MERRILL LYNCH
PACIFIC FUND, INC.
FUND LOGO
Semi-Annual Report
June 30, 1996
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
Merrill Lynch Pacific Fund, Inc.'s Class A, Class B, Class C and
Class D Shares' total returns were +4.94%, +4.63%, +4.64% and
+4.86%, respectively, during the quarter ended June 30, 1996. For
the first six months of 1996, the Fund's Class A, Class B, Class C
and Class D Shares provided total returns of +10.24%, +9.66%, +9.73%
and +10.16%, substantially outperforming its unmanaged Benchmark
Index, which rose 4.37% in US dollar terms during the period. The
Fund's strong performance relative to the Benchmark Index is largely
attributable to the outperformance of many of the Fund's holdings
relative to their respective local market indexes. In addition,
hedging the Fund's yen exposure also benefited performance relative
to the Benchmark Index. (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--6 of this report to shareholders.)
<PAGE>
The yen depreciated by almost 6% relative to the US dollar during
the six-month period ended June 30, 1996. Therefore, it is now
somewhat less advantageous to sharply underweight the yen through
currency hedging. If the yen continues to depreciate over the next
several quarters, we eventually would no longer employ hedging
strategies and would have a long exposure to the Japanese currency.
Moreover, further yen weakness would improve the competitive
positions of many Japanese companies relative to their US
counterparts. As a result, we anticipate that many US companies with
strong Japanese competitors will attempt to exert political pressure
on the US Government to limit (or halt) the US dollar's appreciation
relative to the yen.
New Investment in Japan
During the June quarter, we established a 3.1% position in
Bridgestone Corporation, the Japanese tire company. Bridgestone's
profitability is high, and its valuation low. However, the impetus
for our investment is the extent to which Bridgestone has been able
to complete the acquisition of Firestone, Inc. This acquisition was
highly problematic for several years, but has turned out to be a
very sucessful venture. Bridgestone has managed to quickly repair
its balance sheet, which had been seriously weakened by the
acquisition. We also view the company's prospects positively because
its export-driven business will benefit from the weaker Japanese
currency. At the same time, improving Japanese consumer sentiment is
likely to increase demand for Bridgestone's products.
The investment in Bridgestone affords the Fund an opportunity to
participate in a well-managed, world-class manufacturing operation,
which fits our investment criteria of higher-than-average
profitability, lower-than-average share valuation, and an excellent
balance sheet. In addition, Bridgestone provides a means to
participate in the potential growth of the Japanese consumer sector,
which may be ending a sustained period of subpar performance.
Despite this new Japanese investment, the Fund's overall exposure to
Japan did not increase during the quarter, since we utilized periods
of significant relative share price strength to decrease our
positions in Toyo Seikan Kaisha, Ltd. and Rohm Co., Ltd. The Fund
realized profits in both of these partial sales.
<PAGE>
Other Investment Activities
In Australia, we took advantage of share price weakness and an issue
of new shares to increase our investment in Village Roadshow Ltd.,
one of the few genuine growth stocks in the portfolio. Village
Roadshow's primary business is movie exhibition. With the
development of multiplex and now megaplex cinemas, the company has
higher operating margins and better growth prospects than in the
past. The company has started to expand aggressively in Australia,
Asia (primarily through joint ventures) and Europe. The proceeds
from the issue of the additional Village Roadshow stock are being
used to finance the takover of an exhibition chain in the United
Kingdom previously owned by Warner Bros., a company with a close
affiliation with Village Roadshow.
During the June quarter, we trimmed some of our investment in Coca-
Cola Amatil, Ltd., another company with outstanding growth
prospects. We believed a reduction in our investment was warranted
because the company's stock price had appreciated so rapidly.
Reducing an investment in such an outstanding growth company is not
an easy decision, but over the past 13 months the stock had
appreciated more than 75%, so we concluded that some profit-taking
was appropriate. We believe that this company has outstanding growth
prospects, and hope to increase our holding at a somewhat more
modest valuation.
In Hong Kong we established a position in Cheung Kong (Holdings)
Ltd., a property developer. Hong Kong property prices have declined
over the past two years while incomes have grown, leading to
increased residential property demand, which should benefit
developers. We chose to invest in Cheung Kong because it owns 45% of
Fund investment Hutchison Whampoa Ltd., which we view as Hong Kong's
premier conglomerate. We established our position in Cheung Kong
both through new purchases and some switching from our Hutchison
Whampoa investment.
In Conclusion
Our investment outlook remains unchanged, as reflected in the
relatively low level of investment activity during the June quarter.
The need for yen depreciation is no longer as important to the
prosperity of Japanese companies as was the case six months ago. At
the 110 yen/$1 US range, all of our Japanese companies will be able
to compete reasonably well in world markets. If the yen were to
depreciate substantially more, perhaps to 120 yen/$1 US range, it
would further benefit Japanese companies. However, in this scenario
US companies would suffer, so it is likely that concerted
intervention in the foreign exchange markets may be undertaken to
forestall such a development.
<PAGE>
As long as currency valuations remain stable, we believe the
Japanese companies in our portfolio are profitable enough to justify
their current valuations. We are also optimistic that their share
prices will come to reflect their reasonable growth prospects.
Furthermore, the performance of the Fund's largest holdings--Murata
Manufacturing Co., Ltd., Canon, Inc., Mitsubishi Heavy Industries,
Ltd., and Ito-Yokado Co., Ltd. (in Japan); Lend Lease Corp. and Coca-
Cola Amatil, Ltd. (in Australia); and HSBC Holdings PLC and Cheung
Kong (Holdings) Ltd. (in Hong Kong)--will largely determine the
Fund's long-term performance.
We thank you for your investment in Merrill Lynch Pacific Fund,
Inc., and we look forward to reviewing our outlook and strategy with
you again in our next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Stephen I. Silverman)
Stephen I. Silverman
Vice President and Portfolio Manager
August 1, 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:
<PAGE>
* 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).
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 3/31/96)
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* +4.94% +20.27%(1)
ML Pacific Fund, Inc. Class B Shares* +4.63 +20.04(1)
ML Pacific Fund, Inc. Class C Shares* +4.64 +19.64(1)
ML Pacific Fund, Inc. Class D Shares* +4.86 +20.25(1)
ML Pacific Fund, Inc. Class A Shares--Total Investment Return* +4.94 +21.89(2)
ML Pacific Fund, Inc. Class B Shares--Total Investment Return* +4.63 +20.61(3)
ML Pacific Fund, Inc. Class C Shares--Total Investment Return* +4.64 +20.66(4)
ML Pacific Fund, Inc. Class D Shares--Total Investment Return* +4.86 +21.63(5)
Market-Weighted Index** +1.59(6) +11.55(7)
Benchmark Index*** +1.40 +12.33
Japan +4.62/+1.96 +43.06/+10.63 $3,597 78.3%
Australia +0.74/+1.36 +11.16/+23.26 255 5.5
Hong Kong +0.58/+0.50 +19.71/+19.66 312 6.8
Malaysia -1.11/+0.26 +10.68/+8.18 234 5.1
Singapore -0.56/-0.81 +15.51/+14.40 157 3.4
Thailand -3.31/-3.92 -10.59/-13.09 41 0.9
<PAGE>
<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)3/31/96 market weights used in this computation. The Market-
Weighted Index return and individual country returns do not include
dividends.
(7)6/30/95 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>
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 $19,162.24 on
June 30, 1996.
<PAGE>
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 6/30/96 +21.89% +15.49%
Five Years Ended 6/30/96 + 9.48 + 8.30
Ten Years Ended 6/30/96 +12.54 +11.94
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 6/30/96 +20.61% +16.61%
Five Years Ended 6/30/96 + 8.36 + 8.36
Inception (10/21/88) through 6/30/96 + 9.01 + 9.01
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 6/30/96 +20.66% +19.66%
Inception (10/21/94)
through 6/30/96 + 7.34 + 7.34
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 6/30/96 +21.63% +15.25%
Inception (10/21/94)
through 6/30/96 + 8.18 + 4.79
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
PERFORMANCE DATA (continued)
<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 - 8.76
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
1/1/96--6/30/96 22.16 24.43 -- -- +10.24
------- ------
Total $36.511 Total $4.534
Cumulative total return as of 6/30/96: +1,922.40%**
<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
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**
<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
1/1/96--6/30/96 21.22 23.27 -- -- + 9.66
------ ------
Total $5.337 Total $2.012
Cumulative total return as of 6/30/96: +94.16%**
<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)
<PAGE>
<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
1/1/96--6/30/96 20.97 23.01 -- -- +9.73
------ ------
Total $0.851 Total $0.370
Cumulative total return as of 6/30/96: +12.74%***
</TABLE>
<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
1/1/96--6/30/96 22.14 24.39 -- -- +10.16
------ ------
Total $0.851 Total $0.468
Cumulative total return as of 6/30/96: +14.25%**
<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.
***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>
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 4,794,000 Suzuki Motor Corp. $ 50,657,289 $ 63,021,362 2.6%
<PAGE>
Beverage 380,000 Chukyo Coca-Cola Bottling Co., Ltd. 5,420,506 4,371,006 0.2
424,000 Hokkaido Coca-Cola Bottling Co., Ltd. 6,399,350 5,922,220 0.2
386,000 Kinki Coca-Cola Bottling Co., Ltd. 7,430,096 5,849,553 0.2
476,000 Mikuni Coca-Cola Bottling Co., Ltd. 8,487,431 7,169,984 0.3
470,000 Sanyo Coca-Cola Bottling Co., Ltd. 7,028,799 7,079,606 0.3
-------------- -------------- ------
34,766,182 30,392,369 1.2
Capital Goods 12,603,000 Mitsubishi Heavy Industries, Ltd. 91,835,703 109,646,330 4.6
Chemicals 3,311,000 Shin-Etsu Chemical Co., Ltd. 59,267,110 63,475,443 2.6
Consumer Electronics YEN 409,000,000 Matsushita Electric Works, Ltd.--
C.E.W. #8, 2.70% due 5/31/2002
(Convertible) 4,543,868 4,779,259 0.2
Containers 2,279,000 Toyo Seikan Kaisha, Ltd. 61,585,332 79,475,808 3.3
Electric Construction 1,593,000 Chudenko Corp. 51,441,645 57,879,679 2.4
3,212,000 Kinden Corp. 51,518,295 51,021,362 2.2
1,232,000 Taihei Dengyo Kaisha, Ltd. 24,789,475 19,569,838 0.8
-------------- -------------- ------
127,749,415 128,470,879 5.4
Electric Equipment 3,640,000 Murata Manufacturing Co., Ltd. 125,325,684 137,903,962 5.8
2,557,000 NEC Corporation 37,256,072 27,778,254 1.2
1,138,000 Rohm Co., Ltd. 51,505,961 75,215,629 3.1
169 Sumitomo Electric Industries, Ltd.,
#1 YEN (Warrants) (a) 185,351 269,993 0.0
-------------- -------------- ------
214,273,068 241,167,838 10.1
Iron & Steel 475,000 Maruichi Steel Tube, Ltd. 6,023,843 8,542,541 0.4
Office Equipment 6,250,000 Canon, Inc. 101,729,125 130,089,465 5.5
Pharmaceuticals 2,764,000 Sankyo Co., Ltd. 62,555,171 71,661,128 3.0
Property & Casualty 8,690,000 Dai-Tokyo Fire & Marine Insurance
Insurance Co., Ltd. 53,154,586 65,448,694 2.7
4,492,000 Fuji Fire & Marine Insurance Co., Ltd. 16,261,457 25,014,789 1.1
7,539,000 Koa Fire & Marine Insurance Co., Ltd. 45,292,612 48,933,988 2.1
8,097,000 Nichido Fire & Marine Insurance
Co., Ltd. 45,626,304 62,608,718 2.6
7,029,000 Sumitomo Marine & Fire Insurance
Co., Ltd. 60,908,083 61,280,765 2.6
4,550,000 Tokio Marine & Fire Insurance
Co., Ltd. 45,703,327 60,644,513 2.5
-------------- -------------- ------
266,946,369 323,931,467 13.6
<PAGE>
Retailing 1,464,000 Ito-Yokado Co., Ltd. 72,277,909 88,342,523 3.7
364,000 Sangetsu Co., Ltd. 8,382,717 9,736,352 0.4
352,000 Senshukai Co., Ltd. 5,696,494 5,944,860 0.3
-------------- -------------- ------
86,357,120 104,023,735 4.4
Tires & Rubber 3,852,000 Bridgestone Corporation 66,080,222 73,495,344 3.1
Total Investments in Japan 1,234,369,817 1,432,172,968 60.0
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
Australian Securities
<S> <C> <S> <C> <C> <C>
Food & Beverage 6,584,222 Coca-Cola Amatil, Ltd. $ 33,609,172 $ 73,190,679 3.1%
Leisure 4,400,000 Village Roadshow Ltd. 'A' (New Shares)
(Preferred) 12,640,320 12,461,328 0.5
13,840,684 Village Roadshow Ltd. 'A' (Preferred) 24,574,258 48,453,674 2.0
-------------- -------------- ------
37,214,578 60,915,002 2.5
Property 5,925,180 Lend Lease Corp. 75,437,603 90,896,113 3.8
US$ 1,500,000 Lend Lease Finance International, Ltd.,
4.75% due 6/01/2003 1,736,250 1,966,200 0.1
-------------- -------------- ------
77,173,853 92,862,313 3.9
Total Investments in Australia 147,997,603 226,967,994 9.5
Hong Kong Securities
Banking 6,288,450 HSBC Holdings PLC 89,029,293 95,051,825 4.0
Conglomerates 8,691,035 Hutchison Whampoa Ltd. 49,044,911 54,680,370 2.3
Diversified 7,752,500 Swire Pacific Ltd. 'A' 64,199,931 66,352,706 2.8
Food & Beverage 2,530,000 C.P. Pokphand Co. Ltd. (Ordinary) 1,037,905 1,005,071 0.1
Property 10,004,000 Cheung Kong (Holdings) Ltd. 72,546,868 72,052,581 3.0
Transportation 301,000 ++Guangshen Railway Company Ltd. (ADR) (c) 5,719,000 5,756,625 0.2
Total Investments in Hong Kong 281,577,908 294,899,178 12.4
<PAGE>
Indian Securities
Banking 5,100 SCICI, Ltd. 15,309 6,297 0.0
Broadcast/Media 620,000 ++BITV++++ 3,557,823 3,185,841 0.1
Diversified Mutual 1,929,400 ++Master Plus 1,146,844 768,345 0.0
Fund
Financial Services 72,000 Housing Development Finance Corp. Ltd. 5,781,901 6,038,710 0.3
Total Investments in India 10,501,877 9,999,193 0.4
Indonesian Securities
Pharmaceuticals 1,634,000 P.T. Kalbe Farma 5,525,626 3,651,397 0.2
Total Investments in Indonesia 5,525,626 3,651,397 0.2
Malaysian Securities
Conglomerates 31,813,000 Renong BHD 52,856,233 50,768,139 2.1
Transportation 3,661,000 Malaysian International Shipping BHD 12,515,710 11,376,403 0.5
Total Investments in Malaysia 65,371,943 62,144,542 2.6
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
New Zealand Securities
<S> <C> <S> <C> <C> <C>
Diversified 44,621,500 Guiness Peat Group PLC $ 17,806,200 $ 22,907,563 1.0%
Total Investments in New Zealand 17,806,200 22,907,563 1.0
Pakistan Securities
Utilities-- 43,298 ++Pakistan Telecommunications Corp.
Telecommunications (GDR) (b)++++ 7,783,681 5,022,568 0.2
Total Investments in Pakistan 7,783,681 5,022,568 0.2
Singaporean Securities
<PAGE>
Food 3,600,000 Cerebos Pacific Ltd. 5,153,632 32,414,038 1.3
Transportation 300,000 Singapore Bus Co. Ltd.-- Foreign
Registered 1,060,285 2,126,905 0.1
Total Investments in Singapore 6,213,917 34,540,943 1.4
South Korean Securities
Textiles 3,080 Taekwang Industries Co. 716,353 1,746,979 0.1
Total Investments in South Korea 716,353 1,746,979 0.1
Thailand Securities
Banking US$ 12,631,000 Bangkok Bank Public Company Ltd., 3.25%
due 3/03/2004 (Convertible) 15,233,380 14,273,030 0.6
US$ 19,535,000 Siam Commercial Bank Public Co., 3.25%
due 1/24/2004 (Convertible) 25,441,125 23,637,350 1.0
Total Investments in Thailand 40,674,505 37,910,380 1.6
Face Amount
Short-Term Securities
Commercial Paper* US$ 50,000,000 American Express Credit Corp., 5.32%
due 7/01/1996 49,985,222 49,985,222 2.1
110,493,000 General Electric Capital Corp., 5.56%
due 7/01/1996 110,458,870 110,458,870 4.6
Total Investments in Short-Term
Securities 160,444,092 160,444,092 6.7
Premiums
Issue Paid
Currency Put Options Purchased
US$ 300,000,000 Japanese Yen, expiring November 1996
at YEN 107 9,765,000 8,610,000 0.4
300,000,000 Japanese Yen, expiring December
1996 at YEN 107 10,155,000 9,075,000 0.4
300,000,000 Japanese Yen, expiring January 1997
at YEN 107 10,440,000 9,330,000 0.4
250,000,000 Japanese Yen, expiring February 1997
at YEN 107 5,075,000 8,000,000 0.3
-------------- -------------- ------
35,435,000 35,015,000 1.5
<PAGE>
Total Currency Put Options Purchased 35,435,000 35,015,000 1.5
Total Investments 2,014,418,522 2,327,422,797 97.6
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Number of Contracts/ Premiums Value Percent of
Face Amount Issue Received (Note 1a) Net Assets
Call Options Written
<S> <C> <S> <C> <C> <C>
400,000 Coca-Cola Amatil Co., expiring
July 1996 at A$14.30 $ (86,092) $ (68,000) 0.0%
3,876,250 Swire Pacific 'A', expiring July 1996
at HK$75.52 (326,662) (60,093) 0.0
3,876,250 Swire Pacific 'A', expiring August
1996 at HK$72.391 (342,530) (392,606) 0.0
Total Call Options Written (755,284) (520,699) 0.0
Total Investments, Net of Options Written $2,013,663,238 2,326,902,098 97.6
==============
Unrealized Appreciation on Forward Foreign Exchange Contracts** 46,055,256 1.9
Other Assets Less Liabilities 11,936,359 0.5
-------------- ------
Net Assets $2,384,893,713 100.0%
============== ======
<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.
(c)ADR--American 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 June 30, 1996 were as
follows:
<PAGE>
Unrealized
Appreciation
Expiration (Depreciation)
Foreign Currency Purchased Date (Note 1b)
YEN 103,107,055 July 1996 $ (54,614)
YEN 2,766,658,973 April 1997 (396,321)
Total (US$ Commitment--$27,630,403) $ (450,935)
-----------
Foreign Currency Sold
YEN 49,977,132,716 July 1996 $44,703,473
YEN 7,957,445,461 April 1997 1,802,718
Total (US$ Commitment--$579,511,483) $46,506,191
-----------
Total Unrealized Appreciation--Net on
Forward Foreign Exchange Contracts $46,055,256
===========
++Non-income producing security.
++++Restricted security as to resale. The value of the Fund's
investment in restricted securities was approximately $8,208,000,
representing 0.3% of net assets.
Acquisition Value
Issue Date Cost (Note 1a)
BITV 4/06/1994 $ 3,557,823 $3,185,841
Pakistan Telecommunications
Corp. (GDR) 9/16/1994 7,783,681 5,022,568
Total $11,341,504 $8,208,409
=========== ==========
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<PAGE>
<TABLE>
Statement of Assets and Liabilities as of June 30, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,978,983,522)
(Note 1a) $2,292,407,797
Options purchased, at value (premiums paid--$35,435,000)
(Notes 1a & 1b) 35,015,000
Unrealized appreciation on forward foreign exchange
contracts (Note 1b) 46,055,256
Foreign cash (Note 1c) 17,866,411
Cash 374
Receivables:
Capital shares sold $ 5,917,369
Dividends 4,987,282
Securities sold 1,907,949
Option written 428,622
Interest 417,270 13,658,492
--------------
Prepaid registration fees and other assets (Note 1f) 99,520
--------------
Total assets 2,405,102,850
--------------
Liabilities: Options written, at value (premiums received--$755,284)
(Notes 1a & 1b) 520,699
Payables:
Securities purchased 14,662,874
Capital shares redeemed 2,410,792
Distributor (Note 2) 1,150,315
Investment adviser (Note 2) 1,075,614 19,299,595
--------------
Accrued expenses and other liabilities 388,843
--------------
Total liabilities 20,209,137
--------------
Net Assets: Net assets $2,384,893,713
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 2,965,554
Class B Shares of Common Stock, $0.10 par value, 200,000,000
shares authorized 5,946,064
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 453,007
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 706,780
Paid-in capital in excess of par 1,939,940,463
Undistributed investment income--net 2,707,707
Undistributed realized capital gains on investments and foreign
currency transactions--net 72,879,252
Unrealized appreciation on investments and foreign currency
transactions--net 359,294,886
--------------
Net assets $2,384,893,713
==============
<PAGE>
Net Asset Value: Class A--Based on net assets of $724,467,281 and 29,655,538
shares outstanding $ 24.43
==============
Class B--Based on net assets of $1,383,853,726 and 59,460,637
shares outstanding $ 23.27
==============
Class C--Based on net assets of $104,223,331 and 4,530,071
shares outstanding $ 23.01
==============
Class D--Based on net assets of $172,349,375 and 7,067,804
shares outstanding $ 24.39
==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Six Months Ended June 30, 1996
<S> <S> <C> <C>
Investment Dividends (net of $950,178 foreign withholding tax) $ 14,246,497
Income Interest and discount earned (net of $5,169 foreign
(Notes 1d & 1e): withholding tax) 4,309,593
--------------
Total income 18,556,090
--------------
Expenses: Investment advisory fees (Note 2) $ 6,431,494
Account maintenance and distribution fees--Class B (Note 2) 6,217,870
Transfer agent fees--Class B (Note 2) 991,221
Custodian fees 625,295
Transfer agent fees--Class A (Note 2) 445,800
Account maintenance and distribution fees--Class C (Note 2) 406,259
Account maintenance fees--Class D (Note 2) 181,092
Registration fees (Note 1f) 137,478
Printing and shareholder reports 108,709
Transfer agent fees--Class D (Note 2) 95,424
Transfer agent fees--Class C (Note 2) 66,240
Accounting services (Note 2) 63,521
Professional fees 39,772
Directors' fees and expenses 21,098
Pricing fees 1,395
Other 15,715
--------------
Total expenses 15,848,383
--------------
Investment income--net 2,707,707
--------------
<PAGE>
Realized & Realized gain from:
Unrealized Gain on Investments--net 40,036,813
Investments & Foreign currency transactions--net 41,561,182 81,597,995
Foreign Currency --------------
Transactions--Net Change in unrealized appreciation/depreciation on:
(Notes 1b, 1c, Investments--net 103,328,191
1d & 3): Foreign currency transactions--net 12,209,182 115,537,373
-------------- --------------
Net realized and unrealized gain on investments and
foreign currency transactions 197,135,368
--------------
Net Increase in Net Assets Resulting from Operations $ 199,843,075
==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Six For the
Months Ended Year Ended
June 30, December 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment income (loss)--net $ 2,707,707 $ (1,485,553)
Realized gain on investments and foreign currency transactions--net 81,597,995 55,186,276
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 115,537,373 69,105,817
-------------- --------------
Net increase in net assets resulting from operations 199,843,075 122,806,540
-------------- --------------
Distributions to Realized gain--net:
Shareholders Class A -- (14,499,563)
(Note 1g): Class B -- (18,356,327)
Class C -- (910,272)
Class D -- (1,710,133)
In excess of realized gain--net:
Class A -- (3,585,642)
Class B -- (4,539,392)
Class C -- (225,104)
Class D -- (422,904)
-------------- --------------
Net decrease in net assets resulting from distributions
to shareholders -- (44,249,337)
-------------- --------------
<PAGE>
Capital Share Net increase in net assets derived from capital share
Transactions transactions 391,651,905 182,530,658
(Note 4): -------------- --------------
Net Assets: Total increase in net assets 591,494,980 261,087,861
Beginning of period 1,793,398,733 1,532,310,872
-------------- --------------
End of period* $2,384,893,713 $1,793,398,733
============== ==============
<FN>
*Undistributed investment income--net $ 2,707,707 $ 0
============== ==============
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A++
For the Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
June 30, For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 22.16 $ 21.12 $ 21.21 $ 15.80 $ 18.34
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment income--net .10 .11 .10 .07 .05
Realized and unrealized gain
(loss) on investments and
foreign currency transactions--net 2.17 1.61 .50 5.37 (1.63)
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.27 1.72 .60 5.44 (1.58)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
Investment income--net -- -- -- -- (.01)
In excess of investment income--net -- -- (.22) (.03) --
Realized gain--net -- (.55) (.33) -- (.95)
In excess of realized gain--net -- (.13) (.14) -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions -- (.68) (.69) (.03) (.96)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 24.43 $ 22.16 $ 21.12 $ 21.21 $ 15.80
========== ========== ========== ========== ==========
<PAGE>
Total Investment Based on net asset value per share 10.24%+++ 8.20% 2.90% 34.41% (8.76%)
Return:** ========== ========== ========== ========== ==========
Ratios to Average Expenses .82%* .93% .91% .90% .98%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net .90%* .53% .47% .47% .40%
========== ========== ========== ========== ==========
Supplemental Net assets, end of period (in
Data: thousands) $ 724,467 $ 607,598 $ 587,107 $ 472,322 $ 284,674
========== ========== ========== ========== ==========
Portfolio turnover 5.63% 26.73% 23.84% 13.25% 7.62%
========== ========== ========== ========== ==========
Average commission rate paid++++ $ .0179 -- -- -- --
========== ========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the period.
++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class B++
For the Six
The following per share data and ratios have been derived Months
from information provided in the financial statements. Ended
June 30, For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 21.22 $ 20.27 $ 20.41 $ 15.34 $ 18.01
Operating ---------- ---------- ---------- ---------- ----------
Performance: Investment loss--net (.01) (.10) (.12) (.10) (.12)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 2.06 1.53 .49 5.17 (1.60)
---------- ---------- ---------- ---------- ----------
Total from investment operations 2.05 1.43 .37 5.07 (1.72)
---------- ---------- ---------- ---------- ----------
Less dividends and distributions:
In excess of investment income--net -- -- (.04) -- --
Realized gain--net -- (.38) (.33) -- (.95)
In excess of realized gain--net -- (.10) (.14) -- --
---------- ---------- ---------- ---------- ----------
Total dividends and distributions -- (.48) (.51) -- (.95)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 23.27 $ 21.22 $ 20.27 $ 20.41 $ 15.34
========== ========== ========== ========== ==========
Total Investment Based on net asset value per
Return:** share 9.66%+++ 7.10% 1.87% 33.05% (9.72%)
========== ========== ========== ========== ==========
Ratios to Average Expenses 1.85%* 1.96% 1.94% 1.92% 2.00%
Net Assets: ========== ========== ========== ========== ==========
Investment loss--net (.12%)* (.50%) (.56%) (.56%) (.61%)
========== ========== ========== ========== ==========
Supplemental Net assets, end of period
Data: (in thousands) $1,383,854 $1,041,763 $ 915,351 $ 508,008 $ 165,015
========== ========== ========== ========== ==========
Portfolio turnover 5.63% 26.73% 23.84% 13.25% 7.62%
========== ========== ========== ========== ==========
Average commission rate paid++++ $ .0179 -- -- -- --
========== ========== ========== ========== ==========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the period.
++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C++++
For the
For the For the Period
The following per share data and ratios have been derived Six Months Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994++ to
June 30, Dec. 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 20.97 $ 20.12 $ 21.67
Operating ---------- ---------- ----------
Performance: Investment loss--net (.01) (.12) (.03)
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 2.05 1.53 (.86)
---------- ---------- ----------
Total from investment operations 2.04 1.41 (.89)
---------- ---------- ----------
Less dividends and distributions:
In excess of investment income--net -- -- (.19)
Realized gain--net -- (.45) (.33)
In excess of realized gain--net -- (.11) (.14)
---------- ---------- ----------
Total dividends and distributions -- (.56) (.66)
---------- ---------- ----------
Net asset value, end of period $ 23.01 $ 20.97 $ 20.12
========== ========== ==========
Total Based on net asset value per share 9.73%+++ 7.07% (4.04%)+++
Investment ========== ========== ==========
Return:**
Ratios to Expenses 1.85%* 1.97% 2.17%*
Average ========== ========== ==========
Net Assets: Investment loss--net (.07%)* (.59%) (.79%)*
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 104,223 $ 46,092 $ 7,841
Data: ========== ========== ==========
Portfolio turnover 5.63% 26.73% 23.84%
========== ========== ==========
Average commission rate paid+++++ $ .0179 -- --
========== ========== ==========
<PAGE>
<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.
+++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate
per share for purchases and sales of equity securities.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D++++
For the
For the For the Period
The following per share data and ratios have been derived Six Months Year Oct. 21,
from information provided in the financial statements. Ended Ended 1994++ to
June 30, Dec. 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 22.14 $ 21.11 $ 22.70
Operating ---------- ---------- ----------
Performance: Investmentincome--net .07 .07 --
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net 2.18 1.60 (.91)
---------- ---------- ----------
Total from investment operations 2.25 1.67 (.91)
---------- ---------- ----------
Less dividends and distributions:
In excess of investment income--net -- -- (.21)
Realized gain--net -- (.51) (.33)
In excess of realized gain--net -- (.13) (.14)
---------- ---------- ----------
Total dividends and distributions -- (.64) (.68)
---------- ---------- ----------
Net asset value, end of period $ 24.39 $ 22.14 $ 21.11
========== ========== ==========
Total Based on net asset value per share 10.16%+++ 7.95% (3.93%)+++
Investment ========== ========== ==========
Return:**
<PAGE>
Ratios to Expenses 1.07%* 1.18% 1.42%*
Average ========== ========== ==========
Net Assets: Investment income--net .57%* .31% .12%*
========== ========== ==========
Supplemental Net assets, end of period (in thousands) $ 172,350 $ 97,946 $ 22,012
Data: ========== ========== ==========
Portfolio turnover 5.63% 26.73% 23.84%
========== ========== ==========
Average commission rate paid+++++ $ .0179 -- --
========== ========== ==========
<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.
+++++For fiscal years beginning on or after September 1, 1995, the
Fund is required to disclose its average commission rate per share
for purchases and sales of equity securities.
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. These unaudited financial statements
reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature.
The Fund offers four classes of shares under the Merrill Lynch
Select Pricing SM System. Shares of Class A and Class D are sold with
a front-end sales charge. Shares of Class B and Class C may be
subject to a contingent deferred sales charge. All classes of shares
have identical voting, dividend, liquidation and other rights and
the same terms and conditions, except that Class B, Class C and
Class D Shares bear certain expenses related to the account
maintenance of such shares, and Class B and Class C Shares also bear
certain expenses related to the distribution of such shares. Each
class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. The
following is a summary of significant accounting policies followed
by the Fund.
<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.
* 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 is authorized to 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.
* 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.
(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. Distributions in excess of realized capital gains are due
primarily to differing tax treatments for futures transactions and
post-October losses.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is
the limited partner. The Fund has also entered into a Distribution
Agreement and Distribution Plans with Merrill Lynch Funds
Distributor, Inc. ("MLFD" or "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 six months ended June 30, 1996, 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 $13,587 $147,972
Class D $71,889 $934,014
For the six months ended June 30, 1996, MLPF&S received contingent
deferred sales charges of $1,135,943 and $30,487 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $53,841 in commissions on the execution
of portfolio security transactions for the Fund for the six months
ended June 30, 1996.
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.
<PAGE>
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 six months ended June 30, 1996 were $470,210,106 and
$110,016,824, respectively.
Net realized and unrealized gains (losses) as of June 30, 1996 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 39,922,788 $313,424,275
Short-term investments -- --
Options written 795,164 234,585
Options purchased (681,139) --
Currency options purchased 33,261,886 (420,000)
Forward foreign exchange
contracts -- 46,055,256
Foreign currency
transactions 8,299,296 770
------------ ------------
Total $ 81,597,995 $359,294,886
============ ============
As of June 30, 1996, net unrealized appreciation for Federal income
tax purposes aggregated $313,658,860, of which $345,420,418 related
to appreciated securities and $31,761,558 related to depreciated
securities. At June 30, 1996, the aggregate cost of investments,
less premiums received for options written, for Federal income tax
purposes was $1,978,228,238.
Transactions in options written for the six months ended June 30,
1996, were as follows:
Number of
Contracts/ Premiums
Call Options Written Face Amount Received
Outstanding call options
written, beginning of period $ 2,557,932 $ 314,458
Options written 55,907,818 1,436,420
Options exercised (1,705,288) (200,430)
Options expired (48,607,962) (795,164)
----------- ------------
Outstanding call options
written, end of period $ 8,152,500 $ 755,284
=========== ============
<PAGE>
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $391,651,905 and $182,530,658 for the six months ended June 30,
1996 and the year ended December 31, 1995, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Dollar
Months Ended June 30, 1996 Shares Amount
Shares sold 5,975,028 $138,575,440
Shares redeemed (3,743,004) (87,067,260)
----------- ------------
Net increase 2,232,024 $ 51,508,180
=========== ============
Class A Shares for the Dollar
Year Ended December 31, 1995 Shares Amount
Shares sold 8,478,331 $178,519,975
Shares issued to share-
holders in reinvestment of
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 B Shares for the Six Dollar
Months Ended June 30, 1996 Shares Amount
Shares sold 16,455,309 $364,037,559
Shares redeemed (5,986,016) (133,248,902)
Automatic conversion of
shares (111,994) (2,467,654)
----------- ------------
Net increase 10,357,299 $228,321,003
=========== ============
<PAGE>
Class B Shares for the Year Dollar
Ended December 31, 1995 Shares Amount
Shares sold 19,257,866 $389,172,718
Shares issued to share-
holders in reinvestment of
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 C Shares for the Six Dollar
Months Ended June 30, 1996 Shares Amount
Shares sold 3,322,942 $ 72,762,384
Shares redeemed (990,753) (21,880,144)
----------- ------------
Net increase 2,332,189 $ 50,882,240
=========== ============
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Year Dollar
Ended December 31, 1995 Shares Amount
Shares sold 2,790,493 $ 56,351,329
Shares issued to share-
holders in reinvestment of
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 D Shares for the Six Dollar
Months Ended June 30, 1996 Shares Amount
Shares sold 8,205,197 $188,150,006
Automatic conversion of
shares 107,683 2,467,654
----------- ------------
Total issued 8,312,880 190,617,660
Shares redeemed (5,669,530) (129,677,178)
----------- ------------
Net increase 2,643,350 $ 60,940,482
=========== ============
Class D Shares for the Year Dollar
Ended December 31, 1995 Shares Amount
Shares sold 7,041,007 $150,994,718
Shares issued to share-
holders in reinvestment of
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
=========== ============
6. Commitments:
At June 30, 1996, 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 and sell various
foreign currencies with approximate values of $1,722,000 and
$1,911,000, respectively.
PORTFOLIO INFORMATION
<PAGE>
For the Quarter Ended June 30, 1996
Percent of
Ten Largest Equity Holdings Net Assets
Murata Manufacturing Co., Ltd. 5.8%
Canon, Inc. 5.5
Mitsubishi Heavy Industries, Ltd. 4.6
HSBC Holdings PLC 4.0
Lend Lease Corp. 3.8
Ito-Yokado Co., Ltd. 3.7
Toyo Seikan Kaisha, Ltd. 3.3
Rohm Co., Ltd. 3.1
Bridgestone Corporation 3.1
Coca-Cola Amatil, Ltd. 3.1
Percent of
Ten Largest Industries Net Assets
Property & Casualty Insurance 13.6%
Electric Equipment 10.1
Property 6.9
Banking 5.6
Office Equipment 5.5
Electric Construction 5.4
Capital Goods 4.6
Retailing 4.4
Conglomerates 4.4
Diversified 3.8
Additions
Bridgestone Corporation
C.P. Pokphand Co. Ltd. (Ordinary)
Guangshen Railway Company Ltd. (ADR)
Village Roadshow Ltd. 'A' (New Shares) (Preferred)
Deletions
Renong BHD (Rights to ICULS)
Renong BHD (Rights to Warrants)
<PAGE>
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.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
