<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 1, 2000
SECURITIES ACT FILE NO. 333-
INVESTMENT COMPANY ACT FILE NO. 811-6581
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
[ ] PRE-EFFECTIVE AMENDMENT NO. [ ] POST-EFFECTIVE AMENDMENT NO.
(CHECK APPROPRIATE BOX OR BOXES)
------------------------
MERRILL LYNCH DRAGON FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
(609) 282-2800
(AREA CODE AND TELEPHONE NUMBER)
------------------------
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES:
NUMBER, STREET, CITY, STATE, ZIP CODE)
------------------------
TERRY K. GLENN
MERRILL LYNCH DRAGON FUND, INC.
800 SCUDDERS MILL ROAD, PLAINSBORO, NEW JERSEY 08536
MAILING ADDRESS: P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(NAME AND ADDRESS OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
FRANK P. BRUNO, ESQ. MICHAEL J. HENNEWINKEL, ESQ.
BROWN & WOOD LLP MERRILL LYNCH ASSET MANAGEMENT, L.P.
ONE WORLD TRADE CENTER 800 SCUDDERS MILL ROAD
NEW YORK, NY 10048-0557 PLAINSBORO, NJ 08536
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the Registration Statement becomes effective under the Securities Act of 1933.
------------------------
TITLE OF SECURITIES BEING REGISTERED. COMMON STOCK, PAR VALUE $.10 PER
SHARE.
No filing fee is required because of reliance on Section 24(f) under the
Investment Company Act of 1940, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BY
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROXY STATEMENT AND PROSPECTUS DATED FEBRUARY 1, 2000
MERRILL LYNCH EMERGING TIGERS FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
------------------------
TO BE HELD ON APRIL 26, 2000
TO THE STOCKHOLDERS OF
MERRILL LYNCH EMERGING TIGERS FUND, INC.:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the
"Meeting") of Merrill Lynch Emerging Tigers Fund, Inc. ("Emerging Tigers Fund")
will be held at the offices of Fund Asset Management, L.P., 800 Scudders Mill
Road, Plainsboro, New Jersey on Wednesday, April 26, 2000 at , New
York time, for the following purposes:
(1) To approve or disapprove an Agreement and Plan of Reorganization
(the "Agreement and Plan of Reorganization") providing for the acquisition
of substantially all of the assets of Emerging Tigers Fund by Merrill Lynch
Dragon Fund, Inc. ("Dragon Fund"), and the assumption of substantially all
of the liabilities of Emerging Tigers Fund by Dragon Fund, in exchange
solely for an equal aggregate value of newly-issued shares of Dragon Fund.
The Agreement and Plan of Reorganization also provides for distribution of
such shares of Dragon Fund to stockholders of Emerging Tigers Fund in
liquidation of Emerging Tigers Fund. A vote in favor of this proposal will
constitute a vote in favor of the liquidation and dissolution of Emerging
Tigers Fund and the termination of its registration under the Investment
Company Act of 1940, as amended; and
(2) To transact such other business as properly may come before the
Meeting or any adjournment thereof.
The Board of Directors of Emerging Tigers Fund has fixed the close of
business on March 15, 2000 as the record date for the determination of
stockholders entitled to notice of, and to vote at, the Meeting or any
adjournment thereof.
A complete list of the stockholders of Emerging Tigers Fund entitled to
vote at the Meeting will be available and open to the examination of any
stockholders of Emerging Tigers Fund for any purpose germane to the Meeting
during ordinary business hours from and after April 12, 2000 at the offices of
Emerging Tigers Fund, 800 Scudders Mill Road, Plainsboro, New Jersey.
You are cordially invited to attend the Meeting. STOCKHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING IN PERSON ARE REQUESTED TO COMPLETE, DATE AND SIGN
THE ENCLOSED FORM OF PROXY AND RETURN IT PROMPTLY IN THE ENVELOPE PROVIDED FOR
THAT PURPOSE. The enclosed proxy is being solicited on behalf of the Board of
Directors of Emerging Tigers Fund.
By Order of the Board of Directors,
PHILLIP S. GILLESPIE
Secretary
Plainsboro, New Jersey
Dated: , 2000
<PAGE> 3
MERRILL LYNCH EMERGING TIGERS FUND, INC.
MERRILL LYNCH DRAGON FUND, INC.
P.O. BOX 9011, PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
------------------------
SPECIAL MEETING OF STOCKHOLDERS OF
MERRILL LYNCH EMERGING TIGERS FUND, INC.
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Merrill Lynch
Emerging Tigers Fund, Inc., a Maryland corporation ("Emerging Tigers Fund"), for
use at the Special Meeting of Stockholders of Emerging Tigers Fund (the
"Meeting") called to approve or disapprove the proposed reorganization whereby
Merrill Lynch Dragon Fund, Inc., a Maryland corporation ("Dragon Fund"), will
acquire substantially all of the assets, and will assume substantially all of
the liabilities, of Emerging Tigers Fund, in exchange solely for an equal
aggregate value of newly-issued shares of Dragon Fund (the "Reorganization").
Immediately upon the receipt by Dragon Fund of the assets of Emerging Tigers
Fund and the assumption by Dragon Fund of the liabilities of Emerging Tigers
Fund, Emerging Tigers Fund will distribute the shares of Dragon Fund received in
the Reorganization to the stockholders of Emerging Tigers Fund. Thereafter,
Emerging Tigers Fund will terminate its registration under the Investment
Company Act of 1940, as amended (the "Investment Company Act"), and will
dissolve in accordance with the laws of the State of Maryland.
Each holder of shares in Emerging Tigers Fund will be entitled to receive
the same class of shares of Dragon Fund (i.e., Class A, Class B, Class C or
Class D) (the "Corresponding Shares") as they held in Emerging Tigers Fund
immediately prior to the reorganization. The same distribution fees, account
maintenance fees and sales charges (including contingent deferred sales charges
("CDSCs")), if any, shall apply to the Corresponding Shares as applied to shares
of Emerging Tigers Fund immediately prior to the Reorganization. The aggregate
net asset value of the Corresponding Shares of Dragon Fund to be issued to the
stockholders of Emerging Tigers Fund will equal the aggregate net asset value of
the outstanding shares of Emerging Tigers Fund as set forth in the Agreement and
Plan of Reorganization between Emerging Tigers Fund and Dragon Fund (the
"Agreement and Plan"). Emerging Tigers Fund and Dragon Fund sometimes are
referred to herein collectively as the "Funds" and individually as a "Fund," as
the context requires. The fund resulting from the Reorganization is sometimes
referred to herein as the "Combined Fund."
This Proxy Statement and Prospectus serves as a prospectus of Dragon Fund
under the Securities Act of 1933, as amended (the "Securities Act"), in
connection with the issuance of shares of Dragon Fund to Emerging Tigers Fund
pursuant to the terms of the Reorganization.
The Funds are non-diversified, open-end investment management companies with
substantially similar investment objectives. Dragon Fund's investment objective
is to seek long term capital appreciation by investing primarily in equity and
debt securities of issuers domiciled in developing countries located in Asia and
the Pacific Basin. The investment objective of Emerging Tigers Fund is to seek
long term capital appreciation by investing primarily in equity securities of
corporations in designated emerging market countries located in Asia and the
Pacific Basin. There can be no assurance that, after the Reorganization, the
Combined Fund will achieve its investment objective.
Merrill Lynch Asset Management, L.P. ("MLAM") is the investment adviser to
Dragon Fund. Fund Asset Management, L.P. ("FAM") is the investment adviser to
Emerging Tigers Fund. MLAM and FAM sometimes are referred to herein collectively
as the "Advisers" and individually as an "Adviser," as the context requires.
The current prospectus relating to Dragon Fund, dated April 27, 1999 (the
"Dragon Fund Prospectus"), accompanies this Proxy Statement and Prospectus and
is incorporated herein by reference. The Annual Report to Stockholders of Dragon
Fund, as of December 31, 1999, also accompanies this Proxy Statement and
Prospectus. A statement of additional information relating to Dragon Fund, dated
April 27, 1999 (the "Dragon Fund Statement"), a prospectus of Emerging Tigers
Fund dated March 31, 1999 (the "Emerging Tigers Fund Prospectus") and a
statement of additional information relating to Emerging Tigers Fund, dated
March 31, 1999 (the "Emerging Tigers Fund Statement"), have been filed with the
Securities and Exchange Commission (the "Commission"). Such documents may be
obtained, without charge, by writing either Emerging Tigers Fund or Dragon Fund
at the address above, or by calling 1-800-456-4587, ext. 123.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT AND PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
This Proxy Statement and Prospectus sets forth concisely the information
about Dragon Fund that stockholders of Emerging Tigers Fund should know before
considering the Reorganization and should be retained for future reference.
Emerging Tigers Fund has authorized the solicitation of proxies in connection
with the Reorganization solely on the basis of this Proxy Statement and
Prospectus and the accompanying documents.
A statement of additional information relating to the Reorganization (the
"Statement of Additional Information"), including pro forma financial statements
of Emerging Tigers Fund and Dragon Fund, has been filed with the Commission in
conjunction with this Proxy Statement and Prospectus. It is available from
Dragon Fund without charge, upon oral request by calling the toll free telephone
number set forth above or upon written request by writing Dragon Fund at its
principal executive offices. The Statement of Additional Information, dated
, 2000 is incorporated by reference into this Proxy Statement and
Prospectus. The Commission maintains a web site (http://www.sec.gov) that
contains the Statement of Additional Information, the Dragon Fund Prospectus,
the Emerging Tigers Fund Prospectus, the Dragon Fund Statement, the Emerging
Tigers Fund Statement, other material incorporated by reference and other
information regarding the Funds.
The address of the principal executive offices of both Emerging Tigers Fund
and Dragon Fund is 800 Scudders Mill Road, Plainsboro, New Jersey 08536, and the
telephone number is (609) 282-2800.
------------------------
THE DATE OF THIS PROXY STATEMENT AND PROSPECTUS IS , 2000.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION................................................ 4
SUMMARY..................................................... 4
The Reorganization........................................ 4
Pro Forma Fee Tables...................................... 5
RISK FACTORS AND SPECIAL CONSIDERATIONS..................... 12
COMPARISON OF THE FUNDS..................................... 18
Financial Highlights...................................... 18
Investment Objectives and Policies........................ 22
Investment Restrictions................................... 27
Management................................................ 27
Purchase of Shares........................................ 29
Redemption of Shares...................................... 29
Performance............................................... 29
Stockholder Rights........................................ 30
Dividends................................................. 30
Automatic Dividend Reinvestment Plan...................... 30
Tax Information........................................... 30
Portfolio Transactions.................................... 30
Portfolio Turnover........................................ 31
Additional Information.................................... 31
THE REORGANIZATION.......................................... 31
General................................................... 31
Procedure................................................. 32
Terms of the Agreement and Plan of Reorganization......... 32
Potential Benefits to Stockholders as a Result of the
Reorganization......................................... 33
Tax Consequences of the Reorganization.................... 34
Capitalization............................................ 35
INFORMATION CONCERNING THE SPECIAL MEETING.................. 36
Date, Time and Place of Meeting........................... 36
Solicitation, Revocation and Use of Proxies............... 36
Record Date and Outstanding Shares........................ 36
Security Ownership of Certain Beneficial Owners and
Management of Emerging Tigers Fund and Dragon Fund..... 36
Voting Rights and Required Vote........................... 37
ADDITIONAL INFORMATION...................................... 38
LEGAL PROCEEDINGS........................................... 38
LEGAL OPINIONS.............................................. 38
EXPERTS..................................................... 38
STOCKHOLDER PROPOSALS....................................... 39
EXHIBIT I -- AGREEMENT AND PLAN OF REORGANIZATION........... I-1
</TABLE>
3
<PAGE> 5
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Emerging Tigers
Fund for use at the Meeting to be held at the offices of FAM, 800 Scudders Mill
Road, Plainsboro, New Jersey on April 26, 2000, at , Eastern time. The
mailing address for Emerging Tigers Fund is P.O. Box 9011, Princeton, New Jersey
08543-9011. The approximate mailing date of this Proxy Statement and Prospectus
is March , 2000.
Any person giving a proxy may revoke it at any time prior to its exercise
by executing a superseding proxy, by giving written notice of the revocation to
the Secretary of Emerging Tigers Fund at the address indicated above or by
voting in person at the Meeting. All properly executed proxies received prior to
the Meeting will be voted at the Meeting in accordance with the instructions
marked thereon or otherwise as provided therein. Unless instructions to the
contrary are marked, properly executed proxies will be voted "FOR" the proposal
to approve the Agreement and Plan.
Approval of the Agreement and Plan will require the affirmative vote of
Emerging Tigers Fund stockholders representing a majority of the total number of
votes entitled to be cast thereon. Stockholders will vote as a single class on
the proposal to approve the Agreement and Plan. See "Information Concerning the
Special Meeting."
The Board of Directors of Emerging Tigers Fund knows of no business other
than that discussed above which will be presented for consideration at the
Meeting. If any other matter is properly presented, it is the intention of the
persons named in the enclosed proxy to vote in accordance with their best
judgment.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus (including documents incorporated herein by
reference) and is qualified in its entirety by reference to the more complete
information contained in this Proxy Statement and Prospectus and in the
Agreement and Plan, attached hereto as Exhibit I.
In this Proxy Statement and Prospectus, the term "Reorganization" refers
collectively to (i) the acquisition of substantially all of the assets and the
assumption of substantially all of the liabilities of Emerging Tigers Fund by
Dragon Fund in exchange for the Corresponding Shares and the subsequent
distribution of Corresponding Shares of Dragon Fund to the stockholders of
Emerging Tigers Fund; and (ii) the subsequent deregistration and dissolution of
Emerging Tigers Fund.
THE REORGANIZATION
At a meeting of the Board of Directors of Emerging Tigers Fund held on
January 20, 2000, the Board of Directors of Emerging Tigers Fund approved a
proposal that Dragon Fund acquire substantially all of the assets, and assume
substantially all of the liabilities, of Emerging Tigers Fund in exchange solely
for shares of Dragon Fund to be distributed to the stockholders of Emerging
Tigers Fund.
Based upon their evaluation of all relevant information, the Directors of
Emerging Tigers Fund have determined that the Reorganization will potentially
benefit the stockholders of Emerging Tigers Fund. Specifically, after the
Reorganization, Emerging Tigers Fund stockholders will remain invested in an
open-end fund that has a substantially identical investment objective to that of
Emerging Tigers Fund and that pays, on a pro forma basis, an advisory fee to
MLAM, the investment adviser to Dragon Fund and an affiliate of FAM, at the same
effective annual rate as that currently paid by Emerging Tigers Fund to FAM.
Since the net assets of Dragon Fund as of November 30, 1999 were approximately
$378.2 million and will increase by approximately $48.5 million (the net assets
of Emerging Tigers Fund as of November 30, 1999) as a result of the
Reorganization, Emerging Tigers Fund stockholders are likely to experience
certain benefits, including, without limitation, lower expenses per share,
economies of scale and greater flexibility in portfolio management. See "The
Reorganization -- Potential Benefits to Stockholders as a Result of the
Reorganization."
The Board of Directors of Emerging Tigers Fund, including all of the
Directors who are not "interested persons," as defined in the Investment Company
Act, has determined that the Reorganization is in the best interests of Emerging
Tigers Fund and that the interests of existing Emerging Tigers Fund stockholders
will not be diluted as a result of effecting the Reorganization.
4
<PAGE> 6
If all of the requisite approvals are obtained, it is anticipated that the
Reorganization will occur as soon as practicable after such approval, provided
that Emerging Tigers Fund and Dragon Fund have obtained prior to that time
either (a) a favorable private letter ruling from the Internal Revenue Service
(the "IRS") or (b) an opinion of counsel concerning the tax consequences of the
Reorganization as set forth in the Agreement and Plan. The Agreement and Plan
may be terminated, and the Reorganization abandoned, whether before or after
approval by the stockholders of Emerging Tigers Fund, at any time prior to the
Exchange Date (as defined below), (i) by mutual consent of the Boards of
Directors of Emerging Tigers Fund and Dragon Fund; (ii) by the Board of
Directors of Emerging Tigers Fund if any condition to Emerging Tigers Fund's
obligations has not been fulfilled or waived by such Board; or (iii) by the
Board of Directors of Dragon Fund if any condition to Dragon Fund's obligations
has not been fulfilled or waived by such Board.
PRO FORMA FEE TABLES
PRO FORMA FEE TABLE FOR CLASS A AND CLASS B STOCKHOLDERS OF EMERGING TIGERS
FUND, DRAGON FUND
AND THE PRO FORMA DRAGON FUND AS OF NOVEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
CLASS A SHARES Class B Shares(b)
---------------------------------- ----------------------------------
ACTUAL ACTUAL
-------------------- --------------------
EMERGING DRAGON PRO FORMA EMERGING DRAGON PRO FORMA
TIGERS FUND FUND DRAGON FUND TIGERS FUND FUND DRAGON FUND
----------- ------ ----------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
STOCKHOLDER FEES (FEES PAID DIRECTLY FROM A
STOCKHOLDER'S INVESTMENT)(a):
Maximum Sales Charge (Load) imposed on purchases (as a 5.25%(c) 5.25%(c) 5.25%(c) None None None
percentage of offering price).........................
Maximum Deferred Sales Charge (Load) (as a None(d) None(d) None(d) 4.0%(c) 4.0%(c) 4.0%(c)
percentage of original purchase price or
redemption proceeds, whichever is lower)..........
Maximum Sales Charge (Load) Imposed on Dividend None None None None None None
Reinvestments.....................................
Redemption Fee...................................... None None None None None None
Exchange Fee........................................ None None None None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS):
Investment Advisory Fees............................ 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Distribution and/or Service (12b-1) Fees(e)......... None None None 1.00% 1.00% 1.00%
Other Expenses (including transfer agent fees)(f)... 1.26% 0.46% 0.44% 1.26% 0.46% 0.44%
---- ---- ---- ---- ---- ----
Total Annual Fund Operating Expenses.................. 2.26% 1.46% 1.44% 3.26% 2.46% 2.44%
==== ==== ==== ==== ==== ====
</TABLE>
- ---------------
Footnotes on next page.
5
<PAGE> 7
PRO FORMA FEE TABLE FOR CLASS C AND CLASS D STOCKHOLDERS OF EMERGING TIGERS
FUND,
DRAGON FUND AND THE PRO FORMA DRAGON FUND AS OF NOVEMBER 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
CLASS C SHARES CLASS D SHARES
---------------------------------- ----------------------------------
ACTUAL ACTUAL
-------------------- --------------------
EMERGING DRAGON PRO FORMA EMERGING DRAGON PRO FORMA
TIGERS FUND FUND DRAGON FUND TIGERS FUND FUND DRAGON FUND
----------- ------ ----------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
STOCKHOLDER FEES (FEES PAID DIRECTLY FROM A
STOCKHOLDER'S INVESTMENT)(a):
Maximum Sales Charge (Load) imposed on purchases (as a None None None 5.25%(c) 5.25%(c) 5.25%(c)
percentage of offering price).........................
Maximum Deferred Sales Charge (Load) (as a 1.0%(c) 1.0%(c) 1.0%(c) None(d) None(d) None(d)
percentage of original purchase price or
redemption proceeds, whichever is lower)..........
Maximum Sales Charge (Load) Imposed on Dividend None None None None None None
Reinvestments.....................................
Redemption Fee...................................... None None None None None None
Exchange Fee........................................ None None None None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE
DEDUCTED FROM FUND ASSETS):
Investment Advisory Fees............................ 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Distribution and/or Service(12b-1) Fees(e).......... 1.00% 1.00% 1.00% 0.25% 0.25% 0.25%
Other Expenses (including transfer agency 1.26% 0.46% 0.44% 1.26% 0.46% 0.44%
fees)(f)..........................................
---- ---- ---- ---- ---- ----
Total Annual Fund Operating Expenses.................. 3.26% 2.46% 2.44% 2.51% 1.71% 1.69%
==== ==== ==== ==== ==== ====
</TABLE>
- ---------------
(a) In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") may charge clients a processing fee (currently $5.35) when a client
buys or sells shares.
(b) Class B shares automatically convert to Class D shares about eight years
after initial purchase. After such conversion, such shares will no longer
be subject to distribution fees.
(c) Some investors may qualify for reductions in the sales charge (load).
(d) A stockholder may pay a deferred sales charge if such stockholder purchases
$1 million or more and redeems within one year.
(e) The Funds call the "Service Fee" an "Account Maintenance Fee." Account
Maintenance Fee is the term used in the Prospectuses of the Funds and all
other Fund materials. If a stockholder holds Class B or Class C shares for
a long time, it may cost that stockholder more in distribution (12b-1) fees
than the maximum sales charge that such stockholder would have paid if he
or she had bought one of the other classes.
(f) The Funds pay the Transfer Agent $11.00 for each Class A and Class D
stockholder account and $14.00 for each Class B and Class C stockholder
account and reimburse the Transfer Agent's out-of-pocket expenses. The
Funds pay a 0.10% fee for certain accounts that participate in the Merrill
Lynch Mutual Fund Adviser program. The Funds also pay a $0.20 monthly
closed account charge, which is assessed upon all accounts that close
during the year. This fee begins the month following the month the account
is closed and ends at the end of the calendar year. For the fiscal year
ended December 31, 1998, Dragon Fund paid the Transfer Agent fees totaling
$1,256,107; for the fiscal year ended November 30, 1999, Emerging Tigers
Fund paid the Transfer Agent fees totaling $125,396. Each Adviser provides
accounting services to its Fund at cost. For the fiscal year ended December
31, 1998, Dragon Fund reimbursed MLAM $69,836 for these services; for the
fiscal year ended November 30, 1999, Emerging Tigers Fund reimbursed FAM
$88,617 for these services.
6
<PAGE> 8
EXAMPLES:
These examples assume that you invest $10,000 in the relevant Fund for the
time periods indicated, that your investment has a 5% return each year, that you
pay the sales charges, if any, that apply to the particular class and that each
Fund's operating expenses remain the same. This assumption is not meant to
indicate you will receive a 5% annual rate of return. Your annual return may be
more or less than the 5% used in these examples. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
EXPENSES IF YOU DID REDEEM YOUR SHARES:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
CLASS A
Emerging Tigers Fund........................................ $742 $1,194 $1,671 $2,984
Dragon Fund............................................... 666 962 1,281 2,180
Combined Fund**........................................... 664 957 1,271 2,159
CLASS B
Emerging Tigers Fund...................................... $729 $1,204 $1,702 $3,387*
Dragon Fund............................................... 649 967 1,311 2,611*
Combined Fund**........................................... 647 961 1,301 2,591*
CLASS C
Emerging Tigers Fund...................................... $429 $1,004 $1,702 $3,558
Dragon Fund............................................... 349 767 1,311 2,796
Combined Fund**........................................... 347 761 1,301 2,776
CLASS D
Emerging Tigers Fund...................................... $766 $1,265 $1,790 $3,221
Dragon Fund............................................... 690 1,036 1,404 2,438
Combined Fund**........................................... 688 1,030 1,395 2,418
</TABLE>
EXPENSES IF YOU DID NOT REDEEM YOUR SHARES:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
CLASS A
Emerging Tigers Fund........................................ $742 $1,194 $1,671 $2,984
Dragon Fund............................................... 666 962 1,281 2,180
Combined Fund**........................................... 664 957 1,271 2,159
CLASS B
Emerging Tigers Fund...................................... $329 $1,004 $1,702 $3,387*
Dragon Fund............................................... 249 767 1,311 2,611*
Combined Fund**........................................... 247 761 1,301 2,591*
CLASS C
Emerging Tigers Fund...................................... $329 $1,004 $1,702 $3,558
Dragon Fund............................................... 249 767 1,311 2,796
Combined Fund**........................................... 247 761 1,301 2,776
CLASS D
Emerging Tigers Fund...................................... $766 $1,265 $1,790 $3,221
Dragon Fund............................................... 690 1,036 1,404 2,438
Combined Fund**........................................... 688 1,030 1,395 2,418
</TABLE>
- ---------------
* Assumes conversion to Class D shares approximately eight years after
purchase. See note (b) to the Pro Forma Fee Tables on page 6.
** Assuming the Reorganization took place on November 30, 1999.
7
<PAGE> 9
The preceding Pro Forma Fee Tables are intended to assist investors in
understanding the costs and expenses that a stockholder of Emerging Tigers Fund
or Dragon Fund bears directly or indirectly as compared to the costs and
expenses that would be borne by such investors taking into account the
Reorganization. The Examples set forth above assume reinvestment of all
dividends and distributions and utilize a 5% annual rate of return as mandated
by Commission regulations. THE EXAMPLES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES OR ANNUAL RATES OF RETURN, AND ACTUAL
EXPENSES OR ANNUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE ASSUMED FOR
PURPOSES OF THE EXAMPLES. See "Comparison of the Funds -- Management,"
"-- Purchase of Shares" and "-- Redemption of Shares" and "Summary," "The
Reorganization -- Potential Benefits to Stockholders as a Result of the
Reorganization."
BUSINESS OF DRAGON FUND....Dragon Fund was incorporated under the laws of the
State of Maryland on February 13, 1992 and commenced
operations on May 29, 1992. Dragon Fund is a
non-diversified, open-end management investment
company.
As of November 30, 1999, Dragon Fund had net assets
of $378,207,141.
BUSINESS OF EMERGING TIGERS
FUND.....................Emerging Tigers Fund was incorporated under the laws
of the State of Maryland on December 23, 1993 as a
closed-end investment company. It commenced
operations as a closed-end investment company on
March 4, 1994. Emerging Tigers Fund subsequently
converted to an open-end management investment
company. It commenced operations as a
non-diversified, open-end investment company on June
10, 1996.
As of November 30, 1999, Emerging Tigers Fund had net
assets of $48,483,614.
COMPARISON OF THE FUNDS....Investment Objectives. The investment objectives of
Dragon Fund and Emerging Tigers Fund are
substantially similar. Dragon Fund's investment
objective is to seek long term capital appreciation
by investing primarily in equity and debt securities
of issuers domiciled in developing countries located
in Asia and the Pacific Basin. The investment
objective of Emerging Tigers Fund is to seek long
term capital appreciation by investing primarily in
equity securities of corporations in designated
emerging market countries located in Asia and the
Pacific Basin.
Investment Policies. Under normal market conditions,
Dragon Fund invests at least 65% of its assets in
securities of issuers located in developing countries
in the Asia-Pacific region. Dragon Fund considers all
countries in the Asia-Pacific region to be developing
countries other than Japan, Australia and New
Zealand. Normally, a majority of Dragon Fund's assets
will be invested in common stock of companies located
in China, South Korea, Singapore, Taiwan, Hong Kong,
Malaysia, Sri Lanka, Indonesia, The Philippines,
India, Pakistan, Turkey and Brunei. Dragon Fund's
investment strategy is to search for stocks that, in
MLAM's opinion, have strong earnings growth and high
growth potential. Dragon Fund will also invest in
debt securities of varying maturities of companies
located in the Asia-Pacific region, including bonds
of Asia-Pacific governments and convertible bonds of
companies doing business in that region. Dragon Fund
will not invest in securities that are in default,
except that Dragon Fund may invest up to 5% of its
total assets in sovereign debt securities that are in
default. Dragon Fund also may invest in high yield or
"junk" bonds and is not limited as to the amount that
may be invested in such bonds.
Under normal market conditions, Emerging Tigers Fund
invests at least 65% of its total assets in equity
securities of companies located in emerging market
Asia-Pacific countries. Emerging Tigers Fund
considers all countries in the Asia-Pacific region to
be emerging market countries other than Japan,
Taiwan, Australia, New Zealand and Hong Kong.
Normally, a majority of Emerging Tigers Fund's assets
will be invested in common stocks and convertible
securities of companies in
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<PAGE> 10
Malaysia, India, Thailand, Singapore, China, The
Philippines, Indonesia, Pakistan, and Sri Lanka. The
investment strategy of Emerging Tigers Fund is to
search for stocks that, in the opinion of FAM, are
worth more than they are trading for. Emerging Tigers
Fund may also invest up to 35% of its total assets in
debt securities, including junk bonds and distressed
securities, of companies or governments in emerging
market Asia-Pacific countries. Distressed securities
are securities that are either subject to bankruptcy
proceedings, in default or at risk of being in
default.
Each Fund also may use derivatives to increase its
return or to hedge its portfolio against currency
risk, interest rate risk and other types of risk.
Under certain market conditions, each Fund may invest
its assets in short term securities or cash as a
temporary defensive measure.
Each Fund is a non-diversified fund which means that
each Fund may invest more than 5% of its assets in
the securities of a single issuer. As a result, each
Fund may invest more of its respective assets in
fewer issuers than if it were a diversified fund.
Dragon Fund may borrow up to 33 1/3% and Emerging
Tigers Fund may borrow up to 20% of their respective
total assets taken at market value as a temporary
measure for extraordinary or emergency purposes
including to meet redemptions or to settle securities
transactions.
Each Fund may lend securities up to 33 1/3% of its
total assets to financial institutions which provide
securities issued or guaranteed by the U.S.
government as collateral.
Advisory Fees. The investment adviser for Dragon
Fund is MLAM. The investment adviser for Emerging
Tigers Fund is FAM. Each Adviser is responsible for
the management of its Fund's investment portfolio and
for providing administrative services to its Fund.
Kara W. Y. Tan Bhala serves as portfolio manager for
both Funds. Ms. Tan Bhala has served as portfolio
manager of Dragon Fund since July 10, 1992. Ms. Tan
Bhala has served as portfolio manager of Emerging
Tigers Fund since its inception on March 4, 1994.
Pursuant to a management agreement between Dragon
Fund and MLAM, Dragon Fund pays MLAM a monthly fee at
the annual rate of 1.00% of the average daily net
assets of Dragon Fund. Pursuant to a management
agreement between Emerging Tigers Fund and FAM,
Emerging Tigers Fund pays FAM a monthly fee at the
annual rate of 1.00% of the average daily net assets
of Emerging Tigers Fund.
After the Reorganization, the advisory fee paid by
the Combined Fund would be at Dragon Fund's rate. See
"Summary -- Pro Forma Fee Tables" and "Comparison of
the Funds -- Management."
MLAM and FAM have retained Merrill Lynch Asset
Management U.K. Limited ("MLAM U.K.") as sub-adviser
to Dragon Fund and Emerging Tigers Fund,
respectively. Pursuant to a sub-advisory agreement
between MLAM and MLAM U.K. with respect to Dragon
Fund, MLAM pays MLAM U.K. a fee for providing
investment advisory services to MLAM with respect to
Dragon Fund in an amount to be determined from time
to time by MLAM and MLAM U.K. but in no event in
excess of the amount MLAM actually receives for
providing services to Dragon Fund pursuant to its
management agreement with Dragon Fund. Pursuant to a
sub-advisory agreement between FAM and MLAM U.K. with
respect to Emerging Tigers Fund, FAM pays MLAM U.K. a
fee for providing investment advisory services to FAM
with respect to Emerging Tigers Fund in an amount to
be determined from time to time by FAM and MLAM U.K.
but in no event in excess
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<PAGE> 11
of the amount FAM actually receives for providing
services to Emerging Tigers Fund pursuant to its
management agreement with Emerging Tigers Fund.
Class Structure. Each Fund offers four classes of
shares under the Merrill Lynch Select PricingSM
System. The Class A, Class B, Class C and Class D
shares issued by Dragon Fund are identical in all
respects to the Class A, Class B, Class C and Class D
shares issued by Emerging Tigers Fund, except that
they represent ownership interests in a different
investment portfolio. See "Comparison of the
Funds -- Purchase of Shares."
Overall Expense Ratio. The overall operating expense
ratio for Class A shares as of November 30, 1999 was
2.26% for Emerging Tigers Fund and 1.46% for Dragon
Fund. If the Reorganization had taken place on that
date, the overall operating expense ratio for Class A
shares of the Combined Fund on a pro forma basis
would have been 1.44%.
The preceding expense ratios are for Class A shares.
Such ratios would differ for Class B, Class C and
Class D shares as a result of class specific
distribution and account maintenance expenditures.
See "Summary -- Pro Forma Fee Tables."
Purchase of Shares. Shares of Dragon Fund are
offered continuously for sale to the public in
substantially the same manner as shares of Emerging
Tigers Fund. See "Comparison of the Funds -- Purchase
of Shares."
Redemption of Shares. The redemption procedures for
shares of Dragon Fund are substantially the same as
the redemption procedures for shares of Emerging
Tigers Fund. For purposes of computing any CDSC that
may be payable upon disposition of Corresponding
Shares of Dragon Fund acquired by Emerging Tigers
Fund stockholders in the Reorganization, the holding
period of Emerging Tigers Fund shares outstanding on
the date the Reorganization takes place will be
"tacked" onto the holding period of the Corresponding
Shares of Dragon Fund acquired in the Reorganization.
See "Comparison of the Funds -- Redemption of
Shares."
Dividends and Distributions. Emerging Tigers Fund's
policies with respect to dividends and distributions
are substantially the same as those of Dragon Fund.
See "Comparison of the Funds -- Dividends and
Distributions."
Net Asset Value. Both Emerging Tigers Fund and
Dragon Fund determine net asset value of each class
of shares once daily as of the close of business on
the New York Stock Exchange (the "NYSE") (generally,
4:00 p.m. Eastern time), on each day during which the
NYSE is open for trading based on prices at the time
of closing. Both Funds compute net asset value per
share in the same manner. See "Comparison of the
Funds -- Additional Information -- Net Asset Value."
Voting Rights. The corresponding voting rights of
the holders of shares of common stock of each Fund
are substantially the same. See "The
Reorganization -- Comparison of the Funds -- Capital
Stock."
Other Significant Considerations. Stockholder
services, including exchange privileges, available to
Emerging Tigers Fund and Dragon Fund stockholders and
the provision of annual and semi-annual reports are
substantially the same. See "Comparison of the
Funds -- Additional Information -- Stockholder
Services." An automatic dividend reinvestment plan is
available to stockholders of each Fund. The plans are
identical. See "Comparison of the Funds -- Automatic
Dividend Reinvestment Plan."
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<PAGE> 12
TAX CONSIDERATIONS.........Emerging Tigers Fund and Dragon Fund jointly have
requested a private letter ruling from the IRS with
respect to the Reorganization to the effect that,
among other things, neither Emerging Tigers Fund nor
Dragon Fund will recognize gain or loss on the
transaction, and Emerging Tigers Fund stockholders
will not recognize gain or loss on the exchange of
their shares of Emerging Tigers Fund stock for
Corresponding Shares of Dragon Fund. The consummation
of the Reorganization is subject to the receipt of
such ruling or receipt of an opinion of counsel to
the same effect. The Reorganization will not affect
the status of Dragon Fund as a regulated investment
company under the Internal Revenue Code of 1986, as
amended (the "Code").
As of November 30, 1999, each Fund had significant
net realized capital losses and net unrealized
capital gains. As a result of the Reorganization and
subject to certain limitations, the stockholders of
each Fund may benefit from the ability of the
Combined Fund to use the net realized capital losses
of the other Fund to offset the net realized capital
gains of the Combined Fund, if any.
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<PAGE> 13
RISK FACTORS AND SPECIAL CONSIDERATIONS
Many of the investment risks associated with an investment in Dragon Fund
are substantially similar to the investment risks associated with an investment
in Emerging Tigers Fund. Such risks include investing in (a) securities issued
by companies located in foreign emerging markets, (b) derivative instruments,
(c) illiquid securities and (d) "junk" bonds. As a result of the Reorganization,
the risk factors applicable to Emerging Tigers Fund will be modified by the
addition of the risks associated with investing in sovereign debt securities
that are in default, investing more heavily in equity growth securities,
investing more heavily in debt securities and investing in "junk" bonds without
limitation.
A discussion of certain risks of investing in the Funds is set forth below.
See "Investment Risks" in the Dragon Fund Prospectus and the Emerging Tigers
Fund Prospectus and "Investment Objectives and Policies" in the Dragon Fund
Statement and Emerging Tigers Fund Statement for a more detailed discussion of
investment risks associated with an investment in the Funds.
Investing on an International Basis. Since each Fund invests a substantial
portion of its total assets in foreign securities, each Fund offers the
potential for more diversification than an investment only in the United States.
This is because securities traded on foreign markets have often (though not
always) performed differently than securities in the United States. However,
such investments involve special risks not present in U.S. investments that can
increase the chances that a Fund will lose money. In particular, each Fund is
subject to the risk that because there are generally fewer investors on foreign
exchanges and a smaller number of shares traded each day, it may make it
difficult for a Fund to buy and sell securities on those exchanges. In addition,
prices of foreign securities may go up and down more than prices of securities
traded in the United States.
The economies of certain foreign markets often do not compare favorably
with that of the United States with respect to growth of gross national product,
reinvestment of capital, resources and balance of payments position. Certain
such economies may rely heavily on particular industries or foreign capital and
are more vulnerable to diplomatic developments, the imposition of economic
sanctions against a particular country or countries, changes in international
trading patterns, trade barriers and other protectionist or retaliatory
measures. Investments in foreign markets may also be adversely affected by
governmental actions such as the imposition of capital controls, nationalization
of companies or industries, expropriation of assets or the imposition of
punitive taxes. In addition, the governments of certain countries may prohibit
or impose substantial restrictions on foreign investing in their capital markets
or in certain industries. Any of these actions could severely affect security
prices, impair a Fund's ability to purchase or sell foreign securities or
transfer its assets or income back into the United States, or otherwise
adversely affect a Fund's operations. (See "Restrictions on Foreign Investments"
below). Other foreign market risks include foreign exchange controls,
difficulties in pricing securities, defaults on foreign government securities,
difficulties in enforcing favorable legal judgments in foreign courts, and
political and social instability. Legal remedies available to investors in
certain foreign countries may be less extensive than those available to
investors in the United States or other foreign countries.
Investing in Asia-Pacific Countries. In addition to the risks of investing
in foreign securities described above, the developing market Asia-Pacific
countries in which the Funds invest are subject to certain additional or
specific risks. There is a high concentration of market capitalization and
trading volume in a small number of issuers representing a limited number of
industries, as well as a high concentration of investors and financial
intermediaries.
Many of these developing markets also may be affected by developments
affecting more established markets in the region such as in Japan and Hong Kong.
Brokers in developing market Asia-Pacific countries typically are fewer in
number and less well capitalized than brokers in the United States. These
factors, combined with the U.S. regulatory requirements for open-end investment
companies and the restrictions on foreign investment discussed below, result in
potentially fewer investment opportunities for the Funds and may have an adverse
impact on the investment performance of a Fund. Many of the developing market
Asia-Pacific countries may be subject to a greater degree of economic, political
and social instability than is the case in the United States and Western
European countries. Such instability may result from, among other things: (i)
authoritarian governments or military involvement in political and economic
decision-making, including changes in government through extra-constitutional
means; (ii) popular unrest associated with demands for improved political,
economic and social conditions; (iii) internal insurgencies; (iv) hostile
relations with neighboring countries; and (v) ethnic, religious and racial
disaffection. In addition, the governments of many of such countries have a
heavy role in regulating and supervising the economy. Another risk common to
most such developing countries is that the economy is heavily export oriented
and, accordingly, is dependent upon international trade. The
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<PAGE> 14
existence of overburdened infrastructure and obsolete financial systems also
present risks in certain countries, as do environmental problems. Certain
economies also depend to a significant degree upon exports of primary
commodities and, therefore, are vulnerable to changes in commodity prices which,
in turn, may be affected by a variety of factors.
The legal systems in certain developing market Asia-Pacific countries also
may have an adverse impact on each Fund. For example, while the potential
liability of a shareholder in a U.S. corporation with respect to acts of the
corporation is generally limited to the amount of the shareholder's investment,
the notion of limited liability is less clear in certain emerging market
Asia-Pacific countries. Similarly, the rights of investors in developing market
Asia-Pacific companies may be more limited than those of shareholders of U.S.
corporations. It may be difficult or impossible to obtain and/or enforce a
judgment in a developing market Asia-Pacific country.
Governments of many developing market Asia-Pacific countries have exercised
and continue to exercise substantial influence over many aspects of the private
sector. In certain cases, the government owns or controls many companies,
including the largest in the country. Accordingly, government actions in the
future could have a significant effect on economic conditions in developing
market Asia-Pacific countries, which could affect private sector companies and
each Fund, as well as the value of securities in each Fund's portfolio. In
addition, economic statistics of developing market Asia-Pacific countries may be
less reliable than economic statistics of more developed nations.
In addition to the relative lack of publicly available information about
developing market Asia-Pacific issuers and the possibility that such issuers may
not be subject to the same accounting, auditing and financial reporting
standards as U.S. companies, inflation accounting rules in some developing
market Asia-Pacific countries require companies that keep accounting records in
the local currency, for both tax and accounting purposes, to restate certain
assets and liabilities on the company's balance sheet in order to express items
in terms of currency of constant purchasing power. Inflation accounting may
indirectly generate losses or profits for certain developing market Asia-Pacific
companies. Satisfactory custodial services for investment securities may not be
available in some developing Asia-Pacific countries, which may result in a Fund
incurring additional costs and delays in providing transportation and custody
services for such securities outside such countries.
Certain developing Asia-Pacific countries, in which both Funds may invest,
are especially large debtors and owe substantial amounts of money to commercial
banks and foreign governments. (See "Sovereign Debt" below.)
The Advisers may determine that, notwithstanding otherwise favorable
investment criteria, it may not be practicable or appropriate to invest in a
particular developing Asia-Pacific country. The Funds may invest in countries in
which foreign investors, including the Advisers, have had no or limited prior
experience.
Restrictions On Foreign Investments. Some developing Asia-Pacific
countries prohibit or impose substantial restrictions on investments in their
capital markets, particularly their equity markets, by foreign entities such as
the Funds. As illustrations, certain countries may require governmental approval
prior to investments by foreign persons or limit the amount of investment by
foreign persons in a particular company or limit the investment by foreign
persons to only a specific class of securities of a company which may have less
advantageous terms (including price) than securities of the company available
for purchase by nationals. There can be no assurance that a Fund will be able to
obtain required governmental approvals in a timely manner. In addition, changes
to restrictions on foreign ownership of securities subsequent to a Fund's
purchase of such securities may have an adverse effect on the value of such
shares. Certain countries may restrict investment opportunities in issuers or
industries deemed important to national interests.
The manner in which foreign investors may invest in companies in certain
developing Asia-Pacific countries, as well as limitations on such investments,
also may have an adverse impact on the operations of a Fund. For example, a Fund
may be required in certain of such countries to invest initially through a local
broker or other entity and then have the shares purchased re-registered in the
name of that Fund. Re-registration may in some instances not be able to occur on
a timely basis, resulting in a delay during which a Fund may be denied certain
of its rights as an investor, including rights as to dividends or to be made
aware of certain corporate actions. There also may be instances where a Fund
places a purchase order but is subsequently informed, at the time of
re-registration, that the permissible allocation of the investment to foreign
investors has been filled, depriving that Fund of the ability to make its
desired investment at that time.
Substantial limitations may exist in certain countries with respect to the
Funds' ability to repatriate investment income, capital or the proceeds of sales
of securities by foreign investors. The Funds could be adversely affected by
delays
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<PAGE> 15
in, or a refusal to grant, any required governmental approval for repatriation
of capital, as well as by the application to the Funds of any restrictions on
investments. For example, in September 1998, Malaysia imposed currency controls
that limited the ability of the Funds to repatriate proceeds of Malaysian
investments. In February 1999, the Malaysian government announced that these
controls were being replaced by an exit tax. It is also possible that Malaysia
will impose additional restrictions or that certain other countries may impose
similar restrictions or other restrictions relating to their currencies or to
securities of issuers in those countries. Each Fund's investments in Malaysia,
together with any investments it might make in illiquid securities may not be
available to meet redemptions. As of November 30, 1999, approximately 2.20% of
Dragon Fund's net assets and approximately 15.28% of the net assets of Emerging
Tigers Fund were invested in Malaysia. Depending on a variety of financial
factors, the percentage of each Fund's portfolio subject to currency controls
may increase. In the event other countries impose similar controls, the portion
of a Fund's assets that may be used to meet redemptions may be further
decreased. No more than 15% of each Fund's total assets may be comprised, in the
aggregate, of assets which are (i) subject to material legal restrictions on
repatriation or (ii) invested in illiquid securities. Even where there is no
outright restriction on repatriation of capital, the mechanics of repatriation
may affect certain aspects of the operations of the Funds. For example, funds
may be withdrawn from the People's Republic of China only in U.S. or Hong Kong
dollars and only at an exchange rate established by the government once each
week.
A number of publicly traded closed-end investment companies have been
organized to facilitate indirect foreign investment in developing Asia-Pacific
countries, and certain of such countries, such as Thailand and South Korea, have
specifically authorized such funds. There also are investment opportunities in
certain of such countries in pooled vehicles that resemble open-end investment
companies. In accordance with the Investment Company Act, each Fund may invest
up to 10% of its total assets in securities of other investment companies, not
more than 5% of which may be invested in any one such company. In addition,
under the Investment Company Act, each Fund may not own more than 3% of the
total outstanding voting stock of any investment company. These restrictions on
investments in securities of investment companies may limit opportunities for
each Fund to invest indirectly in certain developing Asia-Pacific countries.
Shares of certain investment companies may at times be acquired only at market
prices representing premiums to their net asset values. If a Fund acquires
shares of other investment companies, stockholders would bear both their
proportionate share of expenses of the Fund (including management and advisory
fees) and, indirectly, the expenses of such other investment companies.
In certain countries, banks or other financial institutions may be among
the leading companies or have actively traded securities. The Investment Company
Act restricts each Fund's investments in any equity securities of an issuer
which, in its most recent fiscal year, derived more than 15% of its revenues
from "securities related activities," as defined by the rules thereunder. These
provisions may restrict each Fund's investments in certain foreign banks and
other financial institutions.
Currency Risk. Securities in which the Funds invest are usually
denominated or quoted in currencies other than the U.S. dollar. Changes in
foreign currency exchange rates affect the value of each Fund's portfolio.
Generally, when the U.S. dollar rises in value against a foreign currency, a
security denominated in that currency loses value because the currency is worth
fewer U.S. dollars. Conversely, when the U.S. dollar decreases in value against
a foreign currency, a security denominated in that currency gains value because
the currency is worth more U.S. dollars. This risk, generally known as "currency
risk," means that a strong U.S. dollar will reduce returns for U.S investors
while a weak U.S. dollar will increase those returns.
Governmental Supervision and Regulation/Accounting Standards. Many foreign
governments supervise and regulate stock exchanges, brokers and the sale of
securities less stringently than the United States does. Other countries may not
have laws to protect investors the way that the United States securities laws
do. For example, some countries may have no laws or rules against insider
trading. Insider trading occurs when a person buys or sells a company's
securities based on non-public information about that company. Accounting
standards in other countries are not necessarily the same as in the United
States. If the accounting standards in another country do not require as much
detail as U.S. accounting standards, it may be more difficult for the Advisers
to completely and accurately determine a company's financial condition. Also,
brokerage commissions and other costs of buying or selling securities often are
higher in foreign countries than they are in the United States. This reduces the
amount the Funds can earn on their investments.
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<PAGE> 16
Certain Risks of Holding Fund Assets Outside the United States. The Funds
generally hold the foreign securities in which they invest outside the United
States in foreign banks and securities depositories. Some foreign banks and
securities depositories may be recently organized or new to the foreign custody
business. In addition, there may be limited or no regulatory oversight over
their operations. Also, the laws of certain countries may put limits on a Fund's
ability to recover its assets if a foreign bank, depository or issuer of a
security, or any of their agents, goes bankrupt. In addition, it is often more
expensive for the Funds to buy, sell and hold securities in certain foreign
markets than in the U.S. The increased expense of investing in foreign markets
reduces the amount each Fund can earn on its investments and typically results
in a higher operating expense ratio for the Fund than investment companies
invested only in the U.S.
Settlement Risk. Settlement and clearance procedures in certain foreign
markets differ significantly from those in the United States. Foreign settlement
and clearance procedures and trade regulations also may involve certain risks
(such as delays in payment for or delivery of securities) not typically involved
with the settlement of U.S. investments. Communications between the United
States and developing market countries may be unreliable, increasing the risk of
delayed settlements or losses of security certificates. Settlements in certain
foreign countries at times have not kept pace with the number of securities
transactions; these problems may make it difficult for the Funds to carry out
transactions. If a Fund cannot settle or is delayed in settling a purchase of
securities, it may miss attractive investment opportunities and certain of its
assets may be uninvested with no return earned thereon for some period. If a
Fund cannot settle or is delayed in settling a sale of securities, it may lose
money if the value of the security then declines or, if it has contracted to
sell the security to another party, that Fund could be liable to that party for
any losses incurred.
Stock Market and Selection Risk. Stock market risk is the risk that the
stock markets in one or more countries in which a Fund invests will go up or
down in value, including the possibility that the markets will go down sharply
and unpredictably. Selection risk is the risk that the investments that an
Adviser selects will underperform stock market indexes or other funds with
similar investment objectives and investment strategies. See "Investment
Objectives and Policies -- Equity Securities" below.
Debt Securities. Each Fund may invest in debt securities although Emerging
Tigers Fund is limited to investing up to 35% of its total assets in debt
securities. Debt securities, such as bonds, involve credit risk. This is the
risk that the borrower will not make timely payments of principal and interest.
The degree of credit risk depends on the issuer's financial condition and on the
terms of the bonds. These securities are also subject to interest rate risk.
This is the risk that the value of the security may fall when interest rates
rise. In general, the market price of debt securities with longer maturities
will go up or down more in response to changes in interest rates than the market
price of shorter term securities. See "Investment Objectives and
Policies -- Debt Securities," "-- Sovereign Debt," "-- Junk Bonds" and
"-- Distressed Securities" below.
Non-Diversified Status and Concentration Risk. Each Fund is organized as a
non-diversified investment company under the Investment Company Act and may
invest more of its assets in fewer companies than if it were a diversified fund.
By concentrating in a smaller number of investments, each Fund's risk is
increased because each investment has a greater effect on its performance.
Derivatives. Each Fund may use derivative instruments including futures,
forwards, options, indexed securities, inverse securities and swaps. Derivatives
allow a Fund to increase or decrease its risk exposure more quickly and
efficiently than other types of instruments. Derivatives are volatile and
involve significant risks, including:
Leverage Risk -- the risk associated with certain types of investments or
trading strategies (such as borrowing money to increase the amount of
investments) that relatively small market movements may result in large changes
in the value of an investment. Certain investments or trading strategies that
involve leverage can result in losses that greatly exceed the amount originally
invested.
Credit Risk -- the risk that the counterparty (the party on the other side
of the transaction) on a derivative transaction will be unable to honor its
financial obligation to a Fund.
Currency Risk -- the risk that changes in the exchange rate between
currencies will adversely affect the value (in U.S. dollar terms) of an
investment.
Liquidity Risk -- the risk that certain securities may be difficult or
impossible to sell at the time that the seller would like or at the price that
the seller believes the security is currently worth.
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<PAGE> 17
Interest Rate Risk -- the risk that prices of fixed income securities will
fluctuate as a function of interest rate movement.
Each Fund may use derivatives for hedging purposes, including anticipatory
hedges. Hedging is a strategy in which a Fund uses a derivative to offset the
risk that other Fund holdings may decrease in value. While hedging can reduce
losses, it can also reduce or eliminate gains if the market moves in a different
manner than anticipated by a Fund or if the cost of the derivative outweighs the
benefit of the hedge. Hedging also involves the risk that changes in the value
of the derivative will not match those of the holdings being hedged as expected
by a Fund, in which case any losses on the holdings being hedged may not be
reduced. No assurance can be given that a Fund's hedging strategy will reduce
risk or that hedging transactions will be either available or cost effective.
Neither Fund is required to use hedging and may choose not to do so.
Each Fund may also use indexed securities to gain exposure to certain
markets when it deems these derivatives to be potentially more advantageous than
the purchase of equity securities in those markets.
Borrowing. Dragon Fund may borrow up to 33 1/3% and Emerging Tigers Fund
may borrow up to 20% of their respective total assets, taken at market value,
but only from banks as a temporary measure for extraordinary or emergency
purposes, including to meet redemptions (so as not to force a Fund to liquidate
securities at a disadvantageous time) or to settle securities transactions.
Neither Fund will purchase securities at any time when borrowings exceed 5% of
its total assets, except (a) to honor prior commitments or (b) to exercise
subscription rights when outstanding borrowings have been obtained exclusively
for settlements of other securities transactions. The purchase of securities
while borrowings are outstanding will have the effect of leveraging the Funds.
Such leveraging increases the Funds' exposure to capital risk, and borrowed
funds are subject to interest costs that will reduce net income.
Illiquid or Restricted Securities. Each Fund may invest up to 15% of its
net assets in securities that lack an established secondary trading market or
otherwise are considered illiquid (including, in the case of Emerging Tigers
Fund, venture capital investments). Liquidity of a security relates to the
ability to dispose easily of the security and the price to be obtained upon
disposition of the security, which may be less than would be obtained for a
comparable more liquid security. Illiquid securities may trade at a discount
from comparable, more liquid investments. Investment of a Fund's assets in
illiquid securities may restrict the ability of that Fund to dispose of its
investments in a timely fashion and for a fair price as well as its ability to
take advantage of market opportunities. The risks associated with illiquidity
will be particularly acute where a Fund's operations require cash, such as when
that Fund redeems shares or pays dividends, and could result in that Fund
borrowing to meet short-term cash requirements or incurring capital losses on
the sale of illiquid investments.
Each Fund also may invest in securities that are not registered
("restricted securities") under the Securities Act of 1933, as amended (the
"Securities Act"). Restricted securities may be sold in private placement
transactions between the issuers and their purchasers and may be neither listed
on an exchange nor traded in other established markets. In many cases privately
placed securities may not be freely transferable under the laws of the
applicable jurisdiction or due to contractual restrictions on resale. As a
result of the absence of a public trading market, privately placed securities
may be less liquid and more difficult to value than publicly traded securities.
To the extent that privately placed securities may be resold in privately
negotiated transactions, the prices realized from the sales, due to illiquidity,
could be less than those originally paid by a Fund or less than their fair
market value. In addition, issuers whose securities are not publicly traded may
not be subject to the disclosure and other investor protection requirements that
may be applicable if their securities were publicly traded. If any privately
placed securities held by a Fund are required to be registered under the
securities laws of one or more jurisdictions before being resold, that Fund may
be required to bear the expenses of registration. Certain of a Fund's
investments in private placements may consist of direct investments and may
include investments in smaller, less-seasoned issuers, which may involve greater
risks. These issuers may have limited product lines, markets or financial
resources, or they may be dependent on a limited management group. In making
investments in such securities, a Fund may obtain access to material nonpublic
information which may restrict that Fund's ability to conduct portfolio
transactions in such securities.
Withholding and Other Taxes. Income and capital gains on securities held
by the Funds may be subject to withholding and other taxes imposed by certain
jurisdictions, which would reduce the return to the respective Fund on those
securities. The Funds intend, unless ineligible, to elect to "pass-through" to
their respective stockholders the amount of foreign taxes paid by that Fund. If
certain holding period requirements are met, the taxes passed through to
stockholders will be included in each stockholder's income and could potentially
be offset by either a deduction or a credit.
16
<PAGE> 18
Certain stockholders including non-U.S. stockholders, will not be entitled to
the benefit of a deduction or credit with respect to foreign taxes paid at the
Fund level. Non-U.S. stockholders may nevertheless be subject to withholding tax
on the foreign taxes included in their income. Other taxes, such as transfer
taxes, may be imposed on the Funds, but would not give rise to a credit or
deduction for stockholders.
17
<PAGE> 19
COMPARISON OF THE FUNDS
FINANCIAL HIGHLIGHTS
Dragon Fund
The financial information in the tables below has been audited in
conjunction with the annual audits of the financial statements of Dragon Fund by
Deloitte & Touche LLP, independent auditors.
The following per share data and ratios have been derived from information
provided in the financial statements.
<TABLE>
<CAPTION>
CLASS A+
-----------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999** 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year...... $ 8.81 $ 18.09 $ 15.99 $ 15.05
------- ------- ------- ------- -------
Investment income (loss) -- net......... .14 .12 .14 .12
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net................... (1.57) (7.51) 2.03 1.00
------- ------- ------- ------- -------
Total from investment operations........ (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............ $ 7.24 $ 8.81 $ 18.09 $ 15.99
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:*
Based on net asset value per share...... (16.22%) (40.77%) 13.59% 7.44%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 1.46% 1.35% 1.33% 1.37%
======= ======= ======= ======= =======
Investment income (loss) -- net......... 1.78% .73% .78% .74%
======= ======= ======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)............................ $13,961 $14,431 $49,943 $31,591
======= ======= ======= ======= =======
Portfolio turnover...................... 99.85% 21.11% 30.63% 24.52%
======= ======= ======= ======= =======
<CAPTION>
CLASS B+
------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------
1999** 1998 1997 1996 1995
-------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year...... $ 8.58 $ 17.89 $ 15.98 $ 15.03
-------- -------- -------- ---------- --------
Investment income (loss) -- net......... .06 (.04) (.04) (.03)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net................... (1.52) (7.38) 2.02 1.00
-------- -------- -------- ---------- --------
Total from investment operations........ (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............ $ 7.07 $ 8.58 $ 17.89 $ 15.98
======== ======== ======== ========== ========
TOTAL INVESTMENT RETURN:*
Based on net asset value per share...... (17.06%) (41.40%) 12.41% 6.49%
======== ======== ======== ========== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses................................ 2.54% 2.39% 2.36% 2.41%
======== ======== ======== ========== ========
Investment income (loss) -- net......... .73% (.26%) (.24%) (.20%)
======== ======== ======== ========== ========
SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands)............................ $206,809 $374,914 $1,157,944 $991,281
======== ======== ======== ========== ========
Portfolio turnover...................... 99.85% 21.11% 30.63% 24.52%
======== ======== ======== ========== ========
</TABLE>
- ---------------
* Total investment returns exclude the effects of sales charges.
** To be filed by amendment.
+ Based on average shares outstanding.
18
<PAGE> 20
Dragon Fund (continued)
<TABLE>
<CAPTION>
CLASS C+
-----------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999** 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year......... $ 8.46 $ 17.68 $ 15.79 $ 14.92
------- ------- ------- ------- -------
Investment income (loss) -- net............ .06 (.04) (.04) (.04)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net...................... (1.50) (7.29) 2.00 1.00
------- ------- ------- ------- -------
Total from investment operations........... (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............... $ 6.97 $ 8.46 $ 17.68 $ 15.79
======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN:*
Based on net asset value per share......... (17.05%) (41.38%) 12.43% 6.46%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... 2.54% 2.41% 2.37% 2.42%
======= ======= ======= ======= =======
Investment income (loss) -- net............ .75% (.28%) (.23%) (.28%)
======= ======= ======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)..... $15,431 $22,111 $62,113 $29,042
======= ======= ======= ======= =======
Portfolio turnover......................... 99.85% 21.11% 30.63% 24.52%
======= ======= ======= ======= =======
<CAPTION>
CLASS D+
---------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999** 1998 1997 1996 1995
-------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year......... $ 8.80 $ 18.11 $ 16.05 $ 15.08
-------- ------- -------- -------- --------
Investment income (loss) -- net............ .11 .09 .09 .09
Realized and unrealized gain (loss) on
investments and foreign currency
transactions -- net...................... (1.55) (7.51) 2.04 1.02
-------- ------- -------- -------- --------
Total from investment operations........... (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............... $ 7.24 $ 8.80 $ 18.11 $ 16.05
======== ======= ======== ======== ========
TOTAL INVESTMENT RETURN:*
Based on net asset value per share......... (16.38%) (40.89%) 13.29% 7.35%
======== ======= ======== ======== ========
RATIOS TO AVERAGE NET ASSETS:
Expenses................................... 1.72% 1.61% 1.58% 1.63%
======== ======= ======== ======== ========
Investment income (loss) -- net............ 1.48% .53% .53% .59%
======== ======= ======== ======== ========
SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)..... $64,031 $115,318 $297,179 $285,485
======== ======= ======== ======== ========
Portfolio turnover......................... 99.85% 21.11% 30.63% 24.52%
======== ======= ======== ======== ========
</TABLE>
- ---------------
* Total investment returns exclude the effects of sales charges.
** To be filed by amendment.
+ Based on average shares outstanding.
19
<PAGE> 21
Emerging Tigers Fund
The financial information in the tables below has been audited in
conjunction with the annual audits of the financial statements of Emerging
Tigers Fund by Deloitte & Touche LLP, independent auditors.
The following per share data and ratios have been derived from information
provided in the financial statements:
<TABLE>
<CAPTION>
CLASS A(1) CLASS B
------------------------------------------------- --------------------------------------------
FOR THE YEAR ENDED FOR THE PERIOD
FOR THE YEAR ENDED NOVEMBER 30, NOVEMBER 30, JUNE 10, 1996+
------------------------------------------------- -------------------------- TO NOVEMBER 30,
1999++ 1998++ 1997++ 1996 1995 1999++ 1998++ 1997++ 1996
------- ------- ------- -------- -------- ------ ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSET VALUE:
PER SHARE OPERATING
PERFORMANCE:
Net asset value, beginning of
period...................... $ 6.42 $ 8.12 $ 15.59 $ 13.40 $ 14.47 $ 6.29 $ 8.03 $ 15.53 $ 15.53
------- ------- ------- -------- -------- ------ ------- ------- -------
Investment income
(loss) -- net............... (.05) .04 (.04) .05 .03 (.12) (.03) (.15) (.05)
Realized and unrealized gain
(loss) on investments and
foreign currency
transactions -- net......... 2.61 (1.73) (7.38) 2.15 (.96) 2.56 (1.71) (7.35) .05
------- ------- ------- -------- -------- ------ ------- ------- -------
Total from investment
operations.................. 2.56 (1.69) (7.42) 2.20 (.93) 2.44 (1.74) (7.50) --
------- ------- ------- -------- -------- ------ ------- ------- -------
Less dividends and
distributions:
Investment income -- net.... (.08) -- (.01) (.01) (.12) (.05) -- -- --
In excess of investment
income -- net............. (.10) (.01) (.04) -- -- (.06) -- -- --
Realized gain on
investments -- net........ -- -- -- -- (.02) -- -- -- --
------- ------- ------- -------- -------- ------ ------- ------- -------
Total dividends and
distributions............... (.18) (.01) (.05) (.01) (.14) (.11) -- -- --
------- ------- ------- -------- -------- ------ ------- ------- -------
Capital charge resulting from
issuance of Common Stock.... -- -- -- -- --# -- -- -- --
------- ------- ------- -------- -------- ------ ------- ------- -------
Net asset value, end of
period...................... $ 8.80 $ 6.42 $ 8.12 $ 15.59 $ 13.40 $ 8.62 $ 6.29 $ 8.03 $ 15.53
======= ======= ======= ======== ======== ====== ======= ======= =======
TOTAL INVESTMENT RETURN:**
Based on net asset value per
share....................... 40.97% (20.81%) (47.76%) 16.43% (6.23%) 39.44% (21.67%) (48.29%) .00%##
======= ======= ======= ======== ======== ====== ======= ======= =======
RATIOS TO AVERAGE NET ASSETS:
Expenses...................... 2.42% 2.17% 1.69% 1.36% 1.32% 3.45% 3.22% 2.75% 2.67%*
======= ======= ======= ======== ======== ====== ======= ======= =======
Investment income
(loss) -- net............... (.66%) .52% (.27%) .23% .24% (1.69%) (.51%) (1.20%) (.99%)*
======= ======= ======= ======== ======== ====== ======= ======= =======
SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).................. $36,368 $34,111 $63,760 $193,545 $294,830 $7,774 $ 5,347 $ 4,887 $ 3,719
======= ======= ======= ======== ======== ====== ======= ======= =======
Portfolio turnover............ 90.45% 73.52% 35.63% 44.09% 18.84% 90.45% 73.52% 35.63% 44.09%
======= ======= ======= ======== ======== ====== ======= ======= =======
</TABLE>
- ---------------
(1) Emerging Tigers Fund was incorporated under the laws of the State of
Maryland on December 23, 1993 as a closed-end investment company. Emerging
Tigers Fund commenced operations as a closed-end investment company on March
4, 1994. Emerging Tigers Fund subsequently converted to an open-end
investment company and commenced operations as an open-end investment
company on June 10, 1996. As a result, performance data for periods prior to
June 10, 1996 reflects the performance of Emerging Tigers Fund as a
closed-end investment company and may not be indicative of its performance
as an open-end investment company. Shares of Emerging Tigers Fund
outstanding on June 10, 1996 have been classified as Class A shares.
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Based on average shares outstanding.
# Amount is less than $.01 per share.
## Aggregate total investment return.
20
<PAGE> 22
Emerging Tigers Fund (continued)
<TABLE>
<CAPTION>
CLASS C
--------------------------------------------------
FOR THE PERIOD
FOR THE YEAR ENDED NOVEMBER 30, JUNE 10, 1996+
------------------------------- TO NOVEMBER 30,
1999++ 1998++ 1997++ 1996
------- -------- -------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 6.28 $ 8.02 $ 15.52 $15.53
------ ------- ------- ------
Investment income (loss) -- net................... (.12) (.03) (.11) (.05)
Realized and unrealized gain (loss) on investments
and foreign currency transactions -- net........ 2.57 (1.71) (7.39) .04
------ ------- ------- ------
Total from investment operations.................. 2.45 (1.74) (7.50) (.01)
------ ------- ------- ------
Less dividends:
Investment income -- net.......................... (.04) -- -- --
In excess of investment income -- net............. (.05) -- -- --
------ ------- ------- ------
Total dividends................................... (.09) -- -- --
------ ------- ------- ------
Net asset value, end of period.................... $ 8.64 $ 6.28 $ 8.02 $15.52
====== ======= ======= ======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share................ 39.67% (21.70%) (48.32%) (.06%)##
====== ======= ======= ======
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 3.46% 3.22% 2.83% 2.68%*
====== ======= ======= ======
Investment income (loss) -- net................... (1.69%) (.52%) (1.01%) (.98%)*
====== ======= ======= ======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).......... $2,222 $ 2,139 $ 2,870 $ 887
====== ======= ======= ======
Portfolio turnover................................ 90.45% 73.52% 35.63% 44.09%
====== ======= ======= ======
<CAPTION>
CLASS D
-------------------------------------------------
FOR THE PERIOD
FOR THE YEAR ENDED NOVEMBER 30, JUNE 10, 1996+
------------------------------- TO NOVEMBER 30,
1999++ 1998++ 1997++ 1996
------- -------- -------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSET VALUE:
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of period.............. $ 6.39 $ 8.10 $ 15.58 $15.53
------ ------- ------- ------
Investment income (loss) -- net................... (.07) .02 (.04) (.01)
Realized and unrealized gain (loss) on investments
and foreign currency transactions -- net........ 2.61 (1.73) (7.41) .06
------ ------- ------- ------
Total from investment operations.................. 2.54 (1.71) (7.45) .05
------ ------- ------- ------
Less dividends:
Investment income -- net.......................... (.07) -- --# --
In excess of investment income -- net............. (.09) -- (.03) --
------ ------- ------- ------
Total dividends................................... (.16) -- (.03) --
------ ------- ------- ------
Net asset value, end of period.................... $ 8.77 $ 6.39 $ 8.10 $15.58
====== ======= ======= ======
TOTAL INVESTMENT RETURN:**
Based on net asset value per share................ 40.78% (21.11%) (47.91%) .32%##
====== ======= ======= ======
RATIOS TO AVERAGE NET ASSETS:
Expenses.......................................... 2.68% 2.44% 2.01% 1.88%*
====== ======= ======= ======
Investment income (loss) -- net................... (.93%) .28% (.30%) (.34%)*
====== ======= ======= ======
SUPPLEMENTAL DATA:
Net assets, end of period (in thousands).......... $2,120 $ 1,578 $ 1,057 $ 953
====== ======= ======= ======
Portfolio turnover................................ 90.45% 73.52% 35.63% 44.09%
====== ======= ======= ======
</TABLE>
- ---------------
* Annualized.
** Total investment returns exclude the effects of sales charges.
+ Commencement of operations.
++ Based on average shares outstanding.
# Amount is less than $.01 per share.
## Aggregate total investment return.
21
<PAGE> 23
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of Dragon Fund and Emerging Tigers Fund are
substantially similar. Dragon Fund's investment objective is to seek long term
capital appreciation by investing primarily in equity and debt securities of
issuers domiciled in developing countries located in Asia and the Pacific Basin.
The investment objective of Emerging Tigers Fund is to seek long term capital
appreciation by investing primarily in equity securities of corporations in
designated emerging market countries located in Asia and the Pacific Basin. The
investment objectives of Dragon Fund as described in the second sentence of this
paragraph and the investment objective of Emerging Tigers Fund as described in
the third sentence of this paragraph are fundamental policies of each Fund and
may not be changed without the approval of the holders of a majority of each
Fund's outstanding voting securities. No assurance can be given that the
Combined Fund will achieve its investment objective.
The Advisers believe that the Asia-Pacific region has some of the world's
most vibrant developing economies and emerging markets. Although these economies
have experienced very significant turmoil over the last few years, the Advisers
believe that the economies and securities markets of the region present
attractive long term investment opportunities. Dragon Fund considers all
countries in the Asia-Pacific region to be developing countries other than
Japan, Australia and New Zealand. Emerging Tigers Fund considers all countries
in the Asia-Pacific region to be emerging market countries other than Japan,
Taiwan, Australia, New Zealand and Hong Kong.
Equity Securities. As set forth above, Dragon Fund's investment emphasis
is on equity securities and debt securities of issuers domiciled in developing
countries located in Asia and the Pacific Basin. Normally, a majority of Dragon
Fund's assets will be invested in common stock of companies located in such
countries. As set forth above, the investment emphasis of Emerging Tigers Fund
is on equity securities of corporations in designated emerging market countries
located in Asia and the Pacific Basin. Normally, a majority of the assets of
Emerging Tiger Fund will be invested in common stock and securities convertible
into common stock of companies located in such countries.
A security ordinarily will be considered to be a developing market
Asia-Pacific security when the company issuing the security is organized in a
developing country in Asia or in the Pacific Basin or its primary trading market
is in a developing country in Asia or in the Pacific Basin. The Funds may
consider a security to be a developing Asia-Pacific security, without reference
to its issuer's domicile or to its primary trading market, when at least 50% of
the issuer's non-current assets, capitalization, gross revenues or profits in
any one of the two most recent fiscal years represents (directly or indirectly
through subsidiaries) assets or activities located in such countries. The Funds
may acquire developing Asia-Pacific securities that are denominated in
currencies other than a developing Asia-Pacific currency. The Funds also may
consider a debt security that is denominated in a developing Asia-Pacific
currency to be a developing Asia-Pacific security without reference to its
principal trading market or to the location of its issuer. Dragon Fund may
consider investment companies and Emerging Tigers Fund may consider investment
companies or other pooled investment vehicles to be located in the country or
countries in which they primarily make their portfolio investments.
When choosing investment markets, the Advisers will consider such factors
as the rate of economic growth, capital reinvestment, the social and political
environment and currency exchange rates. In deciding between equity and debt
investments for Dragon Fund, MLAM considers a number of factors, including the
relative opportunity for capital appreciation, dividend yields and the level of
interest rates paid on debt securities of different maturities. While Emerging
Tigers Fund invests primarily in equity securities, FAM may invest in debt
securities based on consideration of the factors described in the preceding
sentence.
Dragon Fund's investment strategy is to search for stocks that, in MLAM's
opinion, have strong earnings growth and high growth potential. The investment
strategy of Emerging Tigers Fund is to search for stocks that, in FAM's opinion,
are worth more than they are trading for. The Advisers also search for companies
whose future prospects are not fully appreciated by the market. In searching for
companies that have undervalued growth, Dragon Fund invests in companies that
have good earnings per share growth. The "growth securities" in which Dragon
Fund invests may be particularly sensitive to changes in earnings or interest
rate increases because they typically have higher price-earnings ratios.
Moreover, the growth securities held by Dragon Fund may never reach what MLAM
believes their full value to be and may even go down in price. In searching for
companies that are trading for less than they are worth, Emerging Tigers Fund
invests in companies that are classic "value" stocks meaning that they are
trading at lower multiples than those of comparable companies, but which FAM
believes can appreciate towards the average valuation for these comparable
companies. Each Fund also invests in companies that can improve their
profitability, return on capital, cash flow or
22
<PAGE> 24
various other measures through restructuring efforts and in companies whose
attractive position within their industry or future prospects for growth in cash
flow, earnings or some other measure are not fully recognized by the market.
In selecting securities, the Advisers use a variety of valuation
techniques, economic measurements and ratios. The Advisers search for companies
whose stock prices are low compared to these valuations, and therefore represent
investment value. Additionally, the Advisers typically focus on companies that
have the potential to increase sales (both through volume growth and pricing
power), and also have some control over their expenses, enabling management to
have some influence over their operating margin.
Debt Securities. Neither Fund has established rating criteria for the debt
securities in which it may invest and such securities may not be rated at all
for creditworthiness. Dragon Fund may invest in debt securities, including high
yield or "junk" bonds, without limitation. Emerging Tigers Fund may invest up to
35% of its total assets in debt securities, including high yield or "junk"
bonds. In purchasing such securities, each Fund will rely on its Adviser's
judgment, analysis and experience in evaluating the creditworthiness of an
issuer of such securities. The Advisers will take into consideration, among
other things, the issuer's financial resources, its sensitivity to economic
conditions and trends, its operating history, the quality of the issuer's
management and regulatory matters.
Sovereign Debt. Each Fund may invest in sovereign debt securities. Dragon
Fund may invest up to 5% of its total assets in sovereign debt securities that
are in default. Sovereign debt securities are issued or guaranteed by foreign
government entities. Certain developing market Asia-Pacific countries owe
significant amounts of money to commercial banks and foreign governments.
Investments in sovereign debt are subject to the risk that a government entity
may delay or refuse to pay interest or repay principal on its sovereign debt.
Some of these reasons may include cash flow problems, insufficient foreign
currency reserves, political considerations, the relative size of its debt
position to its economy or its failure to put in place economic reforms required
by the International Monetary Fund or other multilateral agencies. If a
government entity defaults, it may ask for more time in which to pay or for
further loans. There is no legal process for collecting sovereign debts that a
government does not pay or bankruptcy proceeding by which all or part of
sovereign debt that a government entity has not repaid may be collected.
Junk Bonds. Each Fund may invest in junk bonds. Junk bonds are debt
securities that are rated below investment grade by the major rating agencies or
are unrated securities that an Adviser believes are of comparable quality.
Although junk bonds generally pay higher rates of interest than investment grade
bonds, they are high risk investments that may cause income and principal losses
for a Fund. The major risks in junk bond investments include:
Junk bonds may be issued by less creditworthy companies. These securities
are vulnerable to adverse changes in the issuer's industry and to general
economic conditions. Issuers of junk bonds may be unable to meet their interest
or principal payment obligations because of an economic downturn, specific
issuer developments or the unavailability of additional financing.
The issuers of junk bonds may have a larger amount of outstanding debt
relative to their assets than issuers of investment grade bonds. If the issuer
experiences financial stress, it may be unable to meet its debt obligations. The
issuer's ability to pay its debt obligations also may be lessened by specific
issuer developments, or the unavailability of additional financing.
Junk bonds are frequently ranked junior in claims by other creditors. If
the issuer cannot meet its obligations, the senior obligations are generally
paid off before the junior obligations.
Junk bonds frequently have redemption features that permit an issuer to
repurchase the security from a Fund before it matures. If the issuer redeems the
junk bonds, a Fund may have to invest the proceeds in bonds with lower yields
and may lose income.
Prices of junk bonds are subject to extreme price fluctuations. Negative
economic developments may have a greater impact on the prices of junk bonds than
on other higher rated fixed income securities. Junk bonds may be less liquid
than higher rated fixed income securities even under normal economic conditions.
There are fewer dealers in the junk bond market, and there may be significant
differences in the prices quoted for junk bonds by the dealers. Because they are
less liquid, judgment may play a greater role in valuing certain of a Fund's
portfolio securities than is the case with securities trading in a more liquid
market.
23
<PAGE> 25
A Fund may incur expenses to the extent necessary to seek recovery upon
default or to negotiate new terms with a defaulting issuer.
Distressed Securities. Emerging Tigers Fund may invest in distressed
securities. Distressed securities are securities which are the subject of
bankruptcy proceedings or otherwise in default as to repayment of principal or
interest at the time of acquisition by Emerging Tigers Fund or are rated in the
lower rating categories (Ca or lower by Moody's Investors Service, Inc. and CC
or lower by Standard & Poor's) or which, if unrated, are in the judgment of FAM
of equivalent quality. Investment in distressed securities is speculative and
involves significant risk. Emerging Tigers Fund will generally make such
investments only when FAM believes it is reasonably likely that the issuer of
the distressed securities will make an exchange offer or will be the subject of
a plan of reorganization pursuant to which Emerging Tigers Fund will receive new
securities; however, there can be no assurance that such an exchange offer will
be made or that such a plan of reorganization will be adopted. In addition, a
significant period of time may pass between the time at which Emerging Tigers
Fund makes its investment in distressed securities and the time that any such
exchange offer or plan of reorganization is completed. During this period, it is
unlikely that Emerging Tigers Fund will receive any interest payments on the
distressed securities, Emerging Tigers Fund will be subject to significant
uncertainty as to whether or not the exchange offer or plan of reorganization
will be completed, and Emerging Tigers Fund may be required to bear certain
extraordinary expenses to protect and recover its investment. Therefore, to the
extent Emerging Tigers Fund pursues its secondary objective of capital
appreciation through investment in distressed securities, that Fund's ability to
achieve current income for its stockholders may be diminished. In addition, even
if an exchange offer is made or plan of reorganization is adopted with respect
to distressed securities held by Emerging Tigers Fund, there can be no assurance
that the securities or other assets received by that Fund in connection with
such exchange offer or plan of reorganization will not have a lower value or
income potential than may have been anticipated when the investment was made.
Moreover, any securities received by Emerging Tigers Fund upon completion of an
exchange offer or plan of reorganization may be restricted as to resale. As a
result of Emerging Tigers Fund's participation in negotiations with respect to
any exchange offer or plan of reorganization with respect to an issuer of
distressed securities, that Fund may be restricted from disposing of such
securities. Dragon Fund may invest up to 5% of its assets in sovereign debt that
is in default.
Depositary Receipts. The Funds may invest in the securities of issuers
located in developing Asia-Pacific Basin countries in the form of American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global
Depositary Receipts ("GDRs") or other securities convertible into securities of
issuers located in developing Asia-Pacific Basin countries. The Funds may invest
in unsponsored ADRs. The issuers of unsponsored Depositary Receipts are not
obligated to disclose material information in the United States, and therefore,
there may be less information available regarding such issuers and there may not
be a correlation between such information and the market value of the Depositary
Receipts.
Indexed and Inverse Securities. The Funds may invest in securities the
potential return of which is based on an index. As an illustration, a Fund may
invest in a debt security that pays interest based on the current value of an
interest rate index, such as the prime rate. Each Fund may also invest in a debt
security which returns principal at maturity based on the level of a securities
index or a basket of securities, or based on the relative changes of two
indices. In addition, the Funds may invest in securities the potential return of
which is based inversely on the change in an index (that is, a security the
value of which will move in the opposite direction of changes to an index). For
example, the Funds may invest in securities that pay a higher rate of interest
when a particular index decreases and pay a lower rate of interest (or do not
fully return principal) when the value of the index increases. If a Fund invests
in such securities, it may be subject to reduced or eliminated interest payments
or loss of principal in the event of an adverse movement in the relevant index
or indices. Indexed and inverse securities involve credit risk, and certain
indexed and inverse securities may involve leverage risk, liquidity risk and
currency risk. The Funds may invest in indexed and inverse securities for
hedging purposes only. When used for hedging purposes, indexed and inverse
securities involve correlation risk.
Convertible Securities. Each Fund may invest in convertible securities. A
convertible security is a bond, debenture, note, preferred stock or other
security that may be converted into or exchanged for a prescribed amount of
common stock of the same or a different issuer within a particular period of
time at a specified price or formula. A convertible security entitles the holder
to receive interest generally paid or accrued on debt or the dividend paid on
preferred stock until the convertible security matures or is redeemed, converted
or exchanged. Convertible securities have several unique investment
characteristics such as (i) higher yields than common stocks, but lower yields
than comparable nonconvertible
24
<PAGE> 26
securities, (ii) a lesser degree of fluctuation in value than the underlying
stock since they have fixed-income characteristics and (iii) the potential for
capital appreciation if the market price of the underlying common stock
increases. A convertible security might be subject to redemption at the option
of the issuer at a price established in the convertible security's governing
instrument. If a convertible security held by one of the Funds is called for
redemption, a Fund may be required to permit the issuer to redeem the security,
convert it into the underlying common stock or sell it to a third party.
Each Fund may also invest in synthetic convertible securities. Synthetic
convertible securities may be either (i) a debt security or preferred stock that
may be convertible only under certain contingent circumstances or that may pay
the holder a cash amount based on the value of shares of underlying common stock
partly or wholly in lieu of a conversion right or (ii) a combination of separate
securities chosen by an Adviser in order to create the economic characteristics
of a convertible security, i.e., a fixed income security paired with a security
with equity conversion features, such as an option or warrant (a "Manufactured
Convertible"). The value of a Manufactured Convertible may respond differently
to certain market fluctuations than would a traditional convertible security
with similar characteristics.
Swaps. The Funds are authorized to enter into equity swap agreements,
which are OTC contracts in which one party agrees to make periodic payments
based on the change in market value of a specified equity security, basket of
equity securities or equity index in return for periodic payments based on a
fixed or variable interest rate or the change in market value of a different
equity security, basket of equity securities or equity index. Swap agreements
may be used to obtain exposure to an equity or market without owning or taking
physical custody of securities in circumstances in which direct investment is
restricted by local law or is otherwise impractical. A Fund will enter into an
equity swap transaction only if, immediately following the time that Fund enters
into the transaction, the aggregate notional principal amount of equity swap
transactions to which a Fund is a party would not exceed 5% of that Fund's net
assets.
Swap agreements entail the risk that a party will default on its payment
obligations to a Fund thereunder. The Funds will seek to lessen the risk to some
extent by entering into a transaction only if the counterparty meets the current
credit requirement for OTC option counterparties. Swap agreements also bear the
risk that a Fund will not be able to meet its obligation to the counterparty.
Each Fund, however, will deposit in a segregated account with its custodian
liquid securities or cash or cash equivalents or other assets permitted to be so
segregated by the Commission in an amount equal to or greater than the market
value of the liabilities under the swap agreement or the amount it would have
cost a Fund initially to make an equivalent direct investment, plus or minus any
amount a Fund is obligated to pay or is to receive under the swap agreement.
OTHER INVESTMENT POLICIES AND PRACTICES
Warrants. The Funds may invest in warrants. Warrants do not carry with
them the right to dividends or voting rights with respect to the securities that
they entitle their holders to purchase, and they do not represent any rights in
the assets of the issuer. In addition, warrants involve the risk that the price
of the security underlying the warrant may not exceed the exercise price of the
warrant and the warrant may expire without any value.
When-Issued Securities, Delayed Delivery Securities and Forward
Commitments. Each Fund may purchase or sell securities on a delayed delivery
basis or on a when-issued basis. Emerging Tigers Fund also may purchase or sell
securities through a forward commitment. For a description of when-issued
securities, delayed delivery transactions and forward commitments, including the
risks associated with investment therein, see "Investment Risks" in the Dragon
Fund Prospectus and in the Emerging Tigers Fund Prospectus.
Standby Commitment Agreements. Each Fund may from time to time enter into
standby commitment agreements. For a description of standby commitment
agreements and the risks associated with investments in such agreements, see
"Investment Objective and Policies -- Other Investment Policies, Practices and
Risk Factors" in the Dragon Fund Statement and in the Emerging Tigers Fund
Statement.
Repurchase Agreements and Purchase and Sale Contracts. Each Fund may enter
into repurchase agreements and purchase and sale contracts. For a description of
repurchase agreements and the risks associated with investment in such
agreements, see "Investment Risks" in the Dragon Fund Prospectus and in the
Emerging Tigers Fund Prospectus.
Borrowing and Leverage. Dragon Fund may borrow up to 33 1/3% and Emerging
Tigers Fund may borrow up to 20% of their respective total assets, taken at
market value, but only from banks as a temporary measure for extraordinary or
25
<PAGE> 27
emergency purposes, including to meet redemptions (so as not to force a Fund to
liquidate securities at a disadvantageous time) or to settle securities
transactions. For a description of the Funds' ability to borrow and the risks
associated therewith, see "Investment Risks" in the Dragon Fund Prospectus and
in the Emerging Tigers Fund Prospectus.
Hedging Techniques. The Funds may engage in various portfolio strategies
to hedge their respective portfolios against investment, interest rate and
currency risks. For a description of hedging instruments and risks associated
with investment in such instruments, see "Investment Objective and
Policies -- Other Investment Policies, Practices and Risk Factors" in the Dragon
Fund Statement and in the Emerging Tigers Fund Statement.
Securities Lending. Each Fund may from time to time lend securities from
its portfolio with a value not exceeding 33 1/3% of its total assets to banks,
brokers and other financial institutions and receive collateral in cash or
securities issued or guaranteed by the U.S. Government. For a description of the
lending of portfolio securities and the risks associated with the lending of
portfolio securities, see "Investment Risks" in the Dragon Fund Prospectus and
in the Emerging Tigers Fund Prospectus.
Investment in Other Investment Companies and Venture Capital Funds. Each
Fund may invest in other investment companies whose investment objectives and
policies are consistent with those of the applicable Fund. In addition, Emerging
Tigers Fund also may invest in venture capital funds whose investment objectives
and policies are consistent with those of Emerging Tigers Fund. In accordance
with the Investment Company Act, each Fund may invest up to 10% of its total
assets in securities of other investment companies. In addition, under the
Investment Company Act, each Fund may not own more than 3% of the total
outstanding voting stock of any investment company and not more than 5% of the
value of a Fund's total assets may be invested in the securities of any
investment company. If either Dragon Fund or Emerging Tigers Fund acquires
shares in other investment companies, stockholders of that Fund would bear both
their proportionate share of expenses in that Fund (including management and
advisory fees) and, indirectly, the expenses of such other investment companies
(including management and advisory fees). This would also apply to venture
capital funds in which Emerging Tigers Fund may also invest. Investment in such
venture capital funds involves substantial risk of loss to Emerging Tigers Fund
of its entire investment.
Illiquid or Restricted Securities. Each Fund may invest up to 15% of its
net assets in securities that lack an established secondary trading market or
otherwise are considered illiquid (including, in the case of Emerging Tigers
Fund, venture capital investments). Liquidity of a security relates to the
ability to dispose easily of the security and the price to be obtained upon
disposition of the security, which may be less than would be obtained for a
comparable more liquid security. Illiquid securities may trade at a discount
from comparable, more liquid investments. Investment of a Fund's assets in
illiquid securities may restrict the ability of that Fund to dispose of its
investments in a timely fashion and for a fair price as well as its ability to
take advantage of market opportunities. The risks associated with illiquidity
will be particularly acute when a Fund's operations require cash, such as when
that Fund redeems shares or pays dividends, and could result in that Fund
borrowing to meet short-term cash requirements or incurring capital losses on
the sale of illiquid investments.
Each Fund also may invest in restricted securities under the Securities
Act. Restricted securities may be sold in private placement transactions between
the issuers and their purchasers and may be neither listed on an exchange nor
traded in other established markets. In many cases privately placed securities
may not be freely transferable under the laws of the applicable jurisdiction or
due to contractual restrictions on resale. As a result of the absence of a
public trading market, privately placed securities may be less liquid and more
difficult to value than publicly traded securities. To the extent that privately
placed securities may be resold in privately negotiated transactions, the prices
realized from the sales, due to illiquidity, could be less than those originally
paid by a Fund or less than their fair market value. In addition, issuers whose
securities are not publicly traded may not be subject to the disclosure and
other investor protection requirements that may be applicable if their
securities were publicly traded. If any privately placed securities held by a
Fund are required to be registered under the securities laws of one or more
jurisdictions before being resold, that Fund may be required to bear the
expenses of registration. Certain of a Fund's investments in private placements
may consist of direct investments and may include investments in smaller,
less-seasoned issuers, which may involve greater risks. These issuers may have
limited product lines, markets or financial resources, or they may be dependent
on a limited management group. In making investments in such securities, a Fund
may obtain access to material nonpublic information which may restrict that
Fund's ability to conduct portfolio transactions in such securities.
26
<PAGE> 28
144A Securities. The Funds may purchase restricted securities that can be
offered and sold to "qualified institutional buyers" under Rule 144A under the
Securities Act. The Board of Directors of each Fund has determined to treat as
liquid Rule 144A securities that are either freely tradable in their primary
markets offshore or have been determined to be liquid in accordance with the
policies and procedures adopted by that Fund's Board of Directors. The Board of
Directors of each Fund has adopted guidelines and delegated to the applicable
Adviser the daily function of determining and monitoring liquidity of restricted
securities. Each Board of Directors, however, will retain sufficient oversight
and be ultimately responsible for the determinations. Since it is not possible
to predict with assurance exactly how this market for restricted securities sold
and offered under Rule 144A will continue to develop, the Boards of Directors of
the Funds will carefully monitor the Funds' investments in these securities.
This investment practice could have the effect of increasing the level of
illiquidity in each Fund to the extent that qualified institutional buyers
become for a time uninterested in purchasing these securities.
INFORMATION REGARDING OPTIONS, FUTURES AND FOREIGN EXCHANGE TRANSACTIONS
Each Fund may engage in certain investment practices including the use of
options and futures and may engage in foreign exchange transactions. Each Fund
has the authority to write (i.e., sell) covered call options on its portfolio
securities, purchase put options on securities and engage in transactions in
stock index options, stock index futures and financial futures, and related
options on such futures. Each Fund also may deal in forward foreign exchange
transactions and foreign currency options and futures, and related options on
such futures. Each Fund may engage in these practices or transactions to
increase its return or to hedge its portfolio against currency risk, interest
rate risk and other types of risk.
The investment policies of each Fund with respect to futures, options and
foreign exchange transactions are not fundamental policies and may be modified
by the Board of Directors of each Fund without the approval of the Fund's
stockholders. Each Fund is subject to the restrictions of the Commodity Futures
Trading Commission with respect to its investments in futures and options
thereon.
For a detailed discussion of the Funds' investment policies regarding
futures and options, including the risks associated therewith, see "Investment
Objective and Policies -- Other Investment Policies, Practices and Risk Factors"
in the Dragon Fund Statement and in the Emerging Tigers Fund Statement.
INVESTMENT RESTRICTIONS
Other than as noted above under "Comparison of the Funds -- Investment
Objectives and Policies," Dragon Fund and Emerging Tigers Fund have identical
investment restrictions. See "Investment Objective and Policies -- Investment
Restrictions" in the Dragon Fund Statement and "Investment Objective and
Policies -- Investment Restrictions" in the Emerging Tigers Fund Statement.
MANAGEMENT
Directors. The Boards of Directors of Dragon Fund and Emerging Tigers Fund
consist of five individuals, three of whom are not "interested persons" of the
Funds as defined in the Investment Company Act (the "non-interested Directors").
The same individuals serve on both Boards. After the Reorganization, the Board
of Directors of Dragon Fund will serve as the Board of Directors of the Combined
Fund. The Directors are responsible for the overall supervision of the
operations of the Funds and perform the various duties imposed on the directors
of investment companies by the Investment Company Act.
Information about the Directors of the Funds, including their ages and
their principal occupations for at least the last five years is set forth below.
Unless otherwise noted, the address of each Director is P.O. Box 9011,
Princeton, New Jersey 08543-9011.
TERRY K. GLENN (59) -- President and Director (1)(2) -- Executive Vice
President of MLAM and FAM (which terms as used herein include their corporate
predecessors) since 1983; President of Princeton Funds Distributor, Inc. ("PFD")
since 1986 and Director thereof since 1991; Executive Vice President and
Director of Princeton Services, Inc. ("Princeton Services") since 1993;
President of Princeton Administrators, L.P. since 1988.
CHARLES C. REILLY (68) -- Director (2)(3) -- 9 Hampton Harbor Road, Hampton
Bays, New York 11946 -- Self-employed financial consultant since 1990; President
and Chief Investment Officer of Verus Capital, Inc. from 1979
27
<PAGE> 29
to 1990; Senior Vice President of Arnhold and S. Bleichroeder, Inc. from 1973 to
1990; Adjunct Professor, Columbia University Graduate School of Business from
1990 to 1991; Adjunct Professor, Wharton School, University of Pennsylvania from
1989 to 1990; Partner, Small Cities Cable Television since 1986.
RICHARD R. WEST (61) -- Director (2)(3) -- Box 604, Genoa, Nevada 89411.
- -- Professor of Finance since 1984, Dean from 1984 to 1993, currently Dean
Emeritus of New York University Leonard N. Stern School of Business
Administration; Director of Bowne & Co., Inc. (financial printers). Vornado
Realty Trust, Inc. (real estate holding company), Vornado Operating Company,
Inc. and Alexander's, Inc. (real estate company).
ARTHUR ZEIKEL(67) -- Director (1)(2) -- 300 Woodland Avenue, Westfield, New
Jersey 07090 -- Chairman of the Manager and FAM from 1997 to 1999 and President
thereof from 1977 to 1997; Chairman of Princeton Services from 1997 to 1999;
Director thereof from 1993 to 1999 and President thereof from 1993 to 1997;
Executive Vice President of Merrill Lynch & Co., Inc. ("ML & Co.") from 1990 to
1999.
EDWARD D. ZINBARG (64) -- Director (2)(3) -- 5 Hardwell Road, Short Hills,
New Jersey 07078 -- Executive Vice President of The Prudential Insurance Company
of America 1988 to 1994; former Director of Prudential Reinsurance Company and
former Trustee of The Prudential Foundation.
- ---------------
(1) Interested person, as defined in the Investment Company Act, of each Fund.
(2) Such Director or officer is a director, trustee or officer of certain other
investment companies for which MLAM or FAM acts an investment adviser or
manager.
(3) Member of each Fund's Audit and Nominating Committee, which is responsible
for the selection of the independent auditors and the selection and
nomination of non-interested Directors.
Management and Advisory Arrangements. MLAM serves as the investment
adviser to Dragon Fund and FAM serves as the investment adviser to Emerging
Tigers Fund pursuant to separate management agreements (each, a "Management
Agreement"). Except for certain non-material differences, the Management
Agreements are identical.
Pursuant to the Management Agreement between Dragon Fund and MLAM, Dragon
Fund pays MLAM a monthly fee at the annual rate of 1.00% of the average daily
net assets of the Fund. Pursuant to the Management Agreement between Emerging
Tigers Fund and FAM, the Fund pays FAM a monthly fee at the annual rate of 1.00%
of the average daily net assets of the Fund. After the Reorganization, MLAM will
be the investment adviser to the Combined Fund and the Combined Fund will pay
the management fee at the rate currently paid by Dragon Fund.
MLAM has retained MLAM U.K. as sub-adviser to Dragon Fund. Pursuant to a
sub-advisory agreement between MLAM and MLAM U.K. with respect to Dragon Fund,
MLAM pays MLAM U.K. a fee for providing investment advisory services to MLAM
with respect to Dragon Fund in an amount to be determined from time to time by
MLAM and MLAM U.K. but in no event in excess of the amount MLAM actually
receives for providing services to Dragon Fund pursuant to the applicable
Management Agreement. FAM has retained MLAM U.K. as sub-adviser to Emerging
Tigers Fund. Pursuant to a separate sub-advisory agreement between FAM and MLAM
U.K. with respect to Emerging Tigers Fund, FAM pays MLAM U.K. a fee for
providing investment advisory services to FAM with respect to Emerging Tigers
Fund in an amount to be determined from time to time by FAM and MLAM U.K. but in
no event in excess of the amount FAM actually receives for providing services to
Emerging Tigers Fund pursuant to the applicable Management Agreement. The
address of MLAM U.K. is 33 King William Street, London EC4R9AS, England.
If the Reorganization had taken place on November 30, 1999, as of such
date, the total operating expenses of the pro forma Combined Fund, as a percent
of net assets, would have been less than the current operating expenses of
Dragon Fund or Emerging Tigers Fund individually. In addition, certain fixed
costs, such as costs of printing stockholder reports and proxy statements, legal
expenses, audit fees, registration fees, mailing costs and other expenses would
be spread across a larger asset base, thereby lowering the expense ratio borne
by stockholders of both Funds. The Board of Directors of each of the Funds has
determined that the Reorganization would be potentially beneficial to that Fund
and the Fund's stockholders. See "Summary -- Pro Forma Fee Tables" and "The
Reorganization -- Potential Benefits to Stockholders as a Result of the
Reorganization."
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<PAGE> 30
PURCHASE OF SHARES
The class structure and purchase and distribution procedures for shares of
Emerging Tigers Fund are substantially the same as those of Dragon Fund. For a
complete discussion of the four classes of shares and the purchase and
distribution procedures related thereto, see "Your Account -- Merrill Lynch
Select PricingSM System" and "-- How to Buy, Sell, Transfer and Exchange Shares"
in each Fund's Prospectus.
REDEMPTION OF SHARES
The procedure for redeeming shares of Dragon Fund is substantially the same
as the procedure for redeeming shares of Emerging Tigers Fund. For purposes of
computing any CDSC that may be payable upon disposition of Corresponding Shares
of Dragon Fund acquired by Emerging Tigers Fund stockholders in the
Reorganization, the holding period of Emerging Tigers Fund shares outstanding on
the date the Reorganization takes place will be tacked onto the holding period
of the Corresponding Shares of Dragon Fund acquired in the Reorganization. See
"Your Account -- How to Buy, Sell, Transfer and Exchange Shares" in each Fund's
Prospectus.
PERFORMANCE
General. The following tables provide performance information for each
class of shares of Emerging Tigers Fund and Dragon Fund, including and excluding
maximum applicable sales charges, for the periods indicated. Past performance is
not indicative of future performance.
DRAGON FUND
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS D SHARES
---------------------- ---------------------- ---------------------- ----------------------
WITHOUT WITHOUT WITHOUT WITHOUT
SALES WITH SALES SALES WITH SALES SALES WITH SALES SALES WITH SALES
PERIOD CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%)
- ------ --------- ---------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One Year Ended 11/30/99....... 56.76% 48.53% 55.11% 51.11% 54.93% 53.93% 56.29% 48.08%
Five Years Ended 11/30/99..... (1.71)% (2.76)% (2.68)% (2.68)% (2.71)% (2.71)% (1.92)% (2.97)%
Inception** to 11/30/99....... (3.39)% (4.40)% 4.48% 4.48% (4.36)% (4.36)% 5.30% 4.54%
</TABLE>
- ---------------
* Assumes the maximum applicable sales charge. The maximum initial sales charge
on Class A and Class D shares is 5.25%. The maximum contingent deferred sales
charge ("CDSC") on Class B shares is 4.0% and is reduced 1.0% annually to 0%
after four years. Class C shares are subject to a 1.0% CDSC for one year.
** Class B and Class D shares commenced operations on May 29, 1992. Class A and
Class C shares commenced operations on October 21, 1994.
EMERGING TIGERS FUND
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES CLASS D SHARES
---------------------- ---------------------- ---------------------- ----------------------
WITHOUT WITHOUT WITHOUT WITHOUT
SALES WITH SALES SALES WITH SALES SALES WITH SALES SALES WITH SALES
PERIOD CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%) CHARGE(%) CHARGE*(%)
- ------ --------- ---------- --------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One Year Ended 11/30/99....... 40.97% 33.57% 39.44% 35.44% 39.67% 38.67% 40.78% 33.39%
Five Years Ended 11/30/99..... (8.63)% (9.61)% -- -- -- -- -- --
Inception** to 11/30/99....... (7.23)% (8.10)% (15.17)% (15.41)% (15.16)% (15.16)% (14.50)% (15.81)%
</TABLE>
- ---------------
* Assumes the maximum applicable sales charge. The maximum initial sales charge
on Class A and Class D shares is 5.25%. The maximum CDSC on Class B shares is
4.0% and is reduced 1.0% annually to 0% after four years. Class C shares are
subject to a 1.0% CDSC for one year.
** Emerging Tigers Fund was incorporated under the laws of the State of Maryland
on December 23, 1993 as a closed-end investment company. It commenced
operations as a closed-end investment company on March 4, 1994. Emerging
(footnote continued)
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<PAGE> 31
(footnote continued from previous page)
Tigers Fund subsequently converted to an open-end investment company and
commenced operations as an open-end investment company on June 10, 1996.
Shares of Emerging Tigers Fund that were outstanding on June 10, 1996 were
designated Class A shares. Class A shares commenced operations on March 4,
1994. Class B, Class C and Class D shares commenced operations on June 10,
1996.
STOCKHOLDER RIGHTS
Stockholders of Dragon Fund are entitled to one vote for each share held
and fractional votes for fractional shares held and will vote on the election of
Directors and any other matter submitted to a stockholder vote. Dragon Fund does
not intend to hold meetings of stockholders in any year in which the Investment
Company Act does not require stockholders to act upon any of the following
matters: (i) election of Directors; (ii) approval of an investment advisory
agreement; (iii) approval of distribution arrangements; and (iv) ratification of
selection of independent accountants. Voting rights for Directors are not
cumulative. Shares of Dragon Fund to be issued to Emerging Tigers Fund
stockholders in the Reorganization will be fully paid and non-assessable, will
have no preemptive rights and will have the conversion rights described in this
Prospectus and Proxy Statement and in the Dragon Fund Prospectus. Each share of
Dragon Fund common stock is entitled to participate equally in dividends and
distributions declared by the Fund and in the net assets of the Fund on
liquidation or dissolution after satisfaction of outstanding liabilities, except
that Class B, Class C and Class D shares bear certain additional expenses.
Rights attributable to shares of Emerging Tigers Fund are substantially
identical to those described above.
DIVIDENDS
The current policy of Emerging Tigers Fund with respect to dividends is
substantially similar to the policy of Dragon Fund. It is each Fund's intention
to distribute all of its net investment income, if any. In addition, each Fund
distributes all net realized capital gains, if any, to stockholders at least
annually.
AUTOMATIC DIVIDEND REINVESTMENT PLAN
Each Fund offers its stockholders an Automatic Dividend Reinvestment Plan
(the "Plan") with substantially similar terms. Pursuant to the Plans, dividends
will be automatically reinvested, without sales charge, in additional full and
fractional shares of a Fund unless a stockholder has elected to receive such
dividends in cash. For further information about the Plans, see "Shareholder
Services -- Automatic Dividend Reinvestment Plan" in the Dragon Fund Statement
or in the Emerging Tigers Fund Statement.
After the Reorganization, an Emerging Tigers Fund stockholder who has
elected to receive dividends in cash will continue to receive dividends in cash;
all other Emerging Tigers Fund stockholders will have their dividends
automatically reinvested in shares of the Combined Fund. However, if a
stockholder owns shares of both Funds, after the Reorganization the
stockholder's election with respect to the dividends of Dragon Fund will control
unless the stockholder specifically elects a different option at that time.
TAX INFORMATION
The tax consequences associated with investment in shares of Emerging
Tigers Fund are substantially identical to the tax consequences associated with
investment in shares of Dragon Fund. See "Taxes" in the Dragon Fund Prospectus.
PORTFOLIO TRANSACTIONS
The procedures for engaging in portfolio transactions are generally the
same for both Emerging Tigers Fund and Dragon Fund. For a discussion of these
procedures, see "Investment Objective and Policies -- Other Investment Policies
and Practices" in the Dragon Fund Prospectus and "Portfolio Transactions and
Brokerage" in the Dragon Fund Statement.
Each Fund may effect portfolio transactions on foreign securities exchanges
and may incur settlement delays on certain of such exchanges. In addition, costs
associated with transactions in foreign securities are generally higher than
such costs associated with transactions in U.S. securities.
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<PAGE> 32
PORTFOLIO TURNOVER
Generally, neither Emerging Tigers Fund nor Dragon Fund purchases
securities for short-term trading profits. However, either Fund may dispose of
securities without regard to the time that they have been held when such action,
for defensive or other reasons, appears advisable to MLAM. Neither Fund has any
limit on its rate of portfolio turnover. The portfolio turnover rates for
Emerging Tigers Fund for the fiscal years ended November 30, 1998 and 1999 were
73.52% and 90.45%, respectively. The portfolio turnover rates for Dragon Fund
for the fiscal years ended December 31, 1998 and 1999 were 99.85% and %,
respectively. A higher portfolio turnover involves certain tax consequences, and
may contribute to correspondingly greater transactional costs in the form of
dealer spreads and brokerage commissions which are borne directly by the Fund.
ADDITIONAL INFORMATION
Net Asset Value. Both Dragon Fund and Emerging Tigers Fund determine net
asset value of each class of its shares once daily as of the close of business
on the NYSE (generally, 4:00 p.m. Eastern time), on each day during which the
NYSE is open for trading based on prices at the time of closing. Net asset value
is computed by dividing the market value of the securities held by the Fund plus
any cash or other assets (including interest and dividends accrued but not yet
received) minus all liabilities (including accrued expenses) by the total number
of shares outstanding at such time.
Stockholder Services. Dragon Fund offers a number of stockholder services
and investment plans designed to facilitate investment in shares of the Fund. In
addition, U.S. stockholders of each class of shares of Dragon Fund have an
exchange privilege with certain other MLAM-advised mutual funds. Stockholder
services, including exchange privileges, available to stockholders of Emerging
Tigers Fund and Dragon Fund are substantially identical. For a description of
these services, see "Stockholder Services" in the Dragon Fund Statement.
Custodian. Brown Brothers Harriman & Co. ("Brown Brothers") acts as
custodian of the cash and securities of each Fund. The principal business
address of Brown Brothers is 40 Water Street, Boston, MA 02109. It is expected
that Brown Brothers will serve as the custodian of the Combined Fund.
Transfer Agent, Dividend Disbursing Agent and Shareholder Servicing
Agent. Financial Data Services, Inc. serves as the transfer agent, dividend
disbursing agent and shareholder servicing agent with respect to each Fund (the
"Transfer Agent"), at the same fee schedule, pursuant to separate transfer
agency, dividend disbursing and service agreements with each Fund. The
administrative offices of the Transfer Agent are located at 4800 Deer Lake Drive
East, Jacksonville, Florida 32246-6484. The mailing address of the Transfer
Agent is P.O. Box 45289, Jacksonville, Florida 32232-5289.
Capital Stock. Emerging Tigers Fund has an authorized capital of
400,000,000 shares of common stock, par value $.10 per share, divided into four
classes, designated Class A, Class B, Class C and Class D common stock. Class A
and Class D each consist of 100,000,000 shares; Class B consists of 150,000,000
shares and Class C consists of 50,000,000 shares. Dragon Fund has an authorized
capital of 500,000,000 shares of common stock, par value $0.10 per share,
divided into four classes, also designated Class A, Class B, Class C and Class D
common stock. Class A, Class C and Class D each consists of 100,000,000 shares
and Class B consists of 200,000,000 shares. The rights, preferences and expenses
attributable to the Class A, Class B, Class C and Class D shares of Emerging
Tigers Fund are identical in all respects to those of the Class A, Class B,
Class C and Class D shares of Dragon Fund.
Stockholder Inquiries. Stockholder inquiries with respect to Emerging
Tigers Fund and Dragon Fund may be addressed to either Fund by telephone at
(609) 282-2800 or at the address set forth on the cover page of this Proxy
Statement and Prospectus.
THE REORGANIZATION
GENERAL
Under the Agreement and Plan (attached hereto as Exhibit I), Dragon Fund
will acquire substantially all of the assets, and will assume substantially all
of the liabilities, of Emerging Tigers Fund, in exchange solely for an equal
aggregate value of shares to be issued by Dragon Fund. Upon receipt by Emerging
Tigers Fund of such shares, Emerging Tigers Fund will distribute the shares to
the holders of shares of Emerging Tigers Fund, as described below.
31
<PAGE> 33
Generally, the assets transferred by Emerging Tigers Fund to Dragon Fund
will equal all investments of Emerging Tigers Fund held in its portfolio after
the close of business on the NYSE on the business day prior to the date the
Reorganization takes place ("Valuation Time"), and all other assets of Emerging
Tigers Fund as of such time.
Emerging Tigers Fund will distribute the Corresponding Shares of Dragon
Fund received by it pro rata to Emerging Tigers Fund stockholders in exchange
for such stockholders' proportional interests in Emerging Tigers Fund. The
Corresponding Shares of Dragon Fund received by Emerging Tigers Fund
stockholders will be of the same class and have the same aggregate net asset
value as each such stockholder's interest in Emerging Tigers Fund as of the
Valuation Time. (See "The Agreement and Plan -- Valuation of Assets and
Liabilities" for information concerning the calculation of net asset value.) The
distribution will be accomplished by opening new accounts on the books of Dragon
Fund in the names of all stockholders of Emerging Tigers Fund, including
stockholders holding Emerging Tigers Fund shares in certificate form, and
transferring to each stockholder's account the Corresponding Shares of Dragon
Fund representing such stockholder's interest previously credited to the account
of Emerging Tigers Fund. Stockholders holding Emerging Tigers Fund shares in
certificate form may receive certificates representing the Corresponding Shares
of Dragon Fund credited to their account in respect of such Emerging Tigers Fund
shares by sending the certificates representing the Emerging Tigers Fund shares
to the Transfer Agent accompanied by a written request for such exchange.
Since the Corresponding Shares will be issued at net asset value and the
shares of Emerging Tigers Fund will be valued at net asset value for the
purposes of the exchange by Emerging Tigers Fund stockholders of such shares for
the Corresponding Shares, the holders of shares of Emerging Tigers Fund will not
be diluted as a result of the Reorganization. However, as a result of the
Reorganization, a stockholder of Emerging Tigers Fund or Dragon Fund likely
would find that his or her holdings represented a reduced percentage of
ownership in the Combined Fund when compared to the percentage of ownership such
holdings represented prior to the Reorganization.
PROCEDURE
On January 20, 2000, the Board of Directors of Emerging Tigers Fund,
including all of the Directors who are not "interested persons," as defined by
the Investment Company Act, approved the Agreement and Plan and the submission
of such Agreement and Plan to Emerging Tigers Fund stockholders for approval.
The Board of Directors of Dragon Fund, including all of the Directors who are
not interested persons, also approved the Agreement and Plan on January 20,
2000.
If the stockholders of Emerging Tigers Fund approve the Reorganization at
the Meeting, all required regulatory approvals are obtained and certain
conditions are either met or waived, it is presently anticipated that the
Reorganization will take place during the second calendar quarter of 2000.
THE BOARD OF DIRECTORS OF EMERGING TIGERS FUND RECOMMENDS THAT EMERGING
TIGERS FUND STOCKHOLDERS APPROVE THE AGREEMENT AND PLAN.
TERMS OF THE AGREEMENT AND PLAN
The following is a summary of the significant terms of the Agreement and
Plan. This summary is qualified in its entirety by reference to the Agreement
and Plan, attached hereto as Exhibit I.
Valuation of Assets and Liabilities. The respective assets of Emerging
Tigers Fund and Dragon Fund will be valued as of the Valuation Time. The assets
in each Fund will be valued according to the procedures set forth under "Your
Account -- How Shares Are Priced" in the Dragon Fund Prospectus. Purchase orders
for Emerging Tigers Fund shares which have not been confirmed as of the
Valuation Time will be treated as assets of Emerging Tigers Fund for purposes of
the Reorganization; redemption requests with respect to Emerging Tigers Fund
shares which have not settled as of the Valuation Time will be treated as
liabilities of Emerging Tigers Fund for purposes of the Reorganization.
Distribution of Dragon Fund Shares. On the next full business day
following the Valuation Time (the "Exchange Date"), Dragon Fund will issue to
Emerging Tigers Fund a number of shares the aggregate net asset value of which
will equal the aggregate net asset value of shares of Emerging Tigers Fund as of
the Valuation Time. Each holder of Emerging Tigers Fund shares will receive, in
exchange for his or her proportionate interest in Emerging Tigers Fund,
Corresponding Shares of Dragon Fund of the same class and having the same
aggregate net asset value as the Emerging Tigers Fund shares held by such
stockholder as of the Valuation Time.
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<PAGE> 34
Expenses. The expenses of the Reorganization that are directly
attributable to Emerging Tigers Fund and the conduct of its business will be
deducted from the assets of Emerging Tigers Fund as of the Valuation Time. These
expenses are expected to include the expenses incurred in preparing, printing
and mailing the proxy materials to be utilized in connection with the special
meeting of stockholders and the expenses related to the solicitation of proxies
to be voted at that meeting. The expenses attributable to Dragon Fund include
the costs of printing sufficient copies of its Prospectus and its most recent
Annual Report to accompany the Proxy Statement and Prospectus. The expenses of
the Reorganization, including expenses in connection with obtaining the IRS
private letter ruling, the preparation of the Agreement and Plan, legal fees and
audit fees will be borne equally by each Fund. MLAM has agreed to bear the
expenses of the Reorganization attributable to Dragon Fund.
Required Approvals. Under Emerging Tigers Fund's Articles of Incorporation
(as amended to date) and relevant Maryland law, stockholder approval of the
Agreement and Plan requires the affirmative vote of Emerging Tigers Fund
stockholders representing a majority of the total number of votes entitled to be
cast thereon.
Deregistration and Dissolution. Following the transfer of the assets and
liabilities of Emerging Tigers Fund to Dragon Fund and the distribution of
Corresponding Shares of Dragon Fund to Emerging Tigers Fund stockholders,
Emerging Tigers Fund will terminate its registration under the Investment
Company Act and its incorporation under Maryland law and will withdraw its
authority to do business in any state where it is required to do so.
Amendments and Conditions. The Agreement and Plan may be amended at any
time prior to the Exchange Date with respect to any of the terms therein. The
obligations of Emerging Tigers Fund and Dragon Fund pursuant to the Agreement
and Plan are subject to various conditions, including a registration statement
on Form N-14 being declared effective by the Commission, approval of the
Reorganization by Emerging Tigers Fund stockholders, a favorable IRS ruling or
an opinion of counsel being received as to tax matters, an opinion of counsel
being received as to securities matters and the continuing accuracy of various
representations and warranties of Emerging Tigers Fund and Dragon Fund being
confirmed by the respective parties.
Termination, Postponement and Waivers. The Agreement and Plan may be
terminated, and the Reorganization abandoned at any time, whether before or
after adoption thereof by the Emerging Tigers Fund stockholders, prior to the
Exchange Date, or the Exchange Date may be postponed: (i) by mutual consent of
the Boards of Directors of Emerging Tigers Fund and Dragon Fund; (ii) by the
Board of Directors of Emerging Tigers Fund if any condition to Emerging Tigers
Fund's obligations has not been fulfilled or waived by such Board; or (iii) by
the Board of Directors of Dragon Fund if any condition to Dragon Fund's
obligations has not been fulfilled or waived by such Board.
POTENTIAL BENEFITS TO STOCKHOLDERS AS A RESULT OF THE REORGANIZATION
FAM and the Board of Directors of Emerging Tigers Fund have identified
certain potential benefits to stockholders that are likely to result from the
Reorganization. First, following the Reorganization, Emerging Tigers Fund
stockholders will remain invested in a non-diversified, open-end mutual fund
that has an investment objective substantially similar to that of Emerging
Tigers Fund. In addition, Emerging Tigers Fund stockholders are likely to
experience certain additional benefits, including lower expenses per share,
economies of scale and greater flexibility in portfolio management.
Specifically, as described above under "Comparison of the
Funds -- Management -- Management and Advisory Fees," after the Reorganization,
the total operating expenses of the pro forma Combined Fund, as a percent of net
assets, would be less than such percentage for Emerging Tigers Fund. See
"Summary -- Pro Forma Fee Tables." In addition, certain fixed costs, such as
costs of printing stockholder reports and proxy statements, legal expenses,
audit fees, registration fees, mailing costs and other expenses would be spread
across a larger asset base, thereby lowering the expense ratio borne by Emerging
Tigers Fund stockholders. To illustrate the potential economies of scale for
Emerging Tigers Fund, as of November 30, 1999, the total operating expense ratio
for Class A shares of Emerging Tigers Fund was 2.26% (based on net assets of
approximately $48.5 million) and the total operating expense ratio for Class A
shares of Dragon Fund was 1.46% (based on net assets of approximately $378.2
million). If the Reorganization had taken place on that date, the total
operating expense ratio for Class A shares of the Combined Fund on a pro forma
basis would have been 1.44% (based on net assets of approximately $426.7
million).
33
<PAGE> 35
The following table sets forth (i) the net assets of Emerging Tigers Fund
as of November 30, 1994, 1995, 1996, 1997, 1998 and 1999 and (ii) the net assets
of Dragon Fund as of December 31, 1994, 1995, 1996, 1997, 1998 and 1999 and as
of November 30, 1999.
<TABLE>
<CAPTION>
DRAGON FUND
- ---------------------------------------------
PERIOD NET ASSETS
- ----------------------------- --------------
<S> <C>
As of November 30, 1999 $ 378,207,141
As of December 31, 1998 $ 300,231,695
As of December 31, 1997 $ 526,774,230
As of December 31, 1996 $1,567,179,182
As of December 31, 1995 $1,337,399,382
As of December 31, 1994 $1,175,998,380
</TABLE>
<TABLE>
<CAPTION>
EMERGING TIGERS FUND
- ---------------------------------------------
PERIOD NET ASSETS
- ----------------------------- --------------
<S> <C>
As of November 30, 1999 $ 48,483,614
As of November 30, 1998 $ 43,175,187
As of November 30, 1997 $ 72,573,562
As of November 30, 1996 $ 199,103,816
As of November 30, 1995* $ 294,830,108
As of November 30, 1994* $ 318,413,736
</TABLE>
- ---------------
* Emerging Tigers Fund was incorporated under the laws of the State of Maryland
on December 23, 1993 as a closed-end investment company. It commenced
operations as a closed-end investment company on March 4, 1994. Emerging
Tigers Fund subsequently converted to an open-end investment company and
commenced operations as an open-end investment company on June 10, 1996. As a
result, the net asset figures for Emerging Tigers Fund as of November 30, 1994
and November 30, 1995 reflect its performance as a closed-end investment
company.
The net assets of Emerging Tigers Fund as of November 30, 1999 are below
the level reached as of November 30, 1994 and have been steadily decreasing
since that date, including the substantial redemption experienced following the
Fund's conversion to open-end status on June 10, 1996. The net assets of Dragon
Fund have also been decreasing steadily since December 31, 1996, reflecting the
volatile economic situation in the Asia-Pacific Basin. The net assets of
Emerging Tigers Fund are substantially smaller than the net assets of Dragon
Fund. FAM believes that the economies of scale that may be realized as a result
of the Reorganization would be beneficial to Emerging Tigers Fund stockholders.
Based on the foregoing, the Board of Directors of Emerging Tigers Fund
concluded that the Reorganization presents no significant risks or costs
(including legal, accounting and administrative costs) that would outweigh the
benefits discussed above. In approving the Reorganization, the Board of
Directors of each Fund determined that the interests of existing stockholders of
that Fund would not be diluted as a result of the Reorganization.
TAX CONSEQUENCES OF THE REORGANIZATION
General. The Reorganization has been structured with the intention that it
qualify for Federal income tax purposes as a tax-free reorganization under
Section 368(a)(1)(C) of the Code. Emerging Tigers Fund and Dragon Fund have
elected and qualified for the special tax treatment afforded "regulated
investment companies" under the Code, and Dragon Fund intends to continue to so
qualify after the Reorganization. Emerging Tigers Fund and Dragon Fund have
jointly requested a private letter ruling from the IRS to the effect that for
Federal income tax purposes: (i) the Reorganization, as described, will
constitute a reorganization within the meaning of Section 368(a)(1)(C) of the
Code and Emerging Tigers Fund and Dragon Fund will each be deemed a "party" to
the Reorganization within the meaning of Section 368(b) of the Code; (ii) in
accordance with Section 354(a)(1) of the Code, no gain or loss will be
recognized by the stockholders of Emerging Tigers Fund upon the receipt of
Corresponding Shares of Dragon Fund in the Reorganization solely in exchange for
their shares of Emerging Tigers Fund; (iii) in accordance with Section 358 of
the Code, immediately after the Reorganization, the tax basis of the
Corresponding Shares of Dragon Fund received by the stockholders of Emerging
Tigers Fund in the Reorganization will be equal, in the aggregate, to the tax
basis of the shares of Emerging Tigers Fund surrendered in exchange; (iv) in
accordance with Section 1223 of the Code, the holding period of the
Corresponding Shares of Dragon Fund received by stockholders of Emerging Tigers
Fund in the Reorganization will include the holding period of the shares of
Emerging Tigers Fund immediately prior to the liquidation of Emerging Tigers
Fund (provided that at the time of the Reorganization the shares of Emerging
Tigers Fund were held as capital assets); (v) in accordance with Section 361(a)
of the Code, no gain or loss will be recognized by Emerging Tigers Fund on the
asset transfer solely in exchange for Dragon Fund shares or on the distribution
of Dragon Fund shares to Emerging Tigers Fund stockholders under Section
361(c)(1) of the Code; (vi) under Section 1032 of the Code, no gain or loss will
be recognized by Dragon Fund on the exchange of its shares for Emerging Tigers
Fund assets; (vii) in accordance with Section 362(b) of the Code, the tax basis
of the assets of Emerging Tigers Fund in the hands of Dragon Fund will be the
34
<PAGE> 36
same as the tax basis of such assets in the hands of Emerging Tigers Fund
immediately prior to the Reorganization; (viii) in accordance with Section 1223
of the Code, the holding period of the transferred assets in the hands of Dragon
Fund will include the holding period of such assets in the hands of Emerging
Tigers Fund; and (ix) the taxable year of Emerging Tigers Fund will end on the
effective date of the Reorganization and pursuant to Section 381(a) of the Code
and regulations thereunder, Dragon Fund will succeed to and take into account
certain tax attributes of Emerging Tigers Fund, such as earnings and profits,
capital loss carryovers and method of accounting. If the IRS does not issue a
favorable private letter ruling in advance of the selected closing date, the
Funds may proceed with the closing of the Reorganization upon receipt of an
opinion of counsel regarding the tax matters covered by the ruling request.
As of November 30, 1999, each Fund had significant net realized capital
losses and net unrealized capital gains. As a result of the Reorganization and
subject to certain limitations, stockholders of each Fund may benefit from the
ability of the Combined Fund to use the net realized capital losses of the other
Fund to offset the net realized capital gains of the Combined Fund, if any.
Stockholders should consult their tax advisers regarding the effect of the
Reorganization in light of their individual circumstances. As the foregoing
relates only to Federal income tax consequences, stockholders also should
consult their tax advisers as to the foreign, state and local tax consequences
of the Reorganization.
Status as a Regulated Investment Company. Both Emerging Tigers Fund and
Dragon Fund have elected and qualified to be taxed as regulated investment
companies under Sections 851-855 of the Code, and after the Reorganization,
Dragon Fund intends to continue to operate so as to qualify as a regulated
investment company. Following the liquidation and dissolution of Emerging Tigers
Fund and distribution of shares of Dragon Fund to Emerging Tigers Fund
stockholders, Emerging Tigers Fund will terminate its registration under the
Investment Company Act and its incorporation under Maryland law.
CAPITALIZATION
The following table sets forth as of November 30, 1999: (i) the
capitalization of Emerging Tigers Fund, (ii) the capitalization of Dragon Fund
and (iii) the capitalization of the Pro Forma Dragon Fund as adjusted to give
effect to the Reorganization.
PRO FORMA CAPITALIZATION OF DRAGON FUND, EMERGING TIGERS FUND AND
PRO FORMA DRAGON FUND AS OF NOVEMBER 30, 1999
DRAGON FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Total Net Assets.............................. $28,155,893 $245,971,999 $22,794,578 $81,284,671
Shares Outstanding............................ 2,504,369 22,616,736 2,128,050 7,249,329
Net Asset Value Per Share..................... $ 11.24 $ 10.88 $ 10.71 $ 11.21
</TABLE>
EMERGING TIGERS FUND
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total Net Assets.................................. $36,367,427 $7,773,839 $2,222,282 $2,120,066
Shares Outstanding................................ 4,133,664 901,350 257,309 241,853
Net Asset Value Per Share......................... $ 8.80 $ 8.62 $ 8.64 $ 8.77
</TABLE>
35
<PAGE> 37
PRO FORMA DRAGON FUND*
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Total Net Assets.............................. $64,523,320 $253,745,838 $25,016,860 $83,404,737
Shares Outstanding............................ 5,740,509 23,322,228 2,335,841 7,440,208
Net Asset Value Per Share..................... $ 11.24 $ 10.88 $ 10.71 $ 11.21
</TABLE>
- ---------------
* Total Net Assets and Net Asset Value Per Share include the aggregate value of
Emerging Tigers Fund's net assets which would have been transferred to Dragon
Fund had the Reorganization been consummated on November 30, 1999. No
assurance can be given as to how many shares of Dragon Fund the Emerging
Tigers Fund stockholders will receive on the date the Reorganization takes
place, and the foregoing should not be relied upon to reflect the number of
shares of Dragon Fund that actually will be received by Emerging Tigers Fund
stockholders on or after such date.
INFORMATION CONCERNING THE SPECIAL MEETING
DATE, TIME AND PLACE OF MEETING
The Meeting will be held on April 26, 2000, at the offices of Fund Asset
Management, L.P., 800 Scudders Mill Road, Plainsboro, New Jersey at ,
Eastern time.
SOLICITATION, REVOCATION AND USE OF PROXIES
A stockholder executing and returning a proxy has the power to revoke it at
any time prior to its exercise by executing a superseding proxy or by submitting
a notice of revocation to the Secretary of Emerging Tigers Fund. Although mere
attendance at the Meeting will not revoke a proxy, a stockholder present at the
Meeting may withdraw his or her proxy and vote in person.
All shares represented by properly executed proxies, unless such proxies
previously have been revoked, will be voted at the Meeting in accordance with
the directions on the proxies; if no direction is indicated on a properly
executed proxy, such shares will be voted "FOR" approval of the Agreement and
Plan.
It is not anticipated that any matters other than the adoption of the
Agreement and Plan of Reorganization will be brought before the Meeting. If,
however, any other business properly is brought before the Meeting, proxies will
be voted in accordance with the judgment of the persons designated on such
proxies.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of shares of Emerging Tigers Fund at the close of
business on March 15, 2000 (the "Record Date") are entitled to vote at the
Meeting or any adjournment thereof. At the close of business on the Record Date,
there were shares of Emerging Tigers Fund common stock issued and
outstanding and entitled to vote.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF EMERGING
TIGERS FUND AND DRAGON FUND
Except as set forth below, to the knowledge of Emerging Tigers Fund, as of
the Record Date no person or entity owned beneficially or of record 5% or more
of any class of shares of Emerging Tigers Fund or of all classes of Emerging
Tigers Fund shares in the aggregate.
36
<PAGE> 38
<TABLE>
<CAPTION>
NAME AND ADDRESS CLASS OF SHARES PERCENT OF CLASS
- ---------------- --------------- ----------------
<S> <C> <C>
</TABLE>
At the Record Date, the Directors and officers of Emerging Tigers Fund as a
group (8 persons) owned an aggregate of less than 1% of the outstanding shares
of Emerging Tigers Fund and owned an aggregate of less than 1% of the
outstanding shares of common stock of ML & Co.
Except as set forth below, to the knowledge of Dragon Fund, as of the
Record Date, no person or entity owned beneficially or of record 5% or more of
any class of shares of Dragon Fund or of all classes of Dragon Fund shares in
the aggregate.
<TABLE>
<CAPTION>
NAME AND ADDRESS CLASS OF SHARES PERCENT OF CLASS
- ---------------- --------------- ----------------
<S> <C> <C>
</TABLE>
At the Record Date, the Directors and officers of Dragon Fund as a group (8
persons) owned an aggregate of less than 1% of the outstanding shares of Dragon
Fund and owned less than 1% of the outstanding shares of common stock of ML &
Co.
VOTING RIGHTS AND REQUIRED VOTE
For purposes of this Proxy Statement and Prospectus, each share of each
class of Emerging Tigers Fund is entitled to one vote. Approval of the Agreement
and Plan requires the affirmative vote of Emerging Tigers Fund stockholders
representing a majority of the total votes entitled to be cast thereon, with all
shares voting as a single class.
Under Maryland law, stockholders of a registered open-end investment
company such as Emerging Tigers Fund are not entitled to demand the fair value
of their shares upon a transfer of assets and will be bound by the terms of the
Reorganization if approved at the Meeting. However, any stockholder of Emerging
Tigers Fund may redeem his or her Emerging Tigers Fund shares prior to the
Reorganization.
A quorum for purposes of the Meeting consists of a majority of the shares
entitled to vote at the Meeting, present in person or by proxy. If, by the time
scheduled for the Meeting, a quorum of Emerging Tigers Fund's stockholders is
not present or if a quorum is present but sufficient votes in favor of the
Agreement and Plan are not received from the stockholders of Emerging Tigers
Fund, the persons named as proxies may propose one or more adjournments of the
Meeting to permit further solicitation of proxies from stockholders. Any such
adjournment will require the affirmative vote of a majority of the shares of
Emerging Tigers Fund present in person or by proxy and entitled to vote at the
session of the Meeting to be adjourned. The persons named as proxies will vote
in favor of any such adjournment if they determine that adjournment and
additional solicitation are reasonable and in the interests of the stockholders
of Emerging Tigers Fund.
37
<PAGE> 39
ADDITIONAL INFORMATION
The expenses of preparation, printing and mailing of the enclosed form of
proxy, the accompanying Notice and this Proxy Statement and Prospectus will be
borne by Emerging Tigers Fund. Such expenses are currently estimated to be
$86,000.
Emerging Tigers Fund will reimburse banks, brokers and others for their
reasonable expenses in forwarding proxy solicitation materials to the beneficial
owners of shares of Emerging Tigers Fund and will reimburse certain persons that
Emerging Tigers Fund may employ for their reasonable expenses in assisting in
the solicitation of proxies from such beneficial owners of shares of Emerging
Tigers Fund.
In order to obtain the necessary quorum at the Meeting, supplementary
solicitation may be made by mail, telephone, telegraph or personal interview by
officers of Emerging Tigers Fund. Emerging Tigers Fund has retained
, to aid in the solicitation of proxies, at a cost to be borne by
Emerging Tigers Fund of approximately $ , plus out-of-pocket expenses.
Broker-dealer firms, including Merrill Lynch, holding shares of Emerging
Tigers Fund in "street name" for the benefit of their customers and clients will
request the instructions of such customers and clients on how to vote their
shares before the Meeting. Broker-dealer firms, including Merrill Lynch, will
not be permitted to vote without instructions with respect to the approval of
the Agreement and Plan. Properly executed proxies that are returned but that are
marked "abstain" or with respect to which a broker-dealer has received no
instructions and therefore has declined to vote on the proposal ("broker
non-votes") will be counted as present for the purposes of determining a quorum.
However, abstentions and broker non-votes will have the same effect as a vote
against approval of the Agreement and Plan.
This Proxy Statement and Prospectus does not contain all of the information
set forth in the registration statements and the exhibits relating thereto which
Emerging Tigers Fund and Dragon Fund, respectively, have filed with the
Commission under the Securities Act and the Investment Company Act, to which
reference is hereby made.
Emerging Tigers Fund and Dragon Fund both file reports and other
information with the Commission. Reports, proxy statements, registration
statements and other information filed by Emerging Tigers Fund and Dragon Fund
can be inspected and copied at the public reference facilities of the Commission
in Washington, D.C. and at the New York Regional Office of the Commission at
Seven World Trade Center, New York, New York 10048. Copies of such materials
also can be obtained by mail from the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a web site
(http://www.sec.gov) that contains the Statement of Additional Information, the
Dragon Fund Prospectus, the Emerging Tigers Fund Prospectus, the Dragon Fund
Statement, the Emerging Tigers Fund Statement, other material incorporated by
reference and other information regarding the Funds.
LEGAL PROCEEDINGS
There are no material legal proceedings to which Emerging Tigers Fund or
Dragon Fund is a party.
LEGAL OPINIONS
Certain legal matters in connection with the Reorganization will be passed
upon for Emerging Tigers Fund and Dragon Fund by Brown & Wood LLP, One World
Trade Center, New York, New York 10048.
EXPERTS
The financial highlights of Dragon Fund and Emerging Tigers Fund included
in this Proxy Statement and Prospectus have been so included in reliance on the
report of Deloitte & Touche LLP ("D&T"), independent auditors, given on their
authority as experts in auditing and accounting. The principal business address
of D&T is Princeton Forrestal Village, 116-300 Village Boulevard, Princeton, New
Jersey 08540-6400. D&T will serve as the independent auditors for the Combined
Fund after the Reorganization.
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<PAGE> 40
STOCKHOLDER PROPOSALS
A stockholder proposal intended to be presented at any subsequent meeting
of stockholders of Emerging Tigers Fund must be received by Emerging Tigers Fund
in a reasonable time before Emerging Tigers Fund begins to print and mail the
proxy solicitation materials to be utilized in connection with such meeting in
order to be considered in Emerging Tigers Fund's proxy statement and form of
proxy relating to the meeting.
By Order of the Board of Directors,
PHILLIP S. GILLESPIE
Secretary, Merrill Lynch Emerging Tigers
Fund, Inc.
39
<PAGE> 41
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made as of
the day of , 2000, by and between Merrill Lynch
Dragon Fund, Inc., a Maryland corporation ("Dragon Fund"), and Merrill Lynch
Emerging Tigers Fund, Inc., a Maryland corporation ("Emerging Tigers Fund" and,
together with Dragon Fund, the "Funds").
PLAN OF REORGANIZATION
The reorganization will comprise the acquisition by Dragon Fund of
substantially all of the assets, and the assumption of substantially all of the
liabilities, of Emerging Tigers Fund in exchange solely for an equal aggregate
value of newly issued shares of Dragon Fund's common stock, with a par value of
$.10 per share, and the subsequent distribution of Corresponding Shares (defined
below) of Dragon Fund to the stockholders of Emerging Tigers Fund in exchange
for their shares of common stock of Emerging Tigers Fund, with a par value of
$.10 per share, in liquidation of Emerging Tigers Fund, all upon and subject to
the terms hereinafter set forth (the "Reorganization").
In the course of the Reorganization, shares of Dragon Fund will be
distributed to Emerging Tigers Fund stockholders as follows: each holder of
shares in Emerging Tigers Fund will be entitled to receive the same class of
shares of Dragon Fund (i.e., Class A, Class B, Class C or Class D) (the
"Corresponding Shares") as they held in Emerging Tigers Fund immediately prior
to the Reorganization. The same distribution fees, account maintenance fees and
sales charges (including contingent deferred sales charges), if any, shall apply
to the Corresponding Shares as applied to shares of Emerging Tigers Fund
immediately prior to the Reorganization. The aggregate net asset value of the
Corresponding Shares of Dragon Fund to be received by each stockholder of
Emerging Tigers Fund will equal the aggregate net asset value of the Emerging
Tigers Fund shares owned by such stockholder on the Exchange Date (defined
below). In consideration therefor, on the Exchange Date, Dragon Fund shall
acquire substantially all of Emerging Tigers Fund's assets and assume
substantially all of Emerging Tigers Fund's obligations and liabilities then
existing, whether absolute, accrued, contingent or otherwise. It is intended
that the Reorganization described in this Plan shall be a reorganization within
the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended (the "Code"), and any successor provision.
As promptly as practicable after the consummation of the Reorganization,
Emerging Tigers Fund shall be dissolved in accordance with the laws of the State
of Maryland and will terminate its registration under the Investment Company Act
of 1940, as amended (the "1940 Act").
AGREEMENT
In order to consummate the Reorganization and in consideration of the
promises and the covenants and agreements hereinafter set forth, and intending
to be legally bound, Dragon Fund and Emerging Tigers Fund hereby agree as
follows:
1. Representations and Warranties of Dragon Fund.
Dragon Fund represents and warrants to, and agrees with, Emerging Tigers
Fund that:
(a) Dragon Fund is a corporation duly organized, validly existing and
in good standing in conformity with the laws of the State of Maryland, and
has the power to own all of its assets and to carry out this Agreement.
Dragon Fund has all necessary Federal, state and local authorizations to
carry on its business as it is now being conducted and to carry out this
Agreement.
(b) Dragon Fund is duly registered under the 1940 Act as a
non-diversified, open-end management investment company (File No.
811-6581), and such registration has not been revoked or rescinded and is
in full force and effect. Dragon Fund has elected and qualified for the
special tax treatment afforded regulated investment companies ("RICs")
under Sections 851-855 of the Code at all times since its inception and
intends to continue to so qualify until consummation of the Reorganization
and thereafter.
(c) Emerging Tigers Fund has been furnished with a statement of assets
and liabilities and a schedule of investments of Dragon Fund, each as of
December 31, 1999, said financial statements having been examined by
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Deloitte & Touche LLP, independent public accountants. An unaudited
statement of assets and liabilities of Dragon Fund and an unaudited
schedule of investments of Dragon Fund, each as of the Valuation Time
(defined below), will be furnished to Emerging Tigers Fund at or prior to
the Exchange Date for the purpose of determining the number of shares of
Dragon Fund to be issued pursuant to Section 4 of this Agreement; and each
will fairly present the financial position of Dragon Fund as of the
Valuation Time in conformity with generally accepted accounting principles
applied on a consistent basis.
(d) Emerging Tigers Fund has been furnished with Dragon Fund's Annual
Report to Stockholders for the fiscal year ended December 31, 1999, and the
financial statements appearing therein fairly present the financial
position of Dragon Fund as of the dates indicated in conformity with
generally accepted accounting principles applied on a consistent basis.
(e) Emerging Tigers Fund has been furnished with the prospectus and
statement of additional information of Dragon Fund, each dated April 26,
1999, and said prospectus and statement of additional information do not
contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(f) Dragon Fund has full power and authority to enter into and perform
its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary
action of its Board of Directors, and this Agreement constitutes a valid
and binding contract enforceable in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles.
(g) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Dragon Fund, threatened against it which
assert liability on the part of Dragon Fund or which materially affect its
financial condition or its ability to consummate the Reorganization. Dragon
Fund is not charged with or, to the best of its knowledge, threatened with
any violation or investigation of any possible violation of any provisions
of any Federal, state or local law or regulation or administrative ruling
relating to any aspect of its business.
(h) Dragon Fund is not a party to or obligated under any provision of
its Articles of Incorporation, as amended and supplemented, or its by-laws,
as amended, or any contract or other commitment or obligation, and is not
subject to any order or decree which would be violated by its execution of
or performance under this Agreement.
(i) There are no material contracts outstanding to which Dragon Fund
is a party that have not been disclosed in the N-14 Registration Statement
(as defined in subsection (l) below) or will not otherwise be disclosed to
Emerging Tigers Fund prior to the Valuation Time.
(j) Dragon Fund has no known liabilities of a material amount,
contingent or otherwise, other than those shown on its statements of assets
and liabilities referred to above, those incurred in the ordinary course of
its business as an investment company since the date of Dragon Fund's most
recent annual or semi-annual report to stockholders; and those incurred in
connection with the Reorganization. As of the Valuation Time, Dragon Fund
will advise Emerging Tigers Fund in writing of all known liabilities,
contingent or otherwise, whether or not incurred in the ordinary course of
business, existing or accrued as of such time.
(k) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Dragon Fund of
the Reorganization, except such as may be required under the Securities Act
of 1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934,
as amended (the "1934 Act") and the 1940 Act or state securities laws
(which term as used herein shall include the laws of the District of
Columbia and Puerto Rico).
(l) The registration statement filed by Dragon Fund on Form N-14
relating to the shares of Dragon Fund to be issued pursuant to this
Agreement which includes the proxy statement of Emerging Tigers Fund and
the prospectus of Dragon Fund with respect to the transaction contemplated
herein, and any supplement or amendment thereto or to the documents therein
(as amended, the "N-14 Registration Statement"), on its effective date, at
the time of the stockholders' meeting referred to in Section 6(a) of this
Agreement and at the Exchange Date, insofar as it relates to Dragon Fund
(i) complied or will comply in all material respects with the provisions of
the 1933 Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) did not or will not contain any untrue statement
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of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
prospectus included therein did not or will not contain any untrue
statement of a material fact or omit to state any material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
representations and warranties in this subsection only shall apply to
statements in or omissions from the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by Emerging
Tigers Fund for use in the N-14 Registration Statement as provided in
Section 6(e) of this Agreement.
(m) Dragon Fund is authorized to issue 500,000,000 shares of common
stock, par value $.10 per share, divided into four classes, designated
Class A, Class B, Class C and Class D Common Stock; Class A, Class C and
Class D each consists of 100,000,000 shares and Class B consists of
200,000,000 shares; each outstanding share is fully paid and nonassessable
and has full voting rights.
(n) Dragon Fund shares to be issued to Emerging Tigers Fund pursuant
to this Agreement will have been duly authorized and, when issued and
delivered pursuant to this Agreement, will be legally and validly issued
and will be fully paid and nonassessable and will have full voting rights,
and no stockholder of Dragon Fund will have any preemptive right of
subscription or purchase in respect thereof.
(o) At or prior to the Exchange Date, Dragon Fund shares to be
transferred to Emerging Tigers Fund for distribution to the stockholders of
Emerging Tigers Fund on the Exchange Date will be duly qualified for
offering to the public in all states of the United States in which the sale
of shares of Emerging Tigers Fund presently are qualified, and there are a
sufficient number of such shares registered under the 1933 Act and, as may
be necessary, with each pertinent state securities commission to permit the
transfers contemplated by this Agreement to be consummated.
(p) At or prior to the Exchange Date, Dragon Fund will have obtained
any and all regulatory, Director and stockholder approvals necessary to
issue the shares of Dragon Fund to Emerging Tigers Fund.
2. Representations and Warranties of Emerging Tigers Fund.
Emerging Tigers Fund represents and warrants to, and agrees with, Dragon
Fund that:
(a) Emerging Tigers Fund is a corporation duly organized, validly
existing and in good standing in conformity with the laws of the State of
Maryland, and has the power to own all of its assets and to carry out this
Agreement. Emerging Tigers Fund has all necessary Federal, state and local
authorizations to carry on its business as it is now being conducted and to
carry out this Agreement.
(b) Emerging Tigers Fund is duly registered under the 1940 Act as a
non-diversified, open-end management investment company (File No.
811-7135), and such registration has not been revoked or rescinded and is
in full force and effect. Emerging Tigers Fund has elected and qualified
for the special tax treatment afforded RICs under Sections 851-855 of the
Code at all times since its inception, and intends to continue to so
qualify for its taxable year ending upon liquidation.
(c) As used in this Agreement, the term "Investments" shall mean (i)
the investments of Emerging Tigers Fund shown on the schedule of its
investments as of the Valuation Time (as defined in Section 3(c) of this
Agreement) furnished to Dragon Fund; and (ii) all other assets owned by
Emerging Tigers Fund or liabilities incurred as of the Valuation Time.
(d) Emerging Tigers Fund has full power and authority to enter into
and perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement have been duly authorized by all
necessary action of its Board of Directors and this Agreement constitutes a
valid and binding contract enforceable in accordance with its terms,
subject to the effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto.
(e) Dragon Fund has been furnished with a statement of assets and
liabilities and a schedule of investments of Emerging Tigers Fund, each as
of November 30, 1999, said financial statements having been examined by
Deloitte & Touche LLP, independent public accountants. An unaudited
statement of assets and liabilities of Emerging Tigers Fund and an
unaudited schedule of investments of Emerging Tigers Fund, each as of the
Valuation Time, will be
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furnished to Dragon Fund at or prior to the Exchange Date for the purpose
of determining the number of shares of Dragon Fund to be issued pursuant to
Section 4 of this Agreement; and each will fairly present the financial
position of Emerging Tigers Fund as of the Valuation Time in conformity
with generally accepted accounting principles applied on a consistent
basis.
(f) Dragon Fund has been furnished with Emerging Tigers Fund's Annual
Report to Stockholders for the year ended November 30, 1999 and the
financial statements appearing therein fairly present the financial
position of Emerging Tigers Fund as of the dates indicated, in conformity
with generally accepted accounting principles applied on a consistent
basis.
(g) Dragon Fund has been furnished with the prospectus and statement
of additional information of Emerging Tigers Fund, each dated March 31,
1999, and said prospectus and statement of additional information do not
contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(h) There are no material legal, administrative or other proceedings
pending or, to the knowledge of Emerging Tigers Fund, threatened against it
which assert liability on the part of Emerging Tigers Fund or which
materially affect its financial condition or its ability to consummate the
Reorganization. Emerging Tigers Fund is not charged with or, to the best of
its knowledge, threatened with any violation or investigation of any
possible violation of any provisions of any Federal, state or local law or
regulation or administrative ruling relating to any aspect of its business.
(i) There are no material contracts outstanding to which Emerging
Tigers Fund is a party that have not been disclosed in the N-14
Registration Statement or will not otherwise be disclosed to Dragon Fund
prior to the Valuation Time.
(j) Emerging Tigers Fund is not a party to or obligated under any
provision of its Articles of Incorporation, as amended, restated and
supplemented, or its by-laws, as amended, or any contract or other
commitment or obligation, and is not subject to any order or decree which
would be violated by its execution of or performance under this Agreement.
(k) Emerging Tigers Fund has no known liabilities of a material
amount, contingent or otherwise, other than those shown on its statements
of assets and liabilities referred to above, those incurred in the ordinary
course of its business as an investment company since November 30, 1999 and
those incurred in connection with the Reorganization. As of the Valuation
Time, Emerging Tigers Fund will advise Dragon Fund in writing of all known
liabilities, contingent or otherwise, whether or not incurred in the
ordinary course of business, existing or accrued as of such time.
(l) Emerging Tigers Fund has filed, or has obtained extensions to
file, all Federal, state and local tax returns which are required to be
filed by it, and has paid or has obtained extensions to pay, all Federal,
state and local taxes shown on said returns to be due and owing and all
assessments received by it, up to and including the taxable year in which
the Exchange Date occurs. All tax liabilities of Emerging Tigers Fund have
been adequately provided for on its books, and no tax deficiency or
liability of Emerging Tigers Fund has been asserted and no question with
respect thereto has been raised by the Internal Revenue Service or by any
state or local tax authority for taxes in excess of those already paid, up
to and including the taxable year in which the Exchange Date occurs.
(m) At both the Valuation Time and the Exchange Date, Emerging Tigers
Fund will have full right, power and authority to sell, assign, transfer
and deliver the Investments. At the Exchange Date, subject only to the
delivery of the Investments as contemplated by this Agreement, Emerging
Tigers Fund will have good and marketable title to all of the Investments,
and Dragon Fund will acquire all of the Investments free and clear of any
encumbrances, liens or security interests and without any restrictions upon
the transfer thereof (except those imposed by the Federal or state
securities laws and those imperfections of title or encumbrances as do not
materially detract from the value or use of the Investments or materially
affect title thereto).
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by Emerging Tigers
Fund of the Reorganization, except such as may be required under the 1933
Act, the 1934 Act, the 1940 Act or state securities laws.
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(o) The N-14 Registration Statement, on its effective date, at the
time of the stockholders' meeting referred to in Section 6(a) of this
Agreement and on the Exchange Date, insofar as it relates to Emerging
Tigers Fund (i) complied or will comply in all material respects with the
provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder, and (ii) did not or will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading; and the prospectus included therein did not or will not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the
representations and warranties in this subsection shall apply only to
statements in or omissions from the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by Dragon Fund
for use in the N-14 Registration Statement as provided in Section 6(e) of
this Agreement.
(p) Emerging Tigers Fund is authorized to issue 400,000,000 shares of
common stock, par value $.10 per share, divided into four classes,
designated Class A, Class B, Class C and Class D Common Stock. Class A and
Class D Common Stock each consist of 100,000,000 shares, Class B Common
Stock consists of 150,000,000 shares and Class C Common Stock consists of
50,000,000 shares; each outstanding share is fully paid and nonassessable
and has full voting rights.
(q) The books and records of Emerging Tigers Fund made available to
Dragon Fund and/or its counsel are substantially true and correct and
contain no material misstatements or omissions with respect to the
operations of Emerging Tigers Fund.
(r) Emerging Tigers Fund will not sell or otherwise dispose of any of
the shares of Dragon Fund to be received in the Reorganization, except in
distribution to the stockholders of Emerging Tigers Fund.
3. The Reorganization.
(a) Subject to receiving the requisite approval of the stockholders of
Emerging Tigers Fund, and to the other terms and conditions contained herein,
Emerging Tigers Fund agrees to convey, transfer and deliver to Dragon Fund and
Dragon Fund agrees to acquire from Emerging Tigers Fund, on the Exchange Date,
all of the Investments (including interest accrued as of the Valuation Time on
debt instruments) of Emerging Tigers Fund, and assume substantially all of the
liabilities of Emerging Tigers Fund, in exchange solely for that number of
shares of Dragon Fund provided in Section 4 of this Agreement. Pursuant to this
Agreement, as soon as practicable on or after the Exchange Date, Emerging Tigers
Fund will distribute all shares of Dragon Fund received by it to its
stockholders in exchange for their corresponding Emerging Tigers Fund shares.
Such distribution shall be accomplished by the opening of stockholder accounts
on the stock ledger records of Dragon Fund in the amounts due the stockholders
of Emerging Tigers Fund based on their respective holdings in Emerging Tigers
Fund as of the Valuation Time.
(b) Emerging Tigers Fund will pay or cause to be paid to Dragon Fund any
interest it receives on or after the Exchange Date with respect to the
Investments transferred to Emerging Tigers Fund hereunder.
(c) The Valuation Time shall be 4:00 P.M., Eastern time, on ,
2000, or such earlier or later day and time as may be mutually agreed upon in
writing (the "Valuation Time").
(d) Dragon Fund will acquire substantially all of the assets of, and assume
substantially all of the known liabilities of, Emerging Tigers Fund, except that
recourse for such liabilities will be limited to the net assets of Emerging
Tigers Fund acquired by Dragon Fund. The known liabilities of Emerging Tigers
Fund as of the Valuation Time shall be confirmed in writing to Dragon Fund by
Emerging Tigers Fund pursuant to Section 2(k) of this Agreement.
(e) Dragon Fund and Emerging Tigers Fund will jointly file Articles of
Transfer with the State Department of Assessments and Taxation of Maryland and
any other such instrument as may be required by the State of Maryland to effect
the transfer of the Investments of Emerging Tigers Fund to Dragon Fund.
(f) Emerging Tigers Fund will be dissolved following the Exchange Date by
filing Articles of Dissolution with the State Department of Assessments and
Taxation of Maryland.
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4. Issuance and Valuation of Shares of Dragon Fund in the Reorganization.
Full shares of Dragon Fund, and to the extent necessary, fractional shares
of Dragon Fund, of an aggregate net asset value equal to the net asset value of
the assets of Emerging Tigers Fund acquired, determined as hereinafter provided,
reduced by the amount of liabilities of Emerging Tigers Fund assumed by Dragon
Fund, shall be issued by Dragon Fund in exchange for such assets of Emerging
Tigers Fund. The net asset value of Emerging Tigers Fund and Dragon Fund shall
be determined in accordance with the procedures described in the prospectus of
Dragon Fund as of the Valuation Time. Such valuation and determination shall be
made by Dragon Fund in cooperation with Emerging Tigers Fund. Dragon Fund shall
issue its Class A, Class B, Class C and Class D shares to Emerging Tigers Fund
in certificates or share deposit receipts (one in respect of each class)
registered in the name of Emerging Tigers Fund. Emerging Tigers Fund shall
distribute Corresponding Shares of Dragon Fund to its stockholders by
redelivering such certificates to Financial Data Services, Inc.
5. Payment of Expenses.
(a) With respect to expenses incurred in connection with the
Reorganization, (i) Dragon Fund shall pay all expenses incurred which are
attributable solely to Dragon Fund and the conduct of its business and (ii)
Emerging Tigers Fund shall pay all expenses incurred which are attributable
solely to Emerging Tigers Fund and the conduct of its business. The expenses
attributable to Emerging Tigers Fund are expected to include the expenses
incurred in preparing, printing and mailing the proxy materials to be utilized
in connection with the special meeting of stockholders and the expenses related
to the solicitation of proxies to be voted at the meeting. The expenses
attributable to Dragon Fund are expected to include the costs of printing
sufficient copies of its Prospectus and Annual Report to accompany the Proxy
Statement and Prospectus. The expenses of the Reorganization, including expenses
in connection with obtaining the IRS ruling, the preparation of this Agreement,
legal fees and audit fees, will be borne equally by the Funds.
(b) If for any reason the Reorganization is not consummated, no party shall
be liable to any other party for any damages resulting therefrom, including,
without limitation, consequential damages.
6. Covenants of Dragon Fund and Emerging Tigers Fund.
(a) Emerging Tigers Fund agrees to call a special meeting of the
stockholders of Emerging Tigers Fund to be held as soon as is practicable after
the effective date of the N-14 Registration Statement for the purpose of
considering the Reorganization as described in this Agreement, and it shall be a
condition to the obligations of each of the parties hereto that the holders of a
majority of the shares of Emerging Tigers Fund issued and outstanding and
entitled to vote thereon, shall have approved this Agreement at such a meeting
at or prior to the Valuation Time.
(b) Dragon Fund and Emerging Tigers Fund each covenants to operate the
business of Dragon Fund and Emerging Tigers Fund, respectively, as presently
conducted between the date hereof and the Exchange Date.
(c) Emerging Tigers Fund agrees that following the consummation of the
Reorganization, it will dissolve in accordance with the laws of the State of
Maryland and any other applicable law, it will not make any distributions of any
Dragon Fund shares other than to the stockholders of Emerging Tigers Fund and
without first paying or adequately providing for the payment of all of Emerging
Tigers Fund's liabilities not assumed by Dragon Fund, if any, and on and after
the Exchange Date it shall not conduct any business except in connection with
its dissolution.
(d) Emerging Tigers Fund undertakes that if the Reorganization is
consummated, it will file an application pursuant to Section 8(f) of the 1940
Act for an order declaring that Emerging Tigers Fund has ceased to be a
registered investment company.
(e) Dragon Fund will file the N-14 Registration Statement with the
Securities and Exchange Commission (the "Commission") and will use its best
efforts to provide that the N-14 Registration Statement becomes effective as
promptly as practicable. Dragon Fund and Emerging Tigers Fund agree to cooperate
fully with each other, and each will furnish to the other the information
relating to itself to be set forth in the N-14 Registration Statement as
required by the 1933 Act, the 1934 Act and the 1940 Act, and the rules and
regulations thereunder and the state securities laws.
(f) Dragon Fund has no plan or intention to sell or otherwise dispose of
the assets of Emerging Tigers Fund to be acquired in the Reorganization, except
for dispositions made in the ordinary course of business.
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(g) Emerging Tigers Fund and Dragon Fund each agrees that by the Exchange
Date all of its Federal and other tax returns and reports required to be filed
on or before such date shall have been filed and all taxes shown as due on said
returns either have been paid or adequate liability reserves have been provided
for the payment of such taxes. In connection with this covenant, the Funds agree
to cooperate with each other in filing any tax return, amended return or claim
for refund, determining a liability for taxes or a right to a refund of taxes or
participating in or conducting any audit or other proceeding in respect of
taxes. Dragon Fund agrees to retain for a period of ten (10) years following the
Exchange Date all returns, schedules and work papers and all material records or
other documents relating to tax matters of Emerging Tigers Fund for its taxable
period first ending after the Exchange Date and for all prior taxable periods.
Any information obtained under this subsection shall be kept confidential except
as otherwise may be necessary in connection with the filing of returns or claims
for refund or in conducting an audit or other proceeding. After the Exchange
Date, Emerging Tigers Fund shall prepare, or cause its agents to prepare, any
Federal, state or local tax returns, including any Forms 1099, required to be
filed by Emerging Tigers Fund with respect to Emerging Tigers Fund's final
taxable year ending with its complete liquidation and for any prior periods or
taxable years and further shall cause such tax returns and Forms 1099 to be duly
filed with the appropriate taxing authorities. Notwithstanding the
aforementioned provisions of this subsection, any expenses incurred by Emerging
Tigers Fund (other than for payment of taxes) in connection with the preparation
and filing of said tax returns and Forms 1099 after the Exchange Date shall be
borne by Emerging Tigers Fund to the extent such expenses have been accrued by
Emerging Tigers Fund in the ordinary course without regard to the
Reorganization; any excess expenses shall be borne by Fund Asset Management,
L.P. ("FAM"), investment adviser to Emerging Tigers Fund, at the time such tax
returns and Forms 1099 are prepared.
(h) Emerging Tigers Fund agrees to mail to its stockholders of record
entitled to vote at the special meeting of stockholders at which action is to be
considered regarding this Agreement, in sufficient time to comply with
requirements as to notice thereof, a combined Proxy Statement and Prospectus
which complies in all material respects with the applicable provisions of
Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act, and the rules
and regulations, respectively, thereunder.
(i) Following consummation of the Reorganization, Dragon Fund expects to
stay in existence and continue its business as a non-diversified, open-end
management investment company registered under the 1940 Act.
7. Exchange Date.
(a) Delivery of the assets of Emerging Tigers Fund to be transferred,
together with any other Investments, and the Dragon Fund shares to be issued,
shall be made at the offices of Brown & Wood LLP, One World Trade Center, New
York, New York 10048, at 10:00 A.M. on the next full business day following the
Valuation Time, or at such other place, time and date agreed to by Emerging
Tigers Fund and Dragon Fund, the date and time upon which such delivery is to
take place being referred to herein as the "Exchange Date." To the extent that
any Investments, for any reason, are not transferable on the Exchange Date,
Emerging Tigers Fund shall cause such Investments to be transferred to Dragon
Fund's account with Brown Brothers Harriman & Co. at the earliest practicable
date thereafter.
(b) Emerging Tigers Fund will deliver to Dragon Fund on the Exchange Date
confirmations or other adequate evidence as to the tax basis of each of the
Investments delivered to Dragon Fund hereunder, certified by Deloitte & Touche
LLP.
(c) As soon as practicable after the close of business on the Exchange
Date, Emerging Tigers Fund shall deliver to Dragon Fund a list of the names and
addresses of all of the stockholders of record of Emerging Tigers Fund on the
Exchange Date and the number of shares of Emerging Tigers Fund owned by each
such stockholder, certified to the best of their knowledge and belief by the
transfer agent for Emerging Tigers Fund or by its President.
8. Emerging Tigers Fund Conditions.
The obligations of Emerging Tigers Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been adopted, and the
Reorganization shall have been approved, by the affirmative vote of the
holders of a majority of the shares of Emerging Tigers Fund, issued and
outstanding and entitled to vote thereon, voting together as a single
class, and by the Board of Directors of Dragon Fund; and that
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Dragon Fund shall have delivered to Emerging Tigers Fund a copy of the
resolution approving this Agreement adopted by Dragon Fund's Board of
Directors, certified by the Secretary of Dragon Fund.
(b) That Dragon Fund shall have furnished to Emerging Tigers Fund a
statement of Dragon Fund's assets and liabilities, with values determined
as provided in Section 4 of this Agreement, together with a schedule of its
investments, all as of the Valuation Time, certified on Dragon Fund's
behalf by its President (or any Vice President) and its Treasurer, and a
certificate signed by Dragon Fund's President (or any Vice President) and
its Treasurer, dated as of the Exchange Date, certifying that as of the
Valuation Time and as of the Exchange Date there has been no material
adverse change in the financial position of Dragon Fund since the date of
Dragon Fund's most recent annual or semi-annual report to stockholders,
other than changes in its portfolio securities since the date of such
report or changes in the market value of its portfolio securities.
(c) That Dragon Fund shall have furnished to Emerging Tigers Fund a
certificate signed by Dragon Fund's President (or any Vice President) and
its Treasurer, dated as of the Exchange Date, certifying that, as of the
Valuation Time and as of the Exchange Date all representations and
warranties of Dragon Fund made in this Agreement are true and correct in
all material respects with the same effect as if made at and as of such
dates, and that Dragon Fund has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or satisfied at
or prior to each of such dates.
(d) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(e) That Emerging Tigers Fund shall have received an opinion of Brown
& Wood LLP, as counsel to both Dragon Fund and Emerging Tigers Fund, in
form and substance satisfactory to Emerging Tigers Fund and dated the
Exchange Date, to the effect that (i) each of Dragon Fund and Emerging
Tigers Fund is a corporation duly organized, validly existing and in good
standing in conformity with the laws of the State of Maryland; (ii) the
Corresponding Shares of Dragon Fund to be issued pursuant to this Agreement
are duly authorized and, upon delivery, will be validly issued and
outstanding and fully paid and nonassessable by Dragon Fund, and no
stockholder of Dragon Fund has any preemptive right to subscription or
purchase in respect thereof (pursuant to the Articles of Incorporation of
Dragon Fund, as amended and supplemented, or the by-laws of Dragon Fund, as
amended, or, to the best of such counsel's knowledge, otherwise); (iii)
this Agreement has been duly authorized, executed and delivered by each of
Dragon Fund and Emerging Tigers Fund, and represents a valid and binding
contract, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws pertaining to the enforcement of creditors' rights
generally and court decisions with respect thereto; provided, such counsel
shall express no opinion with respect to the application of equitable
principles in any proceeding, whether at law or in equity; (iv) the
execution and delivery of this Agreement does not, and the consummation of
the Reorganization will not, violate any material provisions of Maryland
law, the Articles of Incorporation of Dragon Fund, as amended and
supplemented, the Articles of Incorporation of Emerging Tigers Fund, as
amended, restated and supplemented, the by-laws of Dragon Fund or Emerging
Tigers Fund, as amended, or any agreement (known to such counsel) to which
either Dragon Fund or Emerging Tigers Fund is a party or by which either
Dragon Fund or Emerging Tigers Fund is bound, except insofar as the parties
have agreed to amend such provision as a condition precedent to the
Reorganization; (v) Emerging Tigers Fund has the power to sell, assign,
transfer and deliver the assets transferred by it hereunder and, upon
consummation of the Reorganization in accordance with the terms of this
Agreement, Emerging Tigers Fund will have duly transferred such assets and
liabilities in accordance with this Agreement; (vi) to the best of such
counsel's knowledge, no consent, approval, authorization or order of any
United States federal court, Maryland state court or governmental authority
is required for the consummation by Dragon Fund and Emerging Tigers Fund of
the Reorganization, except such as have been obtained under the 1933 Act,
the 1934 Act and the 1940 Act and the published rules and regulations of
the Commission thereunder and under Maryland law and such as may be
required under state securities laws; (vii) the N-14 Registration Statement
has become effective under the 1933 Act, no stop order suspending the
effectiveness of the N-14 Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the 1933 Act, and the N-14 Registration Statement, and
each amendment or supplement thereto, as of their respective effective
dates, appear on their face to be appropriately responsive in all material
respects to the requirements of the 1933 Act, the 1934 Act and the 1940 Act
and the published rules and regulations of the Commission thereunder;
(viii) the descriptions in the N-14 Registration Statement of statutes,
I-8
<PAGE> 49
legal and governmental proceedings and contracts and other documents are
accurate and fairly present the information required to be shown; (ix) such
counsel does not know of any statutes, legal or governmental proceedings or
contracts or other documents related to the Reorganization of a character
required to be describe d in the N-14 Registration Statement which are not
described therein or, if required to be filed, filed as required; (x)
neither Dragon Fund nor Emerging Tigers Fund, to the knowledge of such
counsel, is required to qualify to do business as a foreign corporation in
any jurisdiction except as may be required by state securities laws, and
except where each has so qualified or the failure so to qualify would not
have a material adverse effect on Dragon Fund, Emerging Tigers Fund or
their respective stockholders; (xi) such counsel does not have actual
knowledge of any material suit, action or legal or administrative
proceeding pending or threatened against Dragon Fund or Emerging Tigers
Fund, the unfavorable outcome of which would materially and adversely
affect Dragon Fund or Emerging Tigers Fund; (xii) all corporate actions
required to be taken by Dragon Fund and Emerging Tigers Fund to authorize
this Agreement and to effect the Reorganization have been duly authorized
by all necessary corporate actions on the part of Dragon Fund and Emerging
Tigers Fund; and (xiii) such opinion is solely for the benefit of Dragon
Fund and Emerging Tigers Fund and their Directors and officers. Such
opinion also shall state that (x) while such counsel cannot make any
representation as to the accuracy or completeness of statements of fact in
the N-14 Registration Statement or any amendment or supplement thereto,
nothing has come to their attention that would lead them to believe that,
on the respective effective dates of the N-14 Registration Statement and
any amendment or supplement thereto, (1) the N-14 Registration Statement or
any amendment or supplement thereto contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; and (2)
the prospectus included in the N-14 Registration Statement contained any
untrue statement of a material fact or omitted to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and (y) such counsel does not
express any opinion or belief as to the financial statements or other
financial or statistical data relating to Dragon Fund or Emerging Tigers
Fund contained or incorporated by reference in the N-14 Registration
Statement. In giving the opinion set forth above, Brown & Wood LLP may
state that it is relying on certificates of officers of Dragon Fund and
Emerging Tigers Fund with regard to matters of fact and certain
certificates and written statements of governmental officials with respect
to the good standing of Dragon Fund and Emerging Tigers Fund.
(f) That Emerging Tigers Fund shall have received either (a) a private
letter ruling from the Internal Revenue Service or (b) an opinion of Brown
& Wood LLP, to the effect that for Federal income tax purposes (i) the
transfer of substantially all of the Investments of Emerging Tigers Fund to
Dragon Fund in exchange solely for shares of Dragon Fund as provided in
this Agreement will constitute a reorganization within the meaning of
Section 368(a)(1)(C) of the Code, and Emerging Tigers Fund and Dragon Fund
will each be deemed to be a "party" to the Reorganization within the
meaning of Section 368(b) of the Code; (ii) in accordance with Section
361(a) of the Code, no gain or loss will be recognized to Emerging Tigers
Fund as a result of the asset transfer solely in exchange for Dragon Fund
shares or on the distribution of the Dragon Fund stock to Emerging Tigers
Fund stockholders under Section 361(c)(1) of the Code; (iii) under Section
1032 of the Code, no gain or loss will be recognized to Dragon Fund on the
receipt of assets of Emerging Tigers Fund in exchange for Dragon Fund
shares; (iv) in accordance with Section 354(a)(1) of the Code, no gain or
loss will be recognized to the stockholders of Emerging Tigers Fund on the
receipt of Corresponding Shares of Dragon Fund in exchange for their shares
of Emerging Tigers Fund; (v) in accordance with Section 362(b) of the Code,
the tax basis of the Emerging Tigers Fund assets in the hands of Dragon
Fund will be the same as the tax basis of such assets in the hands of
Emerging Tigers Fund immediately prior to the consummation of the
Reorganization; (vi) in accordance with Section 358 of the Code,
immediately after the Reorganization, the tax basis of the Corresponding
Shares of Dragon Fund received by the stockholders of Emerging Tigers Fund
in the Reorganization will be equal, in the aggregate, to the tax basis of
the shares of Emerging Tigers Fund surrendered in exchange; (vii) in
accordance with Section 1223 of the Code, a stockholder's holding period
for the Corresponding Shares of Dragon Fund will be determined by including
the period for which such stockholder held the shares of Emerging Tigers
Fund exchanged therefor, provided, that such Emerging Tigers Fund shares
were held as a capital asset; (viii) in accordance with Section 1223 of the
Code, Dragon Fund's holding period with respect to the Emerging Tigers Fund
assets transferred will include the period for which such assets were held
by Emerging Tigers Fund; and (ix) the taxable year of Emerging Tigers Fund
will end on the effective date of the Reorganization and pursuant to
Section 381(a) of the Code and regulations thereunder, Dragon Fund will
succeed to
I-9
<PAGE> 50
and take into account certain tax attributes of Emerging Tigers Fund, such
as earnings and profits, capital loss carryovers and method of accounting.
(g) That all proceedings taken by Dragon Fund and its counsel in
connection with the Reorganization and all documents incidental thereto
shall be satisfactory in form and substance to Emerging Tigers Fund.
(h) That the N-14 Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending such effectiveness shall
have been instituted or, to the knowledge of Dragon Fund, be contemplated
by the Commission.
(i) That Emerging Tigers Fund shall have received from Deloitte &
Touche LLP a letter dated within the three days prior to the effective date
of the N-14 Registration Statement and a similar letter dated within five
days prior to the Exchange Date, in form and substance satisfactory to
Emerging Tigers Fund, to the effect that (i) they are independent public
accountants with respect to Dragon Fund within the meaning of the 1933 Act
and the applicable published rules and regulations thereunder; (ii) in
their opinion, the financial statements and supplementary information of
Dragon Fund included or incorporated by reference in the N-14 Registration
Statement and reported on by them comply as to form in all material
respects with the applicable accounting requirements of the 1933 Act and
the published rules and regulations thereunder; and (iii) on the basis of
limited procedures agreed upon by Emerging Tigers Fund and Dragon Fund and
described in such letter (but not an examination in accordance with
generally accepted auditing standards) consisting of a reading of any
unaudited interim financial statements and unaudited supplementary
information of Dragon Fund included in the N-14 Registration Statement, and
inquiries of certain officials of Dragon Fund responsible for financial and
accounting matters, nothing came to their attention that caused them to
believe that (a) such unaudited financial statements and related unaudited
supplementary information do not comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the
published rules and regulations thereunder, (b) such unaudited financial
statements are not fairly presented in conformity with generally accepted
accounting principles, applied on a basis substantially consistent with
that of the audited financial statements, or (c) such unaudited
supplementary information is not fairly stated in all material respects in
relation to the unaudited financial statements taken as a whole; and (iv)
on the basis of limited procedures agreed upon by Emerging Tigers Fund and
Dragon Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the information
relating to Dragon Fund appearing in the N-14 Registration Statement, which
information is expressed in dollars (or percentages derived from such
dollars) (with the exception of performance comparisons, if any), if any,
has been obtained from the accounting records of Dragon Fund or from
schedules prepared by officials of Dragon Fund having responsibility for
financial and reporting matters and such information is in agreement with
such records, schedules or computations made therefrom.
(j) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall be instituted or threatened which
would materially affect the financial condition of Dragon Fund or would
prohibit the Reorganization.
(k) That Emerging Tigers Fund shall have received from the Commission
such orders or interpretations as Brown & Wood LLP, as counsel to Emerging
Tigers Fund, deems reasonably necessary or desirable under the 1933 Act and
the 1940 Act in connection with the Reorganization, provided, that such
counsel shall have requested such orders as promptly as practicable, and
all such orders shall be in full force and effect.
9. Dragon Fund Conditions.
The obligations of Dragon Fund hereunder shall be subject to the following
conditions:
(a) That this Agreement shall have been adopted, and the
Reorganization shall have been approved, by the Board of Directors of
Emerging Tigers Fund and by the affirmative vote of the holders of a
majority of the shares of common stock of Emerging Tigers Fund issued and
outstanding and entitled to vote thereon, voting together as a single
class; and that Emerging Tigers Fund shall have delivered to Dragon Fund a
copy of the resolution approving
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<PAGE> 51
this Agreement adopted by Emerging Tigers Fund's Board of Directors, and a
certificate setting forth the vote Emerging Tigers Fund stockholders
obtained, each certified by the Secretary of Emerging Tigers Fund.
(b) That Emerging Tigers Fund shall have furnished to Dragon Fund a
statement of Emerging Tigers Fund's assets and liabilities, with values
determined as provided in Section 4 of this Agreement, together with a
schedule of investments with their respective dates of acquisition and tax
costs, all as of the Valuation Time, certified on Emerging Tigers Fund's
behalf by its President (or any Vice President) and its Treasurer, and a
certificate signed by Emerging Tigers Fund's President (or any Vice
President) and its Treasurer, dated as of the Exchange Date, certifying
that as of the Valuation Time and as of the Exchange Date there has been no
material adverse change in the financial position of Emerging Tigers Fund
since the date of Emerging Tigers Fund's most recent annual or semi-annual
report to stockholders, other than changes in the Investments since the
date of such report or changes in the market value of the Investments.
(c) That Emerging Tigers Fund shall have furnished to Dragon Fund a
certificate signed by Emerging Tigers Fund's President (or any Vice
President) and its Treasurer, dated the Exchange Date, certifying that as
of the Valuation Time and as of the Exchange Date all representations and
warranties of Emerging Tigers Fund made in this Agreement are true and
correct in all material respects with the same effect as if made at and as
of such dates and Emerging Tigers Fund has complied with all of the
agreements and satisfied all of the conditions on its part to be performed
or satisfied at or prior to such dates.
(d) That Emerging Tigers Fund shall have delivered to Dragon Fund a
letter from Deloitte & Touche LLP, dated the Exchange Date, stating that
such firm has performed a limited review of the Federal, state and local
income tax returns of Emerging Tigers Fund for the period ended November
30, 1999, (which returns originally were prepared and filed by Emerging
Tigers Fund), and that based on such limited review, nothing came to their
attention which caused them to believe that such returns did not properly
reflect, in all material respects, the Federal, state and local income
taxes of Emerging Tigers Fund for the period covered thereby; and that for
the period from December 1, 1999, to and including the Exchange Date and
for any taxable year of Emerging Tigers Fund ending upon the liquidation of
Emerging Tigers Fund, such firm has performed a limited review to ascertain
the amount of applicable Federal, state and local taxes, and has determined
that either such amount has been paid or reserves have been established for
payment of such taxes, this review to be based on unaudited financial data;
and that based on such limited review, nothing has come to their attention
which caused them to believe that the taxes paid or reserves set aside for
payment of such taxes were not adequate in all material respects for the
satisfaction of Federal, state and local taxes for the period from December
1, 1999, to and including the Exchange Date and for any taxable year of
Emerging Tigers Fund ending upon the liquidation of Emerging Tigers Fund or
that Emerging Tigers Fund would not continue to qualify as a RIC for
Federal income tax purposes for the tax years in question.
(e) That there shall not be any material litigation pending with
respect to the matters contemplated by this Agreement.
(f) That Dragon Fund shall have received an opinion of Brown & Wood
LLP, as counsel to both Dragon Fund and Emerging Tigers Fund, in form and
substance satisfactory to Dragon Fund and dated the Exchange Date, with
respect to the matters specified in Section 8(e) of this Agreement and such
other matters as Dragon Fund reasonably may deem necessary or desirable.
(g) That Dragon Fund shall have received a private letter ruling from
the Internal Revenue Service or an opinion of Brown & Wood LLP with respect
to the matters specified in Section 8(f) of this Agreement.
(h) That Dragon Fund shall have received from Deloitte & Touche LLP a
letter dated within three days prior to the effective date of the N-14
Registration Statement and a similar letter dated within five days prior to
the Exchange Date, in form and substance satisfactory to Dragon Fund, to
the effect that (i) they are independent public accountants with respect to
Emerging Tigers Fund within the meaning of the 1933 Act and the applicable
published rules and regulations thereunder; (ii) in their opinion, the
financial statements and supplementary information of Emerging Tigers Fund
included or incorporated by reference in the N-14 Registration Statement
and reported on by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the published rules
and regulations thereunder; (iii) on the basis of limited procedures agreed
upon by Emerging Tigers Fund and Dragon Fund and described in such letter
(but not an examination in accordance with generally accepted
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<PAGE> 52
auditing standards) consisting of a reading of any unaudited interim
financial statements and unaudited supplementary information of Emerging
Tigers Fund included in the N-14 Registration Statement, and inquiries of
certain officials of Emerging Tigers Fund responsible for financial and
accounting matters, nothing came to their attention that caused them to
believe that (a) such unaudited financial statements and related unaudited
supplementary information do not comply as to form in all material respects
with the applicable accounting requirements of the 1933 Act and the
published rules and regulations thereunder, (b) such unaudited financial
statements are not fairly presented in conformity with generally accepted
accounting principles, applied on a basis substantially consistent with
that of the audited financial statements, or (c) such unaudited
supplementary information is not fairly stated in all material respects in
relation to the unaudited financial statements taken as a whole; and (iv)
on the basis of limited procedures agreed upon by Dragon Fund and Emerging
Tigers Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), the information
relating to Emerging Tigers Fund appearing in the N-14 Registration
Statement, which information is expressed in dollars (or percentages
derived from such dollars) (with the exception of performance comparisons,
if any), if any, has been obtained from the accounting records of Emerging
Tigers Fund or from schedules prepared by officials of Emerging Tigers Fund
having responsibility for financial and reporting matters and such
information is in agreement with such records, schedules or computations
made therefrom.
(i) That the Investments to be transferred to Dragon Fund shall not
include any assets or liabilities which Dragon Fund, by reason of charter
limitations or otherwise, may not properly acquire or assume.
(j) That the N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such effectiveness shall
have been instituted or, to the knowledge of Emerging Tigers Fund, be
contemplated by the Commission.
(k) That the Commission shall not have issued an unfavorable advisory
report under Section 25(b) of the 1940 Act, nor instituted or threatened to
institute any proceeding seeking to enjoin consummation of the
Reorganization under Section 25(c) of the 1940 Act, and no other legal,
administrative or other proceeding shall be instituted or threatened which
would materially affect the financial condition of Emerging Tigers Fund or
would prohibit the Reorganization.
(l) That Dragon Fund shall have received from the Commission such
orders or interpretations as Brown & Wood LLP, as counsel to Dragon Fund,
deems reasonably necessary or desirable under the 1933 Act and the 1940 Act
in connection with the Reorganization, provided, that such counsel shall
have requested such orders as promptly as practicable, and all such orders
shall be in full force and effect.
(m) That all proceedings taken by Emerging Tigers Fund and its counsel
in connection with the Reorganization and all documents incidental thereto
shall be satisfactory in form and substance to Dragon Fund.
(n) That prior to the Exchange Date, Emerging Tigers Fund shall have
declared a dividend or dividends which, together with all such previous
dividends, shall have the effect of distributing to its stockholders all of
its investment company taxable income to and including the Exchange Date,
if any (computed without regard to any deduction for dividends paid), and
all of its net capital gain, if any, realized to and including the Exchange
Date.
10. Termination, Postponement and Waivers.
(a) Notwithstanding anything contained in this Agreement to the contrary,
this Agreement may be terminated and the Reorganization abandoned at any time
(whether before or after adoption thereof by the stockholders of Emerging Tigers
Fund) prior to the Exchange Date, or the Exchange Date may be postponed, (i) by
mutual consent of the Boards of Directors of Emerging Tigers Fund and Dragon
Fund; (ii) by the Board of Directors of Emerging Tigers Fund if any condition of
Emerging Tigers Fund's obligations set forth in Section 8 of this Agreement has
not been fulfilled or waived by such Board; or (iii) by the Board of Directors
of Dragon Fund if any condition of Dragon Fund's obligations set forth in
Section 9 of this Agreement has not been fulfilled or waived by such Board.
(b) If the transactions contemplated by this Agreement have not been
consummated by December 31, 2000, this Agreement automatically shall terminate
on that date, unless a later date is mutually agreed to by the Boards of
Directors of Emerging Tigers Fund and Dragon Fund.
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<PAGE> 53
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect, and
there shall not be any liability on the part of either Emerging Tigers Fund or
Dragon Fund or persons who are their directors, trustees, officers, agents or
stockholders in respect of this Agreement.
(d) At any time prior to the Exchange Date, any of the terms or conditions
of this Agreement may be waived by the Board of Directors of either Emerging
Tigers Fund or Dragon Fund, respectively (whichever is entitled to the benefit
thereof), if, in the judgment of such Board after consultation with its counsel,
such action or waiver will not have a material adverse effect on the benefits
intended under this Agreement to the stockholders of their respective fund, on
behalf of which such action is taken. In addition, the Boards of Directors of
Emerging Tigers Fund and Dragon Fund have delegated to MLAM the ability to make
non-material changes to the transaction if it deems it to be in the best
interests of Emerging Tigers Fund and Dragon Fund to do so.
(e) The respective representations and warranties contained in Sections 1
and 2 of this Agreement shall expire with, and be terminated by, the
consummation of the Reorganization, and neither Emerging Tigers Fund nor Dragon
Fund nor any of their officers, directors or trustees, agents or stockholders
shall have any liability with respect to such representations or warranties
after the Exchange Date. This provision shall not protect any officer, director
or trustee, agent or stockholder of Emerging Tigers Fund or Dragon Fund against
any liability to the entity for which that officer, director or trustee, agent
or stockholder so acts or to its stockholders, to which that officer, director
or trustee, agent or stockholder otherwise would be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties in
the conduct of such office.
(f) If any order or orders of the Commission with respect to this Agreement
shall be issued prior to the Exchange Date and shall impose any terms or
conditions which are determined by action of the Boards of Directors of Emerging
Tigers Fund and Dragon Fund to be acceptable, such terms and conditions shall be
binding as if a part of this Agreement without further vote or approval of the
stockholders of Emerging Tigers Fund unless such terms and conditions shall
result in a change in the method of computing the number of shares of Dragon
Fund to be issued to Emerging Tigers Fund in which event, unless such terms and
conditions shall have been included in the proxy solicitation materials
furnished to the stockholders of Emerging Tigers Fund prior to the meeting at
which the Reorganization shall have been approved, this Agreement shall not be
consummated and shall terminate unless Emerging Tigers Fund promptly shall call
a special meeting of stockholders at which such conditions so imposed shall be
submitted for approval.
11. Indemnification.
(a) Emerging Tigers Fund hereby agrees to indemnify and hold Dragon Fund
harmless from all loss, liability and expense (including reasonable counsel fees
and expenses in connection with the contest of any claim) which Dragon Fund may
incur or sustain by reason of the fact that (i) Dragon Fund shall be required to
pay any corporate obligation of Emerging Tigers Fund, whether consisting of tax
deficiencies or otherwise, based upon a claim or claims against Emerging Tigers
Fund which were omitted or not fairly reflected in the financial statements to
be delivered to Dragon Fund in connection with the Reorganization; (ii) any
representations or warranties made by Emerging Tigers Fund in this Agreement
should prove to be false or erroneous in any material respect; (iii) any
covenant of Emerging Tigers Fund has been breached in any material respect; or
(iv) any claim is made alleging that (a) the N-14 Registration Statement
included any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or (b) the Proxy Statement and Prospectus delivered to
the stockholders of Emerging Tigers Fund and forming a part of the N-14
Registration Statement included any untrue statement of a material fact or
omitted to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
except insofar as such claim is based on written information furnished to
Emerging Tigers Fund by Dragon Fund.
(b) Dragon Fund hereby agrees to indemnify and hold Emerging Tigers Fund
harmless from all loss, liability and expenses (including reasonable counsel
fees and expenses in connection with the contest of any claim) which Emerging
Tigers Fund may incur or sustain by reason of the fact that (i) any
representations or warranties made by Dragon Fund in this Agreement should prove
false or erroneous in any material respect, (ii) any covenant of Dragon Fund has
been breached in any material respect, or (iii) any claim is made alleging that
(a) the N-14 Registration Statement included any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary to make the statements therein, not misleading or (b) the Proxy
Statement and Prospectus delivered to stockholders of
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<PAGE> 54
Emerging Tigers Fund and forming a part of the N-14 Registration Statement
included any untrue statement of a material fact or omitted to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except insofar as such
claim is based on written information furnished to Dragon Fund by Emerging
Tigers Fund.
(c) In the event that any claim is made against Dragon Fund in respect of
which indemnity may be sought by Dragon Fund from Emerging Tigers Fund under
Section 11(a) of this Agreement, or in the event that any claim is made against
Emerging Tigers Fund in respect of which indemnity may be sought by Emerging
Tigers Fund from Dragon Fund under Section 11(b) of this Agreement, then the
party seeking indemnification (the "Indemnified Party"), with reasonable
promptness and before payment of such claim, shall give written notice of such
claim to the other party (the "Indemnifying Party"). If no objection as to the
validity of the claim is made in writing to the Indemnified Party by the
Indemnifying Party within thirty (30) days after the giving of notice hereunder,
then the Indemnified Party may pay such claim and shall be entitled to
reimbursement therefor, pursuant to this Agreement. If, prior to the termination
of such thirty-day period, objection in writing as to the validity of such claim
is made to the Indemnified Party, the Indemnified Party shall withhold payment
thereof until the validity of such claim is established (i) to the satisfaction
of the Indemnifying Party, or (ii) by a final determination of a court of
competent jurisdiction, whereupon the Indemnified Party may pay such claim and
shall be entitled to reimbursement thereof, pursuant to this Agreement, or (iii)
with respect to any tax claims, within seven (7) calendar days following the
earlier of (A) an agreement between Emerging Tigers Fund and Dragon Fund that an
indemnity amount is payable, (B) an assessment of a tax by a taxing authority,
or (C) a "determination" as defined in Section 1313(a) of the Code. For purposes
of this Section 11, the term "assessment" shall have the same meaning as used in
Chapter 63 of the Code and Treasury Regulations thereunder, or any comparable
provision under the laws of the appropriate taxing authority. In the event of
any objection by the Indemnifying Party, the Indemnifying Party promptly shall
investigate the claim, and if it is not satisfied with the validity thereof, the
Indemnifying Party shall conduct the defense against such claim. All costs and
expenses incurred by the Indemnifying Party in connection with such
investigation and defense of such claim shall be borne by it. These
indemnification provisions are in addition to, and not in limitation of, any
other rights the parties may have under applicable law.
12. Other Matters.
(a) Pursuant to Rule 145 under the 1933 Act, and in connection with the
issuance of any shares to any person who at the time of the Reorganization is,
to its knowledge, an affiliate of a party to the Reorganization pursuant to Rule
145(c), Dragon Fund will cause to be affixed upon the certificate(s) issued to
such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT TO MERRILL LYNCH DRAGON FUND, INC., (OR ITS STATUTORY SUCCESSOR)
OR ITS PRINCIPAL UNDERWRITER UNLESS (I) A REGISTRATION STATEMENT WITH
RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT OF 1933 OR (II) IN
THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE FUND, SUCH
REGISTRATION IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to Dragon Fund's
transfer agent with respect to such shares. Emerging Tigers Fund will provide
Dragon Fund on the Exchange Date with the name of any Emerging Tigers Fund
stockholder who is to the knowledge of Emerging Tigers Fund an affiliate of
Emerging Tigers Fund on such date.
(b) All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement shall
be deemed to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their behalf.
(c) Any notice, report or demand required or permitted by any provision of
this Agreement shall be in writing and shall be made by hand delivery, prepaid
certified mail or overnight service, addressed to Emerging Tigers Fund or Dragon
Fund, in either case at 800 Scudders Mill Road, Plainsboro, New Jersey 08536,
Attn: Terry K. Glenn, President.
(d) This Agreement supersedes all previous correspondence and oral
communications between the parties regarding the Reorganization, constitutes the
only understanding with respect to the Reorganization, may not be changed except
by
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<PAGE> 55
a letter of agreement signed by each party and shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in said state.
(e) Copies of the Articles of Incorporation, as amended, of Emerging Tigers
Fund and Dragon Fund are on file with the Department of Assessments and Taxation
of the State of Maryland and notice is hereby given that this instrument is
executed on behalf of the Directors of each Fund.
This Agreement may be executed in any number of counterparts, each of
which, when executed and delivered, shall be deemed to be an original but all
such counterparts together shall constitute but one instrument.
MERRILL LYNCH DRAGON FUND, INC.
By:
----------------------------------------
(Terry K. Glenn, President)
Attest:
- ---------------------------------------------------
(Phillip S. Gillespie, Secretary)
MERRILL LYNCH EMERGING
TIGERS FUND, INC.
By:
----------------------------------------
(Donald C. Burke, Vice President and
Treasurer)
Attest:
- ---------------------------------------------------
(Phillip S. Gillespie, Secretary)
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<PAGE> 56
THE INFORMATION IN THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT
COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION DATED FEBRUARY 1, 2000
------------------------
STATEMENT OF ADDITIONAL INFORMATION
------------------------
MERRILL LYNCH EMERGING TIGERS FUND, INC.
MERRILL LYNCH DRAGON FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
(609) 282-2800
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Proxy Statement and Prospectus of Merrill Lynch
Emerging Tigers Fund, Inc. ("Emerging Tigers Fund") and Merrill Lynch Dragon
Fund, Inc. ("Dragon Fund"), dated , 2000, (the "Proxy Statement and
Prospectus"), which has been filed with the Securities and Exchange Commission
and can be obtained, without charge, by calling Dragon Fund at 1-800-456-4587,
ext. 123, or by writing to Dragon Fund at the address listed above. This
Statement of Additional Information has been incorporated by reference into the
Proxy Statement and Prospectus.
Further information relating to Dragon Fund is incorporated by reference
herein from its Statement of Additional Information, dated April 27, 1999 (the
"Dragon Fund Statement of Additional Information"). The Dragon Fund Statement of
Additional Information accompanies this Statement of Additional Information.
The Commission maintains a web site (http://www.sec.gov) that contains the
Dragon Fund Prospectus, dated April 27, 1999, the Dragon Fund Statement of
Additional Information, dated April 27, 1999, the Emerging Tigers Fund
Prospectus, dated March 31, 1999, the Emerging Tigers Fund Statement of
Additional Information, dated March 31, 1999, other material incorporated by
reference herein and other information relating to Emerging Tigers Fund and
Dragon Fund.
The date of this Statement of Additional Information is , 2000.
<PAGE> 57
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... 2
Financial Statements........................................ 2
Pro Forma Combined Schedules of Investments (unaudited)... 3
Pro Forma Combined Statements of Assets and Liabilities
(unaudited)............................................ 3
Pro Forma Combined Statements of Operations (unaudited)... 3
</TABLE>
GENERAL INFORMATION
The stockholders of Emerging Tigers Fund are being asked to approve the
acquisition of substantially all of the assets of Emerging Tigers Fund, and the
assumption of substantially all of the liabilities of Emerging Tigers Fund, by
Dragon Fund in exchange solely for an equal aggregate value of shares of Dragon
Fund (the "Reorganization"). Dragon Fund is a non-diversified, open-end
management investment company organized as a corporation under the laws of the
State of Maryland. A Special Meeting of Stockholders of Emerging Tigers Fund to
consider the Reorganization will be held at 800 Scudders Mill Road, Plainsboro,
New Jersey, on April 26, 2000, at , Eastern Standard Time.
For detailed information about the Reorganization, stockholders of Emerging
Tigers Fund should refer to the Proxy Statement and Prospectus. For further
information relating to Dragon Fund, stockholders should refer to the Dragon
Fund Statement of Additional Information, which accompanies this Statement of
Additional Information and is incorporated by reference herein.
FINANCIAL STATEMENTS
Pro forma financial statements reflecting consummation of the
Reorganization are included herein.
DRAGON FUND
Audited financial statements and accompanying notes for the fiscal year
ended December 31, 1999 of Dragon Fund and the independent auditors' report
thereon, dated , 2000, are incorporated herein by reference from the
Annual Report to Stockholders of Dragon Fund, as of December 31, 1999.
EMERGING TIGERS FUND
Audited financial statements and accompanying notes for the fiscal year
ended November 30, 1999 of Emerging Tigers Fund and the independent auditors'
report thereon, dated January 13, 2000, are incorporated herein by reference
from the Annual Report to Stockholders of Emerging Tigers Fund, as of November
30, 1999.
2
<PAGE> 58
PRO FORMA SCHEDULES AND FINANCIAL STATEMENTS
[TO BE FILED BY AMENDMENT]
3
<PAGE> 59
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION.
Reference is made to Article VI of the Registrant's Articles of
Incorporation, Article VI of the Registrant's By-Laws, Section 2-418 of the
Maryland General Corporation Law and Section 9 of the Class A, Class B, Class C
and Class D Distribution Agreements.
Insofar as the conditional advancing of indemnification moneys for actions
based on the Investment Company Act of 1940, as amended (the "1940 Act") may be
concerned, Article VI of the Registrant's By-Laws provides that such payments
will be made only on the following conditions: (i) advances may be made only on
receipt of a written affirmation of such person's good faith belief that the
standard of conduct necessary for indemnification has been met and a written
undertaking to repay any such advance if it is ultimately determined that the
standard of conduct has not been met; and (ii) (a) such promise must be secured
by a security for the undertaking in form and amount acceptable to the
Registrant, (b) the Registrant is insured against losses arising by receipt by
the advance, or (c) a majority of a quorum of the Registrant's disinterested
non-party Directors, or an independent legal counsel in a written opinion, shall
determine, based upon a review of readily available facts, that at the time the
advance is proposed to be made, there is reason to believe that the person
seeking indemnification will ultimately be found to be entitled to
indemnification.
In Section 9 of the Class A, Class B, Class C and Class D Shares
Distribution Agreements relating to the securities being offered hereby, the
Registrant agrees to indemnify the Distributor and each person, if any, who
controls the Distributor within the meaning of the Securities Act of 1933, as
amended (the "1933 Act"), against certain types of civil liabilities arising in
connection with the Registration Statement or Prospectus and Statement of
Additional Information.
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to Directors, officers and controlling persons of the Registrant
and the principal underwriter pursuant to the foregoing provisions or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Director, officer, or controlling
person of the Registrant and the principal underwriter in connection with the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person or the principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
ITEM 16. EXHIBITS.
<TABLE>
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(1)(a) -- Articles of Incorporation of the Registrant, dated February
13, 1992.(a)
(1)(b) -- Articles of Amendment to the Articles of Incorporation of
the Registrant, dated October 17, 1994.(a)
(1)(c) -- Articles Supplementary to the Articles of Incorporation of
the Registrant, dated October 17, 1994.(a)
(1)(d) -- Articles Supplementary to the Articles of Incorporation of
the Registrant, dated September 1, 1995.(b)
(2) -- By-Laws of the Registrant.(b)
(3) -- Not applicable.
(4) -- Form of Agreement and Plan of Reorganization between the
Registrant and Merrill Lynch Emerging Tigers Fund, Inc.(c)
</TABLE>
C-1
<PAGE> 60
<TABLE>
<S> <C> <C>
(5) -- Copies of instruments defining the rights of stockholders,
including the relevant portions of the Articles of
Incorporation of the Registrant, as amended and
supplemented, and the By-Laws of the Registrant.(d)
(6)(a) -- Form of Management Agreement between the Registrant and
Merrill Lynch Asset Management, L.P. ("MLAM").(b)
(6)(b) -- Supplement to Management Agreement between the Registrant
and MLAM, dated January 3, 1994(e)
(6)(c) -- Sub-Advisory Agreement between Merrill Lynch Asset
Management, L.P. and Merrill Lynch Asset Management U.K.
Limited.(f)
(7)(a) -- Form of Class A Shares Distribution Agreement between the
Registrant and Merrill Lynch Funds Distributor, Inc. (now
known as Princeton Funds Distributor, Inc.) (the
"Distributor")(a)
(7)(b) -- Form of Class B Shares Distribution Agreement between the
Registrant and the Distributor.(a)
(7)(c) -- Letter Agreement between the Registrant and the Distributor,
with respect to the Merrill Lynch Mutual Fund Adviser
Program.(e)
(7)(d) -- Form of Class C Shares Distribution Agreement between the
Registrant and the Distributor.(a)
(7)(e) -- Form of Class D Shares Distribution Agreement between the
Registrant and the Distributor.(a)
(8) -- None.
(9) -- Form of Custody Agreement between the Registrant and Brown
Brothers Harriman & Co.(a)
(10)(a) -- Form of Class B Shares Distribution Plan and Class B Shares
Distribution Plan Sub-Agreement of the Registrant.(a)
(10)(b) -- Form of Class C Shares Distribution Plan and Class C Shares
Distribution Plan Sub-Agreement of the Registrant.(a)
(10)(c) -- Form of Class D Shares Distribution Plan and Class D Shares
Distribution Plan Sub-Agreement of the Registrant.(a)
(10)(d) -- Merrill Lynch Select PricingSM System Plan pursuant to Rule
l8f-3.(g)
(11) -- Opinion and Consent of Brown & Wood LLP, counsel for the
Registrant.(h)
(12) -- Private Letter Ruling from the Internal Revenue Service.(h)
(13) -- Not applicable.
(14)(a) -- Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.
(14)(b) -- Consent of Deloitte & Touche LLP, independent auditors for
Merrill Lynch Emerging Tigers Fund, Inc.
(15) -- Not applicable.
(16) -- Power of Attorney (included on the signature page of this
Registration Statement).
(17)(a) -- Prospectus, dated April 27, 1999, and Statement of
Additional Information, dated April 27, 1999, of the
Registrant.(h)
</TABLE>
C-2
<PAGE> 61
<TABLE>
<S> <C> <C>
(17)(b) -- Annual Report to Stockholders of the Registrant, as of
December 31, 1999.(h)
(17)(c) -- Prospectus, dated March 31, 1999, and Statement of
Additional Information, dated March 31, 1999, of Merrill
Lynch Emerging Tigers Fund, Inc.(h)
(17)(d) -- Annual Report to Stockholders of Merrill Lynch Emerging
Tigers Fund, Inc., as of November 30, 1999.(h)
(17)(e) -- Form of Proxy Card
</TABLE>
- ---------------
(a) Filed on April 27, 1995, as an Exhibit to Post-Effective Amendment No. 5 to
the Registrant's Registration Statement on Form N-1A (File No. 333-46216)
under the Securities Act of 1933, as amended (the "Registration Statement").
(b) Filed on April 26, 1996, as an Exhibit to Post-Effective Amendment No. 6 to
the Registration Statement.
(c) Included as Exhibit I to the Proxy Statement and Prospectus contained in
this Registration Statement.
(d) Reference is made to Article II (Sections 3, 4 and 5), Article IV (Sections
1, 2, 3, 4, 5, 6, 7, 8, 9 and 10), Article V (Sections 2, 3, 4, 5 and 6),
Article VI, Article VII and Article IX of the Registrant's Articles of
Incorporation filed as Exhibit (1)(a) to the Registration Statement; the
Articles of Amendment to the Articles of Incorporation filed as Exhibit
(1)(b) to the Registration Statement; the Articles Supplementary to the
Articles of Incorporation filed as Exhibits (1)(c) and (1)(d) to the
Registration Statement; and Article II (Sections 1, 2, 3, 4, 5, 6, 7, 8, 9,
10 and 11), Article III (Sections 1, 3, 5, 6 and 17), Article VI, Article
VII (Sections 1, 2, 3, 4, 5, 6 and 7), Article XII, Article XIII and Article
XIV of the Registrant's By-Laws filed as Exhibit (2) to the Registration
Statement.
(e) Filed on April 28, 1994, as an Exhibit to Post-Effective Amendment No. 3 to
the Registration Statement.
(f) Filed on April 28, 1997, as an Exhibit to Post-Effective Amendment No. 7 to
the Registration Statement.
(g) Incorporated by reference to Exhibit 18 to Post-Effective Amendment No. 13
to the Registration Statement on Form N-1A under the Securities Act of 1933,
as amended, filed on January 25, 1996, relating to shares of Merrill Lynch
New York Municipal Bond Fund series of Merrill Lynch Multi-State Municipal
Series Trust (File No. 2-99473).
(h) To be filed by amendment.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through use of a prospectus which is part of this
Registration Statement by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c) of the Securities Act of 1933, as amended, the
reoffering prospectus will contain information called for by the applicable
registration form for reofferings by persons who may be deemed underwriters, in
addition to the information called for by other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the Securities Act of 1933, as
amended, each post-effective amendment shall be deemed to be a new registration
statement for the securities offered therein, and the offering of securities at
that time shall be deemed to be the initial bona fide offering of them.
(3) The Registrant undertakes to file, by post-effective amendment, either
a copy of the Internal Revenue Service private letter ruling applied for or an
opinion of counsel as to certain tax matters, within a reasonable time after
receipt of such ruling or opinion.
C-3
<PAGE> 62
SIGNATURES
As required by the Securities Act of 1933, this Registration Statement has
been signed on behalf of the Registrant, in the Township of Plainsboro and State
of New Jersey, on the 31st day of January, 2000.
MERRILL LYNCH DRAGON FUND, INC.
(Registrant)
/s/ TERRY K. GLENN
--------------------------------------
(Terry K. Glenn, President)
Each person whose signature appears below hereby authorizes Terry K. Glenn,
Donald C. Burke and Phillip S. Gillespie, or any of them, as attorney-in-fact,
to sign on his behalf, individually and in each capacity stated below, any
amendments to this Registration Statement (including post-effective amendments)
and to file the same, with all exhibits thereto, with the Securities and
Exchange Commission.
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ TERRY K. GLENN President (Principal Executive January 31, 2000
- ------------------------------------------------ Officer) and Director
(Terry K. Glenn)
/s/ DONALD C. BURKE Vice President and Treasurer January 31, 2000
- ------------------------------------------------ (Principal Financial and
(Donald C. Burke) Accounting Officer)
/s/ CHARLES C. REILLY Director January 31, 2000
- ------------------------------------------------
(Charles C. Reilly)
/s/ RICHARD R. WEST Director January 31, 2000
- ------------------------------------------------
(Richard R. West)
/s/ ARTHUR ZEIKEL Director January 31, 2000
- ------------------------------------------------
(Arthur Zeikel)
/s/ EDWARD D. ZINBARG Director January 31, 2000
- ------------------------------------------------
(Edward D. Zinbarg)
</TABLE>
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<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
14(a) -- Consent of Deloitte & Touche LLP, independent auditors for
the Registrant.
14(b) -- Consent of Deloitte & Touche LLP, independent auditors for
Merrill Lynch Emerging Tigers Fund, Inc.
17(e) -- Proxy Card.
</TABLE>
C-5
<PAGE> 1
Exhibit 14(a)
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Dragon Fund, Inc.:
We consent to the reference to us under the captions "COMPARISON OF THE
FUNDS--Financial Highlights" and "EXPERTS" for Merrill Lynch Dragon Fund, Inc.
appearing in the Proxy Statement and Prospectus, which is a part of this
Registration Statement on Form N-14 of Merrill Lynch Dragon Fund, Inc.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Princeton, New Jersey
January 26, 2000
<PAGE> 1
Exhibit 14(b)
INDEPENDENT AUDITORS' CONSENT
Merrill Lynch Emerging Tigers Fund, Inc.
We consent to the incorporation by reference in this Registration Statement on
Form N-14 of Merrill Lynch Dragon Fund, Inc. of our report dated January 13,
2000 appearing in the annual report to shareholders of Merrill Lynch Emerging
Tigers Fund, Inc. for the year ended November 30, 1999, and to the reference to
us under the captions "COMPARISON OF THE FUNDS--Financial Highlights" and
"EXPERTS" appearing in the Proxy Statement and Prospectus, which is a part of
this Registration Statement.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Princeton, New Jersey
January 26, 2000
<PAGE> 1
MERRILL LYNCH EMERGING TIGERS FUND, INC.
P.O. BOX 9011
PRINCETON, NEW JERSEY 08543-9011
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Terry K. Glenn, Robert Harris and Phillip
S. Gillespie as proxies, each with the power to appoint his substitute, and
hereby authorizes each of them to represent and to vote, as designated below,
all of the shares of common stock of Merrill Lynch Emerging Tigers Fund, Inc.
("the Fund") held of record by the undersigned on March 15, 2000 at a Special
Meeting of Stockholders of the Fund to be held on April 26, 2000 or any
adjournment thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED "FOR" PROPOSAL 1.
By signing and dating this card, you authorize the proxies to vote the
proposal as marked, or if not marked, to vote "FOR" the proposal, and to use
their discretion to vote for any other matter as may properly come before the
meeting or any adjournment thereof. If you do not intend to personally attend
the meeting, please complete and return this card at once in the enclosed
envelope.
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney or as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized
persons.
<TABLE>
<S> <C>
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR
YOUR RECORDS
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED DETACH AND RETURN
THIS PORTION ONLY
</TABLE>
Vote on Proposal
1. To approve the Agreement and Plan of Reorganization between Merrill Lynch
Dragon Fund, Inc. and Merrill Lynch Emerging Tigers Fund, Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. To transact such other business as may properly come before the Meeting or
any adjournment thereof.
- --------------------------------------- ---------------------------------------
- --------------------------------------- ---------------------------------------
SIGNATURE (PLEASE SIGN WITHIN BOX) DATE SIGNATURE (PLEASE SIGN WITHIN BOX )DATE
