UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-02405
Name of Fund: BlackRock Balanced Capital Fund, Inc.
Fund Address: 100 Bellevue Parkway, Wilmington, DE 19809
Name and address of agent for service: Donald C. Burke, Chief Executive
Officer, BlackRock Balanced Capital Fund, Inc., 800 Scudders Mill Road,
Plainsboro, NJ 08536. Mailing address: P.O. Box 9011, Princeton, NJ
08543-9011
Registrant's telephone number, including area code: (800) 441-7762
Date of fiscal year end: 09/30/2008
Date of reporting period: 10/01/2007 - 09/30/2008
Item 1 - Report to Stockholders
EQUITIES FIXED INCOME REAL ESTATE
LIQUIDITY ALTERNATIVES BLACKROCK SOLUTIONS
BlackRock Balanced Capital BLACKROCK
Fund, Inc.
ANNUAL REPORT | SEPTEMBER 30, 2008
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
Table of Contents
================================================================================
Page
- --------------------------------------------------------------------------------
A Letter to Shareholders ................................................. 3
Annual Report:
Fund Summary ............................................................. 4
About Fund Performance ................................................... 6
Disclosure of Expenses ................................................... 6
Portfolio Summary ........................................................ 7
Financial Statements:
Schedule of Investments ................................................ 8
Statement of Assets and Liabilities .................................... 10
Statement of Operations ................................................ 11
Statements of Changes in Net Assets .................................... 12
Financial Highlights ..................................................... 13
Notes to Financial Statements ............................................ 16
Report of Independent Registered Public Accounting Firm .................. 21
Important Tax Information (Unaudited) .................................... 21
Disclosure of Investment Advisory Agreement and Subadvisory Agreement .... 22
Officers and Directors ................................................... 26
Additional Information ................................................... 29
Mutual Fund Family ....................................................... 31
2 BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008
A Letter to Shareholders
Dear Shareholder
It has been a tumultuous period for investors, marked by almost daily headlines
related to the housing market turmoil, volatile energy prices, and the
escalating credit crisis. The news took an extraordinarily heavy tone in
September as the credit crisis boiled over and triggered unprecedented failures
and consolidation in the financial sector, stoking fears of a market and
economic collapse and prompting the largest government rescue plan since the
Great Depression.
Through it all, the Federal Reserve Board (the "Fed") has taken decisive action
to restore liquidity and bolster financial market stability. Key moves included
slashing the target federal funds rate 275 basis points (2.75%) between October
2007 and April 2008 and providing massive cash injections and lending programs.
As the credit crisis took an extreme turn for the worse, the Fed, in concert
with five other global central banks, cut interest rates by 50 basis points in
early October in a rare move intended to stave off worldwide economic damage
from the intensifying financial market turmoil. The U.S. economy managed to grow
at a slow-but-positive pace through the second quarter of the year, though
recent events almost certainly portend a global economic recession.
Against this backdrop, U.S. stocks experienced intense volatility and generally
posted losses for the current reporting period, with small-cap stocks faring
noticeably better than their larger counterparts. Non-U.S. markets followed the
U.S. on the way down and, notably, decelerated at a faster pace than domestic
equities -- a stark reversal of recent years' trends, when international stocks
generally outpaced U.S. stocks.
Treasury securities also traded in a volatile fashion, but rallied overall
(yields fell and prices correspondingly rose) amid an ongoing flight to quality.
The yield on 10-year Treasury issues, which fell to 3.34% in March, climbed to
the 4.20% range in mid-June as investors temporarily shifted out of Treasury
issues in favor of riskier assets (such as stocks and other high-quality fixed
income sectors), then declined again to 3.85% by period-end as the financial
market contagion widened. Tax-exempt issues underperformed overall, as problems
among municipal bond insurers and the collapse in the market for auction rate
securities pressured the group throughout the course of the past year. At the
same time, the above mentioned economic headwinds and malfunctioning credit
markets led to considerable weakness in the high yield sector.
Facing unprecedented volatility and macro pressures, the major benchmark indexes
generally recorded losses over the six- and 12-month reporting periods:
Total Returns as of September 30, 2008 6-month 12-month
================================================================================================================
U.S. equities (S&P 500 Index(R)) (10.87)% (21.98)%
- ----------------------------------------------------------------------------------------------------------------
Small cap U.S. equities (Russell 2000 Index(R)) (0.54) (14.48)
- ----------------------------------------------------------------------------------------------------------------
International equities (MSCI Europe, Australasia, Far East Index) (22.35) (30.50)
- ----------------------------------------------------------------------------------------------------------------
Fixed income (Barclays Capital U.S. Aggregate Index)* (1.50) 3.65
- ----------------------------------------------------------------------------------------------------------------
Tax-exempt fixed income (Barclays Capital Municipal Bond Index)* (2.59) (1.87)
- ----------------------------------------------------------------------------------------------------------------
High yield bonds (Barclays Capital U.S. Corporate High Yield 2% Issuer Capped Index)* (6.77) (10.51)
- ----------------------------------------------------------------------------------------------------------------
* Formerly a Lehman Brothers index.
Past performance is no guarantee of future results. Index performance
shown for illustrative purposes only. You cannot invest directly in an
index.
Through periods of market turbulence, as ever, BlackRock's full resources are
dedicated to the management of our clients' assets. For our most current views
on the economy and financial markets, we invite you to visit
www.blackrock.com/funds. As always, we thank you for entrusting BlackRock with
your investments, and we look forward to continuing to serve you in the months
and years ahead.
Sincerely,
/s/ Rob Kapito
Rob Kapito
President, BlackRock Advisors, LLC
THIS PAGE NOT PART OF YOUR FUND REPORT 3
Fund Summary
Portfolio Management Commentary
How did the Fund perform?
o For the 12-month period, the Fund's overall asset allocation was
unfavorable, and both fixed income and equities underperformed their
respective benchmarks.
What factors influenced performance?
o Within the equity portfolio, poor stock selection in the industrials
sector was the primary driver of the Fund's underperformance, led by a
sharp decline in shares of Textron, Inc. Poor stock selection in the
technology sector further detracted from results, largely due to weakness
from positions in Micron Technology, Inc. and Sun Microsystems, Inc. These
areas of weakness more than offset the positive effects from the consumer
sector, where our overweight position and good stock selection aided
results, led by double-digit gains from positions in McDonald's Corp.,
Anheuser-Busch Cos., Inc. and General Mills, Inc. Good stock selection in
the energy sector also enhanced performance, driven by strength in Devon
Energy Corp. and Murphy Oil Corp.
o In fixed income, the main driver of underperformance was the Fund's
overweight to high-quality spread sectors, which posted negative excess
returns (versus Treasury issues) throughout the period. A corresponding
underweight in Treasuries, which outperformed, further hampered results.
Describe recent portfolio activity.
o During the annual period, we continued to adjust our holdings in response
to ongoing market volatility. Within the equity portfolio, we began to
increase our consumer exposure, introducing new positions in Carnival
Corp., Kohl's Corp. and J.C. Penney Co., Inc. We repositioned our
financial stock holdings, reducing positions in some of the better
performing insurance stocks like ACE Ltd. and RenaissanceRe Holdings Ltd.,
increasing positions in JPMorgan Chase & Co. and introducing Bank of
America Corp., The Travelers Cos., Inc. and money management firm Invesco
Ltd. to the portfolio, while eliminating troubled Fannie Mae and Morgan
Stanley. We further increased our technology exposure, adding to existing
positions in Juniper Networks, Inc. and Microsoft Corp. and introducing
Broadcom Corp. and Texas Instruments, Inc. to the portfolio, while
eliminating positions in Motorola, Inc., Applied Materials, Inc. and Sun
Microsystems, Inc. We also increased our health care exposure given this
industry's non-cyclical characteristics, increasing existing positions in
AmerisourceBergen Corp. and Schering-Plough Corp., while introducing Merck
& Co., Inc. to the portfolio.
o Within fixed income, we modestly increased the Fund's exposure to agency
debentures and non-agency adjustable-rate mortgages. We retained an
overweight to AAA-rated commercial mortgage-backed securities, while we
continued to reduce our allocation to corporate debt.
Describe Fund positioning at period-end.
o At period-end, the Fund was invested 64.9% in equities, 33.6% in fixed
income and 1.6% in cash equivalents. This compares to 67.0% in equities,
31.8% in fixed income securities and 1.5% in cash equivalents one year
ago.
o Recognizing that hostile credit conditions and negative economic and
corporate earnings growth trends are likely to persist for some time, we
view the associated decline in share prices opportunistically and believe
equity investments will provide handsome returns to investors as the
federal government succeeds in finding remedies for instability in the
financial system and as economic growth resumes. Meanwhile, bonds look
increasingly expensive as interest rates are low and inflation-adjusted
yields are well below historical averages, limiting the returns available
from fixed income securities. As always, we will continue to take
advantage of the Fund's flexibility as market conditions evolve.
The views expressed reflect the opinions of BlackRock as of the date of this
report and are subject to change based on changes in market, economic or other
conditions. These views are not intended to be a forecast of future events and
are no guarantee of future results.
Expense Example
Actual Hypothetical 2
------------------------------------------------------ -------------------------------------------------------
Beginning Ending Beginning Ending
Account Value Account Value Expenses Paid Account Value Account Value Expenses Paid
April 1, 2008 September 30, 2008 During the Period 1 April 1, 2008 September 30, 2008 During the Period 1
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional ..... $ 1,000 $ 893.20 $ 2.70 $ 1,000 $1,022.15 $ 2.88
Investor A ........ $ 1,000 $ 891.50 $ 4.07 $ 1,000 $1,020.70 $ 4.34
Investor B ........ $ 1,000 $ 887.90 $ 8.21 $ 1,000 $1,016.30 $ 8.77
Investor C ........ $ 1,000 $ 887.80 $ 7.83 $ 1,000 $1,016.70 $ 8.37
Class R ........... $ 1,000 $ 889.60 $ 6.24 $ 1,000 $1,018.40 $ 6.66
- ------------------------------------------------------------------------------------------------------------------------------------
1 For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (0.57% for Institutional, 0.86% for Investor A, 1.74%
for Investor B, 1.66% for Investor C and 1.32% for Class R), multiplied by
the average account value over the period, multiplied by 183/366 (to
reflect the one-half year period shown).
2 Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half year divided by 366.
See "Disclosure of Expenses" on page 6 for further information on how
expenses were calculated.
4 BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Institutional
and Investor A Shares compared to growth of an investment in the S&P 500(R)
Index and the Barclays Capital U.S. Aggregate Index. Values are from September
1998 to September 2008.
Barclays Capital
Institutional Investor A S&P 500(R) U.S. Aggregate
Shares* 1,2 Shares* 1,2 Index 3 Index 4
9/30/98 $10,000 $9,475 $10,000 $10,000
9/30/99 $11,192 $10,578 $12,780 $9,963
9/30/00 $12,265 $11,564 $14,478 $10,660
9/30/01 $10,950 $10,298 $10,624 $12,041
9/30/02 $9,799 $9,192 $8,447 $13,076
9/30/03 $11,402 $10,673 $10,508 $13,783
9/30/04 $12,789 $11,940 $11,966 $14,290
9/30/05 $13,835 $12,881 $13,432 $14,689
9/30/06 $15,389 $14,295 $14,882 $15,229
9/30/07 $17,521 $16,228 $17,328 $16,011
9/30/08 $14,544 $13,429 $13,520 $16,595
1 Assuming maximum sales charge, if any, transaction costs and other
operating expenses, including advisory fees.
2 The Fund, through a fully managed investment policy, utilizes equity, debt
and convertible securities.
3 This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues) representing
about 75% of NYSE market capitalization and 30% of NYSE issues. S&P 500 is
a registered trademark of the McGraw-Hill Companies.
4 This unmanaged Index is a widely recognized market weighted index
comprised of investment grade corporate bonds, rated BBB or better,
mortgages and U.S. Treasury and government agency issues with at least one
year to maturity.
Performance Summary for the Period Ended September 30, 2008
Average Annual Total Returns 5
------------------------------------------------------------------
1 Year 5 Years 10 Years
-------------------- -------------------- -------------------
6-Month w/o sales w/sales w/o sales w/sales w/o sales w/sales
Total Returns charge charge charge charge charge charge
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional ................................ (10.68)% (16.99)% (16.99)% 4.99% 4.99% 3.82% 3.82%
Investor A ................................... (10.85) (17.25) (21.59) 4.70 3.58 3.55 2.99
Investor B ................................... (11.21) (17.96) (21.33) 3.86 3.55 2.91 2.91
Investor C ................................... (11.22) (17.90) (18.64) 3.88 3.88 2.74 2.74
Class R ...................................... (11.04) (17.59) (17.59) 4.41 4.41 3.34 3.34
S&P 500 Index ................................ (10.87) (21.98) (21.98) 5.17 5.17 3.06 3.06
Barclays Capital U.S. Aggregate Index ........ (1.50) 3.65 3.65 3.78 3.78 5.20 5.20
- ------------------------------------------------------------------------------------------------------------------------------------
5 Assuming maximum sales charges, if any. See "About Fund Performance" on
page 6 for a detailed description of share classes, including any related
sales charges and fees.
Past performance is not indicative of future results.
BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008 5
About Fund Performance
o Institutional Shares are not subject to any sales charge. Institutional
Shares bear no ongoing distribution or service fees and are available only
to eligible investors.
o Investor A Shares incur a maximum initial sales charge (front-end load) of
5.25% and a service fee of 0.25% per year (but no distribution fee).
o Investor B Shares are subject to a maximum contingent deferred sales
charge of 4.50% declining to 0% after six years. In addition, Investor B
Shares are subject to a distribution fee of 0.75% per year and a service
fee of 0.25% per year. These shares automatically convert to Investor A
Shares after approximately eight years. (There is no initial sales charge
for automatic share conversions.) All returns for periods greater than
eight years reflect this conversion.
o Investor C Shares are subject to a distribution fee of 0.75% per year and
a service fee of 0.25% per year. In addition, Investor C Shares are
subject to a 1% contingent deferred sales charge if redeemed within one
year of purchase.
o Class R Shares do not incur a maximum initial sales charge (front-end
load) or deferred sales charge. These shares are subject to a distribution
fee of 0.25% per year and a service fee of 0.25% per year. Class R Shares
are available only to certain retirement plans. Prior to inception, Class
R Share performance results are those of Institutional Shares (which have
no distribution or service fees) restated to reflect Class R Share fees.
Performance information reflects past performance and does not guarantee
future results. Current performance may be lower or higher than the
performance data quoted. Refer to www.blackrock.com/funds to obtain
performance data current to the most recent month-end. Performance results
do not reflect the deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Figures shown in the
performance tables on page 5 assume reinvestment of all dividends and
capital gain distributions, if any, at net asset value on the ex-dividend
date. Investment return and principal value of shares will fluctuate so
that shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the
different levels of service, distribution and transfer agency fees
applicable to each class, which are deducted from the income available to
be paid to shareholders. The Fund's Administrator waived a portion of its
administrative fee. Without such waiver, the Fund's performance would have
been lower.
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses, including advisory fees, distribution fees including
12b-1 fees, and other Fund expenses. The expense example on page 4 (which is
based on a hypothetical investment of $1,000 invested on April 1, 2008 and held
through September 30, 2008) is intended to assist shareholders both in
calculating expenses based on an investment in the Fund and in comparing these
expenses with similar costs of investing in other mutual funds.
The table provides information about actual account values and actual expenses.
In order to estimate the expenses a shareholder paid during the period covered
by this report, shareholders can divide their account value by $1,000 and then
multiply the result by the number corresponding to their share class under the
heading entitled "Expenses Paid During the Period."
The table also provides information about hypothetical account values and
hypothetical expenses based on the Fund's actual expense ratio and an assumed
rate of return of 5% per year before expenses. In order to assist shareholders
in comparing the ongoing expenses of investing in this Fund and other funds,
compare the 5% hypothetical example with the 5% hypothetical examples that
appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders' ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees or exchange fees. Therefore, the hypothetical example is useful
in comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
6 BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008
Portfolio Summary
As of September 30, 2008
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
JPMorgan Chase & Co. ................................................ 2%
Kimberly-Clark Corp. ................................................ 2
Nestle SA Registered Shares ......................................... 2
Microsoft Corp. ..................................................... 2
International Business Machines Corp. ............................... 2
Cisco Systems, Inc. ................................................. 2
McDonald's Corp. .................................................... 2
Unilever NV ......................................................... 2
Prudential Financial, Inc. .......................................... 2
E.I. du Pont de Nemours & Co. ....................................... 1
- --------------------------------------------------------------------------------
Percent of
Asset Mix Long-Term Investments
- --------------------------------------------------------------------------------
Common Stocks ....................................................... 66%
Fixed Income Mutual Funds ........................................... 34
- --------------------------------------------------------------------------------
Percent of
Five Largest Industries Net Assets
- --------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels ......................................... 5%
Food Products ....................................................... 5
Insurance ........................................................... 5
Pharmaceuticals ..................................................... 4
Diversified Financial Services ...................................... 3
- --------------------------------------------------------------------------------
For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease.
BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008 7
Schedule of Investments September 30, 2008
(Percentages shown are based on Net Assets)
Common Stocks Shares Value
===============================================================================
Aerospace & Defense -- 2.1%
Honeywell International, Inc. 375,000 $ 15,581,250
United Technologies Corp. 300,000 18,018,000
--------------
33,599,250
===============================================================================
Air Freight & Logistics -- 1.6%
FedEx Corp. 95,000 7,508,800
United Parcel Service, Inc. Class B 275,000 17,294,750
--------------
24,803,550
===============================================================================
Automobiles -- 0.9%
Harley-Davidson, Inc. 385,000 14,360,500
===============================================================================
Beverages -- 0.7%
Dr. Pepper Snapple Group, Inc. (a) 400,000 10,592,000
===============================================================================
Building Products -- 0.3%
Masco Corp. 300,000 5,382,000
===============================================================================
Capital Markets -- 3.0%
Bank of New York Mellon Corp. 670,000 21,828,600
Invesco Ltd. (b) 800,000 16,784,000
Legg Mason, Inc. 240,000 9,134,400
--------------
47,747,000
===============================================================================
Chemicals -- 2.4%
The Dow Chemical Co. 500,000 15,890,000
E.I. du Pont de Nemours & Co. 575,000 23,172,500
--------------
39,062,500
===============================================================================
Communications Equipment -- 2.1%
Cisco Systems, Inc. (a) 1,150,000 25,944,000
Juniper Networks, Inc. (a) 400,000 8,428,000
--------------
34,372,000
===============================================================================
Computers & Peripherals -- 3.0%
Hewlett-Packard Co. 450,000 20,808,000
International Business Machines Corp. 225,000 26,316,000
--------------
47,124,000
===============================================================================
Consumer Finance -- 0.4%
Discover Financial Services, Inc. 450,000 6,219,000
===============================================================================
Diversified Financial Services -- 3.2%
Bank of America Corp. 200,000 7,000,000
Citigroup, Inc. 195,000 3,999,450
JPMorgan Chase & Co. 625,000 29,187,500
Moody's Corp. 300,000 10,200,000
--------------
50,386,950
===============================================================================
Diversified Telecommunication Services -- 2.4%
AT&T Inc. 575,000 16,054,000
Verizon Communications, Inc. 700,000 22,463,000
--------------
38,517,000
===============================================================================
Electronic Equipment & Instruments -- 0.4%
Tyco Electronics Ltd. 240,000 6,638,400
===============================================================================
Energy Equipment & Services -- 2.6%
Schlumberger Ltd. 190,000 14,837,100
Transocean, Inc. 90,000 9,885,600
Weatherford International Ltd. (a) 675,000 16,969,500
--------------
41,692,200
===============================================================================
Food & Staples Retailing -- 0.6%
Wal-Mart Stores, Inc. 150,000 8,983,500
===============================================================================
Food Products -- 5.1%
Cadbury Plc (b) 350,000 14,329,000
General Mills, Inc. 240,000 16,492,800
Nestle SA Registered Shares 625,000 27,010,961
Unilever NV (b) 865,000 24,358,400
--------------
82,191,161
===============================================================================
Health Care Equipment & Supplies -- 0.8%
Baxter International, Inc. 200,000 13,126,000
===============================================================================
Health Care Providers & Services -- 1.1%
AmerisourceBergen Corp. 450,000 16,942,500
===============================================================================
Hotels, Restaurants & Leisure -- 3.0%
Carnival Corp. 650,000 22,977,500
McDonald's Corp. 400,000 24,680,000
--------------
47,657,500
===============================================================================
Household Durables -- 0.8%
Sony Corp. (b) 400,000 12,348,000
===============================================================================
Household Products -- 1.8%
Kimberly-Clark Corp. 450,000 29,178,000
===============================================================================
IT Services -- 0.7%
Accenture Ltd. Class A 300,000 11,400,000
===============================================================================
Industrial Conglomerates -- 2.5%
3M Co. 200,000 13,662,000
General Electric Co. 430,000 10,965,000
Textron, Inc. 505,000 14,786,400
--------------
39,413,400
===============================================================================
Insurance -- 4.5%
ACE Ltd. 425,000 23,005,250
Prudential Financial, Inc. 335,000 24,120,000
RenaissanceRe Holdings Ltd. 269,900 14,034,800
The Travelers Cos., Inc. 250,000 11,300,000
--------------
72,460,050
===============================================================================
Internet Software & Services -- 0.5%
Yahoo! Inc. (a) 500,000 8,650,000
===============================================================================
Machinery -- 1.0%
Dover Corp. 396,400 16,074,020
===============================================================================
Media -- 1.2%
CBS Corp. Class B 815,000 11,882,700
Walt Disney Co. 240,000 7,365,600
--------------
19,248,300
===============================================================================
Metals & Mining -- 0.6%
Alcoa, Inc. 400,000 9,032,000
===============================================================================
Multiline Retail -- 1.1%
J.C. Penney Co., Inc. 250,000 8,335,000
Kohl's Corp. (a) 200,000 9,216,000
--------------
17,551,000
===============================================================================
Oil, Gas & Consumable Fuels -- 5.2%
Devon Energy Corp. 250,000 22,800,000
EnCana Corp. 95,000 6,244,350
Exxon Mobil Corp. 195,000 15,143,700
Murphy Oil Corp. 325,000 20,845,500
Peabody Energy Corp. 200,000 9,000,000
Petroleo Brasileiro SA (b) 200,000 8,790,000
--------------
82,823,550
===============================================================================
See Notes to Financial Statements.
8 BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008
Schedule of Investments (concluded) (Percentages shown are based on Net Assets)
Common Stocks Shares Value
===============================================================================
Pharmaceuticals -- 4.0%
Bristol-Myers Squibb Co. 960,000 $ 20,016,000
Merck & Co., Inc. 400,000 12,624,000
Schering-Plough Corp. 800,000 14,776,000
Wyeth 450,000 16,623,000
--------------
64,039,000
===============================================================================
Semiconductors & Semiconductor
Equipment -- 1.9%
Broadcom Corp. Class A (a) 400,000 7,452,000
Intersil Corp. Class A 500,000 8,290,000
Micron Technology, Inc. (a) 1,920,000 7,776,000
Texas Instruments, Inc. 300,000 6,450,000
--------------
29,968,000
===============================================================================
Software -- 2.6%
Electronic Arts, Inc. (a) 385,000 14,241,150
Microsoft Corp. 1,000,000 26,690,000
--------------
40,931,150
===============================================================================
Specialty Retail -- 0.8%
Home Depot, Inc. 480,000 12,427,200
- -------------------------------------------------------------------------------
Total Common Stocks -- 64.9% 1,034,940,681
===============================================================================
===============================================================================
Beneficial
Interest
Mutual Funds (000)
===============================================================================
Master Total Return Portfolio of Master Bond LLC
(the "Master Portfolio") (c) $412,000 536,923,822
- -------------------------------------------------------------------------------
Total Mutual Funds -- 33.6%
===============================================================================
Total Long-Term Investments
(Cost -- $1,534,759,651) -- 98.5% 1,571,864,503
===============================================================================
===============================================================================
Short-Term Securities
===============================================================================
BlackRock Liquidity Series, LLC
Cash Sweep Series, 2.59% (c)(d) 24,828 24,827,857
- -------------------------------------------------------------------------------
Total Short-Term Securities
(Cost -- $24,827,857) -- 1.6% 24,827,857
===============================================================================
Total Investments (Cost -- $1,559,587,508*) -- 100.1% 1,596,692,360
Liabilities in Excess of Other Assets -- (0.1)% (932,370)
--------------
Net Assets -- 100.0% $1,595,759,990
==============
* The cost and unrealized appreciation (depreciation) of investments as of
September 30, 2008, as computed for federal income tax purposes, were as
follows:
Aggregate cost ....................................... $ 1,568,705,959
===============
Gross unrealized appreciation ........................ $ 234,326,934
Gross unrealized depreciation ........................ (206,340,533)
---------------
Net unrealized appreciation .......................... $ 27,986,401
===============
(a) Non-income producing security.
(b) Depositary receipts.
(c) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Net
Activity
Affiliate (000) Income
--------------------------------------------------------------------------
BlackRock Liquidity Series, LLC
Cash Sweep Series $ 152 $ 1,584,871
BlackRock Liquidity Series, LLC
Money Market Series $ (10,800) $ 25,353
Master Total Return Portfolio of
Master Bond LLC $ (197,000) $36,566,178
--------------------------------------------------------------------------
(d) Represents the current yield as of report date.
o For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets. These industry
classifications are unaudited.
See Notes to Financial Statements.
BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008 9
Statement of Assets and Liabilities
September 30, 2008
====================================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Investments at value -- unaffiliated (cost -- $929,787,640) ...................................................... $1,034,940,681
Investments at value -- affiliated (cost -- $629,799,868) ........................................................ 561,751,679
Dividends receivable ............................................................................................. 2,414,312
Capital shares sold receivable ................................................................................... 1,322,736
Investments sold receivable ...................................................................................... 572,426
Security lending income receivable -- affiliated ................................................................. 384
Other assets ..................................................................................................... 61,758
--------------
Total assets ..................................................................................................... 1,601,063,976
--------------
====================================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
Capital shares redeemed payable .................................................................................. 3,990,510
Investment advisory fees payable ................................................................................. 550,597
Other affiliates payable ......................................................................................... 496,844
Distribution fees payable ........................................................................................ 250,412
Bank overdraft ................................................................................................... 3,435
Officer's and Directors' fees payable ............................................................................ 876
Income dividends payable ......................................................................................... 532
Other accrued expenses payable ................................................................................... 10,780
--------------
Total liabilities ................................................................................................ 5,303,986
--------------
Net Assets ....................................................................................................... $1,595,759,990
==============
====================================================================================================================================
Net Assets Consist of
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional Shares, $0.10 par value, 400,000,000 shares authorized ............................................. $ 3,673,782
Investor A Shares, $0.10 par value, 200,000,000 shares authorized ................................................ 2,995,666
Investor B Shares, $0.10 par value, 500,000,000 shares authorized ................................................ 241,886
Investor C Shares, $0.10 par value, 200,000,000 shares authorized ................................................ 354,408
Class R Shares, $0.10 par value, 500,000,000 shares authorized ................................................... 45,852
Paid-in capital in excess of par ................................................................................. 1,471,664,920
Undistributed net investment income .............................................................................. 12,567,281
Accumulated net realized gain .................................................................................... 67,087,092
Net unrealized appreciation/depreciation ......................................................................... 37,129,103
--------------
Net Assets ....................................................................................................... $1,595,759,990
==============
====================================================================================================================================
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------------
Institutional -- Based on net assets of $806,612,020 and 36,737,816 shares outstanding ........................... $ 21.96
==============
Investor A -- Based on net assets of $655,428,671 and 29,956,657 shares outstanding .............................. $ 21.88
==============
Investor B -- Based on net assets of $51,370,520 and 2,418,859 shares outstanding ................................ $ 21.24
==============
Investor C -- Based on net assets of $72,693,623 and 3,544,080 shares outstanding ................................ $ 20.51
==============
Class R -- Based on net assets of $9,655,156 and 458,519 shares outstanding ...................................... $ 21.06
==============
See Notes to Financial Statements.
10 BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008
Statement of Operations
Year Ended September 30, 2008
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends (net of $316,764 foreign withholding tax) .............................................................. $ 27,731,501
Income from affiliates ........................................................................................... 1,603,983
Securities lending from affiliates ............................................................................... 25,353
Net investment income allocated from the Master Portfolio:
Interest ....................................................................................................... 37,115,742
Dividends ...................................................................................................... 442,949
Expenses ....................................................................................................... (992,513)
-------------
Total investment income and net investment income allocated from the Master Portfolio ............................ 65,927,015
-------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Investment advisory .............................................................................................. 8,438,307
Service -- Investor A ............................................................................................ 2,007,651
Service and distribution -- Investor B ........................................................................... 765,190
Service and distribution -- Investor C ........................................................................... 866,618
Service and distribution -- Class R .............................................................................. 51,415
Transfer agent -- Institutional .................................................................................. 970,793
Transfer agent -- Investor A ..................................................................................... 1,109,655
Transfer agent -- Investor B ..................................................................................... 206,940
Transfer agent -- Investor C ..................................................................................... 159,156
Transfer agent -- Class R ........................................................................................ 33,425
Professional ..................................................................................................... 112,524
Printing ......................................................................................................... 103,750
Custodian ........................................................................................................ 90,156
Officer and Directors ............................................................................................ 72,143
Registration ..................................................................................................... 70,009
Miscellaneous .................................................................................................... 86,945
-------------
Total expenses ................................................................................................... 15,144,677
Less fees waived by advisor ...................................................................................... (420,651)
-------------
Total expenses after waiver ...................................................................................... 14,724,026
-------------
Net investment income ............................................................................................ 51,202,989
-------------
===================================================================================================================================
Realized and Unrealized Gain (Loss)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized gain from:
Investments .................................................................................................... 100,900,736
Foreign currency ............................................................................................... 88,131
Allocations from the Master Portfolio .......................................................................... 2,566,522
-------------
103,555,389
-------------
Net change in unrealized appreciation/depreciation on:
Investments .................................................................................................... (450,878,276)
Foreign currency ............................................................................................... (2,116)
Allocations from the Master Portfolio .......................................................................... (66,810,788)
-------------
(517,691,180)
-------------
Total realized and unrealized loss ............................................................................... (414,135,791)
-------------
Net Decrease in Net Assets Resulting from Operations ............................................................. $(362,932,802)
=============
See Notes to Financial Statements.
BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008 11
Statements of Changes in Net Assets
Year Ended
September 30,
-----------------------------------
Increase (Decrease) in Net Assets: 2008 2007
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income ...................................................................... $ 51,202,989 $ 55,137,613
Net realized gain .......................................................................... 103,555,389 141,865,500
Net change in unrealized appreciation/depreciation ......................................... (517,691,180) 110,239,041
-----------------------------------
Net increase (decrease) in net assets resulting from operations ............................ (362,932,802) 307,242,154
-----------------------------------
===================================================================================================================================
Dividends and Distributions to Shareholders From
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income:
Institutional ............................................................................ (30,844,825) (33,452,525)
Investor A ............................................................................... (20,787,450) (22,511,016)
Investor B ............................................................................... (1,239,918) (2,020,759)
Investor C ............................................................................... (1,675,711) (1,868,011)
Class R .................................................................................. (244,075) (147,831)
Net realized gain:
Institutional ............................................................................ (84,351,170) (57,419,299)
Investor A ............................................................................... (60,554,500) (43,382,214)
Investor B ............................................................................... (6,278,295) (6,663,649)
Investor C ............................................................................... (6,968,380) (5,091,308)
Class R .................................................................................. (736,933) (244,993)
-----------------------------------
Decrease in net assets resulting from dividends and distributions to shareholders .......... (213,681,257) (172,801,605)
-----------------------------------
===================================================================================================================================
Capital Share Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from share transactions ................................. (224,109,003) (129,180,248)
-----------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets .................................................... (800,723,062) 5,260,301
Beginning of year .......................................................................... 2,396,483,052 2,391,222,751
-----------------------------------
End of year ................................................................................ $ 1,595,759,990 $ 2,396,483,052
===================================
End of year undistributed net investment income ............................................ $ 12,567,281 $ 13,380,068
===================================
See Notes to Financial Statements.
12 BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008
Financial Highlights
Institutional
---------------------------------------------------------------------
Year Ended September 30,
---------------------------------------------------------------------
2008 2007 2006 2005 2004
=========================================================================================================================
Per Share Operating Performance
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of year ....................... $ 29.29 $ 27.71 $ 27.00 $ 26.76 $ 24.31
---------------------------------------------------------------------
Net investment income 1 ......... 0.71 0.71 0.63 0.57 0.44
Net realized and unrealized
gain (loss) ................... (5.31) 2.98 2.22 1.57 2.50
---------------------------------------------------------------------
Net increase (decrease) from
operations ...................... (4.60) 3.69 2.85 2.14 2.94
---------------------------------------------------------------------
Dividends and distributions from:
Net investment income ....... (0.76) (0.77) (0.54) (0.64) (0.49)
Net realized gain ........... (1.97) (1.34) (1.60) (1.26) --
---------------------------------------------------------------------
Total dividends and distributions (2.73) (2.11) (2.14) (1.90) (0.49)
---------------------------------------------------------------------
Net asset value, end of year .... $ 21.96 $ 29.29 $ 27.71 $ 27.00 $ 26.76
=====================================================================
=========================================================================================================================
Total Investment Return 2
- -------------------------------------------------------------------------------------------------------------------------
Based on net asset value ........ (16.99)% 13.85% 11.24% 8.18% 12.17%
=====================================================================
=========================================================================================================================
Ratios to Average Net Assets 3
- -------------------------------------------------------------------------------------------------------------------------
Total expenses after waiver ..... 0.56% 0.55% 0.59% 0.58% 0.58%
=====================================================================
Total expenses .................. 0.58% 0.57% 0.61% 0.61% 0.60%
=====================================================================
Net investment income ........... 2.72% 2.50% 2.40% 2.11% 1.67%
=====================================================================
=========================================================================================================================
Supplemental Data
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) ... $ 806,612 $1,271,031 $1,215,143 $1,340,212 $1,405,513
=====================================================================
Portfolio turnover 4 ............ 27% 22% 12% 15% 17%
=====================================================================
Investor A
---------------------------------------------------------------------
Year Ended September 30,
---------------------------------------------------------------------
2008 2007 2006 2005 2004
=========================================================================================================================
Per Share Operating Performance
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of year ....................... $ 29.19 $ 27.63 $ 26.92 $ 26.69 $ 24.25
---------------------------------------------------------------------
Net investment income 1 ......... 0.62 0.63 0.57 0.50 0.37
Net realized and unrealized
gain (loss) ................... (5.28) 2.97 2.21 1.56 2.49
---------------------------------------------------------------------
Net increase (decrease) from
operations ...................... (4.66) 3.60 2.78 2.06 2.86
---------------------------------------------------------------------
Dividends and distributions from:
Net investment income ....... (0.68) (0.70) (0.47) (0.57) (0.42)
Net realized gain ........... (1.97) (1.34) (1.60) (1.26) --
---------------------------------------------------------------------
Total dividends and distributions (2.65) (2.04) (2.07) (1.83) (0.42)
---------------------------------------------------------------------
Net asset value, end of year .... $ 21.88 $ 29.19 $ 27.63 $ 26.92 $ 26.69
=====================================================================
=========================================================================================================================
Total Investment Return 2
- -------------------------------------------------------------------------------------------------------------------------
Based on net asset value ........ (17.25)% 13.52% 10.98% 7.88% 11.87%
=====================================================================
=========================================================================================================================
Ratios to Average Net Assets 3
- -------------------------------------------------------------------------------------------------------------------------
Total expenses after waiver ..... 0.85% 0.82% 0.84% 0.83% 0.83%
=====================================================================
Total expenses .................. 0.88% 0.84% 0.86% 0.85% 0.84%
=====================================================================
Net investment income ........... 2.42% 2.23% 2.15% 1.86% 1.42%
=====================================================================
=========================================================================================================================
Supplemental Data
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) ... $ 655,429 $ 913,955 $ 912,518 $ 965,951 $1,052,738
=====================================================================
Portfolio turnover 4 ............ 27% 22% 12% 15% 17%
=====================================================================
1 Based on average shares outstanding.
2 Total investment returns exclude the effects of any sales charges.
3 Includes the Fund's share of the Master Portfolio's allocated expenses
and/or net investment income.
4 Excludes transactions in the Master Portfolio.
See Notes to Financial Statements.
BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008 13
Financial Highlights (continued)
Investor B
---------------------------------------------------------------------
Year Ended September 30,
---------------------------------------------------------------------
2008 2007 2006 2005 2004
=========================================================================================================================
Per Share Operating Performance
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .... $ 28.36 $ 26.87 $ 26.19 $ 25.98 $ 23.59
---------------------------------------------------------------------
Net investment income 1 ............... 0.39 0.39 0.35 0.29 0.17
Net realized and unrealized gain (loss) (5.13) 2.87 2.15 1.52 2.42
---------------------------------------------------------------------
Net increase (decrease) from
operations ............................ (4.74) 3.26 2.50 1.81 2.59
---------------------------------------------------------------------
Dividends and distributions from:
Net investment income ............. (0.41) (0.43) (0.22) (0.34) (0.20)
Net realized gain ................. (1.97) (1.34) (1.60) (1.26) --
---------------------------------------------------------------------
Total dividends and distributions ..... (2.38) (1.77) (1.82) (1.60) (0.20)
---------------------------------------------------------------------
Net asset value, end of year .......... $ 21.24 $ 28.36 $ 26.87 $ 26.19 $ 25.98
=====================================================================
=========================================================================================================================
Total Investment Return 2
- -------------------------------------------------------------------------------------------------------------------------
Based on net asset value .............. (17.96)% 12.57% 10.10% 7.09% 10.99%
=====================================================================
=========================================================================================================================
Ratios to Average Net Assets 3
- -------------------------------------------------------------------------------------------------------------------------
Total expenses after waiver ........... 1.73% 1.65% 1.61% 1.61% 1.60%
=====================================================================
Total expenses ........................ 1.75% 1.67% 1.64% 1.63% 1.63%
=====================================================================
Net investment income ................. 1.56% 1.43% 1.35% 1.12% 0.66%
=====================================================================
=========================================================================================================================
Supplemental Data
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) ......... $ 51,371 $ 100,808 $ 157,581 $ 286,317 $ 434,115
=====================================================================
Portfolio turnover 4 .................. 27% 22% 12% 15% 17%
=====================================================================
Investor C
---------------------------------------------------------------------
Year Ended September 30,
---------------------------------------------------------------------
2008 2007 2006 2005 2004
=========================================================================================================================
Per Share Operating Performance
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year .... $ 27.52 $ 26.17 $ 25.59 $ 25.45 $ 23.14
---------------------------------------------------------------------
Net investment income 1 ............... 0.39 0.39 0.34 0.28 0.16
Net realized and unrealized gain (loss) (4.95) 2.79 2.11 1.48 2.37
---------------------------------------------------------------------
Net increase (decrease) from
operations ............................ (4.56) 3.18 2.45 1.76 2.53
---------------------------------------------------------------------
Dividends and distributions from:
Net investment income ............. (0.48) (0.49) (0.27) (0.36) (0.22)
Net realized gain ................. (1.97) (1.34) (1.60) (1.26) --
---------------------------------------------------------------------
Total dividends and distributions ..... (2.45) (1.83) (1.87) (1.62) (0.22)
---------------------------------------------------------------------
Net asset value, end of year .......... $ 20.51 $ 27.52 $ 26.17 $ 25.59 $ 25.45
=====================================================================
=========================================================================================================================
Total Investment Return 2
- -------------------------------------------------------------------------------------------------------------------------
Based on net asset value .............. (17.90)% 12.62% 10.13% 7.05% 10.98%
=====================================================================
=========================================================================================================================
Ratios to Average Net Assets 3
- -------------------------------------------------------------------------------------------------------------------------
Total expenses after waiver ........... 1.65% 1.60% 1.61% 1.61% 1.61%
=====================================================================
Total expenses ........................ 1.67% 1.63% 1.64% 1.63% 1.63%
=====================================================================
Net investment income ................. 1.63% 1.45% 1.37% 1.09% 0.64%
=====================================================================
=========================================================================================================================
Supplemental Data
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) ......... $ 72,694 $ 100,572 $ 101,175 $ 113,356 $ 134,013
=====================================================================
Portfolio turnover 4 .................. 27% 22% 12% 15% 17%
=====================================================================
1 Based on average shares outstanding.
2 Total investment returns exclude the effects of sales charges.
3 Includes the Fund's share of the Master Portfolio's allocated expenses
and/or net investment income.
4 Excludes transactions in the Master Portfolio.
See Notes to Financial Statements.
14 BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008
Class R
----------------------------------------------------------------
Year Ended September 30,
----------------------------------------------------------------
2008 2007 2006 2005 2004
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ........................... $ 28.22 $ 26.81 $ 26.18 $ 26.03 $ 23.71
----------------------------------------------------------------
Net investment income 1 ...................................... 0.49 0.50 0.49 0.43 0.30
Net realized and unrealized gain (loss) ...................... (5.08) 2.90 2.15 1.52 2.45
----------------------------------------------------------------
Net increase (decrease) from investment operations ........... (4.59) 3.40 2.64 1.95 2.75
----------------------------------------------------------------
Dividends and distributions from:
Net investment income .................................... (0.60) (0.65) (0.41) (0.54) (0.43)
Net realized gain ........................................ (1.97) (1.34) (1.60) (1.26) --
----------------------------------------------------------------
Total dividends and distributions ............................ (2.57) (1.99) (2.01) (1.80) (0.43)
----------------------------------------------------------------
Net asset value, end of year ................................. $ 21.06 $ 28.22 $ 26.81 $ 26.18 $ 26.03
================================================================
==================================================================================================================================
Total Investment Return
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value ..................................... (17.59)% 13.18% 10.70% 7.63% 11.67%
================================================================
==================================================================================================================================
Ratios to Average Net Assets 2
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses after waiver .................................. 1.29% 1.14% 1.09% 1.08% 1.07%
================================================================
Total expenses ............................................... 1.31% 1.16% 1.11% 1.11% 1.07%
================================================================
Net investment income ........................................ 1.98% 1.87% 1.91% 1.65% 1.10%
================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (000) ................................ $ 9,655 $ 10,117 $ 4,805 $ 4,349 $ 2,526
================================================================
Portfolio turnover 3 ......................................... 27% 22% 12% 15% 17%
================================================================
1 Based on average shares outstanding.
2 Includes the Fund's share of the Master Portfolio's allocated expenses
and/or net investment income.
3 Excludes transactions in the Master Portfolio.
See Notes to Financial Statements.
BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008 15
Notes to Financial Statements
1. Significant Accounting Policies:
BlackRock Balanced Capital Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as a diversified,
open-end management investment company. The Fund seeks to achieve its investment
objective through a fully managed investment policy utilizing equity, fixed
income and convertible securities. The Fund invests the fixed income portion of
its assets in Master Total Return Portfolio (the "Master Portfolio") of Master
Bond LLC (the "Master LLC"), a mutual fund that has an investment objective and
strategy consistent with that of the fixed income portion of the Fund. The value
of the Fund's investment in the Master Portfolio reflects the Fund's
proportionate interest in the net assets of the Master Portfolio. The percentage
of the Master Portfolio owned by the Fund at September 30, 2008 was 16.5%. The
Fund's financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America, which may require
the use of management accruals and estimates. Actual results may differ from
these estimates. The Fund offers multiple classes of shares. Institutional
Shares are sold only to certain eligible investors. Investor A Shares are sold
with a front-end sales charge. Investor B and Investor C Shares may be subject
to a contingent deferred sales charge. Class R Shares are sold only to certain
retirement plans. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
Investor A, Investor B, Investor C and Class R Shares bear certain expenses
related to the shareholder servicing of such shares, and Investor B, Investor C
and Class R Shares also bear certain expenses related to the distribution of
such shares. Each class has exclusive voting rights with respect to matters
relating to its shareholder servicing and distribution expenditures (except that
Investor B shareholders may vote on material changes to the Investor A
distribution plan).
The following is a summary of significant accounting policies followed by the
Fund:
Valuation of Investments: Equity investments traded on a recognized securities
exchange or the NASDAQ Global Market System are valued at the last reported sale
price that day or the NASDAQ official closing price, if applicable. For equity
investments traded on more than one exchange, the last reported sale price on
the exchange where the stock is primarily traded is used. Equity investments
traded on a recognized exchange for which there were no sales on that day are
valued at the last available bid price. If no bid price is available, the prior
day's price will be used, unless it is determined that such prior day's price no
longer reflects the fair value of the security. Investments in open-end
investment companies are valued at net asset value each business day. Short-term
securities are valued at amortized cost.
In the event that application of these methods of valuation results in a price
for an investment which is deemed not to be representative of the market value
of such investment, the investment will be valued by a method approved by the
Board of Directors (the "Board") as reflecting fair value ("Fair Value Assets").
When determining the price for Fair Value Assets, the investment advisor and/or
sub-advisor seeks to determine the price that the Fund might reasonably expect
to receive from the current sale of that asset in an arms-length transaction.
Fair value determinations shall be based upon all available factors that the
investment advisor and/or sub-advisor deems relevant. The pricing of all Fair
Value Assets is subsequently reported to the Board or a committee thereof.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of business on the New York Stock Exchange
("NYSE"). The values of such securities used in computing the net assets of the
Fund are determined as of such times. Foreign currency exchange rates will be
determined as of the close of business on the NYSE. Occasionally, events
affecting the values of such securities and such exchange rates may occur
between the times at which they are determined and the close of business on the
NYSE that may not be reflected in the computation of the Fund's net assets. If
events (for example, a company announcement, market volatility or a natural
disaster) occur during such periods that are expected to materially affect the
value of such securities, those securities may be valued at their fair value as
determined in good faith by the Board or by the investment advisor using a
pricing service and/or procedures approved by the Board.
Foreign Currency Transactions: Foreign currency amounts are translated into
United States dollars on the following basis: (i) market value of investment
securities, assets and liabilities at the current rate of exchange; and (ii)
purchases and sales of investment securities, income and expenses at the rates
of exchange prevailing on the respective dates of such transactions.
The Fund reports foreign currency related transactions as components of realized
gains for financial reporting purposes, whereas such components are treated as
ordinary income for federal income tax purposes.
Investment Transactions and Investment Income: Investment transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Fund has determined the ex-dividend date.
Interest income is recognized on the accrual basis. Income and realized and
unrealized gains and losses are allocated daily to each class based on its
relative net assets.
16 BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008
Notes to Financial Statements (continued)
Dividends and Distributions: Dividends and distributions paid by the Fund are
recorded on the ex-dividend dates.
Securities Lending: The Fund may lend securities to financial institutions that
provide cash or securities issued or guaranteed by the United States government
as collateral, which will be maintained at all times in an amount equal to at
least 100% of the current market value of the loaned securities. The market
value of the loaned securities is determined at the close of business of the
Fund and any additional required collateral is delivered to the Fund on the next
business day. The Fund typically receives the income on the loaned securities
but does not receive the income on the collateral. Where the Fund receives cash
collateral, it may invest such collateral and retain the amount earned on such
investment, net of any amount rebated to the borrower. The Fund may receive a
flat fee for its loans. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities within the
standard time period for settlement of securities transactions. The Fund may pay
reasonable lending agent, administrative and custodial fees in connection with
its loans. In the event that the borrower defaults on its obligation to return
borrowed securities because of insolvency or for any other reason, the Fund
could experience delays and costs in gaining access to the collateral. The Fund
also could suffer a loss where the value of the invested collateral falls below
the market value of the borrowed securities, either in the event of borrower
default or in the event of losses on investments made with cash collateral.
Income Taxes: It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required. Under the applicable
foreign tax laws, a withholding tax may be imposed on interest, dividends and
capital gains at various rates.
Effective March 31, 2008, the Fund implemented Financial Accounting Standards
Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income
Taxes -- an interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48
prescribes the minimum recognition threshold a tax position must meet in
connection with accounting for uncertainties in income tax positions taken or
expected to be taken by an entity, including investment companies, before being
measured and recognized in the financial statements. The investment advisor has
evaluated the application of FIN 48 to the Fund, and has determined that the
adoption of FIN 48 does not have a material impact on the Fund's financial
statements. The Fund files U.S. federal and various state and local tax returns.
No income tax returns are currently under examination. The statute of
limitations on the Fund's tax returns remains open for the years ended September
30, 2005 through September 30, 2007. The statutes of limitations on the Fund's
state and local tax returns may remain open for an additional year depending
upon the jurisdiction.
Recent Accounting Pronouncements: In September 2006, Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"), was issued
and is effective for fiscal years beginning after November 15, 2007. FAS 157
defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The impact on the Fund's financial
statement disclosures, if any, is currently being assessed.
In March 2008, Statement of Financial Accounting Standards No. 161, "Disclosures
about Derivative Instruments and Hedging Activities -- an amendment of FASB
Statement No. 133" ("FAS 161"), was issued. FAS 161 is intended to improve
financial reporting for derivative instruments by requiring enhanced disclosure
that enables investors to understand how and why an entity uses derivatives, how
derivatives are accounted for, and how derivative instruments affect an entity's
results of operations and financial position. In September 2008, FASB Staff
Position No. 133-1 and FASB Interpretation No. 45-4 (the "FSP"), "Disclosures
about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement
No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date
of FASB Statement No. 161" was issued and is effective for fiscal years and
interim periods ending after November 15, 2008. The FSP amends FASB Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities," to
require disclosures by sellers of credit derivatives, including credit
derivatives embedded in hybrid instruments. The FSP also clarifies the effective
date of FAS 161, whereby disclosures required by FAS 161 are effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The impact on the Fund's financial statement disclosures, if
any, is currently being assessed.
Bank Overdraft: The Fund recorded a bank overdraft which resulted from
management estimates of available cash.
Other: Expenses directly related to the Fund or its classes are charged to that
Fund or class. Other operating expenses shared by several funds are pro-rated
among those funds on the basis of relative net assets or other appropriate
methods. Other expenses of the Fund are allocated daily to each class based on
its relative net assets.
2. Investment Advisory Agreement and Other Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with BlackRock
Advisors, LLC (the "Advisor"), an indirect, wholly owned subsidiary of
BlackRock, Inc., to provide investment advisory and administration services.
Merrill Lynch & Co., Inc. ("Merrill Lynch") and The PNC Financial Services
Group, Inc. ("PNC") are principal owners of BlackRock, Inc.
BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008 17
Notes to Financial Statements (continued)
The Advisor is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Fund. For such services, the Fund
pays the Advisor a monthly fee based upon the average daily value of the Fund's
net assets at the following annual rates: 0.50% of the Fund's average daily net
assets not exceeding $250 million; 0.45% of average daily net assets in excess
of $250 million but not exceeding $300 million; 0.425% of average daily net
assets in excess of $300 million but not exceeding $400 million; and 0.40% of
average daily net assets in excess of $400 million.
The Fund also pays an investment advisory fee to the Advisor, which is the
Master LLC's investment advisor, to the extent it invests its fixed income
assets in the Master Portfolio. The Advisor has contractually agreed to waive
its investment advisory fee in the amount the Fund pays in connection with its
investment in the Master Portfolio, which is shown as fees waived by advisor on
the Statement of Operations.
The Advisor has entered into a separate sub-advisory agreement with BlackRock
Investment Management, LLC ("BIM"), an affiliate of the Advisor, under which the
Advisor pays BIM for services it provides, a monthly fee that is a percentage of
the investment advisory fee paid by the Fund to the Advisor.
The Fund has entered into separate Distribution Agreements and Distribution
Plans with FAM Distributors, Inc. ("FAMD") and BlackRock Distributors, Inc. and
its affiliates ("BDI") (collectively, the "Distributor"). FAMD is a wholly owned
subsidiary of Merrill Lynch Group, Inc., and BDI is an affiliate of BlackRock,
Inc.
Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule
12b-1 under the 1940 Act, the Fund pays the Distributor ongoing service and
distribution fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
- --------------------------------------------------------------------------------
Service Distribution
Fee Fee
- --------------------------------------------------------------------------------
Investor A ......................................... 0.25% --
Investor B ......................................... 0.25% 0.75%
Investor C ......................................... 0.25% 0.75%
Class R ............................................ 0.25% 0.25%
- --------------------------------------------------------------------------------
Pursuant to sub-agreements with the Distributor, broker-dealers, including
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a wholly owned
subsidiary of Merrill Lynch, and the Distributor provide shareholder servicing
and distribution services to the Fund. The ongoing service and/or distribution
fee compensates the Distributor and each broker-dealer for providing shareholder
servicing and/or distribution-related services to Investor A, Investor B,
Investor C and Class R shareholders.
For the year ended September 30, 2008, affiliates earned underwriting discounts,
direct commissions and dealer concessions on sales of the Fund's Investor A
Shares, which totaled $71,727, and affiliates received contingent deferred sales
charges of $54,864 and $3,936 relating to transactions in Investor B and
Investor C Shares, respectively. Furthermore, affiliates received contingent
deferred sales charges of $741 relating to transactions subject to front-end
sales charge waivers on Investor A Shares. These amounts include payments to
Hilliard Lyons, which was considered an affiliate for a portion of the year.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to MLPF&S or its
affiliates. Pursuant to that order, the Fund has retained BIM as the securities
lending agent for a fee based on a share of the returns on investment of cash
collateral. BIM may, on behalf of the Fund, invest cash collateral received by
the Fund for such loans, among other things, in a private investment company
managed by the Advisor or in registered money market funds advised by the
Advisor or its affiliates. For the year ended September 30, 2008, BIM received
$6,086 in securities lending agent fees.
In addition, MLPF&S received $247,005 in commissions on the execution of
portfolio security transactions for the Fund for the year ended September 30,
2008.
Pursuant to written agreements, certain affiliates provide the Fund with
sub-accounting, record-keeping, sub-transfer agency and other administrative
services with respect to sub-accounts they service. For these services, these
affiliates receive an annual fee per shareholder account which will vary
depending on share class. For the year ended September 30, 2008, the Fund paid
$1,975,377 in return for these services, which are a component of the transfer
agent fees in the accompanying Statement of Operations.
The Fund may earn income on positive cash balances in demand deposit accounts
that are maintained by the transfer agent on behalf of the Fund. For the year
ended August 31, 2008, the Fund earned $19,112, which is included in income from
affiliates in the Statement of Operations.
PNC Global Investment Servicing (U.S.) Inc., formerly PFPC Inc., an indirect,
wholly owned subsidiary of PNC and an affiliate of the Advisor, is the Fund's
transfer agent. Each class of the Fund bears the costs of transfer agent fees
associated with such respective classes. Transfer agency fees borne by each
class of the Fund are comprised of those fees charged for all shareholder
communications including mailing of shareholder reports, dividend and
distribution notices, and proxy materials for shareholders meetings, as well as
per account and per transaction fees related to servicing and maintenance of
shareholder accounts, including the issuing, redeeming and transferring of
shares of each class of the Fund, 12b-1 fee calculation, check writing,
anti-money laundering services, and customer identification services.
18 BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008
Notes to Financial Statements (continued)
The Advisor maintains a call center, which is responsible for providing certain
shareholder services to the Fund, such as responding to shareholder inquiries
and processing transactions based upon instructions from shareholders with
respect to the subscription and redemption of Fund shares. For the year ended
September 30, 2008, the following amounts have been accrued by the Fund to
reimburse the Advisor for costs incurred in running the call center, which are a
component of the transfer agent fees in the accompanying Statement of
Operations.
- --------------------------------------------------------------------------------
Call Center
Fees
- --------------------------------------------------------------------------------
Institutional .................................................... $13,855
Investor A ....................................................... $20,415
Investor B ....................................................... $ 2,623
Investor C ....................................................... $ 2,233
Class R .......................................................... $ 119
- --------------------------------------------------------------------------------
Certain officers and/or directors of the Fund are officers and/or directors of
BlackRock, Inc. or its affiliates. The Fund reimburses the Advisor for
compensation paid to the Fund's Chief Compliance Officer.
3. Investments:
Purchases and sales of investments, excluding short-term securities and
transactions in the Master Portfolio, for the year ended September 30, 2008 were
$359,998,116 and $574,427,969, respectively.
4. Short-Term Borrowings:
The Fund, along with certain other funds managed by the Advisor and its
affiliates, is party to a $500,000,000 credit agreement with a group of lenders,
which expires November 2008 and was subsequently renewed. The Fund may borrow
under the credit agreement to fund shareholder redemptions and for other lawful
purposes other than for leverage. The Fund may borrow up to the maximum amount
allowable under the Fund's current Prospectus and Statement of Additional
Information, subject to various other legal, regulatory or contractual limits.
The Fund pays a commitment fee of 0.06% per annum based on the Fund's pro rata
share of the unused portion of the credit agreement, which is included in
miscellaneous in the Statement of Operations. Amounts borrowed under the credit
agreement bear interest at a rate equal to, at each fund's election, the federal
funds rate plus 0.35% or a base rate as defined in the credit agreement. The
Fund did not borrow under the credit agreement during the year ended September
30, 2008.
5. Income Tax Information:
Reclassifications: Accounting principles generally accepted in the United States
of America require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting. These
reclassifications have no effect on net assets or on net asset values per share.
The following permanent differences as of September 30, 2008 attributable to
amortization methods on fixed income securities, foreign currency transactions,
accounting for paydowns, the reclassification of distributions and accounting
for swap agreements, were reclassified to the following accounts:
- --------------------------------------------------------------------------------
Increase (decrease) in undistributed investment income ......... $ 2,776,203
Increase (decrease) in accumulated net realized gain (loss) .... (2,776,203)
- --------------------------------------------------------------------------------
The tax character of distributions paid during the years ended September 30,
2008 and September 30, 2007 were as follows:
- --------------------------------------------------------------------------------
9/30/2008 9/30/2007
- --------------------------------------------------------------------------------
Ordinary income ................................ $ 71,214,184 $ 63,144,826
Long-term capital gain ......................... 142,467,073 109,656,779
----------------------------
Total .......................................... $213,681,257 $172,801,605
============================
As of September 30, 2008, the components of accumulated earnings on a tax basis
were as follows:
- -------------------------------------------------------------------------------
Undistributed ordinary income ................................. $ 12,578,094
Undistributed long-term capital gains ......................... 76,194,730
------------
Total undistributed earnings .................................. 88,772,824
Capital loss carryforwards .................................... --
Net unrealized gains .......................................... 28,010,652*
------------
Total accumulated earnings .................................... $116,783,476
============
* The difference between book-basis and tax-basis net unrealized gains
is attributable primarily to the tax deferral of losses on wash
sales and the timing of income recognition from partnership
interests.
BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008 19
Notes to Financial Statements (concluded)
6. Capital Share Transactions:
Transactions in shares for each class were as follows:
Year Ended Year Ended
September 30, 2008 September 30, 2007
----------------------------- ----------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------------------------------
Institutional
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold ................................................ 5,175,766 $ 134,050,996 4,091,838 $ 116,036,502
Shares issued to shareholders in reinvestment of dividends
and distributions ........................................ 4,034,629 104,332,303 2,971,097 82,123,752
----------------------------- ----------------------------
Total issued ............................................... 9,210,395 238,383,299 7,062,935 198,160,254
Shares redeemed ............................................ (15,872,629) (401,279,020) (7,510,527) (212,737,057)
----------------------------- ----------------------------
Net decrease ............................................... (6,662,234) $(162,895,721) (447,592) $ (14,576,803)
============================= ============================
- -----------------------------------------------------------------------------------------------------------------------------------
Investor A
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold ................................................ 1,923,620 $ 49,245,825 2,669,986 $ 75,588,618
Shares issued to shareholders in reinvestment of dividends
and distributions ........................................ 2,784,380 71,782,339 2,102,016 57,875,366
----------------------------- ----------------------------
Total issued ............................................... 4,708,000 121,028,164 4,772,002 133,463,984
Shares redeemed ............................................ (6,063,812) (153,781,698) (6,485,914) (183,334,902)
----------------------------- ----------------------------
Net decrease ............................................... (1,355,812) $ (32,753,534) (1,713,912) $ (49,870,918)
============================= ============================
- -----------------------------------------------------------------------------------------------------------------------------------
Investor B
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold ................................................ 234,605 $ 5,908,684 413,493 $ 11,329,038
Shares issued to shareholders in reinvestment of dividends
and distributions ........................................ 257,961 6,499,716 283,896 7,571,413
----------------------------- ----------------------------
Total issued ............................................... 492,566 12,408,400 697,389 18,900,451
Shares redeemed ............................................ (1,628,072) (40,470,400) (3,007,751) (82,733,457)
----------------------------- ----------------------------
Net decrease ............................................... (1,135,506) $ (28,062,000) (2,310,362) $ (63,833,006)
============================= ============================
- -----------------------------------------------------------------------------------------------------------------------------------
Investor C
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold ................................................ 341,719 $ 7,845,147 280,175 $ 7,443,617
Shares issued to shareholders in reinvestment of dividends
and distributions ........................................ 299,811 7,288,422 224,293 5,822,850
----------------------------- ----------------------------
Total issued ............................................... 641,530 15,133,569 504,468 13,266,467
Shares redeemed ............................................ (751,709) (18,065,588) (716,605) (19,088,822)
----------------------------- ----------------------------
Net decrease ............................................... (110,179) $ (2,932,019) (212,137) $ (5,822,355)
============================= ============================
- -----------------------------------------------------------------------------------------------------------------------------------
Class R
- -----------------------------------------------------------------------------------------------------------------------------------
Shares sold ................................................ 247,145 $ 6,161,701 301,169 $ 8,276,313
Shares issued to shareholders in reinvestment of dividends
and distributions ........................................ 39,491 980,804 14,450 387,084
----------------------------- ----------------------------
Total issued ............................................... 286,636 7,142,505 315,619 8,663,397
Shares redeemed ............................................ (186,591) (4,608,234) (136,363) (3,740,563)
----------------------------- ----------------------------
Net increase ............................................... 100,045 $ 2,534,271 179,256 $ 4,922,834
============================= ============================
7. Subsequent Events:
On September 15, 2008, Bank of America Corporation announced that it has agreed
to acquire Merrill Lynch, one of the principal owners of BlackRock, Inc. The
purchase has been approved by the directors of both companies. Subject to
shareholder and regulatory approvals, the transaction is expected to close on or
before December 31, 2008.
Effective October 1, 2008, BlackRock Investments, Inc., an affiliate of the
Advisor, replaced FAM Distributors, Inc. and BlackRock Distributors, Inc. as the
sole distributor of the Fund. The service and distribution fees will not change
as a result of this transaction.
20 BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of
BlackRock Balanced Capital Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of BlackRock Balanced Capital Fund, Inc. (the
"Fund") as of September 30, 2008, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of September 30, 2008, by correspondence with the
custodian. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
BlackRock Balanced Capital Fund, Inc. as of September 30, 2008, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and its financial highlights for each
of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
November 26, 2008
Important Tax Information (Unaudited)
The following information is provided with respect to the ordinary income
distributions paid by BlackRock Balanced Capital Fund, Inc. during the fiscal
year ended September 30, 2008:
================================================================================
Record Date 12/19/2007 7/16/2008
Payable Date 12/21/2007 7/18/2008
================================================================================
Qualified Dividend Income for Individuals 1 41.37% 58.14%
- --------------------------------------------------------------------------------
Dividends Qualifying for the Dividends
Received Deduction for Corporations 1 36.18% 49.60%
- --------------------------------------------------------------------------------
Federal Obligation Interest 2.49% 0.91%
- --------------------------------------------------------------------------------
Interest-Related Dividends for
Non-U.S. Residents 2 37.90% 54.94%
- --------------------------------------------------------------------------------
Short-Term Capital Gain Dividends for
Non-U.S. Residents 2 33.91% None
- --------------------------------------------------------------------------------
1 The Fund hereby designates the percentage indicated above or the
maximum amount allowable by law.
2 Represents the portion of the taxable ordinary income dividends
eligible for exemption from U.S. withholding tax for nonresident
aliens and foreign corporations.
The law varies in each state as to whether and what percentage of dividend
income attributable to Federal obligations is exempt from state income tax. We
recommend that you consult your tax advisor to determine if any portion of the
dividends you received is exempt from state income tax.
Additionally, the Fund distributed long-term capital gains of $1.769495 per
share to shareholders of record on December 19, 2007.
BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008 21
Disclosure of Investment Advisory Agreement and Subadvisory Agreement
The Board of Directors (the "Board," the members of which are referred to as
"Directors") of BlackRock Balanced Capital Fund, Inc. (the "Fund") met in April
and June 2008 to consider the approval of the Fund's investment advisory
agreement (the "Advisory Agreement") with BlackRock Advisors, LLC (the
"Advisor"), the Fund's investment advisor. The Fund is a "feeder" fund that
invests all of its fixed-income assets in Master Total Return Portfolio (the
"Master Portfolio") of Master Bond LLC (the "Master LLC"), which has the same
investment objectives and strategies as the fixed-income portion of the Fund.
All fixed-income investments are made at the Master LLC level. The Board also
considered the approval of the subadvisory agreement (the "Subadvisory
Agreement") between the Advisor and BlackRock Investment Management, LLC (the
"Subadvisor"). The Advisor and the Subadvisor are referred to herein as
"BlackRock." The Advisory Agreement and the Subadvisory Agreement are referred
to herein as the "Agreements."
Activities and Composition of the Board
The Board of the Fund consists of fifteen individuals, twelve of whom are not
"interested persons" of the Fund as defined in the Investment Company Act of
1940, as amended (the "1940 Act") (the "Independent Directors"). The Directors
are responsible for the oversight of the operations of the Fund and perform the
various duties imposed on the directors of investment companies by the 1940 Act.
The Independent Directors have retained independent legal counsel to assist them
in connection with their duties. The Chairman of the Board is an Independent
Director. The Board established four standing committees: an Audit Committee, a
Governance and Nominating Committee, a Compliance Committee and a Performance
Oversight Committee, each of which is composed of, and chaired by Independent
Directors.
The Agreements
Upon the consummation of the combination of BlackRock's investment management
business with Merrill Lynch & Co., Inc.'s investment management business,
including Merrill Lynch Investment Managers, L.P., and certain affiliates (the
"Transaction"), the Fund entered into the Advisory Agreement with an initial
two-year term and the Advisor entered into the Subadvisory Agreement with the
Subadvisor with an initial two-year term. Consistent with the 1940 Act, prior to
the expiration of the Agreements' respective initial two-year term, the Board is
required to consider the continuation of the Fund's Agreements on an annual
basis. In connection with this process, the Board assessed, among other things,
the nature, scope and quality of the services provided to the Fund by the
personnel of BlackRock and its affiliates, including investment management,
administrative services, shareholder services, oversight of fund accounting and
custody, marketing services and assistance in meeting legal and regulatory
requirements. The Board also received and assessed information regarding the
services provided to the Fund by certain unaffiliated service providers.
Throughout the year, the Board, acting directly and through its committees,
considers at each of its meetings factors that are relevant to its annual
consideration of the renewal of the Fund's Agreements, including the services
and support provided to the Fund and its shareholders. Among the matters the
Board considered were: (a) investment performance for one, three and five years,
as applicable, against peer funds, as well as senior management and portfolio
managers' analysis of the reasons for underperformance, if applicable; (b) fees,
including advisory, administration, if applicable, and other fees paid to
BlackRock and its affiliates by the Fund, such as transfer agency fees and fees
for marketing and distribution; (c) Fund operating expenses; (d) the resources
devoted to and compliance reports relating to the Fund's investment objective,
policies and restrictions, (e) the Fund's compliance with its Code of Ethics and
compliance policies and procedures; (f) the nature, cost and character of
non-investment management services provided by BlackRock and its affiliates; (g)
BlackRock's and other service providers' internal controls; (h) BlackRock's
implementation of the proxy voting guidelines approved by the Board; (i) the use
of brokerage commissions and spread and execution quality; (j) valuation and
liquidity procedures; and (k) periodic overview of BlackRock's business,
including BlackRock's response to the increasing scale of its business.
Board Considerations in Approving the Agreements
The Approval Process: At an in-person meeting held on April 10, 2008, the Board
reviewed materials relating to its consideration of the Agreements. At an
in-person meeting held on June 5 - 6, 2008, the Fund's Board, including the
Independent Directors, unanimously approved the continuation of the Advisory
Agreement between the Advisor and the Fund for a one-year term ending June 30,
2009 and the Subadvisory Agreement between the Advisor and BlackRock Investment
Management, LLC for a one-year term ending June 30, 2009. In considering the
approval of the Agreements, the Board received and discussed various materials
provided to it in advance of the April 10, 2008 meeting. As a result of the
discussions that occurred during the April 10, 2008 meeting, the Board requested
and BlackRock provided additional information, as detailed below, in advance of
the June 5 - 6, 2008 Board meeting. The Board considered all factors it believed
relevant with respect to the Fund, including, among other factors: (a) the
nature, extent and quality of the services provided by BlackRock; (b) the
investment performance of the Fund and BlackRock portfolio management; (c) the
advisory fee and the cost of the services and profits to be realized by
BlackRock and certain affiliates from the relationship with the Fund; (d)
economies of scale; and (e) other factors.
22 BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008
Disclosure of Investment Advisory Agreement and Subadvisory Agreement
(continued)
Prior to the April 10, 2008 meeting, the Board requested and received materials
specifically relating to the Agreements. The Board is engaged in an ongoing
process with BlackRock to continuously review the nature and scope of the
information provided to better assist its deliberations. These materials
included (a) information independently compiled and prepared by Lipper, Inc.
("Lipper") on Fund fees and expenses, and the investment performance of the Fund
as compared with a peer group of funds as determined by Lipper ("Peers"); (b)
information on the profitability of the Agreements to BlackRock and certain
affiliates, including their other relationships with the Fund, and a discussion
of fall-out benefits; (c) a general analysis provided by BlackRock concerning
investment advisory fees charged to other clients, such as institutional and
closed-end funds, under similar investment mandates, as well as the performance
of such other clients; (d) a report on economies of scale; (e) sales and
redemption data regarding the Fund's shares; and (f) an internal comparison of
management fees classified by Lipper, if applicable. At the April 10, 2008
meeting, the Board requested and subsequently received from BlackRock (i) a
comprehensive analysis of total expenses on a fund-by-fund basis; (ii) further
analysis of investment performance; (iii) further data regarding Fund
profitability, Fund size and Fund fee levels; and (iv) additional information on
sales and redemptions.
The Board also considered other matters it deemed important to the approval
process, such as payments made to BlackRock or its affiliates relating to the
distribution of Fund shares, services related to the valuation and pricing of
Fund portfolio holdings, and direct and indirect benefits to BlackRock and its
affiliates from their relationship with the Fund. The Board did not identify any
particular information as controlling, and each Director may have attributed
different weights to the various items considered.
A. Nature, Extent and Quality of the Services: The Board, including the
Independent Directors, reviewed the nature, extent and quality of services
provided by BlackRock, including the investment advisory services and the
resulting performance of the Fund. Throughout the year, the Board compared Fund
performance to the performance of a comparable group of mutual funds as
classified by Lipper and the performance of at least one relevant index or
combination of indices. The Board met with BlackRock's senior management
personnel responsible for investment operations, including the senior investment
officers. The Board also reviewed the materials provided by the Fund's portfolio
management team discussing Fund performance and the Fund's investment objective,
strategies and outlook.
The Board considered, among other factors, the number, education and experience
of BlackRock's investment personnel generally and the Fund's portfolio
management team, BlackRock's portfolio trading capabilities, BlackRock's use of
technology, BlackRock's commitment to compliance and BlackRock's approach to
training and retaining portfolio managers and other research, advisory and
management personnel. The Board also reviewed BlackRock's compensation structure
with respect to the Fund's portfolio management team and BlackRock's ability to
attract and retain high-quality talent.
In addition to advisory services, the Board considered the quality of the
administrative and non-investment advisory services provided to the Fund.
BlackRock and its affiliates provide the Fund with certain administrative,
transfer agency, shareholder and other services (in addition to any such
services provided to the Fund by third parties) and officers and other personnel
as are necessary for the operations of the Fund. In addition to investment
advisory services, BlackRock and its affiliates provide the Fund with other
services, including (i) preparing disclosure documents, such as the prospectus,
the statement of additional information and shareholder reports; (ii) assisting
with daily accounting and pricing; (iii) overseeing and coordinating the
activities of other service providers; (iv) organizing Board meetings and
preparing the materials for such Board meetings; (v) providing legal and
compliance support; and (vi) performing other administrative functions necessary
for the operation of the Fund, such as tax reporting and fulfilling regulatory
filing requirements. The Board reviewed the structure and duties of BlackRock's
fund administration, accounting, legal and compliance departments.
B. The Investment Performance of the Fund and BlackRock: The Board, including
the Independent Directors, also reviewed and considered the performance history
of the Fund. In preparation for the April 10, 2008 meeting, the Board was
provided with reports, independently prepared by Lipper, which included a
comprehensive analysis of the Fund's performance. The Board also reviewed a
narrative and statistical analysis of the Lipper data that was prepared by
BlackRock, which analyzed various factors that affect Lipper's rankings. In
connection with its review, the Board received and reviewed information
regarding the investment performance of the Fund as compared to a representative
group of similar funds as determined by Lipper and to all funds in the Fund's
applicable Lipper category. The Board was provided with a description of the
methodology used by Lipper to select peer funds. The Board regularly reviews the
performance of the Fund throughout the year. The Board attaches more importance
to performance over relatively long periods of time, typically three to five
years.
BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008 23
Disclosure of Investment Advisory Agreement and Subadvisory Agreement
(continued)
The Fund ranked in the third, second and second quartiles on a net basis against
its Lipper peer universe for the one-, three- and five-year periods ended
December 31, 2007, respectively. In considering the Advisory Agreement, the
Board noted that the Fund's investment performance for the one-year period was
disappointing, but that longer-term performance meets the Board's expectations.
The Board typically gives greater weight to longer-term results.
C. Consideration of the Advisory Fees and the Cost of the Services and Profits
to be Realized by BlackRock and its Affiliates from the Relationship with the
Fund: The Board, including the Independent Directors, reviewed the Fund's
contractual advisory fee rates compared with the other funds in its Lipper
category. It also compared the Fund's total expenses to those of other
comparable funds. The Board considered the services provided and the fees
charged by BlackRock to other types of clients with similar investment mandates,
including separately managed institutional accounts.
The Board received and reviewed statements relating to BlackRock's financial
condition and profitability with respect to the services it provided to the
Fund. The Board was also provided with a profitability analysis that detailed
the revenues earned and the expenses incurred by BlackRock and certain
affiliates that provide services to the Fund. The Board reviewed BlackRock's
profitability with respect to the Fund and each fund the Board currently
oversees for the year ended December 31, 2007 compared to aggregated
profitability data provided for the year ended December 31, 2005.
In addition, the Board considered the cost of the services provided to the Fund
by BlackRock, and BlackRock's and its affiliates' profits relating to the
management and distribution of the Fund and the other funds advised by BlackRock
and its affiliates. As part of its analysis, the Board reviewed BlackRock's
methodology in allocating its costs to the management of the Fund and concluded
that there was a reasonable basis for the allocation. The Board also considered
whether BlackRock has the financial resources necessary to attract and retain
high-quality investment management personnel to perform its obligations under
the Agreements and to continue to provide the high quality of services that are
expected by the Board.
The Board took into account that BlackRock has contractually agreed to waive a
portion of its advisory fee by the amount of any management fees the Fund pays
the investment advisor of the Master Portfolio of the Master LLC indirectly
through its investment in the Master Portfolio, thereby lowering Fund expenses.
The Board also took into account that the Fund has an advisory fee arrangement
that includes breakpoints that adjust the fee rate downward as the size of the
Fund increases, thereby allowing shareholders the potential to participate in
economies of scale.
D. Economies of Scale: The Board, including the Independent Directors,
considered the extent to which economies of scale might be realized as the
assets of the Fund increase and whether there should be changes in the advisory
fee rate or structure in order to enable the Fund to participate in these
economies of scale. The Board, including the Independent Directors, considered
whether the shareholders would benefit from economies of scale and whether there
was potential for future realization of economies with respect to the Fund. The
Board considered that the funds in the BlackRock fund complex share common
resources and, as a result, an increase in the overall size of the complex could
permit each fund to incur lower expenses than it would otherwise as stand-alone
entities. The Board also considered the anticipated efficiencies in the
processes of BlackRock's overall operations as it continues to add personnel and
commit capital to expand the scale of operations. The Board found, based on its
review of comparable funds, that the Fund's management fee is appropriate in
light of the scale of the Fund.
E. Other Factors: The Board also took into account other ancillary or "fall-out"
benefits that BlackRock may derive from its relationship with the Fund, both
tangible and intangible, such as BlackRock's ability to leverage its investment
professionals that manage other portfolios, an increase in BlackRock's profile
in the investment advisory community, and the engagement of BlackRock's
affiliates as service providers to the Fund, including for administrative,
transfer agency and distribution services. The Board also noted that BlackRock
may use third-party research obtained by soft dollars generated by transactions
in the Fund to assist itself in managing all or a number of its other client
accounts.
24 BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008
Disclosure of Investment Advisory Agreement and Subadvisory Agreement
(concluded)
In connection with its consideration of the Agreements, the Board also received
information regarding BlackRock's brokerage and soft dollar practices. The Board
received reports from BlackRock which included information on brokerage
commissions and trade execution practices throughout the year.
Conclusion
The Board approved the continuation of the Advisory Agreement between the
Advisor and the Fund for a one-year term ending June 30, 2009 and the
Subadvisory Agreement between the Advisor and BlackRock Investment Management,
LLC for a one-year term ending June 30, 2009. Based upon their evaluation of all
these factors in their totality, the Board, including the Independent Directors,
was satisfied that the terms of the Agreements were fair and reasonable and in
the best interest of the Fund and the Fund's shareholders. In arriving at a
decision to approve the Agreements, the Board did not identify any single factor
or group of factors as all-important or controlling, but considered all factors
together. The Independent Directors were also assisted by the advice of
independent legal counsel in making this determination. The contractual fee
arrangements for the Fund reflect the result of several years of review by the
Directors and predecessor Directors, and discussions between the Directors (and
predecessor Directors) and BlackRock. Certain aspects of the arrangements may be
the subject of more attention in some years than in others, and the Directors'
conclusions may be based in part on their consideration of these arrangements in
prior years.
BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008 25
Officers and Directors
Number of
BlackRock-
Position(s) Length of Time Advised Funds
Name, Address Held with Served as a Principal Occupation(s) and Portfolios
and Year of Birth Fund Director(2) During Past Five Years Overseen Public Directorships
====================================================================================================================================
Non-Interested Directors(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Robert M. Hernandez Chairman of Since 2007 Formerly Director, Vice Chairman 37 Funds ACE Limited (insur-
40 East 52nd Street the Board, and Chief Financial Officer of 104 Portfolios ance company);
New York, NY 10022 Director and USX Corporation (energy and Eastman Chemical
1944 Member of steel business) from 1991 to Company (chemical);
the Audit 2001. RTI International
Committee Metals, Inc. (metals);
TYCO Electronics
(electronics)
- ------------------------------------------------------------------------------------------------------------------------------------
Fred G. Weiss Vice Chairman Since 1998 Managing Director, FGW 37 Funds Watson
40 East 52nd Street of the Board, Associates (consulting and 104 Portfolios Pharmaceutical Inc.
New York, NY 10022 Chairman of investment company) since
1941 the Audit 1997; Director, Michael J. Fox
Committee Foundation for Parkinson's
and Director Research since 2000; Formerly
Director of BTG International
Plc (a global technology
commercialization company) from
2001 to 2007.
- ------------------------------------------------------------------------------------------------------------------------------------
James H. Bodurtha Director Since 2007 Director, The China Business 37 Funds None
40 East 52nd Street Group, Inc. (consulting firm) 104 Portfolios
New York, NY 10022 since 1996 and formerly
1944 Executive Vice President thereof
from 1996 to 2003; Chairman of
the Board, Berkshire Holding
Corporation since 1980.
- ------------------------------------------------------------------------------------------------------------------------------------
Bruce R. Bond Director Since 2007 Formerly Trustee and Member of 37 Funds None
40 East 52nd Street the Governance Committee, State 104 Portfolios
New York, NY 10022 Street Research Mutual Funds
1946 from 1997 to 2005; Formerly
Board Member of Governance,
Audit and Finance Committee,
Avaya Inc. (computer equipment)
from 2003 to 2007.
- ------------------------------------------------------------------------------------------------------------------------------------
Donald W. Burton Director Since 2002 Managing General Partner, The 37 Funds Knology, Inc.
40 East 52nd Street Burton Partnership, LP (an 104 Portfolios (telecommunica-
New York, NY 10022 investment partnership) since tions); Capital
1944 1979; Managing General Partner, Southwest (financial)
The South Atlantic Venture Funds
since 1983; Member of the
Investment Advisory Council of
the Florida State Board of
Administration from 2001 to
2007.
- ------------------------------------------------------------------------------------------------------------------------------------
Honorable Director Since 2007 Partner and Head of 37 Funds UPS Corporation
Stuart E. Eizenstat International Practice, 104 Portfolios (delivery service)
40 East 52nd Street Covington and Burling (law firm)
New York, NY 10022 since 2001; International
1943 Advisory Board Member, The
Coca-Cola Company since 2002;
Advisory Board Member BT
Americas (telecommunications)
since 2004; Member of the Board
of Directors, Chicago Climate
Exchange (environmental) since
2006; Member of the
International Advisory Board GML
(energy) since 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
Kenneth A. Froot Director Since 2007 Professor, Harvard University 37 Funds None
40 East 52nd Street since 1992. 104 Portfolios
New York, NY 10022
1957
- ------------------------------------------------------------------------------------------------------------------------------------
John F. O'Brien Director Since 2005 Trustee, Woods Hole 37 Funds Cabot Corporation
40 East 52nd Street Oceanographic Institute since 104 Portfolios (chemicals); LKQ
New York, NY 10022 2003; Formerly Director, Corporation (auto
1943 Allmerica Financial Corporation parts manufactur-
from 1995 to 2003; Formerly ing); TJX Companies,
Director, ABIOMED from 1989 to Inc. (retailer)
2006; Formerly Director,
Ameresco, Inc. (energy solutions
company) from 2006 to 2007.
- ------------------------------------------------------------------------------------------------------------------------------------
Roberta Cooper Ramo Director Since 2007 Shareholder, Modrall, Sperling, 37 Funds None
40 East 52nd Street Roehl, Harris & Sisk, P.A. (law 104 Portfolios
New York, NY 10022 firm) since 1993; Chairman of
1942 the Board, Cooper's Inc.
(retail) since 2000; Director of
ECMC Group (service provider to
students, schools and lenders)
since 2001; President Elect, The
American Law Institute
(non-profit), 2007; Formerly
President, American Bar
Association from 1995 to 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
26 BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008
Officers and Directors (continued)
Number of
BlackRock-
Position(s) Length of Time Advised Funds
Name, Address Held with Served as a Principal Occupation(s) and Portfolios
and Year of Birth Fund Director(2) During Past Five Years Overseen Public Directorships
====================================================================================================================================
Non-Interested Directors(1) (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Jean Margo Reid Director Since 2007 Self-employed consultant since 37 Funds None
40 East 52nd Street 2001; Director and Secretary, 104 Portfolios
New York, NY 10022 SCB, Inc. (holding company)
1945 since 1998; Director and
Secretary, SCB Partners, Inc.
(holding company) since 2000;
Formerly Director, Covenant
House (non-profit) from 2001 to
2004.
- ------------------------------------------------------------------------------------------------------------------------------------
David H. Walsh Director Since 2003 Director, National Museum of 37 Funds None
40 East 52nd Street Wildlife Art since 2007; 104 Portfolios
New York, NY 10022 Director, Ruckleshaus Institute
1941 and Haub School of Natural
Resources at the University of
Wyoming since 2006; Director,
The American Museum of Fly
Fishing since 1997; Formerly
Consultant with Putnam
Investments from 1993 to 2003;
Formerly Director, The National
Audubon Society from 1998 to
2005.
- ------------------------------------------------------------------------------------------------------------------------------------
Richard R. West Director and Since 1998 Dean Emeritus, New York 37 Funds Bowne & Co., Inc.
40 East 52nd Street Member of University's Leonard N. Stern 104 Portfolios (financial printers);
New York, NY 10022 the Audit School of Business Vornado Realty Trust
1938 Committee Administration since 1995. (real estate com-
pany); Alexander's
Inc. (real estate
company)
------------------------------------------------------------------------------------------------------------
(1) Directors serve until their resignation, removal or death, or until December 31 of the year in which
they turn 72.
(2) Following the combination of Merrill Lynch Investment Managers, L.P. ("MLIM") and BlackRock, Inc.
("BlackRock") in September 2006, the various legacy MLIM and legacy BlackRock Fund boards were realigned
and consolidated into three new Fund boards in 2007. As a result, although the chart shows certain
directors as joining the Fund's board in 2007, each director first became a member of the board of
directors of other legacy MLIM or legacy BlackRock Funds as follows: James H. Bodurtha since 1995; Bruce
R. Bond since 2005; Donald W. Burton since 2002; Stuart E. Eizenstat since 2001; Kenneth A. Froot since
2005; Robert M. Hernandez since 1996; John F. O'Brien since 2004; Roberta Cooper Ramo since 2000; Jean
Margo Reid since 2004; David H. Walsh since 2003; Fred G. Weiss since 1998; and Richard R. West since
1978.
====================================================================================================================================
Interested Directors(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Richard S. Davis Director Since 2007 Managing Director, BlackRock, 184 Funds None
40 East 52nd Street Inc. since 2005; Formerly Chief 295 Portfolios
New York, NY 10022 Executive Officer, State Street
1945 Research & Management Company
from 2000 to 2005; Formerly
Chairman of the Board of
Trustees, State Street Research
Mutual Funds from 2000 to 2005;
Formerly Chairman, SSR Realty
from 2000 to 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Laurence D. Fink Director Since 2007 Chairman and Chief Executive 37 Funds None
40 East 52nd Street Officer of BlackRock, Inc. since 104 Portfolios
New York, NY 10022 its formation in 1998 and of
1952 BlackRock, Inc.'s predecessor
entities since 1988 and Chairman
of the Executive and Management
Committees; Formerly Managing
Director, The First Boston
Corporation, Member of its
Management Committee, Co-head of
its Taxable Fixed Income
Division and Head of its
Mortgage and Real Estate
Products Group; Chairman of the
Board of several of BlackRock's
alternative investment vehicles;
Director of several of
BlackRock's offshore funds;
Member of the Board of Trustees
of New York University, Chair of
the Financial Affairs Committee
and a member of the Executive
Committee, the Ad Hoc Committee
on Board Governance, and the
Committee on Trustees;
Co-Chairman of the NYU Hospitals
Center Board of Trustees,
Chairman of the Development/
Trustee Stewardship Committee
and Chairman of the Finance
Committee; Trustee, The Boys'
Club of New York.
- ------------------------------------------------------------------------------------------------------------------------------------
Henry Gabbay Director Since 2007 Consultant, BlackRock, Inc. 184 Funds None
40 East 52nd Street since 2007; Formerly Managing 295 Portfolios
New York, NY 10022 Director, BlackRock, Inc. from
1947 1989 to 2007; Formerly Chief
Administrative Officer,
BlackRock Advisors, LLC from
1998 to 2007; Formerly President
of BlackRock Funds and BlackRock
Bond Allocation Target Shares
from 2005 to 2007 and Treasurer
of certain closed-end funds in
the BlackRock fund complex from
1989 to 2006.
------------------------------------------------------------------------------------------------------------
(3) Messrs. Davis and Fink are both "interested persons," as defined in the Investment Company Act of
1940,of the Fund based on their positions with BlackRock, Inc. and its affiliates. Mr. Gabbay is an
"interested person" of the Fund due to his consulting arrangement with BlackRock, Inc. as well as his
ownership of BlackRock, Inc. and PNC securities. Directors serve until their resignation, removal or
death, or until December 31 of the year in which they turn 72.
BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008 27
Officers and Directors (concluded)
Position(s) Length of
Name, Address Held with Time
and Year of Birth Fund Served Principal Occupation(s) During Past Five Years
====================================================================================================================================
Fund Officers(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. Burke Fund Since 2007 Managing Director of BlackRock, Inc. since 2006; Formerly Managing
40 East 52nd Street President and Director of Merrill Lynch Investment Managers, L.P. ("MLIM") and Fund
New York, NY 10022 Chief Executive Asset Management, L.P. ("FAM") in 2006; First Vice President thereof
1960 Officer from 1997 to 2005; Treasurer thereof from 1999 to 2006 and Vice
President thereof from 1990 to 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
Anne F. Ackerley Vice Since 2007 Managing Director of BlackRock, Inc. since 2000; Chief Operating Officer
40 East 52nd Street President of BlackRock's U.S. Retail Group since 2006; Head of BlackRock's Mutual
New York, NY 10022 Fund Group from 2000 to 2006; Merrill Lynch & Co., Inc. from 1984 to
1962 1986 and from 1988 to 2000, most recently as First Vice President and
Operating Officer of the Mergers and Acquisitions Group.
- ------------------------------------------------------------------------------------------------------------------------------------
Neal J. Andrews Chief Since 2007 Managing Director of BlackRock, Inc. since 2006; Formerly Senior Vice
40 East 52nd Street Financial President and Line of Business Head of Fund Accounting and
New York, NY 10022 Officer Administration at PNC Global Investment Servicing (U.S.) Inc. (formerly
1966 PFPC Inc.) from 1992 to 2006.
- ------------------------------------------------------------------------------------------------------------------------------------
Jay M. Fife Treasurer Since 2007 Managing Director of BlackRock, Inc. since 2007 and Director in 2006;
40 East 52nd Street Formerly Assistant Treasurer of the MLIM/FAM-advised Funds from 2005 to
New York, NY 10022 2006; Director of MLIM Fund Services Group from 2001 to 2006.
1970
- ------------------------------------------------------------------------------------------------------------------------------------
Brian P. Kindelan Chief Since 2007 Chief Compliance Officer of the BlackRock-advised Funds since 2007;
40 East 52nd Street Compliance Anti-Money Laundering Officer of the BlackRock-advised Funds since 2007;
New York, NY 10022 Officer of Managing Director and Senior Counsel of BlackRock, Inc. since 2005;
1959 the Fund Director and Senior Counsel of BlackRock Advisors, Inc. from 2001 to
2004 and Vice President and Senior Counsel thereof from 1998 to 2000;
Formerly Senior Counsel of The PNC Bank Corp. from 1995 to 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
Howard B. Surloff Secretary Since 2007 Managing Director of BlackRock, Inc. and General Counsel of U.S. Funds
40 East 52nd Street at BlackRock, Inc. since 2006; Formerly General Counsel (U.S.) of
New York, NY 10022 Goldman Sachs Asset Management, L.P. from 1993 to 2006.
1965
------------------------------------------------------------------------------------------------------------
(1) Officers of the Fund serve at the pleasure of the Board of Directors.
------------------------------------------------------------------------------------------------------------
Further information about the Fund's Officers and Directors is available in the Fund's Statement of
Additional Information, which can be obtained without charge by calling (800) 441-7762.
- ------------------------------------------------------------------------------------------------------------------------------------
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
PNC Global Investment
Servicing (U.S.) Inc.
Wilmington, DE 19809
Accounting Agent
State Street Bank and
Trust Company
Princeton, NJ 08540
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Princeton, NJ 08540
Legal Counsel
Willkie Farr & Gallagher LLP
New York, NY 10019
28 BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008
Additional Information
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their non-public personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal non-public information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our websites.
BlackRock does not sell or disclose to non-affiliated third parties any
non-public personal information about its Clients, except as permitted by law or
as is necessary to respond to regulatory requests or to service Client accounts.
These non-affiliated third parties are required to protect the confidentiality
and security of this information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to non-public
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the non-public
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
Availability of Additional Information
Electronic copies of most financial reports and prospectuses are available on
the Fund's website or shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:
Please contact your financial advisor. Please note that not all investment
advisors, banks or brokerages may offer this service.
Shareholders Who Hold Accounts Directly with BlackRock:
1) Access the BlackRock website at http://www.blackrock.com/edelivery
2) Click on the applicable link and follow the steps to sign up
3) Log into your account
Householding
The Fund will mail only one copy of shareholder documents, including
prospectuses, annual and semi-annual reports and proxy statements, to
shareholders with multiple accounts at the same address. This practice is
commonly called "householding" and it is intended to reduce expenses and
eliminate duplicate mailings of shareholder documents. Mailings of your
shareholder documents may be householded indefinitely unless you instruct us
otherwise. If you do not want the mailing of these documents to be combined with
those for other members of your household, please contact the Fund at (800)
441-7762.
Availability of Proxy Voting Policies and Procedures
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free (800) 441-7762; (2) at
www.blackrock.com; and (3) on the Securities and Exchange Commission's (the
"SEC") website at http://www.sec.gov.
BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008 29
Additional Information (concluded)
Availability of Additional Information (concluded)
Availability of Proxy Voting Record
Information about how the Fund votes proxies relating to securities held in the
Fund's portfolios during the most recent 12-month period ended June 30 is
available upon request and without charge (1) at www.blackrock.com or by calling
(800) 441-7762 and (2) on the SEC's website at http://www.sec.gov.
Availability of Quarterly Portfolio Schedule
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at http://www.sec.gov and may also be
reviewed and copied at the SEC's Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling (800) SEC-0330. The Fund's Forms N-Q may also be obtained upon request
and without charge by calling (800) 441-7762.
Shareholder Privileges
Account Information
Call us at (800) 441-7762 from 8:00 AM to 6:00 PM EST to get information about
your account balances, recent transactions and share prices. You can also reach
us on the Web at www.blackrock.com/funds.
Automatic Investment Plans
Investor Class shareholders who want to invest regularly can arrange to have $50
or more automatically deducted from their checking or savings account and
invested in any of the BlackRock funds.
Systematic Withdrawal Plans
Investor Class shareholders can establish a systematic withdrawal plan and
receive periodic payments of $50 or more from their BlackRock funds, as long as
their account is at least $10,000.
Retirement Plans
Shareholders may make investments in conjunction with Traditional, Rollover,
Roth, Coverdell, Simple IRAs, SEP IRAs and 403(b) Plans.
30 BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008
A World-Class Mutual Fund Family
BlackRock offers a diverse lineup of open-end mutual funds crossing all
investment styles and managed by experts in equity, fixed income and tax-exempt
investing.
Equity Funds
BlackRock All-Cap Global Resources Portfolio
BlackRock Asset Allocation Portfolio+
BlackRock Aurora Portfolio
BlackRock Balanced Capital Fund+
BlackRock Basic Value Fund
BlackRock Capital Appreciation Portfolio
BlackRock Equity Dividend Fund
BlackRock EuroFund
BlackRock Focus Growth Fund
BlackRock Focus Value Fund
BlackRock Fundamental Growth Fund
BlackRock Global Allocation Fund+
BlackRock Global Dynamic Equity Fund
BlackRock Global Emerging Markets Fund
BlackRock Global Financial Services Fund
BlackRock Global Growth Fund
BlackRock Global Opportunities Portfolio
BlackRock Global Resources Portfolio
BlackRock Global SmallCap Fund
BlackRock Health Sciences Opportunities Portfolio*
BlackRock Healthcare Fund
BlackRock Index Equity Portfolio*
BlackRock International Fund
BlackRock International Diversification Fund
BlackRock International Index Fund
BlackRock International Opportunities Portfolio
BlackRock International Value Fund
BlackRock Large Cap Core Fund
BlackRock Large Cap Core Plus Fund
BlackRock Large Cap Growth Fund
BlackRock Large Cap Value Fund
BlackRock Latin America Fund
BlackRock Mid-Cap Growth Equity Portfolio
BlackRock Mid-Cap Value Equity Portfolio
BlackRock Mid Cap Value Opportunities Fund
BlackRock Natural Resources Trust
BlackRock Pacific Fund
BlackRock Science & Technology Opportunities Portfolio
BlackRock Small Cap Core Equity Portfolio
BlackRock Small Cap Growth Equity Portfolio
BlackRock Small Cap Growth Fund II
BlackRock Small Cap Index Fund
BlackRock Small Cap Value Equity Portfolio*
BlackRock Small/Mid-Cap Growth Portfolio
BlackRock S&P 500 Index Fund
BlackRock U.S. Opportunities Portfolio
BlackRock Utilities and Telecommunications Fund
BlackRock Value Opportunities Fund
Fixed Income Funds
BlackRock Emerging Market Debt Portfolio
BlackRock Enhanced Income Portfolio
BlackRock GNMA Portfolio
BlackRock Government Income Portfolio
BlackRock High Income Fund
BlackRock High Yield Bond Portfolio
BlackRock Income Portfolio+
BlackRock Income Builder Portfolio+
BlackRock Inflation Protected Bond Portfolio
BlackRock Intermediate Bond Portfolio II
BlackRock Intermediate Government Bond Portfolio
BlackRock International Bond Portfolio
BlackRock Long Duration Bond Portfolio
BlackRock Low Duration Bond Portfolio
BlackRock Managed Income Portfolio
BlackRock Short-Term Bond Fund
BlackRock Strategic Income Portfolio
BlackRock Total Return Fund
BlackRock Total Return Portfolio II
BlackRock World Income Fund
Municipal Bond Funds
BlackRock AMT-Free Municipal Bond Portfolio
BlackRock California Insured Municipal Bond Fund
BlackRock Delaware Municipal Bond Portfolio
BlackRock Florida Municipal Bond Fund
BlackRock High Yield Municipal Fund
BlackRock Intermediate Municipal Fund
BlackRock Kentucky Municipal Bond Portfolio
BlackRock Municipal Insured Fund
BlackRock National Municipal Fund
BlackRock New Jersey Municipal Bond Fund
BlackRock New York Municipal Bond Fund
BlackRock Ohio Municipal Bond Portfolio
BlackRock Pennsylvania Municipal Bond Fund
BlackRock Short-Term Municipal Fund
Target Risk & Target Date Funds
BlackRock Prepared Portfolios
Conservative Prepared Portfolio
Moderate Prepared Portfolio
Growth Prepared Portfolio
Aggressive Growth Prepared Portfolio
BlackRock Lifecycle Prepared Portfolios
Prepared Portfolio 2010
Prepared Portfolio 2015
Prepared Portfolio 2020
Prepared Portfolio 2025
Prepared Portfolio 2030
Prepared Portfolio 2035
Prepared Portfolio 2040
Prepared Portfolio 2045
Prepared Portfolio 2050
* See the prospectus for information on specific limitations on investments
in the fund.
+ Mixed asset fund.
BlackRock mutual funds are currently distributed by BlackRock Investments, Inc.
You should consider the investment objectives, risks, charges and expenses of
the funds under consideration carefully before investing. Each fund's prospectus
contains this and other information and is available at www.blackrock.com or by
calling (800) 882-0052 or from your financial advisor. The prospectus should be
read carefully before investing.
BLACKROCK BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2008 31
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Investment returns and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
BlackRock Balanced Capital Fund, Inc.
100 Bellevue Parkway
Wilmington, DE 19809
BLACKROCK
#10252-9/08
Item 2 - Code of Ethics - The registrant (or the "Fund") has adopted a code
of ethics, as of the end of the period covered by this report,
applicable to the registrant's principal executive officer,
principal financial officer and principal accounting officer, or
persons performing similar functions. During the period covered by
this report, there have been no amendments to or waivers granted
under the code of ethics. A copy of the code of ethics is available
without charge at www.blackrock.com.
Item 3 - Audit Committee Financial Expert - The registrant's board of
directors or trustees, as applicable (the "board of directors") has
determined that (i) the registrant has the following audit committee
financial experts serving on its audit committee and (ii) each audit
committee financial expert is independent:
Donald W. Burton (not reappointed to the Audit Committee, effective
November 1, 2007)
Robert M. Hernandez (term began, effective November 1, 2007)
John F. O'Brien (not reappointed to the Audit Committee, effective
November 1, 2007)
David H. Walsh (not reappointed to the Audit Committee, effective
November 1, 2007)
Fred G. Weiss
Richard R. West (term began, effective November 1, 2007)
Under applicable securities laws, a person determined to be an audit
committee financial expert will not be deemed an "expert" for any
purpose, including without limitation for the purposes of Section 11
of the Securities Act of 1933, as a result of being designated or
identified as an audit committee financial expert. The designation
or identification as an audit committee financial expert does not
impose on such person any duties, obligations, or liabilities
greater than the duties, obligations, and liabilities imposed on
such person as a member of the audit committee and board of
directors in the absence of such designation or identification.
Item 4 - Principal Accountant Fees and Services
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Audit Fees (b) Audit-Related Fees(1) (c) Tax Fees(2) (d) All Other Fees(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Current Previous Current Previous Current Previous Current Previous
Fiscal Year Fiscal Fiscal Year Fiscal Fiscal Year Fiscal Fiscal Year Fiscal
Entity Name End Year End End Year End End Year End End Year End
- -----------------------------------------------------------------------------------------------------------------------------------
BlackRock Balanced $36,300 $37,500 $0 $0 $6,100 $6,100 $1,049 $1,042
Capital Fund, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
1 The nature of the services include assurance and related services reasonably
related to the performance of the audit of financial statements not included in
Audit Fees.
2 The nature of the services include tax compliance, tax advice and tax
planning.
3 The nature of the services include a review of compliance procedures and
attestation thereto.
(e)(1) Audit Committee Pre-Approval Policies and Procedures:
The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to
the registrant's affiliated service providers that relate directly
to the operations and the financial reporting of the registrant.
Certain of these non-audit services that the Committee believes are
a) consistent with the SEC's auditor independence rules and b)
routine and recurring services that will not impair the independence
of the independent accountants may be approved by the Committee
without consideration on a specific case-by-case basis ("general
pre-approval"). The term of any general pre-approval is 12 months
from the date of the pre-approval, unless the Committee provides for
a different period. Tax or other non-audit services provided to the
registrant which have a direct impact on the operation or financial
reporting of the registrant will only be deemed pre-approved
provided that any individual project does not exceed $10,000
attributable to the registrant or $50,000 for all of the registrants
the Committee oversees. For this purpose, multiple projects will be
aggregated to determine if they exceed the previously mentioned cost
levels.
Any proposed services exceeding the pre-approved cost levels
will require specific pre-approval by the Committee, as will any
other services not subject to general pre-approval (e.g.,
unanticipated but permissible services). The Committee is informed
of each service approved subject to general pre-approval at the next
regularly scheduled in-person board meeting. At this meeting, an
analysis of such services is presented to the Committee for
ratification. The Committee may delegate to one or more of its
members the authority to approve the provision of and fees for any
specific engagement of permitted non-audit services, including
services exceeding pre-approved cost levels.
(e)(2) None of the services described in each of Items 4(b) through
(d) were approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not Applicable
(g) Affiliates' Aggregate Non-Audit Fees:
--------------------------------------------------------------------
Current Fiscal Previous Fiscal
Entity Name Year End Year End
--------------------------------------------------------------------
BlackRock Balanced Capital $294,649 $291,642
Fund, Inc.
--------------------------------------------------------------------
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any non-affiliated
sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by the registrant's investment
adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services
to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with
maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $287,500, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Investments
(a) The registrant's Schedule of Investments is included as part of
the Report to Stockholders filed under Item 1 of this form.
(b) Not Applicable due to no such divestments during the semi-annual
period covered since the previous Form N-CSR filing.
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating and Governance Committee will consider
nominees to the board of directors recommended by shareholders when
a vacancy becomes available. Shareholders who wish to recommend a
nominee should send nominations that include biographical
information and set forth the qualifications of the proposed nominee
to the registrant's Secretary. There have been no material changes
to these procedures.
Item 11 - Controls and Procedures
11(a) - The registrant's principal executive and principal financial
officers or persons performing similar functions have concluded that
the registrant's disclosure controls and procedures (as defined in
Rule 30a-3(c) under the Investment Company Act of 1940, as amended
(the "1940 Act")) are effective as of a date within 90 days of the
filing of this report based on the evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act and Rule
15d-15(b) under the Securities Exchange Act of 1934, as amended.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act)
that occurred during the second fiscal quarter of the period covered
by this report that have materially affected, or are reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Balanced Capital Fund, Inc.
By: /s/ Donald C. Burke
-----------------------------------
Donald C. Burke
Chief Executive Officer of
BlackRock Balanced Capital Fund, Inc.
Date: November 24, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Donald C. Burke
-----------------------------------
Donald C. Burke
Chief Executive Officer (principal executive officer) of
BlackRock Balanced Capital Fund, Inc.
Date: November 24, 2008
By: /s/ Neal J. Andrews
-----------------------------------
Neal J. Andrews
Chief Financial Officer (principal financial officer) of
BlackRock Balanced Capital Fund, Inc.
Date: November 24, 2008