MERRILL LYNCH
DRAGON FUND, INC.
FUND LOGO
Semi-Annual Report
June 30, 1999
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
MERRILL LYNCH DRAGON FUND, INC.
Map Depicting the Fund's Asset Allocation As a Percentage*
of Net Assets as of June 30, 1999
INDONESIA 2.8%
SINGAPORE 13.3%
MALAYSIA 3.0%
THAILAND 5.4%
CHINA 2.8%
HONG KONG 30.8%
SOUTH KOREA 20.5%
TAIWAN 12.8%
PHILIPPINES 4.1%
[FN]
*Total may not equal 100%.
Merrill Lynch Dragon Fund, Inc., June 30, 1999
DEAR SHAREHOLDER
For the three-month period ended June 30, 1999, Class A, Class B,
Class C and Class D Shares of Merrill Lynch Dragon Fund, Inc. had
total returns of +37.50%, +37.29%, +37.25% and +37.55%,
respectively. (Fund results do not include sales charges, and would
be lower if sales charges were included. Complete performance
information can be found on pages 4 and 5 of this report to
shareholders.)
During the quarter ended June 30, 1999, the dragon economies
continued with the slow work of repair and reconstruction amid signs
that the region's economies are beginning to show positive growth.
These countries continue to run large current account surpluses, and
central banks are using this opportunity to aggressively lower
interest rates. Record-low interest rates and surging equity markets
are providing the foundation for a rise in consumer confidence and
spending. Governments continue to fuel their economies with
increased fiscal spending. This increased domestic liquidity,
combined with positive international portfolio inflows, supported
the dragon stock market rally in the June quarter. In this positive
environment, the Fund was fully invested in equities.
Investment Strategy
Hong Kong continues to show signs of an economic slowdown.
Unemployment remains high with consensus expectations of still-
higher unemployment rates by year-end. With the currency peg
limiting policy options, high real interest rates continue to take
their deflationary toll on the economy. Hong Kong may be adhering to
its fixed-exchange rate policy but the deflationary effects are
being felt throughout the economy. Against this backdrop, it will
remain difficult for property developers to raise prices
significantly.
During the June quarter, we increased our exposure to
telecommunications and cable television shares in Hong Kong. The
rapid growth of Internet demand, coupled with the global repricing
of cable/broadband capacity, has led to an upward revaluation of
Hong Kong's largest fixed line and cable companies, Hong Kong
Telecommunications Ltd. and Wharf (Holdings) Ltd., which are Fund
investments.
In The People's Republic of China, relations with America continued
to be volatile, with much of the goodwill inspired by Zhu Rong Ji's
visit giving way to rival threats of containment and espionage. The
accidental NATO bombing of the Chinese embassy in Belgrade is widely
believed by the average Chinese to have been intentional. The
Chinese government stoked anti-American protests and voiced fears
that the United States is out to arrest China's development.
Fortunately, as is usually the case in Sino-American relations, the
tense political atmosphere has not halted ordinary trade between the
two countries.
We continue to expect that the Chinese economy will remain soft for
the duration of this year, and consumers continue to refuse to
spend. Recent interest rate cuts are designed to stimulate consumer
demand while easing the debt load of the struggling corporate
sector. Although these cuts may spark a short-term equity market
rally, their sustainable effect on the Chinese economy and currency
remains to be seen. If we do not see a marked increase in economic
activity over the next few months, there will be greater domestic
pressure mounted on the currency. We remain underweighted in China,
and we do not expect to increase this exposure in the near term.
Taiwan's economy showed signs of relief during the June quarter,
largely the result of a surprising export recovery. May's export
figures registered a 13% gain compared to the same period last year.
Cyclical companies, an important part of Taiwan's manufacturing
sector, also saw a turnaround in product prices as a result of
restocking of downstream merchants in North Asia. These two factors,
combined with ample domestic liquidity, have eased our concerns over
the economy as a whole. However, we remain cautious about Taiwan's
structurally fragile financial system. During the June quarter, we
added two new holdings in Taiwan to the portfolio: Synnex Technology
International Corporation and Far Eastern Textile Ltd. Both
companies are major beneficiaries of a deeper penetration of
personal computers (PC) and cellular phones in Taiwan. Synnex is the
largest distributor of computer and telecommunications-related
products in Taiwan.
South Korea continues to show signs of economic recovery. Annual
gross domestic product (GDP) growth for the first quarter was 4.6%,
and bankruptcies in May fell to the lowest level in almost eight
years. The latest data in May on industrial production, inflation
and trade have been highly encouraging. Industrial output was up
17.1%, inflation was subdued at 0.73% year-on-year, exports rose
2.2% year-on-year, and imports rose 25% year-on-year.
In South Korea, President Kim Dae Jung recently reshuffled his
cabinet to intensify economic reforms. Mr. Kang Bong Kyun, a long-
time advocate of corporate reform and vocal critic of the country's
powerful chaebols, was appointed as Minister of Finance and Economy.
During the June quarter, we added Kookmin Bank and Korea Telecom
Corporation to our portfolio. We also added to our position in Cheil
Jedang Corp. We remain slightly underweight in the South Korean
market, since most company valuations are currently too high, in our
view. However, we are poised to invest in this market when
valuations become more attractive.
Singapore continues to show signs of recovery. Non-oil domestic
exports and imports, along with manufacturing output, continued to
rise. Our investments in Singapore focus on improving consumer
sentiment, particularly in the property and automobile sectors. We
added three predominantly residential property developers, City
Developments Limited, DBS Land Limited and Allgreen Properties
Limited. In the automobile sector, we chose to invest in Cycle &
Carriage Ltd., the largest distributor of automobiles in Singapore.
We remain slightly overweight in Singapore, and will seek to
increase our position further as opportunities arise.
In Indonesia, the peaceful elections in June resulted in a win for
the opposition party, PDP. A coalition government is likely to be
formed, which will make it more difficult to arrive at a consensus
in terms of government policy toward the economy. Meanwhile, bank
reconstruction is making some progress as the government has moved
to close down seven banks and recapitalize several others. In light
of the improving political and economic climate, we have increased
our investments in Indonesia. However, our exposure to Indonesia
remains market-neutral.
Thanks to the bumper harvest of rice and corn, agricultural output
in the Philippines has outpaced forecasts and has fueled the
recovery of private consumption. Domestic interest rates continued
to fall, while the consolidation trends within the banking and
telecommunication sectors are emerging rapidly, which will be a
powerful driver of returns for major companies. In the June quarter,
we added San Miguel Corporation and Philippine Long Distance
Telephone Company for upside potential from restructuring of
underlying businesses. Both companies stand to benefit significantly
from further consolidation in their sectors. Although the overall
positive trends in the country remain, equity valuations now appear
demanding. We have begun reducing our overweight position in the
country and may continue to do so if valuations stage a further
expansion.
Malaysia's credit rating was upgraded during the June quarter, but
even with the removal of capital controls scheduled for September,
the country is not yet reinstated into the Morgan Stanley Capital
International regional stock indexes. However, positive developments
in the consumer and industrial sectors suggest that there may be a
return to positive GDP growth in the second half of the year. As a
sign of its desire to reenter the global financial markets, Malaysia
recently completed the successful issuance of a US$1 billion
sovereign bond.
During the June quarter, we restructured our Malaysian investments
somewhat less defensively. We believe that these investments will
prove to be more profitable as investors gradually return to the
Malaysian stock market. Although we increased investments somewhat
during the June quarter, we remain underweight in Malaysia.
Merrill Lynch Dragon Fund, Inc., June 30, 1999
The Thai economy appears to have bottomed out and is experiencing a
moderate recovery from an upturn in domestic demand. Vehicle and
department store sales are up. Exports and imports are also higher,
with the growth in imports suggesting improvement in the
manufacturing sector. Non-performing loans in the banking system
appear to have peaked and are now heading lower. Sufficient progress
has been made in the restructuring and recapitalization of the
banking system. Our weighting in Thailand remains neutral.
In Conclusion
The rise in share prices experienced by the dragon stock markets
thus far this year is encouraging. As 1999 continues, we are
monitoring several key variables. First, there is the extent of
Japan's fledgling economic recovery and the potential demand for
imports it will create. Second, the direction and severity of any
changes in US interest rates will be important to the dragon
economies. Third, the level of continued commitment to structural
reform exhibited by individual companies will need to increase to
further restore investor confidence. Finally, we are also closely
monitoring the ability of the dragon economies to cope with the
challenges presented by the advent of the year 2000.
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 upcoming quarterly report to shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Kara Tan Bhala)
Kara Tan Bhala
Senior Vice President and
Portfolio Manager
August 18, 1999
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. However, in the
case of certain eligible investors, the shares were simultaneously
exchanged for Class A Shares.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the ex-dividend date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML Dragon Fund, Inc. Class A Shares +61.72% +37.50% -24.50%
ML Dragon Fund, Inc. Class B Shares +59.83 +37.29 +25.55
ML Dragon Fund, Inc. Class C Shares +59.94 +37.25 -27.97
ML Dragon Fund, Inc. Class D Shares +61.31 +37.55 +32.87
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend date. The
Fund's inception periods are from 10/21/94 for Class A & Class C
Shares and from 5/29/92 for Class B & Class D Shares.
</TABLE>
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/99 +61.72% +53.23%
Inception (10/21/94) through 6/30/99 - 5.81 - 6.89
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/99 +59.83% +55.83%
Five Years Ended 6/30/99 - 4.16 - 4.16
Inception (5/29/92) through 6/30/99 + 3.26 + 3.26
[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 6/30/99 +59.94% +58.94%
Inception (10/21/94) through 6/30/99 - 6.76 - 6.76
[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 6/30/99 +61.31% +52.84%
Five Years Ended 6/30/99 - 3.38 - 4.42
Inception (5/29/92) through 6/30/99 + 4.09 + 3.30
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Dragon Fund, Inc., June 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Value Percent of
COUNTRIES Industries Held Long-Term Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
China Electronics 2,500,000 Legend Holdings Limited $ 1,209,184 $ 2,400,562 0.7%
Infrastructure 1,251,000 Cosco Pacific Limited 811,459 1,040,001 0.3
425,000 ++New World Infrastructure Limited 841,290 799,758 0.2
-------------- -------------- ------
1,652,749 1,839,759 0.5
Telecommunications 78,450 ++China Telecom (Hong Kong) Limited
(ADR)* 3,109,371 4,471,650 1.2
Utilities-- 6,220,000 ++Shandong International Power
Electric & Gas Development Company Limited 'H' 1,279,680 1,402,959 0.4
Total Long-Term Investments in China 7,250,984 10,114,930 2.8
Hong Kong Banking 525,000 Dah Sing Financial Group 1,739,626 2,002,939 0.6
425,000 Dao Heng Bank Group Ltd. 1,931,348 1,906,272 0.5
471,811 HSBC Holdings PLC 11,163,398 17,209,614 4.8
84,695 HSBC Holdings PLC (GBP) 2,280,883 2,998,138 0.8
-------------- -------------- ------
17,115,255 24,116,963 6.7
Conglomerates 2,056,000 Hutchison Whampoa Limited 15,440,457 18,615,987 5.2
Electronics 852,000 Johnson Electric Holdings Limited 1,728,480 3,492,073 1.0
Publishing & 2,842,000 South China Morning Post
Broadcasting Holdings Ltd. 1,864,697 1,593,419 0.4
647,000 Television Broadcasts Ltd. 2,394,765 3,035,445 0.8
-------------- -------------- ------
4,259,462 4,628,864 1.2
Real Estate 1,792,000 Cheung Kong (Holdings) Ltd. 9,828,190 15,936,896 4.4
1,150,000 New World Development Company Ltd. 2,855,004 3,446,176 1.0
983,588 Sun Hung Kai Properties Ltd. 7,554,701 8,969,254 2.5
1,359,285 Wharf (Holdings) Ltd. 3,147,226 4,239,772 1.2
-------------- -------------- ------
23,385,121 32,592,098 9.1
Retail 1,250,000 Dairy Farm International Holdings
Limited 1,569,191 1,500,000 0.4
2,800,000 Giordano International Limited 1,177,352 1,984,894 0.5
-------------- -------------- ------
2,746,543 3,484,894 0.9
Telecommunications 678,352 Hong Kong Telecommunications Ltd.
(ADR)* 13,438,375 18,273,107 5.1
Utilities-- 3,919,798 Hong Kong and China Gas Company Ltd. 5,480,395 5,683,722 1.6
Electric & Gas
Total Long-Term Investments in
Hong Kong 83,594,088 110,887,708 30.8
Indonesia Banking 40,432,000 ++PT Bank Internasional Indonesia
'Foreign' 1,309,296 1,171,093 0.3
Food 2,400,000 ++PT Indofood Sukses Makmur Tbk 1,498,420 3,267,198 0.9
Telecommunications 189,000 PT Telekomunikasi Indonesia (ADR)* 1,554,735 2,350,688 0.7
Tobacco 1,400,000 ++PT Hanjaya Mandala Sampoerna Tbk 1,548,381 3,203,476 0.9
Total Long-Term Investments in
Indonesia 5,910,832 9,992,455 2.8
Malaysia+++ Banking 1,519,000 Public Bank Berhad 'Foreign' 1,402,578 1,590,953 0.4
Consumer Products 657,000 Amway (Malaysia) Holdings Berhad 1,248,539 1,512,829 0.4
Telecommunications 883,000 Telekom Malaysia Berhad 2,239,929 3,299,632 0.9
Tobacco 319,000 Rothmans of Pall Mall (Malaysia)
Berhad 1,348,609 2,413,487 0.7
Transportation 1,099,000 Malaysia International Shipping
Corporation Berhad 'Foreign' 2,013,148 2,010,013 0.6
Total Long-Term Investments
in Malaysia 8,252,803 10,826,914 3.0
Philippines Banking 231,640 Metropolitan Bank & Trust Company 1,536,390 2,316,400 0.6
Beverages 795,300 San Miguel Corporation 'B' 1,284,739 1,737,103 0.5
Conglomerates 5,911,320 ++Benpres Holdings Corp. 932,852 1,400,049 0.4
Retail 1,785,500 Jollibee Foods Corporation
(Warrants)(a) 956,642 916,243 0.3
12,504,170 SM Prime Holdings, Inc. 2,741,932 2,829,891 0.8
-------------- -------------- ------
3,698,574 3,746,134 1.1
Telecommunications 96,400 Philippine Long Distance Telephone
Company (ADR)* 2,563,028 2,904,050 0.8
Utilities-- 684,713 Manila Electric Company 'B' 3,971,537 2,468,571 0.7
Electric & Gas
Total Long-Term Investments in the
Philippines 13,987,120 14,572,307 4.1
Singapore Airlines 868,000 Singapore Airlines Ltd. 'Foreign' 7,456,214 8,264,237 2.3
Automotive 286,000 Cycle & Carriage Ltd. 1,447,981 1,647,252 0.4
Banking 640,000 Development Bank of Singapore
Limited 'Foreign' 6,987,538 7,823,685 2.2
329,000 Oversea-Chinese Banking Corporation
Ltd. 'Foreign' 2,129,877 2,745,695 0.7
826,100 Overseas Union Bank Ltd. 'Foreign' 3,037,772 3,981,205 1.1
-------------- -------------- ------
12,155,187 14,550,585 4.0
Electronics 795,000 Natsteel Electronics Ltd. 1,484,427 3,480,899 1.0
Engineering 2,802,000 Singapore Technologies
Engineering Ltd. 2,433,383 3,178,290 0.9
Internet 24,000 ++Pacific Internet Ltd. 408,000 1,137,000 0.3
Publishing & 510,837 Singapore Press Holdings Ltd. 6,360,335 8,706,596 2.4
Broadcasting
Real Estate 1,370,000 ++Allgreen Properties Limited 831,379 1,481,516 0.4
232,000 City Developments Limited 1,311,294 1,486,218 0.4
829,000 DBS Land Limited 1,323,332 1,656,538 0.5
-------------- -------------- ------
3,466,005 4,624,272 1.3
Telecommunications 1,400,000 Singapore Telecommunications, Ltd. 2,138,440 2,402,586 0.7
Total Long-Term Investments in
Singapore 37,349,972 47,991,717 13.3
</TABLE>
Merrill Lynch Dragon Fund, Inc., June 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Shares Value Percent of
COUNTRIES Industries Held Long-Term Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
South Banking 120,000 Kookmin Bank $ 1,355,790 $ 2,436,285 0.7%
Korea
Electronics 121,308 Samsung Display Devices Co., Ltd. 4,620,968 6,602,509 1.9
148,340 Samsung Electronics 7,808,797 16,275,749 4.5
-------------- -------------- ------
12,429,765 22,878,258 6.4
Food 69,040 Cheil Jedang Corp. 2,788,369 5,433,731 1.5
Insurance 20,159 Samsung Fire & Marine Insurance 5,329,667 14,194,026 3.9
Steel 171,930 Pohang Iron & Steel Company,
Ltd. (ADR)* 2,851,900 5,781,146 1.6
Telecommunications 164,900 ++Korea Telecom Corporation (ADR)* 4,544,644 6,596,000 1.8
Utilities-- 217,370 Korea Electric Power Corporation 3,842,797 9,032,827 2.5
Electric & Gas 360,450 Korea Electric Power Corporation
(ADR)* 4,342,498 7,389,225 2.1
-------------- -------------- ------
8,185,295 16,422,052 4.6
Total Long-Term Investments in
South Korea 37,485,430 73,741,498 20.5
Taiwan Banking 5,434,000 Bank Sinopac 2,783,400 3,786,466 1.0
Consumer Products 1,085,000 ++Pou Chen Corporation 2,859,658 3,528,182 1.0
Electronics 1,520,000 ++Advanced Semiconductor Engineering
Inc. 2,919,845 5,131,000 1.4
415,000 ++Hitron Techonology Inc. 1,375,231 1,638,665 0.5
553,000 ++Hon Hai Precision Industry 2,857,816 5,000,805 1.4
2,366,520 ++Taiwan Semiconductor Manufacturing
Company 4,209,547 9,051,261 2.5
1,506,500 ++United Microelectronics Corporation,
Ltd. 2,435,095 3,242,544 0.9
-------------- -------------- ------
13,797,534 24,064,275 6.7
Insurance 1,147,000 Cathay Life Insurance Co., Ltd. 3,896,167 4,120,533 1.1
Retail 936,000 President Chain Store Corp. 2,909,010 3,174,110 0.9
461,500 Synnex Technology International
Corporation 1,506,599 2,401,115 0.7
-------------- -------------- ------
4,415,609 5,575,225 1.6
Textiles 2,090,000 ++Far Eastern Textile Ltd. 2,423,470 3,106,844 0.9
803,000 Nien Hsing Textile Corporation,
Ltd. 1,770,503 1,877,563 0.5
-------------- -------------- ------
4,193,973 4,984,407 1.4
Total Long-Term Investments in
Taiwan 31,946,341 46,059,088 12.8
Thailand Banking 2,520,000 ++Siam Commercial Bank Public
Company Limited (Preferred)
'Foreign' 1,771,759 3,590,231 1.0
2,520,000 Siam Commercial Bank Public Company
Limited (Warrants)(a) 0 1,624,152 0.5
1,202,000 ++Thai Farmers Bank Public Company
Limited 'Foreign' 1,694,499 3,718,535 1.0
-------------- -------------- ------
3,466,258 8,932,918 2.5
Oil & Gas 241,936 ++PTT Exploration and Production
Public Company Limited 'Foreign' 2,518,035 1,851,451 0.5
Telecommunications 450,802 ++Advanced Info Service Public
Company Limited 'Foreign' 2,474,567 6,116,716 1.7
2,400,000 ++TelecomAsiaCorporation Public
Company Limited 'Foreign' 1,720,624 2,426,052 0.7
-------------- -------------- ------
4,195,191 8,542,768 2.4
Total Long-Term Investments in
Thailand 10,179,484 19,327,137 5.4
Total Long-Term Investments 235,957,054 343,513,754 95.5
Face
Amount Short-Term Investments
<S> <S> <S> <C> <S> <C> <C> <C>
United Commercial US$ 10,383,000 General Electric Capital Corp.,
States Paper** 5.75% due 7/01/1999 10,383,000 10,383,000 2.9
Total Short-Term Investments 10,383,000 10,383,000 2.9
Total Investments $ 246,340,054 353,896,754 98.4
==============
Other Assets Less Liabilities 5,606,570 1.6
-------------- ------
Net Assets $ 359,503,324 100.0%
============== ======
<FN>
*American Depositary Receipts (ADR).
**Commercial Paper is traded on a discount basis; the interest rate
shown reflects the discount rate paid at the time of purchase by the
Fund.
(a)Warrants entitle the Fund to purchase a predetermined number of
shares of common stock and are non-income producing. The purchase
price and number of shares are subject to adjustment under certain
conditions until the expiration date.
++Non-income producing security.
+++Effective February 16, 1999, the Company's Board of Directors
adopted a change in valuation for Malaysian securities. The Company
will utilize a Malaysian exchange rate of 3.80 and record an
estimated exit tax on the value of any investments made before
February 15, 1999, based upon its value as of August 31, 1998, in
the amount of 30% through March 31, 1999, 20% from April 1, 1999
through May 31, 1999 and 10% from June 1, 1999 through August 31,
1999. These changes are due to the capital controls implemented by
the Malaysian government, which froze the Malaysian ringgit at 3.80
until September 1, 1999 and initiated a tax at various rates, as
described above, on any funds repatriated from Malaysia.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Dragon Fund, Inc., June 30, 1999
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of June 30, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$246,340,054)(Note 1a) $ 353,896,754
Cash 747
Foreign cash (Note 1c) 6,629,952
Receivables:
Securities sold $ 2,265,562
Capital shares sold 2,037,158
Dividends 744,705 5,047,425
--------------
Prepaid registration fees and other assets (Note 1f) 81,300
--------------
Total assets 365,656,178
--------------
Liabilities: Payables:
Capital shares redeemed 4,198,559
Investment adviser (Note 2) 302,532
Distributor (Note 2) 233,760
Securities purchased 133,279 4,868,130
--------------
Accrued expenses and other liabilities 1,284,724
--------------
Total liabilities 6,152,854
--------------
Net Assets: Net assets $ 359,503,324
==============
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000
Consist of: shares authorized $ 248,248
Class B Shares of Common Stock, $.10 par value, 200,000,000
shares authorized 2,409,869
Class C Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 219,855
Class D Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 752,742
Paid-in capital in excess of par 442,958,085
Accumulated distributions in excess of investment income--net (380,329)
Accumulated realized capital losses on investments and foreign
currency transactions--net (Note 5) (182,315,452)
Accumulated distributions in excess of realized capital gains
on investments and foreign currency
transactions--net (Note 1g) (11,169,131)
Unrealized appreciation on investments and foreign currency
transactions--net 106,779,437
--------------
Net assets $ 359,503,324
==============
Net Asset Class A--Based on net assets of $25,134,323 and 2,482,478
Value: shares outstanding $ 10.12
==============
Class B--Based on net assets of $237,000,570 and 24,098,689
shares outstanding $ 9.83
==============
Class C--Based on net assets of $21,294,781 and 2,198,550
shares outstanding $ 9.69
==============
Class D--Based on net assets of $76,073,650 and 7,527,418
shares outstanding $ 10.11
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended June 30, 1999
<S> <S> <C> <C>
Investment Dividends (net of $139,759 foreign withholding tax) $ 3,224,563
Income Interest and discount earned 517,495
(Notes 1d & 1e): --------------
Total income 3,742,058
--------------
Expenses: Investment advisory fees (Note 2) $ 1,469,308
Account maintenance and distribution fees--Class B (Note 2) 989,709
Transfer agent fees--Class B (Note 2) 328,206
Custodian fees 245,324
Transfer agent fees--Class D (Note 2) 85,265
Account maintenance and distribution fees--Class C (Note 2) 80,745
Account maintenance fees--Class D (Note 2) 78,707
Printing and shareholder reports 70,408
Accounting services (Note 2) 50,910
Professional fees 44,379
Registration fees (Note 1f) 34,738
Transfer agent fees--Class C (Note 2) 26,937
Directors' fees and expenses 23,404
Transfer agent fees--Class A (Note 2) 22,433
Pricing fees 3,852
Other 4,093
--------------
Total expenses 3,558,418
--------------
Investment income--net 183,640
--------------
Realized & Realized loss from:
Unrealized Gain Investments--net (16,351,826)
(Loss) on Foreign currency transactions--net (629,833) (16,981,659)
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 119,247,078
(Notes 1b, 1c, Foreign currency transactions--net (734,434) 118,512,644
1e & 3): -------------- --------------
Net realized and unrealized gain on investments and foreign
currency transactions 101,530,985
--------------
Net Increase in Net Assets Resulting from Operations $ 101,714,625
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Dragon Fund, Inc., June 30, 1999
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the
Months Ended Year Ended
June 30, December 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income--net $ 183,640 $ 3,947,759
Realized loss on investments and foreign currency
transactions--net (16,981,659) (157,132,263)
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 118,512,644 63,300,980
-------------- --------------
Net increase (decrease) in net assets resulting from
operations 101,714,625 (89,883,524)
-------------- --------------
Dividends & Investment income--net:
Distributions to Class A -- (216,933)
Shareholders Class B -- (1,017,103)
(Note 1g): Class C -- (80,142)
Class D -- (789,917)
In excess of investment income--net:
Class A -- (70,818)
Class B -- (332,036)
Class C -- (26,163)
Class D -- (257,870)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders -- (2,790,982)
-------------- --------------
Capital Share Net decrease in net assets derived from capital share
Transactions transactions (42,442,996) (133,868,029)
(Note 4): -------------- --------------
Net Assets: Total increase (decrease) in net assets 59,271,629 (226,542,535)
Beginning of period 300,231,695 526,774,230
-------------- --------------
End of period $ 359,503,324 $ 300,231,695
============== ==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A++
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
June 30, For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.24 $ 8.81 $ 18.09 $ 15.99 $ 15.05
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .04 .14 .12 .14 .12
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 2.84 (1.57) (7.51) 2.03 1.00
-------- -------- -------- -------- --------
Total from investment operations 2.88 (1.43) (7.39) 2.17 1.12
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.11) -- -- --
In excess of investment income--net -- (.03) -- -- (.18)
Realized gain on investments--net -- -- (1.68) (.07) --
In excess of realized gain on
investments--net -- -- (.21) -- --
-------- -------- -------- -------- --------
Total dividends and distributions -- (.14) (1.89) (.07) (.18)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.12 $ 7.24 $ 8.81 $ 18.09 $ 15.99
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 39.78%+++ (16.22%) (40.77%) 13.59% 7.44%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.59%* 1.46% 1.35% 1.33% 1.37%
Net Assets: ======== ======== ======== ======== ========
Investment income--net .88%* 1.78% .73% .78% .74%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 25,134 $ 13,961 $ 14,431 $ 49,943 $ 31,591
Data: ======== ======== ======== ======== ========
Portfolio turnover 35.41% 99.85% 21.11% 30.63% 24.52%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Dragon Fund, Inc., June 30, 1999
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
Class B++++
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
June 30, For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.07 $ 8.58 $ 17.89 $ 15.98 $ 15.03
Operating -------- -------- -------- ---------- --------
Performance: Investment income (loss)--net --++ .06 (.04) (.04) (.03)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 2.76 (1.52) (7.38) 2.02 1.00
-------- -------- -------- ---------- --------
Total from investment operations 2.76 (1.46) (7.42) 1.98 .97
-------- -------- -------- ---------- --------
Less dividends and distributions:
Investment income--net -- (.04) -- -- --
In excess of investment income--net -- (.01) -- -- (.02)
Realized gain on investments--net -- -- (1.68) (.07) --
In excess of realized gain on
investments--net -- -- (.21) -- --
-------- -------- -------- ---------- --------
Total dividends and distributions -- (.05) (1.89) (.07) (.02)
-------- -------- -------- ---------- --------
Net asset value, end of period $ 9.83 $ 7.07 $ 8.58 $ 17.89 $ 15.98
======== ======== ======== ========== ========
Total Investment Based on net asset value per share 39.04%+++ (17.06%) (41.40%) 12.41% 6.49%
Return:** ======== ======== ======== ========== ========
Ratios to Average Expenses 2.66%* 2.54% 2.39% 2.36% 2.41%
Net Assets: ======== ======== ======== ========== ========
Investment income (loss)--net (.23%)* .73% (.26%) (.24%) (.20%)
======== ======== ======== ========== ========
Supplemental Net assets, end of period (in thousands) $237,000 $206,809 $374,914 $1,157,944 $991,281
Data: ======== ======== ======== ========== ========
Portfolio turnover 35.41% 99.85% 21.11% 30.63% 24.52%
======== ======== ======== ========== ========
<CAPTION>
Class C++++
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
June 30, For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 6.97 $ 8.46 $ 17.68 $ 15.79 $ 14.92
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net --++ .06 (.04) (.04) (.04)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 2.72 (1.50) (7.29) 2.00 1.00
-------- -------- -------- -------- --------
Total from investment operations 2.72 (1.44) (7.33) 1.96 .96
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.04) -- -- --
In excess of investment income--net -- (.01) -- -- (.09)
Realized gain on investments--net -- -- (1.68) (.07) --
In excess of realized gain on
investments--net -- -- (.21) -- --
-------- -------- -------- -------- --------
Total dividends and distributions -- (.05) (1.89) (.07) (.09)
-------- -------- -------- -------- --------
Net asset value, end of period $ 9.69 $ 6.97 $ 8.46 $ 17.68 $ 15.79
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 39.02%+++ (17.05%) (41.38%) 12.43% 6.46%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.66%* 2.54% 2.41% 2.37% 2.42%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.23%)* .75% (.28%) (.23%) (.28%)
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 21,295 $ 15,431 $ 22,111 $ 62,113 $ 29,042
Data: ======== ======== ======== ======== ========
Portfolio turnover 35.41% 99.85% 21.11% 30.63% 24.52%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Amount is less than $.01 per share.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Dragon Fund, Inc., June 30, 1999
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class D++
For the
Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
June 30, For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.24 $ 8.80 $ 18.11 $ 16.05 $ 15.08
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .03 .11 .09 .09 .09
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 2.84 (1.55) (7.51) 2.04 1.02
-------- -------- -------- -------- --------
Total from investment operations 2.87 (1.44) (7.42) 2.13 1.11
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- (.09) -- -- --
In excess of investment income--net -- (.03) -- -- (.14)
Realized gain on investments--net -- -- (1.68) (.07) --
In excess of realized gain on
investments--net -- -- (.21) -- --
-------- -------- -------- -------- --------
Total dividends and distributions -- (.12) (1.89) (.07) (.14)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.11 $ 7.24 $ 8.80 $ 18.11 $ 16.05
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 39.64%+++ (16.38%) (40.89%) 13.29% 7.35%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.84%* 1.72% 1.61% 1.58% 1.63%
Net Assets: ======== ======== ======== ======== ========
Investment income--net .59%* 1.48% .53% .53% .59%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 76,074 $ 64,031 $115,318 $297,179 $285,485
Data: ======== ======== ======== ======== ========
Portfolio turnover 35.41% 99.85% 21.11% 30.63% 24.52%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
+++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 Fund's financial statements are
prepared in accordance with generally accepted accounting
principles, which may require the use of management accruals and
estimates. These unaudited financial statements reflect all
adjustments which are, in the opinion of management, necessary to a
fair statement of the 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.
(a) Valuation of investments--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 or
purchased are valued at the last sale price in the case of exchange-
traded options. In the case of options traded in the over-the-
counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). 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 other 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.
* Foreign currency options and futures--The Fund may also purchase
or sell listed or over-the-counter foreign currency options, foreign
currency futures and related options on foreign currency futures as
a short or long hedge against possible variations in foreign
exchange rates. Such transactions may be effected with respect to
hedges on non-US dollar denominated securities owned by the Fund,
sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund.
* Options--The Fund is authorized to write put and covered call
options and purchase put and call 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.
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts as
a hedge against adverse changes in the interest rate. A futures
contract is an agreement between two parties to buy and sell a
security, respectively, for a set price at a future date. 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.
Merrill Lynch Dragon Fund, Inc., June 30, 1996
NOTES TO FINANCIAL STATEMENTS (concluded)
(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 substantially 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.
(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. Distributions in
excess of net investment income are due primarily to differing tax
treatments for foreign currency transactions. Distributions in
excess of realized capital gains are due primarily to differing tax
treatments for futures transactions and post-October losses.
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
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or the "Distributor"), a division of
Princeton Funds Distributor ("PFD"), which is 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 1.00%, on an annual basis,
of the average daily value of the Fund's net assets.
Pursuant to 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% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("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 June 30, 1999, MLFD earned underwriting
discounts and direct 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 $ 25 $ 283
Class D $3,490 $40,539
For the six months ended June 30, 1999, MLPF&S received contingent
deferred sales charges of $311,188 and $8,464 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $189,409 in commissions on the
execution of portfolio security transactions for the Fund for the
six months ended June 30, 1999.
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 MLAM, PSI, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended June 30, 1999 were $101,143,138 and
$146,992,252, respectively.
Net realized gains (losses) for the six months ended June 30, 1999
and net unrealized gains (losses) as of June 30, 1999 were as
follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ (16,352,020) $107,556,700
Short-term investments 194 --
Foreign currency transactions (629,833) (777,263)
------------- ------------
Total $ (16,981,659) $106,779,437
============= ============
As of June 30, 1999, net unrealized appreciation for Federal income
tax purposes aggregated $107,556,700, of which $110,315,064 related
to appreciated securities and $2,758,364 related to depreciated
securities. At June 30, 1999, the aggregate cost of investments for
Federal income tax purposes was $246,340,054.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
for the six months ended June 30, 1999 and the year ended December
31, 1998 was $42,442,996 and $133,868,029, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended June 30, 1999 Shares Amount
Shares sold 11,089,655 $ 89,247,117
Shares redeemed (10,534,379) (85,065,065)
--------------- --------------
Net increase 555,276 $ 4,182,052
=============== ==============
Class A Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
Shares sold 15,653,403 $ 111,046,956
Shares issued to shareholders
in reinvestment of dividends and
distributions 36,394 258,759
--------------- --------------
Total issued 15,689,797 111,305,715
Shares redeemed (15,400,664) (110,364,777)
--------------- --------------
Net increase 289,133 $ 940,938
=============== ==============
Class B Shares for the Six Months Dollar
Ended June 30, 1999 Shares Amount
Shares sold 1,946,371 $ 15,743,305
Shares redeemed (6,868,716) (51,005,130)
Automatic conversion of shares (213,723) (1,671,384)
--------------- --------------
Net decrease (5,136,068) $ (36,933,209)
=============== ==============
Merrill Lynch Dragon Fund, Inc., June 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
Class B Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
Shares sold 14,667,045 $ 105,916,021
Shares issued to shareholders
in reinvestment of dividends and
distributions 159,633 1,107,854
--------------- --------------
Total issued 14,826,678 107,023,875
Shares redeemed (28,838,811) (201,760,153)
Automatic conversion of
shares (440,989) (2,950,502)
--------------- --------------
Net decrease (14,453,122) $ (97,686,780)
=============== ==============
Class C Shares for the Six Months Dollar
Ended June 30, 1999 Shares Amount
Shares sold 1,234,109 $ 9,821,006
Shares redeemed (1,250,181) (9,465,937)
--------------- --------------
Net increase (decrease) (16,072) $ 355,069
=============== ==============
Class C Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
Shares sold 8,974,966 $ 64,145,196
Shares issued to shareholders
in reinvestment of dividends
and distributions 13,504 92,366
--------------- --------------
Total issued 8,988,470 64,237,562
Shares redeemed (9,387,631) (67,722,350)
--------------- --------------
Net decrease (399,161) $ (3,484,788)
=============== ==============
Class D Shares for the Six Months Dollar
Ended June 30, 1999 Shares Amount
Shares sold 580,207 $ 4,744,985
Automatic conversion of
shares 208,394 1,671,384
--------------- --------------
Total issued 788,601 6,416,369
Shares redeemed (2,104,564) (16,463,277)
--------------- --------------
Net decrease (1,315,963) $ (10,046,908)
=============== ==============
Class D Shares for the Year Dollar
Ended December 31, 1998 Shares Amount
Shares sold 15,696,281 $ 115,286,453
Automatic conversion of shares 428,711 2,950,502
Shares issued to shareholders
in reinvestment of dividends
and distributions 110,723 787,239
--------------- --------------
Total issued 16,235,715 119,024,194
Shares redeemed (20,503,790) (152,661,593)
--------------- --------------
Net decrease (4,268,075) $ (33,637,399)
=============== ==============
5. Capital Loss Carryforward:
On December 31, 1998, the Fund had a net capital loss carryforward
of approximately $167,519,000, all of which expires in 2006. This
amount will be available to offset like amounts of any future
taxable gains.
EQUITY PORTFOLIO CHANGES
For the Quarter Ended June 30, 1999
Additions
Allgreen Properties Limited
*Asia Pulp & Paper Company Ltd. (ADR)
City Development Limited
Cosco Pacific Limited
Cycle & Carriage Ltd.
DBS Land Limited
Dah Sing Financial Group
Dao Heng Bank Group Ltd.
Far Eastern Textile Ltd.
*Giordano Holdings
Giordano International Limited
Hitron Techonology Inc.
Kookmin Bank
Korea Telecom Corporation (ADR)
Legend Holdings Limited
Malaysia International Shipping
Corporation Berhad 'Foreign'
New World Development Company
*PT Astra International Tbk
PT Bank Internasional Indonesia 'Foreign'
PT Hanjaya Mandala Sampoerna Tbk
Shandong International Power
Development Company Limited 'H'
Siam Commercial Bank Public Company
Limited 'Foreign'
Synnex Technology International
Corporation
TelecomAsiaCorporation Public Company
Limited 'Foreign'
Telekom Malaysia Berhad
United Microelectronics Corporation, Ltd.
Wharf (Holdings) Ltd.
*Yanzhou Coal Mining Co. Ltd. 'H'
Deletions
AXAChina Region Ltd.
*Asia Pulp & Paper Company Ltd. (ADR)
Ayala Land, Inc. 'B'
BECWorld Public Company Limited
'Foreign'
CLP Holdings Limited
Compeq Manufacturing Co., Ltd.
Elec & Eltek International Co., Ltd.
Genting BHD
*Giordano Holdings
Guangdong Kelon Electrical Holdings
Company Limited (Class H)
Jiangsu Expressway Company Ltd. 'H'
Nestle Malaysia BHD
*PT Astra International Tbk
Singapore Telecommunications, Ltd.
Star Publications Malaysia BHD
VTech Holdings Limited
YTL Power International BHD
*Yanzhou Coal Mining Co. Ltd. 'H'
Yanzhou Coal Mining Co. Ltd. (ADR)
Zhejiang Expressway Co. Ltd. 'H'
[FN]
*Added and deleted in the same quarter.
Merrill Lynch Dragon Fund, Inc., June 30, 1999
PORTFOLIO INFORMATION
Investments
As of 6/30/99
Ten Largest Equity Holdings Percent of
Represented in the Portfolio Net Assets
HSBC Holdings PLC* 5.6%
Hutchison Whampoa Limited 5.2
Hong Kong Telecommunications Ltd. (ADR) 5.1
Korea Electric Power Corporation* 4.6
Samsung Electronics 4.5
Cheung Kong (Holdings) Ltd. 4.4
Samsung Fire & Marine Insurance 3.9
Taiwan Semiconductor Manufacturing Company 2.5
Sun Hung Kai Properties Ltd. 2.5
Singapore Press Holdings Ltd. 2.4
[FN]
*Represents combined holdings.
Ten Largest Industries Percent of
Represented in the Portfolio Net Assets
Banking 16.2%
Electronics 15.8
Telecommunications 13.6
Real Estate 10.4
Utilities--Electric & Gas 6.9
Conglomerates 5.6
Insurance 3.9
Publishing & Broadcasting 3.6
Retail 3.6
Food 2.4
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Donald Cecil, Director
Roland M. Machold, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Kara W.Y. Tan Bhala, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Phillip Gillespie, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
