MERRILL LYNCH
PACIFIC FUND, INC.
FUND LOGO
Annual Report
December 31, 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
Printed on post-consumer recycled paper
MERRILL LYNCH PACIFIC FUND, INC.
DEAR SHAREHOLDER
Fiscal Year in Review
Merrill Lynch Pacific Fund, Inc.'s Class A, Class B, Class C and
Class D Shares' total returns were +6.09%, +5.00%, +5.00% and
+5.84%, respectively, for the fiscal year ended December 31, 1996.
For the fiscal year, the Fund outperformed the unmanaged Benchmark
Index, which had a -5.07% total return for the 12 months ended
December 31, 1996. (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.)
Three key factors led to the Fund's strong outperformance relative
to the Benchmark Index. First, the Fund was underweighted in Japan
relative to the Index. As of December 31, 1996, the Fund had a 59%
exposure in Japan, compared to a Benchmark Index weighting of 68%.
Second, our stock selection enhanced performance, with many of our
larger holdings appreciating more (or declining less) than their
respective stock markets. Third, hedging the portfolio's yen
exposure had a positive effect on the Fund's performance as the yen
weakened relative to the US dollar over the course of the fiscal
year.
<PAGE>
Strategy Focus
Although the Fund's performance for the fiscal year was very strong
in relative terms, its total returns were not particularly
attractive on an absolute basis. This is because of the continued
poor performance of the Japanese stock market, which has not made
substantial progress for years. The Nikkei Dow Jones average first
exceeded the 19,000 level in 1986. Now, ten years later, the
Japanese stock market is lower than 19,000, after having surged to
39,000 and subsequently collapsing to 14,000 in the interim.
Along with a volatile equity investment environment that has
provided lackluster returns, the Japanese currency has also
performed erratically. In 1984, it took 250--260 yen to purchase one
US dollar. In September 1985, the Plaza Accord was announced, in
which five nations agreed to a strategy of officially weakening the
US dollar to help restore the United States' competitive position in
world trade markets. By October 1987, when the US stock market
collapsed, the yen had appreciated to the point at which
approximately 150 yen equaled one US dollar. Following the collapse
of the US and other stock markets, the yen appreciated further to
120 yen/$1 US. Since the end of 1987, the yen has fluctuated from a
level as weak as 160 yen/$1 US to as strong as 80 yen/$1 US, and now
is approximately 120 yen/$1 US.
As a result, in US dollar terms, the Japanese stock market is now
lower than it was at the end of 1987. Given these poor results, some
shareholders may question why we have not underweighted Japan to a
greater degree and overweighted other Pacific Basin markets. In
response, we remind our shareholders that our investment approach
does not involve a "top down" investment strategy. We do not believe
that we can accurately forecast on a yearly basis how stock markets
overall will perform. However, we do carefully underweight or
overweight stock markets based upon a "bottom up" analysis of where
we find the greatest number of undervalued investment opportunities.
Since the end of 1987 through December 31, 1996, the Fund's Class A
Shares had a cumulative total return of +138.97%, while the Japanese
market declined. The Fund's outperformance is partially a function
of our deviating from Benchmark Index weightings, but we do not
underweight or overweight markets in an attempt to time their
movements. We gradually adjust our country weights as a direct
result of where we happen to find individual companies in which we
wish to invest.
One example illustrates the difficulty in effectively timing market
movements. During the last quarter of 1993, the Thai stock market
rose 75%. While it would have been greatly advantageous to have
participated in that rally, we were unable to foresee this
appreciation and establish a meaningful overweight in Thailand.
However, though we did not materially benefit from that 75% gain, we
also did not lose any appreciable amount of assets in the Thai stock
market when it declined 36% in 1996. We do not believe that we can
successfully predict such market movements. Accordingly, we invest
the Fund's assets based on our assessment of the availability of
attractively valued individual stocks, and only deviate materially
from market weights on those very rare occasions when we see huge
risks or huge opportunities.
<PAGE>
Since the Japanese stock market makes up 68% of the Benchmark Index
(which underweights Japan), a more significant underweighting in
Japan would represent a greater degree of stock market risk than we
are typically comfortable in assuming. While we are willing to
assume a greater degree of stock-specific risk given our bottom-up
investment approach (the ten largest positions in the Fund now make
up over 48.4% of the net assets of the portfolio), we do not believe
that we can successfully time our entry into or exit out of stock
markets in an effort to realize more attractive absolute returns.
Moreover, since the Japanese stock market provided such abysmal
absolute investment returns and even more abysmal returns relative
to most other Pacific Basin stock markets over the last ten years,
it seems to us that substantially underweighting Japan is too
reactive an approach. The Japanese stock market at approximately
18,000 is at a level it first hit in 1986, and almost 30% below the
highest level it attained in 1987. In fact, the Nikkei closed 1987
at about 21,000, and the yen stood at about 120/US dollar. At 1996
year-end, nine years later, the Nikkei was 10% lower, and the yen
had a value of about 117/US dollar.
Investment Outlook
Despite our admitted stock-specific focus, we must review the
investment environment for the stock markets in which we invest,
since the most note-worthy developments for the portfolio are
occurring at this level. The Southeast Asian stock markets still
offer the greatest long-term appreciation potential in the region,
in our view, but are also likely to be the most volatile. However,
in any one year--for example 1997--the Japanese stock market could
sharply appreciate in the face of Southeast Asia experiencing a
meaningful correction. Since the Japanese market has had such poor
performance, and since it is so reasonably priced on some valuation
measures (for example, price/book), we are unwilling to materially
decrease our exposure to Japan at this time.
Expectations are so low for the Japanese stock market that Japanese
and non-Japanese investors alike are demonstrating virtually no
interest in purchasing shares of Japanese companies, and liquidity
has declined to new lows. For example, the Japanese stock market
currently has a trading volume of approximately $2--$3 billion each
day. In contrast, daily trading volume for International Business
Machines Corporation and Intel Corp. in the United States alone add
up to $2 billion. Japanese stock market liquidity would be even
lower if we extracted trading solely related to index arbitrage.
<PAGE>
The Japanese companies in the Fund's portfolio continue to have
viable businesses, generate profits and own real assets. We also
believe that our Japanese investments will continue to accrete
value, and that as investor interest in Japan is eventually renewed,
other investors will recognize the value that we perceive in our
Japanese holdings.
We continue to hedge the Fund's yen exposure, as was the case
throughout 1996. However, now we are hedging only with yen put
options and are no longer selling yen forward. In this way, should
the yen appreciate relative to the US dollar, the portfolio would
participate in the appreciation to a large degree (losing only the
value of the options); yet, on the other hand, we have protected the
portfolio in the event of continued yen weakness.
In Conclusion
We thank you for your continued investment in Merrill Lynch Pacific
Fund, Inc., and we look forward to serving your investment needs
throughout the Fund's new fiscal year and beyond.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Stephen I. Silverman)
Stephen I. Silverman
Vice President and Portfolio Manager
January 31, 1997
PERFORMANCE DATA
About Fund Performance
<PAGE>
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. (There is no initial
sales charge for automatic share conversions.)
* 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 9/30/96)
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--Total Investment Return* -2.25%(2) +6.09%(2)
ML Pacific Fund, Inc. Class B Shares--Total Investment Return* -2.49(3) +5.00(3)
ML Pacific Fund, Inc. Class C Shares--Total Investment Return* -2.53(4) +5.00(4)
ML Pacific Fund, Inc. Class D Shares--Total Investment Return* -2.32(5) +5.84(5)
Market-Weighted Index** -8.34(6) -9.68(7)
Benchmark Index*** -6.61 -5.07
Japan -9.62/-13.02 -6.77/-16.92 $3,469 76.9%
Australia +5.86/+6.29 +10.06/+17.55 275 6.1
Hong Kong +13.01/+13.00 +33.53/+33.50 332 7.3
Malaysia +8.78/+7.95 +24.10/+24.76 258 5.7
Singapore +1.55/+2.18 -1.05/+0.03 144 3.2
Thailand -24.33/-25.04 -35.07/-36.26 35 0.8
<PAGE>
<FN>
(1)Percent change includes reinvestment of $0.505 per share capital
gains distributions.
(2)Percent change includes reinvestment of $1.403 per share ordinary
income dividends and $0.505 per share capital gains distributions.
(3)Percent change includes reinvestment of $1.167 per share ordinary
income dividends and $0.505 per share capital gains distributions.
(4)Percent change includes reinvestment of $1.194 per share ordinary
income dividends and $0.505 per share capital gains distributions.
(5)Percent change includes reinvestment of $1.337 per share ordinary
income dividends and $0.505 per share capital gains distributions.
(6)9/30/96 market weights used in this computation. The Market-
Weighted Index return and individual country returns do not include
dividends.
(7)12/31/95 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)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the Morgan
Stanley Capital International Pacific Region Index. Beginning and
ending values are:
12/86 12/96
ML Pacific Fund, Inc.++--
Class A Shares* $ 9,475 $25,079
Morgan Stanley Capital
International Pacific Region Index++++ $10,000 $16,875
<PAGE>
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** 12/96
ML Pacific Fund, Inc.++--
Class B Shares* $10,000 $18,591
Morgan Stanley Capital
International Pacific Region Index++++ $10,000 $ 9,719
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** 12/96
ML Pacific Fund, Inc.++--
Class C Shares* $10,000 $10,788
ML Pacific Fund, Inc.++--
Class D Shares* $ 9,475 $10,400
Morgan Stanley Capital
International Pacific Region Index++++ $10,000 $ 8,971
[FN]
*Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
**Commencement of Operations.
++ML Pacific Fund, Inc. invests primarily in equities of corporations
domiciled in Far Eastern or Western Pacific countries, including Japan,
Australia, Hong Kong, and Singapore.
++++This unmanaged market capitalization-weighted Index is comprised of
a representative sampling of stocks of large-, medium-, and small-
capitalization companies in Australia, Hong Kong, Japan, Malaysia, New
Zealand, and Singapore.
Past performance is not predictive of future performance.
<PAGE>
PERFORMANCE DATA (continued)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/96 + 6.09% +0.52%
Five Years Ended 12/31/96 + 7.69 +6.54
Ten Years Ended 12/31/96 +10.22 +9.63
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/96 +5.00% +1.12%
Five Years Ended 12/31/96 +6.59 +6.59
Inception (10/21/88) through 12/31/96 +7.86 +7.86
[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 12/31/96 +5.00% +4.03%
Inception (10/21/94)
through 12/31/96 +3.52 +3.52
[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 12/31/96 +5.84% +0.29%
Inception (10/21/94)
through 12/31/96 +4.34 +1.81
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
9/23/76--12/31/76 $ 9.30 $ 9.81 -- -- + 5.48%
1977 9.81 9.20 -- $0.050 - 5.73
1978 9.20 14.48 $ 0.070 0.020 +58.87
1979 14.48 8.96 3.340 0.120 -23.40
1980 8.96 12.11 -- 0.220 +38.49
1981 12.11 12.78 1.460 0.230 +22.22
1982 12.78 12.07 0.420 0.320 + 0.46
1983 12.07 16.04 0.180 0.290 +38.54
1984 16.04 15.43 0.950 0.090 + 2.92
1985 15.43 19.59 1.380 0.160 +40.96
1986 19.59 34.32 0.190 0.110 +77.78
1987 34.32 16.15 22.154 0.183 +10.77
1988 16.15 19.11 2.064 0.196 +34.38
1989 19.11 20.65 1.042 0.061 +14.49
1990 20.65 16.52 1.668 0.766 - 8.39
1991 16.52 18.34 0.521 0.433 +17.04
1992 18.34 15.80 0.221 0.741 - 8.76
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
1996 22.16 21.58 0.505 1.403 + 6.09
------- ------
Total $37.016 Total $5.937
Cumulative total return as of 12/31/96: +1,846.23%**
<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>
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/88--12/31/88 $17.93 $19.09 $1.034 $0.171 +13.37%
1989 19.09 20.49 1.042 -- +13.39
1990 20.49 16.30 1.668 0.653 - 9.29
1991 16.30 18.01 0.521 0.322 +15.87
1992 18.01 15.34 0.221 0.726 - 9.72
1993 15.34 20.41 -- -- +33.05
1994 20.41 20.27 0.469 0.041 + 1.87
1995 20.27 21.22 0.382 0.099 + 7.10
1996 21.22 20.59 0.505 1.167 + 5.00
------ ------
Total $5.842 Total $3.179
Cumulative total return as of 12/31/96: +85.91%**
<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 C Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <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
1996 20.97 20.30 0.505 1.194 +5.00
------ ------
Total $1.356 Total $1.564
Cumulative total return as of 12/31/96: +7.88%**
<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 D Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <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
1996 22.14 21.57 0.505 1.337 +5.84
------ ------
Total $1.356 Total $1.805
Cumulative total return as of 12/31/96: +9.77%**
<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>
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 12, 1976 to
$18,440.53 on December 31, 1996.
PORTFOLIO INFORMATION
For the Quarter Ended December 31, 1996
Percent of
Ten Largest Equity Holdings Net Assets
Canon, Inc. 6.6%
HSBC Holdings PLC 6.4
Murata Manufacturing Co., Ltd. 5.8
Lend Lease Corp. 5.6
Mitsubishi Heavy Industries, Ltd. 5.1
Bridgestone Corporation 4.2
Cheung Kong (Holdings) Ltd. 4.2
Sankyo Co., Ltd. 3.7
Rohm Co., Ltd. 3.6
Hutchinson Whampoa Ltd. 3.2
Percent of
Ten Largest Industries Net Assets
Property & Casualty Insurance 11.2%
Electric Equipment 10.9
Property 9.8
Banking 8.9
Office Equipment 6.6
Conglomerates 6.1
Capital Goods 5.1
Electric Construction 5.0
Tires & Rubber 4.2
Food & Beverage 4.1
Additions
<PAGE>
Hana Bank (GDR)
Henderson Land Development Company Ltd.
Deletion
Pakistan Telecommunications Corp. (GDR)
<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 4,794,000 Suzuki Motor Corp. $ 50,657,289 $ 43,882,902 2.1%
Beverage 380,000 Chukyo Coca-Cola Bottling Co., Ltd. 5,420,506 3,445,596 0.2
424,000 Hokkaido Coca-Cola Bottling Co., Ltd. 6,399,350 5,235,924 0.2
386,000 Kinki Coca-Cola Bottling Co., Ltd. 7,430,096 4,466,667 0.2
476,000 Mikuni Coca-Cola Bottling Co., Ltd. 8,487,431 6,165,803 0.3
470,000 Sanyo Coca-Cola Bottling Co., Ltd. 7,028,799 6,291,019 0.3
-------------- -------------- ------
34,766,182 25,605,009 1.2
Capital Goods 13,543,000 Mitsubishi Heavy Industries, Ltd. 99,257,428 107,595,510 5.1
Chemicals 3,311,000 Shin-Etsu Chemical Co., Ltd. 59,267,110 60,329,965 2.9
Consumer YEN 409,000,000 Matsushita Electric Works, Ltd.--
Electronics C.E.W. #8, 2.70% due 5/31/2002
(Convertible) 4,543,868 4,104,128 0.2
Containers 1,912,000 Toyo Seikan Kaisha, Ltd. 57,600,127 46,066,321 2.2
Electric 1,715,000 Chudenko Corp. 55,422,513 49,465,458 2.4
Construction 3,365,000 Kinden Corp. 53,752,777 42,716,321 2.0
1,232,000 Taihei Dengyo Kaisha, Ltd. 24,789,475 12,234,888 0.6
-------------- -------------- ------
133,964,765 104,416,667 5.0
<PAGE>
Electric Equipment 3,657,000 Murata Manufacturing Co., Ltd. 125,919,983 121,584,197 5.8
2,557,000 NEC Corporation 37,256,072 30,913,644 1.5
1,138,000 Rohm Co., Ltd. 51,505,961 74,687,392 3.6
169 Sumitomo Electric Industries, Ltd.,
#1 YEN (Warrants) (a) 185,351 212,345 0.0
-------------- -------------- ------
214,867,367 227,397,578 10.9
Iron & Steel 475,000 Maruichi Steel Tube, Ltd. 6,023,843 8,203,800 0.4
Office Equipment 6,250,000 Canon, Inc. 101,729,125 138,169,257 6.6
Pharmaceuticals 2,764,000 Sankyo Co., Ltd. 62,555,171 78,289,465 3.7
Property & Casualty 8,790,000 Dai-Tokyo Fire & Marine
Insurance Insurance Co., Ltd. 53,840,330 46,682,643 2.2
4,492,000 Fuji Fire & Marine Insurance
Co., Ltd. 16,261,457 16,796,511 0.8
7,539,000 Koa Fire & Marine Insurance
Co., Ltd. 45,292,612 36,588,238 1.8
8,191,000 Nichido Fire & Marine Insurance
Co., Ltd. 46,307,188 46,684,456 2.2
7,119,000 Sumitomo Marine & Fire Insurance
Co., Ltd. 61,618,176 44,263,212 2.1
4,662,000 Tokio Marine & Fire Insurance
Co., Ltd. 46,990,608 43,882,383 2.1
-------------- -------------- ------
270,310,371 234,897,443 11.2
Retailing 1,524,000 Ito-Yokado Co., Ltd. 75,480,112 66,329,534 3.2
364,000 Sangetsu Co., Ltd. 8,382,717 7,606,908 0.3
352,000 Senshukai Co., Ltd. 5,696,494 3,617,271 0.2
-------------- -------------- ------
89,559,323 77,553,713 3.7
Tires & Rubber 4,660,000 Bridgestone Corporation 79,461,992 88,531,952 4.2
Total Investments in Japan 1,264,563,961 1,245,043,710 59.4
</TABLE>
<PAGE>
<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 4,635,222 Coca-Cola Amatil, Ltd. $ 27,179,148 $ 49,513,395 2.4%
Leisure 19,143,824 Village Roadshow Ltd. 'A' (Preferred) 39,878,042 51,997,766 2.5
Property 6,088,350 Lend Lease Corp. 78,133,814 117,982,969 5.6
Total Investments in Australia 145,191,004 219,494,130 10.5
Hong Kong Securities
Banking 6,270,687 HSBC Holdings PLC 89,303,492 134,186,540 6.4
Conglomerates 8,641,035 Hutchison Whampoa Ltd. 48,780,672 67,874,693 3.2
Diversified 3,876,250 Swire Pacific Ltd. 'A' 31,942,177 36,963,206 1.8
Food & Beverage 89,268,176 C.P. Pokphand Co. Ltd. (Ordinary) 31,086,450 34,915,468 1.7
Property 9,955,000 Cheung Kong (Holdings) Ltd. 72,205,602 88,493,179 4.2
4,429,000 Henderson Land Development
Company Ltd. 44,245,009 44,667,960 2.1
Transportation 4,412,000 ++Guangshen Railway Company Ltd. 1,681,003 1,911,068 0.1
Total Investments in Hong Kong 319,244,405 409,012,114 19.5
<PAGE>
Indian Securities
Banking 3,257,000 Industrial Development Bank of India 11,173,586 7,926,126 0.4
5,100 SCICI, Ltd. 15,309 3,745 0.0
-------------- -------------- ------
11,188,895 7,929,871 0.4
Broadcast/Media 620,000 ++BITV 3,557,823 190,769 0.0
Diversified Mutual Fund 1,929,400 Master Plus 1,146,844 680,012 0.0
Financial Services 72,000 Housing Development Finance Corp. Ltd. 5,781,901 4,534,993 0.2
Total Investments in India 21,675,463 13,335,645 0.6
Indonesian Securities
Pharmaceuticals 3,268,000 P.T. Kalbe Farma 5,525,626 3,737,230 0.2
Total Investments in Indonesia 5,525,626 3,737,230 0.2
Malaysian Securities
Conglomerates 34,564,000 Renong BHD 57,253,457 61,325,434 2.9
Transportation 3,661,000 Malaysian International Shipping BHD 12,515,710 10,874,257 0.5
Total Investments in Malaysia 69,769,167 72,199,691 3.4
</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>
New Zealand Securities
<PAGE>
Diversified 45,962,584 Guiness Peat Group PLC $ 18,582,889 $ 26,668,962 1.3%
Total Investments in New Zealand 18,582,889 26,668,962 1.3
Singaporean Securities
Food 1,949,000 Cerebos Pacific Ltd. 2,790,119 14,490,706 0.7
Transportation 300,000 Singapore Bus Co. Ltd.--
Foreign Registered 1,060,285 1,554,904 0.1
Total Investments in Singapore 3,850,404 16,045,610 0.8
South Korean Securities
Banking 540,000 Hana Bank (GDR) (b) 8,213,400 8,167,500 0.4
Textiles 3,080 Taekwang Industries Co. 716,353 1,111,359 0.0
Total Investments in South Korea 8,929,753 9,278,859 0.4
Thailand Securities
Banking US$ 18,931,000 Bangkok Bank Public Company Ltd.,
3.25% due 3/03/2004 (Convertible) 21,743,755 18,457,725 0.9
US$ 19,535,000 Siam Commercial Bank Public Co.,
3.25% due 1/24/2004 (Convertible) 25,441,125 17,239,637 0.8
Total Investments in Thailand 47,184,880 35,697,362 1.7
Nominal Value Premiums
Covered by Options Issue Paid
<PAGE>
Currency Put Options Purchased
152,000,000 Japanese Yen, expiring July 1997
at YEN 113 2,606,800 4,795,600 0.2
381,922,622 Japanese Yen, expiring September 1997
at YEN 112 5,843,416 13,672,830 0.7
438,100,106 Japanese Yen, expiring October 1997
at YEN 114 6,440,072 12,266,803 0.6
380,000,000 Japanese Yen, expiring November 1997
at YEN 115 5,035,000 9,576,000 0.5
383,052,583 Japanese Yen, expiring November 1997
at YEN 114 5,152,057 11,089,372 0.5
Total Currency Put Options Purchased 25,077,345 51,400,605 2.5
Total Investments 1,929,594,897 2,101,913,918 100.3
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Nominal Value Premiums Value Percent of
Covered by Options Issue Received (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Call Options Written
696,794 HSBC Holdings, expiring January
1997 at HK$174.48 $ (81,477) $ (113,519) (0.0)%
3,876,250 Swire Pacific 'A', expiring
January 1997 at HK$73.3293 (298,886) (180,432) (0.0)
Total Call Options Written (380,363) (293,951) 0.0
Total Investments, Net of Options Written $1,929,214,534 2,101,619,967 100.3
==============
Unrealized Appreciation on Forward Foreign Exchange Contracts* 1,127,299 0.0
Liabilities in Excess of Other Assets (7,124,469) (0.3)
-------------- ------
Net Assets $2,095,622,797 100.0%
============== ======
<PAGE>
<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)Global Depositary Receipts (GDR).
*Forward foreign exchange contracts as of December 31, 1996 were as
follows:
Unrealized
Appreciation
Expiration (Depreciation)
Foreign Currency Purchased Date (Note 1b)
YEN 7,957,445,461 April 1997 $(6,596,125)
Total (US$ Commitment--$76,133,940) (6,596,125)
===========
Foreign Currency Sold
YEN 7,957,445,461 April 1997 $ 7,723,424
Total (US$ Commitment--$77,261,239) 7,723,424
-----------
Total Unrealized Appreciation--Net on
Forward Foreign Exchange Contracts $ 1,127,299
===========
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of December 31, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,904,517,552)
(Note 1a) $2,050,513,313
Options purchased, at value (premiums paid--$25,077,345)
(Notes 1a & 1b) 51,400,605
Unrealized appreciation on forward foreign exchange contracts
(Note 1b) 1,127,299
Foreign cash (Note 1c) 7,984,813
Receivables:
Securities sold $ 8,822,176
Capital shares sold 3,831,931
Interest 1,114,579
Dividends 883,265 14,651,951
--------------
Prepaid registration fees and other assets (Note 1f) 102,602
--------------
Total assets 2,125,780,583
--------------
<PAGE>
Liabilities: Options written, at value (premiums received--$380,363)
(Notes 1a & 1b) 293,951
Payables:
Capital shares redeemed 16,215,708
Distributor (Note 2) 1,215,063
Investment adviser (Note 2) 1,134,370 18,565,141
--------------
Accrued expenses and other liabilities 11,298,694
--------------
Total liabilities 30,157,786
--------------
Net Assets: Net assets $2,095,622,797
==============
Net Assets Class A Shares of Common Stock, $0.10 par value,
Consist of: 100,000,000 shares authorized $ 2,977,881
Class B Shares of Common Stock, $0.10 par value,
200,000,000 shares authorized 5,914,440
Class C Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 487,237
Class D Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 633,371
Paid-in capital in excess of par 1,914,308,850
Accumulated realized capital losses on investments
and foreign currency transactions--net (1,695,543)
Unrealized appreciation on investments and foreign currency
transactions--net 172,996,561
--------------
Net assets $2,095,622,797
==============
Net Asset Value: Class A--Based on net assets of $642,522,760 and 29,778,805
shares outstanding $ 21.58
==============
Class B--Based on net assets of $1,217,549,379 and 59,144,398
shares outstanding $ 20.59
==============
Class C--Based on net assets of $98,924,569 and 4,872,374
shares outstanding $ 20.30
==============
Class D--Based on net assets of $136,626,089 and 6,333,714
shares outstanding $ 21.57
==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended December 31, 1996
<S> <S> <C> <C>
Investment Dividends (net of $1,581,063 foreign withholding tax) $ 23,685,611
Income Interest and discount earned (net of $10,245 foreign
(Notes 1d & 1e): withholding tax) 6,054,339
--------------
Total income 29,739,950
--------------
Expenses: Investment advisory fees (Note 2) $ 13,358,223
Account maintenance and distribution fees--Class B (Note 2) 12,907,042
Transfer agent fees--Class B (Note 2) 2,328,675
Custodian fees 1,597,190
Transfer agent fees--Class A (Note 2) 1,043,663
Account maintenance and distribution fees--Class C (Note 2) 933,762
Account maintenance fees--Class D (Note 2) 391,787
Registration fees (Note 1f) 336,777
Printing and shareholder reports 286,206
Transfer agent fees--Class D (Note 2) 239,946
Accounting services (Note 2) 211,545
Transfer agent fees--Class C (Note 2) 176,202
Professional fees 155,438
Directors' fees and expenses 40,398
Pricing fees 2,474
Other 49,618
--------------
Total expenses 34,058,946
--------------
Investment loss--net (4,318,996)
--------------
Realized & Realized gain from:
Unrealized Gain Investments--net 76,777,085
(Loss) on Foreign currency transactions--net 101,392,679 178,169,764
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (64,248,496)
(Notes 1b, 1c, Foreign currency transactions--net (6,512,457) (70,760,953)
1d & 3): -------------- --------------
Net realized and unrealized gain on investments and
foreign currency transactions 107,408,811
--------------
Net Increase in Net Assets Resulting from Operations $ 103,089,815
==============
See Notes to Financial Statements.
</TABLE>
<PAGE>
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
December 31,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment loss--net $ (4,318,996) $ (1,485,553)
Realized gain on investments and foreign currency
transactions--net 178,169,764 55,186,276
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (70,760,953) 69,105,817
-------------- --------------
Net increase in net assets resulting from operations 103,089,815 122,806,540
-------------- --------------
Dividends & In excess of investment income--net:
Distributions to Class A (34,551,177) --
Shareholders Class B (55,727,358) --
(Note 1g): Class C (4,707,430) --
Class D (6,918,235) --
Realized gain on investments--net:
Class A (19,254,820) (14,499,563)
Class B (38,434,097) (18,356,327)
Class C (3,161,360) (910,272)
Class D (4,073,091) (1,710,133)
In excess of realized gain on investments--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 dividends and
distributions to shareholders (166,827,568) (44,249,337)
-------------- --------------
Capital Share Net increase in net assets derived from capital
Transactions share transactions 365,961,817 182,530,658
(Note 4): -------------- --------------
Net Assets: Total increase in net assets 302,224,064 261,087,861
Beginning of year 1,793,398,733 1,532,310,872
-------------- --------------
End of year $2,095,622,797 $1,793,398,733
============== ==============
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: 1996++ 1995++ 1994++ 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating of year $ 22.16 $ 21.12 $ 21.21 $ 15.80 $ 18.34
Performance: ---------- ---------- ---------- ---------- ----------
Investment income--net .11 .11 .10 .07 .05
Realized and unrealized
gain (loss) on investments
and foreign currency
transactions --net 1.21 1.61 .50 5.37 (1.63)
---------- ---------- ---------- ---------- ----------
Total from investment
operations 1.32 1.72 .60 5.44 (1.58)
---------- ---------- ---------- ---------- ----------
Less dividends and
distributions:
Investment income--net -- -- -- -- (.01)
In excess of investment
income--net (1.22) -- (.22) (.03) --
Realized gain on
investments--net (.68) (.55) (.33) -- (.95)
In excess of realized
gain on investments--net -- (.13) (.14) -- --
---------- ---------- ---------- ---------- ----------
Total dividends and
distributions (1.90) (.68) (.69) (.03) (.96)
---------- ---------- ---------- ---------- ----------
Net asset value, end
of year $ 21.58 $ 22.16 $ 21.12 $ 21.21 $ 15.80
========== ========== ========== ========== ==========
Total Investment Based on net asset
Return:* value per share 6.09% 8.20% 2.90% 34.41% (8.76%)
========== ========== ========== ========== ==========
<PAGE>
Ratios to Average Expenses .87% .93% .91% .90% .98%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net .47% .53% .47% .47% .40%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $ 642,523 $ 607,598 $ 587,107 $ 472,322 $ 284,674
========== ========== ========== ========== ==========
Portfolio turnover 10.65% 26.73% 23.84% 13.25% 7.62%
========== ========== ========== ========== ==========
Average commission
rate paid++++ $ .0104 -- -- -- --
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the year.
++++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. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (continued)
<PAGE>
<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: 1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of year $ 21.22 $ 20.27 $ 20.41 $ 15.34 $ 18.01
Performance: ---------- ---------- ---------- ---------- ----------
Investment loss--net (.13) (.10) (.12) (.10) (.12)
Realized and unrealized
gain (loss) on investments
and foreign currency
transactions--net 1.17 1.53 .49 5.17 (1.60)
---------- ---------- ---------- ---------- ----------
Total from investment
operations 1.04 1.43 .37 5.07 (1.72)
---------- ---------- ---------- ---------- ----------
Less dividends and
distributions:
In excess of investment
income--net (.99) -- (.04) -- --
Realized gain on
investments--net (.68) (.38) (.33) -- (.95)
In excess of realized
gain on investments--net -- (.10) (.14) -- --
---------- ---------- ---------- ---------- ----------
Total dividends and
distributions (1.67) (.48) (.51) -- (.95)
---------- ---------- ---------- ---------- ----------
Net asset value, end
of year $ 20.59 $ 21.22 $ 20.27 $ 20.41 $ 15.34
========== ========== ========== ========== ==========
Total Investment Based on net asset value
Return:* per share 5.00% 7.10% 1.87% 33.05% (9.72%)
========== ========== ========== ========== ==========
Ratios to Average Expenses 1.90% 1.96% 1.94% 1.92% 2.00%
Net Assets: ========== ========== ========== ========== ==========
Investment loss--net (.56%) (.50%) (.56%) (.56%) (.61%)
========== ========== ========== ========== ==========
<PAGE>
Supplemental Net assets, end of year
Data: (in thousands) $1,217,549 $1,041,763 $ 915,351 $ 508,008 $ 165,015
========== ========== ========== ========== ==========
Portfolio turnover 10.65% 26.73% 23.84% 13.25% 7.62%
========== ========== ========== ========== ==========
Average commission rate
paid++++ $ .0104 -- -- -- --
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effect of sales loads.
++Based on average shares outstanding during the year.
++++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. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
See Notes to Financial Statements.
</TABLE>
FINANCIAL INFORMATION (concluded)
<PAGE>
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C++++ Class D++++
For the For the
The following per share data and Period Period
ratios have been derived from information Oct. 21, Oct. 21,
provided in the financial statements. For the Year Ended 1994++ to For the Year Ended 1994++ to
December 31, Dec. 31, December 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1996 1995 1994 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of
Performance: period $ 20.97 $ 20.12 $ 21.67 $ 22.14 $ 21.11 $ 22.70
-------- -------- -------- -------- -------- --------
Investmentincome
(loss)--net (.13) (.12) (.03) .04 .07 --
Realized and
unrealized gain
(loss) on invest-
ments and foreign
currency trans-
actions--net 1.16 1.53 (.86) 1.23 1.60 (.91)
-------- -------- -------- -------- -------- --------
Total from
investment
operations 1.03 1.41 (.89) 1.27 1.67 (.91)
-------- -------- -------- -------- -------- --------
Less dividends
and distributions:
In excess of
investment income
--net (1.02) -- (.19) (1.16) -- (.21)
Realized gain on
investments--net (.68) (.45) (.33) (.68) (.51) (.33)
In excess of
realized gain on
investments--net -- (.11) (.14) -- (.13) (.14)
-------- -------- -------- -------- -------- --------
Total dividends and
distributions (1.70) (.56) (.66) (1.84) (.64) (.68)
-------- -------- -------- -------- -------- --------
Net asset value,
end of period $ 20.30 $ 20.97 $ 20.12 $ 21.57 $ 22.14 $ 21.11
======== ======== ======== ======== ======== ========
<PAGE>
Total Investment Based on net asset
Return:** value per share 5.00% 7.07% (4.04%)+++ 5.84% 7.95% (3.93%)+++
======== ======== ======== ======== ======== ========
Ratios to Average Expenses 1.91% 1.97% 2.17%* 1.12% 1.18% 1.42%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income
(loss)--net (.58%) (.59%) (.79%)* .16% .31% .12%*
======== ======== ======== ======== ======== ========
Supplemental Net assets,
Data: end of period
(in thousands) $ 98,925 $ 46,092 $ 7,841 $136,626 $ 97,946 $ 22,012
======== ======== ======== ======== ======== ========
Portfolio turnover 10.65% 26.73% 23.84% 10.65% 26.73% 23.84%
======== ======== ======== ======== ======== ========
Average
commission
rate paid+++++ $ .0104 -- -- $ .0104 -- --
======== ======== ======== ======== ======== ========
<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. The "Average
Commission Rate Paid" includes commissions paid in foreign
currencies, which have been converted into US dollars using the
prevailing exchange rate on the date of the transaction. Such
conversions may significantly affect the rate shown.
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.
* 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 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.
<PAGE>
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 dates. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Fund has determined 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.
<PAGE>
(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 post-October losses and
foreign currency transactions.
(h) Reclassification--Generally accepted accouning principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting for
foreign exchange transactions. Accordingly, current year's permanent
book/tax differences of $106,223,196 have been reclassified between
accumulated net realized capital losses and undistributed net
investment income. These reclassifications have no effect on net
assets or net asset values per share.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM is Princeton Services, Inc. ("PSI"), an indirect wholly-
owned subsidiary of Merrill Lynch & Co., 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.
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% --
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
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, 1996, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Fund's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $18,316 $ 193,461
Class D $88,235 $1,163,101
For the year ended December 31, 1996, MLPF&S received contingent
deferred sales charges of $2,814,555 and $78,003 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $91,743 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
December 31, 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.
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 year ended December 31, 1996 were $622,673,418 and $214,201,708,
respectively.
<PAGE>
Net realized and unrealized gains (losses) as of December 31, 1996
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Investments:
Long-term $ 77,422,054 $145,995,761
Options purchased (681,139) --
Options written 36,170 86,412
------------ ------------
Total investments 76,777,085 146,082,173
------------ ------------
Currency transactions:
Options purchased 50,966,544 26,323,260
Foreign currency
transactions 54,958,688 (536,171)
Forward foreign exchange
contracts (4,532,553) 1,127,299
------------ ------------
Total currency transactions 101,392,679 26,914,388
------------ ------------
Total $178,169,764 $172,996,561
============ ============
As of December 31, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $146,063,403, of which $285,883,577
related to appreciated securities and $139,820,174 related to
depreciated securities. At December 31, 1996, the aggregate cost of
investments, net of options written, for Federal income tax purposes
was $1,904,155,959.
Transactions in call options written for the year ended December 31,
1996, were as follows:
Nominal Value
Covered by Premiums
Call Options Written Written Options Received
Outstanding call options
written, beginning of year $ 2,557,932 $ 314,458
Options written 83,207,253 3,372,758
Options closed (25,806,305) (1,732,269)
Options exercised (5,981,538) (656,625)
Options expired (49,404,298) (917,959)
------------ ------------
Outstanding call options
written, end of year $ 4,573,044 $ 380,363
============ ============
<PAGE>
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $365,961,817 and $182,530,658 for the years ended December 31,
1996 and December 31, 1995, respectively.
Transactions in capital shares for each class were
as follows:
Class A Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
Shares sold 10,503,252 $243,976,070
Shares issued to share-
holders in reinvestment of
dividends & distributions 2,231,131 47,590,033
------------ ------------
Total issued 12,734,383 291,566,103
Shares redeemed (10,379,092) (241,055,211)
------------ ------------
Net increase 2,355,291 $ 50,510,892
============ ============
Class A Shares for the Year Dollar
Ended December 31, 1995 Shares Amount
Shares sold 8,478,331 $178,519,975
Shares issued to share-
holders in reinvestment of
dividends 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)
============ ============
<PAGE>
Class B Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
Shares sold 22,731,772 $504,265,222
Shares issued to share-
holders in reinvestment of
dividends & distributions 3,942,177 80,262,723
------------ ------------
Total issued 26,673,949 584,527,945
Shares redeemed (16,434,419) (365,153,210)
Automatic conversion of
shares (198,470) (4,412,958)
------------ ------------
Net increase 10,041,060 $214,961,777
============ ============
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
dividends 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 Year Dollar
Ended December 31, 1996 Shares Amount
Shares sold 4,757,784 $104,489,958
Shares issued to share-
holders in reinvestment of
dividends & distributions 332,904 6,684,703
------------ ------------
Total issued 5,090,688 111,174,661
Shares redeemed (2,416,196) (53,314,914)
------------ ------------
Net increase 2,674,492 $ 57,859,747
============ ============
<PAGE>
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 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
============ ============
Class D Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
Shares sold 10,226,462 $234,370,104
Shares issued to share-
holders in reinvestment of
dividends & distributions 454,781 9,695,929
Automatic conversion of shares 190,840 4,412,958
------------ ------------
Total issued 10,872,083 248,478,991
Shares redeemed (8,962,823) (205,849,590)
------------ ------------
Net increase 1,909,260 $ 42,629,401
============ ============
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 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>
5. Commitments:
At December 31, 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 sell various foreign
currencies with approximate values of $14,305,000.
<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, 1996, the related statements
of operations for the year then ended and changes in net assets for
each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements and the financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned at December
31, 1996 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, 1996, 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 7, 1997
</AUDIT-REPORT>
<PAGE>
<TABLE>
IMPORTANT TAX INFORMATION (unaudited)
<CAPTION>
The following information summarizes all per share distributions
paid by Merrill Lynch Pacific Fund, Inc. during its taxable year
ended December 31, 1996:
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
12/16/96 12/24/96 $.000170 $1.136639 $.265806 $1.402615 $.016721 $.504910
Class B Shares
12/16/96 12/24/96 $.000142 $ .946086 $.221244 $1.167472 $.016721 $.504910
Class C Shares
12/16/96 12/24/96 $.000145 $ .967719 $.226303 $1.194167 $.016721 $.504910
Class D Shares
12/16/96 12/24/96 $.000162 $1.083592 $.253401 $1.337155 $.016721 $.504910
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 as foreign source 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.
</TABLE>
<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
