MERRILL LYNCH
PACIFIC FUND, INC.
FUND LOGO
Quarterly Report
March 31, 1999
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
For the quarter ended March 31, 1999, Merrill Lynch Pacific Fund,
Inc.'s Class A, Class B, Class C and Class D Shares had total
returns of +10.37%, +10.16%, +10.17% and +10.37%, respectively,
slightly underperforming the +11.17% total return for the unmanaged
Benchmark Index of Pacific Basin stock markets. However, the Fund
performed in line with the unmanaged FT/S&P Actuaries Pacific Basin
Index for the three-month period, which posted a total return of
+10.27%. (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--5 of this report to shareholders.)
Almost all of the Pacific Basin stock markets appreciated during the
March quarter, led by a very strong Japanese stock market. Analysts
and commentators began to wonder whether the Japanese stock market's
appreciation is the start of a sustained move upward.
As is usually the case for us, we do not have any particular view of
the future direction of the Japanese stock market. Nevertheless,
there are some interesting observations to make regarding Japanese
stocks. At its current approximate 17,000 level, the Nikkei Dow
Jones Index is still well below its historical high of approximately
39,000. This high was attained nearly ten years ago. During its
rally phases in the middle of the 1990s, the Nikkei regularly moved
up to approximately 21,000. From 1992-1997, the average high price
attained during each calendar year by the Nikkei was 20,800, with
the lowest high at 19,000 and the highest high at 22,700. If the
Japanese stock market were to end the 1990s at a level merely half
its value of ten years ago (that is, 19,500), it would still have to
appreciate approximately 15% over the next nine months.
If the Nikkei Index did end 1999 at 19,500, it would mean that
during the past 17 years of global bull markets (beginning in the
autumn of 1982), the Japanese market would have achieved a compound
annual price appreciation of somewhat less than 6% per year. In
contrast, assuming that the US stock market is virtually flat for
1999, it would have an approximate 15.5% compound annual price
appreciation over the ten-year period. These measures actually
understate the total return advantage of US stocks, since US
dividend yields have been significantly higher than those in Japan.
However, even though the US stock market (along with essentially all
other developed stock markets) provided better investment returns
than the Japanese stock market over the past 17 years, this does not
necessarily indicate what the future might hold. For several years,
we have maintained that there was relatively little risk of further
sustained declines in the Japanese stock market. Nevertheless, in
the past we have also been too optimistic in our belief that there
were signs that corporate Japan was changing in positive ways, and
that these changes would lead to improved stock market performance.
Although we are still hopeful that senior managements of Japanese
corporations will more closely align their goals with those of their
shareholders, it does not appear that this trend is yet underway in
a meaningful way. In recent months, news of wholesale restructuring
has invigorated parts of the market and the government appears to be
more committed to solving the country's economic problems. These are
steps in the right direction, compared to the Japanese government's
previous unwillingness to recognize the country's significant
structural economic problems.
Merrill Lynch Pacific Fund, Inc.
March 31, 1999
Market Review
Elsewhere in the Pacific Basin, economic conditions range from a
boom in Australia (with 1998 gross domestic product growth of nearly
5%) to a disaster in countries such as Indonesia. Japan falls
somewhere in between these two extremes. Japanese consumption and
capital spending remain very weak and are likely to remain so if the
government pursues real restructuring. Meanwhile, the liquidity
situation is improving across Asia. Outside of Japan, this means
that interest rates are falling and standard measures of money
supply are increasing. However, in Japan, policy has aimed to ease
the credit crunch through the use of loan guarantees and other
means. Some of the new debt is being recycled into financial assets
and could flow offshore if the yen remains stable or weakens. In
addition, foreign investors have been large net buyers of Japanese
equities thus far in 1999. This wave of investment interest has also
moved through other Asian stock markets in varying degrees.
We continue to be relatively cautious regarding the outlook for the
smaller stock markets in the Pacific Basin. They have been fueled
thus far in 1999 by increased liquidity. Meaningful changes have
taken place that enhance the investment appeal of some countries and
companies, however we believe that a weaker yen poses potential
problems. We still believe that one of the better policy options to
reflate the Japanese economy is to further loosen monetary policy
and push the yen toward the YEN 140/US$ level. Major Japanese export
sectors, such as autos and electronics, are doing well, but would do
even better with a weaker yen. However, this trend would hurt
competing companies across Asia and probably redirect investment
flows in the region. These trends would negatively impact the
developing Asian economies and stock markets.
Investment Strategy
Our investment strategy remained unchanged during the March quarter.
Since it is important to Japan's economy to maintain its strong
export businesses (such as those in which we have invested), we
believe that the yen is not likely to strengthen relative to the US
dollar. At the same time, we have not increased investments in the
smaller Asian economies because of our concerns regarding the
negative impact that a weak yen would have on them. As a result, we
continue to hedge a significant portion of our yen-denominated
investments back into US dollars.
In Conclusion
We thank you for your continued investment in Merrill Lynch Pacific
Fund, Inc., and we look forward to reviewing our outlook and
strategy with you again in our next report to shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Stephen I. Silverman)
Stephen I. Silverman
Senior Vice President and Portfolio Manager
May 12, 1999
After more than 20 years of service, Arthur Zeikel recently retired
as Chairman of Merrill Lynch Asset Management, L.P. (MLAM). Mr.
Zeikel served as President of MLAM from 1977 to 1997 and as Chair-
man since December 1997. Mr. Zeikel is one of the country's most
respected leaders in asset management and presided over the growth
of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500
billion. Mr. Zeikel will remain on Merrill Lynch Pacific Fund,
Inc.'s Board of Directors. We are pleased to announce that Terry K.
Glenn has been elected President and Director of the Fund. Mr. Glenn
has held the position of Executive Vice President of MLAM since
1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors
in wishing him well in his retirement from Merrill Lynch and are
pleased that he will continue as a member of the Fund's Board of
Directors.
Merrill Lynch Pacific Fund, Inc.
March 31, 1999
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 "Recent Performance
Results" and "Average Annual Total Return" 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.
Merrill Lynch Pacific Fund, Inc.
March 31, 1999
PERFORMANCE DATA (continued)
<TABLE>
Recent Performance Results
<CAPTION>
Market Performance Market Capitalization
In Local Currency/In US Dollars (as of 12/31/98)
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* +10.37% +10.71%(1)
ML Pacific Fund, Inc. Class B Shares--Total Investment Return* +10.16 + 9.62(2)
ML Pacific Fund, Inc. Class C Shares--Total Investment Return* +10.17 + 9.58(3)
ML Pacific Fund, Inc. Class D Shares--Total Investment Return* +10.37 +10.51(4)
Benchmark Index** +11.17 + 8.19
Japan +17.78/+12.29 +2.46/+15.30*** $1,567 71.0%
Australia +4.58/+7.76 +7.86/+3.02*** 191 8.7
Hong Kong +6.67/+6.64 -7.74/-7.75*** 154 7.0
Taiwan +14.78/+11.48 -17.78/-18.57**** 125 5.6
India +26.18/+26.39 +0.64/-6.18**** 49 2.2
South Korea +10.38/+8.04 +45.26/+63.98**** 67 3.0
Singapore +4.39/-0.30 +9.36/+2.22** 56 2.5
<FN>
(1)Percent change includes reinvestment of $0.763 per share ordinary
income dividends.
(2)Percent change includes reinvestment of $0.543 per share ordinary
income dividends.
(3)Percent change includes reinvestment of $0.558 per share ordinary
income dividends.
(4)Percent change includes reinvestment of $0.710 per share ordinary
income dividends.
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
**Unmanaged. The Benchmark Index is a customized index used to
measure the Fund's relative performance, comprised as follows: 68%
Morgan Stanley Capital International (MSCI) Japan, 10% MSCI
Australia, 10% MSCI Hong Kong, 6% MSCI Taiwan, 2% MSCI India, 2% MSCI
Korea, and 2% MSCI Singapore; indexes are net of dividends and
"free" when available.
***The market performance (by country) in local currency and US
dollars represents the seven-month return (3/31/98-10/31/98) of the
Topix Index (Japan), all Ordinaries Index (Australia), Hang Seng
Index (Hong Kong), and the DBS 50 Index (Singapore) linked to the
five-month performance (10/31/98-3/31/99) of the MSCI Japan, MSCI
Australia, MSCI Hong Kong, and MSCI Singapore.
****The market performances in local currency and US dollars
represent the 12-month MSCI Index returns for countries added to the
unmanaged Benchmark Index in October 1998. These countries include
Taiwan, India and South Korea. Malaysia and Thailand were removed
from the unmanaged Benchmark Index in October 1998.
</TABLE>
Merrill Lynch Pacific Fund, Inc.
March 31, 1999
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
$20,673.12 on March 31, 1999.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 3/31/99 +10.71% +4.90%
Five Years Ended 3/31/99 + 4.98 +3.85
Ten Years Ended 3/31/99 + 7.59 +7.01
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 3/31/99 +9.62% +5.62%
Five Years Ended 3/31/99 +3.91 +3.91
Ten Years Ended 3/31/99 +6.50 +6.50
[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 3/31/99 +9.58% +8.58%
Inception (10/21/94)
through 3/31/99 +3.84 +3.84
[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 3/31/99 +10.51% +4.70%
Inception (10/21/94)
through 3/31/99 + 4.66 +3.40
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Pacific Fund, Inc.
March 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Percent of
Industry Held Investments Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Japan
Automobile 1,717,000 Suzuki Motor Corporation $ 18,391,785 $ 22,809,124 2.0%
Beverage 380,000 Chukyo Coca-Cola Bottling Co., Ltd. 5,420,506 4,010,147 0.3
424,000 Hokkaido Coca-Cola Bottling Co., Ltd. 6,399,350 4,481,651 0.4
386,000 Kinki Coca-Cola Bottling Co., Ltd. 7,430,096 5,222,391 0.4
476,000 Mikuni Coca-Cola Bottling 8,487,431 10,304,076 0.9
517,000 Sanyo Coca-Cola Bottling Co., Ltd. 7,028,799 11,366,481 1.0
-------------- -------------- ------
34,766,182 35,384,746 3.0
Chemicals 1,144,000 Shin-Etsu Chemical Co., Ltd. 22,117,771 30,084,898 2.6
Consumer Electronics 503,500 Sony Corporation 46,709,134 46,620,370 4.0
Containers 1,766,000 Toyo Seikan Kaisha, Ltd. 49,371,128 38,154,321 3.3
Electric 1,943,610 Chudenko Corporation 55,433,121 38,786,738 3.3
Construction 2,862,000 Kinden Corporation 46,023,681 40,851,142 3.5
1,232,000 Taihei Dengyo Kaisha, Ltd. 24,789,475 4,000,406 0.3
-------------- -------------- ------
126,246,277 83,638,286 7.1
Electric Equipment 1,529,000 Murata Manufacturing Co., Ltd. 55,562,492 81,453,577 7.0
365,000 Rohm Company Ltd. 20,974,303 43,672,839 3.7
-------------- -------------- ------
76,536,795 125,126,416 10.7
Office Equipment 2,651,000 Canon, Inc. 47,927,699 65,680,957 5.6
Pharmaceuticals 668,000 Ono Pharmaceutical Co. Ltd. 23,797,062 27,000,169 2.3
1,927,000 Yamanouchi Pharmaceutical Co., Ltd. 51,438,763 61,104,769 5.2
-------------- -------------- ------
75,235,825 88,104,938 7.5
Property & Casualty 9,351,000 Dai-Tokyo Fire and Marine Insurance Co., Ltd. 55,540,249 33,447,260 2.9
Insurance 4,062,000 Fuji Fire and Marine Insurance Co., Ltd. 15,558,215 7,693,962 0.7
7,539,000 Koa Fire & Marine Insurance Co., Ltd. 45,292,612 22,694,774 1.9
7,871,000 Nichido Fire & Marine Insurance Co., Ltd. 45,785,572 46,190,377 4.0
6,568,000 Sumitomo Marine & Fire Insurance Co., Ltd. 53,695,584 42,098,292 3.6
3,413,000 Tokio Marine & Fire Insurance Co., Ltd. 36,317,746 38,990,047 3.3
-------------- -------------- ------
252,189,978 191,114,712 16.4
Retailing 792,000 Ito-Yokado Co., Ltd. 42,846,103 51,031,963 4.4
364,000 Sangetsu Co., Ltd. 8,382,717 5,848,131 0.5
-------------- -------------- ------
51,228,820 56,880,094 4.9
Telecommunications 552 NTT Mobile Communication Network, Inc. 18,214,739 27,305,936 2.3
Tires & Rubber 1,460,000 Bridgestone Corporation 24,961,990 37,283,951 3.2
Total Investments in Japan 843,898,123 848,188,749 72.6
</TABLE>
Merrill Lynch Pacific Fund, Inc.
March 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Percent of
Industry Held Investments Cost Value Net Assets
<S> <C> <S> <C> <C> <C>
Australia
Leisure 14,055,889 Village Roadshow Ltd. 'A' (Preferred) $ 31,688,289 $ 23,096,637 2.0%
Property 5,533,000 Lend Lease Corporation Limited 38,429,018 70,255,334 6.0
Total Investments in Australia 70,117,307 93,351,971 8.0
Hong Kong
Banking 1,315,228 HSBC Holdings plc 31,159,579 41,411,675 3.5
Conglomerates 8,129,035 Hutchison Whampoa Limited 63,838,064 63,988,326 5.5
Total Investments in Hong Kong 94,997,643 105,400,001 9.0
India
Banking 3,257,000 Industrial Development Bank of India 11,173,586 2,691,736 0.2
Broadcast/Media 620,000 BITV 3,557,823 0 0.0
Diversified Mutual 7,000 UTI Master Plus 91-B 2,346 3,273 0.0
Funds
Financial Services 77,300 Housing Development Finance Corporation Ltd.
(HDFC) 6,255,618 4,471,901 0.4
Total Investments in India 20,989,373 7,166,910 0.6
New Zealand
Diversified 31,469,530 Guinness Peat Group plc 21,093,216 29,744,370 2.5
Total Investments in New Zealand 21,093,216 29,744,370 2.5
Singapore
Airlines 1,108,000 Singapore Airlines Ltd. 'Foreign' 5,091,953 8,024,334 0.7
Banking 5,450,000 Oversea-Chinese Banking Corporation Ltd.
'Foreign' 25,610,981 36,943,801 3.2
Total Investments in Singapore 30,702,934 44,968,135 3.9
South Korea
Banking 125,400 Hana Bank 1,024,517 1,401,289 0.1
392,515 Hana Bank (GDR) (a) 5,064,257 4,219,536 0.4
Total Investments in South Korea 6,088,774 5,620,825 0.5
</TABLE>
Merrill Lynch Pacific Fund, Inc.
March 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Percent of
Industry Held Investments Cost Value Net Assets
Thailand
<S> <C> <S> <C> <C> <C>
Broadcast/Media 2,192,000 BEC World Public Company
Limited 'Foreign' $ 17,579,558 $ 10,638,507 0.9%
Total Investments in Thailand 17,579,558 10,638,507 0.9
Face
Amount
Short-Term Securities
Commercial US$ 14,083,000 General Electric Capital Corp.,
Paper* 5.08% due 4/01/1999 14,083,000 14,083,000 1.2
Total Investments in Short-Term Securities 14,083,000 14,083,000 1.2
Total Investments $1,119,549,928 1,159,162,468 99.2
==============
Unrealized Appreciation on Forward Foreign Exchange Contracts** 6,897,486 0.6
Other Assets Less Liabilities 2,376,656 0.2
-------------- ------
Net Assets $1,168,436,610 100.0%
============== ======
Net Asset Value: Class A--Based on net assets of $527,629,569 and
27,093,417 shares outstanding $ 19.47
==============
Class B--Based on net assets of $482,931,282 and
26,189,642 shares outstanding $ 18.44
==============
Class C--Based on net assets of $55,591,060 and
3,072,768 shares outstanding $ 18.09
==============
Class D--Based on net assets of $102,284,699 and
5,251,234 shares outstanding $ 19.48
==============
<FN>
(a)Global Depositary Receipts (GDR).
*Commercial Paper is traded on a discount basis; the interest rate
shown reflects the discount rate paid at the time of
purchase by the Fund.
**Forward foreign exchange contracts as of March 31, 1999 were as
follows:
Unrealized
Foreign Expiration Appreciation
Currency Purchased Date (Depreciation)
YEN 774,092,319 October 1999 $ (206,946)
(US$ Commitment--$6,936,311) $ (206,946)
------------
Foreign
Currency Sold
YEN 35,619,702,002 October 1999 $ 7,104,432
(US$ Commitment--$316,754,808) $ 7,104,432
------------
Total Unrealized Appreciation on Forward
Foreign Exchange Contracts--Net $ 6,897,486
============
</TABLE>
Merrill Lynch Pacific Fund, Inc.
March 31, 1999
PORTFOLIO INFORMATION
As of March 31, 1999
Percent of
Ten Largest Equity Holdings Net Assets
Murata Manufacturing Co., Ltd. 7.0%
Lend Lease Corporation Limited 6.0
Canon, Inc. 5.6
Hutchison Whampoa Limited 5.5
Yamanouchi Pharmaceutical Co., Ltd. 5.2
Ito-Yokado Co., Ltd. 4.4
Sony Corporation 4.0
Nichido Fire & Marine Insurance Co., Ltd. 4.0
Rohm Company Ltd. 3.7
Sumitomo Marine & Fire Insurance Co., Ltd. 3.6
Percent of
Ten Largest Industries Net Assets
Property & Casualty Insurance 16.4%
Electric Equipment 10.7
Pharmaceuticals 7.5
Banking 7.4
Electric Construction 7.1
Property 6.0
Office Equipment 5.6
Conglomerates 5.5
Retailing 4.9
Consumer Electronics 4.0
Equity Portfolio Changes
For the Quarter Ended March 31, 1999
Additions
Hana Bank
Ono Pharmaceutical Co. Ltd.
Merrill Lynch Pacific Fund, Inc.
March 31, 1999
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Donald Cecil, Director
Roland M. Machold, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Stephen I. Silverman, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Robert Harris, Secretary
Gerald M. Richard, Treasurer and Norman R. Harvey, Executive Vice
President of Merrill Lynch Pacific Fund, Inc. have recently retired.
Their colleagues at Merrill Lynch Asset Management, L.P. join the
Fund's Board of Directors in wishing Mr. Richard and Mr. Harvey well
in their retirements.
Custodian
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
