UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-2405
Name of Fund: Merrill Lynch Balanced Capital Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Merrill Lynch
Balanced Capital Fund, Inc., 800 Scudders Mill Road, Plainsboro, NJ
08536. Mailing address: P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 03/31/03
Date of reporting period: 04/01/02 - 3/31/03
Item 1 - Attach shareholder report
[LOGO] Merrill Lynch Investment Managers
Annual Report
March 31, 2003
Merrill Lynch
Balanced Capital
Fund, Inc.
www.mlim.ml.com
Merrill Lynch Balanced Capital Fund, Inc.
DEAR SHAREHOLDER
Effective April 14, 2003 the share class names for the Merrill Lynch family of
mutual funds were changed to be consistent with the standard share classes of
most other mutual fund families. As of that date, all Class A Shares were
redesignated as Class I Shares. At the same time, Class D Shares were
redesignated Class A Shares. There were no changes to the Class B or Class C
share class labels. Trading symbols have not been changed nor have current
eligibility rules or pricing structures. This redesignation of share classes
does not impact your investment in any way. Although the redesignation took
effect just after the close of the Fund's period, we have provided Fund
performance as of March 31, 2003 to reflect the new share class redesignation.
Fiscal Year in Review
U.S. equity markets fell sharply during the 12 months ended March 31, 2003 as
investors struggled through a "crisis of confidence" driven by uncertain
economic and corporate earnings prospects, a series of corporate governance
scandals and geopolitical concerns. During the first half of the period, the
bear market in U.S. equities reached historic proportions with a six-month
decline comparable to that of the latter half of 1987, which included the
October crash and the middle quarters of 1974, which ended the 1973 - 1974 bear
market. Most major U.S. market indexes as well as those of the United Kingdom
and Europe declined almost 30%. Decelerating economic growth, continued
reductions in corporate earnings expectations, growing war fears in Iraq and
investor capitulation combined to drive prices dramatically lower. In the second
half of the fiscal year, stock prices posted gains, beginning their recovery
from the early October lows and repairing some of the damage inflicted in the
prior period's sharp decline. An accumulation of more positive economic reports,
additional monetary policy initiatives by the Federal Reserve Board, corporate
earnings results that generally met or exceeded expectations, the onset of
"Operation Iraqi Freedom" and attractive valuation combined to propel the
unmanaged benchmark Standard & Poor's (S&P) 500 Index higher.
For the 12-month period ended March 30, 2003, the S&P 500 Index posted a total
return of -24.76%. The growth style of investing moderately outperformed the
value style of investing, with the S&P 500/Barra Growth Index returning -23.61%,
while the S&P 500/Barra Value Index had a return of -26.19% for the fiscal
year. However, there was no escaping the carnage as all major market indexes
fell sharply. Bonds continued to be the preferred asset class as sluggish
economic growth, low inflation and a flight to quality drove investors to the
fixed income market. U.S. government securities benefited from their safety and
soundness in this uncertain period while the attractive yields available in the
corporate sector of the market enhanced their appeal. The unmanaged Merrill
Lynch U.S. Domestic Bond Master Index provided an +11.96% total return for same
12-month period.
For the 12 months ended March 31, 2003, the Fund's Class A, Class B, Class C and
Class I Shares had total returns of -18.26%, -18.93%, -18.92% and -18.09%,
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 5 - 7 of this report to shareholders.) Within the equity
portfolio, positive contributions from our positions in the consumer staples,
telecommunications and energy sectors were more than offset by weakness in our
diversified industrial, information technology and utility holdings. While our
overall sector decisions were accretive to returns, poor stock selection in the
latter two market segments
1
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
accounted for the disappointing results. Within the fixed income portfolio, the
benefits of a contraction in yield spreads between government and corporate
bonds as well as our neutral duration position were more than offset by weakness
in the high yield sector of the bond market and credit quality deterioration in
selected holdings. As a result of these poor fixed income results, the
management of this portion of the Fund was changed, and we anticipate improved
performance from our new bond investment team.
Portfolio Matters
Our asset allocation at March 31, 2003 showed 63.0% of portfolio net assets
invested in equities, 31.2% in fixed income securities and 5.8% in cash
equivalents. This compares to 67.9% in equities, 30.1% in fixed income
securities, and 2.0% in cash equivalents at March 31, 2002. This past fiscal
year was a challenging one for the Fund. Our bullish investment position
extracted a performance penalty as bonds significantly outperformed stocks.
While near-term prospects for the equity market continue to remain cloudy given
geopolitical uncertainty, sluggish economic conditions, an uncertain corporate
earnings outlook and poor investor psychology, we remain constructive on the
longer-term outlook for stocks and believe our strategy of maintaining a
relatively high equity exposure will ultimately prove rewarding. Reminiscent of
the late 1999 and early 2000 period when high valuations could not be justified
and our conservative position proved appropriate, we believe the current low
valuation level of the market is equally unjustified and our constructive
position will prove appropriate in the period ahead. Simply put, the lower stock
prices go, the more value we perceive and the more opportunities we will seek to
pursue. We anticipate a more hospitable environment for equities as we move
through 2003 as the combination of low interest rates, high levels of liquidity,
rising government spending and improved corporate and consumer confidence once
the situation in Iraq is resolved is expected to drive an acceleration in
economic and corporate earnings growth. Bonds, by contrast, look expensive,
particularly U.S. Treasury securities, as investors are willing to pay very high
prices to avoid risk. This view supports our current asset allocation position
and we believe, represents the appropriate strategy to generate above-average
risk adjusted returns for our investors in the periods ahead.
We continued to adjust our holdings during the fiscal year in response to
ongoing price volatility. Within the equity portfolio, we further increased our
energy exposure, initiating positions in Devon Energy Corporation, Murphy Oil
Corporation and ExxonMobil Corporation. Resurgent economic growth should benefit
hydrocarbon demand while supply remains constrained because of political
problems in Iraq and Venezuela and low levels of drilling activity in North
America. These factors should produce improved energy commodity prices and
create a favorable backdrop for the stocks. ExxonMobil remains one of the
world's best-managed and most profitable companies, while Devon Energy and
Murphy Oil offer a superior production profile and exciting exploration
prospects.
We also increased our technology exposure, establishing positions in Microsoft
Corporation and Accenture Ltd. The recent sharp correction in technology stock
prices has afforded us an opportunity to begin to invest in several superior
companies that offer strong competitive positions, solid financial
characteristics, high returns and proven managements, while selling at
attractive valuation levels for the first time in many years. We further
increased our position in the industrial sector, adding to existing positions in
General Electric Company and United Technologies Corporation while introducing
Tyco International Ltd. to the portfolio. Recent price declines, driven by
actual or perceived earnings risk in a decelerating economy have driven these
stocks to record-low valuation levels, which creates attractive opportunities in
the shares of what we believe are fine companies. Tyco appears particularly
interesting given the quality of its new management team, low investor
expectations and very low valuation levels.
2
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
We eliminated holdings in selected retailers such as The Home Depot, Inc. and
Circuit City Stores, Inc., where deteriorating fundamental trends had yet to be
fully reflected in reduced valuations. We also reduced or eliminated holdings in
a number of companies such as Anheuser-Busch Companies, Inc., Minnesota Mining
and Manufacturing Company (3M), Harrah's Entertainment, Inc. and Wells Fargo
Company, where strong relative stock performance reduced their attractiveness.
We eliminated Tenet Healthcare Corporation from the equity portion of the
portfolio because of concern over pricing and Medicare reimbursement trends as
well as Advanced Micro Devices, Inc. because of its deteriorating competitive
position. We also sold General Dynamics Corporation as we expect intensifying
earnings pressure from their business jet subsidiary.
Reflecting the ongoing changes to the structure and composition of the fixed
income portfolio under its new stewardship, U.S. Treasury securities represented
the largest sector allocation within the fixed income portfolio at 38.2% of
fixed income assets at March 31, 2003, investment grade corporate bonds at
29.1%, mortgage-backed securities at 25.7% and high yield corporate bonds at
7.0%. This compares to 17.4% in U.S. Treasury securities, 68.0% in
investment-grade corporate bonds, less than 1% in mortgage-backed securities and
13.7% in high yield corporate bonds at March 31, 2002. Overall fixed income
portfolio diversification was also significantly enhanced with only one position
representing in excess of 2% of assets at March 31, 2003. While average yield to
maturity declined approximately 280 basis points (2.80%) to 5.00% at fiscal year
end, the Fund's average quality rating improved significantly from Baa1/BBB+ to
AA+, as measured by one or more of the major bond rating agencies.
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 ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Kurt Schansinger
Kurt Schansinger
Vice President and
Senior Portfolio Manager
/s/ Patrick Maldari
Patrick Maldari
Fixed Income Portfolio Manager
April 22, 2003
- --------------------------------------------------------------------------------
We are pleased to announce that effective March 10, 2003 Patrick Maldari has
joined Merrill Lynch Balanced Capital Fund, Inc. to manage the fixed income
portion of the Fund. Kurt Schansinger, Senior Portfolio Manager for the Fund
since 1996, will continue to have responsibility for overall asset allocation
decisions as well as management of the equity portion of the Fund. Mr. Maldari
has been employed by Merrill Lynch Investment Managers, L.P. since 1984. He has
been Senior Portfolio Manager since 2001. Mr. Maldari is also head of a team of
investment professionals managing high-quality, investment grade portfolios and
has broad experience managing institutional fixed income portfolios. Mr. Maldari
is a CFA(R) charterholder.
- --------------------------------------------------------------------------------
3
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
PORTFOLIO INFORMATION (unaudited)
As of March 31, 2003
Percent of
Ten Largest Common Stock Holdings Net Assets
Avon Products, Inc. ................................................. 1.6%
Fannie Mae .......................................................... 1.6
Nestle SA (Registered Shares) ....................................... 1.6
ACE Limited ......................................................... 1.6
XL Capital Ltd. (Class A) ........................................... 1.5
E.I. du Pont de Nemours and Company ................................. 1.5
Citigroup Inc. ...................................................... 1.5
Verizon Communications .............................................. 1.5
American International Group, Inc. .................................. 1.5
Aetna Inc. (New Shares) ............................................. 1.5
Percent of
Five Largest Industries+ Net Assets
Diversified Financials .............................................. 9.8%
Insurance ........................................................... 5.6
Banks ............................................................... 5.2
Oil & Gas ........................................................... 5.1
Media ............................................................... 5.1
Percent of
Geographic Allocation Net Assets
United States ....................................................... 87.5%
Bermuda ............................................................. 3.5
Switzerland ......................................................... 1.6
Netherlands ......................................................... 1.0
Argentina ........................................................... 0.4
Mexico .............................................................. 0.4
France .............................................................. 0.2
Canada .............................................................. 0.2
Italy ............................................................... 0.1
United Kingdom ...................................................... 0.1
Chile ............................................................... 0.1
Venezuela ........................................................... 0.1
+ For Fund compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease. These
classifications are unaudited.
4
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
PERFORMANCE DATA
About Fund Performance
Effective April 14, 2003, Class A Shares were redesignated Class I Shares and
Class D Shares were redesignated Class A Shares. Investors are able to purchase
shares of the Fund through multiple pricing alternatives:
o Class A Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
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 A Shares after approximately eight 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 I Shares incur a maximum initial sales charge (front-end load) of
5.25% and bear no ongoing distribution or account maintenance fees. Class
I Shares are available only to eligible investors.
o Class R Shares do not incur a maximum sales charge (front-end load) or
deferred sales charge. These shares are subject to a distribution fee of
0.25% and an account maintenance fee of 0.25%. Class R Shares are
available only to certain retirement plans.
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 each of the following 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.
5
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Class A & Class C Shares
A line graph depicting the growth of an investment in the Fund's Class A Shares
and Class C Shares compared to growth of an investment in the S&P 500 Index and
the ML U.S. Domestic Bond Master Index. Values are from October 21, 1994 to
March 2003.
10/21/94** 3/95 3/96 3/97 3/98 3/99
ML Balanced Capital
Fund, Inc.+--Class A Shares* $9,475 $10,083 $12,525 $14,070 $18,347 $18,178
ML Balanced Capital
Fund, Inc.+--Class C Shares* $10,000 $10,607 $13,073 $14,570 $18,854 $18,533
S&P 500 Index++ $10,000 $10,909 $14,411 $17,269 $25,557 $30,275
ML U.S. Domestic Bond
Master Index+++ $10,000 $10,556 $11,705 $12,275 $13,754 $14,649
3/00 3/01 3/02 3/03
ML Balanced Capital
Fund, Inc.+--Class A Shares* $18,958 $18,703 $19,597 $16,018
ML Balanced Capital
Fund, Inc.+--Class C Shares* $19,181 $18,773 $19,526 $15,832
S&P 500 Index++ $35,706 $27,967 $28,034 $21,092
ML U.S. Domestic Bond
Master Index+++ $14,934 $16,791 $17,659 $19,771
Total Return Based on a $10,000 Investment--Class B & Class I Shares
A line graph depicting the growth of an investment in the Fund's Class B Shares
and Class I Shares compared to growth of an investment in the S&P 500 Index and
the ML U.S. Domestic Bond Master Index. Values are from March 1993 to March
2003.
3/93 3/94 3/95 3/96 3/97
ML Balanced Capital
Fund, Inc.+--Class B Shares* $10,000 $10,436 $11,460 $14,122 $15,743
ML Balanced Capital
Fund, Inc.+--Class I Shares* $9,475 $9,986 $11,079 $13,794 $15,534
S&P 500 Index++ $10,000 $10,147 $11,727 $15,491 $18,563
ML U.S. Domestic Bond
Master Index+++ $10,000 $10,270 $10,776 $11,950 $12,531
3/98 3/99 3/00 3/01 3/02 3/03
ML Balanced Capital
Fund, Inc.+--Class B Shares* $20,368 $20,033 $20,730 $20,293 $21,107 $17,112
ML Balanced Capital
Fund, Inc.+--Class I Shares* $20,304 $20,166 $21,089 $20,853 $21,911 $17,946
S&P 500 Index++ $27,473 $32,544 $38,383 $30,063 $30,135 $22,673
ML U.S. Domestic Bond
Master Index+++ $14,041 $14,955 $15,245 $17,141 $18,027 $20,184
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ ML Balanced Capital Fund, Inc., through a fully managed investment policy,
utilizes equity, debt and convertible securities.
++ This unmanaged broad-based Index is comprised of common stocks. The
starting date for the Index in the Class A & Class C Shares' graph is from
10/31/94.
+++ This unmanaged Index is comprised of the entire universe of domestic
investment-grade bonds including U.S. Treasury bonds, corporate bonds and
mortgages. The starting date for the Index in the Class A & Class C
Shares' graph is from 10/31/94.
Past performance is not indicative of future results.
6
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
PERFORMANCE DATA (concluded)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 3/31/03 - 18.26% - 22.55%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/03 - 2.68 - 3.72
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 3/31/03 + 6.42 + 5.74
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 3/31/03 - 18.93% - 22.08%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/03 - 3.42 - 3.69
- --------------------------------------------------------------------------------
Ten Years Ended 3/31/03 + 5.52 + 5.52
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 3/31/03 - 18.92% - 19.71%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/03 - 3.43 - 3.43
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 3/31/03 + 5.59 + 5.59
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 3/31/03 - 18.09% - 22.40%
- --------------------------------------------------------------------------------
Five Years Ended 3/31/03 - 2.44 - 3.49
- --------------------------------------------------------------------------------
Ten Years Ended 3/31/03 + 6.60 + 6.02
- --------------------------------------------------------------------------------
* 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.
Aggregate Total Return
% Return Without
Sales Charge
================================================================================
Class R Shares
================================================================================
Inception (1/03/03)
through 3/31/03 - 3.94%
- --------------------------------------------------------------------------------
Recent Performance Results
Ten Years/
6-Month 12-Month Since Inception
As of March 31, 2003 Total Return Total Return Total Return
=================================================================================================================
ML Balanced Capital Fund, Inc. Class A Shares* +2.61% - 18.26% + 69.06%
- -----------------------------------------------------------------------------------------------------------------
ML Balanced Capital Fund, Inc. Class B Shares* +2.18 - 18.93 + 71.12
- -----------------------------------------------------------------------------------------------------------------
ML Balanced Capital Fund, Inc. Class C Shares* +2.16 - 18.92 + 58.32
- -----------------------------------------------------------------------------------------------------------------
ML Balanced Capital Fund, Inc. Class I Shares* +2.69 - 18.09 + 89.40
- -----------------------------------------------------------------------------------------------------------------
ML Balanced Capital Fund, Inc. Class R Shares* -- -- - 3.94
- -----------------------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index** +5.02 - 24.76 +126.73/+107.47/- 0.54
- -----------------------------------------------------------------------------------------------------------------
ML U.S. Domestic Bond Master Index*** +3.00 + 11.96 +101.85/+ 97.72/+1.31
=================================================================================================================
* 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 B & Class I Shares; from 10/21/94 for Class A &
Class C Shares and from 1/03/03 for Class R Shares.
** An unmanaged broad-based index comprised of common stocks. Ten years/since
inception total returns are for ten years and from 10/31/94 and 1/31/03,
respectively.
*** This unmanaged Index is comprised of the entire universe of domestic
investment-grade bonds including U.S. Treasury bonds, corporate bonds and
mortgages. Ten years/since inception total returns are for ten years and
from 10/31/94 and 1/31/03, respectively.
7
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
SCHEDULE OF INVESTMENTS
Shares Percent of
Industry++ Held Common Stocks Value Net Assets
====================================================================================================================================
Aerospace & 1,450,000 Honeywell International Inc. $ 30,972,000 1.0%
Defense 350,000 Northrop Grumman Corporation 30,030,000 0.9
400,000 Raytheon Company 11,348,000 0.4
700,000 United Technologies Corporation 40,446,000 1.3
--------------- -----
112,796,000 3.6
====================================================================================================================================
Banks 950,000 FleetBoston Financial Corporation 22,686,000 0.7
1,500,000 Mellon Financial Corporation 31,890,000 1.0
425,000 PNC Bank Corp. 18,011,500 0.6
950,000 Wells Fargo & Company 42,740,500 1.4
--------------- -----
115,328,000 3.7
====================================================================================================================================
Beverages 950,000 Anheuser-Busch Companies, Inc. 44,279,500 1.4
====================================================================================================================================
Building Products 575,000 Masco Corporation 10,706,500 0.3
====================================================================================================================================
Chemicals 1,250,000 E.I. du Pont de Nemours and Company 48,575,000 1.5
====================================================================================================================================
Communications 2,000,000 + CommScope, Inc. 15,000,000 0.5
Equipment 1,900,000 Motorola, Inc. 15,694,000 0.5
--------------- -----
30,694,000 1.0
====================================================================================================================================
Computers & 1,000,000 Hewlett-Packard Company 15,550,000 0.5
Peripherals 475,000 International Business Machines Corporation 37,254,250 1.2
--------------- -----
52,804,250 1.7
====================================================================================================================================
Diversified 1,400,000 Citigroup Inc. 48,230,000 1.5
Financials 775,000 Fannie Mae 50,646,250 1.6
1,200,000 J.P. Morgan Chase & Co. 28,452,000 0.9
1,450,000 Janus Capital Group Inc. 16,515,500 0.5
950,000 Morgan Stanley 36,432,500 1.2
--------------- -----
180,276,250 5.7
====================================================================================================================================
Diversified 1,350,000 Verizon Communications 47,722,500 1.5
Telecommunication
Services
====================================================================================================================================
Electronic 1,450,000 + Agilent Technologies, Inc. 19,067,500 0.6
Equipment &
Instruments
====================================================================================================================================
Food Products 725,000 General Mills, Inc. 33,023,750 1.0
250,000 Nestle SA (Registered Shares) 49,483,888 1.6
--------------- -----
82,507,638 2.6
====================================================================================================================================
Health Care 750,000 Baxter International Inc. 13,980,000 0.4
Equipment &
Supplies
====================================================================================================================================
Health Care 950,000 Aetna Inc. (New Shares) 46,835,000 1.5
Providers & Services 950,000 HCA Inc. 39,292,000 1.2
--------------- -----
86,127,000 2.7
====================================================================================================================================
Hotels, Restaurants 1,050,000 Carnival Corporation 25,315,500 0.8
& Leisure 1,450,000 McDonald's Corporation 20,967,000 0.7
200,000 Starwood Hotels & Resorts Worldwide, Inc. 4,758,000 0.1
--------------- -----
51,040,500 1.6
====================================================================================================================================
8
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
SCHEDULE OF INVESTMENTS (continued)
Shares Percent of
Industry++ Held Common Stocks Value Net Assets
====================================================================================================================================
Household Products 950,000 Kimberly-Clark Corporation $ 43,187,000 1.4%
====================================================================================================================================
IT Consulting & 825,000 + Accenture Ltd. 'A' 12,787,500 0.4
Services 300,000 + Computer Sciences Corporation 9,765,000 0.3
--------------- -----
22,552,500 0.7
====================================================================================================================================
Industrial 1,200,000 General Electric Company 30,600,000 1.0
Conglomerates 1,700,000 Tyco International Ltd. 21,862,000 0.7
--------------- -----
52,462,000 1.7
====================================================================================================================================
Insurance 1,700,000 ACE Limited 49,215,000 1.6
950,000 American International Group, Inc. 46,977,500 1.5
950,000 Prudential Financial, Inc. 27,787,500 0.9
690,000 XL Capital Ltd. (Class A) 48,838,200 1.5
--------------- -----
172,818,200 5.5
====================================================================================================================================
Machinery 1,200,000 Dover Corporation 29,064,000 0.9
725,000 ITT Industries, Inc. 38,722,250 1.2
1,250,000 + SPX Corporation 42,700,000 1.4
--------------- -----
110,486,250 3.5
====================================================================================================================================
Media 1,350,000 + Clear Channel Communications, Inc. 45,792,000 1.4
2,150,000 + Liberty Media Corporation (Class A) 20,919,500 0.7
100,000 The New York Times Company (Class A) 4,315,000 0.1
150,000 Tribune Company 6,751,500 0.2
1,250,000 + Viacom, Inc. (Class B) 45,650,000 1.5
750,000 The Walt Disney Company 12,765,000 0.4
--------------- -----
136,193,000 4.3
====================================================================================================================================
Metals & Mining 750,000 Alcoa Inc. 14,535,000 0.5
775,000 Nucor Corporation 29,581,750 0.9
--------------- -----
44,116,750 1.4
====================================================================================================================================
Multiline Retail 500,000 The May Department Stores Company 9,945,000 0.3
====================================================================================================================================
Oil & Gas 300,000 Anadarko Petroleum Corporation 13,650,000 0.4
875,000 Devon Energy Corporation 42,192,500 1.3
600,000 ExxonMobil Corporation 20,970,000 0.7
725,000 Murphy Oil Corporation 32,023,250 1.0
600,000 Royal Dutch Petroleum Company (NY Registered Shares) 24,450,000 0.8
--------------- -----
133,285,750 4.2
====================================================================================================================================
Paper & Forest 1,300,000 International Paper Company 43,940,000 1.4
Products 725,000 Weyerhaeuser Company 34,676,750 1.1
--------------- -----
78,616,750 2.5
====================================================================================================================================
Personal Products 900,000 Avon Products, Inc. 51,345,000 1.6
725,000 The Gillette Company 22,431,500 0.7
--------------- -----
73,776,500 2.3
====================================================================================================================================
Pharmaceuticals 950,000 Pharmacia Corporation 41,135,000 1.3
950,000 Schering-Plough Corporation 16,938,500 0.5
950,000 Wyeth 35,929,000 1.2
--------------- -----
94,002,500 3.0
====================================================================================================================================
Road & Rail 300,000 CSX Corporation 8,556,000 0.3
====================================================================================================================================
9
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
SCHEDULE OF INVESTMENTS (continued)
Shares Percent of
Industry++ Held Common Stocks Value Net Assets
====================================================================================================================================
Semiconductor 3,500,000 + Agere Systems Inc. (Class A) $ 5,600,000 0.2%
Equipment & 1,200,000 + Agere Systems Inc. (Class B) 1,800,000 0.1
Products 1,000,000 + Micron Technology, Inc. 8,140,000 0.2
500,000 Texas Instruments Incorporated 8,185,000 0.3
--------------- -----
23,725,000 0.8
====================================================================================================================================
Software 1,650,000 Microsoft Corporation 39,930,000 1.3
====================================================================================================================================
Specialty Retail 1,450,000 The Gap, Inc. 21,010,500 0.6
2,150,000 The Limited, Inc. 27,670,500 0.9
--------------- -----
48,681,000 1.5
====================================================================================================================================
Total Common Stocks (Cost--$2,113,538,902) 1,988,238,838 63.0
====================================================================================================================================
Face
Amount Corporate Bonds
====================================================================================================================================
Aerospace & $ 1,365,000 Lockheed Martin Corp, 8.20% due 12/01/2009 1,685,687 0.1
Defense 6,995,000 Raytheon Company, 6.15% due 11/01/2008 7,661,798 0.2
--------------- -----
9,347,485 0.3
====================================================================================================================================
Automobiles 1,385,000 DaimlerChrysler NA Holdings, 6.40% due 5/15/2006 1,493,885 0.1
605,000 Ford Motor Company, 7.45% due 7/16/2031 463,059 0.0
--------------- -----
1,956,944 0.1
====================================================================================================================================
Banks 495,000 BB&T Corporation, 4.75% due 10/01/2012 502,747 0.0
665,000 BSCH Issuances Ltd., 7.625% due 9/14/2010 774,950 0.0
1,170,000 Banc One Corp., 8% due 4/29/2027 1,471,213 0.1
752,000 Bank of America Corporation, 4.875% due 1/15/2013 765,380 0.0
130,000 The Bank of New York, 5.20% due 7/01/2007 140,691 0.0
1,585,000 BankAmerica Corp., 5.875% due 2/15/2009 1,774,349 0.1
1,170,000 Corporacion Andina de Fomento, 6.875% due 3/15/2012 1,206,564 0.1
1,795,000 European Investment Bank, 7.125% due 9/18/2006 2,070,030 0.1
1,000,000 Firstbank Puerto Rico, 7.625% due 12/20/2005 1,048,251 0.0
3,885,000 FleetBoston Financial Corporation, 6.375% due 5/15/2008 4,359,902 0.2
380,000 Golden West Financial Corporation, 4.75% due 10/01/2012 388,297 0.0
555,000 Hudson United Bancorp Inc., 8.20% due 9/15/2006 628,621 0.0
2,580,000 KFW International Finance, 2.50% due 10/17/2005 2,614,309 0.1
1,160,000 Korea Development Bank, 4.25% due 11/13/2007 1,146,977 0.0
2,650,000 PNC Funding Corp., 6.125% due 2/15/2009 2,924,354 0.1
13,995,000 Provident Bank, 6.375% due 1/15/2004 13,256,862 0.4
785,000 Regions Financial Corporation, 6.375% due 5/15/2012 883,709 0.0
965,000 Suntrust Bank, 5.45% due 12/01/2017 1,019,932 0.0
935,000 Synovus Financial, 4.875% due 2/15/2013 (a) 945,458 0.0
2,340,000 US Bancorp, 1.409% due 9/16/2005 (b) 2,340,365 0.1
1,165,000 Wachovia Corporation, 4.95% due 11/01/2006 1,252,017 0.0
3,120,000 Washington Mutual Bank, 5.50% due 1/15/2013 3,271,432 0.1
1,535,000 Wells Fargo & Co., 5.125% due 2/15/2007 1,656,801 0.1
--------------- -----
46,443,211 1.5
====================================================================================================================================
Beverages 1,645,000 Brown-Forman Corporation, 3% due 3/15/2008 (a) 1,619,654 0.1
1,130,000 Coors Brewing Company, 6.375% due 5/15/2012 1,265,409 0.0
--------------- -----
2,885,063 0.1
====================================================================================================================================
Building Products 870,000 Hanson Australia Funding, 5.25% due 3/15/2013 851,976 0.0
====================================================================================================================================
10
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
SCHEDULE OF INVESTMENTS (continued)
Face Percent of
Industry++ Amount Corporate Bonds Value Net Assets
====================================================================================================================================
Cable Television $ 975,000 USA Interactive, 7% due 1/15/2013 (a) $ 1,038,722 0.0%
Services
====================================================================================================================================
Chemicals 800,000 Potash Corporation of Saskatchewan, 4.875% due 3/01/2013 794,080 0.0
====================================================================================================================================
Commercial 525,000 Aramark Services Inc., 6.75% due 8/01/2004 544,962 0.0
Services & Cendant Corporation:
Supplies 1,100,000 6.875% due 8/15/2006 1,179,133 0.1
1,050,000 6.25% due 1/15/2008 1,083,020 0.0
1,855,000 First Data Corporation, 6.75% due 7/15/2005 2,024,931 0.1
1,055,000 PHH Corporation, 6% due 3/01/2008 1,057,551 0.0
1,945,000 Waste Management Inc., 6.375% due 11/15/2012 2,075,157 0.1
--------------- -----
7,964,754 0.3
====================================================================================================================================
Communications 1,950,000 GTE Corporation, 6.84% due 4/15/2018 2,146,812 0.0
Equipment 2,365,000 Harris Corporation, 6.35% due 2/01/2028 2,531,536 0.1
--------------- -----
4,678,348 0.1
====================================================================================================================================
Containers & 1,180,000 Sealed Air Corporation, 6.95% due 5/15/2009 (a) 1,245,150 0.0
Packaging
====================================================================================================================================
Diversified 545,000 Boeing Capital Corporation, 7.10% due 9/27/2005 593,721 0.0
Financials 835,000 Brascan Corporation, 5.75% due 3/01/2010 846,247 0.0
Citigroup Inc.:
1,150,000 5.75% due 5/10/2006 1,256,944 0.0
2,920,000 7.25% due 10/01/2010 3,459,537 0.1
3,120,000 6.50% due 1/18/2011 3,562,903 0.1
1,480,000 6.625% due 6/15/2032 1,623,994 0.1
1,355,000 Codelco Inc., 6.375% due 11/30/2012 (a) 1,430,330 0.1
15,600,000 Core Investment Grade Trust, 4.727% due 11/30/2007 16,170,495 0.5
1,770,000 CountryWide Home Loan, 5.625% due 7/15/2009 1,885,737 0.1
1,330,000 Deutsche Telekom International Finance, 8.50% due 6/15/2010 1,560,703 0.1
Ford Motor Credit Company:
1,285,000 6.50% due 1/25/2007 1,238,595 0.0
1,150,000 7.25% due 10/25/2011 1,055,406 0.0
GATX Capital Corporation:
25,000,000 6.69% due 11/30/2005 23,223,450 0.7
24,000,000 7.75% due 12/01/2006 21,973,944 0.7
8,940,000 General Electric Capital Corporation, 6% due 6/15/2012 9,748,981 0.3
General Motors Acceptance Corp.:
1,135,000 6.875% due 8/28/2012 1,119,892 0.0
1,440,000 8% due 11/01/2031 1,402,078 0.1
3,740,000 Goldman Sachs Group, Inc., 6.875% due 1/15/2011 4,264,206 0.1
Household Finance Corp.:
1,945,000 6.50% due 11/15/2008 2,163,003 0.1
3,000,000 6.75% due 5/15/2011 3,332,553 0.1
Lehman Brothers Holdings, Inc.:
1,400,000 6.625% due 4/01/2004 1,472,181 0.1
125,000 4% due 1/22/2008 127,606 0.0
255,000 7% due 2/01/2008 292,723 0.0
860,000 MBNA America Bank NA, 7.125% due 11/15/2012 931,557 0.0
1,320,000 Mellon Funding Corporation, 5% due 12/01/2014 1,359,113 0.1
19,530,000 Morgan Stanley TRACERS, 6.759% due 6/15/2012 (a)(d) 21,759,606 0.7
1,095,000 Principal Life Global, 6.25% due 2/15/2012 (a) 1,190,527 0.0
--------------- -----
129,046,032 4.1
====================================================================================================================================
11
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
SCHEDULE OF INVESTMENTS (continued)
Face Percent of
Industry++ Amount Corporate Bonds Value Net Assets
====================================================================================================================================
Diversified $ 390,000 Alltel Corporation, 7% due 7/01/2012 $ 452,983 0.0%
Telecommunication 1,755,000 British Telecom PLC, 8.375% due 12/15/2010 2,131,632 0.1
Services 685,000 CenturyTel Inc., 7.875% due 8/15/2012 826,807 0.0
France Telecom:
5,530,000 9.25% due 3/01/2011 6,647,226 0.2
990,000 10% due 3/01/2031 1,289,337 0.0
1,325,000 Koninklijke (KPN) NV, 8% due 10/01/2010 1,561,581 0.1
3,990,000 Verizon Global Funding Corporation, 4% due 1/15/2008 4,069,764 0.1
--------------- -----
16,979,330 0.5
====================================================================================================================================
Electric Utilities 1,459,000 AEP Texas Central Company, 6.65% due 2/15/2033 (a) 1,513,383 0.1
1,256,000 American Electric Power, 6.125% due 5/15/2006 1,335,535 0.1
2,535,000 Cincinnati Gas & Electric Company, 5.70% due 9/15/2012 2,679,155 0.1
1,250,000 Columbus Southern Power, 6.60% due 3/01/2033 (a) 1,308,841 0.1
Commonwealth Edison Company:
125,000 6.15% due 3/15/2012 139,570 0.0
805,000 5.875% due 2/01/2033 820,701 0.0
1,695,000 Consolidated Edison Company of New York, 4.875% due 2/01/2013 1,735,460 0.1
Dominion Resources Inc.:
1,080,000 7.625% due 7/15/2005 1,199,034 0.0
1,500,000 8.125% due 6/15/2010 1,788,048 0.1
555,000 6.75% due 12/15/2032 581,521 0.0
1,265,000 6.30% due 3/15/2033 1,250,168 0.0
Duke Energy Corporation:
990,000 3.75% due 3/05/2008 (a) 988,730 0.0
2,925,000 6.25% due 1/15/2012 3,098,251 0.1
520,000 Exelon Corporation, 6.75% due 5/01/2011 584,509 0.0
2,805,000 FirstEnergy Corp., 6.45% due 11/15/2011 2,965,412 0.1
Florida Power & Light:
230,000 4.85% due 2/01/2013 237,918 0.0
780,000 5.85% due 2/01/2033 809,383 0.0
465,000 MidAmerican Energy Company, 5.125% due 1/15/2013 479,586 0.0
1,055,000 Ohio Power Company, 6.60% due 2/15/2033 (a) 1,104,744 0.0
1,285,000 PSE&G Power, 6.95% due 6/01/2012 1,422,140 0.1
1,180,000 Southern Power Company, 6.25% due 7/15/2012 1,292,043 0.0
--------------- -----
27,334,132 0.9
====================================================================================================================================
Electrical 325,000 Emerson Electric Company, 6% due 8/15/2032 336,900 0.0
Equipment
====================================================================================================================================
Food Products 1,168,000 Archer-Daniels-Midland, 5.935% due 10/01/2032 1,178,581 0.0
====================================================================================================================================
Foreign Province of Ontario:
Government 1,055,000 3.50% due 9/17/2007 1,081,668 0.0
Obligations 1,445,000 3.282% due 3/28/2008 1,447,702 0.1
1,385,000 Province of Quebec, 5% due 7/17/2009 1,493,909 0.1
860,000 Republic of Chile, 5.50% due 1/15/2013 865,504 0.0
1,250,000 Republic of Finland, 5.875% due 2/27/2006 1,380,199 0.0
2,255,000 Republic of Italy, 4.375% due 10/25/2006 2,385,458 0.1
United Mexican States:
2,535,000 9.875% due 2/01/2010 3,143,400 0.1
1,030,000 6.375% due 1/16/2013 1,030,000 0.0
--------------- -----
12,827,840 0.4
====================================================================================================================================
12
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
SCHEDULE OF INVESTMENTS (continued)
Face Percent of
Industry++ Amount Corporate Bonds Value Net Assets
====================================================================================================================================
Health Care $ 1,615,000 HCA Inc., 6.30% due 10/01/2012 $ 1,659,080 0.1%
Providers & 3,165,000 Tenet Healthcare Corporation, 7.375% due 2/01/2013 3,180,825 0.1
Services --------------- -----
4,839,905 0.2
====================================================================================================================================
Household 19,225,000 Champion Enterprises, Inc., 7.625% due 5/15/2009 11,150,500 0.4
Durables
====================================================================================================================================
Industrial 25,000 Eli Lilly & Company, 7.125% due 6/01/2025 29,839 0.0
Conglomerates 2,925,000 General Electric Company, 5% due 2/01/2013 2,991,275 0.1
705,000 Norsk Hydro A/S, 6.36% due 1/15/2009 791,991 0.0
--------------- -----
3,813,105 0.1
====================================================================================================================================
Insurance 785,000 John Hancock Financial Services, 5.625% due 12/01/2008 843,551 0.0
580,000 Progressive Corporation, 6.25% due 12/01/2032 609,887 0.0
935,000 Travelers Property Casualty, 6.375% due 3/15/2033 (a) 924,469 0.1
--------------- -----
2,377,907 0.1
====================================================================================================================================
Media AOL Time Warner Inc.:
2,335,000 6.875% due 5/01/2012 2,487,527 0.1
360,000 7.70% due 5/01/2032 385,552 0.0
210,000 Clear Channel Communications, 7.65% due 9/15/2010 242,515 0.0
Comcast Corporation:
1,935,000 5.85% due 1/15/2010 2,004,606 0.1
935,000 7.05% due 3/15/2033 956,449 0.0
145,000 Cox Communications Inc., 7.125% due 10/01/2012 164,891 0.0
1,560,000 Liberty Media Corporation, 7.875% due 7/15/2009 1,795,393 0.0
3,185,000 News America Inc., 6.75% due 1/09/2038 3,504,790 0.1
1,570,000 Tele-Communications Inc., 9.80% due 2/01/2012 1,959,314 0.1
16,000,000 Transportacion Maritima Mexicana, SA de CV, 10.25%
due 11/15/2006 8,800,000 0.3
2,135,000 Univision Communication Inc., 7.85% due 7/15/2011 2,438,996 0.1
--------------- -----
24,740,033 0.8
====================================================================================================================================
Metals & Mining 1,762,000 Kinder Morgan Energy, 6.75% due 3/15/2011 1,952,615 0.1
385,000 Placer Dome Inc., 6.375% due 3/01/2033 (a) 379,259 0.0
--------------- -----
2,331,874 0.1
====================================================================================================================================
Oil & Gas Anadarko Finance Company:
47,000 6.75% due 5/01/2011 53,459 0.0
414,000 7.50% due 5/01/2031 496,501 0.0
1,180,000 Colonial Pipeline, 7.63% due 4/15/2032 (a) 1,435,306 0.0
1,645,000 Enterprise Products Operations, 6.875% due 3/01/2033 (a) 1,625,178 0.1
1,910,000 Motiva Enterprises LLC, 5.20% due 9/15/2012 (a) 1,942,199 0.1
17,375,000 Pecom Energia SA, 8.125% due 7/15/2010 (a) 13,378,750 0.4
Pemex Project Funding Master Trust:
1,485,000 9.125% due 10/13/2010 1,726,313 0.1
1,170,000 7.375% due 12/15/2014 1,200,713 0.0
3,235,000 Ultramar Diamond Shamrock, 6.75% due 10/15/2037 3,422,918 0.1
2,000,000 Unocal Capital Trust, 6.25% due 9/01/2026 1,985,000 0.1
--------------- -----
27,266,337 0.9
====================================================================================================================================
Paper & Forest 254,000 Abitibi Consolidated Inc., 8.55% due 8/01/2010 278,928 0.0
Products 20,000,000 Boise Cascade Corporation, 7.66% due 5/27/2005 20,967,880 0.7
3,470,000 Champion International Corp., 6.65% due 12/15/2037 3,835,388 0.1
1,400,000 International Paper Capital Trust, 5.25% due 7/20/2025 1,372,000 0.0
13
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
SCHEDULE OF INVESTMENTS (continued)
Face Percent of
Industry++ Amount Corporate Bonds Value Net Assets
====================================================================================================================================
Paper & Forest $ 785,000 Rock-Tenn Company, 5.625% due 3/15/2013 $ 780,523 0.0%
Products 655,000 UPM-Kymmene Corporation, 5.625% due 12/01/2014 (a) 684,721 0.0
(concluded) --------------- -----
27,919,440 0.8
====================================================================================================================================
Real Estate 665,000 Developers Divers Realty, 6.625% due 1/15/2008 697,806 0.0
1,325,000 Health Care Properties Investors Inc., 6.45% due 6/25/2012 1,359,572 0.1
2,870,000 Shurgard Storage Centers, 5.875% due 3/15/2013 2,890,595 0.1
--------------- -----
4,947,973 0.2
====================================================================================================================================
Road & Rail 2,495,000 Norfolk Southern Corporation, 7.25% due 2/15/2031 2,847,928 0.1
1,600,000 Union Pacific Capital Trust, 6.25% due 4/01/2028 1,610,016 0.0
--------------- -----
4,457,944 0.1
====================================================================================================================================
Wireless 795,000 AT&T Wireless Services Inc., 8.75% due 3/01/2031 911,676 0.0
Telecommunication Sprint Capital Corporation:
Services 5,445,000 6.90% due 5/01/2019 4,982,175 0.2
180,000 8.75% due 3/15/2032 185,400 0.0
75,000 Vodafone Group PLC, 7.75% due 2/15/2010 89,731 0.0
--------------- -----
6,168,982 0.2
====================================================================================================================================
Total Corporate Bonds (Cost--$394,162,603) 384,922,548 12.2
====================================================================================================================================
Collateralized Mortgage Obligations*
====================================================================================================================================
30,000,000 Fannie Mae, 7.50% due 4/15/2033 31,940,640 1.0
Freddie Mac Gold:
39,000,000 5.50% (f) 40,425,918 1.3
15,000,000 6% (f) 15,660,930 0.5
63,000,000 6% due 4/15/2033 65,244,375 2.1
48,000,000 6.50% due 4/15/2033 50,025,024 1.6
30,000,000 7% due 4/15/2033 31,575,000 1.0
2,500,000 5% due 5/15/2033 2,489,063 0.1
6,000,000 Greenwich Capital Commercial Funding Corporation,
Series 2002-C1, Class A4, 4.948% due 1/11/2035 6,153,050 0.2
4,900,000 LB-UBS Commercial Mortgage Trust, Series 2002-C1, Class A3,
6.226% due 3/15/2026 5,469,589 0.2
4,000,000 Nationslink Funding Corporation, Series 1999-2, Class A3,
7.181% due 6/20/2031 4,489,632 0.1
====================================================================================================================================
Total Collateralized Mortgage Obligations
(Cost--$252,578,921) 253,473,221 8.1
====================================================================================================================================
U.S. Government Obligations
====================================================================================================================================
2,190,000 U.S. Treasury Bonds, 5.375% due 2/15/2031 2,368,965 0.1
U.S. Treasury Notes:
69,800,000 3% due 2/15/2008 70,617,986 2.2
72,000,000 4.75% due 11/15/2008 78,468,768 2.5
50,000,000 5.50% due 5/15/2009 56,603,500 1.8
10,000,000 4% due 11/15/2012 10,144,530 0.3
157,520,000 3.875% due 2/15/2013 158,178,434 5.0
====================================================================================================================================
Total U.S. Government Obligations (Cost--$362,709,480) 376,382,183 11.9
====================================================================================================================================
14
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
SCHEDULE OF INVESTMENTS (concluded)
Shares Percent of
Held Short-Term Investments Value Net Assets
====================================================================================================================================
311,408,080 Merrill Lynch Premier Institutional Fund (c)(e) $ 311,408,080 9.9%
====================================================================================================================================
Beneficial
Interest
====================================================================================================================================
$389,467,088 Merrill Lynch Liquidity Series, LLC Cash Sweep Series I (c) 389,467,088 12.3
467,112,120 Merrill Lynch Liquidity Series, LLC Money Market Series (c)(e) 467,112,120 14.8
====================================================================================================================================
Total Short-Term Investments (Cost--$1,167,987,288) 1,167,987,288 37.0
====================================================================================================================================
Total Investments (Cost--$4,290,977,194) 4,171,004,078 132.2
Liabilities in Excess of Other Assets (1,015,933,357) (32.2)
--------------- -----
Net Assets $ 3,155,070,721 100.0%
=============== =====
====================================================================================================================================
* Subject to principal paydowns.
+ Non-income producing security.
++ For Fund compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Fund management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease. These
classifications are unaudited.
(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) Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
--------------------------------------------------------------------------
Net Dividend/Interest
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $389,467,088 $ 664,456
Merrill Lynch Liquidity Series,
LLC Money Market Series $467,112,120 401,687
Merrill Lynch Premier
Institutional Fund 311,408,080 626,554
Merrill Lynch
Institutional Fund -- 50,744
--------------------------------------------------------------------------
(d) Tradeable Custodial Receipts (TRACERS).
(e) Security was purchased with the cash proceeds from securities loans.
(f) Represents a "to-be-announced" (TBA) transaction. The Portfolio has
committed to purchasing securities for which all specific information is
not available at this time.
See Notes to Financial Statements.
15
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
FINANCIAL INFORMATION
Statement of Assets and Liabilities as of March 31, 2003
Assets: Investments, at value (including securities loaned of $746,023,665)
(identified cost--$4,290,977,194) ................................. $ 4,171,004,078
Cash .............................................................. 13,988,041
Receivables:
Securities sold ................................................ $ 77,914,059
Interest ....................................................... 11,619,640
Dividends ...................................................... 2,182,744
Capital shares sold ............................................ 1,497,252
Securities lending--net ........................................ 55,678 93,269,373
------------
Prepaid registration fees ......................................... 19,029
---------------
Total assets ...................................................... 4,278,280,521
---------------
===========================================================================================================================
Liabilities: Collateral on securities loaned, at value ......................... 778,520,200
Payables:
Securities purchased ........................................... 321,457,327
Capital shares redeemed ........................................ 20,004,397
Investment adviser ............................................. 1,106,882
Distributor .................................................... 904,195 343,472,801
------------
Accrued expenses and other liabilities ............................ 1,216,799
---------------
Total liabilities ................................................. 1,123,209,800
---------------
===========================================================================================================================
Net Assets: Net assets ........................................................ $ 3,155,070,721
===============
===========================================================================================================================
Net Assets Class A Shares of Common Stock, $.10 par value, 200,000,000
Consist of: shares authorized ................................................. $ 4,336,323
Class B Shares of Common Stock, $.10 par value, 500,000,000
shares authorized ................................................. 3,226,213
Class C Shares of Common Stock, $.10 par value, 200,000,000
shares authorized ................................................. 665,152
Class I Shares of Common Stock, $.10 par value, 400,000,000
shares authorized ................................................. 6,427,552
Class R Shares of Common Stock, $.10 par value, 500,000,000
shares authorized ................................................. --
Paid-in capital in excess of par .................................. 3,357,880,271
Undistributed investment income--net .............................. $ 23,121,939
Accumulated realized capital losses on investments and foreign
currency transactions--net ........................................ (120,652,083)
Unrealized depreciation on investments and foreign
currency transactions--net ........................................ (119,934,646)
------------
Total accumulated losses--net ..................................... (217,464,790)
---------------
Net assets ........................................................ $ 3,155,070,721
===============
===========================================================================================================================
Net Asset Value: Class A--Based on net assets of $939,988,588 and 43,363,228
shares outstanding ....................................... $ 21.68
===============
Class B--Based on net assets of $680,418,750 and 32,262,134
shares outstanding ....................................... $ 21.09
===============
Class C--Based on net assets of $137,674,090 and 6,651,518
shares outstanding ....................................... $ 20.70
===============
Class I--Based on net assets of $1,396,989,197 and 64,275,524
shares outstanding ....................................... $ 21.73
===============
Class R--Based on net assets of $96.04 and 4.531
shares outstanding ....................................... $ 21.20
===============
===========================================================================================================================
See Notes to Financial Statements.
16
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
FINANCIAL INFORMATION (continued)
Statement of Operations for the Year Ended March 31, 2003
Investment Interest ............................................ $ 85,603,565
Income: Dividends (net of $173,808 foreign withholding tax) . 38,650,794
Securities lending--net ............................. 1,078,985
Other ............................................... 4,745
---------------
Total income ........................................ 125,338,089
---------------
===============================================================================================================
Expenses: Investment advisory fees ............................ $ 15,440,751
Account maintenance and distribution fees--Class B .. 9,004,127
Account maintenance fees--Class A ................... 2,745,058
Transfer agent fees--Class I ........................ 2,571,326
Transfer agent fees--Class A ........................ 1,742,613
Transfer agent fees--Class B ........................ 1,666,527
Account maintenance and distribution fees--Class C .. 1,655,309
Transfer agent fees--Class C ........................ 320,423
Professional fees ................................... 226,347
Custodian fees ...................................... 195,957
Printing and shareholder reports .................... 170,969
Registration fees ................................... 83,769
Directors' fees and expenses ........................ 78,042
Pricing fees ........................................ 67,237
Other ............................................... 130,310
-------------
Total expenses ...................................... 36,098,765
---------------
Investment income--net .............................. 89,239,324
---------------
===============================================================================================================
Realized & Realized gain (loss) on:
Unrealized Gain Investments--net ................................. (104,313,265)
(Loss) on Foreign currency transactions--net ............... 2,648 (104,310,617)
Investments & -------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net: Investments--net ................................. (806,757,320)
Foreign currency transactions--net ............... 68,711 (806,688,609)
------------- ---------------
Total realized and unrealized loss on investments and
foreign currency transactions--net .................. (910,999,226)
---------------
Net Decrease in Net Assets Resulting from Operations $ (821,759,902)
===============
===============================================================================================================
See Notes to Financial Statements.
17
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
FINANCIAL INFORMATION (continued)
Statements of Changes in Net Assets
For the Year Ended
March 31,
-----------------------------------
Increase (Decrease) in Net Assets: 2003 2002
=============================================================================================================================
Operations: Investment income--net .......................................... $ 89,239,324 $ 108,678,599
Realized gain (loss) on investments and foreign currency
transactions--net ............................................... (104,310,617) 67,096,713
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net .............................. (806,688,609) 38,561,025
--------------- ---------------
Net increase (decrease) in net assets resulting from operations . (821,759,902) 214,336,337
--------------- ---------------
=============================================================================================================================
Dividends & Investment income--net:
Distributions: Class A ...................................................... (28,917,383) (32,663,244)
Class B ...................................................... (16,023,503) (24,279,414)
Class C ...................................................... (3,191,848) (3,747,630)
Class I ...................................................... (46,356,926) (55,115,369)
Realized gain on investments--net:
Class A ...................................................... (10,004,802) (66,197,251)
Class B ...................................................... (8,770,756) (76,419,829)
Class C ...................................................... (1,606,636) (10,936,875)
Class I ...................................................... (14,651,440) (102,586,999)
--------------- ---------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ................................... (129,523,294) (371,946,611)
--------------- ---------------
=============================================================================================================================
Capital Share Net decrease in net assets derived from capital
Transactions: share transactions .............................................. (585,515,127) (476,749,756)
--------------- ---------------
=============================================================================================================================
Net Assets: Total decrease in net assets .................................... (1,536,798,323) (634,360,030)
Beginning of year ............................................... 4,691,869,044 5,326,229,074
--------------- ---------------
End of year* .................................................... $ 3,155,070,721 $ 4,691,869,044
=============== ===============
=============================================================================================================================
* Undistributed investment income--net ............................ $ 23,121,939 $ 29,918,751
=============== ===============
=============================================================================================================================
See Notes to Financial Statements.
18
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
FINANCIAL INFORMATION (continued)
Financial Highlights
Class A++
The following per share data and ratios have been derived -----------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended March 31,
-----------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
==================================================================================================================================
Per Share Net asset value, beginning of year ... $ 27.50 $ 28.31 $ 32.58 $ 34.97 $ 37.49
Operating ----------- ----------- ----------- ----------- -----------
Performance: Investment income--net+ .............. .59 .64 .82 .86 .91
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .................... (5.57) .65 (1.17) .60 (1.28)
----------- ----------- ----------- ----------- -----------
Total from investment operations ..... (4.98) 1.29 (.35) 1.46 (.37)
----------- ----------- ----------- ----------- -----------
Less dividends and distributions:
Investment income--net ............ (.63) (.69) (.93) (.86) (.98)
Realized gain on investments--net . (.21) (1.41) (2.99) (2.99) (1.17)
----------- ----------- ----------- ----------- -----------
Total dividends and distributions .... (.84) (2.10) (3.92) (3.85) (2.15)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ......... $ 21.68 $ 27.50 $ 28.31 $ 32.58 $ 34.97
=========== =========== =========== =========== ===========
==================================================================================================================================
Total Investment Based on net asset value per share ... (18.26%) 4.78% (1.35%) 4.29% (.92%)
Return:* =========== =========== =========== =========== ===========
==================================================================================================================================
Ratios to Expenses ............................. .84% .82% .84% .81% .82%
Average =========== =========== =========== =========== ===========
Net Assets: Investment income--net ............... 2.47% 2.35% 2.64% 2.50% 2.60%
=========== =========== =========== =========== ===========
==================================================================================================================================
Supplemental Net assets, end of year (in thousands) $ 939,989 $ 1,311,739 $ 1,311,854 $ 1,428,120 $ 1,513,406
Data: =========== =========== =========== =========== ===========
Portfolio turnover ................... 52% 31% 46% 33% 33%
=========== =========== =========== =========== ===========
==================================================================================================================================
* Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
See Notes to Financial Statements.
19
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
Class B
The following per share data and ratios have been derived -----------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended March 31,
-----------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
==================================================================================================================================
Per Share Net asset value, beginning of year ... $ 26.75 $ 27.56 $ 31.77 $ 34.25 $ 36.68
Operating ----------- ----------- ----------- ----------- -----------
Performance: Investment income--net+ .............. .39 .42 .56 .57 .63
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .................... (5.42) .64 (1.13) .60 (1.25)
----------- ----------- ----------- ----------- -----------
Total from investment operations ..... (5.03) 1.06 (.57) 1.17 (.62)
----------- ----------- ----------- ----------- -----------
Less dividends and distributions:
Investment income--net ............ (.42) (.46) (.65) (.66) (.64)
Realized gain on investments--net . (.21) (1.41) (2.99) (2.99) (1.17)
----------- ----------- ----------- ----------- -----------
Total dividends and distributions .... (.63) (1.87) (3.64) (3.65) (1.81)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ......... $ 21.09 $ 26.75 $ 27.56 $ 31.77 $ 34.25
=========== =========== =========== =========== ===========
==================================================================================================================================
Total Investment Based on net asset value per share ... (18.93%) 4.01% (2.11%) 3.48% (1.65%)
Return:* =========== =========== =========== =========== ===========
==================================================================================================================================
Ratios to Expenses ............................. 1.62% 1.59% 1.61% 1.58% 1.59%
Average =========== =========== =========== =========== ===========
Net Assets: Investment income--net ............... 1.69% 1.58% 1.87% 1.71% 1.85%
=========== =========== =========== =========== ===========
==================================================================================================================================
Supplemental Net assets, end of year (in thousands) $ 680,419 $ 1,222,487 $ 1,659,152 $ 2,853,699 $ 4,866,564
Data: =========== =========== =========== =========== ===========
Portfolio turnover ................... 52% 31% 46% 33% 33%
=========== =========== =========== =========== ===========
==================================================================================================================================
* Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
See Notes to Financial Statements.
20
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
Class C
The following per share data and ratios have been derived -----------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended March 31,
-----------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
==================================================================================================================================
Per Share Net asset value, beginning of year ... $ 26.29 $ 27.14 $ 31.36 $ 33.82 $ 36.31
Operating ----------- ----------- ----------- ----------- -----------
Performance: Investment income--net+ .............. .38 .41 .55 .57 .62
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .................... (5.32) .63 (1.12) .59 (1.25)
----------- ----------- ----------- ----------- -----------
Total from investment operations ..... (4.94) 1.04 (.57) 1.16 (.63)
----------- ----------- ----------- ----------- -----------
Less dividends and distributions:
Investment income--net ............ (.44) (.48) (.66) (.63) (.69)
Realized gain on investments--net . (.21) (1.41) (2.99) (2.99) (1.17)
----------- ----------- ----------- ----------- -----------
Total dividends and distributions .... (.65) (1.89) (3.65) (3.62) (1.86)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ......... $ 20.70 $ 26.29 $ 27.14 $ 31.36 $ 33.82
=========== =========== =========== =========== ===========
==================================================================================================================================
Total Investment Based on net asset value per share ... (18.92%) 4.01% (2.13%) 3.50% (1.70%)
Return:* =========== =========== =========== =========== ===========
==================================================================================================================================
Ratios to Expenses ............................. 1.63% 1.61% 1.62% 1.59% 1.59%
Average =========== =========== =========== =========== ===========
Net Assets: Investment income--net ............... 1.69% 1.59% 1.86% 1.70% 1.83%
=========== =========== =========== =========== ===========
==================================================================================================================================
Supplemental Net assets, end of year (in thousands) $ 137,674 $ 199,774 $ 212,278 $ 308,150 $ 491,234
Data: =========== =========== =========== =========== ===========
Portfolio turnover ................... 52% 31% 46% 33% 33%
=========== =========== =========== =========== ===========
==================================================================================================================================
* Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
See Notes to Financial Statements.
21
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
FINANCIAL INFORMATION (continued)
Financial Highlights (continued)
Class I++
The following per share data and ratios have been derived -----------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended March 31,
-----------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2003 2002 2001 2000 1999
==================================================================================================================================
Per Share Net asset value, beginning of year ... $ 27.58 $ 28.38 $ 32.66 $ 35.03 $ 37.56
Operating ----------- ----------- ----------- ----------- -----------
Performance: Investment income--net+ .............. .65 .71 .90 .94 1.00
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .................... (5.60) .66 (1.18) .62 (1.28)
----------- ----------- ----------- ----------- -----------
Total from investment operations ..... (4.95) 1.37 (.28) 1.56 (.28)
----------- ----------- ----------- ----------- -----------
Less dividends and distributions:
Investment income--net ............ (.69) (.76) (1.01) (.94) (1.08)
Realized gain on investments--net . (.21) (1.41) (2.99) (2.99) (1.17)
----------- ----------- ----------- ----------- -----------
Total dividends and distributions .... (.90) (2.17) (4.00) (3.93) (2.25)
----------- ----------- ----------- ----------- -----------
Net asset value, end of year ......... $ 21.73 $ 27.58 $ 28.38 $ 32.66 $ 35.03
=========== =========== =========== =========== ===========
==================================================================================================================================
Total Investment Based on net asset value per share ... (18.09%) 5.07% (1.12%) 4.58% (.68%)
Return:* =========== =========== =========== =========== ===========
==================================================================================================================================
Ratios to Expenses ............................. .59% .57% .59% .56% .57%
Average =========== =========== =========== =========== ===========
Net Assets: Investment income--net ............... 2.72% 2.60% 2.89% 2.74% 2.86%
=========== =========== =========== =========== ===========
==================================================================================================================================
Supplemental Net assets, end of year (in thousands) $ 1,396,989 $ 1,957,869 $ 2,142,945 $ 2,721,503 $ 3,631,440
Data: =========== =========== =========== =========== ===========
Portfolio turnover ................... 52% 31% 46% 33% 33%
=========== =========== =========== =========== ===========
==================================================================================================================================
* Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
See Notes to Financial Statements.
22
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
FINANCIAL INFORMATION (concluded)
Financial Highlights (concluded)
Class R
--------------
For the
The following per share data and ratios have been derived Period
from information provided in the financial statements. Jan. 3, 2003++
to March 31,
Increase (Decrease) in Net Asset Value: 2003
========================================================================================================================
Per Share Net asset value, beginning of period ............................................. $22.07
Operating ------
Performance: Investment income--net+ .......................................................... .20
Realized and unrealized loss on investments and foreign currency transactions--net (1.07)
------
Total from investment operations ................................................. (.87)
------
Net asset value, end of period ................................................... $21.20
======
========================================================================================================================
Total Investment Based on net asset value per share ............................................... (3.94%)+++
Return:** ======
========================================================================================================================
Ratios to Expenses ......................................................................... 1.09%*
Average Net ======
Assets: Investment income--net ........................................................... 2.76%*
======
========================================================================================================================
Supplemental Net assets, end of period (in thousands) ......................................... --@
Data: ======
Portfolio turnover ............................................................... 52%
======
========================================================================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Based on average shares outstanding.
++ Commencement of operations.
+++ Aggregate total investment return.
@ Amount is less than $1,000.
See Notes to Financial Statements.
23
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
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. The Fund offers
multiple classes of shares. Effective April 14, 2003, Class A Shares were
redesignated Class I Shares and Class D Shares were redesignated Class A Shares.
The Fund's financial statements and financial highlights contained within this
report reflect the new share class redesignation. Shares of Class A and Class I
are sold with a front-end sales charge. Shares of Class B and Class C may be
subject to a contingent deferred sales charge. Class R Shares are sold only to
certain retirement plans. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions, except that
Class A, Class B, Class C and Class R Shares bear certain expenses related to
the account maintenance of such shares, and Class B, Class C and Class R Shares
also bear certain expenses related to the distribution of such shares. Each
class has exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures. Income, expenses (other than
expenses attributable to a specific class) and realized and unrealized gains and
losses on investments and foreign currency transactions are allocated daily to
each class based on its relative net assets. 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. Occasionally, events affecting
the values of securities and other assets may occur between the times at which
valuations of such securities are determined (that is, close of the market on
which such security trades) and the close of business on the NYSE. If events
(for example, company announcement, natural disasters, market volatility) occur
during such periods that are expected to materially affect the value for such
securities, those securities may be valued at their fair market value as
determined in good faith by the Fund's Board of Directors or by the investment
adviser using a pricing service and/or procedures approved by the Board of
Directors of the Fund.
(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.
o Swap agreements--The Fund is authorized to enter into swap agreements for the
purpose of hedging the market risk on existing securities. Total
24
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
return swaps involve commitments to pay interest in exchange for a market-linked
return based on a notional amount. To the extent the total return of the
security or index underlying the transaction exceeds or falls short of the
offsetting interest rate obligation, the Fund will receive a payment from or
make a payment to the counterparty, respectively. Total return swaps are
marked-to-market daily based upon quotations from market makers and the change,
if any, is recorded as unrealized appreciation or depreciation in the Statement
of Operations. Periodic payments received or made at the end of each measurement
period, but prior to termination, are recorded as realized gains or losses in
the Statement of Operations. Risks may arise upon entering into these agreements
from the potential inability of the counterparties to meet the terms of the
agreements and are generally limited to the amount of net interest payments to
be received, if any, at the date of default.
(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 U.S. 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 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. The Fund amortizes all
premiums and discounts on debt securities.
(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) Securities lending -- The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
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.
(i) Reclassification -- Accounting principles generally accepted in the United
States of America require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting. Accordingly,
the current year's permanent book/tax difference of $1,546,476 has been
reclassified between undistributed net investment income and accumulated net
realized capital losses. This reclassification has no effect on net assets or
net asset values per share.
25
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
NOTES TO FINANCIAL STATEMENTS (continued)
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. MLIM has entered into a Sub-Advisory Agreement with
Merrill Lynch Asset Management U.K. Limited ("MLAM U.K."), an affiliate of MLIM,
pursuant to which MLAM U.K. provides investment advisory services to MLIM with
respect to the Fund. There is no increase in the aggregate fees paid by the Fund
for these services.
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 A ................................ .25% --
Class B ................................ .25% .75%
Class C ................................ .25% .75%
Class R ................................ .25% .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 compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B, Class C and Class R shareholders. The
ongoing distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B, Class C and Class R
shareholders.
For the year ended March 31, 2003, FAMD earned underwriting discounts and direct
commissions and MLPF&S earned dealer concessions on sales of the Fund's Class A
and Class I Shares as follows:
- ------------------------------------------------------------------------------
FAMD MLPF&S
- ------------------------------------------------------------------------------
Class A ............................ $ 13,842 $112,106
Class I ............................ $ 3,743 $ 37,878
- ------------------------------------------------------------------------------
For the year ended March 31, 2003, MLPF&S received contingent deferred sales
charges of $548,612 and $34,825 relating to transactions in Class B and Class C
Shares, respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $259 and $665 relating to transactions subject to front-end sales
charge waivers in Class A Shares and Class I 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. As of March 31, 2003, the Fund lent securities with a value of
$83,828,267 to MLPF&S or its affiliates. Pursuant to that order, the Fund also
has retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate
of MLIM, as the securities lending agent for a fee based on a share of the
returns on investment of cash collateral. MLIM, LLC 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 MLIM, LLC or in registered money
market funds advised by MLIM or its affiliates. For the year ended March 31,
2003, MLIM, LLC received $439,984 in securities lending agent fees.
In addition, MLPF&S received $329,196 in commissions on the execution of
portfolio security transactions for the year ended March 31, 2003.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
For the year ended March 31, 2003, Merrill Lynch Security Pricing System, an
affiliate of MLPF&S, earned $632 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.
26
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended March 31, 2003 were $1,891,952,095 and $2,549,746,543, respectively.
Net realized gains (losses) for the year ended March 31, 2003 and net unrealized
gains (losses) as of March 31, 2003 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments .............. $(104,313,265) $(119,987,041)
Foreign currency
transactions ....................... 2,648 52,395
Swap agreements .................... -- --
------------- -------------
Total .............................. $(104,310,617) $(119,934,646)
============= =============
- --------------------------------------------------------------------------------
As of March 31, 2003, net unrealized depreciation for Federal income tax
purposes aggregated $131,532,309, of which $320,264,382 related to appreciated
securities and $451,796,691 related to depreciated securities. At March 31,
2003, the aggregate cost of investments for Federal income tax purposes was
$4,302,536,387.
The Fund has entered into the following total return swaps as of March 31, 2003:
- --------------------------------------------------------------------------------
Return Received
- --------------------------------------------------------------------------------
Notional Expiration
Amount Type Date
- --------------------------------------------------------------------------------
$41,000,000 Price Return+ 10/01/2003
$19,725,000 Price Return++ 1/31/2004
$10,200,000 Price Return+++ 3/31/2004
- --------------------------------------------------------------------------------
+ Lehman Brothers Investment Grade CMBS Index Total Return.
++ JP Morgan U.S. Agency Mortgage Index Total Return.
+++ Lehman Brothers U.S. Corporate High Yield Index Total Return.
- --------------------------------------------------------------------------------
Interest Paid
- --------------------------------------------------------------------------------
Notional Current Expiration
Amount Rate Type Date
- --------------------------------------------------------------------------------
$41,000,000 .90% Variable* 10/01/2003
$19,725,000 1.08% Variable** 1/31/2004
$10,200,000 1.45% Variable*** 3/31/2004
- --------------------------------------------------------------------------------
* 1 month USD LIBOR minus .40%, reset and payable monthly.
** 1 month USD LIBOR minus .22%, reset and payable monthly.
*** 1 month USD LIBOR minus .15%, reset and payable monthly.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$585,515,127 and $476,749,756 for the years ended March 31, 2003 and March 31,
2002 respectively.
Transactions in capital shares for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended March 31, 2003+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 2,772,584 $ 64,891,927
Automatic conversion
of shares ............................ 5,057,547 120,961,341
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 1,499,220 34,459,904
------------- -------------
Total issued ......................... 9,329,351 220,313,172
Shares redeemed ...................... (13,659,024) (318,369,448)
------------- -------------
Net decrease ......................... (4,329,673) $ (98,056,276)
============= =============
- -------------------------------------------------------------------------------
+ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended March 31, 2002+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 3,572,657 $ 96,909,860
Automatic conversion
of shares ............................ 7,297,200 200,803,234
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 3,223,999 87,168,201
------------- -------------
Total issued ......................... 14,093,856 384,881,295
Shares redeemed ...................... (12,747,284) (346,895,466)
------------- -------------
Net increase ......................... 1,346,572 $ 37,985,829
============= =============
- -------------------------------------------------------------------------------
+ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended March 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 3,010,838 $ 69,266,062
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 942,855 21,172,984
------------- -------------
Total issued ......................... 3,953,693 90,439,046
Automatic conversion
of shares ............................ (5,200,349) (120,961,341)
Shares redeemed ...................... (12,192,972) (278,379,536)
------------- -------------
Net decrease ......................... (13,439,628) $(308,901,831)
============= =============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended March 31, 2002 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 4,131,938 $ 110,246,621
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 3,233,327 85,247,072
------------- -------------
Total issued ......................... 7,365,265 195,493,693
Automatic conversion
of shares ............................ (7,499,528) (200,803,234)
Shares redeemed ...................... (14,364,815) (382,144,098)
------------- -------------
Net decrease ......................... (14,499,078) $(387,453,639)
============= =============
- -------------------------------------------------------------------------------
27
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
NOTES TO FINANCIAL STATEMENTS (concluded)
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended March 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 912,070 $ 21,236,720
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 183,735 4,048,797
------------- -------------
Total issued ......................... 1,095,805 25,285,517
Shares redeemed ...................... (2,042,911) (45,403,525)
------------- -------------
Net decrease ......................... (947,106) $ (20,118,008)
============= =============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended March 31, 2002 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 1,366,686 $ 35,815,840
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 476,476 12,351,872
------------- -------------
Total issued ......................... 1,843,162 48,167,712
Shares redeemed ...................... (2,065,570) (53,647,779)
------------- -------------
Net decrease ......................... (222,408) $ (5,480,067)
============= =============
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended March 31, 2003+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 6,206,891 $ 144,980,836
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 2,397,651 55,211,158
------------- -------------
Total issued ......................... 8,604,542 200,191,994
Shares redeemed ...................... (15,319,242) (358,631,106)
------------- -------------
Net decrease ......................... (6,714,700) $(158,439,112)
============= =============
- -------------------------------------------------------------------------------
+ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended March 31, 2002+ Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 6,452,642 $ 177,473,586
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 4,888,040 132,394,454
------------- -------------
Total issued ......................... 11,340,682 309,868,040
Shares redeemed ...................... (15,861,076) (431,669,919)
------------- -------------
Net decrease ......................... (4,520,394) $(121,801,879)
============= =============
- -------------------------------------------------------------------------------
+ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
- -------------------------------------------------------------------------------
Class R Shares for the Period
January 3, 2003+ to Dollar
March 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold .......................... 5 $ 100
------------- -------------
Net increase ......................... 5 $ 100
============= =============
- -------------------------------------------------------------------------------
+ Commencement of operations.
5. Short-Term Borrowings:
The Fund, along with certain other funds managed by MLIM and its affiliates, is
a party to a $500,000,000 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
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 credit
agreement. Amounts borrowed under the credit agreement 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. On November 29, 2002, the credit agreement
was renewed for one year under the same terms, except that the total commitment
was reduced from $1,000,000,000 to $500,000,000. The Fund did not borrow under
the credit agreement during the year ended March 31, 2003.
6. Distributions to Shareholders:
The tax character of distributions paid during the fis-cal years ended March 31,
2003 and March 31, 2002 was as follows:
- -------------------------------------------------------------------------------
3/31/2003 3/31/2002
- -------------------------------------------------------------------------------
Distributions paid from:
Ordinary income .................... $ 96,579,703 $ 131,878,836
Net long-term
capital gains ...................... 32,943,590 240,067,775
------------- -------------
Total taxable distributions .......... $ 129,523,293 $ 371,946,611
============= =============
- -------------------------------------------------------------------------------
As of March 31, 2003, the components of accumulated losses on a tax basis were
as follows:
- -----------------------------------------------------------------------------
Undistributed ordinary income--net ..................... $ 21,628,465
Undistributed long-term capital gains--net ............. --
-------------
Total undistributed earnings--net ...................... 21,628,465
Capital loss carryforward .............................. (71,164,510)*
Unrealized losses--net ................................. (167,928,745)**
-------------
Total accumulated losses--net .......................... $(217,464,790)
=============
- -----------------------------------------------------------------------------
* On March 31, 2003, the Fund had a net capital loss carryforward of
$71,164,510, of which $4,243,197 expires in 2008, $3,272,987 expires in
2009 and $63,648,326 expires in 2011. This amount will be available to
offset like amounts of any future taxable gains.
** The difference between book-basis and tax-basis net unrealized losses is
attributable primarily to the tax deferral of losses on wash sales, the
difference between book and tax amortization methods for premiums and
discounts on fixed income securities, and the deferral of post-October
capital losses for tax purposes.
28
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Merrill Lynch Balanced Capital Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Balanced Capital Fund, Inc. as of
March 31, 2003, and the related statement of operations for the year then ended,
the statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of March 31, 2003, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Balanced Capital Fund, Inc. as of March 31, 2003, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and its financial highlights for each
of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
May 19, 2003
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions paid by the
Fund during the year ended March 31, 2003:
===================================================================================================================================
Record Payable Qualifying Interest from Non-Qualifying Total Long-Term
Date Date Ordinary Income Federal Obligations Ordinary Income Ordinary Income Capital Gains
===================================================================================================================================
Class A Shares:
===================================================================================================================================
7/15/2002 7/19/2002 $.116623 $.029852 $.193281 $.339756 $.201267
- -----------------------------------------------------------------------------------------------------------------------------------
12/09/2002 12/13/2002 $.107738 $.022610 $.167786 $.298134 --
===================================================================================================================================
Class B Shares:
===================================================================================================================================
7/15/2002 7/19/2002 $.078189 $.020014 $.129583 $.227786 $.201267
- -----------------------------------------------------------------------------------------------------------------------------------
12/09/2002 12/13/2002 $.073051 $.015331 $.113766 $.202148 --
===================================================================================================================================
Class C Shares:
===================================================================================================================================
7/15/2002 7/19/2002 $.082925 $.021226 $.137432 $.241583 $.201267
- -----------------------------------------------------------------------------------------------------------------------------------
12/09/2002 12/13/2002 $.075370 $.015817 $.117378 $.208565 --
===================================================================================================================================
Class I Shares:
===================================================================================================================================
7/15/2002 7/19/2002 $.128123 $.032795 $.212339 $.373257 $.201267
- -----------------------------------------------------------------------------------------------------------------------------------
12/09/2002 12/13/2002 $.118401 $.024848 $.184390 $.327639 --
- -----------------------------------------------------------------------------------------------------------------------------------
The qualifying ordinary income qualifies for the dividends received deduction
for corporations.
The law varies in each state as to whether and what percentage of dividend
income attributable to Federal obligations is exempt from state income tax. We
recommend that you consult your tax advisor to determine if any portion of the
dividends you received is exempt from state income tax.
Please retain this information for your records.
29
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
OFFICERS AND DIRECTORS
Number of
Portfolios Other
in Fund Director-
Position(s) Length Complex ships
Held of Time Overseen by Held by
Name, Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Interested Director
====================================================================================================================================
Terry K. Glenn* President 1999 to President and Chairman of Merrill Lynch 118 Funds None
P.O. Box 9011 and present Investment Managers, L.P. ("MLIM")/Fund 162 Portfolios
Princeton, NJ 08543-9011 Director and 1997 Asset Management, L.P. ("FAM")--Advised
Age: 62 to present Funds since 1999; Chairman (Americas Region)
of MLIM from 2000 to 2002; Executive Vice
President of MLIM and FAM (which terms as
used herein include their corporate predecessors)
from 1983 to 2002; President of FAM Distributors,
Inc. ("FAMD") from 1986 to 2002 and Director
thereof from 1991 to 2002; Executive Vice
President and Director of Princeton Services, Inc.
("Princeton Services") from 1993 to 2002;
President of Princeton Administrators, L.P. from
1988 to 2002; Director of Financial Data Services,
Inc. from 1985 to 2002.
====================================================================================================================================
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which FAM or MLIM
acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of the Fund based
on his former positions with FAM, MLIM, FAMD, Princeton Services and Princeton Administrators, L.P. The Director's term is
unlimited. Directors serve until their resignation, removal, or death, or until December 31 of the year in which they turn 72.
As Fund President, Mr. Glenn serves at the pleasure of the Board of Directors.
====================================================================================================================================
Number of
Portfolios Other
in Fund Director-
Position(s) Length Complex ships
Held of Time Overseen by Held by
Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors
====================================================================================================================================
Donald W. Burton Director 2002 to Manager of The Burton Partnership, Limited 22 Funds ITC Delta-
P.O. Box 9095 present Partnership since 1979; Managing General 35 Portfolios Com, Inc.;
Princeton, NJ 08543-9095 Partner of the South Atlantic Venture Funds, ITC Holding
Age: 59 Limited Partnerships and Chairman of South Company,
Atlantic Private Equity Fund IV, Limited Partner- Inc.;
ship since 1983; Member of the Investment Knology,
Advisory Council of the Florida State Board Inc.; Main-
of Administration since 2001. Bancorp,
N.A.; Pri-
Care, Inc.;
Symbion,
Inc.
====================================================================================================================================
M. Colyer Crum Director 1981 to James R. Williston Professor of Investment 23 Funds Cambridge
P.O. Box 9095 present Management Emeritus, Harvard Business 36 Portfolios Bancorp
Princeton, NJ 08543-9095 School since 1996; Chairman and Director,
Age: 70 Phaeton International, Ltd. from 1985 to present;
Director, Cambridge Bancorp since 1969.
====================================================================================================================================
Laurie Simon Hodrick Director 1999 to Professor of Finance and Economics, Graduate 22 Funds None
P.O. Box 9095 present School of Business, Columbia University since 35 Portfolios
Princeton, NJ 08543-9095 1998; Associate Professor of Finance and
Age: 40 Economics, Graduate School of Business,
Columbia University from 1996 to 1998.
====================================================================================================================================
30
Merrill Lynch Balanced Capital Fund, Inc. March 31, 2003
Number of
Portfolios Other
in Fund Director-
Position(s) Length Complex ships
Held of Time Overseen by Held by
Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors (concluded)
====================================================================================================================================
Fred G. Weiss Director 1998 to Managing Director of FGW Associates since 1997; 22 Funds Watson
P.O. Box 9095 present Director, BTG International, PLC since 2001; 35 Portfolios Pharma-
Princeton, NJ 08543-9095 Director, Watson Pharmaceuticals, Inc. ceuticals,
Age: 61 since 2000. Inc.
====================================================================================================================================
* The Director's term is unlimited. Directors serve until their resignation, removal, or death, or until December 31 of the year
in which they turn 72.
====================================================================================================================================
Position(s) Length
Held of Time
Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers
====================================================================================================================================
Donald C. Burke Vice 1993 to First Vice President of FAM and MLIM since 1997 and Treasurer thereof
P.O. Box 9011 President present since 1999; Senior Vice President and Treasurer of Princeton Services since
Princeton, NJ 08543-9011 and and 1999; Vice President of FAMD since 1999; Director of MLIM Taxation
Age: 42 Treasurer 1999 to since 1990.
present
====================================================================================================================================
Robert C. Doll, Jr. Senior 1999 to President and Global Chief Investment Officer of MLIM and member of the
P.O. Box 9011 Vice present Executive Management Committee of ML & Co., Inc. since 2001; Chief
Princeton, NJ 08543-9011 President Investment Officer, Senior Vice President and Co-Head of MLIM Americas
Age: 48 from 1999 to 2001; Chief Investment Officer of Oppenheimer Funds, Inc.
from 1987 to 1999 and Executive Vice President from 1991 to 1999.
====================================================================================================================================
Kurt Schansinger Vice 1996 to Managing Director (Equities) of MLIM since 2000; Director of MLIM from
P.O. Box 9011 President present 1997 to 2000.
Princeton, NJ 08543-9011
Age: 42
====================================================================================================================================
* Officers of the Fund serve at the pleasure of the Board of Directors.
====================================================================================================================================
Further information about the Fund's Officers and Directors is available in the
Fund's Statement of Additional Information, which can be obtained without charge
by calling 1-800-MER-FUND.
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
- --------------------------------------------------------------------------------
J. Thomas Touchton, Director of Merrill Lynch Balanced Capital Fund, Inc., has
recently retired. The Fund's Board of Directors wishes Mr. Touchton well in his
retirement.
- --------------------------------------------------------------------------------
31
[LOGO] Merrill Lynch Investment Managers
[GRAPHICS 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
[RECYCLED LOGO] Printed on post-consumer recycled paper #10252--3/03
Item 2 - Did registrant adopt a code of ethics, as of the end of the period
covered by this report, that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party? If not, why not? Briefly describe any amendments or
waivers that occurred during the period. State here if code of
ethics/amendments/waivers are on website and give website address-.
State here if fund will send code of ethics to shareholders without
charge upon request-- N/A (not answered until July 15, 2003 and only
annually for funds)
Item 3 - Did the registrant's board of directors determine that the registrant
either: (i) has at least one audit committee financial expert serving
on its audit committee; or (ii) does not have an audit committee
financial expert serving on its audit committee? If yes, disclose name
of financial expert and whether he/she is "independent," (fund may, but
is not required, to disclose name/independence of more than one
financial expert) If no, explain why not. -N/A (not answered until July
15, 2003 and only annually for funds)
Item 4 - Disclose annually only (not answered until December 15, 2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last two
fiscal years for professional services rendered by the
principal accountant for the audit of the registrant's
annual financial statements or services that are
normally provided by the accountant in connection with
statutory and regulatory filings or engagements for
those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of the
last two fiscal years for assurance and related
services by the principal accountant that are
reasonably related to the performance of the
audit of the registrant's financial statements
and are not reported under paragraph (a) of this
Item. Registrants shall describe the nature of
the services comprising the fees disclosed under
this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last two
fiscal years for professional services rendered by the
principal accountant for tax compliance, tax advice, and
tax planning. Registrants shall describe the nature of the
services comprising the fees disclosed under this category.
N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the last
two fiscal years for products and services provided
by the principal accountant, other than the services
reported in paragraphs (a) through (c) of this Item.
Registrants shall describe the nature of the
services comprising the fees disclosed under this
category. N/A.
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X. N/A.
(e)(2) Disclose the percentage of services described in each of paragraphs
(b) through (d) of this Item that were approved by the audit
committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended on
the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-3 under the
Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d) under
the Exchange Act regarding an exemption from the listing standards for
audit committees.
(Listed issuers must be in compliance with the new listing rules by the
earlier of their first annual shareholders meeting after January 2004,
or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in their portfolio,
describe the policies and procedures that it uses to determine how to
vote proxies relating to those portfolio securities. N/A (not answered
until July 1, 2003)
Item 8 -- Reserved
Item 9(a) - Disclose the conclusions of the registrant's principal executive
officer or officers and principal financial officer or officers, or
persons performing similar functions, about the effectiveness of the
registrant's disclosure controls and procedures (as defined in Rule
30a-2(c) under the Act (17 CFR 270.30a-2(c))) based on their
evaluation of these controls and procedures as of a date within 90
days of the filing date of the report that includes the disclosure
required by this paragraph. N/A (not answered until July 15, 2003
and only annually for funds)
Item 9(b) -- There were no significant changes in the registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and
material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of ethics or
amendments/waivers is on website or offered to shareholders upon request
without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the Sarbanes-Oxley Act.
Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Merrill Lynch Balanced Capital Fund, Inc.
By: /s/ Terry K. Glenn
-----------------------------------------
Terry K. Glenn,
President of
Merrill Lynch Balanced Capital Fund, Inc.
Date: May 21, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Terry K. Glenn
-----------------------------------------
Terry K. Glenn,
President of
Merrill Lynch Balanced Capital Fund, Inc.
Date: May 21, 2003
By: /s/ Donald C. Burke
-----------------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Balanced Capital Fund, Inc.
Date: May 21, 2003
Attached hereto as an exhibit are the certifications pursuant to Section 906 of
the Sarbanes-Oxley Act.