MERRILL LYNCH
PACIFIC FUND, INC.
FUND LOGO
Annual Report
December 31, 1995
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund's current prospectus. Past
performance results shown in this report should not be considered a
representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
Statements and other information herein are as dated and are subject
to change.
<PAGE>
Merrill Lynch
Pacific Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
MERRILL LYNCH PACIFIC FUND, INC.
DEAR SHAREHOLDER
Fiscal Year in Review
For the 12 months ended December 31, 1995, Merrill Lynch Pacific
Fund, Inc.'s Class A, Class B, Class C and Class D Shares had total
returns of +8.20%, +7.10%, +7.07% and +7.95%, respectively. The Fund
outperformed its unmanaged Benchmark Index, which rose 2.63% for the
period, as well as the unmanaged Morgan Stanley Capital
International Pacific Region Index, which appreciated 2.99%. (Fund
results do not reflect sales charges, and would be lower if sales
charges were included. Complete performance information, including
average annual total returns, can be found on pages 3--7 of this
report to shareholders.)
<PAGE>
Although the Fund's annual results are not exceptional in absolute
terms, they are very favorable relative to unmanaged indexes of
Pacific Basin stocks. Contributing to these strong relative
performance results was the Fund's underweighting in Japan, with the
portfolio's exposure there ranging between 60%--65% of net assets
over the course of 1995. In local currency terms, the Japanese stock
market ended 1995 at virtually the same point at which it began the
year, but these results mask the considerable volatility in share
prices that occurred. From the beginning of January to its June low,
the Japanese stock market declined approximately 23% in yen terms,
then appreciated 31% to end the year 1% above where it began. The
yen, on the other hand, followed the opposite path. After
appreciating 25% relative to the US dollar in the first half of
1995, the yen depreciated approximately 23% during the second half
of the year. Therefore, in US dollar terms, the Japanese stock
market declined by 2.5% in 1995. Hedging much of our yen exposure
back into US dollars had a positive effect on total returns in the
latter half of the year after hampering performance in the first
half. The net results of our currency hedging strategies were
positive.
Australia and Hong Kong, the Fund's other two main stock markets,
substantially outperformed the Japanese stock market during the
year. Although our investments in Australia and Hong Kong
outperformed their stock markets, we were not significantly
overweighted in either country. As a result, our good stock
selection in these markets had just a modestly positive effect on
the Fund's performance. The Fund's investments in other markets had
a relatively neutral effect on total returns for the fiscal year.
Portfolio Matters
We continue to maintain the geographical asset allocation strategy
we have followed for some months. At December month-end, 64.3% of
the Fund's net assets was invested in Japanese stocks, 11.4% in
Australia and New Zealand, and 11.6% in Hong Kong. The remaining
3.5% of the portfolio invested in common stocks was allocated to the
smaller Pacific Basin stock markets, with the balance predominantly
invested in commercial paper and put options on the yen.
The Fund's Japanese holdings are virtually the same as at the end of
the September quarter, with investments focused in non-life
insurance companies, as well as some other major positions, such as
Murata Manufacturing Co., Ltd., Canon, Inc., Toyo Seikan Kaisha,
Ltd., Mitsubishi Heavy Industries, Ltd., Ito-Yokado Co., Ltd., Rohm
Co., Ltd., Suzuki Motor Corp., and Sankyo Co., Ltd. Similarly, our
major holdings in Australia continue to be Lend Lease Corp., Coca-
Cola Amatil, Ltd., and Village Roadshow Ltd. However, in Hong Kong
we increased our exposure to both HSBC Holdings PLC and Hutchison
Whampoa Limited, while eliminating the position in China Light &
Power Co., Ltd.
<PAGE>
We believe that HSBC Holdings and Hutchison Whampoa, two of the
Fund's ten-largest holdings, have among the strongest franchises
among Hong Kong companies and have an optimum combination of
financial stability and earnings growth. However, both stocks have
risen to higher valuations and have significantly outperformed the
Hong Kong stock market. As a result, we have been reluctant to
increase our positions further. However, we would likely add to our
investments in these companies should their shares decline in price
or if their already strong prospects were further improved by
significant positive fundamental developments.
In Australia, our major investments have also been exceptionally
strong performers. Lend Lease Corp., Coca-Cola Amatil, Ltd. and
Village Roadshow, Ltd. have excellent managements, and are engaged
in profitable businesses with good growth prospects. Therefore, we
anticipate that the value of these businesses will increase
steadily. Unfortunately, investors are already valuing these stocks
as though they are far superior to the average Australian company.
Although we believe that these companies are truly superior, their
current share prices are appropriately valued, in our opinion.
In contrast, share prices for the Fund's major Japanese holdings do
not yet reflect their true value, in our opinion. Investors are
currently placing a lower value estimation on our Japanese
investments than they are for the average Japanese company. Murata
Manufacturing Co., Ltd. and Rohm Co., Ltd. are trading at
price/earnings ratios at or below 20 times earnings per share.
Chudenko Corp. shares are selling at less than 1.5 times book value,
most of which is liquid. Our property and casualty insurance
holdings are selling much below their liquidation values. We cannot
ascertain the reasons why investors choose to undervalue shares of
these outstanding companies. Nevertheless, we believe that if we
continue to focus our Japanese investments on superior companies
whose shares are selling at very compelling valuations compared to
the average Japanese company, then they will outperform the Japanese
stock market over the longer term. Since we believe that Japanese
stock market prospects are now more favorable than has been the case
for a number of years, we are therefore quite positive on the
outlook for our Japanese holdings.
Typically, we do not attempt to forecast stock market movements. We
prefer to focus our research efforts on identifying companies whose
shares are undervalued. Although we are not departing from this
view, at this time we are encouraged by signs that the Japanese
stock market may be moving into a more positive phase.
<PAGE>
Japanese share prices are still 40%--50% below their year-end 1989
highs. This does not necessarily mean that the Japanese stock market
will now begin to appreciate. However, if one believes that
fundamental conditions are now improving for the Japanese financial
markets--and we do--then it is not unreasonable to expect that a
period of improved absolute performance for Japanese stocks may take
place over the next several years.
There are also signs that Japanese corporate profitability is
increasing, and is likely to continue to increase as long as the US
dollar appreciates relative to the yen. In our last report to
shareholders, we discussed at length the importance of the yen/US
dollar relationship to the profitability of Japanese companies and,
specifically, to the Japanese companies represented in the Fund's
portfolio. We believe that the Japanese stock market will not
perform well if the yen appreciates to any substantial degree
relative to the US dollar. Accordingly, our portfolio is structured
so that yen depreciation, if it occurs, should not negatively impact
the current US dollar value of the portfolio to any significant
degree. Furthermore, our Japanese investments should benefit, and
their stock prices appreciate, if the yen weakens. If, on the other
hand, the yen appreciates significantly relative to the US dollar,
then we would expect the Japanese stock market will perform poorly
and that the Fund's Japanese investments will underperform the
overall market.
We also must emphasize that we are not forecasting the beginning of
a secular bull market in Japan, but we are moderately positive. In
our view, other countries' stock markets in the Pacific Basin offer
greater capital appreciation prospects over the longer term. If the
Japanese stock market does afford a reasonable rate of appreciation
in the intermediate term, we would use the opportunity to take
profits in some holdings and increase investments in other Pacific
Basin stock markets, where we perceive more attractive long-term
values based on better economic and earnings growth prospects.
In Conclusion
We thank you for your investment in Merrill Lynch Pacific Fund,
Inc., and look forward to serving your financial needs throughout
the Fund's new fiscal year and beyond.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
<PAGE>
(Stephen I. Silverman)
Stephen I. Silverman
Vice President and Portfolio Manager
February 2, 1996
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years.
* 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).
<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.
<TABLE>
Recent Performance Results
<CAPTION>
Market Performance Market Capitalization
In Local Currency/In US Dollars (as of 9/30/95)
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* + 2.54%(1) + 6.77%(1)
ML Pacific Fund, Inc. Class B Shares* + 3.20(1) + 6.61(1)
ML Pacific Fund, Inc. Class C Shares* + 2.74(1) + 6.16(1)
ML Pacific Fund, Inc. Class D Shares* + 2.64(1) + 6.72(1)
ML Pacific Fund, Inc. Class A Shares--Total Investment Return* + 3.92(2) + 8.20(2)
ML Pacific Fund, Inc. Class B Shares--Total Investment Return* + 3.68(3) + 7.10(3)
ML Pacific Fund, Inc. Class C Shares--Total Investment Return* + 3.62(4) + 7.07(4)
ML Pacific Fund, Inc. Class D Shares--Total Investment Return* + 3.82(5) + 7.95(5)
Market-Weighted Index** + 4.71(6) + 0.05(7)
Benchmark Index*** + 4.54 + 2.63
Japan +9.70/+5.20 + 1.19/- 2.47 $3,405 79.7%
Australia +3.15/+1.57 +15.18/+10.48 233 5.5
Hong Kong +4.43/+4.42 +22.98/+23.04 263 6.2
Malaysia -0.54/- 1.62 + 2.47/+3.03 195 4.6
Singapore +9.02/+9.56 + 5.00/+8.16 132 3.1
Thailand -1.04/- 1.43 - 5.83/- 6.15 41 0.9
<FN>
(1)Percent change includes reinvestment of $0.382 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.298 per share ordinary
income dividends and $0.382 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.099 per share ordinary
income dividends and $0.382 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.179 per share ordinary
income dividends and $0.382 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.255 per share ordinary
income dividends and $0.382 per share capital gains distributions.
(6)9/30/95 market weights used in this computation. The Market-
Weighted Index return and individual country returns do not include
dividends.
(7)12/31/94 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 weights US dollar-adjusted returns
based on 68% Japan, 7% Australia, 14% Hong Kong, 5% Malaysia, 4%
Singapore and 2% Thailand.
</TABLE>
<PAGE>
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Class A Shares and Class
B Shares
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:
12/85 12/95
ML Pacific Fund, Inc.++--
Class A Shares* $ 9,475 $42,027
Morgan Stanley Capital International
Pacific Region Index++++ $10,000 $35,706
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** 12/95
ML Pacific Fund, Inc.++--
Class B Shares $10,000 $17,706
Morgan Stanley Capital International
Pacific Region Index++++ $10,000 $10,610
<PAGE>
[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 predicitve of future performance.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/95 + 8.20% + 2.52%
Five Years Ended 12/31/95 + 9.83 + 8.65
Ten Years Ended 12/31/95 +16.06 +15.44
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/95 +7.10% +3.10%
Five Years Ended 12/31/95 +8.71 +8.71
Inception (10/21/88) through 12/31/95 +8.26 +8.26
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Class C Shares and Class
D Shares
A line graph depicting the growth of an investment in the Fund's
Class C and Class D Shares compared to growth of an investment in
the Morgan Stanley Capital International Pacific Region Index.
Beginning and ending values are:
10/21/94** 12/95
ML Pacific Fund, Inc.++--
Class C Shares* $10,000 $10,274
ML Pacific Fund, Inc.++--
Class D Shares* $ 9,475 $ 9,826
Morgan Stanley Capital International
Pacific Region Index++++ $10,000 $ 9,793
[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, Ausralia, Hong Kong, and Singapore.
++++This unmanaged market capitalization-weighted Index is comprised
of a representative sampling 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.
<PAGE>
Average Annual Total Return
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/95 +7.07% +6.07%
Inception (10/21/94)
through 12/31/95 +2.29 +2.29
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/95 +7.95% +2.29%
Inception (10/21/94)
through 12/31/95 +3.09 -1.46
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
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 $17,381.70 on
December 31, 1995.
<PAGE>
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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
1995 21.12 22.16 0.382 0.298 + 8.20
------- ------
Total $36.511 Total $4.534
Cumulative total return as of 12/31/95: +1,734.48%**
<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>
PERFORMANCE DATA (concluded)
<PAGE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <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
1995 20.27 21.22 0.382 0.099 + 7.10
------ ------
Total $5.337 Total $2.012
Cumulative total return as of 12/31/95: +77.06%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains
distributions at net asset value on the ex-dividend date, and do not
reflect deduction of any sales charge; results would be lower if
sales charge was deducted.
</TABLE>
<TABLE>
Performance Summary--Class C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $21.67 $20.12 $0.469 $0.191 -4.04%
1995 20.12 20.97 0.382 0.179 +7.07
------ ------
Total $0.851 Total $0.370
Cumulative total return as of 12/31/95: +2.74%**
<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>
<PAGE>
<TABLE>
Performance Summary--Class D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $22.70 $21.11 $0.469 $0.213 -3.93
1995 21.11 22.14 0.382 0.255 +7.95
------ ------
Total $0.851 Total $0.468
Cumulative total return as of 12/31/95: +3.71%**
<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>
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions
paid by Merrill Lynch Pacific Fund, Inc. during its taxable year
ended December 31, 1995:
<TABLE>
<CAPTION>
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
12/15/95 12/26/95 $ -- $0.195660 $0.102497 $0.298157 $0.018432 $0.382393
Class B Shares
12/15/95 12/26/95 $ -- $0.065123 $0.034115 $0.099238 $0.018432 $0.382393
Class C Shares
12/15/95 12/26/95 $ -- $0.117742 $0.061679 $0.179421 $0.018432 $0.382393
Class D Shares
12/15/95 12/26/95 $ -- $0.167343 $0.087663 $0.255006 $0.018432 $0.382393
</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.
PORTFOLIO INFORMATION
For the Quarter Ended December 31, 1995
Percent of
Ten Largest Equity Holdings Net Assets
Murata Manufacturing Co., Ltd. 6.6%
Canon, Inc. 5.2
HSBC Holdings PLC 5.0
Toyo Seikan Kaisha, Ltd. 4.9
Mitsubishi Heavy Industries, Ltd. 4.6
Lend Lease Corp. 4.4
Ito-Yokado Co., Ltd. 4.3
Hutchison Whampoa Limited 4.2
Dai-Tokyo Fire & Marine
Insurance Co., Ltd. 3.5
Coca-Cola Amatil, Ltd. 3.4
Percent of
Ten Largest Industries Net Assets
Property & Casualty Insurance 15.5%
Electric Equipment 12.0
Electric Construction 5.8
Office Equipment 5.2
Retailing 5.1
Banking 5.0
Containers 4.9
Capital Goods 4.6
Property 4.5
Conglomerates 4.2
<PAGE>
Addition
Renong BHD
Deletions
AMCOR Ltd.
China Light & Power Co., Ltd.
Sime Darby BHD
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Japanese Securities
Automobile 4,861,000 Suzuki Motor Corp. $ 51,258,498 $ 54,147,133 3.0%
Beverage 380,000 Chukyo Coca-Cola Bottling Co., Ltd. 5,420,506 3,717,551 0.2
424,000 Hokkaido Coca-Cola Bottling Co., Ltd. 6,399,350 5,133,669 0.3
386,000 Kinki Coca-Cola Bottling Co., Ltd. 7,430,096 5,234,405 0.3
476,000 Mikuni Coca-Cola Bottling Co., Ltd. 8,487,431 6,500,969 0.4
470,000 Sanyo Coca-Cola Bottling Co., Ltd. 7,028,799 6,828,749 0.4
-------------- -------------- ------
34,766,182 27,415,343 1.6
Capital Goods 10,275,000 Mitsubishi Heavy Industries, Ltd. 72,860,934 81,909,386 4.6
Chemicals 2,403,000 Shin-Etsu Chemical Co., Ltd. 44,008,434 49,810,345 2.8
Consumer Electronics YEN 409,000,000 Matsushita Electric Works, Ltd.-
C.E.W. #8, 2.70% due 5/31/2002 4,543,869 4,841,128 0.3
Containers 2,926,000 Toyo Seikan Kaisha, Ltd. 66,781,229 87,575,940 4.9
Electric Construction 1,377,000 Chudenko Corp. 44,034,570 47,216,001 2.6
2,299,000 Kinden Corp. 40,928,144 39,860,616 2.2
1,120,000 Taihei Dengyo Kaisha, Ltd. 24,789,475 17,683,069 1.0
-------------- -------------- ------
109,752,189 104,759,686 5.8
Electric Equipment 3,200,000 Murata Manufacturing Co., Ltd. 110,654,033 117,783,805 6.6
2,557,000 NEC Corporation 37,256,072 31,207,090 1.7
857,000 The Nippon Signal Co., Ltd. 12,946,455 7,014,384 0.4
1,062,000 Rohm Co., Ltd. 44,672,431 59,971,523 3.3
169 Sumitomo Electric Industries,
Ltd., #1 Y (Warrants)(a) 185,351 137,505 0.0
-------------- -------------- ------
205,714,342 216,114,307 12.0
<PAGE>
Iron & Steel 475,000 Maruichi Steel Tube, Ltd. 6,023,843 8,695,757 0.5
Office Equipment 5,139,000 Canon, Inc. 81,282,305 93,083,398 5.2
Pharmaceuticals 2,377,000 Sankyo Co., Ltd. 53,325,831 53,415,730 3.0
Property & Casualty 8,338,000 Dai-Tokyo Fire & Marine Insurance
Insurance Co., Ltd. 50,642,574 63,641,457 3.5
4,492,000 Fuji Fire & Marine Insurance Co.,
Ltd. 16,261,457 23,669,585 1.3
6,843,000 Koa Fire & Marine Insurance Co.,
Ltd. 41,125,130 41,890,507 2.3
6,210,000 Nichido Fire & Marine Insurance
Co., Ltd. 33,868,984 49,925,417 2.8
5,038,000 Sumitomo Marine & Fire Insurance
Co., Ltd. 44,246,350 41,381,480 2.3
4,550,000 Tokio Marine & Fire Insurance Co.,
Ltd. 45,703,327 59,497,288 3.3
-------------- -------------- ------
231,847,822 280,005,734 15.5
Retailing 1,243,000 Ito-Yokado Co., Ltd. 59,932,061 76,573,809 4.3
364,000 Sangetsu Co., Ltd. 8,382,717 9,166,989 0.5
352,000 Senshukai Co., Ltd. 5,696,494 5,762,108 0.3
-------------- -------------- ------
74,011,272 91,502,906 5.1
Total Investments in Japan 1,036,176,750 1,153,276,793 64.3
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Australian Securities
Food & Beverage 7,542,057 Coca-Cola Amatil, Ltd. $ 36,058,150 $ 60,176,776 3.4%
Leisure 13,840,684 Village Roadshow Ltd. 'A'
(Preferrred) 24,574,258 43,226,117 2.4
<PAGE>
Property 5,425,378 Lend Lease Corp. 67,977,434 78,669,066 4.4
US$ 1,500,000 Lend Lease Finance International,
4.75% due 6/01/2003 1,736,250 1,869,150 0.1
-------------- -------------- ------
69,713,684 80,538,216 4.5
Total Investments in Australia 130,346,092 183,941,109 10.3
Hong Kong Securities
Banking 5,975,094 HSBC Holdings PLC 75,810,267 90,414,640 5.0
Conglomerates 12,407,035 Hutchison Whampoa Limited 65,495,149 75,578,291 4.2
Diversified 5,462,500 Swire Pacific Ltd. 'A' 44,702,320 42,388,774 2.4
Total Investments in Hong Kong 186,007,736 208,381,705 11.6
Indian Securities
Banking 5,100 SCICI, Ltd. 15,309 5,405 0.0
4,900 ++SCICI, Ltd. (Rights) 0 0 0.0
-------------- -------------- ------
15,309 5,405 0.0
Broadcast/Media 620,000 ++Shivalik Projects Ltd. 3,557,823 3,174,964 0.2
Diversified Mutual 1,705,000 ++Master Plus 1,083,668 509,317 0.0
Fund
Financial Services 72,000 ++Housing Development Finance
Corp. Limited 5,781,901 5,561,309 0.3
Total Investments in India 10,438,701 9,250,995 0.5
Indonesian Securities
Pharmaceuticals 1,634,000 P.T. Kalbe Farma 5,525,626 5,544,440 0.3
Total Investments in Indonesia 5,525,626 5,544,440 0.3
Malaysian Securities
Diversified 4,739,000 Renong BHD 6,981,270 7,019,358 0.4
Transportation 3,661,000 Malaysian International Shipping BHD 12,515,710 9,590,565 0.5
Total Investments in Malaysia 19,496,980 16,609,923 0.9
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Value Percent of
Industry Shares Held Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
New Zealand Securities
Diversified 36,600,000 ++Guiness Peat Group PLC $ 15,917,954 $ 19,131,552 1.1%
Total Investments in New Zealand 15,917,954 19,131,552 1.1
Pakistan Securities
Utilities 43,298 ++Pakistan Telecommunications
(GDR)(b)++++ 7,783,681 3,680,330 0.2
Total Investments in Pakistan 7,783,681 3,680,330 0.2
Singaporean Securities
Food 3,600,000 Cerebos Pacific Ltd. 5,153,632 24,950,495 1.4
Transportation 300,000 Singapore Bus Co. Ltd.-Foreign
Registered 1,060,285 2,142,857 0.1
Total Investments in Singapore 6,213,917 27,093,352 1.5
South Korean Securities
Textiles 3,080 Taekwang Industries Co. 716,353 2,017,068 0.1
Total Investments in South Korea 716,353 2,017,068 0.1
Face Amount
Short-Term Securities
<PAGE>
Commercial Paper* US$ 28,913,000 General Electric Capital Corp.,
5.90% due 1/02/1996 28,898,784 28,898,784 1.6
45,000,000 Goldman Sachs Group L.P., 6.10% due
1/05/1996 44,954,250 44,954,250 2.5
45,000,000 UBS Finance Delaware Inc., 6.00% due
1/03/1996 44,970,000 44,970,000 2.5
Total Investments in Short-Term
Securities 118,823,034 118,823,034 6.6
Premiums
Issue Paid
Currency Put Options Purchased
YEN 323,000,000 Japanese Yen, expiring January 1996
at YEN 102 5,963,200 5,071,100 0.3
156,010,000 Japanese Yen, expiring January 1996
at YEN 102 2,752,016 2,925,187 0.2
120,848,684 Japanese Yen, expiring Februaury 1996
at YEN 102 1,836,900 2,610,332 0.1
275,641,027 Japanese Yen, expiring March 1996 at
YEN 92 6,450,000 30,003,526 1.7
Total Currency Put Options Purchased 17,002,116 40,610,145 2.3
Total Investments 1,554,448,940 1,788,360,446 99.7
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Number of Contracts/ Value Percent of
Face Amount Issue Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Call Options Written
4,263 HSBC Holdings PLC, expiring January
1996 at HK$12,356 $ (57,605) $ (14,335) 0.0%
4,263 HSBC Holdings PLC, expiring January
1996 at HK$12,239 (56,423) (19,850) 0.0
4,263 HSBC Holdings PLC, expiring January
1996 at HK$12,313 (49,371) (50,175) 0.0
4,263 HSBC Holdings PLC, expiring January
1996 at HK$12,346 (50,112) (56,792) 0.0
4,263 HSBC Holdings PLC, expiring January
1996 at HK$12,279 (50,445) (73,884) 0.0
4,263 HSBC Holdings PLC, expiring January
1996 at HK$12,291 (50,502) (72,230) 0.0
Total Call Options Written (314,458) (287,266) 0.0
<PAGE>
Total Investments, Net of Options Written $1,554,134,482 1,788,073,180 99.7
==============
Unrealized Appreciation on Forward Foreign Exchange Contracts** 9,847,257 0.6
Liabilities in Excess of Other Assets (4,521,704) (0.3)
-------------- ------
Net Assets $1,793,398,733 100.0%
============== ======
<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)GDR--Global Depositary Receipts.
*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.
**Forward foreign exchange contracts as of December 31, 1995 were as
follows:
Unrealized
Expiration Appreciation
Foreign Currency Sold Date (Note 1b)
YEN 36,012,098,761 July 1996 $9,847,257
Total Unrealized Appreciation on
Forward Foreign Exchange Contracts
(US Commitment--$368,236,564) $9,847,257
==========
++Non-Income producing security.
++++Restricted security as to resale. The value of the Fund's
investment in restricted securities was approximately $3,680,000,
representing 0.2% of net assets.
Acquisition Value
Issue Date Cost (Note 1a)
Pakistan Telecommunications
(GDR) 9/16/1994 $7,783,681 $3,680,330
Total $7,783,681 $3,680,330
========== ==========
<PAGE>
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of December 31, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,537,446,824) (Note 1a) $1,747,750,301
Options purchased, at value (premiums paid--$17,002,116)
(Notes 1a & 1b) 40,610,145
Unrealized appreciation on forward foreign exchange contracts
(Note 1b) 9,847,257
Foreign cash (Note 1c) 3,757,770
Cash 1,021
Receivables:
Capital shares sold $ 9,625,282
Dividends 403,024
Interest 13,558
Securities sold 501 10,042,365
--------------
Prepaid registration fees and other assets (Note 1f) 99,521
--------------
Total assets 1,812,108,380
--------------
Liabilities: Options written, at value (premiums received--$314,458)
(Notes 1a & 1b) 287,266
Payables:
Securities purchased 13,040,586
Capital shares redeemed 2,944,699
Distributor (Note 2) 859,934
Investment adviser (Note 2) 833,826 17,679,045
--------------
Accrued expenses and other liabilities 743,336
--------------
Total liabilities 18,709,647
--------------
Net Assets: Net assets $1,793,398,733
==============
<PAGE>
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares
Consist of: authorized $ 2,742,351
Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 4,910,334
Class C Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 219,788
Class D Shares of Common Stock, $0.10 par value, 100,000,000 shares
authorized 442,445
Paid-in capital in excess of par 1,550,045,045
Accumulated distributions in excess of realized capital gains on
investments and foreign currency transactions--net (8,718,743)
Unrealized appreciation on investments and foreign currency
transactions--net 243,757,513
--------------
Net assets $1,793,398,733
==============
Net Asset Value: Class A--Based on net assets of $607,598,154 and 27,423,514 shares
outstanding $ 22.16
==============
Class B--Based on net assets of $1,041,762,957 and 49,103,338 shares
outstanding $ 21.22
==============
Class C--Based on net assets of $46,091,959 and 2,197,882 shares
outstanding $ 20.97
==============
Class D--Based on net assets of $97,945,663 and 4,424,454 shares
outstanding $ 22.14
==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended December 31, 1995
<S> <S> <C> <C>
Investment Dividends (net of $1,452,909 foreign withholding tax) $ 18,636,335
Income Interest and discount earned (net of $6,289 foreign
(Notes 1d & 1e): withholding tax) 4,194,289
--------------
Total income 22,830,624
--------------
<PAGE>
Expenses: Investment advisory fees (Note 2) $ 9,381,493
Account maintenance and distribution fees--Class B (Note 2) 9,131,372
Transfer agent fees--Class B (Note 2) 2,030,445
Custodian fees 1,368,188
Transfer agent fees--Class A (Note 2) 1,089,887
Printing and shareholder reports 315,385
Account maintenance and distribution fees--Class C (Note 2) 228,521
Account maintenance fees--Class D (Note 2) 142,796
Accounting services (Note 2) 133,747
Registration fees (Note 1f) 127,667
Transfer agent fees--Class D (Note 2) 108,592
Professional fees 108,252
Transfer agent fees--Class C (Note 2) 52,587
Directors' fees and expenses 48,782
Pricing fees 8,059
Other 40,404
--------------
Total expenses 24,316,177
--------------
Investment loss--net (1,485,553)
--------------
Realized & Realized gain from:
Unrealized Gain on Investments--net 30,613,219
Investments & Foreign currency transactions--net 24,573,057 55,186,276
Foreign Currency --------------
Transactions--Net Change in unrealized appreciation/depreciation on:
(Notes 1b, 1c, Investments--net 20,384,295
1d & 3): Foreign currency transactions--net 48,721,522 69,105,817
-------------- --------------
Net realized and unrealized gain on investments and
foreign currency transactions 124,292,093
--------------
Net Increase in Net Assets Resulting from Operations $ 122,806,540
==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended December 31,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment loss--net $ (1,485,553) $ (1,579,329)
Realized gain on investments and foreign currency
transactions--net 55,186,276 33,063,391
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 69,105,817 (31,301,124)
-------------- --------------
Net increase in net assets resulting from operations 122,806,540 182,938
-------------- --------------
Dividends & In excess of investment income--net:
Distributions to Class A -- (5,944,755)
Shareholders Class B -- (1,798,546)
(Note 1g): Class C -- (67,122)
Class D -- (185,967)
Realized gain--net:
Class A (14,499,563) (8,886,236)
Class B (18,356,327) (14,441,473)
Class C (910,272) (115,222)
Class D (1,710,133) (286,591)
In excess of realized gain--net:
Class A (3,585,642) (3,830,198)
Class B (4,539,392) (6,224,649)
Class C (225,104) (49,664)
Class D (422,904) (123,527)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (44,249,337) (41,953,950)
-------------- --------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 182,530,658 593,752,517
(Note 4): -------------- --------------
Net Assets: Total increase in net assets 261,087,861 551,981,505
Beginning of year 1,532,310,872 980,329,367
-------------- --------------
End of year $1,793,398,733 $1,532,310,872
============== ==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class A
For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1995++ 1994++ 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 21.12 $ 21.21 $ 15.80 $ 18.34 $ 16.52
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .11 .10 .07 .05 .04
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.61 .50 5.37 (1.63) 2.73
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.72 .60 5.44 (1.58) 2.77
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net -- -- -- (.01) (.11)
In excess of investment income--net -- (.22) (.03) -- --
Realized gain--net (.55) (.33) -- (.95) (.84)
In excess of realized gain--net (.13) (.14) -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.68) (.69) (.03) (.96) (.95)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 22.16 $ 21.12 $ 21.21 $ 15.80 $ 18.34
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 8.20% 2.90% 34.41% (8.75%) 17.04%
Return:* ========== ========== ========== ========== ==========
Ratios to Average Expenses .93% .91% .90% .98% 1.02%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net .53% .47% .47% .40% .43%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $ 607,598 $ 587,107 $ 472,322 $ 284,674 $ 304,712
========== ========== ========== ========== ==========
Portfolio turnover 26.73% 23.84% 13.25% 7.62% 5.91%
========== ========== ========== ========== ==========
<PAGE>
<FN>
*Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the year.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. Class B
For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1995++ 1994++ 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 20.27 $ 20.41 $ 15.34 $ 18.01 $ 16.30
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment loss--net (.10) (.12) (.10) (.12) (.14)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.53 .49 5.17 (1.60) 2.69
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.43 .37 5.07 (1.72) 2.55
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
In excess of investment income--net -- (.04) -- -- --
Realized gain--net (.38) (.33) -- (.95) (.84)
In excess of realized gain--net (.10) (.14) -- -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.48) (.51) -- (.95) (.84)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 21.22 $ 20.27 $ 20.41 $ 15.34 $ 18.01
========== ========== ========== ========== ==========
Total Investment Based on net asset value per share 7.10% 1.87% 33.05% (9.72%) 15.87%
Return:* ========== ========== ========== ========== ==========
<PAGE>
Ratios to Average Expenses, excluding account
Net Assets: maintenance and distribution fees .96% .94% .92% 1.00% 1.04%
========== ========== ========== ========== ==========
Expenses 1.96% 1.94% 1.92% 2.00% 2.04%
========== ========== ========== ========== ==========
Investment loss--net (.50%) (.56%) (.56%) (.61%) (.60%)
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $1,041,763 $ 915,351 $ 508,008 $ 165,015 $ 105,669
========== ========== ========== ========== ==========
Portfolio turnover 26.73% 23.84% 13.25% 7.62% 5.91%
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the year.
See Notes to Financial Statements.
FINANCIAL INFORMATION (concluded)
</TABLE>
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year Oct. 21, Year Oct. 21,
from information provided in the financial statements. Ended 1994++ to Ended 1994++ to
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1995++++ 1994++++ 1995++++ 1994++++
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 20.12 $ 21.67 $ 21.11 $ 22.70
Operating ---------- ---------- ---------- ----------
Performance: Investment income (loss)--net (.12) (.03) .07 --
Realized and unrealized gain (loss) on
investments income and foreign currency
transactions--net 1.53 (.86) 1.60 (.91)
---------- ---------- ---------- ----------
Total from investment operations 1.41 (.89) 1.67 (.91)
---------- ---------- ---------- ----------
Less dividends and distributions:
In excess of investment income--net -- (.19) -- (.21)
Realized gain--net (.45) (.33) (.51) (.33)
In excess of realized gain--net (.11) (.14) (.13) (.14)
---------- ---------- ---------- ----------
Total dividends and distributions (.56) (.66) (.64) (.68)
---------- ---------- ---------- ----------
Net asset value, end of period $ 20.97 $ 20.12 $ 22.14 $ 21.11
========== ========== ========== ==========
<PAGE>
Total Investment Based on net asset value per share 7.07% (4.04%)+++ 7.95% (3.93%)+++
Return:** ========== ========== ========== ==========
Ratios to Average Expenses, excluding account maintenance and
Net Assets: distribution fees .97% 1.17%* .93% 1.17%*
========== ========== ========== ==========
Expenses 1.97% 2.17%* 1.18% 1.42%*
========== ========== ========== ==========
Investment income (loss)--net (.59%) (.79%)* .31% .12%*
========== ========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 46,092 $ 7,841 $ 97,946 $ 22,012
Data: ========== ========== ========== ==========
Portfolio turnover 26.73% 23.84% 26.73% 23.84%
========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude 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 prior to the time of
valuation. Securities which are traded both in the over-the-counter
market and on a stock exchange are valued according to the broadest
and most representative market. Options written are valued at 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 last
asked price. Options purchased are valued at 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 last bid price. Short-
term securities are valued at amortized cost, which approximates
market value. Other investments, including futures contracts and
related options, are stated at market value. Securities and assets
for which market quotations are not readily available are valued at
their fair value as determined in good faith by or under the
direction of the Fund's Board of Directors.
(b) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
<PAGE>
* 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.
* Options--The Fund can write and purchase call 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 purchased or sold through an exercise of an
option, the related premium paid (or received) is added to (or
deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option
expires (or the Fund enters into a closing transaction), the Fund
realizes a gain or loss on the option to the extent of the premiums
received or paid (or gain or loss to the extent the cost of the
closing transaction exceeds the premium paid or received).
Written and purchased options are non-income producing investments.
NOTES TO FINANCIAL STATEMENTS (continued)
* 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.
(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.
<PAGE>
(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.
(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. Dividends in excess of net investment income and
distributions in excess of realized capital gains are due primarily
to differing tax treatments for futures transactions and post-
October losses.
(h) Reclassification-- Generally accepted accounting principles
require that certain components of net assets be reclassified to
reflect permanent differences between financial reporting and tax
purposes. Accordingly, current year's permanent book/tax differences
of $54,299 have been reclassified from paid-in capital in excess of
par to accumulated net realized capital losses. These reclassifi-
cations have no effect on net assets or net asset values per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
<PAGE>
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.
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, 1995, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Fund's Class A and Class D Shares as
follows:
MLFD MLPF&S
Class A $22,264 $245,217
Class D $74,607 $973,293
<PAGE>
For the year ended December 31, 1995 MLPF&S received contingent
deferred sales charges of $3,023,322 and $18,089 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $95,598 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
December 31, 1995.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 1995 were $519,394,744 and
$392,365,590, respectively.
Net realized and unrealized gains (losses) as of December 31, 1995
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Long-term investments $ 30,613,750 $210,303,477
Short-term investments (531) --
Options written -- 27,192
Currency options purchased (16,928,250) 23,608,029
Forward foreign exchange
contracts 40,356,683 9,847,257
Foreign currency
transactions 1,144,624 (28,442)
------------ ------------
Total $ 55,186,276 $243,757,513
============ ============
As of December 31, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $210,316,429, of which $251,331,610
related to appreciated securities and $41,015,181 related to
depreciated securities. At December 31, 1995, the aggregate cost of
investments for Federal income tax purposes was $1,537,461,064.
<PAGE>
Transactions in options written for the year ended December 31, 1995
were as follows:
Number of Premiums
Call Options Written Contracts/Face Amount Received
Outstanding call options
written, beginning of year -- $ --
Options written 25,578 $ 314,458
----------- ------------
Outstanding call options
written, end of year 25,578 $ 314,458
=========== ============
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $182,530,658 and $593,752,517 for the years ended December 31,
1995 and December 31, 1994, respectively.
NOTES TO FINANCIAL STATEMENTS (concluded)
Transactions in capital shares for each class were as follows:
Class A Shares for the
Year Ended Dollar
December 31, 1995 Shares Amount
Shares sold 8,478,331 $178,519,975
Shares issued to shareholders
in reinvestment of dividends
and distributions 726,709 15,820,443
------------ ------------
Total issued 9,205,040 194,340,418
Shares redeemed (9,586,611) (201,845,917)
------------ ------------
Net decrease (381,571) $ (7,505,499)
============ ============
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
and distributions 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 B Shares for the
Year Ended Dollar
December 31, 1995 Shares Amount
Shares sold 19,257,866 $389,172,718
Shares issued to shareholders
in reinvestment of dividends
and distributions 953,264 19,875,556
------------ ------------
Total issued 20,211,130 409,048,274
Shares redeemed (15,730,552) (315,601,539)
Automatic conversion of
shares (543,764) (10,926,453)
------------ ------------
Net increase 3,936,814 $ 82,520,282
============ ============
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
and distributions 983,066 19,484,381
------------ ------------
Total issued 29,133,874 627,414,763
Shares redeemed (8,356,463) (178,494,709)
Automatic conversion of
shares (495,115) (10,418,140)
------------ ------------
Net increase 20,282,296 $438,501,914
============ ============
Class C Shares for the Year Dollar
Ended December 31, 1995 Shares Amount
Shares sold 2,790,493 $ 56,351,329
Shares issued to shareholders
in reinvestment of dividends
and distributions 49,346 1,017,019
------------ ------------
Total issued 2,839,839 57,368,348
Shares redeemed (1,031,723) (20,975,963)
------------ ------------
Net increase 1,808,116 $ 36,392,385
============ ============
<PAGE>
Class C Shares for the Period Dollar
Oct. 21, 1994++ to Dec. 31, 1994 Shares Amount
Shares sold 405,281 $ 8,528,274
Shares issued to shareholders
in reinvestment of dividends
and distributions 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 Year Dollar
Ended December 31, 1995 Shares Amount
Shares sold 7,041,007 $150,994,718
Shares issued to shareholders
in reinvestment of dividends
and distributions 87,778 1,909,163
Automatic conversion of
shares 520,220 10,926,453
------------ ------------
Total issued 7,649,005 163,830,334
Shares redeemed (4,267,099) (92,706,844)
------------ ------------
Net increase 3,381,906 $ 71,123,490
============ ============
<PAGE>
Class D Shares for the Period Dollar
Oct. 21, 1994++ to Dec. 31, 1994 Shares Amount
Shares sold 624,623 $ 13,638,511
Shares issued to shareholders
in reinvestment of dividends
and distributions 26,192 537,989
Automatic conversion of
shares 472,533 10,418,140
------------ ------------
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.
6. Commitments:
At December 31, 1995, the Fund had entered into foreign exchange
contracts, in addition to the contracts listed on the Schedule of
Investments, under which it had agreed to purchase various foreign
currencies with approximate values of $8,838,000.
<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, 1995, 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.
<PAGE>
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, 1995 by correspondence with the custodian and brokers. 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, 1995, 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 2, 1996
</AUDIT-REPORT>
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, Executive 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
Merrill Lynch Financial Data Services, Inc.
Transfer Agency Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
