MERRILL LYNCH
DEVELOPING
CAPITAL MARKETS
FUND, INC.
FUND LOGO
Quarterly Report
September 30, 1998
Investing in emerging market securities involves a number of risk
factors and special considerations, including restrictions on
foreign investments and on repatriation of capital invested in
emerging markets, currency fluctuations, and potential price
volatility and less liquidity of securities traded in emerging
markets. In addition, there may be less publicly available
information about the issuers of securities, and such issuers may
not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those to which US companies
are subject. Therefore, the Fund is designed as a long-term
investment for investors capable of assuming the risks of investing
in emerging markets. The Fund should be considered as a vehicle for
diversification and not as a complete investment program. Please
refer to the prospectus for details.
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch
Developing
Capital Markets
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH DEVELOPING CAPITAL MARKETS FUND, INC.
Map Depictinf the Fund's Asset Allocation As a Percentage* of Net
Assets as of September 30, 1998
VENEZUELA 1.3%
BRAZIL 11.7%
PORTUGAL 0.4%
HUNGARY 4.1%
POLAND 6.2%
RUSSIA 0.0%++
GREECE 2.1%
TURKEY 2.1%
PAKISTAN 0.0%++
INDIA 3.6%
THAILAND 1.8%
CHINA 0.5%
HONG KONG 1.0%
SOTH KOREA 3.3%
MEXICO 13.7%
ARGENTINA 2.2%
ITALY 0.7%
EGYPT 0.7%
SOUTH AFRICA 5.6%
ISRAEL 3.8%
INDONESIA 0.9%
MALAYSIA 2.4%
TAIWAN 3.1%
[FN]
*Total may not equal 100%.
++Percent of net assets is less than 0.1%.
Merrill Lynch Developing Capital Markets Fund, Inc., September 30, 1998
DEAR SHAREHOLDER
During the three-month period ended September 30, 1998, Merrill
Lynch Developing Capital Markets Fund, Inc.'s Class A, Class B,
Class C and Class D Shares had total returns of -25.86%, -25.97%,
- -25.98% and -25.84%, respectively. (Results shown do not reflect
sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 4 and 5 of
this report to shareholders.) The total return of the unmanaged
Morgan Stanley Capital International Emerging Markets Free (MSCI
EMF) Index was -22.01%, and the unmanaged Salomon Brothers Brady
Bond Index declined 15.07% during the same three-month period.
(References to securities markets of all countries in this letter to
shareholders correspond to those countries' market weightings in the
MSCI EMF Index and are for the three-month period ended September
30, 1998.) The steepest emerging market declines were in Russia,
Latin America, Malaysia, China and South Africa. Only the markets in
South Korea, Thailand and Morocco appreciated for the three-month
period ended September 30, 1998. Detrimental to the Fund's
performance during the September quarter were its overweighted
positions in Hungary and Turkey, whose markets fell 33.67% and
47.40%, respectively. Also hurting performance was the Fund's
underweighted position in Brady bonds, which outperformed most of
the emerging markets during the September quarter.
Investment Review and Activities
During the past three months, most emerging and developed capital
markets declined at double-digit rates. Only the US stock market
fared slightly better, with a decline of 9.13% for the September
quarter. The unmanaged MSCI World Index, a proxy for the US and
international markets combined, declined 11.9% for the September
quarter, but was up 1.8% for the month of September. This September
rally was spurred by hopes for a coordinated cut in interest rates
by the Group of Seven Industrialized Nations and expectations about
an International Monetary Fund (IMF)/US Treasury support package for
Latin America.
During the September quarter, several developments pointing to a
rapid deterioration in the world's economic performance coincided to
impact nearly all markets adversely. Among the key developments
creating a mood of crisis were the currency devaluation, debt
devaluation and unstable politics in Russia, the deflationary
pressures on US corporate earnings, and the absence of recoveries in
the Japanese and other Asian economies. The ensuing volatility in
markets heightened investor nervousness about further currency
devaluations. Furthermore, the declines in developed markets
compounded investors' loss of confidence and interest in emerging
markets.
In August, the Russian crisis prompted stock market declines
throughout the emerging markets, but especially in Latin America,
although direct links between Russia and the region are negligible.
The effect on the Latin American markets was largely through
portfolio capital flows. For instance, some investors sold Latin
American securities, among the most liquid emerging market
securities, to cover margin calls and losses suffered on Russian
investments. In addition, because Latin American economies still
depend heavily on external capital, any market turmoil that reduces
these inflows or raises the cost of borrowing is detrimental to
Latin American markets and currencies. For example, in Brazil
interest rates were sustained at prohibitively high levels to avert
a devaluation of the real. However, aside from the portfolio flow
effects, worldwide deflationary pressures emanating from the
unresolved Asian crisis are hurting the real economies in Latin
America through damage to trade balances. The main source is the
weakness in the prices of commodities, which are some of the
region's chief exports. Thus, the crisis that started in a remote
Southeast Asian country has derailed the economic recovery in Latin
America. Our expectation is that actions will be taken by Latin
American leaders that will be favorable for investors in the long
term. This contrasts with the policy responses of the leaders in
Russia (devaluation and default) and in some Asian countries
(capital controls and the bailout of unviable companies).
The Mexican stock market declined 22.6% as investors focused on weak
oil prices, a decelerating US economy, controversies surrounding the
banking sector and political uncertainty. In response to weaker oil
prices, the government announced a series of spending cuts that will
inevitably slow economic growth.
In Brazil, the market declined 28.6% amid concerns about a possible
devaluation of the real, the growing fiscal deficit and a stalled
reform process. The government vigorously defended attacks on the
currency by raising interest rates and, when necessary, deploying
reserves.
The Argentine market declined 15.6%, chiefly reflecting Brazil's
problems. However, unlike Brazil, Argentina has not witnessed any
significant outflows of capital. One of our Argentine holdings is
YPF S.A., a large energy company with businesses in oil and gas. YPF
is usually viewed as a defensive stock.
There was greater divergence in performance among the Asian markets.
Most declined steeply even as several governments began to actively
support stock prices, limit investors' ability to take capital out
of their countries and provide subsidies. There is now a tendency in
some Asian countries to abandon austerity measures as well as
orthodox economic reforms in favor of boosting growth. We are
hopeful that this approach will be effective in triggering a
recovery in these markets, but are wary of their long-term effects
on the companies and capital markets there.
Malaysia showed the steepest decline (-39.6%), having experienced a
contraction in gross domestic product (GDP) through August. The
Malaysian government has decided to stimulate the economy through
monetary easing and to defend the currency. To help achieve these
goals, the government announced controls on the repatriation of
proceeds from security sales. These controls will likely limit the
Fund's ability to repatriate proceeds of its Malaysian investments.
The precise nature of some of the restrictions is currently unclear.
The Fund's investments in Malaysia may not be available to meet
redemptions. Also, the Fund's management will not be able to
reallocate the Fund's current investments in Malaysia to other
investment opportunities outside Malaysia so long as the
restrictions remain in place (which is currently anticipated to be
at least until September 1999). This will affect the Fund's
performance in the upcoming quarters. As of September 30, 1998,
approximately 2.4% of the Fund's net assets was invested in
Malaysia.
In China (whose market fell 14.5%), investors again became concerned
that the renminbi would be devalued as a means to boost economic
growth and contain rising unemployment. To counter this, authorities
took steps to subsidize exporters, raise fiscal spending, encourage
bank lending and close loopholes on capital controls.
Meanwhile, strains on the Hong Kong economy continued to build up,
with GDP having contracted. In response to these market pressures,
the Hong Kong Monetary Authority actively intervened to support the
equity market and discourage speculators.
Among the best-performing markets in the region were South Korea and
Thailand, up 6.5% and 6.3%, respectively. During the September
quarter, nominal interest rates declined. In both countries,
currencies have been relatively stable, inflationary pressure has
been declining and liquidity has been ample. The South Korean market
was also bolstered by anticipation of an increase in its weighting
in the MSCI EMF index.
Markets that had somehow managed to escape the Asian contagion, such
as those in emerging Europe, became infected with a vengeance during
the September quarter by the Russian devaluation and default. In
Russia (whose market was down 75.16%), rumors of a devaluation of
the ruble had been circulating for many months. Russia did devalue
in mid-August, followed by an effective default on government debt.
This occurred despite the efforts of international agencies such as
the IMF, which provided funds during the September quarter. The
economic crisis accelerated as institutions and households sought to
convert rubles to hard currency, prompting a run on Russian banks.
Furthermore, the devaluation brought to a head a political crisis in
which President Yeltsin fired several cabinet members, including his
reformist prime minister, and subsequently had problems in replacing
them. The tension was heightened by persistent rumors about
Yeltsin's health and by fears of social unrest as a consequence of
rising inflation and nationalist sentiments.
In Eastern European countries such as Poland, Hungary, and the Czech
Republic, the markets were negatively affected by the perception of
close ties to Russia. Poland and Hungary declined by 26.6% and
33.7%, respectively, because of the spillover effect from Russia.
The Greek and Portuguese equity markets (down 4.13% and 14.9%,
respectively) also corrected for the September quarter, both on the
heels of international turmoil as well as profit-taking. Both of
these markets had been seen as a play on convergence with the
European Community.
One of our better-performing holdings is National Bank of Greece
S.A., one of the largest retail banks in that country. This bank,
which has a market share of 40% in deposits and 25% in lending, is
undergoing a major restructuring since new management took over in
1996. In that process it has strengthened its balance sheet (making
significant provisions and raising additional capital), and is now
targeting cost-cutting as well.
All of the stock markets in the Middle East/Africa region, with the
exception of Morocco (+8.34%), declined during the September
quarter. The South African market declined by 19.47% for the
September quarter, despite a sharp upturn during September as gold
stocks rallied. The market has been hard hit by the Russian
contagion as speculation against the rand rose, and, very much like
the Latin American markets, high interest rates to defend the
currency have combined with weakening commodity prices to quell
optimism for improving growth.
Merrill Lynch Developing Capital Markets Fund, Inc., September 30, 1998
The Israeli market declined by 16.14% for the September quarter in
response to concerns similar to those of Russia and other emerging
markets. As a result, both local and foreign investors fled the
equity market. Furthermore, the peace process has been dealt a blow
by recent terrorist activities.
In the past, the Turkish market had performed independently of other
markets. However, during the September quarter Turkey was not spared
the damage from the global market turmoil and declined 47.4%.
Interest rates increased sharply in Turkey during the September
quarter, despite an improvement in inflation, as investors
anticipated a weaker economic outlook because of important trade
ties with Russia.
In Conclusion
We once again would caution our investors that the emerging capital
markets generally experience greater volatility than the more
developed markets. As we have noted before, these markets have been
affected as much by external developments as by the events that
occur within any particular country. Unfortunately, the rush of
investors to exit emerging markets and the absence of strong growth
drivers in the developed countries have triggered a vicious cycle of
economic and financial deterioration. Hence, we expect many of the
regions in which we invest to have a weaker near-term outlook than
originally anticipated. However, we would also point out that
valuations throughout our markets are attractive. It now remains to
be seen at what levels investors feel comfortable with the
risk/reward trade-offs presented by emerging markets securities.
We thank you for your interest in Merrill Lynch Developing Capital
Markets Fund, Inc., and we look forward to discussing economic,
stock market and portfolio developments in our upcoming semi-annual
report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Grace Pineda)
Grace Pineda
Senior Vice President and
Portfolio Manager
November 11, 1998
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the ex-dividend date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML Developing Capital Markets Fund Class A Shares -50.24% -25.86% +16.67%
ML Developing Capital Markets Fund Class B Shares -50.72 -25.97 -39.38
ML Developing Capital Markets Fund Class C Shares -50.73 -25.98 -47.28
ML Developing Capital Markets Fund Class D Shares -50.32 -25.84 -45.58
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend date. The
Fund's inception periods are: Class A Shares, from 9/01/89 to
9/30/98; Class B Shares, from 7/01/94 to 9/30/98; and Class C &
Class D Shares, from 10/21/94 to 9/30/98.
</TABLE>
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 9/30/98 -50.24% -52.86%
Five Years Ended 9/30/98 - 6.25 - 7.25
Inception (9/01/89) through 9/30/98 + 1.71 + 1.11
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 9/30/98 -50.72% -52.54%
Inception (7/01/94) to 9/30/98 -11.11 -11.11
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Class C Shares* Without CDSC With CDSC**
Year Ended 9/30/98 -50.73% -51.18%
Inception (10/21/94) to 9/30/98 -14.99 -14.99
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Class D Shares* Sales Charge Sales Charge**
Year Ended 9/30/98 -50.32% -52.93%
Inception (10/21/94) to 9/30/98 -14.30 -15.47
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Developing Capital Markets Fund, Inc., September 30, 1998
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Held/ Percent of
AFRICA Industries Face Amount Investments Cost Value Net Assets
<S> <S> <S> <C> <S> <C> <C> <C>
South Banking 58,389 Nedcor Ltd. (Ordinary) $ 1,020,589 $ 944,967 0.3%
Africa
Beverages 566 South African Breweries Ltd.
(US Registered Shares) 15,982 8,528 0.0
211,564 South African Breweries Ltd. 5,400,631 3,193,283 1.1
------------ -------------- ------
5,416,613 3,201,811 1.1
Diversified 353,054 Sasol Limited 4,063,738 1,620,921 0.6
Holdings
Foreign Republic of South Africa:
Government ZAL 11,800,000 12% due 2/28/2005 2,002,454 1,602,068 0.6
Obligations ZAL 11,400,000 13% due 8/31/2010 1,951,189 1,517,369 0.5
------------ -------------- ------
3,953,643 3,119,437 1.1
Insurance 4,176,588 FirstRand Limited 4,859,437 3,550,456 1.3
58,750 Liberty Life Association of
Africa Limited 1,902,714 895,762 0.3
------------ -------------- ------
6,762,151 4,446,218 1.6
Mining 885,959 Gencor Ltd. 2,174,963 1,599,858 0.6
Retail 1,337,198 Pick'n Pay Stores Ltd. 1,524,007 865,648 0.3
Total Investments in Africa 24,915,704 15,798,860 5.6
EUROPE
Greece Banking 13,436 National Bank of Greece S.A. 1,703,122 1,810,065 0.6
Beverages 121,675 Hellenic Bottling Co. S.A. 3,197,422 3,001,635 1.1
Telecommunications 106,123 Hellenic Telecommunication
Organization S.A.(GDR)(b) 1,170,198 1,236,330 0.4
Total Investments in Greece 6,070,742 6,048,030 2.1
Hungary Banking 25,034 OTP Bank (GDR)(b) 1,124,466 713,469 0.2
Health/Personal 34,167 Gedeon Richter Ltd. (GDR)(b) 2,836,680 1,025,010 0.4
Care
Oil & Related 276,586 Mol Magyar Olay--es Gazipari
Reszvenytaersasag (GDR)(b) 7,603,732 5,324,281 1.9
Telecommunications 1,030,634 Magyar TavKozlesi Reszvenytarsasag
(MATAV) (Ordinary) 5,787,098 4,537,412 1.6
Total Investments in Hungary 17,351,976 11,600,172 4.1
Italy Beverages 831,820 Coca-Cola Beverages PLC 2,194,947 1,892,434 0.7
Total Investments in Italy 2,194,947 1,892,434 0.7
Poland Automotive 112,803 Debica S.A. 2,421,565 1,959,044 0.7
Banking 872,642 Wielkopolski Bank Kredytowy S.A. 6,561,763 5,377,626 1.9
Computers 215,683 ComputerLand Poland S.A. 4,830,569 2,114,539 0.7
Electrical Components 687,794 Elektrim Spolka Akcyjna S.A. 6,579,930 6,974,270 2.4
Multi-Industry 586,150 NFI Piast S.A. Fund 1,804,847 779,891 0.3
496,624 NFI Progress S.A. Fund 1,547,501 598,175 0.2
------------ -------------- ------
3,352,348 1,378,066 0.5
Total Investments in Poland 23,746,175 17,803,545 6.2
Portugal Telecommunications 34,439 Portugal Telecom S.A. 1,226,901 1,252,674 0.4
Total Investments in Portugal 1,226,901 1,252,674 0.4
Russia Energy Sources 2,025,000 Irkutskenergo 255,917 26,325 0.0
Telecommunications 544,800 Bashinformsvyaz 1,455,190 81,720 0.0
169,200 Nizhny Novgorod Telephone 879,840 1,692 0.0
------------ -------------- ------
2,335,030 83,412 0.0
Utilities--Electric 2,066,208 Bashkirenergo 1,187,599 22,728 0.0
Total Investments in Russia 3,778,546 132,465 0.0
Turkey Banking 92,635,400 Yapi ve Kredi Bankasi A.S. 1,458,763 1,051,764 0.4
Building Products 191,206,538 Akcansa Cimento A.S. 5,774,035 2,825,645 1.0
Retail 2,766,662 Migros Turk T.A.S. 2,520,039 1,994,422 0.7
Total Investments in Turkey 9,752,837 5,871,831 2.1
Total Investments in Europe 64,122,124 44,601,151 15.6
LATIN
AMERICA
Argentina Oil & Related 553,901 Perez Companc S.A. (Class B) 3,066,055 2,257,485 0.8
142,700 YPF S.A. (ADR)(a) 3,732,781 3,710,200 1.3
------------ -------------- ------
6,798,836 5,967,685 2.1
Real Estate 7,310 IRSA Inversiones y
Representaciones S.A. (GDR)(b) 248,540 157,165 0.1
Total Investments in Argentina 7,047,376 6,124,850 2.2
Brazil Banking 247,539,679 Banco Bradesco S.A. (Preferred) 1,916,397 1,462,136 0.5
1,248,577 Banco Itau S.A. (Preferred) 681,860 589,995 0.2
------------ -------------- ------
2,598,257 2,052,131 0.7
Beverages 5,331,254 Companhia Cervejaria Brahma S.A.
PN (Preferred) 3,589,976 2,091,835 0.7
Foreign Republic of Brazil:
Government US$ 2,690,527 Floating Rate 'C' Brady Bonds,
Obligations 6.90% due 4/15/2014++ 1,547,408 1,600,863 0.6
US$ 4,984,000 Floating Rate Par 'L' Brady Bonds,
5.50% due 4/15/2024++ 3,596,458 2,890,720 1.0
US$ 4,410,000 Global Bonds, 10.125% due 5/15/2027 3,829,800 2,767,275 1.0
------------ -------------- ------
8,973,666 7,258,858 2.6
Mining 161,154 Companhia Vale do Rio Doce 3,450,919 2,447,702 0.9
Oil & Related 22,000,536 Petroleo Brasileiro S.A.--Petrobras
(Preferred) 5,267,408 2,264,657 0.8
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., September 30, 1998
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
LATIN AMERICA Shares Held/ Percent of
(concluded) Industries Face Amount Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Brazil Telecommunications 66,120,526 Embratel Participacoes S.A. $ 1,042,837 $ 552,353 0.2%
(concluded) 66,120,526 Tele Celular Sul Participacoes S.A. 130,355 50,214 0.0
66,120,526 Tele Centro Oeste Celular
Participacoes S.A. 56,052 35,150 0.0
66,120,526 Tele Centro Sul Participacoes S.A. 783,431 368,235 0.1
66,120,526 Tele Leste Celular Participacoes S.A. 40,410 18,412 0.0
66,120,526 Tele Nordeste Celular Participacoes S.A. 58,660 28,455 0.0
66,120,526 Tele Norte Celular Participacoes S.A. 32,589 13,948 0.0
66,120,526 Tele Norte Leste Participacoes S.A. 912,482 334,759 0.1
66,120,526 Tele Sudeste Celular Participacoes S.A. 260,709 111,586 0.1
83,706 Telecomunicacoes Brasileiras S.A.
--Telebras (ADR)(a) 10,209,419 5,775,714 2.0
66,120,526 Telecomunicacoes Brasileiras S.A.
--Telebras (Ordinary) 13,035 13,948 0.0
66,120,526 Telemig Celular Participacoes S.A. 130,355 55,793 0.0
4,000,000 Telerj Celular PN 'B' 331,299 82,693 0.0
66,120,526 Telesp Celular Participacoes S.A. 521,418 278,966 0.1
66,120,526 Telesp Participacoes S.A. 1,759,787 1,037,754 0.4
------------ -------------- ------
16,282,838 8,757,980 3.0
Utilities-- 198,699,000 Centrais Eletricas Basileiras S.A.
Electric (Eletrobras) 6,127,350 4,124,543 1.4
203,124,533 Companhia Energetica de Minas Gerais
S.A. (CEMIG) (Preferred) 7,622,685 4,422,085 1.6
------------ -------------- ------
13,750,035 8,546,628 3.0
Total Investments in Brazil 53,913,099 33,419,791 11.7
Mexico Banking 310,877 Grupo Financiero Banorte, S.A.
de C.V. (Class B) 499,336 164,905 0.1
Beverages 230,659 Panamerican Beverages, Inc. (US
Registered Shares)(Class A) 7,342,896 4,108,613 1.4
Broadcast--Media 254,467 Grupo Televisa, S.A. de C.V. (GDR)(b) 8,610,358 4,914,394 1.7
Building Products 7,914 Cementos Mexicanos, S.A. de C.V.
(Cemex)(ADR)(a) 60,963 34,948 0.0
322,855 Cementos Mexicanos, S.A. de C.V.
(Cemex)(Class B)(ADR)(a) 3,260,900 1,577,825 0.6
------------ -------------- ------
3,321,863 1,612,773 0.6
Foreign United Mexican States:
Government US$ 8,654,000 Floating Rate Par, Brady Bonds,
Obligations Series W-A, 6.25% due 12/31/2019++ 6,791,921 6,447,230 2.2
US$ 6,360,000 Global Bonds, 11.50% due 5/15/2026 6,735,037 6,248,700 2.2
------------ -------------- ------
13,526,958 12,695,930 4.4
Health/Personal 2,020,764 Kimberly-Clark de Mexico, S.A. de C.V.
Care (Series A) 6,277,329 5,002,284 1.7
Multi-Industry 496,000 Grupo Carso, S.A. de C.V. 'A' 1,490,672 1,398,350 0.5
Telecommunications 205,118 Telefonos de Mexico, S.A. de C.V.
(ADR)(a) 10,074,221 9,076,472 3.2
Television 31,800 TV Azteca, S.A. de C.V. (ADR)(a) 438,272 208,688 0.1
Total Investments in Mexico 51,581,905 39,182,409 13.7
Venezuela Foreign US$ 4,537,000 Republic of Venezuela, Global Bonds,
Government 9.25% due 9/15/2027 3,058,107 2,518,035 0.9
Obligations
Telecommunications 41,450 Compania Anonima Nacional Telefonos
de Venezuela S.A. (CANTV) (ADR)(a) 685,251 704,650 0.2
Textiles 311,023 Sudamtex de Venezuela S.A.C.A.
(ADR)(a) 4,160,773 439,351 0.2
Total Investments in Venezuela 7,904,131 3,662,036 1.3
Total Investments in Latin America 120,446,511 82,389,086 28.9
MIDDLE
EAST
Egypt Banking 221,225 Commercial International Bank (Egypt)
S.A.E. (GDR)(b) 2,020,811 2,007,617 0.7
Total Investments in Egypt 2,020,811 2,007,617 0.7
Israel Banking 2,369,243 Bank Hapoalim Ltd. 4,993,955 5,791,579 2.0
1,988,177 Bank Leumi Le-Israel 3,631,751 2,939,850 1.1
------------ -------------- ------
8,625,706 8,731,429 3.1
Drugs 50,635 Teva Pharmaceutical Industries Ltd.
(ADR)(a) 1,871,470 1,917,801 0.7
Total Investments in Israel 10,497,176 10,649,230 3.8
Total Investments in the Middle East 12,517,987 12,656,847 4.5
PACIFIC BASIN/
ASIA
China Automobile 3,435,774 Qingling Motor Company (Class H) 1,621,059 665,160 0.2
Telecommunications 641,500 Eastern Communications Co., Ltd.
(Class B) 582,047 279,694 0.1
Utilities-- 2,202,000 Beijing Datang Power Generation Co.,
Electric Ltd. (Class H) 1,015,876 525,774 0.2
Total Investments in China 3,218,982 1,470,628 0.5
Hong Kong Building 12,537,589 Anhui Conch Cement Co., Ltd. 3,572,210 1,132,720 0.4
Products
Telecommunications 320,855 Smartone Telecommunications 857,156 875,850 0.3
Transportation 9,720,000 Sichuan Expressway Co. (Class H) 972,603 815,436 0.3
Total Investments in Hong Kong 5,401,969 2,824,006 1.0
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., September 30, 1998
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
PACIFIC BASIN/
ASIA Percent of
(concluded) Industries Shares Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
India Banking 2,850 State Bank of India $ 21,140 $ 13,463 0.0%
Building Products 800 Associated Cement Companies,
Ltd. (The) 30,882 20,651 0.0
108,263 Gujarat Ambujaya Cements Ltd. (GDR)(b) 893,254 500,716 0.2
------------ -------------- ------
924,136 521,367 0.2
Computer Software 131,900 Pentafour Software & Exports Ltd. 2,423,178 2,232,309 0.8
Energy Sources 1,843 Bombay Suburban Electric Supply Co. Ltd. 10,259 6,897 0.0
120,750 Bombay Suburban Electric Supply Co.
Ltd. (GDR)(b) 1,627,969 1,599,938 0.5
------------ -------------- ------
1,638,228 1,606,835 0.5
Financial Services 106 Housing Development Finance Corp. 9,035 6,050 0.0
4,346 Industrial Credit &Investment
Corporation of India Ltd. 11,011 5,461 0.0
1,122,732 Industrial Credit &Investment
Corporation of India Ltd. (New) 2,763,962 1,430,569 0.5
------------ -------------- ------
2,784,008 1,442,080 0.5
Healthcare/ 71,100 Hindustan Lever Limited 2,854,705 2,819,757 1.0
Personal Care
Leisure & Tourism 51,400 EIH Ltd. 575,881 280,286 0.1
Oil Services 400 Hindustan Petroleum Corporation Ltd. 5,058 2,751 0.0
Telecommunications 281,100 Mahanagar Telephone Nigam Ltd. 2,104,541 1,343,151 0.5
Textiles 1,264 Reliance Industries Ltd. 4,170 3,543 0.0
Total Investments in India 13,335,045 10,265,542 3.6
Indonesia Building Products 1,536,500 P.T. Semen Gresik 'Foreign' 1,165,510 869,717 0.3
Telecommunications 315,265 P.T. Indonesian Satellite Corp.
(Indosat) (ADR)(a) 8,150,650 1,674,845 0.6
Total Investments in Indonesia 9,316,160 2,544,562 0.9
Malaysia Banking 473,000 Malayan Banking BHD (Class A) 993,395 480,468 0.2
Diversified 1,388,000 Magnum Corporation BHD 2,423,922 383,526 0.1
Holdings
Foods 533,000 Nestle (Malaysia) BHD 4,105,653 1,907,579 0.7
Natural Gas 713,000 Petronas Gas BHD 2,966,536 1,210,224 0.4
Oil & Related 1,223,500 Petronas Dagangan BHD 3,111,523 734,100 0.3
Telecommunications 559,000 Telekom Malaysia BHD 1,939,436 882,632 0.3
Tobacco 244,800 Rothmans of Pall Mall (Malaysia) BHD 2,588,279 1,056,505 0.4
Total Investments in Malaysia 18,128,744 6,655,034 2.4
Pakistan Electrical 100 Karachi Electric Supply Corp. Ltd. 66 19 0.0
Components
Total Investments in Pakistan 66 19 0.0
South Electronic 72,420 Samsung Display Devices Co., Ltd. 3,415,214 1,695,103 0.6
Korea Component 12,496 Samsung Display Devices Co.,
Ltd. (Rights)(c) 0 0 0.0
------------ -------------- ------
3,415,214 1,695,103 0.6
Electronics 85,058 Samsung Electronics Co., Ltd. 3,506,971 2,327,839 0.8
Steel 137,860 Pohang Iron & Steel Co., Ltd. 6,837,028 5,473,196 1.9
Total Investments in South Korea 13,759,213 9,496,138 3.3
Taiwan Banking 3,493,545 Bank Sinopac 3,353,948 1,501,612 0.5
2,865,240 E. Sun Commercial Bank 2,045,284 1,252,495 0.4
------------ -------------- ------
5,399,232 2,754,107 0.9
Chemicals 1,460,880 Formosa Plastic Corporation (FPC) 2,711,079 1,883,766 0.7
Electronic Component 550,636 Mosel Vitelic, Inc. 610,323 342,940 0.1
Steel 2,444,000 China Steel Corporation 1,613,940 1,464,971 0.5
Transportation-- 3,458,750 Yang Ming Marine Transport 4,113,233 2,508,099 0.9
Marine
Total Investments in Taiwan 14,447,807 8,953,883 3.1
Thailand Banking 576,200 Bangkok Bank Public Co. Ltd.
(Registered Shares) 1,394,909 547,302 0.2
994,900 Thai Farmers Bank Public Company
Limited 'Foreign' 3,688,723 667,803 0.2
------------ -------------- ------
5,083,632 1,215,105 0.4
Building Products 1,218,754 Siam City Cement Public Company
Limited 'Foreign' 4,975,615 1,913,950 0.7
Television 404,500 BEC World Public Company Limited 4,263,876 1,977,419 0.7
Total Investments in Thailand 14,323,123 5,106,474 1.8
Total Investments in the Pacific
Basin/Asia 91,931,109 47,316,286 16.6
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., September 30, 1998
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
SHORT-TERM Face Percent of
SECURITIES Amount Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Commercial US$ 12,000,000 Concord Minutemen Capital Co. LLC,
Paper* 5.54% due 10/15/1998 $ 11,974,147 $ 11,974,147 4.2%
10,000,000 Countrywide Home Loans, Inc., 5.53%
due 10/02/1998 9,998,464 9,998,464 3.5
10,000,000 Edison Asset Securitization LLC, 5.53%
due 10/09/1998 9,987,711 9,987,711 3.5
9,317,000 General Motors Acceptance Corp.,
5.88% due 10/01/1998 9,317,000 9,317,000 3.3
10,000,000 Knight-Ridder, Inc., 5.60% due
10/08/1998 9,989,111 9,989,111 3.5
10,000,000 Lexington Parker Inc., 5.54% due
10/09/1998 9,987,689 9,987,689 3.5
3,791,000 Mont Blanc Capital Corp., 5.52%
due 10/15/1998 3,782,862 3,782,862 1.3
10,000,000 Thames Asset Global Securitization
Inc., 5.57% due 10/16/1998 9,976,791 9,976,791 3.5
Total Investments in Short-Term
Securities 75,013,775 75,013,775 26.3
Total Investments $388,947,210 277,776,005 97.5
============
Other Assets Less Liabilities 7,247,447 2.5
-------------- ------
Net Assets $ 285,023,452 100.0%
============== ======
Net Asset Value: Class A--Based on net assets of $146,366,231 and
18,902,406 shares outstanding $ 7.74
==============
Class B--Based on net assets of $99,919,971 and
13,135,629 shares outstanding $ 7.61
==============
Class C--Based on net assets of $19,647,116 and
2,592,452 shares outstanding $ 7.58
==============
Class D--Based on net assets of $19,090,134 and
2,473,950 shares outstanding $ 7.72
==============
<FN>
*Commercial Paper is traded on a discount basis; the interest rates
shown reflect the discount rate paid at the time of purchase by the
Fund.
++Brady Bonds are securities which have been issued to refinance
commercial bank loans and other debt. The risk associated with these
instruments is the amount of uncollateralized principal or interest
payments since there is a high default of commercial bank loans by
countries issuing these securities.
(a)American Depositary Receipts (ADR).
(b)Global Depositary Receipts (GDR).
(c)The rights may be exercised until 10/15/98.
</TABLE>
PORTFOLIO INFORMATION
Ten Largest Equity Holdings Percent of
As of September 30, 1998 Net Assets
Telefonos de Mexico, S.A. de C.V. (ADR) 3.2%
Elektrim Spolka Akcyjna S.A. 2.4
Bank Hapoalim Ltd. 2.0
Telecomunicacoes Brasilieras S.A.--
Telebras (ADR)* 2.0
Pohang Iron & Steel Co., Ltd. 1.9
Wielkopolski Bank Kredytowy S.A. 1.9
Mol Magyar Olay--es Gazipari Reszvenytarsasag
(GDR) 1.9
Kimberly-Clark de Mexico, S.A. de C.V. (Series A) 1.7
Grupo Televisa, S.A. de C.V. (GDR) 1.7
Magyar TavKozlesi Reszvenytarsasag (MATAV)
(Ordinary) 1.6
[FN]
*Includes combined holdings.
Merrill Lynch Developing Capital Markets Fund, Inc., September 30, 1998
EQUITY PORTFOLIO CHANGES
For the Quarter Ended September 30, 1998
Additions
Bombay Suburban Electric Supply Co. Ltd.
(GDR)
Centrais Eletricas Basileiras S.A.
(Eletrobras)
Coca-Cola Beverages PLC
Companhia Vale do Rio Doce
Embratel Participacoes S.A.
Hindustan Lever Limited
South African Breweries Ltd. (US Registered
Shares)
TV Azteca, S.A. de C.V. (ADR)
Tele Celular Sul Participacoes S.A.
Tele Centro Oeste Celular Participacoes
S.A.
Tele Centro Sul Participacoes S.A.
Tele Leste Celular Participacoes S.A.
Tele Nordeste Celular Participacoes S.A.
Tele Norte Celular Participacoes S.A.
Tele Norte Leste Participacoes S.A.
Tele Sudeste Celular Participacoes S.A.
Telemig Celular Participacoes S.A.
Telesp Celular Participacoes S.A.
Telesp Participacoes S.A.
Teva Pharmaceutical Industries Ltd. (ADR)
YPF S.A. (ADR)
Deletions
Alpha Credit Bank S.A.
Adana Cimento Sanayii T.A.S. (Class A)
Akbank T.A.S. (Ordinary)
Apasco, S.A. de C.V.
Arcelik A.S.
BIG Bank Gdanski S.A. (GDR)
Banco de Galicia y Buenos Aires S.A. (ADR)
Beijing Yanhua Petrochemical Company Ltd.
(Class H)(ADR)
Billiton PLC
C.A. La Electricidad de Caracas S.A.I.C.A.--
S.A.C.A.
City Telecom (H.K.) Ltd.
Companhia Paranaense de Energia S.A.--
Copel (ADR)
Companhia de Vale do Rio Doce S.A.
(Preferred)
Elval S.A.
Gedeon Richter Ltd. (GDR)
Grupo Carso, S.A. de C.V. (ADR)
Grupo Financiero Banamex Accival S.A. 'B'
(Banacci)
Hellenic Petroleum S.A.
Henderson China Holding Ltd.
Hicom Holdings BHD
Malayan Banking BHD
Nasionale Pers Beperk (Class N)
Northern Electric Telekomunikasyon A.S.
(NETAS)
P.T. Telekomunikasi Indonesia (ADR)
Pick'n Pay Stores Ltd. (N Shares)
Rembrandt Controlling Investments Ltd.
Sun International (South Africa) Ltd.
Sinocan Holdings Ltd.
Tata Chemicals Ltd.
Uniao de Bancos Brasileiros S.A. (Unibanco) (GDR)
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Grace Pineda, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Barbara G. Fraser, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02119
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
