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MERRILL LYNCH PACIFIC FUND, INC.
Supplement dated March 4, 1996
to Prospectus dated April 28, 1995
The section entitled "Investment Objective and Policy" is amended by the
addition of the following:
Swap Agreements. The Fund is authorized to enter into equity swap
agreements, which are generally contracts in which one party agrees to make
periodic payments based on the change in market value of a specified equity
security, basket of equity securities or equity index in return for periodic
payments based on a fixed or variable interest rate or the change in market
value of a different equity security, basket of equity securities or equity
index. For example, swap agreements may be used to invest in a market
without owning or taking physical custody of securities in circumstances in
which direct investment is restricted for legal reasons or is otherwise
impractical. The swap agreement will be structured to provide for early
termination in the event, for example, that the Fund desires to lock in
appreciation.
Swap agreements entail the risk that a party will default on its payment
obligations to the Fund thereunder. The Fund will seek to lessen the risk
to some extent by entering into a transaction only if the counterparty meets
the current credit requirement for OTC option counterparties. Swap
agreements also bear the risk that the Fund will not be able to meet its
obligation to the counterparty. The Fund, however, will deposit in a
segregated account with its custodian high quality liquid fixed income
instruments or cash or cash equivalents or other assets permitted to be so
segregated by the Securities and Exchange Commission in an amount equal to
or greater than the market value of the liabilities under the swap agreement
or the amount it would have cost the Fund initially to make an equivalent
direct investment, plus or minus any amount the Fund is obligated to pay or
is to receive under the swap agreement. The Fund will enter into a swap
transaction only if, immediately following the time the Fund enters into the
transaction, the aggregate notional principal amount of swap transactions to
which the Fund is a party would not exceed 5% of the Fund's net assets.
Indexed and Inverse Securities. The Fund may invest in securities whose
potential return is based on the change in particular measurements of value
or rate (an "index"). As an illustration, the Fund may invest in a security
that pays interest and returns principal based on the change in the value
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of a securities index or a basket of securities. Interest and principal
payable on a security also may be based on relative changes among particular
indices. In addition, the Fund may invest in securities whose potential
investment return is inversely based on the change in particular indices.
For example, the Fund may invest in securities that pay a higher rate of
interest and principal when a particular index decreases and pay a lower rate
of interest and principal when the value of the index increases. To the
extent that the Fund invests in such types of securities, it will be subject
to the risks associated with changes in the particular indices, which may
include reduced or eliminated interest payments and losses of invested
principal. Examples of such types of securities are indexed or inverse
securities issued with respect to a stock market index in a particular Far
Eastern or Western Pacific country.
Certain indexed securities, including certain inverse securities, may
have the effect of providing a degree of investment leverage because they may
increase or decrease in value at a rate that is a multiple of the changes in
applicable indices. As a result, the market value of such securities
generally will be more volatile than the market values of fixed-rate
securities. Management of the Fund believes that indexed securities,
including inverse securities, represent flexible portfolio management
instruments that may allow the Fund to seek potential investment rewards,
hedge other portfolio positions, or vary the degree of portfolio leverage
relatively efficiently under different market conditions.
Code #10073-0495
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