MERRILL LYNCH
DEVELOPING
CAPITAL MARKETS
FUND, INC.
FUND LOGO
Semi-Annual Report
December 31, 1998
Officers and Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
Roland M. Machold, 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
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
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 Depicting the Fund's Asset Allocation As a Percentage* of Net
Assets as of December 31, 1998
PERU 0.1%
VENEZUELA 1.1%
BRAZIL 13.6%
ITALY 0.7%
HUNGARY 4.1%
POLAND 5.0%
RUSSIA 0.1%
GREECE 3.9%
TURKEY 1.8%
PAKISTAN 0.0%**
INDIA 5.5%
MALAYSIA 4.6%
THAILAND 2.8%
CHINA 0.7%
SOUTH KOREA 8.3%
MEXICO 14.5%
CHILI 0.7%
ARGENTINA 1.9%
PORTUGAL 0.7%
EGYPT 0.8%
SOUTH AFRICA 8.2%
ISRAEL 3.3%
INDONESIA 2.6%
HONG KONG 1.1%
TAIWAN 7.0%
[FN]
*Total may not equal 100%.
**Amount is less than 0.1%.
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1998
DEAR SHAREHOLDER
During the three-month period ended December 31, 1998, Merrill Lynch
Developing Capital Markets Fund, Inc.'s Class A, Class B, Class C
and Class D Shares had total returns of +12.42%, +11.98%, +12.02%
and +12.19%, 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 5 and 6 of this report
to shareholders.) The total return of the unmanaged Morgan Stanley
Capital International Emerging Markets Free (MSCI EMF) Index was
+17.99% during the same period. (References to securities markets of
all countries in this letter to shareholders correspond to those
countries' market weightings in the MSCI EMF Index, unless otherwise
noted, and are for the three-month period ended December 31, 1998.)
Detrimental to performance were the Fund's underweighted positions
in South Korea and Russia, which rose 114.40% and 68.38%,
respectively, and stock selection in Brazil. Beneficial to
performance were the Fund's overweighted position in Indonesia, up
125.56% for the quarter, and stock selection in South Africa.
Investment Overview
Global equity markets showed strong gains during the quarter ended
December 31, 1998. The unmanaged MSCI World Index, a proxy for the
US and international markets combined, rose 21.11% for the quarter,
while the US market was up almost 22% (as measured by the unmanaged
MSCI USA Index). Emerging markets in Asia appreciated by 33.76% (as
measured by the MSCI EMF Asia Index), while those in Europe were up
over 26% (as measured by the MSCI Emerging Markets Europe Index).
For emerging markets, the sharpest rallies were in Asia, notably in
Indonesia and South Korea. The rallies in many of these markets were
coming off very low bases, since these markets, over a longer
period, had been among the worst performers. In emerging Europe,
Russia performed well during the December quarter, up 68.38%. Among
the markets in emerging Europe where we have significant exposures,
Hungary and Greece were up 38.63% and 28.23%, respectively. Most
Latin American markets also performed well during the December
quarter, with the unmanaged MSCI EMF Latin America Index up 7.08%.
The South African market appreciated by 4.81% during the December
quarter.
Extremely beneficial to global markets was the series of interest
rate cuts initiated by the US Federal Reserve Board in mid-September
and more recently instituted by central banks in the Group of Seven
Industrialized nations. Also helping to restore investor confidence
was the International Monetary Fund (IMF)-led $42 billion rescue
package for Brazil, put together at the beginning of November.
In Latin America, one of the best-performing markets was the
Venezuelan market, which was up 20.84%. Venezuelan stocks rallied
strongly after the December elections in which the populist
candidate Hugo Chavez was elected president. Mr. Chavez indicated
that Venezuela would continue to honor its foreign debt obligations
and that there would be no attempts to retroactively undo the
strategic alliances in such key sectors as petroleum exploration or
mining.
The Mexican market appreciated by 10.90%. In this market, one of our
long standing holdings is Kimberly-Clark de Mexico, S.A. de C.V. We
initially purchased Kimberly-Clark ten years ago. This is a consumer
and industrial paper products company whose defensive qualities we
like, especially in a volatile market. The company has a strong
balance sheet, a solid profitability record and a high dividend
yield. Weak local competition in the company's core product areas
affords pricing power, and we expect that this year it will be able
to put through the first real price increases in its products since
the peso crisis.
During the December quarter, the Brazilian market appreciated a
scant 0.55%, despite a very strong rally through November. Positive
developments, such as the re-election of President Cardoso in
October, the launching of an IMF-led $42 billion rescue package for
Brazil in November, and a series of global interest rate cuts, were
not enough to permanently remove investor concerns surrounding
Brazil's fiscal and funding problems and its overvalued currency.
The market appreciated by 27.6% from August through November.
However, the exuberance that investors demonstrated in the Brazilian
market during that period was quickly undone in December when a
significant piece of legislation regarding social security reform
stalled in the congress. While such developments as the IMF package
indicate a short-term solution to Brazil's troubles, the fact
remains that the country is very highly leveraged and is still in
need of fiscal reform. For this reason, even minor setbacks take on
large proportions.
Among Brazilian stocks, there are several of the Telebras S.A. spin-
offs that we find attractive. One of our favorite stocks is Tele
Norte Leste Participacoes S.A. Tele Norte Leste is one of the three
wire line companies spun off from the Telebras break up last year.
Not only is it the largest fixed-line company in Latin America, it
is also the least expensive on a per line basis. Among other
concerns, investors cite the fact that the company is not controlled
by a foreign telecom company and that its concession area, the north
and northeast of Brazil, is very poor. Our analysis reveals that the
operating characteristics are not that different from those of other
wire line companies in terms of revenues per line and cash flow per
line. The region is poor, but it is very underpenetrated. Gross
domestic product (GDP) per capita is half of the Sao Paolo
concession area, but so are the number of lines per 100 inhabitants.
However, we believe there is potential for growth, and the company
has a very strong balance sheet. Once cash is netted out, the
company has no debt. Furthermore, the company has American
Depositary Receipts that are very liquid and that trade on the New
York Stock Exchange.
For the most part, Asian markets rallied strongly during the
December quarter. The strongest market was Indonesia, which
appreciated by 125.56%. The fact that the currency in Indonesia has
stabilized since the crisis last year has helped to buoy the market.
More recently, the government announced that elections will be held
in June. The South Korean market (+114.40%), another strong market,
was helped by a combination of factors, including declining interest
rates, a stabilizing currency, a growing current account surplus and
ample liquidity. The South Korean market experienced record trading
volume in December.
One of the Fund's largest holdings at the end of December was
Samsung Electronics Co., Ltd. Samsung Electronics is the leading
dynamic random access memory company in the world, accounting for
18% of the world's production. Consolidation in this industry has
been ongoing since the middle of last year to eliminate the excess
capacity that has been plaguing the industry since 1996. Demand
remains healthy, largely from personal computer sales in the United
States and Europe, which offset the losses from Japan and the rest
of Asia. In addition, the company is reorganizing its operations,
and intends to exit the automobile business, which has been a major
cash drain for the group. Other businesses, including thin film
transistors liquid crystal display, which are mostly used as screens
for notebook personal computers and cellular handsets, are
performing very well, with strong demand coming from the United
States going into 1999.
The Malaysian market was up 63.57% for the December quarter. This is
a market where the government, after sharply cutting interest rates,
implemented capital controls limiting repatriation of proceeds from
security sales. Furthermore, the government embarked on an
expansionary fiscal policy, with a significant increase in
government spending to boost domestic demand. While in the near term
this policy might mean that the Malaysian economy bottoms out sooner
than ordinarily would have occurred, we are concerned that the
fiscal stimulus spending and the fiscal burden of dealing with
Malaysia's banking problems will lead to large fiscal deficits in
the long term.
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1998
As discussed in our last report to shareholders, capital controls
continue in Malaysia, although they were eased somewhat in February
1999. These modified controls limit the Fund's ability to repatriate
proceeds of its Malaysian investments without penalty. As of
December 31, 1998, approximately 4.6% of the Fund's net assets was
invested in Malaysia.
In emerging Europe, where the Fund maintains some of its largest
overweightings relative to the emerging market index, markets
experienced double-digit increases during the December quarter. The
strongest market was Hungary (+38.63%). A steady decline in
inflation and interest rates have buoyed this market. Furthermore,
the outlook for economic growth, while slowing for 1999 (to 3.2% GDP
growth as compared to an estimated 4.5% for 1998), is expected to
reaccelerate back to 4.5% in the year 2000. The Polish market was up
10.12% as the economy continued to show steady real growth of
between 5%--6% despite high real interest rates. Poland, like
Hungary, previously had been hit because of the Russian spillover
effect, although the linkage between these two countries and Russia
is actually small.
Although investor confidence in Greece was shaken by the Russian
financial crisis, there recently has been renewed interest in its
market, which rose 28.23%. This was spurred, in part, by a lowering
of interest rates. National Bank of Greece S.A. (NBG) is one of the
largest retail banks in the country. We bought shares of this
company about a year ago when the Greek currency was devalued and
the decision was made to join the European monetary system. Since
then, interest rates have been declining in Greece, benefiting the
performance of the banking sector. NBG has a market share of 40% in
deposits and 25% in lending. Since new management took over in 1996,
NBG has been undergoing a major restructuring program that includes
strengthening its balance sheet, making significant provisions
against loan losses and raising additional capital.
In the Middle East/Africa region, South Africa, which is the largest
market, appreciated by 4.81%. The stabilization of the rand led the
Reserve Bank of South Africa to cut interest rates. In the absence
of negative news, the market moved higher. However, we believe that
South Africa will remain somewhat vulnerable as long as commodity
prices remain depressed.
In Israel (+4.62%), the weak shekel and concerns about rising
inflation and poor corporate earnings results have continued to
pressure the Israeli market. One of our Israeli holdings, Teva
Pharmaceutical Industries Ltd., is not very sensitive to these
domestic concerns. Teva is a fully integrated international
pharmaceutical company. Although it is an Israeli company, it is the
third-largest generic drug producer in the United States. Since
June, it has received a number of US Food and Drug Administration
approvals. This includes its proprietary product, Copaxone, which is
used by patients with multiple sclerosis.
The Turkish market, despite ongoing political uncertainty,
appreciated by 5.32%. The contagion effect from the Russian
financial crisis has weighed heavily on Turkey, because Turkey and
Russia are trading partners. Furthermore, during the quarter
investors witnessed a political corruption scandal which ultimately
brought down the government. An interim government has been
appointed, but volatility in the market remains high.
In Conclusion
The past three months have seen rallies in most emerging market
stock markets. Countering the potential for a continued rally is the
realization that many of the countries in which we invest are
confronting the dual challenges of a slowdown in global demand for
the goods they export and scarce availability of external financing.
For these reasons, we believe that many of these markets will
continue to be marked by high volatility. We would remind our
shareholders that investing in these markets requires a long-term
view and a tolerance for risk.
We thank you for your interest in Merrill Lynch Developing Capital
Markets Fund, Inc., and we look forward to reviewing our outlook and
strategy with you in our next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Grace Pineda)
Grace Pineda
Senior Vice President and
Portfolio Manager
February 8, 1999
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.
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1998
PERFORMANCE DATA (concluded)
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 12/31/98 -32.13% -35.69%
Five Years Ended 12/31/98 - 9.23 -10.20
Inception (9/01/89) through 12/31/98 + 2.95 + 2.36
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 12/31/98 -32.85% -35.52%
Inception (7/01/94) to 12/31/98 - 8.25 - 8.25
[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 12/31/98 -32.87% -33.54%
Inception (10/21/94) to 12/31/98 -11.80 -11.80
[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 12/31/98 -32.33% -35.89%
Inception (10/21/94) to 12/31/98 -11.10 -12.23
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<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 -32.13% +12.42% +31.17%
ML Developing Capital Markets Fund Class B Shares -32.85 +11.98 -32.12
ML Developing Capital Markets Fund Class C Shares -32.87 +12.02 -40.94
ML Developing Capital Markets Fund Class D Shares -32.33 +12.19 -38.95
<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 since inception periods are: Class A Shares, from 9/01/89 to
12/31/98; Class B Shares, from 7/01/94 to 12/31/98; and Class C &
Class D Shares, from 10/21/94 to 12/31/98.
</TABLE>
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Held/ Value Percent of
AFRICA Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
South Banking 53,289 Nedcor Limited $ 933,240 $ 906,584 0.4%
Africa
Beverages 225,356 ++South African Breweries Limited 4,715,424 3,803,218 1.8
566 South African Breweries Limited
(ADR)(a)(c) 15,982 9,535 0.0
------------ ------------ ------
4,731,406 3,812,753 1.8
Diversified 323,065 Sasol Limited 3,644,171 1,222,898 0.6
Holdings
Foreign Republic of South Africa:
Government ZAL 11,800,000 12% due 2/28/2005 2,002,454 1,706,062 0.8
Obligations ZAL 11,400,000 13% due 8/31/2010 1,954,260 1,643,633 0.8
------------ ------------ ------
3,956,714 3,349,695 1.6
Forest Products 361,180 Nampak Limited 547,786 549,942 0.3
Health Insurance 397,680 ++Sanlam Limited 419,309 395,786 0.2
Insurance 3,829,578 FirstRand Limited 4,585,832 4,182,697 2.0
50,550 Liberty Life Association of
Africa Limited 1,637,898 696,589 0.3
------------ ------------ ------
6,223,730 4,879,286 2.3
Mining 885,959 Gencor Limited 2,174,963 1,492,173 0.7
Retail 169,600 Pepkor Limited 539,400 706,907 0.3
Total Investments in Africa 23,170,719 17,316,024 8.2
EUROPE
Greece Banking 23,614 National Bank of Greece S.A. 3,495,484 5,315,048 2.5
Beverages 60,045 Hellenic Bottling Co. 1,585,622 1,854,552 0.9
Cellular Telephones 10,430 ++Panfon Hellenic Telecom Co. 188,001 279,475 0.1
Telecommunications 66,557 ++Hellenic Telecommunication
Organization S.A. (ADR)(a) 733,100 868,569 0.4
Total Investments in Greece 6,002,207 8,317,644 3.9
Hungary Banking 23,614 OTP Bank Rt. (GDR)(b) 1,090,209 1,164,170 0.5
Health/Personal 32,793 Gedeon Richter Ltd. (GDR)(b) 2,692,998 1,401,901 0.7
Care
Oil & Related 150,102 Mol Magyar Olaj-es Gazipari Rt.
(GDR)(b) 4,339,251 4,142,815 2.0
Telecommunications 314,641 Magyar TavKozlesi Rt.--Matav 1,866,837 1,799,410 0.9
Total Investments in Hungary 9,989,295 8,508,296 4.1
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1998
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
EUROPE Shares Held/ Value Percent of
(concluded) Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Italy Beverages 831,820 ++Coca-Cola Beverages PLC $ 2,194,947 $ 1,466,404 0.7%
Total Investments in Italy 2,194,947 1,466,404 0.7
Poland Automotive 106,753 Debica S.A. 2,285,893 1,583,782 0.8
Banking 419,860 Wielkopolski Bank Kredytowy S.A. 3,723,333 2,647,334 1.3
Computers 144,572 ++ComputerLand Poland S.A. 3,186,165 1,773,637 0.8
Electrical 407,114 Elektrim Spolka Akcyjna S.A. 3,906,836 4,413,789 2.1
Components
Total Investments in Poland 13,102,227 10,418,542 5.0
Portugal Telecommunications 32,420 Portugal Telecom S.A. 1,158,035 1,486,463 0.7
Total Investments in Portugal 1,158,035 1,486,463 0.7
Russia Energy Sources 2,025,000 Irkutskenergo 255,918 84,037 0.0
Telecommunications 544,800 ++Bashinformsvyaz 1,455,190 136,200 0.1
169,200 Nizhnovsvyazinform 879,840 50,760 0.0
------------ ------------ ------
2,335,030 186,960 0.1
Utilities--Electric 2,066,208 Bashkirenergo 1,187,599 41,324 0.0
Total Investments in Russia 3,778,547 312,321 0.1
Turkey Banking 92,297,406 Yapi ve Kredi Bankasi A.S. 1,164,704 1,068,935 0.5
Building Products 22,712,637 Akcansa Cimento A.S. 737,785 381,955 0.2
Retail 2,346,037 Migros Turk T.A.S. 2,143,672 2,344,846 1.1
Total Investments in Turkey 4,046,161 3,795,736 1.8
Total Investments in Europe 40,271,419 34,305,406 16.3
LATIN
AMERICA
Argentina Oil & Related 211,276 Perez Companc S.A. (Class B) 1,344,732 894,547 0.4
82,222 YPF Sociedad Anonima (ADR)(a) 2,155,902 2,297,077 1.1
------------ ------------ ------
3,500,634 3,191,624 1.5
Real Estate 32,406 ++IRSA Inversiones y Representa-
ciones S.A. (GDR)(b) 920,021 901,284 0.4
Total Investments in Argentina 4,420,655 4,092,908 1.9
Brazil Banking 1,107,165 Banco Itau S.A. (Preferred) 605,215 540,742 0.3
Beverages 4,091,154 Companhia Cervejaria Brahma (Preferred) 2,561,114 1,788,187 0.9
Foreign Republic Of Brazil:
Government US$ 2,922,852 Floating Rate 'C' Brady Bonds, 6.79%
Obligations due 4/15/2014++++ 1,786,426 1,739,097 0.8
US$ 4,535,000 Floating Rate 'L' Brady Bonds, 5.50%
due 4/15/2024++++ 3,268,688 2,652,975 1.3
US$ 5,618,000 Global Bonds, 10.125% due 5/15/2027 4,487,340 3,735,970 1.8
------------ ------------ ------
9,542,454 8,128,042 3.9
Mining 152,354 Companhia Vale do Rio Doce (Preferred) 3,262,100 1,954,873 0.9
Oil & Related 21,164,202 Petroleo Brasileiro S.A.--Petrobras
(Preferred) 5,066,803 2,400,245 1.1
Telecommunications 45,334,526 ++Embratel Participacoes S.A. 715,005 394,050 0.2
66,120,526 ++Tele Celular Sul Participacoes S.A. 130,355 61,304 0.0
66,120,526 ++Tele Centro Oeste Celular
Participacoes S.A. 56,052 51,999 0.0
66,120,526 ++Tele Centro Sul Participacoes S.A. 783,431 437,884 0.2
66,120,526 ++Tele Leste Celular Participacoes S.A. 40,410 26,273 0.0
66,120,526 ++Tele Nordeste Celular Participacoes S.A. 58,660 33,389 0.0
66,120,526 ++Tele Norte Celular Participacoes S.A. 32,589 21,347 0.0
45,320,526 ++Tele Norte Leste Participacoes S.A. 625,436 371,418 0.2
130,636 ++Tele Norte Leste Participacoes S.A.
(ADR)(a) 2,181,168 1,624,785 0.8
66,120,526 ++Tele Sudeste Celular Participacoes S.A. 260,709 186,101 0.1
66,120,526 ++Telecomunicacoes Brasileiras S.A.--
Telebras 13,035 5,474 0.0
44,184 ++Telecomunicacoes Brasileiras S.A.--
Telebras (ADR)(a) 3,492,303 3,211,625 1.5
66,120,526 ++Telemig Celular Participacoes S.A. 130,355 46,525 0.0
4,000,000 Telerj Celular S.A. 'B' (Preferred) 331,299 94,371 0.1
66,120,526 ++Telesp Celular Participacoes S.A. 521,419 284,625 0.1
68,460,526 ++Telesp Participacoes S.A. 1,598,920 878,426 0.4
------------ ------------ ------
10,971,146 7,729,596 3.6
Utilities-- 128,838,000 ++Centrais Eletricas Basileiras
Electric S.A.--Eletrobras 3,969,906 2,218,403 1.1
195,124,533 Companhia Energetica de Minas Gerais 7,261,906 3,715,119 1.8
S.A. (CEMIG) (Preferred)
------------ ------------ ------
11,231,812 5,933,522 2.9
Total Investments in Brazil 43,240,644 28,475,207 13.6
Chile Banking 16,895 Banco Santander Chile (ADR)(a) 220,649 247,089 0.1
Utilities-- 57,967 Empresa Nacional de Electricidad S.A.
Electric & Gas (Endesa)(ADR)(a) 582,057 659,375 0.3
25,655 Enersis S.A. (ADR)(a) 606,716 662,220 0.3
------------ ------------ ------
1,188,773 1,321,595 0.6
Total Investments in Chile 1,409,422 1,568,684 0.7
Mexico Beverages 147,820 Panamerican Beverages, Inc. (US
Registered Shares)(Class A) 4,680,474 3,224,324 1.6
Broadcast--Media 129,533 ++Grupo Televisa, S.A. de C.V. (GDR)(b) 4,080,801 3,197,846 1.5
Building Products 7,914 Cemex, S.A. de C.V. (ADR)(a) 60,963 34,570 0.0
60,800 Cemex, S.A. de C.V. 'B' 162,661 152,231 0.1
162,355 Cemex, S.A. de C.V. 'B' (ADR)(a) 1,603,563 802,764 0.4
------------ ------------ ------
1,827,187 989,565 0.5
Foreign United Mexican States:
Government US$ 6,806,000 Floating Rate Par Brady Bonds,
Obligations Series W-A, 6.25% due 12/31/2019++++ 5,225,741 5,274,650 2.5
US$ 5,536,000 Global Bonds, 11.50% due 5/15/2026 5,753,448 5,868,160 2.8
------------ ------------ ------
10,979,189 11,142,810 5.3
Health/ 1,047,193 Kimberly-Clark de Mexico, S.A. de
Personal Care C.V. 'A' 3,568,412 3,331,737 1.6
Multi-Industry 496,000 Grupo Carso, S.A. de C.V. (Series 'A1') 1,490,672 1,688,457 0.8
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1998
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
LATIN AMERICA Shares Held/ Value Percent of
(concluded) Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Mexico Telecommunications 135,064 Telefonos de Mexico S.A. (ADR)(a) $ 6,539,506 $ 6,575,928 3.1%
(concluded)
Television 31,800 TV Azteca, S.A. de C.V. (ADR)(a) 438,272 212,662 0.1
Total Investments in Mexico 33,604,513 30,363,329 14.5
Peru Financial Services 24,000 Credicorp Ltd. S.A. 217,176 216,000 0.1
Total Investments in Peru 217,176 216,000 0.1
Venezuela Foreign US$ 1,990,000 Republic of Venezuela, Global Bonds,
Government 9.25% due 9/15/2027 1,153,522 1,213,900 0.6
Obligations
Telecommunications 59,946 Compania Anonima Nacional Telefonos de
Venezuela (CANTV) (ADR)(a) 968,807 1,067,788 0.5
Total Investments in Venezuela 2,122,329 2,281,688 1.1
Total Investments in Latin America 85,014,739 66,997,816 31.9
MIDDLE EAST
Egypt Banking 221,225 Commercial International Bank (c) 2,020,811 1,697,902 0.8
Total Investments in Egypt 2,020,811 1,697,902 0.8
Israel Banking 1,266,121 Bank Hapoalim Ltd. 2,634,330 2,296,659 1.1
1,895,035 Bank Leumi Le-Israel 3,479,700 2,684,237 1.3
------------ ------------ ------
6,114,030 4,980,896 2.4
Drugs 46,841 Teva Pharmaceutical Industries
Ltd. (ADR)(a) 1,732,380 1,905,843 0.9
Total Investments in Israel 7,846,410 6,886,739 3.3
Total Investments in the Middle East 9,867,221 8,584,641 4.1
PACIFIC BASIN/ASIA
China Automobile 3,435,774 Qingling Motor Company, Ltd. (Class H) 1,621,059 603,164 0.3
Telecommunications 641,500 Eastern Communication Co., Ltd.
(Class B) 582,047 275,845 0.1
Utilities--Electric 2,202,000 Beijing Datang Power Generation
Company Limited (Class H) 1,015,876 660,864 0.3
Total Investments in China 3,218,982 1,539,873 0.7
Hong Kong Building Products 12,537,589 ++Anhui Conch Cement Co. Ltd. (Class H) 3,572,210 1,408,009 0.7
Transportation 9,720,000 Sichuan Expressway Co. (Class H) 972,603 853,193 0.4
Total Investments in Hong Kong 4,544,813 2,261,202 1.1
India Banking 2,850 State Bank of India 21,140 10,572 0.0
Building Products 800 Associated Cement Companies, Ltd. (The) 30,882 19,477 0.0
86,082 Gujarat Ambuja Cements Ltd. (GDR)(b) 697,264 574,597 0.3
------------ ------------ ------
728,146 594,074 0.3
Computer Software 131,900 Pentafour Software & Exports Ltd. 2,423,178 2,196,779 1.1
Energy Sources 600 BSES Ltd. 3,300 2,000 0.0
216,711 BSES Ltd. (GDR)(b) 2,854,261 2,790,154 1.3
1,243 Bombay Electrical Supply 6,960 4,143 0.0
------------ ------------ ------
2,864,521 2,796,297 1.3
Financial Services 67 Housing Development Finance
Corporation Ltd. 5,711 3,441 0.0
39 ++Housing Development Finance
Corporation Ltd. (HDFC) 3,324 2,003 0.0
1,127,078 ICICI Ltd. 2,774,972 1,250,094 0.6
------------ ------------ ------
2,784,007 1,255,538 0.6
Healthcare/Personal 71,100 Hindustan Lever Limited 2,854,705 2,788,186 1.3
Care
Leisure & Tourism 51,397 ++EIH Limited 575,881 284,610 0.1
Oil Services 400 Hindustan Petroleum Corporation
Limited 5,058 2,217 0.0
Telecommunications 281,100 Mahanagar Telephone Nigam Ltd. 2,104,541 1,213,992 0.6
34,660 Videsh Sanchar Nigam Ltd. (GDR)(b) 411,380 428,917 0.2
------------ ------------ ------
2,515,921 1,642,909 0.8
Textiles 1,264 Reliance Industries Ltd 4,169 3,624 0.0
Total Investments in India 14,776,726 11,574,806 5.5
Indonesia Building Products 1,536,500 P.T. Semen Gresik (Persero) 1,165,510 1,634,994 0.8
Telecommunications 315,265 P.T. Indosat (Persero) (ADR)(a) 8,150,650 3,842,292 1.8
Total Investments in Indonesia 9,316,160 5,477,286 2.6
Malaysia+++ Banking 473,000 Malayan Banking BHD 993,395 876,934 0.4
Foods 533,000 Nestle (Malaysia) BHD 4,105,653 1,950,679 0.9
Natural Gas 713,000 Petronas Gas BHD 2,966,536 1,476,397 0.7
Oil & Related 606,500 Petronas Dagangan BHD 1,455,819 549,078 0.3
Telecommunications 559,000 Telekom Malaysia BHD 1,939,436 1,345,944 0.7
Tobacco 627,400 Rothmans of Pall Mall (Malaysia) BHD 4,240,742 3,383,823 1.6
Total Investments in Malaysia 15,701,581 9,582,855 4.6
Pakistan Electrical Components 100 Karachi Electric Supply 66 18 0.0
Total Investments in Pakistan 66 18 0.0
South Electronic 72,426 Samsung Display Devices Co., Ltd. 2,968,751 3,579,052 1.7
Korea Components
Electronics 85,058 Samsung Electronics Co., Ltd. 3,506,971 5,720,151 2.7
Steel 38,415 Pohang Iron & Steel Company, Ltd. 1,866,856 2,353,879 1.1
85,860 Pohang Iron & Steel Company, Ltd.
(ADR)(a) 1,309,365 1,448,887 0.7
------------ ------------ ------
3,176,221 3,802,766 1.8
Utilities-- 177,970 Korea Electric Power Corporation 4,249,573 4,419,588 2.1
Electric
Total Investments in South Korea 13,901,516 17,521,557 8.3
Taiwan Banking 3,493,545 Bank Sinopac 3,353,948 1,270,577 0.6
2,865,240 ++E. Sun Commercial Bank 2,045,284 1,238,012 0.6
------------ ------------ ------
5,399,232 2,508,589 1.2
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1998
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
PACIFIC BASIN/
ASIA Shares Value Percent of
(concluded) Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Taiwan Building Products 689,000 Asia Cement Corporation $ 598,150 $ 648,949 0.3%
(concluded)
Cement 1,115,000 Taiwan Cement Corporation 1,010,517 963,537 0.4
Chemicals 1,460,880 ++Formosa Plastic Corporation 2,711,079 2,125,247 1.0
Electronic 550,636 ++Mosel Vitelic, Inc. 610,323 522,052 0.3
Components
Health Insurance 711,000 Cathay Life Insurance Co., Ltd. 2,432,441 2,298,539 1.1
Semiconductors 1,138,000 ++Taiwan Semiconductor Manufacturing
Company 2,419,758 2,511,595 1.2
Steel 2,444,000 China Steel Corporation 1,613,940 1,473,845 0.7
Transportation 759,750 ++Yang Ming Marine Transport Corp. 889,728 521,930 0.3
--Marine
Venture Capital 612,000 ++China Development Industrial Bank Inc. 1,216,809 1,122,412 0.5
Total Investments in Taiwan 18,901,977 14,696,695 7.0
Thailand Banking 576,200 ++Bangkok Bank Public Company
Limited 'Foreign' 1,394,909 1,192,138 0.6
994,900 ++Thai Farmers Bank Public Company
Limited 'Foreign' 3,688,723 1,756,513 0.8
------------ ------------ ------
5,083,632 2,948,651 1.4
Television 527,500 BEC World Public Company Limited
'Foreign' 5,011,680 2,910,345 1.4
Total Investments in Thailand 10,095,312 5,858,996 2.8
Total Investments in the Pacific
Basin/Asia 90,457,133 68,513,288 32.6
SHORT-TERM Face
SECURITIES Amount
<S> <S> <C> <S> <C> <C> <C>
Commercial US$ 1,851,000 General Motors Acceptance Corp.,
Paper* 5.13% due 1/04/1999 1,850,209 1,850,209 0.9
6,000,000 Lexington Parker Capital Company,
LLC, 5.45% due 1/05/1999 5,996,367 5,996,367 2.9
Foreign Trl 285,900,000,000 Turkish Treasury Bill, 115.05% due
Government 7/21/1999 5,824,806 5,677,902 2.7
Obligations*
Total Investments in Short-Term
Securities 13,671,382 13,524,478 6.5
Total Investments $262,452,613 209,241,653 99.6
============
Other Assets Less Liabilities 845,082 0.4
------------ ------
Net Assets $210,086,735 100.0%
============ ======
<FN>
*Commercial Paper and certain Foreign Government Obligations are traded
on a discount basis; the interest rates shown reflect the discount rates paid
at the time of purchase by the Fund.
++Non-income producing security.
++++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 any uncollateralized principal or interest payments since
there is a high default rate of commercial bank loans by countries issuing
these securities.
+++On October 21, 1998, the Fund's Board of Directors decided to discount the
current Malaysian exchange rate of 3.80 by 12%. This is due to the capital
controls implemented by the Malaysian government, which froze the Malaysian
ringgit at 3.80 until September 1, 1999. The discount will be amortized on a
daily basis from 12% to zero through September 1, 1999.
(a)American Depositary Receipts (ADR).
(b)Global Depositary Receipts (GDR).
(c)The security may be offered and sold to "qualified institutional buyers"
under Rule 144A of the Securities Act of 1933.
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of December 31, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$262,452,613) (Note 1a) $ 209,241,653
Foreign cash (Note 1c) 2,514,442
Receivables:
Securities sold $ 1,459,946
Interest 585,599
Dividends 544,783
Capital shares sold 126,860 2,717,188
-------------
Prepaid expenses and other assets (Note 1f) 34,459
-------------
Total assets 214,507,742
-------------
Liabilities: Payables:
Capital shares redeemed 2,524,828
Securities purchased 617,974
Investment adviser (Note 2) 183,406
Distributor (Note 2) 102,042 3,428,250
-------------
Accrued expenses and other liabilities 992,757
-------------
Total liabilities 4,421,007
-------------
Net Assets: Net assets $ 210,086,735
=============
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000
Consist of: shares authorized $ 926,584
Class B Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 1,108,079
Class C Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 217,668
Class D Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 209,291
Paid-in capital in excess of par 512,036,936
Accumulated distributions in excess of investment income--net
(Note 1g) (6,197,214)
Accumulated realized capital losses on investments and foreign
currency transactions--net (215,059,177)
Accumulated distributions in excess of realized capital losses on
investments and foreign currency transactions--net (Note 1g) (29,846,658)
Unrealized depreciation on investments and foreign currency
transactions--net (53,308,774)
-------------
Net assets $ 210,086,735
=============
Net Asset Class A--Based on net assets of $80,011,964 and 9,265,836
Value: shares outstanding $ 8.64
=============
Class B--Based on net assets of $93,732,590 and 11,080,795
shares outstanding $ 8.46
=============
Class C--Based on net assets of $18,343,517 and 2,176,679
shares outstanding $ 8.43
=============
Class D--Based on net assets of $17,998,664 and 2,092,914
shares outstanding $ 8.60
=============
See Notes to Consolidated Financial Statements.
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1998
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended December 31, 1998
<S> <S> <C> <C>
Investment Income Dividends (net of $403,129 foreign withholding tax) $ 3,031,598
(Notes 1d & 1e): Interest and discount earned 2,574,141
Other 43,882
-------------
Total income 5,649,621
-------------
Expenses: Investment advisory fees (Note 2) $ 1,535,723
Account maintenance and distribution fees--Class B (Note 2) 593,319
Custodian fees 429,602
Transfer agent fees--Class A (Note 2) 401,758
Transfer agent fees--Class B (Note 2) 388,239
Account maintenance and distribution fees--Class C (Note 2) 117,174
Printing and shareholder reports 102,449
Accounting services (Note 2) 98,052
Transfer agent fees--Class C (Note 2) 77,356
Transfer agent fees--Class D (Note 2) 66,508
Registration fees (Note 1f) 61,549
Professional fees 55,929
Dividend fees 37,992
Account maintenance fees--Class D (Note 2) 28,452
Directors' fees and expenses 22,726
Pricing fees 6,869
Other 32,794
-------------
Total expenses 4,056,491
-------------
Investment income--net 1,593,130
-------------
Realized & Realized loss from:
Unrealized Gains Investments--net (107,490,239)
(Loss) on Foreign currency transactions--net (694,885) (108,185,124)
Investments & -------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 25,959,674
(Notes 1b, 1c, Foreign currency transactions--net 46,108 26,005,782
1e & 3): ------------- -------------
Net realized and unrealized loss on investments and
foreign currency transactions (82,179,342)
-------------
Net Decrease in Net Assets Resulting from Operations $ (80,586,212)
=============
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 1998 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 1,593,130 $ 282,261
Realized loss on investments and foreign currency
transactions--net (108,185,124) (116,151,091)
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 26,005,782 (227,927,015)
------------- -------------
Net decrease in net assets resulting from operations (80,586,212) (343,795,845)
------------- -------------
Dividends & Investment income--net:
Distributions to Class A -- (3,476,156)
Shareholders Class B -- (1,510,618)
(Note 1g): Class C -- (306,010)
Class D -- (421,011)
In excess of investment income--net:
Class A -- (2,738,268)
Class B -- (1,189,956)
Class C -- (241,052)
Class D -- (331,643)
In excess of realized gain on investments--net:
Class A (567,181) (14,124,131)
Class B (682,842) (10,342,043)
Class C (135,257) (1,974,039)
Class D (129,719) (1,891,446)
------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (1,514,999) (38,546,373)
------------- -------------
Capital Share Net decrease in net assets derived from capital share
Transactions transactions (156,188,289) (184,994,706)
(Note 4): ------------- -------------
Net Assets: Total decrease in net assets (238,289,500) (567,336,924)
Beginning of period 448,376,235 1,015,713,159
------------- -------------
End of period $ 210,086,735 $ 448,376,235
============= =============
See Notes to Consolidated Financial Statements.
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1998
<TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
The following per share data and ratios For the
have been derived from information provided Six Months
in the financial statements. Ended
Dec. 31, For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 1998++ 1998++ 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.44 $ 17.23 $ 15.05 $ 13.35 $ 14.61
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .07 .08 .36 .23 .24
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (1.81) (6.18) 2.21 1.71 (.40)
-------- -------- -------- -------- --------
Total from investment operations (1.74) (6.10) 2.57 1.94 (.16)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.12) (.28) (.24) (.04)
In excess of investment income--net -- (.09) -- -- --
Realized gain on investments--net -- -- (.11) -- (.60)
In excess of realized gain on investments--net (.06) (.48) -- -- (.46)
-------- -------- -------- -------- --------
Total dividends and distributions (.06) (.69) (.39) (.24) (1.10)
-------- -------- -------- -------- --------
Net asset value, end of period $ 8.64 $ 10.44 $ 17.23 $ 15.05 $ 13.35
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (16.65%)+++ (36.00%) 17.66% 14.82% (1.67%)
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.11%* 1.63% 1.53% 1.54% 1.62%
Net Assets: ======== ======== ======== ======== ========
Investment income--net 1.58%* .53% 2.32% 1.66% 1.56%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 80,012 $219,422 $471,790 $342,884 $350,081
Data: ======== ======== ======== ======== ========
Portfolio turnover 39.11% 98.16% 86.68% 71.01% 63.37%
======== ======== ======== ======== ========
<CAPTION>
Class B
The following per share data and ratios For the For the
have been derived from information provided Six Months Period
in the financial statements. Ended July1, 1994++++
Dec. 31, For the Year Ended June 30, to June 30,
Increase (Decrease) in Net Asset Value: 1998++ 1998++ 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.28 $ 17.04 $ 14.90 $ 13.24 $ 14.54
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .02 (.07) .19 .09 .08
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (1.78) (6.08) 2.20 1.69 (.32)
-------- -------- -------- -------- --------
Total from investment operations (1.76) (6.15) 2.39 1.78 (.24)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.07) (.14) (.12) --
In excess of investment income--net -- (.06) -- -- --
Realized gain on investments--net -- -- (.11) -- (.60)
In excess of realized gain on
investments--net (.06) (.48) -- -- (.46)
-------- -------- -------- -------- --------
Total dividends and distributions (.06) (.61) (.25) (.12) (1.06)
-------- -------- -------- -------- --------
Net asset value, end of period $ 8.46 $ 10.28 $ 17.04 $ 14.90 $ 13.24
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (17.11%)+++ (36.68%) 16.39% 13.63% (2.22%)+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 3.22%* 2.67% 2.57% 2.56% 2.79%*
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net .46%* (.53%) 1.22% .65% 1.01%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 93,733 $164,929 $398,468 $302,183 $162,774
Data: ======== ======== ======== ======== ========
Portfolio turnover 39.11% 98.16% 86.68% 71.01% 63.37%
======== ======== ======== ======== ========
<CAPTION>
Class C
The following per share data and ratios For the For the
have been derived from information provided Six Months Period
in the financial statements. Ended Oct. 21, 1994++++
Dec. 31, For the Year Ended June 30, to June 30,
Increase (Decrease) in Net Asset Value: 1998++ 1998++ 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.24 $ 16.99 $ 14.87 $ 13.22 $ 16.71
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .02 (.07) .18 .09 .08
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (1.77) (6.08) 2.20 1.70 (2.50)
-------- -------- -------- -------- --------
Total from investment operations (1.75) (6.15) 2.38 1.79 (2.42)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.07) (.15) (.14) (.01)
In excess of investment income--net -- (.05) -- -- --
Realized gain on investments--net -- -- (.11) -- (.60)
In excess of realized gain on
investments--net (.06) (.48) -- -- (.46)
-------- -------- -------- -------- --------
Total dividends and distributions (.06) (.60) (.26) (.14) (1.07)
-------- -------- -------- -------- --------
Net asset value, end of period $ 8.43 $ 10.24 $ 16.99 $ 14.87 $ 13.22
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (17.08%)+++ (36.69%) 16.37% 13.68% (14.97%)+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 3.22%* 2.68% 2.58% 2.56% 2.96%*
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net .44%* (.51%) 1.19% 0.67% 1.32%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 18,343 $ 32,339 $ 71,769 $ 46,983 $ 18,573
Data: ======== ======== ======== ======== ========
Portfolio turnover 39.11% 98.16% 86.68% 71.01% 63.37%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
++++Commencement of operations.
+++Aggregate total investment return.
See Notes to Consolidated Financial Statements.
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1998
<TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class D
The following per share data and ratios For the For the
have been derived from information provided Six Months Period
in the financial statements. Ended Oct. 21, 1994++++
Dec. 31, For the Year Ended June 30, to June 30,
Increase (Decrease) in Net Asset Value: 1998++ 1998++ 1997++ 1996++ 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 10.41 $ 17.19 $ 15.02 $ 13.33 $ 16.77
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .06 .04 .32 .21 .13
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (1.81) (6.15) 2.20 1.69 (2.48)
-------- -------- -------- -------- --------
Total from investment operations (1.75) (6.11) 2.52 1.90 (2.35)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.11) (.24) (.21) (.03)
In excess of investment income--net -- (.08) -- -- --
Realized gain on investments--net -- -- (.11) -- (.60)
In excess of realized gain on
investments--net (.06) (.48) -- -- (.46)
-------- -------- -------- -------- --------
Total dividends and distributions (.06) (.67) (.35) (.21) (1.09)
-------- -------- -------- -------- --------
Net asset value, end of period $ 8.60 $ 10.41 $ 17.19 $ 15.02 $ 13.33
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (16.80%)+++ (36.13%) 17.30% 14.55% (14.49%)+++
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.40%* 1.88% 1.78% 1.76% 2.19%*
Net Assets: ======== ======== ======== ======== ========
Investment income--net 1.28%* .28% 2.06% 1.48% 2.10%*
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 17,999 $ 31,686 $ 73,686 $ 57,821 $ 21,899
Data: ======== ======== ======== ======== ========
Portfolio turnover 39.11% 98.16% 86.68% 71.01% 63.37%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
++++Commencement of operations.
+++Aggregate total investment return.
See Notes to Consolidated Financial Statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Developing Capital Markets Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a non-
diversified, open-end management investment company. The Fund's
financial statements are prepared in accordance with generally
accepted accounting principles which may require the use of
management accruals and estimates. These unaudited financial
statements reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal
recurring nature. The Fund offers four classes of shares under the
Merrill Lynch Select Pricing SM System. Shares of Class A and Class D
are sold with a front-end sales charge. Shares of Class B and Class
C may be subject to a contingent deferred sales charge. All classes
of shares have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that Class B, Class
C and Class D Shares bear certain expenses related to the account
maintenance of such shares, and Class B and Class C 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. The
following is a summary of significant accounting policies followed
by the Fund.
(a) Valuation of securities--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities which are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written or
purchased are valued at the last sale price in the case of exchange-
traded options. In the case of options traded in the over-the-
counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). Short-term securities are
valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market value
quotations are not available are valued at their fair value as
determined in good faith by or under the direction of the Fund's
Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such
contracts.
* Foreign currency options and futures--The Fund may also purchase
or sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to
hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund.
* Options--The Fund is authorized to write put and covered call
options and purchase call and put 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 and purchased options are non-income producing investments.
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts
for the purpose of hedging the market risk on existing securities or
the intended purchase of securities. Futures contracts are contracts
for delayed delivery of securities at a specific future date and at
a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund agrees to receive from or pay to the broker
an amount of cash equal to the daily fluctuation in value of the
contract. Such receipts or payments are known as variation margin
and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal
to the difference between the value of the contract at the time it
was opened and the value at the time it was closed.
(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 US 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 all of its taxable income to
its shareholders. Therefore, no Federal income tax provision is
required. Under the applicable foreign tax law, a withholding tax
may be imposed on interest, dividends and capital gains at various
rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend dates. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on
the identified cost basis.
(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. Distributions in
excess of investment income and realized capital gains are due
primarily to differing tax treatments for foreign currency
transactions.
(h) Basis of consolidation--The accompanying consolidated financial
statements include the accounts of Inversiones en Marcado Accionario
de Valores Chile Limitada., a wholly-owned subsidiary, which
primarily invests in Chilean securities. Intercompany accounts and
transactions have been eliminated.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect, wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
a limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor ("MLFD" or "Distributor"), a division of Princeton Funds
Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
MLAM 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 of 1.0%, on an annual basis,
of the average daily value of the Fund's net assets.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML &
Co., also provides account maintenance and distribution services to
the Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the six months ended December 31, 1998, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Fund's Class A and Class D Shares as
follows:
MLFD MLPF&S
Class A $ 547 $ 8,614
Class D $1,579 $20,770
For the six months ended December 31, 1998, MLPF&S received
contingent deferred sales charges of $293,989 and $5,275 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $196,604 in commissions on the
execution of portfolio security transactions for the Fund for the
six months ended December 31, 1998.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended December 31, 1998 were $103,904,482 and
$229,314,881, respectively.
Net realized gains (losses) for the six months ended December 31,
1998 and net unrealized losses as of December 31, 1998 were
as follows:
Realized
Gains Unrealized
(Losses) Losses
Long-term investments $(107,490,961) $(53,210,960)
Short-term investments 722 --
Foreign currency transactions (694,885) (97,814)
------------- ------------
Total $(108,185,124) $(53,308,774)
============= ============
As of December 31, 1998, net unrealized depreciation for Federal
income tax purposes aggregated $53,210,960, of which $8,876,404
related to appreciated securities and $62,087,364 related to
depreciated securities. The aggregate cost of investments at
December 31, 1998 for Federal income tax purposes was $262,452,613.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $156,188,289 and $184,994,706 for the six months ended December
31, 1998 and the year ended June 30, 1998, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
December 31, 1998 Shares Amount
Shares sold 1,169,854 $ 11,243,661
Shares issued to shareholders
in reinvestment of distributions 59,063 489,044
------------- ------------
Total issued 1,228,917 11,732,705
Shares redeemed (12,989,333) (107,480,699)
------------- ------------
Net decrease (11,760,416) $(95,747,994)
============= ============
Class A Shares for the
Year Ended Dollar
June 30, 1998 Shares Amount
Shares sold 11,519,583 $161,951,614
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,430,204 17,663,020
------------- ------------
Total issued 12,949,787 179,614,634
Shares redeemed (19,311,328) (246,084,606)
------------- ------------
Net decrease (6,361,541) $(66,469,972)
============= ============
Class B Shares for the
Six Months Ended Dollar
December 31, 1998 Shares Amount
Shares sold 739,314 $ 6,390,095
Shares issued to shareholders
in reinvestment of distributions 73,183 594,246
------------- ------------
Total issued 812,497 6,984,341
Automatic conversion of shares (101,859) (906,265)
Shares redeemed (5,674,370) (49,616,434)
------------- ------------
Net decrease (4,963,732) $(43,538,358)
============= ============
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1998
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (concluded)
Class B Shares for the Year Dollar
Ended June 30, 1998 Shares Amount
Shares sold 4,893,597 $ 71,910,397
Shares issued to shareholders
in reinvestment of dividends
and distributions 933,535 11,426,467
------------- ------------
Total issued 5,827,132 83,336,864
Automatic conversion of shares (217,370) (2,811,462)
Shares redeemed (12,949,733) (170,607,474)
------------- ------------
Net decrease (7,339,971) $(90,082,072)
============= ============
Class C Shares for the
Six Months Ended Dollar
December 31, 1998 Shares Amount
Shares sold 164,896 $ 1,476,907
Shares issued to shareholders
in reinvestment of distributions 14,361 116,178
------------- ------------
Total issued 179,257 1,593,085
Shares redeemed (1,160,260) (9,977,430)
------------- ------------
Net decrease (981,003) $ (8,384,345)
============= ============
Class C Shares for the Year Dollar
Ended June 30, 1998 Shares Amount
Shares sold 1,356,907 $ 19,858,908
Shares issued to shareholders
in reinvestment of dividends
and distributions 181,874 2,217,051
------------- ------------
Total issued 1,538,781 22,075,959
Shares redeemed (2,604,945) (34,584,547)
------------- ------------
Net decrease (1,066,164) $(12,508,588)
============= ============
Class D Shares for the
Six Months Ended Dollar
December 31, 1998 Shares Amount
Shares sold 433,865 $ 3,461,003
Automatic conversion of shares 100,449 906,265
Shares issued to shareholders
in reinvestment of distributions 13,641 112,542
------------- ------------
Total issued 547,955 4,479,810
Shares redeemed (1,499,888) (12,997,402)
------------- ------------
Net decrease (951,933) $ (8,517,592)
============= ============
Class D Shares for the Year Dollar
Ended June 30, 1998 Shares Amount
Shares sold 2,736,989 $ 41,244,505
Automatic conversion of shares 215,130 2,811,462
Shares issued to shareholders
in reinvestment of dividends
and distributions 181,728 2,240,703
------------- ------------
Total issued 3,133,847 46,296,670
Shares redeemed (4,374,540) (62,230,744)
------------- ------------
Net decrease (1,240,693) $(15,934,074)
============= ============
EQUITY PORTFOLIO CHANGES
For the Quarter Ended December 31, 1998
Additions
Asia Cement Corporation
Banco Santander Chile (ADR)
Bombay Electrical Supply
Cathay Life Insurance Co., Ltd.
Cemex, S.A. de C.V. 'B'
China Development Industrial Bank Inc.
Credicorp Ltd. S.A.
Empresa Nacional de Electricidad S.A.
(Endesa) (ADR)
Enersis S.A. (ADR)
Korea Electric Power Corporation
Nampak Limited
Panfon Hellenic Telecom Co.
Pepkor Limited
Pohang Iron & Steel Company, Ltd. (ADR)
Sanlam Limited
Taiwan Cement Corporation
Taiwan Semiconductor Manufacturing
Company
Tele Norte Leste Participacoes S.A. (ADR)
Videsh Sanchar Nigam Ltd. (GDR)
Deletions
Banco Bradesco S.A. (Preferred)
Grupo Financiero Banorte, S.A. de C.V.
(Class B)
Magnum Corporation BHD
NFI Piast S.A. Fund
NFI Progress S.A. Fund
Pick'n Pay Stores Ltd.
Siam City Cement Public Company Limited
'Foreign'
Smartone Telecommunications
Sudamtex de Venezuela S.A.C.A. (ADR)
PORTFOLIO INFORMATION
Ten Largest Equity Holdings Percent of
As of December 31, 1998 Net Assets
Telefonos de Mexico S.A. (ADR) 3.1%
Samsung Electronics Co., Ltd. 2.7
National Bank of Greece S.A. 2.5
Korea Electric Power Corporation 2.1
Elektrim Spolka Akcynja S.A. 2.1
FirstRand Limited 2.0
Mol Magyar Olaj-es Gazipari Rt. (GDR) 2.0
P.T. Indosat (ADR) 1.8
South African Breweries Limited 1.8
Companhia Energetica de Minas Gerais S.A.
(CEMIG)(Preferred) 1.8
