MERRILL LYNCH
DEVELOPING
CAPITAL MARKETS
FUND, INC.
FUND LOGO
Annual Report
June 30, 1996
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
<PAGE>
Custodian
The Chase Manhattan Bank, N.A.
Global 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.
This report is not authorized for use as an offer of sale or
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch
Developing
Capital Markets
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
MERRILL LYNCH DEVELOPING CAPITAL MARKETS FUND, INC.
Asset Allocation
As a Percentage* of
Net Assets as of
June 30, 1996
Map Depicting the Fund's Asset Allocation As a Percentage* of
Net Assets as of June 30, 1996
VENEZUELA 0.6%
BRAZIL 13.6%
PORTUGAL 1.1%
FRANCE 2.7%
HUNGARY 1.9%
POLAND 1.6%
RUSSIA 0.6%
GREECE 2.4%
TURKEY 3.3%
PAKISTAN 0.6%
INDIA 8.2%
THAILAND 5.8%
SOUTH KOREA 8.3%
MEXICO 9.0%
CHILE 0.6%
ARGENTINA 4.9%
MOROCCO 1.8%
EGYPT 0.3%
SOUTH AFRICA 5.8%
ISRAEL 1.7%
ZIMBABWE 1.0%
MALAYSIA 8.9%
INDONESIA 2.8%
HONG KONG 5.5%
AUSTRALIA 1.5%
[FN]
*Total may not equal 100%.
<PAGE>
DEAR SHAREHOLDER
Fiscal Year in Review
For the year ended June 30, 1996, the total returns for Merrill
Lynch Developing Capital Markets Fund, Inc.'s Class A, Class B,
Class C and Class D Shares were +14.82%, +13.63%, +13.68% and
+14.55%, respectively. The unmanaged Morgan Stanley Capital
International Emerging Markets Free Index rose 8.47% in the same
period. (Complete performance information, including average annual
total returns, can be found on pages 3--7 of this report to
shareholders.) Contributing to the Fund's outperformance were
overweightings in Brazil and Mexico, whose markets had total returns
of +31.19% and +18.88%, respectively, and the Fund's underweightings
in Chile and Thailand, whose markets declined 8.68% and 13.69%,
respectively, during the 12-month period ended June 30, 1996.
During the quarter ended June 30, 1996, the total returns for the
Fund's Class A, Class B, Class C and Class D Shares were +3.65%,
+3.33%, +3.34% and +3.59%, respectively. The unmanaged Morgan
Stanley Capital International Emerging Markets Free Index had a
total return of +4.18% during the same period. Hurting performance
were the Fund's underweighting in the Philippines and Chile, whose
markets had total returns of +16.64% and +11.23%, respectively,
during the June quarter. Beneficial to performance were the Fund's
overweighting in Brazil, whose market had a total return of +15.40%,
and its underweighting in South Africa, whose market declined by
5.53% during the three-month period ended June 30, 1996.
During the Fund's fiscal year ended June 30, 1996, the climate
improved for emerging market investments. After the dramatic
correction touched off by rising US interest rates and the Mexican
peso crisis in 1994, emerging markets stabilized in the early months
of this year. This resulted from the improved outlook in Latin
America and eastern Europe where incipient economic recoveries from
recessions had begun. The political environment was relatively calm,
especially considering the important elections that took place in
Russia, Poland, India and Israel.
Most importantly, the valuations of emerging market stocks had
reached very attractive levels. For two years, stock market
performance was weak. At the same time, corporate earnings growth
was satisfactory and economic and capital market reforms were
continuing. In light of these developments, we reduced the Fund's
cash position significantly, and increased its concentration in
several key stocks.
Investment Activities & Outlook
During the fiscal year under review, we decreased the Fund's cash
position from 18.4% of net assets to 4.4%. We also decreased the
Fund's fixed-income investments from 6.8% of net assets to 0.6% by
June 30, 1996. We reduced the Fund's investments in Europe to 13.6%
of net assets from 16.2% at June 30, 1995, and maintained the Fund's
weighting in the Middle East and African regions at 10.6% of net
assets. We increased substantially the Fund's investments in the
Pacific region and Latin America from 31.3% and 21.4% of net assets,
respectively, at June 30, 1995 to 41.6% and 28.7%, respectively, at
June 30, 1996.
<PAGE>
In emerging European markets, while we sold some of our investments
in Mediterranean markets such as Greece and Portugal, we increased
investments in eastern Europe. In Poland, we bought shares of Bank
Rozwoju Eksportu S.A. (BRE), a bank engaged primarily in trade
finance. One of the few private banks in Poland, it has a unique
partnership with CommerzBank in Germany, Poland's main trading
partner. Because of the CommerzBank relationship, BRE is able to tap
into the growing market of German companies doing business in
Poland. As the Polish economy recovers, we believe BRE is well-
positioned to participate in financing investment in infrastructure,
international trade and an overall increase in the demand for long-
term financing.
We maintained a large position in South African gold mining
companies such as Driefontein Consolidated Ltd., Western Areas Gold
Mining Company, Ltd. and Kinross Mines Ltd. Aside from being net
beneficiaries of a decline in the value of their home currency, the
Rand, these companies had gold reserves that were extremely
undervalued in comparison with mining companies in other countries.
In the case of Kinross, the company should soon benefit from the
recently announced Evander mines merger. Gencor, the parent company,
will combine its four mines into Kinross, forming a new company
called Evander Gold Mines, providing Kinross additional gold
reserves to mine. On a market capitalization per gold reserves
valuation, Kinross' valuation has become even more attractive.
Furthermore, management contracts will be eliminated, saving the
company costs and giving management more accountability to Kinross'
shareholders.
In Asia, we bought Technology Resources Industries BHD (TRI), a
Malaysian cellular services provider. TRI, the dominant company in
cellular phone services in Malaysia, recently signed a letter of
intent with Deutsche Telekom AG whereby the German company will
acquire approximately 20% of TRI. This alliance would bring not only
technical development to TRI but also inject a large amount of
capital. We believe that investors have underestimated potential
cellular phone penetration in Malaysia. Throughout the world,
cellular communications have exhibited excellent growth, especially
in developing countries where less developed infrastructures make
cellular services a rapid and cost effective means of establishing
communications.
We also added to our investments in India. We purchased shares in
State Bank of India, a state-owned commercial bank which controls
23% of the loans and deposits of the banking system. Furthermore, it
handles approximately 45% of India's foreign trade and 50% of the
country's foreign exchange transactions. Organizational restructuring,
strengthening of the balance sheet with significant provisioning
charges, and a focus on improving return on equity make us confident
that this bank will be able to translate its market dominance into
strong long-term profits growth. State Bank of India has become
one of our largest holdings in the Fund.
<PAGE>
In Brazil, we added to the Fund's position in Telecomunicacoes
Brasileiras S.A.--Telebras. Throughout the year, we observed the
governmental policies regarding the telecommunications sector
translate into higher corporate earnings for the company. In late
1995, the Finance Ministry in Brazil approved an initial rebalancing
of telephone tariffs and the first inflation adjustment since the
implementation of the Real Plan. The rebalancing eliminated cross-
subsidies between different services, and increased local and long-
distance rates. This resulted in a sharp earnings increase for
Telebras, with earnings for the first five months of 1996 reported
at approximately US $1.14 billion, in comparison with earnings of
approximately US $803 million for all of 1995. Telebras was one of
our best performers during the fiscal year.
In Conclusion
We are optimistic on the long-term prospects for stocks in the
emerging markets. We remind our shareholders, however, that the
emerging markets are more volatile than the securities markets of
more developed countries.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Grace Pineda)
Grace Pineda
Vice President and Portfolio Manager
July 31, 1996
<PAGE>
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.
* 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 represen-
tation 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.
PERFORMANCE DATA (continued)
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 the Morgan Stanley Capital International Emerging Markets
Free Index. Beginning and ending values are:
9/01/89** 6/96
ML Developing Capital Markets Fund, Inc.++--
Class A Shares* $ 9,475 $19,803
Morgan Stanley Capital International
EAFE Index++++ $10,000 $13,680
Morgan Stanley Capital International
Emerging Markets Free Index++++++ $10,000 $33,084
Total Return
Based on a
$10,000
Investment--
Class B Shares
A line graph depicting the growth of an investment in the Fund's Class B Shares
compared to growth of an investment in the Morgan Stanley Capital International
EAFE Index and the Morgan Stanley Capital International Emerging Markets
Free Index. Beginning and ending values are:
7/01/94** 6/96
ML Developing Capital Markets Fund, Inc.++--
Class B Shares* $10,000 $10,810
Morgan Stanley Capital International
EAFE Index++++ $10,000 $11,515
Morgan Stanley Capital International
Emerging Markets Free Index++++++ $10,000 $10,845
Total Return
Based on a
$10,000
Investment--
Class C and
Class D Shares
A line graph depicting the growth of an investment in the Fund's Class C Shares
and Class D Shares compared to growth of an investment in the Morgan Stanley
Capital International EAFE Index and the Morgan Stanley Capital International
Emerging Markets Free Index. Beginning and ending values are:
<PAGE>
10/21/94** 6/96
ML Developing Capital Markets Fund, Inc.++--
Class C Shares* $10,000 $ 9,667
ML Developing Capital Markets Fund, Inc++--
Class D Shares** $ 9,475 $ 9,281
Morgan Stanley Capital International
EAFE Index++++ $10,000 $11,133
Morgan Stanley Capital International
Emerging Markets Free Index++++++ $10,000 $ 9,146
[FN]
*Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
**Commencement of Operations.
++ML Developing Capital Markets Fund, Inc. invests securities, principally
equities, of issuers in countries having smaller capital markets.
++++This unmanaged Index measures the total returns of emerging 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.
Past performance is not predictive of future performance.
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 6/30/96 +14.82% + 8.79%
Five Years Ended 6/30/96 +12.33 +11.13
Inception (9/1/89) through 6/30/96 +11.40 +10.52
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 6/30/96 +13.63% +9.63%
Inception (7/1/94) to 6/30/96 + 5.41 +3.97
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return % Return
Class C Shares* Without CDSC With CDSC**
Year Ended 6/30/96 +13.68% +12.68%
Inception (10/21/94) to 6/30/96 - 1.98 - 1.98
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Class D Shares* Sales Charge Sales Charge**
Year Ended 6/30/96 +14.55% +8.54%
Inception (10/21/94) to 6/30/96 - 1.22 - 4.31
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PERFORMANCE DATA (concluded)
<TABLE>
Performance
Summary--
Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
9/1/89--12/31/89 $ 9.60 $10.13 $0.004 $0.132 + 6.97%
1990 10.13 9.04 -- 0.640 - 5.33
1991 9.04 10.89 -- 0.252 +23.35
1992 10.89 10.18 0.324 0.518 + 0.85
1993 10.18 16.80 0.278 0.069 +68.96
1994 16.80 13.90 0.653 0.447 -10.97
1995 13.90 13.18 -- 0.238 -3.43
1/1/96--6/30/96 13.18 15.05 -- -- +14.19
------ ------
Total $1.259 Total $2.296
Cumulative total return as of 6/30/96: +109.00%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<PAGE>
<TABLE>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
7/1/94--12/31/94 $14.54 $13.86 $0.653 $0.412 + 2.36%
1995 13.86 13.11 -- 0.124 - 4.50
1/1/96--6/30/96 13.11 14.90 -- -- +13.65
------ ------
Total $0.653 Total $0.536
Cumulative total return as of 6/30/96: +11.10%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $16.71 $13.84 $0.653 $0.425 -10.98%
1995 13.84 13.08 -- 0.137 - 4.48
1/1/96--6/30/96 13.08 14.87 -- -- +13.69
------ ------
Total $0.653 Total $0.562
Cumulative total return as of 6/30/96: -3.33%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<PAGE>
<TABLE>
Performance
Summary--
Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $16.77 $13.90 $0.653 $0.442 -10.84%
1995 13.90 13.17 -- 0.214 - 3.68
1/1/96--6/30/96 13.17 15.02 -- -- +14.05
------ ------
Total $0.653 Total $0.656
Cumulative total return as of 6/30/96: -2.05%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
6/30/96 3/31/96 6/30/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Developing Capital Markets Fund Class A Shares $15.05 $14.52 $13.35 +12.73% +3.65%
ML Developing Capital Markets Fund Class B Shares 14.90 14.42 13.24 +12.54 +3.33
ML Developing Capital Markets Fund Class C Shares 14.87 14.39 13.22 +12.48 +3.34
ML Developing Capital Markets Fund Class D Shares 15.02 14.50 13.33 +12.68 +3.59
ML Developing Capital Markets Fund Class A Shares--Total Return +14.82(1) +3.65
ML Developing Capital Markets Fund Class B Shares--Total Return +13.63(2) +3.33
ML Developing Capital Markets Fund Class C Shares--Total Return +13.68(3) +3.34
ML Developing Capital Markets Fund Class D Shares--Total Return +14.55(4) +3.59
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.238 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.124 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.137 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.214 per share ordinary
income dividends.
</TABLE>
<PAGE>
PORTFOLIO INFORMATION (unaudited)
Ten Largest Equity Holdings Percent of
As of June 30, 1996 Net Assets
Korea Mobile Telecommunications Corp.* 7.1%
Telecomunicacoes Brasileiras S.A.--Telebras * 5.5
Grupo Carso, S.A. de C.V.* 2.7
Technology Resources Industries BHD 2.5
Kimberly-Clark de Mexico, S.A. de C.V.* 2.4
State Bank of India 2.2
Telefonica de Argentina S.A.* 1.9
Tingyi (Cayman Islands) Holdings, Co. 1.9
Compagnie Generale des Eaux S.A. 1.8
Thai Farmers Bank, Ltd. 1.8
[FN]
*Includes combined holdings.
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (in US Dollars)
<CAPTION>
Value Percent of
AFRICA Industries Shares Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Morocco Banking 130,000 Wafa Bank $ 5,035,551 $ 6,001,145 0.8%
Building Materials 8,000 ++Les Ciments de l'Oriental 272,020 284,078 0.0
Multi-Industry 161,154 Groupe Omnium Nord Africain 6,606,902 7,383,918 1.0
Total Investments in Morocco 11,914,473 13,669,141 1.8
<PAGE>
South Beverage 231,100 South African Breweries Ltd. 5,616,303 6,781,354 0.9
Africa 57,093 South African Breweries Ltd.
(ADR) (a) 1,306,189 1,669,970 0.2
------------ ------------ ------
6,922,492 8,451,324 1.1
Entertainment 2,054,900 Sun International, Ltd. 2,874,458 2,207,783 0.3
Financial Services 884,200 First National Bank Holdings Ltd. 8,540,288 6,384,300 0.9
Mining 369,100 Beatrix Mines Ltd. 3,247,494 2,963,546 0.4
95,000 De Beers Consolidated
Mines Ltd. (ADR) (a) 2,201,328 3,206,250 0.4
518,900 Driefontein Consolidated Ltd.
(ADR) (a) 7,581,381 6,745,700 0.9
362,900 Kinross Mines Ltd. 3,840,151 3,857,070 0.5
27,900 Vaal Reefs Exploration &
Mining Co. Ltd. 2,579,177 2,278,801 0.3
32,000 Western Areas Gold Mining
Company Ltd. 464,817 499,076 0.1
185,140 Western Areas Gold Mining
Company Ltd. (ADR) (a) 2,518,063 2,846,528 0.4
------------ ------------ ------
22,432,411 22,396,971 3.0
Multi-Industry 845,634 Malbak Ltd. (GDR) (b) 4,870,860 3,805,353 0.5
Steel 323,408 South Africa Iron & Steel
Industrial Corp., Ltd. 290,725 253,316 0.0
Total Investments in South Africa 45,931,234 43,499,047 5.8
Zimbabwe Beverage & 2,993,648 Delta Corporation Ltd. 4,761,184 7,582,695 1.0
Tobacco
Total Investments in Zimbabwe 4,761,184 7,582,695 1.0
Total Investments in Africa 62,606,891 64,750,883 8.6
<PAGE>
EUROPE
France Merchandising 8,100 Carrefour S.A. (Ordinary) 5,924,651 4,540,408 0.6
8,100 Carrefour S.A. (Rights) (c) 0 2,238,717 0.3
------------ ------------ ------
5,924,651 6,779,125 0.9
Utilities--Water 120,500 Compagnie Generale des Eaux S.A. 12,943,162 13,466,958 1.8
Total Investments in France 18,867,813 20,246,083 2.7
Greece Banking 222,900 Ergo Bank S.A. (Ordinary) 9,402,129 12,277,801 1.6
Beverage 122,660 Hellenic Bottling Co. S.A. 2,854,032 4,074,219 0.5
Food 45,287 Delta Dairy S.A. (Preferred) 1,170,377 365,233 0.1
Telecommunications 88,000 Hellenic Telecommunication
Organization S.A. 1,457,617 1,459,655 0.2
Total Investments in Greece 14,884,155 18,176,908 2.4
Hungary Health/Personal Care 67,580 Gedeon Richter Ltd. (GDR) (b) 2,068,280 3,395,895 0.5
67,000 Gedeon Richter Ltd. (GDR) (b)(d) 2,159,888 3,366,750 0.4
------------ ------------ ------
4,228,168 6,762,645 0.9
Oil & Related 76,000 Mol Magyar Olay-es Gazipari
Reszvenytarsasag (GDR) (b) 807,500 839,800 0.1
419,000 Mol Magyar Olay-es Gazipari
Reszvenytarsasag (GDR) (b)(d) 4,733,894 4,629,950 0.6
------------ ------------ ------
5,541,394 5,469,750 0.7
Telecommunications 12,000 Magyar TavKozlesi
Reszvenytarsasag (Ordinary) 2,338,938 1,798,441 0.3
Total Investments in Hungary 12,108,500 14,030,836 1.9
Poland Automotive 216,768 ++T.C. Debica 3,520,427 5,263,682 0.7
Electrical & 238,000 Elektrim Towarzystow Handlowe S.A. 2,442,163 1,952,686 0.2
Electronics
Financial Services 132,880 Bank Rozwoju Eksportu S.A. 3,249,915 3,471,111 0.5
Multi-Industry 385,032 ++Mostostal-Export S.A. 995,772 1,317,438 0.2
385,032 Mostostal-Export S.A. (Rights) 0 0 0.0
------------ ------------ ------
995,772 1,317,438 0.2
Total Investments in Poland 10,208,277 12,004,917 1.6
<PAGE>
Portugal Multi-Industry 314,150 Sonae Investimentos-SGPS S.A. 6,802,343 8,169,907 1.1
Total Investments in Portugal 6,802,343 8,169,907 1.1
Russia Multi-Industry 158,700 Templeton Russia Fund, Inc. 2,309,085 4,146,038 0.6
Total Investments in Russia 2,309,085 4,146,038 0.6
Turkey Beverage & Tobacco 796,000 Erciyas Biracilik Ve Malt
Sanayii A.S. (Class A) (GDR) (b) 10,706,200 8,955,000 1.2
Merchandising 10,503,900 Migros Turk A.S. 3,813,901 9,222,937 1.2
Metal Fabricating 62,677,000 Eregli Demir Ve Celik
Fabrikalari T.A.S. 7,220,626 6,955,618 0.9
Total Investments in Turkey 21,740,727 25,133,555 3.3
Total Investments in Europe 86,920,900 101,908,244 13.6
LATIN
AMERICA
Argentina Banking 386,200 Banco Frances del Rio de la
Plata S.A. (ADR) (a) 10,572,083 11,103,250 1.5
293,120 ++Bansud S.A. (Class B) 3,371,412 3,431,048 0.5
------------ ------------ ------
13,943,495 14,534,298 2.0
Oil & Related 885,350 Companhia Naviera Perez Companc
S.A.C.F.I.M.F.A. (Class B) 4,798,054 5,801,653 0.8
Real Estate 172,824 Inversiones y Representaciones S.A. 495,217 579,221 0.1
31,611 Inversiones y Representaciones S.A.
(GDR) (b) 781,929 1,066,871 0.1
------------ ------------ ------
1,277,146 1,646,092 0.2
Telecommunications 208,700 Telefonica de Argentina S.A.
(Class B) 509,721 618,030 0.1
467,400 Telefonica de Argentina S.A.
(ADR) (a) 13,378,216 13,846,725 1.8
------------ ------------ ------
13,887,937 14,464,755 1.9
Total Investments in Argentina 33,906,632 36,446,798 4.9
</TABLE>
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) (in US Dollars)
<CAPTION>
LATIN AMERICA Value Percent of
(concluded) Industries Shares Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Brazil Banking 1,322,979,735 Banco Bradesco S.A. (Preferred) $ 6,935,066 $ 10,805,213 1.4%
42,567,626 Banco Nacional S.A. (Preferred) 892,993 0 0.0
------------ ------------ ------
7,828,059 10,805,213 1.4
Beverage 20,858,513 Companhia Cervejaria Brahma S.A.
PN (Preferred) 7,428,182 12,444,471 1.7
Mining 29,544 Companhia Vale do Rio Doce S.A.
(Preferred) 666,931 572,341 0.1
Oil & Related 29,963,333 Petroleo Brasileiro S.A. (Preferred) 3,705,777 3,685,729 0.5
Steel 113,350,000 Companhia Siderurgica Nacional S.A. 3,241,454 2,890,199 0.4
7,456,900,000 Usinas Siderurgicas de Minas
Gerais--Usiminas S.A. (Preferred) 7,041,371 7,872,824 1.0
------------ ------------ ------
10,282,825 10,763,023 1.4
Telecommunications 411,000 Telecomunicacoes Brasileiras
S.A.--Telebras (ADR) (a) 17,481,759 28,615,875 3.8
58,731,403 Telecomunicacoes Brasileiras
S.A.--Telebras ON 1,935,582 3,451,347 0.5
133,742,256 Telecomunicacoes Brasileiras
S.A.--Telebras PN (Preferred) 5,978,192 9,337,980 1.2
105,160,500 Telecomunicacoes de Minas Gerais
S.A.--TELEMIG (Class B) (Preferred) 7,035,638 10,841,796 1.5
------------ ------------ ------
32,431,171 52,246,998 7.0
Utilities 17,753,900 Light Participacoes S.A. 1,616,186 3,354,497 0.4
Utilities-- 216,740 Companhia Energetica de Minas Gerais
Electrical S.A. (CEMIG) (ADR) (a) (d) 5,141,012 5,797,795 0.8
& Gas 92,500,000 Companhia Energetica de Minas
Gerais S.A. (CEMIG) (Preferred) 2,527,304 2,459,910 0.3
------------ ------------ ------
7,668,316 8,257,705 1.1
Total Investments in Brazil 71,627,447 102,129,977 13.6
<PAGE>
Chile Apparel 5,818,250 Bata Chile S.A. 1,648,171 722,500 0.1
Broadcasting & 5,072,871 Editorial Lord Cochrane S.A. 2,830,178 1,655,137 0.2
Publishing
Telecommunications 21,000 Compania de Telecomunicaciones
de Chile S.A. (ADR) (a) 2,198,800 2,060,625 0.3
Total Investments in Chile 6,677,149 4,438,262 0.6
Mexico Beverage and 180,050 Panamerican Beverages, Inc.
Tobacco (Class A) 6,247,726 8,057,238 1.1
Building & 1,605,200 Apasco, S.A. de C.V. 6,657,894 8,882,404 1.2
Construction
Financial Services 129,250 ++Banca Quadrum, S.A. de C.V. (ADR) (a) 1,726,895 646,250 0.1
Health/Personal 21,000 Kimberly-Clark de Mexico,
Care S.A. de C.V. (ADR) (a) 548,375 758,625 0.1
936,000 Kimberly-Clark de Mexico,
S.A. de C.V. (Series A) 12,775,944 17,078,937 2.3
------------ ------------ ------
13,324,319 17,837,562 2.4
Multi-Industry 2,171,787 ++Grupo Carso, S.A. de C.V. 'A' 15,417,630 15,449,179 2.1
348,900 ++Grupo Carso, S.A. de C.V.
(ADR) (a) (d) 4,028,200 4,884,600 0.6
------------ ------------ ------
19,445,830 20,333,779 2.7
Retail 3,227,000 Cifra, S.A. de C.V. 'C' 5,644,060 4,616,705 0.6
Telecommunications 212,901 Telefonos de Mexico, S.A.
de C.V. (ADR) (a) 10,562,836 7,132,184 0.9
Total Investments in Mexico 63,609,560 67,506,122 9.0
Venezuela Building Materials 15,930 Venezolana de Cementos S.A.C.A.
(Vencemos) 28,303 30,400 0.0
Steel 1,561,472 Siderurgica Venezolana SIVENSA,
S.A.I.C.A.--S.A.C.A. 573,061 1,032,103 0.1
200,000 Siderurgica Venezolana SIVENSA,
S.A.I.C.A.--S.A.C.A. (ADR) (a) 390,000 640,000 0.1
------------ ------------ ------
963,061 1,672,103 0.2
Textiles 1,023,882 Mantex S.A.C.A. 118,975 135,353 0.0
Utilities-- 3,328,669 C.A. La Electricidad de
Electrical & Gas Caracas S.A.I.C.A.--S.A.C.A. 3,572,081 2,767,976 0.4
Total Investments in Venezuela 4,682,420 4,605,832 0.6
Total Investments in Latin America 180,503,208 215,126,991 28.7
<PAGE>
MIDDLE
EAST
Egypt Banking 15,159 Commercial International Bank
(Egypt) S.A.E. 1,992,666 1,876,446 0.3
Total Investments in Egypt 1,992,666 1,876,446 0.3
Israel Banking 3,043,266 ++Bank Hapoalim Ltd. 4,838,495 4,489,940 0.6
3,843,099 ++Bank Leumi Israel 5,460,273 4,564,821 0.6
------------ ------------ ------
10,298,768 9,054,761 1.2
Merchandising 76,873 ++Blue Square Chain Stores
Properties & Investments Ltd. 438,729 536,804 0.1
Multi-Industry 26,308 ++Koor Industries Ltd. 2,291,571 2,230,490 0.3
64,100 Koor Industries Ltd. (ADR) (a) 1,217,796 1,105,725 0.1
------------ ------------ ------
3,509,367 3,336,215 0.4
Total Investments in Israel 14,246,864 12,927,780 1.7
Total Investments in the
Middle East 16,239,530 14,804,226 2.0
PACIFIC
BASIN/ASIA
Australia Leisure & 1,724,871 ++Crown Casino Ltd. 2,319,645 3,853,755 0.5
Tourism
Merchandising 240,950 Amway Asia Pacific Ltd. 7,459,370 7,288,737 1.0
Total Investments in Australia 9,779,015 11,142,492 1.5
Hong Kong Automotive 5,134,000 Sime Darby (Hong Kong) Ltd. 6,061,900 5,538,260 0.7
Banking 6,915,666 JCG Holdings, Ltd. 5,141,460 5,628,667 0.7
Food 21,787,000 C.P. Pokphand Co. Ltd. (Ordinary) 6,214,254 8,655,129 1.2
50,947,000 Tingyi (Cayman Islands) Holdings, Co. 14,192,540 13,986,483 1.9
------------ ------------ ------
20,406,794 22,641,612 3.1
Industrial 17,110,000 Sinocan Holdings Ltd. 6,335,353 7,515,535 1.0
Total Investments in Hong Kong 37,945,507 41,324,074 5.5
</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>
India Banking 1,889,000 State Bank of India $ 12,935,036 $ 16,191,043 2.2%
Energy Sources 995,500 Bombay Suburban Electric Supply
Co. Ltd. 5,290,246 5,541,607 0.7
60,000 Bombay Suburban Electric Supply
Co. Ltd. (GDR) (b) 993,000 1,155,000 0.1
500 Cochin Refinery Ltd. 3,764 2,569 0.0
------------ ------------ ------
6,287,010 6,699,176 0.8
Financial Services 123,750 Housing Development Finance Corp. 10,160,668 10,379,032 1.4
3,145,850 Industrial Credit & Investment
Corporation of India Ltd. 11,154,057 8,082,401 1.1
------------ ------------ ------
21,314,725 18,461,433 2.5
Leisure & Tourism 250,000 East India Hotels Ltd. 4,272,543 5,138,453 0.7
Recreation & 580,000 Suraj Diamonds Ltd. 1,522,715 705,338 0.1
Consumer Goods
Telecommunications 1,617,000 Mahanagar Telephone Nigam Ltd. 8,143,975 11,713,210 1.6
Textiles 130,300 Grasim Industries Ltd. 2,326,978 2,128,581 0.3
3,600 JCT Ltd. 5,877 1,572 0.0
40,100 Reliance Industries Ltd. 254,289 242,683 0.0
------------ ------------ ------
2,587,144 2,372,836 0.3
Total Investments in India 57,063,148 61,281,489 8.2
Indonesia Banking 2,790,500 P.T. Bank Bali 'Foreign' 7,645,923 5,995,918 0.8
Broadcasting & US$ 4,645,000 P.T. Surya Citra Television,
Publishing 4% due 7/01/1997 (Convertible) (d) 4,856,085 4,646,858 0.6
Building Materials 1,272,500 P.T. Mulia Industrindo 1,060,019 1,886,603 0.2
Energy Equipment 2,980,800 P.T. Kabelmetal Indonesia 4,943,526 1,345,011 0.2
& Services
Real Estate 3,528,000 P.T. Ciputra Development 7,328,623 7,163,644 1.0
Total Investments in Indonesia 25,834,176 21,038,034 2.8
<PAGE>
Malaysia Banking 615,000 Malayan Banking BHD 5,758,655 5,918,204 0.8
2,712,000 Public Bank BHD 'Foreign' 7,311,962 7,503,128 1.0
------------ ------------ ------
13,070,617 13,421,332 1.8
Broadcasting & 2,181,000 New Straits Times Press BHD 9,509,820 11,368,484 1.5
Publishing 5,410,000 Sistem Televisyen Malaysia BHD 8,775,565 11,062,951 1.5
------------ ------------ ------
18,285,385 22,431,435 3.0
Chemicals 757,000 Nylex (Malaysia) BHD 3,000,783 2,913,873 0.4
Multi-Industry 3,556,000 Renong BHD 6,035,265 5,674,771 0.7
Telecommunications 1,222,000 Leader Universal Holdings BHD
(Class A) 3,654,882 3,454,330 0.5
5,394,000 ++Technology Resources Industries BHD 18,467,460 18,816,279 2.5
------------ ------------ ------
22,122,342 22,270,609 3.0
Total Investments in Malaysia 62,514,392 66,712,020 8.9
Pakistan Chemicals-- 591,500 Fauji Fertilizer Co. Ltd. 1,493,469 1,520,783 0.2
Fertilizers
Electrical 1,446,227 ++Karachi Electric Supply Corp. Ltd. 1,121,386 1,518,321 0.2
Components
Telecommunications 14,050 ++Pakistan Telecommunications Corp. 1,489,569 1,605,485 0.2
Total Investments in Pakistan 4,104,424 4,644,589 0.6
South Automotive 66,214 ++Dong Ah Tire Industries 3,636,388 5,184,450 0.7
Korea
Telecommunications 57,764 Korea Mobile Telecommunications
Corp. 22,101,808 35,783,766 4.8
1,025,606 Korea Mobile Telecommunications
Corp. (ADR) (a) 16,549,141 17,358,382 2.3
------------ ------------ ------
38,650,949 53,142,148 7.1
Utilities-- 97,100 Korea Electric Power Corp. 3,821,975 3,922,313 0.5
Electrical & Gas
Total Investments in South Korea 46,109,312 62,248,911 8.3
Sri Appliances & 155,500 Lankan Tiles 151,066 105,200 0.0
Lanka Household Durables
Total Investments in Sri Lanka 151,066 105,200 0.0
<PAGE>
Thailand Banking 1,456,000 Krung Thai Bank Public Co. Ltd. 6,874,574 6,824,104 0.9
690,800 Phatra Thanakit Public Co. Ltd. 7,324,993 4,815,739 0.7
117,000 Siam Commercial Bank Public Co.
Ltd. 'Foreign' 1,862,717 1,695,786 0.2
1,210,700 Thai Farmers Bank, Ltd. 12,946,596 13,256,188 1.8
------------ ------------ ------
29,008,880 26,591,817 3.6
Financial Services 1,216,000 Finance One Public Company Ltd.
'Foreign' 8,846,979 7,854,431 1.0
Telecommunications 558,000 Advanced Info Service Public
Company Ltd. 'Foreign' 10,457,207 8,746,908 1.2
Total Investments in Thailand 48,313,066 43,193,156 5.8
Total Investments in the Pacific
Basin/Asia 291,814,106 311,689,965 41.6
SHORT-TERM Face
SECURITIES Amount
Commercial US$ 32,750,000 General Electric Capital Corp.,
Paper* 5.56% due 7/01/1996 32,739,884 32,739,884 4.3
Commercial CLP 206,366,080 Central Bank of Chile, 7.58%
Paper-- due 9/24/1996 493,983 493,129 0.1
Foreign*
Total Investments in Short-Term
Securities 33,233,867 33,233,013 4.4
Total Investments $671,318,502 741,513,322 98.9
============
Other Assets Less Liabilities 8,357,376 1.1
------------ ------
Net Assets $749,870,698 100.0%
============ ======
<FN>
*Commercial Paper and Commercial Paper--Foreign are traded on a
discount basis; the interest rates shown are the discount rates paid
at the time of purchase by the Fund.
++Non-income producing security.
(a)American Depositary Receipts (ADR).
(b)Global Depositary Receipts (GDR).
(c)The rights may be exercised until 7/15/1996.
(d)Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $23,326,000,
representing 3.11% of net assets.
Acquisition Value
Issue Dates Cost (Note 1a)
<S> <C> <C> <C>
Companhia Energetica de Minas
Gerais S.A. (CEMIG) (ADR) 9/22/1994--8/01/1995 $ 5,141,012 $ 5,797,795
Gedeon Richter Ltd. (GDR) 3/11/1996--3/12/1996 2,159,888 3,366,750
Grupo Carso, S.A. de C.V. (ADR) 2/10/1995--12/14/1995 4,028,200 4,884,600
Mol Magyar Olay-es Gazipari
Reszvenytarsasag (GDR) 1/18/1996--2/22/1996 4,733,894 4,629,950
P.T. Surya Citra Television, 4%
due 7/01/1997 (Convertible) 6/24/1994--2/27/1996 4,856,085 4,646,858
Total $ 20,919,079 $23,325,953
============ ===========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of June 30, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$671,318,502)
(Note 1a) $741,513,322
Cash 2,999,737
Foreign cash (Note 1c) 563,297
Receivables:
Securities sold $ 23,206,800
Dividends 3,841,626
Capital shares sold 1,171,623
Interest 184,785 28,404,834
------------
Prepaid expenses and other assets (Note 1f) 36,187
------------
Total assets 773,517,377
------------
Liabilities: Payables:
Securities purchased 21,118,080
Capital shares redeemed 1,077,638
Investment adviser (Note 2) 567,587
Distributor (Note 2) 273,344 23,036,649
------------
Accrued expenses 610,030
------------
Total liabilities 23,646,679
------------
Net Assets: Net assets $749,870,698
============
Net Assets Class A Shares of Common Stock, $.10 par value,
Consist of: 100,000,000 shares authorized $ 2,278,072
Class B Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 2,028,197
Class C Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 315,999
Class D Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 384,922
Paid-in capital in excess of par 704,575,865
Undistributed investment income--net 2,661,403
Accumulated realized capital losses on investments and
foreign currency transactions--net (Note 6) (18,915,354)
Accumulated distributions in excess of realized gains on
investments and foreign currency transactions--net (13,589,754)
Unrealized appreciation on investments and foreign
currency transactions--net 70,131,348
------------
Net assets $749,870,698
============
Net Asset Class A--Based on net assets of $342,883,581 and 22,780,723
Value: shares outstanding $ 15.05
============
Class B--Based on net assets of $302,182,872 and 20,281,969
shares outstanding $ 14.90
============
Class C--Based on net assets of $46,983,229 and 3,159,986
shares outstanding $ 14.87
============
Class D--Based on net assets of $57,821,016 and 3,849,221
shares outstanding $ 15.02
============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended June 30, 1996
<S> <S> <C> <C>
Investment Income Dividends (net of $1,151,105 foreign withholding tax) $ 16,003,219
(Notes 1d & 1e): Interest and discount earned 4,132,654
------------
Total income 20,135,873
------------
Expenses: Investment advisory fees (Note 2) $ 6,265,747
Account maintenance and distribution fees--Class B (Note 2) 2,248,222
Custodian fees 1,386,014
Transfer agent fees--Class A (Note 2) 592,028
Transfer agent fees--Class B (Note 2) 485,525
Account maintenance and distribution fees--Class C (Note 2) 305,504
Printing and shareholder reports 205,114
Accounting services (Note 2) 168,938
Registration fees (Note 1f) 166,516
Professional fees 106,978
Account maintenance fees--Class D (Note 2) 93,209
Transfer agent fees--Class C (Note 2) 66,833
Transfer agent fees--Class D (Note 2) 62,995
Directors' fees and expenses 38,828
Pricing fees 9,146
Other 150,061
------------
Total expenses 12,351,658
------------
Investment income--net 7,784,215
------------
Realized & Realized loss from:
Unrealized Gain Investments--net (18,915,354)
(Loss) on Foreign currency transactions--net (694,388) (19,609,742)
Investments & ------------
Foreign Change in unrealized appreciation/depreciation on:
Currency Investments--net 95,057,755
Transactions--Net Foreign currency transactions--net (126,943) 94,930,812
(Notes 1b, ------------ ------------
1c, 1e & 3): Net realized and unrealized gain on investments and
foreign currency transactions 75,321,070
------------
Net Increase in Net Assets Resulting from Operations $ 83,105,285
============
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: 1996 1995
<S> <S> <C> <C>
Operations: Investment income--net $ 7,784,215 $ 7,620,101
Realized loss on investments and foreign currency
transactions--net (19,609,742) (8,597,447)
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 94,930,812 (27,448,282)
------------ ------------
Net increase (decrease) in net assets resulting from operations 83,105,285 (28,425,628)
------------ ------------
Dividends & Investment income--net:
Distributions to Class A (5,561,685) (987,487)
Shareholders Class B (1,835,760) --
(Note 1g): Class C (257,907) (5,936)
Class D (462,153) (15,439)
Realized gain on investments--net:
Class A -- (16,617,087)
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 (8,117,505) (40,009,452)
------------ ------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 121,555,763 219,766,488
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 196,543,543 151,331,408
Beginning of year 553,327,155 401,995,747
------------ ------------
End of year* $749,870,698 $553,327,155
============ ============
<FN>
*Undistributed investment income--net (Note 1i) $ 2,661,403 $ 3,689,081
============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios Class A
have been derived from information provided
in the financial statements. For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 1996++ 1995 1994 1993++ 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 13.35 $ 14.61 $ 11.62 $ 11.92 $ 10.43
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .23 .24 .11 .12 .15
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.71 (.40) 3.23 .42 1.59
-------- -------- -------- -------- --------
Total from investment operations 1.94 (.16) 3.34 .54 1.74
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.24) (.04) (.07) (.14) (.17)
Realized gain on investments--net -- (.60) (.28) (.70) (.08)
In excess of realized gain on
investments--net -- (.46) -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.24) (1.10) (.35) (.84) (.25)
-------- -------- -------- -------- --------
Net asset value, end of year $ 15.05 $ 13.35 $ 14.61 $ 11.62 $ 11.92
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 14.82% (1.67%) 28.73% 5.17% 17.02%
Return:* ======== ======== ======== ======== ========
Ratios to Expenses 1.54% 1.62% 1.46% 1.71% 1.64%
Average ======== ======== ======== ======== ========
Net Assets: Investment income (loss)--net 1.66% 1.56% .63% (.04%) 1.73%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $342,884 $350,081 $401,996 $142,285 $126,417
Data: ======== ======== ======== ======== ========
Portfolio turnover 71.01% 63.37% 66.85% 91.72% 71.05%
======== ======== ======== ======== ========
Average commission rate paid++++ $ .0012 -- -- -- --
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the period.
++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities.
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class B Class C Class D
The following per share data and For the For the For the
ratios have been derived from For the Period For the Period For the Period
information provided in the. Year July 1, Year Oct. 21, Year Oct. 21,
financial statements Ended 1994++++ to Ended 1994++++ to Ended 1994++++ to
June 30, June 30, June 30, June 30, June 30, June 30,
Increase (Decrease) in Net Asset Value: 1996++ 1995 1996++ 1995 1996++ 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 13.24 $ 14.54 $ 13.22 $ 16.71 $ 13.33 $ 16.77
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income--net .09 .08 .09 .08 .21 .13
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net 1.69 (.32) 1.70 (2.50) 1.69 (2.48)
-------- -------- -------- -------- -------- --------
Total from investment operations 1.78 (.24) 1.79 (2.42) 1.90 (2.35)
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.12) -- (.14) (.01) (.21) (.03)
Realized gain on investments--net -- (.60) -- (.60) -- (.60)
In excess of realized gain on
investments--net -- (.46) -- (.46) -- (.46)
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.12) (1.06) (.14) (1.07) (.21) (1.09)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 14.90 $ 13.24 $ 14.87 $ 13.22 $ 15.02 $ 13.33
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 13.63% (2.22%)+++ 13.68% (14.97%)++ 14.55% (14.49%)+++
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses 2.56% 2.79%* 2.56% 2.96%* 1.76% 2.19%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income--net .65% 1.01%* 0.67% 1.32%* 1.48% 2.10%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $302,183 $162,774 $ 46,983 $ 18,573 $ 57,821 $ 21,899
======== ======== ======== ======== ======== ========
Portfolio turnover 71.01% 63.37% 71.01% 63.37% 71.01% 63.37%
======== ======== ======== ======== ======== ========
Average commission rate paid++++++ $ .0012 -- $ .0012 -- $ .0012 --
======== ======== ======== ======== ======== ========
<PAGE>
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the period.
++++Commencement of Operations.
++++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities.
+++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 options 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 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. 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 market value of
the option written. When a security is purchased or sold through an
exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of the security acquired or
deducted from (or added to) the proceeds of the security sold. When
an option expires (or the Fund enters into a closing transaction),
the Fund realizes a gain or loss on the option to the extent of the
premiums received or paid (or gain or loss to the extent the cost of
the closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
* Financial futures contracts--The Fund may purchase or sell
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
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.
<PAGE>
(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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(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) 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 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 components of net assets be reclassified to
reflect permanent differences between financial reporting and tax
purposes. Accordingly, current year's permanent book/tax differences
of $694,388 have been reclassified 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.
<PAGE>
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, 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.
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% --
<PAGE>
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.
For the year ended June 30, 1996, MLFD earned underwriting discounts
and 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 $18,510 $266,754
Class D $32,695 $454,439
For the year ended June 30, 1996, MLPF&S received contingent
deferred sales charges of $440,116 and $21,166 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $214,282 in commissions on the
execution of portfolio security transactions for the Fund for the
year ended June 30, 1996.
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.
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, 1996 were $598,397,356 and $414,230,012,
respectively.
Net realized and unrealized gains (losses) as of June 30, 1996
were as follows:
<PAGE>
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $(19,139,559) $70,195,674
Short-term investments 224,205 (854)
Foreign currency transactions (694,388) (63,472)
------------ -----------
Total $(19,609,742) $70,131,348
============ ===========
As of June 30, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $69,119,503, of which $112,694,490 related
to appreciated securities and $43,574,987 related to depreciated
securities. The aggregate cost of investments at June 30, 1996 for
Federal income tax purposes was $672,393,819.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $121,555,763 and $219,766,488 for the years ended June 30, 1996
and 1995, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended June 30, 1996 Shares Amount
Shares sold 2,735,667 $ 38,556,805
Shares issued to shareholders
in reinvestment of dividends 372,866 4,809,974
------------ ------------
Total issued 3,108,533 43,366,779
Shares redeemed (6,552,984) (89,771,385)
------------ ------------
Net decrease (3,444,451) $(46,404,606)
============ ============
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 B Shares for the Year Dollar
Ended June 30, 1996 Shares Amount
Shares sold 12,840,731 $179,107,988
Shares issued to shareholders
in reinvestment of dividends 128,947 1,655,685
------------ ------------
Total issued 12,969,678 180,763,673
Shares redeemed (4,893,284) (67,373,581)
Automatic conversion of shares (92,406) (1,275,022)
------------ ------------
Net increase 7,983,988 $112,115,070
============= ============
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 dividends &
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 Year Dollar
Ended June 30, 1996 Shares Amount
Shares sold 2,350,884 $ 32,960,409
Shares issued to shareholders
in reinvestment of dividends 18,269 234,019
------------ ------------
Total issued 2,369,153 33,194,428
Shares redeemed (613,802) (8,506,773)
------------ ------------
Net increase 1,755,351 $ 24,687,655
============ ============
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (concluded)
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.
Class D Shares for the Year Dollar
Ended June 30, 1996 Shares Amount
Shares sold 4,465,997 $ 63,170,949
Automatic conversion of shares 91,700 1,275,022
Shares issued to shareholders
in reinvestment of dividends 31,584 407,120
------------ ------------
Total issued 4,589,281 64,853,091
Shares redeemed (2,382,856) (33,695,447)
------------ ------------
Net increase 2,206,425 $ 31,157,644
============ ============
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
============= ============
<PAGE>
[FN]
++Commencement of Operations.
5. Commitments:
At June 30, 1996, the Fund entered into forward exchange contracts
under which it had agreed to purchase and sell various foreign
currencies with approximate values of $2,506,000 and $19,105,000,
respectively.
6. Capital Loss Carryforward:
At June 30, 1996, the Fund had a net capital loss carryforward of
approximately $16,986,000, all of which expires in 2004. This amount
will be available to offset like amounts of any future taxable
gains.
<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, 1996, the related consolidated statements
of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
consolidated financial highlights for each of the years in the five-
year period then ended. These financial statements and the financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with 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,
1996 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.
<PAGE>
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, 1996, 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 2, 1996
<TABLE>
IMPORTANT TAX INFORMATION (unaudited)
<CAPTION>
The following information summarizes all per share distributions
paid by Merrill Lynch Developing Capital Markets Fund, Inc. during
its fiscal year ended June 30, 1996:
Record Payable Non-Qualifying Domestic Foreign Source Total Ordinary Foreign Taxes Paid Long-Term
Date Date Ordinary Income Income Income or Withheld Capital Gains
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Shares 12/12/95 12/20/95 $.049192 $.189155 $.238347 $.025160 --
Class B Shares 12/12/95 12/20/95 $.025605 $.098458 $.124063 $.025160 --
Class C Shares 12/12/95 12/20/95 $.028265 $.108688 $.136953 $.025160 --
Class D Shares 12/12/95 12/20/95 $.044200 $.169960 $.214160 $.025160 --
All of 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.
</TABLE>
EQUITY PORTFOLIO CHANGES (unaudited)
For the Quarter Ended June 30, 1996
<PAGE>
Additions
Bank Rozwoju Eksportu S.A.
Bansud S.A. (Class B)
Carrefour S.A. (Ordinary)
Carrefour S.A. (Rights)
Commercial International Bank
(Egypt) S.A.E.
Compagnie Generale des Eaux S.A.
Fauji Fertilizer Co. Ltd.
Hellenic Telecommunication
Organization S.A.
Koor Industries Ltd. (ADR)
Korea Mobile Telecommunications
Corp. (ADR)
Leader Universal Holdings BHD (Class A)
Mostostal-Export S.A. (Rights)
Nylex (Malaysia) BHD
P.T. Ciputra Development
Public Bank BHD 'Foreign'
Renong BHD
Siam Commercial Bank Public Co. Ltd.
'Foreign'
Deletions
Aksigorta A.S.
Alarko Holdings A.S.
Chilectra Generacion S.A. (Chilgener) (ADR)
Companhia Cervejaria Brahma S.A. PN
(Warrants)
Delta Dairy S.A. (Ordinary)
Development Bank of Singapore Ltd.
Fomento Economico Mexicano, S.A. de C.V.
(Femsa) 'B'
Fomento Economico Mexicano, S.A. de C.V.
(Femsa) 'B' (ADR)
Grupo Televisa, S.A. de C.V. (ADR)
HSBC Holdings PLC (Warrants)
Hanwha Chemical Corp.
Henderson Land Development Co., Ltd.
(Warrants)
Kec International Ltd.
Kec International Ltd. (Bonus Shares)
Korea Kumho Petrochemical Co., Ltd.
Light--Servicios de Eletricidade S.A.
Lotte Confectionery Corp.
Maruichi (Malaysia) Steel Tube BHD
Podnik Vypocetni Techniky (PVT) (Preferred)
Singapore Press Holdings Ltd.
Southern Africa Fund, Inc.
Southern Peru Copper Corp. S.A.
Taiwan Fund, Inc.
Telekom Malaysia BHD
Tofas Turk Otomobil Fabrikasi A.S.
Yacimientos Petroliferos Fiscales S.A.
(Sponsored) (ADR)
<PAGE>
