-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WWsBpJSrSpngbG2TLPaXXEZiSUlchgXQKVzsgrgzgBJmtHQKsvN0EoC0E2nVQH6q h2liPdzTEFn2YRCb74LCTA== 0001193805-05-002428.txt : 20051202 0001193805-05-002428.hdr.sgml : 20051202 20051202113456 ACCESSION NUMBER: 0001193805-05-002428 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20051202 DATE AS OF CHANGE: 20051202 EFFECTIVENESS DATE: 20051202 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL LYNCH BALANCE CAPITAL FUND INC CENTRAL INDEX KEY: 0000110055 IRS NUMBER: 132757134 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-02405 FILM NUMBER: 051239604 BUSINESS ADDRESS: STREET 1: 800 SCUDDERS MILL ROAD CITY: PLAINSBORO STATE: NJ ZIP: 08536 BUSINESS PHONE: 6092823319 MAIL ADDRESS: STREET 1: P.O. BOX 9066 CITY: PRINCETON STATE: NJ ZIP: 08543-9011 FORMER COMPANY: FORMER CONFORMED NAME: MERRILL LYNCH CAPITAL FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: LIONEL D EDIE CAPITAL FUND INC DATE OF NAME CHANGE: 19760810 N-CSR 1 e501218_ncsr-mlbalcapfund.txt ANNUAL REPORT 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 EX-99.CERT 2 e501218_ex99-cert.txt CERTIFICATION PURSUANT TO SECTION 302 EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - -------------------------------------------------------------------------------- I, Robert C. Doll, Jr., Chief Executive Officer of Merrill Lynch Balanced Capital Fund, Inc., certify that: 1. I have reviewed this report on Form N-CSR of Merrill Lynch Balanced Capital Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter 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; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 17, 2005 /s/ Robert C. Doll, Jr. ----------------------- Robert C. Doll, Jr., Chief Executive Officer of Merrill Lynch Balanced Capital Fund, Inc. EX-99. CERT CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - -------------------------------------------------------------------------------- I, Donald C. Burke, Chief Financial Officer of Merrill Lynch Balanced Capital Fund, Inc., certify that: 1. I have reviewed this report on Form N-CSR of Merrill Lynch Balanced Capital Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter 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; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 17, 2005 /s/ Donald C. Burke ------------------- Donald C. Burke, Chief Financial Officer of Merrill Lynch Balanced Capital Fund, Inc. EX-99.1350CERT 3 e501218_ex99-1350cert.txt CERTIFICATION PURSUANT TO SECTION 906 Exhibit 99.1350CERT Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Robert C. Doll, Jr., Chief Executive Officer of Merrill Lynch Balanced Capital Fund, Inc. (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: November 17, 2005 /s/ Robert C. Doll, Jr. ----------------------- Robert C. Doll, Jr., Chief Executive Officer of Merrill Lynch Balanced Capital Fund, Inc. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Merrill Lynch Balanced Capital Fund, Inc. and will be retained by Merrill Lynch Balanced Capital Fund, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. Exhibit 99.1350CERT Certification Pursuant to Section 906 of the Sarbanes Oxley Act I, Donald C. Burke, Chief Financial Officer of Merrill Lynch Balanced Capital Fund, Inc. (the "Fund"), certify that: 1. The N-CSR of the Fund (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Dated: November 17, 2005 /s/ Donald C. Burke ------------------- Donald C. Burke, Chief Financial Officer of Merrill Lynch Balanced Capital Fund, Inc. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Merrill Lynch Balanced Capital Fund, Inc. and will be retained by Merrill Lynch Balanced Capital Fund, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----