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 811-04035
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: Robert C. Doll, Jr., Chief Executive
Officer, 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: 09/30/05
Date of reporting period: 10/01/04 - 09/30/05
Item 1 - Report to Stockholders
Merrill Lynch
Balanced Capital
Fund, Inc.
Annual Report
September 30, 2005
Merrill Lynch Balanced Capital Fund, Inc.
Portfolio Information as of September 30, 2005
Ten Largest Common Percent of
Stock Holdings Net Assets
- --------------------------------------------------------------------------------
ACE Ltd. ............................................................... 1.6%
Nestle SA Registered Shares ............................................ 1.5
Wells Fargo & Co. ...................................................... 1.5
Dover Corp. ............................................................ 1.5
Wyeth .................................................................. 1.5
General Electric Co. ................................................... 1.5
Microsoft Corp. ........................................................ 1.5
Baxter International, Inc. ............................................. 1.5
Kimberly-Clark Corp. ................................................... 1.4
Mellon Financial Corp. ................................................. 1.4
- --------------------------------------------------------------------------------
Five Largest Percent of
Industries Net Assets
- --------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels ............................................ 4.9%
Insurance .............................................................. 4.7
Food Products .......................................................... 3.8
Industrial Conglomerates ............................................... 3.8
Aerospace & Defense .................................................... 3.5
- --------------------------------------------------------------------------------
For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease.
Percent of
Total
Asset Mix Investments
- --------------------------------------------------------------------------------
Domestic Common Stocks ................................................. 61.2%
Fixed Income Mutual Fund ............................................... 33.6
Foreign Common Stocks .................................................. 1.5
Other* ................................................................. 3.7
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
2 MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005
A Letter From the President
Dear Shareholder
Amid what we've coined a "muddle through" year for the financial markets, the
major benchmark indexes managed to post positive results for the current
reporting period:
Total Returns as of September 30, 2005 6-month 12-month
=====================================================================================
U.S. equities (Standard & Poor's (S&P) 500 Index) +5.02% +12.25%
- -------------------------------------------------------------------------------------
Small-cap U.S. equities (Russell 2000 Index) +9.21% +17.95%
- -------------------------------------------------------------------------------------
International equities (MSCI Europe Australasia Far East Index) +9.26% +25.79%
- -------------------------------------------------------------------------------------
Fixed income (Lehman Brothers Aggregate Bond Index) +2.31% + 2.80%
- -------------------------------------------------------------------------------------
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) +2.80% + 4.05%
- -------------------------------------------------------------------------------------
High yield bonds (Credit Suisse First Boston High Yield Index) +2.82% + 6.31%
- -------------------------------------------------------------------------------------
Since June 2004, the Federal Reserve Board (the Fed) has tirelessly advanced its
interest rate hiking program, raising the federal funds rate 11 times to 3.75%
by period-end. The Fed admittedly remains more concerned about inflation than
slowing economic growth, causing some to worry that the central bank may
overreact to inflation and increase interest rates more than is necessary to
maintain a healthy economic balance. Recent disruptions to production and
spending from Hurricanes Katrina and Rita are likely to distort the economic
data in the short term, muddying the underlying trends. However, any
hurricane-induced slowdown is likely to be short lived, and the fiscal stimulus
associated with reconstruction efforts in the Gulf could add to gross domestic
product growth in 2006.
U.S. equities exhibited resilience over the past several months as investors
generally tended to proceed with caution. After a strong finish to 2004, the S&P
500 Index remained largely range-bound in 2005, with the last three months
representing the best quarter of the year. Up to this point, strong corporate
earnings reports and low long-term bond yields have worked in favor of equities.
Looking ahead, high energy prices, continued interest rate hikes, a potential
consumer slowdown and/or disappointing earnings pose the greatest risks to U.S.
stocks. Internationally, many markets have benefited from strong economic
statistics, trade surpluses and solid finances.
In the bond market, the yield curve continued to flatten as short-term interest
rates moved in concert with the Fed rate hikes and longer-term interest rates
remained more constant or declined. The difference between two-year and 10-year
Treasury yields collapsed from 151 basis points (1.51%) on September 30, 2004 to
70 basis points on March 31, 2005, to just 16 basis points at period-end.
Financial markets are likely to face continued crosscurrents in the months
ahead. Nevertheless, opportunities do exist and we encourage you to work with
your financial advisor to diversify your portfolio among a variety of asset
types. This can help to diffuse risk while also tapping into the potential
benefits of a broader range of investment alternatives. As always, we thank you
for trusting Merrill Lynch Investment Managers with your investment assets, and
we look forward to serving you in the months and years ahead.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
President and Director
MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005 3
A Discussion With Your Fund's Portfolio Managers
In a fairly volatile investing environment, we continued to take advantage
of the Fund's flexibility to uncover opportunities in both the equity and bond
markets.
How did the Fund perform during the fiscal year in light of the existing market
conditions?
For the 12-month period ended September 30, 2005, Merrill Lynch Balanced Capital
Fund Inc.'s Class A, Class B, Class C, Class I and Class R Shares returned
+7.88, +7.09%, +7.05%, +8.18% and +7.63%, 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 6 - 7 of this report to
shareholders.) For the same period, the benchmark Standard & Poor's 500 (S&P
500) Index returned +12.25%, the benchmark Lehman Brothers Aggregate Bond Index
returned +2.80%, and the Lipper Balanced Funds category of mutual funds had an
average return of +9.78%. (Funds in this Lipper category seek to conserve
principal by maintaining a balanced portfolio of stocks and bonds.)
U.S. equity markets overcame numerous challenges to record positive returns for
the 12-month period. The tailwinds from continued robust economic growth, strong
corporate earnings performance and attractive valuations more than offset the
headwinds from rising short-term interest rates and record-high energy prices.
These conflicting factors produced substantial month-to-month volatility,
however, and wildly divergent performance results between various market
sectors, investment styles and market capitalization categories. For example,
energy stocks, the best-performing industry sector over the past 12 months,
generated an average return of greater than 50% while the consumer discretionary
sector, the worst performer, posted negative results. This reflects an unusually
large degree of performance disparity between market sectors. In addition, value
stocks substantially outpaced their growth counterparts, with the S&P 500 Barra
Value Index rising 13.82% and the S&P 500 Barra Growth Index gaining 10.66%.
Finally, smaller cap stocks outperformed larger cap stocks, with the S&P Mid Cap
400 Index recording a robust gain of 22.16% for the one-year period. These
disparate results magnified the effect of stock and sector selection on
investment performance. The fixed income market also advanced modestly for the
year. Investors appear confident that the Federal Reserve Board (the Fed) will
successfully contain inflation pressures while bond market liquidity remains
very high.
The Fund's asset allocation remained favorable and the bond portfolio
outperformed its benchmark for the period, while the return of our stock
holdings fell modestly short of the benchmark S&P 500 Index. Poor stock
selection in the information technology sector was the largest detractor from
Fund results within the equity portfolio, led by negative returns from holdings
in CommScope, Inc., Accenture Ltd. and International Business Machines Corp.,
and by the absence of a position in Apple Computer, which appreciated sharply
over the year. Adverse stock selection in consumer staples also impaired
performance due to double-digit declines in Avon Products, Inc. and
Anheuser-Busch Cos., Inc. and from the lack of a position in Altria Group. We
have consistently avoided tobacco company stocks despite their low valuations
because we believe that declining unit volumes and persistent litigation risk
limit their appeal. Finally, our overweight position and poor stock selection in
the basic materials sector also had a detrimental effect on results, most
notably the weak performance of International Paper Co. and Alcoa, Inc. While
global economic conditions remain favorable, the negative impact of rising
energy costs on profit margins has led to disappointing results from these
companies.
Both stock selection and an overweight position in the energy sector contributed
favorably to results, led by strong returns from our positions in EnCana Corp.,
Devon Energy Corp. and GlobalSantaFe Corp. Good stock selection in the consumer
discretionary sector also enhanced performance, as the Fund benefited from a
significant rise in the share price of Office Depot and the absence of a
position in Wal-Mart, for which we believed expectations and valuations remained
too high. Good stock selection in the financial sector was another positive,
mainly the strong gains from insurers Prudential Financial, Inc. and ACE Ltd.
Within the fixed income portfolio, performance from Master Core Bond Portfolio
benefited from a focus on spread sectors early in the year and a yield curve
flattening bias later in the period. This involved emphasizing longer-dated
securities, which outperformed as short-term interest rates rose and longer-term
interest rates declined.
What changes were made to the portfolio during the year?
We continued to adjust our holdings during the year in response to ongoing
market volatility. Within the equity portfolio, we established 11 new positions
while eliminating 12. We added companies with strong market positions,
attractive
4 MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005
financial characteristics and solid managements, whose stocks have weakened over
fears of slowing growth -- thereby compressing valuations to near historic lows
and creating attractive buying opportunities. 3M Corp. is a well diversified
industrial company that benefits from a strong market position, outstanding
profit margins and return on equity, and financial strength. The stock price
declined nearly 20% over the past year and is selling at its lowest valuation in
15 years. Harley-Davidson, Inc. controls approximately one-half of the U.S. and
one-third of the global heavyweight motorcycle market. This company also enjoys
high profit margins, has no debt and is actively repurchasing shares. The stock
was down 20% year-to-date as of September 30, and its valuation levels were at
10-year lows. Genworth Financial, Inc., a former subsidiary of the insurance and
financial services arm of General Electric Co., is enjoying solid growth in its
three core business segments and, through improved productivity and active
capital management, is expected to significantly increase its return on equity
over the next three years, which should lead to improved valuations. The company
is in sound financial condition, recently increased its dividend by 15%, and
announced a $500 million share repurchase program.
We eliminated a number of positions after the stocks performed well and reached
what we believed to be their full valuations, such as Agilent Technologies, Inc.
and railroad companies CSX Corp. and Burlington Northern Santa Fe Corp. We also
liquidated our holdings in TJX Corp. and CSC Corp. given what we viewed as
suspect fundamental trends. We sold Siebel Systems, Inc. following its announced
takeover by Oracle Corporation and eliminated Fannie Mae from the portfolio
following another round of allegations of accounting improprieties at the
company. We sold some Citigroup, Inc. shares following further senior management
departures, and reduced our exposure to the energy sector, taking gains in a
number of holdings as both oil prices and oil stocks reached new highs. We
continued to reposition our information technology holdings, raising our overall
sector weighting while increasing our emphasis on high-quality companies within
the sector. Growth in technology spending is accelerating while many of the
better positioned companies in this sector remain attractively valued. We added
to existing positions in Applied Materials, Inc. and Accenture Ltd. and
introduced new positions in Cisco Systems, Inc. and Symantec Corp.
Within the fixed income portfolio, Master Core Bond Portfolio significantly
reduced its exposure to both investment grade corporate and high yield bonds,
while upgrading the average credit quality of the corporate bonds we retained.
Exposures were trimmed to the domestic automobile sector subsequent to earnings
disappointments from several of these companies, while we added to holdings in
asset-backed securities, commercial mortgage-backed securities and Treasury
Inflation Protected Securities. As longer-term bond yields declined in the
initial aftermath of Hurricane Katrina, the Portfolio removed its yield curve
flattening bias, adding some exposure to shorter-maturity securities while
reducing its position in 30-year Treasury bonds.
How would you characterize the Fund's position at the close of the period?
At the end of the period, 64.3% of the Fund's net assets was invested in
equities, 34.5% in fixed income securities and 1.2% in cash equivalents. This
compares to 63.9% equities, 35.3% fixed income and 1.2% cash a year ago. We
continue to anticipate a more constructive environment for equities as we move
toward 2006. We believe stocks will benefit from a return to steady economic
growth, stability in interest rates as the Fed nears completion of its monetary
tightening efforts, continued solid corporate earnings gains, and attractive
valuations. In our view, further uncertainty and volatility is possible over the
next few months, however, as these transition periods for the economy and the
markets always prove challenging, with heightened risk of negative surprises and
a more dramatic stock market correction. We would view such developments
opportunistically in anticipation of positive returns ahead. We also maintain
our view that profit-making opportunities in the fixed income market will be
limited given the low level of current interest rates and the narrowness of
yield spreads. Therefore, we are increasingly likely to reduce our fixed income
exposure if interest rates decline further. As always, we intend to take full
advantage of the Fund's flexibility as market conditions evolve.
Kurt Schansinger
Vice President and Senior Portfolio Manager
Patrick Maldari
Fixed Income Portfolio Manager
October 14, 2005
MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005 5
Performance Data
About Fund Performance
Investors are able to purchase shares of the Fund through multiple pricing
alternatives:
o Class A Shares incur a maximum initial sales charge (front-end load) of
5.25% and an account maintenance fee of 0.25% per year (but no
distribution fee).
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% declining to 0% after six years. In addition, Class B Shares are
subject to a distribution fee of 0.75% per year and an account maintenance
fee of 0.25% per year. These shares automatically convert to Class A
Shares after approximately eight years. (There is no initial sales charge
for automatic share conversions.) All returns for periods greater than
eight years reflect this conversion.
o Class C Shares are subject to a distribution fee of 0.75% per year and an
account maintenance fee of 0.25% per year. 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% per year and an account maintenance fee of 0.25% per year. Class R
Shares are available only to certain retirement plans. Prior to inception,
Class R Share performance results are those of the Class I Shares (which
have no distribution or account maintenance fees) restated for Class R
Share fees.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain performance data current to the
most recent month-end. Performance results do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. Figures shown in each of the following tables assume reinvestment of all
dividends and capital gain distributions, if any, at net asset value on the
ex-dividend date. Investment return and principal value of shares will fluctuate
so that shares, when redeemed, may be worth more or less than their original
cost. Dividends paid to each class of shares will vary because of the different
levels of account maintenance, distribution and transfer agency fees applicable
to each class, which are deducted from the income available to be paid to
shareholders. The Fund's Administrator voluntarily waived a portion of its
administrative fee. Without such waiver, the Fund's performance would have been
lower.
Recent Performance Results
6-Month 12-Month 10-Year
As of September 30, 2005 Total Return Total Return Total Return
=============================================================================================
ML Balanced Capital Fund, Inc. Class A Shares* +2.65% + 7.88% + 88.55%
- ---------------------------------------------------------------------------------------------
ML Balanced Capital Fund, Inc. Class B Shares* +2.27 + 7.09 + 77.24
- ---------------------------------------------------------------------------------------------
ML Balanced Capital Fund, Inc. Class C Shares* +2.21 + 7.05 + 74.41
- ---------------------------------------------------------------------------------------------
ML Balanced Capital Fund, Inc. Class I Shares* +2.77 + 8.18 + 93.32
- ---------------------------------------------------------------------------------------------
ML Balanced Capital Fund, Inc. Class R Shares* +2.51 + 7.63 + 85.24
- ---------------------------------------------------------------------------------------------
S&P 500(R) Index** +5.02 +12.25 +147.55
- ---------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index*** +2.31 + 2.80 + 88.52
- ---------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results shown would
be lower if a sales charge was included. Cumulative 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.
** This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues) representing
about 75% of NYSE market capitalization and 30% of NYSE issues.
*** This unmanaged Index is a widely recognized market weighted index
comprised of investment grade corporate bonds, rated BBB or better,
mortgages and U.S. Treasury and government agency issues with at least one
year to maturity.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
6 MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005
Performance Data (concluded)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's Class A, Class
B, Class C, Class I and Class R Shares compared to growth of an investment in
the S&P 500 Index and the Lehman Brothers Aggregate Bond Index. Values are from
September 1995 to September 2005.
9/95 9/96 9/97 9/98 9/99
ML Balanced Capital
Fund, Inc.+--Class A Shares* $ 9,475 $10,685 $13,587 $13,142 $14,671
ML Balanced Capital
Fund, Inc.+--Class B Shares* $10,000 $11,188 $14,120 $13,550 $15,016
ML Balanced Capital
Fund, Inc.+--Class C Shares* $10,000 $11,187 $14,118 $13,549 $15,011
ML Balanced Capital
Fund, Inc.+--Class I Shares* $ 9,475 $10,708 $13,656 $13,240 $14,818
ML Balanced Capital
Fund, Inc.+--Class R Shares* $10,000 $11,245 $14,270 $13,766 $15,330
S&P 500 Index++ $10,000 $12,033 $16,900 $18,429 $23,553
Lehman Brothers Aggregate
Bond Index +++ $10,000 $10,490 $11,509 $12,834 $12,787
9/00 9/01 9/02 9/03 9/04 9/05
ML Balanced Capital
Fund, Inc.+--Class A Shares* $16,039 $14,283 $12,749 $14,803 $16,560 $17,865
ML Balanced Capital
Fund, Inc.+--Class B Shares* $16,289 $14,394 $12,749 $14,685 $16,429 $17,724
ML Balanced Capital
Fund, Inc.+--Class C Shares* $16,280 $14,392 $12,748 $14,680 $16,293 $17,441
ML Balanced Capital
Fund, Inc.+--Class I Shares* $16,238 $14,498 $12,974 $15,096 $16,933 $18,317
ML Balanced Capital
Fund, Inc.+--Class R Shares* $16,716 $14,850 $13,223 $15,412 $17,211 $18,524
S&P 500 Index++ $26,682 $19,579 $15,568 $19,366 $22,053 $24,755
Lehman Brothers Aggregate
Bond Index +++ $13,681 $15,453 $16,781 $17,689 $18,339 $18,852
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ ML Balanced Capital Fund, Inc., through a fully managed investment policy,
utilizes equity, debt and convertible securities.
++ This unmanaged Index covers 500 industrial, utility, transportation and
financial companies of the U.S. markets (mostly NYSE issues) representing
about 75% of NYSE market capitalization and 30% of NYSE issues.
+++ This unmanaged Index is a widely recognized market weighted index
comprised of investment grade corporate bonds, rated BBB or better,
mortgages and U.S. Treasury and government agency issues with at least one
year to maturity.
Past performance is not indicative of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 9/30/05 +7.88% +2.22%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/05 +2.18 +1.08
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/05 +6.55 +5.97
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Class B Shares++
================================================================================
One Year Ended 9/30/05 +7.09% +3.09%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/05 +1.39 +1.07
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/05 +5.89 +5.89
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC+++
================================================================================
Class C Shares+
================================================================================
One Year Ended 9/30/05 +7.05% +6.05%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/05 +1.39 +1.39
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/05 +5.72 +5.72
- --------------------------------------------------------------------------------
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 9/30/05 +8.18% +2.50%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/05 +2.44 +1.34
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/05 +6.81 +6.24
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Class R Shares Return
================================================================================
One Year Ended 9/30/05 +7.63%
- --------------------------------------------------------------------------------
Five Years Ended 9/30/05 +2.08
- --------------------------------------------------------------------------------
Ten Years Ended 9/30/05 +6.36
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
+ Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
++ Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
+++ Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005 7
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses, including advisory fees, distribution fees including
12(b)-1 fees, and other Fund expenses. The following example (which is based on
a hypothetical investment of $1,000 invested on April 1, 2005 and held through
September 30, 2005) is intended to assist shareholders both in calculating
expenses based on an investment in the Fund and in comparing these expenses with
similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value April 1, 2005 to
April 1, 2005 September 30, 2005 September 30, 2005
===============================================================================================================
Actual
===============================================================================================================
Class A $1,000 $1,026.50 $4.31
- ---------------------------------------------------------------------------------------------------------------
Class B $1,000 $1,022.70 $8.30
- ---------------------------------------------------------------------------------------------------------------
Class C $1,000 $1,022.10 $8.30
- ---------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,027.70 $3.03
- ---------------------------------------------------------------------------------------------------------------
Class R $1,000 $1,025.10 $5.59
===============================================================================================================
Hypothetical (5% annual return before expenses)**
===============================================================================================================
Class A $1,000 $1,021.08 $4.30
- ---------------------------------------------------------------------------------------------------------------
Class B $1,000 $1,017.13 $8.28
- ---------------------------------------------------------------------------------------------------------------
Class C $1,000 $1,017.13 $8.28
- ---------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,022.35 $3.02
- ---------------------------------------------------------------------------------------------------------------
Class R $1,000 $1,019.82 $5.58
- ---------------------------------------------------------------------------------------------------------------
* For each class of the Fund, expenses are equal to the annualized expense
ratio for the class (.84% for Class A, 1.62% for Class B, 1.62% for Class
C, .59% for Class I and 1.09% for Class R), multiplied by the average
account value over the period, multiplied by 185/365 (to reflect the
one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal half-year divided by 365.
8 MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005
Schedule of Investments (in U.S. dollars)
Shares
Held Common Stocks Value
===============================================================================
Aerospace & Defense--3.5%
1,000,000 Honeywell International, Inc. $ 37,500,000
100,000 Northrop Grumman Corp. 5,435,000
700,000 Raytheon Co. 26,614,000
500,000 United Technologies Corp. 25,920,000
--------------
95,469,000
===============================================================================
Automobiles--0.6%
350,000 Harley-Davidson, Inc. 16,954,000
===============================================================================
Beverages--1.4%
500,000 Anheuser-Busch Cos., Inc. 21,520,000
850,000 Coca-Cola Enterprises, Inc. (c) 16,575,000
--------------
38,095,000
===============================================================================
Building Products--1.1%
1,000,000 Masco Corp. 30,680,000
===============================================================================
Capital Markets--2.8%
400,000 Janus Capital Group, Inc. 5,780,000
1,200,000 Mellon Financial Corp. 38,364,000
600,000 Morgan Stanley 32,364,000
--------------
76,508,000
===============================================================================
Chemicals--0.9%
600,000 E.I. du Pont de Nemours & Co. 23,502,000
===============================================================================
Commercial Banks--2.8%
600,000 PNC Financial Services Group, Inc. 34,812,000
700,000 Wells Fargo & Co. 40,999,000
--------------
75,811,000
===============================================================================
Communications Equipment--2.5%
1,900,000 Cisco Systems, Inc. (a) 34,067,000
1,950,000 CommScope, Inc. (a) 33,813,000
--------------
67,880,000
===============================================================================
Computers & Peripherals--1.5%
300,000 Hewlett-Packard Co. 8,760,000
400,000 International Business Machines Corp. 32,088,000
--------------
40,848,000
===============================================================================
Diversified Financial Services--2.0%
750,000 Citigroup, Inc. 34,140,000
600,000 JPMorgan Chase & Co. 20,358,000
--------------
54,498,000
===============================================================================
Diversified Telecommunication Services--1.1%
900,000 Verizon Communications, Inc. 29,421,000
===============================================================================
Energy Equipment & Services--1.9%
400,000 GlobalSantaFe Corp. 18,248,000
150,000 Schlumberger Ltd. 12,657,000
300,000 Weatherford International Ltd. (a)(c) 20,598,000
--------------
51,503,000
===============================================================================
Food Products--3.8%
600,000 Cadbury Schweppes Plc 24,438,000
300,000 General Mills, Inc. 14,460,000
140,000 Nestle SA Registered Shares 41,155,711
300,000 Sara Lee Corp. 5,685,000
250,000 Unilever NV (b) 17,862,500
--------------
103,601,211
===============================================================================
Health Care Equipment & Supplies--1.5%
1,000,000 Baxter International, Inc. 39,870,000
===============================================================================
Health Care Providers & Services--1.8%
300,000 AmerisourceBergen Corp. 23,190,000
500,000 HCA, Inc. 23,960,000
--------------
47,150,000
===============================================================================
Hotels, Restaurants & Leisure--1.3%
1,000,000 McDonald's Corp. 33,490,000
===============================================================================
Household Products--1.4%
650,000 Kimberly-Clark Corp. 38,694,500
===============================================================================
IT Services--0.9%
1,000,000 Accenture Ltd. Class A (c) 25,460,000
===============================================================================
Industrial Conglomerates--3.8%
200,000 3M Co. 14,672,000
1,200,000 General Electric Co. 40,404,000
150,000 Textron, Inc. 10,758,000
1,300,000 Tyco International Ltd. 36,205,000
--------------
102,039,000
===============================================================================
Insurance--4.7%
900,000 ACE Ltd. 42,363,000
575,000 American International Group, Inc. 35,627,000
500,000 Genworth Financial, Inc. Class A 16,120,000
500,000 Prudential Financial, Inc. 33,780,000
--------------
127,890,000
===============================================================================
Machinery--1.5%
1,000,000 Dover Corp. 40,790,000
===============================================================================
Media--3.0%
400,000 Comcast Corp. Special Class A (a)(c) 11,512,000
1,000,000 Interpublic Group of Cos., Inc. (a)(c) 11,640,000
1,200,000 News Corp. Class A 18,708,000
750,000 Viacom, Inc. Class B 24,757,500
625,000 Walt Disney Co. 15,081,250
--------------
81,698,750
===============================================================================
Metals & Mining--1.4%
650,000 Alcoa, Inc. 15,873,000
500,000 United States Steel Corp. 21,175,000
--------------
37,048,000
===============================================================================
Oil, Gas & Consumable Fuels--4.9%
500,000 Devon Energy Corp. 34,320,000
600,000 EnCana Corp. 34,986,000
250,000 Exxon Mobil Corp. 15,885,000
700,000 Murphy Oil Corp. 34,909,000
100,000 Total SA (b) 13,582,000
--------------
133,682,000
===============================================================================
Paper & Forest Products--1.6%
1,000,000 International Paper Co. 29,800,000
200,000 Weyerhaeuser Co. 13,750,000
--------------
43,550,000
===============================================================================
Personal Products--0.7%
250,000 Avon Products, Inc. 6,750,000
350,000 The Estee Lauder Cos., Inc. Class A 12,190,500
--------------
18,940,500
===============================================================================
Pharmaceuticals--3.4%
600,000 GlaxoSmithKline Plc (b) 30,768,000
950,000 Schering-Plough Corp. 19,997,500
875,000 Wyeth 40,486,250
--------------
91,251,750
MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005 9
Schedule of Investments (concluded) (in U.S. dollars)
Shares
Held Common Stocks Value
===============================================================================
Semiconductors & Semiconductor Equipment--2.2%
1,400,000 Applied Materials, Inc. $ 23,744,000
750,000 Intel Corp. 18,487,500
600,000 Intersil Corp. Class A (c) 13,068,000
300,000 Micron Technology, Inc. (a) 3,990,000
--------------
59,289,500
===============================================================================
Software--2.7%
375,000 Citrix Systems, Inc. (a) 9,427,500
1,550,000 Microsoft Corp. 39,881,500
1,052,621 Symantec Corp. (a) 23,852,392
--------------
73,161,392
===============================================================================
Specialty Retail--1.6%
1,000,000 Limited Brands (c) 20,430,000
800,000 Office Depot, Inc. (a) 23,760,000
--------------
44,190,000
- -------------------------------------------------------------------------------
Total Common Stocks
(Cost--$1,393,905,770)--64.3% 1,742,965,603
Beneficial
Interest Mutual Funds
===============================================================================
$ 849,000,000 Master Core Bond Portfolio (d) 935,050,307
- -------------------------------------------------------------------------------
Total Mutual Funds
(Cost--$935,560,245)--34.5% 935,050,307
===============================================================================
Short-Term Securities
===============================================================================
$ 33,544,022 Merrill Lynch Liquidity Series, LLC Cash
Sweep Series I (d) 33,544,022
67,842,450 Merrill Lynch Liquidity Series, LLC Money
Market Series (d)(e) 67,842,450
- -------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$101,386,472)--3.8% 101,386,472
===============================================================================
Total Investments (Cost--$2,430,852,487*)--102.6% 2,779,402,382
Liabilities in Excess of Other Assets--(2.6%) (69,215,778)
--------------
Net Assets--100.0% $2,710,186,604
==============
* The cost and unrealized appreciation (depreciation) of investments as of
September 30, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost ......................................... $2,443,103,302
==============
Gross unrealized appreciation .......................... $ 440,541,803
Gross unrealized depreciation .......................... (104,242,723)
--------------
Net unrealized appreciation ............................ $ 336,299,080
==============
(a) Non-income producing security.
(b) Depositary receipts.
(c) Security, or a portion of security, is on loan.
(d) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Interest/
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Master Core Bond Portfolio $(165,000,000) $ 38,130,675
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ 18,292,196 $ 1,170,912
Merrill Lynch Liquidity Series, LLC
Money Market Series $ 47,593,250 $ 32,570
--------------------------------------------------------------------------
(e) Security was purchased with the cash proceeds from securities loans.
For Fund compliance purposes, the Fund's industry classifications refer to
any one or more of the industry sub-classifications used by one or more
widely recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for purposes of
this report, which may combine industry sub-classifications for reporting
ease. Industries are shown as a percent of net assets. These industry
classifications are unaudited.
See Notes to Financial Statements.
10 MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005
Statement of Assets and Liabilities
As of September 30, 2005
==============================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (including
securities loaned of $66,547,230)
(identified cost--$1,393,905,770) ............................. $ 1,742,965,603
Investments in affiliated securities, at value
(identified cost--$1,036,946,717) ............................. 1,036,436,779
Cash ........................................................... 274
Receivables:
Securities sold ............................................. $ 14,391,181
Dividends ................................................... 2,693,621
Capital shares sold ......................................... 1,520,224
Interest from affiliates .................................... 132,542
Securities lending .......................................... 5,742 18,743,310
---------------
Prepaid expenses ............................................... 315,918
---------------
Total assets ................................................... 2,798,461,884
---------------
==============================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ...................... 67,842,450
Payables:
Capital shares redeemed ..................................... 11,615,198
Securities purchased ........................................ 6,832,280
Administrator ............................................... 785,460
Other affiliates ............................................ 590,000
Distributor ................................................. 575,851 20,398,789
---------------
Accrued expenses ............................................... 34,041
---------------
Total liabilities .............................................. 88,275,280
---------------
==============================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Net assets ..................................................... $ 2,710,186,604
===============
==============================================================================================================================
Net Assets Consist of
- ------------------------------------------------------------------------------------------------------------------------------
Class A Shares of Common Stock, $.10 par value, 200,000,000
shares authorized ............................................. $ 3,587,933
Class B Shares of Common Stock, $.10 par value, 500,000,000
shares authorized ............................................. 1,093,324
Class C Shares of Common Stock, $.10 par value, 200,000,000
shares authorized ............................................. 442,917
Class I Shares of Common Stock, $.10 par value, 400,000,000
shares authorized ............................................. 4,963,622
Class R Shares of Common Stock, $.10 par value, 500,000,000
shares authorized ............................................. 16,609
Paid-in capital in excess of par ............................... 2,200,648,183
Undistributed investment income--net ........................... $ 12,516,586
Undistributed realized capital gains--net ...................... 138,384,810
Unrealized appreciation--net ................................... 348,532,620
---------------
Total accumulated earnings--net ................................ 499,434,016
---------------
Net Assets ..................................................... $ 2,710,186,604
===============
==============================================================================================================================
Net Asset Value
- ------------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $965,951,299 and 35,879,327
shares outstanding ............................................ $ 26.92
===============
Class B--Based on net assets of $286,317,181 and 10,933,241
shares outstanding ............................................ $ 26.19
===============
Class C--Based on net assets of $113,356,313 and 4,429,168
shares outstanding ............................................ $ 25.59
===============
Class I--Based on net assets of $1,340,212,986 and 49,636,224
shares outstanding ............................................ $ 27.00
===============
Class R--Based on net assets of $4,348,825 and 166,085
shares outstanding ............................................ $ 26.18
===============
See Notes to Financial Statements.
MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005 11
Statement of Operations
For the Year Ended September 30, 2005
==============================================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------
Dividends (net of $369,625 foreign withholding tax) ............ $ 38,491,515
Interest from affiliates ....................................... 1,170,912
Securities lending--net ........................................ 32,570
Net investment income allocated from the Master Portfolio:
Interest .................................................... 38,817,894
Dividends ................................................... 274,536
Securities lending--net ..................................... 89,070
Expenses .................................................... (1,050,825)
---------------
Total investment income and net investment income allocated
from the Master Portfolio ..................................... 77,825,672
---------------
==============================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ....................................... $ 11,986,783
Account maintenance and distribution fees--Class B ............. 3,635,605
Account maintenance fees--Class A .............................. 2,576,115
Transfer agent fees--Class I ................................... 1,938,823
Transfer agent fees--Class A ................................... 1,429,031
Account maintenance and distribution fees--Class C ............. 1,256,206
Transfer agent fees--Class B ................................... 595,956
Transfer agent fees--Class C ................................... 211,646
Printing and shareholder reports ............................... 152,254
Custodian fees ................................................. 127,328
Directors' fees and expenses ................................... 70,355
Registration fees .............................................. 60,331
Professional fees .............................................. 54,887
Pricing fees ................................................... 28,106
Account maintenance and distribution fees--Class R ............. 21,181
Transfer agent fees--Class R ................................... 5,892
Other .......................................................... 91,009
---------------
Total expenses before waiver ................................... 24,241,508
Waiver of expenses ............................................. (652,427)
---------------
Total expenses after waiver .................................... 23,589,081
---------------
Investment income--net ......................................... 54,236,591
---------------
==============================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- ------------------------------------------------------------------------------------------------------------------------------
Realized gain on:
Investments--net ............................................ 146,898,183
Foreign currency transactions--net .......................... 1,330,760
Allocations from the Master Portfolio--net .................. 4,071,014 152,299,957
-----------------------------------
Change in unrealized appreciation/depreciation on:
Investments--net ............................................ 28,426,607
Foreign currency transactions--net .......................... (26,388)
Allocations from the Master Portfolio--net .................. (9,901,304) 18,498,915
-----------------------------------
Total realized and unrealized gain--net ........................ 170,798,872
---------------
Net Increase in Net Assets Resulting from Operations ........... $ 225,035,463
===============
See Notes to Financial Statements.
12 MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005
Statements of Changes in Net Assets
For the Year Ended
September 30,
-----------------------------------
Increase (Decrease) in Net Assets: 2005 2004
==============================================================================================================================
Operations
- ------------------------------------------------------------------------------------------------------------------------------
Investment income--net ......................................... $ 54,236,591 $ 44,597,121
Realized gain--net ............................................. 152,299,957 220,527,337
Change in unrealized appreciation/depreciation--net ............ 18,498,915 106,159,556
-----------------------------------
Net increase in net assets resulting from operations ........... 225,035,463 371,284,014
-----------------------------------
==============================================================================================================================
Dividends & Distributions to Shareholders
- ------------------------------------------------------------------------------------------------------------------------------
Investment income--net:
Class A ..................................................... (21,685,104) (17,304,555)
Class B ..................................................... (4,871,120) (4,404,210)
Class C ..................................................... (1,781,080) (1,297,643)
Class I ..................................................... (32,581,425) (27,387,602)
Class R ..................................................... (99,586) (21,330)
Realized gain--net:
Class A ..................................................... (48,588,259) --
Class B ..................................................... (19,229,346) --
Class C ..................................................... (6,332,810) --
Class I ..................................................... (64,478,032) --
Class R ..................................................... (245,610) --
-----------------------------------
Net decrease in net assets resulting from dividends and
distributions to shareholders ................................. (199,892,372) (50,415,340)
-----------------------------------
==============================================================================================================================
Capital Share Transactions
- ------------------------------------------------------------------------------------------------------------------------------
Net decrease in net assets derived from capital share
transactions .................................................. (343,860,649) (547,925,005)
-----------------------------------
==============================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
Total decrease in net assets ................................... (318,717,558) (227,056,331)
Beginning of year .............................................. 3,028,904,162 3,255,960,493
-----------------------------------
End of year* ................................................... $ 2,710,186,604 $ 3,028,904,162
===================================
* Undistributed investment income--net ........................ $ 12,516,586 $ 17,476,055
===================================
See Notes to Financial Statements.
MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005 13
Financial Highlights
Class A
------------------------------------------------------------------------------------
For the Year Ended For the Period
The following per share data and ratios have September 30, April 1, 2003 For the Year Ended March 31,
been derived from information provided in ------------------------- to Sept. 30, ---------------------------------------
the financial statements. 2005 2004 2003 2003 2002 2001
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 26.69 $ 24.25 $ 21.68 $ 27.50 $ 28.31 $ 32.58
------------------------------------------------------------------------------------
Investment income--net*** .............. .50 .37 .21 .59 .64 .82
Realized and unrealized gain (loss)--net 1.56 2.49 2.64 (5.57) .65 (1.17)
------------------------------------------------------------------------------------
Total from investment operations ....... 2.06 2.86 2.85 (4.98) 1.29 (.35)
------------------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.57) (.42) (.28) (.63) (.69) (.93)
Realized gain--net .................. (1.26) -- -- (.21) (1.41) (2.99)
------------------------------------------------------------------------------------
Total dividends and distributions ...... (1.83) (.42) (.28) (.84) (2.10) (3.92)
------------------------------------------------------------------------------------
Net asset value, end of period ......... $ 26.92 $ 26.69 $ 24.25 $ 21.68 $ 27.50 $ 28.31
====================================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 7.88% 11.87% 13.16%+ (18.26%) 4.78% (1.35%)
====================================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ................ .83%++ .83%++ .85%* .84% .82% .84%
====================================================================================
Expenses ............................... .85%++ .84%++ .85%* .84% .82% .84%
====================================================================================
Investment income--net ................. 1.86% 1.42% 1.71%* 2.47% 2.35% 2.64%
====================================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 965,951 $1,052,738 $1,023,861 $ 939,989 $1,311,739 $1,311,854
====================================================================================
Portfolio turnover ..................... 15% 17% 47% 52% 31% 46%
====================================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Aggregate total investment return.
++ Includes the Fund's share of the Master Portfolio's allocated expenses.
See Notes to Financial Statements.
14 MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005
Financial Highlights (continued)
Class B
------------------------------------------------------------------------------------
For the Year Ended For the Period
The following per share data and ratios have September 30, April 1, 2003 For the Year Ended March 31,
been derived from information provided in ------------------------- to Sept. 30, ---------------------------------------
the financial statements. 2005 2004 2003 2003 2002 2001
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 25.98 $ 23.59 $ 21.09 $ 26.75 $ 27.56 $ 31.77
------------------------------------------------------------------------------------
Investment income--net*** .............. .29 .17 .11 .39 .42 .56
Realized and unrealized gain (loss)--net 1.52 2.42 2.57 (5.42) .64 (1.13)
------------------------------------------------------------------------------------
Total from investment operations ....... 1.81 2.59 2.68 (5.03) 1.06 (.57)
------------------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.34) (.20) (.18) (.42) (.46) (.65)
Realized gain--net .................. (1.26) -- -- (.21) (1.41) (2.99)
------------------------------------------------------------------------------------
Total dividends and distributions ...... (1.60) (.20) (.18) (.63) (1.87) (3.64)
------------------------------------------------------------------------------------
Net asset value, end of period ......... $ 26.19 $ 25.98 $ 23.59 $ 21.09 $ 26.75 $ 27.56
====================================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 7.09% 10.99% 12.73%+ (18.93%) 4.01% (2.11%)
====================================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ................ 1.61%++ 1.60%++ 1.62%* 1.62% 1.59% 1.61%
====================================================================================
Expenses ............................... 1.63%++ 1.63%++ 1.62%* 1.62% 1.59% 1.61%
====================================================================================
Investment income--net ................. 1.12% .66% .95%* 1.69% 1.58% 1.87%
====================================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 286,317 $ 434,115 $ 632,673 $ 680,419 $1,222,487 $1,659,152
====================================================================================
Portfolio turnover ..................... 15% 17% 47% 52% 31% 46%
====================================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Aggregate total investment return.
++ Includes the Fund's share of the Master Portfolio's allocated expenses.
See Notes to Financial Statements.
MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005 15
Financial Highlights (continued)
Class C
------------------------------------------------------------------------------------
For the Year Ended For the Period
The following per share data and ratios have September 30, April 1, 2003 For the Year Ended March 31,
been derived from information provided in ------------------------- to Sept. 30, ---------------------------------------
the financial statements. 2005 2004 2003 2003 2002 2001
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 25.45 $ 23.14 $ 20.70 $ 26.29 $ 27.14 $ 31.36
------------------------------------------------------------------------------------
Investment income--net*** .............. .28 .16 .11 .38 .41 .55
Realized and unrealized gain (loss)--net 1.48 2.37 2.52 (5.32) .63 (1.12)
------------------------------------------------------------------------------------
Total from investment operations ....... 1.76 2.53 2.63 (4.94) 1.04 (.57)
------------------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.36) (.22) (.19) (.44) (.48) (.66)
Realized gain--net .................. (1.26) -- -- (.21) (1.41) (2.99)
------------------------------------------------------------------------------------
Total dividends and distributions ...... (1.62) (.22) (.19) (.65) (1.89) (3.65)
------------------------------------------------------------------------------------
Net asset value, end of period ......... $ 25.59 $ 25.45 $ 23.14 $ 20.70 $ 26.29 $ 27.14
====================================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 7.05% 10.98% 12.72%+ (18.92%) 4.01% (2.13%)
====================================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ................ 1.61%++ 1.61%++ 1.63%* 1.63% 1.61% 1.62%
====================================================================================
Expenses ............................... 1.63%++ 1.63%++ 1.63%* 1.63% 1.61% 1.62%
====================================================================================
Investment income--net ................. 1.09% .64% .93%* 1.69% 1.59% 1.86%
====================================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 113,356 $ 134,013 $ 143,482 $ 137,674 $ 199,774 $ 212,278
====================================================================================
Portfolio turnover ..................... 15% 17% 47% 52% 31% 46%
====================================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Aggregate total investment return.
++ Includes the Fund's share of the Master Portfolio's allocated expenses.
See Notes to Financial Statements.
16 MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005
Financial Highlights (continued)
Class I
------------------------------------------------------------------------------------
For the Year Ended For the Period
The following per share data and ratios have September 30, April 1, 2003 For the Year Ended March 31,
been derived from information provided in ------------------------- to Sept. 30, ---------------------------------------
the financial statements. 2005 2004 2003 2003 2002 2001
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 26.76 $ 24.31 $ 21.73 $ 27.58 $ 28.38 $ 32.66
------------------------------------------------------------------------------------
Investment income--net*** .............. .57 .44 .24 .65 .71 .90
Realized and unrealized gain (loss)--net 1.57 2.50 2.65 (5.60) .66 (1.18)
------------------------------------------------------------------------------------
Total from investment operations ....... 2.14 2.94 2.89 (4.95) 1.37 (.28)
------------------------------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.64) (.49) (.31) (.69) (.76) (1.01)
Realized gain--net .................. (1.26) -- -- (.21) (1.41) (2.99)
------------------------------------------------------------------------------------
Total dividends and distributions ...... (1.90) (.49) (.31) (.90) (2.17) (4.00)
------------------------------------------------------------------------------------
Net asset value, end of period ......... $ 27.00 $ 26.76 $ 24.31 $ 21.73 $ 27.58 $ 28.38
====================================================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 8.18% 12.17% 13.31%+ (18.09%) 5.07% (1.12%)
====================================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ................ .58%++ .58%++ .60%* .59% .57% .59%
====================================================================================
Expenses ............................... .61%++ .60%++ .60%* .59% .57% .59%
====================================================================================
Investment income--net ................. 2.11% 1.67% 1.97%* 2.72% 2.60% 2.89%
====================================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $1,340,212 $1,405,513 $1,455,944 $1,396,989 $1,957,869 $2,142,945
====================================================================================
Portfolio turnover ..................... 15% 17% 47% 52% 31% 46%
====================================================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Aggregate total investment return.
++ Includes the Fund's share of the Master Portfolio's allocated expenses.
See Notes to Financial Statements.
MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005 17
Class R
-------------------------------------------------------------
For the For the Period
For the Year Ended Period January 3,
September 30, April 1, 2003 2003+++
The following per share data and ratios have been derived ----------------------------- to Sept. 30, to March 31,
from information provided in the financial statements. 2005 2004 2003 2003
==========================================================================================================================
Per Share Operating Performance
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ... $ 26.03 $ 23.71 $ 21.20 $ 22.07
-------------------------------------------------------------
Investment income--net*** .............. .43 .30 .24 .20
Realized and unrealized gain (loss)--net 1.52 2.45 2.27 (1.07)
-------------------------------------------------------------
Total from investment operations ....... 1.95 2.75 2.51 (.87)
-------------------------------------------------------------
Less dividends and distributions:
Investment income--net .............. (.54) (.43) --+ --
Realized gain--net .................. (1.26) -- -- --
-------------------------------------------------------------
Total dividends and distributions ...... (1.80) (.43) --+ --
-------------------------------------------------------------
Net asset value, end of period ......... $ 26.18 $ 26.03 $ 23.71 $ 21.20
-------------------------------------------------------------
==========================================================================================================================
Total Investment Return**
- --------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ..... 7.63% 11.67% 13.31%@@ (3.94%)@@
=============================================================
==========================================================================================================================
Ratios to Average Net Assets
- --------------------------------------------------------------------------------------------------------------------------
Expenses, net of waiver ................ 1.08%++ 1.07%++ 1.10%* 1.09%*
=============================================================
Expenses ............................... 1.11%++ 1.07%++ 1.10%* 1.09%*
=============================================================
Investment income--net ................. 1.65% 1.10% 2.07%* 2.76%*
=============================================================
==========================================================================================================================
Supplemental Data
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) $ 4,349 $ 2,526 --@ --@
=============================================================
Portfolio turnover ..................... 15% 17% 47% 52%
=============================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Amount is less than $(.01) per share.
++ Includes the Fund's share of the Master Portfolio's allocated expenses.
+++ Commencement of operations.
@ Amount is less than $1,000.
@@ Aggregate total investment return.
See Notes to Financial Statements.
18 MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005
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 amended, as a diversified, open-end
management investment company. The Fund seeks to achieve its investment
objective through a fully managed investment policy utilizing equity, fixed
income and convertible securities. The Fund invests the fixed income portion of
its assets in Master Core Bond Portfolio (the "Master Portfolio") of Master Bond
Trust (the "Trust"), a mutual fund that has the same investment objective and
strategies as the fixed income portion of the Fund. The value of the Fund's
investment in the Master Portfolio reflects the Fund's proportionate interest in
the net assets of the Master Portfolio. The percentage of the Master Portfolio
owned by the Fund at September 30, 2005 was 32.6%. The Fund's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. The Fund offers multiple classes
of shares. 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 (except that Class B shareholders may vote on certain changes to
the Class A distribution plan). Income, expenses (other than expenses
attributable to a specific class) and realized and unrealized gains and losses
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 -- The Fund records its proportionate investment in
the Master Portfolio at fair value.
Equity securities that are held by the Fund that are traded on stock exchanges
or the Nasdaq National Market are valued at the last sale price or official
close price on the exchange, as of the close of business on the day the
securities are being valued or, lacking any sales, at the last available bid
price for long positions, and at the last available asked price for short
positions. In cases where equity securities are traded on more than one
exchange, the securities are valued on the exchange designated as the primary
market by or under the authority of the Board of Directors of the Fund. Long
positions traded in the over-the-counter ("OTC") market, Nasdaq Small Cap or
Bulletin Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by the Board of
Directors of the Fund. Short positions traded in the OTC market are valued at
the last available asked price. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest and most
representative market.
Options written are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last asked
price. Options purchased are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Swap agreements are valued based upon quoted fair valuations
received daily by the Fund from a pricing service or counterparty. Financial
futures contracts and options thereon, which are traded on exchanges, are valued
at their last sale price as of the close of such exchanges. Obligations with
remaining maturities of 60 days or less are valued at amortized cost unless the
Investment Adviser believes that this method no longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Fund employs
pricing services to provide certain securities prices for the Fund. Securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Directors of the Fund, including valuations furnished by the pricing services
retained by the Fund, which may use a matrix system for valuations. The
procedures of a pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Fund's Board of Directors. Such
valuations and procedures will be reviewed periodically by the Board of
Directors of the Fund.
Generally, trading in foreign securities, as well as U.S. government securities
and money market instruments, is substantially completed each day at various
times prior to the close of business on the New York Stock Exchange ("NYSE").
The values of such securities used in computing the net asset value of the
Fund's shares are determined as of such times. Foreign currency exchange rates
also are generally determined prior to the close of business on the NYSE.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close of
business on the NYSE that may not be reflected in the computation of the Fund's
net
MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005 19
Notes to Financial Statements (continued)
asset value. If events (for example, a company announcement, market volatility
or a natural disaster) occur during such periods that are expected to materially
affect the value of such securities, those securities may be valued at their
fair value as determined in good faith by the Fund's Board of Directors or by
the Investment Adviser using a pricing service and/or procedures approved by the
Fund's Board of Directors.
(b) Derivative financial instruments -- The Fund may engage in various portfolio
investment strategies both to increase the return of the Fund and to hedge, or
protect, its exposure to interest rate movements and movements in the securities
markets. 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 may 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 Swaps -- The Fund may enter into swap agreements, which are
over-the-counter contracts in which the Fund and a counterparty agree to
make periodic net payments on a specified notional amount. The net
payments can be made for a set period of time or may be triggered by a
pre-determined credit event. The net periodic payments may be based on a
fixed or variable interest rate; the change in market value of a specified
security, basket of securities, or index; or the return generated by a
security. These periodic payments received or made by the Fund are
recorded in the accompanying Statement of Operations as realized gains or
losses, respectively. Gains or losses are realized upon termination of the
swap agreements. Swaps are marked-to-market daily and changes in value are
recorded as unrealized appreciation (depreciation). Risks include changes
in the returns of the underlying instruments, failure of the
counterparties to perform under the contracts' terms and the possible lack
of liquidity with respect to the swap agreements.
(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, investment income and expenses -- 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. Investment transactions in the Master Portfolio are accounted for on a
trade date basis. The Fund records daily its proportionate share of the Master
Portfolio's income, expenses and realized and unrealized gains and losses. In
addition, the Fund accrues its own expenses.
(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
20 MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005
Notes to Financial Statements (continued)
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) Reclassifications -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $1,415,290 has been reclassified between undistributed net realized
capital gains and undistributed net investment income, $1,616,038 has been
reclassified between paid-in capital in excess of par and undistributed net
realized capital gains, and $406,965 has been reclassified between paid-in
capital in excess of par and undistributed net investment income as a result of
permanent differences attributable to foreign currency transactions, accounting
for swap agreements, amortization methods on fixed income securities and the
allocation of basis adjustments. These reclassifications have no effect on net
assets or net asset values per share.
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 Plan with FAM Distributors, Inc.
("FAMD" or the "Distributor"), which is an indirect, wholly-owned subsidiary of
ML & Co.
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.
The Fund also pays an Investment Advisory fee to Fund Asset Management, L.P.
("FAM"), an affiliate of MLIM, the Trust's investment adviser, to the extent it
invests its fixed income assets in the Master Portfolio. MLIM has contractually
agreed to waive its management fee by the amount of management fees the Fund
pays to FAM indirectly through its investment in the Master Portfolio. For the
year ended September 30, 2005, MLIM earned fees of $11,986,783, of which
$652,427 was waived. MLIM has entered into a Sub-Advisory Agreement with Merrill
Lynch Asset Management U.K., Limited ("MLAM U.K."), an affiliate of MLIM and
FAM, pursuant to which MLAM U.K. provides investment advisory services to MLIM
and FAM with respect to the Fund. There is no increase in the aggregate fees
paid by the Fund for these services.
Pursuant to the Distribution Plan adopted by the Fund in accordance with Rule
12(b)-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"), an affiliate of MLIM and FAM, 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 September 30, 2005, FAMD earned underwriting discounts and
direct commissions and MLPF&S
MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005 21
Notes to Financial Statements (continued)
earned dealer concessions on sales of the Fund's Class A and Class I Shares as
follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A ............................ $ 4,534 $54,376
Class I ............................ $ 3,752 $15,254
- --------------------------------------------------------------------------------
For the year ended September 30, 2005, MLPF&S received contingent deferred sales
charges of $215,479 and $5,020 relating to transactions in Class B and Class C
Shares, respectively. Furthermore, MLPF&S received contingent deferred sales
charges of $9,531 relating to transactions subject to front-end sales charge
waivers in Class A Shares.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to MLPF&S or its
affiliates. Pursuant to that order, the Fund also has retained 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 September 30, 2005, MLIM, LLC received
$14,224 in securities lending agent fees.
In addition, MLPF&S received $107,720 in commissions on the execution of
portfolio security transactions for the year ended September 30, 2005.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Fund's transfer agent.
Certain officers and/or directors of the Fund are officers and/or directors of
MLIM, PSI, FDS, FAMD, FAM, ML & Co. and/or MLIM, LLC.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended September 30, 2005 were $273,548,093 and $642,872,769, respectively.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$343,860,649 and $547,925,005 for the years ended September 30, 2005 and
September 30, 2004, respectively.
Transactions in capital shares for each class were as follows:
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended September 30, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 1,248,836 $ 33,471,475
Automatic conversion of shares ......... 2,837,198 76,109,599
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 2,326,440 61,596,520
---------------------------------
Total issued ........................... 6,412,474 171,177,594
Shares redeemed ........................ (9,978,349) (266,453,276)
---------------------------------
Net decrease ........................... (3,565,875) $ (95,275,682)
=================================
- --------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 1,356,246 $ 35,619,078
Automatic conversion of shares ......... 5,379,540 141,486,675
Shares issued to shareholders
in reinvestment of dividends ......... 587,567 15,113,840
---------------------------------
Total issued ........................... 7,323,353 192,219,593
Shares redeemed ........................ (10,103,466) (265,628,148)
---------------------------------
Net decrease ........................... (2,780,113) $ (73,408,555)
=================================
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended September 30, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 891,578 $ 23,206,667
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 799,634 20,602,454
---------------------------------
Total issued ........................... 1,691,212 43,809,121
---------------------------------
Automatic conversion of shares ......... (2,916,992) (76,109,599)
Shares redeemed ........................ (4,547,688) (118,176,999)
---------------------------------
Total redeemed ......................... (7,464,680) (194,286,598)
---------------------------------
Net decrease ........................... (5,773,468) $(150,477,477)
=================================
- --------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 1,429,253 $ 36,446,185
Shares issued to shareholders
in reinvestment of dividends ......... 150,829 3,760,816
---------------------------------
Total issued ........................... 1,580,082 40,207,001
---------------------------------
Automatic conversion of shares ......... (5,529,385) (141,486,675)
Shares redeemed ........................ (6,163,664) (157,136,143)
---------------------------------
Total redeemed ......................... (11,693,049) (298,622,818)
---------------------------------
Net decrease ........................... (10,112,967) $(258,415,817)
=================================
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended September 30, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 240,727 $ 6,114,825
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 270,001 6,804,005
---------------------------------
Total issued ........................... 510,728 12,918,830
Shares redeemed ........................ (1,346,914) (34,293,349)
---------------------------------
Net decrease ........................... (836,186) $ (21,374,519)
=================================
22 MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005
Notes to Financial Statements (concluded)
- --------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 380,986 $ 9,531,719
Shares issued to shareholders
in reinvestment of dividends ......... 44,060 1,079,752
---------------------------------
Total issued ........................... 425,046 10,611,471
Shares redeemed ........................ (1,361,064) (34,034,123)
---------------------------------
Net decrease ........................... (936,018) $ (23,422,652)
=================================
- --------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended September 30, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 3,812,593 $ 102,092,464
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 3,294,500 87,427,835
---------------------------------
Total issued ........................... 7,107,093 189,520,299
Shares redeemed ........................ (9,988,817)
---------------------------------
Net decrease ........................... (2,881,724) $ (78,547,250)
=================================
- --------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 4,227,030 $ 111,475,819
Shares issued to shareholders
in reinvestment of dividends ......... 956,126 24,647,188
---------------------------------
Total issued ........................... 5,183,156 136,123,007
Shares redeemed ........................ (12,545,900) (331,266,098)
---------------------------------
Net decrease ........................... (7,362,744) $(195,143,091)
=================================
- --------------------------------------------------------------------------------
Class R Shares for the Year Dollar
Ended September 30, 2005 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 155,274 $ 4,067,922
Shares issued to shareholders
in reinvestment of dividends
and distributions .................... 13,330 343,453
---------------------------------
Total issued ........................... 168,604 4,411,375
Shares redeemed ........................ (99,561) (2,597,096)
---------------------------------
Net increase ........................... 69,043 $ 1,814,279
=================================
- --------------------------------------------------------------------------------
Class R Shares for the Year Dollar
Ended September 30, 2004 Shares Amount
- --------------------------------------------------------------------------------
Shares sold ............................ 140,538 $ 3,603,146
Shares issued to shareholders
in reinvestment of dividends ......... 844 21,269
---------------------------------
Total issued ........................... 141,382 3,624,415
Shares redeemed ........................ (44,345) (1,159,305)
---------------------------------
Net increase ........................... 97,037 $ 2,465,110
=================================
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 a group of lenders, which
expires in November 2005. 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 .07%
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 defined in the credit agreement. The Fund did not borrow under the
credit agreement during the year ended September 30, 2005.
6. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years ended September
30, 2005 and September 30, 2004 was as follows:
- --------------------------------------------------------------------------------
9/30/2005 9/30/2004
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ...................... $ 62,585,969 $ 50,415,340
Net long-term capital gains .......... 137,306,403 --
--------------------------------
Total taxable distributions ............ $199,892,372 $ 50,415,340
================================
As of September 30, 2005, the components of accumulated earnings on a tax basis
were as follows:
- --------------------------------------------------------------------------------
Undistributed ordinary income--net ....................... $ 17,569,034
Undistributed long-term capital gains--net ............... 146,152,895
------------
Total undistributed earnings--net ........................ 163,721,929
Capital loss carryforward ................................ --
Unrealized gains--net .................................... 335,712,087*
------------
Total accumulated earnings--net .......................... $499,434,016
============
* The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales, the
tax deferral of losses on straddles, the realization for tax purposes of
unrealized gains (losses) on certain futures and forward foreign currency
contracts, the difference between book and tax amortization methods for
premiums and discounts on fixed income securities and other book/tax
temporary differences.
MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005 23
Report of Independent Registered Public Accounting Firm
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
September 30, 2005, 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 respective
periods then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. Our procedures included confirmation of securities owned as of
September 30, 2005, by correspondence with the custodian and brokers; where
replies were not received from brokers, we performed other auditing procedures.
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 September 30, 2005, 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 respective periods then ended, in conformity with U.S. generally
accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
November 23, 2005
Important Tax Information (unaudited)
The following information is provided with respect to the ordinary income
distributions paid by Merrill Lynch Balanced Capital Fund, Inc. during the
fiscal year ended September 30, 2005:
- --------------------------------------------------------------------------------
Record Date/ December 17, 2004/ July 21, 2005/
Payable Date December 23, 2004 July 27, 2005
- --------------------------------------------------------------------------------
Qualified Dividend
Income for Individuals 67.32% 62.85%*
- --------------------------------------------------------------------------------
Dividends Qualifying for the
Dividends Received Deduction
for Corporations 61.87% 54.90%
- --------------------------------------------------------------------------------
Federal Obligation Interest None 4.50%
- --------------------------------------------------------------------------------
* The Fund hereby designates the percentage indicated above or the maximum
amount allowable by law.
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 adviser to determine if any portion of the
dividends you received is exempt from state income tax.
Additionally, the Fund distributed long-term capital gains of $1.244439 per
share to shareholders of record on December 17, 2004.
24 MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005
Officers and Directors
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Interested Director
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 President 2005 to President of the MLIM/FAM-advised funds since 2005; 130 Funds None
Doll, Jr.* Princeton, NJ and present President of MLIM and FAM since 2001; Co-Head 175 Portfolios
08543-9011 Director (Americas Region) thereof from 2000 to 2001 and
Age: 51 Senior Vice President from 1999 to 2001; President
and Director of Princeton Services, Inc. ("Princeton
Services") since 2001; President of Princeton
Administrators, L.P. ("Princeton Administrators")
since 2001; Chief Investment Officer of Oppenheimer
Funds, Inc. in 1999 and Executive Vice President
thereof from 1991 to 1999.
------------------------------------------------------------------------------------------------------------------------
* Mr. Doll is a director, trustee or member of an advisory board of certain other investment companies for which MLIM or
FAM acts as investment adviser. Mr. Doll is an "interested person," as defined in the Investment Company Act, of the
Fund based on his current positions with MLIM, FAM, Princeton Services and Princeton Administrators. Directors serve
until their resignation, removal or death, or until December 31 of the year in which they turn 72. As Fund President,
Mr. Doll serves at the pleasure of the Board of Directors.
====================================================================================================================================
Independent Directors*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald W. P.O. Box 9095 Director 2002 to General Partner of The Burton Partnership, Limited 23 Funds Knology, Inc.
Burton Princeton, NJ present Partnership (an investment partnership) since 1979; 42 Portfolios (telecommuni-
08543-9095 Managing General Partner of The South Atlantic cations) and
Age: 61 Venture Funds since 1983; Member of the Investment Symbion, Inc.
Advisory Council of the Florida State Board of (healthcare)
Administration since 2001.
- ------------------------------------------------------------------------------------------------------------------------------------
Laurie P.O. Box 9095 Director 1999 to Professor of Finance and Economics, Graduate 23 Funds None
Simon Princeton, NJ present School of Business, Columbia University since 1998. 42 Portfolios
Hodrick 08543-9095
Age: 43
- ------------------------------------------------------------------------------------------------------------------------------------
John P.O. Box 9095 Director 2005 to President and Chief Executive Officer of Allmerica 23 Funds ABIOMED
Francis Princeton, NJ present Financial Corporation (financial services holding 42 Portfolios (medical
O'Brien 08543-9095 company) from 1995 to 2002 and Director from device manuf-
Age: 62 1995 to 2003; President of Allmerica Investment acturer),
Management Co., Inc. (investment adviser) from Cabot Corpo-
1989 to 2002, Director from 1989 to 2002 and ration (chem-
Chairman of the Board from 1989 to 1990; President, icals), LKQ
Chief Executive Officer and Director of First Corporation
Allmerica Financial Life Insurance Company from 1989 (auto parts
to 2002 and Director of various other Allmerica manu-
Financial companies until 2002; Director since 1989 facturing)
and Member of the Governance Nominating Committee and TJX Com-
since 2004; Member of the Compensation panies, Inc.
Committee of ABIOMED since 1989 and Member of (retailer)
the Audit Committee of ABIOMED from 1990 to 2004;
Director and Member of the Governance and
Nomination Committee of Cabot Corporation and
Member of the Audit Committee since 1990; Director
and Member of the Audit Committee and
Compensation Committee of LKQ Corporation since
2003; Lead Director of TJX Companies, Inc. since
1999; Trustee of the Woods Hole Oceanographic
Institute since 2003.
- ------------------------------------------------------------------------------------------------------------------------------------
David H. P.O. Box 9095 Director 2003 to Consultant with Putnam Investments from 1993 23 Funds None
Walsh Princeton, NJ present to 2003, and employed in various capacities therewith 42 Portfolios
08543-9095 from 1973 to 1992; Director, The National Audubon
Age: 63 Society since 1998; Director, The American Museum
of Fly Fishing since 1997.
MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005 25
Officers and Directors (concluded)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
====================================================================================================================================
Independent Directors* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Fred G. P.O. Box 9095 Director 1998 to Managing Director of FGW Associates since 1997; 23 Funds Watson
Weiss Princeton, NJ present Vice President, Planning, Investment and Devel- 42 Portfolios Pharmaceuti-
08543-9095 opment of Warner Lambert Co. from 1979 to 1997; cals, Inc.
Age: 64 Director of the Michael J. Fox Foundation for (pharma-
Parkinson's Research since 2000; Director of BTG ceutical
International PLC (a global technology commercial- company)
ization company) since 2001.
------------------------------------------------------------------------------------------------------------------------
* Directors serve until their resignation, removal or death, or until December 31 of the year in which they turn 72.
Position(s) Length of
Held with Time
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999 and Director
08543-9011 and and 1999 since 2004; Vice President of FAM Distributors, Inc. ("FAMD") since 1999; Vice
Age: 45 Treasurer to President of MLIM and FAM from 1990 to 1997; Director of Taxation of MLIM from 1990
present to 2001; Vice President, Treasurer and Secretary of the IQ Funds since 2004.
- ------------------------------------------------------------------------------------------------------------------------------------
Kurt P.O. Box 9011 Vice 1996 to Managing Director of MLIM since 2000; Director (Equities) of MLIM from 1997 to
Schansinger Princeton, NJ President present 2000.
08543-9011
Age: 45
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Chief 2004 to Chief Compliance Officer of the MLIM/FAM-advised funds and First Vice President and
Hiller Princeton, NJ Compliance present Chief Compliance Officer of MLIM (Americas Region) since 2004; Chief Compliance
08543-9011 Officer Officer of the IQ Funds since 2004; Global Director of Compliance at Morgan Stanley
Age: 54 Investment Management from 2002 to 2004; Managing Director and Global Director of
Compliance at Citigroup Asset Management from 2000 to 2002; Chief Compliance
Officer at Soros Fund Management in 2000; Chief Compliance Officer at Prudential
Financial from 1995 to 2000; Senior Counsel in the Commission's Division of
Enforcement in Washington, D.C. from 1990 to 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
Alice A. P.O. Box 9011 Secretary 2004 to Director (Legal Advisory) of MLIM since 2002; Vice President of MLIM from 1999 to
Pellegrino Princeton, NJ present 2002; Attorney associated with MLIM since 1997; Secretary of MLIM, FAM, FAMD and
08543-9011 Princeton Services since 2004.
Age: 45
------------------------------------------------------------------------------------------------------------------------
* 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
26 MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions. When you
visit this site, you will obtain a personal identification number (PIN). You
will need this PIN should you wish to update your e-mail address, choose to
discontinue this service and/or make any other changes to the service. This
service is not available for certain retirement accounts at this time.
MERRILL LYNCH BALANCED CAPITAL FUND, INC. SEPTEMBER 30, 2005 27
[LOGO] Merrill Lynch Investment Managers
www.mlim.ml.com
- --------------------------------------------------------------------------------
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Fund voted proxies
relating to securities held in the Fund's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Merrill Lynch Balanced Capital Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
#10252 -- 9/05
Item 2 - Code of Ethics - The registrant has adopted 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
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Donald W.
Burton, (2) M. Colyer Crum (retired as of December 31, 2004), (3)
Laurie Simon Hodrick, (4) John F. O'Brien (as of November 22, 2004),
(5) David H. Walsh and (6) Fred G. Weiss.
The registrant's board of directors has determined that Laurie Simon
Hodrick and M. Colyer Crum qualify as financial experts pursuant to
Item 3(c)(4) of Form N-CSR.
Ms. Hodrick has a thorough understanding of generally accepted
accounting principals, financial statements, and internal controls and
procedures for financial reporting. Ms. Hodrick earned a Ph.D. in
economics and has taught courses in finance for over 15 years. Her
M.B.A.-level course centers around the evaluation and analysis of
firms' corporate financial statements. She has also taught in financial
analysts' training programs. Ms. Hodrick has also worked with several
prominent corporations in connection with the analysis of financial
forecasts and projections and analysis of the financial statements of
those companies, serving on the Financial Advisory Council of one of
these major corporations. She has also served as the Treasurer and
Finance Chair of a 501(c)(3) organization. Ms. Hodrick has published a
number of articles in leading economic and financial journals and is
the associate editor of two leading finance journals.
M. Colyer Crum also possesses a thorough understanding of generally
accepted accounting principals, financial statements, and internal
controls and procedures for financial reporting through a combination
of education and experience. Professor Crum was a professor of
investment management at the Harvard Business School for 25 years. The
courses taught by Professor Crum place a heavy emphasis on the analysis
of underlying company financial statements with respect to stock
selection and the analysis of credit risk in making loans. Professor
Crum has also served on a number of boards of directors and has served
on the audit committees, and in some cases chaired the audit committee,
for several major corporations and financial institutions. For two such
organizations, Professor Crum has performed extensive investment
analysis of financial statements in connection with investment
management decisions. From these experiences, he has gained significant
experience with the establishment of reserves and accounting policies,
differences between U.S. GAAP and Canadian GAAP and executive
compensation issues.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending September 30, 2005 - $37,000
Fiscal Year Ending September 30, 2004 - $35,000
(b) Audit-Related Fees - Fiscal Year Ending September 30, 2005 - $0
Fiscal Year Ending September 30, 2004 - $0
(c) Tax Fees - Fiscal Year Ending September 30, 2005 - $5,700
Fiscal Year Ending September 30, 2004 - $7,800
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending September 30, 2005 - $0
Fiscal Year Ending September 30, 2004 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending September 30, 2005 - $6,827,388
Fiscal Year Ending September 30, 2004 - $14,091,966
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $1,227,000, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - Not
Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Merrill Lynch Balanced Capital Fund, Inc.
By: /s/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Balanced Capital Fund, Inc.
Date: November 17, 2005
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/ Robert C. Doll, Jr.
-----------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Balanced Capital Fund, Inc.
Date: November 17, 2005
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Balanced Capital Fund, Inc.
Date: November 17, 2005