The modeling of salinity and temperature in Gulf of Bothnia, Gulf of Finland, and Gulf of Riga is investigated by using a coupled sea ice-ocean Baltic Sea model. 18 years, from late 1980 to the end of 1998, have been investigated. The forcing data extracted taken from a gridded meteorological data base, sea level data from the Kattegat, and river runoff data to the different subbasins of the Baltic Sea from a hydrological data base. To improve the gridded meteorological data base a statistical model for the reduction of geostrophic winds to surface winds was developed. In the analysis it was shown that the calculated long-term salinity and temperature structures were stable and in good agreement with observations. This was made possible by using three different strait-flow models connecting the subbasins of the Baltic Sea. The seasonal and interannual variations of temperature and salinity were also well simulated by the model, implying that the coupling between the atmosphere and the Baltic Sea as well as the diapycnal mixing are reasonably well understood. The water cycle and the surface heat balance were calculated using the 18-year simulation. In the water-balance calculations it was shown that the volume flows from the large gulfs of the Baltic Sea were mainly due to baroclinic transports and that net precipitation added freshwater during the Studied period, particularly to the large gulfs. From the heat-balance calculation it is concluded that the Baltic Sea is almost in local balance with the atmosphere. The Bothnian Bay, Gulf of Finland and Gulf of Riga loose heat, whereas the Bothnian Sea gains heat, calculated as long-term means. (C) 2003 Elsevier Science Ltd. All rights reserved.