MERRILL LYNCH
PACIFIC FUND, INC.
FUND LOGO
Annual Report
December 31, 1997
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
Stephen I. Silverman, Senior Vice President
and Portfolio Manager
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Robert Harris, Secretary
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
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.
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. posted a substantial decline for
the final quarter of 1997. During the December quarter the Fund's
Class A, Class B, Class C and Class D Shares declined 18.77%,
18.99%, 19.01% and 18.82%, respectively, bringing the total returns
for the fiscal year ended December 31, 1997 to -6.35%, -7.31%,
- -7.28% and -6.55%, respectively. Although the Fund's fiscal year
performance is extraordinarily good on a relative basis--the
unmanaged Benchmark Index of Pacific Basin stock markets declined
29.53% for the fiscal year--we are nevertheless disappointed at the
extent of the Fund's declines during the December quarter and the
losses for the fiscal year. (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 4--8 of this report to shareholders.)
Unlike the other fiscal quarters of 1997, every market in our
investment universe was weak during the December quarter; the best-
performing markets were Singapore and Australia, which declined 14%
and 15%, respectively. To make matters worse, our individual stock
positions did not provide better returns than their respective
markets during the December quarter. In contrast, during the first
three quarters of the fiscal year, our stocks substantially
outperformed their respective markets. At the same time, our
underweightings in the worst-performing smaller Asian stock markets
helped the Fund's performance. Therefore, the Fund's outperformance
relative to the unmanaged Benchmark Index for the fiscal year was
largely achieved through stock selection during the first three
quarters of the year and underweighting the worst-performing markets
throughout the fiscal year. However, our investment strategies were
unable to stem losses during the December quarter and, as a result,
the Fund experienced negative total returns for the fiscal year.
Portfolio Matters
During the December quarter, some of the Fund's largest Japanese
positions--Shin-Etsu Chemical Co., Ltd., Sankyo Co., Ltd. and Murata
Manufacturing Co., Ltd.--all significantly underperformed the
Japanese stock market, which declined by 21.59% in US dollar terms.
We regard the declines in these stocks as "technical" and not
justified on a fundamental basis. Therefore, we expect that all of
these stocks will eventually recover and provide the Fund with
attractive positive returns in the future.
We refer to the declines for these three stocks as "technical" to
distinguish their performances from that of our worst-performing
large Japanese position for the fiscal year, Mitsubishi Heavy
Industries, Ltd. This stock declined because the company reported
annual earnings that were much lower than the prior fiscal year, and
a negative surprise relative to investors' expectations. In
addition, the company made a statement that suggested its
intermediate-term business prospects had taken a material turn for
the worse. However, as of the end of 1997, the company's shares were
selling at 20 times its reduced earnings forecast and about 1.3
times consolidated book value. Therefore, although the stock's poor
performance was negative for the Fund during 1997, at current
valuations we believe it is appropriate to continue to hold
Mitsubishi Heavy Industries shares. A stock that is selling at 20
times earnings--which is equivalent to a 5% earnings yield--is very
inexpensive compared to a yield of less than 2% that is currently
available on Japanese fixed-income investments. The stock's
price/book value ratio is also inexpensive for a company which
should still earn more than a 5% return on equity, even with a much
lower level of profitability.
The declines we witnessed in the Malaysian, Thai and Indonesian
stock markets are unprecedented in our 15 years of managing Merrill
Lynch Pacific Fund. When we couple these stock market declines with
the sharp currency devaluations that also took place, the losses in
US dollar terms are even more extreme. From their 1997 highs through
January 1998, the Malaysian, Thai and Indonesian stock markets de-
clined by 62%, 58% and 54%, respectively, in local currency terms.
Over this same period, the Malaysian, Thai and Indonesian currencies
declined from their 1997 highs by 47%, 56% and 82%, respectively.
The combination of local stock market and foreign currency declines
had resulted in extraordinarily large losses in US dollar terms.
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
To put these declines in perspective, we must remember that a 50%
decline is not recouped by a 50% gain, but requires a 100% gain to
recover the loss. If a stock market declines 80% in value, it must
appreciate 400% just to get back to the level it was prior to the
decline. The amount of wealth and purchasing power that has
disappeared in the second half of 1997, primarily among residents of
the emerging Asian countries, is likely to have some negative impact
on the overall economic system of the developed world, in our view.
The traditional economic view of the intersection of supply and
demand gradually moving prices toward equilibrium does not
adequately explain to us the sharp share price and currency declines
experienced during the latter half of 1997. In his book The Alchemy
of Finance,1 George Soros argues that market valuations do not tend
toward equilibrium, but are always biased in one direction or
another. In our judgment, his thesis better explains the way markets
work than the more traditional economic theories.
[FN]
1 Soros, George. The Alchemy of Finance. New York,
Simon and Schuster, 1987.
Soros goes on to make an even more important point. He states that
the performance of markets will tend to influence the very events
that they anticipate. Looking at Southeast Asia, the implication of
Soros's theory is that the sharp stock market and currency declines
not only tell us that something is wrong in these economies, but
that the markets' declines will almost certainly have further
negative effects on these economies as well.
We are fortunate that less than 3% of the Fund's assets were
invested in the Indonesian, Malaysian, Thai and Korean stock markets
as of December 31. As of that date we were modestly underweighted in
Hong Kong at 10.8% of net assets compared to a Benchmark Index
weighting of 14%. However, these underweighted positions are more a
reflection of our view that our Japanese and Australian investments
offered better relative value than those we could find in other
countries. At this time, we do not have any important insights into
the longer-term implications of the "Asian contagion," although, as
we have noted, it appears likely that economic conditions in the
emerging Asian countries will worsen over the near term.
Investment Outlook
Although the situation in Asia is not positive, the long-term
outlook is not as dismal as it might appear. The collapse of the
smaller Asian stock markets will likely create rewarding long-term
investment opportunities. Although we believe that the situation in
the emerging Asian countries is still too uncertain to warrant
greater investment, we may venture cautiously into individual issues
that are selling at substantially less than their recent high
prices.
Turning to Japan, we remain hopeful that the financial system will
be reformed to become more like the US model. If this occurs, we
believe that significant economic value will accrue to shareholders
of some companies. For example, if Japan embraces a more American-
style market system, we would expect Fund holding Chudenko Corp. to
buy back and retire many of its outstanding shares or make a large
one-time distribution to shareholders. Japanese non-life insurance
companies, such as those held by the Fund, would probably do the
same or else risk becoming the subject of hostile takeovers. In this
ideal scenario, Japanese companies would consider profitability,
cost of capital, and the impact of their actions on shareholder
value. Corporations would try to ensure that the interests of
managements and shareholders became more closely aligned. We remain
hopeful that such developments will occur, even though there is
currently no clear evidence that they are beginning to take place.
If Japan were to implement reforms that enhance free-market
competition and align the interests of shareholders and managements,
we would probably become very bullish on Japanese stock market
prospects.
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
The unmanaged Nikkei 225 Index stood at approximately 16,000 in
early 1998, only about double the level it was at the beginning of
1983. This translates into a return of approximately 5% per year
from 1983 through 1996. Given the well-documented problems that
Japan has encountered throughout the 1990s, it is not surprising
that its stock market returns are so low. However, it is surprising
that the Japanese stock market has only appreciated at a rate of 5%
per year over the course of the last 15 years. In our view, Japanese
stock prices already largely reflect the troubles Japan has
experienced. Even modest appreciation from the current depressed
level of Japanese stock prices would provide attractive total
returns. For example, if the Nikkei 225 Index were to reach 24,000
within four years--a level almost 40% below its 1989 high--we would
be very comfortable about the potential returns of our Japanese
investments. If the Japanese stock market were to rise 50% in four
years (16,000 to 24,000), it would translate into a gain of over
10.5% per year. The return on our Japanese investments would differ
from this rate by the addition of their dividend yields and their
outperformance or underperformance relative to the Index. So
although we are not forecasting that the Japanese stock market will
necessarily appreciate, we believe that the potential certainly
exists.
Asian stock markets outside of Japan are even further from their
highs, especially in US dollar terms. Therefore, their longer-term
upside potential may be even greater. So while the significant risks
of investing in emerging stock markets has been demonstrated by
their volatility in 1997, the potential for substantial positive
returns in the future is not insignificant. Although it is
psychologically difficult to be bullish on a market that has been in
a bear phase for the past eight years (Japan) or ones that have just
lost over 70% of their US dollar value (smaller Asian markets), this
is probably not the time to abandon hope that Pacific Basin stock
markets can achieve attractive returns in the future.
In Conclusion
We thank you for your investment in Merrill Lynch Pacific Fund,
Inc., and we look forward to serving your financial needs throughout
the Fund's new fiscal year and beyond.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Stephen I. Silverman)
Stephen I. Silverman
Senior Vice President and Portfolio Manager
February 11, 1998
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (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. Figures shown in the "Average Annual Total
Return" tables as well as the total returns and cumulative total
returns in the "Performance Summary" tables assume reinvestment of
all dividends and capital gains distributions at net asset value on
the ex-dividend date. 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.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/97 -6.35% -11.27%
Five Years Ended 12/31/97 +8.26 + 7.09
Ten Years Ended 12/31/97 +8.39 + 7.81
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/97 -7.31% -10.44%
Five Years Ended 12/31/97 +7.16 + 7.16
Inception (10/21/88) through 12/31/97 +6.10 + 6.10
[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 12/31/97 -7.28% -8.06%
Inception (10/21/94)
through 12/31/97 +0.01 +0.01
[FN]
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/97 -6.55% -11.45%
Inception (10/21/94)
through 12/31/97 +0.80 - 0.89
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment--Class A Shares
A line graph depicting the growth of an investment in the Fund's
Class A Shares compared to growth of an investment in the Morgan
Stanley Capital International Pacific Region Index. Beginning and
ending values are:
12/87 12/97
ML Pacific Fund, Inc.++--
Class A Shares* $ 9,475 $21,205
Morgan Stanley Capital International
Pacific Region Index++++ $10,000 $ 8,837
Total Return Based on a $10,000 Investment--Class B Shares
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** 12/97
ML Pacific Fund, Inc.++--
Class B Shares* $10,000 $17,233
Morgan Stanley Capital International
Pacific Region Index++ $10,000 $ 7,127
Total Return Based on a $10,000 Investment--Class C Shares and Class D Shares
A line graph depicting the growth of an investment in the Fund's
Class C and Class D Shares compared to growth of an investment in
the Morgan Stanley Capital International Pacific Region Index.
Beginning and ending values are:
10/21/94** 12/97
ML Pacific Fund, Inc.++--
Class C Shares* $10,000 $10,003
ML Pacific Fund, Inc.++--
Class D Shares* $ 9,475 $ 9,719
Morgan Stanley Capital International
Pacific Region Index++++ $10,000 $6,655
[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 capitilization-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. Performance data is from October 31, 1988
for Class B Shares and October 31, 1994 for Class C and Class D
Shares.
Past performance is not predictive of future performance.
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
PERFORMANCE DATA (continued)
<TABLE>
Performance Summary--Class A Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
9/23/76--12/31/76 $ 9.30 $ 9.81 -- -- + 5.48%
1977 9.81 9.20 -- $0.050 - 5.73
1978 9.20 14.48 $ 0.070 0.020 +58.87
1979 14.48 8.96 3.340 0.120 -23.40
1980 8.96 12.11 -- 0.220 +38.49
1981 12.11 12.78 1.460 0.230 +22.22
1982 12.78 12.07 0.420 0.320 + 0.46
1983 12.07 16.04 0.180 0.290 +38.54
1984 16.04 15.43 0.950 0.090 + 2.92
1985 15.43 19.59 1.380 0.160 +40.96
1986 19.59 34.32 0.190 0.110 +77.78
1987 34.32 16.15 22.154 0.183 +10.77
1988 16.15 19.11 2.064 0.196 +34.38
1989 19.11 20.65 1.042 0.061 +14.49
1990 20.65 16.52 1.668 0.766 - 8.39
1991 16.52 18.34 0.521 0.433 +17.04
1992 18.34 15.80 0.221 0.741 - 8.75
1993 15.80 21.21 -- 0.027 +34.41
1994 21.21 21.12 0.469 0.219 + 2.90
1995 21.12 22.16 0.382 0.298 + 8.20
1996 22.16 21.58 0.505 1.403 + 6.09
1997 21.58 16.97 2.206 1.000 - 6.35
------- ------
Total $39.222 Total $6.937
Cumulative total return as of 12/31/97: +1,722.59%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
<TABLE>
Performance Summary--Class B Shares
<CAPTION>
Net Asset Value Capital Gains
Period Covered Beginning Ending Distributed Dividends Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/88--12/31/88 $17.93 $19.09 $1.034 $0.171 +13.37%
1989 19.09 20.49 1.042 -- +13.39
1990 20.49 16.30 1.668 0.653 - 9.29
1991 16.30 18.01 0.521 0.322 +15.87
1992 18.01 15.34 0.221 0.726 - 9.72
1993 15.34 20.41 -- -- +33.05
1994 20.41 20.27 0.469 0.041 + 1.87
1995 20.27 21.22 0.382 0.099 + 7.10
1996 21.22 20.59 0.505 1.167 + 5.00
1997 20.59 16.11 2.206 0.740 - 7.31
------ ------
Total $8.048 Total $3.919
Cumulative total return as of 12/31/97: +72.33%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not reflect deduction of any sales charge; results
would be lower if sales charge was deducted.
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
PERFORMANCE DATA (continued)
<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
1997 20.30 15.83 2.206 0.756 -7.28
------ ------
Total $3.562 Total $2.320
Cumulative total return as of 12/31/97: +0.03%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures 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
1997 21.57 16.98 2.206 0.940 -6.55
------ ------
Total $3.562 Total $2.745
Cumulative total return as of 12/31/97: +2.58%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not include sales charge; results would be lower if
sales charge was included.
</TABLE>
<TABLE>
Recent Performance Results
<CAPTION>
Market Performance Market Capitalization
In Local Currency/In US Dollars (as of 9/30/97)
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* -18.77%(1) - 6.35%(1)
ML Pacific Fund, Inc. Class B Shares--Total Investment Return* -18.99(2) - 7.31(2)
ML Pacific Fund, Inc. Class C Shares--Total Investment Return* -19.01(3) - 7.28(3)
ML Pacific Fund, Inc. Class D Shares--Total Investment Return* -18.82(4) - 6.55(4)
Market-Weighted Index** -22.42(5) -29.91(6)
Benchmark Index*** -23.24 -29.53
Japan -15.36/-21.59 -20.12/-28.98 $2,834 72.8%
Australia - 5.44/-14.99 + 7.91/-11.54 322 8.3
Hong Kong -28.75/-28.84 -20.29/-20.42 449 11.5
Malaysia -27.02/-39.08 -51.98/-68.79 150 3.8
Singapore - 5.51/-14.10 -15.79/-29.97 124 3.2
Thailand -31.57/-47.40 -55.19/-75.83 15 0.4
<FN>
(1)Percent change includes reinvestment of $1.000 per share ordinary
income dividends and $2.206 per share capital gains distributions.
(2)Percent change includes reinvestment of $0.740 per share ordinary
income dividends and $2.206 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.756 per share ordinary
income dividends and $2.206 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.940 per share ordinary
income dividends and $2.206 per share capital gains distributions.
(5)9/30/97 market weights used in this computation. The Market-
Weighted Index return and individual country returns do not include
dividends.
(6)12/31/96 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>
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
PERFORMANCE DATA (concluded)
Results of a $1,000 Investment Since Inception--Class A Shares
(5.25% sales charge--$947.50 net amount invested; assuming
reinvestment of all dividends and capital gains distributions)
A mountain chart depicting the growth of an investment in the Fund's
Class A Shares from $947.50 on September 23, 1976 to $17,269.04 on
December 31, 1997.
PORTFOLIO INFORMATION
For the Quarter Ended December 31, 1997
Percent of
Ten Largest Equity Holdings Net Assets
Canon, Inc. 7.2%
Lend Lease Corp. 7.0
HSBC Holdings PLC 5.4
Murata Manufacturing Co., Ltd. 4.8
Hutchison Whampoa Ltd. 4.8
Ito Yokado Co., Ltd. 4.7
Sony Corporation 4.1
Bridgestone Corporation 3.8
Rohm Co., Ltd. 3.7
Yamanouchi Pharmaceutical Co., Ltd. 3.7
Deletions (Equity Investments)
Swire Pacific Ltd. 'A'
Percent of
Ten Largest Industries Net Assets
Property & Casualty Insurance 13.4%
Electric Equipment 11.2
Office Equipment 7.2
Property 7.0
Pharmaceuticals 7.0
Banking 6.3
Electric Construction 5.4
Retailing 4.9
Conglomerates 4.9
Consumer Electronics 4.4
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
<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 4,680,000 Suzuki Motor Corp. $ 49,672,928 $ 42,398,465 2.8%
Beverage 380,000 Chukyo Coca-Cola Bottling Co., Ltd. 5,420,506 2,509,021 0.2
424,000 Hokkaido Coca-Cola Bottling Co., Ltd. 6,399,350 3,092,514 0.2
386,000 Kinki Coca-Cola Bottling Co., Ltd. 7,430,096 4,119,309 0.3
476,000 Mikuni Coca-Cola Bottling Co., Ltd. 8,487,431 5,956,852 0.4
517,000 Sanyo Coca-Cola Bottling Co., Ltd. 7,028,799 4,366,219 0.3
-------------- -------------- ------
34,766,182 20,043,915 1.4
Capital Goods 13,089,000 Mitsubishi Heavy Industries, Ltd. 95,579,842 54,667,301 3.6
Chemicals 2,391,000 Shin-Etsu Chemical Co., Ltd. 46,696,826 45,708,944 3.0
Consumer YEN 409,000,000 Matsushita Electric Works,
Electronics Ltd.--C.E.W.#8,2.70% due 5/31/2002
(Convertible) 4,543,868 4,176,353 0.3
701,000 Sony Corporation 64,792,008 62,430,710 4.1
-------------- -------------- ------
69,335,876 66,607,063 4.4
Containers 1,816,000 Toyo Seikan Kaisha, Ltd. 50,677,095 25,932,898 1.7
Electric 1,887,000 Chudenko Corp. 55,433,121 41,289,443 2.7
Construction 3,365,000 Kinden Corp. 53,752,777 35,910,557 2.4
1,232,000 Taihei Dengyo Kaisha, Ltd. 24,789,475 3,830,787 0.3
-------------- -------------- ------
133,975,373 81,030,787 5.4
Electric Equipment 2,847,000 Murata Manufacturing Co., Ltd. 106,583,086 71,694,127 4.8
3,910,000 NEC Corporation 56,508,104 41,726,680 2.7
540,000 Rohm Co., Ltd. 28,864,902 55,140,115 3.7
-------------- -------------- ------
191,956,092 168,560,922 11.2
Office Equipment 4,650,000 Canon, Inc. 82,123,759 108,529,751 7.2
Pharmaceuticals 2,200,000 Sankyo Co., Ltd. 49,356,685 49,827,255 3.3
2,560,000 Yamanouchi Pharmaceutical Co., Ltd. 64,562,953 55,032,630 3.7
-------------- -------------- ------
113,919,638 104,859,885 7.0
Property & Casualty 8,790,000 Dai-Tokyo Fire & Marine Insurance
Insurance Co., Ltd. 53,840,330 30,233,551 2.0
4,492,000 Fuji Fire & Marine Insurance
Co., Ltd. 16,261,457 9,070,219 0.6
7,539,000 Koa Fire & Marine Insurance
Co., Ltd. 45,292,612 28,361,689 1.9
8,191,000 Nichido Fire & Marine Insurance
Co., Ltd. 46,307,188 42,762,994 2.9
7,119,000 Sumitomo Marine & Fire Insurance
Co., Ltd. 61,618,176 37,712,937 2.5
4,662,000 Tokio Marine & Fire Insurance
Co., Ltd. 46,990,608 52,973,205 3.5
-------------- -------------- ------
270,310,371 201,114,595 13.4
Retailing 1,373,000 Ito Yokado Co., Ltd. 71,233,505 70,099,424 4.7
364,000 Sangetsu Co., Ltd. 8,382,717 3,744,799 0.2
-------------- -------------- ------
79,616,222 73,844,223 4.9
Tires & Rubber 2,626,000 Bridgestone Corporation 44,992,203 57,056,276 3.8
Total Investments in Japan 1,263,622,407 1,050,355,025 69.8
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
<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 3,063,942 Coca-Cola Amatil, Ltd. $ 17,504,495 $ 22,870,385 1.5%
Leisure 14,055,889 Village Roadshow Ltd. 'A' (Preferred) 31,688,289 28,878,611 1.9
Property 5,374,330 Lend Lease Corp. 69,706,295 104,960,665 7.0
Total Investments in Australia 118,899,079 156,709,661 10.4
Hong Kong Securities
Agriculture 60,871,176 C.P. Pokphand Co. Ltd. (Ordinary) 20,697,993 9,585,393 0.6
Banking 3,313,603 HSBC Holdings PLC 61,995,448 81,690,632 5.4
Conglomerates 11,418,035 Hutchison Whampoa Ltd. 84,460,532 71,625,234 4.8
Total Investments in Hong Kong 167,153,973 162,901,259 10.8
Indian Securities
Banking 3,257,000 Industrial Development Bank of India 11,173,586 7,705,179 0.5
Broadcast/Media 620,000 ++BITV 3,557,823 221,995 0.0
Diversified Mutual 1,929,400 ++Master Plus 1,146,844 846,271 0.1
Fund
Financial Services 72,000 Housing Development Finance Corp. Ltd. 5,781,901 5,667,008 0.4
Total Investments in India 21,660,154 14,440,453 1.0
Indonesian Securities
Pharmaceuticals 2,831,500 P.T. Kalbe Farma 4,779,899 511,243 0.0
Total Investments in Indonesia 4,779,899 511,243 0.0
Malaysian Securities
Conglomerates 4,338,000 ++Renong BHD 7,333,259 2,009,884 0.1
Total Investments in Malaysia 7,333,259 2,009,884 0.1
New Zealand Securities
Diversified 50,947,756 Guinness Peat Group PLC 18,795,683 26,017,185 1.7
Total Investments in New Zealand 18,795,683 26,017,185 1.7
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Held/ Value Percent of
Industry Face Amount Investments Cost (Note 1a) Net Assets
South Korean Securities
<S> <C> <S> <C> <C> <C>
Banking 462,360 Hana Bank (GDR) (a) $ 7,001,895 $ 2,716,365 0.2%
Total Investments in South Korea 7,001,895 2,716,365 0.2
Thailand Securities
Banking US$ 7,802,000 Bangkok Bank Public Company Ltd.,
3.25% due 3/03/2004 (Convertible) 8,342,815 2,535,650 0.2
Television 2,190,000 BEC World Public Company Limited 17,568,308 8,842,902 0.6
Total Investments in Thailand 25,911,123 11,378,552 0.8
Short-Term Securities
Commercial US$ 14,289,000 General Motors Acceptance Corp.,
Paper* 6.75% due 1/02/1998 14,286,321 14,286,321 0.9
Total Investments in
Short-Term Securities 14,286,321 14,286,321 0.9
Nominal Value Premiums
Covered by Options Issue Paid
Currency Put Options Purchased
US$ 477,000,000 Japanese Yen, expiring
January 1998 at YEN 120 11,424,150 37,587,600 2.5
630,000,000 Japanese Yen, expiring
March 1998 at YEN 125 14,834,727 28,287,000 1.9
Total Currency Put Options Purchased 26,258,877 65,874,600 4.4
Total Investments $1,675,702,670 1,507,200,548 100.1
==============
Unrealized Appreciation on Forward Foreign Exchange Contracts** 1,966,258 0.1
Liabilities in Excess of Other Assets (3,552,874) (0.2)
-------------- ------
Net Assets $1,505,613,932 100.0%
<FN>
(a)Global Depositary Receipts (GDR).
++Non-income producing security.
*Commercial Paper is traded on a discount basis; the interest
rate shown is the discount rate paid at the time of purchase
by the Fund.
See Notes to Financial Statements.
**Forward foreign exchange contracts as of December 31, 1997 were as
follows:
Unrealized
Expiration Appreciation
Foreign Currency Sold Date (Note 1b)
HK$ 683,843,567 October 1998 $ 1,966,258
-----------
Total Unrealized Appreciation on
Forward Foreign Exchange Contracts
(US$ Commitment--$86,530,973) $ 1,966,258
===========
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of December 31, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$1,649,443,793) (Note 1a) $1,441,325,948
Options purchased, at value (premiums paid--$26,258,877)
(Notes 1a & 1b) 65,874,600
Unrealized appreciation on forward foreign exchange contracts
(Note 1b) 1,966,258
Foreign cash (Note 1c) 704,735
Receivables:
Securities sold $ 13,312,099
Capital shares sold 3,072,950
Dividends 640,592
Interest 217,878 17,243,519
--------------
Prepaid registration fees and other assets (Note 1f) 44,296
--------------
Total assets 1,527,159,356
--------------
Liabilities: Payables:
Capital shares redeemed 18,363,416
Investment adviser (Note 2) 860,415
Distributor (Note 2) 845,604 20,069,435
--------------
Accrued expenses and other liabilities 1,475,989
--------------
Total liabilities 21,545,424
--------------
Net Assets: Net assets $1,505,613,932
==============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 3,168,513
Class B Shares of Common Stock, $0.10 par value, 200,000,000
shares authorized 4,811,891
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 465,366
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 702,303
Paid-in capital in excess of par 1,701,631,338
Accumulated realized capital losses on investments and foreign
currency transactions--net (38,556,442)
Unrealized depreciation on investments and foreign currency
transactions--net (166,609,037)
--------------
Net assets $1,505,613,932
==============
Net Asset Value: Class A--Based on net assets of $537,671,244 and 31,685,132 shares
outstanding $ 16.97
==============
Class B--Based on net assets of $775,068,138 and 48,118,910 shares
outstanding $ 16.11
==============
Class C--Based on net assets of $73,656,081 and 4,653,657 shares
outstanding $ 15.83
==============
Class D--Based on net assets of $119,218,469 and 7,023,034 shares
outstanding $ 16.98
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
FINANCIAL INFORMATION (continued)
<TABLE>
Statement of Operations for the Year Ended December 31, 1997
<S> <S> <C> <C>
Investment Dividends (net of $1,153,624 foreign withholding tax) $ 21,126,919
Income Interest and discount earned (net of $32,677 foreign
(Notes 1d & 1e): withholding tax) 3,141,341
--------------
Total income 24,268,260
--------------
Expenses: Investment advisory fees (Note 2) $ 11,764,158
Account maintenance and distribution fees--Class B (Note 2) 10,769,789
Transfer agent fees--Class B (Note 2) 2,058,159
Custodian fees 1,349,743
Transfer agent fees--Class A (Note 2) 1,021,111
Account maintenance and distribution fees--Class C (Note 2) 956,521
Account maintenance fees--Class D (Note 2) 370,854
Printing and shareholder reports 280,357
Transfer agent fees--Class D (Note 2) 234,431
Accounting services (Note 2) 213,444
Transfer agent fees--Class C (Note 2) 185,751
Registration fees (Note 1f) 158,452
Professional fees 90,278
Directors' fees and expenses 37,500
Pricing fees 11,312
Other 45,259
--------------
Total expenses 29,547,119
--------------
Investment loss--net (5,278,859)
--------------
Realized & Realized gain from:
Unrealized Gain Investments--net 134,960,880
(Loss) on Foreign currency transactions--net 77,270,296 212,231,176
Investments & --------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (354,200,018)
(Notes 1b, 1c, Foreign currency transactions--net 14,594,420 (339,605,598)
1d & 3): -------------- -------------
Net realized and unrealized loss on investments and foreign
currency transactions (127,374,422)
--------------
Net Decrease in Net Assets Resulting from Operations $ (132,653,281)
==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Year Ended
December 31,
Increase (Decrease) in Net Assets: 1997 1996
<S> <S> <C> <C>
Operations: Investment loss--net $ (5,278,859) $ (4,318,996)
Realized gain on investments and foreign currency
transactions--net 212,231,176 178,169,764
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net (339,605,598) (70,760,953)
-------------- --------------
Net increase (decrease) in net assets resulting from operations (132,653,281) 103,089,815
-------------- --------------
Dividends & In excess of investment income--net:
Distributions to Class A (27,000,302) (34,551,177)
Shareholders Class B (31,032,915) (55,727,358)
(Note 1g): Class C (3,030,621) (4,707,430)
Class D (5,689,871) (6,918,235)
Realized gain on investments--net:
Class A (60,379,477) (19,254,820)
Class B (94,138,978) (38,434,097)
Class C (8,987,943) (3,161,360)
Class D (13,553,109) (4,073,091)
-------------- --------------
Net decrease in net assets resulting from dividends and
distributions to shareholders (243,813,216) (166,827,568)
-------------- --------------
Capital Share Net increase (decrease) in net assets derived from capital share
Transactions transactions (213,542,368) 365,961,817
(Note 4): -------------- --------------
Net Assets: Total increase (decrease) in net assets (590,008,865) 302,224,064
Beginning of year 2,095,622,797 1,793,398,733
-------------- --------------
End of year $1,505,613,932 $2,095,622,797
============== ==============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
The following per share data and ratios have been derived Class A
from information provided in the financial statements.
For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1997++ 1996++ 1995++ 1994++ 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of year $ 21.58 $ 22.16 $ 21.12 $ 21.21 $ 15.80
Performance: ---------- ---------- ---------- ---------- ----------
Investment income--net .08 .11 .11 .10 .07
Realized and unrealized
gain (loss) on investments
and foreign currency
transactions--net (1.48) 1.21 1.61 .50 5.37
---------- ---------- ---------- ---------- ----------
Total from investment
operations (1.40) 1.32 1.72 .60 5.44
---------- ---------- ---------- ---------- ----------
Less dividends and
distributions:
In excess of investment
income--net (.99) (1.22) -- (.22) (.03)
Realized gain on
investments--net (2.22) (.68) (.55) (.33) --
In excess of realized
gain on investments--net -- -- (.13) (.14) --
---------- ---------- ---------- ---------- ----------
Total dividends and
distributions (3.21) (1.90) (.68) (.69) (.03)
---------- ---------- ---------- ---------- ----------
Net asset value,
end of year $ 16.97 $ 21.58 $ 22.16 $ 21.12 $ 21.21
========== ========== ========== ========== ==========
Total Investment Based on net asset
Return:* value per share (6.35%) 6.09% 8.20% 2.90% 34.41%
========== ========== ========== ========== ==========
Ratios to Average Expenses .87% .87% .93% .91% .90%
Net Assets: ========== ========== ========== ========== ==========
Investment income--net .37% .47% .53% .47% .47%
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $ 537,671 $ 642,523 $ 607,598 $ 587,107 $ 472,322
========== ========== ========== ========== ==========
Portfolio turnover 19.69% 10.65% 26.73% 23.84% 13.25%
========== ========== ========== ========== ==========
Average commission
rate paid++++ $ .0150 $ .0104 -- -- --
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
++++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>
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
The following per share data and ratios have been derived Class B++
from information provided in the financial statements.
For the Year Ended December 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value,
Operating beginning of year $ 20.59 $ 21.22 $ 20.27 $ 20.41 $ 15.34
Performance: ---------- ---------- ---------- ---------- ----------
Investment loss--net (.14) (.13) (.10) (.12) (.10)
Realized and unrealized
gain (loss) on investments
and foreign currency
transactions--net (1.39) 1.17 1.53 .49 5.17
---------- ---------- ---------- ---------- ----------
Total from investment
operations (1.53) 1.04 1.43 .37 5.07
---------- ---------- ---------- ---------- ----------
Less dividends and
distributions:
In excess of investment
income--net (.73) (.99) -- (.04) --
Realized gain on
investments--net (2.22) (.68) (.38) (.33) --
In excess of realized
gain on investments--net -- -- (.10) (.14) --
---------- ---------- ---------- ---------- ----------
Total dividends and
distributions (2.95) (1.67) (.48) (.51) --
---------- ---------- ---------- ---------- ----------
Net asset value,
end of year $ 16.11 $ 20.59 $ 21.22 $ 20.27 $ 20.41
========== ========== ========== ========== ==========
Total Investment Based on net asset
Return:* value per share (7.31%) 5.00% 7.10% 1.87% 33.05%
========== ========== ========== ========== ==========
Ratios to Average Expenses 1.90% 1.90% 1.96% 1.94% 1.92%
Net Assets: ========== ========== ========== ========== ==========
Investment loss--net (.66%) (.56%) (.50%) (.56%) (.56%)
========== ========== ========== ========== ==========
Supplemental Net assets, end of year
Data: (in thousands) $ 775,068 $1,217,549 $1,041,763 $ 915,351 $ 508,008
========== ========== ========== ========== ==========
Portfolio turnover 19.69% 10.65% 26.73% 23.84% 13.25%
========== ========== ========== ========== ==========
Average commission
rate paid++++ $ .0150 $ .0104 -- -- --
========== ========== ========== ========== ==========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
++++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>
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (continued)
<CAPTION>
Class C++++
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended 1994++ to
December 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 20.30 $ 20.97 $ 20.12 $ 21.67
Operating -------- -------- -------- --------
Performance: Investmentloss--net (.14) (.13) (.12) (.03)
Realized and unrealized gain (loss)
on investments and foreign
currency transactions--net (1.36) 1.16 1.53 (.86)
-------- -------- -------- --------
Total from investment operations (1.50) 1.03 1.41 (.89)
-------- -------- -------- --------
Less dividends and distributions:
In excess of investment income--net (.75) (1.02) -- (.19)
Realized gain on investments--net (2.22) (.68) (.45) (.33)
In excess of realized gain on
investments--net -- -- (.11) (.14)
-------- -------- -------- --------
Total dividends and distributions (2.97) (1.70) (.56) (.66)
-------- -------- -------- --------
Net asset value, end of period $ 15.83 $ 20.30 $ 20.97 $ 20.12
======== ======== ======== ========
Total Investment Based on net asset value per share (7.28%) 5.00% 7.07% (4.04%)+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.90% 1.91% 1.97% 2.17%*
Net Assets: ======== ======== ======== ========
Investment loss--net (.67%) (.58%) (.59%) (.79%)*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 73,656 $ 98,925 $ 46,092 $ 7,841
Data: ======== ======== ======== ========
Portfolio turnover 19.69% 10.65% 26.73% 23.84%
======== ======== ======== ========
Average commission rate paid+++++ $ .0150 $ .0104 -- --
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
+++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>
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
FINANCIAL INFORMATION (concluded)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class D++++
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. For the Year Ended 1994++ to
December 31, Dec. 31,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 21.57 $ 22.14 $ 21.11 $ 22.70
Operating -------- -------- -------- --------
Performance: Investment income--net .03 .04 .07 --
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (1.47) 1.23 1.60 (.91)
-------- -------- -------- --------
Total from investment operations (1.44) 1.27 1.67 (.91)
-------- -------- -------- --------
Less dividends and distributions:
In excess of investment income--net (.93) (1.16) -- (.21)
Realized gain on investments--net (2.22) (.68) (.51) (.33)
In excess of realized gain on investments--net -- -- (.13) (.14)
-------- -------- -------- --------
Total dividends and distributions (3.15) (1.84) (.64) (.68)
-------- -------- -------- --------
Net asset value, end of period $ 16.98 $ 21.57 $ 22.14 $ 21.11
======== ======== ======== ========
Total Investment Based on net asset value per share (6.55%) 5.84% 7.95% (3.93%)+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.12% 1.12% 1.18% 1.42%*
Net Assets: ======== ======== ======== ========
Investment income--net .11% .16% .31% .12%*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $119,219 $136,626 $ 97,946 $ 22,012
Data: ======== ======== ======== ========
Portfolio turnover 19.69% 10.65% 26.73% 23.84%
======== ======== ======== ========
Average commission rate paid+++++ $ .0150 $ .0104 -- --
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Commencement of operations.
++++Based on average shares outstanding.
+++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>
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
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.
(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.
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.
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
NOTES TO FINANCIAL STATEMENTS (continued)
(c) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(d) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend 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.
(f) Prepaid registration fees--Prepaid registration fees are charged
to expense as the related shares are issued.
(g) Dividends and distributions to shareholders--Dividends and
distributions paid by the Fund are recorded on the ex-dividend
dates.
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting for
foreign currency transactions. Accordingly, current year's permanent
book/tax differences of $72,032,569 have been reclassified between
accumulated net realized capital losses and accumulated net
investment loss. 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 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.
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
For the year ended December 31, 1997, 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 $ 9,306 $ 92,731
Class D $41,725 $593,087
For the year ended December 31, 1997, MLPF&S received contingent
deferred sales charges of $4,891,481 and $52,754 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $57,371 in commissions on the execution
of portfolio security transactions for the Fund for the year ended
December 31, 1997.
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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended December 31, 1997 were $363,981,588 and
$767,829,833, respectively.
Net realized and unrealized gains (losses) as of December 31, 1997
were as follows:
Realized Unrealized
Gains Gains
(Losses) (Losses)
Investments:
Long-term $ 134,488,099 $(208,117,845)
Options written 472,781 --
------------- -------------
Total investments 134,960,880 (208,117,845)
------------- -------------
Currency transactions:
Options purchased 29,131,054 39,615,723
Options written 46,488,016 --
Foreign currency
transactions 2,395,732 (73,173)
Forward foreign exchange
contracts (744,506) 1,966,258
------------- -------------
Total currency transactions 77,270,296 41,508,808
------------- -------------
Total $ 212,231,176 $(166,609,037)
============= =============
As of December 31, 1997, net unrealized depreciation for Federal
income tax purposes aggregated $208,168,769, of which $138,735,392
related to appreciated securities and $346,904,161 related to
depreciated securities. At December 31, 1997, the aggregate cost of
investments for Federal income tax purposes was $1,649,494,717.
Transactions in options written for the year ended December 31,
1997, were as follows:
Nominal
Value
Covered by Premiums
Call Options Written Options Received
Outstanding call options
written, beginning of year 4,573,044 $ 380,363
Options written 1,203,289 92,417
Options exercised (4,573,044) (380,363)
Options expired (1,203,289) (92,417)
------------- -------------
Outstanding call options
written, end of year -- $ --
============= =============
Nominal
Value
Covered by Premiums
Put Options Written Options Received
Outstanding put options
written, beginning of year -- --
Options written 973,152,689 $ 46,488,015
Options exercised (973,152,689) (46,488,015)
------------- -------------
Outstanding put options
written, end of year -- $ --
============= =============
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(213,542,368) and $365,961,817 for the years ended
December 31, 1997 and December 31, 1996, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Year Ended Dollar
December 31, 1997 Shares Amount
Shares sold 14,127,645 $ 327,775,139
Shares issued to shareholders
in reinvestment of dividends
and distributions 4,661,662 78,315,908
------------- -------------
Total issued 18,789,307 406,091,047
Shares redeemed (16,882,980) (377,134,106)
------------- -------------
Net increase 1,906,327 $ 28,956,941
============= =============
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
NOTES TO FINANCIAL STATEMENTS (concluded)
Class A Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
Shares sold 10,503,252 $ 243,976,070
Shares issued to shareholders
in reinvestment of dividends
and 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 B Shares for the Year Dollar
Ended December 31, 1997 Shares Amount
Shares sold 14,830,822 $ 331,048,648
Shares issued to shareholders
in reinvestment of dividends
and distributions 6,717,128 107,138,188
------------- -------------
Total issued 21,547,950 438,186,836
Automatic conversion of
shares (811,495) (17,665,750)
Shares redeemed (31,761,943) (669,542,234)
------------- -------------
Net decrease (11,025,488) $(249,021,148)
============= =============
Class B Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
Shares sold 22,731,772 $ 504,265,222
Shares issued to shareholders
in reinvestment of dividends
and 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 C Shares for the Year Dollar
Ended December 31, 1997 Shares Amount
Shares sold 6,025,528 $ 129,855,715
Shares issued to shareholders
in reinvestment of dividends
and distributions 670,250 10,502,817
------------- -------------
Total issued 6,695,778 140,358,532
Shares redeemed (6,914,495) (146,099,256)
------------- -------------
Net decrease (218,717) $ (5,740,724)
============= =============
Class C Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
Shares sold 4,757,784 $ 104,489,958
Shares issued to shareholders
in reinvestment of dividends
and 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
============= =============
Class D Shares for the Year Dollar
Ended December 31, 1997 Shares Amount
Shares sold 6,780,045 $ 155,519,039
Shares issued to shareholders
in reinvestment of dividends
and distributions 1,008,234 16,948,419
Automatic conversion of
shares 771,378 17,665,750
------------- -------------
Total issued 8,559,657 190,133,208
Shares redeemed (7,870,337) (177,870,645)
------------- -------------
Net increase 689,320 $ 12,262,563
============= =============
Class D Shares for the Year Dollar
Ended December 31, 1996 Shares Amount
Shares sold 10,226,462 $ 234,370,104
Shares issued to shareholders
in reinvestment of dividends
and 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
============= =============
5. Commitments:
At December 31, 1997, 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 $10,058,000.
Merrill Lynch Pacific Fund, Inc.
December 31, 1997
<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, 1997, 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, 1997 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, 1997, 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 12, 1998
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
<TABLE>
The following information summarizes all per share distributions
paid by Merrill Lynch Pacific Fund, Inc. during its taxable year
ended December 31, 1997:
<CAPTION>
Foreign
Source Income
Non-Qualifying (Excluding Foreign Foreign Taxes
Record Payable Domestic Taxes Paid or Total Paid or Long-Term
Date Date Ordinary Income Withheld) Ordinary Income Withheld Capital Gains*
<S> <C> <C> <C> <C> <C> <C>
Class A Shares
12/18/97 12/29/97 $.782605 $.217554 $1.000159 $.014887 $2.206423
Class B Shares
12/18/97 12/29/97 $.578839 $.160910 $ .739749 $.014887 $2.206423
Class C Shares
12/18/97 12/29/97 $.591907 $.164543 $ .756450 $.014887 $2.206423
Class D Shares
12/18/97 12/29/97 $.735175 $.204369 $ .939544 $.014887 $2.206423
</TABLE>
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.
[FN]
*Of this amount, 48.97% is subject to a 20% tax rate and 51.03% is
subject to a 28% tax rate.
