MERRILL LYNCH
DRAGON FUND, INC.
FUND LOGO
Quarterly Report
September 30, 1996
Officers and Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Kara W.Y. Tan Bhala, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
James W. Harshaw, Secretary
<PAGE>
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
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 a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
Merrill Lynch
Dragon Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
<PAGE>
MERRILL LYNCH DRAGON FUND, INC.
Asset Allocation
Aa a Percentage* of
Net Assets as of
September 30, 1996
A map illustrating the following percentages:
India 0.4%
Indonesia 6.7%
Singapore 10.5%
Malaysia 14.3%
Thailand 9.2%
Hong Kong 44.0%
South Korea 3.7%
Taiwan 1.2%
Philippines 6.9%
[FN]
*Total may not equal 100%.
DEAR SHAREHOLDER
The "dragon" stock markets declined during the quarter ended
September 30, 1996. (As defined in the Merrill Lynch Dragon Fund,
Inc.'s prospectus, the dragon stock markets consist of all the stock
markets in Asia and the Pacific Basin other than Japan, Australia
and New Zealand.) Concerns about current account deficits in certain
countries, slowing export growth and a likely US interest rate
increase continued to deter investors. In addition, there were new
concerns about the possibility that Asia, after 15 years of
extraordinary economic growth, has finally reached a stage of much
slower growth.
During the September quarter, the total returns for Merrill Lynch
Dragon Fund, Inc.'s Class A, Class B, Class C and Class D Shares
were -0.06%, -0.29%, -0.30% and -0.06%, respectively. The unmanaged
Morgan Stanley Capital International Combined Far East Free (Ex-
Japan and Ex-Taiwan) Index returned -1.23% for the same period.
(Fund results 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.)
<PAGE>
Investment Activities
Recent earnings reports in Hong Kong provided a pleasant surprise
for investors. The two main banks in the market, HSBC Holdings, Ltd.
and Hang Seng Bank, announced higher-than-expected earnings growth
for the first half of the year. In addition, Cheung Kong Holdings
Ltd., the blue chip property development company, had better results
than originally forecast. Both HSBC and Cheung Kong Holdings Ltd.
are large positions in the Fund. Stronger-than-expected earnings
growth led analysts to make an upward earnings revision for the Hong
Kong market. The Fund is currently overweighted in the property
development, banking and China-related sectors of the Hong Kong
Stock market.
In contrast to the positive results of some Hong Kong companies, the
latest round of earnings from companies in The People's Republic of
China were uninspiring. In particular, earnings for companies in the
important petrochemical sector were disappointing because of falling
product prices in China. In terms of the economy, it appeared that
the government is moving in the direction of further monetary policy
easing. However, the Chinese do not want a repeat of the boom and
bust cycles which occurred in the late 1980s and early 1990s. It
is likely that the government will ease credit selectively and
moderately. The Fund's direct exposure to China is concentrated in
the shares of Guangdong Investment, Ltd., Henderson Capital
International convertible bonds and Citic Pacific Ltd.
The release of the July current account figures for Malaysia
provided some relief for investor pessimism since the figures showed
a surplus for the second consecutive month. The surplus was caused
mainly by a significant fall in imports rather than an increase in
exports. The stronger Malaysian ringgit relative to the yen also
reduced the value of imports as compared to last year. The central
bank has not yet moved to lower interest rates because it believes
that credit and monetary growth remain too strong. However,
interbank interest rates declined slightly, causing one bank to
lower base lending rates. It appears that the rate of growth for the
Malaysian economy has slowed.
As economic overheating fears subside in the second half of this
year, investor concerns will start to focus on corporate earnings.
The earnings outlook will be discounted to reflect the sluggish
macroeconomic conditions. If the Malaysian central bank does slow
the rate of money supply growth, its stock market is likely to be
negatively affected. Over the past years, the Malaysian market was
shown to be liquidity-driven.
<PAGE>
Concerns about a slowing economy, arising from a decline in the
electronics sector globally, caused a retrenchment in the Singapore
stock market during the quarter ended September 30, 1996. The 2.1%
fall in June of non-oil exports, versus a consensus expectation of
10% growth, is the first decline registered since December 1991.
Most economists are revising forecasts of gross domestic product
(GDP) growth for 1996 to about 7.7% from 8.7%. Corporate earnings
growth has been generally lower than expectations.
Thailand's economy was beset by a range of woes. In the forefront
was the high current account deficit, which stands at about 8% of
GDP. Connected to this problem is the recently reported decline in
export growth. This drop in export growth engendered arguments about
the structural adjustments--from low value-added industries to
higher value-added industries--which are necessary in order for
Thailand to become more globally competitive.
In addition, there is the problem of its pegged currency which, over
the years, led to high inflation, and consequently to a rising
real effective exchange rate. There are questions about the
sustainability of the baht peg. There are also concerns about the
oversupply in the property market. Finally, the latest corporate
results showed earnings growth to be in single digits, as opposed to
the forecasted 20% or more. Needless to say, forecasts for 1997 were
adjusted down accordingly, and these various concerns led to a sharp
decline in the Stock Exchange of Thailand Index over the past two
months. The Fund was neutrally weighted in this market over the past
year. Our overweighting in the banking sector proved advantageous as
earnings and valuations for Thai banks are much better than for
other companies.
In the Philippines, the economy exhibited some strength in the
second quarter of 1996 with GDP growth of about 5.7%. Similar to the
rest of the Asian countries, there was some slowing in export
growth, mainly in the electronics sector. However, earnings growth
continued to be strong and valuations remained relatively
reasonable. In addition, the economy is still engaged in a secular
growth phase.
During the quarter ended September 30, 1996, the Indonesian stock
market lost some of the gains which it made in the first half of
1996. The decline can be attributed to political uncertainty
following the riots in Jakarta which were instigated by members of
the opposition party. There are two issues which concern investors:
the president's successor and the expansion of democracy. President
Suharto's health was questioned when he went to Germany to have a
heart condition evaluated. He is currently 78 years old and has not
named a successor. If Indonesia was a true democracy, succession
would not be a big issue. However, after two decades of autocratic
rule, it is hard to imagine a smooth transition of power. Suharto
also indicated by his actions against the opposition party that he
is unwilling to expand the reaches of democracy.
<PAGE>
On Indonesia's economic front, the central bank has to keep interest
rates high in order to fight inflationary pressures. Money supply
growth was also unacceptably high, and corporate earnings results
were mixed. Consumer companies had disappointing earnings because of
increas-ing competition. Some companies that manufacture cyclical
products, such as cement, had better-than-expected results.
The Fund's largest holdings in Indonesia are in tobacco and
infrastructure-related issues. We began shifting out of the consumer
sector because of declining profit margins, increasing competition
and falling market shares.
The Korean stock market declined over the quarter ended September
30, 1996. July's trade deficit was at a historic high. Industrial
production growth declined to 3.8% year-over-year in June, from 9.8%
in May. The capacity utilization rate fell below 80%, and inventories
increased more than 20% year-over-year. The consumer price index
rose 5.6% in July, well above the government's target. To give
the market a boost, the government announced that the foreign
holdings limit would be raised from 18% to 20% in September.
Therefore, there will be more stock available for foreigners to buy,
particularly in Korean Electric & Power Corp. (KEPCO), the electric
utility. In addition to the large supply of stock depressing the
share price, we are also concerned about the earnings of this
company in 1997. The government, in an effort to help industry,
announced that public utility tariffs would not be raised, which
would impact KEPCO negatively. We trimmed our holdings in this stock
for these reasons. We also sold our holdings in Shinsegae Department
Stores Co. in order to purchase a position in South Korea.
In India, there was little movement toward budget reforms during the
quarter ended September 30, 1996. Although infrastructure development
is constantly discussed, the government still has not initiated
policies which will lead to an actual inflow of direct foreign
investment. There was no discussion of fiscal reform apart from
raising more taxes from the corporate sector through the imposition
of a minimum alternate tax of 12.9%. This tax, and a further
reduction in import duties, will lead to a fall in earnings growth.
An easing liquidity environment may offset lower earnings growth
in the short term.
Investment Outlook and
Strategy
The Asian markets have been lackluster since 1993. Valuations at
that time had expanded beyond supportable levels. Therefore, we
expected share prices to fall until a valuation adjustment had taken
place. We believe that valuations have been realigned to reasonable
levels because the price/earnings ratio of the dragon countries is
no longer at a premium to the price/earnings ratio of the United
States equity market. However, investors are now concerned about
current account deficits in certain countries and slowing export
growth. Analysts believe that economic growth in Asia will no longer
sustain the levels seen in the past ten years. Naturally, the Asian
economies have matured, and growth in some of the more mature
countries will not reach lofty levels. Although Asian economic
growth rates are still the highest in the world, investors are
currently adjusting to slower economic growth rates and more
moderate earnings growth rates.
<PAGE>
In Conclusion
We thank you for your investment in Merrill Lynch Dragon Fund, Inc.,
and we look forward to reviewing our outlook and strategy with you
again in our next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Kara Tan Bhala)
Kara Tan Bhala
Vice President and Portfolio Manager
October 21, 1996
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, as detailed in the Fund's prospectus. If you were a Class
A shareholder prior to October 21, 1994, your Class A Shares were
redesignated to Class D Shares on October 21, 1994, which, in the
case of certain eligible investors, were simultaneously exchanged
for Class A Shares.
<PAGE>
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (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. 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.
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
9/30/96 6/30/96 9/30/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $17.10 $17.11 $15.89 +7.61% -0.06%
Class B Shares 16.96 17.01 15.76 +7.61 -0.29
Class C Shares 16.76 16.81 15.64 +7.16 -0.30
Class D Shares 17.14 17.15 15.91 +7.73 -0.06
Class A Shares--Total Return +8.83(1) -0.06
Class B Shares--Total Return +7.78(2) -0.29
Class C Shares--Total Return +7.80(3) -0.30
Class D Shares--Total Return +8.66(4) -0.06
<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 $0.176 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.025 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.091 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.136 per share ordinary
income dividends.
</TABLE>
<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>
10/21/94--12/31/94 $17.43 $15.05 $0.241 $0.251 -10.82%
1995 15.05 15.99 -- 0.176 + 7.44
1/1/96--9/30/96 15.99 17.10 -- -- + 6.94
------ ------
Total $0.241 Total $0.427
Cumulative total return as of 9/30/96: +2.47%**
<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 charges; results would be lower if sales charge was
included.
***As a result of the implementation of the Merrill Lynch Select
Pricing SM System, Class A Shares of the Fund outstanding prior to
October 21, 1994 were redesignated to Class D Shares.
</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>
5/29/92--12/31/92 $10.00 $10.13 -- $0.020 + 1.50%
1993 10.13 18.74 $0.006 0.103 +86.15
1994 18.74 15.03 0.241 0.122 -17.86
1995 15.03 15.98 -- 0.025 + 6.49
1/1/96--9/30/96 15.98 16.96 -- -- + 6.13
------ ------
Total $0.247 Total $0.270
Cumulative total return as of 9/30/96: +75.42%**
<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**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $17.29 $14.92 $0.241 $0.229 -10.98%
1995 14.92 15.79 -- 0.091 + 6.46
1/1/96--9/30/96 15.79 16.76 -- -- + 6.14
------ ------
Total $0.241 Total $0.320
Cumulative total return as of 9/30/96: +0.59%**
<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**
<S> <C> <C> <C> <C> <C>
5/29/92--12/31/92 $10.00 $10.12 -- $0.080 + 2.02%
1993 10.12 18.77 $0.006 0.182 +87.46
1994 18.77 15.08 0.241 0.211 -17.24
1995 15.08 16.05 -- 0.136 + 7.35
1/1/96--9/30/96 16.05 17.14 -- -- + 6.79
------ ------
Total $0.247 Total $0.609
Cumulative total return as of 9/30/96: +81.45%**
<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 charges; results would be lower if sales charge was
included.
***As a result of the implementation of the Merrill Lynch Select
Pricing SM System, Class A Shares of the Fund outstanding prior to
October 21, 1994 were redesignated to Class D Shares.
</TABLE>
<PAGE>
PERFORMANCE DATA (concluded)
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/96 +8.83% +3.12%
Inception (10/21/94) through 9/30/96 +1.26 -1.51
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/96 + 7.78% + 3.78%
Inception (5/29/92) through 9/30/96 +13.83 +13.83
[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
Without CDSC With CDSC**
Class C Shares*
Year Ended 9/30/96 +7.80% +6.80%
Inception (10/21/94) through 9/30/96 +0.30 +0.30
[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
Sales Charge Sales Charge**
Class D Shares*
Year Ended 9/30/96 + 8.66% + 2.96%
Inception (5/29/92) through 9/30/96 +14.72 +13.30
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (in US Dollars)
<CAPTION>
Face Amount/ Percent of
COUNTRIES Industries Shares Held Long-Term Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Hong Kong Banking 1,200,000 Dao Heng Bank Group Ltd. $ 5,245,523 $ 4,733,085 0.3%
8,071,000 Guoco Group, Ltd. 35,028,436 39,453,212 2.5
4,371,106 HSBC Holdings, Ltd. 50,692,232 81,115,988 5.2
-------------- -------------- ------
90,966,191 125,302,285 8.0
Conglomerates 6,745,000 Citic Pacific Ltd. 22,796,209 30,529,045 1.9
19,676,542 First Pacific Company Ltd. 20,946,989 29,771,304 1.9
33,504,104 Guangdong Investment, Ltd. 18,323,147 23,613,357 1.5
10,042,000 Hutchison Whampoa, Ltd. 43,438,391 67,528,450 4.3
3,537,000 Swire Pacific Ltd. 'A' 20,320,090 31,675,105 2.0
7,228,000 Swire Pacific Ltd. 'B' 9,490,519 10,235,180 0.7
-------------- -------------- ------
135,315,345 193,352,441 12.3
Electronic/ 12,200,000 ASM Pacific Technology Ltd. 4,026,946 9,781,709 0.6
Semiconductors
Insurance 23,683,000 National Mutual Asia, Ltd. 11,198,241 20,826,143 1.3
Leisure US$ 8,716,000 HSH Overseas Finance Ltd.,
5% due 1/06/2001 9,611,586 9,718,340 0.6
1,076,500 Hong Kong & Shanghai Hotels Ltd. 1,384,636 1,942,010 0.1
-------------- -------------- ------
10,996,222 11,660,350 0.7
Publishing & 7,600,000 South China Morning Post Holdings Ltd. 4,440,430 5,651,252 0.4
Broadcasting 4,401,000 Television Broadcasts Ltd. 17,630,137 16,362,605 1.0
-------------- -------------- ------
22,070,567 22,013,857 1.4
Real Estate 9,666,000 Cheung Kong Holdings Ltd. 53,327,250 74,375,000 4.8
US$ 15,900,000 Henderson Capital International, 5%
due 3/28/1997 (b) 17,032,175 13,833,000 0.9
4,323,688 New World Development Co., Ltd. 13,975,841 22,700,928 1.5
US$ 5,150,000 New World Development Co. Ltd., 4.375%
due 12/11/2000 5,822,455 5,909,625 0.4
6,207,100 Sun Hung Kai Properties, Ltd. 40,790,596 66,021,878 4.2
3,973,000 Wharf Holdings Ltd. 14,713,572 16,441,134 1.1
US$ 9,840,000 Wharf Holdings Ltd., 5% due 7/15/2000 9,335,976 12,349,200 0.8
-------------- -------------- ------
154,997,865 211,630,765 13.7
<PAGE>
Telecommunications 27,506,346 Hong Kong Telecommunications, Ltd. 51,281,409 49,799,406 3.2
Utilities--Electric 4,851,200 China Light & Power Co., Ltd. 22,444,036 22,584,730 1.4
& Gas 13,188,787 Hong Kong and China Gas Company Ltd. 15,087,452 22,428,169 1.4
1,099,065 Hong Kong and China Gas Company Ltd.
(Warrants) (a) 0 334,006 0.0
-------------- -------------- ------
37,531,488 45,346,905 2.8
Total Long-Term Investments in
Hong Kong 518,384,274 689,713,861 44.0
India Consumer--Durables 456,000 IFB Industries Ltd. 3,998,000 623,865 0.0
Finance 66,210 Housing Development Finance Corp., Ltd. 6,346,656 4,293,378 0.3
Pharmaceuticals 99,200 Ranbaxy Laboratories Ltd. 2,000,872 1,702,070 0.1
Steel 2,871 Essar Steel Ltd. 8,186 1,555 0.0
Total Long-Term Investments in India 12,353,714 6,620,868 0.4
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US Dollars)
<CAPTION>
Face Amount/ Percent of
COUNTRIES Industries Shares Held Long-Term Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Indonesia Banking 6,740,729 P.T. Bank International Indonesia
(Foreign) $ 9,385,800 $ 9,865,897 0.6%
Food 10,648,032 P.T. Mayora Indah 6,540,523 4,469,148 0.3
Infrastructure 25,778,000 P.T. Citra Marga Nusaphala Persada 17,106,077 17,477,551 1.1
Insurance 11,721,000 P.T. Lippo Life Insurance (Foreign) 12,047,256 10,343,543 0.7
Miscellaneous-- 1,877,250 P.T. Modern Photo Film 5,624,954 5,454,773 0.4
Consumer
Telecommunications 374,500 P.T. Telekomunikasi Indonesia (ADR)* 9,205,351 11,656,312 0.8
Tobacco 4,574,500 P.T. Hanjaya Mandala Sampoerna 4,200,216 44,504,391 2.8
Total Long-Term Investments in
Indonesia 64,110,177 103,771,615 6.7
<PAGE>
Malaysia Banking 4,256,000 Affin Holdings BHD 6,646,052 9,851,459 0.6
3,014,400 Arab-Malaysian Merchant Bank BHD 7,134,948 21,894,912 1.4
3,202,000 Malayan Banking BHD 11,414,612 31,819,372 2.0
8,197,333 Public Bank BHD (Foreign) 11,766,174 15,179,641 1.0
-------------- -------------- ------
36,961,786 78,745,384 5.0
Conglomerates 11,040,560 Renong BHD 14,220,969 16,919,723 1.1
US$ 3,185,000 Renong BHD, 2.50% due 1/15/2005 (b) 3,742,823 3,551,275 0.2
-------------- -------------- ------
17,963,792 20,470,998 1.3
Construction 5,200,000 I.J.M. Corp. BHD 6,266,933 10,127,310 0.6
Finance 938,000 Hong Leong Credit BHD 6,877,505 4,379,854 0.3
Food 1,721,700 Nestle Malaysia BHD 7,333,320 13,261,288 0.9
Insurance 28,000 Timah Langat BHD 141,522 145,269 0.0
Leisure 5,116,000 Berjaya Sports ToTo BHD 12,957,878 18,069,442 1.2
1,281,500 Genting BHD 11,837,879 9,308,098 0.6
2,980,000 Resorts World BHD 10,407,072 16,887,896 1.1
-------------- -------------- ------
35,202,829 44,265,436 2.9
Manufacturing 369,000 Kian Joo Can Factory BHD 2,097,757 2,032,246 0.1
Publishing & 1,693,000 Star Publications BHD 5,823,761 5,709,323 0.4
Broadcasting
Real Estate 6,038,000 Land & General BHD 10,103,122 12,891,926 0.8
Telecommunications 1,791,000 Telekom Malaysia BHD 12,287,753 15,796,424 1.0
US$ 14,870,000 Telekom Malaysia BHD, 4% due
10/03/2004 15,069,023 15,316,100 1.0
-------------- -------------- ------
27,356,776 31,112,524 2.0
Total Long-Term Investments in
Malaysia 156,129,103 223,141,558 14.3
Philippines Banking 1,144,900 Philippine Commercial International
Bank, Inc. 13,448,889 15,840,697 1.0
Beverages 4,703,864 San Miguel Corporation 'B' 7,050,507 15,440,164 1.0
Conglomerates 1,422,183 Benpres Holdings Corp. (GDR)** 11,972,986 10,495,710 0.6
<PAGE>
Construction 14,269,300 DMCI Holdings Inc. 8,803,557 10,620,280 0.7
International 16,566,770 International Container Terminal
Trade Services, Inc. (ICTSI) 8,867,496 11,065,591 0.7
Real Estate 13,983,990 Ayala Land, Inc. 'B' 13,613,624 17,079,682 1.1
Retail 60,490,170 SM Prime Holdings, Inc. 10,093,708 14,083,589 0.9
Utilities--Electric 1,845,935 Manila Electric Co. (MERALCO) 'B' 7,066,092 13,668,374 0.9
& Gas
Total Long-Term Investments in the
Philippines 80,916,859 108,294,087 6.9
Singapore Airlines 1,772,000 Singapore Airlines Ltd. (Foreign) 13,516,176 17,877,371 1.1
Automotive 1,341,000 Cycle & Carriage, Ltd. 6,415,726 14,577,123 0.9
Banking 2,310,000 Development Bank of Singapore Ltd.
(Foreign) 24,171,390 28,392,895 1.8
1,272,976 Overseas Chinese Banking Corp.
(Foreign) 7,797,018 15,284,756 1.0
2,398,704 United Overseas Bank (Foreign) 16,931,394 23,347,954 1.5
-------------- -------------- ------
48,899,802 67,025,605 4.3
Beverages 1,247,600 Fraser & Neave Ltd. 14,614,946 12,852,718 0.8
Conglomerates 2,133,200 ACMA Ltd. 5,905,447 5,092,399 0.4
630,800 ACMA Ltd. (Warrants) (a) 151,463 434,725 0.0
-------------- -------------- ------
6,056,910 5,527,124 0.4
Publishing & 999,400 Singapore Press Holdings Ltd. 10,640,309 18,248,369 1.2
Broadcasting (Foreign)
Real Estate 1,862,000 City Development Ltd. 15,104,510 15,874,956 1.0
3,870,000 DBS Land Ltd. 12,140,189 12,812,931 0.8
-------------- -------------- ------
27,244,699 28,687,887 1.8
Total Long-Term Investments in
Singapore 127,388,568 164,796,197 10.5
<PAGE>
South Korea Electronic/ 522 Samsung Electronics Co. (GDR)** 41,083 26,101 0.0
Semiconductors 157 Samsung Electronics Co. (New Shares)
(GDR)** 3,317 5,534 0.0
-------------- -------------- ------
44,400 31,635 0.0
Retail 61,455 Shinsegae Department Stores Co. 2,054,060 3,498,952 0.2
Steel 143,600 Pohang Iron & Steel Co., Ltd. 13,187,601 10,289,449 0.6
Telecommunications 23,329 Korea Mobile Telecommunications Corp. 18,117,958 27,291,114 1.8
Utilities--Electric 504,580 Korean Electric & Power Corp. 16,804,308 16,686,898 1.1
& Gas
Total Long-Term Investments in
South Korea 50,208,327 57,798,048 3.7
Taiwan Closed-End Funds 732,600 R.O.C. Taiwan Fund (ADR)* 6,951,756 7,875,450 0.5
347,000 Taiwan Fund Inc. (ADR)* 7,770,219 8,024,375 0.5
-------------- -------------- ------
14,721,975 15,899,825 1.0
Electronic/ 301,600 Advanced Semiconductor Engineering,
Semiconductors Inc. (GDR)** 2,495,679 2,322,320 0.2
Total Long-Term Investments in Taiwan 17,217,654 18,222,145 1.2
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US Dollars)
<CAPTION>
Face Amount/ Percent of
COUNTRIES Industries Shares Held Long-Term Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Thailand Banking 1,155,360 Bangkok Bank Public Company Ltd. $ 8,269,986 $ 15,094,425 1.0%
US$ 18,544,000 Bangkok Bank Public Company Ltd.,
3.25% due 3/03/2004 (b) 20,867,247 20,583,840 1.3
3,063,333 Industrial Finance Corp. of Thailand 4,959,597 11,994,398 0.8
654,347 Siam Commercial Bank Public Co.
(Foreign) 6,217,446 7,930,855 0.5
US$ 9,791,000 Siam Commercial Bank Public Co.,
3.25% due 1/24/2004 (b) 10,884,329 10,672,190 0.7
1,512,300 Thai Farmers Bank, Ltd. (Foreign) 14,255,142 15,949,016 1.0
206,537 Thai Farmers Bank, Ltd. (Foreign)
(Warrants) (a) 204,387 203,188 0.0
-------------- -------------- ------
65,658,134 82,427,912 5.3
<PAGE>
Financial Services 1,534,800 Finance One Co., Ltd. (Foreign) 6,904,837 9,059,499 0.6
1,388,000 Phatra Thanakit Co., Ltd. 9,855,656 7,919,880 0.5
-------------- -------------- ------
16,760,493 16,979,379 1.1
Mutual Funds 18,477,000 Ruam Pattana Fund II 8,601,546 10,361,138 0.6
Oil & Gas 1,234,500 PTT Exploration and Production Public
Co., Ltd. (Foreign) 11,993,094 18,265,859 1.2
Real Estate 875,700 Land & House Public Co. (Foreign) 6,495,991 10,820,471 0.7
Telecommunications 410,000 Advanced Information Service Public
Company Ltd. 3,162,662 5,614,670 0.3
Total Long-Term Investments in
Thailand 112,671,920 144,469,429 9.2
Total Long-Term Investments 1,139,380,596 1,516,827,808 96.9
Face
Amount Short-Term Securities
United Commercial US$ 5,300,000 CSW Credit, Inc., 5.31% due 10/08/1996 5,294,528 5,294,528 0.3
States Paper*** 27,642,000 General Electric Capital Corp., 5.80%
due 10/01/1996 27,642,000 27,642,000 1.8
10,000,000 Goldman Sachs Group L.P., 5.32% due
10/25/1996 9,964,533 9,964,533 0.6
National Fleet Funding Corp.:
12,000,000 5.27% due 10/18/1996 11,970,137 11,970,137 0.8
5,000,000 5.30% due 10/11/1996 4,992,639 4,992,639 0.3
Total Investments in Short-Term
Securities 59,863,837 59,863,837 3.8
Total Investments $1,199,244,433 1,576,691,645 100.7
==============
Liabilities in Excess of Other Assets (10,639,064) (0.7)
-------------- ------
Net Assets $1,566,052,581 100.0%
============== ======
Net Asset Value: Class A--Based on net assets of $47,180,244 and 2,758,498
shares outstanding $ 17.10
==============
Class B--Based on net assets of $1,156,153,234 and 68,175,457
shares outstanding $ 16.96
==============
Class C--Based on net assets of $63,892,894 and 3,811,410
shares outstanding $ 16.76
==============
Class D--Based on net assets of $298,826,209 and 17,439,116
shares outstanding $ 17.14
==============
<PAGE>
<FN>
*American Depositary Receipts (ADR).
**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.
(a)Warrants entitle the Fund to purchase a predetermined number
of shares of Common Stock. The purchase price and number
of shares are subject to adjustment under certain conditions
until the expiration date.
(b)Convertible security.
</TABLE>
PORTFOLIO INFORMATION
Investments
As of 9/30/96
Ten Largest Equity Holdings Percent of
Represented in the Portfolio Net Assets
HSBC Holdings, Ltd. 5.2%
Cheung Kong Holdings Ltd. 4.8
Hutchison Whampoa, Ltd. 4.3
Sun Hung Kai Properties, Ltd. 4.2
Hong Kong Telecommunications, Ltd. 3.2
P.T. Hanjaya Mandala Sampoerna 2.8
Guoco Group, Ltd. 2.5
Malayan Banking BHD 2.0
Swire Pacific Ltd. 'A' 2.0
Citic Pacific Ltd. 1.9
Ten Largest Industries Percent of
Represented in the Portfolio Net Assets
Banking 24.2%
Real Estate 18.1
Conglomerates 14.6
Telecommunications 8.1
Utilities--Electric & Gas 4.8
Leisure 3.6
Publishing & Broadcasting 3.0
Tobacco 2.8
Insurance 2.0
Beverages 1.8
EQUITY PORTFOLIO CHANGES
For the Quarter Ended September 30, 1996
Additions
ACMA Ltd. (Warrants)
Kian Joo Can Factory BHD
Korea Mobile Telecommunications Corp.
Star Publications BHD
Thai Farmers Bank, Ltd. (Foreign) (Warrants)
Timah Langat BHD
Deletions
ABC Communications Holdings Ltd.
Renong BHD (4% Convertible Preferred)
(ICULS)
Samsung Electronics Co.
Samsung Electronics Co.
(New Common 1-96)
Shinsegae Department Stores Co.
(New Shares)
