MERRILL
LYNCH
DRAGON
FUND, INC.
FUND LOGO
Semi-Annual Report June 30, 1994
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.
Merrill Lynch
Dragon Fund, Inc.
Box 9011
Princeton, NJ 08543-9011
MERRILL LYNCH DRAGON FUND, INC.
GRAPHIC MATERIAL APPEARS HERE. SEE APPENDIX,
GRAPHIC AND IMAGE MATERIAL: Item 1.
DEAR SHAREHOLDER
Investor sentiment regarding the
emerging Asian stock markets did not
improve during the June quarter. As
noted in our last report to sharehold-
ers, the "dragon" stock markets had
declined substantially as investors
became concerned that higher US
interest rates would translate into
similar increases in the emerging
Asian countries. In addition, investors
took profits in emerging Asian invest-
ments following the sharp run-up
in share prices at the end of 1993.
Together, these two factors combined
to curb liquidity inflows into emerging
Asian stock markets, which further
depressed stock prices. None of these
trends were reversed during the June
quarter, although some dragon stock
markets registered modest gains
during the period.
The total returns of Merrill Lynch
Dragon Fund, Inc.'s Class A and
Class B Shares showed a very modest
improvement during the June quarter,
rising by 2.72% and 2.46%, respectively.
The Fund's performance was helped
by slightly stronger stock markets
in Malaysia, Singapore and Korea. The
appreciation of the Malaysian ringgit
and Singaporean dollar relative to the
US dollar also contributed to the rise
in the Fund's net asset value. During
the three-month period, the unman-
aged Hang Seng, Jakarta Composite
and Manila Composite Indexes regis-
tered declines.
We are utilizing periods of stock
market weakness to increase posi-
tions in equities of companies with
good earnings growth, selling at low
price/earnings ratios. By June month-
end, the Fund's equity investments
totaled 89% of net assets.
Our largest single country exposure
is Hong Kong at 29.7% of net assets.
We have focused our Hong Kong
investments in large-capitalization,
blue chip companies whose shares
are selling at attractive valuations,
such as Swire Pacific Ltd., a company
which has diversified earnings from
property investment, trading, airlines
and hotels. The Hong Kong stock
market is likely to experience a
period of consolidation over the next
few months as investors assess the
longer-term effects of the interest
rate increases and property market
declines. While the potential impact
of anti-inflationary austerity measures
imposed in The People's Republic of
China remains a concern for the Hong
Kong economy, the renewal of China's
most favored nation trading status
with the United States is also positive
for Hong Kong. On the political front,
the passage of Governor Chris Patten's
reform package will broaden democ-
racy in the colony for the next
three years.
The Fund's next-largest exposure is
Malaysia at 21% of net assets. Eco-
nomic growth appears secure in
Malaysia at a forecast 8% in 1994. At
the same time, the outlook for cor-
porate earnings is positive, with a
forecast average growth rate of 20%
this year. With the recent decline in
share prices, Malaysian stocks are
now available at more attractive
valuations. We have invested pri-
marily in infrastructure-related
issues, such as Leader Universal
Cable BHD, a manufacturer of both
electric and telecommunications
cables. We expect this company to
benefit as Malaysia's economic growth
increases demand for electric and
telecommunications services.
In Singapore, we have a 14% exposure.
With its large percentage of exports
to the United States, Singapore's
economic prospects are closely tied
to that of the US economic recovery,
which appears to be on firm footing.
We have found attractive investment
opportunities in banking stocks, such
as Development Bank of Singapore
Ltd. Development Bank of Singapore
is a well-managed bank with good
long-term earnings growth prospects.
It also benefits from exposure to
investment banking activities.
We have also invested 5% of net assets
in both the Philippines and Indonesia.
After foundering for some years
following the end of the Marcos era
and consolidation during the Aquino
era, the Philippines economy is now
in a growth phase. We favor consumer-
oriented stocks in the Philippines.
The Indonesian product gross domestic
is expected to grow about 5% this
year, boosted primarily by exports
and domestic demand. Our invest-
ments in Indonesia also focus
primarily on consumer stocks, with
some cyclical exposure as well.
In Thailand, where we have an 8% ex-
posure, financial markets have declined
in response to higher US interest
rates because of the unofficial
pegging of the Thai currency to the
US dollar. However, liquidity is
beginning to increase in the economy,
apparently through central bank
efforts. We have a heavy weighting
in Thai banks, since we believe their
shares represent the most attractive
values in the stock market and offer
attractive dividend yields.
We have expanded our investments
in India and Korea. With restrictions
on foreign share ownership it has
been difficult for us to acquire Indian
stocks quickly. Over the longer term,
the Indian economy is likely to benefit
from the liberalization policies of the
Rao administration. The country's
large population represents a huge
potential consumer market. There
are also some Indian companies which
can compete on a global basis in their
respective industries. However, stock
selection is very important in India,
and we will continue to accumulate
positions there cautiously. Korea
stands to benefit from the strength
of the Japanese yen, since its com-
petitiveness as an exporter is sub-
stantially improved. Furthermore,
the Korean economy is improving
after experiencing a slowdown in
1993. The apparent resolution of the
most recent flare-up of tensions with
North Korea also has improved the
Korean investment outlook.
In Conclusion
The dragon stock markets are likely
to be relatively quiet during the
summer months as investors await the
progress of some key trends, namely
US dollar valuations and the direction
of US interest rates. Both have impor-
tant implications for the stock markets
in which we invest, especially Hong
Kong and Thailand. Therefore, in
the current environment we plan to
continue to pursue a highly selective
"bottom up" investment strategy.
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
July 29, 1994
Officers and
Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, 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
Michael J. Hennewinkel, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Transfer Agent
Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
PERFORMANCE DATA
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of Class A
and Class B Shares will fluctuate so that shares, when redeemed, may
be worth more or less than their original cost.
<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>
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
1/1/94--6/30/94 18.77 15.49 -- -- -17.47
------ ------
Total $0.006 Total $0.262
Cumulative total return as of 6/30/94: +57.83%**
<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>
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
1/1/94--6/30/94 18.74 15.40 -- -- -17.82
------ ------
Total $0.006 Total $0.123
Cumulative total return as of 6/30/94: +55.27%**
<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>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
6/30/94 3/31/94 6/30/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $15.49 $15.08 $12.05 +28.59%(1) +2.72%
Class B Shares 15.40 15.03 12.02 +28.16(1) +2.46
Class A Shares--Total Return +29.93(2) +2.72
Class B Shares--Total Return +28.92(3) +2.46
*Investment results shown for the 3-month and 12-month periods are
before the deduction of any sales charges.
(1)Percent change includes reinvestment of $0.006 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.182 per share ordinary
income dividends and $0.006 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.103 per share ordinary
income dividends and $0.006 per share capital gains distributions.
</TABLE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/94 +29.93% +21.48%
Inception (5/29/92) through 6/30/94 +24.43 +20.49
[FN]
*Maximum sales charge is 6.5%, which became effective on September 15, 1993.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/94 +28.92% +24.92%
Inception (5/29/92) through 6/30/94 +23.46 +22.70
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
PORTFOLIO INFORMATION
For the Quarter Ended June 30, 1994
Additions
Aokam Perdana BHD
Berjaya Singer (Ordinary)
Core Parenterals
Genting BHD
*Hong Kong China & Gas (Warrants)
IFB Industries Ltd.
Paul Y-ITC Construction Holdings Ltd.
SM Prime Holdings
South China Morning Post Holdings
Universal Robino Corp.
Deletions
Amocol Holdings, Ltd.
Berjaya Leisure, 5% due 4/01/1999
Berjaya Leisure TSR BHD (Warrants)
Berjaya Singer TSR
Hang Seng Bank, Ltd.
*Hong Kong China & Gas (Warrants)
International Engineering Co. Ltd. 'Local'
Promet BHD
Sun Hung Kai & Co. Ltd.
Thai Glass Industries
[FN]
*Added and deleted in the same quarter.
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Held/ Value Percent of
COUNTRIES Industries Face Amount Long-Term Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Hong Kong Apparel 16,900,000 Yue Yuen Industrial Holdings $ 3,678,253 $ 3,826,498 0.4%
Banking 1,587,700 Dah Sing Financial Holdings Ltd. 5,093,445 4,560,349 0.4
2,174,863 HSBC Holdings, Ltd. 18,601,224 23,777,452 2.2
------------ ------------ ------
23,694,669 28,337,801 2.6
Diversified 24,448,000 Guandong Investments, Ltd. 9,907,098 14,076,025 1.3
3,499,000 Hutchison Whampoa, Ltd. 8,877,086 14,373,561 1.4
889,472 Jardine Matheson Holdings Ltd. 7,444,776 6,847,404 0.6
6,800,000 ++Swire 'A' Peregrine (Warrants) (a) 1,090,968 1,957,562 0.2
2,427,000 Swire Pacific Ltd. 'A' 12,331,978 17,427,675 1.6
------------ ------------ ------
39,651,906 54,682,227 5.1
Electrical Equipment 14,212,000 Innovative International Holdings Ltd. 6,660,162 5,148,609 0.5
4,225,000 Johnson Electric Holdings Ltd. 8,157,249 9,894,230 0.9
------------ ------------ ------
14,817,411 15,042,839 1.4
Electronics 16,600,000 ASM Pacific Technology 5,454,486 9,987,062 0.9
Finance 3,982,000 Guoco Group, Ltd. 14,302,400 17,001,682 1.6
1,992,000 Peregrine Investment Holdings 4,070,025 3,273,179 0.3
------------ ------------ ------
18,372,425 20,274,861 1.9
Food Chains 14,324,000 Fairwood Holdings, Ltd. 6,575,434 2,872,584 0.3
Insurance 19,767,000 National Mutual Asia, Ltd. 7,969,425 11,572,736 1.1
1,744,000 National Mutual Asia, Ltd. (Warrants) (a) 281,487 401,646 0.0
------------ ------------ ------
8,250,912 11,974,382 1.1
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
<CAPTION>
Shares Held/ Value Percent of
COUNTRIES Industries Face Amount Long-Term Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Hong Kong Leisure 5,670,000 Hong Kong & Shanghai Hotels $ 4,644,068 $ 8,729,849 0.8%
(concluded) 6,094,000 Shangri-La Asia, Ltd. 8,597,078 8,751,895 0.8
2,650,000 Television Broadcasts Ltd. 9,839,412 10,457,368 1.0
------------ ------------ ------
23,080,558 27,939,112 2.6
Miscellaneous-- 17,912,000 C.P. Pokphand Co., Ltd. 7,227,529 4,866,762 0.5
Consumer 13,040,000 Gold Lion Holdings Ltd. 5,573,902 4,091,344 0.4
------------ ------------ ------
12,801,431 8,958,106 0.9
Newspaper/Publishing 7,644,000 South China Morning Post Holdings 4,465,091 4,475,236 0.4
Packaging 12,462,000 M.C. Packaging (HK), Ltd. 6,005,677 4,474,324 0.4
Real Estate 7,940,000 Amoy Properties Ltd. 6,819,474 9,348,428 0.9
3,400,000 Amoy Properties Ltd. (Warrants) (a) 1,396,520 1,308,707 0.1
1,983,000 Cheung Kong Holdings Ltd. 7,151,282 8,659,109 0.8
10,000,000 Great Eagle Holdings Co. 4,841,967 5,595,808 0.5
3,280,000 Hong Kong Land Holdings Ltd. 6,443,132 8,275,327 0.8
490,000 Hong Kong Land Holdings Ltd. (Warrants) (a) 1,015,791 427,934 0.0
3,628,020 New World Development Co., Ltd. 9,331,350 10,092,176 1.0
1,111,000 New World Development Co., Ltd.
(Warrants) (a) 1,451,300 1,164,329 0.1
2,530,100 Sun Hung Kai Properties, Ltd. 10,663,645 14,567,143 1.4
4,380,000 Wharf Holdings Ltd. 16,993,781 16,150,860 1.5
------------ ------------ ------
66,108,242 75,589,821 7.1
Retail Stores 11,658,000 Giordano Holdings Ltd. 5,547,674 5,844,838 0.6
Telecommunications 12,220,000 ABC Communications Holdings Ltd. 3,501,176 6,166,128 0.6
Transportation 734,000 Hong Kong Aircraft Engineering Co. 4,513,929 4,036,098 0.4
Utilities 2,125,200 China Light & Power Co., Ltd. 8,790,293 10,861,095 1.0
5,126,880 Hong Kong & China Gas Co. (The) 6,874,118 9,817,289 0.9
5,716,800 Hong Kong Telecommunications, Ltd. 7,803,114 10,798,975 1.0
1,650,000 Hong Kong Telecommunications, Ltd.
(Warrants) (a) 1,644,721 811,230 0.1
------------ ------------ ------
25,112,246 32,288,589 3.0
Total Investments in Hong Kong 271,631,520 316,770,506 29.7
India Chemicals 960,000 Mardia Chemicals Ltd. 4,415,127 4,591,105 0.5
Consumer--Durables 456,000 ++IFB Industries Ltd. 3,998,087 3,925,395 0.4
Foreign Bonds $ 2,600,000 SCICI Ltd., 3.50% due 4/01/2004 (b) 2,699,375 3,211,000 0.4
Miscellaneous 36,000 Housing Development Finance 3,335,670 3,787,661 0.4
Pharmaceuticals 156,000 ++Core Parenterals 1,965,600 1,903,200 0.2
Textiles 179,783 Arvind Mills Ltd. 1,873,005 1,033,752 0.1
Tobacco 25,000 Indian Tobacco Co. (GDR)** 637,500 612,500 0.1
Total Investments in India 18,924,364 19,064,613 2.1
Indonesia Banking 1,545,500 P.T. Bank International Indonesia 6,512,092 4,897,134 0.5
Food 1,884,300 P.T. Mayorah Indah 5,799,651 8,489,207 0.8
Forest Products 3,828,000 P.T. Indah Kiat Pulp & Paper Corp. 6,453,834 5,292,898 0.5
Miscellaneous-- 1,941,250 P.T. Modern Photo Film 5,119,000 8,499,735 0.8
Consumer
Pharmaceuticals 1,326,000 P.T. Kalbe Farma 3,774,666 4,522,469 0.4
Real Estate 1,930,500 P.T. Duta Anggada Realty 5,056,298 4,537,747 0.4
Tobacco 2,170,000 P.T. Hanjaya Mandala Sampoerna 4,892,468 16,502,281 1.6
Total Investments in Indonesia 37,608,009 52,741,471 5.0
Malaysia Automotive 3,355,000 Tan Chong Motor Holdings BHD 3,481,736 3,505,532 0.3
Banking 4,256,000 Affin Holdings BHD 6,646,052 6,703,135 0.6
1,969,000 Arab-Malaysian Merchant Bank BHD 6,957,819 17,547,941 1.7
2,850,000 Malayan Banking BHD 6,748,454 15,984,173 1.5
2,700,000 Public Bank BHD 'Foreign' 2,361,655 5,139,481 0.5
------------ ------------ ------
22,713,980 45,374,730 4.3
Building & Construction 766,000 Ekran BHD 3,676,794 5,149,431 0.5
1,912,500 George Kent Holdings BHD 2,694,743 4,591,704 0.4
2,355,000 I.J.M. Corp. BHD 5,257,205 7,870,506 0.7
4,671,000 Malayan Cement BHD 5,232,118 7,787,392 0.7
------------ ------------ ------
16,860,860 25,399,033 2.3
Conglomerates 9,000,000 Renong BHD 8,454,940 10,925,015 1.0
Consumer Products 1,760,000 Berjaya Singer (Ordinary) BHD 4,105,157 2,433,927 0.2
1,073,000 Berjaya Singer (TSR) 927,183 531,719 0.1
------------ ------------ ------
5,032,340 2,965,646 0.3
Food 1,721,700 Nestle Malaysia BHD 7,333,320 11,111,156 1.0
Forest Products 1,155,000 Aokam Perdana BHD (Ordinary) 3,956,014 7,276,429 0.7
462,000 Aokam Perdana ('A') 1,220,396 2,662,108 0.3
1,122,000 Aokam Perdana TSR (Warrants) (a) 2,697,117 6,422,019 0.6
736,000 Pacific Chemical BHD 4,004,307 4,438,845 0.4
------------ ------------ ------
11,877,834 20,799,401 2.0
Leisure 2,350,000 Berjaya Sports TOTO BHD 5,395,311 3,520,667 0.3
249,000 Genting BHD 2,989,683 2,965,197 0.3
4,000,000 Pernas International Hotels & Properties
BHD 3,815,457 4,794,100 0.5
2,756,000 Resorts World BHD 7,986,931 15,880,455 1.5
2,504,000 Tanjong PLC 7,760,037 10,869,392 1.0
------------ ------------ ------
27,947,419 38,029,811 3.6
Paper & Forest Products 3,944,000 Land & General BHD 8,186,739 13,181,008 1.2
Shipyards 705,000 Westmont BHD 5,273,593 4,522,703 0.4
Telecommunications 3,375,000 Leader Universal Cable BHD 7,763,214 18,021,089 1.7
1,532,000 ++Technology Resources Industries BHD 3,068,053 6,238,168 0.6
1,611,000 Telekom Malaysia BHD 8,939,145 12,005,762 1.1
------------ ------------ ------
19,770,412 36,265,019 3.4
Tobacco 262,000 Rothmans of Pall Mall (Malaysia) BHD 1,585,339 1,660,648 0.2
Transportation 2,218,000 Malaysian International Shipping Co. BHD 6,043,232 7,710,856 0.7
Total Investments in Malaysia 144,561,744 221,450,558 20.7
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Shares Held/ Value Percent of
COUNTRIES Industries Face Amount Long-Term Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Philip- Beverages 4,804,800 San Miguel Corp. 'B' $ 10,222,586 $ 24,203,284 2.3%
pines
Conglomerates 6,280,000 JG Summit Holdings 3,427,255 2,155,821 0.2
Food & Beverage 840,000 ++Universal Robina Corp. 695,467 689,552 0.1
International Trade 11,573,416 International Container Terminal 6,921,440 11,875,707 1.1
Retail 199,215 ++SM Prime Holdings 1,999,999 1,980,197 0.2
Telecommunications 57,380 Philippine Long Distance Telephone Co.
(ADR)* 2,779,559 3,385,420 0.3
Utilities--Electric 1,009,300 Manila Electric Co. (MERALCO) 'B' 5,518,514 12,710,401 1.2
Total Investments in the Philippines 31,564,820 57,000,382 5.4
Singapore Airlines 1,040,000 Singapore Airlines 'Foreign' Ltd. 6,170,157 8,601,247 0.8
Automotive 1,352,000 Cycle & Carriage, Ltd. 5,687,875 10,116,705 1.0
Banking 1,270,000 Development Bank of Singapore Ltd. 11,309,155 12,170,660 1.1
1,366,866 Overseas Chinese Banking Corp. 'Foreign' 8,900,801 12,112,039 1.1
220,000 Overseas Chinese Banking Corp. 'Foreign'
(Warrants) (a) 1,156,680 649,819 0.1
1,253,587 United Overseas Bank 8,331,992 10,038,570 0.9
------------ ------------ ------
29,698,628 34,971,088 3.2
Beverages 190,000 ++Fraser & Neave Ltd. (Warrants) (a) 1,139,529 985,231 0.1
Conglomerates 1,308,000 ACMA Ltd. 8,074,466 8,285,002 0.8
Electronics 14,340,000 I.P.C. Corp. 10,159,282 13,177,552 1.2
Marine/Offshore 2,807,500 Sembawang Maritime Ltd. 8,560,245 10,872,498 1.0
Oil Services $ 2,090,000 Sembawang Maritime Ltd.,
1.50% due 10/25/1998 1,325,469 2,675,090 0.3
1,130,000 Van Der Horst Ltd. 6,229,305 4,858,221 0.5
------------ ------------ ------
16,115,019 18,405,809 1.8
Publishing &
Broadcasting 762,000 Singapore Press Holdings Ltd. 8,194,511 12,754,184 1.2
Real Estate 2,524,000 DBS Land Ltd. 7,383,400 7,289,531 0.7
1,000,000 DBS Land Ltd. (Warrants) (a) 1,013,666 840,171 0.1
------------ ------------ ------
8,397,066 8,129,702 0.8
Shipping 1,521,000 Sembawang Corp. (c) 12,239,503 10,981,949 1.0
Steel 4,266,250 Natsteel Ltd. 9,506,408 9,016,951 0.9
Telecommunications 10,380,000 Goldtron, Ltd. 7,286,316 10,492,419 0.9
1,635,000 Goldtron, Ltd. (Warrants) (a) 1,194,319 1,040,991 0.1
------------ ------------ ------
8,480,635 11,533,410 1.0
Total Investments in Singapore 123,863,079 146,958,830 13.8
South Automotive 22,045 Dong ah Tire Industries Co. 840,416 1,355,562 0.1
Korea
Building & Construction 100,230 Samsung Heavy Industries 5,565,018 5,478,410 0.5
Retail Stores 100,920 Shinsegae Department Stores Co. 3,492,485 9,777,330 0.9
Steel 89,000 Pohang Iron & Steel Co., Ltd. 8,236,443 9,851,913 0.9
Utilities 5,362 Korea Mobile Telecommunications Corp. 979,459 2,788,240 0.3
246,000 Korean Electric & Power Corp. 6,197,512 9,172,591 0.9
------------ ------------ ------
7,176,971 11,960,831 1.2
Total Investments in South Korea 25,311,333 38,424,046 3.6
Taiwan Closed-End Funds 343,300 The R.O.C. Taiwan 2,904,850 3,647,562 0.3
Food & Beverage 180,098 President Enterprises (ADR)* (b) 3,119,745 2,611,421 0.2
Total Investments in Taiwan 6,024,595 6,258,983 0.5
Thailand Banking 2,160,000 Bangkok Bank 7,125,428 16,396,324 1.5
4,390,000 Industrial Finance Corp. of Thailand 8,764,194 8,944,866 0.8
1,228,000 Siam Commercial Bank, Ltd. (The) 5,096,511 9,321,614 0.8
------------ ------------ ------
20,986,133 34,662,804 3.1
Building & 1,097,000 Christiani & Nielson 'Local' 7,169,983 7,056,213 0.7
Construction 329,100 ++Christiani & Nielson 'Local' (Warrants)
(a) 647,325 657,411 0.1
886,000 Land & House Public Co. 6,096,294 15,574,910 1.5
------------ ------------ ------
13,913,602 23,288,534 2.3
Financial Services $ 3,683 Finance One Co., Ltd., 3.50% due
12/31/2001 145,516 147,143 0.0
247,600 Finance One Co., Ltd. 'Foreign' 4,599,416 4,055,773 0.4
36,836 Finance One Co., Ltd. 'Foreign'
(Warrants) (a) 0 254,600 0.0
88,400 Phatra Thanakit Co., Ltd. 3,332,226 2,853,664 0.3
------------ ------------ ------
8,077,158 7,311,180 0.7
Health & Personal Care 7,370 International Cosmetics Co. 2,921 226,135 0.0
Mutual Funds 12,600,000 Ruam Pattana Fund II 4,999,163 7,173,392 0.7
Publishing & 283,700 Post Publishing Public Co. Ltd. 2,672,649 2,493,568 0.2
Broadcasting
Telecommunications 127,000 Advanced Info Services 5,406,502 4,789,772 0.4
747,000 International Engineering Co. Ltd. 3,347,314 6,744,786 0.6
------------ ------------ ------
8,753,816 11,534,558 1.0
Total Investments in Thailand 59,405,442 86,690,171 8.0
Total Long-Term Investments 718,894,906 945,359,560 88.8
<CAPTION>
Face Amount Short-Term Investments
<S> <S> <C> <S> <C> <C> <C>
United Commercial Paper*** $ 30,000,000 du Pont (E.I.) de Nemours & Co., 4.24%
States due 7/25/1994 $ 29,915,200 $ 29,915,200 2.8
34,967,000 General Electric Capital Corp., 4.30%
due 7/01/1994 34,967,000 34,967,000 3.3
30,000,000 Matterhorn Capital Corp.,
4.23% due 7/20/1994 29,933,025 29,933,025 2.8
30,000,000 PepsiCo., Inc., 4.22% due 7/08/1994 29,975,383 29,975,383 2.8
------------ -------------- ------
124,790,608 124,790,608 11.7
Total Short-Term Investments 124,790,608 124,790,608 11.7
Total Investments
$843,685,514 1,070,150,168 100.5
============
Liabilities in Excess of Other Assets (5,731,428) (0.5)
-------------- ------
Net Assets $1,064,418,740 100.0%
============== ======
<FN>
*American Depositary Receipt (ADR).
**Global Depositary Receipt (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.
++Non-income producing securities.
(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)Restricted securities pursuant to Rule 144A. The value of the Fund's investment in
restricted securities was approximately $5,822,000, representing 0.5% of net assets.
(c)Previously held as Sembawang Shipyard Ltd.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of June 30, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$843,685,514) (Note 1a) $1,070,150,168
Foreign cash (Note 1b) 5,946,694
Cash 289
Receivables:
Capital shares sold $ 3,242,515
Dividends 1,588,122
Securities sold 948,008
Interest 32,950 5,811,595
------------
Deferred organization expenses (Note 1f) 58,995
Prepaid expenses and other assets (Note 1f) 64,628
--------------
Total assets 1,082,032,369
--------------
Liabilities: Payables:
Securities purchased 12,998,746
Capital shares redeemed 2,668,331
Investment adviser (Note 2) 897,053
Distributor (Note 2) 742,192 17,306,322
------------
Accrued expenses and other liabilities 307,307
Total liabilities 17,613,629
--------------
Net Assets: Net assets $1,064,418,740
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized $ 1,571,073
Consist of: Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 5,331,741
Paid-in capital in excess of par 801,135,938
Accumulated on investment loss--net (3,288,364)
Undistributed realized capital gains on investments and foreign currency
transactions--net 33,206,714
Unrealized appreciation on investments and foreign currency transactions--net 226,461,638
--------------
Net assets $1,064,418,740
==============
Net Asset Class A--Based on net assets of $243,311,748 and 15,710,734 shares outstanding $ 15.49
Value: ==============
Class B--Based on net assets of $821,106,992 and 53,317,407 shares outstanding $ 15.40
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended June 30, 1994
<S> <S> <C> <C>
Investment Dividends (net of $1,411,583 foreign withholding tax) $ 8,830,276
Income Interest and discount earned 1,838,429
(Notes --------------
1d & 1e): Total income 10,668,705
--------------
Expenses: Investment advisory fees (Note 2) 5,393,191
Distribution and account maintenance fees--Class B (Note 2) 4,119,131
Custodian fees 1,025,780
Accounting services (Note 2) 56,198
Professional fees 40,630
Directors' fees and expenses 14,317
Amortization of organization expenses (Note 1f) 7,887
Pricing fees 4,732
Other 6,506
--------------
Total expenses 11,689,833
--------------
Investment loss--net (1,021,128)
--------------
Realized & Realized gain (loss) from:
Unrealized Investments--net $ 19,100,064
Gain (Loss) Foreign currency transactions--net (238,373) 18,861,691
on Invest- ------------
ments & Change in unrealized appreciation/depreciation on:
Foreign Investments--net (241,178,386)
Currency Foreign currency transactions--net 186,297 (240,992,089)
Transactions ------------ --------------
- --Net (Notes Net realized and unrealized loss on investments and foreign currency transactions (222,130,398)
1b, 1e & 3): --------------
Net Decrease in Net Assets Resulting from Operations $ (223,151,526)
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the Ten
Months Ended Months Ended
June 30, 1994 Dec. 31, 1993
Increase (Decrease) in Net Assets:
<S> <S> <C> <C>
Operations: Investment income (loss)--net $ (1,021,128) $ 167,916
Realized gain on investments and foreign currency transactions--net 18,861,691 22,356,982
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net (240,992,089) 423,968,150
-------------- --------------
Net increase (decrease) in net assets resulting from operations (223,151,526) 446,493,048
-------------- --------------
Dividends & Investment income--net:
Distri- Class A -- (145,883)
butions to Class B -- (22,033)
Shareholders In excess of investment income--net:
(Note 1g): Class A -- (958,265)
Class B -- (144,731)
Realized gain on investments--net:
Class A -- (1,408,405)
Class B -- (4,539,541)
-------------- --------------
Net decrease in net assets resulting from dividends and distributions to
shareholders -- (7,218,858)
-------------- --------------
Capital Share Net increase (decrease) in net assets derived from capital share transactions (15,120,910) 386,806,540
Transactions -------------- --------------
(Note 4):
Net Assets: Total increase (decrease) in net assets (238,272,436) 826,080,730
Beginning of period 1,302,691,176 476,610,446
-------------- --------------
End of period* $1,064,418,740 $1,302,691,176
============== ==============
<FN>
*Accumulated investment loss--net $ (3,288,364) $ (2,267,236)
============== ==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class A Class B
------------------------------- --------------------------------
The following per share data and ratios For the For the For the For the For the For the
have been derived from information Six Months Ten Months Period Six Months Ten Months Period
provided in the financial statements. Ended Ended May 29, 1992++ Ended Ended May 29, 1992++
June 30, Dec. 31, to Feb. 28, June 30, Dec. 31, to Feb. 28,
Increase (Decrease) in Net Asset Value: 1994* 1993 1993 1994* 1993* 1993*
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 18.77 $ 11.01 $ 10.00 $ 18.74 $ 11.01 $ 10.00
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .03 .07 .05 (.03) (.02) (.02)
Realized and unrealized gain (loss)
on investments and foreign
transactions--net (3.31) 7.88 1.04 (3.31) 7.86 1.05
-------- -------- -------- -------- -------- --------
Total from investment operations (3.28) 7.95 1.09 (3.34) 7.84 1.03
Less dividends and distributions:
Investment income--net -- (.01) (.08) -- --++++ (.02)
In excess of investment income--net -- (.07) --++++ -- --++++ --
Realized gain on investments--net -- (.11) -- -- (.11) --++++
-------- -------- -------- -------- -------- --------
Total dividends and distributions -- (.19) (.08) -- (.11) (.02)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 15.49 $ 18.77 $ 11.01 $ 15.40 $ 18.74 $ 11.01
======== ======== ======== ======== ======== ========
Total Based on net asset value per share (17.47%)+++ 72.31%+++ 10.99%+++ (17.82%)+++ 71.27%+++ 10.32%+++
Investment ======== ======== ======== ======== ======== ========
Return:***
Ratios to Expenses, excluding account maintenance and
Average distribution fees 1.34%** 1.34%** 1.48%** 1.35%** 1.35%** 1.49%**
Net Assets: ======== ======== ======== ======== ======== ========
Expenses 1.59%** 1.59%** 1.73%** 2.35%** 1.35%** 2.49%**
======== ======== ======== ======== ======== ========
Investment income (loss)--net .38%** .61%** .61%** (.38)%** (.15)%** (.08)%**
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $243,312 $311,848 $111,180 $821,107 $990,843 $365,430
Data: ======== ======== ======== ======== ======== ========
Portfolio turnover 9.83% 16.62% 4.65% 9.83% 16.62% 4.65%
======== ======== ======== ======== ======== ========
<FN>
*Based on average shares outstanding during the period.
**Annualized.
***Total investment returns exclude the effects of sales loads.
++Commencement of Operations.
++++Amount was less than $.01 per share.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Dragon Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a non-diversified, open-end
management investment company. The shares of the Fund are
divided into Class A Shares and Class B Shares. Class A Shares are
sold with a front-end sales charge. Class B Shares may be subject to
a contingent deferred sales charge. Both classes of shares have
identical voting, dividend, liquidation and other rights and the same
terms and conditions, except that Class A Shares bear the expenses
of the ongoing account maintenance fee with respect to the Class A
Shares and that Class B Shares bear the expenses of the ongoing
account maintenance and distribution fees with respect to the
Class B Shares and each class has exclusive voting rights with
respect to matters relating to their respective account maintenance
and distribution plans. The following is a summary of significant
accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the principal
market 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 prices obtained
from one or more dealers in the over-the-counter market prior to the
time of valuation. Portfolio securities which are traded both in the
over-the-counter market and on a stock exchange are valued accord-
ing to the broadest and most representative market. Short-term
securities with a remaining maturity of sixty days or less are valued
at amortized cost, which approximates market. Options written by
the Fund are valued at the last asked price in the case of exchange-
traded options or, in the case of options traded in the over-the-
counter market, the average of the last asked price as obtained from
one or more dealers. Options purchased by the Fund are valued at
the last bid price in the case of exchange-traded options or, in the
case of options traded in the over-the-counter market, the average of
the last bid price as obtained from two or more dealers unless there
is only one dealer, in which case that dealer's price is used. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market
quotations are not readily available are valued at fair value as
determined in good faith by or under the direction of the Board of
Directors of the Fund.
(b) 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 invest-
ments include the effects of foreign exchange rates on investments.
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.
(c) Options--When the Fund sells 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.
(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 substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a with-
holding tax may be imposed on interest, dividends, and capital gains
at various rates.
(e) Security transactions and investment income--Security trans-
actions are recorded on the dates the transactions are entered into
(the trade dates). Dividend income is recorded on the ex-dividend
date, except that if the ex-dividend date has passed, certain dividends
from foreign securities are recorded as soon as the Fund is informed
of the ex-dividend date. Interest income (including amortization of
discount) is recognized on the accrual basis. Realized gains and
losses on security transactions are determined on the identified
cost basis.
(f) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a five-year period. Prepaid registration fees are
charged to expense as the related shares are issued.
(g) Dividends and distributions--Dividends and distributions paid
by the Fund are recorded on the ex-dividend dates.
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"). Effective
January 1, 1994, the investment advisory business of MLAM was
reorganized from a corporation to a limited partnership. Both prior
to and after the reorganization, ultimate control of MLAM was
vested with Merrill Lynch & Co., Inc. ("ML & Co."). The general
partner of MLAM is Princeton Services, Inc., an indirect wholly-
owned subsidiary of ML & Co. The limited partners are ML & Co.
and Merrill Lynch Investment Management, Inc. ("MLIM"), which
is also an indirect wholly-owned subsidiary of ML & Co. The Fund
has also entered into a Distribution Agreement and a Distribution
Plan with Merrill Lynch Funds Distributor, Inc. ("MLFD" or
"Distributor"), a wholly-owned subsidiary of MLAM.
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. Certain of
the states in which the shares of the Fund are qualified for sale
impose limitations on the expenses of the Fund. The most restrictive
annual expense limitation requires that the Investment Adviser
reimburse the Fund to the extent the Fund's expenses (excluding
interest, taxes, distribution fees, brokerage fees and commissions,
and extraordinary items) exceed 2.5% of the Fund's first $30 million
of average daily net assets, 2.0% of the next $70 million of average
daily net assets, and 1.5% of the average daily net assets in excess
thereof. No fee payment will be made to MLAM during any fiscal
year which will cause such expenses to exceed the expense limita-
tions at the time of such payment.
The Fund has adopted separate Plans of Distribution (the "Distribu-
tion Plans") for Class A and Class B Shares in accordance with
Rule 12b-1 under the Investment Company Act of 1940 pursuant
to which MLFD receives from the Fund at the end of each month
(a) an account maintenance fee, accrued daily and paid monthly, at
an annual rate of 0.25% of the average daily net assets of the Fund's
Class A Shares in order to compensate the Distributor and Merrill
Lynch in connection with account maintenance activities, and
(b) an account maintenance fee of 0.25% and a distribution fee of
0.75% of the average daily net assets of the Fund's Class B Shares in
order to compensate the Distributor and Merrill Lynch for providing
distribution and account maintenance services to the Fund. As
authorized by the Distribution Plans, the Distributor has entered
into an agreement with Merrill Lynch, Pierce, Fenner & Smith Inc.
("MLPF&S"), which provides for the compensation of MLPF&S in
connection with account maintenance activities for Class A Shares
and for providing distribution-related services to the Fund for
Class B Shares. For the six months ended June 30, 1994, MLFD earned
$318,514 and $4,119,131 for Class A and Class B Shares, respectively,
under the Distribution Plans, all of which was paid to MLPF&S
pursuant to the agreement.
For the six months ended June 30, 1994, MLFD earned under-
writing discounts of $29,097, and MLPF&S earned dealer conces-
sions of $484,161, on sales of the Fund's Class A Shares.
For the six months ended June 30, 1994, MLPF&S received
contingent deferred sales charges of $1,099,907 relating to trans-
actions in Class B Shares and $64,050 in commissions on the
execution of portfolio security transactions for the Fund during
the period.
Financial Data Services, Inc. ("FDS"), 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 MLIM, MLPF&S, FDS, MLFD, and/or ML & Co.
NOTES TO FINANCIAL STATEMENTS (concluded)
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended June 30, 1994 were $195,084,689 and
$97,720,193, respectively.
Net realized and unrealized gains (losses) as of June 30, 1994
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ 19,095,858 $226,464,654
Short-term investments 4,206 --
Foreign currency transactions (238,373) (3,016)
------------ ------------
Total $ 18,861,691 $226,461,638
============ ============
As of June 30, 1994, net unrealized appreciation for Federal income
tax purposes aggregated $226,464,654, of which $259,132,249
related to appreciated securities and $32,667,595 related to depre-
ciated securities. At June 30, 1994, the aggregate cost of investments
for Federal income tax purposes was $843,685,514.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was ($15,120,910) for the six months ended June 30,
1994, and $386,806,540 for the ten months ended December 31, 1993.
Transactions in capital shares for Class A and Class B Shares were
as follows:
Class A Shares for the Six Months Dollar
Ended June 30, 1994 Shares Amount
Shares sold 1,794,696 $ 28,220,213
Shares issued to shareholders in
reinvestment of dividends and
distributions -- --
----------- ------------
Total issued 1,794,696 28,220,213
Shares redeemed (2,695,019) (44,269,207)
----------- ------------
Net decrease (900,323) $(16,048,994)
=========== ============
Class A Shares for the Ten Months Dollar
Ended December 31, 1993 Shares Amount
Shares sold 7,846,115 $114,904,877
Shares issued to shareholders in
reinvestment of dividends and
distributions 120,851 2,113,683
----------- ------------
Total issued 7,966,966 117,018,560
Shares redeemed (1,451,683) (20,944,207)
----------- ------------
Net increase 6,515,283 $ 96,074,353
=========== ============
Class B Shares for the Six Months Dollar
Ended June 30, 1994 Shares Amount
Shares sold 8,272,667 $129,294,983
Shares issued to shareholders in
reinvestment of dividends and
distributions -- --
----------- ------------
Total issued 8,272,667 129,294,983
Shares redeemed (7,831,270) (128,366,899)
----------- ------------
Net increase 441,397 $ 928,084
=========== ============
Class B Shares for the Ten Months Dollar
Ended December 31, 1993 Shares Amount
Shares sold 23,415,440 $343,265,805
Shares issued to shareholders in
reinvestment of dividends and
distributions 227,775 3,976,951
----------- ------------
Total issued 23,643,215 347,242,756
Shares redeemed (3,945,149) (56,510,569)
----------- ------------
Net increase 19,698,066 $290,732,187
=========== ============
5. Commitments:
At June 30, 1994, the Fund had entered into forward exchange
contracts under which it had agreed to buy and sell various foreign
currencies with values of approximately $2,206,000 and $693,000,
respectively.
APPENDIX: GRAPHIC AND IMAGE MATERIAL,
Item 1:
Asset Allocation as a Percentage* of Net Assets as of June 30,
1994
India 2.1%
Indonesia 5.0%
Singapore 13.8%
Malaysia 20.7%
Thailand 8.0%
Hong Kong 29.7%
South Korea 3.6%
Taiwan 0.5%
Philippines 5.4%
[FN]
*Total may not equal 100%.
