MERRILL LYNCH
PACIFIC FUND, INC.
FUND LOGO
Annual Report
December 31, 1994
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Merrill Lynch
Pacific Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH PACIFIC FUND, INC.
<PAGE>
DEAR SHAREHOLDER
Although Merrill Lynch Pacific Fund's Class A and Class B Shares had
positive total returns of +2.90% and +1.87%, respectively, for the
fiscal year ended December 31, 1994, these results compare
unfavorably with the returns of an unmanaged index of Pacific Basin
stocks that we use as a performance benchmark, which appreciated 8.78%
in US dollar terms. The Fund's performance lagged that of the
Benchmark Index significantly during the first quarter of 1994.
Although the Fund did not underperform relative to the Index for the
rest of the year, we were unable to recover from the poor first-
quarter results. (Fund results do not include the deduction of sales
charges, and would be lower if sales charges were included. Complete
performance information, including average annual total returns, can
be found on pages 5--8 of this report to shareholders.)
The Benchmark Index is weighted according to what we believe our
competitive investment universe to be: 68% Japan, 14% Hong Kong, 7%
Australia, 5% Malaysia, 4% Singapore, and 2% Thailand. These
weightings are intentionally different from those of the Morgan
Stanley Capital International Pacific Basin Index and the Market-
Weighted Index shown in the "Recent Performance Results" table on
page 8 of this report to shareholders. In our view, Japan's market
capitalization should be adjusted downward from the levels used in
these market-weighted indexes to reflect the large extent of
corporate cross-ownership of shares, as we discussed at length in
our March 31, 1994 report to shareholders. Therefore, in our view,
the Benchmark Index more accurately measures the performance of an
unmanaged portfolio that invests in Pacific Basin stock markets,
since it is based on actual investable market capitalizations.
Furthermore, the Benchmark Index is a more useful measure to assess
the contributions that our individual stock selection and geographic
asset allocation make to Fund performance. In this and future
reports to shareholders, we will include Benchmark Index performance
in the "Recent Performance Results" table as well as that of the
Market-Weighted Index. In the future, as the emerging markets in the
Pacific Basin become larger, more liquid and more open to foreign
investors, we will adjust the composition of the Benchmark Index
accordingly.
Fiscal Year in Review
The Fund's underperformance relative to the Benchmark Index during
the fiscal year was caused by four factors. First, the portfolio had
an underweighted exposure to yen throughout the first half of the
year, when the Japanese currency appreciated 13% relative to the US
dollar. As a result, our yen-denominated holdings benefited
minimally when translated into US dollar terms. Second, the
portfolio had a relatively light Japanese stock weighting in the
first half of the year, when the Tokyo Stock Exchange Index rose by
16%. Third, our overweightings in the declining Hong Kong and
Malaysian stock markets early in 1994 also hampered the Fund's total
returns. Finally, our individual holdings did not provide good
returns relative to the benchmark indexes of their respective
countries. Nevertheless, we continue to believe that these
strategies (most of which remain intact) will prove correct in the
longer term. We currently are not overweighted in Hong Kong and
Malaysia, although if there is sufficient market weakness,
especially in Hong Kong, we will probably move to a much higher
weighting than the 10% exposure at December month-end.
<PAGE>
Investment Activities
Among the four factors that led to the Fund's relative
underperformance during the fiscal year, stock selection is the one
that we view as most important. Despite their relatively lackluster
performance in 1994, we continue to believe that our key holdings
all represent good values, and will eventually significantly
outperform their respective markets. Given this outlook, the Fund
recently completed a shareholder vote to change from a diversified
to a non-diversified portfolio. Although shareholders approved this
change after the December quarter's close on January 31, 1995, we
would like to discuss its implications in this report to
shareholders, since it will have a major influence on the
portfolio's composition in 1995 and beyond.
As a non-diversified fund, Merrill Lynch Pacific Fund will not be
limited to a 5% maximum purchase of any one stock in 50% of its
total portfolio. Previously, although certain positions may have
exceeded 5% through price appreciation, we could not initially
establish a greater than 5% holding. Now, with respect to 50% of our
portfolio, we can establish positions in excess of 5% of total
assets. The remaining half of the portfolio will remain diversified.
Therefore, in the future we are more likely to have positions that
exceed 5% of the Fund's net assets. To the extent the Fund invests a
relatively high percentage of its assets in obligations of a limited
number of issuers, the Fund may be more susceptible than a more
widely diversified fund would be to a single economic, political or
regulatory occurrence or to changes in an issuer's financial
condition or in the market's assessment of the issuers.
We sought this change to non-diversified status because we believe
that a Pacific Basin portfolio containing significant investments in
key issues will have far greater capital appreciation potential in the
years ahead than will be the case for Japanese stocks in general.
Furthermore, if the Japanese stock market underperforms relative to
the smaller and emerging Pacific Basin stock markets over the
longer term (which we believe is likely to occur), stock selection
in Japan will be an important source for potentially above-average
investment returns.
<PAGE>
Therefore, we are likely to increase investments in those few
Japanese stocks that we believe will provide better-than-market
returns over the ensuing years. These stocks--typified by Murata
Manufacturing Co., Ltd., Toyo Seikan Kaisha, Ltd., Ito-Yokado Co.,
Ltd., Mitsubishi Heavy Industries, Ltd., Canon, Inc., and Sankyo
Co., Ltd.--could in the future represent much more than half of our
entire Japanese exposure. All these companies have much better
balance sheets than the average company, much higher profitability,
and their shares are selling at much lower valuations. In our
opinion they also have much better managements and much better
future growth prospects. We believe that these stocks will
outperform the Japanese market significantly over the next three
years--five years. Moreover, we believe that our favorite stocks
will provide good investment results in absolute terms, barring a
further collapse of the Japanese stock market, which we believe is
unlikely. The Japanese stock market is still at less than half the
level it had attained at the end of 1989. Although Japanese stocks
are expensive on a price/earnings ratio basis (Japanese corporations
are now in an earnings trough), they are much more attractively
valued on the more stable price/book value measure.
Furthermore, since there are many sectors in each of our markets in
which we have no exposure, and some in which we have significant
exposures, we will often perform much differently than an unmanaged
index of Pacific Basin stocks. In the future, greater concentration
in individual issues will further magnify this difference. If our
stock selection is good, the Fund will outperform an unmanaged
Pacific Basin index over the longer term.
Positive Developments for Japanese Non-Life Insurance Companies
Our positions in Japanese property and casualty insurance companies
remain the other core portion of our Japanese portfolio. Long-term
shareholders will remember that we have held these positions for
many years. During the past two years these stocks have
underperformed the Japanese stock market, perhaps as a reflection of
the unprecedented severity of natural disasters. Typhoons Mireille
(1991) and Yancy (1993) were the two largest and most damaging
typhoons to ever hit Japan. Prior to these storms, Japan had never
had windstorm damage even half the level of Yancy, which itself was
less than half the severity of Mireille. In mid-January, the
Kobe/Osaka region of Japan experienced a very large and damaging
earthquake. Although this has caused a great deal of loss and
suffering, the actual impact on the non-life insurance companies
should be much less than the typhoons Mireille and Yancy. Earthquake
insurance is rarely purchased in Japan, much of it is reinsured, and
coverage is extremely limited.
<PAGE>
The outstanding balance sheet strength of these companies enabled
them to meet the liabilities created by the 1991 and 1993 typhoons
with essentially no disruption to the domestic insurance market.
Catastrophe reserves were drawn down substantially, but have been
built up very rapidly and are now back to high levels. Also, there
are now better reinsurance policies, and excess loss programs have
been restructured. Increased catastrophe reserves--combined with
balance sheet strength and the large unrealized gains on stocks held
in the companies' investment portfolios--create very high "solvency"
margins by worldwide standards, and make actual values for the
property and casualty insurers much higher than current share
prices.
There are other positive developments which may lead other investors
to focus on the strengths of the Japanese property and casualty
insurance companies. As the Japanese economy recovers, premium
growth should follow from the increased insurance needs associated
with more housing starts, recovery in new automobile registrations,
and growth in pension policies. Of these factors, automobile
insurance is the key area of recovery following a deterioration in
loss ratios. This deterioration resulted from increasing accidents
and higher repair claim costs, and is being remedied on two fronts.
First, there have been two rounds of rate increases. Second,
insurers expect to introduce higher deductibles and a new rate
structure for auto body damage this year.
Finally, it appears as though the Japanese non-life insurance
companies have expenditures under control as they prepare for a new
era of competition now that the government is revising insurance
industry regulations. While increased competition within the
industry is not desirable, we believe that a more favorable tax
treatment of capital gains realized in investment portfolios and the
introduction of the "solvency ratio" are two very large positives
that will outweigh the negative effects of a limited increase in
competition. Although we cannot forecast whether these companies
will now realize capital gains to the benefit of shareholders, a
more preferential tax treatment for capital gains does provide the
non-life insurers with greater flexibility to benefit from the
substantial unrealized capital gains in their portfolios, which can
only help enhance shareholder value. The solvency ratio, which is
intended to be a measure of the level of stability or risk in each
company, will show that Japanese property and casualty companies are
not only extraordinarily solvent compared to other Japanese
financial institutions, but are also among the strongest insurance
companies in the world. These factors, along with a better economic
environment for their two main insurance lines, lead us to believe
that the underperformance of Japanese property and casualty
insurance stocks could be about to end.
<PAGE>
Currency Market Developments
As of year-end 1994, the portfolio's yen-denominated investments
were essentially unhedged back into US dollars. As we have already
discussed, hedging the yen through forward sales was one of the
primary causes for the Fund's relative underperformance in 1994.
However, the weakening trend of the US dollar relative to the yen
may be in the process of shifting. As outlined by William P.
Sterling, Merrill Lynch's Manager of International Economics, the
United States is running a significant current account deficit,
which in the past had been funded largely by capital inflows from
abroad (often from Japanese investors), leading to US dollar
weakness and higher US interest rates. However, this US current
account deficit in recent years has been accompanied by a very large
capital account outflow from the United States as US investors
seeking higher returns purchased an unprecedented amount of shares
of international bond and stock mutual funds, largely in emerging
markets. The combined current account and long-term capital account
deficits were the largest percentage of US gross domestic product
since the Lend-Lease Program in 1941, and further depressed the US
dollar while raising US interest rates. However, since the emerging
stock and bond markets lost so much value in 1994, and short-term US
interest rates have risen to more attractive levels, especially when
adjusted for inflation, the flow of investment dollars into the
emerging economies has been interrupted. As a result, emerging
market stock and bond prices continue to drop. In the months ahead,
the risk of yen weakening may increase as investors seeking a "safe
haven" for their assets are attracted into US dollar-denominated
investments. As a result, we will be seeking opportunities to once
again hedge the Fund's yen-denominated investments. However, we
should note that many economists, including William Sterling,
foresee a stronger US dollar relative to many currencies, with the
exception of the yen.
Increased Investments in Australia
We increased investments in some key Australian stocks during the
December quarter. The portfolio now has a significantly overweighted
exposure in Australia, and we intend to increase this position
further on share price weakness. The core Australian investments
include Lend Lease Corp., Coca-Cola Amatil, Ltd., and Village
Roadshow Ltd., a new position. We will discuss these positions in
some detail in future reports to shareholders.
In Conclusion
For many of our shareholders, questions on the performance or
management of Merrill Lynch Pacific Fund can best be answered by
their Financial Consultants. However, if there is some aspect of the
Fund or its investments that you would like us to discuss in our
reports to shareholders, we would like to hear from you. While we
are unable to answer each shareholder inquiry personally, and may
not find each suggestion to be of interest to enough of our
shareholders to warrant its inclusion, we will read and carefully
evaluate each letter we receive. If a particular idea is likely to
be informative for a significant portion of our shareholders, we
will discuss it in an upcoming report to shareholders.
<PAGE>
We thank you for your investment in Merrill Lynch Pacific Fund,
Inc., and look forward to serving your investment needs throughout
the Fund's new fiscal year and beyond.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Stephen I. Silverman)
Stephen I. Silverman
Vice President and Portfolio Manager
February 3, 1995
OFFICERS AND DIRECTORS
Arthur Zeikel, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Donald C. Burke, Vice President
Stephen I. Silverman, Vice President and
Portfolio Manager
Gerald M. Richard, Treasurer
Robert Harris, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Transfer Agent
Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
<PAGE>
PERFORMANCE DATA
About Fund Performance
Since October 21, 1994, investors have been able to purchase shares
of the Fund through the Merrill Lynch Select Pricing SM System,
which offers four pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after 8 years.
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed
within one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
Performance data for the Fund's Class A and Class B Shares are
presented in the "Total Return Based on a $10,000 Investment",
"Performance Summary" and "Average Annual Total Return" tables on
pages 6 and 7. The "Results of a $1,000 Investment Since Inception--
Class A Shares" table below illustrates the performance of a $1,000
investment in Class A Shares made at the Fund's inception (assuming
the maximum initial sales charge of 5.25%) through December 31,
1994. "Aggregate Total Return" tables for Class C and Class D Shares
are also presented on page 6. Data for all of the Fund's shares,
including Class C and Class D Shares, are presented in the "Recent
Performance Results" table.
The "Recent Performance Results" table on page 8 shows investment
results before the deduction of any sales charges for Class A and
Class B Shares for the 12-month and 3-month periods ended December
31, 1994 and for Class C and Class D Shares for the period since
inception through December 31, 1994. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
<PAGE>
None of the past results shown should be considered a representation
of future performance. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to each
class, which are deducted from the income available to be paid to
shareholders.
Results of a $1,000 Investment Since Inception--Class A Shares
(5.25% sales charge--$947.50 net amount invested; assuming
reinvestment of all dividends and capital gains distributions)
A mountain chart depicting the growth of an investment in the
Fund's Class A Shares from $947.50 on September 23, 1976 to
$16,063.82 on December 31, 1994.
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the Morgan
Stanley Capital International Pacific Region Index. Beginning and
ending values are:
12/84 12/94
ML Pacific Fund, Inc.++--
Class A Shares* $9,475 $54,749
Morgan Stanley Capital
International Pacific
Region Index++++ $10,000 $48,325
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the Morgan
Stanley Capital International Pacific Region Index. Beginning and
ending Values are:
10/21/88** 12/94
Ml Pacific Fund, Inc.++--
Class B Shares* $10,000 $16,531
<PAGE>
Morgan Stanley Capital
International Pacific
Region Index++++ $10,000 $10,302
[FN]
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML Pacific Fund, Inc. invests primarily in equities of
corporations domiciled in Far Eastern or Western Pacific
countries, including Japan, Australia, Hong Kong, and
Singapore.
++++This unmanaged Market capitalization-weighted Index is comprised
of a representative sampling of stocks of large-, medium-, and
small-capitalization companies in Australia, Hong Kong, Japan,
Malaysia, New Zealand, and Singapore.
Past performance is not predictive of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/94 + 2.90% - 2.51%
Five Years Ended 12/31/94 + 6.23 + 5.09
Ten Years Ended 12/31/94 +19.17 +18.53
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/94 +1.87% -2.11%
Five Years Ended 12/31/94 +5.16 +5.16
Inception (10/21/88) through 12/31/94 +8.45 +8.45
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
Aggregate Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Inception (10/21/94)
through 12/31/94 -4.04% -4.97%
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Inception (10/21/94)
through 12/31/94 -3.93% -8.98%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
<PAGE>
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
9/23/76--12/31/76 $ 9.30 $ 9.81 -- -- + 5.48%
1977 9.81 9.20 -- $0.050 - 5.73
1978 9.20 14.48 $ 0.070 0.020 +58.87
1979 14.48 8.96 3.340 0.120 -23.40
1980 8.96 12.11 -- 0.220 +38.49
1981 12.11 12.78 1.460 0.230 +22.22
1982 12.78 12.07 0.420 0.320 + 0.46
1983 12.07 16.04 0.180 0.290 +38.54
1984 16.04 15.43 0.950 0.090 + 2.92
1985 15.43 19.59 1.380 0.160 +40.96
1986 19.59 34.32 0.190 0.110 +77.78
1987 34.32 16.15 22.154 0.183 +10.77
1988 16.15 19.11 2.064 0.196 +34.38
1989 19.11 20.65 1.042 0.061 +14.49
1990 20.65 16.52 1.668 0.766 - 8.39
1991 16.52 18.34 0.521 0.433 +17.04
1992 18.34 15.80 0.221 0.741 - 8.75
1993 15.80 21.21 -- 0.027 +34.41
1994 21.21 21.12 0.469 0.219 + 2.90
------- ------
Total $36.129 Total $4.236
Cumulative total return as of 12/31/94: +1,595.39%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
include sales charge; results would be lower if sales charge was
included.
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/88--12/31/88 $17.93 $19.09 $1.034 $0.171 +13.37%
1989 19.09 20.49 1.042 -- +13.39
1990 20.49 16.30 1.668 0.653 - 9.29
1991 16.30 18.01 0.521 0.322 +15.87
1992 18.01 15.34 0.221 0.726 - 9.72
1993 15.34 20.41 -- -- +33.05
1994 20.41 20.27 0.469 0.041 + 1.87
------ ------
Total $4.955 Total $1.913
Cumulative total return as of 12/31/94: 65.31%**
<PAGE>
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results
<CAPTION>
Market Performance Market Capitalization
In Local Currency/In US Dollars (as of 9/30/94)
3 Month 12 Month In US Dollars % of Total
% Change++ % Change (Billions) (100.0%)
<S> <C> <C> <C> <C>
ML Pacific Fund, Inc. Class A Shares* -4.42%(1) +1.84%(1)
ML Pacific Fund, Inc. Class B Shares* -3.89(1) +1.66(1)
ML Pacific Fund, Inc. Class C Shares* -4.94(1) --
ML Pacific Fund, Inc. Class D Shares* -4.89(1) --
ML Pacific Fund, Inc. Class A Shares--Total Investment Return* -3.43(2) +2.90(2)
ML Pacific Fund, Inc. Class B Shares--Total Investment Return* -3.70(3) +1.87(3)
ML Pacific Fund, Inc. Class C Shares--Total Investment Return* -4.04(4) --
ML Pacific Fund, Inc. Class D Shares--Total Investment Return* -3.93(5) --
Benchmark Index*** -4.37 +8.78
Market-Weighted Index** -3.19(6) +12.21(7)
Japan** -1.13/-1.82 +8.32/+21.56 $3,693 81.5%
Australia** -5.72/-1.23 -12.00/+0.51 211 4.7
Singapore** -6.94/-5.31 -13.81/-4.85 145 3.2
Malaysia** -14.03/-13.68 -23.85/-19.67 198 4.4
Hong Kong** -13.97/-14.07 -31.10/-31.22 283 6.2
<PAGE>
<FN>
(1)Percent change includes reinvestment of $0.469 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.219 per share ordinary
income dividends and $0.469 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.041 per share ordinary
income dividends and $0.469 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.191 per share ordinary
income dividends and $0.469 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.213 per share ordinary
income dividends and $0.469 per share capital gains distributions.
(6)9/30/94 market weights used in this computation. The Market-
Weighted Index return and individual country returns do not include
dividends.
(7)12/31/93 market weights used in this computation. The Market-
Weighted Index return and individual country returns do not include
dividends.
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
**Unmanaged. The Market-Weighted Index weights the US dollar-
adjusted Pacific Basin stock market returns by the relative market
capitalization of each individual country on the appropriate date.
***Unmanaged. The Benchmark Index weighs US dollar-adjusted returns
based on 68% Japan, 14% Hong Kong, 7% Australia, 5% Malaysia, 4%
Singapore and 2% Thailand.
++Investment results shown for Class C and Class D Shares are since
inception (10/21/94).
</TABLE>
PORTFOLIO INFORMATION
For the Year Ended December 31, 1994
Percent of
Ten Largest Equity Holdings Net Assets
Ito-Yokado Co., Ltd. 5.0%
Murata Manufacturing Co., Ltd. 4.9
Mitsubishi Heavy Industries, Ltd. 4.8
Toyo Seikan Kaisha, Ltd. 4.6
Lend Lease Corp. 4.2
China Light & Power Co., Ltd. 4.0
Canon, Inc. 3.5
Suzuki Motor Corp. 3.4
Hitachi, Ltd. 3.2
Dai-Tokyo Fire & Marine
Insurance Co., Ltd. 3.2
<PAGE>
Additions
Hang Lung Development Co., Ltd. (Warrants)
*Indonesia Satellite
Master Plus
Village Roadshow Ltd. 'A' (Preferred)
Deletions
*Indonesia Satellite
Matsushita Electric Industrial Co., Ltd.
Taisho Pharmaceutical Co., Ltd.
[FN]
*Added and deleted in the same quarter.
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
Japanese Securities
<S> <C> <S> <C> <C> <C>
Automobile 4,392,000 Suzuki Motor Corp. $ 46,151,997 $ 51,644,623 3.4%
Beverage 380,000 Chukyo Coca-Cola Bottling Co., Ltd. 5,420,506 4,315,578 0.3
424,000 Hokkaido Coca-Cola Bottling Co., Ltd. 6,399,350 5,752,764 0.4
386,000 Kinki Coca-Cola Bottling Co., Ltd. 7,430,096 5,275,980 0.3
476,000 Mikuni Coca-Cola Bottling Co., Ltd. 8,487,431 6,506,131 0.4
470,800 Sanyo Coca-Cola Bottling Co., Ltd. 7,040,767 7,050,171 0.5
-------------- -------------- ------
34,778,150 28,900,624 1.9
Capital Goods 9,565,000 Mitsubishi Heavy Industries, Ltd. 67,715,158 73,059,296 4.8
720 Mitsubishi Heavy Industries, Ltd., #3 US$
(Warrants) (a) 588,000 243,000 0.0
-------------- -------------- ------
68,303,158 73,302,296 4.8
Chemicals 1,400,000 Shin-Etsu Chemical Co., Ltd. 24,090,347 27,859,296 1.8
Consumer YEN409,000,000 Matsushita Electric Works, Ltd.--C.E.W. #8,
Electronics 2.70% due 5/31/2002 4,543,869 4,398,291 0.3
561,000 Sony Corp. 30,521,041 31,855,779 2.1
-------------- -------------- ------
35,064,910 36,254,070 2.4
<PAGE>
Containers 2,104,000 Toyo Seikan Kaisha, Ltd. 41,434,948 70,203,819 4.6
Electric 876,000 Chudenko Corp. 27,256,705 32,134,673 2.1
Construction 895,000 Taihei Dengyo Kaisha, Ltd. 22,583,118 21,408,040 1.4
-------------- -------------- ------
49,839,823 53,542,713 3.5
Electric Equipment 4,950,000 Hitachi, Ltd. 47,713,215 49,201,508 3.2
1,934,900 Murata Manufacturing Co., Ltd. 64,070,617 74,867,990 4.9
923,000 The Nippon Signal Co., Ltd. 13,935,321 9,461,910 0.6
832,000 Rohm Co., Ltd. 31,590,712 35,286,834 2.3
2,045,000 Sumitomo Electric Industries, Ltd. 23,549,160 29,184,925 1.9
169 Sumitomo Electric Industries, Ltd., #1 YEN
(Warrants) (a) 185,351 246,281 0.0
-------------- -------------- ------
181,044,376 198,249,448 12.9
Iron & Steel 475,000 Maruichi Steel Tube, Ltd. 6,023,843 8,545,226 0.6
Office Equipment 3,150,000 Canon, Inc. 46,249,334 53,502,513 3.5
14,250 Canon, Inc., #2 DM (Warrants) (a) 1,741,131 1,656,977 0.1
2,250 Canon, Inc., #4 US$ (Warrants) (a) 2,434,375 2,221,875 0.1
50,424,840 57,381,365 3.7
Pharmaceuticals 1,740,000 Sankyo Co., Ltd. 43,294,016 43,368,844 2.8
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
Japanese Securities (concluded)
<S> <C> <S> <C> <C> <C>
Property & Casualty 6,685,000 Dai-Tokyo Fire & Marine Insurance Co., Ltd. $ 39,575,762 $ 48,776,985 3.2%
Insurance 4,492,000 Fuji Fire & Marine Insurance Co., Ltd. 16,261,457 28,757,829 1.9
5,313,000 Koa Fire & Marine Insurance Co., Ltd. 32,096,047 36,630,332 2.4
5,448,000 Nichido Fire & Marine Insurance Co., Ltd. 27,852,857 47,252,503 3.1
2,980,000 Sumitomo Marine & Fire Insurance Co., Ltd. 27,945,240 25,756,784 1.7
3,868,000 Tokio Marine & Fire Insurance Co., Ltd. 38,194,544 47,426,734 3.1
-------------- -------------- ------
181,925,907 234,601,167 15.4
<PAGE>
Retailing 1,429,000 Ito-Yokado Co., Ltd. 63,832,756 76,548,442 5.0
364,000 Sangetsu Co., Ltd. 8,382,717 10,974,874 0.7
389,400 Senshukai Co., Ltd. 6,286,430 9,431,698 0.6
246,000 Shimachu Co., Ltd. 6,415,141 8,875,779 0.6
-------------- -------------- ------
84,917,044 105,830,793 6.9
Transportation 2,444,000 Nippon Express Co., Ltd. 24,955,299 24,562,814 1.6
Total Investments in Japan 872,248,658 1,014,247,098 66.3
Austrailian Securities
Diversified 3,900,000 BTR Nylex Ltd. 8,805,671 7,255,872 0.5
Leisure 12,247,500 Village Roadshow Ltd. 'A' (Preferred) 21,068,668 25,159,794 1.6
Food & Beverage 8,335,574 Burns Philp & Co., Ltd. 23,185,133 19,708,298 1.3
5,336,632 Coca-Cola Amatil, Ltd. 24,300,694 33,923,048 2.2
-------------- -------------- ------
47,485,827 53,631,346 3.5
Paper & Packaging 2,689,039 AMCOR Ltd. 19,394,022 19,427,941 1.3
Property 5,148,655 Lend Lease Corp. 64,409,391 63,700,148 4.2
$ 1,500,000 Lend Lease Finance International, 4.75% due
6/01/2003 1,736,250 1,567,500 0.1
-------------- -------------- ------
66,145,641 65,267,648 4.3
Total Investments in Australia 162,899,829 170,742,601 11.2
Hong Kong Securities
Diversified 4,410,500 Swire Pacific Ltd. 'A' 36,772,778 27,480,106 1.8
Property 225,000 Hang Lung Development Co., Ltd. 345,537 319,933 0.0
22,500 Hang Lung Development Co., Ltd. (Warrants)(a) 0 3,374 0.0
-------------- -------------- ------
345,537 323,307 0.0
<PAGE>
Utilities 14,482,300 China Light & Power Co., Ltd. 46,079,050 61,778,167 4.0
13,133,200 Hong Kong & China Gas Co., Ltd. 23,440,091 21,220,915 1.4
868,600 Hong Kong & China Gas Co., Ltd. (Warrants) (a) 0 165,052 0.0
15,741,800 Hong Kong Telecommunications, Ltd. 29,991,994 30,014,420 2.0
670,500 Hong Kong Telecommunications, Ltd. (ADR) (b) 4,896,660 12,823,312 0.8
104,407,795 126,001,866 8.2
Total Investments in Hong Kong 141,526,110 153,805,279 10.0
</TABLE>>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
Indian Securities
<S> <C> <S> <C> <C> <C>
Banking 9,800 SCICI, Ltd. $ 44,127 $ 29,683 0.0%
Broadcast/Media 620,000 Shivalik Projects Ltd. 3,557,823 3,360,434 0.2
Diversified Mutual 1,500,000 Master Plus (d) 979,549 896,700 0.1
Fund -------------- -------------- ------
Shipping 3,050 Great Eastern Shipping 972 6,758 0.0
Total Investments in India 4,582,471 4,293,575 0.3
Indonesian Securities
Pharmaceuticals 1,634,000 PT Kalbe Farma 5,525,626 6,730,860 0.4
Total Investments in Indonesia 5,525,626 6,730,860 0.4
Malaysian Securities
Diversified 14,896,800 Sime Darby BHD 35,217,136 34,141,540 2.2
Leisure 1,125,000 Genting BHD 1,759,320 9,732,235 0.6
1,450,000 Resorts World BHD 2,382,084 8,521,058 0.5
-------------- -------------- ------
4,141,404 18,253,293 1.1
<PAGE>
Transportation 3,661,000 Malaysian International Shipping BHD 12,515,710 10,470,245 0.7
Total Investments in Malaysia 51,874,250 62,865,078 4.0
Pakistan Securities
Utilities 43,298 ++Pakistan Telecommunications (GDR) (c) (d) 7,783,681 5,628,740 0.4
Total Investments in Pakistan 7,783,681 5,628,740 0.4
Singaporean Securities
Electronics 610,000 Creative Technology, Ltd. 7,609,990 8,616,250 0.6
Food 3,600,000 Cerebos Pacific Ltd. 5,153,632 19,773,429 1.3
Transportation 300,000 Singapore Bus Co. Ltd.--Foreign Registered 1,060,285 2,368,692 0.1
Total Investments in Singapore 13,823,907 30,758,371 2.0
South Korean Securities
Textiles 3,080 Taekwang Industries Co. 716,353 1,855,657 0.1
Total Investments in South Korea 716,353 1,855,657 0.1
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Face Value Percent of
Amount Investments Cost (Note 1a) Net Assets
Short-Term Securities
<S> <C> <S> <C> <C> <C>
Commercial Paper* $ 3,483,000 General Electric Capital Corp., 5.80%
due 1/03/1995 $ 3,481,317 $ 3,481,317 0.2%
30,000,000 IBM Associates, L.P., 5.92% due 1/09/1995 29,955,900 29,955,900 2.0
40,000,000 Morgan (J.P.) & Co. Inc., 5.95% due 1/09/1995 39,940,500 39,940,500 2.6
Total Investments in Short-Term Securities 73,377,717 73,377,717 4.8
<PAGE>
Face Premiums
Amount Issue Paid
Currency Put Options Purchased
<S> <C> <S> <C> <C> <C>
US$600,000,000 Japanese Yen expiring March 1995 at YEN106.5 16,002,000 720,000 0.0
Total Currency Put Options Purchased 16,002,000 720,000 0.0
Total Investments $1,350,360,602 1,525,024,976 99.5
--------------
Other Assets Less Liabilities 7,285,896 0.5
-------------- ------
Net Assets $1,532,310,872 100.0%
============== ======
<FN>
(a)Warrants entitle the Fund to purchase a predetermined number of
shares of Common Stock. The purchase price and number of shares are
subject to adjustment under certain conditions until the expiration
date.
(b)ADR--American Depositary Receipts.
(c)GDR--Global Depositary Receipts.
(d)Non-income producing security.
*Commercial Paper is traded on a discount basis; the interest rates
shown are the discount rates paid at the time of purchase by the
Fund.
++Restricted securities as to resale. The value of the Fund's
investment in restricted securities was approximately $5,629,000,
representing 0.4% of net assets.
Acquisition Value
Issue Date Cost (Note 1a)
Pakistan
Telecommunications
(GDR) 9/16/1994 $7,783,681 $5,628,740
Total $7,783,681 $5,628,740
========== ==========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<PAGE>
<TABLE>
Statement of Assets and Liabilities as of December 31, 1994
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,334,358,602) (Note 1a) $1,524,304,976
Put options purchased, at value (cost--$16,002,000) (Notes 1a & 1b) 720,000
Foreign cash 8,093,697
Receivables:
Capital shares sold $ 5,723,519
Dividends 1,699,416
Interest 14,356
Securities sold 904 7,438,195
-------------
Prepaid registration fees and other assets (Note 1f) 51,366
--------------
Total assets 1,540,608,234
--------------
Liabilities: Payables:
Capital shares redeemed 5,300,060
Distributor (Note 2) 745,298
Investment adviser (Note 2) 739,491 6,784,849
-------------
Accrued expenses and other liabilities 1,512,513
--------------
Total liabilities 8,297,362
--------------
Net Assets: Net assets $1,532,310,872
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 2,780,509
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 4,516,652
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 38,977
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 104,255
Paid-in capital in excess of par 1,368,443,211
Distributions in excess of realized capital gains on investments and
foreign currency transactions--net (18,224,428)
Unrealized appreciation on investments and foreign currency
transactions--net 174,651,696
--------------
Net assets $1,532,310,872
==============
<PAGE>
Net Asset Value: Class A--Based on net assets of $587,107,434 and 27,805,085 shares
outstanding $ 21.12
==============
Class B--Based on net assets of $915,351,139 and 45,166,524 shares
outstanding $ 20.27
==============
Class C--Based on net assets of $7,840,572 and 389,766 shares
outstanding $ 20.12
==============
Class D--Based on net assets of $22,011,727 and 1,042,548 shares
outstanding $ 21.11
==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended December 31, 1994
<S> <S> <C> <C>
Investment Dividends (net of $1,496,020 foreign withholding tax) $ 13,639,664
Income Interest and discount earned (net of $35,633 foreign withholding tax) 4,923,832
(Notes 1d & 1e): --------------
Total income 18,563,496
--------------
Expenses: Investment advisory fees (Note 2) $ 8,074,688
Distribution fees--Class B (Note 2) 7,682,093
Custodian fees 1,287,267
Transfer agent fees--Class B (Note 2) 1,233,012
Transfer agent fees--Class A (Note 2) 776,891
Registration fees (Note lf) 416,507
Printing and shareholder reports 336,714
Accounting services (Note 2) 157,585
Professional fees 83,128
Directors' fees and expenses 45,734
Pricing fees 10,085
Distribution fees--Class C (Note 2) 9,800
Transfer agent fees--Class D (Note 2) 5,898
Account maintenance fees--Class D (Note 2) 5,837
Transfer agent fees--Class C (Note 2) 2,597
Other 14,989
-------------
Total expenses 20,142,825
--------------
Investment loss--net (1,579,329)
--------------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 37,414,098
(Loss) on Foreign currency transactions--net (4,350,707) 33,063,391
Investments & -------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (12,812,416)
(Notes 1b, Foreign currency transactions--net (18,488,708) (31,301,124)
1c, 1d & 3): ------------- --------------
Net realized and unrealized gain on investments and
foreign currency transactions 1,762,267
--------------
Net Increase in Net Assets Resulting from Operations $ 182,938
==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
December 31,
Increase (Decrease) in Net Assets: 1994 1993
<S> <S> <C> <C>
Operations: Investment income (loss)--net $ (1,579,329) $ 44,290
Realized gain (loss) on investments and foreign currency
transactions--net 33,063,391 (2,056,308)
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net (31,301,124) 168,301,414
-------------- -------------
Net increase in net assets resulting from operations 182,938 166,289,396
-------------- -------------
Dividends & Investment income--net:
Distributions to Class A -- (44,290)
Shareholders In excess of investment income--net:
(Note 1g): Class A (5,944,755) (559,299)
Class B (1,798,546) --
Class C (67,122) --
Class D (185,967) --
Realized gain on investments--net:
Class A (8,886,236) --
Class B (14,441,473) --
Class C (115,222) --
Class D (286,591) --
In excess of realized gain on investments--net:
Class A (3,830,198) --
Class B (6,224,649) --
Class C (49,664) --
Class D (123,527) --
<PAGE> -------------- -------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (41,953,950) (603,589)
-------------- -------------
Capital Share Net increase in net assets derived from capital share transactions 593,752,517 364,954,305
Transactions -------------- -------------
(Note 4):
Net Assets: Total increase in net assets 551,981,505 530,640,112
Beginning of year 980,329,367 449,689,255
-------------- -------------
End of year $1,532,310,872 $ 980,329,367
============== =============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived Class A
from information provided in the financial statements. For the Year Ended December 31,
1994++ 1993 1992 1991 1990
Increase (Decrease) in Net Asset Value:
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 21.21 $ 15.80 $ 18.34 $ 16.52 $ 20.65
Operating -------- -------- -------- -------- --------
Performance: Investment income--net .10 .07 .05 .04 .10
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .50 5.37 (1.63) 2.73 (1.80)
-------- -------- -------- -------- --------
Total from investment operations .60 5.44 (1.58) 2.77 (1.70)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- (.01) (.11) (.11)
In excess of investment income--net (.22) (.03) -- -- --
Realized gain on investments--net (.33) -- (.95) (.84) (2.32)
In excess of realized gain on
investments--net (.14) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.69) (.03) (.96) (.95) (2.43)
-------- -------- -------- -------- --------
Net asset value, end of year $ 21.12 $ 21.21 $ 15.80 $ 18.34 $ 16.52
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 2.90% 34.41% (8.75%) 17.04% (8.39%)
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses .91% .90% .98% 1.02% 1.07%
Net Assets: ======== ======== ======== ======== ========
Investment income--net .47% .47% .40% .43% .94%
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $587,107 $472,322 $284,674 $304,712 $242,104
Data: ======== ======== ======== ======== ========
Portfolio turnover 23.84% 13.25% 7.62% 5.91% 31.06%
======== ======== ======== ======== ========
<FN>
*Total investment return excludes the effects of sales loads.
++Based on average shares outstanding during the period.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived Class B
from information provided in the financial statements. For the Year Ended December 31,
1994++ 1993++ 1992++ 1991++ 1990++
Increase (Decrease) in Net Asset Value:
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 20.41 $ 15.34 $ 18.01 $ 16.30 $ 20.49
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.12) (.10) (.12) (.14) (.09)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .49 5.17 (1.60) 2.69 (1.78)
-------- -------- -------- -------- --------
Total from investment operations .37 5.07 (1.72) 2.55 (1.87)
-------- -------- -------- -------- --------
Less dividends and distributions:
In excess of investment income--net (.04) -- -- -- --
Realized gain on investments--net (.33) -- (.95) (.84) (2.32)
In excess of realized gain on
investments--net (.14) -- -- -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.51) -- (.95) (.84) (2.32)
-------- -------- -------- -------- --------
Net asset value, end of year $ 20.27 $ 20.41 $ 15.34 $ 18.01 $ 16.30
======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset value per share 1.87% 33.05% (9.72%) 15.87% (9.29%)
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses, excluding distribution fees .94% .92% 1.00% 1.04% 1.10%
Net Assets: ======== ======== ======== ======== ========
Expenses 1.94% 1.92% 2.00% 2.04% 2.10%
======== ======== ======== ======== ========
Investment loss--net (.56%) (.56%) (.61%) (.60%) (.05%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $915,351 $508,008 $165,015 $105,669 $ 58,013
Data: ======== ======== ======== ======== ========
Portfolio turnover 23.84% 13.25% 7.62% 5.91% 31.06%
======== ======== ======== ======== ========
<FN>
*Total investment return excludes the effects of sales loads.
++Based on average shares outstanding during the period.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++ to
December 31, 1994++++
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 21.67 $ 22.70
Operating ------------- -------------
Performance: Investment income--net (.03) --
Realized and unrealized gain on investments and foreign currency
transactions--net (.86) (.91)
------------- -------------
Total from investment operations (.89) (.91)
------------- -------------
Less dividends and distributions:
In excess of investment income--net (.19) (.21)
Realized gain on investments--net (.33) (.33)
In excess of realized gain on investments--net (.14) (.14)
------------- -------------
Total dividends and distributions (.66) (.68)
------------- -------------
Net asset value, end of period $ 20.12 $ 21.11
============= =============
<PAGE>
Total Investment Based on net asset value per share (4.04%)+++ (3.93%)+++
Return:** ============= =============
Ratios to Expenses, excluding account maintenance and distribution fees 1.17%* 1.17%*
Average Net ============= =============
Assets: Expenses 2.17%* 1.42%*
============= =============
Investment income (loss)--net (.79%)* .12%*
============= =============
Supplemental Net assets, end of period (in thousands) $ 7,841 $ 22,012
Data: ============= =============
Portfolio turnover 23.84% 23.84%
============= =============
<FN>
*Annualized.
**Total investment return excludes the effect of sales loads.
++Commencement of Operations.
++++Based on average shares outstanding during the period.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Pacific Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a non-diversified, open-end
management investment company. The Fund offers four classes of
shares under the Merrill Lynch Select Pricing SM System. Shares of
Class A and Class D are sold with a front-end sales charge. Shares
of Class B and Class C may be subject to a contingent deferred sales
charge. All classes of shares have identical voting, dividend,
liquidation and other rights and the same terms and conditions,
except that Class B, Class C and Class D Shares bear certain
expenses related to the account maintenance of such shares, and
Class B and Class C Shares also bear certain expenses related to the
distribution of such shares. Each class has exclusive voting rights
with respect to matters relating to its account maintenance and
distribution expenditures. The following is a summary of significant
accounting policies followed by the Fund.
<PAGE>
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. However, in certain circumstances, the
Fund will value a security traded on a Japanese stock exchange based
upon the last bid or ask price as reported on such exchange after
trading in such security has been halted for the day. Japanese stock
exchanges may impose limits, based on a percentage of a security's
value, on the amount such security may move in a single day. If the
security reaches its limit during the day, further trading is
halted. However, a bid or ask quotation may be reported following
the suspension of trading. In situations where both a bid and ask
price are reported following a trading suspension due to the
circumstances described above, the Fund will utilize the bid price
for valuation purposes. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities traded in the over-the-counter market
are valued at the last available bid price in the over-the-counter
market prior to the time of valuation. Options written by the
Company are based upon the last sale price in the case of exchange-
traded options or, in the case of options traded in the over-the-
counter market, the average of the last asked price as obtained from
two or more dealers unless there is only one dealer, in which case,
that dealer's price is used. Options purchased by the Fund are
valued at their last sale price in the case of exchange-traded
options or, in the case of options traded in the over-the-counter
market, the average of the last bid price as obtained from two or
more dealers unless there is only one dealer, in which case that
dealer's price is used. Short-term securities are valued at
amortized cost, which approximates market value. Securities and assets
for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of
the Board of Directors of the Fund.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such
contracts. Premium or discount is amortized over the life of the
contracts.
<PAGE>
* Options--The Fund can write and purchase call options and put
options. When the Fund writes an option, an amount equal to the
premium received by the Fund is reflected as an asset and an
equivalent liability. The amount of the liability is subsequently
marked to market to reflect the current value of the option written.
When a security is sold through an exercise of an option, the
related premium received (or paid) is deducted from (or added to)
the basis of the security sold. When an option expires (or the Fund
enters into a closing transaction), the Fund realizes a gain or loss
on the option to the extent of the premiums received or paid (or
gain or loss to the premium paid or received).
Written and purchased options are non-income producing investments.
* Financial futures contracts--The Fund may purchase or sell stock
index futures contracts and options on such futures contracts. Upon
entering into a contract, the Fund deposits and maintains as
collateral such initial margin as required by the exchange on which
the transaction is effected. Pursuant to the contract, the Fund
agrees to receive from or pay to the broker an amount of cash equal
to the daily fluctuation in value of the contract. Such receipts or
payments are known as variation margin and are recorded by the Fund
as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the
value of the contract at the time it was opened and the value at the
time it was closed.
NOTES TO FINANCIAL STATEMENTS (continued)
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend date, except that if the ex-dividend date has passed,
certain dividends from foreign securities are recorded as soon as
the Fund is informed of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost basis.
<PAGE>
(e) Income taxes--It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute substantially all of its
taxable income to its shareholders. Therefore, no Federal income tax
provision is required. Under the applicable foreign tax law, a
withholding tax may be imposed on dividends and interest at various
rates. There is no tax imposed on capital gains arising from the
sale of foreign investments.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions to shareholders--Dividends and
distributions paid by the Fund are recorded on the ex-dividend
dates.
(h) Reclassifications--Generally accepted accounting principles
require that certain differences between accumulated net realized
capital losses for financial reporting and tax purposes, if
permanent, be reclassified to accumulated net investment
losses. Accordingly, current year's permanent book/tax differences of
approximately $9.6 million have been reclassified from accumulated
net realized losses to accumulated net investment losses. These
reclassifications have no effect on net assets or net asset values
per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co. ("ML & Co."), which is the
limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. For such
services, the Fund pays a monthly fee of 0.60% of the average daily
net assets of the Fund. The Management Agreement obligates MLAM to
reimburse the Fund to the extent the Fund's expenses (excluding
interest, taxes, distribution fees, brokerage fees and commissions,
and extraordinary items) exceed 2.5% of the Fund's first $30 million
of average daily net assets, 2.0% of the next $70 million of average
daily net assets and 1.5% of the average daily net assets in excess
thereof. MLAM's obligation to reimburse the Fund is limited to the
amount of the management fee. No fee payment will be made to MLAM
during any fiscal year which will cause such expenses to exceed the
most restrictive expense limitation applicable at the time of such
payment.
<PAGE>
Pursuant to the distribution plans ("the Distribution Plans")
adopted by the Fund in accordance with Rule 12b-1 under the
Investment Company Act of 1940, the Fund pays the Distributor
ongoing account maintenance and distribution fees. The fees are
accrued daily and paid monthly at annual rates based upon the
average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to the
Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
For the year ended December 31, 1994, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D shares as follows:
MLFD MLPF&S
Class A $200,828 $2,845,613
Class D $ 11,704 $ 183,381
MLPF&S received contingent deferred sales charges of $1,830,114
relating to capital share transactions for the sale of Class B
Shares, $1 relating to capital share transactions for the sale of
Class C Shares, and $21,422 in commissions on the execution of
portfolio security transactions for the Fund for the year ended
December 31, 1994.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PSI, MLPF&S, FDS, MLFD and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 1994 were $805,414,831 and
$289,945,173, respectively.
Net realized and unrealized gains (losses) as of December 31, 1994
were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $34,461,189 $189,946,374
Short-term investments 2,511 --
Stock index future contracts 2,950,398 --
Currency options purchased -- (15,282,000)
Foreign currency transactions (4,742,872) (12,678)
Forward foreign exchange
contracts 392,165 --
----------- ------------
Total $33,063,391 $174,651,696
=========== ============
As of December 31, 1994, net unrealized appreciation for Federal
income tax purposes aggregated $189,946,374, of which $227,862,731,
related to areciated securities and $37,916,357 related to
depreciated securities. At December 31, 1994, the aggregate cost of
investments for Federal income tax purposes was $1,334,358,602.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $593,752,517 and $364,954,305 for the years ended December 31,
1994 and December 31, 1993, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Year Ended Dollar
December 31, 1994 Shares Amount
Shares sold 10,984,489 $247,288,984
Shares issued to shareholders
in reinvestment of
dividends & distributions to
shareholders 768,428 15,860,370
----------- ------------
Total issued 11,752,917 263,149,354
Shares redeemed (6,215,599) (138,930,148)
----------- ------------
Net increase 5,537,318 $124,219,206
=========== ============
<PAGE>
Class A Shares for the
Year Ended Dollar
December 31, 1993 Shares Amount
Shares sold 10,009,773 $199,420,932
Shares issued to shareholders
in reinvestment of dividends
to shareholders 24,089 502,981
----------- ------------
Total issued 10,033,862 199,923,913
Shares redeemed (5,781,892) (111,793,605)
----------- ------------
Net increase 4,251,970 $ 88,130,308
=========== ============
Class B Shares for the
Year Ended Dollar
December 31, 1994 Shares Amount
Shares sold 28,150,808 $607,930,382
Shares issued to shareholders
in reinvestment of
dividends & distributions to
shareholders 983,066 19,484,381
----------- ------------
Total issued 29,133,874 627,414,763
Shares redeemed (8,356,463) (178,494,709)
Conversion of shares (495,115) (10,418,140)
----------- ------------
Net increase 20,282,296 $438,501,914
=========== ============
NOTES TO FINANCIAL STATEMENTS (concluded)
Class B Shares for the Year Dollar
Ended December 31, 1993 Shares Amount
Shares sold 20,303,772 $393,836,066
Shares redeemed (6,173,424) (117,012,069)
----------- ------------
Net increase 14,130,348 $276,823,997
=========== ============
Class C Shares for the Period Dollar
Oct. 21, 1994++ to Dec. 31, 1994 Shares Amount
<PAGE>
Shares sold 405,281 $ 8,528,274
Shares issued to shareholders
in reinvestment of dividends &
distributions to shareholders 10,503 205,553
----------- ------------
Total issued 415,784 8,733,827
Shares redeemed (26,018) (537,293)
----------- ------------
Net increase 389,766 $ 8,196,534
=========== ============
[FN]
++Commencement of Operations.
Class D Shares for the Period Dollar
Oct. 21, 1994++ to Dec. 31, 1994 Shares Amount
Shares sold 624,623 $ 13,638,511
Conversion of shares 472,533 10,418,140
Shares issued to shareholders
in reinvestment of dividends &
distributions to shareholders 26,192 537,989
----------- ------------
Total issued 1,123,348 24,594,640
Shares redeemed (80,800) (1,759,777)
----------- ------------
Net increase 1,042,548 $ 22,834,863
=========== ============
[FN]
++Commencement of Operations.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Pacific Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Pacific Fund, Inc. as of December 31, 1994, the related statements
of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at December
31, 1994, by correspondence with the custodian. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Pacific Fund, Inc. as of December 31, 1994, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
February 3, 1995
</AUDIT-REPORT>
<TABLE>
IMPORTANT TAX INFORMATION (unaudited)
<CAPTION>
The following information summarizes all per share distributions
paid by Merrill Lynch Pacific Fund, Inc. during the year ended
December 31, 1994:
Foreign
Source Income
Qualifying Non-Qualifying (excluding Foreign Foreign Taxes
Record Payable Domestic Domestic Taxes Paid or Total Paid or Long-Term
Date Date Ordinary Income Ordinary Income Withheld) Ordinary Income Withheld Capital Gains
<S> <C> <C> <C> <C> <C> <C> <C>
Class A Shares
12/19/94 12/28/94 $.006716 $.124064 $.088506 $.219286 $.021516 $.469075
Class B Shares
12/19/94 12/28/94 $.001250 $.023096 $.016477 $.040823 $.021516 $.469075
Class C Shares
12/19/94 12/28/94 $.005849 $.108032 $.077069 $.190950 $.021516 $.469075
Class D Shares
12/19/94 12/28/94 $.006515 $.120338 $.085848 $.212701 $.021516 $.469075
</TABLE>
<PAGE>
The foreign taxes paid or withheld per share represent taxes
incurred by the Fund on interest and dividends received by the Fund
from foreign sources. Foreign taxes paid or withheld should be
included in taxable income with an offsetting deduction from gross
income, or as a credit for taxes paid to foreign governments. You
should consult your tax counsel or other tax advisers regarding the
appropriate treatment of foreign taxes paid.
Please retain this information for your records.
