MERRILL LYNCH
PACIFIC FUND, INC.
FUND LOGO
Quarterly Report
September 30, 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
Absolute returns in the Pacific regional equity markets have
rebounded thus far this year. In past years, Merrill Lynch Pacific
Fund, Inc. has tended to do relatively better in weak markets,
partly because of our preference toward owning value stocks.
Nevertheless, the Fund outperformed its unmanaged Benchmark Index of
Pacific Basin stock markets during the September quarter, entirely
as a result of our stock selection. When compared to the Benchmark
Index return of +9.34%, the Fund's Class A, Class B, Class C and
Class D Shares had total returns of +10.48%, +10.23%, +10.28% and
+10.44%, respectively, for the three months ended September 30,
1999.
We also maintained a hedge on approximately 30% of the Fund's yen
exposure throughout the period, although this strategy subtracted
from Fund performance as the yen appreciated by nearly 14% against
the US dollar. Japan has led the Asian recovery so far this year,
and many small Japanese companies in particular have rallied
strongly over the last 12 months. We maintained a full weighting in
Japan relative to the Benchmark Index, and we continue to believe
that there is good value in that market. However, we have tended to
focus on larger, more liquid companies that we believe offer better
long-term potential.
Japan Undergoing Change
The main impetus behind the strong Japanese stock market this year
has been a better-than-expected economic recovery and restructuring
in large companies, particularly in the financial sector. These
forces in Japan produced the leading sectors of the Tokyo stock
market that mirrored Wall Street front runners: technology, the
Internet and telecommunications. Because these sectors tend to be
underrepresented in the traditional measure of the Japanese market--
the Nikkei 225 Index--investors in the "bricks and mortar" of the
Japan stock market might, in our view, underestimate the degree to
which it has changed during 1999. Just as changes in the United
States economy over the past decade have rearranged the business
hierarchy, Japan now has new corporate leaders.
Restructuring in the Japanese financial sector, for example, has
moved ahead faster than we expected. Japan again boasts the world's
largest two banks and we anticipate more mergers. We believe that
some of these new organizations will be successful, and we have
added Japanese bank shares to the Fund for the first time in nearly
a decade. There has presently been a merger announcement in the non-
life insurance industry, which we think should help some of the
Fund's holdings as a positive catalyst for value recognition. We
expect much more activity to rationalize Japanese business groups
once the lead financial institutions realign themselves. Cross-
shareholdings between companies continue to unwind. In our opinion,
all of these steps should promote the development of companies that
are more attuned to shareholder interests and profit growth.
We believe that the trend toward greater emphasis on shareholder
returns will continue in Asia and lead to many interesting
investment opportunities. Meanwhile, a number of the Fund's holdings
experienced a strong rebound in profitability from last year's
depressed levels. However, the main risks we see in present trends
are the possibility of further yen strength, which would threaten
the outlook for export-oriented blue chips in the Fund, and a sell-
off in some of the more extended sectors of the market if expected
growth rates are not achieved.
Although government policies in Japan have been generally supportive
this year, the Bank of Japan has been unwilling to ease monetary
policy to any significant extent. By maintaining a relatively slow
growth in monetary aggregates compared to the United States, Japan
allowed the yen to strengthen gradually over the summer months. This
strengthening has not yet cut off economic growth, but it does
represent a drag on activity at a time when recovery remains
fragile. Profit growth at export companies is being modestly held
back at current exchange rate levels. Unit sales volumes for
electronic manufacturers in Asia have recovered strongly, however,
and even should the yen strengthen somewhat beyond the YEN 100/US$
level, Japan, in our view, should be able to achieve growth in
profits for listed non-financial companies.
Merrill Lynch Pacific Fund, Inc.
September 30, 1999
Elsewhere in Asia, the yen strength has boosted performance in the
export sectors and helped to ease pressures on some of the region's
recovering economies. In the case of South Korea, for example, the
current account has rapidly turned around and asset markets staged a
rebound until mid-summer. Recently, there have been concerns over
chaebol (large conglomerate) restructuring problems, but the outlook
for many companies there appears good.
Emphasis on Growth Stocks
Since June of this year, the strongest performers in Asian markets,
particularly Japan, have been growth stocks. Value, which is
commonly measured by price/book ratios, no matter how adjusted, has
been a poor strategy, just as it has been in the US equity market
for some time. The main measures of financial performance sought by
investors appear to be revenue growth and return on equity. Our
approach pursues a combination of these styles, and the performance
of some of our value investments has been disappointing recently.
Although we continue to see good potential for these underperforming
companies, including some electric wiring contractors, Japanese non-
life insurance companies and the Australian market in general, they
may remain out of favor for some time. While we have shifted
somewhat toward a growth tilt in our holdings by adding such names
as Softbank Corporation and Fujitsu Limited during the year, the gap
in traditional value measures has widened appreciably between the
"new age" leaders of the markets and the bulk of other listed
companies.
At present, over 40% of the stocks listed on the Tokyo First
Section, for example, are still selling below their stated book
values. Investors appear to be assuming that most of these names
will never change the way they do business or emphasize shareholder
returns through efficient capital allocation practices. We see signs
that even some of the sleepiest companies may start to wake. In the
meantime, however, the markets may remain focused on a narrow range
of proven leaders.
Finally, we have been adding to the Fund's holdings in Taiwan. This
move is prompted by a number of factors, including what we perceive
as the strong business performance in the technology sector, the
positive orientation of corporate management toward shareholders,
and the increased weighting Taiwan is gaining in world equity
indexes. Clearly, the recent earthquake negatively impacted the
market, but businesses have quickly recovered. Taiwan also
represents a very effective means for the Fund to gain exposure to
China without being directly subject to the accounting and
management issues holding back investments through China-listed
shares.
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
November 11, 1999
Merrill Lynch Pacific Fund, Inc.
September 30, 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.
September 30, 1999
PERFORMANCE DATA (continued)
<TABLE>
Recent Performance Results
<CAPTION>
Market Performance
In Local Currency/In US Dollars Market Capitalization
3 Month 12 Month In US Dollars % of Total
As of September 30, 1999 % Change % Change (Billions) (100.0%)
<S> <C> <C> <C> <C>
ML Pacific Fund, Inc. Class A Shares--Total Investment Return* +10.48% +64.95%(1)
ML Pacific Fund, Inc. Class B Shares--Total Investment Return* +10.23 +63.28(2)
ML Pacific Fund, Inc. Class C Shares--Total Investment Return* +10.28 +63.26(3)
ML Pacific Fund, Inc. Class D Shares--Total Investment Return* +10.44 +64.55(4)
Benchmark Index** + 9.34 +70.02
Japan + 1.90/+15.85 + 37.73/+76.16*** $2,398 72.9%
Australia - 3.99/- 5.35 + 11.30/+22.73*** 216 6.6
Hong Kong - 6.13/- 6.24 + 56.18/+55.78*** 186 5.7
Taiwan - 9.15/- 7.32 + 30.18/+40.67**** 207 6.3
India +21.82/+21.20 + 67.70/+63.27**** 82 2.5
South Korea - 4.99/- 9.56 +201.59/+244.38**** 124 3.8
Singapore - 3.75/- 3.64 + 94.18/+92.30*** 73 2.2
<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% MSCIHong 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 one-month return (9/30/98-10/31/98) of the
Topix Index (Japan), all Ordinaries Index (Australia), Hang Seng
Index (Hong Kong), and the DBS 50 Index (Singapore) linked to the
eleven-month performance (10/31/98-9/30/99) 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.
September 30, 1999
PERFORMANCE DATA (concluded)
Results of a $1,000 Investment Since Inception--Class A Shares
(5.25% current 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 $25,748.50 on
September 30, 1999.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 9/30/99 +64.95% +56.29%
Five Years Ended 9/30/99 + 9.13 + 7.96
Ten Years Ended 9/30/99 + 7.71 + 7.13
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 9/30/99 +63.28% +59.28%
Five Years Ended 9/30/99 + 8.01 + 8.01
Ten Years Ended 9/30/99 + 6.62 + 6.62
[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 9/30/99 +63.26% +62.26%
Inception (10/21/94)
through 9/30/99 + 8.03 + 8.03
[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 9/30/99 +64.55% +55.91%
Inception (10/21/94)
through 9/30/99 +8.88 +7.70
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Pacific Fund, Inc.
September 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
Shares Percent of
Industry Held Investments Value Net Assets
<S> <C> <S> <C> <C>
Japan
Automobile 1,717,000 Suzuki Motor Corporation $ 27,898,628 1.7%
Banking 1,922,000 The Asahi Bank, Ltd. 13,817,592 0.9
1,133,000 The Sanwa Bank, Ltd. 15,172,681 0.9
354,000,000 Sanwa International Finance Ltd. (Convertible Preferred) 3,992,106 0.2
-------------- ------
32,982,379 2.0
Beverage 380,000 Chukyo Coca-Cola Bottling Co., Ltd. 5,338,784 0.3
281,248 Coca-Cola West Japan Company Limited 12,950,993 0.8
424,000 Hokkaido Coca-Cola Bottling Co., Ltd. 5,658,115 0.4
386,000 Kinki Coca-Cola Bottling Co., Ltd. 7,073,583 0.4
476,000 Mikuni Coca-Cola Bottling 10,624,002 0.7
-------------- ------
41,645,477 2.6
Chemicals 1,064,000 Shin-Etsu Chemical Co., Ltd. 44,395,827 2.7
Consumer 403,500 Sony Corporation 60,329,715 3.7
Electronics
Containers 1,666,000 Toyo Seikan Kaisha, Ltd. 36,009,774 2.2
Electric 1,943,000 Chudenko Corporation 34,492,313 2.1
Construction 2,836,000 Kinden Corporation 23,453,435 1.4
1,232,000 Taihei Dengyo Kaisha, Ltd. 4,353,275 0.3
-------------- ------
62,299,023 3.8
Electrical 4,205,000 The Furukawa Electric Co., Ltd. 25,093,271 1.5
Equipment 1,135,000 Murata Manufacturing Co., Ltd. 114,129,311 7.0
355,000 Rohm Company Ltd. 74,229,396 4.5
-------------- ------
213,451,978 13.0
Internet 247,900 Softbank Corporation 94,351,565 5.8
Machinery 940,000 Toyoda Automatic Loom Works, Ltd. 17,278,827 1.1
Office 1,758,000 Canon, Inc. 51,215,111 3.1
Equipment 1,000,000 Fujitsu Limited 31,200,075 1.9
-------------- ------
82,415,186 5.0
Pharmaceuticals 1,720,000 Yamanouchi Pharmaceutical Co., Ltd. 80,657,833 4.9
Property & 9,351,000 The Dai-Tokyo Fire and Marine Insurance Co., Ltd. 34,272,061 2.1
Casualty 4,062,000 The Fuji Fire and Marine Insurance Company, Ltd. 8,359,910 0.5
Insurance 7,539,000 The Koa Fire & Marine Insurance Co., Ltd. 26,143,135 1.6
7,621,000 The Nichido Fire & Marine Insurance Co., Ltd. 37,600,085 2.3
6,568,000 The Sumitomo Marine & Fire Insurance Co., Ltd. 41,971,995 2.5
3,413,000 The Tokio Marine & Fire Insurance Co. Ltd. 40,413,307 2.5
-------------- ------
188,760,493 11.5
Retailing 702,000 Ito-Yokado Co., Ltd. 58,054,694 3.5
364,000 Sangetsu Co., Ltd. 7,833,474 0.5
-------------- ------
65,888,168 4.0
Telecommunications 2,550 NTT Mobile Communications Network, Inc. 50,324,218 3.1
Tires & Rubber 1,210,000 Bridgestone Corp. 33,885,913 2.1
Transportation 2,680 East Japan Railway Company 17,075,839 1.0
Total Investments in Japan 1,149,650,843 70.2
</TABLE>
Merrill Lynch Pacific Fund, Inc.
September 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
Shares Percent of
Industry Held Investments Value Net Assets
Australia
<S> <C> <S> <C> <C>
Leisure 14,055,889 Village Roadshow Limited 'A' (Preferred) $ 26,441,341 1.6%
Property 5,315,514 Lend Lease Corporation Limited 64,862,041 4.0
Telecommunications 466,000 Austar United Communications Limited 1,429,106 0.1
Total Investments in Australia 92,732,488 5.7
Hong Kong
Banking 3,405,631 HSBC Holdings PLC 38,911,100 2.4
Conglomerates 4,974,035 Hutchison Whampoa Limited 46,265,179 2.8
11,306,000 Wharf (Holdings) Ltd. 32,676,301 2.0
-------------- ------
78,941,480 4.8
Total Investments in Hong Kong 117,852,580 7.2
India
Banking 3,257,000 Industrial Development Bank of India 2,708,555 0.1
Broadcast/Media 620,000 BITV 0 0.0
Diversified 7,000 UTI Master Plus 91-B 3,843 0.0
Mutual
Funds
Finance 773,000 Housing Development Finance Corporation Ltd. 4,719,153 0.3
Software 423,371 NIIT Limited 27,480,698 1.7
Total Investments in India 34,912,249 2.1
New Zealand
Diversified 34,616,484 Guinness Peat Group PLC 26,267,473 1.6
Total Investments in New Zealand 26,267,473 1.6
Singapore
Banking 4,388,000 Oversea-Chinese Banking Corporation Ltd. 'Foreign' 34,081,553 2.1
Transportation 1,188,000 Singapore Airlines Ltd. 11,603,884 0.7
Total Investments in Singapore 45,685,437 2.8
South Korea
Banking 255,400 Hana Bank 1,892,396 0.1
292,515 Hana Bank (GDR)(b) 2,925,150 0.2
-------------- ------
4,817,546 0.3
Iron & Steel 325,000 Pohang Iron & Steel Company Ltd. (ADR)(a) 10,176,563 0.6
Telecommunications 655,400 Korea Telecom Corporation (ADR)(a) 24,249,800 1.5
Total Investments in South Korea 39,243,909 2.4
</TABLE>
Merrill Lynch Pacific Fund, Inc.
September 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
Shares Percent of
Industry Held Investments Value Net Assets
Taiwan
<S> <S> <C> <S> <C> <C>
Banking 20,847,680 United World Chinese Commercial Bank $ 25,359,737 1.6%
Computers 668,860 Synnex Technology International Corporation (GDR)(b) 12,206,695 0.7
Electrical 3,050,000 D-Link Corporation 5,492,891 0.3
Equipment 4,050,000 United Microelectronics Corporation, Ltd. 9,469,194 0.6
US$ 3,050,000 Winbond Electronics Corp., 1% due 11/04/2002 (Convertible) 3,873,500 0.2
-------------- ------
18,835,585 1.1
Total Investments in Taiwan 56,402,017 3.4
Total Long-Term Investments (Cost--$1,259,661,244) 1,562,746,996 95.4
Face
Amount
Short-Term Securities
Commercial US$ 5,000,000 American Home Products, Inc., 5.30% due 10/08/1999 4,994,847 0.3
Paper* 22,479,000 General Electric Capital Corp., 5.60% due 10/01/1999 22,479,000 1.4
60,000,000 General Motors Acceptance Corp., 5.69% due 10/01/1999 60,000,000 3.7
Total Investments in Short-Term Securities
(Cost--$87,473,847) 87,473,847 5.4
Nominal Value
Covered by Options Issue
Currency Put Options Purchased
US$120,000,000 Japanese Yen, expiring June 2000 at YEN 123 564,000 0.1
100,000,000 Japanese Yen, expiring June 2000 at YEN 124 430,000 0.0
100,000,000 Japanese Yen, expiring June 2000 at YEN 124 416,000 0.0
Total Currency Put Options Purchased
(Premiums Paid--$7,973,000) 1,410,000 0.1
Total Investments (Cost--$1,355,108,091) 1,651,630,843 100.9
Unrealized Depreciation on Forward Foreign Exchange Contracts** (18,760,230) (1.1)
Other Assets Less Liabilities 4,140,696 0.2
-------------- ------
Net Assets $1,637,011,309 100.0%
============== ======
Net Asset Value: Class A--Based on net assets of $728,581,280 and 30,040,719
shares outstanding $ 24.25
==============
Class B--Based on net assets of $628,960,439 and 27,529,345
shares outstanding $ 22.85
==============
Class C--Based on net assets of $93,454,553 and 4,169,264
shares outstanding $ 22.42
==============
Class D--Based on net assets of $186,015,037 and 7,677,923
shares outstanding $ 24.23
==============
<FN>
(a)American Depositary Receipts (ADR).
(b)Global Depositary Receipts (GDR).
*Commercial Paper is traded on a discount basis; the interest rates
shown reflect the discount rates paid at the time of purchase by the
Fund.
**Forward foreign exchange contracts as of September 30, 1999 were
as follows:
Unrealized
Foreign Expiration Appreciation
Currency Purchased Date (Depreciation)
YEN 774,092,319 October 1999 $ 363,038
(US$ Commitment--$6,936,311) 363,038
------------
Foreign Currency Sold
YEN 35,619,702,002 October 1999 (19,123,268)
(US$ Commitment--$316,754,808) (19,123,268)
------------
Total Unrealized Depreciation on Forward
Foreign Exchange Contracts--Net $(18,760,230)
============
</TABLE>
Merrill Lynch Pacific Fund, Inc.
September 30, 1999
PORTFOLIO INFORMATION
As of September 30, 1999
Percent of
Ten Largest Equity Holdings Net Assets
Murata Manufacturing Co., Ltd. 7.0%
Softbank Corporation 5.8
Yamanouchi Pharmaceutical Co., Ltd. 4.9
Rohm Company Ltd. 4.5
Lend Lease Corporation Limited 4.0
Sony Corporation 3.7
Ito-Yokado Co., Ltd. 3.5
Canon, Inc. 3.1
NTT Mobile Communications Network, Inc. 3.1
Hutchison Whampoa Limited 2.8
Percent of
Ten Largest Industries Net Assets
Electrical Equipment 14.1%
Property & Casualty Insurance 11.5
Banking 8.5
Internet 5.8
Office Equipment 5.0
Pharmaceuticals 4.9
Conglomerates 4.8
Telecommunications 4.7
Retailing 4.0
Property 4.0
Merrill Lynch Pacific Fund, Inc.
September 30, 1999
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Robert C. Doll, Senior Vice President
Stephen I. Silverman, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Lori A. Martin, Secretary
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
