protected Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock Basic Value Principal Protected Fund of BlackRock
Principal Protected Trust, 800 Scudders Mill Road, Plainsboro, NJ 08536.
Mailing address: P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 06/30/07
Date of reporting period: 07/01/06 - 12/31/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES
FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock Basic Value Principal BLACKROCK
Protected Fund
OF BLACKROCK PRINCIPAL PROTECTED TRUST
SEMI-ANNUAL REPORT | DECEMBER 31, 2006
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock Basic Value Principal Protected Fund
Portfolio Information as of December 31, 2006
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
Exxon Mobil Corp. .................................................... 4.9%
JPMorgan Chase & Co. ................................................. 3.6
International Business Machines Corp. ................................ 3.3
Citigroup, Inc. ...................................................... 2.9
Wells Fargo & Co. .................................................... 2.8
American International Group, Inc. ................................... 2.8
Morgan Stanley ....................................................... 2.6
Tyco International Ltd. .............................................. 2.5
The St. Paul Travelers Cos., Inc. .................................... 2.4
Time Warner, Inc. .................................................... 2.3
- --------------------------------------------------------------------------------
Percent of
Five Largest Industries* Net Assets
- --------------------------------------------------------------------------------
Insurance ........................................................... 10.2%
Diversified Financial Services ...................................... 8.5
Media ............................................................... 7.6
Oil, Gas & Consumable Fuels ......................................... 7.5
Pharmaceuticals ..................................................... 6.3
- --------------------------------------------------------------------------------
For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease.
Percent of
Investment Criteria Total Investments
- --------------------------------------------------------------------------------
Above-Average Yield ................................................ 32.3%
Below-Average Price/Earnings Ratio ................................. 30.4
Low Price-to-Book Value ............................................ 28.3
Special Situations ................................................. 6.5
Price-to-Cash Flow ................................................. 1.6
Low Price-to-Earnings Per Share .................................... 1.0
Other* ............................................................. (0.1)
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* Includes portfolio holdings in short-term investments and options.
2 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006
A Letter to Shareholders
Dear Shareholder
As 2007 begins, we are able to look back on 2006 as a volatile, but ultimately,
a positive year for most major markets. Returns for the annual and semi-annual
periods ended December 31, 2006 were as follows:
Total Returns as of December 31, 2006 6-month 12-month
==============================================================================================
U.S. equities (Standard & Poor's 500 Index) +12.74% +15.79%
- ----------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) + 9.38 +18.37
- ----------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) +14.69 +26.34
- ----------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) + 5.09 + 4.33
- ----------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 4.55 + 4.84
- ----------------------------------------------------------------------------------------------
High yield bonds (Credit Suisse High Yield Index) + 8.14 +11.92
- ----------------------------------------------------------------------------------------------
After raising the target short-term interest rate 17 times between June 2004 and
June 2006, the Federal Reserve Board (the Fed) finally opted to pause on August
8, 2006. This left the federal funds rate at 5.25%, where it remained through
year-end. In interrupting its two-year interest rate-hiking campaign, the Fed
acknowledged that economic growth is slowing, led by a downturn in the housing
market, but has maintained a cautionary view on inflation.
Overall, it was a good 12 months for U.S. equities, despite a significant
correction in the middle of the year that was largely triggered by rising
interest rates, inflation fears, elevated oil prices and geopolitical
uncertainties. Nevertheless, strong corporate earnings, abundant liquidity and
record merger-and-acquisition activity provided a solid backdrop for stocks.
Many international equity markets (with the notable exception of Japan)
performed even better, outpacing U.S. stocks for the fifth consecutive year.
Strength was especially notable in European equities and select emerging
markets.
Bonds experienced a more modest annual return than stocks. Interest rates and
bond yields moved higher for much of the year as bond prices, which move
opposite of yields, declined. Prices began to improve in the summer as the
economy showed signs of weakening and the Fed paused. Notably, the Treasury
curve remained inverted for much of 2006. The 10-year Treasury yield ended
December at 4.71%, well below the federal funds rate.
As we begin a new year, investors are left with a few key questions: Will the
U.S. economy achieve a soft landing, will the Fed reverse its prior policy and
cut interest rates, and how might these outcomes impact the investment climate.
As you navigate the uncertainties inherent in the financial markets, we
encourage you to start the year by reviewing your investment goals with your
financial professional and making portfolio changes, as needed. For more
reflection on 2006 and our thoughts on the year ahead, please ask your financial
professional for a copy of "What's Ahead in 2007: An Investment Perspective," or
view it online at www.blackrock.com/funds. We thank you for trusting BlackRock
with your investment assets, and we look forward to continuing to serve you in
the new year and beyond.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Trustee
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006 3
A Discussion With Your Fund's Portfolio Manager
With its equity allocation at 100% of net assets throughout the period,
the Fund was successfully able to meet its primary objective of preserving
investor principal while also providing solid capital appreciation for
shareholders.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended December 31, 2006, BlackRock Basic Value
Principal Protected Fund's (formerly Merrill Lynch Basic Value Principal
Protected Fund) Institutional, Investor A, Investor B and Investor C Shares had
total returns of +15.44%, +15.27%, +14.82% and +14.78%, 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 outperformed the +12.74% return of the Standard & Poor's 500 (S&P 500)
Index, the +13.40% return of the S&P 500 Citigroup Value Index and the +9.29%
average return of the Lipper Mixed-Asset Target Allocation Growth Funds
category. (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 six-month period, the Fund's equity allocation
remained at 100% of net assets. Accordingly, the fixed income allocation was 0%.
This proved advantageous as stocks significantly outperformed bonds, as measured
by the +5.09% return of the Lehman Brothers Aggregate Bond Index.
As the six-month period began, the market was recovering from a far-reaching
correction that sent the average U.S. stock 12% lower. It was the first
double-digit correction for U.S. equity markets in nearly four years. Areas of
the market that had suffered most were those that had done the best in the
preceding few years, particularly materials and energy stocks. The pullback
could be attributed to several factors, but primarily, it appeared that the
lagged effects of higher interest rates and oil prices were finally taking their
toll on the economy and stock prices. In addition, a resurgence of inflation
fears had prompted the Federal Reserve Board (the Fed) to continue its interest
rate tightening campaign through June.
In August, the Fed finally ended its two-year streak of interest rate increases.
Oil prices, after reaching an all-time high near $78 per barrel in July, also
began to recede and ended the year where they started -- at $61 per barrel.
Stocks generally climbed back above the levels they reached prior to the
market's retrenchment. Once the bottom was hit, a different collection of
companies started to outperform those that had been the market leaders. From
June to year-end, it was large cap, multinational companies that dominated the
market. Valuations on these big names had become incredibly attractive from a
risk-reward standpoint, prompting us to increase our exposure. This move proved
advantageous, as many of our top performers during the six-month period were
just those types of companies: International Business Machines Corp. (with a
market capitalization of $150 billion), Morgan Stanley ($85 billion), Exxon
Mobil Corp. ($420 billion), Comcast Corp. ($90 billion), McDonald's Corp. ($55
billion), Unilever NV ($45 billion) and Time Warner, Inc. ($90 billion).
For the most part, Fund performance during the period was driven by favorable
security selection. However, from a sector perspective, we saw very strong
results in industrials, led by defense company Raytheon Co. and another
safehaven, General Electric Co. Both of these stocks began to perform
particularly well at the end of the year as investors started rotating into
large, stable companies that could offer consistent earnings. Other stocks that
contributed meaningfully to relative performance were Baxter International, Inc.
in health care, and Interpublic Group of Cos., Inc. in consumer discretionary.
What changes were made to the portfolio during the 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 period, the portfolio remained fully invested in
equities.
Within the equity portfolio, we increased our emphasis on large-cap,
multinational names, but still maintained exposure to some of the smaller,
cyclically oriented sectors and names that we believe continue to have
tremendous potential. While the economy has slowed somewhat, it remains
reasonably resilient and should continue to benefit these types of companies. We
view the current economic environment as a "Goldilocks" scenario (not too hot,
not too cold). As such, we believe it makes sense to have representation in the
more stable names that can benefit in a "not too hot" environment as well as the
smaller, high-growth potential companies that can perform well under a "not too
cold" scenario.
4 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006
In general, we continued to de-emphasize the energy sector as profit-taking
opportunities became available. We had been overweight in energy from the middle
of 2002 through the summer of 2005, when Hurricane Katrina ravaged the Gulf
Coast. Around that time, we began to move our energy exposure toward neutral in
anticipation of a slowing economy and the resultant fall off in demand for oil
and gas. We continue to see select opportunities in energy, but as value
investors, we believe other areas of the market offer more attractive valuations
and compelling growth prospects.
One such area is health care. During the past year, we added positions in
Johnson & Johnson, Pfizer, Inc., Schering-Plough Corp., Baxter International and
GlaxoSmithKline Plc. Last year was the first since the mid-1990s that we have
been overweight in health care, a reflection of the attractive fundamentals in
this industry group. In prior years, the health care industry has had to grapple
with a lack of new blockbuster products to offset drug patent expirations and
government pressures on pharmaceutical pricing, among other issues. It offered
little value compared to other sectors of the market. This is no longer the
case, as valuations are very appealing and company managements are taking steps
to control costs via restructuring and cost-saving initiatives. In addition,
earnings estimates for pharmaceutical companies are increasing for the first
time in a long time.
Another sector we continue to favor is information technology (IT). Earnings
estimates for the first half of 2007 indicate that IT is expected to be the
fastest-growing sector in the S&P 500. Whereas earnings estimates for energy
companies are down for the first half of the year, IT estimates are up
double-digit percentages. We have seen more disinvestment than investment in IT
companies since the post-Y2K bubble. However, with productivity figures and the
economy slowing somewhat for the first time in several years, we think that
spending on technology will increase. Arguably, there is no better avenue for
the advancement of worker productivity than through IT. Other notable happenings
in the IT industry include a new product cycle from Microsoft Corp. (that is,
Vista), as well as some exciting innovations in home entertainment, including
flat panel technology, high-definition TV and PC on TV. In keeping with our
favorable view of the sector, we increased exposure to Intel Corp., Motorola,
Inc. and Sony Corp. during the six-month period ended December 31, 2006.
How would you characterize the Fund's position at the close of the period?
As of December 31, 2006, the portfolio remained 100% invested in equities.
Compared to the S&P 500 Citigroup Value Index, the Fund ended the period
overweight in energy, consumer staples, IT, health care and consumer
discretionary. It had underweight positions in financials, utilities,
industrials, materials and telecommunication services.
The equity market enjoyed a very healthy end-of-year rally. We believe the Fed's
policy, to date, has struck the proper balance of fending off inflation while
allowing the economic recovery to continue at a healthy pace. A favorable
economic backdrop has led to healthy corporate profits, strong corporate balance
sheets and robust merger-and-acquisition (M&A) activity. We believe these
factors should remain in place, but are mindful that weakness in the housing
market could lead to a slower rate of growth for the economy in the future.
Against this backdrop, we continue to find that large-capitalization companies
offer a more compelling value proposition as we enter a potentially slower phase
of the economic recovery.
Overall, we do not expect the first half of 2007 to be very different from the
second half of 2006 and will continue to focus on companies with healthy balance
sheets and the ability to use free cash flow to buy back stock, raise dividends,
participate in M&A activity and invest in their businesses. We will pursue this
within the context of our value-oriented investment style, choosing companies
that we believe have the potential to offer shareholders significant value over
a three-year time horizon.
Kevin M. Rendino
Equity Portfolio Manager
January 11, 2007
- --------------------------------------------------------------------------------
Effective October 2, 2006, the Fund's Class A, Class B, Class C and Class I
Shares were redesignated Investor A, Investor B, Investor C and Institutional
Shares, respectively.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you would like a copy, free of charge, of the most recent annual or quarterly
report of Main Place Funding, LLC, the Warranty Provider, or its parent
corporation, Bank of America Corporation, please contact the Fund at
1-800-441-7762.
- --------------------------------------------------------------------------------
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 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.)
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.
Performance information reflects past performance and does not guarantee future
results. Current performance may be lower or higher than the performance data
quoted. Refer to www.blackrock.com to obtain performance data current to the
most recent month-end. Performance results do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Figures shown in each of the following tables assume reinvestment of all
dividends and capital gain distributions, if any, at net asset value on the
ex-dividend date. Investment return and principal value of shares will fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the different
levels of 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 December 31, 2006 Total Return Total Return Total Return
======================================================================================================
Institutional Shares* +15.44% +20.87% + 49.15%
- ------------------------------------------------------------------------------------------------------
Investor A Shares* +15.27 +20.58 + 47.62
- ------------------------------------------------------------------------------------------------------
Investor B Shares* +14.82 +19.73 + 43.03
- ------------------------------------------------------------------------------------------------------
Investor C Shares* +14.78 +19.68 + 43.02
- ------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index** + 5.09 + 4.33 + 17.68
- ------------------------------------------------------------------------------------------------------
S&P 500(R) Index*** +12.74 +15.79 + 73.23
- ------------------------------------------------------------------------------------------------------
S&P 500 Citigroup Value Index**** +13.40 +20.80 +101.38
- ------------------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Cumulative total investment
returns are based on changes in net asset values for the periods shown,
and assume reinvestment of all dividends and capital gains distributions
at net asset value on the ex-dividend date. The Fund's inception date is
11/13/02.
** This unmanaged market-weighted Index is comprised of investment grade
corporate bonds (rated BBB or better), mortgages and U.S. Treasury and
government agency issues with at least one year to maturity. Since
inception total return is from 11/13/02.
*** This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues), representing
about 75% of NYSE market capitalization and 30% of NYSE issues. Since
inception total return is from 11/13/02.
**** This unmanaged Index is designed to provide a comprehensive measure of
large cap U.S. equity "value" performance. It is an unmanaged float
adjusted market capitalization weighted index comprised of stocks
representing approximately half the market capitalization of the S&P 500
Index that have been identified as being on the value end of the
growth-value spectrum. Since inception total return is from 11/13/02.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
6 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 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 and Investor C Shares compared to growth of an investment
in the S&P 500 Index, the S&P 500/Citigroup Value Index and Lehman Brothers
Aggregate Bond Index. Values are from November 13, 2002 through December 2006:
S&P 500/ Lehman Brothers
Institutional Investor A Investor B Investor C S&P 500 Citigroup Value Aggregate
Shares*+ Shares*+ Shares*+ Shares*+ Index++ Index+++ Bond Index++++
11/13/02** $10,000 $ 9,475 $10,000 $10,000 $10,000 $10,000 $10,000
12/02 $10,053 $ 9,525 $10,043 $10,043 $ 9,994 $10,227 $10,138
12/03 $11,474 $10,842 $11,338 $11,344 $12,860 $13,332 $10,554
12/04 $12,101 $11,406 $11,842 $11,842 $14,260 $15,335 $11,012
12/05 $12,339 $11,600 $11,946 $11,950 $14,960 $16,671 $11,279
12/06 $14,915 $13,987 $14,103 $14,302 $17,323 $20,138 $11,768
* Assuming maximum sales charge, if any, transaction costs and other
operating expenses, including advisory fees.
** Commencement of operations.
+ The Fund invests primarily in common stocks and in U.S. Treasury bonds,
including zero coupon bonds.
++ This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues) representing
about 75% of NYSE market capitalization and 30% of NYSE issues.
+++ This unmanaged Index is designed to provide a comprehensive measure of
large-cap U.S. equity "value" performance. It is an unmanaged float
adjusted market capitalization weighted index comprised of stocks
representing approximately half the market capitalization of the S&P 500
Index that have been identified as being on the value end of the
growth-value spectrum.
++++ This unmanaged market-weighted Index is comprised of investment grade
corporate bonds (rated BBB or better), mortgages and U.S. Treasury and
government agency issues with at least one year to maturity.
Past performance is not indicative of future results.
Average Annual Total Return
Return
================================================================================
Institutional Shares
================================================================================
One Year Ended 12/31/06 +20.87%
- --------------------------------------------------------------------------------
Inception (11/13/02)
through 12/31/06 +10.16
- --------------------------------------------------------------------------------
Return Without Return With
Sales Charge Sales Charge*
================================================================================
Investor A Shares
================================================================================
One Year Ended 12/31/06 +20.58% +14.25%
- --------------------------------------------------------------------------------
Inception (11/13/02)
through 12/31/06 + 9.89 + 8.46
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Investor B Shares+
================================================================================
One Year Ended 12/31/06 +19.73% +15.23%
- --------------------------------------------------------------------------------
Inception (11/13/02)
through 12/31/06 + 9.05 + 8.68
- --------------------------------------------------------------------------------
* Assuming maximum sales charge of 5.25%.
+ Maximum contingent deferred sales charge is 4.50% and is reduced to 0%
after six years.
Return Return
Without CDSC With CDSC+++
================================================================================
Investor C Shares++
================================================================================
One Year Ended 12/31/06 +19.68% +18.68%
- --------------------------------------------------------------------------------
Inception (11/13/02)
through 12/31/06 + 9.05 + 9.05
- --------------------------------------------------------------------------------
++ Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
+++ Assuming payment of applicable contingent deferred sales charge.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 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 July 1, 2006 and held through
December 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 July 1, 2006 to
July 1, 2006 December 31, 2006 December 31, 2006
=============================================================================================================================
Actual
=============================================================================================================================
Institutional $1,000 $1,154.40 $ 9.08
- -----------------------------------------------------------------------------------------------------------------------------
Investor A $1,000 $1,152.70 $10.41
- -----------------------------------------------------------------------------------------------------------------------------
Investor B $1,000 $1,148.20 $14.46
- -----------------------------------------------------------------------------------------------------------------------------
Investor C $1,000 $1,147.80 $14.46
=============================================================================================================================
Hypothetical (5% annual return before expenses)**
=============================================================================================================================
Institutional $1,000 $1,016.47 $ 8.50
- -----------------------------------------------------------------------------------------------------------------------------
Investor A $1,000 $1,015.23 $ 9.75
- -----------------------------------------------------------------------------------------------------------------------------
Investor B $1,000 $1,011.44 $13.54
- -----------------------------------------------------------------------------------------------------------------------------
Investor C $1,000 $1,011.44 $13.54
- -----------------------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (1.69% for Institutional, 1.94% for Investor A, 2.70%
for Investor B and 2.70% for Investor C), multiplied by the average
account value over the period, multiplied by 182/365 (to reflect the
one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 365.
8 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006
Schedule of Investments as of December 31, 2006
Percent of
Industry Shares Held Common Stocks Value Net Assets
====================================================================================================================================
Above-Average Diversified Telecommunication Services 77,000 AT&T Inc. $ 2,752,750 1.5%
Yield Metals & Mining 98,500 Alcoa, Inc. 2,955,985 1.6
Capital Markets 100,400 The Bank of New York Co., Inc. 3,952,748 2.2
Diversified Telecommunication Services 59,200 BellSouth Corp. 2,788,912 1.5
Oil, Gas & Consumable Fuels 37,400 Chevron Corp. 2,750,022 1.5
Multi-Utilities 17,200 Dominion Resources, Inc. 1,442,048 0.8
Chemicals 63,100 E.I. du Pont de Nemours & Co. 3,073,601 1.7
Oil, Gas & Consumable Fuels 115,500 Exxon Mobil Corp. 8,850,765 4.9
Industrial Conglomerates 99,300 General Electric Co. 3,694,953 2.0
Food Products 62,200 General Mills, Inc. 3,582,720 2.0
Pharmaceuticals 50,500 GlaxoSmithKline Plc (b) 2,664,380 1.5
Aerospace & Defense 56,900 Honeywell International, Inc. 2,574,156 1.4
Diversified Financial Services 135,432 JPMorgan Chase & Co. 6,541,366 3.6
Pharmaceuticals 32,500 Johnson & Johnson 2,145,650 1.2
Pharmaceuticals 142,400 Pfizer, Inc. 3,688,160 2.0
Electric Utilities 46,500 The Southern Co. 1,713,990 1.0
Diversified Telecommunication Services 76,700 Verizon Communications, Inc. 2,856,308 1.6
Pharmaceuticals 3,700 Wyeth 188,404 0.1
--------------------------
58,216,918 32.1
====================================================================================================================================
Below-Average Insurance 30,200 The Allstate Corp. 1,966,322 1.1
Price/Earnings Insurance 70,200 American International Group, Inc. 5,030,532 2.8
Ratio Diversified Financial Services 68,156 Bank of America Corp. 3,638,849 2.0
Health Care Equipment & Supplies 85,200 Baxter International, Inc. 3,952,428 2.2
Food Products 8,700 Cadbury Schweppes Plc (b) 373,491 0.2
Diversified Financial Services 94,900 Citigroup, Inc. 5,285,930 2.9
Beverages 111,040 Coca-Cola Enterprises, Inc. 2,267,437 1.2
Oil, Gas & Consumable Fuels 10,900 Consol Energy, Inc. 350,217 0.2
Oil, Gas & Consumable Fuels 10,700 Devon Energy Corp. 717,756 0.4
Media 22,100 Gannett Co., Inc. 1,336,166 0.7
Insurance 38,100 Genworth Financial, Inc. Class A 1,303,401 0.7
Computers & Peripherals 57,500 Hewlett-Packard Co. 2,368,425 1.3
Media 4,870 Idearc, Inc. (a) 139,525 0.1
Semiconductors & Semiconductor Equipment 85,900 Intel Corp. 1,739,475 1.0
Household Durables 57,900 Koninklijke Philips Electronics NV 2,175,882 1.2
Food Products 33,900 Kraft Foods, Inc. 1,210,230 0.7
Hotels, Restaurants & Leisure 37,300 McDonald's Corp. 1,653,509 0.9
Capital Markets 57,500 Morgan Stanley 4,682,225 2.6
Aerospace & Defense 46,900 Northrop Grumman Corp. 3,175,130 1.8
Pharmaceuticals 113,200 Schering-Plough Corp. 2,676,048 1.5
Food Products 126,500 Unilever NV (b) 3,447,125 1.9
IT Services 350,900 Unisys Corp. (a) 2,751,056 1.5
Office Electronics 144,400 Xerox Corp. (a) 2,447,580 1.3
--------------------------
54,688,739 30.2
====================================================================================================================================
Low Price-to- Media 75,300 Comcast Corp. Special Class A (a) 3,153,564 1.7
Book Value Machinery 19,700 Deere & Co. 1,872,879 1.0
Semiconductors & Semiconductor Equipment 121,100 Fairchild Semiconductor
International, Inc. (a) 2,035,691 1.1
Energy Equipment & Services 56,400 GlobalSantaFe Corp. 3,315,192 1.8
Energy Equipment & Services 39,600 Halliburton Co. 1,229,580 0.7
Insurance 29,800 Hartford Financial Services
Group, Inc. 2,780,638 1.5
Household Products 54,000 Kimberly-Clark Corp. 3,669,300 2.0
Semiconductors & Semiconductor Equipment 256,900 LSI Logic Corp. (a) 2,312,100 1.3
Insurance 45,300 Marsh & McLennan Cos., Inc. 1,388,898 0.8
Communications Equipment 70,300 Motorola, Inc. 1,445,368 0.8
Aerospace & Defense 75,800 Raytheon Co. 4,002,240 2.2
Household Durables 31,400 Sony Corp. (b) 1,344,862 0.8
Insurance 79,034 The St. Paul Travelers Cos., Inc. 4,243,335 2.4
Computers & Peripherals 371,000 Sun Microsystems, Inc. (a) 2,010,820 1.1
Media 193,800 Time Warner, Inc. 4,220,964 2.3
Industrial Conglomerates 148,400 Tyco International Ltd. 4,511,360 2.5
Media 70,300 Walt Disney Co. 2,409,181 1.3
Commercial Banks 142,200 Wells Fargo & Co. 5,056,632 2.8
--------------------------
51,002,604 28.1
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006 9
Schedule of Investments (concluded)
Percent of
Industry Shares Held Common Stocks Value Net Assets
====================================================================================================================================
Low Price-to- Insurance 25,900 XL Capital Ltd. Class A $ 1,865,318 1.0%
Earnings Per
Share
====================================================================================================================================
Price-to-Cash Food & Staples Retailing 31,500 The Kroger Co. 726,705 0.4
Flow Communications Equipment 8,100 Nortel Networks Corp. (a) 216,513 0.1
Oil, Gas & Consumable Fuels 21,800 Peabody Energy Corp. 880,938 0.5
Wireless Telecommunication Services 57,100 Sprint Nextel Corp. 1,078,619 0.6
--------------------------
2,902,775 1.6
====================================================================================================================================
Special Semiconductors & Semiconductor Equipment 32,200 Applied Materials, Inc. 594,090 0.3
Situations Energy Equipment & Services 37,300 BJ Services Co. 1,093,636 0.6
Specialty Retail 87,700 The Gap, Inc. 1,710,150 0.9
Computers & Peripherals 60,700 International Business Machines
Corp. 5,897,005 3.3
Media 201,500 Interpublic Group of Cos., Inc.
(a) 2,466,360 1.4
--------------------------
11,761,241 6.5
--------------------------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost--$129,948,557) 180,437,595 99.5
====================================================================================================================
Number of
Contracts Options Purchased
====================================================================================================================
Put Options Purchased 180 Baxter International, Inc.,
expiring January 2007 at USD 45 5,400 0.0
--------------------------------------------------------------------------------------------------------------------
Total Options Purchased
(Premiums Paid--$22,467) 5,400 0.0
====================================================================================================================
Total Investments
(Cost--$129,971,024) 180,442,995 99.5
====================================================================================================================
Options Written
====================================================================================================================
Call Options Written 180 Baxter International, Inc.,
expiring May 2007 at USD 50 (19,980) 0.0
342 Comcast Corp. Special Class A,
expiring January 2007 at USD 40 (77,634) (0.1)
100 Hartford Financial Services
Group, Inc., expiring March 2007
at USD 95 (24,500) 0.0
71 Northrop Grumman Corp.,
expiring February 2007 at USD 70 (5,680) 0.0
2,000 Wells Fargo & Co.,
expiring January 2007 at USD 35 (181,800) (0.1)
--------------------------------------------------------------------------------------------------------------------
Total Options Written
(Premiums Received--$456,027) (309,594) (0.2)
--------------------------------------------------------------------------------------------------------------------
Total Investments, Net of Options Written (Cost--$129,514,997*) 180,133,401 99.3
Other Assets Less Liabilities 1,199,135 0.7
--------------------------
Net Assets $ 181,332,536 100.0%
==========================
* The cost and unrealized appreciation (depreciation) of investments, as of
December 31, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost ............................................ $132,574,545
============
Gross unrealized appreciation ............................. $ 48,560,409
Gross unrealized depreciation ............................. (1,001,553)
------------
Net unrealized appreciation ............................... $ 47,558,856
============
(a) Non-income producing security.
(b) Depositary receipts.
o Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net Interest
Affiliate Activity Income
--------------------------------------------------------------------------
BlackRock Liquidity Series, LLC
Cash Sweep Series $(1,215,630) $ 67,763
--------------------------------------------------------------------------
o For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets.
See Notes to Financial Statements.
10 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006
Statement of Assets and Liabilities
As of December 31, 2006
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified cost --
$129,948,557) ..................................................................... $ 180,437,595
Options purchased, at value (premiums paid--$22,467) ............................... 5,400
Receivables:
Securities sold ................................................................. $ 6,675,819
Dividends ....................................................................... 259,791
Interest from affiliates ........................................................ 3,540 6,939,150
-------------
Prepaid expenses and other assets .................................................. 1,532
-------------
Total assets ....................................................................... 187,383,677
-------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Options written, at value (premiums received--$456,027) ............................ 309,594
Bank overdraft ..................................................................... 2,620,495
Payables:
Securities purchased ............................................................ 2,448,314
Beneficial interest redeemed .................................................... 273,059
Distributor ..................................................................... 130,222
Financial warranty fee .......................................................... 117,182
Investment adviser .............................................................. 93,907
Other affiliates ................................................................ 43,814
Distributions to shareholders ................................................... 135 3,106,633
-------------
Accrued expenses ................................................................... 14,419
-------------
Total liabilities .................................................................. 6,051,141
-------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets ......................................................................... $ 181,332,536
=============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Paid-in capital, unlimited shares of no par value authorized ....................... $ 131,356,471
Accumulated investment loss--net ................................................... $ (281,131)
Accumulated realized capital losses--net ........................................... (361,208)
Unrealized appreciation--net ....................................................... 50,618,404
-------------
Total accumulated earnings--net .................................................... 49,976,065
-------------
Net Assets ......................................................................... $ 181,332,536
=============
===================================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional--Based on net assets of $7,759,957 and 648,301
beneficial interest outstanding ................................................... $ 11.97
=============
Investor A--Based on net assets of $13,535,092 and 1,130,898
beneficial interest outstanding ................................................... $ 11.97
=============
Investor B--Based on net assets of $94,776,772 and 7,911,629
beneficial interest outstanding ................................................... $ 11.98
=============
Investor C--Based on net assets of $65,260,715 and 5,443,127
beneficial interest outstanding ................................................... $ 11.99
=============
See Notes to Financial Statements.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006 11
Statement of Operations
For the Six Months Ended December 31, 2006
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends (net of $19,201 foreign withholding tax) ................................. $ 1,990,435
Interest from affiliates ........................................................... 67,763
-------------
Total income ....................................................................... 2,058,198
-------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Financial warranty fee ............................................................. $ 726,559
Investment advisory fees ........................................................... 582,242
Service and distribution fees--Investor B .......................................... 480,182
Service and distribution fees--Investor C .......................................... 316,743
Transfer agent fees--Investor B .................................................... 47,947
Accounting services ................................................................ 46,568
Transfer agent fees--Investor C .................................................... 32,266
Professional fees .................................................................. 26,162
Printing and shareholder reports ................................................... 25,677
Custodian fees ..................................................................... 14,444
Service fees--Investor A ........................................................... 13,085
Trustees' fees and expenses ........................................................ 10,477
Transfer agent fees--Investor A .................................................... 4,486
Transfer agent fees--Institutional ................................................. 3,266
Pricing fees ....................................................................... 586
Other .............................................................................. 8,639
-------------
Total expenses ..................................................................... 2,339,329
-------------
Investment loss--net ............................................................... (281,131)
-------------
===================================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ................................................................ 6,385,626
Options written--net ............................................................ (149,292) 6,236,334
-------------
Change in unrealized appreciation/depreciation on:
Investments--net ................................................................ 18,821,797
Option written--net ............................................................. 158,825 18,980,622
-------------------------------
Total realized and unrealized gain--net ............................................ 25,216,956
-------------
Net Increase in Net Assets Resulting from Operations ............................... $ 24,935,825
=============
See Notes to Financial Statements.
12 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 2006 2006
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment loss--net ............................................................... $ (281,131) $ (829,393)
Realized gain--net ................................................................. 6,236,334 11,901,266
Change in unrealized appreciation/depreciation--net ................................ 18,980,622 5,264,446
-------------------------------
Net increase in net assets resulting from operations ............................... 24,935,825 16,336,319
-------------------------------
===================================================================================================================================
Distributions to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Realized gain--net:
Institutional ................................................................... (670,861) (456,885)
Investor A ...................................................................... (1,149,543) (330,265)
Investor B ...................................................................... (6,788,916) (4,018,149)
Investor C ...................................................................... (4,676,490) (2,584,549)
-------------------------------
Net decrease in net assets resulting from distributions to shareholders ............ (13,285,810) (7,389,848)
-------------------------------
===================================================================================================================================
Beneficial Interest Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from beneficial interest transactions ........... (9,583,158) (44,168,092)
-------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ............................................ 2,066,857 (35,221,621)
Beginning of period ................................................................ 179,265,679 214,487,300
-------------------------------
End of period* ..................................................................... $ 181,332,536 $ 179,265,679
===============================
* Accumulated investment loss--net .............................................. $ (281,131) --
===============================
See Notes to Financial Statements.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006 13
Financial Highlights
Institutional
----------------------------------------------------------------------
For the
For the Period
The following per share data Six Months For the Year Ended Nov. 13,
and ratios have been derived Ended June 30, 2002+ to
from information provided in Dec. 31, --------------------------------------- June 30,
the financial statements. 2006 2006 2005 2004 2003
=================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 11.35 $ 10.90 $ 11.53 $ 10.55 $ 10.00
---------------------------------------------------------------------
Investment income--net ................. .01* .06* .09* .08* .08
Realized and unrealized gain--net ...... 1.73 .93 .06 1.03 .48
---------------------------------------------------------------------
Total from investment operations ....... 1.74 .99 .15 1.11 .56
---------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. -- -- -- (.13) (.01)
Realized gain--net .................. (1.12) (.54) (.78) -- --
---------------------------------------------------------------------
Total dividends and distributions ...... (1.12) (.54) (.78) (.13) (.01)
---------------------------------------------------------------------
Net asset value, end of period ......... $ 11.97 $ 11.35 $ 10.90 $ 11.53 $ 10.55
=====================================================================
=================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 15.44%@@ 9.22% 1.22% 10.64% 5.63%@@
=====================================================================
=================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------
Expenses ............................... 1.69%@ 1.69% 1.68% 1.75% 1.80%@
=====================================================================
Investment income--net ................. .61%@ .52% .82% .73% 1.08%@
=====================================================================
=================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 7,760 $ 7,886 $ 10,503 $ 15,576 $ 21,877
=====================================================================
Portfolio turnover ..................... 11.87% 64.93% 64.69% 87.57% 107.66%
=====================================================================
Investor A
----------------------------------------------------------------------
For the
For the Period
The following per share data Six Months For the Year Ended Nov. 13,
and ratios have been derived Ended June 30, 2002+ to
from information provided in Dec. 31, --------------------------------------- June 30,
the financial statements. 2006 2006 2005 2004 2003
=================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 11.34 $ 10.88 $ 11.52 $ 10.53 $ 10.00
---------------------------------------------------------------------
Investment income--net ................. .02* .03* .06* .06* .05
Realized and unrealized gain--net ...... 1.70 .93 .06 1.03 .49
---------------------------------------------------------------------
Total from investment operations ....... 1.72 .96 .12 1.09 .54
---------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. -- -- -- (.10) (.01)
Realized gain--net .................. (1.09) (.50) (.76) -- --
---------------------------------------------------------------------
Total dividends and distributions ...... (1.09) (.50) (.76) (.10) (.01)
---------------------------------------------------------------------
Net asset value, end of period ......... $ 11.97 $ 11.34 $ 10.88 $ 11.52 $ 10.53
=====================================================================
=================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 15.27%@@ 8.93% .96% 10.44% 5.43%@@
=====================================================================
=================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------
Expenses ............................... 1.94%@ 1.94% 1.93% 2.00% 2.05%@
=====================================================================
Investment income--net ................. .36%@ .27% .57% .51% .83%@
=====================================================================
=================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 13,535 $ 6,637 $ 8,735 $ 13,022 $ 22,090
=====================================================================
Portfolio turnover ..................... 11.87% 64.93% 64.69% 87.57% 107.66%
=====================================================================
* Based on average shares outstanding.
** Total investment returns exclude the effect of sales charges.
+ Commencement of operations.
@ Annualized.
@@ Aggregate total investment return.
See Notes to Financial Statements.
14 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006
Financial Highlights (concluded)
Investor B
----------------------------------------------------------------------
For the
For the Period
The following per share data Six Months For the Year Ended Nov. 13,
and ratios have been derived Ended June 30, 2002+ to
from information provided in Dec. 31, --------------------------------------- June 30,
the financial statements. 2006 2006 2005 2004 2003
=================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 11.23 $ 10.77 $ 11.45 $ 10.48 $ 10.00
---------------------------------------------------------------------
Investment income (loss)--net .......... (.02)* (.05)* (.02)* (.03)* --++
Realized and unrealized gain--net ...... 1.68 .91 .05 1.03 .49
---------------------------------------------------------------------
Total from investment operations ....... 1.66 .86 .03 1.00 .49
---------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. -- -- -- (.03) (.01)
Realized gain--net .................. (.91) (.40) (.71) -- --
---------------------------------------------------------------------
Total dividends and distributions ...... (.91) (.40) (.71) (.03) (.01)
---------------------------------------------------------------------
Net asset value, end of period ......... $ 11.98 $ 11.23 $ 10.77 $ 11.45 $ 10.48
=====================================================================
=================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 14.82%@@ 8.12% .19% 9.58% 4.93%@@
=====================================================================
=================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------
Expenses ............................... 2.70%@ 2.70% 2.70% 2.76% 2.82%@
=====================================================================
Investment income (loss)--net .......... (.40%)@ (.49%) (.20%) (.30%) .07%@
=====================================================================
=================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 94,777 $ 100,584 $ 117,140 $ 144,787 $ 159,057
=====================================================================
Portfolio turnover ..................... 11.87% 64.93% 64.69% 87.57% 107.66%
=====================================================================
Investor C
----------------------------------------------------------------------
For the
For the Period
The following per share data Six Months For the Year Ended Nov. 13,
and ratios have been derived Ended June 30, 2002+ to
from information provided in Dec. 31, --------------------------------------- June 30,
the financial statements. 2006 2006 2005 2004 2003
=================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 11.25 $ 10.78 $ 11.45 $ 10.48 $ 10.00
---------------------------------------------------------------------
Investment income (loss)--net .......... (.02)* (.05)* (.02)* (.03)* --++
Realized and unrealized gain--net ...... 1.67 .92 .06 1.03 .49
---------------------------------------------------------------------
Total from investment operations ....... 1.65 .87 .04 1.00 .49
---------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. -- -- -- (.03) (.01)
Realized gain--net .................. (.91) (.40) (.71) -- --
---------------------------------------------------------------------
Total dividends and distributions ...... (.91) (.40) (.71) (.03) (.01)
---------------------------------------------------------------------
Net asset value, end of period ......... $ 11.99 $ 11.25 $ 10.78 $ 11.45 $ 10.48
=====================================================================
=================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 14.78%@@ 8.15% .23% 9.54% 4.93%@@
=====================================================================
=================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------
Expenses ............................... 2.70%@ 2.70% 2.70% 2.76% 2.82%@
=====================================================================
Investment income (loss)--net .......... (.40%)@ (.49%) (.20%) (.29%) .06%@
=====================================================================
=================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 65,261 $ 64,159 $ 78,110 $ 104,840 $ 129,392
=====================================================================
Portfolio turnover ..................... 11.87% 64.93% 64.69% 87.57% 107.66%
=====================================================================
* Based on average shares outstanding.
** Total investment returns exclude the effect of sales charges.
+ Commencement of operations.
++ Amount is less than $.01 per share.
@ Annualized.
@@ Aggregate total investment return.
See Notes to Financial Statements.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006 15
Notes to Financial Statements
1. Significant Accounting Policies:
Effective September 29, 2006, Merrill Lynch Basic Value Principal Protected Fund
(the "ML Fund") and Merrill Lynch Principal Protected Trust, which the ML Fund
is part of, were renamed BlackRock Basic Value Principal Protected Fund (the
"Fund") and BlackRock Principal Protected Trust (the "Trust"), respectively.
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's financial statements are prepared in conformity with U.S. generally
accepted accounting principles, which may require the use of management accruals
and estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. The Fund offers
multiple classes of shares. 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. Shares of the Fund were offered during the
initial offering period but will not be offered during the Guarantee Period from
November 13, 2002 through November 13, 2009 (the "Guarantee Maturity Date"),
except in connection with reinvestment of dividends and distributions. The Fund
will be offered on a continuous basis after this date. During the Guarantee
Period, the Fund will seek long-term growth of capital to the extent permitted
by a strategy that seeks to use investments in common stocks, U.S. Treasury
bonds, including zero coupon bonds, and other fixed income instruments, to
protect the original principal value of the Fund (less redemptions, cash
distributions and dividends and extraordinary expenses) at the Guarantee
Maturity Date.
The Trust, on behalf of the Fund, has entered into a Financial Warranty
Agreement with Main Place Funding, LLC (the "Warranty Provider"). The Financial
Warranty Agreement is intended to make sure that on the Guarantee Maturity Date,
each shareholder of the Fund will be entitled to redeem his or her shares for an
amount no less than the initial value of that shareholder's account (less
expenses and sales charges not covered by the Financial Warranty Agreement),
provided that all dividends and distributions received from the Fund have been
reinvested and no shares have been redeemed (the "Guaranteed Amount"). The Fund
will pay to the Warranty Provider, under the Financial Warranty Agreement, an
annual fee equal to .80% of the Fund's average daily net assets during the
Guarantee Period. If the value of the Fund's assets on the Guarantee Maturity
Date is insufficient to result in the value of each shareholder's account being
at least equal to the shareholder's Guaranteed Amount, the Warranty Provider
will pay the Fund an amount sufficient to make sure that each shareholder's
account can be redeemed for an amount equal to his or her Guaranteed Amount.
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
certain changes to the Investor A distribution plan). Income, expenses (other
than expenses attributable to a specific class), and realized and unrealized
gains and losses are allocated daily to each class based on its relative net
assets. The following is a summary of significant accounting policies followed
by the Fund.
(a) Valuation of investments -- Equity securities that are held by the Fund that
are traded on stock exchanges or the NASDAQ Global Market are valued at the last
sale price or official close price on the exchange, as of the close of business
on the day the securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available asked price
for short positions. In cases where equity securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Trustees of the Trust.
Long positions traded in the over-the-counter ("OTC") market, NASDAQ Capital
Market 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 the OTC market are
valued at the last available asked price. Portfolio securities that are traded
both in the OTC market and on a stock exchange are valued according to the
broadest and most representative market.
Debt securities are traded primarily in the OTC markets and are valued at the
last available bid price in the OTC market or on the basis of values obtained by
a pricing service. Pricing services use valuation matrixes that incorporate both
dealer-supplied valuations and valuation models. The procedures of the pricing
service and its valuations are reviewed by the officers of the Fund under the
general direction of the Board
16 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006
Notes to Financial Statements (continued)
of Trustees. Such valuations and procedures will be reviewed periodically by the
Board of Trustees.
Options written or purchased are valued at the last sale price in the case of
exchange-traded options. Options traded in the OTC market are valued at the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by the
Fund from a pricing service or counterparty. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges. Obligations with remaining maturities
of 60 days or less are valued at amortized cost unless BlackRock Advisors, LLC
(the"Manager"), an indirect, wholly owned subsidiary of BlackRock, Inc.,
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 Trust
employs pricing services to provide certain securities prices for the Fund.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees of the Trust, including valuations furnished by the
pricing services retained by the Trust, 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 Trust's Board
of Trustees. 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 asset value of the Fund's shares are determined as of such times.
Foreign currency exchange rates will generally 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 Fund's net asset value. If events (for example, a company
announcement, market volatility or a natural disaster) occur during such periods
that are expected to materially affect the value of such securities, those
securities will be valued at their fair value as determined in good faith by the
Trust's Board of Trustees or by the Manager using a pricing service and/or
procedures approved by the Trust's Board of Trustees.
(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.
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 value of
the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is added to
(or deducted from) the basis of the security acquired or deducted from (or
added to) the proceeds of the security sold. When an option expires (or
the Fund enters into a closing transaction), the Fund realizes a gain or
loss on the option to the extent of the premiums received or paid (or gain
or loss to the extent the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
(c) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006 17
Notes to Financial Statements (continued)
at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
The Fund invests in foreign securities, which may involve a number of risk
factors and special considerations not present with investments in securities of
U.S. corporations.
(d) Income taxes -- It is the Fund's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
(e) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis.
(f) Dividends and distributions -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(g) Securities lending -- The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
(h) Bank overdraft -- The Fund recorded a bank overdraft, which resulted from
management estimates of available cash.
(i) Recent accounting pronouncements -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109."
FIN 48 prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity including mutual funds before being measured
and recognized in the financial statements. Adoption of FIN 48 is required for
the last net asset value calculation in the first required financial statement
reporting period for fiscal years beginning after December 15, 2006. The impact
on the Fund's financial statements, if any, is currently being assessed.
In 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 implications of
FAS 157. At this time, its impact on the Fund'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, 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 the Manager.
18 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006
Notes to Financial Statements (continued)
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 separate Distribution Agreements and Distribution Plans 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 .65% of the Fund's average daily net
assets. 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 ("service 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 ("BIM"), an affiliate of the Manager, under
which the Manager pays the Sub-Advisor for services it provides a monthly fee
that is a percentage 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 service and distribution fees. The fees are accrued daily and paid
monthly at annual rates based upon the average daily net assets of the shares as
follows:
- --------------------------------------------------------------------------------
Service Distribution
Fee Fee
- --------------------------------------------------------------------------------
Investor A .................................... .25% --
Investor B .................................... .25% .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 the Distributor, provides
account maintenance 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 Distributor and the
broker-dealers for providing shareholder and distribution-related services to
Investor B and Investor C shareholders.
For the six months ended December 31, 2006, MLPF&S received contingent deferred
sales charges of $52,521 and $373 relating to transactions in Investor B and
Investor C Shares, respectively. In addition, BDI received contingent deferred
sales charges of $1,215 relating to transactions in Investor C Shares.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to MLPF&S or its
affiliates. Pursuant to that order, the Fund 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 Fund, invest cash
collateral received by the Fund 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.
In addition, MLPF&S received $14,994 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended December
31, 2006.
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 six months ended December 31, 2006, the Fund reimbursed FAM and the
Manager $887 and $887, respectively, for certain accounting services.
Prior to September 29, 2006, certain officers and/or trustees of the Trust were
officers and/or directors of MLIM, FAM, FDS, PSI, FAMD, Merrill Lynch, 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.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006 19
Notes to Financial Statements (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended December 31, 2006 were $20,474,904 and $41,816,785, respectively.
Transactions in call options written for the six months ended December 31, 2006
were as follows:
- -------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- -------------------------------------------------------------------------------
Outstanding call options written,
beginning of period .............................. 1,000 $ 122,008
Options written .................................... 5,693 777,507
Options closed ..................................... (4,000) (443,488)
-----------------------
Outstanding call options written,
end of period .................................... 2,693 $ 456,027
=======================
4. Beneficial Interest Transactions:
Net decrease in net assets derived from beneficial interest transactions were
$9,583,158 and $44,168,092 for the six months ended December 31, 2006 and the
year ended June 30, 2006, respectively.
Transactions in beneficial interest for each class were as follows:
- -------------------------------------------------------------------------------
Institutional Shares for the Six Months Dollar
Ended December 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .............. 51,343 $ 607,387
Shares redeemed .............................. (97,552) (1,164,158)
-----------------------------
Net decrease ................................. (46,209) $ (556,771)
=============================
- -------------------------------------------------------------------------------
Institutional Shares for the Year Dollar
Ended June 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .............. 37,577 $ 412,219
Shares redeemed .............................. (306,492) (3,458,931)
-----------------------------
Net decrease ................................. (268,915) $ (3,046,712)
=============================
- -------------------------------------------------------------------------------
Investor A Shares for the Six Months Dollar
Ended December 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .............. 90,534 $ 1,071,777
Automatic conversion of shares ............... 663,179 7,911,721
Shares redeemed .............................. (208,083) (2,513,378)
-----------------------------
Net increase ................................. 545,630 $ 6,470,120
=============================
- -------------------------------------------------------------------------------
Investor A Shares for the Year Dollar
Ended June 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .............. 28,638 $ 314,157
Shares redeemed .............................. (246,507) (2,777,666)
-----------------------------
Net decrease ................................. (217,869) $ (2,463,509)
=============================
- -------------------------------------------------------------------------------
Investor B Shares for the Six Months Dollar
Ended December 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .............. 521,839 $ 6,178,577
Automatic conversion of shares ............... (670,485) (7,911,721)
Shares redeemed .............................. (896,159) (10,679,461)
-----------------------------
Net decrease ................................. (1,044,805) $(12,412,605)
=============================
- -------------------------------------------------------------------------------
Investor B Shares for the Year Dollar
Ended June 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .............. 341,017 $ 3,720,491
Shares redeemed .............................. (2,263,012) (25,163,001)
-----------------------------
Net decrease ................................. (1,921,995) $(21,442,510)
=============================
- -------------------------------------------------------------------------------
Investor C Shares for the Six Months Dollar
Ended December 31, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .............. 368,117 $ 4,362,187
Shares redeemed .............................. (629,747) (7,446,089)
-----------------------------
Net decrease ................................. (261,630) $ (3,083,902)
=============================
- -------------------------------------------------------------------------------
Investor C Shares for the Year Dollar
Ended June 30, 2006 Shares Amount
- -------------------------------------------------------------------------------
Shares issued to shareholders in
reinvestment of distributions .............. 224,208 $ 2,448,351
Shares redeemed .............................. (1,767,243) (19,663,712)
-----------------------------
Net decrease ................................. (1,543,035) $(17,215,361)
=============================
20 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006
Disclosure of Investment Advisory Agreement
BlackRock Investment Advisory Agreement -- Matters Considered by the Board
The following disclosure appeared in the June 30, 2006 Annual Report of the Fund
and is the discussion referred to in "New BlackRock Sub-Advisory Agreement --
Matters Considered by the Board" below. The term "Investment Adviser" as used
herein refers to Merrill Lynch Investment Managers, L.P.
In connection with the Transaction between Merrill Lynch and BlackRock, the
Trust's Board of Trustees considered a new investment advisory agreement (the
"New Investment Advisory Agreement") between the Trust and BlackRock Advisors,
Inc. or its successor ("BlackRock Advisors"). If the New Investment Advisory
Agreement is approved by the Trust's shareholders, it will become effective upon
the expected closing of the Transaction, which is expected in the third quarter
of 2006.
The Board discussed the New Investment Advisory Agreement at telephonic and
in-person meetings held during April and May 2006. The Board, including the
independent trustees, approved the New Investment Advisory Agreement at a
meeting held on May 10, 2006.
To assist the Board in its consideration of the New Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent trustees, through their independent legal counsel,
also requested and received additional information from Merrill Lynch and
BlackRock in connection with their consideration of the New Investment Advisory
Agreement. The additional information was provided in advance of the May 10,
2006 meeting. In addition, the independent trustees consulted with their counsel
and Trust counsel on numerous occasions, discussing, among other things, the
legal standards and certain other considerations relevant to the trustees'
deliberations.
At the Board meetings, the trustees discussed with Merrill Lynch management and
certain BlackRock representatives the Transaction, its strategic rationale and
BlackRock's general plans and intentions regarding the Trust. At these Board
meetings, representatives of Merrill Lynch and BlackRock made presentations to
and responded to questions from the Board. The trustees also inquired about the
plans for and anticipated roles and responsibilities of certain employees and
officers of the Investment Adviser and certain affiliates being transferred to
BlackRock in connection with the Transaction. The independent trustees of the
Board also conferred separately and with their counsel about the Transaction and
other matters related to the Transaction on a number of occasions, including in
connection with the April and May 2006 meetings. After the presentations and
after reviewing the written materials provided, the independent trustees met in
executive sessions with their counsel to consider the New Investment Advisory
Agreement.
In connection with the Board's review of the New 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 is not expected to be any diminution in the nature, quality and
extent of services provided to the Trust and its shareholders by BlackRock
Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm will enhance its ability to attract and retain talented
professionals;
o that the Trust should 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 has no present intention to alter any applicable expense
waivers or reimbursements currently in effect and, while it reserves the
right to do so in the future, it would seek the approval of the Board
before making any changes;
o that under the Transaction Agreement, Merrill Lynch and BlackRock have
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 Investment Adviser (or its affiliates), respectively; and
o that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they have a different financial
interest in the matters that were being considered than do Trust
shareholders.
The trustees considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006 21
Disclosure of Investment Advisory Agreement (continued)
o the potential benefits to Trust shareholders from being part of a combined
fund family with BlackRock-sponsored funds, including possible economies
of scale and access to investment opportunities;
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;
o the terms and conditions of the New Investment Advisory Agreement,
including the fact that the schedule of the Trust's total advisory fees
will not increase by virtue of the New Investment Advisory Agreement, but
will remain the same;
o that in November 2005, the Board had performed a full annual review of the
investment advisory agreement currently in effect for the Trust (the
"Current Investment Advisory Agreement") as required by the 1940 Act and
has determined that the Investment Adviser has the capabilities, resources
and personnel necessary to provide the advisory and administrative
services currently provided to the Trust; and that the advisory and/or
management fees paid by the Trust, taking into account any applicable
agreed-upon fee waivers and breakpoints, represent reasonable compensation
to the Investment Adviser in light of the services provided, the costs to
the 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 have considered relevant in the exercise of their reasonable
judgment; and
o that Merrill Lynch agreed to pay all expenses of the Trust in connection
with the Board's consideration of the New Investment Advisory Agreement
and related agreements and all costs of shareholder approval of the New
Investment Advisory Agreement and as a result the Trust would bear no
costs in obtaining shareholder approval of the New Investment Advisory
Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the New Investment Advisory Agreement, the Board assessed the
nature, scope and quality of the services to be provided to the Trust by the
personnel of BlackRock Advisors and its affiliates, including administrative
services, shareholder services, oversight of fund accounting, marketing services
and assistance in meeting legal and regulatory requirements. In its review of
the New Investment Advisory Agreement, the Board also considered a range of
information in connection with its oversight of the services to be provided by
BlackRock Advisors and its affiliates. Among the matters considered were: (a)
fees (in addition to management fees) to be paid to BlackRock Advisors and its
affiliates by the Trust; (b) Trust operating expenses paid to third parties; (c)
the resources devoted to and compliance reports relating to the Trust's
investment objective, policies and restrictions, and its compliance with its
Code of Ethics and BlackRock Advisors' compliance policies and procedures; and
(d) the nature, cost and character of non-investment management services to be
provided by BlackRock Advisors and its affiliates.
In the period prior to the Board meeting to consider renewal of the Current
Investment Advisory Agreement, the Board had requested and received materials
specifically relating to the Current Investment Advisory Agreement. These
materials included (a) information compiled by Lipper on the fees and expenses
and the investment performance of the Trust as compared to a comparable group of
funds as classified by Lipper; (b) a discussion by the Trust's portfolio
management team on investment strategies used by the Trust during its most
recent fiscal year; (c) information on the profitability to the Investment
Adviser of the Current Investment Advisory Agreement and other payments received
by the Investment Adviser and its affiliates from the Trust; and (d) information
provided by the Investment Adviser concerning services related to the valuation
and pricing of the Trust's portfolio holdings, allocation of brokerage fees, the
Trust's portfolio turnover statistics, and direct and indirect benefits to the
Investment Adviser and its affiliates from their relationship with the Trust.
In their deliberations, the trustees considered information received in
connection with their most recent continuation of the Current 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 New Investment Advisory Agreement. The trustees did not
identify any particular information that was all-important or controlling, and
each trustee attributed different weights to the various factors. The trustees,
including a majority of the independent trustees, concluded that the terms of
the New Investment Advisory Agreement are appropriate, that the fees to be paid
are reasonable in light of the services to be provided to the Trust, and that
the New Invest-
22 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006
ment Advisory Agreement should be approved and recommended to Trust
shareholders.
Nature, Quality and Extent of Services Provided -- The Board reviewed the
nature, extent and quality of services provided by the Investment Adviser,
including the investment advisory services and the resulting performance of the
Trust, as well as the nature, quality and extent of services expected to be
provided by BlackRock Advisors. The Board focused primarily on the Investment
Adviser's investment advisory services and the Trust's investment performance,
but also considered certain areas in which both the Investment Adviser and the
Trust receive services as part of the Merrill Lynch complex. The Board compared
the Trust's performance -- both including and excluding the effects of the
Trust's fees and expenses -- to the performance of a comparable group of mutual
funds, and the performance of a relevant index or combination of indexes. While
the Board reviews performance data at least quarterly, consistent with the
Investment Adviser's investment goals, the Board attaches more importance to
performance over relatively long periods of time.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the New Investment Advisory Agreement, the trustees
considered, among other things, the expected impact of the Transaction on the
operations, facilities, organization and personnel of BlackRock Advisors and how
it would affect the Trust; the ability of BlackRock Advisors to perform its
duties after the Transaction; and any anticipated changes to the current
investment and other practices of the Trust.
The trustees were given information with respect to the potential benefits to
the Trust and its shareholders from having access to BlackRock's state of the
art technology and risk management analytic tools, including the investment
tools provided under the BlackRock Solutions brand name.
The trustees were advised that, as a result of Merrill Lynch's equity interest
in BlackRock after the Transaction, the Trust will continue to be subject to
restrictions concerning certain transactions involving Merrill Lynch affiliates
(for example, transactions with a Merrill Lynch broker-dealer acting as
principal) absent revised or new regulatory relief. The trustees were advised
that a revision of existing regulatory relief with respect to these restrictions
was being sought from the Securities and Exchange Commission and were advised of
the possibility of receipt of such revised regulatory relief. There can be no
assurance that such relief will be obtained.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the trustees
determined that the nature and quality of services to be provided to the Trust
under the New Investment Advisory Agreement were expected to be as good as or
better than that provided under the Current Investment Advisory Agreement. It
was noted, however, that it is expected that there will be changes in personnel
following the Transaction and the combination of the operations of the
Investment Adviser and its affiliates with those of BlackRock. The trustees
noted that if current portfolio managers or other personnel cease to be
available, the Board would consider all available options, which could include
seeking the investment advisory or other services of BlackRock affiliates.
Accordingly, the trustees concluded that, overall, they were satisfied at the
present time with assurances from BlackRock and BlackRock Advisors as to the
expected nature, extent and quality of the services to be provided to the Trust
under the New Investment Advisory Agreement.
Costs of Services Provided and Profitability -- It was noted that, in
conjunction with the recent review of the Current Investment Advisory Agreement,
the trustees had received, among other things, a report from Lipper comparing
the Trust's fees, expenses and performance to those of a peer group selected by
Lipper, and information as to the fees charged by the Investment Adviser or its
affiliates to other registered investment company clients for investment
management services. The Board reviewed the Trust's contractual management fee
rate and actual management fee rate as a percentage of total assets at common
asset evels -- the actual rate includes advisory fees and the effects of any fee
waivers -- compared to the other funds in its Lipper category. They also
compared the Trust's total expenses to those of other comparable funds. The
information showed that the Trust had fees and expenses within the range of fees
and expenses of comparable funds. The Board noted that if all assets are
irreversibly allocated to the Protection Component under the terms of the
Trust's Warranty Agreement, the management fee will be reduced. The Board
concluded that the Trust's management fee and fee rate and overall expense ratio
are reasonable compared to those of other comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the New Investment Advisory Agreement, the trustees considered, among
other things, whether advisory fees or other expenses would change as a result
of the Transaction. Based on their review of the materials provided and the fact
that the New Investment Advisory Agreement is substantially similar to the
Current Investment
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006 23
Disclosure of Investment Advisory Agreement (concluded)
Advisory Agreement in all material respects, including the rate of compensation,
the trustees determined that the Transaction should not increase the total fees
payable, including any fee waivers and expense reimbursements, for advisory and
administrative services. The trustees noted that it was not possible to predict
with certainty New BlackRock's future profitability from its relationship with
the Trust.
The trustees discussed with BlackRock Advisors its general methodology to be
used in determining New BlackRock's profitability with respect to its
relationship with the Trust. The trustees noted that they expect to receive
profitability information from New BlackRock on at least an annual basis and
thus be in a position to evaluate whether any adjustments in the Trust's fees
and/or fee breakpoints would be appropriate.
Fees and Economies of Scale -- The Board considered the extent to which
economies of scale might be realized as the assets of the Trust increase and
whether there should be changes in the management fee rate or structure in order
to enable the Trust to participate in these economies of scale. The Board
determined that changes were not currently necessary and that the Trust
appropriately participated in these economies of scale.
In reviewing the Transaction, the trustees considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that the New Investment Advisory Agreement is
substantially similar to the Current Investment Advisory Agreement in all
material respects, including the rate of compensation, the trustees determined
that as a result of the Transaction, the Trust's total advisory fees would be no
higher than the fees under its Current Investment Advisory Agreement. The
trustees noted that in conjunction with their most recent deliberations
concerning the Current Investment Advisory Agreement, they had determined that
the total fees for advisory and administrative services for the Trust were
reasonable in light of the services provided. It was noted that in conjunction
with the recent review of the Current Investment Advisory Agreement, the
trustees had received, among other things, a report from Lipper comparing the
Trust's fees, expenses and performance to those of a peer group selected by
Lipper, and information as to the fees charged by the Investment Adviser to
other registered investment company clients for investment management services.
The trustees concluded that, because the rates for advisory fees for the Trust
would be no higher than its current fee rates, the proposed management fee
structure, including any fee waivers, was reasonable and that no additional
changes were currently necessary.
Fall-Out Benefits -- In evaluating the fall-out benefits to be received by
BlackRock Advisors under the New Investment Advisory Agreement, the trustees
considered whether the Transaction would have an impact on the fall-out benefits
received by the Investment Adviser by virtue of the Current Investment Advisory
Agreement. Based on their review of the materials provided, including materials
received in connection with their most recent approval or continuance of the
Current Investment Advisory Agreement, and their discussions with management of
the Investment Adviser and BlackRock, the trustees determined that those
benefits could include increased ability for BlackRock to distribute shares of
its funds and other investment products and to obtain research services using
portfolio transaction brokerage commissions. The trustees also considered
possible benefits stemming from the proposal that PFPC Financial Services, an
affiliate of BlackRock, serve as transfer agent for the Trust following the
Transaction. The trustees noted that any benefits were difficult to quantify
with certainty at this time, and indicated that they would continue to evaluate
them going forward.
Investment Performance -- The trustees considered investment performance for the
Trust. The trustees compared the Trust's performance -- both including and
excluding the effects of the Trust's fees and expenses -- to the performance of
a comparable group of mutual funds, and the performance of a relevant index or
combination of indexes. The comparative information received from Lipper showed
Trust performance at various levels within the range of performance of
comparable funds over different time periods. While the Board reviews
performance data at least quarterly, consistent with the Investment Adviser's
investment goals, the Board attaches more importance over relatively long
periods of time. The trustees believed the Trust's performance was satisfactory.
Also, the trustees took into account the investment performance of funds
currently advised by BlackRock Advisors. The Board considered comparative
information from Lipper which showed that the performance of the funds advised
by BlackRock Advisors was within the range of performance of comparable funds
over different time periods. The Board noted BlackRock's considerable investment
management experience and capabilities, but were unable to predict what effect,
if any, consummation of the Transaction would have on the future performance of
the Trust.
Conclusion -- After the independent trustees of the Trust deliberated in
executive session, the entire Board, including the independent trustees,
approved the New Investment Advisory Agreement, concluding that the advisory fee
rate was reasonable in relation to the services provided and that the
24 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006
New Investment Advisory Agreement was in the best interests of the shareholders.
In approving the New Investment Advisory Agreement, the Board noted that it
anticipated reviewing the continuance of the agreement in advance of the
expiration of the initial two-year period.
Contingent BlackRock Sub-Advisory Agreement -- Matters Considered by the Board
At the telephonic and in-person meetings held during April and May 2006 at which
the Board of Trustees discussed and approved the New Investment Advisory
Agreement, the Board, including the independent trustees, also considered a
contingent sub-advisory agreement (the "Contingent Sub-Advisory Agreement")
between the Investment Adviser and BlackRock Advisors (the "BlackRock
Sub-Adviser"). The Contingent Sub-Advisory Agreement is intended to ensure that
the Trust operates with efficient portfolio management services until the
closing of the Transaction, in the event that the Board deems it necessary and
in the best interests of the Trust and its shareholders that the BlackRock
Sub-Adviser assist in managing the operations of the Trust during the interim
period until the closing of the Transaction. If shareholders approve the
Contingent Sub-Advisory Agreement, it will take effect only upon recommendation
from the Investment Adviser and upon subsequent approval of the Board in the
period up to the closing of the Transaction. The effectiveness of the Contingent
Sub-Advisory Agreement, therefore, would be contingent on further Board approval
after shareholders approve it. Pursuant to the Contingent Sub-Advisory
Agreement, the BlackRock Sub-Adviser would receive a monthly fee from the
Investment Adviser equal to 50% of the advisory fee received by the Investment
Adviser. The Investment Adviser would pay the BlackRock Sub-Adviser out of its
own resources. There would be no increase in the Trust's expenses as a result of
the Contingent Sub-Advisory Agreement.
In making its approval at the May in-person meeting, the Board considered the
Contingent Sub-Advisory Agreement in conjunction with the New Investment
Advisory Agreement and reviewed the same information and factors discussed
above. The Board also considered in conjunction with the Contingent Sub-Advisory
Agreement the necessity of ensuring that the Trust operates with effective
management services until the closing of the Transaction. In reviewing the
sub-advisory fee rate provided in the Contingent Sub-Advisory Agreement, the
Board took note of the fact that both the Investment Adviser and the BlackRock
Sub-Adviser would have significant responsibilities under their respective
advisory agreements. The Investment Adviser would remain responsible for
oversight of the Trust's operations and administration and the BlackRock
Sub-Adviser would provide advisory services to the Trust under the Contingent
Sub-Advisory Agreement. The Board also took into account the expected short
duration of the term of any Contingent Sub-Advisory Agreement and the fact that
total advisory fees paid by the Trust would not increase as a result of the
Contingent Sub-Advisory Agreement. Under all of the circumstances, the Board
concluded that it was a reasonable allocation of fees for the BlackRock
Sub-Adviser to receive 50% of the advisory fee paid by the Trust to the
Investment Adviser.
After the independent trustees deliberated in executive session, the entire
Board, including the independent trustees, approved the Contingent Sub-Advisory
Agreement, concluding that the advisory fee was reasonable in relation to the
services provided and that the Contingent Sub-Advisory Agreement was in the best
interests of shareholders.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006 25
Disclosure of Sub-Advisory Agreement
New BlackRock Sub-Advisory Agreement -- Matters Considered by the Board
At an in-person meeting held on August 24-25, 2006, the Board of Trustees,
including the independent trustees, discussed and approved the sub-advisory
agreement with respect to the Fund between BlackRock Advisors, LLC (previously
organized as BlackRock Advisors, Inc.) ("BlackRock Advisors") and its affiliate,
BlackRock Investment Management, LLC (the "Sub-Adviser") (the "BlackRock
Sub-Advisory Agreement"). The BlackRock Sub-Advisory Agreement became effective
on September 29, 2006, at the same time the New Investment Advisory Agreement
with BlackRock Advisors (which had been approved by the Fund's shareholders)
became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors at an annual rate equal to 74% of the
advisory fee received by BlackRock Advisors from the Fund. BlackRock Advisors
pays the Sub-Adviser out of its own resources, and there is no increase in Fund
expenses as a result of the BlackRock Sub-Advisory Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, the Board reviewed its considerations in connection with its approval
of the New Investment Advisory Agreement in May 2006. The Board relied on the
same information and considered the same factors as those discussed above in
connection with the approval of the New Investment Advisory Agreement. In
reviewing the sub-advisory fee rate provided for in the BlackRock Sub-Advisory
Agreement, the Board noted the fact that both BlackRock Advisors and the
Sub-Adviser have significant responsibilities under their respective advisory
agreements. Under the New Investment Advisory Agreement, BlackRock Advisors
remains responsible for the overall management of the Fund and for oversight of
the Fund's operations and administration. Under the BlackRock Sub-Advisory
Agreement, the Sub-Adviser provides advisory services to the Fund and is
responsible for the day-to-day management of the Fund's portfolio. The Board
also took into account the fact that there is no increase in total advisory fees
paid by the Fund as a result of the BlackRock Sub-Advisory Agreement. Based on
its considerations, the Board concluded that it was a reasonable allocation of
fees for the Sub-Adviser to receive a fee at an annual rate equal to 74% of the
advisory fee paid by the Fund to BlackRock Advisors.
After the independent trustees deliberated in executive session, the entire
Board, including the independent trustees, approved the BlackRock Sub-Advisory
Agreement, concluding that the sub-advisory fee was reasonable in relation to
the services provided and that the BlackRock Sub-Advisory Agreement was in the
best interests of the Fund's shareholders.
26 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006
Proxy Results
During the six-month period ended December 31, 2006, BlackRock Basic Value
Principal Protected Fund's shareholders voted on the following proposals, which
were approved at a special shareholders' meeting on August 15, 2006. A
description of the proposals and number of shares voted are as follows:
- ------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- ------------------------------------------------------------------------------------------------------
To approve a new investment advisory agreement with
BlackRock Advisors, Inc. 8,244,492 203,270 198,037
- ------------------------------------------------------------------------------------------------------
To approve a contingent subadvisory agreement with
BlackRock Advisors, Inc. 8,188,762 250,596 206,441
- ------------------------------------------------------------------------------------------------------
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006 27
Officers and Trustees
Robert C. Doll, Jr., President and Trustee
David O. Beim, Trustee
James T. Flynn, Trustee
W. Carl Kester, Trustee
Karen P. Robards, Trustee
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Fund Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109-3661
Transfer Agent
PFPC Inc.
Wilmington, DE 19809
28 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 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 advisor. Please note that not all investment
advisers, banks or brokerages may offer this service.
Shareholders Who Hold Accounts Directly with BlackRock:
1) Access the BlackRock Web site at http://www.blackrock.com/edelivery
2) Select eDelivery under the More Information section
3) Log into your account
The Fund will mail only one copy of shareholder documents, including
prospectuses, annual and semi-annual reports and proxy statements, to
shareholders with multiple accounts at the same address. This practice is
commonly called "householding" and it is intended to reduce expenses and
eliminate duplicate mailings of shareholder documents. Mailings of your
shareholder documents may be householded indefinitely unless you instruct us
otherwise. If you do not want the mailing of these documents to be combined with
those for other members of your household, please contact the Fund at (800)
441-7762.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006 29
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
Forms N-Q are available on the Commission's Web site at http://www.sec.gov and
may be reviewed and copied at the Commission's Public Reference Room in
Washington, D.C. Information regarding the operation of the Public Reference
Room may be obtained by calling (800) SEC-0330. The Fund's Forms N-Q may also be
obtained upon request, without charge, by calling (800) 441-7762.
Shareholder Privileges
Account Information
Call us at (800) 441-7762 8:00 AM - 6:00 PM EST to get information about your
account balances, recent transactions and share prices. You can also reach us on
the Web at www.blackrock.com.
Automatic Investment Plans
Investor Class shareholders who want to invest regularly can arrange to have $50
or more automatically deducted from their checking or savings account and
invested in any of the BlackRock 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.
30 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 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 Capital Appreciation 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. and
certain funds are also distributed by FAM Distributors, Inc. You should consider
the investment objectives, risks, charges and expenses of the funds under
consideration carefully before investing. Each fund's prospectus contains this
and other information and is available at www.blackrock.com or by calling
800-882-0052 or from your financial advisor. The prospectus should be read
carefully before investing.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND DECEMBER 31, 2006 31
This report is for shareholders of BlackRock Basic Value Principal Protected
Fund. 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 Basic Value Principal Protected Fund of
BlackRock Principal Protected Trust
P.O. Box 9011
Princeton, NJ 08543-9011
BLACKROCK
#BVPP-12/06
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - 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 - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Basic Value Principal Protected Fund of BlackRock Principal Protected
Trust
By: /s/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Basic Value Principal Protected Fund of BlackRock Principal
Protected Trust
Date: February 20, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
-------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Basic Value Principal Protected Fund of BlackRock Principal
Protected Trust
Date: February 20, 2007
By: /s/ Donald C. Burke
-------------------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock Basic Value Principal Protected Fund of BlackRock Principal
Protected Trust
Date: February 20, 2007