MERRILL LYNCH
DEVELOPING
CAPITAL MARKETS
FUND, INC.
FUND LOGO
Quarterly Report
March 31, 1997
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.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch
Developing
Capital Markets
Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
Merrill Lynch Developing Capital Markets Fund, Inc.
Asset Allocation
As a Percentage* of
Net Assets as of
March 31, 1997
<PAGE>
Brazil 10.1%
Portugal 4.9%
France 1.7%
Hungary 3.2%
Czech Republic 0.2%
Netherlands 1.0%
Poland 1.5%
Russia 4.0%
Greece 1.9%
Turkey 0.6%
Pakistan 0.2%
India 6.3%
Thailand 2.3%
China 0.7%
South Korea 2.4%
Mexico 8.2%
Chile 0.7%
Argentina 3.5%
Italy 1.0%
Egypt 1.3%
South Africa 8.3%
Zimbabwe 1.6%
Israel 2.7%
Malaysia 9.7%
Indonesia 3.5%
Hong Kong 6.6%
Taiwan 1.5%
Australia 0.9%
[FN]
*Total may not equal 100%.
DEAR SHAREHOLDER
During the three-month period ended March 31, 1997, total returns
for Merrill Lynch Developing Capital Markets Fund, Inc.'s Class A,
Class B, Class C and Class D Shares were +8.40%, +8.10%, +8.12% and
+8.40%, respectively. The unmanaged Morgan Stanley Capital
International Emerging Markets Free (Ex-Taiwan) Index rose 8.37%
during the same period. (Results shown do not reflect sales charges
and would be lower if sales charges were included. Complete
performance information, including average annual total returns, can
be found on pages 4--6 of this report to shareholders.) The Fund's
performance benefited from its overweighted position in Hungary
whose market had a total return of +24.17% for the March quarter.
Also helping performance was the Fund's investments in Egypt, Russia
and Zimbabwe whose markets rose 50.64%, 50.39% and 22.49%,
respectively. Detrimental to performance was the Fund's investments
in Hong Kong whose market dropped 8.78%.
<PAGE>
Investment Review & Activities
Most of our Fund holdings got a boost from the January effect (stock
markets often rise at the beginning of the year), combined with the
renewed optimism of US investors toward emerging markets. We took
profits in several of our holdings during the strong rallies in
markets such as Russia, and reallocated to other markets, including
South Africa, and built up the Fund's cash position. In March, when
investors became convinced that monetary tightening by the US
Federal Reserve Board was imminent, the prices of many of our stocks
responded negatively.
During the quarter ended March 31, 1997, Latin American markets
continued their recovery, benefiting from improving economic
fundamentals and earnings prospects which were mainly positive. This
region's markets rose 15.32%, on average, for the three-month
period. The best-performing market was Brazil where, in addition to
the aforementioned factors, the anticipation of favorable regulatory
changes in the telecommunications and electricity sectors, and
continued privatizations combined to drive a +21.85% return. The
Argentine market rose 7.56% as economists revised upward their
forecasts of economic growth this year. A new position in the Fund
is Yacimientos Petroliferos Fiscales S.A. (YPF), an integrated oil
and gas company. Maxus, a YPF subsidiary acquired in April 1995, was
restructured. In our view, with a longer horizon, YPF stock is
attractively valued, and the company has the scope to surprise
positively as it benefits from the growing energy needs of
Argentina's trading partners, from its operations in Venezuela, and
from increased secondary recovery at its Argentine fields.
In Mexico, where the stock market rose +10.23%, economic activity
was very strong in the last quarter of 1996, prompting higher growth
expectations for 1997. We are skeptical that strong growth will be
sustained in the upcoming months, but we view certain stocks in
Mexico as being attractively valued. One example is the Fund's
holding of Telefonos de Mexico, S.A. de C.V. We believe exaggerated
fears of competition are not warranted in the near term, and we also
like the cash generative ability of the company and management's
active program to buy back the company's shares. We decreased the
Fund's weighting in Latin America from 27.4% to 22.5% of net assets
during the March quarter, as we took profits in Mexico and Brazil
and redirected our investments to other markets.
<PAGE>
Asian stock markets' performance ranged from lackluster to poor
during the three months ended March 31, 1997. Of the larger markets,
India's returns were among the highest, at +7.14%. At the end of
February, the government of India unveiled a budget plus tax cuts
and capital market reforms which boosted investor sentiment.
However, by the end of the March quarter the Congress Party, which
controls just over a quarter of the seats in the Indian Parliament,
withdrew its support to the ruling coalition, thereby leading
investors to question the feasibility of this budget. In India, we
hold shares of Mahanagar Telephone Nigram Ltd., a fixed-line telecom
operator in the major cities of Bombay and Delhi, and Housing
Development Finance Corp., the country's leading home mortgage
financier. In Thailand, stocks continued their decline, falling a
further 14.24%. The market is still plagued by current account,
currency and property market concerns. In February, the Thai stock
market dropped to its lowest level since 1992. During the March
quarter, the Fund's weighting in the Pacific Basin/Asia region
declined from 39.8% of net assets to 34.1%.
The emerging markets in Europe had very sharp rallies during the
quarter ended March 31, 1997. Russian stocks rose 50.38% (in US
dollar terms). Powering this rally were new investors who bought
aggressively whatever they could. Poland was also strong at the
outset of the new year, following two years of superlative
performance. However, corporate earnings came in lower than expected
and dampened investors' enthusiasm. Nonetheless, despite already
high stock valuations and a mediocre earnings growth outlook for
Polish companies, the stock market rose 7.30%. For the March
quarter, the Fund's weighting in Europe rose from 19.7% to 20.0%. We
took profits in Russia and Poland, and increased investments in
Portugal--a market whose defensive characteristics we like and where
we believe that stocks offer good value. One of our holdings is
Portugal Telecom S.A. (PT). The company's fixed-line service is
enhanced by a rapidly growing cellular market, in which PT has a 50%
market share. In addition, the company is aggressively rebalancing
tariffs and upgrading its telecom infrastructure, and will be well-
positioned ahead of liberalization at the turn of the century. PT's
cash generation is currently 45% of sales and is expected to rise to
50% over the next two years. Cash flow growth is likely to be
further enhanced because of Portugal's continually improving
economic environment and PT's low debt.
Middle Eastern markets performed well during the quarter ended March
31, 1997. The Turkish market (+47.62%) rallied largely on the
expectation that interest rates will decline because of a less
onerous refinancing and debt servicing schedule, and the hope that
some important companies would be privatized. This is an extremely
volatile and speculative market. Although we believe that there are
still many attractive values to be found, we are concerned that
political factors might cause prices to decline. The Fund's
investments in the Middle East rose slightly during the quarter,
from 3.1% of net assets to 4.0%.
<PAGE>
In South Africa (+14.16%), investor sentiment, which was
overwhelmingly negative before the start of the year, reversed in
January. Renewed investor optimism triggered portfolio investment
inflows which supported the currency, the rand. At the same time,
reasonably good inflation figures, and money supply and private
sector credit results, led to forecasts of interest rate declines.
Going forward, although the economy is slowing, events such as
privatizations and the easing of foreign exchange controls should
favor equity investments in South Africa. The Fund's investments in
Africa rose from 6.8% to 9.9% of net assets for the three-month
period ended March 31, 1997.
In Conclusion
We thank you for your continued interest in Merrill Lynch Developing
Capital Markets Fund, Inc., and we look forward to discussing
economic, stock market and portfolio developments with you in our
upcoming annual report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Grace Pineda)
Grace Pineda
Vice President and Portfolio Manager
April 23, 1997
PERFORMANCE DATA
About Fund
Performance
<PAGE>
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Average Annual Total
Return" tables as well as the total returns and cumulative total
returns in the "Performance Summary" tables assume reinvestment of
all dividends and capital gains distributions at net asset value on
the ex-dividend date. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<PAGE>
<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
1996 13.18 14.53 0.027 0.364 +13.30
1/1/97--3/31/97 14.53 15.75 -- -- + 8.40
------ ------
Total $1.286 Total $2.660
Cumulative total return as of 3/31/97: +124.78%**
</TABLE>
<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
1996 13.11 14.45 0.027 0.222 +12.17
1/1/97--3/31/97 14.45 15.62 -- -- + 8.10
------ ------
Total $0.680 Total $0.758
Cumulative total return as of 3/31/97: +18.54%***
</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
1996 13.08 14.41 0.027 0.231 +12.20
1/1/97--3/31/97 14.41 15.58 -- -- + 8.12
------ ------
Total $0.680 Total $0.793
Cumulative total return as of 3/31/97: +3.15%***
</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
1996 13.17 14.52 0.027 0.324 +13.00
1/1/97--3/31/97 14.52 15.74 -- -- + 8.40
------ ------
Total $0.680 Total $0.980
Cumulative total return as of 3/31/97: +5.20%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
***Figures do not reflect deduction of any sales charge; results
would be lower if sales charge was deducted.
</TABLE>
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/97 +11.47% + 5.62%
Five Years Ended 3/31/97 +10.38 + 9.19
Inception (9/1/89) through 3/31/97 +11.28 +10.49
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/97 +10.24% +6.24%
Inception (7/1/94) to 3/31/97 + 6.38 +5.73
[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 3/31/97 +10.27% +9.27%
Inception (10/21/94) to 3/31/97 + 1.28 +1.28
[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 3/31/97 +11.26% +5.42%
Inception (10/21/94) to 3/31/97 + 2.10 -0.13
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
3/31/97 12/31/96 3/31/96 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Developing Capital Markets Fund Class A Shares $15.75 $14.53 $14.52 + 8.68%(1) +8.40%
ML Developing Capital Markets Fund Class B Shares 15.62 14.45 14.42 + 8.53(1) +8.10
ML Developing Capital Markets Fund Class C Shares 15.58 14.41 14.39 + 8.48(1) +8.12
ML Developing Capital Markets Fund Class D Shares 15.74 14.52 14.50 + 8.76(1) +8.40
ML Developing Capital Markets Fund Class A Shares--Total Return +11.48(2) +8.40
ML Developing Capital Markets Fund Class B Shares--Total Return +10.24(3) +8.10
ML Developing Capital Markets Fund Class C Shares--Total Return +10.27(4) +8.12
ML Developing Capital Markets Fund Class D Shares--Total Return +11.26(5) +8.40
<PAGE>
<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 $0.027 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.364 per share ordinary
income dividends and $0.027 per share captial gains distributions.
(3)Percent change includes reinvestment of $0.222 per share ordinary
income dividends and $0.027 per share captial gains distributions.
(4)Percent change includes reinvestment of $0.231 per share ordinary
income dividends and $0.027 per share captial gains distributions.
(5)Percent change includes reinvestment of $0.324 per share ordinary
income dividends and $0.027 per share captial gains distributions.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Held/ Percent of
AFRICA Industries Face Amount Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
South Banking 250,000 Nedcor Ltd. (Ordinary) $ 4,281,780 $ 4,780,493 0.5%
Africa
Beverage 234,813 South African Breweries Ltd. 5,728,608 7,439,199 0.9
84,260 South African Breweries Ltd. (ADR)(a) 2,000,320 2,662,616 0.3
------------ ------------ ------
7,728,928 10,101,815 1.2
Coal 379,500 Ingwe Coal Corporation Ltd. 2,721,557 2,499,083 0.3
Diversified 847,400 Rembrandt Group Ltd. 8,899,699 9,060,794 1.1
Holdings 23,100 Rembrandt Group Ltd. (ADR)(a) 251,213 251,212 0.0
------------ ------------ ------
9,150,912 9,312,006 1.1
Financial 31,850 Anglo American Corporation of South
Services Africa, Ltd. (ADR)(a) 1,980,464 1,938,869 0.2
1,607,800 First National Bank Holdings Ltd. 12,391,390 9,969,160 1.2
------------ ------------ ------
14,371,854 11,908,029 1.4
Foreign ZAL 20,000,000 Republic of South Africa, 13% due 3,887,757 3,926,268 0.4
Government 8/31/2010
Obligations
<PAGE>
Mining 282,500 Beatrix Mines Ltd. 2,492,063 1,662,141 0.2
107,900 De Beers Centenary AG 3,362,087 3,931,183 0.4
142,000 De Beers Consolidated Mines Ltd.
(ADR)(a) 3,858,078 5,005,500 0.6
678,600 Gencor Ltd. 2,934,911 3,148,065 0.4
795,700 Gencor Ltd. (ADR)(a) 3,352,386 3,481,187 0.4
40,743 Vaal Reefs Exploration & Mining Co.
Ltd. 3,750,856 2,452,509 0.3
------------ ------------ ------
19,750,381 19,680,585 2.3
Newspaper/Publishing 465,000 Nasionale Pers Beperk (Class A) 4,353,714 4,840,462 0.6
Retail 3,537,600 Pick'n Pay Stores Ltd. 4,031,809 4,322,933 0.5
Steel 2,768 South Africa Iron & Steel Industrial
Corp., Ltd. 2,483 2,255 0.0
Total Investments in South Africa 70,281,175 71,373,929 8.3
Zimbabwe Beverage & Tobacco 9,009,759 Delta Corporation Ltd. 5,859,505 13,821,107 1.6
Total Investments in Zimbabwe 5,859,505 13,821,107 1.6
Total Investments in Africa 76,140,680 85,195,036 9.9
EUROPE
Czech Broadcast--Media 58,500 Central European Media Enterprises
Republic Ltd. (Class A)(GDR)(b) 1,608,750 1,915,875 0.2
Total Investments in the Czech
Republic 1,608,750 1,915,875 0.2
France Utilities--Water 105,239 Compagnie Generale des Eaux S.A. 11,392,731 14,377,683 1.7
Total Investments in France 11,392,731 14,377,683 1.7
Greece Banking 189,035 Ergo Bank S.A. (Ordinary) 6,980,186 12,056,144 1.4
Beverage 122,660 Hellenic Bottling Co. S.A. 2,854,032 3,997,360 0.5
Total Investments in Greece 9,834,218 16,053,504 1.9
<PAGE>
Hungary Banking 207,000 OTP Bank (GDR)(b) 4,240,860 4,709,250 0.5
Health/Personal Care 73,700 Gedeon Richter Ltd. (GDR)(b) 2,433,751 4,716,800 0.6
97,480 Gedeon Richter Ltd. (GDR)(b) 3,726,530 6,238,720 0.7
------------ ------------ ------
6,160,281 10,955,520 1.3
Oil & Related 61,000 Mol Magyar Olay-es Gazipari
Reszvenytarsasag (GDR)(b) 648,125 1,046,150 0.1
319,000 Mol Magyar Olay-es Gazipari
Reszvenytarsasag (GDR)(b) 3,688,894 5,470,850 0.6
------------ ------------ ------
4,337,019 6,517,000 0.7
Telecommunications 15,540 Magyar TavKzlesi
Reszvenytarsasag (Ordinary) 3,548,483 5,761,136 0.7
Total Investments in Hungary 18,286,643 27,942,906 3.2
Italy Automobiles 2,400,000 Fiat S.p.A. 7,073,725 7,653,430 0.9
Broadcast--Media 321,000 Mediaset S.p.A. 1,538,743 1,301,769 0.1
Total Investments in Italy 8,612,468 8,955,199 1.0
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
EUROPE Percent of
(concluded) Industries Shares Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Netherlands Electronics 91,900 Philips Electronics N.V. $ 3,740,578 $ 4,300,134 0.5%
91,900 Philips Electronics N.V. (NY
Registered Shares) 3,620,967 4,089,550 0.5
Total Investments in the Netherlands 7,361,545 8,389,684 1.0
Poland Automotive 309,611 T.C. Debica 5,492,554 8,208,619 0.9
Banking 665,104 Wielkopolski Bank Kredytowy S.A. 4,413,586 4,868,198 0.6
Total Investments in Poland 9,906,140 13,076,817 1.5
<PAGE>
Portugal Banking 46,300 Banco Espirito Santo e Comercial
de Lisboa S.A. 873,420 895,906 0.1
Building Products 713,514 Cimpor-Cimentos de Portugal S.A. 15,682,667 14,919,045 1.7
Multi-Industry 254,041 Sonae Investimentos-SGPS S.A. 5,966,019 8,597,540 1.0
Telecommunications 315,990 Portugal Telecom S.A. 10,631,199 11,788,981 1.4
156,300 Portugal Telecom S.A. (ADR)(a) 5,154,710 5,744,025 0.7
------------ ------------ ------
15,785,909 17,533,006 2.1
Total Investments in Portugal 38,308,015 41,945,497 4.9
Russia Energy Sources 353,539 AO Mosenergo (ADR)(a) 10,182,282 13,257,712 1.5
15,820,000 Irkutskenergo (GDR)(b) 1,994,233 4,065,740 0.5
------------ ------------ ------
12,176,515 17,323,452 2.0
Natural Gas 128,700 RAO Gazprom (ADR)(a) 2,027,025 2,142,855 0.3
Oil & Related 144,900 Lukoil Oil Company (ADR)(a) 7,034,300 8,078,175 0.9
Telecommunications 1,700,022 Rostelecom-RDC (Registered Shares) 7,527,250 6,630,086 0.8
Total Investments in Russia 28,765,090 34,174,568 4.0
Turkey Banking 12,130,000 Akbank T.A.S. (Ordinary) 901,835 890,237 0.1
Metal Fabricating 34,454,846 Eregli Demir Ve Celik Fabrikalari T.A.S. 4,409,936 4,658,250 0.5
Total Investments in Turkey 5,311,771 5,548,487 0.6
Total Investments in Europe 139,387,371 172,380,220 20.0
LATIN
AMERICA
Argentina Banking 278,180 Bansud S.A. (Class B) 3,203,199 3,922,966 0.5
Oil & Related 1,194,490 Companhia Naviera Perez Companc
S.A.C.F.I.M.F.A. (Class B) 6,859,310 9,234,885 1.0
121,000 Yacimientos Petroliferos Fiscales
S.A. (ADR)(a) 3,222,629 3,206,500 0.4
------------ ------------ ------
10,081,939 12,441,385 1.4
<PAGE>
Telecommunications 175,033 Telecom Argentina Stet--France
Telecom S.A. (ADR)(a) 8,103,208 8,051,518 0.9
211,109 Telefonica de Argentina S.A. (ADR)(a) 6,086,231 6,201,327 0.7
------------ ------------ ------
14,189,439 14,252,845 1.6
Total Investments in Argentina 27,474,577 30,617,196 3.5
Brazil Banking 861,174,679 Banco Bradesco S.A. (Preferred) 5,170,352 7,115,466 0.8
42,567,626 Banco Nacional S.A. (Preferred) 892,993 40 0.0
------------ ------------ ------
6,063,345 7,115,506 0.8
Beverage 21,788,513 Companhia Cervejaria Brahma S.A.
PN (Preferred) 8,032,321 14,206,769 1.7
Oil & Related 80,948,049 Petroleo Brasileiro S.A. (Preferred) 11,447,863 16,090,240 1.9
Steel 150,433,000 Companhia Siderurgica Nacional S.A. 4,133,979 5,396,553 0.6
9,261,900,000 Usinas Siderurgicas de Minas
Gerais--Usiminas S.A. (Preferred) 9,594,875 10,407,615 1.2
------------ ------------ ------
13,728,854 15,804,168 1.8
Telecommunications 92,387 Telecomunicacoes Brasileiras
S.A.--Telebras (ADR)(a) 4,860,107 9,458,119 1.1
168,431,403 Telecomunicacoes Brasileiras
S.A.--Telebras ON 8,671,392 16,984,693 2.0
12,342,256 Telecomunicacoes Brasileiras
S.A.--Telebras PN (Preferred) 654,792 1,277,348 0.1
------------ ------------ ------
14,186,291 27,720,160 3.2
Utilities-- 11,177,000 Centrais Electricas Brasileiras
Electrical & S.A.--Eletrobras 4,043,811 4,622,782 0.5
Gas 3,890,000 Centrais Electricas Brasileiras
S.A.--Eletrobras (Preferred) 1,454,583 1,675,014 0.2
------------ ------------ ------
5,498,394 6,297,796 0.7
Total Investments in Brazil 58,957,068 87,234,639 10.1
Chile Telecommunications 221,050 Compania de Telecomunicaciones de
Chile S.A. (ADR)(a) 5,187,319 6,355,187 0.7
Total Investments in Chile 5,187,319 6,355,187 0.7
<PAGE>
Mexico Building & 1,758,600 Apasco, S.A. de C.V. 7,814,470 11,911,809 1.4
Construction
Financial Services 41,300 Banca Quadrum, S.A. de C.V. (ADR)(a) 613,737 129,062 0.0
140 Grupo Financiero Inbursa, S.A. de
C.V. (Class B) 529 493 0.0
------------ ------------ ------
614,266 129,555 0.0
Health/Personal 4,063,850 Kimberly-Clark de Mexico, S.A. de
Care C.V. (Series A) 10,737,183 16,428,657 1.9
Multi-Industry 1,995,894 Grupo Carso, S.A. de C.V. 'A' 11,922,837 11,693,905 1.3
348,900 Grupo Carso, S.A. de C.V. (ADR)(a) 4,028,200 4,055,962 0.5
------------ ------------ ------
15,951,037 15,749,867 1.8
Retail 1,175,301 Cifra, S.A. de C.V. 'A' 1,542,051 1,595,136 0.2
150,000 Cifra, S.A. de C.V. 'B' (ADR)(a) 202,080 204,000 0.0
9,609,400 Cifra, S.A. de C.V. 'C' 13,983,406 13,454,130 1.6
------------ ------------ ------
15,727,537 15,253,266 1.8
Telecommunications 4,000 Carso Global Telecom, S.A. de
C.V. 'A-1' 10,540 12,109 0.0
287,717 Telefonos de Mexico, S.A. de C.V.
(ADR)(a) 9,214,741 11,077,104 1.3
------------ ------------ ------
9,225,281 11,089,213 1.3
Total Investments in Mexico 60,069,774 70,562,367 8.2
Total Investments in Latin America 151,688,738 194,769,389 22.5
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
MIDDLE Shares Held/ Percent of
EAST Industries Face Amount Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Egypt Banking 168,430 Commercial International Bank (Egypt)
S.A.E. $ 1,992,666 $ 4,058,674 0.5%
248,789 Commercial International Bank (Egypt)
S.A.E. (GDR)(b) 2,954,369 5,560,434 0.6
------------ ------------ ------
4,947,035 9,619,108 1.1
<PAGE>
Building Products 67,350 Torah Portland Cement Company 1,941,181 1,897,270 0.2
Total Investments in Egypt 6,888,216 11,516,378 1.3
Israel Banking 3,043,266 Bank Hapoalim Ltd. 4,838,495 6,012,849 0.7
4,868,599 Bank Leumi Israel 7,014,411 7,785,684 0.9
------------ ------------ ------
11,852,906 13,798,533 1.6
Merchandising 76,873 Blue Square Chain Stores Properties
& Investments Ltd. 438,729 740,812 0.1
Multi-Industry 21,068 Koor Industries Ltd. 1,846,752 1,942,689 0.2
72,920 Koor Industries Ltd. (ADR)(a) 1,342,374 1,312,560 0.2
------------ ------------ ------
3,189,126 3,255,249 0.4
Retail 1,845,800 Super-Sol Ltd. 5,002,527 5,313,123 0.6
Total Investments in Israel 20,483,288 23,107,717 2.7
Total Investments in the Middle East 27,371,504 34,624,095 4.0
PACIFIC BASIN/
ASIA
Australia Merchandising 207,045 Amway Asia Pacific Ltd. (GDR)(b) 6,445,644 7,790,068 0.9
Total Investments in Australia 6,445,644 7,790,068 0.9
China Telecommunications 6,128,000 Eastern Communications Co., Ltd.
(Class B) 5,096,624 6,213,792 0.7
Total Investments in China 5,096,624 6,213,792 0.7
Hong Kong Banking 414,317 Wing Hang Bank Ltd. 1,529,613 1,818,001 0.2
Financial Services 912,000 Peregrine Investments Holdings Ltd. 1,560,243 1,453,597 0.2
Food 25,091,000 C.P. Pokphand Co. Ltd. (Ordinary) 7,330,535 8,095,438 0.9
53,212,900 Tingyi (Cayman Islands) Holdings, Co. 13,906,175 11,606,092 1.4
------------ ------------ ------
21,236,710 19,701,530 2.3
<PAGE>
Industrial 21,456,000 Sinocan Holdings Ltd. 8,111,885 8,099,477 0.9
Real Estate 35,778,900 China Overseas Land & Investment Co. 11,297,315 19,393,609 2.3
2,443,100 Hang Lung Development Company 5,166,361 4,429,961 0.5
------------ ------------ ------
16,463,676 23,823,570 2.8
Utilities-- 4,880,000 Beijing Datang Power Generation
Electric Company Ltd. 1,603,898 1,952,378 0.2
Total Investments in Hong Kong 50,506,025 56,848,553 6.6
India Banking 978,964 State Bank of India 7,442,695 7,452,203 0.9
Energy Sources 1,130,175 Bombay Suburban Electric Supply
Co. Ltd. 6,037,348 6,276,998 0.7
63,132 Bombay Suburban Electric Supply
Co. Ltd. (GDR)(b) 1,058,772 1,357,338 0.2
------------ ------------ ------
7,096,120 7,634,336 0.9
Financial Services 123,726 Housing Development Finance Corp. 10,138,030 9,496,135 1.1
3,330,956 Industrial Credit & Investment
Corporation of India Ltd. 11,468,459 5,252,554 0.6
------------ ------------ ------
21,606,489 14,748,689 1.7
Leisure & Tourism 410,875 East India Hotels Ltd. 4,640,089 5,039,898 0.6
Oil Services 609,000 Hindustan Petroleum Corporation Ltd. 6,435,838 6,127,393 0.7
Consumer Goods & 580,000 Suraj Diamonds Ltd. 1,522,715 400,642 0.0
Recreation
Telecommunications 1,652,000 Mahanagar Telephone Nigram Ltd. 8,369,020 11,111,694 1.3
124,000 Videsh Sanchar Nigam Ltd. (GDR)(b) 2,046,000 2,176,200 0.2
------------ ------------ ------
10,415,020 13,287,894 1.5
Textiles 300 JCT Ltd. 490 71 0.0
6,971 Reliance Industries Ltd. 44,206 49,953 0.0
------------ ------------ ------
44,696 50,024 0.0
Total Investments in India 59,203,662 54,741,079 6.3
<PAGE>
Indonesia Automobiles 269,000 P.T. Astra International 'Foreign' 799,886 874,250 0.1
Broadcasting & US$ 4,645,000 P.T. Surya Citra Television, 4% due
Publishing 7/01/1997 (Convertible) 4,856,085 4,648,265 0.5
Forest Products 2,619,500 P.T. Indah Kiat Pulp & Paper Corp.
& Paper 'Foreign' 1,955,378 1,937,339 0.2
Insurance 1,400,000 P.T. Lippo Life Insurance 'Foreign' 1,675,782 1,516,667 0.2
Multi-Industry 5,118,000 P.T. Bimantara Citra 5,711,762 6,610,750 0.8
Real Estate 5,203,500 P.T. Ciputra Development 3,856,885 4,661,469 0.6
Telecommunications 3,590,500 P.T. Telekomunikasi Indonesia 5,463,605 5,497,953 0.6
138,954 P.T. Telekomunikasi Indonesia (ADR)(a) 4,223,875 4,185,989 0.5
------------ ------------ ------
9,687,480 9,683,942 1.1
Total Investments in Indonesia 28,543,258 29,932,682 3.5
Malaysia Airlines 839,000 Malaysian Airline System BHD 2,371,766 2,235,527 0.3
Banking 250,000 AMMB Holdings BHD 2,429,648 2,079,128 0.2
578,000 Commerce Asset Holding BHD 3,712,883 4,060,234 0.5
444,000 Malayan Banking BHD 4,668,921 5,063,787 0.6
3,616,000 Public Bank BHD 'Foreign' 7,311,962 7,123,973 0.8
------------ ------------ ------
18,123,414 18,327,122 2.1
Broadcasting & 1,048,000 New Straits Times Press BHD 5,107,457 6,431,005 0.7
Publishing
Building Materials 713,000 Hume Industries (Malaysia) BHD 3,782,705 4,029,875 0.5
Chemicals 1,135,500 Nylex (Malaysia) BHD 3,000,783 2,498,375 0.3
Consumer Products & 500,000 Amway (Malaysia) Holdings BHD 3,013,896 3,270,085 0.4
Services
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
PACIFIC
BASIN/ASIA Shares Held/ Percent of
(concluded) Industries Face Amount Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Malaysia Diversified 2,000,000 Magnum Corporation BHD $ 3,904,411 $ 3,794,913 0.4%
(concluded) Holdings 373,000 OYL Industries BHD 3,849,130 3,689,342 0.4
631,000 United Engineers (Malaysia) Ltd. 5,863,221 5,502,463 0.6
------------ ------------ ------
13,616,762 12,986,718 1.4
Engineering & 1,083,000 Malaysian Resources Corp. BHD 3,760,699 3,891,280 0.5
Construction
Food 473,000 Nestle (Malaysia) BHD 3,702,794 3,742,753 0.4
Multi-Industry 596,000 Ekran BHD 2,671,052 1,888,817 0.2
1,700,000 Hicom Holdings BHD 4,409,225 4,426,726 0.5
3,556,000 Renong BHD 6,035,265 6,029,552 0.7
1,125,000 Sime Darby BHD 3,759,870 4,110,315 0.5
910,800 Sungei Way Holdings BHD 2,399,722 2,500,379 0.3
------------ ------------ ------
19,275,134 18,955,789 2.2
Natural Gas 910,000 Petronas Gas BHD 3,791,186 3,361,526 0.4
Oil & Related 646,000 Petronas Dagangan BHD 1,888,810 1,695,196 0.2
Tobacco 305,000 Rothmans of Pall Mall (Malaysia) BHD 3,201,767 2,708,922 0.3
Total Investments in Malaysia 84,637,173 84,134,173 9.7
Pakistan Chemicals-- 220,500 Fauji Fertilizer Co. Ltd. 513,824 431,869 0.0
Fertilizers
Electronical 1,446,227 Karachi Electric Supply Corp. Ltd. 1,121,386 586,358 0.1
Components
Telecommunications 14,050 Pakistan Telecommunications Corp. 1,489,569 1,007,831 0.1
Total Investments in Pakistan 3,124,779 2,026,058 0.2
South Automotive 67,538 Dong Ah Tire Industries 3,636,388 4,469,779 0.5
Korea
Banking 1,196,720 Cho Hung Bank Co. Ltd. 10,325,431 6,226,160 0.7
125,400 Kookmin Bank (GDR)(b) 2,163,150 2,254,065 0.3
------------ ------------ ------
12,488,581 8,480,225 1.0
<PAGE>
Telecommunications 647,256 Korea Mobile Telecommunications
Corp. (ADR)(a) 9,932,771 6,634,376 0.8
Utilities--Electric 24,000 Korea Electric Power Corporation 802,191 698,768 0.1
Total Investments in South Korea 26,859,931 20,283,148 2.4
Taiwan Banking 3,409,000 Bank Sinopac 3,926,912 3,468,459 0.4
Insurance 500,000 Fubon Insurance Co. 1,351,337 1,398,983 0.2
Transportation 5,745,000 Yang Ming Marine Transport 7,827,476 7,849,273 0.9
Marine
Total Investments in Taiwan 13,105,725 12,716,715 1.5
Thailand Building Products 50,000 Siam Cement Public Company Limited
'Foreign' 1,482,104 1,302,505 0.2
18,500 Siam City Cement Public Company
Limited 99,272 109,788 0.0
770,100 Siam City Cement Public Company
Limited 'Foreign' 4,145,749 4,570,150 0.5
------------ ------------ ------
5,727,125 5,982,443 0.7
Financial Services 224,700 Finance One Public Company Ltd.
'Foreign' 1,670,544 205,650 0.0
Real Estate Chf 11,300,000 Bangkok Land Public Co., Ltd.,
3.125% due 3/31/2001 (Convertible) 3,974,841 3,538,622 0.4
US$ 1,565,000 Bangkok Land Public Co., Ltd.,
4.50% due 10/13/2003 (Convertible) 1,155,250 946,825 0.1
US$ 3,731,000 Hemaraj Land and Development Public
Co., Ltd., 3.50% due 9/09/2003 3,662,886 3,880,240 0.5
US$ 3,013,000 Tanayon Public Co. Ltd., 3.50% due
3/01/2004 (Convertible) 2,728,316 2,538,452 0.3
------------ ------------ ------
11,521,293 10,904,139 1.3
Telecommunications 1,498,000 TelecomAsia Corporation Public
Company Ltd. 'Foreign' 3,247,616 2,554,393 0.3
Total Investments in Thailand 22,166,578 19,646,625 2.3
Total Investments in the Pacific
Basin/Asia 299,689,399 294,332,893 34.1
<PAGE>
SHORT-TERM Face
SECURITIES Amount
Commercial US$ 47,306,000 General Motors Acceptance Corp.,
Paper* 6.75% due 4/01/1997 47,306,000 47,306,000 5.5
20,000,000 National Fleet Funding Corp.,
5.35% due 4/07/1997 19,982,167 19,982,167 2.3
13,554,000 Three Rivers Funding Corp.,
5.52% due 4/18/1997 13,518,669 13,518,669 1.6
Total Investments in Short-Term
Securities 80,806,836 80,806,836 9.4
Total Investments $775,084,528 862,108,469 99.9
============
Unrealized Depreciation on Forward Foreign Exchange Contracts** (63,372) 0.0
Other Assets Less Liabilities 1,262,381 0.1
------------ ------
Net Assets $863,307,478 100.0%
============ ======
Net Asset Value: Class A--Based on net assets of $382,959,794 and
24,307,243 shares outstanding $ 15.75
============
Class B--Based on net assets of $356,806,012 and
22,835,828 shares outstanding $ 15.62
============
Class C--Based on net assets of $61,533,455 and
3,949,378 shares outstanding $ 15.58
============
Class D--Based on net assets of $62,008,217 and
3,940,662 shares outstanding $ 15.74
============
<FN>
(a)American Depositary Receipts (ADR).
(b)Global Depositary Receipts (GDR).
*Commercial Paper is traded on a discount basis; the interest rates
shown are the discount rates paid at the time of purchase by the
Fund.
**Forward foreign exchange contracts as of March 31, 1997 were as
follows:
<CAPTION>
Expiration Unrealized
Foreign Currency Sold Date Depreciation
<S> <C> <S> <C>
ThB 210,496,500 April 1997 $(63,372)
Total Unrealized Depreciation--Net on
Forward Foreign Exchange Contracts
(US$ Commitment--$8,043,428) $(63,372)
========
</TABLE>
<PAGE>
EQUITY PORTFOLIO CHANGES
For the Quarter Ended March 31, 1997
Additions
AMMB Holdings BHD
Akbank T.A.S. (Ordinary)
Banco Espirito Santo e Comercial de
Lisboa S.A.
Bank Sinopac
Beijing Datang Power Generation
Company Ltd.
*China Eastern Airlines Corp. Ltd. (ADR)
Cifra, S.A. de C.V. 'A'
*Ergo Bank S.A.
Gencor Ltd.
Gencor Ltd. (ADR)
Hang Lung Development Company
Hicom Holdings BHD
Hindustan Petroleum Corporation Ltd.
Kookmin Bank (GDR)
Korea Electric Power Corporation
Magnum Corporation BHD
Malayan Banking BHD
*Mostostal-Export S.A. (Rights)
Nasionale Pers Beperk
Nedcor Ltd.
OTP Bank (GDR)
P.T. Astra International 'Foreign'
P.T. Indah Kiat Pulp & Paper Corp. 'Foreign'
P.T. Lippo Life Insurance 'Foreign'
Peregrine Investments Holdings Ltd.
Pick'n Pay Stores Ltd.
Portugal Telecom S.A.
Portugal Telecom S.A. (ADR)
Rembrandt Group Ltd.
Rembrandt Group Ltd. (ADR)
Rostelecom-RDC (Registered Shares)
Rothmans of Pall Mall (Malaysia) BHD
Siam Cement Public Company Limited
'Foreign'
<PAGE>
Siam City Cement Public Company Limited
Siam City Cement Public Company Limited
'Foreign'
*Sistem Televisyen Malaysia BHD
*Sonae Investimentos--Sociedade Gestora
de Participacoes Sociais S.A. (Rights)
Super-Sol Ltd.
Telecom Argentina Stet--France
Telecom S.A. (ADR)
*Telecom Asia Corporation
Public Bank Co. Ltd. (GDR)
Torah Portland Cement Company
United Engineers (Malaysia) Ltd.
Videsh Sanchar Nigam Ltd. (GDR)
Yacimientos Petroliferos
Fiscales S.A. (ADR)
Yang Ming Marine Transport
Deletions
Advanced Info Services Public Company
Ltd. 'Foreign'
Banco Frances del Rio de la Plata S.A. (ADR)
Bank Rozwoju Eksportu S.A.
Bata Chile S.A.
Blue Square Chain Stores Properties &
Investments Ltd. (ADR)
Carso Global Telecom, S.A. de C.V. (ADR)
*China Eastern Airlines Corp. Ltd. (ADR)
Cochin Refinery Ltd.
Companhia Energetica de Minas
Gerais S.A. (CEMIG)(ADR)
Editorial Lord Cochrane S.A.
Elektrim Towarzystow Handlowe S.A.
Erciyas Biracilik Ve Malt Sanayii A.S.
(Class A)(GDR)
*Ergo Bank S.A.
Grasim Industries Ltd.
JCG Holdings, Ltd.
Krung Thai Bank Public Co. Ltd.
Mostostal-Export S.A.
*Mostostal-Export S.A. (Rights)
P.T. Indofood Sukses Makmur
P.T. Kabelmetal Indonesia (Rights)
Panamerican Beverages, Inc. (Class A)
Phatra Thanakit Public Co. Ltd.
<PAGE>
Shinhan Bank
Siam Commercial Bank Public Co.
Ltd. 'Foreign'
Siam Makro Public Co. Ltd.
Sime Darby (Hong Kong) Ltd.
*Sistem Televisyen Malaysia BHD
Sistem Televisyen Malaysia BHD (Class A)
*Sonae Investimentos--Sociedade Gestora
de Participacoes Sociais S.A. (Rights)
Sun International, Ltd.
Technology Resources Industries BHD
Telecel-Comunicacoes Pessoais, S.A.
*Telecom Asia Corporation
Public Bank Co. Ltd. (GDR)
Templeton Russia Fund, Inc.
Thai Farmers Bank, Ltd. 'Foreign'
Thai Farmers Bank, Ltd. 'Foreign'
(Warrants)
Vimpel-Communications (ADR)
Wafa Bank
Western Areas Gold Mining Company Ltd.
Western Areas Gold Mining Company
Ltd. (ADR)
[FN]
*Added and deleted in the same quarter.
PORTFOLIO INFORMATION
Ten Largest Equity Holdings Percent of
As of March 31, 1997 Net Assets
Telecomunicacoes Brasileiras S.A.--Telebras* 3.2%
China Overseas Land & Investment Co. 2.3
Portugal Telecom S.A.* 2.1
Kimberly-Clark de Mexico, S.A. de C.V. (Series A) 1.9
Petroleo Brasileiro S.A. (Preferred) 1.9
Cifra, S.A. de C.V.* 1.8
Grupo Carso, S.A. de C.V.* 1.8
Cimpor-Cimentos de Portugal S.A. 1.7
Compagnie Generale des Eaux S.A. 1.7
Companhia Cervejaria Brahma S.A. PN (Preferred) 1.7
[FN]
* Includes combined holdings.
<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
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02119
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
