-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P4VGzgAaHbfCmtDhYbMG/S4bT2+5VIM4RhUEMdHRmcq80VIQBx+8Hn8YhlIQkv5a Gpfk83Bal3GC87BFhA6m9A== 0001005477-01-501828.txt : 20020410 0001005477-01-501828.hdr.sgml : 20020410 ACCESSION NUMBER: 0001005477-01-501828 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL LYNCH BALANCE CAPITAL FUND INC CENTRAL INDEX KEY: 0000110055 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 132757134 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02405 FILM NUMBER: 1780397 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL ROAD CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092823319 MAIL ADDRESS: STREET 1: P.O. BOX 9066 CITY: PRINCETON STATE: NJ ZIP: 08543-9011 FORMER COMPANY: FORMER CONFORMED NAME: LIONEL D EDIE CAPITAL FUND INC DATE OF NAME CHANGE: 19760810 FORMER COMPANY: FORMER CONFORMED NAME: MERRILL LYNCH CAPITAL FUND INC DATE OF NAME CHANGE: 19920703 N-30D 1 d01-35047.txt SEMI-ANNUAL REPORT [LOGO] Merrill Lynch Investment Managers Semi-Annual Report September 30, 2001 Merrill Lynch Balanced Capital Fund, Inc. www.mlim.ml.com Merrill Lynch Balanced Capital Fund, Inc. DEAR SHAREHOLDER Economic Environment During the six months ended September 30, 2001, US equity markets proved extremely volatile as investors struggled to discern trends in economic growth and corporate earnings prospects. Throughout the first half of the period, aggressive action by the Federal Reserve Board to lower short-term interest rates and accelerate money supply growth raised expectations for an economic recovery in the latter half of the year and supported a recovery in equity prices. However, during the second half of the period stock prices declined significantly. Exacerbating the already weak economic and corporate profit environment, the events of September 11, 2001 appear to have pushed the US economy into a full-blown recession, precipitating further significant reductions in earnings expectations and equity prices. Indeed, the equity markets appeared trapped in a vicious circle of lower earnings, lower valuations and lower prices. The unmanaged benchmark Standard & Poor's (S&P) 500 Index declined 9.69% for the six-month period, including a near-record 15% drop for the September quarter. The unmanaged technology-laden NASDAQ Composite Index fell 18.6% during the six-month period ended September 30, 2001. Growth outperformed value for the period as investors gravitated toward shares of predictable, non-economically sensitive companies, especially in the health care and consumer staples sectors. The unmanaged S&P 500/Barra Growth Index declined 6.51% during the six months ended September 30, 2001, while the unmanaged S&P 500/Barra Value Index fell more than 12%. The fixed-income market performed well, benefiting from expectations for continued economic weakness and low inflation, as well as the safe haven appeal of bonds in an uncertain equity market environment. The unmanaged Merrill Lynch Domestic Bond Master Index provided a +5.24% total return for the six-month period ended September 30, 2001. Portfolio Matters Total returns for the Merrill Lynch Balanced Capital Fund, Inc.'s Class A, Class B, Class C and Class D Shares for the six-month period ended September 30, 2001 were -6.35%, -6.82%, -6.80% and -6.49%, respectively. (Fund results shown do not reflect sales charges and would be lower if sales charges were included. Complete performance information can be found on pages 4 and 5 of this report to shareholders.) The Fund underperformed its respective benchmarks during the period as we had adopted a more economically sensitive position within each portfolio earlier in the period in anticipation of resurgent fourth quarter economic growth. Within the equity portfolio, positive contributions from our positions in defense, consumer staples and health care were overwhelmed by weakness in the industrial, media and technology categories. Within the fixed-income portfolio, the benefits of a relatively long average duration in a declining interest rate environment were more than offset by our overweighted position in the weak corporate bond segment of the market. Our asset allocation at September 30, 2001 showed 64.4% of portfolio net assets invested in equities, 32.4% in fixed-income securities and 3.2% in cash equivalents. This compares to 62.8% in equities, 31.4% in fixed-income securities and 5.8% in cash equivalents at March 31, 2001. We remain confident in the soundness of the strategy we adopted earlier this year of increasing our equity exposure, as well as our position in more economically sensitive securities, despite the short-term performance penalty this has exacted. From an economic perspective, while the short-term outlook remains cloudy, we believe recent Federal Reserve Board actions, coupled with aggressive fiscal stimulus, suggest an accelerated pace of economic growth is likely to become evident early next year, providing a much more favorable backdrop for equities. Furthermore, the attractive valuations in many economically sensitive stock groups suggest to us that this is where the best current investment values reside. Historically, a confluence of favorable monetary, psychology and valuation indicators such as those that exist currently, is rare and typically represents a very significant turning point for equities. 1 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 We therefore believe this is the appropriate time to reposition the portfolio to take advantage of this opportunity. We continued to adjust our holdings during the period in response to ongoing stock price volatility, particularly after September 11, 2001 when many attractive investment opportunities were presented. Within the equity portfolio, we added 20 new investments, increased positions in 12 holdings, reduced positions in 22 names and eliminated seven stocks. We further increased our exposures in companies whose prospects are more closely tied to economic conditions in anticipation of a more robust economic climate. We believe companies such as Advanced Micro Devices, Inc., Carnival Corporation and Liberty Media Corporation will be prime beneficiaries of a resumption in economic growth and are very attractively valued at current levels. We also added selected restructuring candidates to the portfolio as we believe companies such as Aetna Inc. and The Gillette Company will benefit from new managements and a resumption of earnings growth, regardless of economic conditions. We reduced exposures in an eclectic group of industrial, financial and technology stocks because of high valuations and/or deterioration in business fundamentals. While shares of Applied Materials, Inc., Mellon Financial Corporation and SPX Corporation remain portfolio holdings, we believed it prudent to reduce the size of these positions. We eliminated investments in Reader's Digest Association Inc., Scientific-Atlanta, Inc. and Tellabs, Inc. because of concerns over deteriorating business and profitability trends. Within the fixed-income portfolio, we reduced our duration to a more average 5.0 years in response to the Federal Reserve Board's monetary policy initiatives. We further increased our exposure to corporate bonds in order to capture higher yields and in anticipation of a contraction in yield spreads as the economy recovers. Average quality ratings were unchanged at A3/A-, as measured by at least one of the major bond rating agencies, while average-yield-to-maturity increased six basis points (0.06%) to 7.14%. At period end, investment-grade corporate bonds represented 68.1% of total fixed-income assets, with high-yield corporate bonds at 11.5%, US Government bonds at 19.2% and mortgage-backed securities at 1.2%. This compares to 66.2% in investment-grade corporate bonds, 10.9% in high-yield corporate bonds, 21.7% in US Treasury securities and 1.2% in mortgage-backed securities at March 31, 2001. In Conclusion We appreciate your continued interest and participation in Merrill Lynch Balanced Capital Fund, Inc., and we look forward to assisting you with your financial needs in the months and years to come. Sincerely, /s/ Terry K. Glenn Terry K. Glenn President and Director /s/ Kurt Schansinger Kurt Schansinger Senior Vice President and Portfolio Manager October 26, 2001 The Fund's transfer agency fee schedule has been amended. Under the revised schedule, the fees payable to Financial Data Services, Inc., the transfer agent for the Fund, now range from $16 to $23 per shareholder account (depending upon the level of service required) or 0.10% of account assets for certain accounts that participate in certain fee-based programs. 2 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 A SPECIAL MESSAGE TO SHAREHOLDERS THE U.S. ECONOMY & THE AFTERMATH OF SEPTEMBER 11th A Perspective from Bob Doll, President & Chief Investment Officer of Merrill Lynch Investment Managers, L.P. For Americans, the world was changed forever on September 11th. In looking for some perspective, I have been reassured by my belief that the pride of America is its people and its economy. In the wake of this attack, there has been no question about the mettle of Americans--across the country, they have risen to the occasion again and again by helping the victims and raising the flag. But there are many important questions about the American economy, the engine of our way of life, that have yet to be answered, indeed, that may take months to answer. During the coming days, weeks and months, navigating a course through the financial markets will be challenging. The resolve of Americans and the U.S. Government will be tested. But history tells us that Americans and America are resilient. And we know that the market will eventually rally. As President Bush told the nation in his speech on September 20th, "Terrorists attacked a symbol of prosperity. They did not touch its source. America is successful because of the hard work and creativity and enterprise of our people. They were the true strengths of our economy before September 11th and they are our strengths today." For the rest of this year at least, the main event will be a market of tug-of-war as consumer demand shock vies with proactive monetary and fiscal policies from the Fed and government, which may pump as much as $100 billion into the economy. Where we go and when we get there will depend on the government's ability to reinvigorate consumer and business confidence. Eventually, the market will get back to focusing on the basics--economic and earnings fundamentals. There is no doubt that these are extraordinarily trying times. But we have been through trying times before, and the economy has always emerged stronger than ever. We have no reason to believe this time will be any different. PROXY RESULTS During the six-month period ended September 30, 2001, Merrill Lynch Balanced Capital Fund, Inc.'s shareholders voted on the following proposals. The proposals were approved at a shareholders' meeting on May 14, 2001. The description of each proposal and number of shares voted are as follows:
- ----------------------------------------------------------------------------------------------------------------- Shares Voted Shares Withheld For From Voting - ----------------------------------------------------------------------------------------------------------------- 1. To elect the Fund's Board of Directors: Terry K. Glenn 128,948,325 3,400,773 M. Colyer Crum 128,883,346 3,465,752 Laurie Simon Hodrick 128,904,813 3,444,285 Stephen B. Swensrud 128,893,319 3,455,779 J. Thomas Touchton 128,934,931 3,414,167 Fred G. Weiss 128,942,078 3,407,020 - ----------------------------------------------------------------------------------------------------------------- Shares Voted Shares Voted Shares Voted For Against Abstain - ----------------------------------------------------------------------------------------------------------------- 2. To approve the selection of auditors. 127,510,782 1,456,687 3,381,629 - ----------------------------------------------------------------------------------------------------------------- 3. To approve to convert the Fund to a "master/feeder" structure. 115,313,920 9,087,011 7,948,167 - -----------------------------------------------------------------------------------------------------------------
3 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 PERFORMANCE DATA About Fund Performance Investors are able to purchase shares of the Fund through the Merrill Lynch Select Pricing(SM) System, which offers four pricing alternatives: o Class A Shares incur a maximum initial sales charge (front-end load) of 5.25% and bear no ongoing distribution or account maintenance fees. Class A Shares are available only to eligible investors. o Effective June 1, 2001, Class B Shares are subject to a maximum contingent deferred sales charge of 4% declining to 0% after six years. All Class B Shares purchased prior to June 1, 2001 will maintain the four-year schedule. In addition, Class B Shares are subject to a distribution fee of 0.75% and an account maintenance fee of 0.25%. These shares automatically convert to Class D Shares after approximately 8 years. (There is no initial sales charge for automatic share conversions.) o Class C Shares are subject to a distribution fee of 0.75% and an account maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1% contingent deferred sales charge if redeemed within one year of purchase. o Class D Shares incur a maximum initial sales charge of 5.25% and an account maintenance fee of 0.25% (but no distribution fee). None of the past results shown should be considered a representation of future performance. 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 "Recent Performance Results" and "Average Annual Total Return" tables assume reinvestment of all dividends and capital gains distributions at net asset value on the ex-dividend date. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Dividends paid to each class of shares will vary because of the different levels of account maintenance, distribution and transfer agency fees applicable to each class, which are deducted from the income available to be paid to shareholders. Average Annual Total Return % Return Without % Return With Sales Charge Sales Charge** ============================================================================== Class A Shares* ============================================================================== One Year Ended 9/30/01 -10.72% -15.40% - ------------------------------------------------------------------------------ Five Years Ended 9/30/01 + 6.25 + 5.11 - ------------------------------------------------------------------------------ Ten Years Ended 9/30/01 + 9.28 + 8.70 - ------------------------------------------------------------------------------ * Maximum sales charge is 5.25%. (Prior to October 21, 1994, Class A Shares were offered at a higher sales charge. Thus, actual returns would have been lower than shown for the ten-year period.) ** Assuming maximum sales charge. % Return % Return Without CDSC With CDSC** ============================================================================== Class B Shares* ============================================================================== One Year Ended 9/30/01 -11.63% -14.71% - ------------------------------------------------------------------------------ Five Years Ended 9/30/01 + 5.17 + 4.94 - ------------------------------------------------------------------------------ Ten Years Ended 9/30/01 + 8.18 + 8.18 - ------------------------------------------------------------------------------ * Maximum contingent deferred sales charge is 4% and is reduced to 0% after 6 years. ** Assuming payment of applicable contingent deferred sales charge. ============================================================================== % Return % Return Without CDSC With CDSC** ============================================================================== Class C Shares* ============================================================================== One Year Ended 9/30/01 -11.60% -12.37% - ------------------------------------------------------------------------------ Five Years Ended 9/30/01 + 5.17 + 5.17 - ------------------------------------------------------------------------------ Inception (10/21/94) through 9/30/01 + 8.39 + 8.39 - ------------------------------------------------------------------------------ * Maximum contingent deferred sales charge is 1% and is reduced to 0% after 1 year. ** Assuming payment of applicable contingent deferred sales charge. ============================================================================== % Return Without % Return With Sales Charge Sales Charge** ============================================================================== Class D Shares* ============================================================================== One Year Ended 9/30/01 -10.95% -15.62% - ------------------------------------------------------------------------------ Five Years Ended 9/30/01 + 5.98 + 4.84 - ------------------------------------------------------------------------------ Inception (10/21/94) through 9/30/01 + 9.23 + 8.39 - ------------------------------------------------------------------------------ * Maximum sales charge is 5.25%. ** Assuming maximum sales charge. 4 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 PERFORMANCE DATA (concluded) Recent Performance Results
Ten Years/ 6-Month 12-Month Since Inception As of September 30, 2001 Total Return Total Return Total Return =================================================================================================== ML Balanced Capital Fund, Inc. Class A Shares* -6.35% -10.72% +143.00% - --------------------------------------------------------------------------------------------------- ML Balanced Capital Fund, Inc. Class B Shares* -6.82 -11.63 +119.52 - --------------------------------------------------------------------------------------------------- ML Balanced Capital Fund, Inc. Class C Shares* -6.80 -11.60 + 74.96 - --------------------------------------------------------------------------------------------------- ML Balanced Capital Fund, Inc. Class D Shares* -6.49 -10.95 + 84.59 - --------------------------------------------------------------------------------------------------- Dow Jones Industrial Average** -9.67 -15.63 +264.86/+158.14 - --------------------------------------------------------------------------------------------------- Standard & Poor's 500 Index** -9.69 -26.63 +230.49/+148.42 - --------------------------------------------------------------------------------------------------- ML U.S. Domestic Bond Master Index*** +5.24 +13.05 +112.46/+ 76.71 ===================================================================================================
* Investment results shown do not reflect sales charges; results shown would be lower if a sales charge was included. Total investment returns are based on changes in net asset values for the periods shown, and assume reinvestment of all dividends and capital gains distributions at net asset value on the ex-dividend date. The Fund's ten-year/since inception periods are ten years for Class A & Class B Shares and from 10/21/94 for Class C & Class D Shares. ** An unmanaged broad-based index comprised of common stocks. Ten years/since inception total returns are ten years and from 10/31/94, respectively. *** This unmanaged Index is comprised of the entire universe of domestic investment-grade bonds including US Treasury bonds, corporate bonds and mortgages. Ten years/since inception total returns are ten years and from 10/31/94, respectively. OFFICERS AND DIRECTORS Terry K. Glenn, President and Director M. Colyer Crum, Director Laurie Simon Hodrick, Director Stephen B. Swensrud, Director J. Thomas Touchton, Director Fred G. Weiss, Director Robert C. Doll, Jr., Senior Vice President Kurt Schansinger, Senior Vice President and Portfolio Manager Walter Cuje, Vice President Donald C. Burke, Vice President and Treasurer Thomas D. Jones, III, Secretary Custodian The Bank of New York 90 Washington Street, 12th Floor New York, NY 10286 Transfer Agent Financial Data Services, Inc. 4800 Deer Lake Drive East Jacksonville, FL 32246-6484 (800) 637-3863 5 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 SCHEDULE OF INVESTMENTS
Shares Percent of Industries Held Stocks Cost Value Net Assets ================================================================================================================================== Aerospace & 1,000,000 General Dynamics Corporation $ 67,586,291 $ 88,320,000 1.9% Defense 750,000 Honeywell International Inc. 26,917,650 19,800,000 0.4 500,000 Raytheon Company 13,611,369 17,375,000 0.4 650,000 United Technologies Corporation 9,729,948 30,225,000 0.7 ------------ ------------ --- 117,845,258 155,720,000 3.4 ================================================================================================================================== Airlines 500,000 +AMR Corporation 19,429,284 9,570,000 0.2 ================================================================================================================================== Auto Components 48,800 TRW Inc. 1,880,353 1,455,216 0.0 ================================================================================================================================== Banks 1,500,000 Mellon Financial Corporation 54,080,707 48,495,000 1.0 1,625,000 Wells Fargo Company 66,345,547 72,231,250 1.6 ------------ ------------ --- 120,426,254 120,726,250 2.6 ================================================================================================================================== Beverages 2,000,000 Anheuser-Busch Companies, Inc. 73,833,907 83,760,000 1.8 ================================================================================================================================== Chemicals 1,250,000 E.I. du Pont de Nemours and Company 66,288,019 46,900,000 1.0 ================================================================================================================================== Communications 2,000,000 +CommScope, Inc. 45,219,289 35,740,000 0.8 Equipment 5,000,000 Lucent Technologies Inc. 31,107,819 28,650,000 0.6 4,000,000 Motorola, Inc. 64,173,200 62,400,000 1.4 ------------ ------------ --- 140,500,308 126,790,000 2.8 ================================================================================================================================== Computers & 2,000,000 Compaq Computer Corporation 38,597,707 16,620,000 0.4 Peripherals 850,000 International Business Machines Corporation 86,899,388 78,455,000 1.7 ------------ ------------ --- 125,497,095 95,075,000 2.1 ================================================================================================================================== Diversified Financial 2,000,000 Citigroup Inc. 6,890,586 81,000,000 1.8 1,000,000 Federal National Mortgage Association 24,890,985 80,060,000 1.8 1,350,000 J.P. Morgan Chase & Co. 40,596,717 46,102,500 1.0 1,000,000 Morgan Stanley Dean Witter & Co. 60,094,215 46,350,000 1.0 1,500,000 Stilwell Financial, Inc. 24,006,039 29,250,000 0.6 ------------ ------------ --- 156,478,542 282,762,500 6.2 ================================================================================================================================== Diversified 400,000 Qwest Communications International Inc. 10,182,800 6,680,000 0.1 Telecommunication 1,500,000 Verizon Communications 94,718,577 81,165,000 1.8 Services ------------ ------------ --- 104,901,377 87,845,000 1.9 ================================================================================================================================== Electronic 2,000,000 +Agilent Technologies, Inc. 62,053,831 39,100,000 0.8 Equipment & 1,500,000 +SCI Systems, Inc. 42,643,175 27,000,000 0.6 Instruments ------------ ------------ --- 104,697,006 66,100,000 1.4 ================================================================================================================================== Energy Equipment 2,000,000 Halliburton Company 53,461,836 45,100,000 1.0 & Services ================================================================================================================================== Food Products 400,000 Nestle SA (Registered Shares) 41,815,871 85,369,626 1.9 ================================================================================================================================== Gas Utilities 1,250,000 El Paso Corporation 13,663,490 51,937,500 1.1 ================================================================================================================================== Health Care 1,000,000 Aetna Inc. (New Shares) 28,017,830 28,890,000 0.6 Providers & Services 1,500,000 HCA--The Healthcare Corporation 59,024,493 66,465,000 1.4 1,500,000 +Tenet Healthcare Corporation 40,418,409 89,475,000 2.0 ------------ ------------ --- 127,460,732 184,830,000 4.0 ==================================================================================================================================
6 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 SCHEDULE OF INVESTMENTS (continued)
Shares Percent of Industries Held Stocks Cost Value Net Assets ================================================================================================================================== Hotels, Restaurants 700,000 Carnival Corporation $ 12,986,218 $ 15,414,000 0.3% & Leisure 500,000 +Harrah's Entertainment, Inc. 7,984,710 13,505,000 0.3 2,000,000 McDonald's Corporation 47,532,936 54,280,000 1.2 600,000 Starwood Hotels & Resorts Worldwide, Inc. 11,266,850 13,200,000 0.3 20,000 Wendy's Financing I, Series A (Convertible Preferred) 1,044,750 1,090,200 0.0 ------------ ------------ --- 80,815,464 97,489,200 2.1 ================================================================================================================================== Household Products 750,000 Kimberly-Clark Corporation 35,368,924 46,500,000 1.0 ================================================================================================================================== IT Consulting & 500,000 +Computer Sciences Corporation 20,039,851 16,585,000 0.4 Services ================================================================================================================================== Industrial 1,000,000 General Electric Company 47,436,640 37,200,000 0.8 Conglomerates 200,000 Minnesota Mining and Manufacturing Company (3M) 17,325,034 19,680,000 0.4 ------------ ------------ --- 64,761,674 56,880,000 1.2 ================================================================================================================================== Insurance 1,800,000 ACE Limited 62,128,592 51,966,000 1.2 1,000,000 American International Group, Inc. 16,181,051 78,000,000 1.7 1,000,000 XL Capital Ltd. (Class A) 20,196,458 79,000,000 1.7 ------------ ------------ --- 98,506,101 208,966,000 4.6 ================================================================================================================================== Leisure Equipment & 500,000 Eastman Kodak Company 17,657,996 16,265,000 0.4 Products ================================================================================================================================== Machinery 1,250,000 Dover Corporation 46,424,866 37,637,500 0.8 1,500,000 ITT Industries, Inc. 50,134,958 67,200,000 1.5 750,000 +SPX Corporation 43,512,989 62,175,000 1.3 ------------ ------------ --- 140,072,813 167,012,500 3.6 ================================================================================================================================== Media 1,500,000 +Clear Channel Communications, Inc. 84,561,717 59,625,000 1.3 1,000,000 The Interpublic Group of Companies, Inc. 43,827,406 20,400,000 0.5 1,200,000 +Liberty Media Corporation (Class A) 15,988,190 15,240,000 0.3 1,250,000 The New York Times Company (Class A) 50,498,787 48,787,500 1.1 1,750,000 +Viacom, Inc. (Class B) 89,909,433 60,375,000 1.3 500,000 The Walt Disney Company 8,031,952 9,310,000 0.2 ------------ ------------ --- 292,817,485 213,737,500 4.7 ================================================================================================================================== Metals & Mining 1,250,000 Alcoa Inc. 50,007,392 38,762,500 0.8 900,000 Nucor Corporation 42,928,761 35,730,000 0.8 ------------ ------------ --- 92,936,153 74,492,500 1.6 ================================================================================================================================== Multi-Utilities 2,000,000 The Williams Companies, Inc. 15,410,424 54,600,000 1.2 ================================================================================================================================== Multiline Retail 1,750,000 The May Department Stores Company 62,770,839 50,785,000 1.1 ================================================================================================================================== Oil & Gas 1,250,000 Anadarko Petroleum Corporation 44,023,928 60,100,000 1.3 40,000 Unocal Capital Trust (Convertible Preferred) 2,136,250 1,900,000 0.0 ------------ ------------ --- 46,160,178 62,000,000 1.3 ================================================================================================================================== Paper & Forest 28,000 International Paper Capital Trust Products (Convertible Preferred) (c) 1,331,400 1,232,000 0.0 1,350,000 International Paper Company 49,850,680 46,980,000 1.0 700,000 Weyerhaeuser Company 36,911,204 34,097,000 0.8 ------------ ------------ --- 88,093,284 82,309,000 1.8 ==================================================================================================================================
7 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 SCHEDULE OF INVESTMENTS (continued)
Shares Percent of Industries Held Stocks Cost Value Net Assets =================================================================================================================================== Personal Products 1,900,000 Avon Products, Inc. $ 74,426,188 $ 87,875,000 1.9% 750,000 The Gillette Company 21,932,481 22,350,000 0.5 -------------- -------------- ---- 96,358,669 110,225,000 2.4 =================================================================================================================================== Pharmaceuticals 1,500,000 American Home Products Corporation 76,865,418 87,375,000 1.9 1,500,000 Pharmacia Corporation 60,599,890 60,840,000 1.3 -------------- -------------- ---- 137,465,308 148,215,000 3.2 =================================================================================================================================== Road & Rail 32,000 Union Pacific Capital Trust (Convertible Preferred) 1,513,875 1,440,000 0.0 =================================================================================================================================== Semiconductor 1,300,000 +Advanced Micro Devices, Inc. 22,370,111 10,595,000 0.2 Equipment & 1,000,000 +Agere Systems Inc. (Class A) 5,276,783 4,130,000 0.1 Products 750,000 +Applied Materials, Inc. 34,769,892 21,300,000 0.5 500,000 Texas Instruments Incorporated 23,192,590 12,490,000 0.3 -------------- -------------- ---- 85,609,376 48,515,000 1.1 =================================================================================================================================== Specialty Retail 500,000 The Home Depot, Inc. 17,699,532 19,185,000 0.4 1,000,000 Intimate Brands, Inc. 15,424,816 9,000,000 0.2 500,000 RadioShack Corporation 13,575,203 12,125,000 0.3 -------------- -------------- ---- 46,699,551 40,310,000 0.9 =================================================================================================================================== Wireless 2,000,000 +Nextel Communications, Inc. (Class A) 26,815,964 17,180,000 0.4 Telecommunication Services =================================================================================================================================== Total Stocks 2,718,053,261 2,957,447,792 64.4 =================================================================================================================================== Face Amount Corporate Bonds =================================================================================================================================== Aerospace & US$ 7,500,000 Lockheed Martin Corporation, 7.20% Defense due 5/01/2036 7,660,934 8,111,850 0.2 25,000,000 Raytheon Company, 6.15% due 11/01/2008 23,910,151 24,582,250 0.5 -------------- -------------- ---- 31,571,085 32,694,100 0.7 =================================================================================================================================== Airlines 10,000,000 Continental Airlines, 8% due 12/15/2005 10,000,000 6,700,000 0.1 Northwest Airlines, Inc.: 19,000,000 7.625% due 3/15/2005 18,386,564 13,680,000 0.3 5,000,000 8.875% due 6/01/2006 4,950,000 3,413,915 0.1 5,000,000 7.875% due 3/15/2008 4,473,700 3,029,520 0.1 -------------- -------------- ---- 37,810,264 26,823,435 0.6 =================================================================================================================================== Auto Components 22,000,000 The Goodyear Tire & Rubber Company, 6.625% due 12/01/2006 21,489,200 21,468,040 0.5 =================================================================================================================================== Automobiles 20,000,000 Hyundai Motor Co., Ltd., 7.60% due 7/15/2007 (a) 19,916,100 20,228,800 0.5 =================================================================================================================================== Banks 25,000,000 BankAmerica Corp., 6.625% due 10/15/2007 23,889,000 26,501,250 0.6 20,000,000 First Security Corp., 7% due 7/15/2005 19,803,850 21,449,040 0.5 23,000,000 First Union Corp., 6.55% due 10/15/2035 22,954,680 24,090,200 0.5 21,500,000 Firstbank Puerto Rico, 7.625% due 12/20/2005 20,920,065 21,961,626 0.5 10,000,000 PNC Funding Corp., 6.125% due 2/15/2009 8,779,100 10,025,500 0.2 20,000,000 Peoples Bank Bridgeport, 9.875% due 11/15/2010 19,852,200 21,864,280 0.5 20,000,000 Provident Bank, 6.375% due 1/15/2004 19,328,395 20,534,800 0.4 Union Planters Corp.: 17,500,000 6.75% due 11/01/2005 16,802,475 18,275,075 0.4 10,000,000 7.75% due 3/01/2011 9,982,000 10,846,900 0.2 12,000,000 Washington Mutual Inc., 7.50% due 8/15/2006 12,395,624 13,226,040 0.3 -------------- -------------- ---- 174,707,389 188,774,711 4.1 ===================================================================================================================================
8 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 SCHEDULE OF INVESTMENTS (continued)
Face Percent of Industries Amount Corporate Bonds Cost Value Net Assets ================================================================================================================================= Beverages US$ 10,000,000 Panamerican Beverages Inc., 7.25% due 7/01/2009 $ 10,036,202 $ 9,328,000 0.2% ================================================================================================================================= Chemicals 13,000,000 Airgas Inc., 7.14% due 3/08/2004 12,951,446 13,250,211 0.3 35,000,000 Equistar Chemicals LP, 6.50% due 2/15/2006 33,201,216 29,137,150 0.6 20,500,000 FMC Corp., 6.75% due 5/05/2005 20,351,615 20,914,100 0.5 10,000,000 International Flavors & Fragrance, 6.45% due 5/15/2006 (a) 9,981,200 10,311,350 0.2 ------------ ------------ --- 76,485,477 73,612,811 1.6 ================================================================================================================================= Commercial 20,000,000 Browning-Ferris Industries, Inc., Services & Supplies 6.375% due 1/15/2008 19,627,200 17,300,000 0.4 ================================================================================================================================= Communications Harris Corporation: Equipment 10,000,000 6.375% due 8/15/2002 9,977,100 10,312,600 0.2 10,000,000 6.35% due 2/01/2028 9,415,500 9,553,200 0.2 20,000,000 Nortel Networks Limited, 6.125% due 2/15/2006 18,173,837 15,638,800 0.4 ------------ ------------ --- 37,566,437 35,504,600 0.8 ================================================================================================================================= Diversified 20,000,000 Ford Motor Credit Co., 7.75% due 2/15/2007 19,904,140 21,209,600 0.5 Financial GATX Capital Corporation: 25,000,000 6.69% due 11/30/2005 24,984,750 26,014,500 0.6 25,000,000 7.75% due 12/01/2006 24,827,000 25,379,750 0.5 General Motors Acceptance Corp.: 5,000,000 6.15% due 4/05/2007 4,681,300 4,940,250 0.1 5,000,000 6.375% due 5/01/2008 4,862,569 4,977,200 0.1 30,000,000 5.85% due 1/14/2009 26,484,400 28,351,800 0.6 Hertz Corp.: 10,000,000 7.625% due 8/15/2007 9,909,200 10,533,900 0.2 25,000,000 6.25% due 3/15/2009 23,889,900 23,744,000 0.5 Household Finance Corp.: 10,000,000 6.50% due 11/15/2008 9,743,200 10,253,400 0.2 25,000,000 6.75% due 5/15/2011 24,909,500 25,755,000 0.6 Worldcom Inc.: 10,000,000 6.40% due 8/15/2005 9,608,600 10,158,000 0.2 25,000,000 7.375% due 1/15/2006 25,394,255 26,159,575 0.6 ------------ ------------ --- 209,198,814 217,476,975 4.7 ================================================================================================================================= Electric Utilities 24,000,000 Empresa Nacional de Electricidad SA (Endesa), 7.325% due 2/01/2037 24,000,000 22,792,560 0.5 ================================================================================================================================= Energy Equipment R & B Falcon Corporation: & Services 10,000,000 6.75% due 4/15/2005 9,672,250 10,441,360 0.3 10,000,000 6.95% due 4/15/2008 10,102,913 10,315,400 0.2 ------------ ------------ --- 19,775,163 20,756,760 0.5 ================================================================================================================================= Food Products 20,000,000 Conagra Inc., 6.70% due 8/01/2027 19,770,744 20,517,600 0.4 20,000,000 Nabisco, Inc., 6.375% due 2/01/2035 (b) 19,939,200 20,719,800 0.5 ------------ ------------ --- 39,709,944 41,237,400 0.9 ================================================================================================================================= Health Care 14,000,000 Healthsouth Corporation, Providers & Services 7.375% due 10/01/2006 (a) 14,000,000 14,122,500 0.3 8,000,000 Quest Diagnostic Inc., 6.75% due 7/12/2006 7,954,560 8,253,208 0.2 ------------ ------------ --- 21,954,560 22,375,708 0.5 =================================================================================================================================
9 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 SCHEDULE OF INVESTMENTS (continued)
Face Percent of Industries Amount Corporate Bonds Cost Value Net Assets ================================================================================================================================= Hotels, Royal Caribbean Cruises Ltd.: Restaurants US$ 10,000,000 7.125% due 9/18/2002 $ 9,900,050 $ 9,000,000 0.2% & Leisure 20,000,000 7.25% due 8/15/2006 19,806,343 16,000,000 0.4 ------------ ------------ --- 29,706,393 25,000,000 0.6 ================================================================================================================================= Household Durables 28,000,000 Champion Enterprises, Inc., 7.625% due 5/15/2009 24,087,045 20,605,872 0.4 10,000,000 Interface, Inc., 7.30% due 4/01/2008 9,934,520 8,700,000 0.2 ------------ ------------ --- 34,021,565 29,305,872 0.6 ================================================================================================================================= Machinery 16,000,000 Cummins Engine, 6.75% due 2/15/2007 15,864,234 15,545,600 0.3 ================================================================================================================================= Marine 19,000,000 Transportacion Maritima Mexicana, SA de CV, 10.25% due 11/15/2006 18,710,714 14,630,000 0.3 ================================================================================================================================= Media 10,000,000 AOL Time Warner Inc., 6.75% due 4/15/2011 9,893,100 10,263,400 0.2 13,000,000 News America Holdings, 7.43% due 10/01/2026 13,003,946 13,986,609 0.3 10,000,000 News America Inc., 6.75% due 1/09/2038 10,000,000 9,917,600 0.2 10,000,000 Univision Communications Inc., 7.85% due 7/15/2011 (a) 9,982,400 10,334,450 0.3 ------------ ------------ --- 42,879,446 44,502,059 1.0 ================================================================================================================================= Oil & Gas 27,500,000 The Coastal Corporation, 6.70% due 2/15/2027 27,225,400 28,537,850 0.6 10,000,000 Diamond Shamrock, 7.65% due 7/01/2026 9,920,000 10,784,700 0.2 14,000,000 Giant Industries, Inc., 9% due 9/01/2007 (a) 13,675,156 13,160,000 0.3 10,000,000 Occidental Petroleum Corp. (MOPPRS), 6.40% due 4/01/2003 (b) 9,765,025 10,270,000 0.2 30,000,000 Perez Companc SA, 8.125% due 7/15/2007 (a) 27,056,961 24,450,000 0.5 10,000,000 Ultramar Diamond Shamrock, 6.75% due 10/15/2037 9,979,800 10,032,400 0.2 15,000,000 United Refining Co., 10.75% due 6/15/2007 15,000,000 10,800,000 0.3 25,000,000 Williams Holdings of Delaware, Inc., 6.25% due 2/01/2006 24,813,056 25,575,000 0.6 ------------ ------------ --- 137,435,398 133,609,950 2.9 ================================================================================================================================= Paper & Forest Boise Cascade Corporation: Products 5,000,000 7.35% due 10/11/2004 5,146,689 5,195,585 0.1 20,000,000 7.66% due 5/27/2005 20,000,000 20,718,000 0.4 30,000,000 Champion International Corp., 6.65% due 12/15/2037 29,755,480 30,793,200 0.7 ------------ ------------ --- 54,902,169 56,706,785 1.2 ================================================================================================================================= Pharmaceuticals 10,000,000 American Home Products Corporation, 6.25% due 3/15/2006 9,998,700 10,431,100 0.2 ================================================================================================================================= Road & Rail CSX Corporation: 20,000,000 6.25% due 10/15/2008 19,366,700 20,103,200 0.5 5,000,000 6.75% due 3/15/2011 4,985,950 5,137,900 0.1 20,000,000 Ryder Systems, Inc., 6.50% due 5/15/2005 19,960,600 19,941,420 0.4 ------------ ------------ --- 44,313,250 45,182,520 1.0 ================================================================================================================================= Specialty Retail 10,000,000 Tandy Corporation, 6.125% due 1/15/2003 9,985,800 10,244,300 0.2 =================================================================================================================================
10 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 SCHEDULE OF INVESTMENTS (concluded)
Face Percent of Industries Amount Corporate Bonds Cost Value Net Assets =================================================================================================================================== Wireless Nextel Communications, Inc.: Telecommunication US$ 20,000,000 9.375% due 11/15/2009 $ 19,611,550 $ 12,400,000 0.3% Services 1,500,000 5.25% due 1/15/2010 (a) 1,500,000 761,250 0.0 10,000,000 Pacific Telecom, Inc., 6.625% due 10/20/2005 10,000,000 10,224,660 0.2 25,000,000 Sprint Capital Corporation, 6.90% due 5/01/2019 23,394,600 22,987,500 0.5 -------------- -------------- ----- 54,506,150 46,373,410 1.0 =================================================================================================================================== Total Corporate Bonds 1,196,171,654 1,181,905,496 25.8 =================================================================================================================================== Collateralized Mortgage Obligations* =================================================================================================================================== Freddie Mac Participation Certificates: 668,661 6.50% due 5/15/2008 638,989 669,965 0.0 4,185,219 7% due 8/15/2008 3,986,421 4,211,780 0.1 13,000,000 Gold Program, 6% due 2/15/2011 12,020,938 13,237,770 0.3 =================================================================================================================================== Total Collateralized Mortgage Obligations 16,646,348 18,119,515 0.4 =================================================================================================================================== Foreign Government Obligations =================================================================================================================================== 3,000,000 Province of Mendoza, 10% due 9/04/2007 (a) 2,979,510 1,260,000 0.0 =================================================================================================================================== Total Foreign Government Obligations 2,979,510 1,260,000 0.0 =================================================================================================================================== US Government Obligations =================================================================================================================================== 75,000,000 US Treasury Bonds, 6.25% due 8/15/2023 67,278,906 82,383,000 1.8 US Treasury Notes: 70,000,000 5.50% due 2/15/2008 69,192,122 74,888,800 1.6 125,000,000 4.75% due 11/15/2008 123,072,827 127,832,500 2.8 =================================================================================================================================== Total US Government Obligations 259,543,855 285,104,300 6.2 =================================================================================================================================== Short-Term Investments =================================================================================================================================== Commercial 73,314,000 General Motors Acceptance Corp., Paper** 3.44% due 10/01/2001 73,299,989 73,299,989 1.6 50,000,000 J.P. Morgan Securities Inc., 2.45% due 10/24/2001 49,914,930 49,914,930 1.1 =================================================================================================================================== Total Short-Term Investments 123,214,919 123,214,919 2.7 =================================================================================================================================== Total Investments $4,316,609,547 4,567,052,022 99.5 ============== Other Assets Less Liabilities 21,753,998 0.5 -------------- ----- Net Assets $4,588,806,020 100.0% ============== ===== ===================================================================================================================================
* Subject to principal paydowns. ** Commercial Paper is traded on a discount basis; the interest rates shown reflect the discount rates paid at the time of purchase by the Fund. + Non-income producing security. (a) The security may be offered and sold to "qualified institutional buyers" under Rule 144A of the Securities Act of 1933. (b) Floating rate note. (c) Restricted securities as to resale. The value of the Fund's investment in restricted securities was approximately $1,232,000, representing 0.03% of net assets. -------------------------------------------------------------------------- Acquisition Issue Date Cost Value -------------------------------------------------------------------------- International Paper Capital Trust 1/16/1997 $1,331,400 $1,232,000 -------------------------------------------------------------------------- Total $1,331,400 $1,232,000 ========== ========== -------------------------------------------------------------------------- See Notes to Financial Statements. 11 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 FINANCIAL INFORMATION Statement of Assets and Liabilities as of September 30, 2001 Assets: Investments, at value (including securities loaned of $99,473,609) (identified cost--$4,316,609,547) .................................... $4,567,052,022 Investments held as collateral for loaned securities, at value ....... 99,511,345 Receivables: Interest .......................................................... $25,346,295 Securities sold ................................................... 22,668,468 Capital shares sold ............................................... 4,284,823 Dividends ......................................................... 3,642,291 Loaned securities ................................................. 13,673 55,955,550 ----------- Prepaid registration fees and other assets ........................... 1,690,342 -------------- Total assets ......................................................... 4,724,209,259 -------------- ============================================================================================================================ Liabilities: Collateral on securities loaned, at value ............................ 99,511,345 Payables: Capital shares redeemed ........................................... 20,445,704 Custodian bank .................................................... 6,748,980 Securities purchased .............................................. 3,323,616 Investment adviser ................................................ 1,480,119 Distributor ....................................................... 1,433,089 33,431,508 ----------- Accrued expenses and other liabilities ............................... 2,446,713 -------------- Total liabilities .................................................... 135,389,566 -------------- ============================================================================================================================ Net Assets: Net assets ........................................................... $4,588,819,693 ============== ============================================================================================================================ Net Assets Class A Shares of Common Stock, $.10 par value, 400,000,000 Consist of: shares authorized .................................................... $ 7,479,909 Class B Shares of Common Stock, $.10 par value, 500,000,000 shares authorized .................................................... 5,367,676 Class C Shares of Common Stock, $.10 par value, 200,000,000 shares authorized .................................................... 795,340 Class D Shares of Common Stock, $.10 par value, 200,000,000 shares authorized .................................................... 4,848,372 Paid-in capital in excess of par ..................................... 4,276,104,184 Undistributed investment income--net ................................. 27,688,764 Undistributed realized capital gains on investments and foreign currency transactions--net ........................................... 16,137,528 Unrealized appreciation on investments and foreign currency transactions--net ........................................... 250,397,920 -------------- Net assets ........................................................... $4,588,819,693 ============== ============================================================================================================================ Net Asset Value: Class A--Based on net assets of $1,877,542,644 and 74,799,085 shares outstanding .......................................... $ 25.10 ============== Class B--Based on net assets of $1,307,111,291 and 53,676,764 shares outstanding .......................................... $ 24.35 ============== Class C--Based on net assets of $190,470,044 and 7,953,403 shares outstanding .......................................... $ 23.95 ============== Class D--Based on net assets of $1,213,695,714 and 48,483,719 shares outstanding .......................................... $ 25.03 ============== ============================================================================================================================
See Notes to Financial Statements. 12 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 FINANCIAL INFORMATION (continued) Statement of Operations for the Six Months Ended September 30, 2001 Investment Interest .............................................. $ 61,539,623 Income: Dividends (net of $191,972 foreign withholding tax) ... 21,263,162 Securities lending--net ............................... 129,971 Other ................................................. 6,674 ------------- Total income .......................................... 82,939,430 ------------- ================================================================================================================== Expenses: Investment advisory fees .............................. $ 10,602,234 Account maintenance and distribution fees--Class B .... 7,793,301 Account maintenance fees--Class D ..................... 1,674,271 Transfer agent fees--Class A .......................... 1,609,733 Transfer agent fees--Class B .......................... 1,353,752 Account maintenance and distribution fees--Class C .... 1,050,107 Transfer agent fees--Class D .......................... 1,017,616 Transfer agent fees--Class C .......................... 193,861 Printing and shareholder reports ...................... 137,939 Custodian fees ........................................ 127,759 Professional fees ..................................... 75,933 Directors' fees and expenses .......................... 36,770 Registration fees ..................................... 28,912 Pricing fees .......................................... 20,434 Accounting services ................................... 14,294 Other ................................................. 82,706 ------------- Total expenses ........................................ 25,819,622 ------------- Investment income--net ................................ 57,119,808 ------------- ================================================================================================================== Realized & Realized gain (loss) on: Unrealized Gain Investments--net ................................... 28,076,910 (Loss) on Foreign currency transactions--net ................. (16,650) 28,060,260 Investments & ------------- Foreign Currency Change in unrealized appreciation/depreciation on: Transactions--Net: Investments--net ................................... (401,244,935) Foreign currency transactions--net ................. 103,060 (401,141,875) ------------- ------------- Net Decrease in Net Assets Resulting from Operations .. $(315,961,807) ============= ==================================================================================================================
See Notes to Financial Statements. 13 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 FINANCIAL INFORMATION (continued) Statements of Changes in Net Assets
For the Six For the Months Ended Year Ended September 30, March 31, Increase (Decrease) in Net Assets: 2001 2001 ================================================================================================================================== Operations: Investment income--net ................................................ $ 57,119,808 $ 152,169,922 Realized gain on investments and foreign currency transactions--net ... 28,060,260 526,507,269 Change in unrealized appreciation/depreciation on investments and foreign currency transactions--net .................................... (401,141,875) (739,073,241) --------------- --------------- Net decrease in net assets resulting from operations .................. (315,961,807) (60,396,050) --------------- --------------- ================================================================================================================================== Dividends & Investment income--net: Distributions to Class A ............................................................ (29,376,215) (76,804,873) Shareholders: Class B ............................................................ (13,388,747) (45,037,021) Class C ............................................................ (2,015,204) (5,367,445) Class D ............................................................ (17,152,211) (40,725,111) Realized gain on investments--net: Class A ............................................................ (87,746,031) (226,122,510) Class B ............................................................ (65,939,557) (205,231,002) Class C ............................................................ (9,322,219) (24,101,581) Class D ............................................................ (56,302,475) (130,949,074) --------------- --------------- Net decrease in net assets resulting from dividends and distributions to shareholders ......................................... (281,242,659) (754,338,617) --------------- --------------- ================================================================================================================================== Capital Share Net decrease in net assets derived from capital Transactions: share transactions .................................................... (140,204,915) (1,170,508,598) --------------- --------------- ================================================================================================================================== Net Assets: Total decrease in net assets .......................................... (737,409,381) (1,985,243,265) Beginning of period ................................................... 5,326,229,074 7,311,472,339 --------------- --------------- End of period* ........................................................ $ 4,588,819,693 $ 5,326,229,074 =============== =============== ================================================================================================================================== *Undistributed investment income--net .................................. $ 27,688,764 $ 32,501,333 =============== =============== ==================================================================================================================================
See Notes to Financial Statements. 14 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 FINANCIAL INFORMATION (continued) Financial Highlights
Class A ------------------------------------------------------------------- The following per share data and ratios have been derived For the Six from information provided in the financial statements. Months Ended For the Year Ended March 31, September 30, --------------------------------------------------- Increase (Decrease) in Net Asset Value: 2001 2001 2000 1999 1998 =================================================================================================================================== Per Share Net asset value, beginning of period ...... $ 28.38 $ 32.66 $ 35.03 $ 37.56 $ 31.39 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net+ ................... .37 .90 .94 1.00 1.11 Realized and unrealized gain (loss) on investments and foreign currency transactions--net ......................... (2.05) (1.18) .62 (1.28) 8.14 ---------- ---------- ---------- ---------- ---------- Total from investment operations .......... (1.68) (.28) 1.56 (.28) 9.25 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net ................. (.40) (1.01) (.94) (1.08) (1.11) Realized gain on investments--net ...... (1.20) (2.99) (2.99) (1.17) (1.97) ---------- ---------- ---------- ---------- ---------- Total dividends and distributions ......... (1.60) (4.00) (3.93) (2.25) (3.08) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period ............ $ 25.10 $ 28.38 $ 32.66 $ 35.03 $ 37.56 ========== ========== ========== ========== ========== =================================================================================================================================== Total Investment Based on net asset value per share ........ (6.35%)++ (1.12%) 4.58% (.68%) 30.71% Return:** ========== ========== ========== ========== ========== =================================================================================================================================== Ratios to Expenses .................................. .58%* .59% .56% .57% .55% Average ========== ========== ========== ========== ========== Net Assets: Investment income--net .................... 2.59%* 2.89% 2.74% 2.86% 3.21% ========== ========== ========== ========== ========== =================================================================================================================================== Supplemental Net assets, end of period (in thousands) .. $1,877,543 $2,142,945 $2,721,503 $3,631,440 $4,155,677 Data: ========== ========== ========== ========== ========== Portfolio turnover ........................ 19% 46% 33% 33% 38% ========== ========== ========== ========== ========== ===================================================================================================================================
* Annualized. ** Total investment returns exclude the effects of sales charges. + Based on average shares outstanding. ++ Aggregate total investment return. See Notes to Financial Statements. 15 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 FINANCIAL INFORMATION (continued) Financial Highlights (continued)
Class B ------------------------------------------------------------------- The following per share data and ratios have been derived For the Six from information provided in the financial statements. Months Ended For the Year Ended March 31, September 30, --------------------------------------------------- Increase (Decrease) in Net Asset Value: 2001 2001 2000 1999 1998 =================================================================================================================================== Per Share Net asset value, beginning of period ...... $ 27.56 $ 31.77 $ 34.25 $ 36.68 $ 30.72 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net+ ................... .22 .56 .57 .63 .74 Realized and unrealized gain (loss) on investments and foreign currency transactions--net ......................... (1.99) (1.13) .60 (1.25) 7.96 ---------- ---------- ---------- ---------- ---------- Total from investment operations .......... (1.77) (.57) 1.17 (.62) 8.70 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net ................. (.24) (.65) (.66) (.64) (.77) Realized gain on investments--net ...... (1.20) (2.99) (2.99) (1.17) (1.97) ---------- ---------- ---------- ---------- ---------- Total dividends and distributions ......... (1.44) (3.64) (3.65) (1.81) (2.74) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period ............ $ 24.35 $ 27.56 $ 31.77 $ 34.25 $ 36.68 ========== ========== ========== ========== ========== =================================================================================================================================== Total Investment Based on net asset value per share ........ (6.82%)++ (2.11%) 3.48% (1.65%) 29.38% Return:** ========== ========== ========== ========== ========== =================================================================================================================================== Ratios to Expenses .................................. 1.60%* 1.61% 1.58% 1.59% 1.57% Average ========== ========== ========== ========== ========== Net Assets: Investment income--net .................... 1.57%* 1.87% 1.71% 1.85% 2.19% ========== ========== ========== ========== ========== =================================================================================================================================== Supplemental Net assets, end of period (in thousands) .. $1,307,111 $1,659,152 $2,853,699 $4,866,564 $5,938,708 Data: ========== ========== ========== ========== ========== Portfolio turnover ........................ 19% 46% 33% 33% 38% ========== ========== ========== ========== ========== ===================================================================================================================================
* Annualized. ** Total investment returns exclude the effects of sales charges. + Based on average shares outstanding. ++ Aggregate total investment return. See Notes to Financial Statements. 16 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 FINANCIAL INFORMATION (continued) Financial Highlights (continued)
Class C ----------------------------------------------------------------- The following per share data and ratios have been derived For the Six from information provided in the financial statements. Months Ended For the Year Ended March 31, September 30, ------------------------------------------------- Increase (Decrease) in Net Asset Value: 2001 2001 2000 1999 1998 ================================================================================================================================= Per Share Net asset value, beginning of period ...... $ 27.14 $ 31.36 $ 33.82 $ 36.31 $ 30.44 Operating -------- -------- -------- -------- -------- Performance: Investment income--net+ ................... .21 .55 .57 .62 .73 Realized and unrealized gain (loss) on investments and foreign currency transactions--net ......................... (1.94) (1.12) .59 (1.25) 7.89 -------- -------- -------- -------- -------- Total from investment operations .......... (1.73) (.57) 1.16 (.63) 8.62 -------- -------- -------- -------- -------- Less dividends and distributions: Investment income--net ................. (.26) (.66) (.63) (.69) (.78) Realized gain on investments--net ...... (1.20) (2.99) (2.99) (1.17) (1.97) -------- -------- -------- -------- -------- Total dividends and distributions ......... (1.46) (3.65) (3.62) (1.86) (2.75) -------- -------- -------- -------- -------- Net asset value, end of period ............ $ 23.95 $ 27.14 $ 31.36 $ 33.82 $ 36.31 ======== ======== ======== ======== ======== ================================================================================================================================= Total Investment Based on net asset value per share ........ (6.80%)++ (2.13%) 3.50% (1.70%) 29.40% Return:** ======== ======== ======== ======== ======== ================================================================================================================================= Ratios to Expenses .................................. 1.62%* 1.62% 1.59% 1.59% 1.58% Average ======== ======== ======== ======== ======== Net Assets: Investment income--net .................... 1.60%* 1.86% 1.70% 1.83% 2.18% ======== ======== ======== ======== ======== ================================================================================================================================= Supplemental Net assets, end of period (in thousands) .. $190,470 $212,278 $308,150 $491,234 $512,783 Data: ======== ======== ======== ======== ======== Portfolio turnover ........................ 19% 46% 33% 33% 38% ======== ======== ======== ======== ======== =================================================================================================================================
* Annualized. ** Total investment returns exclude the effects of sales charges. + Based on average shares outstanding. ++ Aggregate total investment return. See Notes to Financial Statements. 17 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 FINANCIAL INFORMATION (concluded) Financial Highlights (concluded)
Class D ------------------------------------------------------------------- The following per share data and ratios have been derived For the Six from information provided in the financial statements. Months Ended For the Year Ended March 31, September 30, --------------------------------------------------- Increase (Decrease) in Net Asset Value: 2001 2001 2000 1999 1998 =================================================================================================================================== Per Share Net asset value, beginning of period ...... $ 28.31 $ 32.58 $ 34.97 $ 37.49 $ 31.34 Operating ---------- ---------- ---------- ---------- ---------- Performance: Investment income--net+ ................... .33 .82 .86 .91 1.02 Realized and unrealized gain (loss) on investments and foreign currency transactions--net ......................... (2.04) (1.17) .60 (1.28) 8.14 ---------- ---------- ---------- ---------- ---------- Total from investment operations .......... (1.71) (.35) 1.46 (.37) 9.16 ---------- ---------- ---------- ---------- ---------- Less dividends and distributions: Investment income--net ................. (.37) (.93) (.86) (.98) (1.04) Realized gain on investments--net ...... (1.20) (2.99) (2.99) (1.17) (1.97) ---------- ---------- ---------- ---------- ---------- Total dividends and distributions ......... (1.57) (3.92) (3.85) (2.15) (3.01) ---------- ---------- ---------- ---------- ---------- Net asset value, end of period ............ $ 25.03 $ 28.31 $ 32.58 $ 34.97 $ 37.49 ========== ========== ========== ========== ========== =================================================================================================================================== Total Investment Based on net asset value per share ........ (6.49%)++ (1.35%) 4.29% (.92%) 30.40% Return:** ========== ========== ========== ========== ========== =================================================================================================================================== Ratios to Expenses .................................. .83%* .84% .81% .82% .80% Average ========== ========== ========== ========== ========== Net Assets: Investment income--net .................... 2.34%* 2.64% 2.50% 2.60% 2.95% ========== ========== ========== ========== ========== =================================================================================================================================== Supplemental Net assets, end of period (in thousands) .. $1,213,696 $1,311,854 $1,428,120 $1,513,406 $1,280,317 Data: ========== ========== ========== ========== ========== Portfolio turnover ........................ 19% 46% 33% 33% 38% ========== ========== ========== ========== ========== ===================================================================================================================================
* Annualized. ** Total investment returns exclude the effects of sales charges. + Based on average shares outstanding. ++ Aggregate total investment return. See Notes to Financial Statements. 18 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 NOTES TO FINANCIAL STATEMENTS 1. Significant Accounting Policies: Merrill Lynch Balanced Capital Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The Fund's financial statements are prepared in conformity with accounting principles generally accepted in the United States of America, which may require the use of management accruals and estimates. These unaudited financial statements reflect all adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim period presented. All such adjustments are of a normal, recurring nature. The Fund offers four classes of shares under the Merrill Lynch Select Pricing(SM) System. Shares of Class A and Class D are sold with a front-end sales charge. Shares of Class B and Class C may be subject to a contingent deferred sales charge. All classes of shares have identical voting, dividend, liquidation and other rights and the same terms and conditions, except that Class B, Class C and Class D Shares bear certain expenses related to the account maintenance of such shares, and Class B and Class C Shares also bear certain expenses related to the distribution of such shares. Each class has exclusive voting rights with respect to matters relating to its account maintenance and distribution expenditures. The following is a summary of significant accounting policies followed by the Fund. (a) Valuation of investments--Portfolio securities that are traded on stock exchanges are valued at the last sale price on the exchange on which such securities are traded, as of the close of business on the day the securities are being valued or, lacking any sales, at the last available bid price. Securities traded in the over-the-counter market are valued at the last available bid price prior to the time of valuation. In cases where securities are traded on more than one exchange, the securities are valued on the exchange designated by or under the authority of the Board of Directors as the primary market. Securities that are traded both in the over-the-counter market and on a stock exchange are valued according to the broadest and most representative market. Options written or purchased are valued at the last sale price in the case of exchange-traded options. In the case of options traded in the over-the-counter market, valuation is the last asked price (options written) or the last bid price (options purchased). Short-term securities are valued at amortized cost, which approximates market value. Securities and assets for which market quotations are not available are valued at fair value as determined in good faith by or under the direction of the Fund's Board of Directors. (b) Derivative financial instruments--The Fund may engage in various portfolio investment strategies to increase or decrease the level of risk to which the Fund is exposed more quickly and efficiently than transactions in other types of instruments. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. o Options--The Fund is authorized to write covered call options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked to market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). Written options are non-income producing investments. (c) Foreign currency transactions--Transactions denominated in foreign currencies are recorded at the exchange rate prevailing when recognized. Assets and liabilities denominated in foreign currencies are valued at the exchange rate at the end of the period. Foreign currency transactions are the result of settling (realized) or valuing (unrealized) assets or liabilities expressed in foreign currencies into US dollars. Realized and unrealized gains or losses from investments include the effects of foreign exchange rates on investments. (d) Income taxes--It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of its taxable income to its shareholders. Therefore, no Federal income tax 19 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 NOTES TO FINANCIAL STATEMENTS (continued) provision is required. Under the applicable foreign tax law, a withholding tax may be imposed on interest, dividends and capital gains at various rates. (e) Security transactions and investment income--Security transactions are recorded on the dates the transactions are entered into (the trade dates). Realized gains and losses on security transactions are determined on the identified cost basis. Dividend income is recorded on the ex-dividend dates. Dividends from foreign securities where the ex-dividend date may have passed are subsequently recorded when the Fund has determined the ex-dividend date. Interest income is recognized on the accrual basis. (f) Prepaid registration fees--Prepaid registration fees are charged to expense as the related shares are issued. (g) Dividends and distributions--Dividends and distributions paid by the Fund are recorded on the ex-dividend dates. (h) Custodian Bank--The Fund recorded an amount payable to the Custodian Bank reflecting an overnight overdraft which resulted from management estimates of available cash. (i) Securities lending--The Fund may lend securities to financial institutions that provide cash or securities issued or guaranteed by the US government as collateral, which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. Where the Fund receives securities as collateral for the loaned securities, the Fund typically receives the income on both the loaned securities and the collateral and, as a result, the Fund's yield may increase. Where the Fund receives cash collateral, it may invest such collateral and retain the amount earned on such investment, net of any amount rebated to the borrower. The Fund may receive a flat fee for its loans. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within five business days. The Fund may pay reasonable finder's, lending agent, administrative and custodial fees in connection with its loans. In the event that the borrower defaults on its obligation to return borrowed securities because of insolvency or for any other reason, the Fund could experience delays and costs in gaining access to the collateral. The Fund also could suffer a loss where the value of the collateral falls below the market value of the borrowed securities, in the event of borrower default or in the event of losses on investments made with cash collateral. 2. Investment Advisory Agreement and Transactions with Affiliates: The Fund has entered into an Investment Advisory Agreement with Merrill Lynch Investment Managers L.P. ("MLIM"). The general partner of MLIM is Princeton Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is the limited partner. The Fund has also entered into a Distribution Agreement and Distribution Plans with FAM Distributors, Inc. ("FAMD" or the "Distributor"), which is a wholly-owned subsidiary of Merrill Lynch Group, Inc. MLIM is responsible for the management of the Fund's portfolio and provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee based upon the average daily value of the Fund's net assets at the following annual rates: .50% of the Fund's average daily net assets not exceeding $250 million; .45% of average daily net assets in excess of $250 million but not exceeding $300 million; .425% of average daily net assets in excess of $300 million but not exceeding $400 million; and .40% of average daily net assets in excess of $400 million. Pursuant to the Distribution Plans adopted by the Fund in accordance with Rule 12b-1 under the Investment Company Act of 1940, the Fund pays the Distributor ongoing account maintenance and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the shares as follows: - -------------------------------------------------------------------------------- Account Distribution Maintenance Fee Fee - -------------------------------------------------------------------------------- Class B ...................................... .25% .75% Class C ...................................... .25% .75% Class D ...................................... .25% -- - -------------------------------------------------------------------------------- Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account maintenance and distribution services to the Fund. The ongoing account maintenance fee 20 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 compensates the Distributor and MLPF&S for providing account maintenance services to Class B, Class C and Class D shareholders. The ongoing distribution fee compensates the Distributor and MLPF&S for providing shareholder and distribution-related services to Class B and Class C shareholders. For the six months ended September 30, 2001, FAMD earned underwriting discounts and direct commissions and MLPF&S earned dealer concessions on sales of the Fund's Class A and Class D Shares as follows: - -------------------------------------------------------------------------------- FAMD MLPF&S - -------------------------------------------------------------------------------- Class A ................................................... $2,941 $37,321 Class D ................................................... $5,265 $82,387 - -------------------------------------------------------------------------------- For the six months ended September 30, 2001, MLPF&S received contingent deferred sales charges of $500,809 and $7,972 relating to transactions in Class B and Class C Shares, respectively. The Fund has received an exemptive order from the Securities and Exchange Commission permitting it to lend portfolio securities to MLPF&S or its affiliates. Pursuant to that order, the Fund also has retained QA Advisors, LLC ("QA Advisors"), an affiliate of MLIM, as the securities lending agent for a fee based on a share of the returns on investment of cash collateral. QA Advisors may, on behalf of the Fund, invest cash collateral received by the Fund for such loans, among other things, in a private investment company managed by QA Advisors or in registered money market funds advised by MLIM or its affiliates. For the six months ended September 30, 2001, QA Advisors received $4,170 in securities lending agent fees. In addition, MLPF&S received $320,025 in commissions on the execution of portfolio security transactions for the six months ended September 30, 2001. Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is the Fund's transfer agent. For the six months ended September 30, 2001, the Fund reimbursed MLIM $14,294 for certain accounting services. For the six months ended September 30, 2001, Merrill Lynch Security Pricing System, an affiliate of MLPF&S, earned $2,416 for providing security price quotations to complete the Fund's net asset value. Certain officers and/or directors of the Fund are officers and/or directors of MLIM, PSI, FDS, FAMD, and/or ML & Co. 3. Investments: Purchases and sales of investments, excluding short-term securities, for the six months ended September 30, 2001 were $949,766,688 and $1,152,823,922, respectively. Net realized gains (losses) for the six months ended September 30, 2001 and net unrealized gains (losses) as of September 30, 2001 were as follows: - -------------------------------------------------------------------------------- Realized Unrealized Gains (Losses) Gains (Losses) - -------------------------------------------------------------------------------- Long-term investments ............... $ 28,077,032 $ 250,442,475 Short-term investments .............. (122) -- Foreign currency transactions ........................ (16,650) (44,555) ------------ ------------- Total ............................... $ 28,060,260 $ 250,397,920 ============ ============= - -------------------------------------------------------------------------------- As of September 30, 2001, net unrealized appreciation for Federal income tax purposes aggregated $250,442,475, of which $673,549,719 related to appreciated securities and $423,107,244 related to depreciated securities. At September 30, 2001, the aggregate cost of investments for Federal income tax purposes was $4,316,609,547. 4. Capital Share Transactions: Net decrease in net assets derived from capital share transactions was $140,204,915 and $1,170,508,598 for the six months ended September 30, 2001 and for the year ended March 31, 2001, respectively. Transactions in capital shares for each class were as follows: - -------------------------------------------------------------------------------- Class A Shares for the Six Dollar Months Ended Sept. 30, 2001 Shares Amount - -------------------------------------------------------------------------------- Shares sold ........................... 3,431,480 $ 97,102,264 Shares issued to shareholders in reinvestment of dividends and distributions ..................... 3,517,199 95,738,146 ---------- ------------- Total issued .......................... 6,948,679 192,840,410 Shares redeemed ....................... (7,660,212) (214,571,712) ---------- ------------- Net decrease .......................... (711,533) $ (21,731,302) ========== ============= - -------------------------------------------------------------------------------- 21 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 NOTES TO FINANCIAL STATEMENTS (concluded) - -------------------------------------------------------------------------------- Class A Shares for the Dollar Year Ended March 31, 2001 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 6,834,053 $ 212,539,850 Shares issued resulting from reorganization .................... 817,530 24,150,327 Shares issued to shareholders in reinvestment of dividends and distributions ...................... 9,155,120 274,478,459 ----------- ------------- Total issued ........................... 16,806,703 511,168,636 Shares redeemed ........................ (24,633,092) (771,606,412) ----------- ------------- Net decrease ........................... (7,826,389) $(260,437,776) =========== ============= - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class B Shares for the Six Dollar Months Ended Sept. 30, 2001 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 2,197,022 $ 60,309,932 Shares issued to shareholders in reinvestment of dividends and distributions ...................... 2,536,162 67,106,857 ---------- ------------- Total issued ........................... 4,733,184 127,416,789 Automatic conversion of shares .............................. (4,094,939) (112,866,591) Shares redeemed ........................ (7,162,321) (195,821,558) ---------- ------------- Net decrease ........................... (6,524,076) $(181,271,360) ========== ============= - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class B Shares for the Dollar Year Ended March 31, 2001 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 4,658,327 $ 139,921,754 Shares issued resulting from reorganization .................... 236,628 6,808,388 Shares issued to shareholders in reinvestment of dividends and distributions ...................... 7,208,695 210,768,066 ----------- ------------- Total issued ........................... 12,103,650 357,498,208 Automatic conversion of shares .............................. (11,770,037) (360,216,197) Shares redeemed ........................ (29,955,115) (917,640,802) ----------- ------------- Net decrease ........................... (29,621,502) $(920,358,791) =========== ============= - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class C Shares for the Six Dollar Months Ended Sept. 30, 2001 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 615,135 $ 16,678,408 Shares issued to shareholders in reinvestment of dividends and distributions ...................... 366,002 9,527,042 -------- ------------- Total issued ........................... 981,137 26,205,450 Shares redeemed ........................ (848,765) (22,637,541) -------- ------------- Net increase ........................... 132,372 $ 3,567,909 ======== ============= - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class C Shares for the Dollar Year Ended March 31, 2001 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 704,790 $ 20,716,886 Shares issued resulting from reorganization .................... 60,273 1,707,923 Shares issued to shareholders in reinvestment of dividends and distributions ...................... 859,812 24,759,980 ---------- ------------- Total issued ........................... 1,624,875 47,184,789 Shares redeemed ........................ (3,630,606) (109,662,206) ---------- ------------- Net decrease ........................... (2,005,731) $ (62,477,417) ========== ============= - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class D Shares for the Six Dollar Months Ended Sept. 30, 2001 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 1,325,239 $ 37,270,406 Automatic conversion of shares .............................. 3,983,428 112,866,591 Shares issued to shareholders in reinvestment of dividends and distributions ...................... 2,382,264 64,702,295 ---------- ------------- Total issued ........................... 7,690,931 214,839,292 Shares redeemed ........................ (5,553,541) (155,609,454) ---------- ------------- Net increase ........................... 2,137,390 $ 59,229,838 ========== ============= - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Class D Shares for the Dollar Year Ended March 31, 2001 Shares Amount - -------------------------------------------------------------------------------- Shares sold ............................ 3,709,799 $ 115,263,839 Shares issued resulting from reorganization .................... 91,654 2,702,408 Automatic conversion of shares .............................. 11,474,133 360,216,197 Shares issued to shareholders in reinvestment of dividends and distributions ...................... 5,098,349 152,467,014 ----------- ------------- Total issued ........................... 20,373,935 630,649,458 Shares redeemed ........................ (17,864,970) (557,884,072) ----------- ------------- Net increase ........................... 2,508,965 $ 72,765,386 =========== ============= - -------------------------------------------------------------------------------- 5. Short-Term Borrowings: On December 1, 2000, the Fund, along with certain other funds managed by MLIM and its affiliates, renewed and amended a $1,000,000,000 credit agreement with Bank One, N.A. and certain other lenders. The Fund may borrow under the credit agreement to fund shareholder redemptions and for other lawful purposes other than for leverage. The Fund may 22 Merrill Lynch Balanced Capital Fund, Inc. September 30, 2001 borrow up to the maximum amount allowable under the Fund's current prospectus and statement of additional information, subject to various other legal, regulatory or contractual limits. The Fund pays a commitment fee of .09% per annum based on the Fund's pro rata share of the unused portion of the facility. Amounts borrowed under the facility bear interest at a rate equal to, at each fund's election, the Federal Funds rate plus .50% or a base rate as determined by Bank One, N.A. The Fund did not borrow under the facility during the six months ended September 30, 2001. 6. Capital Loss Carryforward: At March 31, 2001, the Fund had a net capital loss carryforward of approximately $6,154,000, of which $1,035,000 expires in 2006, $221,000 expires in 2007 and $4,898,000 expires in 2008. This amount will be available to offset like amounts of any future taxable gains. PORTFOLIO INFORMATION As of September 30, 2001 Percent of Ten Largest Common Stock Holdings Net Assets Tenet Healthcare Corporation ........................................ 2.0% General Dynamics Corporation ........................................ 1.9 Avon Products, Inc. ................................................. 1.9 American Home Products Corporation .................................. 1.9 Nestle SA (Registered Shares) ....................................... 1.9 Anheuser-Busch Companies, Inc. ...................................... 1.8 Verizon Communications .............................................. 1.8 Citigroup Inc. ...................................................... 1.8 Federal National Mortgage Association ............................... 1.8 XL Capital Ltd. (Class A) ........................................... 1.7 Percent of Five Largest Industries Net Assets Diversified Financials .............................................. 10.9% Banks ............................................................... 6.7 Media ............................................................... 5.7 Insurance ........................................................... 4.6 Health Care Providers & Services .................................... 4.5 Percent of Geographic Diversification Net Assets United States ....................................................... 92.8% Bermuda ............................................................. 2.8 Switzerland ......................................................... 1.9 Argentina ........................................................... 0.5 Chile ............................................................... 0.5 South Korea ......................................................... 0.4 Canada .............................................................. 0.3 Mexico .............................................................. 0.3 23 [LOGO] Merrill Lynch Investment Managers [GRAPHIC OMITTED] This report is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund's current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change. Merrill Lynch Balanced Capital Fund, Inc. Box 9011 Princeton, NJ 08543-9011 [RECYCLE LOGO] Printed on post-consumer recycled paper #10252--9/01 -----END PRIVACY-ENHANCED MESSAGE-----