UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21162
Name of Fund: BlackRock Basic Value Principal Protected Fund of
BlackRock Principal Protected Trust
Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809
Name and address of agent for service: Donald C. Burke, 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: (800) 441-7762
Date of fiscal year end: 06/30/2008
Date of reporting period: 07/01/2007 - 06/30/2008
Item 1 - Report to Stockholders
EQUITIES FIXED INCOME REAL ESTATE
LIQUIDITY ALTERNATIVES BLACKROCK SOLUTIONS
BlackRock Basic Value Principal Protected Fund BLACKROCK
OF BLACKROCK PRINCIPAL PROTECTED TRUST
ANNUAL REPORT | JUNE 30, 2008
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
Table of Contents
================================================================================
Page
- --------------------------------------------------------------------------------
A Letter to Shareholders ................................................. 3
Annual Report:
Fund Summary ............................................................. 4
About Fund Performance ................................................... 6
Disclosure of Expenses ................................................... 6
Portfolio Summary ........................................................ 7
Financial Statements:
Schedule of Investments ................................................ 8
Statement of Assets and Liabilities .................................... 10
Statement of Operations ................................................ 11
Statements of Changes in Net Assets .................................... 12
Financial Highlights ..................................................... 13
Notes to Financial Statements ............................................ 15
Report of Independent Registered Public Accounting Firm .................. 20
Important Tax Information (Unaudited) .................................... 20
Disclosure of Investment Advisory Agreement and Subadvisory Agreement .... 21
Officers and Trustees .................................................... 25
Additional Information ................................................... 29
Mutual Fund Family ....................................................... 31
2 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008
A Letter to Shareholders
Dear Shareholder
Throughout the past year, investors were overwhelmed by lingering credit and
financial market troubles, surging oil prices and more recently, renewed
inflation concerns. Healthy nonfinancial corporate profits and robust exporting
activity remained among the few bright spots, helping the economy to grow at a
modest, but still positive, pace.
The Federal Reserve Board (the "Fed") has been aggressive in its attempts to
stoke economic growth and ease financial market instability. In addition to
slashing the target federal funds rate 325 basis points (3.25%) between
September 2007 and April 2008, the central bank introduced the new Term
Securities Lending Facility, granted broker-dealers access to the discount
window and used its own balance sheet to help negotiate the sale of Bear
Stearns. As widely anticipated, the end of the period saw a pause in Fed action,
as the central bank held the target rate steady at 2.0% amid rising inflationary
pressures.
As the Fed's bold response to the financial crisis helped ease credit turmoil
and investor anxiety, U.S. equity markets sank sharply over the last six months,
notwithstanding a brief rally in the spring. International markets were not
immune to the tumult, with most regions also registering declines.
Treasury securities also traded in a volatile fashion, but generally rallied
(yields fell as prices correspondingly rose), with investors continuing to seek
safety as part of a broader flight to quality. The yield on 10-year Treasury
issues, which fell to 3.34% in March 2008, climbed up to the 4.20% range in
mid-June as investors temporarily shifted out of Treasury issues in favor of
riskier assets (such as stocks and other high-quality fixed income sectors),
then reversed course and declined to 3.99% by period-end when credit fears
re-emerged.
Tax-exempt issues eked out gains for the reporting period, but underperformed
their taxable counterparts, as the group continued to be pressured by problems
among municipal bond insurers and the breakdown in the market for auction rate
securities.
The major benchmark indexes generated results that largely reflected heightened
investor risk aversion:
Total Returns as of June 30, 2008 6-month 12-month
==============================================================================================================
U.S. equities (S&P 500 Index) (11.91)% (13.12)%
- --------------------------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index) (9.37)% (16.19)%
- --------------------------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) (10.96)% (10.61)%
- --------------------------------------------------------------------------------------------------------------
Fixed income (Lehman Brothers U.S. Aggregate Index) 1.13% 7.12%
- --------------------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) 0.02% 3.23%
- --------------------------------------------------------------------------------------------------------------
High yield bonds (Lehman Brothers U.S. Corporate High Yield 2% Issuer Capped Index) (1.08)% (1.74)%
- --------------------------------------------------------------------------------------------------------------
Past performance is no guarantee of future results. Index performance shown for
illustrative purposes only. You cannot invest directly in an index.
As you navigate today's volatile markets, we encourage you to review your
investment goals with your financial professional and to make portfolio changes,
as needed. For more up-to-date commentary on the economy and financial markets,
we invite you to visit www.blackrock.com/funds. As always, we thank you for
entrusting BlackRock with your investment assets, and we look forward to
continuing to serve you in the months and years ahead.
Sincerely,
/s/ Rob Kapito
Rob Kapito
President, BlackRock Advisors, LLC
3
THIS PAGE NOT PART OF YOUR FUND REPORT
Fund Summary
Portfolio Management Commentary
How did the Fund perform?
o Fund returns for the annual period modestly outpaced the benchmark S&P 500
Citigroup Value Index, but lagged the broad-market S&P 500 Index.
o Large-cap stocks trailed their smaller counterparts and in terms of
investment style, value underperformed growth. Bonds, as measured by the
Lehman Brothers U.S. Aggregate Index, outperformed stocks for the annual
period.
What factors influenced performance?
o Favorable stock selection in the consumer discretionary and industrials
sectors enhanced Fund performance for the annual period. From a sector
allocation perspective, the Fund benefited from an underweight in
financials (particularly commercial banks, mortgages and real estate
development) and an overweight in health care. An overweight in energy
also aided comparative results. Individual holdings that had the greatest
positive impact on relative returns included Halliburton Co., Exxon Mobil
Corp., BJ Services Co., Tyco International Ltd. and International Business
Machines Corp.
o Detracting from Fund performance was stock selection within both the
telecommunication services sector, where Qwest Communications
International, Inc. underperformed, and the materials sector.
o In information technology (IT), the benefits reaped from overweighting the
sector were not enough to offset the negative impact of stock selection,
most notably in the semiconductor, IT services, communications equipment
and computers & peripherals subsectors. Similarly, positive performance
resulting from an overweight in consumer staples (especially food products
and household durables) was partially offset by poor stock selection in
the sector. An underweight in utilities also did not produce the results
we anticipated. Individual holdings that negatively impacted performance
were American International Group, Inc., Alcatel SA, Micron Technology,
Inc., Morgan Stanley and Unisys Corp.
o Later in the period, market conditions triggered a rebalance of the Fund
to include a fixed income component; this, too, detracted from
performance.
Describe recent portfolio activity.
o We increased the Fund's exposure to financials, information technology and
health care. We added to existing holdings within these sectors and
initiated positions in Lehman Brothers Holdings, Inc., Analog Devices,
Inc., Covidien Ltd., MetLife, Inc. and Nordstrom, Inc.
o We trimmed exposure to industrials and energy. In other sectors of the
Fund, we sold Taiwan Semiconductor Manufacturing Co., Ltd., Alcatel SA,
Coca-Cola Enterprises, Inc., Comcast Corp. and Sprint Nextel Corp.
o Market conditions triggered a rebalance to include the addition of fixed
income instruments, along with equities and options.
Describe Fund positioning at period-end.
o As of June 30, 2008, the Fund had overweights in information technology
and energy, and was underweight in financials, industrials, utilities,
consumer discretionary, consumer staples, telecommunication services and
materials. The Fund was neutral in health care.
Expense Example
Actual Hypothetical 2
----------------------------------------------------- ----------------------------------------------------
Beginning Ending Beginning Ending
Account Value Account Value Expenses Paid Account Value Account Value Expenses Paid
January 1, 2008 June 30, 2008 During the Period 1 January 1, 2008 June 30, 2008 During the Period 1
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional ......... $1,000 $864.30 $ 8.25 $1,000 $1,016.05 $ 8.92
Investor A ............ $1,000 $864.30 $ 9.32 $1,000 $1,014.90 $10.07
Investor B ............ $1,000 $860.60 $12.95 $1,000 $1,010.98 $14.00
Investor C ............ $1,000 $860.80 $12.95 $1,000 $1,010.98 $14.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (1.78% for Institutional, 2.01% for Investor A, 2.80%
for Investor B and 2.80% for Investor C), multiplied by the average
account value over the period, multiplied by 182/366 (to reflect the
one-half year period shown).
2 Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 366.
See "Disclosure of Expenses" on page 6 for further information on how
expenses were calculated.
4 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008
Price-to-Book Machinery
A line graph depicting the growth of an investment in the Fund's Institutional
Shares and Investor A Shares compared to growth of an investment in the S&P
500(R) Index, the S&P 500 Citigroup Value Index and the Lehman Brothers U.S.
Aggregate Index. Values are from November 13, 2002 through June 2008.
S&P 500 Lehman Brothers
Institutional Investor A S&P 500(R) Citigroup Value U.S. Aggregate
Shares(1,2) Shares(1,2) Index(3) Index(4) Index(5)
11/13/02(6) $10,000 $ 9,475 $10,000 $10,000 $10,000
6/03 $10,563 $ 9,990 $11,169 $11,334 $10,536
6/04 $11,687 $11,033 $13,303 $13,896 $10,569
6/05 $11,829 $11,140 $14,144 $15,455 $11,288
6/06 $12,920 $12,135 $15,365 $17,758 $11,197
6/07 $16,036 $15,016 $18,529 $21,623 $11,883
6/08 $12,927 $12,088 $16,098 $17,245 $12,729
1 Assuming maximum sales charge, if any, transaction costs and other
operating expenses, including advisory fees.
2 The Fund invests primarily in common stocks and in U.S. Treasury bonds,
including zero-coupon bonds.
3 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. S&P 500 is
a registered trademark of the McGraw-Hill Companies.
4 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.
5 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.
6 Commencement of operations.
Performance Summary for the Period Ended June 30, 2008
Average Annual Total Returns 1
-------------------------------------------------------------------
1 Year 5 Years Since Inception 2
-------------------- ------------------- -------------------
6-Month w/o sales w/sales w/o sales w/sales w/o sales w/sales
Total Returns charge charge charge charge charge charge
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional ................................ (13.57)% (19.39)% -- 4.12% -- 4.67% --
Investor A ................................... (13.57) (19.50) (23.72)% 3.89 2.77% 4.42 3.43%
Investor B ................................... (13.94) (20.14) (23.25) 3.08 2.78 3.62 3.48
Investor C ................................... (13.92) (20.20) (20.89) 3.08 3.08 3.61 3.61
Lehman Brothers U.S. Aggregate Index ......... 1.13 7.12 -- 3.86 -- 4.38 --
S&P 500 Index ................................ (11.91) (13.12) -- 7.58 -- 8.83 --
S&P 500 Citigroup Value Index ................ (16.04) (20.25) -- 8.76 -- 10.17 --
- ------------------------------------------------------------------------------------------------------------------------------------
1 Assuming maximum sales charges. See "About Fund Performance" on page 6 for
a detailed description of share classes, including any related sales
charges and fees.
2 The Fund commenced operations on 11/13/02.
Past performance is not indicative of future results.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008 5
About Fund Performance
o Institutional Shares are not subject to any sales charge. Institutional
Shares bear no ongoing distribution or service fees and are available only
to eligible investors.
o Investor A Shares incur a maximum initial sales charge (front-end load) of
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/funds to obtain performance data current to
the most recent month-end. Performance results do not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption of
fund shares. Figures shown in the performance tables on page 5 assume
reinvestment of all dividends and capital gain distributions, if any, at net
asset value on the 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.
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12b-1 fees and other Fund expenses. The expense example on page 4 (which is
based on a hypothetical investment of $1,000 invested on January 1, 2008 and
held through June 30, 2008) is intended to assist shareholders both in
calculating expenses based on an investment in the Fund and in comparing these
expenses with similar costs of investing in other mutual funds.
The table provides information about actual account values and actual expenses.
In order to estimate the expenses a shareholder paid during the period covered
by this report, shareholders can divide their account value by $1,000 and then
multiply the result by the number corresponding to their share class under the
heading entitled "Expenses Paid During the Period."
The table also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses. In order to assist shareholders
in comparing the ongoing expenses of investing in this Fund and other funds,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders' ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees or exchange fees. Therefore, the hypothetical table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
6 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008
Portfolio Summary
As of June 30, 2008
Percent of
Ten Largest Common Stock Holdings Net Assets
- --------------------------------------------------------------------------------
Exxon Mobil Corp. .................................................... 4%
Bristol-Myers Squibb Co. ............................................. 3
Halliburton Co. ...................................................... 3
Time Warner, Inc. .................................................... 3
International Business Machines Corp. ................................ 3
JPMorgan Chase & Co. ................................................. 3
Xerox Corp. .......................................................... 2
The Travelers Cos., Inc. ............................................. 2
BJ Services Co. ...................................................... 2
Unilever NV .......................................................... 2
- --------------------------------------------------------------------------------
Percent of
Five Largest Industries Net Assets
- --------------------------------------------------------------------------------
Pharmaceuticals ...................................................... 7%
Semiconductors & Semiconductor Equipment ............................. 7
Oil, Gas & Consumable Fuels .......................................... 6
Insurance ............................................................ 6
Food Products ........................................................ 6
- --------------------------------------------------------------------------------
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. These industry classifications are unaudited.
- --------------------------------------------------------------------------------
Percent of
Investment Criteria Long-Term Investments
- --------------------------------------------------------------------------------
Above-Average Yield .................................................. 29%
U.S. Government Obligations .......................................... 20
Low Price-to-Book Value .............................................. 20
Below-Average Price/Earnings Ratio ................................... 19
Special Situations ................................................... 10
Price-to-Cash Flow ................................................... 2
- --------------------------------------------------------------------------------
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008 7
Schedule of Investments June 30, 2008
Percent of
Industry Shares Common Stocks Value Net Assets
====================================================================================================================================
Above-Average Diversified Telecommunication Services 51,340 AT&T Inc. $ 1,729,645 1.7%
Yield Metals & Mining 41,399 Alcoa, Inc. 1,474,632 1.5
Semiconductors & Semiconductor 29,200 Analog Devices, Inc. 927,684 0.9
Equipment
Capital Markets 39,072 The Bank of New York Mellon Corp. 1,478,094 1.4
Pharmaceuticals 146,500 Bristol-Myers Squibb Co. 3,007,645 2.9
Oil, Gas & Consumable Fuels 14,400 Chevron Corp. 1,427,472 1.4
Household Products 7,700 Clorox Co. 401,940 0.4
Multi-Utilities 21,900 Dominion Resources, Inc. 1,040,031 1.0
Chemicals 9,700 The Dow Chemical Co. 338,627 0.3
Chemicals 47,300 E.I. du Pont de Nemours & Co. 2,028,697 2.0
Oil, Gas & Consumable Fuels 41,700 Exxon Mobil Corp. 3,675,021 3.6
Industrial Conglomerates 56,800 General Electric Co. 1,515,992 1.5
Food Products 30,800 General Mills, Inc. 1,871,716 1.8
Aerospace & Defense 16,400 Honeywell International, Inc. 824,592 0.8
Diversified Financial Services 73,832 JPMorgan Chase & Co. 2,533,176 2.5
Pharmaceuticals 14,400 Johnson & Johnson 926,496 0.9
Pharmaceuticals 46,000 Pfizer, Inc. 803,620 0.8
Electric Utilities 30,300 The Southern Co. 1,058,076 1.0
Diversified Telecommunication Services 38,100 Verizon Communications, Inc. 1,348,740 1.3
Pharmaceuticals 24,400 Wyeth 1,170,224 1.1
------------------------
29,582,120 28.8
====================================================================================================================================
Below-Average Insurance 39,700 American International Group, Inc. 1,050,462 1.0
Price/Earnings Diversified Financial Services 42,756 Bank of America Corp. 1,020,586 1.0
Ratio Health Care Providers & Services 13,100 Cardinal Health, Inc. 675,698 0.7
Diversified Financial Services 43,800 Citigroup, Inc. 734,088 0.7
Computers & Peripherals 44,100 Hewlett-Packard Co. 1,949,661 1.9
Food Products 64,100 Kraft Foods, Inc. 1,823,645 1.8
Insurance 14,900 MetLife, Inc. 786,273 0.8
Capital Markets 49,000 Morgan Stanley 1,767,430 1.7
Multiline Retail 14,100 Nordstrom, Inc. 427,230 0.4
Aerospace & Defense 19,100 Northrop Grumman Corp. 1,277,790 1.2
Insurance 9,900 Prudential Financial, Inc. 591,426 0.6
Consumer Finance 9,200 SLM Corp. (a) 178,020 0.2
Insurance 50,434 The Travelers Cos., Inc. 2,188,835 2.1
Food Products 72,400 Unilever NV (b) 2,056,160 2.0
IT Services 181,600 Unisys Corp. (a) 717,320 0.7
Media 13,300 Viacom, Inc. Class B (a) 406,182 0.4
Office Electronics 174,400 Xerox Corp. 2,364,864 2.3
------------------------
20,015,670 19.5
====================================================================================================================================
Low Oil, Gas & Consumable Fuels 8,300 Anadarko Petroleum Corp. 621,172 0.6
Price-to-Book Machinery 19,100 Deere & Co. 1,377,683 1.3
Value Semiconductors & Semiconductor 69,600 Fairchild Semiconductor 816,408 0.8
Equipment International, Inc. (a)
Energy Equipment & Services 52,800 Halliburton Co. 2,802,096 2.7
Insurance 24,500 Hartford Financial Services Group, Inc. 1,581,965 1.5
Household Products 27,700 Kimberly-Clark Corp. 1,655,906 1.6
Semiconductors & Semiconductor 314,400 LSI Corp. (a) 1,930,416 1.9
Equipment
Capital Markets 35,800 Lehman Brothers Holdings, Inc. 709,198 0.7
Semiconductors & Semiconductor 271,200 Micron Technology, Inc. (a) 1,627,200 1.6
Equipment
Aerospace & Defense 32,700 Raytheon Co. 1,840,356 1.8
Media 188,000 Time Warner, Inc. 2,782,400 2.7
Industrial Conglomerates 22,025 Tyco International Ltd. 881,881 0.9
Media 38,900 Walt Disney Co. 1,213,680 1.2
Commercial Banks 13,000 Wells Fargo & Co. 308,750 0.3
------------------------
20,149,111 19.6
====================================================================================================================================
See Notes to Financial Statements.
8 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008
Schedule of Investments (concluded)
Percent of
Industry Shares Common Stocks Value Net Assets
====================================================================================================================================
Price-to-Cash Oil, Gas & Consumable Fuels 10,100 Peabody Energy Corp. $ 889,305 0.9%
Flow Diversified Telecommunication Services 279,800 Qwest Communications International, Inc. 1,099,614 1.1
------------------------
1,988,919 2.0
====================================================================================================================================
Special Energy Equipment & Services 66,600 BJ Services Co. 2,127,204 2.1
Situations Health Care Equipment & Supplies 14,000 Baxter International, Inc. 895,160 0.9
Health Care Equipment & Supplies 21,625 Covidien Ltd. 1,035,621 1.0
Semiconductors & Semiconductor 74,800 Intel Corp. 1,606,704 1.6
Equipment
Computers & Peripherals 22,900 International Business Machines Corp. 2,714,337 2.6
Pharmaceuticals 76,100 Schering-Plough Corp. 1,498,409 1.5
------------------------
9,877,435 9.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investments in Common Stocks
(Cost -- $68,916,802) 81,613,255 79.6
====================================================================================================================================
====================================================================================================================================
Par
(000) U.S. Government Obligations
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Obligations $21,766 U.S. Treasury Strips, 2.687%,
11/15/09 (c) 21,047,853 20.5
- ------------------------------------------------------------------------------------------------------------------------------------
Total U.S. Government Obligations
(Cost -- $21,012,743) 21,047,853 20.5
====================================================================================================================================
Total Investments Before Option Written
(Cost -- $89,929,545*) 102,661,108 100.1
====================================================================================================================================
====================================================================================================================================
Contracts Options Written
====================================================================================================================================
Call Options Written 140 Nordstrom, Inc., expiring
January 2009 at $40 (18,900) (0.0)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Options Written
(Premiums Received -- $59,146) (18,900) (0.0)
====================================================================================================================================
Total Investments, Net of
Options Written 102,642,208 100.1
Liabilities in Excess of
Other Assets (63,550) (0.1)
------------------------
Net Assets $102,578,658 100.0%
========================
* The cost and unrealized appreciation (depreciation) of investments as of
June 30, 2008, as computed for federal income tax purposes, were as
follows:
Aggregate cost .......................................... $ 93,675,503
============
Gross unrealized appreciation ........................... $ 16,545,926
Gross unrealized depreciation ........................... (7,560,321)
------------
Net unrealized appreciation ............................. $ 8,985,605
============
(a) Non-income producing security.
(b) Depositary receipts.
(c) Represents a zero coupon bond. Rate shown reflects the effective yield at
the time of purchase.
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
Activity Interest
Affiliate (000) Income
--------------------------------------------------------------------------
BlackRock Liquidity Series, LLC
Cash Sweep Series $(2,000) $39,471
--------------------------------------------------------------------------
o For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets. These industry
classifications and investment criteria are unaudited.
See Notes to Financial Statements.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008 9
Statement of Assets and Liabilities
June 30, 2008
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investments at value -- unaffiliated (cost -- $89,929,545) ....................................................... $ 102,661,108
Investments sold receivable -- affiliated ........................................................................ 9,957,634
Investments sold receivable ...................................................................................... 350,274
Dividends receivable ............................................................................................. 121,177
Interest receivable from affiliates .............................................................................. 613
Prepaid expenses ................................................................................................. 4,760
Other assets ..................................................................................................... 151
-------------
Total assets ..................................................................................................... 113,095,717
-------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Options written at value (premiums received -- $59,146) .......................................................... 18,900
Investments purchased payable -- affiliated ...................................................................... 4,748
Bank overdraft ................................................................................................... 213,892
Investments purchased payable .................................................................................... 9,835,797
Capital shares redeemed payable .................................................................................. 161,234
Distribution fees payable ........................................................................................ 79,604
Financial warranty fees payable .................................................................................. 72,937
Investment advisory fees payable ................................................................................. 58,289
Other affiliates payable ......................................................................................... 22,026
Officer's and Trustees' fees payable ............................................................................. 86
Other accrued expenses payable ................................................................................... 49,546
-------------
Total liabilities ................................................................................................ 10,517,059
-------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets ....................................................................................................... $ 102,578,658
=============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Paid-in capital in excess of par, unlimited shares of no par value authorized .................................... $ 90,259,919
Accumulated net realized loss .................................................................................... (453,070)
Net unrealized appreciation/depreciation ......................................................................... 12,771,809
-------------
Net assets ....................................................................................................... $ 102,578,658
=============
===================================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional -- Based on net assets of $4,308,310 and 486,665 beneficial interest outstanding ................... $ 8.85
=============
Investor A -- Based on net assets of $6,450,298 and 729,125 beneficial interest outstanding ...................... $ 8.85
=============
Investor B -- Based on net assets of $53,767,594 and 6,088,759 beneficial interest outstanding ................... $ 8.83
=============
Investor C -- Based on net assets of $38,052,456 and 4,303,911 beneficial interest outstanding ................... $ 8.84
=============
See Notes to Financial Statements.
10 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008
Statement of Operations
Year Ended June 30, 2008
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends (net of $18,679 foreign withholding tax) ................................................................ $ 2,934,004
Interest (including $39,471 from affiliates) ...................................................................... 195,511
------------
Total income ...................................................................................................... 3,129,515
------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Financial warranty ................................................................................................ 1,129,226
Investment advisory ............................................................................................... 902,455
Service -- Investor A ............................................................................................. 23,301
Service and distribution -- Investor B ............................................................................ 730,430
Service and distribution -- Investor C ............................................................................ 505,956
Transfer agent -- Institutional ................................................................................... 5,546
Transfer agent -- Investor A ...................................................................................... 5,909
Transfer agent -- Investor B ...................................................................................... 69,819
Transfer agent -- Investor C ...................................................................................... 46,774
Accounting services ............................................................................................... 85,304
Professional ...................................................................................................... 69,941
Printing .......................................................................................................... 47,672
Custodian ......................................................................................................... 44,655
Officer and Trustees .............................................................................................. 21,399
Miscellaneous ..................................................................................................... 16,549
------------
Total expenses .................................................................................................... 3,704,936
------------
Net investment loss ............................................................................................... (575,421)
------------
===================================================================================================================================
Realized and Unrealized Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain from:
Investments ..................................................................................................... 10,058,573
Options written ................................................................................................. 143,985
------------
10,202,558
------------
Net change in unrealized appreciation/depreciation on:
Investments ..................................................................................................... (39,240,920)
Options written ................................................................................................. (13,705)
------------
(39,254,625)
------------
Total realized and unrealized loss ................................................................................ (29,052,067)
------------
Net Decrease in Net Assets Resulting from Operations .............................................................. $(29,627,488)
============
See Notes to Financial Statements.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008 11
Statements of Changes in Net Assets
Year Ended
June 30,
-------------------------------
Increase (Decrease) in Net Assets: 2008 2007
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment loss ............................................................................ $ (575,421) $ (792,734)
Net realized gain .............................................................................. 10,202,558 17,252,556
Net change in unrealized appreciation/depreciation ............................................. (39,254,625) 20,388,652
-------------------------------
Net increase (decrease) in net assets resulting from operations ................................ (29,627,488) 36,848,474
-------------------------------
===================================================================================================================================
Distributions to Shareholders From
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain:
Institutional ................................................................................ (900,099) (670,861)
Investor A ................................................................................... (1,411,747) (1,149,543)
Investor B ................................................................................... (10,517,239) (6,788,916)
Investor C ................................................................................... (7,113,402) (4,676,490)
-------------------------------
Decrease in net assets resulting from distributions to shareholders ............................ (19,942,487) (13,285,810)
-------------------------------
===================================================================================================================================
Beneficial Interest Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from beneficial interest transactions ....................... (19,969,554) (30,710,156)
-------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ................................................................... (69,539,529) (7,147,492)
Beginning of year .............................................................................. 172,118,187 179,265,679
-------------------------------
End of year .................................................................................... $ 102,578,658 $ 172,118,187
===============================
See Notes to Financial Statements.
12 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008
Financial Highlights
Institutional Investor A
--------------------------------------------- --------------------------------------------
Year Ended Year Ended
June 30, June 30,
--------------------------------------------- --------------------------------------------
2008 2007 2006 2005 2004 2008 2007 2006 2005 2004
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .... $ 12.87 $ 11.35 $ 10.90 $ 11.53 $ 10.55 $ 12.85 $ 11.34 $ 10.88 $ 11.52 $ 10.53
--------------------------------------------- --------------------------------------------
Net investment income 1 ............... 0.05 0.06 0.06 0.09 0.08 0.03 0.03 0.03 0.06 0.06
Net realized and unrealized gain (loss) (2.27) 2.58 0.93 0.06 1.03 (2.27) 2.57 0.93 0.06 1.03
--------------------------------------------- --------------------------------------------
Net increase (decrease) from
investment operations ............... (2.22) 2.64 0.99 0.15 1.11 (2.24) 2.60 0.96 0.12 1.09
--------------------------------------------- --------------------------------------------
Dividends and distributions from:
Net investment income ............. -- -- -- -- (0.13) -- -- -- -- (0.10)
Net realized gain ................. (1.80) (1.12) (0.54) (0.78) -- (1.76) (1.09) (0.50) (0.76) --
--------------------------------------------- --------------------------------------------
Total dividends and distributions ..... (1.80) (1.12) (0.54) (0.78) (0.13) (1.76) (1.09) (0.50) (0.76) (0.10)
--------------------------------------------- --------------------------------------------
Net asset value, end of year .......... $ 8.85 $ 12.87 $ 11.35 $ 10.90 $ 11.53 $ 8.85 $ 12.85 $ 11.34 $ 10.88 $ 11.52
============================================= ============================================
===================================================================================================================================
Total Investment Return 2
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value .............. (19.39)% 24.12% 9.22% 1.22% 10.64% (19.50)% 23.74% 8.93% 0.96% 10.44%
============================================= ============================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses ........................ 1.76% 1.70% 1.69% 1.68% 1.75% 1.98% 1.95% 1.94% 1.93% 2.00%
============================================= ============================================
Net investment income ................. 0.49% 0.47% 0.52% 0.82% 0.73% 0.26% 0.21% 0.27% 0.57% 0.51%
============================================= ============================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) ......... $ 4,308 $ 7,393 $ 7,886 $10,503 $15,576 $ 6,450 $12,145 $ 6,637 $ 8,735 $13,022
============================================= ============================================
Portfolio turnover .................... 79% 33% 65% 65% 88% 79% 33% 65% 65% 88%
============================================= ============================================
1 Based on average shares outstanding.
2 Total investment returns exclude the effect of any sales charges.
See Notes to Financial Statements.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008 13
Financial Highlights (concluded)
Investor B Investor C
---------------------------------------------------- ----------------------------------------------------
Year Ended Year Ended
June 30, June 30,
---------------------------------------------------- ----------------------------------------------------
2008 2007 2006 2005 2004 2008 2007 2006 2005 2004
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of year .. $ 12.81 $ 11.23 $ 10.77 $ 11.45 $ 10.48 $ 12.83 $ 11.25 $ 10.78 $ 11.45 $ 10.48
---------------------------------------------------- ----------------------------------------------------
Net investment loss 1 (0.06) (0.06) (0.05) (0.02) (0.03) (0.06) (0.07) (0.05) (0.02) (0.03)
Net realized and
unrealized gain
(loss) ............. (2.26) 2.54 0.91 0.05 1.03 (2.27) 2.56 0.92 0.06 1.03
---------------------------------------------------- ----------------------------------------------------
Net increase
(decrease) from
investment
operations ......... (2.32) 2.48 0.86 0.03 1.00 (2.33) 2.49 0.87 0.04 1.00
---------------------------------------------------- ----------------------------------------------------
Dividends and
distributions from:
Net investment
income ......... -- -- -- -- (0.03) -- -- -- -- (0.03)
Net realized gain (1.66) (0.90) (0.40) (0.71) -- (1.66) (0.91) (0.40) (0.71) --
---------------------------------------------------- ----------------------------------------------------
Total dividends and
distributions ...... (1.66) (0.90) (0.40) (0.71) (0.03) (1.66) (0.91) (0.40) (0.71) (0.03)
---------------------------------------------------- ----------------------------------------------------
Net asset value, end
of year ............ $ 8.83 $ 12.81 $ 11.23 $ 10.77 $ 11.45 $ 8.84 $ 12.83 $ 11.25 $ 10.78 $ 11.45
==================================================== ====================================================
==================================================================================================================================
Total Investment Return 2
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset
value .............. (20.14)% 22.78% 8.12% 0.19% 9.58% (20.20)% 22.83% 8.15% 0.23% 9.54%
==================================================== ====================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses ....... 2.76% 2.71% 2.70% 2.70% 2.76% 2.75% 2.71% 2.70% 2.70% 2.76%
==================================================== ====================================================
Net investment loss .. (0.51)% (0.54)% (0.49)% (0.20)% (0.30)% (0.50)% (0.54)% (0.49)% (0.20)% (0.29)%
==================================================== ====================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of
year (000) ......... $ 53,768 $ 90,268 $100,584 $117,140 $144,787 $ 38,052 $ 62,312 $ 64,159 $ 78,110 $104,840
==================================================== ====================================================
Portfolio turnover ... 79% 33% 65% 65% 88% 79% 33% 65% 65% 88%
==================================================== ====================================================
1 Based on average shares outstanding.
2 Total investment returns exclude the effect of sales charges.
See Notes to Financial Statements.
14 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008
Notes to Financial Statements
1. Significant Accounting Policies:
BlackRock Basic Value Principal Protected Fund (the "Fund"), a series of
BlackRock Principal Protected Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified,
open-end management investment company. The Fund's financial statements are
prepared in conformity with accounting principles generally accepted in the
United States of America, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. The Fund offers
multiple classes of shares. Shares of the Fund were offered during the initial
offering period but will not be offered during the Guarantee Period from
November 13, 2002 through November 13, 2009 (the "Guarantee Maturity Date"),
except in connection with reinvestment of dividends and distributions. 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 servicing of such shares,
and Investor B and Investor C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights with respect
to matters relating to its account maintenance and distribution expenditures
(except that Investor B shareholders may vote on material changes to the
Investor A distribution plan).
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 0.80% of the Fund's average daily net assets during the
Guarantee Period. If the value of the Fund's assets on the Guarantee Maturity
Date is insufficient to result in the value of each shareholder's account being
at least equal to the shareholder's Guaranteed Amount, the Warranty Provider
will pay the Fund an amount sufficient to make sure that each shareholder's
account can be redeemed for an amount equal to his or her Guaranteed Amount.
The following is a summary of significant accounting policies followed by the
Fund:
Valuation of Investments: Equity investments traded on a recognized securities
exchange or the NASDAQ Global Market System are valued at the last reported sale
price that day or the NASDAQ official closing price, if applicable. For equity
investments traded on more than one exchange, the last reported sale price on
the exchange where the stock is primarily traded is used. Equity investments
traded on a recognized exchange for which there were no sales on that day are
valued at the last available bid price. If no bid price is available, the prior
day's price will be used, unless it is determined that such prior day's price no
longer reflects the fair value of the security. Short-term securities are valued
at amortized cost. Investments in open-end investment companies are valued at
net asset value each business day.
Exchange-traded options are valued at the mean between the last bid and ask
prices at the close of the options market in which the options trade. An
exchange-traded option for which there is no mean price is valued at the last
bid (long positions) or ask (short positions) price. If no bid or ask price is
available, the prior day's price will be used, unless it is determined that such
prior day's price no longer reflects the fair value of the option.
Over-the-counter options are valued by an independent pricing service using a
mathematical model which incorporates a number of market data factors.
The Fund values its bond investments on the basis of last available bid price or
current market quotations provided by dealers or pricing services selected under
the supervision of the Fund's Board of Trustees (the "Board"). In determining
the value of a particular investment, pricing services may use certain
information with respect to transactions in such investments, quotations from
dealers, pricing matrixes, market transactions in comparable investments,
various relationships observed in the market between investments and calculated
yield measures based on valuation technology commonly employed in the market for
such investments.
In the event that application of these methods of valuation results in a price
for an investment which is deemed not to be representative of the market value
of such investment, the investment will be valued by a method approved by the
Board reflecting fair value ("Fair Value Assets"). When determining the price
for Fair Value Assets, the investment advisor and/or sub-advisor seeks to
determine the price that the Fund might reasonably expect to receive from the
current sale of that asset in an arm's-length transaction. Fair value
determinations shall be based upon all available factors that the investment
advisor and/or sub-advisor deems relevant. The pricing of all Fair Value Assets
is subsequently reported to the Board or a committee thereof.
Generally, trading in foreign 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
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008 15
Notes to Financial Statements (continued)
net assets of the Fund are determined as of such times. Foreign currency
exchange rates will be determined as of the close of business on the NYSE.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close of
business on the NYSE that may not be reflected in the computation of the Fund's
net assets. If events (for example, a company announcement, market volatility or
a natural disaster) occur during such periods that are expected to materially
affect the value of such securities, those securities will be valued at their
fair value as determined in good faith by the Board or by the investment advisor
using a pricing service and/or procedures approved by the Board.
Derivative Financial Instruments: The Fund may engage in various portfolio
investment strategies 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 if the value of the contract decreases due to an
unfavorable change in the price of the underlying security, or if the
counterparty does not perform under the contract.
o Options -- The Fund may purchase and write call and put options. When the
Fund writes an option, an amount equal to the premium received by the Fund
is reflected as an asset and an equivalent liability. The amount of the
liability is subsequently marked-to-market to reflect the current market
value of the option written. When a security is purchased or sold through
an exercise of an option, the related premium paid (or received) is added
to (or deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option expires
(or the Fund enters into a closing transaction), the Fund realizes a gain
or loss on the option to the extent of the premiums received or paid (or
gain or loss to the extent the cost of the closing transaction exceeds the
premium received or paid).
A call option gives the purchaser of the option the right (but not the
obligation) to buy, and obligates the seller to sell (when the option is
exercised), the underlying position at the exercise price at any time or
at a specified time during the option period. A put option gives the
holder the right to sell and obligates the writer to buy the underlying
position at the exercise price at any time or at a specified time during
the option period.
Zero-Coupon Bonds: The Fund may invest in zero-coupon bonds, which are normally
issued at a significant discount from face value and do not provide for periodic
interest payments. Zero-coupon bonds may experience greater volatility in market
value than similar maturity debt obligations which provide for regular interest
payments.
Investment Transactions and Investment Income: Investment transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis. The Fund amortizes all
premiums and discounts on debt securities. Income and realized and unrealized
gains and losses are allocated daily to each class based on its relative net
assets.
Dividends and Distributions: Dividends and distributions of capital gains are
recorded on the ex-dividend dates.
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 laws, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
Effective December 31, 2007, the Fund implemented Financial Accounting Standards
Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes -- an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48
prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity, including investment companies, before being
measured and recognized in the financial statements. The investment advisor has
evaluated the application of FIN 48 to the Fund, and has determined that the
adoption of FIN 48 does not have a material impact on the Fund's financial
statements. The Fund files U.S. federal and various state and local tax returns.
No income tax returns are currently under examination. The statute of
limitations on the Fund's federal tax returns remains open for the years ended
June 30, 2005 through June 30, 2007. The statutes of limitations on the Fund's
state and local tax returns may remain open for an additional year depending
upon the jurisdiction.
Bank Overdraft: The Fund recorded a bank overdraft, which resulted from
estimates of available cash.
Recent Accounting Pronouncements: 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. The impact the Fund's financial
statement disclosures, if any, is currently being assessed.
16 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008
Notes to Financial Statements (continued)
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. FAS 159 permits entities to choose to measure many financial
instruments and certain other items at fair value that are not currently
required to be measured at fair value. FAS 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and
liabilities. The impact of the Fund's financial statement disclosures, if any,
is currently being assessed.
In March 2008, Statement of Financial Accounting Standards No. 161, "Disclosures
about Derivative Instruments and Hedging Activities -- an amendment of FASB
Statement No. 133" ("FAS 161"), was issued and is effective for fiscal years
beginning after November 15, 2008. FAS 161 is intended to improve financial
reporting for derivative instruments by requiring enhanced disclosure that
enables investors to understand how and why an entity uses derivatives, how
derivatives are accounted for, and how derivative instruments affect an entity's
results of operations and financial position. The impact of the Fund's financial
statement disclosures, if any, is currently being assessed.
Other: Expenses directly related to the Fund or its classes are charged to that
Fund or class. Other operating expenses shared by several funds are pro-rated
among those funds on the basis of relative net assets or other appropriate
methods. Other expenses of the Fund are allocated daily to each class based on
its relative net assets.
2. Investment Advisory Agreement and Other Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with BlackRock
Advisors, LLC (the "Advisor"), an indirect, wholly owned subsidiary of
BlackRock, Inc. to provide investment advisory and administration services.
Merrill Lynch & Co. Inc. ("Merrill Lynch") and The PNC Financial Services Group,
Inc. ("PNC") are principal owners of BlackRock, Inc.
The Advisor 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 the Advisor a monthly fee of 0.65%, on an annual basis, of the average
daily value of the Fund's net assets.
The Advisor 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 service fees) will not exceed 1.99%. This arrangement has a
one-year term and is renewable.
The Advisor has entered into a separate sub-advisory agreement with BlackRock
Investment Management, LLC ("BIM"), an affiliate of the Advisor, under which the
Advisor pays BIM for services it provides, a monthly fee that is a percentage of
the investment advisory fee paid by the Fund to the Advisor.
For the year ended June 30, 2008, the Fund reimbursed the Advisor $2,399 for
certain accounting services, which is included in accounting services in the
Statement of Operations.
The Fund has also entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the 1940 Act, 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 ........................................ 0.25% --
Investor B ........................................ 0.25% 0.75%
Investor C ........................................ 0.25% 0.75%
- --------------------------------------------------------------------------------
Pursuant to sub-agreements with the Distributor, broker-dealers, including
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a wholly owned
subsidiary of Merrill Lynch, and the Distributor provide shareholder servicing
and distribution services to the Fund. The ongoing service fee and/or
distribution fee compensates the Distributor and each broker-dealer for
providing shareholder servicing and/or distribution-related services to Investor
A, Investor B and Investor C shareholders.
For the year ended June 30, 2008, affiliates received contingent deferred sales
charges of $146,786 and $27 relating to transactions in Investor B and Investor
C Shares, respectively. These amounts include payments to Hilliard Lyons, which
was considered an affiliate for a portion of the year.
In addition, MLPF&S received $36,385 in commissions on the execution of
portfolio security transactions for the Fund for the year ended June 30, 2008.
Pursuant to written agreements, certain affiliates provide the Fund with
sub-accounting, recordkeeping, sub-transfer agency and other administrative
services with respect to sub-accounts they service. For these services, these
affiliates receive an annual fee per shareholder account which will vary
depending on share class. For the year ended June 30, 2008, the Fund paid
$115,074 in return for these services.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008 17
Notes to Financial Statements (continued)
PNC Global Investment Servicing (U.S.) Inc., formerly PFPC Inc., an indirect,
wholly owned subsidiary of PNC and an affiliate of the Advisor, is the Fund's
transfer agent. Each class of the Fund bears the costs of transfer agent fees
associated with such respective classes. Transfer agency fees borne by each
class of the Fund are comprised of those fees charged for all shareholder
communications including the mailing of shareholder reports, dividend and
distribution notices, and proxy materials for shareholders meetings, as well as
per account and per transaction fees related to servicing and maintenance of
shareholder accounts, including the issuing, redeeming and transferring of
shares of each class of the Fund, 12b-1 fee calculation, check writing,
anti-money laundering services, and customer identification services.
The Advisor maintains a call center, which is responsible for providing certain
shareholder services to the Fund, such as responding to shareholder inquiries
and processing transactions based upon instructions from shareholders with
respect to the subscription and redemption of Fund shares. For the year ended
June 30, 2008, the following amounts have been accrued by the Fund to reimburse
the Advisor for costs incurred running the call center, which are a component of
the transfer agent fees in the accompanying Statement of Operations.
- --------------------------------------------------------------------------------
Call Center Fees
- --------------------------------------------------------------------------------
Institutional .................................................. $ 48
Investor A ..................................................... $ 123
Investor B ..................................................... $1,170
Investor C ..................................................... $ 756
- --------------------------------------------------------------------------------
Certain officers and/or directors of the Fund are officers and/or directors of
BlackRock, Inc. or its affiliates.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended June 30, 2008 were $109,633,107 and $148,007,291, respectively.
Transactions in call options written for the year ended June 30, 2008 were as
follows:
- --------------------------------------------------------------------------------
Premiums
Call Options Written Contracts Received
- --------------------------------------------------------------------------------
Outstanding call options written, beginning of year 522 $ 158,871
Options written .................................... 847 148,531
Options exercised .................................. (40) (8,593)
Options expired .................................... (294) (69,237)
Options closed ..................................... (895) (170,426)
---------------------
Outstanding call options written, end of year ...... 140 $ 59,146
=====================
4. Short-Term Borrowings:
The Fund, along with certain other funds managed by the Advisor and its
affiliates, is party to a $500,000,000 credit agreement with a group of lenders.
The Fund may borrow under the credit agreement to fund shareholder redemptions
and for other lawful purposes other than for leverage. The Fund may borrow up to
the maximum amount allowable under the Fund's current Prospectus and Statement
of Additional Information, subject to various other legal, regulatory or
contractual limits. On November 21, 2007, the credit agreement was renewed for
one year under substantially the same terms. The Fund pays a commitment fee of
0.06% per annum based on the Fund's pro rata share of the unused portion of the
credit agreement, which is included in miscellaneous in the Statement of
Operations. Amounts borrowed under the credit agreement bear interest at a rate
equal to, at each fund's election, the federal funds rate plus 0.35% or a base
rate as defined in the credit agreement. The Fund did not borrow under the
credit agreement during the year ended June 30, 2008.
5. Income Tax Information:
Reclassifications -- Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
during the current year, $575,421 has been reclassified between accumulated net
realized capital loss and accumulated net investment loss as a result of
permanent differences attributable to net operating losses. This
reclassification has no effect on net assets or net asset values per share.
The tax character of distributions paid during the fiscal years ended June 30,
2008 and June 30, 2007 was as follows:
- --------------------------------------------------------------------------------
6/30/2008 6/30/2007
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ................................ $ 1,591,190 $ 2,500,016
Net long-term capital gains .................... 18,351,297 10,785,794
--------------------------
Total taxable distributions ...................... $19,942,487 $13,285,810
==========================
As of June 30, 2008, the components of accumulated earnings on a tax basis were
as follows:
- -------------------------------------------------------------------------------
Undistributed long-term net capital gains ...................... $ 3,314,091
Net unrealized gains ........................................... 9,004,648*
-----------
Total net accumulated earnings ................................. $12,318,739
===========
* The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales and
deferral of losses on straddles.
18 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008
Notes to Financial Statements (concluded)
6. Beneficial Interest Transactions:
Transactions in common stock for each class were as follows:
Year Ended Year Ended
June 30, 2008 June 30, 2007
--------------------------- ---------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional
- -----------------------------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment
of distributions ............................................. 80,130 $ 834,956 51,343 $ 607,387
Shares redeemed ................................................ (167,949) (1,824,486) (171,369) (2,071,214)
--------------------------- ---------------------------
Net decrease ................................................... (87,819) $ (989,530) (120,026) $ (1,463,827)
=========================== ===========================
- -----------------------------------------------------------------------------------------------------------------------------------
Investor A
- -----------------------------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment
of distributions ............................................. 124,048 $ 1,293,822 90,723 $ 1,073,378
Shares converted 1 ............................................. -- -- 663,179 7,911,721
--------------------------- ---------------------------
Total issued ................................................... 124,048 1,293,822 753,902 8,985,099
Shares redeemed ................................................ (339,929) (3,706,644) (394,164) (4,817,911)
--------------------------- ---------------------------
Net increase (decrease) ........................................ (215,881) $ (2,412,822) 359,738 $ 4,167,188
=========================== ===========================
- -----------------------------------------------------------------------------------------------------------------------------------
Investor B
- -----------------------------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment
of distributions ............................................. 915,090 $ 9,571,833 521,839 $ 6,178,577
Shares redeemed or converted1 .................................. (1,870,464) (19,864,793) (2,434,140) (29,282,378)
--------------------------- ---------------------------
Net decrease ................................................... (955,374) $(10,292,960) (1,912,301) $(23,103,801)
=========================== ===========================
- -----------------------------------------------------------------------------------------------------------------------------------
Investor C
- -----------------------------------------------------------------------------------------------------------------------------------
Shares issued to shareholders in reinvestment
of distributions ............................................. 628,571 $ 6,581,139 368,117 $ 4,362,187
Shares redeemed ................................................ (1,183,023) (12,855,381) (1,214,511) (14,671,903)
--------------------------- ---------------------------
Net decrease ................................................... (554,452) $ (6,274,242) (846,394) $(10,309,716)
=========================== ===========================
1 In September 2006, certain brokerages, including a wholly owned subsidiary
of Merrill Lynch, entered into a remediation agreement with a regulatory
organization, which among other things, permitted certain shareholders of
Investor B Shares to convert their shares into the Fund's Investor A
Shares.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008 19
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of BlackRock Principal Protected
Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of BlackRock Basic Value Principal Protected Fund,
one of the funds constituting BlackRock Principal Protected Trust (the "Trust"),
as of June 30, 2008, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Trust's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Trust
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of June 30, 2008, by correspondence with the custodian
and brokers; where replies were not received from brokers, we performed other
auditing procedures. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BlackRock Basic Value Principal Protected Fund of BlackRock Principal Protected
Trust as of June 30, 2008, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with accounting principles generally accepted in the
United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
August 25, 2008
Important Tax Information (Unaudited)
The following information is provided with respect to the ordinary income
distribution paid by the BlackRock Basic Value Principal Protected Fund of
BlackRock Principal Protected Trust to shareholders of record on December 11,
2007:
- -------------------------------------------------------------------------------
Qualified Dividend Income for Individuals ........................ 100.00%
Dividends Qualifying for the Dividends Received
Deduction for Corporations ....................................... 100.00%
Short-Term Capital Gain Dividends
for Non-U.S. Residents* .......................................... 100.00%
- -------------------------------------------------------------------------------
* Represents the portion of the taxable ordinary income dividend eligible
for exemption from U.S. withholding tax for nonresident aliens and foreign
corporations.
Additionally, the Fund paid a long-term capital gain distribution of $1.536707
per share to shareholders of record on December 11, 2007.
20 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008
Disclosure of Investment Advisory Agreement and Subadvisory Agreement
The Board of Trustees (the "Board," the members of which are referred to as
"Trustees") of BlackRock Basic Value Principal Protected Fund (the "Fund") of
BlackRock Principal Protected Trust (the "Trust") met in April and June 2008 to
consider the approval of the Fund's investment advisory agreement (the "Advisory
Agreement") with BlackRock Advisors, LLC (the "Adviser"), the Fund's investment
adviser. The Board also considered the approval of the Fund's subadvisory
agreement (the "Subadvisory Agreement") between the Adviser and BlackRock
Investment Management LLC (the "Subadviser"). The Adviser and the Subadviser are
referred to herein as "BlackRock." For simplicity, the Fund and the Trust are
referred to herein as the "Fund." The Advisory Agreement and the Subadvisory
Agreement are referred to herein as the "Agreements."
Activities and Composition of the Board
The Board of the Fund consists of fifteen individuals, twelve of whom are not
"interested persons" of the Fund as defined in the Investment Company Act of
1940, as amended (the "1940 Act") (the "Independent Trustees"). The Trustees are
responsible for the oversight of the operations of the Fund and perform the
various duties imposed on the trustees of investment companies by the 1940 Act.
The Independent Trustees have retained independent legal counsel to assist them
in connection with their duties. The Chairman of the Board is an Independent
Trustee. The Board established four standing committees: an Audit Committee, a
Governance and Nominating Committee, a Compliance Committee and a Performance
Oversight Committee, each of which is composed of, and chaired by Independent
Trustees.
The Agreements
Upon the consummation of the combination of BlackRock's investment management
business with Merrill Lynch & Co., Inc.'s investment management business,
including Merrill Lynch Investment Managers, L.P., and certain affiliates (the
"Transaction"), the Fund entered into the Advisory Agreement with an initial
two-year term and the Adviser entered into the Subadvisory Agreement with the
Subadviser with an initial two-year term. Consistent with the 1940 Act, prior to
the expiration of the Agreements' respective initial two-year term, the Board is
required to consider the continuation of the Fund's Agreements on an annual
basis. In connection with this process, the Board assessed, among other things,
the nature, scope and quality of the services provided to the Fund by the
personnel of BlackRock and its affiliates, including investment management,
administrative services, shareholder services, oversight of fund accounting and
custody, marketing services and assistance in meeting legal and regulatory
requirements. The Board also received and assessed information regarding the
services provided to the Fund by certain unaffiliated service providers.
Throughout the year, the Board, acting directly and through its committees,
considers at each of its meetings factors that are relevant to its annual
consideration of the renewal of the Fund's Agreements, including the services
and support provided to the Fund and its shareholders. Among the matters the
Board considered were: (a) investment performance for one, three and five years,
as applicable, against peer funds, as well as senior management and portfolio
managers' analysis of the reasons for underperformance, if applicable; (b) fees,
including advisory, administration, if applicable, and other fees paid to
BlackRock and its affiliates by the Fund, such as transfer agency fees and fees
for marketing and distribution; (c) Fund operating expenses; (d) the resources
devoted to and compliance reports relating to the Fund's investment objectives,
policies and restrictions, (e) the Fund's compliance with its Code of Ethics and
compliance policies and procedures; (f) the nature, cost and character of
non-investment management services provided by BlackRock and its affiliates; (g)
BlackRock's and other service providers' internal controls; (h) BlackRock's
implementation of the proxy voting guidelines approved by the Board; (i) the use
of brokerage commissions and spread and execution quality; (j) valuation and
liquidity procedures; and (k) periodic overview of BlackRock's business,
including BlackRock's response to the increasing scale of its business.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008 21
Disclosure of Investment Advisory Agreement and Subadvisory Agreement
(continued)
Board Considerations in Approving the Agreements
The Approval Process. At an in-person meeting held on April 10, 2008, the Board
reviewed materials relating to its consideration of the Agreements. At an
in-person meeting held on June 5 - 6, 2008, the Fund's Board, including the
Independent Trustees, unanimously approved the continuation of the Advisory
Agreement between the Adviser and the Fund for a one-year term ending June 30,
2009 and the Subadvisory Agreement between the Adviser and the Subadviser for a
one-year term ending June 30, 2009. In considering the approval of the
Agreements, the Board received and discussed various materials provided to it in
advance of the April 10, 2008 meeting. As a result of the discussions that
occurred during the April 10, 2008 meeting, the Board requested and BlackRock
provided additional information, as detailed below, in advance of the June 5 -
6, 2008 Board meeting. The Board considered all factors it believed relevant
with respect to the Fund, including, among other factors: (a) the nature, extent
and quality of the services provided by BlackRock; (b) the investment
performance of the Fund and BlackRock portfolio management; (c) the advisory fee
and the cost of the services and profits to be realized by BlackRock and certain
affiliates from the relationship with the Fund; (d) economies of scale; and (e)
other factors.
Prior to the April 10, 2008 meeting, the Board requested and received materials
specifically relating to the Agreements. The Board is engaged in an ongoing
process with BlackRock to continuously review the nature and scope of the
information provided to better assist its deliberations. These materials
included (a) information independently compiled and prepared by Lipper, Inc.
("Lipper") on Fund fees and expenses, and the investment performance of the Fund
as compared with a peer group of funds as determined by Lipper ("Peers"); (b)
information on the profitability of the Agreements to BlackRock and certain
affiliates, including their other relationships with the Fund, and a discussion
of fall-out benefits; (c) a general analysis provided by BlackRock concerning
investment advisory fees charged to other clients, such as institutional and
closed-end funds, under similar investment mandates, as well as the performance
of such other clients; (d) a report on economies of scale; (e) sales and
redemption data regarding the Fund's shares; and (f) an internal comparison of
management fees classified by Lipper, if applicable. At the April 10, 2008
meeting, the Board requested and subsequently received from BlackRock (i) a
comprehensive analysis of total expenses on a fund-by-fund basis; (ii) further
analysis of investment performance; (iii) further data regarding Fund
profitability, Fund size and Fund fee levels; and (iv) additional information on
sales and redemptions.
The Board also considered other matters it deemed important to the approval
process, such as payments made to BlackRock or its affiliates relating to the
distribution of Fund shares, services related to the valuation and pricing of
Fund portfolio holdings, allocation of Fund brokerage fees (including the
benefits of "soft dollars"), and direct and indirect benefits to BlackRock and
its affiliates from their relationship with the Fund. The Board did not identify
any particular information as controlling, and each Trustee may have attributed
different weights to the various items considered.
A. Nature, Extent and Quality of the Services: The Board, including the
Independent Trustees, reviewed the nature, extent and quality of services
provided by BlackRock, including the investment advisory services and the
resulting performance of the Fund. Throughout the year, the Board compared Fund
performance -- both including and excluding the effects of the Fund's fees and
expenses -- to the performance of a comparable group of mutual funds as
classified by Lipper and the performance of at least one relevant index or
combination of indices. The Board met with BlackRock's senior management
personnel responsible for investment operations, including the senior investment
officers. The Board also reviewed the materials provided by the Fund's portfolio
management team discussing Fund performance and the Fund's investment
objectives, strategies and outlook.
The Board considered, among other factors, the number, education and experience
of BlackRock's investment personnel generally and the Fund's portfolio
management team, BlackRock's portfolio trading capabilities, BlackRock's use of
technology, BlackRock's commitment to compliance and BlackRock's approach to
training and retaining portfolio managers and other research, advisory and
management personnel. The Board also reviewed BlackRock's compensation structure
with respect to the Fund's portfolio management team and BlackRock's ability to
attract and retain high-quality talent.
22 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008
Disclosure of Investment Advisory Agreement and Subadvisory Agreement
(continued)
In addition to advisory services, the Board considered the quality of the
administrative and non-investment advisory services provided to the Fund.
BlackRock and its affiliates provide the Fund with certain administrative,
transfer agency, shareholder and other services (in addition to any such
services provided to the Fund by third parties) and officers and other personnel
as are necessary for the operations of the Fund. In addition to investment
advisory services, BlackRock and its affiliates provide the Fund with other
services, including (i) preparing disclosure documents, such as the prospectus,
the statement of additional information and shareholder reports; (ii) assisting
with daily accounting and pricing; (iii) overseeing and coordinating the
activities of other service providers; (iv) organizing Board meetings and
preparing the materials for such Board meetings; (v) providing legal and
compliance support; and (vi) performing other administrative functions necessary
for the operation of the Fund, such as tax reporting and fulfilling regulatory
filing requirements. The Board reviewed the structure and duties of BlackRock's
fund administration, accounting, legal and compliance departments.
B. The Investment Performance of the Fund and BlackRock: The Board, including
the Independent Trustees, also reviewed and considered the performance history
of the Fund. In preparation for the April 10, 2008 meeting, the Board was
provided with reports, independently prepared by Lipper, which included a
comprehensive analysis of the Fund's performance. The Board also reviewed a
narrative and statistical analysis of the Lipper data that was prepared by
BlackRock, which analyzed various factors that affect Lipper's rankings. In
connection with its review, the Board received and reviewed information
regarding the investment performance of the Fund as compared to a representative
group of similar funds as determined by Lipper and to all funds in the Fund's
applicable Lipper category. The Board was provided with a description of the
methodology used by Lipper to select peer funds. The Board regularly reviews the
performance of the Fund throughout the year. The Board attaches more importance
to performance over relatively long periods of time, typically three to five
years.
The Fund ranked in the fourth, third and fourth quartiles on a net basis against
its Lipper peer universe for the one-, three- and five-year periods ended
December 31, 2007. In considering the Advisory Agreement, the Board discussed
the Fund's disappointing performance with BlackRock. It was noted that the
Fund's expenses for the insurance fee (0.8%) detracts from the Fund's net
performance relative to its peer universe; without the insurance fee the Fund's
performance would have been better than median for the three-year period and
worse than median for the one- and five-year periods.
C. Consideration of the Advisory Fees and the Cost of the Services and Profits
to be Realized by BlackRock and its Affiliates from the Relationship with the
Fund: The Board, including the Independent Trustees, reviewed the Fund's
contractual advisory fee rates compared with the other funds in its Lipper
category. It also compared the Fund's total expenses to those of other
comparable funds. The Board considered the services provided and the fees
charged by BlackRock to other types of clients with similar investment mandates,
including separately managed institutional accounts.
The Board received and reviewed statements relating to BlackRock's financial
condition and profitability with respect to the services it provided the Fund.
The Board was also provided with a profitability analysis that detailed the
revenues earned and the expenses incurred by BlackRock and certain affiliates
that provide services to the Fund. The Board reviewed BlackRock's profitability
with respect to the Fund and each fund the Board currently oversees for the year
ended December 31, 2007 compared to aggregated profitability data provided for
the year ended December 31, 2005.
In addition, the Board considered the cost of the services provided to the Fund
by BlackRock, and BlackRock's and its affiliates' profits relating to the
management and distribution of the Fund and the other funds advised by BlackRock
and its affiliates. As part of its analysis, the Board reviewed BlackRock's
methodology in allocating its costs to the management of the Fund and concluded
that there was a reasonable basis for the allocation. The Board also considered
whether BlackRock has the financial resources necessary to attract and retain
high quality investment management personnel to perform its obligations under
the Agreements and to continue to provide the high quality of services that are
expected by the Board.
The Board noted that BlackRock has agreed to contractually cap the total annual
operating expenses of one or more share classes of the Fund, at certain levels.
The Board observed that those expense caps benefited shareholders by keeping
total fees down even in the absence of breakpoints.
The Board concluded that the Fund's advisory fee structure was reasonable and
that it would continue to review fees in connection with future renewals of the
Agreements.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008 23
Disclosure of Investment Advisory Agreement and Subadvisory Agreement
(concluded)
D. Economies of Scale: The Board, including the Independent Trustees, considered
the extent to which economies of scale might be realized as the assets of the
Fund increase and whether there should be changes in the advisory fee rate or
structure in order to enable the Fund to participate in these economies of
scale. The Board, including the Independent Trustees, considered whether the
shareholders would benefit from economies of scale and whether there was
potential for future realization of economies with respect to the Fund. The
Board considered that the funds in the BlackRock fund complex share common
resources and, as a result, an increase in the overall size of the complex could
permit each fund to incur lower expenses than it would otherwise as stand-alone
entities. The Board also considered the anticipated efficiencies in the
processes of BlackRock's overall operations as it continues to add personnel and
commit capital to expand the scale of operations. The Board found, based on its
review of comparable funds, that the Fund's management fee is appropriate in
light of the scale of the Fund.
E. Other Factors: The Board also took into account other ancillary or "fall-out"
benefits that BlackRock may derive from its relationship with the Fund, both
tangible and intangible, such as BlackRock's ability to leverage its investment
professionals that manage other portfolios, an increase in BlackRock's profile
in the investment advisory community, and the engagement of BlackRock's
affiliates as service providers to the Fund, including for administrative,
transfer agency and distribution services. The Board also noted that BlackRock
may use third party research obtained by soft dollars generated by transactions
in the Fund to assist itself in managing all or a number of its other client
accounts.
In connection with its consideration of the Agreements, the Board also received
information regarding BlackRock's brokerage and soft dollar practices. The Board
received reports from BlackRock which included information on brokerage
commissions and trade execution throughout the year.
Conclusion
The Board approved the continuation of the Advisory Agreement between the
Adviser and the Fund for a one-year term ending June 30, 2009 and the
Subadvisory Agreement between the Adviser and the Subadviser for a one-year term
ending June 30, 2009. Based upon their evaluation of all these factors in their
totality, the Board, including the Independent Trustees, was satisfied that the
terms of the Agreements were fair and reasonable and in the best interest of the
Fund and the Fund's shareholders. In arriving at a decision to approve the
Agreements, the Board did not identify any single factor or group of factors as
all-important or controlling, but considered all factors together. The
Independent Trustees were also assisted by the advice of independent legal
counsel in making this determination. The contractual fee arrangements for the
Fund reflect the result of several years of review by the Trustees and
predecessor Trustees, and discussions between the Trustees (and predecessor
Trustees) and BlackRock. Certain aspects of the arrangements may be the subject
of more attention in some years than in others, and the Trustees' conclusions
may be based in part on their consideration of these arrangements in prior
years.
24 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008
Officers and Trustees
Number of
Length of BlackRock-
Position(s) Time Advised Funds
Name, Address Held with Served as a Principal Occupation(s) and Portfolios Public
and Year of Birth Fund Trustee 2 During Past Five Years Overseen Directorships
====================================================================================================================================
Non-Interested Trustees 1
- ------------------------------------------------------------------------------------------------------------------------------------
Robert M. Hernandez Chairman of Since 2007 Formerly Director, Vice Chairman 37 Funds ACE Limited (insurance
40 East 52nd Street the Board, and Chief Financial Officer of 104 Portfolios company); Eastman
New York, NY 10022 Trustee and USX Corporation (energy and steel Chemical Company
1944 Member of business) from 1991 to 2001. (chemical);
the Audit RTI International
Committee Metals, Inc. (metals);
TYCO Electronics
(electronics)
- ------------------------------------------------------------------------------------------------------------------------------------
Fred G. Weiss Vice Since 2007 Managing Director, FGW 37 Funds Watson Pharmaceutical
40 East 52nd Street Chairman Associates (consulting and 104 Portfolios Inc.
New York, NY 10022 of the investment company) since 1997;
1941 Board, Director, Michael J. Fox
Chairman of Foundation for Parkinson's
the Audit Research since 2000; Formerly
Committee Director of BTG International
and Plc (a global technology
Trustee commercialization company) from
2001 to 2007.
- ------------------------------------------------------------------------------------------------------------------------------------
James H. Bodurtha Trustee Since 2007 Director, The China Business 37 Funds None
40 East 52nd Street Group, Inc. (consulting firm) 104 Portfolios
New York, NY 10022 since 1996 and formerly
1944 Executive Vice President thereof
from 1996 to 2003; Chairman of
the Board, Berkshire Holding
Corporation since 1980.
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce R. Bond Trustee Since 2007 Formerly Trustee and Member of 37 Funds None
40 East 52nd Street the Governance Committee, State 104 Portfolios
New York, NY 10022 Street Research Mutual Funds
1946 from 1997 to 2005; Formerly
Board Member of Governance,
Audit and Finance Committee,
Avaya Inc. (computer equipment)
from 2003 to 2007.
- ------------------------------------------------------------------------------------------------------------------------------------
Donald W. Burton Trustee Since 2007 Managing General Partner, The 37 Funds Knology, Inc.
40 East 52nd Street Burton Partnership, LP (an 104 Portfolios (telecommunications);
New York, NY 10022 investment partnership) since Capital Southwest
1944 1979; Managing General Partner, (financial)
The South Atlantic Venture Funds
since 1983; Member of the
Investment Advisory Council of
the Florida State Board of
Administration from 2001 to
2007.
- ------------------------------------------------------------------------------------------------------------------------------------
Honorable Trustee Since 2007 Partner and Head of 37 Funds UPS Corporation
Stuart E. Eizenstat International Practice, 104 Portfolios (delivery service)
40 East 52nd Street Covington and Burling (law firm)
New York, NY 10022 since 2001; International
1943 Advisory Board Member, The Coca
Cola Company since 2002;
Advisory Board Member BT
Americas (telecommunications)
since 2004; Member of the Board
of Directors, Chicago Climate
Exchange (environmental) since
2006; Member of the
International Advisory Board GML
(energy) since 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. Froot Trustee Since 2005 Professor, Harvard University 37 Funds None
40 East 52nd Street since 1992. 104 Portfolios
New York, NY 10022
1957
- ------------------------------------------------------------------------------------------------------------------------------------
Robert M. Hernandez Chairman of Since 2007 Formerly Director, Vice Chairman 37 Funds ACE Limited
40 East 52nd Street the Board, and Chief Financial Officer of 104 Portfolios (insurance company);
New York, NY 10022 Trustee and USX Corporation (energy and Eastman Chemical
1944 Member of steel business) from 1991 to Company (chemical);
the Audit 2001. RTI International
Committee Metals, Inc. (metals);
TYCO Electronics
(electronics)
- ------------------------------------------------------------------------------------------------------------------------------------
John F. O'Brien Trustee Since 2007 Trustee, Woods Hole 37 Funds Cabot Corporation
40 East 52nd Street Oceanographic Institute since 104 Portfolios (chemicals); LKQ
New York, NY 10022 2003; Formerly Director, Corporation (auto
1943 Allmerica Financial Corporation parts manufacturing);
from 1995 to 2003; Formerly TJX Companies, Inc.
Director, ABIOMED from 1989 to (retailer)
2006; Formerly Director,
Ameresco, Inc. (energy solutions
company) from 2006 to 2007.
- ------------------------------------------------------------------------------------------------------------------------------------
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008 25
Officers and Trustees (continued)
Number of
Length of BlackRock-
Position(s) Time Advised Funds
Name, Address Held with Served as a Principal Occupation(s) and Portfolios Public
and Year of Birth Fund Trustee 2 During Past Five Years Overseen Directorships
====================================================================================================================================
Non-Interested Trustees 1 (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta Cooper Ramo Trustee Since 2007 Shareholder, Modrall, Sperling, 37 Funds None
40 East 52nd Street Roehl, Harris & Sisk, P.A. (law 104 Portfolios
New York, NY 10022 firm) since 1993; Chairman of
1942 the Board, Cooper's Inc.,
(retail) since 2000; Director of
ECMC Group (service provider to
students, schools and lenders)
since 2001; President Elect, The
American Law Institute
(non-profit), 2007; Formerly
President, American Bar
Association from 1995 to 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
Jean Margo Reid Trustee Since 2007 Self-employed consultant since 37 Funds None
40 East 52nd Street 2001; Director and Secretary, 104 Portfolios
New York, NY 10022 SCB, Inc. (holding company)
1945 since 1998; Director and
Secretary, SCB Partners, Inc.
(holding company) since 2000;
Formerly Director, Covenant
House (non-profit) from 2001 to
2004.
- ------------------------------------------------------------------------------------------------------------------------------------
David H. Walsh Trustee Since 2007 Director, National Museum of 37 Funds None
40 East 52nd Street Wildlife Art since 2007; 104 Portfolios
New York, NY 10022 Director, Ruckleshaus Institute
1941 and Haub School of Natural
Resources at the University of
Wyoming since 2006; Director,
The American Museum of Fly
Fishing since 1997; Formerly
Consultant with Putnam
Investments from 1993 to 2003;
Formerly Director, The National
Audubon Society from 1998 to
2005.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard R. West Trustee and Since 2007 Dean Emeritus, New York 37 Funds Bowne & Co., Inc.
40 East 52nd Street Member of University's Leonard N. Stern 104 Portfolios (financial printers);
New York, NY 10022 the Audit School of Business Vornado Realty Trust
1938 Committee Administration since 1995. (real estate company);
Alexander's Inc.
(real estate company)
---------------------------------------------------------------------------------------------------------
1 Trustees serve until their resignation, removal or death, or until December 31 of the year in which
they turn 72.
2 Following the combination of Merrill Lynch Investment Managers, L.P. ("MLIM") and BlackRock, Inc.
("BlackRock") in September 2006, the various legacy MLIM and legacy BlackRock Fund boards were
realigned and consolidated into three new Fund boards in 2007. As a result, although the chart
shows the trustees as joining the Fund's board in 2007, each trustee first became a member of the
board of trustees of other legacy MLIM or legacy BlackRock Funds as follows: James H. Bodurtha
since 1995; Bruce R. Bond since 2005; Donald W. Burton since 2002; Stuart E. Eizenstat since 2001;
Kenneth A. Froot since 2005; Robert M. Hernandez since 1996; John F. O'Brien since 2004; Roberta
Cooper Ramo since 2000; Jean Margo Reid since 2004; David H. Walsh since 2003; Fred G. Weiss since
1998; and Richard R. West since 1978.
26 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008
Officers and Trustees (continued)
Number of
Length of BlackRock-
Position(s) Time Advised Funds
Name, Address Held with Served as a Principal Occupation(s) and Portfolios Public
and Year of Birth Fund Trustee During Past Five Years Overseen Directorships
====================================================================================================================================
Interested Trustees 1
- ------------------------------------------------------------------------------------------------------------------------------------
Richard S. Davis Trustee Since 2007 Managing Director, BlackRock, 185 Funds None
40 East 52nd Street Inc. since 2005; Formerly Chief 295 Portfolios
New York, NY 10022 Executive Officer, State Street
1945 Research & Management Company
from 2000 to 2005; Formerly
Chairman of the Board of
Trustees, State Street Research
Mutual Funds from 2000 to 2005;
Formerly Chairman, SSR Realty
from 2000 to 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Laurence D. Fink Trustee Since 2007 Chairman and Chief Executive 37 Funds None
40 East 52nd Street Officer of BlackRock, Inc. since 104 Portfolios
New York, NY 10022 its formation in 1998 and of
1952 BlackRock, Inc.'s predecessor
entities since 1988 and Chairman
of the Executive and Management
Committees; Formerly Managing
Director, The First Boston
Corporation, Member of its
Management Committee, Co-head of
its Taxable Fixed Income
Division and Head of its
Mortgage and Real Estate
Products Group; Chairman of the
Board of several of BlackRock's
alternative investment vehicles;
Director of several of
BlackRock's offshore funds;
Member of the Board of Trustees
of New York University, Chair of
the Financial Affairs Committee
and a member of the Executive
Committee, the Ad Hoc Committee
on Board Governance, and the
Committee on Trustees;
Co-Chairman of the NYU Hospitals
Center Board of Trustees,
Chairman of the
Development/Trustee Stewardship
Committee and Chairman of the
Finance Committee; Trustee, The
Boys' Club of New York.
- ------------------------------------------------------------------------------------------------------------------------------------
Henry Gabbay Trustee Since 2007 Consultant, BlackRock, Inc. 184 Funds None
40 East 52nd Street since 2007; Formerly Managing 294 Portfolios
New York, NY 10022 Director, BlackRock, Inc. from
1947 1989 to 2007; Formerly Chief
Administrative Officer,
BlackRock Advisors, LLC from
1998 to 2007; Formerly President
of BlackRock Funds and BlackRock
Bond Allocation Target Shares
from 2005 to 2007 and Treasurer
of certain closed-end funds in
the BlackRock fund complex from
1989 to 2006.
---------------------------------------------------------------------------------------------------------
1 Messrs. Davis, Fink and Gabbay are all "interested persons," as defined in the Investment Company
Act of 1940, of the Fund based on their positions with BlackRock, Inc. and its affiliates.
Trustees serve until their resignation, removal or death, or until December 31 of the year in
which they turn 72.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008 27
Officers and Trustees (concluded)
Position(s) Length of
Name, Address Held with Time
and Year of Birth Fund Served Principal Occupation(s) During Past Five Years
====================================================================================================================================
Fund Officers 1
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. Burke Chief Since 2007 Managing Director of BlackRock, Inc. since 2006; Formerly Managing Director of
40 East 52nd Street Executive Merrill Lynch Investment Managers, L.P. ("MLIM") and Fund Asset Management,
New York, NY 10022 Officer L.P. ("FAM") in 2006; First Vice President thereof from 1997 to 2005;
1960 Treasurer thereof from 1999 to 2006 and Vice President thereof from 1990 to
1997.
- ------------------------------------------------------------------------------------------------------------------------------------
Anne F. Ackerley Vice Since 2007 Managing Director of BlackRock, Inc. since 2000; Chief Operating Officer of
40 East 52nd Street President BlackRock's U.S. Retail Group since 2006; Head of BlackRock's Mutual Fund
New York, NY 10022 Group from 2000 to 2006; Merrill Lynch & Co., Inc. from 1984 to 1986 and from
1962 1988 to 2000, most recently as First Vice President and Operating Officer of
the Mergers and Acquisitions Group.
- ------------------------------------------------------------------------------------------------------------------------------------
Neal J. Andrews Chief Since 2007 Managing Director of BlackRock, Inc. since 2006; Formerly Senior Vice
40 East 52nd Street Financial President and Line of Business Head of Fund Accounting and Administration at
New York, NY 10022 Officer PFPC Inc. from 1992 to 2006.
1966
- ------------------------------------------------------------------------------------------------------------------------------------
Jay M. Fife Treasurer Since 2007 Managing Director of BlackRock, Inc. since 2007 and Director in 2006;
40 East 52nd Street Formerly Assistant Treasurer of the MLIM/FAM-advised Funds from 2005 to
New York, NY 10022 2006; Director of MLIM Fund Services Group from 2001 to 2006.
1970
- ------------------------------------------------------------------------------------------------------------------------------------
Brian P. Kindelan Chief Since 2007 Chief Compliance Officer of the BlackRock-advised Funds since 2007;
40 East 52nd Street Compliance Anti-Money Laundering Officer of the BlackRock-advised Funds since 2007;
New York, NY 10022 Officer of Managing Director and Senior Counsel of BlackRock, Inc. since 2005; Director
1959 the Fund and Senior Counsel of BlackRock Advisors, Inc. from 2001 to 2004 and Vice
President and Senior Counsel thereof from 1998 to 2000; Formerly Senior
Counsel of The PNC Bank Corp. from 1995 to 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
Howard Surloff Secretary Since 2007 Managing Director of BlackRock, Inc. and General Counsel of U.S. Funds at
40 East 52nd Street BlackRock, Inc. since 2006; Formerly General Counsel (U.S.) of Goldman Sachs
New York, NY 10022 Asset Management, L.P. from 1993 to 2006.
1965
---------------------------------------------------------------------------------------------------------
1 Officers of the Fund serve at the pleasure of the Board of Trustees.
---------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Trustees is available in the Fund's Statement of
Additional Information, which can be obtained without charge by calling (800) 441-7762.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
Brown Brothers Harriman & Co.
Boston, MA 02109
Transfer Agent
PNC Global Investment
Servicing (U.S.) Inc.
Wilmington, DE 19809
Accounting Agent
State Street Bank and
Trust Company
Princeton, NJ 08540
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Princeton, NJ 08540
Legal Counsel
Willkie Farr & Gallagher LLP
New York, NY 10019
- --------------------------------------------------------------------------------
If you would like a copy, free of charge, of the most recent annual or quarterly
report of Main Place Funding, LLC, the Fund's Warranty Provider, or its parent
corporation, Bank of America Corporation, please contact the Fund at (800)
441-7762.
- --------------------------------------------------------------------------------
28 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008
Additional Information
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their non-public personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal non-public information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our website.
BlackRock does not sell or disclose to non-affiliated third parties any
non-public personal information about its Clients, except as permitted by law or
as is necessary to respond to regulatory requests or to service Client accounts.
These non-affiliated third parties are required to protect the confidentiality
and security of this information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to non-public
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the non-public
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
Availability of Additional Information
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's website or shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:
Please contact your financial advisor. Please note that not all investment
advisors, banks or brokerages may offer this service.
Shareholders Who Hold Accounts Directly with BlackRock:
1) Access the BlackRock website at http://www.blackrock.com/edelivery
2) Click on the applicable link and follow the steps to sign up
3) Log into your account
Householding
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 JUNE 30, 2008 29
Additional Information (concluded)
Availability of Additional Information (concluded)
Availability of Proxy Voting Policies and Procedures
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free (800) 441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's (the
"SEC") website at http://www.sec.gov.
Availability of Proxy Voting Record
Information on how the Fund votes proxies relating to securities held in the
Fund's portfolio during the most recent 12-month period ended June 30 is
available upon request and without charge (1) at www.blackrock.com or by calling
(800) 441-7762 and (2) on the SEC's website at http://www.sec.gov.
Availability of Quarterly Portfolio Schedule
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at http://www.sec.gov and may also be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on 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
and without charge by calling (800) 441-7762.
Shareholder Privileges
Account Information
Call us at (800) 441-7762 from 8:00 AM to 6:00 PM EST to get information about
your account balances, recent transactions and share prices. You can also reach
us on the Web at www.blackrock.com/funds.
Automatic Investment Plans
Investor Class shareholders who want to invest regularly can arrange to have $50
or more automatically deducted from their checking or savings account and
invested in any of the BlackRock funds.
Systematic Withdrawal Plans
Investor Class shareholders can establish a systematic withdrawal plan and
receive periodic payments of $50 or more from their BlackRock funds, as long as
their account is at least $10,000.
Retirement Plans
Shareholders may make investments in conjunction with Traditional, Rollover,
Roth, Coverdell, Simple IRAs, SEP IRAs and 403(b) Plans.
30 BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008
A World-Class Mutual Fund Family
BlackRock offers a diverse lineup of open-end mutual funds crossing all
investment styles and managed by experts in equity, fixed income and tax-exempt
investing.
Equity Funds
BlackRock All-Cap Global Resources Portfolio
BlackRock Asset Allocation Portfolio+
BlackRock Aurora Portfolio
BlackRock Balanced Capital Fund+
BlackRock Basic Value Fund
BlackRock Capital Appreciation Portfolio
BlackRock Equity Dividend Fund
BlackRock EuroFund
BlackRock Focus Growth Fund
BlackRock Focus Value Fund
BlackRock Fundamental Growth Fund
BlackRock Global Allocation Fund+
BlackRock Global Dynamic Equity Fund
BlackRock Global Emerging Markets 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 Health Sciences Opportunities Portfolio*
BlackRock Healthcare Fund
BlackRock Index Equity Portfolio*
BlackRock International Fund
BlackRock International Index Fund
BlackRock International Opportunities Portfolio
BlackRock International Value Fund
BlackRock Large Cap Core Fund
BlackRock Large Cap Growth Fund
BlackRock Large Cap Value Fund
BlackRock Latin America Fund
BlackRock Mid-Cap Growth Equity Portfolio
BlackRock Mid-Cap Value Equity Portfolio
BlackRock Mid Cap Value Opportunities Fund
BlackRock Natural Resources Trust
BlackRock Pacific Fund
BlackRock Small Cap Core Equity Portfolio
BlackRock Small Cap Growth Equity Portfolio
BlackRock Small Cap Growth Fund II
BlackRock Small Cap Index Fund
BlackRock Small Cap Value Equity Portfolio*
BlackRock Small/Mid-Cap Growth Portfolio
BlackRock S&P 500 Index Fund
BlackRock Technology Fund
BlackRock U.S. Opportunities Portfolio
BlackRock Utilities and Telecommunications Fund
BlackRock Value Opportunities Fund
Fixed Income Funds
BlackRock Commodity Strategies Fund
BlackRock Emerging Market Debt Portfolio
BlackRock Enhanced Income Portfolio
BlackRock GNMA Portfolio
BlackRock Government Income Portfolio
BlackRock High Income Fund
BlackRock High Yield Bond Portfolio
BlackRock Income Portfolio
BlackRock Income Builder Portfolio
BlackRock Inflation Protected Bond Portfolio
BlackRock Intermediate Bond Portfolio II
BlackRock Intermediate Government Bond Portfolio
BlackRock International Bond Portfolio
BlackRock Long Duration Bond Portfolio
BlackRock Low Duration Bond Portfolio
BlackRock Managed Income Portfolio
BlackRock Short-Term Bond Fund
BlackRock Strategic Income Portfolio
BlackRock Total Return Fund
BlackRock Total Return Portfolio II
BlackRock World Income Fund
Municipal Bond Funds
BlackRock AMT-Free Municipal Bond Portfolio
BlackRock California Insured Municipal Bond Fund
BlackRock Delaware Municipal Bond Portfolio
BlackRock Florida Municipal Bond Fund
BlackRock High Yield Municipal Fund
BlackRock Intermediate Municipal Fund
BlackRock Kentucky Municipal Bond Portfolio
BlackRock Municipal Insured Fund
BlackRock National Municipal Fund
BlackRock New Jersey Municipal Bond Fund
BlackRock New York Municipal Bond Fund
BlackRock Ohio Municipal Bond Portfolio
BlackRock Pennsylvania Municipal Bond Fund
BlackRock Short-Term Municipal Fund
Target Risk & Target Date Funds
BlackRock Prepared Portfolios
Conservative Prepared Portfolio
Moderate Prepared Portfolio
Growth Prepared Portfolio
Aggressive Growth Prepared Portfolio
BlackRock Lifecycle Prepared Portfolios
Prepared Portfolio 2010
Prepared Portfolio 2015
Prepared Portfolio 2020
Prepared Portfolio 2025
Prepared Portfolio 2030
Prepared Portfolio 2035
Prepared Portfolio 2040
Prepared Portfolio 2045
Prepared Portfolio 2050
* See the prospectus for information on specific limitations on investments
in the fund.
+ Mixed asset fund.
BlackRock mutual funds are distributed by BlackRock Distributors, Inc. and
certain funds are also distributed by FAM Distributors, Inc. You should consider
the investment objectives, risks, charges and expenses of the funds under
consideration carefully before investing. Each fund's prospectus contains this
and other information and is available at www.blackrock.com or by calling (800)
882-0052 or from your financial advisor. The prospectus should be read carefully
before investing.
BLACKROCK BASIC VALUE PRINCIPAL PROTECTED FUND JUNE 30, 2008 31
This report is for shareholders only. Past performance results shown in this
report should not be considered a representation of future performance.
Investment returns and principal value of shares will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost. Statements
and other information herein are as dated and are subject to change.
BlackRock Basic Value Principal Protected Fund of
BlackRock Principal Protected Trust
100 Bellevue Parkway
Wilmington, DE 19809
BLACKROCK
#BVPP-6/08
Item 2 - Code of Ethics - The registrant (or the "Fund") has adopted a code
of ethics, as of the end of the period covered by this report,
applicable to the registrant's principal executive officer,
principal financial officer and principal accounting officer, or
persons performing similar functions. During the period covered by
this report, there have been no amendments to or waivers granted
under the code of ethics. A copy of the code of ethics is available
without charge at www.blackrock.com.
Item 3 - Audit Committee Financial Expert - The registrant's board of
directors or trustees, as applicable (the "board of directors") has
determined that (i) the registrant has the following audit committee
financial experts serving on its audit committee and (ii) each audit
committee financial expert is independent:
David O. Beim (term ended, effective November 1, 2007)
James T. Flynn (term ended, effective November 1, 2007)
Robert M. Hernandez (term began, effective November 1, 2007)
W. Carl Kester (term ended, effective November 1, 2007)
Karen P. Robards (term ended, effective November 1, 2007)
Fred G. Weiss (term began, effective November 1, 2007)
Richard R. West (term began, effective November 1, 2007)
The registrant's board of directors has determined that David O.
Beim, W. Carl Kester and Karen P. Robards qualify as financial
experts pursuant to Item 3(c)(4) of Form N-CSR.
Mr. Beim has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions. For
25 years, Mr. Beim was an investment banker actively engaged in
financial analysis for securities transactions and mergers. These
transactions presented a breadth and level of complexity of
accounting issues that are generally comparable to the breadth and
complexity of issues that can reasonably be expected to be raised by
the registrant's financial statements. Mr. Beim has also been a
professor of finance and economics at the Columbia University
Graduate School of Business since 1991.
Prof. Kester has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions. Prof.
Kester has been involved in providing valuation and other financial
consulting services to corporate clients since 1978. Prof. Kester's
financial consulting services present a breadth and level of
complexity of accounting issues that are generally comparable to the
breadth and complexity of issues that can reasonably be expected to
be raised by the registrant's financial statements.
Ms. Robards has a thorough understanding of generally accepted
accounting principles, financial statements and internal control
over financial reporting as well as audit committee functions. Ms.
Robards has been President of Robards & Company, a financial
advisory firm, since 1987. Ms. Robards was formerly an investment
banker for more than 10 years where she was responsible for
evaluating and assessing the performance of companies based on their
financial results. Ms. Robards has over 30 years of experience
analyzing financial statements. She also is a member of the audit
committee of one publicly held company and a non-profit
organization.
Under applicable securities laws, a person determined to be an audit
committee financial expert will not be deemed an "expert" for any
purpose, including without limitation for the purposes of Section 11
of the Securities Act of 1933, as a result of being designated or
identified as an audit committee financial expert. The designation
or identification as an audit committee financial expert does not
impose on such person any duties, obligations, or liabilities
greater than the duties, obligations, and liabilities imposed on
such person as a member of the audit committee and board of
directors in the absence of such designation or identification.
Item 4 - Principal Accountant Fees and Services
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Audit Fees (b) Audit-Related Fees(1) (c) Tax Fees(2) (d) All Other Fees(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Current Previous Current Previous Current Previous Current Previous
Fiscal Year Fiscal Fiscal Year Fiscal Fiscal Year Fiscal Fiscal Year Fiscal
Entity Name End Year End End Year End End Year End End Year End
- -----------------------------------------------------------------------------------------------------------------------------------
BlackRock Basic
Value Principal
Protected Fund $25,300 $27,400 $0 $0 $6,100 $6,100 $1,049 $0
- -----------------------------------------------------------------------------------------------------------------------------------
1 The nature of the services include assurance and related services reasonably
related to the performance of the audit of financial statements not included in
Audit Fees.
2 The nature of the services include tax compliance, tax advice and tax
planning.
3 The nature of the services include a review of compliance procedures and
attestation thereto.
(e)(1) Audit Committee Pre-Approval Policies and Procedures:
The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to
the registrant's affiliated service providers that relate directly
to the operations and the financial reporting of the registrant.
Certain of these non-audit services that the Committee believes are
a) consistent with the SEC's auditor independence rules and b)
routine and recurring services that will not impair the independence
of the independent accountants may be approved by the Committee
without consideration on a specific case-by-case basis ("general
pre-approval"). The term of any general pre-approval is 12 months
from the date of the pre-approval, unless the Committee provides for
a different period. Tax or other non-audit services provided to the
registrant which have a direct impact on the operation or financial
reporting of the registrant will only be deemed pre-approved
provided that any individual project does not exceed $10,000
attributable to the registrant or $50,000 for all of the registrants
the Committee oversees. For this purpose, multiple projects will be
aggregated to determine if they exceed the previously mentioned cost
levels.
Any proposed services exceeding the pre-approved cost levels
will require specific pre-approval by the Committee, as will any
other services not subject to general pre-approval (e.g.,
unanticipated but permissible services). The Committee is informed
of each service approved subject to general pre-approval at the next
regularly scheduled in-person board meeting. At this meeting, an
analysis of such services is presented to the Committee for
ratification. The Committee may delegate to one or more of its
members the authority to approve the provision of and fees for any
specific engagement of permitted non-audit services, including
services exceeding pre-approved cost levels.
(e)(2) None of the services described in each of Items 4(b) through
(d) were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not Applicable
(g) Affiliates' Aggregate Non-Audit Fees:
--------------------------------------------------------------------
Current Fiscal Previous Fiscal
Entity Name Year End Year End
--------------------------------------------------------------------
BlackRock Basic Value Principal
Protected Fund $294,649 $2,967,000
--------------------------------------------------------------------
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any non-affiliated
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by the registrant's investment
adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services
to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with
maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $287,500, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Investments
(a) The registrant's Schedule of Investments is included as part of
the Report to Stockholders filed under Item 1 of this form.
(b) Not Applicable due to no such divestments during the semi-annual
period covered since the previous Form N-CSR filing.
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating and Governance Committee will consider
nominees to the board of directors recommended by shareholders when
a vacancy becomes available. Shareholders who wish to recommend a
nominee should send nominations that include biographical
information and set forth the qualifications of the proposed nominee
to the registrant's Secretary. There have been no material changes
to these procedures.
Item 11 - Controls and Procedures
11(a) - The registrant's principal executive and principal financial
officers or persons performing similar functions have concluded that
the registrant's disclosure controls and procedures (as defined in
Rule 30a-3(c) under the Investment Company Act of 1940, as amended
(the "1940 Act")) are effective as of a date within 90 days of the
filing of this report based on the evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act and Rule
15d-15(b) under the Securities Exchange Act of 1934, as amended.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act)
that occurred during the second fiscal quarter of the period covered
by this report that have materially affected, or are reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Basic Value Principal Protected Fund of BlackRock Principal Protected
Trust
By: /s/ Donald C. Burke
-------------------
Donald C. Burke
Chief Executive Officer of
BlackRock Basic Value Principal Protected Fund of
BlackRock Principal Protected Trust
Date: August 22, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Donald C. Burke
-------------------
Donald C. Burke
Chief Executive Officer (principal executive officer) of
BlackRock Basic Value Principal Protected Fund of
BlackRock Principal Protected Trust
Date: August 22, 2008
By: /s/ Neal J. Andrews
-------------------
Neal J. Andrews
Chief Financial Officer (principal financial officer) of
BlackRock Basic Value Principal Protected Fund of
BlackRock Principal Protected Trust
Date: August 22, 2008