MERRILL LYNCH
DRAGON FUND, INC.
FUND LOGO
Annual Report
December 31, 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
DECEMBER 31, 1999
INDIA 5.2%
INDONESIA 1.0%
SINGAPORE 14.3%
MALAYSIA 0.2%
THAILAND 3.1%
CHINA 7.4%
HONG KONG 23.6%
TAIWAN 16.9%
SOUTH KOREA 25.3%
PHILIPPINES 1.2%
*Total may not equal 100%.
Merrill Lynch Dragon Fund, Inc., December 31, 1999
DEAR SHAREHOLDER
Fiscal Year in Review
During the fiscal year ended December 31, 1999, Merrill Lynch Dragon
Fund, Inc.'s Class A, Class B, Class C and Class D Shares had total
returns of +80.11%, +78.36%, +78.19% and +79.70%, respectively. The
Fund outperformed the unmanaged benchmark Morgan Stanley Capital
International All Country Far East Composite (Ex-Japan) Index total
return of +62.11% by 20% for the same period. (Fund performance does
not reflect sales charges, and would be lower if sales charges were
included. Complete performance information can be found on pages
4--6 of this report to shareholders.) The Fund benefited from good
sector and stock selections. The Fund was overweighted in the
technology and telecommunications sectors, which outperformed during
the fourth quarter. In particular, global technology issues
performed strongly, particularly in South Korea, Taiwan, Singapore
and Hong Kong. In addition, the Fund benefited from the avoidance of
underperforming markets, such as Malaysia and the Philippines. For
example, the Fund had only a 2% weighting in Malaysia, one of the
worst-performing markets. Finally, the Fund benefited from having a
relatively small cash position going into 2000.
As we forecast, the December quarter was indeed a very good one in
terms of Asian stock markets' performance. Stock markets globally
were driven primarily by the technology and telecommunications
sectors. Therefore, the Fund was very well positioned for the fourth
fiscal quarter rally because approximately half of its assets were
invested in these sectors.
Hong Kong's economy has apparently turned the corner cyclically,
despite deflation. The economy has expanded since the second quarter
of 1999, mainly on the back of Asia's robust economic recovery, the
recent strengthening of the yen and China's expanding trade flows.
We decreased the Fund's exposure to the real estate sector and
increased its positions in telecommunications and technology. We
believe that real estate is likely to be hampered by the relatively
high real interest rates that are expected to prevail in the
territory over the next two years.
The South Korean economy continues its robust recovery. The
government has kept short-term interest rates low and has made it
clear that the central bank would provide as much liquidity as
required to prevent interest rates from rising substantially. This
move prevented a second financial crisis, which could have arisen as
a result of the Daewoo Corporation bankruptcy. We added new South
Korean positions, including Hyundai Electronics Industries Co., and
Internet companies such as Korea Thrunet Co. and Haansoft Inc.
Taiwan is rapidly shaking off the effects of the recent earthquake
there. Exports are booming again and the earthquake has not created
runaway pressures on inflation as some had argued would occur.
Export growth is expected to reach about 15% in the first half of
2000 and to slow to approximately 10% in the second half of 2000. On
the monetary front, inflation appears to have bottomed, and we
continue to believe that the consumer price index will accelerate to
1.8% next year in response to imported inflation from higher oil and
commodity prices. A slack labor market is likely to provide room to
delay monetary tightening until the second half of the year.
The Singapore economy was helped by the rebound in global
electronics demand. This sector accounts for about 70% of non-oil
domestic exports. With exports at 130% of gross domestic product
(GDP), Singapore is likely to continue to ride the rising global
business cycle in 2000. For the year 2000, there are concerns about
a relative growth underperformance rather than absolute growth
disappointment. Real GDP could rise 5.6% in 2000, underpinned by an
expected 0%--30% expansion in wafer fabrication capacity and a
supportive global environment. We added Chartered Semiconductor
Manufacturing Limited, the third-largest dedicated foundry for
outsourcing of wafer production in the world, during the December
quarter. We also initiated a new position in Venture Manufacturing
(Singapore) Ltd., a contract manufacturer of telecommunication and
computer products.
As outlined in our strategy in our September report to shareholders,
we reduced our positions in the Philippines, Malaysia, Indonesia and
Thailand. However, we continued to hold shares of companies that we
believed were Year 2000 compliant. These are the largest-
capitalization, well-funded and well-managed companies in these
countries. Another reason we under-weighted these countries is that
they offer few stocks in the technology sector, a prime focus of the
Fund during the December quarter. On the other hand, we increased
our weighting in India through the purchases of shares in the Indian
software company, NIIT Limited, the Internet company Satyam Infoway
Limited and India's international telephony company, Videsh Sanchar
Nigam Ltd.
Investment Strategy & Outlook
We expect Asian equity markets to continue to be strong in 2000 for
three main reasons. First, the economic recovery is expected to push
ahead, resulting in stronger corporate profit growth. Second,
corporate restructuring is likely to make further progress in 2000.
Companies are cutting costs, streamlining operations and becoming
more productive. Therefore, cost savings will lead to higher profit
margins and better earnings. Third, Asia is entering a technology up-
grade cycle. The region is becoming the center of gravity for
technological investment. The region has always been able to upgrade
its comparative advantage, from clothing, textiles and toys 20 years
ago to automobiles and electronic goods a decade ago. Today, the
region's product strength is moving into information technology,
components and software.
With these factors in mind, we are likely to focus on companies with
strong restructuring benefits, the technology and telecommunication
sectors and consumer and export-related companies that we expect to
profit from strong domestic and global economic growth.
In Conclusion
On January 19, 2000, the Fund's Board of Directors approved a plan
of reorganization, subject to shareholder approval and certain other
conditions, whereby the Fund would acquire substantially all of the
assets and liabilities of Merrill Lynch Emerging Tigers Fund, Inc.
in exchange for newly issued shares of the Fund. These Funds are
registered, non-diversified, open-end managment investment
companies. Both entities have a similar investment objective.
Merrill Lynch Emerging Tigers Fund, Inc. is managed by Fund Asset
Management, L.P., which is an affiliate of the Investment Adviser.
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,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Kara Tan Bhala)
Kara Tan Bhala
Senior Vice President and
Portfolio Manager
January 27, 2000
To reduce shareholder expenses, Merrill Lynch Dragon Fund, Inc. will
no longer be printing and mailing quarterly reports to shareholders.
We will continue to provide you with reports on a semi-annual and
annual basis.
Merrill Lynch Dragon Fund, Inc., December 31, 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.
Total Return
Based on a
$10,000
Investment
A line graph depicting the growth of an investment in the
Fund's Class A Shares and Class C Shares compared to growth
of an investment in the Morgan Stanley Capital International
All Country Far East (Ex-Japan) Free Index. Beginning and
ending values are:
10/21/94** 12/99
ML Dragon Fund, Inc.++--
Class A Shares* $ 9,475 $ 9,217
ML Dragon Fund, Inc.++--
Class C Shares* $10,000 $ 9,233
Morgan Stanley Capital International
All Country Far East (Ex-Japan)
Free Index++++ $10,000 $ 9,145
A line graph depicting the growth of an investment in the
Fund's Class B Shares and Class D Shares compared to growth
of an investment in the Morgan Stanley Capital International
All Country Far East (Ex-Japan) Free Index. Beginning and
ending values are:
5/29/92** 12/99
ML Dragon Fund, Inc.++--
Class B Shares* $10,000 $16,106
ML Dragon Fund, Inc.++--
Class D Shares* $ 9,475 $16,200
Morgan Stanley Capital International
All Country Far East (Ex-Japan)
Free Index++++ $10,000 $16,466
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++ML Dragon Fund, Inc. invests primarily (at least 65% of the Fund's
net assets) in developing Asia-Pacific equity and debt securities.
++++This unmanaged capitalization-weighted Index is comprised of a
representative sampling of stocks of large-, medium- and small-
capitalization companies in Hong Kong, Indonesia, South Korea, the
Philippines, Singapore, China, Taiwan, Malaysia and Thailand that
are freely purchasable by foreign investors. Effective 10/30/98,
Malaysia was removed from the Index. The starting date for the Index
in the Class A & Class C Shares' graph is from 10/31/94.
Average Annual
Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/99 +80.11% +70.65%
Five Years Ended 12/31/99 + 1.76 + 0.66
Inception (10/21/94) through 12/31/99 - 0.53 - 1.55
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/99 +78.36% +74.36%
Five Years Ended 12/31/99 + 0.74 + 0.74
Inception (5/29/92) through 12/31/99 + 6.48 + 6.48
*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 12/31/99 +78.19% +77.19%
Five Years Ended 12/31/99 + 0.73 + 0.73
Inception (10/21/94) through 12/31/99 - 1.53 - 1.53
*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 12/31/99 +79.70% +70.26%
Five Years Ended 12/31/99 + 1.56 + 0.47
Inception (5/29/92) through 12/31/99 + 7.32 + 6.56
*Maximum sales charge is 5.25%. (Prior to October 21, 1994, Class D
Shares (formerly Class A Shares) were offered at a higher than
maximum sales charge. Thus, actual returns would have been somewhat
lower than noted for the inception period.)
**Assuming maximum sales charge.
Merrill Lynch Dragon Fund, Inc., December 31, 1999
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results*
<CAPTION>
3 Month 12 Month Since Inception
As of December 31, 1999 Total Return Total Return Total Return
<S> <C> <C> <C>
ML Dragon Fund, Inc. Class A Shares +42.98% +80.11% - 2.71%
ML Dragon Fund, Inc. Class B Shares +42.81 +78.36 +61.06
ML Dragon Fund, Inc. Class C Shares +42.76 +78.19 - 7.68
ML Dragon Fund, Inc. Class D Shares +42.97 +79.70 +70.99
*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>
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Percent of
COUNTRIES Industries Held Long-Term Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
China Computer Systems 1,200,000 Founder Hong Kong Limited $ 1,466,615 0.3%
Electronics 1,100,000 ++Great Wall Technology Co. 'H' 1,075,518 0.3
2,500,000 Legend Holdings Limited 6,191,303 1.4
-------------- ------
7,266,821 1.7
Telecommunications 1,686,800 ++China Telecom (Hong Kong) Limited 10,524,868 2.4
85,300 ++China Telecom (Hong Kong) Limited (ADR) (a) 10,966,381 2.5
925,000 ++Pacific Century CyberWorks Limited 2,147,980 0.5
-------------- ------
23,639,229 5.4
Total Long-Term Investments in China 32,372,665 7.4
Hong Kong Banking 403,000 Dah Sing Financial Group 1,607,230 0.4
346,000 Dao Heng Bank Group Ltd. 1,784,974 0.4
1,020,977 HSBC Holdings PLC 14,317,058 3.3
383,000 Standard Chartered PLC 5,941,273 1.4
-------------- ------
23,650,535 5.5
Conglomerates 1,729,000 Hutchison Whampoa Limited 25,135,340 5.8
Electronics 852,000 Johnson Electric Holdings Limited 5,469,548 1.3
Publishing & 647,000 Television Broadcasts Ltd. 4,411,553 1.0
Broadcasting
Real Estate 1,748,000 Cheung Kong (Holdings) Ltd. 22,150,778 5.1
Retail 2,800,000 Giordano International Limited 2,881,770 0.7
Telecommunications 2,000,000 ++CCT Telecom Holdings Limited 1,492,345 0.3
469,738 Cable & Wireless HKT Ltd. 13,681,119 3.2
983,000 City Telecom (HK) Ltd. 954,799 0.2
441,000 SmarTone Telecommunications Holdings Limited 2,127,557 0.5
-------------- ------
18,255,820 4.2
Total Long-Term Investments in Hong Kong 101,955,344 23.6
India Banking 642,000 Corporation Bank 1,638,584 0.4
Computer Software 42,600 NIIT Limited 3,247,699 0.8
800 NIIT Limited (New Shares) 60,990 0.0
86,571 ++Satyam Computer Services Limited 4,377,320 1.0
6,619 ++Satyam Computer Services Limited (New Shares) 334,679 0.1
-------------- ------
8,020,688 1.9
Financial Services 170,000 ++ICICI Ltd. (ADR) (a) 2,358,750 0.6
Internet Software 29,400 ++Satyam Infoway Limited (ADR) (a) 4,498,200 1.0
Oil & Gas 116,800 Gas Authority of India Ltd. (c) 1,051,200 0.2
Telecommunications 199,700 Videsh Sanchar Nigam Ltd. (GDR) (b) 4,852,710 1.1
Total Long-Term Investments in India 22,420,132 5.2
Indonesia Food 1,594,000 ++PT Indofood Sukses Makmur Tbk 1,999,642 0.5
Tobacco 863,000 ++PT Hanjaya Mandala Sampoerna Tbk 2,199,258 0.5
Total Long-Term Investments in Indonesia 4,198,900 1.0
Malaysia Banking 792,000 Public Bank Berhad 'Foreign' 821,179 0.2
Total Long-Term Investments in Malaysia 821,179 0.2
Philippines Banking 124,644 Metropolitan Bank & Trust Company 899,173 0.2
Publishing & 686,000 ++ABS-CBN Broadcasting Corporation 853,234 0.2
Broadcasting
Telecommunications 128,480 Philippine Long Distance Telephone
Company (ADR) (a) 3,324,420 0.8
Total Long-Term Investments in the Philippines 5,076,827 1.2
Singapore Airlines 736,000 Singapore Airlines Limited 8,354,595 1.9
Banking 649,320 DBS Group Holdings Limited 10,646,508 2.5
754,406 Overseas Union Bank Ltd. 4,417,693 1.0
-------------- ------
15,064,201 3.5
Electronics 463,403 Datacraft Asia Limited 3,846,245 0.9
795,000 NatSteel Electronics Ltd. 4,201,802 1.0
357,000 Venture Manufacturing (Singapore) Ltd. 4,095,315 0.9
-------------- ------
12,143,362 2.8
Engineering 2,430,000 Singapore Technologies Engineering Ltd. 3,765,405 0.9
Publishing & 471,837 Singapore Press Holdings Ltd. 10,230,220 2.4
Broadcasting
Real Estate 703,000 City Developments Limited 4,116,667 1.0
Semiconductors 72,100 ++Chartered Semiconductor Manufacturing
Limited (ADR) (a) 5,191,200 1.2
Telecommunications 1,400,000 Singapore Telecommunications, Ltd. 2,892,492 0.6
Total Long-Term Investments in Singapore 61,758,142 14.3
</TABLE>
Merrill Lynch Dragon Fund, Inc., December 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Shares Held/ Percent of
COUNTRIES Industries Face Amount Long-Term Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
South Korea Banking 227,759 Kookmin Bank $ 3,571,903 0.8%
86,210 ++Korea Technology Banking Company 835,515 0.2
358,630 Shinhan Bank 3,886,475 0.9
-------------- ------
8,293,893 1.9
Electronics 201,280 Hyundai Electronics Industries Co. 4,273,875 1.0
65,820 Samsung Electronics Co. 15,425,656 3.6
US$ 3,905,000 Samsung Electronics Co. (Regulation S),
0%* due 12/31/2007 7,409,738 1.7
-------------- ------
27,109,269 6.3
Food 59,750 Cheil Jedang Corp. 6,896,256 1.6
Industrials 91,120 Haansoft Inc. 4,222,830 1.0
Internet 10,400 Korea Thrunet Co., Ltd. (Class A) 704,600 0.2
Medical Equipment 123,200 Medison Company 1,796,441 0.4
Steel 92,930 Pohang Iron & Steel Company Ltd. (ADR) (a) 3,252,550 0.7
Telecommunications 80,860 ++Hanaro Telecom Incorporated 1,399,911 0.3
252,400 ++Korea Telecom Corporation (ADR) (a) 18,866,900 4.4
7,430 SK Telecom Co. Ltd. 26,643,260 6.1
121,210 Sungmi Telecom Electronics Company 1,687,329 0.4
-------------- ------
48,597,400 11.2
Utilities-- 131,370 Korea Electric Power Corporation 4,074,206 1.0
Electric & Gas 268,250 Korea Electric Power Corporation (ADR) (a) 4,493,187 1.0
-------------- ------
8,567,393 2.0
Total Long-Term Investments in South Korea 109,440,632 25.3
Taiwan Banking 5,704,163 Bank Sinopac 3,362,875 0.8
1,915,000 ++China Development Industrial Bank Inc. 3,051,307 0.7
4,267,000 ++Chinatrust Commercial Bank 4,963,209 1.1
2,926,000 United World Chinese Commercial Bank 3,533,952 0.8
-------------- ------
14,911,343 3.4
Computers 841,000 ++Acer Inc. 2,532,648 0.6
368,000 Asustek Computer Inc. 3,881,708 0.9
-------------- ------
6,414,356 1.5
Electronics 1,127,640 ++Advanced Semiconductor Engineering Inc. 4,024,719 0.9
545,900 ++Hitron Technology Inc. 3,200,943 0.8
774,200 ++Hon Hai Precision Industry 5,773,193 1.3
411,500 Synnex Technology International Corporation 2,701,370 0.6
93,105 Synnex Technology International
Corporation (GDR) (b) 2,402,109 0.6
2,214,638 ++Taiwan Semiconductor Manufacturing Company 11,785,995 2.7
2,242,500 ++United Microelectronics Corporation, Ltd. 8,003,824 1.9
-------------- ------
37,892,153 8.8
Plastics 1,215,000 Nan Ya Plastic Corporation 2,671,606 0.6
Retail 552,480 President Chain Store Corp. 2,438,447 0.6
Textiles 3,697,300 Far Eastern Textile Ltd. 8,836,759 2.0
Total Long-Term Investments in Taiwan 73,164,664 16.9
Thailand Banking 2,520,000 ++Siam Commercial Bank Public Company
Limited 'Foreign' 3,087,906 0.7
2,404,000 ++Thai Farmers Bank Public Company
Limited 'Foreign' 4,034,417 1.0
-------------- ------
7,122,323 1.7
Oil & Gas 241,936 ++PTT Exploration and Production Public
Company Limited 'Foreign' 1,495,183 0.3
Telecommunications 194,102 ++Advanced Info Service Public Company
Limited 'Foreign' 3,267,780 0.8
Utilities-- 1,143,500 Electricity Generating Public Company
Electric & Gas Limited 'Foreign' 1,424,044 0.3
Total Long-Term Investments in Thailand 13,309,330 3.1
Total Long-Term Investments
(Cost--$254,625,654) 424,517,815 98.2
Short-Term Investments
United States Commercial US$ 3,183,000 General Motors Acceptance Corp.,
Paper** 5% due 1/03/2000 3,182,116 0.7
Total Short-Term Investments (Cost--$3,182,116) 3,182,116 0.7
Total Investments (Cost--$257,807,770) 427,699,931 98.9
Other Assets Less Liabilities 4,632,833 1.1
-------------- ------
Net Assets $ 432,332,764 100.0%
============== ======
(a)American Depositary Receipts (ADR).
(b)Global Depositary Receipts (GDR).
(c)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
++Non-income producing security.
*Represents a zero coupon or step bond; the interest rate shown
reflects the effective yield at the time of purchase by the Fund.
**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.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Dragon Fund, Inc., December 31, 1999
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of December 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$257,807,770) $ 427,699,931
Cash 695,801
Foreign cash 4,339,602
Receivables:
Securities sold $ 4,980,180
Capital shares sold 1,393,180
Dividends 517,949 6,891,309
--------------
Prepaid registration fees and other assets 69,721
--------------
Total assets 439,696,364
--------------
Liabilities: Payables:
Securities purchased 4,731,780
Capital shares redeemed 1,394,390
Investment adviser 382,674
Distributor 259,727 6,768,571
--------------
Accrued expenses and other liabilities 595,029
--------------
Total liabilities 7,363,600
--------------
Net Assets: Net assets $ 432,332,764
==============
Net Assets Class A Shares of Common Stock, $.10 par value,
Consist of: 100,000,000 shares authorized $ 262,290
Class B Shares of Common Stock, $.10 par value,
200,000,000 shares authorized 2,207,764
Class C Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 212,903
Class D Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 717,742
Paid-in capital in excess of par 417,009,059
Accumulated distributions in excess of investment income--net (446,121)
Accumulated realized capital losses on investments and
foreign currency transactions--net (146,329,037)
Accumulated distributions in excess of realized capital
gains on investments and foreign currency transactions--net (11,169,131)
Unrealized appreciation on investments and foreign
currency transactions--net 169,867,295
--------------
Net assets $ 432,332,764
==============
Net Asset Class A--Based on net assets of $34,210,973 and 2,622,901
Value: shares outstanding $ 13.04
==============
Class B--Based on net assets of $278,333,586 and 22,077,635
shares outstanding $ 12.61
==============
Class C--Based on net assets of $26,435,642 and 2,129,026
shares outstanding $ 12.42
==============
Class D--Based on net assets of $93,352,563 and 7,177,419
shares outstanding $ 13.01
==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended December 31, 1999
<S> <S> <C> <C>
Investment Dividends (net of $307,009 foreign withholding tax) $ 4,870,853
Income: Interest and discount earned 807,090
--------------
Total income 5,677,943
--------------
Expenses: Investment advisory fees $ 3,247,707
Account maintenance and distribution fees--Class B 2,146,865
Custodian fees 591,456
Transfer agent fees--Class B 554,759
Account maintenance and distribution fees--Class C 189,397
Account maintenance fees--Class D 173,968
Transfer agent fees--Class D 141,930
Printing and shareholder reports 129,891
Professional fees 95,526
Accounting services 79,377
Registration fees 74,214
Transfer agent fees--Class C 47,519
Directors' fees and expenses 45,037
Transfer agent fees--Class A 40,961
Pricing fees 7,741
Other 11,810
--------------
Total expenses 7,578,158
--------------
Investment loss--net (1,900,215)
--------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 19,174,069
(Loss) on Foreign currency transactions--net (829,429) 18,344,640
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net: Investments--net 181,582,539
Foreign currency transactions--net 17,963 181,600,502
-------------- --------------
Net realized and unrealized gain on
investments and foreign currency transactions 199,945,142
--------------
Net Increase in Net Assets Resulting from Operations $ 198,044,927
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Dragon Fund, Inc., December 31, 1999
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year
Ended December 31,
Increase (Decrease) in Net Assets: 1999 1998
<S> <S> <C> <C>
Operations: Investment income (loss)--net $ (1,900,215) $ 3,947,759
Realized gain (loss) on investments and foreign
currency transactions--net 18,344,640 (157,132,263)
Change in unrealized appreciation/depreciation
on investments and foreign currency transactions--net 181,600,502 63,300,980
-------------- --------------
Net increase (decrease) in net assets resulting
from operations 198,044,927 (89,883,524)
-------------- --------------
Dividends to Investment income--net:
Shareholders: Class A -- (216,933)
Class B -- (1,017,103)
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 to shareholders -- (2,790,982)
-------------- --------------
Capital Share Net decrease in net assets derived from
Transactions: capital share transactions (65,943,858) (133,868,029)
-------------- --------------
Net Assets: Total increase (decrease) in net assets 132,101,069 (226,542,535)
Beginning of year 300,231,695 526,774,230
-------------- --------------
End of year $ 432,332,764 $ 300,231,695
============== ==============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A++
The following per share data and ratios have been derived
from information provided in the financial statements. 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 year $ 7.24 $ 8.81 $ 18.09 $ 15.99 $ 15.05
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .02 .14 .12 .14 .12
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 5.78 (1.57) (7.51) 2.03 1.00
-------- -------- -------- -------- --------
Total from investment operations 5.80 (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 year $ 13.04 $ 7.24 $ 8.81 $ 18.09 $ 15.99
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 80.11% (16.22%) (40.77%) 13.59% 7.44%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.49% 1.46% 1.35% 1.33% 1.37%
Net Assets: ======== ======== ======== ======== ========
Investment income--net .19% 1.78% .73% .78% .74%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 34,211 $ 13,961 $ 14,431 $ 49,943 $ 31,591
Data: ======== ======== ======== ======== ========
Portfolio turnover 88.37% 99.85% 21.11% 30.63% 24.52%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Dragon Fund, Inc., December 31, 1999
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class B++
The following per share data and ratios have been derived
from information provided in the financial statements. 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 year $ 7.07 $ 8.58 $ 17.89 $ 15.98 $ 15.03
Operating -------- -------- -------- ---------- --------
Performance: Investment income (loss)--net (.07) .06 (.04) (.04) (.03)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 5.61 (1.52) (7.38) 2.02 1.00
-------- -------- -------- ---------- --------
Total from investment operations 5.54 (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 year $ 12.61 $ 7.07 $ 8.58 $ 17.89 $ 15.98
======== ======== ======== ========== ========
Total Investment Based on net asset value per share 78.36% (17.06%) (41.40%) 12.41% 6.49%
Return:* ======== ======== ======== ========== ========
Ratios to Average Expenses 2.58% 2.54% 2.39% 2.36% 2.41%
Net Assets: ======== ======== ======== ========== ========
Investment income (loss)--net (.82%) .73% (.26%) (.24%) (.20%)
======== ======== ======== ========== ========
Supplemental Net assets, end of year (in thousands) $278,334 $206,809 $374,914 $1,157,944 $991,281
Data: ======== ======== ======== ========== ========
Portfolio turnover 88.37% 99.85% 21.11% 30.63% 24.52%
======== ======== ======== ========== ========
<CAPTION>
Class C++
The following per share data and ratios have been derived
from information provided in the financial statements. 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 year $ 6.97 $ 8.46 $ 17.68 $ 15.79 $ 14.92
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.07) .06 (.04) (.04) (.04)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 5.52 (1.50) (7.29) 2.00 1.00
-------- -------- -------- -------- --------
Total from investment operations 5.45 (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 year $ 12.42 $ 6.97 $ 8.46 $ 17.68 $ 15.79
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 78.19% (17.05%) (41.38%) 12.43% 6.46%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 2.56% 2.54% 2.41% 2.37% 2.42%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.85%) .75% (.28%) (.23%) (.28%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 26,436 $ 15,431 $ 22,111 $ 62,113 $ 29,042
Data: ======== ======== ======== ======== ========
Portfolio turnover 88.37% 99.85% 21.11% 30.63% 24.52%
======== ======== ======== ======== ========
<CAPTION>
Class D++
The following per share data and ratios have been derived
from information provided in the financial statements. 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 year $ 7.24 $ 8.80 $ 18.11 $ 16.05 $ 15.08
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net --++++ .11 .09 .09 .09
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 5.77 (1.55) (7.51) 2.04 1.02
-------- -------- -------- -------- --------
Total from investment operations 5.77 (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 year $ 13.01 $ 7.24 $ 8.80 $ 18.11 $ 16.05
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 79.70% (16.38%) (40.89%) 13.29% 7.35%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.77% 1.72% 1.61% 1.58% 1.63%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.02%) 1.48% .53% .53% .59%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 93,352 $ 64,031 $115,318 $297,179 $285,485
Data: ======== ======== ======== ======== ========
Portfolio turnover 88.37% 99.85% 21.11% 30.63% 24.52%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Dragon Fund, Inc., December 31, 1999
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. 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 that 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 that 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 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.
(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 post-October losses. Distributions in excess of
realized capital gains are due primarily to differing tax treatments
for post-October losses.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$2,678,179 have been reclassified between paid-in capital in excess
of par and accumulated net realized capital losses and accumulated
distributions in excess of net investment income. These
reclassifications have no effect on net assets or net asset values
per share.
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 .25% .75%
Class C .25% .75%
Class D .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 year ended December 31, 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 $ 82 $ 1,407
Class D $6,901 $94,249
Merrill Lynch Dragon Fund, Inc., June 30, 1996
NOTES TO FINANCIAL STATEMENTS (concluded)
For the year ended December 31, 1999, MLPF&S received contingent
deferred sales charges of $469,559 and $16,435 relating to
transactions in Class B and Class C Shares, respectively.
Furthermore, MLPF&S received contingent deferred sales charges of
$77,179 and $77,490 relating to transactions subject to front-end
sales charge waivers in Class A and Class D Shares, respectively.
In addition, MLPF&S received $329,875 in commissions on the
execution of portfolio security transactions for the Fund for the
year ended December 31, 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 year ended December 31, 1999 were $277,407,363 and
$342,766,436, respectively.
Net realized gains (losses) for the year ended December 31, 1999 and
net unrealized gains (losses) as of December 31, 1999 were as
follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ 19,174,190 $169,892,161
Short-term investments (121) --
Foreign currency transactions (913,982) (24,866)
Forward foreign exchange contracts 84,553 --
-------------- ------------
Total $ 18,344,640 $169,867,295
============== ============
As of December 31, 1999 net unrealized appreciation for Federal
income tax purposes aggregated $166,284,594, of which $170,059,545
related to appreciated securities and $3,774,951 related to
depreciated securities. At December 31, 1999, the aggregate cost of
investments for Federal income tax purposes was $261,415,337.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $65,943,858 and $133,868,029 for the years ended December 31,
1999 and December 31, 1998, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended December 31, 1999 Shares Amount
Shares sold 19,484,180 $ 173,308,347
Shares redeemed (18,788,481) (168,061,348)
-------------- -------------
Net increase 695,699 $ 5,246,999
============== =============
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 Year Dollar
Ended December 31, 1999 Shares Amount
Shares sold 4,518,837 $ 41,312,257
Shares redeemed (11,235,174) (94,563,428)
Automatic conversion of shares (440,785) (3,858,030)
-------------- -------------
Net decrease (7,157,122) $ (57,109,201)
============== =============
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 Year Dollar
Ended December 31, 1999 Shares Amount
Shares sold 2,134,250 $ 18,368,755
Shares redeemed (2,219,846) (18,697,878)
-------------- -------------
Net decrease (85,596) $ (329,123)
-------------- -------------
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 Year Dollar
Ended December 31, 1999 Shares Amount
Shares sold 2,238,966 $ 21,079,512
Automatic conversion of shares 428,850 3,858,030
-------------- -------------
Total issued 2,667,816 24,937,542
Shares redeemed (4,333,778) (38,690,075)
-------------- -------------
Net decrease (1,665,962) $ (13,752,533)
============== =============
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, 1999, the Fund had a net capital loss carryforward
of approximately $154,210,000, all of which expires in 2006. This
amount will be available to offset like amounts of any future
taxable gains.
6. Reorganization Plan:
On January 19, 2000, the Fund's Board of Directors approved a plan
of reorganization, subject to shareholder approval and certain other
conditions, whereby the Fund would acquire substantially all of the
assets and liabilities of Merrill Lynch Emerging Tigers Fund, Inc.
in exchange for newly issued shares of the Fund. These Funds are
registered, non-diversified, open-end management investment
companies. Both entities have a similar investment objective.
Merrill Lynch Emerging Tigers Fund, Inc. is managed by Fund Asset
Management, L.P., which is an affiliate of MLAM.
Merrill Lynch Dragon Fund, Inc., December 31, 1999
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Dragon Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Dragon Fund, Inc. as of December 31, 1999, the related statements of
operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at December
31, 1999 by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Dragon Fund, Inc. as of December 31, 1999, the results
of its operations, the changes in its net assets, and the financial
highlights for the respective stated periods in conformity with
generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 16, 2000
</AUDIT-REPORT>
PORTFOLIO INFORMATION (unaudited)
Investments
As of 12/31/99
Ten Largest Equity Holdings Percent of
Represented in the Portfolio Net Assets
SK Telecom Co. Ltd. 6.1%
Hutchison Whampoa Limited 5.8
Cheung Kong (Holdings) Ltd. 5.1
China Telecom (Hong Kong) Limited* 4.9
Korea Telecom Corporation (ADR) 4.4
Samsung Electronics Co. 3.6
HSBC Holdings PLC 3.3
Cable & Wireless HKT Ltd. 3.2
Taiwan Semiconductor Manufacturing Company 2.7
DBS Group Holdings Limited 2.5
*Represents combined holdings.
Ten Largest Industries Percent of
Represented in the Portfolio Net Assets
Telecommunications 24.1%
Electronics 20.9
Banking 16.8
Real Estate 6.1
Conglomerates 5.8
Publishing & Broadcasting 3.6
Utilities--Electric & Gas 2.3
Food 2.1
Textiles 2.0
Airlines 1.9
Merrill Lynch Dragon Fund, Inc., December 31, 1999
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Charles C. Reilly, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Robert C. Doll, Senior Vice President
Kara W.Y. Tan Bhala, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Phillip Gillespie, Secretary
Donald Cecil and Edward H. Meyer, Directors of Merrill Lynch Dragon
Fund, Inc. have recently retired. The Fund's Board of Directors
wishes Mr. Cecil and Mr. Meyer well in their retirements.
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
