N-CSR 1 d74418dncsr.htm BLACKROCK BALANCED CAPITAL FUND, INC. BLACKROCK BALANCED CAPITAL FUND, INC.

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, 811-09739 and 811-21434

Name of Fund: BlackRock Balanced Capital Fund, Inc., Master Large Cap Core Portfolio of Master Large Cap Series LLC and Master Total Return Portfolio of Master Bond LLC

Fund Address:     100 Bellevue Parkway, Wilmington, DE 19809

Name and address of agent for service: John M. Perlowski, Chief Executive Officer, BlackRock Balanced Capital Fund, Inc., Master Large Cap Core Portfolio of Master Large Cap Series LLC and Master Total Return Portfolio of Master Bond LLC, 55 East 52nd Street, New York, NY 10055

Registrants’ telephone number, including area code:  (800) 441-7762

Date of fiscal year end: 09/30/2015

Date of reporting period: 09/30/2015


Item 1 – Report to Stockholders


SEPTEMBER 30, 2015        

 

 

ANNUAL REPORT

 

      BLACKROCK®

 

 

      BlackRock Balanced Capital Fund, Inc.  

 

 

 

 

 

 

Not FDIC Insured ¡ May Lose Value ¡ No Bank Guarantee  

 


Table of Contents     

 

       Page   

The Markets in Review

     3   

Annual Report:

  

Fund Summary

     4   

About Fund Performance

     6   

Disclosure of Expenses

     6   

The Benefits and Risks of Leveraging

     7   

Derivative Financial Instruments

     7   

Fund Financial Statements:

  

Statement of Assets and Liabilities

     8   

Statement of Operations

     9   

Statements of Changes in Net Assets

     10   

Fund Financial Highlights

     11   

Fund Notes to Financial Statements

     16   

Fund Report of Independent Registered Public Accounting Firm

     21   

Important Tax Information

     21   

Master Large Cap Core Portfolio Summary

     22   

Master Large Cap Core Portfolio Financial Statements:

  

Schedule of Investments

     23   

Statement of Assets and Liabilities

     26   

Statement of Operations

     27   

Statements of Changes in Net Assets

     28   

Master Large Cap Core Portfolio Financial Highlights

     29   

Master Large Cap Core Portfolio Notes to Financial Statements

     30   

Master Large Cap Core Portfolio Report of Independent Registered Public Accounting Firm

     35   

Officers and Directors of Master Large Cap Series LLC

     36   

Master Total Return Portfolio Information

     39   

Master Total Return Portfolio Consolidated Financial Statements:

  

Consolidated Schedule of Investments

     40   

Consolidated Statement of Assets and Liabilities

     91   

Consolidated Statement of Operations

     92   

Consolidated Statements of Changes in Net Assets

     93   

Master Total Return Portfolio Financial Highlights

     94   

Master Total Return Portfolio Notes to Consolidated Financial Statements

     95   

Master Total Return Portfolio Report of Independent Registered Public Accounting Firm

     110   

Disclosure of Investment Advisory Agreement

     111   

Officers and Directors

     115   

Additional Information

     119   

 

 

       LOGO

 

 

Shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual shareholder reports and prospectuses by enrolling in the electronic delivery program. Electronic copies of shareholder reports and prospectuses are also available on BlackRock’s website:

 

TO ENROLL IN ELECTRONIC DELIVERY:

 

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 blackrock.com

2. Select “Access Your Account”

3. Next, select “eDelivery” in the “Related Resources” box and follow the sign-up

    instructions

 

        

 

2    BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015     


The Markets in Review     

Dear Shareholder,

Diverging monetary policies and shifting economic outlooks across regions were the overarching themes driving financial markets during the 12-month period ended September 30, 2015. U.S. economic growth was picking up considerably in the fourth quarter of 2014, while the broader global economy showed signs of slowing. Investors favored the stability of U.S. assets despite expectations that the Federal Reserve (the “Fed”) would eventually be inclined to raise short-term interest rates. International markets struggled even as the European Central Bank and the Bank of Japan eased monetary policy. Oil prices plummeted in late 2014 due to a global supply-and-demand imbalance, fueling a sell-off in energy-related assets and emerging markets. Investors piled into U.S. Treasury bonds as their persistently low yields had become attractive as compared to the even lower yields on international sovereign debt.

Equity markets reversed in early 2015, with international markets outperforming the United States as global risks temporarily abated and the U.S. economy hit a soft patch amid a harsh winter and a west coast port strike. High valuations took their toll on U.S. stocks, while bond yields fell to extreme lows. (Bond prices rise as yields fall.) In contrast, economic reports in Europe and Asia began to improve, and accommodative policies from central banks in those regions helped international equities rebound. Oil prices stabilized, providing some relief for emerging market stocks, although a stronger U.S. dollar posed another significant headwind for the asset class.

U.S. economic growth regained momentum in the second quarter, helping U.S. stocks resume an upward path; however, the improving data underscored the likelihood that the Fed would raise short-term rates before the end of 2015 and bond yields moved swiftly higher. The month of June brought a sharp, but temporary, sell-off across most asset classes as Greece’s long-brewing debt troubles came to an impasse. These concerns abated when the Greek parliament passed a series of austerity and reform measures in July. But the market’s calm was short-lived. Signs of weakness in China’s economy sparked extreme levels of volatility in Chinese equities despite policymakers’ attempts to stabilize the market.

Higher volatility spread through markets globally in the third quarter as further evidence of deceleration in China stoked worries about overall global growth. Weakening demand caused oil prices to slide once again, igniting another steep sell-off in emerging markets. Global volatility spiked higher as investors speculated whether the Fed would raise rates at its September meeting. News that the rate hike had been postponed brought little relief in the markets as the central bank’s decision reinforced investors’ concerns about the state of the global economy. Global equities and high yield bonds broadly declined, while higher quality assets, including U.S. Treasury bonds, municipal bonds and investment grade credit benefited from investors seeking shelter amid global uncertainty.

At BlackRock, we believe investors need to think globally, extend their scope across a broad array of asset classes and be prepared to move freely as market conditions change over time. We encourage you to talk with your financial advisor and visit blackrock.com for further insight about investing in today’s markets.

Sincerely,

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

LOGO

Rob Kapito

President, BlackRock Advisors, LLC

 

Total Returns as of September 30, 2015  
    6-month     12-month  

U.S. large cap equities
(S&P 500® Index)

    (6.18 )%      (0.61 )% 

U.S. small cap equities
(Russell 2000® Index)

    (11.55     1.25   

International equities
(MSCI Europe, Australasia,
Far East Index)

    (9.68     (8.66

Emerging market
equities (MSCI Emerging
Markets Index)

    (17.33     (19.28

3-month Treasury
bills (BofA Merrill Lynch
3-Month U.S. Treasury
Bill Index)

    0.02        0.02   

U.S. Treasury securities
(BofA Merrill Lynch
10-Year U.S. Treasury Index)

    (0.21     6.03   

U.S. investment-grade
bonds (Barclays U.S.
Aggregate Bond Index)

    (0.47     2.94   

Tax-exempt municipal
bonds (S&P Municipal
Bond Index)

    0.70        3.00   

U.S. high yield bonds
(Barclays U.S. Corporate
High Yield 2% Issuer
Capped Index)

    (4.82     (3.40
Past performance is no guarantee of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.     
 

 

     THIS PAGE NOT PART OF YOUR FUND REPORT         3


Fund Summary as of September 30, 2015     

 

    Investment Objective

BlackRock Balanced Capital Fund, Inc.’s (the “Fund”) investment objective is to seek the highest total investment return through a fully managed investment policy utilizing equity, debt (including money market) and convertible securities.

 

    Portfolio Management Commentary

 

How did the Fund perform?

 

 

For the 12-month period ended September 30, 2015, through its investments in Master Large Cap Core Portfolio of Master Large Cap Series LLC (the “equity allocation” or the “Master Large Cap Core Portfolio”) and Master Total Return Portfolio of Master Bond LLC (the “fixed income allocation” or the “Master Total Return Portfolio”) (collectively, the “Master Portfolios”), the Fund underperformed the blended reference benchmark (60% Russell 1000® Index/40% Barclays U.S. Aggregate Bond Index). For the same period, the Fund outperformed the equity portion of the benchmark, the Russell 1000® Index and underperformed the fixed income portion of the benchmark, the Barclays U.S. Aggregate Bond Index.

What factors influenced performance?

 

 

Within the equity allocation, relative to the Russell 1000® Index, the primary contributor to performance in the Master Large Cap Core Portfolio was strong selection within the health care sector, in particular a tilt toward managed care companies.

 

 

Within equities, energy-related holdings were a prime detractor early in the period, with the majority of positions within the sector underperforming amid the plunge in crude oil prices. Renewed weakness in energy towards the end of the period also hindered relative returns, notably through energy services holdings. Financials were an additional source of weak relative performance, primarily in the first half of the period.

 

 

The main detractor from performance in the fixed income allocation was from overall portfolio duration (a measure of sensitivity to changes in market interest rate levels) and yield curve positioning. Macro-related strategies detracted as well.

 

 

Within the fixed-income allocation, the Master Total Return Portfolio’s most significant contributions to performance relative to the Barclays U.S. Aggregate Bond Index over the period came from allocations to securitized sectors, U.S. investment grade credit, and municipal bonds. There was also a positive contribution from tactical high-yield exposure as spreads narrowed in the first quarter of 2015. Positioning with respect to currency weightings added to relative return as well, in particular, long dollar exposure.

 

 

Within the fixed income allocation, the Master Total Return Portfolio held derivatives during the period as a part of its investment strategy. Derivatives are used by the Master Total Return Portfolio as a means to manage risk and/or take outright views on interest rates, credit risk and/or foreign exchange positions in the Master Total Retun Portfolio. During the period, the Master Total Return Portfolio’s derivative holdings had a positive impact on performance.

Describe recent portfolio activity.

 

 

Within the equity allocation, sector positioning remained relatively stable during the period. The Master Large Cap Core Portfolio began the period

   

tilted towards cyclical areas of the market, while looking for opportunities in more stable sectors including consumer staples and health care. On the cyclical side, the management team has favored companies poised to benefit from continued U.S. economic strength, including financials, with the exception of Real Estate Investment Trusts (“REITs”). Conversely, the equity allocation remained underweight in utilities and REITs, where valuations appeared uninviting. At the end of the period, the largest overweight exposures were to the information technology (“IT”), health care and consumer discretionary sectors, while industrials, telecommunication services (“telecom”) and utilities remained the most notable underweights.

 

 

Within the fixed-income allocation, the Master Total Return Portfolio tactically traded U.S. duration, while maintaining a modest underweight for almost the entire period. Exposure to U.S. investment grade credit was underweight in early 2015 given low yields, but was modestly increased as global bond yields rose in the second quarter of the year. An allocation to municipal bonds was reduced towards the end of the period, while exposure to high yield corporates was increased. The allocation to securitized assets was modestly reduced towards period-end on valuation concerns after a period of strong performance. With respect to management of currency exposures, a significant long U.S. dollar bias was maintained early in the period based on divergent global central bank monetary policies, but was gradually scaled back starting in the first quarter of 2015 due to increased uncertainty around the timing of U.S. Federal Reserve tightening.

Describe portfolio positioning at period end.

 

 

At period end, the Fund was modestly overweight in equities and underweight in fixed income relative to the blended reference benchmark, given a cautious view on fixed income overall and on the direction of interest rates.

 

 

In equities, the Master Large Cap Core Portfolio held its largest sector overweights relative to the Russell 1000® Index in IT, health care and consumer discretionary, while industrials, telecom and utilities were the most notable underweights.

 

 

Relative to the Barclays U.S. Aggregate Bond Index, the Master Total Return Portfolio remained generally underweight in government-related sectors in favor of non-government spread sectors. Within spread sectors, the fixed income allocation was modestly overweight in commercial mortgage-backed securities and asset-backed securities, while maintaining an underweight in investment grade corporate credit on concerns over increased supply and event risk. The Master Total Return Portfolio also held non-benchmark allocations to non-agency residential mortgage backed securities, high yield bonds, non-U.S. sovereign bonds and U.S. Treasury inflation-protected securities. The fixed income allocation ended the period with a slight underweight in duration relative to that of the Barclays U.S. Aggregate Bond Index, with overweight exposure to the five-year portion of the yield curve.

 

 

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.

 

4    BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015     


      

 

 

       Total Return Based on a $10,000 Investment

 

 

LOGO

 

  1 

Assuming maximum sales charges, if any, transaction costs and other operating expenses, including investment advisory and administration fees. Institutional Shares do not have a sales charge.

 

  2 

The Fund invests in equity securities (including common stock, preferred stock, securities convertible into common stock, or securities or other instruments whose price is linked to the value of common stock) and fixed-income securities (including debt securities, convertible securities and short term securities).

 

  3 

A widely recognized unmanaged market-weighted index, comprised of investment-grade corporate bonds rated BBB or better, mortgages and U.S. Treasury and U.S. Government agency issues with at least one year to maturity.

 

  4 

An index that measures the performance of the large cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1,000 of the largest securities based on a combination of their market capitalization and current index membership. The index represents approximately 92% of the total market capitalization of the Russell 3000® Index.

 

  5 

A customized weighted index comprised of the returns of the Russell 1000® Index (60%) and Barclays U.S. Aggregate Bond Index (40%).

 

       Performance Summary for the Period Ended September 30, 2015
         Average Annual Total Returns6
         1 Year   5 Years   10 Years
     

6-Month

Total Returns

 

w/o sales

charge

 

w/ sales

charge

 

w/o sales

charge

 

w/ sales

charge

 

w/o sales

charge

 

w/ sales

charge

Institutional

       (4.33 )%       0.82 %       N/A         9.77 %       N/A         5.80 %       N/A  

Investor A

       (4.44 )       0.57         (4.71 )%       9.45         8.27 %       5.49         4.93 %

Investor B

       (4.94 )       (0.54 )       (4.50 )       8.34         8.05         4.72         4.72  

Investor C

       (4.83 )       (0.21 )       (1.09 )       8.59         8.59         4.67         4.67  

Class R

       (4.57 )       0.23         N/A         9.06         N/A         5.10         N/A  

60% Russell 1000® Index/40% Barclays U.S. Aggregate Bond Index

       (4.21 )       0.95         N/A         9.38         N/A         6.33         N/A  

Barclays U.S. Aggregate Bond Index

       (0.47 )       2.94         N/A         3.10         N/A         4.64         N/A  

Russell 1000® Index

       (6.72 )       (0.61 )       N/A         13.42         N/A         6.95         N/A  

 

  6   

Assuming maximum sales charges, if any. Average annual total returns with and without sales charges reflect reductions for distribution and service fees. See “About Fund Performance” on page 6 for a detailed description of share classes, including any related sales charges and fees.

 

      

N/A—Not applicable as share class and index do not have a sales charge.

 

      

Past performance is not indicative of future results.

 

       Expense Example
     Actual    Hypothetical8     
     

Beginning

Account Value

April 1, 2015

  

Ending

Account Value

September 30, 2015

  

Expenses Paid

During the Period7

  

Beginning

Account Value

April 1, 2015

  

Ending
Account Value

September 30, 2015

  

Expenses Paid

During the Period7

  

Annualized

Expense

Ratio

Institutional

     $ 1,000.00        $ 956.70        $ 3.04        $ 1,000.00        $ 1,021.96        $ 3.14          0.62 %

Investor A

     $ 1,000.00        $ 955.60        $ 4.41        $ 1,000.00        $ 1,020.56        $ 4.56          0.90 %

Investor B

     $ 1,000.00        $ 950.60        $ 9.34        $ 1,000.00        $ 1,015.49        $ 9.65          1.91 %

Investor C

     $ 1,000.00        $ 951.70        $ 8.17        $ 1,000.00        $ 1,016.70        $ 8.44          1.67 %

Class R

     $ 1,000.00        $ 1,002.30        $ 6.02        $ 1,000.00        $ 1,019.05        $ 6.07          1.20 %

 

  7   

For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period shown). Because the Fund invests significantly in the Master Portfolios, the expense example reflects the net expenses of both the Fund and the Master Portfolios in which it invests.

 

  8   

Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365.

 

      

See “Disclosure of Expenses” on page 6 for further information on how expenses were calculated.

 

     BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015    5


About Fund Performance     

 

 

Institutional Shares are not subject to any sales charge. These shares bear no ongoing distribution or service fees and are available only to certain eligible investors.

 

 

Investor A Shares are subject to a maximum initial sales charge (front-end load) of 5.25% and a service fee of 0.25% per year (but no distribution fee). Certain redemptions of these shares may be subject to a contingent deferred sales charge (“CDSC”) where no initial sales charge was paid at the time of purchase.

 

 

Investor B Shares are subject to a maximum CDSC of 4.50% declining to 0% after six years. In addition, these 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. These shares are only available through exchanges and distribution reinvestments by current holders and for purchase by certain employer-sponsored retirement plans.

 

 

Investor C Shares are a 1.00% CDSC if redeemed within one year of purchase. In addition, these shares are subject to a distribution fee of 0.75% per year and a service fee of 0.25% per year. These shares are generally available through financial intermediaries.

 

 

Class R Shares are not subject to any sales charges. These shares are subject to a distribution fee of 0.25% per year and a service fee of 0.25% per year. These shares are available only to certain employer-sponsored retirement plans.

Performance information reflects past performance and does not guarantee future results. The performance information for periods prior to February 2009 does not reflect any investment by the Fund in the Master Large Cap Core Portfolio. 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 the previous page assume reinvestment of all distributions, if any, at net asset value (“NAV”) on the ex-dividend dates. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Distributions 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.

BlackRock Advisors, LLC (the “Manager”), the Fund’s investment advisor, has contractually agreed to waived and/or reimbursed a portion of the Fund’s expenses. Without such waiver and/or reimbursement, the Fund’s performance would have been lower. The Manager is under no obligation to continue waiving or reimbursing its fees after the applicable termination date. See Note 4 of the Notes to Financial Statements for additional information on waivers and reimbursements.

 

 

Disclosure of Expenses     

 

Shareholders of the Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses and other fund expenses. The expense example shown on the previous page (which is based on a hypothetical investment of $1,000 invested on April 1, 2015 and held through September 30, 2015) 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 expense example 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 expense example 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 the Fund and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in shareholder reports of other funds.

The expenses shown in the expense example are intended to highlight shareholders’ ongoing costs only and do not reflect any transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are 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, 2015     


The Benefits and Risks of Leveraging     

 

The Master Total Return Portfolio may utilize leverage to seek to enhance its yield and NAV. However, these objectives cannot be achieved in all interest rate environments.

The Master Total Return Portfolio may utilize leverage by entering into reverse repurchase agreements and/or treasury roll transactions. In general, the concept of leveraging is based on the premise that the financing cost of leverage, which is based on short-term interest rates, is normally lower than the income earned by the Master Total Return Portfolio on its longer-term portfolio investments purchased with the proceeds from leverage. To the extent that the total assets of the Master Total Return Portfolio (including the assets obtained from leverage) are invested in higher-yielding portfolio investments, the Master Total Return Portfolio’s investors benefit from the incremental net income.

The interest earned on securities purchased with the proceeds from leverage is distributed to the shareholders, and the value of these portfolio holdings is reflected in the Master Total Return Portfolio’s per share NAV. However, in order to benefit shareholders, the return on assets purchased with leverage proceeds must exceed the ongoing costs associated with the leverage. If interest and other ongoing costs of leverage exceed the Fund’s return on assets purchased with leverage proceeds, income to shareholders is lower than if the Master Total Return Portfolio had not used leverage.

Furthermore, the value of the Master Portfolio’s investments generally varies inversely with the direction of long-term interest rates, although other factors can influence the value of portfolio investments. As a result, changes in interest rates can influence the Master Total Return Portfolio’s NAV positively or negatively in addition to the impact on the Master Total Return Portfolio’s performance from leverage. Changes in the direction of interest rates are difficult to predict accurately, and there is no assurance that the Master Total Return Portfolio’s leveraging strategy will be successful.

The use of leverage also generally causes greater changes in the Master Total Return Portfolio’s NAV and distribution rates than it would in a comparable fund that does not use leverage. In a declining market, leverage is likely to cause a greater decline in the NAV of the Master Total Return Portfolio’s shares than if the Master Total Return Portfolio were not leveraged. In addition, the Master Total Return Portfolio may be required to sell portfolio securities at inopportune times or at distressed values in order to comply with regulatory requirements applicable to the use of leverage or as required by the terms of leverage instruments, which may cause the Master Total Return Portfolio to incur losses. The use of leverage may limit the Master Total Return Portfolio’s ability to invest in certain types of securities or use certain types of hedging strategies. The Master Total Return Portfolio incurs expenses in connection with the use of leverage, all of which are borne by the Master Total Return Portfolio’s investors and may reduce income.

 

 

Derivative Financial Instruments     

 

The Master Portfolios may invest in various derivative financial instruments. Derivative financial instruments are used to obtain exposure to a security, index and/or market without owning or taking physical custody of securities or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage. Derivative financial instruments also involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the derivative financial instrument. The Master Portfolios’

ability to use a derivative financial instrument successfully depends on the investment advisor’s ability to predict pertinent market movements accurately, which cannot be assured. The use of derivative financial instruments may result in losses greater than if they had not been used, may limit the amount of appreciation the Master Portfolios can realize on an investment and/or may result in lower distributions paid to shareholders. The Master Portfolios’ investments in these instruments are discussed in detail in the Master Portfolios’ Notes to Consolidated Financial Statements.

 

 

     BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015    7


Statement of Assets and Liabilities      BlackRock Balanced Capital Fund, Inc.   

 

September 30, 2015       
  
          Assets         

Investments at value — Master Large Cap Core Portfolio (cost — $466,289,676)

   $     543,088,298   

Investments at value — Master Total Return Portfolio (cost — $359,981,032)

     355,469,649   

Investments in BlackRock Liquidity Funds, Tempfund, Institutional Class, 0.10% (shares — 4,220,698; cost — $4,220,698)

     4,220,698   

Capital shares sold receivable

     908,949   

Dividends receivable — affiliated

     318   

Prepaid expenses

     56,146   
  

 

 

 

Total assets

     903,744,058   
  

 

 

 
  
          Liabilities         

Payable:

  

Capital shares redeemed

     1,328,274   

Investment advisory fees

     90,669   

Officer’s fees

     7,646   

Other accrued expenses

     61,781   

Other affiliates

     50,871   

Service and distribution fees

     173,096   

Transfer agent fees

     269,342   
  

 

 

 

Total liabilities

     1,981,679   
  

 

 

 

Net Assets

   $     901,762,379   
  

 

 

 
  
          Net Assets Consist of         

Paid-in capital

   $     771,778,302   

Undistributed net investment income

     5,060,903   

Accumulated net realized gain

     52,635,935   

Net unrealized appreciation (depreciation)

     72,287,239   
  

 

 

 

Net Assets

   $     901,762,379   
  

 

 

 
  
          Net Asset Value         

Institutional — Based on net assets of $341,225,473 and 14,776,346 shares outstanding, 400 million shares authorized, $0.10 par value

   $ 23.09   
  

 

 

 

Investor A — Based on net assets of $461,642,309 and 20,048,613 shares outstanding, 200 million shares authorized, $0.10 par value

   $ 23.03   
  

 

 

 

Investor B — Based on net assets of $2,049,359 and 91,857 shares outstanding, 500 million shares authorized, $0.10 par value

   $ 22.31   
  

 

 

 

Investor C — Based on net assets of $86,396,939 and 4,153,733 shares outstanding, 200 million shares authorized, $0.10 par value

   $ 20.80   
  

 

 

 

Class R — Based on net assets of $10,448,299 and 481,537 shares outstanding, 500 million shares authorized, $0.10 par value

   $ 21.70   
  

 

 

 

 

See Notes to Financial Statements.

 

8    BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015     


Statement of Operations      BlackRock Balanced Capital Fund, Inc.   

 

Year Ended September 30, 2015       
  
          Investment Income         

Dividends — affiliated

   $ 15,788   

Net investment income (loss) allocated from the Master Portfolios:

  

Interest — unaffiliated

     10,565,846   

Dividends — affiliated

     28,473   

Dividends — unaffiliated

     9,765,308   

Securities lending — affiliated — net

     9,995   

Foreign taxes withheld

     (80,876

Total expenses

     (3,472,144

Fees waived

     13,940   
  

 

 

 

Total income

     16,846,330   
  

 

 

 
  
          Fund Expenses         

Investment advisory

     4,141,955   

Service — Investor A

     1,229,761   

Service and distribution — Investor B

     27,961   

Service and distribution — Investor C

     868,052   

Service and distribution — Class R

     49,502   

Transfer agent — Institutional

     316,968   

Transfer agent — Investor A

     592,364   

Transfer agent — Investor B

     12,732   

Transfer agent — Investor C

     120,193   

Transfer agent — Class R

     19,962   

Printing

     85,698   

Professional

     110,128   

Registration

     97,117   

Officer

     32,532   

Custodian

     2,504   

Miscellaneous

     24,224   
  

 

 

 

Total expenses

     7,731,653   

Less fees waived by the Manager

     (3,066,256
  

 

 

 

Total expenses after fees waived

     4,665,397   
  

 

 

 

Net investment income

     12,180,933   
  

 

 

 
  
          Realized and Unrealized Gain (Loss) Allocated from the Master Portfolios         

Net realized gain from investments, financial futures contracts, options written, structured options, swaps, foreign currency transactions, interest rate floors, borrowed bonds and capital gain distributions received from affiliated investment companies

     44,175,556   

Capital gain distributions received from affiliated investment companies

     2,283   

Net change in unrealized appreciation (depreciation) on investments, financial futures contracts, options written, unfunded floating rate loan interests, short sales, structured options, swaps, foreign currency translations and borrowed bonds

         (48,771,208
  

 

 

 

Total realized and unrealized loss

     (4,593,369
  

 

 

 

Net Increase in Net Assets Resulting from Operations

   $ 7,587,564   
  

 

 

 

 

See Notes to Financial Statements.

 

     BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015    9


Statements of Changes in Net Assets      BlackRock Balanced Capital Fund, Inc.   

 

     Year Ended September 30,  
Increase (Decrease) in Net Assets:    2015     2014  
    
          Operations                 

Net investment income

   $ 12,180,933      $ 14,392,764   

Net realized gain

     44,177,839        97,047,934   

Net change in unrealized appreciation (depreciation)

     (48,771,208     6,881,016   
  

 

 

 

Net increase in net assets resulting from operations

     7,587,564        118,321,714   
  

 

 

 
    
          Distributions to Shareholders From1                 

Net investment income:

    

Institutional

     (6,172,788     (7,103,520

Investor A

     (6,813,018     (8,592,906

Investor B

     (13,241     (37,523

Investor C

     (692,627     (915,737

Class R

     (108,414     (150,374

Net realized gain:

    

Institutional

     (40,073,428     (25,527,071

Investor A

     (53,303,235     (35,924,272

Investor B

     (346,522     (379,669

Investor C

     (9,717,422     (5,751,000

Class R

     (1,028,941     (740,627
  

 

 

 

Decrease in net assets resulting from distributions to shareholders

     (118,269,636     (85,122,699
  

 

 

 
    
          Capital Share Transactions                 

Net increase in net assets derived from capital share transactions

     99,317,078        39,640,238   
  

 

 

 
    
          Net Assets                 

Total increase (decrease) in net assets

     (11,364,994     72,839,253   

Beginning of year

     913,127,373        840,288,120   
  

 

 

 

End of year

   $     901,762,379      $     913,127,373   
  

 

 

 

Undistributed net investment income, end of year

   $ 5,060,903      $ 219,340   
  

 

 

 

 

  1   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

See Notes to Financial Statements.

 

10    BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015     


Financial Highlights      BlackRock Balanced Capital Fund, Inc.   

 

     Institutional  
     Year Ended September 30,  
     2015     2014     2013     2012     2011  
          
         Per Share Operating Performance                                         

Net asset value, beginning of year

   $ 26.07      $ 25.16      $ 23.77      $ 20.18      $ 20.28   
  

 

 

 

Net investment income1

     0.37        0.48        0.47        0.55        0.51   

Net realized and unrealized gain (loss)

     (0.03     3.05        2.35        3.55        (0.13
  

 

 

 

Net increase from investment operations

     0.34        3.53        2.82        4.10        0.38   
  

 

 

 

Distributions from:2

          

Net investment income

     (0.43     (0.56     (0.53     (0.51     (0.48

Net realized gain

     (2.89     (2.06     (0.90              
  

 

 

 

Total distributions

     (3.32     (2.62     (1.43     (0.51     (0.48
  

 

 

 

Net asset value, end of year

   $ 23.09      $ 26.07      $ 25.16      $ 23.77      $ 20.18   
  

 

 

 
          
         Total Return3                                         

Based on net asset value

     0.82     14.77     12.42     20.52     1.67
  

 

 

 
          
         Ratios to Average Net Assets4                                         

Total expenses

     0.92     0.95     0.98     0.96     1.07
  

 

 

 

Total expenses after fees waived and/or reimbursed

     0.59     0.63     0.66     0.66     0.76
  

 

 

 

Net investment income

     1.52     1.88     1.87     2.45     2.33
  

 

 

 
          
         Supplemental Data                                         

Net assets, end of year (000)

   $     341,225      $     348,345      $     317,572      $     426,027      $     511,458   
  

 

 

 

Portfolio turnover rate of the Fund5

                                   
  

 

 

 

Portfolio turnover rate of the Master Total Return Portfolio6

     1,015     750     777     1,346     1,771
  

 

 

 

Portfolio turnover rate of the Master Large Cap Core Portfolio

     41     40     50     128     129
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  3   

Where applicable, assumes the reinvestment of distributions.

 

  4   

Includes the Fund’s share of the Master Portfolios’ allocated expenses and/or net investment income.

 

  5   

Excludes transactions in the Master Portfolios.

 

  6   

Includes mortgage dollar roll transactions. Additional information regarding portfolio turnover rate is as follows:

 

     Year Ended September 30,  
        2015           2014           2013           2012           2011     
  

 

 

 

Portfolio turnover rate (excluding mortgage dollar roll transactions)

     725     529     450     752     1,379%   

 

See Notes to Financial Statements.

 

     BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015    11


Financial Highlights (continued)      BlackRock Balanced Capital Fund, Inc.   

 

     Investor A  
     Year Ended September 30,  
     2015     2014     2013     2012     2011  
          
         Per Share Operating Performance                                         

Net asset value, beginning of year

   $ 26.00      $ 25.11      $ 23.68      $ 20.10      $ 20.21   
  

 

 

 

Net investment income1

     0.30        0.40        0.38        0.47        0.40   

Net realized and unrealized gain (loss)

     (0.02     3.03        2.37        3.55        (0.10
  

 

 

 

Net increase from investment operations

     0.28        3.43        2.75        4.02        0.30   
  

 

 

 

Distributions from:2

          

Net investment income

     (0.36     (0.48     (0.42     (0.44     (0.41

Net realized gain

     (2.89     (2.06     (0.90              
  

 

 

 

Total distributions

     (3.25     (2.54     (1.32     (0.44     (0.41
  

 

 

 

Net asset value, end of year

   $ 23.03      $ 26.00      $ 25.11      $ 23.68      $ 20.10   
  

 

 

 
          
         Total Return3                                         

Based on net asset value

     0.57     14.39     12.14     20.16     1.31
  

 

 

 
          
         Ratios to Average Net Assets4                                         

Total expenses

     1.20     1.25     1.29     1.28     1.39
  

 

 

 

Total expenses after fees waived and/or reimbursed

     0.88     0.92     0.97     0.97     1.07
  

 

 

 

Net investment income

     1.23     1.58     1.51     2.12     1.83
  

 

 

 
          
         Supplemental Data                                         

Net assets, end of year (000)

   $     461,642      $     476,919      $     445,295      $     447,620      $     426,819   
  

 

 

 

Portfolio turnover rate of the Fund5

                                   
  

 

 

 

Portfolio turnover rate of the Master Total Return Portfolio6

     1,015     750     777     1,346     1,771
  

 

 

 

Portfolio turnover rate of the Master Large Cap Core Portfolio

     41     40     50     128     129
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  3   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  4   

Includes the Fund’s share of the Master Portfolios’ allocated expenses and/or net investment income.

 

  5   

Excludes transactions in the Master Portfolios.

 

  6   

Includes mortgage dollar roll transactions. Additional information regarding portfolio turnover rate is as follows:

 

     Year Ended September 30,  
        2015           2014           2013           2012           2011     
  

 

 

 

Portfolio turnover rate (excluding mortgage dollar roll transactions)

     725     529     450     752     1,379%   

 

See Notes to Financial Statements.

 

12    BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015     


Financial Highlights (continued)      BlackRock Balanced Capital Fund, Inc.   

 

     Investor B  
     Year Ended September 30,  
     2015     2014     2013     2012     2011  
          
         Per Share Operating Performance                                         

Net asset value, beginning of year

   $ 25.30      $ 24.47      $ 23.07      $ 19.55      $ 19.65   
  

 

 

 

Net investment income1

     0.03        0.14        0.13        0.24        0.18   

Net realized and unrealized gain (loss)

     (0.02     2.96        2.29        3.46        (0.10
  

 

 

 

Net increase from investment operations

     0.01        3.10        2.42        3.70        0.08   
  

 

 

 

Distributions from:2

          

Net investment income

     (0.11     (0.21     (0.12     (0.18     (0.18

Net realized gain

     (2.89     (2.06     (0.90              
  

 

 

 

Total distributions

     (3.00     (2.27     (1.02     (0.18     (0.18
  

 

 

 

Net asset value, end of year

   $ 22.31      $ 25.30      $ 24.47      $ 23.07      $ 19.55   
  

 

 

 
          
         Total Return3                                         

Based on net asset value

     (0.54 )%      13.27     10.94     19.01     0.34
  

 

 

 
          
         Ratios to Average Net Assets4                                         

Total expenses

     2.28     2.26     2.33     2.29     2.36
  

 

 

 

Total expenses after fees waived and/or reimbursed

     1.96     1.93     2.01     1.98     2.04
  

 

 

 

Net investment income

     0.14     0.56     0.51     1.13     0.86
  

 

 

 
          
         Supplemental Data                                         

Net assets, end of year (000)

   $     2,049      $     3,633      $     4,926      $     7,128      $     8,786   
  

 

 

 

Portfolio turnover rate of the Fund5

                                   
  

 

 

 

Portfolio turnover rate of the Master Total Return Portfolio6

     1,015     750     777     1,346     1,771
  

 

 

 

Portfolio turnover rate of the Master Large Cap Core Portfolio

     41     40     50     128     129
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  3   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  4   

Includes the Fund’s share of the Master Portfolios’ allocated expenses and/or net investment income.

 

  5   

Excludes transactions in the Master Portfolios.

 

  6   

Includes mortgage dollar roll transactions. Additional information regarding portfolio turnover rate is as follows:

 

     Year Ended September 30,  
        2015           2014           2013           2012           2011     
  

 

 

 

Portfolio turnover rate (excluding mortgage dollar roll transactions)

     725     529     450     752     1,379%   

 

See Notes to Financial Statements.

 

     BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015    13


Financial Highlights (continued)      BlackRock Balanced Capital Fund, Inc.   

 

     Investor C  
     Year Ended September 30,  
     2015     2014     2013     2012     2011  
          
         Per Share Operating Performance                                         

Net asset value, beginning of year

   $ 23.80      $ 23.20      $ 21.92      $ 18.64      $ 18.77   
  

 

 

 

Net investment income1

     0.10        0.19        0.18        0.28        0.21   

Net realized and unrealized gain (loss)

     (0.01     2.79        2.17        3.28        (0.08
  

 

 

 

Net increase from investment operations

     0.09        2.98        2.35        3.56        0.13   
  

 

 

 

Distributions from:2

          

Net investment income

     (0.20     (0.32     (0.17     (0.28     (0.26

Net realized gain

     (2.89     (2.06     (0.90              
  

 

 

 

Total distributions

     (3.09     (2.38     (1.07     (0.28     (0.26
  

 

 

 

Net asset value, end of year

   $ 20.80      $ 23.80      $ 23.20      $ 21.92      $ 18.64   
  

 

 

 
          
         Total Return3                                         

Based on net asset value

     (0.21 )%      13.51     11.22     19.22     0.55
  

 

 

 
          
         Ratios to Average Net Assets4                                         

Total expenses

     1.97     2.02     2.07     2.06     2.18
  

 

 

 

Total expenses after fees waived and/or reimbursed

     1.65     1.69     1.75     1.75     1.87
  

 

 

 

Net investment income

     0.47     0.81     0.72     1.33     1.04
  

 

 

 
          
         Supplemental Data                                         

Net assets, end of year (000)

   $     86,397      $     74,908      $     63,952      $     61,541      $     56,608   
  

 

 

 

Portfolio turnover rate of the Fund5

                                   
  

 

 

 

Portfolio turnover rate of the Master Total Return Portfolio6

     1,015     750     777     1,346     1,771
  

 

 

 

Portfolio turnover rate of the Master Large Cap Core Portfolio

     41     40     50     128     129
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  3   

Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions.

 

  4   

Includes the Fund’s share of the Master Portfolios’ allocated expenses and/or net investment income.

 

  5   

Excludes transactions in the Master Portfolios.

 

  6   

Includes mortgage dollar roll transactions. Additional information regarding portfolio turnover rate is as follows:

 

     Year Ended September 30,  
        2015           2014           2013           2012           2011     
  

 

 

 

Portfolio turnover rate (excluding mortgage dollar roll transactions)

     725     529     450     752     1,379%   

 

See Notes to Financial Statements.

 

14    BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015     


Financial Highlights (concluded)      BlackRock Balanced Capital Fund, Inc.   

 

     Class R  
     Year Ended September 30,  
     2015     2014     2013     2012     2011  
          
         Per Share Operating Performance                                         

Net asset value, beginning of year

   $ 24.68      $ 23.96      $ 22.63      $ 19.22      $ 19.33   
  

 

 

 

Net investment income1

     0.21        0.30        0.28        0.37        0.30   

Net realized and unrealized gain (loss)

     (0.02     2.89        2.24        3.39        (0.09
  

 

 

 

Net increase from investment operations

     0.19        3.19        2.52        3.76        0.21   
  

 

 

 

Distributions from:2

          

Net investment income

     (0.28     (0.41     (0.29     (0.35     (0.32

Net realized gain

     (2.89     (2.06     (0.90              
  

 

 

 

Total distributions

     (3.17     (2.47     (1.19     (0.35     (0.32
  

 

 

 

Net asset value, end of year

   $ 21.70      $ 24.68      $ 23.96      $ 22.63      $ 19.22   
  

 

 

 
          
         Total Return3                                         

Based on net asset value

     0.23     14.03     11.66     19.73     0.96
  

 

 

 
          
         Ratios to Average Net Assets4                                         

Total expenses

     1.53     1.59     1.66     1.67     1.77
  

 

 

 

Total expenses after fees waived and/or reimbursed

     1.21     1.27     1.33     1.36     1.46
  

 

 

 

Net investment income

     0.91     1.23     1.16     1.73     1.44
  

 

 

 
          
         Supplemental Data                                         

Net assets, end of year (000)

   $     10,448      $     9,322      $     8,542      $     8,963      $     8,118   
  

 

 

 

Portfolio turnover rate of the Fund5

                                   
  

 

 

 

Portfolio turnover rate of the Master Total Return Portfolio6

     1,015     750     777     1,346     1,771
  

 

 

 

Portfolio turnover rate of the Master Large Cap Core Portfolio

     41     40     50     128     129
  

 

 

 

 

  1   

Based on average shares outstanding.

 

  2   

Distributions for annual periods determined in accordance with federal income tax regulations.

 

  3   

Where applicable, assumes the reinvestment of distributions.

 

  4   

Includes the Fund’s share of the Master Portfolios’ allocated expenses and/or net investment income.

 

  5   

Excludes transactions in the Master Portfolios.

 

  6   

Includes mortgage dollar roll transactions. Additional information regarding portfolio turnover rate is as follows:

 

     Year Ended September 30,  
        2015           2014           2013           2012           2011     
  

 

 

 

Portfolio turnover rate (excluding mortgage dollar roll transactions)

     725     529     450     752     1,379%   

 

See Notes to Financial Statements.

 

     BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015    15


Notes to Financial Statements      BlackRock Balanced Capital Fund, Inc.   

 

1. Organization:

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 is organized as a Maryland corporation. The Fund seeks to achieve its investment objective by investing directly in equity and fixed-income securities, indirectly through one or more funds that invest in such securities, or in a combination of securities and funds. The Fund intends to invest a significant portion of its fixed income assets in Master Total Return Portfolio (the “Master Total Return Portfolio”) of Master Bond LLC, a mutual fund that has an investment objective and strategy consistent with that of the fixed income portion of the Fund. The Fund intends to invest a significant portion of its equity assets in Master Large Cap Core Portfolio (the “Master Large Cap Core Portfolio”) of Master Large Cap Series LLC, a mutual fund that has an investment objective and strategy consistent with that of the equity portion of the Fund. Master Total Return Portfolio and Master Large Cap Core Portfolio, both affiliates of the Fund, are collectively referred to as the “Master Portfolios.” The value of the Fund’s investment in the Master Portfolios reflects the Fund’s proportionate interest in the net assets of the Master Portfolios. The performance of the Fund is directly affected by the performance of the Master Portfolios as well as the Fund’s direct investments. At September 30, 2015, the percentages of the Master Large Cap Core Portfolio and Master Total Return Portfolio owned by the Fund were 25.2% and 4.8%, respectively. The financial statements of the Master Portfolios, including the Schedules of Investments, are included elsewhere in this report and should be read in conjunction with the Fund’s financial statements.

The Fund offers multiple classes of shares. All classes of shares have identical voting, dividend, liquidation and other rights and are subject to the same terms and conditions, except that certain classes bear expenses related to the shareholder servicing and distribution of such shares. Institutional Shares are sold only to certain eligible investors. Investor B Shares are only available through exchanges and distribution reinvestments by current holders and for purchase by certain employer-sponsored retirement plans. Investor A and Investor C Shares are generally available through financial intermediaries. Class R shares are available only to certain employer-sponsored retirement plans. 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 and service plan).

 

Share Class   Initial Sales Charge        CDSC                               Conversion Privilege

Institutional and Class R Shares

  No                          No      None

Investor A Shares

  Yes       No1     None

Investor B Shares

  No     Yes       To Investor A Shares after approximately 8 years

Investor C Shares

  No       Yes         None

 

  1   

Investor A Shares may be subject to a CDSC for certain redemptions where no initial sales charge was paid at the time of purchase.

The Fund, together with certain other registered investment companies advised by the Manager or its affiliates, is included in a complex of open-end funds referred to as the Equity-Bond Complex.

2. Significant Accounting Policies:

The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. Below is a summary of significant accounting policies:

Investment Transactions and Investment Income: For financial reporting purposes, contributions to and withdrawals from the Master Portfolios are accounted on a trade date basis. The Fund records daily its proportionate share of the Master Portfolios’ income, expenses and realized and unrealized gains and losses. Realized and unrealized gains and losses are adjusted utilizing partnership tax allocation rules. In addition, the Fund accrues its own expenses. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.

Distributions: Distributions paid by the Fund are recorded on the ex-dividend date. The character and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.

Net income and realized gains from investments held by the Master Total Return Portfolio’s investment in BlackRock Cayman Master Total Return Portfolio I, Ltd. (the “Subsidiary”) are treated as ordinary income for tax purposes. If a net loss is realized by the Subsidiary in any taxable year, the loss will generally not be available to offset the Fund’s ordinary income and/or capital gains for that year.

Indemnifications: In the normal course of business, the Fund enters into contracts that contain a variety of representations that provide general indemnification. The Fund’s maximum exposure under these arrangements is unknown because it involves future potential claims against the Fund, which cannot be predicted with any certainty.

 

16    BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015     


Notes to Financial Statements (continued)      BlackRock Balanced Capital Fund, Inc.   

 

Other: Expenses directly related to the Fund or its classes are charged to the Fund or the applicable class. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods. Expenses directly related to the Fund and other shared expenses prorated to the Fund are allocated daily to each class based on its relative net assets or other appropriate methods.

The Fund has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.

3. Investment Valuation and Fair Value Measurements:

Investment Valuation Policies: The Fund’s policy is to value its financial instruments at fair value. The Fund records its investment in the Master Portfolios at fair value based on the Fund’s proportionate interest in the net assets of the Master Portfolios. Valuation of securities held by the Master Portfolios is discussed in Note 3 of the Master Portfolios’ Notes to Financial Statements, which are included elsewhere in this report.

Fair Value Inputs and Methodologies: The following methods (or “techniques”) and inputs are used to establish the fair value of the Fund’s assets and liabilities:

 

 

Investments in open-end registered investment companies are valued at NAV each business day.

Fair Value Hierarchy: Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a fair value hierarchy consisting of three broad levels for financial statement purposes as follows:

 

 

Level 1 — unadjusted price quotations in active markets/exchanges for identical assets or liabilities that the Fund has the ability to access

 

 

Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs)

 

 

Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund’s own assumptions used in determining the fair value of investments

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The significant unobservable inputs used by the Global Valuation Committee in determining the price for Fair Valued Investments are typically categorized as Level 3.

Changes in valuation techniques may result in transfers into or out of an assigned level within the hierarchy. In accordance with the Fund’s policy, transfers between different levels of the fair value hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investments and is not necessarily an indication of the risks associated with investing in those securities.

As of period end, the following table summarizes the Fund’s investment categorized in the disclosure hierarchy.

 

      Level 1      Level 2    Level 3    Total  

BlackRock Liquidity Funds, TempFund, Institutional Class

   $ 4,220,698             $ 4,220,698   

4. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”), for 1940 Act purposes.

The Fund entered into an Investment Advisory Agreement with the Manager, the Fund’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Fund’s portfolio and provides the personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays the Manager a monthly fee based on a percentage of the Fund’s average daily net assets at the following annual rates:

 

Average Daily Net Assets    Investment  
Advisory Fee

First $250 million

   0.500%    

$250 million - $ 300 million

   0.450%    

$300 million - $ 400 million

   0.425%    

Greater than $400 million

   0.400%    

 

     BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015    17


Notes to Financial Statements (continued)      BlackRock Balanced Capital Fund, Inc.   

 

The Fund also pays an investment advisory fee to the Manager, which is the investment advisor of Master Total Return Portfolio and Master Large Cap Core Portfolio, to the extent it invests in the Master Total Return Portfolio and Master Large Cap Core Portfolio. The Manager has contractually agreed to waive its investment advisory fee by the amount the Fund pays in connection with its investments in the Master Portfolios. For the year ended September 30, 2015, the Manager waived $3,046,188, which is included in fees waived by the Manager in the Statement of Operations.

Investments in issuers considered to be an affiliate of the Fund for purposes of Section 2(a)(3) of the 1940 Act were as follows:

 

Affiliate   

Shares Held at
September 30,

2014

  

Net

Activity

  Shares Held at
September 30,
2015
   Income    Capital
Gain

BlackRock Liquidity Funds, TempFund, Institutional Class

       11,246,786          (7,026,088 )       4,220,698        $ 15,788        $ 2,283  

The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Fund pays to the Manager indirectly through its investment in affiliated money market funds. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Fund’s investment in other affiliated investment companies except to the extent noted above with respect to Master Total Return Portfolio and Master Large Cap Core Portfolio, if any. For the year ended September 30, 2015, the Manager waived $20,068, which is included in fees waived by the Manager in the Statement of Operations.

The Manager, on behalf of the Fund, entered into a Distribution Agreement and a Distribution and Service Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution and Service Plan and in accordance with Rule 12b-1 under the 1940 Act, the Fund pays BRIL 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 relevant share class of the Fund as follows:

 

     

Service

Fee

    Distribution
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 BRIL, broker-dealers and BRIL provide shareholder servicing and distribution services to the Fund. The ongoing service and/or distribution fee compensates BRIL and each broker-dealer for providing shareholder servicing and/or distribution related services to Investor A, Investor B, Investor C and Class R shareholders.

Pursuant to written agreements, certain financial intermediaries, some of which may be affiliates, provide the Fund with sub-accounting, recordkeeping, sub-transfer agency and other administrative services with respect to sub-accounts they service. For these services, these entities receive an asset-based fee or annual fee per shareholder account, which will vary depending on share class and/or net assets. For the year ended September 30, 2015, the Fund paid the following amounts to affiliates of BlackRock in return for these services, which are included in transfer agent — class specific in the Statement of Operations:

 

Institutional

   $ 30   

Investor A

   $ 3   

Investor C

   $ 45   

The Manager 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, 2015, the Fund reimbursed the Manager the following amounts for costs incurred in running the call center, which are included in transfer agent — class specific in the Statement of Operations:

 

Institutional

   $ 18,824   

Investor A

   $ 25,433   

Investor B

   $ 879   

Investor C

   $ 4,942   

Class R

   $ 12   

 

18    BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015     


Notes to Financial Statements (continued)      BlackRock Balanced Capital Fund, Inc.   

 

For the year ended September 30, 2015, affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of the Fund’s Investor A Shares, which totaled $42,064.

For the year ended September 30, 2015, affiliates received CDSCs as follows:

 

Investor B

   $ 154   

Investor C

   $ 12,943   

Certain officers and/or directors of the Fund are officers and/or directors of BlackRock or its affiliates. The Fund reimburses the Manager for a portion of the compensation paid to the Fund’s Chief Compliance Officer, which is included in officer in the Statement of Operations.

5. Income Tax Information:

It is the Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, 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.

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 U.S. federal tax returns remains open for each of the four years ended September 30, 2015. The statutes of limitations on the Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.

Management has analyzed tax laws and regulations and their application to the Fund as of September 30, 2015, inclusive of the open tax return years, and does not believe there are any uncertain tax positions that require recognition of a tax liability in the Fund’s financial statements.

U.S. GAAP requires 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 net asset values per share. As of period end, the following permanent differences attributable to foreign currency transactions and the timing and recognition of partnership income were reclassified to the following accounts:

 

Paid-in capital

   $ (9,507,122

Undistributed net investment income

   $ 6,460,718   

Accumulated net realized gain

   $ 3,046,404   

The tax character of distributions paid was as follows:

 

      9/30/15              9/30/14  

Ordinary income

       $ 27,961,668          $ 40,758,608   

Long-term capital gains

     90,307,968            44,364,091   
  

 

 

 

Total

       $ 118,269,636                            $ 85,122,699   
  

 

 

 

As of period end, the tax components of accumulated net earnings were as follows:

 

Undistributed ordinary income

       $ 5,060,903   

Undistributed long-term capital gains

     32,899,421   

Net unrealized gains1

     96,101,103   

Qualified late - year losses2

     (4,077,350
  

 

 

 

Total

       $ 129,984,077   
  

 

 

 

 

  1   

The difference between book-basis and tax-basis net unrealized gains was attributable primarily to the timing and recognition of partnership income.

  2   

The Fund has elected to defer certain qualified late-year losses and recognize such losses in the next taxable year.

6. Bank Borrowings:

The Fund, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.1 billion credit agreement with a group of lenders, under which the Portfolio may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Fund, can borrow up to an aggregate commitment amount of $1.6 billion, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.06% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2016 unless extended or renewed. Prior to November 25, 2014, the aggregate commitment amount was $1.1 billion, of which the Participating Funds, including the Fund, could borrow up to $650 million at any time outstanding, subject to asset coverage and other limitations as specified in the agreement. Participating Funds paid administration, legal and arrangement fees, which, if applicable, are included in miscellaneous expenses in the Statement of Operations, and along with commitment fees, were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the year ended September 30, 2015, the Fund did not borrow under the credit agreement.

 

     BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015    19


Notes to Financial Statements (concluded)      BlackRock Balanced Capital Fund, Inc.   

 

7. Capital Share Transactions:

Transactions in capital shares for each class were as follows:

 

     Year Ended
September 30, 2015
           Year Ended
September 30, 2014
 
     Shares            Amount            Shares          Amount  

Institutional

                                                       

Shares sold

     2,824,672         $ 70,713,607           980,571         $ 25,081,312   

Shares issued to shareholders in reinvestment of distributions

     1,582,567           38,187,966                             1,058,374           25,988,038   

Shares redeemed

     (2,993,401        (74,150,517        (1,296,288        (33,207,672
  

 

 

      

 

 

 

Net increase

     1,413,838         $ 34,751,056           742,657         $ 17,861,678   
  

 

 

      

 

 

 
                 

Investor A

                                                       

Shares sold and automatic conversion of shares

     3,011,631         $ 73,895,968           1,724,599         $ 43,864,042   

Shares issued to shareholders in reinvestment of distributions

     2,214,522           53,320,829           1,585,357           38,831,120   

Shares redeemed

     (3,520,738                  (86,161,203        (2,703,341             (68,793,610
  

 

 

      

 

 

 

Net increase

     1,705,415         $ 41,055,594           606,615         $ 13,901,552   
  

 

 

      

 

 

 
                 

Investor B

                                                       

Shares sold

     14,834         $ 355,476           8,370         $ 206,975   

Shares issued to shareholders in reinvestment of distributions

     12,134           284,294           14,354           341,728   

Shares redeemed and automatic conversion of shares

     (78,718        (1,891,537        (80,436        (1,998,619
  

 

 

      

 

 

 

Net decrease

     (51,750      $ (1,251,767        (57,712      $ (1,449,916
  

 

 

      

 

 

 
                 

Investor C

                                                       

Shares sold

     1,373,663         $ 30,657,383           579,939         $ 13,558,206   

Shares issued to shareholders in reinvestment of distributions

     430,767           9,395,517           262,991           5,906,750   

Shares redeemed

     (798,157        (17,617,743        (452,565        (10,607,564
  

 

 

      

 

 

 

Net increase

     1,006,273         $ 22,435,157           390,365         $ 8,857,392   
  

 

 

      

 

 

 
                 

Class R

                                                       

Shares sold

     204,126         $ 4,700,412           150,010         $ 3,643,101   

Shares issued to shareholders in reinvestment of distributions

     50,047           1,137,349           38,306           891,000   

Shares redeemed

     (150,375        (3,510,723        (167,052        (4,064,569
  

 

 

      

 

 

 

Net increase

     103,798         $ 2,327,038           21,264         $ 469,532   
  

 

 

      

 

 

 

Total Net Increase

          4,177,574         $ 99,317,078                1,703,189         $ 39,640,238   
  

 

 

      

 

 

 

8. Subsequent Events:

Management has evaluated of the impact of all subsequent events on the Fund through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or additional disclosure in the financial statements.

 

20    BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015     


Report of Independent Registered Public Accounting Firm     

 

To the Board of Directors and Shareholders of BlackRock Balanced Capital Fund, Inc.:

We have audited the accompanying statement of assets and liabilities of BlackRock Balanced Capital Fund, Inc. (the “Fund”) as of September 30, 2015, 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, 2015, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such 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, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Philadelphia, Pennsylvania

November 25, 2015

 

Important Tax Information (Unaudited)     

During the fiscal year ended September 30, 2015, the following information is provided with respect to the ordinary income distributions paid by the Fund:

 

     

Payable Dates

          12/23/14    7/17/15

Qualified Dividend Income for Individuals1

   28.53%     78.14%

Dividends Qualifying for the Dividends Received Deduction for Corporations1

   25.07%     70.10%

Federal Obligation Interest2

   2.51%     2.98%

Interest-Related Dividends and Qualified Short-Term Capital Gains for Non-US Residents3

   33.52%     17.79%

 

1 

The Fund hereby designates the percentage indicated above or the maximum amount allowable by law.

 

2 

The law varies in each state as to whether and what percentage of ordinary income dividends 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 taxes.

 

3 

Represents the portion of the taxable ordinary income dividends eligible for exemption from U.S. withholding tax for nonresident aliens and foreign corporations.

Additionally, the Fund distributed long-term capital gains of $2.496131 per share to shareholders of record on December 19, 2014.

 

     BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015    21


Portfolio Information as of September 30, 2015      Master Large Cap Core Portfolio   

 

 

      As of September 30, 2015

 

Ten Largest Holdings    Percent of
Long-Term Investments

JPMorgan Chase & Co.

       3 %    

CVS Health Corp.

       3  

Comcast Corp., Class A

       3  

Apple Inc.

       3  

Lowe’s Cos., Inc.

       3  

American International Group, Inc.

       3  

U.S. Bancorp

       3  

Citigroup, Inc.

       2  

Aetna, Inc.

       2  

Bank of America Corp.

       2  
Sector Allocations    Percent of
Long-Term Investments

Information Technology

       24 %    

Financials

       18  

Health Care

       18  

Consumer Discretionary

       16  

Consumer Staples

       8  

Industrials

       7  

Energy

       6  

Materials

       2  

Utilities

       1  

 

       For Portfolio compliance purposes, the Portfolio’s sector classifications refer to any one or more of the sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Portfolio management. These definitions may not apply for purposes of this report, which may combine sector sub-classifications for reporting ease.
 

 

22    BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015     


Schedule of Investments September 30, 2015      Master Large Cap Core Portfolio   
     (Percentages shown are based on Net Assets)   

 

Common Stocks    Shares      Value  

Aerospace & Defense — 1.1%

     

Raytheon Co.

     225,920       $ 24,684,019   

Air Freight & Logistics — 1.3%

     

FedEx Corp.

     188,500         27,140,230   

Airlines — 2.2%

     

Southwest Airlines Co.

     898,900         34,194,156   

United Continental Holdings, Inc. (a)

     245,500         13,023,775   
     

 

 

 
                47,217,931   

Auto Components — 2.0%

     

Goodyear Tire & Rubber Co.

     339,000         9,942,870   

Lear Corp.

     302,400         32,895,072   
     

 

 

 
                42,837,942   

Banks — 11.8%

     

Bank of America Corp.

     3,119,836         48,607,045   

Citigroup, Inc.

     1,055,918         52,384,092   

JPMorgan Chase & Co.

     1,151,524         70,208,418   

SunTrust Banks, Inc.

     765,640         29,278,074   

U.S. Bancorp

     1,297,125         53,195,096   
     

 

 

 
                253,672,725   

Beverages — 2.1%

     

Dr. Pepper Snapple Group, Inc.

     343,900         27,185,295   

Molson Coors Brewing Co., Class B

     210,000         17,434,200   
     

 

 

 
                44,619,495   

Biotechnology — 2.3%

     

Amgen, Inc.

     264,700         36,613,304   

Gilead Sciences, Inc.

     136,600         13,412,754   
     

 

 

 
                50,026,058   

Building Products — 0.5%

     

Owens Corning

     255,600         10,712,196   

Capital Markets — 1.8%

     

Goldman Sachs Group, Inc.

     218,280         37,928,333   

Chemicals — 0.7%

     

Dow Chemical Co.

     370,500         15,709,200   

Communications Equipment — 2.9%

     

Brocade Communications Systems, Inc.

     1,651,542         17,143,006   

Cisco Systems, Inc.

     1,740,720         45,693,900   
     

 

 

 
                62,836,906   

Construction & Engineering — 1.0%

     

AECOM (a)

     777,000         21,375,270   

Consumer Finance — 0.9%

     

Discover Financial Services

     86,470         4,495,575   

SLM Corp.

     2,106,040         15,584,696   
     

 

 

 
                20,080,271   

Containers & Packaging — 0.5%

     

Packaging Corp. of America

     181,513         10,919,822   
Common Stocks    Shares      Value  

Electronic Equipment, Instruments & Components — 0.4%

  

  

CDW Corp.

     133,400       $ 5,450,724   

Zebra Technologies Corp., Class A (a)

     50,903         3,896,625   
     

 

 

 
                9,347,349   

Energy Equipment & Services — 2.3%

     

Atwood Oceanics, Inc.

     570,500         8,449,105   

Schlumberger Ltd.

     531,820         36,679,625   

Weatherford International PLC (a)

     593,890         5,036,187   
     

 

 

 
                50,164,917   

Food & Staples Retailing — 3.3%

     

CVS Health Corp.

     701,925         67,721,724   

Kroger Co.

     69,200         2,496,044   
     

 

 

 
                70,217,768   

Food Products — 0.7%

     

Pilgrim’s Pride Corp.

     184,100         3,825,598   

Tyson Foods, Inc., Class A

     261,200         11,257,720   
     

 

 

 
                15,083,318   

Health Care Equipment & Supplies — 0.1%

     

Medtronic PLC

     32,140         2,151,452   

Health Care Providers & Services — 12.2%

     

Aetna, Inc.

     475,300         52,002,573   

Centene Corp. (a)

     369,300         20,027,139   

Cigna Corp.

     344,700         46,541,394   

Express Scripts Holding Co. (a)

     82,500         6,679,200   

Humana, Inc.

     125,800         22,518,200   

Laboratory Corp. of America Holdings (a)

     214,040         23,216,919   

McKesson Corp.

     121,125         22,411,759   

UnitedHealth Group, Inc.

     337,100         39,106,971   

Universal Health Services, Inc., Class B

     247,450         30,884,235   
     

 

 

 
                263,388,390   

Hotels, Restaurants & Leisure — 2.4%

     

Carnival Corp.

     920,538         45,750,739   

Las Vegas Sands Corp.

     161,200         6,120,764   
     

 

 

 
                51,871,503   

Household Durables — 1.1%

     

DR Horton, Inc.

     248,005         7,281,427   

Lennar Corp., Class A

     157,600         7,585,288   

NVR, Inc.

     3,010         4,590,912   

Toll Brothers, Inc.

     131,288         4,495,301   
     

 

 

 
                23,952,928   

Industrial Conglomerates — 0.6%

     

3M Co.

     84,975         12,046,906   

Insurance — 3.6%

     

American International Group, Inc.

     980,400         55,706,328   

Travelers Cos., Inc.

     228,830         22,775,450   
     

 

 

 
                78,481,778   
 
      Portfolio Abbreviations
ADR    American Depositary Receipts              
SPDR    Standard & Poor’s Depositary Receipts              

 

See Notes to Financial Statements.

 

     BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015    23


Schedule of Investments (continued)      Master Large Cap Core Portfolio   
  

 

Common Stocks    Shares      Value  

Internet & Catalog Retail — 1.0%

     

Priceline Group, Inc. (a)

     17,920       $ 22,164,531   

Internet Software & Services — 4.5%

     

Facebook, Inc., Class A (a)

     318,800         28,660,120   

Google, Inc., Class A (a)

     53,285         34,015,545   

Google, Inc., Class C (a)

     54,594         33,216,081   
     

 

 

 
                95,891,746   

IT Services — 5.9%

     

Amdocs Ltd.

     341,279         19,411,950   

Cognizant Technology Solutions Corp., Class A

     592,200         37,077,642   

DST Systems, Inc.

     111,444         11,717,222   

MasterCard, Inc., Class A

     479,160         43,181,899   

Total System Services, Inc.

     349,354         15,871,152   
     

 

 

 
                127,259,865   

Machinery — 0.4%

     

WABCO Holdings, Inc. (a)

     72,800         7,631,624   

Media — 3.7%

     

Comcast Corp., Class A

     1,055,900         60,059,592   

Omnicom Group, Inc.

     130,500         8,599,950   

Viacom, Inc., Class B

     276,400         11,926,660   
     

 

 

 
                80,586,202   

Multi-Utilities — 0.7%

     

Public Service Enterprise Group, Inc.

     343,700         14,490,392   

Oil, Gas & Consumable Fuels — 3.2%

     

BP PLC — ADR

     678,410         20,732,210   

Exxon Mobil Corp.

     90,770         6,748,749   

Hess Corp.

     67,052         3,356,623   

PBF Energy, Inc., Class A

     176,240         4,975,255   

Suncor Energy, Inc.

     842,310         22,506,523   

Tesoro Corp.

     71,893         6,990,875   

Valero Energy Corp.

     75,500         4,537,550   
     

 

 

 
                69,847,785   

Paper & Forest Products — 0.6%

     

Domtar Corp.

     333,300         11,915,475   

Pharmaceuticals — 2.9%

     

AstraZeneca PLC — ADR

     277,000         8,814,140   

Johnson & Johnson

     80,095         7,476,868   

Merck & Co., Inc.

     103,243         5,099,172   

Pfizer, Inc.

     72,690         2,283,193   

Teva Pharmaceutical Industries Ltd. — ADR

     678,636         38,315,789   
     

 

 

 
                61,989,162   

Semiconductors & Semiconductor Equipment — 1.9%

  

  

Intel Corp.

     423,570         12,766,400   
Common Stocks    Shares      Value  

Semiconductors & Semiconductor Equipment (concluded)

  

Micron Technology, Inc. (a)

     1,013,870       $ 15,187,773   

NVIDIA Corp.

     569,100         14,028,315   
     

 

 

 
                41,982,488   

Software — 3.1%

     

Activision Blizzard, Inc.

     657,700         20,316,353   

Microsoft Corp.

     652,340         28,872,568   

Oracle Corp.

     458,650         16,566,438   
     

 

 

 
                65,755,359   

Specialty Retail — 5.6%

     

Home Depot, Inc.

     389,900         45,029,551   

Lowe’s Cos., Inc.

     840,800         57,947,936   

Ross Stores, Inc.

     366,358         17,757,372   
     

 

 

 
                120,734,859   

Technology Hardware, Storage & Peripherals — 4.5%

  

  

Apple Inc.

     529,870         58,444,661   

EMC Corp.

     316,570         7,648,331   

Western Digital Corp.

     394,510         31,339,874   
     

 

 

 
                97,432,866   

Textiles, Apparel & Luxury Goods — 0.3%

     

Fossil Group, Inc. (a)

     105,300         5,884,164   

Tobacco — 2.0%

     

Altria Group, Inc.

     776,739         42,254,602   

Total Common Stocks — 98.1%

              2,112,287,827   
     
Investment Companies — 0.4%                

Utilities Select Sector SPDR Fund

     188,000         8,138,520   

Total Long-Term Investments

(Cost — $1,739,918,460) — 98.5%

  

  

     2,120,426,347   
     
Short-Term Securities                

BlackRock Liquidity Funds, TempFund, Institutional Class, 0.10% (b)(c)

     29,818,476         29,818,476   

Total Short-Term Securities

(Cost — $29,818,476) — 1.4%

  

  

     29,818,476   

Total Investments (Cost — $1,769,736,936) — 99.9%

  

     2,150,244,823   

Other Assets Less Liabilities — 0.1%

        3,086,338   
     

 

 

 

Net Assets — 100.0%

      $ 2,153,331,161   
     

 

 

 
 
      Notes to Schedule of Investments

 

(a) Non-income producing security.

 

(b) During the year ended September 30, 2015, investments in issuers considered to be affiliates of the Portfolio for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:

 

Affiliate    Shares/Beneficial
Interest Held at
September 30, 2014
    

Net

Activity

     Shares/Beneficial
Interest Held at
September 30, 2015
     Income     Realized
Gain
 

BlackRock Liquidity Funds, TempFund, Institutional Class

     11,267,596         18,550,880         29,818,476         $38,083        $6,359   

BlackRock Liquidity Series, LLC, Money Market Series

                             $39,599 1        

 

  1   

Represents securities lending income earned from the reinvestment of cash collateral from loaned securities, net of fees and collateral investment expenses, and other payments to and from borrowers of securities.

 

(c) Represents the current yield as of report date.

 

See Notes to Financial Statements.

 

24    BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015     


Schedule of Investments (concluded)      Master Large Cap Core Portfolio   

 

 

 

For Portfolio compliance purposes, the Portfolio’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 the investment advisor. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.

 

      Fair Value Hierarchy as of Period End

Various inputs are used in determining the fair value of investments. For information about the Portfolio’s policy regarding valuation of investments, refer to the Notes to Financial Statements.

The following table summarizes the Portfolio’s investments categorized in the disclosure hierarchy:

 

      Level 1      Level 2    Level 3    Total  

Assets:

           

Investments:

           

Long-Term Investments:

           

Common Stocks1

   $ 2,112,287,827             $ 2,112,287,827   

Investment Companies

     8,138,520               8,138,520   

Short-Term Securities

     29,818,476               29,818,476   
  

 

 

 

Total

   $     2,150,244,823             $     2,150,244,823   
  

 

 

 

 

  1   

See above Schedule of Investments for values in each industry.

The Portfolio may hold assets and/or liabilities in which the fair value approximates the carrying amount for financial statement purposes. As of period end, cash at value of $1,705 is categorized as Level 1 within the disclosure hierarchy.

During the year ended September 30, 2015, there were no transfers between levels.

 

See Notes to Financial Statements.

 

     BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015    25


Statement of Assets and Liabilities      Master Large Cap Core Portfolio   

 

 

September 30, 2015       
  

 Assets

        

Investments at value — unaffiliated (cost — $1,739,918,460)

    $     2,120,426,347   

Investments at value — affiliated (cost — $29,818,476)

     29,818,476   

Cash

     1,705   

Receivables:

  

Investments sold

     15,538,574   

Contributions from investors

     871,514   

Dividends — affiliated

     2,735   

Dividends — unaffiliated

     2,457,247   

Prepaid expenses

     1,185   
  

 

 

 

Total assets

     2,169,117,783   
  

 

 

 
  

 Liabilities

        

Payables:

  

Investments purchased

     12,829,391   

Directors’ fees

     14,391   

Investment advisory fees

     849,667   

Other accrued expenses

     109,631   

Other affiliates

     18,771   

Withdrawals to investors

     1,964,771   
  

 

 

 

Total liabilities

     15,786,622   
  

 

 

 

Net Assets

    $ 2,153,331,161   
  

 

 

 
  

 Net Assets Consist of

        

Investors’ capital

    $ 1,772,823,274   

Net unrealized appreciation (depreciation)

     380,507,887   
  

 

 

 

Net Assets

    $ 2,153,331,161   
  

 

 

 

 

See Notes to Financial Statements.

 

26    BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015     


Statement of Operations      Master Large Cap Core Portfolio   

 

 

Year Ended September 30, 2015       
  

 Investment Income

        

Dividends — affiliated

   $ 38,083   

Dividends — unaffiliated

         37,952,854   

Securities lending — affiliated — net

     39,599   

Foreign taxes withheld

     (308,896
  

 

 

 

Total income

     37,721,640   
  

 

 

 
  

 Expenses

        

Investment advisory

     11,187,116   

Accounting services

     411,128   

Custodian

     80,680   

Professional

     76,868   

Directors

     69,147   

Miscellaneous

     29,691   

Printing

     1,894   
  

 

 

 

Total expenses

     11,856,524   

Less fees waived by the Manager

     (45,584
  

 

 

 

Total expenses after fees waived

     11,810,940   
  

 

 

 

Net investment income

     25,910,700   
  

 

 

 
  

 Realized and Unrealized Gain (Loss)

        

Net realized gain from:

  

Capital gain distributions received from affiliated investment companies

     6,359   

Investments

     143,135,932   
  

 

 

 
     143,142,291   
  

 

 

 

Net change in unrealized appreciation (depreciation) on investments

         (174,949,314
  

 

 

 

Total realized and unrealized loss

     (31,807,023
  

 

 

 

Net Decrease in Net Assets Resulting from Operations

   $ (5,896,323
  

 

 

 

 

See Notes to Financial Statements.

 

     BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015    27


Statements of Changes in Net Assets      Master Large Cap Core Portfolio   

 

 

     Year Ended September 30,  
Increase (Decrease) in Net Assets:    2015     2014  
    

 Operations

                

Net investment income

   $ 25,910,700      $ 25,125,980   

Net realized gain

     143,142,291        363,322,933   

Net change in unrealized appreciation (depreciation)

     (174,949,314     28,704,584   
  

 

 

 

Net increase (decrease) in net assets resulting from operations

     (5,896,323     417,153,497   
  

 

 

 
    

 Capital Transactions

                

Proceeds from contributions

     241,299,172        155,850,428   

Value of withdrawals

     (417,574,858     (546,397,150
  

 

 

 

Net decrease in net assets derived from capital transactions

     (176,275,686     (390,546,722
  

 

 

 
    

 Net Assets

                

Total increase (decrease) in net assets

     (182,172,009     26,606,775   

Beginning of year

     2,335,503,170        2,308,896,395   
  

 

 

 

End of year

   $     2,153,331,161      $     2,335,503,170   
  

 

 

 

 

See Notes to Financial Statements.

 

28    BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015     


Financial Highlights      Master Large Cap Core Portfolio   

 

 

     Year Ended September 30  
     2015     2014     2013     2012     2011  
          

 Total Return

                                        

Total return

     (0.89 )%      19.44     20.39     29.97     (1.61 )% 
  

 

 

 
          

 Ratios to Average Net Assets

                                        

Total expenses

     0.50     0.50     0.50     0.50     0.49
  

 

 

 

Total expenses after fees waived

     0.50     0.50     0.50     0.50     0.49
  

 

 

 

Net investment income

     1.09     1.08     1.29     1.67     1.13
  

 

 

 
          

 Supplemental Data

                                        

Net assets, end of year (000)

    $ 2,153,331      $ 2,335,503      $ 2,308,896      $ 2,318,851      $ 2,306,714   
  

 

 

 

Portfolio turnover rate

     41     40     50     128     129
  

 

 

 

 

See Notes to Financial Statements.

 

     BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015    29


Notes to Financial Statements      Master Large Cap Core Portfolio   

 

1. Organization:

Master Large Cap Core Portfolio (the “Portfolio”) is a series of Master Large Cap Series LLC (the “Master LLC”). The Master LLC is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company and is organized as a Delaware limited liability company. The Portfolio is classified as diversified. The Limited Liability Company Agreement of the Master LLC permits the Board of Directors of the Master LLC (the “Board”) to issue non-transferable interests in the Master LLC, subject to certain limitations.

The Portfolio, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, is included in a complex of open-end funds referred to as the Equity-Liquidity Complex.

2. Significant Accounting Policies:

The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. The Portfolio is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. Below is a summary of significant accounting policies:

Segregation and Collateralization: In cases where the Portfolio enters into certain investments (e.g., financial futures contracts), that would be treated as “senior securities” for 1940 Act purposes, the Portfolio may segregate or designate on its books and records cash or liquid assets having a market value at least equal to the amount of their future obligations under such investments or borrowings. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Portfolio may be required to deliver/ deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.

Investment Transactions and Investment Income: For financial reporting purposes, investment transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on investment transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend date. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Portfolio is informed of the ex-dividend date. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Upon notification from issuers, some of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain.

Recent Accounting Standard: In June 2014, the Financial Accounting Standards Board issued guidance to improve the financial reporting of reverse repurchase agreements and other similar transactions. The guidance will require expanded disclosure for entities that enter into reverse repurchase agreements and similar transactions accounted for as secured borrowings. It is effective for financial statements with fiscal years beginning on or after December 15, 2014 and for interim periods beginning after March 15, 2015. Management is evaluating the impact, if any, of this guidance on the Portfolio’s financial statement disclosures.

Indemnifications: In the normal course of business, the Portfolio enters into contracts that contain a variety of representations that provide general indemnification. The Portfolio’s maximum exposure under these arrangements is unknown because it involves future potential claims against the Portfolio, which cannot be predicted with any certainty.

Other: Expenses directly related to the Portfolio are charged to the Portfolio. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods.

The Portfolio has an arrangement with its custodian whereby fees may be reduced by credits earned on uninvested cash balances, which, if applicable, are shown as fees paid indirectly in the Statement of Operations. The custodian imposes fees on overdrawn cash balances, which can be offset by accumulated credits earned or may result in additional custody charges.

3. Investment Valuation and Fair Value Measurements:

Investment Valuation Policies: The Portfolio’s investments are valued at fair value (also referred to as “market value” within the financial statements) as of the close of trading on the New York Stock Exchange (“NYSE”) (generally 4:00 p.m., Eastern time). U.S. GAAP defines fair value as the price the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. The Portfolio determines the fair value of its financial instruments using independent dealers or pricing services under policies approved by the Board. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to provide oversight of the pricing function for the Portfolio for all financial instruments.

Fair Value Inputs and Methodologies: The following methods (or “techniques”) and inputs are used to establish the fair value of the Portfolio’s assets and liabilities:

 

   

Equity investments traded on a recognized securities exchange are valued at the official close price each day, if available. For equity investments traded on more than one exchange, the official close 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 may be valued at the last available bid (long positions) or ask (short positions) price.

 

30    BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015     


Notes to Financial Statements (continued)      Master Large Cap Core Portfolio   

 

 

   

Investments in open-end registered investment companies are valued at NAV each business day.

 

   

The Portfolio values its investment in BlackRock Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon its pro rata ownership in the underlying fund’s net assets. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments will follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act. The Portfolio may withdraw up to 25% of its investment daily, although the manager of the Money Market Series, in its sole discretion, may permit an investor to withdraw more than 25% on any one day.

If events (e.g., a company announcement, market volatility or a natural disaster) occur that are expected to materially affect the value of such instruments, or in the event that the application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Valued Investments”). When determining the price for Fair Valued Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that the Portfolio might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant consistent with the principles of fair value measurement. The pricing of all Fair Valued Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.

Fair Value Hierarchy: Various inputs are used in determining the fair value of investments. These inputs to valuation techniques are categorized into a fair value hierarchy consisting of three broad levels for financial statement purposes as follows:

 

   

Level 1 — unadjusted price quotations in active markets/exchanges for identical assets or liabilities that the Portfolio has the ability to access

 

   

Level 2 — other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs)

 

   

Level 3 — unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Portfolio’s own assumptions used in determining the fair value of instruments)

The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The significant unobservable inputs used by the Global Valuation Committee in determining the price for Fair Valued Investments are typically categorized as Level 3. The fair value hierarchy for the Portfolio’s investments has been included in the Schedule of Investments.

Changes in valuation techniques may result in transfers into or out of an assigned level within the hierarchy. In accordance with the Portfolio’s policy, transfers between different levels of the fair value hierarchy are deemed to have occurred as of the beginning of the reporting period. The categorization of a value determined for investments is based on the pricing transparency of the investment and is not necessarily an indication of the risks associated with investing in those securities.

4. Securities and Other Investments:

Securities Lending: The Portfolio may lend its securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Portfolio collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by the Portfolio is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter, at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Portfolio and any additional required collateral is delivered to the Portfolio, or excess collateral returned by the Portfolio, on the next business day. During the term of the loan, the Portfolio is entitled to all distributions made on or in respect of the loaned securities. 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.

 

     BLACKROCK BALANCED CAPITAL FUND, INC.    SEPTEMBER 30, 2015    31


Notes to Financial Statements (continued)      Master Large Cap Core Portfolio   

 

The market value of securities on loan and the value of the related collateral are shown separately in the Statement of Assets and Liabilities as a component of investments at value — unaffiliated, and collateral on securities loaned at value, respectively. As of period end, any securities on loan were collateralized by cash. The cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedule of Investments.

Securities lending transactions are entered into by the Portfolio under Master Securities Lending Agreements (each, an “MSLA”) which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Portfolio, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, the borrower can resell or re-pledge the loaned securities, and the Portfolio can reinvest cash collateral, or, upon an event of default, resell or re-pledge the collateral.

The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Portfolio benefits from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned if the collateral received does not cover the value on the securities loaned in the event of borrower default. The Portfolio could suffer a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received.

5. Investment Advisory Agreement and Other Transactions with Affiliates:

The PNC Financial Services Group, Inc. is the largest stockholder and an affiliate of BlackRock, Inc. (“BlackRock”) for 1940 Act purposes.

The Master LLC, on behalf of the Portfolio, entered into an Investment Advisory Agreement with the Manager, the Portfolio’s investment advisor, an indirect, wholly owned subsidiary of BlackRock, to provide investment advisory and administration services. The Manager is responsible for the management of the Portfolio and provides the personnel, facilities, equipment and certain other services necessary to the operations of the Portfolio. For such services, the Portfolio pays the Manager a monthly fee based on a percentage of the Portfolio’s average daily net assets at the following annual rates:

 

Average Daily Net Assets    Investment
Advisory Fee

Not exceeding $1 Billion

     0.50%

In excess of $1 Billion, but not exceeding $5 Billion

     0.45%

In excess of $5 Billion

     0.40%

The Manager voluntarily agreed to waive its investment advisory fees by the amount of investment advisory fees the Portfolio pays to the Manager indirectly through its investment in affiliated money market funds. This amount is shown as fees waived by the Manager in the Statement of Operations. However, the Manager does not waive its investment advisory fees by the amount of investment advisory fees paid in connection with the Portfolio’s investment in other affiliated investment companies, if any.

For the year ended September 30, 2015, the Portfolio reimbursed the Manager $25,106 for certain accounting services, which are included in accounting services in the Statement of Operations.

The U.S. Securities and Exchange Commission has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Portfolio, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Portfolio is responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company managed by the Manager or its af