Edgar Filing: BlackRock Inc.

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

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, 2008

¨	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, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ Nox

The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2008 was approximately $2.9 billion. There is no non-voting common stock of the registrant outstanding.

As of January 31, 2009, there were 118,171,765 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 2009 annual meeting of stockholders to be held on May 21, 2009 (“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	20
Item 1B	Unresolved Staff Comments	27
Item 2	Properties	27
Item 3	Legal Proceedings	27
Item 4	Submission of Matters to a Vote of Security Holders	27

PART II

Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
Item 6	Selected Financial Data	30
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	80
Item 8	Financial Statements and Supplementary Data	81
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	81
Item 9A	Controls and Procedures	81
Item 9B	Other Information	84

PART III

Item 10	Directors, Executive Officers and Corporate Governance	84
Item 11	Executive Compensation	84
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	84
Item 13	Certain Relationships and Related Transactions, and Director Independence	84
Item 14	Principal Accountant Fees and Services	84

PART IV

Item 15	Exhibits and Financial Statement Schedules	85
	Signatures	90

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 $1.307 trillion of assets under management (“AUM”) at December 31, 2008. BlackRock manages assets on behalf of institutional and individual investors worldwide through a variety of fixed income, cash management, equity and balanced and alternative investment separate accounts and funds. In addition, through BlackRock Solutions^®, the Company offers risk management and advisory services that combine capital markets expertise with proprietarily-developed systems and technology. BlackRock Solutions provides risk management and enterprise investment services for $7 trillion in assets, liabilities and derivatives.

BlackRock is independent in ownership and governance, with no single majority stockholder and a majority of independent directors. At December 31, 2008, Merrill Lynch & Co., Inc. (“Merrill Lynch”) owned approximately 44.2% of BlackRock’s voting common stock outstanding and held approximately 48.2% of the Company’s capital stock on a fully diluted basis. The PNC Financial Services Group, Inc. (“PNC”) owned approximately 36.5% of BlackRock’s voting common stock outstanding and held approximately 32.1% of the Company’s capital stock on a fully diluted basis.

On January 1, 2009, Bank of America Corporation (“Bank of America”) acquired Merrill Lynch. In connection with this transaction, BlackRock entered into exchange agreements with each of Merrill Lynch and PNC pursuant to which each agreed to exchange a portion of the BlackRock voting common stock they held for non-voting preferred stock. Following the closing of these exchanges on February 27, 2009, Bank of America/Merrill Lynch and PNC owned approximately 4.9% and 46.5% of BlackRock’s voting common stock, respectively. The capital stock held by Bank of America/Merrill Lynch and PNC in BlackRock remained largely unchanged at approximately 47.4% and 31.5% on a fully diluted basis, respectively.

BlackRock closed 2008 with AUM of $1.307 trillion, a decrease of 4% over year-end 2007 levels. Over the past five years, BlackRock’s AUM has had a compound annual growth rate of 33%.

Assets Under Management

By Product Type


	Year ended December 31,
*(Dollars in millions)*	2008		2007		2006		2005		2004		2003		5 Year CAGR
Fixed income	$	483,173	$	513,020	$	448,012	$	303,928	$	240,709	$	214,356	18	%
Equity and balanced		280,821		459,182		392,708		37,303		14,792		13,721	83	%
Cash management		338,439		313,338		235,768		86,128		78,057		74,345	35	%
Alternative investment products		59,723		71,104		48,139		25,323		8,202		6,934	54	%

Sub Total		1,162,156		1,356,644		1,124,627		452,682		341,760		309,356	30	%
Advisory¹		144,995		—		—		—		—		—	NM

Total	$	1,307,151	$	1,356,644	$	1,124,627	$	452,682	$	341,760	$	309,356	33	%

NM – Not Meaningful

CAGR = Compound Annual Growth Rate

¹	Advisory AUM represents long-term portfolio liquidation assignments.

Item 1.

BUSINESS (continued)

Overview (continued)

Growth in AUM over the past five years includes acquired AUM of $660.8 billion. On September 29, 2006, 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 (the “MLIM Transaction”), adding $589.2 billion in AUM. Acquired AUM also includes approximately $21.9 billion in AUM acquired as a result of BlackRock’s acquisition of the fund of funds business of Quellos Group, LLC (the “Quellos Business” or “Quellos”), which closed on October 1, 2007 (the “Quellos Transaction”) and approximately $49.7 billion in AUM acquired in BlackRock’s acquisition of SSRM Holdings, Inc. from MetLife, Inc. in January 2005 (the “SSR Transaction”).

Assets Under Management

By Product Mix


	Year ended December 31,
	2008		2007		2006		2005		2004
Fixed income	37	%	38	%	40	%	67	%	71	%
Equity and balanced	21	%	34	%	35	%	8	%	4	%
Cash management	26	%	23	%	21	%	19	%	23	%
Alternative investments products	5	%	5	%	4	%	6	%	2	%

Sub Total	89	%	100	%	100	%	100	%	100	%
Advisory¹	11	%	—		—		—		—

Total	100	%	100	%	100	%	100	%	100	%

Advisory AUM represents long-term portfolio liquidation assignments.

BlackRock offers a broad range of investment and risk management services to institutional and retail investors worldwide. These diverse capabilities span the global capital markets and permit the Company to serve a wide variety of investor interests. As of year-end 2008, more than 25% of the Company’s separate account clients had awarded BlackRock mandates in more than one asset class. The Company’s $1.307 trillion of AUM at year-end 2008 consisted of approximately 21% equity and balanced, 37% fixed income, 26% cash management, 5% alternative investments and 11% advisory portfolios.

The Company manages assets on behalf of investors in more than 60 countries. Approximately 41% of long-dated AUM, 12% of cash management AUM and 5% of advisory AUM were managed on behalf of international clients, with the balance managed for U.S. investors. In all regions, clients include both institutional and retail investors. At year-end 2008, approximately 76% of long-dated AUM, 91% of cash management AUM and 100% of advisory AUM were managed for institutional clients, with the remainder managed for retail and high net worth investors.

BlackRock has developed and maintains an extensive operating platform, Aladdin^®, to support its global investment and risk management operations. The Company offers Aladdin and a variety of related services to institutional investors under the BlackRock Solutions brand name. At year-end 2008, over $7 trillion of assets, liabilities and derivatives were processed on the Aladdin platform in connection with outsourcing, risk management and advisory services provided to 135 clients.

Item 1.

BUSINESS (continued)

Overview (continued)

BlackRock operates in a global marketplace characterized by a high degree of market volatility and economic uncertainty, factors that can significantly affect earnings and stockholder returns in any given period. Management seeks to achieve attractive returns for stockholders over time by, among other things, capitalizing on the following factors:

•

The Company’s diversified product offerings, which enhance its ability to offer a variety of traditional and alternative investment products across the risk spectrum and to tailor single- and multi- asset class investment solutions to address specific client needs;

•

The Company’s longstanding commitment to risk management and the continued development of, and increased interest in, BlackRock Solutions products and services;

•

The Company’s global presence, with nearly one-third of employees outside the U.S. supporting local investment capabilities and serving clients throughout the world; and

•

The growing recognition of the BlackRock brand, the strength of the Company’s culture and the depth and breadth of its intellectual capital.

The Company’s ability to increase revenue, earnings and stockholder value over time is predicated on its ability to generate new business in investment management and BlackRock Solutions products and services. New business efforts are dependent on BlackRock’s ability to achieve clients’ investment objectives in a manner consistent with their risk preferences and to deliver excellent client service. All of these efforts require the commitment and contributions of BlackRock employees. Accordingly, the ability to retain and attract talented professionals is critical to the Company’s long-term success.

Item 1.

BUSINESS (continued)

Overview (continued)

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

Selected GAAP Financial Results


*(Dollars in millions, except per share amounts)*	2008			2007			2006			2005			2004			2003			5 Year CAGR
Revenue	$	5,064		$	4,845		$	2,098		$	1,191		$	725		$	598		53	%
Operating income	$	1,593		$	1,294		$	472		$	341		$	165		$	228		48	%
Operating margin		31.4	%		26.7	%		22.5	%		28.6	%		22.9	%		38.2	%	(4	)%
Non-operating income (expense), net of non-controlling interests	$	(419	)	$	165		$	40		$	32		$	30		$	22		(280	)%
Net income	$	786		$	995		$	323		$	234		$	143		$	155		38	%
Diluted earnings per share	$	5.91		$	7.53		$	3.87		$	3.50		$	2.17		$	2.36		20	%

Selected Non-GAAP Financial Results¹


*(Dollars in millions, except per share amounts)*	2008²			2007²			2006²			2005			2004			2003			5 Year CAGR
As adjusted:
Operating income	$	1,662		$	1,518		$	674		$	408		$	263		$	231		48	%
Operating margin		38.7	%		37.5	%		36.7	%		38.9	%		40.1	%		42.2	%	(2	)%
Non-operating income (expense), net of non-controlling interests	$	(381	)	$	153		$	32		$	21		$	25		$	19		(282	)%
Net income	$	858		$	1,079		$	445		$	269		$	178		$	155		41	%
Diluted earnings per share	$	6.45		$	8.17		$	5.33		$	4.03		$	2.69		$	2.36		22	%

Prior year data reflects certain reclassifications to conform to the current year presentation.

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

See additional information in Item 6, Selected Financial Data.

BlackRock reports its financial results using accounting principles generally accepted in the United States of America (“GAAP”); however, management believes that evaluating the Company’s ongoing operating results may be enhanced if investors have additional non-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. Certain prior year non-GAAP financial measures have been restated to conform to current year presentation.

Item 1.

BUSINESS (continued)

Overview (continued)

Operating Income, as Adjusted:

GAAP reported operating income includes all compensation related expenses associated with certain of BlackRock’s long-term incentive plans (“LTIP”), which are partially funded by BlackRock stock currently held by PNC and by anticipated capital contributions from Merrill Lynch, certain costs related to the integration of the MLIM and Quellos Transactions in 2006 and 2007, certain costs associated with the SSR Transaction in 2005, a 2007 termination fee for closed-end fund administration and servicing arrangements with Merrill Lynch, a 2008 restructuring charge and compensation expense associated with appreciation / (depreciation) on assets related to BlackRock’s deferred compensation plans.

Operating income, as adjusted (a non-GAAP measure), excludes the expense related to the 2008 restructuring charges, the 2007 termination of the closed-end fund administration and servicing arrangements with Merrill Lynch, and MLIM and Quellos integration costs consisting principally of certain professional fees, rebranding costs and compensation costs incurred in conjunction with the integration. These expenses have been excluded from operating income, as adjusted, because they have been deemed non-recurring by management and to help ensure the comparability of this information to prior periods. The portion of expense associated with LTIP that will be funded through BlackRock common stock held by PNC and the anticipated Merrill Lynch compensation contribution have been excluded because, exclusive of the impact related to the exercise of LTIP participants’ put options, primarily in the three months ended March 31, 2007, these charges do not impact 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. Compensation expense associated with appreciation (depreciation) on assets related to certain BlackRock deferred compensation plans has been excluded as returns on investments directed for these plans are reported in non-operating income (expense). Management believes that operating income exclusive of these costs are more representative of the operating performance for the respective periods.

Operating Margin, as Adjusted:

Operating income used for measuring operating margin, as adjusted, is equal to operating income, as adjusted, excluding the impact of closed-end fund launch costs and commissions. Management believes that excluding such costs and commissions is useful because these costs can fluctuate considerably and revenues associated with the expenditure of these costs will not fully impact the Company’s results until future periods.

Revenue used for operating margin, as adjusted, excludes portfolio administration and servicing costs paid to related parties and to other third parties. Management believes that excluding such costs is useful because the Company receives offsetting revenue for these services. Amortization of deferred mutual fund sales commissions are excluded from revenue used for operating margin measurement, as adjusted, because such costs, over time, offset distribution fee revenue earned by the Company. Reimbursable property management compensation was excluded from operating margin, as adjusted, as it represents compensation and benefits paid to personnel of Metric Property Management, Inc. (“Metric”), a subsidiary of BlackRock Realty Advisors, Inc. (“Realty”), which is fully reimbursed by Realty’s clients resulting in no economic cost to BlackRock.

Non-Operating Income (Expense), Net of Non-controlling Interests, as Adjusted:

Non-operating income (expense), net of non-controlling interests, as adjusted, equals non-operating income (expense), GAAP basis, net of non-controlling interests, GAAP basis, adjusted for compensation expense associated with depreciation (appreciation) on assets related to certain BlackRock deferred compensation plans, which is recorded in operating income. This compensation expense has been included in non-operating income (expense), net of non-controlling interests, as adjusted, to offset returns on investments set aside for these plans, which are reported in non-operating income (expense), GAAP basis.

Item 1.

BUSINESS (continued)

Overview (continued)

Non-Operating Income (Expense), Net of Non-controlling Interests, as Adjusted (continued):

Management believes that non-operating income (expense), as adjusted, provides for comparability of this information to prior periods and is an effective measure for reviewing BlackRock’s non-operating contribution to its results. As compensation expense on the deferred compensation plans, which is included in operating income, offsets the gain/(loss) on the investments set aside for these plans, management believes that non-operating income (expense), net of non-controlling interests, as adjusted, provides useful measures to investors of BlackRock’s non-operating results.

Net Income, as Adjusted:

GAAP reported net income and GAAP diluted earnings per share include certain significant items, the after-tax impact of which management considers non-recurring or ultimately will not impact BlackRock’s book value and, therefore, are excluded in calculating net income, as adjusted.

Net income and diluted earnings per share, as adjusted (a non-GAAP measure), exclude the after-tax impact of the 2008 restructuring charges, the 2007 termination of closed-end fund administration and servicing arrangements with Merrill Lynch, LTIP expense to be funded by PNC and by an expected Merrill Lynch compensation contribution, MLIM, Quellos and SSR integration costs and the effect on deferred income tax expense attributable to corporate income tax rate reductions.

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

Products ^*

BlackRock offers a variety of investment management and risk management products and services. Investment management offerings include single- and multi- asset class portfolios, which may be structured to focus on a particular investment style, capitalization range, region or market sector, credit or maturity profile, or liability structure. 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 in excess of agreed-upon targets. Risk management products, including BlackRock’s Aladdin platform, outsourcing, advisory and transition management services, are offered to institutional investors under the BlackRock Solutions name. Revenue on these services may be based on several criteria including asset volume, number of users, accomplishment of specific deliverables or other performance objectives.

^*	See Product Performance Notes below.

Item 1.

BUSINESS (continued)

Products (continued)

BlackRock, Inc.

Assets Under Management

(Dollar amounts in millions)

(unaudited)


	December 31, 2007		Net subscriptions (redemptions)			Foreign exchange ¹			Market appreciation (depreciation)			December 31, 2008
By Product
Fixed income	$	513,020	$	(6,594	)	$	(6,222	)	$	(17,030	)	$	483,173
Cash management		313,338		25,670			(1,908	)		1,339			338,439
Equity and balanced		459,182		869			(18,782	)		(160,448	)		280,821
Alternative investment products		71,104		2,903			(1,235	)		(13,049	)		59,723

Sub Total		1,356,644		22,848			(28,147	)		(189,189	)		1,162,156
Advisory AUM²		—		144,756			—			239			144,995

Total AUM	$	1,356,644	$	167,604		$	(28,147	)	$	(188,950	)	$	1,307,151

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

Advisory AUM represents long-term portfolio liquidation assignments.

Equity and Balanced

BlackRock manages a range of equity strategies across the risk/return spectrum, including global and regional portfolios; value, growth and core mandates; large, mid and small cap strategies; and selected sector funds. Amidst particularly volatile conditions and challenging markets for equity managers, BlackRock’s application of risk analytics to equity portfolio construction helped managers reposition their portfolios effectively for the new environment.

BlackRock’s equity and balanced AUM closed the year at $280.8 billion. The sharp fall in global equity markets caused AUM to decline $160.4 billion or 35% since December 31, 2007. Foreign exchange translation accounted for an additional $18.8 billion or 4% decay in reported AUM. Despite the challenging market environment, the Company attracted $0.9 billion of net new business during the year, with inflows in asset allocation and index products partially offset by outflows in sector funds, U.S. equity and emerging market portfolios. BlackRock’s equity investment teams achieved strong relative performance, with 70%, 85%, and 91% of equity fund assets ranked in the top two peer group quartiles for the one-, three- and five-year periods ended December 31, 2008.

At year-end 2008, 49% of the Company’s equity and balanced AUM, or $136.4 billion, were managed for U.S. investors and 51%, or $144.4 billion, were managed for international investors in over 35 countries. In addition, BlackRock’s channel mix was well balanced with 53% of assets managed on behalf of institutional clients and 47% managed on behalf of retail and high net worth investors. During 2008, we were awarded $10.9 billion and $3.0 billion of net new business from U.S. retail and institutional investors, respectively. These inflows were offset by net outflows of $7.0 billion from international retail investors and $5.9 billion from U.S. high net worth investors, principally in broker-sold separately managed accounts.

Item 1.

BUSINESS (continued)

Products (continued)

Fixed Income

BlackRock offers an array of fixed income products across currencies, sectors and maturities. Portfolios can be tailored relative to clients’ liabilities, accounting, regulatory or rating agency requirements, or other investment policies. In 2008, investors worldwide sought the safety of government-guaranteed debt, particularly late in the year in the face of extreme market disruption and deteriorating economic conditions. Clients continued to migrate from broad bond market portfolios and structured products to long duration and other liability driven strategies. Widespread de-leveraging of balance sheets caused significant devaluation of assets, which in turn led to demand for advisory services and investor interest in a variety of distressed and opportunistic products.

BlackRock’s fixed income AUM ended the year at $483.2 billion, a decrease of $29.8 billion or 6% year-over-year. A substantial majority of this decline (78% or $23.2 billion) resulted from adverse market movements, primarily in the form of dramatic widening of credit spreads as liquidity dried up. Net outflows accounted for the remaining $6.6 billion or 1% fall-off in AUM, driven by investors’ cash needs, structured product liquidations, a shift toward liability driven investing and insourcing following a single client’s merger activity. The year was exceptionally challenging for bond managers, and BlackRock was not immune. Although we remained competitive within our institutional peer group, investment performance fell short of our expectations, particularly in multi-sector portfolios. For the one-, three- and five-year periods ended December 31, 2008, 37%, 36% and 45% of bond fund assets ranked in the top two peer group quartiles.

BlackRock’s fixed income client base remains largely institutional, with 86% of AUM, or $415.8 billion, managed on behalf of institutional clients and 14%, or $67.4 billion, managed for retail and high net worth investors. Net inflows of $11.4 billion from international clients were overwhelmed by net outflows of $18.0 billion from U.S. investors, resulting in a slight shift in the client mix from 35% international at year-end 2007 to 36% at year-end 2008.

Cash Management

The cash management industry was particularly challenged by the credit and liquidity crisis that persisted throughout 2008. Difficulties intensified in the third quarter when the bankruptcy of Lehman Brothers caused the Reserve Primary Fund’s net asset value to drop below $1, thereby becoming the second fund ever to “break the buck” in the nearly 40-year history of money market mutual funds. This landmark event triggered large redemptions in prime money market funds as investors sought safety in Treasuries and government money market funds. This massive “flight to safety” necessitated substantial selling by prime funds, which in turn froze short-term funding markets until government intervention encouraged investors to reallocate back into prime money market funds.

Throughout the year, BlackRock navigated these extraordinary market conditions to ensure safety and liquidity for our cash management clients. Flows were volatile, particularly in the third and fourth quarters, when the Company’s liquidity products had net outflows of $53.5 billion and net inflows of $48.6 billion, respectively. Cash management AUM closed the year at $338.4 billion, an increase of 8% or $25.1 billion since year-end 2007. For the year-ended December 31, 2008, average assets were approximately 26% higher than for calendar year 2007.

BlackRock’s cash management activities are primarily conducted on behalf of U.S. investors, with increasing demand from international clients, especially in the United Kingdom and Middle East. At December 31, 2008, cash management AUM for U.S. investors reached $297.7 billion, up 4% from 2007, and $40.7 billion for international clients, up 52% from a year ago. For the first time, net inflows from international clients surpassed net subscriptions from U.S. investors, $15.1 billion and $10.6 billion respectively. BlackRock’s cash management clientele remains largely institutional, with $309.2 billion or 91% managed on behalf of institutions and $29.2 billion or 9% managed on behalf of retail and high net worth investors.

Item 1.

BUSINESS (continued)

Products (continued)

Cash Management (continued)

Management expects continued volatility in cash management flows given ongoing dislocations in the market and the extremely low level of rates on Treasury bills and other money market instruments.

Alternatives

BlackRock’s alternative investment capabilities include real estate equity and debt; hedge fund, private equity and real asset funds of funds; single-strategy hedge funds, and distressed, opportunistic and other absolute return strategies. BlackRock invests alongside clients in many of these products as a way of evidencing our long-term commitment to these strategies and alignment of interest with our clients. These coinvestments are held on balance sheet and marked to market. While alternative investment strategies generally are designed to provide returns with low correlations to the broad equity and bond markets, market turmoil affected all strategies in 2008 and return correlations increased dramatically.

In many ways, 2008 was a “perfect storm” for alternative investments – frozen capital markets, lack of financing, forced deleveraging, poor absolute returns, imposition of redemption constraints and revelation of a massive alleged hedgefund fraud (in which none of BlackRock’s fund of funds were invested). Industry-wide, investors sought to redeem hedge fund and fund of fund holdings in record numbers, and were often forced to liquidate better performing products that could provide liquidity. BlackRock was able to meet all redemption requests in these products in 2008. Despite these headwinds, BlackRock raised $2.9 billion of net new business across a range of alternative products during the year, which helped to offset market and foreign exchange declines of $14.3 billion. At year-end, alternative investment AUM totaled $59.7 billion.

BlackRock’s real estate offerings span a wide range of strategies, including core, value-added and opportunistic equity and high yield debt for institutional and private investors. Assets on the real estate platform as of December 31, 2008 were $25.8 billion, down $3.6 billion from 2007 year-end, largely as a result of declining market values worldwide. Net new business in real estate equity and debt products totaled $1.4 billion in 2008.

The Company’s fund of funds platform which operates under the name, BlackRock Alternative Advisors (“BAA”), manages a variety of multi-manager strategies investing in hedge funds, private equity funds and real asset funds. AUM in these products closed the year at $22.7 billion, a decrease of $6.7 billion, driven largely by negative market returns and, to a lesser extent, redemptions in funds of hedge funds. These declines were partially offset by net new business of $0.9 billion in BAA’s private equity fund of funds business. All of these assets are managed on behalf of institutional and high net worth clients, split almost evenly between U.S. and international investors.

BlackRock ended 2008 with $11.2 billion of AUM in equity and fixed income hedge funds, portable alpha, distressed, opportunistic and other absolute return strategies. Net new business during the year included $3.6 billion of inflows into distressed credit and mortgage vehicles, as clients turned to BlackRock for innovative and opportunistic investment solutions. These flows were offset by $2.2 billion of net outflows in fixed income and equity hedge funds and $2.9 billion in market and foreign exchange declines.

BlackRock Solutions and Advisory

BlackRock offers investment systems, risk management and advisory services under the BlackRock Solutions brand name. The BlackRock Solutions operating platform, Aladdin, serves as the investment system for BlackRock and a growing number of sophisticated institutional investors. BlackRock Solutions also uses Aladdin to support ongoing risk management, investment accounting outsourcing, financial markets advisory and transition management services. Clients have also retained BRS for shorter-term advisory engagements, such as valuation of illiquid assets, portfolio restructuring, workouts and dispositions.

Demand for BlackRock Solutions services increased sharply in 2008 in the face of extreme market dislocations. Revenue more than doubled to $406 million, up from $198 million in 2007. A substantial portion of the growth resulted from increased demand for advisory services that bring together the Company’s analytical, risk management and capital markets capabilities. During the year, we added 72 new assignments, including 46 short-term engagements. Clients include financial institutions, insurance companies, official institutions, pension funds, asset managers and other institutional investors based in the U.S., Europe, Asia and Australia.

Item 1.

BUSINESS (continued)

BlackRock Solutions and Advisory (continued)

BlackRock Solutions’ core product is the Aladdin investment platform and associated risk analytics and advisory services that leverage Aladdin. In July 2008, BlackRock acquired Impact Investing, a provider of equity portfolio management, visualization and analytical software. These capabilities are currently being integrated into the Aladdin platform with the ultimate goal of extending Aladdin’s multi-asset class capabilities. Over time, these efforts are expected to enable us to expand our BlackRock Solutions activities by serving a broader array of client needs. At December 31, 2008, 36 institutions on four continents had selected Aladdin as their investment operating platform, including 8 implementations completed in 2008.

During this recent period of market distress, our Financial Markets Advisory practice provided the holders of distressed assets with guidance on valuing, restructuring and managing their portfolios. Clients have included major public and private institutions around the world, including the Federal Reserve Bank of New York, which engaged BlackRock as manager and adviser for several special purpose facilities. With support from experts throughout the firm, the advisory team completed 43 short-term assignments in 2008, up from 18 such assignments in 2007. At year-end, BlackRock managed $145.0 billion in advisory assets under management.

Product Performance Notes

Past performance is not indicative of future results. 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 Morningstar^©, Inc. for non-U.S. funds. Rankings are based on total returns with dividends and distributions reinvested and do not reflect sales charges. BlackRock waives certain fees, without which performance would be lower. Funds with returns among the top 50% of a peer group of funds with comparable objectives are in the top two quartiles. Some funds have less than three 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 leverage its broad capabilities and global perspective to help clients address investment and risk management challenges and access attractive investment opportunities. BlackRock’s funds are registered in 40 jurisdictions around the globe, and the Company serves clients in more than 60 countries. BlackRock’s AUM at year-end totaled $1.307 trillion, including $1.162 trillion of investment assets and $145.0 billion of advisory assets. Investment assets are managed on behalf of a geographically diverse clientele, with $780.7 billion or 67% managed for U.S. investors and $381.5 billion or 33% managed for international investors. The advisory asset base is significantly more concentrated among a small number of institutions, 95% or $137.3 billion of which is managed for U.S. clients and 5% or $7.7 billion for international investors.

Item 1.

BUSINESS (continued)

Clients (continued)

BlackRock, Inc.

Assets Under Management

(Dollar amounts in millions)

(unaudited)


	December 31, 2007		Net subscriptions		Foreign exchange ¹			Market appreciation			December 31, 2008
By Client Region
United States	$	873,330	$	135,038	$	(136	)	$	(90,257	)	$	917,975
International		483,314		32,566		(28,011	)		(98,693	)		389,176

Total AUM²	$	1,356,644	$	167,604	$	(28,147	)	$	(188,950	)	$	1,307,151

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

Of which Advisory AUM, which represents long-term portfolio liquidation assignments, equals $145.0 billion of total AUM.

Institutional

BlackRock’s institutional clients span Europe, the Middle East, Africa (“EMEA”), Asia-Pacific and the Americas. The types of investors served include pension plans, charities and other tax-exempt institutions; insurance companies, corporations, banks and other taxable institutions; and central banks, government agencies, sovereign wealth funds and other official institutions. At December 31, 2008, BlackRock managed $1.079 trillion of assets on behalf of institutional investors globally, including $934.1 billion of investment assets and $145.0 billion of advisory assets. Investment AUM included $613.9 billion or 66% managed for U.S. clients and $320.2 billion or 34% managed for international institutions.

Assets managed for tax-exempt institutions, including defined benefit and defined contribution pension plans, foundations, endowments and other non-profit organizations, decreased 11% to $271.2 billion at December 31, 2008 due to adverse markets and foreign exchange translation. In 2008, BlackRock was awarded net new business of $19.6 billion from tax-exempt clients, including $3.3 billion of advisory assets, driven by significant inflows from U.S. and international pension funds. During the year, BlackRock continued to gain traction with defined contribution pension plans, particularly in the U.S. and the U.K., in recognition of the Company’s strong equity offerings and newer target date and target risk products. In addition, clients increasingly sought strategic relationships and customized investment solutions, and our work throughout the year with tax-exempt institutions ranged from tailoring portfolios and benchmarks to designing liability-driven investments and multi-asset class solutions to comprehensive fiduciary outsourcing assignments.

AUM for taxable institutions decreased $12.4 billion or 7% to $165.3 billion at year-end 2008. Approximately 44% of the decline was due to adverse market and foreign exchange movements. The remainder reflected outflows in investment assets of $12.8 billion, 72% of which resulted from the merger of a single large insurance client, partially offset by $5.8 billion of inflows in advisory assets. BlackRock is one of the largest managers of insurance assets worldwide, and continues to benefit from increasing momentum toward investment outsourcing. This business is, however, subject to event risk arising from insurance company mergers, as we experienced during the year.

Item 1.

BUSINESS (continued)

Clients (continued)

Institutional (continued)

In 2008, BlackRock greatly expanded its work with central banks, government agencies and sovereign wealth funds, especially in the United States and the Middle East. Assets managed on behalf of official institutions ended the year at $168.9 billion, including $135.9 billion of advisory assets under management. Advisory assets represented almost all (98%) of the $138.1 billion of net new business with official institutions during the year, as clients sought BlackRock’s independent valuation and risk management advisory services to help navigate the deteriorating balance sheets of regulated institutions and manage the orderly liquidation of troubled portfolios.

In addition to the foregoing, BlackRock serves as a subadvisor to third party fund sponsors and directly advises a variety of funds and commingled vehicles offered to institutional investors. AUM for these clients totaled $174.8 billion at December 31, 2008, including $118.7 billion or 68% for clients or funds based in the U.S. and $56.0 billion or 32% based internationally. Products focus primarily on BlackRock’s fixed income, equity and alternative investment capabilities, which represented 36%, 30% and 29% of subadvised and institutional fund AUM at year-end. Equity and alternative markets took a heavy toll on these assets during 2008, contributing to a 23% decline due to adverse markets and a 2% decline from net outflows.

The remaining $298.9 billion of institutional assets are managed in the Company’s cash management products, which are discussed in the Product section above.

BlackRock, Inc.

Assets Under Management

(Dollar amounts in millions)

(unaudited)


	December 31, 2007		Net subscriptions (redemptions)			FX ¹			Market (depreciation)			December 31, 2008
By Client Type
Institutional	$	1,023,640	$	168,663		$	(22,910	)	$	(90,350	)	$	1,079,043
Retail/HNW		333,004		(1,059	)		(5,237	)		(98,600	)		228,108

Total AUM²	$	1,356,644	$	167,604		$	(28,147	)	$	(188,950	)	$	1,307,151

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

Of which Advisory AUM, which represents long-term portfolio liquidation assignments, equals $145.0 billion of total AUM.

Item 1.

BUSINESS (continued)

Clients (continued)

Retail and High Net Worth

BlackRock’s investment management expertise is available to retail investors globally through separate accounts, open-end and closed-end funds, unit trusts and other collective investment vehicles. As of year-end 2008, BlackRock managed $228.1 billion on behalf of retail and high net worth investors worldwide, with 57% in equity and alternative investment products, 30% in fixed income and 13% in money market funds. The product mix differed considerably by region, with international investors holding a much greater proportion of assets in equity funds (90% vs. 50% going into 2008). Adverse markets and sharply higher investor redemption rates caused international retail AUM to fall much more significantly during the year, resulting in a meaningful shift in the client mix. Specifically, the Company started 2008 with a 62%/38% mix of AUM managed for U.S. and international investors, respectively, and ended the year with a 73%/27% mix.

As of December 31, 2008, BlackRock managed $166.8 billion of assets for U.S. retail and high net worth investors. Notwithstanding the significant challenges faced by retail distributors and investors, BlackRock was able to enhance its positioning and market share during the year. Net new business in retail totaled $11.3 billion, a 7% organic growth rate, which was partially offset by net outflows of $4.2 billion in U.S. high net worth products, principally broker-sold separately managed accounts. Importantly, BlackRock secured over 65 new product placements on broker-dealer platforms, and had 70 open-end and closed-end mutual funds with 4- or 5-star Morningstar ratings as of year-end 2008.

BlackRock has an extensive international retail platform, anchored by our flagship Luxembourg-based fund family, BlackRock Global Funds. BlackRock Global Funds are registered for sale in 37 countries and in 16 languages. As of December 31, 2008, BlackRock managed $61.3 billion on behalf of international retail investors. As referenced above, AUM were down significantly due to adverse equity markets and accelerating redemption rates. Year-over-year, international retail AUM dropped 45% or $55.6 billion due to market declines and foreign exchange translation alone.

Net inflows from international retail clients of $0.8 billion in the first half of the year were offset by $8.9 billion of outflows in the second half of the year. Outflows were particularly concentrated in Korea, where a change in taxation caused a large scale reallocation away from offshore products, and in Taiwan, where many retail investors redeemed products that included capital guarantees or other structuring elements, because of concern about the future of investment banks. The mass migration of retail investors away from mutual funds in Spain and Italy was another detrimental factor.

Despite 2008’s hostile markets, the robustness of the BlackRock brand and international retail platform ensured that the Company remained the second largest cross-border mutual fund provider internationally and one of the top net sellers in that market. In the UK, BlackRock was the top net seller in 2008. The Company benefitted from retail investor demand for balanced, absolute return and cash products during the period, with its flagship Global Allocation product dominating industry sales for most of the year.

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 historically 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. Certain of the Company’s competitors, however, have greater marketing resources 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 to attract new business will be successful.

Item 1.

BUSINESS (continued)

Geographic Information

BlackRock has clients in over 60 countries across the globe, including the United States, the United Kingdom, and Japan.

The following table illustrates the Company’s revenues and long-lived assets, including goodwill and property and equipment for the years ended December 2008, 2007 and 2006. These amounts are aggregated on a legal entity jurisdiction basis and do not necessarily reflect where the customer is sourced.


Revenues (in millions)	2008		% of total		2007		% of total		2006		% of total
North America	$	3,438	68	%	$	3,070	63	%	$	1,715	82	%
Europe		1,360	27	%		1,490	31	%		321	15	%
Asia-Pacific		266	5	%		285	6	%		62	3	%

Total revenues	$	5,064	100	%	$	4,845	100	%	$	2,098	100	%


Long-lived Assets (in millions)
North America	$	5,714	99	%	$	5,695	98	%	$	5,408	99	%
Europe		27	0	%		35	1	%		30	0	%
Asia-Pacific		52	1	%		56	1	%		34	1	%

Total long-lived assets	$	5,793	100	%	$	5,786	100	%	$	5,472	100	%

North America primarily is comprised of the United States, while Europe primarily is comprised of the United Kingdom and Asia-Pacific primarily is comprised of Japan, Australia and Hong Kong.

Employees

At December 31, 2008, BlackRock had a total of 5,341 full-time employees and no employees of Metric. Of all full-time employees, 1,836 are located in offices outside the United States.

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 the bank subsidiaries of Bank of America and PNC and their customers. Under these laws and regulations, agencies that regulate investment advisers, investment funds 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.

Recent market disruptions have led to numerous proposals both in and outside the United States for changes in the regulation of the financial services industry. New laws or regulations, or changes in enforcement of existing laws or regulations, could impact the scope or profitability of BlackRock’s business activities, could require BlackRock to change certain business practices and could expose BlackRock to additional costs (including compliance and tax costs) and liabilities as well as reputational harm. Regulatory changes could also lead to business disruptions, could impact the value of assets in which BlackRock has invested directly and/or on behalf of clients, and, to the extent the regulations strictly control the activities of financial services firms, could make it more difficult for BlackRock to conduct certain businesses or distinguish itself from competitors.

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 “DOL”), the Board of Governors of the Federal Reserve Bank (the “FRB”), the Financial Industry Regulatory Authority (“FINRA”), the National Futures Association (the “NFA”), the Commodity Futures Trading Commission (the “CFTC”) and other government agencies and regulatory bodies. Certain BlackRock U.S. subsidiaries are also subject to various anti-money laundering regulations, including the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “PATRIOT Act”), the Bank Secrecy Act and regulations promulgated by the Office of Foreign Assets Control of the U.S. Treasury Department.

The Investment Advisers Act of 1940, as amended (the “Advisers Act”), imposes numerous obligations on registered investment advisers such as BlackRock, including record-keeping, operational and marketing requirements, disclosure obligations and prohibitions on fraudulent activities. The Investment Company Act of 1940, as amended (the “Investment Company Act”), imposes stringent governance, operational, disclosure and related obligations on registered investment companies and on investment advisers to those companies and distributors, such as BlackRock. The SEC is authorized to institute proceedings and impose sanctions for violations of the 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. Non-compliance with certain provisions of the Advisers Act, the Investment Company Act or other federal and state securities laws and regulations could result in investigations, sanctions and reputational damage.

Item 1.

BUSINESS (continued)

Regulation (continued)

U.S. Regulation (continued)

BlackRock’s trading and investment activities for client accounts are regulated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as well as the rules of various U.S. and non-U.S. securities exchanges and self-regulatory organizations, including laws governing trading on inside information, market manipulation and a broad number of technical trading requirements (e.g., volume limitations, reporting obligations) and market regulation policies in the United States and globally. In addition, BlackRock manages a variety of investment funds listed on U.S. and non-U.S. exchanges, which are subject to the rules of such exchanges. Violation of these laws and regulations could result in restrictions on the Company’s activities and in damage to its reputation. BlackRock manages a variety of private pools of capital, including hedge funds, funds of hedge funds, private equity funds, real estate funds, collective investment trusts, managed futures funds and hybrid funds. Congress, regulators, tax authorities and others continue to explore, on their own and in response to demands from the investment community, increased regulation related to private pools of capital, including changes with respect to investor eligibility, certain limitations on trading activities, the scope of anti-fraud protections and a variety of other matters. BlackRock may be adversely affected by new legislation or rule-making or changes in the interpretation or enforcement of existing rules and regulations imposed by various regulators.

Certain BlackRock subsidiaries are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and to regulations promulgated thereunder by the DOL, 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 impose excise taxes for violations of these prohibitions, mandate certain required periodic reporting and disclosures and require BlackRock to carry bonds ensuring against losses caused by fraud or dishonesty. ERISA also imposes additional compliance, reporting and operational requirements on BlackRock that otherwise are not applicable to non-benefit plan clients.

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 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. Two of BlackRock’s other subsidiaries, BlackRock Investments, Inc. (“BII”) and BlackRock Capital Markets, LLC (“BRCM”), are registered with the SEC as broker-dealers and are member-firms of FINRA. BII’s FINRA 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. BRCM’s FINRA membership agreement limits its permitted activities to retailing corporate debt and government securities, arranging for transactions in listed securities by exchange members and commission sharing arrangements with third party brokers. Although BII and BRCM have limited business activities, they are subject to the customer dealing, reporting and other requirements of FINRA, as well as the net capital and other requirements of the SEC. BII is also an approved person with the New York Stock Exchange (“NYSE”), which subjects its operations to NYSE regulation.

Item 1.

BUSINESS (continued)

Regulation (continued)

U.S. Banking Regulation

Each of Bank of America and PNC is a bank holding company and a “financial holding company” regulated by the FRB under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). Because the ownership interests of each of Bank of America and PNC in BlackRock exceeds 25%, BlackRock is deemed to be a non-bank subsidiary of Bank of America and PNC and is therefore subject to the supervision and regulation of the FRB and to most banking laws, regulations and orders that apply to Bank of America and PNC. The supervision and regulation of Bank of America, PNC and their subsidiaries under applicable banking laws is intended primarily for the protection of their respective banking subsidiaries, their depositors, the deposit insurance funds of the Federal Deposit Insurance Corporation, and the banking system as a whole, rather than for the protection of stockholders, creditors or clients of Bank of America, PNC or BlackRock. Bank of America’s and PNC’s relationships and good standing with their 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.

BlackRock generally may conduct only activities that are authorized for a "financial holding company" under the BHC Act. Investment management is an authorized activity, but must be conducted within applicable regulatory requirements, which in some cases are more restrictive than those BlackRock faces under applicable securities laws. 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. There are limits on the ability of bank subsidiaries of Bank of America and PNC to extend credit to or conduct other transactions with BlackRock. Bank of America, PNC and their subsidiaries are also subject to examination by various banking regulators, which results in examination reports and ratings that may adversely 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 BlackRock’s business. The FRB may also impose substantial fines and other penalties for violations of applicable banking laws, regulations and orders.

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

Non-U.S. Regulation

BlackRock’s international operations are subject to the laws and regulations of non-U.S. jurisdictions and non-U.S. regulatory agencies and bodies. As BlackRock continues to expand 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.

Item 1.

BUSINESS (continued)

Regulation (continued)

Non-U.S. Regulation (continued)

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 resources requirements, 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 and branches, must comply with the pan-European regime established by the Markets in Financial Instruments Directive (“MiFID”), which came into effect on November 1, 2007 and regulates the provision of investment services throughout the European Economic Area, as well as the Capital Requirements Directive, which delineates regulatory capital requirements. MiFID replaced and expanded upon the Investment Services Directive (the “ISD”), which had been in place since 1995. MiFID sets out more detailed requirements governing the organization and conduct of business of investment firms and regulated markets. It also includes new pre- and post-trade transparency requirements for equity markets and more extensive transaction reporting requirements.

MiFID seeks to further harmonize the provision of financial services across Europe by implementing requirements for key areas such as senior management systems and controls. MiFID also attempts to clarify jurisdictional uncertainties that arose under the ISD to facilitate cross border services. The United Kingdom has adopted the MiFID rules into national legislation. However, the introduction of further new regulations that will apply to BlackRock’s European activities remains possible.

In addition to the FSA, the activities of certain BlackRock subsidiaries and investment funds are regulated by, among other regulators, the Irish Financial Regulator, the Cayman Islands Monetary Authority, the Commission de Surveillance du Secteur Financier in Luxembourg and the Financial Services Commission in Jersey. Regulators in these jurisdictions have authority with respect to financial services including, among other things, the authority to grant or cancel required licenses or registrations. In addition, these regulators may also subject certain BlackRock subsidiaries to net capital requirements.

In Japan, certain BlackRock subsidiaries are subject to the Financial Instruments and Exchange Law (the “FIEL”) and the Law Concerning Investment Trusts and Investment Corporations. These laws are administered and enforced by the Japanese Financial Services Agency (the “JFSA”), which establishes standards for compliance, 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 registrations and licenses granted under the FIEL.

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”) and the Australian Prudential Regulatory Authority (the “APRA”). The ASIC regulates companies and financial services in Australia and is responsible for promoting investor, creditor and consumer protection. The APRA is the prudential regulator of the Australian financial services industry and oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies and most members of the superannuation (pension) industry. Failure to comply with applicable law and regulations could result in the cancellation, suspension or variation of this subsidiary’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 Hong Kong, India, South Korea, Singapore, Taiwan and The Netherlands.

Item 1.

BUSINESS (continued)

Regulation (continued)

Changes in Regulation

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.

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, proxy statements and all amendments to those filings, 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, proxy statements and all amendments to those filings 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., 55 East 52nd Street, New York, New York 10055. 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 identify, measure, monitor, manage and analyze market and operating risks, BlackRock’s business, financial condition, operating results or non-operating results could be materially adversely affected, however, by any of the following risks.

Risks Related to BlackRock’s Business and Competition

Changes in the value levels of the capital markets or other asset classes could lead to a decline in revenues and earnings.

BlackRock’s investment management revenues are primarily 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 earned on AUM. Movements in equity market prices, interest rates, foreign exchange rates, or all three could cause the following, which would result in lower investment advisory and administration fees or earnings:

•

the value of AUM to decrease;

•

the returns realized on AUM to decrease;

•

clients to withdraw funds in favor of products in markets that they perceive offer greater opportunity and that BlackRock does not serve;

•

clients to rebalance assets away from products that BlackRock manages into products that it does not manage;

•

clients to rebalance assets away from products that earn higher fees into products with lower fees; and;

•

an impairment to the value of intangible assets and goodwill.

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

The Company’s management believes that investment performance is one of the most important factors for the growth and retention of AUM. Poor investment performance relative to applicable portfolio benchmarks or to competitors could reduce revenues and cause earnings to decline as a result of:

•

existing clients withdrawing funds in favor of better performing products, which could result in lower investment advisory and administration fees;

•

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

•

the Company earning minimal or no performance fees; and

•

an impairment to the value of intangible assets and goodwill.

BlackRock may elect to invest in or provide other support to its products from time to time.

BlackRock may, at its option, from time to time support investment products through seed investments, co-investments or follow-on investments, warehouse lending facilities or other forms of capital or credit support. See, for example, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Such investments or support utilize capital that would otherwise be available for other corporate purposes. Losses on such investments or support, or failure to have or devote sufficient capital to support products, could have an adverse impact on revenues and earnings.

Changes in the value levels of the capital markets or other asset classes could lead to a decline in the value of investments that BlackRock owns.

At December 31, 2008, BlackRock held approximately $1.4 billion of investments that are reflected on its statement of financial condition. Approximately $0.7 billion of this amount is the result of consolidation of certain sponsored investment funds. BlackRock’s economic interest in these investments is primarily the result of seed and co-investments in its sponsored investment funds. A decline in the prices of stocks or bonds, or the value of real estate or other alternative investments within or outside the United States could lower the value of these investments and result in a decline of non-operating income and increased volatility to earnings.

Item 1A.

RISK FACTORS (continued)

Continued capital losses on investments could have adverse income tax consequences.

The Company may generate realized and unrealized capital losses on seed investments and co-investments. Realized capital losses may be carried back three years and carried forward five years and offset against realized capital gains for federal income tax purposes. The Company has unrealized capital losses for which a deferred tax asset has been established. In the event such unrealized losses are realized, the Company may not be able to offset such losses within the carryback or carryforward period or from future realized capital gains, in which case the deferred tax asset will not be utilized. The failure to utilize the deferred tax asset could materially increase BlackRock’s income tax expense.

The soundness of other financial institutions could adversely affect BlackRock.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. BlackRock, and the products and accounts that it manages, have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose BlackRock or the funds and accounts that it manages to credit risk in the event of default of its counterparty or client. There is no assurance that any such losses would not materially and adversely impact BlackRock’s revenues and earnings.

The failure or negative performance of products of other financial institutions could lead to reduced AUM in similar products of BlackRock without regard to the performance of BlackRock’s products.

The failure or negative performance of products of other financial institutions could lead to a loss of confidence in similar products of BlackRock without regard to the performance of BlackRock’s products. Such a negative contagion could lead to withdrawals, redemptions and liquidity issues in such products and have a material adverse impact on our AUM, revenues and earnings.

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. There can be no assurance that the Company will be successful in its efforts to recruit and retain required personnel. Loss 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 and the liquidation of certain funds may be accelerated at the option of investors.

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 or significant AUM 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 managed by the Company 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.

Further, the governing agreements of many of the Company’s private investment funds generally provide that, subject to certain conditions, investors in those funds, and in some cases independent directors of those funds, may remove the investment adviser, general partner or the equivalent of the fund or liquidate the fund without cause by a simple majority vote, resulting in a reduction in the management or performance fees as well as the total carried interest BlackRock could earn.

Item 1A.

RISK FACTORS (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 in its clients seeking to recover losses, withdrawing their AUM or terminating their contracts, any of which could cause the Company’s revenues and earnings 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 is derived from performance fees on investment and risk management advisory assignments. In most cases, performance fees are based on relative or absolute 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 and the timing of revenue recognition, causing earnings to be more volatile. The volatility in earnings may decrease BlackRock’s stock price. Performance fees represented $177 million, or 3%, of total revenue for the year ended December 31, 2008.

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 and Quellos Transactions. 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 BlackRock’s productivity and growth.

The Company’s infrastructure, including its technological capacity, data centers, backup facilities and office space, is vital to the competitiveness of its business. The failure to maintain an adequate infrastructure commensurate with the size and scope of its business, including any expansion, could impede the Company’s productivity and growth, which could cause the Company’s earnings or stock price to decline.

Item 1A.

RISK FACTORS (continued)

Operating in international markets increases BlackRock’s operational, regulatory and other risks.

As a result of BlackRock’s extensive international business activities, the Company faces increased operational, regulatory, reputational 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 activities, 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 its investment advisory and 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 Quellos business creates numerous risks and uncertainties that could adversely affect profitability.

The Quellos 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 transaction;

•

difficulties in the integration of operations and systems;

•

difficulties in the assimilation of employees;

•

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 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.

Item 1A.

RISK FACTORS (continued)

Risks Related to Relationships with Bank of America, Merrill Lynch and PNC

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

Under a global distribution agreement entered into with Merrill Lynch, Merrill Lynch provides distribution, 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. 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 BlackRock’s revenue 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, or any successor group at Bank of America, 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 Bank of America/Merrill Lynch and PNC maintain certain levels of stock ownership, Bank of America/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 Bank of America/Merrill Lynch and PNC.

As a result of stockholder agreements entered into with PNC and Merrill Lynch, together with the Company’s ownership structure, stockholders may have no effective power to influence corporate actions. At February 27, 2009, Merrill Lynch owned approximately 4.9% of BlackRock’s voting common stock and approximately 47.4% of its total capital stock on a fully-diluted basis, and PNC owned approximately 46.5% of BlackRock’s outstanding voting common stock and approximately 31.5% of its total capital stock on a fully-diluted basis.

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 has the effect of concentrating control over BlackRock in its Board of Directors, whether or not stockholders agree with any particular determination of the Board.

Item 1A.

RISK FACTORS (continued)

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.

BlackRock may be adversely impacted by legal and regulatory changes in the United States and internationally.

Recent market disruptions have led to numerous proposals in the United States and internationally for changes in the regulation of the financial services industry. New laws or regulations, or changes in enforcement of existing laws or regulations, could impact the scope or profitability of BlackRock’s business activities, could require BlackRock to change certain business practices and could expose BlackRock to additional costs (including compliance and tax costs) as well as reputational harm. Regulatory changes could also lead to business disruptions, could impact the value of assets in which BlackRock has invested directly and on behalf of clients, and, to the extent the regulations strictly control the activities of financial services firms, could make it more difficult for BlackRock to conduct certain businesses or to distinguish itself from competitors.

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

Certain BlackRock subsidiaries are registered with the SEC under the Advisers Act and BlackRock’s U.S. mutual funds are registered with the SEC under the Investment Company Act. The 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 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.

Certain BlackRock subsidiaries are subject to 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 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.

Item 1A.

RISK FACTORS (continued)

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

Because the total equity ownership interest of each of Bank of America and PNC in BlackRock exceeds 25%, BlackRock is deemed to be a non-bank subsidiary of each of Bank of America and PNC, which are both financial holding companies under the Bank Holding Company Act of 1956, as amended. As a non-bank subsidiary of Bank of America and PNC, BlackRock is subject to banking regulation, including the supervision and regulation of the FRB. Such banking regulation limits the activities and the types of businesses that BlackRock may conduct. 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 BlackRock’s business, and to impose substantial fines and other penalties for violations. Any failure of either Bank of America or PNC to maintain its status as a financial holding company could result in substantial limitations on certain BlackRock activities and its growth. In addition, being subject to banking regulation may put BlackRock at a competitive disadvantage because most of its competitors are not subject to these limitations.

Failure to comply with laws and regulations in the United Kingdom, the European Union, Japan, Australia and other non-U.S. jurisdictions in which BlackRock operates could result in substantial harm to BlackRock’s reputation and results of operations.

In addition, these subsidiaries, and other European subsidiaries or branches, must comply with the pan-European regime established by the Markets in Financial Instruments Directive, which regulates the provision of investment services throughout the European Economic Area, as well as the Capital Requirements Directive, which delineates regulatory capital requirements.

There are parallel legal and regulatory arrangements in force in many other non-U.S. jurisdictions where BlackRock’s subsidiaries conduct business or where the funds and products it manages are organized, including the Cayman Islands, Hong Kong, India, Ireland, Jersey, Luxembourg, South Korea, Singapore, Taiwan and The Netherlands. Failure to comply with laws and regulations in any of these jurisdictions could result in substantial harm to BlackRock’s reputation and results of operation.

Item 1A.

RISK FACTORS (continued)

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 and certain of its subsidiaries have been named as defendants in various legal actions, including arbitrations, class actions and other litigation arising in connection with BlackRock’s activities. From time to time, BlackRock receives subpoenas or other requests for information from various U.S. federal, state governmental and regulatory authorities in connection with certain industry-wide or other investigations or proceedings. 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.

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 Exchange Act of 1934.

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 Boston, Chicago, Edinburgh, Florham Park (New Jersey), Hong Kong, London, Melbourne, Munich, Plainsboro (New Jersey), San Francisco, Seattle, Singapore, and Tokyo. The Company also owns an 84,500 square foot office building in Wilmington (Delaware).

Item 3.

LEGAL PROCEEDINGS

From time to time, BlackRock receives subpoenas or other requests for information from various U.S. federal, state governmental and regulatory authorities in connection with certain industry-wide or other investigations or proceedings. It is BlackRock’s policy to fully cooperate with such inquiries. The Company and certain of its subsidiaries have been named as defendants in various legal actions, including arbitrations and other litigation 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.

Management, after consultation with legal counsel, currently does not anticipate that the aggregate liability, if any, arising out of 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, 2008.

Part II

Item 5.

MARKET FOR 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, 2009, there were 504 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 prices for the common stock and dividends declared per share for the common stock as reported on the NYSE:


	Common Stock Price Ranges
	High		Low		Closing Price		Dividend Declared
2008
First Quarter	$	231.99	$	165.72	$	204.18	$	0.78
Second Quarter	$	227.51	$	171.86	$	177.00	$	0.78
Third Quarter	$	249.37	$	156.20	$	194.50	$	0.78
Fourth Quarter	$	195.00	$	94.78	$	134.15	$	0.78

2007
First Quarter	$	180.30	$	151.32	$	156.31	$	0.67
Second Quarter	$	162.83	$	143.69	$	156.59	$	0.67
Third Quarter	$	179.97	$	139.20	$	173.41	$	0.67
Fourth Quarter	$	224.54	$	172.18	$	216.80	$	0.67

BlackRock’s closing common stock price as of February 27, 2009 was $96.81.

Dividends

On February 26, 2009, the Board of Directors approved BlackRock’s quarterly dividend of $0.78 to be paid on March 23, 2009 to stockholders of record on March 9, 2009.

Merrill Lynch and its affiliates and PNC and its affiliates receive dividends on the non-voting participating preferred stock that they hold equivalent to the dividends received by common stockholders.

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, 2008, the Company made the following purchases of its common stock, which is registered pursuant to Section 12(b) of the Exchange Act.


	Total Number of Shares Purchased ²	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, 2008 through October 31, 2008	9,467	$	194.60	—	751,400

November 1, 2008 through November 30, 2008	185	$	116.61	—	751,400

December 1, 2008 through December 31, 2008	1,069	$	134.67	—	751,400


Total	10,721	$	187.28	—

¹	On August 2, 2006, the Company announced a 2.1 million share repurchase program with no stated expiration date. An additional indeterminable number of shares may be repurchased under the 2002 Long-Term Retention and Incentive Plan (“2002 LTIP”).

²	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.

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 millions, except per share data)*	2008			2007		2006¹		2005²		2004
Income statement data:
Revenue
Investment advisory and administration fees	$	4,409		$	4,360	$	1,841	$	1,018	$	634
BlackRock Solutions and advisory		406			198		148		124		90
Distribution fees		139			123		36		11		—
Other revenue		110			164		73		38		1

Total revenue		5,064			4,845		2,098		1,191		725


Expenses
Employee compensation and benefits		1,815			1,767		934		588		386
Portfolio administration and servicing costs		597			548		173		64		50
Amortization of deferred mutual fund sales commissions		130			108		30		9		—
General and administration^3,4		745			870		451		181		123
Restructuring charges		38			—		—		—		—
Termination of closed-end fund administration and servicing arrangements		—			128		—		—		—
Amortization of intangible assets		146			130		38		8		1

Total expenses		3,471			3,551		1,626		850		560


Operating income		1,593			1,294		472		341		165


Total non-operating income (expense)		(574	)		529		56		35		35

Income before income taxes and non-controlling interests		1,019			1,823		528		376		200
Income tax expense		388			464		189		139		52

Income before non-controlling interests		631			1,359		339		237		148
Non-controlling interests		(155	)		364		16		3		5

Net income	$	786		$	995	$	323	$	234	$	143


Per share data^5:
Basic earnings	$	6.07		$	7.75	$	4.00	$	3.64	$	2.25
Diluted earnings	$	5.91		$	7.53	$	3.87	$	3.50	$	2.17
Book value⁶	$	92.89		$	90.13	$	83.57	$	14.41	$	12.07
Common and preferred cash dividends	$	3.12		$	2.68	$	1.68	$	1.20	$	1.00

Item 6.

SELECTED FINANCIAL DATA (continued)


	December 31,
*(Dollar amounts in millions)*	2008		2007		2006¹		2005²		2004
Balance sheet data:
Cash and cash equivalents	$	2,032	$	1,656	$	1,160	$	484	$	458
Investments	$	1,429	$	2,000	$	2,098	$	299	$	228
Goodwill and intangible assets, net	$	11,974	$	12,073	$	11,139	$	484	$	184
Total assets	$	19,924	$	22,561	$	20,470	$	1,848	$	1,145
Short-term borrowings	$	200	$	300	$	—	$	—	$	—
Long-term borrowings	$	946	$	947	$	253	$	254	$	5
Total liabilities	$	7,367	$	10,387	$	8,579	$	916	$	360
Non-controlling interests	$	491	$	578	$	1,109	$	10	$	17
Stockholders’ equity	$	12,066	$	11,596	$	10,782	$	922	$	768

	December 31,
*(Dollar amounts in millions)*	2008		2007		2006¹		2005²		2004
Assets under management:
Fixed income	$	483,173	$	513,020	$	448,012	$	303,928	$	240,709
Equity and balanced		280,821		459,182		392,708		37,303		14,792
Cash management		338,439		313,338		235,768		86,128		78,057
Alternative investment products		59,723		71,104		48,139		25,323		8,202

Sub Total		1,162,156		1,356,644		1,124,627		452,682		341,760
Advisory⁷		144,995		—		—		—		—

Total assets under management	$	1,307,151	$	1,356,644	$	1,124,627	$	452,682	$	341,760

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 partially due to the result of the closing of the SSR Transaction in January 2005.

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

⁴	Includes a $6 impairment of intangible assets in 2004 which represented 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 a common stock equivalent for purposes of earnings per share calculations.

⁶	At December 31 of the respective year-end.

⁷	Advisory AUM represents long-term portfolio liquidation assignments.

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 risk factors previously disclosed in BlackRock’s SEC reports and those identified elsewhere in 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 and volatility 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; (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, Bank of America, 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 or BlackRock; (12) the ability to attract and retain highly talented professionals; (13) fluctuations in the carrying value of BlackRock’s investments; (14) fluctuations in foreign currency exchange rates, which may adversely affect the value of investment advisory and administration fees earned by BlackRock or the carrying value of certain assets and liabilities denominated in foreign currencies; (15) the impact of changes to tax legislation and, generally, the tax position of the Company; (16) the ability of BlackRock to effectively manage the former Quellos business along with its historical operations; (17) BlackRock’s success in maintaining the distribution of its products; (18) the impact of BlackRock electing to provide support to its products from time to time; and (19) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions.

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 $1.307 trillion of assets under management (“AUM”) at December 31, 2008. BlackRock manages assets on behalf of institutional and individual investors worldwide through a variety of fixed income, cash management, equity and balanced and alternative investment separate accounts and funds. In addition, BlackRock Solutions^® provides market risk management, financial strategic advisory and enterprise investment system services to a broad base of clients. Financial markets advisory services include valuation of illiquid securities, dispositions and workouts, risk management and strategic planning and execution.

Severe market dislocations continued in 2008, with a broad range of markets delivering sharply negative returns. Such conditions continue to challenge investors worldwide, many of which have withdrawn from long-dated markets in favor of safe havens, such as money markets, deposits and U.S. Treasuries. The deterioration in net asset values adversely affected investors and investment managers. AUM ended the year at $1.307 trillion, down 4% since December 31, 2007. For the year, net new business totaled $167.6 billion, representing a 12% organic growth rate, which was overwhelmed by a $217.1 billion decline in asset values due to the severe fall in markets and U.S. dollar strengthening. During the last twelve months, we were awarded net inflows of $135.0 billion from U.S. investors and $32.6 billion from international investors. BlackRock Solutions had exceptionally robust results, adding 72 assignments during the year and completing 46 short-term mandates. For the year, BlackRock Solutions and advisory revenue exceeded $400 million, more than doubling the amount earned in 2007.

On September 29, 2006, Merrill Lynch & Co., Inc. (“Merrill Lynch”) contributed the entities and assets that constituted its investment management business, Merrill Lynch Investment Managers (“MLIM”), to BlackRock in exchange for common and non-voting preferred stock such that immediately after such closing Merrill Lynch held approximately 45% of BlackRock’s common stock outstanding and approximately 49.3% of the Company’s capital stock on a fully diluted basis (the “MLIM Transaction”). On October 1, 2007, BlackRock acquired certain assets and assumed certain liabilities of the fund of funds business of Quellos Group, LLC (“Quellos”) for up to $1.719 billion in a combination of cash and common stock (the “Quellos Transaction”).

At December 31, 2008, Merrill Lynch owned approximately 44.2% of BlackRock’s voting common stock outstanding and approximately 48.2% of the Company’s capital stock on a fully diluted basis. The PNC Financial Services Group, Inc. (“PNC”) owned approximately 36.5% of BlackRock’s voting common stock outstanding and approximately 32.1% of the Company’s capital stock on a fully diluted basis.

On January 1, 2009, Bank of America Corporation (“Bank of America”) acquired Merrill Lynch. In connection with this transaction, BlackRock entered into exchange agreements with each of Merrill Lynch and PNC pursuant to which each agreed to exchange a portion of the BlackRock voting common stock they hold for non-voting preferred stock. Following the closing of these exchanges on February 27, 2009, Bank of America/Merrill Lynch and PNC owned approximately 4.9% and 46.5% of BlackRock’s voting common stock, respectively. The capital stock held by Bank of America/Merrill Lynch and PNC in BlackRock remained largely unchanged at approximately 47.4% and 31.5% on a fully diluted basis, respectively.

Item 7.

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

Overview (continued)

The following table summarizes BlackRock’s operating performance for the years ended December 31, 2008, 2007 and 2006:

BlackRock, Inc.

Financial Highlights

(Dollar amounts in millions, except per share data)


	Year ended December 31,									Variance
	Year ended December 31,									2008 vs. 2007					2007 vs. 2006
	2008			2007			2006			Amount			%		Amount		%
GAAP basis:

Total revenue	$	5,064		$	4,845		$	2,098		$	219		5	%	$	2,747	131	%
Total expenses	$	3,471		$	3,551		$	1,626		$	(80	)	(2	)%	$	1,925	118	%
Operating income	$	1,593		$	1,294		$	472		$	299		23	%	$	822	174	%
Operating margin		31.4	%		26.7	%		22.5	%
Non-operating income (expense), net of non-controlling interests	$	(419	)	$	165		$	40		$	(584	)	(354	)%	$	125	313	%
Net income	$	786		$	995		$	323		$	(209	)	(21	)%	$	672	208	%
Diluted earnings per share ^(e)	$	5.91		$	7.53		$	3.87		$	(1.62	)	(22	)%	$	3.66	95	%

As adjusted:

Operating income ^(a)	$	1,662		$	1,518		$	674		$	144		9	%	$	844	125	%
Operating margin ^(a)		38.7	%		37.5	%		36.7	%
Non-operating income (expense), net of non-controlling interests ^(b)	$	(381	)	$	153		$	32		$	(534	)	(349	)%	$	121	378	%
Net income ^{(c), (d)}	$	858		$	1,079		$	445		$	(221	)	(20	)%	$	634	142	%
Diluted earnings per share ^{(c), (d), (e)}	$	6.45		$	8.17		$	5.33		$	(1.72	)	(21	)%	$	2.84	53	%

Other:
Weighted average diluted shares outstanding ^(e)		132,996,426			132,088,810			83,358,394			907,616		1	%		48,730,416	58	%
Assets under management	$	1,307,151		$	1,356,644		$	1,124,627		$	(49,493	)	(4	)%	$	232,017	21	%

Item 7.

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

Overview (continued)

BlackRock reports its financial results on a GAAP basis; however, management believes that evaluating the Company’s ongoing operating results may be enhanced if investors have additional non-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.

Certain prior period non-GAAP data has been reclassified to conform to the current presentation. Computations for all periods are derived from the Company’s consolidated statements of income as follows:

(a) Operating income, as adjusted and operating margin, as adjusted:

Operating income, as adjusted, equals operating income, GAAP basis, excluding certain items deemed non-recurring by management or transactions that ultimately will not impact BlackRock’s book value, as indicated in the table below. Operating income used for operating margin measurement equals operating income, as adjusted, excluding the impact of closed-end fund launch costs and commissions. Operating margin, as adjusted, equals operating income used for operating margin measurement, divided by revenue used for operating margin measurement, as indicated in the table below.


	Year ended
	2008			2007			2006
Operating income, GAAP basis	$	1,593		$	1,294		$	472
Non-GAAP adjustments:
Restructuring charges		38			—			—
PNC LTIP funding obligation		59			54			50
Merrill Lynch compensation contribution		10			10			2
MLIM/Quellos integration costs		—			20			142
Termination of closed-end fund administration and servicing arrangements		—			128			—
Compensation expense related to (depreciation) appreciation on deferred compensation plans		(38	)		12			8

Operating income, as adjusted		1,662			1,518			674
Closed-end fund launch costs		9			36			11
Closed-end fund launch commissions		—			6			3

Operating income used for operating margin measurement	$	1,671		$	1,560		$	688


Revenue, GAAP basis	$	5,064		$	4,845		$	2,098
Non-GAAP adjustments:
Portfolio administration and servicing costs		(598	)		(548	)		(173	)
Amortization of deferred mutual fund sales commissions		(130	)		(108	)		(30	)
Reimbursable property management compensation		(21	)		(27	)		(22	)

Revenue used for operating margin, as adjusted, measurement	$	4,315		$	4,162		$	1,873


Operating margin, GAAP basis		31.4	%		26.7	%		22.5	%

Operating margin, as adjusted		38.7	%		37.5	%		36.7	%

Item 7.

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

Overview (continued)

BlackRock, Inc.

Financial Highlights

(continued)

(a) (continued)

Management believes that operating income, as adjusted, and operating margin, as adjusted, are effective indicators of BlackRock’s performance over time. As such, management believes that operating income, as adjusted, and operating margin, as adjusted, provide useful disclosure to investors.

Operating income, as adjusted:

Restructuring charges recorded in 2008 consist of compensation costs and professional fees. MLIM and Quellos integration costs recorded in 2007 consist principally of certain professional fees, rebranding costs and compensation costs incurred in conjunction with these integrations. The expenses associated with: (i) the 2008 restructuring, (ii) MLIM and Quellos integration costs and (iii) the 2007 termination of the closed-end fund administration and servicing arrangements with Merrill Lynch 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. As such, management believes that operating margins exclusive of these costs are useful measures in evaluating BlackRock’s operating performance for the respective periods.

The portion of compensation expense associated with certain long-term incentive plans (“LTIP”) that will be funded through the distribution to participants of shares of BlackRock stock held by PNC and the anticipated Merrill Lynch compensation contribution have been excluded because, exclusive of the impact related to the exercise of LTIP participants’ put options, primarily in the three months ended March 31, 2007, these charges do not impact BlackRock’s book value.

Compensation expense associated with appreciation (depreciation) on assets related to certain BlackRock deferred compensation plans has been excluded as returns on investments set aside for these plans, which substantially offset this expense, are reported in non-operating income.

Operating margin, as adjusted:

Revenue used for operating margin, as adjusted, excludes portfolio administration and servicing costs paid to related parties and to other third parties. Management believes that excluding such costs is useful because the Company receives offsetting revenue for these services. Amortization of deferred mutual fund sales commissions is excluded from revenue used for operating margin measurement, as adjusted, because such costs, over time, offset distribution fee revenue earned by the Company. Reimbursable property management compensation represents compensation and benefits paid to personnel of Metric Property Management, Inc. (“Metric”), a subsidiary of BlackRock Realty Advisors, Inc. (“Realty”). These employees were retained on Metric’s payroll when certain properties were acquired by Realty’s clients. The related compensation and benefits were fully reimbursed by Realty’s clients and have been excluded from revenue used for operating margin, as adjusted, because they bear no economic cost to BlackRock.

Item 7.

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

Overview (continued)

BlackRock, Inc.

Financial Highlights

(continued)

(b) Non-operating income (expense), net of non-controlling interests, as adjusted:


	Year ended December 31,
	2008			2007			2006
Non-operating income (expense), GAAP basis	$	(574	)	$	529		$	56
Non-controlling interests, GAAP basis		(155	)		364			16

Non-operating income (expense), net of non-controlling interests		(419	)		165			40
Compensation expense related to depreciation (appreciation) on deferred compensation plans		38			(12	)		(8	)

Non-operating income (expense), net of non-controlling interests, as adjusted	$	(381	)	$	153		$	32

Item 7.

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

Overview (continued)

BlackRock, Inc.

Financial Highlights

(continued)

Management believes that net income, as adjusted, and diluted earnings per share, as adjusted, are useful measures of BlackRock’s profitability and financial performance. Net income, as adjusted, equals net income, GAAP basis, adjusted for significant non-recurring items as well as charges that ultimately will not impact BlackRock’s book value.


	Year ended December 31,
	2008		2007			2006
Net income, GAAP basis	$	786	$	995		$	323
Non-GAAP adjustments, net of tax: ^(d)
Restructuring charges		26		—			—
PNC’s LTIP funding obligation		39		34			32
Merrill Lynch compensation contribution		7		6			1
MLIM/Quellos integration costs		—		13			89
Termination of closed-end fund administration and servicing arrangements		—		82			—
Corporate deferred income tax rate changes		—		(51	)		—

Net income, as adjusted	$	858	$	1,079		$	445


Diluted weighted average shares outstanding ^(e)		132,996,426		132,088,810			83,358,394


Diluted earnings per share, GAAP basis^(e)	$	5.91	$	7.53		$	3.87

Diluted earnings per share, as adjusted ^(e)	$	6.45	$	8.17		$	5.33

The restructuring charges and the MLIM and Quellos integration costs reflected in GAAP net income have been deemed non-recurring by management and have been excluded from net income, as adjusted, to help ensure the comparability of this information to prior reporting periods.

The portion of the compensation expense associated with LTIP awards that will be funded through the distribution to participants of shares of BlackRock stock held by PNC and the anticipated Merrill Lynch compensation contribution have been excluded from net income, as adjusted, because, exclusive of the impact related to the exercise of LTIP participants’ put options, primarily in the three months ended March 31, 2007, these charges do not impact BlackRock’s book value. The termination of the closed-end fund administration and servicing arrangements with Merrill Lynch has been excluded from net income, as adjusted, as the termination of the arrangements is deemed non-recurring by management.

During third quarter 2007, the United Kingdom and Germany enacted legislation reducing corporate income taxes, effective in April and January of 2008, respectively, which resulted in a revaluation of certain deferred tax liabilities. The resulting decrease in income taxes has been excluded from net income, as adjusted, as it is non-recurring and to ensure comparability to current reporting periods.

(d) For the year ended December 31, 2008, non-GAAP adjustments were tax effected at 33%, BlackRock’s 2008 effective tax rate. Non-GAAP adjustments, for the year ended December 31, 2007, were tax effected at 36%, which approximated BlackRock’s 2007 effective tax rate after adjusting primarily for the impact of the United Kingdom and Germany corporate income tax rate reductions.

(e) Series A non-voting participating preferred stock is considered to be a common stock equivalent for purposes of earnings per share calculations.

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, Hong Kong and Australia. The Company manages 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 for 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 Merrill Lynch International Investment Funds, the primary retail fund group offered outside the United States, were rebranded in April 2008 as the BlackRock Global Funds. The BlackRock Global Funds are authorized for distribution in more than 37 jurisdictions worldwide. In the United States, the primary retail offerings include various 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 establishing 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 its products and services through Merrill Lynch under a global distribution agreement, which, following Bank of America’s acquisition of Merrill Lynch, runs through January 2014. After such term, the agreement will renew for one automatic three-year extension if certain conditions are met. See Note 15, Related Party Transactions, to the consolidated financial statements beginning on page F-1 of this Form 10-K.

BlackRock derives a substantial portion of its revenue from investment advisory and administration base fees, which are recognized as the services are performed. Such fees are primarily based on pre-determined percentages of the market value of AUM, percentages of committed capital during investment periods of certain products, 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, based upon relative and/or absolute investment performance, in addition to base fees based on AUM. Investment advisory performance fees generally are earned after a given period of time or when investment performance exceeds certain contractual thresholds. As such, the timing of the recognition of performance fees may increase the volatility of BlackRock’s revenue and earnings.

BlackRock provides a variety of risk management, investment analytic, investment system and advisory 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, valuation services relating to illiquid securities, disposition and workout assignments (including long-term portfolio liquidation assignments), strategic planning and execution, and enterprise investment system outsourcing for clients. Fees earned for BlackRock Solutions and advisory services are determined using some, or all, of the following methods: (i) fixed fees, (ii) percentages of various attributes of advisory assets under management and (iii) performance fees if contractual thresholds are met.

Item 7.

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

Overview (continued)

Operating expenses reflect employee compensation and benefits, portfolio administration and servicing costs, amortization of deferred mutual fund sales commissions, general and administration expense and amortization of intangible assets. Employee compensation and benefits expense reflects salaries, deferred and incentive compensation, stock-based compensation and related benefit costs. Portfolio administration and servicing costs include payments made to Merrill Lynch-affiliated entities under the global distribution agreement and to PNC-affiliated entities, as well as to third parties, primarily associated with the administration and servicing of client investments in certain BlackRock products.

BlackRock holds investments primarily in sponsored investment products that invest in a variety of asset classes including real estate, private equity, and hedge funds. Investments generally are made to establish a performance track record, for co-investment purposes or to hedge exposure to certain deferred compensation plans. Non-operating income (expense) includes the impact of the change in the valuations of these investments.

Assets Under Management

AUM for reporting purposes is generally based upon how investment advisory and administration fees are calculated for each portfolio. Net asset values, total assets, committed assets or other measures may be used to determine portfolio AUM.

AUM decreased approximately $49 billion, or 4%, to $1.307 trillion at December 31, 2008, compared with $1.357 trillion at December 31, 2007. The decline in AUM was attributable to $189 billion in net market depreciation and $28 billion in net foreign exchange losses, partially offset by $168 billion in net subscriptions.

BlackRock, Inc.

Assets Under Management


	Year ended December 31,						Variance
	Year ended December 31,						Variance
*(Dollar amounts in millions)*	2008		2007		2006		2008 vs. 2007		2007 vs. 2006
Fixed income	$	483,173	$	513,020	$	448,012	(6	)%	15	%
Equity and balanced		280,821		459,182		392,708	(39	)%	17	%
Cash management		338,439		313,338		235,768	8	%	33	%
Alternative investment products		59,723		71,104		48,139	(16	)%	48	%

Sub Total		1,162,156		1,356,644		1,124,627	(14	)%	21	%
Advisory¹		144,995		—		—	NM		NM

Total	$	1,307,151	$	1,356,644	$	1,124,627	(4	)%	21	%

NM – Not Meaningful

Advisory AUM represents long-term portfolio liquidation assignments.

Item 7.

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

Assets Under Management (continued)

Market depreciation of $189 billion was primarily due to depreciation in equity and balanced AUM of $160 billion, as equity markets declined during the year ended December 31, 2008, depreciation on fixed income products of $17 billion and alternative investment products of $13 billion. The $28 billion reduction in AUM from foreign exchange was across all asset classes due to the strengthening of the U.S. dollar which resulted in foreign exchange translation loss from converting non-dollar denominated AUM into U.S. dollars. Net subscriptions of $168 billion for the year ended December 31, 2008 were attributable to net new business of $145 billion in long-term advisory liquidation assignments, $26 billion in cash management products and $3 billion in alternative investment products, partially offset by $7 billion of net outflows in fixed income products.

The following table presents the component changes in BlackRock’s AUM for the years ended December 31, 2008, 2007 and 2006.

BlackRock, Inc.

Component Changes in Assets Under Management


	Year ended December 31,
	Year ended December 31,
*(Dollar amounts in millions)*	2008			2007			2006
Beginning assets under management	$	1,356,644		$	1,124,627		$	452,682
Net subscriptions		167,604			137,639			32,814
Acquisitions		—			21,868			589,158
Market appreciation (depreciation)		(188,950	)		60,132			42,196
Foreign exchange¹		(28,147	)		12,378			7,777

Total change		(49,493	)		232,017			671,945

Ending assets under management	$	1,307,151		$	1,356,644		$	1,124,627


Percent change in total change in AUM from net subscriptions and acquisitions		NM			69	%		93	%
Percent change in total AUM		(4	)%		21	%		148	%
Organic growth percentage		12	%		12	%		7	%

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

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 during 2008.


*(Dollar amounts in millions)*	December 31, 2007		Net subscriptions (redemptions)			Market appreciation (depreciation)			Foreign exchange¹			December 31, 2008
Fixed income	$	513,020	$	(6,594	)	$	(17,031	)	$	(6,222	)	$	483,173
Equity and balanced		459,182		869			(160,448	)		(18,782	)		280,821
Cash management		313,338		25,670			1,339			(1,908	)		338,439
Alternative investment products		71,104		2,903			(13,049	)		(1,235	)		59,723

Sub Total		1,356,644		22,848			(189,189	)		(28,147	)		1,162,156
Advisory²		—		144,756			239			—			144,995

Total	$	1,356,644	$	167,604		$	(188,950	)	$	(28,147	)	$	1,307,151

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

Advisory AUM represents long-term portfolio liquidation assignments.

Business Outlook

As fiscal 2009 began, domestic and international markets continued to reflect a difficult market environment due to a downturn in the global economy. Illiquid capital markets, lack of financing and forced deleveraging have resulted in extreme price declines across many asset classes. The U.S. housing market and credit markets continue to be ongoing concerns, and revelations of a massive alleged hedge fund fraud (in which none of BlackRock’s funds of funds were invested) have contributed to investors, industry-wide, seeking to redeem hedge fund and fund of funds holdings in record numbers.

The timing and direction of volatile markets, investment performance and new client asset flows will continue to impact the revenue the Company recognizes. The direction of markets, particularly real estate and private equity, will also affect the valuation of the assets on the Company’s balance sheet.

The Company notes that the global recession, declining asset values, the liquidity crunch and associated market disruption have impacted our business, including the value and mix of AUM and associated base fees. AUM and base fees may be affected by further market changes during the remainder of 2009.

•

The build-up of institutional liquidity assets experienced since the fourth quarter of 2007 may be temporary, as these assets are expected to be redeployed to longer-dated strategies as market conditions stabilize. The Company’s strategic focus on performance, globalization and product diversification, client service and independent advice may enable it to retain a portion of these assets.

Item 7.

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

Business Outlook (continued)

•

The liquidity crunch and associated market disruption have given rise to greater demand for our advisory services, marrying our extensive capital markets and structuring expertise with rigorous modeling and analytical capabilities. While we anticipate demand for these services to remain high through the volatile markets, demand may return to historical levels should market concerns ease. A meaningful percentage of BlackRock Solutions and advisory revenues in 2008 was composed of one-time advisory and portfolio structuring fees. Because this type of revenue is non-recurring, it is dependent on new assignments which may or may not continue, particularly at the same pace.

•

Alternative investment products with performance fee hurdles based on absolute performance measures and high water marks may not contribute performance fee revenue at levels that the Company has earned in prior periods.

•

The value of the Company’s co-investments in alternative products may continue to decline as the underlying value in certain assets classes, particularly real estate and private equity, continue to decline.

•

In early 2009, returns on many major equity indices have continued to decline from year-end 2008, which may impact the Company’s revenue in future periods.

•

The Company will continue to assess the appropriateness of its cost structure relative to the external environment. The Company may decide to take additional measures to reduce costs. While any measure would be expected to lower the cost base over time, certain measures may or may not have upfront implementation costs.

•

Given the severity of the market-driven revenue impacts mentioned above, the operating margins of the Company would be expected to decline, even in the face of cost saving measures.

•

There may be certain circumstances in which the Company may consider temporarily waiving fees on certain products. If these circumstances were to occur and fee waivers were to be granted, the revenues of the Company would be adversely affected.

•

The effective tax rate of the Company is affected, among other things, by the geographic distribution of earnings and global changes in tax legislation. The effective tax rate may vary from period to period as a result of these factors.

Item 7.

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

Operating results for the year ended December 31, 2008, as compared with the year ended December 31, 2007

Revenue


	Year ended December 31,				Variance
*(Dollar amounts in millions)*	2008		2007		Amount			%
Investment advisory and administration fees:
Fixed income	$	892	$	901	$	(9	)	(1	)%
Equity and balanced		2,101		2,218		(117	)	(5	)%
Cash management		708		520		188		36	%
Alternative investment products		531		371		160		43	%

Investment advisory and administration base fees		4,232		4,010		222		6	%
Fixed income		4		4		—		0	%
Equity and balanced		95		107		(12	)	(11	)%
Alternative investment products		78		239		(161	)	(67	)%

Investment advisory performance fees		177		350		(173	)	(49	)%

Total investment advisory and administration fees		4,409		4,360		49		1	%

BlackRock Solutions and advisory		406		198		208		105	%
Distribution fees		139		123		16		13	%
Other revenue		110		164		(54	)	(32	)%

Total revenue	$	5,064	$	4,845	$	219		5	%

Total revenue for the year ended December 31, 2008 increased $219 million, or 5%, to $5,064 million, compared with $4,845 million for the year ended December 31, 2007. The $219 million increase was primarily the result of a $208 million increase in BlackRock Solutions and advisory revenue and a $49 million increase in total investment advisory and administration fees, partially offset by a $54 million decrease in other revenue.

Investment Advisory and Administration Fees

The increase in investment advisory and administration fees of $49 million, or 1%, was the result of an increase in investment advisory and administration base fees of $222 million, or 6%, to $4,232 million for the year ended December 31, 2008, compared with $4,010 million for the year ended December 31, 2007, partially offset by a decrease of $173 million in investment advisory performance fees.

The increase in investment advisory and administration base fees of $222 million for the year ended December 31, 2008, compared with the year ended December 31, 2007, consisted of increases in base fees of $188 million in cash management products and $160 million in alternative investment products, partially offset by decreases of $117 million in equity and balanced products and $9 million in fixed income products. Investment advisory and administration base fees increased for the year ended December 31, 2008 primarily as a result of increased average AUM in 2008 compared to 2007 for cash management products due to net subscriptions and alternative investment products due to the full year impact of the Quellos Transaction, offset by lower fees in equity and balanced products due to the impact of market depreciation on AUM.

Item 7.

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

Operating results for the year ended December 31, 2008, as compared with the year ended December 31, 2007 (continued)

Revenue (continued)

Investment Advisory and Administration Fees (continued)

Investment advisory performance fees decreased by $173 million, or 49%, to $177 million for the year ended December 31, 2008, as compared to $350 million for the year ended December 31, 2007 primarily as a result of lower investment advisory performance fees earned on other alternative investment products, including real estate funds, fixed income hedge funds and international equity products.

BlackRock Solutions and Advisory

BlackRock Solutions and advisory revenue of $406 million for the year ended December 31, 2008 increased $208 million, or 105%, compared with the year ended December 31, 2007. The increase in BlackRock Solutions and advisory revenue was primarily the result of additional advisory assignments and Aladdin^® assignments during the period. A portion of the revenue earned on advisory assignments was comprised of one-time advisory and portfolio structuring fees and ongoing fees based on AUM of the respective portfolio assignments.

Distribution Fees

Distribution fees increased by $16 million to $139 million for the year ended December 31, 2008, as compared to $123 million for the year ended December 31, 2007. The increase in distribution fees is primarily due to the full-year impact of the acquisition of distribution financing arrangements from PNC in second quarter 2007, which resulted in the Company receiving distribution fees from such arrangements, as well as an increase in contingent deferred sales commissions as a result of redemptions in certain share classes of open-ended funds.

Other Revenue

Other revenue of $110 million for the year ended December 31, 2008 decreased $54 million, or 32%, compared with the year ended December 31, 2007. Other revenue represents property management fees of $31 million earned on real estate products (primarily related to reimbursement of salaries and benefits of certain Metric employees from certain real estate products), $25 million of net interest related to securities lending, $23 million of unit trust sales commissions and $31 million of other revenue, including fund accounting services.

The decrease in other revenue of $54 million for the year ended December 31, 2008, as compared to the year ended December 31, 2007, was primarily the result of a decrease in fees earned for fund accounting services of $16 million, a $14 million decline in other advisory service fees earned in 2007, a $12 million decline in unit trust sales commissions and a $7 million decline in property management fees primarily related to the termination in the fourth quarter of 2008 of certain Metric contracts with BlackRock real estate clients. Certain Metric employees have been transferred to a third party, which will provide to real estate clients the property management services formerly provided by Metric. At December 31, 2008, Metric had no remaining employees.

Item 7.

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

Operating results for the year ended December 31, 2008, as compared with the year ended December 31, 2007 (continued)

Expenses


	Year ended December 31,				Variance
*(Dollar amounts in millions)*	2008		2007		Amount			%
Expenses:
Employee compensation and benefits	$	1,815	$	1,767	$	48		3	%
Portfolio administration and servicing costs		597		548		49		9	%
Amortization of deferred mutual fund sales commissions		130		108		22		20	%
General and administration		745		870		(125	)	(14	)%
Restructuring charges		38		—		38		NM
Termination of closed-end fund administration and servicing arrangements		—		128		(128	)	(100	)%
Amortization of intangible assets		146		130		16		12	%

Total expenses	$	3,471	$	3,551	$	(80	)	(2	)%

NM – Not Meaningful

Total expenses decreased $80 million, or 2%, to $3,471 million for the year ended December 31, 2008, compared with $3,551 million for the year ended December 31, 2007. The decrease was attributable to a one-time expense of $128 million related to the termination of certain closed-end fund administration and servicing arrangements in 2007 and a $125 million decrease in general and administration expenses, partially offset by increases in portfolio administration and servicing costs, employee compensation and benefits, restructuring charges, amortization of deferred mutual fund sales commissions, and amortization of intangible assets. The year ended December 31, 2007, included $20 million of MLIM and Quellos integration costs, which were primarily recorded in general and administration expense.

Employee Compensation and Benefits

Employee compensation and benefits expense increased $48 million, or 3%, to $1,815 million at December 31, 2008, compared to $1,767 million for the year ended December 31, 2007. The increase in employee compensation and benefits expense was primarily attributable to a $91 million increase in salaries and benefits offset by a $38 million decrease in deferred compensation which is primarily linked to depreciation on assets related to certain deferred compensation plans. The increase of $91 million in salaries and benefits was primarily due to an increase in headcount throughout the majority of 2007 and 2008 (including the impact associated with the fund of funds acquisition in 2007). Full time employees at December 31, 2008 totaled 5,341 (including the impact of a reduction in force in the fourth quarter) as compared to 5,952 (including Metric) at December 31, 2007. The decline in deferred compensation of $38 million is substantially offset by the change in valuations of investments set aside for these plans, which are included in non-operating income (expense).

Item 7.

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

Operating results for the year ended December 31, 2008, as compared with the year ended December 31, 2007 (continued)

Expenses (continued)

Portfolio Administration and Servicing Costs

Portfolio administration and servicing costs increased $49 million, or 9%, to $597 million during the year ended December 31, 2008, compared to $548 million for the year ended December 31, 2007. These costs include payments to Merrill Lynch under the global distribution agreement, and payments to PNC as well as other third parties, primarily associated with the administration and servicing of client investments in certain BlackRock products. The $49 million increase related primarily to higher levels of average AUM in cash management products.

Portfolio administration and servicing costs for the year ended December 31, 2008 included $464 million of costs attributable to Merrill Lynch and affiliates and $30 million of costs attributable to PNC and affiliates as compared to $444 million and $28 million, respectively, in the year ended December 31, 2007. The increased costs attributable to Merrill Lynch is offset by approximately $10 million expense reduction associated with the 2007 termination of closed-end fund administration and servicing arrangements. Portfolio administration and servicing costs related to other non-related third parties increased $30 million as a result of an expansion of distribution platforms.

Amortization of Deferred Mutual Fund Sales Commissions

Amortization of deferred mutual fund sales commissions increased by $22 million to $130 million for the year ended December 31, 2008, as compared to $108 million for the year ended December 31, 2007. The increase in amortization of deferred mutual fund sales commissions was primarily the result of the acquisition of distribution financing arrangements from PNC in second quarter 2007 as well as higher sales and redemptions in certain share classes of open-ended funds.

General and Administration Expense


*(Dollar amounts in millions)*	Year ended December 31,				Variance
*(Dollar amounts in millions)*	2008		2007		Amount			%
General and administration expense:
Portfolio services	$	171	$	170	$	1		1	%
Marketing and promotional		156		169		(13	)	(8	)%
Occupancy		138		130		8		6	%
Technology		116		118		(2	)	(1	)%
Professional services		77		94		(17	)	(18	)%
Closed-end fund launch costs		9		36		(27	)	(74	)%
Other general and administration		78		153		(75	)	(50	)%

Total general and administration expense	$	745	$	870	$	(125	)	(14	)%

Item 7.

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

Operating results for the year ended December 31, 2008, as compared with the year ended December 31, 2007 (continued)

Expenses (continued)

General and administration expenses decreased $125 million, or 14%, for the year ended December 31, 2008 compared with the year ended December 31, 2007. Other general and administration costs decreased $75 million, or 50%, to $78 million from $153 million, primarily related to a $49 million decrease in foreign currency remeasurement costs and $26 million decrease in costs associated with the support of two enhanced cash funds. Closed-end funds launch costs decreased $27 million as compared to the year ended December 31, 2007 due to three closed-end funds launched during the year ended December 31, 2007, which generated approximately $3.0 billion in AUM as compared to two closed-end funds launched in the year ended December 31, 2008, which generated approximately $400 million in AUM. Professional services decreased $17 million, or 18%, to $77 million compared to $94 million for the year ended December 31, 2007 primarily due to decreases in accounting, tax and other consulting costs related to the MLIM integration in 2007. Marketing and promotional expenses decreased $13 million, or 8%, primarily due to a decline in travel and promotional expenses. The decrease was partially offset by an $8 million, or 6%, increase in occupancy expenses to $138 million compared to $130 million for the year ended December 31, 2007 as a result of expansion of offices worldwide (including the full-year impact of the Quellos Transaction).

Restructuring Charges

For the year ended December 31, 2008, BlackRock recorded pre-tax restructuring charges of $38 million, primarily related to severance, outplacement costs and accelerated amortization of certain previously granted stock awards associated with a 9% reduction in work force. See Restructuring charges discussion in Note 18 to the consolidated financial statements beginning on page F-1 of this Form 10-K.

Termination of Closed-end Fund Administration and Servicing Arrangements

For the year ended December 31, 2007, BlackRock recorded a one-time expense of $128 million related to the termination of administration and servicing arrangements with Merrill Lynch on 40 closed-end funds with original terms of 30-40 years.

Amortization of Intangible Assets

The $16 million increase in the amortization of intangible assets to $146 million for the year ended December 31, 2008, compared to $130 million for the year ended December 31, 2007, primarily reflects the full-year impact of the amortization of finite-lived intangible assets acquired in the Quellos Transaction.

Item 7.

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

Operating results for the year ended December 31, 2008, as compared with the year ended December 31, 2007 (continued)

Non-Operating Income (Expense), Net of Non-Controlling Interests

Non-operating income (expense), net of non-controlling interests, for the years ended December 31, 2008 and 2007 was as follows:


*(Dollar amounts in millions)*	Year ended December 31,					Variance
*(Dollar amounts in millions)*	2008			2007		Amount			%
Total non-operating income (expense)	$	(574	)	$	529	$	(1,103	)	(208	)%
Non-controlling interests		(155	)		364		(519	)	143	%

Total non-operating income (expense), net of non-controlling interests	$	(419	)	$	165	$	(584	)	(353	)%

The components of non-operating income (expense), net of non-controlling interests, for the years ended December 31, 2008 and 2007 were as follows:


*(Dollar amounts in millions)*	Year ended December 31,						Variance
*(Dollar amounts in millions)*	2008			2007			Amount			%
Non-operating income (expense), net of non-controlling interests:
Net gain (loss) on investments, net of non-controlling interests:
Private equity	$	(28	)	$	65		$	(93	)	(144	)%
Real estate		(127	)		34			(161	)	(475	)%
Hedge funds/funds of hedge funds		(194	)		23			(217	)	NM
Investments related to deferred compensation plans		(38	)		12			(50	)	(419	)%
Other investments¹		(30	)		8			(38	)	(441	)%

Total net gain (loss) on investments, net of non-controlling interests		(417	)		142			(559	)	(393	)%
Interest and dividend income		65			74			(9	)	(13	)%
Interest expense		(66	)		(49	)		(17	)	33	%
Other non-controlling interest²		(1	)		(2	)		1		67	%

Total non-operating income (expense), net of non-controlling interests		(419	)		165			(584	)	(353	)%
Compensation expense related to depreciation (appreciation) on deferred compensation plans		38			(12	)		50		419	%

Non-operating income (expense), net of non-controlling interests, as adjusted	$	(381	)	$	153		$	(534	)	(348	)%

NM – Not Meaningful

¹	Includes net gains/(losses) related to equity and fixed income investments, collateralized debt obligations (“CDOs”) and BlackRock’s seed capital hedging program.

²	Includes non-controlling interest related to operating entities (non-investment activities).

Item 7.

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

Operating results for the year ended December 31, 2008, as compared with the year ended December 31, 2007 (continued)

Non-Operating Income (Expense), Net of Non-Controlling Interests (continued)

Non-operating income, net of non-controlling interests, decreased $584 million to $419 million of expense for the year ended December 31, 2008, as compared to non-operating income, net of non-controlling interests of $165 million for the year ended December 31, 2007. The decrease in net non-operating income primarily reflects declines in valuations from seed investments and co-investments in real estate funds, private equity and hedge funds/funds of hedge funds (which includes the impact of a $141 million decline in valuations of distressed credit products) and a $50 million decline in valuations of investments associated with certain deferred compensation plans. In addition, net interest expense increased $26 million primarily related to incremental interest expense related to the full year impact of the issuance of long-term debt in September 2007.

Income Taxes

Income tax expense was $388 million and $464 million for the years ended December 31, 2008 and 2007, respectively. The effective income tax rate for the year ended December 31, 2008 was 33.0%, as compared to 31.8% for the year ended December 31, 2007. The increase in the effective income tax rate was primarily the result of a one-time tax benefit of $51 million recognized in 2007 due to tax legislation changes enacted in the third quarter 2007 in the United Kingdom and Germany, which resulted in a revaluation of certain deferred tax liabilities. Accordingly, BlackRock revalued its deferred tax liabilities in these jurisdictions. Excluding this deferred income tax benefit, the 2007 adjusted effective tax rate was 35.3%. The effective income tax rate for the year ended December 31, 2008 declined as compared to the 2007 adjusted effective tax rate, primarily as a result of the impact of foreign taxes.

Operating Income and Operating Margin

GAAP

Operating income totaled $1,593 million for the year ended December 31, 2008, which was an increase of $299 million compared to the year ended December 31, 2007. The Company’s operating margin was 31.4% for the year ended December 31, 2008, compared to 26.7% for the year ended December 31, 2007. Operating income and operating margin for the year ended December 31, 2008 included the impact of a $50 million foreign currency remeasurement benefit and a $38 million deferred compensation benefit due to depreciation on assets related to certain deferred compensation plans, offset by $38 million of restructuring charges. Operating income and operating margin for the year ended December 31, 2007 included the impact related to the termination of certain closed-end fund servicing and administration arrangements of $128 million, $42 million of closed-end fund launch costs and commissions and $20 million of MLIM integration costs.

As Adjusted

Operating income, as adjusted, totaled $1,662 million for the year ended December 31, 2008, which was an increase of $144 million compared to the year ended December 31, 2007. Operating margin, as adjusted, was 38.7% and 37.5% for the years ended December 31, 2008 and 2007, respectively. The growth of operating income, as adjusted, and operating margin, as adjusted, for the year ended December 31, 2008 as compared to the year ended December 31, 2007 is primarily related to the impact of $219 million of revenue growth (including the full year impact of the Quellos Transaction) and the impact of a $49 million decline in foreign currency remeasurement costs, offset by a $91 million increase in salaries and benefits and a $16 million increase in amortization of finite-lived intangible assets primarily associated with the Quellos Transaction.

Operating income, as adjusted, and operating margin, as adjusted, are described in more detail in the Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7.

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

Operating results for the year ended December 31, 2008, as compared with the year ended December 31, 2007 (continued)

Net Income

The components of net income and net income, as adjusted, for the years ended December 31, 2008 and 2007 are as follows:


	Year ended December 31,								Year ended December 31,
	2008			2007			Variance %		2008			2007			Variance %
	GAAP			GAAP			Variance %		As adjusted			As adjusted			Variance %
Operating income	$	1,593		$	1,294		23	%	$	1,662		$	1,518		9	%
Non-operating income (expense), net of non-controlling interests		(419	)		165		(354	)%		(381	)		153		(349	)%
Income tax expense		(388	)		(464	)	(16	)%		(423	)		(592	)	(29	)%

Net income	$	786		$	995		(21	)%	$	858		$	1,079		(20	)%


Diluted earnings per share	$	5.91		$	7.53		(22	)%	$	6.45		$	8.17		(21	)%

Net income for the year ended December 31, 2008 includes operating income of $1,593, or $8.02 per diluted share, and non-operating losses, net of non-controlling interests, of $419 million, or $2.11 per diluted share, versus an $0.80 gain per diluted share in 2007. Net income totaled $786 million, or $5.91 per diluted share, for the year ended December 31, 2008, which was a decrease of $209 million, or $1.62 per diluted share, compared to the year ended December 31, 2007.

Net income for the year ended December 31, 2008 included the after-tax impact of the portion of LTIP awards which will be funded through a capital contribution of BlackRock stock held by PNC, an expected contribution by Merrill Lynch to fund certain compensation of former MLIM employees and restructuring charges of $39 million, $7 million, and $26 million, respectively.

Net income of $995 million for the year ended December 31, 2007 included the after-tax impact related to the termination of certain closed-end fund administration and servicing arrangements of $82 million, the portion of certain LTIP awards which will be funded through a capital contribution of BlackRock stock held by PNC of $34 million, MLIM integration costs of $13 million and an expected contribution by Merrill Lynch of $6 million to fund certain compensation of former MLIM employees. In addition, the United Kingdom and Germany enacted legislation reducing corporate income tax rates resulting in a one-time decrease of $51 million in income tax expense which is included in net income.

Exclusive of these items in both periods, diluted earnings per share, as adjusted, for the year ended December 31, 2008 decreased $1.72, or 21%, to $6.45 compared to the year ended December 31, 2007. Diluted earnings per share, as adjusted, is described in more detail in the Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7.

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

Operating results for the year ended December 31, 2007, as compared with the year ended December 31, 2006

The following table presents the component changes in BlackRock’s AUM for 2007.


*(Dollar amounts in millions)*	December 31, 2006		Net subscriptions		Acquisition/ reclassifications ¹		Market appreciation		Foreign exchange²		December 31, 2007
Fixed income	$	448,012	$	27,196	$	14,037	$	20,091	$	3,684	$	513,020
Equity and balanced		392,708		23,489		—		35,016		7,969		459,182
Cash management		235,768		75,272		—		1,933		365		313,338
Alternative investment products		48,139		11,682		7,831		3,092		360		71,104

Total	$	1,124,627	$	137,639	$	21,868	$	60,132	$	12,378	$	1,356,644

¹	Data reflects reclassification of $14 billion of fixed income oriented absolute return and structured products to fixed income from alternative investments, as well as the $22 billion of net assets acquired in the Quellos Transaction on October 1, 2007.

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

Operating results for the year ended December 31, 2007 reflect the full year impact of the MLIM Transaction, which closed on September 29, 2006. With the exception of BlackRock Solutions and advisory, 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, 2007 to the year ended December 31, 2006. Certain prior year amounts have been reclassified to conform to the current presentation.

Revenue


*(Dollar amounts in millions)*	Year ended December 31,				Variance
*(Dollar amounts in millions)*	2007		2006		Amount			%
Investment advisory and administration fees:
Fixed income	$	901	$	590	$	311		53	%
Equity and balanced		2,218		625		1,593		255	%
Cash management		520		203		317		156	%
Alternative investment products		371		181		190		105	%

Investment advisory and administration base fees		4,010		1,599		2,411		151	%
Fixed income		4		6		(2	)	(33	)%
Equity and balanced		107		20		87		435	%
Alternative investment products		239		216		23		11	%

Investment advisory performance fees		350		242		108		45	%

Total investment advisory and administration fees		4,360		1,841		2,519		137	%
BlackRock Solutions and advisory		198		148		50		34	%
Distribution fees		123		36		87		242	%
Other revenue		164		73		91		125	%

Total revenue	$	4,845	$	2,098	$	2,747		131	%

Item 7.

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

Operating results for the year ended December 31, 2007, as compared with the year ended December 31, 2006 (continued)

Revenue (continued)

Total revenue for the year ended December 31, 2007 increased $2,747 million, or 131%, to $4,845 million, compared with $2,098 million for the year ended December 31, 2006. The $2,747 million increase was primarily the result of a $2,519 million increase in total investment advisory and administration fees, an $87 million increase in distribution fees, a $50 million increase in BlackRock Solutions and advisory, and a $91 million increase in other revenue.

Investment Advisory and Administration Fees

The increase in investment advisory and administration fees of $2,519 million, or 137%, was the result of an increase in investment advisory and administration base fees of $2,411 million, or 151%, to $4,010 million for the year ended December 31, 2007, compared with $1,599 million for the year ended December 31, 2006, along with an increase of $108 million in investment advisory performance fees. Investment advisory and administration base fees increased for the year ended December 31, 2007 primarily due to the MLIM Transaction, which added $589 billion in AUM on September 29, 2006 and additional increased AUM of $232 billion during 2007.

The increase in investment advisory and administration base fees of $2,411 million for the year ended December 31, 2007, compared with the year ended December 31, 2006 consisted of increases of $1,593 million in equity and balanced products, $317 million in cash management products, $311 million in fixed income products, and $190 million in alternative investment products. The increase in investment advisory and administration base fees for all products was driven by AUM acquired in the MLIM Transaction on September 29, 2006, as well as increases in AUM of $66 billion, $65 billion, $78 billion and $23 billion, respectively, over the past twelve months, which includes the $22 billion of alternative investment AUM acquired in the Quellos Transaction.

Investment advisory performance fees increased by $108 million, or 45%, to $350 million for the year ended December 31, 2007, compared to $242 million for the year ended December 31, 2006 primarily due to higher performance fees on equity and fixed income hedge funds, as well as real estate equity products.

BlackRock Solutions and Advisory

BlackRock Solutions and advisory revenue of $198 million for the year ended December 31, 2007 increased $50 million, or 34%, compared with the year ended December 31, 2006. The increase in BlackRock Solutions and advisory revenue was primarily the result of additional advisory and Aladdin assignments during the period.

Distribution Fees

Distribution fees increased by $87 million to $123 million for the year ended December 31, 2007, as compared to $36 million for the year ended December 31, 2006. The increase in distribution fees is primarily due to the acquisition of distribution financing arrangements from the MLIM Transaction in third quarter 2006 and from PNC in second quarter 2007, which resulted in the Company receiving distribution fees from such arrangements.

Other Revenue

Other revenue of $164 million for the year ended December 31, 2007 increased $91 million compared with the year ended December 31, 2006. Other revenue represents property management fees of $38 million earned on real estate products (primarily related to reimbursement of salaries and benefits of certain Metric employees from certain real estate products), fees for fund accounting of $27 million, net interest related to securities lending of $27 million and $14 million for other advisory service fees.

Item 7.

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

Operating results for the year ended December 31, 2007, as compared with the year ended December 31, 2006 (continued)

Revenue (continued)

The increase in other revenue of $91 million, or 125%, for the year ended December 31, 2007 as compared to $73 million for the year ended December 31, 2006 was primarily the result of an increase of $25 million in unit trust sales commissions, an increase of $21 million in fees earned related to securities lending, a $15 million increase in fund accounting services, and a $14 million increase for other advisory service fees.

Expenses


*(Dollar amounts in millions)*	Year ended December 31,				Variance
*(Dollar amounts in millions)*	2007		2006		Amount			%
Expenses:
Employee compensation and benefits	$	1,767	$	934	$	833		89	%
Portfolio administration and servicing costs		548		173		375		217	%
Amortization of deferred mutual fund sales commissions		108		30		78		260	%
General and administration		870		417		453		109	%
Termination of closed-end fund administration and servicing arrangements		128		—		128		NM
Fee sharing payment		—		34		(34	)	(100	)%
Amortization of intangible assets		130		38		92		242	%

Total expenses	$	3,551	$	1,626	$	1,925		118	%

NM – Not Meaningful

Total expenses, which reflect the full-year impact of the MLIM Transaction on September 29, 2006, increased $1,925 million, or 118%, to $3,551 million for the year ended December 31, 2007, compared with $1,626 million for the year ended December 31, 2006. Total expenses included integration charges related to the MLIM Transaction of $20 million and $142 million in 2007 and 2006, respectively. The year ended December 31, 2007 included $20 million of total MLIM and Quellos integration charges primarily in general and administration, compared to integration charges of $45 million related to employee compensation and benefits and $97 million related to general and administration, respectively, in the year ended December 31, 2006.

Employee Compensation and Benefits

Employee compensation and benefits increased by $833 million, or 89%, to $1,767 million, at December 31, 2007 compared to $934 million for the year ended December 31, 2006. The increase in employee compensation and benefits was primarily attributable to increases in incentive compensation, salaries and benefits and stock-based compensation of $406 million, $368 million and $66 million, respectively. The $406 million, increase in incentive compensation is primarily attributable to higher operating income and direct incentives associated with higher performance fees earned on the Company’s alternative investment products. The $368 million increase in salaries and benefits was primarily attributable to higher staffing levels associated with the MLIM and Quellos Transactions and business growth. Employees (including employees of Metric) at December 31, 2007 totaled 5,952 as compared to 5,113 at December 31, 2006.

Item 7.

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

Operating results for the year ended December 31, 2007, as compared with the year ended December 31, 2006 (continued)

Expenses (continued)

Portfolio Administration and Servicing Costs

Portfolio administration and servicing costs increased $375 million to $548 million during the year ended December 31, 2007, compared to $173 million for the year ended December 31, 2006. These costs include payments to Merrill Lynch under the global distribution agreement, and payments to PNC as well as other third parties, primarily associated with the administration and servicing of client investments in certain BlackRock products.

Portfolio administration and servicing costs for the year ended December 31, 2007 included $444 million of costs attributable to Merrill Lynch and affiliates and $28 million of costs attributable to PNC and other affiliates as compared to $96 million and $25 million, respectively, in the year ended December 31, 2006. Portfolio administration and servicing costs related to other non-related parties increased $28 million as a result of an expansion of distribution platforms.

Amortization of Deferred Mutual Fund Sales Commissions

Amortization of deferred mutual fund sales commissions increased by $78 million to $108 million for the year ended December 31, 2007, as compared to $30 million for the year ended December 31, 2006. The increase in amortization of deferred mutual fund sales commissions was primarily the result of the acquisition of distribution financing arrangements from MLIM at the end of third quarter 2006 and from PNC in second quarter 2007.

General and Administration Expense


*(Dollar amounts in millions)*	Year ended December 31,				Variance
*(Dollar amounts in millions)*	2007		2006		Amount		%
General and administration expense:
Portfolio services	$	170	$	52	$	118	228	%
Marketing and promotional		169		100		69	69	%
Occupancy		130		64		66	103	%
Technology		118		61		57	93	%
Professional services		94		73		21	30	%
Closed-end fund launch costs		36		11		25	207	%
Other general and administration		153		56		97	177	%

Total general and administration expense	$	870	$	417	$	453	109	%

General and administration expense increased $453 million, or 109%, for the year ended December 31, 2007 to $870 million, compared to $417 million for the year ended December 31, 2006.

Item 7.

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

Operating results for the year ended December 31, 2007, as compared with the year ended December 31, 2006 (continued)

Expenses (continued)

General and Administration Expense (continued)

Portfolio services costs increased by $118 million to $170 million, relating to supporting higher AUM levels and increased trading activities. Marketing and promotional expense increased $69 million, or 69%, to $169 million for the year ended December 31, 2007, compared to $100 million for the year ended December 31, 2006 primarily due to increased marketing activities, including $85 million related to domestic and international marketing efforts, partially offset by a decrease of $16 million related to BlackRock’s advertising and rebranding campaign in 2006. Occupancy costs for the year ended December 31, 2007 totaled $130 million, representing a $66 million, or 103%, increase from $64 million for the year ended December 31, 2006. The increase in occupancy costs primarily reflects costs related to the expansion of corporate facilities as a result of the MLIM and Quellos Transactions and business growth. Technology expenses increased $57 million, or 93%, to $118 million compared to $61 million for the year ended December 31, 2006 primarily due to a $13 million increase in technology consulting expenses, a $19 million increase in hardware depreciation expense and a $15 million increase in software licensing and maintenance costs. Closed-end fund launch costs totaled $36 million for the year ended December 31, 2007 relating to three new closed-end funds launched during the year, generating approximately $3.0 billion in AUM. Closed-end fund launch costs for the year ended December 31, 2006 totaled $11 million relating to three new closed-end funds launched during the period, generating $2.2 billion in AUM. Professional services increased $21 million, or 30%, to $94 million compared to $73 million for the year ended December 31, 2006 primarily due to increased accounting, tax and legal services necessary to support business growth. Other general and administration costs increased by $97 million to $153 million from $56 million, including $24 million of capital contributions to two enhanced cash funds in support of fund net asset values and a $12 million charge reflecting the valuation of capital support agreements covering certain securities remaining in the funds and a $32 million increase in office related expenses.

Termination of Closed-end Fund Administration and Servicing Arrangements

For the year ended December 31, 2007, BlackRock recorded an expense of $128 million related to the termination of administration and servicing arrangements with Merrill Lynch on 40 closed-end funds with original terms of 30-40 years.

Fee Sharing Payment

For the year ended December 31, 2006, BlackRock recorded a fee sharing payment of $34 million, representing a payment related to a large institutional real estate equity client account acquired in the SSR Transaction in January 2005.

Amortization of Intangible Assets

The $92 million increase in the amortization of intangible assets to $130 million for the year ended December 31, 2007, compared to $38 million for the year ended December 31, 2006, primarily reflects amortization of finite-lived intangible assets acquired in the MLIM and Quellos Transactions.

Item 7.

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

Operating results for the year ended December 31, 2007, as compared with the year ended December 31, 2006 (continued)

Non-Operating Income, Net of Non-Controlling Interests

Non-operating income, net of non-controlling interests, for the years ended December 31, 2007 and 2006 was as follows:


*(Dollar amounts in millions)*	Year ended December 31,				Variance
*(Dollar amounts in millions)*	2007		2006		Amount			%
Total non-operating income	$	529	$	56	$	473		NM
Non-controlling interests		364		16		(348	)	NM

Total non-operating income, net of non-controlling interests	$	165	$	40	$	125		313	%

NM – Not Meaningful

The components of non-operating income, net of non-controlling interests, for the year ended December 31, 2007 and 2006 were as follows:


*(Dollar amounts in millions)*	Year ended December 31,						Variance
*(Dollar amounts in millions)*	2007			2006			Amount			%
Non-operating income, net of non-controlling interests:
Net gain on investments, net of non-controlling interests:
Private equity	$	65		$	—		$	65		NM
Real estate		34			1			33		NM
Hedge funds/funds of hedge funds		23			7			16		228	%
Investments related to deferred compensation plans		12			8			4		50	%
Other investments¹		8			5			3		60	%

Total net gain on investments, net of non-controlling interests		142			21			121		NM
Other non-controlling interest²		(2	)		—			(2	)	NM
Interest and dividend income		74			29			45		153	%
Interest expense		(49	)		(10	)		(39	)	398	%

Total non-operating income, net of non-controlling interests		165			40			125		313	%
Compensation expense related to (appreciation) on deferred compensation plans		(12	)		(8	)		(4	)	(50	)%

Non-operating income, net of non-controlling interests, as adjusted	$	153		$	32		$	121		378	%

NM – Not Meaningful

¹	Includes net gains/(losses) related to equity and fixed income investments, CDOs and BlackRock’s seed capital hedging program.

²	Includes non-controlling interest related to operating entities (non-investment activities).

Item 7.

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

Operating results for the year ended December 31, 2007, as compared with the year ended December 31, 2006 (continued)

Non-Operating Income, Net of Non-Controlling Interests (continued)

Non-operating income, net of non-controlling interests, increased $125 million to $165 million for the year ended December 31, 2007, compared to $40 million for the year ended December 31, 2006 as a result of a $121 million increase in net gain on investments, net of non-controlling interests, and a $45 million increase in interest and dividend income, partially offset by a $39 million increase in interest expense primarily related to borrowings under BlackRock’s revolving credit agreement and the $700 million issuance of long-term debt in September 2007. The increase in net gain on investments, net of non-controlling interests, was primarily due to market appreciation and investment gains from seed investments in private equity products, real estate equity products and other alternative products including hedge funds and funds of funds, partially offset by $14 million of increased impairments related to seed investments in collateralized debt obligations.

Income Taxes

Income tax expense was $464 million and $189 million for the years ended December 31, 2007 and 2006, respectively, representing effective income tax rates of 31.8% and 37.0%, respectively. The reduction in the effective tax rate is primarily the result of a one-time deferred income tax benefit of $51 million, recognized in the third quarter of 2007, due to tax legislation changes enacted in third quarter 2007 in the United Kingdom and Germany that reduced corporate income tax rates in those jurisdictions in 2008. Accordingly, BlackRock revalued its deferred tax liabilities in these jurisdictions. Excluding this deferred income tax benefit, the 2007 adjusted effective tax rate was 35.3%.

Operating Income and Operating margin

GAAP

Operating income totaled $1,294 million for the year ended December 31, 2007 which was an increase of $822 million compared to the year ended December 31, 2006. Operating margin was 26.7% for the year ended December 31, 2007 compared to 22.5% for the year ended December 31, 2006. Operating income and operating margin for the year ended December 31, 2007 reflect the impact of $128 million for the termination of closed-end fund administration and servicing arrangements with Merrill Lynch, $42 million of closed-end fund launch costs and commissions, $20 million of integration costs, as well as the full year impact of the MLIM Transaction. Operating income and operating margin for the year ended December 31, 2006 reflect $142 million of integration costs, $14 million of closed-end fund launch costs and commissions, the impact of the MLIM Transaction subsequent to closing on September 29, 2006, as well as a $34 million fee sharing payment in conjunction with the SSR Transaction.

As Adjusted

Operating income, as adjusted, totaled $1,518 million for the year ended December 31, 2007 which was an increase of $844 million compared to the year ended December 31, 2006. Operating margin, as adjusted, was 37.5% and 36.7% for the years ended December 31, 2007 and 2006, respectively. Operating income and operating margin, as adjusted, for the year ended December 31, 2007 as compared to the year ended December 31, 2006 include the full year impact of the MLIM Transaction, as well as the impact of the Quellos Transaction which closed on October 1, 2007.

Operating margin and operating income, as adjusted, are described in more detail in the Overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 7.

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

Operating results for the year ended December 31, 2007, as compared with the year ended December 31, 2006 (continued)

Net Income

The components of net income and net income, as adjusted, for the years ended December 31, 2007 and 2006 are as follows:


	Year ended December 31,						Variance %		Year ended December 31,						Variance %
	2007			2006					2007			2006
	GAAP			GAAP					As adjusted			As adjusted

Operating income	$	1,294		$	472		174	%	$	1,518		$	674		125	%
Non-operating income, net of non-controlling interests		165			40		313	%		153			32		378	%
Income tax expense		(464	)		(189	)	146	%		(592	)		(261	)	127	%

Net income	$	995		$	323		208	%	$	1,079		$	445		142	%


Diluted earnings per share	$	7.53		$	3.87		95	%	$	8.17		$	5.33		53	%

Net income totaled $995 million, or $7.53 per diluted share, for the year ended December 31, 2007, which was an increase of $672 million, or $3.66 per diluted share, compared to the year ended December 31, 2006.

Net income for the year ended December 31, 2007 includes $82 million related to the after-tax impacts of the termination of closed-end fund administration and servicing arrangements with Merrill Lynch, $34 million related to the portion of certain LTIP awards to be funded through a capital contribution of BlackRock common stock held by PNC, $13 million related to integration costs associated with the MLIM Transactions and $6 million related to an expected contribution by Merrill Lynch to fund certain compensation of former MLIM employees. In addition, the United Kingdom and Germany enacted legislation reducing corporate income tax rates resulting in a one-time decrease of $51 million in income tax expense which is included in net income. MLIM integration costs primarily include compensation costs, professional fees and rebranding costs.

Net income of $323 million during the year ended December 31, 2006 included the after-tax impacts of the portion of certain LTIP awards to be funded through a capital contribution of $32 million of BlackRock common stock held by PNC, MLIM integration costs of $89 million and an expected contribution by Merrill Lynch of $1 million to fund certain compensation of former MLIM employees. Exclusive of these items, fully diluted earnings per share, as adjusted, for the year ended December 31, 2007 increased $2.84, or 53%, to $8.17 compared to $5.33 for the year ended December 31, 2006.

Liquidity and Capital Resources

Operating Activities

Sources of BlackRock’s operating cash include investment advisory and administration fees, revenues from BlackRock Solutions and advisory products and services, mutual fund distribution fees and realized earnings and distributions on the Company’s investments. BlackRock primarily uses its cash to pay compensation and benefits, portfolio administration and servicing costs, general and administration expenses, interest on the Company’s borrowings, purchases of co- and seed investments, capital expenditures, income taxes and dividends on BlackRock’s capital stock.

PART I — FINANCIAL INFORMATION (continued)

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Liquidity and Capital Resources (continued)

BlackRock Cash Flows Excluding the Impact of Consolidated Sponsored Investment Funds

In accordance with GAAP, certain BlackRock sponsored investment funds are consolidated into the consolidated financial statements of BlackRock, notwithstanding the fact that BlackRock may only have a minority economic interest in these funds. As a result, BlackRock’s consolidated statements of cash flows include the cash flows of consolidated sponsored investment funds. The Company uses an adjusted cash flow, which excludes the impact of consolidated sponsored investment funds, as a supplemental non-GAAP measure to assess liquidity and capital requirements. The Company believes that its cash flows, excluding the impact of the consolidated sponsored investment funds, provide investors with useful information on the cash flows of BlackRock relating to our ability to fund additional operating, investing and financing activities. BlackRock’s management does not advocate that investors consider such non-GAAP measures in isolation from, or as a substitute for, its cash flows presented in accordance with GAAP.

The following table presents a reconciliation of the Company’s consolidated statements of cash flows presented on a GAAP basis to the Company’s consolidated statements of cash flows, excluding the impact on cash flows of consolidated sponsored investment funds:


	Year Ended December 31, 2008
*(Dollar amounts in millions)*	GAAP Basis			Impact on Cash Flows of Consolidated Sponsored Investment Funds			Cash Flows Excluding Impact of Consolidated Sponsored Investment Funds
Cash flows from operating activities	$	1,916		$	413		$	1,503

Cash flows from investing activities		(394	)		(9	)		(385	)

Cash flows from financing activities		(887	)		(410	)		(477	)

Effect of exchange rate changes on cash and cash equivalents		(259	)		—			(259	)

Net change in cash and cash equivalents		376			(6	)		382

Cash and cash equivalents, beginning of period		1,656			67			1,589

Cash and cash equivalents, end of period	$	2,032		$	61		$	1,971

Cash and cash equivalents, excluding cash held by consolidated sponsored investment funds, at December 31, 2008 increased $382 million from December 31, 2007, primarily resulting from $1,503 million of cash inflows from operating activities, offset by $385 million of cash outflows from investing activities, $477 million of cash outflows from financing activities, and a $259 million decrease due to the effect of foreign exchange rates.

PART I — FINANCIAL INFORMATION (continued)

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Liquidity and Capital Resources (continued)

BlackRock Cash Flows Excluding the Impact of Consolidated Sponsored Investment Funds (continued)

Cash inflows from operating activities, excluding the impact of consolidated sponsored investment funds, for the year ended December 31, 2008, primarily include the receipt of investment advisory and administration fees and other revenue offset by the payment of operating expenses incurred in the normal course of business. Cash flows from operating activities, excluding the impact of consolidated sponsored investment funds, in the year ended December 31, 2008 included cash payments related to year end incentive compensation that is paid in the first quarter. Cash outflows from investing activities, excluding the impact of consolidated sponsored investment funds, for the year ended December 31, 2008 primarily include net purchases of investments that are made to establish a performance track record, to co-invest with clients or to hedge exposure to certain deferred compensation plans. Cash outflows from financing activities, excluding the impact of consolidated sponsored investment funds, for the year ended December 31, 2008 primarily include $419 million of payments for cash dividends and a net $100 million repayment of short-term borrowings.

Capital Resources

The Company manages its consolidated financial condition and funding to maintain appropriate liquidity for the business. Capital resources at December 31, 2008 and 2007 were as follows:


	December 31, 2008			December 31, 2007
Cash and cash equivalents	$	2,032		$	1,656
Cash and cash equivalents held by consolidated sponsored investment funds¹		(61	)		(67	)
Regulatory capital²		(172	)		(217	)
2007 credit facility - undrawn^3,4		2,171			2,100

Committed access	$	3,970		$	3,472

The Company may not be able to access such cash to use in its operating activities.

Partially met with cash and cash equivalents.

Net of outstanding letters of credit totaling $0 million and $100 million at December 31, 2008 and 2007, respectively.

⁴

Excludes $129 million of undrawn amounts at December 31, 2008 related to Lehman Commercial Paper, Inc.

In addition, a significant portion of the Company’s $1,011 million of net economic investments are illiquid in nature and, as such, may not be readily convertible to cash.

Short-term Borrowings

In August 2007, the Company entered into a five-year $2.5 billion unsecured revolving credit facility (the “2007 facility”), which permits the Company to request an additional $500 million of borrowing capacity, subject to lender credit approval, up to a maximum of $3 billion. The 2007 facility requires the Company not to exceed a maximum leverage ratio (ratio of net debt to EBITDA, where net debt equals total debt less domestic unrestricted cash) of 3 to 1, which was satisfied with a ratio of less than 0.5 to 1 at December 31, 2008.

At December 31, 2008, the Company had $200 million outstanding under the 2007 facility with an interest rate of 0.61% and a maturity date during January 2009. During January 2009, the Company rolled over the $200 million in borrowings with an interest rate of 0.56% and a maturity date during February 2009.

Item 7.

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

Liquidity and Capital Resources (continued)

Short-term Borrowings (continued)

Lehman Commercial Paper Inc. has a $140 million participation under the 2007 facility; however, BlackRock does not expect that Lehman Commercial Paper Inc. will honor its commitment to fund additional amounts.

In addition, in December 2007, in order to support two enhanced cash funds that BlackRock manages, BlackRock elected to procure two letters of credit under the 2007 facility in an aggregate amount of $100 million. In December 2008, the letters of credit were terminated.

In June 2008, BlackRock Japan Co., Ltd., a wholly owned subsidiary of the Company, entered into a five billion Japanese yen commitment-line agreement with a banking institution (the “Japan Commitment-line”). The term of the Japan Commitment-line is one year and interest will accrue at the applicable Japanese short-term prime rate. The Japan Commitment-line is intended to provide liquidity flexibility for operating requirements in Japan. At December 31, 2008, the Company had no borrowings outstanding under the Japan Commitment-line.

Conversion of Convertible Debentures During 2008

During October 2008, the convertible debentures became convertible at the option of the holders into cash and shares of the Company’s common stock after the trustee determined that the trading price for the convertible debentures on each day of a five consecutive trading day period was less than 103% of the product of the last reported sale price of the Company’s common stock on such date and the conversion rate on such date. During the conversion period holders of $0.5 million of convertible debentures elected to convert their holdings into cash and shares.

Support of Two Enhanced Cash Funds

At December 31, 2008, BlackRock managed approximately $338 billion in cash management assets. Of this amount, approximately $350 million was held by two private placement enhanced cash funds. During 2007 and 2008, market events reduced the liquidity of certain securities, including securities issued by asset-backed structured investment vehicles held by these two funds.

During 2007, BlackRock made investments in the funds to enhance fund liquidity and to facilitate redemptions. At December 31, 2008, BlackRock’s total net investment in these two funds was approximately $82 million. BlackRock also provided capital contributions in 2007 and 2008 totaling $24 million and $3 million, respectively, to help preserve a one dollar net asset value per share for these two funds. These capital contributions resulted in an increase to general and administration expense.

In December 2007, BlackRock entered into capital support agreements with the two funds, backed by letters of credit drawn under BlackRock’s existing credit facility. Pursuant to the capital support agreements, BlackRock agreed to make subsequent capital contributions to the funds to cover realized losses, up to $100 million, related to specified securities held by the funds. In December 2008, BlackRock’s maximum potential obligation under the capital support agreements was reduced to $45 million, and in January 2009, one capital support agreement was terminated, due to the closure of the related fund, leaving only one capital support agreement, with a total $20 million potential obligation outstanding. Subsequent to December 31, 2008, the funds distributed approximately $100 million in aggregate to investors as a result of security sales and maturities.

Item 7.

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

Liquidity and Capital Resources (continued)

Support of Two Enhanced Cash Funds (continued)

BlackRock recorded $12 million and $7 million in general and administration expense in 2007 and 2008, respectively, and a corresponding liability at December 31, 2008 related to the fair value of the capital support agreements with the two funds. The fair value of the potential liability related to the capital support agreements will fluctuate in subsequent periods based principally on projected cash flows of the specified securities covered by the capital support agreements and market liquidity.

In addition, BlackRock may, at its option, from time to time, purchase securities from the funds at the greater of the funds’ amortized cost or fair value. In the event securities are purchased at amortized cost, a loss would be recorded based on the difference from fair value. During 2008, BlackRock purchased one security resulting in $6 million of non-operating losses.

At December 31, 2008, in applying the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 46(R), Consolidation of Variable Interest Entities (“FIN 46(R)”), BlackRock concluded that it is the primary beneficiary of the two enhanced cash funds which resulted in consolidation of the funds on its consolidated statement of financial condition. At December 31, 2007, BlackRock concluded it was not the primary beneficiary of these funds.

Exposure to Collateralized Debt Obligations

In the normal course of business, BlackRock acts as a collateral manager to various CDOs. A CDO is a managed investment vehicle that purchases a portfolio of assets or enters into swaps. A CDO funds its activities through the issuance of several tranches of debt and equity, the repayment and return of which are linked to the performance of the assets in the CDO. The Company also may invest in a portion of the debt or equity issued. These entities meet the definition of a variable interest entity under FIN 46(R). BlackRock has concluded that it is not the primary beneficiary of these CDOs, and as a result it does not consolidate these CDOs on its consolidated financial statements. At December 31, 2008, BlackRock’s carrying value of investments in these CDOs on the statement of financial condition was approximately $4 million.

In addition, BlackRock manages a series of credit default swap transactions, referred to collectively as the Pillars synthetic CDO transaction, which is backed by a portfolio of both investment grade corporate and structured finance exposures. In connection with the transaction, BlackRock has entered into a credit default swap with a counterparty to provide credit protection of $17 million, which represents the Company’s maximum risk of loss with respect to the provision of credit protection. At December 31, 2008, the fair value of the credit default swap was approximately $0.5 million and was included on the Company’s consolidated statement of financial condition in other liabilities.

At December 31, 2008, BlackRock’s maximum risk of additional loss related to CDOs was approximately $20 million.

Capital Activities

On August 2, 2006, BlackRock announced that its Board of Directors had authorized a share repurchase program to purchase an additional 2.1 million shares of BlackRock common stock. 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 repurchased 1,348,600 shares under the program in open market transactions for approximately $200.9 million through December 31, 2008. The Company did not repurchase any shares under the program during 2008. As a result, the Company is currently authorized to repurchase an additional 751,400 shares under its share repurchase program.

Item 7.

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

Liquidity and Capital Resources (continued)

Net Capital Requirements

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, transfers of cash between international jurisdictions, including repatriation to the United States, may have adverse tax consequences that could discourage such transfers. At December 31, 2008, the Company was required to maintain approximately $172 million in net capital at these subsidiaries and is in compliance with all applicable regulatory minimum net capital requirements.

Contractual Obligations, Commitments and Contingencies

The following table sets forth contractual obligations, commitments and contingencies by year of payment as of December 31, 2008:


*(Dollar amounts in millions)*	2009		2010		2011		2012		2013		Thereafter		Total

Contractual obligations and commitments:

Long-term borrowings¹

Long-term notes	$	44	$	44	$	44	$	44	$	44	$	875	$	1,095

Convertible debentures		257		—		—		—		—		—		257

Other		1		1		—		—		—		—		2

Short-term borrowings		200		—		—		—		—		—		200

Operating leases		62		58		55		50		47		274		546

Purchase obligations		35		18		7		3		—		—		63

Investment / loan commitments		9		49		16		1		34		192		301


Total contractual obligations and commitments		608		170		122		98		125		1,341		2,464


Contingent obligations:

Contingent distribution obligations		401		401		401		401		401		—		2,005

Contingent payments related to business acquisitions		285		10		595		—		—		—		890


Total contractual obligations, commitments and contingent obligations²	$	1,294	$	581	$	1,118	$	499	$	526	$	1,341	$	5,359

Amounts include principal repayments and interest payments.

The table above does not include: (a) approximately $76 million of uncertain tax positions and potential interest on such positions in accordance with FIN No. 48 and (b) $45 million related to capital support agreements (of which $25 million terminated in January 2009) for the two enhanced cash funds as the Company is unable to estimate the timing of the ultimate outcome.

Item 7.

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

Contractual Obligations, Commitments and Contingencies (continued)

Long-term Borrowings

Long-term Notes

At December 31, 2008, long-term borrowings were $946 million. Debt service and repayment requirements, assuming the Company’s 2.625% Convertible Debenture due 2035 (the “convertible debentures”) are converted at the option of the holders in 2009 are $302 million in 2009, $45 million in 2010 and $44 million in each of 2011, 2012 and 2013.

In September 2007, the Company issued $700 million in aggregate principal amount of 6.25% senior unsecured notes maturing on September 15, 2017 (the “Notes”). A portion of the net proceeds of the Notes was used to fund the initial cash payment for the acquisition of the fund of funds business of Quellos and the remainder was used for general corporate purposes. Interest is payable semi-annually on March 15 and September 15 of each year. The Notes may be redeemed prior to maturity at any time in whole or in part at the option of the Company at a “make-whole” premium. The Notes were issued at a discount of $6 million, which is being amortized over the ten-year term.

Convertible Debentures

In February 2005, the Company issued $250 million aggregate principal amount of convertible debentures due in 2035 and bearing interest at a rate of 2.625% per annum. Interest is payable semi-annually in arrears on February 15 and August 15 of each year, or approximately $6.5 million per year. The convertible debentures are callable by the Company at any time on or after February 20, 2010. In addition, the convertible debentures contain certain put and conversion provisions. However, beginning in February 2009 the convertible debentures became convertible at the option of the holders. On the contractual obligations table above, the remaining $249.5 million principal balance of the convertible debentures is assumed, although not determined, to be repaid in 2009.

Short-term Borrowings

Operating Leases

The Company leases its primary office space under agreements that currently expire through 2023. 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.

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, 2008, the Company’s obligations primarily reflect standard service contracts for portfolio, market data and office related services. Purchase obligations are recorded on the Company’s financial statements only after the goods or services have been received and, as such, obligations for services not received are not included in the Company’s consolidated statement of financial condition at December 31, 2008.

Item 7.

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

Contractual Obligations, Commitments and Contingencies (continued)

Investment /Loan Commitments

At December 31, 2008, the Company had $292 million of various capital commitments to fund sponsored investment funds. Generally, the timing of the funding of these commitments is unknown. Therefore, amounts are shown to be paid upon the expiration date of the commitment. Actual payments could be made at any time prior to such expiration 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, 2008. The above schedule does not include potential future commitments approved by the Company’s Capital Committee, but which are not yet legally binding commitments. The Company intends to make additional capital commitments from time to time to fund additional investment products for, and with, its clients.

At December 31, 2008, the Company had loans outstanding of approximately $167 million to a warehouse entity established for certain private equity funds of funds, which was included in due from related parties on the Company’s consolidated statement of financial condition. At December 31, 2008, the Company was not committed to make additional loans to the warehouse entity. In January 2009, approximately $29 million was repaid while the remainder is expected to be fully repaid on, or about, March 31, 2009.

At December 31, 2008, the Company was committed to provide financing to Anthracite Capital, Inc. (“Anthracite”), a specialty commercial real estate finance company that is managed by a subsidiary of BlackRock, of up to $60 million until March 2010. The financing is collateralized by Anthracite pledging its ownership interest in an investment fund which is also managed by a subsidiary of BlackRock. At December 31, 2008, $30 million of financing was outstanding, which matures in April 2009 at an interest rate of 6.02%, which was included in due from related parties on the Company’s consolidated statement of financial condition. Subsequent to December 31, 2008, Anthracite borrowed an additional $3.5 million, which matures in April 2009, at a current interest rate of 4.76%. The $33.5 million of financing outstanding may be renewed upon maturity for an additional period of time.

As a general partner in certain private equity partnerships, the Company receives certain carried interest 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.

Contingent Distribution Obligations

BlackRock has entered into an Amended and Restated global distribution agreement with Merrill Lynch which requires the Company to make payments to Merrill Lynch contingent upon sales of products and level of assets under management maintained in BlackRock products. The economic terms of the agreement will remain in effect until January 2014. After such term, the agreement will renew for one automatic 3-year extension if certain conditions are satisfied. The above schedule reflects the Company’s estimate for 2009, which due to uncertainty of future sales and asset levels, has been held constant for 2010 through 2013.

Contingent Payments Related to Business Acquisitions

Amounts included in the table above are additional contingent payments to be paid in cash related to its acquisitions of: (i) SSRM Holdings, Inc. and (ii) certain assets of Quellos. As the remaining contingent obligations are primarily dependent upon achievement of certain operating measures, the ultimate liabilities are not certain as of December 31, 2008 and have not been recorded on the Company’s consolidated statements of financial condition. The amount of contingent payments reflected for any year represents the maximum amount of cash that could be payable at the earliest possible date under the terms of the business purchase agreements.

Item 7.

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

Contractual Obligations, Commitments and Contingencies (continued)

Contingent Payments Related to Business Acquisitions (continued)

SSRM Holdings:

In January 2005, the Company closed its acquisition of SSRM Holdings, Inc. from MetLife for adjusted consideration of approximately $265 million in cash and 550,000 restricted shares of BlackRock common stock and certain additional contingent payments. In January 2010, the fifth anniversary of the closing of the SSR Transaction, MetLife may be entitled to receive an additional payment of up to a maximum of $10 million based on the Company’s retained AUM associated with the MetLife defined benefit and defined contribution plans.

Quellos:

In connection with the Quellos Transaction, Quellos may be entitled to receive two contingent payments upon achieving certain investment advisory base and performance fee measures through December 31, 2010, totaling up to an additional $969 million in a combination of cash and stock.

The first contingent payment, of up to $374 million, is payable in April 2009 up to 25% in BlackRock common stock and the remainder in cash. As of December 31, 2008, it is estimated that the first contingent payment will equal approximately $300 million, of which $11 million has been paid in cash during 2008. Of the remaining $289 million, $217 million will be paid in cash and $72 million in common stock based on a price of $157.33 in April 2009. The ultimate amount of the first contingent payment will not be certain until March 31, 2009.

The second contingent payment, of up to $595 million, is payable in cash in 2011. Quellos may also be entitled to a “catch-up” payment in 2011 if certain investment advisory base fee measures are met through 2010 to the extent that the value of the first contingent payment is less than $374 million. A portion of the second contingent payment, not to exceed $90 million, may be paid to Quellos based on factors including continued employment with BlackRock. Therefore, this portion, not to exceed $90 million, would be recorded as employee compensation.

On the contractual obligation table above, the maximum remaining payments are included for each contingent payment.

The following items have not been included in the contractual obligations, commitments and contingencies table:

Impact Investing

In connection with the Impact Investing acquisition, the Company may be required to make several additional contingent payments, which are not expected to be material, upon completion of certain operating measures through 2010. Currently, the payments are anticipated to be recorded as employee compensation.

Compensation and Benefit Obligations

The Company has various compensation and benefit obligations, including bonuses, commissions and incentive payments payable, defined contribution plan matching contribution obligations, and deferred compensation arrangements, that are excluded from the table above primarily due to uncertainties in their payout periods. These arrangements are discussed in more detail in Notes 13 and 14 to the consolidated financial statements beginning on page F-1 of this Form 10-K. Accrued compensation and benefits at December 31, 2008 totaled $826 million and included incentive compensation of $645 million, deferred compensation of $71 million and other compensation and benefits related obligations of $110 million. Incentive compensation was primarily paid in the first quarter of 2009, while the deferred compensation obligations are generally payable over periods up to five years.

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 in the United Kingdom 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 to the contract owner and, as such, an offsetting separate account liability is recorded. At December 31, 2008, the Company had $2.6 billion of assets and offsetting liabilities on the 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 and Quellos Transaction agreements, 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, 2008. See further discussion in Note 12 to the consolidated financial statements beginning on page F-1 of this Form 10-K.

Critical Accounting Policies

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 critical accounting policies important to understanding the consolidated financial statements. For a summary of these and additional accounting policies see Note 2 to the consolidated financial statements beginning on page F-1 of this Form 10-K.

Investments

Consolidation of Investments

The accounting method used for the Company’s investments generally is dependent upon the influence the Company has over its investee. For investments where BlackRock can exert control over the financial and operating policies of the investee, which generally exists if there is a 50% or greater voting interest or if partners or members of certain products do not have substantive rights, the investee is consolidated into BlackRock’s financial statements. Pursuant to FIN 46(R), for certain investments where the risks and rewards of ownership are not directly linked to voting interests (“variable interest entities” or “VIEs”), an investee may be consolidated if BlackRock is considered the primary beneficiary of the VIE. The primary beneficiary of a VIE is the party that absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns or both as a result of holding variable interests.

Significant judgment is required in the determination of whether the Company is the primary beneficiary of a VIE. If the Company, and its related parties, is determined to be the primary beneficiary of a VIE, the entity will be consolidated within BlackRock’s consolidated financial statements. In order to determine whether the Company is the primary beneficiary of a VIE, 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.

Item 7.

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

Critical Accounting Policies (continued)

Investments (continued)

Consolidation of Investments (continued)

At December 31, 2008, the Company applied an expected loss model to certain VIEs and determined that it is the primary beneficiary of two enhanced cash funds and one private equity fund of funds, resulting in the consolidation of the funds on its consolidated statement of financial condition.

The Company, as general partner or managing member of its funds, is generally presumed to control funds that are limited partnerships or limited liability companies. Pursuant to Emerging Issues Task Force (“EITF”) Issue No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights, the Company reviews such investment vehicles to determine if such a presumption can be overcome by determining if other non-affiliated partners or members of the limited partnership or limited liability company have the substantive ability to dissolve (liquidate) the investment vehicle, or otherwise to remove BlackRock as the general partner or managing member without cause based on a simple unaffiliated majority vote, or have substantive participating rights. If the investment vehicle is not a VIE and the presumption of control is not overcome, the investment vehicle will be consolidated into BlackRock’s financial statements.

BlackRock acts as general partner or managing member for consolidated private equity funds. In December 2008, BlackRock took necessary steps to grant additional rights to the unaffiliated investors in three funds with net assets at December 31, 2008 of approximately $210 million. The granting of these rights resulted in the deconsolidation of such investment funds from the consolidated financial statements as of December 31, 2008.

At December 31, 2008 and 2007, as a result of consolidation of various investment products, the Company had the following balances on its consolidated statements of financial condition:


	December 31, 2008			December 31, 2007
Cash and cash equivalents	$	61		$	67
Investments		728			1,054
Other net assets (liabilities)		12			(218	)
Non-controlling interests		(491	)		(578	)


Total exposure to consolidated investment funds	$	310		$	325

The Company has retained the specialized accounting of these investment funds pursuant to EITF No. 85-12, Retention of Specialized Accounting for Investments in Consolidation.

Item 7.

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

Critical Accounting Policies (continued)

Investments (continued)

Equity Method Investments

For equity investments where BlackRock does not control the investee, and where the Company is not the primary beneficiary of a VIE, but can exert significant influence over the financial and operating policies of the investee, the Company uses the equity method of accounting. The evaluation of whether the Company exerts control or significant influence over the financial and operational policies of its investees requires significant 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 or other rights, the terms of BlackRock’s advisory agreement or other agreements with the investee, any influence BlackRock may have on the governing board of the investee, the legal rights of other investors in the entity pursuant to the fund’s operating documents and the relationship between BlackRock and other investors in the entity.

Substantially all of BlackRock’s equity method investees are investment companies which record its underlying investments at fair value. Therefore, under the equity method of accounting, BlackRock’s share of the investee’s underlying net income predominantly represents fair value adjustments in the investments held by the equity method investees. BlackRock’s share of the investee’s underlying net income or loss is based upon the most currently available information and is recorded as non-operating income (expense) for investments in investment companies, or as other revenue for operating or advisory company investments, which are recorded in other assets, since such operating or advisory companies are considered to be integral to BlackRock’s core business.

At December 31, 2008, the Company had $501 million and $16 million of equity method investees reflected within investments and other assets, respectively, and at December 31, 2007 the Company had $517 million and $5 million of equity method investees reflected in investments and other assets, respectively.

Impairment of Investments

The Company’s management periodically assesses its equity method, available-for-sale and cost investments for impairment. 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 value of an available-for-sale security is lower than its cost or amortized cost value, the Company evaluates the security 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 period of time sufficient to allow for recovery of such unrealized losses. If the impairment is considered other-than-temporary, a charge is recorded to the consolidated statements of income.

The Company evaluates its CDO investments for impairment quarterly throughout the term of the investment. The Company reviews cash flow estimates throughout the life of each CDO investment. If the net present value of the estimated future cash flows is lower than the carrying value of the investment and also is lower than the net present value of the previous estimate of cash flows, an impairment is considered other-than-temporary. The impairment loss is then recognized based on the excess of the carrying amount of the investment over its estimated fair value.

Item 7.

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

Critical Accounting Policies (continued)

Impairment of Investments (continued)

For the years ended December 31, 2008, 2007 and 2006, the Company recorded other-than-temporary impairments of $8 million, $16 million and $2 million, respectively, related to debt securities and CDO available-for-sale investments. The other-than-temporary impairments are due to a reduction in estimated cash flows of CDO investments as well as adverse credit conditions for a debt instrument that was purchased from an enhanced cash management fund in which the Company determined that it did not have the ability to hold the securities for a period of time sufficient to allow for recovery of such unrealized losses.

Evaluations of securities impairments involves 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.

Fair Value Measurements

BlackRock adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”) as of January 1, 2008, which requires, among other things, enhanced disclosures about investments that are measured and reported at fair value. SFAS No. 157 establishes a hierarchy that prioritizes inputs to valuation techniques used to measure fair value and requires companies to disclose the fair value of their financial instruments according to a fair value hierarchy (i.e., Level 1, 2, and 3 inputs, as defined). The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Additionally, companies are required to provide enhanced disclosure regarding instruments in the Level 3 category (which have inputs to the valuation techniques that are unobservable and require significant management judgment), including a reconciliation of the beginning and ending balances separately for each major category of assets and liabilities.

Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 Inputs – Quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date. Level 1 assets include listed mutual funds, equities and certain debt securities.

Level 2 Inputs – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and inputs other than quoted prices that are observable, such as models or other valuation methodologies. Assets which generally are included in this category may include short-term floating rate notes and asset-backed securities held by a consolidated sponsored cash management fund, securities held within consolidated hedge funds, certain limited partnership interests in hedge funds in which the valuations for substantially all of the investments within the fund are based upon Level 1 or Level 2 inputs, as well as restricted public securities valued at a discount.

Level 3 Inputs – Unobservable inputs for the valuation of the asset or liability. Level 3 assets include investments for which there is little, if any, market activity. These inputs require significant management judgment or estimation. Assets included in this category generally include general and limited partnership interests in private equity funds, funds of private equity funds, real estate funds, hedge funds, and funds of hedge funds.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.

Item 7.

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

Critical Accounting Policies (continued)

Fair Value Measurements (continued)

BlackRock records substantially all investments on its consolidated statements of financial condition at fair value or amounts that approximate fair value. For certain investments, including investments classified as trading investments, equity method investments and consolidated sponsored investment funds, changes in 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. Non-marketable securities, however, generally are priced using a variety of methods and resources, including the most currently available net asset values or capital accounts of the investment, valuation services from third party providers, internal valuation models which utilize available market data and management assumptions or, in the absence of other market data and resources, the fair value for an investment is estimated in good faith by the Company’s management based on a number of factors, including the liquidity, financial condition and current and projected operating performance of the investment.

Changes in fair value on approximately $1.3 billion of investments will impact the Company’s non-operating income (expense) and approximately $100 million will impact accumulated other comprehensive income. As of December 31, 2008, changes in fair value of approximately $728 million of such investments within consolidated sponsored investment funds will also impact BlackRock’s non-controlling interests expense on the consolidated statements of income. BlackRock’s net exposure to changes in fair value of such consolidated sponsored investment funds is $310 million.

BlackRock’s $813 million of Level 3 investments at December 31, 2008 primarily include co-investments in real estate equity products, private equity fund of funds and private equity funds, funds of hedge funds as well as funds that invest in distressed credit and mortgage securities. Many of these investees are investment companies which record their underlying investments at fair value based on fair value policies established by management of the underlying fund, which could include BlackRock employees. Fair value policies at the underlying fund generally utilize pricing information from third party sources, however, in some instances current valuation information, for illiquid securities or securities in markets that are not active, may not be available from any third party source or fund management may conclude that the valuations that are available from third party sources are not reliable. In these instances fund management may perform model-based analytical valuations that may be used to value these investments.

During the year ended December 31, 2008, the Company reclassified approximately $29 million of net investments out of Level 3. The majority of the net reclassification was related to equity method investments which the Company uses that certain significant inputs, including performance attributes, for the fair value measurement of these investments that became observable. In addition, during the year ended December 31, 2008, the Company deconsolidated three private equity funds that held at time of deconsolidation approximately $200 million of Level 3 investments.

BlackRock reports its investments on a GAAP basis, which includes investment balances which are owned by sponsored investment funds that are deemed to be controlled by BlackRock in accordance with GAAP and therefore are consolidated even though BlackRock may not own a majority of such funds. As a result, management reviews its investments on an “economic” basis, which eliminates the portion of investments that do not impact BlackRock’s book value. BlackRock’s management does not advocate that investors consider such non-GAAP measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

Item 7.

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

Critical Accounting Policies (continued)

Fair Value Measurements (continued)

The following table represents investments measured at fair value on a recurring basis at December 31, 2008:


*(Dollar amounts in millions)*	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Other Investments Not Held at Fair Value ⁽³⁾		Investments at December 31, 2008
Total investments, GAAP	$	176		$	400		$	813		$	40	$	1,429

Net assets for which the Company does not bear “economic” exposure ⁽¹⁾		(6	)		(255	)		(157	)		—		(418	)


Net “economic” investments ⁽²⁾	$	170		$	145		$	656		$	40	$	1,011

⁽¹⁾

Consists of net assets attributable to non-controlling investors of consolidated sponsored investment funds.

⁽²⁾

Includes BlackRock’s portion of cash and cash equivalents, other assets, accounts payable and accrued liabilities, and other liabilities that are consolidated from sponsored investment funds.

⁽³⁾

Includes investments in equity method investees and investments held at cost, which in accordance with GAAP are not accounted for under a fair value measure.

Goodwill and Intangible Assets

At December 31, 2008, the carrying amounts of the Company’s goodwill and intangible assets were as follows:


*(Dollar amounts in millions)*	December 31, 2008
Goodwill	$	5,533
Intangible assets
Indefinite–lived		5,378
Finite–lived, net of accumulated amortization		1,063

Total goodwill and intangible assets	$	11,974

The value of contracts to manage assets in proprietary open-end funds and closed-end funds without a specified termination date is classified as an indefinite-lived intangible asset. The assignment of indefinite lives to such 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 cost of a business acquisition in excess of 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, 2008, ranged from 1 year to 20 years with a weighted average remaining estimated useful life of 7.7 years.

Item 7.

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

Critical Accounting Policies (continued)

Goodwill and Intangible Assets (continued)

Goodwill

The Company assesses its goodwill for impairment at least annually, considering such factors as the book value and the market capitalization of the Company. At July 31, 2008 the impairment test that was performed indicated no impairment charges were required. The Company continues to monitor its book value per share as compared to closing prices of its common stock for potential indicators of impairment. At December 31, 2008 the Company’s common stock closed at $134.15 which exceeded its book value of approximately $93 per share.

Intangibles

The Company assesses its indefinite-lived management contracts for impairment at least annually, considering such factors as AUM, product mix, product margins, and projected cash flows 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 is determined based on the discounted value of expected future cash flows. The fair value of finite-lived intangible assets is reviewed at least annually to determine whether circumstances exist which indicate there may be a potential impairment. In addition, 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 from these estimates, which could materially impact the impairment conclusion. In both July and September 2008, as well as during 2007 and 2006, the Company performed impairment tests, which indicated no impairment charges were required. The Company continues to monitor various factors, including AUM, for potential indicators of impairment.

In addition, management judgment is required to estimate the period over which intangible assets will contribute to the Company’s cash flows and the pattern in which these assets will be consumed. A change in the remaining useful life of any of these assets, or the reclassification of an indefinite-lived intangible asset to a finite-lived intangible asset, could have a significant impact on the Company’s amortization expense, which was $146 million, $130 million and $38 million for the years ended December 31, 2008, 2007 and 2006, respectively.

Item 7.

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

Critical Accounting Policies (continued)

Income Taxes

The Company accounts for income taxes under the asset and liability method prescribed by SFAS No. 109, Accounting for Income Taxes (“SFAS No. 109”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases using currently enacted tax rates. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

BlackRock adopted the provisions of FASB Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS No. 109. FIN No. 48 prescribes a threshold for measurement and recognition in the financial statements of an asset or liability resulting from a tax position taken or expected to be taken in an income tax return. FIN No. 48 also provides guidance on, among other things, de-recognition of deferred tax assets and liabilities and interest and penalties on uncertain tax positions.

The application of SFAS No. 109 and FIN No. 48 requires management to make estimates of the ranges of possible outcomes, the probability of favorable or unfavorable tax outcomes and potential interest and penalties related to such unfavorable outcomes, which require significant management judgment. Actual future tax consequences of uncertain tax positions may be materially different than the Company’s current estimates. At December 31, 2008, BlackRock had $114 million of gross unrecognized tax benefits, of which $60 million, if recognized, would affect the effective tax rate.

In accordance with SFAS No. 109, management is required to estimate the timing of the recognition of deferred tax assets and liabilities, make assumptions about the future deductibility of deferred tax assets and assess deferred tax liabilities based on enacted tax rates for the appropriate tax jurisdictions to determine the amount of such deferred tax assets and liabilities. At December 31, 2008, the Company had net deferred tax assets of $11 million and net deferred tax liabilities of approximately $1,825 million on the statement of financial condition. Changes in the calculated deferred tax assets and liabilities may occur in certain circumstances, including statutory income tax rate changes, statutory tax law changes, changes in the anticipated timing of recognition of deferred tax assets and liabilities or changes in the structure or tax status of the Company. SFAS 109 requires the Company to assess whether a valuation allowance should be established against its deferred tax assets based on consideration of all available evidence, both positive and negative, using a more likely than not standard. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecast of future profitability, the duration of statutory carry back and carry forward periods, the Company’s experience with tax attributes expiring unused, and tax planning alternatives.

As of December 31, 2008, the Company has recorded a deferred tax asset of $157 million for unrealized investment losses however no valuation allowance has been established because the Company expects to be able to carry back a portion of its unrealized capital losses when realized, hold certain fixed income securities over a period sufficient for them to recover their unrealized losses, and generate future capital gains sufficient to offset the unrealized capital losses. Based on the weight of available evidence, it is more likely than not that the deferred tax asset will be realized. However, changes in circumstance could cause the Company to revalue its deferred tax balances with the resulting change impacting the income statement in the period of the change. Such changes may be material to the Company’s consolidated financial statements. See Note 19 to the consolidated financial statements beginning on page F-1 of this Form 10-K for further details.

Further, the Company records its income taxes based upon its estimated income tax liability or benefit. The Company’s actual tax liability or benefit may differ from the estimated income tax liability or benefit. The Company had current income taxes receivable of approximately $44 million and current income taxes payable of $120 million at December 31, 2008.

Item 7.

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

Critical Accounting Policies (continued)

Revenue Recognition

Investment advisory and administration fees 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 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 contractual expense limitations of the funds or voluntary waivers. Certain real estate fees are earned upon the acquisition or disposition of properties in accordance with applicable investment management agreements and are generally recognized at the closing of the respective real estate transactions.

The Company contracts with third parties, as well as related parties, for various mutual fund administration and shareholder servicing to be performed on behalf of certain non U.S. funds managed by the Company. Such arrangements generally are priced as 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. The Company accounts for such retrocession arrangements in accordance with EITF No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, and records its investment advisory and administration base fees net of retrocessions. Retrocessions for the years ended December 31, 2008, 2007 and 2006 were $762 million, $780 million and $156 million, respectively. The Company has additional contracts for similar services with third parties which, due to the terms of the contracts, are recorded as portfolio administration and servicing costs on the consolidated statements of income.

The Company also receives performance fees or incentive allocations from alternative investment products and certain separate accounts. These performance fees generally are earned upon exceeding specified relative or absolute investment return thresholds. Such fees are recorded upon completion of the measurement period which vary by product. For the years ended December 31, 2008, 2007 and 2006, performance fee revenue totaled $177 million, $350 million and $242 million, respectively.

The Company receives carried interest from certain alternative investment funds upon exceeding performance thresholds. BlackRock may be required to return all, or part, of such carried interest depending upon future performance of these investments. BlackRock records carried interest subject to such claw-back provisions as revenue on its consolidated statements of income upon the earlier of the termination of the alternative investment fund or when the likelihood of claw-back is mathematically improbable. The Company records a deferred carried interest liability to the extent it receives cash or capital allocations prior to meeting the revenue recognition criteria. At December 31, 2008 and 2007, the Company had $21 million and $29 million, respectively of deferred carried interest recorded in other liabilities on the consolidated statements of financial condition.

Fees earned for BlackRock Solutions, which include advisory services, are recorded as services are performed and are determined using some, or all, of the following methods: (i) fixed fees, (ii) percentages of various attributes of advisory assets under management and (iii) performance fees if contractual thresholds are met. Revenue earned in 2008 on advisory assignments was comprised of one-time advisory and portfolio structuring fees and ongoing fees based on AUM of the respective portfolio assignment. For the years ended December 31, 2008, 2007 and 2006, BlackRock Solutions and advisory revenue totaled $406 million, $198 million and $148 million, respectively.

Adjustments to revenue arising from initial estimates historically have been immaterial since the majority of BlackRock’s investment advisory and administration revenue is calculated on the fair value of AUM and since the Company does not record revenues until performance thresholds have been exceeded and the likelihood of claw-back of carried interest is mathematically improbable.

Item 7.

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

Recent Accounting Developments

EPS Impact Related to Retrospective Application of Recent Accounting Developments

Pursuant to FSP APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”), the Company will allocate a component of the initial proceeds of its convertible debentures to create a debt discount which will be amortized over the expected life of the convertible debentures.

Pursuant to FSP EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”), the Company’s outstanding unvested stock-based payment awards are considered participating securities as the awards contain non-forfeitable rights to dividend equivalents. In accordance with FSP EITF 03-6-1, the two-class method is used to determine EPS for common stock and for participating securities. The two-class method is an earnings allocation formula that allocates distributed and undistributed earnings to each class of common shareholders and participating RSUs.

The tables below present the basic and diluted EPS impact of the retrospective application upon adoption of both FSP APB 14-1 and FSP EITF 03-6-1. The impact of SFAS No. 160 is not included below as it will not have an impact on EPS.


(Dollar amounts in millions)	2008			2007			2006
Net income, as reported	$	786		$	995		$	323

Impact of FSP APB 14-1		(2	)		(2	)		(1	)


Net income, after adoption⁽¹⁾	$	784		$	993		$	322


Basic EPS calculation:

Distributed earnings ⁽²⁾

Basic common shares	$	405		$	344		$	135

Basic participating RSUs		13			9			1


Total distributed earnings	$	418		$	353		$	136


Undistributed earnings ⁽³⁾

Basic common shares	$	354		$	624