Edgar Filing: BlackRock Inc.

BlackRock, Inc.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File No. 001-33099

BlackRock, Inc.

(Exact name of registrant as specified in its charter)

Delaware

32-0174431

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

40 East 52nd Street, New York, NY 10022

(Address of principal executive offices)

(212) 810-5300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange

on which registered

Common Stock, $.01 par value

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known, seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of the registrant’s knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2006 was approximately $2.2 billion. There is no non-voting common stock of the registrant outstanding.

As of March 9, 2007, there were 116,332,365 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference herein:

Portions of the definitive Proxy Statement of BlackRock, Inc. to be filed pursuant to Regulation 14A of the general rules and regulations under the Securities Exchange Act of 1934, as amended, for the 2007 annual meeting of stockholders to be held on May 23, 2007 (“Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.

BlackRock, Inc.

Index to Form 10-K

TABLE OF CONTENTS


	PART I

Item 1	Business	1

Item 1A	Risk Factors	14

Item 1B	Unresolved Staff Comments	19

Item 2	Properties	20

Item 3	Legal Proceedings	20

Item 4	Submission of Matters to a Vote of Security Holders	20

	PART II

Item 5	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21

Item 6	Selected Financial Data	23

Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 7A	Quantitative and Qualitative Disclosures About Market Risk	54

Item 8	Financial Statements and Supplementary Data	56

Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	56

Item 9A	Controls and Procedures	56

Item 9B	Other Information	57

	PART III

Item 10	Directors, Executive Officers and Corporate Governance	57

Item 11	Executive Compensation	57

Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	57

Item 13	Certain Relationships and Related Transactions, and Director Independence	57

Item 14	Principal Accountant Fees and Services	57

	PART IV

Item 15	Exhibits and Financial Statement Schedules	58

Part I

Item 1.

BUSINESS

Overview

BlackRock Inc. (“BlackRock” or the “Company”) is one of the largest publicly traded investment management firms in the United States with $1.125 trillion of assets under management (“AUM”) at December 31, 2006. Assets are managed on behalf of retail and institutional clients in a variety of fixed income, equity and balanced, cash management and alternative investment strategies. In addition, BlackRock provides investment system, risk management, advisory and transition management services to a select number of global institutional investors.

On September 29, 2006, Merrill Lynch & Co., Inc. (“Merrill Lynch”) contributed the entities and assets that constituted its investment management business (the “MLIM Business,” formerly named Merrill Lynch Investment Managers or “MLIM”), to the Company. In exchange for this contribution, BlackRock issued to Merrill Lynch 52,395,082 shares of common stock and 12,604,918 shares of Series A non-voting participating preferred stock. Immediately following the closing, Merrill Lynch owned 45% of the voting common stock and approximately 49.3% of the fully-diluted capital stock of the combined company (such transactions, collectively, are referred to as the “MLIM Transaction”). The PNC Financial Services Group, Inc. (“PNC”), which owned approximately 69% of the total capital stock of the Company immediately prior to the MLIM Transaction, owned approximately 34% of the total capital stock of the Company immediately following the closing.

BlackRock closed 2006 with AUM of $1.125 trillion, up $133.0 billion over year-end pro forma 2005 combined (BlackRock and MLIM) AUM of $991.6 billion. Net new business accounted for $60.5 billion, or 46%, of the total increase. Over the past five years, BlackRock’s AUM has increased by 371.4%, including net inflows of $150.4 billion, market appreciation of $96.5 billion and acquired AUM of $639.1 billion.

Assets Under Management

By Asset Class


*(Dollars in millions)*	2006		2005		2004		2003		2002		2001		5 Year CAGR
Fixed Income	$	455,931	$	303,928	$	240,709	$	214,356	$	175,586	$	135,242	27.5	%
Equity and Balanced		392,708		37,303		14,792		13,721		13,464		18,280	84.7	%
Cash Management		227,849		86,128		78,057		74,345		78,512		79,753	23.4	%
Alternative Investments		48,139		25,323		8,202		6,934		5,279		5,309	55.4	%

Total	$	1,124,627	$	452,682	$	341,760	$	309,356	$	272,841	$	238,584	36.4	%

BlackRock increased the diversification of its product offerings through the MLIM Transaction. At December 31, 2006, fixed income products represented 41%, equity and balanced products 35%, cash management products 20% and alternative investment products 4% of BlackRock’s total AUM. Similarly, BlackRock achieved greater balance in its client base through the MLIM Transaction. At year-end 2006, 69% of AUM were managed for institutions and 31% for retail investors. The Company’s global scope also was enhanced by the MLIM Transaction. At December 31, 2006, 66% of BlackRock assets were managed for U.S. investors and 34% for international clients. In addition, the Company continued to expand its BlackRock Solutions^® products and related services, which achieved aggregate revenue growth of 20% in 2006.

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Item 1.

BUSINESS (continued)

Overview (continued)

Selected financial results for the last six years are shown below:

Selected GAAP Financial Results


*(Dollars in thousands, except per share amounts)*	2006		2005		2004		2003		2002		2001		5 Year CAGR
Revenue	$	2,097,976	$	1,191,386	$	725,311	$	598,212	$	576,977	$	533,144	31.5	%
Operating income	$	471,800	$	340,541	$	165,798	$	228,276	$	215,139	$	170,176	22.6	%
Net income	$	322,602	$	233,908	$	143,141	$	155,402	$	133,249	$	107,434	24.6	%
Diluted earnings per share	$	3.87	$	3.50	$	2.17	$	2.36	$	2.04	$	1.65	18.7	%
Cash, cash equivalents and investments	$	3,257,878	$	782,891	$	685,170	$	550,864	$	465,793	$	325,577	57.6	%

Other Non-GAAP Data

*(Dollars in thousands, except per share amounts)*	2006¹		2005¹		2004¹		2003²		2002²		2001³		5 Year CAGR
Operating income, as adjusted	$	707,598	$	408,448	$	263,311	$	231,417	$	213,729	$	170,176	32.9	%
Net income, as adjusted	$	444,703	$	269,622	$	177,709	$	155,402	$	133,249	$	107,434	32.8	%
Diluted earnings per share, as adjusted	$	5.33	$	4.03	$	2.69	$	2.36	$	2.04	$	1.65	26.4	%

¹	See reconciliation to GAAP measures in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview.

Operating income, as adjusted in 2003 and 2002, excludes compensation expense related to deferred compensation plan asset appreciation (depreciation) of $3,141 and ($1,410), respectively. Management has excluded this expense from operating income, as adjusted, because investment returns on these assets reported in non-operating income, net of the related impact on compensation expense, result in a nominal impact on net income. No adjustments were made to net income in 2003 and 2002. Such amounts are shown in the non-GAAP table for comparative purposes only.

³	No non-GAAP adjustments were made to 2001 GAAP operating income or net income. Such amounts are shown in the non-GAAP table for comparative purposes only.

See additional information in Item 6, Selected Financial Data.

While BlackRock reports its financial results using accounting principles generally accepted in the United States of America (“GAAP”), management believes that evaluating the Company’s ongoing operating results may not be as useful if investors are limited to reviewing only GAAP financial measures. Management reviews non-GAAP financial measures to assess the Company’s ongoing operations, and for the reasons described below, considers them to be effective indicators, for both management and investors, of BlackRock’s financial performance over time. BlackRock’s management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Certain prior year non-GAAP data has been restated to conform to current year presentation.

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Item 1.

BUSINESS (continued)

Overview (continued)

GAAP reported operating income includes all compensation related expenses associated with BlackRock’s 2002 Long-Term Retention and Incentive Plan (“LTIP”), certain one-time costs related to the integration of the MLIM Transaction in 2006, certain costs associated with the SSRM Holdings, Inc. (“SSR”) acquisition in 2005, a one-time fee sharing payment in 2006 relating to the SSR acquisition, compensation expense associated with appreciation on assets related to BlackRock’s deferred compensation plans and compensation charges which the Company anticipates will be reimbursed by Merrill Lynch in the future. Operating income, as adjusted (a non-GAAP measure), excludes the portion of the LTIP expense associated with awards met by the distribution to participants of shares of BlackRock common stock previously held by PNC because, exclusive of the impact related to LTIP participants’ put options, these charges have not impacted BlackRock’s book value. A detailed discussion of the LTIP is included in Note 13 to the consolidated financial statements beginning on page F-1 of this Form 10-K. MLIM Transaction and SSR acquisition costs consist principally of certain professional fees and compensation costs related to those transactions. Also included in MLIM Transaction costs are rebranding costs. MLIM Transaction and SSR acquisition costs have been deemed non-recurring by management and have been excluded from operating income, as adjusted, to help ensure the comparability of this information to prior periods. The 2006 fee sharing payment has been excluded from operating income, as adjusted, because it represents a non-recurring payment pursuant to the SSR acquisition agreement, which, while impacting BlackRock’s book value, is not representative of BlackRock’s core business. Compensation expense associated with the appreciation of assets related to BlackRock’s deferred compensation plans has been excluded from operating income, as adjusted, because investment returns on these assets reported in non-operating income, net of the related impact on compensation expense, result in a nominal impact on net income. Compensation charges to be reimbursed by Merrill Lynch have been excluded from operating income, as adjusted, because these charges are not expected to impact BlackRock’s book value. Bonus expense related to the Company’s sale of its equity interest in Trepp, LLC has been deemed to be non-recurring by management and has been excluded from operating income, as adjusted, in 2004 to help ensure the comparability of this information to subsequent reporting periods.

GAAP reported net income and GAAP diluted earnings per share include certain charges and gains, the after-tax impact of which management considers non-recurring and, therefore, excludes in assessing ongoing profitability. Net income and diluted earnings per share, as adjusted (a non-GAAP measure), excludes the after-tax impact of LTIP expense to be funded by PNC, MLIM Transaction costs, SSR acquisition costs, Merrill Lynch compensation contribution, gains recognized on the release of reserves related to New York State and New York City tax audits and a net gain recognized on the sale of BlackRock’s equity interest in Trepp, LLC.

See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for a detailed reconciliation of GAAP reported operating income, net income and diluted earnings per share to adjusted non-GAAP operating income, net income and diluted earnings per share.

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Item 1.

BUSINESS (continued)

Products

BlackRock offers a wide variety of fixed income, equity and balanced, cash management and alternative investment products. Revenue from these products primarily consists of advisory fees, typically structured as a percentage of AUM and, in some instances, performance fees expressed as a percentage of returns realized in excess of agreed-upon targets. BlackRock also offers risk management, investment system outsourcing, financial advisory and transition management services to institutional investors under the BlackRock Solutions brand name.

The MLIM Transaction increased BlackRock’s product offerings. The Company now offers bond portfolios denominated in U.S. dollars, pounds sterling, euros, yen and Australian dollars. MLIM’s equity capabilities were substantially broader than BlackRock’s, and the combined platform spans global markets, styles and capitalization ranges. BlackRock also expanded its alternative investment capabilities, adding real estate expertise in Australia and the U.K., single strategy hedge funds and private equity and hedge funds of funds, as well as deeper capabilities in portable alpha strategies, liability driven investing and multi-asset class solutions.

Fixed Income

BlackRock offers a wide range of fixed income products across various bond markets and sectors as well as various maturities along the yield curve. BlackRock designs portfolios to meet specific client risk and return profiles. BlackRock’s fixed income AUM grew 50% year-over-year to $455.9 billion, including $132.8 billion of assets acquired in the MLIM Transaction.

BlackRock applies a consistent style to all fixed income strategies, emphasizing controlled duration and active sector rotation. All bond portfolios are managed by BlackRock’s fixed income team, which is comprised of regional and sector specialists as well as credit and quantitative analysts, all of whom work closely together to share information, formulate investment themes and implement specific strategies in accordance with each portfolio’s investment objectives and guidelines. They are supported by extensive analytical tools and a shared research database that includes reports from both equity and credit analysts throughout the Company. Investment operations are facilitated by Aladdin^{^®}, BlackRock’s proprietary enterprise investment system, which integrates risk analytics and information processing capabilities to support efficient workflow, and by an experienced team of operations, administration and compliance professionals.

BlackRock’s fixed income portfolio management team seeks competitive investment performance by consistently employing a disciplined process designed to add incremental returns in excess of benchmarks. While competitive performance is key, ensuring that portfolio risks are consistent with client objectives is paramount. Approximately 92% percent of BlackRock’s institutional composites outperformed their benchmarks for the one-year period, and 100% for the three- and five-year periods, ended December 31, 2006.*

*	See Product Performance Notes below.

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Item 1.

BUSINESS (continued)

Products (continued)

Fixed Income (continued)

The MLIM Transaction accelerated the Company’s expansion into the international fixed income market. Global bond mandates grew from $20.4 billion at year-end 2005 to $38.0 billion at year-end 2006. In addition, the merger increased local market capabilities with the addition of established investment teams in London, Sydney and Tokyo, bringing assets in these strategies to $32.6 billion. Capabilities in distressed, high yield, municipal bonds and credit research were also strengthened.

Net new business in fixed income totaled $3.0 billion, a slower rate of growth than historical experience due in part to a slowdown in institutional investor activity given persistent low rates in the United States, consultant wariness of the MLIM Transaction and a number of account terminations in connection with client mergers and decisions to internalize asset management. In the face of these challenges, BlackRock sustained positive momentum in key products, including core, global and local currency strategies, which contributed $5.9 billion of net inflows during the year. The varied rates of growth and expansion of the product line have enhanced diversification of fixed income AUM. Core bond mandates, for example, have grown at a compound annual rate of 17% over the past five years to $132.2 billion at December 31, 2006. Targeted duration portfolios have increased from 27% to 29% since 2001, and global bond mandates expanded from 0.4% to 8% of total fixed income assets over the same period.

The Company also further diversified its fixed income client base geographically as non-U.S. investors allocated capital to the global bond markets. At December 31, 2006, 68% of fixed income AUM was managed for U.S. investors and 32% for non-U.S. investors. During 2006, international clients awarded BlackRock with $7.4 billion of net inflows, while U.S. clients had $4.4 billion of net outflows due to client mergers and product maturities. Although the fixed income business remains predominantly institutional (82% of total bond AUM), significant retail assets were added with the MLIM Transaction. Net new business across all institutional clients globally was $3.2 billion during the year, while the retail channel experienced outflows of $167 million.

Equities and Balanced

BlackRock closed 2006 with equity and balanced AUM of $392.7 billion. The MLIM Transaction dramatically changed BlackRock’s equity platform. In addition to U.S., international and emerging market offerings, the combined Company manages equity portfolios with strategies specific to the United Kingdom, Europe, Japan and Australia. BlackRock’s equity professionals serve global investors from offices in New York, London, Boston, Edinburgh, Hong Kong, Melbourne, Philadelphia, Princeton, Singapore and Tokyo. The growth in BlackRock’s equity AUM was the result of $10.7 billion of net new business, $314.4 billion of assets acquired in the MLIM Transaction and favorable equity markets over the course of the year.

The Company’s equity products, which cover a range of risk profiles, employ primarily either an active quantitative approach or an active fundamental approach, both of which seek to add value principally through stock selection. The Company’s quantitative strategies employ sophisticated, proprietary models to drive the investment process. The firm’s fundamental strategies emphasize in-depth company and industry research as well as macro-economic analysis as the basis for stock selection. Portfolios are managed by distinct teams that each invest according to their own philosophy, process and style and all benefit from shared information and a common trading, systems, operations, administration and compliance platform.

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Item 1.

BUSINESS (continued)

Products (continued)

Equities and Balanced (continued)

BlackRock’s diversified equity platform is reflected in its client and channel mix, as well as its product mix. At December 31, 2006, 48% of the Company’s total equity and balanced AUM, or $187.8 billion, were managed for U.S. investors and 52%, or $204.9 billion, were managed for non-U.S. investors. In addition, BlackRock’s channel mix was well balanced with 45% of assets managed on behalf of institutions and 55% managed on behalf of retail and high net worth investors. Notwithstanding the MLIM Transaction, most of BlackRock’s investment teams sustained strong performance track records. Approximately 66% of the Company’s equity mutual fund assets ranked in the top two peer group quartiles for the one-year period ended December 31, 2006* and over 70% ranked in the top two peer group quartiles for the three- and five-year periods ended December 31, 2006.*

Cash Management

BlackRock is a leading provider of cash management products with $227.8 billion in global cash management AUM at December 31, 2006, including a variety of money market funds and customized portfolios. AUM in these strategies increased $141.7 billion, or 165%, during 2006, including $127.7 billion of assets added in the MLIM Transaction. Net new business totaled $12.4 billion during the year across a variety of products.

In addition to the MLIM Transaction, a number of factors contributed to BlackRock’s growth in cash management assets during 2006. A continued neutral stance by the Federal Reserve Bank and a flat U.S. yield curve contributed to favorable flows in institutional liquidity products. Competitive performance and an abiding focus on client service were also vital to ongoing new business efforts. For the year ended December 31, 2006, 89% of BlackRock’s U.S. institutional money market fund assets ranked in the top two Lipper peer group quartiles.* Finally, the Company’s expanded product set, which includes enhanced yield strategies and a suite of non-U.S. cash management products that were added in the MLIM Transaction, helped to bolster BlackRock’s already strong cash management platform.

BlackRock’s cash management activities are primarily conducted on behalf of U.S. clients, although there is increasing demand among international clients for similar products. At December 31, 2006, cash management AUM for U.S. investors reached $213.5 billion and assets from international investors were $14.3 billion. For 2006, net inflows from U.S. investors totaled $10.4 billion and $2.0 billion was raised from international investors. Institutional clients represent the largest percentage of BlackRock’s cash management platform with $174.5 billion of assets at December 31, 2006. Retail client cash management assets have grown from $3.1 billion at year-end 2005 to $53.3 billion at year-end 2006, largely as a result of the MLIM Transaction.

Alternative Investment Products

BlackRock’s alternative investment strategies are designed to provide enhanced returns with the same or less risks as the broad equity and bond markets or returns with low correlations to the broad equity and bond markets and, in many cases, employ actual or structural leverage in an effort to enhance returns. The Company’s offerings include real estate products, structured debt products, fixed income and equity hedge funds, hedge funds of funds, private equity funds and funds of funds, and multi-asset class products. The MLIM Transaction significantly increased the global profile of the Company’s alternatives business, both in terms of products and distribution, positioning BlackRock as a leading worldwide provider of alternative investment products. During 2006, total assets managed in alternative investments increased by $22.8 billion to $48.1 billion at December 31, 2006. The MLIM Transaction added $14.2 billion of alternatives AUM as of the closing date.

*	See Product Performance Notes below.

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Item 1.

BUSINESS (continued)

Products (continued)

Alternative Investment Products (continued)

BlackRock’s real estate platform continued to expand, growing to $20.6 billion at year-end 2006. Growth was led by $5.7 billion of net inflows and $4.2 billion of assets acquired in the MLIM Transaction. Growth was driven in part by acquisition activity during the year. Notably in the fourth quarter of 2006, BlackRock and Tishman-Speyer formed a joint venture to acquire Peter Cooper Village and Stuyvesant Town, the largest apartment complex in New York City, from MetLife, Inc. (“MetLife”) for $5.4 billion. The MLIM Transaction added non-U.S. property products managed by teams in Australia and the United Kingdom, key additions to BlackRock’s growing global real estate platform.

Fixed income sector specialists manage $13.2 billion of assets in collateralized debt obligations (“CDOs”) as of December 31, 2006. During the year, BlackRock added $3.7 billion of assets through the issuance of six new CDO vehicles. BlackRock’s fixed income team also manages a number of alternative investment strategies using the same investment process that supports traditional bond portfolios. Assets in fixed income hedge funds, commodities portfolios and long-only absolute return strategies totaled $4.4 billion at December 31, 2006.

The Company’s equity hedge funds and hedge funds of funds AUM grew to $5.8 billion at December 31, 2006, including $3.2 billion of assets in products added at the closing of the MLIM Transaction. These products are managed by experienced teams in New York, Boston and London. BlackRock also enhanced its private equity offerings in 2006. In addition to BlackRock Kelso Capital Corporation, a business development company advised by BlackRock Kelso Capital Advisors LLC in which the Company has a 36.5% ownership interest, BlackRock now offers private equity funds of funds and has staffed a team investing directly in private equity. At December 31, 2006, assets in these products totaled $3.4 billion.

BlackRock Solutions

Since its formation, BlackRock has developed and maintained proprietary investment systems to support its business. These capabilities are offered under the brand name, BlackRock Solutions. In 2006, BlackRock Solutions’ revenues from system outsourcing, risk management, advisory, transition and investment services increased by 20% in the aggregate to $148.0 million. During the year, 17 net new assignments were added. By year-end 2006, BlackRock Solutions had completed three system implementations and had three implementations in process. BlackRock’s Aladdin^® platform was selected by two official institutions, a validation of efforts to expand the Company’s global business for BlackRock Solutions. In addition, the advisory team added 17 and completed 18 short-term assignments. In 2006, BlackRock Solutions surpassed the milestone of having over 100 distinct assignments for more than 90 clients, while at the same time being extensively involved in the conversion of MLIM’s global fixed income and U.S. equity portfolios to the Aladdin platform.

BlackRock Solutions’ core products consist of tools that support the investment process. These include Aladdin and a variety of other proprietary analytical tools for clients that do not require all of the functionality of the enterprise system. In addition, BlackRock Solutions offers a variety of risk management and financial advisory services. In 2006, BlackRock Solutions was retained on six net new Aladdin assignments and seven net new long-term risk management and advisory assignments. BlackRock Solutions also provides investment accounting outsourcing, typically bundled with asset management services, as well as ancillary outsourcing services, such as performance measurement and middle and back office trade support, for clients who wish to extend their relationships. BlackRock Solutions added four net new investment accounting relationships in 2006. Finally, as a result of the MLIM Transaction, BlackRock Solutions now offers transition management services.

At year-end 2006, BlackRock Solutions had been retained for numerous services, including 21 Aladdin assignments, 63 risk management and advisory assignments and 25 outsourcing assignments. BlackRock Solutions provided these services for a well-diversified list of clients including banks, insurance companies, broker dealers, asset managers and hedge funds, pensions, endowments and foundations and other financial institutions.

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Item 1.

BUSINESS (continued)

Product Performance Notes

Past performance is no guarantee of future results. Mutual fund performance data is net of fees and expenses, assumes the reinvestment of dividends and capital gains distributions. BlackRock waives certain fees, without which performance would be lower. Investments in mutual funds are neither insured nor guaranteed by the U.S. government. Relative peer group performance is based on quartiles from Lipper Inc. for U.S. funds and Standard & Poor’s for non-U.S. funds. Rankings are based on total returns with dividends and distributions reinvested and do not reflect sales charges. Funds with returns among the top 25% of a peer group of funds with comparable objectives are in the first quartile and funds with returns in the next 25% of a peer group are in the second quartile. Some funds have less than five years of performance.

Composites Performance: Investment performance does not reflect the deduction of advisory fees and other expenses, which will reduce performance results and the return to investors. All performance results assume reinvestment of dividends, interest and/or capital gains. Some composites have less than five years of performance.

Clients

BlackRock serves a diverse universe of institutional and retail investors globally. Products are offered both directly and through financial intermediaries. BlackRock seeks to distinguish itself by using its enhanced global perspective and scale to benefit clients and help them creatively solve problems. In 2006, clients turned to BlackRock for a variety of services. At year-end, the Company’s AUM had grown to $1.125 trillion, up $133.0 billion over year-end 2005 pro forma combined AUM of $991.6 billion (BlackRock and MLIM). In investment management, the Company was awarded $60.5 billion of combined net new business from new and existing clients, $27.7 billion of which was reported as “acquired AUM” in connection with the MLIM Transaction. Net inflows were well diversified geographically as well as by client type. During the year, the Company was also retained on 17 net new BlackRock Solutions assignments.

The international business that MLIM brought to the new organization gave BlackRock a significantly expanded global presence. The MLIM Transaction added $238.4 billion of AUM managed on behalf of non-U.S. investors bringing total assets managed for international clients to $383.3 billion at December 31, 2006. During the year, BlackRock was awarded $15.5 billion of net new business from non-U.S. clients in over 50 countries. New business efforts encompass direct calling on institutional investors and their consultants, as well as wholesale distribution of funds and unit trusts through broker dealers and other financial intermediaries. International clients are served by employees in over 25 offices across the globe.

BlackRock also serves a large and growing base of U.S. investors. In 2006, net new business from U.S. clients totaled $17.3 billion across a wide range of products, increasing total assets managed for U.S. investors to $741.3 billion at year-end. Client channels served include pension and other tax exempt clients, insurance and other taxable investors, institutional cash management and institutional and retail fund investors. The professionals serving these clients are primarily based in the Company’s New York, Boston, Princeton (New Jersey), Florham Park (New Jersey), San Francisco and Wilmington (Delaware) offices.

BlackRock’s asset base is also diversified by the types of clients served. At December 31, 2006, BlackRock managed $772.1 billion, or 69% of total AUM, on behalf of institutional investors and $352.5 billion, or 31% of total AUM, on behalf of retail and high net worth clients globally. During the year, institutional investor AUM grew $363.5 billion with $23.5 billion coming from net new business across client segments and $305.9 billion of assets contributed from the MLIM Transaction. Institutional clients served include tax-exempt, taxable, institutional cash management and institutional fund investors.

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Item 1.

BUSINESS (continued)

Clients (continued)

Assets managed for tax-exempt institutions, including defined benefit and defined contribution pension plans, foundations, endowments and other non-profit organizations, increased 94% to $352.7 billion at December 31, 2006. For the year, net new business from these investors totaled $15.3 billion. BlackRock works with pension plan sponsors and their consultants to address changing asset allocation strategies and to consider appropriate investment opportunities. Management believes that these clients increasingly demonstrate a preference for more services from fewer managers and that BlackRock can benefit from this trend. In addition, management believes a more robust mutual fund family should be of interest to defined contribution plans and smaller institutional investors, while expanded alternative investment offerings should appeal to foundations and endowments.

AUM for taxable institutions worldwide increased 68% during the year to $240.5 billion at year-end 2006. The MLIM Transaction added $88.7 billion of assets to this channel. The Company’s insurance business encompasses customized investment management, specialized risk management and accounting services. BlackRock is one of the largest managers of insurance assets worldwide, benefiting from an ongoing trend toward investment outsourcing. This business is, however, subject to event risk arising from insurance company mergers as well as client decisions to internalize asset management. In 2006, outflows resulting from such one-time events totaled $7.0 billion, which exceeded $5.9 billion of net inflows from other taxable institutions throughout the year.

At year-end 2006, AUM in institutional cash management products were $174.5 billion, up 110% from December 31, 2005. New business efforts produced $9.4 billion of net inflows and the MLIM Transaction added $81.1 billion of assets at closing. BlackRock continually seeks ways to provide innovative cash management solutions to clients. In 2006, these efforts focused on helping clients identify opportunities to more profitably invest in a low rate environment, while assuming relatively little additional risk. BlackRock also focuses on providing flexible and responsive client service, which is conducted through its call center and online account management tools. Management believes that these efforts, together with competitive yields on the Company’s products, will enable BlackRock to better withstand volatility in asset flows, build its client base and increase market share over time.

The investment and risk management expertise that BlackRock brings to the management of institutional products is also available globally through separate accounts, open-end and closed-end funds, offshore funds, unit trusts and alternative investment vehicles for individual investors. The scope and scale of the Company’s retail business were substantially enhanced through MLIM’s substantial base of U.S. mutual funds and separately managed account offerings and industry-leading international mutual fund platform. As of December 31, 2005, MLIM managed $222.7 billion and $65.3 billion for U.S. and international retail investors, respectively. At December 31, 2006, the combined firm managed $352.5 billion of assets on behalf of retail and high net worth investors worldwide, including $247.6 billion for investors based in the U.S. and $104.9 billion for international individuals. Aggregate growth of $308.5 billion year-over-year includes $9.3 billion in combined net inflows during 2006. Of this total, $7.4 billion was raised from U.S. retail and high net worth clients and we closed the year with $247.6 billion under management for these investors. Net new business from international retail clients totaled $1.9 billion, driving an increase in total international retail AUM to $104.9 billion at year-end.

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Item 1.

BUSINESS (continued)

Competition

BlackRock competes with investment management firms, mutual fund complexes, insurance companies, banks, brokerage firms and other financial institutions that offer products that are similar to, or alternatives to, those offered by BlackRock. In order to grow its business, BlackRock must be able to compete effectively for AUM. Key competitive factors include investment performance track records, investment style and discipline, client service and brand name recognition. Historically, the Company has competed principally on the basis of its long-term investment performance track record, its investment process, its risk management and analytic capabilities and the quality of its client service. BlackRock has grown aggregate AUM and management believes that the Company will continue to do so by focusing on strong investment performance and client service and by developing new products and new distribution capabilities. Many of the Company’s competitors, however, have greater financial or marketing resources and better brand name recognition than BlackRock, particularly in retail channels and outside the United States. These factors may place BlackRock at a competitive disadvantage and there can be no assurance that the Company’s strategies and efforts to maintain its existing AUM and attract new business will be successful.

Geographic Information

Subsequent to the MLIM Transaction, BlackRock had clients in over 50 countries, primarily the United States, the United Kingdom, Japan and Australia.

The following chart shows the Company’s revenues and long lived assets including investments, separate account assets, in Europe of $4.3 billion, property and equipment and other assets by region for the year ended December 2006. These amounts are aggregated on a legal entity basis and do not necessarily reflect, in all cases, where the customer is sourced or the asset is physically located.


(in millions)	United States		Europe		Other		Total
Revenues	$	1,715.2	$	309.1	$	73.7	$	2,098.0
Long-Lived Assets	$	2,065.5	$	4,529.9	$	16.8	$	6,612.2

The Company’s revenues and long-lived assets in Europe are primarily generated and held, respectively, in the United Kingdom and include $4.3 billion of separate account assets held by the Company’s registered life insurance subsidiary, which are held by the company on behalf of clients and are entirely offset by a corresponding separate account liability. Other primarily represents revenues and assets from the Company’s subsidiaries in Japan and Australia.

Employees

At December 31, 2006, BlackRock had a total of 5,113 full-time employees, including 447 of Realty whose salaries are fully reimbursed by certain real estate funds. Of all full-time employees, 1,474 represent employees located in offices outside the United States.

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Item 1.

BUSINESS (continued)

Regulation

Virtually all aspects of BlackRock’s business are subject to various laws and regulations both in and outside the United States, some of which are summarized below. These laws and regulations are primarily intended to protect investment advisory clients, stockholders of registered and unregistered investment companies and PNC’s bank subsidiaries and their customers. Under these laws and regulations, agencies that regulate investment advisers and bank holding companies and their subsidiaries, such as BlackRock and its subsidiaries, have broad administrative powers, including the power to limit, restrict or prohibit the regulated entity from carrying on business if it fails to comply with such laws and regulations. Possible sanctions for significant compliance failures include the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of investment adviser and other registrations, censures and fines.

U.S. Regulation

Certain of BlackRock’s U.S. subsidiaries are subject to regulation, primarily at the federal level, by the Securities and Exchange Commission (the “SEC”), the Department of Labor, the Board of Governors of the Federal Reserve System (the “FRB”), the National Association of Securities Dealers (the “NASD”), the Commodity Futures Trading Commission (the “CFTC”) and other regulatory bodies.

The Investment Advisers Act of 1940, as amended (the “Investment Advisers Act”), imposes numerous obligations on registered investment advisers such as BlackRock, including record-keeping requirements, operational requirements, marketing requirements, disclosure obligations and prohibitions on fraudulent activities. The Investment Company Act of 1940, as amended (the “Investment Company Act”), imposes similar obligations on registered investment companies, as well as detailed operational requirements on investment advisers such as BlackRock. The SEC is authorized to institute proceedings and impose sanctions for violations of the Investment Advisers Act and the Investment Company Act, ranging from fines and censure to termination of an investment adviser’s registration. Investment advisers also are subject to certain state securities laws and regulations. In addition, in recent years, the SEC and other governmental agencies have been investigating the mutual fund industry. During this time, the SEC adopted various rules, the effect of which has been to further regulate the mutual fund industry and has imposed on BlackRock additional compliance obligations and costs for fulfilling such obligations.

BlackRock’s subsidiaries are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and to regulations promulgated thereunder, insofar as they act as a “fiduciary” under ERISA with respect to benefit plan clients. ERISA and applicable provisions of the Internal Revenue Code impose certain duties on persons who are fiduciaries under ERISA, prohibit certain transactions involving ERISA plan clients and provide monetary penalties for violations of these prohibitions.

BlackRock has two subsidiaries that are registered as commodity pool operators and commodity trading advisers, and one additional subsidiary registered as only a commodity pool operator, with the CFTC. All three of these subsidiaries are members of the National Futures Association (the “NFA”). The CFTC and NFA each administer a comparable regulatory system covering futures contracts and various other financial instruments in which certain BlackRock clients may invest. One of BlackRock’s other subsidiaries, BlackRock Investments, Inc. (“BII”), is registered with the SEC as a broker-dealer and is a member-firm of the NASD. BII’s NASD membership agreement limits its permitted activities to the sale of investment company securities, certain private placements of securities, and certain investment banking and financial consulting activities. Although BII has limited business activities, it is subject to the customer dealing, reporting and other requirements of the NASD, as well as the net capital and other requirements of the SEC. As a result of the MLIM Transaction, BII is in the process of filing an application with the New York Stock Exchange (“NYSE”) to become an approved person, which would subject BII’s operations to NYSE regulation.

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Item 1.

BUSINESS (continued)

Regulation (continued)

Non-U.S. Regulation

BlackRock’s international operations are subject to the laws of non-U.S. jurisdictions and non-U.S. regulatory agencies or bodies. As BlackRock has expanded its international business, a number of its subsidiaries and international operations have become subject to regulatory systems comparable to those affecting its operations in the United States.

The Financial Services Authority (the “FSA”) regulates BlackRock’s subsidiaries in the United Kingdom. Authorization by the FSA is required to conduct any financial services related business in the United Kingdom pursuant to the Financial Services and Markets Act 2000. The FSA’s rules govern a firm’s capital, senior management arrangements, conduct of business, interaction with clients and systems and controls. Breaches of these rules may result in a wide range of disciplinary actions against the Company’s U.K.-regulated subsidiaries. In addition, these subsidiaries and other European subsidiaries or branches must comply with the pan-European regime established by the Investment Services Directive which regulates the provision of investment services throughout the European Economic Area.

In Japan, certain of BlackRock subsidiaries are subject to the Law Concerning the Regulation of Investment Advisory Business Pertaining to Securities (“IABL”) and the Law Concerning Investment Trusts and Investment Corporations (“ITICL”). These laws are administered and enforced by the Japanese Financial Services Agency (the “JFSA”), which establishes standards for compliance with these laws including capital adequacy and financial soundness requirements, customer protection requirements and conduct of business rules. The JFSA is empowered to conduct administrative proceedings that can result in censure, fine, the issuance of cease and desist orders or the suspension or revocation of the registration or license granted under the IABL and ITICL.

BlackRock’s Australian-based subsidiary is subject to various Australian federal and state laws and is regulated primarily by the Australian Securities and Investments Commission (the “ASIC”). The ASIC regulates companies and financial services in Australia and is responsible for promoting investor, creditor and consumer protection. Failure to comply with applicable law and regulations could result in the cancellation, suspension or variation of BlackRock’s license in Australia.

There are parallel legal and regulatory arrangements in force in many other non-U.S. jurisdictions where BlackRock’s subsidiaries are authorized to conduct business, including Taiwan, Hong Kong, Singapore, Luxembourg and The Netherlands.

U.S. Banking Regulation

PNC is a bank holding company and a “financial holding company” regulated by the FRB under the Bank Holding Company Act. Since PNC’s ownership interest in BlackRock exceeds 25%, BlackRock is deemed to be a non-bank subsidiary of PNC and therefore subject to most banking laws, regulations and orders that are applicable to PNC and consequently to the supervision, regulation, and examination of the FRB. PNC and its subsidiaries are also subject to the jurisdiction of various state and federal “functional” regulators. The supervision and regulation of PNC and its subsidiaries is intended primarily for the protection of PNC’s banking subsidiaries, their depositors, the deposit insurance funds of the Federal Deposit Insurance Corporation (“FDIC”), and the banking system as a whole, rather than for the protection of stockholders or creditors of PNC or BlackRock. PNC’s relationships and good standing with its regulators are important to the conduct of BlackRock’s business. BlackRock may also be subject to foreign banking laws and supervision that could affect its business.

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Item 1.

BUSINESS (continued)

Regulation (continued)

U.S. Banking Regulation (continued)

BlackRock generally may conduct only activities that are authorized for a “financial holding company” under the Bank Holding Company Act. Subject to applicable law and regulatory interpretations, investment management is one such authorized activity. BlackRock may also invest in investment companies and private investment funds to which it provides advisory, administrative or other services, to the extent consistent with applicable law and regulatory interpretations. The FRB has broad powers to approve, deny or refuse to act upon applications or notices for BlackRock to conduct new activities, acquire or divest businesses or assets, or reconfigure existing operations. PNC and its subsidiaries are also subject to examination by various banking regulators, which results in non-public examination reports and ratings that can impact the conduct and growth of BlackRock’s businesses.

The FRB has broad enforcement authority over BlackRock, including the power to prohibit BlackRock from conducting any activity that, in the FRB’s opinion, is unauthorized or constitutes an unsafe or unsound practice in conducting its business, and to impose substantial fines and other penalties.

Any failure of PNC to maintain its status as a financial holding company could result in the imposition of substantial limitations on certain BlackRock activities and its growth. Such a change of status could be caused by any failure of PNC’s bank subsidiaries to remain “well capitalized,” by an examination downgrade of PNC or its bank subsidiaries, or by any failure of PNC’s bank subsidiaries to maintain a satisfactory rating under the Community Reinvestment Act.

Other Regulation

BlackRock is subject to the USA PATRIOT Act of 2001, which contains the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001. That Act contains anti-money laundering measures affecting insured depository institutions, broker-dealers and certain financial institutions. The Act requires U.S. financial institutions to adopt policies and procedures to combat money laundering and grants the Secretary of the Treasury broad authority to establish regulations and to impose requirements and restrictions on financial institutions’ operations. Similarly, many of BlackRock’s subsidiaries outside the United States are subject to comparable rules and regulations with respect to anti-money laundering. BlackRock has established policies and procedures designed to ensure compliance with all applicable anti-money laundering laws and regulations.

Additional legislation, changes in rules promulgated by our regulators and self-regulatory organizations, or changes in the interpretation or enforcement of existing laws and rules may directly affect the method of operation and profitability of BlackRock. The profitability of BlackRock also could be affected by rules and regulations that impact the business and financial communities in general, including changes to the laws governing taxation, antitrust regulation and electronic commerce.

The rules governing the regulation of financial institutions and their holding companies and subsidiaries are very detailed and technical. Accordingly, the above discussion is general in nature and does not purport to be complete.

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Item 1.

BUSINESS (continued)

Available Information

BlackRock files annual, quarterly and current reports, proxy statements and all amendments to these reports and other information with the SEC. BlackRock makes available free-of–charge, on or through its website at http://www.blackrock.com, the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The Company also makes available on its website the charters for the Audit Committee, Management Development and Compensation Committee and Nominating and Governance Committee of the Board of Directors, its Code of Business Conduct and Ethics, its Code of Ethics for Chief Executive and Senior Financial Officers and its Corporate Governance Guidelines. Further, BlackRock will provide, without charge, upon written request, a copy of the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as well as the committee charters, its Code of Business Conduct and Ethics, its Code of Ethics for Chief Executive and Senior Financial Officers and its Corporate Governance Guidelines. Requests for copies should be addressed to Investor Relations, BlackRock, Inc., 40 East 52nd Street, New York, New York 10022. Investors may read and copy any document BlackRock files at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Please call 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Reports, proxy statements and other information regarding issuers that file electronically with the SEC, including BlackRock’s filings, are also available to the public from the SEC’s website at http://www.sec.gov.

Item 1A.

RISK FACTORS

As a leading investment management firm, risk is an inherent part of BlackRock’s business. Global markets, by their nature, are prone to uncertainty and subject participants to a variety of risks. While BlackRock devotes significant resources across all of its operations to identifying, measuring, monitoring, managing and analyzing market and operating risks, BlackRock’s business, financial condition or results of operations could be materially adversely affected, however, by any of the following risks.

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Item 1A.

RISK FACTORS (continued)

Risks Related to BlackRock’s Business and Competition

Changes in the securities markets could lead to a decline in revenues.

BlackRock’s investment management revenues are comprised of fees based on a percentage of the value of AUM and, in some cases, performance fees expressed as a percentage of the returns realized on AUM. A decline in the prices of stocks or bonds within or outside the United States could cause revenues to decline because of lower investment management fees by:

•

causing the value of AUM to decrease;

•

causing the returns realized on AUM to decrease;

•

causing clients to withdraw funds in favor of investments in markets that they perceive offer greater opportunity and that the Company does not serve; and

•

causing clients to rebalance assets away from investments that BlackRock manages into investments that it does not manage.

Poor investment performance could lead to the loss of clients and a decline in revenues.

The Company’s management believes that investment performance is one of the most important factors for the growth of AUM. Poor investment performance relative to the portfolio benchmarks and to competitors could reduce revenues and growth because:

•

existing clients might withdraw funds in favor of better performing products, which would result in lower investment management fees;

•

the ability to attract funds from existing and new clients might diminish;

•

the Company might earn minimal or no performance fees; and

•

the value of certain seed investments that BlackRock makes in its funds, as well as investments in other securities, may decline.

Loss of key employees could lead to the loss of clients and a decline in revenues.

The ability to attract and retain quality personnel has contributed significantly to BlackRock’s growth and success and is important to attracting and retaining clients. The market for qualified fund managers, investment analysts, financial advisers and other professionals is competitive. Key employees may depart because of issues relating to the difficulties in integrating the MLIM Business. There can be no assurance that the Company will be successful in its efforts to recruit and retain the required personnel. Loss of a significant number of key personnel could have an adverse effect on the Company.

BlackRock’s investment advisory contracts may be terminated or may not be renewed by clients.

Separate account clients may terminate their investment management contracts with BlackRock or withdraw funds on short notice. The Company has, from time to time, lost separate accounts and could, in the future, lose accounts under various circumstances such as adverse market conditions or poor performance. Additionally, BlackRock manages its U.S. mutual funds pursuant to management contracts with the funds that must be renewed and approved by the funds’ boards of directors annually. A majority of the directors of each mutual fund are independent from BlackRock. Consequently, there can be no assurance that the board of directors of each fund that the Company manages will approve the fund’s management contract each year, or will not condition its approval on the terms of the management contract being revised in a way that is adverse to the Company.

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Item 1A.

RISK FACTORS (continued)

Risks Related to BlackRock’s Business and Competition (continued)

Failure to comply with client contractual requirements and/or guidelines could result in damage awards against BlackRock and loss of revenues due to client terminations.

When clients retain BlackRock to manage assets or provide products or services on their behalf, they specify guidelines or contractual requirements that the Company is required to observe in the provision of its services. A failure to comply with these guidelines or contractual requirements could result in damage to BlackRock’s reputation or to the clients seeking to recover losses, withdrawing AUM or cancelling risk management advisory assignments, or terminating their contracts, any of which could cause the Company’s earnings or stock price to decline.

Competitive fee pressures could reduce revenues and profit margins.

The investment management business is highly competitive and has relatively low barriers to entry. To the extent that the Company is forced to compete on the basis of price, it may not be able to maintain its current fee structure. Fee reductions on existing or future new business could cause revenues and profit margins to decline.

Performance fees may increase earnings volatility, which could decrease BlackRock’s stock price.

A portion of the Company’s revenues are derived from performance fees on investment and risk management advisory assignments. In most cases, performance fees are based on investment returns, although in some cases they are based on achieving specific service standards. Generally, the Company is entitled to performance fees only if the returns on the related portfolios exceed agreed-upon periodic or cumulative return targets. If these targets are not exceeded, performance fees for that period will not be earned and, if targets are based on cumulative returns, the Company may not earn performance fees in future periods. Performance fees will vary from period to period in relation to volatility in investment returns, causing earnings to be more volatile than if assets were not managed on a performance fee basis. The volatility in earnings may decrease BlackRock’s stock price. Performance fees represented $242.3 million, or 11.5%, of total revenue for the year ended December 31, 2006.

Additional acquisitions may decrease earnings and harm the Company’s competitive position.

BlackRock employs a variety of strategies intended to enhance earnings and expand product offerings in order to improve profit margins. These strategies have included smaller-sized lift-outs of investment teams and acquisitions of investment management businesses, such as the MLIM Transaction. In general, these strategies may not be effective and failure to successfully develop and implement these strategies may decrease earnings and harm the Company’s competitive position in the investment management industry. In the event BlackRock pursues additional sizeable acquisitions, it may not be able to find suitable businesses to acquire at acceptable prices and it may not be able to successfully integrate or realize the intended benefits from these acquisitions.

Risks Related to BlackRock’s Operations

Failure to maintain adequate infrastructure could impede the ability to support business growth.

BlackRock has experienced significant growth in its business activities as a result of the MLIM Transaction and other efforts. The Company is in the process of building out its infrastructure to integrate the MLIM Business and to support continued growth, including technological capacity, data centers, backup facilities and sufficient space for expanding staff levels. The failure to maintain an adequate infrastructure commensurate with expansion could impede the Company’s growth, which could cause the Company’s earnings or stock price to decline.

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Item 1A.

RISK FACTORS (continued)

Risks Related to BlackRock’s Operations (continued)

Expansion into international markets increases BlackRock’s operational, regulatory and other risks.

BlackRock has dramatically increased its international business activities as a result of the MLIM Transaction and other efforts. As a result of such expansion, the Company faces increased operational, regulatory, reputation and foreign exchange rate risks. The failure of the Company’s systems of internal control to properly mitigate such additional risks, or of its operating infrastructure to support such international expansion, could result in operational failures and regulatory fines or sanctions, which could cause the Company’s earnings or stock price to decline.

Failure to maintain a technological advantage could lead to a loss of clients and a decline in revenues.

A key element to BlackRock’s continued success is the ability to maintain a technological advantage both in terms of operational efficiency and in providing the sophisticated risk analytics incorporated into BlackRock’s operating systems that support investment advisory and BlackRock Solutions clients. Moreover, the Company’s technological and software advantage is dependent on a number of third parties who provide various types of data. The failure of these third parties to provide such data or software could result in operational difficulties and adversely impact BlackRock’s ability to provide services to BlackRock Solutions clients. There can be no assurance that the Company will be able to maintain this technological advantage or be able to effectively protect and enforce its intellectual property rights in these systems and processes.

Failure to implement effective information security policies, procedures and capabilities could disrupt operations and cause financial losses that could result in a decrease in BlackRock’s earnings or stock price.

BlackRock is dependent on the effectiveness of its information security policies, procedures and capabilities to protect its computer and telecommunications systems and the data that reside on or are transmitted through them. An externally caused information security incident, such as a hacker attack or a virus or worm, or an internally caused issue, such as failure to control access to sensitive systems, could materially interrupt business operations or cause disclosure or modification of sensitive or confidential information and could result in material financial loss, regulatory actions, breach of client contracts, reputational harm or legal liability, which, in turn, could cause a decline in the Company’s earnings or stock price.

The continuing integration of the MLIM business creates numerous risks and uncertainties that could adversely affect profitability.

The MLIM Business and personnel are in the process of being integrated with BlackRock’s previously existing business and personnel. These transition activities are complex and the Company may encounter unexpected difficulties or incur unexpected costs including:

•

the diversion of management’s attention to integration matters;

•

difficulties in achieving expected synergies associated with the MLIM Transaction;

•

difficulties in the integration of operations and systems;

•

difficulties in the assimilation of employees;

•

difficulties in replacing the support functions previously provided by Merrill Lynch to MLIM, including support and assistance in respect of risk management, financial and operational functions;

•

challenges in keeping existing clients and obtaining new clients, including potential conflicts of interest; and

•

challenges in attracting and retaining key personnel.

As a result, the Company may not be able to realize the expected revenue growth and other benefits that it hopes to achieve from the MLIM Transaction. In addition, BlackRock may be required to spend additional time or money on integration that would otherwise be spent on the development and expansion of its business and services.

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Item 1A.

RISK FACTORS (continued)

Risks Related to the Recently Closed MLIM Transaction

Merrill Lynch is a distributor of BlackRock’s products, and the Company is therefore subject to risks associated with the business of Merrill Lynch.

Pursuant to a global distribution agreement entered into with Merrill Lynch in connection with the MLIM Transaction, Merrill Lynch provides portfolio administration and servicing for certain BlackRock asset management products and services through its various distribution channels. The Company may not be successful in distributing products through Merrill Lynch or in distributing its products and services through other third party distributors, and the transfer of the MLIM Business to BlackRock might have an adverse effect on Merrill Lynch’s ability to distribute, and on the costs of distributing, the Company’s existing products and services. If BlackRock is unable to distribute its products and services successfully or if it experiences an increase in distribution-related costs, BlackRock’s business, results of operations or financial condition may be adversely affected.

Loss of market share with Merrill Lynch’s Global Private Client Group could harm operating results.

A significant portion of the revenue of the MLIM business has historically come from AUM generated by Merrill Lynch’s Global Private Client Group (“GPC”). BlackRock’s ability to maintain a strong relationship with GPC is material to the Company’s future performance. If one of the Company’s competitors gains significant additional market share within the GPC retail channel at the expense of BlackRock, then BlackRock’s business, results of operations or financial condition may be negatively impacted.

For so long as Merrill Lynch and PNC maintain certain levels of stock ownership, Merrill Lynch and PNC will vote as stockholders in accordance with the recommendation of BlackRock’s Board of Directors, and certain actions will require special board approval or the prior approval of Merrill Lynch and PNC.

As a result of the stockholder agreements entered into with PNC and Merrill Lynch in connection with the MLIM Transaction, together with the Company’s ownership structure, stockholders may have no effective power to influence corporate actions. As of December 31, 2006, Merrill Lynch owned approximately 45% of BlackRock’s issued and outstanding common stock and approximately 49.3% of total capital stock on a fully-diluted basis, and PNC owned approximately 34% of BlackRock’s total capital stock.

Merrill Lynch and PNC have agreed to vote all of their shares in accordance with the recommendation of BlackRock’s Board of Directors to the extent consistent with the provisions of the Merrill Lynch stockholder agreement and the PNC implementation and stockholder agreement. As a consequence, matters submitted to a stockholder vote that require a majority or a plurality of votes for approval, including elections of directors, will be approved or disapproved solely in accordance with the determinations of the BlackRock Board of Directors, so long as the shares held by Merrill Lynch and PNC constitute a majority of the outstanding shares. This arrangement will have the effect of concentrating control over BlackRock in its Board of Directors, whether or not stockholders agree with any particular determination of the Board.

Legal and Regulatory Risks

BlackRock is subject to extensive regulation in the United States and internationally.

BlackRock’s business is subject to extensive regulation in the United States and around the world. See the discussion under the heading “Business - Regulation.” Violation of applicable laws or regulations could result in fines, temporary or permanent prohibition of the engagement in certain activities, reputational harm, suspensions of personnel or revocation of their licenses, suspension or termination of investment adviser or broker-dealer registrations, or other sanctions, which could cause the Company’s earnings or stock price to decline. Additionally, BlackRock’s business may be adversely impacted by regulatory and legislative initiatives imposed by various U.S. and non-U.S. regulatory and exchange authorities, and industry participants that continue to review and, in many cases, adopt changes to their established rules and policies.

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Item 1A.

RISK FACTORS (continued)

Legal and Regulatory Risks (continued)

Failure to comply with the Investment Advisers Act and the Investment Company Act and related regulations could result in substantial harm to BlackRock’s reputation and results of operations.

Certain of BlackRock’s subsidiaries are registered with the SEC under the Investment Advisers Act and BlackRock’s U.S. mutual funds are registered with the SEC under the Investment Company Act. The Investment Advisers Act imposes numerous obligations and fiduciary duties on registered investment advisers, including record-keeping, operating and marketing requirements, disclosure obligations and prohibitions on fraudulent activities. The Investment Company Act imposes similar obligations, as well as additional detailed operational requirements, on investment advisers to registered investment companies. The failure of any of BlackRock’s subsidiaries to comply with the Investment Advisers Act or the Investment Company Act could cause the SEC to institute proceedings and impose sanctions for violations of either of these acts, including censure, termination of an investment adviser’s registration or prohibition to serve as adviser to SEC-registered funds, and could lead to litigation by investors in those funds or harm to the Company’s reputation, any of which could cause its earnings or stock price to decline.

Failure to comply with ERISA regulations could result in penalties and cause the Company’s earnings or stock price to decline.

BlackRock’s asset management subsidiaries are subject to ERISA regulations and to regulations promulgated thereunder, insofar as they act as a “fiduciary” under ERISA with respect to benefit plan clients. ERISA and applicable provisions of the Internal Revenue Code impose duties on persons who are fiduciaries under ERISA, prohibit specified transactions involving ERISA plan clients and provide monetary penalties for violations of these prohibitions. The failure of any of BlackRock’s subsidiaries to comply with these requirements could result in significant penalties that could reduce the Company’s earnings or cause its stock price to decline.

BlackRock is subject to banking regulations that may limit its business activities.

Since PNC’s ownership interest in BlackRock exceeds 25%, BlackRock is deemed to be a non-bank subsidiary of PNC, a financial holding company, which subjects BlackRock to general banking regulations that limit the activities and the types of businesses in which it may engage. Banking regulations may put BlackRock at a competitive disadvantage because most of its competitors are not subject to these limitations. As a non-bank subsidiary of PNC, BlackRock is subject to the supervision, regulation and examination of the FRB. The Company is also subject to the broad enforcement authority of the FRB, including the FRB’s power to prohibit BlackRock from engaging in any activity that, in the FRB’s opinion, constitutes an unsafe or unsound practice in conducting the Company’s business. The FRB also may impose substantial fines and other penalties for violations of applicable banking regulations.

Legal proceedings could adversely affect operating results and financial condition for a particular period.

Many aspects of BlackRock’s business involve substantial risks of legal liability. The Company, including a number of the legal entities acquired in the MLIM Transaction, has been named as a defendant in various legal actions, including arbitrations, class actions and other litigation arising in connection with BlackRock’s activities. Additionally, the investment funds that the Company manages are subject to lawsuits, any of which could harm the investment returns of the applicable fund or result in the Company being liable to the funds for any resulting damages. While Merrill Lynch has agreed to indemnify the Company for certain of the pre-closing liabilities related to legal proceedings acquired in the MLIM Transaction, entities that BlackRock now owns may be named as defendants in these matters and the Company’s reputation may be negatively impacted. Liability for legal actions for which no indemnification is available could reduce earnings and cash flows and cause BlackRock’s stock price to decline.

Item 1B.

UNRESOLVED STAFF COMMENTS

The Company has no unresolved comments from the SEC staff relating to BlackRock’s periodic or current reports filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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Item 2.

PROPERTIES

BlackRock’s principal office, which is leased, is located at 40 East 52nd Street, New York, New York. BlackRock leases additional office space in New York City at 55 East 52nd Street and throughout the world, including in Boston, Chicago, Edinburgh, Florham Park (New Jersey), Hong Kong, London, Munich, Princeton (New Jersey), San Francisco, Singapore, Melbourne and Tokyo. The Company also owns an 84,500 square foot office building in Wilmington (Delaware).

Item 3.

LEGAL PROCEEDINGS

BlackRock has received subpoenas from various U.S. federal and state governmental and regulatory authorities and various information requests from the SEC in connection with industry-wide investigations of U.S. mutual fund matters. BlackRock is continuing to cooperate fully in these matters. From time to time, BlackRock is also subject to other regulatory inquiries and proceedings.

The Company, including a number of the legal entities acquired in the MLIM Transaction, has been named as a defendant in various legal actions, including arbitrations, class actions, and other litigation and regulatory proceedings arising in connection with BlackRock’s activities. Additionally, certain of the investment funds that the Company manages are subject to lawsuits, any of which could potentially harm the investment returns of the applicable fund or result in the Company being liable to the funds for any resulting damages. While Merrill Lynch agreed to indemnify the Company for certain of the pre-closing liabilities related to legal and regulatory proceedings acquired in the MLIM Transaction, entities that BlackRock now owns may be named as defendants in these matters and the Company’s reputation may be negatively impacted.

Management, after consultation with legal counsel, does not currently anticipate that the aggregate liability, if any, arising out of such regulatory matters or lawsuits will have a material adverse effect on BlackRock’s earnings, financial position, or cash flows, although, at the present time, management is not in a position to determine whether any such pending or threatened matters will have a material adverse effect on BlackRock’s results of operations in any future reporting period.

Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of BlackRock’s security holders during the fourth quarter of the year ended December 31, 2006.

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Part II

Item 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

BlackRock’s common stock is listed on the NYSE and is traded under the symbol “BLK.” At the close of business on January 31, 2007, there were 694 common stockholders of record. Common stockholders include institutional or omnibus accounts that hold common stock for multiple underlying investors.

The following table sets forth for the periods indicated the high and low reported sale prices, period-end closing price and dividends paid per share for the common stock as reported on the NYSE:


	Stock Price Ranges				Closing Price		Dividends Declared
	High		Low		Closing Price		Dividends Declared
2006
First Quarter	$	161.49	$	105.74	$	140.00	$	0.42
Second Quarter	$	159.36	$	120.69	$	139.17	$	0.42
Third Quarter	$	152.34	$	123.04	$	149.00	$	0.42
Fourth Quarter	$	158.50	$	140.72	$	151.90	$	0.42

2005
First Quarter	$	82.45	$	73.64	$	74.93	$	0.30
Second Quarter	$	80.52	$	69.38	$	80.45	$	0.30
Third Quarter	$	89.29	$	79.87	$	88.62	$	0.30
Fourth Quarter	$	113.87	$	83.01	$	108.48	$	0.30

BlackRock’s closing stock price as of March 9, 2007 was $158.62.

Dividends

The Board of Directors has adopted a dividend policy establishing a targeted payout ratio of 40% of historical net income and reviews the dividend policy at least annually, subject in all cases to the Board of Directors’ exercise of its fiduciary duty to the Company. On February 27, 2007, the Board of Directors approved an increase of BlackRock’s quarterly dividend to $0.67 to be paid on March 23, 2007 to stockholders of record on March 7, 2007.

Merrill Lynch and its affiliates, as the sole holders of BlackRock’s series A non-voting participating preferred stock, receive dividends on the preferred stock equivalent to the dividends received by common stockholders and may elect to receive such dividends in cash or BlackRock common stock, subject to the ownership limitations contained within the stockholders agreement with BlackRock.

- 21 -

Item 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES (continued)

Issuer Purchases of Equity Securities

During the three months ended December 31, 2006, the Company made the following purchases of its common stock, which are registered pursuant to Section 12(b) of the Exchange Act.


	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs ¹
October 1, 2006 through October 31, 2006	—			—	—	2,100,000
November 1, 2006 through November 30, 2006	—			—	—	2,100,000
December 1, 2006 through December 31, 2006	43,530	²	$	146.05	—	2,100,000

Total	43,530		$	146.05	—

¹	On August 2, 2006, the Company announced a 2.1 million share repurchase program with no stated expiration date.

Reflects purchases made by the Company primarily to satisfy income tax withholding obligations of employees related to the vesting of certain restricted stock or restricted stock unit awards. All such purchases were made outside of the publicly announced share repurchase program. This number does not include the 979,661 shares purchased by BlackRock from employees on January 29, 2007 pursuant to a put feature available in connection with the payment of BlackRock’s LTIP awards on that date.

- 22 -

Item 6.

SELECTED FINANCIAL DATA

The selected financial data presented below has been derived in part from, and should be read in conjunction with, the consolidated financial statements of BlackRock and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Form 10-K. Prior year data reflects certain reclassifications to conform to the current year presentation.


	Year Ended December 31,
*(Dollar amounts in thousands, except per share data)*	2006¹			2005²			2004			2003			2002
Income statement data
Revenue
Investment advisory and administration fees:	$	1,841,023		$	1,018,372		$	633,623		$	528,692		$	519,165
Other revenue		256,953			173,014			91,688			69,520			57,812

Total revenue		2,097,976			1,191,386			725,311			598,212			576,977

Expense
Employee compensation and benefits		945,587			595,618			391,138			228,905			230,634
Portfolio administration and servicing costs		165,364			58,200			42,943			39,727			46,454
General and administration³		477,710			189,522			118,388			100,377			83,926
Amortization of intangible assets		37,515			7,505			947			927			824
Impairment of intangible assets ⁴		—			—			6,097			—			—

Total expense		1,626,176			850,845			559,513			369,936			361,838

Operating income		471,800			340,541			165,798			228,276			215,139

Non-operating income (expense)
Investment income		66,349			43,138			35,475			23,346			9,492
Interest expense		(9,916	)		(7,924	)		(835	)		(720	)		(683	)

		56,433			35,214			34,640			22,626			8,809

Income before income taxes and minority interest		528,233			375,755			200,438			250,902			223,948
Income taxes		189,463			138,558			52,264			95,247			90,699

Income before minority interest		338,770			237,197			148,174			155,655			133,249
Minority interest		16,168			3,289			5,033			253			—

Net income	$	322,602		$	233,908		$	143,141		$	155,402		$	133,249

Per share data⁵
Basic earnings	$	4.00		$	3.64		$	2.25		$	2.40		$	2.06
Diluted earnings	$	3.87		$	3.50		$	2.17		$	2.36		$	2.04
Book value⁶	$	83.57		$	14.41		$	12.07		$	11.13		$	9.78
Cash dividends declared per share	$	1.68		$	1.20		$	1.00		$	0.40			—

- 23 -

Item 6.

SELECTED FINANCIAL DATA (continued)


	December 31,
(Dollar amounts in thousands)	2006¹		2005²		2004		2003		2002
Balance sheet data:
Cash and cash equivalents	$	1,160,304	$	484,223	$	457,673	$	315,941	$	255,234
Investments	$	2,097,574	$	298,668	$	227,497	$	234,923	$	210,559
Goodwill and intangible assets, net	$	11,139,447	$	483,982	$	184,110	$	192,079	$	182,827
Total assets	$	20,469,492	$	1,848,000	$	1,145,235	$	967,223	$	864,188
Long-term borrowings	$	253,167	$	253,791	$	4,810	$	5,736	$	6,578
Total liabilities	$	8,578,520	$	916,143	$	359,714	$	252,676	$	229,534
Minority interest	$	1,109,092	$	9,614	$	17,169	$	1,239	$	—
Stockholders’ equity	$	10,781,880	$	922,243	$	768,352	$	713,308	$	634,654

	December 31,
(Dollar amounts in millions)	2006¹		2005²		2004		2003		2002
Assets under management:
Fixed income	$	455,931	$	303,928	$	240,709	$	214,356	$	175,586
Equity and balanced		392,708		37,303		14,792		13,721		13,464
Cash management		227,849		86,128		78,057		74,345		78,512
Alternative investment products		48,139		25,323		8,202		6,934		5,279

Total assets under management	$	1,124,627	$	452,682	$	341,760	$	309,356	$	272,841

¹	Significant increases in 2006 are primarily the result of the closing of the MLIM Transaction on September 29, 2006.

²	Significant increases in 2005 are primarily the result of the closing of the SSR acquisition in January 2005.

³	Includes a 2006 fee sharing payment to MetLife, Inc. of $34,450 representing a one-time expense related to a large institutional real estate equity client account acquired in the SSR acquisition.

⁴	Impairment of intangible assets in 2004 represents the write-off of an intangible management contract related to certain funds in which the portfolio manager resigned and the funds were subsequently liquidated.

⁵	Series A non-voting participating preferred stock is considered to be common stock for purposes of per share calculations.

⁶	At December 31 of the respective year-end.

- 24 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking Statements

This report, and other statements that BlackRock may make, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, with respect to BlackRock’s future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “potential,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” or similar expressions.

BlackRock cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and BlackRock assumes no duty to and does not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

In addition to factors previously disclosed in BlackRock’s SEC reports and those identified elsewhere in this report, including the Risk Factors section of Item 1A. of this report, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: (1) the introduction, withdrawal, success and timing of business initiatives and strategies; (2) changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes in demand for products or services or in the value of assets under management; (3) the relative and absolute investment performance of BlackRock’s investment products, including its separately managed accounts and the former MLIM Business: (4) the impact of increased competition; (5) the impact of capital improvement projects; (6) the impact of future acquisitions or divestitures; (7) the unfavorable resolution of legal proceedings; (8) the extent and timing of any share repurchases; (9) the impact, extent and timing of technological changes and the adequacy of intellectual property protection; (10) the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to BlackRock, Merrill Lynch or PNC; (11) terrorist activities and international hostilities, which may adversely affect the general economy, domestic and local financial and capital markets, specific industries, and BlackRock; (12) the ability to attract and retain highly talented professionals; (13) fluctuations in foreign currency exchange rates, which may adversely affect the value of advisory fees earned by BlackRock and certain investments denominated in foreign currencies; (14) the impact of changes to tax legislation and, generally, the tax position of the Company; (15) BlackRock’s ability to successfully integrate the MLIM Business with its existing business; (16) the ability of BlackRock to effectively manage the former MLIM assets along with its historical assets under management; and (17) BlackRock’s success in maintaining the distribution of its products.

- 25 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Overview

BlackRock, Inc. (“BlackRock” or the “Company”) is one of the largest publicly traded investment management firms in the United States with $1.125 trillion of AUM at December 31, 2006. BlackRock manages assets on behalf of institutional and individual investors worldwide through a variety of fixed income, cash management, equity and alternative investment separate accounts and mutual funds. In addition, BlackRock provides risk management, investment system outsourcing and financial advisory services to institutional investors.

On September 29, 2006, BlackRock and Merrill Lynch & Co., Inc. (“Merrill Lynch”) closed a transaction pursuant to which Merrill Lynch contributed its investment management business, Merrill Lynch Investment Managers (“MLIM”), to BlackRock in exchange for an aggregate of 65 million shares of newly issued BlackRock common and non-voting participating preferred stock (the “MLIM Transaction”). Immediately following the closing, Merrill Lynch owned 45% of the voting common stock and approximately 49.3% of the total capital stock on a fully diluted basis of the combined company and PNC owned approximately 34% of the total capital stock of the combined company (as compared with 69% immediately prior to the closing). Immediately prior to the MLIM Transaction, MLIM managed approximately $589.2 billion of AUM. Concurrent with the MLIM Transaction, BlackRock and Merrill Lynch entered into a global distribution agreement, which provides a framework under which Merrill Lynch provides portfolio administration and servicing of client investments in certain BlackRock products (including those of the former MLIM business).

The following table summarizes BlackRock’s operating performance for the years ended December 31, 2006, 2005 and 2004:

BlackRock, Inc.

Financial Highlights

(Dollar amounts in thousands, except share data)


										Variance
	Year ended December 31,									2006 vs. 2005				2005 vs. 2004
	2006			2005			2004			Amount		%		Amount		%
Total revenue	$	2,097,976		$	1,191,386		$	725,311		$	906,590	76.1	%	$	466,075	64.3	%
Total expense	$	1,626,176		$	850,845		$	559,513		$	775,331	91.1	%	$	291,332	52.1	%
Operating income	$	471,800		$	340,541		$	165,798		$	131,259	38.5	%	$	174,743	105.4	%
Operating income, as adjusted ^(a)	$	707,598		$	408,448		$	263,311		$	299,150	73.2	%	$	145,137	55.1	%
Net income	$	322,602		$	233,908		$	143,141		$	88,694	37.9	%	$	90,767	63.4	%
Net income, as adjusted ^(b)	$	444,703		$	269,622		$	177,709		$	175,081	64.9	%	$	91,913	51.7	%
Diluted earnings per share^(c)	$	3.87		$	3.50		$	2.17		$	0.37	10.6	%	$	1.33	61.3	%
Diluted earnings per share, as adjusted ^{(b) (C)}	$	5.33		$	4.03		$	2.69		$	1.30	32.3	%	$	1.34	49.8	%
Average diluted shares outstanding ^(c)		83,358,394			66,875,149			65,960,473			16,483,245	24.6	%		914,676	1.4	%
Operating margin, GAAP basis		22.5	%		28.6	%		22.9	%
Operating margin, as adjusted ^(a)		37.0	%		36.8	%		38.6	%

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Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Overview (continued)

(a)

While BlackRock reports its financial results on a GAAP basis, management believes that evaluating the Company’s ongoing operating results may not be as useful if investors are limited to reviewing only GAAP financial measures. Management reviews non-GAAP financial measures to assess ongoing operations and, for the reasons described below, considers them to be effective indicators, for both management and investors, of BlackRock’s financial performance over time. BlackRock’s management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Certain prior year non-GAAP data has been restated to conform to current year presentation.

Operating margin, as adjusted, equals operating income, as adjusted, divided by revenue used for operating margin measurement, as indicated in the table below. Computations for all periods presented include affiliated and unaffiliated portfolio administration and servicing costs reported as a separate income statement line item and are derived from the Company's consolidated financial statements as follows:


	Year ended
	2006			2005			2004
Operating income, GAAP basis	$	471,800		$	340,541		$	165,798
Non-GAAP adjustments:
MLIM Transaction costs		141,932			—			—
PNC LTIP funding obligation		50,031			48,587			85,030
Fee sharing payment		34,450			—			—

Compensation expense related to deferred compensation plan asset appreciation		7,537			10,447			4,479
Merrill Lynch compensation contribution		1,848			—			—
SSR acquisition costs		—			8,873			1,000
Trepp bonus		—			—			7,004

Operating income, as adjusted	$	707,598		$	408,448		$	263,311

Revenue, GAAP basis	$	2,097,976		$	1,191,386		$	725,311
Non-GAAP adjustments:
Portfolio administration and servicing costs		(165,364	)		(58,200	)		(42,943	)
Reimbursable property management compensation		(22,618	)		(23,376	)		—

Revenue used for operating margin measurement	$	1,909,994		$	1,109,810		$	682,368

Operating margin, GAAP basis		22.5	%		28.6	%		22.9	%

Operating margin, as adjusted		37.0	%		36.8	%		38.6	%

Management believes that operating income, as adjusted, and operating margin, as adjusted, are effective indicators of management's ability to, and useful to management in deciding how to, effectively employ BlackRock’s resources. As such, management believes that operating income, as adjusted, and operating margin, as adjusted, provide useful disclosure to investors. MLIM Transaction and SSR acquisition costs consist principally of certain professional fees and compensation costs related to those transactions which were reflected in GAAP net income. Also included in MLIM Transaction costs are rebranding costs. MLIM Transaction and SSR acquisition costs have been deemed non-recurring by management and have been excluded from net income, as adjusted, and diluted earnings per share, as adjusted, to help ensure the comparability of this information to prior periods. The portion of the LTIP expense associated with awards met by the distribution to participants of shares of BlackRock stock held by PNC has been excluded because, exclusive of the impact related to LTIP participants’ put options, these charges do not impact BlackRock’s book value. The 2006 fee sharing payment has been excluded because it represents a non-recurring payment (based upon a performance fee) pursuant to the SSRM Holdings, Inc. (“SSR”) acquisition agreement. Compensation expense associated with appreciation on assets related to BlackRock’s deferred compensation plans has been excluded because investment returns on these assets reported in non-operating income, net of the related impact on compensation expense, result in a nominal impact on net income. The portion of the current year compensation expense related to incentive awards to be funded by Merrill Lynch has been excluded from this charge because it is not expected to impact BlackRock’s book value. Bonus expense related to the Company’s sale of its equity interest in Trepp, LLC has been deemed to be non-recurring by management and has been excluded from operating income, as adjusted, in 2004 to help ensure the comparability of this information to subsequent reporting periods.

Portfolio administration and servicing costs have been excluded from revenue used for operating margin measurement, as adjusted, because the Company receives offsetting revenue and expense for these services. Reimbursable property management compensation represents compensation and benefits paid to certain BlackRock Realty Advisors, Inc. (“Realty”) personnel. These employees are retained on Realty’s payroll when certain properties are acquired by Realty’s clients. The related compensation and benefits are fully reimbursed by Realty’s clients and have been excluded from revenue used for operating margin measurement, as adjusted, because they bear no economic cost to BlackRock.

- 27 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Overview (continued)

(b)

While BlackRock reports its financial results on a GAAP basis, management believes that evaluating the Company’s ongoing operating results may not be as useful if investors are limited to reviewing only GAAP-basis financial measures. Management reviews non-GAAP financial measures to assess ongoing operations, and for the reasons described below, considers them to be effective indicators, for both management and investors, of BlackRock’s financial performance over time. BlackRock’s management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.


	Year ended December 31,
	2006		2005			2004
Net income, GAAP basis	$	322,602	$	233,908		$	143,141
Non-GAAP adjustments, net of tax:
MLIM Transaction costs		89,417		—			—
PNC’s LTIP funding obligation		31,520		30,610			53,569
Merrill Lynch compensation contribution		1,164		—			—
SSR acquisition costs		—		5,590			635
Impact of Trepp sale		—		(486	)		(1,572	)
Release of reserves related to New York State and New York City tax audits		—		—			(18,064	)

Net income, as adjusted	$	444,703	$	269,622		$	177,709

Diluted weighted average shares outstanding		83,358,394		66,875,149			65,960,473

Diluted earnings per share, GAAP basis	$	3.87	$	3.50		$	2.17

Diluted earnings per share, as adjusted	$	5.33	$	4.03		$	2.69

Management believes that net income, as adjusted, and diluted earnings per share, as adjusted, are effective measurements of BlackRock’s profitability and financial performance. Professional fees, compensation costs and rebranding costs related to the SSR acquisition and the MLIM transaction reflected in GAAP net income have been deemed non-recurring by management and have been excluded from net income, as adjusted, and diluted earnings per share, as adjusted, to help ensure the comparability of this information to prior reporting periods. MLIM transaction costs consist principally of compensation costs, professional fees and rebranding costs incurred in 2006 in conjunction with the MLIM transaction. Compensation reflected in this amount represents retention payments with no future service requirement or severance payments made to certain employees as a result of the transaction. SSR acquisition costs consist of compensation costs and professional fees in 2005. Compensation reflected in this amount represents direct performance incentives paid to SSR employees assumed in conjunction with the acquisition and settled by BlackRock with no future service requirement. The portion of LTIP expense associated with awards funded by the distribution to participants of shares of BlackRock stock held by PNC has been excluded from net income, as adjusted, and diluted earnings per share, as adjusted, because, exclusive of the impact related to LTIP participants’ put options, these charges have not impacted BlackRock’s book value. The release of certain tax reserves and gains on the sale of the Company’s equity interest in Trepp, LLC reflected in GAAP net income, have been deemed non-recurring by management and have been excluded from net income, as adjusted, in 2005 and 2004 to help ensure the comparability of this information to subsequent reporting periods.

(c)

Series A non-voting participating preferred stock is considered to be common stock for purposes of per share calculations.

- 28 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Overview (continued)

BlackRock has portfolio managers located around the world, including the United States, the United Kingdom, The Netherlands, Japan and Australia. The Company provides a wide array of taxable and tax-exempt fixed income, equity and balanced mutual funds and separate accounts, as well as a wide assortment of index-based equity and alternative investment products to a diverse global clientele. BlackRock provides global advisory services for mutual funds and other non-U.S. equivalent retail products. The Company’s non-U.S. mutual funds are based in a number of domiciles and cover a range of asset classes, including cash management, fixed income and equities. The primary retail fund group offered outside the United States is the Merrill Lynch International Investment Funds (“MLIIF”), which is authorized for distribution in more than 30 jurisdictions worldwide. In the United States, the primary retail offerings include a wide variety of open-end and closed-end funds. Additional fund offerings include structured products, real estate funds, hedge funds, hedge funds of funds, private equity funds and funds of funds, managed futures funds and exchange funds. These products are sold to both U.S. and non-U.S. high net worth, retail and institutional investors in a wide variety of active and passive strategies covering both equity and fixed income assets.

BlackRock’s client base consists of financial institutions and other corporate clients, pension funds, high net worth individuals and retail investors around the world. BlackRock maintains a significant sales and marketing presence both inside and outside the United States that is focused on acquiring and maintaining retail and institutional investment management relationships by marketing its services to retail and institutional investors directly and through financial professionals, pension consultants and establishing third-party distribution relationships. BlackRock also distributes certain of its products and services through Merrill Lynch.

BlackRock derives a substantial portion of its revenue from investment advisory and administration fees, which are recognized as the services are performed. Such fees are primarily based on pre-determined percentages of the market value of AUM or, in the case of certain real estate equity separate accounts, net operating income generated by the underlying properties, and are affected by changes in AUM, including market appreciation or depreciation, foreign exchange gains or losses and net subscriptions or redemptions. Net subscriptions or redemptions represent the sum of new client assets, additional fundings from existing clients (including dividend reinvestment), withdrawals of assets from, and termination of, client accounts and purchases and redemptions of mutual fund shares. Market appreciation or depreciation includes current income earned on, and changes in the fair value of, securities held in client accounts.

Investment advisory agreements for certain separate accounts and BlackRock’s alternative investment products provide for performance fees in addition to fees based on AUM. Performance fees generally are earned after a given period of time or when investment performance exceeds a contractual threshold. As such, performance fees may increase the volatility of BlackRock’s revenue and earnings.

BlackRock provides a variety of risk management, investment analytic and investment system services to financial institutions, pension funds, asset managers, foundations, consultants, mutual fund sponsors, real estate investment trusts and government agencies. These services are provided under the brand name BlackRock Solutions^{^®} and include a wide array of risk management services and enterprise investment system outsourcing to clients. Fees earned for BlackRock Solutions services are based on a number of factors including pre-determined percentages of the market value of assets subject to the services and the number of individual investment accounts, or fixed fees. Fees earned on risk management, investment analytic and investment system assignments are recorded as other revenue in the consolidated statements of income.

- 29 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Overview (continued)

Operating expense primarily consists of employee compensation and benefits, portfolio administration and servicing costs, general and administration expense and amortization of intangible assets. Employee compensation and benefits expense reflects salaries, deferred and incentive compensation, BlackRock’s 2002 Long-Term Retention and Incentive Plan (“LTIP”) and related benefit costs. Portfolio administration and servicing costs reflect payments made to Merrill Lynch-affiliated entities and PNC-affiliated entities, as well as third parties, primarily associated with the administration and servicing of client investments in certain BlackRock products.

Assets Under Management

BlackRock, Inc.

Assets Under Management


	Year ended December 31,						Variance
*(Dollar amounts in millions)*	2006		2005		2004		2006 vs. 2005		2005 vs. 2004
All Accounts:
Fixed income	$	455,931	$	303,928	$	240,709	50.0	%	26.3	%
Equity and balanced		392,708		37,303		14,792	NM		152.2	%
Cash management		227,849		86,128		78,057	164.5	%	10.3	%
Alternative investment products		48,139		25,323		8,202	90.1	%	208.7	%

Total	$	1,124,627	$	452,682	$	341,760	148.4	%	32.5	%

NM – Not Meaningful

AUM increased approximately $671.9 billion, or 148.4%, to $1.125 trillion at December 31, 2006, compared with $452.7 billion at December 31, 2005. The growth in AUM was attributable to $589.2 billion acquired in the MLIM Transaction, $32.8 billion in net subscriptions, $42.4 billion in market appreciation and $7.6 billion in foreign exchange gains.

Net subscriptions of $32.8 billion for the year ended December 31, 2006 were primarily attributable to net new business of $12.4 billion in cash management products, $10.7 billion in equity and balanced products, $6.8 billion in alternative products and $3.0 billion in fixed income products. Market appreciation of $42.4 billion largely reflected appreciation in equity and balanced assets of $25.3 billion, as equity markets improved during the period ended December 31, 2006 and market appreciation on fixed income products of $14.0 billion due to current income and changes in market interest rates. Foreign exchange gains of $7.6 billion consisted primarily of $5.0 billion in equity and balanced assets and $2.2 billion in fixed income assets.

- 30 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Assets Under Management (continued)

The following table presents the component changes in BlackRock’s AUM for the years ended December 31, 2006, 2005 and 2004. Prior year data reflects certain reclassifications to conform to the current year presentation.

BlackRock, Inc.

Component Changes in Assets Under Management


	Year ended December 31,
*(Dollar amounts in millions)*	2006			2005			2004
Beginning assets under management	$	452,682		$	341,760		$	309,356
Net subscriptions		32,814			50,155			19,624
Acquisitions		589,158			49,966			—
Market appreciation, including foreign exchange		49,973			10,801			12,780

Ending assets under management	$	1,124,627		$	452,682		$	341,760

Percent change in AUM from net subscriptions and acquisitions		92.6	%		90.3	%		60.6	%

The following table presents the component changes in BlackRock’s AUM for 2006.


*(Dollar amounts in millions)*	December 31, 2005		Net subscriptions (redemptions)		Acquisition ¹		Foreign Exchange ²		Market appreciation (depreciation)		December 31, 2006
All Accounts:
Fixed income	$	303,928	$	3,026	$	132,829	$	2,153	$	13,995	$	455,931
Equity and balanced		37,303		10,676		314,419		4,984		25,326		392,708
Cash management		86,128		12,355		127,686		176		1,504		227,849
Alternative investment products		25,323		6,757		14,224		255		1,580		48,139

Total	$	452,682	$	32,814	$	589,158	$	7,568	$	42,405	$	1,124,627

¹	Acquired assets include $27.7 billion net new business from MLIM in the first nine months of 2006.

²	Foreign Exchange reflects the impact of converting non-dollar denominated AUM into U.S. dollars for reporting.

- 31 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2006 as compared with the year ended December 31, 2005

Operating results for the year ended December 31, 2006 reflect the impact of the MLIM Transaction, which closed on September 29, 2006. With the exception of BlackRock Solutions, the magnitude of the acquired business is the primary driver of most line item variances in the analysis below comparing the year ended December 31, 2006 to the year ended December 31, 2005.

Revenue


	Year ended December 31,				Variance
*(Dollar amounts in thousands)*	2006		2005		Amount		%
Investment advisory and administration fees:
Fixed income	$	564,435	$	431,766	$	132,669	30.7	%
Cash management		202,642		106,385		96,257	90.5	%
Equity and balanced		618,876		176,489		442,387	250.7	%
Alternative		212,788		135,738		77,050	56.8	%

Investment advisory and administration base fees		1,598,741		850,378		748,363	88.0	%
Investment advisory performance fees		242,282		167,994		74,288	44.2	%

Total investment advisory and administration fees		1,841,023		1,018,372		822,651	80.8	%

Other revenues:
BlackRock Solutions		126,350		111,526		14,824	13.3	%
Other revenue		130,603		61,488		69,115	112.4	%

Total other revenue		256,953		173,014		83,939	48.5	%

Total revenue	$	2,097,976	$	1,191,386	$	906,590	76.1	%

Total revenue for the year ended December 31, 2006 increased $906.6 million, or 76.1%, to $2,098.0 million, compared with $1,191.4 million for the year ended December 31, 2005. Investment advisory and administration fees increased $822.7 million to $1,841.0 million for the year ended December 31, 2006, compared with $1,018.4 million for the year ended December 31, 2005. Other revenue of $257.0 million increased $83.9 million, or 48.5%, for the year ended December 31, 2006, compared with $173.0 million for the year ended December 31, 2005.

Investment advisory and administration fees

The increase in investment advisory and administration fees of $822.7 million, or 80.8%, was the result of an increase in advisory base fees of $748.4 million, or 88.0%, to $1,598.7 million for the year ended December 31, 2006, compared with $850.4 million for the year ended December 31, 2005 along with an increase in performance fees of $74.3 million, or 44.2%. Investment advisory base fees increased in the year ended December 31, 2006 primarily due to increased AUM of $671.9 billion, including $589.2 billion of AUM acquired in the MLIM Transaction.

- 32 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2006 as compared with the year ended December 31, 2005 (continued)

Revenue (continued)

Investment advisory and administration fees (continued)

The increase in investment advisory base fees of $748.4 million for the year ended December 31, 2006 compared with the year ended December 31, 2005 consisted of increases of $442.4 million in equity and balanced products, $132.7 million in fixed income products, $96.3 million in cash management products and $77.1 million in alternative products. The increase in advisory fees for equity and balanced, fixed income, cash management and alternative investment products was driven by increases in AUM of $355.4 billion, $152.0 billion, $141.7 billion and $22.8 billion, respectively. The AUM growth in equity and balanced, fixed income, cash management and alternative products included assets acquired in the MLIM Transaction of $314.4 billion, $132.8 billion, $127.7 billion and $14.2 billion, respectively.

Performance fees increased by $74.3 million, or 44.2%, for the year ended December 31, 2006 primarily due to fees earned on a large institutional real estate equity client account and the Company’s other alternative products.

Other Revenue

Other revenue of $257.0 million for the year ended December 31, 2006 primarily represented fees earned on BlackRock Solutions’ products and services of $126.4 million, property management fees of $32.1 million earned on real estate AUM (which represented direct reimbursement of the salaries of certain Realty employees) and distribution fees earned on BlackRock funds of $35.9 million.

The increase in other revenue of $83.9 million, or 48.5%, for the year ended December 31, 2006 as compared to the year ended December 31, 2005 was primarily due to $24.6 million in distribution fees earned on mutual funds, increased revenues of $14.8 million from BlackRock Solutions’ products and services and $12.6 million in fund accounting services.

Expense


	Year ended December 31,				Variance
*(Dollar amounts in thousands)*	2006		2005		Amount		%
Expense:
Employee compensation and benefits	$	945,587	$	595,618	$	349,969	58.8	%
Portfolio administration and servicing costs		165,364		58,200		107,164	184.1	%
General and administration		443,260		189,522		253,738	133.9	%
Fee sharing payment		34,450		—		34,450	NM
Amortization of intangible assets		37,515		7,505		30,010	399.9	%

Total expense	$	1,626,176	$	850,845	$	775,331	91.1	%

NM – Not Meaningful

- 33 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2006 as compared with the year ended December 31, 2005 (continued)

Expense (continued)

Total expense, which reflects the impact of the MLIM Transaction on September 29, 2006 and includes $141.9 million of integration charges, increased $775.3 million, or 91.1%, to $1,626.2 million for the year ended December 31, 2006, compared with $850.8 million for the year ended December 31, 2005. The increase was attributable to increases in employee compensation and benefits, portfolio administration and servicing costs, general and administration expense, a one-time fee sharing payment, and amortization of intangible assets. Integration charges related to the MLIM Transaction included $45.0 million in compensation and benefits and $96.9 million in general and administration expense.

Employee Compensation and Benefits

Employee compensation and benefits expense increased by $350.0 million, or 58.8%, to $945.6 million, compared to $595.6 million for the year ended December 31, 2005. The increase in employee compensation and benefits was primarily attributable to increases in salaries and benefits and incentive compensation of $193.6 million and $142.8 million, respectively. The $193.6 million, or 71.6%, increase in salaries and benefits was primarily attributable to higher staffing levels associated with business growth and the MLIM Transaction. Employees at December 31, 2006 totaled 5,113 as compared to 2,148 at December 31, 2005. The $142.8 million, or 54.0%, increase in incentive compensation is primarily attributable to growth in operating income and higher incentive compensation associated with performance fees earned on the Company’s alternative investment products and $45.0 million of integration costs.

Portfolio Administration and Servicing Costs

Portfolio administration and servicing costs increased $107.2 million to $165.4 million during the year ended December 31, 2006. These costs include payments to third parties, including Merrill Lynch and PNC, primarily associated with the administration and servicing of client investments in certain BlackRock products. Portfolio administration and servicing costs included $96.4 million of expense in the fourth quarter 2006 payable to Merrill Lynch and affiliates and $24.1 million of expense for the year ended December 31, 2006 payable to PNC and affiliates.

General and Administration


	Year ended December 31,				Variance
*(Dollar amounts in thousands)*	2006		2005		Amount		%
General and administration expense:
Marketing and promotional	$	141,615	$	60,170	$	81,445	135.4	%
Technology		68,195		22,663		45,532	200.9	%
Occupancy		64,086		36,190		27,896	77.1	%
Portfolio services		51,694		14,046		37,648	268.0	%
Other general and administration		117,670		56,453		61,217	108.4	%

Total general and administration expense	$	443,260	$	189,522	$	253,738	133.9	%

- 34 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2006 as compared with the year ended December 31, 2005 (continued)

Expense (continued)

General and Administration (continued)

General and administration expense increased $253.7 million, or 133.9%, for the year ended December 31, 2006 to $443.3 million, compared to $189.5 million for the year ended December 31, 2005. The increase in general and administration expense was primarily due to increases in marketing and promotional expense of $81.4 million, technology-related expense of $45.5 million, portfolio services expense of $37.6 million, occupancy expense of $27.9 million and other general and administration expense of $61.2 million. The increase in general and administration expense included $96.9 million of integration costs related to the MLIM Transaction.

Marketing and promotional expense increased $81.4 million, or 135.4%, to $141.6 million, compared to $60.2 million for the year ended December 31, 2005, primarily due to increased marketing activities of $61.1 million (which included $28.2 million related to BlackRock’s rebranding campaign and $6.7 million of additional MLIM-related marketing expense) and $20.4 million of increased amortization of deferred mutual fund commissions assumed in the MLIM Transaction. Technology expenses increased $45.5 million to $68.2 million, compared to $22.7 million for the year ended December 31, 2005, primarily related to the integration of the MLIM business. Portfolio services costs increased $37.6 million to $51.7 million, related to supporting higher AUM levels and increased trading activities of the combined company. Occupancy costs for the year ended December 31, 2006 totaled $64.1 million, representing a $27.9 million increase from $36.2 million for the year ended December 31, 2005. The increase in occupancy costs during the year ended December 31, 2006 primarily reflect costs related to the expansion of corporate facilities associated with the MLIM Transaction and business growth. Other general and administration costs increased to $117.7 million from $56.5 million, and included $32.9 million in professional fees related to the MLIM Transaction.

Fee Sharing Payment

For the year ended December 31, 2006, BlackRock recorded a fee sharing payment of $34.5 million, representing a one-time expense related to a large institutional real estate equity client account acquired in the SSR acquisition in January 2005.

Amortization of Intangible Assets

The $30.0 million increase in amortization of intangible assets to $37.5 million for the year ended December 31, 2006, compared to $7.5 million for the year ended December 31, 2005, primarily reflects amortization of finite-lived intangible assets acquired in the MLIM Transaction.

Non-Operating Income and Minority Interest

Non-operating income increased $21.2 million, or 60.3%, to $56.4 million for the year ended December 31, 2006 as compared to $35.2 million for the year ended December 31, 2005 as a result of a $23.2 million, or 53.8%, increase in investment income, partially offset by a $2.0 million increase in interest expense related to liabilities assumed in the MLIM Transaction. The increase in investment income was primarily due to market appreciation and security gains on Company investments in 2006 and investments acquired in the MLIM Transaction. Minority interest in earnings of consolidated subsidiaries increased $12.9 million for the year ended December 31, 2006 primarily due to the increase in consolidated investments, the majority of which were acquired in the MLIM Transaction.

Income Taxes

Income tax expense was $189.5 million and $138.6 million, representing effective tax rates of 37.0% and 37.2%, for the years ended December 31, 2006 and 2005, respectively.

- 35 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2006 as compared with the year ended December 31, 2005 (continued)

Net Income

Net income totaled $322.6 million for the year ended December 31, 2006 and increased $88.7 million, or 37.9%, as compared to the year ended December 31, 2005. Net income includes the after-tax impact of the portion of LTIP awards funded in January 2007 by a capital contribution of BlackRock common stock held by PNC, integration expenses related to the MLIM Transaction and a contribution by Merrill Lynch to fund certain compensation of former MLIM employees, of $31.5 million, $90.6 million and $89.4 million, respectively. MLIM Transaction costs primarily include professional fees, compensation expense and other general and administration expenses. Net income of $233.9 million during the year ended December 31, 2005 included the after-tax impact of the portion of LTIP awards funded by a capital contribution of BlackRock stock held by PNC of $30.6 million and expenses related to the SSR acquisition of $5.6 million. SSR acquisition costs included acquisition-related payments to continuing employees of BlackRock and professional fees. Exclusive of these items, net income for the year ended December 31, 2006, as adjusted, increased $175.1 million, or 64.9%, compared to the year ended December 31, 2005.

- 36 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2005 as compared with the year ended December 31, 2004

The following table presents the component changes in BlackRock’s AUM for 2005.


*(Dollar amounts in millions)*	December 31, 2004		Net subscriptions (redemptions)		Acquisition		Market appreciation (depreciation)		December 31, 2005
All Accounts:
Fixed income	$	240,709	$	37,329	$	21,083	$	4,807	$	303,928
Equity and balanced		14,792		1,644		17,558		3,309		37,303
Cash management		78,057		7,150		768		153		86,128
Alternative investment products		8,202		4,032		10,557		2,532		25,323

Total	$	341,760	$	50,155	$	49,966	$	10,801	$	452,682

Revenue


	Year ended December 31,				Variance
*(Dollar amounts in thousands)*	2005		2004		Amount		%
Investment advisory and administration fees:
Fixed income	$	431,766	$	372,973	$	58,793	15.8	%
Cash management		106,385		99,080		7,305	7.4	%
Equity and balanced		176,489		59,322		117,167	197.5	%
Alternative		135,738		60,642		75,096	123.8	%

Investment advisory and administration base fees		850,378		592,017		258,361	43.6	%
Investment advisory performance fees		167,994		41,606		126,388	303.8	%

Total investment advisory and administration fees		1,018,372		633,623		384,749	60.7	%

Other revenues:
BlackRock Solutions		111,526		80,541		30,984	38.5	%
Other revenue		61,488		11,147		50,342	451.7	%

Total other revenue		173,014		91,688		81,326	88.7	%

Total revenue	$	1,191,386	$	725,311	$	466,075	64.3	%

Total revenue for the year ended December 31, 2005 increased $466.1 million, or 64.3%, to $1,191.4 million, compared with $725.3 million during the year ended December 31, 2004. Investment advisory and administration fees increased $384.7 million, or 60.7% to $1,018.4 million for the year ended December 31, 2005, compared with $633.6 for the year ended December 31, 2004. Other revenue increased by $81.3 million, or 88.7%, to $173.0 million for the year ended December 31, 2005, compared with $91.7 million for the year ended December 31, 2004.

- 37 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2005 as compared with the year ended December 31, 2004 (continued)

Revenue (continued)

Investment advisory and administration fees

The increase in investment advisory and administration fees of $384.7 million, or 60.7%, was comprised of higher advisory base fees of $258.4 million, or 43.6%, to $850.4 million for the year ended December 31, 2005, compared with $592.0 million for the year ended December 31, 2004 along with an increase in performance fees of $126.4 million. Investment advisory base fees increased in the year ended December 31, 2005 primarily due to increased AUM of $110.9 billion as a result of net new subscriptions of $50.2 billion, $50.0 billion of AUM acquired primarily in the Company’s acquisition of SSR and $10.8 billion due to market appreciation.

The increase in base investment advisory fees of $258.4 million for the year ended December 31, 2005, compared with the year ended December 31, 2004, consisted of increases of $117.2 million in equity products, $75.1 million in alternative products, $58.8 million in fixed income products and $7.3 million in cash management products. The $117.2 million increase in advisory fees from equity products was primarily the result of an increase in AUM from the SSR acquisition of $17.6 billion and market appreciation of $3.3 billion. The $75.1 million increase in advisory fees from alternative products was primarily the result of an increase in AUM from the SSR acquisition of $10.6 billion and net subscriptions of $4.0 billion. The $58.8 million increase in advisory fees from fixed income products was primarily the result of an increase in AUM from net subscriptions of $37.3 billion, the SSR acquisition of $21.1 billion and market appreciation of $4.8 billion. The $7.3 million increase in advisory fees from cash management products was primarily the result of an increase in AUM from net subscriptions of $7.2 million.

Performance fees increased in the year ended December 31, 2005 primarily due to fees earned on the Company’s equity hedge funds and real estate alternative products acquired in the SSR acquisition.

Other Revenue

Other revenue of $173.0 million for the year ended December 31, 2005 primarily represents fees earned on BlackRock Solutions products and services of $111.5 million, property management fees of $32.3 million earned on real estate AUM (which represent direct reimbursement of the salaries of certain Realty employees) and distribution fees earned on BlackRock funds of $11.3 million.

The increase in other revenue of $81.3 million, or 88.7%, for the year ended December 31, 2005 as compared to the year ended December 31, 2004 was primarily the result of property management fees of $32.3 million (which includes $23.4 million of direct reimbursement of the salaries of certain Realty employees), increased revenues of $31.0 million from BlackRock Solutions’ products and services driven by new assignments and distribution fees of $11.3 million earned on funds obtained in the SSR acquisition.

- 38 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2005 as compared with the year ended December 31, 2004 (continued)

Expense


	Year ended December 31,				Variance
*(Dollar amounts in thousands)*	2005		2004		Amount			%
Expense:
Employee compensation and benefits	$	595,618	$	391,138	$	204,480		52.3	%
Portfolio administration and servicing costs		58,200		42,943		15,257		35.5	%
General and administration		189,522		118,388		71,134		60.1	%
Amortization of intangible assets		7,505		947		6,558		NM
Impairment of intangible assets		—		6,097		(6,097	)	(100	%)

Total expense	$	850,845	$	559,513	$	291,332		52.1	%

NM – Not Meaningful

Total expense increased $291.3 million, or 52.1%, to $850.8 million for the year ended December 31, 2005, compared with $559.5 million for the year ended December 31, 2004. The increase was attributable to increases in compensation and benefits (other than the LTIP component of this expense, which decreased by $44.6 million), general and administration expense, portfolio administration and servicing costs and amortization of intangible assets, partially offset by a decrease in LTIP expense of $44.6 million and the recognition of an impairment of an acquired management contract of $6.1 million during the first quarter of 2004.

Employee compensation and benefits

Compensation and benefits expense increased by $204.5 million, or 52.3%, to $595.6 million for the year ended December 31, 2005 compared to $391.1 million for the year ended December 31, 2004. The increase in employee compensation and benefits was primarily attributable to increases in salaries and benefits and incentive compensation of $123.0 million and $122.1 million, respectively, partially offset by a $44.6 million decrease in LTIP costs, for which the Company initiated expense recognition during the third quarter of 2004. The increase of $123.0 million in salaries and benefits was primarily attributable to higher staffing levels associated with business growth and the SSR acquisition, which added 858 employees (including 511 Realty employees whose salaries are entirely reimbursed). The $122.1 million, or 85.6%, increase in incentive compensation is primarily attributable to operating income growth, additional SSR employees, higher performance fees earned on the Company’s alternative investment products and a $6.5 million acquisition-related bonus payment to continuing employees.

Portfolio administration and servicing costs

Portfolio administration and servicing costs increased $15.3 million, or 35.5%, during the year ended December 31, 2005 to $58.2 million, compared to $42.9 million for the year ended December 31, 2004. The rise was due to increases in shareholder servicing fees related to new closed-end funds and additional assets associated with BlackRock funds.

- 39 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2005 as compared with the year ended December 31, 2004 (continued)

Expense (continued)

General and Administration


	Year ended December 31,				Variance
*(Dollar amounts in thousands)*	2005		2004		Amount		%
General and administration expense:
Marketing and promotional	$	60,170	$	27,252	$	32,918	120.8	%
Occupancy		36,190		23,407		12,783	54.6	%
Technology		22,663		18,835		3,828	20.3	%
Portfolio services		14,046		7,129		6,917	97.0	%
Other general and administration		56,453		41,765		14,688	35.2	%

Total general and administration expense	$	189,522	$	118,388	$	71,134	60.1	%

General and administration expense increased $71.1 million, or 60.1%, in the year ended December 31, 2005 to $189.5 million, compared to $118.4 million for the year ended December 31, 2004. The increase in general and administration expense was primarily due to increases in marketing and promotional expense of $32.9 million, occupancy expense of $12.8 million, portfolio services expense of $6.9 million, technology expense of $3.8 million and other general and administration expense of $14.7 million. Marketing and promotional expense increased $32.9 million, or 120.8%, to $60.2 million, compared to $27.3 million for the year ended December 31, 2004 primarily due to increased marketing activities of $23.6 million associated with the Company’s institutional products and expanded international calling efforts, which included closed-end fund launch costs of $13.3 million for the year and $9.3 million in amortization of deferred mutual fund commissions assumed in the SSR acquisition. Occupancy costs for the year ended December 31, 2005 totaled $36.2 million, representing a $12.8 million, or 54.6%, increase, from $23.4 million for the year ended December 31, 2004. The increase in occupancy costs during the year ended December 31, 2005 primarily reflected costs related to occupying 85,000 square feet of additional office space in New York during the first quarter of 2005 and costs related to properties assumed in the SSR acquisition. Portfolio services costs increased by 97.0% to $14.0 million, related to supporting higher AUM levels and increased trading activities. Technology expenses increased $3.8 million, or 20.3%, to $22.7 million, compared to $18.8 million for the year ended December 31, 2004 primarily due to increased software maintenance expenses, consulting expenses and additional depreciation on assets assumed in the SSR acquisition to support business growth. Other general and administration costs increased by 35.2% to $56.5 million and included a $3.2 million increase in office-related expenses consistent with the increases in office space and number of employees and a $2.7 million increase in professional fees primarily related to the SSR integration and Sarbanes-Oxley Act and other compliance activities.

Amortization of Intangible Assets

The $6.6 million increase in amortization of intangible assets to $7.5 million for the year ended December 31, 2005, compared to $0.9 million for the year ended December 31, 2004, reflects amortization of finite-lived management contracts acquired in the SSR acquisition. During the first quarter 2004, in connection with the liquidation of a certain equity hedge fund, the Company recognized a $6.1 million impairment charge representing the carrying value of the fund’s acquired management contract.

- 40 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Operating results for the year ended December 31, 2005 as compared with the year ended December 31, 2004 (continued)

Non-Operating Income

Non-operating income increased $0.6 million, or 1.7%, to $35.2 million for the year ended December 31, 2005 as compared to $34.6 million for the year ended December 31, 2004 as a result of a $7.7 million, or 21.6%, increase in investment income, partially offset by a $7.1 million increase in interest expense. The increase in investment income was primarily due to market appreciation and security gains on Company investments in 2005, partially offset by the Company’s $12.9 million gain on the sale of Trepp, LLC in April 2004. Borrowings used to finance the SSR acquisition resulted in $6.6 million of the increase in interest expense in 2005 as compared to 2004.

Income Taxes

Income tax expense was $138.6 million and $52.3 million, representing effective tax rates of 37.2% and 26.7%, for the years ended December 31, 2005 and 2004, respectively. The increase in the Company’s effective tax rate was primarily attributable to net income benefits of approximately $18.1 million in 2004 primarily associated with the resolution of an audit performed by New York State on the Company’s state income tax returns filed from 1998 through 2001.

Net Income

Net income totaled $233.9 million for the year ended December 31, 2005 and includes the after-tax impact of the portion of LTIP awards funded by a capital contribution of BlackRock common stock held by PNC and expenses related to the SSR acquisition, of $30.6 million and $5.6 million, respectively. SSR acquisition costs include acquisition-related bonus payments to continuing employees of BlackRock and certain professional fees. In addition, net income of $143.1 million during the year ended December 31, 2004 included the after-tax impact of the portion of LTIP awards funded by a capital contribution of common stock held by PNC of $53.6 million, New York State tax benefits and the impact of the sale of Trepp, LLC, discussed previously. Exclusive of these items, net income for the year ended December 31, 2005, as adjusted, increased $91.9 million, or 51.7%, compared to the year ended December 31, 2004.

Business Outlook

As fiscal 2007 began, domestic and international markets generally reflected positive economic and market performance, although they retrenched at the end of February. While management expects overall positive equity markets during 2007, that growth may be more volatile than during 2006. The timing and direction of market changes and the timing of new client asset flows will impact the timing and amount of revenue the Company recognizes.

As a matter of policy, the Company does not provide earnings guidance. However, in the fourth quarter earnings release, the Company included information about the MLIM integration and an estimated range for 2007 earnings. The range was based on a number of factors, including a performance fee range of $100 to $250 million and an assumed growth in the equity markets from year-end 2006 levels. Based on current market conditions, the Company expects performance fees to be nearer the lower end of the range.

The Company announced an increase in the quarterly dividend rate, effective with the March 23, 2007 payment, to $0.67 per share from $0.42 per share paid in 2006. Operating cash flows will be used to pay dividends, to invest in new products, expand the global footprint, to meet ongoing global net capital requirements, principally outside the United States, and to repay amounts under the revolving credit facility to the extent available. The Company expects to continue to utilize its revolving credit facility described below to fund U.S. activities throughout 2007 even though it will have excess cash outside the United States.

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Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Liquidity and Capital Resources

Sources of BlackRock’s operating cash include investment advisory and administration fees, revenues from BlackRock Solutions’ products and services, property management fees, mutual fund distribution fees and realized earnings on certain of the Company’s investments. BlackRock primarily uses its operating cash to pay compensation and benefits, portfolio administration and servicing costs, general and administration expenses, interest on the Company’s long-term debt, purchases of investments, capital expenditures and dividends on BlackRock’s stock. Management believes that the Company has sufficient access to cash through its operations and the revolving credit facility described below to fund its operations in the near term.

Cash provided by the Company’s operating activities totaled $720.9 million, $254.9 million and $231.4 million for the years ended December 31, 2006, 2005 and 2004, respectively. The $480.9 million increase in net cash provided by operating activities for 2006 as compared to 2005 was primarily the result of net income resulting from the MLIM Transaction and organic growth.

In December 2006, the Company entered into a revolving credit agreement (the “Credit Agreement”) with a syndicate of banking institutions with an initial borrowing capacity of $600.0 million. The term of the facility is five years and interest currently accrues at the applicable London Interbank Offer Rate (“LIBOR”) plus 0.20%. The Company pays a commitment fee of 0.04% per annum on the undrawn balance. Additionally, for each day that the total amount outstanding is greater than 50% of the total commitments by all lenders, the Company pays a utilization fee of 0.05% per annum on the total amount outstanding. Financial covenants in the Credit Agreement require BlackRock to maintain a maximum debt/EBITDA ratio of 3.0 and a minimum EBITDA/interest expense ratio of 4.0. The facility is intended to fund various investment opportunities as well as BlackRock’s near-term operating cash requirements. As of December 31, 2006, the Company had no borrowings outstanding under this facility.

In February 2007, the Company exercised its ability to increase the capacity of the facility to $800.0 million. The Credit Agreement allows BlackRock to request an additional $200 million of borrowing capacity, subject to lender credit approval, up to a maximum of $1 billion. During January and February 2007, the Company borrowed $540.0 million against this facility for general corporate purposes. The term for the outstanding debt is one month and as of February 28, 2007 accrues interest at a rate of 5.52%. Borrowings outstanding at February 28, 2007 are due March 13, 2007 and the Company has provided notice that it will continue $450 million of such borrowings.

BlackRock granted awards in 2002 and 2003 under its LTIP of approximately $230 million, of which approximately $210 million were paid in January 2007. The awards were payable approximately 16.7% in cash and the remainder in BlackRock stock contributed by PNC and distributed to LTIP participants. As permitted under the plan, employees elected to put approximately 95% of the stock portion of the awards back to the Company at a total fair market value of approximately $165.7 million. These shares have been retained as treasury stock.

The Company’s Investment Committee has approved warehouse facilities totaling $350 million for the purpose of funding investments to establish funds of private equity funds. As of December 31, 2006, the Company has committed to invest $130 million in certain funds, of which approximately $11 million was funded as of December 31, 2006. In addition, the Company has various capital commitments to fund other companies or investment funds in which it has an ownership stake. Generally, the timing of the funding of these commitments is uncertain. As of December 31, 2006, these unfunded commitments totaled approximately $210.0 million.

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Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Liquidity and Capital Resources (continued)

Net cash used in investing activities was $219.8 million during the year ended December 31, 2005 and net cash provided by investing activities was $3.6 and $7.0 million for the years ended December 31, 2006 and 2004, respectively. During the year ended December 31, 2006, net cash provided by investing activities primarily consisted of $272.4 million in net cash acquired in the MLIM Transaction and other acquisitions, partially offset by $212.6 million in purchases of investments and $84.0 million of capital expenditures primarily related to MLIM integration activities. During the year ended December 31, 2005, net cash used in investing activities consisted primarily of $275.2 million in cash consideration paid in the SSR acquisition and $55.2 million in capital expenditures primarily representing build-out costs associated with additional office space in New York and purchases of $51.6 million in investments, which was partially offset by the sale of real estate held for sale for $112.2 million.

Net cash used in financing activities was $84.9 million, $4.3 million and $99.6 million for the years ended December 31, 2006, 2005 and 2004, respectively. During the year ended December 31, 2006, net cash used in financing activities primarily represented the payment of $135.7 million in dividends and common stock repurchases of $30.9 million. Partially offsetting these cash outflows was $72.6 million in net subscriptions received from minority interest holders in consolidated investments.

In January 2004, BlackRock’s Board of Directors approved a two million share repurchase program. The Company repurchased all remaining 180,825 shares under the program in open market transactions for approximately $72.0 million during the seven months ended July 31, 2006. On August 2, 2006, BlackRock announced that its Board had authorized a new program to purchase an additional 2.1 million shares. Pursuant to this repurchase program, BlackRock may make repurchases from time to time, as market conditions warrant, in the open market or in privately negotiated transactions at the discretion of management. The Company made no repurchases of shares under the new program during the year ended December 31, 2006.

At December 31, 2006, long-term debt, including current maturities, was $253.2 million. Debt service requirements are $6.9 million in 2007, $6.8 million in 2008 and $6.7 million in 2009 and 2010.

Approximately $90.9 million in cash and cash equivalents included in the Company’s 2006 consolidated statement of financial condition is held by products that are consolidated in accordance with generally accepted accounting principles in the United States (“GAAP”). As such, the Company may not be able to access such cash to use in its operating activities. In addition, approximately $1.5 billion of investments included in the Company’s consolidated statement of financial condition at December 31, 2006 are held by products that are consolidated in accordance with GAAP. The Company may not be readily able to sell such investments in order to obtain cash for use in its operations.

The Company is required to maintain net capital in certain international jurisdictions, which is met in part by retaining cash and cash equivalent investments in those jurisdictions. As a result, the Company may be restricted in its ability to transfer cash between different jurisdictions. Additionally, transfer of cash between international jurisdictions, including repatriation to the United States, may have adverse tax consequences that could discourage such transfers. At December 31, 2006, the Company was required to maintain approximately $344.3 million in net capital at these subsidiaries and is in compliance with all regulatory minimum net capital requirements.

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Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Contractual Obligations, Commitments and Contingencies


*(Dollar amounts in thousands)*	Total		2007		2008		2009		2010		2011		Thereafter
Contractual Obligations:
Convertible Debentures	$	270,603	$	6,563	$	6,563	$	6,563	$	250,914	$	—	$	—
Lease Commitments		538,253		70,590		74,065		70,933		68,851		63,317		190,497
Purchase Obligations		774,881		399,562		370,638		4,676		5		—		—
Investment Commitments		328,983		31,122		10,795		—		39,397		2,350		245,319
Acquired Management Contract		4,000		1,000		1,000		1,000		1,000		—		—

Total Contractual Obligations	$	1,916,720	$	508,837	$	463,061	$	83,172	$	360,167	$	65,667	$	435,816

Convertible Debentures, Line of Credit and Other Interest-Bearing Obligations

In February 2005, the Company issued $250.0 million aggregate principal amount of convertible debentures due in 2035 and bearing interest at a rate of 2.625% per annum (the “Debentures”). Interest is payable semi-annually in arrears on February 15 and August 15 of each year, or approximately $6.6 million a year, and commenced August 15, 2005. The Debentures are callable by the Company at any time on or after February 20, 2010. In addition, the Debentures contain certain put and conversion provisions. On the contractual obligations table above, the principal balance of the Debentures is assumed to be repaid in 2010, and related interest has been included through the call date.

In December 2006, the Company entered into a revolving credit agreement with a syndicate of banking institutions with an initial borrowing capacity of $600.0 million, subsequently increased in February 2007 to $800.0 million. As of December 31, 2006, the Company had no amounts outstanding under this facility as the first borrowings were made in January and February of 2007. As such, no amounts related to the revolving credit facility have been included in the contractual obligations table above.

Lease Commitments

The Company leases its primary office space and certain office equipment under agreements that expire through 2018. In connection with certain lease agreements, the Company is responsible for escalation payments. The contractual obligations table above includes only guaranteed minimum lease payments for such leases and does not project potential escalation or other lease-related payments. These leases are classified as operating leases and, as such, are not recorded as liabilities on the consolidated statements of financial condition.

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Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Contractual Obligations, Commitments and Contingencies (continued)

Purchase Obligations

In the ordinary course of business, BlackRock enters into contracts or purchase obligations with third parties whereby the third parties provide services to or on behalf of BlackRock. Purchase obligations included in the contractual obligations table above represent executory contracts which are either non-cancelable or cancelable with a penalty. At December 31, 2006, the Company’s obligations primarily reflect shareholder servicing arrangements related to client investments in the BlackRock closed-end funds, sub-advisory agreements and standard service contracts with affiliated and unaffiliated third parties for portfolio, market data and office services. Purchase obligations are recorded on the Company’s financial statements only after the goods or services have been received and, as such, these obligations are not included in the Company’s consolidated statement of financial condition at December 31, 2006.

Investment Commitments

The Company has various capital commitments to fund companies or investment funds in which it has an ownership stake. Generally, the timing of the funding of these commitments is dependent upon the needs of the investment and, therefore, is uncertain. Capital commitments have been shown in the contractual obligations table above to be paid upon the expiration date of the commitment. Actual payments could be made at any time prior to such date and if not called by that date, such commitments would expire. These commitments have not been recorded on the Company’s consolidated statements of financial condition at December 31, 2006. The above schedule does not include potential future commitments approved by the Company’s Investment Committee, but which are not yet legally binding commitments.

BlackRock is also obligated to maintain specified ownership levels in certain investment products, which may result in additional required contributions or distributions of capital. These amounts are inherently uncertain and have been excluded from the contractual obligations schedule above. In addition, as a general partner in certain private equity partnerships, the Company receives certain distributions from the partnerships according to the provisions of the partnership agreements. The Company may, from time to time, be required to return all or a portion of such distributions to the limited partners in the event the limited partners do not achieve a certain return as specified in the various partnership agreements.

The Company’s Investment Committee has approved warehouse facilities totaling $350 million for the purpose of funding investments to establish private equity funds. As of December 31, 2006, the Company has committed to invest $130 million in certain funds, of which approximately $11 million was funded. The net unfunded commitment of $119 million has been included in the contractual obligations table above.

Acquired Management Contract

In connection with a management contract acquired on May 15, 2000, which was associated with the agreement and plan of merger of CORE Cap, Inc. with Anthracite Capital, Inc. (“Anthracite”), a BlackRock managed Real Estate Investment Trust, the Company recorded an $8.0 million liability using an imputed interest rate of 10.0%, the prevailing interest rate on the date of acquisition. For the year ended December 31, 2006, the related interest expense was $0.3 million. At December 31, 2006, the future commitment under the agreement is $4.0 million and has been included in the contractual obligations table above. If Anthracite’s management contract is terminated, not renewed or not extended for any reason other than cause, Anthracite would remit to the Company all future payments due under this obligation. At December 31, 2006, the discounted value of this obligation was $3.2 million and was included in long-term borrowings in the 2006 consolidated statement of financial condition.

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Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Contractual Obligations, Commitments and Contingencies (continued)

LTIP Put Obligation and Other Compensation and Benefit Obligations

The Company has various other compensation and benefit obligations, including bonuses, commissions and incentive payments payable, employee stock purchases and defined contribution plan matching contribution obligations, deferred compensation arrangements, defined benefit plan obligations, post-employment benefits and post-retirement benefits that are excluded from the table above primarily due to uncertainties in their payout periods. Accrued compensation and benefits at December 31, 2006 totaled $1,051.3 million and included incentive compensation of $629.9 million, deferred compensation of $321.6 million and other compensation and benefits related obligations of $99.8 million. Incentive compensation was primarily paid in January and February 2007, while the deferred compensation obligations are generally payable over periods up to five years, but include certain defined benefit plan liabilities whose payment patterns are uncertain.

Acquisition Forward Commitment

On April 30, 2003, the Company purchased 80% of an investment manager of a fund of hedge funds for approximately $4.1 million in cash. Additionally, the Company committed to purchase the remaining 20% equity of the investment manager on March 31, 2008, subject to certain acceleration provisions. The purchase price of this remaining interest is performance-based and is not subject to a minimum or maximum amount or to the continued employment of former employees of the investment manager with the Company. As the remaining obligation is dependent upon the performance of the investment manager through March 31, 2008, however, the ultimate liability is not certain at December 31, 2006 and, as such, this commitment has been excluded from the contractual obligations table above and from BlackRock’s consolidated statement of financial condition at December 31, 2006.

Purchase Price Contingencies

In January 2005, the Company closed its acquisition of SSR from MetLife for adjusted consideration of approximately $265.1 million in cash and 550,000 restricted shares of BlackRock common stock and certain additional contingent payments. On the fifth anniversary of the closing of the SSR acquisition, MetLife could receive an additional payment of up to a maximum of $10.0 million based on the Company’s retained AUM associated with the MetLife defined benefit and defined contribution plans. Due to its inherent uncertainty, this contingency has been excluded from the contractual obligations table above and has not been recorded on the Company’s consolidated statement of financial condition at December 31, 2006.

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Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Contractual Obligations, Commitments and Contingencies (continued)

Separate Account Liabilities

The Company’s wholly-owned registered life insurance company, which was acquired in the MLIM Transaction, maintains separate account assets representing segregated funds held for purposes of funding individual and group pension contracts. The net investment income and net realized and unrealized gains and losses attributable to these separate account assets accrue directly to the contract owner and, as such, an offsetting separate account liability is recorded. At December 31, 2006, the Company had $4.3 billion of separate account liabilities on the 2006 consolidated statement of financial condition. The payment of these contractual obligations is inherently uncertain and varies by customer. As such, these liabilities have been excluded from the contractual obligations table above.

Indemnifications

In many of the Company’s contracts, including the MLIM Transaction Agreement, BlackRock agrees to indemnify third parties under certain circumstances. The terms of the indemnities vary from contract to contract and the amount of indemnification liability, if any, cannot be determined and has not been included in the table above or recorded in the Company’s consolidated statement of financial condition at December 31, 2006. See further discussion in Note 10 to the consolidated financial statements beginning on F-1 of this Form 10-K.

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Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies and Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ significantly from those estimates. Management considers the following accounting policies and estimates critical to an informed review of BlackRock’s consolidated financial statements. For a summary of these and additional accounting policies see Note 1 to the Consolidated Financial Statements beginning on page F-1 of this Form 10-K.

Investments

Consolidation, Equity Method and Cost Method

The accounting method used for the Company’s investments is generally dependent upon the influence the Company has on its investee. For investments where BlackRock has control over the financial and operating policies of the investee, which is generally shown through a 50% or greater voting interest, the investee is consolidated into BlackRock’s financial statements. For certain investments where the risks and rewards of ownership are not directly linked to voting interests (“variable interest entities”), an investee may be consolidated if BlackRock is considered the primary beneficiary of the investee. The Company, as general partner or managing member, is generally presumed to control investments in limited partnerships and certain limited liability companies. Such a presumption can be overcome if other limited partners or members in the investment have substantive participating or kick-out rights whereby the Company may be removed as investment manager.

For investments where BlackRock does not control the investee, and is not the primary beneficiary of a variable interest entity, but can exert significant influence over the financial and operating policies of the investee, the Company uses the equity method of accounting. Under the equity method of accounting for investments, BlackRock’s share of the investee’s underlying net income is recorded as non-operating income for investments in funds and as other revenue for investments in operating or advisory companies since such operating or advisory companies are considered to be integral to BlackRock’s core business. Dividends received reduce the Company’s investment balance.

For equity investments where BlackRock neither controls nor has significant influence over the investee and which are readily marketable, the investments are classified as either trading or available-for-sale securities based upon management’s intent in making the investment. Trading securities are those investments which are bought principally for the purpose of selling them in the near term. Trading securities are carried at fair value on the consolidated statements of financial condition with changes in fair value recorded in non-operating income in the consolidated statements of income during the period of the change. Available-for-sale securities are those securities which are not classified as trading securities. Available-for-sale securities are carried at fair value on the consolidated statements of financial condition with changes in fair value recorded to the accumulated other comprehensive income component of equity in the period of the change. Upon the disposition of an available-for-sale security, the Company reclassifies the gain or loss on the security from accumulated other comprehensive income to non-operating income on the Company’s consolidated financial statements.

For equity investments where BlackRock neither controls nor has significant influence over the investee and which are non-marketable, the investments are accounted for using the cost method of accounting. Under the cost method, dividends received are recorded as non-operating income.

Debt securities are classified as either held-to-maturity or as available-for-sale based upon management’s purpose for making the investment. If the Company has the ability and intent to hold a debt security to its maturity, the security is classified as held-to-maturity and is recorded at its amortized cost in the consolidated statements of financial condition. If the Company does not have the intent to hold the debt security to maturity or is unable to do so, the security is classified as available-for-sale.

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Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies and Estimates (continued)

Investments (continued)

Consolidation, Equity Method and Cost Method (continued)

Dividend income on the Company’s investments in CDOs is recorded based upon the CDO’s projected investment yield. Expected future cash flows for the CDO are reviewed periodically and changes in the yield are recorded prospectively. Dividend income for these investments is recorded in non-operating income on the consolidated statements of income.

Occasionally, the Company will acquire a controlling equity interest in a sponsored investment fund. All of the consolidated funds’ investments are carried at fair value, with corresponding changes in the securities’ fair values reflected in non-operating income in the Company’s consolidated statements of income. In the absence of a publicly available market value, fair value for an investment is estimated in good faith by the Company’s management based on such factors as the liquidity, financial condition and current and projected operating performance of the investment and, in the case of private investment fund investments, the net asset value as provided by the private investment fund’s investment manager which may or may not be BlackRock. When the Company can no longer control these funds due to reduced ownership percentage or other reasons, the funds are deconsolidated and accounted for under another accounting method, as appropriate.

The evaluation of the control or significant influence that BlackRock may exert over the financial and operational policies of its investees requires significant management judgment based on the facts and circumstances surrounding each individual investment. Factors considered in these evaluations may include the type of investment, the legal structure of the investee, the terms and structure of the investment agreement including investor voting rights, the terms of BlackRock’s advisory agreement with the investee and any influence BlackRock may have on the governing board of the investee. Further, with regard to variable interest entities, significant judgment is required in the determination of whether the Company is the primary beneficiary. If the Company is determined to be the primary beneficiary of a variable interest entity, the entity will be consolidated within BlackRock’s consolidated financial statements. In order to determine whether the Company is the primary beneficiary of a variable interest entity, management must make significant estimates and assumptions of probable future cash flows and assign probabilities to different cash flow scenarios. Assumptions made in such analyses include, but are not limited to, market prices of securities, market interest rates, potential credit defaults on individual securities or default rates on a portfolio of securities, gain realization, liquidity or marketability of certain securities, discount rates and the probability of certain other outcomes.

Fair Value

BlackRock has certain investments which require fair value accounting under generally accepted accounting principles as described above. For certain investments, including investments classified as trading investments and consolidated fund investments, changes in the fair value affect net income in the period of the change. For other investments classified as available-for-sale securities, changes in fair value are recorded as a component of stockholders’ equity and generally do not directly impact BlackRock’s net income until such investments are sold or are considered impaired (see below). Marketable securities are priced using publicly available market data or external pricing services. Non-marketable securities, however, are generally priced using a variety of methods and resources, including internal valuation models, which utilize available market data and management assumptions.

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Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies and Estimates (continued)

Investments (continued)

Fair Value (continued)

When launching a new fund, the Company will, on occasion, provide seed capital to the fund so that it may make investments and establish an investment history before being marketed to investors. In such circumstances, the Company will usually own 100% of the fund until it is offered to external investors and, as such, these funds are consolidated in BlackRock’s financial statements. Investments within such funds are carried at fair value, with changes in fair value impacting the Company’s consolidated statements of income. Investments held by these seed funds may be marketable or non-marketable depending upon the type of fund being established. Fair value of non-marketable investments within these funds is generally determined by the Company, as the fund manager, using similar models, assumptions and judgment as noted above. In addition, changes in fair value of certain illiquid investments held by these funds, including direct investments in equity or debt securities of privately held companies certain real estate products are recorded based upon the best information available at the reporting period date, considering any significant changes in the operations of the investment.

As of December 31, 2006, BlackRock had approximately $2.1 billion in investments. Of that amount, changes in fair value of approximately $1.9 billion of such investments will impact the Company’s consolidated statement of income and approximately $0.2 billion will impact accumulated other comprehensive income. As of December 31, 2006, approximately $1.5 billion of such investments relate to consolidated funds whereby changes in fair value of such investments will impact BlackRock’s investment income and minority interest expense on the consolidated statement of income for the year ended December 31, 2006. Due to ownership levels, BlackRock’s net exposure to changes in fair value of such investments is $0.4 billion.

Impairment of Investments

The Company’s management periodically assesses impairment on its investments. If circumstances indicate that impairment may exist, investments are evaluated using market values, where available, or the expected future cash flows of the investment. If the undiscounted expected future cash flows are lower than the Company’s carrying value of the investment, an impairment charge is recorded to the consolidated statements of income.

When the fair values of trading or available-for-sale securities are lower than their cost or amortized cost values, the Company evaluates the securities to determine whether the impairment is considered other than temporary. In making this determination, the Company considers, among other factors, the length of time the security has been in a loss position, the extent to which the security’s market value is less than its cost, the financial condition and near-term prospects of the security’s issuer and the Company’s ability and intent to hold the security for a length of time sufficient to allow for recovery. If the impairment is considered other than temporary, a charge is recorded to the consolidated statements of income. There were no impairments of investments, other than CDOs (see below) for the years ended December 31, 2006, 2005 and 2004.

The Company reviews its CDO investments for impairment periodically throughout the term of the investment. The Company estimates the fair value of its CDO investments using the present value of future cash flows. If the estimated future cash flows are lower than the previous estimate, an impairment is recognized based on the excess of the carrying amount of the investment over its estimated fair value if the impairment is considered other than temporary. CDO impairments were $2.3 million, $0.8 million and $1.1 million for the years ended December 31, 2006, 2005 and 2004, respectively.

Evaluations of impairments of securities involve significant assumptions and management judgments, which could differ from actual results and these differences could have a material impact on the Company’s consolidated statements of income.

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Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies and Estimates (continued)

Goodwill and Intangible Assets

At December 31, 2006, the carrying amounts of the Company’s goodwill and intangible assets were as follows:


(Dollar amounts in thousands)	December 31, 2006
Goodwill	$	5,257,017
Management contracts acquired:
Indefinite–lived		4,711,732
Finite–lived, net of accumulated amortization		1,170,698

Total goodwill and intangible assets	$	11,139,447

The value of contracts to manage assets in proprietary mutual funds is classified as an indefinite-lived intangible asset. The assignment of indefinite lives to proprietary mutual fund contracts is based upon the assumption that there is no foreseeable limit on the contract period to manage these funds due to the likelihood of continued renewal at little or no cost. Goodwill represents the excess cost of a business acquisition over the fair value of the net assets acquired. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, indefinite-lived intangible assets and goodwill are not amortized. Finite-lived management contracts are amortized over their expected useful lives, which, at December 31, 2006, ranged from 2 to 20 years with an original weighted average estimated useful life of 10.1 years.

The Company assesses its indefinite-lived management contracts and goodwill for impairment at least annually, considering factors such as assets under management, product mix, projected cash flows, average base fees by product and revenue multiples to determine whether the values of each asset are impaired and whether the indefinite-life classification is still appropriate. The fair value of indefinite-lived intangible assets and goodwill is determined based on the discounted value of expected future cash flows. The fair values of finite-lived intangible assets are reviewed at least annually to determine whether circumstances exist which indicate there may be a potential impairment. If such circumstances are considered to exist, the Company will perform an impairment test, using an undiscounted cash flow analysis. If the asset is determined to be impaired, the difference between the book value of the asset and its current fair value is recognized as an expense in the period in which the impairment is determined.

Expected future cash flows are estimated using many variables which require significant management judgment, including market interest rates, equity prices, credit default ratings, discount rates, revenue multiples, inflation rates and AUM growth rates. Actual results could differ materially from these estimates, which could materially impact the impairment conclusion. In 2004, the Company recorded an impairment of $6.1 million with regard to an acquired management contract. No such impairments were recorded in 2006 or 2005. In addition, management judgment is required to estimate the period that intangible assets will contribute to the Company’s cash flows and the pattern over which these assets will be consumed. A change in the remaining useful life of any of these assets could have a significant impact on the Company’s amortization expense, which was $37.5 million for the year ended December 31, 2006.

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Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies and Estimates (continued)

Income Taxes

The Company accounts for income taxes under the liability method prescribed by SFAS No. 109, Accounting for Income Taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. Management periodically assesses the recoverability of its deferred tax assets based upon expected future earnings, future deductibility of the asset, changes in tax law and other factors. If management determines that it is not probable that the deferred tax asset will be fully recoverable in the future, a valuation allowance may be established for the difference between the asset balance and the amount expected to be recoverable in the future. This allowance will result in a charge to the Company’s consolidated statement of income. Further, the Company records its income taxes receivable and payable based upon its estimated income tax liability. The Company’s actual tax benefit or liability may differ from these estimates.

Current and deferred tax balances require significant assumptions and estimates by management and actual results may differ significantly from these estimates. As of December 31, 2006, the Company had gross deferred tax assets of $14.7 million and had recorded no valuation allowances against those assets. The Company also had approximately $1.7 billion in deferred tax liabilities as of December 31, 2006. The Company had income taxes receivable of approximately $42.1 million and income taxes payable of $171.3 million as of December 31, 2006.

PNC and BlackRock have entered into a tax disaffiliation agreement that sets forth each party’s rights and obligations with respect to income tax payments and refunds and addresses related matters such as the filing of tax returns and the conduct of audits or other proceedings involving claims made by taxing authorities. As such, the Company may be responsible for its pro rata share of tax positions taken by PNC for unaudited tax years which may be subsequently challenged by taxing authorities. Management does not anticipate that any such amounts would be material to the Company’s operations, financial position or cash flows.

Revenue Recognition

Investment advisory and administration fees are recognized as the services are performed. Such fees are primarily based on where noted pre-determined percentages of the market value of AUM or, in the case of certain real estate separate accounts, net operating income generated by the underlying properties, and are affected by changes in AUM, including market appreciation or depreciation and net subscriptions or redemptions. Investment advisory and administration fees for mutual funds are shown net of fees waived pursuant to expense limitations. Certain real estate fees are earned upon the acquisition or disposition of properties in accordance with applicable investment management agreements and are recognized at the closing of the respective real estate transactions.

Subsequent to the MLIM Transaction, the Company contracts with third parties for various mutual fund administration and shareholder servicing to be performed on behalf of certain funds managed by the Company. Such arrangements are generally priced at a portion of the Company’s management fee paid by the fund. In certain cases, the fund takes on the primary responsibility for payment for services such that BlackRock bears no credit risk to the third party (“retrocessions”). The Company accounts for retrocessions in accordance with EITF No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, and has recorded its retrocession contracts net of management fees earned because management believes that the Company is not the primary obligor of the arrangement, does not perform part of the service, is not primarily responsible for fulfillment and has no credit risk. Retrocessions for the year ended December 31, 2006 amounted to $156.0 million and were included in investment advisory and administration fees on the 2006 consolidated statement of income.

- 52 -

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

Critical Accounting Policies and Estimates (continued)

Revenue Recognition (continued)

The Company also receives performance fees or incentive allocations from certain alternative investment products and certain separate accounts. These performance fees are earned upon exceeding specified investment return thresholds. Such fees are recorded upon completion of the measurement period. For the years ended December 31, 2006, 2005 and 2004, performance fee revenue totaled $242.3 million, $168.0 million and $41.6 million, respectively.

BlackRock provides a variety of risk management, investment analytic and investment system services to customers. These services are provided under the brand name BlackRock Solutions and include a wide array of risk management services and enterprise investment system outsourcing to clients. Fees earned for BlackRock Solutions services are either based on pre-determined percentages of the market value of assets subject to the services, on fixed monthly or quarterly payments or on attainment of certain pre-defined milestones. The fees earned on risk management, investment analytic and investment system assignments are recorded as other revenue in the consolidated statements of income.

Certain investment advisory and administration fees calculated on the fair value of AUM are subject to the risks and uncertainties noted in Investments above to the extent the underlying investments are non-marketable and, as such, the Company’s earnings may be subject to variability based upon such estimates. In addition, certain revenues are based upon estimates of the fair value of AUM or of net operating income available at the end of the accounting period. Further, as a general partner in certain private equity partnerships, the Company receives distributions from the partnerships according to the provisions of the partnership agreements. The Company may, from time to time, be required to return all or a portion of such distributions to the limited partners in the event the limited partners do not achieve a certain return as specified in the various partnership agreements. Management does not believe this exposure is material to the consolidated financial statements as of December 31, 2006.

Historically, adjustments to revenues arising from initial estimates have been immaterial since most of BlackRock’s fee revenue is calculated on the fair value of marketable investments and since, as a policy, the Company does not record revenues until they are relatively certain. Management can give no assurance, however, that these estimates would not result in a material adjustment in the future.

Related Party Transactions

See related party transactions discussion in Note 14 to the consolidated financial statements beginning on page F-1 of this Form 10-K.

Recent Accounting Developments

Recent accounting developments are discussed in Note 1 to the consolidated financial statements beginning at page F-1 of this Form 10-K.

- 53 -

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of its business, BlackRock is primarily exposed to equity market price risk, interest rate risk and foreign exchange rate risk. The tables below represent BlackRock’s total consolidated investment portfolio. Approximately $1,515.8 million of BlackRock’s total investment portfolio is maintained in investment funds which are consolidated in accordance with GAAP even though BlackRock may or may not own a majority of such funds. Equity risk inherent in those funds, as displayed below, would be limited to its net exposure of $370.3 million on these investments.

As a leading investment management firm, BlackRock devotes significant resources across all of its operations to identifying, measuring, monitoring, managing and analyzing market and operating risks, including in the management and oversight of its own investment portfolio. The Board of Directors of the Company has adopted guidelines for the review of investments to be made by the Company, requiring, among other things, that all investments be reviewed by the Company’s Investment Committee, which consists of senior officers of the Company, and that certain investments over prescribed thresholds receive prior approval from the Audit Committee or the Board of Directors depending on the circumstances.

Equity Market Price Risk

BlackRock’s investments, including consolidated investments, may expose BlackRock to equity price risk. The following table summarizes the fair values of the investments exposed to equity price risk and provides a sensitivity analysis of the estimated fair values of those investments, assuming a 10% increase or decrease in equity prices:


*(Dollar amounts in thousands)*	Book Value		Fair value assuming 10% increase		Fair value assuming 10% decrease
December 31, 2006

Equity securities	$	155,930	$	171,523	$	140,337
Commingled investments		125,115		137,627		112,604

Total investments, trading		281,045		309,150		252,941

Commingled investments		77,272		84,999		69,545

Total available-for-sale investments		77,272		84,999		69,545

Other fund investments		1,377,541		1,515,295		1,239,787
Deferred compensation plans		18,146		19,961		16,331

Total other investments		1,395,687		1,535,256		1,256,118

Total equity price risk on investments	$	1,754,004	$	1,929,405	$	1,578,604

December 31, 2005
Commingled investments	$	22,319	$	24,550	$	20,087
Equity securities		18,425		20,267		16,582

Total investments, trading		40,744		44,817		36,669

Commingled investments		766		842		689

Total available-for-sale investments		766		842		689

Other fund investments		84,843		93,327		76,358
Deferred compensation plans		24,495		26,944		22,045
Other		973		1,070		875

Total equity investments		110,311		121,341		99,278

Total equity price risk on investments	$	151,821	$	167,000	$	136,636

BlackRock’s deferred compensation plans comprise $31.3 million and $22.3 million of total trading investments, and $18.1 million and $24.5 million of total other investments, at December 31, 2006 and December 31, 2005, respectively, and reflect investments held by BlackRock with respect to senior employee elections under BlackRock’s deferred compensation plans. Any change in the fair value of these investments is offset by a corresponding change in the related deferred compensation expense.

During 2007, the Company established a hedging program to hedge exposure to equity price risk in certain investments through the use of derivative instruments.

- 54 -

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)

Interest Rate Risk

The following table summarizes the fair value of BlackRock’s investments in debt securities and funds that invest primarily in debt securities that expose BlackRock to interest rate risk at December 31, 2006. The table also provides a sensitivity analysis of the estimated fair value of these financial instruments, assuming 100 basis point upward and downward parallel shifts in the yield curve:


*(Dollar amounts in thousands)*	Book Value		Fair market value assuming +100 basis point shift		Fair market value assuming -100 basis point shift
December 31, 2006

Municipal debt securities	$	154,510	$	130,224	$	178,796
Corporate notes and bonds		13,656		13,192		14,120
Commingled investments		23,272		23,275		23,269

Total trading investments		191,438		166,691		216,185

Commingled investments		48,377		48,305		48,449
Collateralized debt obligations		29,362		29,346		29,378
Other		3,431		3,397		3,465

Total available-for-sale investments		81,170		81,048		81,292

Other fund investments		70,962		71,209		70,715

Total investments	$	343,570	$	318,948	$	368,192

December 31, 2005

Mortgage-backed securities	$	13,069	$	12,827	$	13,311
Corporate notes and bonds		7,946		7,575		8,262
Municipal debt securities		123		117		128

Total trading investments		21,138		20,519		21,701

Commingled investments		3,543		3,426		3,660
Collateralized debt obligations		25,717		25,222		26,212

Total available-for-sale investments		29,260		28,648		29,872

Other fund investments		96,449		94,998		97,900

Total investments	$	146,847	$	144,165	$	149,473

- 55 -

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (continued)

Foreign Exchange Rate Risk

The Company has increased its foreign exchange rate risk as a result of the MLIM Transaction. The Company has investments totaling approximately $163.0 million that are denominated in foreign currencies, primarily the British pound sterling and the euro. A 10% increase or decrease in foreign exchange rates as of December 31, 2006 would result in an increase or a decline in value of the investment portfolio of approximately $16.3 million. In addition, the Company maintains certain foreign currency denominated cash accounts totaling approximately $783.1 million at December 31, 2006, primarily in British pounds sterling. A 10% increase or decrease in foreign exchange rates as of December 31, 2006 would result in an increase or decline in value of such cash accounts of approximately $78.3 million.

Other Market Risks

In February 2005, the Company issued $250 million aggregate principal amount of convertible debentures, which will be due in 2035 and bear interest at 2.625% per annum. Due to the debentures’ conversion feature, these financial instruments are exposed to both interest rate risk and equity price risk. At December 31, 2006, the fair value of the debentures was $372.8 million. Assuming 100 basis point upward and downward parallel shifts in the yield curve, based on the fair value of the debentures on December 31, 2006, the fair value of the debentures would fluctuate to $365.7 million and $379.9 million, respectively. Assuming a 10% increase and 10% decrease in the Company’s stock price, based on the fair value of the debentures on December 31, 2006, the fair value of the debentures would fluctuate to $404.9 million and $341.2 million, respectively.

In addition, BlackRock’s investment management revenues are comprised of fees based on a percentage of the value of AUM and, in some cases, performance fees expressed as a percentage of the returns realized on AUM. Declines in equity market prices or interest rates, or both, could cause revenues to decline because of lower investment management fees by:

•

causing the value of AUM to decrease;

•

causing the returns realized on AUM to decrease;

•

causing clients to withdraw funds in favor of investments in markets that they perceive to offer greater opportunity and that the Company does not serve; and

•

causing clients to rebalance assets away from investments that BlackRock manages into investments that BlackRock does not manage.

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The report of the independent registered public accounting firm and financial statements listed in the accompanying index are included in Item 15 of this report. See Index to consolidated financial statements on page F-1.

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no disagreements on accounting and financial disclosure matters. BlackRock has not changed accountants in the two most recent fiscal years.

Item 9A.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the direction of BlackRock’s Chief Executive Officer and Chief Financial Officer, BlackRock evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a - 15(e) and 15d - 15(e) under the Exchange Act) as of December 31, 2006. Based on this evaluation, BlackRock’s Chief Executive Officer and Chief Financial Officer have concluded that BlackRock’s disclosure controls and procedures were effective as of December 31, 2006.

Internal Control and Financial Reporting

Other than system conversion activities related to the transition of support from PNC and Merrill Lynch to BlackRock, there have been no changes in internal control over financial reporting during the quarter ended December 31, 2006 that have materially affected, or are reasonably likely to materially affect, such internal control over financial reporting. The Company is continuing to evaluate its internal controls in light of the MLIM Transaction and expects to make additional modifications to its internal controls after completion of its review.

- 56 -

Item 9A.

CONTROLS AND PROCEDURES (continued)

Management’s Report on Internal Control Over Financial Reporting and Deloitte & Touche LLP’s Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting, which contains the attestation report on such management report, are included as pages F-2 through F-3 of the consolidated financial statements and are incorporated herein by reference.

Item 9B.

OTHER INFORMATION

The Company is furnishing no other information in this Form 10-K.

Part III

Item 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information regarding directors and executive officers set forth under the captions “Item 1: Election of Directors – Information Concerning the Nominees and Directors” and “Item 1: Election of Directors – Other Executive Officers” of the Proxy Statement in connection with the 2007 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference.

The information regarding compliance with Section 16(a) of the Exchange Act set forth under the caption “Item 1: Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement is incorporated herein by reference.

The information regarding BlackRock’s Code of Ethics for Chief Executive and Senior Financial Officers under the caption “Item 1: Corporate Governance Guidelines and Code of Business Conduct and Ethics” in the Proxy Statement is incorporated herein by reference.

Item 11.

EXECUTIVE COMPENSATION

The information contained in the sections captioned “Item 1: Compensation of Executive Officers” and “Item 1: 2006 Director Compensation” of the Proxy Statement is incorporated herein by reference.

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information contained in the sections captioned “Item 1: Ownership of BlackRock Common and Preferred Stock” and “Equity Compensation Plan Information” of the Proxy Statement is incorporated herein by reference.

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information contained in the sections captioned “Item 1: Certain Relationships and Related Transactions” and “Item 1: Director Independence” of the Proxy Statement is incorporated herein by reference.

Item 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information regarding BlackRock’s independent auditor fees and services in the section captioned “Item 2: Ratification of Appointment of Independent Registered Public Accounting Firm” of the Proxy Statement is incorporated herein by reference.

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Part IV

Item 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Financial Statements

The Company’s consolidated financial statements are included herein on pages F-1 through F-60.

Financial Statement Schedules

Ratio of Earnings to Fixed Charges has been included as Exhibit 12.1. All other schedules have been omitted because they are not applicable, not required or the information required is included in the Company’s consolidated financial statements or notes thereto.

- 58 -

Item 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)

Exhibits

As used in this exhibit list, “BlackRock” refers to BlackRock, Inc. (formerly named New BlackRock, Inc. and previously, New Boise, Inc.) and “Old BlackRock” refers to BlackRock Holdco 2, Inc. (formerly named BlackRock, Inc.), which is the predecessor of BlackRock. The following exhibits are filed as part of this Annual Report on Form 10-K:


Exhibit No.		Description
2.1(1)		Transaction Agreement and Plan of Merger, dated as of February 15, 2006, by and among Merrill Lynch & Co., Inc., BlackRock, Boise Merger Sub, Inc. and Old BlackRock.

3.1(2)		Amended and Restated Certificate of Incorporation of BlackRock.

3.2(2)		Amended and Restated Bylaws of BlackRock.

3.3(2)		Certificate of Designations of Series A Convertible Participating Preferred Stock of BlackRock.

4.1(3)		Specimen of Common Stock Certificate.

4.2(4)		Indenture, dated as of February 23, 2005, between Old BlackRock and The Bank of New York (as successor-in-interest to JPMorgan Chase Bank, N.A.), as trustee, relating to the 2.625% Convertible Debentures due 2035.

4.3(4)		Form of 2.625% Convertible Debenture due 2035 (included as Exhibit A in Exhibit 4.2).

4.4(2)		First Supplemental Indenture, dated September 29, 2006.

10.1(5)		Tax Disaffiliation Agreement, dated October 6, 1999, among Old BlackRock, PNC Asset Management, Inc. and The PNC Financial Services Group, Inc., formerly PNC Bank Corp.

10.2(3)		BlackRock, Inc. 1999 Stock Award and Incentive Plan.+

10.3(3)		Amendment No. 1 to the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+

10.4(3)		Amendment No. 2 to the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+

10.5(3)		Amendment No. 3 to the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+

10.6(3)		Amendment No. 4 to the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+

10.7(3)		BlackRock, Inc. 2002 Long-Term Retention and Incentive Program.+

10.8(3)		Amendment No. 1 to 2002 Long-Term Retention and Incentive Program.+

10.9(3)		Amendment No. 2 to 2002 Long-Term Retention and Incentive Program.+

10.10(3)		BlackRock, Inc. Nonemployee Directors Stock Compensation Plan.+

10.11(3)		BlackRock, Inc. Voluntary Deferred Compensation Plan.+

10.12(3)		BlackRock, Inc. Involuntary Deferred Compensation Plan.+

10.13(2)		Form of Stock Option Agreement expected to be used in connection with future grants of Stock Options under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+

- 59 -

Item 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)

Exhibits (continued)


Exhibit No.		Description
10.14(2)		Form of Restricted Stock Agreement expected to be used in connection with future grants of Restricted Stock under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+

10.15(2)		Form of Restricted Stock Unit Agreement expected to be used in connection with future grants of Restricted Stock Units under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+

10.16(2)		Form of Directors’ Restricted Stock Unit Agreement expected to be used in connection with future grants of Restricted Stock Units under the BlackRock, Inc. 1999 Stock Award and Incentive Plan.+

10.17(6)		BlackRock International, Ltd. Amended and Restated Long-Term Deferred Compensation Plan. +

10.18(7)		Amendment No. 1 to the BlackRock International, Ltd. Amended and Restated Long-Term Deferred Compensation Plan. +

10.19(2)		Registration Rights Agreement, dated as of September 29, 2006, among BlacKRock, Merrill Lynch & Co., Inc. and the PNC Financial Services Group, Inc.

10.20(5)		Services Agreement, dated October 6, 1999, between Old BlackRock and The PNC Financial Services Group, Inc., formerly PNC Bank Corp.

10.21(8)		Agreement of Lease, dated May 3, 2000, between 40 East 52nd Street L.P. and Old BlackRock.

10.22(9)		Agreement of Lease, dated September 4, 2001, between 40 East 52nd Street L.P. and Old BlackRock.

10.23(10)		Share Surrender Agreement, dated October 10, 2002, among Old BlackRock, PNC Asset Management, Inc., and The PNC Financial Services Group, Inc.

10.24(1)		First Amendment, dated as of February 15, 2006, to the Share Surrender Agreement, dated as of October 10, 2002, among PNC Bancorp, Inc., The PNC Financial Services Group, Inc. and Old BlackRock.

10.25(10)		Employment Agreement, between Old BlackRock and Laurence D. Fink, dated October 10, 2002. +

10.26(11)		Agreement of Lease, dated July 29, 2004, between Park Avenue Plaza Company L.P. and Old BlackRock.

10.27(11)		Letter Agreement, dated July 29, 2004, amending the Agreement of Lease between Park Avenue Plaza Company L.P. and Old BlackRock.

10.28(12)		Stock Purchase Agreement among MetLife, Inc., Metropolitan Life Insurance Company, SSRM Holdings, Inc. Old BlackRock and BlackRock Financial Management, Inc., dated August 25, 2004.

10.29(4)		Registration Rights Agreement dated as of February 23, 2005, between Old BlackRock and Morgan Stanley & Co. Incorporated, as representative of the initial purchasers named therein, relating to the 2.625% Convertible Debentures due 2035.

10.30(13)		Letter to Steven E. Buller.+

10.31(1)		Implementation and Stockholder Agreement, dated as of February 15, 2006, among The PNC Financial Services Group, Inc., BlacKRock and Old BlackRock.

- 60 -

Item 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (continued)

Exhibits (continued)


10.32(1)		Stockholder Agreement, dated as of February 15, 2006, between Merrill Lynch & Co., Inc. and BlackRock.

10.33(2)		Letter to Robert C. Doll.+

10.34(14)		Global Distribution Agreement, dated as of September 29, 2006, by and between BlackRock and Merrill Lynch & Co., Inc.

10.35(14)		Transition Services Agreement, dated as of September 29, 2006, by and between Merrill Lynch & Co., Inc. and BlackRock.

10.36(15)		Five-Year Revolving Credit Agreement dated as of December 19, 2006, by and among BlackRock, Wachovia Bank, National Association, as administrative agent, swingline lender and issuing lender, various lenders, Wachovia Capital Markets, LLC, as sole lead arranger and sole book manager, and ABN Amro Bank, N.V., HSBC Bank USA, National Association, JPMorgan Chase Bank and UBS Loan Finance LLC, as documentation agents.

12.1		Ratio of Earnings to Fixed Charges.

21.1		Subsidiaries of BlackRock, Inc.

23.1		Consent of Deloitte & Touche LLP.

24.1		Power of Attorney (included on signature page).

31.1		Section 302 Certification of Chief Executive Officer.

31.2		Section 302 Certification of Chief Financial Officer.

32.1		Section 906 Certification of Chief Executive Officer and Chief Financial Officer.

(1)	Incorporated by Reference to Old BlackRock’s Current Report on Form 8-K (Commission File No. 001-15305) filed on February 22, 2006.

(2)	Incorporated by Reference to the Registrant’s Current Report on Form 8-K (Commission File No. 001-33099) filed with the Securities and Exchange Commission on October 5, 2006.

(3)	Incorporated by Reference to the Registrant’s Registration Statement on Form S-8 (Registration No. 333-137708) filed with the Securities and Exchange Commission on September 29, 2006.

(4)	Incorporated by Reference to Old BlackRock’s Annual Report on Form 10-K (Commission File No. 001-15305) for the year ended December 31, 2004.

(5)	Incorporated by Reference to Old BlackRock’s Registration Statement on Form S-1 (Registration No. 333-78367), as amended, originally filed with the Securities and Exchange Commission on May 13, 1999.

(6)	Incorporated by Reference to Old BlackRock’s Registration Statement on Form S-8 (Registration No. 333-32406), originally filed with the Securities and Exchange Commission on March 14, 2000.

(7)	Incorporated by Reference to Old BlackRock’s Quarterly Report on Form 10-Q (Commission File No. 001-15305), for the quarter ended September 30, 2000.

(8)	Incorporated by Reference to Old BlackRock’s Quarterly Report on Form 10-Q (Commission File No. 001-15305), for the quarter ended March 31, 2000.

(9)	Incorporated by Reference to Old BlackRock’s Quarterly Report on Form 10-Q (Commission File No. 001-15305), for the quarter ended September 30, 2001.

(10)	Incorporated by Reference to Old BlackRock’s Quarterly Report on Form 10-Q (Commission File No. 001-15305), for the quarter ended September 30, 2002.

(11)	Incorporated by Reference to Old BlackRock’s Quarterly Report on Form 10-Q (Commission File No. 001-15305), for the quarter ended June 30, 2004.

(12)	Incorporated by Reference to Old BlackRock’s Current Report on Form 8-K (Commission File No. 001-15305) filed on August 30, 2004.

(13)	Incorporated by Reference to Old BlackRock’s Current Report on Form 8-K (Commission File No. 001-15305) filed on September 7, 2005.

(14)	Incorporated by Reference to BlackRock’s Registration Statement on Form S-4, as amended, originally filed with the Securities and Exchange Commission on June 9, 2006.

(15)	Incorporated by Reference to BlackRock’s Current Report on Form 8-K filed on December 22, 2006.

+	Denotes compensatory plans or arrangements.

- 61 -

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


BLACKROCK, INC.

By:		/s/ Laurence D. Fink
		Laurence D. Fink
		Chairman, Chief Executive Officer and Director
		March 13, 2007

Each of the officers and directors of BlackRock, Inc. whose signature appears below, in so signing, also makes, constitutes and appoints each of Robert P. Connolly and Ralph L. Schlosstein, or either of them, each acting alone, his true and lawful attorneys-in-fact, with full power and substitution, for him in any and all capacities, to execute and cause to be filed with the Securities and Exchange Commission any and all amendments to the Annual Report on Form 10-K, with exhibits thereto and other documents connected therewith and to perform any acts necessary to be done in order to file such documents, and hereby ratifies and confirms all that said attorneys-in-fact or their substitute or substitutes may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Title	Date
/s/ Laurence D. Fink	Chairman, Chief Executive Officer and	March 13, 2007
Laurence D. Fink	Director (Principal Executive Officer)

/s/ Steven E. Buller	Managing Director and Chief Financial	March 13, 2007
Steven E. Buller	Officer (Principal Financial Officer)

/s/ Joseph Feliciani, Jr.	Managing Director and Chief Accounting	March 13, 2007
Joseph Feliciani, Jr.	Officer (Principal Accounting Officer)

/s/ William O. Albertini	Director	March 13, 2007
William O. Albertini

/s/ Dennis D. Dammerman	Director	March 13, 2007
Dennis D. Dammerman

/s/ William S. Demchak	Director	March 13, 2007
William S. Demchak

/s/ Robert C. Doll	Director	March 13, 2007
Robert C. Doll

/s/ Kenneth B. Dunn	Director	March 13, 2007
Kenneth B. Dunn

/s/ Gregory J. Fleming	Director	March 13, 2007
Gregory J. Fleming

/s/ Murry S. Gerber	Director	March 13, 2007
Murry S. Gerber

/s/ James Grosfeld	Director	March 13, 2007
James Grosfeld

/s/ Robert S. Kapito	Director	March 13, 2007
Robert S. Kapito

/s/ David H. Komansky	Director	March 13, 2007
David H. Komansky

- 62 -

SIGNATURES (continued)


/s/ Sir Deryck Maughan	Director	March 13, 2007
Sir Deryck Maughan

/s/ Thomas H. O’Brien	Director	March 13, 2007
Thomas H. O’Brien

/s/ E. Stanley O’Neal	Director	March 13, 2007
E. Stanley O’Neal

/s/ Linda Gosden Robinson	Director	March 13, 2007
Linda Gosden Robinson

/s/ James E. Rohr	Director	March 13, 2007
James E. Rohr

/s/ Ralph L. Schlosstein	Director	March 13, 2007
Ralph L. Schlosstein

- 63 -

TABLE OF CONTENTS

FINANCIAL STATEMENTS


Management’s Report on Internal Control Over Financial Reporting		F-2

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting		F-3

Report of Independent Registered Public Accounting Firm		F-5

Consolidated Statements of Financial Condition		F-6

Consolidated Statements of Income		F-7

Consolidated Statements of Comprehensive Income		F-8

Consolidated Statements of Changes in Stockholders’ Equity		F-9

Consolidated Statements of Cash Flows		F-10

Notes to the Consolidated Financial Statements		F-11

F-1

Management’s Report on Internal Control Over Financial Reporting

Management of BlackRock, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

•

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with the authorization of management and directors of the Company; and

•

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework.

Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include a review of certain business process controls of the Merrill Lynch Investment Managers business (the “MLIM Business”), which are included in the Company’s 2006 consolidated financial statements. Management did not assess the internal control over financial reporting of the MLIM Business because the acquisition of MLIM occurred on September 29, 2006, which is within one year prior to the date of the consolidated financial statements, as allowable under Securities and Exchange Commission guidelines. MLIM represented approximately 30.1% of total assets at December 31, 2006 and approximately 20.1% of revenues for the year ended December 31, 2006.

Based on this assessment, management concluded that, as of December 31, 2006, the Company’s internal control over financial reporting is effective.

The Company’s independent registered public accounting firm has issued a report on management’s assessment of the Company’s internal control over financial reporting. This report begins on page F-3.

March 13, 2007

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of BlackRock, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting that BlackRock, Inc. and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in “Internal Control–Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting of the Merrill Lynch Investment Managers business (the “MLIM Business”), which was acquired on September 29, 2006 and whose financial information constitutes approximately 30.1% of total assets and 20.1% of revenue of the consolidated financial statement amounts as of and for the year ended December 31, 2006. Accordingly, our audit did not include the internal control over financial reporting of the MLIM Business. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of a company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission.

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (continued)

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial condition as of December 31, 2006 and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for the year then ended of the Company and our report dated March 13, 2007 expressed an unqualified opinion on those financial statements.

/s/Deloitte & Touche LLP

New York, New York

March 13, 2007

F-4

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of BlackRock, Inc.:

We have audited the accompanying consolidated statements of financial condition of BlackRock, Inc. and subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements 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 audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of BlackRock, Inc. and subsidiaries at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 13, 2007 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/Deloitte & Touche LLP

New York, New York

March 13, 2007

F-5

BlackRock, Inc.

Consolidated Statements of Financial Condition

(Dollar amounts in thousands)


	December 31,
	2006			2005
Assets
Cash and cash equivalents	$	1,160,304		$	484,223
Accounts receivable		964,366			310,423
Due from affiliates		113,184			29,155
Investments		2,097,574			298,668
Intangible assets, net		5,882,430			294,168
Goodwill		5,257,017			189,814
Separate account assets		4,299,879			—
Deferred mutual fund commissions		177,242			16,025
Property and equipment, net		214,784			129,451
Taxes and other receivables		124,291			46,980
Other assets		178,421			49,093

Total assets	$	20,469,492		$	1,848,000

Liabilities
Accrued compensation	$	1,051,273		$	522,637
Accounts payable and accrued liabilities		753,839			63,886
Due to affiliates		243,836			11,893
Purchase price contingencies		—			39,463
Long-term borrowings		253,167			253,791
Separate account liabilities		4,299,879			—
Deferred taxes		1,738,670			—
Other liabilities		237,856			24,473

Total liabilities		8,578,520			916,143

Minority interest		1,109,092			9,614

Stockholders’ equity
Common stock ($0.01 par value, 500,000,000 shares authorized and 117,381,582 shares issued at December 31, 2006)		1,174			—
Common stock, class A ($0.01 par value, 250,000,000 shares authorized and 19,975,305 shares issued at December 31, 2005)		—			200
Common stock, class B ($0.01 par value, 100,000,000 shares authorized and 45,117,284 shares issued at December 31, 2005)		—			453
Series A participating preferred stock ($0.01 par value, 500,000,000 shares authorized and 12,604,918 shares issued at December 31, 2006)		126			—
Additional paid-in capital		9,799,447			171,090
Retained earnings		993,821			806,884
Accumulated other comprehensive income		44,666			2,673
Treasury stock, common, at cost (972,685 shares held at December 31, 2006)		(57,354	)		—
Treasury stock, class A, at cost (285,104 shares held at December 31, 2005)		—			(25,248	)
Treasury stock, class B, at cost (806,667 shares held at December 31, 2005)		—			(33,809	)

Total stockholders’ equity		10,781,880			922,243

Total liabilities, minority interest and stockholders’ equity	$	20,469,492		$	1,848,000

See accompanying notes to consolidated financial statements.

F-6

BlackRock, Inc.

Consolidated Statements of Income

(Dollar amounts in thousands, except share data)


	Year ended December 31,
	2006			2005			2004
Revenue
Investment advisory and administration fees
Unaffiliated	$	931,422		$	627,573		$	385,551
Affiliated		909,601			390,799			248,072
Other revenue
Unaffiliated		212,450			156,111			85,010
Affiliated		44,503			16,903			6,678

Total revenue		2,097,976			1,191,386			725,311

Expense
Employee compensation and benefits		945,587			595,618			391,138
Portfolio administration and servicing costs
Unaffiliated		44,942			40,941			24,203
Affiliated		120,422			17,259			18,740
General and administration
Unaffiliated		416,642			171,483			109,471
Affiliated		26,618			18,039			8,917
Fee sharing payment		34,450			—			—
Amortization of intangible assets		37,515			7,505			947
Impairment of intangible assets		—			—			6,097

Total expense		1,626,176			850,845			559,513

Operating income		471,800			340,541			165,798

Non-operating income (expense)
Investment income		66,349			43,138			35,475
Interest expense		(9,916	)		(7,924	)		(835	)

Total non-operating income		56,433			35,214			34,640

Income before income taxes and minority interest		528,233			375,755			200,438
Income tax expense		189,463			138,558			52,264

Income before minority interest		338,770			237,197			148,174
Minority interest		16,168			3,289			5,033

Net income	$	322,602		$	233,908		$	143,141

Earnings per share
Basic	$	4.00		$	3.64		$	2.25
Diluted	$	3.87		$	3.50		$	2.17

Dividends paid per share	$	1.68		$	1.20		$	1.00

Weighted-average shares outstanding
Basic		80,638,167			64,182,766			63,688,955
Diluted		83,358,394			66,875,149			65,960,473

See accompanying notes to consolidated financial statements.

F-7

BlackRock, Inc.

Consolidated Statements of Comprehensive Income

(Dollar amounts in thousands)


	Year ended December 31,
	2006		2005			2004
Net income	$	322,602	$	233,908		$	143,141
Other comprehensive income, net of tax:
Net unrealized gain (loss) from available-for-sale investments		5,081		(1,046	)		(583	)
Minimum pension liability adjustment		379		(202	)		(177	)
Foreign currency translation gain (loss)		36,533		(4,333	)		2,987

Comprehensive income	$	364,595	$	228,327		$	145,368

See accompanying notes to consolidated financial statements.

F-8

BlackRock, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

Years Ended December 31, 2006, 2005 and 2004

(Dollar amounts in thousands)


	Common Stock		Common Stock						Participating Preferred Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income			Treasury Stock									Total Stockholders’ Equity


			Class A			Class B														Common			Class A			Class B
January 1, 2004	$	—	$	192		$	461		$	—	$	186,176		$	570,535		$	6,027		$	—		$	(45,054	)	$	(5,029	)	$	713,308
Net income		—		—			—			—		—			143,141			—			—			—			—			143,141
Dividends paid		—		—			—			—		—			(63,660	)		—			—			—			—			(63,660	)
Conversion of class B common stock to class A common stock		—		—			(6	)		—		(30,966	)		—			—			—			30,972			—			—
Issuance of class A common stock		—		—			—			—		(4,653	)		—			—			—			25,549			—			20,896
Amortization of discount on issuance of class B common stock		—		—			—			—		5,470			—			—			—			—			—			5,470
Stock based compensation		—		—			—			—		1,157			—			—			—			—			—			1,157
Forfeiture of restricted common stock		—		—			—			—		181			—			—			—			(181	)		—			—
Treasury stock purchases		—		—			—			—		—			—			—			—			(28,831	)		(28,780	)		(57,611	)
Tax benefit from stock options exercised		—		—			—			—		3,424			—			—			—			—			—			3,424
Minimum pension liability adjustment		—		—			—			—		—			—			(177	)		—			—			—			(177	)
Foreign currency translation gain		—		—			—			—		—			—			2,987			—			—			—			2,987
Unrealized loss on investments, net		—		—			—			—		—			—			(583	)		—			—			—			(583	)

December 31, 2004		—		192			455			—		160,789			650,016			8,254						(17,545	)		(33,809	)		768,352
Net income		—		—			—			—		—			233,908			—						—			—			233,908
Dividends paid		—		—			—			—		—			(77,040	)		—						—			—			(77,040	)
Conversion of class B common stock to class A common stock		—		—			(2	)		—		(27,393	)		—			—						27,395			—			—
Issuance of class A common stock		—		8			—			—		24,812			—			—						17,618			—			42,438
Amortization of issuance of restricted common stock		—		—			—			—		12,052			—			—						—			—			12,052
Stock based compensation		—		—			—			—		1,597			—			—						—			—			1,597
Treasury stock transactions		—		—			—			—		(5,734	)		—			—						(52,716	)		—			(58,450	)
Tax benefit from stock options exercised		—		—			—			—		4,967			—			—						—			—			4,967
Minimum pension liability adjustment		—		—			—			—		—			—			(202	)					—			—			(202	)
Foreign currency translation loss		—		—			—			—		—			—			(4,333	)					—			—			(4,333	)
Unrealized loss on investments, net		—		—			—			—		—			—			(1,046	)					—			—			(1,046	)

December 31, 2005		—		200			453			—		171,090			806,884			2,673			—			(25,248	)		(33,809	)		922,243
Net income		—		—			—			—		—			322,602			—			—			—			—			322,602
Dividends paid		—		—			—			—		—			(135,665	)		—			—			—			—			(135,665	)
Conversion of class B common stock to class A common stock		—		—			(2	)		—		(14,337	)		—			—			—			14,339			—			—
Issuance of common stock to Merrill Lynch		523		—			—			—		7,719,366			—			—			—			—			—			7,719,889
Issuance of series A participating preferred shares to Merrill Lynch		—		—			—			126		1,857,082			—			—			—			—			—			1,857,208
Conversion of class A and B stock to common stock in connection with MLIM Transaction		651		(200	)		(451	)		—		—			—			—			—			—			—			—
Conversion of treasury stock in connection with MLIM Transaction		—		—			—			—		—			—			—			(52,035	)		18,226			33,809			—
Stock based compensation		—		—			—			—		61,361			—			—			—			—			—			61,361
Treasury stock transactions		—		—			—			—		33			—			—			(5,319	)		(7,317	)		—			(12,603	)
Tax benefit from stock options exercised		—		—			—			—		4,852			—			—			—			—			—			4,852
Minimum pension liability adjustment		—		—			—			—		—			—			379			—			—			—			379
Foreign currency translation gain		—		—			—			—		—			—			36,533			—			—			—			36,533
Unrealized gain on investments, net		—		—			—			—		—			—			5,081			—			—			—			5,081

December 31, 2006	$	1,174	$	—		$	—		$	126	$	9,799,447		$	993,821		$	44,666		$	(57,354	)	$	—		$	—		$	10,781,880

See accompanying notes to consolidated financial statements.

F-9

BlackRock, Inc.

Consolidated Statements of Cash Flows

(Dollar amounts in thousands)


	Year ended December 31,
	2006			2005			2004
Cash flows from operating activities
Net income	$	322,602		$	233,908		$	143,141
Adjustments to reconcile net income to cash from operating activities:
Depreciation and amortization		72,809			30,902			20,686
Impairment of intangible assets		—			—			6,097
Minority interest		16,168			3,289			5,033
Stock-based compensation		136,499			69,793			96,977
Deferred income taxes		(42,509	)		18,895			(25,149	)
Tax benefit from stock-based compensation		—			4,967			3,424
Net unrealized gain on investments		(7,450	)		(12,871	)		(13,636	)
Amortization of deferred mutual fund commissions and bond issuance costs		28,482			10,349			—
Other adjustments		(5,441	)		2,839			—
Changes in operating assets and liabilities:
Increase in accounts receivable		(8,670	)		(138,868	)		(27,040	)
(Increase) decrease in due from affiliates		(75,436	)		(6,614	)		13,040
Increase in investments, trading		(86,637	)		(6,188	)		(9,692	)
Increase in other assets		(15,066	)		(52,907	)		(4,160	)
Increase in accrued compensation		210,310			51,236			53,874
Increase in accounts payable and accrued liabilities		754