MERRILL LYNCH
DEVELOPING
CAPITAL MARKETS
FUND, INC.
FUND LOGO
Semi-Annual Report
December 31, 1996
<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, MA 02119
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.
<PAGE>
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
December 31, 1996
A map depicting the following asset allocation percentages:
Brazil 11.3%
Portugal 2.3%
France 2.1%
Hungary 2.4%
Czech Republic 0.7%
Netherlands 1.0%
Poland 2.0%
Russia 4.0%
Greece 1.5%
Turkey 1.7%
Pakistan 0.3%
India 6.0%
Thailand 4.6%
China 0.7%
South Korea 3.3%
Mexico 11.2%
Chile 0.6%
<PAGE>
Argentina 4.3%
Morocco 0.6%
Italy 2.0%
Egypt 1.0%
South Africa 4.9%
Zimbabwe 1.3%
Israel 2.1%
Malaysia 10.7%
Indonesia 4.0%
Hong Kong 8.8%
Taiwan 0.2%
Australia 1.2%
[FN]
*Total may not equal 100%.
DEAR SHAREHOLDER
During the three-month period ended December 31, 1996, total returns
for Merrill Lynch Developing Capital Markets Fund, Inc.'s Class A,
Class B, Class C and Class D Shares were +1.44%, +1.21%, +1.21% and
+1.37%, respectively. The unmanaged Morgan Stanley Capital
International Emerging Markets Free Index declined 0.59% 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 3--5 of this report to shareholders.) The Fund's
outperformance is attributable to its overweighted positions in
Hungary and Argentina, whose stock markets rose 18.36% and 12.71%,
respectively. Also benefiting the Fund's performance were its
investments in Egypt, Russia and Zimbabwe, whose stock markets had
total returns of +23.19%, +18.20% and +21.90%, respectively.
Investment Review & Activities
Latin American markets continued their recovery during the three-
month period ended December 31, 1996 led mainly by Argentina
(+12.71%) and Venezuela (+19.38%). In Argentina, there was growing
optimism concerning the economy following years of stabilization and
monetary adjustments. Stronger economic growth in 1997 is now highly
probable. One of our investments in Argentina is Companhia Naviera
Perez Companc S.A.C.F.I.M.F.A. In our opinion, the company has
excellent management and is highly profitable. Among its energy-
related activities is oil production, whose growth is now coming
primarily from Venezuela.
The stock market rally in Venezuela was fueled by easy monetary
conditions and the anticipation of privatizations. Furthermore, the
high price of oil coupled with record high production, and the
inflow of investor capital, sustained the stock market and its
currency, the Bolivar. Our allocation in Latin America declined
slightly to 27.4% of net assets, as we took profits in Brazil.
<PAGE>
During the past three months, the emerging European markets of
Hungary and Russia rose 18.36% and 18.20%, respectively. Good
earnings results, and the possibility of interest rate declines,
were the driving forces in Hungary. One of our holdings is Gedeon
Richter Ltd., a manufacturer and distributor of pharmaceutical
products. With 67% of its revenues coming from exports, Gedeon
obtains hard currency returns on a low-cost, soft currency cost
base. We expect export growth to be supported further by recovery in
Russia's economy in 1997. We increased our investments in Russia as
we anticipated favorable developments in its capital markets,
thereby raising our investments in Europe to 19.7% of net assets
from 14.4% as of September 30, 1996.
Several of the Pacific Basin/Asian stock markets in which we invest
were weak as a result of investor concerns regarding slowing eco-
nomic growth and deteriorating external balances. Thailand declined
26.89% in response to problems in the banking sector tied to real
estate lending; a downgrade of Thailand's sovereign risk rating by
Moody's Investors Service, Inc.; and investor perceptions that the
government's measures to address the macroeconomic concerns were
insufficient. During the December quarter, our investments in the
region as a whole declined modestly to 39.8% of net assets from
40.5% at September 30, 1996.
The Middle Eastern and African stock markets showed mixed
performance. The strongest performer was the Egyptian stock market,
which rose 23.19% during the past three months. Privatizations and
the issuance of shares internationally drew the attention and
capital of foreign investors to this emerging market. The South
African market declined 6.14% in dollar terms, although it declined
only 3.22% in Rand terms. The ongoing weakness in the Rand derives
from investors' loss of confidence in the government's policies,
such as those on capital controls. We believe that a lot of negative
prospects have already been discounted and with a long-term horizon,
stock valuations of well-managed companies are reasonable. An
example is South African Breweries Ltd., one of the largest beer
producers in the world, which is sourcing its growth increasingly
from its operations in Zimbabwe, Poland and China.
In Conclusion
We thank you for your interest in Merrill Lynch Developing Capital
Markets Fund, Inc. We look forward to discussing economic, stock
market and portfolio developments with you in our upcoming quarterly
report to shareholders.
Sincerely,
<PAGE>
(Arthur Zeikel)
Arthur Zeikel
President
(Grace Pineda)
Grace Pineda
Vice President and Portfolio Manager
January 30, 1997
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
<PAGE>
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
12/31/96 9/30/96 12/31/95 % Change % Change
<S> <C> <C> <C> <C> <C>
ML Developing Capital Markets Fund Class A Shares $14.53 $14.72 $13.18 +10.45%(1) -1.10%(1)
ML Developing Capital Markets Fund Class B Shares 14.45 14.53 13.11 +10.43(1) -0.36(1)
ML Developing Capital Markets Fund Class C Shares 14.41 14.50 13.08 +10.38(1) -0.43(1)
ML Developing Capital Markets Fund Class D Shares 14.52 14.68 13.17 +10.46(1) -0.90(1)
ML Developing Capital Markets Fund Class A Shares--Total Return +13.30(2) +1.44(2)
ML Developing Capital Markets Fund Class B Shares--Total Return +12.17(3) +1.21(3)
ML Developing Capital Markets Fund Class C Shares--Total Return +12.20(4) +1.21(4)
ML Developing Capital Markets Fund Class D Shares--Total Return +13.00(5) +1.37(5)
<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 capital gains distributions.
(3)Percent change includes reinvestment of $0.222 per share ordinary
income dividends and $0.027 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.231 per share ordinary
income dividends and $0.027 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.324 per share ordinary
income dividends and $0.027 per share capital gains distributions.
</TABLE>
Average Annual
Total Return
<PAGE>
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 12/31/96 +13.30% +7.35%
Five Years Ended 12/31/96 +10.67 +9.48
Inception (9/1/89) through 12/31/96 +10.46 +9.65
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 12/31/96 +12.17% +8.17%
Inception (7/1/94) to 12/31/96 + 3.75 +3.00
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Class C Shares* Without CDSC With CDSC**
Year Ended 12/31/96 +12.20% +11.20%
Inception (10/21/94) to 12/31/96 - 2.12 - 2.12
[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 12/31/96 +13.00% +7.07%
Inception (10/21/94) to 12/31/96 - 1.36 -3.75
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
<TABLE>
Performance
Summary--
Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <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
------ ------
Total $1.286 Total $2.660
Cumulative total return as of 12/31/96: +107.37%**
<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>
Performance
Summary--
Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <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
------ ------
Total $0.680 Total $0.758
Cumulative total return as of 12/31/96: +9.66%**
<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 C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <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
------ ------
Total $0.680 Total $0.793
Cumulative total return as of 12/31/96: -4.59%**
<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 D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <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
------ ------
Total $0.680 Total $0.980
Cumulative total return as of 12/31/96: -2.95%**
<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>
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 64,246 Wafa Bank $ 2,488,569 $ 4,058,246 0.6%
Total Investments in Morocco 2,488,569 4,058,246 0.6
South Beverage 234,813 South African Breweries Ltd. 5,728,608 5,950,672 0.8
Africa 84,260 South African Breweries Ltd.
(ADR) (a) 2,000,320 2,127,564 0.3
------------ ------------ ------
7,728,928 8,078,236 1.1
Coal 948,000 Ingwe Coal Corporation Ltd. 7,176,129 6,791,702 0.9
Entertainment 1,841,700 Sun International, Ltd. 2,542,305 1,476,984 0.2
Financial 31,850 Anglo American Corporation of
Services South Africa, Ltd. (ADR) (a) 1,980,464 1,727,862 0.2
884,200 First National Bank Holdings Ltd. 8,540,288 4,330,235 0.6
------------ ------------ ------
10,520,752 6,058,097 0.8
Mining 369,100 Beatrix Mines Ltd. 3,247,494 2,308,848 0.3
107,900 De Beers Centenary AG 3,362,087 3,092,087 0.4
95,000 De Beers Consolidated Mines Ltd.
(ADR) (a) 2,201,328 2,683,750 0.4
43,243 Vaal Reefs Exploration & Mining Co.
Ltd. 3,935,763 2,774,358 0.4
32,317 ++Western Areas Gold Mining Company
Ltd. 469,861 445,776 0.1
188,205 ++Western Areas Gold Mining Company
Ltd. (ADR) (a) 2,518,063 2,540,767 0.3
------------ ------------ ------
15,734,596 13,845,586 1.9
Steel 2,768 South Africa Iron & Steel Industrial
Corp., Ltd. 2,483 1,977 0.0
Total Investments in South Africa 43,705,193 36,252,582 4.9
Zimbabwe Beverage & 2,661,146 Delta Corporation Ltd. 4,299,795 9,358,959 1.3
Tobacco
Total Investments in Zimbabwe 4,299,795 9,358,959 1.3
<PAGE>
Total Investments in Africa 50,493,557 49,669,787 6.8
EUROPE
Czech Broadcast--Media 155,000 ++Central European Media Enterprises Ltd.
Republic (Class A) (GDR) (b) 4,262,500 4,843,750 0.7
Total Investments in the Czech Republic 4,262,500 4,843,750 0.7
France Utilities--Water 120,500 Compagnie Generale des Eaux S.A. 12,943,162 14,934,753 2.1
Total Investments in France 12,943,162 14,934,753 2.1
Greece Banking 136,655 Ergo Bank S.A. (Ordinary) 6,296,114 6,933,664 1.0
Beverage 122,660 Hellenic Bottling Co. S.A. 2,854,032 3,934,218 0.5
Total Investments in Greece 9,150,146 10,867,882 1.5
Hungary Health/Personal 97,480 Gedeon Richter Ltd. (GDR) (b) 3,726,530 5,653,840 0.8
Care 73,700 Gedeon Richter Ltd. (GDR) (b) (e) 2,433,751 4,274,600 0.6
------------ ------------ ------
6,160,281 9,928,440 1.4
Oil & Related 61,000 Mol Magyar Olay-es Gazipari
Reszvenytarsasag (GDR) (b) 648,125 771,650 0.1
319,000 Mol Magyar Olay-es Gazipari
Reszvenytarsasag (GDR) (b) (e) 3,688,895 4,035,350 0.6
------------ ------------ ------
4,337,020 4,807,000 0.7
Telecommuni- 12,000 ++Magyar TavKozlesi Reszvenytarsasag
cations (Ordinary) (e) 2,338,938 2,599,010 0.3
Total Investments in Hungary 12,836,239 17,334,450 2.4
Italy Automobiles 2,400,000 Fiat S.p.A. 7,073,725 7,255,722 1.0
Broadcast--Media 1,627,000 Mediaset S.p.A. 7,628,004 7,501,400 1.0
Total Investments in Italy 14,701,729 14,757,122 2.0
<PAGE>
Netherlands Electronics 91,900 Philips Electronics N.V. 3,740,578 3,727,115 0.5
91,900 Philips Electronics N.V. (NY
Registered Shares) 3,620,967 3,676,000 0.5
Total Investments in the Netherlands 7,361,545 7,403,115 1.0
Poland Automotive 309,611 ++T.C. Debica 5,492,554 6,914,819 1.0
Banking 420,804 Wielkopolski Bank Kredytowy S.A. 2,497,206 2,848,827 0.4
Electrical & 30,600 Elektrim Towarzystow Handlowe S.A. 179,121 277,638 0.0
Electronics
Financial Services 129,205 Bank Rozwoju Eksportu S.A. 3,160,505 3,877,593 0.5
Multi-Industry 223,032 Mostostal-Export S.A. 571,931 529,250 0.1
Total Investments in Poland 11,901,317 14,448,127 2.0
Portugal Building Products 357,000 Cimpor-Cimentos de Portugal S.A. 7,269,335 7,688,168 1.0
Multi-Industry 254,041 Sonae Investimentos-SGPS S.A. 5,966,019 8,047,363 1.1
Telecommuni- 18,000 ++Telecel-Comunicacaoes Pessoais, S.A. 910,363 1,149,677 0.2
cations
Total Investments in Portugal 14,145,717 16,885,208 2.3
Russia Energy Sources 479,739 AO Mosenergo (ADR) (a) 13,406,934 14,512,105 2.0
15,820,000 ++Irkutskenergo (GDR) (b) 1,994,233 2,088,240 0.3
------------ ------------ ------
15,401,167 16,600,345 2.3
Multi-Industry 88,200 Templeton Russia Fund, Inc. 1,283,310 1,940,400 0.2
Natural Gas 234,000 ++RAO Gazprom (ADR) (a) (e) 3,685,500 4,153,500 0.6
Oil & Related 78,600 Lukoil Oil Company (ADR) (a) 3,230,450 3,615,600 0.5
Telecommuni- 135,200 ++Vimpel-Communications (ADR) (a) 3,244,131 3,194,100 0.4
cations
Total Investments in Russia 26,844,558 29,503,945 4.0
Turkey Beverage & 2,397,200 Erciyas Biracilik Ve Malt Sanayii A.S.
Tobacco (Class A) (GDR) (b) 8,060,585 5,213,910 0.7
Metal 62,677,000 Eregli Demir Ve Celik Fabrikalari 7,220,626 7,523,555 1.0
Fabricating T.A.S.
Total Investments in Turkey 15,281,211 12,737,465 1.7
<PAGE>
Total Investments in Europe 129,428,124 143,715,817 19.7
</TABLE>
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) (in US Dollars)
<CAPTION>
LATIN Value Percent of
AMERICA Industries Shares Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Argentina Banking 540,470 Banco Frances del Rio de la Plata
S.A. (ADR) (a) $ 12,188,496 $ 14,862,925 2.0%
278,180 ++Bansud S.A. (Class B) 3,203,199 3,333,263 0.5
------------ ------------ ------
15,391,695 18,196,188 2.5
Oil & Related 1,070,970 Companhia Naviera Perez Companc
S.A.C.F.I.M.F.A. (Class B) 5,917,884 7,530,425 1.0
Telecommuni- 211,109 Telefonica de Argentina S.A. (ADR) (a) 6,086,231 5,462,445 0.8
cations
Total Investments in Argentina 27,395,810 31,189,058 4.3
Brazil Banking 861,174,679 Banco Bradesco S.A. (Preferred) 5,170,352 6,241,838 0.9
42,567,626 Banco Nacional S.A. (Preferred) 892,993 41 0.0
------------ ------------ ------
6,063,345 6,241,879 0.9
Beverage 21,788,513 Companhia Cervejaria Brahma S.A. PN
(Preferred) 8,032,321 11,912,480 1.6
Oil & Related 90,917,333 Petroleo Brasileiro S.A. (Preferred) 12,746,043 14,483,414 2.0
Steel 109,633,000 Companhia Siderurgica Nacional S.A. 2,886,862 3,113,075 0.4
26,900,000 Usinas Siderurgicas de Minas
Gerais--Usiminas S.A. (Preferred) 10,588,853 10,230,546 1.4
------------ ------------ ------
13,475,715 13,343,621 1.8
Telecommuni- 92,387 Telecomunicacoes Brasileiras
cations S.A.--Telebras(ADR) (a) 4,860,107 7,067,605 1.0
168,431,403 Telecomunicacoes Brasileiras
S.A.--Telebras ON 8,671,392 12,078,294 1.6
133,742,256 Telecomunicacoes Brasileiras
S.A.--Telebras PN(Preferred) 5,978,192 10,298,759 1.4
------------ ------------ ------
19,509,691 29,444,658 4.0
<PAGE>
Utilities-- 9,130,000 Centrais Eletricas Brasileiras
Electrical & S.A.--Eletrobras 3,161,993 3,269,189 0.4
Gas 3,000,000 Centrais Eletricas Brasileiras
S.A.--Eletrobras(Preferred) 1,058,033 1,114,640 0.2
91,740 Companhia Energetica de Minas Gerais
S.A. (CEMIG)(ADR) (a) (e) 1,979,789 3,096,225 0.4
------------ ------------ ------
6,199,815 7,480,054 1.0
Total Investments in Brazil 66,026,930 82,906,106 11.3
Chile Apparel 3,004,672 Bata Chile S.A. 852,637 255,053 0.1
Broadcasting & 1,653,325 Editorial Lord Cochrane S.A. 864,947 253,398 0.0
Publishing
Telecommunications 36,000 Compania de Telecomunicaciones de
Chile S.A.(ADR) (a) 3,483,907 3,640,500 0.5
Total Investments in Chile 5,201,491 4,148,951 0.6
Mexico Beverage and 180,050 Panamerican Beverages, Inc. (Class A) 6,247,726 8,439,844 1.1
Tobacco
Building & 1,772,600 Apasco, S.A. de C.V. 7,865,302 12,161,149 1.7
Construction
Financial Services 139,250 ++Banca Quadrum, S.A. de C.V. (ADR) (a) 1,773,145 504,781 0.1
140 Grupo Financiero Inbursa, S.A. de
C.V. (Class B) 529 478 0.0
------------ ------------ ------
1,773,674 505,259 0.1
Health/Personal 914,070 Kimberly-Clark de Mexico, S.A. de
Care C.V. (Series A) 12,434,965 18,058,428 2.5
Multi-Industry 3,132,287 Grupo Carso, S.A. de C.V. 'A' 20,480,698 16,515,044 2.2
348,900 Grupo Carso, S.A. de C.V. (ADR) (a) 4,028,200 3,619,837 0.5
------------ ------------ ------
24,508,898 20,134,881 2.7
Retail 150,000 ++Cifra, S.A. de C.V. 'B' (ADR) (a) 202,080 177,000 0.0
9,609,400 ++Cifra, S.A. de C.V. 'C' 15,525,457 11,720,269 1.6
------------ ------------ ------
15,727,537 11,897,269 1.6
<PAGE>
Telecomm- 4,000 ++Carso Global Telecom, S.A.
unications de C.V. 'A-1' 10,540 9,300 0.0
348,900 ++Carso Global Telecom, S.A. de
C.V. (ADR) (a) 1,657,275 1,570,050 0.2
287,717 Telefonos de Mexico, S.A. de C.V.
(ADR) (a) 9,214,741 9,494,661 1.3
------------ ------------ ------
10,882,556 11,074,011 1.5
Total Investments in Mexico 79,440,658 82,270,841 11.2
Total Investments in Latin America 178,064,889 200,514,956 27.4
MIDDLE
EAST
Egypt Banking 16,843 ++Commercial International Bank
(Egypt) S.A.E. 1,992,666 2,545,341 0.4
336,840 ++Commercial International Bank (Egypt)
S.A.E. (GDR) (b) 3,999,975 4,673,655 0.6
Total Investments in Egypt 5,992,641 7,218,996 1.0
Israel Banking 3,043,266 ++Bank Hapoalim Ltd. 4,838,495 4,827,450 0.6
4,169,599 ++Bank Leumi Israel 5,906,969 5,739,102 0.8
------------ ------------ ------
10,745,464 10,566,552 1.4
Merchandising 76,873 ++Blue Square Chain Stores Properties
& Investments Ltd. 438,729 602,591 0.1
42,600 ++Blue Square Chain Stores Properties
& Investments Ltd. (ADR) (a) 590,826 607,050 0.1
------------ ------------ ------
1,029,555 1,209,641 0.2
Multi-Industry 26,308 Koor Industries Ltd. 2,291,571 2,295,079 0.3
86,020 Koor Industries Ltd. (ADR) (a) 1,589,636 1,462,340 0.2
------------ ------------ ------
3,881,207 3,757,419 0.5
Total Investments in Israel 15,656,226 15,533,612 2.1
Total Investments in the Middle East 21,648,867 22,752,608 3.1
<PAGE>
PACIFIC BASIN/
ASIA
Australia Merchandising 207,045 Amway Asia Pacific Ltd. (GDR) (b) 6,445,644 8,773,532 1.2
Total Investments in Australia 6,445,644 8,773,532 1.2
China Telecommuni- 6,128,000 ++Eastern Communications Co., Ltd.
cations (Class B) 5,096,624 5,453,920 0.7
Total Investments in China 5,096,624 5,453,920 0.7
</TABLE>
<TABLE>
CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) (in US Dollars)
<CAPTION>
PACIFIC
BASIN/ASIA Shares Held/ Value Percent of
(continued) Industries Face Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Hong Kong Automotive 3,948,000 Sime Darby (Hong Kong) Ltd. $ 4,447,190 $ 4,977,114 0.7%
Banking 4,221,666 JCG Holdings, Ltd. 3,138,603 4,121,228 0.6
539,000 ++Wing Hang Bank Ltd. 1,989,929 2,446,199 0.3
------------ ------------ ------
5,128,532 6,567,427 0.9
Food 25,091,000 C.P. Pokphand Co. Ltd. (Ordinary) 7,330,535 9,813,845 1.4
67,755,000 ++Tingyi (Cayman Islands) Holdings, Co. 17,964,259 17,740,351 2.4
------------ ------------ ------
25,294,794 27,554,196 3.8
Industrial 20,042,000 Sinocan Holdings Ltd. 7,543,493 9,847,375 1.3
Real Estate 30,535,000 China Overseas Land & Investment Co. 8,657,657 15,496,493 2.1
Total Investments in Hong Kong 51,071,666 64,442,605 8.8
India Banking 978,967 State Bank of India 7,442,717 6,202,406 0.8
Energy Sources 1,130,475 Bombay Suburban Electric Supply Co.
Ltd. 6,038,831 6,529,877 0.9
60,000 Bombay Suburban Electric Supply Co.
Ltd. (GDR) (b) 993,000 1,230,000 0.2
500 Cochin Refinery Ltd. 3,764 1,385 0.0
------------ ------------ ------
7,035,595 7,761,262 1.1
<PAGE>
Financial 123,750 Housing Development Finance Corp. 10,139,790 7,794,519 1.1
Services 3,330,990 Industrial Credit & Investment
Corporation of India Ltd. 11,468,590 5,474,005 0.7
------------ ------------ ------
21,608,380 13,268,524 1.8
Leisure & Tourism 410,968 East India Hotels Ltd. 4,640,964 4,517,774 0.6
Recreation & 580,000 Suraj Diamonds Ltd. 1,522,715 393,427 0.1
Consumer Goods
Telecommuni- 1,652,000 Mahanagar Telephone Nigram Ltd. 8,369,021 10,951,720 1.5
cations
Textiles 44,800 Grasim Industries Ltd. 698,147 524,129 0.1
300 JCT Ltd. 490 72 0.0
7,058 Reliance Industries Ltd. 44,757 40,127 0.0
------------ ------------ ------
743,394 564,328 0.1
Total Investments in India 51,362,786 43,659,441 6.0
Indonesia Broadcasting & US$ 4,645,000 P.T. Surya Citra Television, 4% due
Publishing 7/01/1997 (Convertible) (e) 4,856,085 4,647,801 0.6
Energy Equipment
& Services 151,800 P.T. Kabelmetal Indonesia (Rights) (d) 0 0 0.0
Food 1,703,000 P.T. Indofood Sukses Makmur 3,270,783 3,390,131 0.5
Multi-Industry 5,118,000 P.T. Bimantara Citra 5,711,762 6,828,335 0.9
Real Estate 10,084,500 P.T. Ciputra Development 8,926,472 10,464,644 1.4
Telecommuni- 1,565,500 P.T. Telekomunikasi Indonesia 2,349,798 2,701,996 0.4
cations 33,000 P.T. Telekomunikasi Indonesia
(ADR) (a) 1,044,120 1,138,500 0.2
------------ ------------ ------
3,393,918 3,840,496 0.6
Total Investments in Indonesia 26,159,020 29,171,407 4.0
Malaysia Airlines 1,325,000 Malaysian Airline System BHD 3,743,852 3,437,129 0.5
Banking 578,000 Commerce Asset Holding BHD 3,712,883 4,349,307 0.6
3,616,000 Public Bank BHD 'Foreign' 7,311,962 7,661,624 1.0
------------ ------------ ------
11,024,845 12,010,931 1.6
<PAGE>
Broadcasting & 1,048,000 New Straits Times Press BHD 5,107,457 6,059,723 0.9
Publishing 2,073,000 Sistem Televisyen Malaysia BHD
(Class A) 3,314,193 3,842,234 0.5
------------ ------------ ------
8,421,650 9,901,957 1.4
Building US$ 3,800,000 Aokam Perdana BHD, 3.50% due 6/13/2004
Materials (Convertible) 2,968,250 2,318,000 0.3
713,000 Hume Industries (Malaysia) BHD 3,782,705 4,489,782 0.6
------------ ------------ ------
6,750,955 6,807,782 0.9
Chemicals 1,135,500 Nylex (Malaysia) BHD 3,000,783 2,563,307 0.4
Consumer Products 500,000 ++Amway (Malaysia) Holdings BHD 3,013,896 2,831,683 0.4
& Services
Diversified 373,000 OYL Industries BHD 3,849,130 3,914,653 0.5
Holdings
Engineering & 1,083,000 Malaysian Resources Corp. BHD 3,760,699 4,267,663 0.6
Construction
Food 473,000 Nestle (Malaysia) BHD 3,702,794 3,802,733 0.5
Multi-Industry 843,000 Ekran BHD 3,768,820 3,538,931 0.5
3,556,000 Renong BHD 6,035,265 6,309,259 0.9
1,125,000 Sime Darby BHD 3,759,870 4,433,168 0.6
828,000 Sungei Way Holdings BHD 2,249,601 2,459,406 0.3
------------ ------------ ------
15,813,556 16,740,764 2.3
Natural Gas 910,000 Petronas Gas BHD 3,791,186 3,784,158 0.5
Oil & Related 646,000 Petronas Dagangan BHD 1,888,810 1,662,970 0.2
Telecommuni- 3,370,700 ++Technology Resources Industries BHD 11,945,377 6,647,955 0.9
cations
Total Investments in Malaysia 80,707,533 78,373,685 10.7
Pakistan Chemicals-- 220,500 Fauji Fertilizer Co. Ltd. 513,824 371,352 0.1
Fertilizers
Electrical 1,446,227 ++Karachi Electric Supply Corp. Ltd. 1,121,386 676,567 0.1
Components
Telecommuni- 14,050 ++Pakistan Telecommunications Corp. 1,489,569 879,880 0.1
cations
<PAGE>
Total Investments in Pakistan 3,124,779 1,927,799 0.3
South Automotive 66,214 ++Dong Ah Tire Industries 3,636,388 4,629,086 0.6
Korea
Banking 589,720 Cho Hung Bank Co. Ltd. 6,059,454 4,758,358 0.7
2,740 Shinhan Bank 50,472 44,881 0.0
------------ ------------ ------
6,109,926 4,803,239 0.7
Telecommuni- 1,155,048 Korea Mobile Telecommunications
cations Corp. (ADR) (a) 17,882,427 14,871,245 2.0
Total Investments in South Korea 27,628,741 24,303,570 3.3
Taiwan Insurance 500,000 ++Fubon Insurance Co. 1,351,337 1,328,239 0.2
Total Investments in Taiwan 1,351,337 1,328,239 0.2
</TABLE>
<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>
Thailand Banking 1,456,000 Krung Thai Bank Public Co. Ltd. $ 6,874,574 $ 2,810,153 0.4%
690,800 Phatra Thanakit Public Co. Ltd. 7,324,993 1,966,249 0.3
117,000 Siam Commercial Bank Public Co. Ltd.
'Foreign' 1,862,717 848,520 0.1
1,210,700 ++Thai Farmers Bank, Ltd. 'Foreign' 12,946,596 7,553,008 1.0
151,337 Thai Farmers Bank, Ltd. 'Foreign'
(Warrants) (c) 149,542 143,094 0.0
------------ ------------ ------
29,158,422 13,321,024 1.8
Financial 1,216,000 Finance One Public Company Ltd.
Services 'Foreign' 8,846,979 2,465,474 0.3
Merchandising 183,700 Siam Makro Public Co. Ltd. 880,759 773,564 0.1
Real Estate Chf 11,300,000 Bangkok Land Public Co., Ltd., 3.125%
due 3/31/2001 (Convertible) 3,974,841 3,376,158 0.5
US$ 1,565,000 Bangkok Land Public Co., Ltd., 4.50%
due 10/13/2003 (Convertible) 1,155,250 985,950 0.1
US$ 3,731,000 Hemaraj Land and Development Public Co.,
Ltd., 3.50% due 9/09/2003 3,662,886 3,805,620 0.5
US$ 3,013,000 Tanayon Public Co. Ltd., 3.50%
due 3/01/2004 (Convertible) 2,728,316 2,689,102 0.4
------------ ------------ ------
11,521,293 10,856,830 1.5
<PAGE>
Telecommuni- 558,000 Advanced Info Services Public
cations Company Ltd. 'Foreign' 10,457,207 4,743,011 0.7
840,000 ++TelecomAsia Corporation Public
Company Ltd. 'Foreign' 2,002,708 1,752,252 0.2
------------ ------------ ------
12,459,915 6,495,263 0.9
Total Investments in Thailand 62,867,368 33,912,155 4.6
Total Investments in the
BPacific asin/Asia 315,815,498 291,346,353 39.8
SHORT-TERM Face
SECURITIES Amount
Commercial US$ 4,107,000 General Electric Capital Corp., 7.10%
Paper* due 1/02/1997 4,106,190 4,106,190 0.6
12,720,000 National Fleet Funding Corp., 5.34%
due 1/16/1997 12,691,698 12,691,698 1.7
------------ ------------ ------
16,797,888 16,797,888 2.3
US Government & 10,000,000 Federal Home Loan Bank, 5.25% due 9,998,542 9,998,542 1.4
Agency Obligations* 1/02/1997
Total Investments in Short-Term
Securities 26,796,430 26,796,430 3.7
Total Investments $722,247,365 734,795,951 100.5
============
Liabilities in Excess of Other Assets (3,940,279) (0.5)
------------ ------
Net Assets $730,855,672 100.0%
============ ======
<FN>
*Commercial Paper and certain US Government & Agency Obligations 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)Warrants entitles the Fund to purchase a predetermined number of
shares of stock at a predetermined price until the expiration date.
(d)The rights may be exercised until 2/14/1997.
(e)Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $22,806,000,
representing 3.12% of net assets.
<PAGE>
<CAPTION>
Acquisition Value
Issue Date(s) Cost (Note 1a)
<S> <S> <C> <C>
Companhia Energetica de Minas
Gerais S.A. (CEMIG) (ADR) 9/22/1994--8/01/1995 $ 1,979,789 $ 3,096,225
Gedeon Richter Ltd. (GDR) 3/12/1996--7/30/1996 2,433,751 4,274,600
Magyar TavKozlesi
Reszvenytarsasag (Ordinary) 3/10/1995--3/23/1995 2,338,938 2,599,010
Mol Magyar Olay-es Gazipari
Reszvenytarsasag (GDR) 1/19/1996--2/22/1996 3,688,895 4,035,350
P.T. Surya Citra Television, 4%
due 7/01/1997 (Convertible) 6/24/1994--2/27/1996 4,856,085 4,647,801
RAO Gazprom (ADR) 10/21/1996 3,685,500 4,153,500
Total $ 18,982,958 $22,806,486
============ ===========
See Notes to Consolidated Financial Statements.
</TABLE>
EQUITY PORTFOLIO CHANGES
For the Quarter Ended December 31, 1996
Additions
Amway (Malaysia) Holdings BHD (GDR)
Centrais Eletricas Brasileiras S.A.--
Eletrobras
Centrais Eletricas Brasileiras S.A.--
Eletrobras (Preferred)
Central European Media Enterprises Ltd.
(Class A) (GDR)
Cho Hung Bank Co. Ltd.
Cimpor-Cimentos de Portugal S.A.
Fiat S.p.A.
Fubon Insurance Co.
Grupo Financiero Inbursa, S.A. de C.V.
(Class B)
<PAGE>
*Grupo Financiero Inbursa, S.A. de C.V.
(Class B) (ADR)
Ingwe Coal Corporation Ltd.
Irkutskenergo (GDR)
Lukoil Oil Company (ADR)
P.T. Kabelmetal Indonesia (Rights)
P.T. Telekomunikasi Indonesia (ADR)
Philips Electronics N.V.
Philips Electronics N.V. (NY Registered
Shares)
RAO Gazprom (ADR)
Shinhan Bank
Sungei Way Holdings BHD (Rights)
Telecel-Comunicacaoes Pessoais, S.A.
TelecomAsia Corporation Public Company
Ltd. 'Foreign'
Vimpel-Communications (ADR)
Deletions
Arab-Malaysian Merchant Bank
Holdings BHD
C.A. La Electricidad de Caracas
S.A.I.C.A.--S.A.C.A.
Carrefour S.A. (Ordinary)
Chemical Company of Malaysia BHD
Companhia Energetica de Minas Gerais S.A.
(CEMIG)(Preferred)
Driefontein Consolidated Ltd. (ADR)
*Grupo Financiero Inbursa, S.A. de C.V.
(Class B) (ADR)
Hellenic Telecommunication
Organization S.A.
Invercorporacion, S.A. de C.V. 'A-1'
Invercorporacion, S.A., de C.V. 'A-1' (ADR)
Kimberly-Clark de Mexico, S.A. de C.V. (ADR)
Kinross Mines Ltd.
Korea Electric Power Corp.
Light Participacoes S.A.
Malbak Ltd. (GDR)
Mostostal-Export S.A. (Series E)
P.T. Ciputra Development (Rights)
P.T. Kabelmetal Indonesia
Siderurgica Venezolana SIVENSA,
S.A.I.C.A.--S.A.C.A.
Siderurgica Venezolana SIVENSA,
S.A.I.C.A.--S.A.C.A. (ADR)
Siderurgica Venezolana SIVENSA,
S.A.I.C.A.--S.A.C.A. (Class B)(ADR)
Sistem Televisyen Malaysia BHD
Telecomunicacoes de Minas Gerais
S.A.--TELEMIG (Class B)(Preferred)
<PAGE>
[FN]
*Added and deleted in the same quarter.
<TABLE>
CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES
As of December 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$722,247,365) (Note 1a) $734,795,951
Cash 146,891
Foreign cash (Note 1c) 10,933,549
Receivables:
Dividends $ 7,258,301
Securities sold 4,360,833
Capital shares sold 2,091,148
Interest 379,018 14,089,300
------------
Prepaid expenses and other assets (Note 1f) 41,663
------------
Total assets 760,007,354
------------
Liabilities: Payables:
Securities purchased 19,955,275
Capital shares redeemed 5,328,153
Investment adviser (Note 2) 636,622
Distributor (Note 2) 322,553 26,242,603
------------
Accrued expenses and other liabilities 2,909,079
------------
Total liabilities 29,151,682
------------
Net Assets: Net assets $730,855,672
============
<PAGE>
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000
Consist of: shares authorized $ 2,220,981
Class B Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 2,125,883
Class C Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 352,793
Class D Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 345,338
Paid-in capital in excess of par 709,650,754
Undistributed investment income--net 1,340,382
Undistributed realized capital gains on investments and foreign
currency transactions--net (Note 6) 2,293,728
Unrealized appreciation on investments and foreign currency
transactions--net 12,525,813
------------
Net assets $730,855,672
============
Net Asset Class A--Based on net assets of $322,732,757 and 22,209,814
Value: shares outstanding $ 14.53
============
Class B--Based on net assets of $307,143,209 and 21,258,828
shares outstanding $ 14.45
============
Class C--Based on net assets of $50,827,176 and 3,527,932
shares outstanding $ 14.41
============
Class D--Based on net assets of $50,152,530 and 3,453,382
shares outstanding $ 14.52
============
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended December 31, 1996
<S> <S> <C> <C>
Investment Income Dividends (net of $288,820 foreign withholding tax) $ 14,531,620
(Notes 1d & 1e): Interest and discount earned 2,441,036
------------
Total income 16,972,656
------------
<PAGE>
Expenses: Investment advisory fees (Note 2) $ 3,767,651
Account maintenance and distribution fees--Class B (Note 2) 1,554,324
Custodian fees 1,086,799
Transfer agent fees--Class B (Note 2) 351,570
Transfer agent fees--Class A (Note 2) 304,940
Account maintenance and distribution fees--Class C (Note 2) 249,650
Accounting services (Note 2) 98,020
Printing and shareholder reports 85,719
Account maintenance fees--Class D (Note 2) 72,698
Transfer agent fees--Class C (Note 2) 57,628
Registration fees (Note 1f) 55,250
Transfer agent fees--Class D (Note 2) 53,011
Professional fees 44,522
Directors' fees and expenses 18,688
Pricing fees 5,546
Other 34,454
------------
Total expenses 7,840,470
------------
Investment income--net 9,132,186
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 40,841,929
(Loss) on Foreign currency transactions--net (621,407) 40,220,522
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (57,646,234)
(Notes 1b, 1c, Foreign currency transactions--net 40,699 (57,605,535)
1e & 3): ------------ ------------
Net realized and unrealized loss on investments and foreign
currency transactions (17,385,013)
------------
Net Decrease in Net Assets Resulting from Operations $ (8,252,827)
============
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
December 31, June 30,
Increase (Decrease) in Net Assets: 1996 1996
<S> <S> <C> <C>
Operations: Investment income--net $ 9,132,186 $ 7,784,215
Realized gain (loss) on investments and foreign currency
transactions--net 40,220,522 (19,609,742)
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (57,605,535) 94,930,812
------------ ------------
Net increase (decrease) in net assets resulting from operations (8,252,827) 83,105,285
------------ ------------
<PAGE>
Dividends & Investment income--net:
Distributions to Class A (6,147,014) (5,561,685)
Shareholders Class B (2,959,341) (1,835,760)
(Note 1g): Class C (523,137) (257,907)
Class D (823,715) (462,153)
Realized gain on investments--net:
Class A (2,372,022) --
Class B (2,299,701) --
Class C (380,478) --
Class D (369,485) --
------------ ------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (15,874,893) (8,117,505)
------------ ------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 5,112,694 121,555,763
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (19,015,026) 196,543,543
Beginning of period 749,870,698 553,327,155
------------ ------------
End of period* $730,855,672 $749,870,698
============ ============
<FN>
*Undistributed investment income--net $ 1,340,382 $ 2,661,403
============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
<CAPTION>
<PAGE>
Class A
The following per share data and ratios have For the
been derived from information provided in the Six Months
financial statements. Ended
Dec. 31, For the Year Ended June 30,
Increase (Decrease) in Net Asset Value: 1996++ 1996++ 1995 1994 1993++
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 15.05 $ 13.35 $ 14.61 $ 11.62 $ 11.92
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .22 .23 .24 .11 .12
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.35) 1.71 (.40) 3.23 .42
-------- -------- -------- -------- --------
Total from investment operations (.13) 1.94 (.16) 3.34 .54
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.28) (.24) (.04) (.07) (.14)
Realized gain on investments--net (.11) -- (.60) (.28) (.70)
In excess of realized gain on
investments--net -- -- (.46) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.39) (.24) (1.10) (.35) (.84)
-------- -------- -------- -------- --------
Net asset value, end of period $ 14.53 $ 15.05 $ 13.35 $ 14.61 $ 11.62
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (.78)%+++ 14.82% (1.67%) 28.73% 5.17%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.56%* 1.54% 1.62% 1.46% 1.71%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net 2.99%* 1.66% 1.56% .63% (.04%)
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $322,733 $342,884 $350,081 $401,996 $142,285
Data: ======== ======== ======== ======== ========
Portfolio turnover 45.52% 71.01% 63.37% 66.85% 91.72%
======== ======== ======== ======== ========
Average commission rate paid++++ $ .0002 $ .0012 -- -- --
======== ======== ======== ======== ========
<FN>
*Annualized.
**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. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
+++Aggregate total investment return.
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class B
For the For the
Six For the Period
The following per share data and ratios have been derived Months Year July 1,
from information provided in the financial statements. Ended Ended 1994++++ to
Dec. 31, June 30, June 30,
Increase (Decrease) in Net Asset Value: 1996++ 1996++ 1995
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 14.90 $ 13.24 $ 14.54
Operating -------- -------- --------
Performance: Investment income--net .14 .09 .08
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net (.34) 1.69 (.32)
-------- -------- --------
Total from investment operations (.20) 1.78 (.24)
-------- -------- --------
Less dividends and distributions:
Investment income--net (.14) (.12) --
Realized gain on investments--net (.11) -- (.60)
In excess of realized gain on investments--net -- -- (.46)
-------- -------- --------
Total dividends and distributions (.25) (.12) (1.06)
-------- -------- --------
Net asset value, end of period $ 14.45 $ 14.90 $ 13.24
======== ======== ========
Total Investment Based on net asset value per share (1.30%)+++ 13.63% (2.22%)+++
Return:** ======== ======== ========
Ratios to Average Expenses 2.61%* 2.56% 2.79%*
Net Assets: ======== ======== ========
Investment income--net 1.87%* .65% 1.01%*
======== ======== ========
Supplemental Net assets, end of period (in thousands) $307,143 $302,183 $162,774
Data: ======== ======== ========
Portfolio turnover 45.52% 71.01% 63.37%
======== ======== ========
Average commission rate paid++++++ $ .0002 $ .0012 --
======== ======== ========
<PAGE>
<CAPTION>
Class C Class D
For the For the For the For the
The following per share data and ratios Six For the Period Six For the Period
have been derived from information Months Year Oct. 21, Months Year Oct. 21,
provided in the financial statements. Ended Ended 1994++++ to Ended Ended 1994++++ to
Dec. 31, June 30, June 30, Dec. 31, June 30, June 30,
Increase (Decrease) in Net Asset Value: 1996++ 1996++ 1995 1996++ 1996++ 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of
Operating period $ 14.87 $ 13.22 $ 16.71 $ 15.02 $ 13.33 $ 16.77
Performance: -------- -------- -------- -------- -------- --------
Investment income--net .13 .09 .08 .20 .21 .13
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (.33) 1.70 (2.50) (.35) 1.69 (2.48)
-------- -------- -------- -------- -------- --------
Total from investment operations (.20) 1.79 (2.42) (.15) 1.90 (2.35)
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net (.15) (.14) (.01) (.24) (.21) (.03)
Realized gain on investments--net (.11) -- (.60) (.11) -- (.60)
In excess of realized gain on
investments--net -- -- (.46) -- -- (.46)
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.26) (.14) (1.07) (.35) (.21) (1.09)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 14.41 $ 14.87 $ 13.22 $ 14.52 $ 15.02 $ 13.33
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per
Return:** share (1.30%)+++ 13.68% (14.97%)+++ (.92%)+++ 14.55% (14.49%)+++
======== ======== ======== ======== ======== ========
Ratios to Average Expenses 2.61%* 2.56% 2.96%* 1.81%* 1.76% 2.19%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income--net 1.80%* 0.67% 1.32%* 2.70%* 1.48% 2.10%*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period (in
Data: thousands) $ 50,827 $ 46,983 $ 18,573 $ 50,153 $ 57,821 $ 21,899
======== ======== ======== ======== ======== ========
Portfolio turnover 45.52% 71.01% 63.37% 45.52% 71.01% 63.37%
======== ======== ======== ======== ======== ========
Average commission rate paid++++++ $ .0002 $ .0012 -- $ .0002 $ .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. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
+++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. These unaudited
financial statements reflect all adjustments which are, in the
opinion of management, necessary to a fair statement of results for
the interim period presented. All such adjustments are of a normal
recurring nature. The Fund offers four classes of shares under the
Merrill Lynch Select Pricing SM System. Shares of Class A and Class D
are sold with a front-end sales charge. Shares of Class B and Class
C may be subject to a contingent deferred sales charge. All classes
of shares have identical voting, dividend, liquidation and other
rights and the same terms and conditions, except that Class B, Class
C and Class D Shares bear certain expenses related to the account
maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each
class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The
following is a summary of significant accounting policies followed
by the Fund.
<PAGE>
(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.
(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.
<PAGE>
* 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.
(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.
<PAGE>
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend dates. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on
the identified cost basis.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
(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.
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.
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 six months ended December 31, 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 $3,795 $ 55,880
Class D $9,152 $103,838
For the six months ended December 31, 1996, MLPF&S received
contingent deferred sales charges of $368,001 and $10,884 relating
to transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $142,646 in commissions on the
execution of portfolio security transactions for the Fund for the
six months ended December 31, 1996.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (concluded)
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 six months ended December 31, 1996 were $333,438,737 and
$317,066,850, respectively.
<PAGE>
Net realized and unrealized gains (losses) as of December 31, 1996
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ 40,844,454 $12,548,586
Short-term investments (2,525) --
Foreign currency transactions (621,407) (22,773)
------------ -----------
Total $ 40,220,522 $12,525,813
============ ===========
As of December 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $12,548,586, of which $90,310,380
related to appreciated securities and $77,761,794 related to
depreciated securities. The aggregate cost of investments at
December 31, 1996 for Federal income tax purposes was $722,247,365.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $5,112,694 and $121,555,763 for the six months ended December
31, 1996 and the year ended June 30, 1996, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended December 31, 1996 Shares Amount
Shares sold 1,640,593 $ 23,904,425
Shares issued to shareholders
in reinvestment of dividends
and distributions 520,090 7,328,070
------------ ------------
Total issued 2,160,683 31,232,495
Shares redeemed (2,731,592) (39,876,742)
------------ ------------
Net decrease (570,909) $ (8,644,247)
============ ============
<PAGE>
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 B Shares for the Six Months Dollar
Ended December 31, 1996 Shares Amount
Shares sold 3,487,011 $ 50,621,304
Shares issued to shareholders
in reinvestment of dividends
and distributions 337,691 4,734,432
------------ ------------
Total issued 3,824,702 55,355,736
Shares redeemed (2,814,659) (40,673,966)
Automatic conversion of shares (33,184) (483,062)
------------ ------------
Net increase 976,859 $ 14,198,708
============ ============
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
============ ============
<PAGE>
Class C Shares for the Six Months Dollar
Ended December 31, 1996 Shares Amount
Shares sold 705,165 $ 10,222,192
Shares issued to shareholders
in reinvestment of dividends
and distributions 59,048 825,497
------------ ------------
Total issued 764,213 11,047,689
Shares redeemed (396,267) (5,716,027)
------------ ------------
Net increase 367,946 $ 5,331,662
============ ============
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
============ ============
Class D Shares for the Six Months Dollar
Ended December 31, 1996 Shares Amount
Shares sold 1,210,639 $ 17,699,175
Automatic conversion of shares 32,850 483,062
Shares issued to shareholders
in reinvestment of dividends
and distributions 74,296 1,046,092
------------ ------------
Total issued 1,317,785 19,228,329
Shares redeemed (1,713,624) (25,001,758)
------------ ------------
Net decrease (395,839) $ (5,773,429)
============ ============
<PAGE>
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
============ ============
5. Commitments:
At December 31, 1996, the Fund entered into forward exchange
contracts under which it had agreed to purchase and sell various
foreign currencies with approximate values of $125,000 and
$4,864,000, 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.
PORTFOLIO INFORMATION
Ten Largest Equity Holdings Percent of
As of December 31, 1996 Net Assets
Telecomunicacoes Brasileiras S.A.--Telebras* 4.0%
Grupo Carso, S.A. de C.V.* 2.7
Kimberly-Clark de Mexico, S.A. de C.V. (Series A) 2.5
Tingyi (Cayman Islands) Holdings, Co. 2.4
China Overseas Land & Investment Co. 2.1
Compagnie Generale des Eaux S.A. 2.1
Korea Mobile Telecommunications Corp. (ADR) 2.0
Banco Frances del Rio de la Plata S.A. (ADR) 2.0
AO Mosenegro (ADR) 2.0
Petroleo Brasileiro S.A. (Preferred) 2.0
[FN]
*Includes combined holdings.
