MERRILL LYNCH
DEVELOPING
CAPITAL MARKETS
FUND, INC.
FUND LOGO
Annual Report
June 30, 2000
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.
Asset Allocation
As a Percentage* of
Net Assets as of
June 30, 2000
A map depicting the following percentages:
Mexico 9.9%
Argentina 0.7%
Ghana 0.0%
Egypt 0.3%
South Africa 7.9%
Israel 3.6%
Malaysia 5.3%
Indonesia 1.0%
Singapore 0.7%
Taiwan 11.3%
Philippines 0.4%
Venezuela 0.2%
Brazil 14.0%
Spain 0.0%
Hungary 2.0%
Czech Republic 0.7%
Poland 1.1%
Russia 2.7%
Greece 2.0%
Turkey 3.5%
India 7.8%
Thailand 1.8%
China 4.9%
Hong Kong 1.5%
South Korea 13.1%
*Total may not equal 100%.
Merrill Lynch Developing Capital Markets Fund, Inc., June 30, 2000
DEAR SHAREHOLDER
During the six-month period ended June 30, 2000, total returns for
Merrill Lynch Developing Capital Markets Fund, Inc.'s Class A, Class
B, Class C and Class D Shares were -4.83%, -5.34%, -5.36% and
-4.93%, respectively. (Investment results shown do not reflect sales
charges and would be lower if sales charges were included. Complete
performance results can be found on pages 4 - 6 of this report to
shareholders.) The unmanaged Morgan Stanley Capital International
Emerging Markets Free (MSCI EMF) Index had a return of -7.99% for
the same period. The Fund's outperformance stemmed largely from its
investments in Brazil, Hong Kong, Malaysia and Taiwan. Weighing
against this was the underperformance of our stocks in South Korea.
Fiscal Year in Review
The Fund outperformed the benchmark Index during the fiscal year
ended June 30, 2000. The Fund's Class A, Class B, Class C and Class
D Shares had total returns of +15.99%, +14.87%, +14.83% and +15.83%,
respectively, while the MSCI EMF Index rose 9.47%. Our portfolio's
overweighted position in Brazil, coupled with our emphasis on
telecommunications companies in that market, were the key factors
behind the Fund's outperformance. In addition, our investments in
software companies in India and a foundry in Singapore benefited
Fund performance. On the negative side, our stocks in South Korea
and Turkey lagged their respective markets.
Investment Overview
The six-month period ended June 30, 2000 was more highly volatile
than the -7.99% decline in the MSCI EMF Index suggests. The
revaluation of companies in Internet-related businesses that started
in mid-1999 continued into 2000. Telecommunications, media and
technology stocks rallied in tandem with the NASDAQ on investors'
enthusiasm for virtually any stock idea with an Internet angle.
Valuations of some stocks were rising to mimic those in the United
States, but fortunately the "irrational exuberance" for Internet
stocks in emerging markets did not last long. Not surprisingly, when
the NASDAQ corrected, emerging market stocks that were riding on the
Internet theme declined. Less rationally, other issues sold off as
well, regardless of their fundamental vulnerability to higher US
rates, slower US growth or unfulfilled US earnings expectations, the
concerns prevailing in investors' minds. From peak to trough during
the six-month period, emerging markets declined 23.21%.
We believe that heightened sensitivity to US technology and Internet
stock movements is temporary and does not take away from the value
in our portfolio investments. For example, the telecommunications
stocks we hold provide telephony services that are enjoying strong
demand growth. Many of these companies have managers who are mindful
of their shareholders' interests. The valuations of these companies
are not excessive and are not yet reflecting the long-term revenue
enhancement from increased Internet usage. Furthermore, despite
their having a more attractive growth profile, the valuations are a
fraction of those in the United States, Japan and major European
countries.
Many of the countries in which the Fund is invested, such as China,
Russia and Brazil, are recovering from recession and their earnings
are recovering from lows. With little indication of rising
inflation, interest rates in these countries have potential to
decline. In these markets, aggregate earnings valuations relative to
earnings growth are very low, less than half of those that prevail
in the United States. In summary, we believe that the technology and
Internet stocks trading on the NASDAQ should not govern the
performance of these markets over time.
In China, cellular phone penetration is still very low, estimated at
less than 4%, but the number of subscribers is growing rapidly. It
is estimated that the cellular market will more than double during
the next year. This is faster than the projected growth for regular
telephony, although penetration of that sector is also very low
(approximately 12%). The company with the far dominant market share
in mobile telephony is China Mobile (Hong Kong) Limited, our largest
holding in China. Competition will inevitably erode the company's
market share in the coming years as China becomes more integrated
into the global economy as foreign phone companies gain access to
the local market and as the Chinese government itself allows greater
competition. Although the cellular market will be sufficiently large
enough to accommodate several competitors, China Mobile's management
is preparing itself by investing to build transmission facilities
and obtain new technology, acquiring cellular assets and offering
new services such as wireless data. The company's plan is to invest
more than $10 billion during the next two years.
Russia has enjoyed a resurgence in economic performance, owing in
large part to the export benefits of its currency devaluation in
1998 and the higher oil prices of the past year. Our largest holding
in Russia is Surgutneftegaz (Surgut). The company is currently an
oil exploration and production company, which, through a proposed
restructuring exercise with its parent, may become a vertically
integrated oil and gas company. It does not suffer from the cash
collection problem that Russian "blue chips" are notorious for;
thus, its financial strength and cash position may be unique among
Russian companies. On cash generation measures, we believe that
Surgut is among the most attractively valued oil companies in the
world.
We maintained significant weighting in Brazil and, in particular,
the Brazilian telecommunications companies. Brazil's economic
recovery is at an early stage following two years of recession and
devaluation. Although interest rates are still very high, a decline
may occur because inflation is under control. Fundamentals for the
country are very positive, as the devaluation removed some of the
economic imbalances. Exports have benefited from this and from the
strength in commodity prices. Fiscal targets are being met, and the
debt profile restructured. We believe that among the markets we
invest in, Brazil has the most room to surprise positively.
The Brazilian cellular industry remains very fragmented as a result
of the privatization of the telephone holding company, Telebras, in
1997. Currently, there are 19 companies operating in different
regions throughout the country. Stocks such as Telesp Celular
Participacoes SA are very attractively valued in absolute terms and
relative to their counterparts in other countries. These companies
are exhibiting strong and profitable growth. However, what attracts
us most is the potential for a major consolidation in the sector,
which may further boost profitability in companies such as Telesp
Celular Participacoes.
In Conclusion
The long-anticipated correction of the NASDAQ has led declines in
markets worldwide and cooled enthusiasm for technology and Internet-
related stocks. As a result, risk-averse investors became wary of
the more volatile emerging market investments. In our view, short-
term market volatility does not diminish the potential for long-term
appreciation of our investments.
We thank you for your continuing interest in Merrill Lynch
Developing Capital Markets Fund, Inc., and we look forward to
reviewing our strategy with you in our next report to shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Grace Pineda)
Grace Pineda
Senior Vice President and
Portfolio Manager
August 10, 2000
Merrill Lynch Developing Capital Markets Fund, Inc., June 30, 2000
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.
Total Return
Based on a
$10,000
Investment
A line graph depicting growth of an investment in the Merrill Lynch
Developing Capital Markets Fund, Inc.'s Class A Shares compared to
growth of the Morgan Stanley Capital Internationl EAFE Index++++ and
the Morgan Stanley Capital International Emerging Markets Free
Index++++++. Beginning and ending values are:
6/90 6/00
ML Developing Capital Markets
Fund, Inc.++--Class A Shares* $ 9,600 $16,209
Morgan Stanley Capital International
EAFE Index++++ $10,000 $21,499
Morgan Stanley Capital International
Emerging Markets Free Index++++++ $10,000 $23,545
A line graph depicting growth of an investment in the Merrill Lynch
Developing Capital Markets Fund, Inc.'s Class B Shares compared to
growth of the Morgan Stanley Capital Internationl EAFE Index++++ and
the Morgan Stanley Capital International Emerging Markets Free
Index++++++. Beginning and ending values are:
7/01/94 6/00
ML Developing Capital Markets
Fund, Inc.++--Class B Shares* $10,000 $10,663
Morgan Stanley Capital International
EAFE Index++++ $10,000 $17,382
Morgan Stanley Capital International
Emerging Markets Free Index++++++ $10,000 $10,502
A line graph depicting growth of an investment in the Merrill Lynch
Developing Capital Markets Fund, Inc.'s Class C and Class D Shares
compared to growth of the Morgan Stanley Capital Internationl EAFE
Index++++ and the Morgan Stanley Capital International Emerging
Markets Free Index++++++. Beginning and ending values are:
10/21/94** 6/00
ML Developing Capital Markets
Fund, Inc.++--Class C Shares* $10,000 $ 9,276
ML Developing Capital Markets
Fund, Inc.++--Class D Shares* $ 9,600 $ 9,202
Morgan Stanley Capital International
EAFE Index++++ $10,000 $16,805
Morgan Stanley Capital International
Emerging Markets Free Index++++++ $10,000 $8,857
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++ML Developing Capital Markets Fund, Inc. invests in securities,
principally equities, of issuers in countries having smaller capital
markets.
++++This unmanaged Index measures the total returns of developed
foreign stock markets in Europe, Asia and the Far East. The starting
date for the Index in the Class B Shares' graph is from 6/30/94 and
in the Class C & Class D Shares' graph is from 10/31/94.
++++++This unmanaged Index measures the total returns of emerging
foreign stock markets in Europe, Asia and the Far East. The starting
date for the Index in the Class B Shares' graph is from 6/30/94 and
in the Class C & Class D Shares' graph is from 10/31/94.
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 6/30/00 +15.99% +9.90%
Five Years Ended 6/30/00 + 2.82 +1.72
Ten Years Ended 6/30/00 + 5.52 +4.95
*Maximum sales charge is 5.25%. (Prior to October 21, 1994, Class A
Shares were offered at a higher sales charge. Thus, actual returns
would have been lower than shown for the ten-year period.)
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 6/30/00 +14.87% +10.87%
Five Years Ended 6/30/00 + 1.75 + 1.75
Inception (7/01/94) to 6/30/00 + 1.08 + 1.08
*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 6/30/00 +14.83% +13.83%
Five Years Ended 6/30/00 + 1.75 + 1.75
Inception (10/21/94) to 6/30/00 - 1.31 - 1.31
*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 6/30/00 +15.83% +9.75%
Five Years Ended 6/30/00 + 2.58 +1.48
Inception (10/21/94) to 6/30/00 - 0.51 -1.45
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Developing Capital Markets Fund, Inc., June 30, 2000
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results*
<CAPTION>
Ten Years/
6 Month 12 Month Since Inception
As of June 30, 2000 Total Return Total Return Total Return
<S> <C> <C> <C>
ML Developing Capital Markets Fund Class A Shares -4.83% +15.99% +71.07%
ML Developing Capital Markets Fund Class B Shares -5.34 +14.87 + 6.63
ML Developing Capital Markets Fund Class C Shares -5.36 +14.83 - 7.24
ML Developing Capital Markets Fund Class D Shares -4.93 +15.83 - 2.88
<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 ten year/since inception periods are ten years for Class A
Shares, from 7/01/94 for Class B Shares and from 10/21/94 for Class
C & Class D Shares.
</TABLE>
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Percent of
AFRICA Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
Ghana Beverages 432,827 Guinness Ghana Limited $ 75,773 0.0%
Total Investments in Ghana 75,773 0.0
South Africa Banking 872,157 FirstRand Limited 899,171 0.4
37,468 Nedcor Limited 786,939 0.4
250 Nedcor Limited (GDR)(b)(c) 5,251 0.0
83,382 Standard Bank Investment Corporation Limited 325,903 0.2
-------------- ------
2,017,264 1.0
Beverages 99,725 South African Breweries PLC 744,034 0.4
35 ++South African Breweries PLC (c) 261 0.0
-------------- ------
744,295 0.4
Containers & Packaging 240,792 Nampak Limited 520,295 0.2
Diversified Financials 74,630 Rembrandt Group Limited 720,983 0.3
Food & Drug Retailing 1,259,572 Metro Cash and Carry Limited 780,266 0.4
145,563 Pepkor Limited 523,855 0.3
-------------- ------
1,304,121 0.7
IT Consulting & Services 226,780 ++Dimension Data Holdings Limited 1,876,454 0.9
Insurance 56,789 Liberty Life Association of Africa Limited 540,249 0.3
367,666 Sanlam Limited 434,366 0.2
-------------- ------
974,615 0.5
Metals & Mining 20,639 Anglo American PLC 980,809 0.5
34,280 AngloGold Limited (ADR)(a) 704,883 0.4
52,103 De Beers (ADR)(a) 1,263,498 0.6
500,328 Gencor Limited 1,438,996 0.7
22,571 Gencor Limited (ADR)(a) 64,919 0.0
108 Gold Fields Limited 424 0.0
40,731 Impala Platinum Holdings Limited 1,515,097 0.8
379 Iscor Limited 646 0.0
2,399 Northam Platinum Limited 2,760 0.0
-------------- ------
5,972,032 3.0
Multiline Retail 18,344 Edgars Consolidated Stores Limited 175,864 0.1
Oil & Gas 78,800 Sasol Limited 528,820 0.3
Wireless 194,800 M-Cell Limited 943,832 0.5
Telecommunications
Services
Total Investments in South Africa 15,778,575 7.9
Total Investments in Africa (Cost--$15,091,950) 15,854,348 7.9
EUROPE
Czech Banking 41,478 ++Komercni Banka AS 841,502 0.4
Republic
Diversified 38,387 SPT Telecom AS 650,508 0.3
Telecommunication
Services
Total Investments in the Czech Republic 1,492,010 0.7
Greece Banking 12,315 Alpha Credit Bank 487,792 0.2
Beverages 17,352 Hellenic Bottling Co. 276,996 0.2
Diversified 163,869 Hellenic Telecommunication Organization SA (OTE)
Telecommunication (ADR)(a) 1,997,153 1.0
Services
Wireless 18,328 Panafon Hellenic Telecom Co. 208,611 0.1
Telecommunications 49,700 ++STET Hellas Telecommunications SA (ADR)(a) 987,788 0.5
Services -------------- ------
1,196,399 0.6
Total Investments in Greece 3,958,340 2.0
Hungary Banking 20,658 OTP Bank Rt. (GDR)(b) 1,043,229 0.5
Diversified 325,841 Magyar Tavkozlesi Rt.--Matav 2,276,089 1.1
Telecommunication
Services
Oil & Gas 56,942 MOL Magyar Olaj-es Gazipari Rt. (GDR)(b) 777,258 0.4
Total Investments in Hungary 4,096,576 2.0
Poland Banking 16,808 ++Bank Polska Kasa Opieki Grupa Pekao SA 202,236 0.1
17,000 Bank Rozwoju Eksportu SA (BRE) 526,980 0.3
53,882 Wielkopolski Bank Kredytowy SA 314,260 0.2
-------------- ------
1,043,476 0.6
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., June 30, 2000
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
EUROPE Shares Percent of
(concluded) Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
Poland Diversified 62,661 Telekomunikacja Polska SA $ 448,915 0.2%
(concluded) Telecommunication 53,800 Telekomunikacja Polska SA (GDR)(b) 368,530 0.2
Services -------------- ------
817,445 0.4
Trading Companies & 22,778 ++Elektrim Spolka Akcyjna SA 261,516 0.1
Distributors
Total Investments in Poland 2,122,437 1.1
Russia Diversified 3,268,800 Bashinformsvyaz 205,934 0.1
Telecommunication 150,704 Nizhegorodsvyazinform 150,704 0.1
Services -------------- ------
356,638 0.2
Electric Utilities 2,066,208 Bashkirenergo 103,310 0.0
2,025,000 Irkutskenergo 141,750 0.1
8,053,000 RAO Unified Energy Systems 926,095 0.5
-------------- ------
1,171,155 0.6
Oil & Gas 29,149 LUKoil Holding (ADR)(a) 1,490,097 0.7
152,857 Surgutneftegaz (ADR)(a) 1,987,141 1.0
-------------- ------
3,477,238 1.7
Wireless 14,800 ++Mobile Telesystems (ADR)(a) 331,150 0.2
Telecommunications
Total Investments in Russia 5,336,181 2.7
Spain IT Consulting & Services 2,400 ++Terra Networks, SA 93,176 0.0
Total Investments in Spain 93,176 0.0
Total Investments in Europe (Cost--$20,943,182) 17,098,720 8.5
LATIN
AMERICA
Argentina Oil & Gas 56,620 PC Holdings SA (ADR)(a) 1,036,854 0.5
Real Estate 17,083 IRSA Inversiones y Representaciones SA (GDR)(b) 390,774 0.2
Total Investments in Argentina 1,427,628 0.7
Brazil Banking 23,652 ++Uniao de Bancos Brasileiros SA (Unibanco) (GDR)(b) 679,995 0.3
Beverages 2,768,226 ++Companhia Cervejaria Brahma (Preferred) 2,347,775 1.2
Diversified Financials 759,650 ++Itausa-Investimentos Itau SA 736,911 0.4
Diversified 175,892,700 Embratel Participacoes SA 3,276,050 1.6
Telecommunication 205,655 Embratel Participacoes SA (ADR)(a) 4,858,599 2.4
Services 2,743 Tele Centro Sul Participacoes SA (ADR)(a) 200,410 0.1
47,597 Telefonica SA 1,026,598 0.5
14,962 ++Telefonica SA (ADR)(a) 958,487 0.5
-------------- ------
10,320,144 5.1
Electric Utilities 124,982,270 ++Companhia Energetica de Minas Gerais SA--
CEMIG (Preferred) 2,182,340 1.1
42,000 ++Companhia Paranaense de Energia-Copel (ADR)(a) 391,125 0.2
-------------- ------
2,573,465 1.3
Food & Drug Retailing 35,668 Companhia Brasileira de Distribuicao Grupo
Pao de Acucar (ADR)(a) 1,145,835 0.6
Metals & Mining 55,622 ++Companhia Vale do Rio Doce 'A' (Preferred) 1,569,379 0.8
Oil & Gas 94,257 ++Petroleo Brasileiro SA--Petrobras (Preferred) 2,847,575 1.4
Paper & Forest Products 33,000 Aracruz Celulose SA (ADR)(a) 637,313 0.3
Wireless 2,936,000 ++Celular CRT Participacoes SA (Preferred) 1,285,721 0.6
Telecommunications 63,490,526 ++Tele Celular Sul Participacoes SA 223,484 0.1
Services 108,490 Tele Centro Oeste Celular Participacoes SA
(ADR)(a) 1,301,880 0.7
6,400 Tele Leste Celular Participacoes SA (ADR)(a) 283,200 0.1
2,900 Tele Nordeste Celular Participacoes SA (ADR)(a) 200,825 0.1
51,187 Tele Norte Leste Participacoes SA (ADR)(a) 1,209,293 0.6
90,878,471 ++Telemig Celular Participacoes SA 292,181 0.2
7,980 Telesp Celular Participacoes SA (ADR)(a) 358,102 0.2
-------------- ------
5,154,686 2.6
Total Investments in Brazil 28,013,078 14.0
Mexico Banking 168,300 ++Grupo Financiero Banamex Accival, SA de CV
(Banacci) 'O' 706,130 0.4
1,538,700 ++Grupo Financiero Bancomer, SA de CV 'O' 781,582 0.4
-------------- ------
1,487,712 0.8
Beverages 144,175 Panamerican Beverages, Inc. 'A' (US
Registered Shares) 2,153,614 1.1
Construction Material 71,491 Cemex, SA de CV (ADR)(a) 1,671,102 0.8
5,000 Cemex, SA de CV (Warrants)(d) 2,591 0.0
1,673,693 0.8
Diversified Financials 80,543 ++Grupo Carso, SA de CV 'A1' 282,291 0.1
Diversified Telecommuni- 71,052 Telefonos de Mexico SA (ADR)(a) 4,058,846 2.0
cation Services
Food Products 340,482 Grupo Industrial Bimbo, SA de CV 'A' 536,138 0.3
906,207 Grupo Industrial Maseca, SA de CV 'B' 427,165 0.2
-------------- ------
963,303 0.5
Machinery 46,369 Tubos de Acero de Mexico SA (ADR)(a) 643,370 0.3
Media 40,739 ++Grupo Televisa SA (GDR)(b) 2,808,445 1.4
1,068,500 TV Azteca, SA de CV 868,390 0.4
223,771 TV Azteca, SA de CV (ADR)(a) 2,950,980 1.5
-------------- ------
6,627,815 3.3
Multiline Retail 47,142 ++Grupo Sanborns SA 'B1' 76,147 0.0
Paper & Forest Products 601,980 Kimberly-Clark de Mexico, SA de CV 'A' 1,703,169 0.9
Specialty Retailing 201,000 Grupo Elektra, SA de CV 201,337 0.1
Total Investments in Mexico 19,871,297 9.9
Venezuela Diversified Telecommuni- 15,076 Compania Anonima Nacional Telefonos de
cation Services Venezuela (CANTV) (ADR)(a) 409,879 0.2
Total Investments in Venezuela 409,879 0.2
Total Investments in Latin America (Cost--
$40,058,348) 49,721,882 24.8
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., June 30, 2000
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
MIDDLE Shares Percent of
EAST Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
Egypt Banking 14,262 ++Commercial International Bank (GDR)(b) $ 149,751 0.1%
29,677 ++Commercial International Bank (GDR)(b)(c) 311,609 0.2
-------------- ------
461,360 0.3
Beverages 4,522 ++Al-Ahram Beverages Company S.A.E. (GDR)(b)(c) 76,422 0.0
Diversified Financials 23,309 EFG-Hermes Holding, S.A.E. (GDR)(b)(c) 73,423 0.0
Pharmaceuticals 1,576 Egyptian International Pharmaceutical Industries
Company 70,807 0.0
Total Investments in Egypt 682,012 0.3
Israel Banking 371,888 Bank Hapoalim 1,078,411 0.5
529,689 Bank Leumi Le-Israel 1,093,627 0.5
-------------- ------
2,172,038 1.0
Communications Equipment 21,593 ECI Telecom Limited (US Registered Shares) 769,251 0.4
Diversified 161,009 Bezeq Israeli Telecommunication Corporation Ltd. 897,123 0.5
Telecommunication
Services
Food & Drug Retailing 6,041 Blue Square Chain Investments and
Properties Ltd. 83,151 0.0
31,654 Supersol Ltd. 114,661 0.1
-------------- ------
197,812 0.1
IT Consulting & Services 9,005 ++Check Point Software Technologies Ltd. 1,911,311 1.0
Media 1,432 ++RT-SET Real Time Synthesized Entertainment
Technology Ltd. 22,375 0.0
Pharmaceuticals 20,800 Teva Pharmaceutical Industries Ltd. (ADR)(a) 1,153,100 0.6
Total Investments in Israel 7,123,010 3.6
Turkey Banking 113,437,849 ++Turkiye Garanti Bankasi AS 1,373,340 0.7
273,840,935 ++Yapi ve Kredi Bankasi AS 3,050,044 1.5
-------------- ------
4,423,384 2.2
Beverages 8,186,933 Ege Biracilik Ve Malt Sanayii AS 535,223 0.3
Food & Drug Retailing 4,541,418 Migros Turk T.A.S. 843,040 0.4
Household Durables 2,314,000 ++Vestel Elektronik Sanayi ve Ticaret AS 700,363 0.4
Industrial 19,170,000 ++Dogan Sirketler Grubu Holding A.S. 464,165 0.2
Conglomerates
Total Investments in Turkey 6,966,175 3.5
Total Investments in the Middle East
(Cost--$10,524,268) 14,771,197 7.4
PACIFIC
BASIN/ASIA
China Chemicals 33,552 Beijing Yanhua Petrochemical Company
Ltd. (ADR)(a) 184,536 0.1
Communications 540,500 Eastern Communication Co., Ltd. 'B' 473,478 0.2
Equipment
Diversified 31,015 China Mobile (Hong Kong) Limited (ADR)(a) 5,514,855 2.8
Telecommunication 54,600 ++China Unicom Limited (ADR)(a) 1,160,250 0.6
Services
6,675,105 3.4
Electric Utilities 1,741,000 Beijing Datang Power Generation Company
Limited 'H' 390,844 0.2
64,686 Huaneng Power International, Inc. (ADR)(a) 861,132 0.4
1,251,976 0.6
Internet Software & 900 ++AsianInfo Holdings, Inc. 40,219 0.0
Services
Machinery 2,395,774 Qingling Motor Company 'H' 273,529 0.1
Oil & Gas 41,200 ++PetroChina Company Limited (ADR)(a) 862,625 0.4
Software 340,000 ++Founder Holdings Limited 151,566 0.1
Total Investments in China 9,913,034 4.9
Hong Kong Chemicals 20,230,000 Jilin Chemical Industrial Company Limited 'H' 1,232,698 0.6
Construction Material 10,665,219 ++Anhui Conch Cement Co. Ltd. 'H' 861,941 0.5
Internet Software & 10,700 ++SINA.com 271,512 0.1
Services
Media 31,000 ++i-CABLE Communications Limited (ADR)(a) 238,313 0.1
Real Estate 141,000 Hongkong Land Holdings Limited 225,600 0.1
166,000 Hysan Development Company Limited 174,618 0.1
-------------- ------
400,218 0.2
Total Investments in Hong Kong 3,004,682 1.5
India Banking 122,543 State Bank of India 620,910 0.3
Chemicals 160 Reliance Industries Ltd. 1,221 0.0
185,795 ++Reliance Industries Ltd. 1,417,819 0.7
1,419,040 0.7
Construction & 50,367 Larsen & Toubro Ltd. 278,147 0.1
Engineering 14,540 Larsen & Toubro Ltd. (GDR)(b) 156,305 0.1
-------------- ------
434,452 0.2
Construction Material 10 Associated Cement Companies Ltd. 26 0.0
Diversified Financials 50 ICICI Ltd. 140 0.0
526,762 ++ICICI Ltd. 1,479,261 0.7
-------------- ------
1,479,401 0.7
Diversified Telecommuni- 71,240 Videsh Sanchar Nigam Ltd. (GDR)(b) 1,086,410 0.5
cation Services
Electric Utilities 682 Bombay Electrical Supply 3,748 0.0
Household Products 27,686 Hindustan Lever Limited 1,757,842 0.9
IT Consulting & Services 12,894 ++Infosys Technologies Limited 2,401,103 1.2
32,441 Satyam Computer Services Limited 2,165,735 1.1
-------------- ------
4,566,838 2.3
Internet Software & 53,500 ++Pentamedia Graphics Ltd. 705,329 0.4
Services
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., June 30, 2000
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
PACIFIC BASIN/ASIA Shares Percent of
(continued) Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
India Metals & Mining 100,314 Hindalco Industries Ltd. $ 1,773,193 0.9%
(concluded) 5,015 Hindalco Industries Ltd. (GDR)(b) 96,539 0.0
-------------- ------
1,869,732 0.9
Oil & Gas 45,119 Bharat Petroleum Corporation Ltd. 194,778 0.1
200 Hindustan Petrochemical Corporation (New) 550 0.0
-------------- ------
195,328 0.1
Pharmaceuticals 2,749 Ranbaxy Laboratories Limited (GDR)(b) 43,297 0.0
Software 11,111 Wipro Limited 721,292 0.4
Tobacco 43,364 ITC Limited 771,374 0.4
Total Investments in India 15,675,019 7.8
Indonesia Banking 38,428,000 ++PT Bank Internasional Indonesia 439,052 0.2
Diversified 25,526 PT Indosat (Persero) Tbk (ADR)(a) 290,358 0.2
Telecommunication 2,240,000 PT Telekomunikasi Indonesia 786,975 0.4
Services -------------- ------
1,077,333 0.6
Paper & Forest Products 2,181,000 ++PT Indah Kiat Pulp & Paper Corporation Tbk 442,305 0.2
Total Investments in Indonesia 1,958,690 1.0
Malaysia Banking 148,000 AMMB Holdings Berhad 494,632 0.3
360,400 Malayan Banking Berhad 1,460,568 0.7
233,000 Public Bank Berhad 'Foreign' 233,000 0.1
-------------- ------
2,188,200 1.1
Diversified 888,200 Telekom Malaysia Berhad 3,061,953 1.5
Telecommunication
Services
Electric Utilities 734,000 Tenaga Nasional Berhad 2,395,158 1.2
Hotels, Restaurants & 407,000 Resorts World Berhad 1,113,895 0.5
Leisure
Semiconductor 64,000 Malaysian Pacific Industries Berhad 656,842 0.3
Equipment & Products 24,400 Unisem (M) Berhad 173,368 0.1
-------------- ------
830,210 0.4
Tobacco 141,100 British American Tobacco Berhad 1,151,079 0.6
Total Investments in Malaysia 10,740,495 5.3
Philippines Electric Utilities 512,988 Manila Electric Company 'B' 753,522 0.4
Total Investments in the Philippines 753,522 0.4
Singapore Semiconductor 54,239 ++ST Assembly Test Services Limited (ADR)(a) 1,389,874 0.7
Equipment & Products
Total Investments in Singapore 1,389,874 0.7
South Korea Automobile 40,953 Hyundai Motor Company Ltd. 525,215 0.3
Banking 50,985 Housing & Commercial Bank, Korea 1,193,434 0.6
79,028 Kookmin Bank 1,006,433 0.5
2,199,867 1.1
Chemicals 15,530 Honam Petrochemical Corporation 104,042 0.1
34,820 L.G. Chemical Limited 696,384 0.3
-------------- ------
800,426 0.4
Diversified Financials 35,960 ++Daewoo Securities 192,857 0.1
16,407 Dongwon Securities 118,304 0.1
26,225 Hyundai Securities 261,068 0.1
11,974 LG Investment & Securities Company Limited 155,712 0.1
18,784 Samsung Securities Company Ltd. 412,733 0.2
-------------- ------
1,140,674 0.6
Diversified 12,601 Korea Telecom Corporation (ADR)(a) 609,573 0.3
Telecommunication
Services
Electric Utilities 119,880 Korea Electric Power Corporation 3,719,960 1.9
Electronic Equipment & 4,506 Samsung Display Devices Co., Ltd. 216,202 0.1
Instruments
Food Products 7,632 Cheil Jedang Corporation 311,515 0.1
1,640 Cheil Jedang Corporation (Preferred) 23,974 0.0
-------------- ------
335,489 0.1
Internet Software & 17,670 ++Haansoft Inc. 286,042 0.1
Services
Metals & Mining 32,746 Pohang Iron & Steel Company Ltd. (ADR)(a) 785,904 0.4
Oil & Gas 20,720 SK Corporation 380,013 0.2
Semiconductor 32,801 Samsung Electronics 10,854,975 5.4
Equipment & Products
Wireless 37,230 ++Hansol M.com Co., Ltd. (c) 721,211 0.4
Telecommunications 15,000 ++Korea Telecom Freetel 999,529 0.5
Services 72,427 SK Telecom Co. Ltd. (ADR)(a)(c) 2,630,005 1.3
-------------- ------
4,350,745 2.2
Total Investments in South Korea 26,205,085 13.1
Taiwan Banking 549,567 ++Bank Sinopac 353,293 0.2
3,822,266 ++E. Sun Commercial Bank 1,613,294 0.8
297,000 United World Chinese Commercial Bank 281,571 0.1
-------------- ------
2,248,158 1.1
Chemicals 1,105,887 Formosa Plastic Corporation 2,082,514 1.1
Computers & 157,000 ++Acer Inc. 293,101 0.1
Peripherals 180,880 Asustek Computer Inc. 1,491,673 0.7
215,995 Compal Electronics Inc. 529,468 0.3
568,000 ++First International Computer Inc. 531,117 0.3
155,400 Quanta Computer Inc. 771,955 0.4
-------------- ------
3,617,314 1.8
</TABLE>
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Shares Percent of
AFRICA Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
Taiwan Construction Material 208,600 Asia Cement Corporation $ 135,455 0.1%
(concluded) 256,800 Taiwan Cement Corporation 203,439 0.1
-------------- ------
338,894 0.2
Diversified Financials 514,400 ++China Development Industrial Bank Inc. 684,753 0.4
Electrical Equipment 575,000 ++Pacific Electrical Wire & Cable Co. Ltd. 459,253 0.2
Electronic Equipment & 204,100 ++Chroma Ate Inc. 457,237 0.2
Instruments
Insurance 269,304 Cathay Life Insurance Co., Ltd. 620,798 0.3
Internet Software & 5,300 ++GigaMedia Ltd. 63,600 0.0
Services
Semiconductor 372,636 ++Mosel Vitelic, Inc. 931,590 0.5
Equipment & Products 1,498,338 ++Taiwan Semiconductor Manufacturing Company 7,102,511 3.5
904,200 ++United Microelectronics Corporation, Ltd. 2,510,036 1.3
858,000 ++Vanguard International Semiconductor
Corporation 1,490,357 0.7
-------------- ------
12,034,494 6.0
Total Investments in Taiwan 22,607,015 11.3
Thailand Banking 527,700 ++Bangkok Bank Public Company Limited 'Foreign' 645,751 0.3
1,297,000 Siam Commercial Bank Public Company Limited
(Warrants)(d) 152,102 0.1
805,200 ++Thai Farmers Bank Public Company Limited
'Foreign' 677,415 0.3
-------------- ------
1,475,268 0.7
Computers & Peripherals 146,400 ++Shin Corporations Public Company Limited
'Foreign' 768,857 0.4
Construction Material 27,549 ++The Siam Cement Public Company Limited 516,917 0.3
Media 131,700 BEC World Public Company Limited 'Foreign' 772,237 0.4
Total Investments in Thailand 3,533,279 1.8
Total Investments in the Pacific Basin/Asia
(Cost--$82,481,413) 95,780,695 47.8
Total Investments (Cost--$169,099,161) 193,226,842 96.4
Other Assets Less Liabilities 7,123,547 3.6
-------------- ------
Net Assets $ 200,350,389 100.0%
============== ======
++Non-income producing security.
(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.
(d)Warrants entitle the Fund to purchase a predetermined number of
shares of common stock and are non-income producing. The purchase
price and number of shares are subject to adjustment under certain
conditions until the expiration date.
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of June 30, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$169,099,161) $ 193,226,842
Foreign cash 8,596,090
Receivables:
Capital shares sold $ 2,391,419
Securities sold 2,266,811
Dividends 752,976 5,411,206
-------------
Prepaid expenses and other assets 68,832
-------------
Total assets 207,302,970
-------------
Liabilities: Payables:
Securities purchased 4,407,371
Capital shares redeemed 760,866
Investment adviser 153,861
Distributor 85,316
Reorganization costs 57,790 5,465,204
-------------
Accrued expenses and other liabilities 1,487,377
-------------
Total liabilities 6,952,581
-------------
Net Assets: Net assets $ 200,350,389
=============
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000
Consist of: shares authorized $ 555,490
Class B Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 600,791
Class C Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 124,176
Class D Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 200,894
Paid-in capital in excess of par 405,773,135
Accumulated distributions in excess of investment income--net (1,073,849)
Accumulated realized capital losses on investments and foreign
currency transactions--net (202,155,272)
Accumulated distributions in excess of realized capital gains
on investments and foreign currency
transactions--net (27,312,230)
Unrealized appreciation on investments and foreign currency
transactions--net 23,637,254
-------------
Net assets $ 200,350,389
=============
Net Asset Class A--Based on net assets of $76,571,642 and 5,554,898 shares
Value: outstanding $ 13.78
=============
Class B--Based on net assets of $79,860,874 and 6,007,910 shares
outstanding $ 13.29
=============
Class C--Based on net assets of $16,442,519 and 1,241,757 shares
outstanding $ 13.24
=============
Class D--Based on net assets of $27,475,354 and 2,008,938 shares
outstanding $ 13.68
=============
See Notes to Consolidated Financial Statements.
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., June 30, 2000
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended June 30, 2000
<S> <S> <C> <C>
Investment Income: Dividends (net of $386,836 foreign withholding tax) $ 3,878,026
Interest and discount earned 158,506
-------------
Total income 4,036,532
-------------
Expenses: Investment advisory fees $ 2,088,330
Account maintenance and distribution fees--Class B 884,781
Custodian fees 479,367
Accounting services 334,236
Transfer agent fees--Class B 240,621
Account maintenance and distribution fees--Class C 176,690
Transfer agent fees--Class A 181,987
Professional fees 113,393
Printing and shareholder reports 92,267
Account maintenance fees--Class D 52,753
Transfer agent fees--Class C 49,158
Transfer agent fees--Class D 47,495
Directors' fees and expenses 42,761
Dividend fees 35,042
Registration fees 32,801
Other 164,268
-------------
Total expenses 5,015,950
-------------
Investment loss--net (979,418)
-------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 31,202,929
(Loss) on Foreign currency transactions--net (16,450) 31,186,479
Investments & -------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net: Investments--net (762,094)
Foreign currency transactions--net 859,888 97,794
------------- -------------
Net Increase in Net Assets Resulting from Operations $ 30,304,855
=============
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year
Ended June 30,
Increase (Decrease) in Net Assets: 2000 1999
<S> <S> <C> <C>
Operations: Investment income (loss)--net $ (979,418) $ 3,568,319
Realized gain (loss) on investments and foreign currency
transactions--net 31,186,479 (124,742,946)
Change in unrealized appreciation/depreciation on investments
and foreign currency
transactions--net 97,794 102,522,043
------------- -------------
Net increase (decrease) in net assets resulting from operations 30,304,855 (18,652,584)
------------- -------------
Distributions to In excess of realized gain on investments--net:
Shareholders: Class A -- (567,181)
Class B -- (682,842)
Class C -- (135,257)
Class D -- (129,720)
Net decrease in net assets resulting from distributions to
shareholders -- (1,515,000)
------------- -------------
Capital Share Net decrease in net assets derived from capital share
Transactions: transactions (42,589,402) (215,573,715)
------------- -------------
Net Assets: Total decreasein net assets (12,284,547) (235,741,299)
Beginning of year 212,634,936 448,376,235
------------- -------------
End of year $ 200,350,389 $ 212,634,936
============= =============
See Notes to Consolidated Financial Statements.
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., June 30, 2000
<TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have been derived Class A++
from information provided in the financial statements. For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.88 $ 10.44 $ 17.23 $ 15.05 $ 13.35
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .01 .18 .08 .36 .23
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.89 1.32 (6.18) 2.21 1.71
-------- -------- -------- -------- --------
Total from investment operations 1.90 1.50 (6.10) 2.57 1.94
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- (.12) (.28) (.24)
In excess of investment income--net -- -- (.09) -- --
Realized gain on investments--net -- -- -- (.11) --
In excess of realized gain on
investments--net -- (.06) (.48) -- --
-------- -------- -------- -------- --------
Total dividends and distributions -- (.06) (.69) (.39) (.24)
-------- -------- -------- -------- --------
Net asset value, end of year $ 13.78 $ 11.88 $ 10.44 $ 17.23 $ 15.05
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 15.99% 14.60% (36.00%) 17.66% 14.82%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.84% 1.97% 1.63% 1.53% 1.54%
Net Assets: ======== ======== ======== ======== ========
Investment income--net .10% 1.94% .53% 2.32% 1.66%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 76,572 $ 83,115 $219,422 $471,790 $342,884
Data: ======== ======== ======== ======== ========
Portfolio turnover 51.68% 84.92% 98.16% 86.68% 71.01%
======== ======== ======== ======== ========
<CAPTION>
The following per share data and ratios have been derived Class B++
from information provided in the financial statements. For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.57 $ 10.28 $ 17.04 $ 14.90 $ 13.24
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.12) .08 (.07) .19 .09
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 1.84 1.27 (6.08) 2.20 1.69
-------- -------- -------- -------- --------
Total from investment operations 1.72 1.35 (6.15) 2.39 1.78
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- (.07) (.14) (.12)
In excess of investment income--net -- -- (.06) -- --
Realized gain on investments--net -- -- -- (.11) --
In excess of realized gain on
investments--net -- (.06) (.48) -- --
-------- -------- -------- -------- --------
Total dividends and distributions -- (.06) (.61) (.25) (.12)
-------- -------- -------- -------- --------
Net asset value, end of year $ 13.29 $ 11.57 $ 10.28 $ 17.04 $ 14.90
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 14.87% 13.37% (36.68%) 16.39% 13.63%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 2.88% 3.04% 2.67% 2.57% 2.56%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.97%) .91% (.53%) 1.22% .65%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 79,861 $ 92,104 $164,929 $398,468 $302,183
Data: ======== ======== ======== ======== ========
Portfolio turnover 51.68% 84.92% 98.16% 86.68% 71.01%
======== ======== ======== ======== ========
<CAPTION>
The following per share data and ratios have been derived Class C++
from information provided in the financial statements. For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.53 $ 10.24 $ 16.99 $ 14.87 $ 13.22
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.12) .08 (.07) .18 .09
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 1.83 1.27 (6.08) 2.20 1.70
-------- -------- -------- -------- --------
Total from investment operations 1.71 1.35 (6.15) 2.38 1.79
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- (.07) (.15) (.14)
In excess of investment income--net -- -- (.05) -- --
Realized gain on investments--net -- -- -- (.11) --
In excess of realized gain on
investments--net -- (.06) (.48) -- --
-------- -------- -------- -------- --------
Total dividends and distributions -- (.06) (.60) (.26) (.14)
-------- -------- -------- -------- --------
Net asset value, end of year $ 13.24 $ 11.53 $ 10.24 $ 16.99 $ 14.87
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 14.83% 13.42% (36.69%) 16.37% 13.68%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 2.89% 3.04% 2.68% 2.58% 2.56%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.96%) .90% (.51%) 1.19% .67%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 16,442 $ 17,768 $ 32,339 $ 71,769 $ 46,983
Data: ======== ======== ======== ======== ========
Portfolio turnover 51.68% 84.92% 98.16% 86.68% 71.01%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
See Notes to Consolidated Financial Statements.
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., June 30, 2000
<TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
The following per share data and ratios have been derived Class D++
from information provided in the financial statements. For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 11.81 $ 10.41 $ 17.19 $ 15.02 $ 13.33
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.02) .16 .04 .32 .21
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 1.89 1.30 (6.15) 2.20 1.69
-------- -------- -------- -------- --------
Total from investment operations 1.87 1.46 (6.11) 2.52 1.90
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- (.11) (.24) (.21)
In excess of investment income--net -- -- (.08) -- --
Realized gain on investments--net -- -- -- (.11) --
In excess of realized gain on
investments--net -- (.06) (.48) -- --
-------- -------- -------- -------- --------
Total dividends and distributions -- (.06) (.67) (.35) (.21)
-------- -------- -------- -------- --------
Net asset value, end of year $ 13.68 $ 11.81 $ 10.41 $ 17.19 $ 15.02
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 15.83% 14.26% (36.13%) 17.30% 14.55%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 2.09% 2.20% 1.88% 1.78% 1.76%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.15%) 1.74% .28% 2.06% 1.48%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 27,475 $ 19,648 $ 31,686 $ 73,686 $ 57,821
Data: ======== ======== ======== ======== ========
Portfolio turnover 51.68% 84.92% 98.16% 86.68% 71.01%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
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 accounting
principles generally accepted in the United States of America, which
may require the use of management accruals and estimates. 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 that 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 that 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 investment strategies to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. 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.
* 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.
Merrill Lynch Developing Capital Markets Fund, Inc., June 30, 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(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.
(i) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$959,077 have been reclassified between accumulated net realized
capital losses and accumulated net investment loss, $395,655 has
been reclassified between paid-in capital in excess of par and
accumulated net realized capital losses and $1,489,286 has been
reclassified between paid-in capital in excess of par and
accumulated net investment loss. These reclassifications have no
effect on net assets or net asset values per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Investment Managers, L.P. ("MLIM"). The general
partner of MLIM is Princeton Services, Inc. ("PSI"), an indirect,
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is a limited partner. The Fund has also entered into a Distri-
bution Agreement and Distribution Plans with FAM Distributors, Inc.
("FAMD" or the "Distributor"), which is a wholly-owned subsidiary of
Merrill Lynch Group, Inc.
MLIM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee 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
Maintenance Distribution
Fee Fee
Class B .25% .75%
Class C .25% .75%
Class D .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 year ended June 30, 2000, FAMD 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:
FAMD MLPF&S
Class A $1,007 $ 7,150
Class D $1,500 $22,419
For the year ended June 30, 2000, MLPF&S received contingent
deferred sales charges of $166,087 and $3,208 relating to
transactions in Class B and Class C Shares, respectively.
Furthermore, MLPF&S received contingent deferred sales charges of
$15,886 relating to transactions subject to front-end sales charge
waivers in Class D Shares.
In addition, MLPF&S received $160,113 in commissions on the
execution of portfolio security transactions for the Fund for the
year ended June 30, 2000.
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 MLIM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLIM, PSI, FDS, FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended June 30, 2000 were $103,723,725 and $149,586,562,
respectively.
Net realized gains (losses) for the year ended June 30, 2000 and net
unrealized gains (losses) as of June 30, 2000 were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ 31,203,055 $ 24,127,681
Short-term investments (126) --
Foreign currency transactions (213,818) (490,427)
Forward foreign exchange
contracts 197,368 --
------------- ------------
Total $ 31,186,479 $ 23,637,254
============= ============
As of June 30, 2000, net unrealized appreciation for Federal income
tax purposes aggregated $22,330,771, of which $48,018,409 related to
appreciated securities and $25,687,638 related to depreciated
securities. The aggregate cost of investments at June 30, 2000 for
Federal income tax purposes was $170,896,071.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $42,589,402 and $215,573,715 for the years ended June 30, 2000
and June 30, 1999, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended June 30, 2000 Shares Amount
Shares sold 631,619 $ 8,674,622
Shares issued resulting from
reorganization 34,779 447,897
------------ --------------
Total issued 666,398 9,122,519
Shares redeemed (2,109,028) (27,706,605)
------------ --------------
Net decrease (1,442,630) $ (18,584,086)
============ ==============
Class A Shares for the Year Dollar
Ended June 30, 1999 Shares Amount
Shares sold 1,619,556 $ 15,898,255
Shares issued to shareholders
in reinvestment of distributions 59,063 489,047
------------ --------------
Total issued 1,678,619 16,387,302
Shares redeemed (15,707,343) (133,315,366)
------------ --------------
Net decrease (14,028,724) $ (116,928,064)
============ ==============
Class B Shares for the Year Dollar
Ended June 30, 2000 Shares Amount
Shares sold 780,129 $ 10,082,221
Shares issued resulting from
reorganization 135,377 1,683,229
------------ --------------
Total issued 915,506 11,765,450
Automatic conversion of shares (226,293) (2,861,551)
Shares redeemed (2,638,734) (33,736,586)
------------ --------------
Net decrease (1,949,521) $ (24,832,687)
============ ==============
Merrill Lynch Developing Capital Markets Fund, Inc., June 30, 2000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (concluded)
Class B Shares for the Year Dollar
Ended June 30, 1999 Shares Amount
Shares sold 1,372,844 $ 12,591,100
Shares issued to shareholders
in reinvestment of distributions 73,184 594,258
------------ --------------
Total issued 1,446,028 13,185,358
Automatic conversion of shares (190,641) (1,779,556)
Shares redeemed (9,342,483) (83,600,044)
------------ --------------
Net decrease (8,087,096) $ (72,194,242)
============ ==============
Class C Shares for the Year Dollar
Ended June 30, 2000 Shares Amount
Shares sold 170,097 $ 2,198,270
Shares issued resulting from
reorganization 12,021 148,890
------------ --------------
Total issued 182,118 2,347,160
Shares redeemed (481,324) (6,159,185)
------------ --------------
Net decrease (299,206) $ (3,812,025)
============ ==============
Class C Shares for the Year Dollar
Ended June 30, 1999 Shares Amount
Shares sold 302,107 $ 2,904,136
Shares issued to shareholders
in reinvestment of distributions 14,361 116,179
------------ --------------
Total issued 316,468 3,020,315
Shares redeemed (1,933,187) (17,202,260)
------------ --------------
Net decrease (1,616,719) $ (14,181,945)
============ ==============
Class D Shares for the Year Dollar
Ended June 30, 2000 Shares Amount
Shares sold 843,820 $ 11,304,507
Automatic conversion of shares 220,665 2,861,551
Shares issued resulting from
reorganization 22,034 281,628
------------ --------------
Total issued 1,086,519 14,447,686
Shares redeemed (740,603) (9,808,290)
------------ --------------
Net increase 345,916 $ 4,639,396
============ ==============
Class D Shares for the Year Dollar
Ended June 30, 1999 Shares Amount
Shares sold 630,224 $ 5,544,815
Automatic conversion of shares 187,608 1,779,556
Shares issued to shareholders
in reinvestment of distributions 13,643 112,554
------------ --------------
Total issued 831,475 7,436,925
Shares redeemed (2,213,300) (19,706,389)
------------ --------------
Net decrease (1,381,825) $ (12,269,464)
============ ==============
5. Commitments:
At June 30, 2000, the Fund entered into foreign exchange contracts
under which it had agreed to purchase and sell various foreign
currencies with approximate values of $213,000 and $1,302,000,
respectively.
6. Capital Loss Carryforward:
At June 30, 2000, the Fund had a net capital loss carryforward of
approximately $225,302,000, of which $154,000 expires in 2003,
$594,000 expires in 2005 and $224,554,000 expires in 2007. This
amount will be available to offset like amounts of any future
taxable gains.
7. Acquisition of Merrill Lynch Middle East/Africa Fund, Inc.:
On May 19, 2000, the Fund acquired all of the net assets of Merrill
Lynch Middle East/Africa Fund, Inc. pursuant to a plan of
reorganization. The acquisition was accomplished by a tax-free
exchange of 279,271 shares of common stock of Merrill Lynch Middle
East/Africa Fund, Inc. for 204,212 shares of common stock of the
Fund. Merrill Lynch Middle East/Africa Fund, Inc.'s net assets on
that date of $2,561,644, including $331,973 of unrealized
appreciation and $1,161,330 of accumulated net realized capital
losses, were combined with those of the Fund. The aggregate net
assets immediately after the acquisition amounted to $188,104,873.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Developing Capital Markets Fund, Inc.:
We have audited the accompanying consolidated statement of assets
and liabilities, including the consolidated schedule of investments,
of Merrill Lynch Developing Capital Markets Fund, Inc. and its
subsidiary as of June 30, 2000, the related consolidated statements
of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
consolidated financial highlights for each of the years in the five-
year period then ended. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned at June 30, 2000 by correspondence
with the custodians and brokers; where replies were not received
from brokers, we performed other auditing procedures. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements and
consolidated financial highlights present fairly, in all material
respects, the financial position of Merrill Lynch Developing Capital
Markets Fund, Inc. and its subsidiary as of June 30, 2000, the
results of their operations, the changes in their net assets, and
the consolidated financial highlights for the respective stated
periods in accordance with accounting principles generally accepted
in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
August 14, 2000
</AUDIT-REPOR>
Merrill Lynch Developing Capital Markets Fund, Inc., June 30, 2000
PORTFOLIO INFORMATION (unaudited)
Ten Largest Equity Holdings Percent of
As of June 30, 2000 Net Assets
Samsung Electronics 5.4%
Embratel Participacoes SA* 4.0
Taiwan Semiconductor Manufacturing Company 3.5
China Mobile (Hong Kong) Limited (ADR) 2.8
Telefonos de Mexico SA (ADR) 2.0
TV Azteca, SA de CV* 1.9
Korea Electric Power Corporation 1.9
Telekom Malaysia Berhad 1.5
Yapi ve Kredi Bankasi AS 1.5
Petroleo Brasileiro SA--Petrobas (Preferred) 1.4
*Includes combined holdings.
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Charles C. Reilly, Director
Roscoe S. Suddarth, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Robert C. Doll, Jr., Senior Vice President
Grace Pineda, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Susan B. Baker, 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
