MERRILL LYNCH
DEVELOPING
CAPITAL MARKETS
FUND, INC.
FUND LOGO
Annual Report
June 30, 1995
<PAGE>
Officers and Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Grace Pineda, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Mark B. Goldfus, Secretary
Custodian
The Chase Manhattan Bank, N.A.
Gobal Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Investing in emerging market securities involves a number of risk
factors and special considerations, including restrictions on
foreign investments and on repatriation of capital invested in
emerging markets, currency fluctuations, and potential price
volatility and less liquidity of securities traded in emerging
markets. In addition, there may be less publicly available
information about the issuers of securities, and such issuers may
not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those to which US companies
are subject. Therefore, the Fund is designed as a long-term
investment for investors capable of assuming the risks of investing
in emerging markets. The Fund should be considered as a vehicle for
diversification and not as a complete investment program. Please
refer to the prospectus for details.
<PAGE>
This report is not authorized for use as an offer of sale or
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Merrill Lynch
Developing
Capital Markets
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Merrill Lynch Developing Capital Markets Fund, Inc.
Asset Allocation
As a Percentage* of
Net Assets as of
June 30, 1995
<PAGE>
A map illustrating the following percentages:
Ecuador 0.2%
Panama 0.6%
Venezuela 0.6%
Brazil 8.7%
Portugal 5.4%
Hungary 1.9%
Czech Republic 1.5%
Poland 0.6%
Russia 0.5%
Greece 3.4%
Turkey 2.9%
Pakistan 0.2%
India 5.6%
China 0.5%
South Korea 9.2%
Taiwan 0.5%
Mexico 7.1%
Peru 0.7%
Chile 1.0%
Argentina 2.5%
Morocco 2.4%
South Africa 8.2%
Israel 0.2%
Sri Lanka 0.1%
Malaysia 3.5%
Indonesia 5.4%
Hong Kong 3.8%
Philippines 0.9%
Australia 2.0%
New Zealand 0.6%
[FN]
*Total may not equal 100%.
<PAGE>
DEAR SHAREHOLDER
Fiscal Year in Review
For the year ended June 30, 1995, the total return for Merrill Lynch
Developing Capital Markets Fund, Inc.'s Class A Shares was -1.67%
and Class B Shares was -2.22% since inception (July 1, 1994) through
June 30, 1995. Since inception (October 21, 1994) through June 30,
1995, the Fund's Class C and Class D Shares had total returns of
-14.97% and -14.49%, respectively. For the year ended June 30, 1995,
the unmanaged Morgan Stanley Capital International Emerging Markets
Free Index total return was -0.02%. The Fund's performance benefited
from its investments in countries such as Greece, Turkey, New Zealand
and Peru, which rose more than 20% in US dollar terms. However, these
gains were offset by the 40% correction in the Mexican stock market.
(Fund results do not include applicable sales charges and would be
lower if sales charges were included. Complete performance information
can be found on pages 4 through 6 of this report to shareholders.)
Our investment approach during the past year was cautious. We
believe this was appropriate because we considered many of the
stocks in emerging markets to be expensive, particularly in light of
rising US interest rates and the financial crisis in Mexico. We
built up our cash position and overweighted emerging European
markets which are less sensitive to US interest rate movements. We
focused on stock valuation, finding attractively priced stocks in
Brazil, South Korea and Turkey, and built up our holdings there. We
initiated investments in fixed-income securities in Indonesia and
South Africa since fixed-income yields in those countries compared
favorably to stock valuations. We started to reduce our Fund's
holdings in Mexico during the weeks prior to and after the
devaluation.
Our somewhat defensive strategy benefited performance until US
interest rates started to stabilize early this year. This re-
introduced excess liquidity to the world's markets. Given their
limited liquidity and their high sensitivity to US interest rates,
the Asian and Latin markets, which we were most cautious about,
surged.
This year, the global growth and interest rate environment is more
favorable for emerging markets investments. We expect stable growth
in the major economies, such as the United States and Germany, with
room for interest rates to decline. While this is extremely
beneficial for the countries in which we invest, we are aware of the
potential domestic economic and political risks in the developing
countries, and continue to emphasize finding good values in their
markets.
<PAGE>
We have maintained a cautious stance in Asia. We believe valuations
are excessively high, and blue chip earnings growth has been
disappointing, particularly after adjusting for inflation. Some
market analysts justify higher prices for Asian stocks on the basis
of the region's political stability. But there are developments,
such as the rising trade tension between the United States and
China, which should not be taken for granted, in our opinion. In
this environment, we favor investments in stable currency countries,
such as Singapore and South Korea, and in markets where there is
greater scope for monetary policy easing, such as Indonesia and
India.
Investment Outlook & Activities
Among our investments is C.P. Pokphand, Co. Ltd., a Bermuda-based
holding company which is listed in Hong Kong. Its agricultural-
industrial operations span from China to Turkey. In China, in
addition to producing animal feed, C.P. Pokphand makes motorcycles,
and has entered into a retailing/distribution joint venture with Wal-
Mart. In Turkey, the company mills chicken feeds for distribution in
the European markets. C.P. Pokphand's profits were hurt by the
relaxation of food price controls, which are a necessary part of
China's market reforms. However, we believe that once prices
stabilize, the company's earning potential will increase
dramatically.
The Fund has investments in Indonesian cable companies, P.T.
Kabelmetal Indonesia and P.T. Supreme Cable Manufacturing Co.
(Sucaco). These companies operate in a very competitive industry in
which few participants will benefit from government infrastructure
spending in the coming years. However, Kabelmetal and Sucaco are
positioned to do so. They are highly innovative and efficiently run,
and can provide the technologically advanced products which are
required by the national power and telecommunications companies.
In Latin America, government policies are on the right track. Most
of the bad news regarding the Mexican financial crisis is already
out, and stock prices have surged. However, caution is warranted
because we believe that the market rallies were driven largely by
excess liquidity as US interest rates were expected to decline. We
believe that further rallies, particularly in Argentina and Mexico,
will be constrained by US monetary policy.
Our strategy in Latin America is twofold. We are somewhat defensive
in the event of near-term volatility in our markets. However, at the
same time, we are building solid foundations in those companies
which will benefit in the long term. For the most part, the
companies are characterized by strong managements and attractive
valuations. Some of the stocks we hold in Brazil and Mexico are
Companhia Cevejaria Brahma S.A. PN and Apasco, S.A. de C.V.
<PAGE>
Brahma is the largest beer company in Brazil and the sixth-largest
beer company in the world when measured by volume sales. The company
had a 50% market share until the second half of 1994. At that time,
it started to lose market share because it did not have the capacity
needed to keep up with the surge in demand which followed the July
1994 price stabilization plan. However, new capacity will be
available in 1996, and we expect Brahma to regain its market
position. The outlook for volume growth in Brazil is still very
positive, and Brahma's valuation remains attractive. Apasco, the
second-largest cement producer in Mexico, is controlled by the Swiss
cement company, Holderbank. It has a very low debt position, which
is primarily long term and at a fixed rate. Apasco will benefit from
operation in an oligopolistic market, where its main competitor is
very leveraged and has incentive to maintain prices. Apasco gained
market share over the past five years, and current volume trends
suggest that it will continue to in 1995.
We are increasing the Fund's investments in Europe because we
believe that the countries in the periphery will get a leveraged
benefit from lower German interest rates. At the same time, domestic
developments in these countries bode well for their stock markets.
In Poland, for example, an economic resurgence driven by exports is
underway and inflation is manageable. Among the stocks we hold in
the Fund is T.C. Debica, a Polish company which manufactures and
sells tires. Auto production is increasing in Poland and we expect
manufacturers such as Fiat and Peugeot to source more tires locally.
Debica exports as well, and the bulk of its exports go to the
European Union.
In Russia, while economic, currency and political risks are great,
we believe that the low prices for the country's natural resource
companies already reflect much of this. On the positive side, market
reforms are proceeding rapidly, and privatizations are the fastest
and largest that we have seen in developing countries. As a result,
after only a few years of reforms, the size of the Russian market is
already $20 billion. Currently the Fund cannot buy Russian shares
directly, so we are investing through a country fund and exploring
other vehicles.
In the Middle East, we believe that the Israeli market has one of
the brightest near-term prospects among the markets in which the
Fund invests. Israel's economic management is sound and growth over
the past five years averaged close to 6%. The Israeli stock market
is an emerging market although the country's gross domestic product
per capita is similar to Spain's. Israel has internationally
competitive industries, such as pharmaceuticals, as well as
domestically oriented ones which are extremely underdeveloped, such
as retailing. We plan to initiate investments in these areas in the
coming months.
<PAGE>
In Conclusion
We believe that global growth and the interest rate environment are
favorable for emerging markets. We will continue to pay close
attention to progress in structural reforms in these countries, and
to emphasize value when we select stocks.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Grace Pineda)
Grace Pineda
Vice President and Portfolio Manager
August 3, 1995
<PAGE>
PROXY RESULTS
During the year ended June 30, 1995, Merrill Lynch Developing
Capital Markets Fund, Inc. shareholders voted on the following
proposals. Proposals 1, 2 and 4 were approved at a special
shareholders' meeting on September 28, 1994. Proposal 3 was passed
at a special shareholders' meeting on January 31, 1995. The
description of each proposal and number of shares voted are as
follows:
<TABLE>
<CAPTION>
Shares Voted Shares Voted
For Without Authority
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors: Donald Cecil 27,622,730 515,026
Edward H. Meyer 27,622,730 515,026
Charles C. Reilly 27,624,576 513,180
Richard R. West 27,624,576 513,180
Arthur Zeikel 27,624,576 513,180
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2. To select Deloitte & Touche LLP as the Fund's independent auditors. 27,507,637 151,771 478,349
3. To approve certain changes to the Fund's fundamental investment restrictions. 13,286,881 515,985 835,647
4. To amend the Fund's articles of incorporation to implement the Merrill Lynch
Select Pricing SM System. 25,718,939 1,150,324 1,268,493
</TABLE>
PERFORMANCE DATA
About Fund Performance
Since October 21, 1994, investors have been 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.
<PAGE>
* 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.
* 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).
Performance data for the Fund's Class A Shares are presented in the
"Total Return Based on a $10,000 Investment" graph and "Average
Annual Total Return" table on page 5. "Aggregate Total Return"
tables for Class B, Class C and Class D Shares are also presented on
page 5. Data for all of the Fund's shares are presented in the
"Recent Performance Results" table on page 6.
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for Class A Shares for the
12-month and 3-month periods ended June 30, 1995 and for Class B,
Class C and Class D Shares for the since inception and 3-month
periods ended June 30, 1995. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
None of the past results shown should 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. 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--
Class A Shares
<PAGE>
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the Morgan
Stanley Capital International EAFE Index and Morgan Stanley
Capital International Emerging Markets Free Index. Beginning and
ending values are:
9/01/89** 6/95
ML Developing Capital Markets
Fund, Inc.++--Class A Shares* $ 9,475 $17,248
Morgan Stanley Capital Intetrnational
EAFE Index++++ $10,000 $12,077
Morgan Stanley Capital Internatinal
Emerging Markets Free Index++++++ $10.000 $30,503
[FN]
*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 small capital markets.
++++This unmanaged Index measures the total returns of developed
foreign stock markets in Europe, Asia and the Far East.
++++++This unmanaged Index measures the total returns of emerging
foreign stock markets in Europe, Asia and the Far East.
Average Annual
Total Return--
Class A Shares*
% Return Without % Return With
Period Covered Sales Charge Sales Charge**
Year Ended 6/30/95 - 1.67% -6.83%
Five Years Ended 6/30/95 + 8.28 +7.12
Inception (9/1/89) through 6/30/95 +10.82 +9.80
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
Aggregate
Total Return
% Return % Return
Class B Shares* Without CDSC With CDSC**
Period Covered
Inception (7/1/94) to 6/30/95 - 2.22% - 5.84%
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Class C Shares* Without CDSC With CDSC**
Period Covered
Inception (10/21/94) to 6/30/95 -14.97% -15.75%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Class D Shares* Sales Charge Sales Charge**
Period Covered
Inception (10/21/94) to 6/30/95 -14.49% -18.98%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PERFORMANCE DATA (concluded)
<PAGE>
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
6/30/95 3/31/95 6/30/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
ML Developing Capital Markets Fund Class A Shares $13.35 $12.82 $14.61 - 4.50%(1) +4.13%
ML Developing Capital Markets Fund Class B Shares 13.24 12.74 14.54 - 4.82(1) +3.92
ML Developing Capital Markets Fund Class C Shares 13.22 12.73 16.71 -17.30(1) +3.85
ML Developing Capital Markets Fund Class D Shares 13.33 12.81 16.77 -16.92(1) +4.06
ML Developing Capital Markets Fund Class A Shares--Total Return - 1.67(2) +4.13
ML Developing Capital Markets Fund Class B Shares--Total Return - 2.22(3) +3.92
ML Developing Capital Markets Fund Class C Shares--Total Return -14.97(4) +3.85
ML Developing Capital Markets Fund Class D Shares--Total Return -14.49(5) +4.06
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
++Class B Shares commenced operations on 7/01/94. Class C and Class
D Shares commenced operations on 10/21/94.
(1)Percent change includes reinvestment of $0.653 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.447 per share ordinary
income dividends and $0.653 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.412 per share ordinary
income dividends and $0.653 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.425 per share ordinary
income dividends and $0.653 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.442 per share ordinary
income dividends and $0.653 per share capital gains distributions.
</TABLE>
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Held/ Value Percent of
AFRICA Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Morocco Banking 150,000 Wafa Bank $ 5,810,251 $ 6,124,508 1.1%
Building & 161,154 Groupe Omnium Nord Africain 6,606,902 6,579,926 1.2
Construction
Building 8,000 Les Ciments de l'Oriental 272,020 317,033 0.1
Materials
Total Investments in Morocco 12,689,173 13,021,467 2.4
South Beverage 193,300 South African Breweries Ltd. 4,536,254 5,516,401 1.0
Africa 45,227 South African Breweries Ltd. (ADR) (b) 956,130 1,288,970 0.2
------------ ------------ ------
5,492,384 6,805,371 1.2
<PAGE>
Beverages & 570,300 Rembrandt Group Ltd. 4,334,695 3,921,744 0.7
Tobacco
Mining 95,000 De Beers Consolidated Mines Ltd.
(ADR)(b) 2,201,328 2,458,125 0.4
Multi-Industry 289,400 The Morgan Stanley Africa Investment
Fund, Inc. 3,357,059 3,328,100 0.6
106,600 New South Africa Fund, Inc. 1,495,194 1,532,375 0.3
90,900 Southern Africa Fund, Inc. 1,331,240 1,283,963 0.2
------------ ------------ ------
6,183,493 6,144,438 1.1
Steel 2,413,340 South Africa Iron & Steel Industrial
Corporation, Ltd. 2,616,810 2,741,602 0.5
Transportation ZAL 87,100,000 Transnet Ltd., 15% due 10/01/1995 21,325,967 23,838,399 4.3
Total Investments in South Africa 42,154,677 45,909,679 8.2
Total Investments in Africa 54,843,850 58,931,146 10.6
EUROPE
Czech Banking 13,500 Komercni Banka 2,034,490 679,180 0.1
Republic
Electrical 9,206 ++Podnik Vypocetni Techniky (PVT)
Equipment (Preferred) 1,903,926 819,420 0.1
Food 43,000 ++Ceska General Food A.S. 4,520,734 3,627,709 0.7
Paper 60,807 SEPAP A.S. 3,025,696 3,082,708 0.6
Total Investments in the Czech
Republic 11,484,846 8,209,017 1.5
Greece Banking 84,650 Ergo Bank (Registered) S.A. 3,038,469 3,895,978 0.7
Beverage 183,750 Hellenic Bottling Co. S.A. (Bearer) 2,892,532 5,458,244 1.0
Food 407,308 Delta Dairy S.A. (Ordinary) 8,341,550 8,476,527 1.5
45,287 Delta Dairy S.A. (Preferred) 1,170,377 870,981 0.2
------------ ------------ ------
9,511,927 9,347,508 1.7
Total Investments in Greece 15,442,928 18,701,730 3.4
<PAGE>
Hungary Food 56,807 ++Pick Szeged Reszvenytarsasag
(GDS) (a) (e) 2,947,401 2,881,535 0.5
Insurance 230,000 Pharmauti Gyogyszer es
Elelmiszeripari Reszvenytarsasag
(ADR) (b)(e) 2,638,750 1,897,500 0.3
Pharmaceuticals 12,000 ++Gedeon Richter Ltd. 199,500 192,000 0.0
Retail Stores 1,142,000 ++FOTEX RT-Fotex Elso Amerikai-Magyar
Fotoszolgaltatasi Reszvenytarsasag 5,506,157 1,671,220 0.3
Telecommunications 26,510 Magyar TavKzlesi Reszvenytarsasag
(Ordinary) 5,403,627 4,204,514 0.8
Total Investments in Hungary 16,695,435 10,846,769 1.9
Poland Appliances & 89,000 ++Swarzedzkie Fabryki Mebli S.A. 2,102,193 817,560 0.1
Household
Durables
Automotive 70,000 ++T.C. Debica 993,561 986,969 0.2
Banking 243,029 Wielkopolski Bank Kredytowy 1,809,800 591,867 0.1
Beverage 1,275 ++Zaklady Piwowarskie w Zywcu S.A.
(Zywiec) 97,645 96,422 0.0
Electrical 150,000 Elektrim Towarzystwo Handlowe S.A. 1,916,544 528,733 0.1
Equipment
Engineering & 136,000 ++Mostostal--Export S.A. 354,819 342,833 0.1
Construction
Food 40,000 International Fast Food Corp. 267,500 42,500 0.0
Total Investments in Poland 7,542,062 3,406,884 0.6
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
EUROPE Shares Held/ Value Percent of
(concluded) Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Portugal Banking 352,212 Banco Comercial Portugues S.A.
(Registered) $ 4,850,549 $ 4,664,039 0.8%
77,000 Banco Totta E Acores S.A. 1,657,285 1,632,695 0.3
------------ ------------ ------
6,507,834 6,296,734 1.1
Building & 145,200 Efacec S.A. 2,601,521 1,728,099 0.3
Construction 320,400 Soares da Costa S.A. 5,230,896 5,691,373 1.0
107,200 Sociedade de Empreitadas Somague S.A. 755,699 696,580 0.1
------------ ------------ ------
8,588,116 8,116,052 1.4
Retail 125,200 Jeronimo Martins S.A. 2,895,368 6,379,891 1.2
354,350 Sonae Investimentos-SGPS S.A. 7,668,173 8,485,495 1.5
------------ ------------ ------
10,563,541 14,865,386 2.7
Telecommunications 51,500 ++Portugal Telecom S.A. (ADR) (b) 964,338 972,062 0.2
Total Investments in Portugal 26,623,829 30,250,234 5.4
Russia Multi-Industry 184,000 Templeton Russia Fund, Inc. 2,677,200 2,677,200 0.5
Total Investments in Russia 2,677,200 2,677,200 0.5
Turkey Automotive 1,400,000 Tofas Turk Otomobil Fabrikasi A.S. 1,266,868 1,235,853 0.2
Beverage 1,708,160 ++Ege Biracilik Ve Malt Sanayii A.S. 472,057 2,010,510 0.4
Building 2,583,000 Alarko Holdings A.S. 2,017,717 2,280,149 0.4
Materials
Food 750,000 ++Kerevitas Gida Sanayii Ve
Ticaret A.S. 546,032 2,037,121 0.4
Industrial 2,078,332 ++Turk Siemens Kablo Ve Elektrik
Components Sanayii A.S. 392,822 635,072 0.1
Insurance 8,911,000 Aksigorta A.S. 2,227,750 1,734,599 0.3
Retail 5,401,500 Migros Turk A.S. 3,320,905 6,051,930 1.1
Total Investments in Turkey 10,244,151 15,985,234 2.9
Total Investments in Europe 90,710,451 90,077,068 16.2
<PAGE>
LATIN
AMERICA
Argentina Automobiles 215,436 Compania Interamericana de
Automoviles S.A. (CINA) 3,264,299 1,045,074 0.2
Foreign ARS 15,250,000 Republic of Argentina, 7.312%
Government due 3/31/2005 9,718,500 9,226,250 1.7
Obligation
Oil & 1,551,800 Astra Compania Argentina de
Related Petroleo S.A. 3,240,628 2,328,166 0.4
Real Estate 49,000 Inversiones y Representaciones
S.A. (GDR)(d) 1,270,753 1,139,250 0.2
Total Investments in Argentina 17,494,180 13,738,740 2.5
Brazil Automotive 159,300 CAPCO Automotive Products
Corporation S.A. 2,105,696 1,234,575 0.2
Banking 660,439,023 Banco Bradesco S.A. (Preferred) 4,497,996 5,593,294 1.0
11,926,207 Banco Bradesco S.A. (Preferred)
(Receipts)** 88,923 101,004 0.0
42,567,626 Banco Nacional S.A. (Preferred) 892,993 827,319 0.1
------------ ------------ ------
5,479,912 6,521,617 1.1
Beverage 13,769,200 ++Companhia Cervejaria Brahma
S.A. PN (Preferred) 3,785,725 4,514,832 0.8
97,313 ++Companhia Cervejaria Brahma
S.A. PN (Preferred) (Pro Rata) 22,355 31,908 0.0
574,872 ++Companhia Cervejaria Brahma S.A.
(Preferred) (Warrants) (c) 14,956 74,902 0.0
------------ ------------ ------
3,823,036 4,621,642 0.8
Electrical 17,753,900 Light--Servicios de Eletricidade S.A. 6,393,851 5,590,262 1.0
Equipment
Food 11,020,000 La Bombril S.A. PN (Preferred) 255,679 229,733 0.0
Mining 31,057,000 Companhia Vale do Rio Doce S.A. PN
(Preferred) 5,239,937 4,687,213 0.8
Oil & Related 46,963,333 Petroleo Brasileiro S.A. (Preferred) 6,380,127 3,977,351 0.7
<PAGE>
Paper & Forest 2,500,000 ++MelPaper S.A. (Preferred) 1,631,371 542,888 0.1
Producers
Retail 1,500,000 ++Mesbla S.A. (Preferred) 350,350 89,577 0.0
Steel 4,756,900,000 Usinas Siderurgicas de Minas Gerais--
Usiminas S.A. (Preferred) 3,918,468 5,371,525 1.0
Telecommunications 198,500 Telecomunicacoes Brasileiras S.A.--
Telebras (ADR) (b) (e) 8,023,799 6,500,875 1.2
53,142,632 Telecomunicacoes Brasileiras S.A.--
Telebras ON 1,682,509 1,505,996 0.3
1,288,771 Telecomunicacoes Brasileiras S.A.--
Telebras ON (Pro Rata) 90,344 36,522 0.0
144,564,938 Telecomunicacoes Brasileiras S.A.--
Telebras PN (Preferred) 6,320,115 4,756,045 0.9
5,546,475 Telecomunicacoes Brasileiras S.A.--
Telebras PN (Preferred) (Pro Rata) 388,513 182,474 0.0
------------ ------------ ------
16,505,280 12,981,912 2.4
Utilities 4,242,400 Centrais Eletricas Brasileiras S.A.--
Eletrobras (Preferred) 1,180,141 1,128,543 0.2
126,740 Companhia Energetica de Minas
Gerais S.A. (CEMIG) (ADR) (b) (e) 3,205,227 2,408,060 0.4
------------ ------------ ------
4,385,368 3,536,603 0.6
Total Investments in Brazil 56,469,075 49,384,898 8.7
Chile Apparel 6,800,201 Bata Chile S.A. 1,920,913 1,276,177 0.2
Broadcasting & 5,072,871 Editorial Lord Cochrane S.A. 2,830,178 2,135,230 0.4
Publishing
Telecommunications 28,000 Compania de Telefonos de Chile S.A.
(ADR) (b) 3,037,806 2,278,500 0.4
Total Investments in Chile 7,788,897 5,689,907 1.0
Ecuador Building 4,825 La Cemento Nacional C.A. 1,449,510 1,109,750 0.2
Materials
Total Investments in Ecuador 1,449,510 1,109,750 0.2
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
LATIN AMERICA Shares Held/ Value Percent of
(concluded) Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Mexico Beverage 809,000 Fomento Economico Mexicano, S.A.
de C.V. (Femsa) 'B' $ 1,884,922 $ 1,888,313 0.3%
180,000 Fomento Economico Mexicano, S.A.
de C.V. (Femsa) (ADR) (b) 403,200 414,000 0.1
------------ ------------ ------
2,288,122 2,302,313 0.4
Building 1,078,000 ++Apasco, S.A. de C.V. 3,827,100 4,274,085 0.8
Materials 167,000 Cementos Mexicanos, S.A. de C.V.
(Class B) (ADR) (b) 1,509,987 603,389 0.1
------------ ------------ ------
5,337,087 4,877,474 0.9
Financial 155,250 ++Banca Quadrum, S.A. de C.V. (ADR)
Services (b)(e) 2,012,895 1,009,125 0.2
Food 1,600,000 ++Grupo Herdez, S.A. de C.V. 'A' 1,450,009 473,221 0.1
Health & 590,800 Kimberly-Clark de Mexico, S.A. de C.V. 7,174,776 6,781,685 1.2
Personal Care
Leisure 1,410,650 ++Grupo Carso, S.A. de C.V. 'A' 10,196,917 7,712,906 1.4
348,000 ++Grupo Carso, S.A. de C.V. (ADR) (b) 4,682,938 3,784,500 0.7
------------ ------------ ------
14,879,855 11,497,406 2.1
Retail 2,375,000 Cifra, S.A. de C.V. 'C' 4,796,743 3,128,697 0.6
287,800 ++Grupo Empresarial Fenix, S.A.
de C.V. (ELEKTRA) 'L' Shares 2,404,684 919,304 0.2
------------ ------------ ------
7,201,427 4,048,001 0.8
Telecommunications 266,550 Telefonos de Mexico, S.A. de C.V.
(ADR)(b) 14,534,412 7,896,544 1.4
Total Investments in Mexico 54,878,583 38,885,769 7.1
Panama Beverage 105,750 Panamerican Beverages, Inc. (Class A) 3,034,784 3,172,500 0.6
Total Investments in Panama 3,034,784 3,172,500 0.6
<PAGE>
Peru Banking 180,420 ++Banco de Credito de Peru S.A. 94,494 315,250 0.1
51,548 Banco Wiese Limitado S.A. (ADR) (b) 493,750 425,271 0.1
------------ ------------ ------
588,244 740,521 0.2
Mining 513,330 ++Southern Peru Copper Corp. S.A. 2,086,477 2,322,864 0.4
110,419 ++Southern Peru Copper Corp. S.A.
'T' Shares 350,031 374,742 0.1
------------ ------------ ------
2,436,508 2,697,606 0.5
Total Investments in Peru 3,024,752 3,438,127 0.7
Venezuela Textiles 520,860 Mantex S.A.C.A. 74,978 76,331 0.0
Utilities 3,040,560 C.A. La Electricidad de Caracas
S.A.I.C.A.--S.A.C.A. 4,407,191 3,180,063 0.6
Total Investments in Venezuela 4,482,169 3,256,394 0.6
Total Investments in Latin America 148,621,950 118,676,085 21.4
MIDDLE
EAST
Israel Banking 202,800 ++Bank Hapoalim Ltd. 316,966 319,208 0.1
Engineering & 5,900 ++Koor Industries Ltd. 501,711 503,338 0.1
Construction
Total Investments in Israel 818,677 822,546 0.2
Pakistan Electrical 1,299,490 ++Karachi Electric Supply Corp. Ltd. 1,121,386 1,122,094 0.2
Equipment
Total Investments in Pakistan 1,121,386 1,122,094 0.2
Total Investments in the Middle East 1,940,063 1,944,640 0.4
PACIFIC
BASIN/ASIA
Australia Merchandising 303,850 Amway Asia Pacific Ltd. 8,779,737 11,014,563 2.0
Total Investments in Australia 8,779,737 11,014,563 2.0
<PAGE>
China Appliances & 8,935,500 Shenzhen China Bicycles Co.
Household (Holdings) Ltd. 'B' 4,685,279 2,887,151 0.5
Durables
Total Investments in China 4,685,279 2,887,151 0.5
Hong Kong Automotive 7,320,000 Sime Darby (Hong Kong) Ltd. 9,705,114 8,041,565 1.5
Financial 20,747,000 Winton Holdings Ltd. 6,398,529 5,041,082 0.9
Services
Food 21,439,000 C.P. Pokphand Co. Ltd. (Ordinary) 5,782,063 7,550,602 1.4
Total Investments in Hong Kong 21,885,706 20,633,249 3.8
India Broadcasting & 888,600 Videocon International Ltd. (GDR) (d) 7,773,607 3,154,530 0.6
Publishing
Building & 31,250 The Associated Cement Co. Ltd. 2,499,847 3,463,927 0.6
Construction
Chemicals 355,500 Mardia Chemical Ltd. 1,545,509 1,143,669 0.2
Energy 661,000 Bombay Suburban Electric Supply Co.
Ltd. 3,601,257 2,947,603 0.5
333,000 ++Cochin Refinery Ltd. 2,604,742 1,951,648 0.4
------------ ------------ ------
6,205,999 4,899,251 0.9
Finance 24,120 ++Housing Development Finance Corp. 1,835,541 1,832,336 0.3
Financial 2,086,000 ++Industrial Credit & Investment
Services Corporation of India, Ltd. 8,060,896 6,378,595 1.2
Recreation & 565,000 Suraj Diamonds Ltd. 1,552,990 1,484,711 0.3
Consumer
Goods
Textiles 55,000 Grasim Industries Ltd. 1,084,096 1,058,130 0.2
600,000 ++JCT Ltd. 1,064,009 1,022,456 0.2
103,900 ++Raymond Woolen Mills Ltd. 758,836 794,267 0.1
120,000 Reliance Industries Ltd. 1,076,886 1,009,078 0.2
------------ ------------ ------
3,983,827 3,883,931 0.7
Utilities 1,001,250 ++Kec International Ltd. 5,050,805 4,241,639 0.8
Total Investments in India 38,509,021 30,482,589 5.6
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
PACIFIC
BASIN/ASIA Shares Held/ Value Percent of
(concluded) Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Indonesia Banking 2,790,500 P.T. Bank Bali $ 7,645,923 $ 7,082,805 1.3%
Broadcasting & $ 4,245,000 P.T. Surya Citra Television,
Publishing 4% due 7/01/1997 (Convertible) 4,258,125 4,202,550 0.8
Consumer--Goods 17,000 P.T. Wicaksana Overseas International 48,350 42,958 0.0
Energy Equipment & 5,197,000 P.T. Kabelmetal Indonesia 8,139,759 8,755,054 1.6
Services 1,379,200 P.T. Supreme Cable Manufacturing
Corp. (Sucaco) 3,991,337 4,058,293 0.7
------------ ------------ ------
12,131,096 12,813,347 2.3
Telecommunications 147,420 P.T. Indonesian Satellite Corp.
(ADR) (b) 5,600,335 5,638,815 1.0
Total Investments in Indonesia 29,683,829 29,780,475 5.4
Malaysia Broadcasting 1,792,000 Sistem Televisyen Malaysia BHD 5,245,284 4,778,667 0.9
Food 57,000 Nestle (Malaysia) BHD 374,558 437,292 0.1
Newspaper/ 1,256,000 New Straits Times Press BHD 5,118,753 3,890,379 0.7
Publishing
Steel 2,706,000 Maruichi (Malaysia) Steel Tube BHD 6,417,204 10,046,892 1.8
Total Investments in Malaysia 17,155,799 19,153,230 3.5
New Transportation 1,700,000 Ports of Auckland Ltd. 2,117,611 3,349,518 0.6
Zealand
Total Investments in New Zealand 2,117,611 3,349,518 0.6
<PAGE>
Philippines Multi-Industry 583,550 ++Benpres Holdings Corp. (e) 4,969,875 4,814,288 0.9
Total Investments in the Philippines 4,969,875 4,814,288 0.9
South Automotive 65,106 ++Dong Ah Tire Industries 3,645,738 4,354,855 0.8
Korea
Food 29,390 Lotte Confectionery Corp. 3,401,600 3,953,812 0.7
Telecommunications 20,257 Korea Mobile Telecommunications Corp. 11,026,169 20,476,081 3.7
100,700 Korea Mobile Telecommunications
Corp. (GDR)(d) 3,337,550 3,524,500 0.6
------------ ------------ ------
14,363,719 24,000,581 4.3
Utilities 483,470 Korea Electric Power Corp. 17,725,759 18,652,683 3.4
Total Investments in South Korea 39,136,816 50,961,931 9.2
Sri Lanka Building & 262,500 Lankan Tiles 337,398 266,047 0.0
Construction
Diversified 90,625 Aitken Spence 518,247 345,787 0.1
Total Investments in Sri Lanka 855,645 611,834 0.1
Taiwan Merchandising 244,873 Hocheng Group Corp. (ADR)(b)(e) 6,742,165 2,877,258 0.5
Total Investments in Taiwan 6,742,165 2,877,258 0.5
Total Investments in Pacific Basin/
Asia 174,521,483 176,566,086 32.1
SHORT-TERM Face
SECURITIES Amount
<S> <S> <C> <S> <C> <C> <C>
Commercial $ 20,000,000 AIG Funding, Inc., 5.92% due
Paper* 7/19/1995 19,940,800 19,940,800 3.6
15,000,000 ANZ (Delaware), Inc., 5.82% due
7/12/1995 14,973,325 14,973,325 2.7
10,000,000 Ciesco L.P., 5.94% due 7/12/1995 9,981,850 9,981,850 1.8
20,000,000 Daimler-Benz AG, 5.93% due 7/06/1995 19,983,528 19,983,528 3.6
8,835,000 General Electric Capital Corp.,
6.20% due 7/03/1995 8,831,957 8,831,957 1.6
20,000,000 Matterhorn Capital Corp., 5.93% due
7/12/1995 19,963,761 19,963,761 3.6
------------ ------------ ------
93,675,221 93,675,221 16.9
<PAGE>
Commercial IDR 7,000,000,000 P.T. Bakrie & Brothers, 18.50% due
Paper*-- 7/25/1995 3,114,294 3,115,833 0.6
Foreign 3,000,000,000 P.T. Indah Kiat Pulp & Paper Corp.,
18% due 7/12/1995 1,340,170 1,344,348 0.2
------------ ------------ ------
4,454,464 4,460,181 0.8
Foreign MXN 27,510,490 Mexican Cetes (Certificados de la
Government Tesoreria de la Federacion),
Obligations* 43.50% due 8/24/1995 4,555,875 4,129,995 0.7
Total Investments in Short-Term
Securities 102,685,560 102,265,397 18.4
Total Investments $573,323,357 548,460,422 99.1
============
Other Assets Less Liabilities 4,866,733 0.9
------------ ------
Net Assets $553,327,155 100.0%
============ ======
<FN>
*Commercial Paper and certain Foreign Government Obligations are
traded on a discount basis; the interest rates shown are the
discount rates paid at the time of purchase by the Fund.
**The receipts may be exchanged for shares until 9/11/1995.
++Non-income producing security.
(a)Global Depositary Shares (GDS).
(b)American Depositary Receipts (ADR).
(c)Warrants entitle the Fund to purchase a predetermined number of
shares of Common Stock. The purchase price and number of shares are
subject to adjustment of certain conditions until the expiration
date.
(d)Global Depositary Receipts (GDR).
(e)Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $22,389,000,
representing 4.05% of net assets.
<PAGE>
<CAPTION>
Aquisition Value
Issue Date(s) Cost (Note 1a)
<S> <C> <C> <C>
Banca Quadrum, S.A. de C.V. (ADR) 7/28/1993 $ 2,012,895 $ 1,009,125
Benpres Holdings Corp. 10/25/1994 4,969,875 4,814,288
Companhia Energetica de Minas Gerias S.A.
(CEMIG) (ADR) 9/22/1994 3,205,227 2,408,060
Hocheng Group Corp. (ADR) 8/09/1994 6,742,165 2,877,258
Pharmauti Gyogyszer es Elelmiszeripari
Reszvenytarsasag (ADR) 6/15/1994 2,638,750 1,897,500
Pick Szeged Reszvenytarsasag (GDS) 11/20/1992 2,947,401 2,881,535
to 8/11/1994
Telecomunicacoes Brasileiras S.A.--Telebras 12/28/1993
(ADR) to 6/02/1995 8,023,799 6,500,875
Total Restricted Securities $30,540,112 $22,388,641
=========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of June 30, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$573,323,357) (Note 1a) $548,460,422
Foreign cash (Note lc) 8,815,460
Receivables:
Securities sold $ 6,643,071
Interest 1,502,527
Capital shares sold 1,459,781
Dividends 935,030 10,540,409
------------
Prepaid registration fees and other assets (Note 1f) 109,114
------------
Total assets 567,925,405
------------
Liabilities: Payables:
Securities purchased 10,080,006
Capital shares redeemed 734,244
Investment adviser (Note 2) 451,862
Distributor (Note 2) 148,861 11,414,973
------------
Accrued expenses and other liabilities 3,183,277
------------
Total liabilities 14,598,250
------------
<PAGE>
Net Assets: Net assets $553,327,155
============
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000
Consist of: shares authorized $ 2,622,517
Class B Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 1,229,798
Class C Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 140,464
Class D Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 164,280
Paid-in capital in excess of par 583,870,233
Undistributed investment income--net 3,689,081
Accumulated distributions in excess of realized capital losses
on investments and foreign currency transactions--net (13,589,754)
Unrealized depreciation on investments and foreign currency
transactions--net (24,799,464)
------------
Net assets $553,327,155
============
Net Asset Class A--Based on net assets of $350,081,400 and 26,225,174
Value: shares outstanding $ 13.35
============
Class B--Based on net assets of $162,773,938 and 12,297,981
shares outstanding $ 13.24
============
Class C--Based on net assets of $18,572,768 and 1,404,635
shares outstanding $ 13.22
============
Class D--Based on net assets of $21,899,049 and 1,642,796
shares outstanding $ 13.33
============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended June 30, 1995
<S> <S> <C> <C>
Investment Income Interest and discount earned $ 9,190,848
(Notes 1d & 1e): Dividends (net of $911,836 foreign withholding tax) 8,249,878
------------
Total income 17,440,726
------------
Expenses: Investment advisory fees (Note 2) $ 5,240,621
Custodian fees 1,282,912
Account maintenance and distribution fees--Class B (Note 2) 1,022,078
Transfer agent fees--Class A (Note 2) 729,814
Registration fees (Note 1f) 287,760
Printing and shareholder reports 281,409
Transfer agent fees--Class B (Note 2) 269,846
Accounting services (Note 2) 138,938
Professional fees 137,115
Account maintenance and distribution fees--Class C (Note 2) 77,256
Directors' fees and expenses 40,132
Transfer agent fees--Class C (Note 2) 24,453
Transfer agent fees--Class D (Note 2) 23,380
Account maintenance fees--Class D (Note 2) 21,425
Pricing fees 9,452
Amortization of organization expenses (Note 1f) 4,362
Other 229,672
------------
Total expenses 9,820,625
------------
Investment income--net 7,620,101
------------
Realized & Realized loss from:
Unrealized Gain Investments--net (6,474,042)
(Loss) on Foreign currency transactions--net (2,123,405) (8,597,447)
Investments & ------------
Foreign Change in unrealized appreciation/depreciation on:
Currency Investments--net (27,587,323)
Transactions Foreign currency transactions--net 139,041 (27,448,282)
--Net (Notes ------------ ------------
1b, 1c, 1e & 3): Net realized and unrealized loss on investments and foreign
currency transactions (36,045,729)
------------
Net Decrease in Net Assets Resulting from Operations $(28,425,628)
============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended June 30,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment income--net $ 7,620,101 $ 1,688,321
Realized gain (loss) on investments and foreign currency
transactions--net (8,597,447) 36,390,093
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (27,448,282) (12,637,885)
------------ ------------
Net increase (decrease) in net assets resulting from operations (28,425,628) 25,440,529
------------ ------------
Dividends & Investment income--net: Class A (987,487) (902,496)
Distributions to Class C (5,936) --
Shareholders Class D (15,439) --
(Note 1g):
Realized gain on investments--net: Class A (16,617,087) (4,808,440)
Class B (4,736,505) --
Class C (268,632) --
Class D (301,893) --
In excess of realized gain on investments--net: Class A (12,942,881) --
Class B (3,689,216) --
Class C (209,235) --
Class D (235,141) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (40,009,452) (5,710,936)
------------ ------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 219,766,488 239,981,410
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 151,331,408 259,711,003
Beginning of year 401,995,747 142,284,744
------------ ------------
End of year* $553,327,155 $401,995,747
============ ============
<FN>
*Undistributed investment income--net (Note 1i) $ 3,689,081 $ 564,507
============ ============
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have
been derived from information provided in the Class A
financial statements.
For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 1995 1994 1993++ 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 14.61 $ 11.62 $ 11.92 $ 10.43 $ 11.58
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .24 .11 .12 .15 .24
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.40) 3.23 .42 1.59 (.75)
-------- -------- -------- -------- --------
Total from investment operations (.16) 3.34 .54 1.74 (.51)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.04) (.07) (.14) (.17) (.15)
Realized gain on investments--net (.60) (.28) (.70) (.08) (.49)
In excess of realized gain on
investments--net (.46) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (1.10) (.35) (.84) (.25) (.64)
-------- -------- -------- -------- --------
Net asset value, end of year $ 13.35 $ 14.61 $ 11.62 $ 11.92 $ 10.43
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (1.67%) 28.73% 5.17% 17.02% (4.45%)
Return:** ======== ======== ======== ======== ========
Ratios to Expenses 1.62% 1.46% 1.71% 1.64% 1.77%
Average ======== ======== ======== ======== ========
Net Assets: Investment income (loss)--net 1.56% .63% (.04%) 1.73% 1.98%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $350,081 $401,996 $142,285 $126,417 $111,947
Data: ======== ======== ======== ======== ========
Portfolio turnover 63.37% 66.85% 91.72% 71.05% 84.74%
======== ======== ======== ======== ========
<PAGE>
<CAPTION>
The following per share data and ratios have For the Period
been derived from information provided in the July 1, 1994++++ For the Period
financial statements. to June 30, October 21, 1994++++
1995 to June 30, 1995
Increase (Decrease) in Net Asset Value: Class B Class C Class D
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 14.54 $ 16.71 $ 16.77
Operating -------- -------- --------
Performance: Investment income--net .08 .08 .13
Realized and unrealized loss on investments and foreign
currency transactions--net (.32) (2.50) (2.48)
-------- -------- --------
Total from investment operations (.24) (2.42) (2.35)
-------- -------- --------
Less dividends and distributions:
Investment income--net -- (.01) (.03)
Realized gain on investments--net (.60) (.60) (.60)
In excess of realized gain on investments--net (.46) (.46) (.46)
-------- -------- --------
Total dividends and distributions (1.06) (1.07) (1.09)
-------- -------- --------
Net asset value, end of period $ 13.24 $ 13.22 $ 13.33
======== ======== ========
Total Investment Based on net asset value per share (2.22%)+++ (14.97%)+++ (14.49%)+++
Return:** ======== ======== ========
Ratios to Expenses, excluding account maintenance and
Average distribution fees 1.79%* 1.96%* 1.94%*
Net Assets: ======== ======== ========
Expenses 2.79%* 2.96%* 2.19%*
======== ======== ========
Investment income--net 1.01%* 1.32%* 2.10%*
======== ======== ========
Supplemental Net assets, end of period (in thousands) $162,774 $ 18,573 $ 21,899
Data: ======== ======== ========
Portfolio turnover 63.37% 63.37% 63.37%
======== ======== ========
<PAGE>
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the period.
++++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Consolidated Financial Statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Developing Capital Markets Fund, Inc. (the "Fund") is
registered under the Investment Company Act of 1940 as a non-
diversified, open-end management investment company. The Fund offers
four classes of shares under the Merrill Lynch Select Pricing SM
System. Shares of Class A and Class D are sold with a front-end
sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the
same terms and conditions, except that Class B, Class C and Class D
Shares bear certain expenses related to the account maintenance of
such shares, and Class B and Class C Shares also bear certain
expenses related to the distribution of such shares. Each class has
exclusive voting rights with respect to matters relating to its
account maintenance and distribution expenditures. The following is
a summary of significant accounting policies followed by the Fund:
(a) Valuation of securities--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities which are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written are valued
at the last sale price in the case of exchange-traded options or, in
the case of options traded in the over-the-counter market, the last
asked price. Options purchased are valued at the last sale price in
the case of exchange-traded or, in the case of options traded in the
over-the-counter market, the last bid price. 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.
<PAGE>
(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 counter party 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. Premium
or discount is amortized over the life of the 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 covered call options and
purchase 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 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.
<PAGE>
* Financial futures contracts--The Fund may purchase or sell interest
rate 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 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 re-
quired. 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 date, except that if the ex-dividend date has passed
certain dividends from foreign securities are recorded as soon as
the Fund is informed of 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) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period. Prepaid registration fees are
charged to expense as the related shares are issued.
<PAGE>
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates. Distributions in
excess of realized capital gains are due primarily to differing tax
treatments for futures transactions and post-October losses.
(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 differences between undistributed net investment
income for financial reporting purposes, if permanent, be reclassified
to accumulated net realized capital losses. Accordingly, current
year's permanent book/tax differences of $3,486,719 have been re-
classified from undistributed net investment income to accumulated
net realized capital losses. 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 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
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), 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. The Investment
Advisory Agreement obligates MLAM to reimburse the Fund to the
extent the Fund's expenses (excluding interest, taxes, distribution
fees, brokerage fees and commissions, and extraordinary items)
exceed 2.5% of the Fund's first $30 million of average daily net
assets, 2.0% of the Fund's next $70 million of average daily net
assets, and 1.5% of the average daily net assets in excess thereof.
MLAM's obligation to reimburse the Fund is limited to the amount of
the management fee. No fee payment will be made to MLAM during any
fiscal year which will cause such expenses to exceed the expense
limitations at the time of such payment.
<PAGE>
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (concluded)
For the year ended June 30, 1995, MLFD earned underwriting discounts
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 $72,570 $1,060,335
Class D $23,946 $ 366,818
For the year ended June 30, 1995, MLPF&S received contingent
deferred sales charges of $203,346 and $3,082 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $74,420 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
June 30, 1995.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), a wholly-
owned subsidiary of ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
<PAGE>
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, MLFDS, MLFD, MLPF&S, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended June 30, 1995 were $378,627,716 and $285,332,357,
respectively.
Net realized and unrealized losses as of June 30, 1995 were as
follows:
Unrealized
Realized Gains
Losses (Losses)
Long-term investments $ (6,418,947) $(24,442,772)
Short-term investments (55,095) (420,163)
Foreign currency transactions (2,123,405) 63,471
------------ ------------
Total $ (8,597,447) $(24,799,464)
============ ============
As of June 30, 1995, net unrealized depreciation for Federal income
tax purposes aggregated $24,862,935, of which $46,178,452 related to
appreciated securities and $71,041,387 related to depreciated
securities. The aggregate cost of investments at June 30, 1995 for
Federal income tax purposes was $573,323,357.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $219,766,488 and $239,981,410 for the years ended June 30, 1995
and June 30, 1994, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended June 30, 1995 Shares Amount
Shares sold 5,308,700 $ 81,203,014
Shares issued to shareholders
in reinvestment of dividends &
distributions 1,836,555 26,556,587
------------ ------------
Total issued. 7,145,255 107,759,601
Shares redeemed (8,433,943) (120,621,522)
------------ ------------
Net decrease (1,288,688) $(12,861,921)
============ ============
<PAGE>
Class A Shares for the Year Dollar
Ended June 30, 1994 Shares Amount
Shares sold 20,121,319 $316,594,559
Shares issued to shareholders
in reinvestment of dividends &
distributions 332,847 4,929,176
------------ ------------
Total issued. 20,454,166 321,523,735
Shares redeemed (5,183,789) (81,542,325)
------------ ------------
Net increase 15,270,377 $239,981,410
============ ============
Class B Shares for the Period Dollar
July 1, 1994++ to June 30, 1995 Shares Amount
Shares sold 14,365,857 $217,255,334
Shares issued to shareholders
in reinvestment of distributions 530,932 7,656,040
------------ ------------
Total issued. 14,896,789 224,911,374
Shares redeemed (2,458,974) (33,445,698)
Automatic conversion of shares (139,834) (2,000,726)
------------ ------------
Net increase 12,297,981 $189,464,950
============ ============
[FN]
++Commencement of Operations.
Class C Shares for the Period Dollar
October 21, 1994++ to June 30, 1995 Shares Amount
Shares sold 1,551,655 $ 21,809,222
Shares issued to shareholders
in reinvestment of dividends &
distributions 31,002 446,738
------------ ------------
Total issued. 1,582,657 22,255,960
Shares redeemed (178,022) (2,376,474)
------------ ------------
Net increase 1,404,635 $ 19,879,486
============ ============
[FN]
++Commencement of Operations.
<PAGE>
Class D Shares for the Period Dollar
October 21, 1994++ to June 30, 1995 Shares Amount
Shares sold 2,389,119 $ 33,003,605
Automatic conversion of shares 139,223 2,000,726
Shares issued to shareholders
in reinvestment of dividends &
distributions 36,193 523,355
------------ ------------
Total issued. 2,564,535 35,527,686
Shares redeemed (921,739) (12,243,713)
------------ ------------
Net increase 1,642,796 $ 23,283,973
============ ============
[FN]
++Commencement of Operations.
5. Commitments:
At June 30, 1995, the Fund entered into foreign exchange contracts
under which it had agreed to purchase and sell various foreign
currencies with approximate values of $3,288,000 and $959,000,
respectively.
<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, 1995, 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.
<PAGE>
We conducted our audits in accordance with generally accepted
auditing standards. 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,
1995 by correspondence with the custodian and brokers or other
alternative 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, 1995, the
results of their operations, the changes in their net assets, and
the consolidated financial highlights for the respective stated
periods in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
August 3, 1995
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions
paid by Merrill Lynch Developing Capital Markets Fund, Inc. during
the fiscal year ended June 30, 1995:
<TABLE>
<CAPTION>
Record Payable Non-Qualifying Domestic Foreign Source Total Ordinary Foreign Taxes Long-Term
Date Date Ordinary Income Income Income Paid or Withheld Capital Gains
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Shares: 12/13/94 12/21/94 $.337964 $.109385 $.447349 $.022376 $.652776
Class B Shares: 12/13/94 12/21/94 $.411786 -- $.411786 -- $.652776
Class C Shares: 12/13/94 12/21/94 $.321086 $.103923 $.425009 $.022376 $.652776
Class D Shares: 12/13/94 12/21/94 $.334218 $.108173 $.442391 $.022376 $.652776
</TABLE>
<PAGE>
The qualifying domestic ordinary income qualifies for the dividends-
received deduction for corporations.
The foreign taxes paid or withheld represent taxes incurred by the
Fund on dividends received by the Fund from foreign sources. Foreign
taxes paid or withheld should be included in taxable income with an
offsetting deduction from gross income or as a credit for taxes paid
to foreign governments. You should consult your tax adviser
regarding the appropriate treatment of foreign taxes paid.
Please retain this information for your records.
PORTFOLIO CHANGES (unaudited)
For the Quarter Ended June 30, 1995
Additions
Apasco, S.A. de C.V.
Banco Bradesco S.A. (Preferred) (Pro Rata)
*Banco Bradesco S.A. (Preferred) (Rights)
Bank Hapoalim Ltd.
*Companhia Cervejaria Brahma S.A. (Rights)
Companhia Cervejaria Brahma S.A. PN
(Preferred) (Pro Rata)
Fomento Economico Mexicano, S.A. de C.V.
(Femsa) (ADR)
Fomento Economico Mexicano, S.A. de C.V.
(Femsa) 'B'
Gedeon Richter Ltd.
Grasim Industries Ltd.
Housing Development Finance Corp.
JCT Ltd.
Koor Industries Ltd.
Korea Mobile Telecommunications Corp.
(GDR)
Mantex S.A.C.A.
Mostostal--Export S.A.
P.T. Wicaksana Overseas International
Portugal Telecom S.A. (ADR)
Raymond Woolen Mills Ltd.
Reliance Industries Ltd.
Republic of Argentina, 7.312% due 3/31/2005
Southern Peru Copper Corp. 'T' Shares S.A.
T.C. Debica
Telecomunicacoes Brasileiras S.A.--
Telebras ON (Pro Rata)
*Telecomunicacoes Brasileiras S.A.--
Telebras ON (Rights)
Telecomunicacoes Brasileiras S.A.--
Telebras PN (Preferred) (Pro Rata)
*Telecomunicacoes Brasileiras S.A.--
Telebras PN (Preferred) (Rights)
Templeton Russia Fund, Inc.
Tofas Turk Otomobil Fabrikasi A.S.
*William Lines Inc.
Zaklady Piwowarskie w Zywcu S.A. (Zywiec)
<PAGE>
Deletions
*Banco Bradesco S.A. (Preferred) (Rights)
Banque Marocaine du Commerce Exterieur
Cimentas Izmir Cimento Fabrikasi T.A.S.
*Companhia Cervejaria Brahma S.A. (Rights)
Efacec S.A. (New Shares)
Erciyas Biracilik Ve Malt Sanayii A.S.
Etba Leasing S.A.
Grupo Simec, S.A. de C.V. (ADR)
Hindalco Industries Ltd. (Ordinary)
Indian Tobacco Co. Ltd. (I.T.C.) (GDR)
Izmir Demir Celik Sanayii A.S.
Karat Sanitary Ware Co., Ltd.
P.T. Gudang Garam
Philippine Long Distance Telephone Co.,
10.625% due 6/02/2004
Public Bank BHD 'Foreign' (Malaysia)
Public Bank BHD 'Foreign' (Singapore)
Soares da Costa S.A. (Baby Shares)
Soares da Costa S.A. (New Shares)
Southern Peru Copper Corp. S.A. (Rights)
*Telecomunicacoes Brasileiras S.A.--
Telebras ON (Rights)
*Telecomunicacoes Brasileiras S.A.--
Telebras PN (Preferred) (Rights)
Titan Cement S.A.
Transportadora de Gas del Sur S.A.
United Overseas Bank Ltd. (Warrants)
United Success International Holdings Ltd.
Wielkopolski Bank Kredytowy (Series 'C')
*William Lines Inc.
[FN]
*Added and deleted in the same quarter.
<PAGE>
PORTFOLIO INFORMATION (unaudited)
Ten Largest Equity Holdings Percent of
As of June 30, 1995 Net Assets
Korea Mobile Telecommunications Corp. 3.7%
Korea Electric Power Corp. 3.4
Amway Asia Pacific Ltd. 2.0
Maruichi (Malaysia) Steel Tube BHD 1.8
P.T. Kabelmetal Indonesia 1.6
Sonae Investimentos--SGPS S.A. 1.5
Delta Dairy S.A. (Ordinary) 1.5
Sime Darby (Hong Kong) Ltd. 1.5
Telefonos de Mexico, S.A. de C.V. (ADR) 1.4
Grupo Carso, S.A. de C.V. 'A' 1.4
