MERRILL LYNCH
DEVELOPING
CAPITAL MARKETS
FUND, INC.
FUND LOGO
Semi-Annual Report
December 31, 1999
Investing in emerging market securities involves a number of risk
factors and special considerations, including restrictions on
foreign investments and on repatriation of capital invested in
emerging markets, currency fluctuations, and potential price
volatility and less liquidity of securities traded in emerging
markets. In addition, there may be less publicly available
information about the issuers of securities, and such issuers may
not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those to which US companies
are subject. Therefore, the Fund is designed as a long-term
investment for investors capable of assuming the risks of investing
in emerging markets. The Fund should be considered as a vehicle for
diversification and not as a complete investment program. Please
refer to the prospectus for details.
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch
Developing
Capital Markets
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH DEVELOPING CAPITAL MARKETS FUND, INC.
Map Depicting the Fund's Asset Allocation As a Percentage*
of Net Assets as of December 31, 1999
Venezuela 0.2%
Brazil 12.1%
Spain 0.1%
Hungary 2.6%
Czech Republic 0.4%
Poland 0.9%
Russia 1.7%
Greece 2.0%
Turkey 2.9%
India 9.0%
Thailand 2.4%
China 0.5%
Hong Kong 0.7%
South Korea 16.9%
Mexico 13.2%
Peru 0.3%
Argentina 0.9%
Egypt 0.2%
South Africa 10.2%
Israel 2.1%
Malaysia 5.4%
Indonesia 1.9%
Singapore 0.6%
Taiwan 10.1%
Philippines 0.9%
[FN]
*Total may not equal 100%.
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1999
DEAR SHAREHOLDER
During the six-month period ended December 31, 1999, total returns
for Merrill Lynch Developing Capital Markets Fund, Inc.'s Class A,
Class B, Class C and Class D Shares were +21.89, +21.35%, +21.34%
and +21.85%, respectively. (Results shown do not reflect sales
charges and would be lower if sales charges were included.) The
total return of the unmanaged Morgan Stanley Capital International
Emerging Markets Free (MSCI EMF) Index rose 18.98% during the same
period. The Fund's outperformance is attributable to stock selection
in South Korea, India, South Africa and Mexico compared to their
relative markets.
Investment Overview
Emerging stock market gains in 1999 more than reversed the declines
from the previous two years with a 66.41% rise during 1999, as
measured by the MSCI EMF Index. We believe this rally was based on
fundamental factors, and we believe it can continue. These factors
include: the strength of US demand for goods, an upturn in the
commodity cycle, the recovery of several of the countries that were
in crisis, the improved perception of risk in emerging markets, and
a revaluation of the companies involved in technology and Internet-
related businesses.
A factor that was an important impetus early in 1999 was the growth
policy bias in the world's major economies. Most notably, the
monetary policy of the US Federal Reserve Board was relatively easy
and US demand was strong. This reflationary bias was also pervasive
in Europe and in Japan. Prices of some commodities recovered and
this was beneficial to producers and exporters. This recovery
supported portfolio holdings such as Companhia Vale do Rio Doce 'A'
(Preferred) in Brazil and Impala Platinum Holdings Limited in South
Africa. The strength of US demand for electronics goods benefited
semiconductor makers such as Samsung Electronics, the largest
holding in our portfolio, and Taiwan Semicon-ductor Manufacturing
Company, an integrated circuit foundry.
A clear beneficiary of reflation has been Mexico because of its
trading relationship with the United States and its exports of oil.
Mexican economic growth projections were raised throughout 1999,
supported by a recovery in indicators such as industrial production,
exports and retail sales. As these came through, corporate earnings
estimates were revised upward as well.
An example of a company whose earnings outlook is improving is Tubos
de Acero de Mexico SA (Tamsa), a Mexican seamless pipe producer. For
most of 1999, the stock had languished at all-time lows given the
poor outlook for both of these sectors. However, the recent surge in
oil prices has prompted oil companies to expand their rig drilling
projects for 2000. This bodes well for Tamsa as it dominates the
deep well pipe market. We also like the fact that each of a few
producers affects the market in the seamless pipe industry but does
not control it. This prevented the huge price declines witnessed
earlier in 1999 for other more commodity-like steels. Tamsa is a
subsidiary of the Italian DST group, which controls more than 30% of
the global market and therefore enjoys a certain amount of price
protection. Tamsa stock has begun to move given the turnaround in
sentiment.
During the period, another driving factor was evidence that the
economies in Asia were recovering and that critical reforms were
being undertaken to prevent a recurrence of the crises. The greatest
progress in recovery has been made by South Korea at the same time
that its banking sector is undergoing reforms. Furthermore,
important companies throughout the region were restructuring by
disposing of non-core assets. The Siam Cement Public Company
Limited, one of our holdings in Thailand, is an example.
At the same time, the perception of risk by international investors
in the emerging markets improved. This was evident in the successful
issuances of securities by entities from Brazil, Malaysia, South
Korea and Thailand in foreign markets. This allowed interest rates
and the cost of capital to decline and stocks to rally.
Finally, a unique factor in 1999 was the positive reassessment and
revaluation by investors of the telecommunications and technology
companies in emerging markets. The stocks of companies in related
businesses--including Internet service providers, software
developers and cellular phone operators--rallied strongly in 1999.
Nearly every initial public offering in this area was extremely
successful. We expect the revaluation of these companies to sustain
their rallies, and we believe we have positioned the Fund to
participate in several of them, including Videsh Sanchar Nigam Ltd.
(VSNL).
VSNL is an Indian company whose core business is to provide
international long distance services. The company's monopoly
position enables them to dominate access to the Internet and to sell
international bandwidth to Internet service providers. The potential
for VSNL to develop its Internet businesses is extremely attractive
to us, but its basic telephony business is compelling on its own as
it upgrades its network and as the Indian telephone traffic volume
expands. Furthermore, in our opinion, its valuation implies that it
is one of the most inexpensive telecommunications companies in the
world.
In Conclusion
On January 19, 2000, the Fund's Board of Directors approved a plan
of reorganization, subject to shareholder approval and certain other
conditions, whereby the Fund would acquire substantially all of the
assets and liabilities of Merrill Lynch Middle East/Africa Fund,
Inc. in exchange for newly issued shares of the Fund. These Funds
are registered, non-diversified, open-end management investment
companies. Both entities have a similar investment objective and are
managed by Merrill Lynch Asset Management, L.P.
We believe that the long-term potential of emerging markets is just
starting to be realized, and that in recent years, crises have set
the stage for stronger performance. We thank you for your continued
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
January 21, 2000
To reduce shareholder expenses, Merrill Lynch Developing Capital
Markets Fund, Inc. will no longer be printing and mailing quarterly
reports to shareholders. We will continue to provide you with
reports on a semi-annual and annual basis.
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 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.
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 12/31/99 +67.59% +58.79%
Five Years Ended 12/31/99 + 3.01 + 1.90
Ten Years Ended 12/31/99 + 7.47 + 6.89
*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 12/31/99 +65.96% +61.96%
Five Years Ended 12/31/99 + 1.93 + 1.93
Inception (7/01/94) to 12/31/99 + 2.19 + 2.19
*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 12/31/99 +65.95% +64.95%
Five Years Ended 12/31/99 + 1.94 + 1.94
Inception (10/21/94) to 12/31/99 - 0.39 - 0.39
*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 12/31/99 +67.33% +58.54%
Five Years Ended 12/31/99 + 2.76 + 1.66
Inception (10/21/94) to 12/31/99 + 0.41 - 0.62
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
Recent
Performance
Results*
<CAPTION>
Ten Years/
3 Month 12 Month Since Inception
As of December 31, 1999 Total Return Total Return Total Return
<S> <S> <S> <S>
ML Developing Capital Markets Fund Class A Shares+ +31.16% +67.59% +105.49%
ML Developing Capital Markets Fund Class B Shares +30.85 +65.96 + 12.65
ML Developing Capital Markets Fund Class C Shares +30.87 +65.95 - 1.99
ML Developing Capital Markets Fund Class D Shares +31.06 +67.33 + 2.16
*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>
South Banking 97,400 Nedcor Limited $ 2,169,724 1.0%
Africa
Beverages 119,617 South African Breweries PLC 1,217,565 0.5
35 South African Breweries PLC (c) 356 0.0
------------ ------
1,217,921 0.5
Beverages & Tobacco 99,200 Rembrandt Group Limited 945,223 0.4
Computers 110,200 ++Dimension Data Holdings Limited 691,662 0.3
Financial Services 1,576,289 FirstRand Limited 2,255,503 1.0
Gold Mines 50,661 AngloGold Limited (ADR)(a) 1,301,354 0.6
Health Insurance 360,046 Sanlam Limited 503,479 0.2
Insurance 28,151 Liberty Life Association of Africa Limited 324,995 0.1
33,014 Standard Bank Investment Corporation Limited 137,156 0.1
------------ ------
462,151 0.2
Metals--Non-Ferrous 49,723 Anglo American PLC 3,201,676 1.4
593,432 Gencor Limited 2,581,188 1.1
56,395 Impala Platinum Holdings Limited 2,283,310 1.0
------------ ------
8,066,174 3.5
Miscellaneous 52,103 De Beers (ADR)(a) 1,507,730 0.7
Materials & 553,968 Nampak Limited 1,666,408 0.7
Commodities 3,174,138 1.4
Retail 1,159,941 Metro Cash and Carry Limited 1,320,258 0.6
211,720 Pepkor Limited 998,354 0.4
------------ ------
2,318,612 1.0
Retail--Stores 17,524 Edgars Consolidated Stores Limited 223,965 0.1
Steel 379 Iscor Limited 1,437 0.0
Total Investments in Africa (Cost--$17,803,235) 23,331,343 10.2
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1999
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Percent of
EUROPE Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
Czech Banking-- 21,508 ++Komercni Banka AS $ 349,152 0.1%
Republic International
Telephone 38,387 ++SPT Telecom AS 619,941 0.3
Networks
Total Investments in the Czech Republic 969,093 0.4
Greece Banking 8,210 Alpha Credit Bank 643,106 0.3
Beverages 17,352 ++Hellenic Bottling Co. 398,866 0.2
Building & Construction 7,108 Titan Cement Company 424,206 0.2
Cellular Telephones 18,328 Panafon Hellenic Telecom Co. 246,179 0.1
Telecommunications 163,869 Hellenic Telecommunication Organization SA
(OTE) (ADR)(a) 1,956,186 0.8
31,900 ++STET Hellas Telecommunications SA (ADR)(a) 964,975 0.4
------------ ------
2,921,161 1.2
Total Investments in Greece 4,633,518 2.0
Hungary Banking 20,658 OTP Bank Rt. (GDR)(b) 1,192,999 0.6
Oil & Related 56,942 ++MOL Magyar Olaj-es Gazipari Rt. (GDR)(b) 1,167,311 0.5
Telecommunications 1,183 Magyar Tavkozlesi Rt (ADR)(a) 42,588 0.0
483,941 Magyar Tavkozlesi Rt.--Matav 3,391,573 1.5
------------ ------
3,434,161 1.5
Total Investments in Hungary 5,794,471 2.6
Poland Banking 16,808 ++Bank Polska Kasa Opieki Grupa Pekao SA 218,545 0.1
53,882 Wielkopolski Bank Kredytowy SA 365,302 0.2
------------ ------
583,847 0.3
Financial Services 17,000 Bank Rozwoju Eksportu SA (BRE) 539,225 0.2
Multi-Industry 22,778 ++Elektrim Spolka Akcyjna SA 226,125 0.1
Telephone 62,661 Telekomunikacja Polska SA 411,165 0.2
Communications 53,800 Telekomunikacja Polska SA (GDR)(b) 336,250 0.1
------------ ------
747,415 0.3
Total Investments in Poland 2,096,612 0.9
Russia Energy Sources 2,025,000 Irkutskenergo 151,875 0.1
35,138 LUKoil Holding (ADR)(a) 1,827,176 0.8
------------ ------
1,979,051 0.9
Oil/Integrated-- 109,632 Surgutneftegaz (ADR)(a) 1,574,250 0.7
International
Telecommuni- 3,268,800 Bashinformsvyaz 137,290 0.1
cations 150,704 Nizhnovsvyazinform 128,098 0.0
------------ ------
265,388 0.1
Utilities-- 2,066,208 Bashkirenergo 115,708 0.0
Electric
Total Investments in Russia 3,934,397 1.7
Spain Internet Content 2,400 ++Terra Networks, SA 131,111 0.1
Total Investments in Spain 131,111 0.1
Turkey Banking 107,161,218 ++Turkiye Garanti Bankasi AS 1,620,959 0.7
95,296,123 Yapi ve Kredi Bankasi AS 2,944,494 1.3
------------ ------
4,565,453 2.0
Beverages 8,186,933 Ege Biracilik Ve Malt Sanayii AS 626,744 0.3
Electronics 2,234,000 ++Vestel Elektronik Sanayi ve Ticaret AS 535,731 0.2
Retail 1,413,861 Migros Turk TAS 912,841 0.4
Total Investments in Turkey 6,640,769 2.9
Total Investments in Europe (Cost--$22,362,999) 24,199,971 10.6
LATIN
AMERICA
Argentina Oil & Related 203,276 Perez Companc SA 'B' 1,040,773 0.5
Real Estate 17,083 IRSA Inversiones y Representaciones SA (GDR)(b) 550,927 0.2
Telecommunications 9,022 Telecom Argentina Stet-France Telecom SA (ADR)(a)(c) 309,004 0.1
7,819 Telefonica de Argentina SA (ADR)(a) 241,412 0.1
------------ ------
550,416 0.2
Total Investments in Argentina 2,142,116 0.9
Brazil Banking 13,270,320 Banco Itau SA (Preferred) 1,140,188 0.5
35,027 Uniao de Bancos Brasileiros SA (Unibanco) (GDR)(b) 1,055,188 0.5
------------ ------
2,195,376 1.0
Beverages 2,521,861 Companhia Cervejaria Brahma (Preferred) 1,845,264 0.8
5,163 Companhia Cervejaria Brahma (Preferred) (ADR)(a) 72,282 0.0
------------ ------
1,917,546 0.8
Metals & Steel 141,122 Companhia Vale do Rio Doce 'A' (Preferred) 3,911,364 1.7
Oil & Related 9,425,734 Petroleo Brasileiro SA--Petrobras (Preferred) 2,403,458 1.1
Retail 37,134 Companhia Brasileira de Distribuicao Grupo Pao
de Acucar (ADR)(a) 1,199,892 0.5
Telecommuni- 172,922,000 Embratel Participacoes SA 2,894,814 1.3
cations 63,490,526 Tele Celular Sul Participacoes SA 138,314 0.1
18,500 Tele Centro Oeste Celular Participacoes SA (ADR)(a) 120,250 0.1
6,400 Tele Leste Celular Participacoes SA (ADR)(a) 272,000 0.1
2,900 Tele Nordeste Celular Participacoes SA (ADR)(a) 146,450 0.1
143,622 Tele Norte Leste Participacoes SA (ADR)(a) 3,662,361 1.6
8,896 Tele Sudeste Celular Participacoes SA (ADR)(a) 345,276 0.1
42,623 ++Telecomunicacoes Brasileiras SA--Telebras (ADR)(a) 666 0.0
18,417 Telecomunicacoes Brasileiras SA--Telebras
(Preferred Block) (ADR)(a) 2,366,584 1.0
7,980 Telesp Celular Participacoes SA (ADR)(a) 338,152 0.1
73,248,526 Telesp Participacoes SA 1,015,491 0.4
44,699 Telesp Participacoes SA (ADR)(a) 1,092,332 0.5
------------ ------
12,392,690 5.4
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1999
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
LATIN
AMERICA Shares Percent of
(concluded) Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
Brazil Utilities 39,450,000 Centrais Eletricas Basileiras SA--Eletrobras $ 864,007 0.4%
(concluded) --Electric 124,982,270 Companhia Energetica de Minas Gerais SA
--CEMIG (Preferred) 2,805,866 1.2
------------ ------
3,669,873 1.6
Total Investments in Brazil 27,690,199 12.1
Mexico Beverages & Tobacco 131,725 Panamerican Beverages, Inc. 'A' (US Registered Shares) 2,708,595 1.2
Broadcasting/Media 109,881 ++Grupo Televisa SA (GDR)(b) 7,499,378 3.3
456,215 TV Azteca, SA de CV (ADR)(a) 4,105,935 1.8
------------ ------
11,605,313 5.1
Building Materials 87,775 Cemex, SA de CV 491,503 0.2
57,009 ++Cemex, SA de CV (ADR)(a) 1,589,126 0.7
3,563 Cemex, SA de CV (ADR) (Warrants)(a)(d) 14,697 0.0
5,000 Cemex, SA de CV (Warrants)(d) 4,226 0.0
------------ ------
2,099,552 0.9
Diversified Companies 47,142 ++Grupo Sanborns, SA 'B1' 102,104 0.0
Financial Services-- 102,500 ++Grupo Financiero Banamex Accival, SA de CV
(Banacci) 'O' 412,058 0.2
Commercial 1,822,400 Grupo Financiero Bancomer, SA de CV 'O' 762,462 0.3
------------ ------
1,174,520 0.5
Food 445,545 ++Grupo Industrial Bimbo, SA de CV 'A' 988,531 0.4
Healthcare/ 714,360 Kimberly-Clark de Mexico, SA de CV 'A' 2,784,985 1.2
Personal Care
Multi-Industry 215,292 ++Grupo Carso, SA de CV 'A1' 1,066,793 0.5
Steel 49,089 Tubos de Acero de Mexico SA (ADR)(a) 665,770 0.3
Telecommunications 61,873 Telefonos de Mexico SA (ADR)(a) 6,960,712 3.1
Total Investments in Mexico 30,156,875 13.2
Peru Financial Services 58,000 Credicorp Limited 696,000 0.3
Total Investments in Peru 696,000 0.3
Venezuela Telecommunications 15,076 Compania Anonima Nacional Telefonos de Venezuela
(CANTV) (ADR)(a) 371,246 0.2
Total Investments in Venezuela 371,246 0.2
Total Investments in Latin America (Cost--42,834,101) 61,056,436 26.7
MIDDLE
EAST
Egypt Banking 29,677 ++Commercial International Bank (GDR)(b)(c) 418,446 0.2
Total Investments in Egypt 418,446 0.2
Israel Banking 416,306 Bank Hapoalim 1,298,072 0.6
552,450 Bank Leumi Le-Israel 1,163,473 0.5
------------ ------
2,461,545 1.1
Software--Computer 7,440 ++Check Point Software Technologies Ltd. 1,477,770 0.6
Telecommunications 161,009 ++Bezeq Israeli Telecommunication Corporation Ltd. 803,105 0.4
Total Investments in Israel 4,742,420 2.1
Total Investments in the Middle East
(Cost--3,833,167) 5,160,866 2.3
PACIFIC
BASIN/ASIA
China Electrical & 578,500 Eastern Communication Co., Ltd. 'B' 376,025 0.2
Electronics
Machinery & 2,775,774 Qingling Motor Company 'H' 339,249 0.2
Engineering
Utilities-- 1,741,000 Beijing Datang Power Generation Company Limited 'H' 288,935 0.1
Electric
Total Investments in China 1,004,209 0.5
Hong Kong Building Products 10,665,219 ++Anhui Conch Cement Co. Ltd. 'H' 850,693 0.4
Telecommunications & 31,000 ++i-CABLE Communications Limited (ADR)(a) 790,500 0.3
Equipment
Total Investments in Hong Kong 1,641,193 0.7
India Banking 122,543 State Bank of India 633,284 0.3
Building Products 100 Associated Cement Companies Ltd. 571 0.0
Business & Public 57,500 Pentafour Software & Exports Ltd. (New Shares) 1,766,383 0.8
Services 32,441 ++Satyam Computer Services Limited 1,640,326 0.7
------------ ------
3,406,709 1.5
Chemicals 160 Reliance Industries Ltd. 860 0.0
177,795 ++Reliance Industries Ltd. 955,408 0.4
------------ ------
956,268 0.4
Computer Software 6,447 ++Infosys Technologies Limited 2,151,903 0.9
Energy Sources 24,930 ++BSES Ltd. (GDR)(b) 311,625 0.1
682 Bombay Electrical Supply 2,995 0.0
------------ ------
314,620 0.1
Financial Services 837,015 ICICI Ltd. 1,770,646 0.8
46,250 ++ICICI Ltd. (ADR)(a) 682,187 0.3
------------ ------
2,452,833 1.1
Food & Household 49,685 ++Hindustan Lever Limited 2,570,505 1.1
Products
Leisure & Tourism 37,997 ++EIH Limited 174,739 0.1
Metals--Non-Ferrous 100,314 Hindalco Industries Ltd. 1,856,812 0.8
5,015 Hindalco Industries Ltd. (GDR)(b) 116,097 0.1
------------ ------
1,972,909 0.9
Oil & Gas Producers 45,119 Bharat Petroleum Corporation Ltd. 407,306 0.2
Oil Services 200 ++Hindustan Petroleum Corporation Ltd. 842 0.0
Pharmaceutical-- 1,129 Ranbaxy Laboratories Limited (GDR)(b) 24,386 0.0
Prescription
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1999
<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 Software-- 48,000 Wipro Limited $ 2,870,508 1.2%
(concluded) Application
Development
Telecommunications 70,740 Videsh Sanchar Nigam Ltd. (GDR)(b) 1,718,982 0.8
Tobacco 53,000 ITC Limited 810,416 0.4
Total Investments in India 20,466,781 9.0
Indonesia Banking 38,428,000 ++PT Bank Internasional Indonesia 826,409 0.3
Foods/Food 714,000 ++PT Indofood Sukses Makmur Tbk 895,699 0.4
Processing
Forest Products/ 2,181,000 ++PT Indah Kiat Pulp & Paper Corporation Tbk 859,892 0.4
Paper & Packaging
Telecommunications 25,526 PT Indosat (Persero) Tbk (ADR)(a) 552,000 0.2
2,240,000 PT Telekomunikasi Indonesia 1,276,559 0.6
------------ ------
1,828,559 0.8
Total Investments in Indonesia 4,410,559 1.9
Malaysia Banking 432,000 Malayan Banking Berhad 1,534,737 0.7
Energy Sources 302,000 Petronas Gas Berhad 707,316 0.3
Leisure 594,000 Resorts World Berhad 1,703,842 0.7
Telecommunications 1,608,000 Telekom Malaysia Berhad 6,220,421 2.7
Tobacco 141,100 British American Tobacco Berhad 1,076,816 0.5
Utilities--Electric 450,000 Tenaga Nasional Berhad 1,160,526 0.5
Total Investments in Malaysia 12,403,658 5.4
Philippines Banking 103,084 Metropolitan Bank & Trust Company 743,641 0.3
Utilities-- 427,490 Manila Electric Company 'B' 1,222,919 0.6
Electric & Gas
Total Investments in the Philippines 1,966,560 0.9
Singapore Electronic Components 19,917 ++Chartered Semiconductor Manufacturing
Limited (ADR)(a) 1,434,024 0.6
Total Investments in Singapore 1,434,024 0.6
South Automobile 45,153 ++Hyundai Motor Company Ltd. 716,083 0.3
Korea
Banking 46,350 ++Housing & Commercial Bank, Korea 1,470,132 0.6
79,028 Kookmin Bank 1,239,382 0.5
------------ ------
2,709,514 1.1
Chemicals 15,530 Honam Petrochemical Corporation 217,557 0.1
34,820 L.G. Chemical Limited 1,101,355 0.5
------------ ------
1,318,912 0.6
Computer Software 17,670 Haansoft Inc. 818,892 0.4
Distribution 458,540 ++Kolon International Corporation 2,262,400 1.0
Electronic Components 4,506 Samsung Display Devices Co., Ltd. 187,386 0.1
Electronics 57,931 Samsung Electronics 13,576,781 5.9
Finance 35,960 Daewoo Securities 407,124 0.2
7,480 Dongwon Securities 161,463 0.1
24,510 Hyundai Securities 479,403 0.2
11,974 LG Investment & Securities Company Limited 203,611 0.1
18,785 Samsung Securities Company Ltd. 569,334 0.2
------------ ------
1,820,935 0.8
Food 9,250 Cheil Jedang Corporation 1,067,621 0.5
6,110 Cheil Jedang Corporation (Preferred) 274,546 0.1
------------ ------
1,342,167 0.6
Oil & Gas Producers 24,520 SK Corporation 743,161 0.3
Steel 32,746 Pohang Iron & Steel Company Ltd. (ADR)(a) 1,146,110 0.5
Telecommunications 78,901 Korea Telecom Corporation (ADR)(a) 5,897,850 2.6
6,500 ++Korea Thrunet Co., Ltd. (Class A) 440,375 0.2
41,331 SK Telecom Co. Ltd. (ADR)(a)(c) 1,586,070 0.7
------------ ------
7,924,295 3.5
Utilities-- 131,340 Korea Electric Power Corporation 4,073,276 1.8
Electric
Total Investments in South Korea 38,639,912 16.9
Taiwan Banking 567 Bank Sinopac 334 0.0
3,749,266 ++E. Sun Commercial Bank 1,475,572 0.7
------------ ------
1,475,906 0.7
Building Products 250,600 Asia Cement Corporation 220,413 0.1
256,800 Taiwan Cement Corporation 265,147 0.1
------------ ------
485,560 0.2
Chemicals 1,138,887 Formosa Plastic Corporation 2,268,338 1.0
Computer Equipment 150,150 Compal Electronics Inc. 504,806 0.2
Computers 119,000 Quanta Computer Inc. 932,887 0.4
Electrical 157,000 ++Chroma Ate Inc. 460,293 0.2
Instruments
Electronic 434,636 ++Mosel Vitelic, Inc. 692,537 0.3
Components
Electronic/ 858,000 ++Vanguard International Semiconductor Corporation 1,121,032 0.5
Semiconductors
Electronics 662,000 ++United Microelectronics Corporation, Ltd. 2,362,779 1.0
Financial Securities 698,300 Grand Cathay Securities Corporation 456,187 0.2
Financial Services 514,400 ++China Development Industrial Bank Inc. 819,630 0.4
Health Insurance 503,450 Cathay Life Insurance Co., Ltd. 1,211,296 0.5
Semiconductors 1,825,640 ++Taiwan Semiconductor Manufacturing Company 9,715,802 4.3
Wire & Cable 782,000 ++Pacific Electrical Wire & Cable Co. Ltd. 553,231 0.2
Total Investments in Taiwan 23,060,284 10.1
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1999
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
PACIFIC
BASIN/ASIA Shares Percent of
(concluded) Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
Thailand Banking 527,700 ++Bangkok Bank Public Company Limited 'Foreign' $ 1,335,416 0.6%
1,297,000 Siam Commercial Bank Public Company Limited
(Warrants)(d) 604,622 0.3
805,200 ++Thai Farmers Bank Public Company Limited 'Foreign' 1,351,295 0.6
------------ ------
3,291,333 1.5
Broadcasting/Media 150,860 BEC World Public Company Limited 'Foreign' 1,068,960 0.5
Building Materials 27,549 ++The Siam Cement Public Company Limited 918,789 0.4
Computers 10,300 ++Shin Corporations Public Company Limited 86,702 0.0
Total Investments in Thailand 5,365,784 2.4
Total Investments in the Pacific Basin/Asia
(Cost--$77,514,120) 110,392,964 48.4
Total Investments (Cost--$164,347,622) 224,141,580 98.2
Other Assets Less Liabilities 4,217,318 1.8
------------ ------
Net Assets $228,358,898 100.0%
============ ======
++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.
+++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
(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 December 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$164,347,622) $ 224,141,580
Foreign cash 5,927,091
Receivables:
Securities sold $ 2,915,760
Capital shares sold 899,447
Dividends 336,657
Foreign forward exchange contracts 197,368 4,349,232
--------------
Prepaid expenses and other assets 23,757
--------------
Total assets 234,441,660
--------------
Liabilities: Payables:
Securities purchased 3,134,505
Capital shares redeemed 1,329,904
Custodian bank 664,572
Investment adviser 203,730
Distributor 97,552 5,430,263
--------------
Accrued expenses and other liabilities 652,499
--------------
Total liabilities 6,082,762
--------------
Net Assets: Net assets $ 228,358,898
==============
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000 shares
Consist of: authorized $ 617,539
Class B Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized 690,248
Class C Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized 138,623
Class D Shares of Common Stock, $.10 par value, 100,000,000 shares
authorized 157,257
Paid-in capital in excess of par 424,452,339
Accumulated investment loss--net (1,119,779)
Accumulated distributions in excess of investment income--net (2,542,794)
Accumulated realized capital losses on investments and foreign currency
transactions--net (226,354,912)
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 59,632,607
--------------
Net assets $ 228,358,898
==============
Net Asset Class A--Based on net assets of $89,439,723 and 6,175,394 shares
Value: outstanding $ 14.48
==============
Class B--Based on net assets of $96,905,813 and 6,902,483 shares
outstanding $ 14.04
==============
Class C--Based on net assets of $19,387,043 and 1,386,230 shares
outstanding $ 13.99
==============
Class D--Based on net assets of $22,626,319 and 1,572,569 shares
outstanding $ 14.39
==============
See Notes to Consolidated Financial Statements.
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1999
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended December 31, 1999
<S> <S> <C> <C>
Investment Income: Dividends (net of $160,928 foreign withholding tax) $ 1,229,295
Interest and discount earned 114,500
--------------
Total income 1,343,795
--------------
Expenses: Investment advisory fees $ 1,007,888
Account maintenance and distribution fees--Class B 433,417
Custodian fees 248,308
Transfer agent fees--Class B 159,963
Transfer agent fees--Class A 123,886
Accounting services 105,887
Account maintenance and distribution fees--Class C 85,415
Printing and shareholder reports 62,041
Professional fees 51,539
Registration fees 35,027
Transfer agent fees--Class C 32,087
Transfer agent fees--Class D 30,306
Account maintenance fees--Class D 24,039
Directors' fees and expenses 22,302
Dividend fees 13,406
Pricing fees 6,320
Other 21,743
--------------
Total expenses 2,463,574
--------------
Investment loss--net (1,119,779)
--------------
Realized & Realized gain from:
Unrealized Investments--net 5,188,911
Gain on Foreign currency transactions--net 73,175 5,262,086
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions Investments--net 35,236,462
- --Net: Foreign currency transactions--net 1,188,658 36,425,120
-------------- --------------
Net realized and unrealized gain on investments and
foreign currency transactions 41,687,206
--------------
Net Increase in Net Assets Resulting from Operations $ 40,567,427
==============
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: 1999 1999
<S> <S> <C> <C>
Operations: Investment income (loss)--net $ (1,119,779) $ 3,568,319
Realized gain (loss) on investments and foreign currency
transactions--net 5,262,086 (124,742,946)
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 36,425,120 102,522,043
-------------- --------------
Net increase (decrease) in net assets resulting from operations 40,567,427 (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 (24,843,465) (215,573,715)
-------------- --------------
Net Assets: Total increase (decrease) in net assets 15,723,962 (235,741,299)
Beginning of period 212,634,936 448,376,235
-------------- --------------
End of period $ 228,358,898 $ 212,634,936
============== ==============
See Notes to Consolidated Financial Statements.
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1999
<TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
<CAPTION>
Class A++
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
Dec. 31, For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 1999 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.88 $ 10.44 $ 17.23 $ 15.05 $ 13.35
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.03) .18 .08 .36 .23
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 2.63 1.32 (6.18) 2.21 1.71
-------- -------- -------- -------- --------
Total from investment operations 2.60 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 period $ 14.48 $ 11.88 $ 10.44 $ 17.23 $ 15.05
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 21.89%+++ 14.60% (36.00%) 17.66% 14.82%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.87%* 1.97% 1.63% 1.53% 1.54%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.54%)* 1.94% .53% 2.32% 1.66%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 89,440 $ 83,115 $219,422 $471,790 $342,884
Data: ======== ======== ======== ======== ========
Portfolio turnover 29.08% 84.92% 98.16% 86.68% 71.01%
======== ======== ======== ======== ========
<CAPTION>
Class B++
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
Dec. 31, For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 1999 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.57 $ 10.28 $ 17.04 $ 14.90 $ 13.24
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.09) .08 (.07) .19 .09
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 2.56 1.27 (6.08) 2.20 1.69
-------- -------- -------- -------- --------
Total from investment operations 2.47 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 period $ 14.04 $ 11.57 $ 10.28 $ 17.04 $ 14.90
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 21.35%+++ 13.37% (36.68%) 16.39% 13.63%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.92%* 3.04% 2.67% 2.57% 2.56%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (1.59%)* .91% (.53%) 1.22% .65%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 96,906 $ 92,104 $164,929 $398,468 $302,183
Data: ======== ======== ======== ======== ========
Portfolio turnover 29.08% 84.92% 98.16% 86.68% 71.01%
======== ======== ======== ======== ========
<CAPTION>
Class C++
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
Dec. 31, For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 1999 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.53 $ 10.24 $ 16.99 $ 14.87 $ 13.22
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.09) .08 (.07) .18 .09
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 2.55 1.27 (6.08) 2.20 1.70
-------- -------- -------- -------- --------
Total from investment operations 2.46 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 period $ 13.99 $ 11.53 $ 10.24 $ 16.99 $ 14.87
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 21.34%+++ 13.42% (36.69%) 16.37% 13.68%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.93%* 3.04% 2.68% 2.58% 2.56%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (1.60%)* .90% (.51%) 1.19% .67%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 19,387 $ 17,768 $ 32,339 $ 71,769 $ 46,983
Data: ======== ======== ======== ======== ========
Portfolio turnover 29.08% 84.92% 98.16% 86.68% 71.01%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Consolidated Financial Statements.
</TABLE>
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1999
<TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class D++
For the
The following per share data and ratios have been derived Six Months
from information provided in the financial statements. Ended
Dec. 31, For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 1999 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 11.81 $ 10.41 $ 17.19 $ 15.02 $ 13.33
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.05) .16 .04 .32 .21
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 2.63 1.30 (6.15) 2.20 1.69
-------- -------- -------- -------- --------
Total from investment operations 2.58 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 period $ 14.39 $ 11.81 $ 10.41 $ 17.19 $ 15.02
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 21.85%+++ 14.26% (36.13%) 17.30% 14.55%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.12%* 2.20% 1.88% 1.78% 1.76%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.79%)* 1.74% .28% 2.06% 1.48%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 22,626 $ 19,648 $ 31,686 $ 73,686 $ 57,821
Data: ======== ======== ======== ======== ========
Portfolio turnover 29.08% 84.92% 98.16% 86.68% 71.01%
======== ======== ======== ======== ========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++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
consolidated 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 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 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, 1999
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) Custodian bank--The Fund recorded an amount payable to the
Custodian bank reflecting an overdraft which resulted from
management estimates of available cash.
(i) 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 the "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 .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 six months ended December 31, 1999, 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 $246 $ 3,847
Class D $887 $13,124
For the six months ended December 31, 1999, MLPF&S received
contingent deferred sales charges of $93,974 and $1,392 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $104,769 in commissions on the
execution of portfolio security transactions for the Fund for the
six months ended December 31, 1999.
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, 1999 were $56,851,501 and
$76,040,564, respectively.
Net realized gains (losses) for the six months ended December 31,
1999 and net unrealized gains (losses) as of December 31, 1999 were
as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $5,189,038 $59,793,959
Short-term investments (127) --
Foreign currency transactions (124,193) (161,352)
Forward foreign exchange
contracts 197,368 --
---------- -----------
Total $5,262,086 $59,632,607
========== ===========
As of December 31, 1999, net unrealized appreciation for Federal
income tax purposes aggregated $59,793,959, of which $73,476,701
related to appreciated securities and $13,682,742 related to
depreciated securities. The aggregate cost of investments at
December 31, 1999 for Federal income tax purposes was $164,347,622.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $24,843,465 and $215,573,715 for the six months ended December
31, 1999 and for the year ended June 30, 1999, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended December 31, 1999 Shares Amount
Shares sold 278,749 $ 3,438,690
Shares redeemed (1,100,883) (13,149,977)
------------ -------------
Net decrease (822,134) $ (9,711,287)
============ =============
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 Six Months Dollar
Ended December 31, 1999 Shares Amount
Shares sold 398,980 $ 4,657,048
Automatic conversion of shares (92,954) (1,063,210)
Shares redeemed (1,360,974) (15,872,773)
------------ -------------
Net decrease (1,054,948) $ (12,278,935)
============ =============
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)
============ =============
Merrill Lynch Developing Capital Markets Fund, Inc., December 31, 1999
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (concluded)
Class C Shares for the Six Months Dollar
Ended December 31, 1999 Shares Amount
Shares sold 85,438 $ 987,908
Shares redeemed (240,171) (2,779,757)
------------ -------------
Net decrease (154,733) $ (1,791,849)
------------ -------------
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 Six Months Dollar
Ended December 31, 1999 Shares Amount
Shares sold 147,987 $ 1,804,837
Automatic conversion of shares 90,895 1,063,210
------------ -------------
Total issued 238,882 2,868,047
Shares redeemed (329,335) (3,929,441)
------------ -------------
Net decrease (90,453) $ (1,061,394)
============ =============
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 December 31, 1999, the Fund entered into foreign exchange
contracts under which it had agreed to purchase and sell various
foreign currencies with approximate values of $92,000 and $588,000,
respectively.
6. Capital Loss Carryforward:
At June 30, 1999, the Fund had a net capital loss carryforward of
approximately $226,180,000, all of which expires in 2007. This
amount will be available to offset like amounts of any future
taxable gains.
7. Reorganization Plan:
On January 19, 2000, the Fund's Board of Directors approved a plan
of reorganization, subject to shareholder approval and certain other
conditons, whereby the Fund would acquire substantially all of the
assets and liabilities of Merrill Lynch Middle East/Africa Fund,
Inc. in exchange for newly issued shares of the Fund. These Funds
are registered, non-diversified, open-end management investment
companies. Both entities have a similar investment objective and are
managed by MLAM.
PORTFOLIO INFORMATION
Ten Largest Equity Holdings Percent of
As of December 31, 1999 Net Assets
Samsung Electronics 5.9%
Taiwan Semiconductor Manufacturing Company 4.3
Grupo Televisa SA (GDR) 3.3
Telefonos de Mexico SA (ADR) 3.1
Telekom Malaysia Berhad 2.7
Korea Telecom Corporation (ADR) 2.6
TV Azteca, SA de CV (ADR) 1.8
Korea Electric Power Corporation 1.8
Companhia Vale do Rio Doce 'A' (Preferred) 1.7
Tele Norte Leste Participacoes SA (ADR) 1.6
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Charles C. Reilly, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Robert C. Doll, 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
Donald Cecil and Edward H. Meyer, Directors of Merrill Lynch
Developing Capital Markets Fund, Inc. have recently retired. The
Fund's Board of Directors wishes Mr. Cecil and Mr. Meyer well in
their retirements.
